- For long-term investors, meaning those prepared to stay invested for three, five and even 10 years, who can endure volatility, we believe equities can offer attractive returns.
- In an extended period of slow economic growth and deleveraging, interest rates are likely to remain low. Actual income generation from investments is important.
- Hopefully society can institutionalize the lessons from this crisis so that future generations don’t repeat it: Individuals, corporations and countries should only borrow to fund long-term investment, not current consumption.
Let’s consider how equities offer returns to investors and see what markets today are telling us:
With investors focusing on more or less irrelevant news out of Europe, regarding whether Slovakia, Malta or some other irrelevant country will vote on the EFSF or not, one risks of losing sight of what’s going on in other markets. Despite our bearish stance, we warned of this squeeze a week ago. Cheap or expensive, markets move aggressively in short time frames. SPX is reaching some short term resistance, but look out for a squeeze in China.
We would like to point out China’s strong performance overnight, where index put on a 3% gain. Note how the big formation has reached the long trend line, and we can expect further gains. Compare the two charts below. Last time food price index took a dive (circle), the Shanghai index put on a close to 30% gain in a matter of weeks.
Quick Market Update. Market focus will be shifting, out of EFSF votes by Slovakia (who cares), to other subjects. With many “smart” people overly bearish, this market has more legs to the upside. With low volume HFT melt up trading taking place, shorts will cover in panic. We clearly see how all risk assets correlate and move in tandem. For a more detailed picture of charts, check UBS’s Technical Research posted yesterday. Buy the dip mentality is here for some longer.
Morning risk on charts below.
The below chart shows a pair trade gone very bad. No wonder Occupy Wall Street is flourishing. From Sentier Research.
Real median annual household income has fallen significantly more during the economic recovery period from June 2009 to June 2011 than during the recession lasting from December 2007 to June 2009.
Aluminium company Alcoa opened the US corporate earnings season with disappointing results for the third quarter, reporting profits below consensus expectations, the FT reports. Earnings per share were 15 cents for the third quarter, http://ftalphaville.ft.com/thecut/2011/10/12/699756/alcoas-3q-earnings-disappointment/
European authorities plan to set a higher than expected capital threshold for the region’s banks and give them six to nine months to achieve that level or face government recapitalisations under the auspices of the eurozone’s €440bn rescue fund, http://ftalphaville.ft.com/thecut/2011/10/12/699716/eu-banks-face-higher-capital-thresholds-2/
A bill that aims to punish Beijing for holding down its currency passed the Senate on Tuesday despite a warning from China that the legislation could plunge the global economy into a 1930s-like depression, http://ftalphaville.ft.com/thecut/2011/10/12/699626/currency-bill-passes-us-senate/
Slovakia’s government became the first in the eurozone to fall over opposition to expanding the European financial stability fund when just 55 of the parliament’s 150 MPs voted in favour of the measure,http://ftalphaville.ft.com/thecut/2011/10/12/699636/slovakia-votes-against-expanded-efsf-2/
Guest Post by Macro Story.
Some “Infamous” Headlines
“The surge came as governments and central banks around the world mounted an aggressive, coordinated campaign to unlock the global flow of credit, an effort that investors said they had been waiting for.”
“He mentioned that the last time we had a “rally this big” was in March of 1933. Karen Finerman said the rally was “extraordinary to the upside,”
“The market clearly was getting priced for an Armageddon, a depression, for the end of Western civilization as we know it,” said Edward Yardeni, the investment strategist. “A lot of people realized these were extraordinarily good prices to buy stocks.”
We are used to watching M15, Egypt, Tunisia and Greece on UStream. Now the protests seem to escalate in the US. As we have argued for a long time, the increasingly polarized US Society, needs to get used to increased social unrest.
How to survive the next Flash Crash, beyond circuit breakers. By Lawrence Berkeley National Laboratory.
This paper describes collaborative work between active traders, regulators, economists, and super- computing researchers to replicate and extend investigations of the Flash Crash and other market anoma- lies in a National Laboratory HPC environment.
Our work suggests that supercomputing tools and methods will be valuable to market regulators in achieving the goal of market safety, stability, and security. Research results using high frequency data and analytics are described, and directions for future development are discussed.
Quick market update. Trading once again dominated by news of how to save Europe, despite Merkozy’s great accomplishment over the weekend. Maybe the plan, still without details, isn’t offering anything but words. Yes, Dexia was nationalized over the weekend, but that shouldn’t be a surprise, Fanny and Freddie also got the supporting hand of the government. That was the last leg up in 08, before the markets collapsed.
With extremely high correlation, HFT continue churning stocks, in this flip flop market. As mean reversion is at extreme levels, all big days up/or down, are all offset within 24 hours.
What goes up must come down….
With all the financial happenings throughout the globe, the burning question in the minds of the economists, investors and the laymen is whether or not the world economy is heading for yet another double-dip recession in 2011. Though this may seem to be inconceivable by the top economists throughout the globe, the governmental authorities throughout the world are of the opinion that the warning signs of the economy sleepwalking into another recession is just round the corner. People all over the world are running for debt help as they find themselves drowning in a sea of high interest debt. Not only are the laymen, the governments of most countries indebted to the other nations. If you’re unaware of the signs of a double-dip recession, read on.