This post was originally published on this site
You might think the hard-money, recession-at-every-corner crowd would be predicting an imminent reversal in the stock market given the 20% gain for the Dow Jones Industrial Average this year.
Not necessarily.
Thorsten Polleit, the chief economist at Swiss metals trader Degussa, explains why he thinks an economic boom will continue, with stock prices also strong.
“As long as there is still room for pushing the market interest rate down further, the chances are reasonably good that the boom continues, and that the bust will be adjourned into the future. As per the charts below, current market interest rates in the U.S. have not reached rock bottom yet. Corporate and mortgage credit costs in particular still have some way to go before hitting zero,” he writes in an article for the Alabama libertarian think tank, the Mises Institute.
“The decline in market interest rates is only one factor among many others which explain why stock prices have gone up in recent years. But it is a significant factor, and it contributes to the build-up of a price bubble,” he says.
To be sure, Polleit expects a very hard landing. “The severity of the crisis that must be expected to unfold at some point in the future — at the latest when all market interest rates have been pushed onto the zero line and investment returns have become negligible — is driven to ever-higher levels. This is something we do know from the Austrian business cycle theory. But it is certainly not enough to come up with a reliable forecast,” he says.
The buzz
China’s exports fell in November, the fourth straight decline.
French drugmaker Sanofi SNY, -0.11% is going to buy biotech Synthorx THOR, +0.20% for $2.5 billion, or $68 a share — nearly triple the biotech’s $25.03-a-share close on Friday. Merck MRK, +0.11%, the U.S. drug giant, meanwhile said it’s buying ArQule ARQL, +1.63% for $2.7 billion, or $20 a share — more than double Friday’s closing price for the biotech.
Diplomat Pharmacy shares DPLO, +3.75% dropped as the company said it’s agreed to be bought out at a discount by UnitedHealth UNH, -0.26% .
The stock price for Tullow Oil TLW, -64.07% dived by nearly 60% after the British oil and gas company cut its production outlook, which caused its chief executive to resign.
The Bank for International Settlements said the four leading U.S. banks’ unwillingness to lend is what’s behind the spike in U.S. money-market rates that has prompted Federal Reserve intervention.
A New Zealand volcanic island erupted on Monday, killing five people and leaving many more missing.
The diary
Not much on the plate for Monday, but the Federal Reserve’s decision on whether to hold interest rates steady comes on Wednesday, and the latest consumer price index and retail sales reports are due this week as well. The Fed is expected to leave interest rates unchanged after three straight reductions. The European Central Bank also is expected to keep rates unchanged on Thursday when it meets for the first time since Christine Lagarde became president.
The markets
No news on the U.S.-China trade front seems to be bad news, as stock futures ES00, -0.07% drifted lower ahead of the Dec. 15 deadline for tariffs to be increased.
European stocks SXXP, -0.20% edged lower, while Asian stocks ADOW, +0.42% were mostly higher following Friday’s rally on Wall Street.
Gold futures GC00, +0.25% inched higher, and the yield on the 10-year Treasury TMUBMUSD10Y, -0.85% fell by 1 basis point.
The tweet
Innovative design for an extra-wide bun to accommodate two hot dogs simultaneously.
Random reads
Finland’s Sanna Marin will become the world’s youngest prime minister this week, at all of 34 years old.
In a good test of tear duct functionality, The New York Times writes about the lovers who met in Auschwitz, reunited 72 years later.
A “second killer space rock” is coming Earth’s way. (For better or worse, they’re both expected to miss.)
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. Be sure to check the Need to Know item. The emailed version will be sent out at about 7:30 a.m. Eastern.
