by Chart School - December 31st, 2011 5:35 pm
Courtesy of Doug Short.
Our gang of eight world market indexes finished 2011 with a thinly traded, holiday-interrupted week that saw little drama. The average weekly performance of the eight was flat, with the CAC 40 taking the top spot for the second week in a row, and the BSE SENSEX at the bottom, equidistant below the flat line.
The Final Numbers for 2011
The adjacent table shows the final 2011 performance for our featured indexes. I said earlier that last week saw little drama. Actually there was a minor nail-biter over the question of whether the S&P 500 would finish the year with a gain or loss. The question wasn’t answered until the final trades were resolved at the market close. The 500 finished the year in the red by the three one-thousandths of a percent. I’ve added an extra decimal place in the table because at two decimal places, the finish rounds to zero.
The final tallies illustrate that, although the eurozone financial crisis has garnered all the attention in recent months, the Asia-Pacific was home to the year’s biggest losers. The SENSEX had the worst year, with a loss of nearly 25%. But the Shanghai Composite has fallen furthest from its interim high (see the inset in the line chart below). It is down a whopping 36.64% from its 2009 high, with the Nikkei, Hang Seng and SENSEX in a near dead heat for next to last, posting declines in the 25%-26% area.
A Closer Look at the Last Four Weeks
The tables below provide a concise overview of performance comparisons over the past four weeks for these eight major indexes. I’ve also included the average for each week so that we can evaluate the performance of a specific index relative to the overall mean and better understand weekly volatility. The colors for each index name help us visualize the comparative performance over time.
The chart below illustrates the comparative performance of World Markets since March 9, 2009. The start date is arbitrary: The S&P 500, CAC 40 and BSE SENSEX hit their lows on March 9th, the Nikkei 225 on March 10th, the DAX on March 6th, the FTSE on March 3rd, the Shanghai Composite on November 4, 2008, and the Hang Seng even earlier on October…
by Zero Hedge - December 31st, 2011 5:01 pm
Submitted by Tyler Durden.
When it comes to the types of people in this world, there are those who say that the only way to fix the current economic catastrophe is to keep doing more of the same that got us in this condition in the first place (these are the people who say mean regression is irrelevant, and 10 men and women in an economic room can overturn the laws of math, nature, physics, and everything else and determine what is best for 7 billion people), and then there is everyone else. The former are called Keynesians. The latter are not. Only those in the former camp don’t see the lunacy of their fundamental premise, a good example of which is the following. Luckily, the world is nearing the tipping point when the camp of the former, which for the simple reason that it allowed the few to steal from the many under the guise that it is for the benefit of all, is about to be overrun, hopefully peacefully and amicable but not necessarily, and the camp of the latter finally has its day in the sun. Naturally, when that happens the status quo loses, as the entire educational and employment paradigm is one which idolizes the former and ridicules the latter even though the former has now proven beyond a shadow of a doubt it is a miserable failure (ref: $20+ trillion excess debt overhang which will, without doubt, lead to a global debt repudiation or restructuring, with some components of “odious debt”). So for all those still confused what some of the core premises of the ascendent “latter” are, below we present two one-hour lectures by Israel Kirzner. We urge readers to set aside two hours, which otherwise would be devoted to watching rubbish on TV or waiting in line for In N Out burger, and watch the two lectures below. Because, contrary to what the voodoo shamans of failure will tell you, there is a way out. It is a very painful way, but it does exist. The alternative is an assured and complete systemic collapse once the can kicking finally fails.
by ilene - December 31st, 2011 4:39 pm
Courtesy of Mish
I inadvertently left off an item regarding trade wars that I intended to mention in Mish 2012 Predictions; 2011 Year in Review with Max Keiser. I also have some commentary on the US election, precious metals, and energy.
Expect Global Trade Wars: Look for tit-for-tat trade wars to heat up in 2012 as noted previously in China to Impose Anti-Dumping Duties on GM; "Fair Trade" Idea is Self-Serving Scam; Proposal to Stop "Free Sunlight" Gains Support From Mitt Romney. Should Mitt Romney win the election, expect global trade to collapse in 2013. Trade wars will not be good for equity prices.
US Political Roadmap: If President Obama dumps Joe Biden for Hillary Clinton as his vice presidential candidate as Robert Reich suggests in My Political Prediction for 2012: It’s Obama-Clinton, Obama will win re-election unless the Republican candidate is specifically Ron Paul. Clearly this is not an endorsement of Obama, it is a prediction. Some mistook my 2008 prediction for Obama as an endorsement. It wasn’t. I wrote in Ron Paul in 2008 and will do so again unless he is the nominee. If Ron Paul is the Republican nominee I think Paul would draw enough crossover votes from independents and Democrats who are sick of war and big government to win. If it’s Obama-Biden vs. Newt Gingrich or Mitt Romney then it’s too close to call.
Oil is a wildcard. My prediction is cooler heads prevail. However, the election is 11 months away and that is a lot of time for someone to get carried away. The odds the US initiates an attack on Iran under Ron Paul are virtually zero. Unfortunately the same cannot be said for any of the other major candidates. Should the US or Israel attack Iran (I do not believe the US will), then the price of crude will quickly skyrocket by $50 or more. Such an oil shock would immediately send the entire global economy into a severe recession.
Precious Metals Roadmap: What follows is more of an approach than a prediction. Gold remains a much safer play than silver, something I have said for years. Technically silver is flirting with a breakdown of major support at $27. If that low does not hold, a decline to the low-to-mid $20′s is likely (something I said earlier this year when silver was near…
17 States Still Project Budget Deficits (It Will Get Much Worse); Moving Targets and the Slowing Global Economy
by ilene - December 31st, 2011 4:36 pm
Courtesy of Mish
State economies have partially recovered from the depths of 2009 and early 2010, but 17 states still project deficits. Moreover, there are no rainy day funds or untapped revenue sources, and some "temporary" tax hikes are set to expire. California is $13 billion in the hole but that is a huge improvement compared to the $40 billion hole previously.
Yahoo!Finance reports State revenue rises, but not enough to offset cuts
Twenty-nine states are spending less from their general funds today than they did before the recession, according to a recent joint survey from the National Governors Association and the National Association of State Budget Officers.
More than 30 states have raised taxes since the recession began, but some of those increases were temporary and are expiring soon, as in Arizona. With the economy slowly reviving and unemployment rates dipping, many governors and lawmakers say they don’t want to jeopardize the recovery by raising taxes again.
But tax revenue is not expected to grow enough to make up for the impact of four years of dismal economic times. Rainy-day funds, internal transfers and other one-time sources have largely been tapped, so governors and lawmakers must look for new places to cut spending.
Changes to public employee retirement benefits and sweeping reforms to health care programs such as Medicaid are among the most likely targets.
At least 17 states project budget gaps for the next fiscal year, while a handful need to balance budgets in the remaining six months of the current budget year. The revenue of all 50 states combined remains $21 billion below 2008 levels, according to the National Governors Association-NASBO report.
Budget gaps in states projecting shortfalls in the 2012-13 fiscal year are estimated to total $40 billion. By comparison, California alone closed a deficit of $42 billion in 2009, during the worst of recession.
Democratic Gov. Jerry Brown and state lawmakers have fewer options to close the $13 billion shortfall that is projected over the next 18 months.
In December, Brown ordered $1 billion in midyear spending reductions to public schools, universities and social services because tax revenue did not meet projections. The state has given school districts the option of slicing another seven days from the current school year, now 175 days long. That already is five days shorter than before the recession.
Low-income seniors and the disabled will get less in-home
by Market Montage - December 31st, 2011 3:20 pm
I’ve written often in the past stories showcasing the statistics about “what” kind of jobs are coming back, rather than simply focusing on “how many”. What has been striking during the Great Recession and its aftermath (also known as a recovery), is the loss of jobs in the higher strata of wages, and the replacement of those jobs with those at the lower strata. The long term societal implications of this if it does not reverse itself in the future are many. With the full flowering of globalization I’ve written since 2007 this will not reverse – indeed the wages of those in developing countries will increase, while the wages of those (in direct competition) in developed countries will decrease. I’ve called this “global wage arbitrage”. While these wages between developed and developing will not exactly converge (many other items such as regulation, environment, taxes et al will impact) they will become much closer as a global labor force becomes closer to reality. I’ve written long ago this is going to mean much tougher times for those in high cost of living countries and I believe this has surfaced over the past decade in the States.
This NYT story takes a look at one of those sectors of the economy in global competition – manufacturing. Yes, some jobs are being created but most are a far cry from the type of wages (relative to cost of living in the country at the time) once offered. Locally, with the Big 3 there is now a two tier wage system with recent union contracts. Work that once was done for $28+/hour is now being done by $14/hr workers. Considering Walmart pays cashiers somewhere around $11-12/hr for a much less physically taxing type of workload we can see how the expectations of many in this country need to change to the new reality. It also poses a lot of challenges to the government as there will be much more strain on social services, and far less of a taxpayer base to create revenue. So as we celebrate job ‘creation’ each first Friday of the month, we need to think much deeper than just the raw number – it’s not just quantity but quality.
by ilene - December 31st, 2011 2:55 pm
Courtesy of Jim Quinn of The Burning Platform
2011 – Catch-22 Year In Review
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” - Mark Twain
I published my predictions for 2011 on January 3, 2011 in my article 2011 – The Year of Catch-22. Humans evidently enjoy being embarrassed by how pitiful they are at predicting the future, because we continue to do it year after year. The mainstream media pundits don’t dare look back at their predictions or the predictions of the Wall Street shills that parade on CNBC and get quoted in the Wall Street Journal, eternally predicting 10% to 15% stock market gains. The multi-millionaire Wall Street strategists like the spawn of the squid, Abbey Joseph Cohen, have used all of their Ivy League brain power to predict at least a 10% stock price gain every year since 1999. The S&P 500 stood at 1,272 on January 6, 1999. As of this writing it currently stands at 1,261. ZERO appreciation over the last twelve years.
The Wall Street mantra of stocks for the long run is beginning to get a little stale. If Abbey Joseph Cohen had been right for the last twelve years, the S&P 500 would be 4,000. For this level of accuracy, she is paid millions. Her 2011 prediction of 1,500 only missed by16%. The S&P 500 began the year at 1,258 and hasn’t budged. The lowest prediction from the Wall Street shysters at the outset of the year was 1,333, with the majority between 1,400 and 1,500.
The same Wall Street clowns are now being quoted in the mainstream media predicting a 10% to 15% increase in stock prices in 2012, despite the fact we are headed back into recession, China’s property bubble has burst, and Europe teeters on the brink of dissolution. They lie on behalf of their Too Big To Tell the Truth employers by declaring stocks undervalued, when honest analysts such as Jeremy Grantham, John Hussman and Robert Shiller truthfully report that stocks are overvalued and will provide pitiful returns over the next year and the next decade.
by ilene - December 31st, 2011 2:35 pm
Courtesy of Joshua M Brown, The Reformed Broker
Yeah I said it.
So much screaming and yelling and blogging and digging and questioning and panicking and crying and fighting and analyzing and hand-wringing and soiled diapers – and at the end, the S&P 500 closes down less than 5 tenths of a percent, de facto breakeven on the year. Listen closely – the Gods are mocking us; the very heavens and firmament shake with their bellicose laughter.
Here’s my friend Steven Russolillo at the Journal with a rundown of a ludicrous end to a ludicrous year:
The three main U.S. stock indexes offered something for bulls, bears and the indifferent this past year: the Dow was up, the S&P was flat and the Nasdaq was down.
And the ride from the beginning of the year through Friday was volatile and filled with uncertainties and the unexpected.
It came down to the wire, but in the final minute of 2011 trading, the Standard & Poor’s 500-stock index closed the year virtually unchanged from where it closed in 2010. The S&P 500 closed Friday down 5.42 points, or 0.43%, to 1257.60. The full-year decline of 0.04 point, or 0.0028%, was the smallest annual move since at least 1947, according to preliminary S&P calculations. S&P Indices scrambled after the close of trading to determine an extra decimal place in the 1947 data to figure out which was the slimmer move of the two years.
The Dow Jones Industrial Average fared better in 2011. The Dow finished down 69.48 points, or 0.57%, to 12217.56 on Friday, but closed the year up 5.53%. The blue-chip index closed the fourth quarter up 12%, its biggest quarterly percentage jump since 2003.
The technology-heavy Nasdaq Composite fell 8.59 points, or 0.3%, to 2605.15, and closed the year down 1.8%.
A portfolio loaded with defensive stocks and Treasurys would’ve crushed the market. Conversely, a portfolio loaded with Netflix, Green Mountain Coffee, Sina, Baidu, silver, palladium and all the other "can’t miss" garbage would’ve impaled you like a Transylvanian dissident. And the more you "traded the news" this year, the more your portfolio came out of it looking like ground hamburger meat, let’s keep it real.
But enough about the 2011 hilarity. What’s next?
Picture via Jesse’s Cafe Americain
by ilene - December 31st, 2011 2:27 pm
Courtesy of Yves Smith of Naked Capitalism
I tend to avoid the year end retrospective/forecast blizzard, although some of the more creative compilations can be fun.
However, some 2012 forecasts crossed my screen, and two were such striking outliers that I thought I’d call them to your attention and seeing if readers have come across other Extreme Predictions for the new year (aside from the Mayan end of the world sort).
The first come from Matt Yglesias, “Happy Days Are Here Again!
Don’t believe the naysayers: An economic recovery is right around the corner.” No, this is not a parody, this is a real article. And whoever came up with the title at Slate has a subversive sense of humor. The song, “Happy Days are Here Again,” was an end-of-Roaring 20s confection (published and first recorded in 1929), and made famous in a 1930s movie and as the theme song for FDR’s 1932 presidential campaign. Needless to say, happy days (at least on the material front) proved to be far more remote than that standard promised.
Yglesias’s argument is (basically) that with interest rates super low, consumers will start “investing” again in cars, durable goods and housing. He relies on the idea of the natural rate of interest of Knut Wicksell. Yglesias claims it is “so fundamental that people sometimes forget to return to it.” Huh? This is the old loanable funds theory; it has been debunked repeatedly, recently and rather decisively debunked in an critically important BIS paper earlier this year by Claudio Borio (who with William White of the BIS called the international housing bubble in 2003) and Piti Disyatat. This paper makes an key conceptual contribution to economics yet does not seem to have gotten the attention it deserves (certainly not in the econoblogsophere, no doubt because it is too threatening to orthodox ideas).
To give you an idea of how far Yglesias has to stretch to make his case, his argument that the US has a housing shortage refers back to a recent Slate article of his own, which in turn refers back to another article of his that argues that we merely had a bubble in home prices, not home construction.
by ilene - December 31st, 2011 2:22 pm
Courtesy of Larry Doyle, Sense on Cents
We often hear that those who do not learn from history are doomed to repeat it. Does anybody in the audience contest those words of wisdom?
Why do you think I hear from many former colleagues and other Wall Street insiders that we are very likely going to experience another economic crisis—or perhaps merely a prolonging of our current crisis—and accompanying significant market decline?
My ‘sense on cents’ indicates to me that we will have more economic and market turmoil for the very simple reason that our financial titans, our political leaders, and our nation as a whole have not embraced nor learned from the lessons of the past.
I do not believe this ‘financial amnesia’ is an involuntary development but very much a result of misguided and misdirected plans and policies which have benefited a small minority at the expense of our nation as a whole.
What are the lessons we have failed to learn? In what reads like a Sense on Centsencyclical, these lessons were recently highlighted by the CFA Society of the UK.
Financial amnesia is when financial market participants forget or behave as if they have forgotten the lessons from financial history. Financial market participants are composed of two main groups, regulated financial firms and regulators. Despite the history of bitter experience, the same mistakes occur with alarming regularity (see Appendix 1). The three key lessons that participants appear to forget are:
Lesson 1: “Innovation”, the illusion of safety and “this time it’s different”: “The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version” (Galbraith).The expansion of credit plays a key role in fuelling “innovation” while the creation of an illusion of safety results in a “this time it’s different” approach that enables the continuation of unsustainable activity and risk taking. Sadly, each time it is always the same and never different.
Lesson 2: Regulated financial firms are prone to failure: It has been presumed that regulated financial firms by acting in their own self interest and in the interests of their shareholders, impose market discipline. History has demonstrated that because failure to impose market discipline is not uncommon, over-reliance on market forces can be misleading.
Lesson 3: Ineffective regulation. The frequency of market failure places a greater onus on the regulator to be more effective in encouraging and imposing market discipline. Sadly, regulators focus on the symptoms of failure rather
by Market Montage - December 31st, 2011 2:19 pm
One of the major themes since 2008 has been the immense increase in correlations among asset classes. While this was already a growing trend since mid decade with the proliferation of computerized trading techniques and the rise of the ETF (i.e. when an ETF is bought en masse, all underlying equities are bought regardless of individual merits…. and vice versa) – it has accelerated in the 2008-2011 period. Headline risk and macro movements have come to dominate causing neck breaking whiplash. We call this “risk on”, “risk off” – although I’ve called it ‘student body left (right) trading’ before the former terms became popular. While there have been times these correlations lessened during 2010 and early 2011, the back half of 2011 brought the return of this action in force. To wit, James Grant has noted that in the entire history of the S&P 500 there have been 11 instances where 490+ of the 500 stocks traded in the same direction. Of those 11, 6 have happened since July 2011. An incredible statistic. Essentially each day you “buy risk” (risk on) or you “buy US Treasuries” (risk off) – and every 24 hour period is unto itself, with no memory of the previous day.
This type of movement has created havoc for anyone trying to outperform the index, because often the market moves down (en masse) than 48 hours later a rumor or a ‘rescue’ will move all the same assets up en masse. And this gyration continues day after day, week after week, making it impossible to ride this bucking bronco. To that end, both mutual funds [Dec 20, 2011: Average Mutual Fund Down 5.9% with a Handful of Days Left in the Year] and hedge funds [Dec 20, 2011: Every Major Hedge Fund Strategy Also a Loser in 2011] have had a horrid year trying to beat the indexes. Last evening, I went through the Morningstar top fund performers of the year to see what I could glean. Not much. It was a whose who of utility (yield) mutual funds – trailed by dividend paying (yield) large cap healthcare and REIT (again a reach for yield) funds. These are now the most crowded trades on earth, now that gold has been bludgeoned of late. As these ‘safe’ sectors become…