Week in Review

Posted on September 9, 2012 by macromon

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Global Trend Indicators

Posted on September 9, 2012 by macromon

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Uncorrelated Markets, NOT!

Posted on September 9, 2012 by macromon

Can’t you see the benefits of diversification with a basket of the S&P500 and the German DAX?  OK, maybe you get a currency hedge.  Stunning though how the global equity risk premium is, well, so global.   We believe the massive expansion of the global monetary base since the beginning of the millennium is a major factor in the increased correlation of global markets.

Stay tuned as we will be posting similar charts during the week comparing the S&P500 with other major equity indices.

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A Microcosm of Japan’s Tough Future?

Posted on September 8, 2012 by macromon

Sorry to ruin your weekend with more dismal science,  but we thought this video is a reflection of the potential problems Japan is now facing.   If the city of Yubari is, indeed,  a glimpse of future Japan,  this may be what the Nikkei has been or starting to discount.  The index is still down a stunning 77 percent from its December 29, 1989  all-time high and has only managed a 27 percent bounce off the October 2008 low.

It’s the economy demographics,  stupid!

Japan has suffered through severe trials and tribulations, including the bursting of a real estate and stock market bubble, a prolonged depression,  and a tragic earthquake and tsunami.   One can only wonder about the social stability of, say, the U.S.  or other western countries if they were to experience the same scale of testing.  Just imagine a similar stock market nightmare which would put the S&P500 at 282.99 in August 2026.  Ouch!

What a testament to the non-entitlement  mentality of the Japanese people.   Godspeed, our Japanese friends.

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Tedtalks: The Informal/Underground Economy

Posted on September 8, 2012 by macromon

Fascinating lecture on the world’s informal/underground economy.  Thanks to Mark Perry at Daily Markets for bringing it to our attention.

Robert Neuwirth spent four years among the chaotic stalls of street markets, talking to pushcart hawkers and gray marketers, to study the remarkable “System D,” the world’s unlicensed economic network. Responsible for some 1.8 billion jobs, it’s an economy of underappreciated power and scope.

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Google Beats Apple in Race to the $700 Club

Posted on September 7, 2012 by macromon

Many were betting on the opposite, but Google crossed over $700 today, while Apple closed at $680.44, its an all-time closing high.    Google’s all-time high of $747.24 was made back on November 7, 2007 so no new $700 Club hats.   On that day, Apple closed at $185.50.

Apple is up 267 percent while Google’s is down 5 percent since making its ’07 high.   We will take the relative performance over the $700 blue ribbon.    Having said that,  Google is BID and will be until it isn’t.

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Weekly Eurozone Watch: Comfortably Numb

Posted on September 7, 2012 by macromon

Key Data Points
German 10-year Bund 18 bps higher;
Italy 10-year 97 bps tighter to the Bund;
Spain 141  bps tighter;
Portugal 140 bps tighter;
Ireland 50 bps tighter;
Greece 197 bps tighter;
Large Eurozone banks 5-15 percent higher;
Euro$ up 1.7 percent.

Commentary
Thursday’s announcement by the ECB of their new Outright Monetary Transactions (OMT) policy has taken near term sovereign default off the table, which was also the cancer infecting the Euro banking system.   Thus,  in theory,  the OMT is much more significant than the LTRO announced late last year, which circumvented a Euro banking collapse and also sparked a multi-month rally in risk assets.

We have our doubts that the OMT can be implemented smoothly and believe it could face significant political constraints in both the core and periphery.  More importantly,  all the structural problems of the Euro construct remain.

At some point the markets will test the political fortitude of EU policymakers.   Until then, however, they should remain comfortably numb under Mr. Draghi’s anesthesia.  We note, again, the significant sovereign spread tightening x/ Spain this year in the Eurozone.  Check out Portugal — in almost 500 bps.   Wow!

Continue to monitor our Weekly Eurozone Watch for early signs of deterioration.

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U.S. Employment Situation – August 2012

Posted on September 7, 2012 by macromon

Given the President’s demeanor during his acceptance speech at the DNC last night, which seemed a little drained and down to us,  we suspected the employment numbers would disappoint this morning.  He had a heads up on this morning’s punk data.

What do you think?  Should we start a newsletter about reading the body posture of government officials before data releases?    Just pullin’ your Markov chain!

Seriously though the QE3 prepares to leave dock even as the stock market rips to post-crash highs – think Kafka – as the BLS reported this morning that August employment growth came in under expectations,

Total nonfarm payroll employment rose by 96,000 in August, and the unemployment rate edged down to 8.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in food services and drinking places, in professional and technical services, and in health care.

Note, after losing almost 2 million jobs during the Great Recession,  hiring in the  construction sector just can’t seem to gain any traction.

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Quote of the Day: Great Trading Advice

Posted on September 6, 2012 by macromon

Dan Zanger is a must follow on StockTwits and really nailed it today.  Fighting a market that wants to go higher can be costly.  We know from experience.

I never needed to predict when the party would end. I just had to show up on time to enjoy it while it lasted. 

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Draghi Speaks, Markets Go Berserk

Posted on September 6, 2012 by macromon

The potential disappointments were there in Draghi’s OMT policy announcement.   The markets didn’t care, however, as the perceived tail risk of sovereign default was taken off the table as was a Euro banking collapse circumvented by the LTROs.

Central bankers are closing the door on all investments x/ equities and with the ambiguity of stock valuation coupled with massively under invested money managers the chase is on.    We are looking at some “catch up” trades,  in financials, which also benefit from the housing recovery, for example.

The ECB announcement is only anesthesia,  in our opinion,  but we know that markets can run and remain comfortably numb longer than you think.   We think earnings disappointments will now be the next big hurdle for equities.     The big question is can the market see through them?   Stay tuned.

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