Archive for ‘Economy’

The Fed Speaks: Didn’t He Say the Same Thing Last Month?

By , 9 August, 2010, No Comment

Day trading today was like watching a nail rust. I find that amazing, too. The Fed has been saying the same thing for the last three months and there have been no substantive changes in the economy. They can’t lower rates, as the Fed Funds rate is already zero. So that rules out any earthshaking rate changes, and they can’t raise rates because the economy continues to, at best, stagger like a drunken sailor.

Just the same, the market waited with eager anticipation to hear what Mr. Bernanke would say. Imagine my astonishment when he said, well, he said the same things he has been saying for the last three months. The fed is going to continue quantitative easing (which is the latest phrase in a long list of Fed Speak anachronisms) and they may or may not buy some bonds to accomplish this goal. The Fed chairman did not see any immediate relief from the recession-like conditions we are experiencing. I am certainly glad we are out of the recession, and now just experiencing recession-like conditions. I would appreciate it if somebody would clarify the difference between a recession and recession-like conditions.

But the most interesting consequence of all this Federal Reserve nonsense is in the pall that falls over the stock market as it waits in eager anticipation for the utterances of the Fed chairman. Did they think he was going to say something new? To be sure, the Fed is nearly out of options for managing our monetary system. They can’t move interest rates because they have run out of room: they have a big gun, but no bullets.

And that’s what has me scratching my head. Why all this trepidation every time the Fed meets? They are, essentially, out of options to manage the economy and it’s not like you can count on them to spell out, in real terms, how damaged our economy has become. No, that would have people running to the bank’s like lemmings in a desperate attempt to withdraw whatever money they could get their hands on. So we listen to our Fed chairman spew nearly indecipherable musings of on the esoteric economic theories and machinations the Fed is currently employing to make everything “all better.”

So the market went sideways for a good portion of the day as we waited for the Fed chairman’s proclamations: and when the earthshaking proclamations were issued the market resumed its normal activity. And you know what is really crazy? We will do the same thing next time the Fed meets. Even worse, nothing will be changed and we will ask ourselves, “didn’t he say that last month?”

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Some Random Thoughts for Week Starting August 9, 2010

By , 8 August, 2010, No Comment

We ought to have an interesting week as the market continues to worry about the economy, despite robust earnings from a number of major corporations. Walt Disney, Cisco, and J. C. Penney will all be reporting earnings this week.

Of course, the real center of attention will be on the Fed meeting this week. Investors will be paying close attention to what the Fed has to say, which is amusing to me because they have been saying the exact same thing for quite some time now and are not expected to change the tenor of their ongoing advice. Just the same, countless investors will be glued to their television sets as the usual suspects spew nearly identical blather of Fed Speak for the masses to decipher for some hidden meaning.

In short, you can count on the interest rates remaining the same, with the chairman explaining he expects rates to stay the same until the end of the year. The Fed will be also engaging in quantitative easing, which has become the Fed Speak term for the past year. Translated, it means they want more money in the economy so people will buy stuff and banks will make loans. Unfortunately, banks have been reluctant to participate in the quantitative easing program as they are more concerned with profit margins than ever.

The futures markets have been interesting of late, and there has been interesting moves nearly every day of the past week. I have to admit that predicting the market moves as become a nearly impossible task as traders seem skittish and prone to react to the smallest of reports or rumors. All in all, it makes for some very interesting trading, though you need to be careful not to over commit to any position.

Hewlett-Packard ought to dominate the news tomorrow as their recently departed CEO resigned over several allegations, including a little hanky-panky he is one should not have been involved in. There have been a number of articles on the business pages outlining which direction Hewlett-Packard will take in the coming years regarding its business model. Most of this blather is just that, blather.

Of course, there has been plenty of talk about the employment reports, or more aptly, the unemployment reports. Corporations have been unwilling to add personnel as they fret over the future of the US economy and consumer spending. Most economists don’t expect the employment picture to improve in the near term. This leaves the Fed in a bit of quandary, as it is necessary for employment to improve in the economy move out of near recession levels.

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More on the Financial Crisis: If you want to Understand what is going on, read this.

By , 12 July, 2010, 3 Comments

In effect, it’s a Third World/colonial scam on a gigantic scale: plunder the public treasury, then buy the debt which was borrowed and transferred to your pockets. You are buying the country with money you borrowed from its taxpayers. No despot could do better.

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From PBS, An Interview with David Stockman and some Shocking Remarks

By , 6 February, 2010, 1 Comment

SAUL SOLMAN: David Stockman, former Michigan congressman and Ronald Reagan’s budget chief, who’s also toiled in the private sector at Wall Street’s Solomon Brothers, private equity firm the Blackstone Group, and his own controversial private equity fund.

Charges against him for accounting fraud there were filed and later dropped, and he settled a dispute with the SEC just last week. Stockman’s now working on a book about the financial crisis called “The Triumph of Crony Capitalism,” and has come out in favor of the president’s bank reform efforts.

David Stockman, welcome.

DAVID STOCKMAN, former Reagan administration budget director: Thank you.

PAUL SOLMAN: So, you like the Obama banking proposal. Why?

DAVID STOCKMAN: I would give the administration credit for trying to move us back to something that’s a lot saner than trillion-dollar banks being propped up by the taxpayers, which is exactly where we are today.

The fact is, Wall Street is entirely involved in capital markets activity, which is fine. But that’s free market activity. They shouldn’t be involved in it if they have got deposit insurance and if they have got the Fed window behind them. That’s for deposit banks, not for gunslingers and for hedge funds and for capital market players.

PAUL SOLMAN: But you were a gunslinger, right?

DAVID STOCKMAN: Yes. But I didn’t ask for any — I didn’t ask for any deposit insurance that the taxpayer is going to back up.

Please, Wall Street banks, don’t come and ask the taxpayer of this country who’s out in Green Bay Wisconsin, can’t pay his mortgage, can barely put food on his table, to have the safety net of the Fed and the Deposit Insurance and the Treasury of the United States. It’s an outrageous ask, and they ought to be ashamed of themselves.

PAUL SOLMAN: Listening to you, I’m struck by the fact that I can imagine critics on the left saying exactly the same thing.

DAVID STOCKMAN: I’m mortified by that thought. But, at some point, you have to ask, what’s good policy? And we have gotten into this syndrome, I think, over the last 20 years, where policy of the Treasury and of the Fed has been dictated by Wall Street, that, if Wall Street threatens to have a hissy fit, or the stock market is going to go down, the Fed has basically capitulated and is creating a very unstable and dangerous financial system in our economy.

PAUL SOLMAN: The president’s first bank proposal a few weeks ago, to tax financial institutions based on their size and risk-taking, stirred Stockman to write a New York Times op-ed.

“The baleful reality is that the big banks,” he wrote, “the freakish offspring of the Fed’s easy money, are dangerous institutions, deeply embedded in a bull market culture of entitlement and greed. This is why the Obama tax is welcome.”

We asked the CEO of Bank of New York Mellon, Robert Kelly, to respond.

ROBERT KELLY, chief executive officer, BNY Mellon: The reality is, banks provide millions of jobs in our economy. The reality also is, is that we have had a one-in-80-year event. We also have a gigantic economy, which you can’t run with a lot of really small banks.

DAVID STOCKMAN: Well, you know, those are the talking points from Wall Street, and I take strong issue. The fact is, the heart of the bailout was AIG. That was $80 billion worth of CDS that was going to go sour.

PAUL SOLMAN: CDS meaning?

DAVID STOCKMAN: Credit default swaps, OK? And we weren’t bailing out AIG. We were bailing out the banks, because the banks had bought a lot of low-caliber or subprime loans, wrapped some insurance around it from AIG, and said, presto, we have a AAA, a security on our balance sheet.

They didn’t. They had garbage on their balance sheet. And the bailout was to make sure that they didn’t suffer multi $10 billion write-downs on that AIG-supported loan.

PAUL SOLMAN: So, if you had been in the administration after Lehman Brothers, you wouldn’t have supported bailing out AIG?

DAVID STOCKMAN: No, absolutely not. It was the single most, you know, drastic error in policy in modern history, going back to the 1930s. This was exactly the wrong thing to do.

It’s destroyed any basis for fiscal discipline in the United States. I was a member of Congress, and I know how they think. And they think by analogy. If you did it for John, you have got to do it for Bob. There is no way that any congressman is ever going to vote against farm subsidies or ethanol subsidies or housing subsidies or anything else, refrigerator subsidies, once we have made this tremendous bailout for Wall Street, and we stepped into AIG.

PAUL SOLMAN: Well, spoken like a true gunslinger, but you would have been taking an enormous risk.

DAVID STOCKMAN: It’s part of the capitalist system. You know, if an investment bank gets in trouble, it ought to fail. If a hedge fund gets in trouble, it ought to fail.

The idea that our system is so fragile that the failure of Lehman Brothers or even Goldman Sachs, which could have happened, allegedly, in the next few days, would have brought the whole system down, I think, is baloney. I think it’s an urban legend that was created by Wall Street.

PAUL SOLMAN: Almost everyone I talk to says too big to fail is a bad idea, and, yet, in Republican and Democrat administrations alike, it has been the de facto policy. Why?

DAVID STOCKMAN: I think part of the problem is that Wall Street has this tremendous army of lobbyists, who strangle in the cradle any decent idea before it can even see — see the light of day.

PAUL SOLMAN: Which sounded a lot like Stockman’s political polar opposite, Paul Krugman.

PAUL KRUGMAN, columnist, The New York Times: This is as raw an incidence of the power of money in preventing us from doing something that everybody knows we should do that I have ever seen.

PAUL SOLMAN: And now both men favor a new tax on risk-taking financial institutions, which prompted one last question for Ronald Reagan’s budget director, famous for the starve-the-beast argument, that tax cuts would force government to cut spending.

Do you still feel that way?

DAVID STOCKMAN: I think the lesson of the last 25 years is that it doesn’t work. You can keep cutting taxes until you reach the point where this year — or the year just ended, we spent $3.6 trillion, and we only collected $2.2 trillion.

So, we are now so far out of kilter that it’s irrelevant. Taxes are going to have to be raised. And the beast needs to be trimmed back. But it can’t be starved enough to even begin to cope with our fiscal problem. And this is where I think all the politicians are faking in both parties, but the Republicans especially.

The Republicans think their mission in life is to cut taxes. Sorry, game — game over. We’re now in the tax-raising business. And we’re going to be in the tax-raising business for the next decade.

PAUL SOLMAN: David Stockman, thank you very much. Thank you.

ES Emini Day Trading: Pivot-Fed Announcements-Commentary

By , 24 December, 2009, No Comment
ESH0
For 12/24/2009
How To Use
Symbol R1 R2 Pivot S1 S2
ESH0 1119.92 1124.33 1115.58 1111.17 1106.83

Fed and Fed Agency Announcements

Most of the CME Markets close at noon today for the Christmas Break, expect trading this morning to be light as many traders take the entire day off.

Jobless Claims
[Report][djStar]8:30 AM ET

NYSE Early Close – 1:00 ET

SIFMA Rec. Early Close 2:00 ET

Money Supply
[Bullet4:30 PM ET

Relevant Consensus Analysis

Durable Goods Orders
Released on 12/24/2009 8:30:00 AM For November, 2009
Prior Consensus Consensus Range Actual
New Orders – M/M change -0.6 % 0.5 % -1.0 % to 1.5 % 0.2 %
New Orders – Yr/Yr Change -11.9 % -7.8 %
Ex-transportation – M/M -1.3 % 2.0 %
Ex-transportation – Yr/Yr -11.3 % -6.9 %

Highlights
Boeing orders slipped in November but the rest of durables orders look good. New orders for durable goods in November rebounded 0.2 percent after a 0.6 percent decline in October. The boost in November came in below the consensus forecast for a 0.5 percent increase. Excluding the transportation component, new durables orders posted a 2.0 percent gain, following a 0.7 percent drop in October. The weakness in transportation was a huge drop in civilian aircraft orders.

The November rebound in new orders was broad-based outside of transportation. Sizeable gains were seen in communication equipment, up 4.0 percent, computers & electronics, up 3.7 percent; machinery, up 3.5 percent; and electrical equipment, up 3.2 percent. Also posting gains were primary metals and fabricated metals.

Transportation fell 5.5 percent after slipping 0.2 percent in October. Within transportation, nondefense aircraft dropped 32.6 percent in November; defense aircraft fell 3.2 percent; and motor vehicles slipped 0.2 percent.

The outlook for capital goods spending is improving at the core level-although it may be foreign spending more than domestic investment. However, headline new orders for nondefense capital goods fell 1.9 percent in November after an increase of 0.8 percent the previous month. The weakness was in the volatile aircraft component. Excluding aircraft, new orders for nondefense capital goods rebounded 2.9 percent after a 2.0 percent dip in October. These numbers reflect orders from both foreign and U.S. businesses.

Year-on-year, overall new orders for durable goods improved to minus 7.8 percent in November from minus 11.7 percent the month before. Excluding transportation, new durables orders increased to minus 6.9 percent from down 10.5 percent in October.

Overall, today’s durables report shows manufacturing still on a gradual uptrend. Growth in this sector is leading the economy but at a moderate pace.

Equities might be disappointed in the shortfall from expectation other than jobless claims fell more sharply than projected. Equities will likely rise on that report. However, Treasury yields were marginally lower on the two releases.

Jobless Claims
Released on 12/24/2009 8:30:00 AM For wk12/19, 2009
Prior Consensus Consensus Range Actual
New Claims – Level 480 K 470 K 450 K to 475 K 452 K

Highlights
The brightest spot on the economic calendar continues to be initial jobless claims which fell a very substantial 28,000 in the Dec. 19 week to 452,000 — a dip that the Labor Department describes as a part of “long-term trend” of improvement. The four-week average continues to come down, now at 465,250 for a 2,750 decrease. Continuing claims also continue to come down, 127,000 lower in the Dec. 12 week to 5.076 million. Trends for both initial and continuing claims show sizable improvement from November in what will raise talk of a possible gain for December payrolls.

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Numbers, Manipulation and the Commerce Department

By , 22 December, 2009, No Comment

Some days it is just plain hard not to laugh at the ridiculous manipulation of numbers the Commerce Department spews forth.  So you can imagine my astonishment this morning when GDP numbers were revised downward from the 2.8% growth rate reported last month, which had been revised downward from the original report of 3.5%.  We have finally settled on a mundane 2.2% annual GDP, since this is the final revision.  On a positive note, the current revision is still the highest GDP since the third quarter of 2007.

The talking point on government economic reports is always consistent, as we typically trumpet exceptional numbers on initial economic reports then quietly revise downward in following months.  The Commerce Department would say the numbers are revised as more information is gathered and a clearer picture of the economy emerges, and this is indeed a cogent argument.  The job of estimated the US GDP is a mammoth undertaking.   But that is not the problem, it has been a long time since I have seen numbers revised upward as oppose to downward.  Simple probability would suggest that they would make revisions both to the upside and downside as more information becomes available.

I suppose it isn’t politically correct to question the Commerce Departments veracity, but initial numbers released by the Department have to be treated with a grain of salt, as few people put much confidence in the bright picture often portrayed by the numbers.   This practice is nothing new and did not start under the Obama Administration, it’s been going on for years, and has reduced the Commerce Departments credibility significantly.  The market has simply learned to shrug off the glowing reports issued and continue trading with what the market offers to be true through independent pricing models and reports issued by individual corporations.

What ever happened to the maxim to “err on the conservative side?”  Even MSNBC, the bastion of spinning horrible news into “not quite as bad as you think” news has taken to shrugging off statistical surprises and recommends, from time to time, to wait for the revisions to give us a clearer picture.   Oddly enough, it is my opinion that the general public has a pretty good idea what is going on in the economy.

I was at Wal-Mart yesterday and happen to know the manager pretty well, and questioned him how Christmas season sales were going and he smiled and rattled off a stream of positive numbers over last year.  I didn’t need to ask, really, the throngs of people in Wal-Mart indicate a change in spending.   On the other hand, I questioned the local Macy’s manager about Christmas sales and he stared at his shoes and mumbled incoherent jabber about a late surge he expected to bring the numbers up to par from last year.  The logic is simple:   Wal-Mart is cheaper than Macy’s and people are spending less this year.  I do’t need the Commerce Department to tell me that fact, either.  I can see and feel it.

As always, I am thankful I am scalper and don’t have to depend upon government prognostication to support myself.

ES Emini Day Trading: Pivot-Fed Announcements-Commentary

By , 16 December, 2009, No Comment
ESZ9
For 12/16/2009
How To Use
Symbol R1 R2 Pivot S1 S2
ESZ9 1114.58 1120.42 1109.92 1104.08 1099.42

Fed and Fed Agency Announcements

Housing Starts
[Report][Star]8:30 AM ET
Current Account
[Report][Bullet8:30 AM ET

Consensus Analysis

MBA Purchase Applications
Released on 12/16/2009 7:00:00 AM For wk12/11, 2009
Prior Actual
Purchase Index – W/W Change 4.0 % -0.1 %

Highlights
MBA’s purchase index slipped 0.1 percent in the Dec. 11 week with the refinance index up 0.9 percent. Mortgage rates remain extremely low, at 4.92 percent for 30-year loans. Housing starts for November will be released at 8:30 ET this morning and are expected to show a gain following a drop in October.

Consumer Price Index
Released on 12/16/2009 8:30:00 AM For November, 2009
Prior Consensus Consensus Range Actual
CPI – M/M change 0.3 % 0.4 % 0.2 % to 0.6 % 0.4 %
CPI – Y/Y change -0.2 % 1.9 %
CPI less food & energy 0.2 % 0.1 % 0.1 % to 0.2 % 0.0 %
CPI less food & energy – Y/Y change 1.7 % 1.7 %

Highlights
The consumer price report for November was calming on most financial markets despite the rise in the headline number. Both the headline and core numbers were much less inflationary than yesterday’s scary PPI numbers. Headline consumer price inflation jumped 0.4 percent in November after gaining 0.3 percent the month before. The November headline matched the consensus forecast. Core CPI inflation-in contrast with yesterday’s core PPI run up-eased to 0.0 percent (no change) after a 0.2 percent increase in October. The consensus had called for a 0.1 percent rise.

The headline number was boosted mainly by a 4.1 percent surge in energy costs after a 1.5 percent gain in October. Gasoline was up 6.4 percent, following a 1.6 percent gain the month before. Food price inflation was soft in November with a 0.1 percent rise-the same as in October.

Within the core, declines in shelter indexes offset increases in costs for new and used motor vehicles, medical care, airline fares, and tobacco. Shelter costs declined 0.2 percent in the latest month, led by a 1.5 percent drop in lodging away from home. Owners’ equivalent rent dipped 0.1 percent. Hotels-including resorts-continued to engage in heavy discounting. High unemployment is keeping rent soft in general.

Year-on-year, headline inflation increased to plus 1.9 percent (seasonally adjusted) from minus 0.2 percent in October. The core rate was unchanged in November at up 1.7 percent. On an unadjusted year-ago basis, the headline number was up 1.8 percent in November while the core was up 1.7 percent.

Inflation is still high at the headline level but it is not as severe as earlier indicated by the PPI for November. A flat reading for the CPI core suggests that a sluggish economy is keeping underlying inflation tame for now.

Housing Starts
Released on 12/16/2009 8:30:00 AM For November, 2009
Prior Consensus Consensus Range Actual
Starts – Level – SAAR 0.529 M 0.575 M 0.540 M to 0.600 M 0.574 M
Permits – Level – SAAR 0.552 M 0.584 M

Highlights
Housing starts looked good for November but most of the gain was largely a comeback and then some in multifamily starts-a volatile component. The single-family component posted only a partial rebound. Construction companies picked up the pace of groundbreaking for new homes as housing starts in November rebounded 8.9 percent, following a revised 10.1 percent plummet in October. The November pace of 0.574 million units annualized came in right at the market forecast for 0.575 million units and was down 12.4 percent on a year-ago basis. The latest comeback was led by a 67.3 percent rebound in multifamily starts, following a sharp 29.5 percent plunge in October. Meanwhile the single-family component edged up 2.1 percent after a 7.1 percent fall the month before.

By region, the November rebound in starts was led by 16.4 percent rebound in the Northeast with gains also seen in the South, up 12.3 percent; Midwest, up 3.0 percent; and West, up 1.9 percent.

Homebuilders are modestly optimistic about ramping up the pace of construction as housing permits in November rebounded 6.0 percent after falling 4.2 percent in October. October’s pace of 0.552 million units annualized was down 24.3 percent on a year-ago basis.

Today’s housing starts report is good but should be seen in the context of October’s weak numbers. The two months together indicate that housing is in a slow recovery. The bad news is that the recovery is slow. But the good news is that the housing construction recovery is slow-anything more robust at this point would not be sustainable.

FOMC Meeting Announcement
Released on 12/16/2009 2:15:00 PM
Prior Consensus
Federal Funds Rate – Target Level 0 to 0.25 % 0 to 0.25 %

Market Consensus Before Announcement
The FOMC announcement for the December 15-16 FOMC policy meeting is expected to leave the fed funds target rate unchanged at a range of zero to 0.25 percent. However, traders will be watching to see if the “extended period” language is qualified with any additional wording regarding the future path of the fed funds rate. Traders also will look for updates on the Fed’s view of the recovery and on the Fed’s plan for unwinding balance sheet expansion.
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