Thursday, December 30, 2010

US Manufacturing Bright Spot

CNBC reports today:
HSBC's China Purchasing Mangers' Index fell to a three month-low of 54.4 in December from 55.3 in November, suggesting that the pace of business expansion in the factories of the world's second-largest economy was moderating but still strong.

While the situation in Japan is by far less bright, but fits well into picture of concerns expressed by ECRI yesterday, as explained in the comment by Nomura this morning:
In December, the Japanese manufacturing purchasing managers' index PMI rose 1.0pt m-m, to 48.3. Although the index was below the 50 watershed between economic expansion and contraction, we see it as indicating an increased likelihood that manufacturing production activity has bottomed. The new orders index rose 1.9pt m-m to 45.7, boosting the overall index. Given that the export order index continued to decline, by 0.3pt to 46.6, domestic new orders appear to have improved sharply in December. The employment index rose 0.8pt m-m to 49.5pt, in tandem with the improvement in production activity. We project that exports will see renewed recovery and acceleration from 2011 Q1 supported by economic recovery overseas, but we think downside risks need watching given the decline in the export order index.

However, the US manufacturing appears to be the brightest spot?

Click on chart to enlarge, courtesy of BNP Paribas.


Tuesday, December 28, 2010

Germany's Apparent Prosperity

Doesn't slip away from my sick brain the sentence written by Steve Randy Waldman:
Germany, like China, is less prosperous than it seems, because its surplus production is geared to sale for claims that cannot credibly be redeemed for what the country’s citizens would want should they exercise their option to consume.

Monday, December 27, 2010

Valuations Still Matter?

While sometimes (in fact, in the last decade or so - most of time) it looks like valuations do not matter, however, James Montier's latest note "In Defense of the "Old Always"" tells you among other things, available free of registration also here, using the words of Benjamin Graham:
"... But if my cliché is sound – and a cliché’s only excuse, I suppose, is that it is sound – then the stock market will continue to be essentially what it always was in the past – a place where a big bull market is inevitably followed by a big bear market. In other words, a place where today’s free lunches are paid for doubly tomorrow. In the light of experience, I think the present level of the stock market is an extremely dangerous one."

Wednesday, December 22, 2010

Monday, December 20, 2010

Vikings Already Arriving In Destination

I cannot stop my addiction to charts, and today is devoted to views of technical analysts from Swedish SEB. Probably, the reason is as simple as it gets - charts are telling quite a lot, still the question remains the one of efficient markets.

Click on charts to enlarge, courtesy of SEB.

Friday, December 17, 2010

Chart Of The Day: European "Hexensabbat"

I have been focusing on the European "bastard child" for some time now, but the team of technical analysts at Commerzbank went even further today, to name it "Hexensabbat", that has also another meaning: "Hexensabbat", what the English speaking folks will recognize as "witching".

Click on chart to enlarge, courtesy of Commerzbank.

So, don't get lost in volatility ...

Thursday, December 16, 2010

Obsessed With Sustained Growth Story?

So much talk now about sustained growth going forward ... the almighty America will run about 8% fiscal deficit of GDP to make that happen.

Click on chart to enlarge, courtesy of Nomura.

A small subsidy to private sector? So much about sustained ...

Tuesday, December 14, 2010

Merrill's Global Fund Managers "Inflate-on" ...

This month, in comparison to last month, the key message from BofA Merrill Lynch Global Fund Manager Survey are as follows:
Pro-growth, pro-risk

Our panel of 302 institutional investors remain optimistic on growth and risk assets. But monetary policy stimulus is clearly pushing investors into inflation-plays such as resource stocks in December and away from bonds. The downside risk to consensus is a Q1 dip in Chinese growth; the upside risk is a broadening out in bank-boosting growth upgrades across the G7.

Growth bulls with nagging China doubts
The tone of December’s survey remains pro-growth. A net 44% see stronger global growth (was 15% in Oct) and a net 51% expect corporate profits to improve (was 11% in Oct). Growth optimism is also revealed by more investors saying they want companies to increase capex rather than return cash to shareholders. The fly in the ointment is China growth with a net 12% now seeing weaker growth, a sharp reversal from 16% expecting stronger growth last month.

The Fed has raised inflation expectations
Expectations for ongoing monetary stimulus (6 out of 10 see no Fed hike until 2012) have caused inflation expectations to surge. A net 61% forecast higher inflation, close to a 6-year high. Thus far this is not impacting risk appetite: average cash balances increased only marginally to a still-low 3.6%, hedge funds remained engaged with gearing rising to 1.48x (highest since March-08). Asset allocators increased their bond U/W to 46%, the most pessimistic since April.

US bulls: $ and equities
Investors are the most bullish on the US in 6 months with equity allocation rising to a net 16% OW (from 1%), overhauling Eurozone which fell to 4% UW from 15% OW last month. EM is the consensus long at 50% OW but Japan saw a sharp rise to 13% UW (from -29%) and is now seen as the most U/V region. Investors are USD bulls with a net 36% expecting 12m appreciation (vs. 14% last month).

Material moves as Energy replaces tech as most popular
Sector moves were pro-cyclical, pro inflation and pro-resources with materials reaching its highest OW(+28%) since 2003 and energy now the most popular global sector (36% OW) deposing technology for the first time in 12 months. Greater cyclical exposure was funded by cutting telecoms, utilities and financials.

On the contrary
The trading sell signal triggered by low cash holdings worked briefly last month before being swept up by positive US macro data. Handicapping the risks of US growth, EM inflation and EU peripheral funding against pro-cyclical positioning could see a need for portfolio rebalancing into next year. For contrarians the sells are: EM equities, energy and technology; buys: global financials, utilities, Europe.
Is it not difficult to be contrarian in such a market?

Monday, December 13, 2010

London Banker About Sovereign Defaults & Bank Capital

He is back, and tells the story ...

The key message, from my perspective I was reminding last week:

If any OECD state were to default there would be very serious implications:

- The Basle Accord zero risk weight of government debt in Basle Accord calculations would be proved fanciful;
- The assumption of government debt as a liquid asset suitable for bank Tier 1 reserves to meet unanticipated and sudden cash demands will become unsustainable;
- Banks would be forced to recapitalise at much higher levels, forcing even sharper deleveraging and contraction of lending;
- Governments would lose the captive, uncritical investor base they have relied on to finance excess public expenditure for the past 30 years;
- Central banks could be forced to suddenly monetise even more government debt if required to meet the cash demands of a run on their undercapitalised banks.

It will likely prove impossible to reform the bankers and central bankers dependent on the Basle Accords for their business models and careers.

Thursday, December 09, 2010

Improved And Sustained Growth Outlook With Broken Credit Channels?

The economists at Goldman Sachs are reminding us about how broken the credit channels remain (via banks/financial sector), despite improved (?) growth outlook, and little has changed in the last 6 months or so ...

Click on chart to enlarge, courtesy of Goldman Sachs.

Fool me all the time ...

Wednesday, December 08, 2010

Chart Of The Month ...

... from Tobias Levkovich, the US equity strategist at Citigroup Global Markets. Click on chart to enlarge, courtesy of Citigroup Global Markets.

And this comment is a good reminder on fallacy of averages:
While the relationship is clouded by discussions surrounding home prices and persistent unemployment, the divergences in income, wealth distribution and spending explains much of the disconnect. Since the top 20% of American income earners disproportionately account for nearly half of all discretionary consumer spending and they own roughly 90% of all equities, the stock market’s “wealth effect” is deterministic for the capacity to spend. With the S&P 500 up 19% from its June lows, high-end consumers are likely to buy gifts for friends and loved ones.
So, asset based thinking that substitutes real savings with asset price appreciation? Is there a downside to this approach?

Tuesday, December 07, 2010

US Political Gridlock Means Second Round Of Fiscal Stimulus

I expressed some concern yesterday, but, of course, I do not have an Inside Job:
... kind of soft corruption: you get paid a lot of money by the financial industry, you get put on boards, but only if you don’t rock the boat too much. Besides, you hang out with these people, and get assimilated by the financial Borg.
Now, we have got Tax Cut Ironies in form of A Second Stimulus. I suppose it is a time of challenge for bond vigilantes.

Monday, December 06, 2010

Sunday, December 05, 2010


Developing ...

... Are not made by, and therefore the outcomes are not determined, by arithmetic averages.

Friday, December 03, 2010

Thursday, December 02, 2010

Predictions From Japanese Candlestick Masters

Trichet was not very vocal about bazooka, but showed it to financial markets prostitutes. That should be enough time spent for a shy boy. Let's look at predictions from serious Japanese candle-stick masters. The way to prosperity is clear and assured?

Click on chart to enlarge, courtesy of Nomura.

Wednesday, December 01, 2010

Bidding For Real Trichet's Bazooka

Financial markets prostitutes, after the regular end-of-month medical surveillance, are bidding for real Trichet's bazooka today. The disease requires drastic action, and the ECB support  may prove "Critical" ... see you tomorrow.