1/7/06 Euphoria + Dysfunction = Rising Risk Of Instablity
The first week's equity trading of 2006 equated to a good 2005. The Dow rose 2.2%, the
S&P 500 2.9%, and the Nasdaq 5.2%. That euphoria was balanced in part by the dollar index slumping 2.6% and the CRB Index climbing 2.3% to a new all-time high. All the talk about Fed rate hikes coming to a close took a back seat to the Fed's increasing accomodation.
Put simply, since mid-November, the Fed has pumped $177.8 billion into the M3 money supply.
The Administration focused on the unemployment rate declining to 4.9% due to a strengthening economy. Meanwhile, over the past year, the labor participation rate has actually declined to 66%. Discouraged workers are alive but not well. Look at the pay situation for the individual on Main Street. The BLS stated hourly pay rose by 5 cents an hour in December, but that is after revising downward pay by 3 cents an hour in November
and one cent in October. Much is made of 108,000 jobs being created in December. Let's take a closer look. The factory workweek declined by 0.1 an hour to 40.7 hours per week and the non-factory workweek also declined to 33.7 hours from 33.8 hours in November. If you multiply the number of workers by that 0.1 hourly decline, you will come out to a loss
of jobs approaching 140,000. Any way you cut it, the middle class is working less, their wages are trailing the rate of inflation, and with the labor participation rate at 66%, there is no reason to believe wages in 2006 will jump significantly. I have been making this same statement for three years running.
Much is made of 4% gains in GDP on the back of increased productivity. When does the average worker get compensated for this increased productivity? Is the goal to make the individual worker more dependent on government handouts? And by the way, the government doesn't generate cash flow. The government just collects taxes and spends the money and accumulates increased debt. Is the goal to have an increasing economic divide between the rich and the middle class? How long can the Fed print money at a minimum of twice the rate of inflation?
EMC Corp. has 25,200 workers. They will be eliminating 1,000 jobs in 2006.
For the last three years, analysts have predicted a capital spending boom by corporations.
This year the same prediction was made. I will disagree for the fourth year. Companies are
expanding in low-paying countries, and not here. In the U.S., capital is used for stock buybacks. Do you see many new plants being built in the U.S.?
It's the beginning of the new year. If you want to jump on the euphoria band wagon, be my guest. You'll be taken for a ride-- for sure. Don't complain to me if you are thrown off the horse. Trotting is one thing. Stay out of the fast lane. It's not stable.
Saturday, January 07, 2006
Thursday, January 05, 2006
Recent Trends
1/6/06 Recent Trends
February natural gas fell 55.7 cents, or 5.5%, to $9.64 per million British thermal units in afternoon dealings on the New York Mercantile Exchange. The Energy Department reported an unexpected 1 billion-cubic-foot increase in supplies of the heating fuel for the week ended Dec. 30.
Matthew Slaughter, member of the Council of Economic Advisors, in an interview on Bloomberg Television on Thursday, reiterated earlier estimates by the administration and said the White House expects job growth to average 176,000 per month and the unemployment rate at 5% in 2006.
The index of signed purchase agreements, or pending home resales, fell 2.5 percent to 120.6, the National Association of Realtors stated. That follows a reading of 123.7 in October and a record 129.2 in August.
Announcements of job reductions by U.S. corporations increased 3.1% in 2005 to 1.07 million, the first annual increase since 2001, outplacement firm Challenger Gray & Christmas said Thursday.
It was the fifth year in a row that announced job cuts exceeded 1 million.
Planned layoffs increased 8.6% to 107,822 in December from 99,279 in November, the most since June. Layoffs rose 17.5% in the fourth quarter to 288,402, the most in a year, Challenger Gray & Christmas stated.
The holiday season is over and so is the holiday for cheap gas. Have you filled up this week? In my neck of the woods, stations raised prices between 10 cents and 20 cents a gallon. With crude circling the $63 a barrel mark, it appears likely that gas at the pump will shortly be back to $2.50 a gallon, and we are in the winter driving season. You still believe inflation is under control? Look at your home heating and electricity bills.
Action Economics expects China's currency to gradually appreciate by approximately 5% vs. the U.S. dollar over the course of 2006.
February natural gas fell 55.7 cents, or 5.5%, to $9.64 per million British thermal units in afternoon dealings on the New York Mercantile Exchange. The Energy Department reported an unexpected 1 billion-cubic-foot increase in supplies of the heating fuel for the week ended Dec. 30.
Matthew Slaughter, member of the Council of Economic Advisors, in an interview on Bloomberg Television on Thursday, reiterated earlier estimates by the administration and said the White House expects job growth to average 176,000 per month and the unemployment rate at 5% in 2006.
The index of signed purchase agreements, or pending home resales, fell 2.5 percent to 120.6, the National Association of Realtors stated. That follows a reading of 123.7 in October and a record 129.2 in August.
Announcements of job reductions by U.S. corporations increased 3.1% in 2005 to 1.07 million, the first annual increase since 2001, outplacement firm Challenger Gray & Christmas said Thursday.
It was the fifth year in a row that announced job cuts exceeded 1 million.
Planned layoffs increased 8.6% to 107,822 in December from 99,279 in November, the most since June. Layoffs rose 17.5% in the fourth quarter to 288,402, the most in a year, Challenger Gray & Christmas stated.
The holiday season is over and so is the holiday for cheap gas. Have you filled up this week? In my neck of the woods, stations raised prices between 10 cents and 20 cents a gallon. With crude circling the $63 a barrel mark, it appears likely that gas at the pump will shortly be back to $2.50 a gallon, and we are in the winter driving season. You still believe inflation is under control? Look at your home heating and electricity bills.
Action Economics expects China's currency to gradually appreciate by approximately 5% vs. the U.S. dollar over the course of 2006.
Purchasing Power
1/5/06 Purchasing Power
The purchasing power for Californians earning the state's minimum wage is one-third less than it was in 1968 and is not enough to support a single adult, according to a report by the California Budget Project. The report by the nonprofit, nonpartisan organization comes as Gov. Arnold Schwarzenegger is expected to propose in his state of the state address this week a $1 an hour increase in the state's minimum wage, to $7.75 an hour. The report also concludes that moderate increases in the minimum wage do not trigger job losses in the state's low-wage industries, such as food service and retail.
The Reuters Jefferies CRB Index of 19 commodities rose 2.12, or 0.6 percent, to 338.49, after earlier reaching a record 338.78. The index has jumped 21 percent in the past year as demand for raw materials such as fuels and metals climbed.
The Administration and the Fed may tell you that inflation is under control, but commodity gains of 21% certainly tell another story. Whether the Fed raises interest rates another one or two or three times is not the story. Demand from China and India and other Asean countries will continue to fuel demand for commodities- not just in 2005 or 2006- but for years to come. The purchasing power of the dollar will dwindle and dwindle. Those hoping for a long-term bull ride on the dollar index shall be disappointed. They are on a one-way trip to palookaville.
The purchasing power for Californians earning the state's minimum wage is one-third less than it was in 1968 and is not enough to support a single adult, according to a report by the California Budget Project. The report by the nonprofit, nonpartisan organization comes as Gov. Arnold Schwarzenegger is expected to propose in his state of the state address this week a $1 an hour increase in the state's minimum wage, to $7.75 an hour. The report also concludes that moderate increases in the minimum wage do not trigger job losses in the state's low-wage industries, such as food service and retail.
The Reuters Jefferies CRB Index of 19 commodities rose 2.12, or 0.6 percent, to 338.49, after earlier reaching a record 338.78. The index has jumped 21 percent in the past year as demand for raw materials such as fuels and metals climbed.
The Administration and the Fed may tell you that inflation is under control, but commodity gains of 21% certainly tell another story. Whether the Fed raises interest rates another one or two or three times is not the story. Demand from China and India and other Asean countries will continue to fuel demand for commodities- not just in 2005 or 2006- but for years to come. The purchasing power of the dollar will dwindle and dwindle. Those hoping for a long-term bull ride on the dollar index shall be disappointed. They are on a one-way trip to palookaville.
Wednesday, January 04, 2006
The Fed
1/4/06 The Fed
It's nice to see the first two trading days start off with good gains, and this
despite a rally in crude to over $63 a barrel, a pop in gold, and a drop in the dollar. The impetus appears to be the statement by the Fed that "additional firming
steps would not be large." This was not new news so maybe the New Year just started with a smile rather than a frown.
It was not a concern that the Dec. ISM Mfg Index declined to 54.2 from November's 58.1 and that multi-month lows were recorded for prices paid, employment, and new orders. Bad news was greeted as good news for the bond market and rationalized that
it would build a further foundation for the Fed to stop raising rates. No mention has bee made of when the Fed will stop printing money at a rate that equals at least the real inflation rate--not the core rate that is meaningless.
No mention was made of the $2.5 trillion in household debt that will be re-figured
at higher interest rates and this will further cramp the average family's finances.
My suggestion is to continue reducing positions in equities with unfavorable outlooks. It would be wise to build a cash cushion for a rainy day, and this is the rainy season in much of the country.
It's nice to see the first two trading days start off with good gains, and this
despite a rally in crude to over $63 a barrel, a pop in gold, and a drop in the dollar. The impetus appears to be the statement by the Fed that "additional firming
steps would not be large." This was not new news so maybe the New Year just started with a smile rather than a frown.
It was not a concern that the Dec. ISM Mfg Index declined to 54.2 from November's 58.1 and that multi-month lows were recorded for prices paid, employment, and new orders. Bad news was greeted as good news for the bond market and rationalized that
it would build a further foundation for the Fed to stop raising rates. No mention has bee made of when the Fed will stop printing money at a rate that equals at least the real inflation rate--not the core rate that is meaningless.
No mention was made of the $2.5 trillion in household debt that will be re-figured
at higher interest rates and this will further cramp the average family's finances.
My suggestion is to continue reducing positions in equities with unfavorable outlooks. It would be wise to build a cash cushion for a rainy day, and this is the rainy season in much of the country.
Tuesday, January 03, 2006
New Year's Resolutions
1/3/06 New Year's Resolutions
Focus on what is.
Keep it simple.
Be more forgiving.
Take more time off from work.
Eat smarter.
Exercise more regularly.
Cut my losses short.
Filter out the noise from the media.
Give encouragement to others.
Make every day count.
Focus on what is.
Keep it simple.
Be more forgiving.
Take more time off from work.
Eat smarter.
Exercise more regularly.
Cut my losses short.
Filter out the noise from the media.
Give encouragement to others.
Make every day count.
Monday, January 02, 2006
Predictions For 2006
1/2/06 Predictions For 2006
In 2006, the world economy will begin to lose its appetite for the dollar.
For three years there has been a suggestion here to go long gold and short the dollar.
In 2006, I would also add going long silver against the dollar.
In 2006, there will be a greater appreciation for volatility and risk. In particular, the danger lurking in derivatives will be borne out.
With the window of cheap money closing, our citizens will begin to sour on consumption.
Even though a recession will come to pass in the fourth quarter of 2006, interest rates will continue to rise. Why? Not because of the Fed but because the world economy will have lost its appetite for our debt-laden Treasury bonds.
As the Baby Boomers turn 60, there will be a greater focus on the entire pharmaceutical spectrum. We can also expect more foreign takeovers of our domestic drug companies.
Overall construction, and that includes home building, will lessen. This will generate a greater level of layoffs than previously anticipated.
Wages will continue to trail the rate of inflation. At some point in 2006, rebellion of some citizen groups will come to the forefront.
Google and Apple will continue to prosper but the rise in their stock prices will stall. GM’s fortunes will not turn upward but its stock price will. The parts are worth more than the whole.
Citizens will ponder an alternative for Bush and Cheney—should they simply be removed from office or be imprisoned.
Roe v. Wade will not be overturned.
Natural disasters will become more prevalent in 2006.
Energy prices will continue to move higher. There will be a growing appreciation for alternative energy sources.
There will be a greater acceptance for carbs. Bread lines will begin to appear and the lines will get longer throughout the year.
The trend towards assembling parts rather than manufacturing the whole will hasten. Boeing’s 787 is a prime example.
Since we invaded Iraq in March 2003, 2,179 of our fighting men and women have died. The bloodshed will continue and the death toll will exceed those that perished in 9/11 (2,819).
Lao Tzu: "Those who have knowledge, don't predict. Those who predict, don't have knowledge.” So much for my predictions. My predictions and a buck and a half will get you on the bus.
In 2006, the world economy will begin to lose its appetite for the dollar.
For three years there has been a suggestion here to go long gold and short the dollar.
In 2006, I would also add going long silver against the dollar.
In 2006, there will be a greater appreciation for volatility and risk. In particular, the danger lurking in derivatives will be borne out.
With the window of cheap money closing, our citizens will begin to sour on consumption.
Even though a recession will come to pass in the fourth quarter of 2006, interest rates will continue to rise. Why? Not because of the Fed but because the world economy will have lost its appetite for our debt-laden Treasury bonds.
As the Baby Boomers turn 60, there will be a greater focus on the entire pharmaceutical spectrum. We can also expect more foreign takeovers of our domestic drug companies.
Overall construction, and that includes home building, will lessen. This will generate a greater level of layoffs than previously anticipated.
Wages will continue to trail the rate of inflation. At some point in 2006, rebellion of some citizen groups will come to the forefront.
Google and Apple will continue to prosper but the rise in their stock prices will stall. GM’s fortunes will not turn upward but its stock price will. The parts are worth more than the whole.
Citizens will ponder an alternative for Bush and Cheney—should they simply be removed from office or be imprisoned.
Roe v. Wade will not be overturned.
Natural disasters will become more prevalent in 2006.
Energy prices will continue to move higher. There will be a growing appreciation for alternative energy sources.
There will be a greater acceptance for carbs. Bread lines will begin to appear and the lines will get longer throughout the year.
The trend towards assembling parts rather than manufacturing the whole will hasten. Boeing’s 787 is a prime example.
Since we invaded Iraq in March 2003, 2,179 of our fighting men and women have died. The bloodshed will continue and the death toll will exceed those that perished in 9/11 (2,819).
Lao Tzu: "Those who have knowledge, don't predict. Those who predict, don't have knowledge.” So much for my predictions. My predictions and a buck and a half will get you on the bus.
Sunday, January 01, 2006
Happy New Year
1/1/06 Happy New Year
Wal-Mart said December U.S. same-store sales rose about 2.2 percent, the smallest December gain in five years. However, this gain may prove to be understated. The company did a big business in gift cards. A percentage will be redeemed in 2006, and not counted, therefore, in December.
The new Medicare Part D prescription drug plan goes into effect today.
Mike Burk: “Since 1965, during the 1st year of the Presidential Cycle, the market as measured by the NASDAQ composite (OTC) has been down 3 times during the last 4 trading days of the year. Following those 3 occurrences the 1st 4 trading days of January have always been up. The month of January has been down 2 out of 3 times and the following year has always been down.”
Bush’s latest radio address: “During 2005, thanks to our tax relief, spending restraint, and the hard work of the American people, our economy remained the envy of the world. Our
economy has been growing strongly for more than two years, and has added
nearly 4.5 million jobs since May of 2003. More Americans own their homes than
at any time in our nation's history. Inflation is low, productivity is high,
and small businesses are flourishing. Real disposable income is up, consumers
are confident, and early reports suggest good retail sales this holiday
season.” Have you learned anything over the last 5 years? From your experience, is inflation low? Is your disposable income up? Were Wal-Mart’s December sales good?
If the government restrained spending, how come the deficit is rising and the Treasury has asked for another increase in the debt limit? In other words, Bush has begun 2006 spouting the same lies over again.
Average annual temperatures in the Arctic have risen as much as 7 degrees Fahrenheit in 50 years — even more in Alaska — according to the Arctic Climate Impact Assessment, a report by the eight nations with land inside the Arctic Circle.
The amount of ice covering the ocean in late summer has shrunk 15 to 20 percent in three decades, and 2005 was the worst year ever. That shrinking contributed to a rise of about 8 inches in sea level, an extraordinary amount.
Mike Shedlock: “The bottom line is real wages are declining, bankruptcies are skyrocketing, consumer debt is soaring, and equity extraction from homes is used for routine consumption. This is happening in a "recovery". Something does not add up. In fact many things do not add up. Topping off the list is the idea that housing is now affordable…40-50% of the jobs in this recovery were directly related to real estate. Many of those jobs will vanish in the upcoming consumer led recession and many people will lose their homes over it as well. Just as the downward spiral begins we see silly articles telling us how affordable thing are. I find it all rather amazing.”
In making a forecast for 2006, please make a particular note of March 20, 2006. To reiterate, that day Iran begins trading Petroeuros on the Iranian Oil Bourse. This is a
highly significant event. Oil will be traded and priced solely in euros for the first time. In my view, this will have a major impact on the value pf the dollar and the demand for the dollar. Several decades ago our nation went off the gold standard. Several decades from now the world will note that the global economy went off the dollar standard, so to speak.
Have you ever heard of Big Cola? It started in Peru and moved into Mexico. It is quickly taking market share from Coke and Pepsi. Why? A 3.3-liter container of Big Cola brand sells for about $1.12 and sometimes as little as 86 cents on special. Toyota started small too.
Northern California residents braced for a second storm to hit the region Sunday, a day after the first one sent rivers spilling into cities and mud sliding into homes and highways. Saturday's storm dumped an average of 4 to 5 inches in Northern California, with parts of Marin County recording more than 7 inches, according to the National Weather Service. Yountville in the Napa Valley had 8 inches of rain.
Twelve car bombs exploded around Iraq on Sunday, including eight in Baghdad that detonated within a three-hour window.
Elaine Maxwell: “My will shall shape the future. Whether I fail or succeed shall be no man's doing but my own. I am the force; I can clear any obstacle before me or I can be lost in the maze. My choice; my responsibility; win or lose, only I hold the key to my destiny.”
Wal-Mart said December U.S. same-store sales rose about 2.2 percent, the smallest December gain in five years. However, this gain may prove to be understated. The company did a big business in gift cards. A percentage will be redeemed in 2006, and not counted, therefore, in December.
The new Medicare Part D prescription drug plan goes into effect today.
Mike Burk: “Since 1965, during the 1st year of the Presidential Cycle, the market as measured by the NASDAQ composite (OTC) has been down 3 times during the last 4 trading days of the year. Following those 3 occurrences the 1st 4 trading days of January have always been up. The month of January has been down 2 out of 3 times and the following year has always been down.”
Bush’s latest radio address: “During 2005, thanks to our tax relief, spending restraint, and the hard work of the American people, our economy remained the envy of the world. Our
economy has been growing strongly for more than two years, and has added
nearly 4.5 million jobs since May of 2003. More Americans own their homes than
at any time in our nation's history. Inflation is low, productivity is high,
and small businesses are flourishing. Real disposable income is up, consumers
are confident, and early reports suggest good retail sales this holiday
season.” Have you learned anything over the last 5 years? From your experience, is inflation low? Is your disposable income up? Were Wal-Mart’s December sales good?
If the government restrained spending, how come the deficit is rising and the Treasury has asked for another increase in the debt limit? In other words, Bush has begun 2006 spouting the same lies over again.
Average annual temperatures in the Arctic have risen as much as 7 degrees Fahrenheit in 50 years — even more in Alaska — according to the Arctic Climate Impact Assessment, a report by the eight nations with land inside the Arctic Circle.
The amount of ice covering the ocean in late summer has shrunk 15 to 20 percent in three decades, and 2005 was the worst year ever. That shrinking contributed to a rise of about 8 inches in sea level, an extraordinary amount.
Mike Shedlock: “The bottom line is real wages are declining, bankruptcies are skyrocketing, consumer debt is soaring, and equity extraction from homes is used for routine consumption. This is happening in a "recovery". Something does not add up. In fact many things do not add up. Topping off the list is the idea that housing is now affordable…40-50% of the jobs in this recovery were directly related to real estate. Many of those jobs will vanish in the upcoming consumer led recession and many people will lose their homes over it as well. Just as the downward spiral begins we see silly articles telling us how affordable thing are. I find it all rather amazing.”
In making a forecast for 2006, please make a particular note of March 20, 2006. To reiterate, that day Iran begins trading Petroeuros on the Iranian Oil Bourse. This is a
highly significant event. Oil will be traded and priced solely in euros for the first time. In my view, this will have a major impact on the value pf the dollar and the demand for the dollar. Several decades ago our nation went off the gold standard. Several decades from now the world will note that the global economy went off the dollar standard, so to speak.
Have you ever heard of Big Cola? It started in Peru and moved into Mexico. It is quickly taking market share from Coke and Pepsi. Why? A 3.3-liter container of Big Cola brand sells for about $1.12 and sometimes as little as 86 cents on special. Toyota started small too.
Northern California residents braced for a second storm to hit the region Sunday, a day after the first one sent rivers spilling into cities and mud sliding into homes and highways. Saturday's storm dumped an average of 4 to 5 inches in Northern California, with parts of Marin County recording more than 7 inches, according to the National Weather Service. Yountville in the Napa Valley had 8 inches of rain.
Twelve car bombs exploded around Iraq on Sunday, including eight in Baghdad that detonated within a three-hour window.
Elaine Maxwell: “My will shall shape the future. Whether I fail or succeed shall be no man's doing but my own. I am the force; I can clear any obstacle before me or I can be lost in the maze. My choice; my responsibility; win or lose, only I hold the key to my destiny.”
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