Tuesday, February 08, 2011


2/8/2011 Hiring

David Rosenberg: "The data from the Household survey are truly insane. The labour force has plunged an epic 764k in the past two months. The level of unemployment has collapsed 1.2 million, which has never happened before. People not counted in the labour force soared 753k in the past two months.
These numbers are simply off the charts and likely reflect the throngs of unemployed people starting to lose their extended benefits and no longer continuing their job search (for the two-thirds of them not finding a new job). These folks either go on welfare or they rely on their spouse or other family members or friends for support."

Richard Fisher, the president of the Dallas Federal Reserve Bank vowed on Tuesday to vote against any additional bond-buying program once the current $600 billion purchase plan expires in June. "It is hard for me to envision a scenario where I would not use my voting position this year to formally dissent should the FOMC recommend another tranche of monetary accommodation," Fisher said in a speech in Dallas. Fisher said he also expects to be at the forefront of the effort to push the Fed to trim back its Treasury holdings and tighten policy at the "earliest sign" that inflation pressures are moving out of the commodity markets and into the general price stream.

China has announced it is raising their interest rates for a second time in a bit more than a month and that has taken the wind out of the global market's sails.

Charles Hugh Smith: "What pundits and politicos don't get is small business knows the "recovery" is totally bogus. Why hire somebody who you'll have to lay off a few months from now? Laying people off is emotionally painful--you dread it, tire of it, are wearied by it. This is a real human being who is losing their job, not some ginned-up statistic hyped by some think-tank-pundit pulling down $15K a month for dishing whatever flavor of propaganda he/she is paid to churn out.
The Washington establishment--the Fed, the Treasury, Congress, the Obama Administration-- seem to believe they've successfully pulled the propaganda wool over Americans' eyes, and that the yokels actually believe "things are getting better and better every day and in every way."
Only the yokels without clients, customers and payrolls can believe the propaganda.
Meanwhile, back in the real world, small business income is down 5%. Small Business: Still Waiting for Recovery."

The American Petroleum Institute late Tuesday said crude-oil supplies declined 558,000 barrels in the week ended Feb. 5. That contrasts with analyst expectations of an increase of 2.4 million barrels, according to a poll by Platts. Gasoline stocks rose 3.2 million barrels, the Washington-based API said. Analysts polled by Platts had expected an increase of 3.1 million barrels. Distillate inventories declined 538,000, the API said. Analysts had expected a decline of 1.4 million barrels. The Department of Energy is scheduled to report its data Wednesday at 10:30 a.m. Eastern.

ZeroHedge: ""Soaring gasoline prices slammed consumer sentiment into reverse this week, threatening the slow recovery in economic views that’s been under way. With gas now at record high for a February in Energy Department data back to 1990, the weekly Consumer Comfort Index dropped by an unusually steep 5 points to -46 on its scale of -100 to +100. It’s dropped that far only 36 times in more than 1,300 weeks of ongoing polling since late 1985; this shift erases an equally unusual 5-point gain in early January...After reaching -40 Jan. 9, the CCI is now at its low for the year, and its lowest since Nov. 21. It averaged -46 in 2010 and -48 in 2009; those compare with a lifetime average of -14 and a best-year +29 in 2000. Its single best week was +38 in January 2000; its worst, -54 in December 2008 and again in January 2009." So strange: unlike with stocks, where inflation is somehow supposed to raise confidence, inflation for the people somehow leads to a near record plunge in confidence. But who are we to believe in this centrally planned economy when every single data point is now fit to be discarded as nothing more than evidence of propaganda."

Alpha Natural Resources Inc., the third-biggest U.S. coal producer, agreed to buy Massey Energy Co. for about $7.1 billion in cash and stock, gaining the largest coal company in the U.S. Central Appalachian region.
Massey shareholders will receive 1.025 Alpha Natural shares plus $10 cash for each share held, the companies said in a statement yesterday. The bid values Massey at $69.33 a share, 21 percent more than Massey’s price at the close of trading Jan. 28. Massey has $1.63 billion in debt, according to Bloomberg data.

Payrolls in January probably grew at a pace that underscores the Federal Reserve’s concern it will take years for the job market to recover from the recession, economists said before a report this week.
Employment increased by 140,000 workers this month after a 103,000 gain in December, according to the median forecast of 59 economists surveyed by Bloomberg News ahead of Labor Department data on Feb. 4. The report may also show the jobless rate increased to 9.5 percent from 9.4 percent.

The Institute for Supply Management-Chicago said Monday its gauge of business activity rose to 68.8 in January from 66.8 in December, indicating another month of expansion, though at a faster pace. Economists polled by MarketWatch had expected a reading of 65 in January.

Consumer spending increased a seasonally adjusted 0.7% in December, above expectation and a sign the economy entered the first quarter with momentum, the Commerce Department estimated Monday. Income rose 0.4% in December for the second straight month. Consumer spending has risen in six straight months. Wall Street economists had expected a 0.4% increase in income and a 0.6% gain in spending. With spending outpacing income, the savings rate fell to 5.3% in December from 5.5% in November. This is the lowest level since last March.

Conditions for the nation's manufacturers improved for the 18th straight month, the Institute for Supply Management reported Tuesday. The ISM index rose to 60.8% in January from 58.5% in December. This is the highest level of the factory index since May 2004. The report was much stronger than expected. The consensus forecast of estimates collected by MarketWatch was for the index to remain steady at 58.5%. Readings above 50 indicate expansion. Below the headline, the report was also strong. The key employment index improved to 61.7% in January from 58.9% in December. New orders jumped to 67.8% in January from 62% in the prior month. Input prices soared in January. The price index jumped to 81.5 from 72.5 in the prior month.

John Hussman: "
On Monday, Wall Street let out a collective squeal of excitement as Thomas Hoenig, the president of the Kansas City Federal Reserve said that QE3 "may get discussed" if economic progress turns out to be disappointing as the year progresses. Part of the subtext that was lost in this enthusiasm is that Hoenig has consistently dissented on the policy of quantitative easing, and has called for the Fed to immediately raise interest rates to 1% and possibly higher. In saying that QE3 may get discussed, he wasn't offering hope to Wall Street, but was instead criticizing the existing policy of the Fed. The way to understand the comment is to put it in the context of Hoenig's long-standing dissent and open criticism of quantitative easing. My guess is that his complete remark was something like "The current trajectory of Fed policy is dangerous. When will it stop? Who knows? Aside from fueling speculation and inflation risk, QE2 won't help the real economy, but if the numbers are disappointing, even more reckless policies like QE3 may get discussed." Last week, Hoenig warned of another boom-and-bust cycle, and repeated his call for the Fed to reverse course, saying "I hope I'm wrong. I hope they're right. But I don't think so."
Near the end of the old TV series Happy Days, as the writers became desperate for material, there was an episode where Fonzie jumped his waterskis over a shark. That episode was widely viewed as the point where the show had simply gone on too long. My impression is that the sudden hope for QE3 is Wall Street's version of jumping the shark."

Ensco PLC (ESV) said Monday it would buy Pride International (PDE) in a cash and stock deal worth $41.60 a share. The deal values Pride International at a premium of 21% over its closing price of $34.39 on Friday. Shares of Pride International jumped 16% to $40 in pre-market trades. Ensco said the deal will make it the second-largest offshore driller in the world. The deal will immediately add to Ensco's earnings and cash flow. Pride International shareholders will receive 0.4778 newly issued shares of Ensco plus $15.60 in cash for each share of Pride. Ensco's cash portion of the deal is valued at $2.8 billion.

Danaher Corp. (DHR) said Monday it would purchase biomedical-equipment maker Beckman Coulter (BEC) for $83.50 a share, $6.8 billion in cash, including debt. The buying price represents a 45% premium to Beckman Coulter's Dec. 9 closing price, before rumors of the acquisition entered the marketplace. The Orange County, Calif., company's board of directors has already approved the deal, which is subject to customary conditions, including a shareholder vote. The transaction is expected to be completed by July and will become a part of Danaher's life sciences and diagnostics segment. Beckman Coulter has annual revenues of about $3.7 billion. Goldman Sachs & Co. (GS) acted as financial advisor to Beckman Coulter. Latham & Watkins, LLP served as legal counsel. Shares of Beckman Coulter jumped 10% premarket to $82.70. Shares of Washington, D.C.-based Danaher slipped a fraction to $47.88.

Robert McHugh: " We are inside one of these overbought extended rally periods, which will reach the 2.5 month age over the next week. So, based upon this time analysis, we could be about to see markets drop sharply, perhaps violently. Now do not go short the farm based upon this study, however be alert for the possibility, based upon the past four years of data, that danger could be imminent.
We would not be convinced that a multi-week decline has started until our three short-to-intermediate term momentum indicators, which are rarely fooled, generate new sell signals across the board. These important momentum indicators are our Secondary Trend Indicator, our key trend-finder indicators (which are a composite of three indicators, our Purchasing Power Indicator, and our 30 and 14 Day Stochastics), and our Demand Power / Supply Pressure indicators. We present the daily levels and signals from these indicators each night in our market newsletters to subscribers. These indicators have an excellent track record at finding both rising and falling trends, and have caught almost all the S&P 500 points up and down for years, including the rally from March 2009."

ZeroHedge: "A modest pick up in insider buying this week as 16 insider purchases for $1.7 million worth of stock put recent non-existence insider purchasing to shame. The biggest buying was seen in GE and Caterpillar, which two cumulative purchases for $800k accounted for nearly half of the buying in the week ended February 4. On the other side, it is relentless selling as usual: 126 insider sales amounted to $749 million worth of holding dispositions, with the core of the selling as usual focused on the usual suspects: MSFT ($154 million), QCOM ($73 million), Google ($69 million), GameStop ($60 million) and FCX ($30 million). This is a major pick up in the rate of selling compared to January, and represents a double from the last tracked number of $373 million for the week of January 22."

Saturday, January 29, 2011

Monetary Disorder

1/29/2011 Monetary Disorder

The U.S. economy accelerated in the fourth quarter, the Commerce Department reported Friday. Real gross domestic product rose at a 3.2% annualized rate in the fourth quarter, up from a 2.6% rate in the third quarter. The gain was slightly below expectations. Economists polled by MarketWatch expected Q4 GDP to rise at a 3.5% rate. The big story for the fourth quarter was the pickup in consumer spending. Spending rose at a 4.4% annual rate in the final three months of the year, the fastest pace since the first quarter of 2006. Inventories were a big drag on growth in the fourth quarter but this was largely offset by a positive contribution from net exports. For the year, GDP advanced 2.9%, compared with a 2.6% drop in 2009. This is the strongest growth rate in five years.

Moody’s Investors Service said it may need to place a “negative” outlook on the Aaa rating of U.S. debt sooner than anticipated as the country’s budget deficit widens.

ZeroHedge: Jim Grant: "I think what would be very good for the Fed if there would be a confession, the Fed should confess that it has sinned grievously, and is in violation of every single precept of its founders and every single convention of classical central banking. Quantitative Easing is a symptom of the difficulties that the Fed has created for itself. The Fed is running a balance sheet which if it were the balance sheet attached to a bank in the private sector would probably move the FDIC to shut it down. The New York Branch of the Fed is leveraged more than 80 to 1. Meaning, that a loss of asset value of less than 1.5% would send it into receivership if it were a different kind of institution...The Fed is now in the business of manipulating the stock market." Jim also has some very critical discussions on how the Fed never settles up on the $3.4 trillion in custodial debt on its books. As always, we can't get enough as more and more mainstream figures turn to bashing that biggest abortion of modern capital markets.

U.S. Bancorp, the fifth-biggest U.S. commercial bank by deposits, acquired a failed lender in New Mexico as regulators seized four U.S. banks with combined assets of $3.38 billion.
The collapse of First Community Bank in Taos, New Mexico, gives U.S. Bancorp 38 more branches, as it picks up $1.8 billion in deposits and about $2.1 billion in assets. Based in Minneapolis, U.S. Bancorp has more than 3,000 branches in its retail network operating as U.S. Bank.
“This acquisition is an extension of U.S. Bank’s banking franchise into its 25th contiguous state, and it immediately establishes us as one of the top three banks in terms of market share in the attractive New Mexico market,” John Elmore, executive vice president of community banking, said in a statement.
Banks in Colorado, Oklahoma and Wisconsin were also seized today, according to statements by the Federal Deposit Insurance Corp., which was named receiver in each of the transactions. The closures cost the FDIC’s deposit-insurance fund a total of $545.5 million.

Bloomberg (Pat Wechsler and Christopher Palmeri): “President Barack Obama faces a new challenge from deficit-plagued states over Medicaid costs just as he squares off with Republicans trying to repeal his 2010 health-care law, which extends coverage to 32 million Americans. Arizona Governor Jan Brewer asked for U.S. permission on Jan. 25 to reduce Medicaid eligibility and drop coverage for 280,000 people. That would save $541.5 million for the state, which projects a $1.2 billion budget deficit for the coming fiscal year. U.S. states must confront potential budget gaps of more than $140 billion for fiscal 2012 because tax collections declined by the most on record during the recession… That may prompt more to seek release from some Medicaid obligations, their biggest expense, as federal aid that has helped them cover the costs for the last three years ends. ‘There are other states contemplating” requests for waivers, said Dan Mendelson… former associate director for health in the Office of Management and Budget under President Bill Clinton. ‘Letters are coming from some big states reaching the point of no return.’ Mendelson declined to name them, saying ‘border states’ such as Texas were in ‘fiscally impossible situations.’”

Bloomberg (Carol Wolf): “The federal Highway Trust Fund, which pays for U.S. road and mass transit construction, faces insolvency sometime next year as revenue from fuel taxes declines for the sixth year… The Highway Trust Fund will run a deficit of $7 billion this year, compared with a surplus of $11 billion in 2010… The highway and mass transit portions of the fund will probably be unable to meet their obligations in 2012 and 2013…”

Doug Noland: "In reality, the world is an extraordinarily unstable place: unwieldy finance, extreme economic imbalances and related wealth disparities – along with acute inflation - have created a geopolitical tinderbox.

The unprecedented – and ongoing - global expansion of debt has created myriad risks and vulnerabilities. The ballooning of central bank balance sheets has over-liquefied markets and distorted risk perceptions worldwide. This liquidity backstop has also rejuvenated and emboldened the leveraged speculating community. Ignoring risk has been a fruitful tactic throughout the global market landscape.

The combination of massive debt growth and central bank monetization has nurtured an enormous pool of speculative finance that fuels boom and bust dynamics across virtually all risk markets and economies. This backdrop has created what I have often referred to as “Monetary Disorder.” One current facet of this monetary phenomenon is acute price pressures globally for food and energy. This inflation exacerbates unrest and social instability. Today’s developments in Egypt demonstrate how social instability has engendered political instability in a most volatile region of the world.....Associated fragilities are an inescapable downside to Monetary Disorder and attendant speculative excess. "

Thursday, January 27, 2011

h Unemployment

1/27/2011 Unemployment

- New applications for unemployment benefits jumped last week by 51,000 to 454,000, partly because poor weather caused administrative backlogs in four Southern states, the Labor Department reported Thursday. A labor spokesman said snowstorms earlier in the month forced unemployment offices in Alabama, Georgia, North Carolina and South Carolina to open fewer hours and process fewer claims. A reduction in the backlog contributed to the sharp increase in new claims, the spokesman said. Economists polled by MarketWatch had expected initial claims in the week ended Jan. 22 to rise to a seasonally adjusted 408,000 from a revised 403,000 the week before. Continuing claims, which reflect the number of people already receiving unemployment compensation, rose 94,000 to a seasonally adjusted 3.99 million in the week ended Jan. 15. About 9.41 million Americans were getting some kind of state or federal benefit in the week ended Jan. 8, down 223,826 from the prior week.

Moody's Investors Service said late Thursday that it continues to rate the U.S. government's bonds at Aaa with a stable outlook. However, it added that recent trends and the outlook for government financial metrics "indicate that the level of risk, while still small, is rising and likely to continue to rise in the next several years." The agency added that, although it's not contemplating action on the U.S. rating at this time, the time frame for possible future actions "appears to be shortening" and the probability of assigning a negative outlook in the coming two years is rising. The agency made the comments after rival Standard & Poor's downgraded Japan's long-term sovereign-credit rating AA minus from AA but reaffirmed the country's short term rating. The dollar index traded at 77.72, compared with 77.707 in late North American trading.

Japan’s credit rating was cut for the first time in nine years by Standard & Poor’s as persistent deflation and political gridlock undermine efforts to reduce a 943 trillion yen ($11 trillion) debt burden.
The world’s most indebted nation is now ranked at AA-, the fourth-highest level, putting the country on a par with China, which likely passed Japan last year to become the second-largest economy. The government lacks a “coherent strategy” to address the nation’s debt, the rating company said in a statement. The outlook for the rating is stable, S&P said.

Federal Reserve held its key interest rate at a record low 0% to 0.25% range and said it will continue its $600 billion Treasury-buying program.

Bearishness among retail stock investors rose in the week through Wednesday, according to the American Association of Individual Investors. The latest AAII Sentiment Survey released Thursday shows that 34.3% of investors are wary of the stock market over the next six months, up 5.2 percentage points and above the long-term average of 30%. Meanwhile, 42% of investors say they're bullish about the market, a sharp decrease of 8.7 percentage points but still above the long-term average of 39%. The percentage of investors describing themselves as neutral toward stocks rose 3.5 percentage points to 23.7%.

Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, while investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.

The U.S. budget deficit will hit nearly $1.5 trillion in 2011, the Congressional Budget Office estimated Wednesday. In its budget and economic outlook for fiscal years 2011 to 2021, the CBO also said the U.S. economy will grow by 3.1% this year. Unemployment, meanwhile, will fall to 9.2% in the fourth quarter of 2011, the report said.

Sales of new single-family homes rose in December to an annual rate of 329,000 on a seasonally adjusted basis, the highest level since April when a federal tax credit gave the market a temporary boost. The Commerce Department reported on Wednesday that about 85% of the new sales took place in the South and West. Nationwide sales in November, however, were revised down to 280,000 from an initial reading of 290,000. Economists polled by MarketWatch had forecast new home sales to rise to 299,000 in the final month of 2010. For the full year, new home sales totaled 321,000, down 14.4% compared to 2009. The median price of new homes climbed to $241,500 in December from $215,500 in November. The supply of new homes available fell to 6.9 months at the current sales rate from 8.4 months in the prior month, the lowest level since April.

Abbott Laboratories said early Wednesday that it plans to eliminate 1,900 jobs, or about 2% of its workforce. The company employs around 90,000 worldwide, according to an Abbott spokeswoman. In a statement issued in conjunction with the release of its 2010 earnings report, Abbott attributed the restructuring to "changes in the healthcare industry, including healthcare reform and the challenging regulatory environment."

Microsoft Corp. said Thursday its fiscal second-quarter net income fell to $6.63 billion, or 77 cents a share, from $6.66 billion, or 74 cents a share in the same period a year earlier. The Redmond, Wash. software giant said revenue for the period ended Dec. 31 rose to $19.95 billion from $19 billion. Analysts polled by FactSet Research had expected Microsoft to report second-quarter earnings of 68 cents a share, and $19.2 billion in revenue.

- Pending home sales rose 2.0% in December for the fifth increase in the past six months, according to an index released Thursday. The National Association of Realtors said its pending home sales index rose to 93.7 from a downwardly revised 91.9 in November. The index is still 4.2% below the level in December 2009, however. The data reflects contracts and not closings, which normally occur with a lag time of one or two months. The index is based on a large national sample, typically representing about 20% of transactions for existing-home sales.

Orders for U.S.-made durable goods sank in December, falling 2.5% on weaker demand for airplanes, vehicles, and computers, machinery, the Commerce Department reported Thursday. Excluding transportation, orders rose 0.5%. The decrease was unexpected. Economists polled by MarketWatch expected a 1.0% rise in durables. This is the fourth drop in durables in the last five months. Transportation orders had the largest decline, falling 12.8%. Shipments rose 1.4% in December. Orders for core capital goods rose 1.4% in the month.

Tuesday, January 25, 2011


1/25/2011 Commodities

Crude-oil futures settled at an eight-week low on Tuesday, pressured by ongoing concerns of more supply from the Organization of the Petroleum Exporting Countries and a stronger dollar for most of the day. Crude for March delivery was off $1.68, or 1.9%, to settle at $86.19 a barrel on the New York Mercantile Exchange, oil's lowest finish since Nov. 30. Natural-gas for February declined 11 cents, or 2.3%, to $4.47 per million British thermal units.

Gold futures retreated 0.9% on Tuesday as investors preferred to bet on equities and other investments considered riskier, and the dollar was stronger. Gold for February delivery lost $12.20 to $1,332.30 an ounce, the metal's lowest settlement since Oct. 27.

President Barack Obama is expected to propose an overall budget freeze and call on lawmakers to stop earmarking funds for pet projects during his State of the Union address late Tuesday, ABC News reported. Obama is also expected to propose spending for innovation, education and infrastructure but those increases will be constrained within the broader budget freeze, ABC said.

An index of U.S. consumer confidence jumped to 60.6 in January, reaching the highest level since May, with more consumers optimistic about income and jobs, as well as current business conditions, the Conference Board reported Tuesday. Economists polled by MarketWatch had expected a confidence reading of 54.8. "Consumers rated business and labor-market conditions more favorably and expressed greater confidence that the economy will continue to expand and generate more jobs in the months ahead," said Lynn Franco, director of Conference Board's consumer research center, in a statement. "Although pessimists still outnumber optimists, the gap has narrowed." Confidence in December reached an upwardly revised 53.3, compared with a prior estimate of 52.5. A barometer of consumers' expectations rose to 80.3 in January from 72.3 in December. Meanwhile, consumers' assessment of the present situation increased to 31 - the highest level in more than a year -- from 24.9. The Conference Board's index helps analysts compare fluctuations in confidence, with a reading of 100 for the base year of 1985. Generally when the economy is growing at a good clip, confidence readings are at 90 and above.

Google to hire more than 6,200

Home prices are falling across most of America's largest cities, and average prices in eight major markets have hit their lowest point since the housing bust.
The Standard & Poor's/Case-Shiller 20-city home price index released Tuesday fell 1.6 percent in November from October. All but one city, San Diego, recorded monthly price declines.
Eight others sank to their lowest levels since prices peaked in 2006 and 2007: Atlanta, Charlotte, N.C., Las Vegas, Miami, Portland, Ore., Seattle, Tampa, Fla., and Detroit, which saw the largest drop at 2.7 percent from the previous month.
Millions of foreclosures are forcing prices down, and many people are holding off making purchases because they fear the market hasn't hit bottom yet. Many analysts expect home prices to keep falling through the first six months of this year.
"With these numbers, more analysts will be calling for a double-dip in home prices," said David Blitzer, chairman of S&P's Index Committee.

Only 47% of working age Americans have full time jobs

John Hussman: "In any event, it is clear that with regard to risky securities, the enthusiasm and rhetoric about QE2 has caused a reduction in the willingness of sellers to sell, and an increase in the eagerness of buyers to buy. That imbalance of eagerness between buyers and sellers has clearly affected prices of risky assets, but it does not generate new cash flows - it simply raises the valuation that the market places on existing streams of future cash flows, and thereby lowers the subsequent rate of return on holding those securities. I suspect this will end badly, but that's not the topic of this discussion.....In any event, it is clear that with regard to risky securities, the enthusiasm and rhetoric about QE2 has caused a reduction in the willingness of sellers to sell, and an increase in the eagerness of buyers to buy. That imbalance of eagerness between buyers and sellers has clearly affected prices of risky assets, but it does not generate new cash flows - it simply raises the valuation that the market places on existing streams of future cash flows, and thereby lowers the subsequent rate of return on holding those securities. I suspect this will end badly, but that's not the topic of this discussion."

Monday, January 24, 2011

Part Time Employed

1/24/2011 Part Time Employed

Facebook today announced that its widely-reported deal with Goldman Sachs, which values the company at $50 billion, has closed. The funding included $500 million raised from Goldman and previous investor Digital Sky Technologies in December, as well as another $1 billion raised from Goldman clients outside the United States.

Doug Noland: "For now, QE2 reliably generates additional liquidity for the liquidity-dependant markets. Somewhat ironically – yet altogether Bubble-like - rising bond yields and unfolding problems in municipal finance have bolstered flows into equities. And on the back of ongoing federal spending excess, economic prospects look ok and earnings appear swell. Yet recent developments do beckon for heightened diligence when it comes to monitoring for fissures developing below the surface of our fragile financial system. At least from my perspective, one can now discern unsettling parallels to early 2008."

The Automatic Earth: "108.616 million people in America are either unemployed, underemployed or "Not in the labor force". This represents 45.5% of working age Americans.

If you count the "Part time employed for non-economic reasons", you get 126.8 million Americans who are unemployed, underemployed, working part time or "Not in the labor force". That represents 53% of working age Americans.

So only 47% of working age Americans have full time jobs. While the official unemployment rate is 9.4%. Something's missing somewhere."

The amount of U.S. debt subject to the country's legal maximum has topped $14 trillion for the first time.

Crude-oil futures ended lower Monday on fears of increased production by the Organization of the Petroleum Exporting Countries. Oil for March delivery retreated $1.24, or 1.4%, to $87.87 a barrel on the New York Mercantile Exchange. Saudi Arabia's oil minister said Monday OPEC could ramp up production to meet increased global demand.

Hungary's central bank said Monday it raised its base rate by 25 basis points to 6.00%. The move will be effective from Jan. 25. The rate hike was in line with market expectations.

Venture capitalists came raging back in 2010, putting $26.2 billion into 2,799 venture deals, a spike of 11 percent from 2009 and a major sign that formerly wary VCs have begun to come off the sidelines, according to a study by Dow Jones VentureSource released today.

ZeroHedge: "the US stock market is about to become awash with another $25 billion in suddenly free cash every single week, until the entire $200 billion SFP buffer is depleted. In other words, take the liquidity impact of POMO, which is roughly $25-30 billion a week, and double it! We are confident the US Treasury will announce that beginning with the week of February 14, it will no longer roll maturing 56-Day Cash Management Bills, which means that for the ensuing 8 weeks, one on every single Thursday, there will be a total of $200 billion in incremental liquidity flooding the market, and probably sending stocks, commodities, and everything else that is not nailed down into the stratosphere all over again."

Thursday, January 20, 2011


1/20/11 Google

Google Inc said Thursday its fourth-quarter net income rose to $2.54 billion, or $7.81 a share, from $1.97 billion, or $6.13 a share in the same period a year earlier. The Mountain View, Calif.-based Internet search giant said net revenue for the period ended in December came in at $6.37 billion. Excluding one-time items, Google said earnings for the period were $8.75 a share. Analysts polled by FactSet Research had expected Google to report earnings excluding items of $8.06 a share, and $6.05 billion in net revenue.

Gold for February delivery retreated $23.70, or 1.7%, to $1,346.50 an ounce on the Comex division of the New York Mercantile Exchange.

(Bloomberg) -- Builders began work on fewer homes than projected in December, a sign the industry that triggered the recession continued to struggle more than a year into the U.S. economic recovery.
Housing starts fell 4.3 percent to a 529,000 annual rate, the lowest level since October 2009, Commerce Department figures showed today in Washington. The median forecast in a Bloomberg News survey called for a 550,000 rate. A jump in building permits, a proxy for future construction, may reflect attempts to get approval before changes in building codes took effect at the beginning of this year.
BUILDING PERMITS Privately-owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 635,000. This is 16.7 percent (±2.1%) above the revised November rate of 544,000, but is 6.8 percent (±2.8%) below the December 2009 estimate of 681,000. Single-family authorizations in December were at a rate of 440,000; this is 5.5 percent (±2.3%) above the revised November figure of 417,000. Authorizations of units in buildings with five units or more were at a rate of 172,000 in December.

The number of Americans filing first-time claims for unemployment insurance payments fell more than forecast last week, adding to evidence the labor market is healing.
Applications for jobless benefits decreased 37,000 in the week ended Jan. 15, the biggest decline since February 2010, to 404,000, Labor Department figures showed today. Economists forecast 420,000 claims, according to the median estimate in a Bloomberg News survey. The number of people on unemployment benefit rolls fell, while those getting extended payments rose.

The index of manufacturing activity in the Philadelphia region dipped slightly in January, the Federal Reserve Bank of Philadelphia reported Thursday. The Philly Fed business condition index fell to 19.3 in January from 20.8 in December. The decline was a bit weaker than expected. Below the headline, the report had some strong signals. The index for new orders jumped to 23.6 in January from 10.6 in December. The index for employment also jumped to 17.6 from 4.3 in the prior month.

The economy's expansion is expected to continue, though there are "some strong headwinds" in the medium-term, the Conference Board said Thursday as it reported that its leading economic index rose 1% in December. "Overall, economic activity is likely to continue to gain momentum in 2011," said Ken Goldstein, economist at the Conference Board, in a statement. Six of the 10 indicators included in the LEI made positive contributions in December, led by building permits, the interest rate spread, and average weekly initial claims for unemployment-insurance benefits. In November, the LEI gained 1.1%. The LEI is a weighted gauge of 10 indicators that are designed to signal business cycle peaks and troughs. There have been widespread strengths among the indicators in recent months, according to the Conference Board. For the six months through December, the LEI gained 3.3%, up from 2.4% in the prior six months.

The amount of U.S. debt subject to the country's legal maximum has topped $14 trillion for the first time.

China’s economic growth accelerated to 9.8 percent as industrial production and retail sales picked up, sending stocks lower from Asia to Europe on concern Chinese policy makers will raise interest rates and stem the expansion.
The fourth-quarter expansion exceeded the 9.4 percent median estimate in a Bloomberg News survey of 22 economists and the 9.6 percent annual gain in the previous three months, a statistics bureau report showed. Consumer-price inflation eased to 4.6 percent in December. Citigroup Inc. and Credit Suisse Group AG say inflation may peak at as much as 6 percent in the first half.

Brazil has raised rates to 11¼%

The Bond Buyer reports that the new "Vallejo Plan Would Give Unsecured Creditors 5 to 20 Cents on the Dollar."

Sales of existing homes jumped 12.3% in December, an encouraging end to the worst year since 1997, as the collapse in house prices and a wave of foreclosures depressed activity over the 12-month period. The National Association of Realtors on Thursday said existing-home sales rose from November's upwardly revised 4.7 million rate to a seasonally-adjusted annualized rate of 5.28 million, considerably beating the MarketWatch-compiled economist estimate of 4.88 million. The jump in the mortgage rate to 4.8%, a rise of roughly a half percentage point from depths, has helped induce on-the-fence buyers back into the market, said Lawrence Yun, chief economist of the NAR. The improving economy also helped confidence, Yun said. The annual tally of sales was 4.91 million, a drop of 4.8%, based on preliminary data. The median price of existing homes in December decreased 1.0% to $168,800, the lowest since February, and November prices were marginally revised lower to $170,200. Over the year, prices edged up 0.3% to $173,000, which was well below the $198,100 of 2008 and the $219,000 price in 2007.

ZeroHedge: "The US Dollar devaluation will come in the form of an increase in the prices of all products. In reality it will represent the uniform cost push effects of inflation. The US can expect it on all Chinese based products of one form or another. The timing of the change is set to arrive with the products on the US shores in the summer of 2011."

In the week ended January 12, domestic equity funds per ICI saw an inflow of $3,765 million following last week's outflow of $4,229.

Natural-gas futures added to gains Thursday after a government report showed a larger-than-expected decline in the nation's supplies of the product for the week ended Jan. 14. Natural gas for February delivery was up 11 cents, or 2.4%, to $4.67 per million British thermal units. The Energy Information Agency reported a decline of 243 billion cubic feet. Analysts polled by Platts had expected a decline between 231 and 235 billion cubic feet.

Tuesday, January 18, 2011


1/18/11 Apple

Bloomberg: "China told banks to set aside more deposits as reserves for the fourth time in two months, stepping up efforts to rein in liquidity after foreign-exchange reserves rose by a record and lending exceeded targets."

Bloomberg (Madelene Pearson and Jay Shankar): "Record imports of gold by India show the central bank may be losing the battle to tame inflation, spurring investors to sell government bonds. Shipments into Asia's third-biggest economy may have increased to 800 metric tons from 557 tons in 2009 and exceeding the previous all-time high of 769 in 2007, according to Ajay Mitra, managing director for... the World Gold Council... 'Gold is being used as a store of value to protect against never-ending inflation,' Ritesh Jain, the... head of fixed income at Canara Robeco Asset Management...said 'Inflation is the biggest concern in the minds of investors and savers.'"

Doug Noland: "It is a major Issue 2011 that U.S. federal government debt will for the third straight year account for all - or at least the vast majority - of total system Credit creation. I would argue (confidently) that this dynamic is dysfunctional. U.S. government debt is being mispriced, over-issued, and misdirected - ensuring only deeper economic maladjustment and financial vulnerability. Tough decisions and tough economic adjustments are only being postponed.
It is a fundamental issue that total system Credit creation is originating from chiefly non-productive marketable debt of the - not especially efficient or productive - governmental sector. It is an Issue 2011 that our recovery is entirely dependent upon a favorable global macro and market backdrop necessary to ensure the ongoing massive issuance of increasingly Credit-challenged U.S. government debt obligations....The possibility for a surprising jump in Treasury bond yields is a major Issue 2011. On the one hand, Treasury is not interest rate sensitive; the marketplace doesn't have to fear much of an issuance impact from a moderate jump in borrowing costs. On the other hand, this dynamic would imply that yields are poised to surprise on the upside when the markets eventually force borrowing restraint. It doesn't take a wild imagination to envisage a market problem leading to an economic problem, to additional "TARP," more bailouts and a jump in borrowing costs - all combining for a dramatic deterioration in our nation's debt position.
That borrowing restraint is being imposed upon U.S. muni finance is a major Issue 2011. The year has commenced with municipal bond yields adding to Q4's surprising jump. Today, state and local finance is our Credit system's weak link. What began in ("subprime") Greece has made its way to Illinois, California, New York, New Jersey, Florida and elsewhere. Throughout the country, governments will now be forced into the messy proposition of getting their books in order. After ignoring this issue for too long, a global marketplace keen to structural debt issues has commenced the disciplining process."

(Dow Jones)--Foreign financial firms have sold $36.4 billion of investment-grade bonds in the U.S. so far in 2011, the most ever recorded in the first two weeks of any year since at least 1995, according to data provider Dealogic.
The so-called Yankee bonds--dollar-denominated debt sold in the U.S. by firms based outside the country--have come in 53 separate offerings, a 112% jump on last year's 25 deals up to this point, Dealogic added.
Including issuers other than banks, Yankee high-grade debt issuance in the U.S. totals $45.3 billion so far this year, accounting for more than 70% of the U.S. investment-grade bonds marketed overall. Financial institutions accounted for 81% of all Yankee high-grade bonds in the year to date.
One explanation for the surge of overseas issuers is the attractiveness of selling debt in dollars and swapping the cash flows back into euros, instead of selling debt directly in Europe, according to credit strategists at Barclays Capital.
In a market commentary Friday, the strategists said it was costlier for European firms to issue debt in their own markets because of the "relatively higher risk aversion" among investors stemming from the region's sovereign debt crisis.
The euro/dollar cross-currency basis swap spread--a measure of how much it costs to exchange cash flows in the two currencies--is now minus-26 basis points for a five-year swap. That means a European bank needing five-year funding in euros would save 0.26% on every dollar sold and swapped back in order to create the synthetic funding in euros, compared with what it would cost to issue in euros.

Zero Hedge reports: "Initial Claims Surge To 445K, Not Seasonally Adjusted Claims Surge By 191,686 To 770,413 In One Week".

John Hussman: "It will come as no surprise that we continue to anticipate poor 10-year total returns for the S&P 500 over the coming decade. Our present estimate is about 3.3% annually, which includes dividends. That is about 1% less than the 10-year total return that we estimated just a few months ago, but this should make sense: historically, to the extent that the S&P 500 appreciates at an annualized rate of more than about 6% (which is about the long-term growth rate of revenues, nominal GDP and other smooth fundamentals), the expected future total return for the index declines as the market advances. Just like bonds. It is easily understood, but often ignored, that a short-term market advance of 10% - leaving fundamentals relatively unchanged in the interim - cuts about 1% annually off of subsequent 10-year market returns. This can be demonstrated both algebraically and in historical data."

Sales for the most recent quarter jumped to $26.74 billion, from $15.683 billion a year ago.
Both the earnings and topline beat expectations. Analysts who follow Apple forecast the company reporting a profit of $5.40 a share on sales of $24.433 billion, according to a consensus estimate compiled by Thomson Reuters.
Apple reported a profit of $6.43 a share in its fiscal first quarter, up from $3.67 a share last year.
All of the company's key product lines exceeded expectations. In the most recent quarter Apple sold 7.33 million iPads, 19.45 million iPods and 4.13 million Macs. Sales of the iPhone jumped 86 percent to 16.24 million units.
Gross margin for the quarter came in 38.5 percent.

IBM released strong fourth quarter earnings today, posting record revenue of $29 billion, up 7 percent from the fourth quarter in 2009, and surpassing analyst expectations. EPS were $4.18, up 16 percent; an increase of 16 percent from the same quarter in 2009.
Big Blue also posted record net income in the fourth quarter, $5.3 billion, compared with $4.8 billion in the fourth quarter of 2009, up 9 percent. Net income for the year came in at $14.8 billion compared with $13.4 billion in 2009, an increase of 10 percent. Diluted earnings were $11.52 per share compared with $10.01 per diluted share in 2009, an increase of 15 percent. Revenues for 2010 totaled $99.9 billion, an increase of 4 percent (3 percent, adjusting for currency), compared with $95.8 billion in 2009.
IBM’s CEO Samuel J. Palmisano said in a statement: “We completed an outstanding year, with record profit and free cash flow, and exceeded the high end of our 2010 earnings per share roadmap objective…We also capped a decade in which our shift to high-value businesses, our global integration of IBM, our investment in research and development of almost $60 billion and our acquisition of 116 companies have helped us to nearly triple our EPS and return more than $100 billion to shareholders.”
IBM ended the fourth-quarter of 2010 with $11.7 billion of cash on hand, which is a little bit more than the $11.1 billion leftover in third-quarter earnings. IBM’s acquisition spree tapered off in the fourth quarter but Big Blue bought a number of companies earlier in the year, including Initiate Systems, Cast Iron Systems, Sterling Commerce, Coremetrics, BigFix, Datacap, Unica, OpenPages, Netezza and most recently, Blade Network Technology for $400 million.

The euro has lost an average of 22% of its purchasing power since the introduction of European Monetary Union in 1999, citing a poll that Allianz SE conducted. The purchasing power of one euro fell to about 82 cents in Germany, slightly below 81 cents in France, 76 cents in Italy and 71 cents in Spain.

The Boeing Company on Tuesday pushed back the first delivery of its 787 Dreamliner to the third quarter, hoping that the delay will give it enough time to finish a jetliner that is more than three years behind schedule.

Chinese President Hu Jintao arrived in the United States on Tuesday for a four-day state visit peppered by U.S. complaints about Beijing's currency policies but sweetened by a series of business deals.

Agribusiness giant Cargill Inc plans to spin off its majority stake in Mosaic Co (MOS.N), a move that could eventually lead to takeover offers for the world's second largest fertilizer producer.
The distribution of the 64 percent stake in Mosaic, worth about $24 billion, will allow Cargill to maintain its private company status while enabling Cargill family trusts to diversify their assets, Cargill said on Tuesday.

Saturday, January 15, 2011


I was rushed to the hospital on 1/3 and discharged on 1/14. I am an outpatient taking radiation for my renal cancer and doing well! As my health returns, I will be able to
post my blog once again. I appreciate all the wonderful wishes I have received.

Monday, January 03, 2011


1/3/11 Destruction

A magnitude-7.1 earthquake shook southern Chile on Sunday, prompting tens of thousands to flee the coast for higher ground amid fears it could generate a tsunami like the one that ravaged the area last year.
There were no reports of deaths or damage, and Vicente Nunez, head of the National Emergency Office, said no tsunami alert was issued.

John Hussman: "We enter 2011 at a point where investors have pushed risk assets to a speculative extreme, on the belief that the Fed has provided a "backstop" against losses. While there's no assurance that we won't see a further extension of this over the short-term, we've found more often than not that speculative setups in the financial markets are followed by a striking degree of subsequent resolution in the opposite direction....One of the striking features of the market here is the extent to which large-cap, high-quality has underperformed speculative sectors of the market, creating what we view as a multi-year "setup" in favor of high quality issues."

"Another great evil arising from this desire to be thought rich; or rather, from the desire not to be thought poor, is the destructive thing which has been honored by the name of "speculation"; but which ought to be called Gambling."
William Cobbett

The Clorox Co. said Monday it expects second-quarter adjusted earnings in a range of 57 cents a share to 63 cents a share. Wall Street analysts expect the company to earn 74 cents a share, according to a survey by FactSet Research. Clorox said second-quarter sales will fall 3% to 4% from the year-ago period. "Slowing category consumption experienced in the company's fiscal first quarter continued to impact shipments into the second quarter," the company said. Including the impact of a goodwill impairment, Clorox expects to report a second-quarter loss from continuing operations of $1.25 a share to a loss of $1.15 a share. The company expects to report GAAP earnings of a penny a share, to 11 cents a share.

China wants to work with Spain to help it overcome the current financial crisis, and deepen long-term cooperation between the two countries, said the Chinese ambassador to Spain, Zhu Bangzao. The ambassador made the comments in a written interview with state-run Xinhua news agency ahead of Chinese Vice Premier Li Keqiang's visit to Spain from Jan. 4 to 6. Zhu said the visit will raise bilateral trade and economic cooperation between the two countries. Li is scheduled to hold talks with Spanish Finance Minister Elena Salgado and as Prime Minister Jose Luis Rodriguez Zapatero, and will hold a breakfast meeting with Chinese and Spanish entrepreneurs to discuss ways of deepening bilateral trade and economic cooperation. Zhu also reportedly said tehre would be a series of cooperation agreements in finance, energy, telecommunications, tourism and food.

Authorities in Beijing have hiked the minimum wage in the capital by about 20 percent for the second time in six months amid soaring food costs, rising property prices and China's widening wealth gap.
The minimum monthly salary in the city will be increased to 1,160 yuan from 960 yuan on January 1, according to a statement posted on the government's website Tuesday.
In July, Beijing increased the minimum wage by 20 percent to 960 yuan.

The new year hasn't changed the outlook of SocGen's famous bear Albert Edwards.
In a new profile up at The Guardian, Edwards takes aim at China, where he predicts a collapse that will take down markets around the world.
To him the country is a "freak economy" with a ridiculously high and persistent investment-to-GDP ration, and he fears that everyone is just taking Chinese growth for granted in forecasting strong demand helping the rest of the world's economies.

Goldman Sachs Invests $450 Million In Facebook At A $50 Billion Valuation

Devastating flood waters across the Australian state of Queensland may not recede for weeks, the state's Premier Anna Bligh has warned.

At more than 10 million barrels a day, Russian oil production in 2010 was the highest of any year since the collapse of the Soviet Union.

In the early trading oil trades at 92+ and silver at 31+.

Fred Mishkin: "A rising oil price creates economic headwinds via numerous channels particularly if the increase is sudden. A decline in disposable incomes, reduced consumer confidence, lower levels of travel, a decline in demand for gas-guzzling larger autos and an upward bias to inflationary expectations are all spin off effects on the consumer of a rapid ascent in the price of oil."

Dollar General Corp. said Monday it plans to hire 6,000 workers in 2011 as part of its effort to open 625 stores.

The euro fell by the most in more than two weeks against the dollar amid concern the region’s debt crisis will hamper efforts by governments and banks to raise funds this year.

Snow and ice have closed the main highway between Southern and Central California, stranding many motorists overnight, as a winter storm brings chilly weather and treacherous roads.

The Institute for Supply Management on Monday said its index of factory activity rose to 57.0% in December from 56.6% in November. Prices index 72.5 vs. 69.5 prior. Employment 55.7 vs. 57.5. Inventories 51.8 vs. 56.7. New orders 60.9 vs. 56.6.

Construction spending rose 0.4%, slightly higher than economists' expectations of about a 0.2% gain. Spending on public-sector and private projects increased in November. Outlays are still down 6% compared with a year earlier.

The Dow Jones Industrial Average gained 93.24 points, or 0.8%, to 11,670.75, marking its highest close since August 2008 and its biggest jump since early December. The S&P 500 index rose 14.23 points, or 1.1%, to 1,271.87, led by a 2.3% jump in the financial sector. The Nasdaq Composite gained 38.65 points, or 1.5%, to 2,691.52. The three biggest gains in the past five months -- and 5 of the 25 biggest rallies in 2010 --occurred on the first trading day of the month.

Jack H. Barnes: "The Chinese economy is heading toward an economic hard landing; it will overshoot to the downside and become the economic Black Swan event of 2011-2012. Inflation, yes both types, will be the story in China in the coming months." (via ZeroHedge)

Natural-gas futures made their biggest one-day gain since October on forecasts for colder weather. Natural-gas futures rallied 25 cents, or 5.6% to $4.65 per million British thermal units.

ZeroHedge: "As of December 31, 2010, the US now has $14,025,215,218,708 and 52 cents in debt (incidentally this is an increase of $154 billion in debt on the US balance sheet overnight). As a reminder the debt ceiling is 14,294,000,000,000. Which means at a run rate of $125 billion in net monthly issuance, the US may not even get to the end of March at the current burn rate. Which also means Congress better start the discussion on raising the debt ceiling as soon as February. Which means someone is about to [win/lose] some serious cash on the Feb 28 debt ceiling hike InTrade contracts."

Home prices will continue to decline for several years, Mort Zuckerman, the chairman and CEO of Boston Properties, told CNBC Monday.
“I’m pessimistic about residential real estate,” said Zuckerman.

Sunday, January 02, 2011


1/2/11 Debt

Bo Diddley: "Don't let your mouth write no check that your tail can't cash."

The Baltic state of Estonia early Saturday became the 17th European Union member to adopt the joint European currency, the euro.

Hu Xiaolian, vice-governor of the People’s Bank of China, said: “Once a reserve currency’s value becomes unstable, there will be quite large depreciation risk for assets.”

Central banks cannot include renminbi holdings as official reserves under International Monetary Fund guidelines. Maybe this will change in 2011.

TrimTabs' Charles Biderman: "No amount of QE will be able to keep the current stock market bubble from bursting eventually."

China’s manufacturing grew at the weakest pace in three months in December after the government tightened monetary policy to restrain inflation and closed factories to meet energy-efficiency targets.
The Purchasing Managers’ Index fell to 53.9 from 55.2 in November, the first decline in five months, a report from the China Federation of Logistics and Purchasing showed yesterday. That was less than the median estimate of 55 in a Bloomberg News survey of 13 economists. A measure of manufacturers’ input costs also fell.
Premier Wen Jiabao is seeking to choke off the fastest inflation in more than two years and limit asset bubbles without undermining growth in the economy that led the recovery from the global financial crisis. Central bank Governor Zhou Xiaochuan pledged Dec. 31 to try to keep prices “basically stable” this year, after a second interest-rate increase in three months on Christmas Day.

Mike Burk: "The market is overbought and due for a correction, but seasonality is likely to dominate again next week.
I expect the major averages to be higher on Friday January 7 than they were on Friday December 31."

"If home prices continue on this pace down, I think the economy has serious reasons to worry," Yale economist Robert J. Shiller -- and co-creator of the Case-Shiller Index -- told the Wall Street Journal in a recent interview.

The Automatic Earth: "The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices....Furthermore, our forecast of another 20% fall in house prices may be conservative. Prices may well end up back on their long- term trendline, but fall below in the meanwhile. Just as they way overshot the trend on the way up, they may do so on the way down, as is often the case in cycles. Furthermore, another big house price decline will spike delinquencies and foreclosures leading to more REO sales by lenders, which will further depress prices. Our analysis indicates that a further 20% drop in prices will push the number of homeowners who are under water from 23% to 40%, resulting in more strategic defaults, more REO, etc.
At that point, the remaining home equity of those with mortgages would be wiped out on average. That, in turn, would impair already-depressed consumer confidence and their willingness and ability to spend, to say nothing of residential construction."

Bloomberg:"Former Bank of England policy maker Willem Buiter sparked the biggest debate at the Federal Reserve’s annual mountainside symposium, saying the central bank pays too much heed to the concerns of financial institututions“The Fed listens to Wall Street and believes what it hears,” Buiter said yesterday in a paper presented to the Fed’s conference in Jackson Hole, Wyoming. “This distortion into a partial and often highly distorted perception of reality is unhealthy and dangerous.”

John Adams:"All the perplexities, confusion and distress in America arise not from defects in their Constitution or Confederation, nor from want of honor or virtue, so much as downright ignorance of the nature of coin, credit, and circulation."

Saturday, January 01, 2011


1/1/11 Disconnect

According to the latest Rasmussen poll, almost 2/3 of Americans polled are pessimistic about 2011 and believe
the recession will not end in 2011. By comparison, the sentiment on Wall Street for 2011 is the most bullish
it's been in years. Quite a disconnect. They cannot both be right. Take your pick.

Bloomberg (Charles Penty): “Spain has between 700,000 and 1.1 million unsold homes, an amount that will drag on a recovery in the housing market as prices will probably keep falling in 2011, the Bank of Spain said.” This sounds like the U.S.

Sigmund Freud: "Just as no one can be forced into belief, so no one can be forced into unbelief."

Doug Noland: "The CRB commodities index closed the year at the high since 2008. And by the end of the year it was clear that China, India and greater Asia had serious inflation and “hot money” issues. Cautious little baby step policy moves aren’t going to get the job done....From my bearish perspective, the marketplace has been disregarding some important developments. For starters, despite the massive $4 trillion increase in government liabilities in just nine quarters, an extended period of near zero interest rates, and unprecedented Federal Reserve quantitative easing, the unemployment rate will end the year near 9.8%. And despite extremely low mortgage yields, our nation’s housing market is barely treading water. Developments – or lack of them – in the real economy are disconcerting and support the secular bear thesis.
There is also the important issue of rising global yields. Moreover, the debt markets have become increasingly discriminating. A few months back – in the heat of the euphoric “endless liquidity for everybody forever” backdrop – the markets were content to readily finance just about any borrower. More recently, in somewhat of a return to sobriety, the marketplace has looked increasingly askance at borrowers such as Ireland, Spain and U.S. municipalities. This is a serious development for the global government finance Bubble – but perhaps not as serious in the short-term.
The U.S. financial system these days is being completely dominated by the expansion of federal borrowings. This creates different financial and economic dynamics than we’re used to analyzing. In contrast to when mortgage Credit was playing a predominate role during that Bubble period, a rise in market yields today will have virtually no near-term impact on the quantity of (government) Credit being issued. And especially with the extension of Bush era tax cuts along with additional stimulus measures – the speculative U.S. stock market has taken great comfort from the seeming sustainability of the tepid (government-dominated) U.S. economic recovery...The Bernanke Fed certainly ensured that financial speculation gained at the expense of savers. And the municipal debt market now confronts the dilemma resulting from Bubble-related risk distortions, misperceptions and investor disappointment – and a problematic flow reversal out of the sector."

“There Will Be Head Fakes”
-chessNwine 12/31/10
Accordingly, please use caution headed into the next several weeks. There is nothing wrong with taking a wait-and-see approach to start the year."

Robert Fritz: "If you limit your choices only to what seems possible or reasonable, you disconnect yourself from what you truly want, and all that is left is compromise."