updated 4/28/2009

King RINO stops the charade

Arlen Specter, long known as a Republican In Name Only (RINO), has declared himself a Democrat.  Not good.  That means the Dems are likely to enjoy a filibuster proof majority in the Senate, and the Left's notion of utopia will be forced upon all of us.  Arlen should be ashamed of himself.  I've been calling this man out for years.  I've questioned him personally about his leftist tendency.  Hopefully our fellow citizens in PA will make him pay in November 2010 by voting him out of office.  Watch out America, the Left just gained a huge advantage for at least a year and a half.  This will not turn out well. 

Cable News and Public officials scaring America again

For the next several days we will all be better served by not watching any TV news programs of any kind.  If you do watch them, you may freak out about a non event occurring.  I know you've heard of the swine flu outbreak that is ravaging the planet.  Of course, it's not the case.  At last count  40 odd Americans are sick with a flu from pigs.  None are dead, none are expected to die.  It's a flu like any other flu.  It's a drag, but assuming you're otherwise in decent health and allow yourself to rest and recover from the flu, you'll be fine.  Now, Mexico has a problem with hundreds dead and thousands sick.  Yet, our New Homeland Security Director, is once again, in this little episode, showing she is not up for the job and is basically not interested in defending America.  Everyone is on alert, it's a possible pandemic, this is what we're (DHS) here for, but wait, no, don't close the Mexican border, don't stop Mexicans from flying into the US, for we must not offend our neighbor (read Mexicans in the US) and diminish in any way the flow of humans into America.  Do you ever wonder if elected and appointed leaders (think DHS Director) are adults?  

updated 4/26/2009

Obama's first 100 days

A more silly metric for deciding the success of a President is hard to find.  Having said that, has it only been a hundred days?  What a whirlwind.  Apart from the great images of our new President and his family, I would say the first 100 days for our new President have been wobbly.  He's been all over the place.  He has spent a bunch of time denigrating America at the feet of foreign leaders.  He's wrecked the moral at the CIA and opened up a nasty can of worms with his decision to release torture memos and photos (please like us foreign countries...please!).  Has he even started to do any work yet?  You know his job is to manage the Depts. of government.  In a short time President Obama has pushed America further from her historical path, more to the left, and closer to the point of no return without doing much more than signing documents.  The list of items I oppose our new President on is long.  Did I mention the historic levels of deficit spending?  However, the worst is yet to come with his Cap & Trade scheme.  Watch out friends, this is a disaster waiting to happen.  Talk about a huge tax, get ready.  Talk about continuing to erode away at America's ability to compete with China and India, whoa!  Obama's first 100 days have already set the stage for a big shift in Congress back to the right come November 2010.  And by the way this is the guy who is forcing an American auto company, Chrysler, to merge or allow itself to be taken over by one of the historically worst auto companies there is, Fiat of Italy.  Amazing.  Embarrassing.  Demeaning.  Fiat...from Italy!     

Children 4 - 11 years old greatest concern, having a planet to live on

How can that be?  How is it a child of that age has concerns so dramatic.  In a recently published poll of children ages four to eleven, a whopping majority had as their greatest concern that the planet wouldn't be here for them when they grow up.  They feel global warming will ruin the planet.  Who taught them this?  Children don't just divine these things in their own heads.  Indoctrination is the word that comes to mind.  It has to be our public schools doing this.  Kids ages 4-11 should not be worried about such things.  They should be children.  Do you know what your child is being taught at school?     

The week ahead 4/27/2009

Some good data this week, but not a lot.  The highlight will be our first look at Q1 GDP growth.  Market participants are expecting Q1 GDP data to show a contraction of nearly 5 percent.  If so, that's nearly a 12 percent drop in 6 months.  Historic.  And...ouch!  As always, on Thursday we'll get Initial Claims.  We've seen some leveling off in new claims, but continuing claims continue north of 6 million.  Markets will watch that relationship closely for some time to come.  Stress test results should be out this week, and our confidence sapping Treasury Secretary, Tim Geithner will be out to explain all to us.  By the way, the stress tests, are political farce taken to seriously with the only outcome a negative one.  Anyway, watch for further signals of bottoming in the economy.  The stock market is whiffing something about that, but is still not providing much info either way.  Volatility remains the name of the game across most assets classes, and that means it is still a traders market.  The USD is still trading off of equities...inversely.  Currency markets have maintained high levels of volatility, but the ranges have narrowed.  Watch out for Obama headlines.  Headline risk is very real at this time. 

updated 4/14/2009

Team Obama wins one for the good guys

Well done US Navy.  The safe return of the American shipping captain detained by Somali teenagers we've labeled Pirates is a feel good story for Americans.  A shame people had to die, but then no one forced them to attempt to take the Alabama.  I'm glad Obama was willing to use force to end this high seas drama.  Initially Obama was doing the "lets internationalize" the problem, and lets send in FBI hostage negotiators, and I was not pleased.  His initial reaction was soft.  Someone obviously told him to Man-UP and take these idiots out.  I'm glad he gave the order, and I'm proud of our Navy personnel who took the shots.  I particularly would have enjoyed seeing our Navy Seal shimmy down the tow line from the giant US warship to the little life boat...at dusk mind you.  It's from a movie.  Caution:  Obama did not kill the Pirate teenagers, US Navy Seals did.  He gave the order, which was right and commendable, but the Navy deserves all the credit for the actions resulting in the freeing of our fellow citizen.  I sense Obama could blow this little bit of credibility he just built with the Right by doing a Bill Clinton circa 1991 in Somalia.  Please don't do any nation building in Somalia.  Please don't tell us you're about to send $10b to Somalia to build them a Coast Guard and feed their citizens.  We have too many poor and hungry right here in America.  Just stay tough on the "Pirates" by not allowing them safe harbors.   

The week ahead 4/13/2009

Data lovers (read traders) will enjoy this week as it is chock full of meaningful economic data points.  We get inflation indications, housing info, capital flows, employment and mfg info.  It should set up for a volatile week of trading, particularly currencies.  It's also the start of earning releases for Q1, and we've already had two blowouts to the upside with Wells Fargo and Goldman.  Earnings also will provide some cause for volatile sessions in equities.  Keep an eye out for Obama administration headlines.  Oil is ticking higher quietly as market players are starting to price in a recovery for the US economy.  At this time the pirate problems are not impacting financial markets, but could well do so if someone clueless does something stupid.  The USD continues range bound 1.31-1.37, and continues to trade off of equities...inversely.  

Obama's trip is over, thank goodness

America can't take any more self bashing, thankfully Obama isn't going to be visiting anymore world capitals.  Obama doesn't like us. In Western Europe, in Eastern Europe, in the Middle East Obama put down America and put the blame for most problems facing individual countries right at our feet.  He's tied us financially to Europe by way of the Financial Stability Board, comprised of Central Bankers and other minions from the G20, which has as it's mission to set a "framework of internationally agreed high standards that a global financial system requires."  What of the US Constitution?  What about the Banking Act of 1913?  Obama just took a huge step towards global governance of Americas financial system and diminishing American sovereignty.  Most embarrassing for Americans during his whole trip...the 90 degree bow to the King of Saudi Arabia.  Oh no!  It's embarrassing!  Please Obama, just stay in DC and work.  Put the teleprompters away, tell your staff to get a clue, embrace the US Constitution and the great nation state that is the USA, and help us all better manage our path for Life, Liberty, and the Pursuit of Happiness.   

updated 4/6/2009

G20 take away

Four take aways for me.  First, our new President and his wife are very cool and very attractive.  The visuals of them both were impressive.  Second, the G20 is a waste of time and money.  The leaders of the selected nations and their hundreds each of staff gathered together to deal with the urgent economic problems plaguing most of the worlds nations...FOR ONE DAY.  Good luck with that.  Third, our new President, with each passing day, reveals more and more his leftist tendencies and general disdain for American past actions and history.  Forth, giving the IMF new pledges of funding of more than $1 trillion dollars and declaring the strengthening of the "New World Order," should be setting off alarm bells for all American citizens who believe in the nation state, but more importantly believe in the continued sovereign existence of the USA as a quasi capitalist democratic Republic.  The IMF has decades of failed policies on it's record, but is the vehicle globalist leaders have chosen to redistribute wealth from the rich nations to the poor nations.  Instead of pledging more money we don't have, the USA should be canceling our membership with the IMF.   

The week ahead 4/6/2009

Ouch!  A very quiet week on the economic data front.  Tough for traders.  We have Initial Claims and Trade on Thursday.  That is about it.  Watch claims for signs of stabilization in layoffs...we're near.  As for Trade, our deficit should continue the recent trend of marginal improvement as the drop in exports is slower than is our drop in imports.  Otherwise, headline risk from the Obama administration is the next likely market mover.  Treas Sec Geithner started the ball rolling once again on Sunday with threats to bank CEO's about their job security.  Amazing.  Who knows what Obama or any of his team may say next, but it's likely not to be America friendly.  The USD continues range bound and inversely related to equity movements.  Watch oil.  It's not getting much attention right now and has been stuck in the low 50's for a while now, but heated rhetoric out of Israel regarding Iran's nuclear program can quickly change that.  If so, watch the USD start trading off oil again.  

updated 3/30/2009

Obama administration is a menace; this time it's GM

I've been warning for some weeks now about the headline risk coming out of the White House.  Today, is no exception.  Obama and his auto task force are now apparently bent on ruining the US owned auto industry.  This auto task force, comprised of left leaning economists, unionized labor reps, lawyers, real estate agents, and global warming advocates, but not anyone who actually has experience making autos, has decided they know what is best for GM.  The US government effectively has fired the CEO of America's largest car company.  Moreover, the Obama administration has threatened Chrysler, merge with a foreign company (Fiat of Italy), or you're cut off from help.  How far have we fallen such that our own President would threaten an important American company, only recently returned to American ownership, with abandonment unless it gives itself over to Fiat of Italy?  Remarkable!. This should be sending shivers down the spines of all American citizens.  Obama is flailing about right now, without direction or concern for consequences.  He wanted to change America...didn't we all assume that meant for the better?  Keep two things in mind here.  The powers that be who could be influencing these decisions on GM and Chrysler may include powerful financial types (including foreign nationals) who hold a great deal of GM corporate debt, and a private equity firm and powerful Wall St player, Cerberus Capital Mgt. (also with strong foreign ties).  Cerberus is the private owner of Chrysler having bought the auto maker from Daimler Benz of Germany only two years ago.  These two groups have a lot to lose and they are well connected.  Obama, what are you thinking?

Geithner financial recovery plan is nearly as exotic as the toxic assets

If you go to the White House web site you can read for yourself in some detail the plan Treasury Secretary Geithner and his aides have put together to solve, once and for all presumably, the problem of underperforming derivative contracts on the books of our nations largest banks. The so called "toxic assets."  What you'll find is a complex plan, with all kinds of talk of protecting the taxpayer, and lots of words meant to confuse the extent to which taxpayers are on the hook.  It's a plan rank with political phrases and covers.  He refers to the bad assets as "legacy" assets.  Who is he trying to kid?  These are current contracts and loans with long time durations.  There is nothing "legacy" about them.  If the plan will be effective or not will be determined in time, I think it will not solve the problem, what is certain is the American taxpayer will be on the hook for close to 90% of the risk exposure.  Of course, we'll be on the hook for the money lent as part of the public side of the partnership, but it won't end there for taxpayers.  Two of the large pools of money Geithner hopes will participate in "this public/private partnership," (more political language) will be pension funds and institutions who manage 401K money.  Guess who back stops American 401k's and pension funds?  Right, the federal government.  Funded by who...yes, you see now, by the same taxpayer.  Fortunes will be made off this plan (think PIMCO a French owned money manager), but taxpayers will be not be part of it.   

The week ahead 3/30/2009

It's a week with Friday as the first Friday of the month.  You know what that means.  It's Non-farm payrolls week.  The mother of all data points for financial markets will be released on Friday giving us glimpse into the state of employment in America last month.  It will be another big negative number.  We'll get some other good data as well...see right column, and market participants are hoping the trend of better than expected data to continues in order to fuel the rally in equities.  Don't be surprised to see equities down a bit this week after the great run they've had over the past week.  Bonds are still nervous, concerned over too much government and long standing economic theory suggesting all what we are doing can only be inflationary.  The problem is, treasury's are still safe haven.  As I've been warning since Jan 20, watch out for headline risk out of the Obama White House.  He steps a little further left each day, and seems intent on getting as many things changed in America as he can before we all wake up to what he is doing.  The USD is still range bound from 1.30-1.37, and still closely inversely related to equities. 

updated 3/25/2009

Treasury Secretary Geithner has to go

The Obama administration struck the financial markets again today.  This time the currency market.  Geithner, during Q&A at the Council on Foreign Relations (a body dedicated to diminishing the sovereignty of nation states like the USD) following a speech, when asked about the Chinese proposal to dump the USD as the global reserve currency and replace it with SDR's, said he was "open" to the idea.  Needless to say he blind sided the currency market having only yesterday before the House Finance Committee said he categorically would not be open to the idea.  Some 18 mins later, apparently having been clued into the fact his remarks were wrecking havoc on the USD, Geithner backtracked and indicated he has no intention of abandoning the US dollar's role as global reserve currency.  For all his apparent experience, to make off the cuff relaxed comments about something so fundamentally important to the US economy, and market participants, is negligent at best, and demonstrative of a continued degree of incompetence.  This is the man who was touted as indispensable, and the "only man for the job" when he was put up for nomination only a few months ago.  He is not such, and needs to be replaced asap.   

updated 3/23/2009

The 90 percent AIG tax

Another embarrassing moment of the US Congress.  In the wake of the revelation some AIG employees will be getting what in this time can be called excessive bonuses, likely paid out of the pocket of US taxpayers, our elected officials in DC do what they do so often, over react and make things worse.  Politics, populism, hypocrisy, are words that come to mind.  The Senate gets the legislation this week for consideration.  Let's hope some of those in the chamber which cools emotions get their heads on straight and shut this thing down.  I very much dislike what is going on at AIG, but the 90% tax is not the required response.  Congress has very dirty hands when it comes to AIG, having taken so much money over the years from the company (especially Chris Dodd (D-CT), and are once again failing in their central role...oversight. 

The week ahead 3/23/2009

Most of the week will be dominated by the Treasury departments newest plan to solve the problem of bad assets on the books of our nations banks.  Treas Sec Tim Geithner, having learned his lesson from his last effort, decided to reveal his plan to the American public via the Wall St. Journal.  My first thought, get some spine Geithner, boy-o-boy!  In any event the plan will dominate market sentiment for the first few days.  We have a slow data week.  Although, we do get a look at housing, and consumption habits via durable goods (see right column).  Watch out for President Obama at all times.  When he talks, its usually not good.  The USD is trading off of US equities, and concerns about central bank intervention.  Keep your stops tight. 

updated 3/16/2009

AIG, long rumored to be a menace

Having worked in the investment banking world for 15 years, specifically the capital markets (the division of banks were financial products are traded and sold), I've heard many a negative rumor about AIG's trading operation.  I can't imagine any former employee of AIG would be surprised by anything that has gone on there since late last year when the stuff hit the fan.  And I know for sure many of my former colleagues are not surprised.  It all is rather infuriating.  Some of the rumors I've heard over the years included talk of overly aggressive management prone to manic behavior in dealing with traders and the risk they did or did not engage. Others spoke of front running orders, poor execution of customer orders, setting up the market, and slow to follow best practices on problem trades, or "out" trades.  I don't have first hand knowledge of these occurrences, but talk of it was not hard to come by.  Plus, lest we forget it was AIG who gave us the Credit Default Swap (an insurance product), which is proving to be the Achilles heel of the present structure of our global financial system.  One positive thing must be said here, AIG must have had some great sales people within their capital markets group selling those Swaps.  AIG's non insurance business is a menace, and the sooner we unwind that place the better.  Please, no more retention bonuses, we want people to leave AIG.  Starve the beast seems to apply here.      

Hispanics, enabled by corporate America, reject assimilation

Assimilation, Americanization, for most of our history were critical elements to the success of welcoming immigrants into this great land.  Today, these are words of offense which can create confrontation and legal trouble.  Multi-culturalism, political correctness, bilingual education, and diversity marketing tied to strong nationalistic tendencies of Hispanic immigrants have coalesced to put the success of the United States of America in jeopardy.  Hispanic immigrants, especially those from Mexico, have apparently decided they will not assimilate.  Instead, they are going to create their own Mexico right here and are being helped along by our political and corporate leaders, most of whom are American.  Wal-Mart and Best Buy have stores specifically designed for Hispanics right here in the United States, with Spanish names and signs, going to great lengths to make sure they feel culturally comfortable.  The division in our country is becoming more and more clear each day.  Look around you as you are out and about.  In states where governments have privatized their public duties, notice the road workers are mostly Hispanic.  In our hospitals and emergency rooms, notice many of the workers and patients are Hispanic.  In fast food restaurants (think McDonalds), it's hard to find a grill staff that isn't all Hispanic.  Around our yards and golf courses, notice again the workers are mostly Hispanic.  Need a contractor, better learn some Spanish.  Presence of Hispanics in America is not a problem.  Presence of Hispanics in America who refuse to assimilate (speak English, embrace American History and the US Constitution, obey our laws, forego allegiance to their former country) is a big problem for America.  For sure, if we all can't communicate in the same language our society will tear apart.  Language divides.  We are building dual societies in America that cannot long run in parallel.  The point of no return is close.  We have time to save ourselves, but it's going to take my fellow American citizens, regardless of race, getting our collective head out of our collective butt, recognize the problem and act. 

3/15/2009

Obama, please stop

Our new President needs to stop and take a breath.  His joy at taking advantage of the "opportunity this historic crisis presents," is killing America.  Put the teleprompter in the closet.  Stop thinking of ways to get even.  Put Air force One in for a few weeks of maintenance, and just focus on governing.  Better still, focus on management for a while.  Treasury needs some help.  Homeland Security certainly does.  Our borders need attention.  Have you noticed the chaos going on in Mexico and spilling over into our country?  I'm sure I could make a huge list of things to do.  Please, Mr. President, stop talking and go to work. 

China, testing another new President

Remember back to the first months of George Bush's first term and recall what happened with China.  Remember, they challenged one of our intelligence gathering aircraft over international waters east of their coastline, bumped it (resulting in the death of a Chinese pilot), forced it to land, detained our service men and women, never returned the plane, and sought and received an apology from our then new President, George Bush.  A similar incident occurred last week, only this time it was our navy.  China is testing Obama, and Obama is folding just as George Bush did.  Not only did China screw with our navy, they then later in the week tweaked us a bit making public concerns they have about their US Treasury holdings and demanding guarantees about the safety of their "investment."   [Note to China:  if you don't like your US Treasury position, get out of it.  There are plenty of bids right now.  Good luck with that.]  A proud American can only hope that behind closed doors the Obama administrations is acting significantly more tough than they are in public.  Otherwise, American citizens can assume China has the upper hand with yet another American President.  Not a desirable outcome. 

The week ahead 3/16/2009

For data lovers, it's going to be a good week.  Check the right column for details, but we'll get insights into housing, manufacturing, inflation, and unemployment.  Plus, we have the FOMC on Wednesday (no rate change, but statement will be important), and the Philadelphia Fed report  Friday.  The G20 meeting was held over the weekend with it's standard call for global cooperation, and renewed efforts to stimulate the "global" economy, but nothing of real value for financial market participants to base decision on this week.  The standard warning must be given again this week, watch out for Obama headlines.  He seems intent on tinkering rather than governing, and the markets are cueing into it.  It seems almost every day he is introducing some new law or regulation, most of which are detrimental to the long term stability of America.  

American mom's aren't fond of Detroit

Can anyone tell me when the directive was ordered?  You know, the one that says American mothers should drive either the Honda Odyssey or the Toyota Sienna.  Go to your local school at the end of the day and check it out.  It's amazing.  So much for diversity of choice.  American moms need to take a look at the Dodge/Chrysler minivans, they're excellent vehicles.  Sadly, for full disclosure purposes, both Ford and GM have for the moment exited the segment.  Of course, we can connect that right back to the directive being followed by American moms.  Always Try To Buy American...mom.  And, unless you've owned or test driven an American branded car in the past ten years, I don't want to hear that old tired response, "American cars aren't as good."  That excuse worked for about 15 years from the late 1970's to the early 1990's.  American branded vehicles are perfect substitutes for foreign branded vehicles.  Wake up my fellow Americans, we're not helping ourselves with this a-national consumption habit many of us have embraced.  Look around you while you are driving or walking through a parking lot.  It should make you concerned.     

The week ahead 3/9/2009

A quiet week on the economic data front is before us.  We have to wait until Thursday for anything important, and then the financial markets get another look at the employment picture with the release of Initial Claims, and a look at our spending habits with the release of Retail Sales for the month of February.  Of course continued focus on Washington's response to our ongoing banking problems will be something to pay attention to.  Keep an eye out for headlines out of Europe as the truth of the depth of their banking problems is becoming more clear.  The USD is still benefiting from safe haven trades, and will likely remain in recent ranges with a strong inverse correlation with US equities.  Watch rates on the long end of the yield curve for moves higher.  Equities are starting to look very attractive.  We may be at or near a short term low.  There are lots of cheap stocks and fortunes can be made.  Start looking at equities...carefully.  Lastly, and I hate to say it so early in his Presidency, watch out for Obama headlines.  His quick undeterred dash Left since January 20th is making many hopeful believers in the financial community second guess their support and patience. 

The week ahead 3/2/2009

It's Non-farm Payroll week for the financial markets.  The mother of all data points, the Employment Situation report, will be released on Friday morning, and all else of import this week will be filtered through that piece of info.  We also get a look at manufacturing with the ISM release Monday, and unemployment with Initial Claims on Thursday.  It's likely the data this week confirms what we all already know, but it's also likely to show a slowing of the slowdown (if not now, soon...it's close).  That is to say, the second derivative is approaching zero from below.  Of course the back drop for this week will be continued concerns over the direction President Obama is taking America.  With hopes that he would govern from the center fading quickly, financial market participants and economists are poised to see just how far left he will turn.  Headline risk from Washington, DC has not been this high in a long, long time.  In less than two months Obama has put America on a bad path.  The USD continues to benefit from the rest of the world doing worse than we are, and as such is still inversely related to US equities for now (it's about US investors bailing out of overseas positions in stocks and bonds).  Bonds are still in a bubble and it won't take much to set interest rates on a higher trajectory.  Watch the 10yr Treasury for the early signs.      

Obama's housing plan

Oh no!  Those were the first words that came to mind after reading the executive summary posted at www.whitehouse.gov.  It's not good.  The plan is a give away to people who should never have been given a mortgage to begin with, and a whole group who really shouldn't be of concern.  Those who can't refi.  Apparently, the new oppressed class in America are those who already own a home, are current on their mortgage, but can't refinance because they don't have enough equity and lending requirements have tightened up.  Oh man!  America, what has it come to?  The ability to refi is not a right.  Obama wants to save people not from foreclosure, but their inability to get a lower interest rate on their mortgage.  A quick note to all those "responsible homeowners on the verge of defaulting" (what!), there are up front closing costs associated with refinancing.  Who's paying those costs?  Obama wants to save those "who received sub prime and exotic loans with exploding terms and hidden fees."  Translation, he wants to save those who should have never been given a mortgage to begin with and who apparently didn't feel it necessary to read the fine print of their mortgage agreement at the outset.  Lenders are "responsible" for reducing monthly payments, and all those lenders taking money from the federal government are required to participate in loan modification.  What of contract law?   "Judicial modifications" are called for in Obama's plan.  Arbitrary reduction of principle dictated by liberal bankruptcy judges will be a nail in the coffin of contract law in America.  It's phrased like this, "Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run out of Options." A mouth full, and notice all the caps.  It's a name of program which doesn't square with common sense.  Loan modification for those claiming or in bankruptcy?  What am I missing here?  Claim bankruptcy and you're out of the game until further notice.  No?  Anyway, still mortgage holders will be have an incentive to approach default so they can collect $1500.00.  This plan is more liberal agenda than a plan to help the housing market as a whole.  The plan is a quick read, as most executive summary's are.  Important people are far too busy to read all of what they've brought upon us.  Check it out.  Obama has quickly put us on a new path during his short time in office.     

White House Press Secretary Robert Gibbs vs Rick Santelli of CNBC

Robert Gibbs has picked the wrong fight.  Santelli KO in the 1st round is my call.  I've been listening to Rick Santelli since he started at CNBC.  When it comes to fixed Income analysis and understanding  of interest rates and future contracts, there are few better on air analysts.  If you call what Rick had to say about President Obama's housing plan a "rant," then over the years he has had far better rants than this one.  He is always passionate, usually backed up by facts and stats, and knows financial markets well.  The reason this particular rant struck a cord is because no one else has been willing to say it, and he said it well.  Plus, he is right.  My advice to Robert Gibbs is don't irritate Rick, he's smarter than you are on this topic.   

The week ahead 2/23/2009

The two data points to focus on this week are January existing home sales on Wednesday, and January Durable goods orders on Thursday.  Both will be market movers, assuming they don't match market expectation of course.  President Obama continues to make the market nervous and has further announcements to make about the economy this week.  Headline risk requires your attention.  The USD remains strong in this economic turmoil benefiting because all is relative in the currency world.  It's much like Capitalism.  It's not that great, except when compared to all other systems.  Bonds are signaling a dislike for the gobs of spending coming out of Washington, DC, and seem poised for a sell off any time now.  Keep an eye on the stock price of Citibank and Bank of America.  Gold is the new oil.  Ayn Rand would be very happy.  But, until you believe goods and services in America are soon going to be transacted in gold, don't pay any attention.  Let the gold bugs enjoy themselves.   It's another bubble.  The gold standard is not coming back as long as America suffers from such terrible imbalances in trade and government budgets.  

updated 2/16/2009

The week ahead 2/16/2009

Celebrating our past Presidents birthdays leaves us with a shortened work week this week.  However, it will be an eventful one for the financial markets as we have a bunch of meaningful data releases (see right column).  Focus will remain in DC awaiting further details of the plan from the Treasury Dept to deal with ongoing problems in the banking sector.  With the stimulus debate out of the way this week the talking heads will turn to the next Obama plan (should be something about the auto sector) late in the week.  Oil and gold as always remain on the radar screen as measures of uncertainty and nervousness.  Keep an eye on bonds, that bubble may be bursting anytime now.  We get another piece of housing data on Wednesday.  The USD continues to enjoy relative strength against most majors with the exception of the Yen.  At the moment weak equities is a USD buy, all driven by EUR/JPY.  Remember, equities are for traders right now.     

updated 2/13/2009

One certainty about the trillion dollar "stimulus" bill

Not one member of the House or the Senate will have read the entire 999 page stimulus bill titled American Recovery and Reinvestment.  For that matter, if the past is any indication only a small percent of members will have even read the Executive summary.  As a side note, the Dems are apparently going to break their spoken intention to allow members and the public 48 hours to read and consider the entire bill before any vote for final passage. 

updated 2/12/2009

Congress blew their chance to ask the right questions

Yesterday the House Financial Services Committee had the CEO's from the eight largest financial companies in America before them.  One of the stated reasons they were summoned to DC was to ask them how they spent the money from the first traunch of money released from the TARP (Treasury Asset Relief Program) fund.  Fine, and good.  They didn't even do that well.  It was very clear to anyone watching most members of the Congressional committee do not understand the banking problem they are trying to solve.  We heard a few populist rants, and some pointed questions on credit card rates and limits.  However, it was their chance, again, to get the answers to the right questions.  1.  Mr. CEO's, what is your CDO exposure at this time, what company are you most exposed to, and what reserves do you have against that exposure?  2.  Mr. CEO's, what percent of your current MBS portfolio is made up of sub prime and Alt-A mortgages.  3.  Mr. CEO's, for those of you who did--Citibank--why did you keep these high risk securitized assets on your books for so long?  4.  Mr. CEO's, do you still have PhD's working in your firms dedicated to financial engineering of the type that led to current financial mess we are in?  5.  Mr. CEO's, what percent of your revenue comes from speculative trading, how many trading desks do you have around the world, and what is your current leverage ratio?  Answers to these questions would have gone a long way to provide some clarity to the financial markets which was neither achieves yesterday nor on Tuesday with Treasury Secretary Tim Geithner.  Congress is embarrassing.     

updated 2/11/2009

The rest of the week ahead

Sorry friends, I was away on business and doing some TV appearances on FOX news, so I wasn't able to update remotely.  Anyway, from a data perspective this week, trade data released this morning, and retail sales on Thursday will have drawn/will draw the most attention.  The trade data came in a little worse than expected at $39.2b for the month of December.  However, 2008 was a rare year over year decline in American's annual trade deficit.  You can pin that on economic weakness we all know is upon us.  Retail sales data on Thursday is not likely to paint a rosy picture.  Even the quickly turned to- "ex-auto" component - is not likely to provide relief.  As the week began, so it will continue.  Attention will be focused on the both the reconciliation bill for stimulus now being debated between the House and the Senate, and the next plan coming out of Treasury efforting to once and for all address the bad assets on the balance sheets of our biggest financial institutions.  Geithner's "plan" (read no plan) for bad bank assets was met with derision and disdain. Why?  He still doesn't have a plan.  A weak start for Geithner.  Any positive developments will be good for equities bad for bonds, and any negative indications will be bad for equities and good for bonds.  The USD continues to enjoy relative strength as the world is reacquainted with the truth of the power of the American economy...still.  We cough, they catch a cold.  

updated 2/5/2009

President Obama clamps down on executive comp

Nonsense.  What we witnessed yesterday from President Obama with his announcement about capping executive compensation was political theatre.  It sounded good, and the non-financial media ran with it, but it was hollow.  The President's plan caps the salary paid to the top five executives of any firm receiving money from the TARP fund at $500k, and requires any stock offered as compensation cannot vest until after the firm has paid back the borrowed money from the TARP fund.  There are some other small inconsequential bureaucratic requirements as well, but the two items above are the main elements of his new plan.  The plan falls apart in two ways.  First, within financial firms many more than the five employees at the top are contractually eligible for bonus compensation.  In fact, many employees (think traders, sales, brokers) can make more than the top five executives make.  Second, the plan is not retroactive so it excludes those companies who have already received financial assistance from the federal government.  So, Goldman Sachs, AIG, Citibank, Wells Fargo, Bank of America, General Electric, Wachovia, and dozens more are exempt from the compensation constraints.  A waste of time and energy is what we witnessed.  Yet another effort by our government officials which likely complicates matters in the financial sector rather than improves them.

updated 2/3/2009

"Buy American" provisions causes an uproar in capitals around the world

Entitlement, dependency, "you promised," are the first words that come to mind when I read leaders around the world have roundly denounced the "Buy American" provisions for infrastructure projects in the stimulus bill passed by the US House of Representatives last week.  Mind you we're not talking about trade policy here, we're talking about an unusual expenditure of US taxpayer money to help slowdown or reverse the economic weakness in the the US economy.  This little tirade we're witnessing from our allies reflects on an issue which goes back nearly 20 years when the international debate began over US government procurement.  You see, foreign governments (for starters think the UK, Israel, most of Europe, Japan, Australia) and the domestic corporate interests they represent at home were becoming increasingly jealous and insecure over their American counterparts benefiting from the biggest piggy bank in the world...US federal budget expenditures.  After the massive display of strength America put on during the build up to and the execution of the Gulf War in the early 90's, governments around the world, having very little to offer to the fight in terms of logistics, men or material, became convinced it was only because of the size of the US economy and related federal budget.  If America wanted her allies to be there to help in the future, and/or to continue to finance a ballooning US budget deficit, or to allow US companies to get a piece of their comparatively tiny procurement contracts, the President and Congress had better open up US government contracts to foreign bidders and give them a piece of the pie.  Sure enough, starting with Bush 41, by the time anti-nationalist cum globalist Bill Clinton was into his first term the door was open to let foreign nations/corporations bid on military and infrastructure projects.  So here we are today, nearly 20 years later and large segments of our military expenditures for equipment and supplies now goes to foreign nationals.  Huge segments of our national infrastructure are under management of foreign companies.  It applies to our airports, our utilities, our energy sector, and current expenditures in Iraq and Afghanistan.  Foreign corporations and leaders have become dependent on the US taxpayer and now demand a piece of the pie or it's "protectionist."  They feel entitled.  A precedent has been set.  Don't change now, we need that money. Such are the dangers of welfare.  They're wrong of course.  It's all together right and appropriate to require US tax payer money be spent using US corporations and labor.  It was a mistake for Bush 41 and Bill Clinton to cave in to international pressure and allow foreign countries and corporations to bid on US funded contracts.  You can be reminded of this each time you see President Obama take off or land in his Marine 1 helicopter...it was supplied by the British.  Always Try to Buy American...especially with tax payers money.     

updated 2/1/2009

The week ahead 2/2/2009

Another week of market moving data is ahead (see right column), culminating with the January Employment Situation Report Friday morning at 8:30.  Expectations are set for another bad number.  How bad has been the spill over of the financial market mess?  We'll see Friday morning.  On Monday we get a look at both the health of the construction industry and manufacturing.  Tuesday we'll get another important bit of housing data when Pending Home Sales are released at 10:00AM.  This number represents signed contracts, not closings.    Renewed tensions over the past few days since Israel withdrew from Gaza last week could spike oil, so keep an eye out for any related headlines.  Continued debate about a stimulus plan will draw considerable attention, and ongoing discussion of the "bad bank" plan will also be a focus (ps both bad ideas).  It will likely shape up to be another good week for traders in most asset classes, particularly equities and commodities.

There is good stimulus and bad stimulus

The early part of this week the US Senate will take up debate about the $800b odd stimulus plan passed in the House last week (total cost including the cost of borrowing the $800b, $1.2trillion).  The plan, to the extent one can get the details about it, appears to be a failed effort.  It's a spending plan, not an economic assistance plan.  Moreover, it's a bad spending plan.  It's far to expensive, and is far too much Liberal activism than good economics.  In the wake of 8 years of historic levels of government spending, plus the cost of the financial sector bailout to date (approx $6-7 trillion on the line), if further fiscal pump priming is determined to be necessary, it ought to be highly directed and cost efficient.  The best and quickest methods to stimulate the US economy would be to cut payroll taxes, and to cut corporate income taxes.  Both could be done quickly and retroactively, and both would quickly put more money into the economy for consumption and job creation.  As for the additional efforts by the federal government and our central bank to prop up the banking sector, it's all for nothing until banks and other financial players bring their bad assets onto their balance sheets for all to see, revealing both the quantity of the assets held and the valuation (mark) they're using.  In the end, no stimulus is better than a bad one, or like the one about to be debated in the Senate. 

Obama strengthening labor unions as part of the solution

Last week President Obama signed a series of new orders quickly tilting the economic landscape more in favor of labor unions.  He said labor unions are part of the solution to our economic health.  He couldn't be more wrong, and of course labor union history in America proves that, and the fall of Communism should have put a pin the idea long ago.  I could go on for a long time about how bad labor unions are for an economy, and for example how unions could easily be pointed to for much of the trouble facing Americas public school system or the American auto sector.  But, in today's America only one word needs to be said in opposition to strengthening labor laws as a way to strengthening the American economy at this time in our history:  China.  For as long as we continue to offer unilateral free trade to China by way of the PNTR signed into law by former President Bill Clinton, any further efforts to strengthen labor unions (read total compensation goes up) in America will only accelerate our national demise.  We sell our labor to someone who needs it for a level of compensation based on our own ability to value ourselves for the task and/or what the majority of others like us have determined.  If we ultimately feel the compensation is not sufficient for the amount of effort we expend, we are free to demonstrate through our efforts why we deserve more, or to move on and seek out other buyers of our labor at a rate of compensation desired for our efforts.  To coerce the buyer of labor into buying labor they do not want or need for any given level of compensation is to diminish the buyers need for more labor.  In America we are free to exchange our labor...or not.   

Super bowl prediction, 2/1/2009 3:36PM

The team which turns the ball over the most will lose. 

1/27/2009

Obama already backing down from China

As you can read below, I was pleasantly surprised last week when Tim Geithner revealed President Obama believes China manipulates their currency.  It was nice to hear the truth.  On Sunday the official Chinese news agency published an editorial rebuking the Obama administration, saying:  "The comments do not only not accord with reality, they are also a misinterpretation of the main reasons for the financial crisis, and will encourage the rise of trade protectionism in some Western countries."  What???  Anyway, sure enough come Monday, with this public comment along with certainly one or two private back channel comments, White House spokesman Gibbs was back peddling on the issue, saying "Mr. Geithner was restating what the President had said during the campaign, not making any determinations."  US Diplomacy 101, never speak the truth about an adversary, or some would say "partner," in public.  China does manipulate their currency.  It is truthful to say so.  Every day the Chinese banking authorities must participate in money market and currency transactions in order to maintain the value of the Yuan against the USD within some price band unilaterally established by the Chinese government.  Call it what you will, but manipulation will be a synonym.  This little verbal squabble is an early example of business as usual from the man who promised change.  For those worried about the Chinese not buying US debt, when you find me an auction with a bid to cover ratio of less than one, let me know.  I think America can go on without China participating in our debt auctions.   

The week ahead 1/26/2009

Lots of important data (see right column), Obama's plan for stimulus, corporate earnings, and ongoing banking developments highlight the week.  On the data front housing data on Monday and GDP data on Friday will draw the greatest attention from market participants.  At this stage each new piece of housing data will be watched for evidence a bottoming out of housing is upon us.  Perhaps not this release, but it's near.  GDP data is going to give us a look at just how bad things became late in '08.  It won't be pretty.  Let's hope economists got the forecast right on this one and it's no worse than down five percent.  We should get more insight into what plans Obama and the Dems in Congress have in store for a stimulus, and watch for comments from Treasury Sec Geithner and FDIC's Bair on the banking sector and the creation of the "bad bank" to manage toxic mortgage assets.  Bond yields continue near historic lows, but risk is for a snap back at this stage is real.  Headline risk is still with us.  As always watch oil for any moves above $45 and related impact on the direction of USD.  USD still benefiting from relative safe haven status, but once the 10 and 30 year start to turn, USD could suffer.       

updated 1/23/2009

I agree with Obama, China does manipulate it's currency

On Wednesday during Timothy Geithner's confirmation hearing on Capital Hill he said Obama believes China is manipulating their currency, the Yuan (Renminbi).  Finally, someone willing to speak the truth.  For decades, but importantly since Bill Clinton signed Permanent Normal Trade Relations with China into the law, the Chinese have closely managed the exchange rate between the Yuan and the US dollar.  The common phrasing is the Chinese have pegged their currency to ours.  To keep the peg at any given level the Chinese first keep their currency from being widely traded on the global FX market the way the USD, the Yen, or the Euro are, in an effort to maintain a good deal of independent control of it's value, and on a daily basis must both manage their domestic currency supply and huge foreign exchange reserves.  By any definition, pegging one's currency to that of another country requires daily management--manipulation--of key inputs.  The Chinese have for a long time been manipulating their currency to our detriment.  Neither the Clinton nor Bush administrations were ever willing to speak the truth about the Chinese on this point, forever afraid to publicly expose the quid pro quo with the Communist Chinese government with respect to trade and US outsourcing.  I'm glad to see Obama feels as I do, and allowed or has approved of his Treasury Secretary nominee revealing his feeling in public.  The Chinese have already expressed displeasure with the statement.  Let's see if Obama sticks to his rhetoric on this topic.  Truth back in public about diplomatic realities would be a welcome change from the past 20 years. 

updated 1/21/2009

Lasting images of Inauguration 2009

What a beautiful family we have taking up residence at the White House.  Say what you will, and I will, about the speech and the trappings of inauguration day, the images were wonderful.  While I did not vote for the him, it's hard not to like the man we see on our screens (when he isn't talking his leftist ideology).  BHO is cool!  Also cool are the images of the relationship between Michelle and her two children.  She is a striking woman, and the two kids, well it's what you get when you have good parenting and the income to live well. For the black community, for so long torn apart by teenage pregnancy, absentee fathers, out of wedlock births, and diminished value of family, the Obamas will stand out as a clear example for blacks to look to.

Did Obama read Atlas Shrugged?

"Rather, it has been the risk-takers, the doers, the makers of things--some celebrated, but more often men and women obscure in their labor, who have carried us up the long, rugged paths toward prosperity and freedom."  "...markets good or ill.  It's power to generate wealth and expand freedom is unmatched."  The two quotes from Obama's inaugural address give conservatives like me a glimmer of hope.  The quotes suggest he may get it.  Time will tell.  The first quote, while not verbatim from Atlas Shrugged, sounds much like the words of John Galt as created by Ayn Rand.  They don't match Obama's rhetoric from the campaign trail.  Were they throw away lines for the other side?  Time will tell.   

Geithner, the financial expert who doesn't pay taxes is not indispensable

Obama's choice to name Timothy Geithner Treasury Secretary has been held up (but still certain to be approved) because the great financial expert wasn't able to manage his tax liabilities.  Ummm?  We're told this is the only man that can save us from financial collapse, yet he wasn't able to comply with IRS laws.  In any case we are told by the powers that be it doesn't matter.  If Geithner is not appointed, America is over.  Of course it's a lie.  Geithner is not indispensable.  In a nation of 305 million with the best colleges and universities in the world, I guarantee we can find another equally capable person to fill the Treasury post.  One who pays his or her fair share of taxes in a timely and appropriate manner.  If his last name wasn't Geithner, he would have been bounced out of the nomination already. 

Obama's ideology manifested in four bad choices

Rahm Emanuel as Chief of Staff, Hillary Clinton as Secretary of State, Leon Panetta as Director of the CIA, and Carol Browner as White House Coordinator of Climate & Energy reveals the anti-American nature of Obama's ideology.  Emanuel, a dual citizen with an implicit conflict of allegiance and close ties to one of the most powerful lobbying group in the US, having served in the military in defense of his country in 1991 (hint:  it was not the US military), and comes out of the corrupt Chicago political machine, gets the keys to the Oval Office door and the ear of the President.  Hillary Clinton, with no meaningful experience or related education gets Secretary of State even though her husband is in bed with most of the political and corporate leaders of the Middle East and Asia and clearly emphasizing globalism over nationalism.  Can you say diminished sovereignty?  Leon Panetta as Director of the CIA tells us how much Democrats, and Obama specifically, dislike America's intelligence gathering assets.  A political appointment, Panetta doesn't have the background to even be considered for this critical job.  Yet, without any push back he is going to get approved by Democrats who for decades have demonstrated their disdain for maintaining a secure America.  Carol Browner is probably one of the most vocal Socialists and blame America for everything environmental participants you can find in DC.  Barack said "we will not apologize for our way of life."  Well, guess what, Browner doesn't approve of our way of life and only wants to strangle the American economy into extreme environmental submission.  These four individuals once in their positions are more likely to weaken America as a sovereign nation.  I'll be happy to to say I was wrong if events over the next four years require so. 

The week ahead 1/19/2009

Shhhhh!.  It's a very quiet on the data front this week.  During this MLK, Inauguration week we'll only get two pieces of economic data.  On Thursday Jan 22nd we'll get weekly Jobless Claims for the week ending 1/17.  This number has and will continue to draw a great deal of attention until the economy makes a turn on jobs.  In this environment, continuing claims (how many remain in the system for extended period) can also be market moving, so keep an eye out for that.  Also on Thursday we'll get a look at December Housing Starts. It won't be pretty.  Markets participants are looking for another leg down in the number of homes being started.  And why shouldn't they, we are over supplied with homes at this time.  As always watch your headline risk, keep an eye on oil, and watch out for surprise corporate earnings releases.    

updated 1/18/2009

Donna Brazile drops the hyphen on This Week

Donna Brazile, a black woman and long time Democratic political activist and Washington, DC insider, appeared on This Week with George Stephanopoulos expressing her excitement about the image of Obama getting sworn in on Tuesday, and that his image is going alongside the 43 white prior Presidents.  Yeah so, you might ask?  Seems reasonable right?  Except if you know that Donna Brazile has always spoken proper PC language in public like any good DC insider.  Yet, you see today she decided to drop the hyphenated African-American label she's probably used all here living days, and instead described Obama as African.  A divisive trend to get started.  Of course Barack Obama is not African.  Two things, he claims he was born in the US, and his mother is white.  So, how is he African?  I think it's safe just to call Barack American.  Plus, it's a label which unifies instead of divides.

1/16/2009

A proud American moment:  landing on water and everyone lives

The US Airways water landing on the Hudson River in New York City yesterday is the stuff of fictional happy endings in a movie theatre.  Yet, there it was, on our TV screens, a full size passenger jet floating in the river with it's passengers standing on the wings.  And that is not the best part, apparently no one was seriously injured.  Wow!  From the pilot, to the people running the water taxies and ferrys, to the NYFD, NYPD, Coast Guard, EMT, to the...well you get it, America did a great job yesterday.  What a combined spontaneous effort to keep 155 people from their death.  Americans doing great things.  What a proud moment for us all. 

But then, a proud American moment ruined by multi-culturalists

This morning Mayor Mike Bloomberg held a news conference to honor those individuals who sprang into action to help save the passengers of the US Airways flight which landed in the Hudson yesterday afternoon.  It was nice to watch, a feel good moment.  I was feeling very proud to be an American, and it seemed like he, and all those in attendance were feeling the same.  Then, before he concluded, he broke into stunted Spanish reviewing what he had just said and done.  Working off of his cue, only 5 minutes into the Q&A, a reporter breaks in to demand someone come to the podium who speaks Spanish.  The sanctuary city mayor quickly complies letting his true colors shine through.  I was deeply saddened to witness this, and my proud American moment was over as the reality of the divisions in our country were quickly brought back to the forefront.  Divisions created by a nearly 40 years of failed immigration policy and the coincident rise of it's social counterparts multi-culturalism and political correctness.  With all due respect to my fellow citizens and those illegal guests currently in America who speak Spanish, we need to all get on the same page and speak the same language.  English is the language of America...embrace it. 

The great Sandy Weill and Robert Rubin aid in the destruction of Citibank

So, ten years later Sandy Weill isn't the genius he was said to be.  On top of that, the great Robert Rubin, Treasury Secretary in the last years of the Clinton administration, turned out to be a terrible advisor and board member.  When Travelers Insurance and Citigroup merged in 1998 it was hailed as the new model for "global" banking.  When Robert Rubin joined Citi in 2001 he was supposed to be the "man" who would have a great rolodex, connections in DC, and superior financial and geo-political insights.  Guess what?  Once again the pundits were wrong.  The whole thing was apparently a farce, and the two great men weren't so great.  Guess what else?  They both got paid hundreds of millions of dollars for their "expertise."  Today, once again Citibank, having received a massive capital injection from the US Treasury only last month as it's stock price plunged towards zero, now is apparently about to stick it's big hand out for more money as the stock price again approaches zero.  Why?  Because management, think Sandy Weill and Chuck Prince (Citibank CEO after Weill retired), and it's high priced globalized, "diversified" board, were all wrong, and badly managed the risk they took on.  Now, the most recent diversity hire, Vikram Pandit, current CEO, is about to break up Citibank into two groups in hope of saving the whole.  Another great American company we all once could be proud of, now an embarrassment.  Remember "emblematic" pride?  Take note I haven't even mentioned anything about the potential pressure that might be brought to bear on Treasury officials from the Saudi Prince who is the largest single share holder of Citibank as his billions are going down the drain.       

The Week ahead 1/12/2009

Lots of good data on the calendar this week.  Of particular importance will be a look at retail sales for the month of December.  This should give us some insight into the balance sheets of we American consumers.  Expect a bad number.  Additionally, of importance this week will be both PPI and CPI for the month of December.  These indicators should confirm the deflationary environment in America at this time.  Headline risk continues to be relevant as additional problems in our banking sector are once again coming to the forefront.  Watch for typical back and forth in stocks with a bias to the down side.  The price of bonds can't go much higher as yields continue to hover at historic lows...near zero.  The USD should benefit from relative assessments as the US economy isn't as bad as our competitor countries.  Keep an eye on oil.  

The Week Ahead 1/5/2009

Any week this year with Friday as the first Friday of the month will be big for financial markets.  That is because on the first Friday of every month the government releases the Employment Situation Report from which we get Non-Farm Payroll data and the Unemployment rate.   All eyes will be on the the jobs sector for at least the first half of '09.  December Non-Farm Payrolls are expected down by 475,000 jobs with the Unemployment Rate rising to 7%.  Ahead of that though we get to see November Factory Orders and the December ISM Services Index on Tuesday.  Come Thursday we'll also get the release of Initial Unemployment Claims filed last week.  This data point could set up expectations from Friday's NFP release.  Apart from data this week pay attention to President Elect Obama's announcement Monday about the details of his vision for a stimulus package, and watch oil for reactions to any escalation of war making in the Middle East.  The USD will be sensitive to movements in the price of oil this week as well as the interest rate picture as those participating in the rally of 10-yr Treasuries begin to reassess the outlook and move rates back off the floor.  

The Week Ahead 12/29/2008

Another short week of trading is ahead as we ring in the New Year on Thursday.  With only four trading days left in the year (for many only 3 as Friday off will make for a nice four day weekend), most market participants will be happy to sit on their hands and not risk giving back some of what they made, or increase their losses further.  The economic calendar is light this week as well, with only Consumer Confidence, Initial Claims, and the Chicago NAPM report to drive market activity.  Initial Claims, with expectations of a number in the high 500's, will draw close scrutiny again this week.  The Chicago NAPM release will likely show continued contraction in the manufacturing sector.  Geo-politics is back on the front burner as Israel once again has had to slap down Hamas.  As always, the risk is the impact on oil prices.  This renewed tension will put a floor under oil for the week.  The one thing the US economy has going for it right now is the collapse in oil prices since July, we don't want to see that reversed.  The dollar will suffer further loses if oil prices get back above $43 per barrel this week.  2008, what a year for financial markets, glad that is over. 

"Do you wish to know if that day is coming?"

The day society is near ruin.  "Watch money.  Money is the barometer of a society's virtue.  When you see that trading is done, not by consent, but by compulsion---when you see that in order to produce, you need to obtain permission from men who produce nothing---when you see that money is flowing to those who deal, not in goods, but in favors---when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you---when you see corruption being rewarded and honesty becoming a self-sacrifice---you may know that your society is doomed.  Money is so noble a medium that it does not compete with guns and it does not make terms with brutality.  It will not permit a country to survive as half-property, half-loot."  Ayn Rand, Atlas Shrugged.  As Washington, DC and Wall Street get more cozy together, her words have a ring of truth and warning for today's America.

12/25/2008

---------------------------------------------------------------------------

MERRY CHRISTMAS AND HAPPY NEW YEAR TO MY FELLOW AMERICANS

------------------------------------------------------------------

12/23/2008

California Gov. Arnold Schwarzenegger wants to be President

Two things to Arnie:  First,  you can't be President because you were born in Austria.  I know you've got your buddy Senator Arlen Specter (R-PA...aka; King RINO) working on trying to change the US Constitution for you, and I know you're emboldened by the fact Obama is about to become our next President and it's not exactly clear he was born in the US.  Be that as it may, your life story is too well known, you weren't born anywhere near America, and efforts by Specter will fail.  Second, you've failed as Governor of California.  You got into office by a fluke in state political history, you've accomplished next to nothing you said you would, and of course the state you run is about to go bankrupt.  So, no Arnold, you cannot be President.  Accept it and move on.   

Christmas, there are worse things to believe in

Stephen Colbert's Christmas special closed with a wonderful song about far worse things to believe in than Christmas.  It was Stephen's soft handed effort to draw attention to the sad and pathetic annual disdain for Christmas by non-Christian minorities.  It was a duet with Elvis Costello...nicely done guys.  Once we stipulate American retailers annoyingly over commercialize Christmas and begin the celebration way to early every year, it's an all around positive national holiday.  First and foremost it is a religious holiday for Christians celebrating the birth of Jesus Christ, the central figure in Christianity.  Second, it's a secular holiday celebrating children who are well behaved, a time of year for loved ones to gather together exchanging gifts to bring joy to each other, and to offer love and help to those who are less fortunate.  For a couple-few weeks a year our streets and homes are a bit more pretty with all the lights and wreaths and decorated trees across the landscape.  And, again we can stipulate Christmas music hits the airwaves too soon, and sometimes too often, but you can't deny how lovely most Christmas songs are, especially the classics.  For those who don't care for the music, change the radio station.  Otherwise, is it all really that bad?  Non-Christian minorities have to back off, recognize they live in a Christian nation, and just enjoy the mostly joyful and pretty time of year.  There are much worse things to believe in.   

Home Builders/Developers trying to find ways to get TARP money

Sorry guys, you get nothing. Home Builders and Developers want government money to help keep doing what they do.  Sadly, what we need instead is for a pause in speculative new home and commercial construction.  Their request should be rejected without consideration.   

Caroline Kennedy gets Hillary Clinton's Senate seat

Really?  Come on Man!  My fellow American's, we are failing ourselves. 

The Week Ahead, 12/22/2008

It's probably a three day trading week with Christmas on Thursday.  Many market participants will stretch the holiday to a four day weekend.  Daily volumes should be light across all asset classes, but intra day trading ranges (think FX) could be outsized.  There are four key economic data points this week, led off by housing.  Given the Christmas holiday we will get a look at both New Home Sales and Existing home sales at the same time on the same day, Tuesday at 10:00AM.  It will be another needed glimpse into the health of the national housing market.  Two other data points of interest will be November Durable Goods Orders excluding autos and Initial Unemployment Claims for last week, both released on Wednesday at 8:30AM.  Big picture, support in the S&P is still around 776, the EUR/USD is range bound from 1.3850-1.4340, and it looks like 90 is a good level of support for USD/JPY.  The Japanese Central Bank is a little anxious down at these levels.  Bonds, well not much to say, rates are at or about zero...safe and sound, I hope.   

Bernie Madoff feeding on his fellow Jews

The insular world of the Jewish community is being revealed to all Americans as the Bernie Madoff ponzi scheme comes crashing down.  "I'm one of them," "he's one of us," must have been the underlying motivation for so many to so blindly invest most or all of their money with Madoff.  So far it appears the vast majority of investors (individuals, charities, hedge funds) and other non-investor actors (lawyers, accountants, involved relatives) in this unfolding drama are of Jewish faith.  We will get a revealing look at the power of the Jewish lobby in America as efforts appear to be already underway in Washington, DC to get public funds to make Madoff's investors whole, or nearly whole again.  Before any investigation is even underway, and contrary to common sense legal advice at such an early stage in a case like this, Chris Cox, the Chairman of the SEC has basically already put the US taxpayer on the hook for this mess by suggesting, when asked about the SEC's role in the scandal, it's the SEC's fault.  Such a fool hardy admission opens the legal door of responsibility for this mess to be put on the SEC and therefore the American tax payer.  The only ones to blame for this scandal are Bernie Madoff and the investors who blindly invested their money with him...period!             

25 Reasons to buy an American branded car

Reasons: Buick Lacrosse; Chevrolet Malibu; Chevrolet Corvette; Chevrolet Impala; Pontiac Solstice/Saturn Sky; Saturn Aura; Cadillac CTS; Cadillac STS; Ford Focus Coupe; Ford Fusion; Ford Mustang; Ford Taurus; Lincoln MK5; Chrysler 300; Dodge Avenger; Dodge Charger; Dodge Viper; Saturn Outlook/Buick Enclave/GMC Acadia; Chevrolet Tahoe; Saturn Vue; Cadillac SRX; Ford Edge/Lincoln MKX; Dodge Grand Caravan; Jeep Wrangler; Chevrolet Silverado; Ford F Series.  Any of these largely American made vehicles are perfect substitutes for their import branded competition.  The Big 3 need our help.  If our elected officials, complicit in creating problems for the Big 3 over these last 30 years, are unwilling to help with a bridge loan, implicitly revealing their allegiance to Japanese, Korean, and German auto makers, then we the American citizenry must step in.  The vehicles listed above are worthy of a test drive.  Take a look around the highway, the parking lot, your own driveway...too many import branded vehicles.  Always Try to Buy American.  Start tomorrow. 

25 reasons America is in decline

Reasons: Senators Daniel Akaka (D-HI); Max Baucus (D-MT); Joe Biden (D-DE); Robert Byrd (D-WV); Thad Cochran (R-MS); Larry Craig (R-ID); Chris Dodd (D-CT); Pete Domenici (R-NM); Chuck Grassley (R-IA); Tom Harkin (D-IA); Orin Hatch (R-UT); Daniel Inouye (D-HI); Ed Kennedy (D-MA); Patrick Lehy (D-VT); Carl Levin (D-MI); Barbara Mikulski (D-MD); Bill Nelson (D-FL); Pat Roberts (R-KS); Bernie Sanders (I-VT); Chuck Shumer (D-NY); Richard Shelby (R-AL); Olympia Snow (R-ME); Arlen Spector (R-PA); Ted Stevens (R-AK); and John Warner (R-VA).  Each of these Americans have been serving in Congress for at least 28 years.  Robert Byrd and Ted Kennedy are the longest serving among the group.  These individuals, each repeatedly elected by the rest of us, have reigned over the demise of America's public education system, an ever increasing trade deficit, an ever increasing federal budget deficit, an historic 30 plus year immigration wave with no end in sight, encroachment of American's national sovereignty by the UN, allowed the Judicial branch to take over issues that should be legislated, the mismanagement of the mortgage monsters Fannie Mae and Freddie Mac, oversight failures including the attacks of 9/11, the collapse of Enron and Worldcom, and the financial mess we find ourselves in right now.  I could make a longer list.  These 14 Democrats and 11 Republicans are part of the problem not the solution.  As the Big 3 struggle for survival, as the housing market deflates from it's bubble, as manufacturing jobs continue to disappear here and reappear in Asia, these 25 of our elected officials continue to fail us.  They have overstayed their helpfulness.  They should not be re-elected.  They're embarrassing!   

Life, Liberty, and the Pursuit of Happiness

Simple words put on paper long ago in dire need of reemphasis today.  At this time in our history those words seem so distant as our elected and appointed officials tasked with attempting to mitigate the negative impacts of the financial mess we've got ourselves into seem directly focused on making sure we continue consuming, rather than our safety (life), our freedoms (liberty), and general contentment in our communities (happiness).  Consumption is no doubt a part of all of that, but must be subordinate, or more properly said, from now on subordinated to savings and wealth creation.  Our leaders seemed poised to make sure they send out more checks to most of us with the understanding we are to spend it on discretionary items.  You know, the things we don't really need.  Pathetic.  This is what we pay their salaries for?  Life, Liberty, the Pursuit of Happiness can be achieved without unnecessary consumption.  Don't take the bait my fellow Americans.  Consumption for consumption only is a waste of money, time, energy, and space.  Maintain your life, cherish your freedom, and do your best to be happy.  Such a simple message if spoken by only one of our leaders would be a fresh burst of air across America. 

Watch out, our velocity is dropping making life hard for the Fed

Who would have thought there would actually be an appropriate time to discuss advanced economics in public.  The velocity (V) of money, how many times a dollar bill is passed along in the economy is relevant for public discussion.  Velocity is defined as total spending (nominal GDP, or the price level time total output) divided by the quantity of money (M) in the economy.  It is relevant for discussion because it is slowing to many decades lows and complicating the Fed's ability to prime the pump of consumption.  Individuals and businesses are saving/hording cash.  Throughout most of America's post WWII history, the velocity of money has remained rather stable.  In the midst of this historic financial difficulty we find ourselves in, velocity is no longer stable.  For all the efforts the Fed has made over the past 12 months to get additional liquidity into the financial system, and ultimately to businesses and retail borrowers, the desired outcome has still not shown itself to be developing, namely increased lending and continued personal consumption levels near 70 percent of GDP.  One of the problems is the understandable reaction by most of us to spend less and save more.  Spending less and saving more at levels not seen in the US for many decades, and causing a sharp fall off in the velocity of money causing increased liquidity provided by the Fed to remain parked and idle.  It seems altogether reasonable.  Some of us will bear the burden of the economic consequences, but there really is no alternative.  The longer you horde your bills the fewer times they can change hands potentially resulting in decreased national output.     

12/1/2008

What is the equity market telling us after another yo-yo move down 600 plus yesterday?

The short answer, not much, except market participants are nervous and fear still dominates greed.  Unless you are an equity day trader, avert your eyes from the stock market for now.  The stock market at this time is for traders, not investors.  Each day we see the talking heads on our TV's try to come up with an explanation why the Dow is one day up 400 points and the next down 600.  Fear and speculation is all that can really be said about the price action we're witnessing.  If you must watch equities, please stop watching the Dow Jones Industrial Average, it's only 30 stocks comprised of companies that long ago abandoned the American economy for the "global" economy.  Watch the S&P 500 for your equity insight.  If you have equity exposure, set a stop-loss for your position, and step back from the screen.  For a financial gauge of the economy, watch the bond markets, both gov't and corporate.     

Obama, apparently not a big fan of the US Constitution

First, it's still unclear President Elect Obama was born in the United States.  The birth certificate he has presented as proof of his birth in Hawaii is suspect at best (take note of pc language not even in vogue yet in the early 1960's).  Can I get an actual place of birth rather than just a state?  Have you seen a real birth certificate from Hawaii circa 1960's?  It doesn't at all resemble his.  For all you reading who are older than 38, check your own birth certificate and see if it looks like or contains info at all like Obama's.  Be that as it may, it's an issue being swept under the rug by our political leaders.  Second, he is nominating Senator Hillary Clinton as Secretary of State.  This is in violation of the US Constitution.  The Constitution reads: Article I, Section 6: No Senator or Representative shall, during the Time for which he was elected, be appointed to any civil Office under the Authority of the United States which shall have been created, or the Emoluments whereof shall have been increased during such time; and no Person holding any Office under the United States, shall be a Member of either House during his Continuance in Office.  The Sec State's salary was in fact increased while Hillary was in the Senate...she is not eligible for the job...period!  This won't be the first time a President sworn to uphold the Constitution has looked askance at it by putting a sitting member of Congress in their administration.  Amongst the 80 million of us eligible for the job of Secretary of State I'm sure there is someone else besides Hillary who could be appointed without trampling our nations founding document.  Beyond the Constitutional issue, can you believe Obama has appointed Hillary to his administration?  Stunning.  He's asking for trouble.  Just when I thought Obama's victory would consign the Clintons to the sidelines, he puts both Hillary and Bill smack back in our faces.  Thanks a lot Barack.   Politics trumping country once again.  So sad.      

Americans abandoning Americans, shame on us all

As someone who has long spoken out against Americas trade policy and the importance of buying American to support American industry, jobs, wealth creation, and national stability, I'm deeply saddened by the state of America's American owned auto industry.  All that comes to mind is Americans abandoning Americans.  Elected officials and policy makers abandoned the auto companies, management abandoned the line workers, the line workers abandoned management, American publishers, marketers, and PR reps abandoned the auto companies, but most of all American consumers-you and I- abandoned GM, Ford, and Chrysler.  The why's of this sad story are too numerous and detailed to lay out here...perhaps a book...but I want to say to my fellow citizens, shame on us.  Today I'm referencing the auto sector, but American's abandoning American's could be used to describe the state of our country across a broad range of topics.  The two party political system is one which comes quickly to mind.  The Big 3 need our help.  It is important for the collective mental and economic health of us all that America continues to be an owner and in control of our own auto industry.  For all of us who have bought a new imported vehicle, lets be clear,  you likely abandoned your fellow Americans in favor of supporting foreign nationals in Asia or Europe.  In practice it's not as simple as the statement suggests, but the practical outcome in terms of damage to our collective economic health remains.  US trade policy managers abandoned the Big 3 in favor of geo-political stability related to Cold War efforts some 40 years ago.  The Big 3 have been working from a position of disadvantage against imports from Asia since the 1960's. Disadvantages in terms of labor costs, the costs of capital, government regulation, tax rates, political correctness, and a less well educated work force.  The people that make up the Big 3 need some support from their fellow Americans.  Congress should expeditiously extend some sort of short term rescue loan package to the auto companies to get them through the economic difficulties we all face stemming from the credit difficulties spawned by the problems in the banking sector.  Importantly, you and I, American citizens, should come together in a unified patriotic way and ALWAYS TRY TO BUY AMERICAN when shopping for your next automobile.        

Barack's first decision doesn't demonstrate change to this voter

First, congrats to Barrack and his campaign staff.  Even if you didn't vote for Barack, it's still hard not to feel good about the historic implications of this election.  Many tens of millions of American citizens (presumably) who are not black voted for Barack Obama, a testament to the man himself and the state of race relations in American today.  History and race aside, I am deeply concerned about an Obama Presidency.  That feeling of concern was affirmed after his first appointment of Rahm Emanuel as his Chief of Staff.  For two years Barack runs a campaign on "Change" and he comes out of the gate with a former Clinton Administration advisor and multi-term Congressman in Rahm.  AIPAC and Israel now have a strong ally watching the door to the Oval office...so much for his "Change" related to Middle East policy and the his concern for the plight of the Palestinians.  Based on what I've heard and read, Rahm Emanuel is more politician than public servant.  This appointment was not about "Change" or country, but politics.      

Think long and hard before you pull the lever for Barack Obama

Is he a Socialist?  Yes.  Is that something new for a Democrat?  No.  Is it something new for America?  No.  America has been moving left towards Socialism since the 1960's.  It would not be hard to argue in many ways America is already a Socialist nation.  One only has to look at the Federal Budget, or for that matter the budgets of say California and New York, to discover the evidence of Socialism.   The move has been incremental and deliberate.  A vote for Barack Obama will accelerate the process as no proud American could imagine.  On this day it's not a stretch to say we are collectively very near the point of no return with respect to becoming a failed state as a result of Leftist ideology.  I will stipulate strongly John McCain is far from a good choice.  In fact the best honest argument I can make in his favor is he is the least worst candidate.  He has been part of the problem for a long time.  But, but, he is a known political commodity, and while clearly a man with a touch of Lefty in him he is not nearly as of concern as Barack.  Obama wants NEW DEAL II, but I promise you, we, you and I as fellow citizens do not need or want that outcome.  Obama brings us quickly past the point of no return...with McCain, in four years it still won't be too late.  Take note, when Barack speaks publicly he rarely says anything specific.  Take note when Barack speaks it's about government fixing your problems.  Isn't the record clear on that one already?  If nothing else, the notion of a Barack White House with a Pelosi/Reid/Frank Congress should be enough to stop you from pulling the lever for Barack H. Obama.    

Did you hear?  Barack Obama won the 2008 Presidential election

I know, I know, you haven't yet voted, it's not even November 4th.  Please, why bother, Barack has been crowned President by the MSM and they've apparently convinced the candidate  of the same.  Even Libyan leader Momar Kadaffi has declared the Muslim Barack Obama President and is convinced it will be good for Islam.  Barack may win, but I ask the powers that be to allow we simple Americans to actually cast our votes first.  I know that in and of itself is becoming farcical with all the early voting and bogus registrations by ACORN rampant across the country, but process is important sometimes.  If the majority of Americans (think electoral not popular) want to move the country further to the left, pay more taxes, and "change the world" (note:  this goal has nothing to do with the responsibilities of the President as indicated in the US Constitution) they will pull the lever for Obama.  MSM and the rest of the world, please let us go through the motions, and give us a bit more objectivity during the last days up to the election.  Keep in mind, our other choice is barely any more palatable. 

Connecting dots: Democrats, Osama, China, Structured Finance, President & Congress

A good starting point for our current difficulties is November 20, 1994.  It's Bill Clinton's second year in office, and he ratifies the The International Convention of Elimination Of All Forms Of Racial Discrimination, a subsection of a UN Treaty from the 1960's.  This opens the door for Congress and the Clinton administration to legally compel banks and other lending institutions to begin making mortgage loans to low income Americans so they can own their own homes and the American dream can be achieved.  Affirmative action has hit the housing market and the sub-prime mortgage is the means for the Left to achieve their goal.  By the late 1990's with the help of Fannie Mae and Freddie Mac, and programs like the Community Re-investment Act, most of the power players are on board.  They have a plan to diversify their risk to low income poor credit mortgage borrowers by bundling the mortgages, turn them into securities with a price, a yield, a maturity and a stamp of approval from a rating agency (S&P, Moody's).  Not only are they sold to investors of all kinds, but the securities become tradable products for banks, investment banks, hedge funds, and the like.  By 2000, the housing market was good, not to hot, but consistent with it's post WWII averages on a national basis.  September 11, 2001, Osama makes good on his promise to hit the US.  The US economy takes a big economic hit.  Capital spending comes to a near halt, and a mini credit crunch takes hold.  The Fed, led by Alan Greenspan is compelled to aggressively lower short terms interest rates, with the Fed Funds rate getting down to 1% by late 2002.  In early October 2002 the fed action begins to take hold as the economy strengthens, stocks begin what will be a five year bull run, and the housing bubble begins inflating.  By 2003 the Fed sees the risks to their historically low rates and begins a series of 26 consecutive interest rate hikes culminating in 2006.  For all it's efforts the Fed can't stop the housing bubble from continuing to inflate because long term interest rates (think 10yr treasury) refuse to rise and in fact fall.  Why?  China and their massive US dollar trade surplus is the short answer.  In late 2000 Bill Clinton proudly signed legislation granting Permanent Normal Trade Relations (PNTR) with China.  In 2000 our merchandise trade deficit with China was $84 billion, by 2004 it reached $162 billion, and by the end of 2007 our merchandise trade deficit with China was $256 billion.  China, flush with USD reserves and needing a safe place to park all that cash became a big buyer of 10 yr US treasuries.  This went a long way to help keep a cap on long term interest rates, thereby counteracting the efforts by the Fed on the short end of the interest rate curve.  Sustained low long term interest rates allowed the housing bubble to continue to inflate reaching historic levels in terms of ownership rates and price appreciation.  Meanwhile, since the late 1990's financial market participants began the structured finance craze in their community.  Math PhD's became very sought after.  Financial market participants wanted more products to trade and to sell, and derivatives were the answer.  Collateralized Debt Obligations (CDO's) and Credit Default Swaps (CDS's) were born.  It was all about bringing long term cash flows to short term cash flows, and supposedly diversifying risk. The players were helped along in 1999 by Bill Clinton's repeal of the Glass-Steagall Act which had kept separate activities of commercial banks and investment banks.  Again, under Clinton in 2000 the Securities and Exchange Commission (SEC) went along with the banks and investment banks exempting derivatives (CDO's, CDS's) from regulation and oversight.  In 2004 the SEC under Bush exempted investment banks (at this time Hank Paulson was CEO of Goldman Sachs) from maintaining reserves to cover loses in derivatives.  Which brings us back to Congress, and both the Clinton and Bush administrations and the tremendous failure of oversight.  From the time the first seeds of our current financial difficulties were sown years ago to today, Congress and consecutive administrations have had all the oversight power they've wanted.  Congress failed in it's oversight role.  The Clinton and Bush administrations failed in their oversight role.  Of course many of us failed in the oversight of our own personal financial responsibilities as well.  The sub prime mortgage mess started our financial problems, and then revealed poor risk management throughout the financial system, a strong degree of hubris and irrational exuberance, and that a PhD from Wharton or Harvard isn't that impressive after all. 

At times like this, Globalists are chomping at the bit

WARNING, WARNING, in times of crisis our Globalist leaders (think Bush, Gordon Brown (UK), Paulson, Bernanke) will make an effort to further push their agenda towards the diminishment of the independent sovereign state (think USA) and the rise of a global governing body (think UN).  You can hear it every time the powers that be speak.  Listen how often the word "global" or "world" is used.  The G-7 communiqué released yesterday after their meeting reveals the truth...it's a global problem requiring a global solution necessitating a relinquishing of control by nationalists (think American citizens) of their national laws and territorial boundaries.  Of course, the problem does not need a global solution, and Americans do not need to send their tax dollars overseas to help foreign institutions and economies, or give foreign institutions greater control over our economy at the detriment to ourselves. 

Rich or poor, in times like this, know where your money is

Am I going to be hurt?  Is my money safe? What should I do with my money?  Is now a good time to buy a house?  What's the outlook for employment?  These are some of the common questions I'm being asked by readers, friends and family.  There is anxiety out their for most of us right now and these questions reveal it.  Well, unless you're one of a few hundred Americans involved in the decision making process at the governmental level, the answer is easy:  For the next six months to a year know exactly where your money is coming from, where it is, and be as near to cash as you can be.  Beyond that, for those of us at the lower end of the pay scale, who live about pay check to pay check, rent their home, and don't have much in savings or do not have a 401K, their risk at the moment is their job.  For those of us with savings, a 401K, or own a home, their risks are greater.  They of course also face the risk of losing their job as the economy inevitably slows further, but also the lose of wealth and disrupted access to credit.  For them, they must get a finger on where every dime is.  They must read their financial statements carefully.  They should speak to their brokers, but do not take their word without doing your own due diligence.  They should speak to their banker and find out if the bank is doing anything independent of the FDIC to secure deposits.  Make sure what accounts are insured and what is not.  Not all accounts are insured under FDIC rules.  Very importantly, set a stop loss limit for your investments.  A stop loss limit represents the maximum amount of money you are willing to lose on any given investment, be it a mutual fund, individual stocks, or a home.  Defense is the word of the day from a financial perspective.  The FDIC has done a good job during this credit crunch to date.  Boosting the insured limit to $250k was a good move and seems to have calmed the nerves of most depositors.  Don't panic.  Keep getting up each day to go to work and work hard.  There will be pain coming out of this financial turmoil, but it will not be the end of us, stability will return, and wealth will be recreated.  Lastly, if you're going to watch for financial news on TV, please go to Fox Business, CNBC, or Bloomberg TV, don't' waste your time with CBS, NBC, ABC or other cable news outlets.  Otherwise, go to the internet for the more objective less hyped analysis.      

Technical analysis is helpful, though less so when emotions are peaked

This evening on Fox Business News with Neil Cavuto, I spoke about the importance of psychology when it comes to using technical analysis.  The simple point is this, appealing to past price action by way of technical analysis gives us insight into how financial market participants acted when we were last at any given price level.  Implicit is an emotional state of mind of "the market."  If that state of mind is different when we find ourselves trading at past levels than during the last time at that level, any analysis is weakened without discounting potential psychological differences (unusually high levels of fear or greed).  Those differences manifest themselves in different degrees of greed or fear.  At this time in American history, fear dominates, and apparently at a level our financial markets have not witnessed in a long time.  When emotions are peaked in either direction, technical analysis can be less than the solid indicator it normally is.  From 10,300 in the Dow to today's close, many solid technical levels were taken out with barely a pause. 

The catalyst for our financial meltdown: Affirmative Action

As the powers that be scramble to undo the mess they've all made together, blame deflection is the sport of the moment.  It's Congress, it's Bill Clinton, it's Bush, it's the Fed, it's nasty Wall St. people, and so on.  There is only one phrase American's need to recite to put their finger on the cause of this whole mess we find ourselves in:  AFFIRMATIVE ACTION.  Housing for minorities at the majorities expense. 

Lehman CEO Fuld before Congress a farce

Richard Fuld, former CEO of Lehman brothers was before Congress yesterday for questioning about the largest bankruptcy in American history.  It was another embarrassing moment for Congress.  I only want to make two points.  First, Fuld was not contrite, looked and seemed arrogant, and blamed the bankruptcy on everything but the strategic decisions by the leaders of the company.  He clearly felt entitled to nearly $320 million in take home pay since 2000.  Second, the questions from Congress were weak and not on point.  No one asked Fuld about the marks used for their derivative products that turned out to be dramatically off once the books were open to the public.  No one asked Fuld for the reasoning to have such a huge exposure in CDO's, CDS's.  More amazing and jaw dropping was to listen to Congressional members.  Stumbling to find softball questions for a man that has probably contributed to every Committee Chair in Congress and held the reins while Lehman went from a great company to being put upon the trash heap of financial markets history, committee members actually asked him what he thought Congress should do to solve the credit problem facing America today.  Embarrassing!

September Non-Farm payroll data worse than expected

September jobs data, the key market indicator each month,  was released at 8:30 this morning coming in worse than expected at -159 thousand jobs.  Conventional wisdom suggests this may be the best of the payroll numbers to come for the next several months as the banking troubles spill over to the whole economy.  Market reactions; higher stocks, stronger dollar, higher interest rates suggest the market is still more focused on the rescue package from Congress and the continued impacts of the credit difficulties. 

Palin v Biden

First, all the concern about Gwen Ifil being in the pocket of Obama was a big waste of energy.  She was fair and kept the debate moving along.  Once again, two more candidates standing for debate on the national stage did a poor job of actually answering the questions they were asked.  While Palin clearly did well, seemed comfortable, and looked great, she didn't knock out Biden, which is really what she needed to do.  As for Biden, one would have expected much more from a man who has been in Congress for nearly 30 years.  His depth of knowledge was not impressive.  Palin probably did McCain some good...again, but she also was not very deep in knowledge, seems to be a one trick "energy" pony, a little too folksy for this viewer, and did I mention she looked great.  I did like it when she called Joe, O'Biden.  So that's over, all set next.  

It's fractional reserve banking stupid!

There is a lot of confusion in America about the safety and availability of the money we each put in our bank of choice.  While we should have all been taught this in high school (all evidence to contrary), America's banking system is a fractional reserve system.  For every dollar we each put in our bank account, over 80 cents is quickly used to lend money to others for business, homes loans, car loans, or to make strategic moves for the bank itself.  The premise is that not all customers will want all their money back all at once, so at any given moment only a fraction of the banks deposits need to be liquid and available on demand.  The fraction which banks have to hold is determined by the Fed.  In hard times the fraction can be reduced to increase access to loans, and in good times to slow lending to avoid overheating the fraction can be raised.  In any event, at any given moment in time all of our collective deposits are not immediately available.  The FDIC insurance programs provides a back stop, otherwise it's first come first serve.  

Remember the song about how a Bill is born?

The US Constitution: "Section 7.  All bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills."  Another crises providing cover for ignoring the Constitution?  The US Senate, in a power and publicity grab over the House, are very close to presenting a Constitutional quandary.  They have voted on and passed a revenue raising rescue package for the banking sector which they are now sending to the House.  This is not the way it should go.  I have no doubt there is some technicality which can be cited by Senators making this Bill fall under the "propose or concur with Amendments" part of the Section 7 of the US Constitution.  Come on, lets just do this by the numbers.  Lets not make a bad situation worse by further trampling on the Constitution.  The Bush administration has done enough of that lately.  

What a surprise, the USD is still safe haven

For the better part of five years the powers that be have been telling Americans our day is over.  BRICK: Brazil, Russia, China, India were the new power centers of the world ready to by pass America and put the USD upon the garbage heap.  Talking heads spoke of a US dollar crisis.  Surprise, America is still America....relative to all others.  Of course that is the key for foreign exchange rates.  The US dollar, in the face of one of Americas greatest financial challenges is strengthening across the board as the world gets the jitters about the fallacy of BRICK being all powerful absent the American consumer.  US Treasuries, are safe haven.  To buy US Treasuries, one needs to have US dollars.  Two months ago EURO/USD was trading at 1.5640, today the rate is 1.3800.  Americas economic systems is lousy, except when compared to all others.   

Embarrassed to be an American today?

I know I am, and my fellow citizens should feel the same.  It was embarrassing to watch our elected officials stumble about in Washington yesterday ultimately not passing legislation to bolster our banking system because peoples feelings were hurt.  It's embarrassing to watch financial market participants, the risk takers of our society, waiting with bated breath, hanging on every political development in DC for evidence they will be saved from their own largess, rather than do what they claim to be so good at, step up, take some risk, and make a market.  It's embarrassing to watch Rep. Barney Frank (D, MA) act as if he is not the architect of the whole plan that brought us to this point in our history, namely;  Affirmative Action for Housing facilitated by the now dreaded sub-prime mortgage.  We should all be ashamed of ourselves as American's today.  Having said that, lets sort out this mess and move on.

The Birth of America's Housing Mess

In the early 1960's the UN affirmed it was a right for humans to have housing.  The International Convention of Elimination Of All Forms Of Racial Discrimination was the document it produced to have ratified by member states to right the world when it came to housing.  Successive US administrations rejected ratifying the Convention until the Clinton administration did so in November 1994.  The left jumped on board aggressively, led by people like Barney Frank, and the Congressional Black and Hispanic caucuses.  What they needed was a reduction in lending standards by banks and other mortgage lenders to allow those people who didn't have a down payment, or didn't earn enough money to buy a home, or had bad credit, or were otherwise bad risks, to own instead of rent.  While banks, the Fed, Treasury, and others generally were reluctant to jump on board, they all eventually capitulated, and sub prime mortgages were born, pay options ARMS were born, and other similar instruments.  The idea was to securitize all this bad lending in order to spread the risk among many financial market participants, so that when the inevitable defaults came about, no one player could be that badly hurt.  Opps!   The Left is responsible for starting this problem, the right is responsible for facilitating it.  But, as a group of voting citizens, American's got what they voted for.  One day perhaps we'll pay attention more closely.

Do You Still Think There Isn't Massive Speculation In Oil? 

Since mid June, the price of oil has gone from $146 per barrel, down to $90, up to $130, and back down as low as $96 per barrel today, September 30.  This is the clearest evidence I can present demonstrating the degree of speculative money in commodities.  For sure it's not supply and demand.  Heck, one of the main reasons cited for the sell off from $146 to $90 offered by the talking heads on financial news TV is the need for banks, hedge funds, and the like to get back into cash to protect their capital ratios.  Oh, so they were speculating on oil.  Speculation is not a bad thing, and I do not use it in as a pejorative term, it's simply the dominant aspect of commodities markets.  You do know the whole of the equity market is about speculation...right?  Any gov't official, or ensconced private citizen (think T Boone Pickens) who tells you the price of oil reflects the real supply and demand situation and does not have any speculative element is lying and protecting their own narrow interests. 

Watch out, Credit Default Swaps are next

The financial market meltdown continues for independent broker dealers like Lehman Brothers.  Here's the trade; buy credit default swaps sold by the target company (Lehman, Merrill Lynch, AIG) which increases the targets risk exposure, then sell the stock short. and wait for the chaos to ensue, being certain of course not to be the last one out the door.

There are fortunes being made on this trade the past few months, and certainly this week. 

Credit default swaps (CDS), a derivative product, are insurance on bonds issued by corporations and government entities, and are the bid daddy of the derivatives market.  Originally bought by buyers of bonds to protect their principle, they've morphed into tradable products within capital market groups at banks, brokers, insurers, and hedge funds such that a significant percentage of outstanding CDS are held by those who do not also own the underlying bond. 

The seller of the CDS, in the event of a default by the bond issuer, pays back the principle to the buyer of the CDS--who may or may not own the underlying bond--at or near 100% on the dollar.  The credit default market is massive, in the trillions of dollars.

This is the focus de jour, and the biggest risk product faced by regulators since the beginning of the sub prime mess began in early 2007.  Watch your money carefully.  For now cash seems to be safe.   

Article of Interest: 

The Week Ahead 8/11/08

Once again this week is shaping up to be a great "trader's" market.  A bunch of economic data, the Russian attack upon Georgia followed by claims from Georgian officials Russia targeted the pipeline carrying Russian oil through Georgia to the west, and another busy earnings week should provide a good deal of volatility in equities, currencies, and commodities led by crude oil.  If we discover come Monday morning Russia did in fact attempt to hit, or did hit the Georgian pipeline, that will certainly halt the sell off in crude and send it back towards $120 a barrel.  Given the current high correlation coefficient between the price of oil and the value of the US dollar against the Euro we can expect the dollar to give back some of it's gains from last weeks aggressive rally and weaken back towards 1.5350 against the Euro during trading on Monday. 

On the data front the markets will get a look at trade data, inflation data, the foreign appetite for US financial assets, a peek at manufacturing, unemployment, and a sense for how we are spending our money and feeling about it. 

Retail Sales and the CPI data for July, Michigan Consumer Sentiment for June, and Initial Unemployment Claims for the week ending 8/9 should get the most attention from market participants. 

As always, I offer the standard caveat and cautionary notes to traders:  "It's all about expectations" when it comes to economic data with those in data least well forecast inducing the greatest volatility; watch any revisions to the prior period; and keep an eye on the news headlines. 

Article of Interest:   George Will:  A Century of Progress in America

FRANK ON UNEMPLOYMENT RATE:  Be afraid, be very afraid.  Financial markets are now anxious about a rising unemployment rate having spiked up to 5.6 percent (a rate still historically low and at or around full employment) over the past two months from a calm 5.1 percent as measured by the Household Survey conducted by the Bureau of Labor Statistics (BLS).  Recently, the BLS picked up a bunch of teenagers and college students voluntarily entering the labor force by indicating their efforts to find a job during the survey week.  This meant America's labor supply increased but the number of employed did not match the increase.  Hence, a higher unemployment rate.  It is the labor supply calculation, the number of those employed plus those who are unemployed but are actively looking for a job, which is the villain here.  Those who are not looking for work but are unemployed (often called discouraged workers) are not included in the labor supply.  Many economists suggest if the labor supply numbers were more honestly calculated to include all Americans of working age who are able and wanting to work, the unemployment rate for the US economy would be approaching 9-10 percent.  Of course politicians have their hands in the mix and are complicit the deception.  Once we get some honest courageous elected officials in Washington DC we will have to be honest with ourselves and recognize America's economy has some bigger problems than those in office today are willing and able to admit.   On that day, get short equities and long bonds, because the reaction this past Friday will be a blip on the chart when compared to price action we'll see on that coming day.  

FRANK ON IRRATIONAL MARKETS:  Neo-classical economics has one very large assumption underlying the whole theory: rational behavior.  It's a necessary assumption upon which to attempt to predict human behavior when it comes to consuming and participating in the ebb and flow of financial markets.  What we are witnessing in terms of the price action of crude oil, the value of the US dollar, and equities in the past weeks, particularly last week on the back of comments from the ECB on Thursday and the release of the Employment Situation Report for the month of May on Friday, is clear evidence of how the basic assumption highlighted above can be turned on it's head by irrational behavior.  Trading in any financial product is based upon two things, fear and greed.  Either one when the dominant sentiment create unusual volatility and general market activity.  Fear is the dominant sentiment at the moment, particularly among those participants who are betting the price of oil is overdone to the high side.  What we witnessed last Friday with the $16 dollar jump in the price of crude oil was the power of fear as those short crude (betting it's going lower) were forced to scramble to cover their short in a fast moving market against them.  What triggered the fast moving market up?  More irrational market behavior motivated by fear and uncertainty.  Hawkish ECB comments on interest rates, and an unexpected jump in the unemployment rate in the US for the month of May triggered the rally.  But, it should not have if most of the acting participants were able to act in a rational manner.  Such is not market sentiment though.  In fact, higher rates in Europe and higher unemployment in the US are indicators of slowing economies to come and suggest lowered demand for crude...not higher.  Traders of oil, the US dollar, and the S&P have got themselves all caught up in the hair brained notion that the weaker dollar is positively correlated to the price of crude.  Of course economic theory teaches us in the current event, these are not correlated events as being implied by market price action.  Particularly when one keeps in mind the price of crude is generally priced in US dollars.  Therefore, as the dollar weakens, oil should sell off as demand for oil stabilizes or diminishes in the face of higher prices for the consumer.  Additionally, since oil is priced in US dollars, and the dollar is weakening against the EUR and the JPY, then the inflationary impact on those two regions is significantly less than that on the US dollar.  We  are in the midst of fear dominating the actions of market participants.  We will continue to experience significant volatility, and overshooting to the highside both for oil and the sell off of the dollar.  It's the cart and the horse problem amongst the three trading products.  US dollar traders are watching oil and the S&P's for their cures on trading, oil traders are watching the US dollar, and S&P's are watching the US dollar and oil.  It's a circular frenzy made more so by the ubiquitous presence of digitized algorithmic trading models.  Rational actors will once again assert their control over price action, but only when the dust settles, which will be some time still.  Although, all must be reconsidered if Israel attacks Iran in a surprise attack, or if Obama wins and we get his socialist fiscal policy.  At that point, it's 1973 all over again.         

FRANK ON Q1 GDP, RECESSION?: The financial markets got their second look at Q1 GDP for the US economy.  Upon revision, Q1 GDP came in at a .9 percent growth rate, about three tenths of a percent better than the market was expecting.  So, recession, or no recession?  Well, the answer is both yes and no.  It depends on which region of the country you reside.  Think of GDP as essentially an average of growth rates from all 50 states.  If growth is .9 percent nationally, that implicitly means some regions may be growing near 2 percent, and some contracting by 1 percent.  What is important to watch for in this data is the second derivative (the rate of change of the rate of change).  It's very likely across the whole country, the second derivative is negative.  Detroit for example, is clearly in recession as growth is contracting, but still more important is the second derivative is also still negative, which means Detroit's economy is contracting at an increasing rate (read still getting worse).  On the other hand, New York City is still growing above the national average of .9 percent, but without question the second derivative is negative.  For New York City, the economy is increasing at a decreasing rate, which means it's headed towards zero or negative growth.  Like politics, economics can be all local.  In slow growth times, there is always some region of America in recession.  

FRANK ON LOSING BUD AND THE FRIG TO KEEP IT COLD:  Is there nothing sacred for Americans anymore?  How is it two of America's greatest brands and household names can be so easily cast off to foreign ownership with nary a whisper except a few headlines from the business pages.  Apparently, Anheuser-Busch is subject to a takeover, and GE's appliance unit has a big for sale sign on it.  GE, always the margin snob feels the appliances business is beneath it now (Or, as Jeff Immelt is known for saying, "if someone can do it better than we can...").  Since, due to decades of bad trade policy and a-national consumption habits of many American's today, Asian and European appliance manufacturers have been steadily eating away at GE's appliance market share over the past 15 years.  Faced with shrinking margins from stiff competition, and a balance sheet rocked by poor bets within the GE Financial group over the past year, GE is abandoning a great American brand and taking another little bit of emblematic pride away from American patriots.  It should come as no surprise to learn GE is making no effort to keep GE Appliances in American hands...the leading bidder is LG from South Korea.  Say goodbye to another US manufactured product.  ANHEUSER-BUSCH (Bud, Michelob, Rolling Rock, Busch, et al), a great American brand, is in the sights of Belgium brewer InBev (a sub of AmBev of Brazil).  Little tiny Belgium, taking over an American icon like Bud...can that be?  The weak dollar, a tacit understanding between European and American officials American assets are up for sale in an effort to further diminish that pesky little patriotism problem America has always had, and a-national CEO's and institutional shareholders ready and willing to sell to the highest bidder, are the basic reasons.  What is alarming to me is how easily deals like this occur today.  Once we were owners, now we are owned, and that cannot lead to good things for America in the future.  Doesn't anyone care anymore? Note:  On the appliance front, we've already lost Maytag to Sweden's Electrolux.   As for brewers, Miller is now owned by the South Africans and Coors is now owned by the Canadians.  Bud is all "Buy American" Americans have left. 

FRANK ON OIL:  Commodities generally, led by the price of crude oil, are in a price bubble.  Unlike what T. Boone Pickens said yesterday on CNBC, there is at least $30-$40 worth of speculation in the price of crude oil.  Yesterday, T. Boone, having said that there is not one dollar of speculative push on the price of oil, in the next breath told CNBC he is now long oil after having been short to start the year.  That my friends, is the definition of speculation.  And like T. Boone, thousands of others individuals, be they trading on their own account, working in the Capital Markets group of any of 50 banks and investment banks around the world, or running a hedge fund, are speculating on where the price of oil is going.  Their motivation, higher incomes via bonus compensation or capital gains.  Right now, they're all in the same boat convinced it can only go higher.  As evidence, consider this:  The price of a barrel of crude has jumped over 20 percent in the past week.  Is their anyone who believes demand for oil in that same time jumped 20 percent?  No, I didn't think so.  More evidence: Two weeks ago a Goldman Sachs analyst predicted the price of crude would reach $200 a barrel in the next year.  What happened next, oil traders took the price of oil higher on that news alone.  Why?  Because that's what your supposed to do when it's going higher?  Isn't it? It is speculation.  The herd is running right now, and for the moment in one direction.  It won't run the same way for much longer.  WHAT'S THE FIX:  The fix is easy.  It's battling the environmental left (read NGO's, nearly all of Congress and most governors) which is the hard part.  Here is what must be done to get back on the path to some sort of reasonable national energy policy.  First, stop the push on corn based ethanol.  It's not cost efficient at this time and it's creating tremendous upward pressure on food prices globally.  Not to mention the fact the motivation for corn based ethanol mainly comes out of short term political campaigning as Iowa is the first state on the political election calendar.  Second, reopen the Rocky Mountains to natural gas and coal exploration.  Bill Clinton signed an executive order during his second term putting coal exploration in the Rocky Mountains off limits in a deal with China.  Third, open up the eastern seaboard to oil and natural gas exploration.  The quick response to this one is fear for any accident's impact on tourism along the South Atlantic coastline.  You know what else will be bad for tourism there...$10 a gallon gas, stagnation, geopolitical instability.  Forth, reduce government regulation pushed by the environmental lobby for decades related to the construction of refineries and nuclear energy plants.  Lastly, to all my fellow citizens, the NIMBY thing has got to stop.  Not In My Backyard can't be the reason we consign a significant portion of our fellow citizens to unnecessary hardship.  Note:  The best our elected officials have come up with for this problem so far is a tax holiday.  WARNING, WARNING...we need new elected officials. 

FRANK ON CLINTON CAMPAIGN:  Hillary is not going to be the nominee for the Democrats unless she wants to create an historic level of chaos at the convention.  Right?  We all know this.  Yet, she fights on.  And, OK, do what you will.  I'm sure she has some contrived motivation related to her future political fortunes in mind.  The only point I want to make today relates to her campaign finances.  According to just released records her campaign is $30 plus million in debt.  Shouldn't this be a barometer for the success of any Presidency she may have had.  How can she be President if she and her team can't manage the finances of her campaign.  Which is to say, her judgment on expenditures when constrained on the revenue side is poor.  Just what she would confront with the federal budget.  She's a compromised 20th Century American politician, and enough of them already.  Of course that leaves with John McCain and Obama.  Not good.        

froche@frankroche.org

Economic Data Calender

Week of 4/27/2009

4/28 10:00AM Apr Consumer Confidence (exp: 28.8)

4/29 2:15PM FOMC Rate Decision (exp: no change)

4/29 8:30AM Q1 GDP (exp: -4.9%)

4/30 8:30AM Initial Claims week of 4/25 (exp: 640k)

4/30 8:30AM Mar Personal Income (exp: -.2%), spending (-.1%)

4/30 8:30AM Q1 Employment Cost Index (exp: .5%)

4/30 9:45AM Chicago PMI (exp: 34)

5/1 10:00AM Mar Factory Orders (exp: -.7%)

5/1 10:00AM Apr ISM Index (exp: 38)