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Sancho Panza

Equities Reach Record $66 Trillion As S&p 500 Hits 2,000

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Bloomberg 27/ 8/ 14

'Rallies from Brazil to Japan and the Standard & Poor’s 500 Index’s first trip above 2,000 sent the value of global equities to a record $66 trillion.

Shares worldwide added more than $2.2 trillion in value since Aug. 7, according to data compiled by Bloomberg. Optimism that central banks will support economic growth sent the MSCI All-Country World Index up 3.8 percent from its low this month. It was little changed at 9:40 a.m. in New York today. The S&P 500 has risen for 10 of the last 13 days and the Nasdaq Composite Index is about 10 percent from an all-time high.

Global markets are surmounting crises in Ukraine, the Gaza Strip and Iraq as investors renew bets that stimulus will revive growth. The Stoxx Europe 600 Index posted its biggest two-day gain since April after European Central Bank President Mario Draghi signaled policy makers may consider introducing an asset-buying plan. Japan’s Topix index is near its highest level since January, rebounding from losses earlier this year.

“Geopolitical events are significant and major new attacks are tragic, but they’re not enough to unsettle the global economic forces in play, especially in America,” said Patrick Spencer, head of U.S. equity sales at Robert W. Baird & Co. in London. “Draghi gave clear indication that he’s standing ready with further measures to stimulate growth and that’s helping overall sentiment.

The S&P 500 has climbed 0.6 percent over the past two days, closing at 2,000.02 yesterday, after data added to signs the economy is strengthening. U.S. durable-goods orders jumped by the most on record last month and consumer confidence climbed in August to the highest level in almost seven years.'

Bloomberg 30/6/14

'Federal Reserve officials, concerned that selling bonds from their $4.3 trillion portfolio could crush the U.S. recovery, are preparing to keep their balance sheet close to record levels for years.

Central bankers are stepping back from a three-year-old strategy for an exit from the unprecedented easing they deployed to battle the worst recession since the Great Depression. Minutes of their last meeting in April made no mention of asset sales.'

It's a relief that they haven't made the mistake of measuring economic success in terms of household incomes, participation rates and debt.

Edited by Sancho Panza

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We know they have been tapering.

Will they change course? I'm hoping it goes with the FOMC suggestion. Although as I understand it, after tapering is done (if), they will still use the generated interest on their holdings to buy more assets - or that was a suggestion in another article.

Fed minutes: Tapering to end soon?
Cuts another $10 billion

August 20, 2014

http://www.housingwire.com/articles/31103-fed-minutes-tapering-to-end-soon

Edited by Venger

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Global markets are surmounting crises in Ukraine, the Gaza Strip and Iraq as investors renew bets that stimulus will revive growth. The Stoxx Europe 600 Index posted its biggest two-day gain since April after European Central Bank President Mario Draghi signaled policy makers may consider introducing an asset-buying plan. Japan’s Topix index is near its highest level since January, rebounding from losses earlier this year.

“Geopolitical events are significant and major new attacks are tragic, but they’re not enough to unsettle the global economic forces in play, especially in America,” said Patrick Spencer, head of U.S. equity sales at Robert W. Baird & Co. in London. “Draghi gave clear indication that he’s standing ready with further measures to stimulate growth and that’s helping overall sentiment.

The S&P 500 has climbed 0.6 percent over the past two days, closing at 2,000.02 yesterday, after data added to signs the economy is strengthening. U.S. durable-goods orders jumped by the most on record last month and consumer confidence climbed in August to the highest level in almost seven years.'

On the back of some alarming European sliding data (Germany's Ifo business sentiment at 0400 EST was expected to add to the picture of a lackluster euro zone economy) Draghi's suggestion they will talk about QE, seems to have done a lot for the markets.

What was it... ? 50% chance? If we get ECB QE, just more older VI paying higher prices for London property, imo.

The Fed is now slowing its own program and Draghi’s policy stance increasingly runs counter to that of Chair Janet Yellen. She told the symposium that the U.S. labor market has made “considerable progress” and that officials are debating when they can begin “dialing back our extraordinary accommodation.”

https://www.bloomberg.com/news/2014-08-24/draghi-pushes-ecb-closer-to-qe-as-deflation-risks-rise.html

From cheap loans to business... to QE??

http://www.reuters.com/article/2014/08/25/us-markets-bonds-euro-idUSKBN0GP0HR20140825

"Low inflation makes it harder for people and businesses to reduce debt." - and rates held so low, QE, makes it harder for new entrants to break up over-extended zombie firms who rode the boom for decades, at new lower prices - insteads keep supported in zombie land high prices + QE help for them on top now, maybe.

25th August 2014

“[Mr Draghi’s comments] sounded like some sort of sign that the ECB could make further steps or that the debate is likely to get tougher,” said Christian Schulz, senior economist at Berenberg Bank. “The market is clearly expecting a large scale asset purchase programme, maybe not at the next meeting but by the end of the year.” Mr Schulz said that members of the ECB’s governing council would discuss US-style QE “with enhanced vigour” in the coming months, but that he rated the chances at less than 50pc.

http://www.telegraph.co.uk/finance/economics/11054890/Eurozone-opens-doors-to-QE-as-Germany-and-France-stumble.html

Sensible...

Feb 2014

"Mr. Draghi has said low inflation is concentrated in crisis countries where falling prices are welcome and necessary to regain competitiveness on world export markets."

Sensible, but he's previously banged on about deflation leading to two decades of loss for young people. I'd rather see a shakeup in the old VI and their house prices, they tend to own lions share of overexpanded businesses which inflation/values too (the ones where owners can't sell stuff for less than it's worth cause of their loans), and share wealth too... a bit of a levelling and opportunities for younger people.

ECB's Nowotny: Monetary policy options limited to trigger loan demand

VIENNA Wed Dec 11, 2013 9:34am GMT

(Reuters) - There are limits as to what monetary policy can still do to stimulate demand for credit to fund investments, European Central Bank Governing Council member Ewald Nowotny said.

"Credit availability is not a problem now but what we see is that demand is very low," Nowotny, who is also governor of the Austrian Central Bank, told a news conference on Austrian bank stability on Wednesday.

"The possibilities of monetary policy are more or less limited," he added. "It is the demand side that decides investments."

http://uk.reuters.com/article/2013/12/11/uk-europe-ecb-policy-idUKBRE9BA0AJ20131211

Edited by Venger

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Would equities fall if there was a nuclear war, or if the Sun exploded?

No amount of downside risk seems to affect them, which strongly suggests that there's alot of fiddling going on..

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We know they have been tapering.

Will they change course? I'm hoping it goes with the FOMC suggestion. Although as I understand it, after tapering is done (if), they will still use the generated interest on their holdings to buy more assets - or that was a suggestion in another article.

Fed minutes: Tapering to end soon?

Cuts another $10 billion

August 20, 2014

http://www.housingwire.com/articles/31103-fed-minutes-tapering-to-end-soon

Careful. The Taper is largely a scam. It's been calibrated to match the on-going Treasury supply. The volume of new USTs has been light all year, which has meant that the provision of QE cash to help purchase them could be scaled back without negatively impacting the market. This month (and next) is the first time in over two years that the Primary Dealers have had less free money deposited in their accounts at the Fed than the volume of debt they are contractually obligated to buy from the Treasury. Everything else being equal that finally sets up the possibility of some action on the short side (a taste of which I believe we saw at the beginning of August). Ultimately, of course, QE will be never-ending. Until China or the EZ implodes the Fed must keep printing to support USTs, but they don't have to do so continuously and may even welcome a sharp sell-off in equities periodically to restore yield for the investment banks and hedge traders.

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Would equities fall if there was a nuclear war, or if the Sun exploded?

No amount of downside risk seems to affect them, which strongly suggests that there's alot of fiddling going on..

There's none of the retail trader mania that one would traditionally associate with bubble tops-although we're seeing plenty of that 'blind faith' in the UK housing market- rather we're seeing the pro's drive this one higher and higher,maybe they just haven't found the patsy yet.

Certainly seeing margin debt work it's way back up the graph to record highs but as you say,there's a shedload of geo political risk that doesn't seem to phase anyone.Very strange.

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Careful. The Taper is largely a scam. It's been calibrated to match the on-going Treasury supply. The volume of new USTs has been light all year, which has meant that the provision of QE cash to help purchase them could be scaled back without negatively impacting the market. This month (and next) is the first time in over two years that the Primary Dealers have had less free money deposited in their accounts at the Fed than the volume of debt they are contractually obligated to buy from the Treasury. Everything else being equal that finally sets up the possibility of some action on the short side (a taste of which I believe we saw at the beginning of August). Ultimately, of course, QE will be never-ending. Until China or the EZ implodes the Fed must keep printing to support USTs, but they don't have to do so continuously and may even welcome a sharp sell-off in equities periodically to restore yield for the investment banks and hedge traders.

There's been a number of factors combining to drive equity markets higher-buybacks,monetary policy,central bank buying etc.I'm still unsure whtther the top is in.2000 must be a huge psychological barrier though.

http://www.bloomberg.com/news/2013-04-24/central-banks-load-up-on-equities-as-low-rates-kill-bond-yields.html

'Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk- averse investors toward equities.

In a survey of 60 central bankers this month by Central Banking Publications and Royal Bank of Scotland Group Plc, 23 percent said they own shares or plan to buy them. The Bank of Japan, holder of the second-biggest reserves, said April 4 it will more than double investments in equity exchange-traded funds to 3.5 trillion yen ($35.2 billion) by 2014. The Bank of Israel bought stocks for the first time last year while the Swiss National Bank and the Czech National Bank have boosted their holdings to at least 10 percent of reserves.

“In the last year or so, I have spoken with 103 central banks on diversification,” Gary Smith, London-based global head of official institutions at BNP Paribas Investment Partners, which oversees about $649 billion, said in a phone interview. “If reserves are growing, so are diversification pressures. Equities are not for every bank tomorrow, but more are continuing down this path.”'

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Careful. The Taper is largely a scam. It's been calibrated to match the on-going Treasury supply. The volume of new USTs has been light all year, which has meant that the provision of QE cash to help purchase them could be scaled back without negatively impacting the market. This month (and next) is the first time in over two years that the Primary Dealers have had less free money deposited in their accounts at the Fed than the volume of debt they are contractually obligated to buy from the Treasury. Everything else being equal that finally sets up the possibility of some action on the short side (a taste of which I believe we saw at the beginning of August). Ultimately, of course, QE will be never-ending. Until China or the EZ implodes the Fed must keep printing to support USTs, but they don't have to do so continuously and may even welcome a sharp sell-off in equities periodically to restore yield for the investment banks and hedge traders.

Thanks zugzwang. Acknowledged. The recent sharp sell-off, for the DJIA anyway, has made all the gains back and more. I've retaken the very lightest of short positions, calibrated against a possible further surge to knock out shorts taking the more obvious view; of October/November end to taper (if it comes) causing an immediate effect (those expecting a taper-tantrum, which I'm undecided upon will be repeated), when perhaps it's going to be more subtle with longer to run. (Some believe it's only the beginning of a new bull market.) Need reminding of the China position too. ECB doing my head in. For me it's a balance of measuring upside against downside, and can afford some exposure on the short.

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I have thought for some time that the stock market was going to be the method of economic take-off/next inflation wave.

Look at it realistically.

Bonds are at an all time high, why would you invest in them unless you thought inflation was going to stay low for ever, that they had a positive real yield and that they were never going to collapse in value (ie interest rates rises).

Meanwhile there is a lot of QE money floating around, and if it isn't going to go into the bond market, and property is looking dicey, where does it go?

I guess the Japanese scenario is that we keep printing, which means there is so much money about, but there is no way to get yield, so no one invests.

But right now, I think people are starting to twig the idea behind the Piketty book. So if they want growth and to avoid having the rich lynched , something need to change and the only way to do that is to finally let wages go up.

Whilst I'll get shot down on HPC for saying the above, if you think about it, higher wages for the workers means more wealth for the elite who need customers. It is a bit like the constant comment on this site that Local Housing Allowance is a subsidy to landlords.

So I predict the next move will be something that gets more money to move into the pockets of the workers, but which will ultimately end up in the hands of the rich.

This will drive corporate profits, and then push up shares.

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Property is looking dicey because... high speculative prices? A lot out there looks overvalued to me. Earning 0% isn't a lot, but it's better than losing 50%. Velocity of money is plunging.

I couldn't think of anything much worse that what you outline, and we've had years of it too. Concentrating the assets into fewer hands, at ever higher values, bailed out more with QE/leverage. Wage inflation without knocking out the zombies, landlord types, who will just buy more again if they can with wage inflation helping their cause... not a solution for me.

Older established company winners (beholden to for jobs). I'm ready to help a family member buy a stake, if they can find 10 other equity investors, in their over-extended company, buying up more companies in the boom, with most of the bosses older types, with their top-range cars, houses bought cheap 30 years ago worth fortunes now. Shed the other parts of the company to other younger entrants.

More over gramps, crash the prices and lend more to younger entrants, and banks, make money on lending.

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Property is looking dicey because... high speculative prices? A lot out there looks overvalued to me. Earning 0% isn't a lot, but it's better than losing 50%. Velocity of money is plunging.

I couldn't think of anything much worse that what you outline, and we've had years of it too. Concentrating the assets into fewer hands, at ever higher values, bailed out more with QE/leverage. Wage inflation without knocking out the zombies, landlord types, who will just buy more again if they can with wage inflation helping their cause... not a solution for me.

Older established company winners (beholden to for jobs). I'm ready to help a family member buy a stake, if they can find 10 other equity investors, in their over-extended company, buying up more companies in the boom, with most of the bosses older types, with their top-range cars, houses bought cheap 30 years ago worth fortunes now. Shed the other parts of the company to other younger entrants.

More over gramps, crash the prices and lend more to younger entrants, and banks, make money on lending.

But I suspect the vested interests won't allow it to happen.

They either lose their coveted positions because their assets halve in value and they can no longer meet debt they also have and go bust so end up with nothing. Or they inflate everything, lose a little relative wealth for while, but claw it back later, meanwhile keep the broader population still working their jobs and under control.

If you held the reins of economic power, which option would you go for?

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But I suspect the vested interests won't allow it to happen.

They either lose their coveted positions because their assets halve in value and they can no longer meet debt they also have and go bust so end up with nothing. Or they inflate everything, lose a little relative wealth for while, but claw it back later, meanwhile keep the broader population still working their jobs and under control.

If you held the reins of economic power, which option would you go for?

Well everything we've seen so far, goes with your suspicion. Company I'm thinking of took risk of multi-million debt just before the crunch, and paid millions for another company... and still prospering, older execs in charge, including founders, helped with debt position and repayments kept low.

What has been policy in the past? Serpico bought his mansion dirt cheap in a recession in 1970s, which Customs & Excise had acquired from a debtor and were selling. I'm sure the former owner was sad to lose it. Serpico bungs in a low offer and gets it. Fast forward 17 years later, Serpico having expanded his business into forever boom, lenders stroking him and attending his every whim, sudden change of economy and he didn't like losing his four franchises, BMW, Honda, Yamaha and one other, when he was used to having a Bentley, buying his wife a new high-end car ever 3 years, airplane, mansion all fitted out, horses and groom, live-in staff. The neurosurgeon who bought it at a lower price - with a fresh mortgage - probably wouldn't have liked to seen Serpico bailed out, just as Serpico wouldn't have liked the owner (and others of the time) of the mansion he bought cheap bailed out in that turn of the market.

I can't recall any other episode where there wasn't a wider shakeup - except I'm uncertain on how it played out in Japan; slowly it seems and not entirely. I've got a suspicion QE is just helping mainstay systematically important businesses (banks) better placed to take a turn of the market.

If I held reins... sometimes realities of the situation more important than politics and being onside with core VI voters - such as Deputy Gov Broadbent saying BoE is only really looking at mortgage transactions as the most important thing in housing, "which today are very low." I wonder how they could be improved?

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Thanks zugzwang. Acknowledged. The recent sharp sell-off, for the DJIA anyway, has made all the gains back and more. I've retaken the very lightest of short positions, calibrated against a possible further surge to knock out shorts taking the more obvious view; of October/November end to taper (if it comes) causing an immediate effect (those expecting a taper-tantrum, which I'm undecided upon will be repeated), when perhaps it's going to be more subtle with longer to run. (Some believe it's only the beginning of a new bull market.) Need reminding of the China position too. ECB doing my head in. For me it's a balance of measuring upside against downside, and can afford some exposure on the short.

http://www.telegraph.co.uk/finance/markets/11059951/Markets-could-be-heading-for-scary-60pc-crash-warns-analyst.html

'Stock markets could be heading for a "scary" crash that may wipe up to 60pc off the value of the world's leading companies, an analyst has warned.

Just a day after Amercia's S&P 500 index closed above 2,000 for the first time, Abigail Doolittle, founder of Peak Theories Research, said the Federal Reserve's reluctance to raise interest rates from record lows could spark a market correction to rival the slump seen in 2007, during the global recession.'

You're not alone Venger.

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I have thought for some time that the stock market was going to be the method of economic take-off/next inflation wave.

Look at it realistically.

Bonds are at an all time high, why would you invest in them unless you thought inflation was going to stay low for ever, that they had a positive real yield and that they were never going to collapse in value (ie interest rates rises).

Meanwhile there is a lot of QE money floating around, and if it isn't going to go into the bond market, and property is looking dicey, where does it go?

I guess the Japanese scenario is that we keep printing, which means there is so much money about, but there is no way to get yield, so no one invests.

But right now, I think people are starting to twig the idea behind the Piketty book. So if they want growth and to avoid having the rich lynched , something need to change and the only way to do that is to finally let wages go up.

Whilst I'll get shot down on HPC for saying the above, if you think about it, higher wages for the workers means more wealth for the elite who need customers. It is a bit like the constant comment on this site that Local Housing Allowance is a subsidy to landlords.

So I predict the next move will be something that gets more money to move into the pockets of the workers, but which will ultimately end up in the hands of the rich.

This will drive corporate profits, and then push up shares.

That's probably what should happen but there's not even the slightest sign of it happening.Look at japan,twenty odd years in and real wages are still heading down.

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Property is looking dicey because... high speculative prices? A lot out there looks overvalued to me. Earning 0% isn't a lot, but it's better than losing 50%. Velocity of money is plunging.

I couldn't think of anything much worse that what you outline, and we've had years of it too. Concentrating the assets into fewer hands, at ever higher values, bailed out more with QE/leverage. Wage inflation without knocking out the zombies, landlord types, who will just buy more again if they can with wage inflation helping their cause... not a solution for me.

More over gramps, crash the prices and lend more to younger entrants, and banks, make money on lending.

It's gonna happen at some point.Markets -property,stock,banking-are so elevated there's only really one way to go longer term.Just trying to work out when.The key thing you highlight is that despite all the printing,the only thing that's really happened is that the velocity of money has plunged in correlation with said printing.In my untrained mind,velocity of money is the key indicator of economic confidence.The rest is noise.

But I suspect the vested interests won't allow it to happen.

They either lose their coveted positions because their assets halve in value and they can no longer meet debt they also have and go bust so end up with nothing. Or they inflate everything, lose a little relative wealth for while, but claw it back later, meanwhile keep the broader population still working their jobs and under control.

If you held the reins of economic power, which option would you go for?

They won't have a lot of choice about the sell off.One day it'll just happen.

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