First, the unemployment report offered no surprises as the market was close to the actual release. The real surprise was in the upward revisions to the February and March numbers. The negative surprise was the average work week shrinking by 0.2% of an hour. The shorter work week may be an aberration but it may mean that employers are cutting workers hours so as to keep under the Affordable Care Act mandates, but I caution it is far too early to say that this is definitely occurring. The BOND markets reacted negatively to the “stronger” jobs data and the 10-year note future fell as yields rose by 10 basis points. Investors bought stocks and seemingly sold bonds in a performance of risk-on/risk-off. Again, one day’s action does not a trend make. The pure risk-on/risk-off paradigm has been dormant for quite a while and let’s hope it stays that way.
Posts Tagged ‘austerity’
It seems that the European debt markets are rallying in response to the end of ADVERSE FEEDBACK LOOPS. In a mind-numbing thought, it appears that the implementation of austerity budgets actually had the effect of increasing deficits as economies slowed as austerity began to bite. (The outcome of the adverse feedback.) The more austerity, the larger the deficit, which is compounding the debt problems of peripheral nations. Greece is the poster child of austerity gone awry. So as the threat of AUSTERITY diminishes, the more a nation’s bonds rally. The ITALIAN BTPs (10 years) saw its yields drop precipitously as a new government was formed over the weekend. But the rally in the BTP futures had begun well before the new government was actually crafted, as I noted last week. The BTP FUTURES had closed over the February 25 high–that was made before the failed election was a reality.
The fiscal crisis came and went and yet the Potemkin village remains. So much was made about the looming fiscal calamity and its dire consequences that the probabilities of a compromise were overwhelming. Not only did fiscal sanity fail to show, the final package was beyond my comprehension. As the nation’s focus was supposedly on Congress, these purveyors of fiscal rectitude passed a BILL that was laden with pork. NASCAR, Hollywood, alternative energy et. al. were the recipients of CONGRESSIONAL LARGESSE IN THE TIME OF FISCAL AUSTERITY. There is no shame in the payment of political favors even in the full view of the MIDDLE CLASS.
Yes, the U.S. Presidential election is finally here. After the POLITICAL-INFO COMPLEX has spent the $6 billion on various political campaigns, we are left wondering why anyone would contribute money to feed the monster and prolong our agony. I know the answer and the “road to political hell is not paved with good intentions.” There are so many polls predicting a very tight race that I care not for the popular predictions. As an investor/trader I am much more concerned about the outliers. First, the most significant result would be for the Democrats to retake the house. The 2010 Republicans claiming the majority in the House by such a wide margin was not predicted. If the Democrats were to undo 2010 it would mean a landslide victory for President Obama as well as the continued control of the Senate. The triple crown for the Democrats would be a negative for the markets as there would be no movement on the “fiscal cliff” as the Democratic leadership would be empowered with a mandate.
First, the equity markets continued this week’s rally as better data in the U.S. (housing) following upon the Monday retail sales report provided more fuel for the bulls and is causing great angst for portfolio managers that are underinvested and badly underperforming their benchmarks. These investment advisers must go to sleep and pray for the U.S. to bomb Iran so that they will have some type of opportunity to buy into the global equity rally. It’s tough to chase this one. As I wrote on Sunday, the IMF “volte face” on the impact of austerity budgets was a game changer as it will mean that austerity inspired programs, like the U.S. fiscal cliff, will force policymakers to be cautious in pushing for too much austerity in times of a balance sheet recession. The pushback from Spain, Italy and others is allowing the forces for unrestrained growth to gain ascendancy over the voices of austerity led by the Bundesbank.
The tale of the first quarter tape is in and evidenced by the large gains of the equity markets, global investors have benefited from the sea of liquidity provided by the CENTRAL BANKS OF THE DEVELOPED WORLD. Global stock markets have been calmed by the massive liquidity injections provided by the BOJ, ECB, FED and BOE.The German DAX closed the quarter up more than 15%. The long dormant NIKKEI was up almost 20% powered, by the new inflation mandate of the BOJ/MOF; and, of course, the S&Ps were up almost 12%, while the tech-ladened NASDAQ climbed more than 20%.
Yes, I know Athens is burning as some of the more violent demonstrators threw some Molotov cocktails and the media was given some photo ops so the situation can be understood by those too involved with life’s challenges to read. If that sounds acerbic it is because I have been writing about the Greek debt crisis since December of 2009 when the Chinese investment funds reneged on a promise to purchase $25 Billion of Greek bonds and the debt crisis was in full swing. Again, Athens may be the present battleground but the political and financial games are being played out in Paris and Berlin and of course in the offices of the IMF.
The release of the FOMC minutes today revealed that the FED plans to be more transparent as it will “publish forecasts of its own interest rates for years into the future.” Previous FED forecasts have proved to be very poor at predicting the path of the economy over the near term or yet for any longer period of time. On first read, this attempt at transparency ought to be labeled the VOLUME ENHANCEMENT FOR THE CME EURODOLLAR CURVE. FED prognostications will move the 3-5 year part of the curve all over the place and be very productive at increasing futures and options volume.
Yes, all the news about Prime Minister Berlusconi is pure puff and nonsense. The Italian economic situation will not change one iota when Silvio steps aside and, in fact, I would argue that the situation will become more volatile. Italy has seen so many governments come and go since the end of WORLD WAR II that it must be the role model for Japan. Mr. Berlusconi may be a scoundrel but the markets and the Italians know what they have and it seems that Berlusconi the known is better than what may come next. If the present government falls there is a possibility that a more leftist coalition will be formed and it is doubtful if it would be prone to pass an AUSTERITY plan.
Notes From Underground: Canada Casts Aside the Liberal Party as Ignatieff Rolled the Dice and Crapped OutMay 3, 2011
The election that never should have happened is in the books and the result proved that personal arrogance masquerading as public policy is a poison unless you live in a totalitarian dictatorship. Michael Ignatieff pursued a no-confidence in the hope of achieving his desire to become prime minister of Canada. His roll of the dice has cost the long esteemed LIBERAL PARTY its position in parliament and brought to the fore a more left-oriented NDP.