By: Daryl Montgomery
European and U.S. stocks were rallying on Friday in what appears to be a liquidity frenzy supplied by the central banks. The market is once again hopeful now that EU leaders are beginning six days of meetings on how to save Greece and the euro. Based on their previous track record, which has led to the current crisis, there is little reason for long-term optimism.
Stock prices have not been the only thing rising lately. Interest rates have ...
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By:Daryl Montgomery
Britain shocked the markets on October 18th when it reported an inflation rate of 5.2% for September. This was up from 4.5% the previous month and well above government projections. Inflation isn’t just rising there, but higher prices are a global phenomenon.
The world seems to be entering a new period of stagflation similar to the 1970s. Stagflation is high inflation and low GDP growth. This is very evident in the UK where GDP ...
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By: Daryl Montgomery
Bloomberg reported overnight that Greek bondholders were preparing to lose 60% on their investments. This is much bigger than the constructive default of 21% proposed with the second bailout in July. A big cut in the value of Greek bonds will cause major problems for German and French banks — and the ECB itself.
Rumors have been floating around the markets for days about a managed default of Greek debt at around the 50%, or ...
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By: Daryl Montgomery
U.S. stocks had a major rally on Columbus Day based on the French and German leaders’ mystery plan to recapitalize EU banks and on raised forecasts for U.S. economic growth in the second half of 2011. While both news items seemed to contain nothing but wishful thinking, that’s often enough for short-term traders.
The Dow Industrials closed up 3.0% and Nasdaq 3.5% on low trading volume. Big moves in the market are more likely when many traders are ...
Read On →By: Daryl Montgomery
The non-farm payrolls report for September indicated the U.S. economy added 103,000 jobs last month. Mainstream media immediately jumped on the number as proof the U.S. is not in a recession. It indicates no such thing.
While it seems reasonable to assume that employment can’t increase at the begging of a recession, this did not happen in December 2007 when the Great Recession began. Total U.S. non-farm payroll employment actually peaked in January 2008 ...
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By: Daryl Montgomery
Markets like money printing. The Bank of England (BOE) today announced its own QE2. Statments from Fed Chair Ben Bernanke and talk of the EU recapitalizing its banks was already juicing up global stocks before the BOE took this earlier-than-expected action.
In its latest round of quantitative easing, the BOE will be purchasing 75 billion pounds in bonds. While some news reports euphemistically described this action as the BOE will be “spending” the money, the correct ...
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By: Daryl Montgomery
While there is a lot of talk about the S&P 500 being in a bear market because it fell 20% from its high, this definition is not particularly useful to traders or investors. The focus should be on whether or not the market is trending down and will continue to do so. A market having fallen by so much, regardless of what the amount chosen is, does not provide that information.
The term bear market dates backs to at least ...
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By: Daryl Montgomery
The third quarter of 2011 had the biggest drop and most volatility for stocks since 2009. The fourth quarter may not be much better since the cause of the problem is a new credit crisis and an emerging global recession. Both will continue to be a drag on the market.
Except for small cap stocks, the U.S. markets did somewhat better than many overseas markets during the quarter. The Hang Seng in Hong Kong was down ...
Read On →Headlines such as “Hopes for Greek debt progress lift world stocks” and
“Wall St opens higher on European hopes” are in the financial news today.
Before investors buy into the hype, they should realize that the powers-that-be always
deny an obvious and inevitable default before it takes place.
Greece in 2011 is on a very similar trajectory to Argentina in 2001
and is well past the point of no return for a default just as Argentina ...
Read On →What has hardly budged since the depths of the Credit Crisis is the Present Situation Index -
how consumers see things right now.
This was at 27.5 in February 2009 when consumer confidence was the lowest ever recorded.
It was at 33.3 this August, two and a half years later.
If the economy had truly recovered, this number should be over 90.
Instead, it’s at rock bottom levels.
Apparently, consumers can be fooled into ...
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