Monday, August 26, 2013 - And the Answer Is

And the Answer Is

by Sinclair Noe

DOW – 64 = 14,946
SPX – 6 = 1656
NAS – 0.22 = 3657
10 YR YLD - .02 = 2.78%
OIL + .29 = 106.21
GOLD + 7.20 = 1406.00
SILV + .25 = 24.43

President Obama awarded Army Staff Sergeant Ty Carter the Medal of Honor in a ceremony at the White House today. Carter is now the fifth living recipient of the decoration for heroic actions in Iraq or Afghanistan. The Medal of Honor, the nation's highest military honor was awarded for Carter's distinguished service on October 3, 2009 at Combat Outpost Keating in Afghanistan. More than 300 Afghan insurgents launched an attack against the remote, mountainous outpost; of the 53 fellow 4^th Infantry Division soldiers who defended the outpost that day, eight were killed and 25 others injured.

They were outnumbered six to one; the fact that anyone survived is a testament to the heroism of the day. In another part of the compound, former Staff Sergeant Clinton Romesha, battled against incredible odds. Romesha was the second survivor of that battle to receive the Medal of Honor. Carter risked his own life to resupply his fellow soldiers and to rescue a battle buddy; Carter was wounded but continued to fight; all this while under heavy and constant fire that lasted more than six hours. It is hard to imagine the hell those soldiers endured that day.

The wounded soldier that Carter rescued, Specialist Stephan Mace, would later die. Carter blamed himself. For Carter, the battle also resulted in a ninth fatality. A fellow survivor who struggled with post-traumatic stress disorder committed suicide a year after the attack. When he returned stateside, Carter recognized that he was suffering from PTSD. His experiences led Carter to become active in helping veterans of the Iraq and Afghan wars deal with PTSD.

Sgt Carter's citation reads: "Carter's remarkable acts of heroism and skill... exemplify what it means to be an American hero."

During the ceremony, Mr Obama said he wanted to honor Sgt Carter for the "other battle he has fought" - coping with PTSD. The president said: "To any troops or veterans who are watching and struggling: look at his man, look at this soldier… he's as tough as they come, and if he can find the courage and the strength to not only seek help but to speak out about it [PTSD], to take care of himself and stay strong, so can you."

Whenever there is war, there is a terrible price to pay.

About an hour after the president presented the Medal of Honor to Sgt Carter, Secretary of State John Kerry read a statement about the situation in Syria. Kerry said the use of chemical weapons in attacks on civilians in Syria last week was undeniable and that the Obama administration would hold the Syrian government accountable for what he called a “moral obscenity” that had shocked the world’s conscience. Kerry accused the Syrian government of seeking to cover up the use of the weapons, and he rejected its denial of responsibility for what he called a “cowardly crime.”

Kerry also said the Syrian government’s refusal to allow immediate access to the attack sites last week was a telling indicator that it was trying to hide responsibility. Even though a United Nations team was finally permitted by the Syrian government to investigate starting today, he said, the government’s authorization was “too late” to be credible. Then came word that the UN inspectors had been fired upon by snipers; although there were no reports of injuries, some of the inspectors vehicles were disabled.

Meanwhile, Russia's foreign minister warned against prejudgment, and said bypassing the UN Security Council would be a violation of international law. He warned any Western intervention would be a serious mistake.

Defense Secretary Chuck Hagel told reporters today: “if there is any action taken, it will be in concert with the international community and within the framework of legal justification.”

The New York Times reports there is a list of potential military targets in Syria. The White House could take certain military measures without the approval of Congress. We saw that move in Libya. What Congress does control is the pocketbook.

Congress is on recess until Sept. 9; when they return they will look at raising the debt limit. House Speaker Boehner said last month the Republicans wouldn’t increase the debt ceiling “without real cuts in spending” that would achieve a further reduction in the deficit. Treasury Secretary Lew has said the Obama administration won’t negotiate on the debt limit. The Bipartisan Policy Center, a nonprofit research group, has estimated the government will reach the point where it is unable to pay its bills sometime between mid-October and mid-November unless Congress increases the limit. So, enjoy the final days of Summer because things might get scary around Halloween.

POP QUIZ: Everybody close your books and take out your pencils, unless you're driving of course.

First question: Name the world's biggest fast food chain. The correct answer is Subway, which has just opened its Subway store number 40,000. McDonald's only has 34,700 restaurants. Subway claims they still have room to grow.

Next question: name the second largest stock exchange in America. Of course, the New York Stock Exchange is the largest exchange, averaging 1.28 billion in average daily volume, for a market share of 23%. The second largest stock exchange is the BATS Global Markets, which is the new and not so catchy name for the combined exchanges of the BATS and Direct Edge, which averages 1.15 billion in daily share volume, or 20.6% of the total market. The Nasdaq falls to the third spot, with 18.1% market share.

The third question is: Name the best selling new car in California over the past year. Answer is: Toyota Prius hybrid.

Bonus if you can name the eight major car brands that Tesla Model S has passed in sales in California in the past year: Answer: Mitsubishi, Lincoln, Land Rover, Fiat, Buick, Cadillac, Chrysler, Jaguar, and Porsche. That’s especially impressive when you consider that those brands are selling multiple different cars, whereas the Model S is the only Tesla vehicle in production.

Put your pencils down and pass your papers to the front of the room.

Yep, it's school days once again.

Last week was a bore. Not much in the way of economic data, just the Federal Reserve officials making a point of not saying anything at the Jackson Hole confab. Typically there is a post Jackson Hole bounce in the markets, but we warned you against any such expectations. And in the absence of other noise or significant changes in the fundamental outlook for the companies that make up most of the US stock market, the market pretty much ended exactly at the same level it ended in the previous week.

Wall Street is paying too much attention to the “taper”, the prospect of a slowing of Fed asset purchases, and not enough attention to the economy in general or the looming game of debt-ceiling chicken in specific. The stimulus campaigns of the Federal Reserve and the central banks of Europe and Japan, by depressing domestic interest rates, have helped to push trillions of dollars into developing markets in recent years.

Now that the Fed has declared its intent to start easing up on the accelerator by the end of the year, some of that money is starting to slosh out of emerging markets and some might even return to the US.

Outflows from emerging markets have exceeded inflows since the Fed’s June announcement; Bloomberg calculates that emerging-market stocks have lost more than $1 trillion in value; emerging-market currencies are depreciating rapidly. The question of what to do about it was a big topic in Jackson Hole. The answers were pleasantly realistic, as the general consensus seems to be don't worry, be happy, it'll all work out over time.

And finally, P Morgan Chase’s co-head of litigation is leaving the bank as it faces a mounting pile of regulatory headaches, lawsuits and investigations, said people close to the situation. Michael Coyne, who is responsible for all litigation and government investigations affecting J.P. Morgan around the world, will become general counsel of UnionBanCal Corp, a San Francisco based bank.  Mr. Coyne’s departure comes as J.P. Morgan tries to work its way through a litany of legal problems and a heightened period of regulatory scrutiny. The bank disclosed recently that future legal losses could be as much as $6.8 billion above its existing reserves, more than any other U.S. bank.

And the answer is: how can you tell your ship is sinking?

Tuesday, February 12, 2013 - The Battles to Come

The Battles to Come

by Sinclair Noe

DOW + 47 = 14,018
SPX + 2 = 1519
NAS- 5 = 3186
10 YR YLD + .01 = 1.97%
OIL + .48 = 97.51
GOLD + 3.00 = 1652.30
SILV + .17 = 31.22

The all-time high in the S&P 500 index is 1565. The all-time intraday high in the Dow Industrials is 14, 198.10, reached in October 2007. We are close.

After years of acting like deer in the headlights, investors are now throwing cash at the stock markets. Meanwhile, insiders are selling. Google's CEO is selling more than 40% of his stock. He didn't sell hardly anything from 2008 through now. There is a thought that insiders are selling now and mom and pop investors are buying, and once we work through this exchange, the markets will tank. This theory is being called the grand rotation.

Ahead of tonight’s State of the Union Address, the White House has followed custom by leaking tidbits from the speech. It is expected the president will talk about North Korea testing a nuclear bomb; this, for the third time, and bigger than ever. Apparently Mr. Obama will also announce that 34,000 out of 66,000 troops will come home from Afghanistan by this time next year, which sounds better than it is. That means the Pentagon is roughly on pace to hand over security to the Afghans by the end of 2014, as Mr. Obama has long promised. It also means there will still be more than 30,000 troops in Afghanistan, and I'm not sure what will be accomplished. 

The most recent Medal of Honor recipient, Clint Romesha was invited to attend the State of the Union speech as a guest of the first lady. Apparently he will spend the evening with his wife and buddies from his former unit, Black Knight Troop, 3-61 CAV. Romesha and his wife are celebrating their wedding anniversary. I don't know whether they will watch the address or not. Viewership is down to 38 million or so, less than back in the 70's. Romesha's story is inspiring. He was wounded on the battlefield during what has been described as one of the fiercest fights in the Afghan war, but he fought on, rescued his comrades and managed to hold onto an outpost that was technically indefensible. The young Sergeant is amazing; he can spend his evening however he wants.

President Obama will have a fight on his hands as he proposes a second-term agenda that includes new government investments, limits on guns, a revamped immigration system and new initiatives to kick-start the economy for middle-class Americans. The president will propose government action in education, manufacturing, infrastructure and clean energy. The president is also expected to announce his intention to begin negotiations on a free trade agreement with the 27-member European Union.

Mr. Obama already faces stiff opposition from Republicans who control the House and have repeatedly blocked some of his top priorities. On Tuesday, Republicans began using the Twitter hashtag #notserious to describe Mr. Obama’s expected speech; and that's the gentler of the hashtags; the not-so-gentle tag is #youlie.

House Speaker John Boehner this morning gave his own preview of the State of the Union as he  repeatedly challenged the president's willingness to go against his own party on issues that include reforms to social programs and spending.

Speaking with a small group of reporters this morning, Boehner said: "I think he'd like to deal with it [fiscal problems], but to do the kind of heavy lifting that needs to be done, I don't think he's got the guts to do it. He understands there is a spending problem. He understands that we need changes and reforms, and we need to solve these problems." When pressed about the severity of that statement, he modified, saying the president does not have the "courage."

Washington is in the midst of yet another self-inflicted, artificial fiscal crisis, facing a political showdown over "sequestration," the self-imposed round of across-the-board spending cuts to domestic programs and the Pentagon. The sequester was supported by both the White House and Congress as a way to encourage lawmakers to find common ground. Instead, they have been mired in a stalemate, unable to find an equitable solution for both sides. The deadline is March 1^st. It doesn't look good.

The State of the Union wasn't the only big speech of the week but it certainly has been overshadowing a speech by Janet Yellen, vice-chair of the San Francisco Federal Reserve; she talked about how slow this recovery has been and why. One of the culprits for the slower recovery? Fiscal policy. Specifically? We're not spending enough. Government spending, which usually provides a boost to the economy in the quarters following the recession, has been a net drag this time because the government is spending less than it normally does.

After passage of the 2009 economic stimulus package, which helped save or create millions of jobs, Congress all but gave up providing support to the labor market. Instead, in the last two years, the nation’s deficits have been reduced by $2.5 trillion, with the overwhelming majority coming from spending cuts. Yellen described fiscal policy as a headwind for the recovery: “Discretionary fiscal policy hasn’t been much of a tailwind during this recovery. In the year following the end of the recession, discretionary fiscal policy at the federal, state, and local levels boosted growth at roughly the same pace as in past recoveries. But instead of contributing to growth thereafter, discretionary fiscal policy this time has actually acted to restrain the recovery.”

Everybody that’s tried austerity in a time of no growth has wound up cutting revenues even more than they cut spending because it results in a downward spiral and it drags the country back into recession. The experience of Europe should be showing US policymakers that cutting spending in a weak economy backfires, squashing economic growth, which causes debt to expand. But it doesn’t seem like that lesson is taking hold.

Today, the Treasury Department reported the federal government had a rare surplus for January and is on track to run its smallest annual budget deficit since  2008. The government took in a surplus of $2.9 billion in January. That's the first monthly surplus since April, a month that benefited from income tax payments. January's budget benefited from an estimated $9 billion in extra revenue from higher Social Security taxes. That helped lowered the deficit through the first four months of the budget year to $290.4 billion — nearly $60 billion lower than the same period a year ago. The budget year began on Oct. 1.

For the entire year the Congressional Budget Office is forecasting the deficit will total $845 billion. If correct, that would be first time government hasn't run an annual deficit in excess of $1 trillion since 2008.

The deficit is the amount the government must borrow when its expenses exceed its revenue. Each month's deficit is volatile and can be affected by calendar quirks that shift government spending or revenue from one month to another. The annual deficit is projected to be smaller this year because the government is collecting more revenue this year, mainly because of faster job growth and higher taxes. At the same time, the government is spending less on some programs. That's in part because of spending cuts that were enacted under a 2011 agreement to raise the federal borrowing limit. Also, the improved economy has reduced demand for unemployment benefits and some other government programs, or some people have just used up their benefits and fallen from the rolls.

The Congressional Budget Office is projecting even smaller annual deficits of $616 billion in 2014 and $459 billion in 2015.

This weekend the G-20 will meet in Moscow. Today, the G-7 broke into the European trading morning with its first statement on exchange rates since September 2011, in which it pledged to keep economic policies directed at domestic needs and disavowed targeting currencies. The G-7 acknowledged Japan isn’t driving a devaluation and that its monetary policy is aimed at ending 15 years of deflation.

But after the G7 statement, an unnamed official of the G7 told reporters in the United States that markets had misinterpreted the statement and that it was in fact aimed at Japan, that it's okay for Tokyo if a weaker yen is the result of policies aimed at driving the economy, but it's not kosher if policies are aimed specifically at devaluing the currency.

What the G7 appeared to be saying - before the unnamed official signalled it was a warning to Tokyo - is that currency devaluation can be a byproduct, rather than a goal, on the long, hard road back to a sustained recovery. The Federal Reserve's quantitative easing, for example, an asset-buying program, is negative for the US dollar, but is aimed at juicing the economy, not driving down the greenback; theoretically anyway.

So, the G-7 issued another statement that said: "We, the G7 ministers and governors, reaffirm our longstanding commitment to market determined exchange rates and... that we will not target exchange rates."

And now the thinking is that this means Japan won't be buying US Treasury bonds as part of its stimulus plan because that would further weaken the yen. This also means there is a global race to devalue currencies.

China has become the world's biggest trading nation in goods. China's customs administration said the combined total for imports and exports in Chinese goods reached $3.87 trillion last year, edging past the $3.82 trillion trade in goods registered by the US commerce department. The US economy is still twice the size of the Chinese economy, but apparently we are more self contained.

A new report from the Project on Government Oversight says that regulators at the SEC derailed last year's efforts to reform the $2.6 trillion money market fund industry, and that many of those regulators are now working in the private sector, and the “revolving door” policy may have impacted policy and enforcement decisions. Yea, we're all shocked.