Living in Interesting Times
Looking back on the first quarter, an impressive amount of the big news has hit the market. The political unrest across Northern Africa and the Middle East has entangled the US Military in its third shooting war, Japan endured the triple disaster of earthquakes, tsunami and partial nuclear meltdown, the European sovereign bailout took political prisoners in German elections and the largest bond fund manager announced that it had cashed out of US Treasuries. In the US, the housing market seems to have sprung some new leaks below the waterline.
What will the next few quarters bring?
One great place to start is ECRI’s Weekly leading index series which shows that the positive momentum is starting to taper off.This does not mean another recession is on the way, just that the current surge in the leading indicators (which correlate highly with the discussion and implementation of QE2) appears to have lost its head of steam.
Source: Economic Cycle Research Institute
What does this mean?
Investors are right to wonder how the markets for risk assets can be bogging down when there is still an estimated one-third of the QE2 campaign to be injected into the system? Part of the reason is that the likelihood of a QE3 has become more remote as even FED governors start to question the need to continue pumping liquidity into the system. Another part of the reason is due to the fact that much of the newly created money was used by big owners of long dated treasuries (Chinese government, PIMCO and others) to purchase other assets. The increase in base money did not have the desired multiplier effect because it was not used as fuel to create new credit in the commercial banking system. In the land of M2 money supply figures where most of us live, QE2 was a fizzle.
Last Spike?
Source: St. Louis Federal Reserve Bank
Pushing on a String?
Just over 4% growth in M2
The other side of the coin
For the big financial institutions who have access to cheap FED funding (or paying very little on demand deposits), the current state of affairs is still very attractive.But, as the situation remains very fluid, banks have shown a marked preference for Government paper (Treasuries, Agencies and Agency MBS) which can, in theory, be liquidated much more quickly than private mortgages and corporate loans.
But the banks are still burdened with a large backlog of toxic assets. Recent buoyant earnings reports and the cash flows behind them will not last if the whole yield curve gets shifted upwards by inflation or even just stronger economic performance.
Borrowing short and lending long works very well in flat or falling interest rate environments. Although we have seen lower interest rates recently, the FED has spent its political capital as quickly as it has built its balance sheet. Lower interest rates seem very unlikely in the medium term.
Sell in May and Go Away?
Does this mean we will reach another “Sell in May and Go Away” moment when QE2 runs its course? The numbers have been slipping from the 20’s to the teens in most of the Systems that we track, which suggests a cautious outlook.
As investments start to fall out of the top rankings and you look around for the new investment opportunities, it might be time to take a bit of money off the table and wait to see what opportunities arise after the next bit of bad news rattles the well priced equity markets.
The commodity sector suggests that not all of the optimism in the market is warranted. Most of the strength in the short term remains in Silver (SLV), which has just hit new multi-decade highs and traditionally serves as a store of value as well as an industrial metal. And despite exclusion from core CPI figures, the energy ETFs like UGA, USO, UHN and DBE are all running stronger than economic growth in the G8 economies might warrant (or appreciate).
Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.
"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.
Lion’s Mane Mushroom
Mushrooms are having a moment. One fabulous fungus in particular, lion’s mane, may help improve memory, depression and anxiety symptoms. They are also an excellent source of nutrients that show promise as a therapy for dementia, and other neurodegenerative diseases. If you’re living with anxiety or depression, you may be curious about all the therapy options out there — including the natural ones.Our Lion’s Mane WHOLE MIND Nootropic Blend has been formulated to utilize the potency of Lion’s mane but also include the benefits of four other Highly Beneficial Mushrooms. Synergistically, they work together to Build your health through improving cognitive function and immunity regardless of your age. Our Nootropic not only improves your Cognitive Function and Activates your Immune System, But it benefits growth of Essential Gut Flora, further enhancing your Vitality.
Our Formula includes:
Lion’s Mane Mushrooms which Increase Brain Power through nerve growth, lessen anxiety, reduce depression, and improve concentration. Its an excellent adaptogen, promotes sleep and improves immunity.
Shiitake Mushrooms which Fight cancer cells and infectious disease, boost the immune system, promotes brain function, and serves as a source of B vitamins.
Maitake Mushrooms which regulate blood sugar levels of diabetics, reduce hypertension and boosts the immune system.
Reishi Mushrooms which Fight inflammation, liver disease, fatigue, tumor growth and cancer. They Improve skin disorders and soothes digestive problems, stomach ulcers and leaky gut syndrome.
Chaga Mushrooms which have anti-aging effects, boost immune function, improve stamina and athletic performance, even act as a natural aphrodisiac, fighting diabetes and improving liver function.
Try Our Lion’s Mane WHOLE MIND Nootropic Blend 60 Capsules. Today Be 100% Satisfied Or Receive A Full Money Back Guarantee Order Yours Today By Following This Link.