Posts filed under “Think Tank”

Economic data

In likely a result of a rush to buy a home in order to qualify for the possible expiration of the home buying tax credit, Sept Pending Home Sales, a measure of contract signings of existing homes, rose 6.1%, well above expectations of a flat reading m/o/m. The gain was led by the high foreclosure region of the West, followed by the Midwest and South. Contract signings fell in the Northeast. In the aggregate, Sept is the last month to sign a contract to buy an existing home with hopes to close by Nov 30th in order to qualify for the $8,000 tax credit. October will likely see a hangover but with the likely extension of the credit, things may pick up again but it will happen during a seasonally slower time of the year for transactions. At some point (maybe), the tax credit will end for good and the housing industry will go back to natural demand and supply dynamics and it will be only then will we know the real status of the industry.

The Oct ISM manufacturing # was a better than expected 55.7, 2.7 pts above forecasts and up from 52.6 in Sept. It’s at the highest level since Apr ’06 but the ISM is a measure of the direction of improvement, not the degree so don’t extrapolate that we’re partying like its Apr ’06 but we are certainly better off than Apr ’09. New Orders fell more than 2 pts and Backlogs were flat but Production (following previous gains in Orders) rose to the highest since July ’04 and Inventories at the manufacturing level rose to the highest since Aug ’08. The inventory build is the basis for the rebound in the economy and manufacturing will lead the way. Customer inventories though were down a touch. The Employment index was a key positive as it rose almost 7 pts to 53.1, the 1st time above 50 since July ’08 and its the highest since Apr ’06 helped out by “some callbacks and opportunities for temp workers”. Export Orders were up a touch but at the most since Aug ’08.

Category: MacroNotes

China continues to charge ahead

China’s economic bounce has continued so far into Q4 as evidenced by both the October state enterprise and private sector weighted manufacturing indices which rose to the highest level since April ’08. There will also likely be no change in economic policies for the foreseeable future according to the Minister of Commerce as he believes…Read More

Category: MacroNotes

Words from the Investment Wise 11.1.09

Words from the (investment) wise for the week that was (Oct 26 – Nov 1, 2009)

Rewind the movie to before the stock market lows of March 9: stocks down, corporate bonds down, commodities and gold down, emerging-market currencies down, safe havens in fashion, including the US dollar and government bonds. In short, risky assets closed sharply lower over the past few days as concerns mounted over the outlook for central bank policy and the sustainability of the global economic recovery, with investors only warming momentarily to the US emerging from recession as shown by the Q3 GDP report (announced on the 80th anniversary of Black Tuesday, October 29, 1929).

Cameron Brandt, senior analyst of fund tracker EPFR Global, said (via the Financial Times): “Good corporate earnings – viewed in recent weeks as fuel for a sustained recovery – are currently being regarded as ammunition for policymakers looking to close the fiscal and monetary stimulus taps.”

Adding to the economic uncertainty, Chuck Butler of the Daily Pfennig, highlighted a study by Peter Bernholz (Professor of Economics in Basel) in which he analyzed the world’s 12 most important periods of hyperinflation and discovered that the tipping point occurred when deficits amounted to 40% of the expenditures. “For the United States we have arrived at exactly that point. The deficit of $1.5 trillion amounts to 41.7% of the $3.6 trillion in expenses,” said Butler.


Source: Walt Handelsman, October 30, 2009.

The CBOE Volatility (VIX) Index is a measure of the implied volatility of S&P 500 Index options, with very low numbers indicating extreme bullishness and very high numbers severe bearishness. It is also referred to as the “fear gauge” of US stock markets and is used as a contrary indicator as it moves inversely to equity prices. As shown below, it is noteworthy that the VIX has surged by 48.3% during the past seven trading sessions to its highest level since early July.



The past week’s performance of the major asset classes is summarized by the chart below. The numbers indicate an all-change pattern in the performances from the past few months as risk aversion re-entered financial markets and investors moved money from stocks and commodities into government bonds and the US dollar.



A summary of the movements of major global stock markets for the past week, as well as since the October 19 peak and various other measurement periods, is given in the table below.

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Category: Think Tank

The Coming Week: Fed, Employment Report, Asia

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).


Saturday, October 31, 2009

This is going to be a big week. And it comes on the heels of another weekend bank-failure announcement, and as we absorb the Geithner testimony and the discussion draft hearing in front of Barney Franks’ House Financial Services Committee.

Ours views of this Geithner-designed proposal are harsh and already known to readers. It has the makings of another PPIP-type fiasco; but in this case the damage could be lasting, since it involves a government super-regulator structure and not just a single program. This is a mix of politics and money and power at its worst.

It seems as if criticism is mounting from all sides, labor and business, left and right, Democrat and Republican. Geithner really hurt himself when he danced around the direct questions pertaining to “secret lists.” Mr. Secretary: when you were asked if there were going to be secret lists, why didn’t you just say yes? By not answering the questions directly you opened yourself up to an entire scrutiny of the flaws in the bill and lost your already damaged credibility. As for secret lists, it is time for the federal government to stop. Make rating scores public. Stop mouthing the word transparency while practicing opacity. That may restore the term moral hazard back into usage, in place of what we have witnessed. Kevin Ferry aptly described the current condition as “moral swamp.”

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Category: Think Tank

Systemic Risk Bill: Amendment suggestion

I have another suggestion for the Systemic Bill. Someone should demand language, or file an amendment, that states: ‘Directors, Officers, senior management and consultants of any institution that draws on the industry funds created under this title or receives any relief or is subject to any other actions provided for under this Title shall, for…Read More

Category: Think Tank

Rosner Says Stability Act Would Hurt Small, Medium Banks We need to really push back against the TBTF industry’s lobbying pitch that forcing them to shrink or break them up will cause them to be “uncompetitive”. This is a false notion and the only link they have for arguing against a requirement they reduce their size and scope, by imposing uneconomically high capital…Read More

Category: Think Tank

Catching Argentinian Disease

November 30, 2009
By John Mauldin

Catching Argentinian Disease?

The Ascent of Money

The Independence of the Fed Threatened

A Few Quick Thoughts on the Dollar, GDP, and the Recession

Uruguay, Philadelphia, Orlando, and then…


I have been in South America this week, speaking nine times in five days, interspersed with lots of meetings. The conversation kept coming back to the prospects for the dollar, but I was just as interested in talking with money managers and business people who had experienced the hyperinflation of Argentina and Brazil. How could such a thing happen? As it turned out, I was reading a rather remarkable book that addressed that question. There are those who believe that the United States is headed for hyperinflation because of our large and growing government fiscal deficit and massive future liabilities (as much as $56 trillion) for Medicare and Social Security.

This week, we will look at the Argentinian experience and ask ourselves whether “it” – hyperinflation – can happen here.

The Ascent of Money

I will be quoting from Niall Ferguson’s recent book, The Ascent of Money. I cannot recommend this book too highly. In fact, I rank it up with my all-time favorite book on economic history, Against the Gods, by the late (and sorely missed) Peter Bernstein. There are very few books I read twice. There are too many books and not enough time. This book I will have to read at least three times, and soon, and I have a lot of underlines and mark-ups in it already.

If there were one book I could require every member of the Congress to read, it would be this one. As I read it, I am struck again and again by how fragile and yet resilient our economic systems are. Fragile in the sense that governmental policy mistakes, no matter how well-intentioned, can destroy the wealth of a nation, and resilient in that it doesn’t happen more often.

In his introduction Ferguson writes, “The first step towards understanding the complexities of the financial institutions and terminology is to find out where they came from. Only understand the origins of an institution or instrument and you will find its present day roles much easier to grasp.”

As is often said, those who do not understand history are doomed to repeat it. If you want to understand what is happening in the economy, what the consequences of our choices could be, then I strongly suggest you get The Ascent of Money. It is easy to read, engaging, full of moments where you are led to pull together different ideas into an “Aha!” Ferguson is a brilliant writer and historian, and we are lucky to have this book at a time when it is sorely needed. (order it at

As I have been writing, the United States in particular, and the developed world in general, are faced with a series of very unpleasant, if not downright bad choices. The time for good choices was ten years ago. Now we face the prospect of painful decisions, no matter what we do. It is not a matter of pain or no pain, of somehow avoiding the consequences of our bad decisions, it is simply deciding how much pain we will take and when, or allowing the pain to build up to a climactic event. Today we look at what I think would be the worst choice of all.

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Category: Think Tank

Shallow 5% Pullback Led to Short Covering

Yesterday’s bounce occurred after a relatively shallow 5.00 % pullback in the S&P 500 from its recent peak.  So far this move appears to be more short covering driven than a new wave of institutional buying. Several things we noticed of late and also in yesterday’s activity were as follows”  The recent corrective wave saw…Read More

Category: Think Tank

Data of the day

The final Oct UoM confidence # was 70.6 down from 73.5 in Sept but above the preliminary reading out a few weeks ago of 69.4 and also above estimates of 70. The drop from Sept was led by a fall in the Outlook component which fell almost 5 pts. Current Conditions rose a touch. The…Read More

Category: MacroNotes

Fed Independence: R.I.P.?

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…Read More

Category: Think Tank