Register here to have email alerts sent to you when a new post is made.
Blog posts can now be found at www.Marketsindevelopment.com
Voices From The Past
“(The) economy faces some significant barriers to growth besides deflation, including massive financial problems in the banking and corporate sectors and a large overhang of government debt. Plausibly, private-sector financial problems have muted the effects of monetary policies that have been tried …, even as the heavy overhang of government debt has made … policy makers more reluctant to use aggressive fiscal policies.”
Banks Are Not Lending
I have just posted the January Long Term Analysis for The Markets in Development Newsletter. You can access it on a complimentary basis at http://www.josephjames.com/markets-in-development. Also you can click on the tab for The Markets in Development Newsletter.
These are interesting times. I cannot remember in all of the years I have been involved in the markets a time of so much uncertainty. Now there is even uncertainty in the numbers the Federal Government publishes on the jobless rate. With only 114,000 jobs created in September the unemployment rate fell to 7.8%.
This week we found second quarter GDP was revised lower to 1.3% Actually, it was 1.25% but the government rounded it up to 1.3%. It appears we are slowing down from a growth perspective faster than most anticipate. More importantly, the durable goods orders dropped 13%, which was the largest one month drop in three years. Housing looks slightly better, or at least prices seem to have stabilized.
All through history markets have been made up of buyers and sellers. It matters not the market but as long as there has been human life, there has been trade between them. As trade is facilitated, there is a determination of value. Whether it is a tool, a gold rock, food or a certificate that gives you a part interest in a company, the determination of value is always between the buyer and seller. Value us set when a buyer and seller agree on a price and the trade is consummated.
The Fed threw a curve ball at the economy. While most analysts, yours truly included, felt it was too early for additional stimulus, the Fed came out with QE3 and more. Make no mistake! The Fed pulled out a large cannon on Thursday. They announced the purchase of $40 Billion of mortgage backed securities through the end of the year; committed to a continuation of Operation Twist (reinvesting maturing securities); and to keep interest rates near zero into 2015.
Do fundamentals or technical really matter in the current environment? We have seen history repeat itself many times. We know from countries that have run large deficits and accumulated great amounts of debt, usually end up paying off that debt through the inflation of their currency. Once a nation’s debt rises to a certain point, there is no way it can be paid back through debt restructuring. The GDP of the nation is simply not high enough to sustain the debt. Interest costs rise and the burden is simply too much.
What is making the Stock Market go up? What do you think is going to happen? These are the two most asked questions that I get from people who are not in the markets professionally. My typical answer is that it is going up because there are more buyers than sellers and that the market will go up just before it goes down again. There is usually a serious look on their face, as they contemplate my response. After a few moments, I usually try to explain the market is driven by anticipation over growth in the economy and the resulting growth in corporate earnings. It is in the behavior of the participants that the market moves up or down. Understand the participant and you can understand the direction of the market. More importantly, understand information that can come into the market that will influence the behavior of the participant and you may have found an edge in anal