Chart of the Day has an interesting view on the state of the current cyclical bull run.
They note that “most major rallies (73%) resulted in a gain of between 30% and 150% and lasted between 200 and 800 trading days.”
I would like to see that data sliced even finer. Rather than looking at the universe of all bull markets, I would want to break it down further into rallies during secular bull and bear markets. I suspect both the duration and magnitude might be different that way.
Current Dow Rally Relative to Prior 27 Bulls Over 110 Years
Official Trailer for new documentary short about the oldest Holocaust survivor in the world, Alice Herz-Sommer. For more information about the film or to pre-order the DVD, visit: http://www.nickreedent.com
Source: Red State > A friend writes: “What do you do when presented with a chart such as the one above?” My answer was simply that it depended upon who is showing you the chart: • If it comes from a hard core partisan, you laugh at the flaws in their wetware and say nothing….Read More
Thoughts on Liquidity Traps
November 5, 2010
By John Mauldin
A Few Thoughts on the Employment Numbers
Bernanke Leaps into a Liquidity Trap
How to Spot a Liquidity Trap
London, The End Game, and Changes
I am in London finishing my new book, The End Game, which will be out after the first of the year, as soon as Wiley can make it happen. Working with my co-author, Jonathan Tepper, we are making good progress. We intend to quit (a book like this is never finished) tomorrow afternoon.
I am going to beg off from personally writing a letter this week, but will give you something even better. Dr. Lacy Hunt offers us a few cogent thoughts on the unemployment numbers. The headline establishment survey came in much better than expected, but the household survey was much weaker. In addition, Dr. John Hussman wrote a piece last week that I thought was one of his best, on liquidity traps and quantitative easing, and that’s included here, too. We are embarking on a course through uncharted waters. No one (including the Fed) has any idea what the unintended consequences will be.
I remarked a few weeks ago that the Fed is throwing an inflation party and not sure whether anyone will come. Last night at dinner, Albert Edwards of Societe Generale noted that not only do they not know whether anyone will come, they do not know what they will do if they do come, how much they will drink, or when they will leave.
My quick takeaway is the $600 billion is not all that much, and the buying is concentrated in the middle of the curve, where it is likely to do the least in terms of lowering rates (they are already low!), so also likely to do the least damage. Mohammed El-Erian thinks that if nothing happens the Fed will be forced to continue, which is a dangerous thing. I wonder whether they might just shrug their shoulders and say, “We tried, and now it is up to the fiscal side of the equation.” We shall see. It will be important to listen to the speeches of the Fed governors to get some idea.
Before we jump in, let me give you a few thoughts I am picking up in Europe. The yield spreads on Irish and Spanish bonds are blowing out even as we speak, as well as those on the rest of the periphery. While all eyes are on the Fed, the real action may be in Europe. We will visit that thought in the near future. Now, first to Lacy.
A Few Thoughts on the Employment Numbers
By Dr. Lacy Hunt, Hoisington Investment Mgt. Co.
The October employment situation was dramatically weaker than the headline 159k increase in the payroll employment measure. The broader household employment fell 330k. The only reason that the unemployment rate held steady is that 254k dropped out of the labor force. The civilian labor force participation rate fell to a new low of 64.5%, indicating that people do not believe that jobs are available, but this serves to hold the unemployment rate down. In addition, the employment-to-population ratio fell to 58.3%, the lowest level in nearly 30 years.
While not actually knowing what happened to the net job change in the non-surveyed small business sector, the Labor Department assumed that 61k jobs were created in that sector. This assumption is not supported by such important private surveys as those from the National Federation of Independent Business or by ADP. Just a month ago the Labor Department had to revise downward the job totals due to a serious overcount of their statistical artifact known as the Birth/Death Model.
The most distressing aspect of this report is that the US economy lost another 124K full-time jobs, thus bringing the five-month loss to 1.1 million in this most critical of all employment categories. In an even more significant sign, the level of full-time employment in October was at the same level that was reached originally in December 1999, almost 11 years ago (see attached chart). An economy cannot generate income growth by continuing to substitute part-time work for full-time employment. This loss of full-time jobs goes a long way to explain why real personal income less transfer payments has been unchanged since May.
The weakness in real income is probably lost in an environment in which the Fed is touting the gain in stock prices and consumer wealth resulting from the latest quantitative easing (QE), but QE has unintended negative consequences for real household income. Due to higher prices of energy and food commodities, QE may result in less funds for discretionary spending for consumers whose incomes are stagnant. Also, with five-year yields falling below 1%, rates on CDs and other types of short-term bank deposits will decline, also cutting into household income. At the end of the day these effects will be more powerful than any stock-price boost in consumer spending, which, as always, will be very small and slow to materialize.
To have a broad-based recovery, the manufacturing sector must participate. Contrary to the ISM survey, manufacturing jobs fell 7k, the third consecutive drop, resulting in a net loss over the past three months of 35k.
In summary, the latest economic developments indicate a slight worsening of underlying fundamental conditions.
Bernanke Leaps into a Liquidity Trap
John P. Hussman, Ph.D. www.hussmanfunds.com
“There is the possibility … that after the rate of interest has fallen to a certain level, liquidity preference is virtually absolute in the sense that almost everyone prefers cash to holding a debt at so low a rate of interest. In this event, the monetary authority would have lost effective control.”
- John Maynard Keynes, The General Theory
One of the many controversies regarding Keynesian economic theory centers around the idea of a “liquidity trap.” Apart from suggesting the potential risk, Keynes himself did not focus much of his analysis on the idea, so much of what passes for debate is based on the ideas of economists other than Keynes, particularly Keynes’ contemporary John Hicks. In the Hicksian interpretation of the liquidity trap, monetary policy transmits its effect on the real economy by way of interest rates. In that view, the loss of monetary control occurs because, at some point, a further reduction of interest rates fails to stimulate additional demand for capital investment.
Alternatively, monetary policy might transmit its effect on the real economy by directly altering the quantity of funds available to lend. In that view, a liquidity trap would be characterized by the failure of real investment and output to expand in response to increases in the monetary base (currency and reserves).
Category: Think Tank
I have no idea how a magazine subscription to Rolling Stone started coming to the house — probably a freebie associated with something else I bought on Amazon. (It goes straight to the bathroom magazine rack).
The cover this month has Keith Richards on the cover, discussing his new autobiography, Life.
Last weekend, I started thumbing through the excerpt . . . and I was completely engrossed, reading until my legs fell asleep. I immediately ordered it in hardcover.
I can’t wait to read it . . .
“It’s funny, gossipy, profane and moving and by the time you finish it you feel like you’re friends with Keith Richards.”
Interview with Richards on NPR Radio and on CBS TV after the jump.
David Fricke, Rolling Stone: “One of the greatest rock memoirs ever….The title of Richards’ book is a simple, accurate description on the contents: the 66-year-old guitarist’s highs, lows and death-defying excesses, from birth to now, vividly related in his natural pirate-hipster cadence and syntax….Life is ultimately two stories: one of music, misbehaviour and survival; the other a fond, perplexed, sometimes outraged telling of Richards’ life with Jagger, including their battles over control and the destiny of their band.”
Here’s from NYT review:
“For legions of Rolling Stones fans, Keith Richards is not only the heart and soul of the world’s greatest rock ’n’ roll band, he’s also the very avatar of rebellion: the desperado, the buccaneer, the poète maudit, the soul survivor and main offender, the torn and frayed outlaw, and the coolest dude on the planet, named both No. 1 on the rock stars most-likely-to-die list and the one life form (besides the cockroach) capable of surviving nuclear war.
Halfway through his electrifying new memoir, “Life,” Keith Richards writes about the consequences of fame: the nearly complete loss of privacy and the weirdness of being mythologized by fans as a sort of folk-hero renegade.
“I can’t untie the threads of how much I played up to the part that was written for me,” he says. “I mean the skull ring and the broken tooth and the kohl. Is it half and half? I think in a way your persona, your image, as it used to be known, is like a ball and chain. People think I’m still a goddamn junkie. It’s 30 years since I gave up the dope! Image is like a long shadow. Even when the sun goes down, you can see it.”
By turns earnest and wicked, sweet and sarcastic and unsparing, Mr. Richards, now 66, writes with uncommon candor and immediacy. He’s decided that he’s going to tell it as he remembers it, and helped along with notebooks, letters and a diary he once kept, he remembers almost everything. He gives us an indelible, time-capsule feel for the madness that was life on the road with the Stones in the years before and after Altamont; harrowing accounts of his many close shaves and narrow escapes (from the police, prison time, drug hell); and a heap of sharp-edged snapshots of friends and colleagues — most notably, his longtime musical partner and sometime bête noire, Mick Jagger.”
Rolling Stone Photos
Life By Keith Richards with James Fox
Illustrated. 564 pages. Little, Brown & Company.
Keith Richards Website
The Rolling Stones’ Keith Richards Looks Back At ‘Life’
NPR, A October 25, 2010
Succinct summation of week’s events: Positives 1) Oct payrolls surprise big to the upside 2) Fed lights another fire under asset prices but are we really wealthier as a result? 3) Emerging markets continue to rally as investors seek non $ assets 4) Oct auto sales rise to best since Sept ’08 ex clunkers 5)…Read More
You can’t say f**k on television. So Shatner sings it. A la Cee Lo Green.
Succinct summation of week’s events: Positives 1)Oct payrolls surprise big to the upside 2)Fed lights another fire under asset prices but are we really wealthier as a result? 3)Emerging markets continue to rally as investors seek non $ assets 4)Oct auto sales rise to best since Sept ’08 ex clunkers 5)ISM services and mfr’g indices…Read More
Here is our bizarre data point of the day: The Daily Show with Jon Stewart beat everyone else in October: Late Night Talk Shows – October 2010 1. “The Daily Show with Jon Stewart” – 1.3 million viewers 2. “The Tonight Show with Jay Leno” – 1.2 million viewers 3. “Late Show with David Letterman”…Read More