Tag Archive | "Global Equity Markets"

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Markets Non-Plussed By Sour Employment Report


A sour US Labor Department non-farm payroll for December vibrated through global equity markets and gave the dollar reason to pause but the longer-term implications appeared tempered. Analysts had expected 196,000 new jobs created in the month but were rudely snapped to attention by the worst employment report in nearly three years. The economy only added 74,000 jobs in the month. November’s excellent report was revised upwards but ripples of uneasiness persisted.

By all accounts, this was a setback to the economy. Several analysts had gone as far to suggest 300,000 new jobs could be added. Blame was placed on the brutal weather that crossed the country, especially affecting the mid-West and Northeast.

Number of hours worked, a key component of the report, also shifted lower.  Again, blame was placed on the inclement weather. Investors immediately wondered what impact the report would have on the Federal Reserve.

Ironically, the unemployment rate dropped to 6.7 percent, a solid 0.3 points on the data. More than 380,000 left the workforce either through retirement or because they stopped receiving unemployment benefits. This is not the type reduction in unemployment the Federal Reserve had anticipated when it set its 6.5 percent target on halting the stimulus.  

The response to the disappointing news was muted, both in Washington and in equity and Forex markets. Investors seemed puzzled. Several disputed the figures and suggested an upward revision would be forthcoming in the February report. Earlier in the week, the ADP private sector payroll report had indicated significant job increase of more than 175,000.

Equity Markets

As investor debated the upcoming action by the Fed, markets seemed to take the new in stride. After their December announcement of a $10 billion monthly reduction in bond buying, the Fed will meet again on January 28-29 presumably to discuss another tapering addition.

On Wall Street, the Dow lost 7.71 points to 16,437.05 but the S&P and Nasdaq both posted small gains. The S&P 500 gained 4.24 points to 1,842.37, a 0.6 percent gain for the week, while the Nasdaq Composite gained 18.471 to 4,174.665.

The MSCI world index also posted a 0.6 percent gain for the day, marking a 0.4 percent gain for the week.

Mixed trade data from China sent Asian markets mildly lower. China’s December exports increased 4.3 percent, less than expected while exports grew by 8.3 percent, higher than expected.

In the UK, there was concern about a possible oil field accident. British markets were flat and the pound posted gains against the dollar as oil elevated slightly.

Forex Shifts

The dollar lost ground to the GBP, yen and euro but held firm against the Canadian dollar. The dollar index fell to 80.533 (0.46 percent), marking a one-week low.

Against the yen, the dollar fell to 103.83 yen before rebounding to 104.07, off Thursday 105 level.

Mario Draghi again repeated that the ECB would accommodate the banks with lower interest rates but said no action was forthcoming to resist the deflation possibility. The euro closed at 1.3667, up 0.44 percent. The consensus is that Europe’s banks are healthier than six months ago and that the troubled southern tier is recovering. Unemployment figures would seem to dispute that but there are signs that housing and manufacturing are improving.

British sterling closed the week at $1.6480, up 0.1 percent on Friday. The fate of the UK housing market is drawing political debate about the fate of the Help to Buy Programme.

While the dollar showed some weakness on Friday, investors increased their bets on the USD last week by the largest amount in four months. The Commodity Futures Trading Commission announced that $21.1 billion was invested in the currency last week.   

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Bernanke and Fed Tapering Together


Federal Reserve Chairman Ben Bernanke and his $85 billion per month bond buying spree will be tapering down and winding down together.  Wednesday’s announcement eliminated speculation about the Fed’s plans. Tapering will begin later this year and the spending spree will conclude in 2014, the same year Bernanke will relinquish the reins.

The news has sent shock waves through global equity markets and created uneasy volatility in currency markets. The move sends a loud message that markets and investors must return to fundamentals. Interest rates will rise, enterprises will be valued by their performance and the Fed will have to start planning to dispose of trillions of dollars of assets. It’s back to the basics and for many it’s about time.

The Fed’s position should not have been a surprise. In his May 22, 2013, meeting, Bernanke set the stage. Equity markets reacted but bounced back. This time, the fall has been faster and deeper.

Currency markets have also reacted strongly. On Thursday, the benchmark 10-year US Treasury note was down 24/32, yielding 2.4412 percent. The USD reached two-week highs against major currencies and is poised to extend gains on Friday. On Fridy, the 10-year Treasury yield rose to 2.531 percent.

Meanwhile, investors rushed to pull money from emerging economies. The dollar posted a 1.53 percent gain against the yen to 98.28 yen. The dollar pushed the euro to a two-week low at $1.3162. Speculation is that the euro will soon fall below the $1.30 mark.

Disappointing factory output in China had analysts wondering if the government would intercede.  China’s economy slowed to the lowest growth rate in 13 year in 2012 and is on pace to shrink further this year.

In Europe, Markit’s Flash Eurozone Composite PIN remained below the trend line for growth in the region. With China’s slowdown and the tapering of US stimulus, prospects for growth in Europe are dim. The Fed’s stimulus had a major impact upon the global marketplace. In overnight trading, political turmoil in Greece pushed 10-year bonds up 70 basis points to an unsustainable 11.4 percent.

Peru’s currency, sol, closed at 2.79 against the USD, it’s lowest close in more than 2 years. The central bank immediately tried to sell 950 billion soles in two-month notes. Currencies in Malaysia, Thailand and the Philippines experienced large volume pullback, underscoring the fragility of emerging economies.

The dollar got a further boost from improved factory output in the Midwest and from an increase in existing home sales. Against a basket of currencies, the USD reached a two-week high of 82.145, up 0.5 percent. The Australian dollar fell to a 33-month low against the USD. This decline was heavily influenced by China’s nine month low factory report.

Equity Markets. Tremble

On Wednesday and Thursday, the S&P 500 suffered its biggest losses since April. The index fell below its moving 50-day average for just the second day this year.  The S&P was 4 percent below the record high of 1,669.16 set the day before Bernanke ‘s May speech.

The Dow Jones shed 293.06 points, nearly 2 percent, settling at 14,819.13 at Thursday’s close.  Equities in Europe lost 3 percent. MTSCI’s emerging market index slumped 3.69 percent. The Asian Pacific region outside Japan fell 3.87 percent. MTSCI’s all-country world index lost 2.93 percent, while the FTSEEurofirst 300 index settled at 1,143.99, down 3.07 percent.

On Friday, major equity indexes rallied slightly. The Nasdaq fell for the third straight day. 47 percent of Nasdaq stocks rose on Friday. 10.29 billion shares exchanged hands on the New York Stock Exchange.6.36 million Nasdaq shares were traded.

When trading commenced on Friday, the S&P 500 was off 5 percent from its all-time high reached on May 21. The CBOE Volatility Index fell 8 percent after jumping 23 percent on Thursday.

For the week, the DOW was off 1.8 percent. The S&P 500 was down 2.1 percent  and Nasdaq shed 1.9 percent. Nicholas Cage, the chief market analyst At ConvergEx in New York summed up analyst sentiment; “A lot of investors thought the sell-off was overdone after we broke through those technical levels, but all the existential things that drove us down are still in place. People aren’t sure what’s going to happen with Fed policy or rates or anything else. It is too soon to say we hit a bottom.”

Bernanke and Fed Tapering Together

Federal Reserve Chairmen Ben Bernanke and his $85 billion per month bond buying spree will be tapering down and winding down together.  Wednesday’s announcement eliminated speculation about the Fed’s plans. Tapering will begin later this year and the spending spree will conclude in 2014, the same year Bernanke will relinquish the reins.

The news has sent shock waves through global equity markets and created uneasy volatility in currency markets. The move sends a loud message that markets and investors must return to fundamentals. Interest rates will rise, enterprises will be valued by their performance and the Fed will have to start planning to dispose of trillions of dollars of assets. It’s back to the basics and for many it’s about time.

The Fed’s position should not have been a surprise. In his May 22, 2013, meeting, Bernanke set the stage. Equity markets reacted but bounced back. This time, the fall has been faster and deeper.

Currency markets have also reacted strongly. On Thursday, the benchmark 10-year US Treasury note was down 24/32, yielding 2.4412 percent. The USD reached two-week highs against major currencies and is poised to extend gains on Friday. On Fridy, the 10-year Treasury yield rose to 2.531 percent.

Meanwhile, investors rushed to pull money from emerging economies. The dollar posted a 1.53 percent gain against the yen to 98.28 yen. The dollar pushed the euro to a two-week low at $1.3162. Speculation is that the euro will soon fall below the $1.30 mark.

Disappointing factory output in China had analysts wondering if the government would intercede.  China’s economy slowed to the lowest growth rate in 13 year in 2012 and is on pace to shrink further this year.

In Europe, Markit’s Flash Eurozone Composite PIN remained below the trend line for growth in the region. With China’s slowdown and the tapering of US stimulus, prospects for growth in Europe are dim. The Fed’s stimulus had a major impact upon the global marketplace. In overnight trading, political turmoil in Greece pushed 10-year bonds up 70 basis points to an unsustainable 11.4 percent.

Peru’s currency, sol, closed at 2.79 against the USD, it’s lowest close in more than 2 years. The central bank immediately tried to sell 950 billion soles in two-month notes. Currencies in Malaysia, Thailand and the Philippines experienced large volume pullback, underscoring the fragility of emerging economies.

The dollar got a further boost from improved factory output in the Midwest and from an increase in existing home sales. Against a basket of currencies, the USD reached a two-week high of 82.145, up 0.5 percent. The Australian dollar fell to a 33-month low against the USD. This decline was heavily influenced by China’s nine month low factory report.

Equity Markets. Tremble

On Wednesday and Thursday, the S&P 500 suffered its biggest losses since April. The index fell below its moving 50-day average for just the second day this year.  The S&P was 4 percent below the record high of 1,669.16 set the day before Bernanke ‘s May speech.

The Dow Jones shed 293.06 points, nearly 2 percent, settling at 14,819.13 at Thursday’s close.  Equities in Europe lost 3 percent. MTSCI’s emerging market index slumped 3.69 percent. The Asian Pacific region outside Japan fell 3.87 percent. MTSCI’s all-country world index lost 2.93 percent, while the FTSEEurofirst 300 index settled at 1,143.99, down 3.07 percent.

On Friday, major equity indexes rallied slightly. The Nasdaq fell for the third straight day. 47 percent of Nasdaq stocks rose on Friday. 10.29 billion shares exchanged hands on the New York Stock Exchange.6.36 million Nasdaq shares were traded.

When trading commenced on Friday, the S&P 500 was off 5 percent from its all-time high reached on May 21. The CBOE Volatility Index fell 8 percent after jumping 23 percent on Thursday.

For the week, the DOW was off 1.8 percent. The S&P 500 was down 2.1 percent  and Nasdaq shed 1.9 percent. Nicholas Cage, the chief market analyst At ConvergEx in New York summed up analyst sentiment; “A lot of investors thought the sell-off was overdone after we broke through those technical levels, but all the existential things that drove us down are still in place. People aren’t sure what’s going to happen with Fed policy or rates or anything else. It is too soon to say we hit a bottom.”

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Bernanke Mixed Message Sends Nervous Tremors


Muddled messages from the Federal Reserve and a sharp downturn in China’s manufacturing sector and in consumer confidence, sent global equity markets into a tailspin in overnight trading. Better than expected employment numbers in the US brought some stability back as the DJ average rebounded from a triple digit losses at the open. For the week ended May 11, 2013, claims for state unemployment benefits after the first week dipped by 112,000 to 2.91 million recipients, the lowest number of claimants in five years.

Japan’s Nikkei share index .N225 dipped 7.3 percent overnight following data from China’s manufacturing sector and news that the euro zone’s extended pattern of contraction looked more ominous. The Nikkei index had been up a stunning 45 percent this year.

Japan’s newest easing initiative has driven the value of the yen down and led to a very liquid economy that is sputtering for growth. Japan’s profits and growth are stagnant giving reason to question the fantastic gains in equities. It is increasingly clear that global markets are reliant upon quantitative easing that in many ways outweighs output.

Tobias Blattner, a European Economist at Daiwa Capital Markets, told Reuters; “All the global developments we see in the markets right now are purely liquidity-driven, they are no longer underpinned by fundamentals. We must learn to live with that kind of volatility.”

Yen and Euro Rise  

Analysts appeared confused by Bernanke’s statements before Congress. During his questioning, markets slipped immediately. After the Q&A following the Congressional hearing, markets recovered. However, the minutes of the Federal Reserve showed support for reducing Fed’s aggressive purchasing policy if certain factors came into place.

Bernanke told Congress that growth hit 2.5 percent during the first quarter and that employment was encouraging but still well below acceptable levels. He also explained that inflation was steady at about 1 percent, half of the red flag milestone set by the Federal Reserve. Inflation has benefited from reduced energy consumption and pricing.

The dollar-yen dipped as low as 1.01.45 before rallying to 101.68, a 1.4 percent fall from Wednesday’s levels. The euro also made headway against the dollar, trading at $1.2894, a 0.3 percent gain for  the day.

Euro zone weakness is weighing heavily on global manufacturing.

Bernanke Leaves Analysts On Edge

One of the purposes of the Fed’s purchasing program is to increase wealth. Equity markets have been big beneficiaries from this strategy. Americans are saving at the highest rates in 4 years. Recent good news from the National Association of Realtors points to gradual recovery in the housing market.

Bernanke explained the impact of the Fed’s $85 billion monthly bond purchases;  “Monetary policy is providing significant benefits. Monetary policy has also helped offset incipient deflationary pressures and kept inflation from falling even further below the (Fed’s) 2 percent longer-run objective.”

The Federal Reserve’s minutes showed that several board members advocate reducing the purchasing program as early as June. This sent tremors through the equity and bond markets. The benchmark 10-year treasury bond climbed over 2 percent for the first time since March. Japan’s 10-year bonds climbed to 1 percent.

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Dollar, Global Equities Rise Sharply


Federal Reserve non-voting, regional members stated positions that the Fed could taper its easing policy as early as this summer but the rumors could not dim the fact that US consumer sentiment is moving forward aggressively. Buoyed by rising sentiment, especially strong in high income Americans, the US dollar climbed to multi-year highs against the a basket of currencies and struck a 4-year high against the yen on Friday.

Global equity markets and US equities gained upward momentum and looked to close strong for the week. The benchmark S&P 500 rose from its worst decline in three weeks on strong consumer sentiment and a rally on European shares. Europe noted surprisingly strong data from automakers and in domestic sales.

However, the euro trembled under a release that the European Central Bank (ECB) was making overtures to its banking members. With the region mired in a deep recession, the ECB is considering turning the overnight deposit rate negative. This would mean that member banks would have to pay the central bank to access overnight reserves.

The euro dipped below the $1.28USD mark briefly touching $1.2795 before bumping above the threshold. At 1.2824, the euro was down 0.4 percent for the day.

Meanwhile the dollar touched its highest rate against the yen since the Lehman Brothers collapse in 2008. The dollar climbed to 103.09 yen before steeping back to 102.95, up 0.7 percent overnight.

Gold endured another day of sharp declines while Brent oil rose 78 cents settling at $103.56 a barrel. US crude jumped 68 cents to $95.94. The consumer confidence index surprised analysts and is spurred by a more optimistic view of personal finances. Declining gas prices and stable inflation rates are allowing US consumers to spend more, a critical driver for GDP growth.

The Federal Reserve Debate

The Federal Reserve has stated that it will continue its aggressive buying policy until the unemployment rate hits 6.5 percent, one percent lower than it is currently. Additionally, despite all the easing to date, has not led to significant inflation rises.

It is expected that the sequester, which has taken a back seat to the recent fabricated crises, will dampen job growth, the administration’s prime concern. These factors point to a continued easing policy.

In terms of the Fed’s stimulus program, only voting member have input. The voting members are Board members. Regional Presidents rotate onto the Board but play a minor role in terms of policy.

On Friday, Richard Fisher, the President of the Dallas Federal Reserve Bank, told the National Association of Realtors that; “We can rightly declare victory on the housing front and (reduce) our purchases, with the aim of eliminating them entirely as the year wears on. I believe the efficacy of continued purchases is questionable.”

Fisher’s comments set off a firestorm of activity that took equities slightly lower. As a non-voting member, Fisher’s hawkish comments will have little bearing on policy. That is not to say that his views have not been echoed by other non-voting member.

Philadelphia Fed Reserve Bank President, Charles Plosser, and Richmond’s President, Jeffrey Lacker, have also been outspoken in calling for reduced purchases and the elimination of the buying policy.

However, Sarah Bloom Raskin, a Federal Reserve Governor and voting member stated her position which coincides with the popular position of the Board; “The U.S. economy has continued to recover from the effects of the financial crisis and deep recession, though at a pace that has been disappointingly slow. The recovery does appear to have picked up steam in some sectors, most notably in housing … However, federal fiscal policy remains an important source of restraint.” Raskin was speaking to the National Economics Club.

The inability of Congress to take decisive action and put forth a responsible, balanced approach to deeper deficit reduction is also paralyzing the Fed. If Congress could put a plan in place that included new jobs programs, the Fed could exit much more quickly.

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US and Euro Unemployment Hit Markets Hard


The one-two punch of dismal euro zone unemployment figures released on Thursday followed by a disappointing US non-farm payroll report on Friday sent global equity markets, commodity markets and the euro into a downward spiral with momentum. Combining the slow job growth with equally disappointing manufacturing data pressured markets as the UK and China announced another round of quantitative easing.

Only 80 thousand jobs were created in June and May’s new jobs were trimmed to 77,000. While it is not believed that the Federal Reserve will acquiesce to a 3rd round of quantitative easing, there exists more than enough data to prove the economy is at a standstill.  At the root of the slowdown, is the debt crisis in the euro zone where there are no significant initiatives to stabilize the region.

After Friday’s Labor Department non-farm payroll report, the Dow Jones, Nasdaq and the S&P all lost ground.  The DJIA shed 124.2 points or 0.96 percent settling At 12, 772.47. Nasdaq lost 38.79 (1.30 percent) to 2,937.33. The S&P fell 0.94 percent to 1,354.68.

As the payroll report rippled through Europe, equities turned sharply down. The FTSEurofirst 300 index fell 1 percent to 1,033.77 in the worst day of trading in two weeks. The ripple effect sent Spain’s borrowing costs above the unsustainable 7 percent level. US 10-year treasuries rose to 1.541 percent, the lowest rate since early June. The two-year German bond settled in the negative for the first time in the country’s history.

Commodity markets also turned down as the need for raw materials slowed. Oil prices dipped 3 percent as copper fell 2 percent and gold dipped 1 percent.

Following the ECB’s lowering of interest rates on Thursday, the euro slumped to $1.2296 USD, a two-year low.

Despite the overall weakness in job growth, there were some positives in the payroll report.

  • Temporary jobs increased more than in the previous three months.
  •  Average hourly wages increases six cents.
  •  Number of hours worked rose to its highest level since November 2008.
  •  Household labor increased to its highest level in 2012.

Upon a close look, the payroll report showed a consistent trend. Private employers added 84,000 jobs but the public sector lost 4,000 jobs. The public sector is trimming budgets and jobs. As the attached chart reflects, since January 2010 government has shed 536,000 jobs. During that time, the private sector has created 4.3 million jobs. In most cases, private sector jobs do not provide the benefits that the private sector offers. In the tiresome political theater that is holding the economy and entrepreneurs hostage, the federal government has shrunk by 612,000 persons since President Obama took office. That shakes out to be a savings of $30 billion per year.

The Obama administration has proposed much-needed infrastructure sending to boost employment. This would raise private sector employment.  However, if the public sector slows job trimming, government will no longer negate the payroll report.

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Equities To Open With Gains


As the world awaits a release from ECB head Mario Draghi’s early morning press conference, US equities and most global equity markets are on the rise. Amidst all the gloom and doom from the euro zone, equity markets seem to be betting on a last minute rescue from the US, a move thought to be inconceivable 30 days ago.  Once again the fragile political atmosphere across Europe and in established economies must grapple with that ominous theory called fiscal responsibility. The inability to manage debt in the face of adversity has rocked the political composition of the euro zone, the European Union and quite possibly the USA.

Draghi is expected to announce a lowering of ECB interest rates effective in July. Of greater importance is the possibility that Draghi will put forth a sweeping plan to solidify the region’s banks. Based on a release by Moody’s, six German mega-banks and three Austrian banks are set for a downgrade not based on Germany’s or Austria’s economic performance but rather due to their exposure to the chaos in the euro zone and European Union.

In the midst of this is the condition of Spain’s banking system, which must undergo a strenuous audit to qualify for billions of euros needed by the country’s banks to stabilize the marketplace.  There are also logistical questions about how the euro zone can assist Spain.  The best bet is that the European Stability Mechanism (ESM), that is empowered to help in this precise situation, will   intervene and bolster Spanish banks. The question is whether Spain can forestall a run before the ESM goes active in July.

According to CNBC, the possibility of the US intervening is possible. In the current political environment, this seems an unlikely possibility.

The European theater was hopeful that this week’s G7 meeting would bring a workable plan to the table.  Instead, the G7 session ended in uncommon quiet. The focus immediately shifted to Spain, Germany, the EU and the ECB, which is where this crisis should be solved.

The immediate problem is that Spain has retained consultants for one series of new audits to be concluded in June.  This audit will be based upon findings by the European Banking Authority which were reported last year.  The more reliable audit will be performed by Big Four accounting firms and not completed until late August, early September.  In a surprising development, the euro zone has said they are willing to act upon the earlier audit.

On  Monday, the chairman of Spain’s largest bank, Santander, estimated that 40 billion euros would be needed to stabilize the country’s banks.  Bankia, another large bank, has already requested emergency operating capital of 19 billion euros. The government has indicated that the country’s banking crisis is not systemic, but the span of then housing crisis is deep and wide.

To amplify the plight of the banking dilemma, Treasury Minister, Cristobal Montoro called for Europe to use whatever mechanisms are available to boost capital reserves. This is a new position. As the government has maintained it could handle the country’s banking shortages.  Portugal, Ireland and Greece have all received bailout funding, but Spain has insisted it does not need or want international funding.

Plaguing the euro zone is weighted economic data suggesting things will e worse long before the get better. In May, the combined euro zone economy fell by its largest margin in three years. Countries favoring growth blame austerity for the shrinking GDP. Countries favoring austerity blame the slowdown on expansive sovereign debt.

Apparently, there is sentiment that the US should make a substantial deposit to the IMF so that a depression in Europe could be averted.  Such an action would most likely be viewed narrowly by the US electorate. The US is having some export success to emerging powers, including Vietnam, Indonesia and South Africa. Somehow, the euro gained against the dollar overnight. This can only be explained as an optimistic view of what Chairman Draghi might say today.  There seems no economic basis for a rise in the euro.

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Jobs Report Hits Hard


Markets were caught off guard today when the US Labor Department posted its latest non-farm payroll report. The private sector added 69,000 jobs in May. Adjustments to March and April reports lowered job creation by 49.000 jobs. Unemployment rose to 8.2 percent from 8.1 in April.  The release triggered a steep sell-off in equity markets as the DOW fell more than 200 points by midday.  The S&P index fell 1.5 percent in the first half hour of trading.

Analysts had expected jobs to increase by 150,000 and maintain the 8.1 percent unemployment rate. With the crisis in the euro zone worsening by the day and with China experiencing a deeper than expected slowdown, global equity markets were volatile. The fact is that global economies are now under pressure.  The deeply rooted toxins of the euro zone crisis have worked their way around the world.

The data is disappointing but it would be unrealistic to believe that the world is not affected by the volatility in the euro zone. In a world dominated by supply and demand, the demand is extremely low so supply is pared and jobs fall by the wayside.

In May, China’s manufacturing rose slightly, missing projections. In the UK, output spiraled downward at the fastest pace in three years. Manufacturing fell slightly in France and Germany.  No matter how the cake is sliced, it is not a pretty picture.

In Washington, the President expressed concern.  Republicans tried to score points, but have no solutions. Obama has learned what Harry Truman meant when he said “If you can’t stand the heat, get out of the kitchen.” Mitt Romney hit the airwaves but nobody has an idea about what his jobs program would look like.  If the euro zone has taught us anything, it is that austerity will not solve the problem.  What the US needs is a combination of fiscal responsible solutions to income, including tax reform, expenses, including mandated programs and growth.

The Federal Reserve will meet on June 19 and June 20. The disappointing jobs report paves the way for another round of quantitative easing.  The performance of equity markets has caused the Fed to tread softly. It seems like QE3 is around the corner. The question is how will this money be spent.

Where it should be spent is creating American jobs. The US needs infrastructure programs that will bring the nation into the 21st century. The American people and especially the military need work.  The US is going to suffer lack of demand until the euro zone and China are on a level plain. QE3 should be all about jobs and nothing else.

The chances of that happening are slim.  First, it is an election year.  Secondly, the disposition of Congress is counter-productive.  Frankly, the best thing that could happen in this election year is for the voters to create a clean slate by voting every member of Congress out and replacing them with members that would cross party lines to act on behalf of the middle class.

Romney is quick to criticize Obama, but should he not also be criticizing Congress?  During all the Republican debates, not one candidate offered a defined program for job growth.  How many times can we bear to hear Democrats and Republicans present summaries of obvious facts.

  • We should increase exports.
  • We should increase jobs.
  • We should pare the government work force.
  • We should remove regulatory oversight.
  • We need to solve the real estate crisis.
  • We need to eliminate Obamacare.
  • We need to reduce taxes to unsustainable levels.
  • We need energy solutions.

Enough! Do not state the obvious. Politicians need to explain to the populace precisely what actions will be taken to remedy these issues.  No matter who is the President, the biggest challenge that remains is how to transform Congress into a functional body from a third-world body of government to a functional body that represents the masses not the special interests.  No matter your politics, the USA needs solutions and the political will cross party lines to solve problems. Let’s be clear. The President is a figurehead.  No President can succeed without a gridlock-free Congress.

 

 

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Look Back To See The Future


An announced merger between two of Greece’s largest banks was greeted with enthusiasm across global equity markets.  In the U.S. the S&P 500 jumped 2 percent.  Last Friday, Fed Chairman Ben Bernanke delivered a straightforward statement that pressures the private sector and government to come together on job development initiatives.

However, soon the Republican members of the House and their Democratic counterparts will return from an undeserved vacation.  The political posturing and spin has already begun and it does not sound good for the taxpayer, who is far down on the political food chain.

President Obama is due to release his initiative for a comprehensive jobs bill that will assist the recovery and lower the unemployment rate.  Anything the president suggests will be met with stubborn resistance and the same quagmire that caused the reduction of the country’s credit rating will rise to the fore.

Brave Congressman went home to town hall meetings that were filled with angry and frustrated taxpayers and voters.  One of the more memorable confrontations occurred when a member of the audience questioned his Republican Congressman asking, “Are there any other agreements like the Norquist agreement that your have endorsed on our behalf?” The questioner should have added “and without our permission.” 

It was a telling question to a Republican House that has not provided any jobs plan and is now threatening to deny millions of Americans extended unemployment benefits.  As Eric Cantor expressed, “these people don’t want unemployment, they want jobs.”  That is true, but his willingness to do develop a jobs program is non-existent.  As the Leader of the House admits, he is more interested in denying Obama a second term than he is about providing jobs to a needy economy.

The tone of the Congressional hearings about the increase of the debt ceiling has tarnished America’s image and our standing in the world.  Boehner and Cantor are two big reasons for the collapse of the dollar and for the disastrous credit rating fiasco.  Unfortunately, these ideologists will be back representing their unscrupulous party.  The most recent MSNBC and NY Times survey released today shows that Congress has a 12 percent approval rating; just what we need in our darkest hour.

It is not in the composition of this Congress to do anything more than blatantly display and spread their dysfunctional nature.

After Bernanke’s most recent address, the dollar continued its trend southward.  As expected, Bernanke said that a stimulus program (QE3) was not merited at this time.  The topic has been a source of disagreement between Federal Reserve Board members.

Last week the Swizz franc had the largest drop of any currency compared to the euro.  Is that possible?  The Swiss franc has been a standard of safety for more than a year and prior to Monday’s news, the euro appears on life support, which includes a ban on short sales. 

The dollar fell for a second straight week against the 17-nation euro.  In fact, the dollar fell against 10 of its 16 major counterparts, dropping 0.7 percent against the euro.  New Zealand’s currency rates jumped 1.7 percent against the dollar, while the Canadian currency jumped 0.9 percent for its first increase in five weeks against the USD. 

Remarkably, the euro has appreciated by 0.6 percent over the past three months.  While the euro zone is far from resolving the PIIGS crisis, at least there appears a spirit of cooperation.  That spirit may cost German Chancellor Angela Merkel her job but she has shown courage in hard times; courage that Republicans need to muster.

The dollar’s fall is attributed to slower than expected growth.  How any growth could be realized under the current Tea Party controlled Congress is a serious dilemma. 

Franklin Delano Roosevelt once said, “The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something. The millions who are in want will not stand by silently forever while the things to satisfy their needs are within easy reach.”

The United States needs to learn from FDR’s statement.  It is now time to make your voice heard.  Call your Congressman and raise a protest and demand straight answers.  If those answers are not sufficient, we shall soon be storming the streets as our counrtuy collapses around us. 

It is comnfortiung to know that lobbyists are already courting the group of 12 that is mandated to trim $1.7 trillion in spending cuts.  Frankly, if the lobbysists left town for a couple months, we might get something done in Washington.

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Gang Of Six To The Rescue?


The cloud covering Washington and the beleaguered House of Representatives received an unexpected ray of sunshine from the bipartisan committee known as the “Group of Six.”  The ambitious deficit reduction plan provides for $3.75 trillion in spending cuts and $1.2 trillion in increased revenue.

Senators Mitch McConnell and Harry Reid have been developing a fallback plan in the event no other plans are accepted and enacted prior to the August 2nd deadline.  A House plan to tackle the budget will be voted on tomorrow, but there is little hope the bill can pass the Senate or avoid the Presidential veto.

President Obama embraced the Gang of Six plan and encouraged the Senate to get an acceptable plan together as soon as possible.  The President was clearly pleased with the balanced approach the 3 Republicans and 3 Democrats crafted.  In the House Republican Speaker John Boehner was careful with his words but fell short of endorsing the proposal.

The McConnell fallback plan and the Gang of Six plan must be seen as a blow to the Tea Party members who are raising havoc in the House.  Boehner is fighting off attempts by Eric Cantor of the Tea Party to hold onto his role.  The Gang of Six and the rest of the country doubt any reasonable legislation can come from the House.

The 100 member Senate was briefed Tuesday and responded well to the plan which has elements of compromise for both sides.  In particular, the plan includes plans to reduce faulty practices in Medicare and Medicaid and will modify components of Social Security.

Democrats will need to fall in line with these “entitlement changes” and Republicans will have to accept revenue increases.  Both sides will need to accept the debt ceiling increase.

The Gang of Six proposal was well received on global equity markets.  The Dow Jones appeared to like the newfound spirit of cooperation in the Senate and ignore the disruptive House.  The Dow Jones recorded its best day since March.  The scope of the plan leads to enthusiastic responses from everyone except Tea Party members who may be deemed child-like in their ability to achieve constructive legislation.

While the Republican Party struggles to find out “Who’s on First,” the more mature members of the Senate will merge with Democrats in support of these options or a combination thereof.  Even if the plan passes the Senate and is turned away at the House, Obama has a right to veto the House vote and would then only need one-third of the House members to support the proposal.

As the deadline date of August 2nd approaches, the plans may still face logistical problems but at least there appears light at the end of the tunnel.  The scope and depth of the Gang of Six plan is cause form optimism that there are still some officials in Washington that are listening to the taxpayers.

As expected, Tea Party activists immediately attacked the plan and Senator McConnell, who understands the risks of a default.  Progress is progress.

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Bernanke and China Cannot Lift Markets


On Wednesday, Ben Bernanke spoke to Congress as a report revealing strong export data from China was leaked.  A formal announcement about China’s economy will be released on Thursday.  Global equity markets liked what they heard.  Based on the two events, global markets jumped one percent in three hours.

However, by the end of the day, reality took over and the Dow Jones, which had gained nearly 130 points, closed the day down 40 points.  The S&P settled at 1055, down roughly 2 percent from mid morning highs.  Lately, dramatic late day sell offs are a way of life for investors.  The trend illustrates the overall lack of confidence in markets and the tenuous nature of media based rallies.

The inconsistent news from the euro zone and the devastating consequences of the BP oil spill in the Gulf Coast are just two of the factors keeping investors on edge. 

Behind the scenes, Wall Street reform legislation takes center stage today and European Central Bank President Jean-Claude Trichet is due to address the media.  The beleaguered President will be asked about the ECB’s new policy of purchasing government bonds

Overnight, the ECB announced that interest rates would remain at 1 percent.  The UK announced that interest rates would hold at ½ percent.  France has now joined Germany in calling for a ban on naked short selling as Spain replaces Greece as the country to watch.  Most experts believe restructuring of Greece is a foregone conclusion.

In a change of policy, the ECB had acquired 40.5 billion euros worth of bonds as of last Friday.  The media will certainly press for more information and ask how long the ECB will continue this policy designed to solidify the zone’s financial institutions and stabilize the euro.

Bernanke Sells the Recovery

Bernanke sounded more like a U.S. recovery salesperson than the Chairman of the Federal Reserve.  In his testimony before the House of Representatives Budget Committee, Bernanke stepped out of character to touch on a variety of pressing issues.  A quick summary of the Chairman’s points: 

  • The U.S. economic recovery was steady.
  • The possibility of a double dip recession was less likely than the possibility of a V shaped recovery.
  • Discounted the demand for gold as a flight to safety.
  • The euro was showing signs of stability.
  • The economy was requiring less government support than in the past.
  • The Wall Street reform was absolutely necessary.
  • Borrowing costs would remain near zero for a lengthy time period.
  • He identified the struggling housing market and commercial property market as two factors holding back a sharper recovery.
  • Unemployment would remain high until the real estate markets recovered.

 Some of Bernanke’s more interesting quotes were:

“If (euro zone) markets continue to stabilize, then the effects of the crises on economic growth in the United States seem likely to be modest.”

“We should be planning now on how to meet these looming budgetary challenges.”

“Although the support to economic growth from fiscal policy is likely to diminish in the coming year, the incoming data suggest that gains in private final demand will sustain the demand in economic recovery.” 

“A significant amount of time will be required to restore the nearly 8.5 million jobs that were lost over 2008 and 2009. In this environment, inflation is likely to remain subdued.”

Bernanke was firm that this is not the time to address the budget deficits because the economy was not out of the woods.  The Chairman made it clear that it was time for U.S. banks to take a hard line on pay packages.

China’s May export trade increased by 50 percent in year-over-year comparisons.  Predictions had been a 32 percent increase.  The export data signaled the continued growth of the world’s safest economy.  Combining China’s economic progress and the weaker dollar, oil prices turned upwards.

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