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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum
GLD 395.44+0.6%Dec 12 4:00 PM EST
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To: energyplay who wrote (49056)4/23/2009 8:32:09 PM
From: TobagoJack   of 218494
 
just in in-tray, per GREED and fear

· Investor sentiment remains confused. There is certainly a continuing scepticism as to the fundamental merit of the recent relief rally in equities, which from a sentiment standpoint means that the rally can continue for longer. Still one potential obstacle to a continuing rally is the potential own goal for the Obama administration of the much discussed “stress tests” of the 19 largest US banks.

· If the bank stress test turns out to be just a public relations exercise, it will represent a hostage to fortune. The fundamental point is that the US banking system remains undercapitalised while the recent “positive” bank results show a strong propensity for one-off gains.

· The bad news in the financial services sector is moving from capital market writedowns to mundane rising NPLs on plain vanilla commercial bank loans. CLSA’s US bank analyst Mike Mayo expects US loan losses, as a percentage of total loans, to pass the level of the Great Depression because banks have made much more risky loans to a much more leveraged consumer than in the Great Depression.

· The recent debate over whether financial institutions should be allowed to return Tarp money offers the latest example of the unintended consequences of the half public half private hybrid model represented by the Tarp recipients. From a logical standpoint the repayment of Tarp money should also mean an end to federal guarantees of bond issuances.

· GREED & fear’s base case is that the current US policy response to the banking system will turn out over the next several months not to have worked, and that US policy makers will end up having to do what they should have done in the first place. That is announcing some version of the Swedish model or what Indonesia, Malaysia and Korea did in the Asian Crisis in terms of the formations of Ibra, Danaharta and Kamco. The fundamental issue is that losses have to be taken and assets have to be transferred from weak hands to strong ones.

· China has surprised many investors by the strength of command economic traction seen so far this year in terms of the effectiveness of the PRC’s policy response to the global slowdown. Still there are now concerns about the mainland authorities putting a brake on surging lending growth. This makes perfect prudential sense.

· Still GREED & fear doubts that the PRC is going to put the brakes on completely, most particularly in the important areas of lending to infrastructure projects and homebuyers. Investors at this juncture are advised to keep a close eye on the A share market given the widespread view held by many that much of the surge in lending has been going straight into the stock market.

· The PRC now understands that it needs to move strategically to a more domestic demand focus. This is why it is interesting that Beijing announced earlier this month plans to build thousands of new hospitals and to put a clinic in every village in the next three years. All this is part of the growing PRC focus on “soft” stimulus to encourage a pick up in consumption.

· The Japanese government plan announced last week to buy up to ¥50tn in stocks would certainly appear to help put a floor under the stock market. In GREED & fear’s view the ultra low allocation to equities of Japanese pension funds makes the argument for the government to invest in equities more respectable. It is also the case that equities are fundamentally more attractive than bonds in Japan.

· GREED & fear would now be scared to own JGBs. With the Japanese savings rate collapsing and with the public sector debt to GDP already at 192%, the latest plan to issue an extra ¥10.8tn of government bonds this fiscal year is a little scary. If any country is near the point of reaching the limit of public sector debt expansion at this juncture it is Japan, not Britain or America.

· For those expecting the equity relief rally to run further, an interesting development in recent weeks from an Asian standpoint is the rise in Asian stock market volumes relative to S&P500 volumes. This is a signal that belief in the Asian investment theme is growing, helped doubtless by the better newsflow from China.

· A continuing relief rally in equities raises the risk of more of a correction in gold. Gold can decline further if the equity relief rally has a further run. But the structural bull story for gold remains intact.



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