Economic Commentary

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[quote author="BondTrader" date=1257806848]Let me start off with something outrageous



HE SAID WHAT??????



http://www.marketwatch.com/story/goldman-ceo-defends-bonuses-as-sign-of-recovery-report-2009-11-08



"Goldman Sachs Group Inc.'s chief executive defended the U.S. bank's bonus policies in an interview with U.K.'s Sunday Times, saying banks serve a "social purpose," and the return of high pay should be seen a sign of economic recovery."



My jaw dropped when I read that. Thats beyond spin. Thats spitting in our faces and telling us to "let them eat cake". The theft is out in the open.



How about the next wave down lets see if GS survives without a handout from the very people (taxpayers) they are spitting on?



GS = pure evil.



Market will challenge the resistance once again. Hey, if you can't do it during the regular section, lets manipulate the future's market to help you get there. Gold hits above 1100, and Dow probably will make new high today, while S&P and NASDAQ lagging. Remember, not all indexes will hit the top at the same time. I do see Dow and Gold topping out before S&P. I believe the best S&P can do is banging its head against 1100 once again before the next big down leg.</blockquote>


McClatchy is running a whole series on the crooks at Goldman.



<a href="http://www.mcclatchydc.com/227/v-print/story/77791.html">Goldman is evil</a>
 
Another day of restless pumping with low volume. The last leg of the rally seems to have come from the comments last week from the Fed and over the weekend from the G20 that government stimulus remains the name of the game. The punchbowl is intact ? imagine the desperation involved in expanding a housing tax credit from a first-time buyer to a trade-up buyer at a time when the fiscal deficit is already 10% relative to GDP! It is hard to tell how far this is going to go but it is NOT sustainable. This symbiotic relationship between the markets having come to rely exclusively on government stimulus measures to bolster economic and earnings expectations on the one hand, and governments offering up repeated rounds of intervention in order to generate asset inflation as an antidote to a jobless recovery on the other hand, is unstable. We can?t see this ending well ? this is definitely not a private-sector led secular bull market circa 1982; that much we know.

As I mentioned last time, this did turn out to be just a 5% correction. We've been having this one step backward, 2 or 3 step forward market for the last 6 months. I won't be surprised to see S&P at 1120 this time around, though the odds are not that great. Bears have to keep an open mind that the wall street need to collect their year end bonus and will do everything and anything they could to prevent any kind of major correction until Q1 2010.
 
[quote author="BondTrader" date=1257903992]The punchbowl is intact ? imagine the desperation involved in expanding a housing tax credit from a first-time buyer to a trade-up buyer at a time when the fiscal deficit is already 10% relative to GDP! It is hard to tell how far this is going to go but it is NOT sustainable. This symbiotic relationship between the markets having come to rely exclusively on government stimulus measures to bolster economic and earnings expectations on the one hand, and governments offering up repeated rounds of intervention in order to generate asset inflation as an antidote to a jobless recovery on the other hand, is unstable. We can?t see this ending well ? this is definitely not a private-sector led secular bull market circa 1982; that much we know.

</blockquote>


Neither B-52 Ben nor the administration will or can end it. It will only end when it collapses.
 
<strong>HOW DOES THE U.S. GOVERNMENT DO THAT (WITH A 10% DEFICIT/GDP RATIO TO BOOT)?</strong>



?It is trying to promote consumer spending at a time when the consumption/GDP ratio is at a record high of 71% and well above the long-term norm of 64%.



?It is trying to promote credit creation at a time when household debt/income ratio at 125% is still near an all-time high and twice the historical norm.



?It is trying to promote a higher homeownership rate even though, at 67.4%, it is just about the highest in the world and still well above the historical norm of 64.0%.
 
[quote author="roundcorners" date=1258002125]Panda been urging me to sell off ALL my US equities... just got done dumping/exchanging half into cash funds... we'll see how we end the year...</blockquote>


When in doubt, take some off the table is a good strategy.
 
[quote author="roundcorners" date=1258002125]Panda been urging me to sell off ALL my US equities... just got done dumping/exchanging half into cash funds... we'll see how we end the year...</blockquote>


What the ???? Does that mean if the DOW rallies up to 15k, you will no longer be my friend?
 
An economics professor at a local college made a statement that he had never failed a single student before, but had failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer.







The professor then said, "OK, we will have an experiment in this class on the present administration?s plan".







All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A.







After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy.







As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.







The second test average was a D! No one was happy.







When the 3rd test rolled around, the average was an F.







The scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.







All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great but when government takes all the reward away, no one will try or want to succeed.







Could not be any simpler than that.
 
[quote author="awgee" date=1258016784]An economics professor at a local college made a statement that he had never failed a single student before, but had failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer.







The professor then said, "OK, we will have an experiment in this class on the present administration?s plan".







All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A.







After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy.







As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.







The second test average was a D! No one was happy.







When the 3rd test rolled around, the average was an F.







The scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.







All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great but when government takes all the reward away, no one will try or want to succeed.







Could not be any simpler than that.</blockquote>


BRAVO...need to make mass copies and send out to all the 18-22 yr olds who think Obama is sooooo COOL!
 
<strong>U.S. CHAIN-STORE SALES BELOW PLAN</strong>



According to the Redbook survey, same-store sales were running at +1.7% YoY as of November 7th ? below the target of +2.2%. Remember, the comps are very ?easy? given last year's meltdown, so +1.7% is actually quite poor.



As for any inflation pressure ? it is just not there. The Redbook said ?Holiday merchandise is beginning to be displayed in stores as retailers are promoting earlier than usual. Some stores are already in a rush to cut prices and extend store hours in an effort to create a ?Black Friday? everyday.?



<strong>WHAT ARE U.S. EARNINGS DOING?</strong>



So far, Q3 S&P 500 operating EPS is coming in at $15.27 ? still down around 2% YoY from a year ago and well below the $21.11 consensus expectation at the start of the year. Still no evidence of a turnaround in sales ? deflating 10.7% YoY for what will be the fourth decline in a row. Cost cutting and productivity gains remain the dominant theme, hence operating margins are holding at a high level of 7.23% (versus the 15-year average of 6.60%).



<strong>SHORTS STILL BEING COVERED</strong>



When looking for where the buying power for U.S. equities has been coming from, there have been three primary sources.



1. Hedge funds who have had their margin lines re-established this year.



2. Equity portfolio managers taking cash ratios back down to late -2007 levels.



3. And short covering, which seems to be ongoing as short funds try and reverse at least part of the average 31.5% loss suffered this year. So what we just saw ? a 3.24% plunge in short interest on the Big Board through the last half of October goes a long way towards explaining this latest move in the major averages to new post-crisis highs.
 
<em> "Our analysis indicates that the sources of financial instability that triggered financial crises in emerging-market countries in recent years are just not present in Iceland, so that comparisons of Iceland with emerging-market countries are misguided." Financial fragility was not a problem, he said. "The probability of a credit event occurring is low. [Thus], the likelihood of a financial meltdown is low."



..."the Financial Supervisory Authority's awareness of these risks and the fact that Iceland has high-quality governmental institutions makes it unlikely that there are serious problems with safety and soundness in the banking system." </em>



- Frederic Mishkin on Iceland about two months before it's monetary collapse.
 
[quote author="BondTrader" date=1258086426]As for any inflation pressure ? it is just not there. </blockquote>


What, no inflation??!!!?? Say it ain't so Joe!
 
[quote author="no_vaseline" date=1258100960][quote author="BondTrader" date=1258086426]As for any inflation pressure ? it is just not there. </blockquote>


What, no inflation??!!!?? Say it ain't so Joe!</blockquote>


Nope, no inflation. College tuition, medical care, medical insurance, kids sports costs, restaurants, gas, copper, water, trucking, transportation, tires, Haagen Daaz. All gone down in price.
 
[quote author="awgee" date=1258102777][quote author="no_vaseline" date=1258100960][quote author="BondTrader" date=1258086426]As for any inflation pressure ? it is just not there. </blockquote>


What, no inflation??!!!?? Say it ain't so Joe!</blockquote>


Nope, no inflation. College tuition, medical care, medical insurance, kids sports costs, restaurants, gas, copper, water, trucking, transportation, tires, Haagen Daaz. All gone down in price.</blockquote>


Our medical and dental coverage is increasing by 50% in January. Any one else experiencing this?
 
[quote author="Mcdonna1980" date=1258107563][quote author="awgee" date=1258102777][quote author="no_vaseline" date=1258100960][quote author="BondTrader" date=1258086426]As for any inflation pressure ? it is just not there. </blockquote>


What, no inflation??!!!?? Say it ain't so Joe!</blockquote>


Nope, no inflation. College tuition, medical care, medical insurance, kids sports costs, restaurants, gas, copper, water, trucking, transportation, tires, Haagen Daaz. All gone down in price.</blockquote>


Our medical and dental coverage is increasing by 50% in January. Any one else experiencing this?</blockquote>


I've heard it in other areas; businesses are trying to cut costs by reducing their contribution and insurance companies are trying to prepare for financial Armageddon.



We'll see the kind of inflation that makes the headlines, but not until the money, currently being created out of thin air, makes it out into circulation or the Fed really does deposit stimulus directly into personal bank accounts. I believe the price hikes awgee sees are the response to lower consumption: raise the price of the widgets to meet the prior level of income to maintain the same level of profit, while remaining positioned for future growth. Suppliers are getting squeezed by lower demand and oversupply as the widget makers sit on readjusted inventory levels, which is the "deflation" that no_vas keeps harping about in their constant tug-o-war. Once the banks started loaning out that money, you'll see rapid double digit inflation and anyone holding large amounts of gold will be vindicated, provided they sell at or near the peak and don't get wiped our by a confiscation scheme, all of which is entirely dependent on the whims of the Federal Reserve chairman, who can suck out that excess money at a moment's notice, provided he has the fortitude to accept the blame for the recession that follows.
 
[quote author="Nude" date=1258109666] Once the banks started loaning out that money.....</blockquote>


I don't want to speak for Awgee, but I don't ever see us getting to that step. Every dollar printed is sucked into a black hole known as bad debt - the banks that are holding those reserves don't have the functional ability to loan anything.



Awgee (I think) is awaiting a currency crisis which accomplishes roughly the same thing ? we never make it to that step.
 
Actually, America was started with the Pilgrims on socialized farming, and everyone nearly starved. Then they went capitalist and all went well.



<A href="http://www.independent.org/newsroom/article.asp?id=1423">http://www.independent.org/newsroom/article.asp?id=1423</A>



[quote author="awgee" date=1258016784]An economics professor at a local college made a statement that he had never failed a single student before, but had failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer.







The professor then said, "OK, we will have an experiment in this class on the present administration?s plan".







All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A.







After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy.







As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.







The second test average was a D! No one was happy.







When the 3rd test rolled around, the average was an F.







The scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.







All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great but when government takes all the reward away, no one will try or want to succeed.







Could not be any simpler than that.</blockquote>
 
Sorry I do not remember where to get the figures, but most, more than half, inflation is created by the Federal Reserve in order to buy new treasuries, (borrowed currency), from the federal government. The federal government spends the currency. It does not put it in banks. This shoots newly created "money" straight into the arms of the economy. Does that sound familiar?

It is not necessary for the member banks to transform their reserves into loans in order to create price inflation. And it is not necessary for either to create a currency crisis. If a few foreign central banks decide to divest themselves of USD at the same time, ..., wah lah, currency crisis. Or if the only way for the federal government to pay the interest on its debt is to openly borrow more from the Fed, ...

I venture that the perception of the two scenarios above already exists and is getting stronger.

By the time it actually happens and is obvious to the public, it will be too late for the public to protect themselves from the consequences. But then, isn't that the way it always is?



A few years ago I said that the only two large banks left standing would be GS and JPM as part of a response as to why I never short GS. Now, I will say that GS will profit immensely from a surge in gold prices.
 
[quote author="no_vaseline" date=1258111841][quote author="Nude" date=1258109666] Once the banks started loaning out that money.....</blockquote>


I don't want to speak for Awgee, but I don't ever see us getting to that step. Every dollar printed is sucked into a black hole known as bad debt - the banks that are holding those reserves don't have the functional ability to loan anything.



Awgee (I think) is awaiting a currency crisis which accomplishes roughly the same thing ? we never make it to that step.</blockquote>


This a little over a year ago:



[quote author="Nude" date=1222913040]IR, I think the plan is to allow mark-to-fantasy until the Treasury can get it's new facility up and running to purchase the toxic stuff. Then Paulson can pay just enough to ensure survival of just those banks that will cause a systemic crash if they fail. Raising the FDIC insurance limit to $250k keeps the withdrawals down and protects the smaller businesses as the rest of the insolvent banks are allowed to fail.



If that is indeed the plan, then it appears that there is no avoiding a collapse. They seem to be attempting the control the size of the event rather than preventing it.</blockquote>


It seems to me that the plan is to avoid getting "to that step" as you put it until they can control the outcome without setting off any more dominoes. I know awgee thinks a currency crisis is imminent, but I think the effort is too coordinated among major banks, central banks, and foreign governments for a currency crisis. Hank may be long gone, but Bernanke, Summers, and Geithner are there to carry on and Volcker's been shoved into the broom closet. In other words, everyone at the table has weak pocket cards, the flop was flat, the turn was useless and every player is content to check the blinds going into the river. But at some point, that river card gets laid down; those banks will either have to lend it or return it... or fold.



-

--

-



[quote author="awgee" date=1258124091]Sorry I do not remember where to get the figures, but most, more than half, inflation is created by the Federal Reserve in order to buy new treasuries, (borrowed currency), from the federal government. The federal government spends the currency. It does not put it in banks. This shoots newly created "money" straight into the arms of the economy. Does that sound familiar?

It is not necessary for the member banks to transform their reserves into loans in order to create price inflation. And it is not necessary for either to create a currency crisis. If a few foreign central banks decide to divest themselves of USD at the same time, ..., wah lah, currency crisis. Or if the only way for the federal government to pay the interest on its debt is to openly borrow more from the Fed, ...

I venture that the perception of the two scenarios above already exists and is getting stronger.

By the time it actually happens and is obvious to the public, it will be too late for the public to protect themselves from the consequences. But then, isn't that the way it always is?



A few years ago I said that the only two large banks left standing would be GS and JPM as part of a response as to why I never short GS. Now, I will say that GS will profit immensely from a surge in gold prices.</blockquote>


<a href="http://www.irvinehousingblog.com/forums/viewthread/128/P2300/#41972">You are remarkably consistent</a> but we've seen billions "shot" into the economy and there hasn't been the rapid inflation you've mentioned. Prices are increasing in some areas, but Gasoline is well off it's highs, Nat Gas is entering it's traditional up cycle but it's still really low, I can get fresh produce, meats, milk and cheeses for much less than last year... that's not price inflation or currency inflation. You may not bet against GS, but you seem certain that Ben "Big Brass Balls" Bernanke doesn't have the currency side of this handled when everything to date shows that he's got the full cooperation of the other governments, banks, and the Treasury.



Gold may shoot up temporarily (based on public purchases by central banks), and the dollar will drop even further (both to spur export growth and as part of the overall strategy), but it's not a collapse. I'm not saying we are out of the woods, but I certainly don't see another free fall like 10/08-3/09. Goldman might be long gold, but I think it's even money they hedged that by shorting gold too. I think that they have achieved the lull they needed to organize their efforts, I think they are moving forward with a plan to repair balance sheets and hibernate the dying banks, and I think that everyone who could upset the plan is part of the plan.



I mean, Goldman Sachs pays in dollars... right?
 
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