Great news, market is soaring on thin volume. This could turn out to be very interesting start to the year. It reminds us very much of last year’s start to the year. Markets are trying to break up on light volume, people are forced into buying this rally, and many of the “smart” shorts are covering in this very thin market. Let’s not forget, the World needs to refinance many trillions of debt this year, and yes rates will probably stay very low. El Erian on the zero rate policy, that must hold, or….By Bloomberg;
“You’ll see policy rates in the U.S. and Europe floored at or near zero,” Newport Beach, California-based El-Erian said in the interview. “I don’t think there will be any appetite or need to raise interest rates in the U.S. and Europe.”
The Federal Reserve has said it will keep its target rate for overnight loans between banks between zero and 0.25 percent through mid-2013, and is now selling $400 billion of its short- term Treasuries and reinvesting the proceeds into longer-term government debt in a program traders dubbed Operation Twist.
Guest Post by D Short.
The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin. It’s a fairly simple concept, but laborious to calculate. The Q Ratio is the total price of the market divided by the replacement cost of all its companies. Fortunately, the government does the work of accumulating the data for the calculation. The numbers are supplied in the Federal Reserve Z.1 Flow of Funds Accounts of the United States, which is released quarterly.
The first chart shows Q Ratio from 1900 to the present. I’ve calculated the ratio since the latest Fed data (through 2011 Q3) based on a subjective process of extrapolating the Z.1 data itself and factoring in the monthly averages of daily closes for the Vanguard Total Market ETF (VTI).
We start the new year like we ended the old year: with a mixed sentiment picture. The Rydex market timer is extremely bullish, and this is a bear signal. The “dumb money” indicator is neutral and company insiders are as well. Overall, my interpretation is bearish. Sustainable price moves usually start when there are too many bears, and it is short covering that is the fuel that sparks a price rise. After the short covering subsides, sustainable price moves are typically heralded by having too many bulls willing to chase prices higher. Neither of these extreme conditions are currently present, and it is difficult to see the market embark on a sustainable price move in their absence. Lower prices would bring out more bears and this would be a precursor to a tradeble, sustainable rally. Higher prices should be supported by increasing number of bulls, and this would be a signal that a sustainable rally, that everyone so desperately wants, is unfolding. As stated above, I am betting that we will see lower prices before higher as there are few bears (i.e., no short covering) and as the time for the bulls to have taken the reigns of this market have long since past.
So the property sector in many of the PIIGS countries is under severe stress, but how are property proces actually behaving? Ireland, one of the ex Tiger economies is experiencing the sharpest drops ever. With properties in free fall mood, asking prices fell by 7.7% in the fourth quarter alone. Many are now entering negative equity, and we all know what that means. The hang over period has just started. From Finfacts Ireland:
Asking prices for Irish residential property across Ireland fell by an average of 7.7% in the fourth quarter – - between September and December – - according to the 2011 In Review report published by property website Daft.ie. This is the sharpest three-month fall in house prices to date and means that the percentage fall in prices over the course of 2011 was 18%, as large the fall seen in 2009. The average asking price is now just over €175,000, 52% below the 2007 peak of €366,000.
The year has started on a positive note. Bloomberg is picking up on the theme we outlined yesterday. There are some quite big numbers to refinance this year. Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year. The amount needing to be refinanced increases to more than $8 trillion when interest payments are included. Video below;