How to explain stock markets' unpredictable volatility?
The media is subject to this quandary on a daily basis. How do they solve it? - Is it no more than answering, what's covered in the news services in the past five minutes?
Veteran Lender has posted frequently on the condition of our retail markets, from the viewpoint of products, consumer needs and satisfactions and the conditions of retail industry itself. These two posts, the first from the beginning of 2014 and a current (Nov. 1st) addition may give the reader a sense of how we fare in the essential retail markets, the source of nearly 100% of our needs - except for those who have a direct private source of their own, farms, hobby manufacturing, inventors, etc. (not a large or significant market group in our economy).
Two gurus faced off with three Bloomberg staff members to discuss the outlook after a volatile October and the descriptive phrase 'Goldilocks' entered into the conversation.
Germany's DAX headed down at a 2.47% rate at market's close this afternoon. To start their Oct 16, Asia's markets are drifting down at a slightly moderated rate, but red. Italy was particularly hard hit, off 4.44%, losing 850.86.
Part I - Science and a career in science
June, 2012, Charles Wyplosz, Professor of International Economics at the Graduate Institute, Geneva and Director of the International Centre for Money and Banking Studies among other activities and contributions, Contributed a column to voxeu which may have passed before many eyes without much stir. It was titled "One more summit: The crisis rolls on". This could have been interpreted into conversational language as, "So the EU summit was conducted and where are the results? What was accomplished for all the hulabaloo?"
The ECB prescription for recovery is a repeat of the Bernanke QE plan which the US Fed followed to no avail, and from which it is now finding it difficult to untangle itself after an eight year mess. The best that can be hoped for is if there were a stirring at all, it would have been minimal, based on vaporous hope, nothing more. Is there any evidence that an asset purchase plan, which transfers toxicity from one sector to another, generates any response other than a nation holding its collective breath, both public and private, with the underlying hope that "This time will be different"?
By 11:00 AM EST,the US markets had recovered from the 1% + drop opening, standing at approx. - 0.76%. Red still predominated globally but for the positive Hang Seng and CSI 300.
Explanations for the decline centered on the US ebola patient and relevant industries: e.g., airlines and travel in those confined quarters - generally down; pharmaceuticals at work on ebola medicines; healthcare, on clothing, etc., generally up.
Not helping matters are
- slowing factory activity in the US and Asia in September;
- construction spending declines;
At 11:16 AM this morning, the Dow stood at slightly more than 200 down. Thursday appears to be the new "unloading" day; dump on Thursday and pump on Friday to establish a firmer outlook for the start of the new week. However, the Dow dipped below 17,000 and hit a support level and bounced to a minimally higher point at about the 16,998 level at this time.
Reuters featured an article that highlighted the record high decline in durable goods orders, -18.2% - where a -17.5% decline had been anticipated. We're "due for a correction".
Amazing what can develop in one week’s time when least expected. The hope had been that the Fed could have announced that since the economy is doing so well we’d be able to raise interest rates. Suddenly, the consumer inflation indices are down, the bond markets which had been maneuvering in anticipation of the increases find themselves out on a lonely prairie abandoned and the dollar is slipping, and on both sides of the rate issue principals are retracting.
Smaller things create the greater picture.
Also a sign of the times, the Phillips group appears committed to ridding themselves of their first reason for being - electric light bulbs. Reuters had the short blurb announcing Phillips intention among other headlines that indicate our shared path regardless of the feasibility and compatibility with current situations. These are a mark of our times.
So the Reuters headlines herald today as the Dow dips a modest amount, barely edging into the three digit negative area.
The short blurb on existing home sales finishes off with the quick summary,
We've mentioned traffic in US retail business on more than one occasion and in more than an off-handed way. Veteran Lender has contributed the thought that some leading retail corporations may be facing more than a squeeze before the year-end holidays and might even be forced into consolidation of some sort. O&G has voiced concern about the light traffic encountered in malls and stores. Now, Fortune magazine has an article in their September 22 issue starting off with a question for a title - "Where have all the shoppers gone?" Reflection on the Secular Stagnation?
Paul Krugman is quite a fortunate man - all due to his industry, intelligence and planned investment in his future. The number of people with his blessings are so few even with the ridiculously low calculated suggestion that we are only six degrees (contacts) away from knowing everyone on the face of the earth, the chance of our coming into face to face contact with someone of his caliber is prohibitive.
Before the Dodd-Frank Act was signed into law, an enterprising reporter cornered Representative Barney Frank and asked a few questions about the contents of the Bill as passed. One of the questions was whether the Act brought all derivatives under regulation. The answer was short, "No, it didn't. It wasn’t meant to." Congressional records carry similar disclosures from both Frank and Dodd in respective recorded responses.
The main headline on the Reuters site today looks for S&P to continue its upward move despite no indication from "fundamentals" that value has increased. In their words, -
Voxeu.org has a new e-book available, Secular Stagnation: Facts, causes and cures, edited by Coen Teulings and Richard Baldwin. It is available at this site: -
A shorter, lead-in version is on the voxeu.org site, at: -
Reuters primary headlines - meaning bolder type and more prominent location than the second tier headlines - provide the following for consideration -
- Weak retail sales point to slowdown in U.S. consumer spending;
- Wall St. rises with ease in Ukraine, Iraq tensions 9:41am EDT;
- Macy's cuts same-store sales forecast, shares drop 9:07am EDT;
- U.S. Fed seen moving slowly after first rate hike in second quarter 2015: Reuters poll 9:43am EDT; and,
- U.S. mortgage applications fall in latest week: MBA
The culmination of papers suggesting the Fed increase the inflation target, points out some of the problems and negative aspects residing in Inflationary policy.
Submitted by Veteran_Lender on Wed, 08/06/2014 - 12:05.
Obviously, the day took a nasty turn after your update yesterday, but the message remained spot-on. There is one thing to add to your commentary- that the in-fight for power through financial manipulation takes a mighty toll on us all.
Very short initial post before markets open in the US, on which we'll expand our thoughts.
- Bloomberg shows futures worldwide in the red - all but for China Securities Index 300;
- Major Impetus appears to be geopolitical unrest and the Fed's nearing the end of its current QE culling process; and
- Foods are down in US and Insurances up - the last apparently explained by the ludicrous cycle of insurance stocks appreciating since an important source of their income derives from the rising prices of market equities held.
An effective multiplier, but senseless. Simple ask if the same multiplier applies on the way down?
One broker is quoted at the top of the article, in paragraph three -
This from a man who earns his living at the market.
Impossible to think of the exchange between a customer seeking to terminate service from a supplier and the arrogant refusal to respond to his request as possible anywhere but in the land of the dollar.
What does Janet Yellen have in reserve to be revealed in her coming testimony before Congress?
A Reuters headline poses the question facing more than the Fed alone - more than her cohorts in the various committees, systems and sectors in the US or elsewhere: How to chart a path to "normalization".
Despite the smiles, displays of confidence and self-congratulating attitudes, what do their faces show when the spotlights are turned off and the crowds disperse?
A Reuters article on Vatican banking today reports even the Vatican cannot resist temptation in its banking system and adopted the code of ethics – or dropped them is more a propos – to race after riches and scruples be damned!
. . . how many as a result of attempting to analyze markets' next move or whether they are paused in anticipation? Or governments' next commitment to policy or program?
So many bubbles have generated air space beneath us, there's question enough whether the flooring has the support we need. It's honeycombed with weakness that can disappoint us on any step from here on, forward or backward. . . and in our indecisiveness, we do too much of both!
Two news items exhibit unexpected turns of rationale which may be of the same species:
- Part One: Paul Krugman calls to task those with "delusions" about inflation - and classifies the group in the "Conservative" category; and,
- Part Two: Reuters features an article that strongly suggests Central Banks (specifically the Fed, BOE and BOJ) are giving up the "openess" of "forward guidance" and returning to the days of opacity, when Monetary Policy was and "art".
Previous Comments on the vital JOBS issue which is not improving - moved to front and center.
Reuters reports that Barclays, which assumed Lehman Bros US business, is involved in "Dark Pool" operations, described as allowing large institutions to engage in market activity anonymously. The problem surfaced when increased activity suggests parties other than large institutions are allowed access to the process.
New York's Attorney General filed a lawsuit Thursday and Barclays promptly lost $3.4 billion, approximately 6.5% of market value Thursday before stabilizing Friday.
For those not absolutely certain of the definition of the commonly used phrase “liquidity trap" this begins with an extraction from a 1960's paper by Friedman-Schwartz entitled “Money and Business Cycles” -