Thursday, 23 May 2013

Sometimes it doesn't feel good being right . . .

Yesterday I pointed to concern with the dysfunctional way the bond market was behaving; today everyone got worried. Nikkei 225 closed 7.3% Lower; Topix Fell 6.9%, that's the most in a single day since March 2011. The first signs that things were not right was when the 10 year JGBs broke through the 1% yield mark.

“Rising interest rates is the story today,” said Tomomi Yamashita, a fund manager who helps oversee the equivalent of $5 billion at Shinkin Asset Management Co. in Tokyo. “There’s also a lot of profit-taking going on. When volatility is high, investors want to take off risk.”

Of course this was also componded by a Chinese PMI under 50 for thew first time in 7 months and some obtuse testimony from Ben Bernanke regarding the withdrawal of QE stimulus. The market surely must be aware that the QE had to come to an end at some stage. Japan most of realises that it can't go it alone and Abe's hoped for double hammer of his own Yen destroying stimulus and simultaneous US growth absent any monetary brakes is now under very close scrutiny.

Australia, the most cyclical of cyclical nations looks very vulnerable. Today Ford pulled out of Australian manufacturing (exit 2016) after years of government subsidies. The high Aussie Dollar, inflation of wages and a newly introduced carbon tax left Detroit to walk away leaving GM and Toyota free to produce piecemeal efforts against very little competition. And the AUD . . . well we're now at 96 cents and for mine they'll be a bounce of sorts, but until we get to 85 it's still overvalued by maybe a standard deviation.

The next target therefore becomes high yield bonds and after that corporate bonds of various grades. The ETF world is abuzz at the moment regarding various index re-weighting in the wake of the Apple mega bond ($17bn). Most of the concerns were about re-striking baskets while avoiding liquidity squeezes. If we get a bond sell of the liquidity problem will be for the sellers rather than the buyers. Investors should think carefully about their bond positions.

The weather remains damp in Sydney. I took the day off from riding to dry off the kit and prepare for a weekend in the Blue Mountains west of Sydney. I'll probably be riding alone as my usual partner can't make it. The biggest problem with riding in the countryside after heavy storms is the various road debris  to be found along the way. I had a choice today to change from the Mavic Cosmic Carbones on my Cannodale to the somewhat stronger Fulcrum Zero's and their Vittoria Open Pave tyres. The Exalith brake track on the Mavic's swayed my view and I'll stick with the better braking surface over the advantage of slightly stronger tyres. Ideally I'd like to take both, but without a workstand at the farm it can be somewhat problematic changing brake pads, wheels and getting things aligned.

Tonight is the last time trial of the Giro. It's a 20km up hill drag. I'm wondering how many riders will ditch the TT bikes in favor of the standard climbing bike plus triathlon extensions as demonstrated to great effect by Richie Porte at Paris - Nice earlier in the year. We shall see . . .


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