atp’s posterous

--- maaaaagniiiiifiiiiique! allons donc chers disciples de la Vérité. il est temps de ressortir nos axiomes d'il y a qq mois en arrière: le gouvernement manipule le stock market! le débat a été officiellement ouvert sur cnbc. la relégation sans appel au rang de "conspirationniste" n'est plus possible. nous avons désormais le droit de nous défendre. merci scott! ---

http://www.cnbc.com/id/15840232?video=931599105

--- article basic mais essentiel sur l'inflation venant de nos amis de chez pimco. la 1^ère partie revisite les différents types de "-flation" et décortique la situation récente des US. la 2^e partie propose différentes stratégies d'investissement en fonction du contexte "-flationnaire". http://www.pimco.com/LeftNav/Viewpoints/2008/Investing+in+the+Era+of+%E2%80%93Flation+Viewpoints+November+2008+Cavalieri+Greer.htm ---

In the short term, the U.S. and the rest of the developed world do not have to be overly concerned about rising prices as those economies are slowing down. But economic forces are gathering over a larger, secular timeframe to generate “–flation” in the U.S. and around the world. Government response to the current financial crisis will actually add to longer-term –flationary forces. This could take the form of re-flation, in-flation, stag-flation or a combination of the three over time. (It’s unlikely to be de-flation or dis-inflation over a secular timeframe.) While these –flationary scenarios may not be desirable economic conditions, they need not be detrimental to portfolio returns. To the extent investors recognize this regime shift, they can reorient their portfolios away from asset classes that perform well in disinflation, which defined the last quarter century, and into those that are well-suited for the era of –flation going forward.

[…] ---lire toute la 1ère partie @ http://www.pimco.com/LeftNav/Viewpoints/2008/Investing+in+the+Era+of+%E2%80%93Flation+Viewpoints+November+2008+Cavalieri+Greer.htm ---

Investment Implications
Critical to achieving a successful investment outcome are two key steps: 1) recognizing the underlying macroeconomic environment that is likely to define the investment horizon, and 2) aligning a strategic asset allocation accordingly. Specifically, investors should consider two fundamental macroeconomic variables – real economic growth and inflation – and further consider two possible states for each – high/rising or low/falling. This simple 2×2 matrix provides an intuitive framework for identifying the four basic states of an economy.

Once investors identify the most likely current and forthcoming states of an economy, they can then construct a portfolio that emphasizes assets that are likely to perform best in those states.

With this framework it becomes clear that the simple stock-bond mix that has come to define a “core” or “balanced” allocation falls short of diversifying investors across the four possible macroeconomic states. Specifically, the stock-bond mix only makes sense in a low or disinflationary world, and only if the investor has ruled out the possibility of a handoff to higher inflation. Given PIMCO’s secular outlook, which explicitly calls for a regime shift to a world of rising inflationary pressures, this allocation approach is not optimal.

This forces a simple question: Why would the broad investment community allow such a glaring omission in a strategic asset allocation?

The answer appears to be driven by the shared and rather homogenous disinflationary experience of today’s investment community. Specifically, for the last quarter century, developed economies have experienced a virtually uninterrupted period of disinflation. Beginning in the early ‘80s, inflation has steadily declined in developed economies from the teens to the “Goldilocks” level of 2%–3%. Since inflation was in secular decline, the only economic variable in play on our 2×2 matrix was the level of real growth. Therefore, it made perfect sense for investors to focus on stocks and nominal bonds within their core portfolio, since they only needed to be diversified with respect to the level of real growth in a disinflationary context.

What made perfect sense in the rear-view mirror makes less sense when looking through the windshield and seeing a future more likely to be defined by rising inflation than falling inflation. What does this mean for investors? In our view, a few themes are clear:

1. The traditional stock-bond mix does not properly align investors’ strategic holdings with secular macroeconomic forces. At a minimum, we feel this calls for increasing exposure to real assets, notably commodities and inflation-linked bonds (ILBs).
2. In a world in which inflation risk is to the upside, fixed-rate Treasury bonds should no longer be viewed as the “risk-free”* asset. Rather, ILBs assume that role, since they uniquely help protect investors from inflation risk given their CPI-linked payments. (Of course, if ILBs are not held to maturity, they may underperform just as any other fixed income security that is subject to interest rate risk.)
3. Within the “low real growth” half of the matrix that is typically centered on bonds, investors should consider separating their desired “spread risk” exposures from the underlying Treasury/ILB exposure. In other words, bonds can be disaggregated into various risk components. For instance, a corporate bond may be disaggregated into a Treasury bond + swap spread + issuer credit spread. In a world in which ILBs replace Treasuries as the “risk-free”* holding, investors should look for strategies that allow them to “port” their desired spread risk exposures on top of their desired Treasury/ILB mix and not be saddled with the disinflationary bias embedded in traditional fixed-rate spread sectors.
4. Within the “high real growth” half of the matrix that is typically centered on stocks, we believe investors should diversify into commodities. Since commodity futures may perform well in a global macroeconomic environment characterized by strong global growth and constrained input supply, a commodity allocation can diversify the risk of equity underperformance amid supply-driven inflationary pressures. Plus, investors may benefit from the fundamental diversification benefits that a commodities allocation brings to a total portfolio, and from the fact that a commodities allocation allows investors to “cover their short position” with respect to future needs to consume commodities (i.e., food and energy) that they don’t own today.
5. As growth declines (perhaps due to a monetary authority reacting to high inflation), we could see stagflation, in which case ILBs might still outperform nominal bonds due to high inflation accruals. Assuming the stagflation is caused by a constrained supply of food and energy, then pressure from the monetary authority may not be highly effective, since it can scarcely shift the highly inelastic demand for those goods.
6. No economy is likely to remain in just one investment quadrant. Investors must always expect change and consider how it will affect their portfolios.

[…]

--- ah le bon vieux jim rogers, toujours heureux de partager ses opinions: http://www.ft.com/cms/893ac9c8-757e-11dc-b7cb-0000779fd2ac.html ---

--- aie aie aie, et moi qui osait croire que les yields actuels des HY bonds étaient ridiculement élevés, qu'ils impliquaient un taux de défaut de ouf même en assumant une recovery value de 0, qu'il faudrait une énorme dépression pour les justifier, et qu'ils ne pouvaient que rebondir! ouais mais c'était sans prendre en compte que ces yields compensent en grande partie le risque de liquidité –et non pas seulement le risque crédit… ---

 […] True, valuation is exceptional, but

the risk is growing that the peak in the corporate

default rate may be much higher compared with

previous cycles.

[…]

Some analysts argue that current spreads already

imply an expected default rate that is well above

10%. However, this assumes that all of the spread

is compensation for credit risk. In fact, a large part

of the spread is compensation for the extremely

high level of liquidity risk. After making this adjustment,

the implied default rate is probably not even

as high as our model predicts will unfold over the

next year. After making this adjustment,

the implied default rate is probably not even

as high as our model predicts will unfold over the

next year.

[…]

Some of the key drivers of the default rate are

[…]

Industrial production also provides about three

months warning of a turnaround in the U.S. default

rate. Again, there is no evidence of improvement

in this measure and the latest drop in the Leading

Economic Indicator, which tends to lead industrial

production by 6-8 months, suggests that a turn in

the default rate is more than one year away.

[…]

surveys on both sides of the Atlantic show

that banks continue to tighten lending standards.

The danger is that banks may sustain tight lending

standards for a longer period in the current cycle,

given the extreme uncertainty regarding the stability

of the entire financial system that has erupted

this year.

Deleveraging will keep credit tight for

some time, even if some form of normalcy returns

to financial markets. Investor caution will maintain

upward pressure on the default rate for an extended

period as lower-rated corporations struggle to find

sources of capital.

The maturity distribution in the corporate bond

market provides an indication of how acute funding

pressures will be over the next year. […] On a cumulative

basis, maturities amount to just over $400 billion

over the next 12 months in the U.S. and about €750

billion in the euro area.

Funding pressures are likely to be much more acute

among lower quality issuers than among high-grade

issuers. We estimate redemptions in the high-yield

market will amount to $176 billion during the next

12 months in the U.S., and a whopping €400 billion

in the euro area. This is significantly above the average

pace of issuance during the past two years and

suggests that even if issuance were to recover to its

average pace of the past few years, it would still not

be enough to roll over every high-yield issue coming

due in 2009. The implication is that refinancing flows

could be a major problem, although it all depends

on investors’ appetite for risk over the next year.

--- le post date de vendredi passé. il peut donc être considéré comme archaïque selon les standards espace-temps en vigueur actuellement. néanmoins il me semble très pertinent. il est bon de se rappeler tous ces HF managers qui pleuraient le manque de vol en 2005 et 2006. je ne comprends pas pourquoi ils n'ont pas le sourire aux lèvre désormais qu'une seule journée 08 tend à avoir le même trading range que tout 05? http://macro-man.blogspot.com/2008/11/two-observations.html ---

[…] not sure exactly what explains yesterday's equity rally: Paulson's comments (yawn), hopes for groundbreaking policy initiatives at this weekend's G20 (good luck with that), or short gamma positions (possibly.)

But consider this: yesterday's intraday range of 11.6% in the SPX......

...was very nearly as much as the entire yearly range in 2005!!!!!!

While it might appear tempting to conclude that the worst is over- the SPX has once again resoundingly rejected the 800 level- Macro Man prefers to keep his options open. Yesterday's price action was rather similar to that observed on September 18, when the SPX made a new and then surged higher to close at its highs. This was the day that Paulson announced what has become the TARP. Yeah, that worked out well. […]

--- waow! mais c'est lui qu'il faut mettre à la place de che paulson! http://ftalphaville.ft.com/blog/2008/11/18/18359/easy-stelios ---

That’s quite some boardroom brawl brewing between EasyJet and founder Sir Stelios Haji-Ioannou.

The Greek entrepreneur and shipping tycoon is refusing to sign off on the airline’s annual accounts, in a statement, attached to EasyJet’s annual results out today. The boardroom spat centres on the airline’s expansion plans — though today’s escalation revolved around rather technical accounting issues. Selected excerpts are below:

"After extensive discussions with the easyJet Board and having taken appropriate professional advice at my own expense, I regret to inform you that I as a director of easyJet PLC I am unable to approve the annual accounts for the following reasons. I am concerned about the application of certain of the accounting policies adopted by the board in a way that I believe is at odds with current commercial realities and the macro-economic climate. Their implications only became obvious to me this year because of the acquisition of GB Airways:

[…]

2) I believe the methodology by which easyJet ascribed value on its own balance sheet to the Gatwick landing slots that came for free with GB Airways is based on optimistic assumptions about future revenues, particularly in the current economic climate. Given the fact that many airlines have already ceased operating from Gatwick I believe that slots will be freely available and hence it will be more prudent not to create Gatwick slots as an “intangible asset” on our own balance sheet this year.

[…]

There are whispers of depressing the share price so he can buy back the company, or perhaps preparing it for a sale (odd way to go about getting the best price), entirely unsubstantiated, of course. For sure he’s looking to gain more strategic control of the company, as for his other motives, however, The best FT Alphaville can guess is that Stelios is being uber-cautious.

--- il pousse loin les conséquences politiques de la disruption actuelle dans le trade finance. néanmoins, il a le mérite de très bien décortiquer un nouveau canal de propagation de la crise entre wall street et calle principal, hauptstrasse, rue principale, メインストリ�ト et 主要街道… http://londonbanker.blogspot.com/2008/11/systemic-risk-contagion-and-trade.html ---

Back in the old days (pre-1980s), the term systemic risk did not refer to contagion of illiquidity within the financial sector alone. Back then, when the real economy was much more important than low margin, unglamorous banking, it was understood that the really scary systemic risk was the risk of contagion of illiquidity from the financial sector to the real economy of trade in real goods and real services.

If you think of it, every single non-cash commercial transaction requires the intermediation of banks on behalf of at the very least the buyer and the seller. If you lengthen the supply chain to producers, exporters and importers and allow for agents along the way, the chain of banks involved becomes quite long and complex.

When central bankers back in the old days argued that banks were “special” and therefore demanded higher capital, strict limits on leverage, tight constraints on business activity, and superior integrity of management it was because they appreciated the harm that a bank failure would have in undermining the supply chain for business in the real economy for real people causing real joblessness and real hunger if any bank along the chain should be unable to perform.

As the “specialness” of banks eroded with the decline of the real economy (and the migration globally of many of those real jobs making real goods and providing real added-value services to real people), the nature of systemic risk was adjusted to become self-referencing to the financial elite. Central bankers of the current generation only understand systemic risk as referring to contagion of illiquidity among financial institutions.

They and we all are about to learn the lessons of the past anew.

We are now starting to see the contagion effects of the current liquidity crisis feed through to the real economy. We are about to go back to the bad old days. Whether the zombie banks are kept on life support by the central banks and taxpayers of the world is highly relevant to whether the zombie bank executives pay themselves outsize bonuses and their zombie shareholders outsize dividends with taxpayer money. It appears sadly irrelevant to whether the banks perform their function of intermediating credit and commercial transactions in the real economy along the supply chain. The bailout cash and executive and shareholder priorities do not seem to reach so far.

The recent 93 percent collapse of the obscure Baltic Dry Index an index of the cost of chartering bulk cargo vessels for goods like ore, cotton, grain or similar dry tonnage has caused a bit of a stir among the financial cognoscenti. What is less discussed amidst the alarm is the reason for the collapse of the index the collapse of trade credit based on the venerable letter of credit.

[…]

The combination of the global interbank lending freeze with the collapse of the speculative, leveraged commodity price bubble have undermined both the confidence of banks in the ability of a far-flung peer bank to pay an obligation when due and confidence in the value of the dry cargo as security for the credit if liquidated on default. The result is that those with goods to export and those with goods to import, no matter how worthy and well capitalised, are left standing quayside without bank finance for trade.

Adding to the difficulties, letters of credit are so short term that they become an easy target for scaling back credit as liquidity tightens around bank operations globally. Longer term “assets” like mortgage-back securities, CDOs and CDSs can’t be easily renegotiated, and banks are loathe to default to one another on them because of cross-default provisions. Short term credit like trade finance can be cut with the flick of an executive wrist.

Further adding to the difficulties, many bulk cargoes are financed in dollars. Non-US banks have been progressively starved of dollar credit because US banks hoarded it as the funding crisis intensified. Recent currency swaps between central banks should be seen in this light, noting the allocation of Federal Reserve dollar liquidity to key trading partners Brazil, Mexico, South Korea and Singapore in particular.

[…]
.
If cargo trade stops, a whole lot of supply chain disruption starts. If the ore doesn’t go to the refinery, there is no plate steel. If the plate steel doesn’t get shipped, there is nothing to fabricate into components. If there are no components, there is nothing to assemble in the factory. If the factory closes the assembly line, there are no finished goods. If there are no finished goods, there is nothing to restock the shelves of the shops. If there is nothing in the shops, the consumers don’t buy. If the consumers don’t buy, there is no Christmas.

Everyone along the supply chain should worry about their jobs. Many will lose their jobs sooner rather than later.

If cargo trade stops, the wheat doesn’t get exported. If the wheat doesn’t get exported, the mill has nothing to grind into flour. If there is no flour, the bakeries and food processors can’t produce bread and pasta and other foods. If there are no foods shipped from the bakeries and factories, there are no foods in the shops. If there are no foods in the shops, people go hungry. If people go hungry their children go hungry. When children go hungry, people riot and governments fall.

Everyone along the supply chain should worry about their children going hungry.

When that happens, everyone in governments should worry about the riots.

Controlling access to trade finance determines who loses their jobs, whose children go hungry, who riots, which governments fall. Without dedicated focus on the issue of trade finance and liquidity from those in the emerging world most interested in sustaining the growth of recent years, little progress can be expected. Trade finance is rapidly communicating the stress on bank liquidity to the real economy. It presents a systemic risk much more frightening than the collapsing value of bits of paper traded electronically in London and New York. It could collapse the employment, the well being and the political stability of most of the world’s population.

The World Trade Organisation hosted a meeting on trade credit in Washington Wednesday to highlight the rapid and accelerating deterioration in trade finance as an urgent priority for public policy.

I look at the precipitous collapse of the Baltic Dry Index and I wish them Godspeed.

--- envoyez au plus vite vos vieilles casseroles à vos cousins d'argentine. les cacerolazos ne devraient pas tarder à reprendre le contrôle des rues… http://www.ambitoweb.com/diario/noticia.asp?id=427536&seccion=Econom%C3%ADa&fecha=17/11/2008 ---

Actuará también el Congreso durante el año que viene como un apéndice del gobierno. Mañana avanzará con la Ley de Emergencia. Si se le suman los Superpoderes (que ya tiene), le otorgará al Ejecutivo el control casi total de la economía argentina. La presidente Cristina de Kirchner podrá disponer por decreto la doble indemnización si se incrementan los despidos por la crisis. Además, tendrá la posibilidad de seguir renegociando tarifas, aumentarlas, cambiar y subir gastos, y modificar el régimen cambiario.

--- hé ben, suite à de pareilles stats, je me demande bien quelle astuce les camarades du g20 vont sortir de leur manche ce w-e? http://www.bloomberg.com/apps/news?pid=20601087&sid=a.mJ00L822UE&refer=home ---

Retail sales in the U.S. dropped in October by the most on record, pushing the economy toward the worst slump in dceades.

The 2.8 percent decrease was the fourth consecutive drop and the biggest since records began in 1992, the Commerce Department said today in Washington. Purchases excluding automobiles also posted their worst performance.

Spending may continue to falter as mounting job losses, plunging stocks and falling home values leave household finances in tatters. Retailers from Best Buy Co. to Nordstrom Inc. are cutting revenue forecasts ahead of what may be the worst holiday shopping season in six years.

``We are in the eye of the storm,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, who accurately projected the decline in sales. ``The recession is clearly intensifying. The next few months will look pretty bad. The fourth quarter will be even weaker.''

Federal Reserve Chairman Ben S. Bernanke said at a conference today in Frankfurt that continuing strains in financial markets and recent economic data ``confirm that challenges remain.'' He said central bankers worldwide ``stand ready to take additional steps'' as warranted.

[…]