Thursday, 24 November 2011

Turkeys give thanks the day after Thanksgiving*...

Turkey-gobblers caught doing the futterwacken the day after Thanksgiving usually end up trussed and golden-brown just a few weeks later on the Christmas-table.. It's an amusing silly-season reminder that surviving an anticipated negative event doesn't necessarily mean that all is well indefinitely!

The same applies in the global markets. Very few market-professionals (if any) can claim that the last six months have been smooth-sailing. It's been a perfect storm of unanticipated economic shock and political ineptitude. Worse still, the confusion has been compounded in the real world by the exposure of the structural inefficiencies in the banking-model considered sacrosanct and against which none of us could draw on much experience. Even so, if you're reading this you've probably survived the toughest markets in living memory but dancing the victory-fandango is more than likely a dance-too-soon.. The weak global economic climate, structural headwinds, accelerated global deleveraging and high levels of debt prevalent in September which led to the last asset-price blow are still synonymous today however your interpretation.

In a two-sided financial tale and on a more positive note there are, as we speak, trillions of disenchanted dollars in cash or cash-equivalents earning negative real returns.... That's a status quo that will NOT endure indefinitely.

*Wishing our US friends a Happy Thanksgiving!

Friday, 18 November 2011

You, me, a German & an economist walk into a bar...

Buy a German a drink and you'll be told that the economy is wundenbar, prices are robust and unemployment is at a generation-low. Change seats, if you have the stomach for it, and do the same for an economist and he'll be squealing like a bag-full of pigs... You could argue that the economist is highly-skilled, well-educated and therefore worth the price of a beer but more often than not you'd be wasting your money..!

The disconnect between the economy and stock-market performance is not always fully understood. The supposition that the stock-market reflects the economy is false, palpably so! If anything, the stock-market tries to predict the future, usually one year out, which is why traders and professional money-managers will talk about the '12-month economic lag' on current pricing. That means current stock-market prices reflect the predicted conditions 12 months hence... The variables we scan from which we make our predictions are mostly the subjective interpretations of the current circumstances we find in 'the real world'. Euphemistically, these predictions elevated in status to FORECASTS by analysts or economists are nothing more than, well, predictions and unless the forecaster has divine authority it's nothing more than, yes you guessed it, a prediction! Extrapolating this theory in the media, a Bloomberg or a Reuters or any other similar financial-media company would then collate these FORECASTS (ie: predictions), calculate the middle-ground (an insipid concept at best) and elevate the average FORECAST (ie: prediction), to unimaginable status by renaming this number the CONSENSUS FORECAST (ie: the average prediction). In reality that's the same as buying lukewarm tea because half the world likes ice-tea and the other half like their tea hot. 

These CONSENSUS FORECASTS (ie: average predictions) are applied to a company specifically, a sector broadly, an economy generally and in recent times to the global economy as a whole. Investment strategy is a discussion for another time. Even so, applying CONSENSUS as reality to your personal investment strategy is, quite simply, intellectually poor... You'd be selling yourself short. 

Returning to our two lechers above, whilst the German lives in the now, the economist lives in the future. One lives in ignorant bliss and the other is blissfully ignorant for everybody knows that today's reality is not always tomorrow's certainty. The same applies to markets, today's prediction is not always tomorrow's reality. One more thing, three years ago the US financial crisis heralded the end of America and by implication the rest of the world. Surprisingly then we're still here. We'll say the same about Europe...

Friday, 11 November 2011

2011/11/11 11:11 - Once in a lifetime!

It's another extraordinary day in an extraordinary year in these extraordinary times. Those who are spiritual or esoterically-inclined will record this day as a day of reckoning; the coming-together of humanity across ethnic & religious chasms; a changing of the guard, so to speak, from attitudes of indifference and suffering to a rekindling or ignition of what once made us great; the rejuvenation of the human spirit...

For the rest of 'we-the-unimaginative-many' the 11th day of the 11th month of the 11th year at 11 minutes past eleven is perhaps, at best, an intriguing number and at a stretch, considered lucky.

In these spiritually-impoverished times, crippling economic strife and religious intolerance perhaps even we, the life-weary many, should recall our humanity; toss a small coin into the fountain of hope and perhaps, just maybe.. we might just spark the start of something weird...; an auspicious reawakening ... 

Thursday, 10 November 2011

Europe awake!

For the attention and consideration of Europe's leaders

What has happened to Europe?

You've told us that the EU stands as a select body of nations believing in social and economic freedom. Circumstances have proved that the interests of individual nations are not identical. At the same time the separate identities have, until now, been seen as a strength rather than weakness. With the region's experience and expertise now is not the time to hide your heads in the sand....

New problems are looming.. Live not under any illusions. You cannot opt out of the world!

Your capacity to play a constructive role in world affairs is related to economic strength. If you hope to guarantee your way of life, the question you must ask yourselves is whether the present leadership is fulfilling their duty. The battles are being fought in your territory, not ours.

This is the moment - a moment when your decisions will determine the life or death of your kind of society; - and the future of your children.*

* With apologies to Margaret Thatcher whose words roused the nation's collective spirit. Will Chancellor Merkel be hailed as Europe's new Iron Lady

Monday, 7 November 2011

Italy's next..

Italy is next? What does that mean, exactly?

The Italian problem-  One:   Debt to GDP ratio - 119%.
                               Two:   0 (zero) political credibility.

How's that any different from Greece? It isn't.

So what happens now? Predictably, the scenario generates two basic market reactions. One; bond yields rise, alarmingly. For the technically inclined Italian bonds have broken the crucial post-euro-era highs of 6.5% .... As an exercise and confirmation of the severity of the situation, if you like, consider the rapidly diverging European bond spreads (comparative yields - usually against the German bund) and Two; as Italian bond yields rise the cost of credit rises commensuratelywhich makes it more expensive for Italy to raise money to service EXISTING debt. As the debt burden rises on comparatively more expensive credit, Italy's ability to go-to-market cost effectively, so to speak, diminishes and so on and so on..

What's done is done. Global debt levels are excessive. That's old news. So why has the market singled out Italy rather than France which is equally indebted? In a nutshell, the market has little faith in Italy's ability to get-its-house-in-order and service its debt-burden. It's a global vote of no confidence in Italy's leadership. 

The EU is structurally-imperiled, once again, with an economic problem not insurmountable given the diversity of the Italian economy, but rather on Berlusconi's lack of application and or ability to draw on the collective energies of the ordinary Italian to address the issue, in time and before conditions deteriorate.

Unless the EU addresses the structural concept of competent sovereign leadership, which is complex and fraught with danger, it's just more of the same..

Friday, 4 November 2011

Unpredictable white noise..

Investors and traders who succumb to headline-induced volatility do themselves an injustice. Media-promoted emotive pap (nonsense), usually accompanied by subjective talking-head 'expert' commentary, often abrogates from intelligent strategic insight...  As a practical example review yesterday's intra-day chart for any of the major European equity indices. Greece's to-referendum-or-not-to-referendum .., BBC-rumoured resignations / 'official' political retractions, Super-Mario's surprise rate cut on debut and his subsequent commentary at the ECB Q&A press-conference each had a profound peak & trough influence on the global markets...

It would be wise, perhaps, to lift the emotive-veil and understand stock-valuations, earnings expectations, consumer sentiment, the cost of credit, regulatory change, dividend yield & default swaps before contemplating any strategic adjustments or revision.

Very few professionals deny the premise that successful traders / investors usually confine short-term headline-driven market shocks to the emotive bin. Most appreciate that mainstream market-commentary is white noise and or conjecture, at best...

Tuesday, 1 November 2011

Greek referendum... CLEVER, very clever!

It's clear that this latest shock out of Greece makes little sense UNLESS of course Papandreou and his cronies have decided that they don't like the latest deal announced last week and WANT to default. We all know how the Greeks will vote in a referendum........

If the theory holds true, Papandreou could claim the 'will of the people' and refuse the deal. Now, if Papandreou plays his cards well he could in fact force Germany's hand and wrench a full amnesty on all Greek debt at the eleventh hour. It's no secret that export-driven Germany and France need the captive EU market.

All hail Greece; who would have thought...