US & Canada Archives - Page 128 of 169

July 24, 2012

Christian Noyer: Monetizing public debt

Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the BIS: Some central banks have developed large-scale public debt acquisition programmes. They have done so for reasons relating to immediate macroeconomic stabilisation… to go beyond the zero-interest rate limit. The Eurosystem as well intervened on a much smaller scale when malfunctioning debt markets prevented the effective transmission of monetary policy impulses. There is not a single central bank that is seriously considering the monetisation of deficits with the more or less declared intention of reducing the weight of debt via inflation. In my view, this notion is nothing more than a financial analyst’s fantasy.

via Christian Noyer: Public and private debt – imbalances of global savings.
Comment:~ No central bank has declared an intention to monetize public debt (or deficits) — reducing public debt via inflation — but without a viable alternative how many will end up there? Gary Shilling points out that “competitive quantitative easing by central banks is now the order of the day.” The Bank of Japan last year “expanded its balance sheet by 11 percent, while the Federal Reserve’s increased 19 percent, the European Central Bank’s rose 36 percent and the Swiss National Bank’s grew 33 percent.” Japan, after 20 years of stagnation and with net public debt at 113% of GDP, illustrates the predicament facing many developed countries. If there was a plan B they would have tried it by now.

July 24, 2012

Falling Treasury yields: Money is flowing out of stocks

Retracement of 10-Year Treasury yields respected the new resistance level after breaking support at 1.45 percent, signaling a decline to 1.20 percent*. There has been little change in Fed holdings over the past week that could distort bond flows. Declining yields reflect investors leaving stocks for the safety of bonds and warn of a stock market correction. Recovery above 1.70 percent is most unlikely– without QE3 — but would suggest another stock market rally.

10-Year Treasury Yields

* Target calculation: 1.45 – ( 1.70 – 1.45 ) = 1.20

July 23, 2012

7-23 – The Housing “Supply” I See | Hanson Advisers

Bottom line: In order to permanently de-lever this housing market something must be done to address the 20 to 30 million homeowners in a negative or “effective” (lacking the equity to pay a Realtor 6% and put 20% down on a new house) negative equity position; with 2nd liens; and without the credit needed to qualify for a new vintage loan. That’s because repeat buyers are the “durable” demand cohort; not first-timer buyers and “investors” who come and go with the stimulus wind like we saw in 2010 and will again in the second half of this year.

via 7-23 – The Housing “Supply” I See | Hanson Advisers.

Hat tip to Barry Ritholz

July 23, 2012

Canada: TSX 60 hesitancy

Short, overlapping candles indicate hesitancy on Canada’s TSX 60 index. Reversal below the lower channel at 650 would warn of another primary down-swing — confirmed if primary support at 640 is broken. Respect of the lower channel, however, would indicate a rally to the upper channel border. 21-Day Twiggs Money Flow is rising but breach of the trendline would warn that buying pressure is easing.

TSX 60 Index

* Target calculation: 640 – ( 680 – 640 ) = 600

July 23, 2012

S&P 500 and Nasdaq remain bearish

The S&P 500 remains in a slow up-trend as indicated by narrow oscillation of 63-day Twiggs Momentum above zero. A fall below zero, or downward breakout from the trend channel would warn of another correction. In the long term, breakout above 1420 is unlikely, but would signal an advance to 1570*.

S&P 500 Index Weekly Chart

* Target calculation: 1420 + ( 1420 – 1270 ) = 1570

The Nasdaq 100 is in a similar trend channel on the weekly chart. Respect of resistance at 2660 would suggest another test of primary support at 2440. Reversal of 13-week Twiggs Money Flow below zero would warn of a primary down-trend.

Nasdaq 100 Index

Bellwether transport stock Fedex also displays an upward trend channel on the weekly chart but remains bearish after completion of an earlier double top formation. Reversal below the former neckline at 88.00 would strengthen the bear signal, while failure of primary support at 84.00 would confirm.

Fedex

July 19, 2012

Three Converging Factors May Slash Economic Growth By 71% | Daniel Amerman | Safehaven.com

An excellent historical analysis of this issue can be found in the working paper, “Debt Overhangs: Past and Present”, which was published by the National Bureau of Economic Research in April, 2012. Authored by Carmen Reinhart, Vincent Reinhart and Kenneth Rogoff, it examines 26 different “debt overhangs” that have occurred around the world since 1800, with “debt overhang” being defined as public debt exceeding 90% of GDP for at least five years…..What Reinhart, Reinhart and Rogoff found was that the average duration of a debt overhang was 23 years, and that the end result was a 24% reduction in the size of national economies, compared to what they would have been if they had grown at their average growth rates when not crippled by large government debts.

via Three Converging Factors May Slash Economic Growth By 71% | Daniel Amerman | Safehaven.com.

July 19, 2012

Dems Play Hardball, Threaten a New Recession

Josh Boak: Republican control of the House has left Democrats with the choice of either agreeing to continue the lower rates for wealthier Americans, or watching as they all expire and the country plunges back into a downturn. The Democrats would now prefer to hazard the hard landing. Their gambit depends entirely on the danger of a financial shock severe enough to force GOP lawmakers to back down, yet not so overpowering that it triggers a vicious slump…..

via Dems Play Hardball, Threaten a New Recession.

July 19, 2012

Forex: Euro, Pound Sterling, Canadian Loonie, Australian Dollar, South African Rand and Japanese Yen

The Euro retraced to test its new resistance level at $1.23. Respect would confirm a decline to test the 2010 low at $1.19*. Declining 63-day Twiggs Momentum continues to signal a strong down-trend. Breach of the 2010 low would become likely if the ECB indicated an intention to directly or indirectly purchase government bonds — and would suggest long-term weakness.

Euro/USD

* Target calculation: 1.23 – ( 1.27 – 1.23 ) = 1.19

Pound Sterling’s up-trend against the Euro is accelerating, with steep advances followed by short corrections. Rising 63-day Twiggs Momentum confirms. Target for the current advance is €1.295*.

Pound Sterling/Euro

* Target calculation: 1.255 + ( 1.255 – 1.215 ) = 1.295

Canada’s Loonie continues to weaken against the Aussie Dollar but long-term bullish divergence on 63-day Twiggs Momentum (and breach of the descending trendline) warns of reversal to an up-trend. Breakout above parity would confirm.

Canadian Loonie/Aussie Dollar

The Aussie Dollar broke resistance at $1.03 USD and is headed for a test of $1.05*. Recovery of 63-day Twiggs Momentum above zero would suggest a primary up-trend, but we first need a correction to form a higher low (trough).

Aussie Dollar/USD

* Target calculation: 1.03 + ( 1.03 – 1.01 ) = 1.05

The Aussie Dollar is testing resistance at R8.50 South African Rand after respecting support at R8.30. Breakout would offer a target of R8.70*.

Aussie Dollar/South African Rand

* Target calculation: 8.50 + ( 8.50 – 8.30 ) = 8.70

The Australian Dollar/Japanese Yen is a good reflection of global risk tolerance. Euphoric highs of 2007 were followed by blind panic in 2008/2009 before settling into a mid-range oscillation between ¥72 and ¥90 — suitable for range traders. The higher low in 2012 reflects a more bullish stance but we are a long way from breakout above ¥90. 63-Day Twiggs Momentum oscillating around zero mirrors the uncertainty.

Aussie Dollar/Japanese Yen

July 19, 2012

Numbers Tell of Failure in the War on Drugs – NYTimes.com

If there is one number that embodies the seemingly intractable challenge imposed by the illegal drug trade on the relationship between the United States and Mexico, it is $177.26. That is the retail price, according to Drug Enforcement Administration data, of one gram of pure cocaine from your typical local pusher. That is 74 percent cheaper than it was 30 years ago.

via Numbers Tell of Failure in the War on Drugs – NYTimes.com.

July 17, 2012

Compromises Are Needed to Boost Growth – WSJ.com

Gerald Seib: Most sensible people in Washington know exactly what kinds of compromises on the deficit, taxes, trade and entitlement programs are within reach to change the economic trajectory.

What’s needed is simply for both parties to accept that neither is likely to be in full command of the government after the fall election and perhaps for some time to come, and to move on to the compromises needed to end a policy paralysis that is exacting a real economic price….

This imperative is well embodied in a new study, titled “The Bargain,” soon to be released by Third Way, a centrist think tank. It lays out a series of seven big policy bargains the two parties could strike to address economic malaise….

via Compromises Are Needed to Boost Growth – WSJ.com.