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

To: Hawkmoon who wrote (71077)	2/17/2011 7:39:52 AM
From: TobagoJack	Respond to of 217576

just in in-tray per greed n fear · The current investment theme remains “out of emerging and into developed markets”. If this theme continues to run the end game will be a growth scare in US financial markets. At that point equity investors will be worrying about both an end to quanto easing and a resumption of monetary tightening. · QE2 seems to have resulted in its first victim if it is true that the food price surge was the catalyst triggering recent events in Egypt. It will be interesting to see if Egypt can evolve into a viable democracy along the lines seemingly achieved by Turkey and Indonesia. But the real issue in the Middle East is, to GREED & fear, Iran. · The food price surge is beginning to look a little ridiculous. Still with the La Nina weather pattern effect not due to end until April or May investors may have to endure or celebrate one final climactic parabolic spike on the chart before the trend reverses similar to what occurred in 2008. · With investor sentiment towards the US continuing to become more optimistic and the dollar beginning to get some traction, the yen has begun to show signs of weakening. If a weaker yen is the likely catalyst for a more powerful outperformance by Japan in the context of global equities, the fundamental investment case for the Japanese market remains successful cost cutting by corporates. · Tokio Marine Asset Management is setting up a Y100bn fund with a British corporate governance advisory firm that aims to invest in “underachieving quoted companies” by “utilising a Japanese way of engagement to improve long-term performance”. Pressure from an establishment entity like Tokyo Marine is much more likely to trigger better sustained returns for shareholders than pressure from culturally insensitive gaijin activist investors or indeed maverick Japanese ones. · If the above announcement is really an indication of a more thorough sea change in the approach of corporate Japan, then a case would arise for a structural overweight in Japan regardless of the normally critical top down macro-economic variables. Still Japan is going to continue to trade, in the short term at least, on the trend in the yen and the perceptions on the US economy. · There is the growing potential tactically for a more violent outperformance by Japan if global markets continue to celebrate US cyclical recovery for another three months while also continuing to worry about inflation in Asia and other emerging markets. For such an outcome is likely to lead to a decent correction in the yen. For those who want to play this trade bottom up GREED & fear would recommend buying the insurance companies which will be geared into the stock market rally because of their equity portfolios. · There is an escalating risk unless decisive government action is taken that, on a five year view, both the Japanese government bond market and the American Treasury bond market enter bear markets driven by supply concerns as opposed to the present pattern of yields rising on hoped for accelerating recoveries. Any such fiscal crisis, and a resulting seemingly inevitable yen collapse, would naturally make Japanese equities an infinitely superior asset class to JGBs from the point of view of domestic investors. · The potential for Japan to outperform further is suggested by investors’ positioning. The underperformance of Asia Pacific equities funds in recent months suggests that Asia Pacific funds have been too underweight Japan. Similarly, the underperformance of Asia Pacific ex-Japan funds of late suggests that on a tactical basis managers have kept too much money in India and Asean and not enough in the likes of Taiwan and Korea. · The best long-term equity stories in Asia remain the likes of India and Indonesia. But the risk remains that they continue to underperform so long as markets are worrying about rising inflation in Asia. Yet these are precisely the markets investors want to continue to own for the long term. · This week’s Chinese CPI may have bought some near term relief since the figure came in below consensus expectations. Still it is too early to assume that headline inflation has peaked. The reported pace of bank lending in January also suggests more monetary tightening ahead. · A Treasury white paper on housing finance reform was published late last week which calls for a winding down of Fannie and Freddie. This is potentially important because the chances have increased that there might actually be fundamental reform of these elephantine monstrosities which have in the past two years been used by the Obama administration as politically convenient off-balance sheet dumping grounds for the detritus of the still continuing housing crisis. · If bipartisan reform of mortgage finance can really be achieved that would be a fundamental positive which would set up the potential for a market clearing bottom in US housing. It would also create an opportunity for private sector mortgage lenders to grow into the resulting vacuum. · Financial markets have taken a breather of late from worrying about Euroland. But in GREED & fear’s view it is only a matter of time before concerns re-emerge. The moment market pressures ease Euroland politicians revert to their normal practice which is to waffle. · One hope which has driven speculation in periphery debt and equities so far this year is that the EFSF will lend money to the PIGS to allow them to buyback their own debt at discount. Another is that the EFSF will start buying PIGS bonds taking over the role from the ECB. It will likely require more market stress to force Mrs Merkel to embrace such policy options. · It continues to make sense to remain short European financial stocks. It also continues to make sense to bet on a long-term rise in the German CDS since all roads to a definitive “solution” to Euroland’s fiscal problems involve the Germans writing a cheque in some way or another. Meanwhile macro investors should also remain long the Spanish flu trade. Please consider the environment before printing this email. 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