Even Bears Sucked In Slowly

Even smart investors are slowly, but slowly, giving up ... this should turn to become very exciting!
I don't care, took my Porsche to gas guzzling ride ...

SEB's View On Equities Is "Unclear"

The painting artists at Swedish SEB have rolled out their latest Technical Week Ahead today, where their conclusion is pretty straight forward - unclear.

Click on charts to enlarge, courtesy of SEB.

Excavating Deep Routes Of Reflexivity & Fallibility

Nothing else, but archeology of indecent thinking by Goerge Soros back in 1997?

Fed Goes Heavy On Transparency PR, But Don't Audit Us!

As the MarketBeat reports, chairman Ben will be speaking more directly to the public in the coming months, via four-times-a-year press conferences, just to “further enhance the clarity and timeliness of the Federal Reserve’s monetary policy communication.”

The Federal Reserve could not possibly be more transparent. But don’t audit us!

Focus On Saudi And Shiite

Christopher Wood at CLSA Asia-Pacific Markets scribed yesterday:

Still as the Western politicians responsible posture, most of them with a public relations agenda rather than a military agenda, GREED & fear would continue to advise investors to focus on Bahrain, the Shiite area of Saudi and also the Shiite area of Kuwait where again hundreds of thousands of Shiites live close to the oil producing area.

...
Unfortunately, the odds still favour further escalation, with such escalation being encouraged by both Iran and Iraq which now has a Shiite dominated regime. This issue is a much greater threat to the near term prospects of global financial markets than radiation levels in Japan or the sideshow in Libya. Meanwhile, if Saudi starts taking on its own Shiite population in a more violent fashion, what are the “Allies” going to do? Invade Saudi!

Indeed, oil feels like natural hedge?

From Deleveraging To Derating

Gerard Minack at Morgan Stanley kinda goes deeper into the sovereign debt issue than Steven Wieting and is wrapping up today:

The most important change in borrowing in the US over the past three years was who has borrowed, not how much was borrowed. The credit super-cycle was largely a private sector activity, but the public sector has been the only borrower (in net terms) over the past two years (Exhibit 2). This swap was critical. The private sector has reduced its leverage (and increased its saving), but this has only been made possible by the unprecedented peacetime increase in leverage (and fall in saving) by the public sector. To focus in isolation on lower private sector leverage (and rising saving) as a sign of ‘healing’ misses the point that it’s only been possible due to the stretch in public sector finances.

Click on charts to enlarge, courtesy of Morgan Stanley.

While there are serious questions about real deleveraging by US households, however, the "sort of" conclusions at the end of Morgan Stanley's note sound like this:

Borrowing to buy pre-existing assets can affect the valuation of those assets. Most periods of sustained asset revaluation go hand-in-hand with sustained leverage increases (Exhibit 6). While sustained deleveraging does not imply sustained macro weakness, I think it will put downward pressure on asset valuations. I think most assets are now expensive relative to history. Deleveraging points to asset valuations falling.

I believe one should sort out what they are buying now - potential cash flows or real assets?

Lend More Money To Governments At Negative Real Rates

Some snippets from Steven Wieting, US economist at Citigroup, written on Monday:

If deficit spending hasn’t immediately boosted hiring, where did the money go? To the extent that increased government spending has not immediately been matched by private labor income, it boosted corporate profits.


The personal savings rate has risen significantly – but with the aid of income transfer payments of largely borrowed money. If, as we expect, national savings in the U.S. rises in the years ahead as fiscal easing unwinds, we believe corporate profits will rise less than the economy expands.


Increased transfer payments during the severe recent downturn were 3X the size (relative to GDP) of average recessions of the past four decades. Tax cuts, credits and rebates added up to 2% of GDP intermittently in recent years.

So, lend more money to governments that can transfer it easily into pockets of corporate shareholders. But now, when QE is destroying the foundations of private credit markets, sleep well in wealth delusion.

China Landing Watch

Macro strategists at Nomura are tracking the China landing today:

In recent months, China has been stepping up its efforts to slow the economy and curb inflationary pressures, with both M2 and industrial production growth slowing substantially. Looking ahead, a key question is whether Chinese policymakers can achieve a soft-landing-like scenario of trend growth and lower inflation. While on balance we are optimistic, we also admit it is too early to judge the success of China’s anti-inflation policies. With this in mind, commodity prices already look a little expensive relative to China’s growth, the case for further CNY appreciation is still compelling and it is too early to buy regional equities in our view.

Click on charts to enlarge, courtesy of Nomura.

Right, that China’s missing M2 ...

Uncertainty Shock

This is another interesting view by US economists at Goldman Sachs:

Uncertainty can cause firms or individuals to postpone irreversible big-ticket purchases or investments. The option value of waiting to get a better read on the future goes up in uncertain times, leading to “wait and see” behavior that results in a short-term decline in economic activity. Once the coast is clear, activity typically rebounds (exhibit below right). The impact of “uncertainty shocks” can therefore look quite different than the impact from forces such as monetary tightening.


Our own tests, following in the spirit of recent academic research on the topic, find that “uncertainty shocks” have a fast-acting, negative impact on growth, but rarely lead to recession. As expected, the effect is clearest for “big ticket” purchases or investments. A large part of the impact on the economy appears to occur via subsequent changes in financial conditions, reaffirming the usefulness of a financial conditions framework for forecasting in uncertain times.

Click on chart to enlarge, courtesy of Goldman Sachs.

European Leading Indicators & Hard Facts

Economists at Goldman Sachs look at their leading and coincident indicators:
Our survey-based GDP tracker now points to a +0.8% qoq expansion in early stages of Q1. Our leading indicators of IP is signalling a pick-up in industrial momentum.

Click on charts to enlarge, courtesy of Goldman Sachs.

And here are the hard facts of recovery as measured by industrial production.