Monday, September 09, 2013 - The Problem Is We Do Get It

The Problem Is We Do Get It

by Sinclair Noe

DOW + 140 = 15,063
SPX + 16 = 1671
NAS + 46 = 3706
10 YR YLD - .04 = 2.90%
OIL – 1.56 = 108.97
GOLD – 2.30 = 1387.50
SILV - .13 = 23.82

The war hasn't started..., yet.

A funny thing happened today; for a few moments the constant drumbeats for war were quieted, and there was talk of a diplomatic solution; fleeting, nothing concrete, hypothetical, could disintegrate in the flicker of a butterfly's wing.

Russia jumped on a remark by Secretary of State John Kerry, who said Syria should save itself by handing over its chemical weapons. Kerry was quick to dismiss as hypothetical his own comment that Syrian President Bashar al-Assad could avert U.S. strikes by surrendering his chemical arsenal to international control. But Assad's ally Russia quickly turned it into a firm proposal that was "welcomed" by Damascus and echoed by the UN chief Ban Ki-moon. The White House said it was "seriously skeptical" but would take a "hard look" at the proposal.

Russia's foreign minister said he would push Assad to place Syria’s stockpile of nerve gases, blister agents and other chemical agents under UN supervision for eventual destruction. He said Russia also would push Syria to sign the Chemical Weapons Convention, the international treaty that prohibits use of poison gas. The Syrian government quickly put out a statement saying it would cooperate.

Can you trust Russia to broker a peace deal? Hell no. Over the last weeks, since the inception of the demonstrations in Egypt for president Morsi's ouster, to the sarin gassing of innocents in Syria these past days, the price of oil has skyrocketed more than 15 percent for WTI crude from near $95/bbl in June to over $110/bbl and Brent crude closing this past week at over $116/bbl.

After Saudi Arabia, the most immediate beneficiary of this spiking of oil prices is Russia -- now, together with the Saudis, the world's largest oil producer, with 7 million barrels/day being shipped into the export market. In no other big economy do oil and gas play such a vital role as in Russia. They account for two-thirds of its exports, half its budget revenue and nearly one-third of economic output. In a real sense, the history of Russia's oil industry since the collapse of communism is the history of the country itself. Clearly the higher the price of oil, the greater the benefit to Russia and the largesse of the Putin government, whose domestic economic policies and well being are principally funded by oil revenues.

To keep the pot boiling in the Middle East, the Russians have been the long-standing and grievously irresponsible defenders of Iran and its nuclear program, while freely arming Syria's Assad government with a full array of weaponry including highly advanced anti-aircraft weapons system. This while forever rendering meaningful UN action moot through threat of a Security Council veto. Clearly the price of oil has become a strategic imperative of Russian foreign policy. But it's also important to know when to ease off the gas and tap the brakes; like maybe right before you go flying off a cliff.

The fast-moving events presented at least the possibility of a diplomatic and political solution, even if everybody seems to have just stumbled on the idea. And the whole idea of a peaceful resolution could fall apart very quickly. We'll find out more over the next two evenings as President Obama hits the airwaves; tonight he'll speak with six major American news networks as part of his sales pitch to build support and he'll go directly to the people Tuesday.

In the background, his aides have been heavily lobbying Congress while seeking support from other nations; so far, some countries , such as Germany, have said they support the idea of military action, but they want no part of it.  Senate Democratic Leader Harry Reid set a test vote for later this week, but it was unclear whether the measure would attract enough backing to clear anticipated procedural roadblocks. Most counts show that the Congress is reluctant to back force, and constituents have been vocal in opposition. In town hall meetings during the congressional recess and in polls, most Americans don’t accept that the humanitarian argument is sufficient to justify a military strike.

According to a CNN poll, nearly 6 in 10 Americans think Congress should not authorize limited military action in Syria, with roughly 7 in 10 saying that airstrikes against Syria would not achieve any significant goals for the United States and that the US does not have any national interest in Syria.

Obama’s upcoming media blitz, to include interviews on six television networks and a primetime Oval Office address, is not going to rally the public to support military action. The president faces strong competition for the public’s attention, and most people are not attentive to him. Barely a tenth of the population watched Obama’s 2013 State of the Union address. Moreover, many people who do pay attention miss the president’s points, and the less people know, the more confidence they have in their pre-existing beliefs and resist factual information.

So, should you bother paying any attention to the media blitz? In decisions of war, bravery is needed in knowing when to be humble, in listening for one’s biases and evaluating new evidence. Or as Winston Churchill once said: “Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen.”

Most people distrust government, especially on issues of war, especially when they are complex and their consequences are uncertain; and this certain qualifies as uncertain. But it's not that this situation is too complex for simple-minded voters to grasp the significance. The population is not stupid. We get it. We understand that the complexity is often just a cloak against honesty. We understand that the path to peace can be more than bombing people. The problem isn't that we don't get it. The problem is that we do get it.

More than four years after the recession officially ended, 11.5 million Americans are unemployed, many of them for years. Nearly 4 million have given up looking for work altogether. If they were actively looking, today's unemployment rate would be 9.5 percentinstead of 7.3 percent. The participation rate is at the lowest level in 35 years. It's now pretty well understood that of the two ways you can reduce unemployment, we got the bad one Friday. That is, the jobless rate can fall because more jobseekers land jobs -- good; or because they give up looking -- bad. Some of that decline is demographic -- our workforce is comprised of a growing share of workers on the cusp of retirement. But most of it -- I'd say about two-thirds based on the analysis I've seen -- is due to weak labor demand. People have given up and dropped out of the labor pool.

The median wage keeps dropping, adjusted for inflation, and incomes for all but the top 1 percent are below where they were at the start of the economic recovery in 2009.

Deficit hawks in both parties don't want you to know this but the federal deficit as a proportion of the total economy is shrinking fast: It's on track to be only 4 percent by the end of September, when the fiscal year ends. The non-partisan Congressional Budget Office predicts it will be only 3.4 percent in the fiscal year starting October 1. To put this into perspective, consider that the average ratio of the deficit to the GDP over the past 30 years has been 3.3 percent. So the deficit is barely a problem at all. Still, it's amazing how politicians can justify spending billions of dollars to drop bombs, but we can't afford to spend money to build a bridge, or make sure a hungry kid, right here in America, has food for the school day. A decent society would put people to work, even if this required more government spending on roads, bridges, ports, pipelines, parks and schools. War, however is not the answer.

Wednesday, October 17, 2012 - It Could All Come Down to Pahrump

It Could All Come Down to Pahrump

-by Sinclair Noe

DOW + 5 = 13,557
SPX + 5 = 1460
NAS + 2 = 3104

10 YR YLD +.09 = 1.81%

OIL - .19 = 91.93

GOLD +1 .60 = 1750.90
SILV + .24 = 33.30
PLAT + 22.00 = 1672.00

Listen live or archived audio at MoneyRadio.com

The best site I've found for election polling data is http://fivethirtyeight.blogs.nytimes.com/

A CBS News/Knowledge networks poll of undecided voters who watched the debate found 37 percent giving an advantage to President Obama, 30 percent favoring Governor Romney and 33 percent calling the debate a tie. That represents a narrower lead for Mr. Obama than Mr. Romney had after the first debate in Denver, when a similar poll gave Mr. Romney a 46-22 edge.

A CNN poll of registered voters who watched the debate — not just undecided voters, as in the CBS News survey — also gave the debate to Mr. Obama by a seven-point margin, 46 percent to 39 percent. Mr. Romney had won by a much larger margin, 67 percent to 25 percent, in CNN’s poll after the first debate.

Meanwhile, 73 percent of voters in the CNN poll said Mr. Obama performed better than they expected, against just 10 percent who said he did worse; chalk that up to diminished expectations.

Two other polls gave Mr. Obama a somewhat clearer advantage. A Battleground poll of likely voters in swing states who watched the debate had him winning 53-38.

A poll by Google Consumer Surveys gave Mr. Obama a 48 percent to 31 percent edge among registered voters.

A Public Policy Polling survey of Colorado voters who watched the debate found 48 percent declaring Mr. Obama the winner, and 44 percent for Mr. Romney. Mr. Obama’s advantage was clearer in the poll among independent voters, who gave him a 58-36 edge. However, the candidates were roughly tied when Public Policy Polling asked them how the debate swayed their vote, with 37 percent saying the debate made them more likely to vote for Mr. Obama, with 36 percent for Mr. Romney.

The most recent odds put Mr. Obama winning a second term at 65%, down slightly in the past few days from 67%; but those odds do not include the results from last nights debate. Those are the odds, not the percentage of votes; that calculation is much closer, right about a 2-percentage point advantage for Mr. Obama in popular vote. The actual vote might be closer still. And of course, the winner is not determined by the popular vote but by the electoral college; so, swing states become key battlegrounds. And that means that an individual John or Jane Public in Pahrump Nevada might actually cast THE decisive vote.

NBC News reports that so far, $807 million has been spent on political ads for radio and television: local and national, cable and broadcast. Team Romney is outspending Team Obama by $455 million to $355 million. I say Team, because you have to factor in outside money that is now part of the campaigns due to the Citizens United Ruling. The actual Romney campaign has spent around $164 million. The actual Obama campaign has spent almost $300 million. The rest of the money has come from outside sources, the SuperPacs.

I find the debates and the election hoopla to be lots of fun and very entertaining. The debates are less expensive than going to a movie, so they seem cheap; but sometimes what's cheap is dear.

Few events have reshaped the nation over the last half-decade as much as the housing crisis—particularly in key battleground states such as Florida, Ohio, and Nevada. But neither the Obama nor the Romney campaign has had very much to say about it.

Housing’s absence from the campaign debate has led to lots of head-scratching among pundits, though there is an obvious explanation for why it has taken a back seat: housing is a political loser.

Mr. Romney faces a delicate balancing act. He has criticized Mr. Obama’s housing-rescue efforts as simply kicking the can down the road and says that he would focus on growing the economy instead. But that leaves an impression that he might recommend doing even less for at-risk homeowners looking to the government for more help. If your opponent is unpopular for promising to fix the problem and then falling short, it could be risky to advertise that you would offer even less.Mr. Obama has learned how difficult the housing problem is to fix, while Mr. Romney has discovered how hard it is to talk about in a sound-byte-driven campaign cycle.

The Commerce Department reported housing starts hit a four-year high. Groundbreaking on new homes jumped 15 percent in September, the quickest pace since July 2008. The surge in housing starts was viewed as evidence that the housing sector's fledgling recovery is bolstering the recovery of the broader economy.

And it makes the Federal Reserve look good. In September, when the Fed FOMC decide to announce an open ended mortgage backed securities bond buying binge, QE to infinity and beyond, they ended up propping up an economic sector that was already trending higher.

What came first, the Fed stimulus or the housing recovery? Many Fed officials reckon that as the housing market’s problems have been a big reason why the recovery has been so tepid, targeting the sector with direct aid can make a big difference for the broader economy. On the flip side, the Fed has the good fortune the housing market is showing signs of life when they are trying to stimulate the housing market. Policymakers hope positive housing momentum will help overall activity rise, which in turn should help boost job growth and lower unemployment. It still remains to be seen if the housing recovery has legs, and then if it has enough legs to lift the broader economy; but there is little doubt the housing market once again has momentum.

So does the housing rebound, joined with improving job market data, change economists’ estimates of how far the Fed eventually takes QE Infinity? There is already a lot of Fed monetary policy easing priced into the market and with the data improving there’s a risk the central bank could stop short of what’s expected, which could unsettle markets. Of course, it might be just a bump in a long term nasty market; even with improvements, the housing market remains far from normal. One of the tells would be an improvement in new home construction, that would demonstrate real demand; this month's report is a step in the right direction but not yet a trend.

So, for now, and with today's data, the old axiom, “Don't fight the Fed,” would certainly apply.

The S&P 500 rose for the third consecutive day. 3Q Earnings Season: IBM said revenue fell short of expectations. The stock dropped almost 5 percent, exerting an 81-point drag on the Dow industrials. IBM has an outsized influence on the Dow, which is a price-weighted index. IBM's stock closed at $200.63. Intel lost 2.5 percent to end at $21.79 a day after giving a weak revenue outlook.

Early in the 3Q reporting season 14% of S&P 500 companies have already reported earnings, and of those companies, 65 percent have beaten analysts' expectations, ahead of the long-term average of 62 percent. However, a majority - 54.3 percent - of the companies in the S&P 500 Index that have reported results so far have missed analysts' revenue forecasts, The top line is shrinking even as the companies are delivering bottom line results.

What gives? Earnings expectations have been lowered so far that it hasn't been hard to beat them. Once revenue starts missing and you can't cut costs anymore, I think this is the crack in the armor. If you then see earnings start to miss already lowered expectations, that's when you have a problem. Part of the answer is that the economy is in better shape today than it has been for some years. It is in a turnaround even if it is not as strong as we'd like it to be.

But that's already old news; we're already well into the fourth quarter. How does next year look? Well, companies are cautious about 2013 earnings targets. You can see how a CEO would want to reign in expectations for next year; it would be difficult to push profit margins higher when revenue growth is slowing. Margins are already considered pretty rich. If you have slowing revenues and you've already cut costs as much as possible; and I think it's safe to say that US businesses are running lean; then there's not a whole lot that can be done to grow earnings.