Stocks and Dollars

European stocks eked out small gains on Wednesday against a background of investor caution globally following a dip in U.S. consumer sentiment.

Matteo Radaelli submits:

Over the last few weeks, investors have been focusing on the negative outlook for peripheral Euro Zone countries, especially Greece, due to their high deficit and public debt. However, albeit at a slower pace, uncertainties over the future of public accounts concern a vast majority of developed countries. For instance, public debt, in % of the GDP, may rise to 65% in the USA, 88.2% in the UK in 2011 and 83.7% in the Euro Zone as a whole.

Notwithstanding the above, the country that may suffer the most in the next few years due to elevated public debt is Japan. Indeed, public debt ballooned in the last two decades from 59% of the GDP in 1990. Further, the International Monetary Fund estimates that debt may have risen to 218% in 2009, and thus could reach 227% and 246% in 2010 and 2014 respectively. This jump in public debt substantially replaced the falling private sector debt, increasing the level of total debt/GDP, according to data from McKinsey Global Institute, from 420% in 1995 to 471% in Q2 ‘09. We used 1995 as a benchmark year, since this is when non-financial business debt reached its highest level (148% of GDP). After 1995, non-financial business sectors began a deleveraging process that finished only recently (non-financial business debt fell to 91% of the GDP in 2005 and now stands at 95% of the GDP).

Complete Story »

Market Folly submits:

Today we present you with Hugh Hendry’s latest investor letter out of his Eclectica Fund and his Absolute Macro Fund. For those unfamiliar with Hendry, he has become sort of a resident deflationist and has been an advocate of long treasurys positions. Prior to founding Eclectica in 2002, he was a partner at Odey Asset Management. He definitely seems to be a contrarian here as the Eclectica Fund finished 2008 up 31.2%, finished 2009 down 8.0% and through January 2010 was up 3.7%. Eclectica’s gains this year have stemmed from its fixed income positions.

In terms of recent portfolio activity out of the Eclectica Fund, Hendry notes that the fund sold over half of its 2 year forward curve steepeners in the U.K. As of the end of January, currency positions represented 31% of Eclectica’s NAV, while government bonds (greater than 10 year) represented 18.3%. You can directly download the .pdf of Eclectica Fund’s recent performance attribution here.

Complete Story »

Futures for the Dow Jones industrial average, the S&P 500 and the Nasdaq 100 fell 0.2 to 0.3 percent, pointing to a weaker start for equities on Wall Street on Wednesday.

Cara Goldenberg submits:

At Seeking Alpha, we’ve long believed that sharing your investment ideas and process with sophisticated investors is one of the most powerful methods available to money managers interested in advancing their careers and practices. We built our editorial platform upon this very opportunity, sourcing rigorous research from worthy investment professionals and placing those contributors’ ideas before a knowledgeable community.

No case in recent memory demonstrates the upside of this approach as strongly as Cara Goldenberg’s. Ms. Goldenberg, 29-year old co-founder of hedge fund Permian Investment Partners, took the initiative to send Warren Buffett her ten top investment ideas in November. Buffett liked the unsolicited research so much he invited Goldenberg to Omaha to join him for a discussion and dinner. As Frank Betz of Carret Zane Capital Management said to Bloomberg, "She hit the jackpot. It’s praise from Caesar, of course. Boy, it must’ve been one heck of a letter."

Complete Story »

U.S. banks and investment firms transferred their political contributions to Republicans in 2009 as Democrats in Washington put the focus on big bonuses, huge profits and tight lending, The Washington Post reported on Wednesday.

The catalyst was the Consumer Confidence report which massively disappointed the markets. The overall expectation was a reading of 55 with any number above 50 indicating expanding confidence across the US. The actual result however came in at 46! Following this, equities fell; the USD and JPY were bought on…

US Housing figures generally showing stagnation (expected), but the monthly Conference Board Consumer Confidence was miserably low at 46 (lowest since April 2009) and this was certainly not expected. This could have a big impact on sentiment and we expect more selling pressure on risk today. We therefore have a…