EUCOM Economic Analysis - Part I

[Surferbeetle]

Appreciate the Czech links, from there it was a short walk to the Chalga videos on youtube...that damn globalization.

TAFTA is back, approximately 50% of global trade may be impacted if the negotiators can pull it off. The time table for implementation of Basel III has been relaxed, the LTRO is being paid off (kinda ), there is talk of a Great Rotation from bonds to stocks, interest rates are indeed fluctuating, currency wars are a topic of discussion...hmmm...we are at technical boundaries (52 week highs are regularly being broken) and fundamental valuation boundaries on the stocks that I follow...the phrase 'the market can remain irrational longer than one can remain solvent comes to mind.' I have taken to buying ETFs early in the week and bailing out by the end of the week...

Transatlantic Free Trade Area, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Transat...ree_Trade_Area

From ideas to implementation, Remarks by Mr Stefan Ingves, Governor of the Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision, at the 8th High Level Meeting organised by the Basel Committee on Banking Supervision and the Financial Stability Institute and hosted by the South African Reserve Bank, Cape Town, 24 January 2013, http://www.bis.org/review/r130124a.pdf?frames=0

Of course, there are plenty of other big ideas being floated on how the banking industry should be restructured in the aftermath of the crisis, particularly those related to varying models of structural separation (eg the ideas of Volker, Vickers and Liikanen). But for those that fall within the mandate of the Basel Committee, we believe that the ideas produced by Basel Committee thinking – translated into the Basel III reforms, and subsequently endorsed by the G20 and Financial Stability Board – provide a substantial foundation on which the banking system can be rebuilt to be much more robust and resilient in the future.

ECB Website, Open market operations, http://www.ecb.int/mopo/implement/om...ex.en.html#com

ECB Says Banks to Repay More Than Forecast of 3-Year Loan, By Stefan Riecher - Jan 25, 2013 5:56 AM MT, Bloomberg News, http://www.bloomberg.com/news/2013-0...next-week.html

Some 278 financial institutions will return 137.2 billion euros ($184.4 billion) on Jan. 30, the first opportunity for early repayment of the initial three-year loan, the Frankfurt- based ECB said in a statement today. That compares with the median forecast of 84 billion euros in a Bloomberg News survey of economists. The ECB’s first loan totalled 489 billion euros and banks can continue to make early repayments in coming weeks.

The ECB still allows banks to borrow as much money as they want against eligible collateral for periods of one week, one month and three months. Some economists say this reduces the importance of the three-year loans being repaid.

Government Bond Yields, Bloomberg, http://www.bloomberg.com/markets/rates-bonds/

China’s Yi Warns on Currency Wars as Yuan Close to ‘Equilibrium’, By Jeff Black & Zoe Schneeweis - Jan 27, 2013 11:00 AM MT, Bloomberg News, http://www.bloomberg.com/news/2013-0...ilibrium-.html

Japanese Economy Minister Akira Amari said in Davos that his nation aims to defeat deflation rather than weaken the yen, after Prime Minister Shinzo Abe’s push for laxer monetary policy sparked a slide in the currency. His comments on Jan. 26 followed a week in which German and Canadian policy makers joined a worldwide chorus highlighting a recent plunge in the yen as a worry.

“A currency war, a series of ###-for-tat competitive devaluations, would trigger trade protection measures that would damage global trade and therefore growth globally,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong who previously worked for the World Bank. “That would not be good for any country with a stake in the global economy.”

Reasons to feel bullish as political clouds fade, January 25, 2013 8:29 pm, John Authers, Financial Times, www.ft.com

What could possibly go wrong? Stock markets have had a great start to the year. The talk about a “Great Rotation” from bonds into stocks, and of a new Bull Market in equities, is deafening.

As the US fund manager John Hussman points out, the following combination currently holds: the S&P is more than 8 per cent above its average of the preceding 52 weeks, more than 50 per cent above its four-year low, and trades well above its historic average cyclically adjusted earnings multiple; while treasury yields have risen over the past six months, and investor bullishness far outweighs bearishness. This combination has been seen nine times in the past four decades, and in all but one a correction ensued.