The Big Picture |  |
- What Should Investors Do NOW ?
- Stephen Roach on Global Recession, Fed, Europe
- EU Bank Help
- Greece Must Live Up to Its Commitments
- Rehn doesn’t want Greek bankruptcy. When will this end?
- The End of the Bernanke Put?
- Marvelous, My Words
- Lack of growth front and center
- Look Out Below, Post FOMC Version
- Watch the Hang Seng
| What Should Investors Do NOW ? Posted: 22 Sep 2011 02:03 PM PDT Whenever we get a day like today — down more than 500 points on the Dow at one point — my phone begins ringing with inquiries from various media. They always ask the same question: What should investors be doing NOW? That is the wrong question. The proper one is: What should investors have done in the past to prepare for an event like TODAY? Rather than repeat my usual spiel, I will simply point you towards some recent writings on that subject:
The bottom line remains that investing is a proactive — not reactive — endeavor. If you respond to every twitch, every news story, each turn of the wheel, you will become whipsawed. That is no way to invest. And its no way to live life, stressing out over things that are out of your control. What you can do is anticipate events that are cyclical in nature. These major shudders repeat every few years, so we should not be surprised by them. Construct a plan that allows you to ride out these events without panic or forced errors. You need a plan that anticipates these regular occurrences. I strongly believe that many people are capable of doing this for themselves (No, you don’t have to pay anyone a fat fee for that). All it requires is a little intelligence, some home work, and a bit of planning If you don’t have time to do this yourself, than read this.
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| Stephen Roach on Global Recession, Fed, Europe Posted: 22 Sep 2011 01:00 PM PDT The Fed & Its Global Impact
~~~ European Debt Solutions
~~~ Global Economic Engines out of Fuel?
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| Posted: 22 Sep 2011 11:44 AM PDT Here are more details in what looks like a response to the European bank stress tests, “A senior French official said the 16 banks regarded to be close to the threshold would now have to seek new funds immediately. Although there has been widespread speculation that French banks are seeking more capital, none is on the list. Other European officials said discussions were still under way. The move would affect mostly mid-tier banks. Seven are Spanish, two are from Germany, Greece and Portugal, and one each from Italy, Cyprus and Slovenia. The 16 institutions that are now the focus of attention ended up with core tier one capital ratios of 5-6%. The pass mark was 5%. The EBA had given those banks until Apr ’12 to implement plans to shore up their capital buffers.” They seem now to want it done before Apr ’12.
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| Greece Must Live Up to Its Commitments Posted: 22 Sep 2011 10:30 AM PDT
If you want to know what all the angst is in Europe, the chart above might help explain the problems . . . > Source:
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| Rehn doesn’t want Greek bankruptcy. When will this end? Posted: 22 Sep 2011 08:00 AM PDT Adding more confusion to the Greek discussion, *EU’S REHN SAYS POSSIBLE GREEK DEFAULT NOT PLAUSIBLE SCENARIO. I’m not sure what he thinks the alternative is at this point.
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| Posted: 22 Sep 2011 07:21 AM PDT Go figure: The US central bank discusses a slowing economy, and makes it plain to speculators that they are on their own, that there will no imminent rescue, no bail out, perhaps even the end of the Bernanke Put. Markets throw a two day, 5% hissy fit. The question surrounding this whackage that traders should be asking themselves is simple: Is this the beginning of a deeper sell off, or is this the end of a correction that began in the spring and has taken US markets down nearly 20%? The parallels between 2010 and 2011 are obvious: Coming off a big Fed-induced equity rally, the slowing economy begins to make investors wonder about an earnings peak and potential reversal. A market sell-off of almost 20% gets the Fed chairman’s attention. In 2010, a Jackson Hole speech leads to a broad based liquidity program, aka QE2. Its rocket fuel, and gets blamed for the next leg up of the equity rally, the gold rally, food inflation, and even the Arab Spring. The difference, of course, is that there is no QE3. Global equities plummet 5%; Copper gets shellacked, Gold and especially silver see sellers. Bernanke gets criticized, but so was Volcker (unjustly) lambasted, as was Greenspan (deservedly so). The question all of this raises in my mind is this: Has Bernanke recognized the moral hazard of the Fed guarantee to traders formerly-known-as-the-Greenspan Put? Asked differently, is the Bernanke Put now dead . . . ?
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| Posted: 22 Sep 2011 06:45 AM PDT > "Ahem. I'd like to take this opportunity to show you that I am standing here moving my lips and waving my arms. Indeed, words are coming from my mouth. I am earnest and sincere and if you pay close attention you will notice I am genuine too! No doubt you also noticed my erect posture, which implies I am confident and also sure of myself. At times I may be pedantic and other times "a man-of-the-people" — either way you can be sure I have wisdom because I am giving you advice and we have never met. Occasionally I use big words like "pedantic" or "macro-prudential" or "counter-factual", or even words I make up like or "hyper-connected". I may not always know what these words mean but it is important to say them a lot because you do not use them. Sometimes I do something idiotic common so that you can relate to me (you're welcome ). But enough about me… Yes, I may be a recognized thought leader and yes, I may be more beautifully and wonderfully made than you but please always remember that we – you and I — exist symbiotically (look it up). I talk so you don't have to think, and I humbly offer all I have learned and all I know in service to you. Thank you, turn up the volume, and please remember to tip your waiters." ~~~ Paul Brodsky & Lee Quaintance run QB Partners, a private macro-oriented investment fund based in New York.
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| Lack of growth front and center Posted: 22 Sep 2011 04:26 AM PDT Hidden behind the Greek drama over the past few weeks and unveiled again yesterday with the FOMC statement and action, the unfolding global economic slowdown is back to front and center. The US$ is the main beneficiary, not due to its own characteristics but disappointment with others, exactly as was seen in ’08 and notwithstanding more Fed action. Commodity currencies in particular are down sharply on the slowdown fears. Treasury yields are also falling again not only in the US but in the UK, Germany, France, Australia, New Zealand and other Asian countries. Italian and Spanish yields are down too. Greek bonds are a bit higher as Greece is finally stepping up in dealing with their bloated public sector although its too little too late in staving off an ultimate default past the disbursement of the next tranche of money to them. China’s preliminary HSBC Sept mfr’g figure fell a touch to 49.4 from 49.9. The Euro zone mfr’g and services composite index dropped to 49.2 from 50.7 and below expectations of 49.8 with weakness seen in both Germany and France. It’s the 1st reading below 50 since July ’09. The euro basis swap has completely reversed the fall last week when the expanded central bank swap lines were announced. The 3 month euribor/OIS spread is at a new recent high and the European bank stock index is back to Mar ’09 levels.
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| Look Out Below, Post FOMC Version Posted: 22 Sep 2011 03:21 AM PDT > There is no cavalry coming to the rescue. That is the takeaway from yesterday’s FOMC meeting. No QE3 was announced, no extraordinary measures were taken, no rabbits were pulled out of any hats. On top of that, the Fed’s language was far blunter than it had previously been discussing deceleration of the economy, possibly risks of an economic slowdown, weak job market, and depressed housing market. The long-only, fully-invested contingent were hoping for much much more out of the US central bank. They are likely to be disappointed. I suspect the Fed’s blunt language was telegraphing a message to Congress. Rates are at zero, mortgages are at 60 year lows, and yet demand simply is not there. The Fed has done pretty much all it can do. As we noted yesterday, responding to the weak economy at this point requires fiscal policy, rather than further monetary approach. “The Twist” and purchases of mortgage-backed paper is an attempt to rates down even further. It is hard to see how that can be effective in the current environment. Don’t expect a policy response from the Austerians. These misguided politicos are in charge in D.C., despite having gotten the past few economic cycles precisely backwards. During the last expansion (2003-07), instead of raising taxes and cutting spending — managing the deficit, creating a better private/government spending ratio — the hypocritical deficit peacocks in the USA did the exact opposite. We cut taxes during (2) wartime, created yet another entitlement program, and raised yet other government spending during private sector economic expansion. That approach makes much more sense in the current environment of consumer de-leveraging, weak private sector job creation, modest CapEx investment, and low growth. Instead, we suffer from the opposite: Based upon a fundamental misunderstanding of the works of John Maynard Keynes, they are once again out of phase. Now, the same crowd is looking at raising taxes and reducing government spending when an already frail economy cannot support it. Hence, the Austerians and a complicit White House are all but guaranteeing a 1937 like recession will be increasingly likely. Excess government stimulus during expansions and austerity during (or immediately after) contractions is simply misguided economics, bad politics and awful policy. With the Fed out of bullets, traders are now left to their own devices. That means decelerating growth, little in the way of new hiring, and peak profits retreating 15-25%. There is no cavalry coming over the hill, traders are on their own. Next stop SPX 1100,with 950 as a realistic downside target . . .
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| Posted: 21 Sep 2011 06:00 PM PDT We've posted many times on this blog about how the Hang Seng Index is one of our indicators species for global risk appetite. The index usually leads global markets on the downside and turns up before most. While all eyes are focused on Europe the Hang Seng has been in a death spiral. It is down 25 percent from its November peak and off 17.5 percent since its intraday high on August 1st, while the S&P500 is down around 9 percent. It's signaling something ain't right and may — and we stress may — be a precursor to a big break in the markets. Keep it on your radar. >
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