Monday, July 07, 2014 - Small Steps

Small Steps

by Sinclair Noe

DOW – 44 = 17,024
SPX – 7 = 1977
NAS – 34 = 4451
10 YR YLD - .03 = 2.62%
OIL - .67 = 103.39
GOLD - .50 = 1321.00
SILV - .10 = 21.15

It was a long holiday weekend that was over way too fast. And the problems of the world haven’t gone away. Let’s get caught up on some of the big stories.

In Iraq, the situation is deteriorating. There had been muted hope for some sort of an inclusive government to hold the country together. Don’t count on it. Iraq’s new parliament has called a recess and they won’t meet again for 5 weeks. So Iraq is now politically paralyzed. Meanwhile, a Sunni Islamist insurgency killed an army general near Baghdad.  It looks like Prime Minister Maliki is digging in his heels, raising the risk that Iraq will fragment along ethnic and sectarian lines.

ISIS, the Sunni insurgents are holding territory in western Iraq and just north of the capitol. The Iraqi military, backed by Shi'ite militias and volunteers, has yet to take back any major cities but is trying to advance on Tikrit. Kurds in northern Iraq have taken advantage of the chaos to expand their autonomous territory in northern Iraq. Most Sunnis and Kurds walked out of the last parliament, saying they believed the prime minister and president should be chosen along with the speaker as a package, not one at a time. They could not resolve the impasse, so the acting speaker postponed the meeting.

In eastern Ukraine, pro-Russian rebels built barricades in the streets of Donetsk and it looks like they will try to make a stand. Although most shops and businesses in Donetsk were still open, some were shut, and residents are concerned that government forces could soon attack. Rebels have been barricaded into government buildings in Donetsk, which they declared capital of an independent "people's republic", but until now the city mostly functioned normally.

You may recall there was an election in Afghanistan last month. They announced preliminary results today. The losing presidential candidate is now saying the results of the election were improperly counted and he is describing it as a “coup” against the people. His rejection of the election results sets the stage for a possible bloody standoff between ethnic groups or even secession of parts of the fragile country, which is already deeply divided along tribal lines. The vote to pick a successor to Hamid Karzai was intended to mark the first democratic transfer of power in Afghan history, a crucial step towards stability as the US prepares to withdraw the bulk of its troops by the end of the year. Not so great.

Hamas stepped up rocket fire at southern Israeli towns and Israel called up reserve troops today in anticipation of a possible escalation of hostilities. Hamas has vowed revenge for what it saw as Israel's deadliest attacks in which six Palestinian militants died, though Israel denied any involvement. The surge in violence has raged since the kidnapping and killing of three Israeli youths last month and a Palestinian teen last week. Israel said more than 40 rockets were launched as militants' funerals were held in Gaza. Thirty struck inside Israel and the rest were shot down by rocket interceptors. Air raid sirens wailed as far north as the outskirts of Tel Aviv and Jerusalem.

And then there’s Chicago, where the Fourth of July holiday resulted in widespread violence that left 80 people wounded and 14 dead.

On the economic calendar, Alcoa will kick off the earnings reporting season after the close of trade tomorrow. Alcoa has long held the ceremonial role for starting earnings season because it was in the Dow Industrials and it had the ticker symbol AA. Alcoa is no longer one of the Dow 30 stocks, but the tradition holds. Actually, we’ve already seen about 25 companies from the S&P 500 report earnings.

Second-quarter profit growth is expected to come in at 6.6% for the Standard & Poor’s 500-stock index, which would be an improvement over the 5.6% growth in the first three months of 2014. Revenues are expected to grow 3%. While negative second-quarter profit warnings have outpaced positive ones by a 4.2 to 1 margin — well above the 2.6 to 1 negative-to-positive ratio since 1995 — the future outlooks from CEOs are far more bullish than the first quarter, when there were nearly 7 negative profit pre-announcements for every positive one.

With stocks at all-time highs and no longer cheap after a five-year bull run, Wall Street wants to see companies deliver profit and revenue growth in the coming second-quarter earnings season sizable enough to warrant the market’s big move. Indeed, the bull market’s continued health will hinge on vibrant corporate profitability. Whether or not stocks continue trending higher will likely depend on second-quarter earnings reports, as well as management’s guidance of full-year earnings.

Currently, the S&P 500 is trading at nearly 16 times its estimated earnings over the next four quarters, which is a tad above the long-term average. Heading into the season, analysts are upbeat, with more analysts’ raising profit forecasts than lowering them for the first time since the first quarter of 2012, but more upbeat analysts could result in a more downbeat market reaction.

On Wednesday, the Federal Reserve will release the minutes of its last meeting, held June 17-18. Wall Street will again be looking for any clues related to the timing of the first interest rate hike by the Fed. After the strong jobs report Thursday, some Wall Street firms revised their rate-hike timetables, warning that rates could start rising earlier-than-expected next year. However, the Fed might not be so positive about jobs. There’s been concern about the degree to which a falling unemployment rate is overstating labor-market strength.  You’ll likely see general agreement that the labor market has been improving, but there will be difference in opinion about the drop in the unemployment rate. Officials have also been eyeing tepid wage growth.

That’s one of the strange things about the jobs report; it does a poor job of measuring the strength of the jobs created. When we try to measure performance in the stock market, we don’t look at the number of new stocks available to investors, instead we measure the price of the stocks, the value of the stocks. But when we look at jobs, we don’t look at the value those jobs bring. One of the things we’ve seen is that many of the jobs being created are part-time.

So, it's interesting that the recent news of job market "improvement" doesn't mention that of the 10 occupation categories projecting the greatest growth in the next eight years, only one pays a middle-class wage. Four pay barely above poverty level, and five pay beneath it, including fast food workers, retail sales staff, health aids, and janitors. The job expected to have the highest number of openings is "Personal Care Aide" – taking care of aging baby boomers in their houses or in nursing homes. The median salary of an aid is under $20,000.

We’re starting to see some improvement as the job market gains traction; more than half the jobs the economy has added so far this year are in positions that pay higher than the hourly wage. Some 58% of the new jobs created in 2014 pay above the average hourly wage of $24.45. By contrast, about 48% of the new jobs created in 2013 paid above the national average. Businesses in 2014 are hiring more white-collar employees, construction is on the mend (at least compared to the first quarter), health care is going strong and even the long-downtrodden financial industry is finally getting into the act. About 42% of the new jobs, meanwhile, fall into categories that pay less than the average wage.

Still there is a general lack of upward wage pressure; workers demanding more money as the labor market improves and the pool of potential employees shrinks. Wages have risen just 2% over the past year and weekly wages have actually fallen in the past two months. Part of the problem is part-time work; part of the problem is that the good paying jobs are limited to certain sectors. The bigger problem is that the increase in the number of jobs is not translating to higher wages and that, in turn does not translate to faster economic growth.

This week’s economic calendar also includes reports on small businesses, job turnover, and consumer credit. There was a 10.2% surge in consumer credit in April. The growing dependence on debt could prolong consumer spending a few more months, but in the absence higher real wages, this type of consumption cannot last much longer, certainly not if we see both gas prices and inflation-driven interest rates edge higher later this year.

It’s unlikely we’ll get any big pronouncements from the Fed. They probably talked about how the economy has rebounded from the terrible slump of the 1^st quarter, but if you read the minutes for any major move on interest rates, don’t hold your breath. Neither short-term nor long-term rates will go significantly higher in the next few years. More likely, modest increases that might even be quickly reversed. The implications of another extended period of depressed rates would be bad news for savers and pension funds, but it should help the stock market.

After the Fed’s June meeting, they made clear that they expected to finally begin lifting their benchmark rate in 2015, if the economy continues to expand and unemployment continues to decline. Even so, 12 of the 16 members of the policy committee expected the Fed's rate to be no higher than 1.5% by the end of 2015 — a full 18 months from now. Asked for their rate prediction for the end of 2016, the majority of the Fed panel expected 2.5% or less. And because the Fed's rate influences all other interest costs, that would suggest still-low rates across the board.

What we are learning about this version of the Fed is they move slow and in small steps.

Tuesday, May 27, 2014 - Currently Trending Here

Currently Trending Here
by Sinclair Noe

DOW + 69 = 16,675
SPX + 11 = 1911
NAS + 51 = 4237
10 YR YLD - .02 = 2.52%
OIL - .24 – 104.11
GOLD – 29.20 = 1264.30
SILV - .40 = 19.14

The S&P 500 Index closed at another record high. The Dow Industrial Average is just a little below the May 13 record of 16,715. The Russell 2000 index of small and mid-caps confirmed the uptrend. The Russell had been lagging and there was a concern that small caps might drag the blue chips lower. While the Russell is still down about 2% year to date, on Friday it moved above its 200 day moving average.

Any time the market is trending, it makes sense to look for divergences, or any indicator that might signal a change in trend, but the most important thing to watch is still the trend itself; in other words the market scorecard is measured in price. And right now the trend is up.

Let’s start with some economic news. The S&P/Case-Shiller Home Price Indices continued to show gains in prices for existing home sales; the 10-city composite was up 0.8% and the 20-city composite was up 0.9% month over month; and respective year over year gains of 12.6% and 12.4%. Nineteen of the 20 cities showed positive returns in March; New York was the only city to decline. As of March 2014, average home prices across the United States are back to their mid-2004 levels. Measured from the 2006 peaks, home prices are down 19%.

Mortgage rates started rising in May 2013 as the market speculated about when the Federal Reserve would start pulling back on its large scale asset purchase program, at the same time inventories of new and existing homes dropped, pushing prices higher and affordability was pushed down. One positive for home sales is that mortgage rates have recently dropped with the average 30 year fixed at 4.14% and the average 15 year fixed mortgage at 3.25% the lowest levels since last October.

The Conference Board said its consumer-confidence index rose to 83 in May from a downwardly revised 81.7 in April. The survey shows 20% of respondents expect their incomes will improve in the next 6 months; that doesn’t sound like much but it’s the highest reading since 2007. Other key elements of the survey: A net 18.2% said jobs were hard to get vs. being plentiful, compared with 19.8% in April and 26.5% in May 2013. Those who plan to buy a home within six months fell to 4.9% in May, the lowest since July 2012; that compares with a percentage of 5.6% in April. Those who plan to buy major appliances within six months fell to 45.1%, the lowest since September 2011.

Durable goods orders increased 0.8% in April. Durable goods are products designed to last 3 years or longer; so this is a broad category that includes everything from toasters to cars to nuclear submarines. In April, the Navy inked a $17.6 billion contract for 10 nuclear-powered attack submarines; and while that will be money that will circulate through the economy over several years, it skewed the report. Non-defense capital goods orders fell 1.2%. Business are placing fewer orders while working through a stockpile of goods amassed in the second half of 2013. Last month, durable goods inventories rose 0.1% after increasing 0.2% in March.

The Memorial Day holiday signals the unofficial start of summer and the summer driving season, and that usually equates to higher gasoline prices at the pump. Usually, but not always. According to the Energy Information Administration, prices at the pump are going to fall from today’s levels. This forecast is based on increased crude-oil production and declining global demand.  Rising oil production has boosted US crude-oil inventories to some 398 million barrels. That’s the highest level since way back in 1931. Demand is down, in large part because of better fuel efficiency forced by government MPG mandates. Demand has been declining since 2007. In many areas, gas prices are the lowest since 2011. Each penny decline in gasoline puts $1 billion back into people’s pockets.

Speaking in Portugal today, European Central Bank President Mario Draghi warned that prices in the countries in the euro zone's stressed periphery were falling too sharply, due to the combination of belt-tightening and a high exchange rate. He also cited evidence of a debt trap in stressed countries: the cost of finance for many companies has risen since the crisis, while falling prices mean they can't generate the profits to service their debts. Draghi said that the share of viable small businesses that can't get a loan is only around 1% in Germany or Austria, but around 25% in Spain and 33% in Portugal; Draghi called this imbalance a “credit gap” and blames it for up to a third of the economic slack in the crisis economies and acting as a brake on economic recovery. And so Draghi says the ECB will take action June 5th to ward off deflation and support economic recovery; what precisely will be done is still a matter of speculation.

It is widely anticipated the ECB will cut interest rates combined with an attempt to boost credit to small and medium sized businesses by providing long-term funding to banks provided they deploy that capital to expand business credit. The main lending rate will likely be cut from 0.25% to 0.1% or so. Meanwhile, the deposit rate paid to banks on overnight deposits will likely be cut from zero to a negative 0.1% or so, in effect charging the banks for funds they leave with the central bank.

The Federal Trade Commission has issued a report on the data brokerage industry. The nine data brokers examined in the FTC report were Acxiom, CoreLogic, Datalogix, eBureau, ID Analytics, Intelius, PeekYou, Rapleaf and Recorded Future. Data brokers analyze data collected about consumers to make automated assumptions about them. Consumers are placed in data-driven social and demographic groups for marketing purposes. The commission says that the same data that identifies a motorcycle enthusiast could both get him a discount on a biking magazine and make it easier to charge him more for car insurance. Another way to look at this is that the consumer is not the customer, rather the consumer is the product.

And yes, the data brokers know whether you drive a motorcycle, or smoke cigarettes, or if you are overweight, and how many bathrooms you have in your home, and if you travel or just like to read magazines about travel; that’s all in addition to the basics like name, address, social security number, age, and the bluntly termed “ability to afford products”.

According to the FTC, the firms have done a great job of finding data to crunch. One firm has information on 1.4 billion consumer transactions; another one adds 3 billion new records to its databases each month. While the report doesn’t address credit scores, the framework of the debate is much the same. What really worries the FTC is the impossibly opaque way the data is collected and managed. The data brokers gather their data from other data brokers rather than directly from an original source.

This is where the commission thinks the government should get involved. It suggests a law that would mandate the creation of a centralized portal where data brokers explain themselves, disclose their sources, and give people the opportunity to opt out; or for more sensitive data, require consumers to opt in before data could be sold. The commission hints it might call for some version of the idea that people have a right to have some things be forgotten, but they don’t actually recommend that data brokers cull their data, even when that data may be very old and inaccurate. And there is talk, but nothing concrete, about giving consumers access to their own data, and the ability to call for some of that data to be corrected or deleted.

President Obama today outlined a plan to withdraw all but 9,800 American troops from Afghanistan by the end of the year and withdraw the rest by the end of 2016. Under his plan, 9,800 US troops would remain behind into next year. By the end of 2015, that number would be reduced by roughly half. By the end of 2016, the U.S. presence would be cut to a normal embassy presence. The United States now has about 32,000 troops in Afghanistan.

At some point in the next week, President Obama is expected to announce Environmental Protection Agency mandated cuts intended to reduce carbon pollution by regulating carbon dioxide emissions from about 600 existing coal fired power plants. Obama could not get Congress to take action to address climate change during his first term, so he changed his tack and is using his executive authority under the 1970 Clean Air Act to issue the EPA regulation.

As currently drafted, the rule would cut greenhouse-gas emissions from the utility sector by 25%, the individuals said, but the baseline for that reduction has not been finalized. The EPA plan resembles proposals made by the Natural Resources Defense Council, which would allow states and companies to employ a variety of measures, including new renewable-energy and energy efficiency projects “outside the fence,” or away from the power plant site, to meet their carbon- reduction target.

Usually when the EPA regulates pollutants under the Clean Air Act, the agency sets an emission limit for each facility. By contrast, under a “mass-based system,” which the EPA is poised to adopt, states would have to meet an overall target for greenhouse-gas emissions and ensure that power plants either make those reductions at their facilities or finance efforts to achieve them in other ways, such as conservation or “green” generation or possibly through some variation of the cap and trade system.

Monday, April 01, 2013 - April Comes in Like a Lamb

Mark your Calendar, April 5 & 6 and make your reservations for the 2013 Wealth Protection Conference in Tempe, AZ. For conference information visit www.buysilvernow.com or click here or call 480-820-5877. This year's conference features Roger Weigand, Nathan Liles, David Smith, Mark Liebovit, Arch Crawford, Ian McAvity, Bill Tatro, and I will speak on Friday. There is an expanded Q&A session with all speakers on Saturday. I hope you can attend.

April Comes in Like a Lamb

by Sinclair Noe

DOW – 5 = 14,572
SPX – 7 = 1562
NAS – 28 = 3239
10 YR YLD - .01 = 1.84%
OIL - .25 = 97.39
GOLD + 1.80 = 1600.40
SILV - .28 = 28.12

This week's economic special is the March jobs report on Friday morning. Another 200,000 or so gain in hiring would lend further support to the idea that the economy is gaining traction despite fiscal cliffs and sequesters, higher taxes and gasoline prices, a still-soft global economy and divided government in Washington . The jobs picture has shown steady improvement over the past 3 years, steady but also lackluster; and while that's better than massive losses, it still isn't enough to lift the economy. Job gains have come in fits and starts followed by long lazy naps.

The March jobs report should show us the first effects of the sequester. Government has cut more than 800,000 jobs since 2008 while the private sector has added over 5 million jobs. Many of the cuts from the sequester will be furloughs, which mean fewer hours but not a job loss. Hiring has accelerated sharply since last fall, averaging about 205,000 new jobs a month since November. The unemployment rate has drifted a bit lower to 7.7%, though no change is expected in March. The current guess is for a net gain of 190,000 jobs in March.

There are a few reports we can watch to refine the estimate on Friday's report. Today, the Institute for Supply Management's manufacturing index came in worse than expected, with a reading of 51.3%, down from a February reading of 54.2%. Any reading above 50 indicates expansion in manufacturing; today's number would indicate modest growth. The biggest bright spot in the ISM report was the employment gauge, a index of hiring intentions. It climbed to 54.2% from 52.6% to mark the highest rate since last June.

Stockton is broke; more specifically it is insolvent by any measure; so says a federal bankruptcy judge in declaring the city is eligible for bankruptcy protection. Creditors had argued that Stockton was not truly insolvent when it sought bankruptcy protection and had improperly failed to seek concessions. The city's creditors had argued the city could have done more to cut costs and raise revenues.

Stockton is the largest US city to have ever filed for bankruptcy. Its case is being closely watched in the $3.7 trillion municipal bond market as it is likely to have key implications for other municipal and county governments, their employees and their bondholders.

Since at least the 1930s, bondholders in most major municipal bankruptcies consistently have been repaid their entire principal. But Stockton is expected - along with Jefferson County in Alabama and San Bernardino in California - to break with that tradition.

Meanwhile, a federal judge in Manhattan has dismissed a big block of claims filed against several big multinational banks for their involvement in the Libor rate rigging scandal. The multi-billion dollar case is being brought against the banks by private plaintiffs. The judge dismissed antitrust claims and RICO counts, the Racketeering and Corrupt Organizations. The judge acknowledged in her opinion that the dismissal might be “unexpected” in light of the settlements that brought large fines and admissions of wrongdoing.

A major focus is on the claim that the banks colluded to artificially depress Libor, costing investors in swaps and issuers of securities billions of dollars because interest rates tied to the benchmark did not reflect the true market. Under the antitrust laws, it is illegal for competitors to take concerted action that affects the price of goods and services for their own benefit.

The key to Judge Buchwald’s decision is her finding that the banks were not acting as competitors but instead were cooperating when submitting interest-rate information to the British Bankers Association, which in turn set Libor based on that data. To prove an antitrust violation, any financial harm suffered by private plaintiffs must be traceable to the negative effect on competition from the collusion. Thus, she concluded, the “injury would have resulted from defendants’ misrepresentation, not from harm to competition.”

The judge dismissed that claim of racketeering, because RICO cannot be used in cases involving securities, based on a provision of the Private Securities Litigation Reform Act adopted in 1995 to curb abusive lawsuits.

So, a victory for the banks but it's not over yet. The judge did not dismiss all claims. Regulators can still push for their own convictions – Sorry, I had to have one April's Fool prank. Regulators won't really push for convictions, they'll try to reach a slap on the wrist settlement. And the big banks still face the prospect that the judge's dismissal will have to work its way through the appellate process, possibly a case that could end up before the Supreme Court.

A new report by Harvard public policy professor Linda J. Bilmes estimates the wars in Iraq and Afghanistan are set to be the most expensive military conflicts in history, expected to cost as much as $6 trillion.

So far, $2 trillion has been spent on the wars in Iraq and Afghanistan since the conflicts began in 2003 and 2001. That figure could triple, with the largest percent going to cover long-term medical care for service members and veterans, and is expected to dominate future federal budgets for decades to come.

In 2006, Professor Bilmes, along with Nobel Prize winning economist Joseph Stiglitz, predicted that the wars would cost between $1–2 trillion but then they pushed that estimate up to $3 trillion. And then revised again to nearly $4 trillion. Again, she is revising her estimate. Though President Obama is moving to decrease troop levels in the two regions, the costs associated with the conflicts are only expected to rise. That's because a large chunk of that figure doesn't result from Pentagon spending but comes from covering medical expenses and disability benefits for current service members and those who are wounded in the wars.

So far, $135 billion has been spent since 2000 on veterans health care and disability compensation and that number will only grow over the next 40 years, to more than $800 billion.

More than half of the 1.56 million troops who have been discharged to date have received medical treatment at VA facilities and been granted benefits for the rest of their lives. An estimated one-third of veterans returning from deployment have been diagnosed with mental health issues and 253,000 troops have suffered a traumatic brain injury (TBI), to name just two of the major medical issues confronting those returning from the battlefield. 

Other major costs contributing to the $6 trillion number include military replenishment and social and economic costs. Additional funds are committed to replacing large quantities of basic equipment used in the wars and to support ongoing diplomatic presence and military assistance in Iraq and Afghanistan.

Plus, significant cash will be needed to finance the conflict since $2 trillion of the $6 trillion debt accrued since President Obama took office, accounts for the war. The Treasury Department announced in early March that total public debt of the U.S. government topped $16.687 trillion. It's estimated there is already $260 billion interest owed on the $2 trillion borrowed for the wars.

The actual cost of war though has been difficult to estimate. It is possible this new report overestimates the costs, but I have a feeling it is more accurate than the early estimates back in 2002, when members of the Bush administration pegged cost at $50 to 60 billion.

The high price of the conflicts results, in part, from increased benefits that were enacted in 2001 to entice new recruits to the military. Since 2001, the US has expanded the quality, quantity, availability and eligibility of benefits for military personnel and veterans. This has led to unprecedented growth in the Department of Veterans Affairs and the Department of Defense budgets. The bad news is that the veterans are often forced to wait, sometimes for more than 2 years for their benefits. It seems the VA often has a plan to reduce benefits through attrition. Of course, not honoring commitments to veterans comes with a big price tag, one that we could never afford.

Monday, October 8, 2012 - The 11th Anniversary

The 11^th Anniversary

by Sinclair Noe

DOW – 26 = 13,583
SPX – 5 = 1455
NAS - 23 = 3112

10 YR YLD
OIL+.30 = 89.63
GOLD – 5.80 = 1776.50
SILV - .53 = 34.08
PLAT -12.00 = 1699.00

Due to the Columbus Day holiday, US bond markets were closed and there was no interesting data to speak of. Trading volume was on the lighter side. After equity futures opened the day 5 points lower in the S&P 500, stocks drifted slightly higher on the day. This was also an important anniversary; yesterday actually. When the Taliban refused to give up the al-Qaida leaders who orchestrated 9/11, the US invaded Afghanistan on Oct. 7, 2001.

With any luck our troops will be out of there by the end of 2014. When the Soviets withdrew from Afghanistan in the 1990s, the country fell apart and eventually fell under the control of the Taliban. In time we'll learn how the country will manage after the US leaves. The Afghan people already view their government as weak and corrupt and those doubtful of a peaceful future say that if the upcoming presidential election is rigged and yields an illegitimate leader, civil war could erupt between ethnic groups backed by neighboring countries trying to influence Afghanistan's future.

We don't speak much about war. We have had very little public discourse on the longest war in US history. War, for some, is a business. And across this country we have a strong infrastructure of military industries that produce instruments of war, or are involved in financing war. As of last week, we have lost 2,000 in Afghanistan and tens of thousands have been injured. Last Saturday, Sgt. 1st Class Riley G. Stephens, 39, was shot and killed by an Afghan National Army soldier at a highway checkpoint in Wardak Province. The Airborne Special Forces member had three children and a wife. Residents in his tiny hometown, Tolar, Texas, gathered on the local high school football field, burning candles in his honor. Sargeant Stephens was number 2,000. I don't know the name of the guy who was 1,999. I apologize. I mean no disrespect. Someone whose life story and profound sacrifice may get far less acclaim. Meanwhile, the first casualties of the conflict get shoved deeper into the nation's collective memory.

Obviously somebody was just killed in action there and that person should be remembered and celebrated. But we’ve also got to remember there are widows who have been dealing with this since 2001. They still need support and their families need care and their kids need to figure out how they’re going to school. The price those families pay impacts generations.

We have a huge disconnect in this country. You probably don't think about Afghanistan unless you have a family member serving there. You probably don't know what to do about Afghanistan when you do think about it. So, what you do is you remember the fallen, you remember the families, you remember the soldiers that return, and you absolutely honor their service by keeping our oath that we will take care of them and their families. And never forget.

Political pressures are rising again in Europe. Political pressure, riots, and protests are part and parcel to hard times. These developments change nothing of significance in the calculus concerning the eventual success of the Eurozone crisis response.

After a quiet few weeks, political pressures are rising again in Europe. Molotov cocktails exploding in Athens and news reports of mounting support for the rightist Golden Dawn party bring into questions the durability of the summer stabilization in the Euro-Zone.

In fact the only example of public outrage having an impact recently has come in Portugal, where protests spread spontaneously against the government’s new proposal to shift social security contributions from firms to workers. The furor forced the government to withdraw this step, which had been aimed at increasing competitiveness by an ‘internal devaluation’.

Today, the European Central Bank urged euro-zone states to implement further “major” reforms of their labor markets in order to combat rising unemployment and bolster growth. The ECB report says: “Major labor market reforms in euro area countries are essential to foster job creation, bring down unemployment and restore competitiveness, while also lowering the risks of a permanent decrease in potential output growth.” We'll see who's buying it.

As German Chancellor Angela Merkel travels to Greece tomorrow for her first visit since the turmoil began in 2009, European finance ministers gathered in Luxembourg today to discuss Spain’s overhaul effort. Spain doesn’t need an assistance program. That’s what the Spanish government is saying again and again. But there seems to be insistence to put a program in place.

Joseph E. Stiglitz says the Fed and ECB can’t revive the economy on their own. “For both Europe and America, the danger now is that politicians and markets believe that monetary policy can revive the economy. Unfortunately, its main impact at this point is to distract attention from measures that would truly stimulate growth, including an expansionary fiscal policy and financial-sector reforms that boost lending. The current downturn, already a half-decade long, will not end any time soon. That, in a nutshell, is what the Fed and the ECB are saying. The sooner our leaders acknowledge it, the better.”

To better calculate the true idleness and “wasted youth” phenomenon in advanced economies, the OECD calculates the share of youth “not in employment, education, or training” among the total in the 15- to 24-year-old age group. This is the so-called NEET ratio, which comprises “idle youth” in the labor force (looking for work, but unable to find it) and outside the labor force (inactive). Idle youth are associated with long-term scarring effects; the euro area peripheral countries look less bad than other OECD countries. Yes, there have been significant increases in Ireland and Spain during the crisis, but the Q1 2011 NEET ratio of these two countries was still only 2.8 percentage points higher at 17.6 percent than the corresponding 14.8 percent in the United States.”

Robert Shiller writes about the social epidemic behind housing. “People waiting to buy a home may be waiting for a sense that prices have a rosy long-term future. Home prices in the United States have been rising for several months, and that is generating some optimism that now is the time to buy. However, the social waves also carry other, less encouraging stories that compete with such optimism — for example, foreclosures, unemployment, Europe’s troubles and the Asian slowdown. Will optimism about real estate emerge as a leading story?”

A single mysterious computer program that placed orders - and then subsequently canceled them - made up 4 percent of all quote traffic in the U.S. stock market last week. Still don't know what was behind it.

The program placed orders in 25-millisecond bursts involving about 500 stocks, according to Nanex, a market data firm. The algorithm never executed a single trade, and it abruptly ended at about 10:30 a.m. Friday. Just goes to show you how just one person can have such an outsized impact on the market. Exchanges are just not monitoring it.

Maybe, the ultimate goal of many of these programs is to gum up the system so it slows down the quote feed to others and allows the computer traders (with their co-located servers at the exchanges) to gain a money-making arbitrage opportunity. The scariest part of this single program was that its millions of quotes accounted for 10 percent of the bandwidth that is allowed for trading on any given day. Regulators are trying to see how they can rein in the practice, which accounts for 70 percent of trading each day. Think transaction tax.

This quarterly earnings season, which kicks off in the US with aluminum producer Alcoa’s figures on tomorrow night, will be the first since 2009 in which the profits of corporate America are forecast to turn negative compared with the same quarter a year ago. With China slowing, a “fiscal cliff” of towering tax rises looming in the US and the eurozone crisis little closer to resolution, it is hard to believe chief executives will up their earnings guidance for the near future, either.

At the start of July, Wall Street analysts predicted the S&P 500 companies would post quarterly earnings up 1.9 per cent on a year ago, according to FactSet. Now the consensus shows a 2.7 per cent drop. The S&P 500 has risen 7.3 per cent over the same period. What gives?

Maybe, just maybe, weak demand has finally caught up with chief executives who previously found other ways to boost earnings. Earnings cannot keep growing faster than revenues. The latest data shows productivity plunged, which means that all the fat has already been cut. Profit gains earned through job cuts and factory closings in the absence of a global economic recovery are starting to reach their limit. A lot of the earnings growth that we’ve seen has been related to cost reductions. Now many of those cost reduction efforts have run their course. Without revenue growth, there is no room for profit to expand further.

Materials companies, metals producers and miners, in particular, are among those expected to post the worst earnings drops because of crumbling demand in Asia, along with energy companies suffering from falling natural gas prices.

Almost anything could be driving recent price swings, with the macro backdrop still playing a dominant role — QE3, heightened expectations of stability in Europe, better economic indicators in the US. And although third quarter earnings are expected to contract, analysts are expecting a decent rebound in the fourth quarter. Global growth is slowing, but the US recovery appears to be on sounder footing than was widely understood even at the start of the summer, when there was sporadic talk of possibly falling back into recession. Maybe companies have been too dire in their earlier guidance. Maybe not. We'll see soon.

Expectations for both margins and revenue growth in 2012 have been falling all year. Morgan Stanley strategists sent out a research report:

Many have asked us if there can be an earnings recession without an economic recession, and today’s environment answers the question. Roughly, 50% of the companies are expected to experience YoY contraction in net margins during the quarter, including heavyweights like CVX, MFST and GOOG. While revenue growth expectations have largely held up, earnings estimates for the quarter have seen sharp downward revisions in the last two months hurt by the highest ratio of negative-to-positive guidance any time in this cycle.

A different sampling of analysts performed by Convergex arrived at a different conclusion:

The upcoming earnings season will have the 30 companies of the Dow Jones Industrials showing an average revenue decline of 0.7%.

Analysts have been cutting their top line expectations for the companies of the Dow every month for the last half-year. Back in January, for example, they thought revenues could grow at a very healthy 4%. By May, the analyst community began to realize that macroeconomic conditions were going south pretty quickly and cut expectations to 3%. Starting in August, analysts’ financial models pointed to an average decline for the Dow companies. The most recent numbers, as of Friday, now show that 0.7% average decline.

Among the reasons for the slowdown in revenue growth per share are slowing emerging markets growth and recession throughout Europe.

Earnings trends have been a good barometer of market valuations but a relatively poor reflection of broader US economic health since the crisis, and that probably hasn’t changed.