The UK recent riots have been characterized as nihilist acts of thugs, looters, and common thieves, yet, they lasted four days and spread to other neighborhoods in London and other cities and the participants crossed racial lines. Much like the UK riots in 1981, there was a general dislike and distrust of authority and the police. The authorities and mainstream media played the riots as criminal anarchy resulting from poor parenting and a history of government coddling which should be suppressed and order restored in order to proceed with government austerity programs supported by the financial services sector which is seeing a concentration of power in their protected status from failure without regard to systemic risk.
Austerity deepens and intensifies social-economic inequality, which brings into question government austerity programs which slow and destroy growth. As is being seen in Greece, Spain, and Italy, as well as Israel, where protests and demonstrations are becoming common, as well as past UK demonstrations over social and education cuts; just as protests in Egypt, Tunisia, Yemen, Bahrain, Libya, and Syria sought social justice, democracy, and opportunity, when the concentration of power increasingly disenfranchises citizens and/or fiscal consolidation intensifies the likely reaction against corruption and self-serving elitism, historically, is social unrest. Global economic uncertainty in one form or another is a breeding ground for social unrest. When it gets so bad it seems as if you have nothing more to lose and you hate the life from which you have no opportunity to improve, civil disorder gets the attention of those in authority and privilege and it then becomes a question of whether they will eventually listen or if they will keep cutting of the heads of the people to restore order.
Living standards and social-economic inequality have been bad in the UK and austerity has magnified the problem. These UK rioters are being brought before Magistrate's Court for a few minutes of summary hearing before a judge. Some are as young as 11 and many are over 35 years of age; some young adults are voluntarily surrendering when they realize they looted and not just protested as everyone who thinks is asking why rather than condemning. During the riots and currently, there are those in the media, politics, and UK government who are attempting to minimalize and paint the rioters not just as thieves and thugs but leaches on the public dole. This serve no good public purpose in a democracy. The global financial crisis, protection of financial interests, continuing high unemployment, social service, health care, and education cuts limiting survivability, much less quality of life, and access to opportunity and the level playing field of a free society not only breed social unrest seeking justice and equality of opportunity, it also breeds right wing extremism.
Edward Harrison of CreditWritedowns has elegantly summarized the the right wing threat and growing crisis in Europe succinctly in the failure of the EU and the eurozone to confront the obvious defects of the euro and act democratically in unity for a common purpose and common safety to provide eurobonds and insure liquidity in a monetary union in which necessary fiscal transfers and fiscal union are perceived as "taxes" and "costs" rather than the normal resolution of current account trade imbalances within the monetary union.
My graduate and post graduate work has concentrated on social economic changes, not just the turning or tipping points, but the periods immediately prior and after. We are in a period in which the actions of our politicians in all the countries of the world and the citizens of those countries are going to determine in society continues to evolve democratically or if it prefers the neo-feudalism of a corporatist state in which the government and the private financial sector have the same interests. The economist Nouriel Roubini in a recent interview not only assessed the probability of recession at 50%, but also observed that we are at a stage where it is possible that capitalism could destroy itself.
What do you choose? Freedom or security? Access to opportunity or special privilege?
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Sunday, August 14, 2011
Friday, August 12, 2011
Unites States Treasury Auctions After S&P Downgrade
The 3 year Treasury auction for $32 billion this week had a high yield of 0.50% ( the prior auction in July had a yield of 0.670%), a bid-to-cover of 3.24, foreign purchases were 35.36%, and direct purchases were 31.66%.
The 10 year Treasury auction for $24 billion had a high yield of 2.140% (the prior auction in May had a yield of 3.210%), a bid-to-cover of 3.29%, foreign purchases of 46.92%, and direct purchases of 11.09%.
The 30 year Treasury auction for 16 billion had a high yield of 3.750% (the prior auction in July had a yield of 4.380%), a bid-to-cover of 2.08 (average for 6 months is 2.70), foreign purchases of 12.16% (weakest demand in 2 1/2 years --- averages 40%), and direct purchases of 19.62% (from 10.9% last auction).
The yield drops in all three, particularly the 30 year Treasury, were impressive and a strong vote for the strength and safety of United States government bonds. For the yield to come out any lower on the 30 year, it would have meant paying over the face value of the bond. This was only the second 30 year auction in history in which all winning bids achieved par value. While there was some disorderly bidding and a large tail (1.3% in cash terms), unlike European distressed bond auctions where those factors resulted in nightmares, the result for this 30 year U.S. Treasury was a winner's curse.
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The 10 year Treasury auction for $24 billion had a high yield of 2.140% (the prior auction in May had a yield of 3.210%), a bid-to-cover of 3.29%, foreign purchases of 46.92%, and direct purchases of 11.09%.
The 30 year Treasury auction for 16 billion had a high yield of 3.750% (the prior auction in July had a yield of 4.380%), a bid-to-cover of 2.08 (average for 6 months is 2.70), foreign purchases of 12.16% (weakest demand in 2 1/2 years --- averages 40%), and direct purchases of 19.62% (from 10.9% last auction).
The yield drops in all three, particularly the 30 year Treasury, were impressive and a strong vote for the strength and safety of United States government bonds. For the yield to come out any lower on the 30 year, it would have meant paying over the face value of the bond. This was only the second 30 year auction in history in which all winning bids achieved par value. While there was some disorderly bidding and a large tail (1.3% in cash terms), unlike European distressed bond auctions where those factors resulted in nightmares, the result for this 30 year U.S. Treasury was a winner's curse.
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Are French Banks Under Self-Fulfilling Market Attacks?
On Monday August 8th, the cost of CDS and bond yields of both France and Germany went up, when one would have expected them to go down with the ECB buying Italian and Spanish bonds. The euro also declined in value to the Scandinavian currencies, which would indicate the Scandinavian currencies were perceived as safer. Together, France and Germany constitute 1/3 of the equity of the ECB and are the two largest economies in the eurozone. France's AAA credit rating became the target of market rumors that it could be downgraded as the result of the United States downgrade and the realization the ECB bond buying would be a temporary stop gap on Spanish and Italian yields with the EFSF needing significant expansion if it was to have the economic resources to handle intervention into Spain and/or Italy. France has gained the perception of being in the market eurozone crisis crosshairs with the illusion that Germany would be the remaining safe haven, despite its bond yields and CDS also going up. Standard and Poor's was quick to state publicly that France is more serious in addressing its public debt than the United States and is implementing higher taxes and spending austerity, which is not very encouraging because France is suffering from slowing growth just as Spain, Italy, and Germany are to different degrees.
The realization that bond buying by the ECB will only be temporary and the EFSF will need more money and the creation of eurobonds, as we have advocated, may actually be unavoidable has caused overnight lending to tighten and eurozone banks to be perceived as more risky sending bank shares down lead by the French banks SocGen and CreditAgricole. Rumors of a French bank having problems pervaded the market, while the more likely reality was a recognition of broader macroeconomic issues of growth and deteriorating eurozone stability with the euro effectively being shorted and the decline in bank equity values only magnifying the potential need of eurozone banks to raise capital. At least one Asian bank cut the credit lines of French banks. The willingness of banks to lend to each other continued to diminish with more pressure on short term lending raising questions of pressure on the long end of lending and the increasing likelihood the ECB would have to do much more to maintain liquidity besides by sovereign debt.
Commerzbank, which is 25% owned by the German government, announced it's profits would decline 93% on Greek debt writedowns and its shares still went up 4.5% on Wednesday, but the illusion that German banking is strong and Commerzbank (and any other German bank or landesbank that discloses risks or funding needs) is a special case continues to be promulgated. The continuing uncertainty of the eurozone's continued failures in the deepening implementation of austerity and refusal to create a democratic fiscal union with eurobonds is showing itself in the declining equity value of European banks and the need of those banks to raise more capital in what is forming up as a potential global crisis.
Despite statements to the contrary, after the market in the United States closed Thursday, Spain, Italy, Belgium, and France banned short selling.
The euro was defectively constructed with fiscal union and the means to fiscally adjust eurozone internal trade imbalances legally prohibited creating a monetary union with no fiscal union transfer process as a sovereign nation with fiat money has and monetary union in which all of its sovereign nation members were effectively reduced to nations using and financing sovereign debt in a foreign currency (the euro). They are reaping the harvest of that crop.
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The realization that bond buying by the ECB will only be temporary and the EFSF will need more money and the creation of eurobonds, as we have advocated, may actually be unavoidable has caused overnight lending to tighten and eurozone banks to be perceived as more risky sending bank shares down lead by the French banks SocGen and CreditAgricole. Rumors of a French bank having problems pervaded the market, while the more likely reality was a recognition of broader macroeconomic issues of growth and deteriorating eurozone stability with the euro effectively being shorted and the decline in bank equity values only magnifying the potential need of eurozone banks to raise capital. At least one Asian bank cut the credit lines of French banks. The willingness of banks to lend to each other continued to diminish with more pressure on short term lending raising questions of pressure on the long end of lending and the increasing likelihood the ECB would have to do much more to maintain liquidity besides by sovereign debt.
Commerzbank, which is 25% owned by the German government, announced it's profits would decline 93% on Greek debt writedowns and its shares still went up 4.5% on Wednesday, but the illusion that German banking is strong and Commerzbank (and any other German bank or landesbank that discloses risks or funding needs) is a special case continues to be promulgated. The continuing uncertainty of the eurozone's continued failures in the deepening implementation of austerity and refusal to create a democratic fiscal union with eurobonds is showing itself in the declining equity value of European banks and the need of those banks to raise more capital in what is forming up as a potential global crisis.
Despite statements to the contrary, after the market in the United States closed Thursday, Spain, Italy, Belgium, and France banned short selling.
The euro was defectively constructed with fiscal union and the means to fiscally adjust eurozone internal trade imbalances legally prohibited creating a monetary union with no fiscal union transfer process as a sovereign nation with fiat money has and monetary union in which all of its sovereign nation members were effectively reduced to nations using and financing sovereign debt in a foreign currency (the euro). They are reaping the harvest of that crop.
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Thursday, August 11, 2011
Michael Pettis on Why China Needs to Buy United States Debt
In Michael Pettis' private newsletter which arrived July 31, he discussed two issues: 1) why China needs to buy U.S. debt and 2) hidden debt in China. I intend to cover why China needs economically to buy U.S. debt in this article and cover hidden debt in China in another article if time permits.
Pettis notes the growing concern over a possible U.S. default, which is unlikely, in China as political positioning since it would be a economically non-event for China. There has been speculation on whether China would sell its U.S. bonds in Chinese media, but Pettis' is emphatic that will not happen and the speculation is based on a fundamental misunderstanding of how China's purchase of U.S. bonds is a necessary function of its trade policy. "You cannot run a current account surplus unless you are also a net exporter of capital, and since the rest of China is actually a net importer of capital (inward FDI and hot money inflows overwhelm capital flight and outward FDI), the PBoC must export huge amounts of capital in order to maintain China’s trade surplus. In order the keep the RMB from appreciating, in other words, the PBoC must be willing to purchase as many dollars as the market offers at the price it sets. It pays for those dollars in RMB."
When China buys those U.S. dollars it must put in a market large enough to absorb the money and whose economy is willing and able enough to run a trade deficit. "This last point is what everyone seems to forget when discussing Chinese purchases of foreign bonds. Remember that when Country A exports huge amounts of money to Country B, Country A must run a current account surplus and Country B must run the corresponding current account deficit. In practice, only the US fulfills those two requirements – large and flexible financial markets, and the ability and willingness to run large trade deficits – which is why the PBoC owns huge amounts of USG bonds."
If China were to decide it no longer wants to hold U.S. government bonds, there are only four possible choices if decides to purchase fewer U.S. government bonds:
With respect to #2, purchasing non-U.S. assets which would most likely be foreign government bonds, of which Europe is the only market large enough, there are only two ways the Europeans could react. One is the Europeans would turn around and buy a similar amount of U.S. assets and the U.S. and China trade balances would remain unchanged. Europe, however, might be unhappy with this, because it would probably be transacted through the ECB and cause an increase in the money supply, according to Pettis. If Europe was to not purchase U.S. assets, then the U.S. imports from Europe must go down that amount while the imports to Europe must go up that amount. This will actually improve the U.S. position and be expansionary for the U.S. economy by the creation of jobs. "This is the key point. If foreigners buy fewer USD assets, the US trade deficit must decline. This is almost certainly good for the US economy and for US employment. When analysts worry that China might buy fewer USG bonds, they are actually worrying that the US trade deficit might contract. This is something the US should welcome, not deplore." For Europe it is another story, because as the US trade deficit declines the European trade surplus must decline while China's remains unchanged. "This deterioration in the trade account will force Europeans either into raising their fiscal deficits to counteract the impact of fewer exports or letting domestic unemployment rise. Under these conditions it is hard to imagine they would tolerate much Chinese purchase of European assets without responding eventually with anger and even trade protection."
With respect to #3, in which China buys hard commodities, the scenario is the same as above except the exporters of those hard commodities will face the same choices Europe would face. The exporters can either buy U.S. assets or absorb the deterioration in their trading account, perhaps through a reduction in manufacturing capacity. This scenario also has problems for China since stock piling commodities is a bad strategy since commodity prices are volatile and that volatility is inversely correlated with the needs of the Chinese economy. It would be a good investment for China only if China grows rapidly. This would be the wrong national economy balance sheet position any country could engineer as it would exacerbate underlying social economic conditions and increase economic volatility, which is never a good thing for the poor.
With respect to #4, in which China intervenes less in the currency and does not buy anything else, China's surplus will decline by the same amount and the U.S. trade deficit will decline by the same amount. The net change on U.S. financing costs would be unchanged, while China's unemployment would rise unless it increases its own fiscal deficit, which is politically undesirable.
Pettis concludes this first half of his private newsletter with "It's about trade, not capital", which is counterintuitive to many people who do not understand how the global balance of payments works, because "...countries that export capital are not doing anyone favors unless incomes in the recipient country are so low that savings are impossible or unless the capital export comes with needed technology, and countries that import capital might be doing so mainly at the expense of domestic jobs. For this reason it is absurd for Americans to worry that China might stop buying USG bonds. This is what the Chinese worry about." Despite the U.S.-China trade dispute about China buying U.S. government bonds and the U.S. not wanting them to do so, in reality, if China's trade surplus declines then the U.S. trade deficit declines, which means China buys less U.S. government bonds and, contrary to what you may read or hear, this reduction is purchases of U.S. government bonds would not cause the U.S. interest rate to fall. To insist otherwise is to say, if a country's trade deficit rises, its domestic interest rates decline which is patently false. Pettis brings up a standard argumentative response to his observations on trade and capital exports writing "...someone will indignantly point out a devastating flaw in my argument. Since the US makes nothing that it imports from China, they will claim, a reduction in China’s capital exports to the US (or a reduction in China’s trade surplus) will have no impact on the US trade deficit. It will simply cause someone else’s exports to the US to rise with no corresponding change in the US trade balance. In that case, they say, less Chinese buying of USG bonds will indeed cause an increase in US interest rates.
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Pettis notes the growing concern over a possible U.S. default, which is unlikely, in China as political positioning since it would be a economically non-event for China. There has been speculation on whether China would sell its U.S. bonds in Chinese media, but Pettis' is emphatic that will not happen and the speculation is based on a fundamental misunderstanding of how China's purchase of U.S. bonds is a necessary function of its trade policy. "You cannot run a current account surplus unless you are also a net exporter of capital, and since the rest of China is actually a net importer of capital (inward FDI and hot money inflows overwhelm capital flight and outward FDI), the PBoC must export huge amounts of capital in order to maintain China’s trade surplus. In order the keep the RMB from appreciating, in other words, the PBoC must be willing to purchase as many dollars as the market offers at the price it sets. It pays for those dollars in RMB."
When China buys those U.S. dollars it must put in a market large enough to absorb the money and whose economy is willing and able enough to run a trade deficit. "This last point is what everyone seems to forget when discussing Chinese purchases of foreign bonds. Remember that when Country A exports huge amounts of money to Country B, Country A must run a current account surplus and Country B must run the corresponding current account deficit. In practice, only the US fulfills those two requirements – large and flexible financial markets, and the ability and willingness to run large trade deficits – which is why the PBoC owns huge amounts of USG bonds."
If China were to decide it no longer wants to hold U.S. government bonds, there are only four possible choices if decides to purchase fewer U.S. government bonds:
- "The PBoC can buy fewer USG bonds and purchase more other USD assets.
- "The PBoC can buy fewer USG bonds and purchase more non-US dollar assets, most likely foreign government bonds.
- "The PBoC can buy fewer USG bonds and purchase more hard commodities.
- "The PBoC can buy fewer USG bonds by intervening less in the currency, in which case it does not need to buy anything else."
With respect to #2, purchasing non-U.S. assets which would most likely be foreign government bonds, of which Europe is the only market large enough, there are only two ways the Europeans could react. One is the Europeans would turn around and buy a similar amount of U.S. assets and the U.S. and China trade balances would remain unchanged. Europe, however, might be unhappy with this, because it would probably be transacted through the ECB and cause an increase in the money supply, according to Pettis. If Europe was to not purchase U.S. assets, then the U.S. imports from Europe must go down that amount while the imports to Europe must go up that amount. This will actually improve the U.S. position and be expansionary for the U.S. economy by the creation of jobs. "This is the key point. If foreigners buy fewer USD assets, the US trade deficit must decline. This is almost certainly good for the US economy and for US employment. When analysts worry that China might buy fewer USG bonds, they are actually worrying that the US trade deficit might contract. This is something the US should welcome, not deplore." For Europe it is another story, because as the US trade deficit declines the European trade surplus must decline while China's remains unchanged. "This deterioration in the trade account will force Europeans either into raising their fiscal deficits to counteract the impact of fewer exports or letting domestic unemployment rise. Under these conditions it is hard to imagine they would tolerate much Chinese purchase of European assets without responding eventually with anger and even trade protection."
With respect to #3, in which China buys hard commodities, the scenario is the same as above except the exporters of those hard commodities will face the same choices Europe would face. The exporters can either buy U.S. assets or absorb the deterioration in their trading account, perhaps through a reduction in manufacturing capacity. This scenario also has problems for China since stock piling commodities is a bad strategy since commodity prices are volatile and that volatility is inversely correlated with the needs of the Chinese economy. It would be a good investment for China only if China grows rapidly. This would be the wrong national economy balance sheet position any country could engineer as it would exacerbate underlying social economic conditions and increase economic volatility, which is never a good thing for the poor.
With respect to #4, in which China intervenes less in the currency and does not buy anything else, China's surplus will decline by the same amount and the U.S. trade deficit will decline by the same amount. The net change on U.S. financing costs would be unchanged, while China's unemployment would rise unless it increases its own fiscal deficit, which is politically undesirable.
Pettis concludes this first half of his private newsletter with "It's about trade, not capital", which is counterintuitive to many people who do not understand how the global balance of payments works, because "...countries that export capital are not doing anyone favors unless incomes in the recipient country are so low that savings are impossible or unless the capital export comes with needed technology, and countries that import capital might be doing so mainly at the expense of domestic jobs. For this reason it is absurd for Americans to worry that China might stop buying USG bonds. This is what the Chinese worry about." Despite the U.S.-China trade dispute about China buying U.S. government bonds and the U.S. not wanting them to do so, in reality, if China's trade surplus declines then the U.S. trade deficit declines, which means China buys less U.S. government bonds and, contrary to what you may read or hear, this reduction is purchases of U.S. government bonds would not cause the U.S. interest rate to fall. To insist otherwise is to say, if a country's trade deficit rises, its domestic interest rates decline which is patently false. Pettis brings up a standard argumentative response to his observations on trade and capital exports writing "...someone will indignantly point out a devastating flaw in my argument. Since the US makes nothing that it imports from China, they will claim, a reduction in China’s capital exports to the US (or a reduction in China’s trade surplus) will have no impact on the US trade deficit. It will simply cause someone else’s exports to the US to rise with no corresponding change in the US trade balance. In that case, they say, less Chinese buying of USG bonds will indeed cause an increase in US interest rates.
"No it won’t. Unless this other country steps up its capital exports to the US and replaces China – which is pretty unlikely, and which anyway would mean the same amount of foreign purchasing of USG bonds – it must cause a reduction in the US trade deficit."
The basic point is a reduction of Chinese exports to the U.S. would be matched by increase in the same amount of exports to the U.S. from a another foreign country which would then have the impact of either lowering that foreign country's exports to other countries (if it enjoyed full employment) or a rise in imports or the foreign country (if it has unemployment). What Pettis leaves unconsidered it what would happen if there is a global contraction.
Wednesday, August 10, 2011
Yves Smith: S&P Broke Law in Leaking US Downgrade
Yves Smith at NakedCapitalism wrote that the S&P leaked information of the US downgrade prior to the public announcement to banking clients on Thursday and hedge funds on Tuesday with Twitter alight with the information Friday morning effectively allowing the banks and hedge funds to pre-trade on the information, which was not publicly released until after the market on last Friday (8/6/2011). Such an act is specifically prohibited under SEC Rules.
I have been unable to find any other news coverage or discussion of this allegedly illegal conduct except, interestingly enough at Fox News in an article by Charlie Gasparino and a video of Gasparino on Fox News disclosing the leaks by S&P. EconProph is the only other source commenting on this and extensively quoted from Yves Smith's article.
This only reinforces my previous questions as to whether S&P has a political agenda in combination with other major players in the financial sector.
Given the failure to bring prosecutions against the bankers and ratings agencies who provided us with toxic derivatives and deadly mortgage fraud as well globally risky trading activities --- all of which were profitable for those financial companies, including the ratings agencies, I am not going to hold my breath that Standard and Poor's will suffer from this allegedly illegal conduct as the financial sector is evidently too important and special to go to jail. Jail is for people who protest social injustice.
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I have been unable to find any other news coverage or discussion of this allegedly illegal conduct except, interestingly enough at Fox News in an article by Charlie Gasparino and a video of Gasparino on Fox News disclosing the leaks by S&P. EconProph is the only other source commenting on this and extensively quoted from Yves Smith's article.
This only reinforces my previous questions as to whether S&P has a political agenda in combination with other major players in the financial sector.
Given the failure to bring prosecutions against the bankers and ratings agencies who provided us with toxic derivatives and deadly mortgage fraud as well globally risky trading activities --- all of which were profitable for those financial companies, including the ratings agencies, I am not going to hold my breath that Standard and Poor's will suffer from this allegedly illegal conduct as the financial sector is evidently too important and special to go to jail. Jail is for people who protest social injustice.
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Who Owns United States Debt?
The Australian economist Bill Mitchell has been following data sets to analyze US debt and who owns it and, as of March 2011, the largest owner of US debt is the US government, which owns 41.7% (including the FED which is not an actual government agency but a private bank authorized by Congress) of its own debt. China is third at 8% behind private domestic owners at 26.9%. He also provides in the link above not only a pie chart, but a succinct macroeconomic explanation of sovereign debt and how it is not like a household (you and me) or a city, county, or other form of regional government (such as the State of Illinois) which are revenue constrained but have a guaranteed revenue stream (unlike you and me) in taxes and fees which make it easier for them to borrow. Since sovereign debt is not the same as household debt macroeconomically, it is very counter intuitive for most people no matter how educated they are. Consequently, there is much useless discussion in public debate from individuals on both sides of the political abyss who do not understand what they are talking about.
Mitchell also has come unrelated comments at the end on the UK social unrest including the belief that it would be possible to forecast social unrest by mapping the failure of governments to provide services, good education, and jobs.
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Mitchell also has come unrelated comments at the end on the UK social unrest including the belief that it would be possible to forecast social unrest by mapping the failure of governments to provide services, good education, and jobs.
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Large UP and Down Market Days Since 1950
Calculated Risk has published two tables showing the largest one day percentage market declines and one day percentage market increases and what the market looked like six months later. If you are a believer in perspective and appreciate historical data you need to study those tables at Calculated Risk in the links above. They will not tell you what the market will look like six months from now, but if you use the information and keep your eyes on growth in the United States and globally, you will have a better concept on how growth or the lack of growth will affect the market long term and on day to day news and economic data releases and periodic scheduled reports.
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FOMC and the Thundering Herd
Since this last weekend, I have been privately commenting that the Tuesday meeting of the Federal Reserve Open Market Committee (FOMC) would little to say other than they were continuing to watch and are prepared to act. There have been no significant changes in liquidity needs. There is no need to buy US Treasuries with short tern yields negative as investors pay for safety. They cannot do anything to create jobs as that is primarily a fiscal policy issue and the failure of Congress and the President. I also said the announcement on Tuesday was likely to affect the market and, if I was the FED, I would make the usually very carefully worded announcement after the market closed to give the market overnight to digest it, because there is nothing more stupid than cows in a nervous herd.
The FED statement was as expected, although longer than usual, with an extension of low interest rates into 2013, no changes in policy, and a change in language acknowledging slower recovery (growth) over coming quarters than previously estimated. These were obvious and to be expected, although three members wanted to essentially keep prior statement language. The FED made this at 2:15 eastern time during the market, which almost immediately swung down from positive action as the cows failed to stop and think --- and the herd took off in a storm of fear.
The Tuesday market was volatile the whole day going up and down and up, which is not a good indicator of future market action. The market ended up 429 points at the end, as some of the cows woke up after the cowboys started buying and the realization that the FED was only stating the obvious about the reality of slowing (a soft word for declining) growth.
The economy has an increasing amount of uncertainty in it to the point that statements of truth are disruptive. Rather than deny truth and reality, we need to increase certainty and growth by creating jobs which provide the confidence for people and corporations to buy. Creating jobs requires increased sales in the private sector and spending in the public sector to directly provide job creation and sales.
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The FED statement was as expected, although longer than usual, with an extension of low interest rates into 2013, no changes in policy, and a change in language acknowledging slower recovery (growth) over coming quarters than previously estimated. These were obvious and to be expected, although three members wanted to essentially keep prior statement language. The FED made this at 2:15 eastern time during the market, which almost immediately swung down from positive action as the cows failed to stop and think --- and the herd took off in a storm of fear.
The Tuesday market was volatile the whole day going up and down and up, which is not a good indicator of future market action. The market ended up 429 points at the end, as some of the cows woke up after the cowboys started buying and the realization that the FED was only stating the obvious about the reality of slowing (a soft word for declining) growth.
The economy has an increasing amount of uncertainty in it to the point that statements of truth are disruptive. Rather than deny truth and reality, we need to increase certainty and growth by creating jobs which provide the confidence for people and corporations to buy. Creating jobs requires increased sales in the private sector and spending in the public sector to directly provide job creation and sales.
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Monday, August 8, 2011
Market Reacting to Declining Growth Not S&P Downgrade
As I have written extensively since August 3rd, the stock market is reacting to the problems and data confirming that the United States, Europe, China, and the Global economy is slowing down significantly. The market is not reacting to the S&P downgrade of United States debt, which was not economically warranted and was based on political perceptions and a corporate agenda.
If the stock market was reacting to debt problems, bond prices would be declining as well as equity prices. That is not happening. Bonds are stronger today while the stock market is showing the weakness of being overvalued in a global and national economy of declining growth. We have warned readers, newsletter recipients, and clients about the overvalued market and growth problems for an extended period of time.
Those who have not planned for investment growth consistent with risk tolerance, age, and quality of life needs with an individualized defensive growth diversification and limited losses on ETFs and stocks did not listen to me or did not take my advice.
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If the stock market was reacting to debt problems, bond prices would be declining as well as equity prices. That is not happening. Bonds are stronger today while the stock market is showing the weakness of being overvalued in a global and national economy of declining growth. We have warned readers, newsletter recipients, and clients about the overvalued market and growth problems for an extended period of time.
Those who have not planned for investment growth consistent with risk tolerance, age, and quality of life needs with an individualized defensive growth diversification and limited losses on ETFs and stocks did not listen to me or did not take my advice.
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Sunday, August 7, 2011
Feeds of Blog Posts
Evidently feeds of six blog posts after July, 2011 did not feed. I believe the problem has been corrected and Feedburner indicates a valid update ping.
The six posts were:
S&P's Rating Folly, Part 2: Grading Political Will
Links 8/6/2011:Eyes on Growth
Unemployment - July 2011: Less Workers=Less Unemployed
Links 8/4/2011: Eyes on Growth
Eyes on Growth: Update Links 8/3/2011
Keep Your Eyes on Growth: United States and Global Are Declining Not Slowing
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The six posts were:
S&P's Rating Folly, Part 2: Grading Political Will
Links 8/6/2011:Eyes on Growth
Unemployment - July 2011: Less Workers=Less Unemployed
Links 8/4/2011: Eyes on Growth
Eyes on Growth: Update Links 8/3/2011
Keep Your Eyes on Growth: United States and Global Are Declining Not Slowing
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