It has taken 15 quarters for the economy to merely recover the ground lost to the recession. That is significantly longer than in every other recession/recovery period since World War II. In the previous 10 recessions, the average number of quarters it took to return to the prerecession peak was 5.2, with a high of 8 quarters after the recession in the 1970s.
Eurozone debt deal tackles symptoms, not cause | Investing | Financial Post
Eurozone leaders are as far as ever from finding a lasting solution to the bloc’s underlying problem of economic divergence, despite their latest progress in managing the symptoms of its debt crisis……
“This is another step in the right direction, but it is not enough to get us to the end game,” said Stephane Deo, chief European economist at UBS. “It buys time but it does not address the fundamental problem of the sovereign debt crisis.”
via Eurozone debt deal tackles symptoms, not cause | Investing | Financial Post.
With focus on Europe, lack of U.S. debt progress slips under radar | Economy | News | Financial Post
Following a month where markets have locked on to developments in Europe, the lack of progress from the so-called U.S. Super Committee on debt has flown under the radar, an analyst warned Thursday.
Douglas Borthwick, managing director at Faros Trading, LLC, said in his latest report that U.S. debt troubles will likely take centre stage once again in the coming months.
“We argue that while Europe is dealing with their fiscal issues, we have yet to hear from the ‘Super Committee’ set up by the U.S. congress to find ways to decrease spending in the longer term,” he said.
via With focus on Europe, lack of U.S. debt progress slips under radar | Economy | News | Financial Post.
Here’s What Will Happen When China’s Bubble Bursts
What would a China slowdown mean for the rest of us? In the main, three things will become evident.
- First, China will remain committed to letting its currency, the yuan, rise in international foreign-exchange markets. A stronger currency will encourage companies to rely less on exports and more on goods and services consumed domestically.
- Second, Chinese products will no longer be the cheapest on the shelves in years to come because China’s inflation rate will rise along with its wages. This is natural when any nation climbs a rung on the development ladder, which is what China is now doing.
- Third, the Chinese market for raw materials and heavy equipment—cranes, bulldozers, factory machinery—will slow….
The Creeping Eurozone Credit Crunch | Credit Writedowns
During the 1997 Asian financial crisis, Japanese banks, getting killed with a falling Nikkei and their credit extended to Thailand and Indonesia, found that rolling off interbank lines to Korea the easiest way to shrink their balance sheets. American and European banks, not wanting to be the last out of Korea, panicked and followed the Japanese banks thus sucking in another country into the Asian crisis.
The Korean banks having to raise dollar liquidity sold their Brazilian and other emerging market bonds. Brazilian banks long their sovereign’s bonds that were declining in price had to raise liquidity and sold their Russian assets. The global margin call was on and fueled a full blown contagion and ended with the Russian debt default and LTCM crisis. Let’ hope it doesn’t come to this. Stay tuned and stay vigilant.
via The Creeping Eurozone Credit Crunch | Credit Writedowns.
Quantitative Easing!!! – Andy Lees, UBS | Credit Writedowns
The BoJ announced today that it will expand its asset purchase programme by JPY5trn (USD66bn), with all the purchases being directed at JGB’s. Add that to the GBP75bn (USD120bn) by the BoE, CHF50bn (USD57bn) by the SNB and the EUR341bn (USD477bn) expansion of the ECB balance sheet since the end of June, and it collectively adds up to USD720bn. Clearly this explains the market rally from the low.
Europe’s Punishment Union – Ambrose Evans-Pritchard
As Sir John Major wrote this morning in the FT, this does not solve EMU’s fundamental problem, which is the 30pc gap in competitiveness between North and South, and Germany’s colossal intra-EMU trade surplus at the expense of Club Med deficit states.
It is therefore unlikely to succeed. It means that Italy, Spain, Portugal, et al must close the gap with Germany by austerity alone, risking a Fisherite debt deflation spiral. As I have written many times, this is a destructive and intellectually incoherent policy, akin to the 1930s Gold Standard. It risks conjuring the very demons that Mrs Merkel warns against.
Sir John is less categorical, but the message is the same. Europe will have to evolve into a fiscal union to make the system work….
Dow breaks 12000
Dow Jones Industrial Average broke through resistance at 12000. On the monthly chart we can see the index is headed for a test of its 2011 high at 13000. Breakout would signal an advance to 15000*. Bearish divergence on 63-Day Twiggs Momentum, however, continues to warn of a primary down-trend; and respect of 13000 would indicate another test of primary support at 11000.
* Target calculation: 13 + ( 13 – 11 ) = 15
Looking at the weekly chart, retracement to test the new support level at 12000 is likely. Respect would confirm the primary advance, while failure would signal another test of primary support at 10500/11000. A 13-week Twiggs Money Flow trough above the zero line would indicate strong buying pressure.
* Target calculation: 12 + ( 12 – 11 ) = 13
Forex: Euro and the Aussie dollar strengthen
The euro is testing resistance at the former support level of $1.40, in the hope that the bailout out-lined today will rescue the euro-zone from its debt crisis. We will probably read fairly disparate views over the next few weeks before the varying viewpoints synthesize into a clear market direction. Reversal below $1.365 would warn of a decline to $.20*, while narrow consolidation below the resistance level would suggest a breakout and advance to the 2011 highs.
* Target calculation: 1.30 – ( 1.40 – 1.30 ) = 1.20
The Pound similarly rallied to $1.60. Respect would re-test primary support at $1.53, while breakout would target $1.67.
* Target calculation: 1.53 – ( 1.60 – 1.53 ) = 1.46
The dollar broke support at ¥76, continuing its long-term (mega) down-trend against the Yen. Target for the breakout is ¥72*.
* Target calculation: 76 – ( 80 – 76 ) = 72
The Aussie benefited from the weaker greenback, recovering above $1.04 to signal an attempt at $1.08*. Penetration of the descending trendline indicates that the down-trend is weakening.
* Target calculation: 1.04 + ( 1.04 – 1.00 ) = 1.08
The Aussie and Loonie both closely follow commodity prices. Respect of the upper trend channel on the CRB Index would warn of another down-swing.
Canda’s Loonie is testing resistance at $1.00 against the greenback. Reversal below $0.975 would warn of another down-swing, while breakout above parity would target $1.02*.
* Target calculation: 1.00 + ( 1.00 – 0.98 ) = 1.02
The Aussie dollar completed a double bottom against its Kiwi counterpart (probably due to lost man-hours after celebrating their Rugby World Cup win). Expect a test of $1.32* followed by retracement to confirm support at $1.28.
* Target calculation: 1.28 + ( 1.28 – 1.24 ) = 1.32
The South Africans went home early (from the RWC) and a descending triangle on the USDZAR warns of downward breakout to test support at $7.20.
* Target calculation: 7.80 – ( 8.40 – 7.80 ) = 7.20
America’s Economic Stalemate – Martin Feldstein – Project Syndicate
The two parties’ hardline stances anticipate the upcoming congressional and presidential elections in November 2012. The Republicans, in effect, face the voters with a sign that says, “We won’t raise your taxes, but the Democrats will.” The Democrats’ sign, by contrast, says, “We won’t reduce your pension or health benefits, but the Republicans will.”
Neither side wants any ambiguity in their message before the election, thus ruling out the possibility of any immediate changes in tax expenditures or future Social Security pensions. But, for the same reason, I am optimistic that the stalemate will end after the election. At that point, both Republicans and Democrats will be able to accept reforms that they must reject now.
via America’s Economic Stalemate – Martin Feldstein – Project Syndicate.
The country’s economic policy is being run according to the election timetable. Compare that to the Swiss democratic system from a few days ago. Makes you wonder, doesn’t it?