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Pragmatic Capitalism

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Mosler: Time to Buy Equities

By Warren Mosler, Mosler Economics I’m thinking it’s about that time for portfolio managers to buy stocks and go play golf for a few years, with the following very caveats: 1. A serious spike in crude oil/gasoline prices that undermines consumption 2. The euro zone could break down socially under the stress of continued austerity… Read More

GLOBAL THEMES

The only way out at this point is a private sector credit expansion, which, in the US, traditionally comes from housing, but doesn’t seem to be happening this time. Past cycles have seen it come from the sub prime expansion phase, the .com/y2k boom, the S&L expansion phase, and the emerging market lending boom.

A QUICK LOOK AT THE 489B EURO LTRO

When it comes to central bank (CB) liquidity operations, as previously discussed, it’s about price – interest rates – and not quantities of funds. In other words, the LTRO is an ECB tool that assists in setting the term structure of euro interest rates. It helps the ECB set the term cost of funds for its banking system, with that cost being passed through to the economy on a risk adjusted basis, with the banking system continuing to price risk.

SAUDI OIL PRODUCTION HELPING AVOID A 70’S STYLE STAGFLATION

The Saudis are the only producer with excess capacity, which puts them in the position of swing producer. They post prices and then let their refiners buy as much as they want at their posted prices. They have no choice but to be price setter, but they also don’t want anyone to know they are simply setting prices, so they talk around it and have obviously done a good pr job in that regard.

MACRO MUSINGS

Best I can tell the jury is still out as to whether China is going through the ‘hard landing’ scenario that began when modest first half state lending was followed by lower second half state lending, all to control inflation.

SPR RELEASE WINDING DOWN

This chart of West Texas crude prices vs Brent north sea crude prices was done a few days ago, with the spread subsequently narrowing further to under $10.