Washington, DC, October 27, 2011 – 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.
Losses were primarily in Stock Funds which saw a 9.5% decrease.
Both in Europe and the U.S., structural weakness stems from government excess and slow economic growth. More important than stemming contagion is reversing the policies that created the problem in the first place.
via Edward P. Lazear: The Euro Crisis—Doubting the ‘Domino’ Effect – WSJ.com.
In fact “normal” for the last half century has been an unsustainable growth in debt, which has finally reached an apogee from which it will fall. As it falls–by an unwillingness to lend by bankers and to borrow by businesses and households, by deliberate debt reductions, by default and bankruptcy–aggregate demand will be reduced well below aggregate supply. The economy will therefore falter–and only regular government stimuli will revive it.
This however will be a Zombie Capitalism: the private sector’s reductions in debt will counter the public sector’s attempts to stimulate the economy via debt-financed spending. Growth, if it occurs, will not be sufficiently high to prevent growing unemployment, and growth is likely to evaporate as soon as stimulus packages are removed.
The only sensible course is to reduce the debt levels. As Michael Hudson argues, a simple dynamic is now being played out: debts that cannot be repaid, won’t be repaid. The only thing we have to do is work out how that should occur.
via Debtwatch No 41, December 2009: 4 Years of Calling the GFC | Steve Keen’s Debtwatch.
Nothing seems to have changed since Steve Keen wrote this in December 2009. Almost two years later and any private sector deleveraging has been compensated by increases in public debt to finance stimulus spending. Greece’s “default” may be the first step in a long journey — and the jury is still out as to whether recapitalization of European banks (after their “haircut”) will be funded out of debt or new equity.
Canada’s TSX 60 index is headed for a test of resistance at 720/730 on the weekly chart. Expect a retracement. Respect of the trendline would warn of another test of primary support. Breakout above the descending trendline would signal that the primary down-trend has weakened and a bottom is forming. A 13-week Twiggs Money Flow trough that respects the zero line would indicate strong buying pressure.
* Target calculation: 720 + ( 720 – 640 ) = 800
* Target calculation: 720 + ( 720 – 640 ) = 800
Several weeks ago, when asked what it would take to reverse the bear market, I replied that it would take 3 strong blue candles on the weekly chart followed by a correction — of at least two red candles — that respects the earlier low. We have had three strong blue candles. Now for the correction.
On the S&P 500 expect retracement to test support at 1200 or 1250. Respect of 1250 would signal a strong up-trend, while failure of support at 1200 would warn of another test of primary support at 1100. A trough on 13-week Twiggs Money Flow that respects the zero line would also indicate strong buying pressure.
* Target calculation: 1225 + ( 1225 – 1100 ) = 1350
Dow Jones Industrial Average weekly chart displays a similar picture. Expect retracement to test support at 11500. A peak on 63-day Twiggs Momentum that respects the zero line would be bearish — warning of continuation of the primary down-trend.
* Target calculation: 11500 + ( 11500 – 10500 ) = 12500
The Nasdaq 100 is testing resistance at 2400 — close to the 2011 high. Breakout would signal a primary advance to 2800*, while respect would warn of another test of primary support at 2000. Bullish divergence on 13-week Twiggs Money Flow has warned of a reversal for several weeks.
* Target calculation: 2400 + ( 2400 – 2000 ) = 2800
Friday’s Commerce Department report shows that personal income indicator has declined for three consecutive months — at a 2% annual rate. In the past, such steep drops in that category have been followed, three-quarters of the time, by a recession, according to Mr. Rosenberg’s [David Rosenberg of Gluskin Sheff & Associates Inc.] research. So while consumers boosted spending in the third quarter, they pulled it off by dipping into their savings and spending government dollars, not by earning more money at work. Mr. Rosenberg says stagnant wages, plunging consumer confidence, and low expectations for wage growth are a recipe for a dramatic drop in consumer spending in coming months.
via Income Excluding Government Transfers Drops Again – Real Time Economics – WSJ.
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.
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.
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.
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
