click for ginormous graphic
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Source:
Visualizing The New Arab Mind
02/11/2011
http://www.kovasboguta.com/1/post/2011/02/first-post.html
Its been a busy time in the office, madness on the blog, and a miserable winter.
Thus, I am heading off to warmer climes this week for a little R&R.
I am leaving the blog in the estimable hands of Jonathan Miller of Miller Matrix and Invictus (Rosie’s former colleague).
I may squeeze in a few early morning posts while Mrs. Big Picture is catching Zzzzs.
The past few days have seen an immense surge of spam comments. 1,000s that are crushed by the filter, and about 2000 per day that are manually reviewed for false positives — with about 0.50% of all filtered spam comments showing flase positives — meaning, real comments thought to be spam. These will not be reviewed this week, so if your comments seem to take forever to appear, or worse yet, disappear, please bear with us.
Its likely a coincidence, but my travel history has the markets doing odd things when I travel The 2000 top and 2003 bottom, the October 2007 highs some far away city; most infamously, the Flash Crash took place while I was airborne at 30,000 feet.
Hence, if the markets do something screwy this week, at least you were warned (Heh heh).
New York City – Timelapse from stimul on Vimeo.
A Random Walk Around the Frontlines
John Mauldin
February 19, 2011
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I am on yet another plane and writing, and I’ll finish this letter in Phoenix. As I start, I am not sure of a theme for this week’s letter, so (with a tip of the hat to my friend Burton Malkiel, who I will see at Rob Arnott’s conference in a few months), today we do a Random Walk Around the Frontlines, surveying what’s going on in the world. We’ll start with the Fed and interest rates, look at inflation, and see how far we get. And I might get a little controversial, but long-time readers know that is not all that unusual.
But first, I want you to mark your calendars for April 28-30, when I will host, along with my partners at Altegris Investments, what I think will be the single best investment conference of the year. It will be the 8th annual Strategic Investment Conference in La Jolla. Let me give you the Killer’s Row line-up of speakers, in alphabetical order. Martin Barnes (Bank Credit Analyst), Marc Faber, Niall Ferguson (author and Harvard Professor), George Friedman of Stratfor, Louis-Vincent Gave (of GaveKal), Neil Howe (the Fourth Turning), Paul McCulley (if he ever surfaces from his fishing vacation), David Rosenberg, Dr. Gary Shilling, Jon Sundt (of Altegris), and of course, your humble analyst. I mean, really. Most conferences have one or two top-tier headliners. We have nothing but the best. These guys are all great speakers, but getting them on panels together? Way cool. Plus some of the best hedge fund managers (personal opinion) show up to give you their thoughts. And maybe a surprise last-minute guest or two. If this conference lineup were a baseball team, they would sweep the World Series. Oh, and the best part? Your fellow conference attendees. The interaction among them is what truly makes this conference the best.
We (well actually, Altegris) will soon start sending out invitations, but you can register today at http://hedge-fund-conference.com/2011/invitation.aspx?ref=mauldin. Sadly, the conference is limited to accredited investors with a net worth of more than $2 million, as there are funds presenting that require that minimum (and some even more). Those are the rules we have to live with, whether I like them nor not (I don’t, as long-time readers know). But we follow them religiously.
Every year the conference sells out. Every year some of you wait to the last minute, thinking we can “always take one more.” We can’t. There is a limit to the space. If you have attended in the past, call your Altegris representative and make sure you get on the list. Do not procrastinate.
Now more than ever you need to consider the place for alternative investing in your portfolio. I work with partners around the world for both accredited and non-accredited investors. If you would like to know more, then go to www.johnmauldin.com and click on The Mauldin Circle, register there, and someone will call you. Seriously, the teams at Altegris (for US accredited investors), CMG (for those with net worth less than $2 million in the US), ARP (Europe), and others have some very innovative and interesting funds and managers on their platforms that really deserve a look. Even if you can’t make the conference, your portfolio will thank you for finding some alternative investments that make sense in these times. Now, to the letter.
The US economy continues to improve in fits and starts. While industrial production was down 0.1% in January, much of it was weather-related, and December was revised up to a healthy 1.2%. Production surveys indicate that production is likely to continue its upward trend.
Inflation is turning back up. The ECRI Future Inflation Gauge has been up for three straight months and is starting to show that worries about deflation, absent a shock to the economy, are going away. Core inflation is still up only 1% from a year ago, while overall inflation is up 1.6%.
But I want you to note the chart below from the recent BLS release. Notice that inflation for the last six months has risen rather smartly. And for the last three months inflation on an annualized basis is running over 3%, if I did the math correctly.
The ISM numbers came out for January and they were robust. The number was back above 60 for the manufacturing portion, which is quite healthy. And the service sector showed a very respectable 59.4.
So the LA Times reports that former Countrywide CEO Angelo “Agent Orange” Mozilo has had a criminal investigation against him dropped.
It appears, as Atrios notes, that “If Everybody is Guilty Then Nobody Is.” As the Times puts it:
Columbia University law professor John Coffee said mortgage cases like Mozilo’s were muddied by the numerous parties involved, unlike Enron and other “cook the books” cases in which executives were convicted.
Countrywide’s model was to make or buy mortgages only to sell them off immediately to Fannie Mae or Wall Street as fodder for securities.
Given that model, Coffee said, blame could be assigned to an entire chain of players: mortgage brokers who falsified applications; investment bankers who concocted complex and “opaque” mortgage bonds; rating firms that provided high ratings on the bonds but said they were lied to; and institutional investors that relied on dubious ratings because the securities carried above-market interest while promising to be risk-free.
“All share responsibility, but none are culpable enough by themselves to compare with [Enron's] Ken Lay, Jeff Skilling or the WorldCom CEO,” Coffee said.
It’s the old “plausible deniability” scheme (I think I remember a “24″ season in which that was a theme) in different skin. Or perhaps like the operation of a cell: Various actors each undertake different activities, none of which is illegal in and of itself (though I’m sure in this instance there was enough illegality going on) and without the knowledge of what any of the other actors’ roles are. The sum of the parts constitutes a crime, but none of the individual acts does. So instead of getting dozens or hundreds of prosecutions, we’ll get none. Moral of the story: Do not commit massive fraud by yourself (i.e. Skilling, Lay, Ebbers, Madoff). Commit exponentially larger fraud with the help of co-conspirators.
Floyd Norris points out an oddity of the general sentiment: People seem to think the economy is improving — but their personal finacial situation is not:
“AMERICANS are becoming more optimistic about the prospects for the economy, but are still concerned about their own financial situation.
For the first time in six years, at least half of Americans questioned for the Thomson Reuters/University of Michigan consumer sentiment index said they believed that business conditions had improved over the previous year, according to the preliminary results from the February survey.”
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Optimism for the Economy, Less for Themselves
click for ginormous chart
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Source:
Many Americans See Economy Improving, but Not for Them
FLOYD NORRIS
NYT, February 18, 2011
http://www.nytimes.com/2011/02/19/business/economy/19charts.html
I don’t know why someone would put together an infographic of interesting facts about Bill Murray.
I only know they did, and I am therefor compelled to share it with you . . .
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click for larger graphic (if you can imagine that)
Via online schools
Peter T Treadway, PhD
Historical Analytics LLC
www.thedismaloptimist.com
pttreadway -at- hotmail.com
305-761-4718
852-9409-1186
February18, 2011
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Nobody’s Leaving the Euro
Frequently I have been asked how would Greece leave the euro if it so chose. My answer, which I have alluded to in The Dismal Optimist, has been look at what Argentina did in January 2002 when in a process dubbed pesificacion it forced the conversion of dollar deposits back into pesos which almost immediately lost the bulk of their value against the dollar.
Taking Argentina as a guide, here’s what Greece would have to do. To begin, the Greek finance and prime ministers would adamantly declare that Greece was staying in the euro. Then one fine night when everyone was asleep they would issue an order converting all euro deposits back into a resuscitated drachma. Henceforth, only drachmas would be available at Greek banks and only drachmas would be usable as legal tender in Greece. The drachma in international markets would immediately go to a huge discount against the euro. Of course, when the Greek people woke up and realized their euro deposits had been transmogrified into a devalued substitute and they had in fact been cheated, the country would go up in flames.
I recited this scenario to a Greek professor friend in Hong Kong who quickly pointed out the naiveté and incompleteness of my model. Assume Greece did that, he rejoined. Then the very day Greece was going up in flames every Italian, Portuguese, Spaniard and Irishman would pull his or her euros out of their banks. What would be launched would be the MOTHER OF ALL BANK RUNS. Europe’s banking system would go up in flames.
It won’t be allowed to happen.
I do not want to underemphasize the yet unresolved banking and sovereign debt problems that afflict the euro area. Probable sovereign defaults lie ahead particularly with Greece and probably Ireland. But in the end the euro will survive just as the US did after eight states and the territory of Florida defaulted in the 1840s. The member countries can threaten to check out but as the song says they can never leave. Yes there is no central European government and common fiscal policy. But history, technology, geography and overwhelming financial convenience are powerful forces behind the euro. If necessary the hard working Germans will pay and pay. Post World War II Germany has been determined to comport itself as a model citizen. This, combined with still lingering nightmares from the hyperinflation after the first World War, make Germany the ideal core engine for the euro. And the profligate south will slowly have to give up its wanton ways. Euro Uber Alles.
Looking over to the other side of the Atlantic, can we be even cautiously optimistic about the US whose president in the midst of a cyclical and structural fiscal crisis, dreams of massive railroad and alternative energy expenditures? (sorry “investments”) How long can the US government stay in this fiscally irresponsible dream world when the rest of the world including US states are biting the bullet of contracting government? The respected financial historian, Barry Eichengreen, in several of his books has pointed out how in the interwar period the dollar and the British pound shared the limelight as the world’s reserve currency. Competition among reserve assets is not unhealthy. The headless euro, powered by its German locomotive and disciplined by the bond markets, may give the dollar significant competition. As will gold.
Hong Kong –The Great Mall of China
Average citizens don’t always realize how invisible monetary and macro forces play dominant roles their economic decisions. And investors often suffer from the same ignorance. Nowhere better is this illustrated than in today’s Hong Kong. Hong Kong is a place investors should keep an eye on, if only because of its currency US dollar currency peg puts it at the intersection of the US and Chinese economies.
In an interview with WSJ’s Alan Murray, social media expert Clay Shirky discusses the effect of Facebook, Twitter and other social media in the recent uprisings in Egypt and Tunisia, and what it could mean for the Middle East at large.
Feb. 18, 2011
Succinct summation of week’s events:
Positives:
1) Equity markets power higher still, S&P 500 up 17 of past 20 trading days
2) Philly mfr’g very strong, NY in line
3) Multi family housing starts strong, still subdued new home building
4) China raises reserve requirements, Chile raises rates, prudent responses to higher inflation
5) UK retail sales good
Negatives:
1) China and Chile tighten, following other central banks, can soft landing be achieved?
2) US PPI, CPI, import prices, prices paid and received all move higher
3) UK CPI hits 4%, Germany PPI at 5.7%
4) Portuguese 10 yr yield hits new high
5) UK jobless claims unexpectedly higher
6) German ZEW below estimates
7) US retail sales light
8) Initial claims back above 400k
9) Refi’s lowest since July ’09 with 30 yr mortgage rate above 5%
10) Stock exchange volume pathetic
"Markets can remain irrational longer than you can remain solvent." —John Maynard Keynes
After 3 quarters in a row that averaged just 1.2%, Q4 GDP grew 2.8%, a touch below expectations of 3.0% BUT Nominal GDP grew well below forecasts. Because the price deflator was up just .4% vs the estimate of 1.9%, Nominal GDP was up 3.2% vs the estimate of 4.9%. Personal Consumption rose 2.0% vs the forecast of 2.4%. Fixed Investment rose 3.3% helped by a 5.2% increase in equipment and software spending and residential construction rose by 10.9%. Trade was a slight drag on GDP growth and government spending was as well led by a 12.5% decline on national...
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