Keynes' policies stressed low interest rates, money printing and an assault on savings. He believed in a progressive income and estate tax to redistribute wealth, not to the people, but to the government. The combination of these policies would encourage consumption and higher employment. These policies have failed, yet we keep repeating them because the oligarchs running the show know it works for "them." It's coming to a bad ending.
We took Tuesday off for a prearranged family outing to Boston. Usually this is the way things happen--take a day off and bad stuff happens in markets. The negative stock market action continues but now we're at the very least short-term oversold.
The news background hasn't changed much with U.S. economic data remaining uninspiring--jobless claims (unchanged); consumer spending (weaker); durable goods orders (below expectations) and consumer sentiment (also below expectations).
Worries persist as China's manufacturing data contracted the most since 2009. In Germany bond auctions yielded 35% fewer bidders. CDS (Credit Default Swaps) used by bond buyers to insure against default have seen spreads (premiums) widen making protection inefficient.
Leading stocks lower in the U.S. and elsewhere remains the financial sector where companies like Bank of America (BAC) continue to fall sharply as regulators challenge their balance sheets.
Investors in the U.S. are also flustered by the inaction of the Super Committee to reach even the puniest cut in the deficit. Political confidence is at a low level. It sure doesn't help when stories leak about the
to Wall Street big shots.
The dollar was stronger Wednesday while gold was only modestly lower. But, the stronger dollar also caused weakness in most commodity sectors including energy, base metals and agricultural markets. Bonds remain the big winner on flight to safety issues.
Volume was modest even with the sharp sell-off. Most likely some took Wednesday off, or it might be argued all those getting out, have done so. Now it's just hedge funds picking each other's pockets.
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is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.
McClellan Summation Index
is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.
is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.
Continue to Concluding Remarks
No question I've got a problem with Keynesian policies that don't work and then repeating them. What's the alternative? It sure isn't more government spending or higher taxes. The latter is symbolic but won't solve the deficit problem. Savings is important and should be encouraged but ZIRP isn't helpful. When the public saves then banks have the capital with which to lend for investments. Higher interest rates may seem silly but just imagine how quickly potential home investors come out of hiding to buy once rates start rising. It's happened this way before.
The "extend and pretend" policies regarding bad loans and band-aid solutions aren't helping. It's like a bad cavity fix you keep putting off until you lose the tooth.
I hope you all have a happy Thanksgiving but aren't making fools of yourselves on Black Friday.
Let's see what happens.
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Dave Fry is founder and publisher of
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