Category: Markets
On JPM’s Dimon’s still unassailable position and Facebook as the new Yahoo
I spoke to Paul Waldie and Brian Milner of the Globe & Mail on BNN’s headline on Monday. The big story was JPMorgan Chase and the London Whale trades. JPMorgan Chase’s CEO Jamie Dimon, as the leading lobbyists for the hands-off regulatory approach for US banks, has become a lightning rod for criticism of too big to fail banks in the US. Even so, I think it’s unlikely that Dimon will be forced out of his position. We also talked about Yahoo and the oversubscribed Facebook IPO. They are going to have to execute really, really well to justify the IPO valuation
Chart of the day: The German-Spanish 10 Year Spread is at an all time high
Spanish bond yields are spiking with no obvious reason to believe they will come down anytime soon. That puts the Spanish-German 10-year spread at an all time high
Don’t Fight the Last War: Lessons from the Battlefields of Risk Management
Our brains are not calibrated to deal with the unexpected. Most of us believe we are good risk managers but in reality we are not. Most of us trust that risk can always be quantified and expressed through some fancy modelling whereas, often, it cannot. The world is not normal, yet universities continue to teach our young students the wisdom of Markowitz and Sharpe which brought us modern portfolio theory and, more specifically, the capital asset pricing model. Garbage In, Garbage Out, as they say. One of the fundamental assumptions behind modern portfolio theory is that asset returns are normally distributed random variables. The return profile of US equities fairly closely matches that of a normal distribution with the exception of large negative returns. They have come about more frequently than one would or should expect
Norway dumps Irish and Portuguese bonds, Switzerland increases Sterling reserves
The Swiss National Bank reported its reserve figures yesterday and the increase in its sterling holdings are notable and may help explain the its relative strength, despite data a soft real sector reports, culminating in the news last week that, defying expectations, the UK economy contracted in Q1, the second consecutive quarter that the British economy shrank. Separately, Norway’s sovereign wealth fund, the Government Pension Fund Global, indicated it has sold off its Irish and Portuguese bond holdings, pared its Spanish and Italian holdings and increased its exposure to Mexico, Brazil and Indian bonds
Why The Yen Rally May Not Last
The Japanese yen was hands down the best performing G10 currency in April, gaining about 3.3% against the dollar and 4.2% against the euro. It appeared to start the new month on a strong note, with the dollar falling to 2 month lows in early Asia. However, in a holiday-thin European session and then in the North American session, the yen was sold off. There are several considerations that we briefly sketch here
Bill Gross: QE on hold but QE3 would be back on if jobs reports are weak
Last month PIMCO founder and Chief Investment Officer Bill Gross said PIMCO sees a mortgage-backed QE3 from the Fed as likely. As a result, Pimco has increased its exposure to these. He spoke to Bloomberg television yesterday about how his views on this have changed and it depends on the upcoming jobs reports
Chart of the day: Life insurers won’t meet nominal return targets
JPMorgan recently performed a study on the composition of portfolios managed by life insurance companies. The study looked at the top 20 life insurance firms using their regulatory filings. These are the portfolios set up to support projected policy claims. The reason it is important to measure the composition and the changes in such portfolios is that life insurance firms manage $1.9 trillion in assets. Here is the current breakdown
Graphite: Time to Invest, or Flavor of the Day?
Graphite has been getting a lot of buzz recently, raising bullish expectations among some investors and even talk of a future bubble. Why? The price has risen steadily over the past couple of years and attracted a lot of attention. Let’s have a look at why some market participants are excited about this mineral and see if it’s worth our investment dollars
Sovereign debt implications for Netherlands are negative for France and Austria too
Fitch has not been as aggressive as the other two agencies, keeping Austria and France at AAA up until now. As such, its negative comments about the Netherlands are noteworthy and likely signal a harder line by Fitch in the coming months. As a result, we think both Austria and France are likely to come under negative scrutiny by Fitch as well, as we view both as inferior credits to the Netherlands
Grantham: Missing a bull market is a dismissible offense
Jeremy Grantham: “The central truth of the investment business is that investment behavior is driven by career risk. In the professional investment business we are all agents, managing other peoples’ money. The prime directive, as Keynes knew so well, is first and last to keep your job. To do this, he explained that you must never, ever be wrong on your own. “
The Curious Case Of Liquidity Traps And Missing Collateral – Part 1
In this first post of a series of 3-5 posts, I try to present the building blocks of the argument as I see them and answer the question of why the traditional view on the liquidity trap does not apply in the current situation
On China’s Currency Band Widening Ploy
It is a ploy that would no doubt bring a smile to the faces of Sun Tzu and Machiavelli. First, China is giving up something that it is not really using. Specifically, the current band itself has rarely, if ever been utilized, which is why some observers have scoffed at the suggestion that the band would be widened. If the Chinese officials have shied away from using the fully range that the 0.5% band offers, there is no guarantee the wider band will be explored