Category Archives: Investment outlook

Roubini Calls for Hard Landing in China (After 2013)

During the financial crisis, pronouncements by Nouriel Roubini would move markets. Even though he still commands attention, in a investment environment driven by blind faith in the munificence of central banks, being focused on the real economy isn’t as relevant as it once was. And Roubini may have erred in trying to maintain his high profile when the trajectory of the economy was hard to discern (recall the seemingly unending debates over V versus U versus W shaped recoveries? The net result is the new normal has been designated a recovery when it it looks more to be a sideways waffle).

By contrast, China has trends underway that simply cannot be sustained, but a command economy can keep that sort of thing going well past its sell by date.

Satyajit Das: The Economic Calculus of Japan’s Tragedy

By Satyajit Das, the author of “Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives”

The behaviour of financial markets over recent days confirms British Prime Minister Lloyd George’s observation that “financiers in a panic do not make a pretty sight”. While workers in the Fukushima nuclear plant risked death trying to bring damaged reactors under control, financiers cowered in fear. Oscillating between boom and doom, they sought opportunities to benefit from death and destruction.

Instant experts on the nuances of nuclear power generation and the Japanese economy have crowded the airwaves providing ‘analysis’.

Quelle Surprise! New Home Construction Plunges

How could anyone have expected new home building to be anything more than anemic with housing prices expected to fall nationwide in 2011? Did some forecasters miss the fact that there are a lot of foreclosures in the pipeline given the current level of serious delinquencies as well as a lot of shadow (homeowners who would like to sell but are not putting their homes on the market due to depressed prices in their market?)

John Hempton: “What the demise of China Media Express says about the demise of Hank Greenberg and AIG”

By John Hempton, a Sydney-based investor, recovering financial services analyst, and former Australian government official who writes at Bronte Capital

I met Hank Greenberg in late 2000. He was chatting mostly to Ajit Jain – the Berkshire Hathaway reinsurance impresario and I was a spare wheel. But Hank was I thought the most impressive person I had ever met. He name-dropped shamelessly (he had had just flown back to New York on a private jet after “chatting” with Li Peng). But he was so far ahead of me on so many issues it made me feel dumb. He even looked – at least in the brief conversation – as if he were considerably smarter than Ajit Jain – and Ajit is no intellectual slouch.

I was just out of my league…

Japanese Stock Market in Free Fall on Nuclear Fears, Nikkei Down Nearly 13%

The stock market decline in Japan thus far today is second worst to the 1987 crash. As a mere mortal with delayed Bloomberg readings, Topix is now down “only” 12.64 versus a recent 13.18% and the Nikkei is off 12.74%, having recovered a smidge from down 14.1%. Good thing I didn’t listen to some recent stock market recommendations that the Japanese stock market would be up 20% in the first six months of this year.

The yen has firmed only modestly, to 81.55, due to Bank of Japan emergency liquidity operations only partially offsetting a rally. Note the BoJ’s operations are being criticized for being inadequate (ahem, do you think even a central bank can stand in front of a freight train of a major reset in economic fundamentals, unless it chooses to intervene in the stock market directly? Given the current and potential economic damage, the Japanese bond and money markets don’t sound too terrible with call money rates in a much wider trading range than normal. 008% to 0.13% versus the BofJ’s target of 0.1%, so the BoJ appears to be addressing what it considers to be its main priority). From Bloomberg:

On the Problem Rising Oil Prices Pose for Central Banks

Ambrose Evans-Pritchard of the Telegraph voices his concern that central banks are going to misread the impact of rising oil prices and therefore make the wrong interest rate decision. Bear in mind that Evans-Pritchard called the 2008 oil spike correctly, deeming it to be a bubble, and was also in the minority then in arguing that deflation was a bigger risk to the economy than inflation.

One leg of his argument is that oil price increases slow economic growth. That’s hardly startling; indeed, this concern has been echoed widely in the last few days. For instance, as David Rosenberg notes, courtesy Pragmatic Capitalism:

Ugly Out There!

The Shanghai Index fell 2.6% overnight. Italian bonds are blowing out. If sustained, this is bigger deal than the stock market swoon across Europe: CAC down 1.45%, FTSE down 1.1%, Dax off .4%. A lot of Libyan shares apparently in Italy and Libyan interests own over 7% of Unicredit, the biggest bank in Italy. Ouch. […]

We Speak on BNN About Bernanke, Inflation, China

We had a wider ranging chat than usual at BNN today.

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Bank of America Fighting to Reverse Foreclosure Freeze in Nevada

Peculiarly (and I’ll have to admit I’m among the guilty), a state-wide halt of foreclosures by a Bank of America unit in Nevada earlier in the week attracted remarkably little notice. The number of foreclosures in involved is meaningful, over 8000. The reason may seem somewhat technical, and presumably would not apply to other BofA units, namely, that the entity, ReconTrust Co, is operating without a proper business license. But then it gets interesting.

First, we get Bank of America’s position, per the Las Vegas Review Journal(hat tip ForeclosureFraud):

Marshall Auerback Speaks on BNN About Implications of Unrest in the Middle East

Portfolio strategist, hedge fund manager, and sometime Naked Capitalism guest blogger Marshall Auerback spoke on BNN about the implications of unrest in the Middle East for the economy and investors. Enjoy!

The Imagination Trade, or the Tinkerbell Market 2.0

I’ve refrained from discussing the stock market for quite some time, in part because this is not an investment website and in part because I find the netherworld of credit more interesting. But a big reason of late is that the stock market has become so utterly unhinged from fundamentals that anyone opining on it, other than momentum trades and technicians with particularly good crystal balls, is likely to look silly.

We seem to be in a toxic replay of what I called the Tinkerbell market in 2007 and 2008: if the officialdom can get enough people to applaud, the economy will live. They weren’t too successful back then, but the crisis has appeared to have upped the game of the Powers That Be in talking up the price of financial instruments. And having the Fed at ready to provide boatloads of liquidity should anything go awry appears to have put much of the world in “don’t fight the Fed” mode.

Market action is looking a tad manic, yet the dot-com mania proved that unwarranted optimism can persist far longer than cooler heads deem possible. Hedge fund leverage, for instance, is allegedly back to pre-crisis highs.

“The 20 Most Influential Blogs in Financial Media”

Thanks to Minyanville for publicizing this study by MindfulMoney on the nature and reach of social conversations in the investment arena. But even bigger thanks go to loyal readers and contributors for their frequent comments, leads, and critiques. The success of a blog depends on its community and I am very grateful for all the input so many of you have generously provided.

Perhaps the most interesting finding (boldface ours):

The research confirms the existence of a network of investment super-connectors with extraordinary media influence and reach. These super-connected new influentials are, for the most part, not well established voices in the media but individual bloggers who fiercely champion their independence….In the US, the network functions as the unofficial voice of Wall Street & the US federal bank with no mainstream media players at the centre of the network.

Warning Sign or False Positive – Divergence Between Stock and Credit Markets on Eurobanks

One of the noteworthy features of 2007 was a pronounced divergence in sentiment between the bond and stock markets, with the credit indices sending out warning signals while equities continued to soar higher. This is hardly surprising; an old joke is that the bond market predicted 9 of the last 4 recessions.

We are seeing the same type of divergence again, this time in European bank stocks. And if the credit worry warts are correct, this could be a harbinger of bigger shocks.

Gingrich Touting State Bankruptcy Bill to Gut Pensions

There has been an interesting lack of commentary on an effort underway by Newt Gingrich and his allies to enable state governments to declare bankruptcy as a way to slash pension obligations, and given the lack of mention of other creditors, perhaps only pension obligations.

The latest sighting was via an article today in Pensions & Investments: