Market open

Commodities are up across the board, oil up >3%, gold up too. All equity markets (that I can see) are green, and all sectors too. Bond yields are imperceptibly lower. People are getting excited about a few bp increase in the 30-year yield. I think we should wait a bit before we conclude that an inflation inferno has definitively started.

Europe a backwater dominated by sectors in decline

The popular view amongst money managers is that European equities are dominated by sunset industries like energy, automobile manufacture and banking. Graham Secker of Morgan Stanley believes differently. This article points out that

In contrast, 45 per cent of MSCI Europe can be accounted for by healthcare, consumer staples and industrials — sectors that offer a healthy mix of good, quality growth. When we compare the sector mix of the European equity market to its global peers, these same three areas are those where Europe is most “overweight”, while its exposure to banks is no greater than that found in the MSCI All Country World Index.

I think the reality is that the out of fashion stocks have prices that have cratered so much that although a lot of employment and economic activity in Europe is still anchored by sunset industries, the stock market looks much more like that in the US than people realize. In fact, employment in the states is probably not so different. I am sure many more people work in coal mining there than work for Google, even though the mining sector’s market cap is many orders of magnitude smaller. The stockmarket may have been closely linked to the real economy in the 1920s, but it certainly is not today, when actually making a profit will drag down a stock price.

Inflation

I always seem to say something about inflation. Here is the chart for today.

As Fleck pointed out in his daily newsletter, Yamana Gold ($AUY) gained 6.5% on results, which might be a foretaste of what is to come with the bigger gold miners like Barrick ($GOLD). I am coming to prefer miners to the actual commodity, as they have a positive carry (admittedly $GOLD yields only 0.73%, but on a LTM basis it’s P/E is nearly 11, which is pretty good for barbarous relic).

Fed needs to spend moooar

John Dizard in the FT argues that the Fed will have to start injecting large sums in to local governments in the USA. I think he’s probably right. The Fed will be hard pressed to refuse, for reasons he lists.

As Dr Marc Faber explains in this podcast, once the Fed started QE1 there was no going back. The long term consequences will be bad (the least bad outcome is stagnating GDP, i.e. Japanification). The US, with it’s massive trade deficit, it’s hard to see it being as painless as that. The whole podcast is worth a listen (as is every one hosted by Grant Williams that I’ve ever listened to).

Wrap

Pretty much everything green except oil and Treasuries. Even nat. gas was up. Obviously, the denominator in all this is dollars, which were down: DX by 0.6%, which is a biggish move.

It was a good day for fraud stocks, with $KODK and $GSX both up over 12%. If anything demonstrated why making money on a short-only fund was difficult, it’s this. Fintwit is furious, but nobody cares, as usual. For an example of someone who cares, try this.