Skip to main content

Yesterday's Action

I've been out of the market for a few weeks, but yesterday's activity (S&P500 up 4%) still amazes me.  None of the news was that good, the Chinese reduce fractional reserves because their economy is slow (because Europe's economy is in terrible shape) and then a "concerted effort" by all the central banks that matter (and Canada) to make swap line arrangements to facilitate liquidity between the central banks.

First, this is not a new program (they've lowered the cost from 1% to 0.5%), but this is central bank to central bank lending -- they don't really care and frankly its not 50 bps that are going to make a difference.  The liquidity crisis is mostly between Europe's banks.  It is primarily driven by a dead Eurobond market (that banks use to fund their day to day operations), the banks have been repatriating cash (to meet their home markets needs as fast as they can -- hence the strong Euro), they've agreed to raise tier one capital to 9% (two methods reduce assets or raise new capital), so far only ONE bank has raised some capital Unicredit of Italy (they are planning on raising Euro 7.5 billion).  Second, the Bond market's decision not to lend to European banks is not driven by liquidity fears it is driven by solvency fears!  The Economist calculated that with their current asset base (and assuming limited write downs of Greek debt), that Europe's banking system needs more than Euro 200 billion in new capital.

Nothing has changed, banks in Europe are still screwed, PIIGS have too much debt (BTW neither France or Germany are in particularly "great" position).  The euphoria of the past few days is probably an overshoot, although lots of people (and they are smart guys) are saying that the advent of QE3 in the US (80% probability now) will probably support stocks till the year end.  This morning's "numbers" were depressing with initial claim rising over the 400k threshold again (and upward revision on previous week's numbers...again), and continuing claim (despite the 99ers falling off the unemployment rolls) rising again.

In Canada, no news today!  

Comments

Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…