The London Times is out with Officers’ mess: military chiefs blamed for blundering into Helmand with ‘eyes shut and fingers crossed’ , which begins:
Military chiefs and civil servants ignored warnings that Britain was ill prepared to send troops to Helmand and signed off a deeply flawed plan, a succession of senior figures have told The Times.
Even those in charge of the deployment admit that the decision to go to southern Afghanistan in 2006, which has cost the lives of nearly 300 servicemen and women, was a gamble and that mistakes were made because of poor intelligence. They insist, however, that the operation was justified to revitalise the Nato mission, combat the Taleban and reassert Britain’s military prowess after setbacks in Iraq.
But a two-month investigation by The Times, which includes interviews with 32 senior military, political and Civil Service figures, reveals that there was deep disquiet over the handling of the mission from the start.
Top ranks within the Ministry of Defence and other Whitehall departments are accused of:
* grossly underestimating the threat from the Taleban;
* ignoring warnings that planned troop numbers were inadequate;
* offering only the military advice they thought ministers wanted to hear;
* signing off on a confused command- and-control structure.
When will the American press take the gloves off and demand the same sort of accountability from the administration on the U. S. failures in Afghanistan (both under the Bush and Obama presidencies)?
When will the death counts begin, as with the Iraq War?
Now that the healthcare bill is law, it is increasingly difficult to see much difference between the Bush and Obama administrations. The ability to print money is allowing the administration to kick the war can down the road and avoid the hard choices. Are Americans getting their money's worth from fighting Taliban (not al-Qaeda) on their home turf?
This questions leads one to reconsider the advantages of a metal-based currency. If the choice were an immediate tax hike, reduction in other Federal spending, or immediate rise in the price of goods and services (another version of a tax hike), what would the public favor?
I suspect it would favor a low-cost drone war on al-Qaeda in Pak-ghanistan but not almost 200,000 boots on the ground (and rising) in Afghanistan.
Copyright (C) Long Lake LLC 2010
Thursday, June 10, 2010
Wednesday, June 9, 2010
Mr. Geithner's Report on Federal Debt and the Golden Rule
Click HERE to link to the current Treasury report on the public debt. (This link was ultimately obtained using an intervening link beginning on Zero Hedge.)
During the last two fiscal years, Federal receipts have falled over 18%, and outlays have risen over 27% (pp. 2-3 of the report).
Click HERE for TreasuryDirect's listing of total Federal debt for each completed fiscal year, totaling almost $12 T as of the end of the last fiscal year.
Because of asset purchases such as those via TARP, the first document linked to above mentions that while debt is up, so are assets.
That introductory section was not matched by a parallel statement that the Fannie/Freddie liabilities are not included. And forget about the true present value of Social Security liabilities, which are clearly owed, as opposed to Medicare unfunded liabilities, which are changeable.
An interesting fact(oid) I came across over the weekend is that the total value of all physical gold outstanding is 6% of the value of all financial assets, but was 20% in the mid-1930's and 22% in 1980 (see "The Golden Mean-Interview with John Hathaway"/Barrons.com).
And Gallup's hiring/not hiring metric is becalmed in the +8 range. At the end of September 2008, this number was twice as high, and unemployment was rising. After the orgy of firing that followed the financial collapse, we should have seen very high hiring/not hiring numbers under any reasonably healthy economic recovery, but this has not happened.
Gold has been rising in price against all important fiat currencies because governments and their central banks have chosen a financial, debt-based solution to a problem involving too much underlying financial complexity. It's not subtle, unexpected or bubbly.
It's the debt (, stupid).
If and when government stops enriching the financial interests by issuing more and more debt and a simpler system emerges that focuses on real needs of real people, the financial interests will want to make you believe that the world is ending and will mark down the value of financial assets. At such a time of rationality, fiat money may cease depreciating against gold. Till then, the golden rule is in force. Don't borrow money collectively that you wouldn't borrow individually.
Copyright (C) Long Lake LLC 2010
During the last two fiscal years, Federal receipts have falled over 18%, and outlays have risen over 27% (pp. 2-3 of the report).
Click HERE for TreasuryDirect's listing of total Federal debt for each completed fiscal year, totaling almost $12 T as of the end of the last fiscal year.
Because of asset purchases such as those via TARP, the first document linked to above mentions that while debt is up, so are assets.
That introductory section was not matched by a parallel statement that the Fannie/Freddie liabilities are not included. And forget about the true present value of Social Security liabilities, which are clearly owed, as opposed to Medicare unfunded liabilities, which are changeable.
An interesting fact(oid) I came across over the weekend is that the total value of all physical gold outstanding is 6% of the value of all financial assets, but was 20% in the mid-1930's and 22% in 1980 (see "The Golden Mean-Interview with John Hathaway"/Barrons.com).
And Gallup's hiring/not hiring metric is becalmed in the +8 range. At the end of September 2008, this number was twice as high, and unemployment was rising. After the orgy of firing that followed the financial collapse, we should have seen very high hiring/not hiring numbers under any reasonably healthy economic recovery, but this has not happened.
Gold has been rising in price against all important fiat currencies because governments and their central banks have chosen a financial, debt-based solution to a problem involving too much underlying financial complexity. It's not subtle, unexpected or bubbly.
It's the debt (, stupid).
If and when government stops enriching the financial interests by issuing more and more debt and a simpler system emerges that focuses on real needs of real people, the financial interests will want to make you believe that the world is ending and will mark down the value of financial assets. At such a time of rationality, fiat money may cease depreciating against gold. Till then, the golden rule is in force. Don't borrow money collectively that you wouldn't borrow individually.
Copyright (C) Long Lake LLC 2010
Bending China: Eating Sweets, Not Bitters
Courtesy of a link on Credit Writedowns, there are some important insights into China's evolution as a manufacturing power in an article by Andy Xie titled Dismantling Factories in a Dreamweaver Nation. What I take as the most important core message is described in the article as follows:
An even more important factor is labor management. What I observed during my visit 10 years ago was actually the key to economies of scale. To put it bluntly, the key competence of a successful OEM in China is to squeeze labor to the maximum extent possible. That skill is developed within an organization. When a company employs hundreds of thousands from all over China, it needs a massive machine that involves recruiting, housing, training, and worker management on the factory floor.
For example, the factory I visited derives its economies of scale from 1) knowing where to find all the 18-year-old girls, 2) convincing them to stay in factory dormitories, 3) training them to put the parts together, and 4) ensuring that no one takes too many toilet breaks. This is all part of a huge system that can derive considerable economies of scale by processing hundreds of thousands of workers. . .
In early 1990s, when I was working in Latin America, I became bullish on China's future. I saw Chinese workers would go much farther than elsewhere to earn a little money for two reasons: a cultural acceptance of "eating bitterness" in life; and familial obligations. . .
Today's young adults are less willing to eat bitterness. They are the first generation to grow up during prosperity, without worrying about food and shelter.
Big changes are coming. If the cost of fuel continues its multi-decade ascent in real terms and if manufacturing labor wage rates continue to equalize across nations, an increasing amount of manufacturing is going to be performed near the consumer.
Copyright (C) Long Lake LLC 2010
An even more important factor is labor management. What I observed during my visit 10 years ago was actually the key to economies of scale. To put it bluntly, the key competence of a successful OEM in China is to squeeze labor to the maximum extent possible. That skill is developed within an organization. When a company employs hundreds of thousands from all over China, it needs a massive machine that involves recruiting, housing, training, and worker management on the factory floor.
For example, the factory I visited derives its economies of scale from 1) knowing where to find all the 18-year-old girls, 2) convincing them to stay in factory dormitories, 3) training them to put the parts together, and 4) ensuring that no one takes too many toilet breaks. This is all part of a huge system that can derive considerable economies of scale by processing hundreds of thousands of workers. . .
In early 1990s, when I was working in Latin America, I became bullish on China's future. I saw Chinese workers would go much farther than elsewhere to earn a little money for two reasons: a cultural acceptance of "eating bitterness" in life; and familial obligations. . .
Today's young adults are less willing to eat bitterness. They are the first generation to grow up during prosperity, without worrying about food and shelter.
Big changes are coming. If the cost of fuel continues its multi-decade ascent in real terms and if manufacturing labor wage rates continue to equalize across nations, an increasing amount of manufacturing is going to be performed near the consumer.
Copyright (C) Long Lake LLC 2010
Tuesday, June 8, 2010
Talking Trash but Leaving the Country Leaderless
What has happened to this country when in an obviously scripted and almost certainly poll-tested maneuver, the President of the United States concludes a response to a TV interview question by stating that he seeks "ass" to "kick"?
My view in 2008 was that he was the most unqualified Presidential victor in over 100 years, if not of all time, as he lacked essentially any executive experience and almost any legislative experience. Now it's also clear that he lacks class. This was pandering, pure and simple, as a response to criticism of his handling of the oil spill.
This is not how they are supposed to talk at Harvard Law.
We found out in the campaign that he has a good outside jump shot. But neither that fact talking trash doesn't change the fact that he predicted a 7% unemployment rate if Congress passed ARRA ("stimulus"). He got 10%. Response: blame Bush. And even though the public still blames Bush, it's not clear that this is helping the current President much.
Now he has an apparent growth slowdown. And somehow Rasmussen is reporting a 9 point generic edge for Republicans in the generic Congressional ballot.
Speaking in a crude vernacular is not what is required to win re-election, help his Party, or get employers to hire again.
And when the currency vigilantes turn their sights to the U. S., they won't give two figs for tough talk. The only thing that matters are the country's finances, and the world's confidence in the country's abilities to pay its bills.
This is where aggressive leadership, using the King's English, is required.
The regular new highs in gold prices show that this leadership has been lacking.
The President needs to elevate his game, not use the language of mean streets from which he did not in fact come to try to overcome his perceived executive failings.
Copyright (C) Long Lake LLC 2010
My view in 2008 was that he was the most unqualified Presidential victor in over 100 years, if not of all time, as he lacked essentially any executive experience and almost any legislative experience. Now it's also clear that he lacks class. This was pandering, pure and simple, as a response to criticism of his handling of the oil spill.
This is not how they are supposed to talk at Harvard Law.
We found out in the campaign that he has a good outside jump shot. But neither that fact talking trash doesn't change the fact that he predicted a 7% unemployment rate if Congress passed ARRA ("stimulus"). He got 10%. Response: blame Bush. And even though the public still blames Bush, it's not clear that this is helping the current President much.
Now he has an apparent growth slowdown. And somehow Rasmussen is reporting a 9 point generic edge for Republicans in the generic Congressional ballot.
Speaking in a crude vernacular is not what is required to win re-election, help his Party, or get employers to hire again.
And when the currency vigilantes turn their sights to the U. S., they won't give two figs for tough talk. The only thing that matters are the country's finances, and the world's confidence in the country's abilities to pay its bills.
This is where aggressive leadership, using the King's English, is required.
The regular new highs in gold prices show that this leadership has been lacking.
The President needs to elevate his game, not use the language of mean streets from which he did not in fact come to try to overcome his perceived executive failings.
Copyright (C) Long Lake LLC 2010
Monday, June 7, 2010
Afghan News Courtesy of Pakistani Newspaper
From The Nation, likely the leading English-language Pakistani on-line news journal, a piece running now, titled US drone or spy plane shot down in Marjah:
Mujahideen shot down a US invaders' unmanned aerial vehicle (UAV) or pilotless spy plane which fell onto the ground in Marjah , the wreckage of which is still lying scattered across the area. In another news form Helmand, Mujahideen, in two separate encounters with the combined invaders and their minions in Marjah, killed five NATO invaders with two of their local puppets and wounded 7 more NATO invaders in the late afternoon hours of the Sunday. (Taliban website)
More news:
9 NATO invaders killed in Kandahar
Qari Yousuf Ahmadi
A planted mine tore through a group of NATO troops Monday noon , killing or wounding more than 9 cowardly invaders, who were on attack mission against Mujahiddin in Arghandab district of Helmand. (Taliban website)
Mujahideen kill three NATO invaders in Badgish
Mujahideen killed three NATO soldiers with wounding another in an encounter in Atash Sang district of Badghis on Sunday. (Taliban website)
3 US invaders killed, 5 injured in Wardag
About 3 American invaders got killed with 5 more seriously hurt on Sunday as two of their tanks were hit by Mujahideen through RPGs in Sayedabad district of Wardag. (Taliban website)
Four US troops killed in Baghlan
Zabihullah Mujahid
At least four American invading troops were killed on Sunday as their military tank got hit by destroyed in Mujahideen's mortar rounds in Central Baghlan district, Baghlan province. (Taliban website)
Mujahideen kill four American terrorists in Ningarhar
Zabihullah Mujahid
During countrywide operation al-Fath, Mujahideen killed four American cowardly invaders with their tank destroyed in a face-to-face fighting in Khgianu district of Ningarhar on Sunday. (Taliban website)
Two tanks of NATO invaders eliminated in Helmand
Qari Yousuf Ahmadi
Two of tanks of the NATO cowardly forces got hit and destroyed in Mujahideen planted mine blast yesterday afternoon (June 06) killing almost all the invaders in the tanks. (Taliban website)
How much overlap between the different reports there is, and how much truth there is, of course I can't begin to comment. It is clear, however, that there is a certain-- how may we say it-- unpopularity of the U. S. and NATO presence in Afghanistan in the editors of this English-language journal.
Here is a recent AP review of some of the above events.
All this so that the Karzai gang can control the narcotics trade?
Copyright (C) Long Lake LLC 2010
Mujahideen shot down a US invaders' unmanned aerial vehicle (UAV) or pilotless spy plane which fell onto the ground in Marjah , the wreckage of which is still lying scattered across the area. In another news form Helmand, Mujahideen, in two separate encounters with the combined invaders and their minions in Marjah, killed five NATO invaders with two of their local puppets and wounded 7 more NATO invaders in the late afternoon hours of the Sunday. (Taliban website)
More news:
9 NATO invaders killed in Kandahar
Qari Yousuf Ahmadi
A planted mine tore through a group of NATO troops Monday noon , killing or wounding more than 9 cowardly invaders, who were on attack mission against Mujahiddin in Arghandab district of Helmand. (Taliban website)
Mujahideen kill three NATO invaders in Badgish
Mujahideen killed three NATO soldiers with wounding another in an encounter in Atash Sang district of Badghis on Sunday. (Taliban website)
3 US invaders killed, 5 injured in Wardag
About 3 American invaders got killed with 5 more seriously hurt on Sunday as two of their tanks were hit by Mujahideen through RPGs in Sayedabad district of Wardag. (Taliban website)
Four US troops killed in Baghlan
Zabihullah Mujahid
At least four American invading troops were killed on Sunday as their military tank got hit by destroyed in Mujahideen's mortar rounds in Central Baghlan district, Baghlan province. (Taliban website)
Mujahideen kill four American terrorists in Ningarhar
Zabihullah Mujahid
During countrywide operation al-Fath, Mujahideen killed four American cowardly invaders with their tank destroyed in a face-to-face fighting in Khgianu district of Ningarhar on Sunday. (Taliban website)
Two tanks of NATO invaders eliminated in Helmand
Qari Yousuf Ahmadi
Two of tanks of the NATO cowardly forces got hit and destroyed in Mujahideen planted mine blast yesterday afternoon (June 06) killing almost all the invaders in the tanks. (Taliban website)
How much overlap between the different reports there is, and how much truth there is, of course I can't begin to comment. It is clear, however, that there is a certain-- how may we say it-- unpopularity of the U. S. and NATO presence in Afghanistan in the editors of this English-language journal.
Here is a recent AP review of some of the above events.
All this so that the Karzai gang can control the narcotics trade?
Copyright (C) Long Lake LLC 2010
Gold'n Apple
Barry Ritholtz is out with a blog post with the respected technician Dick Arms pointing out that the extreme selling on Friday June 4 correlated with market bottoms in the past.
Only a similar amount of selling near the market peak in 2007.
And a similar amount of selling was seen Dec. 1 2008. But at that time the SPY was more than 30% below its 200 day moving average (smoothed). Now we are in the early stages of a market breakdown, so early that the 50 day sma is above the 200 day sma. We are not even in a bear market; there is little real fear that is the bottom-of-the-market/world-is-ending-type fear seen in late 2008/early 2009.
This was brought home this weekend in various small group encounters. Gold? It was as if I was from outer space, or a subversive.
The fact that gold is money according to the U. S. Government, IMF, China and Russia was not in people's minds.
Yet everyone I asked recently reports business down year on year. And last year, business was down vs. 2008.
The longer-term charts of gold and Apple both suggest that the current upswings in price have much more upside before they replicate growth surges off of prior intermediate highs. Apple could be selling for perhaps 10X 2012 earnings. That would be an earnings yield of 10%. Or you could get less than 1% yearly in a 2-year T-note. And gold is in a well-established bull market. Quite some time ago, Louise Yamada established a $1350/ounce intermediate price target for gold. Her longer-term targets start at $2000/ounce. In a liquidation panic a la October/November 2008, all babies get thrown out with bathwater, but the healthy ones rebound first.
Today's market action may have been telling. Gold approached another all-time high, yet only one current headline on Bloomberg.com mentions gold. Stocks get multiple mentions, as does the following that looks as though it comes from a ten-year old headline: Tech Lifts S.F. Prices as Ocean View Gets 26 Bids.
Here is the gold mention; it is being sold, not bought: Glencore may put gold assets on market, mulls IPO.
The subliminal message from the above is that gold is toppy, as the savvy Glencore looks to cash in on investor enthusiasm. And who knows? But this sort of action would be early, perhaps equivalent to NASDAQ 1000-1500 in the second half of the 1990s, not late 1999 when turkeys flew.
More sensible may be that of Rothschilds Bank; see Why Rothschilds is piling into gold, which begins:
Rothschild's Private Banking & Trust's head of investments Dirk Wiedmann has increased the firm's overweight positions in gold and hedge funds in preparation for further volatility and modest economic growth.
Wiedmann highlights short-term fixes for long term problems as a key headwind facing the global economy.
'The cracks in the financial system have been papered over and may not become critical for some time. Crucially, central banks will do all they can to prevent another recession. Policymakers will focus on short-term fixes and try to muddle through,' Wiedmann said. . .
Wiedmann expects gold prices to surge during the second half the year in an uncertain environment, comfortably breaking the $1,300 per ounce level - particularly if sovereign debt problems in Europe continue to escalate to a point where a break-up of the euro seems likely, he said.
For other commodities the firm has a neutral to negative outlook, arguing that buying opportunities may be emerging if financial markets stabilise.
Apple: secular, organic growth at a very cheap price/growth ratio and gilt-edged finances. Gold: The opposite, but public is not engaged and remains of the mindset that the thing to do is to own tiny minority shares of companies run by insiders for their own benefit, collectively comprising the "stock market". You can forget TRINS and sentiment indicators. What counts is what is happening in the real world. An overpriced group of mostly aging companies in league with poorly run governments are seeking price levels that take into account more risks than investors have been used to seeing come to fruition for quite some time.
Caveat emptor.
Copyright (C) Long Lake LLC 2010
Only a similar amount of selling near the market peak in 2007.
And a similar amount of selling was seen Dec. 1 2008. But at that time the SPY was more than 30% below its 200 day moving average (smoothed). Now we are in the early stages of a market breakdown, so early that the 50 day sma is above the 200 day sma. We are not even in a bear market; there is little real fear that is the bottom-of-the-market/world-is-ending-type fear seen in late 2008/early 2009.
This was brought home this weekend in various small group encounters. Gold? It was as if I was from outer space, or a subversive.
The fact that gold is money according to the U. S. Government, IMF, China and Russia was not in people's minds.
Yet everyone I asked recently reports business down year on year. And last year, business was down vs. 2008.
The longer-term charts of gold and Apple both suggest that the current upswings in price have much more upside before they replicate growth surges off of prior intermediate highs. Apple could be selling for perhaps 10X 2012 earnings. That would be an earnings yield of 10%. Or you could get less than 1% yearly in a 2-year T-note. And gold is in a well-established bull market. Quite some time ago, Louise Yamada established a $1350/ounce intermediate price target for gold. Her longer-term targets start at $2000/ounce. In a liquidation panic a la October/November 2008, all babies get thrown out with bathwater, but the healthy ones rebound first.
Today's market action may have been telling. Gold approached another all-time high, yet only one current headline on Bloomberg.com mentions gold. Stocks get multiple mentions, as does the following that looks as though it comes from a ten-year old headline: Tech Lifts S.F. Prices as Ocean View Gets 26 Bids.
Here is the gold mention; it is being sold, not bought: Glencore may put gold assets on market, mulls IPO.
The subliminal message from the above is that gold is toppy, as the savvy Glencore looks to cash in on investor enthusiasm. And who knows? But this sort of action would be early, perhaps equivalent to NASDAQ 1000-1500 in the second half of the 1990s, not late 1999 when turkeys flew.
More sensible may be that of Rothschilds Bank; see Why Rothschilds is piling into gold, which begins:
Rothschild's Private Banking & Trust's head of investments Dirk Wiedmann has increased the firm's overweight positions in gold and hedge funds in preparation for further volatility and modest economic growth.
Wiedmann highlights short-term fixes for long term problems as a key headwind facing the global economy.
'The cracks in the financial system have been papered over and may not become critical for some time. Crucially, central banks will do all they can to prevent another recession. Policymakers will focus on short-term fixes and try to muddle through,' Wiedmann said. . .
Wiedmann expects gold prices to surge during the second half the year in an uncertain environment, comfortably breaking the $1,300 per ounce level - particularly if sovereign debt problems in Europe continue to escalate to a point where a break-up of the euro seems likely, he said.
For other commodities the firm has a neutral to negative outlook, arguing that buying opportunities may be emerging if financial markets stabilise.
Apple: secular, organic growth at a very cheap price/growth ratio and gilt-edged finances. Gold: The opposite, but public is not engaged and remains of the mindset that the thing to do is to own tiny minority shares of companies run by insiders for their own benefit, collectively comprising the "stock market". You can forget TRINS and sentiment indicators. What counts is what is happening in the real world. An overpriced group of mostly aging companies in league with poorly run governments are seeking price levels that take into account more risks than investors have been used to seeing come to fruition for quite some time.
Caveat emptor.
Copyright (C) Long Lake LLC 2010
Sunday, June 6, 2010
Medicare, Freedom and the Road to Financial Hell
If anything is the opposite of an unexpected event, it is the aging process. Yet our government continues to ignore the obvious solution for its fiscal ills: freedom. Here is the NYT editorializing in The Doctor Payment Follies:
The formula that is used to pay doctors who treat Medicare patients is producing increasingly absurd results. If it were to be followed this year, doctors would face a 21 percent cut in payments for the tests, procedures, office visits and other services they provide to elderly Americans.
That would be a disaster, driving many doctors to stop accepting Medicare patients. Luckily, nobody is seriously contemplating that. As it has done repeatedly in recent years, Congress is readying a short-term fix that would provide a modest increase in physician fees for the next 19 months.
The formula that is used to pay doctors who treat Medicare patients is producing increasingly absurd results. If it were to be followed this year, doctors would face a 21 percent cut in payments for the tests, procedures, office visits and other services they provide to elderly Americans.
That would be a disaster, driving many doctors to stop accepting Medicare patients. Luckily, nobody is seriously contemplating that. As it has done repeatedly in recent years, Congress is readying a short-term fix that would provide a modest increase in physician fees for the next 19 months.
Please consider reading the entire, brief editorial, though that is not necessary to understand my points.
Let us pick a nit. Why does the Times use the word "luckily"?
Of course this is not a chance decision as implied by "luck". The entire Obamacare premise involved false accounting, in this case that the "doc fix" would actually occur. But of course the "fix" was "in". So, billions of unfunded dollars later, the government comes to the rescue of doctors and patients. But what about the interests of the $10/hour 40 year old clerk at Wal-Mart? Why is government always picking winners?
The answer is truly simple. The government can cut its payments 21% and doctors can regain the freedom to charge fairly for their services. All the government has to do is eliminate the fee controls. What will happen is that doctors will accept as full payment the lower fee schedule for those patients who can not afford to see them at the higher rates. The better-off patients will pay more out of pocket.
And the Wal-Mart clerk will then also be treated fairly. And the government will be serving notice that it is finally going to get its own financial house in order.
Till that happens (don't hold your breath), more downside economic "surprises" are likely.
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
Weak Jobs Report Has a Larger Context
As the markets take on a nastier tone, relative strength has been telling the tale. The non-Wal-Mart discount retailing stocks are holding up fine. I suspect that all the good news is out for them, though. Price cuts at Wal-Mart, Target and elsewhere cannot be resisted. For example, our local Wal-Mart (very large though not a supercenter) is adjacent to a Dollar Tree (very small). How can DLTR sustain its high margins when WMT and TGT are in a price war?
Even more problematic are vendors of non-necessities. Consider Verizon (VZ). Yes, telephony is a near-necessity. But premium calling and texting plans and other elective services are not. And many people continue to have both wired and wireless service. The VZ stock chart stinks. The market is saying that its high yield is in jeapordy. As with so many other industries that were growth industries in their time, VZ is now a "value" play. But VZ has a market cap of $77 B and a tangible book value of negative $60 B.
All stocks are vulnerable, especially those of companies that are doing the same old-same old, unlike Apple or Intuitive Surgical that have breakthrough products. CAT looked a bit high when it more than doubled off its 2009 to $49. It is now off its highs but still in the high $50s. Deere (DE) has a yet weaker 2 year chart. Increasingly it appears that China's property market has peaked, though the headlines warn that such may occur.
Meanwhile gold is holding even today while silver and the platinum group metals are falling hard, and AAPL is up on the week while the general indices are down a couple of percent (so far).
In a liquidation phase, no prisoners are taken, but for today at least, the dour view of the economy that has been propounded here incessantly is in gear with the markets. The U. S. is continuing to live off the seed corn that grew out of the major 20th century world war victories (I, II and the Cold War) and thus for now is the tallest midget. Ultimately in what may be almost a Manichean showdown, the USD and gold may well enter the finals as the pretender/contender (currencies) of the occupied countries of Japan and Germany (for example) drop away.
The USD won over gold in the Volcker/Reagan era and the aftermath of the Cold War victory. Governmental corruption in league with financial interests is more blatant now, however, and markets are all about trust. Trust has been harmed for quite some time. Businesspeople and investors are well advised to take reasonable precautions for adverse scenarios that could both cause and go beyond new stock market lows.
Copyright (C) Long Lake LLC 2010
Even more problematic are vendors of non-necessities. Consider Verizon (VZ). Yes, telephony is a near-necessity. But premium calling and texting plans and other elective services are not. And many people continue to have both wired and wireless service. The VZ stock chart stinks. The market is saying that its high yield is in jeapordy. As with so many other industries that were growth industries in their time, VZ is now a "value" play. But VZ has a market cap of $77 B and a tangible book value of negative $60 B.
All stocks are vulnerable, especially those of companies that are doing the same old-same old, unlike Apple or Intuitive Surgical that have breakthrough products. CAT looked a bit high when it more than doubled off its 2009 to $49. It is now off its highs but still in the high $50s. Deere (DE) has a yet weaker 2 year chart. Increasingly it appears that China's property market has peaked, though the headlines warn that such may occur.
Meanwhile gold is holding even today while silver and the platinum group metals are falling hard, and AAPL is up on the week while the general indices are down a couple of percent (so far).
In a liquidation phase, no prisoners are taken, but for today at least, the dour view of the economy that has been propounded here incessantly is in gear with the markets. The U. S. is continuing to live off the seed corn that grew out of the major 20th century world war victories (I, II and the Cold War) and thus for now is the tallest midget. Ultimately in what may be almost a Manichean showdown, the USD and gold may well enter the finals as the pretender/contender (currencies) of the occupied countries of Japan and Germany (for example) drop away.
The USD won over gold in the Volcker/Reagan era and the aftermath of the Cold War victory. Governmental corruption in league with financial interests is more blatant now, however, and markets are all about trust. Trust has been harmed for quite some time. Businesspeople and investors are well advised to take reasonable precautions for adverse scenarios that could both cause and go beyond new stock market lows.
Copyright (C) Long Lake LLC 2010
Thursday, June 3, 2010
The Apple of Corporate America's Eye?
Changewave Research (Emailed communication) reports that various Apple products are catching on in IT departments in corporations faster than mainstream analysts are projecting:
Apple. Planned corporate Mac buying has hit a new all time high, with 12% saying their company will be buying Mac laptops and 7% desktops in the 3rd quarter. . .
Surging Corporate iPad Demand. A total of 4% of respondents say their company has already purchased Apple iPad tablets – a very impressive number for a product less than two months on the market. Even more impressive, going forward 6% say their company plans on purchasing iPads in the next 90 days.
Apple. Planned corporate Mac buying has hit a new all time high, with 12% saying their company will be buying Mac laptops and 7% desktops in the 3rd quarter. . .
Surging Corporate iPad Demand. A total of 4% of respondents say their company has already purchased Apple iPad tablets – a very impressive number for a product less than two months on the market. Even more impressive, going forward 6% say their company plans on purchasing iPads in the next 90 days.
Also, every year, people who grew up recognizing the advantages of the Mac family and enjoying the iPod gain corporate market share, as it were, over the old-timers who are used to Wintel.
The kernel of the Mac family's operating system is intrinsically impervious to viruses. So the multiyear total cost of ownership can be less than for Wintel computers, and simpler.
No one knows, especially in a very dangerous global economy, but it would appear that with the so-far resounding success of the iPad, and with very clean finances, Apple Inc. is one of the few large companies with significant growth baked in the cake.
For what it's worth, AAPL and gold are seeing profit-taking today. It would be interesting if they start trading in a correlated fashion.
Copyright (C) Long Lake LLC 2010
Wednesday, June 2, 2010
Treasury Bull May Be Recrudescent
In the accompanying 2-year graph of the price of the ETF that tracks the price of the long Treasury bond (TLT) and thus moves inversely to interest rates, the red line shows the 200 day and the green line shows the 50 day smoothed moving average.Shorter time frames show that the 200 day sma is actually pointing upward, and thus has reversed its downtrend that began last spring.
The general pattern is one of a modest uptrend in the TLT price. The recent breakout is steeper/stronger than any since the post-Lehman wild surge up in price. This move up in price reflects the bull market downward in interest rates on Treasuries that has been in force since Volcker eased for good in 1982.
Unless we see a quick major surge in rates, we are going to see a golden cross soon on this and on the equivalent ETF that closely tracks the 10-year note (IEF). That this golden cross would occur with an upsloping 200 day sma strikes me as bullish (for bonds).
Today's action is interesting. Stock averages are up but Treasury rates are flat to marginally down on the 10- and 30-year. Thus the reflexive moves in divergent directions that characterized the 2009 stock rally off the bottom may be ending. Cumberland Advisors is positing that the financial troubles in Europe will help keep rates low here and thus act as a growth stimulus here.
I'm skeptical of that viewpoint. If all the passengers on a ship that is taking on water rush to one side of the ship, it is true that the other side of the ship will rise farther off the water. But it's all one ship. To really accept that view, I'd have to see a situation a la the 1997-8 financial crisis, where it was all about "over there", the U. S. was booming and benefitted from importing the deflation in the troubled countries, and not the current situation where the troubles began here.
So what if scared money rushes here? It would appear to be too little, too late.
A few months ago, this blog offered a suggestion that Treasury rates were peaking. Investors who bought and hold then received income and now have unrealized capital gains. For whatever reasons, the charts and capital flows suggest lower yields ahead in the 10 year and 30 year U. S. Treasury bonds. If this occurs, will this be the last gasp for this wheezing bull market? Sure, but I believe that the longest interest rate bull market in the U. S. lasted 36 years. We are at 28. And given that we are at record lows on the short end, who is to say that we don't have at least another 8 years to go on this bull?
It may make absolutely no sense, but markets are often designed (or just happen to come to be structured) to fool the greatest number of the public so that insiders can be properly positioned for the big moves.
Copyright (C) Long Lake LLC 2010
Yes, But . . .
It's getting a bit boring to report the same old stuff, but here we go again.
Discover(R) says that Small Business Confidence Continues to Rise in May. Really, it's another case of bad but less bad. So a better headline would be, "Small Business Continues Its Misery". An ugly fact from this survey (conducted by Rasmussen Reports):
35 percent of small businesses surveyed said they believe the economy is getting better, up from 31 percent in April; 51 percent say the economy is getting worse, down a point from the previous month; and 12 percent see the economy as the same, down from 14 percent in April.
The percentage of small business owners rating the current economy as good or excellent was 12 percent in May, compared to 13 percent in April. The April and May ratings on the current state of the economy are the highest since June 2008. Thirty-two percent rate the economy as fair in May, while 56 percent still think it's poor. . .
28 percent of small business owners say economic conditions for their businesses are getting better, down from 30 percent in April; 44 percent said conditions are getting worse in May, down from 48 percent in April; and 24 percent said things are staying the same, up from 19 percent in April.
25 percent of small business owners indicated they were increasing business spending in May, up from 23 percent in April, while 46 percent said they were reducing spending this month, compared with 43 percent in April, and 31 percent said they are spending the same, up from 25 percent in May.
If you have absorbed the above, you would find a different headline than Discover found.
No wonder stocks are going down. Abu Dhabi's problems gave way to the problem's of the larger country north of it (Greece), which are giving way in the headlines to the problems of a much more substantial economy (Spain), and if you think it ends at Spain, you are an optimist. And at home, small business continues to be the canary that eternally "dies" warning of poison gases inside the mine. Just as Greece's problems are not new as of 6 months ago, America's economic non-recovery absent governmental and Fed machinations is not new.
The bear market that accelerated so rapidly to the downside in late August 2008 when Fannie and Freddie went into conservatorship and then imploded with the Lehman/AIG/Sunday evening announcements/etc. is back. That's the meaning of the topping out around the "Lehman gap". The drip-drip downtrend that was happening off the fall 2007 top was hidden by the huge moves down and up.
It's back. Yes, there was a true bull move in a secular bear market; but, till proven otherwise, it was nothing more than that. Small business doesn't lie.
Copyright (C) Long Lake LLC 2010
Discover(R) says that Small Business Confidence Continues to Rise in May. Really, it's another case of bad but less bad. So a better headline would be, "Small Business Continues Its Misery". An ugly fact from this survey (conducted by Rasmussen Reports):
35 percent of small businesses surveyed said they believe the economy is getting better, up from 31 percent in April; 51 percent say the economy is getting worse, down a point from the previous month; and 12 percent see the economy as the same, down from 14 percent in April.
The percentage of small business owners rating the current economy as good or excellent was 12 percent in May, compared to 13 percent in April. The April and May ratings on the current state of the economy are the highest since June 2008. Thirty-two percent rate the economy as fair in May, while 56 percent still think it's poor. . .
28 percent of small business owners say economic conditions for their businesses are getting better, down from 30 percent in April; 44 percent said conditions are getting worse in May, down from 48 percent in April; and 24 percent said things are staying the same, up from 19 percent in April.
25 percent of small business owners indicated they were increasing business spending in May, up from 23 percent in April, while 46 percent said they were reducing spending this month, compared with 43 percent in April, and 31 percent said they are spending the same, up from 25 percent in May.
If you have absorbed the above, you would find a different headline than Discover found.
No wonder stocks are going down. Abu Dhabi's problems gave way to the problem's of the larger country north of it (Greece), which are giving way in the headlines to the problems of a much more substantial economy (Spain), and if you think it ends at Spain, you are an optimist. And at home, small business continues to be the canary that eternally "dies" warning of poison gases inside the mine. Just as Greece's problems are not new as of 6 months ago, America's economic non-recovery absent governmental and Fed machinations is not new.
The bear market that accelerated so rapidly to the downside in late August 2008 when Fannie and Freddie went into conservatorship and then imploded with the Lehman/AIG/Sunday evening announcements/etc. is back. That's the meaning of the topping out around the "Lehman gap". The drip-drip downtrend that was happening off the fall 2007 top was hidden by the huge moves down and up.
It's back. Yes, there was a true bull move in a secular bear market; but, till proven otherwise, it was nothing more than that. Small business doesn't lie.
Copyright (C) Long Lake LLC 2010
As With Gold, So With Apple: Too Many Skeptics
Reihan Salam at The Daily Beast has just put out an article in which he says that he really likes Apple's products but is upset about income inequality in America (which has something to do with his point, he believes) and concludes by saying:
Apple won't be able to defy gravity forever. Short it now.
Now I don't know if Mr. Salam is a registered investment adviser; if he is not, he may be better advised to avoid direct instructions of the above sort.
The core point above is correct: nothing defies gravity forever. That was made clear much more persuasively by Marilyn in Diamonds Are a Girl's Best Friend:
"But square cut or pear shaped,
These rocks don't lose their shape . . .
Time rolls on and youth is gone
And you can't straighten up when you bend".
But so what? We, and our descendants, are all going to die. So there, Mr. Salam! Neither my point nor yours hits the mark.
The only point is whether AAPL is headed higher (given its lack of dividends). That's all. Social justice go bragh or not, Apple is probably running at an earnings rate of $15/share as I write. (Who knows outside of its top brass?) Earnings the past 5 years have almost doubled yearly. Given the recent accounting change, earnings this fiscal year are going to be more than double that of last year. And Uncle Sam isn't subsidizing its sales.
The only thing I can see is that it's the best I can find of a sorry lot of stocks. The technicals and fundamentals are in gear. The iPad is white hot.
Maybe one shouldn't own AAPL. If Mr. Jobs has a health issue, look out below. And the stock market is rolling over. But there's one in every crowd. In bull markets, perhaps 10% of stocks go down. And except for catastrophes such as in late 2008, some stocks go up in bears. To pay interest to a broker to borrow money to sell AAPL while it's in a historic growth phase while the rest of the consumer electronics sector struggles is extreme.
Right now, there's only one commodity with solid fundamentals and technicals I know. That's gold, of course, because it is not a commodity but a store of value that mostly does NOT get consumed as commodities do.
And amongst companies that make things, without getting into small-company world or very high P/E equities such as Intuitive Surgical, the equivalent of gold is AAPL. The stock is around $260. I have no way of guessing how much market share the iMac family is gaining, but soon enough we may be at or at least looking at $20/share of cash flow, and the "Value Line" for intrinsic fair value is now at 22X cash flow. Do the math.
Hint: Value Line's 2014 price target for AAPL was about $440, but that was before the blowout March quarter earnings were reported and before the iPad was on the market more than a week or so.
Short the stock? Huh?
Copyright (C) Long Lake LLC 2010
Apple won't be able to defy gravity forever. Short it now.
Now I don't know if Mr. Salam is a registered investment adviser; if he is not, he may be better advised to avoid direct instructions of the above sort.
The core point above is correct: nothing defies gravity forever. That was made clear much more persuasively by Marilyn in Diamonds Are a Girl's Best Friend:
"But square cut or pear shaped,
These rocks don't lose their shape . . .
Time rolls on and youth is gone
And you can't straighten up when you bend".
But so what? We, and our descendants, are all going to die. So there, Mr. Salam! Neither my point nor yours hits the mark.
The only point is whether AAPL is headed higher (given its lack of dividends). That's all. Social justice go bragh or not, Apple is probably running at an earnings rate of $15/share as I write. (Who knows outside of its top brass?) Earnings the past 5 years have almost doubled yearly. Given the recent accounting change, earnings this fiscal year are going to be more than double that of last year. And Uncle Sam isn't subsidizing its sales.
The only thing I can see is that it's the best I can find of a sorry lot of stocks. The technicals and fundamentals are in gear. The iPad is white hot.
Maybe one shouldn't own AAPL. If Mr. Jobs has a health issue, look out below. And the stock market is rolling over. But there's one in every crowd. In bull markets, perhaps 10% of stocks go down. And except for catastrophes such as in late 2008, some stocks go up in bears. To pay interest to a broker to borrow money to sell AAPL while it's in a historic growth phase while the rest of the consumer electronics sector struggles is extreme.
Right now, there's only one commodity with solid fundamentals and technicals I know. That's gold, of course, because it is not a commodity but a store of value that mostly does NOT get consumed as commodities do.
And amongst companies that make things, without getting into small-company world or very high P/E equities such as Intuitive Surgical, the equivalent of gold is AAPL. The stock is around $260. I have no way of guessing how much market share the iMac family is gaining, but soon enough we may be at or at least looking at $20/share of cash flow, and the "Value Line" for intrinsic fair value is now at 22X cash flow. Do the math.
Hint: Value Line's 2014 price target for AAPL was about $440, but that was before the blowout March quarter earnings were reported and before the iPad was on the market more than a week or so.
Short the stock? Huh?
Copyright (C) Long Lake LLC 2010
Tuesday, June 1, 2010
Golden Lies in Barron's Strengthen the Bull Case
From a Credit Writedowns post today, quoting someone named Richard Wiggins from this past weekend's Barron's:
Only 15% of gold is used as a monetary metal; the rest of it is used as a commercial metal, and that use, particularly as a corrosion-resistant electrical conductor for semiconductors, is declining. Regrettably, it is a soft, semi-useless metal with very few industrial applications.
Of course, the above is BS. Gold's use is as a store of wealth. The largest gold importing country, India, primarily bends gold a bit and people wear it as "jewelry"--but it is basically a wearable form of bullion.
Gold's use as a monetary metal is intrinsically part and parcel of its limited industrial uses. Thus, its pricing is insulated from economic cycles and is determined by the perceived usefulness or debasement of paper/base metal "money".
Mr. Wiggins' use of the term "regrettably" gives his game away.
More likely his major regret is that personally, he didn't get long gold when the getting was good.
The more I see this sort of low-quality attack on gold, the more I am inclined to overlook for now the growth in gold-dispensing ATMs for the trading part of my precious metals portfolio and go with the major trend.
Gold has more industrial usefulness than Federal Reserve notes or the alloys that we use as coins, all of which are more useful than the electronic entries we accept as money.
Copyright (C) Long Lake LLC 2010
Only 15% of gold is used as a monetary metal; the rest of it is used as a commercial metal, and that use, particularly as a corrosion-resistant electrical conductor for semiconductors, is declining. Regrettably, it is a soft, semi-useless metal with very few industrial applications.
Of course, the above is BS. Gold's use is as a store of wealth. The largest gold importing country, India, primarily bends gold a bit and people wear it as "jewelry"--but it is basically a wearable form of bullion.
Gold's use as a monetary metal is intrinsically part and parcel of its limited industrial uses. Thus, its pricing is insulated from economic cycles and is determined by the perceived usefulness or debasement of paper/base metal "money".
Mr. Wiggins' use of the term "regrettably" gives his game away.
More likely his major regret is that personally, he didn't get long gold when the getting was good.
The more I see this sort of low-quality attack on gold, the more I am inclined to overlook for now the growth in gold-dispensing ATMs for the trading part of my precious metals portfolio and go with the major trend.
Gold has more industrial usefulness than Federal Reserve notes or the alloys that we use as coins, all of which are more useful than the electronic entries we accept as money.
Copyright (C) Long Lake LLC 2010
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