Thursday, December 4, 2014

Some Thursday news

Here's some good reading stuff of words:

Trader Feed - some dark clouds on the market horizon. Any other blog I'd ignore, but this is Brett Steenbarger. I was thinking things looked a bit rolly-overy recently. I've also sold some US positions because RSI's been over 70 and it seemed like the wrong time to not have cash; sold some Europe because if the US goes down, Europe might too.

IKN - long Nikkei short gold. Link to a paper on a topic parallel to what I've already been talking about for weeks. Here's just a short quote:
We suspected that gold might be the short in a long/short trade when we noticed a reasonably close correlation between gold and interest rates in the repo market. The more the cost of repo funding declined, the more the price of gold declined. The repo market is a major part of the aptly-named “shadow banking” sector. It is also the nexus for investment strategies involving leverage and short selling. If gold was the short in a long/short trade, the next question was whether there was a corresponding long? We think that the answer is yes, the Nikkei.
Personally I think the long side is USD. And, while I'm tempted to write more later about this, I'll just say right now the author is demonstrably clueless about depression economics and about Japan. Also, he quotes ZeroHedge every two pages: if you ever hung out at Turd Ferguson Metals Report, you'll feel a sense of deja vu reading this. And no paper can be serious analysis if it uses phrases like "common sense says", "is an authority on", and "the correlation is obvious". But still, the thesis is interesting.

But I already gave you the thesis without the ZeroHedge quotes.

WSJ - dollar longs join the club! Like I said: long USD short gold makes more sense as the heavy side of the boat right now. Here are two quotes:
Investors also appear unfazed. “We continue to hold long position in the dollar [and] we expect further broad based strength,” said ‎James Kwok, head of currency management at Amundi Asset Management, which has $1 trillion of assets.

“We are not concerned about the overcrowded trade and we expect the dollar to regain strength as we move closer to a Fed reduction in accommodation,” said Jennifer Vail, head of fixed income at U.S. Bank Wealth, which has $120 billion in assets. Ms. Vail expects the euro to lose about another 3% before March.
Great! People who aren't concerned about an overcrowded trade! I certainly hope they're short gold.

FT Alphaville - Bill Gross is a loony still. The fruit is now writing entire newsletters revolving around nursery rhymes. I predict within a year he'll be writing about his bowel movements and how he doesn't like the look o' them teenagers.

Jim O'Neill - you let me worry about emerging markets, laddie: I invented the fuckers. This is a brilliant quote that everyone in the investing world needs to read:
The slowing of China's expansion is a constant theme these days. Yes, but remember that China will be a $10 trillion economy by the end of 2014; that during the course of this year's slowdown, it added roughly $1 trillion to world output; and that slowing growth in China is still quite rapid by most countries' standards. Adjusted for purchasing power, China's economy is now about as big as the U.S.: Growing at the supposedly disappointing rate of 7.0 to 7.5 percent, it's adding more than twice as much to global output as the U.S.

Yet the median financial commentator is excited about the U.S. and downbeat about China. What am I missing?

In current-dollar terms, China's economy is now twice the size of Japan's. Again, investors seem more energized by the smaller case. Japan would have to grow at a rate in excess of 10 percent to make a bigger contribution to global output than China. Or look at Europe. China is bigger than Germany, France and Italy combined: The biggest euro economies would need to grow by more than 7 percent to rival its addition to global activity. In other words, a sense of proportion would be good.
Seriously. China growth has nothing to do with the drop in oil and copper. If you think it does, there's a rough old bastard waiting for you in the Malmaison Hotel bar in Manchester who'd like to set you straight.

Bonddad - my post-election rant. Just barely angry enough to get a reccie from me.

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