Morning Reading – Tuesday, February 8, 2011

The Economist: Can we trust TIPS?

Treasury bonds are consistently overpriced relative to TIPS. For example, we show that the price of a Treasury bond can exceed that of an inflation swapped TIPS issue exactly matching the cash flows of the Treasury bond by more than $20 per $100 notional amount. To the best of our knowledge, the relative mispricing of TIPS and Treasury bonds represents the largest arbitrage ever documented in the financial economics literature.

FT Alphaville: China’s lunar rates rise

Everyone was expecting a China rate rise at some point. But today? Tuesday?

FT Alphaville: From the FT mailbag

A particularly amusing rant from respected chartist Brian Marber…

FT Alphaville: Subprime metals

It’s a surprising (and rather rare) divergence in the South African rand’s performance compared to its hard commodity currency counterpart, the Australian dollar. Given that foreign flows strongly propped up the ZAR in 2010, this might be another penny dropping on inflation in emerging markets, Citi say.

FT Alphaville: In Pharaoh’s currency markets

Noted at pixel time — direct (and rather impressive) intervention by Egypt’s central bank in the Egyptian pound, just two days after banks reopened…

The Big Picture: Surprisingly Strong Q4 2010 Revenues

One of the knocks on last year’s earnings was that it was cost cutting was driving profitibility — not organic revenue growth. The recovery could not turn into an expansion, we were told, without solid revenue gains. Earnings may have surpassed Wall Street expectations for seven straight quarters, but sales have trailed forecasts since 2008. And there is only so far you can “cut your way to prosperity.”

The Big Picture: Nonrevolving consumer credit outstanding at record high

For the 1st time since Sept ’08, the level of revolving credit outstanding (mostly credit card debt) in Dec went up m/o/m, higher by $2.3b seasonally adjusted to $800.5b and remains well below the record high back in July ’08 at $974b. However, for a 5th straight month, the level of nonrevolving credit outstanding (mostly auto and consumer loans) rose to $1.61T, a new record high, exceeding the previous July ’08 high.

The Slope of Hope: The Ongoing Bear Wedgie

Until the Jackson Hole Wedge is broken, the bears are going to continue to suffer the indignity of a painful wedgie.

The Slope of Hope: Broken Metal

I think there’s only one genuinely technically broken market right now, and that is (allow me a moment to don my suit of armor……..) precious metals.

The Slope of Hope: Picking Off the Sissies, Again

The best traders know when it is time to get opposite the herd. This is not easy to do because the act of being contrary by definition comes with much more negative reinforcement than anything else. Trend followers are awfully right for long stretches of time, until they are suddenly wrong, and go into hiding… or revision mode. Become known as a bull, bear, stock, precious metals or commodity guru, stake out your territory, and then blame the manipulators when the violent turn comes. This is a tried and true tradition in market analysis.



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