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:
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
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 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.
UBS tackles the negative yield puzzle – alphaville / FT
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.
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.
Cloudy Outlook for Sweden After Years of Success – IMF
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 US and China: Prospects of the world’s largest economies – FT (podcast)
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.
Will China Face a Lost Decade? – naked capitalism
What Google searches tell us about China – alphaville / FT
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.
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.
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
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
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.