The stock market has rallied tremendously from the twelve-year lows that were seen in March 9 2009. The Dow Jones index traded as low as 6,547 and it has rallied more than 3,200 points in just six months. Similarly, S&P 500 index traded under 670 points in early March and recently topped the 1,060 mark. An incredible rally to be sure – one of the biggest six-month rallies that we are likely ever to see. The million-dollar question now becomes: is this a powerful “bear market rally”, or the beginning of a secular bull market? Many investors agree that the worst news is now behind us, and that this is the beginning of a bull market. However, many hedge fund managers are betting against the rally, expecting that the US economy will have some trouble moving forward. Continue reading ‘The Bear Market Rally’
Monthly Archive for September, 2009
In the post-Depression economics, Tim Geithner – US Treasury Secretary, has initiated a plan to inject $2.5 trillion of Public-Private Investment Fund (PPIF) into US banks to get rid of the toxic assets. On one side, nationalizing top-tier banks may be politically acceptable in places like Norway, Sweden, Chile, Iceland, Ireland and even Japan and the UK, but it is still inconceivable in New York and Washington. On the other side, American taxpayers are saturated with huge Wall Street bailouts and overpaid bankers. Consequently, taxpayers would never approve another open-ended injection of public capital into banks. Since the enactment of the Troubled Assets Relief Program (TARP) in October 2008, more than 360 US banks have received at least $353 billion of funds from the Treasury. This includes: Continue reading ‘US Taxpayer – The Universal Savior’
There are many appalling things I have learned to tolerate over the years except one: the lack of common sense. You can correct uncivilized manners, you can control vulgar speech, you can put a stop to violence but you can never treat stupidity. Few days ago I have read in the papers something utterly outrageous. According to Gheorghe Pogea – the Romanian finance minister, “in 2015, the public sector employees’ average salary will be in excess of RON 3,400, while the private sector employees will earn 31% less, averaging around RON 2,350”. He then added that “the 25% gap between the public employees (currently earning around RON 2,200) and the private employees (currently earning around RON 1,760) will become 30% in the coming years”. Let’s all move a step back, take a deep breath and start dissecting this common sense atrocity. Continue reading ‘Upside Down Meritocracy’
On Sep 11th 2009, US administration has decided to impose excessive import duties of 35% on Chinese passenger and light truck tires, as a result of a surge of Chinese tire exports that have dented the US tire industry. Just two days after, the Chinese ministry of commerce responded that the Chinese officials were investigating US automotive and poultry product imports following complaints from local industries that some of these products are being dumped in the Chinese market or are benefiting from subsidies, seriously affecting domestic industries. Who will end-up hurt more severely from this mounting trade dispute? Continue reading ‘The Next Big Thing’
One of the weirdest questions we hear these days is: “where can I buy the alarm clock that is going to wake me up when the recession is over?” Though there is no one-formula-fits-all type economic indicator that can accurately forecast the movement of the economy as the business cycle enters different phases, I would bring up for discussion an interesting composite index released in US by the Conference Board: the Leading Economic Indicator (LEI). The index increased 0.7% in June versus a revised 1.3% gain in May and a 1.2% jump in April. The June increase puts the year-to-year decline at 1.18%. The trough for the year-to-year change appears to have occurred in December 2008 (-3.98%). Continue reading ‘Magic Crystal Ball’
Traders, economists, strategists, central bankers are all exposed to a new dilemma: is the US economy experiencing an inflationary or a deflationary pressure? On one side, under a global turmoil environment where most economies are shrinking considerably, prices tend to fall and subsequently the aggregate demand for goods and services subsides. On the other side, due to unprecedented central banks’ expansionary money supply policies many analysts expect a rapid increase in the level of prices. The solution to the problem still represents a challenge for many investors since the near-term investment strategy is very much correlated with the tendency of the price index. Continue reading ‘Inflation vs. Deflation’
Before jumping into the credit spread pool, I reckon it is worthwhile spending a little time crystallizing few concepts. It is universally perceived that the US treasury bonds constitute to this day the baseline for the credit space, and they have been labeled as riskless securities. Credit rating agencies (e.g., Moody’s, Standard & Poor’s) are those institutions that evaluate the credit worthiness of corporations, municipalities and governments around the world. The rating scale starts with the AAA rating – the highest credit worthiness, lowest risk and lowest probability of default, and continues with AA, A, BBB and so on and so forth. As the credit goes down on the rating scale, the default risk – the risk associated with a debtor’s capacity of meeting payments towards its creditors, increases non-linearly. Continue reading ‘The Rising Phoenix’
As we recall, the US dollar reached relative highs in March after its 24% rise from the 2008 lows. While the recent sell-off has been across the board, losses against commodity currencies have been pilling-up. The Australian and New Zealand dollars are each up more than 20%, and the Canadian dollar has gained 16%. There have been two distinct waves to the dollar’s recent weakness. Initially, the dollar sell-off was driven by investors looking for signs of global economic recovery. As confidence increased, investors rushed into buying risky assets, and abandoned safe-haven U.S. government bonds and the dollar. Then, toward the end of May, investors became worried about the potential for a downgrade of the U.S. sovereign-debt rating and sold-off the dollar again. Let’s address few fundamental aspects within the FX space. Continue reading ‘Fundamental FX Triad’
The Machiavellian Watchdogs
Not surprisingly, the rating agencies – Moody’s, Standard & Poor’s and Fitch, are currently tormented by a deep credibility crisis after it had been established that they awarded top ratings to scores of billions of dollars worth of sub-prime mortgage-related securities. The investors involved with these complex structured assets have relied on the agencies but they might never trust them again. The scariest thing is that the rating agencies have a serious accountability issue in admitting their flaws. For instance, I remember Moody’s claiming that employees, not the company’s practices, were to blame. Hence, they started firing the structured finance department people. Ultimately what they did was purely looking for scapegoats. What a lame excuse! Continue reading ‘The Machiavellian Watchdogs’