ISM, strong growth, rising inflation

The Jan ISM mfr’g index was 60.8, above expectations of 58, up from 58.5 in Dec and its the best since May ’04. New Orders rose almost 6 pts to 67.8 and Backlogs rose 11 pts to 58. Also positively, the Employment component rose almost 3 pts to 61.7, the best since 1973 (not a typo). Inventories at both the mfr’g level and customer rose and the Export component rose 4.5 pts. As mentioned yesterday, the data measures the direction of change, not degree but clearly reflects a continued improvement in mfr’g. The news though comes with the specter of growing inflation pressures as the Prices Paid component rose 9 pts to 81.5, the highest since July ’08. Of 18 industries surveyed, 14 reported growth. Bottom line, mfr’g continues to reflect strong growth but with rising input costs that will be eaten in part and passed on in part and the 30 yr bond yield is rising to the highest since Apr ’10 in response.

Category: MacroNotes

What January Effect?

What we call the All-January Barometer* has had six false positives since 1940, where January was up, but the rest of the year was down. If dividends are considered, then there were five false positives since from February through December of 1947 the U.S. stock market experienced a positive total return. Last year, 2010, was…Read More

Category: Technical Analysis

90/90 Down Days Followed by Rally, Then…

Yesterday, I reviewed the major indices, explaining why we are expecting a 5-8% correction at a minimum, and possibly an 8-12% whack over the next few months. Whenever markets experience the intense selling of 90/90 days — those trading sessions when 90 percent of the volume is to the downside, and 9 out of 10…Read More

Category: Markets, Technical Analysis

Fault Lines: Ride of the Valkyries

Fault Lines: Ride of the Valkyries Jawad Mian 1 February 2011 > The following was written by Jawad Mian, Portfolio Manager based in Doha, Qatar ~~~ The script hasn’t changed. It always begins with an economic crisis that weakens social and political orders. People erupt into violent protests as problems surface to an extent that…Read More

Category: Think Tank, War/Defense

Ukelele Bohemian Rhapsody

Hat tip Paul

Category: Music, Weekend

Fears of Suez Canal Shutdown, Radical Islam “Overblown”

Is Twitter a Driver of MidEast Revolution?


Fears of Suez Canal Shutdown, Radical Islam “Overblown,” Eurasia’s Sabra Says
Aaron Task
Yahoo Tech Ticker Jan 31, 2011 01:06pm EST

Category: Video, War/Defense

Oil up bad, oil up good

On Friday, the US market sold off on concerns with Egypt because oil went up $4+ but yesterday rallied when oil rose another $3+ to multi year highs. Thus, I’m not sure now what investors here care about ahead of the million people march in Egypt where the military said they won’t get in the…Read More

Category: Think Tank

Pavlov’s Bulls

Long-time readers are familiar with Jeremy Grantham of GMO (I quote him a lot). He is one of the more brilliant and talented value managers (and I should mention, very successful on behalf of his clients). He writes a quarterly letter that is a must-read. (Anything Jeremy writes is a must-read). This is actually two separate parts, but you want to take the time. He makes his predictions for the year in the first part, and gives us some valuable insights into the stock market in the second. The first part reads quick. Think through the second part.

John Mauldin, Editor Outside the Box


Pavlov’s Bulls

Jeremy Grantham

About 100 years ago, the Russian physiologist Ivan Pavlov noticed that when the feeding bell was rung, his dogs would salivate before they saw the actual food. They had been “conditioned.” And so it was with “The Great Stimulus” of 2008-09. The market’s players salivated long before they could see actual results. And the market roared up as it usually does. That was the main meal. But the tea-time bell for entering Year 3 of the Presidential Cycle was struck on October 1. Since 1964, “routine” Year 3 stimulus has helped drive the S&P up a remarkable 23% above any infl ation. And this time, the tea has been spiced with QE2. Moral hazard was seen to be alive and well, and the dogs were raring to go. The market came out of its starting gate like a greyhound, and has already surged 13% (by January 12), leaving the average Year 3 in easy reach (+9%). The speculative stocks, as usual, were even better, with the Russell 2000 leaping almost 19%. We have all been well-trained market dogs, salivating on cue and behaving exactly as we are expected to. So much for free will!

Recent Predictions …

From time to time, it is our practice to take a look at our predictive hits and misses in an important market phase. I’ll try to keep it brief: how did our prognostication skill stand up to Pavlov’s bulls? Well, to be blunt, brilliantly on general principle; we foretold its broad outline in my 1Q 2009 Letter and warned repeatedly of the probable strength of Year 3. But we were quite disappointing in detail.

The Good News …

For someone who has been mostly bearish for the last 20 years (of admittedly generally overpriced markets), I got this rally more or less right at the macro level. In my 1Q 2009 Letter, I wrote, “I am parting company with many of my bearish allies for a while … we could easily get a prodigious response to the greatest monetary and fiscal stimulus by far in U.S. history … we are likely to have a remarkable stock rally, far in excess of anything justified by either long-term or short-term economic fundamentals … [to] way beyond fair value [then 880] to the 1000-1100 level or so before the end of the year.” As a consequence, in traditional balanced accounts, we moved from an all-time low of 38% in global equities in October 2008 to 62% in March 2009. (If only that had been 72%, though, as, in hindsight, it probably should have been.) In the same Letter, I said of the economy, “The current stimulus is so extensive globally that surely it will kick up the economies of at least some of the larger countries, including the U.S. and China, by late this year …”

Read More

Category: Investing, Psychology

Crane’s NY Business reporter Matthew Flamm reports that publishers are bidding on a book proposal by Eric Schmidt and Jared Cohen that is an extension of their Foreign Affairs article, The Digital Disruption. Here’s Flamm: New York publishers are bidding on the wonkish business leader’s first book, according to several publishing industry insiders. The auction…Read More

Category: Web/Tech

Berkowitz Says Time for AIG to `Rebuild,’ Bets on Asia

Bruce Berkowitz, head of the Fairholme Fund, discusses the fund’s holdings in American International Group Inc., and the U.S. Treasury’s sale of its AIG shares. Berkowitz, speaking during an interview at the Tiger 21 conference in Palm Beach, Florida, also talks about the outlook for investments in Asia. Bloomberg’s Jon Erlichman reports.
Jan. 31 (Bloomberg)

Category: Video