Major averages bounced off their intraday lows yesterday, closing mixed on higher volume on continued, elevated levels of volatility. The S&P 500 reversed to close up on the day, while the NASDAQ Composite, weighed down by relative weakness in the NASDAQ 100 big-cap stocks, logged another distribution day despite closing in the upper half of its daily trading range.
Oil rose sharply on speculation on a cut in production from various oil producers including Russia, though state-controlled Rosneft, Russia’s largest oil producer, denied the rumors and said the rise in the price of oil on this basis was "idiotic." Russia ranks as the second largest oil exporter, just behind Saudi Arabia.
Futures are off over half a percent, closing in one percent, after ECB President Mario Draghi warned of continued low inflation. "The longer inflation stays too low, the greater the risk that inflation does not return automatically to target," Mr. Draghi said. Cheaper oil and other "forces in the global economy" that are holding down consumer prices "should not lead to a permanently lower inflation rate," he said. "They do not justify inaction."
Her remarks were aimed at Germany's Bundesbank as the ECB pushes for further easing. Unsurprisingly, Bill Gross who used to run the world's largest bond fund wrote the following in his recent monthly missive:
"[Central banks] all seem to believe that there is an interest rate SO LOW that resultant financial market wealth will ultimately spill over into the real economy. I have long argued against that logic and won’t reiterate the negative aspects of low yields and financial repression in this Outlook. What I will commonsensically ask is “How successful have they been so far?” Why after several decades of 0% rates has the Japanese economy failed to respond? Why has the U.S. only averaged 2% real growth since the end of the Great Recession? “How’s it workin’ for ya?” – would be a curt, logical summary of the impotency of low interest rates to generate acceptable economic growth worldwide."
Indeed, governments have grown too big and too blind to understand that government debt is poison as it does little to stimulate growth while giving governments free reign to print as much as they wish. Prior to World War I, only the creation of corporate debt was allowed which directly stimulated the economy as it allowed corporations to grow. Government debt was prohibited. Taxes were also very low back then. Today, governments around the world are doing all they can to extract as much tax as possible out of their respective citizenries.
8,000 years of history showcases how governments always eventually end up devouring their middle classes as legendary futures trader Ed Seykota brilliantly writes about in his book "Govopoly".
We are smack in the middle of a colossal sovereign debt crisis where the world governments continue to issue debt then try to service that debt by raising taxes. Martin Armstrong at www.armstrongeconomics.com wrote: "This shrinks the private sector as governments act like black holes sucking in all the energy and light within the economy, destroying civilization and risking a Dark Age."