July delivered a strong month of rebounding prices for the major asset classes. The red ink that dominated the numbers for June gave way to across-the-board gains last month, with US stocks leading the way.
While we harp on US banks and big insurers being too big to fail, the entire US economy is exactly that, too big to fail ... to the rest of the world.
Although recovery brought some relief to asset classes in July, US equities continue to dominate the horse race. The second-best performing asset class year to date, based on the definitions below: foreign developed-market stocks (MSCI EAFE), which climbed 9.6% so far in 2013. Even so, that’s less than half the increase for US stocks.
If you look at the YTD figures, the only asset classes up were US stocks by a long way, followed by other developed markets equities, US REITs, US high yield bonds, foreign high yield bonds ... take out the foreign stocks and bonds, its all US denominated assets. Safe to say the rest of the world has been deflating their economies. It is also safe to assume that the QE tapering has started way way ahead for non US assets.
Again we get to the situation whereby the sins of US printing press is hurting the rest of the world while the US economy goes largely unpunished due to their reserve status. The rest of the world knows it, the US knows it. Global central banks and governments alike are still holding or even buying US papers, thats why. Will any of them start to throw US Treasuries? Will they dare to do it? Not that they are afraid of the US but the repercussions to the global economy. How bad is it to have a 20% correction in USD and a 20% correction is US stocks?