Conference Call Replay – Contagion Risks on the Rise

The handout, audio replay and webinar replay of our May 31, 2018 conference call titled Contagion Risks on the Rise can be found below.

The handout can be found here (starts with the second post).

The audio replay can be heard below:

The webinar replay is below:

Summary

Below is a list of topics we discussed and our conclusions:

Global synchronized growth has ended

• Eurozone is leading the slow-down to below-average growth rates.
• Historically, drops below 60% of economies producing above-average growth are followed by MSCI World ex-US under-performance and U.S. treasury (long-end) out-performance.

Google search trends reveal rising stress (e.g. bankruptcy) and slowing spending

• These real-time measure of consumer activity are in stark contrast to still euphoric traditional surveys (e.g. UMich Consumer Sentiment).
• Credit card delinquencies among the top 100 banks are expected to rise toward 3.7% from 2.5% over the next year.

Federal Reserve is as certain as ever in their path for interest rates

• Fed speeches and communications:
   
  • Powell et al are more focused on inflation than financial stability by the largest degree in history.
  • Lowest usage of ‘uncertainty’ or ‘confusion’ since May 2006.
  • Highest frequency of words concerning economic strength in history.
  • Most hawkish rhetoric since December 2006

• FOMC rate hike timing refused to budge until Italy induced uncertainty, putting the Sep and Dec 2018 hikes on the fence.
• FOMC is relying on the ultra-positive surveys for inflation, wages, and economic growth even though hard data has failed to keep up in pace.

Central banks outside the FOMC, ECB, and BoJ are seeing heightened uncertainty

• Emerging markets like Argentina and Turkey are pushing news trends for ‘uncertainty’ above levels synonymous with above average global financial stress
• Emerging markets alone are accounting for well in excess of 50% of new stories concerning central banks and uncertainty

Italy produces a contagion risk just similar to all Euro-induced political strife in years past

• Spain and France beginning to join in spread widening to Germany.
• But, euro has seen little action as investors unsure how to price exit discussions.
• Uncertainty news trends concerning Italy are leading Italy/German 10-year spreads.
• Central Italy where native-born mostly reside should be watched closely (Google trends).