So True
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Egan-Jones Downgrades Spain
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Hoover-esque. Spain's has unemployment near 25% and yet the govt is proposing tax increases and a raiding of social security funds in an effort to rein-in its budget deficit. (The deficit was 4.77% for the first 8 months.) The rub is whether Spain will be able to cut enough to obtain EU support (probably) and whether there will be an eventual haircut for current debtholders (probably). Catalonia, Valencia and other regions will probably need $20B of aid, the sen. debtholders of the weak banks will be forced to take losses, and there might be some sharing of losses among all banks. An estimated decline in GDP of 1.7% (per the Economy Ministry), the IIF's recent estimate of addl bank loan losses up to EUR260B, and depositor flight hurt. From 2008 to 2011, Spain's debt jumped from EUR436B to EUR735B while its GDP declined from EUR1.09T to EUR1.07T.
Social benefits are a prob; while pmts to the govt have been more or less flat over the past four years (up EUR 3B), payments from the govt. have been up EUR 45B. As a result, Spain is short about EUR50B per year for social payments, EUR20B per year for interest, and an addl EUR 20B for asset growth; hence the EUR90B per annum increase in debt. Spain will inevitably be faced with addl pmts to support a portion its banking sector and for its weaker provinces. Assets of Spain's largest two banks exceed its GDP. We are downgrading our rating to "CC".
Chart that will surprise you
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In my last two comments I have been negative on stocks due to China's weakness and the stock market's performance being completely out of sync with economic expectations (as per German IFO expectations). I am still negative, as I believe stocks need to correct before the long-term upward trend can continue.
However, just like two negatives miss one positive, I will give you two charts that will surprise a few and at the same time confirm why Jim Chanos might be right when he says that the US economy is coming to an end of the deleveraging cycle.
The first chart shows the estimated total employment in the US private sector and the year-over-year growth. What this chart tells us is that private sector job growth in the US has been on an almost continuously accelerating growth path (year-over-year) since late 2009. In fact, the current expansion of two percent is on par with the fastest expansion observed during the previous boom back in early 2005. However this could hardly be deduced by looking at mainstream media headlines. So what is actually dragging the job picture down and allegedly forcing the Federal Reserve to continue quantitative easing (QE) for as long as it is required and conditional on its dual mandate of jobs and price stability?
The second chart explains why very well. It shows 12-month rolling employment in the US government. Since early 2010 the year-over-year growth rate has been negative and dragging on total employment change. The US government is running a large deficit and austerity is being implemented across the board (federal, states and local communities), contrary to what is happening here in Europe. Again the US is ahead of the curve.
If the US government's layoffs gradually stop and year-over-year growth rises to barely unchanged levels, in addition to private sector employment growth being around two percent, then the US conomy will add around net 200K new jobs a month and that will push the unemployment rate down fast.
Unless we see any major disruptions from the fiscal side or the global economy (predominantly China) and the Eurozone, then the US economy could be closer to a tipping point in terms of the total employment situation than most believe.
Trading in a difficult market …
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Dear Trader,
The past two months in the US stock market prior to the recent explosion, have been perhaps
the most difficult trading environment since 2008. The market kept inching higher, but in an
extremely narrow manner. Many stocks kept hitting air pockets, but their downtrends did not
persist, challenging both trend traders and counter-trend traders.
To verify this personal impression of a difficult market with hard numbers, I looked at
performance figures of SpikeTrade.com. At the top of this worldwide group of traders are 18
Spikers –pro and semi-pro traders. They compete weekly for the best picks, and at the end of a
quarter winners receive diplomas and bonuses.
At the end of March of this year the gold winner was up 29% and the 18-person Spiker group as
a whole was up 3.76% for the quarter. In the second quarter, the gold winner was up 62% and
the Spiker group as a whole up 4.42%. Now, as we approach the end of the 3rd
quarter, the leading Spiker is up 19%, while the group as a whole is down .5%.
There are two weeks left in this quarter, and these numbers may well change, but the message is clear: this is a very difficult quarter even for the best traders.
A natural human tendency of someone experiencing a drawdown is to trade more actively, trying to dig one’s way out of a hole – but this is not the right way! When the market is hard, when you find yourself in a drawdown, the intelligent approach is to slow down, take fewer trades, put on smaller positions, and dedicate more time to your trading education. Markets keep cycling through trends, reversals, and trading ranges. A better environment will emerge as surely as they day follows night. Read some books, study the market daily, and you’ll see when a new tradable environment invites you to jump in.
Elder.com
Market looks strong
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New High New Low Index (Leading Indicator)
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Weekly Chart now clsed above 2500 level. This confirm the bullish trend!
GAMECHANGER
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To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Fed just changed the game.
Whereas in the past, the Fed always set a defined amount of Fed purchases, this time they're saying that the easing will continue until morale improves.
This is a major change.
Read more: http://www.businessinsider.com/why-this-fed-decision-is-a-huge-change-from-every-decision-the-fed-has-made-in-the-past-2012-9#ixzz26NAohPfqJust saw this on Igmarkets..
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Looks ugly if there is no QE tonight.
Market says QE3 horse not dead yet!
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What a recovery! 
Bearish divergence
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