Every once in a while I like to post a collection of recent reports that should, in theory, help to undermine the enthusiasm that so many in Washington and on Wall Street have for the notion that the U.S. economy is ‘recovering.’
Of course, few of those people are interested in the truth, or even a version or reality that is at odds with their own, but I soldier on regardless.
Fools’ errand? Maybe (though probably not for those loyal FA visitors who are interested in knowing where things really stand).
A ground-breaking study takes a look at how many families in area counties are struggling to put food on their tables
Every day more than 700,000 people in Harris County are uncertain about where they will get their next meal. Not all of them are poor — many are working people who don’t qualify for federal food programs.
These are among the findings of a recent study that provides the first detailed look at hunger at the county level. Harris County families struggling to keep food on the table have a food budget shortfall of $12.97 per week, per person. To fill the meal gap, $277 million is needed annually to ensure that every person has three meals a day, according to the report’s calculations.
The federal government defines food insecurity as limited or uncertain availability of nutritionally adequate foods. On average, food insecure families go at least seven months of the year without enough food, the study said.
The study, based on 2009 figures, was conducted by Feeding America, a national hunger relief organization, with the goal of helping local food banks develop better strategies to target hunger. Food banks traditionally have relied on state and national data to…
David Sokol’s attorney Barry Wm. Levine fires right back, and it is now popcorn time.
“David Sokol is deeply saddened that Mr. Buffett, whom he considered a friend and mentor, would disparage him as he has done today. Neither Mr. Buffett nor the Audit Committee at Berkshire has requested to speak nor has spoken to Mr. Sokol since his resignation was made public by Mr. Buffett on March 30th. Mr. Buffett drafted the March 30th press release announcing Mr. Sokol’s resignation in cooperation with Mr. Charlie Munger and Mr. Ronald Olson both of whom are Berkshire Board Members. They know the law and they know the Berkshire policies. In that context, Mr. Buffett correctly declared Mr. Sokol’s conduct lawful and indeed was effusive of his praise of him. There is no new information or new fact which has become available to them since that press release was issued on March 30th. At no time did Mr. Sokol attempt to withhold information from Mr. Buffett, Berkshire Hathaway or the Audit Committee. Every question asked of Mr. Sokol on or prior to March 30th and any information requested of him has been provided. The Audit Committee report, which was prepared by the law firm of Munger Tolles & Olson contains errors and omissions, both of which could have been avoided if the Audit Committee had inquired of Mr. Sokol.
It is alarming that Mr. Buffett would be advised to so completely flip-flop and resort to transparent scapegoatism. After 11 years of dedicated and hugely successful service to various Berkshire Hathaway subsidiaries, Mr. Sokol would have expected to be treated fairly. That would have been in Berkshire’s interest.
Let me be clear about central facts: At no time did Mr. Sokol violate the law or any Berkshire policy. At no time did Mr. Sokol intend to personally profit at the expense of Berkshire or its shareholders. At no time did Mr. Sokol mislead or deceive. Such a conclusion would be wholly out of character and the Berkshire Board is keenly aware of that. At all times he faithfully discharged his fiduciary duties to Berkshire, a company he heroically served and continues to regard with reverence.”
Oddly this is an almost identical take to ours from earlier. The next Levine iteration will most certainly have an exhibit A…
Tim Geithner made a big choice Friday afternoon. He excluded FX spot and forwards from the Central Clearing requirements of Dodd-Frank ("D-F"). Tim’s words:
Treasury is today issuing a Notice of Proposed Determination providing that central clearing and exchange trading requirements would not apply to FX swaps and forwards.
The basis for Tim’s big decision was made clear in the Treasury announcement:
In contrast to other derivatives, FX swaps and forwards always require both parties to physically exchange the full amount of currency on fixed terms that are set at the outset of the contract.
Okay!Got that? Interbank FX is excluded from D-F because it requires a settlement. Unlike FX futures that have zero expectation of actual cash settlement (AKA: A bet) the FX spot and forward market requires that the parties exchange the currencies.
I think many people will like this distinction. The thinking is that if actually delivery of a commodity or currency is required, then it is a commercial transaction and not a bet speculation. But actually those folks don’t understand how the system works.
Tim Geithner knows how it works inside and out. He worked on the Fed desk in NY. Therefore he knows that the basis for his decision is flawed. The simple answer is that only a small fraction of interbank FX spot and forward transactions are actually settled for cash. They are netted out and settled by an outfit called CLS.
What’s CLS? A good description comes from Tim’s former employer, the Fed:
Is CLS a big deal? Does this outfit settle the lion’s share of all interbank spot and forward settlements?You bet it does. The Feb. numbers were a Multi-Trillion dollar blow out:
As a result of CLS 98% of all FX spot and forward transactions are netted out and settled with no delivery of the underlying currencies. So the argument that Tim has put forward in defense of his big choice is actually bogus.And he knows it.
Investing strategies are not the primary focus of my website, and I don’t personally track the performance of the Ivy Portfolio other than to highlight the monthly signals. For ETF performance tracking and backtesting, I use ETFReplay.com, an excellent website for analyzing the performance of individual ETFs and ETF portfolios based on customized moving-average strategies. There are many free tools on ETFReplay.com. However performance backtesting of portfolios does require a paid subscription.
The image below illustrates my research on the Ivy Portfolio since 2007. If you click the image, you’ll open a HUGE version that also shows the monthly performance over the complete range as compared to SPY (SPDR S&P 500 Index). For cash, I’ve used SHY (Barclays Low Duration Treasury (2-yr).
Now, the portfolio in this illustration doesn’t *exactly* match the Ivy five. I picked 2007 as my starting point to show the performance from before the market peak in the Fall of that year. Thus I was forced to make one substitution for the Ivy ETFs — EFA (iShares MSCI EAFE Index Fund) in place of VEU (Vanguard FTSE All-World ex-US ETF), which was launched in early 2007 and didn’t produce a 10-month signal until December of that year. But the substitution presumably understates the all-Vanguard IVY portfolio: I make this assumption because VEU has outperformed EFA since the March 2009 market low (129.5% versus 108.3% as of April 29).
For anyone interested in researching momentum investing with ETFs, the ETFReplay.com website is an outstanding resource, one that I’m pleased to include in my dshort.com Favorites.
The Endgame Headwinds
If Something Can’t Happen…
GDP = C + I + G + Net Exports
Toronto, Cleveland, LA, Philadelphia, Boston, and Italy
I have written repeatedly about the Endgame in the weekly letter, as well as in a New York Times best-seller on the same topic. By Endgame I mean the period of time in which many of the developed economies of the world will either willingly deleverage or be forced to do so. This age of deleveraging will produce a fundamentally different economic environment, which the McKinsey study referenced below suggests will last anywhere from 4-6 years. Now, whether this deleveraging is orderly, as now appears to be the case in Britain, or more resembles what I have long predicted will be a violent default in Greece, it will create a profoundly different economic world from the one we have lived in for 60 years. This makes sense, in that the prior world was defined by ever-increasing amounts of leverage. Outright reductions in leverage or even a significant slowing of the rate of growth is a whole new ballgame, economically speaking.
In all this I have explained the various options facing the developed world, but I have refrained from putting forth my own estimates as to what will actually happen and what the environment surrounding that outcome will be. That is about to change. I have been giving this a great deal of thought and research. While my conclusions will be somewhat controversial (I know, surprise, surprise), with enough to offend almost everyone on some point, I hope that I can muster enough clarity to help you think through your own personal views and how you will respond to what I think will be yet another crisis on the not-too-distant horizon. Whether that is Crisis Lite or Crisis Depression is up to us and the politicians we elect. I argue that we need to choose most wisely, because we are at a crossroads that is as critical as any since 1940.
As I start this letter, I am on a flight to San Diego, where I will co-host my 8th annual Strategic Investment Conference. As usual, I will be the last speaker on Saturday. This letter will be the beginning of that speech, and we will conclude (hopefully) next week. What I hope…
Are the American people losing faith in the U.S. economy? The statistics that you are about to read might surprise you. Not everyone believes that the U.S. economy is dying (there are still millions out there that will swallow anything that the mainstream media tells them), but the reality is that there is a growing chunk of the population that has completely lost faith in our leaders and in our economic system.
A brand new Gallup poll has found that the number of Americans that believe that we are in a "depression" is actually larger than the number of Americans that believe that the economy is "growing". That is absolutely shocking because according to official government figures, the U.S. economy is growing right now and virtually nobody in the mainstream media or the government has used the term "depression" to describe the economic downturn that we went through recently. In fact, according to Gallup a total of 55% of the American people believe that we are either in a recession or a depression right now. This is clear evidence that the American people are losing faith in U.S. government economic statistics and instead they are basing their opinions on what they see in their own communities. Despite the pablum about an "economic recovery" constantly being spewed by Ben Bernanke and Barack Obama, faith in our economic system continues to decline. The truth is that the American people are not stupid. They can see what is happening to the economy.
Back when I was a teenager, one day I walked over to the local McDonald’s and filled out an application and was immediately hired.
But that is not how it works today.
Recently, McDonald’s made headlines when they held a National Hiring Day. Some commentators pointed to that event as evidence that the economy was recovering.
Forecast: “It could be US municipal defaults, policy shifts from the Chinese, EU crisis, or an expanded war inthe Middle East.”
Check: Although not officially declared a war, the ‘kinetic military action’ in Libya is an expansion of the ongoing wars in the Middle-East. Continued shifts in Chinese policy – evident by the April agreement between the BRICS to establish mutual lines of credit in local currencies, an important step towards the initiative to reduce/end the reign of the dollar as the world’s single reserve currency. Earlier this week it was reported that The Peoples Bank of China plans to shed $2 trillion of U$D assets. While this should not be a surprise and it will likely be a multi-year plan, it is still significant.
Forecast: “As food and energy prices rise, nations will feel the sting of money printing(already happening). This will only increase the number of civil protests (RIOTS). Developing nations will feel the brunt of higher inflation, which will lead to various measures to control price increases (e.g., Russia’s recent announcement of food controls or COMEX margin hikes).”
Check: Egyptian protests began just as I finished this piece and two weeks later, on 11 February, Mubarak resigned from office. Protests have since spread to Bahrain, Syria, Tunisia, Yemen, Jordan, Saudi Arabia and even Wisconsin. There have been three COMEX margin requirement increases for silver futures since this article (four in 2011 – 1/21, 3/24, 4/24, 4/29).
Forecast: From a follow-up post (1/30) “QE2 appears to be an exercise in replacing the toxic assets purchased from the banks for Treasuries. Instead of returning any money back to the Treasury, they are exchanging the toxins for Treasuries. Thus, the Fed’s balance sheet will remain in the $2T…”
It’s time again for the weekend update of our “Real” Mega-Bears, an inflation-adjusted overlay of three secular bear markets. It aligns the current S&P 500 from the top of the Tech Bubble in March 2000, the Dow in of 1929, and the Nikkei 225 from its 1989 bubble high.
This chart is consistent with my preference for real (inflation-adjusted) analysis of long-term market behavior. The nominal all-time high in the index occurred in October 2007, but when we adjust for inflation, the “real” all-time high for the S&P 500 occurred in March 2000.
Here is a nominal version to help clarify the impact of inflation and deflation, which varied significantly across these three markets.
See also my alternate version, which charts the comparison from the 2007 nominal all-time high in the S&P 500. This series also includes the Nasdaq from the 2000 Tech Bubble peak.
My name is Grant Williams and I’m a precious metals bug.
There. I’ve said it.
It feels good to get that off my chest.
Of course, those amongst you who have been riding alongside me these past few years probably already had a sneaking suspicion that was the case and, I imagine, several more of you are now tutting, rolling your eyes and muttering “I KNEW it. Where’s that ‘Unsubscribe’ button?” (bottom of the last page – no offence taken). Well today, we’re going to talk about precious metals again I’m afraid, but in a broader sense if that helps at all. For readers who are over the whole precious metals thing, there’s a nice cartoon on the last page and you’ll find several stories about alternate subjects scattered throughout pages 7 to 15). For those of you still reading at this point, join me inside the recesses of my mind. Please keep your hands and arms inside the carriage at all times.
Whenever I look at an idea as either a potential trade or a possible thematic shift, the very first question I ask myself is ‘does this idea make sense?’. Plain old common sense. Nothing to do with the numbers or the likely quantum of any associated move, but would the idea seem reasonable if presented to someone with either zero, or at best a very limited background in finance?
Whilst stories around individual stocks can fulfill this criterion reasonably regularly, they often operate in confined parameters (a particular geography or a particular market segment for example) and so an idea is easier to explain and simple to quantify. It is much harder to find bigger picture, macro ideas that make secular sense because, for the most part, these ideas– but it is these big picture shifts that contain the possibility to make real money.
To illustrate this point, one of my favourite charts of all time demonstrates how, by making a single trade in each decade, it was possible to take $35 in 1970 and turn it into $159,591 in 2008. Of course, had you then made a 5th decision and completed the circle by reinvesting that $159,591 back into precious metals – this time silver – in 2008 (and, to ensure nobody accuses me…
Commodity speculators may or may not be the vile criminals the president and his new working group are making them out to be, but they sure have made their view clear on where they think the USD and the EUR (the JPY not so much) are going. Below is the latest update from the CFTC Commitment of traders report on the three key currencies. While there has been some modest short covering in both the USD and JPY, both continue to trade like the carry funding currencies they are. And with bullish spec positions in the EUR at a multi year highs, the only question is whether the yen or the dollar will be the carry currency of choice in the next beatdown. Of course, how the EUR is expected to retain its lofty perch with all of the PIIGS soon to go under is beyond us, but hopefully it makes sense to Trichet, who is stuck between an inflationary rock and a insolvent peripheral hard place.
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
When markets broke on Wednesday, XIV soared, stocks followed and the volumeless levitation was praised by all as evidence that the world was once again fixed. Yesterday we also saw NYSE Euronext 'break' into the European melt-up close, and later that day, as Ebola headlines hit, the market once again broke numerous times with various exchanges declaring self-help against one another as stocks tumbled on heavy volume. If you are wondering how it is that "the great stock markets in the world" can break so often (and be so ignored by financial media), Nanex exposes the act... as massive quote spamming yesterday sent OPRA to full capacity (broke the efficient flow of ...
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) is at 131.9, down substantially from the previous week's 131.4. The WLI annualized growth indicator (WLIg) is at -0.1, down from 1.0 the previous week and its first negative print since August of 2012.
ECRI has been at the center of a prolonged controversy since publicizing its recession call on September 30, 2011. The company had made the announcement to its private clients on September 21st. ECRI's cofounder and spokesman, Lakshman Achuthan, subsequently forecast that the recession would begin in Q1 2012, or Q2 at the latest. He later identified mid-2012 as the start of the recession. Over the past two years he has been a frequent guest on...
If you're following Valeant's proposed takeover (or merger) of Allergan and the lawsuit by Allergan against Valeant and notorious hedge fund manager William Ackman, for insider trading this is a must-read article.
Linette Lopez describes the roles played by key Wall Street hedge fund owners--Jim Chanos, John Paulson, and Mason Morfit, a major shareholder in Valeant. Linette goes through the con...
There is lots of action in Southwest Airlines Co. November expiry call options today ahead of the air carrier’s third-quarter earnings report prior to the opening bell on Thursday. Among the large block trades initiated throughout the trading session, there appears to be at least one options market participant establishing a call spread in far out of the money options. It looks like the trader purchased a 4,000-lot Nov 37/39 call spread at a net premium of $0.40 apiece. The trade makes money if shares in Southwest rally 9.0% over the current price of $34.32 to exceed the effective breakeven point at $37.40, with maximum potential profits of $1.60 per contract available in the event that shares jump more than 13% to $39.00 by expiration. In September, the stock tou...
Last week brought even more stock market weakness and volatility as the selloff became self-perpetuating, with nobody mid-day on Wednesday wanting to be the last guy left holding equities. Hedge funds and other weak holders exacerbated the situation. But the extreme volatility and panic selling finally led some bulls (along with many corporate insiders) to summon a little backbone and buy into weakness, and the market finished the week on a high note, with continued momentum likely into the first part of this week.
Despite concerns about global economic growth and a persistent lack of inflation, especially given all the global quantitative easing, fundamentals for U.S. stocks still look good, and I believe this overdue correction ultimately will shape up to be a great buying opportunity -- i.e., th...
Now that bitcoin has subsided from speculative bubble to functioning currency (see the price chart below), it’s safe for non-speculators to explore the whole “cryptocurrency” thing. So…is bitcoin or one of its growing list of competitors a useful addition to the average person’s array of bank accounts and credit cards — or is it a replacement for most of those things? And how does one make this transition?
With his usual excellent timing, London-based financial writer/actor/stand-up comic Dominic Frisby has just released Bitcoin: The Future of Money? in which he explains all this in terms most readers will have no tr...
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Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
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