The combined assets of the nation’s mutual funds decreased by $582.3 billion, or 5.0 percent, to $11.040 trillion in September, according to the Investment Company Institute’s official survey of the mutual fund industry.
via ICI – Trends in Mutual Fund Investing, September 2011.
The fall in Stock Funds was far greater, at 9.5%, compared to only 1.3% in Taxable Bond Funds and 0.1% in Taxable Money Market Funds.
In principle, solving the nation’s debt problems is easy. Almost all experts agree that a combination of reduced spending and increased tax revenues is needed. Cuts in spending and increases in tax revenues equal to about 5 percent of GDP are required to prevent an increase in the debt-to-GDP ratio. If a constant debt-to-GDP ratio were achieved with spending cuts alone, annual non-interest government spending would have to be reduced by about 20 percent. Alternatively, if a constant debt-to-GDP ratio were achieved by relying solely on increased tax revenues, taxes would have to be raised by about 33 percent. It is impossible to imagine that Congress would ever adopt spending cuts or tax increases of these magnitudes.
The logical conclusion is that only a balanced approach to solving our debt crisis, one that includes both spending cuts and increased taxes, is feasible. That being said, neither spending cuts nor tax increases will be politically easy to enact.
via EconoMonitor : EconoMonitor » “Solving America’s Debt Crisis”.
The percentage of Americans saying they were cutting back on their spending rose from 66% at the start of the year to 72% in September, where it has stayed for nine straight weeks. Spending, however, was up 5% in September from a year ago…..[it could be] that, more than two years into an anemic economic recovery, Americans are simply settling into a new routine, somewhere in between the forced austerity of the recession and the heady days that came before. Asked by Gallup whether they are watching their spending “very closely,” 88% of Americans said yes. That figure has hardly moved in two years.
via Consumers May Be Spending More, but They’re Not Happy About It – Real Time Economics – WSJ.
Thirty-six states and Washington, D.C. posted declines in their unemployment rates in October. Nine had no change and five showed increases. Nationally, the unemployment rate declined to 9% from 9.1% last month. Fifteen states and Washington have rates higher than the national rate.
via Unemployment Rates Drop in Most States – Real Time Economics – WSJ.
The bond markets will have their say. They have voted in Europe — electing new governments in Greece, Italy and Spain — and the time is fast approaching when they will cast their vote in the US as well.
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Canada’s TSX 60 index broke medium-term support — at 680 on the weekly chart below. Respect of the descending trendline suggests another decline. Failure of primary support at 650 would confirm. 63-Day Twiggs Momentum deep below zero also indicates a strong primary down-trend. A conservative target for the decline would be 580*.
* Target calculation: 650 − ( 720 − 650 ) = 580
The NASDAQ 100 index broke support at 2300 on the weekly chart, warning of a correction to test primary support at 2000. A large bearish divergence on 13-week Twiggs Money Flow now warns of a primary down-trend; reversal below zero would strengthen the signal. Failure of support at 2000 would confirm.
* Target calculation: 2000 – ( 2400 – 2000 ) = 1600
Dow Jones Industrial Average broke out below its recent pennant, warning of another test of primary support at 10600. Breach of support at 11600 would confirm the signal. Reversal of 63-day Twiggs Momentum below its recent lows (-4%) would complete an “iceberg” — with the indicator just peaking above the zero line — indicating a primary down-trend.
* Target calculation: 10600 – ( 12200 – 10600 ) = 9000
What has become obvious in the last few years is that debt-driven growth is a flawed business model when financial markets no longer have an appetite for it.
The S&P 500 index broke downwards from its recent pennant, counter to normal bullish expectations, and is testing medium-term support at 1200. Failure of support would test primary support at 1100. Respect of support is less likely, but would suggest a rally to 1300. A 21-day Twiggs Money Flow cross below the zero line would indicate rising selling pressure.
The weekly chart better illustrates the breakout above 1200 followed by several tests of the new support level. Respect of the zero line by 63-day Twiggs Momentum would be a strong bear signal, warning of continuation of the primary down-trend — as would failure of support at 1200.
* Target calculation: 1100 – ( 1300 – 1100 ) = 900
Comparing to the 2008 weekly chart, there was a similar break below 1400 in January followed by several months of indecision before a false recovery above 1400 in May. Reversal below 1400 precipitated a major sell-off, with the index falling 50% over the next 9 months. If we look (above) at the current chart, there was a similar fall below 1250, several months of indecision before “recovery” above 1200/1250. Reversal below 1200 would provide a similar bear warning to 2008 — as would a 63-day Twiggs Momentum peak below zero.
There is no guarantee that stocks will follow the same path as in 2008, but reversal below 1200 would greatly increase the probability of another primary decline — with a target of 900*.
Mohamed A. El-Erian, CEO of PIMCO, describes four key dynamics that will shape the future of the global economy:
“Those on the receiving end of these four dynamics – the vast majority of us – need not be paralyzed by uncertainty and anxiety. Instead, we can use this simple framework to monitor developments, learn from them, and adapt. Yes, there will still be volatility, unusual strains, and historically odd outcomes. But, remember, a global paradigm shift implies a significant change in opportunities, and not just risks.”
via The Anatomy of Global Economic Uncertainty – Mohamed A. El-Erian – Project Syndicate.
