“I'm
not absolutely certain of the facts, but I rather fancy it's Shakespeare who
says that it's always just when a fellow is feeling particularly braced with
things in general that Fate sneaks up behind him with the bit of lead piping.”
P. G.
Wodehouse
The rebound hopium stock
rally fizzled on Friday, generating worries about what lies ahead next
week. For stock markets to be right, the
bond markets have to be wrong about the return of inflation and normalising
interest rates in the weeks, months, and years ahead. ZIRP and in some places NIRP must continue
forever, an unlikely prospect that flies in the face of stated central bankster
policy.
Below, what I think
is the last gasp of the buy the dip mentality.
Grabbing nickels in front of steamrollers was always risky policy, but
is all the more so now that the steamroller is changing gear.
It was the
best of times, it was the worst of times, it was the age of wisdom, it
was the age of foolishness, it was the epoch of belief, it was the epoch of
incredulity, it was the season of Light, it was the season of Darkness, it was
the spring of hope, it was the winter of despair…
Charles
Dickens. A Tale of Two Cities.
Dow, S&P 500 book 6th straight gain as stocks post best week in years; Nasdaq lags
Published: Feb 16, 2018 4:32 p.m. ET
Stocks ended well off Friday highs as news on Mueller indictments briefly rattled Wall Street
The Dow and S&P 500 on Friday logged their sixth straight advance, notching a slight gain at the close, with the benchmarks ending well off session highs as political news sparked late-session turbulence.Special Counsel Robert Mueller announced the indictments of 13 Russian nationals and three Russian entities, accusing them of interfering in U.S. elections. Major indexes had been solidly higher in afternoon trading before the announcement.
How are the benchmarks performing
The Dow Jones Industrial Average DJIA, +0.08% rose 19.01 points, or less than 0.1%, to 25,219.38. The S&P 500 index SPX, +0.04% added 1.02 point to 2,732.22. The Nasdaq Composite Index COMP, -0.23% meanwhile, closed down 16.96 points, or 0.2%, to 7,239.47.Both the Dow and the S&P extended their recent rally to a sixth straight day; the Dow last had a rally of this length in November, while the S&P’s last six-day advance was in January. The Nasdaq snapped a five-day rally.
For the week, the Dow rose 4.3% in its biggest one-week percentage rise since November 2016. The S&P 500 also gained 4.3% in its best week since January 2013, while the Nasdaq ended up 5.3% in its best weekly percentage gain since December 2011.
Also at current levels, the Dow is 5.3% below its all-time high, hit last month. The S&P is 4.9% below its own record, while the Nasdaq stands 3.6% shy of its own.
Read: How the bull market thrives in the Year of the Dog
What drove markets?
Investors watched for any signs of inflation in the economy, the threat of which sparked recent volatility in equities, which at one point pushed the Dow and the S&P 500 into correction territory, defined as a drop of at least 10% from a peak. Equity benchmarks have since cut those losses substantially. Trading was expected to remain light ahead of the long holiday weekend. U.S. financial markets will be closed Monday in observance of Presidents Day.Signs that the economy is growing, but not in any danger of overheating, helped stocks to move ahead this week and take the sting out of last week’s losses. Alongside that recovery, bullish sentiment jumped, according to a weekly survey, nearing “unusually high” levels.
However, a reading on import prices for January showed a monthly increase of 1%, another sign that once-subdued inflation pressures are building. Data earlier in the week showed a rise in consumer-price inflation, which is watched as one barometer for the Federal Reserve’s interest-rate plans. The import-price increase was hotter than the 0.7% rise in import prices expected by a FactSet poll of analysts, and compares with a 0.1% gain in December.
More
Markets Confront Death by a Thousand Cuts
There are no excessive
bubbles that could burst and lead to a recession, but that doesn't mean the
road ahead is all clear.
by A. Gary Shilling
16 February 2018, 16:30 GMT
Stocks have
been on a wild ride, with the Dow Jones Industrial Average dropping 10.4
percent from its peak on Jan. 26 to the Feb. 8 trough, before recovering about
half those losses through Thursday. Usually, big declines foreshadow Federal
Reserve-induced recessions. Late in a business cycle, the central bank worries
about economic overheating and jacks up interest rates to crushing levels.
That wasn't
the case during the dot-com bubble in the late 1990s, when the Fed belatedly
boosted the federal funds rate from 4.75 percent to 6.50 percent between June
1999 and May 2000. Similarly, central bankers waited too long to raise rates
despite clear housing-market excesses in the early 2000s that enabled the
subprime mortgage boom, which precipitated the financial crisis and the
2007-2009 recession. At the time, the rate increases didn't start until
mid-2004, rising slowly in quarter-point increments from 1 percent to 5.25
percent in mid-2006. It was too little, too late.
It's no
surprise that stocks have been floating on a sea of money created by the Fed
and other monetary authorities ever since they bailed out the major banks
during the financial crisis and then turned to massive quantitative easing.
It’s also fueled private equity and hedge fund inflows despite poor
performance, leveraged loans, bitcoin speculation and emerging-market stocks
and bonds. The market capitalization of the S&P 500 Index is 150 percent of
gross domestic product, well above the 2007 pre-crisis peak of 137 percent.
Nobel laureate Robert Shiller’s cyclically adjusted price-to-earnings rate was
33.8 in January, the highest since the 1929 crash and twice the 16.8 long-term
average.
The
consensus is that the recent selloff can be tied to the unwinding of bets that
volatility, which has fallen to historic lows, would stay depressed for an
extended period. Successes in these trades encouraged more of the same, until
speculators were forced to buy back their shorts and the feedback loop
reversed. This was a classic case of too many being on the same side of the
same trade at the same time.
The parallel
today may be 1987, when the Dow nosedived 22.6 on Oct. 19 -- Black Monday. The
culprit was portfolio insurance, the belief that equity portfolios could
systemically be sold to preserve profits in the event of market declines. That
encouraged risk-taking. But with so many portfolio insurers, buyers were all
too few when sellers simultaneously wanted to bail. The self-feeding upward
cycle proved more virulent on the downside.
To be sure,
I see no inflated bubbles that the recent volatility-induced stock declines
could prick and then precipitate a recession -- nothing like the dot-com or the
subprime mortgage excesses. But there are enough imbalances that could lead to
death by a thousand cuts, especially if stocks fall much further.
Goldman
Sachs believes that the 19.5 percent climb in stocks last year accounted for
0.6 percentage point of the 2.6 percent real GDP growth via the wealth effect
as households spent some of their portfolio gains. The firm believes a 20
percent drop in stock prices would cut GDP growth this year by 1.1 points.
More
In other news,
someone sees very bad times ahead and are floating bribes for those most likely
to riot. I have my doubts that such
schemes can work, even when on the folly of the Great Nixonian Error of fiat
money. Leaving aside the cost and moral hazard generated, I think about half
the recipients would act responsibly, but the other half would likely blow it
on drugs legal and illegal, booze, gambling, lifestyle and holidays.
Such
schemes I think, would quickly collapse under pressures of “temptation,” to the
recipients, and a criminal industry setting out to separate fools from their
money.
If all
else fails, immortality can always be assured by spectacular error.
John Kenneth
Galbraith.
£10,000 proposed for everyone under 55
16
February 2018
The Royal Society for the encouragement of the Arts, Manufactures and Commerce (RSA) said it could pave the way to everyone getting a basic state wage.
The idea sees two payments of £5,000 paid over two years, but certain state benefits and tax reliefs would be removed at the same time.
The RSA said it would compensate workers for the way jobs are changing.
The money would help to steer UK citizens through the 2020s, "as automation replaces many jobs, climate change hits and more people face balancing employment with social care", the report said.
'Storm clouds'
Payments would come from a British sovereign wealth fund in the form of two annual £5,000 dividends, the RSA proposes.The payments would not be means tested, and applicants would only have to demonstrate how they intended to use the money.
Anthony Painter, director of the RSA's Action and Research Centre, said: "The simple fact is that too many households are highly vulnerable to a shock in a decade of disruption, with storm clouds on the horizon if automation, Brexit and an ageing population are mismanaged.
"Without a real change in our thinking, neither tweaks to the welfare state nor getting people into work alone, when the link between hard work and fair pay has broken, will help working people meet the challenges ahead."
The report says the fund could help people: "A low-skilled worker might reduce their working hours to attain skills enabling career progression.
"The fund could provide the impetus to turn an entrepreneurial idea into a reality. It could be the support that enables a carer to be there for a loved one."
The fund would be built from public debt, levies on untaxed corporate assets and investments in long term infrastructure projects, and be similar to Norway's $1 trillion sovereign wealth fund.
As the dividends would replace payments such as Child Benefit, Tax Credits and Jobseeker's
Allowance, the savings for the government could also be ploughed into the fund.
The right questions
Anyone receiving the "dividends" would not be able to claim any tax allowances, which the RSA says would act as a disincentive to wealthier earners wanting to apply for the handout.In all, the RSA puts the cost of the scheme at £14.5bn a year if it is fully subscribed to, and a total of £462bn over 13 years, more than half of which would be paid for by government savings.
The Labour Party has said it is looking into similar arguments for a Universal Basic Income (UBI).
--- Universal Basic Income - a work in progress
The history of UBI can be dated back to Thomas Paine's essay, Agrarian Justice, where he proposes the idea as part of a social security system.More recently the idea has been put into practice in limited ways. For instance, in Alaska all residents have been entitled since 1982 to a yearly cash dividend from the Alaska Permanent Fund.
Finland is half way through a two year nationwide pilot scheme, giving 2,000 unemployed Finns a monthly income of €560 (£497) which continues even if they find work.
Scotland has provided funding for four local authorities to look into the idea.
In the US one Democrat presidential nominee hopeful, David Yang is proposing his version of UBI, a $1,000 a month "Freedom Dividend".
Even so, some economists believe full UBI can't work.
More
“Unseen
in the background, Fate was quietly slipping lead into the boxing-glove.”
P. G.
Wodehouse
No comments:
Post a Comment