Via Mint Blains Morning Porridge,
3-yr US Treasuries yield 0.3%. Brazil 3-yr dollar bonds yield 0.7%. Russia 1%. Where next in the hunt for returns?
Yesterday was a little wobbly. Today is likely to be better.
No surprise Europe remains highly vulnerable to sudden sentiment shifts. How to stablise it? The usual smoke & mirrors are conveying what might or might not be good news on Greece, with the German press saying Greece will get a 2-yr extension, more time to enact labor reform, and that concessions have been given. Its all part of the New Normalcy. The fact China ain't slowing as fast as we feared put a spring back into Asia this morning so its a phew, buying boots on again morning.. Or is it?. Weak German PMI ain't great!
The crisis in Europe may be contained, but it clearly isn't solved. A client yesterday told me: Europe is like an overweight dinosaur on a crash diet, that's got really really bad toothache with not a dentist in sight. Like it and think I understand it! Very clever. (I'm also hearing the 2-yr concession to Greece comes at the cost of greater European financial oversight and loss of Greek fiscal sovereignty buy Athenian bottle, rag and petrol futures methinks.)
Meanwhile, the market has woken up to the fact the Spanish regions have been pumping out as much new debt as they can through taps and deal increases. Why? Well, because they can. In the right maturity at the right price the market has proved most accommodating for short Spain regions. But Madrid tried to do a deal yesterday, but stuffed it too long and tight and the deal was pulled. (What were the 6 (yes 6!) lead banks thinking? If major Euromarket new issue firms cant tell a client what is and what isn't possible.. remind me why they get paid new issue fees?) I'd also question why the Spanish regions are funding? If Spain is about to be fixed why are they raising money today? Hmm suspect we ain't getting the whole story
On the other side of the pond, the election remains a riot. Check out this map for the current state of the race:
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Amazing how Obama blew a 50 point lead to now 55/45. Whats the prognosis? More directionless capital hill infighting, and more and more and more Bernanke QE? Or Republican debt cliff? Watch that map. (The fact that BOE governor Mervyn King was hinting last night the QE in UK ain't really achieving very much should not have come as a surprise to anyone.)
But But But.. yesterday's ructions weren't just about the political shenanigans that pass for markets these days. There are deep undercurrents roiling these placid markets:
- Finally it feels like markets are awake to the fact the global economy is pants. Utter pants. Poor Q3 earnings season strongly hinting Q4 will be even more torrid. As the spending classes find themselves increasingly short of cash, imagine what will happen when suddenly they decide their Ipad 3 is more than sufficient and they dont really need, (and cant afford), the latest bright shiny thing to make it all better?
- I was an Apple nut, but I've got to say my new I-Phone 5 has not made me any less miserable its not turned my life around, but it has emptied my pocket. Dang. That Samsung looked good, or maybe I should have kept my old one?
- The Global high street looks tired, and while stories can explain individual company poor results, you have to think there is a thread running through it like Google cant generate high enough advertising revenue because companies are advertising less because people are spending less because employers are cutting overtime because demand for their widgets has fallen because supermarkets aren't selling as much because because because because...
- So when French automaker Peugot's bank PSA wobbles and goes bust, the French government steps in with a Euro 7 bln bailout.. If someone wasn't financing Frenchmen to buy their cars who would buy them? (Serious question.. who?) Bet the Germans are glad they didn't sign up for banking union (aka mutualisation) during the summer!
All of which leads us to wondering what happens next? If this continues what hope for next year? Low low yields and global economic depression? Boy scout time...