Posts filed under “Think Tank”

Words from the (investment) wise 9.20.09

Words from the (investment) wise for the week that was (September 14 – 20, 2009)

Marking the one-year anniversary of the Lehman Brothers demise, risky assets last week again marched higher to the tune of economic data supporting the argument of a global economic recovery. A realization among investors that the economic transition from recession to recovery was gaining momentum, resulted in many global stock markets scaling fresh peaks for the year.

Ben Bernanke, Federal Reserve chairman, on Tuesday said the US recession “is very likely over”. However, he remained cautious about the shape of the recovery and said he expected a “moderate” recovery in 2010 with growth “not much faster than the underlying potential growth rate of the economy”, i.e. approximately 3%.

“At the moment we don’t see (the economy) getting better or worse, but that’s better than you could say six months ago,” added Warren Buffett. “The terror of last year is gone and that’s thanks in part to the government.”

20-09-09-01

Source: Tom Toles, Slate.com

Not only did the US stock market indices record up-days on every day except Thursday, but all ten economic sectors that make up the S&P 500 also closed the week in the black. Most other stock markets (mature and emerging alike), commodities, oil, precious metals, high-yielding currencies and corporate bonds also put in a stellar performance as a bullish mood prevailed.

The CBOE Volatility Index (VIX), or “fear gauge”, traded at about the same level (23.9) as before the Lehman bankruptcy in September last year. Also, government bonds and other safe-haven assets such as the US dollar and Japanese yen were out of favor as investors sought higher returns elsewhere.

As investors started assuming more risk since March, the US Dollar Index headed lower, hitting a one-year low last week and trading in a confirmed downtrend as far as primary trend indicators are concerned. The combination of low interest rates and quantitative easing has made the US dollar an attractive currency for funding carry-trade transactions (i.e. selling low-yielding currencies to finance the purchase of higher-yielding currencies). (Click here for a short technical analysis.)

The declining dollar, central bank purchases, the de-hedging by gold producers and rising inflation expectations served as catalysts for gold bullion’s strength, causing the yellow metal to close above the $1,000 level for the sixth consecutive day on Friday. While gold’s move grabbed the headlines, platinum (+42.5%) and silver (+50.5%) have actually outperformed gold (+13.9%) significantly since the start of the year.

20-09-09-02

Source: StockCharts.com

The past week’s performance of the major asset classes is summarized by the chart below – a set of numbers that indicates an increase in risk appetite.

20-09-09-03

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.

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Category: Think Tank

The Hole in FDIC

The Hole in FDIC
September 18, 2009
By John Mauldin

Elements of Deflation, Part 3
Outrageous! – Artificial Deflation!
If You Are in a Hole, Stop Digging!
The Hole in the FDIC
How Can Just Four Stocks Be 40% of the NYSE Volume?
New Orleans and a Mauldin Migration to Europe

This week we continue to look at what powers the forces of deflation. As I continue to stress, getting the fundamental question answered correctly is the most important issue we face going forward. And the problem is that we cannot use the usual historical comparisons. This week we look at one more factor: bank lending. I give you a sneak preview of what will be an explosive report from Institutional Risk Analytics about the problems in the banking sector. Are you ready for the FDIC to be down as much as $400 billion? This should be an interesting, if sobering, letter.

But first, Dennis Gartman and Greg Weldon will be joining me next week for another Conversation with John Mauldin. This is my subscription service where I sit down with my friends and let you eavesdrop on our conversations (we also transcribe them). Dennis and Greg are two of the premier traders and data mavens in the world, and we will be all over the world of commodities, currencies, and the markets. I can tell you, it will be one exciting conversation for me.

It won’t be too long before it will be time to do another Geopolitical Conversation with George Friedman. George and I are doing a conversation quarterly, and right now it is a bonus if you subscribe to Conversations with John Mauldin, but the plan is to offer it separately for $59. Now, here is the important part:

all current subscribers and anyone who subscribes now will receive these Geopolitical Conversations free, as a thank you. If you have not yet subscribed, you can do so and receive a discount by clicking the link and typing in the code JM49
to subscribe for $149. This is a large discount from our regular price of $199; plus, we are including the bonus Geopolitical Conversations that are worth $59.

And now, to the regular letter.

Outrageous! – Artificial Deflation!

Speaking of deflation, let me mention something I find totally outrageous. Normally, I actually take up for the bureaucrats who are stuck with the task of trying to monitor inflation. It is a tough job, and like Monday-morning quarterbacks, everybody thinks you should have done it differently. I can understand the rationale for hedonic measurements, housing rent equivalents, etc., even if I don’t agree with them. You have to set some rules and live with them. But the latest imbroglio is disgraceful.

It seems the US Bureau of Labor Statistics, in the CPI next week, will treat the subsidy received by those 800,000 car buyers who bought a car in the “Cash for Clunkers” program as if the price of a car fell by $4,500. Really? My tax dollars account for nothing?

This does several things. It will decrease the inflation used to adjust the GDP for this quarter. Not the end of the world, but annoying But what really matters is that the CPI is used to calculate Social Security increases and interest paid on TIPS.

If I tried to defraud one of my clients using such accounting legerdemain, I would be shut down, sued, and taken to court (at the minimum) by the host of regulators who look over my shoulder. And I should be! You don’t make such changes in the rules to your own benefit. But that is what the BLS did. This policy should be overruled immediately. There are enough deflationary forces in the world without having to artificially create some more. OK, off the soapbox and onto the banking system.

If You Are in a Hole, Stop Digging!

Right outside my office window I am watching what is to me a visual parable for the banking crisis that has beset the world. I lease a rather large home in a nice, quiet neighborhood in Dallas, and moved my office here last year, as we can use the extra bedrooms and sitting areas. Besides saving a lot (!) of money (always a good thing), it gives me a ten-second commute as I walk down the hall to the back of the house. Tiffani and I each save over a month in driving time a year. That is huge.

My quiet neighborhood changed a few weeks ago. Trying to sleep in the morning after the Paul McCartney concert, I awoke to find with my bed literally vibrating. Earthquakes in Texas? No, it seems my neighbor decided he needed a bigger home, and the first thing to be done was to tear down the old one, which they did rather efficiently, if not quietly, over the next few days. We
literally had glasses and other items vibrating in the house.

Then, after removing a large pecan tree, they proceeded to dig 25-foot-deep holes (26 of them!) and fill them with iron and concrete piers on my side of the lot. The plans called for a rather large basement, and the very experienced builders (exceptionally nice guys) wanted to make sure the earth did not move, causing my home to have problems. So for three days I had a very noisy drill literally ten feet away from my window (I wrote an e-letter during one of those days).

Now, since the other sides of the lot were on a street or backed up to an alley, they did not put in piers there. No homes to worry about. I did not think much of it, as these guys had built some of the biggest and nicest homes in the area. They then proceeded to dig a very large hole, as the basement was going to be quite expansive. It turns out you have to dig the hole bigger than the actual size of the basement, since you have to have room to put up forms to pour concrete, etc. And you have to excavate on an angle. At the end of the process, most of the lot was slanting downward toward the end of the hole near
the alley.

Then the clouds darkened, and the builders realized we were in for a little rain. (You can start to guess!) They took precautions and put heavy plastic over the sides of the hole to keep the sides dry. And then the rains came. Texas rains. The plastic was pulled from its wall and the street side of the hole began to literally wash back into the hole as we watched, going all the way back to and under the sidewalk. The poor builders showed up and began the process of trying to mitigate the damage, but it had been done and only got worse as it continued to rain for three days. The next morning I was the temporary owner of lake-front property. Those piers on my side were starting to be exposed.

They brought in crews for emergency repairs to the sides of the hole, and they really went after it. What to do then? It seems that the only thing to do was to fill the hole back up and start all over, only this time putting piers around the whole property. Which is what they are doing now. But since they had taken all the original dirt away, they are now having to take dirt from the rest of the property to fill the hole they will redig later.

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Category: Think Tank

Baltic Dry Index, lowest since May

The Baltic Dry Index has fallen today to the lowest level since mid May, down for a 6th straight day at 2,356. It still remains 255% off the Dec lows but is now down 45% off the late May ’09 high and is 80% below the record high in May ’08. To give perspective on…Read More

Category: MacroNotes

Morning Stuff

Following the two biggest back to back volume days since early August, we’ll get today another above trend volume day solely due to quadruple witch expiration. With the open interest in the SPX options at strikes around current levels relatively small, it may be uneventful. The US$ is bouncing for just the 2nd day in…Read More

Category: MacroNotes

1121 in the S&P’s a key level

With a few weeks left in Q3 and as we look to year end, the S&P’s are approaching the important technical level of 1121 which is the 50% retracement of the entire bear market from the Oct ’07 all time highs to the March ’09 lows. While we may continue in that direction if we…Read More

Category: MacroNotes

More on the flow of funds and the debt impact on the economy

To elaborate further on my previous note on the Fed’s Flow of Funds statement and to illustrate the impact of debt on our economy, over the past 10 years total US debt (households, business, government at all levels and domestic financial institutions) has basically doubled from $24.6t at the end of 1999 to $50.9t as…Read More

Category: MacroNotes

Fed’s Flow of Funds tells us how much debt there is

The Q2 US balance sheet is out via the Fed’s Flow of Funds statement and it reveals that household debt (home mortgages + consumer credit) as a % of disposable income fell to 118% from 120% in Q1 and 123% at the end of ’08 and vs the record high of 127% in ’06. It…Read More

Category: MacroNotes

Watch Bond Fund Flows, Not Stock Fund Flows

> James Bianco has run Bianco Research out of Chicago since November 1990. He has been producing fixed income commentaries with a circulation of hundreds of portfolio managers and traders. Jim’s commentaries have a special emphasis on: money flow characteristics of primary dealers, mutual funds, hedge funds, futures traders, banks, and institutional investors. Prior to…Read More

Category: Commodities, Fixed Income/Interest Rates, Think Tank

September Philly Fed survey

The Philly Fed survey was 14.1, 6 points more than expected and up from 4.2 in Aug. It’s at the highest level since June ’07 but the components were mixed as the headline figure is not a sum of its parts. New Orders fell to 3.3 from 4.2 and Employment fell by 1.4 points to…Read More

Category: MacroNotes

Housing Starts

August Housing Starts totaled 598k annualized, right in line with expectations while the prior month was revised up by 8k to 589k. The gain m/o/m was solely led by multi family construction as single family starts fell and the same can be said about Permits. Permits were 579k, 4k below the consensus but July was…Read More

Category: MacroNotes