Richard Koo explains how cutting government deficits too early in Japan prolonged the de-leveraging cycle by almost 10 years.
INET interview with Richard Koo, Chief Economist of Nomura Research
Richard Koo: The effect of de-leveraging after a banking crisis
This video from 2010 is particularly important. Richard Koo explains how the private sector paying off debt leads to a rapid contraction in national income.
INET interview with Richard Koo, Chief Economist at Nomura Research
Wall Street is Still Out of Control, and Why Obama Should Call for Glass-Steagall and a Breakup of Big Banks
In the wake of the bailout, the biggest banks are bigger than ever. Twenty years ago the ten largest banks on the Street held 10 percent of America’s total bank assets. Now they hold over 70 percent.
….I doubt the President will be condemning the Street’s antics, or calling for a resurrection of Glass-Steagall and a breakup of the biggest banks. Democrats are still too dependent on the Street’s campaign money.
That’s too bad. You don’t have to be an occupier of Wall Street to conclude the Street is still out of control. And that’s bad for all of us.
Stimulus spending, austerity and public debt: James Galbraith
Prof. James Galbraith on fiscal stimulus and public debt:
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Agree:
- Fiscal stimulus should not be a short-term program that will run out. The term should be 10 to 20 years so that business can make long-term plans.
- Stimulus spending should focus on investment that creates assets — to be offset against the accompanying liabilities.
Disagree:
- Austerity cuts are foolhardy. ~ Austerity cuts should free up money for investment in infrastructure projects.
Strongly disagree:
- “There is no long-term debt problem here. We’re clearly in a sustainable situation otherwise the markets would not give the US government the (low) rates they are.” ~ Keep telling yourself that!
S&P 500 and Europe encounter resistance
The S&P 500 pulled back from resistance at 1250 and is headed for a test of short-term support at 1200. Failure would test primary support at 1100, while breakout above 1250 would signal an advance to 1400*. Rising 21-day Twiggs Money Flow continues to indicate secondary buying pressure.
* Target calculation: 1250 + ( 1250 – 1100 ) = 1400
Dow Jones Europe index also ran into resistance at 250, bearish divergence on 21-day Twiggs Money Flow warning of short-term selling pressure. Reversal below 230 would test primary support at 205/210, while breakout above 250 would signal an advance to 290*.
* Target calculation: 250 + ( 250 – 210 ) = 290
Canada TSX 60
The TSX 60 index also shows a small bullish divergence on 13-week Twiggs Money Flow, suggesting secondary buying pressure. Expect a rally to the descending trendline at 720. Respect would signal another test of primary support at 640. Breakout remains unlikely, but would offer a target of 800*.
* Target calculation: 720 + ( 720 – 640 ) = 800
2008 Deja Vu
Early May 2008, the S&P 500 index recovered above resistance at the former primary support level of 1400 on its second attempt. 13-Week Twiggs Money Flow broke back above zero, indicating secondary buying pressure. Breakout was followed by two pull-backs in May. The first made a false break below the new support level; the second followed through, commencing a 50% decline to 700.
We are now at a similar watershed. Expect retracement in the week ahead to test the new support level at 1250. Respect of support would strengthen the signal, but beware of any penetration. Follow-through above 1300 would signal that the (immediate) danger is over. Until then, consider this a bear market.
* Target calculation: 1250 + ( 1250 – 1100 ) = 1400
Dow not yet out of the woods
Dow Jones Industrial Average followed through on its breakout above the 10600-11700 trading range but expect some resistance at 12000. The index looks set for a decent rally after narrow consolidation below resistance at 11700. Target for the breakout is 12600*.
* Target calculation: 11600 + ( 11600 – 10600 ) = 12600
Yields on 10-year Treasury notes also rallied as funds flowed back into stocks, but we are not yet out of the woods.
There is bound to be a relief rally when EU leaders announce details of their rescue package — followed by a pull-back when traders figure out the costs involved. The danger is that Germany and France do an “Ireland” and rescue the banks but put themselves at risk. Both have public debt to GDP ratios close to 80 percent and it would not take much to push them into the danger zone. If they are down-graded then the kids are home alone — there will be no adults left in the room. A down-grade would raise their cost of funding and place their own budgets under pressure.
The S&P 500 is also testing resistance at 1260; breakout would confirm a Dow signal. 13-Week Twiggs Money Flow is rising but no bullish divergence means this could be secondary (medium-term) buying pressure.
* Target calculation: 1120 + ( 1220 – 1120 ) = 1320
Nasdaq 100 index displays an ascending broadening wedge as it approaches resistance at 2400. The ascending wedge is a bearish pattern: Bulkowski maintains that it breaks out downward 73% of the time. Target would be the base of the pattern at 2000. Bullish divergence on 13-Week Twiggs Money Flow, however, indicates strong buying pressure. Breakout above 2450 would signal a primary advance to 2600*.
* Target calculation: 2400 + ( 2400 – 2200 ) = 2600
E-Commerce Shipments to Drive Record FedEx Holiday Volume | FedEx Global Newsroom
MEMPHIS, Tenn., Oct. 24, 2011 – FedEx Corp. (NYSE: FDX) expects to move more than 17 million shipments – almost double its daily average volume – through its global networks on December 12, the projected busiest day in company history. The 10 percent year-over-year increase will be driven by FedEx SmartPost, a residential shipping service designed for online and catalog retailers, as well as expected increased volume at FedEx Ground and FedEx Home Delivery.
via E-Commerce Shipments to Drive Record FedEx Holiday Volume | FedEx Global Newsroom.
Podcast: Paul Volcker’s Warnings, the S.E.C.’s Privacy Problem and Some Economic Pitfalls – NYTimes.com
Paul Volcker, the former Federal Reserve chairman, warns that we are not out of the woods yet….. Mr. Volcker focuses on two big problems.
First, he says, money market funds should be treated like other mutual funds — whose price can fluctuate — rather than as guaranteed stores of value, like bank accounts. In addition, he says, the United States needs to plan on eventually shutting down Fannie Mae and Freddie Mac, the two agencies that now dominate the mortgage market.