Tuesday, November 05, 2013 - Hey Guy, Remember the Fifth of November

Hey Guy, Remember the Fifth of November

by Sinclair Noe

DOW – 20 = 15618
SPX – 4 = 1762
NAS + 3 = 3939
10 YR YLD + .06 = 2.66%
OIL – 1.00 = 93.62
GOLD – 2.70 = 1312.90
SILV + .05 = 21.81

Today is election day in much of the country. In 1872, Susan B. Anthony was arrested for trying to vote. If you don't vote today, at least remember the people who tried to make sure you have the right to vote. Today is also Guy Fawkes Day. In 1605 Fawkes led the Gunpowder Plot, a plot to blow up the English Parliament. That didn't work and he was hanged. The plot is recognized with bonfires to this day, and those strange white masks with the smiling, mustachioed guy that have become popular with protesters from New York to Cairo. Also, the word “guy”, comes from Mr. Fawkes; nobody used the word before he came along. Hey guy, where you going with that mask on your face?

Stocks moved lower today but the Dow Industrials wiped out most of a 117 early morning decline; this followed two days of gains for the Dow and the S&P 500, while the Nasdaq stretched its winning streak to three sessions in a row.

Treasury prices pulled back for the fourth day of losses in the past 5 sessions. According to data released by CoreLogic Tuesday, home prices rose 0.2% in September as the annual pace hit 12%; that's the fastest annual pace since 2006. The Institute for Supply Management said its non-manufacturing survey rose to to a 55.4% reading last month from 54.4% in September, beating economist expectations of a 54% reading. A result over 50% indicates expansion. The strength of the ISM survey seems to indicate that the government shutdown might not have been a major hit to the economy, which in turn might mean that the Federal Reserve could be closer to tapering its bond buying program sooner rather than later.

There will be a couple of different research papers formally presented to the International Monetary Fund later this week and both papers are expected to suggest a dovish stance for the Fed; arguing for the Fed to lower the target for the jobless rate before consider changes to interest rate policy. Right now the Fed has a target of 6.5% unemployment and 2.5% inflation rate. The research from a half-dozen Fed economists maintains the the unemployment objective actually should be lowered to 6.0 percent or even 5.5 percent before it makes any moves. Models used in the reports show that the economy simply will perform better if the Fed holds off. But there also is a mix of market expectations and some unusual trends in the current labor situation that call for a less aggressive rate-hike schedule. Markets have grown accustomed to having the Fed firmly in place, so news of a delay in rate increases should be pleasant, but there is no guarantee the Fed will continue to provide easy money to the markets.

Remember the talk about how low energy prices would drive a renaissance in the US economy, manufacturing would return to America in a process called “re-shoring”. Well, we're still waiting for the shale revolution, and Goldman Sachs is writing about the not yet arrived revolution, saying: “There is little evidence of significant “induced” employment growth in downstream manufacturing industries. Similarly, cap-ex in energy intensive sectors that might be expected to benefit most from the shale boom has not outperformed cap-ex in other sectors during the recovery, although it did decline by less during the recession.”

This is not to say we haven't seen some activity. Oil and gas extraction has seen a pretty strong increase in employment but that's just a small part of the total labor force. The impact on GDP growth is estimated by Goldman Sachs to be 0.10 ppts in 2013.

It might be expected that the resulting decrease in natural gas prices will result in lower production prices, either through lower energy prices (GS sees little impact thus far) or lower feedstock prices. Certainly gas costs in the US are lower than overseas, although there is still a connection.

As Goldman Sachs notes:

“A core narrative in the US manufacturing renaissance theme is that low energy prices will directly support growth in downstream manufacturing industries. In past research we found scant evidence of a structural renaissance in US manufacturing in the incoming data―whether due to energy cost advantages, rising productivity, subdued labor costs, or other factors ... we now look at employment outcomes in downstream industries in particular.

“We define these downstream manufacturing industries relatively broadly, including the chemical, plastic and rubber products, and primary metal manufacturing industries.”

In addition, the share of manufacturing employment in total nonfarm payroll employment has stabilized, suggesting an arrest to the offshoring, but not a boom in re-shoring. Bottom line, the macroeconomic benefits of the shale revolution are positive but probably modest, at least for now. However, the reverse is not the case; in other words, if we took away the shale revolution and if gas prices jumped, that would likely be a catalyst for an economic downturn.

On Thursday, the European Central Bank is expected to keep rates on hold, but there are some expectations for a hint they will cut rates in the not-so-distant future. The European Commission has cut the economic growth forecast for 2014 and raised its joblessness predictions and they're blaming the US, and emerging markets. Ollie Rehn, the EU economic chief says:

“While growth in the U.S. is expected to accelerate over the forecast horizon, with the elevated level of public debt at 105% of GDP, navigating around the next fiscal cliff in February 2014 will require very decisive action by U.S. policymakers to avoid another train wreck that could damage growth both in the U.S. and global economy,” he said.

“Moreover, the eventual phasing-out of monetary stimulus, likely to start in the U.S. in line with the Fed’s revised forward guidance, will call for careful calibration and communication to avoid ramifications to growth,” he added.

Then he pointed the finger at emerging-market economies:

“Not only growth in emerging-market economies has slowed down, but also the growth models of some countries may have reached their limits,” the commissioner said.

“More broadly, the lack of will or ability to deliver reforms that are necessary to strengthen economic fundamentals is a major risk in some emerging-market economies.”

“Renewed capital-flow volatility, particularly related to the phasing-out of monetary stimulus, could aggravate uncertainly and weigh on growth in the world economy, and thus also on Europe.”

Meanwhile, checking in on Cyprus, the chairman of the Independent Commission on the Future of the Cyprus Banking Sector says Cyprus needs to start preparing to attract foreign lenders to the island, and t he government should start putting in place a new attractive regulatory framework so it’s ready for the moment when it can go out and get new banks. Translation: the Troika blew up the old banks so now the Cypriots have to rely on the kindness of strangers.

nearly 40 percent of Americans between the ages of 25 and 60 will experience at least one year below the official poverty line during that period ($23,492 for a family of four), and 54 percent will spend a year in poverty or near poverty (below 150 percent of the poverty line).

Even more astounding, if we add in related conditions like welfare use, near-poverty and unemployment, four out of five Americans will encounter one or more of these events. In addition, half of all American children will at some point during their childhood reside in a household that uses food stamps for a period of time.

Put simply, poverty is a mainstream event experienced by a majority of Americans. For most of us, the question is not whether we will experience poverty, but when.

But while poverty strikes a majority of the population, the average time most people spend in poverty is relatively short. The standard image of the poor has been that of an entrenched underclass, impoverished for years at a time. While this captures a small and important slice of poverty, it is also a highly misleading picture of its more widespread and dynamic nature.

The typical pattern is for an individual to experience poverty for a year or two, get above the poverty line for an extended period of time, and then perhaps encounter another spell at some later point. Events like losing a job, having work hours cut back, experiencing a family split or developing a serious medical problem all have the potential to throw households into poverty.

Just as poverty is widely dispersed with respect to time, it is also widely dispersed with respect to place. Only approximately 10 percent of those in poverty live in extremely poor urban neighborhoods. Households in poverty can be found throughout a variety of urban and suburban landscapes, as well as in small towns and communities across rural America. This dispersion of poverty has been increasing over the past 20 years, particularly within suburban areas.

Along with the image of inner-city poverty, there is also a widespread perception that most individuals in poverty are nonwhite. This is another myth: According to the latest Census Bureau numbers, two-thirds of those below the poverty line identified themselves as white — a number that has held rather steady over the past several decades.

What about the generous assistance we provide to the poor? Turns out the safety net is extremely weak and filled with gaping holes.

We currently expend among the fewest resources within the industrialized countries in terms of pulling families out of poverty and protecting them from falling into it. And the United States is one of the few developed nations that does not provide universal health care, affordable child care, or reasonably priced low-income housing. As a result, our poverty rate is approximately twice the European average.

Whether we examine childhood poverty, poverty among working-age adults, poverty within single-parent families or overall rates of poverty, the story is much the same — the United States has exceedingly high levels of impoverishment. The many who find themselves in poverty are often shocked at how little assistance the government actually provides to help them through tough times.

The solutions to poverty are to be found in what is important for the health of any family — having a job that pays a decent wage, having the support of good health and child care and having access to a first-rate education. Yet these policies will become a reality only when we begin to truly understand that poverty is an issue of us, rather than an issue of them.

Wednesday, May 29, 2013 - Behind the Curtain

Behind the Curtain

by Sinclair Noe

DOW – 106 = 15,302
SPX – 11 = 1648
NAS – 21 = 3467
10 YR YLD - .01 = 2.12%
OIL – 2.12 = 92.89
GOLD + 11.30 = 1393.70
SILV + .19 = 22.56

Earlier today, I listened to one of the talking heads on CNBC trying to explain why the markets were up yesterday and down today. It was very entertaining.

When mortgage interest rates fall, the probability that an individual will re-finance a mortgage increases. When mortgage interest rates increase, the likelihood of a re-financing of the mortgage goes down. Therefore, in a rising rate environment, the average life of a pool of mortgages increases. For example, if a bond fund held Mortgage Backed Securities (MBS) with an assumed 10-year average life, and interest rates rose, the average life of the MBS portfolio would be extended for a few years. The last thing that a bond manager wants in a rising rate environment is to have the average maturity of the portfolio extended, as this adds to the losses. As a result, MBS players hedge their portfolios against “duration risk” by shorting Treasuries. The higher rates go, and the speed that rates are increasing, forces more and more selling.

Is there a level of support that we can watch? There is, and it's probably 2.2% to 2.5% on the 10-year bond that will bring out an avalanche of selling. The 2.2% tipping point is very close to where the T-bond sits today. Others say we have a huge concentration of bonds that would go out of the money around 2.5% - again, very close to where we are.

The more the price on the 10-year drops, and the higher the yield climbs, the more selling is required. Is the Big Sell-off going to happen? That depends on the performance of the bond market, and on how the dealer community is positioning themselves against event risk.

There are risks: generally speaking, and in regards to ‘taper’ of QE, soon as the Fed pulls back, we will see a spike/knee-jerk higher in rates (which we are seeing in ‘anticipation’ of this happening). Remember, all the movement we've seen in bonds in the past two weeks is just from jawboning about the possibility of taper.

Bernanke has recently said that the Fed is in the process of  changing the monthly QE purchases. Here's a big question to be considered – does taper of QE indicate the economy is better? That would be the reason to raise rates; the economy is improving – raise rates; everything else is artificial, or just an attempt to tamp down an impending asset bubble.

Yesterday, we heard that consumer confidence was up, a big jump in May to 76.2. It sounds like everybody believes the economy is improving. And while the confidence numbers are up, they're not out of the gutter. The average consumer confidence number during a recession is about 79, and even with our recent boost, we're still lagging below that low bar. The May data shows the highest measure of consumer confidence since February 2008. That was a time in which a housing crash was already well underway, and only a month before before Bear Stearns collapsed and confirmed that the country was in a financial crisis.

Yesterday, we also had the S&P/Case-Shiller House Price Index posting a 10.9% increase year over year in March. Well, that certainly sounds like things are improving. Except, in nominal terms, the Case-Shiller National index (SA) is back to the third quarter of 2003 levels. Inflation adjusted, prices are back to the second quarter of 2000. The biggest price gains were noted in Phoenix, Las Vegas, and San Francisco; all areas that were smashed by the housing crash. So, in some ways, the great rebound in housing is just another stage in the foreclosure crisis. And that is a crisis that is not yet finished.

Last year $192 billion-dollars was lost as a result of foreclosures.  On average per household, this number equates to about $1,700 of loss in 2012. The foreclosure crisis is still ongoing despite the fact that foreclosure volumes are on the decline. Why are the number of foreclosures on the decline? Last month, three major banks, including Citigroup, JPMorgan Chase, and Wells Fargo, halted all their sales of homes in foreclosure; this also reduced the supply of homes on the market. The apparent problem is that the banks still weren't following the rules for foreclosures, in violation of the national mortgage settlement. The reduction in housing supply, then, is largely artificial.

There is one thing that housing prices do accomplish, however: the so-called "wealth effect." Along with a booming stock prices, higher property values make people feel rich. This then encourages them to go out and spend money. Here's the problem with the wealth effect, you have to realize your gains. In other words, you would have to sell your stocks and your real estate and put the profit in your wallet, otherwise the wealth effect is so much smoke and mirrors, and you're spending money you don't really have. Which is one thing that Americans have apparently mastered.

Half of working Americans now earn less than they did 10 years ago, adjusted for inflation. Middle class incomes have barely budged in 44 years. Around 12 million people are unemployed, about 40% of whom have been out of work for six months or more. Remember the Summer of 2012? All the politicians were talking about jobs, jobs, jobs. Now, they can't even spell it. Poverty is on the rise, and it would be in your face and on the sidewalks except that now we have food stamps, so we don't have to look at the lines of people waiting outside soup kitchens like in the Great Depression. Still, 15% of the country depends on foods stamps.

For people who do have jobs, the quality of the jobs continues to decline, and if you were thinking about retiring, well, you probably are having to re-think your personal exit strategy. According to a recent Gallup survey, 37% of nonretired Americans claim that they will quit working after age 65. A decade ago, that percentage was 22, and in 1995, only 14% guessed they'd be retiring after 65. Is it possible that work is now more fulfilling for so many more people? Were so many employers discriminating against willing 65-year-olds a couple decades ago? Not likely. People are working longer to keep food on the table and a roof over their head.

Besides not having saved enough, today's would-be retiring baby boomers have more debt. The Census Bureau reports that from 2000-2011, the largest percentage increases in median household debt were in the 55-64 age bracket (up 64%, to $70,000) and the 65-and-over bracket (more than doubling, to $26,000). And while many were taking on more debt, median net worth (assets minus liabilities) for all age groups fell. In 2000, median net worth was $81,821. In 2005, median net worth had jumped to $106,585, before dropping to $68,828 in 2011 (in 2011 constant dollars).

In 1985 taxable money market funds were yielding 7.71%. A one-year CD was yielding 8.53%. Nowadays, CD's and money market funds offer rates that start with a decimal point. The Fed has been forcing people into the equity market and if you just don't have the stomach for stocks, you've been forced into the bond market.

The Fed's bond holdings alone have almost tripled since March 2008. And since last fall, the Fed has purchased mortgaged-backed securities and bonds by $85 billion each month. As a result, Fed's holdings in securities will amount to $4 trillion by the year-end of 2013. At the same time, the balance sheets of the big four central banks (the Fed, European Central Bank, Bank of Japan, and People's Bank of China) have more than quadrupled from $3 trillion to more than $13 trillion during the past half a decade.

As rounds of QE have pushed nominal interest rates below the rate of inflation in the United States, it was hoped that negative "real" interest rates would encourage lending and borrowing, and thus to stimulate economic activity. But this is growth by addiction, not growth by fundamentals.

Ben Bernanke knows this economy is not strong. This is no time to back away from trying to prop up the economy. Or as Bernanke said: “A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further.”

Is the economy in better shape than a couple of years ago? Yes, but it's a little early to break into a chorus of “Happy Days are Here Again”. While economic growth has picked up, it remains anemic at 2.2 percent real GDP growth on average since the end of the recession in mid-2009. As long as the US is growing well below potential; about 2.2 percent since the Great Recession/depression, inflation risks remain low and disinflation is the new normal, which serves as a still another reason to keep interest rates low. A lot of people would like to press the idea that the economy is improving; Congress can keep ignoring the unemployment and equality crises and enjoy ginning up imaginary problems.

“The loss of output and earnings associated with high unemployment reduces revenues and increases spending on income-support programs, thereby leading to larger budget deficits and higher levels of public debt than would otherwise occur.” At least that's what Bernanke claimed in his recent testimony to Congress. Maybe Winston Churchill said It better: “Americans can always be counted on to do the right thing, after they have exhausted all other possibilities.”

A mythical recovery gives cover to a lot of irresponsible people hoping that Americans won't look behind the curtain.

Wednesday, April 10, 2013 - The Real Question on the Economy

The Real Question on the Economy

by Sinclair Noe

DOW + 128 = 14, 802
SPX + 19 = 1587
NAS + 59 = 3297
10 YR YLD +.06 = 1.80%
OIL +.35 = 94.55
GOLD – 25.70 = 1560.30
SILV - .33 = 27.75

The Federal Reserve released the minutes of their Federal Open Market Committee meeting held March 19-20. The minutes leaked out 5 hours early. The Fed inadvertently sent the report to congressional aides and trade organizations yesterday, and since the details are actually trade-able information, they had to make it public quicker than not. Make no mistake, this was a serious breach of protocol.

Once the minutes were made public, it depressed bond prices, mainly because of disagreements among the Fed's 19 policymakers about carrying on with buying $85 billion in Treasury and mortgage bonds per month to stimulate the economy. Of the 12 officials who have a vote on monetary policy this year, "a few" expected to taper the purchases around midyear and to end them later this year. "Several others thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end.” Proving once again that the prognosticating skills of the Federal Reserve are roughly equal to the singing skills of a fish on a bicycle.

Just like the release of the minutes, their ideas about exiting QE seem a bit premature, especially in light of last week's jobs report, which you recall, was a stinker. And yesterday we talked about job cuts at the big banks; here's the actual quote from a Bloomberg news article: “Rising stock prices, rebounding profits, restored dividends and a growing economy are signaling to US banks it's time for more job cuts.”

The FOMC did have a revelation; for the first time they recognized that $1.1 trillion in unpaid student loans might just constitute a wee bit of a problem for the economy. Rates on the majority of student loans taken out by undergraduates from the Education Department have remained since 2006 fixed by law at 6.8 percent. The spread between the two, which is an appropriate way to measure relative rates, since student loans are generally repaid in about 10 years, has ranged from 4.5 percentage points to 5.27 percentage points since August 2011, the highest gap on record.

And the final report from the FOMC is to stay the course of Quantitative Easing until unemployment hits 6.5% or inflation hits 2.5%; so, nothing really changed. What it reveals is the Fed is getting nervous about watching their balance sheet balloon to $4trillion or more; they're nervous about asset bubbles; they're nervous about how to exit without crashing the party; and they're nervous because this really is a grand experiment in central banking.

Anyway, the stock market moved higher today, and perhaps the best reason I can offer for the big, record breaking day on Wall Street is just that the trend is up.

President Obama sent a $3.8 trillion budget to Congress today calling for more tax revenue and slower growth for Social Security benefits. The president is proposing to replace across-the-board sequester cuts with $1.8 trillion in additional specific deficit reduction over 10 years that includes collecting more taxes from the wealthy and trimming some federal programs. For the first time, Obama is including in his budget an offer made last year to congressional Republicans to change the cost-of-living calculation to a Chained CPI formula for Social Security and tax brackets, which would increase benefits more slowly and subject more income to taxation.

The president’s plan to raise taxes on wealthy individuals and to close loopholes for corporations drew immediate condemnation from Republicans. Actually, the Republicans are licking their chops at the Chained CPI on Social Security. They're already characterizing the President's plan as a way to "save” Social Security, they're just not going to go along with his tax increases. And the plan to change the Social Security formula drew fire from fellow Democrats. I'm not sure what classes Obama actually took at Harvard, but I think he missed Negotiating 101. He apparently wants to show a willingness to compromise, but the Republicans seem unwilling to take yes for an answer.

Now, I'm thinking back to maybe last week, when Obama sent new Treasury Secretary Jack Lew to Brussels to tell the Europeans to ease up on austerity because its bad for growth; or at least it's bad for growth in Europe but apparently it's good for the US. Austerity is an anti-growth policy. It frequently makes the debt-to-GDP ratio larger because it causes such a large fall in GDP, but it's bad for Europe and good for the US. Must have missed that class on Consistency 101.

Now, if you're neck brace hasn't already gone flying off due to the tremendous torque exerted by today's news, let's put a cherry on top. Obama is proposing a new $2 billion infrastructure investment or jobs program that can overcome the damage to the economy caused by austerity in the form of a combined $300 billion in reduced spending and increased tax revenues.

Anyway, let's get back to the Federal Reserve minutes on how they will continue to juice the economy and the president's budget, which nobody likes and is likely DOA, and let's ask – what's wrong with this picture?

If the economy is getting better, then why does poverty in America continue to grow so rapidly?  Yes, the stock market has been hitting all-time highs recently, but also the number of Americans living in poverty has now reached a level not seen since the 1960s.  Yes, corporate profits are at levels never seen before, but so is the number of Americans on food stamps.  Yes, housing prices have started to rebound a little bit, but there are also more than a million public school students in America that are homeless.  That is the first time that has ever happened in U.S. History. Do we measure our economic progress by the false stock market bubble that has been inflated by the Fed's money dump on their Wall Street cronies, or should we measure our economic progress by how the poor and the middle class are doing?

Even as the markets hit new highs, the most explosive growth is in poverty; now at the highest levels since the 1960s. One out of every six Americans now live in poverty; 146 million are considered poor or low income; one in every five children live in poverty; one in five households with children are considered food insecure – meaning the kids are going hungry; and nearly 3 million children in this country live on less than $2 dollars a day, which is the global standard for extreme poverty.

At some point, maybe the President and the Republicans and the Federal Reserve could just stop for a moment and ask the question: What's the economy for anyway?

A side note: I've been talking about cyber attacks as a major trend for a couple of years now. Obama's budget proposes to boost Defense Department spending on cyber efforts to $4.7 billion, $800 million more than current levels, even as it plans to cut the Pentagon's overall spending by $3.9 billion; the idea is to protect computer networks from internet base attacks. Intelligence officials said last month that cyber attacks and espionage have supplanted terrorism as the top security threat facing the United States.

This was one of the trends I talked about at the recent Wealth protection Economic Conference. If you would like to hear the entire Conference, including nine CDs, or the MP3 recordings are now available. Contact Resource Consultants at 800-494-4149 for purchase information. 

Thursday, November 15, 2012 - Pick One or Pick All Four

Pick One or Pick All Four

by Sinclair Noe

DOW – 28 = 12,542
SPX – 2 = 1353
NAS – 9 = 2836
10 YR YLD =1.59%
OIL – 1.01 = 85.31
GOLD – 11.50 = 1717.10
SILV - .14 = 32.70

We had a few economic reports; they deserve mention; we also had a few flashpoints; we'll get to those soon.

Consumers paid somewhat higher prices for food, rent and housing in October, offsetting a decline in the price of gasoline at the pump. The consumer-price index edged up a seasonally adjusted 0.1% last month. Inflation-adjusted hourly wages, meanwhile, fell by 0.2% in October. Wages fell slightly, even as consumer prices rose, to account for the decline. Real wages have fallen 0.7% over the past 12 months, meaning consumers have less buying power compared with one year ago. Consumers got some relief in October, however, from the falling price of gasoline. The government’s price index of gas, which spiked 16.6% from July to September, tapered off 0.6% last month. The more important number to consumers — the actual cost of a gallon of gas — fell by almost 7% in October and retail prices continued to decline in the first two weeks of November. The average national cost is about $3.50 a gallon, down from nearly $4 a few months ago.

Hurricane Sandy contributed to negative readings for both Philadelphia- and New York-area manufacturing gauges in November; not a surprise.

First-time jobless claims soared by 78,000 to a seasonally adjusted 439,000 in the week ended Nov. 10; its the highest level for initial claims in 18 months; largely a side-effect of Hurricane Sandy.The bottom line is that in coming weeks the data will be extremely volatile and will likely not reflect the true picture of the labor market developments.

Tens of thousands of European workers take to the streets in a historic, concerted action to protest soaring unemployment and unprecedented austerity. The Bank of England's Mervyn King warns that the slump will be longer and more painful than imagined. It is slowly dawning on policy-makers in each region just what a mess they are in. Mervyn King warns that, five years after the collapse of Northern Rock,the British economy is still only halfway through the crisis. Meanwhile German Chancellor Angela Merkel talks of another half a decade of misery in the euro-zone.

The European Union statistics agency, Eurostat reports third-quarter euro-zone gross domestic product shrank 0.1% compared to the second quarter. That’s equal to an annualized contraction of around 0.4%. That follows a 0.2% quarterly contraction in the previous three months. A recession is widely defined as two consecutive quarters of shrinking GDP. The figures didn’t tell us anything we didn’t already know. However, they did confirm that things are at least as bad as we thought.

Greece's finance minister has written to the UK's finance minister asking for further information on Greek citizens who were recently revealed to hold offshore accounts with HSBC in the channel isle of Jersey.

"We had no idea about their existence and were surprised when their names were included on the list recently made public by HSBC," said a senior finance ministry official. "The minister sent the letter because he wants to get to the bottom of it. Tax evasion is one of our biggest problems."

An estimated 57,000 Greeks are believed to have transferred banks deposits abroad since the crisis' outbreak in Athens in late 2009.

In a separate development, the finance minister announced that the country was also poised to dispatch letters to some 15,000 Greeks who moved about €5bn abroad without declaring it to tax authorities. "More than €2bn of that amount could be recouped in taxes," said the finance ministry official. "Ordinary Greeks who are suffering from so much austerity want to see some action."

The International Monetary Fund drew a line in the sand on Greek debt negotiations today, saying the fund’s European bailout partners must do more to cut the ailing country’s debt for the sake of the global economy and the fund itself can’t offer any better loan terms. German chancellor Angela Merkel has once again rejected the idea that governments should take a loss on their loans to Greece.

There is still a lot of talk about the fiscal cliff. Nothing much changed today. We'll keep you posted. Federal Reserve Bank of Dallas President Richard Fisher said: “Only the Congress of the United States can now save us from fiscal perdition. The Federal Reserve cannot,” and he added the Federal Reserve won’t be there to bail out legislators if they fail. Fisher said: “Our Congress–past and present–has behaved disgracefully in discharging its fiscal duty.” Apparently Fisher missed the irony of his remark. Also, no notice of how similar Fisher's remarks sound to the IMF's warnings on Greek debt negotiations.

 Federal Reserve Chairman Ben Bernanke said today that banks' overly tight lending standards may be holding back the U.S. economy by preventing creditworthy borrowers from buying homes. 

Bernanke said: Some tightening of credit standards was needed after the 2008 financial crisis, but "the pendulum has swung too far the other way." Qualified borrowers are being prevented from getting home loans. Well, we know he's aware of the problem, the question is what will he do about it. In his speech, Bernanke gave no hint of what future moves the Fed might take. But he said officials at the central bank understood the problems still facing the US economy. Bernanke said the housing has shown signs of recovery this year. But he said construction activity, sales and prices remain much lower than they were before the crisis. About 20 percent of mortgage borrowers remain underwater.

Oh yeah, the Israelis and Palestinians are throwing bombs at each other across the Gaza border.

Fiscal Cliff, European recession, War in the Middle East, weak economic numbers in the US – Four flashpoints; pick one or pick all 4, and the world did not explode. It's a good day. 

BP has agreed to pay the largest criminal fine in US history – $4.5bn – to resolve all criminal charges arising from the fatal explosion and oil spill in the Gulf of Mexico.

BP agreed to pay $4bn to the US government over five years, and $525m to the Securities and Exchange Commission. That money will be paid over three years. The criminal settlement does not settle all of the claims against BP for the April 2010 blowout of the Deepwater Horizon, and the subsequent oil spill.

BP is not yet off the hook for environmental damage to the Gulf of Mexico, and could face billions in restoration costs to waters, coastline and marine life. The deal does limit BP's exposure to further criminal charges and penalties, and frees the company to focus on resolving those other civil claims.

The fine is the largest criminal penalty in US history, easily outstripping the previous record of $1.2 billion levied by the Justice Department against Pfizer over fraudulent marketing practices. In addition to the fines, the oil company agreed to plead guilty to 11 felony counts of misconduct or neglect of ships' officers, arising from the deaths aboard the Deepwater Horizon when the rig exploded and sank. It also agreed to single misdemeanour counts under the Clean Water Act and the Migratory Bird Act and one felony count of obstruction of Congress.

The settlement remains subject to US federal court approval.

Two BP employees will also face manslaughter charges over the 11 deaths in the oil-rig explosion that triggered the spill.

Notice that BP will not face charges of manslaughter, two employees will. Another reason why corporations are not people.

The US Census Bureau has released its report on “Income, Poverty, and Health Coverage in the United States:2011” Median household income declined, the poverty rate was not statistically different from the previous year and the percentage of people without health insurance coverage decreased. 

Real median household income in the United States in 2011 was $50,054, a 1.5 percent decline from the 2010 median and the second consecutive annual drop.

The nation's official poverty rate in 2011 was 15.0 percent, with 46.2 million people in poverty. After three consecutive years of increases, neither the poverty rate nor the number of people in poverty were statistically different from the 2010 estimates.

The number of people without health insurance coverage declined from 50.0 million in 2010 to 48.6 million in 2011, as did the percentage without coverage - from 16.3 percent in 2010 to 15.7 percent in 2011.

In 2011, the median earnings of women who worked full time, year-round ($37,118) was 77 percent of that for men working full time, year-round ($48,202) ─ not statistically different from the 2010 ratio. Real median earnings of both men and women who worked full time, year-round declined by 2.5 percent between 2010 and 2011. The rates of decline for men and women were not statistically different from one another.

Based on the Gini index, income inequality increased by 1.6 percent between 2010 and 2011; this represents the first time the Gini index has shown an annual increase since 1993, the earliest year available for comparable measures of income inequality. The Gini index was 0.477 in 2011. (The Gini index is a measure of household income inequality; zero represents perfect income equality and 1 perfect inequality.)

Income inequality also increased between 2010 and 2011 when measured by shares of aggregate household income received by quintiles. The aggregate share of income declined for the middle and fourth quintiles. The share of aggregate income increased 1.6 percent for the highest quintile and within the highest quintile, the share of aggregate income for the top 5 percent increased 4.9 percent. The changes in the shares of aggregate income for the lowest two quintiles were not statistically significant.

In 2011, 13.7 percent of people 18 to 64 (26.5 million) were in poverty compared with 8.7 percent of people 65 and older (3.6 million) and 21.9 percent of children under 18.

Monday, September 24, 2012 - Counting Fingers

Counting Fingers

by Sinclair Noe

DOW – 20 = 13,558
SPX – 3 = 1456
NAS – 19 = 3160
10 YR YLD -.04 = 1.72%
OIL +.14 = 92.07
GOLD – 8.50 = 1765.50
SILV - .55 = 34.07
PLAT – 16.00 = 1626.00

Goldman Sachs is out with some research. I always feel more than a little skepticism when reading Goldman research. It's tough to believe a research report from a company you know would bet against you. You want to count your fingers after shaking hands. Goldman Sachs strategists expect the "fiscal cliff" to push the market lower in the fourth quarter, and they recommend investors sell the stocks that have lagged so far this year.

Goldman chief U.S. equity strategist David Kostin writes that the S&P 500 should fall sharply after the election when investors finally realize that there is a possibility that the fiscal cliff will not be resolved smoothly. He says the majority of investors expect to see the fiscal cliff avoided in the lame duck session of Congress, but Goldman sees a one-in-three chance that Congress will fail to address the issue.

Goldman says a catch-up strategy could be to sell stocks that have had the worst performance year-to-date. In the 23 years that the S&P was positive in the first nine months, a sector-neutral basket of underperforming stocks continued underperforming by an average 291 basis points during the fourth quarter, giving the strategy a 65 percent outperformance rate.

In a separate report, Goldman forecasts an 18.2 percent return on commodities in the next 12 months, with energy and industrial metals leading the way. Not 18.3%, but 18.2%.

The Standard & Poor's GSCI Enhanced Commodity Index gain of 18.2 percent will compare with 26.5 percent in energy ( or around $125 a barrel), 10 percent in industrial metals and 6 percent in precious metals. Agriculture will be down 5 percent over the same period and livestock up 4.5 percent. The Federal Reserve's third round of quantitative easing will help boost copper in the 2013 first half.

(Econombrowser had this analysis of ...Oil prices slipped below $92 a barrel, and finished just above. New efforts to revive growth from central banks in Europe, Japan and the U.S. have not been enough to overcome pessimism about the global economy's prospects. When economic growth slows, so does demand for fuel which typically results in lower oil prices. A stronger dollar makes crude more expensive and a less attractive investment for traders using other currencies. Can the wild swings in the price of oil over the last few weeks have anything to do with supply and demand? You remember last week, when the price of oil dropped $3 in a minute?The move sparked talk of an erroneous trade—called a "fat-finger" error in industry parlance—or a computer algorithm gone awry.

Fat finger or no, there was an even bigger drop on Wednesday, leaving the price of West Texas Intermediate well below where it had been prior to Fed Chair Bernnake's announcement of QE3, or even the price before the Jackson Hole Speech. Those who doubt that oil prices are determined solely by fundamentals would naturally ask, what aspect of the supply or demand for oil could have possibly changed in the course of less than a minute last Monday? The obvious and correct answer is, there was no change in either the supply or the demand for physical oil over the course of that minute. The minute-by-minute price of a NYMEX contract is determined by how many people are wanting to buy that financial contract and at what price, not by how much gasoline motorists burned in their cars that minute. But since changes in the price of crude oil are the key determinant of the price consumers pay for gasoline, doesn't that establish pretty clearly that the whims or fat fingers of financial traders are ultimately determining the price we all pay at the pump?

In one sense, the answer to that question is yes-- last week's decline in the price of crude oil will soon show up as a lower price Americans pay for gasoline. But here's the problem you run into if you try to carry that theory too far. There are at the end of this chain real people who burn real gasoline when they drive real cars. And how much gasoline they burn depends in part on the price they pay-- with a higher price, some people use a little bit less. Not a lot less-- the price of gasoline could change quite a lot and it would take some time before you could be sure you see a response in the data. That small (and often sluggish) response is why the price of oil can and does move quite a bit on a minute-by-minute basis, seemingly driven by forces having nothing to do with the final users of the product.

But if the price of oil that emerges from that process turns out to be one at which the quantity of the physical product that is consumed is a different amount from the physical quantity produced, something has to give. Indeed, the bigger price drops we saw on Wednesday followed news that U.S. inventories of crude were significantly higher than expected.

There are several channels by which QE3 may end up influencing the quantity of oil physically produced and consumed. A lower value for the U.S. dollar would mean a greater quantity demanded worldwide at a given dollar price of oil. A higher level of economic activity (the ultimate goal of QE3) would also boost demand for the physical product. And lower real interest rates may make it profitable to store more oil physically, leaving less available for the ultimate users of the product. So I would have expected QE3 overall to be one factor that could contribute to a higher dollar price for oil.

But any investors who have been assuming that QE3 will boost the price of oil for no reason other than the fact that other traders expect it to raise the price of oil may find themselves tripping painfully over the fat finger of reality.

We're just about to wrap up the third quarter; top performers so far include precious metals funds, which is another way of saying precious metals. A bounce back at bargain levels, weakness in the dollar and a play on QE3. Stocks erased Q2 losses in the third quarter. Commodity and European funds outperforms, with Euro-region funds up about 10% on the quarter. Maybe it's just bargain hunting. Large caps and value outperformed small cap and growth.

Federal Reserve Bank of San Francisco President John Williams says QE3 is essential and the Fed might do even more. Williams said the Fed “will continue buying mortgage-backed securities until the job market looks substantially healthier,” and they “might even expand our purchases to include other assets.” I don't know how you expand on unlimited Quantitative Easing, but we might find out.

The German edition of Der Spiegel is running a series of articles on the European situation, which make clear, as if that were still necessary, that Europe is still an absolute mess. You know, just in case you thought it was not; that Mario Draghi's latest unlimited whatever it takes has somehow chased away the demons.

First, Der Spiegel writes that the Greek deficit is twice as high as thought , at 20 billion-euro, according to a preliminary version of the long awaited troika report. The gap has to be closed for the next tranche of bailout money to be paid.

Second,euro-zone countries plan to let the bailout fund balloon up to $2.6 trillion. Remember that the German Constitutional Court limited Berlin's part to about $25 billion (billions compared to trillions). Creative accounting to infinity and beyond. 

Third, the latest German plan would split up investment and retail activities for Germany's banks (including Deutsche), think Glass Steagall. He wants to ban commodities speculation. And he wants a bank-ESM, a fund paid for by banks that can be used to bail them out, rather than taxpayer money.

There's lot more going on, and going wrong, in Europe, no matter what Draghi does, and no matter what plans José Manuel Barroso unveils. I'm really not expecting the Euro-situation to collapse real soon but here is the really scary part. The fate of the continent and its people is presently in the hands of a group of bankers, technocrats and delusional politicians.

More young adults are leaving their parents' homes to take a chance with college or a job. Across the nation, people are on the move again after putting their lives on hold and staying put. Once-sharp declines in births are leveling off, and poverty is slowing.

A new snapshot of census data provides sociological backup for what economic indicators were already suggesting: that the nation is in a tentative, fragile recovery; maybe, kinda, sorta.

The new 2011 census figures show progress in an economic recovery that technically began in mid-2009. The annual survey, supplemented with unpublished government figures as of March 2012, covers a year in which unemployment fell modestly from 9.6 percent to 8.9 percent. So, this data really is lagging.

The census figures show slowing growth in the foreign-born population, which increased to 40.4 million, or 13 percent of the US population. Last year's immigration increase of 400,000 people was the lowest in a decade.

The bulk of new immigrants are now higher-skilled workers from Asian countries such as China and India, contributing to increases in the foreign-born population in California, New York, Illinois and New Jersey.

Income inequality varied widely by region. The gap between rich and poor was most evident in the District of Columbia, New York, Connecticut, Louisiana and New Mexico, where immigrant or minority groups were more numerous. By county, Berkeley in West Virginia had the biggest jump in household income inequality over the past year, a result of fast suburban growth just outside the Washington-Baltimore region, where pockets of poor residents and newly arrived, affluent commuters live side by side.

As a whole, Americans were slowly finding ways to get back on the move. About 12 percent of the nation's population, or 36.5 million, moved to a new home, up from a record low of 11.6 percent in 2011.

Among young adults 25 to 29, the most mobile age group, moves also increased to 24.6 percent from a low of 24.1 percent in the previous year. Longer-distance moves, typically for those seeking new careers in other regions of the country, rose modestly from 3.4 percent to 3.8 percent.

Less willing to rely on parents, roughly 5.6 million Americans ages 25-34, or 13.6 percent, lived with Mom and Dad, a decrease from 14.2 percent in the previous year. Young men were less likely than before to live with parents, down from 18.6 percent to 16.9 percent; young women living with parents edged higher to 10.4 percent, up from 9.7 percent.

The increases in mobility coincide with modest improvements in the job market as well as increased school enrollment, especially in college and at advanced-degree levels.

Marriages dipped to a low of just 50.8 percent among adults 18 and over, compared with 57 percent in 2000. Among young adults 25-34, marriage was at 43.1 percent, also a new low, part of a longer-term cultural trend in which people are opting to marry at later ages and often cohabitate with a partner first.

Births, on the other hand, appeared to be coming back after years of steep declines. In 2011, the number of births dipped by 55,000, or 1 percent, to 4.1 million, the smallest drop since 2008.

Some 17 states showed statistically significant increases in the poverty rate, led by Louisiana, Oregon, Arizona, Georgia and Hawaii. Among large metropolitan areas, McAllen, Texas, led the nation in poverty, at 38 percent, followed by Fresno, Calif., El Paso, Texas, and Bakersfield, Calif. In contrast, the Washington, D.C., metro area had the lowest level of poverty, about 8 percent, followed by Bridgeport, Conn., and Ogden, Utah.

Government programs did much to stave off higher rates of poverty. While the official poverty rate for 2011 remained stuck at 15 percent, or a record 46.2 million people, the government formula did not take into account noncash aid such as food stamps, which the Census Bureau estimates would have lifted 3.9 million people above the poverty line. If counted, that safety net would have lowered the poverty rate to 13.7 percent. And without expanded unemployment benefits, which began expiring in 2011, roughly 2.3 million people would have fallen into poverty.