TO MY READERS: This is the festival of lights in which the bright lights of the menorah and the festive lights of Christmas Trees and ornaments seek to brighten the day when darkness envelopes the world. It is no accident that December 21 is the shortest day in terms of sunlight. Let’s hope that there is less darkness and more light in 2015. In terms of trading and investing I hope that Notes From Underground has provided some light in an effort to sort through the global macro scene. In the coming days I will put forward some thoughts on Europe, Russia, Oil, and, of course, yield curves.
Wednesday morning I will be on with Rick Santelli and at this juncture I have no idea what will be discussed. Two weeks ago I posted last years December 24 interview in which Mr. Santelli–in typical impromptu fashion–posited what predictions I had for 2014.
First, I thought the 5/30 yield curve would be volatile and that the 30-year yield was a better buy and had more value than the five-year note (contrary to Bill Gross and Pimco) for with the CPI at 1.6 and the five-year at a yield of 1.6 percent it was a zero real yield. The 5/30 flattened all year and it is interesting that the spread seems to be closing at its flattest level as we close out 2014.
My two other predictions were wrong. I thought Goldman would take itself private in order to avoid the massive amounts of government regulation. It didn’t happen but Goldman’s stock is up 11 percent on the year. The other prediction was that GM would buy Tesla if the price for the luxury electric car maker became enticing enough. Never happened as Tesla is up almost 50 percent on the year but at a low enough valuation I believe it is a good fit for GM. We will see what Rick wants to discuss tomorrow.
***The Christmas week markets are always a week to be vigilant and cautious. Many times the price swings across the whole gamut of asset classes can be very volatile due to low liquidity and momentum position traders marking their positions to enhance annual performance. Be alert to some action by the ECB to announce an early QE program now that the Swiss have gone negative on interest rates and noted the January 22 date of the next ECB meeting as the day the Swiss rates become -0.25 percent. The Europeans are desperate and what better way to have a greater market impact then to initiate action during the thin holiday markets. The ECB under Mario Draghi would like to provide massive liquidity while also pushing the EURO currency lower. Thin markets would provide a much greater impact.
***President Putin is wounded and looking to make an impact on the West. Note the talk about China providing monetary support to the besieged RUBLE through utilizing swap lines to provide Russia with needed foreign currency. In today’s Financial Times there is an interesting article by Eugene Rumer, “From Inside Putin’s Parallel Universe, the Crisis Looks Bright.” The article provides an interesting alternative view on how Vlady sees the current crisis. The western media sees Russia’s recent problems through narrow focus on financial stress leading to the political demise of Putin.
Russia’s President may let the world know that everything does not revolve around quarterly performance. As Mr. Rumer reminds the world, Bush, Blair, Schroder (works for Gazprom), Berlusconi, Chirac, Koizumi and Jean Chretien all are gone to the trash heap of history while Putin remains a major player. The market is a minefield that is priced for nirvana. Proceed with caution.