13th February 2012: Eurozone Hatred – Where Is The Love?

 

German Focus Magazine: "Cheaters in the Euro Family".

Quote of the Day:

But if you only have love for your own race
Then you only leave space to discriminate
And to discriminate only generates hate
And when you hate then you’re bound to get irate
Madness is what you demonstrate
And that’s exactly how anger works and operates

Black Eyed Peas

 

Macro Overview

Where Is The Love?

• At times it seems the mainstream media in both Germany and Greece are hell bent on inciting hatred between the two nations. I guess that’s what sells papers. But what happened to the “Union” in European Union? What happened to the “Community” in European Community? Greek parliament passed the Troika-engineered austerity bill. I don’t know what else to say about Greece other than I’m glad I’m not Greek.
• The German political front is throwing the book at the the hapless Greek public and then some, in my opinion. Greece should, of course, bear the cost of its fiscal follies, but many of the problems were rooted in the political design, which was the responsibility of, not one nation, but many. This is more than the European Union collectively making an example of a rogue state, this is “tough love”… only without the love.

Market Overview

Financials Take A Beating

• European banking giants BNP and Unicredit led the way downwards for the financials today – it was not a good day for European financials.

$500 Apple

• $500 Apple. Apple stock tops $500. Man that’s just amazing. Market cap is over $460 billion – are we looking at what may be the first $ Trillion company? A bit to early to say… but some people think so and if central banks keep the global printing frenzy up $1 Trillion will not seem like much in the next few years. I mean it!

 

Chart of the Day

Unicredit 4-day chart (Source: Bloomberg)

 

Events

Macro Events:

Update:

• Japan GDP came out at -2.3%… errrmm… yuck… the less said about this the better!

Alerts:

• Greece GDP (provisional)… Yoicks! As a yardstick, the last YoY reading was -5%.
• Japan Industrial Production
• Portugal GDP (provisional)… Yoicks! As a yardstick, the last YoY reading was -1.7%.

 

Corporate Events:

Results:

• Tata Motors [TTMT IN], ThyssenKrupp [TKA GR],

Dividends:

• Microsoft [MSFT], Wynn Resorts [WYNN],

 

Reading, Links:

Nothing Significant.

8th December 2011: Merkel: All I Want For Christmas Is “EU” (With A Brand Spanking New Treaty Of My Design, Please)

 

Quote of the Day:

The method by which money is being channeled to European countries should not obscure that fact that the treaty says no monetary financing to governments.

The spirit of the treaty is always on our minds.

Mario Draghi – ECB President

Macro Overview

Super Mario’s QE … Kinda…

• Super Mario Draghi looked comfortable at his second news conference as the head of the ECB. Although I think he needs to get into the habit of remembering the questions that were asked to him – I lost count of how many times he said “sorry, what was the question, again?”
• As well as cutting rates by 25bps (apparently a 50bps cut was not even on the table), Draghi announced additional liquidity to banks including terms as long as 3 years (with option to pay back after 1 year). I mean the European banks are going to have to work pretty hard to run out of cash, even with Greek sovereign debt loaded on their balance sheets.
• Critically, though, he remained Trichet-esque as he stood firm on debt monetization and declared that the ECB would not be capping borrowing rates or direct purchases of government bonds and (interestingly) emphasized that they would honour and respect the “spirit of the treaty”. So while the banks will have to work hard to go bankrupt due to lack of liquidity, they’ll have to work pretty hard to remain solvent and profitable.
• So this is QE – it’s an unconventional monetary easing measure – but it’s not what the market was hoping for. I hate to be a kill-joy but from the point of view of moral hazard and legality, this was the right thing to do. The ECB’s job is to support the financial system, that’s not the same as writing-off bad decisions by bank CEOs. But I’ll admit, Super Mario is treading a very fine line here.

 

Redefining GSE’s

• A government sponsored enterprise (GSE) usually applies to a single government. But in many respects the EU is a GSE just sponsored by many governments. It serves the interests of the entire population of the Eurozone as a whole. But does it serve the interests of some (the European “elite”) more than others, that is the question.
• While the ECB meeting moved the markets, make no mistake. December will be defined by tomorrow’s summit in the EU. OK, Treaty Change – fine. But now we want to see the small print. Draghi pointed to some automatic punitive kickers to be wired into a treaty change… that’s exactly what I explicitly defined months in my piece (TIPSTER’s “European Consolidation Treaty”) ago, before it was hyped up in the media by politicians (keep up Mario!).
• If we see language of this form – directly specifically at fiscal ruling. Then I think this would be a good thing. However there are already rumours that Merkel wants to plan another summit before Christmas, indicating that they may not have anything substantial to deliver. Worse still, Merkel may push the rest ofEuropetoo far by asking for anti-monetization clauses to be put directly into the Treaty itself. If this happens I think the market outlook will deteriorate all over again. Indeed, brinkmanship of this sort from Merkel would indicate to me that the Germans are actually pushing for a break up of the Euro themselves.
• Of course I think Treaty Change on supra-national fiscal discipline is a great idea – it was my idea! But it needs time to work otherwise it will be dead in the water before it is even born. I also stated that Europe would probably concurrently need some additional (short and medium term) aggressive liquidity measures to ensure the survival ofEurope’s financial union until such fiscal measures take effect.
• One thing for sure, we may have to get used to a new European GSE, a government sponsored enterprise of an entirely German mold. But in this case the acronym stands for: the Germanic States of Europe.

 

Market Overview

ECB reaction

• Market started to sell off as soon as Super Mario started talking really. There was no silver bullet today from the ECB. I’m not sure what the market was expecting – but liquidity to the banking sector was not “the right type” of QE… they wanted the banks to be able to sell their bad loans at par to the ECB. It ain’t gonna happen under this treaty under this ECB President – that’s what Draghi told them. All eyes on the summit – every economist, political scientist, investor and businessperson under the sun will be digesting the minutes from this over the weekend. Next week could be lively!
• Chart of the Day is LIBOR-OIS for Euro. Inter-bank funding looking a little painful.

 

Chart of the Day

EUR LIBOR-OIS (Source: Bloomberg)

 

Events

Macro Events:

Update:

• UK BoE keeps rates unchanged
• ECB cuts rates by 25bps, announces QE long term liquidity measures
• US Jobs slightly better than expected

Alerts:

• Japan GDP

 

Corporate Events:

Results:

• Nothing Significant

Dividends:

• FedEx [FDX]

 

Reading, Links:

Nothing Significant

16th November 2011: China Risk is Front and Centre (again)

Currency Wars

Quote of the Day:

…the Eurozone crisis is not just closely related to the unstable recovery of the global economy against the backdrop of the international financial crisis but was also a result of the long term accumulation of internal problems…

Wen Jiabao’s barbed retort to European Council’s Van Rompuy after he failed to turn up to his appointment to meet the Chinese Premier.

Macro Overview

China: Geopolitical Risk From The West

• Obama gave China a public verbal beating the other day telling the World’s growth engine to start behaving like an economic “grown up”. Hmpht! Talk about the pot calling the kettle black. Chinese officials must be laughing at this for sure – who are the Americans to start lecturing people over financial prudence? “Ah, that’s the problem with these democracy-junkies“, they’ll scoff, “as soon as an election appears around the corner they’ll say any old claptrap to get a few votes – even if it is not constructive to the future of the country!“
• But you can feel the uneasiness of a relationship under strain as the US announced that it would station more troops in the Pacific Rim today and ups the ante on the protectionist debate and anti-China rhetoric. I think relationships between the two symbiotic powers of the World are now as tense as they were two years ago when Obama ignored China’s pleas not to meet the Dalai Lama. Remember that day Chinese admirals subsequently refused the customary ceremonial tours as the USS Nimitz in the Hong Kong harbour. As I wrote at the time in my piece, Geopolitical Chess-Moves Between China and the US: “a move which Americans are playing down but are a little shocked by, I think”.
• Never-the-less, attacks on China are coming from many quarters. Europe views China a little more cautiously (perhaps with a little more respect) after they embarrassingly failed to get the so-called “dumb money” to buy into the basket-case that was the EFSF. As Van Rompuy found out (see Quote of the Day above), China is quite prepared to stamp its authority, now that it actually has some.

Christine Lagarde’s New IMF Holds No Punches on Chinese Financial Sector Risk

• Also, after berating Europe and its lack of discipline, the IMF turned East, issuing a stark warning to the Chinese about the precariousness of its banking system. A lot of people have the misconception that China has a limitless amount of cash at its disposal. That is simply not true when you consider the obligations of its own, and if you have to bail out an entire banking system those dollar bills (already being systematically debased) will disappear quicker than an iphone4S in a Central Hong Kong Apple Store – just ask the Europe, hell… just ask the Americans!
• Of course, dear reader, we know the nature of investment risk in China, indeed I wrote in my extensive piece: Prepare for The Dragon’s Fat Tail Risk.

Some of my friends in closer dialogue with Greater China businesses think that magnitude of bank losses due to NPLs may be greater than book equity of the banking sector as a baseline case. Don’t ask what the worst case scenario is, it’s too horrific to put into print.

• IMF also sounded the recession alarm bell for Hong Kong. The Telegraph cited:

Rampant lending since the 2008 financial crisis has left many companies and local governments in China with huge debts, while a recent slowdown in economic growth and falling property prices have fuelled fears of an explosion in defaults.

While China’s financial sector was “robust overall”, inefficient credit allocation and other weaknesses needed to be addressed, said Jonathan Fiechter, deputy director of the IMF Monetary and Capital Markets Department.

• But, again, the IMF is not telling us things we didn’t already know, dear reader. Over the months, I’ve made it quite clear that, while leverage and NPL problems in Greater China are bad, if you’re looking at NPLs (and comparing them to equivalent levels of sub prime debt in the US banking system, for instance) then you’re missing the point. The point about having massive state interjection of influence into an allocation process best suited to capitalism is more to do with the, almost entirely immeasurable, latent inefficiencies of capital. Not long ago I sounded a  cautionary tale…

• Breakneck Growth in China hides a lot of cracks beneath the surface. I’m not just talking about NPLs it’s the entire nature in which capital is allocated in a business society used to persistently high growth and relatively low inflation.
• This has been touched upon by Peking University Professor, Michael Pettis, in particular in a couple of pieces:

1. Small Companies Feel the Pain in China – Pettis
2. China Incentives and Debt – Pettis

• To quote a couple of sentences from the second piece:

In all previous cases of countries following similar growth models, the dangerous combination of repressed pricing signals, distorted investment incentives, and excessive reliance on accelerating investment to generate growth has always eventually pushed growth past the point where it is sustainable, leading always to capital misallocation and waste.  At this point – which China may have reached a decade ago – debt begins to rise unsustainably.

• I leave you with a quote from Michael Pettis, which I have used before, from a talk which you really must listen to if you care about investing in Asia, or anywhere for that matter (click here: Pettis on China Risk)…

If there is massive mis-allocation [of investment/capital] then you would also expect that which ever sector of the economy is effectively paying for this misallocation, their share of economic wealth should be declining.

Is there such a sector in China? Yes, of course there is: it’s called the household sector…

• I’m not saying that the Chinese growth story will come crashing to an abrupt halt – indeed only yesterday I mentioned the long term growth considerations for China and paraphrased that, eventually, the sun will rise in the East and set in the West. But nothing goes up in a straight line and, if you’re unprepared, the down-shocks can be so violent and persistent it won’t matter what your long term view is. These capital misallocations appear superfluous most of the time and lie dormant as just minor frictional business costs of an economy growing at lightening speed. Until the day they don’t… then all hell breaks loose.

Market Overview

Japan stumbles to new low

• I suppose I should let you know that the Topix – Japan’s equity index closed at a 1.5 year low today at 724 (yes that’s even below the Fukushima/Tsunami close). If we go through 700 that’ll be below the 2008/9 recession levels and the lowest level since (wince!)… 1984 – YIKES!  See Chart of the Day.

European Credit Market In Turmoil (still)

• I’m not going to talk about the European markets too much today (its too depressing) I’ll just show you the updated French-German 5 Yr CDS Spread – see Chart of the Day.

Oil Prices – Inflation is back – just when we didn’t need it

• After disappointingly persistent inflation data out of Europe and the US it really looks like the central bankers’ hands are tied. But we know their hands are never tied, they’ve been pretty adept at conjuring excuses to print more up until now. But it’s hard to ignore the facts as we look at light crude bursting through $100 like its on a mission – see Chart of the Day.

Chart of the Day

Tragic Topix (Source: Bloomberg)

France-Germany 5 yr CDS Spread (Source: Bloomberg)

Sweet Light Crude Back Above $100 (Source: Bloomberg)

Events

Macro Events:

Update:

• Spanish GDP Growth – stalled (0.0%)
• Eurozone CPI – persistent (3.0% YoY)

Alerts:

• Bank of Japan– Rates
• Spain GDP
• US Inflation (CPI)
• US Industrial Production

Corporate Events:

Results:

• Pernod-Ricard [RI FP], SAB Miller [SAB LN], San Miguel [SMB PM]

Dividends:

• Capital One [COF], Singapore Airlines [SIA SP],

Reading, Links:

China Risk:

• China Risk #1
• China Risk #2
• China Risk #3

27th October 2011: Is The EFSF Now The Mother of All Sub Prime CDOs?

 

Happy EU

Quote of the Day:

It sounds like the World’s largest giant sub-prime CDO…

Julian Pendock – Senhouse Capital

Macro Overview

• Make no mistake, under the circumstances, overall this was a good announcement from the European Council. These were the headlines the market wanted to hear: package of €1 Trillion, Greek haircut of 50%, Banks allowed to use Contingent Convertibles, ECB to continue buying Eurozone debt. Bingo! The rally is a “GO”.
• But we must be careful, this is not a time to necessarily call an end to the crisis and a secular bull market in the Euro and Eurozone banks. There are many unanswered questions.

I go through these arguments in much greater detail in my usual Devil’s Advocate fashion on my macro blog: EFSF = TMOASP-CDO but I won’t bore you with that.

• Also, let’s not get too pessimistic, after all; Europe is once again the master of its own destiny. For the time being it is not hostage to the markets or external global dynamics, that’s good thing. To cut a long story short the EFSF CDO is a leveraged play on the European economy which buys the EU some time and a little move in the right direction but it’s success is highly dependent on two main factors:
  • The correlation of constituents – in particular on the probability ofFrance,Italy, German credit status remaining unchanged.
  • Sustained economic growth in the EU with very little political unrest (whether in the form of German electorate revolt or escalation of masses of Street protests)
• This is no time to declare “Mission Accomplished”, the challenges are still there but the effort deserves some recognition that the Eurozone leaders understand the problem and are at least looking for the right sorts of solution – let’s face it, we could not have said this a couple of months ago.

 

Market Overview

• Notice the Dollar Index got smashed to a 74-handle (see Chart of the Day). This is nothing to do with Dollar supply as a typical macro framework may suggest (QE is arguably off the table after the GDP report which would imply Dollar strength). This is all about the Euro bounce and risk appetite coming back.
• This EFSF announcement is good news from a market perspective – I don’t deny it. But let’s be clear it is only good news due to it’s relativity to market expectations. All this does really is buy a little more time and temporarily take the debt crisis spanner out of the European Economic works. If growth does not come soon, we’ll be going back through this all over again. By all means go with the momentum, this is a trading rally not (yet) a decisive economic inflection point.
• One of my favourite oversold stocks, Morgan Stanley is up over 60% this month alone – WHOOSH!!
• You’d have made 100% on those Barclays call options I mentioned – SCHHHWWIING!! 
• Not to mention the Brazilian Calls, the Euro Straddle and the Lloyds options. Luck? Probably. But these are still logged paper profits and had these been put on it’s probably a good time to use this upcoming rally in risk to take some profits off the table… and put some different types of risk on.
• What risk to put on? Well the economic future of the Eurozone has been leveraged up to growth even more than it typically is – it’s a risky game and yet V2X Eurozone volatility has capitulated (see chart of the day). You know what I’m thinking don’t you? Leveraging into a downturn always give you a chance for volatility spikes. Use this time to pick off cheap, oversold medium term (6-12 month) Eurozone volatility. Take a nibble today for scouting and perhaps that will be our macro trade for November – for now let’s just digest the present.

Chart of the Day

Dollar Index (Source: Bloomberg)

 

European Volatility (Source: Bloomberg)

 

Events

Macro Events:

Update:

• US GDP Growth in-line but overall positive (+2.5% QoQ).

Alerts:

• Belgian GDP
• Japanese Inflation
• Japanese Jobs
• US PCE Core Inflation
• Spanish Inflation

 

Corporate Events:

Results:

• ChinaConstruction Bank [939 HK], Denso [6902 JT], Fiat [FI IM],FormosaPetrochemical [6505 TT], Gazprom [GAZP RM], Hyundai Motor [005380 KS], Kia Motors [000270 KS], Merck [MRK], Total [FP FP],

Dividends:

• Nothing Significant

 

Reading, Links:

The EFSF CDO:

• EFSF CDO #1
• EFSF CDO #2
• EFSF CDO #3

20th September 2011: European Divorce: Love Will Tear Us Apart… Again

Germany Take Note: The International Symbol for Marriage

Quote of the Day

Like a broken marriage that requires a break-up, it is better to have rules that make separation less costly to both sides

Nouriel Roubini.

Macro Overview

• I missed you, did you miss me? All eye’s on the Fed tomorrow. This is the BIG ONE, Ben told us at Jackson Hole. Will it deliver up to expectations? Hmmm… don’t hold your breath.
• Europe came together for an admirably righteous vision. Since the messy end to our last World War, Europe has been besotted with the idea of financial solidarity and a harmonious European society. Roubini’s reference to marital relationship is not all that misplaced; one needs a certain amount of emotional commitment to take the leap of faith into a relationship of this magnitude. The notion that sovereign states could join hands in deeply intimate collaboration and be prepared to make sacrifices in sickness and in health for nothing more tangible than a dream is indeed a romantic story. Yet it is apparent that it is the “Union” in European Monetary Union which is the route of Europe’s problems. The lust for togetherness and solidarity is this very bond which forces the European Union apart today. Despite reassurances from Merkel, Sarkozy and other political leaders that there is no risk to the Union Marriage, despite the massive global monetary collaboration last week, even the romantics will tell you there is no stronger force than love. Without question, Europeans are locked in a heart-breaking affair with monetary union, a love which seemingly blinds them from seemingly rational and probabilistically viable solutions… and, as Joy Division mournfully predicted: love will tear them apart … again.

• I’ve been in London and had a chance to wander around Canary Wharf and The City, seeing a few familiar faces and getting a feel for the local economy within The Square Mile. Things still hum along apace in London’s financial hub, but behind the hum one feels a beat driven by fear rather than optimism. Job cuts and “business restructuring” is the order of the day among London’s financial industry – not only among the banks but in the recruitment agencies, software companies and all firms which supply services to the financial sector. The banks are de-risking too, which means that they are becoming much less like super-leveraged hedge funds and much more like agency brokers and financial service providers they were two decades ago. But not every division in every bank is being slimmed. Interesting news that giant A-rated commercial banks, HSBC and JPM, are using their balance sheets and plugging millions of investment into development of their Prime Brokerage businesses. But this, if anything, is a demonstration of how banks are shifting their focus towards the business of exploiting returns from “other people’s risk”.
• I’ve been away from my terminal for a few days but one does not need to do much to catch up with the European situation – nothing seems to change except the market levels for pricing sovereign risk (which gets worse). Let’s remind ourselves of what happened last week. In an interesting sequence of events only hours before a government bond auction a “rumor” (I think it is fair to call it that) was circulated that China“would” buy Italian bonds. As I copied in a comment last week, I approached the Bloomberg reporter in question and the article was quickly corrected. Today S&P cut Italian debt and (much like the rumors that China would buy Greek and Portuguese debt) speculative rumors of a “from China with love” Marco Polo Gift Pack are resigned to the back pages and blogs where they belong. If China is to bail out anybody, it’s more likely to be a neighbouring state of direct political significance to China, should we see inter-continental contagion. In the mean time many, more informed, Chinese strategists are giving reasons why China will not bail out Europe. Here is the last paragraph from Shaun Rein’s CNBC article, Why China Will Not Bail Out Europe:

China is being a responsible global stakeholder by stepping in to calm markets and ensure the fiscal viability of its own nation. It is taking care of its internal interests and helping where it can globally. But the Chinese know that buying bonds is not a long-term solution. Western Europe andAmericaneed to focus on reforming their economies to produce items the Chinese want. They need to build consumer confidence through job creation and stop dreaming that a Chinese bailout will work.

• It was refreshing to hear Christine Lagarde say something coherent about Europe last week. There were few detailed specifics in her speech and, given she is no longer a politician, that’s to be expected. But at least there was open recognition of the challenges and a degree of urgency in her tone – that’s more than can be said for other European leaders, whose reaction to her communication style only confirms that they still believe in the old “head in the sand defense”. Somebody ought to tell them that the only people that matter (i.e. the decision-makers that buy European debt) are already clued up (probably more so than they are) about Europe’s predicament – so being frank about it may actually instill some confidence in the markets. Nobody escaped the IMF’s global growth report today, Reuters reported that the fund sounded alarm-bells for Japanese debt, growth concerns in China and Latin America, downgraded UK growth to stall-speed for over a year, warned that Europe could slip into recession and suggested that the US was in the midst of a multi-year slowdown. So fair to say this report is not for the faint-hearted.
• In a comment earlier in the month, while I supported the general idea of European confederalism, I sounded some skepticism on UBS’s report that allowing any country to default/exit from the Eurozone risk economic and/or military annihilation. Today, Roubini goes one step further than this: Greece should default and default now… and then… quit the Euro. So there are conflicts among economists about what should be done about Greece, but it should not come as a surprise that economists under the payroll of European banks would prefer the bailouts to continue at the sovereign level so as to keep political intervention into the financial sector at arms length.

Market Overview

• Well, I didn’t really miss much, but the Brazilian Real is an interesting chart – it took a massive beating recently. Brazilians have been trying to devalue their currency with (dis)incentives towards the taxation of currency derivatives but also the Brazilian currency which is considered a “risk trade” has been sold recently in reaction to the new “risk-off” mode attributable to the Euro-mess. I understand the logic but I find this sell-off a little surprising given the economic numbers coming out of Brazil: steady growth and (more importantly) suppressed inflation. See chart of the day.
• European CDS levels hit new highs and it’s not limited to the peripherals. Check out German CDS in Chart of the Day.

Chart of the Day

USD/Brazilian Real (Source: Bloomberg)

German CDS

Events

Macro Events:

• Update:
• Swedish GDP in line (+0.9% QoQ)

• Alerts:

• • FOMC 2-Day Meeting!
  • New Zealand GDP
  • Canadian Inflation

Corporate Events:

• Results:

• • Bed Bath & Beyond [BBBY], General Mills [GIS],

• Dividends:
• • Aviva [AV/ LN], International Power [IPR], Staples [SPLS]

Reading, Links:

• Italian Downgrade:
• • Italian Downgrade #1
  • Italian Downgrade #2

28th August 2011, Market Update: ECB Whodunnit? Spotlight back on Europe’s Financial Fragility

 

Taming the Beast

Quote of the Day:

Everyone should recognize that decoupling is a myth,

If the advanced countries succumb to recession, the emerging markets will not escape.

Christine Lagarde – Managing Director of IMF

And the real question that shook markets in the last couple of weeks has still not been answered. Just which bank tapped Europe’s emergency fund? Some bankers have even suggested it was not a eurozone bank but perhaps an arm of a Swiss bank. Should that prove to be the case, French bankers, and for that matter eurozone counterparts, would be foolish to think this lets them off the hook.

Paul Betts – Financial Times article last week

Macro Overview

• Tap! Tap! Who’s there? While we were all getting hyped up about Jackson Hole it almost escaped unnoticed that sovereign creditworthiness in Europe was crumbling (see chart of the day for an example: Italian CDS spreads) and a bank within the Eurozone tapped the ECB for emergency funding. But who was it? In my opinion it’s likely to be a bank with an investment banking arm, which is by far the worse performing section of the financial industry this year (and therefore likely to be a Prime Brokerage to Hedge Funds). Supporting Prime Brokerage is of course imperative to the stability of the so-called shadow banking system, but the non-bank entities which make it up have few political friends in European political circles. One cannot under-estimate the capability for European politicians to do something insanely imbecilic in this respect. Many thought the culprit likely to be a French Bank but an FT article by Paul Betts last week throws suspicion over the Swiss Banks (one immediately thinks of the institutions with heavy investment banking operations, although Credit Suisse and UBS have since denied the claims). We’ll probably never know. But this rumour-mill only confirms the fact that it could be anyone (not necessarily a “eurozone bank”) and this is certainly no time for investors to be complacent over counterparty risk or contagion risk.
•  Bernanke showed some spine on Friday at Jackson Hole and actually put some doubt into those who think he’s just a Greenspan clone. This time Bernanke was front-running Obama slamming the ball back in Obama’s court – quite monumental shift in monetary vs fiscal impetus. Heavy emphasis now on early September when Obama delivers his great employment speech on 5^th September. Also, interestingly, Bernanke seemed to put extra emphasis on the September FOMC meeting – a two-day meet, signaling that he may be trying to build an FOMC consensus. Will be interesting to hear what the main “dissenters” (Hoenig, Plosser, Fisher) have to say between now and then.
• Meanwhile in Asia Singapore’s elections are won by Tony Tan by a margin of 0.3% – talk about a tight margin!

Germany's Battle-Axe

• Merkel says she won’t back down to “blackmail” from the markets on Eurozone restructuring. I’ll believe that when I see it, I think someone forgot to tell Merkel how European countries, including her own, fund their economic activity.

• I hate to be a downer, but, like I was saying last week, the whole Jackson Hole thing was detracting from another uprising of economic instability in Europe. In my opinion the stability of Europe’s banking system is as precarious as it has ever been right now. Let me just quote from the first and last sentences from a Bloomberg article, Lagarde Urges Recapitalization of Europe’s Banks:

Christine Lagarde, the new managing director of the International Monetary Fund chief, warned that the world economy is in a “dangerous new phase” and that officials must take new steps to strengthen growth.

…and then…

 “Everyone should recognize that decoupling is a myth,” she said. “If the advanced countries succumb to recession, the emerging markets will not escape.”

 

Market Overview

• Dollar remained quite firm yesterday, as you’d expect if you thought the Fed’s printing capability was not limitless. But then it sold off into the close which was interesting. This could signal that risk appetite is back.
• Main concern now is what’s happening in the funding and credit markets in Europe. Keep an eye on CDS spreads and inter-bank funding measures.

 

Chart of the Day

Italian CDS (Source: Bloomberg)

Events

Macro Events:

• Update:
  • US Michigan Confidence and US GDP confirmed roughly in line on Friday
  • UK GDP came out in line too
• Alerts:
  • German Inflation
  • Hong Kong Retail Sales

 

Corporate Events:

• Results:
  • China Citic [998 HK], China Merchants Bank [600036 CH], Sinopec [386 HK], China State Construction [601668 CH], Formosa Plastics [1301 TT], Hon Hai Precision [2317 TT], Hyundai Motor [012330 KS], Kia Motors [000270 KS], Lotte Shopping [023530 KS], Samsung Electronics [005930 KS], SK Telecom [017670 KS],

• Dividends:
  • Applied Materials [AMAT], AngloGold Ashanti [ANG SJ], Corning [GLW], CSX [CSX], Dover Corp [DOV], Time Warner [TWC], Union Pacific [SNP],

 

Reading, Links:

• Eurozone no the brink:
  • EU Financial Brink #1
  • EU Financial Brink #2
  • EU Financial Brink #3

 

27th July 2011, Market Update: Obamananke Please Make it RAIN!

27th July 2011, Market Update: Obamanake Please Make it RAIN!

Macro Overview

This’ll cheer you up. Quote of the Day from comedian Remy: Raise the Debt Ceiling:

Printin’ the cash

Inflatin’ the monies

Callin’ up China

“Hey yo, we’re straight outta twenties”

——

So if you look at the chart

And you follow the trend

We borrow 40 cents for every dollar we spend

Non-discretionary spending increases every day

D’you have a comment for the committee?

… I’ll make it RAIN!

This’ll have gone viral by the time Asia wakes up!

• Dollar and Debt woes continue:
• Dollar hits new all time lows against the Aussie Dollar and Swiss Franc. Gold and Silver rally – do I sound like a broken record?
• There is a consensus building that American debt will be downgraded.
• Equity markets are taking the sentiment badly now.

• Alarming Reuters report on TEPCO’s deception on the Fukushimafiasco (see my macro site: Fukushima – They Knew All Along)

Market Overview

• Juniper Networks joins that small list of companies (Goldman, Caterpillar) that failed to live up to expectations this season. But I mean JNPR stock was down 20% at one point… that’s a big hit for a $13 bil mkt cap company. My volatility radars did not pick this up.

• Amazon bucks the bearish sentiment and the stock hits a new high. It seems everyone these days either wants a Kindle or an Ipad. I have to say I didn’t predict euphoria (I thought Ipads and Kindles would flop)… there you go… don’t listen to what I say!

• Hey that Sun Art Retail IPO went well huh?
• I mean a 40% rise in the stock price on first meaningful trading day! It’s already a 12Bil company nearly twice the size of Alibaba.com and it’s bigger than the following huge American brands: Staples, The Gap, Tiffany’s, Best Buy.
• Whooaa, forget the damp squib that was Prada, HK’s hot IPO market is back! Nice way to access rising Chinese consumption though.
• Here are hypermarket locations according to company website: http://www.sunartretail.com/html/bus_operations.php.

Chart of the Day

Kindle on fire!

Amazon Kindling the Fire (Source: Bloomberg)

Silver Surfing!

Silver Surfin' (Source: Bloomberg)

Events

Macro Events:

• Update:
  • German Inflation came out worse (higher) than expected – no respite for the peripherals!
  • South Korean GDP came out in line (0.8% QoQ)
• Alerts:
  • US Jobs Data – are we ever gonna see a 3-handle on Initial Jobless Claims?

Corporate Events:

Results: - heavy day for reporting!

AIA [1299 HK], ADP [ADP], Bank Madiri (Indonesia) [BMRI IJ], Bank Rakyat (Indonesia) [BBRI IJ], Bristol Myers [BMY], Celgene Biopharm [CELG], Colgate-Palmolive [CL], Coca-Cola [CE], Dupont [DD], Exxon [XOM], Fujitsu [6702 JT], Kansai Electric Power [9503 JT], Kellogg [K], Komatsu [6301 JT], Kyocera [6971 JT], MetLife [MET], Mitsui Fudosan [8801], Motorola [MSI], Nintento [7974 JO], Panasonic [6752 JT], Softbank [9984 JT], Sony [6758 JT], Southern Copper [SCCO], Sprint Nextel [S], Starbucks [SBUX], Time Warner [TWC], Toshiba [6502 JT], Tyco [TYO]

Dividends:

Citi [C], Southern Co [SO], Tata Consultancy [TCS IN],TexasInstruments [TXN]

Reading, Links:

• Lagarde warns on the debt-ceiling:

1. Sun Art #1
2. Sun Art #2

• Longest serving Fed employee (Pres. Hoenig) on QE and Debt

1. Hoenig #1

• Mohammed El Erian on the Debt Ceiling

1. El Erian: we are in an unemployment “crisis”

25th July 2011, Market Update: Leadership Follies

25th July 2011, Market Update: Leadership Follies

Commentary

Leadership Folly #1: See today’s macro comment: Trichet Plays a Political Game with the Independence of the ECB… and Loses

Leadership Folly #2: US leaders endeavor to snatch disaster from the jaws of recovery. Even the IMF’s new chief Christine Lagarde pleading with US politicians – perhaps to distract attention from Europe’s fiasco?

Leadership Folly #3: Only a couple of days ago I mentioned in an internal email about Goldman Sachs stock price that:

I think Lloyd Blankfein should go… they need a change of image…

Today it appears that the Blogosphere is alive with the chatter. Still a space to watch, I think.

Leadership Folly #4: James Murdoch may have lied toUK

Chart of the Day

Euro is in denial, US is in disarray… no wonder the Yen is rising!

Land of the Rising Yen!

Events

Macro Events:

• UK GDP – eyes forward this could be interesting. We’ve already had one negative surprise this year (blamed on cold winter etc) but can the UK recovery endure another one?

Corporate Events:

• Results: 3M [MMM], Ace [ACE], Amazon [AMZ], Biogen [BIIB], Cummins [CMI], Ford [F], Gilead [GILD], Hershey [HSY], Juniper Networks [JNPR], Las Vegas Sands [LVS], Lockheed Martin [LMT], Occidental Petroleum [OXY], Shin-etsu Chemical [4063], T Rowe Price [TROW], UPS [UPS], Valero [VLO]
• Dividends: Taiwan Cement [1101 TT].

Reading, Links:

• Blankfein woes, possible successors already lining up:

1. • Blankfein #1 (DealBreaker)
2. • Blankfein #2 (NY Times)

• IMF pleads with US legislators:

1. US Debt Ceiling #1 (BBC)

• Murdoch (James) under the microscope and Vince Cable (theUKbusiness secretary who almost lost his job for swipes against the Murdoch empire before their crisis) sticks the boot in.

1. Murdoch #1 (Independent)
2. Murdoch #2 (Daily Mail)