A statement by Putin on Tuesday was read by the markets as a detente (despite the fact that the Russian Navy afterward blocked off the Kerch Strait separating the troubled Crimean region from Russia) and buying resumed apace.
Markets returned to normal yesterday as worries over military conflict in Ukraine began to subside...and by “normal” I mean the “new normal” of record S&P highs, increasingly unrealistic P/E ratios, and artificially suppressed precious metals prices. The rally was led by the NASDAQ, up 1.7%, followed by the S&P up 1.3% and the DJIA up 1.2%. As a result, USDJPY was pulled back up to 102 as investors took advantage of the yen carry trade to finance their stock purchases.
This comes after a brief dip on Monday saw markets worldwide pull back on news that Russia had granted authorization to deploy troops in Ukraine for the “protection of Russian citizens” in the country. The pullback saw the S&P edge off the record high it reached on Friday, with Russian stocks suffering their biggest decline in 5 years and the MSCI All-Country World Index showing markets around the globe down by as much as 1.3%.
A statement by Putin on Tuesday was read by the markets as a detente (despite the fact that the Russian Navy afterward blocked off the Kerch Strait separating the troubled Crimean region from Russia) and buying resumed apace. Big winners on the day included J.C. Penney Co. (up 7%), and Qualcomm Inc., which rose 4% on news of a dividend increase and stock repurchase plan. Gold, for its part, eased off the gains it had made during the Ukrainian turmoil, with spot prices rising from $1328.60 on Sunday night to $1354.20 on Monday afternoon before falling back down below $1340 as of press time (Tuesday afternoon).
Obama, meanwhile, tried to steal the headlines (or perhaps fly under the radar of Ukrainian coverage) by tabling a $3.9 trillion budget wishlist that includes tax hikes on the rich and expanded tax credits for the poor and middle class. It contains a number of provisions that are not expected to make it into law, including $302 billion over the next four years for infrastructure projects, and $66 billion to provide preschool access to low-income children.
Perhaps the biggest pie-in-the-sky fantasy of the budget, however, comes from its economic predictions; it forecasts a 3.1% GDP growth in 2014, which would be the strongest economic growth since 2005 if it were to come true. It probably won't, of course, but perhaps it's an appropriate prediction; after all, the 2005 economic growth, as we now know, was similarly built on fraud, deception and predatory lending in the overheated housing market. Unfortunately, the relatively strong economic growth of 2005 was proceeded by the housing meltdown, the Bear Stearns failure, and the Lehman collapse, and unless something happens to radically wrench the U.S. from its current course, we're likely to see an even more catastrophic collapse in the looming bond bubble implosion.