The Eurozone experiment has failed and we must hope that its coming dismemberment is not sufficiently gruesome to impose a global Great Depression.
Finding a solution is beyond Henry's pay grade (as his military mates like to put it).
Keeping a fair bit of cash in safe banks in countries where hard work and good sense is still valued is the obvious minimal defensive strategy.
Including some gold in a safe deposit box in a safe bank is a more refined strategy, but this is harder to achieve than one might imagine - unless one lives in Perth, where the Perth Mint is said to provide a suitable haven.
'US stocks suffered their biggest declines this year, losing ground for the fifth straight session overnight, as worries over rising borrowing costs for European countries weighed on investor sentiment ahead of the start of earnings season.
'Last night stocks opened flat in the US then drifted lower throughout the session. The Dow Jones Industrial Average sank 213.66 points, or 1.7 per cent, to 12,715.93, and the Standard & Poor's 500-stock index declined 23.61 points, or 1.7 per cent, to 1358.59.
'The Nasdaq Composite fell 55.86 points, or 1.8 per cent, to 2991.22, its eighth decline in 10 trading days.
'Stocks have slumped over the last week after concluding their best first-quarter in more than a decade. Both the DJIA and the S&P 500 have fallen more than 4 per cent during their five-session slides.
'Declines started a week ago, after investors interpreted minutes from the Federal Reserve's most recent policy-setting meeting to mean that no additional monetary stimulus is on the way soon. A poorly received Spanish bond auction and disappointing monthly jobs report perpetuated the market's decline'.
'Stocks are suffering their worst stretch of the year. Many investors say it's about time, 10/4.
'The Dow Jones Industrial Average has fallen for four straight days, the deepest such decline of 2012 and erasing the past month's gains. Two of those days saw the Dow fall by triple digits, in what had been a rare occurrence. The Dow dropped 130.55 points, or 1%, to 12929.59 on Monday.
'Russell Pearlman joins Mean Street to explain how weak jobs data and European debt concerns rocked U.S. stocks on Monday. Photo: AP Photo/Richard Drew.
'The trigger was a disappointing jobs report, which had been released Friday when the stock market was closed.
'For bulls, the report was viewed as one data point among many, enabling them to stick to their view that the economy was robust. They welcomed the stock-market pullback as a chance to buy when stocks are cheaper.
'Investors like Paul Zemsky, head of asset allocation for ING Investment Management, said the drop is a needed respite from what had seemed like a relentless climb. If prices fall further, Mr. Zemsky said he plans to buy stocks, as well as high-yield bonds'.
Further investment news during the Easter 'break' (in Australia) included:
* Yields on the 10-year note fell toward 2 %, a level it hasn't breached since early last month. [Memo to self: it's not too late to short US bonds after all!]
* Oil prices moved lower toward $100 a barrel, shedding 0.8 %, to $102.46 a barrel.
* Copper, an industrial metal tied to global growth, lost 2 %.
* In Tokyo, the Nikkei 225 fell 1.5 per cent – its fifth successive retreat – while the Shanghai Composite fell 0.9 per cent.
The FT commented: 'Risk appetite was further dented [beyond gloom from the weak US jobs data] by news of accelerating consumer price inflation in China, which rekindled worries that the country’s economy could be heading for a “hard landing”. Prices rose by 3.6 per cent in the year to March, up from 3.2 per cent in the previous month'. (More here, and here, on China's 'landing'.)
Kondratieff's long cycles, 23/3.
The brilliant young Russian economist and bureaucrat, Nikolai Kondratieff used data from the late eighteenth century to the outbreak of the Great War of 1914-18 to illustrate his long wave theory of capitalist development.
Geoffrey Blainey, in his book, The Great Seesaw, provides a succinct summary of Kondratieff’s theory, which he praises for its boldness and specific allowance for cultural factors. ‘In essence he argued that economic activity, war and peace, and inventions belonged to a tightly enclosed system inherent in capitalism and that every forty or sixty years this system completed a full cycle and that certain trends could be predicted by those who understood the cycle’.
As Blainey says, there are mistakes and gaps in Kondratieff’s writings, but his attempts to find a connection between fluctuations in gold production and inflation or deflation, the economic mood and international wars produced a ‘tantalising riddle’. Blainey’s version of Kondratieff’s grand synthesis is summarised in the following table.
Long-term fluctuations of commodity prices, 1790 - 1920
Price upswing Price downswing
World’s gold output Quickly rising Slowly rising International wars Many Few Economic mood Confident Less confident Mental and cultural mood Confident Less confident
A recent article by Jeremy Warner in the UK Telegraph says: 'If Kondratieff was right about super-cycles, we've still got years of slump to go'.
If America's great monetary inflation is the modern equivalent of the world's gold output quickly rising, we should be in a world where the economic mood is buoyant, as is the mental and cultural meed.
Perhaps the abandonment of the gold standard in favour of paper money has changed the equation, so we must soldier on without a compass but aided by Mr Warner.
Henry and Mrs Thornton last night had the pleasure of an advance screening of Margin Call, courtesy of XYZ Equities, 14/3.
This is the best depiction so far of Wall Street in crisis and sparked two questions for our hosts: * Could XYZ Equities ever get into the trouble depicted so dramatically on the silver screen? and * Would XYZ Equities get Henry's equities out first if they were in similar trouble to that of the mythical financial services giant in the film?
With fresh resolve to lighten up our equity position, we awoke to news that the Dow Jones added 218 points or 1.7 % to 13,178 and the S&P 500 had risen 1.8 % to 1,396.
The trigger was a strong retail sales number and comforting news about the US banking system, and even bond yields seem to have broken out of their recent narrow trading range, before Henry could find a way to short them. Drat!
A news source said: 'The upbeat mood was set by a report that showed US retail sales grew at the fastest pace in five months in February, however, stocks rallied in the final hour of trading after JPMorgan (+7.0%) became the first bank to increase its dividend following the Fed’s latest stress test. The Fed’s report showed that six banks passed the “worst-case scenario” stress test, including heavyweights JPMorgan, Bank of America (+6.3 %) and Morgan Stanley (+4.0 %).
'Blue chips recovered after falling 97 points yesterday, the Dow's worst session of the year, ending with the highest close since May 2008.
'The Standard & Poor's 500-stock index rose 14.81 points, or 1.1 per cent, to 1358.04, and the Nasdaq Composite rose 44.02 points, or 1.5 per cent, to 2959.85.
'All 10 sectors in the S&P 500 rose, with materials and financial stocks leading the advance. Among Dow components, Microsoft gained $US1.23, or 4.1 per cent, to $US31.29, and Bank of America rose 31 cents, or 4 per cent, to $US8.09.
'Stocks moved higher after US economic data encouraged investors, then extended gains after a reports from that eurozone central banks will swap Greek debt for new bonds by Monday, a move that takes away one hurdle standing in the way of a second Greek bailout'.
"The mind-set of investors has increasingly moved from Europe being something that could imminently collapse to something that looks more like a chronic problem," said Jim Paulsen, chief investment strategist at Wells Capital Management.
Gold - barberous relic or inflation hedge?, 7/3.
'Chatham House yesterday launched a report on the role of gold in the international monetary system. It is a noteworthy event, not least because the group's last study on the issue was in September 1931, just as Britain was about to leave the gold standard, accelerating the system's demise'. This is the opening sentance from an article by The Economist's Buttonwood. [Keynes, who described gold as a 'barbarous relic', was on the original working group.]
Central banks the world over are pursuing policies that 'would, in earlier decades, have been considered highly unorthodox', and likely to create serious inflation. Even Henry was shocked at the litany of unorthodoxy presented by Buttonwood, and this is just the latest installment. The list omits the earlier, massive 'Quantitive Easing'.
'In recent days, I have been struck by the number of investors who have told me that central banks have "thrown in the towel", citing the ECB's three year loans to banks ..., the Bank of Japan's stepped-up commitment to QE, the extra £50 billion pledged by the Bank of England, the willingness of the Swiss to create money to cap their exchange rate and so on. The investors see all this as bullish for real assets, like equities, but potentially inflationary in the medium term'.
'It will be no surprise that the Chatham House experts do not view a formal role for gold as likely, given that
"the lessons of both the Gold Standard era and the post-war Bretton Woods period suggest that reintroducing gold as an anchor would undoubtedly be impractical or even damaging, given bullion's deflationary bias".'
The Taskforce examines gold as a continuing part of official reserves helb by central banks and also the possibility of adding gold to the basket that forms the special drawing right (SDR), to create a 'portmanteau currency that some hope might become an alternative to the dollar'.
The Taskforce refers to a paper by one John Gault who asks 'How does the gold price compare to other macroeconomic indicators?'
Not brilliantly, at least when considering graphs of the price of gold with other single indicators over the very short period covered, which is from 1991 to 2011. Read on here.
MSCI up 20 % since October, 10/2.
The MSCI index of global stocks is up by more than 7% since the start of the year and by almost 20% since early October. Bond yields in key Eurozone nations have fallen from clearly unsustainable levels and Greece seems slowly to be meeting the conditions for its next bailout. Somewhat mysteriously, the former fear of a major sovereign debt default (or defaults) in Europe has vanished, perhaps to return but possibly not.
Courtesy The Economist
The Economist sees the American recovery as also important. 'In part [the exuberance] reflects genuinely good economic news, especially in America, where January’s far stronger-than-expected employment figures, along with upbeat statistics from manufacturing and services, suggest that recovery in the world’s biggest economy really is gaining momentum (see article). The cheerier mood is also based on a belief that the European Central Bank (ECB) has vanquished the worst dangers for the single currency with its massive provision of three-year liquidity to the region’s banks. Calamities that seemed all too plausible a couple of months ago, such as the collapse of a big European bank or a series of failed bond auctions leading to the imminent fracturing of the single currency itself, now seem highly unlikely'.
Nevertheless, while the venerable mag gives credit to central banks for printing money so assiduously, it believes the politicians are yet to do their bit. 'This newspaper will be ready to celebrate only when politicians, and not just central bankers, start making the right choices'.
Dow Jones highest since May 2008, 5/2.
'The Dow Jones Industrial Average broke through to its highest close since May 2008, back before the Lehman Brothers Holdings Inc. collapse, as investors increasingly put aside fears of economic calamity and focused again on fundamentals.
'News of strong job growth, a three-year low in unemployment and other positive developments Friday pushed the Dow ahead 156.82 points, or 1.23%, to 12862.23, its first triple-digit gain since Jan. 3. The blue-chip index would have to rise just 10% to reach its record close of 14164.53, hit Oct. 9, 2007.
'The Nasdaq composite index dominated by surging technology stocks, jumped 1.61% to 2905.66, its highest close since December 2000, as hopes spread that global growth would be strong enough to boost demand for technology gear'.
Courtesy Wall Street Journal
Despite the crook economy, 4/2.
Twenty-one reasons to be bullish equities - provided by a reader, written by a highly experienced market man.
1. Central Banks globally are forcing savers to take a risk if they want a return higher than inflation 2. The RBA is in a rate cutting cycle 3. The FED has promised 3 more years of free money in the US 4. US M2 money supply is at a record high 5. The ECB is finally starting to act like the Fed, despite Germany’s protests 6. Chinese growth is reaccelerating ahead of a change of Premier later this year 7. All Chinese data is beating low expectations 8. All US data is beating low expectations 9. Europe is considering relaxing Bank capital rules (i.e. allowing gold, blue chip equities and MBS to be held as Tier 1 capital) 10. European banks are being recapitalised by LTRO (2nd trance 29th of Feb will be swamped) 11. European sovereign yields are tumbling 12. Wholesale bank funding costs are FALLING 13. Junk bond yields are falling 14. The US housing market is showing clear signs of bottoming (very important) 15. US car sales are rocketing 16. US natural gas prices have collapsed due to the shale gas revolution (this will also lower Oil prices globally) 17. Global manufacturing is recovering 18. Industrial Commodity prices are recovering 19. M&A is accelerating globally and locally 20. Facebook is worth $100bil 21. Brokers are culling staff (the broker hiring/firing cycle is the best contrarian indicator on earth).
Risk is well and truly “on”, but risk remains historically cheap.
Face prepares to swim or sink, 2/2.
'Facebook, the vast online social network, took its first step toward becoming a publicly traded company on Wednesday as it filed to sell shares on the stock market. The service, hatched in a Harvard dormitory room nearly eight years ago, is on track to be the largest Internet initial public offering ever — trumping Google’s in 2004 or Netscape’s nearly a decade before that.
'In its filing, Facebook, which has more than 845 million users worldwide, said it was seeking to raise $5 billion, according to a figure used to calculate the registration fee. The company will seek to have the ticker “FB” for its shares, but did not list an exchange'.
'Australia's year-long decline in house prices may be levelling out. Capital city home values fell in every quarter last year but the rate of decline was slowing, the latest figures from property analysts RP Data-Rismark show'.
Henry and Mrs Thornton today spent a fruitful hour with a fund manager who offers a package of shares in (non-bank, non-resource company) 'world's best' companies.
The idea is to complement Australian shares, which this smart guy says should be heavily weighted to major resource companies, the big four banks and one or two other blue chip stocks like Wesfarmers and QBE insurance.
We will be selling some long held but disappointing Australian 'woofers' to make room for the new fund.
Equity and bond markets move from 'catastrophe' forecast to uneasy calm, 20/1
'NO one is declaring victory by any means', says John Durie, 'but an uneasy calm is invading financial markets, which is being used to push stock rotation.
'While that call alone may smack of self-interest on the part of stock brokers wanting to trade to boost commissions, the fact is all the risk measures are looking better.
'The European Union's so called long-term refinancing operation late last year has worked and taken the heat off sovereign debt concerns, while the politicians attempt to find an answer.
'The weak euro is proving a bonanza for the likes of Germany, where the manufacturing sector is running at full pitch.
'Credit default swap rates have come right back, with the likes of Bank of America trading at around 315 basis points, down from a peak of 487bp, BNP back to 240bp from 355bp and Santander at 315bp from 455bp.
'This means all these institutions have come back to the levels they were at back in August 2011'.
LONDON (AP) — 'A strong U.S. jobs report failed to boost world markets for long on Friday as nagging worries about Europe's debt crisis dragged stocks back down and sent the euro currency to a new 16-month low.
'The U.S. Labor Department said employers added 200,000 jobs in December, pushing the unemployment rate down to 8.5 percent, the lowest since February 2009. The rate has dropped for four straight months. The job gains cap a six-month stretch in which the U.S. economy generated 100,000 jobs or more in each month — something that hasn't happened since April 2006.
'An improvement in the U.S. labor market is crucial for global markets because American consumer spending accounts for a fifth of the world's economic activity. A recovery in the U.S. would also mitigate the impact of the sharp slowdown in Europe.
But longer-term concerns about the euro and the region's financial system pulled stock markets back down shortly after the Wall Street open. They also pushed the euro currency to a 16-month low of $1.2681, the weakest since early September 2010'.
Mining stocks surge, 4/1
'AUSTRALIAN shares rose to a three-week high this afternoon, led by the big miners, after strong economic data from the US and Europe sparked a rally in metals prices.
'Wall Street kicked off the year with sharp gains after manufacturing and construction in the world's largest economy expanded at a faster pace than analysts had predicted. The benchmark Dow Jones index closed at a six-month high overnight.
'Some investors, keen to shrug off the gloom of 2011, took this and a slew of positive economic data from China, Germany and elsewhere as a sign that the global economy may have broken its negative trend.
"We're going in with all guns blazing," Austock Securities' senior client adviser Michael Heffernan said.
"If we can remove the European stone from around our neck, we'll be like an unleashed bull."
Even before this news, Mrs Thornton reported that she had decided that 'the worst is over' for the world economy.