A Documentary on European Crisis
WSJ crew came out a nice documentary on European crisis – something to put in your archive.
Bob Doll’s Ten Predictions in 2012
Bob Doll at Blackrock offers his market predictions in 2012-
10 Predictions for 2012
Making predictions for a new year is always a difficult task, but this year the uncertainty associated with emerging markets growth, upcoming elections, and the European debt situation in particular, make the forecasting exercise especially precarious. Nevertheless, it is with this backdrop that we move forward with our predictions for 2012:
- The European debt crisis begins to ease, even as Europe experiences a recession
- The US economy continues to muddle through yet again
- Despite slowing growth, China and India contribute more than half of the world’s economic growth
- US earnings grow modestly, but fail to exceed estimates for the first time since the Great Recession
- Treasury rates rise and quality spreads fall
- US equities experience a double-digit percentage return as multiples rise modestly for the first time since the Great Recession
- US stocks outperform non-US stocks for the third year in a row
- Dividends and buybacks hit a record high
- Healthcare and energy outperform utilities and financials
- Republicans capture the Senate, retain the House, and defeat President Obama
How Chinese view Europe
Interview of Jin Liqun, Chairman of China’s Investment Corp. (or CIC), China’s sovereign wealth fund, with $460 billion assets under management.
Jin offers his views toward Europe and her economic and political systems. He also explains why CIC is unlikely to inject large rescue investments as per European leaders’ request. I’d say Jin’s views toward Europe is quite typical in China.
Starting from 12″10′ in the video interview, Jin had some really strong (yet painfully true) comments toward European welfare system.
The US is still under recession watch
In the last summer, David Rosenberg made the recession call – he’s 99% sure the US will slip into recession. Despite a very volatile second half of 2011, the recent data on unemployment, consumer confidence and housing sales all seemed to indicate the US economy is getting better.
But according to the leading economic indicator, shown below, the US economy is still pretty much under recession-watch territory. Since late 1960s, the indicator only missed once in predicting the onset of recession — the second half of 2010. In other words, at the current level of the index, there is a very high risk that the economy is likely to head down, not up. So will the indicator miss the target again, or we are indeed heading into another recession in 2012?
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In the following video interview, the author of ECRI leading indicator explains to Bloomberg’s Tom Keen why he thinks the US is still not out of woods yet.
ECB’s liquidity injection: game changer, or not?
According to WSJ, the ECB last week rushed out emergency support for the euro-zone banking system, laying out an unprecedented €489 billion at its first-ever three-year lending operation.
The amount of money parked by euro-zone banks in the ECB’s 0.25% deposit facility surged to another new record of €452.03 billion Tuesday (Dec.27) , up from €411.81 billion over the Christmas break and well above the previous record high of €384 billion. News that euro-zone banks are parking more and more cash at the ECB’s low-yielding, but safe, deposit facilities adds to evidence that banks are more concerned with seeing out the year in safety than with putting it to work in the real economy or the euro-zone debt markets.
Watch this interview of Bob Mundell – he thinks this is the game changer, a blockbuster event.
Dennis Gartman seriously doubted it. In his recent investment newsletter, Gartman describes how Europe has arrived at its own “Lehman moment.”
The problem in Europe is that we’ve arrived at Europe’s own “Lehman-moment” when banks and institutions are wholly unwilling to lend money to anyone, anywhere. They are willing to draw down their lines of credit from the ECB, but they are re-depositing those borrowings back to the ECB itself. Initially we thought this reasonable. Initially we thought that the banks drew down their lines from the Central Bank and re-deposited them with the Bank awaiting investment elsewhere. We thought this normal. Now, however, we consider it disconcerting for it shows the utter sense of confusion and the even more utter sense of fear that has engulfed the banking system in Europe. Rather than viewing these new credit lines from the ECB as a source of funding for investment, the banks in Europe are viewing those ECB-created funds as a source of “fear capital” to be used should worst-come to-worse on the continent. Fear rather than optimism is driving the banking system.
We fear then that worse is about to happen, for the very core of things banking and economic depend upon trust and trust is now wholly lacking in Europe.
2011: A year of tumult
2011 will go down in history as one of the most volatile years for the stock market: The Dow Jones Industrial Average swung 100-plus-points from open to close more than 100 times.
Market timing became extremely difficult, especially after July. The best strategy should be just staying put, holding cash. You do better by doing nothing.
This chart gives you a nice illustration of what we have been through:
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US housing market update
The latest housing price, as captured by the Case-Shiller Index, continued to fall in October. Here are two sharp charts from Calculated Risk.
Time trend:
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Accumulated price fall by major US cities:
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Combined with latest sales figure, the inventory of existing home sale, after a faked jump due to government’s incentive program, seemed starting to move again. However, the new home sale is still very much depressed.
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According to PNC’s Stuart Hoffman, 2012 will be a transition year for the housing market. The hope is that the gradual fall of the housing price may eventually clear the inventory, six years after the last housing peak.
If the economy turns weaker in 2012, the Fed may eventually be forced to buy more mortgage-backed securities. However, the likelihood of any household debt relief program is dim, considering the current fiscal situation. In 2012, we are likely to see a continued muted growth in the US. Now people began to appreciate the importance of housing in driving business cycles. Without robust recovery in US housing market, any talk of V-shaped recovery only sounds foolish.