March 4. Europe fraying
March 4. Curve flattened a bit more to new lows Friday even as stocks rebounded. 2/10 fell over 3 bps to 161.8, new recent low. Red/gold down 3.25 bps to 152. Ten year yield -3.5 to 185.2. Huge plunge in Personal Income for January, -3.6% as income (bonuses, special dividends) were pulled into the end of last year to avoid increased taxes. Not surprisingly, some of those special dividend payments found their way right back into stocks in the beginning of the year, which argues against the ‘great rotation’ thesis. (thoughts from contrary investor).
–While stocks are currently shrugging off european concerns, the problems appear to be increasing rather than abating. Beppe Grillo warned that Italy may have to leave the euro and needs to renogotiate debt. According to ZH, a former Spanish general brought up the idea of a coup recently. France is trying to undo some of the damage of the 75% top tax rate. In terms of GDP, Italy and Spain combined are about the size of the German economy.
–China says it’s prepared for FX war. Steps taken to cool the property market caused a drop of over 3.5% in Shanghai Comp. The new head of the BoJ (Kuroda) said he will do whatever it takes to end deflation, and prescribed buying huge amounts of gov’t bonds.
–AAPL hit a new low Friday. Gold similarly weak. Former high fliers seem to presage deflationary forces.
