1. Quote of the week
Investors should actually play the cards they have on hand, rather than play the card that they wish to have.
-- Jeremy Grantham, when asked whether it is a bear rally or not.
2. Bretton Wood 2.0
Economist Brad Setser has recently given our current financial world a new name, Bretton Wood 2.0 vs. the original Bretton Wood one that we used to be in. Let's borrow that and make a few interesting comparisons below:
Bretton Wood 1.0 Bretton Wood 2.0
Deficit Growth Current Account and Trade Account Deficit Budget Deficit
Funding Destination Private Sector Borrowing on consumption and leverage Public Sector Borrowing on fiscal policy front
Debt Financing Vendor Financing aimed more purchasing Creditor Financing, (debts)rights issue on existing stake holder, aimed mutual benefit
As illustrated by Chart 1_Public vs private, Chart 5_ Private borrowing and Chart 6_Borrowing by sectors, Government borrowing has increased sharply, but the fall in private borrowing by households and firms has been equally dramatic. Overall borrowing has not changed substantially. Also from Chart_6, we see the household borrowing actually started to drop in 2006 as a result of property market topping, while corporate sector's borrowing was still expanding then as a result of M&A buyout activities.
Last but not least, Chart_7 shows the treasury yield during Great Depression, does that spike ring your bell?
3. Money market, fixed income, corporate bonds all back to pre-Lehman level, when will it be for Equity and will it?
Chart 2_Fixed income, Chart 3_MM vs Chart 4_Sp?
4. Interesting chart of Hedge Fund AUM and Leverage from HFR. Check out Chart_8 HF.
5. A glance at household balance sheet from Fed Fund Flow Report, Chart_9 and Chart 10.
One thing that is worth noting is, during those crazy real estate days between 2003-2006, the equity part of the house stayed flat, rather than increased.
6. Growth vs stability in the uncertain world?
The number of seniors entering finance and consulting has fallen from 47 percent in 2007 to 39 percent in 2008 to 20 percent for the current Class of 2009. ...More seniors indicated that they would be working in the fields of education and health care. The large increase in the number of seniors entering education—from 10 percent to 15 percent in the past year—likely reflects the popularity of programs like Teach for America, which received applications from a record-setting 14 percent of Harvard seniors, according to data released by the organization. Similarly, the number of people entering health care doubled, rising from 6 percent last year to 12 percent this year. From The Crimson reports.
Have a great week.
Best
Oliver Zeng
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