Grains are probably going up, leading to higher liquor prices ... and wealthy people who have a taste for sake or shochu would probably pay top dollar for "clean", pre-Fukushima beverages ...
- Is bond trading dying? (Reuters) - of course it is; everyone is trading CDS
- Russian president comments on wheat export ban lift (Kremlin)
- Europe struggles towards new Greek rescue deal (Reuters)
- A new Greek deal with troika imminent (Kathimerini)... since refuted... then confirmed... then refuted again... then confirmed again... etc
- Rehn Sees Greek Solution in Bond Rollovers, Cuts (Bloomberg)
- Kan Ouster Risk Rises as No-Confidence Vote May See DPJ Split (Bloomberg)
- China May Assume Some Local Government Debt (Bloomberg)
- SAC Faces Probe Of Biotech Trading (WSJ)
- Australia GDP Falls Most Since 1991 (Bloomberg)
- NATO extends Libya operations to September (Reuters)... 2020...
- World’s Wealthy Rose by 12%: Boston Consulting (Bloomberg)
Cracks are not spreading on the façade, real estate sales are not falling, and that the economic engine is not starting to sputter. China has literally been building a Rome a day. But 160 million are expected to move from the hinterlands to urban areas, enough to soak up this excess. The country’s real challenge arises when its demographic pyramid starts to invert in about five years. When that happened in Japan, a 21 year bear market followed. (FXI), (CYB).
HY credit reached its widest level of the year today as IG and HY intrinsics are now unch YTD! Significant decompression since mid Feb in HY spreads, increasing amounts of net selling in secondary bonds, and a clear preference for up-in-quality and up-in-capital-structure leaves equity valuations looking precarious.
What is the relative value of housing if we price it in ounces of gold? My basic point of view is that nominal prices and broad terms such as deflation, inflation and growth should be viewed with extreme skepticism. The more useful approach is to examine the purchasing power of various assets and the the purchasing power of the income streams generated by those assets. Put another way: to value housing, let's compare the price of a house priced in loaves of bread, or ounces of gold, or barrels of oil to historical norms. Secondly, let's look at the income stream generated by the median-priced home (that is, the median rent and net income after all expenses of maintaining and paying for the rental home are deducted) and ask how many loaves of bread, ounces of gold and barrels of oil that net income can buy. In terms of the median price, it took almost 600 ounces of gold to buy the median priced house in 2005. Then housing collapsed, and gold rocketed from $500/oz to $1,500/oz. As a result of housing declining by 40% and gold tripling, the ratio has plummeted by 80%, from 500 to just above 100. How low can the ratio go? Some might look at the second chart and conclude that the previous bottom around 90, in 1980 when gold shot up to $800/oz, might well mark a bottom in the ratio.
The Canada Pension Plan (CPP) Fund ended its fiscal year on March 31, 2011 with net assets of $148.2 billion, a gain of 12% in FY 2011. The Fund's private markets led the charge as they more than tripled their investment in Skype and made other successful strategic investments...
HY credit deteriorated for the fifth day in a row (and 10 of last 12) as breadth was weak in equity and credit. Shifts in equity vol and context-based preferences for IG credit over stocks and HY credit suggest concerns are very warranted as macro data seems to confirm what credit has been hinting at for weeks.
It's getting hot in here!
Equities have significantly underperformed credit the last two days but have plenty of room to go before they re-sync with any kind of value. Rotation under the surface points a risk-averse crowd seeking safety and not poised to BTFD.
I think the Obama-Immelt love affair will end badly. Immelt's proposal on taxes is what you would expect. Self Serving.
Last week’s flow of cyclical data was broadly encouraging. However, cyclical currencies traded weak against the USD. In addition, the Greece situation stood at the forefront of market attention. This week will offer us more on that front with the Ecofin/Eurogroup meetings on Monday. Other than that, we have important cyclical data this week with the Philly Fed on Thursday standing out as the key forward-looking indicator. It will also be interesting to watch trends in initial claims, which has been volatile recently. Finally, Fed Chairman Dudley’s speech will be interesting to follow, together with FOMC minutes.
While equities are credit closed almost unch from last Friday but at their lows/wides of the week, there was plenty under the surface that clearly signals derisking is rife and discrimination active. HY dispersion and CMBX tranches among others point to some cyclical turning points that do not auger well.
Gold and silver have extended their recovery and may be headed for the fourth day of gains due to the continuing European sovereign debt crisis, Chinese inflation (+5.3%) and the real risk that rising oil and commodity prices are leading to an inflation spiral internationally and stagflation. German inflation data this morning was worse than expected jumping to 2.7% from 2.3% due to surging energy costs and despite recent strength in the euro. This has led to the euro falling against all currencies and especially against gold. The precious metals are likely to be supported later today when US trade deficit data is expected to be poor with still high oil prices leading to a very large expected deficit of $47.7 billion. This should see the dollar come under pressure and support gold. Stagflation or low economic growth, high unemployment and rising inflation is a clear and present danger to the UK, EU and U.S. economies and other economies internationally. This is especially the case in the UK where house prices have begun to fall again and may be set for sharp falls. Internationally, we are seeing significant debt deflation where the value of goods and assets bought with debt are falling (cars, property etc) while the value of finite, essential goods such as food and energy are rising. Safe haven and inflation hedging diversification into gold is likely to continue as inflation is deepening and there is a distinct whiff of stagflation in the air. It is too early to tell whether the recent sell off is over and a further correction is possible however global macroeconomic conditions suggest that gold and silver bull markets are very much intact. This is especially the case due to continuing Asian demand with gold again being bought on all dips in China, India and the rest of Asia.
Equities outperformed credit today, prompting a re-entry in our relative-value ETF position but while indices show improvement, rotation across sectors, quality cohorts, and capital structures suggest risk appetite is sorely lacking.
It was the best of times, it was the worst of times....This time is different.....There is nothing new under the sun.....All of us---by “us” I mean human beings---tend to think too much with our egos and not enough with our rational minds. When we are young, we think we have unique and novel insight into life and the human condition, as if we are the first person to have ever thought certain thoughts. We all read---at least back when I went to school---the classic literature, the Greek playwrights and Shakespeare, but it is only when we reread these works as adults that we realize that everything has been thought of before. The best we can do is put a slight sidespin on it. We are humbled. We bring this same tendency---a belief in our uniqueness---into the issues that face our time on Earth. “There has never been a better time to be alive.”...." This is all going to blow up faster than most people think, and it is TEOTWAWKI.”....Somewhere in the middle probably lies the truth. Many of us---myself included time to time---fear that life as we know it is about to come to an abrupt and painful end. Others---most visibly those who are wheeled out as guests on CNBC---think things are on a rise as far as the eye can see. And for some---I am thinking John Paulson and David Tepper---times have never been better. Who is right? Maybe nobody.