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Investors had a lot to digest this week. Following last weekend’s elections, Greece scrambled to get its government together. And they’re still not done.Then on Thursday, markets learned that J.P. Morgan, arguably the most well-regarded bank on Wall Street, would lose at least $2 billion on trading within its Chief Investment Office in London.
This week, analysts offered some progressive ideas regarding market movements, currency valuation, volatility, and the gold trade.
'If Germany had addressed its balance sheet recession with greater fiscal stimulus, the ECB would not have had to lower interest rates as much as it did, and the housing bubbles in Spain and Portugal would not have expanded to the extent they did.
In the event, however, Germany chose to observe the Maastricht Treaty's 3% cap on fiscal deficits. That prevented the government from administering needed fiscal stimulus and shifted the burden onto the shoulders of ECB's monetary policy. The ECB then lowered short-term interest rates, triggering bubbles in Ireland and southern Europe.'
Willem Buiter: Central Banks Need To Drop Money From Helicopters, And Perhaps ABOLISH CURRENCY COMPLETELY
'The obvious solutions are: (1) abolishing currency completely and moving to E- money on which negative interest rates can be paid as easily as zero or positive rates; (2) taxing holdings of bank notes (a solution first proposed by Gesell (1916) and also advocated by Irving Fisher (1933)) or (3) ending the fixed exchange rate between currency and central bank reserves (which, like all deposits, can carry negative nominal interest rates as easily as positive nominal interest rates, a solution due to Eisler (1932)).'
RICHARD RUSSELL: 'The Scream' Sold For $119 Million And That Tells Us Something Important About Gold
'Even if the dollar becomes worthless as a unit of exchange, the Munch painting will still be worth a fortune in whatever unit of money is in favour 10 or 50 years from now. All of which tells us something about gold. For over five thousand years, gold has represented purchasing power. No matter what form of money was in existence at the time, gold possessed purchasing power, which is why many wise men own gold.'
'Elections breed optimism, and the idea that we might get a new CEO of the country really could trigger a fair bit of resiliency in the markets and perhaps even a rally as we get closer to the elections. We're thinking that we are cushioned on the downside at least a little bit by the dynamic that if the growth outlook gets worse President Obama's ratings will fall and we're going to get a new government to address these problems. And markets may very well rally as a result despite some pretty ugly data.'
'I think these stocks can go up more than 100% in one year, especially if gold rallies from here. What if gold goes on and makes another high above $2,000 an ounce? What if it gets to $2,500 an ounce? These stocks have a long way to go just to get back to when gold was $1,000 an ounce.
'Since we last updated our S&P 500 target in March, the readings on two of our five input models have turned more bullish on stocks: the Sell Side Indicator and the Estimate Revision Ratio. As a result, we are raising our 2012 year-end target from 1400 to 1450, which represents modest upside of about 6% from current levels. All but one of our models are now forecasting healthy returns of 10-19% for the remainder of this year, with exception being our Fair Value model.'
'So our bias is to think that (we will head down to the 200 day moving average), in a similar fashion to what we saw last year. That is down quite a bit below present levels, at around 1277 (on the S&P). This would translate into 700+ points (lost) on the Dow, to the region of around 12,000.'
'Various self-styled experts are holding forth on how and why the Greeks will leave the Eurozone. From blog sites to TV screens, they tend to portray it as a topic being resolved in a manner fit for the Oxford Debating Society. From the perspective of watching financial markets for over a half a century (and a student of many centuries before) that's not usually the way currency conversions occur. They tend to be forced by events.'
'It's basically like this: if the left-wing SYRIZAT party, headed by Alexis Tsipras, cleans up in the (likely) June election, then Greece will immediately be at loggerheads with the ECB and the rest of Europe. Tsipras does not want to leave the Euro, but he refuses to comply with the current austerity scheme, and actually wants to hire more than 100K civil servants. So, according to BNP, you have a situation where Greece either backs down, realising how ugly the numbers above would be, or just decides to jump, because at least in their view, they don't think the Europe is bluffing about not wanting to renegotiate the current scheme.'
'Instead it looks like a bailout for Spanish banks has been postponed until the very last minute. The cost of a bank bailout would then be foisted on to the Spanish sovereign's balance sheet. Bank bailouts on this scale may well bring the Spanish state to its knees ... If things go wrong in Greece, Portugal and Ireland, a second bailout is affordable. But there can only be one roll of the dice for a country as large as Spain.'
'3. The permanent drop argument ignores the shock to household wealth and confidence. Once the period of distress is over and job opportunities return, don't people have a lot of catching up to do? Or do they simply resign themselves to a much lower standard of living in retirement, even as
Medicare spending is cut and taxes increase?'
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