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Oddities of the victorious democracy

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04 фев 2012 в 00:00:00 Просмотров: 2651

Русская версия


Good afternoon. The political process in the world is on the run - election year has come in many major countries (USA, France, Germany, Russia etc). Republican primaries in the United States saw Romney defeating Gingrich in Florida, Santorum and Paul are far behind. Egypt is in the euphoria about the victory of Islamic-flavoured democracy and so life buzzes – and death too: after a football match, the losing team’s fans perpetrated a massacre – more than 1,000 people were injured. But the future masters of the country have other concerns: a prominent local mullah issued a fatwa, which declared Chevrolet cars hazardous for the population – to blame the “Christian cross” in the company’s logo; the citizens took it as an “oddity” – but then, judging by the results of parliamentary elections, soon these “oddities” would be the norm.


Illustration: Artem Popov


The greatness of the rouble

Monetary markets. Central banks have taken a pause – in meetings, but not in statements: Head of the Philadelphia Fed Plosser struck his colleagues with critic about excessive pessimism of the memorandum and invalid soft monetary policy – however, split in the Fed board was not a secret before these attacks. US Treasury cuts its appetite for borrowing – saying, revenues of the Treasury have increased, so we can try to hold on to the recently raised debt ceiling until the end of the year. At the same time, the Obama administration is preparing a credit markets reform – it will enable all mortgage holders to refinance, including those whose debt is now greater than the value of their houses: so far such have been deprived of the opportunity to refinance at low rates – and now the president thought about this part of the electorate, 11 million households already (almost 10% of the population), each of which will save an average of $3,000 a year. Meanwhile, couple of American media resources (NPR and ProPublica) found that Freddie Mac mortgage agency played in the market for interest rate derivatives – and only received profits when its customers could not refinance: and it is this agency that was instructed to encourage refinancing – conflict of interest has to be here, and a very brazen one. London court case of the former UBS trader Kveku Adoboli drew attention too – he was acquitted on charges of fraud and falsification of accounts: and if so, the charges should be forwarded to the bank itself – perhaps in the near future the investigation will go there.

Agencies weren’t too harsh last week: Fitch has decided to review the ratings of Australia's leading banks with a high probability of decline; it has also cut the ratings of Italy, Spain, Belgium, Slovenia and Cyprus, leaving them with negative outlook; figures of all major regions of Spain were reduced too; the rating of Ireland stood – but the outlook is still negative; agency’s summary on Athens is very simple: “Default of Greece is inevitable”. Greeks themselves do not think so – but the EU is annoyed: they do not fulfill their commitments again – therefore a “financial watchdog” was proposed too monitor the Greek budget mischief; the idea has caused a storm of indignation from the Greek Government – yeah, you give the money, and what happens next is none of your damn business, you say. However, the mood of EU is different: it found another “missing” €15 billion in Greece – and is very angry. The next candidate for default is Portugal, whose yields on 10-year bonds have already reached nearly 20% per annum. In other countries things are better: auctions for new securities went well in Spain, normally in Italy and France, bad (but tolerable) in Belgium. The source of inspiration for the eurozone last week was the Prime Minister of China Wen, who promised to actively buy bonds of the EU Stabilization Fund – only to watch for what is meant by the word “actively”. Euro banks still have liquidity shortage – and it looks like the second round of ECB cash distribution (which is scheduled for February 29) will surpass the first by 2-3 times and get over €1 trillion.

Currency markets. Yen returned to the autumn peak against the dollar (around 75-76), from which it was then brought down by interventions – causing irritation of the officials, for the expensive currency is killing economy before their eyes: finance minister Atsumi has even chided the Fed – saying that they specifically provoke the fall of the bucks with deliberately pessimistic memoranda and emission promises. Of the other officials, our First Deputy Prime Minister Shuvalov pleased – he publicly announced that the rouble is much stronger both the dollar and the euro; spiteful critics have sarcastically inquired, why does Mr. Shuvalov himself prefers to take “friendship gifts” not in roubles – but these are, of course, the cursed hirelings of the State Department! Not much interesting happens in the market – the main rates continue to fluctuate in a narrow band.


Source: SmartTrade

Stock markets. Server crash stop trading at the Tokyo Stock Exchange – which is not a hot event, but troubleshooting took 4.5 hours, which is of course too much. Exchanges flew back to the tops on Friday – despite the fact that the report season finale is very bad. Among pharmaceuticals, Merck could not reach projected revenue, and Pfizer issued lacklustre earnings expectations for the current year. Rather weak were the sales of International Paper, while oil chemists (Exxon Mobil and Dow Chemical) upset both with indicators and forecasts. Final-consumer-demand-orientated companies feel worst of all: weak sales and expectations sent shares of Amazon.com down by 10%, while Abercrombie & Fitch retailer collapsed by 13% at once when it was revealed that purchases in October-December were much more modest then the former outlooks. Troubles are not limited to the US companies: Philips received an unexpected loss while the loss of Toshiba considerably exceeded even the pessimistic forecasts of analysts. But the market does not mind all this negativity – and instead enthusiastically discusses the future IPO of Facebook whose underwriter would be Morgan Stanley: the shares of the latter have jumped – and generally the euphoria about the virtual company likens the late  dot-com boom of 1999-2000. Putin remembered the victims of the “people's IPO” of VTB – after which the shares have been traded below the placement price: minority shareholders blame the authorities and this is bad before the elections – PM is ready to allocate 15 billion public money to buy up the shares from the hapless “not freeloaders, but partners”; it remains only to decide how to buy shares above market price.

Commodity markets. Oil for some reason went both-ways: European (Brent) mostly grew up, and the American (WTI) rather declined; natural gas has recouped even the modest rebound of the previous week, returning to the long-term lows. Industrial metals fluctuated weakly, while precious have scented the smell of impending emission and rose in price somewhat. Grain also grew up – except for rice which continued to decline. Beef has shown a new high – while milk slipped down again. Sugar, coffee and cocoa are very weak – and fruits and cotton corrected the previous growth.


Source: Barchart.com


Spies and traitors

Asia and Oceania. The region's economy gives mixed signals. Philippine GDP grows with a healthy rate (by 0.8-0.9% every quarter) – but in Taiwan there is an obvious slowdown. Industrial production in Japan jumped by 4.0% recouping the drop of the previous month (by 2.7%); production of cars has increased markedly, and the overall business activity holds in the zone of stagnation – and at the same time the construction sector dipped sharply, the trade balance is in deficit, wages fall and unemployment rises; growth of household spending was caused only by a cold snap which shot up purchases of clothes. Business activity has improved in Australia and deteriorated in the New Zealand; the Green continent's trade surplus swelled, and credits to the private sector grow – but building permits fell and housing prices in eight major cities fell in 2011 by 4.8% which has not happened in 10 years of observations. In China, manufacturing sector’s activity is falling, and the economy’s as a whole is stable; customer expectations have become better – but the current appreciation is still deteriorating. Well-known columnist of Telegraph Ambrose Evans-Pritchard wondered about the real processes in the Chinese economy – and that's what happened: the index of Shanghai Stock Exchange container transport (and the wider Baltic Dry Index) showed historic lows; imports from the leading Asian countries (Japan, Taiwan, etc) falls; general cargo drop; power consumption is slowing down, housing is getting cheaper – so in this case how there can be the declared GDP growth by 9-10%?..

Europe. Preliminary GDP figures for the eurozone countries are not encouraging: Belgium -0.2%, Spain -0.3% - to be continued. Orders for machinery and equipment for enterprises in Germany dipped sharply at the end of 2011 – in November and December the decline was 10-12% y/y with foreign orders shrinking very quickly. Business sentiment and activity keep the low levels across the eurozone – except for Germany, where as a whole all is not so bad; Britain showed an unexpected improvement – but here to blame the low base effect arising in October-December; Switzerland is near the recession – although the trade balance still holds. Producer prices fell in December – as a consequence, in January consumer prices have declined too; in Britain the broad money supply (M4) shrinks – its annual decline (-2.5% in December) was a record, as well as the  sudden decline in consumer credit; housing prices stagnate – but consumer sentiment improved slightly. Unemployment is growing strongly in Italy, Spain, France and the eurozone as a whole – and Germany, by contrast, breaks records of employment. Same with the private demand: registration of new cars in Germany is stagnating – but in France it is 24% lower than a year ago; French consumer spending is falling; retail sales in Norway, Switzerland and Germany fall – even in the latter (amended for distortions of inflation) their per capita level fell to the low since 1969. Demand is weak...


Source: Federal Statistical Office Germany, an independent evaluation 

America. Canadian GDP suddenly fell in November by 0.1% m/m – and the annual increase (2.0%) is less than the statistical distortion. Industrial orders expectedly swelled in the United States; regional indicators of manufacturing activity had grown – except for sagging Chicago PMI, which is still high though; national indexes also improved – but the similar figure for Canada fell to a 16-month low. Housing prices in the US are falling – even though construction spending rises; consumers are a bit gloomy at the end of January – they are worried about the labour market. And it is not calm – lay-offs and payments of benefits are not numerous, but, according to Challenger, 39% more cuts are scheduled for January than a year ago, while the hiring plans shrank by 4 times; ADP review of the private sector employment is not very happy too. Ministry of Labour report looks brilliant because of another change in methodology: sector indices, seasonal adjustment methods and algorithm for evaluation of new businesses have all changed – as a result, performance has improved dramatically. In fact, we have a permanent exclusion of people from the labour force, which has become obscene: its share in adult population collapses (males showed a record low); the share of employed varies around the crisis lows, and rates of long-term unemployment – tops. Similar Canadian report came out worse than expected – employment has changed little, unemployment rate rose. Americans returned to reality in December – and increased the rate of savings while spending has fallen (in real terms). The January sales of cars have rebounded unexpectedly – at the same time, overall sales in stores look weak. In general, the picture here is mixed.


Source: U.S. Bureau of Labor Statistics 

Russia. Ministry of Economic Development announced the results of the year – quote: “Consumer demand was almost entirely based on the reduction of net savings and high availability of consumer credit”. Rosstat issued the first estimate of GDP for 2011: it shows an increase of 4.3% - actually about 2.5%, but that’s not the case. The trick is that inventories grew by 4.5 times – without them the growth would be just 0.6%; more than that, because of the heat in 2010, agriculture was in decline – and now it has restored (+22.1%) which gave the economy another 1.0-1.5%: therefore, without these two factors the GDP has even fell – and this is without taking into account methodological distortions. By the way, the “statistical discrepancy” (the amount by which the assessments on incomes and costs differ) reached -2.3% of GDP – so talking about the size of the Russian economy can be only symbolical. We should also note the decline in the GDP share of final consumption of households from 50.8% to 48.9% - a cheerless symptom. But there are joys: and if a sharp decline in mortality (by 105.9 thousand) can be explained by the consequences of heat and fires of 2010, the birth rate going positive (albeit only by 4.2 thousand) was a surprise – however, it will disappear in the next 2-3 years (another bad demographic wave is coming). However, the natural decline remained in force – amounting to 131.2 thousand people. Murder rate is minimal since 1991 – but that is just hard to believe: for example, the number of missing people (wanted) has nearly doubled in these 20 years – and this figure is closely associated with the number of murders.

The administration has given birth to another Putin's Plan ™ - in the form of prime minister’s articles (not very informative). Realities are more eloquent: Putin offers to invest pension savings into infrastructure bonds, rent out one million hectares of land in the Far East to Asian guest workers at a price of 50 kopeks per hundred square meters etc. He also delivered a lecture to “observers’ corps” – where transparently offered employment to the opposition (in exchange for loyalty?) Campaign of demonizing the opposition as agents of the State Department gave unexpected shoots – if you stick to the criteria of the advocates (attended lectures of the Westerners – sold your soul), it becomes clear that the authorities themselves are crammed with agents: MPs and administration officials have been training in the West; United Russia’s Young Guard is involved in the programs of the State Department; the presidential envoy in the Ural district graduated from Yale University; and - horrors! – Putin himself 20 years ago went through the National Endowment for Democracy – closely associated with US intelligence agencies. It turned out also that the USA did not bring down from the Phobos-Grunt space probe from the “shadow of the Earth”, as was hinted by the Federal Space Agency, but it were our programmers who messed up – the station has committed an invalid operation and has been closed. All this is making sick – and that is obvious: TV presenter confuses Lenin with Putin, offering to bury the latter; opposition activists hang "Putin, go away!" banner opposite the Kremlin; unknowns break e-mail of the head of Nashi Yakimenko (in reply to leaking conversations of opposition). Life goes on: Juvenal workers, these princes of Satan, killed a teenage girl, taken away from the mother – could Putin boast with that achievement? And this one is really the “achievement” of his era!


Illustration: Artem Popov

Have a nice week!

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