12th January 2012: Taking A Walk On The Macro Decision Tree
Quote of the Day:
Professor John Cochrane of the Universityof Chicagohas written a series of brilliant papers and articles on this problem, forcefully demonstrating the math that interest rates are partially a reflection of the risk that investors perceive concerning the potential for returns on their money. When they begin to lose confidence that a government (or business) will be able to raise enough revenue to pay off the debt at some point in the future, interest rates begin to rise. At first, there are all sorts of reasons given. Then there is a moment when the bond market simply walks away. Rogoff and Reinhart call it the “Bang Moment”.
John Mauldin
Macro Overview
Mauldin’s Binomial Tree
- I like Mauldin, his writing is easy to digest, logical and educational – not many writers can achieve this. Something for me to aspire to!
- His first piece of 2012 is something to read for those of you looking to try to make sense of binary decisions, path dependency and the binomial macro trees we face in 2012. In many ways it’s a good thing because we still have control over our choices – even though our choices may be limited by the choice before it (path dependency). Check out the article here – it’s a good read.
ECB Bazooka Is Holding Its Own
- Draghi is right. After predictably leaving rates unchanged Super Mario whistled a pretty sanguine tune. There are some really encouraging signs beginning to develop in the European credit markets (that’s what matters – forget equities). I see CDS spreads for a number of the concerning sovereigns easing tighter and the auctions are actually going pretty well. The December auction strikes and political panic is starting to look more like a blip than an inflexion point. Let’s keep monitoring…
Keep An Eye On Corporate Announcements and Earnings
- JPMorgan Earnings out tomorrow. But there will be more later!
Market Overview
Tesco gets smashed
- Tesco is a huge retailer in Europe (bigger than Target). They simply have massive market share here in the UK and dominate almost every space of consumerism from the stores they run to mobile phones and insurance. They buy ‘em cheap and stack ‘em high – the kind of store you’d expect to hold up in an environment. But for some reason they’re reporting very poor Christmas sales. That’s quite a shock, it means either:
- Tesco has done something very different to past Christmases and done it badly,
- This is very bad news as it implies consumers are really cutting back on absolutely everything
- This is great news for the economy because consumers have enough confidence to shop at higher-end stores this Christmas
- I dunno about you dear reader but my money ain’t on #3!
- Chart of the Day is Tesco 2 year chart – check out the volume! The street really did not react kindly to this at all did it?
Chart of the Day
Tesco 2 Year Chart (Source: Bloomberg)
Events
Macro Events:
Update:
- India Industrial Production came out high – +5.9% vs expectation of only +2.1%
- US Jobless Claims 399k but importantly not any huge revisions
Alerts:
- Look out for Taiwanese Elections this weekend. My political theme for 2012 begins here!
Corporate Events:
Results:
- JP Morgan [JPM]
Dividends:
- Nothing Significant
Reading, Links:
Nothing Significant
