tag:blogger.com,1999:blog-30722326471232625882024-02-21T05:55:58.374-05:00thefrugalplainall and nothing about uncertainty in markets and lifeThe Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.comBlogger1000125tag:blogger.com,1999:blog-3072232647123262588.post-47360390355780768492011-08-24T16:12:00.000-04:002011-08-24T16:12:01.707-04:00Danske: Disease That Takes Time To CureI am back, but I cannot promise the posting will be regular going forward.<br />
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My "focus list" consisting of <a href="http://thefrugalplain.blogspot.com/2011/06/spanish-government-bonds-in-focus.html">Spanish</a> and <a href="http://thefrugalplain.blogspot.com/2011/06/italian-job.html">Italian bonds</a>, and <a href="http://thefrugalplain.blogspot.com/2011/06/80-jpy-in-focus-too.html">JPY</a> worked well, however all of those instruments have experienced interventions by central banks and cannot be considered as leading indicators anymore.<br />
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The liquidity crisis usually resolves with a victim, and while none of fundamental macro problems have been solved, the liquidity will just postpone the resolution.<br />
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However, for the greedy people we all are, I would be still cautious beyond the obvious speculative action. Danske Bank had a good reminder yesterday, see the picture below, but you decide whether the witch-hunt has ended.<br />
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Click on picture to enlarge, courtesy of Danske Bank Markets.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjREaHgADECbVIfZAHpArc39rAU930zreNtoZ3uwEenBV0K8oCWjMuVvHY_oOazhKLpPoYb7nOvkJ3Iq-M4R1sKM5OPb3DvEwKKjHpPAj2GqyZXi_E1LurVqzS7CKxPVdAALQSikk4Th4HS/s1600/dk_market_performance_110823.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="239" qaa="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjREaHgADECbVIfZAHpArc39rAU930zreNtoZ3uwEenBV0K8oCWjMuVvHY_oOazhKLpPoYb7nOvkJ3Iq-M4R1sKM5OPb3DvEwKKjHpPAj2GqyZXi_E1LurVqzS7CKxPVdAALQSikk4Th4HS/s320/dk_market_performance_110823.png" width="320" /></a></div>The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com1tag:blogger.com,1999:blog-3072232647123262588.post-80150435531155593142011-07-05T16:29:00.001-04:002011-07-05T16:30:49.116-04:00Moody's Does Not Like PortugalAs the European government debt crisis just seemed to turn the corner, <a href="http://www.bloomberg.com/news/2011-07-05/portugal-s-bond-ratings-are-cut-to-junk-by-moody-s-with-a-negative-outlook.html">Moody's junked the Portugal</a> today...The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-71168682067926738242011-07-04T05:43:00.000-04:002011-07-04T05:43:31.709-04:00Credit Agricole: Sisyphus Cannot Simply Kick The Can Down The RoadPosting will be very light, or even absent in July. For the longer reading the latest macro prospects by Credit Agricole are at your disposal <a href="http://economic-research.credit-agricole.com/medias/Macro_Prospects_133_EN.pdf">here</a>.The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-30967483069047872862011-06-30T11:15:00.000-04:002011-06-30T11:15:57.200-04:00Second Anniversary Of Impossible EquationWith the second round of "<a href="http://www.ritholtz.com/blog/2011/06/not-the-greeks-but-their-creditors-are-being-bailed-out/">Greek bail-outs</a>" already <a href="http://blogs.wsj.com/marketbeat/2011/06/30/greek-parliament-passes-second-bill-stocks-jump-more/">passed</a> the "<a href="http://www.ft.com/intl/cms/s/0/2245fe34-a286-11e0-9760-00144feabdc0.html#axzz1QkJT6f4Y">feel good</a>" kicking of the can down the road goes on. However, I return to history that has second anniversary today, when I singled out the report by Societe Generale and posted on this blog <a href="http://thefrugalplain.blogspot.com/2009/06/socgen-public-finances-impossible.html">SocGen: Public Finances - The Impossible Equation</a> two years ago. The first anniversary I remembered with <a href="http://thefrugalplain.blogspot.com/2010/06/anniversary-of-impossible-equation.html">Anniversary Of Impossible Equation</a>. But how <a href="http://www.thefiscaltimes.com/Columns/2011/06/30/What-Debt-Limit-Plan-B-is-the-14th-Amendment.aspx">far have we got today</a>?<br />
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As Keynes noted: <strong> </strong><br />
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<strong><em><span style="color: blue;">"In the long run we are all dead."</span></em></strong><br />
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Anyway?The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-57314745007968213892011-06-29T16:55:00.000-04:002011-06-29T16:55:57.739-04:00Liquidity Glut And Low Interest RatesI have been writing about<a href="http://thefrugalplain.blogspot.com/2010/06/deluded-by-liquidity-glut.html"> liquidity glut</a> and <a href="http://thefrugalplain.blogspot.com/2010/09/rothbard-and-friedman-agree-on-low.html">low interest rates</a>, and their impact on real economy some time ago. Gerard Minack, the strategist at Morgan Stanley, brings up this issue today and makes it very clear, again:<br />
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<em><span style="color: blue;">Exhibit 1 shows the contribution to the 12 month return on US equities from the change in the prospective PE ratio (the PE based on consensus earning forecasts). The amplitude is significant: the swing in the PE often contributed plus or minus 20-30 percentage points to the annual equity return. Importantly, the biggest influence on the PE ratio was interest rates. Falling rates led to a rising PE, and vice versa. (The line in the chart is the 12 month change in the 10 year Treasury yield – but it is inverted: so the line goes up as yields go down.)</span></em><br />
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Click on chart to enlarge, courtesy of Morgan Stanley.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgTkMxKjySr7kbw3bQDk5ClK3rn336ukDP3_TK654HgmjpsTqvnH-GCv_oA1DpVZCFX6a7g6lqJjIswaukWeuHWemvIiHsxrRo35TA334-Qe450NOldE6O8dBuNdamk3SLAerUm-QYDcgv5/s1600/ms_InterestRates%2526PE_110629.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="266" i$="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgTkMxKjySr7kbw3bQDk5ClK3rn336ukDP3_TK654HgmjpsTqvnH-GCv_oA1DpVZCFX6a7g6lqJjIswaukWeuHWemvIiHsxrRo35TA334-Qe450NOldE6O8dBuNdamk3SLAerUm-QYDcgv5/s400/ms_InterestRates%2526PE_110629.png" width="400" /></a></div><br />
Well, the times may be changing, as Gerard Minack continues:<br />
<em><span style="color: blue;">This was the basis for the ‘don’t fight the Fed’ mantra. In a credit super cycle – when investors are willing to increase borrowing as rates fall – lower rates are good for risk assets.</span></em><br />
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<span style="color: blue;"></span></em><br />
<em><span style="color: blue;">A post-bubble environment is different. As I’ve discussed before, macro cycles tend to be weaker and more fragile. As importantly, investors do not respond to lower rates in the same way as they did through the credit super-cycle.</span></em><br />
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On a days like today it feels like bubble never ended? Some <a href="http://www.moneymovesmarkets.com/journal/2011/6/28/more-evidence-of-global-stabilisation.html">evidence of global stabilisation</a>?The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-84679990662198740262011-06-28T16:01:00.000-04:002011-06-28T16:01:16.542-04:00China's Local Government FinancingOn a day <a href="http://blogs.wsj.com/marketbeat/2011/06/28/dow-jones-industrial-average-sneaking-up-on-q2-gain/">when markets seek for a Greek relief rally</a>, as the <a href="http://ftalphaville.ft.com/blog/2011/06/28/607766/presenting-the-french-proposal-in-full/">Greek default may appear like mission impossible</a> and the real challenge for Greeks now to get into such mess, I am looking at <a href="http://mpettis.com/2011/06/small-companies-feel-the-pain-in-china-2/">"perceived hope" of growth in China</a>, while the <a href="http://ftalphaville.ft.com/blog/2011/06/21/601051/credit-suisse-slashes-chinese-banks/">financing of that growth becomes more riskier</a>. The economists at Societe Generale are offering their views on China's local government financing issues today. I skip here the consensus optimism, but look at potential problems, as per economists at Societe Generale:<br />
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<em><span style="color: blue;">...China’s local government debt problem is scary in different ways. A simple calculation based on the information available in the report suggests that the total debt load increased 36 times in nominal terms and fivefold relative to GDP between 1997 and 2010! More than 80% of the money has gone to finance hard infrastructure. Economically speaking, an increasingly bigger share of total capital has been allocated to the public sector, and the marginal return of each borrowed yuan has been on a steady decline. In the last three years, total liabilities of local governments nearly doubled in size and ballooned from 17% to 27% of GDP. The health of China’s public debt and investments is deteriorating at its fastest pace ever.</span></em><br />
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Click on charts to enlarge, courtesy of Societe Generale.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1eoLQYQPL-GRKCne3GGy8CsK11__Yd_n77urKhAP88wrtNBNN13awi9mqaiwE_9WVN9hPWlY2TV7dj9g_Pp8lATfsWWg9dH3dGgFoLqjaTpRcM-f6oU4xpGUVG5Wjo1HLwObyIHt7mCLX/s1600/sg_ChinaLocalGovtDebt_110628.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="260" i$="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj1eoLQYQPL-GRKCne3GGy8CsK11__Yd_n77urKhAP88wrtNBNN13awi9mqaiwE_9WVN9hPWlY2TV7dj9g_Pp8lATfsWWg9dH3dGgFoLqjaTpRcM-f6oU4xpGUVG5Wjo1HLwObyIHt7mCLX/s400/sg_ChinaLocalGovtDebt_110628.png" width="400" /></a></div><br />
Now, if one assumes that investments are "hard infrastructure" and often (about one quarter) of <em>"debt is promised with land sales revenues</em>", the maturity profile may provide some challenges as loans are maturing.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSAOt3NuBc2ke_wpcep-sfCZdjfEiT1ffVXJCpBSQkaruIezuqyCtHinhLXDauPKyQ-GefUwVUKyb8vtY_ayMl1TonIZM5IlKhmH2dSAyyZVvcp88koo9m_Y1VBj_YcPu5gTN02v4GQAm4/s1600/sg_ChinaLocalGovtDebtMaturity_110628.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="301" i$="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSAOt3NuBc2ke_wpcep-sfCZdjfEiT1ffVXJCpBSQkaruIezuqyCtHinhLXDauPKyQ-GefUwVUKyb8vtY_ayMl1TonIZM5IlKhmH2dSAyyZVvcp88koo9m_Y1VBj_YcPu5gTN02v4GQAm4/s400/sg_ChinaLocalGovtDebtMaturity_110628.png" width="400" /></a></div><br />
But then again, quoting the economists at Societe Generale:<br />
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<em><span style="color: blue;">... we can say China is different as there is no clear trigger of a sudden emergence of bad debt. Both debtors and creditors belong to the government, more or less.</span></em>The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-26711256985200564532011-06-27T16:43:00.000-04:002011-06-27T16:43:57.118-04:00Italian JobNothing really new here for <a href="http://ftalphaville.ft.com/blog/2011/06/22/601176/when-italy-is-already-priced-to-wreck-the-eurozone/">Italian long-term story</a>, but simply worth adding to my "Focus List" consisting of <a href="http://thefrugalplain.blogspot.com/2011/06/spanish-government-bonds-in-focus.html">Spanish Government bonds</a> and <a href="http://thefrugalplain.blogspot.com/2011/06/80-jpy-in-focus-too.html">JPY</a> so far. Just because we are <a href="http://blogs.wsj.com/marketbeat/2011/06/20/spanish-italian-bond-spreads-approaching-key-levels/">testing key technical levels here</a>, and the overall story gets more compelling with <a href="http://ftalphaville.ft.com/blog/2011/06/24/605296/mama-mia/">Italian banks running hot media headlines</a>.<br />
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Click on chart to enlarge, courtesy of Reuters.<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgV2Fp921k0DKBaujGhqdt-rdc6QROOCTQr6O8s96jG9yOMlCm9EA8-ea7Fhqjf2iuqwf41WmqJ0pjUj-EMbpQGtnFwn8MT7unVb4VtBF_bO2wDLAU9E4zfyHEtmEYNAcy-aDrv2EL7ujL-/s1600/chart_IT10YT_110627.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="230" i$="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgV2Fp921k0DKBaujGhqdt-rdc6QROOCTQr6O8s96jG9yOMlCm9EA8-ea7Fhqjf2iuqwf41WmqJ0pjUj-EMbpQGtnFwn8MT7unVb4VtBF_bO2wDLAU9E4zfyHEtmEYNAcy-aDrv2EL7ujL-/s400/chart_IT10YT_110627.gif" width="400" /></a></div><br />
Summer to be interesting with the peripheral yield games in spotlight?The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-5072869279304256882011-06-23T08:46:00.002-04:002011-06-23T08:50:11.175-04:0080 JPY In Focus Too<a href="http://thefrugalplain.blogspot.com/2011/06/spanish-government-bonds-in-focus.html">Another</a> "inflection point" on my screens is the mark of 80 Japanese yens (JPY) per 1 US dollar. This is rather <a href="http://thefrugalplain.blogspot.com/2011/05/chinese-imports-already-show-signs-of.html">important for Japan in watching the Chinese slowdown</a>.<br />
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<a href="http://online.wsj.com/article/SB10001424052702304657804576402611164962464.html">"... Preliminary China June PMI Falls to 11-Month Low</a>", as per WSJ.com today:<br />
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<em><span style="color: blue;">The preliminary HSBC PMI declined from a final reading of 51.6 in May, while the manufacturing output sub-index fell to an 11-month low of 50 from the previous month's 50.9, HSBC Holdings PLC said Thursday.</span></em><br />
<span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; -webkit-text-decorations-in-effect: none; -webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; border-collapse: separate; color: black; font-family: "Times New Roman"; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; line-height: 10px; text-align: left;"><br />
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<span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; -webkit-text-decorations-in-effect: none; -webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; border-collapse: separate; color: black; font-family: "Times New Roman"; letter-spacing: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 13px; line-height: 19px; text-align: left;">Of course, the <a href="http://www.danskemarkets.com/en-gb/products-services/advisory/research/Documents/FlashComment_China_230611.pdf">soft landing in China is consensus view</a>, but the<a href="http://www.zerohedge.com/article/chinese-1-and-2-week-shibor-rates-surge-over-9-highest-2007"> tight liquidity situation may bring some "fat tails".</a> However, the 80 JPY mark will show where the market goes ...</span></span><br />
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<span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; -webkit-text-decorations-in-effect: none; -webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; border-collapse: separate; color: black; font-family: "Times New Roman"; letter-spacing: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 13px; line-height: 19px; text-align: left;">Click on chart to enlarge, courtesy of Reuters.</span></span></span></span><br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-SKVfGo6oIJR2s23lmXUlnspm8XYF6ZW2QvTn72LNeS79QNmXp2-dX1zH1R3316oFKMRGrP3yEub2lEkCblCyl0xdu-OyvROOZZXNTmPnuw1hV0ggcCxMTX4A-q4OhZur494dablzOFP6/s1600/chart_JPY_110623.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="230" i$="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-SKVfGo6oIJR2s23lmXUlnspm8XYF6ZW2QvTn72LNeS79QNmXp2-dX1zH1R3316oFKMRGrP3yEub2lEkCblCyl0xdu-OyvROOZZXNTmPnuw1hV0ggcCxMTX4A-q4OhZur494dablzOFP6/s400/chart_JPY_110623.gif" width="400" /></a></div>The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-1749419530514471522011-06-22T16:50:00.001-04:002011-06-22T16:51:55.229-04:00Spanish Government Bonds In FocusAs the interest rate strategists at Commerzbank write today, despite hope for better sentiment in the weeks ahead:<br />
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<span style="color: blue;"><em>At the same time, the risks of a re-widening in spreads from lower levels later this year have increased. Should politicians fail to come up with a coherent plan to ring-fence Greece in the case of default, highly adverse consequences like a bank run in Greece or Spanish yields moving to unsustainable levels cannot be ruled out.</em></span><br />
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Click on chart to enlarge, courtesy of Commerzbank.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjX1bpOxfP2NY7_TCzSnBiJ7xxtUNL8Ac8KU0QhPAsMb1sFazze-dT8azFADxlm-FtfzM4rFqWlz0AdoWiMrutl6KP5oT5UomTmfer8yhDaLccNRAkgjrpVo_l0OBDZxW9PsStcniHzhH77/s1600/cmb_Spain_GovyBonds_110622.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="223" i$="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjX1bpOxfP2NY7_TCzSnBiJ7xxtUNL8Ac8KU0QhPAsMb1sFazze-dT8azFADxlm-FtfzM4rFqWlz0AdoWiMrutl6KP5oT5UomTmfer8yhDaLccNRAkgjrpVo_l0OBDZxW9PsStcniHzhH77/s400/cmb_Spain_GovyBonds_110622.png" width="400" /></a></div>Interestingly, but <a href="http://www.bloomberg.com/apps/quote?ticker=GSPG10YR:IND">10-year Spanish government bonds</a> appear to be testing unchartered waters with a potential upside breakout from technical perspective, while still below the point of no return at 6%, as per Commerzbank. At the same time <a href="http://www.bloomberg.com/apps/quote?ticker=GSPG5YR:IND">5-year Spanish bonds</a> still appear somewhat friendly...<br />
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However, this is one area to keep an eye on.The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-47465933933987724422011-06-21T10:19:00.002-04:002011-06-21T10:21:01.543-04:00Nomura: How Much Of A US Slowdown Is In The Price?Interesting observations by strategists at Nomura today:<br />
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<em><span style="color: blue;">While June ISM risks are skewed to the downside, growth-related assets seem to be underestimating the possibility of a disappointing outcome. Figure 1 compares the ISM index with the year-on-year changes in our common measure of US market-implied growth, which we define as the first component of a PCA on a group of US growth-related assets. It is apparent that after months of relative pessimism the market is now trying to look through the recent data and view it as a transitory slowdown. As such, growth assets appear vulnerable to further disappointing data in June. Currently, on this simplistic measure the market implies an ISM of roughly 57.0 vs our economists forecast of 51.8 and the Philly Fed's dismal ISM-equivalent reading of 45.5. </span></em><br />
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<em><span style="color: blue;">While buying Treasuries and selling stocks would be the natural trade to position for a deeper-than-expected ISM dip, optimising this trade could be key given current valuations. Figure 2 looks at the relative mispricing of each asset with respect to the common US growth component. Clearly, while Treasuries would benefit from a disappointing growth outcome, yields already appear too low compared with the rest of the assets in our universe and arguably offer only a limited reward. Conversely, S&P Consumer services, oil and copper still appear too optimistic with respect to growth, despite their recent retrenchment, and thus offer an interesting trade for investors positioning for a longer and deeper "soft patch" than currently expected. </span></em><br />
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Click on charts to enlarge, courtesy of Nomura.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcQritdT1NsBnmvL_X_FD4wx4y30k-sIITGMZ0_q3DUhIQHueSDH-4d0eF4R7bBwQREnvnKTWhMFiweFHVHRGtdBFNYUxBlLCKkup12sBF246N5Kq8be9_xTuURewbbaIE5kt_NuNiCMZy/s1600/n_USSoftPatchInPrice_110621.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="225" i$="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcQritdT1NsBnmvL_X_FD4wx4y30k-sIITGMZ0_q3DUhIQHueSDH-4d0eF4R7bBwQREnvnKTWhMFiweFHVHRGtdBFNYUxBlLCKkup12sBF246N5Kq8be9_xTuURewbbaIE5kt_NuNiCMZy/s400/n_USSoftPatchInPrice_110621.png" width="400" /></a></div><br />
<br />
Well, markets seem to be focused on "<a href="http://www.bespokeinvest.com/thinkbig/2011/6/20/sp-500-sector-trading-ranges.html">technically oversold" conditions</a> and <a href="http://blogs.barrons.com/stockstowatchtoday/2011/06/21/market/">Greek "victory"</a> today...<br />
<span style="color: blue;"></span>The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com1tag:blogger.com,1999:blog-3072232647123262588.post-30415591228228263542011-06-20T16:25:00.000-04:002011-06-20T16:25:37.884-04:00Bonds Outperforming EquitiesWell, this was<a href="http://thefrugalplain.blogspot.com/2011/04/surprised-by-bullish-action-in-bonds.html"> initiated couple of months ago</a>. Mary Ann Bartels et al. at BofA Merrill Lynch paints the bigger picture of equities versus bonds, and note today:<br />
<br />
<em><span style="color: blue;">From a mid February high, the stocks vs. bonds ratio has corrected and is testing the rising 200-day moving average.</span></em><br />
<br />
<em><span style="color: blue;">There are not yet any firm bottoming signs for stocks relative to bonds. This suggests that stocks should continue to underperform bonds in coming days/weeks.</span></em><br />
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Click on chart to enlarge, courtesy of BofA Merrill Lynch.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj9ArZ34MBEHyOcwSd0Jfc-6UkFN7BIdGBDeWLKoJx2KI033wkdtTSDl_xPcUT0R4-cSsmVVRH2ReaX0E4qO_q85uMO3_xcqm6zAGUIBsNKvOvWf-UECPe47_WBgCR-GBrLZqRBOW-TFJ20/s1600/ml_bondsVequities_110620.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="312" i$="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj9ArZ34MBEHyOcwSd0Jfc-6UkFN7BIdGBDeWLKoJx2KI033wkdtTSDl_xPcUT0R4-cSsmVVRH2ReaX0E4qO_q85uMO3_xcqm6zAGUIBsNKvOvWf-UECPe47_WBgCR-GBrLZqRBOW-TFJ20/s400/ml_bondsVequities_110620.png" width="400" /></a></div><br />
Should we assume we move towards the bottom of the channel?The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-31757503118079635172011-06-17T17:06:00.001-04:002011-06-17T17:07:59.838-04:00Chinese "Quantitative Easing" In One ChartFrom the economists at Morgan Stanley, the Chinese growth miracle explained in one chart. Though, not the full story.<br />
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Click on chart to enlarge, courtesy of Morgan Stanley.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZqO0cI_NAAPfep-QgH6xOzJOoIjSqRj1Xa2VMTwaFQStNMCRcxx39icXHk0NL4f1h1U64H98uKRNeDQ7MDicykwdYyVkl9L8aMCW3nrPwxcgZrJt7CobvOxHOhO4PWictRL_SfJGP1Mki/s1600/ms_ChinaCredit_110617.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="291" i$="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgZqO0cI_NAAPfep-QgH6xOzJOoIjSqRj1Xa2VMTwaFQStNMCRcxx39icXHk0NL4f1h1U64H98uKRNeDQ7MDicykwdYyVkl9L8aMCW3nrPwxcgZrJt7CobvOxHOhO4PWictRL_SfJGP1Mki/s400/ms_ChinaCredit_110617.png" width="400" /></a></div><br />
Add the fiscal "orgy" to this...The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-35599587121222896012011-06-16T16:23:00.001-04:002011-06-16T16:24:58.366-04:00Jump In Correlations In European Credit MarketsThe message from credit strategists at BNP Paribas today:<br />
<br />
<span style="color: blue; font-size: small;"><em>A confluence of events has increased volatility which could turn systemic in nature. With correlations bunching up once again and trending towards 1.0, the message from the markets is loud and clear that systemic risk is rising and liquidity is poor, which is being reflected in higher volatility and risk premia. </em></span><br />
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Click on chart to enlarge, courtesy of BNP Paribas.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkBwFxKVF70HTh8FQ0QMRtTj4QaXZND8C5yu5XMAjQJmS60w0UJHo1bXwzuqYTN57UeJh1My2KuOawm5XHM7YLy8Qhbh_CyHUplySG8Qja4BDuHe_mrTUEB-6y3-7b0DIrvM5ISQ62WS9P/s1600/bnpp_CreditCorrelations_110616.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="287" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkBwFxKVF70HTh8FQ0QMRtTj4QaXZND8C5yu5XMAjQJmS60w0UJHo1bXwzuqYTN57UeJh1My2KuOawm5XHM7YLy8Qhbh_CyHUplySG8Qja4BDuHe_mrTUEB-6y3-7b0DIrvM5ISQ62WS9P/s400/bnpp_CreditCorrelations_110616.png" t8="true" width="400" /></a></div><br />
If this is not enough, one should consider - what has made US markets "so weak" recently?<br />
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Click on chart to enlarge, courtesy of BNP Paribas.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFrXkiGyrdCydUZoeBhbtP1yDRWNk2yA2-2i4CI5Nmq5P9dwn1Er3xbAR2OrbMAHvRXwMb-zLWopaMv7FVnxvh1O1KeyRBn9Prp0iiSkN3jVDtO9wdcu178kbLWM_W2luBmXyrasppeNOF/s1600/bnpp_MnfgSurveys_110616.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="243" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhFrXkiGyrdCydUZoeBhbtP1yDRWNk2yA2-2i4CI5Nmq5P9dwn1Er3xbAR2OrbMAHvRXwMb-zLWopaMv7FVnxvh1O1KeyRBn9Prp0iiSkN3jVDtO9wdcu178kbLWM_W2luBmXyrasppeNOF/s400/bnpp_MnfgSurveys_110616.png" t8="true" width="400" /></a></div><br />
Well, <a href="http://www.businesscycle.com/news/press/2203">ECRI tells us not to blame Japan for slowdown</a> ...The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-355494778502505442011-06-16T03:00:00.001-04:002011-06-16T03:02:33.926-04:00DBS Sees "Summer Lull A Window Of Opportunities" For Asia EquitiesDBS came out with latest <a href="https://www.dbsvresearch.com/research/DBS/research.nsf/(vwAllDocs)/40AD628619D6ABFC482578B000074334/$FILE/AA_3Q11_15Jun11.pdf">Asset Allocation report</a> today, as for Asian equities the view is more than clear:<br />
<br />
<span style="color: blue;"><em>• The short-term ebbs and flows we are currently experiencing are nothing but a proverbial 'tempest in a tea cup'. Financial instability in Europe and an economic soft patch in the US heighten risks, but not enough to derail the ongoing global recovery</em></span><br />
<span style="color: blue;"><br />
<em></em></span><br />
<span style="color: blue;"><em>• Volatility and mixed data signals are the norm at this stage of the cycle. We find comfort in attractive valuations, supported by realistic earnings growth expectations. Asian equities as an asset class are cheap relative to cash and inflation</em></span><br />
<span style="color: blue;"><br />
<em></em></span><br />
<span style="color: blue;"><em>• Asian markets probably bottomed at the end of March and should end the year comfortably higher than current levels. The passing of QE2 is unlikely to be a big event. The associated risks are rising bond yields and capital outflow in the early part of 3Q. We believe the stage is set for a 2H rally after the removal of this overhang.</em></span><br />
<span style="color: blue;"><br />
<em></em></span><br />
<span style="color: blue;"><em>• We are maintaining our Overweight recommendation in Taiwan, Malaysia and Indonesia whilst Thailand is downgraded to Underweight. China, Hong Kong and India are still Underweight. Korea is upgraded to Neutral.</em></span><br />
<br />
So, the window of opportunity may close soon, or be the wall to hit soon in full speed.<br />
<br />
Stunning difference, that is very obvious in the picture below, creates views like this:<br />
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<div style="text-align: center;"><strong><em><span style="color: #231f20; font-family: FrutigerBoldItalic;"><span style="color: #231f20; font-family: FrutigerBoldItalic;"><span style="color: #231f20; font-family: FrutigerBoldItalic;"><span style="color: blue; font-family: Times, "Times New Roman", serif;">Asian demand is the main determinant of its own fate</span></span></span></span></em></strong></div><br />
Click on chart to enlarge, courtesy of DBS.<strong><br />
</strong><br />
<div style="text-align: center;"><img border="0" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4PPS6AzW6RoTqwVmKr-EJWYqMUNSoJ0YOWJH5C-fB9mc9Gw473pHq95_B6oG4hbJ2anTY_uZ1MfI_uM7A1ZST7fcJArABM6fAOTQGJLth9WZeRG80_8FYVtc63WwisYZ0YVdmPnKVyp8I/s400/dbs_IP_US%2526Asia9_110615.png" t8="true" width="387" /></div><br />
Well, there are views that <a href="http://www.ft.com/cms/s/0/6247d8e2-96b8-11e0-baca-00144feab49a.html#axzz1P97ztZKo">the "main determinant of its own fate" may face serious problems of rebalancing</a> ...<span style="color: #231f20; font-family: FrutigerBoldItalic; font-size: x-small;"><span style="color: #231f20; font-family: FrutigerBoldItalic; font-size: x-small;"><span style="color: #231f20; font-family: FrutigerBoldItalic; font-size: x-small;"></span></span></span>The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-63796380244989393722011-06-14T15:57:00.000-04:002011-06-14T15:57:02.594-04:00Just In Case You Thought QE2 Is Already Priced InThe strategists at Societe Generale think that QE2 is NOT priced in yet, and paint a picture of what lies ahead.<br />
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Click on charts to enlarge, courtesy of Societe Generale.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrds9IgOO4coRoHmz-kNXQo0DrSfFXA-zosfJ6rqKzoZ-KeiuMtAmoCjfeWR_dzIlqVKPcIs1WgoqvVMTKn5ePGE_OltTTJVoe_Umu9a9COynPfyEMqZovX038AOrg2j377qH6WP-fPr1l/s1600/sg_Q2PricedIn_110614.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjrds9IgOO4coRoHmz-kNXQo0DrSfFXA-zosfJ6rqKzoZ-KeiuMtAmoCjfeWR_dzIlqVKPcIs1WgoqvVMTKn5ePGE_OltTTJVoe_Umu9a9COynPfyEMqZovX038AOrg2j377qH6WP-fPr1l/s640/sg_Q2PricedIn_110614.png" t8="true" width="280" /></a></div><br />
Indeed, it may be far from "worst is over" <a href="http://thefrugalplain.blogspot.com/2011/06/no-capitulation-for-merrills-fund.html">until capitulation sets in</a> ...The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-2870340226639707192011-06-14T15:46:00.000-04:002011-06-14T15:46:21.843-04:00No Capitulation For Merrill's Fund ManagersThey were about <a href="http://thefrugalplain.blogspot.com/2011/05/merrills-fund-managers-are-fading-or.html">Fading Or Risking last month</a>, this month key messages from BofA Merrill Lynch Global Fund Manager Survey are as follows:<br />
<br />
<br />
<span style="color: blue;"><em>No capitulation... no QE3</em></span><br />
<span style="color: blue;"><em></em></span><br />
<span style="color: blue;"><em>In the June FMS investors raised cash, reduced risk asset exposure and rotated to defensive sectors. But investor panic is not yet visible. The recent drop in global growth expectations stabilized and despite sharply lower inflation readings, two-thirds of investors predict no QE3.</em></span><br />
<span style="color: blue;"><br />
<em></em></span><br />
<span style="color: blue;"><em>Growth expectation stabilise</em></span><br />
<span style="color: blue;"><em>Growth and profit expectations stabilised after recent sharp falls. Inflation expectations fell to 38% from 69% two months ago. But the macro backdrop is not seen as weak enough to warrant more stimulus: three out of four panellists think a recession unlikely and only 13% expect a new round of QE in H2.</em></span><br />
<span style="color: blue;"><br />
<em></em></span><br />
<span style="color: blue;"><em>Risk is off</em></span><br />
<span style="color: blue;"><em>The percentage of investors OW cash rose to 21%, the highest since July-09. Actual cash balances rose from 3.9% to 4.2% but this did not trigger a buy signal from our trading rule. Hedge funds cut gearing levels sharply to 1.27x from 1.53x while 43% of investors believe EU sovereign debt funding is the biggest "tail risk". Overall our risk & liquidity index fell to 38, below its long term average of 40.</em></span><br />
<span style="color: blue;"><br />
<em></em></span><br />
<span style="color: blue;"><em>Gold overvaluation highest since 2009</em></span><br />
<span style="color: blue;"><em>Equity allocations fell, benefiting bonds and cash, but positioning overall stands in the middle of historic ranges. Note that the gold price is seen as more overvalued than at anytime since Dec-09 while commodity allocations again fell.</em></span><br />
<br />
<span style="color: blue;"><em>Japan remains most unloved market</em></span><br />
<span style="color: blue;"><em></em></span><br />
<span style="color: blue;"><em>Despite China growth expectations dropping to the lowest reading since Jan-09, EM remains the most preferred region for equities, pipping the US. Regional allocations show a big drop in exposure to Eurozone and UK equities but Japan remains the most unloved equity region.</em></span><br />
<span style="color: blue;"><br />
<em></em></span><br />
<span style="color: blue;"><em>Bank underweight most negative since March 2009</em></span><br />
<span style="color: blue;"><em>Contrarians note that the weighting in global banks fell to its lowest since March 2009. Consumer discretionary saw the largest monthly drop in exposure with the only positive sector moves coming from defensives. Tech remains the most popular sector followed by pharma and energy.</em></span><br />
<span style="color: blue;"><br />
<em></em></span><br />
<span style="color: blue;"><em>Contrarian trades...</em></span><br />
<span style="color: blue;"><em>Despite no contrarian "buy" signal for risk being triggered, the contrarian trades within the June FMS are: long banks, short gold; long Japanese banks, short US tech; long Eurozone, short EM; long US dollar, short Japanese yen.</em></span><br />
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Click on chart to enlarge, courtesy of BofA Merrill Lynch.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiofBZMk4C7pGcugafVqt5xfl2qpnZWyTnv3oDWQkburKpsJZh1Qrxys4uXEctHR21kC_fvIq9AF9PYoMSMGWBaaovgnxITV4UjfOMn6ttp69gH8jUA1yuYILaegU_Sl7MmIv7bqsV8ro4/s1600/ml_TailRisks_110614.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="218" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiiofBZMk4C7pGcugafVqt5xfl2qpnZWyTnv3oDWQkburKpsJZh1Qrxys4uXEctHR21kC_fvIq9AF9PYoMSMGWBaaovgnxITV4UjfOMn6ttp69gH8jUA1yuYILaegU_Sl7MmIv7bqsV8ro4/s400/ml_TailRisks_110614.png" t8="true" width="400" /></a></div><br />
I have no intention to be contrarian this month ...The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-66153674263534408732011-06-13T15:35:00.000-04:002011-06-13T15:35:26.806-04:00Barclays On US Deflation RisksWhile the equity investors like the industrialists of Weimar Republic are awaiting for the first hints of QE3 by Fed, I was a bit surprised that the risk of deflation appears like a distant probability. Here the latest take by economists at Barclays Capital:<br />
<br />
<em><span style="color: blue;">The increase in inflation and inflation expectations has also coincided with a reduction in deflation risk. Figure 3 shows the probability of cumulative inflation over a one-year horizon using information from both TIPS and CPI options data. The figure shows that the probability of deflation over the one-year ahead horizon in August of last year was 36%. When 5y5y breakeven inflation reached its recent high in April of this year, the probability had fallen to about 3%. Currently, it stands at about 7%. In addition, Figure 4 shows that the market remains more willing to pay for protection against upside inflation risks than protection against excessive deflation risk. The figure plots the difference in premiums paid on +200bp out-of-the-money inflation caps and -200bp out-of-the-money inflation floors for different horizons. Because an inflation cap pays off when cumulative inflation exceeds the threshold specified in the contract, a positive reading is an indication that the caps are more expensive than the floors; in other words, the market sees the distribution of expected inflation as skewed in the direction of upside inflation risk. The trends from CPI options markets suggest that skew has been moving in the direction of willingness to pay for protection against upside inflation risk, whereas for much of last year, participants were willing to pay more for protection against deflation.</span></em><br />
<em><br />
<span style="color: blue;"></span></em><br />
<em><span style="color: blue;">Altogether, we see the trends in inflation markets as consistent with Chairman Bernanke’s comments in his April press conference that the balance of risks between seeking additional progress on its dual mandate relative to further balance sheet expansion was “less attractive” than it was a year earlier. We therefore see the Fed as inclined to remain patient. If incoming data confirm the Fed’s view that the economy is turning up in the second half of the year, the FOMC will likely continue on its path towards normalizing the policy stance. However, if the recovery fails to regain momentum, the balance of risks may shift back in favor of further Fed action.</span></em><br />
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Click on charts to enlarge, courtesy of Barclays Capital.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiW3cNkZ-FtXKcWg99094vxSuq9s4coOwHguTexrUIWArBesWA5K5EtEDJcJkTKm3alXcC_deRyj3oqwUOWihFZvm-daCjIDr7x_ZT95MshVk4enDSwNfqS2xCOkVmPbyJa7Llq_lvhyje7/s1600/bc_DeflationRisk_110610.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="173" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiW3cNkZ-FtXKcWg99094vxSuq9s4coOwHguTexrUIWArBesWA5K5EtEDJcJkTKm3alXcC_deRyj3oqwUOWihFZvm-daCjIDr7x_ZT95MshVk4enDSwNfqS2xCOkVmPbyJa7Llq_lvhyje7/s400/bc_DeflationRisk_110610.png" t8="true" width="400" /></a></div><br />
Well, just in case ... "if the recovery fails to regain momentum". Why it should?The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-76996235178811054832011-06-06T16:19:00.001-04:002011-06-06T16:23:14.550-04:00On Hiatus This Week<span style="font-family: Georgia, "Times New Roman", serif;">The bulls(hitters) have it difficult to defend the technical support levels around 1295 for S&P500 today.</span><br />
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<span style="font-family: Georgia;">Click on chart to enlarge, courtesy of <a href="http://stockcharts.com/h-sc/ui?s=$SPX&p=D&b=5&g=0&id=p74008385655">StockCharts.com</a></span> (click on link for up-to-date version).<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5W_6lQdnlJMb3fGqCwMh7qcK-7ikfr41UhVTys9G5E584JnMi-YbtOdBUeTlpBK_-LpdqDE6wQWDsKW7opblBrbIqvVIbalivrhERwmjnBgpgznffC2vjKRljGmift3Zi90O_AKWYUCUE/s1600/sp500_110606.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="303" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5W_6lQdnlJMb3fGqCwMh7qcK-7ikfr41UhVTys9G5E584JnMi-YbtOdBUeTlpBK_-LpdqDE6wQWDsKW7opblBrbIqvVIbalivrhERwmjnBgpgznffC2vjKRljGmift3Zi90O_AKWYUCUE/s400/sp500_110606.png" t8="true" width="400" /></a></div><br />
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Sometimes bulls like cheaper prices, like March lows, for example ...The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-36463582950351672102011-06-03T17:44:00.001-04:002011-06-03T17:46:00.272-04:00Corporate Profits & Margins At Record High Vs Real WagesWell, let's put them both in confrontation - <a href="http://thefrugalplain.blogspot.com/2011/05/margins-profit-shares-at-new-all-time.html">record high corporate profits and margins</a> versus <a href="http://thefrugalplain.blogspot.com/2011/06/more-than-1000-words-can-tell.html">real wages</a>. Then, this is the <a href="http://dismalpoliticaleconomist.blogspot.com/2011/05/dismal-political-economist-interviews.html">part of Keynes I believe in</a>, while otherwise the problems have been created because we have departed from, sort of, "Austrian" school:<br />
<br />
<span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; -webkit-text-decorations-in-effect: none; -webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; border-collapse: separate; color: black; font: small "Times New Roman"; letter-spacing: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><span class="Apple-style-span" style="color: #222222; font-family: Georgia, Utopia, "Palatino Linotype", Palatino, serif; font-size: 15px; line-height: 21px;"><span style="color: blue;"><em>Business doesn’t invest and hire because they feel good, they invest and hire because they think someone will buy what they are making and selling. </em></span></span></span><br />
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<span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; -webkit-text-decorations-in-effect: none; -webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; border-collapse: separate; color: black; font: small "Times New Roman"; letter-spacing: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><span class="Apple-style-span" style="color: #222222; font-family: Georgia, Utopia, "Palatino Linotype", Palatino, serif; font-size: 15px; line-height: 21px;">There is a substantial downside for riches, as Keynes speak "Austrian". Debt destruction will lead to savings destruction, that will in turn require more savings and less consumption.</span></span>The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-87331686164646684252011-06-03T17:05:00.000-04:002011-06-03T17:05:47.076-04:00More Than 1000 Words Can TellThe Blogosphere went on to look at US real wage growth today, e.g., <a href="http://economistsview.typepad.com/economistsview/2011/06/10-year-real-wage-growth-worse-than-during-depression.html">comparing it to Great Depression</a>, but <a href="http://thefrugalplain.blogspot.com/2010/11/what-us-consumer-is-spending.html">has been my focus for a while already</a>. Well, a nice picture from the team of Chris Wood at CLSA Asia-Pacific Markets yesterday.<br />
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Click on chart to enlarge, courtesy of CLSA Asia-Pacific Markets.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhxC7F51Uzmko3jKJleOEr_3QlvCVxN94CjQwevnPU2DLjFW8tDk3L1oC6hrONQudfBCRMazWGzMBosQR4ps0d6HTqhnagOS37K45Vr2owfF_afTeqDlPM_NikWeF3WB4klUA1ajdxpaGrZ/s1600/clsa_USRealDisposableIncome_110602.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="172" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhxC7F51Uzmko3jKJleOEr_3QlvCVxN94CjQwevnPU2DLjFW8tDk3L1oC6hrONQudfBCRMazWGzMBosQR4ps0d6HTqhnagOS37K45Vr2owfF_afTeqDlPM_NikWeF3WB4klUA1ajdxpaGrZ/s320/clsa_USRealDisposableIncome_110602.png" t8="true" width="320" /></a></div><br />
We need more stimulus, to <a href="http://krugman.blogs.nytimes.com/2011/05/30/bubble-debt-denialism/">drive trend consumption that was driven by debt bubble</a> ...The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-91137238527162664702011-06-02T16:29:00.000-04:002011-06-02T16:29:46.735-04:00Chart Of The DayWhile <a href="http://blogs.wsj.com/marketbeat/2011/06/02/downside-economic-surprises-lately-the-worst-since-the-recession/">media still wonders around economic surprises</a>, and I <a href="http://thefrugalplain.blogspot.com/2011/04/surprised-by-bullish-action-in-bonds.html">did it very clear a month ago</a>, we move on to chart of the day, this time from credit strategists at BNP Paribas. No comment, brrrrr.<br />
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Click on chart to enlarge, courtesy of BNP Paribas.<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8daIgsNxhFrNzII-xQpXNM0RsP7TXam8aZzXVqo9ZogPSk3uCXIJBa29ILQMhcprJGzzHPjR0W9qKysmHz5SI__M8DaUjfB15u2usl-OBeFsxSP4-rKaZEHknCOhBVtg-T6uM-70rk3ST/s1600/bnpp_ISMvsSP500_110602.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg8daIgsNxhFrNzII-xQpXNM0RsP7TXam8aZzXVqo9ZogPSk3uCXIJBa29ILQMhcprJGzzHPjR0W9qKysmHz5SI__M8DaUjfB15u2usl-OBeFsxSP4-rKaZEHknCOhBVtg-T6uM-70rk3ST/s400/bnpp_ISMvsSP500_110602.png" t8="true" width="400" /></a></div>The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-4199543349251663892011-06-01T16:33:00.000-04:002011-06-01T16:33:54.684-04:00Chinese HolesWhile the markets digest the bearish <a href="http://247wallst.com/2011/06/01/a-china-slowdown-just-when-its-needed/">PMIs</a>/<a href="http://online.wsj.com/article/SB10001424052702303657404576359122470523138.html">ISM</a> reports, with the <a href="http://www.bespokeinvest.com/thinkbig/2011/6/1/is-the-slow-economic-data-due-to-japan-or-something-deeper.html">weakness attributed to Japanese earthquake</a>, I am looking elsewhere today. Actually, my mind is <a href="http://thefrugalplain.blogspot.com/2011/05/chinese-imports-already-show-signs-of.html">in China</a>, <a href="http://thefrugalplain.blogspot.com/2011/05/paper-money-one-of-chinas-historic.html">again</a>.<br />
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Today I list some of the "Holes in the bull argument" written by property analysts at Credit Suisse on Monday:<br />
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<span style="color: blue;"><em>■ Credit Suisse proprietary surveys on banks, construction companies and unlisted developers showed no light at the end of the tunnel. Banks’ lending has become much more pragmatic, and the well-accepted perception of favouritism on SOEs may not be correct; many developers are delaying payments to construction companies, and taking private loans with interests beyond 20%—sector cash flow may get much worse soon.</em></span><br />
<span style="color: blue;"><br />
<em></em></span><br />
<span style="color: blue;"><em>■ ‘Rising salary’ may not solve China's housing affordability issue. Income growth targets and the proposed new income tax reform focus on low income class—the target customers for private housing may actually be worse off as a result.</em></span><br />
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<em></em></span><br />
<span style="color: blue;"><em>■ The industry consolidation argument has neglected the impact to book value. Major listed developers only represent a fraction of China’s property market. The potential exodus of small developers could be overwhelming, and lowered land prices may force listed developers to adjust book value.</em></span><br />
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Click on chart to enlarge, courtesy of Credit Suisse.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2v1JVCYwLagr5Im9evVRZzmbaF07nl5Yqj0eLDhR_3p4IyyZjlAN-2PSpnY6asZm6giMrW6ES0_smq5Uv3rkJ-AabNKZjgMJLMdEy3ujcAGG6KV1PuStz7H88LFd13xTGkwHbUWIvZsg9/s1600/cs_China_LandPrices_110530.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="238" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2v1JVCYwLagr5Im9evVRZzmbaF07nl5Yqj0eLDhR_3p4IyyZjlAN-2PSpnY6asZm6giMrW6ES0_smq5Uv3rkJ-AabNKZjgMJLMdEy3ujcAGG6KV1PuStz7H88LFd13xTGkwHbUWIvZsg9/s400/cs_China_LandPrices_110530.png" t8="true" width="400" /></a></div><br />
<span style="font-family: Times, "Times New Roman", serif;"><span style="font-family: inherit;">By the way, <span class="Apple-style-span" style="-webkit-border-horizontal-spacing: 0px; -webkit-border-vertical-spacing: 0px; -webkit-text-decorations-in-effect: none; -webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; border-collapse: separate; color: black; font-family: "Times New Roman"; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><span class="Apple-style-span" style="color: #333333; font-family: Georgia, serif; line-height: 21px;"><a href="http://ftalphaville.ft.com/blog/2011/06/01/581561/china-takes-on-its-massive-muni-mess-with-a-463bn-bailout/">China takes on its massive muni mess with a $463bn bailout</a>, to start with ...</span></span></span></span>The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-24179351667605781692011-05-31T16:03:00.000-04:002011-05-31T16:03:37.513-04:00Paper Money - One Of China's Historic InnovationsI was reading a special report by Mizuho Securities Asia today, written by Alexandra Harney and titled "Can China Innovate?". I think for many investors, also those deep in the Austrian school, it will be a refreshing reminder, among other things, that "paper money" was introduced by China, at least so is it accounted for...<br />
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Click on picture to enlarge, courtesy of Mizuho, my annotation.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZUjFKdi10wxyV0Y9nFArFl3UqixMuZeXx2MnrAAAdvztKtOD25fRxHys9Zhbe1SmvQXdcpFoHb-jixnuCl7QD8IAfL-U_vWMX06ApxOD4M5BaZZcz_U2mbsxRi59PS5EYdF_bN9hnV5Nw/s1600/m_ChinaInnovations_110531.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="360" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZUjFKdi10wxyV0Y9nFArFl3UqixMuZeXx2MnrAAAdvztKtOD25fRxHys9Zhbe1SmvQXdcpFoHb-jixnuCl7QD8IAfL-U_vWMX06ApxOD4M5BaZZcz_U2mbsxRi59PS5EYdF_bN9hnV5Nw/s400/m_ChinaInnovations_110531.png" t8="true" width="400" /></a></div>The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-21431397400836897322011-05-30T15:35:00.000-04:002011-05-30T15:35:55.014-04:00Chinese Imports Already Show Signs Of A SlowdownI am entertaining myself with the chart below that comes from economists at Barclays Capital. We have had musings about the<a href="http://thefrugalplain.blogspot.com/2011/05/importance-of-difficult-to-measure.html"> importance of Chinese growth story</a>, also as a <a href="http://thefrugalplain.blogspot.com/2010/11/socgen-china-now-drives-global.html">leading indicator for the global manufacturing cycle</a>. Obviously, Chinese imports play here some role.<br />
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Click on chart to enlarge, courtesy of Barclays Capital.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSDKsbnETPVRRn7_fZgv7ZwB5Y0yIzqznc9AGpJyZzQn5DiP-O9pDAyP9YsXGkKcraYwWqOeBYv4KynMjm258NvrYB6IeHJ9sXzuw8QV18KnGnjf3orjHEN6CZ01OtIHHJpZUnJE2iCQXj/s1600/bc_China_imports_110527.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="326" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSDKsbnETPVRRn7_fZgv7ZwB5Y0yIzqznc9AGpJyZzQn5DiP-O9pDAyP9YsXGkKcraYwWqOeBYv4KynMjm258NvrYB6IeHJ9sXzuw8QV18KnGnjf3orjHEN6CZ01OtIHHJpZUnJE2iCQXj/s400/bc_China_imports_110527.png" t8="true" width="400" /></a></div><br />
The economists at Barclays Capital wrote on Friday:<br />
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<em><span style="color: blue;">... there are already signs of a slowdown in Chinese imports from the US and Europe.</span></em>The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0tag:blogger.com,1999:blog-3072232647123262588.post-15487759942646159322011-05-26T16:37:00.001-04:002011-05-26T16:37:16.104-04:00BNP Paribas: US Bank Credit Has Underperformed Europe'sIndeed, interesting, brought to you by credit strategists at BNP Paribas today, my emphasis in bold and underlined:<br />
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<em><span style="color: blue;">It is interesting to note that while European bank paper (Senior and LT2) has widened on the back of sovereign concerns, US bank paper (Senior and LT2) has widened more over the last month due to housing double-dip, legal issues and relatively weaker economic environment. This US bank underperformance stresses two key points, namely that <strong><u>the GIP sovereign crisis is increasingly being seen as idiosyncratic and manageable while the US economic slowdown if sustained is likely to become a bigger issue in June.</u></strong></span></em><br />
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Click on charts to enlarge, courtesy of BNP Paribas.<br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8By9eB1ptxuKvhprLkAFlcCzBIUIdOnfck37DBu_n1I8DtKKIjXpQT2rKUazG2dwZofZrWkTiGMQ5rvgtXllplRI5pJAJnb5bEKvKyB1yQ26p4GzER02VmHtVFi86tgJ7RZgvVb3T7FGt/s1600/bnpp_BKX%2526UST2s-10s_110526.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="135" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8By9eB1ptxuKvhprLkAFlcCzBIUIdOnfck37DBu_n1I8DtKKIjXpQT2rKUazG2dwZofZrWkTiGMQ5rvgtXllplRI5pJAJnb5bEKvKyB1yQ26p4GzER02VmHtVFi86tgJ7RZgvVb3T7FGt/s400/bnpp_BKX%2526UST2s-10s_110526.png" t8="true" width="400" /></a></div><br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBMC7BB3ZllwCPmhkqRUcoIM8aDGc0dWJwWCaj8w1XW4PFLUmNllhxQ-0qNtIeJn0za-b7MNPOtSpceFDjvyLqYdA8cVLnRxkoRkDyCZGeUM1MikNSK9I7McLGR8NVK3bVxxbYsLpSNOFX/s1600/bnpp_CreditSpread_USBanksVsEU_110526.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="288" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiBMC7BB3ZllwCPmhkqRUcoIM8aDGc0dWJwWCaj8w1XW4PFLUmNllhxQ-0qNtIeJn0za-b7MNPOtSpceFDjvyLqYdA8cVLnRxkoRkDyCZGeUM1MikNSK9I7McLGR8NVK3bVxxbYsLpSNOFX/s400/bnpp_CreditSpread_USBanksVsEU_110526.png" t8="true" width="400" /></a></div><br />
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Well, let's see!The Frugalityhttp://www.blogger.com/profile/09817917785678363274noreply@blogger.com0