The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG).

~~~~~

September 26, 2009

Iran.

Remember the old story about the kid and cookie jar?  “If you do that one more time, I will punish you,” says the mom.  This latest two-months so-called “line in the sand” is not the first, nor the second, nor the third time.  The only thing different now is that the Brits (Brown), the French (Sarkozy), and the Americans (Obama) are collectively drawing it.  Make no bones about it; it will be tested by the power in Tehran.

The Iranians are caught in a fully disclosed lie.  President Mahmoud Ahmadinejad (pronounced: Ach-pitoui MAD Jihad) proves himself the worst of his ilk in the political category. He is a thug like Chavez or Kim or Mugabe, but he has one thing that they do not have: he has a credible weapon in the making.  And he has oil and money and is empowered by an oppressive political constituency (mullahs) that preserve him.

Prez A shows his true colors when he uses historical revisionism as a political tactic.  That becomes the basis for distracting others within his country and for arguing policy abroad.  Larry King’s interview is worth watching for those who might disagree with this contention.

For me, this one is easy to call.  I’ve walked through Auschwitz twice.  That’s right, an American Jew walked in and out of a crematorium; it’s the one in the back of Birkenau that wasn’t fully destroyed.  I’ve visited the “white ponds” in the back where 800,000 souls have their ashen remains interned and where the gray color of the water is still there after a half a century and where you can still walk and kick the dirt and find a small fragment of a bone and wonder if it is a remnant of a Holocaust victim and not something deposited there by a stray cat.

The notion of a Holocaust denier holding the key to a nuke is frightening.  He is a leader of an Islamic revolutionary state and has one mushroom cloud in the making.  There is no choice for the Western world, in my view.  Think about it: in 1981 the Israelis took out the Iraqi nuke weeks before it was about to be turned on.  The location was Osirak.  Google it if you are too young to remember this history.  Imagine how the world would look if Saddam Hussein had gotten his nuke.  Then close your eyes, think back further into history and imagine that the West had responded to Hitler with something other than Chamberlain’s pacifism.  Contemplate the silliness of failed sanctions and realize that they only empowered the regime that is targeted.  Ask yourself if our sanctions on sales of helium (the Hindenburg used hydrogen) had any effect.

Read the rest of this entry »

Looks like a single wheel segway:

Honda has developed a new personal mobility technology, U3-X. It is a compact experimental device that fits comfortably between the riders legs, to provide free movement in all directions just as in human walking forward, backward, side-to-side, and diagonally. Honda will continue research and development of the device including experiments in a real-world environment to verify the practicality of the device.

This new personal mobility device makes it possible to adjust speed and move, turn and stop in all directions when the rider leans the upper body to shift body weight. This was achieved through application of advanced technologies including Hondas balance control technology, which was developed through the robotics research of ASIMO, Hondas bipedal humanoid robot, and the worlds first* omni-directional driving wheel system (Honda Omni Traction Drive System, or HOT Drive System), which enables movement in all directions, including not only forward and backward, but also directly to the right and left and diagonally. In addition, this compact size and one-wheel-drive personal mobility device was designed to be friendly to the user and people around it by making it easier for the rider to reach the ground from the footrest and placing the rider on roughly the same eye level as other people or pedestrians.

Hat tip CNET

Back in July, we discussed the “truest picture of excess labor supply” — the number of Unemployed per Job Openings. During the 2001 recession, the ratio of jobless people to openings was little more than double; in early 2009, job seekers outnumbered jobs four-to-one.

According to a front page Sunday NYT has article, that ratio has now hit an all time record:

“Job seekers now outnumber openings six to one, the worst ratio since the government began tracking open positions in 2000. According to the Labor Department’s latest numbers, from July, only 2.4 million full-time permanent jobs were open, with 14.5 million people officially unemployed.

And even though the pace of layoffs is slowing, many companies remain anxious about growth prospects in the months ahead, making them reluctant to add to their payrolls.

The dearth of jobs reflects the caution of many American businesses when no one knows what will emerge to propel the economy. With unemployment at 9.7 percent nationwide, the shortage of paychecks is both a cause and an effect of weak hiring.”

Nothing like having a 4 month jump on the big boys . . .

>

courtesy of NYT

>

Previously:
The Truest Picture of Excess Labor Supply (July 1st, 2009)

http://www.ritholtz.com/blog/2009/07/the-truest-picture-of-excess-labor-supply/

Wage Deflation in Our Midst (July 1st, 2009)

http://www.ritholtz.com/blog/2009/07/wage-deflation-in-our-midst/

Source:
U.S. Job Seekers Exceed Openings by Record Ratio
PETER S. GOODMAN
NYT, September 26, 2009

http://www.nytimes.com/2009/09/27/business/economy/27jobs.html

“This opinion is hostile to the notion of MERS as nominee and could lead to problems for it in foreclosing. The entire structure of MERS as a recorded nominee could collapse in Kansas, and that could lead to a patch-up job where they would have to run around and re-record the mortgages.”

-Patrick A. Randolph, a law professor at the University of Missouri, Kansas City

>

Talk about burying the lead: Gretchen Morgenson does a nice job today explaining the MERS situation, tho the best stuff in the article is at the end. The quote above is literally the 2nd to last paragraph in the column.

The following excerpt is also buried:

“For centuries, when a property changed hands, the transaction was submitted to county clerks who recorded it and filed it away. These records ensured that the history of a property’s ownership was complete and that the priority of multiple liens placed on the property — a mortgage and a home equity loan, for example — was accurate.

During the mortgage lending spree, however, home loans changed hands constantly. Those that ended up packaged inside of mortgage pools, for instance, were often involved in a dizzying series of transactions.

To avoid the costs and complexity of tracking all these exchanges, Fannie Mae, Freddie Mac and the mortgage industry set up MERS to record loan assignments electronically. This company didn’t own the mortgages it registered, but it was listed in public records either as a nominee for the actual owner of the note or as the original mortgage holder . . .

As long as real estate prices rose, this system ran smoothly. When that trajectory stopped, however, foreclosures brought against delinquent borrowers began flooding the nation’s courts. MERS filed many of them . . .

As cases filed by MERS grew, lawyers representing troubled borrowers began questioning how an electronic registry with no ownership claims had the right to evict people. April Charney, a consumer lawyer at Jacksonville Area Legal Aid in Florida, was among the first to argue that MERS, which didn’t own the note or the mortgage, could not move against a borrower.Initially, judges rejected those arguments and allowed MERS foreclosures to proceed. Recently, however, MERS has begun losing some cases, and the Kansas ruling is a pivotal loss, experts say. While the matter before the Kansas Supreme Court didn’t involve an action that MERS took against a borrower, the registry’s legal standing is still central to the ruling.”

That’s a nice explaination for the layperson.

>

Previously:
Mortgage Electronic Registration Systems Loses Legal Shield (September 23rd, 2009)

http://www.ritholtz.com/blog/2009/09/mortgage-electronic-registration-systems-loses-legal-shield/

Source:
The Mortgage Machine Backfires
Gretchen Morgenson
NYT, September 26, 2009

http://www.nytimes.com/2009/09/27/business/27gret.html

Words from the (investment) wise for the week that was (September 21 – 27, 2009)

After hitting its best levels of the year on Wednesday ahead of the Federal Open Market Committee’s (FOMC) communiqué, the S&P 500 Index ran into heavy weather on the realization that the Fed could start scaling back on emergency support of the economy. US equities dropped further later in the week on renewed concerns about the state of the troubled housing market and weaker-than-expected durable goods orders.

In addition to global stock markets declining, risky assets such as commodities, oil, gold and other precious metals all sold off as pundits worried about the winding down of quantitative easing puncturing the “liquidity rally”. Government and corporate bonds, as well as the Japanese yen, emerged as winners.

Hat tip: The Big Picture, September 23, 2009.

The FOMC maintained its loose monetary policy following its meeting on Wednesday. The statement said the committee expected to keep the Fed funds rate target in the 0% to 0.25% range “for an extended period”.

“The committee extended the time period over which it plans to purchase Fannie Mae and Freddie Mac debt and mortgage-backed securities. The remarks on current economic conditions were more optimistic than in August, and the FOMC now believes the recession is over. The Fed will keep monetary policy loose in the near term to support the recovery but is laying the groundwork for an eventual tightening,” said Moody’s Economy.com.

Although the US Dollar Index (+0.4%) closed a little higher on the week, the greenback hit a one-year low against the euro on Wednesday, with the Fed’s indication of keeping US interest rates at current levels for a while longer underscoring the dollar’s status as a carry-trade funding currency. (Click here for a short technical analysis of the outlook for the dollar by INO.com‘s Adam Hewison.)

The past week’s performance of the major asset classes is summarized by the chart below – a set of numbers that shows risk aversion creeping back into financial markets.

Source: StockCharts.com

A summary of the movements of major global stock markets for the past week, as well as various other measurement periods, is given in the table below.

The MSCI World Index (-1.4%) and MSCI Emerging Markets Index (-1.2%) both closed the week in the red, with the Shanghai Composite Index (-4.2%) one of the biggest losers among the major stock markets. After bucking the global weakness that prevailed during the week, Chile is now only 5.1% down from its July 2007 highs and could be one of the first markets to wipe out all the financial crisis losses.

The major US indices declined for three consecutive days (from Wednesday to Friday) and registered their first weekly drop since the last week of August. The year-to-date gains remain in positive territory and are as follows: Dow Jones Industrial Index +10.1%, S&P 500 Index +15.6%, Nasdaq Composite Index +32.6% and Russell 2000 Index +19.9%.

Click here or on the table below for a larger image.

Top performers in the stock markets this week were Latvia (+8.0%), Cyprus (+6.8%), Israel (+5.0%), Ukraine (+4.9%) and Saudi Arabia (+4.1%). At the bottom end of the performance rankings, countries included Luxembourg (_8.7%), Ireland (-4.2%), China (-4.2%), Mexico (-4.0%) and South Africa (_3.3%).

Of the 98 stock markets I keep on my radar screen, 44% recorded gains (last week 81%), 51% (15%) showed losses and 5% (4%) remained unchanged. (Click here to access a complete list of global stock market movements, as supplied by Emerginvest.)

John Nyaradi (Wall Street Sector Selector) reports that, as far as exchange-traded funds (ETFs) are concerned, the winners for the week included Global X/InterBolsa FTSE Colombia 20 (GXG) (+6.0%), Market Vectors High-Yield Municipal (HYD) (+2.9%), iPath S&P 500 VIX Mid-Term Futures (VXZ) (+2.9%) and United States Natural Gas (UNG) (+2.8%).

At the bottom end of the performance rankings, ETFs included United States Gasoline (UGA) (-10.8%), United States Oil (USO) (-8.4%), United States 12 Month Oil (USL) (-8.3%) and iShares Dow Jones Home Construction (ITB) (_8.3%).

Against the background of the International Monetary Fund’s approval of the sale of 403.3 metric tons of its gold and beggar-thy-neighbor currency devaluations, Richard Russell reminded us of the following quote from the Republican National Platform in 1932: “The Republican Party established and will continue to uphold the gold standard and will oppose any measure which will undermine the government’s credit or impair the integrity of our national currency. Relief by currency inflation is unsound in principle and dishonest in results.” Russell added: “My, how times have changed, and not always for the better.”

Other news is that the summit of G20 countries have agreed, inter alia, to plot a roadmap for the banking industry, align economic policy, ensure that tax havens comply with global standards and phase out subsidies for fossil fuels in the “medium term”.

Also, the Federal Deposit Insurance Corporation (FDIC) closed another bank on Friday, bringing the tally of US bank failures in 2009 to 95 (120 since the beginning of the recession). Meanwhile, according to The New York Times, regulators are considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the FDIC. This would enable the fund, which is running low on resources as a result of the myriad of bank failures, to continue to rescue the sickest banks … “You can’t make up stuff like this!,” commented Bill King (The King Report).

Next, a quick textual analysis of my week’s reading. Although “banks” still features prominently, the key words have started taking on a more normal pattern compared with the crisis-related words that have dominated the tag cloud for many months.

The major moving-average levels for the benchmark US indices, the BRIC countries and South Africa (where I am based) are given in the table below. With the exception of the Shanghai Composite Index, which is trading below its 50-day moving average, all the indices are above their respective 50- and 200-day moving averages. The 50-day lines are also in all instances above the 200-day lines.

Read the rest of this entry »

A collaborative animation by Blu and David Ellis

blu, 2009
produced by studio cromie
made at Fame festival 2009

see also

http://www.blublu.org

http://www.daivdellis.org

Hat tip: Economists Do It With Models

I sort of challenge Bill Gross on the new normal here:

“Every decade or so, investors are told to heed a new megatrend, whose chief appeal is, well, its newness. In the ’90s, investors were sold on the notion of a New Economy that wasn’t subject to the old laws of gravity and, among other things, could support higher stock valuations. And one of the best-selling investing books of the past decade was The New Investment Superstars, a tome that canonized a new breed of fund wizards, some of whom later proved to be mortal. Now comes the latest investment fad, the “new normal,” the idea championed by Pimco bond guru Bill Gross that the U.S. has entered a period of diminished expectations that requires investors to rethink their long love affair with stocks.

There’s a certain Biblical undertone to the new normal orthodoxy: After decades during which consumers lived beyond their means, the nation must now endure a long stretch of lean years during which consumers pay down debt. In the minds of Gross and Pimco colleague Mohamed El-Erian, the prospect of a period of no growth means investors should hold as little as 30% in stocks, vs. the 60% long deemed the proper mix. They also recommend holding more fixed-income assets like bonds and bank loans, as well as commodities.

The risk for investors is that the new normal proves to be merely the latest investment fad, and by moving into bonds they miss future rebounds in stocks. “The new normal is just a different way of saying ‘It’s different this time,’ and that’s often a recipe for disaster,” argues Barry Ritholtz, chief executive officer of Fusion IQ, a quantitative research firm. “The mathematician in me says we’re just reverting to the mean.” Ritholtz believes the U.S. will recover, but it may need years to work off its 25-year debt binge. He sees “a lot of parallels” between now and the 1973-74 recession, a downturn he says that serves as a good composite of the 19 previous bear markets. Then and now, the market fell more than 45%, then rebounded 60% to 70% (chart). If past is prologue, Ritholtz thinks there could be another leg down, a few years of treading water—and a powerful bull market starting around 2012 or 2013.”

Its not really a ‘It’s different this time’ — its mroe along the lines of “This is a normal secular Bear market trading range. That’s what happens.”

>

Source:
How to Play It: The New Normal
Dean Foust
Business Week, September 24

http://www.businessweek.com/blogs/personal_finance/archives/2009/09/new_normal.html

Welcome to the New Normal September 25, 2009
By John Mauldin

What We See And What We Don’t See

The Statistical Recovery

A Double-Dip Recession?

Welcome to the New Normal

Birthdays, New Orleans, and then the Road Trip from Hell

~~~

Unemployment is high and rising. But if the recession is over, won’t employment start to rise? The quick answer is no. We look deeper into the Statistical Recovery and find yet more reasons to be concerned about near-term deflation. This week we  consider all things unemployment and ponder the need to create at least 15 million jobs in the next five years to return to a full-employment economy – and the implications for both the US and world economies if we don’t. Economic is often about what we can clearly see, and yet it is understanding what we can’t see that gives us true insight. We start with a collection of facts that we can see and then begin a thought exercise to find
the implications.

What We See

First, the unemployment rate is now officially at 9.7%. We are approaching the official high we last saw at the end of the double-dip1982 recession. In the chart below, notice that unemployment rose throughout 1980 and then began to decline, before rising rapidly as the economy entered the second recession within two years. Also notice the rapid drop in unemployment following that
recession, as opposed to the recessions of 1991-92 and 2001-02, which have been characterized as jobless recoveries. Unemployment was as low as 3.8% in 2000 and saw a cycle low of 4.4% in early 2007.

(For the record, all this data is available on the Bureau of Labor Statistics website. There is a treasure trove of data. They are quite open about what they do and how they do it. When I call
to ask a question, they are quite helpful. How people interpret the data is not their fault.)

This headline unemployment number (9.7%) is what we see when we read the paper. What we typically don’t see is the real number of unemployed. For instance, if you have not actively looked for a job in the last four weeks, even if you would like one, you are not counted as unemployed. You are called a “marginally attached” or “discouraged” worker. Often there are very good reasons for this. You could be sick, dealing with a family emergency, going back to school, or  not have transportation.

Right now, about one-third of marginally attached workers actively want jobs but have not bothered to look because they believe there are no jobs in their area, at least not for them. If you add that extra 758,000 to the unemployment data, you get what is called U-4 unemployment, which today is 10.2%. If you count all marginally attached workers the unemployment number is 11% (U-5 unemployment).

Read the rest of this entry »