Il Primo Ministro greco Lucas Papademos riceve l'approvazione del governo su tagli al bilancio che corrispondono al 7% del Pil nei prossimi tre anni e su una ristrutturazione finalizzata a ridurre di €100 mld gli oltre €200 mld di debito detenuto dai creditori privati, atteso il voto del parlamento • Standard & Poor's declassa il merito creditizio di 34 banche italiane tra cui UniCredit a BBB+ da A, Intesa Sanpaolo a BBB+ da A e Banca Monte dei Paschi di Siena a BBB da BBB+, S&P anticipa "una redditività decisamente debole per le banche italiane nei prossimi anni" • La produzione industriale italiana aumenta a dicembre +1,4% da novembre +0,3%, oltre le stime degli economisti +0,5%, anche se i dati del quarto trimestre -2,1% suggeriscono che la terza economia della zona euro è entrata nella seconda recessione dal 2009 • I Btp decennali salgono per la quinta settimana consecutiva, il periodo di recupero più lungo in oltre cinque anni, la prossima settimana il Tesoro vende €4 mld di buoni al 6% con scadenza 2014 • L'euro cala dal massimo di due mesi contro il dollaro, il mercato azionario europeo cala dal massimo di sei settimane e l'azionario Usa registra la prima settimana di perdite del 2012 dopo che i ministri delle finanze europee non hanno concesso il pacchetto di aiuto necessario a prevenire il collasso economico della Grecia

lunedì 17 settembre 2012

Market Comment - September 17

(Marco Bonelli) Is the Fed really able to plan and define developments years ahead?

"Aggressive" has been the most used description of last week's QE3 announcement and since then comments are sharply divided between broad support to outright disapproval. Open ended and with that, unlimited asset purchases have the bulls looking forward to new all-time highs for a lot of major averages and commodities going through the roof while the bears point out to the limited to non-existing effects on the economy but also a variety of unintended consequences.


Although there probably have been a number of valid reasons to not implement another round of QE, it's worthless engaging in plain disapproval and calling Ben Bernanke names but necessary and much more productive to deal with the situation as it is and as it develops!

First of all $40Bln / months MBS purchases (if left unchanged) accumulates to $623Bln by the end of 2013, about the same quantity and timeframe of QE2. QE2 saw a 14.4% front-run in the SPX until the announcement on November 4, 2010, showed a 2.3% rally on the day of the announcement and the day after, experienced a 4.4% pull-back in the four weeks following the announcement before another 12.2% rally kicked in over the next few months. In comparison, QE3 had a similar 13.4% front-run (counting most of the summer rally) and showed a similar 2.0% performance on Thursday and Friday last week. Even taking into account the shrinking effect on risk-on assets with each additional implementation of asset purchases, roughly 5% until the Dow Jones reaches new all-time highs, 7.5% for the SPX and roughly 10% for most other indexes appears to be a manageable distance over the next few weeks or months (the Nasdaq is obviously not included in these calculations as the bubble highs from March 2000 are far away). Although any comparison with past developments may turn out to deliver only limited value since we all tap in uncharted territory, at least the most recent development follows textbook advice: stocks and commodities sharply up, Dollar sharply down and bonds sharply down as a result of massive asset allocation shifts back into equities; in addition seven IPOs are already scheduled for this week and more are getting pushed down the pipeline.

With a much less "surprise" factor surrounding QE3 and taking into account many opposing opinions, mostly disappointing economic data in combination with the upcoming and probably disappointing Q3 earnings reporting season may not only lead to a similar "sell-the-news" pull-back as we have seen after the QE2 announcement but to a further "unexpected" reaction that many market participants already anticipated for some time. Especially in the day-to-day business how will the numbing complacency towards any kind of economic data develop? In the upcoming weeks, weak economic data and negative news headlines could easily be brushed off with the argument that the Fed's purchases still have to kick in (a weird and frightening analysis...) but ongoing negative data cannot get excused forever!

Beside that, many questions remain unanswered: Why didn't Ben Bernanke's preached wealth-effect materialize when the SPX more than doubled between 2009 and today and isn't that alone a major argument against the efficacy of QE3? Isn't the functionality of financial markets already pared and how much good or bad will further manipulation do? What will be the implications for bonds, interest rates, currencies over the next months and quarters? Will inflation really become a major problem and how will the Fed deal with it? What happens if fiscal policy doesn't follow up accordingly? Has the Fed played its last card and monetary policy is at its end?

Still, given the Fed's aggressiveness, investors can't really bet against the "unlimited" liquidity and it is dangerous to not be invested at all, especially if the market faces first signs of stabilization or even improvement of fundamentals. Having said that, the ongoing drama of "surprising" developments and disagreements in Europe, China's reluctance to stimulate its slowing economy and the dangerous developments in the Middle East pose as additional challenges on top of the weak economic picture in the US that could -in combination- turn out to be a potent opponent to the reckless and dangerous monetary policy by the Fed!

Trade well.


(Marco Bonelli is the Managing Director of International for CL King & Associates in New York. The opinions expressed are his own.)

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