General Macro Observations

[sydboy007]

some interesting thoughts from bloomberg in the renewable energy space

http://www.businessspectator.com.au...l&utm_content=1111879&utm_campaign=pm&modapt=

 

[sydboy007]

some inteesting info on how the currency wars are hurting China

http://ftalphaville.ft.com/2015/01/28/2102862/chinas-currency-war-problem-wont-just-go-away/?

 

[DeepState]

Key points from a speech by Mark Carney, governor of the Bank of England.
"Fortune favours the bold" 28 January 2015


* The European area has 27% of the global banking assets. Low growth has deepened the burden of debt leading to a debt trap. This prompts the private sector to cut spending further.
* Prior borrowing leading into the financial crisis was largely for consumption real estate investment rather than for business and projects that would generate earnings necessary to service those obligations. Underwriting standards slipped.
* Real returns from bonds in the European area are negative as far as the eye can see, suggesting perpetually anaemic growth. Estimates of the equity risk premium have risen by over 100 basis points in the United Kingdom and the euro area back to levels last seen at the heart of the crisis. This all suggests that investors may be attaching some probability to very bad outcomes, possibly the tail risk of economies becoming stranded in a debt trap.
* Despite low interest rates investment remain subdued and businesses continue to build cash in many advanced economies. This is one reason why the so-called equilibrium real interest rate is negative in many advanced economies. Also, the fear of stagnation is holding back spending and investment.
* The ECB alone cannot eliminate the risks of prolonged stagnation. These exist primarily because of the destruction of the euro area, which is unfinished.
* There is limited cross-border banking in the euro area and savings to float potential investments. Modest cross-border equity flows many inadequate risksharing. Moreover, cross-border fiscal flows virtually do not exist. As a result fiscal space is separated from fiscal needs.
* Internal evaluations simply reallocate demand from within the currency union. A solution for some cannot be a solution for all.
* Before the crisis the financial system appeared to be highly integrated with cross-border bank loans amounting to more than a third of total bank lending. It is now half that. This curtails the ability of the euro system to recycle the surplus savings of peripheral nations to other parts of the private sector.
* The current fragmentation of the system in part comes from a collapse in confidence in financial institutions across national borders.
* Various initiatives to increase the confidence in the banking system should help over time. In addition to this efforts to increase cross-border equity investment would also be welcome. Currently there is a significant home bias to this.
* The European monetary union will not be complete until it builds mechanisms to share fiscal sovereignty.
* Despite the current difficulties the euro area's fiscal deficit is half that of the UK. The structural deficit, according to the IMF, is less than one third is large. It is difficult to avoid the conclusion that, if the Eurozone were a country, fiscal policy would be substantively more supportive.


Items to watch:

* cross-border CDS spreads;
* cross-border lending;
* corporate and personal cash balances;
* intra-Eurozone cross-border balance of payments.

 

[DeepState]

An interesting point of view from...Bank for International Settlements:



....it's only money. Ignorance is bliss by policy.

 

[waterbottle]

An interesting point of view from...Bank for International Settlements:

View attachment 61391

....it's only money. Ignorance is bliss by policy.

Well I would think that brute force i.e. military might, would be some sort of guarantee...

 

[DeepState]

Well I would think that brute force i.e. military might, would be some sort of guarantee...

I guess so, in the right circumstances and not as an absolute statement.

Paying for that military might has often caused default and is actually a leading cause of default/debasement when military campaigns take place. Like the in the case of the Confederates or WWI Germany or...(very long list). Each was pretty mighty in the context of its circumstances. I think Greece (awaiting default..again) has a military too as does Russia (junk) which has a fair number of nukes which have been used unsuccessfully as collateral.... How many credit notches might you think that is worth?

In comparison, Australia spends very little on military as a proportion of GDP by developed world standards. This for a country with a surfeit of essential natural resources and a massive coast line which, in turn, is very far away from its main allies. AAA-rated. New Zealand hardly has anything except for a battalion of angry sheep on permanent stand-by. AA-rated.

 

[notting]

How you manage your money is voted on by the democracy of the markets.
It's about as fair a value as can be put on it.
Democracies have a history of outperforming, they tend to be in sync with the game - naturally!

 

[waterbottle]

I guess so, in the right circumstances and not as an absolute statement.

Paying for that military might has often caused default and is actually a leading cause of default/debasement when military campaigns take place. Like the in the case of the Confederates or WWI Germany or...(very long list). Each was pretty mighty in the context of its circumstances. I think Greece (awaiting default..again) has a military too as does Russia (junk) which has a fair number of nukes which have been used unsuccessfully as collateral.... How many credit notches might you think that is worth?

In comparison, Australia spends very little on military as a proportion of GDP by developed world standards. This for a country with a surfeit of essential natural resources and a massive coast line which, in turn, is very far away from its main allies. AAA-rated. New Zealand hardly has anything except for a battalion of angry sheep on permanent stand-by. AA-rated.

Yes you are right, there isn't a clear correlation. I was thinking in context of the US (strongest) v. any other country.

 

[sydboy007]

some may call it the lazy way to invest, but it's certainly been working for me

http://thereformedbroker.com/2015/02/17/why-active-management-fell-off-a-cliff-perhaps-permanently/

As you are likely well aware by now, 2014 was the worst year for actively managed mutual fund performance in three decades. Less than 20% of stock-picking managers were able to exceed the returns of their benchmarks last year and, in some categories, the number was closer to 10%. How on earth could things have gotten so bad?

 

[DeepState]

some may call it the lazy way to invest, but it's certainly been working for me

Entertainment comes at a price.

 

[DeepState]

ECB Governing Council does not view the, predominantly, supply side driven fall in oil price as an unambiguous positive to the economy (markets). This aligns with my view and is a little at odds with the sentiments of other posts in this Forum and published views on the matter. It's just not that straight forward in the current circumstances (particularly outside of the US). Just a 'Beware' if you are of the view that the oil price decline is just a monster tax cut which will stimulate demand for the developed/importing world.

 

[sydboy007]

not sure if this is good or bad for manufacturing

http://www.upi.com/Business_News/20...-two-jet-engines/9271424981808/?spt=sec&or=bn

A group of researchers at Melbourne's Monash University, in conjunction with Deakin University and Australia's Commonwealth Scientific and Industrial Research Organization (CSIRO), used a large 3-D printer to manufacture the two engines.

I can see things really moving fast in this area.

 

[DeepState]

Syd, did you have a read of the Intergenerational? Your take-outs? TIA

 

[sptrawler]

Things are going somewhat pear shaped, over here in W.A, Rio has even removed the coffee machines from HO apparently.

 

[rederob]

The recent high in our allords was not supported by banks and miners.
In a fashion it might suggest our stock market is better balanced, with a range of other industry sectors coming into prominence.

Another explanation is that proposed franking credit changes are affecting super funds allocations. Investors are moving into stocks which are less affected by grossed up yields; the likes of Dexus, Transurban or APA as examples.

If franking credits were their justification, then APA yielding 4.5% and Dexus at 4.3% versus CBA at 6.1% or BHP/RIO at 4.3% before franking credits, hardly seems a value proposition.

Banks may well be on the nose, and the Royal Commission has taken the win from their sales. However, as they can fractionally increase their various rates and charges to recoup losses, the big banks still appear to be good places to keep your money.

Diversified miners are presently off their recent cyclical highs and a likely to run north again soon. Demand for their output remains strong, and prices remain firm albeit a long way from previous highs.
A difference now, however, is that they are producing at stronger margins and at greater quantities.
Another interesting point is that while China is a massive raw material consumer, the developing world as a whole is gathering speed and their small individual contributions are nowadays quite sizeable in aggregate. We used to look to BRICs, but now it's the mortar that joins them that provides strength to our miners.

I am optimistic about our markets overall, but particularly like the value that appears locked in to our big players in the allords at present.