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Error404
admin
September 4, 2015 at 4:20 PM ×

Tks - excellent stuff. A cerebral comment would be pointless. A witty riposte would be tasteless.

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Macro Man
admin
September 4, 2015 at 4:43 PM ×

Critivs might suggest that pointless and tasteless would be right up the strasse of this space...

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Anonymous
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September 4, 2015 at 5:04 PM ×

At the risk of being a jerk, but mainly to avoid itchy fingers giving me a s+p position over the weekend that I don't want, is it possible to add a third dimension which is measured inflation at each data point.

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Bruce in Tennessee
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September 4, 2015 at 6:53 PM ×

There is nothing better than watching bonds being bought hand over fist in the month of the Fed rate increase....

...It makes I am Cait....seem normal....

...More popcorn, please.

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abee crombie
admin
September 4, 2015 at 7:09 PM ×

Another dimension, another dimension

Mr Crombie was just looking into the European auto sector, which seems to be at the epicenter of the financial market turmoil, given that it led the Dax on the way up and now is leading EU lower on China concerns. Chart doesnt look pretty. analysts have yet to really start marking down OEM EPS (VW, BMW etc). On today's Fowards EPS numbers the group is trading at 9x, the same level as in october but above the 6x it traded in 2011. MS thinks that if China sales slow and eat into margins, you could get between 2-17% EPS downgrades. But even then you could buy a BMW at say 13x (6 EPS from the current concensus of 9.50).

clearly this is a group to watch. any other thoughts would be really appreciated.

usually you have to wait for the analysts to start marking down earnings before the bottom is in

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washedup
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September 4, 2015 at 8:10 PM ×

MM - thx and point (or rather, a veritable cornucopia of em) well taken. Based on some work I have done, I would humbly suggest that there is a principal component of the employment measure that actually influences wage inflation, and your X axis is not it - said differently, I would argue unemployment is more like 6.0% currently.
The usual 'is good news good or bad' debate aside as it pertains to equities, I am not seeing any signs that the US economy is about to fall off a cliff as some would have you believe - I daresay the deflationary crowd may be past their happy hour, and we are now in a world where commodity deflation does a regular R rated tango with US wage inflation with some pretty big swings every few months. Cyclically and for a 3 month trade I would caution the 'bonds are always going to go up' crowd - all it takes is for crude to stabilize over 40 for that to be a rather cavalier attitude - is that too big an ask? we shall see.

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September 5, 2015 at 12:31 PM ×

http://www.linkedin.com/pulse/trouble-spot-nutrition-review-ebook-free-download-jenny-james


http://newsletters.getresponse.com/archive/truereview/Trouble-Spot-Nutrition-Review-Free-Pdf-Download-160058501.html In most cases, hospitals and other medical facilities typically hire their own radiologists, but there are still many circumstances in which they require services from teleradiology companies. For instance, when their staff is overwhelmed with requests for MRIs and X-rays and their analyses, they would be in need of the skills and knowledge of non-staff radiology experts. And this can happen very often in many hospitals all around the globe.

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Bruce in Tennessee
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September 5, 2015 at 12:49 PM ×

http://www.bloomberg.com/news/articles/2015-09-04/china-s-zhou-kept-repeating-the-bubble-burst-at-g-20-meeting

Zhou Xiaochuan, governor of China’s central bank, couldn’t stop repeating to a G-20 gathering that a bubble in his country had “burst.”

It came up about three times in his explanation Friday of what is going on with China’s stock market, according to a Japanese finance ministry official. When asked by a reporter if Zhou was talking about a bubble, Japanese Finance Minister Taro Aso was unequivocal: “What else bursts?”

A dissection of the slowdown of the world’s second-largest economy and talk about the equity rout which erased $5 trillion of value was a focal point at the meeting of global policy makers in Ankara. That wasn’t enough for Aso, who said that the discussions hadn’t been constructive.

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September 5, 2015 at 6:23 PM ×

Good catch Bruce in Tennessee. I saw this too, and was taken aback. Wrote about it as well.

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Booger
admin
September 6, 2015 at 1:50 PM ×

MM, I know you feel this is not anything like 1997... But, what do you think is the probability of Brazilian default given their 10 year bonds are 14% and they are in a bad recession ?
1. Will China blow up in terms of capital flight ? You seem to feel that their forex reserves make this impossible. Why is the basis for you thinking a run on RMB is impossible ?
2. If Brazil or a weaker EM defaults, do you think the Chinese are vulnerable to secondary effects?
3. What was the purpose of the rmb depreciation ? If it was to get IMF SDR status, why is that important ? The trade off is they make their currency vulnerable to capital outflow, which it was not during the Asian FC. Personally I wonder if they totally f$&cked up there. They spooked the market and had no benefit with a very small depreciation. They did not get SDR status. They will have to come back for more depro for any appreciable economic impact. They should have devalued by 10% -20% and said no more for at least 5 years, guaranteed. This would have re engaged competitiveness in the currency and reassured investors about further depreciation. The way things stand if I was Chinese or overseas investor with any liquid funds I would be getting out of rmb before the next depreciation.
Also their statement they will not devalue further, then devalue further the next day was not very confidence inspiring. Then they said they have repegged to a black box no one knows the formula for. OMG, How can that engender confidence in the currency ? Just indicates the bureaucrats involved either freaked out or have NFI. Why not repeg to trade weighted currency basket ? Pegging to black box is bizzaro! A bit like Tsipras calling referendum. Very strange. Tsipras basically grabbed the ecb's hands and put it around his nuts saying "squeeze". That is what I think the Chinese have done with their peg. The market is likely to challenge them\squeeze as markets are wont to do.
3. Something I find puzzling is the government keeps sprouting that they are working towards rebalancing but the % GDP on Fixed asset investment is about the same or even more over the past 5 years. As Michael Pettis has laid out pretty well for years, they could easily rebalance by redistributing government assets to the public. Obviously the ccp do not want to do this, as it reduces their power. Where is the endgame in this. If there is a Chinese recession or prolonged period of 0-4% growth, currency devalues 20%, stricter capital controls imposed, interest rates increase back to 8%, but disposable income is still rising at a modest 5%, do you still see the political system as stable ?

What I find fascinating is the capital account. The model they had was a perpetual machine as long as inflation was high and financial repression ensured government corporations could borrow at a rate below the inflation rate. They then had a free spread and profit on doing or buying anything. Basically most things will keep up with inflation and that was less than their cost of capital. This perpetual machine is winding the other way. This is fascinating to watch and it will be very interesting to see how things develop.
Would appreciate people's thoughts on the above if they have time to comment, kind regards

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September 6, 2015 at 2:38 PM ×

Boog - the salient points you make on the RMB and Chinese capital account are likely to be pondered by markets until there is clarity. The devaluation was botched, and didn't come close to achieving an ultimate aim, as you point out. Of course the pace (which we don't know - still not driven by markets) of the devaluation has implications for the capital account.

In trying to answer your questions, it draws out the realization, that there is no way to answer your questions, now, with any type of conviction of a correct answer. China's handling of both the currency devaluation, and stock market collapse, put the willy in nilly.

My view is that the longer China attempts to manage its severe slowdown/recession in a statist manner; the larger the ultimate chance that there is a complete implosion.

I too am fascinated by Brazil; the currency in real time, is reflecting the outflows of a flawed EM government, that failed to make reforms, that is commodity geared, and China geared, in the time of QT. I don't look at Brazil as a driver of China outcomes - more the other way around. But of course there are feedbacks, and an EM country as large as Brazil could have implications for the pace of capital flight in China.

A partial list of precedent EM crisis/recessions:
Mexico 1994
Thailand 1997
Indo 1997
Russia 1998
Argentina 2000
Brazil 1999
Turkey 2001
Iceland 2008
Nigeria 2014
Kazakhstan 2015
Greece 2011-?

Was there a case in this list where the way out didn't involve letting the currency go, completely? Greece? But not clear Greece has found a sustainable way out.

The impact of China defending the RMB, in a recession, would be to make the recession much more severe. Doesn't seem to be in China's best interest, ultimately.

Lastly, this is why I don't buy into an ultimate turn and big rally in crude. The round of competitive devaluations to come, price crude higher in local EM currency and will be an additional factor (pressuring billions of EM drivers/businesses), along with technology, that impairs demand.

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washedup
admin
September 6, 2015 at 3:09 PM ×

Very good points Boog/CF - I think you have nailed the structural trend - the only thing worth debating is whether there will be sentiment exhaustion along the way (the overly cited economist cover indicator as a case in point) leading to countertrend relief rallies in associated asset classes - I think the end game here is a China that ends up like Japan in the 90's, so perhaps a 2-3% growth rate managed by a decreasing currency (I think RMB goes to 8 over the next couple years) and lowered RR (down to sub 10%), very slow decrease in leverage, and slow transition away from FAI and into consumption - I don't think this is as disastrous from a political risk perspective as its made out to be in the next 10 years or so, which is really as far as one could reasonably look.
Ironically, Brazil is more likely than China to overshoot, crash and overcorrect asset prices - I think sometime in Q4 you may get a generational buying opportunity in brazilian equities as long as you focus on services and non commodity businesses.
The playbook from the late 90's of an EM reverse gear leading to a mid cycle slowdown in DM is the right one, just bear in mind that it is with a much lower overall global growth backdrop (2.5% instead of 4%) much lower global DM rates, continued financial repression by CB's, and a lack of exuberance in equities, so we may not get the upside in US equities that we did in 1999-2000.
Basically people will have to 'trade' to make money going forward - not bad for the crowd on this blog, but for 99% of the bull market dart throwers, otherwise knows as the 'investment community', not good news.

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Anonymous
admin
September 6, 2015 at 4:13 PM ×

QE has increased the base money supply.

Really?

http://imgur.com/nqw9QoL

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Anonymous
admin
September 6, 2015 at 4:56 PM ×

No meaningful reforms coming in India soon:

http://news.yahoo.com/millions-strike-india-over-anti-labour-reforms-062438419--finance.html;_ylt=A0LEVjj0YexVKNIAPbMnnIlQ;_ylu=X3oDMTE0OXE2anFiBGNvbG8DYmYxBHBvcwMxBHZ0aWQDRkZYVUkyOV8xBHNlYwNzYw--

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Anonymous
admin
September 6, 2015 at 5:18 PM ×

washed: "Basically people will have to 'trade' to make money going forward..."

A herculean task:

http://imgur.com/1fEufro

If you protected your position with a stop loss, you had your clock wiped.

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Anonymous
admin
September 7, 2015 at 12:57 PM ×

BBG:"Mario Draghi’s stimulus program hasn’t quite succeeded at unleashing the desired animal spirits across Europe. Here’s the evidence: six months in, and 96 percent of companies in the Euro Stoxx 50 Index have actually gotten cheaper relative to earnings. The European Central Bank’s plan to flood the financial system with cash by purchasing bonds was supposed to ignite the same celebration of risk-taking it did in the U.S. six years ago. In fact, the opposite has happened, culminating in as much as $526 billion of share values being wiped out last month."

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Booger
admin
September 7, 2015 at 2:48 PM ×

Crackerjack: It is interesting that China is considered the centre of EM’s but not an EM in some way. It seems the assumption that everyone has made is that with their reserve assets (3.5t last month) that their currency is unassailable. I think there is a possibility of a run on rmb and although unlikely, even this possibility currently has not been priced in. I am not certain that the reserves are sufficient. They have been unsuccessful with halting a slide in the Stockmarket. Forex flows are orders of magnitude greater. At least there will be a fight I reckon and I would be surprised if the market does not challenge their peg, and the hkd peg. They burned through 100b last month in forex reserves and with capital flight this could be orders of magnitude greater.

You are right: In every EM Crissis in the last 20 years, there is not one case of the currency not being taken to the woodshed. I think they will depreciate by another 10%, but this will merely add to capital flight. Unless they re-plug their porous capital borders, they may need to also increase interest rates to reduce the rate of depreciation. Right now they actually have it very good: compare China's 10 year rate to other BRICS and they are at 4.5% and Brazil is 14% !

So I think a currency run, capital controls and higher rates are a possibility that has not been priced in at all.

A transmission mechanism of any China Crissis on the S&P is if there is a currency run, they will need to liquidate some of their forex reserves. This would mean selling a large amount of UST's. 1T is basically the size of a QE's.

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Booger
admin
September 7, 2015 at 3:30 PM ×

Washedup, thanks for your thoughts. Brazil does seem to be more likely to blow up first but I wonder if this is an illusion. Perhaps China is just as vulnerable to those FX and currency flight dynamics.

The main reason China got through the Asian FC relatively well was because of their rigid capital controls. Now those controls are much more porous and one would tend to think they are more vulnerable as a result.

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hipper
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September 7, 2015 at 6:58 PM ×

hipper must admit to have been more or less distracted from everything along with this immigration charade from MENA, and even more southerly parts of Africa. Why refugees in quotation marks you ask? Well it would seem that the difference between a refugee and a gold digger might go somewhere along the line of applying asylum in one country and walking through a whole set of EU-countries fishing for the best social security and living entitlements. And a refugee wouldn't probably through away food, water, donated clothing etc. and demand for money instead.

Well geopolitically the more I read the more it seems that the whole decades worth of destabilization process in the MENA is a product of perpetual unfinished US business, along with France, UK, Germany contributing through arms dealing with jihadist base countries (*cough*saudis*cough*). Hate it or not dictatorships in the ME were the way of the land for a century and were the major bond holding stuff together. Now you remove the bonds one at a time and was expected to happen next, exactly?

No Mujahideen - no al Qaeda - no al Shabaab - no ISIL - no al Nusra - no boko haram. Each of these seem to have had a common factor - the US/Coalition hired and supplied them or their mother organization to take out some dictatorship, after that a huge void forms, everything gets messed up and a 100 million "refugees" get rolling. That's one way to accelerate the destruction of the European societies, and especially interesting to see what happens when you run out of other peoples money to pay the benefits they had years to get used to. Now after one dictator gets removed, then you hire the next group of thugs to get rid of the last one and so on.

It would seem the best hope now to put an end to this US/EU joint created madness is for Russia (and perhaps China) go bail out Assad in a major way, destroying ISIL et al in the process. The "Coalition" has had years but has done nothing. Or then again maybe Putin finally gets the last laugh just watching Europe self-destruct.

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Anonymous
admin
September 7, 2015 at 7:41 PM ×

@hipper

"Now you remove the bonds one at a time and was expected to happen next, exactly?"

Exactly.

So Wrong for So Long
Why neoconservatives are never right.

"No, the real problem is that the neoconservative worldview — one that still informs the thinking of many of the groups and individuals who are most vocal in opposing the Iran deal — is fundamentally flawed. Getting Iraq wrong wasn’t just an unfortunate miscalculation, it happened because their theories of world politics were dubious and their understanding of how the world works was goofy. When your strategic software is riddled with bugs, you should expect a lot of error messages."

http://foreignpolicy.com/2015/08/21/neoconservatives-so-wrong-for-so-long-iraq-war-iran-deal/

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Nico G
admin
September 7, 2015 at 10:28 PM ×

well done hipper

how about a new rule: you want to mess with a country's leadership? then accept any refugee who does not like the new government you helped install. That should make the US and any other nosy Western power think twice before removing existing leadership no matter how bad they they think they are and be wary a lot more on that still-hard-to-grasp concept of unintended consequences

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Anonymous
admin
September 8, 2015 at 1:37 AM ×

Nico, what about those African migrants rampaging through southern Italy?

https://www.youtube.com/watch?v=fX73ggsMNEI&feature=youtu.be

Where is the Italian army, police, mafia, anyone?

Who is chasing them out of Africa?

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Anonymous
admin
September 8, 2015 at 1:42 AM ×

Who are those guys?

They throw away food and water...https://youtu.be/SRhI0Xqv5Rc

They reject food from the Red Cross...https://www.youtube.com/watch?v=M8xkYZNsKUY&feature=youtu.be

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Ghost of FunnyMoney
admin
September 8, 2015 at 10:41 AM ×

Ghost of FunnyMoney said...
JBTFD forever. It is that simple.
When Central Banks push the SP500 up 1% in the last 30 mins of yesterday's US session, you know this game is far from over.
September 3, 2015 at 7:38 AM


Correct again. 2 hrs into the London session and equity indexes up +2% already, following co-ordinated Central Bank buying.

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Anonymous
admin
September 8, 2015 at 11:50 AM ×

More likely it was a combination of Ecb comments, China not falling apart 2 days running, china data attributes to port explosion and good german data despite china.

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Ghost of FunnyMoney
admin
September 8, 2015 at 12:04 PM ×

@Anon 11:50AM: No you are incorrect. The Dax actually fell at 08:00 CET on positive German data (it was actually a stop run before co-ordinated Central Bank buying). As for China (it's markets were underperforming as Europe opened. Then the Shanghai stock market moved up +3% in it's last hour of trading today & simultaneously EVERY DM equity index went bid. This move started before ECB comments and yes, Asian sovereigns were in the market.

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Anonymous
admin
September 8, 2015 at 12:35 PM ×

Why today and not yesterday so? Could have moved market more on US holiday.

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Anonymous
admin
September 8, 2015 at 1:48 PM ×

"Central Bank buying" really?give me a break...

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Ghost of FunnyMoney
admin
September 8, 2015 at 1:57 PM ×

@Anons: Oh, my mistake - no doubt you are correct - the Chinese authorities are not in any way trying to curtail selling of equities or influence equity prices.

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Hwa Jurong
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September 8, 2015 at 2:53 PM × This comment has been removed by a blog administrator.
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Anonymous
admin
September 8, 2015 at 6:24 PM ×

Agree with "Ghost of FunnyMoney" on this. Here's a Bloomberg article about Chinese interventionist policy on their stock market: http://www.bloomberg.com/news/articles/2015-09-08/china-just-killed-the-world-s-biggest-stock-index-futures-market

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Anonymous
admin
September 8, 2015 at 7:46 PM ×

"Ghost of FunnyMoney" - Good call, equities surging everywhere: http://www.bloomberg.com/news/articles/2015-09-08/u-s-index-futures-signal-stocks-to-rebound-after-market-holiday

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Anonymous
admin
September 8, 2015 at 8:59 PM ×

Oh look, PBoC do indeed buy equities directly: http://www.ft.com/fastft/356491/china-central-bank-funds-used-buy-stocks

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Anonymous
admin
September 8, 2015 at 9:24 PM ×

We all know pboc are purchasing. Its not a secret and it didnt put bid into euro equities this AM. The positive German data did. Just because it doesn't maintain momentum of the electronic open....the bid came in pre-cash open and maintained through to midday in Europe. German exports were up, a surprise given China. Dax has been selling off on back of China and worries over exports. Rally hasn't topped ecb's high from Thurs......

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Anonymous
admin
September 9, 2015 at 12:00 AM ×

@Anon 9:24 PM: Think about what you're saying...

First you claim that Central Banks aren't buyers of equities, then you agree they are. Next you claim positive German data at 08:00 CET caused a bid in EU equities, when in fact the Dax opened up and fell back 40-odd pts on that data. When the Dax (and other EU equities) were bid a while after, it was on the back of JPY being heavily sold and Shanghai staging a +3% turnaround in less than one hour! (You think that was due to that data?). Notice also that every DM equity market (not just EU, but US, Japan, etc) was heavily bid - lasting the rest of the day.

If you're going to be so forceful in your views, at least get them right.

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Ghost of FunnyMoney
admin
September 9, 2015 at 12:06 AM ×

Dear Anon 9:24 PM

From Bloomberg:
"Equities around the world climbed today, led by China. A rally in Shanghai in the final hour of trading followed a pattern that has recently suggested state intervention to prop up the nation’s equities..."

I rest my case.

http://www.bloomberg.com/news/articles/2015-09-08/u-s-index-futures-signal-stocks-to-rebound-after-market-holiday

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Macro Man
admin
September 9, 2015 at 12:45 AM ×

It is true that China is intervening in the equity market, including using some of the Central Hujian funds of the FX reserves.

It is equally true that there is no "co-ordinated central bank intervention in equities" as claimed by the spook, and that ascribing the rally in European equities to such is a load of old bollocks.

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Ghost of FunnyMoney
admin
September 9, 2015 at 7:03 AM ×

After China's big turnaround yesterday morning, then the rally in EU and US stock markets, the Nikkei closed up over +1000 points i.e. +6.5%. Of course this is pure coincidence.

It is entirely normal for US indexes to post 3-digit moves in 12 out of 14 sessions, for Shanghai to gain over 3% in 1 hour, and the Nikkei to gain +6.5% in one session. It is definitely not a Central Bank engineered response (even though the PBoC, BOJ etc engage in buying equities directly via various entities). We should further know that the Fed's reluctance to raise rates is also not market driven (maybe they are just waiting for the right "German export data").

Thanks MM and Anon, for pointing this out.

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Anonymous
admin
September 9, 2015 at 9:06 AM ×

http://www.telegraph.co.uk/finance/markets/11852828/Japans-Nikkei-index-ends-7.7pc-higher-in-biggest-one-day-jump-since-2008.html

"...Asian shares broadly rose Wednesday, with experts suggesting Beijing stepped in to support mainland shares..."

So looks like Central Banks did intervene.

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Macro Man
admin
September 9, 2015 at 12:21 PM ×

FM, since it's you, I guess this is where I point out that the Nikkei is still 1000+ points lower than where I suggested selling it a few weeks ago. I guess I should also direct you to a dictionary so that you can look up the word "coordinated" that you used a couple of days ago, which is what people were disputing. Your (ahem) "charming" habit of setting up strawman arguments and then claiming victory over them is...well...not too charming.

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Ethel Fyfe74
admin
September 9, 2015 at 12:41 PM ×

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Anonymous
admin
September 9, 2015 at 1:33 PM ×

Nice article analysing last night's equity moves:
"...we saw the coordinated effort of Chinese and Japanese authorities send the world's carry trade, the USDJPY, soaring by over 100 pips, and combined with today's latest jump of over 50 pips, the result has been nothing short of a near-record one-day move in the Japanese Nikkei stock average, which jumped the most in nearly seven years in percentage terms, and the biggest point move in over 21 years..."

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