macro week june 5 2011

8/6/2019 Macro Week June 5 2011

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Macro Week June 5 2011

Macro view of primary market drivers.One of the remarkable characteristics of the global financial crisis in 2008 2009 was thedegree of co-operation between global central banks attempting to slow and then stop the

escalating panic. I so not believe that has ever happened before to such a degree.Unfortunately that period has come to a close to be followed by a more traditional beggarthy neighbor approach. The US is of course being blamed for the crisis and deservesmuch of the criticism. But there is plenty of blame to go around. Asian mercantilismmanipulating their currencies so as to derive a competitive export advantage exacerbatedtrade imbalances. The US tolerated this behavior first in Japan and then in China and theperipheral Asian nations for far longer than needed.Congressional ineptitude and self interesthas prevented any rational energy policy frombeing developed for 40 years since the rise of OPEC. This has kept the US pumpingbillions of dollars per year out of the country.Europe has accepted bogus accounting by various nations for 2 decades in order to keep

the Euro currency alive. Even this charade only worked because the US provided nationaldefense to Europe under the NATO treaties. European defense forces are a farce asdemonstrated by their effectiveness in Libya recently.But those games have run their course and bills are coming due, presented by theinevitable pressure of demographics confronting false promises and actuarial reality.Here are primary known sources of longer term risk.

European unity and survival of the Euro currency.Insolvency of Greece, Ireland, Portugal and likely Spain and Italy is too great for the EUand Euro currency bloc to handle without pain. A new plan has apparently been workedout for Greece involving a default or restructuring but calling it something else. Thiscircus kicks the can to 2014 with sole purpose of not electing credit default swaps thatwould crush the banking system. The entire bail out effort in Europe so far is aimed atprotecting banks in the non-pig countries and has nothing to do with helping the pigs torecover. One day this game which is pretty well understood now will fail every marketwill be disrupted. For example, did you know US money funds are approximately have44% of their assets invested in European short term debt. When the European bankscollapse the US money funds will collapse. ( nice SEC and Fed monitoring there, welldone guys )So Europe is pursuing fairy tale bailouts and emphasizing fiscal austerity. The pigeconomies are imploding and the ECB is pushing austerity.

Sustaining economic recovery in the US under massive indebtedness.Meanwhile in the US Obama, the congressional Democrats , and the congressionalRepublicans all tell us the solution is in the mail. I suppose we should have known theWashington legislative process had fully become farce when Al Franken was put in theSenate. They cannot even agree to raise a debt ceiling they have raised 40 somethingtimes before. They are afraid to make medicare and social security actuarially sound.Politicians believe the rest of us feel more comforted by benefits we will never get thanby lesser or maybe deferred benefits that are real and will be paid.


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Anyway, markets will continue to lose confidence and be buffeted by political idiocyuntil the debt ceiling is hiked and some signs of real fiscal planning emerge. In themeantime QE2 ends this month which removes $100 billion a month from the marketplace.We will still be a contractionary input. So Europe contracting and the US becomingslightly contractionary relatively speaking.

Evolution of mercantilism as a policy in Asian countries , primarily China.China has been tightening since last summer but still are seeing rising inflation. Theypoint fingers at the US but their effort to prevent a keep the Yuan undervalued requiresthey pretty much match our money creation and that combination is what is drivingChinese inflation along with imitators in the smaller Asian countries. No one wants astrong currency. Gold is telling us that story.So Asian countries are tightening along with Europe and soon with the US doing a little.

Geopolitics of energy.Energy price risk is a known problem. But how it might manifest we dont know. Popular

revolution and uprisings in the Middle East and N. Africa this past 6 month seemed tosurprise everyone. They retain the capacity for more surprise and destabilization.Suddenly higher energy prices are a massive global tax and are contractionary.

All of these contractionary forces are leading to signs of global economic slowdown. Thechart below from Gave-Kal is very worrying.


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Falling velocity of money is bearish for global growth and global equity markets. In thecharts below those markets that have done rather well are losing momentum and manyothers have turned down.On the more positive side there is talk that perhaps China is nearing the end of itstightening program and may begin to ease up soon. Watch China, they were first to turn

up in the midst of the 08-09 crisis and they are likely to lead the way up again.

Market Charts Weekly

Indices

All Indices charts are weekly bars for 2 years with 49wk ma (229day) all in log scale sopercentage gains can be compared from chart to chart.

Dow INDU above and SP below


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Nasdaqand Canada and UK


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Germany and France above, Switzerland and Sweden below

Italy and Ireland above, Spain and Greece blow


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Nikkei 225 and Topix 2nd Section above, Shanghai and Hong Kong below

Singapore and Thailand above, Indonesia and South Korea below


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Malyasia and Phillipines above, Australia and India Sensex below

Brazil and Chile above, and Mexico and Columbia below


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Fixed income

Charts are weekly 10 yr yields with 40 wk ma in regular scale

US and Euro (German) above, UK and Canada below

Switzerland and Italy above, spain and Greece below


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Norway and Ireland above Japan and China below

Indonesia and S Korea above, Australia and New Zealand below


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India and Mexico above

EnergyCharts are 1st delivery month weekly with 40 wk average regular scale

WTI and Brent Crude above, RBOB and Nat Gas below

Coal and 3rd month Uranium above


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Grains1

stmonth weekly 49 wk ma

Corn and Soybeans above, Soy Oil and Soy Meal below

Rice and Oats above, Chicago Wheat and Kansa Wheat below

Minneapolis Wheat and French Milling Wheat to follow.


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Softs

Cocoa and Coffee above and Sugar and Cotton below

Other

Lumber and Platinum blow and following Gold, Silver and Copper


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Another chart that caught my eye.This first is the Japanese Nikkei225 (blue) and the US 10yr yield (green ) and in red the40 wk ma.

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macro week june 5 2011

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