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

To: carranza2 who wrote (69695)	12/16/2010 7:57:44 PM
From: TobagoJack	Respond to of 217907

just in in-tray, per greed n fear · The most noise over the past week has been generated by the surge in US government bond yields, which seems to have been given added momentum by the Obama administration’s surprisingly expansive renewed fiscal stimulus. This raises the question of whether this rise in bond yields has been driven by growing optimism on the US economy or growing supply concerns. GREED & fear’s view is that the answer to that question is a bit of both. · The rise in government bond yields has been correlated globally. For German bunds the move could again be influenced by a growing conviction about improving growth dynamics. Or it could reflect the reality that any move towards fiscal union in Euroland is going to cost the German taxpayer a lot of money. · GREED & fear still does not think that the nearly 30-year-long bull market in US Treasury bonds is over. The government bond market is going to have a big rally if and when present cyclical hopes are dashed and markets refocus on the pertinent fact that there remains little evidence that the credit multiplier is at work in the US. What there is plenty of evidence of is that QE2 is helping asset prices to rise globally save for US house prices. · US Treasury bond yields are now running well above the level of measured inflation. This indicates fundamental value for Treasuries unless the US government bond market has started to price in a permanent “supply” premium out of understandable concern at Washington’s growing abuse of its reserve currency status. The only way to tell if this is the case is to monitor how the Treasury bond market behaves the next time the consensus refocuses on the reality that the American economy remains in a neo-deflationary condition. · GREED & fear continues to believe that the most plausible source of fundamental good news for the American economy would be a broadening out of capex beyond tech spending since this would raise hopes of a greater willingness to hire. So far there is not much evidence of this happening. But the recently re-designed pro-business American president is clearly going to try and do everything to make it happen. · So long as cyclical sentiment on the US is improving Asia is vulnerable to underperformance on the view that the region is behind the curve in monetary tightening. The resumption of QE2 has added to this risk by reigniting correlated financial speculation in commodities. This has raised the real risk of a repeat of the food-oil inflation scare which last hit the region in 2007-08. · The key tactical risk for now for Asian markets is a surge in the oil price through the US$90/bbl level which would likely hit Indian and some Southeast Asian markets hard, but which in GREED & fear’s view would also create a great long-term opportunity in the likes of Indian and Indonesian bank stocks. The view here is firmly that any such oil-led commodity spike will sow the seeds of its own destruction by hitting demand in the West. · The existing overweight in China in the Asia Pacific relative-return portfolio will be reduced by 3ppts. The money will be added to the existing overweight positions in Thailand and Taiwan and by moving Korea from neutral to a marginal overweight. · There is scant expectation among domestic fund managers in China that central government policy is about to turn decidedly pro stock market. There is also greater concern than GREED & fear had previously realised about the risk of a so called “asymmetric” rate hike where deposit rates are raised more than lending rates. · The other issue in China is that no one is expecting any change in the tightening policy towards the residential property sector, while the introduction of a pilot property tax scheme in Shanghai and Chongqing is expected imminently. · The success of the current Thai coalition government in last weekend’s by-elections has increased the odds that a general election will be held before May. This should normally be bullish for the stock market. From a valuation perspective Thailand is still not demanding. · GREED & fear thinks it is too early to take a view that the Federal Reserve is about to run into real constraints in terms of its freedom to operate despite the growing dissatisfaction with the Fed among Americans. What will really trigger criticism of the Fed will be a further oil-led commodity spike which will hit ordinary Americans hardest. That will highlight the faulty logic behind quanto easing. · Last week saw the launch of physically backed industrial metal ETFs for copper, nickel and tin. This would seem insane to GREED & fear given that these commodities are used for industrial purposes not, unlike gold, as a store of wealth. It has long been clear that ETFs will end up like securitisation; namely a good idea which becomes a very bad idea as the financial services sector invents ever more complex products to generate fees and confuse investors. But do not expect the regulators to wake up to this until after the event. 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.