Archive for April 21st, 2009
Peter Thiel: Letter to Clarium Capital Partners (April 2009)
Tuesday, April 21st, 2009
Clarium Capital, Peter Thiel’s hedge fund, has released its quarterly letter to shareholders which includes a lucid assessment of the economy, credit market, and a eloquent explanation of what exactly Quantitative Easing is and how it differs from credit easing, as well as whether or not this move is inflationary.
The letter effectively provides a key to understanding how the U.S. of 2009 resembles the U.S. of 1900, and it is not only educational, it is enlightening, and one of the best explainings that we have seen of Quantitative Easing yet in the last year. We urge you to put this on top of your must read pile.
Ordinarily, economic reading is quite onerous, and generally boring. Not this time though.
Here is one excerpt:
Since both Credit Easing and Quantitative Easing increase the monetary base, why don’t they both create inflation? To answer this question one must understand how these operations work. In both Credit Easing and Quantitative Easing, the central bank purchases securities from banks and then credits them with reserves; the increase in reserves is the expansion in the monetary base. In order for this expansion of the monetary base to be inflationary it must make its way into the economy, and the mechanism for doing this is for banks to make more loans against the increased reserves. But in conditions where bank lending is weak, merely increasing the monetary base will not increase lending; hence it is questionable whether a straightforward Quantitative Easing policy would have any effect at all today in the US. (And there is considerable debate whether Japan’s policy had any effect during the time it operated.) Even further, the Fed is paying an interest rate on excess reserves equal to what banks could expect to make on them by lending them overnight, which explicitly motivates the banks to leave the reserves on deposit with the Fed. As long as those reserves simply sit with the Fed, their mere increase has no inflationary effect on the economy.
This comprehensive analysis written by Patrick Wolff, CFA, Managing Director, Clarium Capital, leaves few stones unturned. You may download the complete letter here, or you may view it below, via scribd (click on full screen view button on the top right).
Source: MarketFolly.com, Peter Thiel’s Clarium Capital Investor Letter (Market Commentary)
Download: Clarium April 2009 Letter to Partners
Tags: April, Bank Purchases, Banks, Capital Partners, Central Banks, Clarium Capital, Economy, ETF, Excerpt, Excess Reserves, Hedge Fund, inflation, Interest Rate, Japan, Letter To Shareholders, Loans, Monetary Base, Peter Thiel, Quantitative Easing, Quarterly Letter, Sit
Posted in Credit Markets, Markets | No Comments »
Meredith Whitney: Three Questions by David Berman
Tuesday, April 21st, 2009
Rallies don’t impress celebrity bear, fundamentals do. Meredith Whitney, CEO, Meredith Whitney Advisory Group, is interviewed by The Globe and Mail’s David Berman, at the Sprott Asset Management sponsored event, “A Night with the Bears.” Whitney discusses the ongoing challenges faced by the financial sector and their possible impacts. Definitely worth watching, in case you did not attend or see it yet.
Click play to view this video. To read an accompanying story from the Globe and Mail, click here.
Tags: Advisory Group, Bears, Celebrity Bear, Ceo, Challenges, David Berman, Debugmode, Environment Production, Financial Sector, Globe And Mail, Images, Impress, Meredith Whitney, S David, Section Business, Servlet, Sprott Asset Management, Theglobeandmail, Thumbnail, Thumbnail Images, True Environment, Type Html
Posted in Markets | No Comments »
Has stock market rally run its course?
Tuesday, April 21st, 2009
I highlighted the short-term overbought nature of the stock market in my “Words from the Wise” review two days ago, saying:
“From a technical perspective, a primary bear market still exists as long as the major indices remain below the January highs and the 200-day moving averages. Many of the rally’s leaders (indices and sectors) seem to be running into major resistance at these levels and look susceptible to retrace at least a portion of the gains since the March low. Further evidence of a short-term top in the making comes from a chart showing the percentage of S&P 500 stocks [90%] trading above their 50-day moving averages.”
Not surprisingly, investors’ lingering worries about the financial sector resurfaced yesterday, pulling the S&P 500 Index down by 4.3% and the Dow Jones Industrial Average by 3.6% - the worst losses since early March and in all likelihood a Lowry’s 90% down-day.
While the short-term movements play themselves out, it is important to remember that the longer-term charts have not yet signalled a secular uptrend. Using monthly data, the graph below shows the multi-year trend of the S&P 500 Index (green line) together with a simple 12-month rate of change (or momentum) indicator (red line). Although monthly indicators are of little help when it comes to market timing, they do come in handy for defining the primary trend. An ROC line below zero depicts bear trends as experienced in 1990, 1994, 2000 to 2003, and again since December 2007. Having said that, the level of the indicator is grossly oversold, as confirmed by the RSI indicator (blue line).
The stock market will tell its own story over the next few days, but it is crucial that the lows of March 9 hold in order for base formation development to remain intact. Should these levels - 677 for the S&P 500 and 6,547 for the Dow Jones - be breached, it’s “Katie, bar the door” (quoting from Richard Russell).
Tags: Bear Market, Dow Jones, Dow Jones Industrial Average, Financial Sector, Katie Bar, Likelihood, Lowry, Lows, Major Indices, Market Rally, Market Timing, Momentum Indicator, Moving Averages, Red Line, Richard Russell, Rsi Indicator, Stock Market, Technical Perspective, Term Charts, Uptrend
Posted in Markets | No Comments »
