The Banking and Strategy Initiative

Chillin' out till it needs to be funded

US Economy: Chicago Index shows great improvement , Greek Euros 130 bln a good plop in the bucket

The new LTRO( dole out for European banks to pay their creditors and free themselves up for interbank trading and auctions) is already anticipated as equity markets get used to sweeps of extra liquid cash. Slumping sub prime indices and contracting yet healthy muni markets offer extreme investing opportunities, giving banks a reason to indulge in super risky trades this year (from a conventional point of view, theses sectors and the pockets of structured finance will be “super risky” and thus the “comeback” trade for many) including the return of Kyle Bass and probably Paulson, and not just Bruce Berkowwitz. Obama gathered $11.8 bln in #1 position and Romney , Newt and Santorum neck to neck at $6.5 bln, $5.6 bln and $5,4 bln in the electoral sweeps.

Oil is killing the emerging markets trades started in January and “no war , just elections” fear that the drums of Super PACs and the new debates before Super Tuesday will keep media space busy with non economic jumps of faith as the globe trundles on to a sub 4% growth in 2012. New credit ( social financing) in China broke down by more than 40% to CnY 900 bln + of which CnY 780 mln was mostly Chinese institutions. Texas will likely push for a late March date as GOP nominations go for a late ninth decision.

The Chicago index is up to 0.22 with the three month average 0.14 and that means in general we have started moving up in the same direction pulling apart from the clustering around 0 or NULL in 2011.

The 85 economic indicators that are included in the CFNAI are drawn from four broad categories of data: production and income; employment, unemployment, and hours; personal consumption and housing; and sales, orders, and inventories. Each of these data series measures some aspect of overall macroeconomic activity. The derived index provides a single, summary measure of a factor common to these national economic data. This Chicago Fed index is national in scope and the December reading was 0.17

The government and regulators will yet be happy with a CnY 9 tln new credit additions in the China market Economy. Indonesia will grow above 6% especially if it can keep Q4 running to last year’s pace which came close to 7% while RBA looks on to China to start running production again for its exports to pick up and Switzerland maintains a lower yet trade surplus and the CHF yet at 90 cents of a Dollar in January 2012. China though, reminds me, also has Japan waiting for resumption of exports to the middle kingdom as Chinese imports from Japan dropped 8% in this month’s rise of Chinese surplus.

Meanwhile HSBC Global Trade Conference Data for US shows a rise of 69% over the next 15  years too, its strong growth a function of the weak Dollar and the strengths in exports of Capital intensive innovation incl Petrochemicals, Medical Equipment, Farm machinery(Deere), Mining equipment (CaterpillaR) and even automobiles. US trade apart from trading high values with China will grow with Colombia, Vietnam, Indonesia, Egypt, Turkey, South Africa and Poland according to the HSBC report. However since the shift is to high value produce the 11 mln manufacturing jobs are unlikely to grow back to the 20 mln of 1979

However as of now funds flow to Emerging ETFs, India markets and China are yet positive and growing in strength, China FDI at close to $10 bln for the month, and Europe flush with enough cash to drive yields back  ( and that itself is a steep rich trade) to tradeable regions (on the curve) ..between 4 to 6 % in Spain and Italy and above 2% in Bunds and even US Treasuries.


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