JS Global Macro Notes

Global Macro Notes: Is "QE2" Priced In?

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Steve Jobs and Ben Bernanke have something notable in common these days.

Apart from being graybeards, both have the weight of heavy expectations on their shoulders -- and the fate of this severely extended market rally in their hands.

Apple (AAPL), a consumer tech company that makes expensive entertainment devices, is (hypothetically) on its way to being the number one market cap company in the world.

AAPL seems to hold court at the top of every "conviction buy" list in the land -- a "no brainer" go-to name for fund managers to park incremental capital flows.

In result, AAPL has swelled to roughly 20% of the Nasdaq 100 (QQQQ) weighting. As far as speculative appetite is concerned, "as goes Apple, so goes the market."

And as for Fed Chairman Bernanke? He is now seen as master of the tide that lifts all boats, i.e. the wielder of "QE2" (quantitative easing, the sequel)...

View full notes here
 
Weekend Links Roundup: "Simplify, Simplify"

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There is lots of juicy stuff in the links roundup as usual.

But for this weekender we are going to heed classic advice from that famously cool cat, Henry David Thoreau, and try to "simplify, simplify" the bull and bear cases...

Go here for 10-03 links roundup
 
Learning how to read fundamentals correctly is something that takes considerable skill imo. I see you do a very fine job at it. Congratulations on your skill.
 
Quote from Optionpro007:

Learning how to read fundamentals correctly is something that takes considerable skill imo. I see you do a very fine job at it. Congratulations on your skill.
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Thanks! It's a long journey, and one of the goals is to never stop learning. Today's mistake is tomorrow's insight.

Forever improving, forever a student of the game...
 
Quote from Martinghoul:

The Force is strong with you, young Skywalker, but you're not a Jedi yet.

I just felt like saying that :).
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A certain swordsman in his declining years said the following: In one's life, there are levels in the pursuit of study. In the lowest level, a person studies but nothing comes of it, and he feels that both he and others are unskillful. At this point he is worthless. In the middle level he is still useless but is aware of his own insufficiencies and can also see the insufficiencies of others. In a higher level he has pride concerning his own ability, rejoices in praise from others, and laments the lack of ability in his fellows. This man has worth. In the highest level a man has the look of knowing nothing.

- Hagakure

p.s. In the Star Wars prequels (which were absolutely terrible), my favorite moment was when Samuel L. Jackson showed up. I kept waiting for him to go, "Does Yoda LOOK like a bitch?"
 
A quote for a quote, then (not greatly relevant, but I am a fan)...

There is timing in the whole life of the warrior, in his thriving and declining, in his harmony and discord. Similarly, there is timing in the Way of the merchant, in the rise and fall of capital. All things entail rising and falling timing. You must be able to discern this. In strategy there are various timing considerations. From the outset you must know the applicable timing and the inapplicable timing, and from among the large and small things and the fast and slow timings find the relevant timing, first seeing the distance timing and the background timing. This is the main thing in strategy. It is especially important to know the background timing, otherwise your strategy will become uncertain.

- Miyamoto Musashi
 
Global Macro Notes: Japan Fires the First Shot

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Japan has arguably fired the first shot in what many fear to be a new "currency war," and a Federal Reserve official has made clear the U.S. has the biggest bazooka.

Meanwhile, the unfolding foreclosure debacle and robo-signer scandal have increased the odds of follow-on housing market collapse, even as consumers show signs of serious retrenchment.

All this has dramatically enhanced the case for precious metals and related equities, by way of underscoring the likelihood of extreme QE2 measures.

Current events (and the Fed's anticipated reaction to them) also potentially overwhelm the 'austerity effect' of a Republican resurgence and fiscal gridlock in Washington.

In response, we have increased our already substantial gold stock positions and hedged our opportunistic short retail plays with long side buys of high quality blue chip names. The ultimate outcome of "QE2" efforts is still likely to be tragic for the U.S. economy.

View full 10-06 notes here
 
Weekender: The Federal Reserve is Destroying the Market Mechanism

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The markets are seriously out of whack. You can see this via simple illustration in the performance comparison chart above.

Over the past 90 days, equities, bonds, and gold have all gone up substantially. This is weird. To wit, the normal relationship between these assets has been grossly distorted by expectations of "QE2," i.e. the Fed printing money and using it to buy bonds in an effort to keep interest rates low.

As old R.L. sang, "It's bad you know." But why is it bad? Because markets have two primary functions -- capital allocation and price discovery -- and the second function enables the first.

The whole point of having a market is so that investors can allocate capital to enterprises that will use it most efficiently. (Or, in the case of the commodities markets, so that commercial producers and end users can transfer risk.)

But, in order for such actions to benefit the economy, the price discovery function of markets must remain intact. We have to be reasonably sure that the price signals (i.e. valuations) Mr. Market presents to us are actually grounded in reality.

This is where the actions of the Fed (and other central banks) throw everything out of whack. When asset prices are driven by expectations that the Federal Reserve will print money, rather than any true sense of intrinsic value, the signaling mechanism breaks down.

And as a result of this breakdown, investors and companies alike start making non-productive decisions based on distorted information, which in turn hurts the economy and destroys value...

Go here for full 10-10 links roundup
 
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