Archive - Apr 27, 2011

Nothing surprising out of the UK, whose economy grew just as predicted, and enough to offset a comparable drop in Q4 of last year. Per Bloomberg: "Gross domestic product rose 0.5 percent from the final quarter of 2010, when it fell by the same amount, the Office for National Statistics said today in London. The result matched the median forecast of 28 economists in a Bloomberg News survey. Services expanded by 0.9 percent, the most since 2006." Now if only inflation could be cut to just double the rate of economic growth... And with the world now looking at the US 1st GDP number due out tomorrow, which will ultimately be revised to sub 2%, we wonder just how a global economy, whose key economies are barely crawling higher, and in the case of Japan, outright collapsing, supposed to lead to a 3.5% global GDP growth in 2011.

Deciding on a hedging policy is not a simple task. Many conflicting theories have persisted over the years...

"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it."--Frederic Bastiat

It appears the market is in a festive mood today, just 8 hours ahead of the first largely irrelevant FOMC press conference (yes, Bernanke has fielded irrelevant Q&A before, and yes, whenever he met a question he did not like, he disagreed with it and moved on). As a result the long-suffering US Dollar, which continues to be down YTD as much as the market is up, confirming that in real term there has been absolutely no gains in the stock asset class, has just hit a 3 year low low and just a little more to go until the all time low is breached. And this is in addition to the just announced S&P outlook cut on Japan, which has seen some incremental shorting of the Yen which unfortunately now is a secondary carry funding currency, and you can see that while the dollar should be getting at least a modest push higher the EURUSD is now toying with 1.47. The biggest winner in FX land continues to be the USD-backed CHF, which is outperforming every other pair. And elsewhere, after doing its all too usual OpEx shenanigans, gold is also back in fine form, over $1,506 and going higher now that the shakeout of the latest batch of weak holders has taken place. All in all, a perfect day for nobody to ask whether it is US policy to destroy its own currency.

S&P revises Japan's AA- credit rating outlook to negative. The culprit: the Japan earthquake that just as predicted, has become the scapegoat to excuse another quarter of "non-recurring" EPS misses. And while according to Wall Street the economic devastation is GDP positive, Japan may soon be a single A credit, which of course will send it 10 year bond trading with a 0 yield handle. From S&P: "The negative outlook signals that a downgrade is possible if Japan's public finances weaken further over the next two years in the absence of fiscal consolidation to offset them. We believe that uncertainty over the country's fiscal and economic outlook will lessen over the next six to 24 months. If the government's debt trajectory remains on its current course or begins to erode the nation's external position, the long- and short-term ratings could be lowered. If reconstruction costs place less burden on public finances than we expect–either because of lower outlays or increased revenues to cover them–and the government makes progress in strengthening Japan's fiscal profile, we could revise the outlook back to stable."