Liquidity cycle proxy is still in negative territory as is the global version which is a near duplicate.Still no indication of any potential improvement in the Economic Research Institute weekly index ofleading indicators.On the next page is the dollar based ranking of global equity indices. This has shuffled considerablyrecently. But to give some color to the desirability going forward also included below is the FX ranking ofthe bigger trading currencies. In general investing in equities of a strong currency based index is an aidto results. Puts the wind at one’s back so to speak.
Sector performance over varying time periods is highly unpredictable except our stage 3 sectors aredoing better in both directions.Charts courtesy of FINVIZ.COM
This argues for continued poor overall equity performance until some change in policy in US fiscal,European monetary and fiscal, or Chinese easing is signaled and believed. The one positive for equitiesis the severe pessimism that has blossomed in the last month. A real disgust about the total lack ofpolitical leadership in Western developed economies has formed since mid-summer and no new herohas stepped in to the breach yet. Gartman quoted Liberal economist and a formerly strong Obamasupporter’s recent comment:Were almost three years into this administration, and theres never been a plan.And thats what everybody feels. And the president didnt lead. He waited. Thequintessential image, sadly, of an administration that I supported and hoped formuch better, is the president waiting by the phone to hear what Congress calls to tell him.
It doesnt work in this country that way. Its not a matter that its August. Its a matter thatits August 2011. So weve been drifting for a very long time. And weve been drifting down.And we had a short-term plan that failed. A short-term stimulus that was supposed to getthe economy back on track, but it failed. And now we have nothing behind it. And we haveno agreements, and we have no leadership.And, frankly, I do think its pretty odd the presidents on vacation right now. Normally Iwouldnt care about such things, but the world markets are in deep crisis. Its no joke.This isnt just an up-and-down little blip. This is a very serious situation."European citizens cannot be feeling any better served by the effete elite holding important positions inEuropean financial circles. The equity markets need a source of optimism before this dismal trend can bereversed.Commodity performance 1 monthsource FINVIZ
Expectations on Obama speech from CBExpectations:$200-300B tax cuts and spending increasesExtension of one year, 2% reduction in payroll withholding taxesExtension of emergency unemployment benefitsLess is bad, as the above measures would, according to JPM’s Michael Feroli, offset nearly all of theexpected 1.5% drag on 2012 GDP from budget cuts. (But good for the USD)More is good, as this might tip short-term fiscal policy from a drag or neutral to actually positive forgrowth. (But bad for the USD)Speech guesses are still being leaked like crazy indicating the administration is still writing the policy andlooking for positive responses. Still looks like leading by following to me. BruceInteresting Data on the size of the Euro debt problemsQuantifying the Amount of Questionable Eurozone Debt and the OutlookAccumulated current account deficits (again assuming FDI inflows are small) would approximate theborrowing by a debtor economy from foreign creditors. The accumulated current account deficit of PIG is~€700 billion. As noted above, the interbank part of the debt would have already surfaced under the €457billion of NCB intra-eurozone claims. The rest, ~€300 billion, would mostly be in direct bank loans to PIGborrowers still on the books of creditor banks. Residual holdings of PIG bonds by German and French banksare small.The time bomb now ticking for creditor banks is the €800 billion (accumulated current account deficit) loanedto Spain. Given the low level of Spanish public sector debt, we can assume that the majority was in the form ofloans to private entities and banks in Spain. Italy has an accumulated current account deficit of ~€350 billion,or <30% of its GDP and, thus, a much smaller debt issue. The savings rate of Italians has been high enough tofund most of the economy’s borrowing needs, including that of its public sector.Total debts owed by PIIGS to foreign creditors is thus ~€1,450 billion. Actual NPL are a fraction of this sum,large enough to cause trouble for individual banks in Germany or France, but not the whole eurozone system,which has an aggregate GDP of over €10,000 billion. The ABS crisis of 2008, US$4 trillion in size, was a farscarier story.Source of this data is GSISept 7, 2011Bruce Lawrence