There is no doubt David Cameron dodged a bullet last month when the House of Commons was called to vote on the referendum on Britain’s membership of the European Union. The vote only concerned a belated expression of regret that a bill to make a referendum possible had not been included on the current parliamentary timetable. Yet, although he professed to be ‘profoundly relaxed’ over the vote, Cameron must be able to see himself being painted into a corner
Domestic equity investors leapt into the market as the German DAX pursued its downward correction last week. This is the finding of Boerse Frankfurt’s latest sentiment survey. Nine percent of the panel of asset managers shifted into the bullish camp over the past five sessions, a period during which the DAX slipped practically back to the 8,000 level.
After my wife and I saw a TV report on this year’s La Biennale, we got Venice fever. It was so fascinating that even before the emission was over our minds were made up: we had to go back. All the memories of our previous trip came flooding back – Giardini della Biennale, the old Arsenale shipyards – like it was yesterday. But would a trip to the Venetian Lagoon be possible at such short notice – right in the middle of the summer holiday season?
Poor Warren Buffett (that sounded odd); the bidding on eBay for a place at his annual charity lunch table was so tame the auction was ‘won’ for only one million dollars. Compare that to the bidding wars of the previous two years: in 2011 a lunch with the Oracle of Omaha cost the winner $2.63 million; and the entry ticket to his table at New York’s Smith & Wollensky steakhouse went for $3.46 million. So this year’s lunch was a veritable bargain. Alternatively, one could see it as a price crash of 70 percent.
5 June 2013. FRANKFURT (Börse Frankfurt). Equity investors have spent a great deal of time pondering the outlook for global bond markets over the past week. The catalyst, of course, has been Japan. Despite unprecedented promises of money printing by the Bank of Japan, verbal intervention (also unconfirmed reports of real intervention) to defend the bond market, and government encouragement for Japanese pension funds to buy stocks, the Nikkei has plunged over 18 percent and JGB yields have tripled…
The Occupy movement was out in full force in Frankfurt again last week. From an impromptu camp near the city‘s exhibition centre, a sizeable and surprisingly well-organised crowd embarked on two days of protest and disruption around Germany’s financial capital.
There has been so much talk recently about the possibility of the Fed reining in its policy monthly asset purchases, the so-called ‘tapering’ (Word of the Year?). Yet, it shouldn’t have escaped investors’ attention that any official mention of the policy shift is invariably wrapped in pre-conditions: if employment continues to improve; if economic activity is sustained; if inflation doesn’t fall. It should also not have escaped attention that in recent months the improvements in all of those measures appears to have stalled.
29 May 2013. FRANKFURT (Börse Frankfurt). A stock market mini-crash of seven percent in one day, and a hefty sell-off in the bond market, is a dream scenario for sceptical investors. The only problem for the sceptics we discovered in Boerse Frankfurt’s weekly survey of domestic institutional investors was that the equity rout took place in Japan and not in Germany…
Whenever a Japanese finance minister chooses to remind investors and consumers that his department is “watching [x, y or z] market very closely”, we know an early step has been taken in an escalating rhetoric that typically ends with massive intervention in the financial markets. Formerly, such fighting words were reserved for the foreign exchange markets. The Bank of Japan, bankrolled by the Finance Ministry, has waged a multi-year battle to reverse the direction of a supposedly overvalued yen.
There is no doubt about it now: the German DAX is on a tear. It hasn’t just made a marginally higher all-time high; it has left its 2007 peak some 300 points behind. Nor is the rally idiosyncratic; major bourses across the world have also reached multi-year highs, if not all-time highs. Even if one had harboured doubts about the tenacity of the stock market rally some weeks ago, those doubts ought now to have been put to rest – oughtn’t they? The answer, it seems, is no…
There was surprise waiting for me in my mailbox yesterday. Nestled between the bills, newspapers and Whitsunday promotional offers was a silver package. It looked a little like a box of luxury chocolate pralines, but it made no sound when I shook it next to my ear. I was intrigued, until I saw the name of the sender:
15 May 2013. FRANKFURT (Börse Frankfurt). ‘Stock market rally’, ‘bull market’, or even ‘all-time high’, are all expressions that have long ceased to be reserved for investment professionals. Since the boom in internet stocks in the late 1990s, such references have found their way into dinner party conversations, taxi drivers’ banter, and the background murmur on public transport. Stock market booms not only decorated everyday conversations, it coloured retail stock portfolios too. In fact, amateur stock market commentary became so commonplace over the past two decades that some analysts even try to use it as a contrary indicator for equity performance. The argument goes: if the general public is getting excited, it is time get out…
It was just three months ago that I had to call the customer service hotline because my dishwasher broke down. The repairs came at a stinging cost of €320, a figure that was almost at the border of a decision to simply buy a new machine, so I had hoped I would have my peace for a while. In addition to the overpriced repair, the technician also wanted to sell me an insurance policy that would cover future repairs to this machine
One can hardly blame governments around the world for going after tax evaders. Across Europe, finance ministers are battling to reduce budget deficits while at the same time trying to find resources for stimulus measures, and anti-capitalist upstarts are snapping at the electoral heels of the established parties. Sometimes the word ‘fairness’ slips into the discussion, but political leaders can hardly pretend that morality is the motivation for the siege on tax-havens. If that was the case, they would have acted long ago.
8 May 2013. FRANKFURT (Börse Frankfurt). Last week (in fact, just four sessions ago due to a German public holiday) sentiment among domestic asset managers on Boerse Frankfurt’s survey panel registered the largest bearish shift in over three years. Since then, the DAX benchmark index not only climbed more than three percent, it also scaled its loftiest level ever. In retrospect, therefore, the sell decision that more than likely preceded this bearish shift was clearly the wrong one. To correct this decision now, at an all-time-high, would mean realising a real or opportunity loss, and expose investors to possible regret in the future if it turns out that the second decision is also the wrong one. This is precisely the situation where two very powerful psychological forces combine to produce inaction. By not making any decision at all, investors assuage their loss aversion by not concretising any losses; they also sidestep any regret aversion by not making any decision that could expose them to any immediate regret. They have done nothing…
This is not the first time that central bank gold reserves have been evoked as a partial solution to public debt problems. In the depths of the Greek crisis, the sale of nation’s bullion reserves was briefly discussed as a means to bring down the debt burden, but the holdings were too small to make any difference. In Cyprus, a proposal to sell the bulk of the island’s gold reserves was endorsed, at least by EU finance ministers. So, it was not shocking to hear about a proposal to put Italy’s ample bullion holdings – the second highest in the EU after Germany’s – to use in tackling its massive debt overhang.
Year-low provoked more disquiet than investors let on
2 May 2013. FRANKFURT (Boerse Frankfurt). One of the notable characteristics of the DAX’s corrective decline from the mid-March highs was how little it seemed to influence investor opinion. For most of the past six weeks, the optimism of domestic asset managers on Boerse Frankfurt’s sentiment panel has held above both long-term and year-to-date averages. Indeed, judging by Cognitrend’s Bull/Bear-Index, they were decidedly more flustered when the benchmark index failed to hold on to the 8,000 level after having traded above there for two whole sessions, than they were when it subsequently slumped all the way back to the low-7,400s. We attributed this apparent stoicism to the fact that managers were not overly confident about the future for German stocks in the first place…
‘Cut one’s coat to suit one’s cloth’. This is the sort of kitchen-table budgetary advice that is often doled out to those who find themselves in a financial bind. When it comes to a debate about the wisdom or otherwise of austerity of the kind currently practised in peripheral Europe, it seems odd that serious economic commentators should propose such a prescription.
Or is German economic weakness bullish for stocks?
24 April 2013. FRANKFURT (Börse Frankfurt). The half-percent week-on-week gain registered on the DAX index at the time of today’s sentiment survey hides some considerable intra-week volatility. Just yesterday alone, the German benchmark surged 2.4 percent, a price move that for some was just as unfathomable as the similar-sized decline that unfolded in the prior week. Some commentators attribute the new-found enthusiasm for German blue-chips to the prospects for an ECB rate cut. Numerous analysts even predict the central bank will finally react to the eurozone’s slow growth and tepid inflation by reducing the refinancing rate by at least 25bp as early as at next week’s meeting. These pundits tend to overlook another essential pre-condition for a rate cut, namely a properly-functioning monetary transmission mechanism. Will, for example, a quarter-point rate cut allow a household in Portugal or a small business in Greece to borrow more cheaply? This much-lamented feature of the post-crisis eurozone has probably been the single reason why has ECB has not moved to cut rates so far…
I relish the chance to make a trip to the Black Forest whenever I visit my native Freiburg. Those woods have the magical ability to chase away all thoughts about financial markets and to stir up long-forgotten memories from my childhood. One such reminiscence on a recent trip was of the fairytale by Wilhelm Hauff, ‘The Cold Heart’. For those who do not know it, the tale, which was set in the Black Forest in the 19th century, recounts the misadventures of a poor charcoal burner named Peter Munk.
Let me get my disclosure statement out of the way first: I do not own any gold, nor have I done for quite a few months. I confess to being somewhat biased where the precious metal is concerned. Some might accuse me of smugness in regard to the recent sell-off, but this goes too far. In fact, the recent gold crash has left me feeling very troubled. This is largely because none of the experts seem to have any explanation for the extraordinary selling orgy apart from the usual throwaway arguments.
Investors know better than to catch a falling knife
17 April 2013. FRANKFURT (Börse Frankfurt). Something resembling a German version of the ‘flash crash’ occurred this morning. In the matter of minutes the benchmark DAX plunged some 200 points to (briefly) record a new low for 2013. There was no obvious catalyst, although unconfirmed reports circulated shortly afterwards about rocket attacks in Israel, and about a potential sovereign ratings downgrade for Germany. Neither of these explanations would justify such an abrupt decline in normal times, but these have ceased to be normal times. This was not just any unexplained price slump; this was one that came against a backdrop that appeared very susceptible to sudden price slumps.
Some see it as an act of desperation. Following the tax evasion scandal involving his former Budget Minister, Jerome Cahuzac, French President Francois Hollande had to do something. Demanding that all ministers make public details of their financial assets is, if nothing else, something.
10 April 2013. FRANKFURT (Börse Frankfurt). A perennial market discussion about the prospects for a major sell-off in the German equity market was re-inflamed last week. Stock prices slid to new lows for the year last Friday ahead of the publication of the disappointing US nonfarm payroll numbers – an anomaly some market commentators attributed to the figures being leaked in advance. It was remarkable, nonetheless, that the German benchmark index suffered more heavily under the tepid American employment growth than the US equivalents.
A tweeted link to a story about Margaret Thatcher caught my eye this morning, as it certainly did other readers. It related to an accusation by Australia’s foreign minister that Margaret Thatcher held ‘unabashedly racist’ views. The bold headline about the late Baroness’ xenophobia was well chosen; Bob Carr’s other recollections about the former British premier were rather glowing and therefore boring. This was the only titbit likely to generate a few clicks.
Research by Alok Kumar at the McCombs School of Business shows that investors’ age, location, and interest in activities like gambling have a larger impact on investment behavior than investors’ perceived preferences. In the past, it was believed that so-called irrational behavior of individual investors cancelled out when the market was considered in the aggregate, but according to Kumar, “those derivations from expected behavior are not random, but systematic. Many individuals make similar mistakes at the same time, and thus the effect of those mistakes is amplified.”
A sell decision is never too far from investors’ thoughts
3 April 2013. FRANKFURT (Börse Frankfurt). “If at first you don’t succeed, try, try again,” counselled the US comedian W.C. Fields. “Then quit,” he went on. “There’s no point in being a damn fool about it.” Domestic institutional DAX investors seem to have taken this advice to heart, because after embarking on yet another correctional play on the benchmark index last week, they have already abandoned the effort and bought back the positions.
The readers choices for the first quarter’s most popular posts suggested the continuing pre-occupation with the financial crisis and its solutions sat uncomfortably with the recovery in the equity benchmarks. One of these developments seemed to be wrong. We suspect, for many readers, it was the stock market.
DAX investors take another stab at a correctional bet
27 March 2013. FRANKFURT (Börse Frankfurt). Even though German institutional investors have expressed a bullish opinion of the blue-chip DAX index every week for almost two full quarters, it would be wrong to describe this optimism as ‘unreserved’. To a large degree, fund managers’ opinions were a pragmatic response to a sizeable pick-up in inflows to their funds during that period. We suspect respondents to Boerse Frankfurt’s sentiment survey have always eyed warily what they see as a widening gap between the blistering performance of the DAX over the past nine months and the relatively sober outlook for the German and eurozone economies…