8/4/11…market has lost confidence in government

Bloomberg Top Stories:


*Japan Follows Switzerland in Acting to Weaken Currency to Protect Exports

(this has to worry Fed…can you spell de-flation??? TB)

*Initial Jobless Claims in U.S. Fell 1,000 Last Week to 400,000 – stagnant!

*ECB Keeps Key Interest Rate at 1.5% as Debt Crisis Spreads to Italy, Spain

*Currency Intervention Revived as Odds of Federal Reserve Easing Escalate

*Buffett Can’t Get Analysts to Give ‘Buy’ Rating After Berkshire’s Decline

*Credit Markets Safest Since 2008 as Derivatives Migrate to Clearinghouses

*Economy at Stall Speed May Signal U.S. Descent Into Recession – oops! TB

*Americans Choosing to Save Confound Fed’s Negative Rates – broken model!

*BofA’s Moynihan to Answer ‘Skeptics’ in Conference With Investor Berkowitz

*Berlusconi Drives Italian Growth Agenda as Bond Yields Stoke Debt Concern

*Hackers Take $1 Billion a Year From Company Accounts That Banks Won’t Imdemnify

*Balanced Budget Bill Fails Fiscal Test: commentary by Stephen L. Carter

(Addresses the flaws in the oversimplified balanced budget amendment – disaster!)    


Yesterday NYSE volume rose even further to 5.7B shares as stocks plunged then came back in what was likely only short-covering. Big Board volume rose to 1.35 billion from 1.25B highest since June 24th. The S&P VIX rose but oddly after declining on the opening slide. It closed at 23.38 though vs 24.79. Their were moreo signs of slower growth, increasing use of ‘stall speed’ and more talk of the Fed employing another round of quantitative easing (QE3). Overnight Japan joined Switzerland in cutting rates…not for economic reasons per se, but to weaken the currency in order to maintain export levels. Is this a sign of a sound global economy…or is it a renewed push towards deflation???


Yesterday, was the first positive (barely so) in seven sessions. led by Transports which fell 3.7% vs -1% vs -0.8% vs -2.6% vs -1.3%. The Dow was up just 0.3% after a 2.2% decline and is now up just 2.8% ytd. Yesterday’s low of 11700 was the lowest since 3/17 and resistance is at the 200 day. 11990! (Close was 11896 despite the rally). Transports rose just 0.5% following a 3.7% decline. The S&P 500 rose 0.5% after falling 2.6% and is now 0.2% ytd. It closed at 1260 after hitting the lowest level since 12/9/10!!!The two Nasdaq indices rose 0.9% vs a 2.8% decline, while the Russell 2000 was up 0.8% vs -3.3%. So despite closing at or near the session highs we only regained about ¼ of Tuesday’s loss! Horrible! New 52 week highs dropped further to 42 from 56 from 74, while new lows surged again to 491 from 321 – highest in more than a year. This is only the second time in months that the ratio has been negative (-11:1!!!),and it has now been NEGATIVE for SIX straight sessions! Advance/Declines were slightly positive: NYSE: +1.5:1 vs -3.6:1, and +1.5:1 vs -5:1 on Nasdaq, while Breadth was +1.5x vs  -17x!!! on NYSE and +2.5x vs -20x!!! on Nasdaq.


Overnight global equities are weak again: UK’s FTSE +1.3% vs -1.2%; French CAC 40 -0.5% vs -0.3%; German DAX +0.6% vs -1%; Nikkei +0.2% vs -2.1%; Hang Seng -0.5% vs -1.9%; Korean Kospi -2.3%!!! vs -2.6%!!!; Indian SENSEX -1.4% vs -0.9%. U.S. Futures are sharply lower: DOW -104; SPX -14.10; NDQ -24! Gold is $1675.20 +$8.90 after hitting another record high of $1681.70 overnight, while Crude is continuing its plunge, $91.31 -.62 – and is below the 200 day for a fourth session, 95.000 now major resistance. U.S. treasuries are climbing again but off the o/n highs: 30 year 3.86%!!! +13/16 – it was +1-1/8 earlier! and the 10 year 2.59% +1/4.


…got some comments on yesterday’s column. First, TB in discussing Keynes said the liquidity trap neutralized fiscal policy when he should have said monetary policy.

Also, some suggestions for solving our problems while cutting spending by better targeting expenditures and better controls. No one seemed to get the point though that by driving a wedge between both sides it is highly unlikely that anything can be achieved. Furthermore, we continue to not see the complexity of our problems instead trying to implement a balanced budget agreement that is so open to interpretation…misinterpretation? that it could lead to catastrophe. Terms used in it such as ‘fiscal year’ are highly open to interpretation and the time period of one year is way to short to allow flexibility.


The market is voting solidly that it has little or no confidence in our ‘leaders’ most of whom were directly responsible for creating the mess we are in today. One has to wonder if they had no retirement and had to pay for their luxury health care and other benefits how many would have pandered to the voters in the biggest giveaway in history? Then there are the supply-siders who want to see taxes cut further despite having created the biggest wealth gap in this countries history, the recipients of this largesse having done very little to grow the economy instead collecting the dividends from their bond investments.


Lastly, there is the issue of low interest rates which are destroying those on fixed incomes while bank fees reduce income to zero or even negative if one is not careful. Is it any wonder that people are saving more…further adding to the problem?


Since the 1980’s we spent our futures on the next new thing…most boomers grew up in houses of 1500 square feet yet consider 2500 square feet too small. On top of that they felt the need to have multiple homes…buy or lease cars on credit, buy computers, TV’s, pay for vacations on credit. What has this done?


There is no sense of accomplishment. When you save for something and finally get it you have a treasured object. When you just sign papers and pay for years it is merely an object that depreciates…especially true of cars where we flipped them when a new model came out, enticed by low interest rates and little or no down. We are now paying for that folly. That is why the economy cannot grow and why business isn’t expanding…to what purpose when demand is unpredictable and doubtful.


. . .  – – –  . . .    . . .  – – –  . . .


Have a wonderful day…despite the market!




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