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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.

THE EURO ZONE RACE TO THE BOTTOM

While the symptoms get continuous attention as they get threatening enough, the underlying cause-the austerity- does not. The euro zone, like most of the world, is failing to meet its further economic objectives because of a lack of aggregate demand.

EARLY HOLIDAY CHEER

As discussed last week, the latest euro package just announced is unraveling quickly as markets again realize there is no actual substance, and no operational path with regards to carrying any of it out. So things will deteriorate as described until markets again force further ‘action.’

THE BATTLE THAT NEVER NEEDED TO BE FOUGHT

I realize it’s not a perfect analogy, but due to poor communications, the battle of New Orleans was fought well after the War of 1812 had ended. Likewise, the Congressional super committee is fighting the battle for deficit reduction long after the vaporization of the primary reason driving that move towards deficit.

CHINA’S “GROWING CONCERNS”

So how about all that talk that it’s ‘regulation’ that’s holding back the US economy? The regulation and govt. ‘interference’ in China is far beyond anything imaginable in the US, yet their growth rates are far beyond anything imaginable for the US, and they manage higher levels of employment with consumption at only about 35% of GDP.