Mortgage tax break in the crosshairs

(CNNMoney.com) -- Don't even think of touching the mortgage interest tax deduction in the midst of a fragile housing market.

That was the immediate response of the housing industry, which has come out with guns blazing against the presidential deficit commission's proposal to overhaul the coveted tax provision.

"We will fight this proposal," said Joe Stanton, chief lobbyist for the National Association of Home Builders. "From everything we've read, it will end up being a tax hike."

Charged with finding ways to reduce the nation's exploding federal debt, the bipartisan debt panel recommended Wednesday a wide range of controversial spending cuts and tax changes that would slash $4 trillion in deficits over the next 10 years.

Among the proposals was a major change to the mortgage interest deduction, which costs the Treasury Department an estimated $131 billion a year. (more)

CHART OF THE DAY: Global Food Prices About To Break An All Time High

Inflation in emerging markets is hitting food prices hard, and now we have raw data from the UN to confirm.

The latest report from the UN Food and Agricultural Organization shows prices are back at 2008 levels, and have increased for five months in a row.

The data evaluates 55 different food commodities, so it's a pretty broad gauge of world costs.

Whether or not costs are high enough yet to lead to a world food crisis remains to be seen, but further inflationary pressures on emerging markets, where there are the most mouths to feed, will remain a threat.

Pimco's Gross: US Must Revive Manufacturing to Thrive

The United States must reclaim its position as a manufacturer of goods that meet global demand in order to restore the country's economic health, says Bill Gross, co-chief investment officer of Pimco.

Both politicians and voters are failing to address the key problems facing the U.S. economy, said Gross, who oversees more than $1 trillion in assets at Pimco, operator of the world's biggest bond fund.

"Politicians and respective electorates focus on taxes or healthcare when the ultimate demon is a lack of global demand and the international competitiveness to thrive," Gross said in his monthly investment outlook note to clients, which was posted on Pimco's website.

Gross offered simple advice to restore the U.S. economy's long-term health: "Stop making paper and start making things," by replacing U.S. government bonds with American cars, steel, iPads, airplanes, or corn — "whatever the world wants that we can make better and/or cheaper."

Economies around the world are competing for a share of a "diminishing growth pie," said Gross, who added that the policies of developing nations "are oriented toward export to debt-laden developed nations instead of internal consumption." (more)

Economic Ruination in Three Words or Less

By The Mogambo Guru

If you want some bad news, then Doug Noland, in his Credit Bubble Bulletin at PrudentBear.com, has some for you. He reports that that “Global yields are on the rise.”

I was going to make a complimentary comment about how cleverly Mr. Noland conveyed such bad news in only five words; “Global yields are on the rise.”

Then I noticed that I could be more concise than Mr. Noland, a rare triumph for me, with “Bond prices falling,” which is only three words.

Then I noticed, with some alarm at the schizophrenic overtones, that I could eclipse myself with, “Bonds collapsing” which could be further reduced to the one-word synopsis, “Doom!”

I can say “Doom!” because this means that the gigantic, towering, incalculable, worldwide glut of bonds have all gone down in value, handing the owners of the bonds unrealized losses, which are just the start of a long string of losses to more and more people as interest rates continue to rise because inflation in prices will rise with the rise in central-bank money creation. (more)

FINALLY... Energy Gives a Buy Signal!

One of the things I periodically check is the twelve-month relative performance for the various S&P 500 sectors relative to the broad index. This type of analysis can give clues to out-of-favor investments that may be due for a bounce or in-favor investments that may be a bit stretched on the upside. In essence, it helps provide good contrarian plays for overweighting or underweighting sectors. I smooth the data and then look for buy or sell crossing points in the moving averages for when to shift in or out of a sector. For example, I received a very timely sell signal on energy on August 15th 2008 and have waited for a buy signal ever since. FINALLY, after nearly two years we have a buy signal on the 12-month relative performance differential for energy, which came on August 8th 2010. While the buy signal was given nearly four months ago there is still likely more outperformance by the energy sector relative to the S&P 500 ahead.

As mentioned above, I like to periodically look at how the 12-month relative performance spread for the S&P 500 sectors are doing and commented upon it in an article written back in April of this year called, "Revisting The Dual-Edged Sword of Investing: Risk vs. Reward”. From my vantage point at the time, I saw two key sectors that stood out as the most attractive buying opportunities: telecommunications and energy. In regards to telecommunication, the following commentary and chart from the April article were highlighted:

Laggards—More reward than risk at this juncture

At the other end of the relative performance extreme are sectors traditionally viewed as defensive or less tied to the general economy than cyclical sectors. What absolutely takes the prize as top underdog is the S&P Telecommunication sector, which has grossly underperformed the S&P 500 by the widest margin in more than two decades. The sector sports the highest dividend yield (5.81%) of all S&P 500 sectors as well as the third lowest trailing P/E (13.58), making it a bargain among its sector peers. (more)

Can the Bulls Keep the Rally Going?

U.S. stocks jumped from the opening as better economic news and more stable European markets encouraged investors to trade in safety for equities and better performance. And where just a day before the headlines spelled doom and gloom, yesterday’s pre-opening economic reports were all positive.

The latest ADP employment change data showed that private payrolls expanded by 93,000 in November versus an expected increase of 58,000, for the best improvement in payrolls in three years. The Q3 productivity report showed that non-farm productivity increased by 2.3%, up from Q2′s 1.9%, but just a bit off of the 2.4% expected. And construction spending increased 0.7% versus the consensus of a 0.5% decline.

The announced improvements in the U.S. economy had much to do with the opening rally, but even more buying came about as a result of better economic data from both Europe and China, and strong markets in both areas. Comments from European Central Bank President Jean-Claude Trichet seemed to stifle fears of more debt contagion in the euro zone.

The ECB said that it will take more assertive action focusing on the nations that are slower to participate in a recovery. At one point, a rumor spread that the U.S. Federal Reserve would also be coming to the aid of Europe, but that was later denied. (more)

Jim Sinclair - Gold is Poised to Explode

With the gold and silver markets heating up once again, King World News interviewed legendary trader Jim Sinclair. When asked about repeated top calls being made in the gold market Sinclair responded, “This is not what a top is made of. I’ve been around long enough, I’ve seen many, many markets, so many I don’t even want to count anymore, and this is not what tops are made out of. Tops are made out of outrageous exuberance.”

Sinclair continues:

“What most people look at, no what almost everyone looks at is a picture in time, something like looking at a still. Up comes the chart, it’s a picture in time. Very few people will focus on motion, direction over time. And you can’t predict the future unless you can see things in motion. So, to the static thinker the picture in time has to have an excuse of why the market did this or why the market did that or what technical thing happened to make it happen. While in truth, you and I know we are watching something unfold.”

You nailed ahead of time the fact that gold would be strong despite strength in the US dollar. (more)