Been reading through the blogs and found a lot of interesting articles in the last couple of days. Some are directly related to the markets, some indirectly. So, this is where my head’s at.
Strategy & Tactics … from the world of football.
I found this article on Abnormal Returns, here:
Am I reading the price/volume/time data stream from the markets well? Can I improve the way I use charts?
Beyond C.S.I.: The Rise of Computational Forensics
And, again, I found this article on Abnormal Returns, here:
Inflation? The Humble Student of the Markets blog (excellent blog BTW)
The mistake that economists like Rosie and central bankers make, IMHO, is to look at core CPI, or the Consumer Price Index ex-food and energy. Inflation is happening in hard assets, i.e. commodity prices. QE2 is blowing a hard asset bubble and it is precisely this blinkered view of measuring inflation as inflation ex-inflation that created the conditions for the last financial crisis.
The sting of inflation is showing up in the emerging market economies, where rising food prices are stinging the consumer.
China has a de facto USD peg and that policy means that, in the absence of other action, US monetary policy is Chinese monetary policy. The tsunami of liquidity that the Fed loosened on the markets is washing up on Chinese shores, where it has resulted in see-through buildings and empty cities (see the satellite photos here). What’s more, all that liquidity sloshing around has fueled a boom in Chinese antiques, where stories of record prices paid for an antique vase and for jade carvings abound.
That is where inflation is stinging. Asset bubbles never end well. The latest round of QE is just a case of pouring gasoline on the fire.
Hard to argue with the facts, but here are my thoughts:
To reduce food inflation in China, float the currency. That way the Chinese are not importing inappropriate (for their economy) monetary policy from the US. Pretty simple.
Asset bubble in antique vase and jade carvings? Who cares?
Along similar lines, asset bubble in commodities? Who cares? Commodity markets are relatively small, and it is not consumers/commercial banks that are levered to the max. in these markets and that will crash and burn when these markets turn down. Sure, there will be some pain, but nothing like the GFC pain where the bubbles were in much bigger markets. So, as long as these rises are not being passed to the consumer … who cares?
Great jottings from Barry Ritholtz, brief and to the point.
This is important, IMHO:
Markets have looked a bit tired — and yet — every opportunity to see big whackage has been met by liquidity driven buying. The bid beneath equities remains firm. The bias remains firmly to the upside.
From Calculated Risk (great blog), this:
Chicago Fed: Economic Activity Slowed in November
OK, noted. The recovery isn’t going to be one-way traffic, though.
From A Dash of Insight blog. Best blog out there. Read it.
In summary, this is a time to get some focus. Which concerns are real, and which are illusory? If you have a specific concern, can you measure it? How will you know when that worry has been lessened?
My only quibble … it is ALWAYS a time to get some focus.
60 Minutes (in the US) ran a story on the municipal bond crisis.
The following segment on 60 Minutes this evening is a must see. The segment covered the state and local funding crisis in the USA. Meredith Whitney was a special guest and predicted that the crisis would unfold in the “next 12 months”. Whitney says the states are susceptible to hundreds of billions in losses and local insolvencies could be widespread.
So we got:
Muni Bond market collapse about a month ago
And now we got:
60 Minutes reporting on the …
Is it just me, or is this a screaming ‘magazine cover’ moment?
(OK, admittedly I haven’t seen the 60 Minutes report, so I may be completely off here. But I would rather rub sliced chilli on my private parts than watch 60 Minutes, so I guess I will have to live with the risk of being wrong).
Chart from Stockcharts:
It would be remiss of me not to point out an antidote to the mass media hysteria.
Another great blog:
How to read volatility …
Recent Low Volatility Isn’t Necessarily Bearish
This is why I didn’t point out the VIX as an argument for a top heavy market. If you looked at the recent sentiment overview, there are plenty of other, much more cogent, reasons why this is a dangerous level for the bulls. We don’t really need to over-reach and use the low volatility index, even though the recency effect might provide us with a cautiounary warning.
The corollary to the above is that the VIX is much more effective at pinpointing major market lows, where fear causes it to spike up. As you can see from the long term chart above comparing the volatility index with the S&P 500 index, there is no major market bottom that isn’t accompanied with a spike in the VIX.
Nice work from tradersnarrative. (‘Cept the typo, but it happens).
How quiet is the S&P?
Over the last ten years, there have now been six 5-day work weeks where three of the days saw moves of 10 basis points or less. (There have been no weeks with 4 days of moves of 10 basis points or less.) Of these six “slow weeks,” last week’s change of +0.28% was the smallest overall move for any of these weeks, so one could argue that last week was the least volatile for the market since at least 2000.
* Where’s Your Head At by Basement Jaxx