Bob Pisani’s cheerleading outfit is back from the cleaners and all is well in the world. The talking heads are building pyramids of potential as the early earnings reports are giving reason for the recent rally to sustain itself. Has the earnings season changed the picture so dramatically since ALCOA came in with better earnings? We sincerely doubt it but as our readers know all too well, we don’t argue with the market but rather try to find profit potential in all its actions. Notes from Underground is always trying to make sense of 2+2=5.
Some are making a big deal out of Alcoa as a precursor of growth, but we notice that ALCOA is more than 60 percent off its early January highs and that is with the recent rally included. Our goal is not to be negative but rather to give some perspective to counter the screaming of the buy-side purveyors of illogical positivism. When the S&Ps were on their highs, we remained unconvinced until the private equity firms broke out of the sideways pattern. But the price action of Blackstone and Ochs-Ziff failed to establish any upside momentum. The private equity model has been broken since the global financial system has been in stress. Converting equity to debt could not have been a worse place to be and we still watch to see if the PE firms confirm a true turnaround in the credit markets.
On June 23, we put out a piece in which we noted that the British pound was rallying with the announcement of Chancellor’s Osborne’s AUSTERITY BUDGET. We noted that if the POUND was strengthening on austerity, then the DOLLAR was vulnerable as GEITHNER and company were furthering greater stimulus to stabilize the fragile U.S. and global recovery. Since then, the DOLLAR has weakened as the previous DOLLAR bulls were chased from their haven.
Today, we read an opinion piece from BLOOMBERG that caught our attention and alerts us to the British pound. David Blanchflower, aka the Dartmouth Dove, who was previously a member of the Bank Of England’s monetary board, admonished the Chancellor of the Exchequer for playing politics with the Office for Budgetary Responsibility (OBR). In pushing the recent austerity budget, Blanchflower claims that the chancellor played with the OBR’s analysis to soften the negative impact on jobs. The exchequer claimed that the increase in the VAT to 20 percent from 17.5 percent, plus cuts in public spending would not hurt employment as the private sector would create enough jobs to offset the governments cuts–fiscal austerity begets economic growth.
A leaked document showed that the OBR actually projected that job losses would be more than 1.0 million.The fudging of the data–our words–supposedly led to the resignation of the present head of the OBR, Sir Alan Budd. Regardless, this story needs to be watched to see if it halts the recent rally in the POUND STERLING. We have been bullish on the POUND, but our recent enthusiasm is tempered until the market brings some clarity. The DOLLAR may be weak enough to make this a tempest in a teapot.
Tags: Alcoa, austerity budget, Blackstone, Bloomberg, Bob Pisani, CNBC, Dollar, Geithner, George Osborne, OBR, Ochs-Ziff, Pound, SPS, VAT
July 14, 2010 at 1:30 am |
Hi Yra and thank you for you daily writings:
On June 23, your initial thought was “that Britain would be punished for promoting austerity over growth and that the U.S. might be the recipient of investment money as they went the route of economic growth at all costs.”
So, long US dollar and short Pound and Euro?
Deflation? I´d like recommend an article in the FT “Sagging global growth requires us to act” (By Ian Bremmer and Nouriel Roubini, July 12)
Finally, where´s money flowing? what´s the main trend?
Best regards
July 14, 2010 at 4:56 am |
Arthur we advised caution and thought that the british pound action was that the market was rewarding austerity if the pound rallied and thus would punish the profligacy of the U.S. for we were interested that the market rallied the pound that day which was counter-intuitive and we advised watching this action as a change in dollar sentiment.I read the Roubini piece and it was a rehash of what he has continually been saying—-I don’t know that there is a trend per seas some would argue that the equity trend is down and every rally only a bear market rally–but again depends on one’s perspective.And Bremmer and Roubini offer no concrete solutions but again the same theme—savers should spend and spenders need to save but only after the global economy is on solid footing—more G20 verbiage —we are planning to write a piece on the work of Christine Roemer and her husband in an attempt to search out where the Obama admin may be headed
July 14, 2010 at 7:37 am |
I see. As always, thank you so much. Waiting your writing about Christine Roemer.
Best