Nobel Prize-winning economist, Joseph Stiglitz criticizes presidential policies on both sides. Of President Barack Obama’s financial-industry rescue plan, Stiglitz says that whomever designed it was “either in the pocket of the banks or …. incompetent.”
A Closer Look GDP Data | The Big Picture
By Barry Ritholtz
The GDP data this morning was a deep sigh of relief for those people who fear a recession may be coming. I don’t have that sense of relief. Perhaps its my own bias, but the details of the GDP report reveal not an organic growth period in a healthy recovering economy, but rather a tepid post-credit crisis expansion highly dependent on government largesse and Federal Reserve accommodation…..
Forex: Aussie Dollar, Euro, Pound Sterling and Canada's Loonie
The Aussie Dollar (daily chart) is headed for another test of resistance at $1.04 against the greenback. A 63-day Twiggs Momentum trough above zero suggests a primary up-trend. Breakout above $1.04 would offer a target of $1.06*.
* Target calculation: 1.04 + ( 1.04 – 1.02 ) = 1.06
The Euro (weekly chart) is testing resistance at $1.32. Recovery of 63-day Twiggs Momentum above zero suggests a primary up-trend. Breakout above $1.32 — and penetration of the descending trendline — would confirm, offering an immediate target of the 2012 high at $1.35.
* Target calculation: 1.32 + ( 1.32 – 1.28 ) = 1.36
Pound Sterling (weekly) rallied off primary support at €1.225/€1.23 against the euro. Breach would complete a head and shoulders reversal with a target of $1.18*. Reversal of 63-day Twiggs Momentum below zero suggests a primary down-trend. Expect a test of resistance at $1.26 followed by another attempt at primary support.
* Target calculation: 1.23 – ( 1.28 – 1.23 ) = 1.18
Canada’s Loonie (daily) is consolidating between $1.00 and $1.01 (USD). Downward breakout — and penetration of the rising trendline — would warn of another test of primary support at $0.96. But 63-day Twiggs Momentum is bullish and a trough above zero would suggest an advance to the 2011 highs at $1.06.
Philadelphia Fed: September up-turn in state coincident indicators
September readings for the Philadelphia Fed survey of state coincident indicators are now out. The 3-Month Index has turned to follow the Monthly Index upward. Reversal of the Monthly Index below 80, however, would be cause for concern.
When we look at the index over the last 30 years, down-turns of the Diffusion Index below 50 normally precede a recession. The only false signal (so far) was the recent 2011 dip of the Monthly Index (DI1) to 20 and the 3-Month Index (DI3) to 46.
The Federal Reserve Bank of Philadelphia calculates monthly coincident indexes for each of the 50 states. The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic: nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
For further details of Diffusion Index performance in predicting recessions, read Marking NBER Recessions with State Data by Jason Novak (2008).
Canada: TSX60 edging lower
The TSX 60 is edging lower and likely to test its medium-term trendline around 680. Another 13-week Twiggs Money Flow trough above zero would signal a primary up-trend. Breakout above 725 would confirm.
* Target calculation: 725 + ( 725 – 640 ) = 810
US: S&P 500 correction
The S&P 500 broke support at 1420, following a trend channel breakout, both signaling a correction. Reversal of 21-day Twiggs Money Flow below zero warns of renewed (medium-term) selling pressure — a peak below zero would strengthen the signal. Breach of 1400 would further strengthen the signal.
The Dow Jones Industrial Average similarly broke support at 13300 on the weekly chart. Bearish divergence on 63-day Twiggs Momentum indicates a weakening up-trend; reversal below zero would warn of a primary down-trend. Breach of support at 13000 — and the primary trendline — would warn that a top is forming. Recovery above 13650 is unlikely at present but would indicate an advance.
* Target calculation: 13000 + ( 13000 – 12000 ) = 14000
Politics Makes Us Worse | Aaron Ross Powell, Trevor Burrus | Libertarianism.org
Excerpt from an opinion by Aaron Ross Powell and Trevor Burrus:
Oddly, many believe that political decisionmaking is an egalitarian way of allowing all voices to be heard. Nearly everyone can vote, after all, and because no one has more than one vote, the outcome seems fair.
But outcomes in politics are hardly ever fair. Once decisions are given over to the political process, the only citizens who can affect the outcome are those with sufficient political power……
The black-and-white aspect of politics also encourages people to think in black-and-white terms……. Nuances of differences in opinions are traded for stark dichotomies that are largely fabrications. Thus, we get the “no regulation, hate the environment, hate poor people” party and the “socialist, nanny-state, hate the rich” party—and the discussions rarely go deeper than this…….
via Politics Makes Us Worse | Aaron Ross Powell, Trevor Burrus | Libertarianism.org.
The Myth That Screwed Up 50 Years of U.S. Foreign Policy – By Leslie H. Gelb | Foreign Policy
By Leslie H. Gelb
What people came to understand about the Cuban missile crisis — that JFK succeeded without giving an inch — implanted itself in policy deliberations and political debate, spoken or unspoken. It’s there now, all these decades later, in worries over making any concessions to Iran over nuclear weapons or to the Taliban over their role in Afghanistan. American leaders don’t like to compromise, and a lingering misunderstanding of those 13 days in October 1962 has a lot to do with it.
In fact, the crisis concluded not with Moscow’s unconditional diplomatic whimper, but with mutual concessions. The Soviets withdrew their missiles from Cuba in return for U.S. pledges not to invade Fidel Castro’s island and to remove Jupiter missiles from Turkey……
via The Myth That Screwed Up 50 Years of U.S. Foreign Policy – By Leslie H. Gelb | Foreign Policy.
The Chicago Plan Revisited | IMF Working Paper
There is growing interest in this IMF Working Paper by Jaromir Benes and Michael Kumhof which discusses removing the role of monetary creation from fractional-reserve banks and assigning it to Treasury. Here is a brief abstract:
At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher’s claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy…..
I believe that Fisher is right in targeting fractional-reserve banks as a major cause of instability in capitalist systems, facilitating rapid expansion of credit during booms, inevitably followed by rapid contraction during the bust. To introduce a system such as the Chicago Plan would risk an abrupt shock to the monetary system, but gradual increase of bank capital, leverage and reserve ratios could achieve the same eventual end without any noticeable side-effects.
via The Chicago Plan Revisited (pdf)
Hat tip to Ambrose Evans-Pritchard at The Telegraph.
Wealthy Advised to Sell for Gains Before Unfriendly 2013 – Bloomberg
By Margaret Collins and Richard Rubin
Sell.
That’s the message from some financial advisers, who are telling wealthy clients that the remainder of 2012 amounts to a last-chance sale on federal tax rates. Taxes are set to rise in January in the U.S., pushing the top rate on dividends to 43.4 percent from 15 percent and the top rate on capital gains to 23.8 percent from 15 percent……
via Wealthy Advised to Sell for Gains Before Unfriendly 2013 – Bloomberg.