To the Girl in the Pink Dress – I’m Wild About You!

If you cant use your own blog site to wish your beautiful wife a Happy Valentine’s Day then what’s the use of having one?! For my regular readers there will be another edition of the “View” along later today so in the meantime have a look at some back issues below. To my gloriously beautiful wife – Happy Valentine’s Day – I love you tons my Bambaji xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx


How I learned to stop worrying…

A headline last week asked if we should be worried about the banks. There have been relatively few times when worrying about the banks has not been in vogue, but now is not one of them. The cap on UK deposit protection was reduced last year to £75,000 per account, to reflect the strength of sterling as the EU wide bank deposit protection scheme is set at €100,000. Given sterling’s current weakness, it may well have to go back up again! On top of that we are now in a position where any future bank failures, across the EU, will be dealt with by way of a bail in, not a bail out. Under a bail out the banks are given taxpayers money by the government. Under a bail in the banks take money directly from taxpayers’ bank accounts ie if you have more than the deposit guarantee amount you would kiss it goodbye if your bank failed. The residents of Cyprus, including a not insignificant number of ex-pat Brits, found out the hard way how this worked in 2013. They received little sympathy from the main stream media as anyone holding over €100,000 was quite obviously either Russian, an arms dealer or both. There were a few of those, but most of the “serious” money…


A picture is worth a thousand words

Well OK charts not pictures, but getting a visual fix on the markets is helpful for some of us. For others technical analysis is akin to astrology or witchcraft, but I prefer to think of it as an aid to behavioural psychology and we all need help on that front. Doug Kass has an interesting way of summing up the debate. A technical analyst and a fundamental analyst are chatting about the markets in the kitchen. One of them accidentally knocks a kitchen knife off of the table, and it lands right in the fundamental analyst’s foot. The fundamental analyst yells at the technician, asking him why he didn’t catch the knife. “You know technicians don’t catch falling knives!” the technician responded. He, in turn, asks the fundamental analyst why he didn’t move his foot out of the way. The fundamental analyst responds: ‘I didn’t think it could go that low!” So click on this link to see the latest Chart Book from the View.


The Big Short

Last week saw the opening in the UK of the movie of the same name. It is a must see for market historians as well as diviners of the future. It will remind us of the abject greed, arrogance and unremitting belief in a system that was in fact falling apart; in other words denial was the theme, unobserved by the many. The few were laughed out of court until the dénouement. Is history, in its own peculiar way, repeating itself? The movie ends with the observation that there are now more open CDS contracts than there ever were leading up to the “great” financial crisis. There is also significantly more corporate debt; allegedly much of it investment grade. As in 2007, when the risker end of the asset backed bond market deteriorated, the crisis permeated up the rating scale with some alacrity. High yield bond yields are rising fast, helped admittedly by the carnage in the oil sector, but corporate America has been borrowing to finance share buy backs, at unseemingly rich valuations, which all of a sudden are starting to get cheaper. Here’s a recent example as told by Zero Hedge www.zerohedge.com. When your organic growth is over, your revenue just missed consensus expectations once again, your stock is trading near 4 years lows and you…


Technical update after an “interesting” week

The year has started with the worst week ever for the S&P 500. This update considers what might be in store for the rest of the year. We recommend clicking here to access the full version with charts that are referred to in the text. A 6% fall in 5 days for the S&P 500 is the worst start to a year in the US…ever. In the great scheme of things this is a completely meaningless statistic, but, taken along with recent market action, could there be some genuine cause for concern? Looking firstly at the UK (page 3), there is something of a line in the sand at 6,000. We are currently at 5,912 and need a three to four-day print, under 6,000 and ending below the August 24th intra-day low of 5768, to make the case for the bears and the “watch out below” scenario. The top patterns, in 2000 and 2008, are very similar to today’s; a rounding shape over a two to three-year period evidencing the distributive phase between buyers and seller, culminating in a significant fall. In the short term the “Armageddon” narrative has been overdone and a rally back towards the falling 200 day moving average is quite likely. There are any number of players keen to put a base…


Not another forecast

At this time of year tradition dictates that we peer into the future and pretend that we have the foggiest idea about what is coming down the track. Those with the courage to look in the rear view mirror find they may have got a few of last year’s guesses right and those that don’t…well they just keep on guessing. Here is an interesting observation from Macro Man – http://macro-man.blogspot.com – I had to laugh when Yellen said that she “wasn’t aware of a better model” for forecasting inflation….because I wasn’t aware of a worse one! The Fed’s inflation forecasting track record is, to put it bluntly, appalling. If you track the rolling 1 year forward projection for the core PCE deflator with the actual result, you find that they have a correlation of -0.68. Quite literally, they’d have a tough time being more wrong if they tried!  Far better use of our time might be spent on reflecting on the human follies perpetrated during the year and how to recognise them through the morass of misinformation. David Collum of Cornell University has done just that. He is a Professor of Chemistry and Chemical Biology, but don’t let that fool you! Here is his opening gambit. I wade through the year’s most extreme lunacies as well…


Watching and waiting

There’s a title of a song in there somewhere, but we watch and wait upon the ECB and the Fed, which is of course a song and a dance routine. It is widely accepted that everyone knows that everyone else knows that the central banks are not going to let anything untoward happen to the markets. This “belief” started with the Greenspan “put”, morphed seamlessly into the Bernanke “put” and until recently to the Yellen “put”. The present Chairwoman has had her work cut out to maintain the Fed’s credibility as Masters of the Universe, but it does seem that at long last she is about to lay an egg and accede to the clamour to raise rates. The recent data on employment – there are nearly 2000 indices on the FRED (Federal Reserve Economic Data) website covering employment so there should be something there for all tastes – has been “strong”, but, despite Rosy Scenario’s appearance, the most recent GDPNow number from the Atlanta Fed shows a decline in the growth rate for Q4. The Q1 GDP has been consistently low in recent years, as seasonal factors drag the number down, so we face the prospect of the Fed having to reduce rates again in the New Year. How embarrassing would that be? At least they’ll…


My name is Bond

Bond has been on my mind a lot of late but, unlike many people, it is not the Daniel Craig film but the horror movie – or perhaps the comedy of errors – that is the fixed income sector I have been watching through my fingers. This world is not full of fast cars and vodka martinis – well, perhaps for a few of the fund managers it might be – but the rather more mundane considerations of duration, liquidity and the direction and timing of interest moves. The numbers of actors who have played 007 on-screen may be growing but it has nothing on the fixed income cast-list. In the three most popular Investment Association bond sectors – Sterling Corporate Bond, Sterling Strategic Bond and Global Bonds – the listed funds align themselves to a total of 70 different indices and benchmarks, with more than a few declining to follow any benchmark at all. The huge range of strategies on offer even within those three fund groupings makes it very difficult to say who has done a decent job. Such is the variety of ways to make – and lose – money in bonds, many investors have settled on using ‘strategic’ funds on the heroic assumption their managers will know what is going on at…


History never repeats

It is not totally clear that Mark Twain ever penned these words and forgive me for using another hackneyed cliche, but it feels like deja vu all over again. The financial crisis from which we are recovering / have recovered depending on which government / talking heads mouthpiece you might care to listen to was preceded by increasing levels of corporate malfeasance, an ever burgeoning level of debt and a laisser faire attitude to problems of global conflict, stock market exuberance, “unfathomable” financial complexity – the junk bond complex – and central bank indifference (Bernanke – “the sub prime crisis has been contained” – “there is no bubble in the housing market”) And so today we have Volkswagen owning up (after being prodded with a very sharp stick) to a quite staggering disregard for corporate governance – their now ex CEO ‘“knew nothing”, the EC in Europe and DEFRA in the UK knew, but did not tell and thus one of the most trusted and revered names in the auto industry is now dust. And that dust is a very long way from being in a settled state. The potential fines, penalties and costs of recalling 11 million Passats and Jettas et al, let alone the class action suits that will be legion, will pale into…


A bear in a China shop

The traditionally quiet month of August, when all good city folk should be sunning themselves on the Riviera, has exploded into action. Now that we have high frequency traders running the show, allegedly supplying liquidity, which must be one of the biggest jokes perpetrated on a largely unsuspecting investment community, volatility has been eye watering. From the 23rd to the 28th the Dow Jones Industrial Average moved up and down by a total of 5,612 points! It has been the same story in commodities, notably oil where Brent crude started the week around $46 a barrel got down as low as $42 and then traded above $50. Bond markets usually the safe haven when “things go a bit awry” have also been in the eye of the volatility storm. The 10 year US Treasury yield fell below 2% to 1.9% on the Monday morning, but by Friday it was as high as 2.2%. What on Earth is going on? The explanations are legion; Chinese devaluation, Chinese economy, Chinese stock market, but not according to China. Oh no! As far as they were concerned it was about interest rate speculation in the US and the inability of the Fed to articulate their intentions without the customary obfuscation. Quite so… The commodity complex has been quietly imploding for…