Morning Reading – Friday, February 11, 2011

Pragmatic Capitalism: The bond vigilantes await Portugal with open arms

Tuesday’s Portuguese bond auctions don’t appear to have rattled investors too badly, however, the math continues to grow increasingly challenging for them. According to EU officials, Portugal cannot sustain rates over 7%. Of course, this is where bond vigilantes are pushing the yields. For them, it’s a win win. Why not get a nice fat yield with a government guarantee on top? And at these continued rates that’s exactly what’s coming.

The Big Picture: Once More Unto the Breach . . .

Regardless of what you attribute this to — excess liquidity, improving fundamentals, or as my pal Doug Kass states, sheer madness — it may be helpful to consider how these Futures vs Closes (AM/PM) divergences play out.

FT Alphaville: Man strolls back into burning platform

Actually — less ‘man jumps off burning platform‘, more two elephants romping on an ominously squelching water bed.

FT Alphaville: Monthly foreclosures start climbing again

Maybe we were too early in trying to assess the potential economic impact of the foreclosure slowdown, as the trend has come to a halt…

FT Alphaville: Prepare for a major market over-reaction

And the sojourn looks to have been partly successful. Obviously the Soc Gen strategist remains bearish — he reckons the long-term downtrend in 10-year bond yields is under serious threat. But this could present investors with an opportunity for some bottom fishing, says Edwards.

China Financial Markets: Chinese stock markets and European politics

The first and most obvious question now is whether the latest interest rate hike will hurt the market. I am pretty sure it won’t, except for some of the most obviously liquidity-dependent stocks, like real estate developers. And even then, the increase in rates is too little too late given the surge in inflation. I suspect that when inflation starts to come down, as I think it will by the end of the first quarter or during the second quarter, it should hurt real estate developers more as it more rapidly forces up the real borrowing cost.

FT BeyondBRICs: Vietnam’s dong: what next?

Vietnam’s central bankers have often been criticised for failing to send consistent signals about monetary policy. But when a senior government official vowed in November that Vietnam’s currency, the dong, would not be devalued before Tet, the lunar new year holiday, everybody knew what was coming.

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