Five Things You Need to Know: Market Camaraderie, 25 or 50, Most Urgent Assistance, Road Rage, Batman
What you need to know (and what it means)!
Minyanville's Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. We're All in This Together
You know what we love most about global financial markets? The camaraderie. The feeling that, "Hey, we're all in this together, tomodachi." Wait a minute, that's not camaraderie. That's the increased correlation of global financial markets!
- Last week the European Central Bank warned that hedge funds are posing a threat to global financial stability because they are increasingly positioned similarly.
- "The increasingly similar positioning of individual hedge funds is a major risk for financial stability, which warrants close monitoring despite the essential lack of any possible remedies," the ECB wrote in their report.
- Well, if we read that correctly, that's very discouraging. The ECB is basically saying that because hedge funds are positioned similarly we should closely "monitor" them... even though (and here we paraphrase) there ain't nary a damn thing nobody can do about it.
- Of course, when the going gets "weird" for central bankers, central bankers blame hedge funds.
- But let's not forget how this increased correlation (a more professional way of saying "everyone is doing the same thing at the same time") among global financial markets came about: liquidity... coordinated liquidity from central banks.
- When you combine a global contraction in liquidity (Japan, China, ECB, UK, US Fed simultaneously raising the cost of money) with a decrease in time preferences or risk appetite, what do you get? You get exactly what the ECB is warning about: a threat to global financial stability (by 'stability' we mean rising asset prices, of course).
- Look at this monthly chart, all these lines representing the S&P 500, crude oil, gold emerging markets, commodities, going their own way like a bunch of cowboys between 1996 and 2002. (The green line going way, way, way its own separate way is, of course, US stocks during the height of the Greenspan liquidity binge).
- Now, look at this monthly chart from July 2002 to present. Hello, friend! We're all on the same professional team now. After all, as the saying goes, "When the going gets weird, the weird turn pro."
2. 25 or 50?
Tomorrow morning the European Central Bank will meet to determine interest rate policy. Given recent data, an interest rate hike, the third in six months, is a given. The question is, will it be 25 or 50?
- Data show the jobless rate in the euro region fell to 8 percent in April, the lowest in four years.
- European retail sales rose in May by the most in more than two years.
- Consumer prices are up 2.5% year-on-year, above the ECB's CPI target CPI of about 2%.
- As well, M3 growth is running at about 8.8% year-on-year, well above the preferred 4.5% growth rate.
- Wait, what is this thing you call M3? Nothing. Don't worry about it.
- Meanwhile, this morning, a handful of finance ministers came around saying the rise in the euro is a growing concern.
- Concern over the rise in the euro effectively reduces the chances of a 50 basis point hike tomorrow, even though the data can be viewed as "calling" for one.
3. Most Urgent Assistance
According to a UN report, nearly 200 million people now live outside their country of origin, up nearly 25% since 1990.
- The report by UN Secretary Kofi Annan found there were an estimated 191 million migrants around the world in 2005, compared to 155 million in 1990, according to the BBC.
- An intriguing feature of the migration (most migrated to wealthier countries) is that money sent by wire transfers accounts for a large share of national income in some poorer countries*.
- Who received the most migrants? According to the report, Europe received 34% of all migrants in 2005, North America 23% and Asia 28%.
- The report said 3% went to Oceania, even though Oceania is just a fictional region in George Orwell's prophetic and apocalyptic novel, 1984.
* DEAR HONORABLE SIR,
SOME OF THIS MONEY IS NOW TIED UP IN BANK ACCOUNTS. IN ORDER TO COMMENCE THIS BUSINESS WE SOLICIT YOUR ASSISTANCE TO ENABLE US TRANSFER INTO YOUR ACCOUNT THE SAID TRAPPED FUNDS.
PLEASE, NOTE THAT THIS TRANSACTION IS 100% SAFE AND WE HOPE TO COMMENCE THE TRANSFER LATEST SEVEN (7) BANKING DAYS FROM THE DATE OF THE RECEIPT OF THE FOLLOWING INFORMATION BY TEL/FAX; 234-1-7740, YOUR COMPANY'S SIGNED, AND STAMPED LETTERHEAD PAPER THE ABOVE INFORMATION WILL ENABLE US WRITE LETTERS OF CLAIM AND JOB DESCRIPTION RESPECTIVELY. THIS WAY WE WILL USE YOUR COMPANY'S NAME TO APPLY FOR PAYMENT AND RE-AWARD THE CONTRACT IN YOUR COMPANY'S NAME.
WE ARE LOOKING FORWARD TO DOING THIS BUSINESS WITH YOU AND SOLICIT YOUR CONFIDENTIALITY IN THIS TRANSATION. PLEASE ACKNOWLEDGE THE RECEIPT OF THIS LETTER USING THE ABOVE TEL/FAX NUMBERS. I WILL SEND YOU DETAILED INFORMATION OF THIS PENDING PROJECT WHEN I HAVE HEARD FROM YOU.
4. Road Rage
The government of Prime Minister Manmohan Singh approved a 9 percent increase for gasoline and a 6 percent increase for diesel late Monday, the International Herald Tribune reported.
- In Mumbai the cost of a liter of gasoline rose to 53.50 rupees from 49.16 rupees, or 36 cents to $4.41 a gallon.
- According to the IHT, economists have warned that the fuel price increase could raise inflation in India to more than 5 percent from 4.74 percent.
- That kind of inflationary bump could pave the way for interest rate increases, potentially curbing consumption, even as the SENSEX is in the midst of a nearly 25% decline since its May 11th peak of 12671.11.
- Last night the SENSEX was down another 2% to 9756.76.
- This also raises political concerns in India, which is still battling politically between rightist and leftist parties.
- In the strange bedfellows department, both leftist and rightist parties agree that the increases are an unfair burden to the common man... and we know there's nothing politicians anywhere in the world love more than the common man.
5. I'm Batman.
UK special forces are expected to soon evaluate the use of strap-on "stealth" wings for use by troops.
- The lightweight carbon fibre mono-wings will allow them to jump from high altitudes and then glide 120 miles or more before landing, according to the UK Daily Mail.
- German company ESG has developed the strap-on rigid wing specifically for special forces use.
- Weapons, ammunition, food and water can all be stowed inside the wing, although concealing the 6ft wings after landing could prove difficult.
- According to the Daily Mail, supporters of the new mono-wing technology hope it will give a new lease of life to parachute tactics in the special forces world.
- The largest risk is that special forces troops will be attracted to giant enemy lights for long periods, some of which may be electrified during summer months to avoid "bites" and general special forces flying troops annoyance.
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