“Take out the baseball bat on Paul Krugman”
by ilene - March 19th, 2010 12:27 pm
"Take out the baseball bat on Paul Krugman"
Courtesy of Tim Iacono at The Mess That Greenspan Made
Economist Steven Roach of Morgan Stanley Asia has some not-so-kind words for economist Paul Krugman and his view that the Chinese currency should be allowed to strengthen considerably from its current level.
Says Roach: "America doesn’t have a China problem, it has a savings problem … We should take out the baseball bat on Paul Krugman. I mean I think that the advice is completely wrong …. We’re lashing out at China rather than tending to our own business".
According to this report, Krugman replied, "I’m a little surprised at Steve for saying that. What I said is actually based on pretty careful economic analysis. We have a world economy which is depressed by China artificially keeping its currency undervalued."
(What's this?)
(naked capitalism, 3/18/10)
(naked capitalism, 3/15/10)
(Investment U, 3/3/10)
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Options and My Patience Expire Today
by Phil - March 19th, 2010 8:33 am
Well now we’re officially cashed out!
As I always do before options expiration I reviewed our Buy List, which, this quarter, is a list of 37 stocks we’ve been playing since late December and, sadly, after reviewing 37 of our favorite investments very carefully this week - I could only conclude that cashing them out was the only decision I could be comfortable with this week. Of 66 trades we had on our 37 stocks, 64 are winners with an average return since 2/8 of 28% - since most of the trades were designed to make 40% for the year - it just seems silly not to take the money and run now, on March 19th.
You are not supposed to have 64 out of 66 winners in 6 weeks, you are not supposed to make 3/4 of what you anticipate for the year in 6 weeks - that is NOT how the markets are supposed to work! When the markets go against you in some ridiculous "black swan" fashion, it is easy to throw up your hands and walks away but when the markets go in your favor in some ridiculous, "white swan" fashion - maybe it’s also a good idea to use those same hands to stuff your pockets with cash and walk away.
There’s nothing wrong with cash - the Fed tells us there will be no inflation in the foreseeable future and, in fact, they are fighting deflation so our sideline dollars will gain more and more buying power while we wait. Actually, despite my best efforts, there are still 15 positions that weren’t worth getting rid of (too much reward, not enough risk), even in a worrying market. Generally they are positions we expect to get at least another 20% from by January - still a pretty good return in this low-VIX market.
Our plan is to take opportunistic trades between now and April earnings - we’re still expecting a pullback and I’d be very motivated to go back into our old friends if they go back on sale but most of those picks were made for a defensive market posture that won’t be necessary if we break over our levels from here and they certainly weren’t worth riding back down after hitting 75% of our goal in 25% of the year!
We have Health Care Reform passing this weekend and there should be some great opportunities to pick up stocks people…
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IS CONGRESS ABOUT TO DERAIL THE ECONOMY?
by ilene - March 18th, 2010 4:46 pm
Here’s an excellent discussion on the economy and China. We present many views here, and Pragcap’s are some of the most thoughtful and balanced. And if you haven’t yet, check out Op-Toon’s Review (fun images and satirical commentary). - Ilene
IS CONGRESS ABOUT TO DERAIL THE ECONOMY?
Courtesy of The Pragmatic Capitalist
The United States government has made a curious series of interventionist moves over the course of the last 18 months. Some have been beneficial, but not surprisingly, few of these policies are actually helping the economy recover from the Great Recession.
As I’ve previously mentioned, Keynesianism can work. There is good government spending and bad government spending, despite the constant shrieking from Austrian economists with regards to all spending being bad. Giving money (on a silver platter) to banks who are not reserve constrained is exhibit A of bad spending. Spending money on a healthcare plan in the middle of a recession is a close runner-up. The banking bailouts not only set a terrible social precedent, but were also implemented with the belief that banks are reserve constrained – something that is entirely false.
The great recession was never a banking sector problem despite it being labeled as a “credit crisis”. In reality, this was a consumer driven crisis. The results prove this. The banks have recovered, but lending hasn’t improved. Why? Because this is a consumer driven recession. Banks aren’t reserve constrained. Finding willing borrowers, on the other hand, is a whole other matter….
The healthcare debate is a bit more messy. While the social aspects of healthcare spending are likely positive, you just have to wonder about the motives of the men pushing this plan when we are mired in the worst recession in 75 years. Is healthcare really our top priority when unemployment remains near 10%? More importantly, is this an efficient form of government spending when we could easily target job creation or other productive investments in the long-term growth of America (China’s high speed rail system comes to mind here). Meanwhile, we have an antiquated infrastructure. Where are the priorities?
But the political pandering is taking a turn for the worst in recent days and surprisingly, markets are ignoring this potentially devastating global debate. Hypocritically, the latest government pandering is targeted at the Chinese and their “manipulative” government. Oh those darned Chinese and their interventionist ways! How dare they manipulate their currency! (Nevermind that the United States indirectly “manipulates” its currency via…
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Free Money Thursday - 130 S&P New Highs Can’t Be Wrong!
by Phil - March 18th, 2010 7:59 am
130 S&P 500 companies hit 52-week highs yesterday.
Things must be even better than I thought in yesterday’s post and there has been a conga line of pom-pom waving analysts on GE/CNBC this morning telling us how UNDER valued everything is because we just don’t see the BIG PICTURE. As Bespoke notes in their chart of the S&P and it’s new highs, you want to see more and more stocks hitting new highs to sustain a rally but my question is - with the market now at 17-month highs and making new highs every day - what’s up with the other 370 stocks?
In an ordinary market, I wouldn’t question it but this is not an ordinary market. 52 weeks ago we were at 666 on the S&P and stocks were making DECADE lows. Here we are with the index up almost 80% off that bottom and we can’t pull a lousy 52-week high from 2/3 of the index??? We’ll be keeping an eye on this indicator to see how things pan out but notice when the market fell - there were no doubts, 80% of the stocks made 52-week lows last fall - not THAT’S a sell-off. That’s the kind of dramatic numbers you expect to see in a dramatic market move - not this wimpy 40% stuff - let’s see some conviction people!
AAPL is convicted - they are up 191% from their lows and AAPL is 15% of the Nasdaq so, all by themselves, AAPL has accounted for 28% of the Nasdaq’s move from 1,265 to 2,389 (89%). TRV is also moving with conviction, up 54% since March and adding 160 much-needed points to the Dow, a great swap for C, who would have only added about 24 had they remained in the index. CSCO replaced GM (because they are soooooo similar) and they too have been a great trade for the Dow, up 100% off the March lows and slapping 104 bonus points on the index.
Ah, now we see how our industrials can do so well despite all the unemployment and lower cap utilization and lack of demand and high commodity input costs - we just shuffle the deck until we find a set of cards that work! Even so, as I’ve pointed out this week, the Dow has been lagging the Nasdaq and the Russell by a wide margin and the NYSE and S&P have been kind of pokey too. The Nasaq can…
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Pressure Increasing on China to Revalue Yuan; What Can Go Wrong?
by ilene - March 17th, 2010 3:01 pm
Pressure Increasing on China to Revalue Yuan; What Can Go Wrong?
Courtesy of Mish
Pressure on China to do something about its allegedly undervalued currency is mounting by the day. Please consider the following articles.
World Bank Calls For Stronger Yuan
The World Bank Says China Must Pare Stimulus to Counter Bubbles
The World Bank indicated that China, the world’s third biggest economy, should raise interest rates to help contain the risk of a property bubble and allow a stronger yuan to help damp inflation expectations.
The nation’s “massive monetary stimulus” risks triggering large asset-price increases, a housing bubble, and bad debts from the financing of local-government projects, the Washington- based World Bank said in a quarterly report on China released in Beijing today. The group raised its economic growth forecast for this year to 9.5 percent from 9 percent in January.
The World Bank’s call echoes the assessment of private economists — analysts at Morgan Stanley this week said higher reserve requirements for banks may be “imminent” and interest rates could start to climb as early as next month. China’s economic rebound has also sparked increasing calls for an end to its exchange-rate peg to the dollar, adopted in mid-2008 to help shelter exporters amid the global recession.
Senate Considers Currency Manipulator Regulation
Bloomberg is reporting Senate May Force Obama to Take Tougher Yuan Stance
Five senators including Charles Schumer of New York and Lindsey Graham of South Carolina introduced legislation yesterday to make it easier for the U.S. to declare currency misalignments and take corrective action. Even if the bill stalls, it may have “ripple effects” that lead the Treasury Department to declare China a currency manipulator, William Reinsch, president of the National Foreign Trade Council, said.
Obama’s goal of doubling U.S. exports in five years depends on his ability to get China to raise the value of its currency, said Sherrod Brown, an Ohio Democrat and co-author of the legislation. China’s intervention in currency markets to keep the value of the yuan, or renminbi, at a set value acts as a subsidy to exports and tax on imports, Brown said at a news conference yesterday.
Senator Debbie Stabenow, a Michigan Democrat, and Sam Brownback, a Kansas Republican, are also supporting the legislation. Graham is a Republican and Schumer is a Democrat.
The senators said the U.S. recession could boost the political prospects for the legislation, which Schumer has proposed in various forms since 2003. Schumer said the Senate proposal will be attached…
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The Grand Chinese Fraud
by ilene - March 16th, 2010 5:02 pm
Here’s Karl Denninger on China,…
The Grand Chinese Fraud
Wen "cats in the kettle" Jaibao spouted:
“I don’t think the renminbi is undervalued,” Wen said yesterday at a press conference in Beijing marking the end of China’s annual parliamentary meetings, using another term for the yuan. “We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency.”
Oh really?
It’s time that we stop the the BS here with regard to China.
The entire premise of so-called "Free Trade" with the Chinese was predicated on the belief that if we opened our borders to their products on a "no tariff" basis that we would, over time, change their political system. That is, we would import cheap Chinese plastic junk and export democracy. More or less.
Well, we got all the cheap DVD players but they didn’t get any democracy. Quite to the contrary. There have been no meaningful improvements in areas of environmental protection, workers rights and wages or political freedom. Indeed, the recent dust-up with Google just underlines the reality in China:Their government is a band of murderous brigands and thugs.
Disagree with them inside their nation, refuse to censor The Internet, for example, so that people can’t read about Falun Gong and China will be happy to arrest the executives of your firm inside the nation and provide this as "corrective influence" to your head:
Oh, they send the 50 cent bill for it to your family too. Isn’t that special?
At least in this country they don’t shoot people for talking about the evil-doing that both private parties and government engage in. If they did, well, I’d be long-dead.
Second, China hasn’t changed its spots a bit. It has pursued a mercantilist policy for over two decades while at the same time stealing anything that isn’t nailed down (and some things that are), including such wonders as our technological prowess in nuclear warhead design. Argue the defensive merits of nukes in a silo all you want - when they’re flying, they’re anything but defensive.
In short our policies have been an abject failure. We’ve destroyed consumer product manufacturing in The United States, we’ve shuffled a huge amount of wealth over to China due to their manipulated currency, we’ve trashed our real standard of living and replaced production with debt and the supposed benefits of an open and free market, along with a democratic political system in China have failed to materialize.
It’s time to stop the stupid. It’s…
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Monday Morning - Moody’s Makes More Negative Noises
by Phil - March 15th, 2010 8:27 am
Top ratings agency, Moody’s says the US & UK are "substantially" closer to losing their AAA credit ratings as the cost of servicing their debt rose.
Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report. “We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”
Under its adverse scenario, which assumes 0.5 percent lower growth each year, less fiscal adjustment and a stronger interest-rate shock, the U.S. will be paying about 15 percent of revenue in interest payments, more than the 14 percent limit that would lead to a downgrade to AA, Moody’s said. Financing costs above 10 percent put countries outside of the AAA category into a so-called debt reversibility band, the size of which depends on the ability and willingness of nations to reduce their debt burden by raising taxes or reducing spending.
The U.S. has a 4 percentage-point band, while the U.K. has a 3 percentage-point band. “Those economies have been caught in a crisis while they are highly leveraged,” Cailleteau said, referring to the level of private and public debt as a percentage of gross domestic product. “They have to make the required adjustment to stabilize markets without choking off growth.”
So happy Monday to you! The Pound is certainly not taking this news well and has plunged to $1.505 from $1.52 in early morning trading and the Euro has flopped back to $1.37 but we are still maintaining 90.7 to the Yen so it’s actually a strong dollar day so far. Copper, which is one of our key indicators, has fallen back to $3.32 - which is great for our short plays on FCX and gold is hovering under the $1,110 line (the bullish line for gold) while silver, our tie-breaker, is just over the line at $17. Oil has been skating along at $80.67 for the weekend and gasoline is still strong at $2.25 (go VLO!) with nat gas down at $4.34
Perhaps the US should be more like China, who were going to have a budget deficit of 3.5% of GDP…
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CHINA’S IMPENDING INFLATION BATTLE
by ilene - March 11th, 2010 7:03 pm
CHINA’S IMPENDING INFLATION BATTLE
Courtesy of The Pragmatic Capitalist
Oh that dreaded government intervention! To describe the contrast between the inflation situation in the United States and
The headline CPI is running at 2.7% year over year. Food prices are up 6.2% year over year. Real estate prices rose at a record 10.7% in February. Equity prices in China are up over 45% in the last 12 months.
In early February we ran this superb interview with the largest commercial real estate developer in China. Her thoughts are almost eerily similar to those of Sam Zell’s when he was predicting a real estate debacle in the United States in 2007:
What is your overall approach to the real estate market today?
Basically – other than Qianmen [Street] in Beijing, which is the only project we decided to hold long term, our strategy for today is to sell everything we have. The real estate business should really be looking at rental yield; build a building and then lease it out with the rent giving a decent return. But, because of where China is with asset bubbles, people want to buy the assets regardless of whether they can be leased out or not. People just want to hold [property], even if it is empty.
Prices are too high, rent is too low, so if you hold property in order to get yield you are likely to get very little. For us it makes no sense to hold property, so our strategy is to sell everything. We see ourselves very much as a manufacturer. We…
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218 New Billionaires Averaged $500M in Gains Last Year - How Are You Doing?
by Phil - March 11th, 2010 8:08 am
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That’s right, the new Forbes list is out where we celebrate the top .000014%!
Thanks to an unprecedented concentration of wealth, the World’s supply of Billionaires jumped 27% in 2009 and the 1,011 people in the club accumulated an AVERAGE of $500M more Dollars EACH! Isn’t that great? That’s $505Bn or 65% of America’s TARP spending handed over to 1,011 people who are, according to Forbes (The Capitalist’s Tool), clearly better than us.
They sure are doing better than us as America’s 450 Billionaires added $225Bn to their bank accounts (and that’s AFTER taxes) and the saddest thing is that amount is INCLUDED in the $1.6Tn bounce of US Total Net Worth we had after losing 18% of it in 2008. A lot of positive economic statistics are skewed by our top 1% but even the top 1% is blown away by the top 450 (0.00014%) who are sitting on $3.6Tn of our nation’s total household wealth 8% or 27M times more than the average citizen. Wow, I guess they are better than you - better in fact than 26,999,999 of you!
As I mentioned in "The Dooh Nibor Economy (that’s "Robin Hood" backwards)," America has become a real wealth-building machine the funnels every last cent off the bottom of the pyramid and sends it straight to the top. Those of us standing near enough to the top (the top 10%) are lucky enough to pick up enough table scraps to make us 1,000 times better than you - our bottom 90% "friends" and that is just great for walking around town but you must pity us because even we are embarrased to show up in our shoddy Armani suits when we are invited to hob-nob with the top 1% in their custom-tailored suits who don’t look at lables but at the thread-count of your sleeve.
Even those "masters of our universe" cower in the presense of that top .00014%, who are, by definition, 26,999 times better than they are! So don’t go thinking the people in the top 10% have it so easy - we have a whole different set of problems to deal with. You only need to make $150,000 a year to join the top 10% club - we have to make over $2M to crack the top 1% and $2M doesn’t even pay 1/10th of the MONTHLY interest on the assets on our top 450.
So congratulations to the Forbes winners, especially from the 462,000 of us that…
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Competition for the IMF’s Gold?
by ilene - March 10th, 2010 5:24 pm
In contrast to our friends at Elliott Wave Int., Casey Reserch remains bullish on gold…
Competition for the IMF’s Gold?
By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report
On February 24, Reuters reported that the Reserve Bank of India was “set to be a buyer” of the 191.3 tonnes (6.74 million ounces) of gold the IMF is selling. Although the bank wouldn’t comment directly on the possibility, they did say, “We are closely looking at the gold market… gold is a safe bet.”
The article then quoted an unidentified official from the China Gold Association as saying, "It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility.”
But the next day, Finmarket news agency in Russia reported that China “confirmed its intention” to buy the IMF gold. "Chinese officials have confirmed previous announcements from IMF experts and said that the purchasing of 191 tons of gold would not exert negative influence on the world market.”
While they’ve been silent since, both India and China have publicly hinted they want this latest batch of yellow bars from the IMF. There’s no way to know if a competitive bid would spring up between these two countries, but…can you imagine the ramifications if one did?
When India bought 200 tonnes of IMF gold last November 3, it set off a buying spree that saw gold rise 14.2% in 4 weeks. What if this time around, a couple central banks both want the gold for sale? What if China says to India, “Not so fast, guys. We’d like to bid on that, too…” and word of that clash leaked out?
Pure speculation, of course, but competing for gold purchases isn’t a far-fetched idea. This sale is not pre-arranged; it’s an open market sale. Also, there’s only so much to go around. These two countries have only a tiny amount of their reserves in gold. Throw in the fact that central banks worldwide are already net buyers.
A pretty delicious thought, wouldn’t you say?
The gold price dropped a tad on the IMF announcement, but is up 1.1% since then. It’s pretty hard to make a case that IMF sales will hurt the gold price. As I said a few weeks ago in my dirty jokes column, IMF sales tend to mark bottoms in the price and not tops. The World Gold Council reported that floor traders now consider $1,054 as a floor in the market. Why?…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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