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Friday, May 31, 2013

In Today's Market Bad News is Good News

     All the market wants to know right now is that the Fed isn't going to start rolling back on QE Infinity-where it buys $85 billion per month in bonds. So good news is sort of not welcome.

     ""All eyes remain on the U.S., analyzing every piece of data to establish if, and when, stimulus measures will be withdrawn—with every piece of bad news being actively welcomed by the market," wrote Rebecca O'Keeffe, head of investment at Interactive Investor, in a note. "This inverted logic is unsustainable in the long term, but for the moment, as the withdrawal of liquidity is perceived as being more painful than an economic slowdown, investors are happy to live in this bubble for as long as they can."

    http://www.cnbc.com/id/100779852

    Today's economic indicators were mostly positive; and so the market is flat. 

    "On the economic front, consumer sentiment hit itshighest level in nearly six years in May, rising to 84.5 from 76.4 in April, according to the Thomson Reuters/University of Michigan's final reading on the overall index. Analysts expected the reading to remain unchanged from the preliminary figure of 83.7. 
And business activity in the Midwest rose in May, rebounding after a contraction in the month prior, according to the Institute for Supply Management-Chicago."
     "But consumer spending fell 0.2 percent in April for the first time in almost a year, according to the Commerce Department, disappointing economists who had expected a gain of 0.1 percent. And inflation pressures remained subdued, rising just 0.7 percent in the last 12 months, the smallest increase since October 2009."
     "The weak spending and the lack of inflation pressures could dampen market speculation the U.S. central bank might start scaling back monetary easing later this year."
     See how counterintuitive market logic is right now? You have to kind of think about the consumer indicators: sentiment is up to its highest level in 6 years; yet actual spending fell in April 
    Meanwhile a big, developing story is the drop in inflation. This is borderline deflation at this point. Surely this should take away the impetus for Fed hawks worrying. It's also one reason I really don't get Sumner's endless quibbling over fiscal multipliers.
    Surely with a .7% inflation rate there's more than enough room for $85 billion per month bond buying and ending the sequester. 

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