S&P 500 Le news di oggi (1 Viewer)
- Creatore Discussione gipa69
- Data di Inizio
gipa69
collegio dei patafisici
giornaliero, settimanale, mensile
Ottimo... da qui mi attendo un buon recupero....
superbaffone
Guest
Ottimo... da qui mi attendo un buon recupero....
flat nel fine settimana come sempre
gipa69
collegio dei patafisici
Thoughts from the Frontline Weekly Newsletter
A Bubble in Search of a Pin by John Mauldin
February 5, 2010
[FONT=Arial, Helvetica, sans-serif]
Should Greenspan and Bernanke have seen the bubble in housing and other assets and acted, or should we accept their defense that you can't know whether there is a bubble until after the fact? We will look at research that suggests they should have known, and, at the least, policy makers should no longer be allowed to say, "How could I have known?" [/FONT]
[FONT=Arial, Helvetica, sans-serif]Of course, the employment numbers came out this morning, and the results are mixed; but that is better than they have been for the past two years. We dig into the numbers to see what they are really saying. And finally, we examine why the markets are so volatile. Is it just Greece, or is there more? There's a lot of very interesting, and important, material to cover.[/FONT]
[FONT=Arial, Helvetica, sans-serif]But first, and quickly, as I wrote in Outside the Box a few weeks ago, I am starting to very selectively buy biotech stocks, and mostly, though not exclusively, companies associated with the regenerative genetic revolution that is coming our way. I am convinced that this is going to be a decade of the most amazing medical breakthroughs, which will literally change (and in many cases extend) our lives, as therapies to treat all sorts of diseases become available.[/FONT]
[FONT=Arial, Helvetica, sans-serif]This is the last time I am going to mention it, but here is the link to that OTB, which analyzes why we may see a bubble in biotech stocks before the end of the decade. The OTB was written by my friend Pat Cox, who covers these stocks and other technological marvels in his newsletter, Breakthrough Technology Alert. I have been following Pat for some time now, have talked extensively with him, and think he is one of those guys who have a handle on what by all accounts is going to be an amazing decade of breakthroughs.[/FONT]
[FONT=Arial, Helvetica, sans-serif]I have asked his publisher to offer my readers a very discounted subscription price for one more week. (Ignore the deadline of February 5.) And yes, the promotional piece is a little over the top, as it is for most subscription newsletters (I am lucky mine is free - I don't have to do that). But I think his letter has a lot of substance. The link to the site is in the Outside the Box. Don't procrastinate. Join me, because for once in my life, dear God, I want to be in at the beginning of a bubble. And now to our letter.[/FONT]
[FONT=Arial, Helvetica, sans-serif]Unemployment Numbers: A Mixed Bag[/FONT]
[FONT=Arial, Helvetica, sans-serif]January employment numbers are characteristically volatile, as the birth/death ratio numbers are typically the largest of the year. This month the birth/death model subtracted (rather than added) 427,000 jobs (yes, I wrote that correctly). This is a very large "adjustment" month, and the volatility gets smoothed over in the seasonal adjustments. It is part and parcel of the process, as making estimates about how many new businesses are formed or die is extraordinarily difficult at turning points in the economy.[/FONT]
[FONT=Arial, Helvetica, sans-serif]As an acknowledgment of that, the employment level for March 2009 was revised down by 930,000 jobs, and by December it was a total of almost 1.4 million extra jobs lost. That means that the Bureau of Labor Statistics overestimated the number of new jobs significantly. December's job loss was really 150,000, not the 85,000 originally reported. How would the markets have reacted to a number that large?[/FONT]
[FONT=Arial, Helvetica, sans-serif]January saw a slightly larger than estimated loss of 22,000 jobs, which would have been 53,000 without new federal employees, 9,000 of whom were hired to perform the census. (By the way, federal employment is absolutely exploding!)[/FONT]
[FONT=Arial, Helvetica, sans-serif]Now, the somewhat good news. I have been writing about how the household survey has been much weaker for almost two years than the establishment survey. For instance, the total number of unemployed rose by 589,000 in December, while the number of people not classified as looking for work rose by 843,000. No matter how you spin it, those were very ugly numbers.[/FONT]
[FONT=Arial, Helvetica, sans-serif]This month the household survey showed the largest one-month turnaround that I could find. As The Liscio Report noted: [/FONT]
[FONT=Arial, Helvetica, sans-serif]"Adjusting for the changes in the population controls, total household employment rose by 784,000 - and when further adjusted to match the payroll concept, employment was up 841,000. Moves of this magnitude (regardless of sign) are unusual, but not unknown - and frequently undone in subsequent months. The less volatile ratios were also up, with the participation rate up 0.1 point, and the employment/population ratio rose a nice 0.2 point, its first increase since last April. While it's too early to say whether this strength in the household survey is a harbinger of an upturn that will soon show up in payrolls, it's something to be filed under 'tentatively encouraging.'"[/FONT]
[FONT=Arial, Helvetica, sans-serif]The work-week hours rose slightly. Income growth was better than it has been. Temporary workers rose, which is typically a harbinger of an increase in full-time employment. The number of people working part-time for economic reasons plummeted by 849,000.[/FONT]
[FONT=Arial, Helvetica, sans-serif]And finally, the unemployment rate fell 0.3% to 9.7%. This of course means that more people are dropping out of the labor pool, and it also means they will at some point come back. [/FONT]
[FONT=Arial, Helvetica, sans-serif]On the negative side, a loss of 22,000 jobs is nowhere close to the 100,000 new jobs that are needed just to hold unemployment steady. 41% of those unemployed have been so for over 6 months.[/FONT]
[FONT=Arial, Helvetica, sans-serif]And quoting David Rosenberg:[/FONT]
[FONT=Arial, Helvetica, sans-serif]"While there will be many economists touting today's report as some inflection point, and it could well be argued that we are entering some sort of healing phase in the jobs market just by mere virtue of inertia, the reality is that the level of employment today, at 129.5 million, is the exact same level it was in 1999. And, during this 11-year span of Japanese-like labour market stagnation, the working-age population has risen 29 million. Contemplate that for a moment; fully 29 million people competing for the same number of jobs that existed more than a decade ago. That sounds like pretty deflationary stuff from our standpoint. [/FONT]
[FONT=Arial, Helvetica, sans-serif]"Not only that, but consideration must be taken that in 2009, we had a zero policy rate, a $2.2 trillion Fed balance sheet and an epic 10% deficit-to-GDP ratio. You could not have asked for more government stimulus. Yet employment tumbled nearly 5 million in 2009."[/FONT]
[FONT=Arial, Helvetica, sans-serif]Finally, a very sad chart, courtesy of David. Those in the 25-54 year-old male category have seen their total number of jobs fall back to the level it was in 1996. Fourteen years later, and the "breadwinners" who are supposedly in their prime have seen an almost 10% drop in employment.[/FONT]
[FONT=Arial, Helvetica, sans-serif]
[/FONT]
[FONT=Arial, Helvetica, sans-serif]As noted above, January employment numbers are very volatile, and are likely to be adjusted either up or down by a lot in coming months. But this report was not the disaster of December. It still shows a very weak economy that certainly does not need a large tax hike next year. I hope we start seeing some positive numbers soon, but I am not optimistic that we are going to see the 200,000-plus new jobs per month we need to really start denting the unemployment numbers, for some time. Not when the National Federation of Independent Business says 71% of small businesses do not plan to hire this year.[/FONT]
[FONT=Arial, Helvetica, sans-serif]The Fed is taking away quantitative easing. Stimulus spending is exiting in the last half of the year. States and communities are having to either raise taxes or cut spending by $350 billion! I heard on the radio coming back from the gym (I think it was my friend Steve Liesman on CNBC) that there are now 55,000 fewer teachers than a few years ago.[/FONT]
[FONT=Arial, Helvetica, sans-serif]And again from the NFIB, small businesses see very tight credit conditions, which makes it hard for them to expand (see chart below). The headlines this week from the Fed banking survey said that banks were prone to be less tight, but the NFIB writers went deep into the report. What they found is that very large banks are willing to be less tight in their lending standards. Smaller banks were in fact not as easy. Loan demand is falling. Consumer credit actually declined slightly in December, after plunging in November. If you can't count on Americans to buy during Christmas, the world is in fact moving to the New Frugal.[/FONT]
[FONT=Arial, Helvetica, sans-serif]
[/FONT]
[FONT=Arial, Helvetica, sans-serif]All this is not the stuff that robust recoveries are made of. We drift back into Muddle Through the last half of the year, I think. And if Congress does not act to postpone or mitigate the enormous tax increases due in 2011, we slip back into recession. It will be a policy error of major magnitude to raise taxes with 10% unemployment and a weak economy. [/FONT]
[FONT=Arial, Helvetica, sans-serif]A Bubble in Search of a Pin[/FONT]
[FONT=Arial, Helvetica, sans-serif]We are going to once again return to the book highlighted the last few weeks, [ame="http://www.amazon.com/exec/obidos/ASIN/0691142165/frontlinethou-20"]This Time Is Different[/ame], by Carmen M. Reinhart and Kenneth Rogoff. This is a book you should buy and read, especially the last 4-5 chapters, and try to get your Congressman to read it as well, so he or she can see what happens to countries that run up their debt. It makes no difference if it is small or large, the end result is the same. [/FONT]
[FONT=Arial, Helvetica, sans-serif]Last week we looked at the role of confidence in allowing governments to borrow money. This week we ask whether Greenspan and Bernanke, along with the entire Fed, should have been able to determine whether a bubble was building in the US economy and lean against it, preventing the debacle we are now in. Reinhart and Rogoff gently come down on the side of those who think they should have, and that we need to implement changes in our institutions. Others, as we will see, are not so gentle. Let's look at a few selected paragraphs I pulled off my Kindle (all emphasis mine). [/FONT]
[FONT=Arial, Helvetica, sans-serif]"As we will show, the outsized U.S. borrowing from abroad that occurred prior to the crisis (manifested in a sequence of gaping current account and trade balance deficits) was hardly the only warning signal. In fact, the U.S. economy, at the epicenter of the crisis, showed many other signs of being on the brink of a deep financial crisis. Other measures such as asset price inflation, most notably in the real estate sector, rising household leverage, and the slowing output - standard leading indicators of financial crises - all revealed worrisome symptoms. Indeed, from a purely quantitative perspective, the run-up to the U.S. financial crisis showed all the signs of an accident waiting to happen. Of course, the United States was hardly alone in showing classic warning signs of a financial crisis, with Great Britain, Spain, and Ireland, among other countries, experiencing many of the same symptoms.[/FONT]
[FONT=Arial, Helvetica, sans-serif]"... On the one hand, the Federal Reserve's logic for ignoring housing prices was grounded in the perfectly sensible proposition that the private sector can judge equilibrium housing prices (or equity prices) at least as well as any government bureaucrat. On the other hand, it might have paid more attention to the fact that the rise in asset prices was being fueled by a relentless increase in the ratio of household debt to GDP, against a backdrop of record lows in the personal saving rate. This ratio, which had been roughly stable at close to 80 percent of personal income until 1993, had risen to 120 percent in 2003 and to nearly 130 percent by mid-2006. Empirical work by Bordo and Jeanne and the Bank for International Settlements suggested that when housing booms are accompanied by sharp rises in debt, the risk of a crisis is significantly elevated. Although this work was not necessarily definitive, it certainly raised questions about the Federal Reserve's policy of benign neglect.[/FONT]
[FONT=Arial, Helvetica, sans-serif]"The U.S. conceit that its financial and regulatory system could withstand massive capital inflows on a sustained basis without any problems arguably laid the foundations for the global financial crisis of the late 2000s. The thinking that "this time is different" - because this time the U.S. had a superior system - once again proved false. Outsized financial market returns were in fact greatly exaggerated by capital inflows, just as would be the case in emerging markets. What could in retrospect be recognized as huge regulatory mistakes, including the deregulation of the subprime mortgage market and the 2004 decision of the Securities and Exchange Commission to allow investment banks to triple their leverage ratios (that is, the ratio measuring the amount of risk to capital), appeared benign at the time. Capital inflows pushed up borrowing and asset prices while reducing spreads on all sorts of risky assets, leading the International Monetary Fund to conclude in April 2007, in its twice-annual World Economic Outlook, that risks to the global economy had become extremely low and that, for the moment, there were no great worries. When the international agency charged with being the global watchdog declares that there are no risks, there is no surer sign that this time is different. [By that they mean that the attitude of the market in general and central bankers in particular was that "this time is different" and so we did not need to worry about the warning signs. The entire point of the book is that it is never different. We just somehow believe we are in a special situation.][/FONT]
[FONT=Arial, Helvetica, sans-serif]"... We have focused on macroeconomic issues, but many problems were hidden in the 'plumbing' of the financial markets, as has become painfully evident since the beginning of the crisis. Some of these problems might have taken years to address. Above all, the huge run-up in housing prices - over 100 percent nationally over five years - should have been an alarm, especially fueled as it was by rising leverage. At the beginning of 2008, the total value of mortgages in the United States was approximately 90 percent of GDP. Policy makers should have decided several years prior to the crisis to deliberately take some steam out of the system. Unfortunately, efforts to maintain growth and prevent significant sharp stock market declines had the effect of taking the safety valve off the pressure cooker.[/FONT]
[FONT=Arial, Helvetica, sans-serif]"... The signals approach (or most alternative methods) will not pinpoint the exact date on which a bubble will burst or provide an obvious indication of the severity of the looming crisis. What this systematic exercise can deliver is valuable information as to whether an economy is showing one or more of the classic symptoms that emerge before a severe financial illness develops. The most significant hurdle in establishing an effective and credible early warning system, however, is not the design of a systematic framework that is capable of producing relatively reliable signals of distress from the various indicators in a timely manner. The greatest barrier to success is the well-entrenched tendency of policy makers and market participants to treat the signals as irrelevant archaic residuals of an outdated framework, assuming that old rules of valuation no longer apply. If the past we have studied in this book is any guide, these signals will be dismissed more often that not. That is why we also need to think about improving institutions.[/FONT]
[FONT=Arial, Helvetica, sans-serif]"... Second, policy makers must recognize that banking crises tend to be protracted affairs. Some crisis episodes (such as those of Japan in 1992 and Spain in 1977) were stretched out even longer by the authorities by a lengthy period of denial." [/FONT]
[FONT=Arial, Helvetica, sans-serif]The evidence is there. So why did the Fed miss it?[/FONT]
[FONT=Arial, Helvetica, sans-serif]A more pointed critique is leveled at the Fed and Greenspan, and at Bernanke in particular, by Andrew Smithers in his powerful book (now updated) [ame="http://www.amazon.com/exec/obidos/ASIN/0470750057/frontlinethou-20"]Wall Street Revalued[/ame]: Imperfect Markets and Inept Central Bankers. The foreword is by one of my favorite analysts, Jeremy Grantham. This is on the top of my reading list for the coming week. I am loving the first part, which ties nicely into the themes explored by Reinhart and Rogoff.[/FONT]
[FONT=Arial, Helvetica, sans-serif]The book is a withering critique of the Efficient Market Hypothesis (EMH), among other economic theories. Smithers argues that because the tenets of EMH are so ingrained, Greenspan and Bernanke could not recognize the bubble, because they believed in the efficiency of markets. "Dismissing financial crisis on the grounds that bubbles and busts cannot take place because that would imply irrationality is to ignore a condition for the sake of theory." Which they did.[/FONT]
[FONT=Arial, Helvetica, sans-serif]As Grantham wrote in the foreword: "My own favorite illustration of their views was Bernanke's comment in late 2006 at the height of a 3-sigma (100-year) event in a US housing market that had no prior housing bubbles: 'The US housing market merely reflects a strong US economy." He was surrounded by statisticians and yet could not see the data... His profound faith in market efficiency, and therefore a world where bubbles could not exist, made it impossible for him to see what was in front of his own eyes."[/FONT]
[FONT=Arial, Helvetica, sans-serif]Reinhart and Rogoff show time and time again that bubbles always end in tears. Markets and investors are in fact irrational. What kind of Fed governor would it have taken to suggest that housing was in a bubble and we were going to have to take steps to slow it down - raising rates, analyzing securitization and ratings? It would have taken one tough hombre. In fact, we had Greenspan, who encouraged the unchecked expansion of the securitized derivatives market. And a Congress that would not allow proper supervision of Fannie and Freddie (which is going to cost US taxpayers on the order of $400 billion). The list is long.[/FONT]
[FONT=Arial, Helvetica, sans-serif]And Speaking of Bubbles[/FONT]
[FONT=Arial, Helvetica, sans-serif]This week the turmoil that is Greece continues. One of my favorite quotes comes from Donald Morris, writing in June of 1993 (hat tip to Dennis Gartman):[/FONT]
[FONT=Arial, Helvetica, sans-serif]"If all of the Greek islands were merged with the mainland, it would be about the size of Alabama; there are 10 million Greeks - and perhaps another 4 million living throughout the world, who still think of themselves as Greek. They are, thanks to their history, magnificent patriots and nationalists - and abominable citizens, who deeply mistrust every government they've ever had. Essentially they are fierce individualists, who mistrust not so much whatever government happens to be in power as the very idea of government. The have almost no sense of civic responsibility - Pericles complained about this at length - and History has never given them much of a chance to work out a stable system of government. Democracy, yes (the Greeks invented it!!), but stability, no."[/FONT]
[FONT=Arial, Helvetica, sans-serif]Have things changed? From here it does not seem so. Greece apparently hid about 40 billion euros of debt from the public and EU governing bodies. (If the government can hide that much, is it any wonder that individual Greeks themselves can hide their income and pay so little in actual taxes? They have made it an art form!) In response to just the initial phase of belt tightening, unions are launching strikes and protests. What will happen when it gets serious? Stratfor estimates that Greek deficits may actually run as high as 15% of GDP rather than "just" the 10% or so publicly revealed. That will require far more than a little belt tightening.[/FONT]
[FONT=Arial, Helvetica, sans-serif]Let's look at the record. Greece has been in default for 105 years out of the last 200. They have never had a balanced budget, at least not willingly. [/FONT]
[FONT=Arial, Helvetica, sans-serif]The EU is backed into a corner. They have this treaty that says governments will act in certain ways. Greece is flaunting that treaty. Everyone acts as if Greece defaulting on its debt would be the end of the EU. Will the EU force Greece to withdraw if they do not control their budget? Upon reflection, I am not so sure.[/FONT]
[FONT=Arial, Helvetica, sans-serif]Let's take that proposition to the US. What if Illinois defaulted on its debt? Would we kick them out of the Union? Hardly. A default would mean a severe loss of credit, a forced retrenching, and a severe economic crisis in Illinois. The losses would be serious for banks and investors. There would be negotiations on how to deal with the debt, who gets a haircut on their bonds, what pension assets and expenses would be cut, and so on. A crisis? Yes. End of the world? No. [/FONT]
[FONT=Arial, Helvetica, sans-serif]So what if Greece does default? The banks and those who lent them the money would take a loss of some amount. The cost of borrowing for Greece would rise dramatically, if they could even get into the debt market. If they actually cut their budgets enough to deal with the deficit in a responsible way, it would mean, at best, a severe and prolonged recession. If Stratfor is right about deficits reaching 15% of GDP, it could mean a depression. They have no good choices.[/FONT]
[FONT=Arial, Helvetica, sans-serif]It is doubtful that German and French voters will be happy with any bailout using their tax money that does not impose serious cuts in Greek budgets, with realistic controls as a condition for the bailout. Can Greece live with that? We'll see.[/FONT]
[FONT=Arial, Helvetica, sans-serif](I am sure I have hundreds of Greek readers. I would love to hear from you as to your views, from the inside.)[/FONT]
[FONT=Arial, Helvetica, sans-serif]But is it so unthinkable that Greece could simply default and then be forced by the market to get realistic about its deficits? The same market forces that work in Illinois can work in Greece.[/FONT]
[FONT=Arial, Helvetica, sans-serif]But if the EU does bail out Greece, what then of Ireland, which is making the tough choices? Will Portugal be next? If Greece is allowed to fail, or better, actually shows some fiscal discipline, that bodes well for the EU in the long run. It will be a lesson that each nation is responsible to maintain its own house.[/FONT]
[FONT=Arial, Helvetica, sans-serif]The data presented by Reinhart and Rogoff show clearly that adding yet more suffocating debt to a bloated debt crisis is not the solution. It simply puts off the inevitable. Greece is an intractable problem. From here it looks like default or a very serious recession, with large unemployment numbers.[/FONT]
[FONT=Arial, Helvetica, sans-serif]But in the meantime the Greek situation is adding volatility to risk markets of all types. I have written before of the connection between what is called the euro-yen cross and risk markets all over the world. Right now, you can borrow money very cheaply in dollars and yen (the so-called carry trade). When investors want to reduce risk, they pay back those loans, which has the result of increasing the value of the dollar and the yen.[/FONT]
[FONT=Arial, Helvetica, sans-serif]That is what is happening with the euro-yen cross as of this morning. It is in the process of falling out of bed. And so are risk markets. Markets do not like uncertainty. And Greece and Portugal and Spain are uncertainty in spades. If Greece defaults, who owns the debt? Which banks? My bank? Will they call my loan? This happened in 2008 a lot! Can it happen again? We still have banks all over the world that are too big too fail. Credit default swaps are not on an exchange (because to do that would make them less profitable for the investment banks that sell them, and thus the lobbyists have convinced Congress to ignore them).[/FONT]
[FONT=Arial, Helvetica, sans-serif]Are we at the place where we can think the unthinkable? That sovereign nations can in fact default? I think we see a de facto default by Japan this decade.[/FONT]
[FONT=Arial, Helvetica, sans-serif]Do not assume that we have weathered the storm. We may just be getting ready for the next one.[/FONT]
[FONT=Arial, Helvetica, sans-serif]Help in Europe, California, and Tampa, and Becoming our Parents[/FONT]
[FONT=Arial, Helvetica, sans-serif]Tiffani wanted me to ask some of you for help with our vacation. I am taking all seven kids, four spouses, and three grandkids to France and then to Italy in June. We could use some suggestions, especially for how to accommodate 14 people. We will spend most of the time in Italy, after stopping at Bill Bonner's French chateau for a few days. I am checking out the International Living website for ideas. I really enjoy each issue, as I dream about having a retreat in some less hectic locale. You should check it out if you have that dream as well. It is inexpensive inspiration.[/FONT]
[FONT=Arial, Helvetica, sans-serif]Tomorrow Tiffani, Ryan, and I head for a last-minute important meeting in LA. This will be interesting, as we are taking 2-month-old granddaughter Lively and the nanny as well. "Dad, I am just not prepared to leave my baby yet. I have to have more notice to get used to the idea." The bonus is that I get to have dinner with Rob and Marina Arnott on Sunday before we head back Monday morning.[/FONT]
[FONT=Arial, Helvetica, sans-serif]And then next week is the NBA All-Star Game, which most of my kids will be attending with me. What a fun day![/FONT]
[FONT=Arial, Helvetica, sans-serif]And the following weekend I am off to meet with Jeff Saut, the chief investment officer of Raymond James. But we may slip in a little fun on his boat in the bay in Tampa. It's going to be a good, good month.[/FONT]
[FONT=Arial, Helvetica, sans-serif]It seems that more than a few times lately that Tiffani has turned to me and said, "Dad, don't you remember telling me that just a few days ago?" It is almost a running joke. Then as I was drifting off the other night, I remembered telling my Dad the same thing - only when he was a lot older than I am now! I am becoming my Dad. Sigh. And I would give a great deal to still be able to chide him on his failing memory.[/FONT]
[FONT=Arial, Helvetica, sans-serif]Have a great week! [/FONT]
[FONT=Arial, Helvetica, sans-serif]Your going to eat Greek food this weekend (but no ouzo) analyst,[/FONT]
[FONT=Arial, Helvetica, sans-serif]John Mauldin[/FONT]
[FONT=Arial, Helvetica, sans-serif][email protected] [/FONT]
[FONT=Arial, Helvetica, sans-serif]Copyright 2010 John Mauldin. All Rights Reserved [/FONT]
A Bubble in Search of a Pin by John Mauldin
February 5, 2010
[FONT=Arial, Helvetica, sans-serif]In this issue:[/FONT]
[FONT=Arial, Helvetica, sans-serif]A Bubble in Search of a Pin[/FONT]
[FONT=Arial, Helvetica, sans-serif]Unemployment Numbers: A Mixed Bag[/FONT]
[FONT=Arial, Helvetica, sans-serif]A Bubble in Search of a Pin[/FONT]
[FONT=Arial, Helvetica, sans-serif]And Speaking of Bubbles[/FONT]
[FONT=Arial, Helvetica, sans-serif]Help in Europe, California, and Tampa, and Becoming our Parents[/FONT]
[FONT=Arial, Helvetica, sans-serif]A Bubble in Search of a Pin[/FONT]
[FONT=Arial, Helvetica, sans-serif]Unemployment Numbers: A Mixed Bag[/FONT]
[FONT=Arial, Helvetica, sans-serif]A Bubble in Search of a Pin[/FONT]
[FONT=Arial, Helvetica, sans-serif]And Speaking of Bubbles[/FONT]
[FONT=Arial, Helvetica, sans-serif]Help in Europe, California, and Tampa, and Becoming our Parents[/FONT]
[FONT=Arial, Helvetica, sans-serif]
Should Greenspan and Bernanke have seen the bubble in housing and other assets and acted, or should we accept their defense that you can't know whether there is a bubble until after the fact? We will look at research that suggests they should have known, and, at the least, policy makers should no longer be allowed to say, "How could I have known?" [/FONT][FONT=Arial, Helvetica, sans-serif]Of course, the employment numbers came out this morning, and the results are mixed; but that is better than they have been for the past two years. We dig into the numbers to see what they are really saying. And finally, we examine why the markets are so volatile. Is it just Greece, or is there more? There's a lot of very interesting, and important, material to cover.[/FONT]
[FONT=Arial, Helvetica, sans-serif]But first, and quickly, as I wrote in Outside the Box a few weeks ago, I am starting to very selectively buy biotech stocks, and mostly, though not exclusively, companies associated with the regenerative genetic revolution that is coming our way. I am convinced that this is going to be a decade of the most amazing medical breakthroughs, which will literally change (and in many cases extend) our lives, as therapies to treat all sorts of diseases become available.[/FONT]
[FONT=Arial, Helvetica, sans-serif]This is the last time I am going to mention it, but here is the link to that OTB, which analyzes why we may see a bubble in biotech stocks before the end of the decade. The OTB was written by my friend Pat Cox, who covers these stocks and other technological marvels in his newsletter, Breakthrough Technology Alert. I have been following Pat for some time now, have talked extensively with him, and think he is one of those guys who have a handle on what by all accounts is going to be an amazing decade of breakthroughs.[/FONT]
[FONT=Arial, Helvetica, sans-serif]I have asked his publisher to offer my readers a very discounted subscription price for one more week. (Ignore the deadline of February 5.) And yes, the promotional piece is a little over the top, as it is for most subscription newsletters (I am lucky mine is free - I don't have to do that). But I think his letter has a lot of substance. The link to the site is in the Outside the Box. Don't procrastinate. Join me, because for once in my life, dear God, I want to be in at the beginning of a bubble. And now to our letter.[/FONT]
[FONT=Arial, Helvetica, sans-serif]Unemployment Numbers: A Mixed Bag[/FONT]
[FONT=Arial, Helvetica, sans-serif]January employment numbers are characteristically volatile, as the birth/death ratio numbers are typically the largest of the year. This month the birth/death model subtracted (rather than added) 427,000 jobs (yes, I wrote that correctly). This is a very large "adjustment" month, and the volatility gets smoothed over in the seasonal adjustments. It is part and parcel of the process, as making estimates about how many new businesses are formed or die is extraordinarily difficult at turning points in the economy.[/FONT]
[FONT=Arial, Helvetica, sans-serif]As an acknowledgment of that, the employment level for March 2009 was revised down by 930,000 jobs, and by December it was a total of almost 1.4 million extra jobs lost. That means that the Bureau of Labor Statistics overestimated the number of new jobs significantly. December's job loss was really 150,000, not the 85,000 originally reported. How would the markets have reacted to a number that large?[/FONT]
[FONT=Arial, Helvetica, sans-serif]January saw a slightly larger than estimated loss of 22,000 jobs, which would have been 53,000 without new federal employees, 9,000 of whom were hired to perform the census. (By the way, federal employment is absolutely exploding!)[/FONT]
[FONT=Arial, Helvetica, sans-serif]Now, the somewhat good news. I have been writing about how the household survey has been much weaker for almost two years than the establishment survey. For instance, the total number of unemployed rose by 589,000 in December, while the number of people not classified as looking for work rose by 843,000. No matter how you spin it, those were very ugly numbers.[/FONT]
[FONT=Arial, Helvetica, sans-serif]This month the household survey showed the largest one-month turnaround that I could find. As The Liscio Report noted: [/FONT]
[FONT=Arial, Helvetica, sans-serif]"Adjusting for the changes in the population controls, total household employment rose by 784,000 - and when further adjusted to match the payroll concept, employment was up 841,000. Moves of this magnitude (regardless of sign) are unusual, but not unknown - and frequently undone in subsequent months. The less volatile ratios were also up, with the participation rate up 0.1 point, and the employment/population ratio rose a nice 0.2 point, its first increase since last April. While it's too early to say whether this strength in the household survey is a harbinger of an upturn that will soon show up in payrolls, it's something to be filed under 'tentatively encouraging.'"[/FONT]
[FONT=Arial, Helvetica, sans-serif]The work-week hours rose slightly. Income growth was better than it has been. Temporary workers rose, which is typically a harbinger of an increase in full-time employment. The number of people working part-time for economic reasons plummeted by 849,000.[/FONT]
[FONT=Arial, Helvetica, sans-serif]And finally, the unemployment rate fell 0.3% to 9.7%. This of course means that more people are dropping out of the labor pool, and it also means they will at some point come back. [/FONT]
[FONT=Arial, Helvetica, sans-serif]On the negative side, a loss of 22,000 jobs is nowhere close to the 100,000 new jobs that are needed just to hold unemployment steady. 41% of those unemployed have been so for over 6 months.[/FONT]
[FONT=Arial, Helvetica, sans-serif]And quoting David Rosenberg:[/FONT]
[FONT=Arial, Helvetica, sans-serif]"While there will be many economists touting today's report as some inflection point, and it could well be argued that we are entering some sort of healing phase in the jobs market just by mere virtue of inertia, the reality is that the level of employment today, at 129.5 million, is the exact same level it was in 1999. And, during this 11-year span of Japanese-like labour market stagnation, the working-age population has risen 29 million. Contemplate that for a moment; fully 29 million people competing for the same number of jobs that existed more than a decade ago. That sounds like pretty deflationary stuff from our standpoint. [/FONT]
[FONT=Arial, Helvetica, sans-serif]"Not only that, but consideration must be taken that in 2009, we had a zero policy rate, a $2.2 trillion Fed balance sheet and an epic 10% deficit-to-GDP ratio. You could not have asked for more government stimulus. Yet employment tumbled nearly 5 million in 2009."[/FONT]
[FONT=Arial, Helvetica, sans-serif]Finally, a very sad chart, courtesy of David. Those in the 25-54 year-old male category have seen their total number of jobs fall back to the level it was in 1996. Fourteen years later, and the "breadwinners" who are supposedly in their prime have seen an almost 10% drop in employment.[/FONT]
[FONT=Arial, Helvetica, sans-serif]
[FONT=Arial, Helvetica, sans-serif]As noted above, January employment numbers are very volatile, and are likely to be adjusted either up or down by a lot in coming months. But this report was not the disaster of December. It still shows a very weak economy that certainly does not need a large tax hike next year. I hope we start seeing some positive numbers soon, but I am not optimistic that we are going to see the 200,000-plus new jobs per month we need to really start denting the unemployment numbers, for some time. Not when the National Federation of Independent Business says 71% of small businesses do not plan to hire this year.[/FONT]
[FONT=Arial, Helvetica, sans-serif]The Fed is taking away quantitative easing. Stimulus spending is exiting in the last half of the year. States and communities are having to either raise taxes or cut spending by $350 billion! I heard on the radio coming back from the gym (I think it was my friend Steve Liesman on CNBC) that there are now 55,000 fewer teachers than a few years ago.[/FONT]
[FONT=Arial, Helvetica, sans-serif]And again from the NFIB, small businesses see very tight credit conditions, which makes it hard for them to expand (see chart below). The headlines this week from the Fed banking survey said that banks were prone to be less tight, but the NFIB writers went deep into the report. What they found is that very large banks are willing to be less tight in their lending standards. Smaller banks were in fact not as easy. Loan demand is falling. Consumer credit actually declined slightly in December, after plunging in November. If you can't count on Americans to buy during Christmas, the world is in fact moving to the New Frugal.[/FONT]
[FONT=Arial, Helvetica, sans-serif]
[FONT=Arial, Helvetica, sans-serif]All this is not the stuff that robust recoveries are made of. We drift back into Muddle Through the last half of the year, I think. And if Congress does not act to postpone or mitigate the enormous tax increases due in 2011, we slip back into recession. It will be a policy error of major magnitude to raise taxes with 10% unemployment and a weak economy. [/FONT]
[FONT=Arial, Helvetica, sans-serif]A Bubble in Search of a Pin[/FONT]
[FONT=Arial, Helvetica, sans-serif]We are going to once again return to the book highlighted the last few weeks, [ame="http://www.amazon.com/exec/obidos/ASIN/0691142165/frontlinethou-20"]This Time Is Different[/ame], by Carmen M. Reinhart and Kenneth Rogoff. This is a book you should buy and read, especially the last 4-5 chapters, and try to get your Congressman to read it as well, so he or she can see what happens to countries that run up their debt. It makes no difference if it is small or large, the end result is the same. [/FONT]
[FONT=Arial, Helvetica, sans-serif]Last week we looked at the role of confidence in allowing governments to borrow money. This week we ask whether Greenspan and Bernanke, along with the entire Fed, should have been able to determine whether a bubble was building in the US economy and lean against it, preventing the debacle we are now in. Reinhart and Rogoff gently come down on the side of those who think they should have, and that we need to implement changes in our institutions. Others, as we will see, are not so gentle. Let's look at a few selected paragraphs I pulled off my Kindle (all emphasis mine). [/FONT]
[FONT=Arial, Helvetica, sans-serif]"As we will show, the outsized U.S. borrowing from abroad that occurred prior to the crisis (manifested in a sequence of gaping current account and trade balance deficits) was hardly the only warning signal. In fact, the U.S. economy, at the epicenter of the crisis, showed many other signs of being on the brink of a deep financial crisis. Other measures such as asset price inflation, most notably in the real estate sector, rising household leverage, and the slowing output - standard leading indicators of financial crises - all revealed worrisome symptoms. Indeed, from a purely quantitative perspective, the run-up to the U.S. financial crisis showed all the signs of an accident waiting to happen. Of course, the United States was hardly alone in showing classic warning signs of a financial crisis, with Great Britain, Spain, and Ireland, among other countries, experiencing many of the same symptoms.[/FONT]
[FONT=Arial, Helvetica, sans-serif]"... On the one hand, the Federal Reserve's logic for ignoring housing prices was grounded in the perfectly sensible proposition that the private sector can judge equilibrium housing prices (or equity prices) at least as well as any government bureaucrat. On the other hand, it might have paid more attention to the fact that the rise in asset prices was being fueled by a relentless increase in the ratio of household debt to GDP, against a backdrop of record lows in the personal saving rate. This ratio, which had been roughly stable at close to 80 percent of personal income until 1993, had risen to 120 percent in 2003 and to nearly 130 percent by mid-2006. Empirical work by Bordo and Jeanne and the Bank for International Settlements suggested that when housing booms are accompanied by sharp rises in debt, the risk of a crisis is significantly elevated. Although this work was not necessarily definitive, it certainly raised questions about the Federal Reserve's policy of benign neglect.[/FONT]
[FONT=Arial, Helvetica, sans-serif]"The U.S. conceit that its financial and regulatory system could withstand massive capital inflows on a sustained basis without any problems arguably laid the foundations for the global financial crisis of the late 2000s. The thinking that "this time is different" - because this time the U.S. had a superior system - once again proved false. Outsized financial market returns were in fact greatly exaggerated by capital inflows, just as would be the case in emerging markets. What could in retrospect be recognized as huge regulatory mistakes, including the deregulation of the subprime mortgage market and the 2004 decision of the Securities and Exchange Commission to allow investment banks to triple their leverage ratios (that is, the ratio measuring the amount of risk to capital), appeared benign at the time. Capital inflows pushed up borrowing and asset prices while reducing spreads on all sorts of risky assets, leading the International Monetary Fund to conclude in April 2007, in its twice-annual World Economic Outlook, that risks to the global economy had become extremely low and that, for the moment, there were no great worries. When the international agency charged with being the global watchdog declares that there are no risks, there is no surer sign that this time is different. [By that they mean that the attitude of the market in general and central bankers in particular was that "this time is different" and so we did not need to worry about the warning signs. The entire point of the book is that it is never different. We just somehow believe we are in a special situation.][/FONT]
[FONT=Arial, Helvetica, sans-serif]"... We have focused on macroeconomic issues, but many problems were hidden in the 'plumbing' of the financial markets, as has become painfully evident since the beginning of the crisis. Some of these problems might have taken years to address. Above all, the huge run-up in housing prices - over 100 percent nationally over five years - should have been an alarm, especially fueled as it was by rising leverage. At the beginning of 2008, the total value of mortgages in the United States was approximately 90 percent of GDP. Policy makers should have decided several years prior to the crisis to deliberately take some steam out of the system. Unfortunately, efforts to maintain growth and prevent significant sharp stock market declines had the effect of taking the safety valve off the pressure cooker.[/FONT]
[FONT=Arial, Helvetica, sans-serif]"... The signals approach (or most alternative methods) will not pinpoint the exact date on which a bubble will burst or provide an obvious indication of the severity of the looming crisis. What this systematic exercise can deliver is valuable information as to whether an economy is showing one or more of the classic symptoms that emerge before a severe financial illness develops. The most significant hurdle in establishing an effective and credible early warning system, however, is not the design of a systematic framework that is capable of producing relatively reliable signals of distress from the various indicators in a timely manner. The greatest barrier to success is the well-entrenched tendency of policy makers and market participants to treat the signals as irrelevant archaic residuals of an outdated framework, assuming that old rules of valuation no longer apply. If the past we have studied in this book is any guide, these signals will be dismissed more often that not. That is why we also need to think about improving institutions.[/FONT]
[FONT=Arial, Helvetica, sans-serif]"... Second, policy makers must recognize that banking crises tend to be protracted affairs. Some crisis episodes (such as those of Japan in 1992 and Spain in 1977) were stretched out even longer by the authorities by a lengthy period of denial." [/FONT]
[FONT=Arial, Helvetica, sans-serif]The evidence is there. So why did the Fed miss it?[/FONT]
[FONT=Arial, Helvetica, sans-serif]A more pointed critique is leveled at the Fed and Greenspan, and at Bernanke in particular, by Andrew Smithers in his powerful book (now updated) [ame="http://www.amazon.com/exec/obidos/ASIN/0470750057/frontlinethou-20"]Wall Street Revalued[/ame]: Imperfect Markets and Inept Central Bankers. The foreword is by one of my favorite analysts, Jeremy Grantham. This is on the top of my reading list for the coming week. I am loving the first part, which ties nicely into the themes explored by Reinhart and Rogoff.[/FONT]
[FONT=Arial, Helvetica, sans-serif]The book is a withering critique of the Efficient Market Hypothesis (EMH), among other economic theories. Smithers argues that because the tenets of EMH are so ingrained, Greenspan and Bernanke could not recognize the bubble, because they believed in the efficiency of markets. "Dismissing financial crisis on the grounds that bubbles and busts cannot take place because that would imply irrationality is to ignore a condition for the sake of theory." Which they did.[/FONT]
[FONT=Arial, Helvetica, sans-serif]As Grantham wrote in the foreword: "My own favorite illustration of their views was Bernanke's comment in late 2006 at the height of a 3-sigma (100-year) event in a US housing market that had no prior housing bubbles: 'The US housing market merely reflects a strong US economy." He was surrounded by statisticians and yet could not see the data... His profound faith in market efficiency, and therefore a world where bubbles could not exist, made it impossible for him to see what was in front of his own eyes."[/FONT]
[FONT=Arial, Helvetica, sans-serif]Reinhart and Rogoff show time and time again that bubbles always end in tears. Markets and investors are in fact irrational. What kind of Fed governor would it have taken to suggest that housing was in a bubble and we were going to have to take steps to slow it down - raising rates, analyzing securitization and ratings? It would have taken one tough hombre. In fact, we had Greenspan, who encouraged the unchecked expansion of the securitized derivatives market. And a Congress that would not allow proper supervision of Fannie and Freddie (which is going to cost US taxpayers on the order of $400 billion). The list is long.[/FONT]
[FONT=Arial, Helvetica, sans-serif]And Speaking of Bubbles[/FONT]
[FONT=Arial, Helvetica, sans-serif]This week the turmoil that is Greece continues. One of my favorite quotes comes from Donald Morris, writing in June of 1993 (hat tip to Dennis Gartman):[/FONT]
[FONT=Arial, Helvetica, sans-serif]"If all of the Greek islands were merged with the mainland, it would be about the size of Alabama; there are 10 million Greeks - and perhaps another 4 million living throughout the world, who still think of themselves as Greek. They are, thanks to their history, magnificent patriots and nationalists - and abominable citizens, who deeply mistrust every government they've ever had. Essentially they are fierce individualists, who mistrust not so much whatever government happens to be in power as the very idea of government. The have almost no sense of civic responsibility - Pericles complained about this at length - and History has never given them much of a chance to work out a stable system of government. Democracy, yes (the Greeks invented it!!), but stability, no."[/FONT]
[FONT=Arial, Helvetica, sans-serif]Have things changed? From here it does not seem so. Greece apparently hid about 40 billion euros of debt from the public and EU governing bodies. (If the government can hide that much, is it any wonder that individual Greeks themselves can hide their income and pay so little in actual taxes? They have made it an art form!) In response to just the initial phase of belt tightening, unions are launching strikes and protests. What will happen when it gets serious? Stratfor estimates that Greek deficits may actually run as high as 15% of GDP rather than "just" the 10% or so publicly revealed. That will require far more than a little belt tightening.[/FONT]
[FONT=Arial, Helvetica, sans-serif]Let's look at the record. Greece has been in default for 105 years out of the last 200. They have never had a balanced budget, at least not willingly. [/FONT]
[FONT=Arial, Helvetica, sans-serif]The EU is backed into a corner. They have this treaty that says governments will act in certain ways. Greece is flaunting that treaty. Everyone acts as if Greece defaulting on its debt would be the end of the EU. Will the EU force Greece to withdraw if they do not control their budget? Upon reflection, I am not so sure.[/FONT]
[FONT=Arial, Helvetica, sans-serif]Let's take that proposition to the US. What if Illinois defaulted on its debt? Would we kick them out of the Union? Hardly. A default would mean a severe loss of credit, a forced retrenching, and a severe economic crisis in Illinois. The losses would be serious for banks and investors. There would be negotiations on how to deal with the debt, who gets a haircut on their bonds, what pension assets and expenses would be cut, and so on. A crisis? Yes. End of the world? No. [/FONT]
[FONT=Arial, Helvetica, sans-serif]So what if Greece does default? The banks and those who lent them the money would take a loss of some amount. The cost of borrowing for Greece would rise dramatically, if they could even get into the debt market. If they actually cut their budgets enough to deal with the deficit in a responsible way, it would mean, at best, a severe and prolonged recession. If Stratfor is right about deficits reaching 15% of GDP, it could mean a depression. They have no good choices.[/FONT]
[FONT=Arial, Helvetica, sans-serif]It is doubtful that German and French voters will be happy with any bailout using their tax money that does not impose serious cuts in Greek budgets, with realistic controls as a condition for the bailout. Can Greece live with that? We'll see.[/FONT]
[FONT=Arial, Helvetica, sans-serif](I am sure I have hundreds of Greek readers. I would love to hear from you as to your views, from the inside.)[/FONT]
[FONT=Arial, Helvetica, sans-serif]But is it so unthinkable that Greece could simply default and then be forced by the market to get realistic about its deficits? The same market forces that work in Illinois can work in Greece.[/FONT]
[FONT=Arial, Helvetica, sans-serif]But if the EU does bail out Greece, what then of Ireland, which is making the tough choices? Will Portugal be next? If Greece is allowed to fail, or better, actually shows some fiscal discipline, that bodes well for the EU in the long run. It will be a lesson that each nation is responsible to maintain its own house.[/FONT]
[FONT=Arial, Helvetica, sans-serif]The data presented by Reinhart and Rogoff show clearly that adding yet more suffocating debt to a bloated debt crisis is not the solution. It simply puts off the inevitable. Greece is an intractable problem. From here it looks like default or a very serious recession, with large unemployment numbers.[/FONT]
[FONT=Arial, Helvetica, sans-serif]But in the meantime the Greek situation is adding volatility to risk markets of all types. I have written before of the connection between what is called the euro-yen cross and risk markets all over the world. Right now, you can borrow money very cheaply in dollars and yen (the so-called carry trade). When investors want to reduce risk, they pay back those loans, which has the result of increasing the value of the dollar and the yen.[/FONT]
[FONT=Arial, Helvetica, sans-serif]That is what is happening with the euro-yen cross as of this morning. It is in the process of falling out of bed. And so are risk markets. Markets do not like uncertainty. And Greece and Portugal and Spain are uncertainty in spades. If Greece defaults, who owns the debt? Which banks? My bank? Will they call my loan? This happened in 2008 a lot! Can it happen again? We still have banks all over the world that are too big too fail. Credit default swaps are not on an exchange (because to do that would make them less profitable for the investment banks that sell them, and thus the lobbyists have convinced Congress to ignore them).[/FONT]
[FONT=Arial, Helvetica, sans-serif]Are we at the place where we can think the unthinkable? That sovereign nations can in fact default? I think we see a de facto default by Japan this decade.[/FONT]
[FONT=Arial, Helvetica, sans-serif]Do not assume that we have weathered the storm. We may just be getting ready for the next one.[/FONT]
[FONT=Arial, Helvetica, sans-serif]Help in Europe, California, and Tampa, and Becoming our Parents[/FONT]
[FONT=Arial, Helvetica, sans-serif]Tiffani wanted me to ask some of you for help with our vacation. I am taking all seven kids, four spouses, and three grandkids to France and then to Italy in June. We could use some suggestions, especially for how to accommodate 14 people. We will spend most of the time in Italy, after stopping at Bill Bonner's French chateau for a few days. I am checking out the International Living website for ideas. I really enjoy each issue, as I dream about having a retreat in some less hectic locale. You should check it out if you have that dream as well. It is inexpensive inspiration.[/FONT]
[FONT=Arial, Helvetica, sans-serif]Tomorrow Tiffani, Ryan, and I head for a last-minute important meeting in LA. This will be interesting, as we are taking 2-month-old granddaughter Lively and the nanny as well. "Dad, I am just not prepared to leave my baby yet. I have to have more notice to get used to the idea." The bonus is that I get to have dinner with Rob and Marina Arnott on Sunday before we head back Monday morning.[/FONT]
[FONT=Arial, Helvetica, sans-serif]And then next week is the NBA All-Star Game, which most of my kids will be attending with me. What a fun day![/FONT]
[FONT=Arial, Helvetica, sans-serif]And the following weekend I am off to meet with Jeff Saut, the chief investment officer of Raymond James. But we may slip in a little fun on his boat in the bay in Tampa. It's going to be a good, good month.[/FONT]
[FONT=Arial, Helvetica, sans-serif]It seems that more than a few times lately that Tiffani has turned to me and said, "Dad, don't you remember telling me that just a few days ago?" It is almost a running joke. Then as I was drifting off the other night, I remembered telling my Dad the same thing - only when he was a lot older than I am now! I am becoming my Dad. Sigh. And I would give a great deal to still be able to chide him on his failing memory.[/FONT]
[FONT=Arial, Helvetica, sans-serif]Have a great week! [/FONT]
[FONT=Arial, Helvetica, sans-serif]Your going to eat Greek food this weekend (but no ouzo) analyst,[/FONT]
[FONT=Arial, Helvetica, sans-serif]John Mauldin[/FONT]
[FONT=Arial, Helvetica, sans-serif][email protected] [/FONT]
[FONT=Arial, Helvetica, sans-serif]Copyright 2010 John Mauldin. All Rights Reserved [/FONT]
gipa69
collegio dei patafisici
February 05 2010 CNBC SQUAWKBOX EUROPEBy Bill McLaren | Published Yesterday | February 2010 | Unrated
February 05 2010 CNBC SQUAWKBOX EUROPE
LET’S LOOK AT THE S&P 500 INDEX
Two weeks ago I laid out the time windows for this correction and the price support. One of the probabilities for “TIME” was to run down into the one year cycle around March 5th which would also be 45 calendar days from the last high. There are always counter trend rallies as a market trends down. Historically, in this circumstance a counter trend rally would be 2 to 4 trading days and up to a 3/8 retracement or 7 days and a 50% retracement---that is NORMAL. This chart is the range of the move down and shows the counter trend rally was only 2 days and 3/8 retracement. So this is “normal” for this circumstance and indicates a strong trend. I have also extended this first move down in 1/8 and 1/3 as we do with all ranges. Those extensions are the “normal” price supports for this circumstance. Two weeks ago I showed how we calculated the probable lows for this move down at 1020 to 1030 and around the level of 960 to 970 levels.
I have also taken the range down and extended it. Historically lows, in this circumstance—(that circumstance being a rally to 3/8 in 2 trading day) is followed by an extension of the range down by ¼, 3/8 or ½. If this is a big intermediate term move down then it could extend 100% to 992, which is closer to our forecast price.
NOW LET’S LOOK AT TIME
This chart is a 90 calendar day time period which is the dominate time period for this index and divided into 1/8 and 1/3.
The TIME for a low will be around 22 calendar days from low on the 11th or 30 to 33 calendar days around the 18 to 22nd or 45 calendar days on the 5th that coincides with the one year cycle from low and is our current forecast. So as the index moves into the time windows we’ll make a judgment if that could be a valid low. Our forecast calls for this move down to end at the one year cycle in the first week in March. I am also assuming that low will likely be a test of a low hit previously. In other words, the low will be tested at least once maybe twice. The rally up from the next major low will be the bull market top and could be a test of the last high. From there the index will trend down into 2012.
The concern for the debt of Greece and Portugal are not the problem, since this is to everyone’s benefit to solve it, the problem will be solved. The REAL problem is the consensus that deficits must now be reined in. Remember, the reasons for this great recession are the same as the great depression—exactly the same—debt (leverage), greed and securitization of debt by the big banks—same exact circumstance. The one thing that caused the depression to continue into 1942 was the attempt to rein in the deficits in 1937. And we are about to repeat the same exact stupidity. Hence the reasoning for my 5 year forecast that calls for a top in 2010 and a two year bear trend to follow—same as 1930s and 1970s.
February 05 2010 CNBC SQUAWKBOX EUROPE
LET’S LOOK AT THE S&P 500 INDEX
Two weeks ago I laid out the time windows for this correction and the price support. One of the probabilities for “TIME” was to run down into the one year cycle around March 5th which would also be 45 calendar days from the last high. There are always counter trend rallies as a market trends down. Historically, in this circumstance a counter trend rally would be 2 to 4 trading days and up to a 3/8 retracement or 7 days and a 50% retracement---that is NORMAL. This chart is the range of the move down and shows the counter trend rally was only 2 days and 3/8 retracement. So this is “normal” for this circumstance and indicates a strong trend. I have also extended this first move down in 1/8 and 1/3 as we do with all ranges. Those extensions are the “normal” price supports for this circumstance. Two weeks ago I showed how we calculated the probable lows for this move down at 1020 to 1030 and around the level of 960 to 970 levels.
I have also taken the range down and extended it. Historically lows, in this circumstance—(that circumstance being a rally to 3/8 in 2 trading day) is followed by an extension of the range down by ¼, 3/8 or ½. If this is a big intermediate term move down then it could extend 100% to 992, which is closer to our forecast price.
NOW LET’S LOOK AT TIME
This chart is a 90 calendar day time period which is the dominate time period for this index and divided into 1/8 and 1/3.
The TIME for a low will be around 22 calendar days from low on the 11th or 30 to 33 calendar days around the 18 to 22nd or 45 calendar days on the 5th that coincides with the one year cycle from low and is our current forecast. So as the index moves into the time windows we’ll make a judgment if that could be a valid low. Our forecast calls for this move down to end at the one year cycle in the first week in March. I am also assuming that low will likely be a test of a low hit previously. In other words, the low will be tested at least once maybe twice. The rally up from the next major low will be the bull market top and could be a test of the last high. From there the index will trend down into 2012.
The concern for the debt of Greece and Portugal are not the problem, since this is to everyone’s benefit to solve it, the problem will be solved. The REAL problem is the consensus that deficits must now be reined in. Remember, the reasons for this great recession are the same as the great depression—exactly the same—debt (leverage), greed and securitization of debt by the big banks—same exact circumstance. The one thing that caused the depression to continue into 1942 was the attempt to rein in the deficits in 1937. And we are about to repeat the same exact stupidity. Hence the reasoning for my 5 year forecast that calls for a top in 2010 and a two year bear trend to follow—same as 1930s and 1970s.
gipa69
collegio dei patafisici
CHANGED TO NEUTRAL POSTURE" By Carl Swenlin
* February 5, 2010
On Thursday our mechanical Thrust/Trend Model changed from a buy to neutral, based upon the 20-EMA crossing down through the 50-EMA. Now our hope is that there will be enough continuing decline to cover what may turn out to be a whipsaw signal. No guarantees in that regard, but bull [COLOR=blue !important][COLOR=blue !important]markets[/COLOR][/COLOR] typically do not end this cleanly.
The market sold off deeply on Friday, but in the end it rallied and closed up by a small amount. This looks like the beginning of a bounce of at least short-term duration.
The weekly-based chart of the S&P 500 shows that the PMO is very overbought and has crossed down through its 10-EMA. It could take a few months to clear this condition by bringing the PMO back to the zero line. This doesn't mean that there must be a severe correction to accomplish this. Note how in February 2004 the PMO reached similar overbought levels, and how that condition was worked off by sideways (and slightly downward) consolidation.
While I don't weight my cycle [COLOR=blue !important][COLOR=blue !important]studies[/COLOR][/COLOR] too heavily, it is worth mentioning that a 9-Month Cycle low is projected for the first part of April, and a 4-Year Cycle low is projected for later this year (July to October time frame). Viewed in this negative cycle context, the market could experience considerable difficulty for several months.
Bottom Line: The mechanical model has moved us to a neutral market posture. I worry about whipsaw when neutral signals generate coming off market highs, but the weekly PMO and the cycle context make me think that the correction has a way to go.
. . . .
MECHANICAL MODELS
We rely on our mechanical trend models to determine our market posture. Below is a recent [COLOR=blue !important][COLOR=blue !important]snapshot[/COLOR][/COLOR] of our primary trend-following timing model status for the major indexes and sectors we track. Note that we have included the nine Rydex Equal Weight ETF versions of the S&P Spider Sectors. This may seem redundant, but the equal weighted indexes most often do not perform the same as their [COLOR=blue !important][COLOR=blue !important]cap[/COLOR][/COLOR]-weighted counterparts, and they provide a way to diversify exposure. Daily tracking of these signals is available to subscribers in the Decision Point Alert Daily Report.
* * * * * * * * * * * * * * * * * * * * *
Technical analysis is a windsock, not a [COLOR=blue !important][COLOR=blue !important]crystal[/COLOR][/COLOR] ball. Be prepared to adjust your tactics and strategy if conditions change.
* * * * * * * * * * * * * * * * * * * * *
http://www.decisionpoint.com/ChartSpotliteFiles/100205_cspot.html
* February 5, 2010
On Thursday our mechanical Thrust/Trend Model changed from a buy to neutral, based upon the 20-EMA crossing down through the 50-EMA. Now our hope is that there will be enough continuing decline to cover what may turn out to be a whipsaw signal. No guarantees in that regard, but bull [COLOR=blue !important][COLOR=blue !important]markets[/COLOR][/COLOR] typically do not end this cleanly.
The market sold off deeply on Friday, but in the end it rallied and closed up by a small amount. This looks like the beginning of a bounce of at least short-term duration.
The weekly-based chart of the S&P 500 shows that the PMO is very overbought and has crossed down through its 10-EMA. It could take a few months to clear this condition by bringing the PMO back to the zero line. This doesn't mean that there must be a severe correction to accomplish this. Note how in February 2004 the PMO reached similar overbought levels, and how that condition was worked off by sideways (and slightly downward) consolidation.
While I don't weight my cycle [COLOR=blue !important][COLOR=blue !important]studies[/COLOR][/COLOR] too heavily, it is worth mentioning that a 9-Month Cycle low is projected for the first part of April, and a 4-Year Cycle low is projected for later this year (July to October time frame). Viewed in this negative cycle context, the market could experience considerable difficulty for several months.
Bottom Line: The mechanical model has moved us to a neutral market posture. I worry about whipsaw when neutral signals generate coming off market highs, but the weekly PMO and the cycle context make me think that the correction has a way to go.
. . . .
MECHANICAL MODELS
We rely on our mechanical trend models to determine our market posture. Below is a recent [COLOR=blue !important][COLOR=blue !important]snapshot[/COLOR][/COLOR] of our primary trend-following timing model status for the major indexes and sectors we track. Note that we have included the nine Rydex Equal Weight ETF versions of the S&P Spider Sectors. This may seem redundant, but the equal weighted indexes most often do not perform the same as their [COLOR=blue !important][COLOR=blue !important]cap[/COLOR][/COLOR]-weighted counterparts, and they provide a way to diversify exposure. Daily tracking of these signals is available to subscribers in the Decision Point Alert Daily Report.
* * * * * * * * * * * * * * * * * * * * *
Technical analysis is a windsock, not a [COLOR=blue !important][COLOR=blue !important]crystal[/COLOR][/COLOR] ball. Be prepared to adjust your tactics and strategy if conditions change.
* * * * * * * * * * * * * * * * * * * * *
http://www.decisionpoint.com/ChartSpotliteFiles/100205_cspot.html
gipa69
collegio dei patafisici
TrimTabs: Here's Why The Real Jobs Loss Number Was 5x Worse Than What The BLS Reported
Joe Weisenthal | Feb. 5, 2010, 4:01 PM | 3,844 |
17
Print
Tags: Economy, Jobs
They always say this, and they're kind of a broken record, but if you're interested, here's why TrimTabs thinks the jobs data was MUCH worse than what the numbers suggested this morning
----
TrimTabs employment analysis, which uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, estimated that the U.S. economy shed 104,000 jobs in January. Meanwhile, the Bureau of Labor Statistics (BLS) reported the U.S. economy lost 20,000 jobs. We believe the BLS has underestimated January’s results due to problems inherent in their survey techniques.
In addition to their regular report, the BLS published benchmark revisions to their employment estimates derived from an actual payroll count for March 2009. As a result, job losses from April 2008 through March 2009 were revised up a whopping 930,000, or 23% from their earlier revisions. In addition, the BLS revised their job loss estimates for 2009 up 617,000, or 14.8%.
While the BLS originally reported job losses of 4.2 million in 2009, TrimTabs reported 5.3 million, a difference of more than a million lost jobs. We consistently reported that based on real-time tax data, job losses were much higher than the BLS was reporting. This past January, the BLS revised their job loss estimate to 4.8 million, an increase of almost 600,000 lost jobs. The new total brought the BLS’ revised estimates much closer to TrimTabs’ original estimate based on real-time tax data.
Since July 2009, TrimTabs estimates and the BLS estimates have diverged again. While the tax data points to a weak job market, the BLS estimates point to a steadily improving job market. We believe the job market is much worse than the BLS is reporting and that in January 2011, when the BLS revises their estimates for 2010, their April 2009 through December 2009 results will move much closer to TrimTabs’ results.
The BLS has seriously underreported job losses for the past two years due to their flawed methodology. TrimTabs has identified the following four problems:
1. The BLS employment estimate is based on a survey, and not on an actual count of employees. While the BLS survey is large and supposedly designed to capture the complex nature of the employment market, it is still a survey and therefore subject to error. TrimTabs believes that rapid changes in an employment cycle cannot be captured by surveys.
2. Several times a year, the BLS applies enormous seasonal adjustments to their survey results to account for seasonal fluctuations in the job market. For example, this January, the BLS added 1.92 million jobs to their survey results to report a job loss of 20,000 to account for the layoff of retail holiday workers. In our opinion, the sheer magnitude of the seasonal adjustment which dwarfs the monthly result renders this month’s job loss estimate meaningless.
3. At the time of the first release, only 40% to 60% of the BLS survey is complete and is subject to large revisions over the next two months.
4. The BLS applies a mysterious “birth/death” adjustment to their survey results to account for business openings and closings. While the payroll data was adjusted substantially, the “birth/death” adjustments were left unchanged. In 2008 and 2009, the BLS’ “birth/death” adjustment added 904,000 and 882,000 jobs, respectively, for a total of 1.79 million. By way of comparison, in 2006 and 2007, the BLS’ “birth/death” adjustment added 964,000 and 1.13 million jobs, respectively. We find it highly unlikely that in 2008 and 2009, during the worst recession since the 1930’s, more businesses opened than closed netting 1.79 million jobs.
In our opinion, flawed BLS survey results, month-after-month, do the public a huge disservice. While its results point to a slowly recovering economy, TrimTabs’ results point to a dangerously weak economy.
A comparison of TrimTabs’ employment results versus the BLS’ results from January 2008 through January 2010 is summarized below.
Source: TrimTabs Investment Research – www.trimtabs.com and Bureau of Labor Statistics – www.bls.com
Several other employment related statistics support Trimtabs’ conclusion that the labor market is weaker than what the BLS is reporting:
· Real-Time tax withholding data shows that wages and salaries declined an adjusted 1.0% y-o-y. In January 2009, wages and salaries declined 5.0%. If the labor market were improving, we would expect a positive year-over-year growth rate. The fact that tax withholding data is still declining year-over-year suggests that the labor market is still contracting.
· The Monster Employment Index declined further in January, falling 0.9%.
· The TrimTabs Online Jobs Index reported slightly higher job availability in January but remains at a low level.
· Advanced Data Processing reported a job loss of 22,000.
· Weekly unemployment claims edged up in the past month, rising 10.2% since the beginning of January.
· In January, a whopping 11.5 million people were collecting some form of unemployment insurance, up 27.8%, from 9.0 million in November.
For a complete analysis of the current employment situation and economic conditions, refer to TrimTabs Weekly Macro Analysis published this coming Tuesday, February 9, 2010.
Joe Weisenthal | Feb. 5, 2010, 4:01 PM | 3,844 |
17 Tags: Economy, Jobs
They always say this, and they're kind of a broken record, but if you're interested, here's why TrimTabs thinks the jobs data was MUCH worse than what the numbers suggested this morning
----
TrimTabs employment analysis, which uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, estimated that the U.S. economy shed 104,000 jobs in January. Meanwhile, the Bureau of Labor Statistics (BLS) reported the U.S. economy lost 20,000 jobs. We believe the BLS has underestimated January’s results due to problems inherent in their survey techniques.
In addition to their regular report, the BLS published benchmark revisions to their employment estimates derived from an actual payroll count for March 2009. As a result, job losses from April 2008 through March 2009 were revised up a whopping 930,000, or 23% from their earlier revisions. In addition, the BLS revised their job loss estimates for 2009 up 617,000, or 14.8%.
While the BLS originally reported job losses of 4.2 million in 2009, TrimTabs reported 5.3 million, a difference of more than a million lost jobs. We consistently reported that based on real-time tax data, job losses were much higher than the BLS was reporting. This past January, the BLS revised their job loss estimate to 4.8 million, an increase of almost 600,000 lost jobs. The new total brought the BLS’ revised estimates much closer to TrimTabs’ original estimate based on real-time tax data.
Since July 2009, TrimTabs estimates and the BLS estimates have diverged again. While the tax data points to a weak job market, the BLS estimates point to a steadily improving job market. We believe the job market is much worse than the BLS is reporting and that in January 2011, when the BLS revises their estimates for 2010, their April 2009 through December 2009 results will move much closer to TrimTabs’ results.
The BLS has seriously underreported job losses for the past two years due to their flawed methodology. TrimTabs has identified the following four problems:
1. The BLS employment estimate is based on a survey, and not on an actual count of employees. While the BLS survey is large and supposedly designed to capture the complex nature of the employment market, it is still a survey and therefore subject to error. TrimTabs believes that rapid changes in an employment cycle cannot be captured by surveys.
2. Several times a year, the BLS applies enormous seasonal adjustments to their survey results to account for seasonal fluctuations in the job market. For example, this January, the BLS added 1.92 million jobs to their survey results to report a job loss of 20,000 to account for the layoff of retail holiday workers. In our opinion, the sheer magnitude of the seasonal adjustment which dwarfs the monthly result renders this month’s job loss estimate meaningless.
3. At the time of the first release, only 40% to 60% of the BLS survey is complete and is subject to large revisions over the next two months.
4. The BLS applies a mysterious “birth/death” adjustment to their survey results to account for business openings and closings. While the payroll data was adjusted substantially, the “birth/death” adjustments were left unchanged. In 2008 and 2009, the BLS’ “birth/death” adjustment added 904,000 and 882,000 jobs, respectively, for a total of 1.79 million. By way of comparison, in 2006 and 2007, the BLS’ “birth/death” adjustment added 964,000 and 1.13 million jobs, respectively. We find it highly unlikely that in 2008 and 2009, during the worst recession since the 1930’s, more businesses opened than closed netting 1.79 million jobs.
In our opinion, flawed BLS survey results, month-after-month, do the public a huge disservice. While its results point to a slowly recovering economy, TrimTabs’ results point to a dangerously weak economy.
A comparison of TrimTabs’ employment results versus the BLS’ results from January 2008 through January 2010 is summarized below.
Source: TrimTabs Investment Research – www.trimtabs.com and Bureau of Labor Statistics – www.bls.com
Several other employment related statistics support Trimtabs’ conclusion that the labor market is weaker than what the BLS is reporting:
· Real-Time tax withholding data shows that wages and salaries declined an adjusted 1.0% y-o-y. In January 2009, wages and salaries declined 5.0%. If the labor market were improving, we would expect a positive year-over-year growth rate. The fact that tax withholding data is still declining year-over-year suggests that the labor market is still contracting.
· The Monster Employment Index declined further in January, falling 0.9%.
· The TrimTabs Online Jobs Index reported slightly higher job availability in January but remains at a low level.
· Advanced Data Processing reported a job loss of 22,000.
· Weekly unemployment claims edged up in the past month, rising 10.2% since the beginning of January.
· In January, a whopping 11.5 million people were collecting some form of unemployment insurance, up 27.8%, from 9.0 million in November.
For a complete analysis of the current employment situation and economic conditions, refer to TrimTabs Weekly Macro Analysis published this coming Tuesday, February 9, 2010.
gipa69
collegio dei patafisici
gipa69
collegio dei patafisici
gipa69
collegio dei patafisici
AN INFLECTION POINT IS UPON US" By Richard Rhodes
* February 06, 2010
Last week's S&P decline reached a crescendo on Friday around mid-day at 1044.50, which brings the decline to roughly 106 S&P points from the January 19th high at 1150.42. Pencil to paper, and the decline stands at -9.2%, which is just about a normal -10% correction that many like to speak of in a [COLOR=blue !important][COLOR=blue !important]bull [COLOR=blue !important]market[/COLOR][/COLOR][/COLOR]. This obviously begs the question as to whether a more normal correction has just occurred - which would mean new highs above the 19th's highs; or whether the 19th's highs represent the resumption of the [COLOR=blue !important][COLOR=blue !important]bear [COLOR=blue !important]market[/COLOR][/COLOR][/COLOR], with rallies being sold. We honestly don't have any concrete answers; but we do have some thoughts and observations on both the fundamental and technical pictures as they stand.
First, we'll state that the sovereign debt issue griping [COLOR=blue !important][COLOR=blue !important]Europe[/COLOR][/COLOR] will grip other countries as well in a larger contagion, for the only manner in which countries can escape the bond market vigilantes is to cut deficits over time. However, the current plans in hand by both Eurozone countries and the US aren't enough, and greater austerity measures and higher taxes are going to dominate the fiscal landscape. It's only a matter of time before the focus become US debt markets. We view this as the "next [COLOR=blue !important][COLOR=blue !important]shoe[/COLOR][/COLOR] to drop" in the ongoing bear market.
Second, the technical picture is strategically bearish given the S&P forged a key monthly reversal to the downside in January; hence the trend is lower as long as the S&P remains below 1150.42. Rallies in our opinion are to be sold. But having said this, Friday's S&P decline tactically bottomed in "the zone" demarcated by the 200-day and 380-day exponential [COLOR=blue !important][COLOR=blue !important]moving [COLOR=blue !important]averages[/COLOR][/COLOR][/COLOR]. Now, this zone has previously been major support and has pushed prices higher as the longer-dated 40-day day stochastic has bottomed. But that isn't the case at present, which means the setup isn't as good as we would like it to be in order to become aggressively long - thus a short-term rally should be expected, but one that fails.
Therefore, we are more inclined to be short-term buyers of the strongest groups such as Biotechnology, while using this strength to become short the broader market and the commodity [COLOR=blue !important][COLOR=blue !important]stocks[/COLOR][/COLOR]. This is our roadmap for the time being; and we're sticking with it.
Good luck and good trading,
Richard
* February 06, 2010
Last week's S&P decline reached a crescendo on Friday around mid-day at 1044.50, which brings the decline to roughly 106 S&P points from the January 19th high at 1150.42. Pencil to paper, and the decline stands at -9.2%, which is just about a normal -10% correction that many like to speak of in a [COLOR=blue !important][COLOR=blue !important]bull [COLOR=blue !important]market[/COLOR][/COLOR][/COLOR]. This obviously begs the question as to whether a more normal correction has just occurred - which would mean new highs above the 19th's highs; or whether the 19th's highs represent the resumption of the [COLOR=blue !important][COLOR=blue !important]bear [COLOR=blue !important]market[/COLOR][/COLOR][/COLOR], with rallies being sold. We honestly don't have any concrete answers; but we do have some thoughts and observations on both the fundamental and technical pictures as they stand.
First, we'll state that the sovereign debt issue griping [COLOR=blue !important][COLOR=blue !important]Europe[/COLOR][/COLOR] will grip other countries as well in a larger contagion, for the only manner in which countries can escape the bond market vigilantes is to cut deficits over time. However, the current plans in hand by both Eurozone countries and the US aren't enough, and greater austerity measures and higher taxes are going to dominate the fiscal landscape. It's only a matter of time before the focus become US debt markets. We view this as the "next [COLOR=blue !important][COLOR=blue !important]shoe[/COLOR][/COLOR] to drop" in the ongoing bear market.
Second, the technical picture is strategically bearish given the S&P forged a key monthly reversal to the downside in January; hence the trend is lower as long as the S&P remains below 1150.42. Rallies in our opinion are to be sold. But having said this, Friday's S&P decline tactically bottomed in "the zone" demarcated by the 200-day and 380-day exponential [COLOR=blue !important][COLOR=blue !important]moving [COLOR=blue !important]averages[/COLOR][/COLOR][/COLOR]. Now, this zone has previously been major support and has pushed prices higher as the longer-dated 40-day day stochastic has bottomed. But that isn't the case at present, which means the setup isn't as good as we would like it to be in order to become aggressively long - thus a short-term rally should be expected, but one that fails.
Therefore, we are more inclined to be short-term buyers of the strongest groups such as Biotechnology, while using this strength to become short the broader market and the commodity [COLOR=blue !important][COLOR=blue !important]stocks[/COLOR][/COLOR]. This is our roadmap for the time being; and we're sticking with it.
Good luck and good trading,
Richard