The ECB is planning to end its LTRO program. The LTRO program is a loan program that enables European banks to borrow money for three years at a cost of 1%. The program essentially was the silver bullet that eased European bond market anxiety in late 2011, because it brought the yield on Italian 10 year bond from 7.5% down to 5.5%. As many of you know, the risk of the Euro collapsing last year was high without some intervention by our FED and the ECB. The FED lent our dollars to the Europeans and the ECB lent more cheap money to European banks and the combined effort took the risk off the table. Since they are ending one of the programs, the risk of the Euro breaking down and heading to par with the U.S. dollar is back on. The short run impact is greater volatitlity and less uncertainty for the U.S. stock market. Toward the end of 2011 the European debt crisis was the leader for the US stock market and this model will return shortly.
http://www.cnbc.com/id/46477139/
Saturday, February 25, 2012
Thursday, February 9, 2012
Deja vu? Is this 2010 all over again?
The economy looks similar to the end of 2009 and the beginning of 2010. During the end of 2009 and the beginning of 2010, inventory growth led the recovery. The same pattern may be developing in 2012. If this is the case then the first several months of the year will be strong for the stock market, but then may slow toward the middle of the year.
Sunday, January 29, 2012
Morningstar's- Bob Johnson on Employment Numbers for Jan and Feb
Employment Growth Could Look a Lot Slower in January
The employment numbers will be particularly hard to interpret as unusually heavy retail hiring (to support longer store hours) and large jump in the number of package delivery people boosted December results. So if the normal trend line is for 160,000 or so new jobs, I suspect that December's number of 200,000 was inflated by 40,000 or so, and that January should be the same 40,000 below trend, or about 120,000 jobs. That 120,000 number also happens to be the consensus estimate. Then, all things equal, February should look closer to the 160,000 trend-line number. Besides retail and couriers, my guess is finance also will look weaker, as will industries that depend on snow and cold weather, but manufacturing and construction will look a little better.
Job growth of 120,000 is still consistent with year-over-year employment growth of 1.77%, slightly ahead of December's 1.75% rate. In fact, job growth could come in well under 100,000 and still improve on December's rate. So don't let those headlines trumpeting, "Job Growth Almost Cut in Half," scare you.
The employment numbers will be particularly hard to interpret as unusually heavy retail hiring (to support longer store hours) and large jump in the number of package delivery people boosted December results. So if the normal trend line is for 160,000 or so new jobs, I suspect that December's number of 200,000 was inflated by 40,000 or so, and that January should be the same 40,000 below trend, or about 120,000 jobs. That 120,000 number also happens to be the consensus estimate. Then, all things equal, February should look closer to the 160,000 trend-line number. Besides retail and couriers, my guess is finance also will look weaker, as will industries that depend on snow and cold weather, but manufacturing and construction will look a little better.
Job growth of 120,000 is still consistent with year-over-year employment growth of 1.77%, slightly ahead of December's 1.75% rate. In fact, job growth could come in well under 100,000 and still improve on December's rate. So don't let those headlines trumpeting, "Job Growth Almost Cut in Half," scare you.
Wednesday, January 25, 2012
Isn't this just putting lip stick on the PIIGS?
In late 2011, the U.S. agreed to lend dollars for euros , and the ECB agreed to lend money to troubled European banks . The positive outcome was the stabilization of the Spanish and Italian bonds. The world has collectively exhaled from the event and is breathing normally again. Before that moment the Italian and Spanish bonds were escalating to epic rates that could have led to a series of defaulting European banks and then who knows what would have happened next?
With the stabilization of the European sovereign debt, the U.S. stock market has turned from red to green. The VIX is down and the positive growth indices are up such as the Dow, S&P, and GLD. Everything looks pretty rosy now, but has anything really changed? Haven’t we just put lip stick on this pig?
The PIIGS are still structurally a mess, and only through recent monetary policy, bureaucrats have been able to successfully calm the markets. The ECB said they were not going to bail out the PIIGS, but doesn’t their most recent policy do so indirectly?
If it looks like a duck and quacks like a duck isn’t it a duck? The ECB is not directly lending money to the PIIGS, but the ECB is lending money to European banks at 1% interest for three years. And in only one month, the Euro banks have borrowed close to 500 billion dollars, which happens to be the size of the Greek debt . Eventually, the European banks will use that money to buy up the PIIGS sovereign debt. This is the short run solution to the PIIGS and Euro crisis. The problem of GDP growth and the lack of incentives to work haven’t changed, but the lip stick sure looks good.
With the stabilization of the European sovereign debt, the U.S. stock market has turned from red to green. The VIX is down and the positive growth indices are up such as the Dow, S&P, and GLD. Everything looks pretty rosy now, but has anything really changed? Haven’t we just put lip stick on this pig?
The PIIGS are still structurally a mess, and only through recent monetary policy, bureaucrats have been able to successfully calm the markets. The ECB said they were not going to bail out the PIIGS, but doesn’t their most recent policy do so indirectly?
If it looks like a duck and quacks like a duck isn’t it a duck? The ECB is not directly lending money to the PIIGS, but the ECB is lending money to European banks at 1% interest for three years. And in only one month, the Euro banks have borrowed close to 500 billion dollars, which happens to be the size of the Greek debt . Eventually, the European banks will use that money to buy up the PIIGS sovereign debt. This is the short run solution to the PIIGS and Euro crisis. The problem of GDP growth and the lack of incentives to work haven’t changed, but the lip stick sure looks good.
Tuesday, December 20, 2011
Curb your enthusiasm
Dec. 20th, 2011
The markets were up sharply today, 3%, on little news.
Typically before a holiday traders close their trading books and hit the slopes. The result is less volume which can exacerbate minor moves. Short covering may have also been a culprit for the strong rally. Short covering occurs when shorts need to reverse their trades and thus go long. When the market started moving north, the shorts began losing money and ultimately they had to close their positions by going long and thus cover their shorts.
The markets were up sharply today, 3%, on little news.
Typically before a holiday traders close their trading books and hit the slopes. The result is less volume which can exacerbate minor moves. Short covering may have also been a culprit for the strong rally. Short covering occurs when shorts need to reverse their trades and thus go long. When the market started moving north, the shorts began losing money and ultimately they had to close their positions by going long and thus cover their shorts.
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