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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum

GLD 371.65

-1.1%

Nov 17 4:00 PM EST

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To: THE ANT who wrote (50280)	5/21/2009 7:38:12 PM
From: TobagoJack	Read Replies (2) of 217842

just in in-tray, per GREED and fear · GREED & fear’s guess remains that the relief rally in world stock markets will continue for now. It will probably take a few more months before it becomes completely clear whether this is the hoped for U-shaped recovery in America or something altogether more L-shaped, as still anticipated by GREED & fear. · The fundamental situation in the West remains profoundly deflationary, as is evident by the latest US CPI and weekly earnings data. GREED & fear remains highly sceptical whether demand for consumer credit in the West is going to pick up significantly even if banks are willing to lend again and even if investors are willing to buy asset-backed securities again. · There remains scant evidence that the velocity of money in circulation is rising in America. Velocity is likely to decline further as deleveraging takes its course and as the financial services sector faces a regulatory backlash as a natural consequence of the belated recognition by the Davos crowd of all the excesses tolerated during the credit bubble. This is why GREED & fear still does not buy the inflation story. · The public sector indebtedness in Japan is much more advanced than in the West while the deflationary cycle has run for nearly 20 years meaning institutional investors are already massively overweight government bonds. The other issue about Japan is the group-think nature of its society which makes a sudden move from a deflationary psychology to a hyperinflationary one more of a risk. · Macro traders who want to short JGBs should hedge that position by remaining long US treasury bonds and/or British gilts. Both these government bond markets remain fundamentally attractive because of the sheer scale of the deleveraging cycle these economies have commenced, combined with the fact that most institutional investors in these countries still remain overweight equities and underweight government bonds. · GREED & fear would advise against premature optimism on the US housing market. It still seems to GREED & fear that the earliest the US housing market can bottom out is 2010. And in the immediate months ahead there is still plenty of potential for newsflow to turn negative again. · Foreclosures picked up again in America following the end in March of the temporary ban on foreclosures by Fannie Mae, Freddie Mac and some other major mortgage lenders. This absurd government intervention has clearly only delayed the bottoming out process. Another source of potential bad news is that the interest rate resets on so called Option ARM and Alt-A mortgages only really kick in in 2010 and 2011. The other point to be aware of is the still deteriorating plight of Fannie Mae and Freddie Mac. · Congress’ surprising win in the Indian general election is the biggest win by an incumbent government at the national level in India since 1984. To GREED & fear this result would suggest a resounding vote of confidence in economic development since GREED & fear’s view is that the negative aspects of the recent slowing in Indian growth have yet to manifest themselves to the broad mass of the electorate. · Australia remains a highly indebted Western-style economy. GREED & fear will now have a zero weight in Australia’s consumer discretionary sector and also in its energy sector. A zero weight will also be maintained in Australian financials in the Asia Pacific ex-Japan relative-return portfolio. · If the Australian government’s latest efforts to stimulate consumption-driven growth and to encourage home ownership are providing an artificial stimulus for now, they will also have the same negative longer term consequences as occurred in the US subprime boom. That is encouraging people to borrow who probably should not be taking on the financial burden of property ownership. · GREED & fear will continue to limit the Australian positions in the absolute-return portfolio to the big cap gold stocks. Still the real opportunity in the Australian gold mining sector probably lies in the smaller companies given the natural tendency for producers to grow by acquisition as a consequence of the global picture of declining gold production. · The recent seeming pick up in bank lending in China to the private sector in the form of the SMEs suggests that the government’s official policy of trying to get banks to lend more to SMEs is finally having some success. Until recently the vast majority of SMEs could only borrow via the unofficial lending market which meant they had to pay significantly higher interest rates. · China bought a net US$14.8bn of US Treasury bonds and notes and US$8.9bn of Treasury bills in March. This suggests that the PRC is not about to abandon the US government bond market. · The change in the DPJ leadership in Japan does not herald a significant political realignment ahead of the Lower House election likely to be held sometime this summer. Rather it is more of the same in the sense that the new DPJ leader Yukio Hatoyama is part of the feudal tradition of Japanese politics. It is probably going to take a really nasty economic crisis to accelerate the agonisingly slow process of forming a new political consensus in Japan. CLSA CLEAN & GREEN: Please consider our environment before printing this email. The content of this communication is subject to CLSA Legal and Regulatory Notices These can be viewed at clsa.com or sent to you upon request.

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