Gross: Growth Will Slow, Financials Will Get Hit

Newsmax - by Dan Weil - May 5, 2009

Bill Gross, manager of Pimco Total Return, the world’s biggest bond fund, says investors better get used to the idea of government involvement in the economy.

This year represents a “demarcation point because it represents the beginning of government policy counterpunching,” Gross writes in his monthly commentary.

“A period when the public with government as its proxy decided that private market, laissez-faire, free-market capitalism was history and that a ‘private/public’ partnership yet to gestate and evolve would be the model for years to come.”

How should investors cope with this new environment?

They “should recognize that this grassroots trend signals…an increasing uncertainty of cash flows from financial assets,” Gross says.

“Not only will redistribution and reregulation lead to slower economic growth, but the financial flows from it will be” reduced for stakeholders, he explains.

“In turn, the present value of those flows should reflect an increasing risk premium and a diminishing multiple of annual receipts.”

Translation: prices of financial assets will fall.

As for the economy, Gross predicts “a slower rate of economic growth, not just in the U.S., but worldwide as heretofore libertarian capitalism is bridled, saddled and taught to trot instead of gallop over the investment plains.”

While Gross expresses support for President Obama, Peter Ferrara, director of budget policy at the Institute for Policy Innovation, feels differently.

He writes on FoxNews.com, “How is Obama not a socialist? Under his ‘auto bailout’ policy, the government would be taking GM and Chrysler away from the investors.”

Too Big to Fail, Hidden Risks, and the Fallacy of Large Institutions

This guy has very valid point.

Nassim Nicholas Taleb
NYU-Poly Institute; London Business School
Large institutions are disproportionately more fragile to Black Swans.
This paper establishes the case for a fallacy of economies of scale in large aggregate institutions. The problem of rogue trading is taken as a case example of hidden risks where rogue traders and losses are considered independently and dependently of the institution’s size. Both independent and dependent loss and hidden positions are shown to lead to the paper’s conclusion, that size and economies of scale have commensurate risks that mitigate the advantages of size.

Shock: Global temperatures driven by US Postal Charges

The rise in global temperatures since 1880 closely correlates with increases in postal charges, sparking alarm that CO2 has been usurped as the main driver of climate change.

As a result the government has implemented immediate action. See link for details.

The thinkers who predicted early on many aspects of this financial crisis

Nouriel Roubini has been included on Time magazine list of the 100 Most Influential Peoople in the World. He recognized was one of the few men that recognized and predicted many of the risks and vlunerabilities that led to this economic and financial crises.


These men were "Dr. Realists, analytically rigorous and intellectually honest and willing to engage in critical thinking rather than follow the herd of the easy consensus. And even among the policy makers there was a difference in views. Alan Greenspan, Don Kohn and Bernanke repeated the mantra that it is impossible to prick asset bubbles and that monetary policy should do nothing when a bubble was rising and then, asymmetrically, aggressively ease when the bubble was bursting to avoid the collateral damage to the real economy. Instead thinkers at the BIS and policy makers such as Tim Geithner, Jean Claude Trichet and Mervyn King had a more nuanced approach on how monetary and credit policy could be used to contain such bubbles. Tim Geithner devoted his first five speeches as President of the New York Fed to the issue of systemic risk in financial markets; he also warned about the unsustainability of the US twin deficits at the time when Bernanke was blaming it all on the global savings glut caused by China and other surplus countries.

London’s ‘Twin Pillars of Doom’ May Spark Hedge Fund Exodus

In order to raise tax revenues, the UK government has announced some significant tax changes that will increase taxes. Result, businesses and people are leaving. Anyone surprised? What will be the net result do you think; will tax revenues increase or fall? Should anyone then be surprised? Yet, many will be surprised as the tax revenues drop.

April 30 (Bloomberg) -- After helping to move 23 hedge funds to Switzerland from London in the past two years, David Butler describes the flow as a “steady trickle.” Now he’s bracing for a flood.

“Call it the twin pillars of doom,” said Butler, a founding partner at hedge fund consultancy Kinetic Partners LLP in London. “Put together the U.K. tax changes and what the ogres in France and Germany have created and you will see a mass migration.”

Treasury Yields Reach Five-Month High as Fed Stands

As demand for funding by the government increases, so does interest rates. Anyone surprised? It appears a few fund managers have been.

May 2 (Bloomberg) -- Treasury 10-year notes declined for a sixth week, the longest losing steak in almost two years, as the Federal Reserve refrained from increasing purchases of government debt and the economy showed signs of stabilizing.

Money Doesn't Grow On Trees

Great article by John P. Hussman, Ph.D. of the Hussman Funds

Both the Republican under Bush and Demo under Obamba! are following the money and being led by Wall Street. Couple of pargraphs....follow the link for more...

So yes, we can indeed abuse the U.S. public in order to make the bondholders of U.S. financial institutions whole and protect them from any losses. This was the policy of the Bush Administration, and has tragically become the policy of the Obama Administration as well. By doing so, we will commit our future production to foreign hands, or we will commit about a quarter of U.S. non-financial profits and personal savings to these bondholders for at least the next decade.

We can also allow bureaucrats to commit public funds that have not even been allocated by Congress, which is what we have done. We have all become dangerously de-sensitized the the sheer volume of money being tossed around here, and the potential for enormous fraud, misappropriation, cronyism, and misuse.

Trading Volume Separates Bull Markets from Bear Rallies

From the Hussman Funds
Whether it was William Peter Hamilton observing the trading activity of the 19th century, or Richard Russell who has studied the market's real-time price and volume action for more than 50 years, or Russell Napier who took the time for an in-depth review of the 4 greatest buying opportunities in the 20th century, each came to a similar conclusion: to confirm a change in market conditons, watch trading volume closely. By this measure, the market's recent rally still has much to prove.

U.S. Gas Fields Go From Bust to Boom

WSJ reports that US has surplus of natural gas. If you have noted, natural gas prices are pretty low. Supply is up (last year the Barnett shale produced 4 bcf of gas/day) and import of LNG is coming.

April 30, 2009 WSJ - CADDO PARISH, La. -- A massive natural-gas discovery here in northern Louisiana heralds a big shift in the nation's energy landscape. After an era of declining production, the U.S. is now swimming in natural gas.

Bound to Burn

The Cap and Trade system (or taxes) will not eliminate CO2. What is needed (if CO2 is an issue) is to protect and promote the planet’s carbon sinks—the systems that suck carbon back out of the air and bury it. What is it? Keep reading.... from City Journal:

Humanity will keep spewing carbon into the atmosphere, but good policy can help sink it back into the earth. However, we don’t control the global supply of carbon.

Like medieval priests, today’s carbon brokers will sell you an indulgence that forgives your carbon sins. It will run you about $500 for 5 tons of forgiveness—about how much the typical American needs every year. Or about $2,000 a year for a typical four-person household. Your broker will spend the money on such things as reducing methane emissions from hog farms in Brazil. But if you really want to make a difference, you must send a check large enough to forgive the carbon emitted by four poor Brazilian households, too—because they’re not going to do it themselves. To cover all five households, then, send $4,000.

Green plants currently pump 15 to 20 times as much carbon out of the atmosphere as humanity releases into it—that’s the pump that put all that carbon underground in the first place, millions of years ago.

Continue the read by going to Bound to Burn on City Journal

The capital well is running dry and some economies will wither

Interest rates could be heading up. Government debts and bail outs require funding.

From the UK Telegrahp April 26, 2009 -The world is running out of capital. We cannot take it for granted that the global bond markets will prove deep enough to fund the $6 trillion or so needed for the Obama fiscal package, US-European bank bail-outs, and ballooning deficits almost everywhere.

COT - Update for April 27th

Weekly report from COT (Commitment of Traders) reports following

S&P - Flat (Cash)

Oil - Flat (Cash)

Gold - Bullish - Long - April 27th

S&P 500 -

S&P is testing resistance

Note the direction pre and post the October 08 melt down.

Weekly Market Briefing

From TSG Stock Market Letter
Week Ending April 24, 2009

Market
It has now been seven weeks since this rally began and this week
stocks took a break. Since hitting its low in the first week of
March, the S&P500 is up nearly 28%. Last week we mentioned that
the S&P500 index was 9.6% above its 50-DMA and that is about
where it stayed this week (9.5%) so stocks remain overbought.
But indexes are also still banging up against key resistance
areas that taken together with how overbought stocks are across
the board, increases the chances for a correction. And now this
rally is losing momentum. If prices hold up it will show that
investor demand for stocks is increasing despite the technicals
pointing to a drop. But that must be considered a long shot.

Interest Rates
US Treasuries with a net drop (redemption) of $97 billion in Treasuries by foreigners in February in the latest Treasury international capital flow (TIC) data. This followed a record net redemption of $148.9 billion by foreigners in January.

The government will have to sell $2.4 trillion in new bills, notes and bonds in fiscal 2009, according to an recent estimate by UBS. How does this compare with past Treasury sales? From October through December, the Treasury sold a record $569 billion, up a whopping 693% from the $82 billion it sold during the same period a year earlier, and auctioned another $493 billion in the last quarter up from $156 billion the year before according to Bloomberg, as the government increasingly finds itself squeezed between rocketing expenditures and collapsing tax revenues

Obama plan to raise tax revenues 40% by 2013 and the impact it will have on taxes and the economy. Unless the economy experiences a miraculous recovery, increasing the tax burden amid a declining economy is not only an extremely bad idea, it turns Treasury’s gargantuan task of financing the rapidly rising debt burden as spending soars into Mission Impossible.

What does this mean for traders and investors? First, this is inflationary because if history is any guide, the government will print more money and employ more helicopters from which to throw it into the economy, a methodology euphemistically labeled “quantitative easing.” The next all-too predictable development will be strong upward pressure on interest rates as U.S. Treasury investors demand higher returns to offset their losses due to increasing inflation.

In this increasing hostile investment environment, any investment strategy will need to take rising interest rates and increasing inflation into account.

U.K Financial Bailout Reaches 1.4 Trillion Pounds

April 23 (Bloomberg) -- U.K. government support for the banking system has risen to 1.4 trillion pounds ($2 trillion) and may climb higher as the financial crisis spreads to building societies and economists warn lenders may need more aid.

The amount invested in, loaned to or pledged to back bank assets now equals Britain’s gross domestic product, or 22,800 pounds for every person in the U.K.

US Treasury Needs to Raise more Cash

I wonder which way interest rates will be going. US Treasury needs to raise more cash as tax revenues fall.

“Tax receipts are just collapsing. [The need to sell more debt] is a big issue in the Treasury market and it is ongoing. The surging budget deficit is the primary cause.” Head Stamford UBS Securities interest-rate strategist Chris Ahrens.

Petroleum coke fuel provider calls wind power "boondoggle"

From the WSJ

A project to put 130 wind turbines on 26 square miles off Nantucket Sound has generated a lot of hot air in Massachusetts -- and Washington. Contained in the arguments pro and con are partial facts, misconceptions, outright lies and hysteria. What we're not getting is a rational analysis of the Cape Wind project's effects on the supply of and demand for electricity in New England.

In the interest of full disclosure, my company has spent more than 23 years in the energy business owning and operating a number of alternative power plants. We are the world's largest seller of "petroleum coke," an alternative fuel, and produce a super-compliance coal and coal-bed methane, an alternative for natural gas. We have also explored wind farming in Kansas and California. Oh, and I own a summer house that overlooks Nantucket Sound.

Global Bank Writedowns: Canadian Troublemakers

From Infectious Greed at http://paul.kedrosky.com

The darn Canadians won't get with the program with respect to global bank writedowns!

Answer....maybe its just because they do not have too!

How Bernie did it

A good read on how Madoff ran his ponzi scheme. From Fortune mag April, 24, 2009

Madoff is behind bars and isn't talking. But a Fortune investigation uncovers secrets of his massive swindle.

Economist Cover -

I like the cover

Insiders are Unloading Shares

April 24 (Bloomberg) -- Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market.

China has been buying Gold

April 23, 2009
SHANGHAI/BEIJING (Reuters) - China revealed on Friday that it had secretly raised its gold reserves by three-quarters since 2003, increasing its holdings to 1,054 tons and confirming years of speculation it had been buying.

Chocolate coins are now deemed safer than gilt

From the FT

Published: April 22 2009 18:00

As Alistair Darling produced his Budget goodies on Wednesday, he would have done well to peek at something which might be dubbed the "chocolate" metric.
This refers to a corner of finance known as the credit default swap - the derivatives market where investors buy protection against a debt default. In recent months the cost of insuring against a default on UK gilts has surged as investors have fretted about the ever-spiralling levels of British debt.
On Wednesday, for example, the cost of protecting five-year gilts was 95 basis points - meaning it costs £95,000 a year to insure £10m of bonds - up from 18 basis points last summer (albeit down from a peak earlier this year).
But if that is embarrassing enough, the cost of insuring the chocolate giant Cadbury was on Wednesday far lower, around 50bp. A company that peddles chocolate coins, in other words, is currently deemed a better credit bet than the British Treasury itself.
So, for that matter, are tobacco giant British American Tobacco, services provider Compass, consumer goods group Unilever, energy group Centrica and Pearson, owner of the Financial Times.
It is a startling pattern, not least because last summer all of those companies had CDS spreads which were notably higher than the UK government's. Indeed, until last year it was widely assumed that sovereign bonds would always command lower CDS spreads than corporate debt.
Will the Budget turn that chocolate metric on its head once more?


Mr Darling certainly did his best to reassure investors that gilt-edged money remained a good investment bet, declaring that the government could halve the budget deficit in four years time. He also promised that the economy would start to rebound later this year and post stunning growth in two years.
But the problem that dogs the chancellor is that few investors appear to believe in this sunny scenario. Take a look at a poll conducted at a large Investor Relations Society conference in London on Tuesday. Back in March 2008, when a similar poll was conducted, most asset managers and investor relations experts expected the financial crisis to be relatively short lived. But when the same participants were polled this week a mere 6 per cent thought the UK downturn had bottomed, while a third were braced for years of recession. Moreover, 54 per cent expected to see more UK bank bail-outs in the coming months.
Of course, those forecasts may turn out to be wrong, proving Mr Darling right. But the current problem is one of perception. After last year's shocking financial dramas, most ordinary investors are now so utterly befuddled that they have little idea what a number like £60bn, £200bn or even £2,000bn actually means.
However, as long as investors keep fearing in a general way that UK debt levels - and bail-out packages - are set to grow, amid weak or no economic growth, they will remain nervous about the credibility of gilts.
Thus far, thankfully, this unease has not produced a funding crisis for the UK government. For while mainstream asset managers feel nervous about gilts, they feel equally worried about the obvious alternatives. The price of gold is high, US Treasuries no longer look like a safe haven, and nor do eurozone bonds.
Thus, while some recent gilt auctions have produced disappointing results, the British government is still managing to sell its bonds, notwithstanding the CDS swings.
Nevertheless, in the coming months investors and policymakers would do well to keep watching that putative chocolate index. If the CDS spread on UK debt starts to fall, to a level similar to that of large British corporations such as Cadbury, then Mr Darling's Budget can indeed be deemed a success. And on Wednesday, at least, the CDS spread on gilts barely moved after his speech, implying that the markets were not unduly surprised.
But if the CDS spread on gilts remains well above those commanded by large UK companies - or if the credibility gap widens even further - it will soon be time for gilt investors to put on their tin hats. And perhaps stock up on those chocolate coins as financial comfort food.

The Economic Future Just Does Not Look Great

By Porter Stansberry in the S&A Digest: April 23, 2009

Watching the government rack up debts that will be impossible to repay while narrowing the tax base (at least 50% of Americans pay zero federal income tax) at the same time is very scary. It seems more and more certain the deficit will spiral out of control. Not only has the government gone mad with spending and corruption, but it also expects about 10% of the population to pay for essentially all the costs. The math simply doesn't add up: 10% of the population can't (and won't) pay for all of the costs of a socialist federal government.

And, by the way, before you respond with the typical Democrat vs. Republican nonsense, this problem has nothing to do with traditional politics. Both parties have grown the size and responsibilities of government. Both parties have added to the national debt. And both parties support the narrowing of the tax base - because that's what makes good political sense in an unlimited democracy. Promise the voters they can live at the expense of their neighbors - and the next five generations.

Unfortunately, we know from history this kind of political system can't last for long - for lots of reasons. One important reason: The rich will leave. Or they will stop working. They will hide their incomes or only invest in tax-protected vehicles. And we know the political response will be tougher laws on emigration, taxation, more money printing, and eventually, capital controls that make it impossible to protect yourself from a massive currency devaluation. That's the script. We've watched the same things happen dozens of times around the world following World War II and the introduction of a global paper currency standard, which allowed governments to run huge deficits and finance their activities through inflation and devaluation. We just never thought we'd see it happen here.

Today, the idea of leaving America in search of freedom and financial security seems like absolute madness. But it won't for long. And by the time most people wake up to the very real threats to their standard of living, it will be too late. Again, before you respond with some crazed invective about how this isn't OBAMA!'s fault, blah, blah, blah - save yourself the trouble. The trends I'm talking about are cultural and fiscal, not ideological. Read the original Communist Manifesto. It's nearly identical to today's government policies. Any politician who tries to oppose the landslide of modern entitlements is immediately labeled a kook and is unelectable.

Whether you think we ought to have free health care and drugs for retirees, more military spending than the rest of the world combined, a bankrupt retirement scheme based on government debt, government guarantees for the banks, etc. doesn't matter to me. I'm not interested in pie-in-the-sky ideas about how the world should work. I write about how the world does work. And I can tell you this with 100% accuracy: You cannot support the world's reserve currency when you are the world's largest debtor, when you plan to finance annual deficits exceeding $2 trillion with progressive income taxes and money printing. Our economy is a charade. And when it falls apart, the consequences will be devastating.

US Banks - Insolvent

From MoneyNews.com April 23, 2009

Pershing Square Capital Management fund manager Bill Ackman is betting that the share prices of big banks will decline.

He’s also hoping to give them a little push.

Ackman argues that banks like Citigroup and Bank of America are effectively insolvent, a view some economists share, but one the banks vigorously deny.

“The problem when you are CEO of a business is that you get used to being able to do anything you want, and you get a little bit too full of yourself,” Ackman told The New York Times.

Ackman is planning a media blitz urging banks' bondholders to exchange their debt for equity in order to shore up the institutions, a move that could well sink bank shares but boost Ackman's profits.

Ackman’s fund controls 25 percent of General Growth, the mall properties company that filed bankruptcy last week, and the firm will play a crucial role in restructuring the company, making it possible that Ackman and his investors could walk with hundreds of millions of dollars in profits.

Rumors ran rampant on the Web this week that bank-stress tests devised by Treasury Secretary Timothy Geithner show that 16 of the 19 big banks tested are "technically insolvent."

Geithner’s office released a statement saying that the results from the stress tests weren’t completed, yet damage to the stocks was already done. Since then, Geithner has testified that bank capital is “adequate.”

UK Raises Personal Tax Rate to 50%

From ClusterStock

London is burning, with the UK facing the most serious economic downturn in generations. So what is the response of the British government? Raise taxes to shockingly high levels.

The BBC is reporting that UK chancellor Alistair Darling is proposing to hike taxes all the way up to 50% for anyone earning more than £150,000. That tops the 45% rate Darling indicated in a pre-Budget report last year. The UK is struggling with falling tax receipts due to the economic slow down while spending to combat recession and its effect increases.

One question: which economic theory tells you to announce a giant tax hike in the midst of a recession?

Jim Rogers: Diversification a Scam

Diversification is something that stock brokers came up with to protect themselves, so they wouldn't get sued for making bad investment choices for clients, says commodities bull Jim Rogers.

"Henry Ford never diversified, Bill Gates didn't diversify," Rogers told Business Week.

"The way to get rich is to put your eggs in one basket, but watch that basket very carefully. And make sure you have the right basket."

Rogers notes that many diversified investors have lost huge sums of money over the past couple of years and advises investors to stick with what they know and forget about competing with Warren Buffet.

China, Friend or Foe?

From the WSJ - April 18, 2009

A cave complex blasted out of the rocky coastline on China's southern island province of Hainan is home to one of the newest and potentially most lethal weapons in Beijing's arsenal: a home-grown submarine designed to launch nuclear-armed ballistic missiles.

So when the USNS Impeccable, a U.S. surveillance ship, was snooping in the area last month, China set a trap.

Britain in elite company with budget blues

The Pound Sterling will be under some pressure with the annouced budget and economy outlook. UK debt could reach 100% of GDP.

From the Telegraph - April 22, 2009

Britain’s budget deficit threatens to hit £175bn this year, or 12pc of GDP.That is just about the worst performance of any major country at any time in history, during peacetime.

Gordon Brown’s sin as Chancellor was to run a fiscal deficit of 3pc of GDP at the top of the long boom, when other countries were prudently using their windfall tax revenues to build a storm buffer. Many ran surpluses in 2007: Finland (+5.3pc), Denmark (+4.9pc), Sweden (+3.5pc), Spain (+2.2pc), Australia (+1.6pc) and Canada (+1.4pc). Germany was near balance.

An Alarming Trend

Be afraid. Be very, very afraid.

That appears to be the Obama Administration’s latest tactic to achieve greater government control over liberty, the economy, and mankind’s ability to tread water. And again, it’s with phony science. Anxieties were raised last week to the highest levels yet about islands sinking into the sea, the elimination of entire nations, and even the reduction of coastlines to certain U.S. states if, of course, carbon emissions are not immediately reduced.

According to Energy Secretary Steven Chu, the earth's temperature is rising so fast that a “very, very scary” scenario will unfold. Island nations, especially those in the Caribbean, may disappear. Portions of Louisiana and Florida will go underwater, reducing the size of those states. New Orleans will be flooded. Said the Secretary, “I think the Caribbean countries face rising oceans and they face increase in the severity of hurricanes. This is something that is very, very scary to all of us. The island states in the world represent—I remember this number—one-half of 1 percent of the carbon emissions in the world. And they will—some of them will disappear.”

Fortunately for the American people, the fragile economy, and beachgoers everywhere, Mr. Chu’s alarming prediction is based upon a faulty hypothesis: Melting ice caps would cause sea levels to rise. They would not. This is scientifically falsifiable claim. It is, in fact, provably false.

As a matter of fact, ice displaces more water than does its liquid counterpart. According to Chemistry.About.com, “Ice floats because it is about 9% less dense than liquid water. In other words, ice takes up about 9% more space than water…” Therefore, ice—which expands when it freezes—takes up less space when it melts, and could not result in sea levels rising.

One could even prove it. If Mr. Chu’s hypothesis is correct, then one should be able to fill up a glass of water, add some ice, place it in the sun, and then watch as the glass overflows. But it does not. In fact, the volume decreases. Therefore, Mr. Chu’s claim is falsified by a simple experiment. He would not even pass a 7th grade earth science exam.

The only way for the sea levels to rise is if enough water melted off of land masses. To make matters worse for the Hot Earthers, some 97.5 percent of the water is already in the seas and oceans. And for the remaining 2.5 percent to find its way to the oceans is actually impossible, since much of that will always be water vapor trapped in the atmosphere. Also, topography plays a role: Given the presence of lakes, it is clear that not all water has an outlet to the sea. Another obstacle is plate tectonics: How far will mountain ranges be raised by rising plates, thus trapping more water in the form of snow and ice on mountain peaks?

These are all factors that make sea levels rising at an alarming pace impossible. There is no cause for governmental policies to turn back the tides. King Canute could not do it, and neither can Uncle Sam.

More on this from GetLiberty.Org

Spain’s Falling Prices Fuel Deflation Fears in Europe

NYT reports April 20, 2009 that prices are falling in Spain and in other European countries.

VALENCIA, Spain — Faced with plunging orders, merchants across this recession-wracked country are starting to do something that many of them have never done: cut retail prices.

House Prices Finally Approaching Fair Value...

As goes housing, so goes the rest of the economy. So where do things stand? After two years of precipitous declines that have taken prices down almost 30% from the peak, house prices are finally approaching fair value (which is perhaps 10% below today's level).

That doesn't mean that house prices will only fall another 10%, however. On the contrary, given the tendency for prices to overshoot, it would be startling if house prices stopped at fair value. More likely, they'll drop at least 10% below fair value before they finally trough. Although the rate of decline is likely to ease over the coming months and years, therefore, prices will likely keep falling through at least 2011. And there's at least 20% downside left.

See link for more relvent data on Clusterstock.

5 Reasons House Prices May Never Recover

House prices will eventually stop falling, probably in about two years. But will they ever recover to the levels we saw during the heights of boom? In some areas, prices might climb that high again. But for most markets, such a recovery will probably never happen, and would take decades it were to occur.

In an essay published today, Charles Hugh Smith explains that the bubble vaulations are probably never coming back.

Stock Market Disconnect

From The Dr Housing Bubble - April 19, 2009

The stock market at least in its current form is a horrible indicator of the actual economic carnage falling upon the majority of Americans. Most Americans are witnessing the current rally and wondering why the massive run up (largely in financial related stocks) is going forward while they are getting called into supervisor offices behind closed doors and being laid off or seeing their hours cut back. Wall Street has completely disconnected from Main Street. It is also hard for many to understand how they are having their limited income being taxed to finance the bailouts of Wall Street and financial cronies while they are asked to do more with less. They are seeing these same institutions, alive because of the massive funding from the American people since our government ideally should reflect the will of the majority, shut off credit lines and raise rates while the government through the U.S. Treasury and Federal Reserve showers the banks and Wall Street with easy low rate financing thanks to the American taxpayer. Welcome to the new America. Where unemployment is good news for Wall Street and bailouts are now seen as a new source of revenue for financial companies. New accounting students will learn how to incorporate bailout funds as a new source of revenue.

Always good to remember....

What does the PM of France think of Obama! ?

From the NYT April 16, 2009

In the world according to Sarko, President Obama is weak, inexperienced and badly briefed on climate change; Mr. Obama, according to Mr. Sarkozy, “has a subtle mind, very intelligent and very charismatic. But he was elected two months ago and never ran a ministry in his life. He doesn’t have a position on a number of things.” Mr. Obama “is not always operating at a level of decision-making and efficiency,” according to the voluble Mr. Sarkozy.

And from UK Times April 15, 2009

World Agenda: Nicolas Sarkozy puts Barack Obama in the doghouse

Mr Sarkozy is pouring cold water on President Obama's efforts to recast American leadership on the world stage, depicting them as unoriginal, unsubstantial and overrated.

The American President's call "to free the world of the menace of a nuclear nightmare" was hot air, Mr Sarkozy's diplomatic staff told him in a report. "It was rhetoric – not a speech on American security policy but an export model aimed at improving the image of the United States," they said.

How long with the US Dollar be the reserve currency?

China is concerned about the US dollar. They know that the US is devaluing its dollar and they do not like it. They want sometime more secure and has been promoting a more diversified international monetary system that will be less reliant on the US dollar.

April 18, 2009 - BOAO, China (Reuters) – China's Premier Wen Jiabao said on Saturday that economic polices of countries which issue global reserve currencies require closer supervision as part of building a diversified international monetary system. His comments, an apparent reference to U.S. economic management that Beijing has blamed in part for the global financial crisis, were twinned with a pledge to promote more international use of the yuan, China's currency.

It was good....

Federated’s Tice Says S&P 500 Is Poised to Plunge 62%

April 16 (Bloomberg) -- The Standard & Poor’s 500 Index’s 28 percent rise since March 9 is a “sucker’s rally,” and the overvalued measure may plunge 62 percent as earnings continue to shrink, according to David Tice of Federated Investors Inc.

IMB Live Piracy Map 2009

Map of all the piracy and armed robbery incidents reported to the IMB Piracy Reporting Centre during 2009.

Natural gas production decline creates fiscal headache

CALGARY - Even more than royalties or sagging commodity prices, the Alberta government needs to be worried about falling natural gas production to fill its gaping fiscal hole, oilpatch insiders said in the wake of Tuesday’s record $4.7-billion budget deficit.

Checking In On the Four Bad Bears

The End of Cheap Water

Major water price increases and supply cuts are underway in southern California, both of which are long overdue. This part of the state is a desert, and yet too many people live there, and too many of them live their water consumption lives like they are somewhere with higher and much more predictable rainfall.

The end is here, or at least near. As one California water official put it today, “The era of cheap water is over”. Call it peak water, if you like, but the water calculus of California with respect to housing and economic development, long disconnected from reality, is finally on its way back to somewhere appropriate -- if mostly because there is no choice.

Soros Says Commercial Property Values Will Fall 30%

March 26 (Bloomberg) -- Billionaire investor George Soros said U.S. commercial real estate will probably drop at least 30 percent in value, causing further strains on banks.

“Commercial real estate has not yet fallen in value,” Soros, speaking at a forum in Washington, said. “It is inevitable, it is written, everybody knows it, there are already some transactions which reflect and anticipate it, so we know, they will drop at least 30 percent.”

Here's a One-Week Trade Good for 25%

By Jeff Clark in Growth Stock Wire:
It is a different market today than it was six weeks ago.

Back then, I warned short sellers they were about to get wiped out. Since that essay, the S&P 500 has rallied 20%. The Dow is up over 1,000 points. And investors are breathing a sigh of relief that the worst is over. Indeed, the strength of the recent rally seems to have just about everyone thinking we've entered a new bull market.

While I'd love to join the ever-expanding chorus of cheerleaders yelling out, "Give me a B... Give me a U... Give me an L – L," we'd have to add four more letters to express my true thoughts. The rally has been nice, but it's not the start of a brand new bull market. Stocks will be lower later this year.

Jim Rogers: How He's Investing After the Crisis

From Business Week....Jim Rogers

As the global investor and adventurer offers lessons to his daughters in a new book, he still favors commodities and scorns diversification.

Science of global warming?

"President Obama has said that the science of global warming is 'beyond dispute,' and therefore settled. This is the justification for the imposition of a carbon cap-and-trade system that will cost $2 trillion. But Obama does not understand science. 'Settled science' is an oxymoron, and anyone who characterizes science as 'settled' or 'indisputable' is ignorant not only of science, but also history and philosophy.

Aristotle, who lived and wrote in the fourth century B.C., was one of the greatest geniuses the world has ever known. He invented the discipline of logic, and founded the sciences of ecology and biology. Aristotle's physics were accepted as correct for nearly two thousand years. ... Aristotle taught that heavy objects fall faster than light ones. Over the centuries, a few unreasonable persons expressed skeptical concerns. But the consensus was that the physics of motion were described by Aristotle's dicta. The science was settled.

Around the year 1591, an irascible young instructor at the University of Pisa demonstrated that Aristotle was wrong. He climbed to the top of the tower of Pisa and dropped cannonballs of unequal weight that hit the ground simultaneously. Aristotelean professors on the faculty were embarrassed. The university administration responded by not renewing Galileo's contract, thus ridding themselves of a troublemaker who challenged the accepted consensus. ...

President Obama, a lawyer and politician, would now have us believe that the process of history has stopped. For the first time, scientific knowledge is not provisional and subject to revision, but final and settled. Skepticism, which has been the spur to all innovation and human progress, is unacceptable and must be condemned. But in fact, it is our awareness of what we do not know that determines our scientific level. ... Knowledge begins with skepticism and ends with conceit." --University of Oklahoma geologist David Deming

In uncertain times, all that glisters is a gold standard

From the FT.
A few months ago, Terry Smith, head of Tullett Prebon, the interdealer broker, chaired a panel at the World Economic Forum meeting in Davos which was asked to produce one concrete recommendation to fix the global financial crisis. The top pick? Not anything on toxic assets or fiscal spending. Instead, this gaggle of leading financiers called for a new reserve currency, akin to an old-style gold standard.

“Two-thirds of the world’s assets are denominated in a fiat currency issued by a country whose authorities are taking policy actions which seem inevitably to lead to its debasement,” explains Mr Smith, noting that “it seems . . . the Chinese have now concluded that this is not acceptable”.

Another Sign of Spring: Refinery Outages

From the EIA (Energy Information Adminstration - US Government)

As winter ends, we all see various signs of spring, including the first crocuses blooming, robins returning, and in Washington, D.C., the breathtaking emergence of the cherry blossoms. But there is a less visible rite of spring of which most people are unaware – the peak refinery maintenance season. As winter heating oil demand winds down and before summer driving demand picks up, refiners undertake their heaviest maintenance season (less extensive maintenance occurs in the fall). By April, refiners are typically coming out of maintenance and are ramping up production of gasoline for the summer driving season. However, the industry isn’t usually at full production until sometime in May or June. Frequently, the balance between supply and demand tightens during this spring transition when refinery outages restrain supply increases at the same time seasonal demand is rising.

But this year has a new wrinkle: the U.S. has less need for petroleum products from our domestic refineries than usual. Falling petroleum consumption, high gasoline import availability, and increasing use of ethanol in gasoline have reduced demand for U.S. refinery output, and, as a result, refinery utilization has fallen.

Why We're Not at the Beginning of the End, and Probably Not Even At the End of the Beginning

Robert Reich was the nation's 22nd Secretary of Labor and is a professor at the University of California at Berkeley. His latest book is "Supercapitalism." This is his personal journal.

....everyone with a stock portfolio wants to see it grow again. But wishing for something is different from getting it. And cockeyed optimism can wreak enormous damage on an economy. Haven't we already learned this?

Hanging Tough

Managing the down turn. Some companies do it well. Others don't. Good article in the New Yorker on Kellogg vs Post.

You’d think that everyone would want to emulate Kellogg’s success, but, when hard times hit, most companies end up behaving more like Post. They hunker down, cut spending, and wait for good times to return. They make fewer acquisitions, even though prices are cheaper. They cut advertising budgets. And often they invest less in research and development. They do all this to preserve what they have.

Alaska forecasts oil-output drop, more oil spending

ANCHORAGE, Alaska, April 10 (Reuters) - Alaska North Slope oil output is expected to drop 5 percent in the coming fiscal year as its oilfields age, and average prices of its crude oil are expected to fall, causing a dip in income for the state, its Department of Revenue forecast on Friday.

Goldman Sachs hires law firm to shut blogger's site

The UK Telegraph reported that Goldman Sachs is attempting to shut down a dissident blogger who is extremely critical of the investment bank, its board members and its practices.

Florida-based Mr Morgan began a blog entitled "Facts about Goldman Sachs" – the link to his blog is goldmansachs666.com

National Tax Day Tea Pary - April 15th

Taxes are going up and will be going up big time. Someone has to pay for the the Corporate bailouts.....and that will be Main Street. How is that for change?

Looks like there will be close to 500 "tea parties" on April 15th. Here is link to google map of locations.

Here is another link to another site for Tea Party information is Tax Day Tea Party

The Tax Capital of the World

WSJ reports States are raising taxes despite the 'stimulus'; New York is No. 1.

I think people and business will be leaving. There are 10 other states that are also considering major tax hikes, including Oregon, Illinois, Wisconsin, Washington, Arizona and New Jersey.

These states are all gambling that people and business will stay. I say people and business will relocate.

Oil Industry Braces for Drop in U.S. Thirst for Gasoline

WSJ reported today that US gas consumption could be decreasing.

Among those who say U.S. consumption of gasoline has peaked are executives at the world's biggest publicly traded oil company, Exxon Mobil Corp., as well as many private analysts and government energy forecasters.

US Treasury Bonds - 30 year

US Treasury Bonds look like they could be heading lower; higher interest rates coming?

Oil Production - North Sea

Today the FT reported that the remaining lifespan of the UK’s North Sea oil and gas production risks being halved as the economic crisis has prompted a plunge in exploration in one of the western world’s most important deposits, the industry has warned.

World Oil Production Peaked in 2008

World oil production peaked in 2008 at 81.73 million barrels/day (mbd) shown in the chart below. This oil definition includes crude oil, lease condensate, oil sands and natural gas plant liquids. If natural gas plant liquids are excluded, then the production peak remains in 2008 but at 73.79 mbd. However, if oil sands are also excluded then crude oil and lease condensate production peaked in 2005 at 72.75 mbd.

Oil on Track for a Spike?

2009 predications for oil prices (video)

At least 24 million barrels of oil stored at sea

A deep drop in demand has forced many oil companies to use tankers floating at sea to store surplus refined products, with the volume off Europe equating to more than a quarter of the world's daily fuel use.

Quote of the Week

“When we look at the systematic financial system we’re in, and it affects every country in the world including Canada, I think staying bearish is the route to go,” Economist Nouriel Roubini.

Easter - the Risen Christ

Good Friday

Let's not forget the great sacrifice made for us by God's Son, Jesus.

Oil Rises More Than $2 as Equity Gains Signal Demand May Climb

April 9 (Bloomberg) -- Crude oil rose more than $2 a barrel as equities gained, signaling that some investors expect economies to stabilize, bolstering energy demand.

“When equities bounce, you see oil, industrial metals and grains lift as well,”

Crude oil for May delivery rose $2.86 to settle at $52.24 a barrel at 2:52 p.m. on the New York Mercantile Exchange. Prices have increased 17 percent this year.

GM - Possible Bankruptcy Filling

NEW YORK/DETROIT (Reuters) - General Motors Corp is in "intense" and "earnest" preparations for a possible bankruptcy filing, a source familiar with the company's plans told Reuters on Tuesday.

WASTING A GOOD CRISIS: RESULT - $200 OIL

Matt Simmons, the brilliant energy analyst and author of Twilight in the Desert, recently told Reuters, "We are three, six, maybe nine months away from a price shock. We are not talking about three to five years away -- it will be much sooner. These prices now are dangerously low. The lower prices fall, the less oil will be produced and the greater the chance of an oil spike."

In this scenario, low oil prices will continue to take oil fields out of production and reduce exploration. Once prices recover, companies will have trouble gearing back up due to the credit crunch, resulting in production increase delays.
Simmons describes what will happen. "Unless oil demand falls by 10 or 15 percent per annum, which it is not going to do, then we don't need to wait for oil demand to come back before we have a supply crunch." This is on no one’s radar.

Oil, Gas May ‘Slingshot’ Up After Credit Freezes Rigs

April 8 (Bloomberg) -- The credit crunch will keep U.S. oil and gas producers from ramping up exploration they do through drillers such as Nabors Industries Ltd., setting the stage for shortages and surging prices when demand recovers.

Daniel Yergin on $40 Oil

Daniel Yergin of energy research consultancy CERA on the prospects for $40 oil on continued economic weakness.

Fighting Recklessness with Recklessness

Great article by John Hussman of Hussman Investment Trust which is titled appropriately "Fighting Recklessness with Recklessness". It is really unbelievable the government's plans and the damage that it will be doing to the economy and taxpayers.

"Last week saw a continuation of the impenetrably misguided policy response to this financial crisis, which seeks to address the downturn by encouraging more of what got us into this mess in the first place."

“It’s a bear market rally,”

George Soros told Bloomberg today. Leave it to the odd Hungarian billionaire to state the obvious: “It’s a bear market rally because we have not yet turned the economy around… This isn’t a financial crisis like all the other financial crises that we have experienced in our lifetime.”

So where is Soros -- one of the world’s most successful investors -- putting his billions? “I think Brazil actually,” says the thickly bespectacled one, “together with China, will be among the recovering countries. The outlook for Brazil is better than for most other countries.”

Omaba's economic plan...that should work!

From Bubble to Depression?

WSJ (April 6, 2009) Why does one crash cause minimal damage to the financial system, so that the economy can pick itself up quickly, while another crash leaves a devastated financial sector in the wreckage? The hypothesis we propose is that a financial crisis that originates in consumer debt, especially consumer debt concentrated at the low end of the wealth and income distribution, can be transmitted quickly and forcefully into the financial system. It appears that we're witnessing the second great consumer debt crash, the end of a massive consumption.

Liberty and Freedom

"We do not want to lose the liberty and freedom that we were born with in this country and that has made this the greatest country on earth.... It has been liberty; it's been freedom; it has been the ambition and desire to use that freedom in the concept of self-interest. ... [T]his notion of sacrifice that the president talked about ... is just over the top. Liberals always talk about sacrifice -- Obama, every time he opens his mouth, mentions the need for people to sacrifice. ... We all have to jointly suffer in order for all of us to somehow be the same. ...[But] self-interest is not selfishness. Self-interest is what built this country. Somebody starting a business did it in his self-interest. He didn't start a business so that there would be jobs and health care in the community. He started a business because he loved the business that he was in. ... He had a product or a service that he thought would improve the lives of people. ... Let me give you a [quote] from Ayn Rand on this. 'It only stands to reason that where there's sacrifice, there's someone collecting the sacrificial offerings. Where there's service, there is someone being served. The man who speaks to you of sacrifice is speaking of slaves and masters, and intends to be the master.' That is President Obama."

The offical US unemployment rate is 8.5% (red line) however, that excludes number of people looking for work.

The gray line is the broader measure which includes people working part time but looking for full time work. This unemployment figure is 15.6% (wow!).

The blue line is the SGS Alternate Unemployment Rate which was stopped using this in the Clinton presidency and it included those who are "discouraged" and did not look for work in the past month. This rate is near 20%.

About 13-20 million are now unemployed or employed part time and 600,000 add to the list each month and on top of the the roughly 130,000 who come into the job market for the fist time. This is over 1 million new unemployed every 5 weeks. This is not a situation where long term bull markets form.

Nassim Taleb Says Geithner’s Bank Plan Will Fail

April 1 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner’s plan to remove toxic assets from bank balance sheets will fail to revitalize the financial system, “Black Swan” author Nassim Nicholas Taleb said.

U.S. Markets Wrap: Stocks Rise in Longest Streak Since 2007

The markets are up .... 4 weeks running. From the March lows they're up about 20%-25%; ytd however they are still down. It is interesting markets are moving up while unemployment is hitting new highs. All in unemployment rate is a huge 15.6%! This is the Depression bear rally that we have been expecting. This could carry the markets up still on which on the Dow could be between 9,000-10,000. Gold on the other hand has pulled back to the $900 oz range. So this is the time to start raising cash or if you have the stomach for it selected buying with tight stops.

Weekly wrap up summary from Bloomberg reports -- U.S. stocks rose, capping the longest streak of weekly gains since 2007

Eureka Machine

Scientists have created a "Eureka machine" that can work out the laws of nature by observing the world around it – a development that could dramatically speed up the discovery of new scientific truths. The machine, which took only a few hours to come up with Newton's laws of motion, marks a turning point in the way science is done.

Gordon Brown, Europe and Obama
love Obama

Did Goldman Goose Oil?

How Goldman Sachs was at the center of the oil trading fiasco that bankrupted pipeline giant Semgroup. When oil prices spiked last summer to $147 a barrel, the biggest corporate casualty was oil pipeline giant Semgroup Holdings

Bull by Night, Bear by Day Is Best Strategy, Goldman Sachs Says

March 12 (Bloomberg) -- Investors should take advantage of others’ “fear” of the night, according to a study by Goldman Sachs Group Inc. that shows holding U.S. stocks overnight since 1993 would have quadrupled an investment.

Sign of the times

The two happiest days of your life: The day you buy it, and the day you abandon it:

New York Times reported today, there’s been a slew of cases where boat owners have sanded the names off the hull, filed down registration numbers and ditched the things. Some just drive ’em into land and run, as you see above. Others anchor in the middle of nowhere and swim away. Some scuttle them and try to collect the insurance.

“We’ve never needed a law before,” a South Carolina councilman told The New York Times. South Carolina made “boat abandonment” illegal in January.

The Taxpayer...