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CLSA's Chris Wood Continues To Look Toward QE3 As None Of The Existing Marco Problems Are Likely To Be Resolved
CLSA's Chris Wood latest Greed and Fear is out, and in his latest discusses virtually all the critical issues that are at the forefront of investor minds, namely QE3, the next collapse in the GSEs courtesy of the current housing bubble, any signs of releveraging in the private sector, a potential rise of capex in corporate America (not sure where he is seeing this), insolvent states, Japan, which he thinks may be an reflationary alternative to gold (as Dylan Grice has claimed in the past) and last but not least, his disagreement with Goldman's take on China, which he believes is still an attractive investment opportunity.
Greed & Fear
There is now scope for the consensus to move away from GREED & fear’s view that the emerging market asset class will be the major beneficiary of the second version of quanto easing, just as it was of the first version. If that occurs it is likely to be reflected in growing hopes for a US economic recovery.
GREED & fear’s fundamental view remains that there will continue to be no Fed rate hike and that, sooner or later, Billyboy will be implementing a third wave of quanto providing American politicians allow him to do so.
If Billyboy succeeds in precipitating releveraging of the US economy he will for a time at least be treated as a hero until the subsequent collateral damage of his policies becomes obvious. Still GREED & fear has yet to come up with any hard evidence that releveraging is about to happen.
The one area where lending standards have been dramatically loosened since the crisis is Ginnie Mae-guaranteed Federal Housing Administration (FHA) loans. This will lead in due course to a new subprime mess for taxpayers to bailout. But for now the deterioration in FHA loan quality is being disguised by the rapid growth of loans in this area.
The latest quarterly Fed survey of senior loan officers does not show a marked easing in lending standards nor a pick up in demand for loans. GREED & fear also does not detect from domestic US invertors specialising in financial stocks any real optimism from a bottom-up perspective that banks are about to increase lending in a significant manner. Rather the expectation is that profits will continue to be derived from playing the spread and investing in fixed-income securities.
GREED & fear will continue to wait for concrete evidence before assuming private sector releveraging is occurring in the US economy. One potential piece of good news GREED & fear would bet on is an extension of the Bush tax cuts. Investors should assume this will happen, though it is not a given, since a deflated Obama is clearly ready to compromise on this issue.
The other most plausible piece of good news is evidence of a broadening out of capex beyond the hitherto cost-cutting motivated focus on high tech spending. More momentum on capex from a cashed up corporate sector is the best hope for the American economy. But even if that occurs, which is a big if, GREED & fear does not believe it will provide a solution to the socialised morass that is America’s housing market.
Another problem that may start to occupy more of the attention of financial markets is the condition of individual states’ budgets. The critical issue now is that the stimulus money from Washington is drying up. Where Republicans have gained control of state capitols they also plan to launch attacks on public sector workers who enjoy benefits increasingly no longer available in the cost-cutting private sector.
Successful releveraging would mean normalisation of US interest rates, which would in turn mean relative underperformance by Asia and other emerging markets. In such a macro context the stock market that would perform best globally would be Japan since the discounting of higher US short-term rates would mean a sharply weaker yen.
Investors who disagree with GREED & fear and believe QE2 will work should buy the Japanese stock market now. Similarly, those investors who do not believe it will work but think the market will think it will work for a while before hopes are dashed once again should also buy Japan now.
The investment in India’s IRB Infrastructure in the Asia ex-Japan thematic portfolio will be removed and replaced by Hyundai Motor. The investment in Shiseido in the Japanese portfolio will be removed with 2ppts added to Fast Retailing and 1ppt each to Unicharm and Mitsubishi Corp. The investment in East Japan Railway will also be removed with 1ppt each added to Canon, Fanuc and Mitsubishi Corp. As for the relative-return Asia Pacific ex-Japan asset allocation, the weighting in Korea will be increased by 1ppt to neutral with the money taken from India.
Despite the rising Chinese inflation data and the latest hike in Chinese banks’ reserve requirements, GREED & fear continues to recommend an overweight in China in the relative-return portfolio based on the assumption that the policy stocks, such as bank stocks and insurance stocks, are due a catch up trade with money rotating out of highly rated food and consumer stocks where profit margins are threatened by rising food prices. Chinese banks remain one of the few “cheap” areas left in blue chip Asia.
A remarkable development this week is World Bank President Robert Zoellick calling for the global monetary system to be reformed to include some linkages with gold. This is an important development since it is the first explicit acknowledgement by a mainstream American official that the global financial system needs some fundamental discipline.
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"Marco problems"
Imelda needs more shoes, and the stores are closed?
"Polo!"
If Imelda could see the walk-in closet of a typical Hamptons trophy wife, she would be shamed into a convent.
Too funny.
SPX
Buckle up.
http://99ercharts.blogspot.com/2010/11/spx_11.html
http://www.zerohedge.com/forum/99er-charts
We understand the "buckle up" part. The question is, which direction is the kiddie ride going, up or down?
Do not make it worse! It is Marcos....and Tyler meant Macro.
QE3 won't make it past discussions, too politically charged, but the money will happen anyway.
Think of QE3 as just extended QE2: QE2.1 as already announced is a pilot project, too small by half except as a joke, but large enough to look like the Real Deal (TM) to small players. QE2.1 got everyone into the markets with a hard-on. Animal spirits. Wealth effect. Once QE2.1 is spent and flacid QE2.2 will come along without skipping a beat, exact same amount but will likely go to the States, perhaps as muni bond purchases, perhaps as massive UE benefits. Easier to swallow. There might even be QE2.3 talk at some later time.
But by then the wheels have already serious come off the apple cart. Nobody is going to notice when there is a QE2.3. Maybe GM will get the whole thing. Nobody will give a fuck. Everything will be burning.
They will just call it something else. Nomenclature and all that.
A rose is a rose... or turd in this case.
Re: the housing bubble - I'm seeing big-time softening the last two months in the main two markets I follow - Northern VA and Florida. This has not yet been reflected in the Case/Shiller stats, which lag by about 3 months. Prices are starting back down (or in the case of FL, are going down faster again, after slowing their descent), sales are down, and for-sale inventory is up.
As a result - I think the "second leg" of the housing downturn has started in earnest, and there will be a new upturn in underwater homes and therefore a new wave of foreclosures.
This makes sense, since the effects of the tax credits have now worn off; and the employment situation hasn't improved at all.
Also keeping in mind that this is in an environment of record-low mortgage rates! When rates are raised again (if ever), housing will surely take a big-time additional hit.
This IMO definitely points to QE3. The Fed simply can't afford to stop QE until housing prices stop falling and probably not even until they start going back up significantly.
Word.
The biggest farce going on right now is the pretense that the Fed have everything under control. They might know what's coming, they might even know in great detail, but the Fed are no more able to avert this than you or I would be.
Since QE2 is only a week old, hasnt even started yet, and obviously no one is buying that BS, obviously we need to start QE3 hype!
Fascinated with our collective demise i return repeatedly to Zerohedge much as a moth to flame. Of late i have been spending many days on the computer and was forced to ask myself why since i already see clearly the direction we as humans are bound.
Many years as a hobo capped by over 20 years in legal selfemployment i paid little to no attention to our government. This last year i learned more than i care to know and am smitten by my own ignorance. As are many.
Choices must be made upon the basis of a true picture of reality which few have.
In the face of this great injustice i feel compelled to act, but have been restrained by my own circumstances as i care for a dying friend i promised to see to her end. She is in her last stages now, still at home and i help her dress and in every way she needs.
With all my heart i want to march on DC, the Fed even if alone .
I would rather be dead than live a lie or under oppression. Last time i stood up to a bully it was a samoan in Reno Nevada at 4th and Virginia. he totally kicked my ass. He picked me up like i was a feather end tossed me into a telephone pole. I came to as he repeatedly smacked my head against the pavement with a fist full of my hair as the handle. I lost that hair and that fight. Had i not stood up to him i would have lost myself.
This is true as regards our government of crooks ruling and raping our people. Despite the results, be they as they will, we must stand for something or be nothing, a worthless people as worthless as the dollar and the bullshit we buy.
Lithium, Barium and hopium as well as the media and flouride have done their job on our emotions. Common sense still exists and emotional lethargy may slow us down but should not stop us from doing the appropiate and removing the criminals.
If i ever meet Bernanke i will treat him the way the samoan treated me even if i have to put a suit and shoes on to get close. Beware you fuckers!
Action you outline will not change human nature nor our situation, but vengeance has the taste of fine wine.
You forgot to mention the aluminum. That's the one that clouds clear thinking.
I can see it in a friend who is very smart but stayed outdoors, doing chores and coaching little league baseball. He's not up to speed anymore. Ironically, he's the one that first told me about the metals in the air. This guy really thought Corona beer & lemon would detox his blood.
Putting a suit on would be difficult and unusual punishment for me. But overalls wont do to get me in the door.
If nothing else , i hope their fucking island tips over. Lol
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