2011/11/21: Quick Post: Observations and Weekly Reports & Events Calendar Now Available

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The full calendar is available through the link in the right hand column. This is such a robust week once again, it is impossible to include anything but a fraction of the major influences in an overview. Yet, key aspects will be those that relate to the continuing debt and fiscal reform problems in both Europe and the US.

In addition to continued sharp influences from the seemingly still failed attempts to address the European Sovereign Debt Crisis, there is also going to be quite an impact from whatever the fallout might be from the now almost assured failure of the US Congressional Fiscal Reform Super Committee. Our perspective on that is there are far too many folks who are very sanguine about the actual failure for two reasons.

2011/11/15: Quick Post: Cycles Accelerating: Hippies to OWS to Europe to US

© 2011 ROHR International, Inc. All International rights reserved.

The first media seer, Marshall McLuhan (who essentially invented the science of media’s influence on culture), famously noted back in the 1960’s that electronic media would destroy established social structures. And all he had to guide his perceptions was incipient developments in cable TV. Wonder what he would have said if the development and ubiquity personal computers was anything more than futuristic bit of imagination. [Although in the Dick Tracy comic strip they actually had wrist radios and TVs; forerunners of the PDA?]

But now we have an entire galaxy of information whizzing across everyone’s screens at the speed of light. And while the social structures of the 1960’s were reduced to rubble, society will always be reborn because it is a necessary cycle. However, there is little doubt the only real constant remains ‘change’, and it does seem to be accelerating.

Consider the turn of the cycle from the height of the Hippies to the end of that attempted utopian solution. After the 1967 San Francisco ‘Summer of Love’ it took two years to degenerate into the Manson murders and the Weather Underground. For the uninitiated that last group is a faction in the previously aggressive yet peaceful SDS (Students for a Democratic Society) which shifted to the pursuit of violent revolution. They had given up on peaceful pursuit of change and reverted to violence, because it seemed obvious to them that nothing was going to change. (Hence the group’s name, from the Bob Dylan lyric, “You don’t need a weatherman to know which way the wind blows.”)

Fast forward to Occupy Wall Street and what do you get?

2011/11/11: Quick Post: Santa Claus is Coming to Town… Maybe

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“He’s making a list, checking it twice…” gonna buy stocks, but only if they’re nice…

…and therein lies the dilemma with any ‘Santa Claus’ rally this year.  As we have pointed out for many years now, there is no Santa Claus! This is actually much more so the “Santa Portfolio Manager” rally. The late year rally tends to be the case in years when equities are up nicely on the year, especially from the early part of the fourth quarter into the end of November.

That incentivizes portfolio managers who have any goodly amount of cash on the books to invest it rather than look ‘under invested’ compared to their peers. And no sensible manager waits until the last minute right into the holidays. In the down years there is often little or no late year rally, as the converse becomes true: managers seek to show plenty of cash.

The problem for managers attempting to ‘window dress’ their portfolios either way this year is the degree to which the US equities are right around last year’s Closing price levels. In addition they have been significantly schizophrenic of late, with major surges and downdrafts in the wake of constructive or abysmally negative news. The range of that news is also significant insofar as it encompasses everything from fiscal and debt crises to economic data and forecasts.

So it seems that Santa is quite conflicted this year as well. Whether the equities trend will continue to improve from last year’s finish, or put on another one of those sharp retrenchments back to quite a bit lower on the year remains in flux.

2011/11/09: Quick Post: Opera Berlusconi Continues… With Equities in Thrall, Yet Not Necessarily Bad

© 2011 ROHR International, Inc. All international rights reserved.

Opera Berlusconi has finally seen the fall of the ebullient Prime Minister. If not for his policies and management of the state, he will at least be remembered for the excitement he provided. Of course, that includes the degree to which his shenanigans pointed out the ineffectiveness of leadership in the profligate southern European sisters, and even Europe as a whole.

It was the sort of demonstration of narrow partisan domestic focus that ultimately belied the myth of there being a cohesive Euro-zone even more so than the riots in the streets in Greece. Italy is just that much larger, ostensibly competitive on an industrial basis, and potentially capable of the right sort of fiscal balance if only the political will were effectively exerted. And yet, the other aspect which is clear even from Italian domestic politics is that it also suffers from its own North/South divide. In that sense, it is the fractal miniature example of why Europe cannot really be a monetary union without becoming a fiscal and political one as well; and that’s not happening.

As just a brief early word on two primary asset classes’ price activity, on current form it seems the government bond markets had it right by rallying on the weak economic news and disturbing developments in Europe. That was in spite of the strength of equities, which can be an anticipatory bid during earnings season and then weaken once things revert to normal. However, in this case they seem to have also been defying the crushing logic of the fact that Europeans who had been so adept at kicking the can down the road, well, finally seem to be running out of road.

Italian 10-year government bond yields shooting up above 7.00% in spite of Mr. Berlusconi’s resignation (at least seemingly so for now) came as somewhat of a surprise to casual observers. We are not sure why they would be so shocked by that, as an spite of his obvious weaknesses and problems Mr. Berlusconi was at least a strong leader up until the recent extreme loss of confidence in him. What we do know is that the market is exhibiting a rational reaction to the fact that no one else in Italy is considered much better, or much more likely to generate support for the necessary budget adjustments.

This would seem to be a classic example of “be careful what you wish for.”

2011/11/07: Weekly Reports & Events Calendar Now Available

All in all, a very interesting week that also sees European debt auctions early in the week, followed by long-dated supply out of the US and Japan Wednesday into Thursday. After a slow start today, highlights of the reporting week include the fact that the US has returned to Standard Time in the wake of Europe and the UK doing so last week. Even with all of the major early month data and three significant central bank meetings out of the way last week, there is still quite a bit from scheduled reports and events to focus on this week.

There is quite a bit of central bank-speak, both from the Fed’s minions and European financial luminaries. We will undoubtedly be hearing quite a bit from the latter in any event, as the further evolution of the now wholly unwieldy European Sovereign Debt Crisis continues to unfold this week.

2011/09/20: Operation ‘Twisted’ …Does Fed Matter When Risk Model Now Greece-On/Greece-Off? Does Greece?

It seems an awful lot of attention has been focused on whether the Fed is going to either announce or actually initiate Operation Twist in its post-interest rate (non-)decision statement on Wednesday. Certainly there are some forms of ‘twist’ that matter. Chubby Checker helped destroy American social mores in the 1960′s with the dance. And who doesn’t like one near the end of a good suspense story?

By comparison the Fed’s plan to move some of its balance sheet from short-dated Treasury securities out into the 30-year Treasury bonds is likely to have about as much impact on the US economy as the QE2 liquidity infusion… which is to say, not much. And in this case it does not even provide that additional liquidity, which at least repaired portfolios through risk asset inflation.

It’s the macro-financial equivalent of distracting the masses with shiny objects. Not a single person who does not meet credit standards will get a loan, and no more than a very few businesses will create an additional job. And it holds certain deferred risks in the form of extra upward pressure on government borrowing yields once the economy actually turns up.

Much more impact will be felt from any Greek default, or the ability to once again avoid default (at least temporarily.) Everyone knows that is the driver for the current extreme volatility of equities, and government bonds’ resilient ‘haven’ bid for the past couple of months; recently joined by the US dollar. And even those uplifting “Greece-on” phases bring less and less weakness to government bonds (i.e. higher yields) for one good reason:

It’s the global economy!! Don’t take our word for it… ask the OECD.

2011/09/09: Obama Jobs Plan DOA: Higher Taxes Won’t Fly with Republican House

First of all let’s allow that there are many other factors buffeting the equity markets today. Greece had a failed T-bill auction, which heightens the fears that either over the weekend or some other time very soon it will actually default. There was also the downbeat communication from the ECB at yesterday’s post-rate decision press conference that it had significantly lowered its 2011-2012 growth forecast.

That was much like the recent change in the Fed’s projections. Yet, it was different for the ECB, because it had maintained upbeat expectations and raised interest rates over the earlier part of this year. It’s downside revisions for what was considered one of the few remaining much strong economic centers is that much more telling for the global economy as well as Europe. And in yesterday’s post we discussed why Monsieur Trichet’s claim that at 1.50% the ECB’s base rate was still accommodative was misguided; with political implications for Chancellor Merkel as well as a negative influence for the European economy.

Of course, Mr. Bernanke’s reiteration yesterday of the Fed’s concerns about the near-term economic weakness didn’t help either. Although, we can’t imagine what else he would’ve said without being completely disingenuous and looking foolish. And he revisited a very relevant point that set the stage for Mr. Obama’s jobs program speech yesterday evening: the current economic weakness was not created by faulty monetary policy, it is a creature of the political class, and they’re the ones who have to address it. And it seems less likely than ever that the political process in the United States is going to offer any solutions for the economic mess anytime soon… and that’s the real problem with what President Obama proposed yesterday evening.