When major banks met discussing the world economy Saturday, there were no calls for the banks to try to do more because economic indicators have been up. Even though they considered brainstorming to see if there's anything else that can be done before the meeting started nothing came of it. The ECB as a whole is exploring the concept of promoting small business through "asset-backed securities" (ABS).
ABS allows banks to protect their balance sheets because they can package these loans and sell them to other investors. In fact it was this type of packaging that originally paralyzed the credit markets and caused the financial crisis because of defaults \in housing. In this exploration, not all members of the G7 supported the concept for the ECB. The German financial minister expressed his opposition saying that something like this would basically boil down to "covert state financing" and is not something he feels Germany should support.
The group still has a lot of work to do, and I believe it will focus on dealing with failed banks and reformation that is needed is in the banking industry. Cyprus is the latest reminder that the banking sector is not as healthy as it needs to be yet. As it presently stands, Germany is ever hesitant to jump in and support this even though the others are putting them under pressure to do so. From its point of view it worries that sometime in the future it can end up having to pay too much for bank bailouts.
Tokyo has come under fire as of late because of its push toward printing so much money to devalue the yen. It appears that the country is attempting to orchestrate an export led recovery. If this is true it could have an adverse effect upon other regions that are trying to grow. But the rest of the G7 decided not to focus on the concept of "currency manipulation" but focus more on individual domestic concerns. Honestly though, there is not much criticism other governments like the United States and Great Britain can say to Tokyo for printing so much money liberally to try to jump start its economy. They have done the same thing the past.
Even though the bullish market in the S&P 500 continues to look strong, caution always needs to rear its head somewhere out there and some analysts believe the market is overextended at this point. Is this caution justified? Considering the breakout above the multi-year top of 1565 came with light volume there may be some teeth to this argument. I have mentioned two other articles about these similar patterns that we have seen in the last three years around this time of the year. After a routine six-month rally from November through April we have seen the pullback, but it doesn't mean it's going to happen this year.
The popular concept of "sell in May and go away" also worked well the last three years but halfway through May it doesn't look like that will take place this year. We do have two weeks left so time will tell but the markets still look very bullish at this point. One word of caution that I think is valuable is that we could easily have a turn in the economic news that comes out on a weekly basis. If this happens, I would expect the markets to take a turn and react to the news. How long would they react? I believe as long as the news remains "in slow growth mode or worse" the market will react negatively and we will see a pullback take place.
Here is one observation to support a market slowdown as we get closer and closer to summer. Transports have a slight bearish flavor to them right now on declining volume which always marks a dis-interest in the markets. When we see a drop-off in transportation stocks it appears that the movement of product across the country is beginning to decline. This means less shipping. This in itself is enough evidence to encourage caution in the markets because something adverse could be on the horizon.