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Good Tuesday morning. We begin the workweek in the US with overseas bourses in rally mode. Asian stocks rose, with China’s beaten down market gaining 4%. The slowest Chinese growth since 2009 led to speculation that China’s policy makers will ease lending curbs and RRR cut coming.

-Shanghai Composite Index UP 4%…Shenzhen Composite UP 5%, with gains led by energy and materials names

-Strong China data out (GDP, Retail sales and IP)

-Chairman of China’s national pension fund said that quotas for the qualified foreign institutional investor scheme should be increased…this allows for greater foreign investment into China

-China may allow $15.8 billion worth of local pension funds to invest in domestic capital markets in the first quarter, the state-run China Securities Journal reported.

Europe took their cue from rallying China shares. The Stoxx Europe 600 Index climbed 0.8% on Monday when US markets were closed. In Europe, the French debt sale went better than expected — French borrowing costs fell at the country’s first debt auction since Standard Poor’s cut its credit rating on Friday.

All is not well, however, as we shall see in our morning reads: Greece looks to be on the verge of default (tho we believe they have already technically defaulted). The only questions are how much of a haircut for bond holders, and how disruptive the process will be. The UK likely already in recession, with Germany right behind, followed by the rest of Europe. And on top of all that, the European Financial Stability Fund loses its AAA credit rating at S&P after sovereign debt downgrades.

None of that matters to markets today as the animal spirits have awoken. Oil, copper, gold and the euro all higher in early London trading. European markets are off their earlier highs but still strong, we have the FTSE up 1%, Euro Stoxx 1.95%, DAX gaining 1.82%, and the CAC at 1.93%.

More later . . .

Category: Markets

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7 Responses to “Rally Mode”

  1. mathman says:

    http://www.project-syndicate.org/commentary/stiglitz147/English

    The Perils of 2012
    Joseph E. Stiglitz

    “KOLKATA – The year 2011 will be remembered as the time when many ever-optimistic Americans began to give up hope. President John F. Kennedy once said that a rising tide lifts all boats. But now, in the receding tide, Americans are beginning to see not only that those with taller masts had been lifted far higher, but also that many of the smaller boats had been dashed to pieces in their wake.

    In that brief moment when the rising tide was indeed rising, millions of people believed that they might have a fair chance of realizing the “American Dream.” Now those dreams, too, are receding. By 2011, the savings of those who had lost their jobs in 2008 or 2009 had been spent. Unemployment checks had run out. Headlines announcing new hiring – still not enough to keep pace with the number of those who would normally have entered the labor force – meant little to the 50 year olds with little hope of ever holding a job again.

    Indeed, middle-aged people who thought that they would be unemployed for a few months have now realized that they were, in fact, forcibly retired. Young people who graduated from college with tens of thousands of dollars of education debt cannot find any jobs at all. People who moved in with friends and relatives have become homeless. Houses bought during the property boom are still on the market or have been sold at a loss. More than seven million American families have lost their homes.

    The dark underbelly of the previous decade’s financial boom has been fully exposed in Europe as well. Dithering over Greece and key national governments’ devotion to austerity began to exact a heavy toll last year. Contagion spread to Italy. Spain’s unemployment, which had been near 20% since the beginning of the recession, crept even higher. The unthinkable – the end of the euro – began to seem like a real possibility.

    This year is set to be even worse. It is possible, of course, that the United States will solve its political problems and finally adopt the stimulus measures that it needs to bring down unemployment to 6% or 7% (the pre-crisis level of 4% or 5% is too much to hope for). But this is as unlikely as it is that Europe will figure out that austerity alone will not solve its problems. On the contrary, austerity will only exacerbate the economic slowdown. Without growth, the debt crisis – and the euro crisis – will only worsen. And the long crisis that began with the collapse of the housing bubble in 2007 and the subsequent recession will continue.

    Moreover, the major emerging-market countries, which steered successfully through the storms of 2008 and 2009, may not cope as well with the problems looming on the horizon. Brazil’s growth has already stalled, fueling anxiety among its neighbors in Latin America.

    Meanwhile, long-term problems – including climate change and other environmental threats, and increasing inequality in most countries around the world – have not gone away. Some have grown more severe. For example, high unemployment has depressed wages and increased poverty.

    The good news is that addressing these long-term problems would actually help to solve the short-term problems. Increased investment to retrofit the economy for global warming would help to stimulate economic activity, growth, and job creation. More progressive taxation, in effect redistributing income from the top to the middle and bottom, would simultaneously reduce inequality and increase employment by boosting total demand. Higher taxes at the top could generate revenues to finance needed public investment, and to provide some social protection for those at the bottom, including the unemployed.

    Even without widening the fiscal deficit, such “balanced budget” increases in taxes and spending would lower unemployment and increase output. The worry, however, is that politics and ideology on both sides of the Atlantic, but especially in the US, will not allow any of this to occur. Fixation on the deficit will induce cutbacks in social spending, worsening inequality. Likewise, the enduring attraction of supply-side economics, despite all of the evidence against it (especially in a period in which there is high unemployment), will prevent raising taxes at the top.

    Even before the crisis, there was a rebalancing of economic power – in fact, a correction of a 200-year historical anomaly, in which Asia’s share of global GDP fell from nearly 50% to, at one point, below 10%. The pragmatic commitment to growth that one sees in Asia and other emerging markets today stands in contrast to the West’s misguided policies, which, driven by a combination of ideology and vested interests, almost seem to reflect a commitment not to grow.

    As a result, global economic rebalancing is likely to accelerate, almost inevitably giving rise to political tensions. With all of the problems confronting the global economy, we will be lucky if these strains do not begin to manifest themselves within the next twelve months.”

  2. yon QOTD:

    “An economist is someone who has had a human being described to him, but has never actually seen one.” —Anonymous

    some ‘background’ (note: not Zandi-approved)

    How The Federal Reserve Bought The Economics Profession
    By Ryan Grim

    The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.

    This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed’s thrall, the economists missed it, too.

    “The Fed has a lock on the economics world,” says Joshua Rosner, a Wall Street analyst who correctly called the meltdown. “There is no room for other views, which I guess is why economists got it so wrong.”…”
    http://www.economicpolicyjournal.com/2009/09/hot-how-federal-reserve-bought.html

    “…Gatekeepers On The Payroll

    The Fed keeps many of the influential editors of prominent academic journals on its payroll. It is common for a journal editor to review submissions dealing with Fed policy while also taking the bank’s money. A HuffPost review of seven top journals found that 84 of the 190 editorial board members were affiliated with the Federal Reserve in one way or another.

    “Try to publish an article critical of the Fed with an editor who works for the Fed,” says Galbraith. And the journals, in turn, determine which economists get tenure and what ideas are considered respectable.

    The pharmaceutical industry has similarly worked to control key medical journals, but that involves several companies. In the field of economics, it’s just the Fed.

    Being on the Fed payroll isn’t just about the money, either. A relationship with the Fed carries prestige; invitations to Fed conferences and offers of visiting scholarships with the bank signal a rising star or an economist who has arrived.

    Affiliations with the Fed have become the oxygen of academic life for monetary economists. “It’s very important, if you are tenure track and don’t have tenure, to show that you are valued by the Federal Reserve,” says Jane D’Arista, a Fed critic and an economist with the Political Economy Research Institute at the University of Massachusetts, Amherst…”
    http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html

    v.

    “…The economic problem to Mises is that of action. We act to dispel feelings of uneasiness, but can only succeed in acting if we comprehend causal connections between the ends that we want to satisfy, and available means. Mises is drawing upon Menger’s brilliant 1871 book here, but he has his own ideas as well. The fact that we live in a world of causality means that we face definite choices as to how we satisfy our ends. Human Action is an application of Human Reason to select the best means of satisfying ends. The reasoning mind evaluates and grades different options. This is economic calculation.

    Economic calculation is common to all people. Mises insisted that the logical structure of human minds is the same for everybody. Of course, this is not to say that all minds are the same. We make different value judgments and posses different data, but logic is the same for all. Human reason and economic calculation have limitations, but Mises sees no alternative to economic calculation as a means of using scarce resources to improve our well being.

    Human Action concerns dynamics. The opposite to action is not inaction. Rather, the opposite to action is contentment. In a fully contented state there would be no action, no efforts to change the existing order of things (which might be changed by merely ceasing to do some things). We act because we are never fully satisfied, and will never stop because we can never be fully satisfied. This might seem like a simple point, but modern economics is built upon ideas of contentment- equilibrium analysis and indifference conditions. It is true that some economists construct models of dynamic equilibrium, but the idea of a dynamic equilibrium is oxymoronic to Mises. An actual equilibrium may involve a recurring cycle, but not true dynamics. True dynamics involve non-repeating evolutionary change…”
    –By D. W. MacKenzie (New London CT)
    http://www.amazon.com/Human-Action-Ludwig-von-Mises/dp/0930073185

    Book (eText/’electronic’ version) available here..
    http://mises.org/resources.aspx?Id=3250&html=1

    Gratis~

  3. Mike in Nola says:

    If they loosen restrictions on foreign investment and things look so great, maybe they can get Kynikos to buy in? :)

    It seems now they are going to use pension funds to prop up their stock markets. Will be a wonderful deal for all those future pensioners whose equity gets sucked into a black hole.

  4. b_thunder says:

    “-Chairman of China’s national pension fund said that quotas for the qualified foreign institutional investor scheme should be increased…this allows for greater foreign investment into China
    -China may allow $15.8 billion worth of local pension funds to invest in domestic capital markets ”

    Questions:
    1. After the money from the government’s “stimulus” and various slush funds have been used up, is this the final “Hail Mary” to drive up equities?
    2. Will the “pragmatic” communist party of China **really** allow domestic pension funds invest in Sino-Forest and other similar companies?
    3. This reminds me of a plan to privatize Social Security – a way to give financial gamblers several trillions more to play with and, for a while, extend the end of the bubble. One thing in favor of china is that while Bush was proposing privatization while the market was near the top, Shanghai is down 50%… which doesn’t mean that it can’t lose 50% from here

  5. Ted Kavadas says:

    RE: “All is not well, however…”

    Yes; I continue to see a lot of problems and a growing risk associated with them.

    For those interested, my latest comments on what I perceive as growing levels of danger in the stock market and financial system:

    http://economicgreenfield.blogspot.com/2012/01/building-financial-danger-january-11.html

  6. Mark Down says:

    Time to jump in a little more..when you read the ‘Bloggers’ saying they see’ a lot of problems and growing risk associated with them’
    Diane Sawyer last night putting more sauce into Joe & Mary’s dinner with close to 5 bills a gallon on MemorialDay.