Saturday, December 11, 2010


12/11/10 Moneyness

(Bloomberg) -- China’s inflation accelerated to the fastest pace in 28 months in November, building the case for Premier Wen Jiabao to raise interest rates again.
Consumer prices rose a more-than-forecast 5.1 percent from a year earlier, a statistics bureau report showed in Beijing today. Producer-price inflation was 6.1 percent, higher than any of 28 economists surveyed by Bloomberg News had estimated.

Doug Noland: "Importantly, the Federal Reserve’s zero-rate policy and massive monetization program have been instrumental in maintaining the perception of “moneyness” in the face of unprecedented Treasury debt issuance. I can’t envisage a more powerful Bubble Dynamic: The Fed intervenes and manipulates the Treasury market – the predominant debt market underpinning fixed income and securities markets more generally. Enormous fiscal stimulus then works to stabilize system incomes, corporate cash flows, state & local tax receipts, and asset prices more generally. In the final analysis, Trillions of dollars of government-created purchasing power ensure that a structurally maladjusted U.S. economy has, at the minimum, the appearance of viability – and the stock market booms....We are in the midst of another sordid episode. John Law’s experimentation with paper “money” in France ended with the spectacular bursting of the Mississippi Bubble in 1720. Today’s backdrop is much more complex: The Fed and global central bankers are working diligently to control an experiment in electronic “money” and Credit gone terribly awry. If it were only the printing press, it would be easier to appreciate what was developing and how to administer some restraint. Instead, the Fed has banked everything on its capacity to inflate marketplace liquidity, sustain massive government debt issuance, and maintain market perceptions of moneyness."

Tim W. Wood: "So, the fact that we are now in a rate hiking cycle and interest rates are beginning to move up no doubt begs the question as to whether this will be good or bad for equities. But, my take is rather than to draw an erroneous conclusion, we should look at the markets independently. Until my Fed model changes, I know that the bias for rates is to the upside. As for equities, I have identified a common cyclical DNA Marker/trait that has occurred at every major top since 1896. Thus, it is my opinion that the answer to the question with interest rates and the market lies in simply taking the markets independently of one another and to implement the tools that we have and in doing so these tools will tell us."

A law enforcement official tells NBC and The Associated Press that a son of Bernard Madoff has been found dead in New York City of an apparent suicide.

Protests will be held around the world today against the detention of Julian Assange, the founder of WikiLeaks. Demonstrations are planned in the capitals of Spain, the Netherlands, Colombia, Argentina, Mexico and Peru to demand Assange's release.

Pragmatic Capitalism: "Christopher Whalen makes a remarkably convincing case for why we’ve simply kicked the can down the road and why the banks could be in for a repeat of their 2008 nightmares in 2011. If Mr. Whalen is right the banking sector is in for a whole new round of government intervention, takeovers, likely nationalizations and general disaster:The U.S. banking industry is entering a new period of crisis where operating costs are rising dramatically due to foreclosures and defaults. We are less than ¼ of the way through the foreclosure process. Laurie Goodman of Amherst Securities predicts that 1 in 5 mortgages could go into foreclosure without radical action. Rising operating costs in banks will be more significant than in past recessions and could force the U.S. government to restructure some large lenders as expenses overwhelm revenue. BAC, JPM, GMAC foreclosure moratoriums only the start of the crisis that threatens the financial foundations of the entire U.S. political economy."

OPEC on Saturday readied an agreement to leave oil production restraints in place, despite a recent surge in crude prices to $90 a barrel.

Friday, December 10, 2010

Richard Russell

12/10/10 Richard Russell

Richard Russell: "As I write the dividend yield on the Dow is 2.56%. I go
along with Charles Dow's 'rule' - a dividend yield under 3.5% is risky if not
dangerous."Based on history and based on the current dividend yield, stocks are
not now priced to produce profits over coming years."

U.S. import prices rose 1.3% in November, the Labor Department said, the
largest monthly advance since a 1.5% increase in November 2009. October's
prices were revised to a 1% advance from a prior estimate of a 0.9% gain.
Expectations were for a 0.7% advance in import prices in November. Rising
prices for fuel and nonfuel imports contributed to both the November and
October increases. It was the first time since May and June 2009 that import
prices rose by at least 1% in consecutive months.

The U.S. trade deficit narrowed by 13.2% in October to $38.7 billion, the
Commerce Department said Friday. This is the lowesst deficit since January. The

narrowing of the trade deficit surprised analysts. The consensus forecast of
Wall Street economists polled by MarketWatch expected a deficit of $44.3
billion. Exports rose while imports declined slightly in October, the
government said. The U.S. trade deficit with China widened to $25.5 billion in

compared with $22.7 billion in the same month last year. But the bilateral
deficit was lower than the $27.8 billion deficit in September. The U.S.
exported a record amount of goods and services to China in October. The
government also revised the deficit in September to $44.6 billion from $44.0
billion. As a result the deficit for the year now totals $614 billion, up more
than 100% from $302.5 billion in the same period in 2009. Exports were the
strongest since August 2008 as Mexico and China bought record amounts of U.S.

Shares of Beckman Coulter Inc jumped 25% in Friday preopen trade after a news
report said the firm has put itself up for sale. The Brea, Calif., provider of
laboratory tests, systems and supplies, has put itself up for sale, people
familiar with the matter told The Wall Street Journal. Beckman Coulter's

value as of Thursday's closing price, $57.09, was just under $4 billion. In a
late-Thursday report the Journal said the people familiar with the matter said
BEC could draw bids exceeding $5 billion.

The People's Bank of China on Friday announced a 0.5 percentage point increase
in commercial banks' reserve requirement ratio for its sixth such increase this

year. The increase will be effective Dec. 20. The increase comes a day ahead

Beijing's release of a slew of economic data for November, including inflation,

which is expected by economists to have accelerated 4.6% from the year-earlier
period, compared to a 4.4% increase in October. Some economists, including
those at HSBC, said an interest rate increase was also imminent.

WSJ: Nearly 6 million Americans looked for work but weren’t able to find
employment at all last year,... an increase of 2.7 million from a year

The lowest percentage of shoppers in the 27-year-history of a national survey
said they used credit cards over the Thanksgiving weekend. After the
Thanksgiving shopping weekend, the group found that just about 17 percent were
paying with credit — just over half of last year’s level.

Sumitomo and Molycorp entered into a Memorandum of Understanding where Sumitomo
will assemble an equity and debt financing package that comes to $130 million to

be used to complete its rare earth “mine-to-magnets” manufacturing supply
As a part of the pact, Molycorp will provide Sumitomo with several rare earth
products over the next seven years in quantity. Sumitomo will purchase $100
million of Molycorp’s common stock and it will provide Molycorp $30 million in
debt financing at a low interest rate.

One out of every seven Americans relies on food stamps.

China’s economy is history’s biggest bubble and may be headed for collapse,
according to Richard Duncan, chief economist at Blackhorse Asset Management
Pte. who predicted a credit boom would trigger a global recession. A more than
50 percent surge in China’s money supplysince 2008 helped fuel economic growth
in excess of 9 percent per year, even as trading partners sank into recession.
The expansion also saddled the country with factories that produce three times
more goods than can be bought by China’s workers, 80 percent of whom make less
than $5 a day, said Duncan. “China has the greatest economic bubble in
history,” said Duncan, author of “The Dollar Crisis” first published in 2003.
“There’s a real risk it’s going to collapse in a Great Depression-style

Vitaliy Katsenelson, chief investment officer at Investment Research Associates

in Denver: "We're not Japan quite yet but...we need to man up and let the
economy work itself out."

November gross trade in China hit a record $283.8 billion, with exports greater
than imports by $22.9 billion.

The TJX Companies Inc. said Friday it would cut 4,400 jobs, nearly half of
which are part-time, as part of a move to eliminate A.J. Wright stores. The
Framingham, Mass. store operator will close down 71 stores and convert 91 A.J.
Wright stores to T.J. Maxx stores.

Americans have at least $3 trillion invested in bond funds, according to the
Investment Company Institute. A lot of that is backed by one issuer: the U.S.

A gauge of U.S. consumer sentiment rose to 74.2 in early December from 71.6 in

November, according to media reports on Friday of the Reuters/University of
Michigan index. Economists surveyed by MarketWatch had expected a December
result of 72.9. Despite the gain in December, the gauge is below pre-recession
levels of more than 80. While there have been some signs of improvement in the
economy, consumers remain concerned about jobs.

The A&P supermarket chain may file Chapter 11 bankruptcy. A&P operates 428
grocery stores in eight mid-Atlantic states. Its regional banners include
Pathmark, Food Emporium, and Super Fresh.

ZeroHedge: "And for another confirmation that the Nasdaq is now at the same
extreme "irrational exuberance" levels last seen during the dot com crash, we
read courtesy of that the Rydex Nasdaq 100 bull/bear ratio
is now the highest it has been since just before the dot com crash. "Traders in
the Rydex mutual fund family have poured into the Nasdaq 100 long fund at the
expense of the inverse fund on the same index. These traders now have 34 times
more money invested in the long fund vs. the inverse fund, which is the highest
ratio since the bubble days of 2000 and early 2001." And what is scarier, is
that unlike during the dot com, investors are using leveraged methods to
express their exuberance: "The Bull / Bear Ratio for the leveraged funds isn't
quite as extreme...but it's close (on a relative basis)."

The Dow Jones Industrial Average rose 40.26 points, or 0.4%, to end at 11,410.32. For the week, the Dow rose 0.3%. The broad S&P 500 index gained 7.40 points, or 0.6%, at 1,240.40, a two-year high. It gained 1.3% for the week. The Nasdaq Composite rose 20.87 points, or 0.8%, to 2,637.54, tallying a 1.8% weekly gain.

The U.S. government ran a $150.39 billion budget deficit in November, the Treasury Department reported Friday. A year ago in November the deficit was $120.29 billion. Income was $148.96 billion in November, the Treasury said, about $15 billion higher than receipts in November 2009. Spending was $299.35 billion. This is $45 billion higher compared with outlays a year earlier. The November deficit was $8 billion above a congressional estimate.

David Rosenberg: "One of the most pronounced macro risks is another leg down in U.S. home prices, which actually seems to be underway but is currently receiving very little attention."

Thursday, December 09, 2010


12/9/10 Unadjusted

The number of U.S. workers filing new applications for unemployment benefits
fell by 17,000 last week to 421,000, the Labor Department reported Thursday.
Economists polled by MarketWatch had expected initial claims in the week of
Dec. 4 to fall to a seasonally adjusted 425,000. Last week's number was revised
up by 2,000 to 438,000. Continuing claims, which reflect people already
receiving unemployment checks, declined 191,000 to a seasonally adjusted 4.1
million. Some 8.3 million people received a form of state or federal benefits
in the week of Nov. 20, down 611,944 on an unadjusted basis.
The Seasonally unadjusted number increased by a near record 169k, and the NSA
unemployment rate jumped from 2.9% to 3.3% in one week.

(Bloomberg) -- U.S. home values are poised to drop by more than $1.7 trillion
this year amid rising foreclosures and the expiration of homebuyer tax credits,
said Zillow Inc., a closely held provider of home price data.

This year’s estimated decline, more than the $1.05 trillion drop in 2009, brings
the loss since the June 2006 home-price peak to $9 trillion, the Seattle-based
company said today in a statement.
More than half of Americans want Fed reined In or abolished: Bloomberg survey.

Another 17 U.S. billionaires, including Facebook co-founders Mark Zuckerberg
and Dustin Moskovitz, have pledged to give away at least half their fortunes in
a philanthropic campaign led by Warren Buffett and Bill Gates.A total of 57
billionaires now have joined The Giving Pledge, which was launched by Microsoft
founder Gates and investor Buffett in June. The campaign announced the new
pledges in a statement late on Wednesday.

"WikiLeaks themselves have said they'll continue leaking the documents and,
if you want to stop us, you'll probably have to shut down the Internet." --BBC
World News, December 8, 2010".

Google's vice president of engineering Andy Rubin sent out his second tweet,
this time announcing the company is now activating 300,000 Android phones each

Dell and Compellent Technologies Inc. Thursday said they are in "advanced
discussions" on a potential merger that would value Compellent at $27.50 a
share in a cash deal. "There can be no assurances that an agreement will be
reached or that a transaction will be consummated," the companies said in a
press release. "Dell and Compellent do not intend to comment further until an
agreement is reached or discussions are terminated." Shares of Compellent,
which closed Wednesday at $33.65, dropped 16% on premarket action on heaving

England keeps its key rate at 0.5%.

Costco’s comparable-store sales for the quarter rose 7%, reflecting a
comparable sales growth of 5% at its U.S. locations and 14% at its
international divisions. The results were favorably impacted by rising gasoline

prices and a weaker U.S. dollar.
Excluding the effects of gasoline prices and a softer dollar, Costco’s
comparable-store sales rose 5%, with U.S. comparable sales up 4%, while
international comparable sales were up 10%.

(Bloomberg) -- Build America Bond yields rose to the highest in 11 months as
the federal program subsidizing state and local government borrowing costs is
set to expire at year- end unless lawmakers extend it.

The average yield on the taxable securities climbed to 6.35 percent yesterday,
the most since Jan. 7, as investors demanded a larger premium to buy the debt,
according to a Wells Fargo index. Signs that the global economic recovery is
gathering pace also pushed down Build America Bond prices, which move inversely
to yields, along with U.S. Treasuries and other fixed-income markets.

ZeroHedge: "Yet another distortion in this Fed-controlled market has been
captured by SentimentTrader who has noticed that the Arms (TRIN) index is at
its most extreme deviation since 1956. As a reminder the Arms index is an
indicator of market breadth which essentially tracks lemming like
momentum-chasing behavior with respect to volume. Sentiment Trader's
commentary: "While influenced by some of the high-volume, low-priced stocks
such as Citigroup, the Arms Index is showing an abnormal level of Up Volume
versus Up Issues. The chart we show on the site uses bands around a six-month
average to define extremes, and right now the 10-day average is more than 35%
away from that average. With the S&P at a 52-week high, this is the
most-extreme deviation in the Arms Index since 1956." For those who foolishly
believe that technical indicators "indicate" anything anymore in a market in
which there is just one player left, may want to be concerned - all the other
times such an extreme deviation has occurred, any short-term gains were erased
during the months ahead. Those dates were 4/5/43, 2/5/45, 6/20/45, 5/14/48,
4/19/50 and 3/14/56."

Costco to stop selling Apple products, Seattle Times reports.

Working gas in storage was 3,725 Bcf as of Friday, December 3, 2010, according
to EIA estimates. This represents a net decline of 89 Bcf from the previous
week. Stocks were 57 Bcf less than last year at this time and 332 Bcf above the
5-year average of 3,393 Bcf. In the East Region, stocks were 81 Bcf above the
5-year average following net withdrawals of 51 Bcf. Stocks in the Producing
Region were 236 Bcf above the 5-year average of 1,010 Bcf after a net
withdrawal of 17 Bcf. Stocks in the West Region were 15 Bcf above the 5-year
average after a net drawdown of 21 Bcf. At 3,725 Bcf, total working gas is
within the 5-year historical range. Analysts polled by Platts had expected to
see a decline between 82 billion and 86 billion cubic feet last week, according
to a Platts survey.

Air Products and Chemicals Inc on Thursday raised its offer for Airgas Inc. to
$70 a share in what it called its "best and final offer." Air Products last
offered $65.50 a share, which Airgas called "grossly inadequate."

U.S. households reduced their debt for the 10th straight quarter while
businesses continued to stockpile record amounts of cash, underscoring a lack
of demand holding back the U.S. economy, according to new data from the Federal
Reserve. The central bank's so-called "flow of funds" report showed that
household debt fell at an annual rate of 1.75% in the third quarter to $13.4
trillion. Net household wealth rose slightly, up $1.2 trillion to $54.9
trillion, largely because of rising stock prices. U.S. companies, meanwhile,
stored $1.93 trillion in cash and short-term assets at the end of the third
quarter, up from $1.8 trillion. Debt at the local, state and federal levels
increased. Local and state debt climbed 5.5% and federal debt jumped 16%. Total
government debt rose to $11.5 trillion from $11.1 trillion in the second

The Commerce Department said wholesale sales rose 2.2 percent to a seasonally
adjusted $362.1 billion -- far ahead of Wall Street expectations - following a
0.5 percent September gain.
Inventories were up 1.9 percent in October to $427.1 billion after a 2.1 percent

The House on Wednesday approved a $1.2 trillion bill to fund the federal
government through the remaining nine and a half months of fiscal 2011.
The spending package incorporates a request from President Barack Obama for a
two-year pay freeze for federal employees, though members of the military are

The Dow Jones Industrial Average fell 2.42 points to end at 11,370.06.The S&P 500 index rose 4.72 points, or 0.4%, to 1,233, led by a 1.3% gain in the financials sector. The Nasdaq Composite rose 7.51 points, or 0.3%, to 2,616.67.

Wednesday, December 08, 2010

Treasury Yields

12/8/10 Treasury Yields

ZeroHedge: "Today's consumer credit release tells you all you need to know about
who continues to fund the economy (deficit commission be damned indeed). The
all important revolving credit number declined by $5.6 billion in the month,
which just happens to be the 26th consecutive drop in revolving credit, as in
the stuff that Americans use to actually buy stuff with using their credit
cards. And while October total consumer credit rose to $3.4 billion from a
downward revised $1.2 billion in September (previously $2.1 billion), all of it
was due to non-revolving credit, which rose by $9 billion, and more
specifically due to a whopping $31.9 billion increase in Federal Government debt
used to fund student loans (the latest industry recently nationalized by the US
government). Ex-federally funded student loans, consumer credit declined by
about $28 billion."

Treasury prices fell again on Wednesday, pushing to 10-year yields up to
3.34%. The yield on the 2-year jumped to .63% and the 30-year to 4.48%.

The Treasury Department sold $21 billion in 10-year notes on Wednesday at a
yield of 3.34%, the highest since May.

Randall W. Forsyth: "THE BIGGEST LOSERS in President Obama's deal with the
Republican on taxes aren't the Democrats. It's the bond market.
Yields soared in the wake of the plan that will add upwards of $900 billion to
the federal deficit, sending bond prices tumbling, especially in the municipal

London-based private equity group Apax Partners has entered exclusive talks to
buy ISS, the Danish cleaning, security and catering group, in a potential
$8.5bn deal that would be the biggest leveraged buy-out since the financial
crisis started.
ISS, one of the world’s biggest private sector employers with more than half a
million staff, was put up for sale this year by its private equity owners
Goldman Sachs and EQT, the buy-out arm of Sweden’s Wallenberg family.

Data logs showed that before the Deepwater Horizon drilling rig exploded, more
mud was flowing out of BP's Macondo well than was going in - a possible
indication that hydrocarbons were building up in the well.

(Bloomberg) -- U.S. states are preparing for more budget cuts next year as tax
revenue isn’t likely to rebound enough to replace almost $38 billion in aid that

will be gone as federal economic stimulus ends, according to a report.
At least 31 states and Puerto Rico are forecasting deficits of $82.1 billion in
the next fiscal year even as tax receipts are picking up, the National
Conference of State Legislatures said today. Under a temporary mandate since
2009, the U.S. has provided economic aid to states, helping to pay government
workers and shoulder the cost of the Medicaid program to provide health care for

the poor. That aid will be gone, the group said.
“Although a recovering national economy is helping to stabilize state revenues
in fiscal year 2011, serious budget challenges await state lawmakers in the new
year,” the group said today in the report. “This largely stems from fewer
federal stimulus funds available for next year’s budgets.”
The report, which says states will get $37.9 billion less in stimulus money in
fiscal 2012 compared with 2011, is the second in as many weeks to warn of
renewed financial pressure on states as the funding winds down. Last week,
Raymond Scheppach, executive director of the National Governors Association,
said states may confront $175 billion in budget gaps through June 2013, forcing
leaders to weigh spending cuts and tax increases.
"It now look as if December 2010 is probably going to be the most expensive
month for gasoline in the U.S. since September 2008," says Tom Kloza, chief oil
analyst at Wall, N.J.-based Oil Price Information Service.

Consumer Credit has fallen 3.5% compared with Q3 of 2009.

David Einhorn, president of hedge- fund operator Greenlight Capital Inc., said
the global economy will face a sovereign debt crisis after governments around
the world increased spending to deal with the fallout from the financial

Yields on Fannie Mae and Freddie Mac mortgage securities that guide home-loan
rates jumped to their highest levels in almost six months, suggesting borrowing
costs will continue to climb from record lows.

Johnson & Johnson made a formal bid on Wednesday for Crucell, offering to pay
1.75 billion euros ($2.3 billion) for the rest of the Dutch biotechnology

The number of rigs drilling for gas rose by 8 to 961 last week, according to
data published Dec. 3 by Baker Hughes Inc. The total of oil and natural-gas rigs

operating in the U.S. jumped to a 23-month high, gaining 26 to 1,713, according
to Baker Hughes.

.Iceland Cuts Benchmark Rate to 4.5% as Inflation Declines to Six-Year Low

Respondents aged 50 to 59 have saved an average of only $29,000 for retirement.
Consequently, more than a third of respondents believe they will have to work
during retirement in order to afford the things they want or just to make ends
Many are also still relying on Social Security to fill the gap, though
confidence in this funding varies considerably by age.
Seventy-seven percent of respondents aged 50 to 59 believe that Social Security

will contribute to their retirement income, while only 22 percent of
30-somethings thought there would be enough left in the pot to fund their
"Too many Americans have their heads in the sand in the face of obvious savings

deficits," said Laurie Nordquist, director of Wells Fargo Institutional
Retirement Trust. "Barring a miracle, a winning lottery ticket or a big
inheritance, they're going to be forced to dramatically cut back their
lifestyles after retirement."
"Too many Americans have their heads in the sand in the face of obvious savings

deficits," said Laurie Nordquist, director of Wells Fargo Institutional
Retirement Trust. "Barring a miracle, a winning lottery ticket or a big
inheritance, they're going to be forced to dramatically cut back their
lifestyles after retirement."

Natural gas futures rose to a four- month high on forecasts that cold weather
in the eastern and central U.S. will cause a bigger-than-average stockpile
Gas futures rose as the Energy Department may report tomorrow that 86 billion
cubic feet of gas were withdrawn from storage in the week ended Dec. 3,
according to the median of 12 analyst estimates compiled by Bloomberg. The
five-year average inventory reduction for the week is 74 billion.
“If we get an extended period of cold weather, it’s going to deplete some of
this storage and give prices an upward thrust,” said Mike Rose, the director of

energy trading at Angus Jackson Inc. in Fort Lauderdale, Florida. “The market
trades with waves of cold.”

Phoenix Capital Research: "Many commentators have posited that the US Federal
Reserve will not hike interest for several years. It is my contention that the
Fed CANNOT raise rates EVER again. The reason for this is that some 80% of the
$600 TRILLION in over the counter derivatives market is based on interest
rates. If even 4% of this is “at risk” and 10% of it goes wrong you’ve wiped out

ALL The equity at the five largest banks in the US."
(via ZeroHedge)

EIA Petroleum Inventories: Crude -3.8M barrels vs. consensus of -1.2M. Gasoline
+3.8M vs. +0.1M.

Prieur du Plessis:The latest Advisors Sentiment report from Investors
Intelligence shows the bulls have edged up to 56.2% from 55.4% a week ago
and 29.4% at the end of August. This equals the high of three weeks ago just

prior to a stock market pull-back.
According to the report, the current data reflect "lots of funds have now been

committed" and calls for caution, especially as the current level for the
bulls is just below the 56.5% reading of December 2007. (As we know so well,
stock markets peaked in October 2007 when the bulls hit a high of 62%.)

"This tax agreement is a disaster for the U.S. fiscal situation," said Howard
Simons, strategist at Bianco Research in Chicago.

(Bloomberg) -- Europe, where a debt crisis prompted bailouts of Greece and
Ireland this year, remains in a “troubling” situation, the head of the
International Monetary Fund said.

The effects of the global financial turmoil “are far from over,” IMF Managing
Director Dominique Strauss-Kahn said today in Geneva, according to a copy of his
prepared remarks. “The situation in Europe remains troubling, and the future is
more uncertain than ever.”

The Dow Jones Industrial Average rose 13.32 points, or 0.1%, to end at 11,372.48. The S&P 500 index rose 4.53 points, or 0.4%, to 1,228.28. The Nasdaq Composite gained 10.67 points, or 0.4%, to 2,609.16.

Gold futures slumped Wednesday, hit by profit-taking, a stronger dollar, and fears China may raise interest rates sooner than anticipated. Gold for February delivery retreated $25.80, or 1.8%, to $1,383.20 an ounce on the New York Mercantile Exchange. Silver stumbled 5.1%, settling at $28.25 an ounce.

Economist Nouriel Roubini on Wednesday voiced concern over a compromise on extending tax cuts struck by US President Barack Obama and Republican leaders, saying the agreement could expose the US to bond vigilantes who will drive up bond yields.

Tuesday, December 07, 2010


12/7/10 China

China is likely to raise interest rates in the coming days in a demonstration
of the government's resolve to tame inflation, an official newspaper said on
In a banner headline across its front page, the China Securities Journal said
this weekend offered a "sensitive window" for a rate rise, which would be the
country's second after a surprise increase in October, the central bank's first
rate hike since 2007.
An increase in rates would also put flesh on the bones of Beijing's
announcement late last week that it was switching to a "prudent" monetary
policy from the "appropriately loose" stance of the past two years

European finance ministers ruled out immediate aid for Portugal and Spain or an
increase in the 750 billion-euro ($1 trillion) crisis fund, counting on
European Central Bank bond purchases to calm debt-spooked markets. A week after
handing Ireland an 85 billion-euro lifeline, the finance chiefs voiced
confidence that Spain and Portugal will tame their budget deficits and said the
existing credit line is enough to defend them in an emergency.

China's inflation cycle is at a "critical point," requiring "disciplined and
comprehensive policies," citing Stephen Roach, non-executive Asia chairman at
Morgan Stanley. The Asia nation needs to convince the market that its shift to
a "prudent" monetary policy "has teeth" by adopting tougher anti-inflationary
measures, Roach said.

AGL Resources Inc., the owner of Atlanta's natural-gas utility, agreed to buy
Nicor Inc. for $2.4 billion in cash and stock, almost doubling the number of
gas customers it serves.

The Justice Department is going to announce arrests in a huge crackdown on
investment fraud later today, says Bloomberg. The Department has apparently been

planning a crackdown on Ponzi schemes and stock market manipulations since
August, and arrests are coming soon.

BBC reports: "Customers of one of Ireland's largest banks have been unable to
access their cash accounts through ATMs or online."

"WikiLeaks coined a new type of journalism: scientific journalism. We work with

other media outlets to bring people the news, but also to prove it is true.
Scientific journalism allows you to read a news story, then to click online to
see the original document it is based on. That way you can judge for yourself:
Is the story true? Did the journalist report it accurately? Democratic
societies need a strong media and WikiLeaks is part of that media. The media
helps keep government honest. WikiLeaks has revealed some hard truths about the

Iraq and Afghan wars, and broken stories about corporate corruption." Julian
Assange, The Australian Op-Ed

WTI crude at 2 1/2 year high and silver climbs to 30.50 and gold at 1429.
10-year Treasury yields jump to 3.14%. The two-year note yield gained 11 basis points to 0.53 percent.
Copper surged to a 31-month high in New York and an all-time high in London.

China Buys Most Korean Bonds in 6 Months as Won Falls.

According to the Congressional Research Service, the cost of keeping the tax
cuts will be just over $5 trillion over the next 10 years.

US EIA sees US Natgas production up 3.5% in 2010 (Prev. up 2.5%), down 0.1% in
2011 (Prev. down 1.2%)

The Schork Report: the bottom line is that oil is high (which will adversely
impact demand elasticity for transportation fuels), natural gas values can only
go higher from here and corn values remain stubbornly strong.

Toronto-Dominion Bank is in talks to buy lender Chrysler Financial from private
equity firm Cerberus Capital Management, a source familiar with the matter said

The American Petroleum Institute reported late Tuesday crude-oil inventories declined by 7.4 million barrels in the week ended Dec. 3. The decline contrasted with analyst expectations of a decline by 1.2 million barrels for the week, according to a Dow Jones Newswires survey of analysts. Gasoline stocks increased 4.8 million barrels, against expectations of an increase of 100,000 barrels. Stocks of distillates, which include heating oil and diesel, rose 1.7 million. They were seen falling by 600,000 barrels.

-U.S. consumers increased their debt in October by the largest amount since July 2008, the Federal Reserve reported Tuesday. Total seasonally adjusted consumer debt increased $3.4 billion, or a 1.7% annualized rate, in October to $2.4 trillion. Economists had expected a decrease. September consumer credit was revised down to a 0.6% increase compared with the initial estimate of a 1.1% rise. The increase in October was led by non-revolving credit, such as auto loans, personal loans and student loans, which rose $9.0 billion or 6.8%. Revolving debt decreased $5.64 billion or 8.4%. This is the twenty-sixth straight monthly drop in credit card debt.

The Dow Jones Industrial Average finished down 3 points at 11,359, and the Nasdaq added 4 points to finish at 2,598. The S&P 500 closed up less than a point at 1,224, after hitting 1,235.05 earlier in the day, its highest level since 2008.

Monday, December 06, 2010

Julian Assange

12/6/10 Julian Assange

John Hussman: "Don't take risk in overvalued, overbought, overbullish,
rising-yield environments" - is one of the single most important in terms of
avoiding major, sometimes catastrophic losses....I continue to view Bernanke's
apparent objective for QE2 - to create a "wealth effect" by encouraging
speculation in risk assets - to be dangerously misguided. Historically, the
elasticity of GDP to changes in the stock market is on the order of 0.03 to
0.05, and is transitory at that. In plain English, this means that even large
changes in the value of the stock market do not translate well into changes in
GDP. This is because consumers correctly consume on the basis of what they see
as their "permanent income," and are well aware that changes in volatile
assets tend to be transitory when they are not accompanied by growth in real
output and incomes. Bernanke is not thinking as an economist in this regard. He
is thinking like a witch doctor calling on animal spirits (ooh, eee,
ooh-aah-aah, ting, tang, walla-walla bing-bang)."

- Miner Rio Tinto made a $3.5 billion bid approach for Africa-focused
Riversdale Mining , sending the target firm's shares surging 16 percent and
setting up a potential takeover battle.
Rio's move on Australia's Riversdale is likely to spark a bidding war, as the
company has hard coking-coal projects in Mozambique that could eventually
supply 5-10 percent of the global market for the key steel-making material.

2010 e-commerce spending hit $16.8B over the weekend, up 12% from a year ago.
Bolstered by a record-breaking Cyber Monday, sales tapered off later in the
week, and comScore says the effects of heavy discounting and promotions could
result in soft numbers this week as well.

Jesse's Cafe Americain: "The US stock market as deflated by gold has never
really recovered from the financial crisis. This is a better reflection of the
real economy in which unemployment and underemployment is running at the 17+%
level.The only progress we have seen in stocks is due to the monetary expansion
of the Federal Reserve balance sheet. And most of that expansion has been
channeled to the financial sector where it is being consumed by bad debts,
enormous personal bonuses, and speculation."

AOL Inc, undergoing a radical transformation into the king of content on the
Internet, is actively exploring a breakup involving a complicated series of
transactions that may lead to a merger with Yahoo Inc, sources close to the
plans told Reuters.

Moody's Investors Service has today downgraded Hungary's foreign- and
local-currency government bond ratings by two notches to Baa3 from Baa1.

ZeroHedge: "When we first heard of the latest Wikileaks "cablegate" fiasco, we
speculated that Hillary Clinton may be forced to resign for what is rapidly
becoming the biggest crisis for US foreign policy since the Bay of Pigs. Today,
in an interview with Spanish El Pais, Julian Assange goes one better and says
that if it is proven that he approved the spying on UN officials, then Obama
should resign. As a reminder as per one of the released cables, US Secretary of
State Hillary Clinton asked for UN personnel's telephones, emails, credit card
details and frequent flier numbers. Let's recall that Nixon resigned to avoid
impeachment under somewhat comparable circumstances. The only difference is
that back then Woodward and Berstein were not on the receiving end of what is
becoming an endless barrage of death threats for doing their journalistic duty.
This time around, the "deep throat" is the target of an international witch
hunt, where however is moot: the early attempt by the like of Joe Lieberman to
censor the internet is doomed from the beginning. However, it does show that in
the past 40 years little has changed at the top echelons of power when the
sordid truth of "Standard Operating Procedures" are revealed. And,
unfortunately, things have only gotten worse. Also, keep in mind that Wikileaks
has so far released only a small fraction of the 250,000 cables that will
ultimately be declassified by Wiki. One wonders just how long the world can
maintain the damage control before foreign relations between both friends and
enemies are terminally frayed."

(Bloomberg) -- The biggest slump in copper inventories in six years is
compounding shortages as prices head toward record highs, making the metal a top
pick for Goldman Sachs Group Inc. and Morgan Stanley.
Demand will outpace supply by 367,500 metric tons next year, enough for wires,
pipes and appliances in about 1.8 million U.S. homes, according to the median
forecast of 12 analysts surveyed by Bloomberg. Stockpiles may drop to an
all-time low of less than one week’s usage, said Michael Widmer, a London-based
metals analyst at Bank of America Merrill Lynch. Global exchange inventories
have dropped 22 percent this year, heading for the largest slide since 2004,
data compiled by Bloomberg show.
"That China's GDP is not reliable, especially for local GDP, that is nothing
new," said an economist with a foreign bank who requested anonymity because of
the sensitivity of discussing top national leaders.
"Some of the volume data, such as power and rail freight and even (bank)
credit, are interesting because there is less incentive to massage them at the
local level. But they reveal only part of the truth, not the entire truth," he
said."This would be a useful measure for steel and cement production. I'm not sure
how well it would measure retail sales."

Google eBooks on Monday unveiled eBooks, its own version of digitalized books.
Google is offering more than 3 million titles through its Google eBookstore
and its independent bookseller partners. "With the new Google eBooks Web
Reader, you can buy, store and read Google eBooks in the cloud. That means you
can access your ebooks like you would messages in Gmail or photos in
Picasa-using a free, password-protected Google account with unlimited ebooks
storage," said Google in a statement. Titles on Google's bookstore site were
variously priced from $6.17 to $14.99 while some were also available at no

The U.S. economy is headed for a new recession, said John Taylor, chairman and
chief investment officer of FX Concepts, and that will likely benefit the
dollar and weigh on commodity prices.
"It's a new recession. We're already growing, but the numbers show that the
U.S. government is still the primary creator of this growth," said Taylor, who
runs the world's largest currency hedge fund with assets under management of
around $8.5 billion.
"I would argue that by the middle of next year, we will be in a recession and
our fiscal hands will be tied." Taylor said Portugal could be the next country
to seek a bailout after Ireland, with Spain after that. This will push the euro
to parity versus the dollar by next year, he forecast.

Gold jumps to 1420 and silver almost at 30. Copper at 402. Wheat rose to a
four-month high in Chicago on concern that unusually heavy rainfall in Australia
will cut the harvest and reduce grain quality, curbing supplies. How about the
damage caused by locusts in Australia.

The Dow Jones Industrial Average ended 19.9 points, or 0.2%, lower at 11,362.19. The S&P 500 lost 1.6 points, or 0.1%, to 1,223.12. The Nasdaq Composite ended 3.5 points, or 0.1%, higher at 2,594.92.

The country’s real estate problems are “underappreciated,” and banks could face another $1 trillion in housing-related losses, Mr. Roubini said in a phone interview with DealBook on Monday. At the same time, he played down the issues in Ireland, Greece, Portugal and Spain, calling the matter “contained” for now. The United States “real estate market, for sure, is double dipping,” Mr. Roubini said. “The apparent increase in prices has been fully reversed, demand is falling, and supply is going to increase.”

"Lawyer for WikiLeak's Julian Assange says arranging to meet police by consent." Earlier today it was announced that in lieu of a physical arrest, Julian Assange is currently undergoing a liquidity one, after earlier today first Swiss NZZ and subsequently the WSJ reported that the Australian's funds in Swiss PostFinance bank have been frozen: "In a statement Monday, WikiLeaks said there was €31,000 in the PostFinance account, belonging to the defense fund and to Mr. Assange personally. WikiLeaks described this money as "frozen."

Sunday, December 05, 2010


There is propaganda, and there are facts. For anyone seeking just one concise, definitive and completely true (as in fact-, not hope- based) explanation of what has happened to the American economy in the past 2 years, we suggest this presentation by former OMB director David Stockman, whose 10 minute appearance on the CNBC's strategy session left the hosts with absolutely nothing to retort. Among his observations: the government sector for the first time in history is shrinking: "the reason is that governments are broke... we are going to have to cut back government employment." And it gets scarier: "if you take core government plus the middle class economy (65 million jobs), that's the breadwinning economy, if we take some numbers - how many jobs in the "core economy" in November - zero; how many jobs since last December: net zero; how many jobs since the bottom of the recession in June 2009: still a million behind from when the recession ended." As to whether the economy can grow without employment growth: "I can't imagine how it can because employment growth generates income growth which is the basis for spending and saving ultimately and we are not getting income growth out of the middle class." And the stunner: the job "growth" has come almost exclusively from the part-time economy (two-thirds). Why is this a major problem: "there is 35 million jobs in that sector, with an average wage of $20,000 a year: that is not a breadwinning job, you can't support a family on that, you can't save on that. Those jobs will not generate income that will become self-feeding into spending." As for the biggest condemnation, it is reserved to what Zero Hedge has been claiming for two years now is a completely broken market: "I can't explain the market... I don't know what it is pricing today, I don't think the market discounts anything anymore, it is purely a daytraders' market that is trading off the Fed, trading off the headlines. One day it is manic, the next day it is depressive, and we can't draw any conclusions."