No sooner were the sandwiches wrapped and lunch boxes packed, then we were treated with two 'elevated' speeches from two of our favorite eco/political lecturers.
Prof Ben B led off in a relaxed 'welcome back to class' demeanor with an extremely prescient summary of the collective economic ailments as he sees/knows them. He further added that he has lots of monetary 'tools and strategies' left at his disposal without revealing a single critical specific. Despite red hot Gold prices he is not concerned about inflation threats while warning that US finances could 'spiral out of control!'
Next on the podium was the much awaited Potus job creation edict which took on a much more 'you better attend class and do your homework or else' tone. The new look intense finger wagging Keynesian sermon was as much pre-election campaign rhetoric as it was an appeal to the democratic base from the desperately low approval rated BH Obama. As expected Japanese style infrastructure (for roads and bridges that may or may not be needed) and extension of the GW Bush payroll tax cuts anchored his rehashed thesis. Many/most of these 'new' promises' were part of the first stimulus plan. He wasn't quite as clear about his strategy of the government paying someone to hire somebody else with their own borrowed money. I hope that's not on the final exams!
Democrats hearts were warmed with the thoughts of new and improved union reform and more intense redistributionist 'rich paying their fair share' hyperbole. Evidently we all need to do as Warren Buffet says but not as he does? Congressional types got the physical exercise component of 'back to school' through a series of animated and grueling standing ovations for anything which sounded remotely 'stimulative.' How Nancy Pelosi held back her tears of joy I'll never know?
Video game manufacturing hiring should improve with the promise of an additional year of unemployment benefits. Now XBoxers will be paid 'not to work' for three years! Based on the maximum weekly benefits non-workers get paid $10/hr to stay home as opposed to gainful employment at the $7.25/hr minimum wage level. Hopefully there will be a great future demand for the hoards of professional video game players?
Math skills must have eroded over the summer as last weeks 'pre-announced' $US300b job creation program finally totalled up to a whopping $US447b 'this will be paid' America Jobs Act! Of course no details about how, when, or who was going to 'pay' for this new boondoggle - or more importantly what effect this 'program' would be on the national debt having now exceeded the critical 100% of GDP level. On Sept 19th we will find out that you, er... I mean, who, will pay the tab? Even less clarity about the corporations who might be tempted by 'employment' tax credits despite the 'loopholes' that are about to close and the overall higher tax burden they will face.
Perhaps the next lecture with cover an explanation on how an extra $US500b will create meaningful employment when the last $US4T borrowed and spent did not create any? I guess that's why they are the teachers and we are the .....? Eight times the American Public was threatened to 'pass this bill or else' while being convinced that 'America has always been about sharing like this!' He further incredulously added that this is what has made America great! Expect official unemployment to approach 10% +/or the cost of any new job to exceed $250k per. Time to drain the swamp for good!
The European economic Pandora's Box is quickly becoming a nightmare of epic proportion. Top ECB economist Jurgen Stark suddenly quit Thursday because he has had enough (and personal reasons). Christine Lagarde appears to have already over stayed her European welcome with her persistent Keynesian calls for more capital, liquidity, and intervention. She craves an Obama style solution. Greece will be lucky to be a member of the EU through the weekend despite rampant denials. A default has been baked into the moussaka for weeks. As euro economies implode the existence of the Euro will be severely tested turning a credit problem into a currency crisis. Fitch has their eyes on a potential Asian/China debt downgrade in 12-24 months which adds yet another dimension to the complex international credit & currency dilemma. The Chinese central government has negligible total debt, but totals increases substantially when local government debt is added, and explodes when state owned enterprise debt is included.
Most of the 'developed' world has become paralyzed with gloom and fear except for the Toronto Maple Leafs who feel they have fielded their best crop in decades! Hope does spring eternal!
In the US, the bungee cord DJIA/S&P trading environment continues to consolidate at dangerously low (sub 11,000) levels. With very little expected from policy leadership new ytd year lows are only a mini-crisis away. Despite the negative hysteria US exports surged to new all time record highs in July led by new records for US manufactured goods. July job openings for July was the highest in three years. I wonder if Potus got the memo? Despite the rampant pessimism capital goods orders, industrial production, corporate layoffs, staffing levels, corporate profit levels, and leading economic indicators are quite positive. Key support levels for the DJIA are 11,000 and then 10,600. S&P support 1,150 and 1,100. Nasdaq critical support 2,340 recent low levels. Reports are rapidly declining 'short positions' may be a longer term concern for market strength. The DJIA looks to be down 2% this shortened week and down 5% ytd. The S&P looks to be down 1.5% this week and down 8% ytd. The Nasdaq looks to be unch this week and down almost 11% ytd.
On the eve of the the great tragedy of 9/11 my thoughts and heart goes out to all American who were directly and indirectly affected by America's darkest day.
In commodities, once again the margin gremlins of the LME threaten to weaken the resolve of gold investors. The CME hiked cleared OTC London Gold Forward Margin by 40% yesterday but to this point has hardly created a ripple in the $US1,8,60/oz price. Silver looks potentially explosive to me for a retest of last April's $US50/oz level. Crude oil is now being contained in a tighter $US85/90/bl range. A move above $US90/bl would be very constructive. Natural Gas and Copper prices are attempting to consolidate at slightly higher levels. $US4 for both commodities are critical support levels. Agra grain markets are pulling back into short term correction levels as expected. Despite the recent AA+ downgrade the powerful US treasury market continues to confound this writer as yields hit all time low territory. Nervous Euro investors appear to be using the US bond market as a haven for safety and liquidity which definitely speaks to the panic and concern.
In Canada, employment fell 5.5k in August which was much worse than consensus expectations of a 21k gain. Private sector construction led the negative contraction. Domestic demand remains well supported paving the way for an acceleration in GDP in the quarter. It has been a very difficult/frustrating year for the S&P/TSX which has become inextricably linked to all global credit and currency issues of the day. The TSX index looks to be down 1% this shortened week and down 7% ytd. Currently the market is a momentum stock/sector picking/trading environment. Despite the recent solid bank earnings it will be critical for the TSX that the recent lows made by the financials to hold. It will be a matter of only a few weeks before 'tax loss selling' swings into full gear. Key support levels for the TSX are 12,200 and then 11,700. A move above 12,800 would be short term positive.
In closing, it is very difficult not to be affected by the prevailing rampant gloom, doom, and despair. Intense pessimism appears to increase during each selling wave. Considerable 'technical' damage has been done to key indexes throughout the world in the anticipation of further deteriorating financial conditions. Normally I pride myself as a 'classic contrarian' however even I am 'challenged' in this weaker macro fundamental and technical environment. I do expect conditions to become grossly 'over sold' at some point and hopefully before the turkey hits the plate. Market psychology and sentiment appears to the most significant short term factors in this 'trading' environment. Waiting patiently for an opportunity to 'reload' at lower levels would probably the 'higher odds' probability for the next few weeks. A fetal positon induced close below the recent mid August lows will create significant excitement/despair to say the least.
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