Archive for the ‘Ukraine’ Category

Now Bad News Is Bad News

Friday, September 12th, 2014

With the end of quantitative easing due to take place next month, reality may once again have an impact on financial markets.

Since QE began more than five years ago, markets have soared on bad news and dropped on good news.  That’s because investors believed that bad news would prolong QE and good news would make it unnecessary.

And there’s been enough bad news over the past five years for the stock market to repeatedly surge to new record levels.20140911_claims

With QE ending in the U.S., but probably soon beginning in Europe, the Federal Reserve Board needs a different tool to manipulate the markets.  While Chairman Janet Yellen and others have been talking about “macroprudential supervision” as the next step, that line is selling like old fish, because no one has explained what Ms. Yellen means by “macroprudential supervision.”

The good news is that good news should finally be good news.  Fundamental performance and economic recovery should mean something again.

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It’s a Mad, Mad, Mad, Mad World

Friday, August 8th, 2014

Isn’t summer supposed to be the time when life slows down and the world takes a vacation?

That may be the case for some of us, but the despots of the world are working overtime.  Consider just a few of the world crises taking place this summer:

  • Russia’s conflict with Ukraine continues.  The downing of Malaysian Airlines Flight 17 by pro-Russian rebels has done little to stop it.
  • Hamas is fighting with Israel over Gaza.  A cease fire is in place, but Hamas has shown little respect for previous cease fires and it is unlikely that this crisis has ended.
  • Muslim terrorists known as ISIS are making inroads in Iraq.  It’s reached the point where President Obama has reversed his policy and announced that U.S. military airstrikes will take place “if necessary.”
  • Syrian leader Bashar al-Assad continues to slaughter his people, while the country’s conflict threatens to spill over into Lebanon.
  • The newly inaugurated Libyan parliament has called for a cease fire and threatened to act against warring militias that continue fighting.
  • Al-Qaeda-linked sect Boko Haram continues to hold more than 200 schoolgirls captive in Nigeria.
  • Iran is developing nuclear weapons, although the U.S. State Department said U.S. and Iranian officials had a “constructive discussion” this week about Iran’s nuclear program.  There’s some conjecture that, even if Iran were to agree to halt its nuclear development program, it could outsource the program to North Korea.

    Gaza today.

    Gaza today.

Remember the end of the Cold War, the resulting “peace dividend” and the economic growth of the ’90s?  Remember life before the financial crisis?  Much has happened since then and most of it has not been good.

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Fundamentally Flawed

Friday, March 14th, 2014

Imagine if the outcome of a football game depended more on the weather than on the talent of the players.

Weather, indeed, can have an impact and should, but its role is usually to test the talents of the players, not to be the primary factor in the outcome.  When it is the primary factor, anything can happen.  In such cases, would you put money on the game?

The weather is not the number one factor affecting the performance of the stock market these days, but neither is the talent of the players – that is, the fundamental performance of publicly held companies.

In recent years, The Federal Reserve Board has held sway over the market’s performance via quantitative easing, although under former Chair Ben Bernanke, it was somewhat more predictable than the weather.AUDJPY

Now, with tapering under way, that may change (we’ll see, as many expect plenty of bond buying ahead).  Yet other world events may replace QE in determining the performance of the market.  That means potentially greater volatility than we’ve experienced in the easy money era.

It doesn’t take much to affect today’s global economy, especially when the impact of events is amplified by high-frequency trading.  Consider, for example, the impact of the falling yen and Australian dollar on the S&P 500.

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