US & Canada Archives - Page 70 of 176

October 8, 2014

It’s Time To Drive Russia Bankrupt — Again

Interesting view from Louis Woodhill on Forbes:

Over the past 64 years, real gold prices have averaged $544.91/oz in 4Q2013 dollars, and real crude oil prices have averaged $38.85 bbl. This means that an ounce of gold will typically buy about 14 barrels of oil.

If we fully stabilized the dollar today, we could expect gold prices to fall toward $550/oz, and oil prices to fall toward $40.00/bbl. The huge dollar premiums that gold and oil currently command reflect the value that these easy-to-store commodities have as hedges against dollar instability. If we reformed our monetary control system to guarantee the real value of the dollar, we would eliminate this risk. The risk premiums currently enjoyed by oil and gold would then decline toward zero, as the new monetary system gained credibility.

Are the current gold and oil premiums simply a hedge against an unstable dollar?

October 7, 2014

Dollar retraces

The Dollar Index is retracing to test its new support level at 84.50. Respect would confirm a primary advance with a target of 89*. Rising 13-week Twiggs Momentum indicates a healthy primary up-trend. Failure of support is unlikely, but would warn of a correction to the primary trendline.

Dollar Index

* Target calculation: 84 + ( 84 – 79 ) = 89.00

October 7, 2014

October clearance sales not yet over

Dow Jones Industrial Average ran into resistance at 17000 signaling that the October clearance sales may not yet be over. 21-Day Twiggs Money Flow oscillating around zero suggests hesitancy despite the good job numbers. The primary trend is bullish, but reversal below 16700 would warn of a secondary correction.

Dow Jones Industrial Average

* Target calculation: 16500 + ( 16500 – 15500 ) = 17500

The Nasdaq 100 found support at 3950/4000 on the weekly chart. Recovery above 4100 would indicate a further advance, while follow-through below 3950 would warn of a correction to the primary trendline at 3750/3850. Mild divergence on 13-week Twiggs Money Flow suggests further selling pressure.

Nasdaq 100

* Target calculation: 4000 + ( 4000 – 3750 ) = 4250

October 7, 2014

Reserve currency status: Privilege or burden?

Is the reserve currency status of the US Dollar a privilege or a burden? Michael Pettis suggests the latter and argues in favor of constraining unlimited purchases of US or other government bonds by international trading partners like China and Japan:

…it is actually quite easy to list the conditions under which reserve currency status encourages growth and the conditions under which it forces a rise either in debt or in unemployment. In advanced countries with deep and flexible financial markets, except in the case in which capital has become severely constrained by the need for money to be backed by gold, or real interest rates have been forced up to extremely high levels in order to break inflation as was the case in the late 1970s and early 1980s, the net inflows associated automatically with reserve currency status will not result in an increase in productive investment. They only result in an increase either in debt or in unemployment.

This is not an argument in favor of returning to gold, by the way. It is completely neutral on the issue. This argument simply restates the Keynesian insight that eliminating the discipline imposed by the gold standard is likely to become destabilizing unless there is another way to impose discipline…..

….the potentially destabilizing effect is no longer so distant. In a recent essay I tried to show that if we have not already reached the point at which the dominant reserve currency status of the US dollar is harmful to the US and potentially destabilizing to the world, logically we will inevitably reach that point, and probably soon….

I have frequently argued that capital account inflows into US Treasuries artificially inflate the dollar, give trading partners a competitive advantage, and cause the loss of millions of manufacturing jobs. Failure to address this issue is one of the major causes of low wage growth and rising inequality in the US.

October 6, 2014

We Should Be Protesting Too | BillMoyers.com

Lawrence Lessig compares pre-selection in America’s “green primary” to Beijing’s 1200-strong “nominating committee” proposed for Hong Kong elections:

To run in any election, primary or general, candidates must raise extraordinary sums, privately. Yet they raise that money not from all of us. They raise it from a tiny, tiny few. In the last non-presidential election, only about .05 percent of America gave the maximum contribution to even one congressional candidate in either the primary or general election; .01 percent gave $10,000 or more; and in 2012, 132 Americans gave 60 percent of the superPAC money spent. This is the biased filter in the first stage of our American democracy….

America’s government is demonstrably responsive to the “economic elite and organized business interests,” Gilens and Page found, while “the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy.”…..

There is no doubt that because of the way we fund campaigns, the “economic elite” — what conservatives call “the cronies” and progressives “corporate power” — have hijacked American democracy…..

October 4, 2014

US job growth rebounds

US job growth rebounds, halting the correction
Gold and crude oil are falling
European stocks remain bearish
Asian stocks are bearish
US stocks continue to indicate a bull market

We are at the September quarter-end and stock weakness is likely to continue into October.

From the Wall Street Journal:

U.S. job growth rebounded in September and the jobless rate fell below 6% for the first time since mid-2008, suggesting the labor market is improving faster than previously thought. Nonfarm payrolls grew a seasonally adjusted 248,000 last month, the fastest pace since June, the Labor Department said Friday.

The S&P 500 broke downwards from its broadening wedge formation this week, warning of a correction to 1900. But Thursday’s long tail and Friday’s rally indicate buying support below 1950. Another test of 2000 is likely. Respect of resistance would warn of further weakness in October, while breakout would suggest a fresh advance; follow-through above 2020 would confirm.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) remains below 20, typical of a bull market.

S&P 500 VIX

Dow Jones Euro Stoxx 50 found support at 3100, but this is unlikely to hold. Expect another test of primary support at 3000. Breach would signal a down-trend. Fall of 13-week Twiggs Money Flow below zero would strengthen the bear signal.

Dow Jones Euro Stoxx 50

* Target calculation: 3000 – ( 3300 – 3000 ) = 2700

Dow Jones Asia Index is headed for a test of 2800 on the weekly chart despite continued bullishness on the Shanghai Composite, reflecting strength in the US Dollar. Penetration of the rising trendline would strengthen the bear signal. Reversal of 13-week Twiggs Momentum below zero also signals a primary down-trend.

Dow Jones Asia Index

The ASX 200 found support at 5250. Recovery above 5350 and the descending trendline would suggest that the correction is over. But respect of resistance remains as likely and breach of 5250 would warn of a test of 5000/5050. Recovery of 21-day Twiggs Money Flow above zero would indicate short-term buying pressure.

ASX 200

* Target calculation: 5650 + ( 5650 – 5350 ) = 5950

October 2, 2014

S&P 500 breaks support

The S&P 500 broke through the lower border of the broadening wedge and the secondary trendline at 1965, indicating a correction. Expect support at 1900. Decline of 21-day Twiggs Money Flow below zero would strengthen the signal, while recovery above 25% (September high) would suggest that buyers are back in control.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) is close to 17%, but the low level continues to suggest a bull market.

VIX Index

October 1, 2014

QE: The end is nigh?

I have read a number of predictions recently as to how stocks will collapse into a bear market when quantitative easing ends. The red line on the graph below shows how the Fed expanded its balance sheet by $3.5 trillion between 2008 and 2014, injecting new money into the system through acquisition of Treasuries and other government-backed securities.

Fed Assets and Excess Reserves on Deposit

Many are not aware that $2.7 trillion of that flowed straight back to the Fed, deposited by banks as excess reserves. So the net flow of new money into the system was actually a lot lower: around $0.8 trillion.

The Fed has indicated they will end bond purchases in October 2014, which means that the red line will level off at close to $4.5 trillion. If excess reserve deposits continue to grow, that would cause a net outflow of money from the system. But that is highly unlikely. Excess Reserves have been growing at a slower rate than Fed Assets for the last three quarters, as the graph of Fed Assets minus Excess Reserves shows. If that trend continues, there will be a net injection of money even though asset purchases have halted.

Fed Assets and Excess Reserves on Deposit

Interest paid on excess reserves is a powerful weapon in the hands of the FOMC. The Fed can accelerate the flow of money into the market by reducing the interest rate, forcing banks to withdraw funds on deposit in search of better returns outside the Fed. Alternatively, raising interest paid above the current 0.25% p.a. on excess reserves would have the opposite effect, attracting more deposits and slowing the flow of money into the market.

The Fed is likely to use these tools to maintain a positive flow into the market until the labor market has healed. As Janet Yellen said at Jackson Hole:

“It likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after our current asset purchase program ends.”

That’s Fedspeak for “Read my lips: there will be no interest rate hikes.”

September 30, 2014

Rising interest rates: Good or bad for stocks?

We are now at the September quarter-end, normally a volatile time for stocks. Expect selling pressure to increase over the next few weeks as investment managers sell off poor-performing stocks. Increased cash balances then enable them to take advantage of new opportunities as they present themselves. If the fundamental under-pinning of the market is sound, the market is likely to undergo a minor dip before resuming its advance. If not, and there are serious flaws, the sell-off could turn into a rout — as in 1987 and 2007.

At present the market appears sound, with none of our market indicators flagging elevated risk, and the bull market is likely to continue.

Bears cite the potential for an increase in US interest rates as a major threat to the US economy. The track record for the last 15 years suggests otherwise. The graph below compares percentage change in 10-year Treasury yields to the Wilshire 5000 Total Market Index (divided by 20 for purposes of comparison). The two tend to rise and fall in sync, with a 20% to 40% rise in the index accompanying a 1% increase in yields.

10-year Treasury yields v. Wilshire 5000 Total Market Index

The Fed tends to be conservative about raising interest rates (“doves” outnumber “hawks”) and is unlikely to raise rates until there is solid evidence of a recovery. So a rise in interest rates is more likely to be followed by a surge in stocks than a fall.

US stocks

The S&P 500 found significant support at 1965, the lower border of the broadening wedge. Monday’s long tail flags (short-term) buying pressure. Follow-through above 1990 would suggest a rally to test the upper border. Breach of 1965, however would indicate another correction. Decline of 21-day Twiggs Money Flow below zero would confirm, while recovery above its September high would suggest that buyers are back in control.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) is rising, but the low level continues to suggest a bull market.

VIX Index

Dow Jones Industrial Average found support at 16950 on the weekly chart. Long tails again flag buying pressure. Recovery above 17150 would suggest another advance, while follow-through above 17350 would confirm. Breach of support at 16950 is unlikely, but would warn of a correction. 13-Week Twiggs Money Flow reflects some hesitancy, but the long-term picture is bullish.

Dow Jones Industrial Average

* Target calculation: 16500 + ( 16500 – 15500 ) = 17500

September 28, 2014

America’s Never-Ending War | Project Syndicate

Brahma Chellaney, Professor of Strategic Studies at the New Delhi-based Center for Policy Research writes:

It is time for the US to recognize that since it launched its war on terror, the scourge has only spread. The Afghanistan-Pakistan belt has remained “ground zero” for transnational terrorism, and once-stable countries like Libya, Iraq, and Syria have emerged as new hubs.

….Making matters worse, Obama plans to use the same tactics to fight the Islamic State that led to its emergence: authorizing the CIA, aided by some of the region’s oil sheikhdoms, to train and arm thousands of Syrian rebels. It is not difficult to see the risks inherent in flooding the Syrian killing fields with even more and better-armed fighters.

The US may have some of the world’s top think tanks and most highly educated minds. But it consistently ignores the lessons of its past blunders – and so repeats them. US-led policies toward the Islamic world have prevented a clash between civilizations only by fueling a clash within a civilization that has fundamentally weakened regional and international security.

An endless war waged on America’s terms against the enemies that it helped to create is unlikely to secure either steady international support or lasting results…..The risk that imperial hubris accelerates, rather than stems, Islamist terror is all too real – yet again.