11/11/2012: 4 interesting charts on investment portfolia compositions

four charts showing differences between the euro area and US portfolia compositions prior to the crisis, during the crisis and now (via Morgan Stanley):

Households:

 So for households, US portfolia are relatively balanced at near 50:50 split on risk and 'riskless' sides. equity ownership is low by historical standards, but that is probably offset by higher exposures to government bonds, corporate debt, government bonds and commodities as well as funds. Lower deposits holdings compared to euro area suggest lesser precautionary savings.

On euro area side, we have dramatic long-term decline in equities holdings and structural rise in deposits and cash. Precautionary savings motive is very pronounced.

Pension Funds:

Charts below show different pattern for equities holdings in these funds against household trends above:

Interestingly, Euro area households and pension funds are relatively similar in terms of longer trend of equities holdings, suggesting that either the objectives of both types of investors are convergent (retirement expectations and demographics weighing heavily on both) or structurally, equities markets in Europe are simply not attractive to both types of investors.

Much to speculate about here... especially behaviorally...

21/5/2012: Quick note on US Markets' Crash Indices

The risk-off thingy is starting to bite - with a few frantic calls over the weekend from across the Atlantic. People are shifting strategies like feet in Swan Lake's pas de deux. Here's an nice set of charts that shows we are in a precarious starting point to the risk-off market indeed.

The Yale University Crash Index - latest data takes us only through April, shows that the base off which we have entered May markets is already loaded with high risk:

April 2012 Institutional Index came in at 26.94 reading, which compares unfavorably to historical average of 36.86 and to crisis period average of 31.27. Jittery markets mean that 2011-present average is 29.88 - worse than crisis period average and that April 2012 was even worse than that. Meanwhile, individual investors index showed usual lags, with lower pessimism in April at 28.47, which is a better reading than 26.57 for crisis period average and better than 24.76 for 2011-present average. Still, individual investors are more risk conscious than historical average of 33.70.

One interesting bit - disregarding the issue of lags, historical correlation between two indices is 0.76 while crisis period correlation is 0.82, which suggests that May reading should come down like a hammer for individual investors. The same is confirmed by looking at changes in indices volatility. Standard errors for Institutional investors responses have compressed from historical 3.82 average to crisis period 2.99 average to 2.85 average for the period since January 2011. Similarly, for individual investors, historical average standard error is 3.36, declining to 2.731 for crisis period and 2.724 average since January 2011.

Note that per charts above, since the beginning of the crisis in mid-2007 (data shows clear break in data at June 2007), Individual investors index has been flat trending (volatile along trend), while Institutional investors index has been trending down (with loads of volatility, too).

Economics 17/08/2009: US markets jitters

US Markets: I've told you to be weary of the return of volatility. Chart below shows today's sudden- 17% jump in VIX volatility index and the coincident fall-off in the main markets (sorry, crumbling Eircom broadband infrastructure means I can't get my hand on better charts right now):

Even more worrisome is the following chart, showing that both near-term VIX and long-term VIX are actually in excess of the current VIX, so markets are now pricing higher volatility for the foreseeable future.
Another telling graph above - notice negative correlation of the last few months turning positive about a week ago and back to negative now - this is a likely holding pattern as in 2007 late Summer and 2008 Summer-Fall.

China was the latest trigger today, but it all goes back to trade flow, as China is a barometer of this and trade flows are a barometer of global growth...

Daily Economics 10/04/09: Rappers want Euros

Taxpayer champions?
An excellent argument by David Quinn on the need for someone to step out of the shadows and become a taxpayers champion (here). FG to the front, suggests David. Most likely. But in the end, in my view, even Sinn Fein will do? Or a backbenchers'-led revolt in the FF. The country is now at its knees and the ZanuFF's leadership is so out of touch with reality, Cowen is telling us - private sector workers battered by unemployment, wage cuts, higher taxes and unbearable debts - that public sector employees know pain endured by the economy first hand. "I believe that the reality of the crisis we face as a society is particularly evident to public servants who are dealing at first-hand with the consequences – personal, social and economic – of our current difficulties,” said our out of touch leader (here). Tell me Brian - how? Through their jobs-for-life, strike-for-any-reason, guaranteed-pensions, increments-wage-rises, Partnership-giveaways, excessive-holidays, take-your-time-to-do-anything positions?


Consumer prices... deflation is of little help to the consumers: Per yesterday's figures on Irish CPI, see my comment in today's Irish Independent (here). And a quick comment to the Wall Street Journal from me relating to the latest Gov plan for a 'bad' bank (here).


And Gerard O'Neill has an excellent post on Partnership (here). Stockholm Syndrome at the IBEC and:
"Oh, I forgot: there's the Enterprise Stabilisation Fund - a grand total of €50 million this year. Let's work it out: say there's 1,000 companies eligible for support (about par with the numbers Enterprise Ireland works with every year). That equates to €50,000 in support - or stabilisation - for each company. Jaysus lads, this time next year we'll be millionaires..."
Actually it is even worse - of the €50mln, only €25mln is in new allocations to DETE, the other €25mln is coming from somewhere else - already in existence. And there was no support for export credits - a mad lunacy of the Government that is willing to waste billions on bad developer loans, but pinches an odd €10mln to provide short-term credit to companies with exports waiting at the dock and willing buyers on the other end. Instead of this virtually risk-free financing, we have the net 'stimulus package' is €25mln - a slap in the face to private sector Ireland and a clear indication of the arrogance and incompetence at the head of DETE.


A solution at hand for Cowen, Lenihan and Coughlan... Here is an excerpt from the post (here) by a celebrity masseuse, Doctor Dot:
"Tonight... I massaged the best looking President on earth, Mikheil Saakashvili... He is the President of Georgia and super fun to talk to. He originally wanted only a 30 minute massage but 90 minutes later, he told me my massage is "the best massage I have had in my life so far". Mikheil had body gaurds [sic] outside the massage room the whole time, who were all over 6 feet tall and like 4 feet wide. One spoke English really well and told me his favorite group is Metallica. Ha. He said "I am a rocker!" so we got along fine, whilst waiting for the President to finish his work out. I was excited to finally get to massage a President. I have massaged the Prince of Saudi Arabia before and a few Mayors, but this was the first President for me."

Thus we have a prescription to presidential joy: get your economy demolished, country demoralised, make some spectacularly disastrous decisions across the board, appease your cronies, get your country into debt to the EU and then, get a massage...

Doctor Dot, we have three Saakashvilli equivalents here in Ireland - not as good looking and with less pleasing body guards, but otherwise, even more spectacular disasters... Massage sessions on taxpayers' bill?


Inflation cometh... Here is an excellent recent blog post from Marc Faber on the issue of upcoming inflation (and a related blog here). I've spotted the risk a while ago (here), so I am happy to report that we are now seeing more and more commentators beginning to concerns themselves with the obvious problem: where can all the liquidity that the Fed and other Central Banks are pumping into the global economy go. From the point of view of the long-term policy consistency for the Irish Government, this is a proper conundrum.

Having raised taxes in 2008-2009, what will Brian do when we have externally imported inflation hammering households, the ECB hiking rates killing off scores of Irish homeowners and we have no control over tax levers (because we have borrowed so much that rising interest rates will simply make it impossible to cut tax rates as the inflationary spiral uncoils)? Oh, I get it - he will simply remind us all of our patriotic duty to keep paying his wages.


Hopes are rising?.. No, not in Ireland, but my hedge funds networking group website has been inundated with jobs offers - sales, technical, trading etc - from US headhunters. For the first time since early 2008, the usual daily page of posts has been dominated not by 'distressed assets for sale' or 'looking for a position' memos, but by jobs offers. May, just may be, should jobs situation abroad stabilise, by the mid 2009 we will have that Irish solution to an Irish problem - emigration - becoming available to Irish financial sector professionals. Then we'll truly arrive in the 1980s scenario.


On the US data: Yesterday's data from the US is painting an interesting, and cautiously encouraging picture.

First, the jobs front. First-time claims for unemployment benefits fell a seasonally adjusted 20,000 to 654,000 in the week ended April 4. The level of first-time claims is 83% higher than the same period in 2008. The four-week average of th2 initial claims fell 750 to 657,250. However, for the week ended March 28, the number of people collecting state unemployment benefits reached yet another new record, up 95,000 to 5.84mln - double the level in 2008. Per Marketwatch, "continuing claims have gained for 12 consecutive weeks, and have reached new weekly records since late January." The 4-week average of continuing claims was up 146,750 to a record 5.65mln. The insured unemployment rate - the proportion of covered workers who are receiving benefits - rose to 4.4% from 4.3%, reaching the highest level since April 1983. All of this signals that while the new unemployment may be bottoming out, workers are not seeing an increase in new jobs availability. Of course, unemployment itself is a lagging indicator relative to, say, capital investment. Inventories declines, posted in recent days, have probably more to say about the underlying dynamics, signalling potentially a flattening of the downward trend in economic activity.

Corporate earnings... Two major corporates announced pre-reporting updates last night. Wells Fargo & Co surprised the markets yesterday with the Q1 2009 earnings note claiming that earnings will rise to $3bn - ahead of analysts forecasts - on the back of falling impairments and rising mortgage lending. Earnings figures were quoted net of dividends on preferred securities, including $372mln due to the Treasury Department. Analysts expected earnings of ca $1.94bn.

Total net charges will be $3.3bn, compared with Q4 2008 net charges of $2.8bn. Wachovia - purchased by Wells Fargo on December 31, 2008, will see net charges of $3.3bn. Provisions will be about $4.6bn in the quarter compared to $8.4bn in provisions during Q4 2008.The news drove US financials to significant gains yesterday as the markets were delighted to see the bank finding a way of generating profits out of free Federal money it received. Who could have thought that possible.

Aptly, US stocks jumped higher across the board, with the Dow Jones Industrial closing its first five-week stretch of gains since October 2007, rising 246.27 points, or 3.1%, to finish at 8,083.38, up 0.8% for the week. The S&P 500 added 31.40 points, or 3.8%, to end at 856.56, a 1.7% rise in the week. The Nasdaq Composite climbed 61.88 points, or 3.9%, to 1,652.54, a weekly rise of 1.9%.

But there were some side-line noises from the real (i.e non-financial) side of the US economy when Chevron and Boeing issued earnings warnings on the back of lower oil prices, high production costs and falling demand for aircraft respectively. No free money from the taxpayers in their sectors has meant that the real economy continues to push lower.

World's new reserve currency... We have arrived - the Euro is becoming a reserve currency. The dollar is toast per BBC's latest report (here). And no, Euro's gains are not just in the market for Russian mafia wealth (remember those €1,000 bills issued in hope of diverting some of 'cash' reserves away from dollars). In fact, it is well diversified. As BBC reports, for some time already there has been a strong movement of US rappers out of dollars into euro. And there has been growing trade in services for euro-based money laundering by the drug cartels. At last, the hopes for a reserve currency challenge on the dollar are being realised.

I am of course being sarcastic - a disclaimer I have to put up for all Brusselcrats so concerned about any criticism of the euro. But to be honest, do we know how much of the EU paper been stuffed into the black markets? Seriously: rappers, mafia, drug barons... and Chinese Government - all think euro is the best thing since sliced bread... we've arrived.


And here is the latest take on the Budget (hat tip J):