Saturday, January 15, 2011

A Politician Who Gets It

Just a few comments. Before I start I want to say that it's a great day here in Steeler Nation as we prepare to watch our Steelers take their first step towards winning a 7th Lombardi trophy:

Getting back to the economy.  Former LA Mayor Richard Riordan was recently caught doing some truth telling in an interview recently.  He warns that 90% of the cities in this country will be bankrupt within 5 years thanks to unions who have corrupted the whole political system.

Let me do a quick side bar here before I continue.  I am very busy with business over the next month so I might not be posting as much as I usually do.  Work comes first folks because unfortunately blogging doesn't pay the bills.

Let me also add that I am disgusted at what's I am seeing on Wall St and in Washington.  The muni market is showing signs of collapse.  Food and gas prices are soaring.  Tunisia just overthrew their government because of rising food prices and a 50% unemployment rate among the younger generation. 

Despite all of this chaos, the market trades as if it doesn't have a care in the world while Rome slowly burns in the background.

The whole thing is absolutely ludicrous and I want no part of it right now.  In a nutshell: Stocks are too expensive to buy at this point, and the Fed's money printing makes shorting the market too dangerous.

As a result, I sit here in cash with my thumb up my ass waiting for this absurdity to end.  The way I see it, the next big event is the ending of QE2 in June.  The market will start to worry about this in March/April and I expect chaos in DC as the Fed tries to figure out what to do.

Remember folks:  Without this insane government spending we would be in the middle of a depression right now.  The problem is the government cannot sustain this Ponzi scheme without destroying the dollar.  We are broke and Moody's is talking about lowering our credit rating as a result of this stupidity. 

Enjoy the interview below.  It's always nice to see a smart guy who has a clue.

Thursday, January 13, 2011

Consumer Spending Collapses in Early January

The early 2011 numbers are out for consumer spending and they are flat out ugly:

Quick Take:

The market will likely rally 500 points on the news the way it's been trading lately.  Folks, I was shocked that the market didn't sell off hard after the inflation and jobs data today. 

As you know, I am very skeptical about what is going on right now when it comes to stocks.  Everyone keeps saying that the market can only go higher thanks to the money printing Fed via QE.  I must say I agree but I think there is more to it.

I can't help but believe the HFT trading algos are also involved in helping create a floor for this market.  They are creating massive amounts of liquidity as they move in and out of stocks in a matter of seconds.  They now represent about 73% of the trading on Wall St.

This is very scary to me.  Last year's flash crash showed us what can happen when they all decide to stop buying. 

I wanted to throw up a chart of the DOW and point something out:

Quick Take:

I thought it was interesting to look at the daily market moves since early last year.  As you can see, we haven't had a 200 point sell off since August 2010.  On the flipside, we haven't had many 200 point moves to the upside either.  I can count them on one hand.

Does anyone else find this bizarre?  Here we are working our way through the most dramatic financial disaster in history and the stock market acts like it barely notices on a daily basis.   Think about the stories the market has ignored over the past few months:

-  The greek riots
-  Ireland collapse
-  European debt crisis
-  Horrific housing numbers(beginning in the fall)
-  Bad unemployment
-  Rising interest rates
-  Munincipal bond/state solvency issues

I would have expected at least a couple of large sell offs as a result of these events. 

On the flip side, we never got a huge move higher as the Fed started printing money and companies started blowing out earnings.  The trend is definately higher as a result of these two things but it's been a very slow methodical climb higher.  It doesn't look normal too me when you compare it to the fierce rallies we saw in 2009.

The markets movement is even more strange when you compare it to the the bond and currency markets.  Both have reacted violently  as we work our way through our worst financial crisis since The Great Depression:

We saw the largest bond rally in history last year which was followed by a violent sell off after the Fed announced QE. 

As for currencies, they were just as volatile.  Take a look at the dollar over the past 12 months:

Quick Take:

These moves in the dollar are huge versus normal times.

The Bottom Line

I think the stock market has developed into nothing more than a casino parlor that's dominated by trading robots that scalp each other all day long.  Any large move up or down seem to get sold into. 

I guess we should expect the market to move like this when the average trade is 11 seconds.  When you think about it:  How in the heck can any daily rally be sustained when the quants are programmed to sell once they scalp a few points?

IMO, the market no longer represents what's going on with the economy.  It now represents whatever the trading robots want to do on any particular day. 

I will be keeping an eye on consumer spending moving forward.  The chart above tells me that the inflationary pressures from higher oil and food are starting to have an effect on discretionary spending.  If this trend continues things are going to get ugly in a hurry.

Party On!

A few data points for you as you start your day:

"The Producer Price Index for Finished Goods rose 1.1 percent in December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This advance followed increases of 0.8 percent in November and 0.4 percent in October and marks the sixth straight rise in finished goods prices. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 1.0 percent, and the crude goods index increased 4.0 percent. On an unadjusted basis, prices for finished goods advanced 4.0 percent in 2010 after climbing 4.3 percent in 2009."

Quick Take:

Ummm....Inflation anyone?

Jobless Claims:

How can I describe this....Fugly???

"In the week ending Jan. 8, the advance figure for seasonally adjusted initial claims was 445,000, an increase of 35,000 from the previous week's revised figure of 410,000. The 4-week moving average was 416,500, an increase of 5,500 from the previous week's revised average of 411,000."

Quick Take:

OK...So let me get thris straight:  Prices are soaring and so are jobless claims.  What a perfect combination.....NOT!

Stocks barely moved on the news.  We shouldn't be surprised.  Stocks are not allowed to go down anymore no matter what the news.  Remember:  Ben Bernanke has your back.  Thanks to him, the market will ALWAYS go up no matter what the news.

Seriously folks, this is not going to end well.  Please be careful with your investments.

Wednesday, January 12, 2011

A Walk Down Memory Lane

I thought it was interesting to go back in time and look at my first post that was published on 2/23/2008.  I lived in a different city at the time and my writing skills were pretty crappy back then(they still are but I hope they have improved somewhat).

Anyways, I am pleased at how accurate my first call was.  I have been wrong many times but I pretty much nailed housing.  To date, home prices are down 36% from the highs despite rates dropping to 3+%.  I thought some of the newer readers would find this interesting:

"Welcome to my spot on the web. For all you buyers in Baltimore I hope this little spot will help educate you while you house hunt. Today I wanted to discuss why rates have climbed so much in the past week. Many banks and brokers are now over 6% for a 30 year fixed.

The reason this is happening is because of the bond market. the bond market is basically now starting to ignore the FED. Usually mortgage rates drop when the FED drops rates. This for the time being has changed.

The bond market however is a smart bunch and they are now worried that home prices might drop on a national basis. If you want to see where rates are heading you need to watch CNBC and look at the 10 year rate. There was a massive spike upwards this week in the 10 year which has resulted in a big jump in interest rates. So in closing look at the 10 year when you are trying to predict where rates will go.

I expect housing to drop 30-40% based on the change of lending standards in combination of higher interest rates. As a result I recommend anyone that is looking for a home to wait at least another year. "

Deny Deny Deny

Sorry it's been a few days folks.  Too be honest I haven't really seen anything worth talking about when it comes to the markets. 

We are in a period right now where all of the news is good.  Any bad news is either papered over and hidden by the Fed's printing press or it's spun positively.

Today's Portugal bond auction was a perfect example:

The market rallied this morning on news that the auction was successful and saw very high demand.  However, Portugal refused to give any details around the auction.  Know one knows who bought what.  My guess is China and the ECB were the ones providing all of the demand.

Nonetheless, our permabull media took the story and ran with it without giving the details. 

The Bottom Line

Basically, what's going on right now is the governments of the world have decided to print over their mistakes and pretend that everything is Hunky Dory. 

The problem is the debts from our masive credit bubble are still there and they aren't going anywhere. 

Today's price action was interesting:

The market had every reason to zoom higher today:  Europe settled down thanks to Portugal, the Treasury had a very strong 10 year bond auction, the Fed continues to pump POMO "funny money" into the banks,  and earnings reports have been strong. 

Despite all of this, the market has only managed to rally 83 points after being up triple digits earlier in the session.   Some may say the market is digesting recent gains.  I personally believe the rally looks tired.

That being said, over the shorter term stocks are likely to keep rising without a significant downward catalyst.  The issue for the bears is it doesn't appear that the Fed is going to allow any such fuse to be lit for now because the "recovery" is too fragile.

They will continue to print money in order to ignore our structural problems and kick the can down the road.  Unfortunately, our children and our grandchildren will be the ones who will end up paying for this tragedy.

Nothing has changed folks.  The problems are still there and things are getting worse.  Eventually, spending money we don't have is going to crush our currency and when it does our world will never be the same.

The dollar's status as the worlds reserve currency will eventually end.  China looks like it's already preparing the renminbi to take it's place:

"Bank of China, one of the country's main state-owned lenders, is now allowing American clients to open accounts in renminbi and trade in the mainland's currency, another step in China's introduction of the renminbi to the world stage.

''China sees the global financial system as too U.S.-centric and dollar dependent,'' said Robert Minikin, senior currency strategist at Standard Chartered in Hong Kong. ''That created issues during the financial crisis.''

Now, he said, the country is trying to take a step away from that dependence. ''Conditions are in place for sustained yuan appreciation against the U.S. dollar,'' he said, predicting that it would increase by 6 percent this year to 6.20 per dollar.

Take Continued:

The longer we sit here and do nothing to solve our problems the more vulnerable we become.

Monday, January 10, 2011

Is Portugal About to Bite the Dust?

Last Monday the bulls were oozing with confidence after a triple digit gain on the first day of trading in 2011 following a massive rally in December.  I think I saw several of the CNBC girls achieve orgasm periodically throughout the day as the market stormed out of the gates.

My oh my...What a difference a week makes.

The market has done nothing but sink ever since albeit slightly.  The question many traders have now is will the market be able deliver the massive earnings beats that the market has currently priced in?

Alcoa kicked things off after hours and beat but the stock barely moved despite announcing a 12% earnings growth forecast for 2011.  Hehe...Good luck with that Alcoa.

Where is the growth going to come from?  Europe and the USA are both disasters.  China is hitting the breaks on it's growth as inflation heats up. 

Perhaps they are expecting a building boom in Pakistan?  


It looks like another PIIGS nation is about to bite the dust:

"CONTAGION CONCERNS: Portugal's borrowing rates briefly spiked to euro-era highs amid reports other European nations are pushing it to accept outside help to keep its debt crisis from spilling over into Spain.

PEER PRESSURE: The early spike in yields followed a report in German newspaper Der Spiegel that France and Germany are both pressing Portugal to tap a European rescue fund.

BAILOUT TALLY: Analysts estimate financial assistance for Portugal would be between ?50 billion and ?100 billion ($65 billion to $130 billion). But EU officials deny a bailout is in the works for Portugal."

Quick Take:

These bailouts are nothing but Monopoly money at this point.

Expect to see the same Eurozone debt fire drill:

The bankers will threaten Portugal with their financial lives if they don't take the bailout.  Portugal will say they are fine knowing that they eventually cave in to the banksters and take the money.  The losers of course will be the Portuguese who instantly become debt slaves for the rest of their lives.  Austerity will immediately be put in place which will trigger social unrest as the country is forced to cut jobs and entitlements.

Rinse, wash, repeat.

The Bottom Line

You have to wonder how long the governments of the world can continue to get away with throwing their own people under the bus in order to save the banks.

It's happening over here too:

"California Governor Jerry Brown's budget will cut spending by $12.5 billion, including as much as a 10 percent pay reduction for most state employees, aides said.

The plan, which Brown is to unveil today, will also raise $12 billion by retaining tax increases due to expire and making other modifications. Some of the revenue will go to cities and counties as part of Brown’s plan to transfer spending authority from the state to local governments."


That's going to leave a mark.  I am sure all of this will be bullish for the markets!

I applaud Jerry Brown for at least trying to do something about it.  However, it appears he didn't touch the unions for the most part which is very disappointing. 

Nonetheless this state is fiscally screwed and paying back this deficit is going to be very painful.  Why anyone would want to live in this cesspool is beyond me.

Before I continue, please save your breath if you are going to attempt to defend this place.  I know the weather is great out there.  I also understand that you can also legally smoke mountains of pot in between innings at a Giants game.

You are going to need both of these things way I see it moving forward in California:   Hoovervilles aren't heated, and the drugs will able to provide you with a nice escape as you sit in your refrigerator box and think about which garbage dump you plan on picking your next meal from after you get the munchies.

Party on folks!  There is plenty more monopoly money that is around for the taking!  It will be interesting to see if this printing party will continue to move the markets higher.

Sunday, January 9, 2011

A Sad Day/Leading Economic Thinkers: Things Don't Look So Good

Before I get to the economy let me just share a couple of thoughts on yesterday's assassination attempt.

The shooter was obviously a complete nut job who was mentally ill.  What disgusted me today was how it's getting politicized.  This makes me sick. 

There is nothing to analyze here IMO and It's not a right or left issue:

A whack job lost it and went postal on a politician.  That's it.  Period.  We see this craziness all the time.  We saw it happen at Virginia Tech.  We saw it happen at Columbine. 

The only difference here is a politician was involved.  Unfortunately, both sides of the aisle now see an opportunity for blame.  I keep reading about how all of this was the Tea Partiers and Sarah Palin fault.

HA!  Gimme a break.  Did you see those You Tube videos this guy made?  This mental patient couldn't even write a complete sentence.   Who knows what was going on in his pea brain when he started firing.

Let's hope we see some positive changes as a result of this tragedy.  If there is any blame here it should be placed on the anger and hatred that the left and right consistently spew at each another.

It's OK to disagree with one another but it's slowly but surely gotten out of hand.  Media personalities like Hannity and Olbermann then make it worse as they  sensationalize this hate as they attempt to carry out their biased agendas.

This has to stop because there are mental patients out there with guns who don't know how to process the anger.  

I'll tell you what folks:  The moral/social crisis in this country is just as bad as the economic one. 

I say enough already!  The hating has to stop.

The country is a mess and the only way we ca turn this around is by working with one another.  Let's hope we can see a little more peace in DC.  Our future is in jeopardy and now is not the time to figure out who to blame all of this on on. 

Let's fix things first.  We can have the debate later.

Another Lost Decade?

I'll end with an excellent piece that summarizes a convention that featured the leading economic minds in the world.

Their conclusions on where things are headed are disturbing to say the least.  Have a read:

"DENVER (By Mark Felsenthal): To hear a number of prominent economists tell it, it doesn't look good for the U.S. economy, not this year, not in 10 years.
Leading thinkers in the dismal science speaking at an annual convention offered varying visions of U.S. economic decline, in the short, medium and long term. This year, the recovery may bog down as government stimulus measures dry up.

In the long run, the United States must face up to inevitably being overtaken by China as the world's largest economy. And it may have missed a chance to rein in its largest financial institutions, many of whom remain too big to fail and are getting bigger.

On the one hand, Harvard's Martin Feldstein said he believes the outlook for U.S. economic growth in 2011 is less sanguine than many believe.

First, the boost to growth from government spending will be drying up this year, he said. Renewal of expiring tax cuts is no more than a decision not to raise taxes, and the impact of one-year payroll tax cut is likely modest, he said.

"There's really not much help coming from fiscal policy in the year ahead," he said. Woes from the dire situations of state and local governments may actually be a drag on growth, he said.

Growth got a lift from a lower saving rate in 2010, but that probably will not last this year as households worried about an uncertain future return to paring back debt and socking more away, Feldstein added. Discouraging declines in home values mean there is less to save from, he said."

"People are worried, so there's a strong reason for precautionary saving," he said.

On the other hand, there is the race with China and the dynamic Asian economies, including India. Most estimates put the size of the Chinese economy on par with the United States by the early 2020s, said Dale Jorgenson, also of Harvard.
Jorgenson sees Asian emerging markets as the most dynamic in the world, eclipsing other emerging market contenders such as Brazil and Russia with steady growth over the next decade.

"The rise of developing Asia is going to accompany slower world economic growth," he said.

The United States will need to come to terms with the fact that its prevalence in the world is fated to come to an end, Jorgenson said. This will be difficult for many Americans to swallow and the United States should brace for social unrest amid blame over who was responsible for squandering global primacy, he said.

MIT's Simon Johnson put it more bluntly, saying the damage from the financial crisis and its aftermath have dealt U.S. prominence a permanent blow.

"The age of American predominance is over," he told a panel. "The (Chinese) Yuan will be the world's reserve currency within two decades."

Johnson said he believes the United States has failed to learn its lesson from the financial crisis and continues to implicitly back its largest financial institutions.

"I'm concerned about the excessive power of the largest global banks," he said. "Who are the government-sponsored enterprises now? It's the six biggest bank holding companies."

To be sure, Raghuram Rajan, a former IMF chief economist now with the University of Chicago's Booth School of Business, could still envision an ongoing U.S. leadership role.

Nothing proceeds in a straight line, he said, and there are many pitfalls along the way even for dynamic Asian economies.

"I would say the age of American dominance may be nearing an end. But America as the biggest mover will be in place for a long time," he said.

(Reporting by Mark Felsenthal; Editing by Maureen Bavdek)"