THE DOOMSDAY CYCLE TURNS: WHO’S NEXT (excerpts)
Simon Johnson (Professor of Entrepreneurship, Sloan School of Management, MIT), Peter Boone (Research Associate, Centre for Economic Performance, LSE),
21 September 2012
“The latest crisis has led to the largest monetary and fiscal bailouts on record. The Congressional Budget Office estimates that the final fiscal impact of the crisis of 2007-8 will end up increasing debt relative to GDP by about 50 percentage points. This is the second largest debt shock in US history; measured in this way, only the Second World War cost more. (For more detail, see Johnson and Kwak 2012.)”
“Roughly half of all US federal debt is currently held by
non-residents. So US fiscal policy remains viable only as long as the dollar is
seen as the ultimate safe haven for investors...A great deal of the prospects
for the US budget and growth...rest on what happens in the Eurozone.”
(But) “...The continental European financial system is in
big trouble: budgets are unsustainable and growth is nowhere on the horizon.
The costs of bailouts are rising – and the coming scale of the problem is
likely to undermine political support for the Eurozone itself.”
The risk is much greater than currently reported because of “...the growth of euro-denominated interest rate derivatives, the notional value of which now totals more than 10 times the GDP of the Eurozone. Regulators commonly use net figures when they consider ultimate risk for banks (the derivative contracts are offsetting and net to zero) and this makes sense under the usual circumstances of bankruptcy...But if investors start to believe that there will be new currencies in each country, then the...contracts...are no longer offsetting...”
“...The lesson from all these troubles is clear: the
relatively recent rise of the institutions of complex financial markets, around
the world, has permitted the growth of large, unsustainable finance. We rely on
our political systems to check these dangers, but instead the politicians
naturally develop symbiotic relationships that encourage irresponsible growth.
The nature of ‘irresponsible growth’ is different in each
country and region – but it is similarly unsustainable and it is still growing.
There are more crises to come and they are likely to be worse than the last
one.”
Full story at...http://www.voxeu.com/article/doomsday-cycle-turns-who-s-next
MARKET
RECAP
Tuesday the S&P 500
was UP 1% to 1455 (rounded) and VIX was down 1/3% to 15.22.
The pro-traders have been
buying late in the day – that’s a positive turn.
Traders have been paying-up
for cyclical stocks too; apparently traders don’t believe a recession is in the
offing.
NTSM
The
NTSM analysis remained HOLD Tuesday.
MY INVESTED POSITION
Based on the BUY signal, 6
July, I moved back into the market on 9 July (after the weekend) at S&P 500
1352.
I currently have a 50%
stock allocation overall. For my age,
that is what many advisors recommend as a fully invested position, however, I
am normally much more aggressive. I have
less invested in stocks now because there’s a lot of risk.
