Godspeed, Japan

Posted on March 11, 2011 by macromon

(click here if table and video are not observable)

Posted in General Interest, Geopolitical, Japan | Tagged | Leave a comment

Nonlinear Thinking: Modern Manufacturing

Posted on March 10, 2011 by macromon

A must view video of the Volkswagen ultra modern/high tech manufacturing plant in Dresden, Germany.   We’re sensing the birth of a “manufacturing renaissance” in the U.S. and it may end up looking similar to this.   Hat tip to Larry W.!

(click here if video is not observable)

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Euro Fracture: A “Tea Party” Revolt?

Posted on March 9, 2011 by macromon

Much has been written about the growing anger and political strife within the highly indebted European periphery.   The FT reports today about the growing anger and resentment in the countries financing the bailouts,

Even among Brussels’ tightly-knit cadre of European Union operatives, Timo Soini is not particularly well known…[in]  the European parliament, where he is a member from Finland.

But by this time next month, Mr Soini could be the new face of Europe. True Finns, the party he heads, is within striking distance of becoming Finland’s largest bloc in national elections on April 17 – using a potent mix of economic populism and anger at recent EU bail-outs.

“We have been doing our homework: we don’t have a budget deficit, we have done quite well tackling unemployment,” says Mr Soini in his spartan Brussels office, whose walls are adorned only with a Christian cross and a photograph of his young children. But nations such as Greece, whose previous government falsified economic data, had not. “Now [we must help] those people who have lied – this is the suspicious mind up north, because quite many people think the south is milking our cow.”…

That public resentment is threatening to destabilise governments in Germany, Finland and the Netherlands just as the EU enters the final stretch of negotiations over a much-touted “comprehensive package” of reforms aimed at, once and for all, putting an end to the Eurozone’s debt crisis

The Global Macro Monitor has consistently maintained that the future of the Euro of today will be determined by the politics in both the periphery, where austerity fatigue could cause big  problems, and the core, where resentment over the bailouts is increasing.  Stay tuned.

Posted in Euro, Fiscal Policy, Geopolitical, Monetary Policy, PIIGS, Sovereign Debt, Sovereign Risk | Tagged , , | 3 Comments

Chart of the Day: Copper & Rubber

Posted on March 9, 2011 by macromon

While the world obsesses over the direction the price of oil,  copper and rubber are rolling over.  These are the two to monitor,  in our opinion,  as China Air drops its landing gear.   Dr.  Copper is at key support and Mr. Rubber has yet to bounce and is in backwardation.   And the S&P 5oo has yet to test its 50-day moving average.  Stunning!  (click here if chart is not observable)

Posted in Chart of the Day, China, Commodities | Tagged , , , | 4 Comments

The Global Economy’s Unstable Equilibrium

Posted on March 8, 2011 by macromon

We’ve put together this nice little graphic which reflects our view the global economy is in a very unstable equilibrium and list many of the issues and headwinds it faces.   Global economic growth, based on monetary or credit induced asset inflation, exchange rate manipulation, perpetual stimulus and negative real interest rates straddles a tight wire and very narrow path with inflation on one side and deflation on the other.   By default, stagflation then becomes almost the steady state economic growth path.

We don’t pretend to capture all the issues or believe they are mutually exclusive as many are endogenous and depend on each other.   Some can even be categorized either as deflationary or inflationary depending on the, or lack of, policy response.     Furthermore, we are not even sure the concept of a global macroeconomic equilibrium exists in reality.

Nevertheless, the graphic is a great tool in framing the ongoing debate between the inflationistas and deflationistas.   The markets, in our opinion, will lurch from one perception to the other until the ex post facts reinforce one of the two.   Like Pascal, traders and investors have to hedge their bets.

In the Alchemy of Finance, George Soros wrote why economies and markets can be so volatile,

When events have thinking participants, the subject matter is no longer confined to facts but also includes the participants’ perceptions.  The chain of causation does not lead from fact to fact but from fact to perception and from perception to fact.  This would not lead to any insuperable difficulties if there were some kind of correspondence or equivalence between facts and perceptions.  Unfortunately, that is impossible because the participants’ perceptions do not relate to the facts,  but to a situation that is contingent on their own perceptions and therefore cannot be treated as fact.

Kind of concerning, given that central bankers are divided even on their perception of inflation.   (click here if graphic is not observable)

Posted in Black Swan Watch, Charts, Economics, Policy, Politics | Tagged , , , | 6 Comments

Today’s Action in Futures

Posted on March 7, 2011 by macromon

Barchart.com wraps up today’s action in futures.   The water is getting choppy and making for some difficult fishing.   A few more days of action like this will send many back to land to wait for calmer waters.

(click here if table is not observable)

Posted in Commodities, Currency | Tagged , | Leave a comment

Week in Review

Posted on March 6, 2011 by macromon

Emerging market equities bounced on short covering in a week where crude oil was up another 6.67 percent and food prices increased almost 3 percent.   India led the rebound, advancing 4.44 percent even though the country will be one of the hardest hit by the crude oil price spike.   It’s clear to us the market is currently pricing this oil shock as temporal and not a long-term event.

The Dollar index fell again and is now down 3.33 percent for the year.  Long-term Treasuries were down over 2 percent and now off almost 5 percent year-to-date.   Natural gas continues its descent, now down 11.60 percent for the year, confirming its reputation as a “widow maker.”  Gold made a new high then pulled back.

We think equity markets are range bound until the issues in the Middle East are resolved and the markets have confidence the unrest will not spread to Saudi Arabia.  This will be a big week in Saudi politics.   Retail gasoline prices have reached $4.00 in California and some parts of country.

A healthy test of at least the 50-day moving average is in the cards for the S&P500, in our opinion, which also coincides with last week’s low around the 1294-96 level.  If that breaks,  1275 is the next level to watch.


(click here if charts are not observable)

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Top 5 Issues That Keep Risk Managers Up At Night

Posted on March 5, 2011 by macromon

Great graphic from the WSJ on the emerging risks that keep risk managers up at night.

The results are interesting,

Fourteen percent of the 141 respondents to the survey of corporate risk managers and actuaries by the Society of Actuaries, an industry association in Schaumburg, Ill., named “Chinese economic hard landing,” as their top concern for the future. Number two, at 11%, was a sharp fall in the U.S. dollar; number three was a “blow up in asset prices.”

An oil price shock was number four, at 9%, but that number would probably have risen higher if the survey was taken today, given the rapidly spreading political revolution in the Middle East, said Max Rudolph, an Omaha, Neb., actuary who ran the survey…

What was especially striking was how much more concerned the risk managers were about China in 2010 than the year before, when only 4% chose China as the top emerging risk. During that survey, the fall in the U.S. dollar and asset bubble crash dominated the risk managers’ concerns. The survey presents 23 possible risks for the respondents to rank, including climate change, international terrorism and pandemics, as well as economic concerns.

A hard landing in China would usher in Deflation 2.0 and cause commodities to collapse as the locomotive of the world’s economy crashes.   Some of the other emerging risks are inflationary and would have completely opposite results.   Jim Chanos must have gotten to these risk managers!

Posted in Charts, China, Crude Oil, Geopolitical | Tagged , , , , | Leave a comment

The Weekend Read: Hostage to Crude

Posted on March 5, 2011 by macromon

Under ordinary circumstances, accelerating inflation is bad for stock prices. Present circumstances, however, create a rare exception.

Investors who aim to increase their wealth by owning stocks over the next decade should hope Federal Reserve Chairman Ben Bernanke fails in his stated goal of holding inflation to 2% or less. – Martin Fridson

China
China’s addiction to GDP highs could kill Five-Year plan – Telegraph
China targets inflation to safeguard stability – FT
Foxconn to move China jobs inland – FT
Key targets of China’s 12th five-year plan – Xinhua
Wen says China set for five more fat years of growth – MSBC

Commodities
A Gold Chart Only Bernard Mandelbrot Could Love – Forbes
Crude Advances to a 29-Month High as Unrest Threatens to Spread – Bloomberg
Industry Leader Calls for Consolidation of China’s Rare Earth Industry – Xinhua
The Food Crisis Of 2011 – Forbes
Weekend: $104 Oil Should be No Surprise – Energy & Capital

Credit
Higher rates double trouble for US muni investors – Reuters
Sovereign Debt Levels Imperil Entire Financial System – Forbes

Economics
Are Booming Economies Good for the Markets? – John Maudlin
Local Governments Keep on Paring Payrolls – WSJ
Olivier Blanchard Rewrites the Macroeconomists’ Playbook – Brad Delong
On the Brink of an Employment Breakout? – Barron’s

Equities
Google Cranks Up M&A Machine – WSJ
Investors grapple with new crude shock – FT
Paranoid About Oil and Equities, in a Calm Way – Barron’s
Why Stock Investors Should Root For Inflation – Martin Fridson

Europe
ECB Officials Signal Support for Higher Interest Rates as Inflation Climbs – Bloomberg
European Central Bank Wants to Unload PIIGS Bonds – Der Spiegel
‘Europe’s Banks Are in Far Greater Danger Than People Realize’ – Barry Eichengreen
EU’s Rehn says Ireland, Greece need cheaper loans – Reuters
Parallel summits highlight EU’s north-south division – Xinhua
Portugal, Spain Aren’t Likely to Seek Bailouts, EFSF Chief Regling Says – Bloomberg

Emerging Markets
Brazil Sees World’s Highest Interest Rates Climb Even Further – Minyanville

Money Trickles Out of Emerging-Market Funds, Extending Weekly Outflows – WSJ

Geopolitical
Battle for Zawiyah amid claims Gaddafi’s tanks fired on residential areas – Telegraph
Libya: Live Blog – Al Jazeera
Libya rebels repel Gaddafi forces – Al Jazeera
Saudi Arabia bans protest rallies – Al Jazeera
Saudi Arabia drafts in up to 10,000 troops ahead of protests – Telegraph

Japan
Japan Will Have To Monetize The Debt – Marc Faber Blog

Technology
Jobs delivers iPad 2 – CNET
One-Cubic-Millimeter Computer – Technology Review
Technology Will Make Collaboration Your Next Competitive Advantage – TR

Video
You know she’s right.  Al Jazeera is the go to source for news on the Arab uprisings.

(click here if video and chart are not observable)

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The Weekend Video: Milton Freidman Classic

Posted on March 4, 2011 by macromon
Posted in Video, Whales | Tagged | Leave a comment