Investment & Finance Thread (week Aug. 24 - Aug. 30 edition)

Daily investment & finance thread ^ | Aug. 24, 2014 | Freeper Investors

[Wyatt's Torch]

a major reorientation of economic policy in a country where growth has stalled and unemployment remains high.

You mean massive tax increases on the rich didn't solve this? Huh... I'm surprised...

[Wyatt's Torch]

The French Government Has Collapsed, And It's Partly Paul Krugman's Fault

Paul Krugman This morning the French government collapsed. All the ministers have resigned, and Hollande will have to appoint new ones.

Paul Krugman deserves some of the blame.

The incident that immediately precipitated the resignation of French Prime Minister Manuel Valls' cabinet was an interview given by Arnaud Montebourg, France's economics minister to LeMonde, in which he protested his own government's ongoing austerity policies.

As evidence of that policy's failure, Montebourg cited the former Princeton professor and New York Times columnist.

Here's the exchange:

LeMonde: Has Europe, and France too in the past two years, focused too much on budget contraction?

Arnaud Montebourg: That's not my observation, that's the diagnosis of financial institutions across the world, starting with the IMF which, whose director, Christine Lagarde, warned European leaders about an excess of budget consolidation. Paul Krugman, a Nobel laureate, also wrote on Aug. 13, "The nightmare scenario in Europe is not a hypothetical. The news that industrial production has ground to a halt raises the prospect of a new recession in Europe — its primary cause, austerity." These warnings have also been sounded by other leaders of world powers including Barack Obama.

Despite the noise France's cabinet reshuffle is making this morning, it may not amount to much. As Krugman also pointed out, there's only so much European governments can now do at this point to address severely weak underlying economic fundamentals. Europe's fate mostly now lies in the hands of ECB Chief Mario Draghi, who seems to fully understand the stakes but also faces vocal monetary hawks out of Euro zone member countries.

That may include France itself. By accepting his own cabinet's resignation, President Francois Hollande is signaling that he will remain committed to his announced budget cuts and corporate tax reductions. Meanwhile multiple reports indicate Montebourg and education minister Benoit Hamon, who also lashed out at Hollande, won't survive into the new coalition.

Thus, any satisfaction Montebourg ultimately receives may come at the grim price of further economic malaise.

[expat_panama]

a major reorientation of economic policy in a country where growth has stalled and unemployment remains high.

You mean massive tax increases on the rich didn't solve this?

The left never but never admits failure of direction, the only "change" will be a call for more force of effort:

[Lurkina.n.Learnin]

“— its primary cause, austerity.” These warnings have also been sounded by other leaders of world powers including Barack Obama. “

It will work. They just haven’t done it right yet. sarc/

[Wyatt's Torch]

I am NOT a fan of austerity moves. The solution is limit growth on spending but create pro-growth environment through tax and regulatory policy.

[Wyatt's Torch]

S&P closing in on 2000

[expat_panama]

I am NOT a fan of austerity moves

It depends how how 'austerity' is defined.  Most people use the established definition--

1. Severe or stern in disposition or appearance; somber and grave: the austere figure of a Puritan minister.

2. Strict or severe in discipline; ascetic: a desert nomad's austere life. See Synonyms at severe.

3. Severe and rigid economy: wartime austerity.

--but Krugman and his followers say the U.S. has had 'austerity' since '09:

Bonkers ideologues on the left love to change definitions to push their agenda.   The word "gay" used to mean 'happily exited'.  The word "racism" used to refer to the belief, not the color of skin of the believer.  The word "choice" never used to mean forbidding discussion and requiring killing. the word "marriage"...

[Lurkina.n.Learnin]

It all goes back to what the definition of what is is. I’m not for austerity per se but I am against just throwing money at everything thinking that will pull us out of this mess. The govt needs to do like everyone else, direct resources where they are effective and get rid of what is not working.

[abb]

The govt needs to do like everyone else, direct resources where they are effective and get rid of what is not working.

Assuming that those in power actually want to direct resources effectively. Most government types, I submit, could care less about what "works." All they care about is power, a regular fat paycheck, and a gold-plated retirement. The taxpayers and the produces exist but to be sheared for their wool.

[Wyatt's Torch]

Right. We can’t just “slash spending” like so many on here want to do. They have no idea what that would do to the economy. We need to get rid of a lot of the crap in government. But phase those out and redirect to other areas.

But first and foremost you have to create an environment for growth. That’s our only way out of this.

[Wyatt's Torch]

Most government types, I submit, could care less about what "works." All they care about is power, a regular fat paycheck, and a gold-plated retirement. The taxpayers and the produces exist but to be sheared for their wool.

Completely agree. This goes equally for Republicans. they are just as complicit as Democrats.

[Wyatt's Torch]

Deutsche Bank Economist: 'Buy Equities'

It's a bull market.
"Buy equities."

That's the subject line of an email Deutsche Bank economist Torsten Slok just blasted. Slok is convinced stocks will go up until there is a recession.

Slok:

"I believe the stock market will continue to go up until we get a recession. And we are nowhere near entering a recession. Recessions happen because of a bubble bursting in capex (as we saw on 2000) or because of a bubble bursting in consumption (as in 2008) or when monetary policy is too tight, i.e. when the fed funds rate is well above its neutral level. None of this is happening at the moment. If anything, we are seeing too little capex and consumption."

Slok says he expects "some wobbles" as the Fed begins to raise rates, but this will not derail the current economic expansion.

"I don't think the low dealer inventory issue will be big enough to cause a recession because balance sheets in the banking sector, household sector, and corporate sector are today much stronger than they have been in a very long time," Slok writes. "Or put differently, Fed hiking rates in 2015 will not derail the current expansion. That's why I expect equities to continue to rise steadily over the coming years."

So there you have it.

This, however, is just Slok's view. The Deutsche Bank "house view," per the firm's equity strategy team led by David Bianco sees the S&P 500 finishing 2014 at 1,850.

On Monday, for the first time ever, the S&P 500 touched 2,000.

Here's the rubric for financial stability from Deutsche Bank, which right now is showing "no signs of significant systemic risk in the financial system." Deutsche Bank stability table

Deutsche Bank

[expat_panama]

for the first time ever, the S&P 500 touched 2,000.

News travels fast!  These psychotically milestones are just symbolic, but mere perceptions affect people and they do tend to have import.

[Lurkina.n.Learnin]

“David Bianco sees the S&P 500 finishing 2014 at 1,850.

On Monday, for the first time ever, the S&P 500 touched 2,000.”

Hmmm?

[expat_panama]

It was fun while it lasted.

Sometimes these phych barriers end up being a wall, like the first time the DOW cracked a thousand it fell right back below and didn't return for about a decade.

[expat_panama]

Welcome to an interesting Tuesday morning!  The plot thickens as metals hold solid and stocks take new highs in weak volume--

The S&P 500 Topped 2k: Should You Care? - William Watts, MarketWatch).
Little fanfare as S&P 500 passes 2000 Financial Times - 1 hour ago When the S&P 500 reached 1,000 for the first time in February of 1998, Kenny Polcari was trading equities for ICAP from the floor of the New York Stock Exchange.
Surging US Stocks Echo Dot-Com Rally With Cheaper P/E   Businessweek
US valuations considered 'fair' as S&P 500 tops 2000   Brisbane Times

fwiw, the anual S&P growth from '49 to '98 was 5%, and the annual growth since 2000 to now has been 2%.  Day ahead: futures up a bit w/ stocks and more for metals than; some reports (see Wyatt's post 17). 

[Wyatt's Torch]

Discuss...

[Wyatt's Torch]

Dave Lutz of JonesTrading has the top topics about which traders are talking today:

Yesterday’s NYSE volume was the lightest (Non-Holiday) volume since October 2006, let’s hope that reverses - US Futures have been steadily climbing throughout the AM, and rest about 15bp higher ahead of the Poroshenko-Putin meeting (no specific time). The UK is playing catch up from Holiday, gaining 30bp, while the DAX is slightly red in very light volume (35% below 20day averages) as Chatter increases that Russian military vehicles again have entered Ukraine. Over in Asia, the Nikkei lost 60bp as the Yen strengthened overnight – China was hit for 1% as $5B in new shares start trading this week – Aussie closed unch, despite weakness in the miners as Ore in Asia dropped 1%, hitting lowest level in 2months.

Global Sovs are in demand again, with the US 10YY off small, but sharp demand for credit in Europe – Bund Yields remain near record lows, and we have 2YY negative in 5 EZ countries: Germany, Netherlands, Belgium, Austria, and Finland. The DXY is retreating from near 1Y highs – losing ground against Yen and Euro – Causing a tailwind for commodities. Industrial Metals are being sold for Precious, with Gold popping 70bp and over the 200dma. We are seeing a “dead cat” bounce in the Oil complex, with both Brent and WTI up slightly into API inventories tonight. Scheduled Catalysts today include Durable Goods Orders (forecast to show an impressive uptick) at 8:30, FHFA house prices and Case-Shiller at 9; At 10 we get Consumer Confidence and Richmond Fed; at 11 the week’s largest POMO; at 1 we have a 2Y note auction – then API inventories after the close.

[Wyatt's Torch]

FYI IHS calling for Durable +38% today based on BA orders:

Tuesday, 26 Aug. – Durable Goods Orders (Jul.)

- IHS: 38.1%
- Consensus: 7.6%
- Last Actual: 1.7% (Jun.)

What to look for

- A huge spike, thanks to the new Boeing 777X

Implications

Durable goods orders should log a massive 38.1% spike for July, mainly because of $80 billion in orders received for the new Boeing 777X aircraft. That aside, orders should advance 1.2%. It was a good month for aircraft, even excluding the new plane; but defense and core capital goods orders should both make negative contributions.

[Wyatt's Torch]

Paging Michael Lewis...