Enzio's Clock

Striking is that when it comes to the U.S., everyone - correctly - is focused on her monetary policy.  Her fiscal policy plays second or third fiddle. Meanwhile, in Asia, the fewest focus on monetary policy, while her fiscal policy gets a little more attention.  Yesterday we were meant to do a CNBC TV show on three budgets this week. Today, we outline some broad conclusions - and how to make money off these. You can see a video of the show by clicking here.   We also share our brief thoughts on what you should be doing in your portfolio about Thailand, given tomorrow's important event.

Here are some more reasons why you need not worry about China's recent reduction in her holdings of Treasury bills.

Some people are worried. We are not. Here is why.

Some of our younger bretheren constantly talk of "decoupling". This occurs when one market moves opposite to another market, say: one goes up while the other goes down.  We discuss this and then have a look at one area where a diluted form of this is occurring.

For readers not familiar with Hong Kong, this company (HKEx, code 388 on the HK Exchange) is our stock market. This means that its woes are very much driven by stock market turnover.  There are a couple of good reasons why you should look to buy into this story:

First, Ernst & Young guess that this year, we in Hong Kong will witness IPOs worth HK$370 billion. That is a great deal to place - and a great deal of stock to turn over in our  market.

Secondly, if my view of rising market volatility is correct this year, then expect even greater turnover on the Hong Kong stock market.  That will propel HKEx onwards and upwards. 

Finally, if more and more mainlanders buy into our property and thus into our stock market, here you have another driver of turnover.

According to yesterday's Financial Times (FT), "US 10 year Treasury yields have jumped 63 basis points to 3.83 per cent since November 30th...Analysts say that US...bond yields...could rise by a further two percentage points this year."  If the FT article is remotely correct, a two percentage point lurch in bond yields would imply that they have 52% to rise this year, based on the current yield of 3.83%.

A 52% jump in yields implies that the prices of US treasury bonds have to fall starkly, given the inverse relationship between yields and prices.

The implication is that this time around, the action will be at the long end of the yield curve, the end off which long-term loans and mortgages are priced.

You do not need a PhD to figure out what a 50% jump in mortgage rates would do to consumption, do you? That would intensify the  current excess supply of goods even more, leading to ever-greater earnings disappointments in the equity market.

All of which suggests that precisely because long rates will rise and thus thwart business activity, the Fed will have to keep short rates - e.g. Fed Funds - low for a long time.  At the outset of this crisis we postulated that the Fed  would keep rates low until 2011.

But the point of this missive - and of our more recent missives - has been to keep an eye on the long end of the yield curve.

Today we combine bond yields with the U.S. dollar and thus suggest where it is heading.

You all know that Big Brother Abu Dhabi has provided $10 billion to prevent a default by Dubai's Nakheel PJSC. We look at the wider market implications of this move. 

Why is the yen strengthening where the Bank of Japan virtually has promised to keep rates at zero? And why has the dollar been firming of late?  We offer two out-of-the-box reasons.

Our green-shoots pals point at many indicators to support their view of an economic recovery, the stock market included. We, instead, go with the discipline of the Economic Clock®: at best, we are headed for a recession in "L" in which the excess supply of goods manifests itself in fossilized, high unemployment.  But surely, our green shoots brigade points out, the Baltic Dry Index ("Baltic Index") negates this view? Well, dive into the background a bit to find out more...about how to make some money off this misnomer.