10/15/06 Various Views
Marc Faber: "A major problem with the flood of liquidity that continues to engulf the world is that returns collapse so increased leverage is necessary to generate acceptable (to investors) returns. This increases risk and lowers returns further, producing a self-reinforcing spiral of higher leverage and increased risks...It’s one thing to be awash in liquidity generated from capital; it’s a completely different matter to be awash in credit-based liquidity. That’s why we are now seeing an increasing amount of hedge fund woes."
Charlie Maxwell: "In 1964, we found 48 billion barrels of oil and usedapproximately 12 million barrels. In 1988, we started finding less than we were using. In 2005, we found about 5 billion to 6 billion barrels, and we used 30 billion. These numbers are just overwhelming."
Think of NYSE specialists as having some similarities to dealers at the black jack table in Las Vegas. There is at least one big difference. The specialists in addition to seeing the order flow also have a book with buys and sells left with them from brokers. Over the last two weeks, as the Dow made several new all-time highs, specialists sold more stock than they bought. It's not smart to bet against the "house." The odds are not winning odds.
Last year at this time the VIX was trading at the 16 to 17 level. The last time this index traded above 13 was on Sept. 25. On Friday it closed at 10.75, the lowest in quite some time. We're in the middle of October and few expect volatility. Good luck.
Tim Wood: "Beginning in September as we approached the May 2006 highs I began being cautious of this advance and I remain cautious today. When I say cautious, what I really mean is that I know this advance is mature and subject to at least an intermediate-term top. Let me make it clear that at this time I have no indication of such top and I have not had an intermediate-term sell signal since my indicators turned up in June."
Peter Schiff: "In the first place, the fact that President Bush maintains a straight face while claiming to be a deficit cutter is a testament to his political skills and the media’s and Wall Street’s gullibility. Who does the President think he is kidding? So far, the national debt has increased by about three trillion dollars during his presidency, or about $500 billion per year. Those are the real numbers. The non-sense budget deficit the government reports excludes off-budget items and money borrowed from government “trust funds.” However, expenditures excluded from official budget numbers still must be financed, and the money borrowed to do so adds to the national debt. In addition, those numbers do not reflect expenses accrued during the year but not yet paid. Were such expenses properly accounted for, the official deficit would be several hundred billion dollars higher. Finally, the numbers do not include any growth in contingent liabilities, which now exceed $40 trillion, making the actual national debt over eight times the official figure, which includes only the funded portion."
For the week, two-year Treasury yields jumped 12.5 bps to 4.86%. Five-year yields rose 12 bps to 4.76%, and the 10-year yields gained 10 bps to 4.80%. With a blink of an eye, the five-year yield has risen 26bps. That's volatility.
Doug Noland: " Across the entire globe, loose Financial Conditions are fueling synchronized stock market Bubbles rarely experienced in history. Ultra-loose Financial Conditions in the U.S. and its Inflationary Manifestations (including Current Account Deficits) have unleashed Credit systems around the world.
And while consumers and securities markets are enjoying a respite from surging energy prices, I wouldn’t extrapolate today’s prices too far into the future. One only has to look at this week’s moves in wheat, corn, nickel, tin, lead, and orange juice for evidence of the Acute Inflationary Bias that continues to envelop the commodities market. Sure, there will be instances when perceived supply constraints fail to materialize and the speculators will be summarily beaten to a bloody pulp. But, as we saw again this week, supply shortages will incite spectacular price surges. In a world of basically unlimited finance and liquidity, how much is too much to pay for food, energy or important raw materials when there is not enough to go around? And I seriously doubt energy supply issues will not resurface, especially if the global economic boom surprises on the upside. Loose Global Financial Conditions seemingly guarantee as much."
Robert McHugh: "The rally since July has been almost entirely short-covering. We get one big move, about once a week, on buying panic, then no follow-up, with slightly down to sideways price action until the next week. What has been missing has been supply. Sellers have noticed these out of the blue short-covering rallies, so have disappeared. The interventionists have succeeded in muting supply pressure. This type of rally can continue for quite some time, and drive prices quite high, as we have seen. But it is a death trap. It is artificial. It will end as soon as some trigger event sends fear into markets, the kind that catches shorts on the sidelines, buyers exhausted, and interventionists helpless to play their game. We believe a Democrat victory in the coming election could be such an event."
Brett Steenbarger: "Losing Your Money Begins With Losing Your Focus"
George Bernard Shaw: "“We must always think about things, and we must think about things as they are, not as they are said to be.”
Saturday, October 14, 2006
Friday, October 13, 2006
Trends And Opinions
10/14/06 Trends And Opinions
Chris Mennis, owner of oil broker New Wave Energy in Aptos, California: ``The demand is very good for distillate and it's better than last year for gasoline. The seasonal decline was about what it should have been'' and the world economy remains strong, he said.
Japan's producer prices rose the most in more than 25 years in September, increasing pressure on companies to pass on costs to consumers to protect profits.
An index of prices that companies pay for energy and raw materials such as iron ore increased 3.6 percent in September from a year earlier, up from a revised 3.5 percent gain a month earlier, the Bank of Japan said in Tokyo today. If this is a world economy, do you really believe the U.S. is immune from some of the same inflation pressures being experienced in Japan?
For the first time in almost six years, the rate on benchmark euro interest-rate futures contracts has dipped below 10-year bond yields. The levels crossed two weeks ago, measured by the contract closest to settlement and the benchmark German debt security. As I mentioned above, it is a world economy.
Britain’s new army chief said UK forces should leave Iraq soon because they are making the security problem there worse.
Such unusually frank remarks from a serving soldier suggest that General Sir Richard Dannatt disagrees with government policy, which calls for troops to stay until Iraqi forces can take over. Sir Richard said Britain should “get ourselves out sometime soon because our presence exacerbates the security problems”. That's the last of our friends standing shoulder to shoulder with our troops.
Rob Kirby: According to Wikipedia,"distillate usually refers to fuel oils produced through distillation, such as diesel and heating oil. This distinguishes them from the residual fuel oils, which are made from the residue left after distillation."
Now, when we review the EIA's graph below, we can clearly see that DISTILLATE growth [at Oct. 12, 2006] is POSITIVE! What I'd really like to know is what OTHER is - because that is what is making their annual demand projections appear "negative"?...The explosive growth of derivatives goes far to explain how / why prices are declining. 5.5 TRILLION GROWTH in a derivatives book at one bank [J.P. Morgan Chase] in one quarter should be sounding ALARM BELLS all over the world as to what is really going on. Does anyone beside me make a connection between the "insanely explosive growth" of J.P. Morgan's derivatives book and plunging energy prices in the face of seemingly structural supply / demand imbalances?"
Linda Davies: "The job of a derivatives trader is like that of a bookie once removed, taking bets on people making bets."
Michael Moskow, the president of the Chicago Federal Reserve Bank:
"The risk of inflation remaining too high is greater than the risk of growth being too low," Moskow said in a dinner speech to a real-estate group.
As a result, some additional rate hikes may be necessary to bring inflation back into a range of stable prices, he said. Moskow said that he expects inflation to gradually come down, but said there remain substantial risks to this forecast.
"By my standards, inflation has been too high," Moskow said.
Aetna will lay off 650 staff, or about 2% of its total workforce, in a move to cut administrative costs.
Imported petroleum prices fell 10.3% in September, the largest drop since December 2004. Imported natural gas prices fell 5.2%. Prices of imports excluding petroleum inched up 0.1%. Meanwhile, prices of U.S. exports fell 0.5%, the first decline since November 2005.
OCTOBER UMICH CONSUMER SENTIMENT 92.3 VS. 85.4 IN SEPT.
Orange-juice futures soared to a 16- year high after the U.S. government said Florida's orange crop will be the smallest in 17 years as cold temperatures and lingering hurricane damage hampered fruit growth. Florida, the world's second-biggest orange grower behind Brazil, will produce 135 million boxes in the 2006-2007 season, down from 147.9 million, the final revised estimate for last season's crop, the U.S. Department of Agriculture said.
China's foreign exchange reserves, the world's largest, reached $987.9 billion by the end of September, the central bank announced Friday. The figure was up 28.5 percent from a year earlier, said the report by the People's Bank of China. U.S. treasuries dominate these reserves; however, I see increasing amount of these reserves moving into metals, such as, gold as well as crude for its strategic oil reserve.
The USDA said global wheat production would fall by 11m tons to 585.1m, causing global stockpiles to drop a further 7.1m from its previous forecast, to 119.3m. This represents a fall of 20 per cent from a year ago, putting stocks at their lowest level since 1981. “The concern now is what happens next year. If we have poor conditions for growing wheat again, supplies could get very tight and we might see some demand rationing,” said Dan Cekander, grains analyst at Fimat.
James Barnett, grains analyst for Man Global Research, said there is more concern in the global corn market after the USDA cut crop estimates in the US by 209m bushels to 10.9bn after it said that 800,000 fewer acres were growing corn than had previously been expected. The US is the world’s largest corn grower. The growing demand for corn by the ethanol industry has exacerbated the situation, and represents another bonehead decision by the Bush Administration.
A recent International Monetary Fund report says Venezuela's gas prices are the cheapest in the world. American motorists are paying about 19 times more at the pump, despite a drop in prices since August.
Statoil and Shell are halting output of about 280,000 barrels daily at the Snorre A platform in the North Sea and Draugen in the Norwegian Sea. The government ordered the closures because tests found that one type of lifeboat is not strong enough to be dropped from the platforms to the sea, affecting the ability to evacuate in emergencies.
On Thursday it snowed in Detroit, Chicago, and Minnesota. On Friday it snowed from 1 1/2 to 2 1/2 feet of snow from Buffalo to Niagra Falls. A cold spell has arrived. The use of heating oil and natural gas will begin to increase. In my view, the energy market does not reflect the changing weather pattern.
December gold closed at $592.70 an ounce Friday, up $12.40 for the session and up 2.8% for the week. December silver added 30 cents to close at $11.68 an ounce, ending with a gain of 4.5% for the week. December copper added 2.7 cents to close at $3.4135 a pound, up 0.7% from last Friday's closing level.
According to the BLS, for the year ended in September, prices for imports from China declined 1.0 percent while prices for imports from Japan fell 1.5 percent.
With 30 minutes in the Fri. trading day left, November crude rose $1.09 to $58.95 a barrel, trading around 1% below last Friday's close. November heating oil climbed 4.93 cents to $1.737 a gallon and November unleaded gasoline was up 2.46 cents at $1.4755 a gallon. November natural gas fell by 8.2 cents to $5.70 per million British thermal units, trading more than 10% lower so far for the week.
Chris Mennis, owner of oil broker New Wave Energy in Aptos, California: ``The demand is very good for distillate and it's better than last year for gasoline. The seasonal decline was about what it should have been'' and the world economy remains strong, he said.
Japan's producer prices rose the most in more than 25 years in September, increasing pressure on companies to pass on costs to consumers to protect profits.
An index of prices that companies pay for energy and raw materials such as iron ore increased 3.6 percent in September from a year earlier, up from a revised 3.5 percent gain a month earlier, the Bank of Japan said in Tokyo today. If this is a world economy, do you really believe the U.S. is immune from some of the same inflation pressures being experienced in Japan?
For the first time in almost six years, the rate on benchmark euro interest-rate futures contracts has dipped below 10-year bond yields. The levels crossed two weeks ago, measured by the contract closest to settlement and the benchmark German debt security. As I mentioned above, it is a world economy.
Britain’s new army chief said UK forces should leave Iraq soon because they are making the security problem there worse.
Such unusually frank remarks from a serving soldier suggest that General Sir Richard Dannatt disagrees with government policy, which calls for troops to stay until Iraqi forces can take over. Sir Richard said Britain should “get ourselves out sometime soon because our presence exacerbates the security problems”. That's the last of our friends standing shoulder to shoulder with our troops.
Rob Kirby: According to Wikipedia,"distillate usually refers to fuel oils produced through distillation, such as diesel and heating oil. This distinguishes them from the residual fuel oils, which are made from the residue left after distillation."
Now, when we review the EIA's graph below, we can clearly see that DISTILLATE growth [at Oct. 12, 2006] is POSITIVE! What I'd really like to know is what OTHER is - because that is what is making their annual demand projections appear "negative"?...The explosive growth of derivatives goes far to explain how / why prices are declining. 5.5 TRILLION GROWTH in a derivatives book at one bank [J.P. Morgan Chase] in one quarter should be sounding ALARM BELLS all over the world as to what is really going on. Does anyone beside me make a connection between the "insanely explosive growth" of J.P. Morgan's derivatives book and plunging energy prices in the face of seemingly structural supply / demand imbalances?"
Linda Davies: "The job of a derivatives trader is like that of a bookie once removed, taking bets on people making bets."
Michael Moskow, the president of the Chicago Federal Reserve Bank:
"The risk of inflation remaining too high is greater than the risk of growth being too low," Moskow said in a dinner speech to a real-estate group.
As a result, some additional rate hikes may be necessary to bring inflation back into a range of stable prices, he said. Moskow said that he expects inflation to gradually come down, but said there remain substantial risks to this forecast.
"By my standards, inflation has been too high," Moskow said.
Aetna will lay off 650 staff, or about 2% of its total workforce, in a move to cut administrative costs.
Imported petroleum prices fell 10.3% in September, the largest drop since December 2004. Imported natural gas prices fell 5.2%. Prices of imports excluding petroleum inched up 0.1%. Meanwhile, prices of U.S. exports fell 0.5%, the first decline since November 2005.
OCTOBER UMICH CONSUMER SENTIMENT 92.3 VS. 85.4 IN SEPT.
Orange-juice futures soared to a 16- year high after the U.S. government said Florida's orange crop will be the smallest in 17 years as cold temperatures and lingering hurricane damage hampered fruit growth. Florida, the world's second-biggest orange grower behind Brazil, will produce 135 million boxes in the 2006-2007 season, down from 147.9 million, the final revised estimate for last season's crop, the U.S. Department of Agriculture said.
China's foreign exchange reserves, the world's largest, reached $987.9 billion by the end of September, the central bank announced Friday. The figure was up 28.5 percent from a year earlier, said the report by the People's Bank of China. U.S. treasuries dominate these reserves; however, I see increasing amount of these reserves moving into metals, such as, gold as well as crude for its strategic oil reserve.
The USDA said global wheat production would fall by 11m tons to 585.1m, causing global stockpiles to drop a further 7.1m from its previous forecast, to 119.3m. This represents a fall of 20 per cent from a year ago, putting stocks at their lowest level since 1981. “The concern now is what happens next year. If we have poor conditions for growing wheat again, supplies could get very tight and we might see some demand rationing,” said Dan Cekander, grains analyst at Fimat.
James Barnett, grains analyst for Man Global Research, said there is more concern in the global corn market after the USDA cut crop estimates in the US by 209m bushels to 10.9bn after it said that 800,000 fewer acres were growing corn than had previously been expected. The US is the world’s largest corn grower. The growing demand for corn by the ethanol industry has exacerbated the situation, and represents another bonehead decision by the Bush Administration.
A recent International Monetary Fund report says Venezuela's gas prices are the cheapest in the world. American motorists are paying about 19 times more at the pump, despite a drop in prices since August.
Statoil and Shell are halting output of about 280,000 barrels daily at the Snorre A platform in the North Sea and Draugen in the Norwegian Sea. The government ordered the closures because tests found that one type of lifeboat is not strong enough to be dropped from the platforms to the sea, affecting the ability to evacuate in emergencies.
On Thursday it snowed in Detroit, Chicago, and Minnesota. On Friday it snowed from 1 1/2 to 2 1/2 feet of snow from Buffalo to Niagra Falls. A cold spell has arrived. The use of heating oil and natural gas will begin to increase. In my view, the energy market does not reflect the changing weather pattern.
December gold closed at $592.70 an ounce Friday, up $12.40 for the session and up 2.8% for the week. December silver added 30 cents to close at $11.68 an ounce, ending with a gain of 4.5% for the week. December copper added 2.7 cents to close at $3.4135 a pound, up 0.7% from last Friday's closing level.
According to the BLS, for the year ended in September, prices for imports from China declined 1.0 percent while prices for imports from Japan fell 1.5 percent.
With 30 minutes in the Fri. trading day left, November crude rose $1.09 to $58.95 a barrel, trading around 1% below last Friday's close. November heating oil climbed 4.93 cents to $1.737 a gallon and November unleaded gasoline was up 2.46 cents at $1.4755 a gallon. November natural gas fell by 8.2 cents to $5.70 per million British thermal units, trading more than 10% lower so far for the week.
Wednesday, October 11, 2006
What's Real?
10/12/06 What's Real?
Hedge fund Atticus Capital LP said in a securities filing that, along with an investment bank, it had recently met with several potential investors "to discuss each firm's possible interest in pursuing an acquisition" of Phelps Dodge Corp. These possible buyers included private equity firms and strategic buyers, it said. Atticus owns about a 10% stake in Phelps Dodge. Is Attitus a real buyer or trying to push Phelps Dodge into a self-tender, for example. We saw that with Kerr McGee and Icahn.
We all know that gas at the pump is down about 65 cents a gallon. Let's say you drive 250 miles a week and get 25 miles to the gallon or a savings of $6.50 per week. Now let's compare that with food prices at the market. Do you like tomatoes? About 6 weeks ago they were $1.50 per pound. Now they're $3 a pound. Asparagus was $1.99 and now it's $4.00 a pound or maybe $4.99 a pound. I could go on with more examples. The point is that food prices, in general, have risen more than the price of gas has declined. You are still behind the eight ball when it comes to real inflation-- not the inflation statistics the government provides.
Keith Olbermann: "This president — in his bullying of the Senate last month and in his slandering of the Democrats this month — has shown us that he believes
whoever the enemies actually are, they are hiding themselves inside a
dangerous cloak called the Constitution of the United States of America."
November crude dropped 93 cents to close at $57.59 a barrel Wednesday, marking the contract's weakest closing level since June 2005. November unleaded gasoline fell 1.65 cents to close at $1.4503 a gallon and November heating oil closed at $1.672 a gallon, down 0.89 cent. November natural gas fell 31.6 cents, or 4.9%, to end at $6.15 per million British thermal units.
The 10-year benchmark Treasury closed down 8/32 at 100-22/32 with a yield of 4.78%.
Neither North Korea or the small plane flying into a NYC condo could stir the gold market. December gold climbed 30 cents to close at $576.50 an ounce. December silver climbed 11 cents to close at $11.33 an ounce and December copper added 3.2 cents to end at $3.41 a pound.
The U.S. median price for a new home probably will dip 0.2 percent to $240,500, the first decline since a drop of 2.4 percent 15 years ago, according to the NAR. The price for previously owned homes likely will rise 1.6 percent to $223,000, the smallest gain on record, the trade group said.
``Recent rates of core inflation, if they persisted, were seen as higher than consistent with price stability, and participants underscored the importance of ensuring a moderation in inflation,'' the Fed said in minutes of the Sept. 20 meeting. ``Members continued to see a substantial risk that inflation would not decline as anticipated by the committee.''
Winston Churchill: "In wartime, truth is so precious, she must be attended by a bodyguard of lies."
Hedge fund Atticus Capital LP said in a securities filing that, along with an investment bank, it had recently met with several potential investors "to discuss each firm's possible interest in pursuing an acquisition" of Phelps Dodge Corp. These possible buyers included private equity firms and strategic buyers, it said. Atticus owns about a 10% stake in Phelps Dodge. Is Attitus a real buyer or trying to push Phelps Dodge into a self-tender, for example. We saw that with Kerr McGee and Icahn.
We all know that gas at the pump is down about 65 cents a gallon. Let's say you drive 250 miles a week and get 25 miles to the gallon or a savings of $6.50 per week. Now let's compare that with food prices at the market. Do you like tomatoes? About 6 weeks ago they were $1.50 per pound. Now they're $3 a pound. Asparagus was $1.99 and now it's $4.00 a pound or maybe $4.99 a pound. I could go on with more examples. The point is that food prices, in general, have risen more than the price of gas has declined. You are still behind the eight ball when it comes to real inflation-- not the inflation statistics the government provides.
Keith Olbermann: "This president — in his bullying of the Senate last month and in his slandering of the Democrats this month — has shown us that he believes
whoever the enemies actually are, they are hiding themselves inside a
dangerous cloak called the Constitution of the United States of America."
November crude dropped 93 cents to close at $57.59 a barrel Wednesday, marking the contract's weakest closing level since June 2005. November unleaded gasoline fell 1.65 cents to close at $1.4503 a gallon and November heating oil closed at $1.672 a gallon, down 0.89 cent. November natural gas fell 31.6 cents, or 4.9%, to end at $6.15 per million British thermal units.
The 10-year benchmark Treasury closed down 8/32 at 100-22/32 with a yield of 4.78%.
Neither North Korea or the small plane flying into a NYC condo could stir the gold market. December gold climbed 30 cents to close at $576.50 an ounce. December silver climbed 11 cents to close at $11.33 an ounce and December copper added 3.2 cents to end at $3.41 a pound.
The U.S. median price for a new home probably will dip 0.2 percent to $240,500, the first decline since a drop of 2.4 percent 15 years ago, according to the NAR. The price for previously owned homes likely will rise 1.6 percent to $223,000, the smallest gain on record, the trade group said.
``Recent rates of core inflation, if they persisted, were seen as higher than consistent with price stability, and participants underscored the importance of ensuring a moderation in inflation,'' the Fed said in minutes of the Sept. 20 meeting. ``Members continued to see a substantial risk that inflation would not decline as anticipated by the committee.''
Winston Churchill: "In wartime, truth is so precious, she must be attended by a bodyguard of lies."
Tuesday, October 10, 2006
Some Forecasts
10/11/06 Some Forecasts
Many question my prediction that we have seen the lows in gasoline, heating oil, natural gas, and crude. You might want to ponder the following:
OPEC's current official production ceiling is 28 million bpd.
The Organization of the Petroleum Exporting Countries, which pumps more than a third of the world's oil, is working out details of the cut, but has yet to formally announce an agreement.
OPEC's president has proposed a plan that would give the output cut extra bite by applying it to real production and not just a theoretical ceiling, according to a letter sent to OPEC members.
Edmund Daukoru, who is also Nigerian Minister of State for Petroleum, wants responses by today to his plan to make the cut from group output of around 27.5 million barrels per day, according to an industry source who has seen the letter.
According to the EIA, OPEC in September produced about 29.640 million bpd, and "average OPEC crude oil production for 2007 is expected to be at current levels."
Surplus world crude oil production capacity, all of which is located in Saudi Arabia, will increase "only slightly" in 2007, which means that "surplus world oil production capacity is projected to remain near 30-year lows," EIA said.
You probably noticed that KB Homes and D.R. Horton had sharply lower sales for this quarter. Yet, many stocks in the group were upgraded by JP Morgan's analyst. This is despite the group's shares being roughly 15%+ off the bottom reached in June and July. If interest rates move closer to 5%, these shares should stall out. If interest rates move back to 5.25%, then you'll be seeing drops back to the summer lows- in my opinion.
Richard Daughty: “Long-term investors haven't made any real (inflation-adjusted) increases in wealth in six long years. If you figured to work forty years and have your ‘investments’ make you money to retire on, you have now lost 15% of your time and not made a dime.”
November crude fell $1.44 ,or 2.4%, to close at $58.52 a barrel in New York, the contract's weakest session-ending level since late July 2005. Despite the weakness in crude and a Goldman downgrade of ExxonMobil, the energy sector rallied. This divergence needs to be monitored closely. Why? Despite the weakness in housing in June and July and despite some weakness in various equity sectors, I pointed out that housing stocks rallied for three days in a row. That proved to be the low point.
The 10-year note closed down 13/32 at 100 31/32. It's yield rose to 4.751%, its highest level since September 19. The 30-year fell 21/32 to 94 3/32, yielding 4.881%.
JupiterResearch said it expects 2006 online holiday retail sales will grow 18% from last year's holiday season to $32 billion. The market researh group said it expects a record 114 million users, a 6% increase over last year, will buy online this holiday season.
Genentech also said it expects full-year 2006 earnings from continuing operations to rise between 65% and 70% over 2005.
Every day there are comments concerning the weakness in housing. No one is denying that closings have slowed, that incentives are necessary in many cases to close a deal, and that cancellations to buy have been rising. The stock market anticipated these events 9 to 10 months ago. Insiders expected it a year ago and there was heavy insider selling last winter. In sum, many of these stocks dropped 50 to 60%. The real story is that when interest rates topped in June it coincided with the housing stocks bottoming. To regurgitate all the bad news is a non event.
Paul Forward, an analyst at Stifel Nicolaus & Co., said since peaking on May 10, the average share price for the big six coal miners has shed more than 40 percent, and with supply levels where they are now, Forward said the situation looks a lot like the recession days of 2001, when production cutbacks caused a spike in demand in 2003, 2004 and 2005. Several weeks ago, I suggested one consider Peabody Energy and Foundation Coal for additions to a portfolio.
The 800-mile trans-Alaska pipeline was closed down today after operators lost communications amid rainy weather to remote valves that close in the event of a spill.
Mike Heatwole, spokesman for Alyeska Pipeline Service Co., said company protocol calls for the shutdown when valves cannot be shut down from long distance. The valves must be staffed by crews that can manually operate the valves, he said.
Many question my prediction that we have seen the lows in gasoline, heating oil, natural gas, and crude. You might want to ponder the following:
OPEC's current official production ceiling is 28 million bpd.
The Organization of the Petroleum Exporting Countries, which pumps more than a third of the world's oil, is working out details of the cut, but has yet to formally announce an agreement.
OPEC's president has proposed a plan that would give the output cut extra bite by applying it to real production and not just a theoretical ceiling, according to a letter sent to OPEC members.
Edmund Daukoru, who is also Nigerian Minister of State for Petroleum, wants responses by today to his plan to make the cut from group output of around 27.5 million barrels per day, according to an industry source who has seen the letter.
According to the EIA, OPEC in September produced about 29.640 million bpd, and "average OPEC crude oil production for 2007 is expected to be at current levels."
Surplus world crude oil production capacity, all of which is located in Saudi Arabia, will increase "only slightly" in 2007, which means that "surplus world oil production capacity is projected to remain near 30-year lows," EIA said.
You probably noticed that KB Homes and D.R. Horton had sharply lower sales for this quarter. Yet, many stocks in the group were upgraded by JP Morgan's analyst. This is despite the group's shares being roughly 15%+ off the bottom reached in June and July. If interest rates move closer to 5%, these shares should stall out. If interest rates move back to 5.25%, then you'll be seeing drops back to the summer lows- in my opinion.
Richard Daughty: “Long-term investors haven't made any real (inflation-adjusted) increases in wealth in six long years. If you figured to work forty years and have your ‘investments’ make you money to retire on, you have now lost 15% of your time and not made a dime.”
November crude fell $1.44 ,or 2.4%, to close at $58.52 a barrel in New York, the contract's weakest session-ending level since late July 2005. Despite the weakness in crude and a Goldman downgrade of ExxonMobil, the energy sector rallied. This divergence needs to be monitored closely. Why? Despite the weakness in housing in June and July and despite some weakness in various equity sectors, I pointed out that housing stocks rallied for three days in a row. That proved to be the low point.
The 10-year note closed down 13/32 at 100 31/32. It's yield rose to 4.751%, its highest level since September 19. The 30-year fell 21/32 to 94 3/32, yielding 4.881%.
JupiterResearch said it expects 2006 online holiday retail sales will grow 18% from last year's holiday season to $32 billion. The market researh group said it expects a record 114 million users, a 6% increase over last year, will buy online this holiday season.
Genentech also said it expects full-year 2006 earnings from continuing operations to rise between 65% and 70% over 2005.
Every day there are comments concerning the weakness in housing. No one is denying that closings have slowed, that incentives are necessary in many cases to close a deal, and that cancellations to buy have been rising. The stock market anticipated these events 9 to 10 months ago. Insiders expected it a year ago and there was heavy insider selling last winter. In sum, many of these stocks dropped 50 to 60%. The real story is that when interest rates topped in June it coincided with the housing stocks bottoming. To regurgitate all the bad news is a non event.
Paul Forward, an analyst at Stifel Nicolaus & Co., said since peaking on May 10, the average share price for the big six coal miners has shed more than 40 percent, and with supply levels where they are now, Forward said the situation looks a lot like the recession days of 2001, when production cutbacks caused a spike in demand in 2003, 2004 and 2005. Several weeks ago, I suggested one consider Peabody Energy and Foundation Coal for additions to a portfolio.
The 800-mile trans-Alaska pipeline was closed down today after operators lost communications amid rainy weather to remote valves that close in the event of a spill.
Mike Heatwole, spokesman for Alyeska Pipeline Service Co., said company protocol calls for the shutdown when valves cannot be shut down from long distance. The valves must be staffed by crews that can manually operate the valves, he said.
Monday, October 09, 2006
Observations
10/10/06 Observations
John Hussman: "In short, the favorable 4-year seasonal period has a “snap-back” component to it, where the market was typically recovering from a recession, a substantial market drop, or at least a period of consolidation. Indeed, many of the start-years (e.g. 1970, 1974, 1982, 1990, 2002) are familiar exactly because they represented memorable bear market lows.
Again, that doesn't rule out the potential for another instance of 4-year seasonal strength, given the historical record. But given that same record, it's clear that the present instance is outside the oval in terms of the conditions that have accompanied that strength in the past."
The Dolan family is looking to take Cablevision private for $27 a share.
Mercantile Bank gets $47.24 buyout offer from PNC, valued at soem $6 Billion.
Gunmen wearing military uniforms assassinated the brother of Iraq's Sunni Arab vice president in his home Monday-- the third sibling the official has lost this year to the country's violence.
Buffett's Berkshire Hathaway raised its stake in USG to 19% by buying 371,200 shares of USG on Wednesday at $46.10 each. When shares of USG have dipped to the $46-$47 range, Buffett has patiently raised the stake in the company. In sum, he lets the market come to him and does not chase shares on the upswing.
Ralph Waldo Emerson: “It is easy in the world to live after the world's opinion; it is easy in solitude to live after our own; but the great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude.”
Mike Burk: "The market is overbought and has not been following the seasonal pattern for the past few weeks. I expect the major indices to be lower on Friday October 13 than they were on Friday October 6."
The following is some valuable work from Pinank Mehta:
"THIS IS THE MOST ALARMING PICTURE I HAVE SEEN IN THE FINANCIAL MARKETS SINCE SOME TIME.
The points to note are:
The current Long "Open" Interest in 10-year US treasury bond is greater than SIX Standard Deviations (12 SIGMA)!!!!!!! (The odds of a 6-Sigma event are one in 500 million or 1.37 million years, so it will be exponentially higher for a 12 Sigma event.)
This level is unprecedented.
Why Should We Be Worried:
What information has led to the professionals building up this unprecedented position in such an accelerated fashion?
What are the consequences of the unwinding of this position?
If it is an orderly unwinding the bond yields should be at the current levels or lower for some time from the beginning of the unwinding.
If it is an unorderly unwinding the bond yields start rising fast from the beginning of the unwinding.
Either way, the important consideration is the consequences of this unwinding on the other asset classes (please note that the bond markets are 4 times the size of the equity markets!!) and the dominoes effect on other asset classes and participants.
Why I Could Be Wrong:
Notwithstanding the odds of a 6-sigma event, we have seen a level of 6-sigma three times in the past two years and there have been no major dislocations in the markets!
The market size has grown and the liquidity is very much higher with bigger and "sophisticated" participants. The game is probably just being escalated to a higher level.
Some of the defensive steps:
Unwind leverage in the portfolio
Get out of long-dated debt preferably into the highest quality / sovereign short-term debt. Do not hold paper you do not intend to hold to maturity.
Pare down exposure to aggressive equities.
Hold investments that you intend to hold for the long term (at least 2 years) only.
Temporarily move out of synthetic instruments (structured paper, hedge funds, OTC derivatives, Fund of Funds, etc)"
I would like to repeat an observation and an action I took at the beginning of October: in my view, the treasury market with the 5 year at then 4.50% was not priced to perfection. It was priced to produce capital losses.
The question one might pose now is the following: will portfolio managers take money off the table and place those funds in equities? If so, where will the money go? Remember that these same money managers are, on the whole, sheep and most fail to produce returns that equa the returns on the S&P 500.
Volkmar Hable: "An especially serious concern for the stock market bulls is the VIX. Since more than two months it is plotting a falling wedge which in the past - if history is any guidance - always had resulted in a large down move for the stock market. A break out from this pattern with much higher volatility ahead should be at least expected by even the most optimistic bulls. Prepare with proper risk management."
Google Inc. said it's buying No. 1 Internet video sharing Web site YouTube Inc. for $1.65 billion in stock.
Crude for November delivery closed up 20 cents at $59.96 a barrel, well below the day's high of $61.30. Gold for December delivery closed up $5.70 at $582.50 an ounce. Silver added 24.5 cents to $11.42 an ounce and copper rose 2.45 cents to $3.413 a pound.
Fitch Ratings on Monday revised its rating outlook for oil and gas producer ConocoPhillips to "Positive" and affirmed the company's debt ratings, citing recent debt reduction. Fitch said the company significantly cut its debt since the closing of its Burlington Resources acquisition on March 31. In addition, Fitch expects that the company's debt will continue to decline as it uses proceeds from asset sales and free cash flow.
Former Secretary of State James A. Baker III: "I don't think you restrict your conversations to your friends. It's got to be hard-nosed. It's got to be determined. You don't give away anything. But in my view it is not appeasement to talk to your enemies."
Alvin Toffler: "In describing today's accelerating changes, the media fire blips of unrelated information at us. Experts bury us under mountains of narrowly specialized monographs. Popular forecasters present lists of unrelated trends, without any model to show us their interconnections or the forces likely to reverse them. As a result, change itself comes to be seen as anarchic, even lunatic."
John Hussman: "In short, the favorable 4-year seasonal period has a “snap-back” component to it, where the market was typically recovering from a recession, a substantial market drop, or at least a period of consolidation. Indeed, many of the start-years (e.g. 1970, 1974, 1982, 1990, 2002) are familiar exactly because they represented memorable bear market lows.
Again, that doesn't rule out the potential for another instance of 4-year seasonal strength, given the historical record. But given that same record, it's clear that the present instance is outside the oval in terms of the conditions that have accompanied that strength in the past."
The Dolan family is looking to take Cablevision private for $27 a share.
Mercantile Bank gets $47.24 buyout offer from PNC, valued at soem $6 Billion.
Gunmen wearing military uniforms assassinated the brother of Iraq's Sunni Arab vice president in his home Monday-- the third sibling the official has lost this year to the country's violence.
Buffett's Berkshire Hathaway raised its stake in USG to 19% by buying 371,200 shares of USG on Wednesday at $46.10 each. When shares of USG have dipped to the $46-$47 range, Buffett has patiently raised the stake in the company. In sum, he lets the market come to him and does not chase shares on the upswing.
Ralph Waldo Emerson: “It is easy in the world to live after the world's opinion; it is easy in solitude to live after our own; but the great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude.”
Mike Burk: "The market is overbought and has not been following the seasonal pattern for the past few weeks. I expect the major indices to be lower on Friday October 13 than they were on Friday October 6."
The following is some valuable work from Pinank Mehta:
"THIS IS THE MOST ALARMING PICTURE I HAVE SEEN IN THE FINANCIAL MARKETS SINCE SOME TIME.
The points to note are:
The current Long "Open" Interest in 10-year US treasury bond is greater than SIX Standard Deviations (12 SIGMA)!!!!!!! (The odds of a 6-Sigma event are one in 500 million or 1.37 million years, so it will be exponentially higher for a 12 Sigma event.)
This level is unprecedented.
Why Should We Be Worried:
What information has led to the professionals building up this unprecedented position in such an accelerated fashion?
What are the consequences of the unwinding of this position?
If it is an orderly unwinding the bond yields should be at the current levels or lower for some time from the beginning of the unwinding.
If it is an unorderly unwinding the bond yields start rising fast from the beginning of the unwinding.
Either way, the important consideration is the consequences of this unwinding on the other asset classes (please note that the bond markets are 4 times the size of the equity markets!!) and the dominoes effect on other asset classes and participants.
Why I Could Be Wrong:
Notwithstanding the odds of a 6-sigma event, we have seen a level of 6-sigma three times in the past two years and there have been no major dislocations in the markets!
The market size has grown and the liquidity is very much higher with bigger and "sophisticated" participants. The game is probably just being escalated to a higher level.
Some of the defensive steps:
Unwind leverage in the portfolio
Get out of long-dated debt preferably into the highest quality / sovereign short-term debt. Do not hold paper you do not intend to hold to maturity.
Pare down exposure to aggressive equities.
Hold investments that you intend to hold for the long term (at least 2 years) only.
Temporarily move out of synthetic instruments (structured paper, hedge funds, OTC derivatives, Fund of Funds, etc)"
I would like to repeat an observation and an action I took at the beginning of October: in my view, the treasury market with the 5 year at then 4.50% was not priced to perfection. It was priced to produce capital losses.
The question one might pose now is the following: will portfolio managers take money off the table and place those funds in equities? If so, where will the money go? Remember that these same money managers are, on the whole, sheep and most fail to produce returns that equa the returns on the S&P 500.
Volkmar Hable: "An especially serious concern for the stock market bulls is the VIX. Since more than two months it is plotting a falling wedge which in the past - if history is any guidance - always had resulted in a large down move for the stock market. A break out from this pattern with much higher volatility ahead should be at least expected by even the most optimistic bulls. Prepare with proper risk management."
Google Inc. said it's buying No. 1 Internet video sharing Web site YouTube Inc. for $1.65 billion in stock.
Crude for November delivery closed up 20 cents at $59.96 a barrel, well below the day's high of $61.30. Gold for December delivery closed up $5.70 at $582.50 an ounce. Silver added 24.5 cents to $11.42 an ounce and copper rose 2.45 cents to $3.413 a pound.
Fitch Ratings on Monday revised its rating outlook for oil and gas producer ConocoPhillips to "Positive" and affirmed the company's debt ratings, citing recent debt reduction. Fitch said the company significantly cut its debt since the closing of its Burlington Resources acquisition on March 31. In addition, Fitch expects that the company's debt will continue to decline as it uses proceeds from asset sales and free cash flow.
Former Secretary of State James A. Baker III: "I don't think you restrict your conversations to your friends. It's got to be hard-nosed. It's got to be determined. You don't give away anything. But in my view it is not appeasement to talk to your enemies."
Alvin Toffler: "In describing today's accelerating changes, the media fire blips of unrelated information at us. Experts bury us under mountains of narrowly specialized monographs. Popular forecasters present lists of unrelated trends, without any model to show us their interconnections or the forces likely to reverse them. As a result, change itself comes to be seen as anarchic, even lunatic."
Sunday, October 08, 2006
The Latest Newsweek Poll
10/9/06 The Latest Newsweek Poll
I have included the detailed results of this poll because I believe many of its findings are significant. You can draw your own conclusions.
More than half of Americans-52 percent, including 29 percent of Republicans-believe that House Speaker Dennis Hastert was aware of Congressman Mark Foley's inappropriate messages to teenage Congressional pages and tried to cover it up, according to the latest Newsweek Poll. Only 24 percent say he did not.
A plurality of Americans, 42 percent, now say they trust Democrats to
do a better job of handling moral values; 36 percent say they trust
Republicans more. This represents almost a complete reversal from an Aug.
2-Sept. 1, 2002 Kaiser Family Foundation/Harvard/Washington Post poll in
which 31 percent of Americans said they would trust Democrats to handle
moral values better while 44 percent said they would trust Republicans
more. On the subject of the war on terror at home and abroad, 44 percent of
Americans trust the Democrats to handle it better-a five-point increase
from the Aug. 10-11, 2006 Newsweek Poll. Thirty-seven percent trust the
Republicans more-a seven-point drop from the same August Newsweek Poll.
When it comes to the situation in Iraq, 47 percent of Americans say the
Democrats would handle it better, versus 34 percent who say the Republicans
would. Fifty-three percent say the Democrats would do a better job with the
economy, while only 31 percent say Republicans would. Fifty-seven percent
of those polled say the Democrats would do a better job with health care;
43 percent say they would do a better job with immigration, versus 34
percent who say Republicans would. Fifty-six percent say the Democrats
would do a better job managing gas and oil prices and 53 percent say the
would do a better job managing federal spending and the deficit.
A majority of Americans, 53 percent, would like to see the Democrats
take control of Congress in this year's elections, according to the
Newsweek Poll. Only 35 percent say they would like the Republicans to keep
control. And 51 percent of registered voters say that if the elections were
held today they would vote for the Democratic candidate in their district,
versus 38 percent who say they would vote Republican. Among likely voters,
51 percent would vote for the Democratic candidate and 39 percent for the
Republican candidate.
President Bush's approval rating fell to a record low-33 percent-in the
Newsweek Poll, a three-point drop from the Aug. 24-25, 2006 poll.
Fifty-nine percent of Americans say they disapprove of how Bush is handling
his job as president. Sixty-seven percent say they are dissatisfied with
the way things are going in the United States; only 25 percent say they are
satisfied.
For the first time in the Newsweek Poll, a majority of Americans -- 58
percent -- believe that the Bush administration purposely misled the public
about evidence that Iraq had banned weapons in order to build support for
the war. Thirty-six percent say it did not. In general, 66 percent of
Americans say that the Iraq war has not made Americans safer from
terrorism; 29 percent say that it has. A 58-percent majority also say they
are not too confident or not at all confident that the United States will
successfully establish a stable democratic form of government in Iraq over
the long term. Only 38 percent say they are somewhat or very confident.
Secretary of Defense Donald Rumsfeld's approval rating has fallen to just
30 percent, with a plurality of Americans, 48 percent, saying he should
resign.
According to a Sunday report by Bloomberg, Saudi Arabia and five other OPEC members cut oil output by a total of 1 million barrels a day in an effort to revive prices that lost a quarter of their value in recent months, a spokesman for the group said.
Implementation of the agreed cut, which represents a 3.4 percent reduction from OPEC's September total, has ``already happened,'' Levi Ajuonuma said in a phone interview in Nigeria today. The cutbacks, which include pledges made by Venezuela and Nigeria late last month to reduce output by a total of 170,000 barrels a day from Oct. 1, are ``voluntary,'' he said.
Istithmar PJSC, an investment company owned by Dubai's ruling Maktoum family, bought an approximately $1 billion stake in Standard Chartered Plc as it seeks to diversify the emirate's income beyond oil.
Istithmar, which means ``investment'' in Arabic, holds 2.7 percent of the London-based bank that makes about two thirds of its profit in Asia. Dubai, United Arab Emirates-based Istithmar said it ``supports'' Standard Chartered's management.
IMF chief Rodrigo Rato: "The risk of a disorderly adjustment of global economic imbalances has not gone away, and could well be exacerbated by the other risks. Policy makers need to be ready to adapt to a more challenging environment."
Dorothy Thompson: "There is nothing to fear except the persistent refusal to find out the truth, the persistent refusal to analyze the causes of happenings."
Brett Steenbarger: "We saw 83% of S&P 500 stocks trading above their 50-day moving averages on Thursday--a level that has typified momentum peaks over the past several years."
Deepcaster: "Clearly the $3.2 TRILLION petroleum derivatives position, which the Fed-led Cartel opened last year when natural gas prices hit $15, is the number one candidate for this crude swoon...Those who doubt whether the Cartel has the capacity to manipulate the markets (and especially the larger markets like the multi-trillion dollar currency and bond markets) are invited to inform themselves about the $32 trillion interest rate derivatives colossus at J.P. Morgan Chase, or the $3.2 trillion derivatives position at the Bank for International Settlements (the Central Banker's Bank). And that $32 trillion derivative position at J.P. Morgan is the position at just one of the Fed’s several “primary dealer” firms."
I urge everyone to take the time to read the entire Oct. 6 Deepcaster posting:
http://news.goldseek.com/GoldSeek/1160150067.php
I have included the detailed results of this poll because I believe many of its findings are significant. You can draw your own conclusions.
More than half of Americans-52 percent, including 29 percent of Republicans-believe that House Speaker Dennis Hastert was aware of Congressman Mark Foley's inappropriate messages to teenage Congressional pages and tried to cover it up, according to the latest Newsweek Poll. Only 24 percent say he did not.
A plurality of Americans, 42 percent, now say they trust Democrats to
do a better job of handling moral values; 36 percent say they trust
Republicans more. This represents almost a complete reversal from an Aug.
2-Sept. 1, 2002 Kaiser Family Foundation/Harvard/Washington Post poll in
which 31 percent of Americans said they would trust Democrats to handle
moral values better while 44 percent said they would trust Republicans
more. On the subject of the war on terror at home and abroad, 44 percent of
Americans trust the Democrats to handle it better-a five-point increase
from the Aug. 10-11, 2006 Newsweek Poll. Thirty-seven percent trust the
Republicans more-a seven-point drop from the same August Newsweek Poll.
When it comes to the situation in Iraq, 47 percent of Americans say the
Democrats would handle it better, versus 34 percent who say the Republicans
would. Fifty-three percent say the Democrats would do a better job with the
economy, while only 31 percent say Republicans would. Fifty-seven percent
of those polled say the Democrats would do a better job with health care;
43 percent say they would do a better job with immigration, versus 34
percent who say Republicans would. Fifty-six percent say the Democrats
would do a better job managing gas and oil prices and 53 percent say the
would do a better job managing federal spending and the deficit.
A majority of Americans, 53 percent, would like to see the Democrats
take control of Congress in this year's elections, according to the
Newsweek Poll. Only 35 percent say they would like the Republicans to keep
control. And 51 percent of registered voters say that if the elections were
held today they would vote for the Democratic candidate in their district,
versus 38 percent who say they would vote Republican. Among likely voters,
51 percent would vote for the Democratic candidate and 39 percent for the
Republican candidate.
President Bush's approval rating fell to a record low-33 percent-in the
Newsweek Poll, a three-point drop from the Aug. 24-25, 2006 poll.
Fifty-nine percent of Americans say they disapprove of how Bush is handling
his job as president. Sixty-seven percent say they are dissatisfied with
the way things are going in the United States; only 25 percent say they are
satisfied.
For the first time in the Newsweek Poll, a majority of Americans -- 58
percent -- believe that the Bush administration purposely misled the public
about evidence that Iraq had banned weapons in order to build support for
the war. Thirty-six percent say it did not. In general, 66 percent of
Americans say that the Iraq war has not made Americans safer from
terrorism; 29 percent say that it has. A 58-percent majority also say they
are not too confident or not at all confident that the United States will
successfully establish a stable democratic form of government in Iraq over
the long term. Only 38 percent say they are somewhat or very confident.
Secretary of Defense Donald Rumsfeld's approval rating has fallen to just
30 percent, with a plurality of Americans, 48 percent, saying he should
resign.
According to a Sunday report by Bloomberg, Saudi Arabia and five other OPEC members cut oil output by a total of 1 million barrels a day in an effort to revive prices that lost a quarter of their value in recent months, a spokesman for the group said.
Implementation of the agreed cut, which represents a 3.4 percent reduction from OPEC's September total, has ``already happened,'' Levi Ajuonuma said in a phone interview in Nigeria today. The cutbacks, which include pledges made by Venezuela and Nigeria late last month to reduce output by a total of 170,000 barrels a day from Oct. 1, are ``voluntary,'' he said.
Istithmar PJSC, an investment company owned by Dubai's ruling Maktoum family, bought an approximately $1 billion stake in Standard Chartered Plc as it seeks to diversify the emirate's income beyond oil.
Istithmar, which means ``investment'' in Arabic, holds 2.7 percent of the London-based bank that makes about two thirds of its profit in Asia. Dubai, United Arab Emirates-based Istithmar said it ``supports'' Standard Chartered's management.
IMF chief Rodrigo Rato: "The risk of a disorderly adjustment of global economic imbalances has not gone away, and could well be exacerbated by the other risks. Policy makers need to be ready to adapt to a more challenging environment."
Dorothy Thompson: "There is nothing to fear except the persistent refusal to find out the truth, the persistent refusal to analyze the causes of happenings."
Brett Steenbarger: "We saw 83% of S&P 500 stocks trading above their 50-day moving averages on Thursday--a level that has typified momentum peaks over the past several years."
Deepcaster: "Clearly the $3.2 TRILLION petroleum derivatives position, which the Fed-led Cartel opened last year when natural gas prices hit $15, is the number one candidate for this crude swoon...Those who doubt whether the Cartel has the capacity to manipulate the markets (and especially the larger markets like the multi-trillion dollar currency and bond markets) are invited to inform themselves about the $32 trillion interest rate derivatives colossus at J.P. Morgan Chase, or the $3.2 trillion derivatives position at the Bank for International Settlements (the Central Banker's Bank). And that $32 trillion derivative position at J.P. Morgan is the position at just one of the Fed’s several “primary dealer” firms."
I urge everyone to take the time to read the entire Oct. 6 Deepcaster posting:
http://news.goldseek.com/GoldSeek/1160150067.php
Consider The Possibility
10/8/06 Consider This Possibility
This past week we saw a new all-time Dow high and a multi-year high for the S&P 500 and the Nasdaq. Consider the possibility that we also saw the low for the rest of the year in interest rates, crude, natural gas, heating oil, gasoline, and precious metals. In sum, it is quite possible that the equity indices mentioned above may very well have seen their highs for at least the rest of the year. Time will tell whether that view is correct. I am placing my money that it is. If you are not certain, I strongly suggest you consider 3-month treasury bills yielding 4.92%.
Aristotle: "Probable impossibilities are to be preferred to improbable possibilities."
On several occasions I have mentioned that housing stocks bottomed in June and July. Wall Street tries to predict events down the road. Consider the possibility that the worst is over for the housing industry. That might not mean a rebound- just that it doesn't get worse and bases out for a year or two. What would this scenario mean for the economy, bond prices, and equities? You might say this is the soft landing anticipated by many. Not exactly. If growth in the U.S. slides to 3% or slightly lower, that does not mean the rest of the world, like China and India, will slow. In fact, they will continue to have huge infrastructure demands. Thus, inflation could very well heat up in the months ahead.
"Prices are going to go down and stay down for awhile. It will take at least a couple of years to work off the excesses of the last decade," says Mark Zandi, chief economist at Economy.com.
Doug Noland: "More than housing - the system's weak link lies today, as it has for some time, in securities leveraging. And while the summer bond rally has provided relief for bond investors (as well as fun and games for some), it is been destabilizing for the system. The bond bears were run out of town, hedges against higher rates were unwound, while speculations and hedges for lower rates were established. And I would suspect the financial markets' overwhelming Inflationary Bias has not gone unnoticed by the Fed "hawks," including Messrs. Kohn, Lacker, Moscow and Plosser. It's my own view that the summer rally has likely only postponed any eventual move by the Fed to cut rates and has even increased the possibility that more hikes will be necessary. If the interest-rate markets are now forced to abruptly reverse course and price in such a scenario, well, the markets will have relished in the opportunity to do the most damage to the largest number. It is, after all, the dreaded "V" move in market yields - especially MBS - that can prove especially destabilizing to the leveraged players and derivative traders - hence system liquidity. And I don't want to get all carried away by a couple days of rising market yields. But I do see the current backdrop of Myriad Inflationary Biases with the distinct possibility of Deepening Chasms at the Fed."
According to Bloomberg, China's surplus on the current account, which measures exports and imports of goods and services, widened in the first half, the government said.The gap swelled to $91.6 billion from $67.3 billion the same period last year, the Beijing-based State Administration of Foreign Exchange said today on its Web site. That puts the surplus on track to top last year's record $161 billion in 2006.
Agnes Laut: " The very fact that possibilities are unknown gives scope to unbridled fancy and the wildest hopes."
This past week we saw a new all-time Dow high and a multi-year high for the S&P 500 and the Nasdaq. Consider the possibility that we also saw the low for the rest of the year in interest rates, crude, natural gas, heating oil, gasoline, and precious metals. In sum, it is quite possible that the equity indices mentioned above may very well have seen their highs for at least the rest of the year. Time will tell whether that view is correct. I am placing my money that it is. If you are not certain, I strongly suggest you consider 3-month treasury bills yielding 4.92%.
Aristotle: "Probable impossibilities are to be preferred to improbable possibilities."
On several occasions I have mentioned that housing stocks bottomed in June and July. Wall Street tries to predict events down the road. Consider the possibility that the worst is over for the housing industry. That might not mean a rebound- just that it doesn't get worse and bases out for a year or two. What would this scenario mean for the economy, bond prices, and equities? You might say this is the soft landing anticipated by many. Not exactly. If growth in the U.S. slides to 3% or slightly lower, that does not mean the rest of the world, like China and India, will slow. In fact, they will continue to have huge infrastructure demands. Thus, inflation could very well heat up in the months ahead.
"Prices are going to go down and stay down for awhile. It will take at least a couple of years to work off the excesses of the last decade," says Mark Zandi, chief economist at Economy.com.
Doug Noland: "More than housing - the system's weak link lies today, as it has for some time, in securities leveraging. And while the summer bond rally has provided relief for bond investors (as well as fun and games for some), it is been destabilizing for the system. The bond bears were run out of town, hedges against higher rates were unwound, while speculations and hedges for lower rates were established. And I would suspect the financial markets' overwhelming Inflationary Bias has not gone unnoticed by the Fed "hawks," including Messrs. Kohn, Lacker, Moscow and Plosser. It's my own view that the summer rally has likely only postponed any eventual move by the Fed to cut rates and has even increased the possibility that more hikes will be necessary. If the interest-rate markets are now forced to abruptly reverse course and price in such a scenario, well, the markets will have relished in the opportunity to do the most damage to the largest number. It is, after all, the dreaded "V" move in market yields - especially MBS - that can prove especially destabilizing to the leveraged players and derivative traders - hence system liquidity. And I don't want to get all carried away by a couple days of rising market yields. But I do see the current backdrop of Myriad Inflationary Biases with the distinct possibility of Deepening Chasms at the Fed."
According to Bloomberg, China's surplus on the current account, which measures exports and imports of goods and services, widened in the first half, the government said.The gap swelled to $91.6 billion from $67.3 billion the same period last year, the Beijing-based State Administration of Foreign Exchange said today on its Web site. That puts the surplus on track to top last year's record $161 billion in 2006.
Agnes Laut: " The very fact that possibilities are unknown gives scope to unbridled fancy and the wildest hopes."
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