The indices were flat to down, breadth was negative, and the dollar was stronger, but we still had some very strong pockets of momentum. Gold and silver ignored the strength in the dollar for some reason and were hitting new highs. We also had strength in uranium, coal and a number of other commodity-related names.
The hot money was also chasing a number of small-cap China names like NEWN, SOHU, JOBS, SPRD, etc. Quite a few of these China names are reporting in the next two weeks, and many of them do not have published earnings dates, so be careful if you are playing them. Some of the names are exceptional values, but there is a lot of risk due to poor corporate governance in China, so many of the stocks have substantial discounts.
These very stubborn pockets of strong momentum tell us that market players have been doing well chasing stocks, and they don't want to stop. They are looking hard for new opportunities, and in some cases, they become self-fulfilling prophecies.
This rally has been running for some time now, and plenty of stocks are extended, so it is very tempting to look for a top in the indices. The problem for the bears is that the buyers are staying extremely stubborn. Dip-buying hasn't failed in quite some time, so why should they suddenly give up on it? The bulls need to be burned a few times to temper their enthusiasm, and then the bears will finally be able to make some progress, but so far we haven't even had a single bad day of action.
You can either anticipate weakness or you can wait for it and then react to it. Too many folks have been anticipating, and they are sitting on the sidelines and providing underlying support. Wait for some actual weakness to occur before you become too negative, or you will risk missing out on some good trading.
Monday, November 8, 2010
Friday, November 5, 2010
Doug Kass is one intelligent market dude; here's his last entry for today: (I have sympathy for him, by the way...)
I will spend the weekend analyzing where I have gone wrong and what my strategy should be over the balance of the year.
It is clear that my guidance and directional views have been diametrically opposed to reality of late.
I am signing off early today, and I will spend the weekend mulling over where I have gone wrong in my analysis, what the future might hold and what my tactical strategy should be over the balance of the year.
Thanks for reading The Edge, and enjoy your weekend.
The Long Tail of the Election
Keith Olbermann has been suspended indefinitely from MSNBC for contributing to three Democratic campaigns (against company rules).
Long Bonds Taking More Heat
The stronger-than-expected jobs report and the absence of the Fed buying that maturity are the catalysts.
The long end of the bond market is getting hit further from the stronger-than-expected jobs report coupled with the absence of Fed buying at that maturity.
It looks like Thursday redux, with gold again leading the parade.
How much lower can mortgage rates go?
I am hearing plenty about people reducing five-year ARMs from 4.5% to 3.5%, for exmaple.
The spreads in Spain, Portugal, Greece and Ireland are all widening as funding issues are at the forefront of discussions in Europe.
Fed Chairman Ben Bernanke believes that higher stock prices should improve personal consumption expenditures.
Unfortunately for Ben, the math fails to support his belief.
"Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending."
-- Fed Chairman Ben Bernanke, Washington Post op-ed
In Chairman Bernanke's Washington Post op-ed piece on Wednesday, he cited that easy money will promote economic growth by:
1. lowering mortgage rates, making housing more affordable and allowing homeowners to refinance; and
2. reducing corporate bond rates, which will likely encourage investment.
To begin with, it remains unclear to me whether QE2 will generate much lower mortgage and corporate bond rates from here. But for this exercise, let's dive into the Chairman's statement that higher stocks might improve personal consumption expenditures.
Miller Tabak's Dan Greenhaus wrote yesterday that he is "sympathetic to his (Bernanke's) view ... but the math is less cooperative."
I agree.
According to the Federal Reserve Bank of Atlanta and other research reports, consumers have historically spent 3 to 4 cents out of every additional dollar of stock market wealth.
Currently, households own nearly $11 trillion in equities, ETFs and mutual funds (again, a hat tip to Dan).
Let's assume that the Fed's move has been responsible for a 10% rise in stock prices, serving to increase the aggregate value of equities by $1.1 trillion. Applying the historic stock market wealth multiplier mentioned in numerous research pieces on the subject would only translate to a modest $40 billion rise (or thereabouts) in personal consumption expenditures in a U.S. economy with a GDP that exceeds $14.0 trillion.
If indeed it follows that the real impact of rising stock prices on personal consumption is trivial, where's the beef, Ben?
I will spend the weekend analyzing where I have gone wrong and what my strategy should be over the balance of the year.
It is clear that my guidance and directional views have been diametrically opposed to reality of late.
I am signing off early today, and I will spend the weekend mulling over where I have gone wrong in my analysis, what the future might hold and what my tactical strategy should be over the balance of the year.
Thanks for reading The Edge, and enjoy your weekend.
The Long Tail of the Election
Keith Olbermann has been suspended indefinitely from MSNBC for contributing to three Democratic campaigns (against company rules).
Long Bonds Taking More Heat
The stronger-than-expected jobs report and the absence of the Fed buying that maturity are the catalysts.
The long end of the bond market is getting hit further from the stronger-than-expected jobs report coupled with the absence of Fed buying at that maturity.
It looks like Thursday redux, with gold again leading the parade.
How much lower can mortgage rates go?
I am hearing plenty about people reducing five-year ARMs from 4.5% to 3.5%, for exmaple.
The spreads in Spain, Portugal, Greece and Ireland are all widening as funding issues are at the forefront of discussions in Europe.
Fed Chairman Ben Bernanke believes that higher stock prices should improve personal consumption expenditures.
Unfortunately for Ben, the math fails to support his belief.
"Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending."
-- Fed Chairman Ben Bernanke, Washington Post op-ed
In Chairman Bernanke's Washington Post op-ed piece on Wednesday, he cited that easy money will promote economic growth by:
1. lowering mortgage rates, making housing more affordable and allowing homeowners to refinance; and
2. reducing corporate bond rates, which will likely encourage investment.
To begin with, it remains unclear to me whether QE2 will generate much lower mortgage and corporate bond rates from here. But for this exercise, let's dive into the Chairman's statement that higher stocks might improve personal consumption expenditures.
Miller Tabak's Dan Greenhaus wrote yesterday that he is "sympathetic to his (Bernanke's) view ... but the math is less cooperative."
I agree.
According to the Federal Reserve Bank of Atlanta and other research reports, consumers have historically spent 3 to 4 cents out of every additional dollar of stock market wealth.
Currently, households own nearly $11 trillion in equities, ETFs and mutual funds (again, a hat tip to Dan).
Let's assume that the Fed's move has been responsible for a 10% rise in stock prices, serving to increase the aggregate value of equities by $1.1 trillion. Applying the historic stock market wealth multiplier mentioned in numerous research pieces on the subject would only translate to a modest $40 billion rise (or thereabouts) in personal consumption expenditures in a U.S. economy with a GDP that exceeds $14.0 trillion.
If indeed it follows that the real impact of rising stock prices on personal consumption is trivial, where's the beef, Ben?
Upcoming Catalysts? All Out? POMO Monday?
It seems rather fitting that we capped off this week with an upside spike in the last 30 minutes of trading. The action was looking a bit thin and lackadaisical, but someone decided to run one less buy program before the weekend.
It was a big win for the bulls this week, with the much-anticipated election returns, the QE2 announcement and October jobs report bringing in even more buyers. The bears were ready for a sell-the-news reaction but it was just a bit too obvious. The bears just added to the upside momentum as they were squeezed, and the dip-buyers, who never had a chance to do their thing, helped to propel us higher as well as they chased rather than be left behind.
Can we keep it going? The good news is out, earnings are over, and we don't have anything really big on the agenda in the near term. Seasonality is favoring the bulls now, but we are technically extended and really need some rest. Some sort of pullback would not be surprising or even unwelcome, but just don't expect the market to suddenly collapse. Even if we are near a top, it will take a while for it to develop.
It was a big win for the bulls this week, with the much-anticipated election returns, the QE2 announcement and October jobs report bringing in even more buyers. The bears were ready for a sell-the-news reaction but it was just a bit too obvious. The bears just added to the upside momentum as they were squeezed, and the dip-buyers, who never had a chance to do their thing, helped to propel us higher as well as they chased rather than be left behind.
Can we keep it going? The good news is out, earnings are over, and we don't have anything really big on the agenda in the near term. Seasonality is favoring the bulls now, but we are technically extended and really need some rest. Some sort of pullback would not be surprising or even unwelcome, but just don't expect the market to suddenly collapse. Even if we are near a top, it will take a while for it to develop.
What About The Banks Now?
Can the banks be fooling us again? Or is this the breakout that can make these companies leaders? Much has happened this week, so let's detail it:
1. The yield curve has been changed by the Fed, and that makes the banks more willing to lend, because they make more money on the net interest margin, which has been awful. That's a typical way to value banks, and the bank buyers are heartened. With a better yield curve, the banks will be willing to lend more and lose more. It changes the risk/reward.
2. Although widely expected, the Federal Reserve's decision to be vocal about the banks' ability to return capital in the form of dividends makes some investors salivate, because these banks have been defenseless wards of the state. That could be over. This news is something that people have waited for for so long, and most had given up on it until next year.
3. C is breaking out, and that allows for the government to sell stock aggressively. Lots of people were opining that the government couldn't finish selling stock this year. They can finish selling today if they want.
4. The technicians are powerful in this market: the BKX is breaking out here, and that's propelling the big BKX stocks even further, stocks like WFC and JPM in particular, but also the smaller banks. These stocks are heavily influenced by the SKF, which is plummeting quickly, and that's the big 2x short bet against the group.
5. In a market where nothing is cheap anymore, people can embrace the banks simply because many of them are at book are near it. If asset values are going to be boosted by the Fed, the banks have lent against assets that had been losing value. That could be over.
6. The shorts overreached. All over the Street, the shorts have been blasting out the put liabilities of these banks as if they are really going to have to raise equity to pay for them. The shorts have planted stories all over the media, from the TV to the blogs. The stories are outrageously one-sided, because they presume the maximum in losses and they all presume instant payouts. Of course, the opposite is occurring: It's all going to be drawn out in litigation. Brian Moynihan is a lawyer, and the CEO of BAC laid it out pretty clearly this week that his bank isn't paying. He was forceful -- for once -- and the shorts seem to have heard him.
7. The previous month saw more towel-throwing in the group than I have seen in a long time. The give-ups were so big, and they came from hedge funds and mutual funds. They finished ahead of QE2.
8. Fed data just coming out has shown a nice pickup in commercial and industrial loans. We have lacked loan growth throughout this period.
9. Consumer loans haves started to flatline after having fallen off a cliff in the rest of the year. More loan growth.
10. Financial regulation is done, and the proponents of the most draconian parts of it are retiring or have been retired. Headline risk has been lessened by this election, for certain.
These are all new. One week. One simple four-day period with so much mystery cleared up and so much sense of opportunity. It is no wonder the banks are picking up the baton of market leadership. They don't need to raise capital. They can pay capital back. Housing has bottomed according to all surveys except the one most quoted by the bearish media: Zillow. It is that moment. And the bulls and bears are seizing it.
1. The yield curve has been changed by the Fed, and that makes the banks more willing to lend, because they make more money on the net interest margin, which has been awful. That's a typical way to value banks, and the bank buyers are heartened. With a better yield curve, the banks will be willing to lend more and lose more. It changes the risk/reward.
2. Although widely expected, the Federal Reserve's decision to be vocal about the banks' ability to return capital in the form of dividends makes some investors salivate, because these banks have been defenseless wards of the state. That could be over. This news is something that people have waited for for so long, and most had given up on it until next year.
3. C is breaking out, and that allows for the government to sell stock aggressively. Lots of people were opining that the government couldn't finish selling stock this year. They can finish selling today if they want.
4. The technicians are powerful in this market: the BKX is breaking out here, and that's propelling the big BKX stocks even further, stocks like WFC and JPM in particular, but also the smaller banks. These stocks are heavily influenced by the SKF, which is plummeting quickly, and that's the big 2x short bet against the group.
5. In a market where nothing is cheap anymore, people can embrace the banks simply because many of them are at book are near it. If asset values are going to be boosted by the Fed, the banks have lent against assets that had been losing value. That could be over.
6. The shorts overreached. All over the Street, the shorts have been blasting out the put liabilities of these banks as if they are really going to have to raise equity to pay for them. The shorts have planted stories all over the media, from the TV to the blogs. The stories are outrageously one-sided, because they presume the maximum in losses and they all presume instant payouts. Of course, the opposite is occurring: It's all going to be drawn out in litigation. Brian Moynihan is a lawyer, and the CEO of BAC laid it out pretty clearly this week that his bank isn't paying. He was forceful -- for once -- and the shorts seem to have heard him.
7. The previous month saw more towel-throwing in the group than I have seen in a long time. The give-ups were so big, and they came from hedge funds and mutual funds. They finished ahead of QE2.
8. Fed data just coming out has shown a nice pickup in commercial and industrial loans. We have lacked loan growth throughout this period.
9. Consumer loans haves started to flatline after having fallen off a cliff in the rest of the year. More loan growth.
10. Financial regulation is done, and the proponents of the most draconian parts of it are retiring or have been retired. Headline risk has been lessened by this election, for certain.
These are all new. One week. One simple four-day period with so much mystery cleared up and so much sense of opportunity. It is no wonder the banks are picking up the baton of market leadership. They don't need to raise capital. They can pay capital back. Housing has bottomed according to all surveys except the one most quoted by the bearish media: Zillow. It is that moment. And the bulls and bears are seizing it.
Thursday, November 4, 2010
Thoughts
Goldman Slashes Nonfarm Payroll Estimate
Goldman Sachs cuts its nonfarm payroll estimate for tomorrow to 25,000 jobs.
The firm is keeping its private payroll forecast at 75,000.
Amazing Action in Gold
Gold is now up by over $41 an ounce. This is truly amazing.
Mixed Retail Sales
Eleven companies beat expectations, two were in line with forecasts and 12 were worse than expected.
The Fed's monetary largesse will bring inflation and dollar weakness that will ultimately crimp economic growth.
But for now, the stock market seems to love it.
"In a famous Saturday Night Live skit, Christopher Walken plays a legendary rock music impresario whose advice, his only advice, to a young band is "more cowbell." The actor Will Ferrell furiously pounds away on a cowbell but it's never enough for Mr. Walken, who ultimately shouts, "I got a fever, and the only prescription is more cowbell!" Federal Reserve Chairman Ben Bernanke must be a fan of that skit because he is applying the same logic to monetary policy: The economy isn't growing fast enough, and the only prescription is more money."
-- Wall Street Journal Op-Ed
I remain concerned about the efficacy and the consequences of more quantitative easing. Judging by the market's reaction, few others are concerned, as cash is no longer perceived as a safe asset.
Rather, "stuff" is the new safe asset.
This morning the gold markets (+$24 an ounce) -- which I suggested yesterday would be the likely beneficiary of the election (and ensuing gridlock) as well as monetary easing -- continues to tell a story that the Federal Reserve will get what it wants with regard to inflation ... and maybe more (e.g., see the large overnight price rise in wheat, corn and oil).
I would argue that the its monetary largesse will not deliver economic growth and inflation in wages (what the Fed wants), but rather will result in the sort of inflationary pressures and drop in our currency that will, in the fullness of time, serve as a headwind to domestic economic growth.
Also surprising to me is the willingness of the world's stock markets to continue to discount an expected event (the election results and QE 2) on multiple occasions.
For now Mr. Market sides firmly on the side of David Tepper and disagrees (violently) with my views, as "mo' money" and "more cowbell" are seen as economic and stock market elixirs.
Goldman Sachs cuts its nonfarm payroll estimate for tomorrow to 25,000 jobs.
The firm is keeping its private payroll forecast at 75,000.
Amazing Action in Gold
Gold is now up by over $41 an ounce. This is truly amazing.
Mixed Retail Sales
Eleven companies beat expectations, two were in line with forecasts and 12 were worse than expected.
The Fed's monetary largesse will bring inflation and dollar weakness that will ultimately crimp economic growth.
But for now, the stock market seems to love it.
"In a famous Saturday Night Live skit, Christopher Walken plays a legendary rock music impresario whose advice, his only advice, to a young band is "more cowbell." The actor Will Ferrell furiously pounds away on a cowbell but it's never enough for Mr. Walken, who ultimately shouts, "I got a fever, and the only prescription is more cowbell!" Federal Reserve Chairman Ben Bernanke must be a fan of that skit because he is applying the same logic to monetary policy: The economy isn't growing fast enough, and the only prescription is more money."
-- Wall Street Journal Op-Ed
I remain concerned about the efficacy and the consequences of more quantitative easing. Judging by the market's reaction, few others are concerned, as cash is no longer perceived as a safe asset.
Rather, "stuff" is the new safe asset.
This morning the gold markets (+$24 an ounce) -- which I suggested yesterday would be the likely beneficiary of the election (and ensuing gridlock) as well as monetary easing -- continues to tell a story that the Federal Reserve will get what it wants with regard to inflation ... and maybe more (e.g., see the large overnight price rise in wheat, corn and oil).
I would argue that the its monetary largesse will not deliver economic growth and inflation in wages (what the Fed wants), but rather will result in the sort of inflationary pressures and drop in our currency that will, in the fullness of time, serve as a headwind to domestic economic growth.
Also surprising to me is the willingness of the world's stock markets to continue to discount an expected event (the election results and QE 2) on multiple occasions.
For now Mr. Market sides firmly on the side of David Tepper and disagrees (violently) with my views, as "mo' money" and "more cowbell" are seen as economic and stock market elixirs.
Overbought?
The action today was a textbook example of the adage, "Don't fight the Fed." Ben Bernanke made it quite clear in an editorial today in the Washington Post that the Fed wants to inflate the stock market and keep interest rates near zero in the hope that it creates a virtuous cycle that leads to economic growth.
There is no shortage of economists and pundits who think that this quantitative easing policy is a recipe for disaster, but market players don't really care. They are focused on making money today, and that means you set aside any doubts and just keep on buying.
We had a big point gain on great breadth and increased volume. It was breakout action and we gained some additional traction on the backs of bears, who were quite convinced we had a "sell-the-news" response coming after the Fed confirmed the well-anticipated QE 2 program.
Since the low in March 2009, this market has consistently had straight up rallies that go much further than most folks think is possible. If your style is to try to catch turning points you have been having a miserable time. The problem is that none of the usual indicators matter very much when the Fed is the main driving force in the market. This market punishes those who over think the action -- especially if they have a pessimistic bent.
We are a bit technically overbought now, but we certainly have some strong momentum. That creates a very interesting setup for the jobs report in the morning. The bulls like to think they are in a no-lose position when it comes to economic reports. (If the numbers are bad, the Fed is going to keep printing money. If the numbers are good, then that means the economy is improving.) Of course, at some point, this market may worry that we have priced in QE 2, but it sure isn't acting like we have.
There is no shortage of economists and pundits who think that this quantitative easing policy is a recipe for disaster, but market players don't really care. They are focused on making money today, and that means you set aside any doubts and just keep on buying.
We had a big point gain on great breadth and increased volume. It was breakout action and we gained some additional traction on the backs of bears, who were quite convinced we had a "sell-the-news" response coming after the Fed confirmed the well-anticipated QE 2 program.
Since the low in March 2009, this market has consistently had straight up rallies that go much further than most folks think is possible. If your style is to try to catch turning points you have been having a miserable time. The problem is that none of the usual indicators matter very much when the Fed is the main driving force in the market. This market punishes those who over think the action -- especially if they have a pessimistic bent.
We are a bit technically overbought now, but we certainly have some strong momentum. That creates a very interesting setup for the jobs report in the morning. The bulls like to think they are in a no-lose position when it comes to economic reports. (If the numbers are bad, the Fed is going to keep printing money. If the numbers are good, then that means the economy is improving.) Of course, at some point, this market may worry that we have priced in QE 2, but it sure isn't acting like we have.
Wednesday, November 3, 2010
Thoughts
No Surprises From Obama
There were no surprises in the President's speech.
Freight Folds
Check out the rollover in the Baltic Dry Index.
Next Stop, Screwflation
Screwflation's ugly head is revealed in the ISM non-manufacturing report this morning, as the prices paid index rose by 8.2 points to the highest level since September 2008.
The increase is the largest one month jump in prices paid in almost five years.
We remain on the road to screwflation.
LNC
Headline earnings disappointed, but core earnings were fine.
LNC reported disappointing headline earnings after the close, but most of the shortfall was in non-trending items, including:
* negative adjustments following the review of DAC and other assumptions (chiefly interest rates); and
* adverse mortality.
Adjusted for these, core earnings were fine.
Sales and deposits were strong.
Government Irrelevance May Deliver Market Sorrow
Don't be too sure that the election results will have a dramatic effect on the market.
A transformative jobs policy is no closer at hand than it was yesterday.
We have many economic issues that need to be addressed, and gridlock may not be the answer this time......
"I don't see anything about this president that speaks to making peace and getting along with the other side of the aisle, and I don't see the other side coming together with him either because, beginning tomorrow, we will be in presidential-election mode."
-- Jim Cramer, Government Irrelevance Is Bliss
As Saturday Night Live's Emily Litella would say, the 2010 midterm elections are now over -- is it time to expect the president to embark on a mid-course erection in policy?
In 2008, the Democratic tsunami-like victory was overstated (in its consequence) by the pundits. Rather, it turned out to be a blessing for the Republican Party.
Similarly, the 2010 Republican tsunami last night is likely being overstated in its positive market consequence going forward.
Most commentators expect the administration to move to the center, and, in doing so, to extend middle-class tax relief indefinitely and, for the top taxpayers, to grant it an extension of two years. Those pundits would add, for dessert, expectations for a reduced (20%) tax on dividends (rather than going to the taxpayers' marginal tax rate as recommended by the administration).
I am dubious.
Interestingly, I view the anticipated inertia, gridlock and growing government irrelevance (Jim's great term) emphasized and supported as a positive by Jim Cramer's remarks late yesterday as a negative -- as I do negatively view, unlike Jim, the likely efficacy and further market impact of QE2.
Importantly, the needed fiscal response and transformative jobs policy are no closer at hand today than they were yesterday before the election results were handed down. Attention to deficits, too, is a loser, with the impractical and more radical agenda (in their suggestions of closing important departments of the U.S. government) of the Republican Party's right wing (the Tea Party) not demonstrably better than the Democrats in holding down the current account balance.
Arguably, with monetary (not fiscal) policy front and center, investors in the gold market seemed to have been handed an election win last night.
The domestic economy faces numerous challenges to growth -- in the form of an overleveraged consumer, still-elevated joblessness and large fiscal imbalances (local, state and federal) -- that need to be addressed posthaste.
Indeed, the current anemic trajectory of growth exposes the economy to policy mistakes, a further drop in consumer and business confidence and other unknown and exogenous factors (such as geopolitical risk).
Stated simply, a government divided is not a price/earnings-expanding event, nor is it a recipe for a new leg of a bull market.
There were no surprises in the President's speech.
Freight Folds
Check out the rollover in the Baltic Dry Index.
Next Stop, Screwflation
Screwflation's ugly head is revealed in the ISM non-manufacturing report this morning, as the prices paid index rose by 8.2 points to the highest level since September 2008.
The increase is the largest one month jump in prices paid in almost five years.
We remain on the road to screwflation.
LNC
Headline earnings disappointed, but core earnings were fine.
LNC reported disappointing headline earnings after the close, but most of the shortfall was in non-trending items, including:
* negative adjustments following the review of DAC and other assumptions (chiefly interest rates); and
* adverse mortality.
Adjusted for these, core earnings were fine.
Sales and deposits were strong.
Government Irrelevance May Deliver Market Sorrow
Don't be too sure that the election results will have a dramatic effect on the market.
A transformative jobs policy is no closer at hand than it was yesterday.
We have many economic issues that need to be addressed, and gridlock may not be the answer this time......
"I don't see anything about this president that speaks to making peace and getting along with the other side of the aisle, and I don't see the other side coming together with him either because, beginning tomorrow, we will be in presidential-election mode."
-- Jim Cramer, Government Irrelevance Is Bliss
As Saturday Night Live's Emily Litella would say, the 2010 midterm elections are now over -- is it time to expect the president to embark on a mid-course erection in policy?
In 2008, the Democratic tsunami-like victory was overstated (in its consequence) by the pundits. Rather, it turned out to be a blessing for the Republican Party.
Similarly, the 2010 Republican tsunami last night is likely being overstated in its positive market consequence going forward.
Most commentators expect the administration to move to the center, and, in doing so, to extend middle-class tax relief indefinitely and, for the top taxpayers, to grant it an extension of two years. Those pundits would add, for dessert, expectations for a reduced (20%) tax on dividends (rather than going to the taxpayers' marginal tax rate as recommended by the administration).
I am dubious.
Interestingly, I view the anticipated inertia, gridlock and growing government irrelevance (Jim's great term) emphasized and supported as a positive by Jim Cramer's remarks late yesterday as a negative -- as I do negatively view, unlike Jim, the likely efficacy and further market impact of QE2.
Importantly, the needed fiscal response and transformative jobs policy are no closer at hand today than they were yesterday before the election results were handed down. Attention to deficits, too, is a loser, with the impractical and more radical agenda (in their suggestions of closing important departments of the U.S. government) of the Republican Party's right wing (the Tea Party) not demonstrably better than the Democrats in holding down the current account balance.
Arguably, with monetary (not fiscal) policy front and center, investors in the gold market seemed to have been handed an election win last night.
The domestic economy faces numerous challenges to growth -- in the form of an overleveraged consumer, still-elevated joblessness and large fiscal imbalances (local, state and federal) -- that need to be addressed posthaste.
Indeed, the current anemic trajectory of growth exposes the economy to policy mistakes, a further drop in consumer and business confidence and other unknown and exogenous factors (such as geopolitical risk).
Stated simply, a government divided is not a price/earnings-expanding event, nor is it a recipe for a new leg of a bull market.
Subscribe to:
Posts (Atom)