What We’re Reading

by CC June 6, 2011 7:44 am • Commentary

Seeking Alpha

Today’s Markets

  • In Asia, Japan -1.2% to 9380. Hong Kong closed. China closed. India +0.2% to 18420.
  • In Europe, at midday, London -0.1%. Paris -0.7%. Frankfurt -0.2%.
  • Futures at 7:00: Dow -0.2%. S&P -0.15%. Nasdaq -0.3%. Crude -0.8% to $99.38. Gold +0.2% to $1545.10.

Monday’s Economic Calendar



I worry about the fragility of “animal spirits,” and the damage that even ostensibly temporary forces can have in interrupting the building optimism that had led to a nice pickup in hiring and investment by businesses and spending by consumers late last year. My read of the anecdotal information is that the economy has substantial underlying resilience and can quickly recover, but consider me worried. –Stephen Stanley, Pierpoint Securities

The deceleration in employment growth, together with a string of disappointing results on other indicators, calls into question the sustainability of the recovery. However, we are still inclined to believe that this is a temporary soft patch reflecting supply chain disruptions, a spike in gasoline prices (which has been partially unwound), and weather-related influences. Also, we believe that calendar effects and other special factors had some impact on the May employment data. However, for this thesis to be confirmed, we will need to see a solid rebound in job growth in June — something north of +150,000. –David Greenlaw, Morgan Stanley

“There is plenty of irony here. Stock investors should fear a revival of the conditions under which QE2 was deemed necessary—heightened recession risk, stagnant labor markets and a brush with deflation. The Fed would feel justified in initiating QE3 only if the inflation threat receded, something likely only in a global economic-stall phase, which wouldn’t be great for share prices.”
“For investors, positioning for the end of QE2 requires assessing its true effect on the markets. But that isn’t easy. The common perception is that QE2 and QE1 helped to inflate risky assets, such as stocks and commodities, sank the U.S. dollar, buoyed credit markets, boosted inflation expectations and failed to lower interest rates.”

Felix Salmon

The only tiny possible chink of light here is that these numbers are so bad that they might persuade bickering politicians on Capitol Hill to stop playing stupid games with the debt ceiling and start concentrating on important matters. Oh, who am I kidding: we’re in election season now.


The chase for yield has made selling volatility a popular trade, and this has been a factor in low implied and realized vols. At the same time, growing macro (crossasset) portfolios likely contributed to the rise of cross-asset correlations. Hence, an extremely accommodative monetary policy may have simultaneously resulted in low volatility and high cross-asset correlations. Note that although QE2 is coming to an end, monetary policy remains extremely accommodative and we expect the chase for returns to continue until the Fed signals an exit.

Given that the assets under management of macro hedge funds are 30% higher than in 2007 and leverage has likely increased since the peak of the crisis, crossasset portfolios could be a potential for a contagion risk, which can be amplified further by the net short volatility base of the hedge fund community. The collapse of LTCM in September 1998 is a case in point. At that time a seemingly small shock in the EM (Russian default) resulted in severe global market volatility due to fire sales of an over-leveraged hedge fund community. The calm period preceding the events of 1998 was characterized by a similar pattern of rising cross-asset correlations and declining volatilities.


BRUSSELS—Support is building among senior European finance officials for a plan to press Greece’s private-sector creditors into accepting a debt exchange that would result in delayed repayment to them, people familiar with the matter say.

But that aggressive course of action—which would probably trigger the euro zone’s first-ever debt default—faces opposition from the European Central Bank, which would have to be a key player in the plan, and it will face tough battles at a series of meetings of politicians this month.


Over all one-week periods since 1980, the S&P 500 has averaged a gain of 0.13%.  Over all five-week periods, the index has averaged a gain of 0.68%.  So let’s see how the week and five weeks following the 24 five-week losing streaks shown below compare to these historical averages.

As shown, the index has averaged a gain of 0.03% in the week following the 24 five-week losing streaks.  This is obviously below the average of 0.13% for all one-week periods since 1980, so there is a slight negative bias for next week.  In the five weeks after the five-week losing streaks shown, however, the S&P has averaged a gain of 2.15%, which is much better than the average of 0.68% for all five-week periods.

Daring Fireball

Don’t think of iCloud as the new MobileMe; think of iCloud as the new iTunes.

Syncing data between devices tends to work best when there’s a canonical store. I.e. with Dropbox, you might have three, four, five devices syncing data on the same account. The canonical central store, however, is Dropbox’s cloud-based server. With iPhones, iPods, and iPads, the central store for almost all data stored on the devices is iTunes running on your Mac or PC.

With iCloud, that should shift to the cloud. iTunes, the desktop app, currently syncs the following things with iOS devices: audio, movies and TV shows, iBooks e-books, App Store apps, contacts, calendars, bookmarks, notes, and any sort of files shared between iOS apps. All of these things would be better served syncing over-the-air via the so-called cloud.

But even if “iCloud is the new iTunes” really is the right way to frame the service, it will by nature be at least somewhat in conflict with MobileMe, insofar as the major selling points of MobileMe include cloud-based syncing of bookmarks, contacts, calendars, and files. Whatever you think of MobileMe’s value as a $99 per year service today, it is going to look like a worse deal tomorrow if the only thing it has left that isn’t part of iCloud is an email account and (admittedly, very nicely done) web-based interfaces to email/contacts/calendars/files. iCloud may well obviate much of MobileMe simply as a side effect.

But in short let’s just think about the ways that iCloud might be a major, dare I say game-changing, step away from USB tethering between iOS devices and iTunes running on your Mac/PC. Consider just the new out-of-box experience. Rather than “Take this out, plug it into your Mac or PC (after first making sure your Mac/PC is running the latest version of iTunes), wait for it to sync before you actually play with it”, you might get something like “Take this out, turn it on, sign into your iTunes account, and start playing with it.”