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TMFAleph1 (96.43)

Macro Roundup: Oil Hits an All-Time High

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February 23, 2012 – Comments (0) | RELATED TICKERS: AIG , EWJ , FXE

 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.)

The FT's Lex column agrees with me regarding the odds of the most recent rescue package being enough to "save" Greece (see yesterday's Macro Roundup) when it suggests that "the central assumption in the latest bail-out is that the country’s debt ratio will fall to 120 per cent of gross domestic product by 2020 if it implements swingeing austerity measures. How likely is it that this miracle will occur?" (Greece: Miracles take longer, FT) If you want to get an idea what a Depression is like, you need only read these observations from an FT correspondent in Greece (emphasis mine):

"For two days I had been speaking to managers who had paid off or dismissed their worst staff and imposed take-it-or-leave-it pay cuts of up to 30 per cent on the rest… An owner of shop premises told me that one tenant had demanded that she cut the rent by almost half. She complied. The alternative was to see the shop empty, as so many Athens stores already are." (Lessons from the hard streets of Athens, FT)

Round and round she goes: AIG has bought some of the assets from the Fed's Maiden Lane portfolios, assets the Fed took ownership of during the bailout of… AIG. (NY Fed plans auction of Maiden Lane II portfolio, FT)

In another sign that the ECB's Long Term Refinancing Operation has succeeded in restoring confidence in European banks and debt markets, U.S. prime money market funds raised their exposure to eurozone banks in January. French banks have been the largest beneficiaries of this trend. However, Fitch estimates that 19% of money market fund assets are held in U.S. Treasury/ Agency securities – not much the 20.1% peak achieved during the first half of 2009 (US prime money funds raise eurozone exposure, FT)

There are very few people that I consider are "must-read," but Peter Tasker, a Tokyo-based analyst at Arcus Research. In his latest Markets Insight piece, he argues that the BoJ's surrender to a reflationary stance will spur the Japanese equity markets and that the same mechanism is favorable to European equities also. I do think that Japanese shares are quite attractive at current levels for an investor with an equity-appropriate time horizon, but the trouble with these shares has always been the lack of any catalyst. Perhaps central bank easing is exactly that catalyst. I'm less sanguine concerning European equities, or rather I believe there will be better buying opportunities in the near-term (Japan's policy will spur high debt economies, FT)

***Should investors expect a 10%-11% return on stocks? The answer is 'no'. To understand why, read my commentary in the latest issue of The Real Returns Report.*** 

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