Listening to our top politician in Washington this week was reminiscent of Chicken Little’s apocalyptic warning, “The sky is falling.” In daily appearances the loss of 2.5% of the federal budget has been lamented, implying catastrophic consequences.
There was a major battle that took place in the United States in November of 2012, but it wasn't fought between the Republicans and the Democrats. The result was an overwhelming victory – because only one side showed up for the fight. For the most part, the other side didn't even realize that a battle was being fought.
Those who favor more government expenditures in the face of a public debt crisis suggest that the very same strategy that has led to the calamity would also be its solution. Yet the debt crisis as such cannot provide any rationale to borrow more.
After some wild swing intra-week the markets finished off the last four trading days virtually flat. The market moved sharply higher throughout the day before sellers came in to take over on the final hour of trading. The S&P 500 closed higher by 1.11% for the month.
The S&P 500 soared by 1.27% and the Dow roared ahead by 1.26%. Better economic data, positive commentary from Fed Chairman Bernanke and dovish comments from ECB leader Draghi spurred the bulls on.
Sub-investment-grade loans continue to perform well, driven by demand for floating rate product. As an example, the chart below compares the performance of Invesco's "Senior Income" fund (VVR) - which mostly holds loans of non-investment-grade companies - with HYG (iShares junk bond ETF) and an S&P500 ETF.
I think that in financial markets and in the press the degrees of freedom that central bank officials enjoy are vastly overestimated. I consider central bankers to be captives of three overwhelming forces...
St. Louis Fed President James Bullard tells CNBC that his "main message" for viewers is that the Fed's policy is "very easy and it's going to stay easy for a long time."
These deposits aren't about people taking cash out of mattresses depositing it in the banks. This story should not be about the banks not lending, because its not true. They are.
The market took comments regarding QE in a negative light and sold off sharply after hitting cycle highs yesterday. The S&P 500 traded off by 1.25% and the Dow was lower by 0.77%. Six of the ten S&P sectors sold off by more than 1% today.
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