Skip to main content

Why doesn't the news translate into the markets?

This morning the stock price for Societe General is around Euro24.00 up 40% from its January 15 low of Euro 17. UniCredit saw its stock price double to Euro 4 from a low of Euro 2, granted the whole mess around its rights' issue clouds the picture a little bit but...

This morning looking at the VIX (Volatility of the S&P 500 -- or the fear index) is at a post crisis low (low 20s), yet none of the news is particularly good, the only explanation is that the ECB's LTRO program is working as planned -- boosting stock prices despite rising real uncertainty.  The reality of Greece is hard to escape -- Greece's tax revenus are collapsing, the Greeks are reluctant to push reform any further (there is no doubt that Greece is very unproductive, it has been for years).  Bottom line, we are looking at a very messy exit by Greece of the Euro -- if there is no new cash coming (budget deficit of 9.5% mainly because revenues have collapsed) then default will occur.

I don't think its appropriate to push the analogy too far, but no one knows the ramification of a Greek default, it was true for the U.S. Treasury when Lehman went under it is also true for Greece.  Two other bits of very gloomy information hit my inbox yesterday:

  1. Last month Glencore paid negative shipping rate on its leased verssels.  The vessel owners paid Glencore to use its ships -- granted it was not a large amount, still...
  2. Chinese electricity demand dropped by 7% last month (granted this was impacted by Chinese New Year festivities), still this has not happened in more than 10 years.
  3. Several friends in London are reporting massive salary cuts.  All three work in some of the bank's most profitable groups, yet all three saw cuts of between 12% and 25% in their gross salary.  Now, its important to note that when the bonus caps were introduced two years ago, many firms increased salaries to make up part of the difference.  Clearly banks are not feeling that pressure anymore -- by the way, none of the three left their jobs, but this will have a dramatic impact on their discretionary expenses.  

Despite this, and generally marginal earnings season so far, the markets are testing new highs.  Some will say that so much bad news was priced in the market that a bounce was almost a sure thing, yet its not like the market are very cheap.  P/Es of 13x are a little low but they are not "just emerging out of the recession" lows -- that would be p/e of 9x or 10x.  Granted the S&P 500 seems to be "topish" but then I thought it was heading towards 1,000 -- not 1,300.  Funny enough I don't invest with my head -- I leave that to my excellent broker.  He convince me in early January that we should get back in the market -- that my hugely successful bond bet was not going to get any better, and that I should go back heavy into the market (with companies that have low debt and nice dividend -- and little consumer  cyclical exposure), and I did, against my better judgment.  I've now learned to differentiate long term trend and short term price movements.

Note: I have no China exposure or Glencore, I don't trade the VIX and  

Comments

Post a Comment

Popular posts from this blog

Spray painting Taylor Swift G650 aircraft (updated)

 First, a bit of paint will not harm anyone.  These climate activities are going to learn two things in the next few days:  (1) Trespassing at an airport is a felony almost anywhere in the world.  That means criminal prosecution.   (2) removing paint from an aircraft is expensive.   So these climate activists are about to find out the reach of the British criminal system and it will not be pleasant, the UK has very strict laws about that, I would be surprised if cleaning the aircraft of all the paint will cost less than $100,000.     I am sure that when they planned (premeditation) this little show they had a very valid logic to doing this.  Tonight, they are probably realizing the depth of their troubles.   I understand that in the UK it's a minimum one-year jail sentence.    Also, good luck travelling with a criminal trespass charge against you.  I am relatively certain that the airline industry will ...
Post a Comment
Read more

Farm; Half year performance

 People appear to be genuinely curious. 2024 has been a record first half for the farm.  The addition of high tunnels has greatly impacted our revenues.   While we expected Q1 profits to be higher, it really was the second quarter that produced the goods.  The terrible weather has greatly impacted the production of high-end vegetables. Energy costs are now very stable and have become a fixed variable especially now that our bio digesters are fully dialled in.   Replacing some of our pre-dryer equipment was covered under warranty, and the new equipment is far better at dealing with gas moisture, and much better steel!   Our diesel costs are what they are! Our biologist and ecologist devised a new planting plan for our high tunnels that greatly reduced pests, especially slugs.   We have seen a 90% decline in sluggs this year, resulting in better yields.   It seems that several plants act as natural repelants and if planted c...
Post a Comment
Read more

Britain, France and Egypt

 The voters realize now that the Conservative Praty desire to return to 19th-century dominance has driven its hatred of the EU.  The voters realize now that departure from the EU has accelerated Britain's decline and may soon make it irrelevant.  At best it will have to kiss American arses to maintain its standing.  For this, the conservatives were punished.  The decline of Britain was inevitable, competition from Frankfurt and Germany in Finance was bound to grow.  The core of Europe (aka Germany) is aging quickly Macron seems to be winning his bet, the left alliance that won the legislative elections will not remain united for long, since they disagree on about everything.   The Far right though it was about to assume power is once again relegated to the back of the bus.   It may draw its own conclusions, but not all of these are good for France.  The far-right has won nearly 1/3rd of the electorate, that is not something to be ig...
Post a Comment
Read more