Quick recap of Interest Rates
Remember those interest rates? Interest rates down, market up, or? Quick recap of yields vs equities. With yields at record lows, the US is enjoying the luxury of cheap funding, but for how long? Don’t forget the average interest rate since WWII is much higher….
..and that average rate…
Flattening Yield curve will hurt Banks…
2/10s at rather low levels…
One of the Markets must be wrong, let’s see who’s right and who’s wrong.
Charts by DShort and Soc Gen.
Long Term Investing
Two self explanatory charts by DSHort;
Major Indices and performance since that 666 Bottom. Too bad the Stoxx 50 is not among these as we miss out on the great European Banks. Time to revisit the lows?
…and the fallacy of long term investing (with no risk management). Worth the risk? Hardly, at least not in the Western World.
Spain-When Tax Evaders are seen as Heroes
With Unemployment running well above 20%, the property market having collapsed (and will collapse even more), and the Economy is struggling, Spain should review some of Richest tax practices. When Tax Evaders are seen as heroes, the country misses out on a lot of Tax Revenues. If Spain, additionally, also would include the many non registered Wealthy foreigners enjoying Spain’s sun, while officially not living there, the tax revenues would improve dramatically. In Spain, everything is under the sun, even the Tax Evaders.
From El Pais;
A country’s tax policies are among its most defining characteristics. They show what kind of country and what kind of people we are, or would like to be: supportive of each other and the common goal, or self-interested and blind to the problems and realities of those around us; generous or mean. It really is as simple as that: two opposites. There are no third ways, particularly in a country like Spain, where five million are registered unemployed as it struggles to deal with a deficit that is close to 100 billion euros. In short, the time has come to take a long, hard look at taxes.
In the United States, where generous tax policies toward the wealthy are virtually enshrined in the Constitution, Warren Buffett, the planet’s third-wealthiest man, is calling on Barack Obama to make him pay more. In France and Germany, the respective 16 and 50 richest people are asking their governments to take more of their money. Their gestures are little more than symbolic, but they should make Spaniards sit up and ask why they aren’t hearing similar calls here. “This is a country where people who avoid taxes are regarded as heroes,” says Miguel Ángel García, an economist who works for the CCOO labor confederation.
Full article here.
Weekend in Greece
Mr Papp is again telling the World Greece will meet its budget targets. One wonders if anybody believes these words anymore? As The Trader has argued before, the Greek problem is not so much the Debt, but the lack of competitiveness. With the Euro it is impossible for Greece to revive the Economy, which is crucial to restarting the engines. Countries have defaulted before, and will do so in future. Greece should be left to default, so it can restart the engines after restructuring the Economy. It will be painful, but necessary. Words by the Political Elite should be viewed critically, as they have ruined the country for generations. Below weekend observations from Kathimerini;
Prime Minister George Papandreou vowed Saturday that the country would meet its budget targets and press ahead with difficult reforms, even as thousands demonstrated against those reforms on the streets of Greece’s second largest city.
His remarks came as Greece’s embattled government is scrambling to cut public spending and step up its reform drive after receiving stark ultimatums from other euro-zone governments that further rescue money will be withheld if Athens doesn’t deliver on promises.
“Even if the recession this year is appreciably bigger than the original forecasts…Greece will meet its fiscal targets doing all it has to do,» Mr. Papandreou said.
Earlier this month, talks between Greece and a visiting troika of officials from the European Commission, International Monetary Fund and European Central Bank — who were in Athens to assess the country’s eligibility for fresh aid -— were suspended in a spat over whether Greece would need to take further measures.
More reading here.
Credit Implies Equities to go (much) Lower-SPX “fair” Value seen at 600
Guest Post by Macro Story;
Bull versus bear. Greed versus fear. Smart money versus dumb money. Depression versus transitory soft patch. Credit versus equity.
In one corner is the credit market, a rather mighty opponent where $1 million defines an odd lot. Credit has spoken loudly. They have priced in a severe recession, depression whatever you want to call it.
In the other corner stands the equity market and although fierce is smaller than its opponent where 100 shares defines an odd lot (a mere $700 in the case of BAC). Also known as the contrarian equity has priced in a transitory soft patch, the opposite of credit.
Equity hopes to bounce back from a recent loss where they completely failed to price in the 2008 Great Recession. It was a horrible loss for equity as throughout the year they continued to try and price in economic growth only to be knocked back down by economic reality as GDP contracted larger with each passing quarter. Credit on the other hand has put together an amazing string of victories. They have priced in previous economic recession with the utmost precision.
We are now on the eve of yet another showdown. Both corners are far apart and yet only one can be proven correct. The other must accept defeat. The stakes are large and the reward to those on the right side even larger. History will be the judge and time is all it asks.
Aaa Corporate Bond Debt VS SPX – Yields are currently at multi year lows and moving lower each day. Meanwhile equity has begun turning higher. Equity markets would say Aaa rated debt should be yielding 6.5% whereas debt says the SPX fair value is 600.
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