Business

A funny thing happens to an index's valuation when you choose not to entirely ignore the companies that have negative earnings (i.e. losses). Ever wondered what the P/E ratio of the Russell 2000 was given that it is full of companies where the 'E' is negative? The answer is simple - and ugly - as The Wall Street Journal exposes, the aggregate P/E of the Russell 2000 is over 200x which perhaps explains the gaping chasm between bond and equity valuations for this highly credit-sensitive cohort.

It all started off well-enough: the USDJPY was modestly lower but noting big, then the Yuan was fixed a little less modestly lower - well ok, it was the lowest fixing in 8 weeks confirming China just couldn't wait for the Shanghai summit to be over - and then suddenly the Chinese market realized what we said earlier in the weekend, namely that with the much anticipated G-20 meeting a complete dud, and with no major stimulus on the horizon, suddenly the trapdoor below Chinese stocks opened and the Shanghai Composite has started the new month tumbling over 4%.

Submitted by JP Koning via Moneyness blog,

Negative interests rates are the shiny new thing that everyone wants to talk about. I hate to ruin a good plot line, but they're actually kind of boring; just conventional monetary policy except in negative rate space. Same old tool, different sign.

In a world which has long since crossed the monetary twilight zone of negative rates, and which is spiraling ever deeper into NIRP, below we present some quite fascinating observations on debt, NIRP and how the latter leads to the deleveraging of the former, and thus encourages global deflation - something which in retrospect will be (and in many cases already has been) seen as a central bank fatal flaw, and confirmation said central bankers have zero understanding of the process they have unleashed.

From HSBC's Anton Tonev.

Authored by Mark St.Cyr,

One of the premier features that was to help markets interpret upcoming policy moves made at the Federal Reserve was the idea and implementation of: forward guidance. This new feature was enacted by the former Chairman Ben Bernanke. The reasoning? In a nut shell it was no more than a heads up to the financial markets of what the Fed. would do, and when. i.e., Hit this metric of X and the Fed. will do Y. So – position accordingly.