US & Canada Archives - Page 107 of 176

April 21, 2013

Richard Koo: Quantitative and Qualitative Easing

Richard Koo in his latest report makes that the point that central banks in the US and UK have not cured their economies of deflationary pressures, they have merely kicked the can down the road:

Central bank officials in the US and the UK claim quantitative easing has been a success because it prevented a Japan-like deflation. But as I noted in my last report (2 April 2013), the rate of Japanese wage growth four to five years after the bubble collapsed was roughly equal to the levels now being observed in the US. Deflation took root in Japan only after 1997, when the nation fell off the fiscal cliff following the Hashimoto administration’s ill-fated experiment with fiscal consolidation. That was seven to eight years after the bubble burst.

April 20, 2013

“Fragile by design” – the political causes of banking crisis | The Market Monetarist

Lars Christensen discusses a soon-to-be-released book by Charles Calomiris and Stephen Haber: “Fragile by Design: Banking Crises, Scarce Credit,and Political Bargains.”

Calomiris and Haber conclude that the root cause of banking crisis has to be found in what political institutions different countries have. Said in another way the main cause banking crisis is one of “political design”…….The differences between USA and Canada seem to be particularly interesting……..since 1840 the US have had 14 banking crisis, while Canada have had none and this despite the fact that credit has been as abundant in Canada as in the US.

April 19, 2013

Fixing the Banking System for Good

I believe we have a crisis of values that is extremely deep…. because the regulations and legal structures need reform. I meet a lot of these people [from] Wall street on a regular basis. I’m going to put it very bluntly: I regard the moral environment as pathological…… I have never seen anything like it. These people are out to make billions of dollars and nothing should stop them from that. They have no responsibility to pay taxes. They have no responsibility to their clients. They have no responsibility to ….counterparties in transactions. They are tough, greedy, aggressive and feel absolutely out of control…… They have gamed the system to a remarkable extent. And they have a docile president, a docile White House and a docile regulatory system that absolutely can’t find its voice. It’s terrified of these companies……

Professor Jeffrey Sachs of Columbia University speaking at the “Fixing the Banking System for Good” conference on April 17, 2013.

http://youtu.be/7VOWnnEphjI

April 16, 2013

Dramatic fall on S&P 500 – April 16th

Apologies. I deleted this April 16th post by accident.

The S&P 500 fell 220 basis points (2.2%) on Monday, blamed variously on disappointing growth figures from China, the fall in gold, and the Boston Marathon tragedy. I still suspect that the primary cause is the tectonic shift last week by the Bank of Japan.

“Where is the fall?” you may ask, when viewing the chart below. That is what I enjoy about monthly charts: they place daily moves in perspective. Breach of support at 1540 would indicate a small secondary correction, while breakout below 1490 would signal a correction back to the primary trendline. But the primary trend remains up. Only a fall through 1350 would suggest a reversal.

S&P 500 Index

April 16, 2013

Pimco’s El-Erian: Markets Trading at ‘Very Artificial Levels’ | WSJ

Steven Russolillo at WSJ reports:

Actions by central bankers across the globe are propping up asset prices to artificial levels that are potentially putting investors at risk, Pimco CEO Mohamed El-Erian said in an interview with the Wall Street Journal.

“Investors should recognize that in virtually every single market segment, we are trading at very artificial levels,” El-Erian told WSJ’s Francesco Guerrera. “It’s true for bonds, it’s true for equities. It’s true across the board.”

This reinforces my long-term bullish outlook for gold. Central banks are unlikely to cease their easy money policies any time soon. What we are currently witnessing is the opposite, with the Bank of Japan going ‘nuclear’ in an attempt to kill persistent deflation that has dogged them for over two decades.

I strongly recommend that you watch the video interview at Pimco’s El-Erian: Markets Trading at ‘Very Artificial Levels’ – MoneyBeat – WSJ.

April 14, 2013

S&P 500 rising while gold and bond yields fall

The S&P 500 is set to break resistance at 1600, which would suggest an advance to 1700, but expect a correction to test the new support level before the quarter ends. Troughs above zero on 13-week Twiggs Momentum indicate a healthy primary up-trend.

S&P 500 Index

* Target calculation: 1350 + ( 1350 – 1100 ) = 1600

The red and green arrows above indicate previous turning points at March and September quarter ends. A correction that respects support at 1500 in the current quarter would confirm the breakout.

Falling 10-year Treasury yields suggest that inflation expectations are falling. Breach of 1.70% would indicate another test of primary support at 1.40%, but rising Twiggs Momentum indicates that a bottom is forming.

Reversal of gold below $1500/ounce confirms that demand for gold as a safe-haven and inflation-hedge is fading — a bullish sign for stocks.
Gold

Bellwether transport stock Fedex dipped below $100 after an earnings disappointment but remains in a primary up-trend. Recovery above $100 would suggest that the economic recovery is on track, while breach of the rising trendline (and support at $85) would warn of a down-turn.
Fedex

Structural flaws in the US economy remain, but the market is gaining momentum and the current advance shows no signs of ending.

April 11, 2013

Time to clean up the Banks

Gabriele Steinhauser at WSJ writes:

A group of key crisis managers believes cleaning up weak banks is the only way to get Europe’s economy to grow again, after superlow interest rates and large-scale liquidity injections from the ECB have failed to produce the desired results. These officials see continued doubts over the health of many lenders as the main reason banks are reluctant to lend to companies, especially in the continent’s weaker countries.

“We’ve been stuck in this rubbish for five years, because we’ve been doing everything to prevent the banks from being recapitalized properly and the stress tests from being stringent enough,” said a senior EU official. “If we don’t do this, we will stay in this trap until 2020.”

The time has come to clear up the mess from the GFC and strengthen bank balance sheets — not only in Europe — so that a similar financial crisis is unlikely to ever happen again. Moves are also afoot in the US where Senators Sherrod Brown (D-Ohio) and David Vitter (R-La.) are working on a bipartisan bill to end too-big-to-fail banks. The bill does not attempt to break up big banks but focuses on improving bank capital ratios. Risk-weighted capital ratios as suggested by Basel III disguise banks’ true leverage and encourage risk-taking. Australian banks are particularly exposed to low risk-weighting of residential mortgages. Eliminating risk-weighting would force banks to strengthen their underlying capital base and discourage risk concentration in low risk-weighted areas.

The biggest obstacle to change, however, is the banks who benefit from an implicit taxpayer-funded guarantee in the event of failure. Being able to rely on a bailout enables them them to take bigger bets than their balance sheets would otherwise allow. Columbia University’s Charles Calomiris points out that the banks are able to get away with this because they are supported by populist democratic governments who trade off banking instability in return for political (and financial) support.

April 10, 2013

Why Canada Can Avoid Banking Crises and U.S. Can’t | WSJ

Victoria McGrane at WSJ reports on a paper by Columbia University’s Charles Calomiris, presented at the Atlanta Fed’s 2013 Financial Markets Conference.

In populist democracies, such as the United States, the regulation of banking is used as a political tool to favor some parties over others. It is not that the dominant political coalition in charge of banking policy desires instability, per se, but rather, that it is willing to tolerate instability as the price for obtaining the benefits that it extracts from controlling banking regulation………..

Smart economists with their regulatory ideas are sort of dead on arrival. Political coalitions will decide — not whether you’ve got the right VAR model — [but] whether a banking system is going to be set up with rules that will lead it to be stable and have abundant credit or not.

Charles Calomiris has absolutely nailed it: Populist democracies are prone to financial instability. If you want a stable financial system, you first need to overhaul the political system.

April 8, 2013

Afghanistan: What Went Wrong? | Colonel Gian Gentile

“History…. suggests that whatever we decide to do, let’s decide to do it on the premise of: there are limits to what our power can accomplish in the world — especially military power — and sometimes there may be other alternatives to using military power to shape a world that we want to see……”

To paraphrase Abraham Maslow: If your favorite tool is a hammer, every problem starts to resemble a nail.

The views expressed by Colonel Gentile here do not necessarily represent those of the United States government or the Department of Defense.

This interview was recorded shortly after the event, “The War in Afghanistan: What Went Wrong?” at the Cato Institute April 5, 2013.
http://www.cato.org/events/war-afghan.