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mminion

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I've just come out of Leon Hinde's webinar, where he explained his "base case":

 

The various Reserve Banks are doing their job by providing sufficient stimulus to increase global GDP. Proof lies in growing profit results, which on average has been beating market expectation, hence the new High of the Dow with other economies (e.g. DAX) also homing in on the 2007 Highs.

 

As long as we watch out for counter signals and have a Plan B, I can find nothing wrong with that assessment. The direction of all the major markets since mid-2012 certainly supports his base case.

 

I won't divulge any stock-specific details; after all, Investor Signals http://www.investorsignals.com.au/ is his business.

Just thought I mention it because we used to agree that, fundamentally as much as technically, he is one heck of a smart cookie.

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Clip from Bloomberg Friday 8th March,-------- "Asia tonight":----ahead of US employment stats

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In Japan, gross domestic product rose an annualized 0.2 percent in the three months through December, the Cabinet Office said in Tokyo. That compares with a preliminary calculation of a 0.4 percent contraction. The current account deficit in January was 364.8 billion yen ($3.8 billion), the finance ministry said in a separate release.

 

In China, exports increased 22 percent in February from a year earlier, in a month that had four fewer working days than last year, the customs administration said on its website today. That beat the 8.1 percent median estimate in a Bloomberg News survey. Imports fell a more-than-estimated 15.2 percent, leaving a trade surplus of $15.25 billion.

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More important than employment stats is IMHO the realisation that actual figures, especially from Japan and China, differ so markedly from Pundits' "expectation". And that is even more remarkable in the case of Bloomberg, who have generally a reasonable reputation.

 

Just seems to underpin what I said on Wednesday about Leon's "base case". The more I look at reality objectively and compare past performance, the better I feel about the global economy, and arrive by rational extension to the same conclusion for Australia.

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More important than employment stats is IMHO the realisation that actual figures, especially from Japan and China, differ so markedly from Pundits' "expectation". And that is even more remarkable in the case of Bloomberg, who have generally a reasonable reputation.

 

Just seems to underpin what I said on Wednesday about Leon's "base case". The more I look at reality objectively and compare past performance, the better I feel about the global economy, and arrive by rational extension to the same conclusion for Australia.

 

 

Hi arty, US employment stats just in, see enclosed Bloomberg clip, two early and quick points, see the bit about "how long should the FED keep stimulating the US economy, secondly if the whole world is genuinely recovering, how come most of the ASX commodity producers SP's are falling?

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"""""Payrolls increased more than forecast in February and the jobless rate unexpectedly fell to a four-year low of 7.7 percent, a sign U.S. employers were undaunted by the budget impasse in Washington. Employment rose 236,000 last month after a revised 119,000 gain in January that was smaller than first estimated, Labor Department figures showed today in Washington. The median forecast of 90 economists surveyed by Bloomberg projected an advance of 165,000. The jobless rate, the lowest since December 2008, dropped from 7.9 percent. Hiring in construction jumped by the most in almost six years.

 

Stock-index futures, the dollar and Treasury yields all rose on signs the world's largest economy is gaining strength in the face of federal budget cuts and higher payroll taxes. Automakers and home-improvement retailers are among those announcing plans to take on more staff as Federal Reserve policy makers debate how much longer to maintain record stimulus to boost employment"""""

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  • 2 weeks later...

Ben Bernanke's current dilemma:

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There is not a person on the globe who knows how the US Federal Reserve will eventually reverse its pioneering monetary policy that has been in place for the past four years.

 

18 Mar 2013 THE AGE - MATTHEW KIDMAN

 

There is not a person on the globe who knows how the US Federal Reserve will eventually reverse its pioneering monetary policy that has been in place for the past four years. This is unnerving because it remains the single most important factor in determining the medium term health of the world economy and the immediate direction of global sharemarkets

 

When Fed chairman Ben Bernanke took the bold step back in 2008 of cutting short-term lending rates to zero, many learned people said it would have unintended consequences, namely igniting inflation. Bernanke ignored them. In fact he became flagrant and took monetary policy to a whole new historical level by discovering a way to print US dollars called quantitative easing (QE) in a bid to kick-start the economy after the global financial crisis. His critics went into overdrive claiming his actions would result in rampant inflation and a collapse in the currency, as had been the case in the German Weimar Republic in the 1920s.

 

Four years on and inflation remains under control and the US dollar, while weak, has not collapsed. Maybe it is too early to gauge the impact of QE but unless inflation appears in the next two years economic textbooks may have to be rewritten. Virtually every economics school in the world has preached the dogma that money printing results in unhealthy levels of inflation because more money chasing the same amount of goods simply drives prices higher.

 

In reality, though, Bernanke's extreme activity is only partially complete and he is acutely aware that he will have to reverse his textbook changing activity at some stage. He knows that with negative real interest rates (below the current level of inflation) and money being printed at a rate of $US1 trillion a year that unacceptable inflation levels will appear eventually.

 

So can the chairman pull the reversal off without unintended consequences?

 

In simple terms, three critical steps have to be taken to unwind the ultra loose monetary policy currently in place.

 

The first is bringing quantitative easing to an end. In the past four years the Fed has purchased about $US3 trillion in government back assets, effectively funding the US government's deficits. The former buyers of US government debt - China, Japan and the Middle East - have backed off resulting in the Fed being forced to do the heavy lifting. This means the Fed is on the money printing treadmill until the US economy clicks into gear. In other words he can't just stop purchasing assets when he feels like it, otherwise US bond yields will soar, as foreign buyers demand a higher return to buy them.

 

The second move for the Fed is to work out what it does with the $US3 trillion and rising assets it has purchased so far. Until recently the view has been the Fed will need to disgorge these assets, primarily government bonds, by selling them back to the market. This would flood the private market with debt, resulting in bond prices slumping and interest rates skyrocketing. A highly unacceptable situation for the economy and the sharemarket. Jumping bond yields have historically been a catalyst for falling equity prices.

 

In a recent speech Bernanke said the Fed might not eject these assets but simply roll them over as they mature. In other words, extend their life allowing the US government more time to pay them back. This approach has not been thought of before and may prove that the money printing can be taken off the table without unintended consequences.

 

The third and final step in the policy reversal will be lifting interest rates back to acceptable levels before inflation or brazen lending practices such as we saw in 2005 to 2007 emerge.

 

What should interest rates be? Typically if inflation is running at around 2 per cent, short-term interest rates should be slightly higher while the 10-year bond should be about double that level. This would mean the Fed has to lift the overnight lending rate from zero to around 3 per cent while the 10-year bond yield has to increase from 2 per cent to 4 per cent.

 

Bernanke would like to orchestrate all three steps at his own pace, but if the recent increase in US bond yields accelerates due to a pick-up in economic growth, he may have his hand forced. Alternatively, if the bears are correct and inflation hurdles above the Fed's 2 per cent target level, then Bernanke's grand plan might start to unravel.

 

To lose control of the process could be an unmitigated disaster. Global sharemarkets have ground higher over the past four years in the comfort that interest rates are low and will remain that way for many years to come. With the US market trading at about 15 times forecast earnings, investors are confident but have not got carried away with the liquidity swirling around. If the Fed's fire hose of money dries up and interest rates kick, then the sharemarket could easily drop 20 per cent to 12 times earnings. This is why it remains incredible that no one has a clear answer on how this will play out.

 

matthewjkidman@gmail.com

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Federal Reserve Chairman Ben S. Bernanke said heÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“spoken to the president a bitÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ about his future and that he feels no personal responsibility to stay at the helm until the Fed winds down its unprecedented policies to stimulate the economy.

 

etc etc etc

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http://www.bloomberg.com/news/2013-03-21/b...ure-ending.html

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http://www.bloomberg.com/news/2013-03-25/c...id-default.html

 

 

Cyprus dodged a disorderly default and unprecedented exit from the euro currency by bowing to demands to shrink its banking system in exchange for a 10 billion-euro ($13 billion) bailout.

 

Cypriot President Nicos Anastasiades agreed to shut the country's second-largest bank under pressure from a German-led bloc of creditors in a night-time negotiating melodrama that threatened to rekindle the debt crisis and rattle markets.

 

etc etc

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Disagree, The Europeans bowed to Cyprus's (and Russian) demands to ensure that Cyprus stays within the Euro, thereby not triggering a CDS meltdown, in the end citizens get shafted to save the elite bankers who screwed up and keep screwing up. Watch the $U.S. v Euro over the next few months as I will imagine smart money will start moving out of European Banks and more than likely into U.S. T-Bills whilst they decide where to go on a more permanent basis.
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See what I mean by the citizens get shafted :-

A Reuters article states that:

 

'No one knows exactly how much money has left Cyprus' banks, or where it has gone. The two banks at the centre of the crisis - Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus - have units in London which remained open throughout the week and placed no limits on withdrawals. Bank of Cyprus also owns 80 percent of Russia's Uniastrum Bank, which put no restrictions on withdrawals in Russia. Russians were among Cypriot banks' largest depositors.'

 

In other words, the plebs get shafted.

 

 

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  • 2 weeks later...

Since the ASX follows Wall St, some commonly held perceptions may have got knocked on the head overnight.

 

The thesis went like this---US housing is recovering---US jobs are recovering.

 

How come then ZERO jobs were created in US construction. ADP employment report said that only 158,000 private sector jobs were created in March against a consensus expecting 197,000 new jobs.

 

What happens if Fridays US employment stats comes out with a shocker, is it "all over--red rover" :icon14:

 

PS: dont forget the US sequester job losses to follow.

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