The commercial paper market yield curve indicates that investors are afraid to lend to financial firms for more than 15 days. The red line for AA financial firms ends at the 15-day point. This is a poor situation for fundmental investors.
Technical investors may be concerned that the odd-lot short positions are low.
If Obama follows through on his promise to raise taxes on the people who are able to spend money and stimulate the economy, we may have a lower GDP than previousely expected. A further drag on the economy would come from his suggestion to increase import duties. Such duties act as a tax on everyone and inhibit consumer spending.
What do you think?
8 comments:
Complete agreement.
Initially, the chart of the DJIA looked to be forming a triangle, now it appears to be an upward sloping wedge, which I read as bearish.
Shrinking volume indicates a lack of buying power.
You don't want to know my bearish projected low for for the Dow.
Still, there is so much cash sloshing about that it has to find a home.
Deb - I don't think your thesis about Obama's tax policies is the reason for the current turmoil. The issue is one of volatility. The current administration is in reaction mode; they have repeatedly made contradicting policy changes for over a year now. The markets can't figure out who's side the government is on.
I don't know about you but, personally I don't like to lend money to people who can't show me that they can pay me back.
Kumbu, I wonder how many assets are sloshing around that were purchased on margin or credit? Where does the money go as these assets deflate (or disinflate, depending on your religion) as the margin calls roll?
anonymous: While I was wondering about "cash on the sidelines," your question is a valid one. Could it be the old saw, "from weak hands to strong" or could this be real value destruction?
In the cases of mortgages, won't the banks simply enter a countervailing entry on their balance sheet for the bad debt?
...oh I didn't understand Deborah to mean that "Obama's tax policies [are] the reason for the _current_ turmoil." was her argument, rather I think her argument was a future projection.
The future projection for GDP *is* lower. If Deb means that the projection should be lower still because the multiplier for tax breaks for the 'wealthy' is so huge... well, I don't know about that. The 'wealthy' sure seemed to sock that cash away in hedge funds.
kumbu -- you hit the nail on the head -- I think it's real value destruction we're seeing. Time will tell.
I suppose if you're a real fan of Deb's you would not think there is demand destruction and you'd be buying up gold right now as the 10yr-6mo treasury yield tips over 3%.
I think she could add an addendum for what to do if physical gold is no longer available. TIPs? Palladium?
(an aside from "
Now and Futures", no TIOs all week, a very unusual occurrence. and the Saudi's are are buying $3B AU.)
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