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Notes to myself, possibly of interest to others.
-- Bill Northlich

Wednesday, December 1, 2010

Rosenberg - Macro and Market Thoughts

[Yesterday]  All these “rescue” packages in euroland really do is provide bridge financing — they do not resolve the underlying structural problems in these countries or the deflating asset values in bank balance sheets. Greece has already breached its deficit target and a Greek default is likely only a matter of “when”, not “if” at this stage...The massive selloff in government bond markets, even in countries like Belgium and Italy (let alone Portugal and Spain), is a clear sign that the bond vigilantes are now targeting the supposedly stronger governments in the eurozone...What is notable that does not get a lot of press is that both the M3 money supply and private sector credit has contracted in the euro area in each of the past two months..This is very much like how the problems in Thailand ultimately spread to Singapore and South Korea back in the 1998 Asian crisis. The question ultimately will be how the banking systems in the rest of the world will be affected...Tack on the tensions from North and South Korea and how that will play into U.S.-Chinese relation. Plus the intensifying inflation pressures in emerging markets, which in turn raises the specter of capital controls...And all this at a time when the latest batch of U.S. economic data — at least outside of the housing market — has started to improve. Consider the following:

  • The VIX index (a measure of volatility), at 22x, looks inexpensive. From late April to late May, it jumped from that level to 45x on the back of the round of Greek-related concerns at the time.
  • Larry Fink is dead on — dollar-euro is very likely going to go back and re-test Pelosi still around, gridlock
  • 1.20.
  • Recall that the risk-on trade that worked so well in September-October was highly correlated to a weak U.S. dollar. These now go into reverse.
  • The long bond, at 4.2%, relative to core inflation and the funds rate looks cheap, in my view.
  • The 5-year government of Canada bond is very attractive at today’s level if the Bank of Canada goes on hold.
  • Gold has emerged as a reserve currency, which is why it rallies even on days that the U.S. dollar is bid. It continues to hug the uptrend in the 50-day moving average very nicely. Although we remain long-term bullish on gold, we are near-term cautious given the technical picture and the high net speculative long positions.
  • The tensions between the Koreas should be a negative for the Asian FX complex and bullish for the U.S. dollar. Weakness in the yen is a positive for Japan’s large-cap exporters.
  • Oil should be viewed as a strategy here and should be bought on the dips. Same for base metals and food. Government procurement policies and inventory hoarding are likely to support raw materials.
  • A great holiday shopping season is priced into U.S. retailing stocks. Utilities, health care and staples have been laggards but could make up some ground if growth expectations recede.
  • With a total of 6.3 million in inventory of U.S. homes, or about two years’ supply, another leg down in housing prices is underway. Apartment space looks much better from an investment standpoin

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