Financial Markets Continue To Ignore Islamic Terror Attacks

Financial Markets Continue To Ignore Islamic Terror Attacks

$DIA, $SPY, $QQQ, $VXX

At the weekend the 3rd estimate for GDP growth in Q-4 and on an annual basis for Y 2015 came in at an annual rate of 1.4% while real GDP increased 2.0% and reflected positive contributions from PCE, residential fixed investment and federal government spending.

The decline in real GDP in Q-4 primarily reflected downturns in non-residential fixed investment and in state and local government spending, a decline in PCE and a downturn in exports.

Real GDP increased 2.4% in Y 2015, that is, from the Y 2014 annual level to the Y 2015 annual level, which was the same rate as in Y 2014.

More important is that profits from current production, meaning corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj), decreased $159.6-B in Q-4, compared with a decrease of $33.0-B in Q-4 and $242.8-B lower than in Q-4 of Y 2014 and at its lowest mark since Y 2011, thought it is still well above the pre-2008 crisis levels.

US GDP is just OK, but with the direction corporate profits are heading since Q-3 of Y 2014 (South) it will be very difficult for US equity prices to hold their current marks, risk is bias’d to the Southside.

If the ongoing profits scenario does not change direction rather sooner than later, US equity prices will likely test to their lows of 1-H of Y 2014 soon, and  should occur and these lows may not hold, it could become very grim for many participants.

Think back to Y 1998 when at that time the US Fed had raised the Fed funds rates, and then it backed off because of the following:

1. The Asia financial crisis that started in July 1997,
2. The Russian financial crisis of the Summer of Y 1998 and,
3. Long-Term Capital Management (LTCM) the huge hedge fund management firm went bankrupt in Y 1998.

These 3 important disruptive events made the effective Fed rates starting to decline from 9.89% in April 1989 to 3.03% in February 1993, which helped fueling a boom in stocks that would only come to a huge bust when the NAS collapsed in February 2000.

Many of us have a bad feeling that there is a possibility the financial markets could be headed for a similar scenario as the NAS’s 2000 deep dive, and if that occurs it could stretch well into Y 2017 and beyond.

As fundamentals do not count for much these days we will have to wait to see what US Fed Chairwoman Yellen says tomorrow Tuesday, 29 March when she speaks at the Economic Club of New York.

We are all well aware that the US Fed is handicapped by markets that close to exclusively only focus on central banks’ monetary policies to the exclusion of everything else.

I this regard it is very interesting how the markets ignored last week’s Islamic terror attacks in Brussels and this week’s Islamic terror attack in Pakistan, as well as all of the others so far.

Monday, the US major stock market indexes finished at:

Volume: trade was light with about 688-M/shares exchanged on the NYSE.

Stay tuned…

Paul Ebeling

HeffX-LTN

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