After John F. Kennedy was assassinated after the fabled 1000 days, the refrain was, Johnny, we hardly knew ye. It appears that in retrospect, he was in office forever.
Barack Obama, whose accomplishments in the field of international peace include delaying his promised troop withdrawal from Iraq, sending additional fighting forces to Afghanistan, NOT closing the U. S. prison in Guantanamo, supporting most of the PATRIOT Act, shaking hands with Hugo Chavez, and bowing before the ruler of Saudi Arabia (that noted human rights haven) has been named as the recipient of the 2009 Nobel Peace Prize.
Mr. Obama's other peaceful accomplishments include dropping missiles upon buildings and villages in a country with which we are at peace, Pakistan, killing civilians and "militants" alike.
It used to be that one actually had to accomplish something to receive a Nobel Peace Prize.
Even though it is arguable that fighting for the scientific cause that burning fossil fuels is causing and will cause significant and dangerous warming of the planet deserves a Peace Prize rather than simply being a "Good Thing" (depending on your point of view), at least Al Gore's 2007 Nobel Peace Prize came after many years of effective advocacy for his cause.
The Nobel Committee has now shown itself to be a full partner with the left wing of America. It is encouraging us to Europe's Middle Way, not that we are not there already. Investors may want to consider the business and financial ramifications of the transparent efforts by foreigners to shape U. S. internal and external behavior.
Barack Obama gave a speech to the U. N. in September. In that speech, he asserted wrongly that he had been in office 9 months. Actually, he had been in office exactly 8 months. He is now in the third week of his ninth month of his Presidency. A Peace Prize after less time in office than a full-term pregnancy?
Personally, I think that Ronald Reagan or George Herbert Walker Bush would have been more appropriate recipients of the Nobel Peace Prize for working with a worldwide coalition to bring democracy to Eastern Europe and death to the Soviet Union--peacefully-- than a president who we hardly know and who hasn't even "done healthcare" yet.
Or, pre-Iraq War, what about a 2001 Peace Prize for George Walker Bush, who responded to the 9/11 attacks by leading a global coalition to organize against al-Qaeda and who partnered with the remnants of the Afghanistan opposition to drive the Taliban out of power?
This is not a decision that moves markets on a minute-t0-minute basis. But it may be more significant than changes in inventory levels of finished or raw goods, as we are in a highly political age, where governments have been intervening in financial markets and economies of late.
This decision fits the Econblog Review theme that caution in the financial markets is the best strategy for now when more and more things just don't make sense, such as a liberal columnist defending Roman Polanski with the argument that when he raped a 13-year old, it wasn't really rape because she really wasn't a child because for some reason one magically ceased to be a child when in Hollywood, or Barack Obama rewarding Big Finance after it helped to create a worldwide economic depression.
Copyright (C) Long Lake LLC 2009
Friday, October 9, 2009
Thursday, October 8, 2009
In Tangibles
A nice, concise bullish post on gold by Bill Fleckenstein. The ending quote is from one of the obvious financial geniuses of our time, John Paulson, who made himself and his investors billions by shorting subprime residential real estate at the right time.
The more that New York publications such as The New Yorker lionize Wall Street's great friend Larry Summers, the more you should fear for the financial future of this country. (For a HuffPo critique of that article, click HERE.) And the more you should consider owning tangible things rather than derivatives of those things, including publicly owned stocks.
Copyright (C) Long Lake LLC 2009
The more that New York publications such as The New Yorker lionize Wall Street's great friend Larry Summers, the more you should fear for the financial future of this country. (For a HuffPo critique of that article, click HERE.) And the more you should consider owning tangible things rather than derivatives of those things, including publicly owned stocks.
Copyright (C) Long Lake LLC 2009
More Bad News from Afghanistan
Courtesy of a Naked Capitalism link, please read American troops in Afghanistan losing heart, say army chaplains, from the London Times Online. The article claims that the chaplains were speaking out because the soldiers could not do so under military rules. Here is one section of the article:
The chaplains said soldiers were seeking their help in unprecedented numbers. “Everyone you meet is just down, and you meet them everywhere — in the weight room, dining facility, getting mail,” said Captain Rico. Even “hard men” were coming to their tent chapel and breaking down.
The men are frustrated by the lack of obvious purpose or progress. “The soldiers’ biggest question is: what can we do to make this war stop. Catch one person? Assault one objective? Soldiers want definite answers, other than to stop the Taleban, because that almost seems impossible. It’s hard to catch someone you can’t see,” said Specialist Mercer.
“It’s a very frustrating mission,” said Lieutenant Hjelmstad. “The average soldier sees a friend blown up and his instinct is to retaliate or believe it’s for something [worthwhile], but it’s not like other wars where your buddy died but they took the hill. There’s no tangible reward for the sacrifice. It’s hard to say Wardak is better than when we got here.”
Captain Masengale, a soldier for 12 years before he became a chaplain, said: “We want to believe in a cause but we don’t know what that cause is.”
Yours truly has a flexible record regarding American wars and military efforts. I participated in several major anti-Vietnam War rallies; supported the Reagan "peace through strength" military build-up to exhaust the USSR (clearly a success), supported Bush I's Gulf War, thought Bush II's Iraq War was highly elective but "OK" assuming that a clear plan for the future had been covertly worked out with the other powers in Iraq (obviously false), strongly supported the Iraq surge on the Colin Powell "Pottery Barn" theory that since we broke Iraq, we owned it and therefore needed to make a real effort to leave the country better than it was pre-surge.
The Afghan adventure looks to have been better thought out by the Bush team than by the Obama team. Candidate and then President Obama need not have "surged" and used strong rhetoric as recently as August 2009 in favor of victory in Afghanistan. But he did it. As a result . . .
President Obama looks like a deer trapped in the headlights on Afghanistan. Al-Qaeda appears to have decamped to Pakistan and points west; the Karzai government is crooked; the actual fighting may be primarily a civil war between rival gangs of narcotics traffickers; the country has no economic value; and the U. S. Government is already spending vastly more than its income on domestic issues and thus will have to restrict that spending to ramp up further in Afghanistan.
Guns and butter. It failed once. Mr. Obama does not want to be an LBJ. Please read the linked article.
Save Afghanistan?
What about California?
Copyright (C) Long Lake LLC 2009
The chaplains said soldiers were seeking their help in unprecedented numbers. “Everyone you meet is just down, and you meet them everywhere — in the weight room, dining facility, getting mail,” said Captain Rico. Even “hard men” were coming to their tent chapel and breaking down.
The men are frustrated by the lack of obvious purpose or progress. “The soldiers’ biggest question is: what can we do to make this war stop. Catch one person? Assault one objective? Soldiers want definite answers, other than to stop the Taleban, because that almost seems impossible. It’s hard to catch someone you can’t see,” said Specialist Mercer.
“It’s a very frustrating mission,” said Lieutenant Hjelmstad. “The average soldier sees a friend blown up and his instinct is to retaliate or believe it’s for something [worthwhile], but it’s not like other wars where your buddy died but they took the hill. There’s no tangible reward for the sacrifice. It’s hard to say Wardak is better than when we got here.”
Captain Masengale, a soldier for 12 years before he became a chaplain, said: “We want to believe in a cause but we don’t know what that cause is.”
Yours truly has a flexible record regarding American wars and military efforts. I participated in several major anti-Vietnam War rallies; supported the Reagan "peace through strength" military build-up to exhaust the USSR (clearly a success), supported Bush I's Gulf War, thought Bush II's Iraq War was highly elective but "OK" assuming that a clear plan for the future had been covertly worked out with the other powers in Iraq (obviously false), strongly supported the Iraq surge on the Colin Powell "Pottery Barn" theory that since we broke Iraq, we owned it and therefore needed to make a real effort to leave the country better than it was pre-surge.
The Afghan adventure looks to have been better thought out by the Bush team than by the Obama team. Candidate and then President Obama need not have "surged" and used strong rhetoric as recently as August 2009 in favor of victory in Afghanistan. But he did it. As a result . . .
President Obama looks like a deer trapped in the headlights on Afghanistan. Al-Qaeda appears to have decamped to Pakistan and points west; the Karzai government is crooked; the actual fighting may be primarily a civil war between rival gangs of narcotics traffickers; the country has no economic value; and the U. S. Government is already spending vastly more than its income on domestic issues and thus will have to restrict that spending to ramp up further in Afghanistan.
Guns and butter. It failed once. Mr. Obama does not want to be an LBJ. Please read the linked article.
Save Afghanistan?
What about California?
Copyright (C) Long Lake LLC 2009
Wednesday, October 7, 2009
In Which Two Representatives Waste Their Energy Trying to Bring Sunlight to the Fed
Courtesy of Zero Hedge, a blasting of Bernanke from Congress.
IMHO Dr. Bernanke is the worst Fed Chairman since Mr. Miller under President Carter, and Miller had the excuse that he was a political appointee with no banking or economist credentials (per Wikipedia: Miller was the first and currently only Federal Reserve Chairman to come from a corporate background, rather than from economics or finance).
The letter is in PDF form and thus cannot be excerpted via cut and paste here.
Of course, the Bernanke reappointment is set in stone, but this bipartisan shredding of Bernanke supports the view expressed more than once here at EBR that at best he was guilty of malpractice, and at worst---well, let's not go there on the record. In other words, the letter is a "good read" even if for now it will have no practical effect.
Copyright (C) Long Lake LLC 2009
IMHO Dr. Bernanke is the worst Fed Chairman since Mr. Miller under President Carter, and Miller had the excuse that he was a political appointee with no banking or economist credentials (per Wikipedia: Miller was the first and currently only Federal Reserve Chairman to come from a corporate background, rather than from economics or finance).
The letter is in PDF form and thus cannot be excerpted via cut and paste here.
Of course, the Bernanke reappointment is set in stone, but this bipartisan shredding of Bernanke supports the view expressed more than once here at EBR that at best he was guilty of malpractice, and at worst---well, let's not go there on the record. In other words, the letter is a "good read" even if for now it will have no practical effect.
Copyright (C) Long Lake LLC 2009
"Discover"-ing Slow Economic Improvement
"Discover" - the card people- do a monthly survey of consumer finances. The September data are out, published in Discover® U.S. Spending MonitorSM Up 2 Points in September.
The subtitle tells most of the tale: Confidence in the Economy Reaches Monitor High, But Consumer Spending Intentions Remain Flat.
Note that a "Monitor High" has limited meaning, as the survey has a 2 1/2 year history. Nonetheless, more and more data points are consistent with a troughing in the economic cycle associated with high joblessness. If Jimmy Carter put through a tax credit to encourage businesses to hire workers long after the 1973-5 recession ended, you can expect the current Democratic leaders to channel him and them some, with the major limitation what the financial markets will allow.
There is thus the possibility of a further delay in the projected shrinkage of the Federal budget deficit. The bond market would not likely take that well.
Copyright (C) Long Lake LLC 2009
The subtitle tells most of the tale: Confidence in the Economy Reaches Monitor High, But Consumer Spending Intentions Remain Flat.
Note that a "Monitor High" has limited meaning, as the survey has a 2 1/2 year history. Nonetheless, more and more data points are consistent with a troughing in the economic cycle associated with high joblessness. If Jimmy Carter put through a tax credit to encourage businesses to hire workers long after the 1973-5 recession ended, you can expect the current Democratic leaders to channel him and them some, with the major limitation what the financial markets will allow.
There is thus the possibility of a further delay in the projected shrinkage of the Federal budget deficit. The bond market would not likely take that well.
Copyright (C) Long Lake LLC 2009
Still a Bad Thing
Adjectives fail when the world of '1984' becomes a reality. Good is bad, truth is lies, up is down in the New Wall Street Order. Thus a formerly skeptical publication, Barron's, can print the following:
Kudos For Sunoco’s Div Cut
-->Posted by Bob O'Brien
Investors formerly reacted pessimistically to companies that cut their cash returns to shareholders. But shares of Sunoco (SUN) have gotten a bounce - not to mention some kudos from analysts - for cutting $70 million that it previously forwarded to those investors. The stock has risen 2% on the news.
Sunoco said that it would cut its dividend in half, a move that allows it to keep the $70 million total that had been going to shareholders. Yield on the stock gets trimmed from 4% to about 2%.
The owners of SUN have just been told that their income from owning this company, the operations of which they have no real control over, will be down by half from what they expected. This is identical to anyone from a day laborer picking vegetables to a software consultant working by the hour who suddenly learns that the grower or corporate client will now only pay half the prior rate--take it or leave it.
Yes, one can justify dividend cuts for unusual, special reasons. Ignoring the current banking problems, let us say that a smallish company such as a publicly owned community bank develops a truly unique software program that will require cash to introduce to the world. Perhaps shareholders would on average be better rewarded, given the cost of capital, to have the bank in essence transform itself into a software growth company using the cash flows that previously went to dividends to support the growth effort.
SUN has nothing like this. It simply has a business problem.
But of course the more a company retains its cash flows, the intrinsically more volatile the stock becomes, and thus the more valuable executive's stock options become (lacking the anchor of a stable dividend that makes the stock bond-like).
Wall Street cheers because more volatility means more trading.
The stock bull markets of the 1920s, 1950s and some other eras were powered by rising dividends. Powering stock price growth because of momentum upwards-- greed trumping fear-- leaves someone sucking nothing but air when and if that holder of the stock is the one standing on a trap door when the game of musical chairs ends.
Profitable companies that do not pay dividends, such as Amgen, should have all executives and directors receive no stock options. They should take part of their wages in stock ownership. Then let them look at dividend policy properly. Methinks they will suddenly change their tune.
Copyright (C) Long Lake LLC 2009
Kudos For Sunoco’s Div Cut
-->Posted by Bob O'Brien
Investors formerly reacted pessimistically to companies that cut their cash returns to shareholders. But shares of Sunoco (SUN) have gotten a bounce - not to mention some kudos from analysts - for cutting $70 million that it previously forwarded to those investors. The stock has risen 2% on the news.
Sunoco said that it would cut its dividend in half, a move that allows it to keep the $70 million total that had been going to shareholders. Yield on the stock gets trimmed from 4% to about 2%.
The owners of SUN have just been told that their income from owning this company, the operations of which they have no real control over, will be down by half from what they expected. This is identical to anyone from a day laborer picking vegetables to a software consultant working by the hour who suddenly learns that the grower or corporate client will now only pay half the prior rate--take it or leave it.
Yes, one can justify dividend cuts for unusual, special reasons. Ignoring the current banking problems, let us say that a smallish company such as a publicly owned community bank develops a truly unique software program that will require cash to introduce to the world. Perhaps shareholders would on average be better rewarded, given the cost of capital, to have the bank in essence transform itself into a software growth company using the cash flows that previously went to dividends to support the growth effort.
SUN has nothing like this. It simply has a business problem.
But of course the more a company retains its cash flows, the intrinsically more volatile the stock becomes, and thus the more valuable executive's stock options become (lacking the anchor of a stable dividend that makes the stock bond-like).
Wall Street cheers because more volatility means more trading.
The stock bull markets of the 1920s, 1950s and some other eras were powered by rising dividends. Powering stock price growth because of momentum upwards-- greed trumping fear-- leaves someone sucking nothing but air when and if that holder of the stock is the one standing on a trap door when the game of musical chairs ends.
Profitable companies that do not pay dividends, such as Amgen, should have all executives and directors receive no stock options. They should take part of their wages in stock ownership. Then let them look at dividend policy properly. Methinks they will suddenly change their tune.
Copyright (C) Long Lake LLC 2009
Tuesday, October 6, 2009
Same Old Same Old But More So
The debt monster continues to mutate, as commented upon by Mish in Japanese Moratorium Will Postpone Collection of Principal and Interest on Consumer and Business Loans:
It's important to remember that no matter how nutty things have gotten during this credit bust, even nuttier solutions are waiting in the wings.
The Japanese Minister of Finance has proven that in spades by proposing a debt moratorium to individuals as well as firms. The moratorium would postpone repayment of principal and interest on loans, in an effort to spur more bank lending.
Please consider Kamei Says Moratorium Won’t Increase Japan Bad Loans.
I won't confuse this post further by quoting from the linked Bloomberg.com article; please go to Mish's site to read on or click on the link here.
What is happening is tragic. The financialization of the world has proceeded in ridiculous ways. There is no disclosure to the owners (stockholders) of the complex financial companies as to what these companies own and owe. All is gambling. Rather than deal with matters of equity, the U. S., U. K. and Japanese governments all just want to increase the debt load. Write it off later? No biggie.
It is no surprise that gold has surged to a nominal all-time high. That this occurred relatively quietly is bullish.
In the meantime there is no leadership on virtually anything from the White House.
It is believed here that gold prices will trend higher as other parts of the globe that did not go wild on credit and derivatives resume a normal functioning of their economies. The two major countries that did are the U. S. and the U. K. Each country is undergoing "quantitative easing" (or "qualitative easing") AKA money-printing to allow their Treasuries to issue more and more debt for less and less productive purposes.
Note that this debt is NOT the same as true money-printing a la Zimbabwe. These are interest-bearing securities. They can crowd out other players from the debt markets and can be associated with a decline in the general price level. In any case, they reflect a sick financial system. Whether the sick financial system stems from or is caused by a sick general economy, or whether the two co-evolved, I have no opinion.
Most asset classes remain in some reasonable balance, which is why Jim Rogers recently reiterated that he has no short positions. The momentum and the political-economic trends are with physical commodities, as the regulatory forbearance being shown in Japan and the return of bubble era home lending standards in the U. S. exemplify.
Copyright (C) Long Lake LLC 2009
It's important to remember that no matter how nutty things have gotten during this credit bust, even nuttier solutions are waiting in the wings.
The Japanese Minister of Finance has proven that in spades by proposing a debt moratorium to individuals as well as firms. The moratorium would postpone repayment of principal and interest on loans, in an effort to spur more bank lending.
Please consider Kamei Says Moratorium Won’t Increase Japan Bad Loans.
I won't confuse this post further by quoting from the linked Bloomberg.com article; please go to Mish's site to read on or click on the link here.
What is happening is tragic. The financialization of the world has proceeded in ridiculous ways. There is no disclosure to the owners (stockholders) of the complex financial companies as to what these companies own and owe. All is gambling. Rather than deal with matters of equity, the U. S., U. K. and Japanese governments all just want to increase the debt load. Write it off later? No biggie.
It is no surprise that gold has surged to a nominal all-time high. That this occurred relatively quietly is bullish.
In the meantime there is no leadership on virtually anything from the White House.
It is believed here that gold prices will trend higher as other parts of the globe that did not go wild on credit and derivatives resume a normal functioning of their economies. The two major countries that did are the U. S. and the U. K. Each country is undergoing "quantitative easing" (or "qualitative easing") AKA money-printing to allow their Treasuries to issue more and more debt for less and less productive purposes.
Note that this debt is NOT the same as true money-printing a la Zimbabwe. These are interest-bearing securities. They can crowd out other players from the debt markets and can be associated with a decline in the general price level. In any case, they reflect a sick financial system. Whether the sick financial system stems from or is caused by a sick general economy, or whether the two co-evolved, I have no opinion.
Most asset classes remain in some reasonable balance, which is why Jim Rogers recently reiterated that he has no short positions. The momentum and the political-economic trends are with physical commodities, as the regulatory forbearance being shown in Japan and the return of bubble era home lending standards in the U. S. exemplify.
Copyright (C) Long Lake LLC 2009
You Know Times Are Tough When . . .
The L. A. Times tells you Hollywood's got it bad:
Hollywood studios in midst of their own horror show:
The recent firings and hirings of studio executives at Disney, Universal and elsewhere point to a widespread corporate panic amid sharp declines in DVD sales.
Read on:
Hollywood's biggest slasher story isn't playing at any theater near you. It's hitting the industry's corporate suites, where the sacking of studio executives has reached epidemic level. . .
It used to be that Hollywood's corporate parents could stomach a dry spell from their studio managers. But as DVD sales have collapsed by as much as 25% at some studios, access to outside financing has vanished and production and marketing costs remain sky-high, media companies are cracking under all the pressure. . .
"It does something radical to an industry when $12 billion to $14 billion suddenly goes away," said Gill. "That places an enormous strain on the system. And nothing is replacing it. It used to be 'let's get the Germans' and then the Germans went away, so it was 'let's get the Japanese' or 'let's get the insurance companies.' There was always going to be somebody else. Now it looks like it's not going to be someone else."
It's still the same old story:
When times were flush, the studios spent like sailors on shore leave, handing out lavish producer deals, flying private jets, adding millions in overhead (including their own compensation) . . .
ESPECIALLY their own compensation. (Remember that it is the hometown paper reporting.) The excesses of the bubble were widespread.
Couldn't happen to a nicer bunch of child rapists and defenders thereof.
Copyright (C) Long Lake LLC
Hollywood studios in midst of their own horror show:
The recent firings and hirings of studio executives at Disney, Universal and elsewhere point to a widespread corporate panic amid sharp declines in DVD sales.
Read on:
Hollywood's biggest slasher story isn't playing at any theater near you. It's hitting the industry's corporate suites, where the sacking of studio executives has reached epidemic level. . .
It used to be that Hollywood's corporate parents could stomach a dry spell from their studio managers. But as DVD sales have collapsed by as much as 25% at some studios, access to outside financing has vanished and production and marketing costs remain sky-high, media companies are cracking under all the pressure. . .
"It does something radical to an industry when $12 billion to $14 billion suddenly goes away," said Gill. "That places an enormous strain on the system. And nothing is replacing it. It used to be 'let's get the Germans' and then the Germans went away, so it was 'let's get the Japanese' or 'let's get the insurance companies.' There was always going to be somebody else. Now it looks like it's not going to be someone else."
It's still the same old story:
When times were flush, the studios spent like sailors on shore leave, handing out lavish producer deals, flying private jets, adding millions in overhead (including their own compensation) . . .
ESPECIALLY their own compensation. (Remember that it is the hometown paper reporting.) The excesses of the bubble were widespread.
Couldn't happen to a nicer bunch of child rapists and defenders thereof.
Copyright (C) Long Lake LLC
"Stimulus" That Did Not Stimulate May Be Regifted to Americans Under a New Brand
Bloomberg.com is reporting that another "stimulus" program is under active consideration by Team Obama. The title of the article suggests that Team O thinks we are all fools: Obama Weighs Spending to Stem Job Cuts Without Second Stimulus.
None dare call it stimulus! (Well, EBR didn't, always trying to put the term in quotes. The March "stimulus" bill, known more formally as ARRA, was a mix of humanitarian relief measures such as support for Medicaid and a silly reprise of the failed 2008 one-time hand-outs to taxpayers and non-taxpayers alike, plus allegedly "shovel-ready" roads projects (Seinfeld fans cannot help but have been reminded of Elaine being "sponge-ready" whenever the shovel-ready term came up) and other such boondoggles such as a multi-billion dollar high-speed rail system to take Angelenos to Vegas so they could lose their money with less travel time.
Regular EBR readers know that we have been bullish on Treasuries for some months. That is changing. The incoherence of the Obama administration on policy, the horrible jobs data, the impossibility of understanding the solvency level of the large complex financial institutions, the likelihood that the real economy will in one way or another sop up some excess liquidity, and the large move down in 10-30 year rates the past few months suggest that traders should consider taking profits. As detailed in several current posts at Mish's site and in Dave Rosenberg's posts at Gluskin Sheff, however, deflationary pressures persist. In other words, the economy really is not so hot. It is 10 months since the Economic Research Institute's "Long Leading Indicators" turned up. And last month well over 700,000 jobs were lost according to the Labor Department's household survey. In one month! And supposedly the "recession" (EBR says depression) is over, perhaps as long ago as May. As Stanley Kowalski said in "Streetcar", Ha! I say Ha!
So, Treasuries are "OK" for now per this blog's opinion but are no longer on the bargain counter.
The stock market continues to be lunatic. Consider GE. 90 days ago, consensus earnings estimates were $1.00 and $0.95 for 2009 and 2010, respectively. These are now down to $0.97 and $0.89. (Some economic recovery!) This should not be great for a stock that had already doubled from its 12-month low. Well, this is no ordinary time. The stock is merely up another 30+% in the past 3 months. It is something approaching escape from Earth orbit when you compound an over 30% quarterly gain.
GE allegedly is worth $168 Billion but has a tangible book value of only $13 B, with unbelievable leverage in the half of its business that is the financial business and that might have gone pffft last year and this winter without extraordinary help from you and me.
In another sign of "investor" complacency, the giant pharmacy chain CVS announced a significant business reverse Monday, yet the stock sold off only 1.5%. It only yields 0.9% and has virtually no tangible book value. CVS is what is known as a roll-up. It shows growth by acquiring whatever business it takes to show growth, incurring both cash and non-cash "one-time" expenses which compliant "analysts" tell you to ignore, and rewards its insiders much better than the actual owners of the company, the shareholders. In a "normal" stock market, CVS stock would have been down much more, especially because the whole company may (or may not) be little more than thin air. Could CVS be another AIG? Could GE be another AIG?
I have no idea where stock prices are going. However, for the first time, I know few people who know anything about how the financial world works today and/or how the real business world is (or is not) working who has any real interest in exposing an increased percentage of his/her financial assets to stocks. This is a major sea change from past years. This may well be more than fear vs. greed. It may just be indifference added on to the realization that most people with financial assets are already heavily exposed to "the market" and just do not want to increase that exposure. (Such is NOT the same for gold.)
Nancy Pelosi mumbled something about convening a "Pecora Commission" to investigate Wall Street abuses when the heat was on many months ago. What have you heard lately from her or Sen. Reid, or from the President who posed as a populist when he was candidate Obama, about truly getting to the bottom of the minor matter of how we got into the current mess? Nada, gornischt, nothing. Any hearings that might be held will likely not be worth the cost of the electricity needed to run your TV to listen to them or your (more valuable) time.
In any case, Team Obama would not be leaking to the press about another non-stimulus "stimulus" if it believed that the ECRI was correct and that a strong, durable economic recovery is underway. (On the other hand, a contrarian would say that Larry Summers et al may be so inept that if they are pessimistic, we should be optimistic!)
The only current beneficiary of the current situation is, sadly, gold. Since gold is money (though not a transactional form of money) - according to the Fed, the Treasury, the IMF, amongst others, for those skeptics who think it little but a barbarous relic or a raw material for jewelry- all gold can do is change relative value against other assets, such as Federal Reserve notes that Americans transact business in (i.e., dollars). It is thus not a dynamic asset as a well-priced equity can be, or as a truly undervalued junk bond can be if the underlying business is turning upwards; gold is therefore sterile and rises for the "wrong" reasons. However . . .
As the most inept Congress in memory (except for the prior couple of Congresses before it) continues to do little more than (maybe) fiddle with healthcare while the economy continues to shed jobs at an unbelievable pace, and while the geniuses at the White House who only 7 months ago forecast an 8.5% peak unemployment rate even without "stimulus" demonstrate so little imagination that apparently all they can do is think of repeating the first failed "stimulus" and failed follow-ons such as a ludicrously expensive first-time homebuyer credit but remarket these once-failed policies under a non-stimulus brand, it is hard to see the contrarians who have been bullish on the dollar primarily because everyone else was bearish stay contrarianly bullish. Sometimes the majority is simply correct.
The time is out of joint (said Hamlet). And there is a growing perception that Hamlet II is running the show in the most important nation in the world.
Not good.
Copyright (C) Long Lake LLC 2009
None dare call it stimulus! (Well, EBR didn't, always trying to put the term in quotes. The March "stimulus" bill, known more formally as ARRA, was a mix of humanitarian relief measures such as support for Medicaid and a silly reprise of the failed 2008 one-time hand-outs to taxpayers and non-taxpayers alike, plus allegedly "shovel-ready" roads projects (Seinfeld fans cannot help but have been reminded of Elaine being "sponge-ready" whenever the shovel-ready term came up) and other such boondoggles such as a multi-billion dollar high-speed rail system to take Angelenos to Vegas so they could lose their money with less travel time.
Regular EBR readers know that we have been bullish on Treasuries for some months. That is changing. The incoherence of the Obama administration on policy, the horrible jobs data, the impossibility of understanding the solvency level of the large complex financial institutions, the likelihood that the real economy will in one way or another sop up some excess liquidity, and the large move down in 10-30 year rates the past few months suggest that traders should consider taking profits. As detailed in several current posts at Mish's site and in Dave Rosenberg's posts at Gluskin Sheff, however, deflationary pressures persist. In other words, the economy really is not so hot. It is 10 months since the Economic Research Institute's "Long Leading Indicators" turned up. And last month well over 700,000 jobs were lost according to the Labor Department's household survey. In one month! And supposedly the "recession" (EBR says depression) is over, perhaps as long ago as May. As Stanley Kowalski said in "Streetcar", Ha! I say Ha!
So, Treasuries are "OK" for now per this blog's opinion but are no longer on the bargain counter.
The stock market continues to be lunatic. Consider GE. 90 days ago, consensus earnings estimates were $1.00 and $0.95 for 2009 and 2010, respectively. These are now down to $0.97 and $0.89. (Some economic recovery!) This should not be great for a stock that had already doubled from its 12-month low. Well, this is no ordinary time. The stock is merely up another 30+% in the past 3 months. It is something approaching escape from Earth orbit when you compound an over 30% quarterly gain.
GE allegedly is worth $168 Billion but has a tangible book value of only $13 B, with unbelievable leverage in the half of its business that is the financial business and that might have gone pffft last year and this winter without extraordinary help from you and me.
In another sign of "investor" complacency, the giant pharmacy chain CVS announced a significant business reverse Monday, yet the stock sold off only 1.5%. It only yields 0.9% and has virtually no tangible book value. CVS is what is known as a roll-up. It shows growth by acquiring whatever business it takes to show growth, incurring both cash and non-cash "one-time" expenses which compliant "analysts" tell you to ignore, and rewards its insiders much better than the actual owners of the company, the shareholders. In a "normal" stock market, CVS stock would have been down much more, especially because the whole company may (or may not) be little more than thin air. Could CVS be another AIG? Could GE be another AIG?
I have no idea where stock prices are going. However, for the first time, I know few people who know anything about how the financial world works today and/or how the real business world is (or is not) working who has any real interest in exposing an increased percentage of his/her financial assets to stocks. This is a major sea change from past years. This may well be more than fear vs. greed. It may just be indifference added on to the realization that most people with financial assets are already heavily exposed to "the market" and just do not want to increase that exposure. (Such is NOT the same for gold.)
Nancy Pelosi mumbled something about convening a "Pecora Commission" to investigate Wall Street abuses when the heat was on many months ago. What have you heard lately from her or Sen. Reid, or from the President who posed as a populist when he was candidate Obama, about truly getting to the bottom of the minor matter of how we got into the current mess? Nada, gornischt, nothing. Any hearings that might be held will likely not be worth the cost of the electricity needed to run your TV to listen to them or your (more valuable) time.
In any case, Team Obama would not be leaking to the press about another non-stimulus "stimulus" if it believed that the ECRI was correct and that a strong, durable economic recovery is underway. (On the other hand, a contrarian would say that Larry Summers et al may be so inept that if they are pessimistic, we should be optimistic!)
The only current beneficiary of the current situation is, sadly, gold. Since gold is money (though not a transactional form of money) - according to the Fed, the Treasury, the IMF, amongst others, for those skeptics who think it little but a barbarous relic or a raw material for jewelry- all gold can do is change relative value against other assets, such as Federal Reserve notes that Americans transact business in (i.e., dollars). It is thus not a dynamic asset as a well-priced equity can be, or as a truly undervalued junk bond can be if the underlying business is turning upwards; gold is therefore sterile and rises for the "wrong" reasons. However . . .
As the most inept Congress in memory (except for the prior couple of Congresses before it) continues to do little more than (maybe) fiddle with healthcare while the economy continues to shed jobs at an unbelievable pace, and while the geniuses at the White House who only 7 months ago forecast an 8.5% peak unemployment rate even without "stimulus" demonstrate so little imagination that apparently all they can do is think of repeating the first failed "stimulus" and failed follow-ons such as a ludicrously expensive first-time homebuyer credit but remarket these once-failed policies under a non-stimulus brand, it is hard to see the contrarians who have been bullish on the dollar primarily because everyone else was bearish stay contrarianly bullish. Sometimes the majority is simply correct.
The time is out of joint (said Hamlet). And there is a growing perception that Hamlet II is running the show in the most important nation in the world.
Not good.
Copyright (C) Long Lake LLC 2009
Sunday, October 4, 2009
Afghan Election Fraud, Gold and Interest Rates
Yours truly has commented that given the slack in the economy, the biggest risk to a significant return of price increases would likely be a large war in Afghanistan. The President is widely reported to be rethinking his previous emphasis on winning there.
Anyone interested in the idea that there is a government worth fighting for in Afghanistan may want to read What I Saw at the Afghan Special Election.
My conclusion is that the Karzai government is not worth another American life, 8 of which were lost in a battle Saturday.
The article also describes the current warfare as a civil war between Pashtuns. Presumably they are fighting over control of the drug trade. So rather than buy off Mr. Karzai, why not just buy off both sides in the war?
So far as we are given to believe, al-Qaeda is largely headquartered in Pakistan, anyway.
The financial markets are quiet in Asia. So long as the political situation stays stable there as well, the 10-year Treasury still appears to EBR to be pointing toward a 3-3.1% yield and the 30-year to an even more surprising 3.7% yield or less.
Louise Yamada, who called the gold bottom about 8 years ago, disclosed very recently that she now has a target of $1300/ounce for the metal during this ongoing move upwards. She does not however predict both price and time, but generally her time frame for this sort of prediction is not years and years (which would render the prediction useless).
Copyright (C) Long Lake LLC 2009
Anyone interested in the idea that there is a government worth fighting for in Afghanistan may want to read What I Saw at the Afghan Special Election.
My conclusion is that the Karzai government is not worth another American life, 8 of which were lost in a battle Saturday.
The article also describes the current warfare as a civil war between Pashtuns. Presumably they are fighting over control of the drug trade. So rather than buy off Mr. Karzai, why not just buy off both sides in the war?
So far as we are given to believe, al-Qaeda is largely headquartered in Pakistan, anyway.
The financial markets are quiet in Asia. So long as the political situation stays stable there as well, the 10-year Treasury still appears to EBR to be pointing toward a 3-3.1% yield and the 30-year to an even more surprising 3.7% yield or less.
Louise Yamada, who called the gold bottom about 8 years ago, disclosed very recently that she now has a target of $1300/ounce for the metal during this ongoing move upwards. She does not however predict both price and time, but generally her time frame for this sort of prediction is not years and years (which would render the prediction useless).
Copyright (C) Long Lake LLC 2009
Moving Beyond the Unemployment Situation to a Better "New Normal"
Please review the chart copied from Calculated Risk this morning. The dotted red line shows the truer extent of what the recently-ended (?) economic banana has done to what most people consider the sine qua non of economic growth: jobs.
The economists who advised President-elect Obama that the unemployment rate was heading for a peak of 8.5%, and that "stimulus" could restrain that number to 8.0%, missed what seers such as Dr. Roubini and the blogger Mike Shedlock saw, which was a sicker economy than one that had simply been sucker-punched by a disorderly Lehman Bros. bankruptcy.
Regardless of what seers ranging from mainstream organizations such as the Conference Board (Leading Economic Indicators = "LEI") and the Economic Cycle Research Institute (whose indicators are basically LEI 2.0) have forecast, there has been a simpler real-time tool that has been far more predictive, namely Gallup.com. The rapid deterioration in the labor market in mid-2008 was correlated with a rapid deterioration of the hiring/letting-go question in the Gallup survey, and the "New Normal" of less discretionary spending also showed clearly in drastically reduced discretionary spending.
Unfortunately, these parameters are near their cycle lows as of yesterday's data. As late as June 2008, daily "discretionary" spending per respondent was over $110. It is mired at $63/day currently, marginally above its low of May 2009 in the high $50s. The hiring/letting-go data may be showing a tiny improvement but are still deep in rising unemployment territory.
Furthermore, the unemployment rate would have been 10.1% in September, not 9.8%, had it not been for about 500,000 Americans (!) who dropped out of the labor force. To quote Calculated Risk, who is not known for emotionality: "Ugly. Ugly. Ugly."
A forward-looking solution to the current economic woes should involve a combination of the following rather than simply playing the same tired tune of support for auto production and more and more lending:
1. Recognize that Americans on average have been over-consuming, as per the obesity epidemic. There is much to be said for the quieter life. (I am ignoring the serious problem of income and wealth disparities in order to generalize to the "average".)
1. Recognize that Americans on average have been over-consuming, as per the obesity epidemic. There is much to be said for the quieter life. (I am ignoring the serious problem of income and wealth disparities in order to generalize to the "average".)
2. A sustainable economy needs to focus on enduring needs of people living in harmony with the natural environment. This means less emphasis on "things" and more emphasis on services such as improved medical care and medical research (with proper accounting for the fact that more of such things does cost money) and support for many other forms of innovation, and less emphasis on mega-stadiums (such as the Olympics would have brought to a large Midwest city) and multiplex cinemas that are little more than bread and circuses for the masses while the elite grow richer. Sorry, Mr. President, but repaving roads may be the Chicago way, but it has an economic multiplier effect that is less than one and definitely has a negative environmental effect, and it is a sorry excuse for a thoughtful growth policy.
3. Support for those hurting economically, especially where it is due to factors beyond their control.
4. Post-industrial re-thinking of the idea that in a society where only a couple of percent of the work force is needed to produce food and water, full employment has the same priority that it had in prior generations. Work is called work because it is not play and may be dangerous "un-fun". Without becoming H. G. Wells's Eloi, we can become a post-industrial leader by thinking, resting and exercising more while still meeting the tangible real needs of the people.
Copyright (C) Long Lake LLC 2009
Friday, October 2, 2009
Through a Glass Lightly: The 'New Normal' and the Same Cycle Contending
A second derivative "love it" from DoctoRx after seeing a Jewish lawyer securities guy named Ritholtz blogging the following:
Mohamed El-Erian vs Lakshman Achuthan:
Econo-Smackdown!
Here’s an interesting difference of opinion: PIMCO’s Mohamed El-Erian believes a return to the old ways of thinking threatens recovery.
ECRI’s Lakshman Achuthan disagrees, stating the U.S. economic recovery is ‘far from fragile.’
• Return of the old ways of thinking threatens recovery
• U.S. economic recovery is ‘far from fragile’-ECRI
Gotta love it when 2 smart guys disagree . . .
(Undoubtedly Mr. Ritholtz has yet different opinions.)
Copyright (C) Long Lake LLC 2009
Mohamed El-Erian vs Lakshman Achuthan:
Econo-Smackdown!
Here’s an interesting difference of opinion: PIMCO’s Mohamed El-Erian believes a return to the old ways of thinking threatens recovery.
ECRI’s Lakshman Achuthan disagrees, stating the U.S. economic recovery is ‘far from fragile.’
• Return of the old ways of thinking threatens recovery
• U.S. economic recovery is ‘far from fragile’-ECRI
Gotta love it when 2 smart guys disagree . . .
(Undoubtedly Mr. Ritholtz has yet different opinions.)
Copyright (C) Long Lake LLC 2009
Treasuries Nearing End of Price Gains for Now?
Calculated Risk quotes from some of the MSM regarding gloom about the economic cycle, in "After the Storm": No Immaculate Recovery. Here is a representative sample from it:
The Ylan Mui at the WaPo reviews the recent economic data: New Economic Reports Show We're Still Hurting (ht Ann)
The fragile economic recovery has relied heavily on government stimulus spending, but new data show that as the money runs out, a sustained rebound may be elusive.
A similar theme from The Economist: After the storm
Despite a welcome return to growth, the world economy is far from returning to “normal” activity. Unemployment is still rising and much manufacturing capacity remains idle. Many of the sources of today’s growth are temporary and precarious.
Similarly, the bears at Comstock have a "Special Report" called FUMBLE--ITIS that says similar things:
This time there is a major employment problem that leads not only to job loss but also wage contraction. We also have a continuing problem of restriction of credit to business for expansion and consumers for consumption. This, in conjunction with about 35% excess capacity, is not conducive to corporations expanding their facilities or hiring new employees. These conditions, along with a housing market almost entirely supported by government mortgage guarantees, make the last leg of the relay race much more of a problem than in past expansions. Also, the losses of net worth experienced in the earlier implosion of stocks and real estate have not come close to being restored by the latest stock market rally or a lessening real estate contraction.
The facts discussed above make the last leg of the relay race much more of a problem than it was in the past.
In Comstock's analysis, the expansion is ready to roll, but business and consumers are too weak to have a strong finish despite the Fed etc. performing the first 3/4 of the race well.
There may be a bit too much gloom around for this part of the business cycle.
Meantime, the 10 year and 30 year Treasury yields have plummeted in a short time. The 10-year is at 3.15% in Asia now, down from 3.85% Aug. 10 and 3.48% less than 4 weeks ago. The 30-year is at 3.93%, down from 4.33% Sept. 9 and 4.60% Aug. 7. Both yields are nearly 10% below their 50 day moving averages.
Bank deposits are now yielding 1% or less, and even IBM probably will return 2% after it raises the dividend one of these days, while generating a gigantic free cash flow yield of more like 7%. It trades at about 11X 2010 expected earnings. On the upside, IBM could in one year trade at 15X earnings of $11/share, or $165/share.
To phrase it differently, if IBM (surprisingly) stopped buying back its stock and returned all its free cash flow to its stockholders as dividends, it might have a dividend yield of 7%. One might guess that that action alone would cause a gigantic pop in the stock.
In the meantime, Japan's stock market is selling off on good news:
Japan’s jobless rate unexpectedly retreated in August from a record and household spending rose as the nation emerged from its worst postwar recession.
Given the political decision of governments to trash their own finances to support those of large corporations plus the current downdraft in stock prices, the common stocks and bonds of very large self-financing corporations NOT in the financial field are looking better and better vs. increasingly inflated and possibly momentum-driven prices of government debt.
Meanwhile, gold prices are just hanging around $1000 frustrating bull and bear alike, but gold was down half as much as the Dow Thursday and is more or less unchanged overnight while Asian stocks are down over 2%.
The dog that is not barking is gold. It goes up as the reflation (without much deflation) goes on, and it doesn't go down much when stocks go down. Thus the market keeps on implicitly suggesting that it is undervalued.
Copyright (C) Long Lake LLC 2009
The Ylan Mui at the WaPo reviews the recent economic data: New Economic Reports Show We're Still Hurting (ht Ann)
The fragile economic recovery has relied heavily on government stimulus spending, but new data show that as the money runs out, a sustained rebound may be elusive.
A similar theme from The Economist: After the storm
Despite a welcome return to growth, the world economy is far from returning to “normal” activity. Unemployment is still rising and much manufacturing capacity remains idle. Many of the sources of today’s growth are temporary and precarious.
Similarly, the bears at Comstock have a "Special Report" called FUMBLE--ITIS that says similar things:
This time there is a major employment problem that leads not only to job loss but also wage contraction. We also have a continuing problem of restriction of credit to business for expansion and consumers for consumption. This, in conjunction with about 35% excess capacity, is not conducive to corporations expanding their facilities or hiring new employees. These conditions, along with a housing market almost entirely supported by government mortgage guarantees, make the last leg of the relay race much more of a problem than in past expansions. Also, the losses of net worth experienced in the earlier implosion of stocks and real estate have not come close to being restored by the latest stock market rally or a lessening real estate contraction.
The facts discussed above make the last leg of the relay race much more of a problem than it was in the past.
In Comstock's analysis, the expansion is ready to roll, but business and consumers are too weak to have a strong finish despite the Fed etc. performing the first 3/4 of the race well.
There may be a bit too much gloom around for this part of the business cycle.
Meantime, the 10 year and 30 year Treasury yields have plummeted in a short time. The 10-year is at 3.15% in Asia now, down from 3.85% Aug. 10 and 3.48% less than 4 weeks ago. The 30-year is at 3.93%, down from 4.33% Sept. 9 and 4.60% Aug. 7. Both yields are nearly 10% below their 50 day moving averages.
Bank deposits are now yielding 1% or less, and even IBM probably will return 2% after it raises the dividend one of these days, while generating a gigantic free cash flow yield of more like 7%. It trades at about 11X 2010 expected earnings. On the upside, IBM could in one year trade at 15X earnings of $11/share, or $165/share.
To phrase it differently, if IBM (surprisingly) stopped buying back its stock and returned all its free cash flow to its stockholders as dividends, it might have a dividend yield of 7%. One might guess that that action alone would cause a gigantic pop in the stock.
In the meantime, Japan's stock market is selling off on good news:
Japan’s jobless rate unexpectedly retreated in August from a record and household spending rose as the nation emerged from its worst postwar recession.
Given the political decision of governments to trash their own finances to support those of large corporations plus the current downdraft in stock prices, the common stocks and bonds of very large self-financing corporations NOT in the financial field are looking better and better vs. increasingly inflated and possibly momentum-driven prices of government debt.
Meanwhile, gold prices are just hanging around $1000 frustrating bull and bear alike, but gold was down half as much as the Dow Thursday and is more or less unchanged overnight while Asian stocks are down over 2%.
The dog that is not barking is gold. It goes up as the reflation (without much deflation) goes on, and it doesn't go down much when stocks go down. Thus the market keeps on implicitly suggesting that it is undervalued.
Copyright (C) Long Lake LLC 2009
Wednesday, September 30, 2009
Trends and Friends
There is much discussion in the blogosphere about the course of the U. S. dollar vs. other currencies. Sentiment is said to be wildly in favor of dollar weakness, which is then said to be bullish. It would appear that there are many such contrarians, however!
Regular readers may know that EBR pays little attention to the value of one fiat currency against another, though in a less correlated world it might be interested in that topic. If one lives in America, one buys food in dollars. The global non-fiat currency is gold. Regardless of one's interest in the dollar vs. other fiat currencies and/or vs. gold, one might be interested in "on the margin" news that might buoy the dollar.
EBR is not a political site, but all financial sites must be aware of what's going on in politics. Fundamentally dollar bearish is the increased drift re U. S. policy in and toward Afghanistan, as discussed in a disheartening WSJ piece tonight titled Gates Doubts U.S.'s Afghan Strategy:
President Barack Obama met with senior counselors for three hours Wednesday to launch his review of Afghan war strategy, amid indications that his defense secretary -- the key link between the White House and the military -- is among those undecided about the right approach.
As Yogi Berra advised, when you come to a fork in the road, take it. Think of a deer blinded by headlights. Think of a tennis player at the net who can't decide whether to go left or right and ends up going nowhere. Commodity and currency traders see indecisiveness and invest/trade accordingly.
This pervasive indecision is dollar bearish. No ifs, ands, or buts. It's not determinative, but it is amazing how in a bull or bear market, an accumulation of news and data can paint a picture that can extend and prolong a trend.
For now, dollar bearish (weak dollar) trends are said to be good for the American stock market, at least as priced in weakening U. S. dollars. The stock market averages have risen 7 months straight. Looking Ahead After 7 Consecutive Positive Months is worth a read. A quick summary of it is that historically, optimism has been the generally correct strategy after such strength.
I would add to those who read it that the current period reminds me of 1975, and per the linked article, the one horrible month following 7 consecutive up months was indeed 1975.
Finally, it is not breaking news that Ken Lewis is leaving BofA as CEO at yearend. He may be facing criminal charges. Such a legal situation, which has not happened yet, would not be dollar bullish, either. Readers who want a hard-edged take on the Lewis situation may want to check on Mish at Globaleconomicanalysis.blogspot.com tomorrow; with no knowledge I suspect he will have a hard-hitting post. In the past, he has been all over this story. His point of view in the past has stood in contrast to that of the MSM and may once again be worth considering.
Finally, for people who think that an individual company's stock price means anything, consider CIT. Simply by following through on its pre-bankruptcy actions of a month or two ago, the stock fell 45% Wednesday and may be worthless. 16 months ago the stock was "worth" $60/share and now is trading slightly above $1/share.
Anyone who looked at the longer-term chart of CIT would have been warned that the major trend was down.
The dollar may be at its all-time bottom and gold may be at its all-time top, but there is no evidence of that; au contraire. Gold may have problems over the next 4-6 weeks as it laps the decline it suffered into November 10 2008, when it finally sold off during the massive liquidation in all asset classes except Treasuries and other such issues. But the current ease at the Fed and the Afghan disarray first at the Obama White House and now the Gates Defense Department are gold-friendly. The potential for a melt-up in gold must be considered. The same is true for stocks, but gold is in a clear structural bull market and stocks are in at best a structural neutral market despite having outperformed gold the past half year.
Gold remains the friendliest trend EBR can see.
Copyright (C) Long Lake LLC 2009
Regular readers may know that EBR pays little attention to the value of one fiat currency against another, though in a less correlated world it might be interested in that topic. If one lives in America, one buys food in dollars. The global non-fiat currency is gold. Regardless of one's interest in the dollar vs. other fiat currencies and/or vs. gold, one might be interested in "on the margin" news that might buoy the dollar.
EBR is not a political site, but all financial sites must be aware of what's going on in politics. Fundamentally dollar bearish is the increased drift re U. S. policy in and toward Afghanistan, as discussed in a disheartening WSJ piece tonight titled Gates Doubts U.S.'s Afghan Strategy:
President Barack Obama met with senior counselors for three hours Wednesday to launch his review of Afghan war strategy, amid indications that his defense secretary -- the key link between the White House and the military -- is among those undecided about the right approach.
As Yogi Berra advised, when you come to a fork in the road, take it. Think of a deer blinded by headlights. Think of a tennis player at the net who can't decide whether to go left or right and ends up going nowhere. Commodity and currency traders see indecisiveness and invest/trade accordingly.
This pervasive indecision is dollar bearish. No ifs, ands, or buts. It's not determinative, but it is amazing how in a bull or bear market, an accumulation of news and data can paint a picture that can extend and prolong a trend.
For now, dollar bearish (weak dollar) trends are said to be good for the American stock market, at least as priced in weakening U. S. dollars. The stock market averages have risen 7 months straight. Looking Ahead After 7 Consecutive Positive Months is worth a read. A quick summary of it is that historically, optimism has been the generally correct strategy after such strength.
I would add to those who read it that the current period reminds me of 1975, and per the linked article, the one horrible month following 7 consecutive up months was indeed 1975.
Finally, it is not breaking news that Ken Lewis is leaving BofA as CEO at yearend. He may be facing criminal charges. Such a legal situation, which has not happened yet, would not be dollar bullish, either. Readers who want a hard-edged take on the Lewis situation may want to check on Mish at Globaleconomicanalysis.blogspot.com tomorrow; with no knowledge I suspect he will have a hard-hitting post. In the past, he has been all over this story. His point of view in the past has stood in contrast to that of the MSM and may once again be worth considering.
Finally, for people who think that an individual company's stock price means anything, consider CIT. Simply by following through on its pre-bankruptcy actions of a month or two ago, the stock fell 45% Wednesday and may be worthless. 16 months ago the stock was "worth" $60/share and now is trading slightly above $1/share.
Anyone who looked at the longer-term chart of CIT would have been warned that the major trend was down.
The dollar may be at its all-time bottom and gold may be at its all-time top, but there is no evidence of that; au contraire. Gold may have problems over the next 4-6 weeks as it laps the decline it suffered into November 10 2008, when it finally sold off during the massive liquidation in all asset classes except Treasuries and other such issues. But the current ease at the Fed and the Afghan disarray first at the Obama White House and now the Gates Defense Department are gold-friendly. The potential for a melt-up in gold must be considered. The same is true for stocks, but gold is in a clear structural bull market and stocks are in at best a structural neutral market despite having outperformed gold the past half year.
Gold remains the friendliest trend EBR can see.
Copyright (C) Long Lake LLC 2009
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