YEAR OF THE CENTRAL BANK
If you still doubt who is running the show. By David McWilliams.
Now there we were, thinking that financial markets didn’t like defaults. In fact, we were warned that if we were to do something as dastardly as not pay Anglo unsecured creditors, the sky would fall in. This line has been followed by our state as if it were gospel.
Yet on Friday, we see that not only is it not gospel, it is nonsense. The financial markets didn’t sell off, but rallied enthusiastically after the news that Greece had defaulted spectacularly on sovereign debt, not bank debt. So the markets that lent Greece money rallied on the news that Greece wasn’t going to pay the money back.
The largest sovereign default ever – and the only one in a developed country in 60 years – was embraced by the financial markets. In fact, for what it’s worth, the Greek stock market rallied too.
So what does this tell us? (full article here)
Liquidity roll over
What’s to follow after the liquidity success? By Ambrose Evans via the Telegraph.
The global liquidity cycle has already rolled over. Assuming that no fresh action is taken, world economic growth will peak within a couple of months and then fade in the second half of the year – with grim implications for Europe’s Latin bloc.
Data collected by Simon Ward at Henderson Global Investors shows that M1 money supply growth in the big G7 economies and leading E7 emerging powers buckled over the winter.
The gauge – known as six-month real narrow money – peaked at 5.1pc in November. It dropped to 3.6pc in January, and to 2.1pc in February.
This is comparable to falls seen in mid-2008 in the months leading up to the Great Recession, and which caught central banks so badly off guard.
“The speed of the drop-off is worrying. This acts with a six months lag time so we can expect global growth to peak in May. There may be a sharp slowdown in the second half,” said Mr Ward.
If so, this may come as a nasty surprise to equity markets betting that America has reached “escape velocity” at long last, that Europe will scrape by with nothing worse than a light recession, and that China is safely rebounding after touching bottom over of the winter. Full article here.
Spain the Underperformer
Frequent readers of The Trader know we are rather bearish on Spain. With the multiple problems the economy is facing, things could turn even more bearish. IBEX has been a real dog lately, underperforming “everything” .
Chart below.
Do I fell lucky?
Some good points by Hussman Funds.
As of last week, the market continued to reflect a set of conditions that have characterized a wicked subset of historical instances, comprising a Who’s Who of Awful Times to Invest . Over the weekend, Randall Forsyth of Barron’s ran a nice piece that reviewed our case (the chart in Barrons has a problem with the date axis, but the original chart is in last week’s comment Warning: A New Who’s Who of Awful Times to Invest). It’s interesting to me that among the predictable objections to that piece by bullish readers (mostly related to our flat post-2009 performance, but overlooking the 2000-2009 record), none addressed the simple fact that the prior instances of this syndrome invariably turned out badly. It seems to me that before entirely disregarding evidence that is as rare as it is ominous, you have to ask yourself one question. Do I feel lucky?
Biderman- Rigged Market Conventional Wisdom
One of the first to suggest the market is rigged back in 2009, Biderman, is back with further insight. From Trim Tabs.
The stock markets are being rigged by the Federal Reserve and European Central Bank and what is more, just about everybody knows that. My CNBC buddy Bob Pisani said today that kicking the can down the road, a euphemism for the rigged economies both here and in Europe, is an effective policy tool because it has worked, so far.
Compare today’s conventional wisdom that the market is rigged with the response to my year end 2009 appearances on CNBC and Bloomberg TV. Back then I said that the stock market had to be rigged by someone, probably the Fed. I got booed, in essence, and was called a conspiracy theorist nut, wacko by some of your favorite bloggers.
Today the stock market does not go down for longer than a day or so. Video below.
Things that make you go hmm on Spain…
Another must read report by things that make you go hmmm. Discussing among other subjects, Spain! Courtesy Grant Williams.
Spain is a problem. A real problem. Greece today triggered the biggest sovereign default of all time as it reneged on its commit- ments to pay back investors the €210billion it had promised them – some 2,400 years after 10 Greek municipalities became the first sovereign entities to default when they stiffed the temple of Delos, birthplace of Apollo.
Greece’s debts are five times those of Argen- tina when it became the titleholder in 2001 and Greek GDP, which stands at US$305 bil- lion, qualifies it for 32nd place on the list of the world’s biggest countries – nestled nicely between Denmark ($310 billion) and the UAE ($302 billion).
Spain is twelfth.
Spain’s GDP of $1.4 trillion, somewhat surpris- ingly perhaps, puts it just behind oil-rich Russia and Canada and people-rich India. Spain is a big country. Spain matters.
When the PIIGS first muscled their way up to the trough a lifetime ago, the initial diagnosis was that Ireland, Portugal and Greece neither mattered in the grand scheme of things nor were likely to get out of hand, but that Spain and more importantly, Italy, would be REAL problems if they got sucked into the morass.
News That Matters
Ft.com
After helping to push through a Greek debt restructuring that is the largest in history, eurozone governments will revive a debate about boosting firewalls to shield Spain, Portugal and other vulnerable economies from the flames of the crisis. Finance ministers from the 17-member club are set to discuss the issue at a meeting in Brussels on Monday evening, according to European Union officials, although no decisions are expected. http://www.ft.com/intl/cms/s/0/a20593e4-6ba0-11e1-ac25-00144feab49a.html#axzz1osZsMnZW
Any one expecting euphoria or damnation would have been disappointed. Despite the overwhelming take-up in Greece’s mammoth €206bn bond exchange, the first time a developed country has defaulted in six decades, markets greeted the news with a shrug of the shoulders. Equities rose modestly, bond yields fell, while only the euro seemed to sense the drama, dropping heavily. http://www.ft.com/intl/cms/s/0/bcad39b6-6a03-11e1-b54f-00144feabdc0.html#axzz1osZsMnZW
Fading hopes for a third round of quantitative easing from the US Federal Reserve may have been partly responsible for the recent decline in equity markets. The Fed’s Open Market Committee meeting on Tuesday, therefore, is likely to come as a disappointment to equity bulls, analysts believe. Reduced from two days to one, the rate-setting decision is announced on Tuesday and there will be no press conference to follow the meeting. Given this brevity, it is highly unlikely that Ben Bernanke, the chairman, will announce any significant new policy. http://www.ft.com/intl/cms/s/0/5c66caea-69f9-11e1-8996-00144feabdc0.html#axzz1osZsMnZW
Wsj.com
Asian stock markets were mostly lower Monday as investors continued to fret over China’s growth outlook and Greece’s debt situation, keeping financials and most resource stocks on the back foot, though a weaker yen lifted exporters in Japan. Japan’s Nikkei Stock Average was up 0.3%, standing out from the crowd: South Korea’s Kospi Composite was off 0.8%, Hong Kong’s Hang Seng Index was 0.4% lower and China’s Shanghai Composite was down 0.4%. But India’s Sensex was 0.7% higher. Australia’s S&P/ASX 200 finished the day down 0.4%, at 4196.7. Dow Jones Industrial Average futures were down 35 points in electronic trading.http://online.wsj.com/article/SB10001424052702304450004577276190760811060.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews
Latest comments