Another boring pre Christmas day. People waiting for the Santa rally are disappointed. As we wrote yesterday, “markets will be trading in a consolidation”. Forget both Santa rallies, or major sell offs for the time being. Market is still “stuck” in a range, at least for the short term. Until we break out, and form a new trend, sit tight and trade accordingly, if you trade at all.
Short term levels below.
As Americans feel increasingly disillusioned with the role of the government, and the congress, let’s review the latest from Gallup. The trend is very clear, and Congress job approval is hitting new ath lows. Something is boiling…
A new record-low 11% of Americans approve of the job Congress is doing, the lowest single rating in Gallup’s history of asking this question since 1974. This earns Congress a 17% yearly average for 2011, the lowest annual congressional approval rating in Gallup history.
This discord in Washington caps off a year in which Congress fought bitterly before reaching a last-minute agreement to lift the debt ceiling, instructing a bipartisan supercommittee to cut more than $1 trillion from federal spending by the end of November. That objective was not reached, and the supercommittee ultimately announced that it could not reach an agreement, and disbanded.
Japan is discussing with China possible purchases of Chinese government bonds, Bloomberg reports. Japanese finance minister Jun Azumi said “I think it’s mutually beneficial” for the two countries to be investing in one another’s debt, http://ftalphaville.ft.com/thecut/2011/12/20/806931/japan-in-talks-on-buying-chinese-government-bonds/
Investors have dumped Bank of America, driving its share price to a near three-year low of $4.99 and raising fresh worries over the state of the second-largest US bank by assets, reports the FT. The bank’s shares are trading at about 38 per cent of tangible book value, http://ftalphaville.ft.com/thecut/2011/12/20/806781/bank-of-america-stock-closes-below-5/
RBS and Blackstone are set to complete a deal in which the bank will hand over control of £1.4bn of distressed property loans to the US private equity group, reports the FT, citing people involved. The move to offload the loans into a Blackstone-managed fund was likely to be completed Monday night. http://ftalphaville.ft.com/thecut/2011/12/20/806721/rbs-offloads-1-4bn-in-property-loans-to-blackstone/
Wall Street is closing near its low for the day amid what has been cautious trading after reports of further divisions over eurozone rescue funds and geopolitical tension in the wake of Kim Jong-il’s death,http://ftalphaville.ft.com/thecut/2011/12/19/806691/north-korea-worries-keep-rally-in-check/
Aside from countless banks calling for QE3 which one has to wonder if their analysis may be slightly biased for personal gain the question remains will we see QE3.
The November 2010 FOMC statement which launched QE2 made it clear why the Fed was expanding their balance sheet by $600 billion.
“To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities.”
Assuming their basis for future QE has not changed then looking at the data may give us a sense of if and when QE3 will happen.
“To promote a stronger pace of economic recovery”
With rates already at zero the only remaining policy tool with a real chance of achieving this goal is a weak USD that will theoretically stimulate export growth. In the summer of 2010 the USD was approaching $88 whereas today it is $80. In other words the USD has room to run higher before the Fed feels the need to “short the dollar” through policy.
After N Korea managed to hold Kims Jong-Il’s death a secret for 48 hours, the majority of the Western media have been reporting about the event in a quite positive way. By judging the majority of media coverage, North Korea is getting “much” closer to the West, so we can all be a big happy family. We need to be together in these difficult times deja vú?
The great western Democracies have accomplished many great things this year. The Euromezz has just reached new levels of stupidy, latest being France poitning the finger at UK. Merkel doing her own thing. The OWS movement has been brutally fought by the governments. The MENA region has undergone a huge transformation with thousands of casualties, but it was worth it, since we managed to catch the bad guy, and law and order is now restored, so oil can flow freely. The people living of food stamps in the US has hit new highs, and the misery index continues climbing. Polarization in the society and inequality is reaching new highs (remember the 1%). Russia is rigging elections, while the banks are strugling to cope with the moral hazard that has brought them to the edge of the abyss. But all is fine, Fed will bail us out, while buying some more ES futures.
It is true, we are getting closer to North Korea, we just get a funny feeling, we have been moving towards less democracy and more manipulation. Let’s see if we all just become one big happy family. Below some thoughts from Startfor.
While the Market is awaiting holiday season, there is little point in trading it. Market will probably consolidate during the last days of trading. Time well spent is going through charts, and thinking about the “big picture” for next year. Many have lost a lot of money during the wild swings this year. One thing many tend to forget though, is the fact the US markets are pretty much flat. It has been the Euromezz year, and will continue so. Let’s see if the Euro Zone problems spill over to the US. Meanwhile some long term trend to watch for;
There is no Santa coming to China for a long time. As the local government debt problem continues, while the Chinese are constructing their own Manhattan, with the Hudson river, 5th Avenue etc, the mountain of debt is accumulating to new record levels. Before China starts bailing out the world, they nee to bail out their own local governments. Slow down in China continues…More from Bloomberg below;