Storylines play an essential role in helping us make sense of society’s complexities, providing clarity in a manner that is easily digestible. This is particularly relevant in discussions about the economy.
The prevailing narrative suggests the U.S. economy is on a path to recovery, while major global economies such as Japan, China, and Europe seem to be struggling. But is this depiction a reflection of reality or simply a fanciful tale? Are the storytellers missing crucial details?
Stock market participants appear torn. They wish to embrace this optimistic storyline, yet doubts linger. One day, the DOW climbs 200 points, only to surrender those gains – and more – the following day.
Currently, much attention is being directed towards the Federal Reserve’s plans concerning the federal funds rate. Will there be an increase? Will rates remain near zero? Perhaps we will receive further insight this week.
The belief that the U.S. economy is gaining strength could very well push the Fed to elevate rates sooner rather than later. Continue reading
The stock market is in a state of turmoil. After a drop of 278 points last Friday and a brief recovery of 139 points on Monday, the DOW fell another 332 points on Tuesday, then retreated by 27 points on Wednesday. However, by Thursday, brighter skies returned as the DOW rebounded by 259 points.
Interestingly, signs of economic improvement seem to spell trouble for stocks. The initial market sell-off last Friday was sparked by the Bureau of Labor Statistics’ February jobs report, which indicated the addition of 295,000 jobs for the month, raising the official unemployment rate to 5.5 percent.
Market speculators interpreted this seemingly positive news as justification for the Federal Reserve to finally increase the federal funds rate from its historically low levels. It’s important to note that the federal funds rate has been kept at this floor for over six years, coinciding with the six-year anniversary of the current bull market. Continue reading
The European Central Bank recently launched a new scheme of extensive monetary easing. This initiative entails purchasing €60 billion ($66 billion) worth of government bonds each month, in hopes of revitalizing the economy.
The European Union’s structure raises many questions. According to J.P. Morgan, the disparities among member countries are more pronounced than the territorial complexities of the former Ottoman Empire, more extensive than all nations within five degrees north of the equator, and all countries starting with the letter “M.” The ECB’s efforts to devalue the currency serve more to highlight these absurdities.
A few key questions arise: Where does the ECB obtain the funds to purchase government bonds? Does it derive its capital in the same manner as the Federal Reserve – by creating money through ledger entries?
Who benefits from these transactions? Will they acquire German bunds? French OATs? Italian BTPs? And what about Greek or Spanish government bonds? Continue reading
“Alea iacta est” – Julius Caesar
On Monday, the NASDAQ index eclipsed the 5,000 mark for the first time since 2000. It has been quite a journey, and the world is markedly different now than it was fifteen years ago.
In the years before 9/11, optimism was abundant; we believed hard work and determination would lead us to success. Little did we know how difficult it would become to secure even modest gains. With the NASDAQ’s recent milestone, we are compelled to ask: What does reaching 5,000 truly signify? Is there a solid foundation supporting this achievement, or could it once again crumble by 80 percent?
The answer remains elusive. However, our intuition at Economic Prism suggests that a significant correction in the NASDAQ may be imminent, potentially leading to declines of 20 percent, 40 percent, or even more. Continue reading
