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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
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MERRY
CHRISTMAS AND HAPPY NEW YEAR TO MY FELLOW AMERICANS
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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

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