Tuesday, August 26, 2014 - A Few Old Sayings

A Few Old Sayings
by Sinclair Noe

DOW + 29 = 17,106
SPX + 2 = 2000.02 (record)
NAS + 13 = 4570
10 YR YLD + .01 = 2.40%
OIL + .55 = 93.90
GOLD - .70 = 1280.90
SILV - .08 = 19.38

The S&P 500 notched its 30th record of the year and closed above 2000 for the first time ever. The Dow also rose but fell short of its record closing high after setting an all-time intraday high earlier in the session.

There are a few old sayings about the market that seem to fit. The first is, “the trend is you friend”; we have seen a few minor pullbacks since the bottom in 2009, but since the start of 2013 there has been a strong and steady uptrend. “A trend in place is more likely to continue than it is to reverse, until it reverses” and today marked a continuation of the trend, not a reversal.

Why is the market going up? Who knows? There are plenty of problems around the world. The US economy looks sluggish, but “stocks climb a wall of worry to march into bullish territory”; that’s a phrase that’s been thrown around for more than 60 years, but was made popular by Joe Granville in the 1980s.  Another financial proverb claims “Worry is interest paid on trouble before it falls due.” And the opposite of the “wall of worry” is “Bear markets slide down a slope of hope.”

And then there is the very, very old saying “buy low, sell high.” Any idiot off the street could repeat this phrase to you as if they had the secret recipe for investing success. Honestly, it’s good advice, because the overwhelming top indicator for investors and traders is price. You can’t spend volume or moving averages or stochastics or relative strength, and eventually, inevitably the trend will change.

If you want to look at a chart of an uptrend, just look at the S&P 500. If you want to see a chart of a downtrend look at the past four months’ worth of charts for wheat and corn and soybeans. As we near the end of summer, farmers are preparing for record crops in the Midwest. Wheat crops are forecast at a record 273 million bushels, up from 235 million last year; this year’s  soybean harvest is also expected to be a record, and corn will be a near record. But there is a problem. In many areas, such as the Dakotas, where agriculture has been a mainstay, the energy boom has taken over, and most of that oil travels by rail, and that means grain shipments have been held up, right as we head to harvest.

Reports the railroads filed with the federal government show that for the week that ended Aug. 22, the Burlington Northern Santa Fe Railway, North Dakota’s largest railroad, had a backlog of 1,336 rail cars waiting to ship grain and other products. Another railroad, Canadian Pacific, had a backlog of nearly 1,000 cars. Agriculture Department officials estimate that Canadian Pacific would not be able to fulfill nearly 30,000 requests from farmers and others for rail cars before October.

We have a couple of reports on home prices. The Federal Housing Finance Agency’s home price index shows house prices rose just 0.8% in the second quarter of 2014. This is the twelfth consecutive quarterly price increase for the FHFA index, but it also shows a slowdown. The FHFA index is based on home sales prices from conforming mortgages through Fannie Mae and Freddie Mac. Home prices are up 5.2% from the second quarter a year ago. Arizona ranked 5^th in annual appreciation.

In another indicator of a housing slowdown, the S&P/Case-Shiller National Home Price Index gained just 6.2% in the 12 months ending June 2014, while the 10-City and 20-City Composites gained 8.1%. That’s a dramatic shift from the double-digit, year-over-year price increases that had become the norm in the second half of 2013 and the first part of this year. All three indices saw their rates slow significantly from last month. To be clear, home prices are not dropping, simply rising at a slower rate.

The 20-city composite rose 1% in June. Phoenix posted a 0.6% gain for June, and a 6.9% gain from June of last year. Nationally, prices are still 17% below their peak. In Phoenix, the peak was measured to June 2006; from that point prices dropped 56%, and although prices have recovered, we are still 35% below peak prices.  

The takeaway from the housing reports is that price gains are slowing, and home supply has increased with higher prices and more people renting; consumers are slowly losing their ability to finance large purchases as home price appreciation continues to outpace wages. Absent a big increase in wages, you might expect home prices to remain flat or even decrease a bit in coming months.

Orders for durable goods jumped 22.6% in July; that is a record move, but much of the increase is because Boeing saw a jump in signed contracts for the 777X; it will take years before those planes are flying. Along with Boeing, automakers also turned in a strong performance. Demand for cars and small trucks climbed by 10.2%. Orders excluding the transportation sector, however, fell 0.8% with widespread weakness. Orders for primary metals, machinery, computers and defense goods all declined. Another key measurement of business investment, a category known core capital goods, dropped 0.5% in July. Orders for durable goods are volatile, and can jump around from month to month. While business investment has fallen in three of the past four months, it’s increased by an annual pace of 9% so far this year.

The Conference Board’s consumer confidence index jumped to 92.4 in August, the highest level since October 2007, from a revised 90.3 in July. Confidence has now increased for four straight months, and consumers remain quite positive about the short-term outlooks for the economy and labor market, even as the future expectations index declined from 91.9 to 90.9.

It’s official, minus the approval of regulators; Burger King will buy Tim Hortons for $11.4 billion and move the corporate headquarters to Canada, except they will keep corporate offices in Miami; and even though the deal would make sense without the tax dodging; it is a tax inversion deal. Warren Buffett’s Berkshire Hathaway is providing $3 billion in financing for the acquisition. Berkshire will earn 9% annual interest by taking a preferred equity stake.

The Department of Veterans Affairs says investigators have found no conclusive proof that delays in care caused any deaths at a VA hospital in Phoenix. That may be technically accurate, or not, but a troubled health care system in which veterans waited months for appointments while employees falsified records to cover up the delays, certainly did not serve those veterans with the care they deserved. The inspector general's final report has not yet been issued.

The VA is preparing a whole host of fixes for its healthcare system. Congress approved $17 billion to expand health care resources at the VA. Across the entire VA system, $400 million must be spent on staff overtime or private doctors to ensure veterans are treated quickly. As of Aug. 6, the VA had allocated $128 million in private care costs for 83,000 veterans; 8,248 VA schedulers across the country have been trained in appropriate ways of scheduling patients, including 764 Phoenix workers; an internal investigation board will be created to identify managers at the Phoenix hospital responsible for wrongdoing and what disciplinary actions should be taken; nearly $17 million has been spent in Phoenix to send veterans to private doctors for speedier care.

Also, mental health resources have been expanded in Phoenix by filling all but three of 13 psychiatric vacancies and six of seven psychologist positions and adding four social workers. The hospital's primary care staff has been expanded by 53 doctors, nurses and other caregivers. Twenty-seven temporary examination rooms have been opened, and two new outpatient clinics are planned with an additional 30,000 square feet of space.

President Obama went to Charlotte North Carolina today to address the national convention of the American Legion; and he announced steps to expand veterans’ access to mental health care and an initiative with financial companies to lower home loan costs for military families.

The US has begun surveillance flights over Syria to gather intelligence that might lead to airstrikes against ISIS militants in Syria. Military action inside Syria has not been approved yet. Pentagon officials have been drafting potential options for the president, including airstrikes.

Here’s a thought, before we send any more troops back into Iraq, or approve any airstrikes in Syria, we should make sure the VA has figured out a way to provide the best medical care to veterans. No excuses.

Ukraine has captured 10 Russian soldiers, though it did not state how they were caught. Weapons and fighters are able to cross the porous border freely, but until now there has never been confirmation that serving Russian soldiers were active inside Ukraine, despite repeated claims from Kiev. Russian President Vladimir Putin and Ukrainian President Petro Poroshenko held one-one-one talks today in Minsk, aimed at defusing the situation, which is positive, but the Russian POWs undoubtedly makes talks a bit awkward.

After 50 days of fighting, Egypt has brokered a ceasefire between Gaza and Israel. Palestinian and Egyptian officials said the deal called for an indefinite halt to hostilities, the immediate opening of Gaza's blockaded crossings with Israel and Egypt and a widening of the territory's fishing zone in the Mediterranean.

The United Nations has produced a new study on climate change; it includes a summarization of hundreds of scientific papers and is considered to present the best scientific and economic analysis on global warming, and is designed to provide policymakers with a scientific foundation for dealing with global warming. Bloomberg says it has received a leaked copy of the report which highlights the dangers from rising temperatures including damage to crop production, rising sea levels, melting glaciers and more pervasive heatwaves. The report mentions the word “risk” more than 350 times; “vulnerable” or “vulnerability” are written 61 times; and “irreversible” comes up 48 times.

The study, called the “Synthesis Report”, says global warming already is impacting “all continents and across the oceans,” and further pollution from heat-trapping gases will raise the likelihood of “severe, pervasive and irreversible impacts for people and ecosystems”. And the longer we wait to address the problems the more it will cost.

Thursday, May 15, 2014 - A Calm Port in a Stormy World

A Calm Port in a Stormy World

by Sinclair Noe

DOW – 167 = 16,446
SPX – 17 = 1870
NAS – 31 = 4069
10 YR YLD - .04 = 2.50%
OIL - .81 = 101.56
GOLD – 8.90 = 1297.80
SILV - .29 = 19.56

Today, it seems there is a lot going on. Let’s start with international hotspots.

Turks are angry following a deadly mine explosion that has killed at least 300 miners and trapped possibly 100 more; thousands of workers joined a protest strike, demonstrators clashed with security forces, and the discontent threatens the government. An aide to the prime minister was photographed assaulting a protester and there are claims that Prime Minister Erdogan himself struck a teenage girl; that after he was forced to flee an angry crowd and seek safety in a nearby grocery store. Turkish trade unions held a one-day strike over safety standards in the mining industry. Security forces deployed tear gas and water canons against protesters.

Meanwhile, reports of dozens of deaths from an explosion along the border between Syria and Turkey. Also, further allegations of ongoing chemical attacks by the Syrian government. Speaking in London today, Secretary of State John Kerry announced the US, Britain, and European and Arab states are increasing efforts to support rebels fighting to overthrow President Assad. Assad still has the backing of Russia, and that makes already tense relations with Russia even more edgy.

Fears of a civil war in Ukraine are mounting. Nobody wants to jump in with troops, and so there are clandestine forays by unidentified groups or squads of soldiers. And the major powers are only explicit with sanctions. Today, Russia announced it will halt the export of rocket engines crucial to US military defense and space programs. It must be very uncomfortable on the International Space Station these days.

Anti-Chinese sentiment has been running high in Vietnam ever since Beijing deployed an oil rig into disputed waters in the South China Sea on May 1st. There have been encounters including ramming and exchanges of water cannon between Chinese vessels operating near the rig and boats from Vietnam, which wants China out of the area. Today, Cambodia reports hundreds of Chinese nationals had poured across the border from Vietnam to escape riots.

Also, Japan’s Prime Minister, Shinzo Abe, has called for a review of how Japan interprets its pacifist constitution to allow its military to participate in conflicts beyond its borders for the first time since the end of the second world war; this in response to a growing conflict between China and Japan over islands claimed by each country; of course, it’s not just islands but the oil reserves around the islands.

Meanwhile, China issued a bunch of economic data this week, and it mostly points to a real estate slump; home sales fell 18%; housing starts were scaled back by 25%. Moody’s Analytics estimates that the building, sale and outfitting of apartments accounted for 23% of Chinese gross domestic product last year. That is higher than in the US, Spain or Ireland at the peaks of their housing bubbles. The scale of China’s building boom and the country’s reliance on infrastructure investment for growth is unprecedented. In just two years, from 2011 to 2012, China produced more cement than the US did in the entire 20th century, and it all seems to be on shaky ground these days. Each attempt to rein in China’s $25 trillion credit bubble seems to trigger wider tremors.

Brazil has sent army troops to Recife, the capital of the northeastern state of Pernambuco, after strikes lead to riots. State police walked off the job Tuesday. Schools and universities also closed down because of concerns for student safety. Today, further protests in Sao Paolo and Rio de Janeiro drew tens of thousands to the streets. The protests are centered on cities that will host the upcoming World Cup, the quadrennial global soccer championship games. Huge anti-government protests across Brazil last year overshadowed the Confederations Cup, a warm-up tournament for the World Cup. Some of the demonstrations saw clashes between activists and police, and at least six people were killed.

Many Brazilians are angry at the billions spent to host the World Cup. Protesters have said the government should focus spending instead on improving Brazil's woeful health, education, security, housing, and infrastructure systems. The World Cup starts in less than 30 days, and the whole world will be watching.

In one week, Europeans will elect a European Parliament. It’s the second biggest election in the world, after India. Voters look set to choose more assorted extremists, anti-Europeans and oddballs than ever. The Euroland economy is going nowhere, and with the razor thin exception of Germany, most countries are seeing economic contraction; that tends to lead to strange election results.

There are other hotspots around the World. The president of Yemen has declared all-out war on Al Qaeda militants and army troops are now trying to dislodge Al Qaeda from the Arabian Peninsula. Political violence returned to Bangkok Thailand, and the Thai army killed a handful of protesters and threatened more military action if the protests continue. And of course, the Nigerian crazies, Boko Haram, and the kidnapping of hundreds of schoolgirls. And of course, all the old seething conflicts that haven’t been resolved. And don’t forget, the US is still at war in Afghanistan. I know, it’s easy to forget. Apparently, it’s even easier to forget the veterans that have served our country.

Today, Secretary of Veterans Affairs, General Eric Shinseki went before the Senate Veterans Committee to explain the mess that is the VA; this following revelations that as many as 40 veterans died while waiting for medical care at the VA facility in Phoenix.

Since the allegations arose last month that veterans were forced to wait months for appointments at the Phoenix VA medical center and that VA officials were covering up the problem, Shinseki said he has asked the VA's inspector general to investigate. He said he has also launched an intense investigation of scheduling practices at the VA's other 151 medical centers. Shinseki said he was “mad as hell” and the various Senators all acted very indignant. Of course, it wasn’t very believable theatre.

One of the documents brought forth today was an internal VA memo, written in 2008 by a team of VA managers, listing 25 ways that VA scheduling clerks were cooking the books to make it appear that veterans waiting for medical care actually were being seen on time, when in fact they were being made to wait weeks or months.

And then, 2 years ago, the Government Accountability Office reported that VA schedulers were fudging wait times for veterans seeking outpatient care and avoiding using the electronic waitlist as required. The GAO report includes a response from Shinseki's chief of staff at the time, writing that the VA has "proactively taken steps in response to GAO's findings." Clearly that didn’t happen.

Meanwhile, Southern California is on fire. Actually nine fires are burning in the greater San Diego area and they have already destroyed more than 10,000 acres, forcing evacuation of about 125,000 residents. California Governor Jerry Brown has declared a state of emergency to free up resources. It’s hot, it’s dry, and it’s just the start of the fire season.

The 2014 fire season is repeating a pattern of destruction established over the past decade by a combination of high temperatures, parched vegetation and more people living in wooded areas. Fires feeding on plentiful dry grass, brush and hardwood are requiring more personnel and money to bring them under control. More than twice as many acres burned across the US through May 9 this year than during the same period in 2013.

Last week, 96% of California was considered to be under “severe” or worse drought conditions, with about 4% of the southeastern tip of the state still in “moderate” drought conditions. A year ago, only 46% of the state suffered from “severe” or worse conditions. As of today, the National Drought Mitigation Center reports severe drought conditions now engulf 100% of California.

Meanwhile, former Treasury Secretary Tim Geithner is trying to polish his tarnished image; he’s on a book tour peddling the notion that the Wall Street bailout was a huge success. And while it might be argued it prevented a Great Depression, it is delusional to consider it a success. It was at best an experiment that did not result in a worse catastrophe. It did little or nothing for the tens of millions of Americans who lost billions of dollars in home equity and savings, and the millions more who lost their jobs. The toll was greatest on the poor and the middle class. Nor have reforms been enacted that will help the middle class and the poor the next time Wall Street implodes.

Economic data today showed industrial production in the US unexpectedly declined in April, held back by a plunge in utilities as temperatures warmed and a broad-based decrease in manufacturing. That contrasted with a higher-than-forecast reading on the Fed Bank of New York’s gauge of regional manufacturing, which climbed to 19.01 this month, from 1.29 in April.

Initial claims for state unemployment benefits declined 24,000 to a seasonally adjusted 297,000 last week. It was the lowest reading since May 2007.

Consumer prices recorded their largest increase in 10 months in April. The Consumer Price Index increased 0.3% last month as food prices rose for a fourth consecutive month and the cost of gasoline surged. In the 12 months through April, consumer prices rose 2.0%. Stripping out food and energy prices, the so-called core CPI rose 0.2% after advancing by the same margin in March. In the 12 months through April, the core CPI increased 1.8%, the biggest gain since August last year.

Normally you might expect higher inflation numbers to result in lower bond prices, which means bond yields would move higher; not today. The yield on the 10-year Treasury note dipped below 2.5% intraday. Of course, Treasuries are considered a safe haven investment, and it seems a lot of people are looking for a calm port in a stormy world.

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.

Tuesday, December 18, 2012 - Blame It On Whatever You Want

Blame It On Whatever You Want

by Sinclair Noe

DOW + 115 = 13,350
SPX + 16 = 1446
NAS + 43 = 3054
10 YR YLD +.06 = 1.83%
OIL + .79 = 87.99
GOLD – 27.20 = 1671.90
SILV - .64 = 31.74

The markets rallied on news the fiscal cliff negotiations are closer to a resolution. No, no, wait a minute; the markets experienced a Santa Claus Rally. No, no, wait a minute; just make up whatever excuse you want.

No, no, wait a minute; the Federal Reserve announced QE4 last week, even though we're not supposed to call it QE4, and they are just printing money like banshees, although I'm not sure banshees know how to print money, but the point is they are juicing the economy to the tune of $85 billion a month, and you know that has to have some sort of effect.

Why sure; all this money just has to end up in the stock market eventually. You might also expect the dollar to fall. You might also have expected additional strength in the government bond market, because $85 billion pretty much covers all of the expected new issuance going forward, plus many entities still need to buy U.S. bonds for a variety of fiduciary reasons. With little product for sale and lots of bids by various players; one of which, the Fed, has their own printing press and so money is no object in the move to drive prices higher and yields lower; that's a recipe for rising prices. Then you might expect sharply rising commodity markets because nothing correlates quite so well with loosey-goosey monetary policy as commodities.

Last week, when the Fed made it's announcement, stocks initially climbed but then closed red. Gold was mysteriously sold in the overnight markets and again right after the announcement in big HFT blocks. Treasury bonds actually sold off on the news and yields have continued to inch higher. The dollar hardly budged. Commodities were mixed across the board but more or less flat on the day, with the exception of the metals, and especially the precious metals, which were sold vigorously. And since the announcement, stocks have started to climb, but it doesn't seem to correlate to the Fed's announcement.

Go figure.

Maybe QE4 really is a different beast. The Fed tied their monetary policy to specific targets for the unemployment rate (6.5%) and the inflation rate (2.5%). So, in a way, the monetary policy is also fiscal stimulus, meant to keep stock prices moving higher and residential homes sales climbing at a robust pace. The goal is certainly to drive economic activity, and we can expect it to continue for at least a couple of years, depending upon targets and who knows what.

We know the unemployment target will be tough to hit because as the labor market gets better, all those people who disappeared from the government statistics are likely to re-emerge; they'll jump back into the labor pool and try to find a job. A lot of people have vanished from the official statistics. So, it looks like we are going to have a long run of Fed stimulus.

Meanwhile, the fiscal stimulus gang can't seem to shoot straight. Obama made a concession to Republicans by offering to limit tax increases to incomes exceeding $400,000 per household. That is a higher threshold than the $250,000 he had sought earlier. Boehner, the top Republican in Congress, said he planned to move a "Plan B" bill to the House floor, possibly this week, but there is no clear indication he has his party's support. The Obama-Boehner talks have largely overcome stark ideological differences and are focused increasingly on narrower disagreements over numbers. It might happen, but don't count your chickens until ...

The December reading of Morgan Stanley's proprietary Business Conditions Index is out and the results are a bit counter-intuitive, but overall they appear to be bullish. The headline index jumped 15 points to 51% in December, which makes up for much of the 20 point slide over the past two months. The tumble in October and November had been attributed to elevated uncertainty caused by the fiscal cliff. Morgan Stanley's economic team says, "reports of uncertainty created by the fiscal cliff jumped dramatically in December to another new high.

Given that fiscal cliff uncertainty is up and hiring plans deteriorated, it’s unclear what drove the year’s largest increase in expectations."

I assume this is big business confidence, since small business confidence plunged last month. The hiring plans index particularly suggests that (as in it points to an improvement in hiring plans, when the small businesses, who drive employment, said the reverse).

Businesses are apparently shrugging off the fiscal cliff and they believe a deal will get done. What is difficult to understand is how these businessmen think a contraction in the Federal deficit, which is what a budget deal will presumably produce for 2013, will lead to better business conditions. But I guess we’ll have to go a few months into 2013 for the delusion to wear off.

One element of the coming budget pact that is not getting the attention it warrants is a quiet and slightly sneaky effort to gut military benefits by privatizing them. Privatization has rarely delivered on its promise of delivering better performance and/or lower costs.

The manufactured fiscal cliff crisis means that more profiteering is coming to the military. The cash flow bonanza for privatizers is the healthcare and pension budgets: Instead of using the current government-contracted HMO/PPO model, called TriCare, military personnel and their families would receive health care vouchers allowing them to either purchase whatever health care plan they chose from an array of private sector providers. Instead of earning defined retirement benefits, also known as pensions; soldiers, sailors, airmen and marines would each pay into privately held 401K programs, or simply take a lump sum of cash.

In a win-win for corporate advocates, cuts to what they call the “excessive” and “burdensome” human side of the military will simultaneously fund greater spending on expensive weapons and communications systems. And under the pretext of providing “choice” to military personnel, the programs decrease total benefits and increase private sector access to government funds and the money of military personnel.

On the healthcare side, this is simply an excuse for the medical industrial complex to get its blood suckers into the huge military budgets, for the VA system is vastly more efficient than private sector providers.

Government health care is often characterized as wasteful and inefficient. But here too the VA’s experience suggests otherwise. In 2007, the nonpartisan Congressional Budget Office (CBO) released a report that concluded that the VA is doing a much better job of controlling health care costs than the private sector. After adjusting for a changing case mix as younger veterans return from Iraq and Afghanistan, the CBO calculated that the VA’s average health care cost per enrollee grew by roughly 1.7% from 1999 to 2005, an annual growth rate of 0.3%. During the same time period, Medicare’s per capita costs grew by 29.4 %, an annual growth rate of 4.4 %. In the private insurance market, premiums for family coverage jumped by more than 70%, according to the Kaiser Family Foundation.

The VA delivers high quality medical care at a more favorable cost than the private sector, meaning veterans will get a double whammy if the privatizers succeed: lower health care allotments by virtue of spending reductions, with the impact made more severe by the use of vouchers rather than relying on the established, effective VA system.

The national average pump price of regular gasoline fell 9.2 cents a gallon last week to $3.248 a gallon today, the lowest price since December 2011. Prices have fallen each day this month and are down 16% since mid-September. Missouri posts the lowest average price in the country at $2.955. Hawaii has the nation’s highest price at $3.979. All 50 states have gas below $4 for the first time this year.

Declining oil prices, coupled with a series of encouraging economic figures, have helped ease prices at the pump for American drivers in time for the busy holiday season. This year saw seasonal anomalies brought on by hurricanes, refinery outages and geopolitical issues. The Christmas miracle of cheap gasoline, however, was anticipated by the U.S. Energy Department early last month, suggesting it’s no miracle at all.

Factory output in the United States remains below rates from early this year, though November figures suggest there's been a sharp increase as the east coast recovers from Hurricane Sandy. The Federal Reserve said the manufacturing sector saw its biggest gain in about a year with a 1.1 increase in November. While characterized as modest, the U.S. Labor Department said the consumer price index dropped 0.3 percent.

The SEC has approved plans for JPMorgan Chase to offer the first US exchange-traded fund backed by physical copper. BlackRock and ETF Securities Ltd. also have said they plan to start physically backed ETFs for industrial metals in the US. Some industrial users of copper are concerned because they fear the ETFs will disrupt the market. The SEC dismissed worries that the ETFs would result in all available copper being scooped up and warehoused, pushing civilization back into the Stone Age.

Private-equity firm Cerberus Capital Management LP said it is seeking to sell the company that manufactures a gun used in last week’s shooting at Sandy Hook Elementary School in Newtown, Conn. “We have determined to immediately engage in a formal process to sell our investment in Freedom Group…We believe that this decision allows us to meet our obligations to the investors whose interests we are entrusted to protect without being drawn into the national debate that is more properly pursued by those with the formal charter and public responsibility to do so,” No official word on the asking price, but there is speculation that it could sell for as little as 30 pieces of silver.