Head and Shoulders
Overview of near-term dollar outlook.
The markets seem to sense that all of this. In the US we’re putting in what looks like a lower high. The market appears to be forming a Head and Shoulders pattern.
The past few weeks have seen the tech and business media abuzz about a not-so-little warehouse in Tennessee. That's because this distribution center, opening its doors with a burst of fanfare and even a few visits from nearby politicians, isn't a jumping-off point for Macy's or Target. Instead, the warehouse is the latest in a series of new locations being opened by retail technology giant Amazon.com. The jobs this new mega-warehouse is purported to create: 5,000. However, as we discuss below, for every job Amazon "creates," four other jobs go away at a company like TJX.
On a day when the underlying reason for celebration in the US is often washed away by a few gallons of alcohol, we thought it timely to see just which states are the biggest soaks. It is likely no surprise that Utah is the driest state but the top 4 states seem head and shoulders above the rest with North Dakota topping the list at 45.8 gallons of beer per capita per year (or an average of just over 1 pint per day - which seems very reasonable?).
Few analysts know or admit it, but the only thing that held Europe (and ultimately the financial system) together since May 2012 was the promise of unlimited bond purchases from the ECB.
A look mostly at prices in the currency market and the outlook.
An oveview of the technical condition of the major currencies. Offered as a compliment to macro analysis.
An overview of the technical condition of the major currencies. See why we anticipate a heavier US dollar in the week ahead.
A weekly overview of the technical condition of a number of currencies against the US dollar. It is meant to compliment and supplement fundamental analysis. We retain a mostly favorable outlook for the US dollar, though skeptical of the scope for additional significant gains against the Japanese yen.
The United Stated economy is hanging on tight in preparation for the looming apocalypse that is the fiscal cliff. Just feet from the edge and a decision was made to… You guessed it, push back the deadlines. You know that progress is weak when the U.S. Government keeps coming to the conclusion that the best decision is to remain in a state of indecision.
For those who want to get a sense of who the leading candidate in Italy is, at least based on concurrent mentions on Twitter, here is an application that tracks candidate references in real-time. Needless to say, Grillo and Berlusconi are head and shoulders above the rest.
Here is a weekly over view of the currency market from a technical perspective. The divergence between the performance of the dollar against the euro-bloc, with the exception of sterling, and the other major currencies is noteworthy. In the analysis, I suggest a few opportnities for near-term contrarians. I fully appreciate that some readers eschew technical analysis and regulate it to the same space as numerology and witchcraft. Yet, even still, it is useful to recall Keynes' view that the markets are like a beauty contest and the trick is not to pick who one thinks is the most beautiful, but to pick who others will think most beautiful. Moreover, technicals allow one to quantify how much one is willing to lose in a way that fundamental macro-economic analysis doesn't. It is a tool then for risk management.
The chart below illustrates why the U.S. economy is so dependent on the wealth effect generated by asset bubbles. It’s stunning to think that average real earnings in the U.S. are almost 11 percent lower than where they were in 1973. Policymakers’ focus should be on increasing worker productivity through: 1) reforming the country’s education system; 2) unleashing entrepreneurship; and 3) in the words of ECB chief, Mario Draghi, “doing whatever it takes” to empower small businesses. But, this is tough political business, however, so we take the easy way out. The political pandering increases budget deficits, forcing the Fed to repress interest rates and print money to drive up asset prices. The boom side of the cycle is sustained longer than most expect because of the reserve currency status of the dollar. This temporarily generates artificially inflated demand (i.e, fake) through the wealth effect, which eventually collapses when asset markets crash. This is not a good long term economic strategy and sustainable path for permanent wealth creation
In July European unemployment rose to 11.3% - a record post-Euro rate, and the highest since 1990 for the constituent countries. While this was in line with estimates, what surprised the market, and has sent the EUR paradoxically higher (paradoxically, because all a continent in stagflation, which Europe by now most certainly is, is to have its currency rise just when it needs to export more goods, in the process entrentching its economic plight even further) is that inflation in August picked up from 2.4% to 2.6%, beating expectations of a 2.5% increase, allowing the European misery index to stand head and shoulders above the rest of the world.
As I’ve outlined in earlier articles, Spain will be the straw that breaks the EU’s back. The country’s private Debt to GDP is above 300%. Spanish banks are loaded with toxic debts courtesy of a housing bubble that makes the US’s look like a small bump in comparison. And the Spanish government is bankrupt as well.