Wednesday, September 12, 2012

Wednesday, September 12, 2012 - I Remain Optimistically Antiquated

I Remain Optimistically Antiquated
-by Sinclair Noe

DOW +9.99 = 13,333
SPX + 3 = 1436
NAS + 9 = 3114
10 YR YLD +.07 = 1.76%
OIL - .16 = 96.85
GOLD – 1.10 = 1732.40
SILV -.17 = 33.41
PLAT +42.00 = 1653.00

As we get down to FOMC crunch time, the skeptics come out of the woodwork. The Murdoch Street Journal ran a story saying that economists doubt the benefits of another round of bond-buying by the Federal Reserve. They surveyed 47 people, we don't know how many were just walking through the newsroom, and they generally expect the Fed to start another round of large-scale asset purchases, known as quantitative easing, at its September policy-setting meeting. Another seven expect a move later this year, but not tomorrow. Just five respondents don't believe the Fed will take action this year.

And then there are others who say the economy is horrendous and jobs are not coming back and housing is still weak and all that, but the Fed doesn't necessarily need to do anything to help support the markets. Some economists don't see a large impact from a large bond-buying program. On average, they estimate that $500 billion in purchases would only reduce the unemployment rate by 0.1 percentage points and increase gross domestic product by 0.2 points over a one-year period. They estimate such a program would lift the inflation rate by 0.2 percentage points over 12 months.

Others argue that QE1&2 didn't really get the job done, and QE3 would just extend the misery; there is no exit plan from QE, and we might as well feel the pain now and get it over with. This argument usually comes from someone who thinks they will avoid the pain.

Monetary policy may not be pretty but fiscal policy has been seriously ugly. So, something is going to happen; this is what Bernanke does; the Fed will deliver some sort of QE. What remains to be seen is whether the Fed goes big and bold or weak and meek.

Last week the European Central Bank decided that if a country made a formal application for assistance and promised to abide by very strict terms and conditions, the ECB would buy up as much of that country's short-term bonds as necessary to bring down interest rates and assure a stable market for sovereign debt. The problem is that in the euro-union money comes from Germany and the German constitution basically said it was illegal to bailout the rest of the continent. Constitutionality is subject to interpretation in the light of financial crisis. Today, Germany’s constitutional court allowed a permanent bailout fund to go ahead.

The next issue is for broken down countries to step up and swallow the bitter pill and ask for aid and promised to..., well we don't know what they have to promise. Spain remains coy but the PM has hinted he might consider a half step toward a partial use of unlimited bond buying. Among the bailed-out euro zone countries, Ireland is inching its way back towards the capital markets and Portugal is doggedly implementing a tough austerity program, and has just been granted an extra year to achieve its fiscal targets. Portugal remains the poster child for austerity; the country has tried to cut back but when it does the economy just contracts even more.

After the German ruling there was enthusiastic market reaction; Spanish and Italian bonds rallied, equities moved higher, the euro hit a four month high. The problems in the euro-zone persist but for now the train wreck has been averted, the can has been kicked down the road for yet another day. And there is every indication that when the next wave of financial turmoil hits it will be a little less vicious, maybe.

California Governor Jerry Brown signed on Wednesday a pension reform bill that he said puts into law the "biggest rollback to public pension benefits in the history of California pensions." The legislation raises minimum retirement ages and will reduce pension benefits for new public workers. In addition to raising the retirement age for state employees, the legislation imposes new formulas for calculating pensions for new public sector workers. New hires will also split payments to their pension accounts at least evenly with their employers. Government employers will have greater authority to negotiate similar 50-50 contributions with current employees. The state Senate and Assembly approved the bill on strong bipartisan votes last month on the final day of their session.

The tax measure on the November ballot would increase the state's sales tax and raise income tax rates on the state's highest earners. Revenue would be used to prevent spending cuts to education programs in the near term and bolster the state's finances in coming years. Moody's Investor Services called the pension legislation a positive development for California's credit and for local governments and agencies that manage pension accounts through the California Public Employees' Retirement System and the California State Teachers' Retirement System. Moody's maintained rating for California of A1 with a stable outlook.

As of May, the world was producing 75 million barrels a day of crude oil, not including nat gas, biofuels, and various whatnots. That's up a million barrels a day from where it had been last October. However, all of the gains since October came from the return of Libyan production after the unrest seen there last year. You and I observed 9/11 with our own individual remembrances. In Benghazi Libya, a small group stormed the US Consulate and killed the ambassador and 3 other Americans.

Remember earlier this year, a guy named Greg Smith wrote a newspaper article about why he left Goldman Sachs, basically saying that Goldman was sleazy and he finally just determined that he wanted nothing more than to go home, take a long shower and try to wash away the scum.

The article struck a nerve. Within 24 hours, it had more than three million views online. Publishers clamored for the rights to a book. Grand Central Publishing secured a deal, offering Mr. Smith an advance of close to $1.5 million, and Mr. Smith’s memoir, “Why I Left Goldman Sachs,” is set for publication on Oct. 22. 

To some, an email isn’t complete without the inclusion of :-) or :-(. To others, the very idea of using “emoticons” – communicative graphics – makes the blood boil and represents all that has gone wrong with the English language. Regardless of your view, as emoticons celebrate their 30th anniversary this month, it is accepted that they are here stay. Just in case you want to plan a celebration, their birth can be traced to the precise minute: 11:44am on 19 September 1982. At that moment, Professor Scott Fahlman, of Carnegie Mellon University in Pittsburgh, sent an email on an online electronic bulletin board that included the first use of the sideways smiley face: “I propose the following character sequence for joke markers: :-) Read it sideways.” This weekend, the professor, a computer science researcher who still works at the university, says he is amazed his smiley face took off. Nowadays dozens of variations are available, mainly as little yellow, computer graphics. There are emoticons that wear sunglasses; some cry, while others don Santa hats. But Professor Fahlman isn’t a fan. “I think they are ugly, and they ruin the challenge of trying to come up with a clever way to express emotions using standard keyboard characters.” Alas, some people deliciate to use keyboards to create actual words; a quaint, antiquated mode of communication, so much more than brabble from days of yore. I do not need little smiley faces to jargogle my brain.

Americans are becoming more optimistic about the direction of the country. A new Reuters Ipsos survey showed 39 percent of Americans believed the country was moving in the right direction, while a still-high 55 percent believed it was on the wrong track. The numbers represented a sizable change from August, when 31 percent of those surveyed thought the country was going in the right direction and 64 percent on the wrong track. It was the highest level for the "right direction" rating since April 2010. So I guess we're more optimistic; just don't send me something with that damned yellow smiley face.

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