The results of round two of the ECB's LTRO (Long Term Refinancing Operation) are in, with European banks borrowing €529 billion. Analysts got it right, predicting a total of roughly €500 billion; I thought there was a strong possibility of a large upside surprise, but that didn't materialize. The LTRO has certainly restored confidence in the European banking system, to the extent that a liquidity crisis has been averted. As a result, the Eurozone, which had been at the top of investor concerns, has lost some of its prominence. Lower risk aversion means higher prices for risk assets – a putative cause-and-effect relationship between LTRO and the stock market rally certainly looks very strong. Whether or not that is a sound basis for higher equity valuations is unclear – it depends whether or not you think stocks were underpriced to begin with. [more]
Even though a full 20% of German lawmakers abstained, the vote authorizing Greece's second bailout was passed in the Bundestag comme une lettre a la poste (lit. like a letter at the post office, a French expression meaning very smoothly.) Despite the bluster, German politicians are committed to European solidarity, after all. That and the integrity of German bank balance sheets. [more]
Investors should expect no more than a 2% (real) return per annum from U.S. stocks over the next ten years. Find out why in the latest issue of The Real Returns Report.
Being half-French, it was encouraging to see the success of the 'The Artist' at yesterday's Academy Awards. France and the U.S. have long maintained a love-hate relationship, but, in recent years, the latter half of that dichotomy appears to have been dominant. Jean Dujardin was gracious in accepting the award for Best Actor – the first words out his mouth at the podium were "I love your country." [more]
Apologies. Yesterday, I wrote that oil had hit an all-time high in euros on Wednesday and was close to its high in sterling. In fact, it was the opposite. In any event, oil ended up hitting an all-time in euros yesterday (Euro denominated oil hits high, FT.) This video does a good job of explaining the factors driving current oil prices. [more]
Did you notice oil make an all-time (nominal) high yesterday? Probably not – after all, it wasn't in dollars, but rather in euros. Brent is now very near its all-time high in sterling also. This is very unwelcome news for economies that are already struggling with deleveraging and austerity (Record oil price sparks fears, FT) With the Eurozone PMI falling below 50 in February, recession is a very real threat (PMI data show eurozone closer to recession, FT.) [more]
Let me begin by stating that Energy isn't my specialty. I've heard many people assert that natural gas prices have simply been too low for too long and that they must, therefore, rise. Perhaps, but if "fracking" is the quantum leap that the FT's Martin Wolf (and the IEA) describe, it is certainly possible or even possibly certain that this new extraction process has altered/ is altering old equilibrium points. In that scenario, it's not that clear that a mean reversion bet on natural gas prices is advisable (Prepare for a golden age of gas, FT.) Meanwhile, the world's largest independent, Vitol, said oil prices could break $150/ barrel this year on the back of geopolitical risk, although that is not their baseline scenario -- the CEO was clear when he said "it is unlikely, but it is possible" (Vitol warns crude could pass $150, FT.) [more]
Should investors rely on the accepted 10%-11% benchmark figure for expected average stock returns? The answer is 'no'. To understand why, read my commentary in the latest issue of The Real Returns Report. [more]
"As the Japanese and American experiences in the late 1980s and 2008 show, cheap or free credit is a sure way towards bad investment decisions and asset bubbles. Bank loans for fixed asset investment in China has jumped from $750bn in 2008 to $1.2tn a year – and this does not include hundreds of billions of “hot money” entering the country. Amid all the talk of a China-dominated Asian century, the country’s modern version of a gold rush is a sober reminder that locals could be losing faith in the growth miracle that appears the brightest light in a dimming global economy." (China's gold rush reflects a loss of faith in the growth miracle, FT) [more]
Note: I'm afraid all the links I've included today, barring the Bloomberg article, require a subscription. If you really want to read the article, it may be possible to view it by searching for the title with Google. [more]
This is the first part of a two-part interview with Philip Coggan, aka Buttonwood, the financial markets columnist of esteemed London weekly, The Economist: [more]
Facebook's IPO: Where's the 'Dislike' Button?
"Low-float, high-profile" is a terrible combination for IPOs.
The Indian stock market had an utterly disastrous year in 2011 -- the S&P CNX Fifty Index lost over a third of its value in dollars terms. 2012, on the other hand, has gotten off to a blistering start and the index is already up over 20% through January. Are Indian stocks still cheap enough to buy today? [more]