Yield curve watchers divided over bank power

Financial Times – September 25 2009

Reading bond yield curves is to some investors a high form of financial art. To others, it is akin to reading tea leaves for clues about market direction.

Whichever group you subscribe to, there appears to be a new force in town with the power to change the market dynamics round the world: the banks. They appear to be buying a lot of bonds for their own balance sheets and are likely to continue.

Obama Stock Advance Persists on Money Fund Hoarding

Sept. 28 (Bloomberg) — Americans holding $3.5 trillion in cash are giving money managers increasing confidence that the stock market rally under President Barack Obama will continue through the end of the year.

Even after reducing money-market accounts by 11 percent this year, investors have cash equal to 73 percent of Standard & Poor’s 500 Index companies’ net assets, according to data compiled by the Investment Company Institute and Bloomberg. At the peak of the bull market in 2007, the measure of buying power was 62 percent.

Insight: Equities carry too much risk

David Rosenberg – former Chief economist at Merril Lynch – September 23 2009

The banker J.P. Morgan was fond of saying: “I never buy at lows, I never sell at the highs, I play the middle 60 per cent.” Well, from our lens, we are well past that middle 60 per cent point of this bear market rally.

At the lows in the equity market in March, the S&P 500 was de facto pricing in a 2.5 per cent decline in real gross domestic product and $50 of operating earnings for the year. Guess what? Far from being grossly undervalued (although some stocks were – especially financials, priced for bankruptcy), the market at those lows was fairly priced on a price-to-book and price-to-earnings basis.

Fed decision – what we got

September 23, 2009  - Financial times

Pretty much as expected I think, including the three month extension of the agency MBS/debt programme, with a few interesting vignettes.

1. FOMC sees a housing sector pick up but is still not sure about household spending.

2. It sees the pace of business retrenchment slowing.

3. It was a fraction more upbeat about growth prospects than I had expected – or maybe they are just making it clear they do not see a double-dip ahead.

4. No reference to higher commodity prices this time.

5. The slightest hint of a phased exit strategy underway – the FOMC will employ “a wide range of tools” not “all available tools” from here on.

But the key points: no change to the extended period language; completion of the asset purchase programme; no prospect of early rate hikes.

De la crise financière à la crise de la dette

Project Syndicate – Kenneth Rogoff – 21/09/09

Que ce soit la reine d’Angleterre ou l’ouvrier automobile licencié de Detroit, tout le monde veut savoir pourquoi si peu d’experts avaient pressenti la crise financière. Comment des spécialistes peuvent-ils aujourd’hui affirmer que les catastrophes financières ne se reproduiront pas alors qu’ils sont incapables de prévoir leur première occurrence ?

La réponse à cette difficile question n’est pas rassurante. Car il y a toujours un risque que la crise financière soit simplement en phase d’hibernation et qu’elle se métamorphose lentement en crise de la dette publique.

Bonus : le double discours des politiques

Les Echos – 21/09/09

Depuis quelques mois, la mise en cause des acteurs de la finance s’accélère. Après les « hedge funds » et les paradis fiscaux - qui ne peuvent être logiquement tenus pour responsables des difficultés des institutions financières les plus régulées -, les traders sont tenus d’endosser la responsabilité de la crise. Peu importe, ici aussi, que les faits ne soient pas aussi simples que les slogans et qu’au final les bonus de ces salariés ne soient pas non plus les principaux responsables de la crise du système financier. Ces rémunérations sont indécentes. Elles remettraient en question l’harmonie du corps social. Cette assertion est loin d’être illégitime mais mérite mieux que des harangues à l’adresse des militants réunis dans les universités d’été.

S&P 500 May Slip to 50-Day Average of 983

Sept. 14 (Bloomberg) — The Standard & Poor’s 500 Index may be poised for a 5 percent retreat, based on an analysis by Schaeffer’s Investment Research using so-called moving averages. The U.S. equity benchmark, which closed at 1,042.73 on Sept. 11, could drop to as low as 983.36, its average price during the last 50 days, said Todd Salamone, vice president of research at Schaeffer’s. “There’s some hesitation to commit to stocks at these levels,” Cincinnati-based Salamone said in a phone interview. “Some people are afraid we’ve come too far, too fast.”

Stiglitz Says U.S. Economic Recovery May Not Be ‘Sustainable’

Sept. 4 (Bloomberg) — The U.S. economy faces a “significant chance” of contracting again after emerging from its worst recession since the 1930s, Nobel Prize-winning economist Joseph Stiglitz said.

“It’s not clear that the U.S. is recovering in a sustainable way,” Stiglitz, a Columbia University professor, told reporters yesterday in New York.

Economists and policy makers are expressing concern about the strength of a projected economic recovery, with Treasury Secretary Timothy Geithner saying two days ago that it’s too soon to remove government measures aimed at boosting growth. Stiglitz said he sees two scenarios for the world’s largest economy in coming months. One is a period of “malaise,” in which consumption lags and private investment is slow to accelerate. The other is a rebound fueled by government stimulus that’s followed by an abrupt downturn — an occurrence that economists call a “W-shaped’ recovery.

Goldman Sachs Wrong on Economic Recovery, Macro Hedge Funds Say

Sept. 1 (Bloomberg) — Paul Tudor Jones, the billionaire hedge-fund manager who outperformed peers last year, is wagering that Goldman Sachs Group Inc. and Morgan Stanley got it wrong in declaring the start of an economic recovery.

Jones’s Tudor Investment Corp., Clarium Capital Management LLC and Horseman Capital Management Ltd. are taking a bearish stand as U.S. stock and bond prices rise, saying that record government spending may be forestalling another slowdown and market selloff. The firms oversee a combined $15 billion in so- called macro funds, which seek to profit from economic trends by trading stocks, bonds, currencies and commodities.