Friday’s Thoughts and Seven Investment Themes

First, the trajectory of monetary policy in the US, Europe, China and Japan is in a more accommodative direction. Second, the underlying economies are showing preliminary signs of stabilizing. Third, the combination of easing monetary conditions and economic stabilization has boost demand for higher risk assets. In addition to major equity markets, emerging markets off to a strong start. Funds that exited the emerging markets in Q4 11 return. This has helped fueled currency and asset (bonds and stocks) appreciation

On Canadian and Australian bank risk

Banking sectors in both countries are highly concentrated. The top four banks in Australia account for about three quarters of the banking assets. The top six Canadian banks account for upwards of 90% of the Canadian banking assets. According to Fitch, the concentration and high profits of the banking sector is favorable to each as it provides a cushion against losses and need to pursue higher risk activity/lending.

Both Canada and Australia are experiencing over-valued housing markets. The IMF estimates Canadian house prices are about 10% risk while Australia is 10-15% over-valued

Seven Observations about Commitment of Traders in FX

The Commodity Futures Trading Commission requires futures traders to identify whether they have an underlying business interest (commercials) or if they don’t (non-commercials). Here are seven take-aways from the most recent report that covered the week through January 17th

Grokking the Canadian Dollar in Three Correlations

The brief study presented here shows that over the past 60 days, the Canadian dollar has been more correlated with the S&P 500 than most currencies we looked at, and is also highly correlated with the euro, though in line with most of the other major currencies. It correlation with crude oil is considerably weaker than with the S&P 500 or the euro, but is also in line with most of the other currencies we looked at

Chart of the Day: Developed economies’ debt levels by sector

This is a great chart below via the Wall Street Journal. It shows the total debt to GDP ratios for the largest developed economies in the world broken down into four sectors: households, non-financial corporations, financial institutions and government

On the IMF bailouts, Greek defaults and Canadian household debts

Below is the link to my latest appearance on BNN with Howard Green and Ryan Avent. Quick thoughts here

News Links: European and Chinese Manufacturing Stalls, as US Advances

ISM – ISM Report – November 2011 Manufacturing ISM Report On Business® "The PMI registered 52.7 percent, an increase of 1.9 percentage points from October’s reading of 50.8 percent, indicating expansion in the manufacturing sector for the 28th consecutive month. The New Orders Index increased 4.3 percentage points from October to 56.7 percent, reflecting the

Full Text: FRB Statement on Coordinated Central Bank Action on Currency Swaps

“The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity. “

Video: My Blackberry is not working

Stuff like this is a very bad sign for Research in Motion as their share of the mobile handset market has plummeted to 9%. Shares are at a seven-year low

Constructive view of Canadian dollar

The US dollar fell to 4-year lows against the Canadian dollar late last month near CAD0.94. In the tumultuous markets in the first half of August, the US dollar rallied about 6.5% into August 9th to briefly poke through CAD1.0 for the first time since early Feb. With today’s weakness, the US dollar has surrendered a little more than a third of its rise

The Gold-Silver Ratio – Another Look

The gold-silver ratio (GSR) measures how many ounces of silver one can purchase for an ounce of gold, on a certain date. Reference to the ratio has a long history. One of the first mentions was that upon the death of Alexander the Great, the ratio was 12.5 to 1. During the Roman Empire, the ratio was set at 12. By the late 19th century, the ratio had risen to 15. Interestingly, these historical ratios roughly reflect geologists’ estimates that silver is 17 times more abundant than gold in the earth’s crust. This gives many investors a reason to believe that 17 is the natural balance between these elements, and that eventually the GSR will return to it

Bill Gross: ‘Low policy rates represent an immediate threat to investment portfolios’

Bill Gross: Low policy rates and the increasing negative real yields that they engender as inflation accelerates represent an immediate threat to investment portfolios. Bond prices don’t necessarily have to go down for savers to get skunked during a process of “debt liquidation.” PIMCO advocates a renewed vigilance, stressing bond market “safe spread” alternatives available globally, including developing/emerging market debt at higher yields denominated in non-dollar currencies.