Category: US & Canada

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Redistribution boosts consumption, not output | Richmond Fed

Abstract from a February 28, 2014 paper by Kartik Athreya, Andrew Owens, and Felipe Schwartzman:

The aftermath of the recent recession has seen numerous calls to use transfers to poorer households as a means to enhance aggregate activity. We show that the key to understanding the direction and size of such interventions lies in labor supply decisions. We study the aggregate impact of short-term redistributive economic policy in a standard incomplete-markets model. We characterize analytically conditions under which redistribution leads to an increase or decrease in effective hours worked, and hence, output. We then show that under the parameterization that matches the wealth distribution in the U.S. economy (Castaneda et al., 2003),wealth redistribution leads to a boom in consumption, but not in output.

Read more at Does Redistribution Increase Output? The Centrality of Labor Supply | The Big Picture.

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How Market Tops Get Made | Bloomberg

Barry Ritholz interviews Paul Desmond, chief strategist and president of Lowry’s Research:

According to Lowry’s, “the weight of evidence continues to suggest a healthy primary uptrend with no end in sight.”

….. based on the data Desmond follows, he makes a fairly convincing case that this bull market still has a ways to go before it tops out.

Read more at How Market Tops Get Made – Bloomberg View.

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Canada: TSX 60 buying pressure

Canada’s TSX 60 is testing resistance at the 2011 high of 820. Rising troughs above zero on 13-week Twiggs Money Flow signal buying pressure. Breakout above 820 would signal an advance to 840*. Expect support at 800 and the rising trendline.

TSX 60

* Target calculation: 805 + ( 805 – 770 ) = 840

TSX 60 VIX below 15 indicates low risk typical of a bull market.

TSX 60 VIX

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S&P 500 advance

The S&P 500 found support at 1850, signaling an advance to 1950*. Repeated troughs high above zero on 13-week Twiggs Money Flow indicate strong long-term buying pressure

S&P 500

CBOE Volatility Index (VIX) below 15 continues to reflect low market risk typical of a bull market.

VIX Index

The Nasdaq 100 respected support at 3600, but bearish divergence on 13-week Twiggs Money Flow warns of medium-term selling pressure. Failure of support would warn of another correction. Follow-through above 3700, however, would offer a target of 3800*.

Nasdaq 100

* Target calculation: 3600 + ( 3600 – 3400 ) = 3800

Bellwether Transport stock Fedex found support at $130 on the monthly chart. Breakout above $145 would offer a target of $170*. Rising 13-week Twiggs Money Flow indicates buying pressure. A bullish sign for the broader economy. Reversal below $130 is unlikely, but would warn of a decline to $120.

Dow Jones Industrial Average

* Target calculation: 145 + ( 145 – 120 ) = 170

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In the Real World the Trade Deficit Is More Important Than the Budget Deficit | CEPR

Dean Baker writes:

….the trade deficit is a direct measure of the amount of demand that is going overseas rather than being spent here. This represents income generated in the United States that is not creating demand in the United States. By definition, this lost demand must be made up by other borrowing, either by the public sector (i.e. budget deficits) or the private sector. Currently the trade deficit is running at an annual rate of around $480 billion (@ 3.0 percent of GDP), which means that the sum of net borrowing in the public and private sector must be equal to $480 billion.

Read more at In the Real World the Trade Deficit Is More Important Than the Budget Deficit | Beat the Press.

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Never argue with the tape

I daily read predictions of the imminent collapse of stock prices. But ask yourself one question: Is this a bull market or a bear market?

S&P 500

CBOE Volatility Index (VIX) is below 15.

VIX Index

A prudent speculator never argues with the tape. Markets are never wrong, opinions often are.

~ Jesse Livermore

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S&P 500: Great follow-through

Sellers evaporated as the S&P 500 followed-through above 1860, closing at 1875 on normal volume. Expect an advance to 1950*. The long-term trend is bullish, with repeated 21-day Twiggs Money Flow troughs above the zero line.

S&P 500

* Target calculation: 1850 + ( 1850 – 1750 ) = 1950

CBOE Volatility Index (VIX) retreated below 15, typical of a bull market.

VIX Index

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As China looks on, Putin poses risky dilemma for the West | Reuters

David Rohde at Reuters quotes James Jeffrey, a retired career U.S. diplomat:

Jeffrey said the days and months ahead will be vital. If Putin faces few long-term consequences for seizing Crimea, it will set a precedent for China and other regional powers who may be considering establishing 19th century-style spheres of influence of their own.

“The Chinese,” Jeffrey said, “are in the same position.”

Read more at As China looks on, Putin poses risky dilemma for the West | Reuters.

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E-mini jumps on Putin order

E-mini jumps on Putin order for troops to return to bases (Reuters).

E-mini

Breakout above 1850 is a bullish sign. S&P 500 follow-through above 1860 would signal an advance to 1950.

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Canada: TSX 60 tests 2011 high

Canada’s TSX 60 encountered strong selling at the 2011 high of 820. Follow-through below 814 would test medium-term support at 800. Reversal of 21-day Twiggs Money Flow below zero indicates medium-term selling pressure. Breach of the rising trendline is unlikely, but would warn of another test of primary support at 770. Breakout above 820 is less likely, but would signal an advance to 840*.

TSX 60

* Target calculation: 805 + ( 805 – 770 ) = 840

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