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Sam Ro quotes Gerard Minack in Business Insider:
To summarize: 1) we’ve seen this before, 2) we think the slowdown is temporary, 3) we think significant weakness will trigger stimulus, and 4) we think fiscal austerity is now less likely.
Still, Minack is pretty sure this resilience can’t hold for too much longer.
Read more at Why The Stock Market Has Been Bulletproof To The Bad Economic News | Business Insider Australia.
Jesse Eisinger from ProPublica skewers big banks’ objections to increasing capital buffers as proposed by the bipartisan Brown-Vitter bill:
Goldman Sachs and S.& P. estimate the big banks might be forced to raise $1 trillion or more. That’s a lot, so much that the leviathans’ agents cry out that they couldn’t sell that much stock. But they don’t have to raise it all at once. And they can retain their earnings and stop paying dividends in addition to selling shares.
In putting that argument forward, they don’t realize they make Senator Brown’s and Senator Vitter’s case for them. If investors are so terrified of the big banks that they won’t buy their stock, that’s a terrific problem. Most of the big banks trade below their net worth, an indication that investors don’t trust them. Brown-Vitter might actually help banks by restoring that trust.
Read more at In Brown-Vitter Bill, a Banking Overhaul With Possible Teeth | Deal Book | NYTimes.com.
Recovery of the Dollar has been overrated. With restrictions on fiscal deficits, it will be difficult to contain deflationary pressures from the Great Credit Contraction which is likely to endure for at least a decade — following the Great Credit Bubble over the last 40 years. Fed quantitative easing is likely to endure for longer than many observers, myself included, initially expected. And inflation will remain low despite QE, which is offset by deflationary pressures from the Great Credit Contraction.
The lower inflation outlook is reflected by falling gold and rising bond prices.
There were two distinct credit bubbles in the last 50 years: the first in the 1980s, the second in the early 2000s. The chart comparing growth in Domestic Nonfinancial Credit (both Private and Government) to nominal GDP shows two clear episodes where credit growth outstripped GDP. Both resulted in significant falls in GDP from which the economy struggled to recover. The latter episode fed into the housing market, leading to the global financial crisis.
If we look at total Domestic Nonfinancial Credit, the rate of growth remained positive. So why call this a contraction? But the aggregate conceals a hidden danger: private household credit contracted, threatening a deflationary spiral similar to the 1930s — when GDP fell almost 50 percent.
Which is why the Federal Government frantically borrowed money for stimulus spending — to offset the effect of private credit contraction.
Government deficits have not solved the problem — they are merely kicking the can down the road. Household credit growth continues to lag GDP.
The Dollar has not benefited from the lower inflation outlook as interest rates are also likely to remain low. Primary advance of the Dollar Index ($DXY) seems to be losing steam, with a lower peak than mid-2012. Expect a test of primary support at 79. Penetration of the rising trendline would indicate trend weakness, while failure of support at 79 would signal a reversal. Twiggs Momentum is approaching the apex of a long-term triangle; reversal below zero and the rising trendline would also warn of a reversal.
Pedro da Costa and Alister Bull at Reuters write:
The Federal Reserve stuck to its plan to buy $85 billion in bonds each month to push down borrowing costs and prop up the economy, citing risks to growth from recent budget tightening in Washington.
Read more at Fed sticks to stimulus plan, worried about fiscal drag | Reuters.
John Garnaut writes:
[Capt. James Fanell], in comments that went largely unnoticed outside the small circle of China military specialists, spelled out in rare detail the reasons the United States is shifting 60 percent of its naval assets — including its most advanced capabilities — to the Pacific. He was blunt: The Chinese People’s Liberation Army (PLA) Navy is focused on war, and it is expanding into the “blue waters” explicitly to counter the U.S. Pacific Fleet. “I can tell you, as the fleet intelligence officer, the PLA Navy is going to sea to learn how to do naval warfare,” he said. “My assessment is the PLA Navy has become a very capable fighting force.”
Read more at Xi's War Drums – By John Garnaut | Foreign Policy.
Gary Rivlin gives us an insight into the machinations of Wall street lobbyists on Capitol Hill:
As he prepared to sign the Dodd-Frank Wall Street Reform and Consumer Protection Act—the sweeping legislative package designed to prevent another spectacular financial collapse—into law, the president [Obama] first acknowledged the miracle of having a bill to sign at all. “Passing this…was no easy task,” he told the crowd of hundreds. “We had to overcome the furious lobbying of an array of powerful interest groups and a partisan minority determined to block change.”
Indeed, some 3,000 lobbyists had swarmed the Capitol in hopes of killing off pieces of the proposed bill……
That sense of victory barely lasted barely the morning. …..After Dodd-Frank’s passage, lobbyists for the big banks and industry trade groups divided themselves into eighteen working groups, each organized around a different element of the new law. “That’s when the real work began,” Talbott tells me……
Read more at How Wall Street Defanged Dodd-Frank | The Nation.
Alex Berezow posts:
Why is China maintaining allegiance to the North? As Andrei Lankov explains in the New York Times, there are two main reasons: (1) Regime change could result in chaos, meaning thousands or millions of refugees swarming into China, not to mention the possibility of the North’s weapons getting into the wrong hands; and (2) A unified Korea would be a U.S. ally. China doesn’t like either of those outcomes, so it prefers to maintain the status quo. Lankov concludes:
China faces a choice between two evils: a nuclear North Korea or a collapsing North Korea. And a collapsing North Korea clearly represents a greater evil.
Read more at China Shouldn't Let the Korean Crisis Go to Waste, RealClearWorld – The Compass Blog.
Ambrose Evans-Pritchard reports:
The region’s core inflation rate – which strips out food and energy – fell to 1pc in March. This is far below expectations and leaves monetary union with a diminishing safety buffer. “The eurozone is tracking the experience in Japan in mid-1990s. There is a very high risk of a slide into deflation,” said Lars Christensen, a monetary theorist at Danske Bank.
Read more at Eurozone risks Japan-style trap as deflation grinds closer – Telegraph.
A welcome development reported by LAURA STEVENS , DAVID ENRICH and ULRIKE DAUER at the Wall Street Journal:
FRANKFURT–Deutsche Bank AG [DBK.XE] said Monday it will raise €2.8 billion ($3.65 billion) in fresh capital in a dramatic about-face for the bank, which has repeatedly said it won’t turn to shareholders for help boosting its capital cushion.
The bank, Europe’s second-largest by assets, has long faced doubts from investors and analysts about whether it has enough capital to absorb potential future losses and to meet increasingly stringent regulatory requirements……
Deutsche Bank has long been considered thinly capitalized but have always countered with the argument that the leverage is justified by the quality of the assets on their balance sheet. Low risk-weightings provided a false sense of security, with Greek and other PIIGS government bonds rated as zero-risk in the past, encouraging banks to leverage up on precisely the wrong kind of assets. It is time for risk weightings to be removed from bank capital ratios. The bipartisan bill sponsored by US senators Sherrod Brown and David Vitter is a step in the right direction.
Read more at Deutsche Bank Plans Capital Boost – WSJ.com.
Singapore’s Straits Times Index broke long-term resistance at 3300, signaling an advance to the 2007 high of 3900*. Troughs above zero on 13-week Twiggs Momentum strengthen the signal.
* Target calculation: 3300 + ( 3300 – 2700 ) = 3900
India’s Sensex followed through above resistance at 19000. Breach of the descending trendline would indicate a primary advance to 22000*. 13-week Twiggs Money Flow below zero, however, signals selling pressure and reversal below 19000 would warn of another test of primary support at 18000.
* Target calculation: 20000 + ( 20000 – 18000 ) = 22000
China’s Shanghai Composite is again testing medium-term support at 2150. Failure of support would warn of a decline to test primary support at 1950/2000. Reversal above 2250, however, would penetrate the descending trendline, indicating another test of 2500.
Japan’s Nikkei 225 continues to climb, with a steeply rising 13-week Twiggs Money Flow indicating strong buying pressure. Target for the advance is 15000*.
* Target calculation: 11500 + ( 11500 – 8000 ) = 15000
The ASX 200 is testing resistance at 5150. Breakout would offer a target of 5400*, but bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. Failure of support at 4900 would signal a reversal.
* Target calculation: 5150 + ( 5150 – 4900 ) = 5400