Currency Competition
Guest post by Azizonomics.
Monopolies contribute to many problems — the record of evidence illustrates the potential inefficiency, waste and price fixing.
Yet the greatest trouble with monopolies is what they take away — competition. Competition is a beautiful mechanism; in exercising their purchasing power and demand preferences, individuals run the economy — it is their spending that allocates, labour, capital, resources and brainpower. It’s their spending that transmits the information that determines what gets made, what doesn’t, which businesses succeed and which don’t. Individuals exercise a far greater political and economic power in a free economy when they spend, and when they work than when they vote. So without competition, the power of choice suffers, and businesses, markets and societies can become economically stagnant and rampantly corrupt; look at North Korea and the myriad other examples of once-prosperous societies impoverished by a lack of economic competition.
Bulls vs Bears in Trench Warfare
A few market observations by Peter Tchir.
Looking at the market of the past few weeks, it reminds me of trench warfare. A lot of boredom, followed by brief outbursts of carnage, and in the end, nothing changes.
Since August 3rd, the S&P has been stuck between 1391 and 1418. In the meantime, volumes have eroded. Since July 31st and the Knight fiasco, S&P mini volumes have dropped significantly and seem set to have one of the slowest full days of the year.
Maybe it is because it is August, but that excuse just doesn’t seem right. We have had busy Augusts in the past. Heck, just last year we had great volatility in the month. So it isn’t just that.
There is no shortage of news. We have had summits in the past, and Fed meetings, but typically we get volatility leading up to them. Markets have moved on every single utterance by any European politician or central banker. Now Merkel could stand up naked on the Parthenon shouting that Greece should go, and the markets might sell off a couple of points. Draghi wheeling around a printer might cause a bigger reaction, but even then, I’m not sure.
That may be an exaggeration, but what has happened?
Spain’s new headache – Deposit Flight from the Banks
With actually nothing fixed in Spain, people in Spain are now replicating the Greek behavior. Money is flowing out of the country. From the Telegraph.
Data from the European Central Bank shows that outflows from Spanish commercial banks reached €74bn (£59bn) in July, twice the previous monthly record. This brings the total deposit loss over the past year to 10.9pc, replicating the pattern seen in Greece as the crisis spread.
It is unclear how much of the deposit loss is capital flight, either to German banks or other safe-haven assets such as London property. The Bank of Spain said the fall is distorted by the July effect of tax payments and by the expiry of securitised funds.
Julian Callow from Barclays Capital said the deposit loss is €65bn even when adjusted for the season: “This is highly significant. Deposit outflows are clearly picking up and the balance sheet of the Spanish banking system is contracting.”
QE3 Mechanism Is Broken
Guest post by Lance Roberts of Street talklive.
When Ben Bernanke launched QE 2 in 2010, he outlined a third mandate for the Federal Reserve – the boosting of consumer confidence. He stated that the goal of QE 2 was to boost asset prices in order to spur consumer confidence through the “wealth effect”, which should translate into economic growth. In 2010 he was right, and QE 2 not only boosted asset prices sharply, but also kept the economy from slipping into a recessionary spat. As Friday’s speech from the economic summit in “Jackson Hole” draws near, Bernanke should be taking a clue from today’s release of consumer confidence in considering his next move.
The Conference Board released today a report on consumer confidence that was more than just disappointing. Not only did the consumer confidence index come in at the lowest level since 2011, when the government was last struggling with debt crisis and U.S. ratings downgrade, but the future expectations of the economy plunged 8 full points from 78.4 in July to 70.5. The three components on future business conditions, employment, and income all deteriorated sharply, showing a consumer struggling to make ends meet. This pessimism, particularly in incomes, poses a risk for retailers going forward and suggests weaker GDP data ahead.
Latest comments