Saturday, July 24, 2010

Why isn’t the market collapsing?

By Leon Tuey, Financial Post

To the bears and worrywarts, I have a question: Given the overwhelming bearish consensus, why isn’t the market collapsing?

“It will” is not a good answer. Remember, the market is a leading economic indicator and tends to discount future events. If the future is as bleak as the bears have us believe, the market averages should have lost 30%, 50%, if not more by now.

If the bears would only learn to understand the major factors that drive the market’s long-term trend, they would stop flapping their gums and scaring the hell out of investors.

Also, if they stop being fixated with the S&P, thinking it’s “the market” and realize the impact of the financials and techs (both are heavyweights) on the index, they would be much more sanguine about the market.

Since October 2008, I’ve been of the view that a secular bull market commenced. In terms of magnitude and duration, this bull will surprise all. I see no reason to change this view. (more)

Disappearing Middle Class: Bilingual Ph.D. Accepts Rent Money From Church

Until 18 months ago, Maria Ortiz says she never had to search for a job in her life. As a highly skilled bilingual Ph.D. and the first ever Mexican-American woman to be admitted into Brigham Young University's graduate school of management, Ortiz was always the kind of woman universities would beg to come work for them.

After working and teaching in California for 20 years, Ortiz was recruited in 2007 for a highly specialized job at the University of Nevada, Las Vegas. She left her stable situation to take a chance on a new program she believed in, but the program folded due to budget cuts less than two years later in January 2009, right in the middle of the recession.

Ortiz frantically applied for jobs for the next 18 months, running through all $15,000 of her savings, exhausting all 99 weeks of unemployment benefits and eventually having to draw from Social Security and accept financial aid from her local church congregation to help pay the rent. Monday morning, on her 63rd birthday, Ortiz says she received yet another job rejection phone call, and she felt like she could no longer hold it together. (more)

Stockpicking Tips from President Obama?

Business Week,

Money managers tout their investing strategy in books, at seminars, and on blogs. Some call it a science, others an art form. And then, of course, there's luck. In that spirit, here's one more stockpicking technique to add to the list: Take a look at who is lunching at the White House.

Since becoming President, Barack Obama has held seven lunches with small groups of chairmen and chief executive officers, including Jeff Bezos of (AMZN), Ken Chenault of American Express (AXP), Ursula Burns of Xerox (XRX), and Howard Schultz of Starbucks (SBUX). In four of the lunches, the guests' companies, as a group, outperformed the Standard & Poor's 500-stock index 30 trading days after the repast. In two cases, the groups' shares underperformed the S&P 500 a month after lunch with the Commander-in-Chief. Altogether, the six lunch groups outdid the S&P by more than two percentage points. Thirty days haven't elapsed since a seventh lunch held on July 1. (more)

The Economist - July 24th - July 30th 2010

The Economist is a global weekly magazine written for those who share an uncommon interest in being well and broadly informed. Each issue explores the close links between domestic and international issues, business, politics, finance, current affairs, science, technology and the arts.
In addition to regular weekly content, Special Reports are published approximately 20 times a year, spotlighting a specific country, industry, or hot-button topic. The Technology Quarterly, published 4 times a year, highlights and analyzes new technologies that will change the world we live in. (more)

Smoking Guns of U.S. Treasury Monetization

A significant feature of fiat money systems is the privilege for the custodian of the reserve currency to engage in regular practices of ham-fisted monetary management, even permission for fraudulent centers to flourish, surely developing a debt monster that an economy grows dependent upon. Fannie Mae might be the most offensive blight on such privilege. Unfortunately, many shenanigans have matured into grand fraud. They are smoking guns of USTreasury fraud and counterfeit, with strong whiffs of monetization. Much more monetization is to come, fully endorsed and sanctioned. Other clever techniques are being used, given the Quantitative Easing has officially been halted. A close look reveals that Excess Cash Reserves at the USFed are being drawn down, which are thus funding the USGovt deficits in the last couple months. Ironically, such reserves held by big banks at the US Federal Reserve were the only thing preventing vast insolvency. Now that cash is being used, and the USFed insolvency is slowly exposed. Details can be found in the July Hat Trick Letter reports. Evidence is compelling, and grand motive for foreign creditors to reject the USDollar, whose active control strings are traced to Wall Street. When recognized monetization destroys the last vestige of trust and confidence in the USDollar, when more official rounds of sponsored Quantitative Easing arrive, the USDollar will be on a downward spiral. In fact, all major currencies face the same prospect of vast monetary expansion. They will all fall sharply in value, and by counter-effect, the Gold price will rise powerfully. (more)

The Goldman Food Bubble

Description: Democracy Now interview with Frederick Kaufman

"""The wheat markets, in particular, in this country are the outcome of a process of development of over 150 years. And that is why, from about 1903 to 2003, the real price of wheat in this country has gone down. And this was one of the great reasons for America’s great twentieth century, the fact that we had cheap food, we had cheap bread. And Goldman, in 1991, came up with a new idea and a new product, which, as I said before, completely restructured this market and completely threw it out of whack.

But before we go there, we just have to maybe review for a second a little bit about how these markets worked and what kept that wheat price stabilized. And Juan, you mentioned the Minneapolis Grain Exchange, this kind of obscure syndicate in the Midwest, which is where the price of this particular kind of wheat, hard red spring wheat, which is the most widely traded wheat in the world, and it’s the most widely exported wheat from the American continent—we kind of set the world price on this wheat. This is where it happens. What’s the history of that price being stabilized is you have, traditionally, in the wheat futures market, two kinds of players: one of the farmers and the millers and the warehousemen—right? And this, of course, includes players like Domino’s Pizza and Sara Lee and General Mills, very large business, capitalist stakes are in this wheat market, right? And they are called bona fide hedgers, because they’re actually buying and selling real wheat. As the price fluctuates in the futures markets, you also traditionally have speculators in this market, people who don’t want wheat, who wouldn’t have any place to put it if they bought it, but they’re making money off buy orders and sell orders, as the price fluctuates each day, and hopefully they’re bringing in some money for themselves every day. That’s the idea.

Now, the key here is that both the bona fide hedgers and the speculators, every time they buy, they’re also selling, and every time they sell, they eventually buy. So their positions are cleared off at the end of the day, OK? Goldman, we have to understand, and a lot of these banks, are not interested in the particular structure of any of these markets. I think it’s a lot of mistake people make when they think about how these bankers are working. We think that they’re actually interested in the markets. We think that they’re—no. What they’re after are very large pools of cash for themselves. They’re after accumulating huge pools of money that they can do with whatever they like on a day-to-day basis. Right? And so, Goldman, in 1991, came up with this idea of the commodity index fund, which really was a way for them to accumulate huge piles of cash for themselves. It wasn’t really about the markets, anyway. The market was just an excuse. And so, the fact that they threw these wheat markets out of whack didn’t really matter to them.

How did this work? Instead of a buy-and-sell order, like everybody does in these markets, they just started buying. It’s called "going long." They started going long on wheat futures. OK? And every time one of these contracts came due, they would do something called "rolling it over" into the next contract. So they would take all those buy promises they had made and say, "OK, we still—we’re just going to—we’ll buy more later. And plus we’re going to buy more now." And they kept on buying and buying and buying and buying and accumulating this unprecedented, this historically unprecedented pile of long-only wheat futures. And this accumulation created a very odd phenomenon in the market. It’s called a "demand shock." Usually prices go up because supply is low, right? That’s the idea. There’s not a lot of supply, so the price goes up. In this case, Goldman and the other banks had introduced this completely unnatural and artificial demand to buy wheat, and that then set the price up. Now, a lot of people are saying, "Oh, it was biofuel production. It was drought in Australia. It was floods in Kazakhstan." Let me tell you, hard red wheat generally trades between $3 and $6 per sixty-pound bushel. It went up to $12, then $15, then $18. Then it broke $20. And on February 25th, 2008, hard red spring futures settled at $25 per bushel.""" (click here for audio)

Bloomberg Businessweek - 26 July - 01 August 2010

Bloomberg Businessweek - World's leading business magazine.
Timely, useful, provocative, innovative. Each issue of Businessweek features in-depth perspectives on the financial markets, industries, trends, technology and people guiding the economy. Draw upon Businessweek's timely incisive analysis to help you make better decisions about your career, your business, and your personal investments. (more)

The Coming Silver Supernova

“Few investment opportunities arise in our lifetime like silver. The stage is set for a silver price percentage gain of extraordinary magnitude! Forget the popular refrain of “Got Gold?” and make some additions to your portfolio to take advantage of the coming silver supernova!"

So said Donald J. Poitras in an email he sent me after reading an updated version of a recent article by me about the possible impact the historical gold:silver ratio could have on the price of silver should gold go parabolic to various levels. With Poitras’ permission I present below, in a reformatted and edited version, his views on why he believes there are other sound reasons why silver, in and of its self, can expect to experience a “percentage gain of extraordinary magnitude” in the years to come. As Poitras sees it: (more)

20% of Americans hit by major economic loss

( -- A new study released Wednesday estimates that 20% of Americans suffered a significant economic loss last year - the highest level in the past 25 years.

The new Economic Security Index looks at the interaction of three key variables that have a direct bearing on a person's economic security: income loss, medical expenses and debt.

The index, which tracks data since 1985, shows that economic insecurity has risen across all groups, not just among low-income families and those without much education.

The index was constructed by Yale political scientist Jacob Hacker and a team of researchers, and the project was funded by the Rockefeller Foundation.

The ESI defines people as economically insecure when their situation meets two criteria. First, within a year's time they have lost 25% or more of their available gross income. Available gross income is the money they have left over after paying for medical costs and debt. Second, they don't have enough in an emergency fund or other liquid reserves to make up the difference. (more)

Why Not Another World War?

By Peter Schiff,

There is overwhelming agreement among economists that the Second World War was responsible for decisively ending the Great Depression. When asked why the wars in Iran and Afghanistan are failing to make the same impact today, they often claim that the current conflicts are simply too small to be economically significant.

There is, of course, much irony here. No one argues that World War II, with its genocide, tens of millions of combatant casualties, and wholesale destruction of cities and regions, was good for humanity. But the improved American economy of the late 1940s seems to illustrate the benefits of large-scale government stimulus. This conundrum may be causing some to wonder how we could capture the good without the bad.

If one believes that government spending can create economic growth, then the answer should be simple: let's have a huge pretend war that rivals the Second World War in size. However, this time, let's not kill anyone. (more)

China: The US Is "Insolvent and Faces Bankruptcy"

The common thought amongst even reasonably educated and economically literate Americans is that China is 'stuck with US Treasuries' and has no choice, so it must perform within the status quo and do as the US wishes, or face a ruinous decline in their reserve holdings of US Treasuries.

And with real short term US Treasury interest rates decidedly negative, meaning that it is costing you money to hold dollars, there is a case to be made that there are a lot of 'price takers' out there in this world. Wow, they are just that good, aren't they. Having their heyday in a genuine deflation. A subtle tax levied on all holders of US dollars, probably more significant because of the official understantement of inflation. Yo, come git some.

I think China is already diversifying their reserve portfolio, and more stealthily and effectively than one would imagine. (more)

U.S. Stocks, Euro Gain, Treasuries Drop on M&A, Stress Tests


U.S. stocks rallied, sending benchmark indexes to one-month highs, after Genzyme Corp. received a takeover approach and General Electric Co. boosted its dividend. The euro appreciated after 84 of 91 European banks passed stress tests. Treasuries dropped.

The Standard & Poor’s 500 Index climbed 0.8 percent to 1,102.66 at 4 p.m. in New York, its first gain above 1,100 since June 22. Genzyme, the largest maker of medicines for genetic diseases, surged 15 percent and GE rose 3.3 percent. The euro strengthened above $1.29 after dropping 0.8 percent earlier. The 10-year Treasury yield increased five basis points to 2.99 percent. Copper rose for a fifth day, capping its best weekly gain since February, while oil fell from an 11-week high.

The S&P 500 drifted between gains and losses for most of the day before early afternoon reports that Sanofi-Aventis SA made a takeover approach for Genzyme bolstered optimism that a rebound in mergers and acquisitions is accelerating. GE helped the Dow Jones Industrial Average briefly erase its 2010 loss after lifting its payout by 20 percent.

“Companies are sitting on records amount of cash which are they either returning to shareholders or using for consolidation,” said Frank Ingarra, a Stamford, Connecticut- based money manager at Hennessy Advisors Inc., which oversees about $800 million. “The GE dividend news was positive and industry consolidation is good for shareholders.” (more)