Fixed Income Overview and Allocation Strategies
A few observations via TF Market Advisors.
The week started positively. In spite of fears related to hurricane Sandy, risk assets started the week on a positive note. Wednesday, when U.S. markets finally opened, the rally was a bit tentative, but then it gained strength on Thursday. We had remained positive that morning on risk, in a large part because of The Visible Hand of central banks. But as the day wore on, we became concerned that news out of Europe was not good. We recommended getting out of risk-on trades and ultimately on Friday morning became bearish over fears that the European “Maniacs” would finally do it and let Greece implode, causing problems for Spain and Italy.
Apple certainly helped the bear case as it broke its 200 day moving average and triggered an avalanche of selling – I’m assuming a lot of algorithms were set up to push on that once it broke.
With the election looming, some allegedly good numbers out of China and the speed of the correction, so clearly led by one stock, I wouldn’t be surprised to see some stability early in the week, and even a bounce, particularly if some people get caught short Apple here and the algorithms decide to sweep it the other way.
In spite of the potential to bounce, and in spite of lingering thoughts on Spanish OMT (the thoughts are fears when short, and hopes when long) we are in mild “risk off” mode. I’m not expecting a big sell-off, but events in Greece and comments from various Troika representatives send a chill down my spine. After 2.5 years of trouble, they still don’t seem to understand credit.
France – Next “Greece”?
What is going on in France? A few thoughts via the Telegraph.
French leader François Hollande is uncomfortably close to a collapse in credibility. His poll rating has sunk to 36pc. The speed of decline has been shocking.
The latest broadside comes from ex-German chancellor Gerhard Schröder, supposedly his ally on the Left.
“The election promises of the French president are going to shatter on the walls of economic reality,” he said in Paris.
The backsliding in the retirement age is indefensible and “cannot be financed”. Two or three more blunders of this kind and “reality will catch up with out French friends”.
The French are living in Alice and Wonderland. Bild Zeitung asked whether France is becoming the “new Greece”. You get the drift. (Full article here).
World Markets Weekend Review: Is Your Seat Belt Fastened?
Guest post by Doug Short.
In last weekend’s update, I characterized the collective trend for my featured world markets as a roller-coaster ride moving wildly between weekly losses and gains. Over the past week the roller coaster headed up, with the average of the gang of eight at an even 1.50%. China was the big winner with the Hang Seng edging out the Shanghai Composite for the top spot, up 2.63% and 2.60%. Germany’s DAXK and France’s CAC 40 finished third and fourth at 1.83% and 1.67% respectively. The S&P 500, shut down by Sandy for two days, finished last with a fractional gain of 0.16%.
The four-week table below documents the roller-coaster pattern I mentioned at the outset. Let’s add two weeks to the front end for a snapshot of the weekly average for the past six weeks: -1.31%, 1.36%, -1.42%, 2.02%, -1.38% and 1.50%. Quite a ride!
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