A Nifty Little Exercise

June/9 we sensed relative interest rate pressure, US side vs Germany. Thus, we recommended selling (S) the US 10 yr at 2.99% and buying (L) the Ger Bund at 3.03%. Last, 3.11% vs 2.93%.

Thus, the price of the 10 yr is now considerably lower; the price of the Bund, considerably higher. Trading desks usually exercise such a strategy with futures; it can be done with cash. Either way, the return for the 4 wk trade is very satisfactory.

We would recommend that clients take in half and let the balance remain until further notice.


Robert Craven

A Bit of a Brake

China is managing its economy quite well. Key rates were nudged higher again today, an effective shot at price pressures as a bit of a brake was applied to the locomotive.

This 9-month tightening cycle is at, or very near an end.  We can then expect this economy to move along nicely into year end. The Chinese consumer, freed from protective exchange rate policy of the past (artificially weak yuan with no buying power) will fire US exports as never before.


Robert Craven

Circle Game

Joni Mitchell - "And the seasons they go round and round. And the ponies they go up and down. We’re captive on the carousel of time."

Mitchell wrote and sang of life in the mirror, that, "..we can’t return, we can only look behind, from where we came, and go round and round and round in the circle game."

Joni knew something, of the "..child who came out to wander. Caught a dragonfly in a jar. Fearful when the sky was full of thunder. And tearful at the falling of a star."

She captured the central flaw to forecasting.

http://www.youtube.com/watch?v=X5HXT0bn7QY


Robert Craven

Keep It Simple

Complexity - an invention of the financial media (providing refuge for the scoundrel).

The US and Chinese consumer will throw a rope to the rest. We will not see a double dip as so many expect. We were in "pause" mode past couple of months, soon to once again get underway.

Recent data from China and the US supports our view.

Props invented by Obama and the Fed were disasters.

Now shut of both, we will do just fine.


Robert Craven

Tsunami Smacks US!!

Vehicle Sales in June tanked. Observers expected a small increase.

Just three days following Japan’s crisis we predicted a much quicker resuscitation than world markets - then in a state of panic - expected. That has proven to be correct. But we also predicted only modest supply constraints in the US as Japan’s competitors filled the gap. This was wrong as today’s release telegraphs. Supply disruptions were severe, May and June.

Look for a recovery in vehicle sales, Q3.
　

Robert Craven

Crowd Behavior

Mark Twain was right. Always copper a consensus.

Consensus view the past few weeks was for a major slowing ahead, into year end. We noted earlier that such a view was wrong, and why.

This week’s numbers support us, as will those just ahead

Our date of June/9 as the cyclical low on interest rates (aside from a brief period of distortion provided from ql flt) is close enough.


Robert Craven

Greenspan gets one right.

We’re no fan of Greenspan, but he sure got this one spot on in an interview yesterday. Re QE I and II, he says, "I am ill-aware of anything that really worked."

Correct. Obama’s "stimulus" and Bernanke’s money flood were both failures. We are not commenting from the cheap seats. We predicted exactly that, and for both. Others have come to understand.

So how to fix things? Throw the anointed, the planners in the clink and throw away the key.
　

Robert Craven