I'll have more to say after I reread this, but ECRI has responded to the many critics of its 2011 and beyond recession call with a new and interesting position paper. Here's the LINK. I do think it's worth thinking about. One of the facts they adduce is that non-exchange-tradable commodity prices have lagged those listed on exchanges. There are indeed underlying deflationary pressures that are being held at bay by leveraged speculators.
They highlight the 1927 recession and hint that we may be in for a bubble surge in stocks such as was seen into summer 1929-- and as was seen in the late '90s. My preference is to play it safe
Showing posts with label ECRI. Show all posts
Showing posts with label ECRI. Show all posts
Wednesday, March 6, 2013
Friday, June 8, 2012
Con Ed Lights Up Wall Street
What sort of rally is it that is led by Con Ed (ED) and its electric peers, and natural gas suppliers such as Southwest Gas (SWX) and WGL Holdings (WGL)?
A strange one. One that is playing catch-up with the massive decline in yields in Treasuries, munis and other debt instruments over the past months and even years.
If you suspect, as I do, that while said yields will bounce around including in an upward direction, but will stay "low" in general for some time, then you may also suspect as I do that while the ED's of the world look extended, they will trend higher in price simply as bond alternatives.
In other words, utilities of the local, regulated monopoly kind (as opposed to ones that emphasize competitive power situations or wind etc.) may be morphing into this year's mo-mo stocks.
Very strange.
The Internet, after all, runs on electricity. Batteries that power mobile devices are charged with electricity. Who needs gasoline when you have the Internet at home or a short walk or bike ride away at a coffee shop?
There are other good things happening in the US of A investment-wise. These fit with the theme I announced last summer or early fall after I tired of Europe and also saw TPTB in the US go for growth at the expense of fiscal prudence. (Not that I necessarily "approve", but my view was not sought.)
MCD sales were weak in China but strong in the US, they revealed today; that's backward from what we were told to expect. WMT is surging, and it's still largely a US company. Small local bank stocks are strong, though they don't trade much. And of course utilities are all US or almost all domestic.
Expect much angst over the upcoming "fiscal cliff". If interest rates are low and the economy remains challenged, I would note there is an election coming. If anyone would like to buy utility stocks and is afraid to because of the scheduled rise in tax rates on dividends for high earners, or would like to buy into munis but are afraid of the talk of taxing some portion of that income, I would simply point out that the markets don't appear to share your concerns. IMHO they are usually right. Not always, just usually.
I don't have a strong predictive sense here, but I'm just guessing that either the Federal deficit starts shrinking on its own due to an unexpected pick-up in tax receipts or else the economy stays subdued below official expectations; and that in either case, the response will be to defer the fiscal cliff for one year for either a re-elected lame duck President Obama or a President Romney with a "mandate" to take some "courageous" action.
The single main worry sign I see domestically is that ECRI's Weekly Leading Index has been moving down fairly sharply the past few weeks, and has a close correlation with stocks. Perhaps it's bottoming, or is irrelevant; we shall see. Here's a link to a 1, 3 or 5 year view of this indicator. When at that screen click on the + WLIW button. I suggest looking at the 3-year view. This shows a series of post-GFC lower highs. Will this year see a lower low? If so, some stocks will probably take a hit as recession worries go mainstream. If this is the bottom of this indicator, it could be a hot summer on the Street.
Current-ly, I'm all charged up for Fast Eddie to shoot out all the lights on the way to ? $70 and beyond.
A strange one. One that is playing catch-up with the massive decline in yields in Treasuries, munis and other debt instruments over the past months and even years.
If you suspect, as I do, that while said yields will bounce around including in an upward direction, but will stay "low" in general for some time, then you may also suspect as I do that while the ED's of the world look extended, they will trend higher in price simply as bond alternatives.
In other words, utilities of the local, regulated monopoly kind (as opposed to ones that emphasize competitive power situations or wind etc.) may be morphing into this year's mo-mo stocks.
Very strange.
The Internet, after all, runs on electricity. Batteries that power mobile devices are charged with electricity. Who needs gasoline when you have the Internet at home or a short walk or bike ride away at a coffee shop?
There are other good things happening in the US of A investment-wise. These fit with the theme I announced last summer or early fall after I tired of Europe and also saw TPTB in the US go for growth at the expense of fiscal prudence. (Not that I necessarily "approve", but my view was not sought.)
MCD sales were weak in China but strong in the US, they revealed today; that's backward from what we were told to expect. WMT is surging, and it's still largely a US company. Small local bank stocks are strong, though they don't trade much. And of course utilities are all US or almost all domestic.
Expect much angst over the upcoming "fiscal cliff". If interest rates are low and the economy remains challenged, I would note there is an election coming. If anyone would like to buy utility stocks and is afraid to because of the scheduled rise in tax rates on dividends for high earners, or would like to buy into munis but are afraid of the talk of taxing some portion of that income, I would simply point out that the markets don't appear to share your concerns. IMHO they are usually right. Not always, just usually.
I don't have a strong predictive sense here, but I'm just guessing that either the Federal deficit starts shrinking on its own due to an unexpected pick-up in tax receipts or else the economy stays subdued below official expectations; and that in either case, the response will be to defer the fiscal cliff for one year for either a re-elected lame duck President Obama or a President Romney with a "mandate" to take some "courageous" action.
The single main worry sign I see domestically is that ECRI's Weekly Leading Index has been moving down fairly sharply the past few weeks, and has a close correlation with stocks. Perhaps it's bottoming, or is irrelevant; we shall see. Here's a link to a 1, 3 or 5 year view of this indicator. When at that screen click on the + WLIW button. I suggest looking at the 3-year view. This shows a series of post-GFC lower highs. Will this year see a lower low? If so, some stocks will probably take a hit as recession worries go mainstream. If this is the bottom of this indicator, it could be a hot summer on the Street.
Current-ly, I'm all charged up for Fast Eddie to shoot out all the lights on the way to ? $70 and beyond.
Sunday, May 22, 2011
Exited, Pursued by a Bear
We may be on the verge of learning more about how much capital has been wasted by the malinvestments of the past decade. I believe that the single most important stock group is the financial group. It is the financials that reflect whether the "marks" that are assigned to assets are accurate, and if they are inaccurate, in which direction the inaccuracy is. As Shakespeare might have said, leverage is all (unfortunately), and the financial stocks reflect this modern reality.
When economic activity is increasing and especially when it is accelerating, financial institutions have strong capital bases and compete with each other to lend funds. When there is a sound base for economic expansion, as in the 1980s and 1990s, the lenders have lots of good credits to consider, and in return, the good credits are able to provide substantial collateral and/or down payments to the lender. So the loans tend to be net profitable to the lender.
Internet 2.0 and weak dollar matters aside, and government spending (i.e. Fed "money") notwithstanding, there are no signs of that happier situation in the country as a whole as we approach two full years since the trough of economic activity. The top tier "Too Big to Fails", namely JPM and WFC, have uninspiring stock charts and have continued to underperform a rising stock market. This is just what happened in 2006 and 2007. On the other end of the quality scale among the TBTFs, here
is a 5-year stock chart of BofA. A renewed bear market in the stock is threatened. (Please be aware there is no prediction here of what the stock price will do, especially in the short term.) But I will disclose that I have sold the stock short, creating my own micro-mini hedge fund considering I own a considerable amount of offsetting but not very liquid long positions in a similar place but with, I feel, better value for the price.
To a somewhat lessened degree, Goldman Sachs and Morgan Stanley have stock charts that look like BofA's.
There has also been no sustained sign of life in the truly moribund giant financials, Citigroup/AIG/Fannie/Freddie, all of whom were saved from some form of bankruptcy by direct support from the central authorities.
I take this as a bad fundamental sign. If matters go well in the economy, one will look for sustained outperformance in these companies. Right now, I prefer not to fight the tape. And since the Fed is scheduled to end QE 2.0 imminently, a cautious or bearish stance toward stocks is no longer fighting the Fed. If the Economic Cycle Research Institute (ECRI) is correct in their prediction of a significant global industrial downturn beginning this summer, these global financial companies should see their own business both diminish overall and switch more toward less profitable segments, such as fixed-income trading rather than M&A and stock trading.
There are also valuation metrics which resemble those extant at the 2007 peak. To wit, here is
a chart from the Andrew Smithers website. Please note that the S&P 500 is up from where it was when this chart was created. Click HERE for an explanation of both independent valuation measures this graph utilizes.
The averages are at similar degrees of overvaluation as have rarely been seen in the past 11 decades.
People protest that current values are "OK", because interest rates are so low. My response is a "Yes, but" type of response. Interest rates are low because organic credit demand is lacking. This is the problem of our current biflation.
The nominal price of homes is flat to down. Housing grew to be such an important source of non-revolving credit that it became the animal that could sit wherever it wants. When housing went down and continues to stay down, significant percentage upticks in credit demand in much smaller sectors (smaller from a credit standpoint) fail to replace housing's importance. Thus, capital was credited to savers such as myself, but there is a surfeit of capital relative to users of capital. So, the weak credit environment explains the low interest scenario (without justifying the extremism of the zero interest rate policy of the Fed), and that goes hand in hand with weak economic growth prospects. These weak prospects are, in my view, enough to be consistent with much lower stock prices.
It is my view that all the money-printing, bailouts, happy talk from the media, and the like, have lulled investors to sleep. However, how many investors realize that from their respective bottoms in fall 2008 and winter 2009, gold has has a somewhat greater appreciation than the Dow Jones Industrial Average, dividends included? In other words, since the stock market bottomed in nominal terms in March 2009, it has actually declined further in terms that I prefer, namely gold.
Meanwhile, not only is housing double dipping, but autos are dipping as well, and at a much lower annual rate than was the case at the peak in the aughties. From J. D. Power and Associates:
High Gas Prices and Lower Incentive Levels Contributing to Dismal Start for May New-Vehicle Retail Sales
" . . .Retail sales in May are being hit by several negative variables—specifically, high gas prices, lower incentive levels and some inventory shortages," said Jeff Schuster, executive director of global forecasting at J.D. Power and Associates. "As a result, the industry will likely be dealing with a lower sales pace at least through the summer selling season, putting pressure on the 2011 outlook.'"
It is clear from the title, the above excerpt, and the whole text of the press release (which makes clear that most U. S. and global auto manufacturers have no exposure to Japanese parts and thus can make all the cars the market can afford), that the automakers' main problem is that when they tried to raise prices (by removing or decreasing incentives), buyers could no longer afford their merchandise, in view of the economy in general and gas prices in specific.
Because homebuilding and the industries that feed off of new home sales and home resales are so depressed, the ongoing depression in those industries will not be enough to cause a new recession. It will however be enough to eventually cause the accountants to lose patience with unrealistic valuations of real estate owned by banks (REO) and the value of mortgages, especially second liens. This is why I highlighted BofA above.
Finally, real people are feeling just like the stock market when the stock averages are adjusted for gold's price. They are seeing and feeling no improvement in their lives. Here are two examples. Gallup.com runs a daily crawl on its website that tracks a measure of employment levels and discretionary spending. Currently, the average respondent is spending $62/day. My recollection is that 3 years ago, when I started following the same website, spending was about double that. And this is not adjusted for the general increase in prices. Thus, people are truly squeezed. On the same site, the hiring/not hiring differential is only +12 today. It was +25-30 3+ years ago, when unemployment was rising, so this level is at best consistent with employment growing in line with population growth (in my very humble opinion).
The second example is Bloomberg's Consumer Comfort Index. This has sunk to 9-month lows:
So when I think of the intersection of markets and the economy, I think that the American people have it right. They know what's happening in their jobs, communities and bank accounts. For the first time in memory, a technical recovery in the economy and a surge in the stock market has left almost all people behind. There is no magic to this. It simply reflects an amazing amount of money printing. It is my supposition that all this new base money has been created by the Fed because the amount of capital that was destroyed (misallocated/malinvested) was massive. The weakness in the dollar, which commentators usually wrongly describe as strength in gold, simply reflects that the country was never really as rich as it was measured as being in the late 1990s till the Great Recession finally brought the reality home. One of these days, the stock market will resume being a weighing machine rather than a voting machine. What the nominal pricing will be is unpredictable, but one of these days, a look at the 110 years of the Smithers chart suggests that the stock market will be depressed as far below its average as it is now above.
That's why, for what may be a summer of negative economic news, I have fled growth-oriented investing and weak-dollar investing and have circled the wagons around the basic investments of gold, cash, and Treasuries. Barring general systemic collapse, the worst that can happen to me in this posture is that I do not participate in some up-moves. But I can sleep a lot better that way than if capital is destroyed by what I view as the stock market reverting to normal pricing of pre-owned securities.
Copyright (C) Long Lake LLC 2011
When economic activity is increasing and especially when it is accelerating, financial institutions have strong capital bases and compete with each other to lend funds. When there is a sound base for economic expansion, as in the 1980s and 1990s, the lenders have lots of good credits to consider, and in return, the good credits are able to provide substantial collateral and/or down payments to the lender. So the loans tend to be net profitable to the lender.
Internet 2.0 and weak dollar matters aside, and government spending (i.e. Fed "money") notwithstanding, there are no signs of that happier situation in the country as a whole as we approach two full years since the trough of economic activity. The top tier "Too Big to Fails", namely JPM and WFC, have uninspiring stock charts and have continued to underperform a rising stock market. This is just what happened in 2006 and 2007. On the other end of the quality scale among the TBTFs, here
is a 5-year stock chart of BofA. A renewed bear market in the stock is threatened. (Please be aware there is no prediction here of what the stock price will do, especially in the short term.) But I will disclose that I have sold the stock short, creating my own micro-mini hedge fund considering I own a considerable amount of offsetting but not very liquid long positions in a similar place but with, I feel, better value for the price.To a somewhat lessened degree, Goldman Sachs and Morgan Stanley have stock charts that look like BofA's.
There has also been no sustained sign of life in the truly moribund giant financials, Citigroup/AIG/Fannie/Freddie, all of whom were saved from some form of bankruptcy by direct support from the central authorities.
I take this as a bad fundamental sign. If matters go well in the economy, one will look for sustained outperformance in these companies. Right now, I prefer not to fight the tape. And since the Fed is scheduled to end QE 2.0 imminently, a cautious or bearish stance toward stocks is no longer fighting the Fed. If the Economic Cycle Research Institute (ECRI) is correct in their prediction of a significant global industrial downturn beginning this summer, these global financial companies should see their own business both diminish overall and switch more toward less profitable segments, such as fixed-income trading rather than M&A and stock trading.
There are also valuation metrics which resemble those extant at the 2007 peak. To wit, here is
a chart from the Andrew Smithers website. Please note that the S&P 500 is up from where it was when this chart was created. Click HERE for an explanation of both independent valuation measures this graph utilizes.The averages are at similar degrees of overvaluation as have rarely been seen in the past 11 decades.
People protest that current values are "OK", because interest rates are so low. My response is a "Yes, but" type of response. Interest rates are low because organic credit demand is lacking. This is the problem of our current biflation.
The nominal price of homes is flat to down. Housing grew to be such an important source of non-revolving credit that it became the animal that could sit wherever it wants. When housing went down and continues to stay down, significant percentage upticks in credit demand in much smaller sectors (smaller from a credit standpoint) fail to replace housing's importance. Thus, capital was credited to savers such as myself, but there is a surfeit of capital relative to users of capital. So, the weak credit environment explains the low interest scenario (without justifying the extremism of the zero interest rate policy of the Fed), and that goes hand in hand with weak economic growth prospects. These weak prospects are, in my view, enough to be consistent with much lower stock prices.
It is my view that all the money-printing, bailouts, happy talk from the media, and the like, have lulled investors to sleep. However, how many investors realize that from their respective bottoms in fall 2008 and winter 2009, gold has has a somewhat greater appreciation than the Dow Jones Industrial Average, dividends included? In other words, since the stock market bottomed in nominal terms in March 2009, it has actually declined further in terms that I prefer, namely gold.
Meanwhile, not only is housing double dipping, but autos are dipping as well, and at a much lower annual rate than was the case at the peak in the aughties. From J. D. Power and Associates:
High Gas Prices and Lower Incentive Levels Contributing to Dismal Start for May New-Vehicle Retail Sales
" . . .Retail sales in May are being hit by several negative variables—specifically, high gas prices, lower incentive levels and some inventory shortages," said Jeff Schuster, executive director of global forecasting at J.D. Power and Associates. "As a result, the industry will likely be dealing with a lower sales pace at least through the summer selling season, putting pressure on the 2011 outlook.'"
It is clear from the title, the above excerpt, and the whole text of the press release (which makes clear that most U. S. and global auto manufacturers have no exposure to Japanese parts and thus can make all the cars the market can afford), that the automakers' main problem is that when they tried to raise prices (by removing or decreasing incentives), buyers could no longer afford their merchandise, in view of the economy in general and gas prices in specific.
Because homebuilding and the industries that feed off of new home sales and home resales are so depressed, the ongoing depression in those industries will not be enough to cause a new recession. It will however be enough to eventually cause the accountants to lose patience with unrealistic valuations of real estate owned by banks (REO) and the value of mortgages, especially second liens. This is why I highlighted BofA above.
Finally, real people are feeling just like the stock market when the stock averages are adjusted for gold's price. They are seeing and feeling no improvement in their lives. Here are two examples. Gallup.com runs a daily crawl on its website that tracks a measure of employment levels and discretionary spending. Currently, the average respondent is spending $62/day. My recollection is that 3 years ago, when I started following the same website, spending was about double that. And this is not adjusted for the general increase in prices. Thus, people are truly squeezed. On the same site, the hiring/not hiring differential is only +12 today. It was +25-30 3+ years ago, when unemployment was rising, so this level is at best consistent with employment growing in line with population growth (in my very humble opinion).
The second example is Bloomberg's Consumer Comfort Index. This has sunk to 9-month lows:
So when I think of the intersection of markets and the economy, I think that the American people have it right. They know what's happening in their jobs, communities and bank accounts. For the first time in memory, a technical recovery in the economy and a surge in the stock market has left almost all people behind. There is no magic to this. It simply reflects an amazing amount of money printing. It is my supposition that all this new base money has been created by the Fed because the amount of capital that was destroyed (misallocated/malinvested) was massive. The weakness in the dollar, which commentators usually wrongly describe as strength in gold, simply reflects that the country was never really as rich as it was measured as being in the late 1990s till the Great Recession finally brought the reality home. One of these days, the stock market will resume being a weighing machine rather than a voting machine. What the nominal pricing will be is unpredictable, but one of these days, a look at the 110 years of the Smithers chart suggests that the stock market will be depressed as far below its average as it is now above.
That's why, for what may be a summer of negative economic news, I have fled growth-oriented investing and weak-dollar investing and have circled the wagons around the basic investments of gold, cash, and Treasuries. Barring general systemic collapse, the worst that can happen to me in this posture is that I do not participate in some up-moves. But I can sleep a lot better that way than if capital is destroyed by what I view as the stock market reverting to normal pricing of pre-owned securities.
Copyright (C) Long Lake LLC 2011
Saturday, October 30, 2010
Financial Media Busy Spinning the Results of Money-Printing
In addition to the diversion of the printer cartridge explosives story, a bit or two of good news has been released in the last couple of days to somewhat buoy a beleaguered administration. This report critiques these and then offers investment-oriented comments.
The first report provides sort-of-good "news" on the economy. It's not dead!
Even better, it's not dying!
The "news" comes in the form of an "op-ed" because it is basically just opinion. The Economic Cycle Research Institute (ECRI) has discerned timely good news for Democrats; from CNN:
The good news is that the much-feared double-dip recession is not going to happen.
That is the message from leading business cycle indicators, which are unmistakably veering away from the recession track, following the patterns seen in post-World War II slowdowns that didn’t lead to recession.
What business imperative of its own does ECRI have by announcing this prediction now, thus helping the "ins" rather than the "outs"?
After all, this "information" was provided for free. Voters have no right to timely release of such sensitive information. One would expect that ECRI's paying customers should have access promptly to new research such as the above, but ordinary investors/voters?
Since this is opinion and not fact, color me skeptical about the timing of this release.
It would seem that there can only be one good reason why ECRI released this information now at just the right time, just before the weekend before the election. Not that I'm Sherlock Holmes or even Doctor Watson, but when the impossible is eliminated, what remains, however unlikely, must be the answer. ECRI could have waited for Election Day, if it wanted to take an anti-Fed stand before the Fed meeting, or it could have waited till the Fed actually acted, which might be prudent should the Fed surprise ECRI by being restrained.
One reads the entire "op-ed" by the ECRI leadership and finds harsh criticism of the Fed-- though no recession is imminent--but no criticism of either President Obama or Congress. There is some vague criticism of "politicians" who are fighting each other, but that is politically neutral.
But of course, as we shall see, the Fed is merely doing what all captive central banks due nowadays, which is to monetize the debt of the central government to whatever extent is needed. Yet as we shall see below, the ECRI may just be another pro-deficit spending organization with good forecasting skills in what has become a semi-centrally planned economy.
Let's go back in time with ECRI.
Here is a link to Dr. Achuthan on Jan. 20 on a Reuters video just after the inauguration:
(He says that Mr. Obama has to move quickly to get the stimulus program enacted. ECRI thinks the "stimulus" is very important.)
Yet a mere 3 months later, after weeks of increasing optimism in its news releases, ECRI said:
The longest U.S. recession in more than a half-century will probably end before the summer is out, according to the Economic Cycle Research Institute.
The group, whose leading indicators have a solid track record of predicting turns in the business cycle, said on Thursday enough of its key gauges have turned upward to indicate with certainty that a recovery is coming.
"The end of this recession is finally in sight," ECRI said in a statement.
In fact, the ECRI had concluded as much in March . (See slides 17-18.)
Furthermore, while the document may have been dropped from its website, I recall that in spring 2009, ECRI revealed that its (non-publicly reported) Long Leading Indicators, which lead the Weekly Leading Index by months, was turning up either in or about January, raising questions about ECRI's initial support for the stimulus bill.
Where was ECRI in calling for the cancellation of the "stimulus" that it found so important in January, given that it was certain by April of a self-sustaining business recovery?
Obviously very little of ARRA had been spent when confirmation that a normal business cycle upturn was going to happen anyway. There was no Great Depression no way, no-how by January 20. That much ECRI knew for certain. No 2010-legislated stimulus was ever needed to ensure a "recovery", and ECRI knew it.
So I conclude they are just "Keynesians" (i.e. they like money printing) at ECRI and therefore despite being good at what they do, they are working from a faulty ideological framework which will introduce errors in their thinking.
I reject the concept that printing money stimulates anything useful, but I believe that it does transfer wealth from society at large to those who gain transactional income from said money-printing. Thus the financial class writ large has a thrill running up its leg from the immense sea of liquidity provided by the combination of Obama and Fed policies. It's go-go time again in the markets because of the money that has come into the system the past two years.
Meanwhile, Bloomberg.com is also doing its part to cheerlead as best it can to keep the good times rolling for its financial constituents. On its website yesterday, along with a picture of President Obama looking serious, it is running Poll Shows Voters Don’t Know GDP Grew With Tax Cuts.
Bloomberg & Co. should be doing well, and perhaps the Mayor and his company just can't understand that the people are not properly grateful for what the government has done for them, saying in the article:
The Obama administration cut taxes for middle-class Americans, expects to make a profit on the hundreds of billions of dollars spent to rescue Wall Street banks and has overseen an economy that has grown for the past five quarters.
Most voters don’t believe it.
I do believe it but don't think the poll is addressing the main points.
In keeping with John Kerry's recent point that voters are too stupid to deserve to have the right to vote when they are going against his party because they don't understand that the Dems are looking out for them (please excuse the liberties taken with Sen. Kerry's precise quote), we find Bloomberg reporting the following drivel in the same article:
A Bloomberg National Poll conducted Oct. 24-26 finds that by a two-to-one margin, likely voters in the Nov. 2 midterm elections think taxes have gone up, the economy has shrunk, and the billions lent to banks as part of the Troubled Asset Relief Program won’t be recovered.
“The public view of the economy is at odds with the facts, and the blame has to go to the Democrats,” said J. Ann Selzer, president of Selzer & Co., a Des Moines, Iowa-based firm that conducted the nationwide survey. “It does not matter much if you make change, if you do not communicate change.
No, the blame has to go to reality. It's not a failure to communicate. It's a failure to succeed. Where are the geniuses at Bloomberg to point out in this article that the U. S. has probably had the weakest recovery from a major economic downturn in its entire history and that untold millions of jobs have been vaporized (thus keeping the "rate" of unemployment much less threatening than the decline in the employment rate)? Where is the mention that three years or so into the beginning of the euphemistically-called Great Recession, organic per capita income adjusted for inflation is well below that seen three years ago? Isn't that more newsworthy than ECRI's "good news" that there will be no imminent new recession (and why should there be when the depression continues?)? And isn't the failure of Team Obama to "stimulate" the economy the real pre-election news? What about the recent statement by the President that hey, don't blame him, he found out too late that "shovel-ready" projects don't really exist? (And why are they fictions? Might it just be that there are immense bureaucratic blockages to getting anything done? Might not statism be to blame? What's the big deal about repaving a road?)
The Bloomberg article points out that voters (understandably) have trouble distinguishing the TARP accounting from the other bailouts. OK. But so what? Who cares if TARP per se can be given a nominal accounting profit (though far less than Walter Bagehot prescribed for the lender of last resort in a crisis) if the net effect of all the Federal and Fed bailouts, including ZIRP, were . . . bailouts? Handouts to the rich, but only the favored rich, not the upper-middle class "rich". Only the truly rich.
We'll move to the meat of the discussion:
The perceptions of voters about the performance of the economy are also at odds with official data. The recession that began in December 2007 officially ended in June 2009, making the 18-month stretch the longest since the Great Depression. . .
(And we all know that "official data" always reflects the real world experience of real people.)
The impressions of these voters also are dissonant with other signs of economic improvement.
A year and a half after U.S. stocks hit their post- financial-crisis low on March 9, 2009, the benchmark Standard & Poor’s 500 Index has risen 75 percent, and it’s up 15 percent for this year.
So we are now down to brass tacks so far as Big Finance is concerned. For Michael Bloomberg, the cheap money that has flooded into stocks and other financial markets rather than the real economy is a reliable sign of economic improvement that the benighted public somehow misses. Somehow Charlene Miller, referred to earlier in the article, who has been unemployed for two years, is supposed to care whether IBM or McDonald's is doing well in Asia? And let us say that due to the surge in poverty, the deep discounters such as Dollar Tree (DLTR) and Ross Stores (ROST) are able to both have robust sales and high operating margins; good for them, but lower margins would be better for her.
Language can be a slippery thing. Note the term "signs of economic improvement" in the above quote. "Signs" is not "proof". Unfortunately, real "recovery" has not yet occurred.
If you click on http://www.gallup.com/, you will see a form of a "crawl" at the top of the screen. This reflects Gallup's ongoing polling, which given that it is performed daily, is reliable over time and quite consistent. There, you can see that despite the "end" of the "recession", the return of jobs is at a recession level, discretionary spending is at a recessionary level, and the direction in which the economy appears to be going has appeared to the people polled to have continued downward for a remarkable length of time. People still see the economy as getting worse. This, almost a year and a half after the alleged end of the "recession"!
This type of view is supported by every poll I have seen, whether it be the Rasmussen/Discover(R) poll of consumers, ABC News' Consumer Comfort Index, various small business polls, etc.
But stocks are up!
As delineated by a non-conservative, Simon Johnson, in The Quiet Coup in May 2009, what the country endured in the third and fourth quarters of 2008 had perhaps never been seen before in a leading, financially sophisticated country. The intro to his article reads:
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund (Ed.: i. e., Johnson), is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises.
And from the article:
Almost always, countries in crisis need to learn to live within their means after a period of excess—exports must be increased, and imports cut—and the goal is to do this without the most horrible of recessions. Naturally, the fund’s economists spend time figuring out the policies—budget, money supply, and the like—that make sense in this context. Yet the economic solution is seldom very hard to work out.
No, the real concern of the fund’s senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis.
Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise.
Private profits, socialized losses. (And I suspect that the massive private profits have in significant measure been converted from dollars to gold.)
Bloomberg's writers and pollsters must know that the American people "get it". That they don't know all the technical details does not matter.
Let's put aside the suspiciously politically-timed "op-ed" from the co-leaders of the ECRI. Let's ignore anyone such as the Bloomberg types who believe that a second stock market rally following a second crash in seven years has any predictive value for the real economy or reflects success in reconstituting a healthy economy.
Let's recognize that America no longer has a very cyclical economy in the classical sense. All the ECRI and BB discussions of cyclicality miss that point. When so much of economic activity comes from Pedro and Jane transferring some of their work effort to people they never met, and much of the rest of "the economy" (and per the action of gold, all of the gains in the stock market after the panic phase ended) comes from printing of new money above and beyond that needed to meet the demands of the marketplace, then you have an economy that can almost always show "growth". But we defeated the centrally-planned Soviet Union in good measure because of the power of the free market, right? Yes, but that was so long ago . . . In 1990, back when perpetrators of financial crime actually got investigated, prosecuted and convicted.
The problem with "growth" as measured by the ECRI and government statistics is that it does not distinguish between economic activity that meets the current and future needs of real people and real businesses and that which does not. For example, the USSR decided to grow cotton in an arid area south of a major sea. So it drained water from an inland sea and diverted the water to parched regions to grow cotton. All this counted as economic activity. But the result was disastrous. Sometimes it's better to just do nothing than do the wrong thing. No one would seriously argue that we should all break all our windows so that we can stimulate new production of windows, would we? Yet "cash for clunkers" didn't just subsidize new car purchases but it also mandated destruction of used cars that were in service. Wasn't that a version of Bastiat's window-breaking example of economic idiocy?
So as America attempts to regain a level of economic activity that "works" for its people, taking account environmental and social realities, among the worst things to do is to rely on aggregate government statistics that conceal more than they reveal.
Back to the Bloomberg article.
The politicians can claim, Janus-faced, that they have cut taxes, as Bloomberg argues the public is too uninformed or dumb to realize, while with no specific legislation the same political establishment forces prices to rise via the tax of monetary inflation, and they force incomes lower for the vast numbers of people who have money "in the bank" so that the favored banking institutions can continue in business with grossly offensive salaries paid to move the free money around despite creating no wealth other than for themselves. And this low- or no-cost money enhances the profits of multinational corporations with headquarters in the U. S. but that almost universally are planning their growth other than in the U. S.
On Tuesday, the Republicrat/Demopublican Party will win. Deficit spenders will win. Thus money printers will win. Thus Big Finance will win.
Perhaps, because the polls demand it, the pols will get together after the election dust settles and make a deeper bow toward Fiscal Responsibility, but they will not mean it. (Dr. Krugman will yell, though, which will enhance the credibility of said Fiscally Responsible words I believe we can expect to hear soon, and we might just get a bond and dollar rally out of said FR verbiage.)
While the Establishment continues its winning streak, ECRI believes that the economy will continue to suffer, though with an artificial mini-boom due to a new round of money-printing from the Fed ("QE2") that ECRI believes is coming soon.
The American economy is now so unfree, so centrally-influenced/controlled, that it has headwinds against developing real savings that allow for positive dynamics such as strongly positive return on invested capital. And it is increasingly unfree in part because supposedly politically neutral analysts such as Dr. Achuthan come out publicly for deficit spending even when they believe that the economic cycle is pointing upward.
As the antithesis to electronically-printed money that cost nothing to create and in turn creates no real wealth in America (though it may be creating real wealth in Brazil and India (for example), gold and silver are, in fashion terms, the "new black". Except for trading purposes, my view is that it does not matter precisely what the Fed does just after Election Day or which party wins the Senate (apparently the House is going Republican). Just so long as the Fed makes sure that the cost of borrowing short term is way too cheap, and Congress is focused on "jobs" in part via increasing exports and thus favors a weak dollar, I think that gold and silver will be well bid, as they say.
I see the following investment trends with political-economic context. The U. S. can by consent of many countries continue to be the "world's policeman" and for that service and for its willingness to be the importer of last resort can have the right of "seignorage" and continue to have its dollar serve as the world's reserve currency. Part of the payment to the American "policeman" is that said dollar can devalue over time vs. the currencies of exporting nations. Thus the nations that export to the U. S. partially in return for Treasury securities or dollar-denominated cash yielding nothing understand that they will be paid in depreciated dollars relative to their own currencies, which means that they realize they are not receiving stated valued for their exports. So be it. They are patient countries. Their people are grateful for any improvements in living standards. There's no rush on the parts of their country's elites to see things improve too quickly; it's better for the elites that improvement be steady and gradual. It's safer that way.
Along with military services, which may increasingly involve Yemen (and don't be surprised if huge energy reserves are eventually "discovered" there--of course if that occurs they already will have been found), the U. S. does have peaceable exports: high-tech and medical technologies as well as the combination of financial engineering expertise and various best practices management procedures. So along with the export of military equipment and services go the valuable services of industrial and financial companies.
Given the slack in the labor market in the U. S., CPI inflation can stay low for a while longer, especially as the excess dollars the Fed creates bleed away into other countries via the trade deficit, foreign wars, direct investment into the BRICs and elsewhere, and the like.
Various measures of stock buyers' optimism have reached very high levels, so I'd beware of a downturn soon. With that could come a move lower in long-term interest rates and perhaps (finally) a sell-off in silver (which because I and many others would view it as a buying opportunity may not come before another upsurge that fools all the fence-sitters). If indeed the non-USD theme is going to remain in force as a secular trend but the U. S. economy is going to temporarily accelerate due to QE2 coming when it is not needed, then I am going to add a new currency play to the three that I mentioned on September 8 (Norway, New Zealand and Brazil). That is the Canadian dollar (CAD). This can be purchased via the Rydex CurrencyShares Dollar Trust, stock symbol FXC.
ECRI is suggesting some post-election upside "surprises" in the U. S. economy. This will benefit Canada directly and perhaps in a leveraged fashion. Unlike our Fed, the Canadian central bank has already engaged in some interest rate rises, and has paused primarily due to the American slowdown that has fed back to the Canadian economy. Thus while Gentle Ben is predicted by Bill Gross to be on hold with ZIRP till 2013, his counterpart in Canada appears for now to be dealing with a less fragile economy that has a stronger banking system and thus has much less debt to monetize.
In the 1990's, the CAD was being called "the peso of the North" (when the Mexican peso was non-investment grade). Things have changed; click HERE for a detailed review, beginning on p. 14.
The CAD briefly went above $1.10 to the USD in 2008. It is now at 98 U. S. cents. It's easy to see the old high being reached and exceeded "sooner rather than later". I'm an owner of the CAD for several months and also plan to be a new buyer. I like the CAD in part because of its large fossil fuel reserves, and it seems to me that oil and gas prices have lagged the increases in precious metals at this point, so the CAD as well as the Norwegian kroner will benefit if oil joins the inflationary party in a larger way. (I would wait for the euro to descend vs. the USD, however, to favor the NOK over the CAD here, but that's just short-term timing speculation.)
As silver goes a bit parabolic upward, we just may see a sharp "catch-up" move up in somewhat left-behind hard-money-related assets as the Canadian dollar.
It should be an interesting next few days.
Copyright (C) Long Lake LLC 2010
The first report provides sort-of-good "news" on the economy. It's not dead!
Even better, it's not dying!
The "news" comes in the form of an "op-ed" because it is basically just opinion. The Economic Cycle Research Institute (ECRI) has discerned timely good news for Democrats; from CNN:
The good news is that the much-feared double-dip recession is not going to happen.
That is the message from leading business cycle indicators, which are unmistakably veering away from the recession track, following the patterns seen in post-World War II slowdowns that didn’t lead to recession.
What business imperative of its own does ECRI have by announcing this prediction now, thus helping the "ins" rather than the "outs"?
After all, this "information" was provided for free. Voters have no right to timely release of such sensitive information. One would expect that ECRI's paying customers should have access promptly to new research such as the above, but ordinary investors/voters?
Since this is opinion and not fact, color me skeptical about the timing of this release.
It would seem that there can only be one good reason why ECRI released this information now at just the right time, just before the weekend before the election. Not that I'm Sherlock Holmes or even Doctor Watson, but when the impossible is eliminated, what remains, however unlikely, must be the answer. ECRI could have waited for Election Day, if it wanted to take an anti-Fed stand before the Fed meeting, or it could have waited till the Fed actually acted, which might be prudent should the Fed surprise ECRI by being restrained.
One reads the entire "op-ed" by the ECRI leadership and finds harsh criticism of the Fed-- though no recession is imminent--but no criticism of either President Obama or Congress. There is some vague criticism of "politicians" who are fighting each other, but that is politically neutral.
But of course, as we shall see, the Fed is merely doing what all captive central banks due nowadays, which is to monetize the debt of the central government to whatever extent is needed. Yet as we shall see below, the ECRI may just be another pro-deficit spending organization with good forecasting skills in what has become a semi-centrally planned economy.
Let's go back in time with ECRI.
Here is a link to Dr. Achuthan on Jan. 20 on a Reuters video just after the inauguration:
(He says that Mr. Obama has to move quickly to get the stimulus program enacted. ECRI thinks the "stimulus" is very important.)
Yet a mere 3 months later, after weeks of increasing optimism in its news releases, ECRI said:
The longest U.S. recession in more than a half-century will probably end before the summer is out, according to the Economic Cycle Research Institute.
The group, whose leading indicators have a solid track record of predicting turns in the business cycle, said on Thursday enough of its key gauges have turned upward to indicate with certainty that a recovery is coming.
"The end of this recession is finally in sight," ECRI said in a statement.
In fact, the ECRI had concluded as much in March . (See slides 17-18.)
Furthermore, while the document may have been dropped from its website, I recall that in spring 2009, ECRI revealed that its (non-publicly reported) Long Leading Indicators, which lead the Weekly Leading Index by months, was turning up either in or about January, raising questions about ECRI's initial support for the stimulus bill.
Where was ECRI in calling for the cancellation of the "stimulus" that it found so important in January, given that it was certain by April of a self-sustaining business recovery?
Obviously very little of ARRA had been spent when confirmation that a normal business cycle upturn was going to happen anyway. There was no Great Depression no way, no-how by January 20. That much ECRI knew for certain. No 2010-legislated stimulus was ever needed to ensure a "recovery", and ECRI knew it.
So I conclude they are just "Keynesians" (i.e. they like money printing) at ECRI and therefore despite being good at what they do, they are working from a faulty ideological framework which will introduce errors in their thinking.
I reject the concept that printing money stimulates anything useful, but I believe that it does transfer wealth from society at large to those who gain transactional income from said money-printing. Thus the financial class writ large has a thrill running up its leg from the immense sea of liquidity provided by the combination of Obama and Fed policies. It's go-go time again in the markets because of the money that has come into the system the past two years.
Meanwhile, Bloomberg.com is also doing its part to cheerlead as best it can to keep the good times rolling for its financial constituents. On its website yesterday, along with a picture of President Obama looking serious, it is running Poll Shows Voters Don’t Know GDP Grew With Tax Cuts.
Bloomberg & Co. should be doing well, and perhaps the Mayor and his company just can't understand that the people are not properly grateful for what the government has done for them, saying in the article:
The Obama administration cut taxes for middle-class Americans, expects to make a profit on the hundreds of billions of dollars spent to rescue Wall Street banks and has overseen an economy that has grown for the past five quarters.
Most voters don’t believe it.
I do believe it but don't think the poll is addressing the main points.
In keeping with John Kerry's recent point that voters are too stupid to deserve to have the right to vote when they are going against his party because they don't understand that the Dems are looking out for them (please excuse the liberties taken with Sen. Kerry's precise quote), we find Bloomberg reporting the following drivel in the same article:
A Bloomberg National Poll conducted Oct. 24-26 finds that by a two-to-one margin, likely voters in the Nov. 2 midterm elections think taxes have gone up, the economy has shrunk, and the billions lent to banks as part of the Troubled Asset Relief Program won’t be recovered.
“The public view of the economy is at odds with the facts, and the blame has to go to the Democrats,” said J. Ann Selzer, president of Selzer & Co., a Des Moines, Iowa-based firm that conducted the nationwide survey. “It does not matter much if you make change, if you do not communicate change.
No, the blame has to go to reality. It's not a failure to communicate. It's a failure to succeed. Where are the geniuses at Bloomberg to point out in this article that the U. S. has probably had the weakest recovery from a major economic downturn in its entire history and that untold millions of jobs have been vaporized (thus keeping the "rate" of unemployment much less threatening than the decline in the employment rate)? Where is the mention that three years or so into the beginning of the euphemistically-called Great Recession, organic per capita income adjusted for inflation is well below that seen three years ago? Isn't that more newsworthy than ECRI's "good news" that there will be no imminent new recession (and why should there be when the depression continues?)? And isn't the failure of Team Obama to "stimulate" the economy the real pre-election news? What about the recent statement by the President that hey, don't blame him, he found out too late that "shovel-ready" projects don't really exist? (And why are they fictions? Might it just be that there are immense bureaucratic blockages to getting anything done? Might not statism be to blame? What's the big deal about repaving a road?)
The Bloomberg article points out that voters (understandably) have trouble distinguishing the TARP accounting from the other bailouts. OK. But so what? Who cares if TARP per se can be given a nominal accounting profit (though far less than Walter Bagehot prescribed for the lender of last resort in a crisis) if the net effect of all the Federal and Fed bailouts, including ZIRP, were . . . bailouts? Handouts to the rich, but only the favored rich, not the upper-middle class "rich". Only the truly rich.
We'll move to the meat of the discussion:
The perceptions of voters about the performance of the economy are also at odds with official data. The recession that began in December 2007 officially ended in June 2009, making the 18-month stretch the longest since the Great Depression. . .
(And we all know that "official data" always reflects the real world experience of real people.)
The impressions of these voters also are dissonant with other signs of economic improvement.
A year and a half after U.S. stocks hit their post- financial-crisis low on March 9, 2009, the benchmark Standard & Poor’s 500 Index has risen 75 percent, and it’s up 15 percent for this year.
So we are now down to brass tacks so far as Big Finance is concerned. For Michael Bloomberg, the cheap money that has flooded into stocks and other financial markets rather than the real economy is a reliable sign of economic improvement that the benighted public somehow misses. Somehow Charlene Miller, referred to earlier in the article, who has been unemployed for two years, is supposed to care whether IBM or McDonald's is doing well in Asia? And let us say that due to the surge in poverty, the deep discounters such as Dollar Tree (DLTR) and Ross Stores (ROST) are able to both have robust sales and high operating margins; good for them, but lower margins would be better for her.
Language can be a slippery thing. Note the term "signs of economic improvement" in the above quote. "Signs" is not "proof". Unfortunately, real "recovery" has not yet occurred.
If you click on http://www.gallup.com/, you will see a form of a "crawl" at the top of the screen. This reflects Gallup's ongoing polling, which given that it is performed daily, is reliable over time and quite consistent. There, you can see that despite the "end" of the "recession", the return of jobs is at a recession level, discretionary spending is at a recessionary level, and the direction in which the economy appears to be going has appeared to the people polled to have continued downward for a remarkable length of time. People still see the economy as getting worse. This, almost a year and a half after the alleged end of the "recession"!
This type of view is supported by every poll I have seen, whether it be the Rasmussen/Discover(R) poll of consumers, ABC News' Consumer Comfort Index, various small business polls, etc.
But stocks are up!
As delineated by a non-conservative, Simon Johnson, in The Quiet Coup in May 2009, what the country endured in the third and fourth quarters of 2008 had perhaps never been seen before in a leading, financially sophisticated country. The intro to his article reads:
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund (Ed.: i. e., Johnson), is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises.
And from the article:
Almost always, countries in crisis need to learn to live within their means after a period of excess—exports must be increased, and imports cut—and the goal is to do this without the most horrible of recessions. Naturally, the fund’s economists spend time figuring out the policies—budget, money supply, and the like—that make sense in this context. Yet the economic solution is seldom very hard to work out.
No, the real concern of the fund’s senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis.
Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise.
Private profits, socialized losses. (And I suspect that the massive private profits have in significant measure been converted from dollars to gold.)
Bloomberg's writers and pollsters must know that the American people "get it". That they don't know all the technical details does not matter.
Let's put aside the suspiciously politically-timed "op-ed" from the co-leaders of the ECRI. Let's ignore anyone such as the Bloomberg types who believe that a second stock market rally following a second crash in seven years has any predictive value for the real economy or reflects success in reconstituting a healthy economy.
Let's recognize that America no longer has a very cyclical economy in the classical sense. All the ECRI and BB discussions of cyclicality miss that point. When so much of economic activity comes from Pedro and Jane transferring some of their work effort to people they never met, and much of the rest of "the economy" (and per the action of gold, all of the gains in the stock market after the panic phase ended) comes from printing of new money above and beyond that needed to meet the demands of the marketplace, then you have an economy that can almost always show "growth". But we defeated the centrally-planned Soviet Union in good measure because of the power of the free market, right? Yes, but that was so long ago . . . In 1990, back when perpetrators of financial crime actually got investigated, prosecuted and convicted.
The problem with "growth" as measured by the ECRI and government statistics is that it does not distinguish between economic activity that meets the current and future needs of real people and real businesses and that which does not. For example, the USSR decided to grow cotton in an arid area south of a major sea. So it drained water from an inland sea and diverted the water to parched regions to grow cotton. All this counted as economic activity. But the result was disastrous. Sometimes it's better to just do nothing than do the wrong thing. No one would seriously argue that we should all break all our windows so that we can stimulate new production of windows, would we? Yet "cash for clunkers" didn't just subsidize new car purchases but it also mandated destruction of used cars that were in service. Wasn't that a version of Bastiat's window-breaking example of economic idiocy?
So as America attempts to regain a level of economic activity that "works" for its people, taking account environmental and social realities, among the worst things to do is to rely on aggregate government statistics that conceal more than they reveal.
Back to the Bloomberg article.
The politicians can claim, Janus-faced, that they have cut taxes, as Bloomberg argues the public is too uninformed or dumb to realize, while with no specific legislation the same political establishment forces prices to rise via the tax of monetary inflation, and they force incomes lower for the vast numbers of people who have money "in the bank" so that the favored banking institutions can continue in business with grossly offensive salaries paid to move the free money around despite creating no wealth other than for themselves. And this low- or no-cost money enhances the profits of multinational corporations with headquarters in the U. S. but that almost universally are planning their growth other than in the U. S.
On Tuesday, the Republicrat/Demopublican Party will win. Deficit spenders will win. Thus money printers will win. Thus Big Finance will win.
Perhaps, because the polls demand it, the pols will get together after the election dust settles and make a deeper bow toward Fiscal Responsibility, but they will not mean it. (Dr. Krugman will yell, though, which will enhance the credibility of said Fiscally Responsible words I believe we can expect to hear soon, and we might just get a bond and dollar rally out of said FR verbiage.)
While the Establishment continues its winning streak, ECRI believes that the economy will continue to suffer, though with an artificial mini-boom due to a new round of money-printing from the Fed ("QE2") that ECRI believes is coming soon.
The American economy is now so unfree, so centrally-influenced/controlled, that it has headwinds against developing real savings that allow for positive dynamics such as strongly positive return on invested capital. And it is increasingly unfree in part because supposedly politically neutral analysts such as Dr. Achuthan come out publicly for deficit spending even when they believe that the economic cycle is pointing upward.
As the antithesis to electronically-printed money that cost nothing to create and in turn creates no real wealth in America (though it may be creating real wealth in Brazil and India (for example), gold and silver are, in fashion terms, the "new black". Except for trading purposes, my view is that it does not matter precisely what the Fed does just after Election Day or which party wins the Senate (apparently the House is going Republican). Just so long as the Fed makes sure that the cost of borrowing short term is way too cheap, and Congress is focused on "jobs" in part via increasing exports and thus favors a weak dollar, I think that gold and silver will be well bid, as they say.
I see the following investment trends with political-economic context. The U. S. can by consent of many countries continue to be the "world's policeman" and for that service and for its willingness to be the importer of last resort can have the right of "seignorage" and continue to have its dollar serve as the world's reserve currency. Part of the payment to the American "policeman" is that said dollar can devalue over time vs. the currencies of exporting nations. Thus the nations that export to the U. S. partially in return for Treasury securities or dollar-denominated cash yielding nothing understand that they will be paid in depreciated dollars relative to their own currencies, which means that they realize they are not receiving stated valued for their exports. So be it. They are patient countries. Their people are grateful for any improvements in living standards. There's no rush on the parts of their country's elites to see things improve too quickly; it's better for the elites that improvement be steady and gradual. It's safer that way.
Along with military services, which may increasingly involve Yemen (and don't be surprised if huge energy reserves are eventually "discovered" there--of course if that occurs they already will have been found), the U. S. does have peaceable exports: high-tech and medical technologies as well as the combination of financial engineering expertise and various best practices management procedures. So along with the export of military equipment and services go the valuable services of industrial and financial companies.
Given the slack in the labor market in the U. S., CPI inflation can stay low for a while longer, especially as the excess dollars the Fed creates bleed away into other countries via the trade deficit, foreign wars, direct investment into the BRICs and elsewhere, and the like.
Various measures of stock buyers' optimism have reached very high levels, so I'd beware of a downturn soon. With that could come a move lower in long-term interest rates and perhaps (finally) a sell-off in silver (which because I and many others would view it as a buying opportunity may not come before another upsurge that fools all the fence-sitters). If indeed the non-USD theme is going to remain in force as a secular trend but the U. S. economy is going to temporarily accelerate due to QE2 coming when it is not needed, then I am going to add a new currency play to the three that I mentioned on September 8 (Norway, New Zealand and Brazil). That is the Canadian dollar (CAD). This can be purchased via the Rydex CurrencyShares Dollar Trust, stock symbol FXC.
ECRI is suggesting some post-election upside "surprises" in the U. S. economy. This will benefit Canada directly and perhaps in a leveraged fashion. Unlike our Fed, the Canadian central bank has already engaged in some interest rate rises, and has paused primarily due to the American slowdown that has fed back to the Canadian economy. Thus while Gentle Ben is predicted by Bill Gross to be on hold with ZIRP till 2013, his counterpart in Canada appears for now to be dealing with a less fragile economy that has a stronger banking system and thus has much less debt to monetize.
In the 1990's, the CAD was being called "the peso of the North" (when the Mexican peso was non-investment grade). Things have changed; click HERE for a detailed review, beginning on p. 14.
The CAD briefly went above $1.10 to the USD in 2008. It is now at 98 U. S. cents. It's easy to see the old high being reached and exceeded "sooner rather than later". I'm an owner of the CAD for several months and also plan to be a new buyer. I like the CAD in part because of its large fossil fuel reserves, and it seems to me that oil and gas prices have lagged the increases in precious metals at this point, so the CAD as well as the Norwegian kroner will benefit if oil joins the inflationary party in a larger way. (I would wait for the euro to descend vs. the USD, however, to favor the NOK over the CAD here, but that's just short-term timing speculation.)
As silver goes a bit parabolic upward, we just may see a sharp "catch-up" move up in somewhat left-behind hard-money-related assets as the Canadian dollar.
It should be an interesting next few days.
Copyright (C) Long Lake LLC 2010
Saturday, July 17, 2010
ECRI Follow-up, and Related Updates
In the post immediately below, I commented that there was no press release yesterday for some reason from ECRI related to the release of its Weekly Leading Index. In the past few hours, notice of a Reuters press release dated yesterday has now been added to the "News" section of ECRI's website. Here is the release:
(Reuters) - A measure of future U.S. economic growth was unchanged in the latest week, a research group said on Friday.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index stood at 120.6 for the week ended July 9, unchanged from the previous week, which was originally reported as 121.5.
The index was last below 120.6 in the week of July 24, 2009, when it measured 120.3, according to ECRI.
The index's annualized growth rate fell to minus 9.8 percent from minus 9.1 percent the previous week, originally reported as minus 8.3 percent.
So, ECRI was noncommittal re whether the worsening WLI growth rate in conjunction with the evolving proprietary data is pushing them toward a new recession call.
What I truly don't like in the data I am seeing is that Consumer Metrics has reported July 15 data. This was at 100 (average) on June 30 and now is 93. Its own 91-day growth index is low and dropping. At -2.7% it is the lowest since what that organization dates as a new consumer downturn began at the beginning of 2010.
It appears from the historical data on their website that all throughout the last "Great Recession", only 3 months had average readings below the current average of less than 96 for July (only half through this month, of course). So, leaving aside growth rates to focus on absolute levels of economic activity, the ECRI data, and the Consumer Metrics data are consistent with all sorts of other data such as Discover/Rasmussen's polling data of consumers and small businesses, Gallup.com's "main in the street" polling of elective spending and hiring/firing, and others that that the cyclical upturn has been weak and may already have peaked.
The investing conundrum is that the reflex is to buy Treasuries on economic weakness. But are consumer prices really falling? Is the supply of Treasuries rising or falling? Does the Federal Government have a plan to protect its financial position if (when?) the economy fails to have its hoped-for rendezvous with Rosie (Expectations, that is)?
If your answers are similar to mine, then fundamentally you are uncomfortable with Treasury debt either to generate real returns or to safely preserve capital. Think Greece and Spain, even though right now things are looking Japanese. What happens if and when there is a run on the bank that is the world's effective central bank, meaning the Federal Reserve Bank of New York and its ally at Treasury?
These are dangerous financial waters the ship of state is going through.
Copyright (C) Long Lake LLC 2010
(Reuters) - A measure of future U.S. economic growth was unchanged in the latest week, a research group said on Friday.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index stood at 120.6 for the week ended July 9, unchanged from the previous week, which was originally reported as 121.5.
The index was last below 120.6 in the week of July 24, 2009, when it measured 120.3, according to ECRI.
The index's annualized growth rate fell to minus 9.8 percent from minus 9.1 percent the previous week, originally reported as minus 8.3 percent.
So, ECRI was noncommittal re whether the worsening WLI growth rate in conjunction with the evolving proprietary data is pushing them toward a new recession call.
What I truly don't like in the data I am seeing is that Consumer Metrics has reported July 15 data. This was at 100 (average) on June 30 and now is 93. Its own 91-day growth index is low and dropping. At -2.7% it is the lowest since what that organization dates as a new consumer downturn began at the beginning of 2010.
It appears from the historical data on their website that all throughout the last "Great Recession", only 3 months had average readings below the current average of less than 96 for July (only half through this month, of course). So, leaving aside growth rates to focus on absolute levels of economic activity, the ECRI data, and the Consumer Metrics data are consistent with all sorts of other data such as Discover/Rasmussen's polling data of consumers and small businesses, Gallup.com's "main in the street" polling of elective spending and hiring/firing, and others that that the cyclical upturn has been weak and may already have peaked.
The investing conundrum is that the reflex is to buy Treasuries on economic weakness. But are consumer prices really falling? Is the supply of Treasuries rising or falling? Does the Federal Government have a plan to protect its financial position if (when?) the economy fails to have its hoped-for rendezvous with Rosie (Expectations, that is)?
If your answers are similar to mine, then fundamentally you are uncomfortable with Treasury debt either to generate real returns or to safely preserve capital. Think Greece and Spain, even though right now things are looking Japanese. What happens if and when there is a run on the bank that is the world's effective central bank, meaning the Federal Reserve Bank of New York and its ally at Treasury?
These are dangerous financial waters the ship of state is going through.
Copyright (C) Long Lake LLC 2010
What's Up with ECRI?
For more than two years, I have been checking out the Economic Cycle Research Institute's data that is released every Friday morning. Until yesterday, I always recall an associated press release, almost always via Reuters, though for a couple of weeks the release was via Dow Jones.
Yesterday, ECRI reported a week-on-week flat Weekly Leading Index number. The data massaging to show a year-on-year growth rate of said WLI came in at a worsening -9.8% (the method of calculating this growth rate has been revealed to me under pledge of confidentiality). Basically this percentage change can worsen or improve despite an unchanged numerical WLI due to year-ago data dropouts and averaging techniques.
ECRI does not publicly release other measures such as its Long Leading Index.
My unscientific observation is that major changes in ECRI's outlook are often reflected in that day's stock market. In other words, I am concerned that the continued worsening in the WLI Growth Rate, recent rapid drop in the absolute number of the WLI itself, other comments that ECRI has made, the lack of a press release, and the sharp drop in the stock market might
indicate that ECRI is questioning its no-double dip recession call.
As always, stay tuned.
Copyright (C) Long Lake LLC 2010
Yesterday, ECRI reported a week-on-week flat Weekly Leading Index number. The data massaging to show a year-on-year growth rate of said WLI came in at a worsening -9.8% (the method of calculating this growth rate has been revealed to me under pledge of confidentiality). Basically this percentage change can worsen or improve despite an unchanged numerical WLI due to year-ago data dropouts and averaging techniques.
ECRI does not publicly release other measures such as its Long Leading Index.
My unscientific observation is that major changes in ECRI's outlook are often reflected in that day's stock market. In other words, I am concerned that the continued worsening in the WLI Growth Rate, recent rapid drop in the absolute number of the WLI itself, other comments that ECRI has made, the lack of a press release, and the sharp drop in the stock market might
indicate that ECRI is questioning its no-double dip recession call.
As always, stay tuned.
Copyright (C) Long Lake LLC 2010
Friday, July 9, 2010
Implications of Slow Economic Growth
The Economic Cycle Research Institute reports today that WLI Growth Falls Further. This joins a host of other reports, ranging from Discover's U. S. Spending Monitor being down again in June to various disappointing surveys of small business that the economy is sluggish. The Reuters ECRI press release is terse today:
A measure of future U.S. economic growth fell to the lowest since July 2009, indicating that the economy will continue to slow, a research group said on Friday.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 121.5 for the week ended July 2, down from 122.3 in the prior week. That was the lowest level since July 24, 2009 when it stood at 120.3. The index's annualized growth rate fell to -8.3 percent after a -7.6 percent growth rate a week earlier.
This level of economic activity is nothing horrible in and of itself, but matters are out of balance related to debt and opaque derivatives. Governmental debt has increased more than consumer or business debt has diminished; and what passes for "austerity" in such places as the U. K. is any but austere, simply less improvident. It now appears that a significant slowdown in the recent economic growth rate is baked in the cake. So far as my research on the ECRI site allows, an 8.3% negative growth rate (as defined privately by ECRI) in the WLI has always been associated with recession. Yet ECRI's other indicators don't allow it to call an upcoming recession, so I'm certainly not qualified to opine on that topic.
As a borrower in its own currency and wishing to maintain the fiction of never having defaulted (despite having more or less overtly having defaulted first under FDR and again under Nixon), it makes sense for the Feds to devalue against as many countries from which it imports as possible. The "traditional" response of domestic inflation, or at least anti-deflation, will allow loans that are now underwater to look good.
In the WW II and Korean War periods, short rates were kept ultra-low even when inflation raged. This may be happening now, depending on what one thinks prices are doing. Since precious metals are no longer cheap, how does an American handle capital?
Granted that markets are efficient, we can consider that just perhaps the markets are giving too much credence to the idea that U. S. finances are 'AAA'. In that case, perhaps small countries with records of truly no defaults may offer foreign currency gains plus a current yield. This could include Norway and New Zealand. Larger "smaller" countries could include Australia and Canada, but the former is at risk from a major economic slowdown in China and the latter may be seeing a housing mini-bubble begin to burst.
Another approach involves multi-national financially strong companies. AAPL, MCD, etc. High quality U. S. companies screen very well in Jeremy Grantham's 7-year asset price projection, a series which has often been prescient. Given that a BP-type disaster can befall almost any company, and unless one is very diversified, one disaster can sink such a strategy, this strategy is not for the faint of heart.
Meanwhile, regular readers know that I have had kind words to say about Treasuries on and off for quite some time. Now I think they are for gamblers and that cash is prospectively about as good as Treasuries and therefore better given complete liquidity. Yes, the 10-year yield could go to new lows. But it could blow out to very high levels faster than almost anyone thinks. So, new money likely will be better off elsewhere, in my humble opinion.
These are unprecedented times with the lowest short-term interest rates in history in some major countries. As with very high and very low temperatures where strange physico-chemical rules may apply, the same may well come to pass in the economy and the financial markets. Flexibility may be more important than any specific prediction, given how abnormal the "New Normal" is.
Copyright (C)Long Lake LLC 2010
A measure of future U.S. economic growth fell to the lowest since July 2009, indicating that the economy will continue to slow, a research group said on Friday.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 121.5 for the week ended July 2, down from 122.3 in the prior week. That was the lowest level since July 24, 2009 when it stood at 120.3. The index's annualized growth rate fell to -8.3 percent after a -7.6 percent growth rate a week earlier.
This level of economic activity is nothing horrible in and of itself, but matters are out of balance related to debt and opaque derivatives. Governmental debt has increased more than consumer or business debt has diminished; and what passes for "austerity" in such places as the U. K. is any but austere, simply less improvident. It now appears that a significant slowdown in the recent economic growth rate is baked in the cake. So far as my research on the ECRI site allows, an 8.3% negative growth rate (as defined privately by ECRI) in the WLI has always been associated with recession. Yet ECRI's other indicators don't allow it to call an upcoming recession, so I'm certainly not qualified to opine on that topic.
As a borrower in its own currency and wishing to maintain the fiction of never having defaulted (despite having more or less overtly having defaulted first under FDR and again under Nixon), it makes sense for the Feds to devalue against as many countries from which it imports as possible. The "traditional" response of domestic inflation, or at least anti-deflation, will allow loans that are now underwater to look good.
In the WW II and Korean War periods, short rates were kept ultra-low even when inflation raged. This may be happening now, depending on what one thinks prices are doing. Since precious metals are no longer cheap, how does an American handle capital?
Granted that markets are efficient, we can consider that just perhaps the markets are giving too much credence to the idea that U. S. finances are 'AAA'. In that case, perhaps small countries with records of truly no defaults may offer foreign currency gains plus a current yield. This could include Norway and New Zealand. Larger "smaller" countries could include Australia and Canada, but the former is at risk from a major economic slowdown in China and the latter may be seeing a housing mini-bubble begin to burst.
Another approach involves multi-national financially strong companies. AAPL, MCD, etc. High quality U. S. companies screen very well in Jeremy Grantham's 7-year asset price projection, a series which has often been prescient. Given that a BP-type disaster can befall almost any company, and unless one is very diversified, one disaster can sink such a strategy, this strategy is not for the faint of heart.
Meanwhile, regular readers know that I have had kind words to say about Treasuries on and off for quite some time. Now I think they are for gamblers and that cash is prospectively about as good as Treasuries and therefore better given complete liquidity. Yes, the 10-year yield could go to new lows. But it could blow out to very high levels faster than almost anyone thinks. So, new money likely will be better off elsewhere, in my humble opinion.
These are unprecedented times with the lowest short-term interest rates in history in some major countries. As with very high and very low temperatures where strange physico-chemical rules may apply, the same may well come to pass in the economy and the financial markets. Flexibility may be more important than any specific prediction, given how abnormal the "New Normal" is.
Copyright (C)Long Lake LLC 2010
Wednesday, July 7, 2010
Markets Churn as Deflationists May Be Overstating Their Case
Even David Rosenberg is buying into the austerity meme. In today's note, he discusses response to bear markets and recessions and says:
So it’s an open question as to where the exogenous positive shock is going to come from this time around, especially with policy rates already at zero and fiscal policymakers more bent on austerity rather than stimulus.
Remember that he is talking about the U. S. But he has it wrong. All we have is some resistance against continuation of the massive deficits, by far the largest peacetime deficits the U. S. has ever run. Properly accounting for the costs of Fannie Mae and Freddie Mac, the deficit exceeds that of Greece, I believe. This ignores the politically contentious future liabilities of Social Security and Medicare/Medicaid/Obamacare. There is no consensus for austerity. In World War II, there was virtually no production of any consumer automobile for the duration of the war. Now that's austerity. The average American uses perhaps 25 times as much oil per capita as the average citizen of India. Austerity? With the obesity epidemic raging? Hardly!
Meanwhile, Barry Ritholtz reprinted an updated graph of ECRI's confidential Long Leading Indicator (click on graph to enlarge), which so far as have been released, has in the past few decades turned down significantly before a recession has come on. It has not done so in a pronounced or pervasive manner, and ECRI predicts no recession to begin in 2010 based on large part on this fact. The shorter index, the publicly released Weekly Leading Index, has in fact turned down sharply.
So it’s an open question as to where the exogenous positive shock is going to come from this time around, especially with policy rates already at zero and fiscal policymakers more bent on austerity rather than stimulus.
Remember that he is talking about the U. S. But he has it wrong. All we have is some resistance against continuation of the massive deficits, by far the largest peacetime deficits the U. S. has ever run. Properly accounting for the costs of Fannie Mae and Freddie Mac, the deficit exceeds that of Greece, I believe. This ignores the politically contentious future liabilities of Social Security and Medicare/Medicaid/Obamacare. There is no consensus for austerity. In World War II, there was virtually no production of any consumer automobile for the duration of the war. Now that's austerity. The average American uses perhaps 25 times as much oil per capita as the average citizen of India. Austerity? With the obesity epidemic raging? Hardly!
Meanwhile, Barry Ritholtz reprinted an updated graph of ECRI's confidential Long Leading Indicator (click on graph to enlarge), which so far as have been released, has in the past few decades turned down significantly before a recession has come on. It has not done so in a pronounced or pervasive manner, and ECRI predicts no recession to begin in 2010 based on large part on this fact. The shorter index, the publicly released Weekly Leading Index, has in fact turned down sharply.
Since there is now so much concern about a new recession, it's a better time than a few months ago to think of a new up-cycle in the economy, or at least some stability. It would appear that a growth slowdown is baked in the cake, and that the powers that be will likely "stimulate" some more if a recession appeared again, which would then likely propel buying interest in gold and growth vehicles. So the game goes on . . .
So we have, as usual, cross-currents, which the powers-that-be have analyzed more thoroughly than you or I can. So how can one out-think the market? First, it helps to be able to look around you and ignore the hype and understand one's objectives and the goals of the powers that be.
The powers that be want you to trade a lot, so volatility is in their interest. They want price inflation for various reasons. One response is to own assets that defeat those purposes.
These include owning shares in financially strong companies at attractive prices, understanding that stocks as a whole are probably overvalued, but also paying heed to Jeremy Grantham, who agrees that both large-cap and small-cap U. S. stocks are about as poor investments as are U. S. long-term bonds, but that "high quality" U. S. stocks are about the best investments on a 7-year time frame amongst all his listed asset classes (GMO, free subscription).
Here are some dividend-payers that meet the DoctoRx criteria of being high quality, based on Value Line data, and that are doing well operationally. These are Tractor Supply (TSCO), Apple, TJX; and for gold-oriented investors, Newmont (NEM). Who knows, but perhaps all of these can be buy-and-hold investments that prospectively can beat buy and hold of similar quality bonds or cash.
Now that Treasury yields are at Japan level, cash is approaching trash. But anyone who shops knows that prices are rising, except for things that people own and for which buyers usually need large loans, namely houses.
Yours truly is not an investment advisor, and the above is not investment advice. For full disclosure, I bought TSCO today and after hours, it issued a major earnings and sales upside statement. So the stock is up a good deal after hours. If it is not up a great deal tomorrow, I may buy more. Based simply on the "value line" of Value Line, it is easy to see 50% price upside for TSCO within a year, similar to that which I can see as reasonable for AAPL.
Copyright (C) Long Lake LLC 2010
Tuesday, June 29, 2010
Bearishness Inflating Treasury Mini-Bubble
John Hussman has a truly interesting weekly piece out titled Recession Warning. While I share his views that stocks are fundamentally overvalued, I find it curious that he projects a double dip recession by in part utilizing the Economic Cycle Research Institute's Weekly Leading Indicator as a proxy for another indicator (ISM less than 54), even though ECRI went on record last week that the sharp drop in the WLI did not presage a new recession. ECRI's reasoning was that its non-disclosed Long Leading Indicators look OK. Right now my working assumption is for a growth slowdown.
The Hussman piece is a fine read with many superb observations. He is forecasting a deflationary bust followed by high inflation. He therefore warns gold owners of a likely down-move ahead. We shall see. If he's wrong, and all we have is a growth slowdown or a mild recession as in 2001, money-printing will likely save the day and all that would happen to gold would be another buying opportunity.
The Consumer Metrics Institute composite index, and especially the retail index, have bounced a bit in the past week, and the bear side of matters has gotten a reasonable amount of play. Also, when so many stock charts look heavy, one wants to look for the snapback/short covering rallies. In other words, I am moving from a zero stock allocation except for Apple to something above zero. With Wal-Mart collapsed under $50 again, the bear case on retailing is well known. Perhaps some high quality GARP (growth at a reasonable price) stocks such as TJX, which I bought today, and which have huge cash flow, dividends above a 2-year Treasury yield, and high safety/low price earnings ratio, ultimately can outperform the alternatives. That is at least what Jeremy Grantham believes, who gives U. S. high quality (not large cap or small cap) stocks his top ranking for total return on his famous 7-year horizon in his last, recent update.
Regular readers know that I have repeatedly described buying Treasuries and have pointed out how unpopular they were and thus were a contrarian play. Price appreciation changes matters.
The U. S. has miserable and deteriorating public finances and lies about Fannie and Freddie being off-budget; and may well not even pass a budget for next fiscal year on the risible excuse that a deficit commission is going to report in December.
Gold is not in a bubble, but Treasuries are close. 0.6% yield yearly for 2 years? With the CPI at a minimum of 1-2%, and much more if you go with John Williams' analysis? A lot of scared money may have fled Europe for Treasuries, and can leave as quickly as it arrived. The 10-year at 3% in an expansion is a lot less attractive than it was in 2008 at over 4% with a depression on the way.
Copyright (C) Long Lake LLC 2010
The Hussman piece is a fine read with many superb observations. He is forecasting a deflationary bust followed by high inflation. He therefore warns gold owners of a likely down-move ahead. We shall see. If he's wrong, and all we have is a growth slowdown or a mild recession as in 2001, money-printing will likely save the day and all that would happen to gold would be another buying opportunity.
The Consumer Metrics Institute composite index, and especially the retail index, have bounced a bit in the past week, and the bear side of matters has gotten a reasonable amount of play. Also, when so many stock charts look heavy, one wants to look for the snapback/short covering rallies. In other words, I am moving from a zero stock allocation except for Apple to something above zero. With Wal-Mart collapsed under $50 again, the bear case on retailing is well known. Perhaps some high quality GARP (growth at a reasonable price) stocks such as TJX, which I bought today, and which have huge cash flow, dividends above a 2-year Treasury yield, and high safety/low price earnings ratio, ultimately can outperform the alternatives. That is at least what Jeremy Grantham believes, who gives U. S. high quality (not large cap or small cap) stocks his top ranking for total return on his famous 7-year horizon in his last, recent update.
Regular readers know that I have repeatedly described buying Treasuries and have pointed out how unpopular they were and thus were a contrarian play. Price appreciation changes matters.
The U. S. has miserable and deteriorating public finances and lies about Fannie and Freddie being off-budget; and may well not even pass a budget for next fiscal year on the risible excuse that a deficit commission is going to report in December.
Gold is not in a bubble, but Treasuries are close. 0.6% yield yearly for 2 years? With the CPI at a minimum of 1-2%, and much more if you go with John Williams' analysis? A lot of scared money may have fled Europe for Treasuries, and can leave as quickly as it arrived. The 10-year at 3% in an expansion is a lot less attractive than it was in 2008 at over 4% with a depression on the way.
Copyright (C) Long Lake LLC 2010
Friday, June 25, 2010
A Growth Slowdown Is not a Recession; Effect on Silver
As the ECRI's economic momentum tool drops to an over one-year low, consumer sentiment improves in classic fashion. Here is ECRI:
A measure of future U.S.economic growth rose slightly in the latest week, but its annualized growth rate continued to fall, indicating the economy is about to slow, a research group said on Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 122.9 in the week ended June 18, up from 122.4 the prior week, originally reported as 122.5.
The index's annualized growth rate fell to minus 6.9 percent from a revised minus 5.8 percent, originally reported as minus 5.7 percent. That was its lowest level since May 22, 2009, when it stood at minus 8.7 percent. "After falling for six weeks, the uptick in the level of the Weekly Leading Index suggests some tentative stabilization, but the continuing decline in its growth rate to a 56-week low underscores the inevitability of the slowdown," said Lakshman Achuthan, managing director of ECRI.
Not so hot. Yet Reuters reports that its survey with the U. of Michigan of consumer sentiment is relatively toppy:
Consumer sentiment rose in June to its highest since January 2008 while reports of job losses were down sharply from a year ago, a survey showed on Friday.
A gauge of current economic conditions also rose to its highest since January 2008, according to the Thomson Reuters/University of Michigan's Surveys of Consumers. . .
While Dr. Achuthan has recently said that ECRI's proprietary Long Leading Indicators are showing there will be no new (double-dip) recession beginning this year, it is unclear if the stock market and public mood are anticipating a significant slowdown in growth, perhaps all the way to the 1% level, which only matches population growth.
Meanwhile, gold is quietly approaching its all-time highs, and silver is poised to set an all-time high on its 150 day smoothed moving average, and is already at an all-time price high for the 200 day sma.
Silver, which is less than 20 times more common in the earth's crust than gold, sells at 65X its price (or so). This is the upper end of its range. Longer-term, silver may be have the better risk-reward ratio, and if the projected growth slowdown does not turn into an actual recession, silver prices can rise in what might be a bit of a stagflationary environment.
Copyright (C) Long Lake LLC 2010
A measure of future U.S.economic growth rose slightly in the latest week, but its annualized growth rate continued to fall, indicating the economy is about to slow, a research group said on Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 122.9 in the week ended June 18, up from 122.4 the prior week, originally reported as 122.5.
The index's annualized growth rate fell to minus 6.9 percent from a revised minus 5.8 percent, originally reported as minus 5.7 percent. That was its lowest level since May 22, 2009, when it stood at minus 8.7 percent. "After falling for six weeks, the uptick in the level of the Weekly Leading Index suggests some tentative stabilization, but the continuing decline in its growth rate to a 56-week low underscores the inevitability of the slowdown," said Lakshman Achuthan, managing director of ECRI.
Not so hot. Yet Reuters reports that its survey with the U. of Michigan of consumer sentiment is relatively toppy:
Consumer sentiment rose in June to its highest since January 2008 while reports of job losses were down sharply from a year ago, a survey showed on Friday.
A gauge of current economic conditions also rose to its highest since January 2008, according to the Thomson Reuters/University of Michigan's Surveys of Consumers. . .
While Dr. Achuthan has recently said that ECRI's proprietary Long Leading Indicators are showing there will be no new (double-dip) recession beginning this year, it is unclear if the stock market and public mood are anticipating a significant slowdown in growth, perhaps all the way to the 1% level, which only matches population growth.
Meanwhile, gold is quietly approaching its all-time highs, and silver is poised to set an all-time high on its 150 day smoothed moving average, and is already at an all-time price high for the 200 day sma.
Silver, which is less than 20 times more common in the earth's crust than gold, sells at 65X its price (or so). This is the upper end of its range. Longer-term, silver may be have the better risk-reward ratio, and if the projected growth slowdown does not turn into an actual recession, silver prices can rise in what might be a bit of a stagflationary environment.
Copyright (C) Long Lake LLC 2010
Friday, June 11, 2010
ECRI Allies With Barron's and Issues Its Latest, Downbeat, Report
The Economic Cycle Research Institute, which has been getting more mention these days, is now tighter with its data release and has left Reuters to join Rupert Murdoch's media empire by releasing its updates through Barron's. And today's report stinks, as summed up by the title "WLI Drops, But No Double-Dip Yet".
Recently, Brazil has had a failed gov't bond auction; Germany has had a failed auction or two (I forget the duration of the securities); and China announced its third failure of bills auctioned.
In May, the United States government spent approximately twice as much as its revenues. Boy, all those investors who are passing on higher-yielding securities of other countries must really espy hidden value in U. S. bills yielding approximately nothing.
All the predictions of big increases in U. S. Federal debt are predicated on good economic growth. Even a growth slowdown is going to further challenge Federal finances. And as consumer spending is more and more dependent on Federal money, it is getting harder and harder to see a happy next few years. When the Japanese bubble began to burst, interest rates collapsed. The opposite has been happening in Greece. Will the U. S. have a reverse Japanese, or Grecian moment? Tentative times, and investors in Federal debt must ask themselves why they want low yields locked in for many years in the future.
If the government would suddenly shrink, we might well see some economic dynamism following the withdrawal process. Breaking addictions is difficult, but the method that works best is cold turkey. Unfortunately what we are seeing is much more like the frog that got boiled so slowly it didn't notice till it was too late.
Copyright (C) Long Lake LLC 2010
Recently, Brazil has had a failed gov't bond auction; Germany has had a failed auction or two (I forget the duration of the securities); and China announced its third failure of bills auctioned.
In May, the United States government spent approximately twice as much as its revenues. Boy, all those investors who are passing on higher-yielding securities of other countries must really espy hidden value in U. S. bills yielding approximately nothing.
All the predictions of big increases in U. S. Federal debt are predicated on good economic growth. Even a growth slowdown is going to further challenge Federal finances. And as consumer spending is more and more dependent on Federal money, it is getting harder and harder to see a happy next few years. When the Japanese bubble began to burst, interest rates collapsed. The opposite has been happening in Greece. Will the U. S. have a reverse Japanese, or Grecian moment? Tentative times, and investors in Federal debt must ask themselves why they want low yields locked in for many years in the future.
If the government would suddenly shrink, we might well see some economic dynamism following the withdrawal process. Breaking addictions is difficult, but the method that works best is cold turkey. Unfortunately what we are seeing is much more like the frog that got boiled so slowly it didn't notice till it was too late.
Copyright (C) Long Lake LLC 2010
Friday, June 4, 2010
Bad News from ECRI
In WLI Growth Drops Again, the Economic Cycle Research Institute states today that:
A measure of future U.S. economic growth fell to a 43-week low in the latest week, indicating that the pace of economic growth is about to slow, a research group said on Friday.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 124.1 for the week ended May 28, down from 125.6 in the prior week. The index's annualized growth rate slid to a 50-week low of 0.4 percent from 5.1 percent a week ago.
As evidence that stagflation will have to wait and little pricing increase, ECRI also reports today in U.S. Inflation Gauge Falls To Five-Month Low that:
A monthly measure of U.S. inflation pressures fell to a five-month low in May as commodity price pressures ebbed, said a research group on Friday.
The Economic Cycle Research Institute's U.S. Future Inflation Gauge (USFIG), designed to anticipate cyclical swings in the rate of inflation, fell to 98.9 in May from a revised 101.8 in April. The original number reported in April was 100.8.
"With the USFIG falling to a five-month low, underlying inflation pressures appear to be ebbing," said ECRI Managing Director Lakshman Achuthan said in a statement.
The May USFIG annualized growth rate, which smooths out monthly fluctuations, fell to 12.5 percent from a revised 23.4 percent. The April figure was originally reported at 21.2 percent.
One can ignore cheerleading from the White House, as reported in Obama stresses positives in jobs report:
President Obama preferred to accentuate the positive today, citing last month's increase of 431,000 jobs but also acknowledging that the vast majority of them were temporary jobs dealing with the U.S. Census.
"This report is a sign that our economy is getting stronger by the day," Obama said during a visit to a trucking firm in suburban Maryland.
As tar balls wash up on Pensacola Beach, destroying the summer tourist season on the Gulf Coast, the economy is not getting stronger by the day. Statements like that show that this president is out of touch. Sound familiar?
We could be looking at an historic change election. More and more, the financial markets are looking like a rerun of 2008. As we enter summer fire season, we all need to remember Smokey's adage of safety first.
And to remember that Smokey was a bear . . . not a bull.
Copyright (C) Long Lake LLC 2010
A measure of future U.S. economic growth fell to a 43-week low in the latest week, indicating that the pace of economic growth is about to slow, a research group said on Friday.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 124.1 for the week ended May 28, down from 125.6 in the prior week. The index's annualized growth rate slid to a 50-week low of 0.4 percent from 5.1 percent a week ago.
As evidence that stagflation will have to wait and little pricing increase, ECRI also reports today in U.S. Inflation Gauge Falls To Five-Month Low that:
A monthly measure of U.S. inflation pressures fell to a five-month low in May as commodity price pressures ebbed, said a research group on Friday.
The Economic Cycle Research Institute's U.S. Future Inflation Gauge (USFIG), designed to anticipate cyclical swings in the rate of inflation, fell to 98.9 in May from a revised 101.8 in April. The original number reported in April was 100.8.
"With the USFIG falling to a five-month low, underlying inflation pressures appear to be ebbing," said ECRI Managing Director Lakshman Achuthan said in a statement.
The May USFIG annualized growth rate, which smooths out monthly fluctuations, fell to 12.5 percent from a revised 23.4 percent. The April figure was originally reported at 21.2 percent.
One can ignore cheerleading from the White House, as reported in Obama stresses positives in jobs report:
President Obama preferred to accentuate the positive today, citing last month's increase of 431,000 jobs but also acknowledging that the vast majority of them were temporary jobs dealing with the U.S. Census.
"This report is a sign that our economy is getting stronger by the day," Obama said during a visit to a trucking firm in suburban Maryland.
As tar balls wash up on Pensacola Beach, destroying the summer tourist season on the Gulf Coast, the economy is not getting stronger by the day. Statements like that show that this president is out of touch. Sound familiar?
We could be looking at an historic change election. More and more, the financial markets are looking like a rerun of 2008. As we enter summer fire season, we all need to remember Smokey's adage of safety first.
And to remember that Smokey was a bear . . . not a bull.
Copyright (C) Long Lake LLC 2010
Friday, May 28, 2010
Apple's Business Accelerating as Economy Decelerates
In what passes for a sell-off in Apple stock world, AAPL is at a 5 week low in price.
It even briefly thrice dipped below its 50 day smoothed moving average only to bounce above it. Long lines have formed in multiple countries in Europe as well as in Japan to be in on their launch of the iPad.
A sort-of polling entity, Changewave Alliance, of which I am a member, is out today with survey results of its members. It has found an amazing satisfaction level with the iPad.
Fundamentally, the Value Line actual value line is as good a way to look for over- and under-valuation of growth stocks as any I know. For AAPL, the value line is set as 22X "cash flow", which for AAPL is very close to earnings. For calendar year 2010, I am guessing that AAPL with have cash flow of $15/share. Thus to be at its Value Line, it would be at $360. Yet more bullish is the fact that for the last 6 years, it has spent more time above than below this valuation level, despite rapidly rising profitability.
AAPL stock is 25% above its highest 2007 price with triple the earnings.
We are at a point in the economic cycle where discount retailers tend to stop outperforming. My favorites of Dollar Tree, Ross Stores and TJX are great companies, and their stocks remain reasonably valued, but with Wal-Mart struggling, one has to wonder if their margins have anywhere to go but down at this point.
Meanwhile the Economic Cycle Research Institute is out with more gloomy news today:
A measure of future U.S. economic growth fell to a 39-week low in the latest week, pointing to a slowdown in economic growth, a research group said on Friday.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 125.6 in the week ended May 21, down from a revised 127.2 the previous week, originally reported as 127.3.
That was the lowest level since Aug. 21, 2009, when the index stood at 125.3.
The index's annualized growth rate tumbled to a 47-week low of 5.1 percent from 9.0 percent a week ago. That's the worst level since June 26, 2009, when it stood at 4.6 percent.
"The downturn in WLI growth evident since early 2010 has recently intensified, so it should be no surprise when U.S. economic growth slows noticeably in the months ahead," said Lakshman Achuthan, managing director of ECRI.
Short-term rates are increasingly like to stay around zero for the indefinite future.
While this is ultimately bullish for gold given how our leaders handle economic sluggishness these days, ECRI's forecast is decidely not bullish for any other commodity, and with slowing economic growth likely per ECRI, fears of a new recession and perhaps the actuality may lead to another forced liquidation even of the highest quality assets such as gold at some point.
Right now AAPL may even be outshining gold. Yet the former can be laid low by a downturn in the health of one man, which is not the case for the latter.
To summarize, the list of attrative investments continues to narrow. Whether Treasuries will be on that list as growth slows is uncertain. One suspects so, but who really wants to lend money to the U. S. Gov't at 4% annually for the next 30 years?
Copyright (C) Long Lake LLC 2010
It even briefly thrice dipped below its 50 day smoothed moving average only to bounce above it. Long lines have formed in multiple countries in Europe as well as in Japan to be in on their launch of the iPad.
A sort-of polling entity, Changewave Alliance, of which I am a member, is out today with survey results of its members. It has found an amazing satisfaction level with the iPad.
Fundamentally, the Value Line actual value line is as good a way to look for over- and under-valuation of growth stocks as any I know. For AAPL, the value line is set as 22X "cash flow", which for AAPL is very close to earnings. For calendar year 2010, I am guessing that AAPL with have cash flow of $15/share. Thus to be at its Value Line, it would be at $360. Yet more bullish is the fact that for the last 6 years, it has spent more time above than below this valuation level, despite rapidly rising profitability.
AAPL stock is 25% above its highest 2007 price with triple the earnings.
We are at a point in the economic cycle where discount retailers tend to stop outperforming. My favorites of Dollar Tree, Ross Stores and TJX are great companies, and their stocks remain reasonably valued, but with Wal-Mart struggling, one has to wonder if their margins have anywhere to go but down at this point.
Meanwhile the Economic Cycle Research Institute is out with more gloomy news today:
A measure of future U.S. economic growth fell to a 39-week low in the latest week, pointing to a slowdown in economic growth, a research group said on Friday.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 125.6 in the week ended May 21, down from a revised 127.2 the previous week, originally reported as 127.3.
That was the lowest level since Aug. 21, 2009, when the index stood at 125.3.
The index's annualized growth rate tumbled to a 47-week low of 5.1 percent from 9.0 percent a week ago. That's the worst level since June 26, 2009, when it stood at 4.6 percent.
"The downturn in WLI growth evident since early 2010 has recently intensified, so it should be no surprise when U.S. economic growth slows noticeably in the months ahead," said Lakshman Achuthan, managing director of ECRI.
Short-term rates are increasingly like to stay around zero for the indefinite future.
While this is ultimately bullish for gold given how our leaders handle economic sluggishness these days, ECRI's forecast is decidely not bullish for any other commodity, and with slowing economic growth likely per ECRI, fears of a new recession and perhaps the actuality may lead to another forced liquidation even of the highest quality assets such as gold at some point.
Right now AAPL may even be outshining gold. Yet the former can be laid low by a downturn in the health of one man, which is not the case for the latter.
To summarize, the list of attrative investments continues to narrow. Whether Treasuries will be on that list as growth slows is uncertain. One suspects so, but who really wants to lend money to the U. S. Gov't at 4% annually for the next 30 years?
Copyright (C) Long Lake LLC 2010
Saturday, May 22, 2010
ECRI Much More Bearish
The Economic Cycle Institute may be quite the market mover. Yesterday on its website, it announced that Thursday it described to its paying subscribers that it had decided thusly:
U.S. Indexes Point to Change in Cyclical Direction.
Here is what it told the public Friday:
With a number of market-moving indicators surprising on the upside in recent weeks, fears of a double-dip recession had largely been put to rest. But, the recent turmoil in the Eurozone has sparked fears of a fresh financial crisis with increased “spillover” potential. ECRI’s latest study, using an array of objective and reliable leading indexes, assesses the outlook for the U.S. economy in that context. Its conclusions offer important insights into the vulnerability of the U.S. economy at a point when cyclical forces are about to shift gears.
The regular weekly news release (every Friday) was clear about the trend:
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index slumped to 127.3 for the week ended May 14 from 132.0 the previous week.
That was the lowest level since Sept. 11, 2009, when it stood at 127.0.
The index's annualized growth rate fell to a 43-week low of 9.0 percent from 12.2 percent a week ago. That's the lowest level since July 17, 2009, when it stood at 8 percent.
"With WLI growth sinking further to a 43-week low, U.S. economic growth is set to start easing in fairly short order," said Lakshman Achuthan, managing director of ECRI.
ECRI has changed its tone (and tune) markedly. Only 2 weeks earlier, its Friday news release had the title Little Risk Of Renewed Recession This Year and said:
A measure of future U.S. economic growth rose to a more than two-year high in the latest week, bolstering expectations that the recovery is intact, a research group said on Friday.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 134.7 for the week ended April 30 from from 133.6 the prior week, originally reported as 133.7.
That was the highest level since Jan 18, 2008, when it stood at 135.0.
The index's annualized growth rate rose to a four-week high of 12.7 percent from 12.3 percent a week ago, originally reported as 12.4 percent.
"With the forward-looking WLI rising to its best reading since January 2008, there is little risk of renewed recession this year," said Lakshman Achuthan, managing director of ECRI.
While the LEI was also released Thursday and was down a small amount, the Conference Board was upbeat and its language would not have triggered a sell-off:
“We were surprised how strong the increase was in March,” said Ken Goldstein, an economist at The Conference Board. “We only lost a tenth of a point [in April]. It’s a fairly strong signal that this recovery is developing further and will continue through spring and summer.”
In late August 2008, ECRI quickly switched from saying that the U. S. was in a mild recession to predicting ominous deterioration. The stock market started moving downwards from that point onward, falling over 10% in the month before the Lehman/AIG mess.
It would appear that when ECRI speaks, big money listens.
The odds have increased that the stock market has entered the post-recession phase in which rallies should be sold and that so long as the Treasury market remains the default safety play, Treasury sell-offs can be bought. Whether this safety play will continue through another recession rather than a decelerating expansion is unclear.
Copyright (C) Long Lake LLC 2010
U.S. Indexes Point to Change in Cyclical Direction.
Here is what it told the public Friday:
With a number of market-moving indicators surprising on the upside in recent weeks, fears of a double-dip recession had largely been put to rest. But, the recent turmoil in the Eurozone has sparked fears of a fresh financial crisis with increased “spillover” potential. ECRI’s latest study, using an array of objective and reliable leading indexes, assesses the outlook for the U.S. economy in that context. Its conclusions offer important insights into the vulnerability of the U.S. economy at a point when cyclical forces are about to shift gears.
The regular weekly news release (every Friday) was clear about the trend:
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index slumped to 127.3 for the week ended May 14 from 132.0 the previous week.
That was the lowest level since Sept. 11, 2009, when it stood at 127.0.
The index's annualized growth rate fell to a 43-week low of 9.0 percent from 12.2 percent a week ago. That's the lowest level since July 17, 2009, when it stood at 8 percent.
"With WLI growth sinking further to a 43-week low, U.S. economic growth is set to start easing in fairly short order," said Lakshman Achuthan, managing director of ECRI.
ECRI has changed its tone (and tune) markedly. Only 2 weeks earlier, its Friday news release had the title Little Risk Of Renewed Recession This Year and said:
A measure of future U.S. economic growth rose to a more than two-year high in the latest week, bolstering expectations that the recovery is intact, a research group said on Friday.
The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 134.7 for the week ended April 30 from from 133.6 the prior week, originally reported as 133.7.
That was the highest level since Jan 18, 2008, when it stood at 135.0.
The index's annualized growth rate rose to a four-week high of 12.7 percent from 12.3 percent a week ago, originally reported as 12.4 percent.
"With the forward-looking WLI rising to its best reading since January 2008, there is little risk of renewed recession this year," said Lakshman Achuthan, managing director of ECRI.
While the LEI was also released Thursday and was down a small amount, the Conference Board was upbeat and its language would not have triggered a sell-off:
“We were surprised how strong the increase was in March,” said Ken Goldstein, an economist at The Conference Board. “We only lost a tenth of a point [in April]. It’s a fairly strong signal that this recovery is developing further and will continue through spring and summer.”
In late August 2008, ECRI quickly switched from saying that the U. S. was in a mild recession to predicting ominous deterioration. The stock market started moving downwards from that point onward, falling over 10% in the month before the Lehman/AIG mess.
It would appear that when ECRI speaks, big money listens.
The odds have increased that the stock market has entered the post-recession phase in which rallies should be sold and that so long as the Treasury market remains the default safety play, Treasury sell-offs can be bought. Whether this safety play will continue through another recession rather than a decelerating expansion is unclear.
Copyright (C) Long Lake LLC 2010
Wednesday, April 14, 2010
More Downbeat Consumer Economic Polling Data as Stocks Soar
ABC's Consumer Comfort weekly poll (but based on a rolling 4 week average) is back to -47, a 5 week low and a level never seen from the poll's inception at the beginning of 2002 until May 2008.
Gallup's consumer polling shows a tad more personal optimism (feeling cheerful) but spending and hiring/not hiring statistics remain dismal.
So far, I suspect that the U. S. profit gains from domestic sources are mainly due to price increases and job cuts.
If oil prices do not go crazy on the upside, we are however likely in the past of the financial and economic cycle where all the money printing will go into sales increases due to volume as well as price increase. The ECRI has probably nailed it in predicting a yet lower baseline level of growth.
The country--and most of the world--simply needs to pay down debt.
Instead what is happening is that governmental deficits are being transmuted into private profit gains. It's a shell game that is leading to overall overvaluation of the private enterprises that are currently benefiting from this wealth transfer, and it is difficult to see why this existing trend will not continue tomorrow and then the next day. China bursting? Oil? War? Dirty nuke somewhere important?
And so this body of a stock market continues in motion while real people continue to experience depression-like circumstances.
Copyright (C) Long Lake LLC 2010
Gallup's consumer polling shows a tad more personal optimism (feeling cheerful) but spending and hiring/not hiring statistics remain dismal.
So far, I suspect that the U. S. profit gains from domestic sources are mainly due to price increases and job cuts.
If oil prices do not go crazy on the upside, we are however likely in the past of the financial and economic cycle where all the money printing will go into sales increases due to volume as well as price increase. The ECRI has probably nailed it in predicting a yet lower baseline level of growth.
The country--and most of the world--simply needs to pay down debt.
Instead what is happening is that governmental deficits are being transmuted into private profit gains. It's a shell game that is leading to overall overvaluation of the private enterprises that are currently benefiting from this wealth transfer, and it is difficult to see why this existing trend will not continue tomorrow and then the next day. China bursting? Oil? War? Dirty nuke somewhere important?
And so this body of a stock market continues in motion while real people continue to experience depression-like circumstances.
Copyright (C) Long Lake LLC 2010
Sunday, March 28, 2010
Where To Now?
Approximately now, the Fed has definitively embarked upon the next tightening cycle. Looked at from a long term nominal or inflation-adjusted perspective, the U. S. economy has not performed well for some time. Measures of consumption, such as cars sold, do not reflect wealth accumulation. Thus when the economy was so weak that to sustain the appearance of strength coming out of the 2001 recession, houses were routinely sold for almost nothing down and with ridiculously low lending standards, and autos were almost always bought on credit, the signs of economic malaise were clear.
The "escape" from the abyss in fall 2008 was unsurprising. Be not impressed by the "heroism" or "brilliance" of the economic doctors in that time. All they did was socialize the losses onto you and me and reward the insiders. Plus they printed money. In other words, they took the Japan solution to a banking crisis rather than the 1990s Swedish solution.
There is no telling if consumer prices are going to go into a period of stability or even decline a la Japan. What makes more sense is that the U. S. is a decade out of phase from Japan. Increasingly we are already seeing that the funding of new Federal debt is domestic rather than foreign. If that continues, America will be following the Japan scenario in that regard as well.
The headlines are going in the MS tout resumption of job growth in March. Whether all of that is from Census hiring we won't even be sure of till revisions occur. What is certain is that small business is not hiring, though it has largely stopped firing. With housing activity not on a clear upward path if not on a downward path, despite all the support, we are left with the prospect of a post-credit crunch economy.
This in turn is one in which frugality continues, and Gallup continues to show consumers just not spending on elective things and workers just not seeing any net hiring at their firms.
The biggest mistake investors can make is to key their stock and bond valuations off of unnatural zero interest rate policies. This failed them in the last cycle and will fail them again. Last time around, Fed funds only got to 5.25%, at most equal to inflation if not below it-- and things collapsed. This is a sign of severe instability, in that the economy could not even survive imposition of a positive real rate of interest on Fed funds. So far, it looks like a replay of that. The Fed is behind the curve on inflation again and will keep that stance longer than inflation hawks want, until real progress is made on the employment front, and there is a huge hiring boom to go for the rate of unemployment to drop. That rate, of course, lags hiring as people re-enter the labor force after giving up and thus not being counted as unemployed for a period of time.
Given a weaker foundation this time and the certainty-- not the unfounded worry-- of financial instability in various spots across the globe -- investors are well advised not to take the Soma of comfort in low interest rates and keep much invested in assets which they would sell at a lower price were another bear market to start tomorrow from such matters as a bursting bubble in China or a bank failure or sovereign default in Europe, or a major rise in Treasury borrowing rates in America.
The feeling here is that the political zeal in the Obama administration suggests that the gold and bond markets will need to react, and more robust political opposition in Congress needs to materialize, before fiscal prudence becomes government policy.
This argues for gold as a core permanent (for now) holding of all investors. If the economy starts shooting up, as may happen one of these quarters based on ECRI and the Conference Board numbers, then silver and platinum may go to new highs for the cycle (new all-time highs for platinum) and outperform gold. If we have economic slowness (no double dip required) first even though the Fed is still "loose", just less loose than recently, though, then gold is the only precious metal than can continue up in price due to its status as an alternative, globally accepted store of value.
In two hundred years, which is more likely to remain a store of value: the Federal Reserve Note, or gold?
Copyright (C) Long Lake LLC 2010
The "escape" from the abyss in fall 2008 was unsurprising. Be not impressed by the "heroism" or "brilliance" of the economic doctors in that time. All they did was socialize the losses onto you and me and reward the insiders. Plus they printed money. In other words, they took the Japan solution to a banking crisis rather than the 1990s Swedish solution.
There is no telling if consumer prices are going to go into a period of stability or even decline a la Japan. What makes more sense is that the U. S. is a decade out of phase from Japan. Increasingly we are already seeing that the funding of new Federal debt is domestic rather than foreign. If that continues, America will be following the Japan scenario in that regard as well.
The headlines are going in the MS tout resumption of job growth in March. Whether all of that is from Census hiring we won't even be sure of till revisions occur. What is certain is that small business is not hiring, though it has largely stopped firing. With housing activity not on a clear upward path if not on a downward path, despite all the support, we are left with the prospect of a post-credit crunch economy.
This in turn is one in which frugality continues, and Gallup continues to show consumers just not spending on elective things and workers just not seeing any net hiring at their firms.
The biggest mistake investors can make is to key their stock and bond valuations off of unnatural zero interest rate policies. This failed them in the last cycle and will fail them again. Last time around, Fed funds only got to 5.25%, at most equal to inflation if not below it-- and things collapsed. This is a sign of severe instability, in that the economy could not even survive imposition of a positive real rate of interest on Fed funds. So far, it looks like a replay of that. The Fed is behind the curve on inflation again and will keep that stance longer than inflation hawks want, until real progress is made on the employment front, and there is a huge hiring boom to go for the rate of unemployment to drop. That rate, of course, lags hiring as people re-enter the labor force after giving up and thus not being counted as unemployed for a period of time.
Given a weaker foundation this time and the certainty-- not the unfounded worry-- of financial instability in various spots across the globe -- investors are well advised not to take the Soma of comfort in low interest rates and keep much invested in assets which they would sell at a lower price were another bear market to start tomorrow from such matters as a bursting bubble in China or a bank failure or sovereign default in Europe, or a major rise in Treasury borrowing rates in America.
The feeling here is that the political zeal in the Obama administration suggests that the gold and bond markets will need to react, and more robust political opposition in Congress needs to materialize, before fiscal prudence becomes government policy.
This argues for gold as a core permanent (for now) holding of all investors. If the economy starts shooting up, as may happen one of these quarters based on ECRI and the Conference Board numbers, then silver and platinum may go to new highs for the cycle (new all-time highs for platinum) and outperform gold. If we have economic slowness (no double dip required) first even though the Fed is still "loose", just less loose than recently, though, then gold is the only precious metal than can continue up in price due to its status as an alternative, globally accepted store of value.
In two hundred years, which is more likely to remain a store of value: the Federal Reserve Note, or gold?
Copyright (C) Long Lake LLC 2010
Saturday, January 30, 2010
Markets Not Loving the Growth or Declining Economic Freedom
The Economic Cycle Research Institute (ECRI) publishes its Weekly Leading Index on Fridays. The absolute level of the index is around 131. Unlike the Conference Board's better-known but arguably less sophisticated Leading Economic Indicators, which is in record territory, the WLI is about 12 points off its 2007 high of 143.
That index peaked in the May-July time frame in 2007, which was the precise period in which Bear Stearns disclosed problems in two of its managed hedge funds. The annualized growth rate of the WLI turned negative later in the summer and except for one somewhat manic move to new highs in the stock indices in the fall, stocks have trended downward since.
ECRI points to a V-shaped economic recovery in its latest press release, U.S. Business Cycle Recovery To Keep Going:
"With the WLI staying near the previous week's 83-week high, the U.S. business cycle recovery is set to keep going in the months ahead," Achuthan said.
He also pointed to government data released earlier on Friday showing that the U.S. economy grew at a
faster-than-expected pace for the fourth quarter.
"With GDP growth rebounding 12 percentage points in just three quarters, the V-shaped recovery foreseen last summer by the WLI is coming into focus."
Somehow the economic and financial climate continues to feel more like Japan post-bubble than Springtime in America. Indeed, this blog has reported that ECRI is now forecasting more frequent recessions than in the 1983-2007 period. This will be good for its business but probably not so good for the country or for investors.
Remembering that many stocks peaked not in 2007 (financials) or much earlier (homebuilders, spring 2005) but in 2008, and that others have gone on to all-time highs, stocks of companies with ongoing record profits, upward earnings revisions, below-market P/E's, that are self-financing, and preferably have strong charts (whether or not they have had profit-taking at some point in the past few months) can be owned in what may well be an economic cycle that is pointing flat to down from a growth momentum (second derivative) standpoint.
While JPM and GS may well be due for kickback rallies, they have broken down on the charts. It appears to this blogger that the same phenomenon that applied to the techs post-bubble is happening to the financials. Their reflex rally is over, and as a group they are dead money until the next economic/market cycle bottoms.
Treasuries may be OK from an intermediate-term standpoint, given the political dynamics that have forced the administration to talk of increasing taxes (on Big Finance) and decreased rate of spending growth.
If the current economic cycle is like the prior one, Treasury rates will move irregularly upward as Fed tightening (or decreased loosening) competes with slower growth. There is a very real possibility that the next economic downturn will involve a decline in the 10-year Treasury to the 2-3% rate.
Meanwhile, absolute levels of return on low investment grade bonds (Moody's Baa) are "too low" at just over 6%. Call me irresponsible, but I just made a modest investment on Greek 5-year Euro-denominated bonds at a 6.5% yield to maturity. Between the country that helped create the modern world and an anonymous company with uncertain finances and an uncertain fate, I'll take Greece.
The U. S. has now been downgraded by the Heritage Foundation to being "mostly free" economically rather than "free". Its drop of 2.7 points (on a scale ranging to 100) and a rating of 78.0 brought us to eighth place, below seventh-ranked Canada (80.4) and far below Hong Kong and Singapore, numbers one and two respectively, which had scores of 89.7 and 86.1.
Considering that Australia and New Zealand were third and fourth and are physically and economically closer to Asia than anywhere else, it is fair to say that the East may not be red any longer, but it increasingly is economically free.
There are many other measures of economic success and growth prospects than freedom per se, especially as defined by a group with the agenda of the Heritage Foundation; Brazil, India and China were ranked 113, 124 and 140 respectively, and the numerical ratings for all of them declined last year even as their economies grew.
The financial world is changing rapidly. Barack Obama had a real chance to pull an FDR, get a Pecora Commission-type show going and promote the major financial system reforms that would provide a platform for a new, better economic structure. Regardless of how the current cycle plays out and whether or not he wins re-election, he has failed us. We are now doomed not to 23 but 27 years of Greenspan-Bernanke. Yuccch!
Copyright (C) Long Lake LLC 2010
That index peaked in the May-July time frame in 2007, which was the precise period in which Bear Stearns disclosed problems in two of its managed hedge funds. The annualized growth rate of the WLI turned negative later in the summer and except for one somewhat manic move to new highs in the stock indices in the fall, stocks have trended downward since.
ECRI points to a V-shaped economic recovery in its latest press release, U.S. Business Cycle Recovery To Keep Going:
"With the WLI staying near the previous week's 83-week high, the U.S. business cycle recovery is set to keep going in the months ahead," Achuthan said.
He also pointed to government data released earlier on Friday showing that the U.S. economy grew at a
faster-than-expected pace for the fourth quarter.
"With GDP growth rebounding 12 percentage points in just three quarters, the V-shaped recovery foreseen last summer by the WLI is coming into focus."
Somehow the economic and financial climate continues to feel more like Japan post-bubble than Springtime in America. Indeed, this blog has reported that ECRI is now forecasting more frequent recessions than in the 1983-2007 period. This will be good for its business but probably not so good for the country or for investors.
Remembering that many stocks peaked not in 2007 (financials) or much earlier (homebuilders, spring 2005) but in 2008, and that others have gone on to all-time highs, stocks of companies with ongoing record profits, upward earnings revisions, below-market P/E's, that are self-financing, and preferably have strong charts (whether or not they have had profit-taking at some point in the past few months) can be owned in what may well be an economic cycle that is pointing flat to down from a growth momentum (second derivative) standpoint.
While JPM and GS may well be due for kickback rallies, they have broken down on the charts. It appears to this blogger that the same phenomenon that applied to the techs post-bubble is happening to the financials. Their reflex rally is over, and as a group they are dead money until the next economic/market cycle bottoms.
Treasuries may be OK from an intermediate-term standpoint, given the political dynamics that have forced the administration to talk of increasing taxes (on Big Finance) and decreased rate of spending growth.
If the current economic cycle is like the prior one, Treasury rates will move irregularly upward as Fed tightening (or decreased loosening) competes with slower growth. There is a very real possibility that the next economic downturn will involve a decline in the 10-year Treasury to the 2-3% rate.
Meanwhile, absolute levels of return on low investment grade bonds (Moody's Baa) are "too low" at just over 6%. Call me irresponsible, but I just made a modest investment on Greek 5-year Euro-denominated bonds at a 6.5% yield to maturity. Between the country that helped create the modern world and an anonymous company with uncertain finances and an uncertain fate, I'll take Greece.
The U. S. has now been downgraded by the Heritage Foundation to being "mostly free" economically rather than "free". Its drop of 2.7 points (on a scale ranging to 100) and a rating of 78.0 brought us to eighth place, below seventh-ranked Canada (80.4) and far below Hong Kong and Singapore, numbers one and two respectively, which had scores of 89.7 and 86.1.
Considering that Australia and New Zealand were third and fourth and are physically and economically closer to Asia than anywhere else, it is fair to say that the East may not be red any longer, but it increasingly is economically free.
There are many other measures of economic success and growth prospects than freedom per se, especially as defined by a group with the agenda of the Heritage Foundation; Brazil, India and China were ranked 113, 124 and 140 respectively, and the numerical ratings for all of them declined last year even as their economies grew.
The financial world is changing rapidly. Barack Obama had a real chance to pull an FDR, get a Pecora Commission-type show going and promote the major financial system reforms that would provide a platform for a new, better economic structure. Regardless of how the current cycle plays out and whether or not he wins re-election, he has failed us. We are now doomed not to 23 but 27 years of Greenspan-Bernanke. Yuccch!
Copyright (C) Long Lake LLC 2010
Friday, January 8, 2010
Jobs Friday: More Establishment Cheerleading as Hard Times Continue
The BLS has reported on December jobs, and an ugly sight it is. The household survey of individuals data was that employment dropped 589,000 last month (see Table A to review these and related statistics). The labor force dropped 661,000. "Not in labor force" rose by a massive 843,000.
Yikes and then some!
It is hard to see that the "Great Recession" (a polite term for what is a non-great depression) is definitively over. Yes, jobs are actually one of the factors that goes into recession dating, much as the MSM would like to divert attention to production (itself pumped up by Federal/Fed exertions).
On the "establishment" survey, the data came out the same as ADP, down 85,000. This of course was boosted by the unmeasured "birth-death" adjustment, which as usual was estimated as up (59,000 jobs) supposedly stemming from the vitality of small businesses that are not part of the "establishment" survey. Ha! Try a loss of 59,000 more likely. Or 159,000. Or 500,000 to come close to the household survey numbers. Those of us who live in the real world are aware that small businesses are mostly shrinking or closing or happy that they can simply stand pat and survive, that there is little appetite from those with savings to risk them on a new venture, and that the birth-death adjustment almost certainly should be negative rather than positive.
When you are part of the quiet coup that keeps its jackboot on the throat of the public at large, you will say anything you can to provide hope for the masses (that is, that part of the masses that reads Bloomberg.com). Here is the ridiculous statement from the article and a member of Big Finance about how things are going to get better, from Bloomberg's article at http://www.bloomberg.com/apps/news?pid=20601087&sid=aP0v0wdCG_YQ&pos=1:
In another government boost, the Census Bureau will hire 1.15 million temporary workers in the first half of the year to conduct the population count that takes place every 10 years. That hiring may boost payrolls by a peak of 700,000 in May before those workers begin getting dismissed in June, according to a forecast by economist Lori Helwing at BofA Merrill Lynch Global Research in New York. (Ed.: 700,000 is less than the number estimated to have left the labor force in December alone per above.)
“They’re going to hire an army of people,” said Julia Coronado, a senior economist at BNP Paribas in New York. “In some sense, this acts as a stimulus package and is a timely coincidence, coming so early in the recovery.”
Timely? You mean hiring a bunch of people for a few months is a timely stimulus? Wasn't there stimulus in 2008 under Bush? What about ARRA (Obama's stimulus of almost a year ago)? Gimme a break . . . And is this really "stimulus"? Then that perforce also means that there will be an anti-stimulus governmental effort timed to end in June when the census is completed. Oh, I forgot: the boom will be on by then. As if in 2003-7, the boom was not entirely artificial, fueled by mortgage and securities fraud, wildly unsound lending practices, dancing financiers, etc. The idea of a self-sustaining economic growth cycle is unproven of late in the U. S.
Brazil, it appears is in that zone of self-sustaining growth; but in parts of the world run by quiet coupsters doing God's work, the jury is out and we may be lucky if it is a hung jury.
When Big Finance is reduced to touting a Constitutional requirement to enumerate the population as a stimulus to the economy, things are bad. Real bad.
Hard times continue. The Economic Cycle Research Institute, which has been predicting good employment growth soon, will have an opportunity to comment. For now December goes to the bearish Dr. David Rosenberg in his ongoing debate with ECRI.
Copyright (C) Long Lake LLC 2010
Yikes and then some!
It is hard to see that the "Great Recession" (a polite term for what is a non-great depression) is definitively over. Yes, jobs are actually one of the factors that goes into recession dating, much as the MSM would like to divert attention to production (itself pumped up by Federal/Fed exertions).
On the "establishment" survey, the data came out the same as ADP, down 85,000. This of course was boosted by the unmeasured "birth-death" adjustment, which as usual was estimated as up (59,000 jobs) supposedly stemming from the vitality of small businesses that are not part of the "establishment" survey. Ha! Try a loss of 59,000 more likely. Or 159,000. Or 500,000 to come close to the household survey numbers. Those of us who live in the real world are aware that small businesses are mostly shrinking or closing or happy that they can simply stand pat and survive, that there is little appetite from those with savings to risk them on a new venture, and that the birth-death adjustment almost certainly should be negative rather than positive.
When you are part of the quiet coup that keeps its jackboot on the throat of the public at large, you will say anything you can to provide hope for the masses (that is, that part of the masses that reads Bloomberg.com). Here is the ridiculous statement from the article and a member of Big Finance about how things are going to get better, from Bloomberg's article at http://www.bloomberg.com/apps/news?pid=20601087&sid=aP0v0wdCG_YQ&pos=1:
In another government boost, the Census Bureau will hire 1.15 million temporary workers in the first half of the year to conduct the population count that takes place every 10 years. That hiring may boost payrolls by a peak of 700,000 in May before those workers begin getting dismissed in June, according to a forecast by economist Lori Helwing at BofA Merrill Lynch Global Research in New York. (Ed.: 700,000 is less than the number estimated to have left the labor force in December alone per above.)
“They’re going to hire an army of people,” said Julia Coronado, a senior economist at BNP Paribas in New York. “In some sense, this acts as a stimulus package and is a timely coincidence, coming so early in the recovery.”
Timely? You mean hiring a bunch of people for a few months is a timely stimulus? Wasn't there stimulus in 2008 under Bush? What about ARRA (Obama's stimulus of almost a year ago)? Gimme a break . . . And is this really "stimulus"? Then that perforce also means that there will be an anti-stimulus governmental effort timed to end in June when the census is completed. Oh, I forgot: the boom will be on by then. As if in 2003-7, the boom was not entirely artificial, fueled by mortgage and securities fraud, wildly unsound lending practices, dancing financiers, etc. The idea of a self-sustaining economic growth cycle is unproven of late in the U. S.
Brazil, it appears is in that zone of self-sustaining growth; but in parts of the world run by quiet coupsters doing God's work, the jury is out and we may be lucky if it is a hung jury.
When Big Finance is reduced to touting a Constitutional requirement to enumerate the population as a stimulus to the economy, things are bad. Real bad.
Hard times continue. The Economic Cycle Research Institute, which has been predicting good employment growth soon, will have an opportunity to comment. For now December goes to the bearish Dr. David Rosenberg in his ongoing debate with ECRI.
Copyright (C) Long Lake LLC 2010
Thursday, December 31, 2009
ECRI Cautions About The Current Economic Cycle's Durability
Dr. Achuthan of the Economic Cycle Research Institute was on CNBC today with a must-watch interview. If you only have a minute, start at around the 7 minute mark. Basically his view is that we may well not be in a long expansion; he talks about a growth slowdown perhaps in the second half of 2010 and is not bubbly about 2011-2. This supports the views stated over and over here. You want to own assets that will be around after another economic downturn and that can grow assuming the economy grows in the quarters ahead. An asset such as a Ginnie Mae that pays back not only interest but principal may be a Good Thing.
http://www.businesscycle.com/news/press/1671/
Note that the website lets one see ECRI's shorter-to-medium term leading indicators. Reserved for paying customers are the long leading indicators. My suspicion based on the above comments is that they have weakened a bit. From an investment standpoint, the deep cyclicals such as Caterpillar may be overvalued and technically overextended. Dr. Achuthan does offer some specific caution for developing countries with an export-driven economy.
From his discussion, it does not appear as though there is likely to be a lot of pricing pressure. In other words, the government and Fed may "print" money (generally electronic), but since most of what we call money-printing is really debt issuance via bills/notes/bonds rather than actual currency creation that gets spent, the effects on price increase turn out to be much more unpredictable than a Zimbabwe scenario. This view fits with that of David Kotok of Cumberland Advisors (who has had a hot hand this year), who was on CNBC yesterday and offered the view that Treasury rates are probably near their upper limit for some period of time (though he prefers "spread" products over direct government debt ownership).
The nearly 3-decade old bull market in Treasuries may, amazingly, not have died yet.
Copyright (C) Long Lake LLC 2009
http://www.businesscycle.com/news/press/1671/
Note that the website lets one see ECRI's shorter-to-medium term leading indicators. Reserved for paying customers are the long leading indicators. My suspicion based on the above comments is that they have weakened a bit. From an investment standpoint, the deep cyclicals such as Caterpillar may be overvalued and technically overextended. Dr. Achuthan does offer some specific caution for developing countries with an export-driven economy.
From his discussion, it does not appear as though there is likely to be a lot of pricing pressure. In other words, the government and Fed may "print" money (generally electronic), but since most of what we call money-printing is really debt issuance via bills/notes/bonds rather than actual currency creation that gets spent, the effects on price increase turn out to be much more unpredictable than a Zimbabwe scenario. This view fits with that of David Kotok of Cumberland Advisors (who has had a hot hand this year), who was on CNBC yesterday and offered the view that Treasury rates are probably near their upper limit for some period of time (though he prefers "spread" products over direct government debt ownership).
The nearly 3-decade old bull market in Treasuries may, amazingly, not have died yet.
Copyright (C) Long Lake LLC 2009
Monday, December 7, 2009
ECRI Longer-Term More Bearish than Bullish; Implications for Asset Classes
In Unemployment Is Down, But Business Cycles Are Key , the chiefs at the Economic Cycle Research Institute make the case that the likely path of the U. S. economy for the intermediate term is one of more frequent economic ups and down than that envisioned by the proponents of the "Great Moderation". Here is an excerpt; please read the entire article:
Since World War II, there has been a clear easing pattern in the trend rate of economic growth during expansions, culminating in the 2001-07 expansion, which showed the slowest trend rate of growth on record — especially in terms of jobs. Ominously, during expansions following the initial year of revival, growth in non-manufacturing employment has been falling in a parabolic fashion since the 1970s. A continuation of this pattern would lead a much worse job market than almost anyone expects.
The "great moderation" of business cycles once extolled by many economists, including Chairman Bernanke, is history. The trend rate of growth is shriveling. In other words, business cycles are back with a vengeance.
I would ascribe much of the decreased growth rate to demographics. My parents are shrinking; if I live long enough, I will too. My grandparents were deceased at my parents' ages. Japan, here we come?
In any case, rather than accept that decreased economic growth may be as much of a blessing as a curse, and considering that leisure time and time for different forms of work is a positive, the current powers that be are likely to also follow the Japan model and try to "stimulate" the unstimulatable.
Thus we see just today the sudden news that not all of TARP is needed, therefore the deficit is not so bad, therefore there is money for a jobs program, etc. Anyone with a decent memory will, however, remember that when the deficit projections were made many months ago by Team O, a large fudge factor for TARP was put in, with the overt statement that much of it may well not be needed.
In any case, the case for gold is that jobs trump sound money whether you are a statist or free markets President.
In that vein, the MSM is in full-throated cry with a truly idiotic and unfair Bloomberg.com article this morning titled Gold Can’t Beat Checking Accounts 30 Years After Peak.
Its premise is that the few bars of gold that traded at $850 per ounce in Jan. 1980 should be compared with what may or may not be a current major peak around $1200. The fact that taxable cash beat non-taxable holdings of gold by only double is highly unimpressive. More impressive is that gold went from $42 per ounce in 1971 to a current $1150 or so in 38 years. This is a 9% yearly return. This is almost a 30-bagger. And you never had to trade, pay taxes or whatever. The article asserts that the S&P 500 gave a 22X return since 1980, and we know how well it did between 1971 and 1980! But the S&P index is theoretical, ignoring transaction costs, taxes, etc. With gold, buy it once and put it in a bank safe, bury it under a tree in the back yard, etc; and let paper money depreciate. An ounce of gold bought a nice men's suit in 1920, and it does so today (but fiat money must be used to pay for it in America, though perhaps not in Hong Kong).
With all the enthusiasm for gold recently, it is refreshing to see that the real powers that be-- meaning the publication of the financier who has been reinstalled as Mayor in large part to see that New York stays on top of the financial heap--want the public to accept stupid debating points to keep on believing in stocks and bonds.
Copyright (C) Long Lake LLC 2009
Since World War II, there has been a clear easing pattern in the trend rate of economic growth during expansions, culminating in the 2001-07 expansion, which showed the slowest trend rate of growth on record — especially in terms of jobs. Ominously, during expansions following the initial year of revival, growth in non-manufacturing employment has been falling in a parabolic fashion since the 1970s. A continuation of this pattern would lead a much worse job market than almost anyone expects.
The "great moderation" of business cycles once extolled by many economists, including Chairman Bernanke, is history. The trend rate of growth is shriveling. In other words, business cycles are back with a vengeance.
I would ascribe much of the decreased growth rate to demographics. My parents are shrinking; if I live long enough, I will too. My grandparents were deceased at my parents' ages. Japan, here we come?
In any case, rather than accept that decreased economic growth may be as much of a blessing as a curse, and considering that leisure time and time for different forms of work is a positive, the current powers that be are likely to also follow the Japan model and try to "stimulate" the unstimulatable.
Thus we see just today the sudden news that not all of TARP is needed, therefore the deficit is not so bad, therefore there is money for a jobs program, etc. Anyone with a decent memory will, however, remember that when the deficit projections were made many months ago by Team O, a large fudge factor for TARP was put in, with the overt statement that much of it may well not be needed.
In any case, the case for gold is that jobs trump sound money whether you are a statist or free markets President.
In that vein, the MSM is in full-throated cry with a truly idiotic and unfair Bloomberg.com article this morning titled Gold Can’t Beat Checking Accounts 30 Years After Peak.
Its premise is that the few bars of gold that traded at $850 per ounce in Jan. 1980 should be compared with what may or may not be a current major peak around $1200. The fact that taxable cash beat non-taxable holdings of gold by only double is highly unimpressive. More impressive is that gold went from $42 per ounce in 1971 to a current $1150 or so in 38 years. This is a 9% yearly return. This is almost a 30-bagger. And you never had to trade, pay taxes or whatever. The article asserts that the S&P 500 gave a 22X return since 1980, and we know how well it did between 1971 and 1980! But the S&P index is theoretical, ignoring transaction costs, taxes, etc. With gold, buy it once and put it in a bank safe, bury it under a tree in the back yard, etc; and let paper money depreciate. An ounce of gold bought a nice men's suit in 1920, and it does so today (but fiat money must be used to pay for it in America, though perhaps not in Hong Kong).
With all the enthusiasm for gold recently, it is refreshing to see that the real powers that be-- meaning the publication of the financier who has been reinstalled as Mayor in large part to see that New York stays on top of the financial heap--want the public to accept stupid debating points to keep on believing in stocks and bonds.
Copyright (C) Long Lake LLC 2009
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