The BEAR CORNER...
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     holycow
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Username: holycow
Post Number: 2218
Registered: 08-2004Rating: N/A
Votes: 0
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| | Saturday, January 07, 2006 - 04:57 pm: |  
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... it's time to put on my bear suit one more time and play my favourite "let's scare 'em'..." little game of chicken (in the year of the dog!). In this thread, my logical self is taking charge and he is saying "I don't care what others say or what the market does, I am gonna stick to my gun that sh*t is gonna hit the fan and the economy+market will have their days in tsunami...". Those who can't bear bearish talk I guess you know where is the closest exit...
First up, the master bear Stephen Roach has this to say, and I quote as follows...
...Reversals are possible on three fronts -- the liquidity cycle, the US property market, or the dollar. Shifts in any one of these areas could well be enough to transform the global outcome from benign to malign. The interplay between these forces could be especially lethal.
A turn in the global liquidity cycle would be the most worrisome development. This will come about only through the conscious design of central banks. Yet that’s exactly what now seems to be under way. The world’s major central banks all seem focused on the same objective -- a normalization of policy rates. The Federal Reserve was first to embark on this campaign, and some 325 basis points later, America’s monetary authorities are signaling that their mission is just about accomplished. The ECB has just begun the march toward normalization, but with Euroland activity now on the rebound, there is reason to believe that additional progress will occur sooner rather than later. Even the Bank of Japan, which has gone to extraordinary measures with its zero interest rate policy for nearly seven years, is dropping strong hints that the first step toward normalization -- in its case, an end of “quantitative easing” -- is just around the corner.
This shift in monetary policy represents a sea change for the global liquidity cycle. Even if persistently low inflation allows central banks to stop short of taking their policies into the restrictive zone, the transition from extraordinary accommodation to neutrality is a big deal. That’s because it entails a meaningful increase in real short-term interest rates -- long the most powerful transmission mechanism of the impact of monetary policy on the real economy. In the case of the US, for example, the real federal funds rate (as calculated relative to core inflation) has already gone from “zero” to 2% in a span of 18 months -- a meaningful tightening by standards of the past. Moreover, it is important to remember that the impacts of such policy shifts typically hit with 12-18 month time lags. That means that the impacts of the current tightening cycle are only just now beginning to trickle into the system. The flat to microscopically inverted yield curve underscores the pressure on the liquidity cycle; banks, for example, are finding it far less attractive to provide new credit at lending rates that are at, or below, deposit rates. Moreover, as Andy Xie notes in today’s Forum, the recent deceleration of growth in Asian foreign exchange reserves may be an important early warning sign of a turn in the global liquidity cycle (see his 6 January dispatch, “Liquidity Receding”).
A post-bubble shakeout of the US housing market is a second factor that I believe would challenge the extrapolation mindset of momentum-driven financial markets. That’s because the ongoing support of the seemingly unflappable American consumer has been heavily dependent on the wealth creation of the Asset Economy. In that vein, a mere slowing in the rate of residential property appreciation would represent a significant headwind for a still income-short consumer. With annualized housing inflation still running at a 20% annual rate, or higher, in 40 major metropolitan areas in the US and with most gauges of national house price inflation now looking “toppy” at best, there is good reason to believe that a significant slowdown in the pace of asset appreciation is in the offing. At the same time, a shift in the liquidity cycle points to reductions in home equity extraction -- the monetization of property-based wealth creation. With interest rates on home equity loans having risen from 4% to 7% over the past 18 months, that’s hardly idle conjecture. Reflecting the impacts of higher energy prices, real consumption appears to have expanded at less than a 0.5% annual rate in 4Q05. Most believe this was an aberration that will be followed by a sharp bounceback in consumer demand in early 2006. If the housing market fades, any such rebound is likely to be fleeting.
The dollar is a third leg to this stool. Last year’s surprising rebound in the US currency short-circuited much of the market-based venting that normally drives a current account adjustment. In momentum-driven financial markets, currency trends and capital flows tend to be self-reinforcing. The more the dollar strengthened, the more confident foreign investors -- private and official -- became in US assets. It was the ultimate virtuous circle that then gave foreign investors little reason to seek concessions in the form of real interest rate adjustments that would provide compensation for taking currency risk. In the currency business, circles can quickly turn from virtuous to vicious -- especially for economies with massive current account deficits. With the dollar having been under renewed downward pressure over the past couple of months, and with Chinese and Korean authorities hinting in recent days at official shifts in foreign exchange reserve management practices, this is a risk to take seriously, in my view. (... a worth while note, last night's US$ plunge resulting in a gold price hike was a direct market response to the Chinese quoted intention of rebalancing their forex to be less US$ centric; so this view does have teeth and it can bite)
Nor should these potential adjustments be treated in isolation from one another. If, for example, the dollar goes and real interest rates are bid up in response, adjustments to the US housing market will undoubtedly be more severe. Under those circumstances, overly-indebted American consumers will then be squeezed by higher debt-servicing expenses. If, on the other hand, the US housing market simply falls under its own weight -- a distinct possibility given the major overhangs in property values in many segments of the nation -- the hit on wealth-dependent consumption and GDP growth could then be a major negative for the dollar. This is a point that Stephen Li Jen has been making for some time. And, of course, if the American consumer fades for any reason, the impacts on the rest of the world would be especially acute. With growth in internal private consumption remaining anemic in Asia and Europe, a loss of support from US-centric external demand could deal an especially harsh blow to the global economy. That’s when the pitfalls of a US-centric global economy come home to roost. Relative to sanguine expectations, the US economy could well be the weakest link in the global growth chain -- underscoring the possibility of another year of under-performance for dollar-denominated assets.
HC
"... if you've got a chart, I have an opinion!"
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holycow
Member
Username: holycow
Post Number: 2219
Registered: 08-2004Rating: N/A
Votes: 0
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| | Saturday, January 07, 2006 - 05:02 pm: |
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... note: he's a professor not a big time market economist... so I reckon he deserves a little more respect in his view here.
Tuesday, January 3, 2006 - 12:00 AM
Top forecaster sees U.S. recession
By Joshua Krongold
Bloomberg News
The U.S. bond market's most accurate forecaster, who plies his trade 500 miles from Wall Street, says yields are sending ominous signs about the economy.
While economists at the biggest bond-trading firms wrongly predicted that the benchmark U.S. 10-year Treasury yield would end last year at 5 percent, a University of North Carolina, Chapel Hill, professor came a lot closer to getting it right.
"It was luck, partly," said James F. Smith, 67, who teaches finance at the school. "The other reason is the anticipation that inflation would be contained and that continued rate increases from the Federal Reserve would keep longer-maturity investors enthused about their returns."
Smith turned out to be the top forecaster in Bloomberg's January survey of 66 economists. He predicted the benchmark 10-year yield would end the year at 4.49 percent. At the time, the yield was about 4.27 percent and the median estimate was for it to climb to 5.04 percent by Dec. 31. It finished 2005 at 4.39 percent. Yields move inversely to bond prices.
"Those Wall Street gurus have bigger expense accounts than I have total income," Smith said.
Smith said the bond market is waving a caution flag on the economy. Two-year Treasury yields last week rose above those on 10-year notes, creating a so-called inverted yield curve for the first time since December 2000. An inversion preceded the past four U.S. recessions.
"When the curve inverts, run for the exits," said Smith, who served as an economist for the Fed from 1975-77. "It will stay that way until the Fed realizes it caused a recession in 2007. Investors should start planning for a recession."
The 10-year yield will climb to 4.53 percent this year, Smith predicts. His forecast is again below the median estimate of economists, which is for the yield to end 2006 at 5 percent, according to a survey from Nov. 30 to Dec. 8.
Core inflation, which excludes food and energy prices, "remains under control," he said, tempering any rise in yields. Inflation erodes the purchasing power of a bond's fixed payments.
Smith expects the Fed to raise its target rate for overnight loans between banks three more times, to 5 percent from 4.25 percent. The U.S. central bank has raised rates by a quarter-percentage point at every meeting since June 2004, when the target was at a 46-year low of 1 percent.
"That's three more times than we need," said Smith, who has also served as the chief economist for the Society of Industrial and Office Realtors since July 2002.
In the January survey, Smith expected the Fed to only raise rates to 3 percent last year, compared with the median estimate of 3.50 percent.
Prices for personal consumption expenditures excluding food and energy rose 1.8 percent in November from a year earlier, down from 1.9 percent in October, the government said. The Fed uses the PCE index in making its semiannual forecasts. In July, the central bank said it expected the core rate to rise 1.75 percent to 2 percent last year.
None of the economists surveyed by Bloomberg expects a recession, or two consecutive quarters of a decline in gross domestic product, this year. The economy likely will grow by 3.4 percent in 2006, based on the median of 71 forecasts in a survey conducted from Nov. 30 to Dec. 8.
Fed Chairman Alan Greenspan said Nov. 3 that the yield curve "used to be one of the most accurate measures we used to have to indicate when a recession was about to occur," though "it's lost its capability of doing so in recent years."
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HC
"... if you've got a chart, I have an opinion!"
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busterkins
Member
Username: busterkins
Post Number: 61
Registered: 03-2003Rating: N/A
Votes: 0
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| | Sunday, January 08, 2006 - 05:07 pm: |
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Meet the new bond king
FORTUNE exclusive: A talk with Ken Leech of Legg Mason, who oversees $520B in fixed-income assets.
By Jon Birger, FORTUNE senior writer
January 6, 2006: 3:12 PM EST
NEW YORK (FORTUNE) - Think Legg Mason and the first name that pops to mind is Bill Miller, the ace equity-fund manager whose Value Trust fund just beat the S&P 500 for the 15th consecutive year. Or maybe Bruce Sherman, the Legg money manager who recently forced Knight Ridder to put itself up for sale. But Legg Mason has another star in its ranks, only this one doesn't like seeing his name in the paper.
S. Kenneth Leech, chief investment officer of the company's Western Asset Management, has long been one of the investment world's under-the-radar luminaries. Since 1996 he's helped grow Western's assets under management from $18 billion to $240 billion, and in 2004 he was honored as Morningstar's fixed-income-fund manager of the year. Yet Leech is a virtual unknown outside the bond world, in sharp contrast to his oft-quoted archrival, Pimco's Bill Gross. That's just fine with Leech.
"Bill likes the press, and they like him," Leech told FORTUNE in a rare one-on-one interview in December. "Our organization has never sought the limelight."
Unfortunately for Leech, the limelight is about find him. With Legg's recently completed acquisition of Citigroup's asset-management unit, Western has now passed Pimco in fixed-income assets under management, with $520 billion, most of it in institutional accounts. Pimco said it could retake the lead when it integrates assets from corporate parent Allianz. For now, though, the Citigroup deal has made Western the biggest bond house on the planet and given Leech a new in-house moniker, courtesy of Bill Miller.
The KOB (King of Bonds)
"Ken is now the King of Bonds -- the KOB," Miller quipped at a recent Legg Mason investment symposium. The KOB himself is nonplussed by his ascension. "Things haven't changed a lot," Leech said. Still, he acknowledged that the doubling of Western's assets could make the firm less nimble: "On the margins, the challenge of managing and performing with more assets is more difficult."
In recent years Western's performance has been every bit as good as Pimco's. Western Asset Core Plus, the firm's largest mutual fund (minimum initial investment: $1 million, or $2,500 through Schwab or Fidelity), has been a consistent market beater, with three- and five-year average annual returns of 6.61 percent and 7.40 percent. That compares with 4.81 percent and 6.53 percent for Pimco Total Return, Gross's flagship fund.
"Ken is a brilliant guy," said Michael Hyland, a Wall Street bond veteran who was Leech's boss at First Boston in the early 1980s. "But he's very different from Bill Gross."
Leech is press-shy; Gross is a media magnet. Leech is afraid of heights; Gross owns a house on a cliff. Leech is a competitive bridge player; Gross's game of choice is blackjack. But the biggest difference may be strategic. Gross has excelled by making well-timed interest-rate bets on Treasury or mortgage bonds. Leech owes his success to credit-quality bets in the corporate bond market.
"It's a different bent," Hyland said. The former requires a keen reading of macroeconomic trends, while the latter relies on bottom-up research on hundreds of corporate borrowers.
That's not the only difference. The markets for Treasuries and mortgage-backed securities are huge and liquid. The corporate bond market is smaller and thus more difficult for a big firm to navigate -- at least without affecting the prices of the bonds it is trading.
That's why, even before the Citigroup deal, Western was increasingly using credit derivatives to get exposure to corporate bonds while minimizing market impact, said Jeff Hussey, director of U.S. fixed income at pension giant Russell Investment Group. Derivatives are not a panacea, though, and Western may still have to adapt to its much bigger asset base, perhaps by making more sector-wide calls on credit and fewer on individual companies, said Hussey.
He notes that Pimco used to make a lot of hay over its ability to cherry-pick superior credits in the mortgage market. But now that Pimco is managing more than $500 billion, "they admit that it's harder to add value doing that."
Whether it's a concession to size or merely a reading of the market, Leech has in fact cooled a bit on corporate bonds. He now describes himself as neutral on them, though he's still more bullish than many of his peers. The prevailing wisdom is that the average spread between Treasury bond yields and corporate bond yields -- now about 90 basis points, down from 235 in September 2002 -- is too narrow considering the risk in the corporate market.
Leech disagrees. "It's a reflection of the positive economic environment," he said. In his Legg Mason talk, he elaborated: "You had the Asian Contagion; next it was the U.S. recession; and then there was ... the entire corporate governance, Enron, WorldCom bottom. Are you really supposed to compare today's spreads with those two or three years ago?"
Leech believes the biggest bond opportunity right now is in mortgage bonds, particularly five-year and other intermediate maturities. As for interest rates, he's not expecting any big swings. The reason? Inflation is under control, despite the recent spike in oil prices.
"The story of interest rates is the story of inflation," he said in his presentation. "Our basic perspective is that the Fed has in fact achieved price stability."
If Leech has one worry, it's the prospect of an inverted yield curve. Yield-curve inversion occurs when short-term bonds pay more than long-term ones. The yield curve inverted slightly in late December. Historically, inversions have been a near-perfect predictor of economic slowdowns and recessions. With this history looming over the market, Leech thinks the Federal Reserve may be nearly done hiking short-term rates.
"It's a terrific indicator," Leech said of the link between inverted yield curves and recession. "That's why the Fed should be cautious about continuing to raise rates. We hope they won't."
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holycow
Member
Username: holycow
Post Number: 2232
Registered: 08-2004Rating: N/A
Votes: 0
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| | Tuesday, January 10, 2006 - 08:14 am: |
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Kevin,
Thanks for the post. That's a good read.
Regards.
HC
"... if you've got a chart, I have an opinion!"
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holycow
Member
Username: holycow
Post Number: 2233
Registered: 08-2004Rating: N/A
Votes: 0
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| | Tuesday, January 10, 2006 - 08:41 am: |
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... some Bear commentS, just what this forum needs 
1) DJIA closed at 11011.90 this morning and SPX at 1290.15; here's the not so healthy observation - the volume of DJIA has been less than convincing - it's riding on its little cousin NASDAQ's trail blazing run. This probably also reflects the "investor" thinking - they are going for non-capital intensive, less interest sensitive stock/market - this, seeing from the eye of a bear, a rally with a short term focus.
The day of reckoning shall come when FOMC has its next meeting to decide the fate of future interest rate. Any surprise coming from here will mean... well, up to your imagination!
2) The local market was making new high in its index, but check this out, I mean you do your homework and draw your own conclusion so there's no need to blast me for being negative here. Check out:
a) how many stocks are making new high?
b) how many of those making new high are market leader?
c) how many speccies are making sky high, ATH, new high?
d) how many of these new high speccies are actually making money? (if they are not, you can safely assume bulk of the rise is due to speculation, which naturally means it won't take much to knock them down)
e) which sector is making the new high? How many are they?
f) the new high volume, are they "in-sync" with the new high price? Stock wise? Sector wise? Market wise?
g) close your eyes, do a quick glance over the forum topics and titles - how many are bullish posts? How many are bearish posts (like this one?) - feel it for the next few days and see if the "exuberance" is "contained" and "controlled" "with caution"; or there's an overall sense of jubilation?
h) here's how to dress a chicken for roasting... first spread the chicken on the chopping board with the chest facing upward, slice across from neck down to the bottom with your knife; split the chicken apart, rub salt, sauce and a little sugar into the chest cavity, turn it around, rub salt and sugar on the skin, making sure it's evenly coated, sprinkle some pepper and leave it to "cool dry" in fridge for a couple of hour - this will give you the desired crispy skin... YUM!
i) oopsy! ... chicken again? I think I am getting hungry... Grrrr!
HC
"... if you've got a chart, I have an opinion!"
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vermante
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Username: vermante
Post Number: 533
Registered: 11-2002Rating: N/A
Votes: 0
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| | Tuesday, January 10, 2006 - 09:18 am: |
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The current status of most global markets
Short Term Trend - UP
Intermediate Trend- UP
Long Term Trend - UP
Is Mr Roach crying wolf in the face of phenomenal global growth ?
Cheers
Vermante
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holycow
Member
Username: holycow
Post Number: 2234
Registered: 08-2004Rating: N/A
Votes: 0
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| | Tuesday, January 10, 2006 - 10:08 am: |
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Mr Roach is acting as Mr Roach - as an economist with a lot of misgiving on global economy which by implication will impact the global market.
HC the cow in bear suit is the one that is crying wolf...
Cheers.
ps: make hay while the sun shines, while I am crying wolf I am also betting at the same time - this thread is meant as a "sore thumb" so we know why we get hurt sometimes.
HC
"... if you've got a chart, I have an opinion!"
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holycow
Member
Username: holycow
Post Number: 2236
Registered: 08-2004Rating: N/A
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| | Tuesday, January 10, 2006 - 12:36 pm: |
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... I think... errhh... the bull in this "bull"market look and feel like a sick cow... Duh!
HC
"... if you've got a chart, I have an opinion!"
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holycow
Member
Username: holycow
Post Number: 2240
Registered: 08-2004Rating: N/A
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| | Wednesday, January 11, 2006 - 11:30 am: |
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China Remains The Culprit In Asian Steel Markets
January 11 2006 - Australasian Investment Review – (AIR)
According to steel industry consultants MEPS, there are likely to be significant price cuts to flat steel prices this month as the oversupply problem stemming from increased production in China continues to impact on the market.
At CSFB the steel analysts note China’s net imports of finished steel have fallen from 15mt in 2004 to 5mt last year, leading to it becoming a net exporter of 400,000 tonnes of finished steel in December.
The broker notes the deteriorating fundamentals in China have depressed steel prices across the Asian region, leading to a narrowing of the price gap.
On the broker’s numbers Hot Rolled Coil (HRC) is priced at US$310/t in China, compared to US$400/t in Taiwan and US$450/t in Korea. In comparison, the US HRC price is about US$580/t.
As MEPS points out, this oversupply problem refuses to go away despite production cuts in Japan, Korea and Taiwan, with CSFB noting further convergence in global prices is likely.
...
MEPS expects any action to curb output won’t reverse the growth in production but should at least see it slow to levels below that of last year.
This supports the MEPS view the rate of price decreases in the Asian region should decline over the course of 2006, leading to the chance of a modest upturn in the second half of the year. (... blime, I can never understand what the last two paras mean, it reminds me of a song really - "even the bad times sound good...")
*** just like to ask a contrarian question - so does this "over supply of steel from China" have any material impact on the ongoing iron ore price negotiation (since China is always "used" as a reason for all commodity good news)?
*** what happen to BHP and RIO if the negotiation end with something like the ongoing coal price negotiation? -31% and counting... (I believe(meaning: guess) the anticipated +10% has been priced into RIO and BHP's SP)
*** nah! Forget it, I am just playing chicken licken here - just having you on... don't worry mate, she'll be alright.
HC
"... if you've got a chart, I have an opinion!"
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holycow
Member
Username: holycow
Post Number: 2248
Registered: 08-2004Rating: N/A
Votes: 0
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| | Friday, January 13, 2006 - 11:19 am: |
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... hey, has anyone noticed how "active" and exuberant this forum has become?
HC
"... if you've got a chart, I have an opinion!"
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