Global Investing

from MacroScope:

Political poster child?

George Alogoskoufis is a hardly a household name outside Greece and EU financial circles. But the newly sacked Greek finance minister could yet become a poster child for politicans struggling to fight off economic decline and banking industry collapse. His demise was in large part due to a public perception that he was helping out the banks but ignoring rising joblessness.

Greece, of course, is a special case at the moment, still recovering from riots over the police shooting of a teenager. But finance ministers, central bankers and other responsibles are probably not immune from Alogoskoufis Syndrome. Balancing the need to bail out the finance industry with rising economic misery among everyday people is not easy. Fat cats are not exactly in favour at the moment.

This could, indeed, come to a head later in the year. Investment cycles tend to recover before economic ones. So what happens when Wall Street, the City and the like start bringing in the money again just as unemployment lines start getting even longer?

To spend, or not to spend?

A day after Britain unveiled a multi-billion-pound fiscal stimulus package to spend its way out of recession, market analysts have been busy figuring out what it all means, in the context of a sharply slowing economy.

Nick Parsons, head of market strategy at nabCapital, has come to this conclusion:

“People need to spend less, not more, and though little Johnny’s Xbox is indeed 4 quid cheaper, his Dad’s house is worth £3.97 less every hour,”he wrote in his daily note.

Carry on falling

Graphic evidence from Investec Asset Management (below) highlighting the demise of the carry trade. It shows returns from borrowing low-yielding currencies such as Japanese yen to buy high-yielding ones over the past 7-1/2 years or so.  There has been a roughy 50 percent decline since the end of July.

Are you revolted yet?

Financial markets might be in distress and stocks are falling through the floor, but according to James Montier, global strategist at Societe Generale, we are not in the final stage of bubble burst yet. For one thing, the Financial Times is still too big.

At a fund managers conference in London today, Montier — a renowned bear — noted a thesis by economists Hyman Minsky and Charles Kindleberger that bubbles go through five stages — displacement, credit creation, euphoria, critical stage/financial distress and revulsion.

Currently, he says, financial markets are going through the critical/distress stage but we are not in revulsion yet.

“In revulsion, the Financial Times will be three pages long and we will all be ashamed to be working in finance. Stocks will be unambiguously cheap,” he told a group of financial professionals.

End of carry trade unwind?

Merrill Lynch’s monthly poll of fund managers around the world has a bit of a surprise in the small print. More investors now reckon the Japanese yen is overvalued than see it as undervalued. This is the first time this has been the case since Merrill began asking the question, said by staff to be about eight years ago.

It clearly reflects a 13 percent dive in dollar/yen this year and a 24 percent plunge in euro/yen. But does the new view of value suggest that the unwinding of the carry trade is over? Another question from the Merrill poll shows hedge fund deleveraging levelling off.

How low will hedge funds go?

How bad will hedge funds’ year-end performance figures look?

According to Credit Suisse/Tremont, funds fell 6.30 percent in October after a 6.55 percent drop in September, taking losses for the first ten months to 15.54 percent.

Seven strategies are now nursing double-digit losses, with only two — managed futures and dedicated short bias — in positive territory.

Even global macro, which bets on the likes of global equity markets, world currencies, sovereign debt and commodities, is now back in the red. These funds are down 7.10 percent after substantial losses in September and October.

A riot of a recession

Every month, the financial services company State Street studies the trillions of dollars in institutional investor money it looks after as custodian and tries to gauge where things stand. Over the years, it has come up with a map consisting of five different regimes, or moods, to reflect this. They range from the bullish “Liquidity Abounds” in which investors buy equities and focus on growth, to the uber-risk averse “Riot Point”.

Guess what? Investors moved into “Riot Point” last month after flipping about for four months in the slightly less bearish but still risk averse “Safety First” regime. This essentially means that they gave up in October – which is not a particularly stunning finding given that many stock markets had their worst performance in decades.

So now comes the bad news. In the 11 years State Street has been drawing its map, the longest period of risk aversion as measured by investors being in “Riot Point” or “Safety First” was the nine months between February and October 2001. This almost exactly coincided with the then-U.S. recession.

Fund manager sees ‘once in a generation’ opportunity

rtx9qop.jpgStock markets have fallen so far that they now offer brave, long-term investors a ‘once in a generation’ opportunity, according to LV Asset Management’s Tom Caddick.

While there is little sign of the bad news letting up, stock markets tend to look forward, rather than backwards, and will anticipate a recovery before it happens.

He’s backing up his brave talk by investing his own money in his funds.

However, he warns that while it could feel great in the long-term, don’t expect markets to rise immediately.

Some shock, horror numbers from global stocks

Some mind-boggling numbers from the MSCI all-country world stock index, which is one of the broadest measures of how equity markets are doing and is a benchmark for many institutional investors. The index has some 2,500 companies in it from 48 developed and emerging economies.

First off, it has lost around $15 trillion in value since the end of October last year (graph below). That is more than 21 times the $700 billion U.S. bank rescue plan. It also more than graph.jpgthe annual gross domestic product of the United States. It is more than three time Japan’s annual output and more than four times that of Germany.

Secondly, the speed with which this fall has taken place has been breathtaking by investment standards. It took companies that make up the index about four years to gain the $15 trillion in share value before hitting an all-time peak last November. About a third of the losses since hitting that peak came in a free fall from mid-September to mid-October this year.

Iceland for sale — collect in person

Iceland for saleIceland is for sale — on ebay.

It has great scenery and wildlife but the financial situation is in need of repair and a buyer must collect in person.

Bidding started at 99 pence but had reached 10 million pounds ($17.28 million) by mid-morning on Friday.

Globally renowned singer Bjork was “not included” in the sale, according to the notice, but there were nonetheless 26 anonymous bidders and 84 bids.