Japan to buy more U.S. Treasury bonds?
Tuesday, February 2, 2010. 9:15 am.
Japan’s Financial Services Minister, Shizuka Kamei, recommended yesterday that Japan Post Bank, the largest bank in the world, with more than $2.1 trillion in assets, diversify its holdings to include more U.S. Treasury bonds.
Kamei said that at the present time “nearly 80% of the bank’s assets are used to buy Japanese Government Bonds (JGB), but from now on any increase in assets could be used to diversify by buying corporate bonds and U.S Treasuries. . . . . . The U.S. is having difficulty due to lack of funds. It’s only natural that we should support the U.S. when it is weakened. So Japan Post Banks’ funds may go towards that.”
Tax plans may hit U.S. corporate earnings and capital gains.
Over the last nine years the federal budget surpluses of the late 1990s have turned into a record deficit that everyone agrees must be brought down. But it may be too early yet to try to do so without risking more problems for the economy and markets.
In the 1990s the previous record government deficit of the 1980’s and early 1990s was turned into a surplus by the lack of costly wars and other unusual government spending, coupled with record tax revenues the government took in from the rip-roaring economic boom, from corporate profits, income taxes from fully employed workers, and capital gains taxes on investors’ profits during the record 10-year bull market. Tax revenues were pouring into Washington from the 1990s boom times faster than it was being spent.
But trying to produce higher tax revenues to lower the deficit by raising taxes on those corporations that still have earnings, and on investors who are still making profits on their investments, rather than raising the earnings, jobs, and profits that produce taxes, is not the same thing, especially in an economy that is still teetering on the brink.
It’s also early to try to bring the current record budget deficit down, when the last of the string of problems that caused it, the massive stimulus efforts needed to rescue the economy from a potential depression, are still needed, while previous drags on the economy, two wars, also continue to require heavy government spending.
Among current proposals being considered:
Raising the tax on capital gains from 15% to 20%.
The potential problem is that entices investors to sell current holdings while they still only have to pay a 15% tax on the profits, at a time when more investment, not less, is needed to keep the economic recovery going. I haven’t taken the time to research it thoroughly, but do recall that at least once in the past raising the capital gains rate was later identified as one of the main catalysts for the selling that rolled the stock market over into a bear market.
A second proposal is to tax large U.S. based multi-national corporations, via taxes and surcharges on intercompany transactions they make with their foreign divisions to lower their tax bite, and to impose a waiting period before corporations who make loans to invest in their foreign operations can deduct the interest they pay on the loans.
Those may be good things to do later. But anything right now that cuts into corporate profits, whether from their U.S. or foreign operations, slows the ability of corporations to recover from the earnings slump of the last five quarters, and their ability to move on to investing in new products and hiring back workers, and thus may be counter-productive to the recovery.
It just might be better to let the deficit get worse for now, in an effort to get the economy more robustly recovered faster, to a point where tax revenues would be growing fast on their own, when bringing the deficit under control would then be faster and easier and would make up for the lost time. (As well as getting people back to work faster and getting corporate earnings more surely back on a growth track first).
Yesterday in the U.S. Market.
Finally a positive day. The market was up from the open and closed on its high.
Yesterday’s intraday chart:
The Dow closed up 118 points, or 1.2%. The S&P 500 closed up 1.4%. The NYSE Composite closed up 1.8%. The Nasdaq closed up 1.1%. The Russell 2000 closed up 1.2%. The DJ Transportation Avg. closed up 1.7%.
However, it was on very low volume, only 1 billion shares traded on the NYSE, and was on the first day of the month when extra chunks of money flow automatically into the market, from monthly contributions from those who dollar-cost average into the market on a monthly basis, from employers’ monthly contributions to their employees’ 401K and IRA plans, from automatic re-investment of monthly dividend payments, etc., thus the ‘monthly strength period’ each month.
And it took place with the market very oversold short-term to a degree that usually brings at least an oversold bounce (see interesting charts of the morning below).
In any event the low volume indicates that while the media was excited yesterday, investors were not.
With earnings coming in much better than forecasts, what more do investors want?
Asian markets closed mixed last night.
Among individual countries:
Australia closed up 1.8%. China closed down 0.3%. Hong Kong closed up 0.1%. India closed down 1.2%. Indonesia closed down 0.3%. Japan closed up 1.6%. Singapore closed down 0.6%. South Korea closed down 0.7%. Taiwan closed down 1.3%.
If you’d like to see a three-month chart of any or all of the above indexes click here, and then click on any of the markets in the similar list at the left side of the page it takes you to.
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Markets this morning.
European markets are off earlier highs but are up this morning, on average of less than 1/2%.
Oil is up $.75 a barrel at 75.18 at the moment.
Gold is up $7 an ounce at $1,112 at the moment, following its big rally of $26 yesterday.
Markets in the U.S.
This week’s fairly heavy schedule of potential market-moving economic reports continues.
The schedule ends on Friday with what we always refer to as The Big One!, the Labor Department’s monthly Employment Report, this one for January. We call it the big one because it has the record for most often coming in with a surprise in one direction or the other that sends the Dow in a one to three-day triple-digit move in one direction or the other.
To see the full schedule of the week’s reports click here, and look at the left side of the page
it takes you to.
Today’s only scheduled report is the Pending Home Sales report, to be released at10 a.m.
In spite of better than expected earnings from a number of companies this morning, including UPS, Dow Chemical, ADP, Pepsi Bottling, and home-builder D.R. Horton, the pre-open indicators are off their earlier highs.
Our pre-open indicators this morning are fractionally positive, pointing to the Dow being up 15 points or so in the early going, meaningless as to direction by the close.
Stock Market Patterns.
The ‘monthly strength period’ was due to begin last Thursday, and to run through this Thursday, Feb. 4. The next weekly pattern is that next week is the week before this month’s options expirations week, and the week before tends to be negative.
Interesting Charts of the Morning.
As I’ve been pointing out, the two-week plunge has the major indexes, in the U.S. and global markets, short-term oversold beneath their 21-day moving averages, where a short-term bounce back up toward the m.a. is likely.
Now that the previous short-term support at the 21-day m.a. has been broken there is the potential for the 21-day m.a. to be short-term overhead resistance, which might indicate a correction is underway rather than a minor ‘pullback’.
Please scroll down to recent ‘Interesting Charts of the Morning’ and commentary.
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