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

With the US Treasury market selling off sharply again where the 10 yr note yield is at the highest level since mid August, it begs the question of what the main catalyst is. Is it the growth belief, inflation worries and/or concerns with deteriorating US government finances? The markets are saying a little bit of all. Earnings last week from RIMM, ORCL and NKE gave a sentiment lift to the economic outlook as has some of the recent economic data. Today, inflation expectations implied in the 5 yr and 10 yr TIPS are breaking out to the highest level since early August 2008. The US 5 yr CDS is rising another 2 bps to 39 bps, up 7 bps in the past two weeks and is at the highest level since mid July.

Here is a fascinating suggestion — from an economist, yet — on how to reconcile the debate between those who believe Global Warming is real and man-made, versus those who don’t:

“To end this political stalemate, Dr. McKitrick proposes calling each side’s bluff. He suggests imposing financial penalties on carbon emissions that would be set according to the temperature in the earth’s atmosphere. The penalties could start off small enough to be politically palatable to skeptical voters.

If the skeptics are right and the earth isn’t warming, then the penalties for burning carbon would stay small or maybe even disappear. But if the climate modelers and the Intergovernmental Panel on Climate Change are correct about the atmosphere heating up, then the penalties would quickly, and automatically, rise.”

All those in favor say “Aye.”

All those opposed, hack in Dr. McKitrick’s email account . . .

>
Source:
Trusting Nature as the Climate Referee
JOHN TIERNEY
NYT, December 14, 2009

http://www.nytimes.com/2009/12/15/science/15tier.html

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’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs. 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).

~~~

December 21, 2009

A quick market comment will follow this personal polemic on the abominable behavior we have witnessed this weekend in the United States Senate. Political bribery has sunk to a new low.

Senator Nelson of Nebraska sold his vote in return for special treatment for the Mutual of Omaha insurance company and for perpetual Medicaid funding for his state. He has just set a record for pork. I have not seen the present discounted value of an open-ended perpetual funding for Medicaid for all Nebraskans. Believe me, the other 49 states would like to have it. And if you are a taxpayer in the other 49 states you are going to pay for it.

Now if the good Senator had bargained the abortion issue out of his pure conviction, I would not have agreed with him but I would have respected him for having the courage and honesty to practice politics because of policy. He argued he was maintaining his position out of conviction for an ideal and a belief. But the reality is, he sold his 60th vote for money. He practiced political prostitution.

In my view and in the vernacular of the current generation: that just plain sucks. Accordingly, so does Senator Nelson. And we would add the same characterization to Senator Harry Reid and Senator Christopher Dodd and the others who voted with their feet to say that they would do anything to get to 60 votes.

Did all the Senators know about this Medicaid provision? I suspect not, but they do now. Did the House leadership? I suspect not, but they do now. Did President Obama? Maybe not, but he does now.

Ok, is this the “change” we were promised last year? Is this how we want the policy of the United States to be made by our Congress? The phone numbers for your Congressman and Senator are public information. Mine has already told me he will vote against this.

Now quickly to markets which are headed higher. Stock prices are responding to ongoing large central bank-induced liquidity and to the prospects that the recovery will feature high productivity, and low labor-cost pressure. Thus profit margins will be wide and earnings will reflect it. Cumberland accounts remain fully invested.

Back to Senator Nelson and the new level of political bribery. I worry for my children and for my granddaughter, who is three and a half and will inherit this mess. My friend and fellow grandfather Vince Farrell shares this worry. I will close with an excerpt from the morning missive he writes for Soleil Securities Corporation.

Read the rest of this entry »

Visit msnbc.com for breaking news, world news, and news about the economy

Here are a pair of charts from Ron Griess at The Chart Store. Taken together, they show potentially fading momentum for the rally.

As noted last week, I still believe the rally is “Innocent until proven guilty,” but this is worth watching:
>

S&P Financial Sector

>

S&P 500 Weekly Momentum

Art Cashin, head of floor operations at UBS, has the latest buzz from the NYSE.

Airtime: Mon. Dec. 21 2009 | 9:10 AM ET

With still 4 days before Christmas, the Nat’l Retail Federation did not let the weekend snow storms from altering their opinion that holiday sales will decline 1% y/o/y. Discounting that may have ended over the weekend will just get extended to bring back the weekend hibernating customers. While Greek bonds are trading down again (Greek 10 yr spread to the risk free German bund is wider by another 8 bps to 274, up 279 bps in the past 2 weeks), its 10th day of weakness in the past 13, and Asian stocks traded mixed, European stocks, ex Greece, are higher and that in turn is giving a bid to US futures in a post expiration, quarterly rebalancing day. US treasuries are lower in response to the equity bounce with the 10 yr note yield approaching 3.6% again. Home sales data, income, spending, durable goods and jobless claims highlight the economic calendar this week.

Invictus is a bulge bracket asset manager with $100+ million AUM. He has no patience for money losers, hacks, partisans pretending to be financial analysts . . .  this is the first in a series of critical looks at analysts, media, economists, financial TV. Feel free to share any thoughts in comments.

Here’s Invictus:

~~~

I’ve been reviewing some older columns that stood out to me as giving especially bad advice during  the period near the market peak. One in particular stands out as especially bad — poorly reasoned, not well thought out, full of weak analysis. It was amongst the worst of the money losing financial advice Smart Money has ever run. If I find more examples as bad as this one I am going to suggest the magazine change its name to Dumb Money.

Let’s set this one up first: This weekend, in Barron’s Alan Abelson devoted part of his column to the travails of Citibank:

“THE CITI NEVER SLEEPS. AND WE couldn’t, either, if we were Citigroup, given the way things have been going for the bank and its shareholders. The bank is wallowing in the red, and the stock, which sold at 56 and change in 2007, is now less than 3.50.

Moreover, among its other woes, it’s in a legal battle with Abu Dhabi, whose sovereign wealth fund is trying to squirm out of a deal closed back in November ’07 that obligates it to buy $7.5 billion of Citi stock at $31.83 a share come March.”

It seems like only yesterday that Don Luskin, a top Ideological Hack Hall of Famer, told us the 11 Reasons to Buy Now — this was in November 2007, a month AFTER the top, that Abu Dhabi’s investment in Citi was proof that Citigroup and the market were both cheap:

“ADIA’s investment in Citi means that stocks have gotten very, very cheap. Mega-investors like that only step in with $7 billion when they are getting a deep bargain.”

Or not.

The S&P was in the 1400′s at the time, Citi in the mid-30′s or so.  I’ve chronicled Luskin from time to time, and put together an incomplete Greatest Hits over a year ago.

It’s not just his pompous, arrogant, know-it-all attitude that is annoying about Mr. Luskin. Rather, its that all of his commentary seems to be that of a broken clock. He has been bullish as long as he has been on TV. The only time I have seen him bearish was yhis one exception: On March 6, 2009, he finally capitulated his bullish stance. Of course, this was RIGHT AT GENERATIONAL MARKET LOWS. Luskin wrote in Even Worse Than the Great Depression that:

“We can’t blame President Obama for the mess he inherited. But we can definitely blame him for making it worse. Stocks are off 28.4% since his election, 15.2% since his inauguration, and 17.2% since his so-called “stimulus” bill was enacted. To say the very least, whatever he’s doing, it ain’t working.”

And there is the partisan hackery he is so famous for. Since that politically inspired post, the S&P has rallied 63%. No word from DL as to what this rally means.

I hold no animus toward those who get it wrong in finance/economics. We all do. It goes with the territory. I do hold a fair amount of ill will toward those who distort facts, deliberately mislead others, or otherwise dissemble to support an ideological position. (As another example, see this 2008 foolishness about Housing  data).

Refusing to acknowledge one’s mistakes when presented with incontrovertible evidence is similarly a no-no in my book. And these folks need to be called out on their nonsense. It is both intellectually dishonest and counter productive.

Smart Money readers should learn to ignore his money losing advice . . .

>

Source:
11 Reasons to Buy Now
Donald Luskin
Smart Money, November 30, 2007

http://www.smartmoney.com/investing/stocks/11-reasons-to-buy-now-22207/

Source:
“The Great Recession Is Over,” But Hold the Confetti, Barry Ritholtz Says
Peter Gorenstein
Yahoo Tech Ticker, Dec 21, 2009 07:30am EST

http://finance.yahoo.com/tech-ticker/%22the-great-recession-is-over%22-but-hold-the-confetti-barry-ritholtz-says-395420.html

Around this time each year, my friend Michelle Leder at footnoted tries to come up with the worst SEC disclosures of the past 4 quarters.

She asks her readers to cast their votes and this year, and that tradition continues: She is asking her readers to vote on the stinkiest disclosures of 2009.

Despite –or perhaps because — the economy was (shall we call it) “soft,” there was plenty of material to choose from; So much so that it was actually difficult to winnow down the list to just five. But here’s what Michelle came up with (with the links to the actual posts):

1. Martha Stewart getting a $3 million retention payment for remaining at Martha Stewart Omnimedia (MSO).
2. Chesapeake Energy disclosing it spent $12.1 million to purchase Aubrey McClendon’s antique map collection.
3. InfoGroup saying the cost of the yacht for former CEO Vinod Gupta was really $873,078 instead of the zero that it had previously reported.
4. Freddie Mac, which took more than $50 billion in money from the government to stay afloat, giving its new CFO a $1.95 million signing bonus in addition to other goodies.
5. Ross Perot Jr. asking for — and getting — a $1.1 million tax gross up after collecting over $950 million by selling Perot Systems to Dell.

You can cast your vote for the worst footnote here. Voting will remain open through Dec. 30 and the results will get posted on Dec. 31.