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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

markets looking grim

Posted by WARREN MOSLER on August 24th, 2010

>   
>   (email exchange)
>   
>   On Tue, Aug 24, 2010 at 8:32 AM, Seth wrote:
>   
>   stocks look bad
>   looks like another panic
>   

It doesn’t look good technically.

Must be coming out of europe with gold up/euro down dynamic, etc.

Insiders there must be bailing.

Maybe they know something we don’t, or maybe they are wrong.

History is no help as in the past it’s been both.

Austerity is trimming growth there a bit around the edges, but deficits remain reasonably high, so GDP’s are probably at least muddling through, with overall growth probably positive.

The ECB keeps the short term funding channels open for the member nations, but that may not be fully appreciated yet.

On a mark to market basis bank capital is probably below requirements, and they may not realize that doesn’t have to matter to the real economy for as long as the ECB continues to fund them.

Lower crude oil prices support consumption of other things. With US crude oil product consumption up and Saudi output rising, demand must be ok. Maybe Saudis are worried and want lower prices to help world growth as well. Hard to ever say what they are actually up to. They may see the Iraqi production coming on stream and are trying to engineer an increase in demand. Again, no way to tell what they are up to.

The lower 10 year rates reflects expectations of ‘low for longer’ from the Fed due to high unemployment and falling rates of inflation as measured by the Fed. And the possibility of more QE that could flatten the curve further.

There is also the notion that there’s nothing left that the Fed can do of any consequence regarding aggregate demand, and Congress thinks it’s run out of money, which means flying without a net. That increases the weight of the downside in the balance of risks.

If markets and Congress knew that fiscal policy had no nominal limit and deficit spending was not dependent on being able to borrow from the likes of China to be paid by our grandchildren, the balance of risks would be viewed very differently. But they don’t know that.

With the elections coming and California reverting to vouchers again, the time is right for my per capita revenue sharing. But it’s not even a consideration.

Q3 and Q4 GDP estimates are looking more like 1.5%, and Q2 looks to be revised down toward 1% Friday. Not a double dip but no drop in unemployment either as productivity might be at least that high. That’s worse politically than it is for equities, and adds support for a ‘second stimulus’ type of reaction. But that’s way down the road. More likely it causes most of the expiring tax cuts to be extended.

Thursday’s claims can make a big difference as well. The jump to 500,000 last week added an element of fear internationally.

Also, in thin summer markets technicals often cause exaggerated moves. Volume is very low, and a given size buying or selling causes larger moves to find someone willing to take the other side, and momentum type traders can easily overwhelm investors.

13 Responses to “markets looking grim”

  1. mike norman Says:

    “There is also the notion that there’s nothing left that the Fed can do of any consequence regarding aggregate demand, and Congress thinks it’s run out of money, which means flying without a net. That increases the weight of the downside in the balance of risks.”

    But this has been the mindset for months, but you were so bullish before. Now you’re turning bearish???

    Reply

    WARREN MOSLER Reply:

    not yet.

    the federal deficit seems still large enough to sustain positive gdp

    my best guess now this is trading noise in a very thin market.

    or someone knows Israel is about to nuke Iran, or some other bit of inside information of that sort.

    Reply

    Unforgiven Reply:

    Or just another September looming…

    Reply

  2. Tom Hickey Says:

    A lot depends on Christmas sales. If they are down, that will be a very bad sign, increasing fear. If they are lackluster, the reaction will be increasing anxiety. Unless they are booming, there will be no boost to confidence. This is when the stores are ordering. There is little evidence at the container shipping or wholesale levels that big retailers are gearing up in anticipation of big sales as consumers return to the stores with flush wallets or willing to put it on the card.

    Reply

  3. Winslow R Says:

    The favorable exchange rate has made traveling in Europe reasonable.

    The price of food at the grocery (olive oil, milk products, most fruits and vegetables) is cheaper than in America, though the restaurants are still pricey.

    The stock market is a tricky call. Starting to think I should stick to bonds.

    Reply

    WARREN MOSLER Reply:

    stocks are subject to extreme random volatility. Like the 1000 pt move out of nowhere not long ago.

    Reply

    beowulf Reply:

    Boehner’s call yesterday for the resignation of Geithner and Summers was smart, it puts every Democratic congressional candidate in the position of having to defend the Administration team. Just like Rumsfeld got bounced after the GOP lost Congress in 2006, I suspect Obama will be cleaning house soon after midterms.

    It will be interesting to see who the replacements are. Regardless of who he picks, the president has really boxed himself in by encouraging deficit hysteria (the catfood commission was created by executive order).

    Reply

    Tom Hickey Reply:

    Couldn’t agree more. Interesting how it will be the GOP complaints about the economic team and not the longstanding and persistent progressive complaints. President Obama has truly boxed himself in and is in a pickle now, which means the rest of the county is, too. What a waste of a mandate.

    Jim Baird Reply:

    I knew we were sunk in December 2008 when Obama trotted out Summers and Geitner. (In a just world, Summers would be in jail for crimes against the Russian people).

    I would love to see these bozos go, if I had any confidence that they would be replaced by anybody better. But it would just be another Goldman crony, so who cares?

  4. Scrooge Says:

    From The Barker Letter:

    In early August edition I mentioned that the S&P500 index had reached the mother of all resistance at 1131. This would be the second assault by the bulls on that key level this summer, and frankly I wasn’t optimistic: The index fell back big time in mid June, and I didn’t see any reason why we’d make over the wall this time.

    And we didn’t …

    I’ll let my friend Chip Anderson from Chartwatchers tell the story from here …

    “For seven consecutive days the S&P 500 flirted with that 1131 resistance, each time setting an intraday high somewhere between 1120 and 1130. Unfortunately for the bulls, each time resulted in a failure. It’s not at all surprising to me. As much as I’d love to see the market breakout in a big way to the upside, there were simply too many signals indicating that it wasn’t going to happen. The Russell 2000 (small caps) were lagging, not leading. Joining the small caps as laggards were financials, technology (especially semiconductors), and consumer discretionary. That is not a recipe for higher prices. In an advancing market, these groups lead. The fact that none were leading made it very difficult for me to buy into the July market strength.”

    Chip has identified two key areas of near-term support: The first is the July 16th close at 1064.88 (we’re not there yet!), while the second resides at that July 2nd bottom at 1022.58. Obviously, a close beneath that spells more trouble ahead.

    And that’s the last thing this market needs as we head into the worst historical month of the year – September.

    So keep your eye on those resistance levels and remember: Everyone has their own opinion but the charts never differ.

    Reply

  5. Scrooge Says:

    Re Israel nuking Iran:

    What Should A Poor Warmongering Neoconservative Do?
    An Israeli Attack on Iran would reduce Barack Obama to a One-Term President

    By Juan Cole

    August 13, 2010 “Information Clearing House” — What should a poor warmongering Neoconservative do? This political grouping includes WASPS such as former CIA director James Woolsey and former UN ambassor John Bolton, but at its core is politically active and extremely wealthy Jewish former Democrats who broke with their party in the 1980s to become war hawks in Republican administrations, and most of whom are rooted in Rightwing Zionism as exemplified in the thought of prominent fascist theorist Vladimir Jabotinsky. (They are almost mirror images of the general American Jewish community, 79 percent of which voted for Barack Obama, which is skittish about foreign wars and liberal on social issues).
    The Neoconservative faction is in the political wilderness in the United States. Eager to play the role in Iran that the enormous floods have played in Pakistan, of paralyzing and destroying much of a thriving country, eager to reduce the shining city of Isfahan to rubble and displace its population into massive tent cities, they find their path blocked at every turn.

    Always much happier when the militant and aggressive Likud Party is in power in Israel, they are nevertheless impatient with what they see as the timidity of Prime Minister Binyamin Netanyahu, compared to the reckless warmongering of the previous Kadima Party and its Labor ally (who managed to set back the Lebanese economy a decade in 2006 and to reduce the large penal camp of Gaza to further misery and rubble).

    Despite being willing to stop in at an occasional cocktail party, President Obama could not care less what the Neoconservatives say, want or do. Few have been appointed from their ranks to high and influential positions in the Obama administration, in contrast to W.’s, where they held the 8 key positions that allowed them to help push the US into a decade of rampaging wars. The American public, having been tricked by their fallacious arguments and cynical propaganda into the Iraq War, does not want to hear from them. They no longer get much television time. Their main project of today, an aggressive war on Iran, is a non-starter with the current White House, its generals, intelligence officials, and most importantly with a public already unemployed, beggared and indebted to the tune of $13 trillion, in part because of the Neocons earlier mad adventures– a public that has also lost over 4000 dead and tens of thousands wounded and permanently disabled warriors over a pack of Neocon lies.

    But being a Neocon means never having to say you are sorry, or that you were wrong, and it means never giving up on the dressing up of illegal and aggressive wars as Necessary and Right and Bright Shining Cities on a Hill that will Make the World Safe for “Democracy” and more importantly for Apartheid Israel.

    More:

    http://www.informationclearinghouse.info/article26158.htm

    Reply

  6. Scrooge Says:

    Wonderful lecture by Noam Chomsky on the “religion” of “rational economics”:

    http://www.informationclearinghouse.info/article26233.htm

    Reply

    Ramanan Reply:

    Really nice … seeing it …

    Reply

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