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Best of Q4 Posts

December 31, 2012
Here is the selection of our best posts from the fourth quarter.

1.  The Passion of Monti:  A Christmas Story  An allegorical analysis of Italy's political situation and Mario Monti's ambiguous legacy.  
2.  Great Graphic:  Fiscal Cliff Negotiations  A graph that shows the differences between the Democrats and Republicans proposals to ave…
Best of Q4 Posts Best of Q4 Posts Reviewed by Marc Chandler on December 31, 2012 Rating: 5
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Politics Not Economics Push FX into Year End

December 31, 2012
It seems only fitting that politics, which have shaped the investment climate to such a large extent this year, dominates on this last day of 2012.  To be sure though, activity is thin and it seems only those who must transact are.  The US dollar itself is mixed.  It is slightly firmer against the euro, Swiss franc and yen, while softer against t…
Politics Not Economics Push FX into Year End Politics Not Economics Push FX into Year End Reviewed by Marc Chandler on December 31, 2012 Rating: 5
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Great Graphic: Solar Energy and Swanson's Effect

December 30, 2012
Technological progress is live changing. Economies of scale of powerful. Combine the two and the consequences are far-reaching.  This Great Graphic comes from the Economist.   It charts the dollar price per watt of electricity generated by photovoltaic cells going back to the late 1970s. 
Essentially, the cost of photovoltaic cells need to genera…
Great Graphic: Solar Energy and Swanson's Effect Great Graphic: Solar Energy and Swanson's Effect Reviewed by Marc Chandler on December 30, 2012 Rating: 5
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Great Graphic: Surprising Demographics

December 29, 2012
This Great Graphic comes from the World Bank.   While we are all familiar with the demographic shock in the high income countries.  For a few years already, Japan is experiencing a shrinking work force and a shrinking population. Part of Europe, such as Italy, does not seem far behind. The retiring of the baby boom generation and the declining re…
Great Graphic: Surprising Demographics Great Graphic: Surprising Demographics Reviewed by Marc Chandler on December 29, 2012 Rating: 5
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Currency Positioning and Technical Outlook: Weak Signals, Lots of Noise

December 29, 2012
The holiday week saw the dollar consolidate against most of the major currencies.  The yen was the main exception as its losses were extended under the aggressive signals coming from the new Japanese government.   
At the end of the week, the other key consideration, the US fiscal cliff made its presence felt.  The recent pattern remained intact.…
Currency Positioning and Technical Outlook: Weak Signals, Lots of Noise Currency Positioning and Technical Outlook: Weak Signals, Lots of Noise Reviewed by Marc Chandler on December 29, 2012 Rating: 5
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Great Graphic: Central Bank Balance Sheets

December 28, 2012
Business Insider ran a series recently of charts from a number of different economists and strategists.  These Great Graphics  come from that series and are essentially different renditions of the same data.  
We are looking at the balance sheets of a number of central banks.  One of the features of the policy response to the end of the credit cyc…
Great Graphic: Central Bank Balance Sheets Great Graphic: Central Bank Balance Sheets Reviewed by Marc Chandler on December 28, 2012 Rating: 5
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Euro Winds Down

December 28, 2012
The relatively calm foreign exchange market and equity market in Asia ended abruptly in Europe.  It is difficult to find the culprit, other than position squaring in thin markets, but the euro has come off a cent, dragging the franc.  
The MSCI Asia Pacific Index gained more than 0.5%, while European bourses are broadly lower, with the Dow Jones …
Euro Winds Down Euro Winds Down Reviewed by Marc Chandler on December 28, 2012 Rating: 5
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Great Graphic: Japan and Korea

December 27, 2012
These Great Graphics come from Bloomberg.  I created them as part of an investigation into the impact of a weaker yen outside of Japan.  Japan and Korea compete in various industries. 
As is well appreciated, the newly elected Japanese government is determined to weaken the yen as a means to fighting deflation and reviving the economy. 
Thus far…
Great Graphic: Japan and Korea Great Graphic: Japan and Korea Reviewed by Marc Chandler on December 27, 2012 Rating: 5
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Abenomics and other Drivers of Holiday Markets

December 27, 2012
The main feature in the foreign exchange market continues to be the yen’s weakness.This weakness, based on expectations that the new Japanese government will succeed in driving the dollar to JPY90 with a combination of more aggressive monetary and fiscal policy (“Abenomics), is offering support to the other currencies.The yen sales are a combinat…
Abenomics and other Drivers of Holiday Markets Abenomics and other Drivers of Holiday Markets Reviewed by Marc Chandler on December 27, 2012 Rating: 5
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What's Up Dock ?

December 26, 2012
Labor disputes at ports on both US coasts could disrupt trade in the new year and skew high frequency employment data.  In could produce shortages of some consumer goods.  The resulting higher prices could filter through into measured inflation.  
The proximate cause of the disputes differ, but at its heart is a push by the employers to boost com…
What's Up Dock ? What's Up Dock ? Reviewed by Marc Chandler on December 26, 2012 Rating: 5
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The Passion of Monti: A Christmas Story

December 25, 2012
The political dysfunction of the world's largest economy is epic.  Even though Mr. Market is not forcing the US hand, the political class is intent on shooting itself in the foot.  Yet the uncertainty over next year's marginal tax rates has not impacted the hiring process as the average monthly non-farm payroll growth has not diminished. …
The Passion of Monti: A Christmas Story The Passion of Monti: A Christmas Story Reviewed by Marc Chandler on December 25, 2012 Rating: 5
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Great Graphic: True Cost of Health Care

December 24, 2012
This Great Graphic was posted by Sarah Cliff on the Wonk Blog of the Washington Post.   The obvious point it makes is that it takes a little more than 58 days of work on average to secure one's health care spending in the United States.  This a four-fold increase over the past 50-years.   
On another level, the graph offers a metric that few …
Great Graphic: True Cost of Health Care Great Graphic: True Cost of Health Care Reviewed by Marc Chandler on December 24, 2012 Rating: 5
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Great Graphic: Extent of the Fiscal Cliff

December 24, 2012
This Great Graphic is from Foreign Affairs.  It shows what is involved with going over the fiscal cliff.   Our base case remains the fiscal cliff will be easier to address after the  Rubicon is crossed than preemptively.  A coalition in favor of restoring some tax cuts seems more likely than an agreement on whose taxes to raise.  


Great Graphic: Extent of the Fiscal Cliff Great Graphic: Extent of the Fiscal Cliff Reviewed by Marc Chandler on December 24, 2012 Rating: 5
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Notable Weekend Developments

December 23, 2012
Yes, it is the holiday season.  Yes, you are unlikely to be taking action with your investments.  Yes, the morphing of what is into what will be continues uninterrupted.  
There were several developments over the weekend that will influence the direction of the markets in the days ahead, with the usual caution about the impact of the thinness of …
Notable Weekend Developments Notable Weekend Developments Reviewed by Marc Chandler on December 23, 2012 Rating: 5
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Currency Positioning and Technical Outlook: Holiday Mode

December 22, 2012
The US dollar rebounded smartly at the end of last week as the realization that it was increasingly likely the US would go over the fiscal cliff.  This has been our base case, but many seemed to expect it to be averted and were looking past it.   
The collapse of Boehner's so-called Plan B, due to the lack of sufficient Republican support, wo…
Currency Positioning and Technical Outlook: Holiday Mode Currency Positioning and Technical Outlook: Holiday Mode Reviewed by Marc Chandler on December 22, 2012 Rating: 5
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Great Graphic: Chart Your Effective Tax Rate

December 21, 2012
This Great Graphic comes from Ritchie King at Quartz.  Follow the link and you can access an interactive aspect and see your effective tax rate back to the eve of WWI, if you 'd like.  

What is striking is that for most incomes, the effective tax rate is lower than in 1980 and yet cost of the basket of goods and services the government provid…
Great Graphic: Chart Your Effective Tax Rate Great Graphic: Chart Your Effective Tax Rate Reviewed by Marc Chandler on December 21, 2012 Rating: 5
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Market Discovers Fiscal Cliff, Sends Dollar Higher

December 21, 2012
It had seemed that many participants were looking past the US fiscal cliff and were to be content taking on more risk.  However, yesterday's late developments have provided a cold slap of reality.  Our base scenario, under which the US does in fact go over the cliff appears more likely now that Speak Boehner's "Plan B" failed to…
Market Discovers Fiscal Cliff, Sends Dollar Higher Market Discovers Fiscal Cliff, Sends Dollar Higher Reviewed by Marc Chandler on December 21, 2012 Rating: 5
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Yen Rebounds, Dollar Soft

December 20, 2012
The US dollar is sporting a softer profile today.  It had initially extended its gains after recovering in North America yesterday. In Japanese candlestick terms the euro and sterling had recorded "shooting stars", in essence opening on their highs and finishing on their lows.  Additional profit-taking was seen in Asia, earlier today.  T…
Yen Rebounds, Dollar Soft Yen Rebounds, Dollar Soft Reviewed by Marc Chandler on December 20, 2012 Rating: 5
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Great Graphic: Political Affiliation of Gun Ownership in US

December 19, 2012
This Great Graphic comes from an interesting blog Explore, that is edited by Maria Popova of Brain Pickings.   It shows gun ownership by political affiliation.   
In the previous post, we argued that evidence suggest the debate over the fiscal cliff was small beer.  Here, we see an unambiguous difference. 
Taken together, the two posts suggest …
Great Graphic: Political Affiliation of Gun Ownership in US Great Graphic: Political Affiliation of Gun Ownership in US Reviewed by Marc Chandler on December 19, 2012 Rating: 5
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Great Graphic: Fiscal Cliff Negotiations--Must See

December 19, 2012
This is one of the most revealing graphs we have posted.  This Great Graphic comes from the Washington Post's Wonk blog.  
First, it shows that a step toward fiscal adjustment is coming to the US.  The difference between Obama's plan and Boehner's is how the burden of the adjustment should be distributed.  
Second, the chest thumping …
Great Graphic: Fiscal Cliff Negotiations--Must See Great Graphic: Fiscal Cliff Negotiations--Must See Reviewed by Marc Chandler on December 19, 2012 Rating: 5
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European Currencies Rally, Dollar-Bloc Heavy

December 19, 2012
This week's pattern remains intact.  The US dollar continues to trend lower against the European currencies, but is firmer within the dollar-bloc and against the yen.  Spanish and Italian bond yields are lower, while the long-end of the Japanese curve is heavy.  Equity markets are finishing the year with a firm note, with board gains in Asian…
European Currencies Rally, Dollar-Bloc Heavy European Currencies Rally, Dollar-Bloc Heavy Reviewed by Marc Chandler on December 19, 2012 Rating: 5
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A Few Developments Augment Holiday Mood

December 18, 2012
The US dollar is mixed.  Softer against the European complex, but firmer against the dollar bloc.  It is essentially flat against the yen.  Equity markets are advancing and the Nikkei, which gapped above the 3-year downtrend line yesterday, extended its gains by another 1%.   Spanish and Italian bond yields are lower.
Japanese yields continue to …
A Few Developments Augment Holiday Mood A Few Developments Augment Holiday Mood Reviewed by Marc Chandler on December 18, 2012 Rating: 5
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Cyrpus: The Dog that Didn't Bite...Yet

December 18, 2012
Last week Eurogroup head Juncker warned that the situation tiny Cyprus was more worrisome than Greece.  While this seemed to be an exercise in hyperbole, sure enough Monday, a Cyprus official was quoted on the news wires warning of an imminent default.  
Hang on.  Didn't Cyprus reach a memorandum of understanding with the Troika ?  Indeed, it…
Cyrpus: The Dog that Didn't Bite...Yet Cyrpus: The Dog that Didn't Bite...Yet Reviewed by Marc Chandler on December 18, 2012 Rating: 5
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Great Graphic Warning Sign for Japanese Shares

December 17, 2012
In response to the electoral victory by the Liberal Democrat Party, the Nikkei gapped higher today in Tokyo trading.  The gap put it above the downtrend line drawn off the 2010, 2011 and 2012 high.  Since it occurred on a Monday the gap is not only to be found on the daily bar charts, but the weekly as well, which theoretically gives it even grea…
Great Graphic Warning Sign for Japanese Shares Great Graphic Warning Sign for Japanese Shares Reviewed by Marc Chandler on December 17, 2012 Rating: 5
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Japan's Election and BOJ in Focus, Monti's Decision Awaited

December 17, 2012
There was a lively start to trading as the yen gapped lower in immediate response to new of the LDP's  victory in the weekend elections in Japan.  The greenback traded around JPY84.55, the highest level since April 2011.  The euro traded to about JPY111.30, just below the year's high set in March near JPY111.45.  The Nikkei gapped higher.…
Japan's Election and BOJ in Focus, Monti's Decision Awaited Japan's Election and BOJ in Focus, Monti's Decision Awaited Reviewed by Marc Chandler on December 17, 2012 Rating: 5
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Initial Thoughts on Japan's Election

December 16, 2012
The outcome of Japan's election seems to be largely in line with market expectations.  The Liberal Democrat Party won handily.  It appears to have secured a majority of lower chamber of the Diet.  
There had been some reports suggesting that it might be able to achieve a super-majority of 2/3, but this does not look to materialized.  However,…
Initial Thoughts on Japan's Election Initial Thoughts on Japan's Election Reviewed by Marc Chandler on December 16, 2012 Rating: 5
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Great Graphic: Key to House Prices

December 16, 2012
This Great Graphic was posted on Sober Outlook, which in turn comes from JPMorgan, drawing on CoreLogic and BLS data.  It tracks two times series, per capita income and house prices.  
The compelling idea here is that over the long-run, the appreciation of house prices tracks per capita income.  
Admittedly, there is great variation of house pric…
Great Graphic: Key to House Prices Great Graphic: Key to House Prices Reviewed by Marc Chandler on December 16, 2012 Rating: 5
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Currency Positioning and Technical Outlook: The Trend wants to be Your Friend (Again) Currency Positioning and Technical Outlook: The Trend wants to be Your Friend (Again) Reviewed by Marc Chandler on December 15, 2012 Rating: 5
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Europe: The Vision Thing

December 14, 2012
The euro has been the strongest currency this week.  At pixel time it is up about 1.2%.  The Dow Jones Stoxx 600 made new 18-month highs earlier in the week before consolidating in the second half of the week.  Bond markets were mostly lower, though Greece, for obvious reasons, Spain and Portugal were exceptions to the generalization.   
European…
Europe: The Vision Thing Europe: The Vision Thing Reviewed by Marc Chandler on December 14, 2012 Rating: 5
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Four Drivers, Little Movement

December 14, 2012
With few exceptions, the global capital markets which began the week with a bang, are finishing with a whimper.  The US dollar is little changed against the major and emerging market currencies.   Asia stocks were by and large flat, with the notable exception of Chinese stocks, where the major indices jumped a  little more than 4%. 
European bou…
Four Drivers, Little Movement Four Drivers, Little Movement Reviewed by Marc Chandler on December 14, 2012 Rating: 5
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Great Graphic: Pew Poll on Fiscal Cliff Proposals

December 13, 2012
This Great Graphic comes from Pew Research.  It shows one of the reasons why the fiscal cliff talks are so difficult.  Few proposals really have a majority of support. 
Yet it seems clear that the three proposals that have the highest support are to focused on getting the wealthier among us to pay more.  
While some will see this as class war, on…
Great Graphic: Pew Poll on Fiscal Cliff Proposals Great Graphic: Pew Poll on Fiscal Cliff Proposals Reviewed by Marc Chandler on December 13, 2012 Rating: 5
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Great Graphic: Spain Woes Continue

December 13, 2012
The Greek bond buy-back, the machinations of Italian politics and the European agreement on bank supervision all seem to have pushed Spain out of the limelight. Yet the economic situation is does not appear to be stabilizing and it will likely return to center stage early next year.
This Great Graphic is was posted on Quartz and comes from a surve…
Great Graphic: Spain Woes Continue Great Graphic: Spain Woes Continue Reviewed by Marc Chandler on December 13, 2012 Rating: 5
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Foreign Exchange Frustrates

December 13, 2012
The US dollar saw its post-FOMC losses extended only against the euro as the perhaps the passable success of the Greek bond buy-back and bank supervision deal lent support to the single currency.  
Yet, even it succumbed to selling pressure in the European morning and returned to pre-FOMC levels near $1.3040.  Against most of the other majors, th…
Foreign Exchange Frustrates Foreign Exchange Frustrates Reviewed by Marc Chandler on December 13, 2012 Rating: 5
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Doves Rule at the FOMC

December 12, 2012
The Federal Reserve was as aggressively dovish as any one expected. It added to QE $45 bln a month in US Treasuries, keeping the $40 bln of month of MBS purchases. It also changed from time reference for guidance to use of inflation and even there it is dovish, indicating rates will remains low as long as inflation is below 2.5% and unemployment…
Doves Rule at the FOMC Doves Rule at the FOMC Reviewed by Marc Chandler on December 12, 2012 Rating: 5
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Sweden's Riksbank To Bolster Reserves

December 12, 2012
The accumulation of reserves is primarily limited to developing countries.  There are two notable exceptions among the high income countries. Japan, which is traditionally willing to intervene in the foreign exchange market to curb the yen's strength.  The last intervention took place in Oct-Nov 2011, when the BOJ bought over $100 bln.  
The …
Sweden's Riksbank To Bolster Reserves Sweden's Riksbank To Bolster Reserves Reviewed by Marc Chandler on December 12, 2012 Rating: 5
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Dollar and Yen Remain Soft

December 12, 2012
The US dollar and yen remain soft.  The news stream has encouraged the so-called risk-on trade.  The Greek debt buyback appears to have gone well enough that it will get dollop of aid.  Spain reportedly received 40 bln euros of bank aid.  There seems to be a potential compromise banking supervision in Europe.  On top of that, of course, the market…
Dollar and Yen Remain Soft Dollar and Yen Remain Soft Reviewed by Marc Chandler on December 12, 2012 Rating: 5
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Great Graphic: What Happened Since QE3+ ?

December 11, 2012
The FOMC concludes its meeting tomorrow and most observers expect at least some part of Operation Twist purchases to be folded into QE3+.
There remains some criticism that easy monetary policy by the US and other high income economies fueling inflation and de-stabilzing capital flows.  We have consistently argued against such interpretations.   Ye…
Great Graphic: What Happened Since QE3+ ? Great Graphic: What Happened Since QE3+ ? Reviewed by Marc Chandler on December 11, 2012 Rating: 5
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Berlusconi to Run Against Merkel

December 11, 2012
Draghi's pledge to do what is necessary, within the ECB's mandate, to save the euro clearly reduced the extreme tail risk in the euro zone. Greece is about to receive a large dollop of aid so it can continue to keep its public sector creditors whole at the expense of domestic financial institutions. 
While the risk of a Grexit, which many…
Berlusconi to Run Against Merkel Berlusconi to Run Against Merkel Reviewed by Marc Chandler on December 11, 2012 Rating: 5
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Dollar Soft, FOMC Awaited

December 11, 2012
Some indication of progress on US fiscal talks, anticipation that the Fed extends QE3+ tomorrow, speculation of a cut in China’s required reserve, healthy Spanish T-bill auctions and a much stronger than expected German ZEW survey is encouraging risk-on plays, with the dollar and yen laggards, peripheral bonds firmer, and emerging equity markets e…
Dollar Soft, FOMC Awaited Dollar Soft, FOMC Awaited Reviewed by Marc Chandler on December 11, 2012 Rating: 5
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Great Graphic: Shifting Trade Patterns will Reduce Target2 Imbalances

December 10, 2012
The Target2 imbalances caused much consternation earlier this year as some economists focused on them as either signs that a transfer union was a fact on the ground, or alternatively, as a sign of the pending costs to Germany, which German politicians fail to acknowledge.
This Great Graphic comes from the Brussels Blog at the London School of Econ…
Great Graphic: Shifting Trade Patterns will Reduce Target2 Imbalances Great Graphic: Shifting Trade Patterns will Reduce Target2 Imbalances Reviewed by Marc Chandler on December 10, 2012 Rating: 5
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FX Drivers and Themes

December 10, 2012
News of greater political uncertainty in Italy and poor European data is spurring risk-off moves, with the dollar and yen firmer, emerging market currencies mostly softer, global equity markets lower and core bonds a bit firmer.  

Following much weaker than expected German industrial production figures last week has been followed in kind by disappo…
FX Drivers and Themes FX Drivers and Themes Reviewed by Marc Chandler on December 10, 2012 Rating: 5
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Italy Trumps Greece

December 09, 2012
News that the Greek bond buy scheme did not get sufficient takers to reach the 30 bln euro target, set the commentariat ablaze.  This may prove to be a minor technicality, as Greek banks initially offered 75% of the Greek bonds, but were prepared to pitch them all if necessary to ensure EU aid is forthcoming, which is the source of their recapita…
Italy Trumps Greece Italy Trumps Greece Reviewed by Marc Chandler on December 09, 2012 Rating: 5
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Cool Video: Does the Universe Have a Purpose? Cool Video: Does the Universe Have a Purpose? Reviewed by Marc Chandler on December 09, 2012 Rating: 5
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Great Graphic: IMF GDP Projections

December 09, 2012
This Great Graphic comes from Bloomberg's Business Week, which itself is drawn from IMF data.  We have noted before how poorly the IMF has forecast Greek GDP and this helps explain why the debt/GDP ratio is deteriorated more than expected.   
The first panel shows how poorly forecast euro area growth.  It recently admitted it under-estimated …
Great Graphic: IMF GDP Projections Great Graphic: IMF GDP Projections Reviewed by Marc Chandler on December 09, 2012 Rating: 5
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Great Graphic: Italy's Challenges

December 08, 2012
This Great Graphic comes from the Economist. It shows that despite the decline in Italian bond yields, confidence in Prime Minister Monti continues to slump.  This in turn explains why the center-right feels emboldened, let alone Berlusconi's ambitions.  
If the first chart illustrates the political problem of the Monti, the second chart depi…
Great Graphic: Italy's Challenges Great Graphic: Italy's Challenges Reviewed by Marc Chandler on December 08, 2012 Rating: 5
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Currency Positioning and Technical Outlook: Stirred but not Shaken

December 08, 2012
We have been tracking the deterioration of the US dollar's technical tone over the past three weeks.  That ended abruptly.  Weak euro area data, a more dovish than expected ECB, and heightened political uncertainty in Italy, saw the euro reverse lower after briefly moving above an eighteen month-old downtrend.
The UK also cut its growth outloo…
Currency Positioning and Technical Outlook: Stirred but not Shaken Currency Positioning and Technical Outlook: Stirred but not Shaken Reviewed by Marc Chandler on December 08, 2012 Rating: 5
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