Recap 2015-01-02


Oil price momentum has slowed dramatically, though signs of a recovery remain weak:

30y yields continue to trend downward. I still think we are not far from a tradeable low.

Via Quantifiable Edges, historically we are likely to see a bounce in equities soon:

Interesting charts from JPM Private Bank’s Annual Outlook:

There is a wide gulf between expected EU earnings growth vs historical growth rates. Current consensus expectations are already quite high:

Even though earnings growth has missed expectations since mid 2011:

On a different topic, activist programs have a pretty good track record historically, both on an absolute basis as well as relative to the market:

Finally, the rise of radical parties that push back against EU mandates is a phenomenon that has occurred across the periphery. A Syrzia victory, however, would be the first time a radical party is able to win the government. From a longer term perspective of continued fiscal consolidation and EMU integrity, such a victory would be a clear negative, at least relative to the parties that were previously in power. If the Germans realize that the option is between:

  • easing up on fiscal restraints and giving the current, more moderate leadership in the periphery a chance to maintain power and thus continue on their current path or
  • not easing up and increasing the chance of more radical parties coming into power, thereby increasing the chances, however small, of EU disintegration

The Germans may back down. Only time will tell, of course.

I’ve been reading an excellent book entitled The Sleepwalkers: How Europe Went to War in 1914, and some of the insights of the entente that existed in Europe a hundred years ago seem pertinent now. In particular, the author noted multiple times in the book that it was striking how the various governments in Europe were conducting foreign and security policy without considering how the other Great Powers would respond. This is the Security Dilemma in international relations and refers to a situation in which actions by a state intended to heighten its security, such as increasing its military strength or making alliances, can lead other states to respond with similar measures, producing increased tensions that create conflict, even when no side really desires it. It seems to me that Germany has fallen into a similar cognitive trap, whereby they are not realizing that the second-order consequences of their demands imperil the reasons the demands were made in the first place. Specifically, that Germany’s demands for sovereign fiscal sustainability as a way to preserve the long term sustainability of the EMU, which is a good and admirable objective, may well lead to the rise of radical parties in the periphery who act against those objectives. It is ironic how the current roles are now reversed. Whereas a hundred years ago, it was Germany that felt trapped by its neighbors and thus decided that a radical shift was the least worst option, now it is Germany’s neighbors that are feeling trapped.


  • PMI:
  1. US ISM declined to 55.5 vs 57.5 exp and 58.7 prev. The Markit measure was finalized at 53.9 vs 54 exp and 53.7 prev
  2. EU Mfg PMI was revised down to 50.6 vs 50.8 exp and prev, as Italy was weak (48.4 vs 49.5 exp and 49.0 prev) and French data was revised weaker
  3. UK PMI declined to 52.5 vs 53.6 and 53.5 prev



  • Mon: AU PMI, Japan PMI, Germany CPI, Japan Services PMI, China Services PMI
  • Tue: EU Services PMI, UK Services PMI, US Markit Services PMI, US ISM Non-Mfg,
  • Wed: EU Unemployment, CPI, US ADP Employment, FOMC Minutes, AU Building Approvals
  • Thu: BoE, Jobless Claims, China CPI
  • Fri: US Employment, Canada Employment