February 21, 2010
Here is a link to 'U.S. Mortgage Foreclosures Rose in Fourth Quarter', by Kathleen M. Howley of Bloomberg.
Rich Kolon sends along this note:
(assuming you are not a large campaign contributor or lobbyist)
1) Realize the government has bailed out a lot of crooks, who in turn are giving themselves large bonuses at the expense of the stockholders and taxpayers.
2) Realize that most politicians are either bought for favoritism or too naive to realize how they are also scammed.
3) Don't believe what the authorities tell you (such as the crisis is contained, or jobs will be created, or they believe in a strong dollar, etc.)
4) Bet the opposite way once the masses have acted in the predictable way on any news. (For example, if the IMF wants to sell a lot of gold, buy the dips.)
5) In the short run, pay more attention to price vs. moving average on a chart than fundamentals.
6) In the long run, buy the dips on long term demand growth and long term supply constraint. (Gold, baby, Gold!)
Rich"
February 18, 2010
From Red and White D comes these notes:
http://www.reuters.com/article/idUSTRE61H13X20100218
Today's Star Tribune contained an article about the legislature considering changes in the retirement system to reduce their expenditures. Even fat cat Wyoming is getting smacked.
As you have observed already, the fed keeping interest rates in the basement trying to scare capital back into equities will end up hurting more than helping. When pension funds start running out of cash the poop will hit the fan."
And a second note:
A third note:
http://bp3.blogger.com/_pMscxxELHEg/RxzD0s_7EYI/AAAAAAAABB4/ljDSXZhMG3o/s1600-h/IMFresets.jpg
Looks like this summer and next will be interesting. One thing to consider is that the shock to the finance industry from defaults on mortgages has been largely recognized and in many cases has been factored into the books and investment strategies. So, when things start going to hell again in the mortgage market, the consequences will not be as frightening the first time. But, sure as shootin, there is bound to be a second dip this year or early next year. And, as Kiyosaki observed, when interest rates start back up, equities are bound to go flat.
I wonder how they will try to hide this stuff? You know they will."
Big D, this is one of the things I have been looking at for two years...all this was known then. We got a break in 2009 with the resets. But 2010 and 2011 are going to be far worse than 2008 was. We've got all our corporations getting 'leaner' and laying folks off like crazy - STILL - just to keep bottom line numbers high on falling top line numbers! Even the hiring freezes currently in place tend to reduce the numbers on payroll. Consumers are tapped out - they have no appetite for spending...consumers are the workers still left with jobs. Jobless numbers are much higher than the 'gummit' will admit to. My own guesstimate is that the real jobless number is about 18 percent. (The Great Depression jobless number hit 25. So we're only seven percent away.) Another dip is definitely in the picture sometime in the next two years.
And here is his fourth note:
http://business.timesonline.co.uk/tol/business/economics/article7031896.ece
Such is the reason the Euro is falling.
--------------
OMG run run, the Euro is falling, the Euro is falling.
-Chicken Little."
Here is a note from Rich Kolon:
http://www.zerohedge.com/article/taibbi-goldman-raped-taxpayer-and- raped-their-clients
'Con artists have a word for the inability of their victims to accept that they've been scammed. They call it the "True Believer Syndrome.' That's sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn't so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn't matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent as well, this thing isn't going to work, no matter what we do. Sure, mugging old ladies is against the law, but it's also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.
That's why the biggest gift the bankers got in the bailout was not fiscal but psychological. 'The most valuable part of the bailout,' says Rep. Sherman, 'was the implicit guarantee that they're Too Big to Fail.' Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures.'
Rich"
Rich, the regulators could not go after them. Neither could Congress. To go after the bad guys you have to have been above it all...not part of it all.
..........................
The Credit Economy
During my lifetime the U.S. has become a consumer economy....based on a seemingly limitless supply of credit.
We became more concerned about consumption than about production. And so it came to be that the FED became fixated not on the flow of goods and services in our economy, but upon the production, flow, and consumption of credit. Consumers ate credit. When they did, the economy boomed. All well and good. But in a Credit Economy one factor becomes so important it superceeds all others:
TRUST
I think trust is out the window. How can our central bank keep interest rates so low for so long and think anyone is going to trust the currency? How can a dollar actually be worth anything when, why by its actions, the FED tells us otherwise?
This FED, and the one before it, seriously underestimates the damage it is doing to TRUST.
We are in a Depression Folks. We've many more years to go. It is going to get worse before it gets better. Lots of bad new out there on the horizon.
February 17, 2010
Keith sends along this link to 'An inevitable collapse? At least it's not a crash', by Brian Milner From Monday's Globe and Mail. I quote below. Bolding is my own.
February 15, 2010
Here is a link to 'Richard Suttmeier's Ten Predictions for 2010', on Minyanville.com.
Rich Kolon sends along this note.
We are in a bear market. See QQQQ chart at Bessemer Bend Stocks. Most stocks go down in a bear market.
Chinese stocks were very hot in the months before the top in January. The bear market has broken the momentum.
When the Fed first announced that banks should get out of speculative investments about a month or two ago, this signaled the speculators to start taking profits.
(A general discussion is in this Time mag article: http://www.time.com/time/magazine/article/0,9171,880512,00.html )
These speculators were involved in buying stocks, gold, oil, etc using money from the Fed or the Federal Reserve Banks. This is known as carry trade speculation. The speculators would borrow money at real low interest rates (stupid Fed), and one of the things they bought with borrowed dollars were Chinese stocks.
The Fed has also threatened to eventually raise interest rates. Carry trade speculators don't like that idea. It tends to increase the value of the currency. The dollar has gone up from the bottom.
http://stockcharts.com/h-sc/ui?s=$USD&p=D&yr=0&mn=6&dy=0&id=p91058887254
In response to the carry trade currency going up, it is the conviction of carry trade speculators to sell what they speculate quickly, so they do not get caught owing more expensive dollars.
And that may be a partial reason why TPI has not performed as well as we expected.
Dollars move stocks. Fundamentals are an excuse to spend dollars on stocks, or sell them. Charts are an excuse. Carry trade is an excuse.
Fundamentals are great for long term investors. In the short term, fear and greed tend to be the quick motivators for traders.
Incidentally I sold TPI, GCHT.OB, CIWT.OB last month, primarily due to the QQQQ signal. I even sold some SVM.TO. (I still have a bunch.)
I consider the bull market of 2009 to be entirely a speculative stock bubble. I could not justify it fundamentally. You can make money in a bubble if you know when to get out. I predetermined that the best indicator of when to sell a bubble is the QQQQ signal. So I acted on it when it went negative.
The signal won't catch the top, nor the bottom. It will catch a trend in motion. So I'm still up from layoff day. I repeat my warning to pay attention to it.
Rich"
And here is a note from the Orange Section.
I work for an Insurance Company that writes several billion dollars of premium and employs over 1000 people. I work on the Finance Team and have a hand in the majority of the reporting that Executive Management sees. So I can tell with a great deal of certainty that Management does not follow job polls. They follow the trends in their business and use those trends to determine which decisions make sense.
The most critical job a manager does is make decisions. A large part of that is framing issues and gathering information.
Beyond this though is the simple logic of profit motive. A manager would be an outright fool to get rid of staff when the job reports head south. Indeed, if your business is strong you want to keep your talent and pick off the best and brightest from the firms around you that are failing. Other options might be buying up a dying competitor at a discount. That is what strong well managed companies do in tough times.
Many of the issues we see today have their roots in inefficient structures that are forced on the free market by external forces, most notably the Federal Government. The housing mess is owed in no small part to the politically (as opposed to economically) motivated actions of FNMA and FHLMC. (Fannie/Freddie) This was exasperated by an accommodative interest rate policy from the Federal Reserve's FOMC under Alan Greenspan. Profit Motive failed when Bankers drank the government kool-aid. The managers of those banks should have been fired. (My firm is owned by a larger firm that was very prudent during this time) Then what happened? The Government bailed them out. Whether it be through shadow funding via AIG or the TARP program. What is the net result? Inefficiency persists in the Free Market. Poor decision makers keep their jobs and continue to make poor decisions because government prevented creative destruction from happening. Instead of business evolving it was encouraged to stay on a path the market has already proven to be flawed.
Inefficiency begets uncertainty. Uncertainty increases risk and unmitigated risk is the enemy of capital. Of course this is just one cog in the wheel of our current recession. The others are excessive taxation, inefficient government spending, a heavy debt burden, and overall a high level of slack demand.
I have been saying for a while that Tax Cuts and prudence in Washington are the answers. Government's share of GDP should be going down, not up."
Point well taken, oh Orange Section. But I will stand by my words. Wal-Mart, the biggest retailer in the world, has a hiring freeze on. What do you suppose the other retailers are doing, and the miners, and the boys in the oil and gas industry, the loggers, the builders, the tech companies, are all doing? They are getting leaner. I look for this trend to continue. Oh, yeah, and have you noticed that the prices for appliances have gotten to be pretty reasonable lately?
It's a depression we are in. And yes, it is different this time. We have an interventionist government now. But that won't keep us from a slow, glacial melt. That is what will be diffent. We won't see a rebound, just a long drawn-out slide lower. Because no one living has ever seen such a thing, very few people will recognize it for what it is for a very long time.
February 9, 2010
The Herd Instinct
We associate that idea most often with folks who trade stocks, or even with the leaders of the financial industry. But really, it infects all of business.
It's about jobs, stupid
Business presidents watch the job numbers like hawks...and then react in unison. That is a fact which exacerbates any downturn in the economy.
They see job numbers decline and they react by 'getting leander and meaner'. That is, they reduce their forces, they lay off, they early-retire. Hiring freezes are litterally the norm right now. Natural attrition alone is reducing work forces. The layoffs just speed the process. Since all of the Corporate presidents are doing the same thing, that leaves fewer and fewer people left with paychecks to spur a consumer-driven rebound. And since the consumers account for some seventy percent of the economy, reducing their numbers is generally a really bad idea.
Computer/Tech sales up - in a bad economy
I suppose that would have been a heartening sign once. It is not now. When tech does well as employment is in the toilet that is a really bad sign. Why? It means that company presidents are getting their companies even leaner - that machines being ordered now are meant to replace workers who are about to be laid off. When it comes to tech, a slowdown now would be a harbinger of a rebound six months off. So far, nothing is on the horizon....tech is doing really well.
Here is a link to 'Businesses Reduced Inventories in December', by the ASSOCIATED PRESS on NYTimes.Com. Suprised?
...................
Here is a copy of a letter-to-the-editor I sent off to my local newspaper:
Last February 6 the CST featured a commentary written by U.S. Senator Enzi, in which he proposed helping small business by extending a tax cut for research and development.
On the first reading Senator Enzi's proposal seems to make sense. But I ask the average citizen of Wyoming how much research his local rancher is doing, or his local restaurant, his local auto parts store, or his local clothing store? These are small businesses.
Something less than one percent of all small businesses do research. Who does research in a big way? Big businesses and universities do it. Funding for it comes from two sources: the federal government and big business. So, if Enzi were to get what he says he wants who will benefit, small business or big business?
Is Senator Enzi trying to help his friends in big business while trying to make it seem like he's trying to help someone else?"
February 8, 2010
Here is a note from Rich Kolon.
http://www.nytimes.com/2010/02/07/business/economy/07gret.html
The government made a big mistake bailing out banks. They should have bailed out the average joe himself.
The banks that owned crap would fail. But bailing out the average joe would have kept more mortgages off the in-danger list.
Say the Fed gave every taxpaying household $5000. The cost might be about $600 billion. Some of that money might go right back into the economy, if not to pay down some mortgage debt.
Now what are we stuck with? Multi-trillion dollar deficits for years on end?
We already see what happened when you bail out the rich. They give themselves multi-million dollar bonuses. Then they lay you off and sent the money to some foreign country, which keeps foreign workers on the payrolls. Then they rub the American laborers' nose by importing cheap foreign labor.
What to do about the depositors at those failed banks? Print some currency and replace their accounts.
What about the inflation that would cause? Not much. Those were savings. The replacement money would likely stay as savings at another bank.
What stinks is the banks are still trying to gouge the borrowers out of house and home, and they are encouraged to continue with dishonest accounting to cover up the truth. It doesn't solve the problem. It rewarded the people who created the mess.
Rich"
Rich, what you say is what I have been thinking all along.
And here is another from Rich.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a.G6KFfaDdSc
Can you say Sarbonne Oxley? How about Enron? Would you believe major banks?"
From Red and White D comes this note.
Did a little looking after I read the post from Minyanville about labor stats.
A short tutorial on how BLS plays with numbers:
http://www.chrismartenson.com/blog/unemployment-report-distortions/24080
And, a set of alternative stats.
http://www.shadowstats.com/alternate_data
The source data for the second is only revealed to subscribers so who knows what tomfoolery he may be up to. But, it is interesting to look at and likely correct.
That information knob on the government's control panel is getting a good workout."
Red and White D also sends along this link to the wisdom of Gerry Spence. If Dick Cheney is the most unpopular of people from my fair State of Wyoming, think of Spence as the antidote.
http://gerryspence.wordpress.com/2008/12/29/our-trip-down-turd-river/
February 5, 2010
Here are two related articles by Mike Mish Shedlock on Minyanville.Com.
Keep your eye on the ball, folks. Let the numbers speak to you.
February 2, 2010
Here are links to two very grim articles.
Here is a link to 'Housing, Banking Woes Point to Double-Dip Recession', by Richard Suttmeier on Minyanville.Com. I quote the article below.
Now we have a worse economic condition with Adjustable Rate and Negative Amortization Mortgages within their re-set windows. These loans are too far underwater to be helped by mortgage modification programs.
Recent housing data for both existing and new-home sales were horrific and ignored by the FOMC in last week's Fed Statement. Community and regional banks are falling like dominoes as bad loans cascade on and off bank balance sheets. This wave is worse than the subprime era, and plants the seeds for the double-dip recession."
Here is a link to 'The Statistical Recovery Has Arrived', by John Mauldin on Minyanville.Com. I quote the article below.
Second, as my friend David Rosenberg pointed out, imports fell over the fourth quarter. Usually in a heavy inventory-rebuilding cycle, imports rise because a portion of the materials businesses need to build their own products comes from foreign sources. Thus the drop in imports is most unusual. Falling imports - - which is a sign of economic retrenching -- also increases the statistical GDP number.
... if you believe the GDP data -- remember, there are more revisions to come -- then you de facto must be of the view that productivity growth is soaring at over a 6% annual rate. No doubt productivity is rising -- just look at the never-ending slate of layoff announcements. But we came off a cycle with no technological advance and no capital deepening, so it is hard to believe that productivity at this time is growing at a pace that is four times the historical norm. Sorry, but we're not buyers of that view. In the fourth quarter, aggregate private hours worked contracted at a 0.5% annual rate and what we can tell you is that such a decline in labor input has never before, scanning over 50 years of data, coincided with a GDP headline this good.
Normally, GDP growth is 1.7% when hours worked is this weak, and that is exactly the trend that was depicted this week in the release of the Chicago Fed's National Activity Index, which was widely ignored. On the flip side, when we have in the past seen GDP growth come in at or near a 5.7% annual rate, what is typical is that hours worked grows at a 3.7% rate. No matter how you slice it, the GDP number today represented not just a rare but an unprecedented event, and as such, we are willing to treat the report with an entire saltshaker -- a few grains won't do.
...What one does see, again and again, in the history of financial crises is that when an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are. But the exact timing can be very difficult to guess, and a crisis that seems imminent can sometimes take years to ignite.
...It typically takes years to work off excess leverage in a banking crisis, with unemployment often rising for four years running."
And here is a link to a gem of an article titled 'The Global Debt Crisis in Nine Slides', by Peter Atwater on Minyanville.Com.
February 1, 2010
From Keith comes this link to 'Where is the next bubble going to burst? I bet on China', by Avner Mandelman on TheGlobeAndMail.Com. I quote the article below.
...So why do I think the fizzle-out is near?
For the following reasons: First, just two weeks ago China told its banks to lend less - evidently its leaders understand the bubble must burst, and prefer this to happen from a lower height. If the U.S. Federal Reserve had ordered U.S. banks to lend less, the Dow would melt. When it's China, no one seems to care. Yet.
Second, a month ago China walked away from contract talks with Potash Corp. and other producers, as the country demanded what the company called an unrealistically low price. Such a walkout has not happened before. Can it be that the Chinese negotiators knew their economy would be weaker, so they'd need less potash later and could pay less?
Third, there are signs the Chinese leadership is getting really scared of its own people. Besides Soviet-style pervasive media and Internet censorship, China recently forbade the showing of the movie Avatar. Apparently, 'natives fighting exploiters' is too close to what the Chinese authorities are doing to landed peasants. A government fearing an uprising sparked by a movie? Would you invest there?"
From Ben Smith comes this link to a much more positive article: http://www.cotstimer.blogspot.com/.
Here is a note from Rich Kolon
Scroll down about 3/4ths of the page in this link to see the chart entitled Mutual Fund Cash Levels. Note the peaks in the Dow Jones Index during the last decade and the corresponding cash levels. Another indication that supports my contention that we just seen the market top in January 2010, as also suggested by my QQQQ 20-week signal. Do not ignore that signal!
http://www.cross-currents.net/charts.htm
Rich"
January 29, 2010
Here is a link to 'The FOMC Ignores Weak Housing', on Minyanville.Com. This says exactly what I have been thinking of late. I quote the article below.
...How strong can the economy be when bank lending is contracting, and with this situation how can they predict that there will be a gradual return to higher levels of resource utilization in a context of price stability? With gasoline prices higher than all of 2009, with defaults and foreclosures rising, the Fed is turning its back to Main Street USA.
If the Fed believed that the US economy is coming out of recession, why do they feel compelled to keep the federal funds at 0 to 0.25% when we know that this giveaway is the fuel Wall Street is using to keep their proprietary desks in a speculative mode? A 3% funds rate can help Main Street and the Fed would still be accommodating. The Fed continues to lack confidence that their policy will work."
If we are really doing so well, why not raise interest rates?
..................
Here is a note from Red and White D.
I may be wrong, but to my knowledge the idea of a government seriously dabbling in and attempting to manipulate the economy of a country is a very new idea which has it's roots in Marxism and the idea of class warfare. Up until 1900 or so it was Laissez-faire as long as the sovereign got it's cut. How the money was made was left to business.
Sovereigns of the past really had no interest in economies except as they impacted their ability to conduct foreign policy, that is to finance and wage wars. It wasn't until the Russian revolution that governments started making serious attempts to manipulate economies for political purposes, which is what we are seeing here in the U.S. now.
I read the GDP article you posted and it came to me that we are living in the middle of a big experiment. No one knows how it will come out and the result may not be understood for many many years. Social and economic engineering are new kids on the block. Those in control of the handles of power are tweaking every screw and knob, including especially the information knob, trying to figure out how to make the most politically from the economy.
Que sera sera."
And here is a note from the Orange Section.
Bender,
I read your comments. I am out of the market aside from a few shares in GLD, but what really frightens me is the cost that our political leadership has imposed on cash. With current interest rates being at 0.25% holding cash is essentially a losing proposition when you take into account inflation. This is the real insult to private savings, our leadership has made it cost money to be prudent. I think this is part of what is driving the market. If it costs money to be conservative it creates incentive to take risks in the market. Obvious one could question the wisdom of that relationship, but it is an influence.
Bernanke is only part of the problem. The real issue, IMO is Washington DC. The Fed is a juicy target for investors given the past 30 years of conditioning with regards to interest rates and their impact on financial markets. However, a lot of what the FED is doing is financial engineering to allow the Obama administration to do things like quadruple the deficit and vastly increase the Federal Debt. We are now at risk of something called seinorage, which I have to admit to not fully understanding. From what I recall it has to do with the Central Bank essentially creating money to loan to the Central Government. Functionally that is what happened in 2008. The only reason that we haven't seen a massive spike in inflation is because in the grand scheme of the world economy, the US is still "special" and doesn't have to play by the rules. Bernanke's gambit was to "promise" the markets that the Fed would deflate their balance sheet to prevent inflation. Currently Wall Street has bought the promise.
There are a lot of rumblings that the Fed is going to unwind their balance sheet in March. My guess is that a lot of this has to do with Politics. This time last year it was all about being with Obama. Now after a year of Tea Parties, protest, and the Massachusetts Miracle Obama's circle is no longer some place you want to be. I think this will represent the most significant market event of 2010, but I am not sure how to play it. A risky move would be to buy some April and May puts. A conservative move would be to stay in cash and buy at the bottom. I'll be taking the latter option in my 401K since I do not have a means to play the short side in that account.
At the end of the day though this is about our national leadership. Most people who know anything about business or economics can tell you what is wrong and what needs to be fixed. Yet we keep electing candidates who are functionally inept in these areas. I don't mean to be harsh, but in a democracy this is the fault of the voter. We need to start sending better people to represent us and to start expecting higher quality leadership."
January 27, 2010
Here is a link to 'The Truth Behind GDP', by James Anderson of Minyanville.Com. I quote it below.
Here is a link to 'What I Would Do as Fed Chairman', by Richard Suttmeier of Minyanville.Com. I quote it below.
I want to give Americans on Main Street higher interest rates on savings and money markets. I have always opined that in the US a federal funds rate below 3% was never a prudent monetary policy choice. This might finally provide an incentive for increased consumer spending.
...The Jobless Rate Rose in 43 States in December -- Forty-three states reported higher unemployment rates in December, which to me is a resounding warning that the US economy lacks traction. With 600,000 leaving the work force in December the unemployment rate is worse than reported.
Barney Frank, a champion of Fannie Mae (FNM) and Freddie Mac (FRE), now wants to abolish them. As readers know, I favored the liquidation of Fannie and Freddie months before the US Treasury took them over in Conservatorship. I suggested beefing up the government-backed Ginnie Mae mortgage program, while gradually liquidating Fannie and Freddie debt and mortgages. Instead, US taxpayers are on the hook for $111 billion and counting and will be covering all GSE losses through 2012, leaving a lifeline that could be double the current $400 billion."
Here is a link to 'We Can't Spend Our Way Out of a Debt Bubble', by Mike Mish Shedlock of Minyanville.Com. I quote it below.
The only thing that can possibly work is the write off of bad debts -- something both the administration and the Fed are reluctant to do. We can either do this now, or drag it out for two decades like Japan, only to end up deeper in debt.
What ended the Great Depression -- and let's hope it doesn't come to that again -- was WWII and the destruction of capacity everywhere but the US.
Spending $5 trillion dollars wouldn't do a thing now, other than wreck the dollar and create another bubble. Repeat after me: It's impossible to spend one's way out of a debt bubble.
Given that it's impossible, it's pointless to try. Thus the real lesson of 1937 is 'don't blow debt bubbles in the first place.'
January 24, 2010
Here is a link to 'If Bills Fail, a Quandary for Insurers', by Reed Abelson of NYTimes.Com. I quote it below.
If the health overhaul is indeed dead, she said, the critical question becomes 'how do you grow these businesses?'
The insurers say they understand the need for change in their business, particularly so they can offer more affordable coverage to people who must buy insurance on their own and are in poor health.
'There are legitimate, real issues that aren't going away that we need to address,' said Ronald A. Williams, the chief executive of Aetna, one of the big for-profit insurers."
Here is a link to 'Three Faces of Market Danger', by Paul J. Lim of NYTimes.Com.
....................
I was out for coffee with the boys yesterday. The subject turned to the enormous U.S. debt. Lar reminded us of a sobering fact: Of all the capital in the world right now, the U.S. has borrowed 80 percent of it. How willing will the holders of the remaining 20 percent be to lend us the other 20 percent? We think there will be great reluctance, long term, for foreigners to buy U.S. bonds. And the FED can not keep being the only buyer at the auction. So, how does our government solve the debt problem?
There are only Four Ways Out.
1. Default on the Debt - This is the worst solution, and it would plunge the world into financial chaos.
2. Raise Taxes - This is the worst way to revive a struggling economy. Long-term, it might sober both government and citizens enough to get both off the credit wagon. For this solution to succeed we would have to substitute increased productivity for increased borrowing. Business, particularly big business would have to cooperate by ceasing to export jobs.
3. Borrow More - Really? From whom?
4. Print Money - Dillute the Value of the Dollar - This is the option most favored by Congress. Old debts can be repaid with newly printed 'funny money'. This, of course, wipes out savings. Saving are something the FED has been urgently trying to kill anyway. Low interest rates are inflationary/reinflationary and a hammer blow against savings.
The approach to this crisis, taken by both administrations and 'Bubble Boy' Bernanke, has been trying to reinflate the bubble - kind of a 'I want my bubble back' mentality. Every month Bubble Boy keeps hammering away at savings, trying to eliminate them altogether.
January 22, 2010
Here is a link to 'Confidence Sliding on Main Street', by Richard Suttmeier of Minyanville.Com. I quote it below.
The ABC News Consumer Comfort Index fell to -49 last week, down eight points since the beginning of 2010. This index is approaching the recession and record low reading of -54, set a year ago. 45% of Americans say their personal finances are positive, which is below 50% for 75 of the past 78 weeks, another record by far. Only 33% say it's a good time to spend, which is 14 points below average, and only 9% rate the economy positively, 29 points below average.
...The Federal Housing Administration is making it tougher for homeowners to get a mortgage by raising fees and tightening lending standards. The FHA is losing money as the foreclosure rate rises. As a result, its reserves have fallen below the minimum required by Congress. This should cause yet another drag on housing as they insure 30% of all new loans, and the FHA is the largest backer of mortgages for first-time buyers. The FHA only requires a 3.5% down payment, but now requires an upfront mortgage insurance premium of 2.25% from 1.75%, which can be a deal breaker. Borrowers with a credit score below 580 must put 10% down. More than 18% of FHA borrowers are at least one payment behind or in foreclosure compared to 14% for all mortgage loans."
Here is a link to 'From the Relationship Era to the Breakup Age', by Peter Atwaterr of Minyanville.Com. I quote it below.
But I think Peggy Noonan is right, we're now on the other side. We're living in the Breakup Age. She sees it in the political arena. I see it in the deteriorating relationships between consumer borrowers and the banks.
But if strong global relationships manifested themselves in high margin/low risk earnings, I think it reasonable to expect far lower margins and much greater risk as we morph from 'We are the world' to 'Breaking up is hard to do.'"
This is important. I will add this to my list of General Trends. It will become: #15 Easy and existing relationships, between retailer and consumer, banker and customer, lender and borrower, debtor nation and creditor nation, etc. will be under greater and greater strain as those relationships strain and break.
Here is a link to 'Obama Calls for Limiting Size, Risk-Taking of Financial Firms', by Nicholas Johnston and Julianna Goldman on Bloomberg.Com. I quote it below.
Obama signed onto the concept in mid-December, according to a White House aide. Volcker attended a White House meeting Dec. 23 with Geithner and Summers to discuss details. Prior to the meeting, Obama had already approved of separating proprietary trading and banking. Geithner and Summers expressed concern that this would be a diversion from other regulatory proposals, the aide said."
........................
Here are three notes from regulars to this site.
This first note is actually two notes sent by Rich Kolon recently.
Money supply continues to fall off a cliff, thanks to banks trying to wipe out as many homeowner borrowers as possible, with the government aiding and abetting the bankers."
And from another note:
Even my latest purchase of CIWT.OB early this week is up over +24% already. My experience tells me that when the accounts start zooming up, you likely have no more than a month before a correction hits. [Bolding is by the Bender]
Rich"
Indeed, Rich, one thing traders/investors should be looking at all the time is how their overall portfolio is doing. When it seems to be at an extreme high, major selling may be in order.
From the Orange Section comes these comments.
I've been reading your recent commentary. From a market point of view I wonder if we are not setting up for a crash. I know that is a risky position to take, but it strikes me that the table is being set. I am tempted to buy a bunch of out of the money puts...
From a more economic point of view. I really think there are two core issues that must be addressed before recovery can occur:
1.) Reduce Uncertainty
2.) Resolve Slack Demand
I think the first item is pretty obvious. If business has additional reason to shun risk, then it will be more risk adverse. Government needs to stop propagating the myth of evil corporations and start taking a stance that is more business friendly.
The second one is I think critical, especially on the jobs front. One might argue that by fixing the jobs issue you would resolve the demand problem, but I think that is overly simplistic. A major reason we have double digit unemployment is because demand is down. So yes adding jobs would add consumption, but if consumption itself is down, then this solution would seem to ignore parts of the problem. I have long advocated tax cuts and I think there has never been a better time for them. If we want to get American Enterprise going, ie if we want to stimulate the economy, then we need to find a way to give it more money.
Since Roosevelt much of our public policy has been geared towards the idea stimulating the economy spending more money, but it has come via the Government checkbook not the consumer. I think this view needs to be discarded. The Cobb-Douglas function states Y-C+I+G+(X-M) and thus implies that G is just as good as C. However as any layperson knows, government spending or "G" is horribly inefficient. I think Cobb-Douglas function should have a factor for efficiency. Consumers produce GDP on a dollar for dollar basis. I would content that Government might produce $1 dollar of effective output for ever $10 or $20 it spends. Maybe even less. (One could argue that the I or Interest Income might be a partial offset to G and C due to debt. As I have said before, Macroeconomics does not effectively account for Debt in its models.)
There has never been a better time to cut taxes. Give consumers more money to spend and don't expect results right away. People have debt to pay down. Give them more money to pay it down and then you will see money start flow back into the economy as debt burdens are reduced. This will lead to growth in demand and more jobs.
Right now Washington DC seems to think it fix our problems for us. I would argue that every dollar they confiscate makes things worse, not better."
Yes, Orange Section, cutting taxes would make a lot of sense right now. But that would be a measure that would help the broadest number of Americans. Neither party seems to be thrilled with doing that. It's the special interests that line their pockets, not you and me.
Methinks your second point (Resolve Slack Demand) will be a very tough nut for this government to crack.
Your comment about a possible down market is in line with my own thinking. I am not sure about a crash, but a serious dip is possible here. We know, or think we know, that the FED is going to stop priming the pump in March. If you are going to take advantage of that, here is what you should do...and particularly this is aimed at Red and White D...
1. Sell portions of your holdings to free up cash. Do that now and next week. Keep doing that if the markets keep falling through February.
2. Start nibbling at the short funds, no more than 1 percent of your cash on any day. The short funds are at nearly historic lows and the FED move is looming on the horizons. Eventually even the big traders will catch on. When they do, the move down will be on in a big way. Keep nibbling at those short funds through February. Have at least 5 percent to 25 percent of all your cash in them by the end of February.
That is what I am thinking should be done by the prudent trader/investor. The important thing is to do it in small, palatable bites over a period of time - time that we definitely have right now. And do not be a piggy. Don't move too much money into the shorts. If a serious dip happens you need to have kept at least 75 percent of all your cash on the sidelines to buy bargains.
If, in February or March, the markets seem to be stampeding down the hill, don't ride them down. Get out!
Here is a note from Red and White D.
Watch this or don't. It will take you an hour but if you don't you will not see how power is really used in Washington. Interviews with principals and eye witnesses of how regulation of derivitives was squashed. Worth an hour.
January 19, 2010
Here is a link sent by Keith to 'Can both the economists and strategists be right?', by David Rosenberg of TheGlobeAndMail.Com. I quote it below.
Now that is remarkable. It almost wants to make you believe in the tooth fairy.
We are sure that if we told you on Dec. 31, 2008, that the market was looking for $77 on operating EPS for 2009, but $56 is all we would muster, you wouldn't have told us that your forecast for the S&P 500 at year-end would be 1,115 points. And here we are today, and the same consensus crew is calling for just about the same level of earnings again - this time for 2010."
Here is a link to 'When the Fed Stops the Music', by John Mauldin of Minyanville.Com. I quote it below.
The latter half of the year looks to be weaker, and then we hit what right now looks like the largest tax increase in history, much of it on the small businesses that are the drivers of job creation. The National Federation of Independent Businesses just released their latest survey. It was brutal. There's little optimism in it.
The Fed is going to stop the music in March. There will be a scramble for the chairs. This is a huge experiment with no precedent. The entire developed world is the test subject. Risk assets will be subject to uncertainty. And markets hate uncertainty.
Hopefully, we can muddle through this year before a relapse into recession in 2011 (because of the tax increase). I wish I could see it like Larry Kudlow, but I don't. I would be very cautious about being long the stock market. It's now a trader's market. I wouldn't be buying long-duration bonds. It's still an absolute-return world."
.............................
Here is a link to my new page on General Trends I have been spotting. I am going to keep adding to this page, as time allows.
Below are two of the General Trends I have already spotted.
1.Financial Companies have been making their primary profits by feeding upon their customers, thus devouring the gooses that layed the golden eggs.
10. Buy and hold is dead.
When one looks at both trends together, they paint an ugly picture of the future. If buy and hold is dead, and everyone who wants to retire someday is going to have to start gaming the system, then these individuals, quite often unprepared to play the markets, will have to elbow their way to the crap tables and bet against the likes of their own retirement funds and real pros like Goldman. That will be a daunting task. Most will fail at it. Retirement, for most Americans, has just become unaffordable, whether they realize it or not.
