►Contagion Fears Hit Euro; Spanish Bond Spreads Widen
Mark Brown and Eva Szalay/Wall Street Journal/Nov 30
Spanish and Italian bond spreads over German bunds rose sharply to new highs, as did the cost of European sovereign debt insurance, while the euro continued to tumble, as euro-zone contagion fears continue to roil currency and debt markets.
The premium demanded by investors to hold Spanish 10-year bonds over the benchmark German bund rose over 30 basis points to more than 300 basis points, while Italy’s 10-year bund spreads rose over 20 basis points to 215 basis points, according to Tradeweb, record highs in both cases.
►Asia stocks fall on Europe debt, China hike fears
Associated Press/Nov 30
Asian markets crumpled Tuesday as Chinese shares slid on fears of an interest rate hike and the European Union’s bailout of Ireland failed to convince investors the continent’s debt crisis has been contained…
Soaring prices in China, the world’s No. 2 economy, are so far limited mostly to food, but analysts say price pressure could spread to other areas unless Beijing hikes interest rates and further tightens credit. Investors worry that might slow economic growth or reduce the amount of money flowing through the economy that is helping to finance stock trading.
“There is a little nervousness about how hard the policymakers will have to slam on the brakes to contain inflation,” said David Cohen, an economist with Action Economics in Singapore.
MILTON FRIEDMAN & QE2
Economics professor David Beckworth writes that the case is closed over the debate about Milton Friedman and whether he would have supported the Fed’s quantitative easing program: Yes, Friedman would have approved. The latest evidence is based on comments Friedman made in 2000. After reading the document, it’s hard to disagree with Beckworth. Perhaps Alan Meltzer will retract his recent op-ed arguing that Friedman wouldn’t have endorsed QE2.
PONDERING THE NEXT PHASE OF THE DEBT CRISIS
The Fed’s latest round of monetary easing—QE2—has stabilized inflation expectations at a modestly higher level of late. Since mid-October, the inflation forecast based on the yield spread between the nominal and inflation-indexed 10-year Treasuries has bounced around in the low-2% range. That represents a victory of sorts from the summer plunge in the market’s inflation outlook, when fears of a new recession were on the rise.
BOOK BITS FOR FRIDAY: 11.26.2010
● The Little Book of Sideways Markets: How to Make Money in Markets that Go Nowhere
By Vitaliy N. Katsenelson
Excerpt via publisher, John Wiley & Sons
Get ready for a great roller-coaster rise in the markets. For the next decade or so the Dow Jones Industrial Average and the S&P 500 index will likely do what they did over the preceding decade: go up and down, setting all-time highs and multiyear lows along the way. But at the end of the rise, index and buy-and-hold stock investors, having experienced ups and downs and swings akin to those on an amusement park rise, will find themselves pretty much back where they started.
WEDNESDAY’S DATA DUMP
The U.S. Bureau of Economic Analysis published several economic reports today that collectively offer a mixed bag of macroeconomic news. The updates on new orders for durable goods, personal income and spending, and weekly jobless claims are usually dispatched on separate days. Because of the Thanksgiving holiday tomorrow, all three were released this morning, leaving an unusually hefty dose of statistics to review. Here’s a brief tour of some of the noteworthy data points:
SKIDELSKY VS. KEYNES
Keynes was no fan of the gold standard. In fact, he railed against it. In the mid-1920s, for instance, he pressed Winston Churchill to take England off the gold standard. Curiously, Robert Skidelsky, who’s written a best-selling biography that’s favorable to the economist—Keynes: The Return of the Master
Q3 GDP REVISED UP TO A 2.5% PACE
The U.S. economy expanded at a stronger pace in the third quarter than initially estimated, the Bureau of Economic Analysis (BEA) reports. The inflation-adjusted output of the nation’s goods and services rose at an annual rate of 2.5% for the three months through October, up from the 2.0% pace originally estimated for Q3. That puts a bit more distance over the second quarter’s lesser 1.7% gain.
THE DEVIL & THE DETAILS IN THE 2008 FINANCIAL CRISIS
It’s human nature to search for a concise explanation of cause and effect. A reasonable pursuit with satisfactory results, most of the time. But untangling financial crises is different.
The new book All the Devils Are Here: The Hidden History of the Financial Crisis
CHASING ALPHA IS RISKY…
Sometimes the risk is a bit more than investors bargained for, as reported by Bloomberg:
FBI raids seeking documents from three investment firms are related to hedge fund insider trading investigations directed by the office of Manhattan U.S. Attorney Preet Bharara, according to a person familiar with the probes. The offices of Level Global Investors LP and Diamondback Capital Management LLC, firms founded by alumni of SAC Capital Advisors LLC, were searched by Federal Bureau of Investigation agents, the government said today. Agents also executed a search warrant at the offices of Loch Capital Management, according to another person familiar with the matter. Both declined to be identified because the probes are ongoing. “The government has decided it needs to use force to obtain all the information,” said Jacob Frenkel, a former federal prosecutor and lawyer with the Securities and Exchange Commission. “It has opted not to issue grand jury subpoenas but instead use the search warrant process.”
GENIUS IS A BULL MARKET IN 2010
As 2010 winds down, it’s time for a refresher on performance perspective for the global equity markets. The general theme: year-to-date returns are strong. Equity indices around the world have posted respectable if not stellar returns in 2010 through November 19, depending on the benchmark. Unsurprisingly, there’s also a bull market among active equity managers claiming unusual degrees of skill in the dark art of stock picking. Some of the congratulatory chatter is legitimate, but the primary explanation is the bullish tailwind that’s been blowing this year.