This rather extreme prolonged Santa Rally has made people frustrated over the last weeks. The many conflicting themes of the Economy, the Euro mess, the collapse in volatility etc, is contributing to people’s frustration over where the market should be going. Currently we see great accumulation of a bigger move coming up due to “skewed” psychology of the market. Meanwhile some fundamentals from Hussman.
Goat Rodeo – Appalachian slang for a chaotic, high-risk, or unmanageable scenario requiring countless things to go right in order to walk away unharmed.
Over the years, of the most frequent phrases in these weekly comments has been “on average.” Most of the investment conditions we observe are associated with a mix of positive and negative outcomes, so rather than making specific forecasts about future market direction, we generally align our investment position in proportion to the average return/risk outcome, recognizing that the actual outcome may be different than that average in any particular instance.
The Fed is simply too powerful to fight. PIMCO’s view on the subject of fighting the Fed.
- We are skeptical that fiscal austerity alone is sufficient for all eurozone countries to grow and remain solvent. We thus expect the ECB to continue supporting the euro area with liquidity in 2012.
- Recent central bank policy in China is oriented toward stabilizing growth in a political succession year, while balancing lingering inflation and medium-term systemic risks.
- Investors may want to hedge portfolios by looking to select emerging markets with the ability and willingness to cut policy rates both from a cyclical as well as structural perspective.
US state attorneys general have until Friday to join a potential national settlement of alleged foreclosure abuses, the WSJ says, citing a document. The deadline, set by negotiators trying to pull together an agreement with the federal government, http://ftalphaville.ft.com/thecut/2012/01/31/859291/friday-deadline-for-states-on-mortgage-settlement/
RBS is scrambling to overhaul its pay systems to head off a repeat of its executive pay fiasco, says the FT. Sir Philip Hampton, RBS’s chairman, and Penny Hughes, head of the board’s remuneration committee,http://ftalphaville.ft.com/thecut/2012/01/31/859251/rbs-in-talks-to-revise-bonus-system/
European banks are preparing to tap the ECB’s emergency funding scheme for up to twice as much as the ECB supplied in its debut €489bn auction last month, the FT says, citing three chief executives of unidentified eurozone banks who said they would increase their participation two- or threefold in the auction on February 29.http://ftalphaville.ft.com/thecut/2012/01/31/859091/banks-preparing-to-tap-ltro-more-on-second-round/
Twenty-five of the EU’s 27 countries have signed up to a German-inspired treaty enshrining tougher fiscal rules to help underpin the euro, with the Czech Republic announcing it would join the UK by not agreeing to the pact.http://ftalphaville.ft.com/thecut/2012/01/31/859031/merkel-victorious-on-fiscal-treaty/
From the creator of the new normal, and the bimodal World, here are some points worth reading. By PIMCO’s El Erian via Foreign Policy.
The global economy is balanced precariously between total collapse and salvation. Here are four tipping points toward disaster and four things that could get it back on track.
The year 2012 is Europe’s moment of truth. If their dithering continues, European politicians will soon lose control of the continent’s economic and financial future. After all the excitement of 2011, it is also a make-or-break year for some Middle Eastern countries in the midst of tricky political transitions. Even the United States is being shaken out of its social slumber as concerns mount about income inequality and, more generally, the fairness of the “system.
(Full article here).
Guest Post by John Redwood.
Mr Osborne’s rhetoric on using the IMF to prop the Euro has firmed up more. He has always said the IMF should not lend money to prop up a currency, only a country in trouble. I interpret this to mean the IMF should not lend to any Euro member, as that would in my view be lending to prop a currency. Mr Osborne may define it less severely.
Now Mr Osborne is saying the UK should not make more money available to the IMF to lend to Euro members, unless and until France and Germany have made a larger contribution. He seems to have in mind those states putting more money into the European bail out fund. This is extremely unlikely. Germany thinks the problem countries should do more to rein in their own deficits. France is becoming financially strained herself and is not looking for more ways to spend money. That would seem to mean no more UK money for these purposes, which would be excellent news.
As we have been pointing out over the past days. Diminishing volumes have managed “fooling” too many people into the long trade. The extended Santa Rally has once again made people nervous for missing out on the “goldilocks” scenario. With the inverted panic we have seen where people now hate theta, and the VIX has collapsed, it is time for great caution. Price action and breadth is not suggesting this is a healthy market. The Trader suggested last week that we should be trading below 1300 shortly. Let’s see how many confident investors we actually have out there. Next stop 1275. We’d love to see the market action “down there”.
Meanwhile risk off charts.
Guest Post by Bill Mitchell.
The Euro leaders are having another Summit in Brussels today – another one – the 17th in two years. I think they are getting used to the nice wine and sumptuous food that is served up. Little ever comes from these summits that is of any productive import. This time they plan to set in concrete balanced budget rules to be embedded into the national legislation of EU member states yet at the same time propose job creation and growth strategy. The job creation strategy is allegedly going to focus on the youth of Europe who are becoming unemployed and excluded in increasing numbers as time goes by. The lunacy is that Europe’s youth started losing their jobs some years ago yet the leaders are now expressing concern. Also over the weekend, there was a leaked German proposal for today’s summit detailing how Greece should leave the Eurozone and become a German colony. My how audacious our Teutonic friends have become!
(Full article here).