To kick off this weekend's edition of "Trading and Markets", I quickly summarize my market views. I've combined the Off-Topic and Economics articles to this post. I hope this will not be too much trouble.
Views for the week: EURUSD has come down a lot and fast.
Everyone expects it to hit 1.20 and perhaps break down to much lower levels. Time
to go against the consensus: I do not think we will reach 1.20 just yet, unless
there would be a break much, much lower. I would guess being a buyer around
1.21-1.2150 would not be a bad bet for a quick 100-200 pip gain.
S&P 500
(future): Rising range (bull trend channel, or a flag inside the bear market, I
don’t care) since the beginning of June, current top around the highs we saw on
last Thursday and current bottom around 1320-1330 – these would be nice levels
to buy with a holding period of several days – so more downside before a buying
opportunity.
PIIGS bond
yields are back to pre-summit levels, and trading near the recent highs. I
doubt markets will push the yields to new higher ground just yet, so I expect a
dull week. The quick upward moves we saw toward the end of the week were at
least partially due to the lower liquidity, backtracking on the summit promises
and the ECB’s bare minimum response - not to mention the hardened rhetoric from Finland. So now it is Finland's fault?
Quote of the week: Inverted
3mo-10yr yield curves: China, Norway, Sweden, Turkey, Australia, India, Brazil – most of these have credit/housing bubbles too. Few are talking about
emerging markets in the same breadth as China or Europe, but many are at high risk of a
banking crisis, some of a currency crisis. – HistorySquared
Earlier on
MoreLiver’s:
STOCKS
Into the Matrix – John Mauldin / The
Big Picture
Sadly, the period of low or no returns is not
likely to be over soon…either going sideways (with lots of volatility) for a
long time, while earnings continue to rise, or we can see a serious collapse of
the price of stocks in a short cyclical bear market.
Q2 Winners And Losers: Who Were The Top And
Bottom Contributors To The S&P – ZH
Goldman’s
tables.
The Four Scariest Charts For Hope-Filled
'De-Cuppers' – ZH
Economic
surprise indices have recoupled and moving down, negative earnings pre-announcements,
capital investments have peaked, new export orders collapsing.
No Country For Old Bulls – ZH
BofAML: further rate cuts in the euro area and China
along with around $500bn of NEW QE in this quarter are priced into the market with any hope for risk
assets to rally more consistently, investors will need to see not just
willing-and-able central bankers but an abatement of the sovereign crisis in
Europe and improvement in global data
Equity Returns in the Banking Sector in the
Wake of the Great Recession and the European Sovereign Debt Crisis – IMF
CENTRAL BANKING
Central Bankers Are Not Omnipotent – ZH
UBS’s long piece: current market participants are over-optimistic on the
power of central banks. Transmission process is now more important in monetary
policy.
The base money confusion – alphaville
/ FT
just because deposits are rising at the ECB
(and elsewhere), does not mean banks are not lending
The negative carry universe – alphaville
/ FT
The battle is no longer about liquidity but
about preventing the negative carry universe from impairing bank profitability
forever.
If the nominal yield cannot fall then the only
way the real rate can decline is through increasing inflation, as expressed by
the Fisher equation. In fact, increasing inflation expectations are just as
good, as long as they become entrenched; however this is where we are falling
short.
Why the Fed might act (in one chart) – Wonkblog
/ WP
One bad jobs report is a blip. Three’s a trend.
And the United States has now seen three weak jobs reports in a row.
CREDIT MARKETS
The (Other) Deleveraging – IMF
Deleveraging has two components--shrinking of
balance sheets due to increased haircuts/shedding of assets, and the reduction
in the interconnectedness of the financial system. We focus on the second
aspect and show that post-Lehman there has been a significant decline in the
interconnectedness in the pledged collateral market between banks and nonbanks.
Sovereign Debt and Default: A History (Mar
2012) – CoBank
(pdf)
In the end the losses are taken, one way or
another. And life goes on. Things are written off, some people fail, some
people survive. But life goes on.
Intertwined Sovereign and Bank Solvencies in a
Model of Self-Fulfilling Crisis – IMF
An Analysis of Three-Month LIBOR 2005-2008 – The
Aleph Blog
My initial diagnosis is this: whether formally
or informally, you have two groups of banks submitting rates for LIBOR. One group is trying to pull LIBOR up, the
other is trying to pull LIBOR down.
COUNTRIES
Growth set to slow sharply from 4 percent in
2011 to 1 percent in 2012. Growth prospects in major trading partners in
question; krona strengthening. Despite some strengths, the financial sector
remains a concern
The eurozone has dominated headlines for
months, but what of the other key poles of the world economy, China and the United States? Growth has been slowing in China for months, and the US is also struggling.
James Politi in Washington and Jamil Anderlini in Beijing join Gideon Rachman
to discuss the prospects of the world’s two largest economies.
ECONOMICS
Plunging New Orders Suggest Global Recession
Has Arrived – Mish’s
Lagarde Says IMF to Cut Growth Outlook as
Global Economy Weakens – BB
International Capital Flows and Debt Dynamics – IMF
The IMF Goes All-Out on Balance-Sheet
Recessions – Rortybomb
Internal adjustment of the real exchange rate:
Does it work? – voxeu.org
The forefathers of Europe’s single currency argued that
rather than devalue their currencies to restore competitiveness, countries
could devalue ‘internally’. Against the current of bad press, this column
presents a novel way of recording competitiveness and argues that Ireland, Spain, Latvia, and Lithuania have all managed these adjustments – but not without paying a huge toll
in jobs lost.
Economic fables: Fabulous economics – Free
exchange / The Economist
Stories are
important.
Special Report: Crisis forces "dismal
science" to get real – Reuters
As economics teachers struggle to make sense of
a post-crisis world, they may have an unlikely army of helpers: ants.
How policy has contributed to the great
economic divide (23-Jun) – WP
Joseph E.
Stiglitz: The United States is in the midst of a vicious cycle of inequality and recession:
Inequality prolongs the downturn, and the downturn exacerbates inequality.
Unfortunately, the austerity agenda advocated by conservatives will make
matters worse on both counts.
HEDGE FUNDS
The success of hedge funds: Masterclass – The Economist
Two books analyse what makes hedge-fund
managers great—and reach very different conclusions
Hedge Fund Manager Skill Is Misperceived – aiCIO
Tail Risk and Hedge Fund Returns – PragCap
How hedge funds analyze your earnings calls – IR
Web Report
Tudor Said to Open First Macro Hedge Fund in
Decade – BB
Futures Show the Futility of Timing – Institutional
Investor
Managed futures funds may defy market timers
more than any other asset class, judging from their recent performance.
In Caymans, It’s Simple to Fill a Hedge Fund
Board – DealBook
/ NYT
Directorship services have grown from a cottage
industry into a big business on the Cayman Islands. Many funds run by United States money managers have their legal residence here for tax reasons.
TRADING
Bankers and the neuroscience of greed – The
Guardian
The unconstrained power of bankers acts like a
drug on their brains' reward systems, creating insatiable appetites
What Is The Best Preparation To Be A Trader? – SMB
My Investing Checklist – rpseawright
Do Good Investment Managers Give Away Great
Ideas? – CFA
INSTITUTE
It’s entirely rational according to new study
Wall Street Quants Owe a Debt to Obscure French
Student – View
/ BB
OTHER
Random portfolios versus Monte Carlo – Portfolio
Probe
What is the Value of Reading Financial Blogs? – Pension
Pulse
99% of everything you read on Zero Hedge is
absolute garbage.
There’s Something Rotten in Banking – View
/ BB
The real tragedy of the scandal is the apparent
lack of ethics or self-restraint among the people involved. Following billions
of dollars of trading losses at JPMorgan Chase & Co.’s out-of-control London unit, the latest
installment of big-bank follies offers yet more proof that the industry
shouldn’t be trusted to regulate itself.
Ex-City boy: 'It's easier to get people to talk
about drugs than insider trading' – The
Guardian
There has been very little on this blog so far
about drug use among bankers. One reason is that it seems actually quite rare,
confined to little pockets. Another reason is that it's illegal. This
interviewee was ready to share his experiences.
Clueless: Meet the Overprecise Pundits – The
Psy-Fi Blog
Most short-term opinions on markets or any
system that includes human beings as part of the machinery are generally
worthless in a financial sense.
The Rules, Part XXXIII – The Aleph Blog
When politicians don't have answers, they blame
speculators, financiers (Wall Street), or foreigners. They do anything to take the spotlight off
their culpability or ineptitude.
Book Bits – The
Capital Spectator
24 Executives Who Are Exceptional At Chess – BI
The 20 Biggest Poker Players On Wall Street – BI
How David Einhorn Was Out-Bluffed at the Poker
Table – Businessweek
OFF-TOPIC
The Century Of The Self
Part 1: The Happiness Machines – The
Big Picture
Part 2: The Engineering of Consent – The
Big Picture
Part 3: The Policeman Inside Our Heads – The
Big Picture
Part 4: Sipping Wine – The
Big Picture
To many in both politics and business, the triumph
of the self is the ultimate expression of democracy, where power has finally
moved to the people. Certainly the people may feel they are in charge, but are
they really? The Century of the Self tells the untold and sometimes
controversial story of the growth of the mass-consumer society in Britain and the United States. How was the all-consuming self created, by whom, and in whose
interests? (episodes
60 mins.)
The Stupidity of Computers – n+1
The Higgs Boson explained by PhD Comics – FlowingData
Eben Moglen: Time To Apply The First Law Of
Robotics To Our Smartphones – Forbes
9 Beliefs of Remarkably Successful People – Inc.
The most successful people in business approach
their work differently than most. See how they think--and why it works.
FiveBooks Interviews: Wai Chee Dimock on
Hemingway in Paris
– The
Browser
Paris in the 1920s was a creative melting pot,
the haunt of Ernest Hemingway, Gertrude Stein, F Scott Fitzgerald and James
Joyce. The Yale English professor gives us a feel for what it was like to be
there
Google Charts You Can Trust – The
Psy-Fi Blog
In simple terms if the search volume is small
(i.e. it’s in line with the long-term average) but the number of clicks is high
you’re looking at a sustained period of high interest in a stock – and you’re
probably looking at an equally sustained rise in the stock price. However, once the search volume leaps then
you’re into bubble territory
Choosing a good chart – Extreme
Presentation
...depends
on what kind of data you have and what you want to present. See also this.