Monday Reading List
There were quite a few articles over the weekend worth reading. I have compiled a list for you to get you caught up for the week. As the month of August winds down - trading volumes have been non-existent as everyone waits on what is to come from the Eurozone and the next Fed meeting and commentaries.
Weidmann Says ECB Purchases Could Become ‘Addictive Like a Drug’ (Bloomberg)
Merkel Backs Weidmann - Warns Allies On Greece Rhetoric (Reuters)
German Minister Rejects More Time For Greece (Boston.Com News)
Dutch Premier Rutte Defends Austerity, Says No to More Greek Aid (Bloomberg)
Why QE 3 Is Not A Panacea (ZeroHedge)
Ayrault warns EU fiscal pact rebels (FT)
Will Fed Act Again? Sizing Up Potential Costs (WSJ)
Obama or Romney? Markets don’t care (Market Watch)
Oil To Hit $100 - Sell The Rally (CNBC)
Wen Says China Need Measures to Promote Export Growth (Bloomberg)
Obama Asks Eurozone To Keep Greece In EU Until Post Election (The Independent)
Economist Appearing On Max Keiser Show Forced To Resign (Forbes)
Why Serious Talk of Balancing the Budget Went Bust (The Fiscal Times)
via Societe Generale
"The IFO survey confirmed that the euro debt crisis is gradually taking its toll on German firms' expectations. Although the present remains good and points to continuing growth, German firms are clearly growing more pessimistic about the outlook. This is a gentle reminder that the German economy is not immune to a major downturn in its partners' economic background
Overall, the business climate fell to 102.3 from 103.2. At this level, the business climate remains above its long-run average (by 0.2 standard deviations). More worryingly, expectations deteriorated markedly to 94.2 after 95.5 - the worst figure since June 2009- and stand now 1.0 standard deviation below average.
However, the IFO survey should go some way towards tempering expectations of a sharp economic downturn in Germany. Current conditions decreased slightly in August (111.2 after 111.5) and remain 0.9 standard deviation above historical average. Once again, the IFO business climate index tells a totally different message from the PMIs, which were respectively 1.2 and 1.1 standard deviations below its long-run average in August for the manufacturing and the services sectors. This is an exceptional divergence between the two surveys. In our views, the IFO current conditions component still points to upside risks to our Q2 GDP forecast (0.1% qoq, after 0.3% in Q1).
Across sectors, changes in the business climate were quite diverse: echoing the PMI surveys last week, manufacturing sentiment improved somewhat (by 0.8 pt). Other sectors carried on falling. Interestingly, business confidence now stands close to its long-run average in all sectors. In a nutshell, the more domestically-oriented sectors are losing steam which will raise concerns about the resiliency of the German economy."
The King Report - Market Outlook For The Week
Stocks are likely to chop this week with an upward bias. At the end of the week stocks should be strong due to August performance gaming and the hope that Ben Bernanke will announce, indicate, suggest, hint at or blink in Morse Code that QE will commence or is imminent.
We have noted numerous times that no one, including the Fed, knows how much QE to perform and what the effects will be. The Fed should realize by now that verbal intervention, the threat of more QE has worked splendidly. So, if the Fed or Bernanke announces QE, it is likely to be an open-ended scheme that will be a Rorschach Test for the market’s various factions, including politicians.
$2.3 trillion of QE has been performed plus trillions in other schemes. How’s the ROI? Like heroin, once abused, a drug loses effectiveness, so addicts demand an ever-increasing amount of the drug.
As we noted in Friday’s missive, Fridays tend to trade opposite of the weekly trend, especially when volume is thin. The mention of QE, again, provoked the expected short-covering ahead of the weekend and coincided with the usual pre-Europe close rally that is now ingrained in traders.
Stocks rallied sharply Friday morning because the WSJ’s Jon Hilsenrath, who has been averring that QE 3.0 is imminent for months, posted this story: Bernanke Letter Defends Fed Actions
Federal Reserve Chairman Ben Bernanke, in a letter responding to questions posed by U.S. Rep. Darrell Issa (R., Calif.)…defended actions the Fed has taken to support the economy and said there is room for the Fed to do more. [Ben’s mantra for over 3 years] “There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery,” Mr. Bernanke wrote in a letter dated Aug. 22… http://online.wsj.com/article/SB10000872396390444358404577609231770784446.html
Once again the WSJ’s Hilsenrath wrote about possible QE; and as usual it induced conditioned traders to buy stocks. There have been numerous afternoon rallies on Hilsenrath publishing a QE 3.0 is coming story. The only surprise is that the story appeared in the morning instead of the last hour of trading. But it was summer Friday, so there would be less impact if the story appeared in the last hour of trading.
Hilsenrath is so emotionally and professionally invested in QE 3.0 appearing that he penned a self-serving story for today that claims inflation is benign, so the Fed needs to implement QE 3.0.
If the Fed does not announce QE 3.0 at its September 12 meeting, Hilsenrath’s reputation will suffer.