Sep 16 2012

Bank of Japan and quantitative easing – Japan blueprint of future?

The Bank of Japan is now looking down the barrel of deflation for the Japanese economy.  The Japanese economy is facing troubles ahead in spite of the Bank of Japan entering multiple decades of quantitative easing.  Does that come as a surprise to you?  Did you really think that Ben Bernanke was coming up with something completely innovative for the US economy?  The Bank of Japan after the bust of the Japanese stock market and real estate bubble essentially has faced two lost decades.  Inflation has been virtually non-existent but economic growth has largely disappeared.  The Bank of Japan with a rapidly aging population is facing demographic challenges ahead.  Does Japan offer a blueprint for our economic future?  We have different demographic changes but the actions taken by both our central banks are very similar:

BOJ Monetary Base

BOJ monetary base (unit = ¥100mm)

Anyone that thinks QE is a recipe for growth need only look at Japan.

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Sep 9 2012

Equity trading volume in the US continues to contract. Equity trading volume low but why?

Equity trading volume in the US continues to move to lower levels even in the face of a rising stock market.  Why is trading volume so low?  A few differing theories are out there trying to explain this change.  One, you have that retail investors are actually out of the market and moving into other items like ETFs or investments that are perceived to be safer.  That can be one of the reasons why equity trading volume is back to levels last seen in 2008.  Or it can simply be that many US retail investors have opted out of the market and are eyeing other items.  The decline in equity trading volume is reflected in the low volatility numbers and it is an interesting development.  It is likely that a combination of things has led to this low equity trading volume in the face of stock market that is up over 100 percent from the lows reached in 2009.

Exchange volume

Time will tell why this is occurring but something is pushing trading volume low.

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Aug 29 2012

China economic slowdown 2012 – China leading indicators continue to point to slower economic growth.

The Chinese economy continues to face the impact of a global contraction.  China’s economy is heavily reliant on exports and is facing the headwinds of a contraction around the world.  The leading indicators are all pointing to signs that the Chinese government may step in with additional stimulus to boost the slowing economy.  Yet is this useful or even helpful?  China is already experiencing a large amount of bad investments in real estate and public work projects that in many cases are poorly done or even well thought out.  Of course China is cautious on many fronts but the overall leading indicator index does give us a pause.  The US and European economies are still fragile especially with Europe and the many nations that have tipped fully into recessions.
The leading indicators tell the story:

China Index of Leading Indicators

The global slowdown is an ongoing story.

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