updates --  trotsky, 10:42:22 08/19/11 Fri
1. Anatomy of a Bad Hair Day - Bank Troubles & Recession
We take a look at yesterday's drubbing in the stock market and the news backdrop that accompanied it. It becomes ever more evident that something is terribly wrong in the European banking system, but US banks are not exactly immune to problems either, in spite of having been more diligent in shoring up their capital. The Fed has now also begun to scrutinize the funding problems of euroland banks that have subsidiaries in the US, as it is worried that another crisis may be precipitated by them. Meanwhile, the latest Philly Fed survey results are consistent with the idea that a US recession has begun in June or July.
However, this does not preclude a resumption of the bounce in stocks. In yesterday's decline, a small bullish divergence between Industrials and Transports has been established, and the t-note has failed to hang on to sub 2% yields - after its first foray into this rarefied territory since the 1940's.
acting-man.com
2. Central Planners Fail, plus a euro area chart update.
Now that it has become obvious that the attempt to spend and print us back to prosperity has failed, it behooves us to briefly look at why this is so. Simply put, policymakers have misdiagnosed the economy's problem and hence have applied the wrong cure. We can not add wealth to the economy by consuming more - what the economy lacks is savings and wise investments. Capital investment has increased to be sure, but due to the artifically low interest rate it has once again been misdirected. It seems possible that we have reached an inflection point now where more capital is consumed than is produced.
In a sign that the best laid plans of policymakers are fraying, the BoE seems to have abandoned its 'inflation target' completely. With its continual war on savers - 'euthanizing the rentiers' as Keynes recommended - it deprives the economy of the very thing that it needs most. Meanwhile, Mervyn King and his colleagues keep pretending that what is staring them into the face is not stagflation.
Charts Updated
acting-man.com |
