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Monthly Macro: Austerity vs Monetary Madness

In this month’s Monthly Macro piece we look at green shoots in the US, the changing attitude towards austerity in Europe, the pending questions surrounding China’s economy and the latest round of monetary madness courtesy of the Bank of Japan. https://www.seasoninvestments.com/insights/monthly-macro-austerity-vs-monetary-madness/

Recipe For A Bank Run

Cyprus is making front page news due to some radical terms which the Troika proposed for a bailout of their banking system. Although the initial proposal has been shot down, the damage to the European banking system may have already been done. https://www.seasoninvestments.com/insights/recipe-for-a-bank-run/

An Emerging Dichotomy

Since the financial crisis the reasons for favoring EM have changed. In a world where most developed countries are struggling under the weight of excessive debt and lackluster economic growth, emerging economies stand out as a diamond in the rough, but strong economic fundamentals have not translated into outperformance for EM equities. https://www.seasoninvestments.com/insights/an-emerging-dichotomy/

Exporting Unemployment

The global financial crisis in 2008 was a game changer on many levels. One of which was, and continues to be, the gross reality that developed economies can no longer borrow their way to prosperity. According to many central banks, the answer to this problem is to export unemployment to other countries through competitive currency devaluation. https://www.seasoninvestments.com/insights/exporting-unemployment/

Wimpy Economics

Our modern society believes that pain and sacrifice are unnecessary evils that can be alleviated by borrowing from our future prosperity. We can think of this as Wimpy economics since we would “gladly pay you Tuesday” for a hamburger today. https://www.seasoninvestments.com/insights/wimpy-economics/

Can the Stock Market Repeat?

This will be the first quarter of negative growth in the past eleven, and while the majority of companies beat bottom line earnings estimates, the 41% that beat top line sales estimates is the lowest since the first quarter of 2009. https://www.seasoninvestments.com/insights/can-the-stock-market-repeat/

The Troika Has No Clothes

Decision makers in Europe would be hard pressed to admit they believe Greece will grow its way out of debt, yet they continue to finance the problem that is Greece. How do these two things reconcile in the real world? https://www.seasoninvestments.com/insights/the-troika-has-no-clothes/

Shanghai Hanging Low

The global slowdown and specific concerns over China’s economy have resulted in Chinese equities being one of the worst performing markets this year. This weakness largely reflects the market’s uncertainty surrounding the soft or hard landing debate. We believe the underperformance has left China’s market very attractive from a valuation standpoint. https://www.seasoninvestments.com/insights/shanghai-hanging-low/

Pour Some Sugar On Me

QE3 will have no real impact on economic growth since it will not loosen any of the “binding constraints” preventing growth from accelerating. The pop in stocks and commodities following the Fed’s announcement has been referred to over and over again as the “sugar rally”, making it analogous to the surge of nervous energy one gets after indulging in too many sweets. https://www.seasoninvestments.com/insights/pour-some-sugar-on-me/

We Are All Turning Japanese

We decided to close out our position in the Yen because our thesis for the original investment has been significantly challenged. The tailwinds which have aided the Yen over the past two decades are weakening. https://www.seasoninvestments.com/insights/we-are-all-turning-japanese/

Having Your Cake & Eating It Too

The improving fundamentals in emerging markets versus the deteriorating fundamentals in developed markets are primarily due to the different stages of the economic life cycle. Many emerging markets have made some tough, long-term decisions to bring their financial houses in order and are now reaping the benefits. https://www.seasoninvestments.com/insights/having-your-cake-and-eating-it-too/

The Definition of a Bad Economist

American fiscal policy today seems more intent on delivering "heroics" than "healing". The upcoming Fiscal Cliff presents yet another moment of truth for the US Congress as it decides what to do with roughly half a trillion dollars of scheduled spending cuts and tax increases. https://www.seasoninvestments.com/insights/the-definition-of-a-bad-economist/

Will the ECB go for Gold?

It has long been debated to what extent the ECB will be willing (or even legally capable) of engaging in outright bond purchases of Eurozone countries’ sovereign debt. Such programs have already been implemented throughout this crisis, but such efforts have been limited and have fallen short of anything akin to the US Fed’s quantitative easing programs. https://www.seasoninvestments.com/insights/will-the-ecb-go-for-gold/

It's An Upside Down World

In John Mauldin’s “upside down world” capital markets are no longer driven by finance and economics – they are driven by public policy. This is the world we’ve lived in for nearly four years now, and current price action in the market continues to bear this out. https://www.seasoninvestments.com/insights/its-an-upside-down-world/

Macro Update: Central Bank Policy

We have been in a policy-driven market now for roughly four years. Both monetary and fiscal authorities have played a heavy-handed role in the economy and capital markets over this time period. Global central bank (monetary) policy is on our Macro Radar due to its post-financial crisis impact on investor sentiment and the performance of both stocks and commodities. https://www.seasoninvestments.com/insights/macro-update-central-bank-policy/

Macro Update: China's Engineered Slowdown

Despite boasting the second largest economy in the world and being home to 20% of the globe’s population, China is still very much an “emerging” market. From a long-term perspective China’s growth story will clearly be one of the primary trends over the next several decades. https://www.seasoninvestments.com/insights/macro-update-chinas-engineered-slowdown/

Micro Update: White Metals

Precious metals have been an excellent store of value and are considered to be on the more defensive end of the commodity risk spectrum. They tend to outperform the broader commodity complex when real interest rates are low, or negative as they are today, since the opportunity cost of holding a non-yielding asset is minimal. https://www.seasoninvestments.com/insights/micro-update-white-metals/

Macro Update: Europe Debt Crisis

A disorderly unraveling of the crisis in Europe is still the greatest “known” threat to investors of all types. While a number of potential outcomes are possible, we do not believe a worst-cases scenario is the most likely. In our view, all European participants are in a slow creep towards the “Lose-Lose Win” scenario. https://www.seasoninvestments.com/insights/macro-update-europe-debt-crisis/

Micro Update: Walter Energy

Walter Energy (ticker: WLT) is a pure play metallurgical coal producer with operations in the United States. The market for met coal has been very tight over the past several years due to constrained supply and increasing demand from emerging markets like China, India and Brazil. https://www.seasoninvestments.com/insights/micro-update-walter-energy/

Macro Update: 2012 Macro Radar

As we head into the New Year there are four factors on our “Macro Radar” that we believe will be the primary drivers of financial market performance in 2012, which means we will spend a lot of time proactively focusing our research efforts on understanding and monitoring their development throughout the year. https://www.seasoninvestments.com/insights/macro-update-2012-macro-radar/