Quote of the Day:
These are rallies that you rent not rallies you necessarily own.
Macro Overview
Rosenberg On The Liquidity Rally
- Good little interview with David Rosenberg “The Bear” and Tom Lee “The Bull”.
- Rosenberg makes a good point, the liquidity-driven rallies are hollow and prone to sharp reversals… they are rallies to “rent” not rallies to “own”. That plays straight into the momentum philosophy. But the ripple effects from massive liquidity injections can propagate for quite some time (let’s face it we are still riding aftermath of LTRO)… the question in my mind is not whether Rosenberg is right, but whether his timing is on cue… One thing I’ve learnt is that the Fed can pump and print, extend and pretend much longer than we can remain solvent… or sane, for that matter!
Hussman On The Mean Reversion Of Profit Margins
- Speaking of the perils of mean reversion, I could not help noticing Cullen Roche’s article in Seeking Alpha which drew attention to this Hussman report on the cyclicality (and consequential mean-reversion) of profit margins – here is a small excerpt but it’s better to read the article in full.
What’s going on here is that profit margins have never been wider in history. But profit margins are also highly cyclical over time. The wide margins at present are partly the result of deficit spending amounting to more than 8% of GDP – where government transfer payments are still holding up nearly 20% of total consumer spending, and partly the result of foreign labor outsourcing (directly, and also indirectly through imported intermediate goods) which has held down wage and salary payouts. Indeed, the ratio of corporate profits to GDP is now close to 70% above its long-term norm.
- But these are not normal times, dear reader, something tells me, with this amount of liquidity in the system and the strange reflexivity of the markets (rally when economic news is bad because it implies explosive central bank printing) historical precedents may not matter all that much.
Market Overview
Risk Aversion Is Simply Absent In Hong Kong
- Pretty dull day in the markets today, I have to say.
- My Chart of the Day is the VHSI. Remember this is a kinda new thing I’ve been looking at. It’s like the VIX but for the top volatility names listed in Hong Kong. Interesting that the markets are so nonchalant about implied volatilities in Asia– remember volatility can go up even if equities go up!
Chart of the Day
VHSI – Hong Kong Listed Volatility Index (Source: Bloomberg)
Events
Macro Events:
Update:
- Nothing Significant
Alerts:
- Nothing Significant
Corporate Events:
Results:
- Nothing Significant
Dividends:
- Nothing Significant
Reading, Links:
Nothing Significant
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Tags: David Rosenberg, Economy, Fed, Macroeconomic News, Politics, QE, Seeking Alpha, Tags: Ben Bernanke, TIPSTER, volatility
Michael Kudrna
