Archive for December, 2011
New Year's Day Hangover Cures, 5 Steps to Happiness, and other Weekend Reads
Friday, December 30th, 2011
Here are this week's reading diversions for your personal enlightenment. Have a Wonderful and Happy New Year's Eve Celebration Weekend.
All the best to you and your loved ones and wishing you greater prosperity, happiness, and peace in 2012.
6 Ways To Beat Your Post-Christmas Sugar And Junk Food Cravings
"Ginger ale and soy milk are high in tyramine, which can help relieve chocolate cravings. Pekoe tea is high in chocolate's other stimulating ingredient. theobromine."
****
Randy Taran: 5 Steps to Happiness
As the autumn leaves fall, consider shedding old habits that no longer serve you. It's a great time to focus on who you are and what practices will grow your happiness. What are the attitudes that will move you along? Here are five ideas that can make a difference:
****
Coffee – The Good and The Bad | Be Well Buzz
Stimulating Breath – Caffeine dilates and opens up the airways, and is great for those who face breathing difficulties such as asthma/bronchitis. People who have recently undergone a surgery are sometimes treated with caffeine to help stimulate breathing.
****
Medicinal Uses of Honey | Be Well Buzz
Today, many people swarm to honey for its antibacterial and anti-inflammatory properties. Holistic practitioners consider it one of nature’s best all-around remedies.
****
A Top Dermatologist's 5 Best Anti-Aging Tips | Caring.com
One word: sunblock. Use a full tablespoon of sunscreen with a sun-protection factor (SPF) of at least 30 on your face, spreading it to your neck and ears. Know that older skin tends to be more vulnerable to the effects of the sun than younger skin.
****
5 Things That Probably Won't Help You Live Longer | Caring.com
Your parents' ages. Don't count on repeating long-lived ancestors if you yourself smoke, have high cholesterol, and lead a couch-potato life — all factors associated with shortening one's lifespan. Lifestyle factors can trump genetics.
****
Feel-good mashed potatoes — with extra... | Chatelaine.com
Like many people, I absolutely love mashed potatoes. I just love them when they are creamy, garlicky, smooth ‘n chunky, skins and all. Buttery, salty, piled with salsa or ketchup. It is fun to dress them up.
****
TUESDAY, Feb. 22 (HealthDay News) — People with inflammatory bowel disease have double the risk of developing a potentially deadly blood clot (venous thromboembolism) in the legs or lungs as do people in the general public, a new study finds.
****
Zucchini Oven Chips — Health.com
Good to Know
Not all chips have to be unhealthy and fat-laden. Zucchinis are more nutritious than potatoes, which are usually used for chips. Baking the zucchini cuts back on fat that is needed for frying.
****
Smoking — 12 Surprising Causes of Depression — Health.com
Smoking has long been linked with depression, though it's a chicken-or-egg scenario: People who are depression-prone may be more likely to take up the habit.
****
Almond Health Benefits — Southern Living
They lower your risk of heart disease.
Almonds are high in monounsaturated (“good”) fats, which help lower cholesterol. By adding almonds to a low-fat diet, you can reduce your chance of heart disease by 30% to 45%. Choose nuts with little or no salt, which can raise blood pressure.
****
Easy Health Tweaks That Make a Big Difference — When to Snack — Oprah.com
Caffeine can actually inhibit the growth of cancer cells—and may lower your risk for the disease. (Click here to learn what your morning brew can do for your brain.)
****
3 Foods That Whiten Your Teeth Naturally : Vitamin G: Health & Fitness: glamour.com
USA Today had the scoop on the foods, according to dental experts, that can scrub away stains and keep them sparkling white. The so-called "toothbrush foods" are as follows:
****
TLC Cooking "Benefits of Vitamin D"
Topically applied, vitamin D may be helpful for psoriasis by limiting the growth of abnormal skin cells. Topical vitamin D for psoriasis is available only by prescription and can be quite expensive.
Other uses for vitamin D include reducing the symptoms of some forms of arthritis and maybe even helping to reduce the risk for insulin-dependent diabetes in young children.
****
New Year's Day Hangover Cures
The idea of "lining your stomach" before a night on the booze is not just an old wives' tale. Drinking on an empty stomach can cause a build-up of acid and damage the stomach lining. Eating a substantial carb-based meal will help reduce excess acid as well as preventing blood sugar levels dipping during the evening.
****
Posts from the Health Category — Walletpop Canada
Mo' Canadian men than ever donated their upper lips to fight prostate cancer this Movember, raising a stash of over $35 million — the most of any country in the world.
****
The 25 Worst Passwords of 2011 — Walletpop Canada
Here's a tip for creating a more secure password: Make it eight characters or more, and use multiple types of characters — upper– and lower-case letters, numbers and symbols. (For more tips, read DailyFinance's article on how to create safe, memorable passwords.)
****
Spicy and sweet nuts — Chatelaine Recipes
Spiced nuts make a great snack during the day. Opt for the healthiest nuts — almonds, walnuts, Brazil nuts, or pistachios are all good choices.
****
Tags: 5 Steps, Breathing Difficulties, Celebration Weekend, Chocolate Cravings, Couch Potato, Eve Celebration, Ginger Ale, Hangover Cures, Happy New Year, High Cholesterol, Holistic Practitioners, Junk Food Cravings, Lifestyle Factors, Medicinal Uses Of Honey, Old Habits, Parents Ages, Personal Enlightenment, Stimulating Breath, Sun Protection Factor, Tyramine
Posted in Markets | Comments Off
A Gift from Risky Markets
Friday, December 30th, 2011
By Scott Ronald, Steadyhand Investment Funds
Michael Nairne, president of Tacita Capital, wrote a good piece in the Financial Post last weekend, titled A Gift From Risky Markets, which looks at historical stock market returns and valuations (dating back to 1825) and provides some perspective on the level of long-term returns investors can expect going forward.
If you got stiffed this holiday season or are looking for a little cheer as the bills come rolling in, this short article may be just the elixir you need.
Tags: Cheer, Elixir, Historical Stock Market Returns, Holiday Season, Investment Funds, Investors, Perspective, Steadyhand, Stock Market Returns, Tacita, Valuations
Posted in Markets | Comments Off
Jim Rogers: Why He's Shorting Stocks and Favouring Commodities
Friday, December 30th, 2011
Jim Rogers discusses his outlook for the economy, stocks, and commodities.
Call Notes:
Jim Rogers: I'm not optimistic about 2012, and maybe even not 2013."
Favouring agricultural commodities — huge shortages developing of just about everything, and even, particularly, a shortage of farmers. Agriculture's going to be a great place the next 10–20 years.
Shorting emerging markets stocks, American technology, European stocks;
JR: "I don't see much reason to own stocks, when one can own commodities. If the world gets better, i'm going to make a lot of money in commodities because of the shortages, and if the world doesn't get better, governments will print money. Whenever governments have printed money, the only way to protect one's self is to own real assets."
China: Hard or Soft Landing?
JR: "Some parts of the Chinese economy will have a very hard landing; the Chinese government has been trying to kill the real estate boom for 2 1/2 years. They've raised interest rates 6 times, raised reserve requirements a dozen times; they're gonna pop the real estate bubble, but that's not the whole China story. There's gonna be parts of the Chinese economy that are gonna boom no matter what happens to real estate in Shanghai and Beijing."
How about beaten down stocks like Potash and Mosaic?
JR: "I'm not familiar enough to give you a good comment; I just remember in the 70s, stocks went down and did nothing, and economies did nothing, and yet commodities themselves went through the roof. Some commodities stocks did well in the 70s; A recent Yale study showed that you would have made 300% more investing in commodities themselves rather than commodities stocks, unless you were a very good stock picker. So I'm sticking with the real commodities."
Comment: Jim Rogers travels everywhere in the world with his family, and he eats his own cooking.
What about the other BRIC nations? What about Brazil and its dependency on China? Would you short Brazil?
JR: "I'm short India, I'm short Russia. Brazil is a huge natural resource based economy, and in commodity bull markets they do well. Fortunately, I'm not long, I don't have any positions — Unfortunately, the new Brazilian government is starting to do some pretty foolish things which I think will not make them participate as much as they could."
Jim Rogers is long gold, long silver, expects correction to continue down to the $1300/oz. level.
JR: "I'm a terrible market timer, I'm a terrible trader. It would not surprise me if gold went down to $1,300-$1,200. If it goes that low, I'm going to buy a lot more. I'm not selling any ofo my gold or silver, but I'm not a good market timer. I'm just saying that gold has been up 11 years in a row, it deserves a substantial correction. Substantial corrections are not unusual in bull markets. If it goes that low, I'll buy a lot more."
Source: CNBC, December 28, 2011.
Tags: agricultural, Agricultural commodities, Agriculture, American Technology, Chinese Economy, Chinese Government, Cnbc, December 28, Economy Stocks, European Stocks, Gonna Pop, Good Stock, Investing In Commodities, Jim Rogers, Outlook, Potash, Real Assets, Real Estate Boom, Real Estate Bubble, Real Estate In Shanghai, Shorting Stocks, Stock Picker, Stocks And Commodities, World Doesn, Yale Study
Posted in Markets | Comments Off
Doug Kass: Stocks to Reach All Time Highs in 2012
Friday, December 30th, 2011
In this video clip, Doug Kass, founder of Seabreeze Partners, discusses his market predictions for the new year. The interview essentially covers the same ground dealt with in my post of two days ago, “Doug Kass’s 15 surprises for 2012“.
Source: CNBC, December 27, 2011.
Tags: All Time Highs, Cnbc, Doug Kass Stocks, Market Predictions, New Year, Seabreeze Partners, Surprises, Video Clip
Posted in Markets | Comments Off
George Soros Sees Gold as the "Ultimate Asset Bubble"
Friday, December 30th, 2011
Gold is set to finish its 11th consecutive year of gains, the longest winning streak in at ninety years, and is on the brink of a bear market, says George Soros. The billionaire who called it the “ultimate asset bubble” two years ago, reduced his gold and gold related by 99 percent in the first quarter of 2011, according to the Securities and Exchange Commission data.
Betty Liu reports on Bloomberg Television’s “In the Loop.”
Gold Bubble Seen by Soros on Brink of Bear Market
Source: Dec. 29 (Bloomberg)~~~
See also
George Soros Says Markets Are `Always Fallible’
Billionaire investor George Soros talks about global financial markets and his philanthropy. He speaks with Francine Lacqua on Bloomberg Television’s “Eye To Eye.” (Source: Bloomberg)Oct. 10 (Bloomberg)
Tags: Bear Market, Billionaire, Bloomberg Television, Brink, Eye To Eye, First Quarter, George Soros, Global Financial Markets, Gold, Investor, Liu, Longest Winning Streak, Market Source, Philanthropy, Securities And Exchange, Securities And Exchange Commission, Securities Exchange
Posted in Markets | Comments Off
Summarizing 2011 In Nine Easy Charts
Friday, December 30th, 2011
If one had to summarize 2011 in one sentence, it probably would be: "a year in which the market ended unchanged, in which the world got within seconds of global coördinated bankruptcy, and in which central planning finally took over everything." Simple. On the other hand, conveying a comparably concise message full of hope and despair at the same time, using charts would actually be slightly more problematic. But not for the Economist, which has managed to do just that, however not in one but nine discrete charts. Here is what they did.
From the Economist:
IN 2008 banks were saved by governments. The question that dominated 2011 was how to save governments. The euro-area sovereign-debt crisis metastasised from a problem affecting small, peripheral states to one that threatens the single currency itself. The rise in Italian bond yields in particular marked a dangerous new stage in the saga (chart 1). European banks, stuffed full of government bonds, have suffered a severe funding squeeze since the summer (chart 2). The euro was oddly resilient against the dollar, but Switzerland and Japan intervened to hold down their currencies as investors sought shelter (chart 3).
Faced with skittish creditors, countries in Europe tried to instil confidence by cutting spending (chart 4). Austerity and growth do not mix, however. Euro-area GDP remains below its pre-crisis level. American output did at least regain that mark in 2011 (chart 5) but US unemployment remained very high.
The emerging economies again outshone their rich-world counterparts in terms of growth and jobs. But fears about inflation (chart 6) slowly gave way to fears about growth as the year went on and Europe’s problems worsened. Emerging-market stocks dropped sharply in the summer as investors put their money into less risky assets (chart 7). Gold also benefited from another year of fear. The metal was set to post its 11th consecutive annual gain in 2011 (chart 8). Google searches for “gold price” rose whenever measures of market uncertainty did (chart 9). If governments aren’t safe, after all, what is?
Chart 1
Chart 2
Chart 3
Chart 4
Chart 5
Chart 6
Chart 7
Chart 8
Chart 9
Tags: Austerity, Bond Yields, Concise Message, Countries In Europe, Creditors, Crisis Level, Debt Crisis, Economist, Emerging Economies, Emerging Market Stocks, European Banks, Google, Google Searches, Government Bonds, Hope And Despair, Risky Assets, Single Currency, Sovereign Debt, Squeeze, World Counterparts
Posted in Markets | Comments Off
Fed Swap Lines Jump 59% In A Week As Japan Shows Its Hand
Friday, December 30th, 2011
It seems that it is not just the Europeans that are USD cash starved heading into year-end as the Swiss and Japanese gorged themselves on two-week maturity FX swap lines during the last week. The total outstanding under the Federal Reserve's USDollar Liquidity Swap Operations jumped from $62.599bn to $99.823bn — or more than 59% during the week ending 12/28. Admittedly, the size of the additional Swiss draw-down, $320mm more compared to $75mm the previous week, is a drop in the bucket compared to the ECB's additional $33bn this week. However, the more-than-$9bn additional draw-down by the Bank of Japan perhaps helps explain why USD-JPY cross-currency basis swaps eased so much this week (as the desperate need for USD through this counterparty-risk-exposed form of funding reduced by around 12bps or more than 25%). Perhaps it is time to take a closer look at some of the Japanese banks as while the stigma of borrowing from these lines is talked down, clearly there are funding/liquidity needs that are rising dramatically.
From the Fed's website, the scale of the jump in the swap lines is evident for Europe and Japan.
While the velocity of the initial moves is not quite as historic as the Lehman moments, it is starting to gather pace — now above the pre-2008-crisis starting levels.
And the rise (an improvement) in the USD-JPY basis swap up to the 12/28 break is very notable as banks preferred to spend a little extra (58bps for 15-days versus 32bps for 3-months) and avoid the longer-term currency exposure (and counterparty risk) of the basis swap in favor of the Fed's visible hand.
Tags: Bank Of Japan, Basis Swap, Basis Swaps, Closer Look, Counterparty Risk, Currency Basis, Currency Exposure, Desperate Need, Drop In The Bucket, ECB, Fx Swap, Initial Moves, Japanese Banks, Lehman, liquidity, Stigma, Term Currency, Usd Jpy, Usdollar, Visible Hand
Posted in Markets | Comments Off
New 52 Week Highs – Notice a Pattern?
Friday, December 30th, 2011
As I scan my traditional watch lists most of the stocks in them are doing “meh” – they take 3 steps forward and 2 steps back. Or vice versa. They are really doing very little other than churning. Most of the leadership of the past 2–3 years has died – broken charts everywhere. See Mr. Amazon.com (AMZN) for but one example.
Lately, it has been a market whose leadership is in safety and yield. Not typically what you associate with a bull move. Many of these stocks are very overbought (in some cases extremely so) but each day the buyers come in and buy more…. one wonders if Mr. Bernanke with his multi year (and perhaps decade long) low interest rate policy has begun fomenting the next bubble: yield. No longer able to get yield in traditional havens, investors are pushed into equities that provide it. Seemingly, en masse.When stock price appreciation expands in excess of earnings or cash flow – that means multiples are expanding. Multiples are a judgement call – but generally fall within very long term historical ranges. We are now seeing excess in the ranges but like good lemmings the crowd is being herded…
Ironically these are considered ‘safe’ stocks – but we all have seen this game before and know how the crowded trade ends. But we never know when.
I think as you scan the 52 week high list a very obvious pattern should be apparent.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
Tags: 2 Steps, 3 Years, 52 Week High List, 52 Week Highs, Amazon, Bernanke, Cash Flow, Crowd, Disclosure Notice, Earnings, Havens, Interest Rate Policy, Investors, Judgement Call, Leadership, Lemmings, Mutual Fund, New 52 Week Highs, Personal Portfolio, Portfolio Securities, Stock Price Appreciation, Stocks
Posted in Markets | Comments Off
Neils Jensen: Investment Outlook (December 2011) — "The Facts They Don't Want You To Know"
Friday, December 30th, 2011
The Absolute Return Letter December 2011
The Facts They Don’t Want You to Know
by Niels Jensen, Absolute Return Partners
What have Bill Gross, John Paulson, Anthony Bolton and Bill Miller all got in common? They are all ‘rock star’ fund managers who have fallen on hard times more recently. Life in the fund management industry is not what it used to be like. Life is tough even for the supremely skilled. Markets are changing, fund managers are struggling to adapt and clients are growing restless as a result. If I told you that the composition of an average UK equity fund changes by 90% a year, would that startle you? How would you feel if I added that the 20 funds with the highest turnover returned just 4.7% to investors in the 3 years to the end of March 2011 whereas the 20 funds with the lowest turnover returned 16.8% over the same period?1
From the same source: Out of 1,230 funds across 12 different strategies, only 35 fund managers produced a performance consistent enough to earn their fund a place in the top quartile in each of the last three years (upper half of chart 1). In a universe of 1,230 funds, over a three year period and completely disregarding skill, the expected number of funds consistently ranked in the top quartile is 1,230*0.253=19.22.
In other words, more than half the 35 managers were there not because of skill but because, statistically, someone was always likely to ‘over-achieve’. This leaves about 15 fund managers out of a universe of 1,230 – ca. 1% — who could with some right claim that they have consistently been in the top quartile.
The problem is we don’t know who they are. All we know is that none of them are managing Asian equities, North American equities or Global fixed income funds as those three strategies didn’t produce a single top quartile performer between them. And when you look at the second, and slightly less demanding, part of the study – those who have been in the top half in each of the past 3 years – the picture is broadly the same (lower half of chart 1). 177 fund managers achieved the required consistency but 154 of the 177 are likely to have done so because of luck, not skill.
I have never come across a fund manager who openly admits that his (or her) outperformance is down to luck. On the other hand, I often come across fund managers who suggest their underperformance is down to bad luck. I suppose no manager ever skilfully underperforms, but to put it down to bad luck is an insult when we all know that human error is the most common cause of underperformance.
If a fund manager’s outperformance is based on skill rather than luck, wouldn’t one expect the majority of the outperformance to come from those stocks with the highest weights in the portfolio? This seems a reasonable assumption given that one would expect any rational fund manager to allocate the most capital to his/her highest conviction ideas.
However, in a study conducted by UK consulting firm Inalytics (see here), 39 of 42 Australian funds managers who outperformed their benchmark owed their outperformance to the ‘underweights’ in the portfolios — suggesting that human error is not only the source of underperformance but perhaps also of some of the outperformance.
Bestinvest produces an annual survey called Spot the Dog (see here for the latest survey) which has gained considerable attention in the UK fund management industry, although it is not a league table you will be proud to be mentioned in. According to the 2011 survey published back in August, over £23 billion is currently managed in so-called dog funds2, an increase of no less than 74% since the previous report.
You don’t become a dog just because you have a bad quarter or two. The members of that exclusive club have a history of serial underperformance, yet they will generate in the region of £350 million of fees to their firms this year despite the obvious value destruction.
And the story gets worse — much worse in fact. According to an unpublished report conducted by IBM, our industry destroys $1,300 billion of value annually – a staggering 2% of global GDP (see here for details). This includes about $300 billion in fees on actively managed long-only funds which fail to outperform their benchmarks, $250 billion spent on wealth management fees for services which do not meet their benchmarks and $50 billion in fees on hedge funds which underperform. Do I need to say any more?
Why are fund managers finding it harder than ever to outperform and what are the long term implications of those miserable performance statistics? Let’s deal with the ‘why’ first. There is no question that managing money – in particular equity mandates – has been a delicate affair over the past decade.
Through the 1980s and 1990s global equity markets benefitted from a strong undercurrent of bullishness. As a result, fund managers went into the bear market of 2000-01 on a wave of optimism (who doesn’t recall the repeated calls in the late 1990s of a new investment paradigm?) epitomised by the record high P/E levels in 1998–1999 just before it all went pear shaped in 2000.
Tags: 3 Years, Absolute Return, Asian Equities, Bill Gross, Bill Miller, Equity Fund, Fixed Income, Fund Changes, Fund Management Industry, Fund Managers, Investment Outlook, John Paulson, Neils, Niels Jensen, Period 1, Quartile, Rock Star, Star Fund, Tho, Turnover, Uk Equity
Posted in Markets | Comments Off
Wall Street Response To Italian Auction
Thursday, December 29th, 2011
Here is the kneejerk Wall Street response to the key event of the day. Funny how the Italians think it was a good auction and everyone else kinda sorta disagrees.
ALESSANDRO MERCURI, STRATEGIST, LLOYDS BANK, LONDON
"Decent even though slightly disappointing (compared) to yesterday's auction. The 2022 bond was well bid, they sold 2.4 billion at the high end of the 2.5 billion range. The key thing that we saw yesterday was that Italian paper still commands a maturity premium. People are still concerned about the credit risk so the longer the maturity the higher they pay. All in all it's a decent reception."
DAVID SCHNAUTZ, RATE STRATEGIST, COMMERZBANK, LONDON
"While yesterday's 6-month bill rates declined to half the levels of the previous auction, today's decline in the auction yield by 'just' about 60 basis points versus end-November in such a high-yield territory underscores that the genuine pressure on Italy is still tremendous, despite bold ECB actions that has given the short ends a big boost.
"Not moving closer to the upper end of the target range is also very unusual for Italy, i.e. not a good sign."
PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE, LONDON
"These have been rather average auctions. The amount sold is 7.02 billion euros versus a 5–8 billion euro range, and the yield improvements we see in the auctions were largely already priced into the secondary market in last week's LTRO-fuelled rally."
ALESSANDRO GIANSANTI, RATE STRATEGIST, ING, AMSTERDAM
"It is slightly positive that they were able to issue the full amount in the 10-year and we have started to see some reduction in yield ... but 7 percent is still a very weak (result).
"The bid to cover ratio in the three-year was weak, but we are 200 basis points below the (yield) level of last month. The rally in the short-term is positive.
"It is also slightly positive that they were able to issue 7 billion given that we are on Dec. 29."
Via Reuters
Tags: Basis Points, Chatwell, Commerzbank, Commerzbank London, CréDit Agricole, Credit Risk, Euro Range, high yield, Ing, Italian Auction, Italian Paper, Italians, Kneejerk, Lloyds Bank London, Maturity, Rally, Reuters, Strategist, Target Range, Wall Street
Posted in Markets | Comments Off
Where Falling Inflation Means Rising Valuations (Koesterich)
Thursday, December 29th, 2011
by Russ Koesterich, Chief Investment Strategist, iShares
One silver lining of the current slow growth environment is that inflation in emerging markets appears to have hit an inflection point.
In recent months, for instance, inflation in both China and Brazil has come down. In China, consumer prices rose 4.2% in November from a year earlier, a 14-month low. Similarly, in Brazil, annual inflation fell to 6.64% in November, close to the 6.5% upper limit of the Brazilian central bank’s target range.
Emerging market inflation should decelerate further in 2012 thanks to a combination of continuing slower global growth and the lagged impact of monetary tightening. Brazil’s central bank has said it expects inflation to “fall sharply” by the second quarter of next year.
With the outlook for emerging market inflation improving, my team recently ran an analysis to determine which developing countries are likely to see their valuations benefit the most from falling inflation.
Here is the list, with each country ranked in order of how much they should benefit.
1. Brazil
2. India
3. Egypt
4. South Africa
5. Russia
6. Turkey
To develop the list, we looked at the relationship over the last five years between valuations (as measured by price-to-book values) and inflation levels for various emerging markets. For some countries, the relationship is positive — modest inflation is better for growth and translates into higher valuations during periods of inflation.
However, for other countries, the relationship is negative and higher inflation means lower valuations. This is especially true for countries that have gone through hyperinflation in the past, where investors are particularly sensitive to inflation readings and where valuations should benefit from decreasing inflation.
For our ranking, we focused on countries with a negative relationship that also still have high levels of inflation. For instance, Mexico and Indonesia would benefit from declining inflation. But they didn’t make our list because their inflation has already come down to a good range, which has already helped their valuations.
So how much should our top six countries benefit from falling inflation? Historically, every percentage point increase of inflation in Brazil is associated with Brazil’s price-to-book value decreasing by 0.3. I would expect the opposite to hold if Brazil’s inflation decreases.
At the bottom of the list, every percentage point increase of inflation in Turkey is associated with Turkey’s price-to-book value decreasing by 0.03. The other countries on the list fall somewhere in between.
But keep in mind that emerging market inflation is likely to stay above the comfort zone of many central bankers. In addition, inflation is not necessarily slowing in all emerging markets on our list. In Turkey, for instance, inflation has accelerated since February due to a combination of an overheating domestic economy and very unconventional monetary policy.
(Potential iShares solutions: EWZ and ERUS)
Disclosure: Author is long EWZ and ERUS
Source: Bloomberg
In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Securities focusing on a single country may be subject to higher volatility.
Copyright © iShares
Tags: Book Values, Brazilian Central Bank, Chief Investment Strategist, Developing Countries, Egypt, Emerging Market, Emerging Markets, Global Growth, Growth Environment, Hyperinflation, inflation, Inflection Point, Negative Relationship, Periods, Russ, S Central, Second Quarter, South Africa, Target Range, Valuations
Posted in Markets | Comments Off
Ten Year Italian Bonds Sold at 6.98% – Strangely, Market Yawns
Thursday, December 29th, 2011
Riddle me this. Yesterday, Italy had a ‘successful’ short term bond auctions but the market took a gash to the chest as the euro broke down to a yearly low – which of course meant the dollar rallied, which of course meant every risk asset on Earth had to be sold by the computers. Of course those sub 3 year bond auctions were affected by the LTRO situation. Today, we saw an Italian 10 year bond auction, which was relatively putrid at a nearly 7% yield, the euro falls again and…. no one cares. Futures are up. Boggling. Just boggling.
On a side note – it looks like the ECB (which of course is not allowed to bid directly in an auction from a government) stepped in directly after the auction to buy buy buy.
Based on the difference in action in sub 3 year versus over 3 years we clearly see that yes the LTRO has had an impact….this was something I was very curious to see. One wonders when the ECB will begin offering nearly free money at 7 years (or heck 10 years) rather than 3 years to “fix” the eurozone.
Via Reuters:
- Italy’s borrowing costs fell from recent record highs at a bond auction on Thursday but cautious investors still demanded a near 7 percent yield to buy 10-year debt, a level seen unsustainable over time for the euro zone’s third-largest economy. Traders said the European Central Bank stepped in after the auction to buy Italian bonds on the open market as investors worry about the country’s ability to sell enough long-term debt ahead of large redemptions early next year.
- Italy raised 7 billion euros ($9 billion) of debt in thin holiday markets, just above the mid-point of its target range. It sold the top planned amount of its 10-year benchmark bond but the yield was 6.98 percent, not far from a euro lifetime record of 7.56 percent a month ago.
- “Today’s decline in the auction yield by ‘just’ about 60 basis points versus end-November in such a high-yield territory underscores that the genuine pressure on Italy is still tremendous, despite bold ECB actions that have given (short-term debt) a big boost,” said David Schnautz, a rate strategist at Commerzbank in London.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
Tags: 3 Years, Basis Points, Benchmark, Bond Auction, Bond Auctions, ECB, Euro Zone, Eurozone, Free Money, Holiday Markets, Lifetime Record, Mid Point, Percent Yield, Record Highs, Redemptions, Reuters, Riddle, Target Range, Term Bond, Term Debt
Posted in Markets | Comments Off
Investing in Gold has Been Solid in 2011; Gold Miners? Not So Much
Thursday, December 29th, 2011
It has been a head scratching year for the gold miners – despite a very good year for gold itself (until recently) and stable production costs, their stocks have simply not reacted as expected. Some of the largest investors in the world have expected a different behavior – the WSJ takes a closer look at this divergence in 2011.
Gold has been among the best investments in 2011. Shares of gold miners? Among the worst. Gold is up 12% this year but shares of gold miners have fallen almost 16%. Smaller gold miners are down almost 40%, based on the returns of leading exchange-traded funds tracking those stocks.- The surprising gulf has caused pain for some of the biggest names on Wall Street—including John Paulson, George Soros, David Einhorn, Seth Klarman and Thomas Kaplan—many of whom piled into gold shares over the past year, sometimes by shifting away from gold itself.
- Bulls figured that gold miners had more upside than gold, partly because mining stocks outperformed during past bull markets for the metal. But this year, gold miners have been hit by concerns that haven’t tarnished gold prices. Investors have worried that mining costs are rising, and that governments around the world are becoming more aggressive in taxing resources companies. They’re also concerned that gold miners might squander any windfall with ill-conceived acquisitions or other moves.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
Tags: Bull Markets, Closer Look, David Einhorn, Disclosure Notice, Divergence, Exchange Traded Funds, George Soros, Gold Miners, Gold Prices, Gold Shares, Good Year, Investing In Gold, John Paulson, Personal Portfolio, Portfolio Securities, Seth Klarman, Stable Production, Thomas Kaplan, Windfall, Wsj
Posted in Markets | Comments Off
Update on Brazil, BRICs
Thursday, December 29th, 2011
In response to Brazil is World's 6th Largest Economy, Overtaking UK Earlier this Year. Can Brazil Overtake France by 2016? What about BRICs in General? I received a nice email from Felipe Fiel, an economist from Brazil working in the hedge fund industry for Fram Capital.
Felipe writes ...
Hi Mish, hope is all well with you. First of all I would like to congratulate you for your blog and outstanding contribution do financial observers. I'm an economist who lives in Brazil, working for the hedge fund industry.
I agree entirely with you about Brazil's skepticism.
I would like to highlight that the way you show inflation and GDP might cause a distorted impression to your readers.
You show GDP growth quarter-over-quarter seasonally adjusted, without annualizing it, which is the norm for US viewers. It was running at almost 8% annualized growth before 2008 crises and even recently it grew at 3.2% in the 4 quarters before stagnating in 3Q.
For next year, even the most pessimistic projections see growth at 4.3% on average, which is more or less what is seen at GDP potential. However, I personally think we cannot growth at that rate without generating too much inflation.
Best,
Felipe Fiel
BRIC Decade Ends as Growth Peaked
According to Goldman Sachs, BRIC Decade Ends as Growth Peaked
Dec 28, 2011
In the past decade, mutual funds poured almost $70 billion into Brazil, Russia, India and China, stocks more than quadrupled gains in the Standard & Poor’s 500 Index and the economies grew four times faster than America’s.
Now Goldman Sachs Group Inc. (GS), which coined the term BRIC, says the best is over for the largest emerging markets.
BRIC funds recorded $15 billion of outflows this year as the MSCI BRIC Index sank 24 percent, EPFR Global data show. The gauge, which beat the S&P 500 by 390 percentage points from November 2001 through September 2010, has trailed the measure for five straight quarters, the longest stretch since Goldman Sachs forecast the countries would join the U.S. and Japan as the top economies by 2050.
BRIC indexes may fall another 20 percent next year, buffeted by the liquidity squeeze stemming from Europe’s sovereign debt crisis, Arjuna Mahendran, the Singapore-based head of Asia investment strategy at HSBC Private Bank, which oversees about $499 billion, said in an interview. Nations such as Indonesia, Nigeria and Turkey may overshadow the BRICS in the next five years as they expand from lower levels of growth, he said.
“The slowdown we’re seeing in the BRICs will continue for most of the first half,” Mahendran said. “Compared to the U.S., corporate profits haven’t been that good as companies face higher wages, higher interest rates and currency volatility, and at best, we’ll only start to see the effects of monetary policy loosening in the second half of 2012.”
2011 Losses
The BSE India Sensitive Index led declines among BRIC equity gauges this year, falling 23 percent. China’s Shanghai Composite Index also dropped 23 percent, while Russia’s Micex retreated 18 percent and Brazil’s Bovespa sank 16 percent. The 21-country MSCI Emerging Markets Index (MXEF) lost 20 percent, while the S&P 500 gained 0.6 percent.
The time to warn about BRICs and emerging markets was a year ago, which I did, specifically in regards to China (but also with many references to trade surplus nations and commodity producers throughout the year).
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Tags: 3q, Bric Funds, BRICs, China Stocks, Crises, Decade Ends, Emerging Markets, Fiel, GDP, GDP Growth, Global Data, Goldman Sachs, Goldman Sachs Group, Goldman Sachs Group Inc, Hedge Fund, Percentage Points, S 500, Sachs Group Inc, Skepticism, Straight Quarters
Posted in Markets | Comments Off
2012 Forecast: David Rosenberg, Dennis Stattman and Others
Thursday, December 29th, 2011
In the video clips below, a number of commentators give short comments on topical economic and investment issues.
Part 1: Where’s the U.S. economy headed?
Part 2: Will the U.S unemployment rate improve in 2012?
Part 3: Will the European Union survive 2012?
Part 4: Will China boom or bust?
Part 5: What’s the best safe haven in 2012?
Part 6: What’s the best investment idea for 2012?
Source: Bloomberg, December 23–27, 2011.
Tags: Bloomberg, Boom, Bust, China, Commentators, David Rosenberg, Economic Issues, Economy, European Union, Investment Idea, Investment Issues, Rosenberg, Safe Haven, Unemployment Rate, Video Clips
Posted in Markets | Comments Off
Debt Crisis 2012: Forget Europe, Check out Japan
Thursday, December 29th, 2011
This post is a guest contribution by Dian Chu, market analyst, trader and author of the EconMatters blog.
The recent massive demand for ECB’s LTRO (Long Term Refinancing Operation)–nearly 490 billion euro in three-year 1% loans from 523 banks–only confirmed the suspicion of some market participants that European banks are having financing issues, and that the LTRO is unlikely to flow into the Euro Zone supporting the troubled sovereign debt and economy.
In addition to the current Euro crisis which we discussed here and here, Japan, the world’s third largest economy, could have its own debt crisis as early as 2012 bigger than the Euro Zone. (see graph below)
Japan has long been mired by an aging population, sluggish growth and deflation since an asset bubble popped in the early 1990s. The country already has the highest debt-to-GDP ratio in the world–about 220% according to the OECD — and a debt load projected at a record 1 quadrillion yen this fiscal year.
Based on a plan approved by the Cabinet in Tokyo on 23 Dec, the country is now looking to sell 44.2 trillion yen ($566 billion) of new bonds to fund 90.3 trillion yen ($1.16 trillion) of spending in fiscal year 2012 starting 1 April. That will raise Japan budget’s dependence on debt to an unprecedented 49%.
According to Bloomberg, the government projects new bond issuance will surpass tax revenue for a fourth year. Receipts from levies have shrunk about a third this year after peaking at 60.1 trillion yen in 1990. Non-tax revenues including surplus from foreign exchange reserves also halved to 3.7 trillion yen. Social-security expenses, now at 250% of the level two decades ago, will account for 52% of general spending next year.
Moreover, an April 2011 analysis by CQCA Business Research showed that “Japan has an extremely near-future tilted debt maturity timeline” (see chart below). CQCA estimated that in 2010, Japan was able to push 105 trillion yen into the future, but concluded it is doubtful that Japan will be able to continue this.
Indeed, as one of the major and relatively stable economies in the world, and since almost all of its debt are held internally by the Japanese citizens or business, Japan has been able to still borrow at low rates (10-year bond yield at 0.98% as of Dec. 26, 2011), partly thanks to the Euro debt crisis going on for more than two years.
So as long as Japan could keep financing a majority of its debt internally without going through the real test of the brutal bond market, the country most likely would not experience a debt crisis like the one currently festering in Europe.
But the chips seem to have stacked against Japan now. On top of the new and re-financing needs, the Japanese government estimated that the economy will shrink 0.1% this fiscal year citing supply-chain disruptions from the earthquake and tsunami disaster in March, the strengthening of the yen and the European debt crisis. Moreover, S&P said in November that Japan might be close to a downgrade. After a sovereign debt downgrade to Aa3 by Moody’s in August, 2011, it’d be hard pressed to think Japanese bond buyers would shrug off yet another credit downgrade.
Burgeoning debt, coupled with the global and domestic economic slowdown, and continuing political turmoil (Japan has had three Prime Ministers in the last two years, and the current PM Noda’s popularity has fallen since he took office in September), would suggest it is unlikely that Japan could continue to self-contain its debt.
It looks like its massive debt could finally catch up with Japan in the midst the sovereign debt crisis that’s making a world tour right now. While some investors might see Japan as a bargain, it remains to be seen whether the country will continue beating the odds of a debt crisis.
Source: Dian Chu, EconMatters, December 27, 2011.
Tags: Aging Population, Bond Issuance, Business Research, Debt Crisis, Debt Load, Debt Maturity, Deflation, Euro Zone, European Banks, Foreign Exchange Reserves, Gdp Ratio, Levies, Market Analyst, Market Participants, Massive Demand, New Bond, Quadrillion, Sluggish Growth, Sovereign Debt, Year 2012
Posted in Markets | Comments Off
5 Reasons Why 2012 Will Not Be A Replica Of 2011... At Least Not For Europe
Wednesday, December 28th, 2011
With many expecting 2012 to be a replica of 2011, at least for US stocks which the non-permabull consensus sees closing the year largely unchanged for the second year in a row, one open question is whether this will also be applicable to Europe. As a reminder, the EURUSD opened this year near the 52 week lows, only to rise by several thousand pips as concerns about European contagion were brushed away on hopes Europe's politicians had it "under control." They didn't, and the EURUSD returned to its year's lows recently. But is the same pattern in store for early 2012, where as we already noted, the bulk of gross debt issuance is due to take place, especially in January? Below are UBS' 5 other key reasons why the European resurgence (however brief) that was experienced early this year will not be recreated in the new year that is now just around the corner.
From UBS:
So how do we expect the Eurozone crisis to evolve in early 2012 and how will it affect the euro? Last year, most observers expected Q1 2012 to bring an escalation of the crisis, particularly on peripheral bond markets. Instead, the periphery rallied and so did the euro, from about 1.30, just where we are today, to almost 1.50. Could the same happen early next year? We do not think so for the following reasons:
1) The ECB
In early 2011, the ECB sounded hawkish and then went on to hike rates in April and July, just as the Fed prepared to embark on QE2. 2012 will arguably be very different as the ECB is likely to cut rates to a new historic low of 0.50% and might well then embark on outright QE. At a time when the Fed looks largely done with its QE efforts, this could hit EURUSD hard and for us is the single most important reason to be structurally bearish the euro in 2012.
2) Greece
There is now a non-negotiable deadline for the Greek PSI, which is the bond redemption on 20 March. Negotiations for the new troika programme continue to assume a ‘voluntary’ PSI resulting in a 50% haircut and a debt-to-GDP reduction to 120% by 2020. However, revenue shortfalls due to the deeper-thanforecast recession look set to result in additional financing needs, which in the absence of new official money might mean a larger haircut and hence a coercive restructuring.
3) Contagion
If Greece is forced to impose an involuntary restructuring on investors, the market might quickly move on to Portugal or even beyond. Eurozone leaders have frantically worked at erecting a ‘firewall’ for countries beyond Greece in case of a default occurring. So far they have had limited success apart from raising more cash for the IMF and advancing the European Stability Mechanism (ESM) to mid-2012. Still, these instruments are arguably not yet powerful enough to deal with a country like Spain or Italy loosing market access.
4) CDS
The above Greek scenario would result in a credit event being declared and credit default swaps (CDS) being triggered. Many observers might welcome such an event as a proper default would mean that Greece was finally declared ‘insolvent’ and unable to pay its obligations, which most would argue might be better for the longer term health of the system than pretending otherwise. Still, nobody knows how the financial system would handle CDS payouts of more than €80bn (gross). At least as an initial reaction, the market would probably be highly stressed.
5) PoliticsThe EU has an impressive track record in pushing through projects even against resistance from individual countries and with minimal explicit or implicit support from electorates. However, there may come a point where populations start to rebel, possibly when they are simultaneously faced with ever deeper cuts in public services and ever higher taxes. A relatively benign problem might be resistance to ESM ratification in some countries, but more serious social unrest could occur both in debtor as well as creditor countries.
Tags: 52 Week Lows, Bond Markets, Bond Redemption, Contagion, Debt Issuance, ECB, Escalation, Eurusd, Gross Debt, Key Reasons, Open Question, Periphery, Pips, Psi, Qe, Qe2, Resurgence, Several Thousand, Troika, Ubs
Posted in Markets | Comments Off
India Slows Rush for Gold
Wednesday, December 28th, 2011
It appears even Indian demand for gold falls under the age old supply/demand dynamic of Economics 101. Despite a cultural affinity for the yellow metal, sky high prices are finally having a real impact on end demand. The WSJ takes a look:
- Many Indians are either scaling back or eliminating their gold purchases outright. The drop-off in demand is exposing cracks in what gold investors have traditionally perceived as a solid support for global prices. With many of its religious and cultural traditions steeped in the precious metal, India historically has been the world’s biggest consumer of gold, much of it cast into jewelry. Gold plays a particularly important role in wedding ceremonies, and physical demand for gold usually rises significantly in the fall and winter, which are considered auspicious times for getting married.
- This year, however, the wedding season dovetailed with a rapid depreciation of the rupee against the dollar as investors fled India amid jitters about the broader economy. India’s imports of gold fell to 20 million metric tons in November, down as much as 75% from a year earlier, according to estimates from the Bombay Bullion Association, an industry group for the country’s gold dealers.
- Many investors and analysts believe that is a key reason why gold prices haven’t bounced back even though concerns about Europe’s debt load and the viability of euro persist.
- Roughly a third of global demand for gold in the form of jewelry, or 649.9 metric tons, came from India in the year ended Sept. 30, according to the World Gold Council. Ornate necklaces, armlets, earrings, bangles, gold chains and finger rings are an essential part of a Hindu bride’s trousseau and are usually bought by her parents.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
Tags: Auspicious Times, Debt Load, Disclosure Notice, Finger Rings, Global Demand, Global Prices, Gold Chains, Gold Dealers, Gold Investors, Gold Necklaces, Gold Prices, Jewelry Gold, Metal Sky, Million Metric Tons, Personal Portfolio, Portfolio Securities, Trousseau, Wedding Ceremonies, Wedding Season, World Gold Council
Posted in Markets | Comments Off
Things that Happen Every 60 Seconds on the Internet
Wednesday, December 28th, 2011
We all realize the Internet is growing at a very rapid pace. But just how fast? “On average, more than a billion new pages are added to it every day,” said GO-Gulf.com on its website (via The Big Picture). “To give you an idea of how big world wide web is, our Infographic 60 Seconds covers some really interesting facts about websites that we use on day-to-day basis.”
Source: Shanghai Web Designers & GO-Gulf.com (hat tip: The Big Picture), December 26, 2011.
Tags: 60 Seconds, Amp, Big Picture, December 26, Hat Tip, Interesting Facts, Internet Is Growing, Rapid Pace, Shanghai, Stocks, Web Designers, World Wide Web
Posted in Markets | Comments Off
Jim Rogers says "Better to take the Pain Now"
Wednesday, December 28th, 2011
In this video, investor Jim Rogers discusses his views on the global economy and more. “We have big problems of money printing, debt, too much consumption. Be careful,” he said.
Source: Finance News Network (via YouTube), December 22, 2011.
Tags: Consumption, Finance News, Global Economy, Investor, Jim Rogers, Money Printing, News Network, Source Finance, Youtube
Posted in Markets | Comments Off
