Friday, May 16, 2014 - Nervous About Recovering in the Recovery

Nervous About Recovering in the Recovery
by Sinclair Noe

DOW + 44 = 16491
SPX + 7 = 1877
NAS + 21 = 4090
10 YR YLD + .02 =  2.52%
OIL + .68 = 102.18
GOLD – 4.10 = 1293.70
SILV - .11 = 19.45

Stocks were all over the place this week; we had record highs for the Dow Industrial Average and the S&P 5oo Index, topping 1900 for the first time, even as small caps slipped and internet stocks tumbled. For the week, the Dow slipped 0.6 % and the S&P 500 dipped 0.03 %, while the Nasdaq gained 0.5 %. Bonds enjoyed a very nice week indeed, with the yield on the 10 year Treasury note moving from a high for the week of 2.66% to a low of 2.47%. Isn’t it awesome when the Dow hits a record high but everything else flatlines or shrinks? Maybe we are in a recovery, but maybe we need to recover from the recovery.

Recent economic data has been mixed, and reports released Friday added to concerns about the lackluster recovery. The preliminary Reuters / University of Michigan consumer sentiment index for May was at 81.8, down from 84.1 in April. Housing starts increased in April at a seasonally adjusted annual rate of 1,072,000. This is 13.2 % above the revised March estimate of 947,000 and is 26.4 % above the April 2013 rate of 848,000.

Earlier in the week we got the PPI and CPI inflation numbers. On the retail level the core inflation rate increased to 1.8% year over year. The Fed has begun to chirp about deflation fears at just exactly the time that core inflation is turning higher, not that inflation is high, but it isn’t exactly deflationary at the moment.

We also saw a report from the New York Fed on household debt; Americans are swimming in it. For the first quarter, debt stood at$11.6 trillion. To put it in perspective, if Americans’ household debt was an economy, it would be the third largest in the world.

The fastest growing debt category: student loans, which top $1 trillion. Pew Research reported this week that four in ten U.S. households (37%) headed by an adult younger than 40 have student debt. Households with student loan debt have a median net worth of $8,700 compared to $64,700 for households without student debt.

The report says high levels of debt are restraining household formations. Slower household formation means less demand for buying homes or apartments, which, in turn, translates into less construction and construction jobs. And even young households looking to buy residential real estate have a harder time getting a mortgage.

There wasn’t much economic news this week but we did have a few interesting surveys. Gallup’s annual Economy and Personal Finance poll finds 59% of Americans are nervous about retirement and afraid they will run out of money. And the idea of needing a million dollars to secure a comfortable retirement, well that plan is now considered obsolete, what with rising medical costs, disappearing pensions, insufficient 401(k)s, and low interest rates.

Meanwhile, the most surprising poll results came from CNBC’s Millionaire Survey which finds a majority of millionaires consider inequality a major problem and about two-thirds support higher taxes on the wealthy; in other words, they think they probably should pay more in taxes; just a bit more in taxes, nothing too big.

David Tepper manages the Appaloosa Fund. He is the highest paid hedge fund manager in the world. Last year he pulled down $3.5 billion, which is more than you and I combined. Tepper rarely talks publicly about the markets but he was at an investing conference in Las Vegas the other day and he decided to talk. Tepper says he’s nervous about the markets: "There are times to make money, this is a time to not lose money.”

Tepper's biggest concerns hinge on economic growth prospects and its effect on stock prices. He said his opinion would be different if the economy was growing at 4%. Even adjusting for the weather, the economy looks to be growing much more slowly than he expected. Indeed, US GDP grew by 0.1% in the first quarter of 2014. That's a problem, Tepper says, because stocks on average are trading at 16 times next year's expected earnings. That means investors are expecting relatively strong bottom lines and if the economy is growing more slowly than expected, profits are likely to disappoint.  Tepper says he is also concerned about deflation, given the sluggish economic growth prospects; consequently, he has gone, at least in part, to cash.  Tepper says he’s “nervous”.

Give me a break. The guy just made $3.5 billion last year and he’s nervous. Lee Trevino, the famous golfer was once asked if he got nervous standing over a putt that could win a tournament and possibly pay several hundred thousand dollars. Trevino said no, he didn’t get nervous anymore, but when he was younger he used to get nervous, before he went on the pro circuit he made money betting on golf games in west Texas. Trevino said he used to get nervous standing over a putt that could win or lose $20 dollars, when he only had $5 in his pocket.

A new poll by Bloomberg indicates that financial professionals are quite concerned about deflation in the Eurozone. About three-quarters of them say it’s a greater threat to the region than inflation. Some individual countries such as Portugal have already experienced deflation this year, and the inflation rate in the 18-nation bloc as a whole was 0.7% in April.

This isn’t the only problem plaguing the Eurozone. A report from the Global Sustainability Institute says Britain is running out of energy. Britain has just 5.2 years of oil, 4.5 years of coal and three years of its own gas remaining. France fares even worse, with less than one year to go before it runs out of all three fossil fuels. Germany, it was claimed, has 250 years of coal remaining but less than a year of oil. Italy has less than a year of gas and coal, and only one year of oil. The report concludes that some countries are becoming increasingly vulnerable to rising energy prices and reliant on resource-rich neighbors, while alternative energy sources need to be developed. One thing the crisis in Ukraine has clearly demonstrated is that energy is a new weapon.

In a new report, Standard & Poor’s Rating Services argues that climate change will hit country’s economic growth rates, their external performance, public finances, and sovereign credit ratings; and not in a good way. Despite a surge in extreme weather events, S&P has not, to date, revised the rating of a sovereign as a result. The report says that, “assuming that extreme weather events are on the rise in terms of frequency and destruction, how this trend could feed through to our ratings on sovereign states bears consideration."

According to S&P, poorer and lower-rated countries will be the hardest hit by climate change. All of the 20 nations ranked most-vulnerable by S&P are emerging markets, with the vast majority in Africa or Asia.

Telecommunications regulators formally proposed new "net neutrality" rules that may let Internet service providers charge content companies for faster and more reliable delivery of their traffic to users. Federal Communications Commission Chairman Tom Wheeler has come under fire from consumer advocates and technology companies for proposing to allow some "commercially reasonable" deals in which content companies could pay broadband providers to prioritize traffic on their networks.

Critics worry the rules would create "fast lanes" for companies that pay up and slower traffic for others, although Wheeler has pledged to prevent "acts to divide the Internet between 'haves' and 'have nots.'" The FCC's proposal tentatively concludes that some pay-for-priority deals may be allowed, but asks whether "some or all" such deals should be banned and how to ensure paid prioritization does not relegate any traffic to "slow lanes."

The Federal Communications Commission has just granted itself the ability to either protect or condemn the free Internet, depending on how you read the net neutrality rules the agency will consider making law in the coming months. FCC Chairman Tom Wheeler’s response to criticism has thus far consisted mostly of pleas for people to trust that the agency knows what it’s doing, but he may be the only one.

The problem is that no one can agree on what the agency is promising. Some believe that the FCC is working to increase its power and stifle innovation in the broadband market, poking its nose into every deal Internet service providers try to make. Others think that the proposed rules don’t go far enough, and that unless it is willing to reclassify broadband companies to be subject to the same laws as telephone companies, it can’t protect the free Internet. The rules as they are currently written are wide open to interpretation and abuse.

The FCC is still ignoring the peering and interconnection agreements that allow companies like Comcast to charge both companies and consumers for access to its network. It’s still manned by people who fought the principles it’s now trying to defend. And it’s still the same agency whose own incompetence threatened the Internet in the first place. There is a good chance the FCC could kill the internet, and if so, the first blows were delivered this week.

This week’s economic calendar was light, next week will be lighter. The Fed will release the minutes from the April 29-30 meeting on Wednesday. The Fed heads take their dog and pony show on the road, with Janet Yellen delivering a commencement address at New York University on Wednesday. Among the district presidents giving speeches, the list includes: Richard Fisher (Dallas) and John Williams (San Francisco) on Monday; Charles Plosser (Philadelphia) and William Dudley (New York), Tuesday; Esther George (Kansas City) and Narayana Kocherlakota (Minneapolis) and Dudley again, Wednesday; and Williams again, Thursday.

Two major reports on April housing demand are on tap next week. Sales of existing homes will be reported Thursday, followed by Friday’s new home sales report.

Friday, April 25, 2014 - Don't Hold Your Breath

Don’t Hold your Breath
by Sinclair Noe

DOW – 140 = 16,361
SPX – 15 = 1863
NAS – 72 = 4075
10 YR YLD - .02 = 2.66%
OIL – 1.25 = 100.69
GOLD + 9.90 = 1304.80
SILV + .07 = 19.83

Consumer sentiment rose in April to a nine-month high as views on current and near-term conditions surged. The Thomson Reuters/University of Michigan's final April reading on the overall index of consumer sentiment came in at 84.1, up from 80 the month before.

Meanwhile, a new Gallup poll shows more Americans are optimistic about the job market this month than at any time since the 2008 financial crisis, with 30% saying now is a good time to find a quality job.

That marks a significant improvement from the 8% who said they were optimistic about the job market in 2010, but it’s still a drop from the pre-2008 highs of almost 50%. And even though almost a third of Americans are optimistic, two-thirds still say the job market is lackluster; 66% of Americans say it’s not a good time to hunt for employment.

Next week’s economic calendar includes a two day Federal Reserve FOMC meeting. Next Friday, we’ll have a monthly jobs report; the current estimates call for 215,000 net new jobs in April and the unemployment rate dipping to 6.6% from 6.7%. Also, the Commerce Department will release its first guess of first quarter GDP; the consensus estimate on the initial estimate is that the economy grew about 1%.

The situation in Ukraine is going to hell in a hand basket. Russian militants have now become entrenched in towns across eastern Ukraine; Russian troops are massed on the border. Ukrainian leaders said operations to expel pro-Russian militants in eastern cities would continue, even though military action so far has done little more than prompt Russia to stage military exercises on Ukraine’s border and raise concerns about Moscow’s next move. The government in Kiev says that if the Russians cross the border they would view that as an invasion. Ukraine's Prime Minister said Russia wanted to start World War Three by occupying the country and creating a conflict that would spread to the rest of Europe.

A group of foreign military observers, possibly including some Germans, traveling under the auspices of the Organization of Security and Cooperation in Europe, along with their Ukrainian military hosts, were detained by pro-Russia separatists in Slovyansk. It was unclear precisely how many were in the group, about a dozen, but the detention appeared to be the first time that members of the Ukraine armed forces had been taken into custody by the separatists.

The US, Britain, and Germany are now calling for more sanctions against Russia, but none of the three countries gave any details of what the sanctions might be, or when they might be enacted. The standoff has already led to heavy capital flight from Russia, prompting credit rating agency Standard & Poor's to cut the country's ratings. That forced the Russian central bank to raise its key interest rate to reverse a drop in the ruble.

The Federal Communications Commission announced new rules governing Internet service. The rules effectively put an end to net neutrality, or the idea that all web traffic should be treated equally. A court decision in January struck down FCC rules meant to ensure that Internet providers do not discriminate by blocking or slowing certain content.

That new rule gives broadband providers what they’ve wanted for a long time, the right to speed up some traffic and degrade others. When broadband accelerates some traffic the result is that other traffic slows down. We take it for granted that bloggers, start-ups, or nonprofits on an open Internet reach their audiences roughly the same way as everyone else. Now they won’t. They’ll be moved over to a slow lane and forced to line up for their chance to reach an audience as they watch as companies that can pay tolls to the cable companies speed ahead. The motivation is not complicated. The broadband carriers want to make more money for doing what they already do. Never mind that American carriers already charge some of the world’s highest prices, around sixty dollars or more per month for broadband, a service that costs less than five dollars to provide.

After the ruling, internet providers like Comcast and Verizon cut deals with content providers, such as Netflix, which would pay to stream their content in an Internet “fast lane.” The new rules effectively create a fast lane and a slow lane on the internet. The fast lane includes big tech companies that can afford to pay; the slow lane includes startups, small businesses and everybody else. The internet providers are also becoming more and more involved in providing content, and it just makes sense to think their content will get preferential treatment. Companies like Verizon and Comcast will have staggering power to decide what bits of information reach your devices and mine, in what order and at what speed. That is, assuming we're permitted to get that information at all.

Bottom line is that the internet is going to get more expensive; if content providers have to pay extra for the fast lane, they’ll pass those costs on to the end user. The finer details will be hashed out in the coming months, starting on May 15, when the proposed rules become public.

Back in the Spring of 2010 the Office of the Comptroller of the Currency (OCC) and the Federal Reserve issued consent orders to 11 mortgage servicers, mandating that borrowers who had pending foreclosures, or had completed foreclosure sales in 2009 or 2010 could request an investigation by independent reviewers. The independent reviews would be paid for by the servicers, and in a shocking twist, the independent reviewers were anything but independent.

Eventually 16 servicers were included in the reviews, accused of using forged and shoddy paperwork to rapidly foreclose on homeowners, a practice known as “robo-signing.” The servicers, including Bank of America and Wells Fargo, agreed to have independent consultants review their foreclosure files for errors. In the 12 months that the review was up and running, not a single homeowner received any compensation. But the eight consultants managing the process were paid a total of $1.9 billion.

And so the independent review was cancelled and the regulators and the banksters worked out a quick and dirty settlement, with $3.3 billion going to wronged homeowners; a bunch of insultingly small checks distributed to a wide swath of people, and the regulators and banksters got to say: look how many people we helped. Meanwhile, nobody went to jail for the thousands of forged documents, the perjury, the obstruction of justice, etc., etc. in what was surely one of the largest fraud cases in American history.

Another problem is that nobody really knew who had been wronged and in what amounts, and so when the restitution was paid, nobody really knew if there was any rationale for the payments. The OCC said the consultant’s review had found an overall error rate of about 4.5% after assessing about 100,000 files, but that always seemed to be a lowball estimate.

Meanwhile, Representative Elijah Cummings continued to get data, and now that data is coming to light. In one example, a reviewer, Promontory Financial, found errors with 60% of the loan modifications conducted by Bank of America; a partially completed review found similar problems of the cases reviewed for PNC Bank. Based upon those numbers, the banksters got off with a puny little fine, and the wronged homeowners got shortchanged.

Now, you’re probably thinking to yourself, that this is old news about the robo-signing, but what is still relevant is  how the politicians have suppressed this information for so long; further proof of how deeply pretty much all of Washington DC is in bed with the banks. Only now when foreclosure abuses are considered old news does the public begin to get an inkling of how much the official story was close to a complete fabrication.

Of course, the people who went through the Independent Foreclosure Review process knew full well what a charade it was, but they were never taken seriously. The review process cost nearly $2 billion and it turned out to be a cost efficient whitewashing by the banksters. If you’ve lost your home, you are sure to be under financial duress, and people with no money don’t have any clout with our government. Foreclosure is considered a stigma, which discourages victims from telling their stories and sets those brave enough to do so up for abuse; the banks have done a great job of playing up the “deadbeat borrower” meme, whether it fits or not.

And we finish today with the story of how a top bank executive finally has to pay for his fraudulent actions. Bank of America's former finance chief, Joe Price, has agreed to pay $7.5 million to settle a New York lawsuit that accused the bank and its former executives of misleading investors during the lender's acquisition of Merrill Lynch. The top execs at BofA lied about the toxic assets on the books at Merrill Lynch and mounting losses leading to the merger; and misrepresenting the impact the merger would have on the bank's future earnings; this violated so many securities laws that it is crazy.

New York Attorney General Eric Schneiderman said: "This settlement is one more step in our effort to hold top financial executives accountable for their actions." What a crock.

The bank paid the fine for Joe Price, which means the shareholders are actually paying. Joe Price did not have to admit wrongdoing. Former BofA CEO Ken Lewis settled last month; the bank paid his fine too; Lewis did not admit wrongdoing.

Meanwhile, there is still a $2.3 billion class action lawsuit pending, and the Department of Justice is now offering a $13 billion settlement to Bank of America to resolve federal and state investigations of the lender’s sale of bonds backed by home loans in the run-up to the 2008 financial crisis. Don’t hold your breath for justice.

Tuesday, January 14, 2014 - The Day the Net Died (Maybe)

The Day the Net Died (Maybe)

by Sinclair Noe

DOW + 115 = 16,373
SPX + 19 = 1838
NAS + 69 = 4183
10 YR YLD + .04 = 2.87%
OIL + .83 = 92.63
GOLD – 7.40 = 1246.00
SILV - .15 = 20.36

A US appeals court has rejected federal rules that required Internet providers to treat all web traffic equally. The Federal Communications Commission's open Internet rules, also known as net neutrality rules, required Internet service providers to give consumers equal access to all lawful content without restrictions or varying charges. The US Court of Appeals for the District of Columbia Circuit struck down the regulation, which was passed in late 2010 and challenged in court by Verizon Communications. The decision that could allow mobile carriers and other broadband providers to charge content providers for faster access to websites and products, or block content, or slow down access.

One argument is that a video and Internet provider would have an incentive to bog down a video streaming service such as Netflix in favor of its own sites. Or it could charge a toll to those who want their content delivered at a higher speed, which media watchdogs say would stifle innovation and favor big and powerful companies.

The issue of companies playing favorites with their own content came to the forefront when Comcast announced plans to acquire NBCUniversal in 2009.  Comcast, the nation's largest cable and Internet distributor, said in a statement that the court ruling would not change the company's policies. At the time of the acquisition, the Comcast agreed to abide by the FCC's open Internet rules for 7 years, even if the courts changed them. After 7 years, the gloves would likely come off.

There is big money at stake, as we were reminded today. Charter Communications wants to buy Time Warner Cable in a deal valued at more than $37 billion. Time Warner Cable's board has rejected the offer.

The FCC had classified broadband providers as information service providers as opposed to telecommunications service providers, like telephone companies, and that distinction created a legal hurdle for the FCC's authority over them. This was the second time the court struck down the FCC's net neutrality rules. The FCC now could appeal the ruling to the full appeals court or to the US Supreme Court, something FCC Chairman Tom Wheeler said he is considering as he looked at "all available options" to ensure Internet networks remained free and open.

The regulators could also try to reclassify broadband providers so they fall in the same category as traditional phone companies, a step that would give the FCC more oversight power. With the agency taking its regulatory authority from the Telecommunications Act of 1996, it could go back to Congress and ask for new authority to regulate broadband. But the Republican majority in the House of Representatives has tried multiple times to repeal the FCC’s net-neutrality rules, and any legislation giving the FCC new authority over broadband providers would have little chance with lawmakers there.

One simple way, at least on its face, to get around the prohibition on applying common carrier rules to broadband would be for the FCC to reclassify broadband, subject to the common carrier rules that traditional voice service is subject to.

There will be serious push back from the phone and cable companies and their lobbyists. They will make threats, recycle all of their debunked myths about the Internet, they will claim that the internet belongs to them, and promise we can trust them not to do any of the bad things they've fought so hard to do.

Economic data today; the commerce department reported better-than-expected retail sales for December, up 0.2% versus estimates of 0.0%. Core sales, excluding the more volatile food and auto sectors, were up 0.7% for the biggest gain in almost a year. November sales numbers were revised slightly lower. These core sales correspond most closely with the consumer spending component of gross domestic product, and the increase suggested consumption accelerated in the fourth quarter from the third quarter's 2 percent annual pace.

A second report from the Commerce Department showing retail inventories, excluding autos, increased 0.6 percent in November after increasing 0.3 percent in October. The economy grew at a 4.1 percent rate in the third quarter, which was the fastest pace in almost two years. Fourth-quarter GDP growth estimates range as high as a 3.9 percent rate.

It's earnings reporting season and this week features the big banks; today featured JPMorgan and Wells Fargo. Wells reported an 11% jump in profits, thanks in large part to cost cutting, which is to say they fired people. Wells Fargo says their mortgage business is doing just about what it would be expected to do at this point in the economic cycle. The nation's biggest mortgage lender, Wells Fargo, said its mortgage volume tumbled to $50 billion in the quarter, down 60 percent from $125 billion a year ago. The second-biggest lender, JPMorgan Chase, said its mortgage originations, that includes new home purchases and refinancings, fell 54 percent to $23.3 billion from $51.2 billion a year ago.

A jump in interest rates has had a big impact on the housing market. That should be a warning sign for a Federal Reserve seemingly bound and determined to withdraw stimulus from a still-shaky economy. Higher rates have hurt demand. The average interest rate for a 30-year fixed-rate mortgage has jumped to 4.5 percent from a record low of 3.3 percent in early 2013. Fed Chairman Ben Bernanke and others argued they weren't kicking the props out from under the bond market, but that's sort of what happened: Bond prices fell, and interest rates jumped. Of course, rates are still relatively low, and the housing market is not exactly in a panic, though sales are slowing.

The specifics of bank earnings are increasingly unimportant because nobody believes the numbers anymore; the numbers are massaged and manipulated to such a degree that they are of no value. Wells Fargo closed near an all time high. Still, the reports are fun reading, even if much is fictional.

JPMorgan met earnings expectations if you overlook the legal costs, and Wall Street seemed willing too overlook the legal costs today. Investment banking fee revenue dropped 3 percent. The bank had $1.1 billion of legal expenses in the fourth quarter, about $850 million of which was linked to a recent settlement for failing to report its suspicions of fraud at its client Bernard Madoff's fund.

The bank agreed to some $20 billion of legal settlements in 2013; almost equal to a typical year's profit. CEO Jamie Dimon indicated some investigations into JPMorgan are just beginning, so the idea is that they just treat the legal problems as the cost of doing business.

One bit of info from JPMorgan today, a key lending metric, the ratio of the bank's loans-to-deposits, hit a new low. In 2013, JPMorgan on average lent out just 57% of its deposits. That's down from 61% a year ago and the lowest that ratio has been in at least a decade. Back in 2004, JPMorgan's loan-to-deposit percentage was as high as 88%. It's also down at rivals. But not as much. The industry average is just under 70%.Traditionally, banks have lent out 80 to 90% of their deposits.

So, why isn't JPMorgan making loans? One reason is that they can make as much money, about $300 million by just buying short term, low interest rate Treasury bonds. Dimon should send a thank you note to Bernanke. The other possible explanation is that there isn't much demand for loans. Either way, this would seem to be an indicator of sluggish growth.

The bank earnings season actually kicked off on Friday when the Federal Reserve released a statement saying it made an estimated $79 billion in net interest income, driven by its $90 billion in interest income on its portfolio of Treasuries, mortgage bonds, and other securities. The Fed sent $77 billion to the US Treasury. The Federal Reserve, after operational costs, is earning double the profits of Exxon Mobil ($44 billion) and Apple ($41 billion), and those two companies are doing a combined $600 billion in global revenues. The Fed doesn't have to drill oil wells or hire Chinese kids to glue together phones, they basically print money, buy mostly risk-free bond investments and do a little research to determine what the interest payments are going to be. The Fed has built up a $4 trillion dollar portfolio, and they have sent more than $350 billion to the Treasury since 2009. By the way, the Fed sent $88 billion to the Treasury in 2012, so they were down last year. No, I don't know what that indicates.

Standard & Poor's Ratings Services revised its outlook on California's credit ratings to positive from stable, citing the governor's budget plan. S&P foresees raising the state's rating one notch within two years, if California follows the $107 billion budget Brown proposed last week. S&P said it is also encouraged by the proposal's emphasis on repaying debt and building reserves. While Brown did not suggest specific action for making the teachers' underfunded retirement system whole, he did highlight that the pension "is in need of a long-term funding strategy.”

In a letter issued through the Economic Policy Institute, including seven Nobel Laureates, argue that the government should hike the federal minimum wage from $7.25 to $10.10 an hour by 2016 and then peg future increases to inflation.

The effect of a minimum wage hike is one of the most hotly debated issues in economic research. Some argue that a boost in the wage floor would hurt low wage earners because employers would be hesitant to hire if they had to pay their workers more. In the letter, the economists, argue that the "weight" of the evidence indicates past minimum wage hikes haven’t hurt the job market.

However, the letter reads: "Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front."

Thursday, November 29,2012 - Place Your Bets

Place Your Bets

by Sinclair Noe

Let's start with the important numbers today: 5, 16, 22, 23, 29, and the Powerball 6. And I did not win.

Somebody in Missouri and somebody in Phoenix are holding the winning tickets. Not me. All I'm holding is a $10 piece of paper which is my donation to the tax fund for the mathematically challenged.

DOW + 36 = 13,021
SPX + 6 = 1415
NAS + 20 = 3012
10 YR YLD un = 1.62%
OIL + 1.23 = 87.72
GOLD + 6.00 = 1726.80
SILV + .50 = 34.27

The U.S. economy grew at a 2.7 percent annual rate from July through September, much faster than first thought. The Commerce Department said growth in the third quarter was significantly better than the 2 percent rate estimated a month ago. And it was more than twice the 1.3 percent rate reported for the April-June quarter. The main reason for the upward revision to the gross domestic product was businesses restocked at a faster pace than previously estimated. That offset weaker consumer spending growth.

The fourth quarter GDP is expected to drop back down below 2 percent because of Hurricane Sandy, which put the brakes on all sorts of business activity along the East Coast. And then the other reason cited for the possible fourth quarter slowdown is the fiscal cliff. (Sorry, we just can't get through the day without talking about it.) So, here is the annotated version of today's fiscal cliff report: a little partisan sniping, a few snarky comments; no substantive progress, but talks are ongoing. Despite all the hype about the fiscal cliff, the markets appear to be treating it more like a fiscal bunny hill. The VIX, the volatility index is scraping along bottom at about 15, indicating a broad based complacency. And if you're actually paying attention to one of those countdown clocks, you really need to be doing something different.

Anyway, back to the GDP report. Consumers and businesses appeared to be more cautious over the summer. Consumer spending grew at a weaker 1.4 percent rate in the third quarter, down from the 2 percent rate estimated a month ago and nearly in line with the 1.5 percent rate in the second quarter. Businesses spending on equipment and software fell at an annual rate of 2.7 percent in the third quarter, the first decline since the depths of the recession in April-June 2009. The report showed continued strength in homebuilding, which rose at an annual rate of 14.2 percent. And government spending expanded at an annual rate 3.5 percent, marking its first positive contribution to overall economic growth in two years. The increase was driven by a big jump in defense spending.

Consumer spending will be a big part of the fourth quarter GDP, and it looks like we are still consuming. The National Retail Federation reports the number of shoppers in stores and on websites rose 9% over the Black Friday weekend to 247 million. Spending per shopper rose 6% to $398 and total spending was up 13% to $59 billion. Retailers were very promotional as we have to come expect during the kickoff of the holiday season. Deals were offered earlier with many stores opening on Thanksgiving and seeing good traffic. Online retailers were at least matching in-store deals and offering many of their own promotions even before Cyber Monday. Black Friday and Cyber Monday promotions appear to be holding for at least an extra week; that's not great for margins but overall it looks like a pretty strong start to the shopping season.

If you've been doing most of your shopping online Microsoft has launched a holiday season offensive against Google, claiming that search results on its rival's shopping site are bought and paid for. Microsoft says: "Google’s new redesigned shopping vertical now decides what to show you -- and how prominently to display what product offers they show -- based partially on how much a merchant selling the product has paid Google.”

This refers to new rules that Google adopted for its shopping site. Google Shopping now charges merchants who participate in its Product Listing Ads program fees on a per-click or cost-per-acquisition basis. Google makes no bones about the program. They say their relationship with merchants results in accurate and timely pricing information. Microsoft begs to differ. Google's pay-to-play program means the results that potential shoppers get will be based more on what merchants are willing to pony up than on query relevancy.

The point here is that if you are shopping online, it might pay to comparison shop by using different search engines, at least that's what Microsoft wants us to believe.

Back to the GDP report. The report reveals a dichotomy between consumers and businesses. Consumers have gone from being cranky and tight-fisted to slightly positive and mildly optimistic. Businesses, meanwhile, appear to be hunkering down in like a gaggle of doomsday preppers.

The most recent Conference Board consumer sentiment survey released earlier this week showed consumer confidence at its highest level since February 2008, while the University of Michigan consumer sentiment index is up 30% from a year earlier as of late November. The Michigan survey revealed more optimism about the employment situation than at any point since 1984. Of course any measure of consumers' feelings is bound to be subjective. And consumers have been beaten like a drum over the past few years. The surge in morale might be nothing more than a pause in the beatings.

So while the surveys show the most positive results in years, it’s possible that they are only positive relative to how negative people were in 2009, 2010 and 2011, and that compared to the 1980s and 1990s, people aren’t actually feeling so confident. The same goes for income: More people than at any point since early 2008 say their finances are improving; that raises the index. But given that most incomes have been stagnant for the past decade or more, improvement does not necessarily translate into objectively good.

On the flip side, business executives can't seem to get past this idea that uncertainty is the boogie man that lurking in the shadows. The big fear is the fiscal cliff, of course. And frankly it is disconcerting to see the captains of industry cowering like an abused dog. There is a real good chance that the CEO who is afraid of the fiscal cliff, doesn't have the stuff of a real entrepreneur. An entrepreneur will put a second mortgage on the house. An entrepreneur will max out the credit cards to keep the business afloat for another week, or another month. (truck full of canaries)

An entrepreneur sees a fiscal cliff and straps on the bungee cord. A CEO sees a fiscal cliff and breaks down in flop sweat.

From 2009 to 2012, the companies of the Standard & Poor’s 500-stock index generated double-digit profits and even healthier revenue gains. Yes, it looks like corporate profits are slowing slightly but corporate coffers are bulging; there seems to be a little resolution to the crisis in Europe, even if it is just kicking the can out a year or two; emerging markets may not be booming but Brazil, and India, and China are still rolling along.

So, who is right, the consumer or the business exec? Income levels tend to be a better predictor of what people will spend, along with the value of their homes and the ease of obtaining credit. Given that incomes are stable and slightly growing, homes values are on the rise and credit is easing, it’s a good bet that people will spend a bit more and the overall economic picture will brighten.

Business execs are lousy economic prognosticators. While spending by companies is a key component of economic vitality, spending plans are much more elastic than they were decades ago and can be adjusted more rapidly. That may not be true for building a manufacturing plant, but it is certainly true for hiring and marketing and inventory. So present concerns and stated intentions to cut back could change quickly to exuberance and plans to spend more freely.

A separate report today showed the number of Americans seeking unemployment benefits fell 23,000 to a seasonally adjusted 393,000 last week, the Labor Department said. It was the second straight drop after Hurricane Sandy had driven applications to 451,000 three weeks ago. Millions of Americans are unemployed and underemployed, but tens of millions more are gainfully employed,and although they might be feeling some anxiety about their job, most of the deepest corporate cost cutting has already been done. If you still have a job, it's probably because you're good at it, and the company you work for is about as lean as it can get. If it could be outsourced, it probably was. When people feel gainfully employed, they tend to spend and demand increases, businesses respond to demand, not to sentiment.

Expectations have undoubtedly come down in recent years, as people reconcile themselves to more modest changes and more realistic horizons. Business sentiment matters, but it is the consumer and the demands of the consumer that push the economy. The smart business execs will be on the lookout for indications of increased demand, and they will be well suited to go out on the far end of the curve and they should be ready to gamble just a little, ready to invest to meet demand. Americans have shown a remarkable and consistent predilection to spend over the years, with only a few notable pullbacks such as during the worst periods of the past few years.

Take it from someone who knows a lousy bet. You shouldn't bet against the American consumer.

Years ago, the late Mexican dictator Porfirio Diaz utter a famous line about his country: “Mexico, so far from God, so close to the United States.”

Next week the leaders of North America’s two most populous countries are due to meet for a neighborly chat in Washington, DC. According to The Economist The re-elected Barack Obama and Mexico’s president-elect, Enrique Peña Nieto, have plenty to talk about: Mexico is changing in ways that will profoundly affect its big northern neighbour, and unless America rethinks its outdated picture of life across the border, both countries risk forgoing the benefits promised by Mexico’s rise.

The White House does not spend much time looking south. During six hours of televised campaign debates this year, neither Mr Obama nor Mr. Biden mentioned Mexico directly. That is extraordinary. One in ten Mexican citizens lives in the United States. Include their American-born descendants and you have about 33m people (or around a tenth of America’s population).

Mexico's GDP ranks higher than South Korea. It's economy is growing faster than the Brazil's. Can you name the largest exporter of flat screen TV's? It's Mexico. And the place where you will likely see signs of the growing Mexican economy is in the shopping malls. In addition to TVs, they are the top exporter of BlackBerrys and fridge-freezers, and is climbing up the rankings in cars, aerospace and more. On present trends, by 2018 America will import more from Mexico than from any other country. “Made in China” is giving way to “Hecho en México”.

The doorway for those imports is a 2,000-mile border, the world’s busiest. Yet some American politicians are doing their best to block it, out of fear of being swamped by immigrants. They could hardly be more wrong. Fewer Mexicans now move to the United States than come back south.

Undervaluing trade and overestimating immigration has led to bad policies. Since September 11th 2001, crossing the border has taken hours where it once took minutes, raising costs for Mexican manufacturers (and thus for American consumers). Daytrips have fallen by almost half. More crossing-points and fewer onerous checks would speed things up on the American side; pre-clearance of containers and passengers could be improved if Mexico were less touchy about having American officers on its soil (something which Canada does not mind). After an election in which 70% of Latinos voted for Mr Obama, even America’s “wetback”-bashing Republicans should now see the need for immigration-law reform.

Mexico is poised to become America’s new workshop. If the neighbors want to make the most of that, it is time for them to take another look over the border.

You know who Rupert Murdoch is? Owns Fox News. The same Rupert Murdoch who scandalized England with phone hacking, influence peddling and bribery. The same Rupert Murdoch who stays up late Saturday nights pondering things on Twitter, like what to do about "the Jewish-owned press".

Murdoch already owns the Wall Street Journal, the New York Post, Fox News Channel, Fox movie studios, 27 local TV stations, and much more. And there are reports that he really wants to buy the Los Angeles Times and the Chicago Tribune - the bankrupt-but-still-dominant newspapers (and websites) in the second- and third-largest media markets, where Murdoch already owns TV stations. Under current media ownership limits, he can't buy them. It's illegal ... unless the Federal Communications Commission changes the rules.

Just by pure coincidence, FCC Chairman Julius Genachowski has been circulating an order at the FCC to lift the longstanding ban on one company owning both daily newspapers and TV stations in any of the 20 largest media markets. And he wants to wrap up this massive giveaway just in time for the holidays.

If these changes go through, Murdoch could own the Los Angeles Times, two TV stations and up to eight radio stations in L.A. alone. And he's not the only potential beneficiary: These changes could mean more channels for Comcast-NBC, more deals for Disney and more stations for Sinclair Broadcasting.

For anyone who actually cares about media diversity and democracy, the gutting of media ownership limits will be a complete disaster. These rules are one of the last barriers to local media monopolies. Without them, we will lose competing voices for local news. We will see the mainstream media get even more monotone, monochrome and monotonous, and more than likely, even more inaccurate.

Genachowski's proposal is essentially indistinguishable from the failed policies that millions rallied against in 2003 and 2007. Ninety-nine percent of the public comments received by the FCC opposed lifting these rules when the Republicans tried to do it. Genachowski's proposal is nearly identical to the one the Senate voted to overturn with a bipartisan "resolution of disapproval" back in 2008. The federal courts have repeatedly - and as recently as 2011 - struck down these same rules, noting the FCC's failure to "consider the effect of its rules on minority and female ownership." The 3rd U.S. Circuit Court of Appeals ordered the FCC to study the impact of any rule changes before changing the rules. The FCC has done nothing of the kind.

Yet if Genachowski gets his way, according to reports, the FCC will vote on this major overhaul "on circulation" - that is, in secret and behind closed doors - with no public participation or accountability.