However, as I have been serious for a while, I decided to look at industrial metals in terms of gold, that was brought to me by good folks Citigroup Global markets today.
Click on charts to enlarge, courtesy of Citigroup Global Markets.
Wednesday, May 11, 2011
Grantham Gets Serious, While We Look At Bubbles In Terms Of Bubbles?
The legendary Jeremy Grantham moves on today and says it is Time To Be Serious ...
However, as I have been serious for a while, I decided to look at industrial metals in terms of gold, that was brought to me by good folks Citigroup Global markets today.
Click on charts to enlarge, courtesy of Citigroup Global Markets.
Bubbles in terms of bubbles? Or, all we saw so far was just an adjustment in USD value? Well, we are indeed constrained by resources and capital in the real world, that are not reserves of fractional reserve banking.
However, as I have been serious for a while, I decided to look at industrial metals in terms of gold, that was brought to me by good folks Citigroup Global markets today.
Click on charts to enlarge, courtesy of Citigroup Global Markets.
Spanish Insolvencies
You thought that situation in Spain is stabilising? Well, the analysts at German Commerzbank write today:
According to provisional data of the national statistical office, the number of insolvencies in Spain reached a new high in the first quarter. The recovery of autumn 2010 was therefore short-lived. The property sector’s share of bankruptcies remains strikingly high: Property developers or construction companies accounted for nearly a third of all business failures. This persistent concentration shows that the consolidation of the Spanish real estate market is still not over. At the same time, house prices continued their downward trend: At the end of March the house price index had fallen by a further 4.6% yoy. Pressure on asset quality in the credit portfolios of Spanish financial institutions therefore appears likely to continue for the time being.
Click on charts to enlarge, courtesy of Commerzbank.
Right, all is contained and under control, as always ....
According to provisional data of the national statistical office, the number of insolvencies in Spain reached a new high in the first quarter. The recovery of autumn 2010 was therefore short-lived. The property sector’s share of bankruptcies remains strikingly high: Property developers or construction companies accounted for nearly a third of all business failures. This persistent concentration shows that the consolidation of the Spanish real estate market is still not over. At the same time, house prices continued their downward trend: At the end of March the house price index had fallen by a further 4.6% yoy. Pressure on asset quality in the credit portfolios of Spanish financial institutions therefore appears likely to continue for the time being.
Click on charts to enlarge, courtesy of Commerzbank.
Right, all is contained and under control, as always ....
Tuesday, May 10, 2011
Alternate View On Financial Repression
I was reading Is Financial Repression the Answer? via Mark Thoma today. This paragraph sits in my sick mind:
Ms Reinhart and Ms Sbrancia argue the world has forgotten that the widespread system of financial repression “played an instrumental role in reducing or ‘liquidating’ the massive stocks of debt accumulated during World War II”. ...
Well, I just thought - what are real negative rates we have seen so often recently, and are "enjoying" right now? Probably the negative real interest rates is the true, but not obvious, financial repression managed by central banks in order to collect the "Greenspan's brownies" for splendid growth story, but leads to unsustainable credit/debt accumulation and Minsky moments? Debt destruction in this context would not be repression, but liberation ...
Ms Reinhart and Ms Sbrancia argue the world has forgotten that the widespread system of financial repression “played an instrumental role in reducing or ‘liquidating’ the massive stocks of debt accumulated during World War II”. ...
Well, I just thought - what are real negative rates we have seen so often recently, and are "enjoying" right now? Probably the negative real interest rates is the true, but not obvious, financial repression managed by central banks in order to collect the "Greenspan's brownies" for splendid growth story, but leads to unsustainable credit/debt accumulation and Minsky moments? Debt destruction in this context would not be repression, but liberation ...
Alternate Seasonality At Citi
This should be an interesting approach. The small and mid cap strategists at Citi went so far to write yesterday:
This “Topics” note provides a historical look at summer seasonal trading patterns, but with an alternate set of data where we remove recessionary periods, including the “tech bubble” time period, as well as the outlier circumstance that contained the ’87 “crash”. We acknowledge that this approach entails a large element of subjectivity but, nevertheless, provides an interesting, and alternative, set of observations. Figure 1 shows the seasonal trading pattern for the Russell 2000 with all periods since index inception in 1979 included. Figure 2 provides the “alternate” look.
Click on charts to enlarge, courtesy of Citigroup Global Markets.
And it continues just like this:
The takeaway of this analysis is two fold. First, there is clear evidence of small cap seasonality during the summer months, when viewed back to Russell 2000 inception circa 1979. Second, when the ’81-’82, ’90-91 and ’08-’09 recessionary periods, along with the ’98-’02 “tech bubble” phase are removed from the seasonal analysis, a much more benign summer seasonal trading picture emerges.
We acknowledge the inherent difficulties in defining “mid cycle” from a traditional statistical perspective. While removing “recessionary” periods, as well as the tech bubble phase, increases risk of data manipulation, we argue that this is, nevertheless, as relevant as traditional historical analysis, where average calculations can be overly influenced by outlier periods.
So, we acknowledge, but we will do much more to talk up? Hey, but this is normal market practice, just assume, e.g., money market indices in Europe ...
This “Topics” note provides a historical look at summer seasonal trading patterns, but with an alternate set of data where we remove recessionary periods, including the “tech bubble” time period, as well as the outlier circumstance that contained the ’87 “crash”. We acknowledge that this approach entails a large element of subjectivity but, nevertheless, provides an interesting, and alternative, set of observations. Figure 1 shows the seasonal trading pattern for the Russell 2000 with all periods since index inception in 1979 included. Figure 2 provides the “alternate” look.
Click on charts to enlarge, courtesy of Citigroup Global Markets.
And it continues just like this:
The takeaway of this analysis is two fold. First, there is clear evidence of small cap seasonality during the summer months, when viewed back to Russell 2000 inception circa 1979. Second, when the ’81-’82, ’90-91 and ’08-’09 recessionary periods, along with the ’98-’02 “tech bubble” phase are removed from the seasonal analysis, a much more benign summer seasonal trading picture emerges.
We acknowledge the inherent difficulties in defining “mid cycle” from a traditional statistical perspective. While removing “recessionary” periods, as well as the tech bubble phase, increases risk of data manipulation, we argue that this is, nevertheless, as relevant as traditional historical analysis, where average calculations can be overly influenced by outlier periods.
So, we acknowledge, but we will do much more to talk up? Hey, but this is normal market practice, just assume, e.g., money market indices in Europe ...
Monday, May 09, 2011
Real Interest Rates And Credit Growth In Asia
The last days are traded in the sign of Greek-out, but for the sake of change we travel to Asia today.
This is a nice depiction of real growth drivers in Asia too. You simply arrange the God's Work with negative real rates, and credits simply fly, as economists at Deutsche Bank are writing:
Declining, and often negative, real interest rates against a backdrop of strong growth provide strong support for credit growth, which is rising in most Asian economies.
Click on chart to enlarge, courtesy of Deutsche Bank.
While I am not so sure that "strong growth provide strong support for credit growth", I would rather think the other way round. However, this seems to be more important now:
China is a key exception. Despite negative real interest rates, credit growth has slowed for most of the last 18 months after the surge in lending in support of the government’s stimulus program in early 2009. Interest rates do not play an important role in allocating or managing credit growth in China.
And once again, if you doubt the first paragraph, can you trust the second quote?
This is a nice depiction of real growth drivers in Asia too. You simply arrange the God's Work with negative real rates, and credits simply fly, as economists at Deutsche Bank are writing:
Declining, and often negative, real interest rates against a backdrop of strong growth provide strong support for credit growth, which is rising in most Asian economies.
Click on chart to enlarge, courtesy of Deutsche Bank.
While I am not so sure that "strong growth provide strong support for credit growth", I would rather think the other way round. However, this seems to be more important now:
China is a key exception. Despite negative real interest rates, credit growth has slowed for most of the last 18 months after the surge in lending in support of the government’s stimulus program in early 2009. Interest rates do not play an important role in allocating or managing credit growth in China.
And once again, if you doubt the first paragraph, can you trust the second quote?
Friday, May 06, 2011
Thursday, May 05, 2011
Beauty Of 5 Standard Deviations In This Real World
Felix Salmon has the de-coding story today:
In a normally-distributed world, 5-standard-deviation moves never happen. In this world, however, such moves can happen even when there’s no news at all. (Reuters, for what it’s worth, blames “concerns about economic growth and monetary tightening”, which is code for “we have no idea why this is happening, or whether there even is a reason”.)
Click on chart of "first month Brent Crude Oil futures" to enlarge, courtesy of Reuters.
In a normally-distributed world, 5-standard-deviation moves never happen. In this world, however, such moves can happen even when there’s no news at all. (Reuters, for what it’s worth, blames “concerns about economic growth and monetary tightening”, which is code for “we have no idea why this is happening, or whether there even is a reason”.)
Click on chart of "first month Brent Crude Oil futures" to enlarge, courtesy of Reuters.
Wednesday, May 04, 2011
Victory Of Monetarism At Citi
Tobias Levkovich, the US equity strategist at Citigroup, posted the "chart of the month" yesterday, and the monetarism obviously leads the investment idea there:
Credit conditions remain critical for business investment and economic activity. The latest senior loan officers survey released by the Federal Reserve Board shows further easing in loan standards during 2Q11 (including those for small business and consumers) which has been a powerful nine-month lead indicator for investments in human, physical and working capital. As credit conditions improve, it is highly likely that business trends and GDP should remain constructive for the balance of 2011, reducing the probability of economic weakness developing. However, actual commercial & industrial loan activity lags the survey by 18 months and investors need to understand the differences in timing.
And the market concerns should be misguided:
Concerns about QE2 ending, higher energy prices and some moderation in ISM new orders miss the durability point. While the investment community may get distracted by the end of the Fed’s $600 billion in bond purchases this June, not to mention plausible softening in ISM new order figures from current elevated levels, the costs of corporate capital is far more crucial for determining capital spending programs as the return of investment capital is weighted against its cost. Indeed, worries with respect to higher gasoline prices undermining consumption should be offset by more jobs as a result of the eased lending standards. Thus, as the credit environment progresses more favorably, so should the decision making to generate returns.
Click on chart to enlarge, courtesy of Citigroup Global Markets.
Bears should be disappointed? Well, if not Loan Demand, Not Credit, Is The Problem ... and some price issues ...
Credit conditions remain critical for business investment and economic activity. The latest senior loan officers survey released by the Federal Reserve Board shows further easing in loan standards during 2Q11 (including those for small business and consumers) which has been a powerful nine-month lead indicator for investments in human, physical and working capital. As credit conditions improve, it is highly likely that business trends and GDP should remain constructive for the balance of 2011, reducing the probability of economic weakness developing. However, actual commercial & industrial loan activity lags the survey by 18 months and investors need to understand the differences in timing.
And the market concerns should be misguided:
Concerns about QE2 ending, higher energy prices and some moderation in ISM new orders miss the durability point. While the investment community may get distracted by the end of the Fed’s $600 billion in bond purchases this June, not to mention plausible softening in ISM new order figures from current elevated levels, the costs of corporate capital is far more crucial for determining capital spending programs as the return of investment capital is weighted against its cost. Indeed, worries with respect to higher gasoline prices undermining consumption should be offset by more jobs as a result of the eased lending standards. Thus, as the credit environment progresses more favorably, so should the decision making to generate returns.
Click on chart to enlarge, courtesy of Citigroup Global Markets.
Bears should be disappointed? Well, if not Loan Demand, Not Credit, Is The Problem ... and some price issues ...
Tuesday, May 03, 2011
Nomura: US Factory Orders Rose Because Of Higher Gasoline Prices
While media focuses on headlines of factory orders, the real picture may be a bit different to Keynesian dream that either neglects or intentionally sees compression of corporate margins.
However, the economists at Nomura explain today:
US factory orders rose 3.0% m-o-m in March exceeding market expectations of a 2.0% increase. Although the solid growth in orders partly reflected healthy growth in the manufacturing sector, price effects of higher input costs to some extent drove up the US dollar value of orders for US manufactured goods. Orders for nondurable goods jumped 3.1% in the month, part of which was led by a 7.8% m-o-m increase in orders for petroleum and coal products. The solid gain in overall orders should be viewed with caution because of price effects, as orders for goods excluding petroleum and coal products rose by only 1.7% m-o-m compared with the 3.0% increase in orders for overall products.
Well, probably Fed will discover someday the difference between nominal and real growth, which one is to drive the employment ...
However, the economists at Nomura explain today:
US factory orders rose 3.0% m-o-m in March exceeding market expectations of a 2.0% increase. Although the solid growth in orders partly reflected healthy growth in the manufacturing sector, price effects of higher input costs to some extent drove up the US dollar value of orders for US manufactured goods. Orders for nondurable goods jumped 3.1% in the month, part of which was led by a 7.8% m-o-m increase in orders for petroleum and coal products. The solid gain in overall orders should be viewed with caution because of price effects, as orders for goods excluding petroleum and coal products rose by only 1.7% m-o-m compared with the 3.0% increase in orders for overall products.
Well, probably Fed will discover someday the difference between nominal and real growth, which one is to drive the employment ...
Monday, May 02, 2011
US Nominal Vs Real Spending
I am not going to make long speech or writing about the sustainability of US spending, but it is the driving force of "growth" again. Just one question to Mr. Bernanke who is about to embrace new real-time tests of Philips Curve. Is nominal or real growth more likely to lead to employment gains?
Click on chart to enlarge, courtesy of BNP Paribas.
Click on chart to enlarge, courtesy of BNP Paribas.
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