Bad New is Good News.
Global markets continue to ascend on EXPECTATIONS of MORE bailouts. [yes markets have been enchanted by the Bernanke Put- pattern of providing ample liquidity to protect the asset markets]
From the Bloomberg,
U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level in more than a month, as investors speculated the Federal Reserve will announce more measures to stimulate the world’s largest economy…
Signs of slowing growth amid Europe’s turmoil could mean the Fed, which began a two-day meeting today, could extend its so-called Operation Twist, according to JPMorgan Chase & Co. (JPM) and Jefferies & Co. The program involves selling short-term debt and buying longer-term bonds. A more aggressive response could be warranted if the Fed see high costs in a slowdown of growth.
Fed’s Options
The central bank may expand its balance sheet, extend Operation Twist and/or lengthen its short-term interest rate guidance beyond late 2014, Goldman Sachs Group Inc. chief economist Jan Hatzius wrote today.
“A decision not to ease is tantamount to a tightening,” he wrote in an e-mailed report to clients today. “At this point we’d be quite surprised if we saw no easing.”
Expectations for further policy action gave stocks their first back-to-back weekly gain since April on June 15. The S&P 500 earlier this month was on the brink of a so-called correction, or a 10 percent drop from a recent peak, on concern about a global slowdown and a worsening of Europe’s crisis.
Markets have constantly been fed with the forging of new deals and from vows of a backstop from policymakers to mitigate or curb the crisis.
The US Federal Reserve’s FOMC concludes their periodical meeting today and will be announcing their actions.
As pointed out above, the markets have already been pricing in, or have been frontrunning, a supposed new easing program from the FED.
Earlier, emerging markets including the Philippines through the IMF, has also promised contributions to assist in the rescue of Europe’s political and banking class. This serves as an example of the ‘poor’ (Filipino and EM Taxpayers) rescuing the rich.
Now the it’s the G-20’s turn to make the next round of pledges.
From another Bloomberg report,
Euro-area leaders at the Group of 20 summit pledged to “take all necessary policy measures” to defend the currency union and boost protection of the region’s struggling banks, according to the final statement issued at a meeting in Mexico.
With contagion from the debt crisis rippling through the world economy, participants at the G-20 summit in the beach resort of Los Cabos backed measures to spur growth and cut budgets in Europe while saying the U.S. will “calibrate” the pace of its spending cuts to avoid a “sharp fiscal contraction” in 2013.
At the end of the two-day summit, the leaders of advanced and emerging economies said Europe is taking steps toward closer economic union “that lead to sustainable borrowing costs.” The G-20 also backed Europe’s plans to move toward a more integrated banking industry.
Talks among G-20 leaders at Los Cabos were dominated by the crisis in 17-nation euro region and its threat to the world economy. Bond yields in Spain, the region’s fourth-biggest economy, rose to a euro-era record yesterday, above the 7 percent level that led to bailouts in Greece, Ireland and Portugal.
The group welcomed the plan to rescue Spain’s banks and the European Union’s efforts to build up its crisis defenses, including the European Stability Mechanism, the region’s permanent bailout fund scheduled to start up in July.
Pledges upon pledges upon pledges.
Again market dynamic becomes a question of the FULFILLMENT or NON-FULFILLMENT of such expectations. Eventually markets will DEMAND not merely promises or assurances but ACTION.
Oh by the way, technician Carl Swenlin, at the stockcharts.com Blog says that the markets deserve a cautious stance, than blindly fixating on the bullish reverse head and shoulders pattern
My problem is that, being a person who likes things to be nice and neat, I wanted the right shoulder to be more even with the left shoulder. But no. What we have is a formation that is very lopsided, but I think it is close enough to be considered a completed reverse head and shoulders pattern. The neckline has been penetrated, so the minimum upside target is about 1430.
Unfortunately, the bullish breakout on the price chart is contradicted by the Climactic Volume Indicator (CVI) chart, which spiked to a level that usually signals a short-term top.
Conclusion: It is possible that Saturday's upcoming elections in Greece may have triggered some short-covering ahead of the weekend, resulting in a rally that may prove to have no legs. The breakout is far from decisive, and the CVI indicates a possible exhaustion climax, so I remain skeptical of the rally.
A REVERSAL of markets expectations, which may be prompted for by the diminishing returns from guarantees and or from dissatisfaction from political actions, can be swift, dramatically violent and nasty.
Be very careful out there.
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