What Say You, Mr. Market? (the 2013 Edition - Continued)

Picking up right where we last compared Paul Krugman's opinion about the stock market to the chart of the Dow Jones Industrial Average (and nothing but the chart), this is what the financial markets are saying to Professor Krugman these days:

" [...] Major stock indexes are now higher than they were at the end of the 1990s, which can sound ominous. It sounds a lot less ominous, however, when you learn that corporate profits — which are, after all, what stocks are shares in — are more than two-and-a-half times higher than they were when the 1990s bubble burst. Also, with bond yields so low, you would expect investors to move into stocks, driving their prices higher.

All in all, the case for significant bubbles in stocks or, especially, bonds is weak. And that conclusion matters for policy as well as investment. [...] "

And again, here is the 20-year monthly chart of the Dow Jones Industrial Average with only one technical indicator (Bollinger Bands with the 20-period/2-standard-deviation default settings) updated to cover the 4/30/1993 to 4/30/2013 period (click chart to enlarge):

To be continued...

What Say You, Mr. Market? (the early 2013 Edition)

This is what the market is saying to Paul Krugman:

" [...] What, then, are the markets actually telling us?

I wish I could say that it’s all good news, but it isn’t. Those low interest rates are the sign of an economy that is nowhere near to a full recovery from the financial crisis of 2008, while the high level of stock prices shouldn’t be cause for celebration; it is, in large part, a reflection of the growing disconnect between productivity and wages.

The interest-rate story is fairly simple. As some of us have been trying to explain for four years and more, the financial crisis and the bursting of the housing bubble created a situation in which almost all of the economy’s major players are simultaneously trying to pay down debt by spending less than their income. Since my spending is your income and your spending is my income, this means a deeply depressed economy. It also means low interest rates, because another way to look at our situation is, to put it loosely, that right now everyone wants to save and nobody wants to invest. So we’re awash in desired savings with no place to go, and those excess savings are driving down borrowing costs.

Under these conditions, of course, the government should ignore its short-run deficit and ramp up spending to support the economy. Unfortunately, policy makers have been intimidated by those false priests, who have convinced them that they must pursue austerity or face the wrath of the invisible market gods.

Meanwhile, about the stock market: Stocks are high, in part, because bond yields are so low, and investors have to put their money somewhere. It’s also true, however, that while the economy remains deeply depressed, corporate profits have staged a strong recovery. And that’s a bad thing! Not only are workers failing to share in the fruits of their own rising productivity, hundreds of billions of dollars are piling up in the treasuries of corporations that, facing weak consumer demand, see no reason to put those dollars to work [...] "

According to pure technical analysis doctrine, price action and only price action should matter. Whether one agrees with that or not is an ongoing century-old "conversation" (some would strongly object to this understated way of putting it) better left for another day, a conversation beyond the scope of this post (and probably of this blogger). But, if you accept this very "severe" view of market analysis for a second, one of the better (but in no way the only) ways of visualizing pure stock market price action is taking a look at the 20-year monthly chart of the Dow Jones Industrial Average (DJIA) with only one technical indicator (Bollinger Bands with the 20-period/2-standard-deviation default settings). Here it is, covering the 2/28/1993 to 2/28/2013 period (click chart to enlarge):

What is the market telling you? To be continued...

Tim Geithner

Despite the post's title, I will not try to pass sweeping judgement on Tim Geithner's soon-ending tour of duty as Treasury Secretary. It seems like every newspaper, magazine and blog has done just that already so I probably have nothing new and/or intelligent to add.

This interview of him by Lords of Finance's - a decent book, although I remember it as a bit confusing/confused at times - author Liaquat Ahamed in the New Republic is interesting in that he answers some questions in a less politically correct and less guarded way than one would expect in an "exit interview", although still couched in fairly diplomatic language. Just maybe, Tim Geithner's book (because, surely, there will be a book) will make for more original/informative reading than most of the books written so far by some of the actors of the 2007 - ???? financial and economic crises.

Excerpts:

[...]  

LA: Was the talk about “fat cat bankers” counterproductive? 

TG: I’m biased but I felt that in the basic strategy that the President embraced and that we put into effect, we did something that was incredibly effective for the broad interest of the economy and the financial system. I feel the President’s rhetoric over that period of time was very moderate relative to the populist rage sweeping across the country. And I never quite understood why the financial community took such offense at what was such moderate rhetoric relative to what we have seen in other periods in history. 

[...] 

LA: Now you’ve had a pretty full four years as Treasury Secretary. What’s been the hardest and most frustrating part of the job? 

TG: [...] I knew with a fair degree of confidence by the summer of ’09 that the cumulative actions we took, on top of what Paulson and Bernanke did, was going to work. I was very confident about that by that time. Even though we still had a long, rough road ahead of us. 

The most frustrating part of this work, but in some ways it’s the most consequential, is how effective you can be in relaxing the political constraints that exist on policy. You can see that most compellingly now in the fiscal debate. Paulson before us and the President were very successful during the crisis in getting a very substantial amount of essential authority essential to resolving the crisis. But it has been very hard since then to get out of the American political system more room for maneuver both on near-term support for the economy, as well as reforms that would lock in a sustainable fiscal path. That is the most frustrating thing, to get the political system to embrace better policies for the country. 

[...]

Update 02/09/2013: There will indeed be a book!

01/18/2013 Session

No trades.

Standing order for 01/22/2013 - 01/25/2013 sessions:

Buy YMH13 @13,502 with 13,484 stop and 13,538 take-profit.

(Weekly Pivot Point @13,513)

[ For some background and a disclaimer, please read this post and especially this post. For a more general disclaimer, read the section at the bottom of the blog. ]

01/17/2013 Session

One trade:

Sold YMH13 @13,498, stopped out @13,517; P&L: - 19 points.

[ For some background and a disclaimer, please read this post and especially this post. For a more general disclaimer, read the section at the bottom of the blog. ]

01/14/2013 - 01/16/2013 Sessions

No trades.

Standing orders for 01/14/2013 - 01/17/2013 sessions:

Buy YMH13 @13,302 with 13,284 stop and 13,338 take-profit.

(Weekly S1 support @13,298, weekly Pivot Point @13,367)

Sell YMH13 @13,498 with 13,516 stop and 13,462 take-profit.

(Weekly R1 resistance @13,502)

[ For some background and a disclaimer, please read this post and especially this post. For a more general disclaimer, read the section at the bottom of the blog. ]

01/11/2013 Session

No trades.

Orders for 01/14/2013 session:

Buy YMH13 @13,302 with 13,284 stop and 13,338 take-profit.

(Weekly S1 support @13,298, weekly Pivot Point @13,367)

Sell YMH13 @13,498 with 13,516 stop and 13,462 take-profit.

(Weekly R1 resistance @13,502)

[ For some background and a disclaimer, please read this post and especially this post. For a more general disclaimer, read the section at the bottom of the blog. ]

Behavioral Economics Newest Enthusiastic Convert

I might be unfair here: maybe David Brooks, the New York Times' main "useful conservative", has been bullish on Behavioral Economics for a long time, unbeknownst to most of his readers. Strangely, I don't remember ever reading a column of his mentioning the subject (then again I can't say that I read all of his columns; actually it could be said that I very rarely read any of his columns, for some reason I forget just now).

At any rate, I respect him all the more for writing a column embracing Behavioral Economics wholeheartedly and even bemoaning the fact that its techniques aren't used more widely and for much more ambitious aims than just, say, gently nudging people to eat better, exercise more or stop smoking. Ambitious as in:

[...] How do we get people to restrain government commitments now so that debt down the road won’t be so ruinous? How do we calculate the multiplier effects of tax cuts or spending increases among different subgroups of the population, or under different emotional conditions? How do we rig the context of budget negotiations so participants can actually come to a deal? How are people in different cultures likely to react to drone strikes? How do we structure sanctions against Iran to cause the greatest psychic humiliation? [...]

Say what? Oops, I think I've been had! Now I remember why I don't read David Brooks so much.