Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: carranza2 who wrote (70445)	1/20/2011 9:08:11 PM
From: TobagoJack	Respond to of 220345

just in in-tray, per greed and fear · Despite the latest Chinese inflation data released today, GREED & fear assumes that the inflation scare in Asia will continue to run for now, with the risk for Asia a spike in the oil price through the US$100/bbl level and higher. Still if this is the near term risk a perverse consequence of an oil price spike would be to short circuit the inflation scare by undermining current growing optimism on the US economy. · GREED & fear remains focused on the extent to which the emergence of a non-bank financial sector in China in the past two years has caused credit growth to be significantly higher than the level indicated by the official bank lending data. If credit growth was really that high, it raises the issue of what will happen to inflation if velocity of money in circulation really starts to pick up. · The lack of clear transparency on a credit growth target this year in China represents increased uncertainty for the market. GREED & fear will reduce the weighting in China in the relative-return portfolio by a further 2ppts this week by adding to the existing small overweight positions in Korea and Taiwan. · There are two ways this presumed debate among Chinese policymakers about how to handle credit growth can work out. Either the authorities can decide to get ahead of the problem and impose a real reduction of credit growth on the banks. This will cause a big hit to the commodity trade albeit with the benefit of dealing with the rising liquidity driven inflation threat. Or the authorities can continue to fudge the issue, which raises a real inflation risk down the road should Chinese money velocity suddenly pick up. · Still GREED & fear’s view remains that the prime driver of inflation now is food related and not credit-growth related issues. But going forward the vulnerability of China to a real inflation scare is real should velocity patterns change given the credit growth issue and given the longstanding but still relatively high level of money supply relative to GDP. · There is not yet any meaningful recovery in asset-backed securitisation in America outside the government guaranteed mortgage-backed securities market. The shadow banking system remains a long way from returning to its former glory. · There is also the continuing risk played by government guarantees in propping up the still ailing US housing market. The morass presented by the current condition of the US housing market, and the potential risk posed to the financial sector and the mortgage-backed securities market by potential policy initiatives in coming quarters, such as mortgage debt relief, are among key reasons why GREED & fear maintains a deflationary bias towards the US. · The Bank of England may well be forced into tightening with the latest strong inflation data in Britain. But GREED & fear doubts it. Income growth remains weak, while private sector credit growth has collapsed most particularly in the mortgage market. Still any significant rise in the cost of floating-rate mortgages in Britain can surely only put real downward pressure on still high British house prices. · The unexpected rhetorical threat of an ECB tightening late last week had the impact, intended or not, of causing a short-covering rally in the euro and PIGS CDS trades. Still GREED & fear assumes that the ECB, like the Bank of England, will not tighten and that it is only a matter of time before the euro gets sold off again and the PIGS CDS spreads start rising again. · Some more time might be bought (may be a few months) if there is an expansion of the European Finance Stability Facility (EFSF). Such an EFSF expansion will be seen as a first step towards collective fiscal responsibility. But GREED & fear’s guess is that the crisis is not yet critical enough for Frau Merkel to sell fiscal responsibility, and resulting debt haircuts, to the German electorate. That surly requires more of a sense of crisis. 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.