Yesterday morning in conversation with clients the general sense of the market was that it made even less than usual. My view expressed with a certain degree of misplaced concern was that the Fed, Administration and Treasury in the US were running around like headless chickens and it wasn't any better in Europe.
China has its issues and Japan overnight has expressed its degree of desperation by making the enormous change of lowering its rates from 0.10% to a range of 0.0% - 0.10%, leading to an interesting rally. More quantitative easing, with the Japanese leading the way.
My views were somewhat reflected at lunchtime yesterday when I had the pleasure of hearing the sometimes provocative Soc Gen London strategist Dylan Grice (current partner of Albert Edwards at SG, London) sharing his views of inflation, deflation and other growth related matters, essentially mirroring my view in a somewhat more precise fashion; by explaining that Dr. Bernanke does not know what he is doing.
Essentially Bernanke has been put in a situation where he is trying different things, without knowing what or how they might end up working, if at all.
Looking at Japan's actions yesterday morning, it seems representative of the global experience currently. In all domains the view is how to stimulate further for growth as the majority of economies crawl along what seems the bottom of a chasm while hoping to get back cliffside, without knowing what the appropriate tools might be.
Taking the FED as our natural case in point, a trillion plus spent last year provided an attractive equity market rally and not much else. Despite low rates and relatively cheap credit, its reasonable to assume that those that can afford to are choosing not to borrow and maybe those that would like to may not meet the new current standards.
There is a clear air of desperation out there currently with market reactions seemingly out of proportion with the trigger event; however maybe not if the vampire squid folks are correct.
******Goldman Sachs Says U.S. Economy May Be 'Fairly Bad' (Update2)
2010-10-06 04:46:23.568 GMT By Wes Goodman
Oct. 6 (Bloomberg) -- Goldman Sachs Group Inc. said the U.S. economy is likely to be "fairly bad" or "very bad" over the next six to nine months.
"We see two main scenarios," analysts led by Jan Hatzius, the New York-based chief U.S. economist at the company, wrote in an e-mail to clients. "A fairly bad one in which the economy grows at a 1 1/2 percent to 2 percent rate through the middle of next year and the unemployment rate rises moderately to 10 percent, and a very bad one in which the economy returns to an outright recession."*******[Bloomy]
The FED has floated trial balloons on a second round of quantitative easing and according to some QE never left ( I am m in agreement to that notion), as stealth QE has been continually undertaken in any number of ways. In fact it seems much has already been priced in to the current market..
We have global yields at lows (apart from the sovereigns running headlong into the abyss)
With 2Y US treasuries at 0.41% and 3Y at 0.57%, what's your preference here, to go short with more expected QE and any flight to quality pushing rates lower, to go long, with us within spitting distance of zero yields in the US bond market?
While the preference might be to be short the potential pain with that position in the short term, might provide quite a bit of refrain ( thank goodness I am not a trader).
All that having been said of course, with the historically low holdings of US Treasuries by banks and the fact that it does not attract any capital usage and with the buoyant balance sheets, 10Y UST could reasonably reach 2.00% in short order.
The sovereign crisis never quite went away, though folks chose to ignore it for a while and once again it has painfully reminded everyone that it still there with Ireland the most recent of the PIIGS that has attracted attention and being downgraded overnight.
It seems obvious that is only a matter of time before we have a sovereign default. Even as governments initiate austerity programs in Europe the civil unrest grows and is especially evident when the age of retirement is being modified, manipulated upwards to provide breathing room.
Globally competitive devaluation has become the weapon of choice as nations look to make their currencies cheaper, whether through verbal or currency intervention ( at least in the former case there is an endless supply of words available, not so with reserves). My anecdotal market observations over the past 20 years would be that currency intervention rarely if ever work, recent examples being Brazil, Switzerland and most recent of all the Japanese. Anyone remember that less that two weeks ago they drew the line in the sand at 83.00, spent reserves and yesterday the currency dipped to 82.96.
There are some signs out there that are positive in terms of the data; however its simply isn't consistent enough or substantial enough at this time to provide the necessary foundation for higher confidence required.
Even here in Canada where we have patted ourselves on the back throughout this whole upheaval and market shift, though we should not get too smug as we are not an island unto ourselves. As goes our neighbours south of the 49th parallel, so go we, though obviously to a lesser extent; but we are getting market calls here in Canada of housing slowing down despite all time low mortgage rates.
As we move to Thanksgiving this weekend here in Canada we will also be facing US non-farm payroll, a number this month that seems to take on even more significance than usual based on some of my observations above. It has me distracted from what sort of stuffing I might wish to use with the Thanksgiving turkey. Ah well, it is about work.
Good Luck.
For that Thanksgiving Stuffing...well here you go!
Sausagemeat
1 small onion (finely chopped)
3 or 4 mushrooms finely chopped
Some tomato puree
1 teaspoon curry powder
1 teaspoon paprika
1/2 teaspoon cayenne
Dried thyme, tarragon, sage
1 box of paxo stuffing
Dried apricots diced finely or a handful of dried raisins (optional)
Half a cup of cooked rice (optional)
In a frying pan, heat some oil and add your sausagemeat, break it up to fine and brown.
Once it has started to brown add your finely diced onions and mushrooms and then add your spices and tomato puree, cook thoroughly,
Now add your cooked rice if using, and your sweet offset (apricots or raisins)
Next add the dried paxo breadcrumbs to the mix and add a little hot water until your get a nice moist mix that's nicely seasoned to taste
Place in ovenproof dish and bake covered at 350 for about 15-20 mins if cooking a day before hand or earlier in the day. Prior to serving warm up gently in the oven initial covered and then uncovered for full golden brown without burning.
