Category Archives: Fed

Durable Goods Orders, Chicago Fed, KC Fed, Philly Fed State Indicator, Claims, New Home Sales

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Weak capital goods expenditures and another report indicating weak exports:

United States : Durable Goods Orders
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Highlights
Transportation equipment, specifically aircraft orders, are once again skewing durable goods orders which fell 2.0 percent in August as expected. Excluding transportation, durable goods were unchanged which is slightly lower than expected. Weakness here in part reflects a pause for capital goods as nondefense ex-auto orders slipped 0.2 percent following two prior months of very solid growth. This report falls in line with last week’s industrial production data where manufacturing basically held flat in August. Weakness in exports is the balancing factor tipping the factory sector away from growth.

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Not good:

United States : Chicago Fed National Activity Index
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Chicago Fed National Activity Index in the United States decreased to -0.41 in August from an upwardly revised 0.51 in July of 2015, the lowest since January of 2014. All four broad indicators declined from July: production (-0.3 from +0.36); employment (-0.01 from +0.18); personal consumption and housing (-0.08 from -0.06); sales, orders, and inventories (-0.03 from +0.03). Chicago Fed National Activity Index in the United States averaged 0 from 1967 until 2015, reaching an all time high of 2.66 in September of 1983 and a record low of -4.96 in December of 1974. Chicago Fed National Activity Index in the United States is reported by the Federal Reserve Bank of Chicago.

Another bad one:

Kansas City Fed Manufacturing Index
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Highlights
At an index of minus 8, contraction continues apace in the Kansas City manufacturing sector which reports export weakness tied to the strong dollar and energy-sector weakness tied to low commodity prices. Metals and machinery are showing particular weakness with new orders at minus 8 and backlog orders at minus 12. Employment is at minus 7 with the workweek at minus 12. Despite contraction in the workweek, production is the only component in the plus column, but just barely at plus 1. Price data, like for many other reports, show contraction for both inputs and outputs.

Manufacturing was basically flat in August, as evidenced by this morning’s durable goods report. And the early indications on September, including the Kansas City report, are all pointing to increasing weakness.
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Still looking suspect:
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I’m still suspecting there’s something keeping more people from filing than in prior cycles:
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This looks a touch better but could just be some buying in front of fears of rate hikes. And still very depressed historically:

New Home Sales
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Highlights
Because of a small sample, new home sales can be very volatile month-to-month as they are in the August report where, at 552,000, the annual rate came in far above the high-end estimate. This is the highest rate since February 2008. Adding to the momentum is a 15,000 upward revision to July.

In especially welcome news for builders, the sales strength pulled supply relative to sales even lower, to 4.7 months from 4.9 months. Still, low supply is a constraint on sales in contrast to pricing which remains favorable, at a median $292,700 for a 0.5 percent gain on the month but at a paltry year-on-year gain of only 0.3 percent. By comparison, the year-on-year sales gain is 22 percent.

Regional data show August strength for the Northeast and more importantly the South which, for new home sales, is larger than all other regions combined. Year-on-year, sales in the South are up 28 percent which leads the regions. At the rear is the West where sales growth, however, is still in the double digits at plus 11 percent.

Volatility aside, this report is impressively strong and likely marks an upturn for housing data which, like Monday’s existing home sales report, had been showing limited and uneven strength.

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Redbook Retail Sales, Richmond Fed, Architectural Index, Mtg Purchase Index, Chemical Activity Barometer, China, Unemployment Duration Chart

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No sign of improvement:
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Bad:

Richmond Fed Manufacturing Index
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Highlights
Early indications on the September factory sector are negative and now include a minus 5 headline from the Richmond Fed. New orders, unfortunately, are even more deeply in the negative column at minus 12 which points to even weaker activity in the months ahead. Shipments are already in the negative column for a second straight month at minus 3. And manufacturers in the region have already worked down their backlogs to keep up production with backlogs in deep contraction at minus 24 and minus 15 the last two months. Employment is in the plus column but just barely at 3 and it won’t stay there for long if orders and production continue to weaken. Price readings are moderating further to round out an unpleasant picture of unexpected slowing. Last week’s Philly Fed report and especially the Empire State report also pointed to weakness this month. Watch for the manufacturing PMI on tomorrow’s calendar which will give a national look at the September factory sector.

Down as well:
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Moved up some for the week but as per the chart still drifting a bit lower:
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Looks like it’s maybe heading south:

September 2015 Chemical Activity Barometer Says Economy Will Continue to Slow

from the American Chemistry Council

The Chemical Activity Barometer (CAB), dropped 0.4 percent in September, following a revised 0.2 percent decline in August. The pattern shows a marked deceleration, even reversal, over second quarter activity. It is unlikely that growth will pick up through early 2016.
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‘Markit’ reports like this PMI are always suspect but narrative is interesting:

PMI Manufacturing Index Flash
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Highlights
Growth in Markit’s manufacturing sample remains as slow as it’s been since October 2013, stuck at 53.0 for the September flash. The reading is the same as the final August result and little changed from August’s flash of 52.9. It’s also below the recovery’s 54.3 average.

Growth in new orders is the slowest since January with businesses citing caution among customers and subdued business conditions. Export orders, hurt by weak foreign demand and strength in the dollar, have been very weak this year but did improve slightly in the latest report. Slow orders are leading the sample to slow hiring and trim inventories. The latest gain for employment is only marginal and the weakest since July last year.

Prices are especially weak in the report, showing the first drop in four months for input costs and the first drop in finished goods since August 2012. Fed policy makers, concerned by low inflation, are likely to take special notice.

The 53.0 headline points to more strength than many of the details of the report. Together with the September run so far of regional surveys, the manufacturing sector does not look like it’s having much of a month. Watch for durable goods orders tomorrow for definitive data on August followed by the Kansas City manufacturing update for September.

Fiscal does work if they ‘do what it takes’. Maybe the policies of the western educated kids has been over ruled by their elders?

Production declines further as total new orders fall at faster pace

Sept 23 (Markit) — Flash China General Manufacturing PMI at 47.0 in September (47.3 in August). Manufacturing Output Index at 45.7 in September (46.4 in August). The decline indicates the nation’s manufacturing industry has reached a crucial stage in the structural transformation process. Overall, the fundamentals are good. The principle reason for the weakening of manufacturing is tied to previous changes in factors related to external demand and prices. Fiscal expenditures surged in August, pointing to stronger government efforts on the fiscal policy front.

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School and Unemployment, Spain Conference Link

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How Have Prime-Age Workers in School Affected the Labor Market?

Just one of several possible factors keeping the participation rate down and the reported unemployment rate lower than otherwise, which in my narrative are the consequences of low aggregate demand/the federal deficit is too small, etc.

From the St. Louis Fed:

In the first scenario, we kept the increase in schooling of the population 16-21 that has occurred over the past 10 years. But we kept the share of the population 22 and older that attends school in 2015 at its 2005 levels. In this scenario, the May unemployment rate would have been 6.6 percent instead of the 5.5 percent observed that month.

And this:

How Long Until “Slack” Is Out of the Labor Market?

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Presentation in Vila-real:

Los 7 fraudes inocentes capitales de la política económica

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The Fed’s Sort of Right Move for the Wrong Reasons

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The Fed did not raise rates because the FOMC concluded this was not the time to remove accommodation.

I agree this is not the time to remove accommodation. But I do not agree lower rates and QE are accommodative.

Changing rates shifts income between borrowers and savers, and with the federal debt just over 100% of GDP, the state is a large net payer of interest to the economy. So lowering rates reduces interest income paid by the state to the economy. Therefore that aspect of lowering rates imparts a contractionary bias and, yes, raising rates would impart an expansionary bias. In other words, the Fed has the ‘easing’ and ‘tightening’ thing backwards, and if it wants to impart an expansionary and inflationary bias a rate increase would be in order.

Paying more interest, however, does have distributional consequences, as the additional income paid to the economy goes to those holding government securities. Alternatively, a fiscal adjustment (tax cut and spending increase) directs additional spending power to other constituencies. So the remedies for a weak, deflationary outlook come down to some combination of rate hikes, tax cuts, or spending increases.

And given those choices, I think most of us would vote to leave rates at 0 and either cut taxes or increase public spending.

Additionally, the rate selected by the Fed translates into the term structure of prices presented to the economy, as forward pricing is necessarily a function of Fed rate policy. So in that sense, the term structure of rates put in place by Fed policy *is* the rate of inflation presented to the economy at any point in time.

Let me also add that setting a range for fed funds rather than a single interest rate gives the appearance of ignorance. A combination of paying interest on reserves and a few (reverse) repurchase agreements to pay interest on any residual funds not subject to interest on reserves would both do the trick and improve the optics.

And as for QE, the Fed buying secs is functionally identical to the tsy never having issued them, and instead letting tsy payments remain as reserve balances. That is, QE shifts duration but not quantity, and there is little to no evidence that shifting duration has a material effect on aggregate demand, inflation, or employment.

So while QE is just a placebo, like any placebo, it does impact the decisions of portfolio managers, corporations, central bankers, etc. who believe otherwise.

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Japan Downgrade, China GDP Model, Earnings Reports, Italian Trade, Housing Starts, Rail Traffic, Fed Comment

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Yields on JGB’s fall a bit with S&P downgrade. I’ve spoken to S&P. They know better. They are intellectually dishonest.
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I included these as they give some indication of the macro outlook:

FedEx Trims Outlook on Weak Freight Demand

Sept 16 (WSJ) — FedEx said it expects adjusted earnings of $10.40 to $10.90 a share for the year ending May 31, down from its previous guidance of $10.60 to $11.10 a share. Average daily volume for Ground’s package business grew 4% in the quarter, which was about in line with the company’s expectations. Ground’s operating income slipped 1% to $537 million, while revenue shot up 29% to $3.83 billion in part from the addition of GENCO. For the first quarter ended Aug. 31, FedEx posted a profit of $692 million, or $2.42 a share, up from $653 million, or $2.26 a share, a year earlier. Revenue increased 5% to $12.3 billion.

Oracle Reports Decline in Profits

Sept 16 (WSJ) — Oracle said net income fell 20% in the period ended Aug. 31, but was off only 8% excluding currency effects. Total revenue, off 2%, was up 7% on a constant-currency basis, Oracle said. Oracle said new licenses declined 16% in dollars, or 9% in constant currency. Overall, Oracle reported a profit of $1.75 billion, or 40 cents a share, down from $2.18 billion, or 48 cents a share, a year earlier. Excluding stock-based compensation and other items, profit would have been 53 cents a share, compared with 62 cents a year earlier. Total revenue declined to $8.45 billion from $8.6 billion a year earlier.

Euro friendly:

Italy : Merchandise Trade
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Highlights
The seasonally adjusted trade balance was in a E3.7 billion surplus in July, up from an unrevised E2.6 billion excess in June.

However, the headline improvement masked contractions in both sides of the balance sheet. Hence, exports fell 0.4 percent on the month, their third decline since March but only due to weakness in energy (ex-energy exports grew 0.4 percent). Imports were off a steeper 3.7 percent (minus 4.0 percent ex-energy). Compared with a year ago, exports were up 6.3 percent after a 9.4 percent rise in June and imports 4.2 percent higher following a 12.2 percent gain last time.

The July black ink was more than 6 percent above its average level in the second quarter. This suggests that net exports could provide a boost to real GDP this quarter having been a drag in the previous period.

They talk about the ‘portfolio balance channel’ meaning investors shifting to ‘riskier assets’ due to QE, etc. But at the macro level, it’s about the total ‘risky assets’ available, and it looks like the growth rate is declining:
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No sign of a burst in issuance here:
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Housing Starts
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Highlights
Housing starts fell back in August but not permits which gained and point to strength for starts ahead. Starts fell 3.0 percent in the month to a lower-than-expected 1.126 million annual pace while permits rose 3.5 percent to a higher-than-expected 1.170 million. Starts for single-family homes, like the headline for starts, also fell 3.0 percent in August but follow a 10.9 percent surge in July. Permits for single-family homes rose 2.8 percent in the latest month to 699,000 which is the highest since 2008.

Housing under construction is also at a 2008 high, at 920,000 vs 908,000 in July. But completions were down in the month, from July’s 966,000 pace to a still healthy 935,000.

By region, starts data show increasing strength for the South which is by far the largest region, up 7.1 percent in the month. Permits in the South rose 2.4 percent for a 10 percent year-on-year gain. Permits in the West are the strongest of any region, up 9.6 percent in the month for a year-on-year rate surge of 36 percent.

Revisions to July were mixed with starts revised lower but permits higher. On net, this report is another positive for housing which is proving to be a key sector for the 2015 economy.
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Steady progress but still depressed and still well below the lows of the 2001 recession:
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Too soon to tell if the prior spike will be followed by a more serious collapse:
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Philadelphia Fed Business Outlook Survey
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Highlights
There may very well be something wrong with the manufacturing sector, at least in the Northeast where the Empire State index has been in deep negative ground for the last two months followed now by a minus 6.0 headline for the Philly Fed index. This is the first negative reading since February 2014.

But the headlines for both of these reports, which are not composite scores of separate components, are sentiment scores of sorts, rough month-to-month assessments of general conditions. A key positive in today’s is continued strength in new orders which rose 3.6 points to 9.4. Unfilled orders, nevertheless, have been trending into contraction, at minus 6.6 for the third straight negative reading.

But some details are very strong with shipments at plus 14.8 and employment at plus 10.2 for a 5-month high. In a negative signal also seen in the Empire State report, prices received, that is prices for final goods, is in contraction at minus 5.0.

The Fed is wondering whether global volatility and stock market losses are affecting consumer confidence. Early data this month from regional Feds suggest the effects may also be extending to business sentiment.
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Rail Week Ending 12 September 2015: Tremendous Unimprovement After Previous Week’s Improvement

Sept 17 (Econintersect) — Week 36 of 2015 shows same week total rail traffic (from same week one year ago) collapsed according to the Association of American Railroads (AAR) traffic data. Intermodal traffic significantly declined year-over-year, which accounts for approximately half of movements. and weekly railcar counts continued in contraction. It could be that the data last week was screwed up – and the data this week was an adjustment.

And so how good can the US economy be if the Fed thinks the appropriate fed funds rate is still near 0%?

;)

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Mtg Purchase Apps, CPI, Home Builder’s Index, Euro Area Balance of Trade, CEO Outlook

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Looking like it’s turned south:

MBA Mortgage Applications
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Fed continues to fail to sustain enough aggregate demand to meet it’s 2% inflation target:

Consumer Price Index
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Highlights
Consumer prices came in soft in August and will not be turning up the heat on the doves at the FOMC. Pressured by gasoline, the CPI fell 0.1 percent in August with the year-on-year rate up only 0.2 percent. The core, which excludes energy and food, rose only 0.1 percent with the year-on-year rate steady at plus 1.8 percent and still under the Fed’s 2 percent goal.

And details are soft. Energy prices fell 2.0 percent in the month including a 4.1 percent decline for gasoline. Airfares were down sharply for a second month, 3.1 percent lower. Owners equivalent rent, which had been hot, rose only 0.2 percent in the month.

Showing some pressure is apparel, up 0.3 percent for a second straight month in what hints at back-to-school price traction. Otherwise, components are flat to steady such as food at plus 0.2 percent or medical care at no change.

The 1.8 percent year-on-year core rate does catch the eye but with commodity prices soft and foreign economies weak, the outlook for price acceleration remains elusive.
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Up a bit! The new home builders are still optimistic:
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New record high- very euro friendly…
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CEOs’ Outlook for U.S. Economy Dims Ahead of Fed Rate Decision

(Bloomberg) — The Business Roundtable CEO Economic Outlook Index fell to 74.1 in a quarterly survey, down from 81.3. The survey was completed between Aug. 5-26. The CEOs projected U.S. economic growth of 2.4 percent this year, down 0.1 percentage point from the previous forecast. The share of CEOs expecting a decrease in their companies’ U.S. capital spending in the next six months rose to 20 percent in the latest survey from 13 percent in the previous one. Thirty-two percent said their firms’ U.S. employment will decline, compared with 26 percent in the prior survey.

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Spain, QE chart, Wholesale trade, UK and France industrial production, Import and export prices

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Fyi, we will be in Spain next week.

Here are some of the details:

There is a newly formed MMT Group in Spain called APEEP which stands for “Asociación para el Pleno Empleo y la Estabilidad de Precios”.

In an effort to bring MMT into the political debate in Spain, they will be hosting me for a presentation of the Spanish translation of “The Seven Deadly Innocent Frauds of Economic Policy”, starting with a presentation in Madrid on the 14th of September, Valencia on the 15th of September, and Vila-real on the 17th of September.

Here are links for the events, including time/date/location

14th September Madrid
15th September Valencia
17th September VilaReal

And this is the press release for the events containing more details.

Also:

Asociación Para el Pleno Empleo y la Estabilidad de Precios (APEEP) (Association for Full Employment and Price Stability), is a non-profit organization devoted to raising awareness and disseminating Modern Monetary Theory amongst the Spanish public. APEEP believes that full employment and price stability are compatible if public policy is conducted within an MMT framework. The current economic crisis within the Eurozone highlights the need for a Post Keynesian and MMT approach to public policy.

You’d think by now word would be out it’s just a placebo, but ancient beliefs tend to linger on…
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Not good- sales down and inventories remain elevated:

United States : Wholesale Trade
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Highlights
Factory inventories held stable in July as did wholesale inventories, down 0.1 percent against a 0.3 percent decline in sales that leaves the stock-to-sales ratio unchanged at 1.30. Wholesale inventories look light for machinery and apparel but heavy for farm products and metals.

The nation’s inventories are heavier than they were last year which may limit future production and hiring. Next data on inventories will be the business inventories report on Tuesday.

MONTHLY WHOLESALE TRADE: SALES AND INVENTORIES July 2015 Sales. The U.S. Census Bureau announced today that July 2015 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $449.5 billion, down 0.3 percent (+/-0.5)* from the revised June level and were down 4.2 percent (+/-1.4%) from the July 2014 level. The June preliminary estimate was revised upward $1.0 billion or 0.2 percent.

This chart is now looking a lot like prior recessions:
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Inventories/Sales Ratio. The July inventories/sales ratio for merchant wholesalers, except manufacturers’ sales branches and offices, based on seasonally adjusted data, was 1.30. The July 2014 ratio was 1.19.
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Great Britain : Industrial Production
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France : Industrial Production
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United States : Import and Export Prices
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None of this is considered the ‘some improvement’ Chairman Yellen was looking for going into the Fed meeting next week…

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Fed comments and charts, Employment from outside the labor force, Public sector employment, Small Business Index, Labor market conditions index

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The reason the Fed is talking hike is because they believe the continued modest growth is reducing the excess capacity in the economy, and they are concerned about hitting the wall of full employment with their 0 rate policy and multi $ trillion portfolio, both of which they believe to be highly accommodative.

That is, they believe the car is creeping along in the fog towards what they believe is a wall with their foot on what they believe is the accelerator, and they want to lighten the pressure on the presumed accelerator before they hit the presumed wall.

However, they also know the growth in employment is only very slightly staying ahead of population growth, and, likewise, most all of the drop in the rate of unemployment is due a drop in the labor force participation rate, and not to employment growth. And they also know most of the newly employed were not considered in the labor force when they were hired, raising questions about what the labor force participation rate is actually measuring. And further evidence of a continued high level of slack are the continuing low levels of wage increases, as well as low reported inflation readings in general, which remain well below Fed targets 6 years into their 0 rate and QE initiatives.

And then there is the counterfactual, with their models telling them the economy would have been a whole lot worse without their accommodative policies. Believing that suggests that any backing off from current policy risks a substantial setback.

My conclusion- no telling what they might do. These are human beings navigating in a fog with an inapplicable map, and they think the brake pedal (lowering rates) is the gas pedal.

San Francisco Fed’s Williams Sees Rate Increase ‘This Year,’ If Risks Dissipate

By Jon Hilsenrath and Michael S. Derby

July 1 (WSJ) — “All of the data that we have had up until now has been, I think, encouraging. It …has been about as good, or better, than I was expecting, in terms of the U.S. economy,” San Fran Fed president John Williams said. “But there are some pretty significant—and I would say have now grown larger—headwinds that have developed.” The change in financial conditions since the July Fed meeting, in the form of falling stock prices and a rising dollar, “have been pretty big,” he said. “It’s not the case that nothing has changed since our last [policy] meeting.”

Sure looks to me like most everything peaked when oil prices collapsed:
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So, interesting how the jobs are coming from ‘outside the labor force’ when it’s been the presumed and unique ‘shrinking labor force’ that’s resulted in most of the decline in the unemployment rates:
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Employment growth has been nearly matched by population growth, so, again, it’s only via the ‘shrinking labor force’ argument that there’s been ‘improvement’:
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President Obama remains the all time Tea Party hero when it comes to reducing the size of govt:
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From RHB- you can see which one leads:
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NFIB Small Business Optimism Index
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Highlights
A solid gain in job openings and a solid bounce back for earnings trends helped lift the small business optimism 4 tenths to 95.9 vs Econoday expectations for 96.0. The index shows no immediate effect from troubles in China and global volatility. Hiring, capital spending and inventory investment plans firmed slightly, collectively adding 2 points. But the two outlook components collectively declined 4 points in readings that do not point to a big second-half finish for the economy.
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Labor Market Conditions Index
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Highlights
The August employment report proved mixed but not the labor market conditions index which rose 3 tenths to 2.1. This is a soft level compared to the mid-single digit trend of 2013 and 2014 but is still the highest reading of the year, since December. Adding to the strength is a 7-tenths upward revision to July. Payroll growth in August was weak but not the unemployment rate which fell 2 tenths to a recovery best of 5.1 percent. This index is based on a broad set of 19 components and could be cited by the hawks as evidence of labor market improvement at next week’s FOMC.

This hasn’t updated yet but you can see today’s print of 2.1 doesn’t impress:
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quick macro update

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It all started when the FICA tax cuts and a few of the Bush tax reductions were allowed to expire at the end of 2012, followed by the sequesters a few months later 2013. That resulted in 2013 GDP growth of a bit less than 2% or so that might have been closer to 4% without the tax hikes and spending cuts.

Going into 2014 GDP I suggested growth might be closer to 0 than to the 3.5% being forecast. It again printed about in the middle averaging a bit over 2% (with some ups and downs…), and then towards the end of 2014 the price of oil collapsed and it was discovered there had been $hundreds of billions of planned capital expenditures that would be cut, domestically and globally, after which I again suggested GDP growth for the year- this time 2015- would now be near 0, and in fact could well be negative. Additionally, it was revealed the extent to which it was the large and growing oil capex expenditures up to that time that had been supporting at least 1% GDP growth up to that point. And so far GDP growth for 2015 has been less than 2014, even after 2014’s recent downward revisions, and along with slowing GDP has come slowing corporate revenues and earnings growth. All subject to further revisions, of course, which lately have been downward revisions.
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Meanwhile, in the first half of 2014 the euro began falling against the $ as well as other currencies. The fall coincided with the ECB threatening and then following through with negative rates and QE, much to the consternation of global portfolio managers, including Central Bankers, pension funds and hedge funds, who collectively proceeded to lighten up on their euro allocations. And along the way, issues surrounding Greece further frightened the portfolio managers into further selling of euro assets. This relentless selling pressure drove the euro down, particularly vs the US dollar. Specifically, a euro based portfolio manager might, for example, sell his euro securities, and then sell the euros to buy dollars, and then use the dollars to buy US stocks. Or a CB might manage its reserves such that the % of euro assets declined vs dollar assets. And a hedge fund might simply buy the $US index, which is about half dollar/euro and a way to sell euro and other currencies vs the dollar. All of this, along with several other ways to skin the same cat, constituted euro selling that drove the dollar up and the euro down, and at the same time produced buyers of US stocks.

Fundamentally, however, the opposite was happening. The euro area had a (small) trade surplus, which was removing euro from global markets, but not as fast as the sellers were selling, and the euro went ever lower. But as it did this it made the euro area that much more ‘competitive’ (euro area goods and services were that much less expensive in dollar terms) which resulted in an ever larger trade surplus, with the latest release showing a record trade surplus of about 24 billion euro per month. And at the same time, the increased euro exports helped support the economy and generated forecasts for improved future growth, all of which supported euro stocks.

It now appears the curves (finally) crossed, with the euro area trade surplus now exceeding the euro portfolio selling which seems to have run its course, which caused the euro to bottom and start to appreciate. This started generating adverse marks to market for those short euro and long US stocks, for example, who subsequently began reversing their positions by buying euro and selling US stocks. And the strong euro also threatens euro area exports and therefore output, employment, and GDP forecasts, causing euro stocks to sell off as well.

So far I’ve left out what turned out to be the catalyst for this reversal- China. When China moved to allow the yuan to trade lower against the dollar, it was deemed a credible threat to both euro and US exports, and world demand in general, which set off the latest wave of selling.
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So what’s next?

More selling of US stocks and buying euro to reverse those positions. Hedge funds might move quickly, but, for example, pension funds often do their reallocating at quarterly and annual meetings, so it could all take quite a bit of time.

Additionally, buying of euro will drive the euro up, as there is no ‘excess supply’ being generated. Quite the reverse, in fact, as the trade surplus works to make euro that much harder to get. That means the euro will appreciate until the trade surplus reverses (whether there is any causation or not…), which should prove highly problematic for the euro economy and euro stocks. The other side of this coin is the weaker dollar that should lend some support to the US stock market, though a collapsing euro area economy with it’s associate debt issues and political conflicts might do more harm than the weak dollar does good, not to mention the weakening domestic demand in the post oil capex world with no relief in sight from other sectors.

Lastly, the stock market has been maybe the best leading indicator, and probably because of it’s direct effect on perceptions of wealth and its influence on spending and investing decisions. And the Fed doesn’t target stocks,
but it doesn’t ignore them either, as it too recognizes the influence it can have on output and employment, especially on the downside.

Of course all of this can be reversed for the better with a simple fiscal expansion, as the underlying problem remains- the Federal deficit is too small in the absence of sufficient private sector deficit spending needed to offset desires to not spend income. (Yes, it’s always an unspent income story…)

But politics, at least for now, renders that sure fire remedy entirely out of the question.

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