Market Lab Report - Premarket Pulse 3/11/16
Major averages finished yesterday flat to lower on higher but below average volume. The ECB lowered interest rates once again which sent markets higher at first. But when the ECB president said he sees no need for further rate cuts, markets reversed hard serving up another roller coaster of a day as they then clawed back some of their losses by the close to finish midbar.
With the Eurozone's inflation rate falling to -0.2% in February, deflation is staring Europe straight in the face. The failure of QE to stimulate global economies is due primarily to the purchasing of government debt instead of corporate debt while raising taxes as much as possible to pay for QE.
In 1913, the Federal Reserve was established with the directive to buy only corporate debt, never government debt, to stimulate the economy. Thus, when banks were reluctant to lend, the Fed would buy the corporate paper and that would prevent rising unemployment by stimulating growth in corporations. But then World War I came along in 1914, and directive of the Fed was changed so they would start to buy government bonds. The directive was never undone.
With the three types of inflation - asset, demand, and currency inflation - only government debt serves to eventually increase asset inflation while devaluing the currency. Only corporate debt can increase demand inflation which is a true sign the economy is recovering.
In the meantime, negative rates and deflationary conditions are in the offing while the global economy desiccates.
Futures are up around 1% as oil continues to rebound, closing in on $40/barrel. The rip tides this year caused by quantitative easing vs. the loss of confidence in central bank policies are pronounced.
Indeed, it is easy to feel the markets are behaving in an absurd manner as the rip tides play out. But it goes to show that governments rule the day in excessive fashion.
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