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.
With focus on Europe, lack of U.S. debt progress slips under radar | Economy | News | Financial Post
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.
Quantitative Easing!!! – Andy Lees, UBS | Credit Writedowns
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 breaks 12000
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
Forex: Euro and the Aussie dollar strengthen
The euro is testing resistance at the former support level of $1.40, in the hope that the bailout out-lined today will rescue the euro-zone from its debt crisis. We will probably read fairly disparate views over the next few weeks before the varying viewpoints synthesize into a clear market direction. Reversal below $1.365 would warn of a decline to $.20*, while narrow consolidation below the resistance level would suggest a breakout and advance to the 2011 highs.
* Target calculation: 1.30 – ( 1.40 – 1.30 ) = 1.20
The Pound similarly rallied to $1.60. Respect would re-test primary support at $1.53, while breakout would target $1.67.
* Target calculation: 1.53 – ( 1.60 – 1.53 ) = 1.46
The dollar broke support at ¥76, continuing its long-term (mega) down-trend against the Yen. Target for the breakout is ¥72*.
* Target calculation: 76 – ( 80 – 76 ) = 72
The Aussie benefited from the weaker greenback, recovering above $1.04 to signal an attempt at $1.08*. Penetration of the descending trendline indicates that the down-trend is weakening.
* Target calculation: 1.04 + ( 1.04 – 1.00 ) = 1.08
The Aussie and Loonie both closely follow commodity prices. Respect of the upper trend channel on the CRB Index would warn of another down-swing.
Canda’s Loonie is testing resistance at $1.00 against the greenback. Reversal below $0.975 would warn of another down-swing, while breakout above parity would target $1.02*.
* Target calculation: 1.00 + ( 1.00 – 0.98 ) = 1.02
The Aussie dollar completed a double bottom against its Kiwi counterpart (probably due to lost man-hours after celebrating their Rugby World Cup win). Expect a test of $1.32* followed by retracement to confirm support at $1.28.
* Target calculation: 1.28 + ( 1.28 – 1.24 ) = 1.32
The South Africans went home early (from the RWC) and a descending triangle on the USDZAR warns of downward breakout to test support at $7.20.
* Target calculation: 7.80 – ( 8.40 – 7.80 ) = 7.20
America’s Economic Stalemate – Martin Feldstein – Project Syndicate
The two parties’ hardline stances anticipate the upcoming congressional and presidential elections in November 2012. The Republicans, in effect, face the voters with a sign that says, “We won’t raise your taxes, but the Democrats will.” The Democrats’ sign, by contrast, says, “We won’t reduce your pension or health benefits, but the Republicans will.”
Neither side wants any ambiguity in their message before the election, thus ruling out the possibility of any immediate changes in tax expenditures or future Social Security pensions. But, for the same reason, I am optimistic that the stalemate will end after the election. At that point, both Republicans and Democrats will be able to accept reforms that they must reject now.
via America’s Economic Stalemate – Martin Feldstein – Project Syndicate.
The country’s economic policy is being run according to the election timetable. Compare that to the Swiss democratic system from a few days ago. Makes you wonder, doesn’t it?
Richard Koo: Cutting government deficits too early will prolong GFC
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!