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Euro In Crisis Yet Again: Spain in Trouble. Italy is Potentially Worse. But Worry Not. PDF Print E-mail
Written by Burnham Banks   
Tuesday, 24 April 2012 02:02

If anyone believed that the proceeds of the LTRO were meant to be spent buying bonds in the secondary market, they have misunderstood the raison d’etre of the LTRO.

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Hedge Fund Investing In 2012 PDF Print E-mail
Written by Burnham Banks   
Monday, 16 April 2012 08:10

Forget about correlations. Here are the conditional probabilities between equity market monthly returns and hedge fund returns as represented by the MSCI World Equity Index and the HFRI Hedge Fund Index respectively.

Last Updated on Monday, 16 April 2012 08:20
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Investment Strategy In a Crazy World April 2012 PDF Print E-mail
Written by Burnham Banks   
Friday, 13 April 2012 08:44

The erratic path taken by macro economic data and by asset prices such as stocks, bonds, commodities etc are the confluence of long, medium and short term cycles. The long term cycle took a turn in 2008 and remains decidedly poor.

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China Hard Landing. The Chinese Recession and the Threat to the US Economic Recovery PDF Print E-mail
Written by Burnham Banks   
Thursday, 29 March 2012 08:14

In Nov 2011 I warned that the Chinese economy was headed for a slump. This is an update. In the past quarter, manufacturing data has supported the view that the Chinese economy was decelerating rapidly.

Last Updated on Thursday, 29 March 2012 08:51
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Strong USD weak CNY PDF Print E-mail
Written by Burnham Banks   
Friday, 23 March 2012 00:11

Look for a moment at the deal struck between the US and China in the past decade. China has effectively agreed to hand over a thousand pairs of cotton underwear in exchange for an iPad 6 somewhere down the line.

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The ECB's QE2. How To Read The LTRO PDF Print E-mail
Written by Burnham Banks   
Tuesday, 21 February 2012 22:30

The 22 Feb MRO allocation came in at 166 billion EUR, 23 billion EUR more than the 15 Feb MRO of 143 billion EUR. All is not lost for those expecting another outsized allocation for the upcoming 3 year LTRO on 29 Feb. But interpreting a small or large number is not straightforward.

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ECB LTRO Mk II. QE(Stealth) PDF Print E-mail
Written by Burnham Banks   
Wednesday, 08 February 2012 06:18

 

The ECB’s QE(stealth) has worked a treat since the printing presses were deployed 22 Dec 2011. The 3 year repo saw a 489 billion Euro allotment, equal to over 620 billion USD.

Last Updated on Wednesday, 08 February 2012 06:39
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Europe is so passé, watch China PDF Print E-mail
Written by Burn ham Banks   
Thursday, 26 January 2012 02:11

Brace

Last Updated on Thursday, 26 January 2012 02:16
 
The ECB Is Operating QE PDF Print E-mail
Written by Burnham Banks   
Friday, 13 January 2012 02:44

 

The ECB is printing money. It may not yet be directly purchasing sovereign bonds but it is acting as prime broker to the following hedge funds: commercial banks in Italy, Spain, France, Germany, etc etc.

On Dec 14, 2011 it became clear what the ECB’s intentions were. Faced with political constraints and bureaucracy regarding its mandate, a desperately practical ECB decided on a course of action to operate debt monetization on a significant scale circumventing the German government’s envisaged objections. For the full analysis of the ECB’s cunning plan, refer to The ECB is Ready For QE.

Last Updated on Sunday, 15 January 2012 23:49
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Breaking The Euro PDF Print E-mail
Written by Burnham Banks   
Monday, 19 December 2011 13:32

 

So far most commentary about a possible break up of the Euro has focused on an instantaneous exit by a single country. Their expectation that it would inevitably be very damaging leading to extended bank holidays, highly probable defaults, bank runs, and capital flight are not incorrect. However, what they may have missed is that the Euro was not created in a day, and a country need not exit the Euro in a day.

Last Updated on Monday, 19 December 2011 13:36
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Year End Wrap 2011 PDF Print E-mail
Written by Burnham Banks   
Thursday, 08 December 2011 06:56

 

The behaviour of markets this year has confounded expectations. It is useful to step back and view the landscape from a high level as daily market monitoring can lead to myopia and inability to distinguish between noise and signal. It is also useful to avoid over reliance on established or sophisticated financial or economic models particularly when a simple one will suffice. To understand the present it is necessary to understand the past. It is hoped that with this we might have some idea what the future might look like.

Last Updated on Thursday, 15 December 2011 03:19
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Weak Euro Ahead PDF Print E-mail
Written by Burnham Banks   
Monday, 05 December 2011 07:02

The Euro must fall. If the Euro is to be saved, and if there is not to be some messy bank default with a side order of contagion, the ECB will be engaged in debt monetization very soon.

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Our Economy PDF Print E-mail
Written by Burnham Banks   
Sunday, 04 December 2011 00:16

 

The future is a wonderful place. Because you can borrow from it.

Last Updated on Thursday, 22 March 2012 05:20
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Fed Extends Swap Lines at Discount PDF Print E-mail
Written by Burnham Banks   
Thursday, 01 December 2011 06:47

Yesterday the Fed and 5 other major central banks announced measures to shore up liquidity in the global banking system.

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How Many European Banks Are Insolvent? PDF Print E-mail
Written by Burnham Banks   
Monday, 21 November 2011 09:27

Is the European banking system solvent? How many European banks are insolvent? If one marks to market the value of all the assets of each European bank, how many would remain solvent?

Last Updated on Tuesday, 13 December 2011 00:33
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Singapore Housing Market 2012. Singapore Property Outlook PDF Print E-mail
Written by Burnham Banks   
Monday, 23 April 2012 08:21

Singaporeans are obsessive about real estate, much like Americans and Britons were before 2008 burst their bubble. However, while other countries' housing markets have failed to recover fully, the housing markets of the emerging markets have rebounded and surged past old highs.

Last Updated on Tuesday, 24 April 2012 02:05
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Why Invest In Funds? What Can They Do For Us? PDF Print E-mail
Written by Burnham Banks   
Monday, 16 April 2012 06:31

In investing and trading, easy to identify strategies are rare. Asian convertible bonds in late 2008 are an example, the QE2 liquidity infused rally of 2010, the first LTRO rally, the rebound in RMBS in 2009, are others. The massive relief rally on early 2009 was harder to identify and caught most investors off guard. The rally in US treasuries in the last 3 years, the rally in gold, the implications of the second LTRO, all have been diabolically hard to call and trade.

Last Updated on Tuesday, 17 April 2012 01:53
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Insane Markets and How To Think About Manager Selection PDF Print E-mail
Written by Burnham Banks   
Tuesday, 03 April 2012 03:43

Insanity

 

  • The US credit rating gets downgraded and US treasuries rally.

 

  • The ECB shoots morphine into an insolvent European banking system and it is the banks that rally most.

 

  • China leads global economic growth and its stock market performs most poorly.

 

  • Europe is in a serious recession whereas the US is in a mild recovery, yet European stocks rally as much as US stocks.

 

  • Global risk levels remain elevated and investors are increasingly jumpy yet VIX and other measures of risk aversion signal calm.
Last Updated on Tuesday, 03 April 2012 03:48
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Rising Interest Rates and a Stronger USD PDF Print E-mail
Written by Burnham Banks   
Monday, 26 March 2012 22:46

The last 30 years have been defined by falling interest rates across the USD curve. Since Volcker defeated inflation in the early 1980’s short term rates and long bond yields have tracked lower and lower. Inflation has similarly been trapped in the 3% to 5% range as Greenspan was celebrated for creating a Goldilocks economy, in reference to porridge that was neither too hot nor too cold. Since 1980, the US current account has also trended down into severe deficit until late 2006. During this time, the trade weighted USD has weakened by roughly 50%.

Last Updated on Tuesday, 27 March 2012 06:19
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The ECB's QE2. What a Result PDF Print E-mail
Written by Burnham Banks   
Thursday, 01 March 2012 00:37

Mario Draghi has been a genius. And I am sure he realizes that all he has done is bought the politicians more time to sort out the fundamental issues surrounding the Eurozone crisis. In the first 3 year LTRO 489  billion EUR was allotted. In this, the second, 529 billion EUR has been allotted, apparently to a great many banks, some 800 of them.

Last Updated on Thursday, 01 March 2012 01:10
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Economic Recovery or False Dawn PDF Print E-mail
Written by Burnham Banks   
Wednesday, 15 February 2012 07:36

 

The US economy consolidates its economic recovery while Europe slips into recession. China eases as its economy cools and the rest of the BRICs begin to loosen policy to bolster slowing growth. Amid this landscape, equity markets and other risky assets have rallied. The surge has been concentrated in the BRICs and in the cyclical and previously distressed corners of the global economy such as banking and consumer discretionary companies, especially luxuries. Defensive companies with stable and predictable cash flows have lagged.

Last Updated on Wednesday, 15 February 2012 10:08
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Investment Strategy, General Comments for 1Q 2012 PDF Print E-mail
Written by Burnham Banks   
Wednesday, 01 February 2012 01:06

 

Equity markets have rallied since mid Dec 2011 as the ECB began its QE(stealth) and the US economy continued to recover. It appears that equity markets want to take a breather. This could last between a matter of days to a couple of weeks. The trend is up.

Last Updated on Wednesday, 01 February 2012 22:43
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S&P Downgrades Europe; Morphine and Major Surgery PDF Print E-mail
Written by Burnham Banks   
Sunday, 15 January 2012 23:37

 

So S&P has downgraded a gaggle of European countries' sovereign debt ratings. What a surprise. Ratings agencies are not always the last to know, but they are always and everywhere a tad slow.

Last Updated on Monday, 16 January 2012 00:11
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Ten Seconds Into The Future: Investment and Economic Outlook 2012 PDF Print E-mail
Written by Burnham Banks   
Sunday, 08 January 2012 09:15

 

There is a reason I call this Ten Seconds Into The Future. The chances of getting a forecast right on the economy are probably 50-60% if you’re good. The chances of translating that into a call on market direction are probably 45-55% if you’re good. So whenever I express an opinion, I’m setting myself up to be wrong. But everyone needs a hobby. So for 2012, here goes.

Last Updated on Thursday, 22 March 2012 06:25
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The ECB is Ready For QE PDF Print E-mail
Written by Burnham Banks   
Wednesday, 14 December 2011 01:07

 

For the first time in its history the ECB is extending 3 year collateralized funding at 1% to European banks.

Last Updated on Wednesday, 14 December 2011 03:39
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Bloody Unlikely PDF Print E-mail
Written by Burnham Banks   
Wednesday, 07 December 2011 06:03

Stuff that’s least expected to happen:

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The Euro: No Economic Rationale for a Common Currency PDF Print E-mail
Written by Burnham Banks   
Monday, 05 December 2011 00:07

 

There is no economic rationale for Europe having a common currency. The USD works in the US because there is a common treasury on top of the state governments and Federal taxes and benefits unite the US. Also, labor mobility is high, and the national identity is at least as strong as the state or regional identity.

Last Updated on Monday, 05 December 2011 00:11
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A US Economic Recovery Is Shaping Up... But PDF Print E-mail
Written by Burnham Banks   
Friday, 02 December 2011 00:18

I first looked for an export led recovery in the US in June in my article Investment Strategy: The New Macro. It was my view at the time that the US economy had been in recession for the last 12 months, despite a 2 year long liquidity and emerging market driven bull market in the S&P500, and that no recovery had yet taken place, at least in real terms. My base scenario was that the US was becoming an export economy.

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China Hard Landing PDF Print E-mail
Written by Burnham Banks   
Monday, 28 November 2011 08:08

 

The problems in Europe lie in plain sight. It is likely that the ECB will eventually print money to monetize European sovereign debt, albeit at the eleventh hour, on the eve of some pan European bank threatening not to open for business one winter’s morning. The debt problems in the US are also pretty evident. Every US Treasury is now a PIK.  India's rupee has recently been sold down as public finances deteriorate. For real trouble one has to look at China.

Last Updated on Monday, 28 November 2011 08:21
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The Solvency of Banks PDF Print E-mail
Written by Burnham Banks   
Monday, 21 November 2011 06:01

Banks trade on confidence and reputation, not financial strength. Put aside for the moment the complicated and confusing Basel rules and let’s apply some common sense. Put aside definitions of risk weighted assets and Tier 1 or Tier 2 capital. Look at a bank as a business.

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