Financial topics

[Higgenbotham]

We saw in the Panic of 1857 that the panic hit on the news of Ohio Life.

I would suspect that the market will not rise until the day Greece officially defaults. Instead, it will generally rise until market participants believe, more likely than not, that Greece will default. There are two mechanisms that drive that. If shorts are betting on a default and are wrong, then some of them will need to cover, which drives the market higher. The second is that the Central Banks will err on the side of injecting liquidity as long as there is the threat of a Greek default.

That seems to be the driver, as the Fitch ratings cuts, 0.9 percent rise in final sales of domestic product, etc., are not impacting the market much.

I called my brokerage today. I asked how many days they would give me if the market rises and I go on margin call. The last time I had that conversation was almost 2 weeks ago and my account had a slightly smaller balance at that time than it does today. The answer then was we'd give you a few days. The answer today was we'd give you a few days as of now but get the money ready to go immediately because we have no idea what is going to happen. They seemed very nervous.

[John]

I think that the difference is that the Ohio Life default was a shock
and surprise to everyone, but a Greek default would surprise few
people at this point. It appears that a lot of people have been
preparing for a Greek default as well as they can. So I would say
that a Greek default will not cause a shock if the politicians can
convince the public that it's "contained" (to use a famous word from
2008), but if it leads to an unexpected bankruptcy elsewhere, that
would be a great shock.

John

[Higgenbotham]

I think that the difference is that the Ohio Life default was a shock
and surprise to everyone, but a Greek default would surprise few
people at this point. It appears that a lot of people have been
preparing for a Greek default as well as they can. So I would say
that a Greek default will not cause a shock if the politicians can
convince the public that it's "contained" (to use a famous word from
2008), but if it leads to an unexpected bankruptcy elsewhere, that
would be a great shock.

John

I think the Greek default will go similarly to the US debt downgrade. The market may swoon a few days before the actual fact, then crash for a couple more days after it's official. Also, it may be similar to Bear Stearns in that everyone already knew Bear Stearns was in trouble, then the real bad fallout will come some months later.

[OLD1953]

US govt borrowing dropping.

http://www.bloomberg.com/news/2012-01-3 ... llion.html

Also, great depression charts are useful in comparisons of GDP growth.

http://www.indexmundi.com/g/g.aspx?c=us&v=66

http://en.wikipedia.org/wiki/File:US_GDP_10-60.jpg

http://visualizingeconomics.com/2011/03 ... 1871-2009/

The wikipedia jpg good as any to point up that GDP started to grow again and kept on a steady growth path long before the depression ended. Employment problems were the real depression, and rapid growth, not normal growth was needed to fix that issue. However, it has to be emphasized that the typical historical chart for employment DOES NOT include people employed by WPA, which was a very large number. Our current WPA is simply extended welfare/disability payments and extended unemployment payments. It would be interesting to discuss the implications of simply paying people to sit as opposed to paying them to build bridges and firehouses, but you'd need a mixed crew of business (complaints about lost skills), sociologists (demoralization of the social fabric), and economists (it's better this way because they aren't fulfilling needs the market should fulfill) to actually have any meaningful resolution. Not that anyone would pay attention.

Now, that very long term chart shows a repeating pattern, that when the economy drops, it rises and then drops again, before finally beginning to rise at about the rate of the old rise but below the curve. This recurrs several times. In the cases where it does not, at least one was wholly due to outside forces (1982). If we follow the double dip pattern, then we'd expect a rising GDP for a few more months, or perhaps until the election, whereupon we could expect another drop before things finally settle to longer term growth. (The earlier period of sustained long term growth nicely dovetails with the period when government could give away free real property simply by taking it from US natives. That paid for the transcontinental railroads and quite a few other things. Until we open up (or build) a couple of spare planets with cheap transportation to them, we won't get that effect again. Free real property is a rather enormous economic stimulus.)

[Higgenbotham]

The Federal Reserve had their two-day monetary policy meeting completed Wednesday. Bernanke gave a press conference where he appeared to be on valium. The most interesting and comical part of the press conference was one question asked regarding the republican debates being very critical of the Federal Reserve chief. Benny danced around that question, but it is a very sound question definitely dictating some of his positions. If he were in the private sector he would have been fired long ago. I know he realizes that.

Overall, the Fed did create volatility this week, which seems to be their main objective. It appears to me that Benny has an ego that requires fulfillment by creating unnatural influences in both the bond and stock markets. However, the stock market has become better at digesting his false rhetoric than it was two years ago.

http://blog.markdcook.com/?p=393
Hilarious for those of us who follow this stuff.

[Trevor]

Oh, everyone knows that Greece is going to default. The only question now is how to contain the damage. Portugal isn't very far behind and they're the only ones that the downgrades have really seemed to affect in terms of bond yields. Italy and Spain are the big problems now and I think a Greek default will help accelerate their decline.

[OLD1953]

Could Bernake's honeymoon be over?

[Higgenbotham]

Restaurant Performance Index Rose to Highest Level in Nearly Six Years in December

Restaurant operators reported strong same-store sales and customer traffic levels in December; Operators’ plans for capital spending at highest level in more than four years

January 31, 2012

(Washington, D.C.) Fueled by solid same-store sales and traffic results and a bullish outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) rose sharply in December. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.2 in December, up 1.6 percent from November and its highest level in nearly six years. In addition, December represented the third time in the last four months that the RPI stood above 100, which signifies expansion in the index of key industry indicators.

http://www.restaurant.org/pressroom/pre ... e/?ID=2219

[Trevor]

I'm starting to wonder if in 2012 that we will see Portugal default as well. They're maybe 6 months behind Greece, if that, and Europe has already thrown hundreds of billions down a black hole to save Greece, only to see it fail. They've rapidly running out of money and may not have the resources after the impact of Greece defaulting, especially with Spain and Italy in their current condition.

[John]

Nowhere To Go But Up

Global Strategists Abandoning Bearish Views

Strategists at the biggest banks are capitulating on their bearish
forecasts after the best start to a year for global stocks since 1994
and gains of more than 7 percent in emerging-market currencies.

Just two weeks after saying that investors should “remain cautious,”
Larry Hatheway, the chief economist at UBS AG (UBSN), raised his
recommendations on global shares and high-yield bonds in a Jan. 23
note to customers entitled, “Wrong, but not too late.” Royal Bank of
Scotland Group Plc (RBS), and Benoit Anne, the global head of
emerging-markets strategy at Societe Generale (GLE) SA, said their
estimates for developing nations were proven wrong.

The MSCI All-Country World Index (MXWD) climbed 5.7 percent in
January, surprising strategists at Bank of America Corp. (BAC),
Goldman Sachs Group Inc. (GS) and Barclays Plc (BARC) who had forecast
first-half losses because of Europe’s debt crisis. JPMorgan Chase &
Co. (JPM) and Citigroup Inc. (C), which predicted the rally in stocks,
say it will continue as the U.S. housing market rebounds and China
eases lending restrictions to bolster economic growth.

“In hindsight, everybody was so beared up at the end of last year,”
Mary Ann Bartels, the New York-based head of technical and market
analysis at Bank of America, who predicted on Dec. 27 that the
Standard & Poor’s 500 Index would probably fall about 15 percent in
the first half before recovering, said in a Jan. 31 phone
interview. “There was nowhere for the market to go but
up.”

http://www.bloomberg.com/news/2012-02-0 ... rally.html