Posts Tagged ‘ Crisis ’

Germany Wants To Go At Their Own Pace – Implications for Financial Markets

October 17, 2011
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Germany Wants To Go At Their Own Pace – Implications for Financial Markets

German leaders are coming out with comments that indicate there will not be a sweeping fix to the Eurozone financial crisis when leaders meet at a summit on October 23rd. Angela Merkel has been credited as saying “dreams that are taking hold again now that this package will be solved and everything will be over on Monday won’t be able to be fulfilled”. To me that is a pretty clear statement by an important leader. Moreover Wolfgang Schaeuble is echoing these sentiments this morning in the Financial Times. There are two approaches to crisis management, the American style approach which entails bringing out the bazooka, implementing a broad, sweeping, and immediate fix and worrying about many of the finer details and legal issues later on down the road. There...

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A Commitment to Recapitalize European Banks is Bullish for US Financials

October 10, 2011
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A Commitment to Recapitalize European Banks is Bullish for US Financials

The Euro rallied 2% today against the USD causing a sharp reversal of crisis-fearing “risk off” trades which have been working against all financial markets around the world. The Euro rallied based on indications that France and Germany are going to work seriously towards recapitalization of the European banking sector. This has been one of the two necessary conditions for the confidence to return to Europe: 1) Sovereign debt crisis needs to be contained by capping interest rates for countries like Italy, Belgium, and Spain. This was the easy part because for now the ECB has the authority to buy the debt to cap rates. Eventually the EFSF will be expanded and debt will be purchased through this vehicle. 2) The financial system in Europe needs to be able...

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Financial Conditions are Driving all the Market Fears

October 3, 2011
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Financial Conditions are Driving all the Market Fears

Positive data and developments on the real economy front are being ignored while increases in financial stress are being focused on. The pervasive gloom in the financial markets is a result of growing fears of another financial crisis. If this were to unfold, the financial crisis would surely cause a global recession but I’m remaining in the camp that a global recession can be averted if financial conditions stabilize. Financial conditions fully reflect the jitters of market participants or investors. Numerous sets of survey data reflect low levels of investor confidence which are being reflected in yield spreads, short-term funding markets, and stock markets around the world. While the stress is nowhere close to the degree it hit during the Lehman event, it is worrisome nonetheless. The source of...

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Why A European Sovereign Debt Crisis Can Be Avoided

September 20, 2011
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Why A European Sovereign Debt Crisis Can Be Avoided

The European sovereign debt crisis has dominated financial news and been the primary driver of markets for the past month. I would argue that we are in an actual crisis in Europe and this is no longer about fears of a crisis. When banks can’t finance independently through the market and when large countries can’t issue debt at reasonable interest rates you are in the throes of a crisis. The outlook regarding how this unfolds is really the dominant driver behind any and all short and medium term investment decisions right now. If one believes that this crisis can’t be contained and it will be a 2008-2009 redux, then it would make no sense to be invested and a lot of sense to be short. If one believes this...

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Why the Market Will Bottom Higher than 2009 – An Analysis of S&P 500 Free Cash Flows

September 13, 2011
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Why the Market Will Bottom Higher than 2009 – An Analysis of S&P 500 Free Cash Flows

The market is in the midst of a crisis. The US sovereign credit rating has been downgraded. Developed market economies are demonstrating an inability to create jobs. Greece is about to default on its sovereign debt which will lead to contagion through the financial system in Europe. French and other European financials will be downgraded this week and markets are in a period of exceptional volatility and uncertainty. How does one invest in the crisis that everyone sees coming? I continue to hold a constructive view with respect to investing and taking risk. In order to be rationally bullish, one must have some view with regard to the amount that will be lost if a crisis gets out of control. Knowing what you can lose ahead of time, while an...

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Is yesterday’s 5% rally sustainable?

August 10, 2011
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Is yesterday’s 5% rally sustainable?

Why was the market up 5% yesterday after the Fed meeting? At first the market sold off 2%. Subsequently, the market came back to unchanged and rallied another 5%. Whoa. Our “green light” to buy worked out, if just for a day. Of course what everyone cares about is what to do going forward. We remain skeptical of a market crash based on something as mundane as a Fed statement on the economy or a Standard & Poor’s statement on the credit worthiness of the US. These are absurd reasons for a market crash though we remain vigilant of real reasons for a market crash. 1) Credit availability and liquidity really drying up across the global economy 2) An actual recession – there have been enough fears of one, and...

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Green Light for a Rally!

August 9, 2011
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Green Light for a Rally!

The markets are completely destabilized and due for a bounce from dramatically oversold conditions. For those investors who are bullish and wish to take the view that the US and global economy will not be in a recession in the next 6-9 months, we advocate buying while the buying is good and other investors are worried about an utter meltdown. Based on the lead-in to today, acknowledging the destabilized market environment, we would see a 2/3 chance of a very strong bounce that gains some momentum when the investing heard gets over the shock of an up-market. Of course there is a solid 1/3 chance that confidence remains completely dashed and we again have another heavy selloff. Why we are leaning towards a bounce… CSFB’s Global Risk Appetite Index...

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China Inflation – Non-News News

August 8, 2011
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China Inflation – Non-News News

The Chinese CPI is not an apples-to-apples measure relative to the CPI (consumer price index) that is reported here in the US. Some are attributing the overnight leg-down in the S&P futures (down another 24 or 2.25% at 11:00pm) to the fact that Chinese inflation came in at 6.5% when the consensus was 6.4%. Crackerjack says: “bullocks”. This is just some more good old fashion market panic in our opinion. Chinese food inflation came in at +14.8%. Certainly high, but food inflation is much more volatile and both weather, crop, and commodity price dependent (notice how all commodities except for gold have been collapsing the past few days). Chinese inflation ex-food is running up 2.9%. Not too much different than inflation in the US, nor should it be with...

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US Sovereign Debt Downgrade

August 7, 2011
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US Sovereign Debt Downgrade

The downgrade of the US sovereign credit rating is sure to cause continued jitters in the financial markets on Monday morning. In actuality, there may be net-positive developments this weekend as it now appears clear that the ECB will engage in buying the debt of Italy and Spain. Drawing a “line-in-the-sand” for Italy and Spain is one of the key elements of halting a financial crisis redux in its tracks. The Standard & Poor’s downgrade of the US sovereign credit rating looks to be timed to create maximum stir and hints at some political motivations. The downgrade was firmly signaled on July 14th when the US was put on credit watch. Standard & Poor’s looked for $4T in spending cuts to be announced in conjunction with the raising of the...

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Chitaly – China to purchase Italian Sovereign Debt?

August 5, 2011
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Chitaly – China to purchase Italian Sovereign Debt?

Crackerjack continues to hold the view, that what transpired in the markets is a crisis of confidence, more so than an actual crisis. There is a big and important difference. During the real-deal 2008-2009 economic crisis you had actual insolvent institutions as the value of mortgage securities declined when the US housing market imploded. The sovereign debt crisis in Europe is also a real crisis as it relates to Greece, Portugal, and Ireland (these countries can never pay back what they borrowed) but these economies aren’t big enough to tip the world into a global recession. While Spain and Italy have numerous longer-term structural issues which need to be addressed, these nations have ample ability to pay their actual agreed upon debts so long as the interest costs are manageable. Italian...

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Pressure on ECB to be decisive Friday morning

August 4, 2011
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Pressure on ECB to be decisive Friday morning

It goes without saying, that the DOW dropping 500 points, and the S&P 500 losing close to 5% will put enormous pressure on Europe tomorrow morning. We will be watching Spanish and Italian bond yields and European stock markets very closely in the wee hours of the morning. The Non-farm payrolls report is a side-show with the real issue near-term being “how to avoid a crisis”.      

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Fears of a Crisis Grow

August 4, 2011
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Fears of a Crisis Grow

Fears of a Crisis Grow Interesting market reactions this morning. While many market participants are clearly being terrorized by a crisis of confidence (and this is always a risk) there look to be some genuinely better pieces of information. Markets are selling off based on rhetoric from the ECB. As we discussed yesterday, the ECB needs to talk big to instill confidence that bond markets in Spain and Italy are not on the cusp of spiraling out of control. Jean-Claude Trichet, the ECB President, mentioned the ability to buy bonds (even today). At first this caused a rally, but the rally in Italian 10-YR yields quickly reversed. Italian 10-YR yields closed the day at a 6.21% yield (up 12 bps) after being below 6.0% at one point in the morning....

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