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The markets haven’t gotten much easier to trade in. Uncertainty in Europe remains high, growth in China continues to decelerate, and in the U.S. the economic data continues to disappoint.Yet stock have held strong as corporations report strong first quarter earnings.
This week, analysts offered a lot of debunkery regarding jobless claims, the fiscal cliff, market valuations, warm weather, austerity, and more.
'The downtrend that was in place in Q4 2011 and Q1 2012 has stalled and begun to reverse, albeit following the same perennial pattern as in 2010 and 2011. As we continually note, the recent rise in claims appears to reflect imperfect seasonal adjustment rather than a marked deterioration. The rise should not be taken as a sign that there is fundamental weakening in the labour market. '
'His theory: Productivity was high in the early phase of the recovery because large, capital-intensive companies were able to meet rising demand, without hiring, by working their machines harder. But now the expansion has spread to companies that are less capital-intensive and have to hire as soon as demand for their goods and services picks up. Shepherdson fears that if the Fed's low rates stimulate strong growth in output, companies will quickly run out of people to hire and the competition for labour will drive up wages, leading to inflation.'
'Europe is similar to the Soviet Union in the way that the euro crisis has the potential of destroying, undermining the European Union,
'1) The HSBC index focuses more heavily on small-and-medium enterprises (SMEs) than the official index. SME's could be hit harder by tightened liquidity conditions, though liquidity conditions have improved recently. 2) China's export manufacturers tend to be of small scale, and the HSBC PMI sample could have more exposure to the export sector. Remember, export growth decelerated to 7.6 per cent YoY in the first quarter from 14.3 per cent the previous quarter. In contrast, fixed asset investment (FAI) and retail sales growth was strong in the first quarter. 3) Finally, small manufacturers are less efficient and are being consolidated into big ones which could affect the flash PMI reading because of it's focus on SMEs.'
'For starters, remember that the CBO estimates are based on current budget law. There are no assumptions of what is likely to happen on the legislative docket, which will probably be significant. For example, current budget law assumes there will be no indexation of the Alternative Minimum Tax (AMT) in 2012 despite the fact that Congress has repeatedly adjusted the AMT so as to not ensnare an increasing portion of the tax-paying population. According to the CBO, fixing the AMT is worth $89 billion. On the spending side, current budget law also assumes that there will be a reduction in Medicare physician payments, which according to the CBO is worth $19 billion. We believe this is unlikely.'
'Using that GDP number, the growing labour share and assuming a gradual change in the profit share, we can see S&P 500 earnings in 2014 of $115 to $120. If we use 13 times those earnings as an assumed fair price of the S&P 500, we get a 1550-1600 price target for the S&P 500 index, and that would equate with about an 85%-to-90% ratio for the market cap-to-GDP ratio. This is neither overvalued nor undervalued.'
'But if the United States continues to grow at its current pace of about 2.5 per cent, and China slows to 6.5 per cent, then the United States will regain the lead this year -- contributing 23 per cent of global growth in 2012, compared to 18 per cent for China -- and it will hold that lead at least through 2015, according to Morgan Stanley research.'
This Tiny Country Nestled Between China And India Is Set To Become The Next Major Global Trading Hub
'Longer term, it is Myanmar's position as a trade route between China and India that will mould its future. Thailand is currently its biggest export market, but Myanmar imports most goods from China. Myanmar bestrides territories that were once linked by the fabled Silk Road. Today, Europe, Central and SE Asia are being connected by a series of highways and railway networks that will allow more efficient transportation of goods.'
'Oil is different -- We see Russia as a play on oil, and oil is different to the rest of the commodity complex thanks to the power of the OPEC cartel and the political fragility of the supply side. Unlike most other commodities, oil has many drivers outside Chinese infrastructure investment; as the only major commodity to rise in price in real terms during the twentieth century, its investment and price cycle has been quite different to that of the rest.'
'But in order to have an improvement in net exports you need a weaker currency and a much more easy monetary policy to help induce that nominal and real depreciation that is not occurring right now in the euro zone. That's one of the reasons why we're getting a recession that's even more severe. So, can't we think of monetary policy as helping to induce the change in relative prices that's necessary to have a restoration of growth if domestic demand is weak through net export improvements?'
'1) Overall earnings and forward guidance were far better than many of the pessimists expected. 2) Apple remains a pivotal stock and an important contributor to aggregate corporate profits, and its blowout results cannot be overstated in consequence and on investor sentiment. 3) The general concerns regarding domestic economic weakness might have been overstated -- my baseline expectation of a muddle-through 2% real GDP trajectory still seems likely. 4) Lower market prices began to discount the known economic and market headwinds and threats.'
'In a new report titled Popular Delusions, Grice argues why Australians should be worried that someone is calling their country a miracle. He points out that Australia is currently benefiting from a commodity bull market that is inflating a credit bubble, which itself is being inflated by a Chinese credit bubble.'
'The difference between Krugman Fed inflation and 1970s stagflation is that the Krugman inflation would have a real effect by reducing the real debt burdens, whereas the 1970s inflation in retrospect was doomed to fail because policymakers were trying to hit an employment target that was unachievable without constantly accelerating inflation.'
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