2009-11-28

Socionomics—Social Mood Turns on Dubai

Dubai presents a crystal clear example of a change in social mood.

In Counter Trade Dubai, Bruce Krasting posts some Wall Street Journal headlines from Monday, November 23, about the Dubai debt problem. He goes on to comment:
There are dozens of examples of press reports that Dubai was in arrears for a long time. So I do not buy that this is a nexus for the market.

I think that by next week market focus will again return to those that were steering markets on Wednesday. A weak dollar, strong gold and busted monetary policy. Dubai is a side show that was aggravated by our holiday and an overreaction in Asian markets. We will revert back to the main event.
Dubai isn't a sideshow, it's a window onto the main event, the social mood.

Robert Prechter moved to 200% short on Monday, November 23.
When one goes 200% short, there is no room for error, so Prechter must have had a very, very strong belief that markets were about to turn.

The changing attitude towards Dubai is a result of the shift in social mood. The Dubai story didn't change, the social mood changed.

Elliott Wave International asks whether Dubai will cause similar effects as Lehman Brothers (I'd lean more towards Bear Stearns at the moment). That will also depend on the social mood.

Bear Stearns bankruptcy was followed by a rally into May. Fannie and Freddie's major problems sparked a small market sell-off in July 2008 (though prices started moving lower in June) and Barron's warned that bigger problems were ahead, but the market didn't crash until September.

Whether the reaction to Dubai is a short-term overreaction or a sign of a greater turn in social mood will be evident in the coming days and weeks.

2009-11-20

OTB Portfolio Update 2009/11/20

Obama-Turbo-Bernanke Portfolio lost 1.09% today and is down 22.88% since inception. Too bad we can't add the Federal Housing Administration, FHA. That's another winner, as per this NYTimes story, which features this quote:
“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”

Crash Comparison Update 2009/11/20


Protectionism is expensive

Block on Minsheng deal costs US $1.7bn
US authorities blocked Minsheng, the Chinese bank, from acquiring a Californian lender in a deal that could have saved almost $300m of taxpayers’ money and $1.4bn from an industry insurance fund, say people familiar with the matter.

Minsheng had asked the Federal Reserve for permission to acquire UCB, a San Francisco bank, but the application was not approved before the struggling US lender had to be seized two weeks ago by the Federal Deposit Insurance Corporation.
The U.S. and China signed a memorandum of understanding to allow increased Chinese investment in U.S. banks, but I'll believe it when I see it.

2009-11-18

Socionomics Watch—Women's Eyes

I'm unsure what this represents socionomically, but it seems worth noting.
See Eyes Wide Cut, for a series of book covers with women in various poses, all of which cut off just above the nose...
From Eyes Left, the article linked to in the above post:
And knowing there are platoons of marketers who focus group this kind of stuff—novel titles, and the color and texture of book jackets—I’m sure this fad is the most intentional of things. That is, it’s not why I myself would do it this way: because eyes are hard to draw. No. They must be on to something; this must be a good idea, sales-wise.

But how come? I decided that eyes give too much away; they’re too committal. These books all seem intended to reserve an air of mystery, of exoticism: “if you want to know me, you must pay twenty-five dollars for the hardcover, and still you’ll only scratch the surface.”

Has there been some Madison Avenue calculus that determined women who can afford hard covers like faces, but only at a certain reserve, with a certain psychological density implied? (there are, of course, covers depicting full faces, but those must target a different demographic).

Too, there’s a disconcerting impression caused by these headless—or at least crownless—women of Sleepy Hollow; something a little threatening and kinda spooky. Which implies the converse: that eyes, when shown, are comforting, humanizing. Even when they menace, they assure us that it’s at least something mortal we’re dealing with—not something less or something more.
I note that more men sported beards during the last bear market, the 1970s, and beards suggest less openness because the face is hidden.

Given the subject of fiction and women, there's also the disturbing trend...
Were-seal power!
The best part is the titles. The Demon's Librarian. Submission. Sinful Treats. Seducing the Wolf. I wonder why we never hear pastors or anti-porn political activists inveighing against the family-destroying problem of textual porn? Say what you will about the male fixation on visual stimulus, but you have to admit that it seldom involves the seduction of forest creatures.
Romance novel heroes:
Bull market: Fabio.
Bear market: Were-seals and vampires.

2009-11-15

Deflation, Chinese yuan, gold and other connections

I've been busy lately and haven't had as much time to post, but the financial markets continue to behave in a manner that has me planning rather than acting.

If you read nothing else, check out Hugh Hendry's latest letter to investors. He's still in the deflation camp and he raises some interesting points, such as the under-ownership of U.S. Treasuries by Americans, financial institutions and individuals. He compares it to Japan, which saw government debt ownership increase following the 1989 asset bubble peak.

Also see this from ZeroHedge, whither depegging. It's a good summation of the Chinese point of view on yuan revaluation and why one shouldn't expect it any time soon. And on that score, the China Banking Regulatory Commission (CBRC) Chairman Liu criticized U.S. government policy for creating new asset bubbles and following in the steps of Japan.

The yuan could be the critical currnecy. As the "whither depegging" article discusses, if the yuan started appreciating now it could cause an acceleration away from the U.S. dollar. That would cause gold and other commodities to gain and give the Federal Reserve a huge headache. Perhaps a terminal aneurysm.

Also see Mish Shedlock on unemployment "Unemployment Projections Through 2020 - It Looks Grim" and an FHA bailout.

2009-11-13

Crash Comparison Update 2009/11/13



At first, it looked like November was setting a new pattern, but now it looks like it might be converging with the September and October pattern.

OTB Portfolio Update 2009/11/13

OTB had a mild 0.75% drop today, bringing the return since inception to -23.29%.
Fannie Mae and Freddie Mac have caused the bulk of the losses, down 45.95% and 44.33%, respectively, since inception. These government run companies are really sucking wind.

2009-11-11

2009-11-07

A little tariff here, a little tariff there...

China brands US ‘protectionist’
“China resolutely opposes such protectionist practices and will take steps to protect the interests of our domestic industries,” Yao Jian, ministry spokesman, said on its website.

“The US should give objective consideration to the fact that the fundamental problem of the US industries in question is the fall of demand brought about by the financial crisis.”

The decision by the US Commerce Department, which imposed tariffs of up to 99 per cent on some Chinese steel pipes, follows a move earlier in the week by the US, European Union and Mexico to file a formal complaint at the World Trade Organisation against Beijing’s restrictions on exports of specialised raw materials. Last month the Obama administration levied 35 per cent tariffs on tyres made in China.

In response, the Chinese have opened probes into US exports of poultry on grounds of safety and into cars and car parts because of the state aid those industries have received.
Protectionism is growing and it will continue to grow. This is still in the early stages.

中国商务部对美国部分汽车产品发起“双反”调查
在申请书中,中国汽车工业协会主张,美国政府向涉案产业和企业提供的补贴项目共计31个,商务部在立案公告中保留了其中的24个,对养老保险担保项下的补贴、《医疗保险处方药改进及现代化法案》项下的补贴、石油补贴给美国汽车业带来的补贴、美国各州对橡胶轮胎业补贴给美国汽车带来的补贴等七个项目不予调查。

2009-11-06

Mr. Practical asks a question...

Strange Days
What if the government/Fed realized the most efficient way right now to "print" dollars and "reflate" the economy was to get stock prices up? What better way to do that than print dollars to buy stocks?

There's ancillary evidence that stocks are acting "artificial". Stocks aren't only climbing a wall of worry, they're scaling the Mt. Everest of bad fundamentals. Tick data is extreme, especially when the stock market is down. We constantly see 1000+ tick prints when stocks are down; this is very strange indeed. Volumes are down at least 20% from normal levels (and much more if you discount for high-frequency trading), making it easier to get stocks up.

Under TARP, the fine print allows dealers to REPO stocks to the Fed as collateral (holy cow is right).

What if there were an arrangement where large dealers buy stocks and stock futures through the day and REPO them to the Fed at the high closing prices? The dealer would book the profits derived from the difference at no risk.

If you look at the trading patterns of the largest dealers, one in particular lost money trading in only one day last quarter. Statistically that's like finding a needle at the bottom of the ocean.

Crash Comparison 2009/11/06


OTB Portfolio Update 2009/11/06

AIG and Fannie Mae (FNM) fell 9.7% and 7.1%, respectively, today.
The portfolio lost 3.97% and is down 23.35% since inception.

2009-11-03

Gold hits new high, dollar up



When gold moves higher along with the U.S. dollar, that means its moving higher in just about every currency in the world. Gold peaked at 780 euros per ounce earlier this year, as the strong rally in the U.S. dollar lifted the price of gold in euros. Gold is above the 730 euro level today, placing it about 6% away from a new all time high. Note that can come via a combination of a dollar rally plus a move in the gold price. At this moment, gold is up 2.4% in terms of USD. In terms of euros, gold is up 3%. Below is GLD divided by FXE, to show this move.

Below are gold in the yen and Australian dollar, as measured by their respective ETFs. The AUD chart looks particularly good.

2009-11-02

Is Japan the short of the Century?

Several gurus have called the U.S. Treasury the short of the Century, but Japan is in a far worse position. See It is Japan we should be worrying about, not America
The IMF expects Japan's gross public debt to reach 218pc of gross domestic product (GDP) this year, 227pc next year, and 246pc by 2014. This has been manageable so far only because Japanese savers have been willing – or coerced – into lending for almost nothing. The yield on 10-year government bonds has been around 1.30pc this year, though they jumped to 1.42pc last week.

"Can these benign conditions be expected to continue in the face of even-larger increases in public debt? Going forward, the markets capacity to absorb debt is likely to diminish as population ageing reduces saving," said the IMF.

The savings rate has crashed from 15pc in 1990 to near 2pc today, half America's rate. Japan's $1.5 trillion state pension fund (the world's biggest) has become a net seller of government bonds this year, as it must to meet pay-out obligations. The demographic crunch has hit. The workforce been contracting since 2005.

Japan Post Bank is balking at further additions to its $1.7 trillion holdings of state debt. The pillars of the government debt market are crumbling. Little wonder that the Ministry of Finance has begun advertising bonds in Tokyo taxis, featuring Koyuki from The Last Samurai. If Japan's bond rates rise to global levels of 3pc to 4pc, interest costs will shatter state finances.

No one knows exactly when a country tips into a debt compound trap. But Japan must be close, even allowing for the fact that liabilities of the state Loan Programme (FILP) have fallen by 40pc of GDP since 2000.

Russell 2000 continues to underperform

A comparison of iShares S&P 500 (IVV) and iShares Russell 2000 (IWM).

2009-11-01

The only trade in existence today—short U.S. dollar

Roubini is worried about it. Mother of all carry trades faces an inevitable bust
Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing – as the total returns have been in the 50-70 per cent range since March.

People’s sense of the value at risk (VAR) of their aggregate portfolios ought, instead, to have been increasing due to a rising correlation of the risks between different asset classes, all of which are driven by this common monetary policy and the carry trade. In effect, it has become one big common trade – you short the dollar to buy any global risky assets.
That's why I'm happy to mostly wait out this market until the bust starts rumbling...

Note that Roubini is late to this realization. Robert Prechter referred to the simultaneous rally in all assets during the 2000s as "all one market".