Tuesday, 2 July 2013

Ch, Ch, Changes . . .

A leadership change here in Australia by the ruling ALP (socialist) has had the Aussie Dollar under a little pressure as economists come to terms with the new populist leader Kevin Rudd. It's hard to believe but Rudd has managed to steady by force of personality a party that was staring election oblivion in the face only a week ago. The cost for election parity has been the inevitable ditching of the unpopular carbon tax. In Australia the green movement managed to have the minority government implement a two stage system  for the carbon pricing. Firstly there would be a period of fixed price stability that allowed industry some certainty for three years before moving to a floating emissions trading scheme in 2015. The problem was that the government fixed the price north of $20 per ton (with increases during the fixed period), while the rest of the world adopting ETS type structures saw a collapse in the carbon price to $6 ton, meaning that Australia was effectively making itself uncompetitive. The new PM wants to move to the floating price as a way of acknowledging the lack of competitiveness and to attempt to ease the burden on the populace who have seen power prices spiralling ever upward. Leaving aside the politics of the coming changes the biggest problem lies in the potential $4 - 5bn budget whole created in moving to the market price. It seems unlikely this hole could be closed easily and therefore the pressure on the AUD will continue to build. Stay short the Aussie Dollar.

An upturn in China would help Australia, but seems unlikely. The Chinese PMI came in at 48.2 disappointing the markets, no matter that as a data group global 28 PMI's have been released so far and of them 22 are up, 5 are down and 1 is unchanged. Currently it's fair to say that only two PMI's have the ability to shift global thinking significantly and they are the US and China. The US PMI came in at 50.9 and somewhat balances out the Chinese data, but leaves me to continue thinking that the world economy remains fragile at best. The pressure on the Fed to start to curb QE will remain and with that a continuation in the deflating of the bond bubble. My favourite quote  of the day comes from James Knightley at ING Bank in London:

“Given the Fed has made tapering of QE contingent on improvements in the labour market, today’s ISM report is possibly the best outcome for risk assets in the short term – better growth, but a still lacklustre job picture.”

Cold comfort for many in this low growth world.

Maybe the Japanese are changing? Previous bubbles usually encompass several Japanese corporates overpaying for trophy assets. The one that always brings a smile to my face is Rockefeller Center in NYC, which seems to change hands every bubble at the top of the market without fail. Rumours are that Japan's Government Pension Investment Fund (GPIF) may have it's remit changed to allow it to buy property (and thus the Rockefeller Center thinking), as has happened recently with the Norwegian sovereign wealth fund. Of course any change in asset allocation will probably see them selling JGB's into BoJ's own money printing debacle leaving observers such as myself wondering how this might end? In conformation that Japan's pension funds are all thinking in the same way (sell Japan and buy something else) the Japan Pension Association (assets of $100bn) partnered with several Japanese and a Canadian fund to buy a power generation plant in Michigan. While clearly the bet relies on  expanding manufacturing in the midwest it also could be the first of many such infrastructure plays. If the Japanese pension funds are smart they can get a lot of their cash offshore into expanding economies and leave the  unit holders something to cling on to when the current round of ponzu-like BoJ action leads to the inevitable hangover of deflation, which would be consistent with a falling population and external pricing pressure on a country with little by way of natural competitive advantage in the global economy.

Change of the day though comes from a Goldman Sachs note:

"Closing our recommendation to buy BRICs Sales basket...due to revised expectations for slower China growth"

That BRICs sales basket <GSTHBRIC> targeted US companies within the Russell 1000 across ten sectors with the highest sales exposure to the BRICs countries and regions. Essentially GS is saying they know longer want to be long growth in the (formerly) most dynamic countries on the planet . . . all change.

The first three days of the Tour de France had been a change in their own way in that the Tour has never previously visited Corsica. Leaving aside the debacle of the Orica GreenEdge getting stuck at the fish only 15mins before the arrival of the peloton during stage one, the racing has been exciting, the crashes have been horrible and the crowds have been enormous. This 100th edition of the TdF is shaping up nicely for all concerned. Stage three was another mass lunge for the line.

Notice I didn't say bunch sprint, because only stage one saw a rated sprinter cross in first place. The following stages have favoured all-rounders such as Peter Sagan. Sagan got his second, second place finish last night being edged out in the photo finish by GreenEdge's Simon Gerrans who specialises in stealth tactics. Luck has changed for Orica GreenEdge.

Man of the day had to be Sky rider and TT specialist Geriant Thomas who rode the stage despite having medical staff confirm that he had a broken pelvis. Anyone who thinks cycling isn't tough please take a number and wait to be made fun of . . . 


No comments:

Post a Comment