Archive for November 2011
China Starts Monetary Policy Easing Cycle & Rest of World Provides Additional Liquidity
Overnight, financial market sentiment turned around pretty dramatically. The China A-Share market sold-off by 3.3% and approached the vicinity of recent lows. Fears started to mount that Chinese central bankers were going to be slow to ease monetary policy based on continued inflation concerns. After Asian markets closed, the People’s Bank of China announced that…
Read MoreFacebook Considers a Spring 2012 IPO at a $100 Billion Valuation
We all knew it was coming, a spectacular IPO at a high valuation, for one of the world’s most innovative and intriguing companies. After many years of capturing young people’s internet time around the world, Facebook is moving closer to an IPO, reportedly valued at a $100 billion. The company may potentially file before year-end…
Read MoreBlack Friday Retail Sales Strong – Demonstrate the US Economy is Nowhere Near a Recession
A number of Black Friday retail sales surveys were released over the weekend. All measures pointed to a robust start to the holiday shopping season. Strong data were received from the National Retail Federation, ShopperTrak, and Comscore. None of the individual sales measures are completely reliable, but the collective strength is likely indicative of a…
Read MoreGermany’s First Failed Bond Auction – The European Crisis Continues to Spread
Germany failed to get bids for 35% of the 10-year bonds auctioned today. Yields are up about 10 basis points this morning. The increase in borrowing cost is insignificant for Germany. Yields are still well below 2%, and Germany continues to benefit from the combination of very low borrowing costs, and a declining euro which…
Read MoreEmerging Market Currencies Signaling More Risk Aversion
For almost a decade, emerging markets have been in a bull market with high growth rates, declining interest rates, and capital inflows. During the financial crisis, emerging markets were hit like financial assets around the world, and capital flowed out of the asset class. Over the course of 2010, and most of 2011, emerging market…
Read More“Super” Committee – Lack of Progress Heightens Risks to Economy and Financial Markets
The US “Super Committee” failed to make any progress on the sole task it was created for: deficit reduction. It now appears probable that there will be an announcement today stating the committee has “failed to reach its mandated goal of reducing deficits over the next 10-years by $1.2 trillion dollars”. An announcement of this…
Read MoreUS Housing Permit Activity Improves – Strongest in 3-Years
Housing is slowly and steadily showing signs of a bottom. Housing permits are required in most states before a housing start and are a leading indicator of overall housing demand. Housing permits improved to 653k which represents a 10.8% increase from September and a 17.6% improvement vs. last year. Both single-family and multifamily permits improved.…
Read MoreQue Lastima – Spain in a Vice as Interest Rates and Unemployment Soar
I’ve been writing about the impossibility of the ECB running appropriate monetary policy for 17 different nations. The dilemma couldn’t be more evident when contrasting the economy of Spain with the economy of Germany. Spain actually has less sovereign debt relative to GDP than does Germany. The problem for Spain isn’t the level of debt…
Read MoreEurope’s Crisis Spreads as Spain, Belgium, France, the Euro and EU-17 get Questioned – How Does It End?
For a number of months, the financial crisis in Europe has been explained under the guise of sound versus unsound policy. If this were indeed the case, the fix would be simple; eliminate unsound and unsustainable policy and voila, the problems would just go away. European leaders have shifted blame continuously from one problem to…
Read MoreChina’s Trade Balance is Adjusting – the Largest Imbalance in the World is no Longer Growing
Markets in China rallied to start the week. Part of the rally resulted from “catch up” to US markets which closed strongly. But part of the rally was based on positive economic comments coming from Chinese officials. China’s President Hu Jintao pledged to focus on building imports which would boost global economic growth. IMF Deputy…
Read MoreCJF Read of the Week – Rogue Economist: “Similarity of China’s USD Peg with the EMU”
The Rogue Economist, located in Canada, wrote a provocative piece discussing the similarities between the USD/Yuan peg and the EMU construct. I agree with Rogue that currency pegs and distortions lead to predictable real world economic outcomes that become evident in the balance of trade. Many financial market participants confuse cause and effect when identifying…
Read MoreWalt Disney (DIS) Results Strong – Outside of Europe the Global Economy is Solid
Long live Mickey Mouse! Walt Disney reported strong results last night which reflected broad strength across the economy. Disney has diversified exposure to discretionary spending with its parks, media properties, and international businesses. A consistent theme through earnings season has been broadly solid corporate earnings and DIS is another example of this from a large…
Read MoreEurope Must Decide Its Future – Self Induced Financial Crisis Has Led Europe to the Brink
After Wednesday’s market action around the world, it’s a good time for a big picture assessment on the state of the financial markets. The attitude out of Europe has pendulated between nonchalance and vitriolic attacks among the EU-17. Italian sovereign rates spiraling above 7% have brought the eleventh hour upon the region. Escalation of the…
Read MoreChinese Inflation Turning Down – More Confirmation on Inflection Point
Overnight, China released inflation data for October, which came down as expected and declined meaningfully from the previous month. Chinese consumer inflation, which includes food and energy prices, rose 6.1% in September, and 5.5% in October. This data shouldn’t be a complete surprise because China is on a tightening campaign with higher interest rates, lower…
Read MoreNew York City Taxi Medallion Bubble – Prices Appreciate to $1M
Bloomberg recently reported that New York taxi medallions changed hands this October for a record $1 million. There have been a number of reports over the years demonstrating that investment in taxi medallions outperformed stocks, bonds, real estate, and other financial assets. While this may be true, the yield has clearly come way down making…
Read MoreMarket Confidence in Italy Hits New Lows – Berlusconi to Face New Rounds of Confidence Votes
Italian 10-YR bond yields hit 6.62% this morning, which marks a new high since concerns over the sustainability of European sovereign debt began to unfold. This wasn’t supposed to work this way after the Eurozone leaders announced a new structured investment vehicle to be put in place to leverage up the EFSF. It remains unclear…
Read MoreMagnifico! – Getting to Know Mario Draghi & Analysis of the ECB Monetary Policy Press Conference
The global equity markets have been held hostage by fears of a crisis since the summer. Taking another step back; crisis fears, macro, and policy responses have really been driving all financial markets since the summer of 2008. To be clear, the economy always has a meaningful impact on the investing environment, but the recent…
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