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Keep eyes wide open, question is: Will the ECB move before the FOMC next Wednesday :icon14:



At least it made the right sort of noises :)






European Central Bank President Mario Draghi said policy makers will do whatever is needed to preserve the euro, suggesting they may intervene in bond markets as surging yields in Spain and Italy threaten the existence of the 17-nation currency bloc.

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Ahead of the FOMC on Wednesday the ducks are being lined up---FOMC may delay one more month?





The Dow Jones Industrial Average (INDU) climbed above 13,000, capping its longest weekly advance since January, amid speculation the European Central Bank will buy bonds to help lower borrowing costs and preserve the euro.


Draghi to propose bond buys, rate cut, new LTRO in talks, Bloomberg says Draghi said to favor giving ESM banking license in longer term, according to Bloomberg


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Ahead of the FOMC on Wednesday the ducks are being lined up---FOMC may delay one more month?


Thats the way the market now sees the situation re the FED, the ECB maybe quite a differet proposition as what Draghi said the other day may force their hand.


This overnight from The Wall St Journal--subscription site only-prefacing clip:



Weak U.S. data and mounting euro-zone concerns have raised expectations that the U.S. Federal Reserve will embark on another bout of bond-buying to stimulate the economy.


But Fed watchers surveyed by Dow Jones Newswires generally feel the central bank isn't ready to launch a third round of so-called quantitative easing, or QE3, just yet. Most say they believe such an announcement is unlikely at Wednesday's conclusion of the Fed's two-day policy meeting.


A key factor in that cautious assessment: Friday's report that U.S. gross domestic product expanded at an annual rate of 1.5% in the second quarter. Although that is ...

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Ahead of the FOMC on Wednesday the ducks are being lined up---FOMC may delay one more month?


Thats the way the market now sees the situation re the FED, the ECB maybe quite a differet proposition as what Draghi said the other day may force their hand.



Both made lots of noise but did sweet F/A. Since the NH now closes down for it's annual summer slumber, presumably the market will be left to its own devices until the next FOMC meeting on September 12/13th, dangerously close to the Presidential November election dateline.


It will be more than interesting to see what the market does left on its own, given the US jobs data will be published each month just to remind us. Next batch of US employment stats due tonight US time.

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the early money (go Team USA)??:


Beyond the boom: the brave trade

Asset Allocation

- We believe a secular shift has occurred in financial markets. In our view the commodity boom is over, and we expect real prices to fall. We also see negative real returns from US bonds. Given the need to fund retirement obligations, we expect pension funds and other investors to lift their equity allocations over coming years.

- In our view, US equities are particularly attractive given the support of the ongoing housing recovery, and also the reduction in energy costs driven by the increase in shale gas production.


Investment Thesis

- We believe the commodity boom ended in 2011. We think four factors drove the boom; rising China demand, a slow supply response, the fall in the USD and financial innovations that led to a step change in money flows. China‟s growth will continue, albeit at a slower rate, and with a shift to consumption. That said, we think other legs supporting the boom have dissipated as supply is catching up with demand, a stronger US outlook will support the USD, and we see money flows into commodities slowing.

- We do not see nominal commodity prices falling back where they were before the boom as prices still need to be high enough to incentivise supply. That said, in the absence of nominal gains, we expect technological improvements to lower resource extraction costs over time. Coupled with modest inflation, this means real commodity prices are likely to decline.

- As a net consumer of commodities, the end of the boom removes a major headwind for the US. While corporate margins are unlikely to rise from current high levels, we expect reduced pressure from rising material costs to lead to job growth as companies need to hire to boost their top line.

- US equities generate stronger returns when real commodity prices fall, as increased earnings certainty encourages money inflows, leading to PE expansion. We believe this will be supported by asset allocation shifts given we expect negative real returns from commodities and bonds.

- Bond yields are unlikely to rise much in coming years as inflation is likely to remain low. The end of the boom will create some minor deflationary pressure, while wage cost growth should remain contained given the still high level of unemployment. We previously underestimated the impact of the shortage of safe assets and aging of the population.

- The housing recovery, manufacturing revival and growing energy independence, support our positive view on the US. We expect these trends to underpin employment growth and the US domestic economy.



- We are bullish on the S&P 500 and favour domestic cyclicals given the US housing recovery and the stronger US dollar. We believe now is the time to be accumulating positions in favoured names as seasonal weakness tends to peak in September and October.


Our view in a nutshell: beyond the boom equities do better


Boom ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ equilibria ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ boom. We have seen this pattern four times in the past 100 years. During the equilibria, there has always been a renaissance in equities.


Global Horizon believes the secular commodity boom is over. We think the big picture trend across the commodity complex is flat to down in nominal terms, and down in real terms. Our main thesis is that the industrialisation of China has driven commodity prices to higher notional equilibrium, just as occurred with Japan in the 1970s, the post WW2 reconstruction boom in the late 1940s / early 50s, and the 1915 to 1922 boom after WW1.


We believe the end of the commodity boom will be a major positive for the US economy. As a net consumer of resources, the US economy tends to perform poorly in periods of rising commodity prices, as economic value is transferred to commodity producers.

Commodity booms also put downward pressure on profit margins in sectors without pricing power, as wholesale prices tend to rise at a faster rate than consumer prices. Equity prices perform poorly during the commodity boom years as managements struggle to keep on top of the constantly rising input costs ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ with the inevitable result being earnings volatility. This is punished by investors via "voting with their feet‟, reallocating funds to better risk/return investments. The net effect is a slow grind that shows up as PE compression.


The end of the boom has ushered in a period of mini-cycles that will last for at least a decade. In other words, we expect commodity prices to trade in a broad long term range. What changed to end the boom? There was a change in the rate of change as nonfundamental demand price catalysts fell away as the new equilibria is reached. Whilst rising Asian (particularly Chinese) demand has been the primary determinant of the new price level, the rapid rate of change that characterises a boom was catalysed by an insufficient supply response, a weakening US dollar (adding an element of money illusion), and financial innovation that added non-physical transaction money flows to the pricing dynamic. Rising Asian demand remains in place, albeit at a diminishing rate, however the three catalysts have now stopped working as tailwinds, ending the boom.


Non-resource company managements have had to adapt during the decade long commodity boom to learn to become mean and keen to handle the input cost surge headwind. That headwind has now abated, but the management culture to absorb it hasn‟t. The result is an easier operating environment for well honed managers. The historic evidence is they handle the mini-cycle period with ease, producing dependable results period after period. The dependable results are rewarded by investors "voting with their feet‟, reallocating funds to the lower risk, dependable returns equity environment. PE ratios expand. That is why equity markets perform well in the decades between commodity booms, but poorly during commodity boom decades.


With the improving operating environment and currently low asset allocation trust in corporate delivery, in our opinion, now is definitely the time to step away from the crowd and put on what the crowd will scream is the "brave trade‟. Trust the cycle to make management "hero‟s once again. Time to up weight high yield corporate bonds and equities.


Macquarie Equities Report


Key risks to our call: where could we be wrong?


Global Horizon firmly believes that our core thesis of an end to the commodity boom ushering in a more positive period of equity performance will be the path forward. That said, like all counter-consensus calls we also know it challenges widely accepted beliefs.


In our view, the key areas where we could be proven wrong are as follows:

1. Energy costs rise. Central to our view is that "fracking technology‟ has fundamentally changed the energy dynamics for a sustained period of time. The commercialisation of this technology was still in its infancy only five years ago ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ so whilst the development has been very rapid, it is still a relatively young energy source. Thus if flow rate expectations shift materially or if currently unimagined environmental issues arise, then the ability of this technology to address incremental demand could fall down.

2. Shock and awe Quantitative Easing (QE). Whilst this would inflate stocks as well as commodities, some of the increased liquidity would inevitably find its way into commodity markets, extending the "boom‟ ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ essentially delaying what we see as inevitable. This is likely what occurred with QE2. In our view, a QE program of this magnitude is unlikely as we believe the US economy is in a sluggish but upwardly sloping growth trajectory, hence more modest monetary policy responses are the more likely route.

3. Full blown currency war. Our thesis assumes the US cannot readily make its currency less attractive than its major trading partners ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ particularly Europe. Given the US tackled its Global Financial Crisis (GFC) issues head on whereas Europe kicked them down the road, the balance of probabilities here are in our favour.

4. China embarks on a very aggressive fixed investment stimulus plan along the lines of that seen immediately post the Global Financial Crisis (GFC). The post GFC stimulus drove fixed asset investment to GDP to an all-time high of 48%. This has resulted in pockets of overcapacity that is now showing through in areas such as steel mills, cement plants and coking coal. Additionally, the authorities appear to be solid in their determination not to create rapid property price appreciation. Hence to the extent stimulus measures are employed, we feel they will be targeted and directed at consumption activities where the commodity intensity will be less.

5. Hyper inflation. We argue that even with all the additional QE that has occurred, inflation looks set to remain stubbornly low. Certainly the amount of slack in the labour markets globally makes it difficult to envisage a wage-price spiral in the next few years. Absent this, it is hard to see how we would get sustained high inflation, unless driven by one of the other risks highlighted on this page.

6. Fiscal cliff. We do not expect the US to simply drive off the fiscal cliff because of policy doctrine. We do expect there will be compromises that result in some modest fiscal tightening that doesn't disrupt the begrudging economic growth. If we are wrong and the US does drive off the fiscal cliff, then it is very likely the US would fall back into a deep recession which would be a poor environment for both stocks and commodities. In this scenario safe havens such as US Treasuries would be the right call.

7. War. An outbreak of hostilities on a large scale would be negative for Bonds and stocks, but arguably add significant incremental demand to commodities.

8. Fund flows. At their most fundamental, asset classes are driven by two factors; fundamentals and fund flows. For a number of years, bonds and commodities have been the beneficiaries of these flows at the expense of equities. Now that returns have been driven extremely low in bonds, and with commodities no longer a one-way bet, we would expect money to incrementally start flowing back to equities resulting in PE expansion. This will prove incorrect if unbeknown to us, the majority of investors have become Buddhist monks ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ forever shunning the avarice of greed. We think not.

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I was out and about over the weekend. I was shocked at how many empty and due for lease shops are out there at the moment around Melbourne and regional Victoria.



Even in the main shopping centres there were quite a few empty shops. In one leafy inner eastern suburb, Cafes outnumber everything else, so just how many cafes does a shopping strip need?


Is this a national issue or just Victoria?



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Sprott et al must have thought they needed some balance in their paper so we got these few lines -


One exception to these findings is the experience of Scandinavian countries. They have both high taxes and high government spending as a share of GDP but have experienced relatively rapid growth over the past 20 years. However, a significant share of their spending goes to education, which has been found to foster growth. They also counterbalance the large role of the state with very liberal, pro-market reforms and low levels of public debt.2


The rest of their paper is about low level of government low debt low spending and low taxes. Would seem to me for some of those economies that are in some difficulty to de-leverage it might be prudent to actually have some higher taxes in place - god forbid.


Those Scandinavian countries seem to me like good examples to follow.

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By Associated Press, Published: August 14 AP MADRID ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ÂÂ


Spain's Prime Minister remains tight-lipped on whether he has decided to ask for more financial aid for his country, repeating instead Tuesday that he would wait until the European Central Bank outlines its plans and conditions for buying government bonds before making a move.


"As long as we don't know what decision the ECB is going to make, we won't be making one either," Mariano Rajoy told reporters Tuesday after meeting with King Juan Carlos at the monarch's summer residence in Palma de Mallorca.



The ECB meeting referred to will take place on Sept 6th, therefore IMO this is a date with potential world stock markets destiny.

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