Weekend Update October 17

By Terrence Campbell, head content writer at Gainesville Coins, a leading gold and silver distributor.

 

ABSTRACT: Stocks got absolutely trounced this week, saved only by ephemeral rumors of Janet Yellen making dovish comments behind closed doors. The global economy continues to be mired in a slowdown, making it more difficult for Europe to simply inflate and spend its way out of stagnation. The growing concerns over how to contain the Ebola outbreak has also roiled the markets, as stocks are down and gold continues to climb.

GOVERNMENT & POLICY
Déjà Vu: Janet Yellen “Saves” the Markets

The dip in the stock markets this week is not quite a correction–not yet, at least. Nonetheless, the Fed has already been ramping up its PR machine in order to conceal any holes in the recovery narrative and keep jittery markets from capsizing.

How many times must we see the headline, “Markets Up After Yellen Speaks,” to figure out what’s going on here? Stocks were tumbling across the board on Monday and Tuesday before the Dow really started to sink; the Dow Jones Industrial Index was down more than 445 points, the S&P 500 was in the red over 3%, and the bloated PR firm we call the Federal Reserve kicked into action.

In the throes of the market dip, it was leaked that last week, behind closed doors, Fed Chair Janet Yellen had expressed confidence in the American economy’s growth outlook.

Yahtzee. The Dow and S&P summarily recovered, ending the day only marginally in red.

In fact, just about every time Janet Yellen opens her mouth, the markets pop. And, coincidentally, her private remarks are leaked to the media just when it appears that investors may be losing confidence in U.S. stocks. The moment the markets show weakness, Janet Yellen can simply swoop in and reassure everyone that, even if the future of the global economy remains unclear and healthy growth remains in doubt, there’s no reason that the stock markets can’t happily press onward in the meantime!

This laughable bit of theatrics was followed by statements given by St. Louis Fed President James Bullard in an interview which suggested he’d like to see more quantitative easing, even as the Fed is on track to taper off of its asset purchasing program at the end of this month. Bullard thinks QE ought to be extended in order to stave off any drop in inflation, although he acknowledges that the U.S. recovery remains strong and well-insulated from the looming European recession.

Yet, if the economic recovery is so robust, and we shouldn’t worry about Europe, why is he concerned about ending the Fed’s QE program–which Bullard was largely the architect of–”too soon”? It would seem that the two assertions contradict one another.

Sounds like another job for the Federal Reserve Public Relations Arm, Cognitive Dissonance Division.

MARKETS
Despite Continued U.S. Recovery, Markets Down On Fears of Low Growth Abroad

While economic conditions seem to be steadily improving in the U.S., markets have continued to fall right along with Europe. The dollar finally saw some easing this week, while investors poured into Treasuries in droves. Gold remains stable as it steadily moves higher on increased demand.

Oil remains in a bear market, as both major benchmarks opened the week below $90. WTI crude was trading below $84 on Friday while Brent crude was under $87. These represent fresh four-year lows for crude oil, partly due to surplus production. Falling oil prices will also apply downward pressure on inflation generally, as lower energy and transportation costs help drive the prices of many commodities lower.

All three of the major U.S. stock indices opened in the red Monday, each sliding more than 1%. Over a three-day span going back to last week, the S&P lost 4.8%, the worst showing for the index over such a time period since November 2011. The stock markets ran off five consecutive days of losses, culminating in a “Hail Mary” from the Fed: it was leaked on Wednesday, when the Dow was down more than 400 points, that Janet Yellen had privately expressed confidence in the growth outlook for the U.S. economy last week. This was all investors needed to feel better, and the markets largely erased the day’s losses. There was little movement on Thursday, however, in spite of surprisingly high industrial production numbers and the lowest first-time jobless claims report in over 13 years. This positive data was coupled with retail sales coming in below expectations and the Producer Price Index (PPI) dropping for the first time in over a year.

European stocks were at a 13-month low this week, struggling to gain momentum in such a growth-depressed economic environment. Several Mediterranean countries have been aggressively selling off government bonds, driving yields up. Greece’s 10-year Treasury note has gained a staggering 318 basis points over the last month, touching 8.94% before slightly easing back to 8.64%. To a lesser extent, even Europe’s strongest economy is feeling the lack of bond demand, as well. After dipping below 0.8%, the German 10-year bund yield rose 6 basis points back to 0.82%.

By contrast, U.S. Treasuries have been the beneficiary of Europe’s growth concerns. After beginning the week down around 2.28%, the yield on 10-year T-notes fell even further on record trade volumes; some $777 billion of Treasuries exchanged hands on the market by 2 pm on Wednesday, the heaviest volume of such trades on record. As a result, 10-year yields briefly slipped below 2% before returning to about 2.05%. Some selling occurred on Friday morning, as yields rose again to 2.22%.

GEOPOLITICS & WORLD EVENTS
Don’t Worry–the CDC Has Everything Under Control

News arose this week this a second nurse at a Dallas hospital has tested positive for the Ebola virus. While the Centers for Disease Control is reviewing its procedures to see how future transmission of the virus from patient-to-caretaker can be mitigated, the fact remains that Ebola has now begun to spread within the United States. Just a few weeks ago we were assured by the CDC that this was not even a possibility. The Dallas County Commission is considering whether or not to declare a state of emergency.

The second nurse who has been infected made some telling comments once it was discovered she had contracted Ebola: She said she called the CDC about having a fever before boarding her return flight, and was told by the authorities that it was perfectly okay for her to fly. This is an example of the “self-monitoring” strategy of having people potentially exposed to Ebola keep track of their own symptoms and check-in with medical personnel. The nurse also insinuated that the hospital was unprepared to treat the virus or to handle the task of containing an Ebola outbreak.

As with any infectious disease outbreak, fear is spinning off to different locales as word of the victims’ travels plans surface. Two schools in Ohio have preemptively closed their doors and canceled all classes when it came to light that each school had a staff member who flew on the same plane as the Dallas nurse. (They were on a later flight, before the plane had been decontaminated.) Elsewhere, a healthcare worker who handled Ebola specimens is now quarantined in the cabin of a cruise ship originally destined for Belize. Although the man is not showing any symptoms, the Belize government has refused to allow him (or any of the passengers) entry into the country, forcing the cruise to return to the U.S. With the intensifying concern attached to each new Ebola story as the news makes it way around the globe, precautions that may be thought paranoid under normal circumstances are now the norm.

The CDC has bungled the containment effort of this epidemic, and at minimum the virus threatens to disrupt the normal flow of commerce and economic activity at a time when the world can least afford to be slowing down and scaling back. Some analysts predict there could be as many as two dozen new Ebola cases in the U.S. in a span of two weeks. The CDC has also been unclear about whether or not Ebola is in any way transmittable through the air, a topic of considerable dispute.

But don’t worry, everything’s completely under control.

Other News & Notes

Kobina, a Kurdish town along the Syria-Turkey border, may fall to ISIS imminently if U.S. airstrikes are not successful.

Chinese Premier Li Keqiang met with Russian President Vladimir Putin in Moscow this week to enhance economic ties between the two countries.

The Hong Kong pro-democracy demonstrations have been steadily losing steam, but have caused an estimated 40% reduction in local commerce to date.

A LOOK AHEAD: Yellen spoke on Friday morning in front of the Boston Fed regarding inequality of economic opportunity in America. Presumably, poverty will drop following her comments. The Consumer Price Index (CPI) will be updated next week on Wednesday and first-time jobless claims are slated for Thursday. Existing home sales will be reported Tuesday while new home sales come out Friday. Together, this data should give a clearer indication of consumer sentiment and market conditions.

 

By Terrence Campbell, head content writer at Gainesville Coins, a leading gold and silver distributor.

If you would like to be updated on new blog posts, please subscribe to my RSS Feed or e-mail.

Promote, Share, or Save This Article
If you like this article, please consider bookmarking or helping us promote it!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.