Friday’s weaker than expected JOBS REPORT caused AGITA in the BOND and EQUITY MARKETS. Early in the week, the markets had punished the BONDS and EQUITIES as the FOMC MINUTES caused the purveyors of QE3 as a SURE THING to stop, look and listen. The sounds that they had listened to were from the previous speech by Chairman Bernanke as he voiced his deep concerns about the persistent drag of unemployment on GDP. The rush of FED governors and District presidents to any microphone to undermine the chairman’s views caused the market to pause and reconsider its stance on possible FED normalizing rates quicker than the “extended period” language presumed. Stocks were under pressure and U.S. Treasuries were offered as hints of FED buying grabbed traders attention.
Posts Tagged ‘Bill White’
Today, in an interview with Betty Liu on Bloomberg TV, I was asked about the “news” of the day, of course that being the APPLE decision to pay a dividend and buy back stock. Long-time readers of NOTES are aware that I am a believer in stock dividends as a way to return capital to the genuine owners of a corporation: THE SHAREHOLDERS. Ms. LIU wanted to know if the APPLE news was bullish for the EQUITY markets as the share price of the technological behemoth would drive all indices higher. As a GLOBAL MACRO analyst/trader/investor, I said that it was more bullish for capitalism in America.
A quick overview of the weekend: The Chinese growth story is proceeding at a much stronger rate than previously expected and Chinese inflation levels seem well contained. The global equity markets have opened higher as the China’s surging growth has given a boost to the risk-on crowd. We are not big fans of the Chinese data releases. We are and will be suspect of official data from a country that seeks to harness what its populace can read. We also are not surprised by Chinese strength as the copper and energy and grain markets have been telling us for months that the Asian upturn is real. The slack demand in the the developed world has be more then replaced by emerging global boom.
The Turkish elections have added more power to tonight’s risk-on profile. The elections went better than expected for Turkish Prime Minster Recep Tayyip Erdogan and gave him even more latitude for reforming the Turkish polity to further meet European legal standards. Turkey’s equity and bond markets viewed this a positive as the consistency of reforms is what the markets are most desirous of pursuing.
There is also news from Basel that the Basel Committee on Banking Supervision agreed to the provisions of Basel III and though is means higher capital requirements, the new standards will not be phased in until 2013 to 2018, which gives the markets some breathing room. One of the more positive aspects will be based on what Bill White has called leaning into asset prices and acting in a countercyclical manner. As economies heat up capital ratios will rise for banks, thus acting to curtail out of control asset appreciation. This is a very good regulation and will act to head off future “irrational exuberance.” It will be awhile before its full effect is felt but it is an acknowledgement that BUBBLES need to be deflated in the incipient stages.
We will also be watching the DPJ election that takes place Tuesday in Japan. The intra-party battle between Ozawa and Kan can have a very big outcome for YEN valuation. If the old warhorse OZAWA were to gain the party leadership–and the Prime Minister post–the YEN will weaken in the initial anticipation that Ozawa would move to weaken the YEN. We will certainly report more about this as events unfold, but there were several stories written about the Japanese unhappiness in regards to the Chinese purchases of JGBs putting unwanted bid to the YEN. Some Japanese are even suggesting that China has ulterior motives and wishes to keep the YEN unduly strong to further its own trade advantage. This is merely “speculation,” but it certainly adds to the heat on possible intervention. We don’t know the outcome but pay attention as Ozawa ‘s victory could move him to action.
It has been written in many domains that the speech to watch will be the paper delivered by Raghuram Rajan and Bill White. What will they say? We don’t have a clue but they are being given a great deal of pre-speech attention. Why? They have been proven prescient in their early views on the danger of asset bubbles and predicted the housing crash. Alan Greenspan belittled their work in 2005 and that is all we need to know. Even Bernanke, who was skeptical of the possibility of pricking asset bubbles, has given Professor Rajan much more respect than he previously did so will be particularly attentive to these two academics and the work they present.
Germany added liquidity but it was all directed at the British goalie David James–nothing austere about their World Cup peformance. The news from the G-20 was as expected: Nothing short of a waste of time and the resulting communique will be the paradigm of vacuousness. The Chinese took center stage in that they spoke up for the developing nations, stating they wanted input in the discussions about global problems. We agree with the Chinese that the G-8 is an atavistic appendage of a past colonial world and is merely the delusional forum for those wishing to hold onto a past that left the arena long ago. Yes, we are sure that Russia, Brazil and the others that make up the most robust members of the emerging world want to advise the likes of Italy, Spain and France who have certainly failed to get their own economic houses in order.