Key Financial Market Quotes (June 2018)

Massive liquidity injections from global central banks have sent stocks and bonds to record highs over the past years. The coming financial crisis may have a sharp impact on the crypto space. Investors may fly away from traditional assets and seek safe haven assets such as the US Dollar, precious metals, and top cryptocurrencies. The transition between the traditional financial system and the new one may be nearer than we think.

We always closely follow what important market players communicate at the end of a bull market because they often say out loud what the really “big guns” silently believe.

Although the following list is non-exhaustive, here is what asset managers, analysts, bankers, institutional leaders, or important voices communicated in client notes or in the financial media during the past month.

• Art Berman in an interview with Adam Taggart of Peak Prosperity on May 29: “The price of oil has gone up 30%+ percent just here in the last year alone. There are some very good reasons for that. In the US, we've been drawing down our reserves, our inventory and the amount of oil we have in storage, consistently since February of 2017. We're going into the 15th month of drawing from storage each week because we're not producing enough to meet the need. To those paying attention: the US is right now producing more oil than it ever has in its history. We are a million barrels a day higher than the peak in 1970. We're higher by 50,000 or so barrels per month of production. Yet, here we are, still sucking oil out of storage. What does that tell you? There is only one way to interpret that: We are using more than we are producing. Countries like the US and western Europe; our demand is pretty much stable. We are not a big growing economy anymore. But the emerging markets are going full bore. That is where something like 80% of world demand growth is coming from. Never lose sight of the fact that the US imports a ton of oil. I mean we are importing, on average, 7 million barrels of crude oil a day. I mean that is more than many continents use a day. Why are we importing all that when we are also producing 11 million barrels a day? We are nowhere near energy self-sufficiency, nor do I think we will ever get there. We're in deep trouble.”

• BAML in a market note (via ZeroHedge) on May 31: “Our US Regime Model, a quantitative framework for stock-picking, suggests we are in the mid to late stages of the market cycle and in this stage, momentum is the best way to invest. As contrarian value investors, this is not an easy call to make. But if this bull market is closer to over, our analysis of factor returns indicates that late-stage bull markets have been dominated by stocks with strong price momentum and growth, while value, analyst neglect, and dividend yield have been the worst-performing factors.”

• Peter Schiff on June 3: “I think the banking system has a huge problem because it’s lived off of the life support of artificially low interest rates. As that is removed, it’s like pulling the plug off of someone who has lived off life support. I think higher interest rates are going to crush the banks. I think it’s going to destroy the value of their loans and their collateral. It’s going to lead to defaults... Deutsche Bank could be the weak link of a chain.”

• Bridgewater's latest Daily Observations on June 5: “We are bearish on financial assets as the US economy progresses toward the late cycle, liquidity has been removed, and the markets are pricing in a continuation of recent conditions despite the changing backdrop.”

• Eric Peters, CIO of One River Asset Management, as excerpted from his latest Weekend Notes letter on June 6: “The long season of central bankers has ended. And politics is again ascendant, in its lush, wild tangle.”

• Bank of Indonesia Governor Perry Warjiyo via Bloomberg on June 6: “There are three global players that impact the future of interest rates and exchange rates. Now it’s only the US. That’s why the US and the dollar are king. But next year, if Europe starts normalizing, Japan starts normalizing, then I don’t think the US or the dollar will be the only king.”

• Nomi Prins in an interview with MacroVoices on June 6: “If we start to get problems, like credit risk that has been inflated since all the QE began would start to come to a head – defaults, delinquencies, emerging markets seeing their capital fly back out because there is just a little bit of a worry that this can’t go on forever – all of that starts to culminate into a major potential credit squeeze which, ultimately, can be the other leg of this crisis.”

• Morgan Stanley's Chief US Equity Strategist Michael Wilson in his global macro note on June 6: “It’s impossible to predict when the moment of truth will come. However, with financial conditions likely to continue tightening, it could be at any moment, and without warning.”

• Bank of America's Michael Hartnett in a note on June 8 (via ZeroHedge): ”The big risk is, as in 1998, credit tremors spread and investors forced to deleverage from risk assets, raise cash (private client cash levels at new lows of 9.9%).” “We remain defensive and happy to sell risk assets into strength until the Fed forced to pause.”

• Brian Levine, Goldman’s co-head of Global Equities Trading on June 17: “Interestingly, if you define a flash crash by the percentage of executions that took place outside the NBBO (National Best Bid and Offer), one of the largest ones occurred in 2008 after the first TARP bill failed, according to internal analysis we did a few years ago. And the market didn’t snap back, with the SPX closing down 10% on the day and on its lows. I think that may have been why there wasn’t talk of a “flash crash” afterward, but clearly the market structurally failed pretty badly that day, too. This suggests to me that, in a situation with actual bad news, the current US market structure may not be able to handle it, and there could be a downward spiral.”

• Bank of America’s Hans Mikkelsen in a note on June 18: “While QT in itself is a rare occurrence we have never been in an environment of QT with a backdrop of major foreign QE/NIRP. Given the clear failure of the ECB and BOJ to meet their policy goals of near 2% inflation (Figure 8) the road from QE to QT may be very long - certainly years. We have not seen this movie before.”

• Paul Tudor Jones in an interview with Goldman Sachs CEO Lloyd Blankfein via Yahoo Finance on June 18: “The price of the market is highly dubious right now… the next recession will be frightening.”

• David Rosenberg’s tweet on June 21: “If the Fed raises rates and shrinks the balance sheet as much as it says it will, the cumulative de facto tightening by the end of 2019 will have totalled 525 basis points. If you don't think this is enough to cause a recession, take note that the Fed tightened 425 bps from 2004 to 2006, by 350 basis points prior to the 2000 downturn, and by nearly 400 basis points in the lead up to the 1990 pullback.”

• The Forest for the Trees founder and Chief investment Officer Luke Gromen in an interview with MacroVoices on June 23: “The dollar is rallying because the Fed is ‘shooting the hostage (interest rates).’”

• Nomura strategist Bilal Hafeez in a note entitled "the market risk no one is talking about, but should have everyone worried" on June 25: “A number of forces have affected the microstructure of markets since the financial crisis of 2008. There has been the dramatic growth of electronic trading platforms across most markets, the presence of central quantitative easing, the regulatory curbs on banks from warehousing risk and the sharp rise in passive investment funds.” “The algorithms behind trading platforms tend to withdraw bids in volatile times, QE has forced investors into the same positions, so all flow is one-way, banks have to match orders and so act more like brokers rather than a lubricant to market transactions and passive funds offer daily or intra-day liquidity for investors, but the underlying assets are often not that liquid.” “The upshot is that we are likely to see more flash crash-type market moves, more gap moves and an increasing premium attached to more liquid markets. Already, we are seeing the frequency of multiple standard market moves increasing.”