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Markets had a lot of data to digest this week as global manufacturing figures and July’s Non Farm Payrolls report hit.Monetary policy meetings by both the European Central Bank and Federal Reserve were also closely watched, as analysts tried to gauge when additional easing could take place.
Those reading the economic tea leaves offered several different ideas, although no one point gained mass acceptance.
'The Fed's attempt to overcome its policy dilemma has little chance of succeeding given the degree of political dysfunction in Washington. It is only a matter of weeks until, once again, Fed officials will feel compelled to act, and despite full knowledge that their measures will have limited effectiveness in delivering desired outcomes.'
'In the end, both Ben and Mario did NOT disappoint. They delivered strong messages that show explicit intent to provide aggressive accommodation in the event economic conditions do not improve, or worse, deteriorate further. To be sure, there were no 'tangible' preemptive strikes, but the Fed and ECB laid out very clear plans for the rest of the year. Importantly, the Fed is as close as it was in late 2010 to delivering more accommodation.'
'I think there's some merit in Bill's position that stocks are going to give returns that are much lower than historical levels and bonds definitely will give much lower returns. I happen to think he's a little bit low. For example he says in a balanced portfolio nominal returns might be bonds and stocks half and half roughly and the return on that portfolio might be 3 per cent before deducting inflation and my own work suggests 5 per cent.'
'The real question in my mind is, 'Are we possibly off to the races again?'' he said. 'I think in cities like Phoenix and San Francisco, we might be seeing something pretty big developing. People there are very speculative-minded.'
'After triggering a Buy signal in May, our measure of Wall Street bullishness on stocks has continued to decline, marking the tenth time in the past year that the indicator has fallen. This month's 5.5ppt decline pushed the indicator down to 43.9, the lowest level in the history of our data going back to 1985, suggesting that sell side strategists are now more bearish on equities than they were at any point in the last 27 years.'
'You definitely can have a return greater than GDP growth. There is nothing uneconomic about it. The thing is that capital gives out dividends, it gives out interest, it gives out return. When you add that all together, it's going to be greater than GDP growth. Even in a non-growing economy, you have situations where return is greater than GDP growth.'
'Your author's opinion has been that the US fiscal cliff debate, coupled with continued concerns over Europe, and only a modest stimulus from China would ultimately lead to some disappointing numbers. Unfortunately, it's hard to see how we get a significant turn around if it all comes down to China adding a bit more infrastructure investment in the second half of the year.'
'One slight change, though, is that fantastic (almost unbelievable) profit margin and earnings gains have finally weakened a little. They, together with Bernanke's super low rates, have been the twin pillars of the market and not bad ones at all: here we are up 8% for the year in a thoroughly unsettling financial and economic world. With margins weakening, one of the twin pillars is looking shaky and price declines look more likely than before.'
'At its nadir in the winter of 1933, the Great Depression was a form of collective insanity. Workers were idle because firms would not hire them; firms would not hire them because they saw no market for their output; and there was no market for output because workers had no incomes to spend.'
'Given the strong likelihood that consumers will remain weak for years to come, America's growth agenda needs to focus on getting more out of the other 30%. Of the four growth components that fall into this category, two have the greatest potential to make a difference -- capital spending and exports.'
'Forcing a country in a balance sheet recession to undertake structural reforms in exchange for financial aid is like the proverbial man who runs after two hares and catches neither. The structural reforms will not make much headway and will do nothing to address the balance sheet recession.'
'U.S. investors withdrew a net $11.5 billion out of equity funds last week (according to the Lipper data...including ETFs) -- the sharpest outflow in two years. Taxable bond funds attracted over $3 billion and that brings the year-todate tally to $151 billion as the secular shift in investor behaviour towards income-generation continues apace.'
'The biggest possibility here would be Romney winning the Presidential election. Our guess is that the market multiple would expand if in fact more investors start believing Romney will win. Secondly, we think an improving outlook in China could create a bid for cyclicals in the US, given how much they have sold off.'
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