MKT AM 022607: resilience
Just got my trades closed, and now I am thinking more about mkt. Otherwise, I would tend to trade more and get my fingers bitten.
Financial mkts, bonds, stocks, commodities and currencies, are created primarily as resource allocation and risk hedging mechanism for the real economy. Financial mkts, however, have since incardinated on its own into a financial economy itself which is becoming more important than real economy, and where “buy low and sell high” is business 101 for every body, institutional or individual, investor or speculator. This is kind of what Marx called “alienation”.
“Alienation” is actually not a bad thing to the real economy. In commodity mkt, while speculators try to profit by guessing the future prices from current prices, the side effect of their trades is to eliminate such profit opportunities, making current prices are a quite accurate estimates of future prices.
In general and on average, financial mkts with a lot of real money on the bet, tend to predict the outcome of events in real world much better than other known mechanism, even on things such US presidential elections (Iowa Electronic Market forecasted better than major polls) and 2000 Oscar winners (Play money markets predicted better than 4 out of 5 columnists).
Let’s try to peek into mkt’s mind.
Considering its short-term technical vulnerability, stock mkt has been impressively resilient recently, under the dark cloud caused by bad CPI number and
Short-term, I don’t know how long stock mkt‘s resilience will ast. Even it is trying to climb the wall of worries the bear has built recently, the stock mkt index has to retreat back further to find out where it has enough support, and consolidate itself there. It probably will break through the more recent support of 12600 easily.
For today, the mkt had some temporary gains early AM, attributed mostly to the news that a private equity group is purchasing
One recent explanation of abundant LBO deals has been that from private equity group’s point of view : if you can sell high (bonds relatively priced high compared to the low yield, so sell bonds or borrow to get funds), and buy low (equity is relatively priced low, considering companies’ earnings and their strong balance sheets), then why not ?
Speaking of bonds, Bloomberg.com writes:
Benchmark 10-year gilt yields slid to a seven-week low, tracking debt in the U.S. and the euro region as representatives of the UN Security Council's five permanent members and Germany meet in London to discuss penalties on Iran, which has defied a United Nations Aug. 31 deadline to stop uranium enrichment.
``There's a rally in every bond market,'' said Nathalie Fillet, senior interest rate strategist at BNP Paribas SA in
The yield on the 10-year gilt, which moves inversely to the price, fell 6 basis points to 4.83 percent, the lowest since Jan. 10. The price of the 4 percent note due September 2016 rose 0.37, or 3.7 pounds per 1,000 pound ($1,965) face amount, to 93.66.
Bonds also gained on speculation global growth and inflation will slow, fueled by expectations reports in the
The reports are forecast to show the
So, there are two things on bond’s mind:
Let’s get
In my previous post, I talked about how
The rule of the international politics is still the balance of power, which by the way, is also the rule of domestic politics in most cases, although under some kind of cover.
The instated clergy in
Now, the CB’s rate prospect.
Stephen S. Roach of MS summarized the Fed,
Fed:
Japan CB:
An inflation-targeting Bank of Japan seems to be of a similar mindset. That’s mainly because of the distinct possibility of a minor deflationary relapse, with year-over-year comparisons in the CPI likely to move from being fractionally positive (+0.1% in January) to slightly negative by March. Moreover, with the economy still judged to be on shaky foundations -- especially the ever-cautious Japanese consumer -- political pressure on the BOJ to refrain from any policy action has been intense. After having succumbed to that pressure in January, Governor Toshihiko Fukui appears to have expended great political capital in orchestrating the BOJ’s second baby step away from its anti-deflationary ZIRP campaign. In the end, a one-party
ECB:
That leaves the European Central Bank as the only one of the three major central banks that is likely to make any type of a policy adjustment in 2007. Elga Bartsch, our resident ECB watcher, puts the upside at 50 basis points of rate hikes. This suggests that European monetary authorities -- the most dogmatic of the inflation targeters in central banking circles -- believe they are now only two policy moves away from their own normalization objectives in a still low-inflation world. This view, of course, is predicated on the belief that the European economy continues to surprise on the upside. Should that view be drawn into question for any reason -- hardly a trivial possibility in light of the recent increase in the German VAT tax, the lagged impacts of euro appreciation, and the ripple effects of Italian fiscal consolidation -- the risks to the ECB policy path could quickly tip to the downside.
Stephen Roach is the chief economist of MS, and he follows China very closely, and he is in general kind of bearish (not on
Stephen’s view of liquidity and bubbles in financial economy is that of monetarism. If Keynes and Marx were alive, they would argue differently. Keynes would point out that the lack of investment demand relative to savings, or in Marx’s term, the “capital surplus” is the long-term fundamentals behind the global liquidity surplus, and the consequently suppressed long term bond yield.
Speaking of
