Skip to main content

Markets are on fire! No really ...

So on January 3rd 2014 the S&P was trading at 1,831 on Friday it closed up at 1,878 so a massive increase of less then 1% since the beginning of the year.  The VIX at 14 is low, in fact as an indication of volatility when the markets are quiet its an indication that not much is going on.

The 5 and 10 year treasury are mucking around 1.6% and 2.8% -- and they've been there for a while.  Every day one hears that the Feds are about to shut down the money machine; but there's not much of a movement around.

Up hear in Canada (land of the "frozen ones") mot much is going on -- both Quebec and Ontario are in election mode and the Federal government is changing electoral system where the supervising authority for election shenanigans will no longer able to take action.  Still cannot believe I used to support the conservative -- must have been some kind of brain craziness.

Anyway, things are quiet, the Loonie (Canadian dollar) is well off its high of a few years ago, and the way things are going the CAD is going to 0.75 to the US dollar -- I know it makes no sense, but if you do some "technical analysis"  which means drawing some stupid lines on a graph to make it look scientific -- that's what it tells you!  Not sure why the Bank of Canada is not doing anything, granted with near zero inflation (CPI -- not assets) there's not much that can be done -- like raising interest rates.  The Canadian economy is growing but not very fast (and here in Quebec we are near standstill).

Back to the market, if you follow the big guys they (SocGen and Nomura) all say the same thing; some of the largest emerging markets (India/China and Brazil) have stalled, and whereas in the past these guys could be ignored its more difficult now.  One thing for sure, the Quantitative Easing project in Europe and America (Japan and China too) have shown one thing!  You can keep the party going for a while but eventually the lights come up and you realize that thing are not so rosy.

Take the big issues:

  1. Southern European failed economies of Greece, Spain and Portugal -- are things better in any of these countries (Unemployment, absolute and relative debt level, GDP growth) The answer to all three is no!  The only thing that has happened is that the ECB has stopped asking hard questions to any of these countries.  Will Italy and France join the ball?  Don't know and really don't care.  Bottom line these economic experiments remain failures -- its just that the international press got bored and moved on.
  2. China's and Japan's money printing machine.  Don't know how much debt is outstanding in China, but its a lot -- over the past 5 years China is issued the equivalent of 4 times the world GDP in debt.  Sometime in the future these loans will have to be repaid, refinanced or forgiven.  Japan's experiment to create inflation has been a disaster.  Deflation is back (BTW deflation is also starting to be a problem here in Canada -- not for asset for consumption)
  3. Russia and Ukraine:  That looks like a massive mess for the Russians.  If Putin's game plan is to take over Crimea -- good luck to him.  It will not be easy or neat.  His objective has to be to ensure that the whole of the Ukraine stays within its sphere of influence, annexing Crimea is not going to achieve that.  Looking at Putin I see Bush (jr) at work -- funny enough the American republicans were in love with both (suddendly the American right is in love with a "dictator", amazing).

So back to the numbers, right now the markets are all going sideways -- the VIX is going low (and even maybe even lower) until some catalyst forces a revaluation of the right market prices.  My money is on the Russians doing something stupid -- like a drunk Russian solider firing his gun on unsuspecting Ukrainians ( or even Ukrainian soldiers).  Suddenly the market will decide that a p/e of 14 is too high (it really is too high) and some form of correction will occur.

When will this happen... i just don't know

Note:  Please note that the TSX/Composite index as done well over the past 2 months -- both Canada is not that important a place -- looking at the major indices the story is the right one.  Local issues here are the reason markets are doing well.


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…