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Over an intense week, dominated by headlines from Mario Draghi and the monthly jobs report in the U.S., economists and analysts had quite a bit to say.The weak Non Farm Payrolls print, which followed a surprisingly robust ADP report, had dozens of research teams increasing the odds that QE at the next Fed meeting this September.
In Europe, Draghi announced a new bond buying program which sent markets across the world higher.
This chart captures just the domestic profits of non-financial corporations as a percentage of non-financial corporate GDP. 'When measured this way, profit margins look significantly less elevated. With globalization in full force, foreign earnings' contributions to US profit growth should continue to expand, suggesting that margins may continue to diverge somewhat from the US business cycle, and that their upward trajectory may not be soon interrupted (barring a synchronised global recession).'
'We see no imminent intervention in either Spain or Italy (a change in view relative to last month). Indeed, improving market conditions should reduce the incentive for both Italy and Spain to call for help in the short term as they will try to exploit the threat of intervention to avoid falling into the 'bailed out' camp. We believe that they will lose that game as we do not believe that markets have moved into a self-stabilising equilibrium.'
'I plan to sell/short this news for several basic reasons,' writes Doug Kass. 'Not only is Europe slipping more rapidly into a deeper recession but the implementation of serious and effective longer-term policy responses remains unlikely. Band-Aid policy measures of providing liquidity (which aids the transmission of monetary policy) remain the operative palliative, and they will likely continue for some time to come.'
'I think that because of that, the ECB is going to be quite strict about implicitly, if not explicitly, telling these countries, 'If I buy your bonds, you cannot play the game of shortening the maturity in a way that effectively puts the burden on me to keep on buying it.' '
'Investors may be willing to buy the front-end in anticipation of ECB buying, but are they willing to hold those positions? There is a danger that investors may be more inclined to sell to the ECB rather than buy with the ECB. Moreover, the ECB may be hoping to do most of the work with words in the hope that the buying can be kept to a minimum. The market may yet be willing to put this to the test.'
MICHAEL FEROLI: The Fed Could Hold Rates Low Even Longer After This Week's Disappointing Jobs Report
'Today's number increases our conviction in our existing Fed call which looks for the FOMC to engage in further asset purchases and to push back rate guidance at next week's meeting,' he writes. 'The weak pace of labour income growth will likely limit the pace of consumer spending, which in turn means continued unsatisfactory GDP growth.'
'For the Fed, that growth pace does not represent the substantial and sustainable improvement in activity necessary to head off further accommodation. As such, we now forecast new easing at the September 13 FOMC meeting. That easing will probably take the form of a longer-term commitment to hold the funds rate at extraordinarily low levels as well as a new round of Treasury (and perhaps MBS) buying by the Fed.'
ALBERT EDWARDS: 'The Vice-Like Grip Of The Bear Will Soon Squeeze The Hope From Their Gasping, Broken Bodies'
'The resilience of the US equity market in the face of a rapidly deteriorating profits backdrop points to continued high levels of investor hope,' Edwards writes. 'The vice-like grip of the bear will soon squeeze the hope from their gasping, broken bodies.'
'Gold is primarily an alternative to fiat currency and a storehold of wealth. The main advantage that gold has over other currencies is that it can't be printed. While we have just gone through a period in which the degree of monetary stimulation has ebbed, the ongoing deleveraging means that developed economic will remain highly reliably on continued stimulation for years.'
'The problem, at least, is simple: As finance has become more complicated, regulators have tried to keep up by adopting ever more complicated rules. It is an arms race that underfunded government agencies have no chance to win. Even back in the 1990's, regulators would privately complain of the difficulty of retaining any staff capable of understanding the rapidly evolving derivatives market.'
'The US owns the world's greatest hoard of gold. Here's what I think the authorities have to do. They should unilaterally, overnight raise the price of gold to a high value, maybe around $10,000 an ounce. Thus, each dollar would be worth one 10-thousandth of an ounce of gold. This would allow our enormous debt to be paid off with vastly devalued dollars.'
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