It is sometimes claimed that a picture says a thousand words. If so, then today's post (delivered late thanks to a Blogger power outage) will be the size of a small novella....
Chart 1: UK wages, deflated by the retail price index. Real wage growth is negative for the first time in a dozen years...will the economy eventually hit a brick wall?
Chart 2: Components of UK inflation. Services inflaton has turned sharply lower, thanks in part to a reduction in utility bills. Yet goods price inflation is not only no longer negative, at 2% it's the highest in nearly a decade. And this is with sterling at close to all time highs! This may suggest the disinflationary "free ride" that global central banks have enjoyed from globalization is indeed coming to an end.
Chart 3: US CPI, with a forward projection. One recent poster noted that the US, and indeed the world, is entering 'base effect Nirvana.' The chart below shows how headline and core CPI will print y/y with steady monthly increases of 0.3 and 0.2, respectively. Note the slight sting in the tail at the end, however; for headline CPI, base effect Nirvana wil morph into Hades come September.
Chart 4: The NAHB survey. Last night's 30 print matched previous lows in September and 1991. The winter bounce is now looking decidedly dead cat. Meow! This bodes well for the short homebuilder position- starts are released this afternoon.
Chart 5: Cross border capital flow from the TIC report. Brad Setser has more time, energy, and inclination to dissect the report fully than Macro Man, so visit his site for a more in depth view. However, the chart below amply demonstrates the degree to which US home bias has eroded in recent years. In the twelve months ending in March, US investors bought a net $270 billion worth of foreign securities. Small wonder, then, that the buck has come under pressure!
Chart 6: The P/L. The bounce in oil has taken the monthly figure back into the black , though Macro Man is still long 500 Dec 07 WTI contracts. He remains 68.50 offer for these, and will be glad to see the back of the energy market for a while.
Chart 1: UK wages, deflated by the retail price index. Real wage growth is negative for the first time in a dozen years...will the economy eventually hit a brick wall?
Chart 2: Components of UK inflation. Services inflaton has turned sharply lower, thanks in part to a reduction in utility bills. Yet goods price inflation is not only no longer negative, at 2% it's the highest in nearly a decade. And this is with sterling at close to all time highs! This may suggest the disinflationary "free ride" that global central banks have enjoyed from globalization is indeed coming to an end.
Chart 3: US CPI, with a forward projection. One recent poster noted that the US, and indeed the world, is entering 'base effect Nirvana.' The chart below shows how headline and core CPI will print y/y with steady monthly increases of 0.3 and 0.2, respectively. Note the slight sting in the tail at the end, however; for headline CPI, base effect Nirvana wil morph into Hades come September.
Chart 4: The NAHB survey. Last night's 30 print matched previous lows in September and 1991. The winter bounce is now looking decidedly dead cat. Meow! This bodes well for the short homebuilder position- starts are released this afternoon.
Chart 5: Cross border capital flow from the TIC report. Brad Setser has more time, energy, and inclination to dissect the report fully than Macro Man, so visit his site for a more in depth view. However, the chart below amply demonstrates the degree to which US home bias has eroded in recent years. In the twelve months ending in March, US investors bought a net $270 billion worth of foreign securities. Small wonder, then, that the buck has come under pressure!
Chart 6: The P/L. The bounce in oil has taken the monthly figure back into the black , though Macro Man is still long 500 Dec 07 WTI contracts. He remains 68.50 offer for these, and will be glad to see the back of the energy market for a while.
7 comments
Click here for commentsUS Commercial REITs are looking a bit peekid...see VNO US Equity GPC
ReplyBXP US Equity GPC
CLI US Equity GPC
or S15REAL Index GPC for the broader sector.
I would offer that this is a major tell-tale for the global liquidity trade. Sam Zell may have won yet again....
It's been a weird day. Brazil goes parabolic, Hungary blows chunks. US large cap indices trade OK, Europe's on the back foot. The euro craps out at the same time it roared higher yesterday.
ReplyAnd someone told me about a fund that was running an FX carry basket to 'hedge' their long equity portfolio. I did a cartoon-double take when I heard that. As if the Nikkei- USD/JPY link you mentioned the other day (why no space for comments, by the way?) weren't strong enough, seemingly unrelated stuff like NZD/JPY and EuroStoxx are basically the same chart- check it out...
Funnily enough, I was carrying not unsubstantial profits over from previous years,(yen) as an anti-dollar punt. But bizarrely, the position in its prevailing size was inversely correlated to my P&L. Net/net I was extracting more nickels than the pennies dropping out the other side from being long yen, but nonetheless finally jettisoned it in Q4 '06, more or less legging out, as I liked (and still like) the the domestic asset recovery stories in Japan, but my patience went as my optimism waned that anyone, anywhere, (especially BoJ) would do the macro-economically right thing - from a global civic, and thus interest-rate differential point of view.
ReplyI don't know why Mr Blogger refused comments on that post. I would appreciate any insights you have into the Nikkei/USD Spread Police. It's ironic that Japanese retail continues to feast upon higher-yield non-Yen structured debt assets therein assuming large implicit risks, while there is no shortage of good Japanese companies with 7 to 10% net earnings yields, good balance sheets and some future growth potential (or at worst, they are not shrinking). These people are like the dogs one finds at the SPCA who've been so abused, they cower when you lift your hand to scratch your ear...
Yeah, it was weird that there was no space to comment. Maybe Mr. Blogger was scared of Ponch and John (or maybe the two Chinese blokes.)
ReplyAs for the spread police, I don't think there is anything more nefarious than all risk trades are the same trade these days, so when equities go up, the yen goes down thanks to carry trading and other selling (from both inside and outside of Japan.) As for why the Nikkei has been limp biscuit generally, you'd know better than I, but my view is that top down earnings growth (as in, the numbers reported as economic data) has been pretty limp, foreigners are/were long and disgusted and happy to sell on strength, and Japan still is a 2% nominal growth economy, which doesn't really argue for sustained periods of double digit asset returns.
As for the apparent aversion of Japanese to quality names in their own market, I think you've hit the nail on the head. One of my underlying premises for the last several years has been that Japanese investors were permanently scarred by the collapse of the bubble and have permanently lost faith in the domestic securities market. So when Mrs. Kobayashi buys stocks,she does it through investment trusts investing abroad (which have supplanted the uridashi type stuff as the retail vehicle of choice for capital exportation), while her son punts CAD/JPY, ZAR/JPY, et al. online...
Demographics offer a convenient hypothesis on why retail Japan shuns NKY despite high earnings yields. As Japanese workers enter retirement, they should rationally seek dividend yield versus earnings yield given the shortening duration of their investment horizons and increased exposure to drawdowns. For the price chasers out there, why not buy Malaysian and/or Brazillian stock indices when they have twice the dividend yield and much better price action?
ReplyRegarding the weird day, I'd argue that we are seeing the interplay between the "sell in May" crowd and the max bullish Bank Credit Analyst crowd (recently joined by Bill Gross, his May outlook is so sanguine its almost scary). On HUF, would think a lot of HUF/CZK went through after the mkt got excited about the start of a tightening cycle in CZK.
Yes, good point on HUF...PLN was also smoked. Of course, that doesn't explain why AUD and NZD got turfed, with the yen remaining weak as ever, so the discrepancies still hold.
ReplyI hope it doesn't make me a bad person or a lazy investor, but I gave up reading the PIMCO boys a couple of quarters ago. Their relations with the media are so nakedly self-serving (in terms of aggressive pimping of views that are meant to push their positions into profit), and some of their analyses in recent years so divorced from reality (remember when the Fed was gonna stop at 2%?) that I just don't get anything out of it anymore. Now that they've hired Greenspan, I don't know if it makes them more or even less worth reading. In any event, a volte face in May towards bullishness from a perennial risky asset bear sounds an awful lot like last May and Stephen Roach's exquisitely timed (if temporary) abandonment of the doom and gloom viewpoint.
After reading BG's latest outlook I was reminded by something Jeremy Grantham said years ago. I went and looked up his July '04 letter and he wrote about how Ken Fisher said that the bull market would not be over until some notorious bears like Bill Gross and himself took some public abuse. Well, while Grantham hasn't turned BCA sanguine like Gross, he has essentially said that the 'liquidity' rally will probably continue. Outside of the fringe bears, 'tis getting quite hard to find any left in the woods.
ReplyCheers,
Ray