Russia and Crimea are following the same roadmap that the United States and Texas followed when Texas officially left Mexico on March 2, 1836. TX became an independent republic. It subsequently joined the United States in 1845.
The evolving policy landscape in the United States is reducing the uncertainty premium. That is bullish for US financial markets and its economy and outlook.
A look at the energy markets shows that the prices of the US benchmark oil (WTI) and the international or European benchmark oil (Brent) have been falling since the middle of August 2013.
Three dynamics are at work this week. They may cause market volatility. And they may lead to a revised assessment about the Fed’s (Federal Reserve) tapering policies.
Lesson 1. There will be no default. Disgraceful, divisive Democrats and ridiculed, repugnant Republicans, who share blame equally for this horrendous example of poor governance, are aware that the country must not default.
Stock prices are based upon many things. The dominant strategic factors are earnings and the prospect for growth of earnings. Earnings come out of profits.
As we watch the Washington theatre surrounding the debt limit, the budget, and sequester squabble play out, we do not hear a single word uttered about the impact the Federal Reserve’s activity has on the budget. Hmm?
The Fed has added a political element into its decision-making process. Fed policy used to be clearly based on economic indicators like the rate of inflation, inflation expectations, market anticipation of inflation, and how inflation was priced into market-based asset prices and other measures.
“Assert a principle,” says our Secretary of State, John Kerry. So now we find ourselves in the throes of an unresolved national debate over whether the US should launch cruise missiles at unknown targets in Syria in order to assert a principle formed in the 1925 Geneva Convention.
This president is at risk of becoming one of the earliest lame duck presidents in American history. As that evolves, we worry about trouble for markets.
Long awaited and now finally arrived, Detroit’s bankruptcy was expected and priced into markets. Some Detroit debt had been trading down to 30 cents on a dollar prior to the announcement.
Abuse of power is an anathema to most Americans. We should be and mostly are rightfully outraged when a government agency is caught abusing its authority by targeting specific groups.
Negative interest rates are the ultimate in market distortions. They employ only a stick and no carrot. Their use tends to progress from disincentive through penalty to punishment.
Inflation is not on the radar anymore. We do hear occasional comments from central bankers who warn about future inflation arising from QE. We also recall a few statements in the media along the lines of, "They're printing all this money, we're going to have huge inflation, and interest rates are going to shoot up."
Howard Baker’s famous question, uttered in the days of the Watergate hearings, is now being echoed in reference to Benghazi and other matters: “What did the President know and when did he know it?”
This extraordinary stock market is driven by characteristics that defy conventional valuation techniques. I receive emails from people who tell me that the market is overextended, overvalued, and trading way above its 50- or 200-day moving average. If you look at the metrics, the market is all of those things.
No central bank wants to shock the economy the way the Fed did in the late 1930s, with its too-soon response. That experience suggests that they will err in the direction of waiting too long before removing QE or tapering the existing process. For investors, that means a prolonged period of very low interest rates, which are bullish for asset classes of nearly all types.
