Wednesday, October 26, 2011

Tuesday Thoughts

GS' monthly pension outlook made some interesting observations on rebalancing.

Today Goldman Sachs' monthly pension outlook has made some interesting observations on the rebalancing subject:

* As of close on Oct. 24th, Goldman's desk models estimate $28.80 billion of equity selling from pension rebalancers.
* For the month of October, equities outperformed fixed income, with the S&P 500 outperforming U.S. T-notes by 12.97%. (This resulted in monthly estimated rebalancing flow of $19.33 billion out of equities).
* Lastly, Goldman saw one "trigger" event on Oct. 10 which the firm estimates nets to $9.47 billion in equity selling.

If the domestic economy is so strong (as many of the bullish cabal contend), then why is the yield on the 10-year bond moving lower again?

My view is that we will see some tentative signs of agreement over the next 24 hours regarding the eurozone debt crisis.

My view is also that Europe will live down to expectations and that any announcement will simply be can-kicking in its approach.

Austerity measures will exacerbate the current weakening of economic growth in Europe.

The only question is how deep the 2012 recession will be in Europe.

The Case-Shiller home price index dropped by 0.05% in August (-3.8% year over year),
The decline was worse than expected, represents the lowest level since early 2011 and is only modestly above 2003 prices.

The residential real estate market will likely scrape along the bottom for a few more years regardless of HARP or any other government intervention aimed at clearing the unsold inventory.

Resources (energy and water): The world is moving east. Rising demand, stemming from the continued industrialization in the developing world and the emergence of a middle class, places pressure on the supply of all resources. Besides energy (where there are plenty of candidates), I would look at the water sector -- PHO and CGW are 2 ETFs that can give investors representation in an emerging imbalance between demand and supply for this important resource.

Housing: The companies that stand best-positioned to find the solution to the massive overhang and shadow inventory of unsold homes will prosper mightily -- that is, those that maintain, remediate and bring to market for sale foreclosed properties. Anti-housing plays are in a growth-y area, with a long runway that will only get better in the years ahead. The only company I have been able to identify thus far is ASPS.

Social communications/networking: There will likely be a new company, similar to Facebook, or a company that sells unique devices, similar to AAPL, that changes the world. I have no clue what company it might be, nor does anyone else right now.