by phil - February 1st, 2011 6:58 am
Fundamentals don’t matter so let’s look at the technicals.
As you can see from David Fry’s chart, there’s a good reason that XLF was my Trade of the Year in December 25th’s "Secret Santa’s Inflation Hedges." The full force of the US Government is backstopping this play, in which we took the Jan $12/13 bull call spread at .80 and sold the Jan $11 puts for .40 for net .40 on the $1 spread. I said, just 37 days ago, that this could be the easiest 150% you ever make.
Just 5 weeks later, the bull call spread is .90 and the short puts are .30 for a net .60 – up 50% in 5 weeks. That SHOULD help keep us ahead of inflation, right? Keep in mind this was a trade, among others, that I published for free to the General Public on both our subscription site as well as Seeking Alpha and then it was syndicated on Yahoo Finance, Google Finance, MarketWatch, AOL, etc. I’m told that about 250,000 people read my free public posts when I make them available, so it’s not like these trades were so secret.
Yet, however many people decided these were good trade ideas and followed them – it didn’t matter because our counter-party wants to lose! Yes, that’s right, we are riding on the coat-tails of the Banksters, who are taking our future tax dollars from the Federal Reserve and betting them on rising commodity prices and monetary inflation. In order for us to bet on that, we need some idiotic counter-party to take the other side of that bet – one that assumes falling commodity prices and no inflation.
Even in under-educated America, who would be foolish enough to take such a bet? Why it’s us, of course! Well, it’s the Federal Reserve Bank of the United States of America who are spending $100Bn a month buying Treasury Bills at the lowest rates every (assuming no inflation) while trying to justify their misuse of our money with BS statistics that we’ve stripped away in "How the US Government Manipulates Inflation Data" along with this helpful video:
The Fed is using YOUR money, through debt, taxation and devaluation, to buy notes that a rational investor wouldn’t touch with a 10-foot pole and the ONLY way you can prevent yourself from getting screwed…
by ilene - December 13th, 2010 3:27 pm
Courtesy of Mish
China bulls may wish to consider the other side of the story as noted by Chanos in China Overbuilding to ‘Hit a Wall’
“Construction is 60-plus percent of GDP, compared to exports of 5,” said Chanos, who is the founder and president of Kynikos Associates.
“The problem is that consumption as a percentage of Chinese economy has declined in the last 10 years, from 40 to 35 percent. It’s all real estate,” he said. After the US, China has the world’s second largest economy.
Chanos said that steel, iron ore, cement and other materials needed for construction will be "under pressure."
China is building US-priced condos where the average income is $3500 per person.
Margins on Chinese companies are razor thin. If China hikes rates substantially most companies in China will lose money. Chanos thinks they already are. "Every company we have looked at has accounting issues. The lower you get in the story the more interesting it becomes."
If China implodes, Chanos thinks the US will fare relatively well on the basis "Europe exports more to China than the US, and that South America is dependent on China as are parts of Asia."
When asked about the sustainability of what China is doing, Chanos commented that a lot of what the state is doing is "misdirected investment" in order to keep nominal growth. At the end of the day, that will come back to haunt them.
Chanos mentioned Adam Smith a couple of times in the interview. Adam Smith is author of The Wealth of Nations.
"Adam Smith will get his revenge in China’s real estate market. It is very difficult to manage these kinds of bubbles."
I happen to agree with Chanos on all counts, adding that an implosion in China, or even a significant slowdown would be beneficial to the US dollar. For additional discussion of the US dollar please see Williams Calls for "Great Hyperinflationary Great Depression"; A Very Easy Rebuttal
by ilene - December 2nd, 2010 4:24 pm
Charles Hugh Smith shows the games played in determining "inflation" levels when not all prices are included in the measurements. It may be worth dispensing with the misleading term all together. When prices for big-ticket items keep rising but the items are not considered in the calculations, we have a clear mismatch between government statistics and household realities. However you define inflation, there is a real problem from real people. And regardless of one’s operative definition of inflation, Inflation Is Rampant in Tuition, Healthcare and Property Taxes. - Ilene
Courtesy of Charles Hugh Smith, Of Two Minds
A number of big-ticket household expenses are skyrocketing: tuition, property taxes and healthcare.
Here is my simple definition of rampant inflation: you’re paying a lot more money for the same item/service but the quality/quantity is the same or lower--and your income is stagnant/declining. We are constantly told that inflation is near-zero, but the basket of goods selected for measurement seems not to include healthcare/ health insurance, college tuition or property taxes.
These costs are skyrocketing, and they are non-trivial expenses, running into the tens of thousands of dollars per year. I have addressed the difference in scale of expenses for the wealthy and the "middle class" before. For instance, $10,000 per year for healthcare insurance is a massive percentage of the after-tax income of a household earning $60,000 a year, while it is a modest percentage roughly equivalent to the sums spent eating out and traveling for a household earning $160,000 a year.
The same scale differences are present in all measures of inflation. Onions might well have declined over the past year, which means that the $30 I spent annually on onions declined to $29--a grand savings of $1.
Even a 10% decline in natural gas costs would only yield a modest $50 reduction in costs for my household. Let’s say another household consumes a lot more natural gas, and their savings would total $200 a year.
Compare these modest reductions due to deflation with the thousands of dollars in increases in big-ticket items like tuition, property taxes and healthcare.
Take property taxes. Nationally, according to the Census Bureau report on state and local tax revenues, total property taxes in the U.S. rose from $225 billion in 1998 to $476 billion in 2009-- an increase of 111% over a time period that saw costs rise 32% (i.e.…
by ilene - October 21st, 2010 9:14 pm
Courtesy of Jr. Deputy Accountant
To hear Obama tell it, Obamacare is the greatest thing since sliced bread. Sure he wishes he’d been more transparent about the impact of health care legislation from the gate but the important thing is that he’s doing it now, right?
Asked about the negative perception that many Americans have about signature legislation of his first two years in office, Obama said opponents of reform fought hard against it and he could have done more to sell it.
On such a complicated issue as health care reform, Obama said, the administration knew opponents would offer distortions in opposing the bill.
With provisions of the reform bill starting to take effect, people now can see the benefits for themselves and therefore understand it better, he said.
His government must continue "beating the drum and clarifying what’s in the bill," he said, noting that negative advertisements that lack specifics can influence public opinion.
Negative advertisements huh?
Guess what, my dear OMG-in-Chief, people now can see the benefits for themselves and therefore understand it better, people like corporate CFOs who now have to change their rules and put aside whole stockpiles of cash to deal with this crap.
See Qualcomm slashes health care benefits in response to ObamaCare law via WC Varones or Citing health care law, Boeing pares employee plan via AP for more on the subject. AT&T, Verizon, Caterpillar, John Deere, McDonalds and 3M have all come out saying they may or have slashed health care as a direct response to Obama’s fantastic, ground-breaking health care legislation. Does that clarify what’s in the bill enough for you?
Don’t forget to buy all the OTC meds you can now before new FSA rules kick in.
The economics of Obamacare speak for themselves, OMG can find something else to be transparent about while we have a nice long chat with the actual impact.
by ilene - September 2nd, 2010 11:32 am
I didn’t find the statistics too surprising, but electronic prescribing really seems like a great solution. – Ilene
Doctors’ sloppy handwriting kills more than 7,000 people annually. It’s a shocking statistic, and, according to a July 2006 report from the National Academies of Science’s Institute of Medicine (IOM), preventable medication mistakes also injure more than 1.5 million Americans annually. Many such errors result from unclear abbreviations and dosage indications and illegible writing on some of the 3.2 billion prescriptions written in the U.S. every year.
To address the problem—and give the push for electronic medical records a shove—a coalition of health care companies and technology firms will launch a program Tuesday to enable all doctors in the U.S. to write electronic prescriptions for free. The National e-prescribing Patient Safety Initiative (NEPSI) will offer doctors access to eRx Now, a Web-based tool that physicians can use to write prescriptions electronically, check for potentially harmful drug interactions and ensure that pharmacies provide appropriate medications and dosages. "Thousands of people are dying, and we’ve been talking about this problem for ages," says Glen Tullman, CEO of Allscripts, a Chicago-based health care technology company, that initiated the project. "This is crazy. We have the technology today to prevent these errors, so why aren’t we doing it?"
One of the reasons is that doctors haven’t invested in the needed technology, so it’s being provided to them. The $100 million project has drawn support from a variety of partners, including Dell, Google, Aetna and numerous hospitals. "Our goal long-term is to get the prescription pads out of doctors’ hands, to get them working on computers," says Scott Wells, a Dell vice-president of marketing. Google is designing a custom search engine with NEPSI to assist doctors looking for health…
by ilene - August 29th, 2010 2:24 am
Courtesy of Mish
Now that Schwarzenegger is a certifiable lame duck (dead duck may be a more appropriate term) Schwarzenegger sees fit to take on public unions in a major way. It’s too late now (for him) even as he speaks the truth.
Please consider Public Pensions and Our Fiscal Future by Arnold Schwarzenegger.
Recently some critics have accused me of bullying state employees. Headlines in California papers this month have been screaming "Gov assails state workers" and "Schwarzenegger threatens state workers."
I’m doing no such thing. State employees are hard-working and valuable contributors to our society. But here’s the plain truth: California simply cannot solve its budgetary problems without addressing government-employee compensation and benefits.
Thanks to huge unfunded pension and retirement health-care promises granted by past governments, and also to deceptive pension-fund accounting that understated liabilities and overstated future investment returns, California is now saddled with $550 billion of retirement debt.
The cost of servicing that debt has grown at a rate of more than 15% annually over the last decade. This year, retirement benefits—more than $6 billion—will exceed what the state is spending on higher education. Next year, retirement costs will rise another 15%. In fact, they are destined to grow so much faster than state revenues that they threaten to suck up the money for every other program in the state budget.
At the same time that government-employee costs have been climbing, the private-sector workers whose taxes pay for them have been hurting. Since 2007, one million private jobs have been lost in California. Median incomes of workers in the state’s private sector have stagnated for more than a decade. To make matters worse, the retirement accounts of those workers in California have declined. The average 401(k) is down nationally nearly 20% since 2007. Meanwhile, the defined benefit retirement plans of government employees—for which private-sector workers are on the hook—have risen in value.
Few Californians in the private sector have $1 million in savings, but that’s effectively the retirement account they guarantee to public employees who opt to retire at age 55 and are entitled to a monthly, inflation-protected check of $3,000 for the rest of their lives.
In 2003, just before I became governor, the state assembly even passed a law permitting government employees to purchase additional taxpayer-guaranteed, high-yielding
by ilene - August 24th, 2010 6:18 pm
Courtesy of Mish
In response to Small Businesses are Not Hiring – Should They? I received a couple emails worth sharing. The CEO of a healthcare consulting company writes ….
You ran a series of articles on small businesses, hiring and expansions. I thought I would add to it.
I run a small firm, with about 45 employees and 40 contractors. We have been growing pretty well, close to 80% topline numbers for the past 3 years. Our average salary is over $100,000. We have some innovative software we sell to the industry. We also offer operational improvement strategies and IT consulting.
We provide great healthcare insurance coverage to our employees. It is necessary in order to attract talent and I am in the talent business. Our healthcare costs went up 90% this year – and that is on a 6-figure number to begin with. We found only one insurer willing to provide us coverage, United Healthcare.
Every other provider pulled out of our segment of the small business market. Cigna, our prior carrier, refused to renew at the last minute on a technicality despite being our carrier for the past 3 years.
Our management team’s focus for two weeks was seriously diverted as we dealt with the consequences of this. Had we lost coverage altogether, we would have been out of business as our employees would go elsewhere.
Our staff is young and healthy, by and large. Average age is early 30s, in the healthcare consulting, software and technology industry. Only in a severely government distorted marketplace can a firm with a young and healthy staff that has had coverage for years face insurers pulling out or demanding a 90% hike.
We had plans to add one person to our R&D staff, a low 6-figure salary. That was shelved because of healthcare costs. Our software development cycle is slowed as a result.
How has the healthcare bill helped the economy? In this case, not one bit. And everyone of my employees has been hurt, because we switched mid-year, those who were part way into their deductible have to start all over again. That is a few 1000s for a number of employees. Because of a bill that passed that cost us money, and most of our employees money. No one is happy with this.
by ilene - August 20th, 2010 1:35 pm
Courtesy of Mish
In response to Creating Jobs Carries a Punishing Price, an article about Mr. Fleischer, president of Bogen Communications Inc. and why he is not hiring, I received an interesting email from "David" a reader who disagrees with Mr. Fleischer’s stated reasons for not hiring.
One of the items mentioned by Mr. Fleischer and challenged by "David" is the idea that corporations are sitting on cash. On this score, "David" is correct. I have also debunked the idea that corporations are sitting in cash (Please see Are Corporations Sitting on Piles of Cash?)
"David" also challenged Mr. Fleischer’s math on healthcare.
However, such arguments miss the entire point of the post.
It does not matter one iota if Mr. Fleischer is wrong about corporate sideline cash or anything else. What matters is Mr. Fleischer thinks he has sufficient reasons not to hire.
On that score, I believe Mr. Fleischer is correct. There are numerous good reasons to not hire.
Businesses have a legitimate worry about health care costs, rising taxes, and other artifacts of Obama’s legislation.
On the consumer side, this is not a typical recession. This is a credit bust recession with consumers still deleveraging. With savings deposits yielding close to 0% and with credit card rates over 20%, common sense dictates consumers pay down bills rather than make new purchases. The housing bubble has burst and boomers are headed into retirement with insufficient savings.
Given all the economic uncertainties, consumers are reacting in a rational manner by not spending. In turn, businesses have consistently cited lack of customers as one reason to not hire.
That Mr. Fleischer fails to articulate reasons that others agree with is irrelevant. The pertinent fact is he is not hiring.
More importantly, numerous other small business owners think and act just like Mr. Fleischer. How do we know? Simple …
- August 03, 2010: Wells Fargo/Gallup Small Business Index Hits Record Low, Future Expectations Dip Below Zero First Time Ever
- August 10, 2010: Small Business Trends – Yet Another Disaster
- August 19, 2010: Weekly Unemployment Claims Hit 500,000, Exceed Every Economist’s Estimate; No Lasting Improvement for 9 Months
What Can Be Done?
by ilene - July 20th, 2010 7:40 pm
Courtesy of SHAMUS COOKE writing at CounterPunch
If the U.S. economy eventually recovers and current trends continue, U.S. workers won’t be celebrating in the streets. The corporate establishment has made it clear that a “strong recovery” depends on U.S. workers making “great sacrifices” in the areas of wages, health care, pensions, and more ominously, reductions in so-called “entitlement programs” — Social Security, Medicare, and other social services.
These plans have been discussed at length in corporate think tanks for years, and only recently has the mainstream media begun a coordinated attack to convince American workers of the “necessity” of adopting these policies. The New York Times speaks for the corporate establishment as a whole when it writes:
“American workers are overpaid, relative to equally productive employees elsewhere doing the same work [China for example]. If the global economy is to get into balance, that gap must close.”
“The recession shows that many workers are paid more than they’re worth…The global wage gap has been narrowing [because U.S. workers’ wages are shrinking], but recent labor market statistics in the United States suggest the adjustment has not gone far enough.”
The New York Times solution? “Both moderate inflation to cut real wages [!] and a further drop in the dollar’s real trade-weighted value [monetary inflation to shrink wages] might be acceptable.” (November 11, 2009).
The Atlantic magazine, agrees:
“So how do we keep wages high in the U.S.? We don’t…U.S. workers cannot ultimately continue to have higher wages relative to those in other nations [China, India, etc.] who compete in the same industries.”
President Obama speaks less bluntly about the wage subject for political purposes, but he wholeheartedly agrees with the above opinions, especially when he repeatedly said:
“We must lay a new foundation for growth and prosperity, where we consume less [as a result of lower wages] at home and send more exports abroad.”
So how will Obama implement his economic vision that inspired Wall Street to give him millions during his Presidential campaign? Much of the work is happening automatically, due to the Great Recession. Bloomberg news reports:
“More than half of U.S. workers were either unemployed or experienced reductions in hours or wages since the recession began in December 2007… The worst economic slump since the 1930s has affected 55 percent of
by ilene - April 29th, 2010 8:25 pm
Regulate salt content, or not? This debate brings up the age-old dilemma of defining the proper role of government and deciding whether that role changes when we, as a tax-paying nation, are going to get stuck with the bills (i.e. health care). - Ilene
SALT hidden in food kills millions of people worldwide. Reducing dietary salt is therefore important for public health; it is also one of the cheapest and easiest ways to save lives. So why are efforts to cut dietary salt being met with fierce resistance?
First the facts. Decreasing salt intake substantially reduces blood pressure, thus lowering the risk of heart attacks and strokes. An analysis of all the available evidence, published in 2007, suggested that reducing salt intake around the world by 15 per cent could prevent almost 9 million deaths by 2015. That is on par with the public health benefits of reducing cholesterol and stopping smoking (The Lancet, vol 370, p 2044).
Other analyses have concluded that cutting daily salt intake by 5 grams could reduce strokes by 23 per cent and cardiovascular disease by 14 per cent (BMJ, vol 339, p b4567; Journal of Human Hypertension,..).
The benefits of salt reduction may also extend further. Links have repeatedly been reported between high salt intake and chronic kidney damage, stomach cancer and osteoporosis.
There is no doubt that our salt intake is excessive…
This excess intake is not a matter of personal choice. Only about 15 per cent of the salt in our diets comes from our own salt shakers; the rest is added to foods before they are sold. Salt is added to make food more palatable, to increase the water content of meat products and to increase thirst. All generate profit for the food and drink industry.