Category: US & Canada

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What’s Going on With Debt in U.S.? – Real Time Economics – WSJ

The chart shows clearly the build up of debt heading into the bust, and the subsequent deleveraging. Overall public and private debt, by this measure, peaked at 302% of GDP in the first quarter of 2009. Since then, it has fallen to 279% as the economy has grown and some private players have lightened their debt loads.

US Debt by Sector as Percentage of GDP

via What’s Going on With Debt in U.S.? – Real Time Economics – WSJ.

Comment: ~ The Financial sector can be ignored as this merely acts as a conduit for, and mirrors, the other sectors. My concern is that Government debt is growing at a faster rate than the fall in Household and Nonfinancial Corporations debt. That is unsustainable and is likely to reverse after the November elections. At which point the economy will contract.

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Canada, Brazil and South Africa

Resources markets are recovering, with Canada’s TSX 60 index testing resistance at 715 after breaching the descending trendline. Breakout would complete a higher trough, signaling a primary up-trend. Target for the initial advance would be 800*. Rising 13-week Twiggs Money Flow indicates buying pressure.

TSX 60 Index

* Target calculation: 720 + ( 720 – 640 ) = 800

Brazil’s Bovespa broke through 60000, signaling a primary up-trend with an initial target of 65000*.

Bovespa Index

* Target calculation: 60 + ( 60 – 55 ) = 65

South Africa’s JSE Overall Index broke clear of 33000, signaling a primary up-trend. Bullish divergence on 13-week Twiggs Money Flow strengthens the signal. Initial target for the advance is 35000*, with a long-term mark of 37000.

JSE Overall Index

* Target calculation: 33 + ( 33 – 31 ) = 35

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S&P breakout confirmed

The S&P 500 breakout above 1300 suggests a primary advance to 1450*. Rising 13-week Twiggs Money Flow indicates buying pressure.

S&P 500 Index

* Target calculation: 1300 + ( 1300 – 1150 ) = 1450

The signal was confirmed by similar breakouts on Dow Industrials and the Nasdaq 100, the latter offering a target of 2750*.

Nasdaq 100 Index

* Target calculation: 2400 + ( 2400 – 2050 ) = 2750

Dow Transportation Index has also completed a higher trough, signaling a primary up-trend. 63-day Twiggs Momentum recovery above zero strengthens the signal.

Dow Transportation Index

* Target calculation: 5050 + ( 5050 – 4550 ) = 5550

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US breakout

The S&P 500 index followed through to confirm the breakout above resistance at 1300, signaling the start of a primary up-trend. Rising 13-week Twiggs Money Flow indicates selling pressure. Target for the advance is 1440*.

S&P500 Index

* Target calculation: 1300 + ( 1300 – 1160 ) = 1440

Nasdaq 100 shows a stronger breakout above 2400, with similar buying pressure reflected on 13-week Twiggs Money Flow. Initial target for the primary advance is 2600*.

Nasdaq 100 Index

* Target calculation: 2400 + ( 2400 – 2200 ) = 2600

Bellwether transport stocks, Fedex and UPS, reinforce the S&P and Nasdaq signal with new highs signaling a primary up-trend.

Fedex and UPS
Always bear in mind that the primary up-trend rests on unstable foundations (private sector deleveraging offset by deep government sector deficits) and may not last much longer than the November elections.

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Banks Point to a Pickup in Lending – WSJ.com

At Citi, retail-banking loans rose 15% from a year ago to $133 billion, as the New York bank lent more to individuals and local businesses. At San Francisco-based Wells, commercial and industrial loans rose 11% from a year earlier to $167 billion at Dec. 31, amid what Chief Financial Officer Tim Sloan called broad-based growth.

All told, loans outstanding at the companies and J.P. Morgan rose by $41 billion from a year ago in the fourth quarter, to $2.14 trillion. That’s the first increase for the three giant lenders since 2008…

via Banks Point to a Pickup in Lending – WSJ.com.

Comment: ~ Private sector deleveraging is slowing and new capital investment improving, but this may prove a temporary respite as purchases were brought forward to take advantage of accelerated tax depreciation in 2011. The 100% write-off of new capital investment (in the year of purchase) will expire in 2012 if not extended by Congress.

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Nouriel Roubini’s Global EconoMonitor » The Straits of America

Given the bearish outlook for US economic growth, the Fed can be expected to engage in another round of quantitative easing. But the Fed also faces political constraints, and will do too little, and move too late, to help the economy significantly. Moreover, a vocal minority on the Fed’s rate-setting Federal Open Market Committee is against further easing. In any case, monetary policy cannot address only liquidity problems – and banks are flush with excess reserves.

Most importantly, the US – and many other advanced economies – remains in the early stages of a deleveraging cycle. A recession caused by too much debt and leverage (first in the private sector, and then on public balance sheets) will require a long period of spending less and saving more. This year will be no different, as public-sector deleveraging has barely started.

via EconoMonitor : Nouriel Roubini’s Global EconoMonitor » The Straits of America.

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Canada: TSX60

The TSX 60 broke its descending long-term trendline, suggesting that the index is forming a base. Rising 13-week Twiggs Money Flow signals buying pressure. Breakout above 720 would signal the start of a primary up-trend.

TSX 60 Index

* Target calculation: 720 + ( 720 – 640 ) = 800

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S&P 500 and Nasdaq test resistance

The S&P 500 index is testing resistance at 1300. Breakout would signal a primary up-trend with a target of 1450* for the initial advance. Mild bearish divergence on 13-week Twiggs Money Flow warns of selling pressure, however, and reversal below the rising trendline would indicate another test of primary support at 1160.

S&P 500 Index

* Target calculation: 1300 + ( 1300 – 1150 ) = 1450

The Nasdaq 100 is also testing resistance, at 2400. Rising 63-day Twiggs Momentum and 13-week Twiggs Money Flow both suggest an upward breakout, which would offer a target of 2800* for the initial advance.

Nasdaq 100 Index

* Target calculation: 2400 + ( 2400 – 2000 ) = 2800

Treasury yields are falling, indicating a flight to safety. Uncertainty in Europe and China is likely to hurt the market and we should only accept bull signals if they have strong confirmation.
10-Year Treasury Yield

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Westpac: Follow that Flow

  • The US recovery from the 2007–2009 recession has been particularly disappointing, in part due to the moribund state of the housing market.
  • The state of the housing market is in part a symptom of excess leverage, the US’ core concern.
  • Excess leverage will continue to weigh on US economic growth, restricting it to a sub-trend pace for the foreseeable future, resulting in a need for further QE.

….. Given the size of the US’ debt stock and the lack of assets set aside to fund future pension liabilities, it is logical to conclude that above-trend growth conditions are a long way off. In the meantime, households and government authorities will remain heavily exposed to any further deterioration in conditions, whether it be domestic or foreign (i.e. Europe) in origin.

QE3 will be needed merely to help protect against a further deterioration in economic conditions. Such a program would have to be large in scale and in coverage, likely covering USTs, mortgage securities and, with time, the existing debt of SLGs.

A final point: the degree of easing required to alleviate the financial stresses the US economy currently faces (and hopefully at least maintain the current level of activity) has not been recognised by markets. Given the precarious state of Europe, the market will likely take its time in coming to terms with the US’ own concerns. But, when the spotlight falls on the US, we expect a greater awareness of US credit risk and the absence of near-term growth prospects will see yields rise and the US dollar fall.

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