Friday, October 11, 2013

"Equities are grinding lower"??

Sometimes you have to take the advice of the "experts" with a grain or two of salt. Case in point: Mark Zandi, in written testimony today to the Joint Economic Committee: "equities ... have been slowly grinding lower since mid-September." Zandi, a reliable source for quotes that reaffirm Keynesian economic logic and avoid ruffling consensus feathers, is trying to make the case that Congress should end the shutdown and reverse the sequester in order to boost the economy. That without these actions, the stock market is telling us that the economy is doomed to deteriorate.

Here's what "grinding lower" looks like in fact (as I write this, the S&P 500 is down 1.4% since mid-September):

I'd say a more accurate description of the equity market is just the opposite: equities have been grinding higher for the past four years or so, despite the many obstacles—like the shutdown and the sequester—that have been thrown in its path. The economy has been slowly improving as well, despite a degree of "fiscal austerity" over the past four years that would have led any Keynesian to predict a recession.

The economy's disappointingly slow growth, in my view, has almost nothing to do with fiscal austerity. Rather, it has to do with policies that are smothering the private sector: e.g., higher taxes, increased regulatory burdens, increased subsidies and transfer payments, and Obamacare.

Reversing any or all of these policies would almost surely do more for the economy than reversing the sequester.


McKibbinUSA said...

Dividend and rent-earning equities are a bargain in today's market -- buy now before it is too late -- the best time to buy equities is during times of maximum pessimism -- and folks, we are there -- buy!

Benjamin Cole said...

As an armchair economist, I find reading what "real" economists say and print to be...confusing.

That said, I wish Congress would put the deficit ceiling debacle behind them, and concentrate on beating Obamacare in a straight up vote of some sort.

If you cannot beat Obamacare in a straight up vote (or get the Supreme Court to kill it), then it becomes law. A bad law, and an iffy enterprise, but we have bad laws and iffy enterprises everywhere...and we gotta keep the country running...

As for weak growth, the Fed continues to asphyxiate the economy, and if you have doubts about that consider where the PCE index has been for the last five record low increases....and sometimes deflation...

Winning the war on inflation during the worst recession since the Great Depression is not good monetary policy....

Federal agency spending is out of control...disability payments in Social Security and to returning vets are going crazy...we are creating a generation of welfare grubbers...

Mandated ethanol is a disaster...

Medicare Part D will cost more than the entire Social Security program...

Neither party will be honest and talk like adults about euthanasia, old age, and the cost of medical care...

We need to think about how to get federal outlays down to 15 percent of GDP from the 20-22 percent range now...cut defense, VA and homeland security in half...wipe out ag subsidies, a one-time permanent 10 percent cut in Social Security payments...lots of ways to do it, lots of hypocrites in DC...

McKibbinUSA said...

@Benjamin, I concur with your post -- especially your observation that "winning the war on inflation during the worst recession since the Great Depression is not good monetary policy..." -- spot on (!) -- nevertheless, the war on inflation is and will remain the Fed's number one priority and vector forever -- the reality is that bondholders rule America, and the only way to beat them at their game is to join them...

steve said...

economics is the only profession where a group of "experts" can look at the exact same data and come up with completely different conclusions as to what it means. with all due respect,economics is largely voodoo.

theyenguy said...

On Friday, October 11, 2013, Wall Street Ends Higher on Hopes of Weekend Resolution in Washington. U.S. stocks extended gains on Friday, a day after their biggest rally in more than nine months, as investors were hopeful for a solution to end the partial government shutdown that would stave off a possible U.S. default, Reuters reported.

The chart of the EUR/JPY shows a close for the week at 133.48. And the chart of AUD/JPY shows a close for the week at 93.27

Gold, GLD, plummeted 1.3%, and Silver, SLV, 1.5%, forcing Gold Miners, GDX, 2.1%, lower, and Silver Miners, SIL, 1.6%, lower, reflecting demand for Risk Assets, such as Solar Stocks, TAN, and Resorts and Casinos, BJK, as well as for Emerging Market Infrastructure, EMIF, and US Infrastructure, PKB, supported by a strong EURJPY and AUDJPY, as is seen in their ongoing Yahoo Finance Chart.

This week World Stocks, VT, rose, 0.9%, as Nation Investment, EFA, rose, 0.9%, and as the Eurozone, EZU, rose 1.6% and the Emerging Markets, EEM, rose 1.7%.

This week, US Stocks, VTI, and The Russell 2000, IWM, both rose 0.6%. And the S&P 500, SPY, rose 0.8%; with the chart of the S&P 500, $SPX, closing at $1,703, up 0.7%.

The S&P 500, SPY, closed at 170.25. Inasmuch as September 20, 2013, marked an Elliott Wave 5 High in the S&P 500; its current rise marks an Elliott Wave 2 High, from which the S&P 500 will fall into an Elliott Wave 3 Down; these are the most aggressive of all economic waves, creating the bulk of wealth on the way up, and destroying most of wealth on the way down.

Nations rising strongly this week included the following

Egypt, EGPT, 5.5,

Israel, EIS, 3.8

India, INP, 3.4, SCIN, 2.1,

Brazil, EWZ, 2.7, EWZS, 2.5,

Spain, EWP, 2.4

Italy, EWI, 3.1

Greece, GREK, 2.9

Thailand, THD, 2.8,

Philippines, EPHE, 2.7

South Korea, EWY, 2.1

Argentina, ARGT, 1.4

Sectors rising this week to new rally highs included the following:

Solar, TAN, 3.0%

Design Build, FLM, 2.2

Leveraged Buyouts, PSP, 1.6

Resorts and Casinos, BJK, 1.4

Small Cap Industrials, PSCI, 0.9

Sectors falling strongly this week included the following:

Biotechnology, IBB, -5.4

Nasdaq Internet, PNQI, -2.9%

Internet Retail, FDN, -2.4,

these are the first investment casualties of the Great Bear Market which commenced that September 20, 2013, as reflected in the Market Off ETN, OFF, rising in value.

Yield Bearing Sectors rising strongly this week included

Electric Utilities, XLU, 2.6%

Real Estate, IYR, 2.6, with REZ 3.6, FNIO, 3.0, ROOF 2.4, and DRW, 1.2.

Telecom, IST, 1.0

Shipping, SEA, 0.6

Small Cap Energy, PSCE, 1.9%, Energy Production, XOP, 1.7. both new rally highs on a lower price of Oil, USO, -1.0. Demand for Small Cap Industrials, PSCI, and Small Cap Energy, PSCE, have driven the Small Cap Growth Stocks, RZG, to a new rally high as investors have shunned Large Cap Value Stocks, JKF, as is seen in their combined ongoing Yahoo Finance Chart.

On Friday, Junk Bonds, JNK, rose 0.4%, and Ultra Junk Bonds, UJB, rose 0.1%, taking Aggregate Credit, AGG, 0.1% higher. The Interest Rate on the US Ten Year Note, ^TNX, closed at 2.68%.

McKibbinUSA said...

Looks like a technical default later this week is possible -- is anyone shorting stocks...?

Hans said...

Dr McKibbin, we are putting the following; JNK, EWJ, GDXJ, DJX...

Any advice?

John said...

"Looks like a technical default later this week is possible -- is anyone shorting stocks...?"

Sounds like Congress can play the stock market like a fiddle.