just in in-tray, from GREED & fear
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· The Federal Reserve has acted & GREED & fear, personally, believes Ben Bernanke was smart not to cut by a full percentage point. It makes sense to hang on to as many bullets as sentiment will allow given the scary pace of monetary easing.
· The Fed's move this week to backstop Bear Stearns' riskiest assets has put the central bank's balance sheet at risk. If taxpayer money is to be risked in this manner, it is surely better coordinated with action from the executive arm of government to address the housing mess.
· US investment banks still have scarily leveraged balance sheets. It is the sheer scale of leverage in the system which remains the fundamental problem. Problems in the world of funds of funds are also inevitable. The name of the game remains who can deleverage quickest.
· If anyone in officialdom bears the greatest responsibility for the grotesque nature of the recently concluded credit bubble, it is Alan Greenspan because of his deliberate decision to pursue, systematically, an asymmetric monetary policy over his 18-year period as Fed chairman. The appalling consequences of this "Greenspan put" are now clear for all to see in terms of the ugly deleveraging cycle
which is under way and the resulting wealth evaporation.
· The interesting issue with Ben Bernanke is his huge faith in mechanical monetarism to offset the risks of a deflationary downturn.
GREED & fear personally has more faith in an Austrian approach in terms of being the least bad solution to the present mess. But that path is most unlikely to be adopted until modern central-banking techniques are totally discredited. The ultimate consequence of the discrediting of modern central banks will be a much higher gold price.
· The strong euro is tempering some of the inflationary pressures the ECB likes to worry about in terms of food and price inflation. GREED & fear still believes that, sooner or later, the European central bank will have to capitulate from its current hawkish stance for another reason. That will be the weakening growth trends in the more leveraged parts of Euroland, such as Ireland and Spain.
· The growing tensions within Euroland are best reflected in the widening PIIGS (Portugal, Italy, Ireland, Greece and Spain) spreads. Absolute-return investors should continue to short PIIGS bonds against the German counterpart. The euro is, certainly, not the long-term fundamental safe heaven it is perceived to be. The paper currencies that most deserve that status are the Singapore dollar and the Swiss franc.
· The Asian equity universe has been badly hurt in recent weeks as risk aversion has spiked, with high beta China and India predictably hit hardest. GREED & fear continues to view this as collateral damage from problems that originate elsewhere rather than a sign that growth in Asia is about to collapse; though it is inevitably going to slow.
· The MSCI AC Asia ex-Japan Index is now near GREED & fear's downside target of 458 or a one-third correction from last year's all-time closing high of 687, though there is scope for a pull back to the 400-430 levels on the charts. GREED & fear continues to advise investors to add to Asia if the 458 level is reached, though this will be a year of extended consolidation as Asia deals with the collateral
damage from the West.
· Investors with Asia-Pacific mandates are again advised to use any relief rally to reduce position in domestic stocks in Australia, particularly Australian financials, to a zero weighting.
· GREED & fear will add two more percentage points to Taiwan in the Asia ex-Japan relative-return portfolio. The money will be taken by reducing positions in Indonesia and Malaysia. As for Thailand, GREED & fear will retain the near double overweight. This is a market which has the potential to be countercyclical this year.
· If a sharp correction in high beta India is not particularly surprising, GREED & fear is more surprised by the disappointing performance of Hong Kong property stocks so far this year. Still, GREED & fear continues to believe there are many worse places to be invested in the world than Hong Kong property stocks.
· The Indonesian rupiah has managed to remain weak of late despite the American currency's renewed downward lurch. The reason is that this year's continuing surge in the oil price is undermining the arithmetic of the Indonesian government's budget because of the spiralling costs of energy subsidies.
· If oil remains strong as a function of continuing US dollar weakness, then Indonesia is at growing risk of a repeat of what happened in 2005 when the currency, stocks and rupiah government bonds all declined in price together before the government finally acted to slash subsidies, setting off a massive rally in all three asset classes.
· The issue has become whether a budgetary crisis hits before the oil price corrects. With a presidential election due to be held in mid 2009, investors should not expect the government to cut subsidies proactively before such a crisis. If the oil price does ever correct sharply, then the rupiah might be one of the few currencies that could rally sharply against the dollar in such a commodity correction.
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