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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: energyplay who wrote (65596)	8/19/2010 1:20:39 AM
From: elmatador	Read Replies (1) \| Respond to of 218030

Hiding behind a pseudonym? I wonder why.

To: energyplay who wrote (65596)	8/19/2010 5:29:12 PM
From: TobagoJack	Read Replies (1) \| Respond to of 218030

just in in-tray · The problem for the Obama administration is that in US housing all roads lead back to those anomalous monstrosities, Fannie Mae and Freddie Mac. Any fundamental reform of US housing requires addressing the continuing systemic anomaly posed by Fannie and Freddie. · While not willing to address the fundamental issues raised by Fannie and Freddie’s continuing existence, various areas of the US government are trying to recover money for the US taxpayer where Fannie and Freddie were victims of malpractice during the housing boom. · One element of this recovery effort is “putting back” to commercial banks mortgages where Fannie and Freddie have bought mortgages and subsequent evidence has revealed that the original mortgage documentation was faulty. Another initiative is the Federal Housing Finance Agency’s issuance of 64 subpoenas to capital market firms that sold non-agency MBS to Fannie and Freddie. · Still any effort to get money back for Fannie and Freddie is most likely to boomerang back onto the relevant commercial and investment banks; thereby potentially reigniting bank capital concerns and hitting general confidence about banks’ ability and willingness to lend, and therefore also confidence about the general economy. All this is the result of the debt deflation trap now facing the US economy. · The past week has seen continuing strength in the US bond market and also in the Japanese, British and German bond markets. This represents formidable deflationary market action. It also raises asset allocation dynamics, such as whether institutions like banks and insurance companies have had their portfolios positioned, in terms of “duration risk”, for the massive decline in yields. · Japanese banks have extended their duration last quarter. Still there is clearly room for further maturity extension as there also is in the US if a deflationary mindset kicks in. · The spread between 10-year and 30-year US Treasury bond yields is rising. Those investors who believe that the US is heading, sooner or later, into outright price deflation should buy zero coupon 30-year Treasury bonds if they have not done so already. · Hopes are rising amongst the Japan stock flogging community of the first intervention in the yen since March 2004. GREED & fear’s advice is not to bet on such a development. The Kan government is too weak politically to force such a move while the Bank of Japan is certainly not going to intervene autonomously. · It is very unlikely that there will be real intervention in the yen unless the Japanese have an excuse in the form of an external shock or gaiatsu to act as a catalyst to force such a change in policy. And such a shock, like a renewed Euroland crisis, implies a lower stock market beforehand. · The ECB continues to reduce its buying of junk government debt. This is setting up an opportunity for macro traders to bet on renewed turbulence. GREED & fear continues to recommend the Spanish flu trade (i.e. betting on a rising Spanish CDS spread). · Hong Kong government’s surprisingly tough pre-emptive measures against the residential property market announced last Friday will clearly slow the pace of the asset inflation story, if not temporarily halt it. But the upside of such a policy is that it will make it less likely that Hong Kong hyperventilates into a destabilising asset bubble. · GREED & fear maintains the long-standing fundamental belief in the Asian asset inflation story. GREED & fear also continues to wonder how zealous Asian governments will really be in fighting asset inflation in Asia if provided with concrete evidence of a “double dip” in the West. Asia remains the main, if not the only, game in town in terms of world equity markets. · The US Treasury bond market does not require Chinese buying to drive a rally. Risk aversion on the part of domestic investors is more than sufficient. Please consider the 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.