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Bloomberg Briefs’ Global Central Bank Monitor

March 24th, 2011 Michael McDonough Comments off

To subsribe please go to {BRIEF <GO>} on your terminal , or visit www.bloomberg.com/brief

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Sign up for the Bloomberg Brief Economics Newsletter

November 11th, 2010 Michael McDonough Comments off

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The QE Trade Road Map From the Bloomberg Brief: Economics

November 3rd, 2010 Michael McDonough Comments off

When the Federal Reserve launched its unprecedented program of quantitative easing in early 2009, it was difficult to predict how various asset classes would react. Now, as the Fed considers a second round of asset purchases, the first program has left a blueprint of sorts behind that could be useful in predicting how markets might respond. The table here shows, as measured by R^2, how strongly the fluctuations in a variety of assets are correlated with the level of securities held by the Fed during the first six months of 2009. The table also displays the performance of these assets during the first half of 2009, as well as in the period since Fed Chairman Benjamin Bernanke’s Jackson Hole speech, where he laid out the case for additional quantitative easing.

To subscribe for free go to {BRIEF <GO>} on any Bloomberg terminal or if you don’t have a terminal go here to subscribe for a fee: www.bloomberg.com/brief

**This is an excerpt from the Brief published on 10/29/10**

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US Equities Outperforming The World

May 17th, 2010 Michael McDonough Comments off

As of this morning, not only have US equities (as measured by the MSCI)outpaced their global counterparts, but on a year-to-date basis it’s the only index still showing gains, albeit somewhat modest.  Interestingly, as of this week the spread between the MSCI US and MSCI World index reached its highest spread of the year, mostly due to losses in Latin America and emerging Europe. 

MSCI Indices:

Source: Bloomberg

 

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A Crossroad for the Eurozone’s Survival

May 9th, 2010 Michael McDonough Comments off

Europe’s rapidly escalating out-of-control debt crisis has brought about a rare occurrence, solidarity amongst its members; an elusive attribute in the European experiment.   Eurozone members, who have worked tirelessly over the weekend, appear to have agreed on creating a $645bn loan package to help defend its currency and stymie fears of Greek contagion to other countries.  It is still too early to tell whether or not Europe’s new found cooperation will be enough to restore investor confidence, but the Euro has regained some ground in Asian trading.  The true test will come in its ability to bring down skyrocketing yields for Portuguese and Spanish debt, which has come under the microscope of investors due to each countries’ weak fundamentals.  Portugal’s close mirroring of Greece just prior to that country’s breakdown may have been a major catalyst to the creation of this unprecedented loan package—along with a free falling euro.

If this package fails to bring down yields for Spanish or Portuguese debt or stabilize the Euro this situation will very quickly escalate out of control with the potential of tearing apart the Eurozone.  Many already believe the best solution for Greece with but to withdraw from the EU, and return to the Drachma, which only a few months ago would have been an unspeakable idea.  However, historically these types of programs tend to work, or at least stabilize the situation and buy more time for a more permanent solution if necessary.  Nevertheless, a bigger risk may lie ahead for Europe in the form of a double dip recession brought on by austere fiscal policies necessary to repair most member nations ailing budgets.  The EU’s weakest members, commonly referred to as the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) could find it extremely difficult to survive another recession.  Think about someone who has maxed out all of their credit cards, and is about to take a large pay-cut at work.  The only difference here is these countries are indebted to more than just a few credit card companies…

The next twelve hours will be critical for Europe, however, investors mustn’t forget about the next 12 days or 12 months either as this package could prove to be a Band-Aid for a much deeper wound.

Early comments from Paul Krugman raise some good points, but aren’t promising for either Portugal or the rescue package. But, I think the precipitous drop in the euro is indicative of plunging confidence in the region, and both aspects need to be addressed simultaneously.

“I’m not encouraged by the remarks of some of the leaders, who keep talking about protecting the euro as if speculation against the currency were the problem. Actually, a weak euro helps Europe. Speculation against the debt of weak nations is another matter; will they have any real answer to that problem?”  -Paul Krugman

Krugman’s Blog

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Chilean Earthquake Map & Impact on Copper Production

February 28th, 2010 Michael McDonough Comments off

The main port which has been shut down by the earthquake is in Valparaíso just west of Santiago.  The Codelco copper mine impacted is 50kms north of Santiago in Andina, and produces an estimated 600K tons per year.  Codelco’s other mines in northern Chile are reported to be operating normally.  Anglo American Plc reported yesterday its Los Bronces and El Soldado mines were closed; together these mines produce about 280K tons a year.  Bloomberg is reporting that the mines effected account for approximately 16% of Chile’s copper production. Refineries have also been impacted by the earthquake.  It has been reported that Chile will begin importing diesel to support the domestic supply. 


View Chile Earthquake helpful information in a larger map


Copper Futures:

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Week End Update on my Global Macro Trading Strategies

January 8th, 2010 Michael McDonough Comments off

Here is an updated table containing my global macro trading strategies for retail investors.  **For the details behind my global macro trading hypothesis, please see my past article on this blog and at RealMoney.

Global Macro Trading Ideas

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Cantor Raises Price Target for DSX

January 8th, 2010 Michael McDonough Comments off

Cantor Fitzgerald raised the price target for Diana Shipping (DSX) to $18 from $16 based on higher rechartering assumptions.  Cantors presently holds a ‘Buy’ rating on DSX.  DSX is one of the few shippers within the dry bulk space on which I hold a relatively constructive view.  Compared to other shippers the company has a healthy balance sheet, and is well position to take advantage of distressed asset prices.  In fact the company recently initiated a two year expansion program with its purchase of a new vessel.


Source: Bloomberg & Capital Link

Shipping rates over the near-term will likely remain volatile. Why? China.  China still holds a disproportional influence over shipping rates, and when a single player holds that much sway, volatility is inevitable, especially when that player is China. Therefore, anyone closely following the shipping sector needs to be very aware of what is happening in China. The secondary driver is of course a tug-of-war between a growing supply of ships and gradual increments in global demand for the service. Over the long-term, shipping rates should remain volatile through-out the year, but on average remain relatively subdued.

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A Review of my EQ Based Global Macro Trading Ideas

December 22nd, 2009 Michael McDonough Comments off

Today I wanted to quickly highlight the performance of my equity based trading strategies around my global macro economic investment thesis.

Emerging markets: I continue to believe that emerging-market growth and equity performance — especially in countries with a strong consumer base — will continue to outpace developed nations in 2010. Therefore, you should still consider long positions in iShares Brazil (EWZ) and iShares FTSE/Xinhua China 25 (FXI).

Risks in Brazil include an eventual uptick in the central bank’s Selic rate, which could stymie the country’s growth. In China, early inflationary warnings could eventually lead to tightening actions by the government that could hamper growth. Still, I believe upside potential outweighs the risks over the short term. For more details on this trade idea, please see my piece published on Oct. 9 titled “Easy Money is a Big Driver.”

Steel: The continuing global economic recovery combined with relatively conservative steel demand estimates for 2010 should help propel steel prices in the year ahead. In addition, the potential consolidation of inefficient Chinese steel mills may lead to reduced output, placing excess demand in a favorable pricing environment on South Korea’s Posco (PKX ) and Japan’s JFE Holdings. Strong demand in other emerging markets should help to support Gerdau (GGB). Risks to these investments include a weaker-than-anticipated global recovery or an oversupply of steel weighing on prices. See my column from Oct 16, “Coal Seeing Recovery in Foreign Demand,” for more thoughts on this theme.

Japan: Not much has changed on my bearish view toward the yen since I published a piece called simply, “How to Play Japan” back on Nov. 13. In fact, I would argue that support for any further yen appreciation has dissolved, creating a good entry point for a short position via puts on ProShares Ultra Yen (YCL) or a straight long position in ProShares UltraShort Yen (YCS). This trade depends heavily on timing, and I anticipate that the yen should move back above 100 per U.S. dollar over the coming months.Japan’s woes have recently been noticed by Moody’s, where a senior vice president was recently quoted by Bloomberg as saying, “Things we are most concerned about are the lack of well-articulated long-term fiscal consolidation and a debt reduction plan.”

Rail: Warren Buffett’s purchase of Burlington Northern Santa Fe (BNI) provided a strong boost for railroads and provided Buffett with a bet not only on long-term U.S. recovery, but also on coal. I recommended CSX (CSX), Union Pacific (UNP) and Norfolk Southern (NSC) based on what I assumed to be Buffett’s investment thesis. These positions may not have the same short-term upside potential as some of my other ideas, but they should provide some longer-term value in your portfolio. My piece from Nov. 13, “Coal in Your Stocking: Hypocrisy, Senility or Common Sense?” has more information about this trading idea.

Agriculture: Ag products will see more demand as developing nations begin to eat more like developed countries. Ag stocks also provide investors with a good real-time hedge against inflation and thus far have lagged pricing increments seen in other commodities. I maintain my constructive long-term view on wheat, corn, sugar, soybean, cocoa and hogs. One way you might play these positions is through exchange-traded fund PowerShares DB Agriculture (DBA), which is unique in that it invests in actual commodities futures vs. agricultural companies. For more information on trades in the ag sector, please see my piece published on Nov. 20 called, “Talking Turkey on Agriculture Trends.”

China energy: Very little has changed since I first published my thesis on Chinese energy companies last week, “Three Ways to Play China Oil & Gas for 2010.” I still believe that PetroChina (PTR), Sinopec (SNP), and CNOOC (CEO) are all well positioned to take advantage of China’s growing energy and natural gas market in the year ahead.

Global Macro Trading IdeasSource: Bloomberg

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Andy Xie: Central Banks, Arsonists and Playing with Fire

October 29th, 2009 Michael McDonough Comments off

Here is another article by Andy Xie–always an interesting read–former Morgan Stanley economist, who predicted the credit crisis well before it came to fruition.  In this article Andy highlights how money supply growth is supporting a boom in asset prices, which in turn is bolstering the economy.  He goes on to compare central banks supplying money to ‘arsonists’ who have now ‘been asked to put out the fire’.   In conclusion he says:

A word of caution for all would-be speculators: You’ll want to run for your life as soon as the bond market takes a big fall. And the case for a double dip in 2010 is already strong. Inventory restocking and fiscal stimuli are behind the current economic recovery, and when these run out of steam next year, the odds are quite low that western consumers will take over. High unemployment rates will keep incomes too weak to support spending. And consumers are unlikely to borrow and spend again.

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Categories: Asia/China, Equity Markets, LATAM, US Tags: