July 13, 2011
When my kids aren’t listening, they jokingly tell me it’s “opposite day.” Today is opposite day in the markets after a series of events which normally would be expected to put pressure on them have combined to create a 50bps opening pop. The first piece of data came from the Fed minutes, released yesterday, which showed that while the Fed is standing by its decision to end its bond-buying program as planned (June 30), officials are still considering more stimulus, i.e. QE3. The need for QE3 would suggest that the economy continues to be unusually weak in spite of unprecedented stimulus. While I realize that stimulus seems to be fueling markets, at some point the impact will be muted and you would assume that the weakening economic fundamentals would concern the market.
S&P reported yesterday that in spite of comments to the contrary, US regulators are positioned to, and more than likely will have to in the near future, rescue a troubled, important financial institution.
In spite of central bank efforts to slow their economy, China reported faster than expected GDP last night of 9.5%. Exceptional strength was noted in the housing market, pork, and global exports. Asian markets were strong last night on the news.
I have tried to avoid dwelling on the debate in Washington over the debt ceiling, because in my view it will get extended without substantive reforms. I do want to note that we are now roughly three weeks from the deadline laid out by the Treasury, and the two sides are still posturing. Democrats have firmly staked out the left, pushing for major tax increases. Republicans have firmly staked out the right, pushing for major entitlement cuts. Both sides have left the middle wide open for the President, who in my view has deftly positioned himself between the two and is making both sides, primarily the Republicans, look like fringe extremists. Remember four months ago when these two sides could barely come to agreement on about $37 billion in cuts? Today the Republicans are pushing for a staggering $2.3 trillion, while the President has asked for $4 trillion. Why would the White House ask for a bigger number? Because he knows that it would force Republicans to accept at least $1 trillion in tax increases, which could put them in the George H. Bush dilemma of violating the “no new taxes” promise and angering their base of supporters. Interesting politics.
There is nothing new of note coming out of Europe from a sovereign debt standpoint, however, the News Corp saga has provided the tabloids with tons of fodder, or at least would have if the leading tabloid hadn’t been forced to be closed. After controversy surrounding News Corps’ News of the World tabloid hacking the phone messages of a dead teenager, the company decided to drop its bid for BSkyB, an asset Murdoch has coveted for years. I’d watch for another bidder to step in. News Corp still owns 39% of BSkyB.
Have a great morning