Six Huge Lessons From 2009 We Still Haven’t Learned
by ilene - December 31st, 2009 11:16 am
Six Huge Lessons From 2009 We Still Haven’t Learned
By Joseph Stiglitz, courtesy of Clusterstock
The first lesson is that markets are not self-correcting. Indeed, without adequate regulation, they are prone to excess. In 2009, we again saw why Adam Smith’s invisible hand often appeared invisible: it is not there. The bankers’ pursuit of self-interest (greed) did not lead to the well-being of society; it did not even serve their shareholders and bondholders well. It certainly did not serve homeowners who are losing their homes, workers who have lost their jobs, retirees who have seen their retirement funds vanish, or taxpayers who paid hundreds of billions of dollars to bail out the banks.
Read the rest at China Daily -->
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DiggTrimTabs Asks: Who Is Responsible For The Non-Stop Market Rally Since March; Gives Some Suggestions
by Zero Hedge - December 31st, 2009 10:28 am
TrimTabs Asks: Who Is Responsible For The Non-Stop Market Rally Since March; Gives Some Suggestions
Courtesy of Tyler Durden at Zero Hedge
Submitted by TrimTabs’ Charles Biderman
Are Federal Reserve and U.S. Government Rigging Stock Market? We Have No Evidence They Are, but They Could Be. We Do Not Know Source of Money That Pushed Market Cap Up $6+ Trillion since Mid-March.
The most positive economic development in 2009 was the stock market rally. Since the middle of March, the market cap of all U.S. stocks has soared more than $6 trillion. The “wealth effect” of rising stock prices has soothed the nerves and boosted the net worth of the half of Americans who own stock.
We cannot identify the source of the new money that pushed stock prices up so far so fast. For the most part, the money did not from the traditional players that provided money in the past:
- Companies. Corporate America has been a huge net seller. The float of shares has ballooned $133 billion since the start of April.
- Retail investor funds. Retail investors have hardly bought any U.S. equities. Bond funds, yes. U.S equity funds, no. U.S. equity funds and ETFs have received just $17 billion since the start of April. Over that same time frame bond mutual funds and ETFs received $351 billion.
- Retail investor direct. We doubt retail investors were big direct purchases of equities. Market volatility in this decade has been the highest since the 1930s, and we no evidence retail investors were piling into individual stocks. Also, retail investor sentiment has been mostly neutral since the rally began.
- Foreign investors. Foreign investors have provided some buying power, purchasing $109 billion in U.S. stocks from April through October. But we suspect foreign purchases slowed in November and December because the U.S. dollar was weakening.
- Hedge funds. We have no way to track in real time what hedge funds do, and they may well have shifted some assets into U.S. equities. But we doubt their buying power was enormous because they posted an outflow of $12 billion from April through November.
- Pension funds. All the anecdotal evidence we have indicates that pension funds have not been making a huge asset allocation shift and have not moved more than about $100 billion from bonds and cash into U.S. equities since the rally began.
If the…
Same Unemployment Insurance Misreporting, Different Day: Initial Claims Down 22,000 As EUCs Surge Almost Two Hundred Thousand
by Zero Hedge - December 31st, 2009 9:48 am
Courtesy of Tyler Durden
The fabulous news of the day undoubtedly will be the latest release from the Dept of Labor: Initial Claims for the week ended December 26 came in at 432,000, a 22,000 decline from the prior week, and below consensus. The number was sufficient to prompt Bloomberg’s Courtney Schlisserman to come up with the following observation, “Fewer Americans than anticipated filed claims for unemployment benefits last week, pointing to an improvement in the labor market that will help sustain economic growth next year.” Perhaps Courtney and Steve Liesman should sit down in a corner and finally figure out what this whole EUC (Emergency Unemployment Compensation) business is – trust us, it is not that difficult. And for the week ended Dec. 12 it surged by 191,669 to almost 4.5 million, another all time record. Three weeks ago we were shocked when this number hit the all time high of 4.2 million: in a mere 21 days it has added a whopping 7% to the total. Unfortunately, at this point we have gotten a little desensitized to new EUC records. We ask Ms. Schlisserman what happens to the “sustainable economic growth” when there are 0 Initial Claims (hurray!!) and a million EUC claims weekly (d’oh)? Again, a simple question. Luckily for Bloomberg, the DOL and the BLS there is no consensus number for EUC, as the downside surprises there would have been staggering, if anyone actually cared to report those on the front pages of the even impartial mainstream media.
To be honest, Courtney does point out that Conference Board numbers we discussed yesterday, which demonstrated that Americans have now written off any possibilities for a raise until the 30th century.
Americans are concerned about their financial future. Fewer consumers in December believed their incomes will increase over the next three to six months, the Conference Board’s confidence report this week showed.
And with wage deflation still pervasive, John Williams’ hyperinflation thesis may just have to be put on the backburner for a few [months/years/decades].
It Doesn’t Take a Genius to Figure Out How This Will End
by Zero Hedge - December 31st, 2009 9:42 am
It Doesn’t Take a Genius to Figure Out How This Will End
Courtesy of Reggie Middleton, writing at Zero Hedge
For all of those who feel China is going to take over the free world, just remember that when you blow a bubble (particularly a balance sheet bubble) it is bound to pop. The damage from the pop invariably does more harm than the boost from the bubble. It has always been the case, particularly when leverage is involved – which makes the impact that much more devastating. If anybody can attest to this, it should be us Americans (British, Spanish, Irish, those from Dubai, Japanese…).
Methinks that before China gets a chance to become a preeminent world power, their profusely blown asset bubble (by way of a most accomadating fiscal policy) will blow up in their face and they will go through what the US, Japan and UK just (is still) went through, exacerbated by the fact that they are still a net export reliant economy when the bubble blowing is removed. With the developed world in sluggish mode, they will have very little to fall back on as their asset prices collapse to equilibrium and debt from their steriodal lending system is left under or uncollateralized and unable to be serviced.
Why does everybody confuse bubbles with economic progress?
From Bloomberg:
Dec. 31 (Bloomberg) — Li Nan has real estate fever. A 27- year-old steel trader at China Minmetals, a state-owned commodities company, Li lives with his parents in a cramped 700- square-foot apartment in west Beijing.
Li originally planned to buy his own place when he got married, but after watching Beijing real estate prices soar, he has been spending all his free time searching for an apartment. If he finds the right place — preferably a two-bedroom in the historic Dongcheng quarter, near the city center — he hopes to buy immediately. Act now, he figures, or live with Mom and Dad forever. In the last 12 months such apartments have doubled or tripled in price, to about $400 per square foot.
“This year they’ll be even higher,” says Li in the Jan. 11 issue of Bloomberg BusinessWeek.Does this scenario sound even remotely familiar???
Millions of Chinese are pursuing property with a zeal once
…
Why the Next Spike in Oil Prices Will Dwarf the Last One
by Zero Hedge - December 31st, 2009 9:11 am
Courtesy of madhedgefundtrader
Ambassador Richard Jones, the Deputy Executive Director of the International Energy Agency, has some eye popping things to say about the energy space. The Paris based IEA was first set up as a counterweight to OPEC during the oil crisis in 1974, and has since evolved into a top drawer energy research organization with one of the best 30,000 foot views of the energy universe.
World GDP will grow an average 3.1%/year through 2030, driving oil demand from the current 84 million barrels/day to 103 million b/d. That means we will have to find the equivalent of six Saudi Arabia’s to fill the gap or prices are going up a lot. His ultra conservative target has crude at $190/barrel in twenty years, and his high priced scenario would send you rushing for a change of fresh underwear.
Some 39% of that increase in demand will come from China and 15% from India. A collapse in investment caused by the financial crisis last year means that supply can’t recover in time to avoid another price spike. More than 1.5 billion people today don’t have electricity at all, but would love to have it. The best the Copenhagen climate negotiations can hope for is for CO2 to rise until 2020, and then plateau after that, because once this greenhouse gas enters the atmosphere it is very hard to get out. It would take 100 years of natural decay to get CO2 levels back to where they were just 20 years ago.
This will require a massive decarbonization effort reliant on nuclear, hydro, alternatives, and carbon capture and storage. Up to half of the needed carbon reduction can be achieved through simple efficiency measures, like ditching the incandescent light bulb, driving more hybrids, and closing dirty, old coal fired power plants. Natural gas will be a vital bridge, as it is cheap, in abundant supply, and emits only half the carbon of traditional fossil fuels.
The total 20 year bill for the rebuilding of our new energy infrastructure will exceed $10 trillion. Each year we kick the can down the road, this price tag rises by $500 billion. Now you know why I spend so much time on energy research.
Richard, who comes from a diplomatic career in Kuwait, Kazakhstan, and Israel, certainly didn’t pull any punches during my extended interview with him. I…
How to Have a Happy and Safe New Year with Hedges
by Phil - December 31st, 2009 8:28 am
"Now is the accepted time to make your regular annual good resolutions. Next week you can begin paving Hell with them as usual." ~ Mark Twain
"We will open the book. Its pages are blank. We are going to put words on them ourselves. The book is called Opportunity and its first chapter is New Year’s Day.” ~ Edith Lovejoy Pierce
I’d like to take this opportunity to wish all of my readers a very happy New Year. 2009 was challenging to say the least – clearly it was the best of times and it was the worst of times but if 2009 has taught us anything it’s that there is always an opportunity for the perseverent. We went from the depths of despair in March straight into a 9-month rally of epic proportions. While we may question the wisdom of the underlying fundamentals, we cannot question the evidence of just how resilient our economy and our people really are and that, if nothing else, gives me great hope for our future.
I myself have gone from being the lone market optimist back in March (see our Crisis, Year One Review) to being one of the 11% of the remaining pessimists as the market takes back over 50% of it’s losses (I am arguing that it’s less than 50% in my Last Charts of the Decade). Whether we are, as I think, at the apex of a very normal Fibonacci retracement or whether we are at the mid stage of a full recovery back to our 2007 glory remains to be seen but for now, I can re-use the same statement I made to Members when I argued the media was too bearish in March (click on image for great video):
"Television is a powerful and emotional medium, it is very difficult to go against the will of ALL these "experts" when they get on TV and all tell you to sell (or buy) and then their TV station backs them up with bearish news and bearish guests – it’s a natural bias that develops, they aren’t going to make their own paid personalities look foolish by contradicting them with facts and dissenting opinions."
Substitute bullish for bearish and we have my quote of the day for December 31st, 2009. If you do nothing else today in the markets, at least consider the idea of establishing some hedges – just…
Frontrunning: December 31
by Zero Hedge - December 31st, 2009 4:37 am
Courtesy of Tyler Durden
- China Central Bank Zhou says 2010 is crucial for ‘defeating’ crisis (Bloomberg) in the meantime his subordinated are learning the intricacies of Treasury collateralized $19.95/pop reverse repos, in advance of withdrawing trillions in excess liquidity
- Lawmakers want probe into aid for Fannie and Freddie – we’ll spare you the Dan Brown suspense – the answer is the Federal Reserve in the 85 Broad lobby with a money printer
- FDIC moves to seize slice of bank stock rallies (WSJ) – paging the worthless Mary Schapiro – when will the insider trading in New York Community Bancorp finally be investigated?
- Speaking of worthless, regulatory-captured windbags, Wall Street waits as SEC fails to bring Madoff-inspired reforms (Bloomberg)
- The end of Uncle Ben’s unlimited piggybank means no more gains for those who benefited from taxpayer generosity to deadbeat homeowners (Bloomberg)
- Do we need a new reserve currency? (Emirates Business)
- So much for Wall Street sobering up (Fortune)
- With Greece teetering the worst may not be over for Europe (NYT)
- McKinsey’s Anil Kumar preparing to plead guilty in Galleon case, bolster case against Raj Raj (WSJ)
- Aiful debt swap sellers to pay $975 million to settle contracts (Bloomberg)
- Kass: Squawking about the headwinds (Street)
- Rusal, the biggest Hong Kong IPO in two years is just so indicative of the times: “If the company doesn’t come to the market to raise funds, it will go under a mountain of debt.” (Bloomberg)
Two Great Tastes That Taste Great Together
by Chart School - December 31st, 2009 3:37 am
Two Great Tastes That Taste Great Together
Courtesy of Binve of Market Thoughts and Analysis
Actually, these counts do not taste great. In fact, if I had to identify these two tastes, I would call them "rotten eggs" and "vomit" … I don’t know, "puke" has a certain guttural allure about it. Okay "rotten eggs" and "puke" it is! Nothing about the counts during silly season make much sense. Here are the two main options again, from my point of view.
Based on how the price has been meandering up, with no bearish resistance, on little breadth and volume, makes me think we will have no real pullback at all until Minor C is done. If this observation is valid, then I tend to favor the triangle option at the moment.
Based on how the price has been meandering up, with no bearish resistance, on little breadth and volume, makes me think we will have no real pullback at all until Minor C is done. If this observation is valid, then I tend to favor the triangle option at the moment.
You can see on the triangle option chart that there is a target of 1135-1140. This is determined by measuring the width of the triangle at the A and B legs and adding that to the termination point. This is a rough target. But the principle behind a triangle formation (which has two converging trendlines, one up-sloping and one down-sloping) is that prices get "compressed" during its consolidation period. And there is always a "thrust" out of the triangle as spring becomes "uncompressed". The triangle is a continuation pattern. As since the price trend was up going into the triangle, the resulting thrust out is also in the upward direction. The opposite is true for a triangle formation in a down-trending market.
Artwork: Peanut Butter Cup Heart, at Flickr.
Pumps On Full
by ilene - December 31st, 2009 3:06 am
Pumps On Full
Courtesy of Chris Martenson
I am truly amazed at what I am seeing out there in the markets these days. I also understand and share the frustration of the many analysts who know what "should" be happening but is not.
What should be happening is massive, self-reinforcing deflation caused by debt destruction and resulting from the housing bust and retreat of consumer borrowing.
These are harrowing figures:
One in Four Borrowers Is Underwater
The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.
Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.
There is simply no doubt that a finally defeated US consumer is in full retrenchment mode. With one-in-four houses now with a mortgage ‘underwater,’ the great consumer credit bubble is well and truly over. Deflation should be driving down assets (like stocks and commodities).
However, our financial markets are telling a very different story, with signs of plentiful, if not rampant, liquidity everywhere.
First, in the largest market of them all (by sheer size) is the bond market. There we find staggeringly large Treasury auctions being held week after week with stupendously low yields and suspiciously high ‘indirect bidders’ (foreign central banks) showing up each week.
Check out the results from this week.
Monday November 23
11:37 [UST3MO] Treasury sells $31 billion 6-month bills at 0.142%
11:37 [UST3MO] Treasury sells $30 billion 3-month bills at 0.041%
Monday November 23
1:04 [UST2YR] Treasury sells $44 bln in 2-year notes at 0.802%
1:04 [UST2YR] Bidders offer $3.16 for each $1 in 2-yr debt sold
1:04 [UST2YR] Indirect bidders buy 44.5% of 2-year note auction
Tuesday November 24
1:05 [UST5YR] Indirect bidders buy 61% of 5-year-note auction
1:05 [UST5YR] Treasurys extend gains after 5-year-note sale
1:04 [UST5YR] Treasury sells $42 bln in 5-year notes at 2.175%
1:04 [UST5YR] Bidders offer $2.81 for each $1 of 5-yr debt sold
Treasurys gain, straight through 2-year auction
NEW YORK (MarketWatch) — Long-term Treasury prices advanced Monday, maintaining higher ground as the government’s 2-year-note sale received sufficient demand, kicking off $118
…
2009: Why It Will Affect Everyone's Future For Generations To Come
by Zero Hedge - December 31st, 2009 12:59 am
Courtesy of Econophile
From The Daily Capitalist
This has been a phenomenal year for the economy. There have been major, fundamental changes that will affect our lives for many years to come. I don’t see these changes as a good thing for the short or long term.
These changes are generational in that they don’t occur often and they will radically impact the economy and our well-being for decades. I thought of doing a decade review because it explains so much of why we are where we are today. But so much happened this year that I’m glad the year is over.
1. The Triumph of Keynesian Economics.
Liberals, Progressives, and Democrats were eagerly waiting for an economic crash so they could clip capitalism’s wings. They got their wish.
When the crash happened, most people, including most Conservatives, scratched their heads and said, “Yup, it’s capitalism. Bad, but necessary system. Got to control it even more.” They ran to the Keynesian-New Deal play book.
Very few economists stood against this proposition and when the Democrats acted, it was right out of the Keynesian playbook: keep interest rates low, flood the economy with credit, pass spending bills to implement fiscal stimulus, and adopt more stringent rules to regulate financial institutions.
This is a result of 70 years of Keynesian economics education in America and the rest of the world. Paul Samuelson, who just died, was the father of the Neo-Keynesian econometrics movement in academia, and he and his fellow Keynesians are mostly responsible for this.
My fellow free market Austrian theory economists lost their seat at the policy table, and in fact have been banished to the back room. We need to do something about this. Our well being rides on it.
2. The Failure of Keynesian Economics.
The only problem with Keynesian theory and its policy applications is that it doesn’t work.
I am not unaware that many commentators and economists are pointing to recent “Green Shoots” as proof that Keynesian policies work, but it doesn’t. By their own admission, at least according to Paul Krugman and many other Keynesians, the fiscal stimulus has been insufficient to bring about a lasting recovery. Krugman worries about a second collapse when the stimulus runs out. He’s right.
What we are seeing in the economy that is labeled “recovery” comes from two things:
a. The temporary effect…
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