Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20
China Recovered in Q2. Will the Red Dragon Sink Gold? - 23rd Jul 20
UK Covid19 MOT 6 Month Extensions Still Working Late July 2020? - 23rd Jul 20
How Did the Takeaway Apps Stocks Perform During the Lockdown? - 23rd Jul 20
US Stock Market Stalls Near A Double Peak - 23rd Jul 20
Parking at Lands End Car Park Cornwall - UK Holidays 2020 - 23rd Jul 20
Translating the Gold Index Signal into Gold Target - 23rd Jul 20
Weakness in commodity prices suggests a slowing economy - 23rd Jul 20
This Stock Market Stinks - But Not Why You May Think - 22nd Jul 20
Protracted G7 Economic Contraction – or Multiyear Global Depression - 22nd Jul 20
Gold and Oil: Be Aware of the "Spike" - 22nd Jul 20
US Online Casino Demographics: Who Plays Online For Money? - 22nd Jul 20
Machine Intelligence Quantum AI Stocks Mega-Trend Forecast 2020 to 2035! - 21st Jul 20
How to benefit from the big US Infrastructure push - 21st Jul 20
Gold and gold mining stocks are entering a strong seasonal phase - 21st Jul 20
Silver Eyes Key Breakout Levels as Inflation Heats Up - 21st Jul 20
Gold During Coronavirus Recession and Beyond - 21st Jul 20
US Election 2020: ‘A Major Bear Market of Political Decency’ - 21st Jul 20
Summertime Sizzle for Gold and Silver - 21st Jul 20
Overclockers UK Custom Built PC Review - Delivery and Unboxing (3) - 21st Jul 20
Will Coronavirus Vaccines Become a Bridge to Nowhere? - 20th Jul 20
Stock Market Time for Caution?  - 20th Jul 20
ClickTrades Review - The Importance of Dynamic Analysis and Educational Tools in Online Trading - 20th Jul 20
US Housing Market Collapse Second Phase Pending - 20th Jul 20
Capitalising on the AI Mega-trend - 20th Jul 20
Getting Started with Machine Learning - 20th Jul 20
Why Moores Law is NOT Dead! - 20th Jul 20
Help the Economy by Going Outside - 19th Jul 20
Stock Market Fantasy Finance: Follow the Money - 19th Jul 20
Did the Stock Market Bubble Just Pop? - 19th Jul 20
Quick Souring of the S&P 500 Stock Market Mood - 19th Jul 20
The Six-Year Jobs Recession - 19th Jul 20
Silver Demand Exploding! - 18th Jul 20
Tesco Scraps Covid Safe One Way Arrow Supermarket Shopping System - 18th Jul 20
The Rise of Online Pawnbroking - 17th Jul 20
Gold Rallies Together With U.S. Covid-19 Cases - 17th Jul 20
Gold & Silver Measured Moves - 17th Jul 20
The Bizarre Mathematics Of How Negative Interest Rates Create Stratospheric Profits - 17th Jul 20
From a Stocks Bull Market Far, Far Away, Virus Doomsday Scenerio! - 16th Jul 20
Fiscal Cliffs and the Self-destructing Treasury - 16th Jul 20
Dow Stock Market Crash Watch - Update - 16th Jul 20
Gold & Silver Gaining on US Dollar Weakness - 16th Jul 20
How to Find the Best Stocks to Invest In - 16th Jul 20
Overclockers UK Custom Build PC Review - 2. System Build Changes Communications - 16th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Dow Jones Upside Break May be a Head Fake

Stock-Markets / Stock Markets 2013 Sep 19, 2013 - 03:21 AM GMT

By: Brian_Bloom

Stock-Markets

To begin with, attention is drawn to the positions of the RSI and MACD on the chart below (stockcharts.com). The RSI is overbought and the MACD has failed to rise to a new high. Technically speaking, this is a meaningful non-confirmation


Attention is now drawn to the article associated with today’s Associated Press headline: http://finance.yahoo.com/news/fed-delays-bond-tapering-wants-180106376.html

“Fed delays bond tapering, wants to see more data”

Quote:

“….  the Fed says that the economy is growing moderately and that some indicators of labor market conditions have shown improvement. But it noted that rising mortgage rates and government spending cuts are restraining growth.”

Translation: To date, the $85 billion a month injection into the economy has not been working as we would have liked.

Question: Would a continuation of the QE translate to a stimulation of government spending?

Answer: We won’t know until after the debt ceiling talks have been resolved. The market seems to be betting that Congress will approve continued spending along with a debt increase

Question: Would a continuation of QE translate to a stimulation of private sector borrowing?

Answer: Not unless interest rates head downwards again (ten year yields have been rising)

Observation: This optimism belies what the Republicans are saying about raising the debt ceiling and what some Democrats in Congress are doing. The Republicans are saying that they will not approve a raised debt ceiling unless health care cost cuts are implemented. President Obama is saying that he won’t negotiate on that. The rogue Democrats may desert Obama and agree with the Republicans in order to keep the wheels of the economy turning. But a cut in health care spending will reduce overall government spending which, in turn, will take the pressure off the economic accelerator pedal.

Interim Conclusion

We will know the outcome within a couple of weeks but, based on what the media is reporting regarding the debt ceiling discussions, today’s spike in the Dow may have been a head fake. Investor optimism may be based more on hope than on reality.

Let’s now look at some fundamentals

Unemployment statistics:

9% - 7.3% = 1.7% improvement since October 2011.

Labour participation statistics (from October 2011) http://data.bls.gov/timeseries/LNS11300000

64.1 – 63.2 = 0.9% deterioration

Public Debt: http://www.treasurydirect.gov/NP/debt/search?startMonth=10&startDay=01&startYear=2011&endMonth=08&endDay=30&endYear=2013

·         As at October 1st 2011: $14.8 trillion

·         As at August 30th 2013: $16.7 trillion

Change: $1.9 trillion rise  in 22 months

Annualised: 24/22 X 1.9 = $2.07 = 2 years

Average annual increase: $1.04 trillion

·         As at December 30th 2011: $15.2 trillion

·         As at December 31st  2012: $16.4 trillion

Change: $1.2 trillion in one year

Observation: Rate of increase of public debt is slowing

Reserve Bank pumping (QE in millions of dollars) – movement to  September 5th 2013:

Approximate historical increase since October 2011: +$ 0.7 trillion in 2 years. Current rate of increase at $85 billion a month = $1 trillion p.a.

US Nominal GDP: (http://www.measuringworth.com/datasets/usgdp/result.php )

Year

Nominal GDP (million of Dollars)

Plot Series Plot Log of Series

2011

15,533,800

2012

16,244,600

Growth in nominal dollars: 2012/2011 = $0.7 trillion in one year (Comparable 2013 statistics not yet available)

Summary:

·         Average annual increase of public debt of $1 trillion has given rise to less than $1 trillion p.a. increase in GDP 2012/2011.

·         Since December 2012, the Fed’s balance sheet has been increasing at $1 trillion p.a. rate, and the unemployment rate has decreased by 0.5%, whilst the participation rate has fallen by 0.4%

Observation:

The above evidences the fact that Fed activity and US Government deficit spending has effectively been burning rubber to keep the economic vehicle from going backwards.  Unless the economy starts to grow at a rate in excess of $1 trillion p.a. (1/16.2 = 6% p.a.), growth in corporate profits will be dependent on growth in overseas income.

What is happening on the global front?

The weekly Global Dow Chart below shows a breakup to new high but still below 2007/8 high

Overall Conclusion

Weight of funds and loose money/credit policies have been driving the markets upwards in the hope that the global economy gains traction. So far, in the US, it has been requiring a dollar of money/credit growth to generate less than a dollar economic growth. All eyes need to be on the coming negotiations regarding raising the US Debt ceiling. It will need to be raised by over $1 trillion to keep the economic ship afloat. What are the probabilities? The probabilities seem to favour a trade-off between spending cuts and raised debt ceiling. The chart of the US Dow Industrials shows indecision with a slight bias towards negativity because it is technically overbought and due for a pullback.  Therefore, the breakup of the  Dow following the Fed announcement that it will maintain QE may be a head fake. We are living in an extremely high risk investment environment.

Final Observation

At the end of the day, meaningful economic growth is driven by meaningful value-add activity. All the central bank jawboning is just “noise”. The key question is whether the next generation of technological advancements will have the gravitas – and will be commercialised quickly enough -  to drive the economy.  Time will tell.  The GDOW chart is not yet looking sufficiently optimistic to make that call. The appropriate stance is therefore one of defensiveness.

Brian Bloom

Author, Beyond Neanderthal and The Last Finesse

www.beyondneanderthal.com

Beyond Neanderthal and The Last Finesse are now available to purchase in e-book format, at under US$10 a copy, via almost 60 web based book retailers across the globe. In addition to Kindle, the entertaining, easy-to-read fact based adventure novels may also be downloaded on Kindle for PC, iPhone, iPod Touch, Blackberry, Nook, iPad and Adobe Digital Editions. Together, these two books offer a holistic right brain/left brain view of the current human condition, and of possibilities for a more positive future for humanity.

Copyright © 2013 Brian Bloom - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Brian Bloom Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules