Davos Doom Loses to Merkel-Draghi as Euro Defies Roubini - There is a bit of schaudenfreuda in this summary by Simon Kennedy for Bloomberg but a topical read. Here is the opening:
Dr. Doom got it wrong.
The parade of economists and investors led by Nouriel Roubini predicting Greece's ejection by now from the euro zone failed to appreciate the resolve of European policy makers to protect their union and the amount of pain Greeks are willing to stomach.
"People underestimated these factors," Roubini, chairman of New York-based Roubini Global Economics LLC, said in a telephone call 12 months after predicting Greece's exit in remarks to the 2012 World Economic Forum's annual meeting in Davos, Switzerland. A Greek departure "is certainly a less likely event this year, although not a zero probability."
Joining him in questioning whether the 17-nation euro region was built to last and declaring Greece's departure imminent, inevitable or in its interest were hedge-fund manager John Paulson, Goldman Sachs Group Inc. President Gary Cohn, Nobel laureates Paul Krugman and Joseph Stiglitz, Pacific Investment Management Co. Chief Executive Officer Mohamed El- Erian, Kenneth Rogoff and Martin Feldstein of Harvard University and Citigroup Inc. chief economist Willem Buiter.
My view - 2013 is likely to be interesting, and that is probably preferable to some of the other possibilities.
Email of the day (1) - On the commodity cycle:
"Hello, you mentioned in a recent Audio (Thursday, I think) that the secular bull market in industrial commodities in general has probably ended, and that the environment has become more spotty. That got me thinking about a medium term "game plan". If we see a China driven rally in the commodity complex, would you consider it appropriate to exit a broadly diversified portfolio (such as BRWM LN) and, after a pullback, perhaps nibble on something more commodity specific? As always, your views would be greatly appreciated."
My comment - Thank you for a very interesting email.
The short answer on commodity shares or ITs such as BRWM LN, is that they have underperformed but show a continued build-up of underlying support. Consequently, if China is now in at least a medium-term bull phase, as I believe, then the miners should do reasonably well over the medium term. That would provide an opportunity to lighten commodity-specific shares on strength.
For perspective, I think we need to look at the very long-term picture in addressing these points, so I will show a historic, semi-log chart of the Continuous Commodity Index (Old CRB), dating back to 1962.
This feature continues in the Subscriber's Area.
Email of the day (2) - On mining:
"I stumbled over this research and thought of you!
"All the best and greetings from (cold) Vienna…"
My view - Yes, there is not much global warming going on in Europe at the moment. The weather gods, having bathed us in unusually mild temperatures until mid-January, have plunged us into snow and freezing temperatures. If I was in beautiful Vienna, I would console myself in your splendid Opera House until the first signs of spring.
Many thanks for the interesting commodity report which I have posted in the Subscriber's Area.
Gold: Repatriation: The importance of gold takes a step higher - Having discussed Germany's decision to commence repatriation of its gold on Friday, I thank a subscriber for forwarding this interesting report from Deutsche Bank on the subject. It is posted in the Subscriber's Area but here is the opening:
The aphorism 'actions speak louder than words' refers to actions being thought to reflect more accurately the true intent of the observed. Furthermore while the motive of a speaker can be quite convoluted and contrary, the implication is that the motives of his/her actions are likely to be more direct or forthright.
We have noted previously the shift in central bank behavior over the past several years, from net sellers of gold to net buyers. This includes the significant deceleration of sales by Western Central Bankers. Implicit in this is that most of them are now buyers of gold (in so much as logic suggests that, if one holds an asset one is a buyer of that asset otherwise one would sell and hold something else). The relatively recent actions by central banks however to not only buy gold but also repatriate and upgrade owned bars, further demonstrates in our view an implicit acknowledgement of its monetary importance.
My view - Central banks and their governments have discovered, or rediscovered, that gold holds its value over the longer term.
In contrast, paper currencies which are not linked to gold seldom hold their value for very long.
Tim Price: Poor Tim Harford - My thanks to the author for his formidable letter, published by PFP Wealth Management. An excellent read, it is posted in the Subscriber's Area but here is a brief sample, in response to some FT comments over the weekend:
The bubble is not in gold, it is in paper. There is admittedly something rather endearing about the concept of a 4,000 year old bubble. But most professional investors would use a more pragmatic definition of the word. A bubble, by definition, pops. Has gold popped ? Every paper currency in the history of mankind has burst. Every single one. Which store of value has the better long term claim ?
My view - If this paragraph above persuades you to read Tim Price's latest letter, I do not think you will be disappointed.
Clive Hale's View from the Bridge: Plus ca change - My thanks to the author for his witty and articulate notes. This one is posted in the Subscriber's Area but here is the opening:
"Solidarity in our union is alive, 'Grexit' is dead. Greece is back on its feet. The sacrifices of Greek people have not been in vain. It's not only a new day for Greece, but also a new day for Europe."
Greek Prime Minister Antonis Samaras declared that the Grexit era was dead; speaking in Brussels to reporters after the Eurogroup approved the mammoth bailout fund of €52.5 billion. Plus ça change, plus c'est la même chose. Nothing has changed; political spin is alive and well, Greece is still bust and the eurozone is in for yet another unsecured loan. He would probably have liked to have said a "new dawn for Greece" but the ultra right wing party - New Dawn - have the lien on that catchphrase. In a way he is right as the can has been given a seriously good kicking and Greece is off the agenda for a while, but we still have Spain and Italy to worry about. The ECB's new mandate to regulate eurozone banks is all about sorting out the Spanish Cajas and Bunga Berlusconi has put a spanner in the Italian Job. That iconic film ended with a coach, full of gold bars, hanging over a precipice. Given Italy's burgeoning gold reserves this is not a bad metaphor for the state that country finds itself in.
My view - I will remain relaxed about Greece, Spain, Italy or any other Eurozone country while Mario Draghi is leading the ECB and the markets continue to provide a benign verdict. Thereafter, we reassess.
Clive Hale's second topic, which you can see in the Subscriber's Area, addresses a conundrum for which I have no comfortable answer.
Additional commentary by Eoin Treacy
Sony Will Introduce Xperia Tablet to Challenge Apple - This article by Mariko Yasu for Bloomberg may be of interest to subscribers. Here is a section:
Sony Chief Executive Officer Kazuo Hirai is focusing on mobile devices to revive the company, whose TV unit has been unprofitable for eight straight fiscal years. The Tokyo-based company introduced its first tablet model in 2011, making it the last among the world's top 10 laptop makers to tap the surging demand triggered by Apple's iPad.
Worldwide tablet shipments probably totaled 120 million last year and may reach 340 million by 2016, market researcher IHS Inc.'s iSuppli said in December.
My view Japan's export led sector is perhaps the greatest beneficiary of the Yen's weakness. Following an explosive move from mid-December, the Dollar has moved into a slower period of appreciation against the Yen defined by a progression of higher reaction lows. The most recent touchstone in that sequence is at ¥88 and a sustained move below that level would be required to question the consistency of the advance. Despite the speed with which the Yen has declined over the last month or so, it is worth bearing in mind just how strong it had become, following a five-year advance.
This section continues in the Subscriber's Area.
Dell Said to Hire Evercore to Seek Higher Bids After Buyout - This article by Serena Saitto and Jeffrey McCracken for Bloomberg may be of interest to subscribers. Here is a section:
Dell Inc., which may announce this week it's being taken private by a group led by Silver Lake Management LLC, hired Evercore Partners Inc. to advise a special committee of the board and to test whether the company could get a better offer, said two people with knowledge of the matter.
Dell hired the boutique investment bank to run a so-called go-shop process should a buyout be formalized, said the people, who asked not to be identified because the process is private.
Dell expects shareholder lawsuits if a deal is announced, said the people, and the go-shop process will show whether there are superior offers from other buyout firms or companies.
JPMorgan Chase & Co. is the main bank advising Round Rock, Texas-based Dell on its talks with Silver Lake, people familiar with the process have said. Dell sees the hiring of Evercore and other steps it's putting in place as protections against lawsuits and other criticisms of the buyout, said one of these people.
My view Dell have clearly decided that they would be better off away from the pressure of quarterly reporting as they struggle to remain relevant in a world so quickly evolving and refocusing on tablet computers and mobile technology. Dell halved in 2012 before finding support near $8 in November and has since rebounded on speculation it is about to be taken private.
A considerable number of technology companies have struggled to keep pace with the rapidly changing environment. Their shares have underperformed as a result. However, it would probably be a mistake to write these companies off. They often have substantial reserves and a proven capability to manufacture attractive and functional products. They have lagged but the challenge now is whether they will succeed in reinventing themselves.
This section continues in the Subscriber's Area.
KL stocks set for worst drop in 16 months on election jitters This article from Reuters many of interest to subscribers. Here is a section:
Some stocks which were overvalued are down, also some government-linked stocks, he added.
Intense speculation about the election date and the slight possibility that the long-ruling Barisan Nasional government may be unseated is leading some investors to take profits on recent gains, analysts said.
It's just the rumours. People are worried about the elections. That's the trigger, said an analyst at a local investment bank who declined to be identified.
Among the biggest losers were mobile phone operator Axiata Group Bhd, which fell 6.5 per cent to RM6.21 and bank CIMB Group Bhd, which dived 5.0 per cent to RM7.20. UEM Land Holdings Berhad was 4.8 per cent lower at RM2.18.
So far this year, the Kuala Lumpur index has fallen around 3 per cent, underperforming its Southeast Asian peers. Its 14-day relative strength index is at 33.198, among the lowest in the region. A level of 30 or lower indicates a market is oversold.
One Kuala Lumpur-based equities trader said that foreigners were trimming positions ahead of the polls, adding that the election was likely to overshadow the market for the first half of this year.
Telecoms were among best performers last year, so they are selling targets, she added.
Malaysia's ruling coalition suffered its worst ever election result in 2008, losing its two-thirds majority in Parliament for the first time. The upcoming elections are predicted to be even closer, although the ruling coalition is still widely expected to win.
My view Malaysia's stock market has been ranging with an upward bias for much of the last six months and recently encountered resistance in the region of 1700. Today's pullback see's the Index testing its 200-day MA and it will need to hold above 1600 if the benefit of the doubt is to be given to potential for continued higher to lateral ranging.
Today's interesting charts
Cotton has returned to test the psychological 80¢ area. A sustained move above that level would suggest a return to demand dominance beyond the short term.
This section continues in the Subscriber's Area.
Email of the day on an addition to the Chart Library:
Would you add Singapore listed Tat Hong Holdings (TAT:SP) to the chart library? Many thanks
My comment Thank you for this suggestion which has been added to the Chart Library.