Posts filed under “Think Tank”

King Report: Sympathy for Traditional Managers

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Our sympathies go out to traditional managers of public funds because they are being forced to abandon prudence and reason in order to generate short-term performance in a rigged casino.

Deceit and duplicity are encouraged if not demanded. Earnings are crafted; balance sheets cannot be trusted; government economic data is illegitimate.

Case in point: Last week Blessed Warren Buffett pens a NY Times op-ed that excoriates US solons for turning the US into a debt-laden banana republic. Within 24 hours, the White House says the deficit this year will be about one-quarter of a trillion dollars less than expected. Friday after the close, Reuters reports that the White House says the deficit will be $2 trillion more than expected, or $9T, over the next ten years.

Think about this for a minute; it epitomizes sanctioned deceit and duplicity in the markets. This chicanery cannot occur by accident. Solons obviously believe the investing public is hopelessly gullible.

Asian bourses tanked early on Friday but during European trading stocks surged. Later the reason appeared when Ben Bernanke, speaking from Jackson Hole, asserted that global economies are emerging from recession. BTW, how accurate has Ben’s forecasting record been over the past few years?

Nevertheless, twas expiration and traders, as well as investors, are rip-roaring bullish. Anyone that has been around for a few years knows that when funny money is flowing and traders are manipulating markets, investors become incontinent and start rationalizing instead of being rational.

At this point, critical analysis, especially of crafted economic data, disappears. This means we are right back to 2007 and early 2008. Bizarrely, many indicators like insider selling, cash holdings, sentiment, future expectations and even business surveys are back to 2007 levels.

But consumer confidence and disaffection is also falling back to 2007 levels. We clearly recall how the usual talking heads, shills and Bush apologists lambasted consumers for not being as jiggy as Wall Street. The peons did not realize how great the economy, as defined by soaring stocks & commodities, was.

There was a great disconnect between the real economy and Wall Street in 2007, due to funny money, crafted economic data and earnings, deceit, lax regulation and a decade or more of inculcated bullishness.

Rasmussen: Nationally, 29% of adults believe economic conditions in the U.S. are getting better while 46% say they are getting worse….

The Rasmussen Investor Index, which measures the economic confidence of investors on a daily basis, dropped a point on Sunday to 85.6. While the index is down three points over the past week, it is up 17 points over the past month. Investor confidence is now up 23 points from the beginning of the year. Among investors, 34% say economic conditions are improving and 41% say they are getting worse.

So the US official policy of manufacturing assets bubbles to paper over intractable economic and financial problems, including unserviceable debt continues.  The only difference is the debt is much more onerous and much more capital has been destroyed.  This means the system is even more levered.

Category: Think Tank

Stock market and US Treasury market sending different signals

RIP the CFC program as of tonight and we’ll now get to see what the natural supply and demand dynamic is in the auto industry. The other major program, the Cash for Shelter plan providing tax credits for home purchases, runs to Nov 31st but there is already talk of enlarging its size and making…Read More

Category: MacroNotes

Andy Xie is a former Morgan Stanley economist now living in China; The following is from the South China Morning Post: > The A-share market is collapsing again, like many times before. It takes numerous government policies and “expert” opinions to entice ignorant retail investors into the market but just a few days to send…Read More

Category: Think Tank

Oil! The price forecasts vary. Why?

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

Words from the (investment) wise August 23, 2009

Words from the (investment) wise for the week that was (August 17 – 23, 2009)

After starting the week with a broad-based sell-off, stock markets resumed their five-month uptrend as investors’ confidence in the recovery prospects of the global economy gained traction. With risky assets back in favor, a number of bourses and crude oil closed at fresh highs for the year, showing resilience in the face of a sharp correction in China on Monday (-5.8%) and Wednesday (-4.3%). Safe-haven assets such as government bonds and the US dollar received a cold shoulder.

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Source: Walt Handelsman, August 20, 2009.

Referring to the nascent economic recovery, Paul Kasriel and Asha Bangalore (Northern Trust) said: “There is concern being voiced that after the fiscal stimulus wears off, the economy will lapse back into a recession. Anything is possible, but that does not necessarily make it highly probable. In the post-WII era, once the US economy has gained forward motion, it has maintained that forward motion until the Federal Reserve has intervened to halt it.

“We believe that the earliest the Fed will begin to take action to brake the pace of nominal economic activity will be late-June of 2010. And if it begins to take action then, it will do so only tentatively. If, in fact, economic activity is flagging from a lack of additional fiscal stimulus, then the Fed is unlikely to commence tightening or would reverse course. We believe that the next recession, whenever it occurs, will be precipitated by the lagged effects of Fed tightening, not by the economy ‘running out of gas’ on its own.”

The past week’s performance of the major asset classes is summarized by the chart below – a set of numbers that indicates renewed investor appetite for risky assets.

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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 (+1.6%) and MSCI Emerging Markets Index (-0.8%) followed separate paths last week as China and a number of emerging markets came under pressure during the first few trading days. Emerging markets have now underperformed developed markets for three weeks running.

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Category: Think Tank

How Not to Reduce Excess Reserves

Here is something I never expected to be linking to on a Saturday afternoon, via the St. Louis Fed’s David C. Wheelock: How Not to Reduce Excess Reserves: The Federal Reserve’s actions to support financial markets and the broader economy have resulted in a large increase in bank reserves—both total reserves and reserves held in…Read More

Category: Credit, Federal Reserve, Think Tank

The Statistical Recovery, Part Three

The Statistical Recovery, Part Three
Capacity Utilization Set to Rise
A Real Estate Green Shoot?
The Deleveraging Society
Some Thoughts on Secular Bear Markets
Weddings and Ten Years of Thoughts From the Frontline

This week we further explore why this recovery will be a Statistical Recovery, or one that, as someone said, is a recovery only a statistician could love. We look at capacity utilization, more on housing, some thoughts on debt and deflation, and some intriguing charts on volatility in the last secular bear-market cycle. This letter will print a little longer, but there are lots of charts. I have written this during the week, and I finish it here in Tulsa, where Amanda gets married tomorrow. (There is no deflation in weddings costs!)

Thanks to so many of you for your enthusiastic feedback about my latest Accredited Investor Newsletter, in which I undertook to examine the impact of last year’s dramatic increase in volatility on the performance of hedge funds and to ascertain those elements that led to success in the industry, such as select Global Macro and Managed Futures strategies, as well as the challenges. If you are an accredited investor (basically anywhere in the world, as I have partners in Europe, Canada, Africa, and Latin America) and haven’t yet read my analysis, I invite you to sign up here: www.accreditedinvestor.ws

For those of you who seek to take advantage of these themes and the developments I write about each week, let me again mention my good friend Jon Sundt at Altegris Investments, who is my US partner. Jon and his team have recently added some of the more successful names in the industry to their dedicated platform of alternative investments, including commodity pools, hedge funds, and managed futures accounts. Certain products that Altegris makes available on its platform access award-winning managers, and are designed to facilitate access for qualified and suitable readers at sometimes lower investment minimums than is normally required (though the net-worth requirements are still the same).

If you haven’t spoken with them in a while, it’s worth checking out their new lineup of world-class managers. Jon also tells me they just added yet more brilliant minds to their research team, making it, in my opinion, one of the foremost teams in the industry, focused solely on alternative investments. I invite you to have a conversation with one of their professional and seasoned advisors. (In this regard, I am president and a registered representative of Millennium Wave Securities, LLC, member FINRA.) Now, let’s jump into the Statistical Recovery.

Capacity Utilization Set to Rise

Capacity utilization is a concept in economics that refers to the extent to which an enterprise or a nation actually uses its installed productive capacity. Thus, it refers to the relationship between actual output that is produced with the installed equipment and the potential output that could be produced with it, if capacity was fully used.

The chart below shows that capacity utilization in the US is at an all-time low, around 68%. That means that with the equipment we already have in place we could produce almost 50% more goods than we are now producing. However, most analysts think that 80% capacity utilization is a very good number.

If you look very closely at the bottom right-hand detail, you can see that there is a small uptick in last month’s data. Whether or not this is the “bottom” remains to be seen. But if it is not the bottom, it is close. You can only shut down so much production before inventories fall to levels that require restocking. And we are getting close to that level in many industries.

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Before we wander too far away from the graph, I want you to notice that past dips (circa the recessions of 1968, ’74, and ’80-’82) had V-shaped recoveries in capacity utilization. But in the 1990-91 recession it took longer than it did in past recessions, and in the most recent recession (2000-02) the recovery took longer and we did not actually “recover” for four years.

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Category: Think Tank

Existing Home Sales

July Existing Home Sales, 85% of the housing market and a measure of actual closings, totaled 5.24mm annualized, 240k more than expected and the highest since Aug ’07. The inventory to sales ratio though remained unchanged at 9.4 months because the improvement in single family homes to 8.6 from 8.9 was offset by a spike…Read More

Category: MacroNotes

Chart of the Day: S&P500 P/E Ratio

Today’s chart illustrates how the recent plunge in earnings has impacted the current valuation of the stock market as measured by the price to earnings ratio (PE ratio). Generally speaking, when the PE ratio is high, stocks are considered to be expensive. When the PE ratio is low, stocks are considered to be inexpensive. From…Read More

Category: Earnings, Technical Analysis, Think Tank, Valuation

King Report: Phony Philly Forecast

> Is Bernanke purposely aiding & abetting the usual market manipulation that occurs during expiration week? In July, Ben poured $80.2B into the system, mostly by monetizing MBS, during expiration week, igniting a huge rally. The Fed balance sheet contracted for most of June and July before Ben’s gambit. For the week ended Wednesday, Ben…Read More

Category: Markets, Think Tank