by Zero Hedge - November 15th, 2009 11:39 pm
Courtesy of Tyler Durden
Submitted by Davos
Robbed Blind By A Lipstick Wearing Pig
“No one in this world, so far as I know – and I have searched the records for years, and employed agents to help me – has ever lost money by underestimating the intelligence of the great masses of the plain people.”
~ H.L. Mencken
Each and everyday I’m amazed by the sad amount of truth held within this statement.
I’ve totally shunned TV, I have no cable, no dish, I’ve deleted every mainstream news source from my iGoogle RSS reader and I am now weeding out what I once considered to be the best 25 economic blogs.
Let’s visit the many ways that we are being robbed by the pig wearing lipstick.
Confusion and sexing up the ugly
Today, on a blog I used to hold in high esteem was an article entitled “Who’s Afraid Of a Falling Dollar?”
And it should scare you also!
First we need to take the lipstick off the falling dollar pig and understand what it means. If you have $100,000.00 in your account and the dollar falls in value that $100,000.00 might buy you only $25,000.00 worth of assets.
Would you put your money in a bank that offered you a falling balance? Open an account today with your life savings of $100,000.00 and tomorrow your balance will be $25,000.00.
The incredible part about the article is that it was written by a senior fellow at an institute that is trying to save Social Security.
Sorry Grandma, your $500.00 Social Security check that used to buy you a month’s tuna caught by Japanese fishermen had a really bad fall and now you’ll have to eat saltines all month long.
No more tuna for you.
“A lower dollar is good news for US exporters and foreign importers and bad news for foreign exporters and US importers.”
Well bad news here. We import 2/3rds of our oil.
Sorry, when you fill up your SUV with your falling dollar you are now on the cusp of bankruptcy because that dollar had a bad fall and only buys 1/4 the amount of gas it used to. When you go to the store and purchase food that has been shipped a minimum of 1,500 miles and farmed in…
by Zero Hedge - November 15th, 2009 8:48 pm
Courtesy of asiablues
U.S. President Barack Obama has begun a nine-day tour of Asia at a time when the U.S. economy is struggling to emerge from a deep recession. But nothing looms bigger than China, the largest holder of U.S. debt (around $797.1 billion, up 10% this year), has emerged from the global economic downturn in an ever stronger position. When Obama sets foot in China for the first time, he will confront a dramatically altered balance of power between the two nations.
Two Decades of Explosive Growth
This seismic shift is driven by China’s astonishing economic growth over the past two decades and has accelerated during the global financial crisis. Its 9% to 10% annualized GDP growth rate in the past two and a half decades is unprecedented in world history.
In 1992, Chinese gross domestic product (GDP) was less than 7% of America’s GDP. By 2000, the figure topped 12%. When Obama won the election in 2008, the Chinese economy had grown to equal more than 30% of U.S. output. New data show that China is on track to grow more than 8% in 2009, driven by high industrial output and retail sales.
Impressive Stimulus Package…and Working
During this global recession, China’s astonishing growth did slow down, but unlike most developed economies, China never entered a recession.
The Chinese have launched the world’s biggest investment program (about $585 Billion) after the start of the financial crisis last year. Beijing’s stimulus program is estimated to amount to about 13% of Chinese gross domestic product, making it almost twice as large as the U.S. program and close to five times the size of its German equivalent.
The government’s massive economic stimulus program has transformed the country into an enormous construction site. As a result, China’s industrial production rose 16.1% year-over-year in October, the most since March 2008 and a slide in exports eased to 13.8% the slowest pace this year. However, behind the impressive economic data, troubles might be lurking.
China Bubble Forming
China’s purchases of dollars to prevent appreciation gave it foreign-exchange reserves totaling $2.3 trillion in the third quarter, the world’s largest. Meanwhile, its sale of Yuan to keep it fixed to the dollar contributed to a 29% jump in its money supply, and the peg helped spur more than $150 billion in speculative funds…
by Zero Hedge - November 15th, 2009 8:22 pm
Courtesy of George Washington
PhD economist Marc Faber predicts that the U.S. will launch a war to distract people from the bad economy.
China’s largest media outlets – Sohu.com – wrote in October 2008 that the Rand corporation, a leading U.S. military advisor, lobbied the Pentagon for a war to be started with a major foreign power in an attempt to stimulate the American economy:
According to French media, well-known U.S. think tank RAND Corporation … has submitted [to the Pentagon] an evaluation report assessing the wage a war to shift the feasibility of the current economic crisis…
Continued deepening of the U.S. sub-prime mortgage crisis and economic downturn, developed to a certain extent, is likely to trigger a war in order to achieve the purpose of the crisis passed.
(Google’s translation services are crude approximations, but Yihan Dai confirmed the translation of the original).
Is Faber right? Is the Sohu.com report accurate?
I don’t know.
However, “military Keynesianism” – using military spending to stimulate the economy – has been U.S. policy for half a century. And the economist who coined that term said that such a policy always and “inexorably” leads to “an actual war” in order to justify all of the military spending.
In addition, contrary to popular belief, some writers say that the reason that WWII actually stimulated the U.S. economy was not because of America fighting the war. Specifically, they argue that America’s ramped-up production of armaments for the British before the U.S. entered the war was the thing which stimulated our economy.
To try to sort some of this out, I spoke with a PhD professor of economics with a background in international conflict in July 2008 to find out whether war is really good for the economy.
I asked if conventional wisdom that war is good for the economy is true, especially given that all of the spending on the war in Iraq seems to have weakened America’s economy (or at least, greatly increased its debt).
The economist explained the seeming paradox:
by ilene - November 15th, 2009 7:43 pm
Tom’s right - this is completely outrageous! Our federal gov’t officials who participate in this sort of gifting should be thrown out, and the Constitution restored….. See an earlier post too, Our Chatty Cathy Congress. - Ilene
Courtesy of Tom Lindmark at But Then What
Gretchen Morgenson’s Times article today is enough to make you retch.
Buried in the law extending unemployment benefits and reauthorizing the tax credit for homebuyers was a “little” gift to any company that happened to lose money in the past five years. Here’s how she describes the largesse:
But tucked inside the law was another prize: a tax break that lets big companies offset losses incurred in 2008 and 2009 against profits booked as far back as 2004. The tax cuts will generate corporate refunds or relief worth about $33 billion, according to an administration estimate.
Before the bill became law, the so-called look-back on losses was limited to small businesses and could be used to counterbalance just two years of profits. Now the profit offset goes back five years, and the law allows big companies to take advantage of it, too. The only companies that can’t participate are Fannie Mae and Freddie Mac and any institution that took money under the Troubled Asset Relief Program.
Among the biggest beneficiaries are home builders, analysts say. Once again, at the front of the government assistance line, stand some of the very companies that contributed mightily to the credit crisis by building and financing too many homes.
Morgenson takes this travesty to task by focusing on the homebuilders. Fair enough. There are too many of them, they are financially in fine shape and based on recent history they appear to be managed by fools. Why they should receive such a gift is beyond comprehension.
by ilene - November 15th, 2009 7:19 pm
This morning, David Rosenberg of Gluskin Sheff had another wonderful piece. I am only going to take on one part of it here. I have linked to the full article below so that you can read his analysis in it’s entirety (registration free but required).
The part I want to focus in on has to do with GDP revisions. Basically, the GDP numbers the U.S. government releases are always revised when more complete data come in. Often the data come in years later via tax returns and other slower-to-report channels, so we can get huge disparities in what was reported at the time and what ends up being the final data series. Rosenberg thinks Q3 is going to see major, major downward revisions because of small businesses.
He says the following (highlighting added):
We noticed an interesting piece of research on U.S. GDP from Goldman Sachs’ Economics team that’s worth highlighting. The team questions whether the official government GDP statistics capture how poorly small businesses (ie, sole proprietorships) are doing. The weakness in small business sentiment is seemingly at odds with the recent 3.5% Q3 GDP reading but may explain why the unemployment rate has continued to steadily increase. Part of the reason for small business weakness is that most don’t have the same access to credit as larger firms and larger firms’ output tends to be better captured in the GDP data. While sole proprietorships tend to be small they collectively account for a nontrivial 17% of the U.S. economy.
The Goldman team uses a couple of different statistical approaches to test their thesis. They use timely data from the National Federation of Independent Business (NFIB) confidence survey, which shows that despite a recent improvement, confidence remains exceptionally weak (in fact two standard deviations below long-run trends). The first model suggests that the NFIB survey is consistent with overall GDP growth of 2.5% to 3.0% — not the 3.5% reported. As well, they find that current NFIB readings are more in line with below-50 readings on the ISM manufacturing index versus the actual reading of 55.7.
The second approach has to do with revisions to the GDP data and their relationship to the NFIB. U.S. GDP goes through many revisions as more, and
by Zero Hedge - November 15th, 2009 7:18 pm
Courtesy of Benjamin N. Dover III
“The credit rating industry is facing sweeping regulatory changes in the wake of the scandals that have beset Wall Street during the past year.”
— The Guardian
Most of you are probably asking yourselves, “What in the world does that statement have to do with current events?” Well, actually, it doesn’t. It was made six years ago, in 2003, after the Enron and WorldCom frauds prompted the last episode of “Never Again” outrage at Wall Street. At that time, the powers that be decided that instead of “sweeping regulatory changes” to the credit rating industry, the more fair and balanced approach was “no regulatory changes.” And thank Goldman they did. Who knows what kind of financial cesspool we avoided by not implementing any real reforms back then.
Now, as if there were something inherently wrong with a government-endorsed oligopoly that admits to numerous conflicts of interest, the powers that be are contemplating sweeping regulatory changes again. Except this time, fortunately, it’s only the language they’re using to describe the changes that’s sweeping. The Senate Banking Committee, led by Senator Chris Dudd, is proposing a bill that would establish a new Office of Credit Rating Agencies at the SEC to implement new internal controls for credit ratings agencies (CRAs) to follow, improve transparency of the rating process, and impose penalties on agencies for poor performance and regulatory violations. Sounds like they mean business this time, but don’t worry — as the Atlantic points out, the proposed reforms probably only mean business as usual.
The last time the SEC was put in charge of administering regulatory changes that were force-fed to the CRA industry — under the Credit Rating Agency Reform Act of 2006 — Chairman Christopher “Never miss an opportunity to miss an opportunity to do my job” Cox, had the good sense not to go overboard. Or even onboard. Under his direction, the SEC required CRAs to disclose which of 9 possible categories of conflicts of interest were applicable to their businesses. Moody’s and…
by Zero Hedge - November 15th, 2009 6:38 pm
Courtesy of Tyler Durden
After the New York Times came out with a very ingenuous piece of “objective” fluffery, we have littel to add except to bring readers’ attention to our initial thoughts on Mr. Cohen and his place in the Wall Street parthenon.
by Chart School - November 15th, 2009 6:33 pm
Courtesy of The Pragmatic Capitalist
From Decision Point:
After the S&P
On the chart I have drawn a new rising wedge pattern that conforms to the gradual rolling over that prices appear to be doing. As usual, we should expect prices to break down out of the wedge, and, perhaps, that will lead to the correction we have been awaiting.
Below, our OBV (On-Balance Volume) suite of charts shows the short-term CVI and STVO coming off overbought levels and allowing for further decline in the short-term. The medium-term VTO shows that an internal correction is in progress that appears to be spreading to price behavior.
In his comments today, John Murphy (StockCharts.com) pointed out that large-cap indexes are beginning to out-perform small cap indexes. This should be of special interest to our subscribers because we track both cap-weighted and equal-weighted versions of the major market and sector indexes. (Equal-weighted indexes the smaller-cap stocks in the index to exert more influence on the price of the index.) In the example below, we have a chart of the S&P 500 displayed with the Price Relative to the Rydex S&P Equal Weight ETF (RSP). You can see that the S&P 500 relative strength line trended downward since March, but recently it began to trend upward. The message being that it is probably time to shift money out of the equal-weighted vehicles and into the cap-weighted vehicles. (See signal table below to see how well equal-weighted stocks have performed.)
Bottom Line: Last week I thought that a medium-term correction had begun, but a rally to new highs killed that projection. The market now looks as if it is topping, and internals support the idea that there will be a decline into the end of the month. A further
by Chart School - November 15th, 2009 5:55 pm
Courtesy of Fallond Stock Picks
Another week of point gains, but supporting technicals continue their downward descent. The S&P is very close to a MACD trigger ‘sell’ with Fibonacci retracements still in play; however, a break of 1,107 would favour a push perhaps as far as 1,222.
The Nasdaq is fighting resistance which marked support in early 2008. Its MACD ‘sell’ is already in play. [Click on charts for larger images.]
Although the Nasdaq 100 gives hope with its move into ‘fresh air’ and a possible move into the 2000s. But it does have a MACD trigger ‘sell’ to contend with.
However, the positives in the Nasdaq 100 are undermined by the struggles in the Russell 2000 – and the Russell 2000 is more important from a leadership perspective. Small Caps lie well below resistance with MACD ‘sell’ and weakening long term stochastics (momentum) to consider.
And the weakness in the Bullish Percents has generated a new ‘sell’ signal; the last of the key Nasdaq Breadth signals to turn bearish (the Percentage of Nasdaq Stocks above the 50-day MA generated a ‘sell’ on July 10th)
With all three key Nasdaq breadth indicators negative, and small caps (and semiconductors) struggling it would not be considered foolish to step aside and let the heat leave the market before long sided positions could be considered again.
by Zero Hedge - November 15th, 2009 5:41 pm
Courtesy of Tyler Durden
Lately, Goldman has been extolling the virtues of its theological affiliations and humanistic aspirations to, well, high heaven. Curious to dig deeper through the firm’s purported philanthropic efforts, we decided to take a detailed look at the 2007 and 2008 tax records of the charitable Goldman Sachs Foundation. We will not comment on the performance of the actual Foundation: to the chagrin of many needy children who look up to the St. Goldman cathedral in anticipation of a generous holiday season, the Goldman Sachs Foundation has lost gobs of money in the past two years: the fund started off with $275 million in 2007, $269 million in 2008 and ended the year with $161 million. Of course, it is Goldman’s prerogative to trade with its money as it desires: while this loss is deplorable, its only outcome will be that fewer Cap ‘N’ Trade propaganda initiatives will get the due “charitable funding” courtesy of Goldman. Yet what the foundation’s tax record do provide, is a very unique and open glimpse in the myriad trading patterns of Goldman’s proprietary trading operations… And boy does the firm trade.
A quick tutorial into trade allocation.
Whenever a huge hedge fund such as Goldman’s prop trading desk prints, or executes, a transaction, the physical or electronic ticket will request a split of the capital allocation to the various entities, funds, or LPs that make up the firm’s “AUM” umbrella. Sometimes no capital is allocated to excluded strategies, but usually, and especially for product agnostic funds such as Goldman, each entity will be allowed its pro rata share based on the “fungible” capital that makes up the firm’s entire Assets Under Management. Therefore, the GS Foundation (“GSF”), with its $270 million of capital at the beginning of 2008, would likely get its pro rata allocation as a percentage of the total capital backing the Goldman hedge fund (which can come from such places as Goldman Sachs Asset Management, and Goldman Sachs & Co., which in turn gets it funding via such taxpayer conduits as the Fed’s repo operations and the Discount Window). So if Goldman for example had access to total capital of $50 billion last year (roughly), each trade, when allocated to GSF, would account for about half a percent (0.5%), absent special treatment, of the total capital invested or disposed.…