"If you're going to panic, do it fast and beat the crowd." ~ Jesse Livermore

Tuesday, March 26, 2013

France is becoming another Greece

Forget Spain and Italy. It’s France that’s Greece-ifying before our very eyes – Quartz: " . .  . France . . . its economy is decaying . . . rapidly. Markit’s preliminary March purchasing managers’ index—which measures monthly changes in private-sector output—came in at 42.1 (pdf), down from 43.1 in February. (Anything lower than 50 reflects a drop in output.) That’s the fastest slowdown in business activity France has seen since March 2009. And Jack Kennedy, economist at Markit, says this likely augurs a larger crumbling of the French economy. . . . To frame it in another horrifying perspective, the PMI of the euro zone’s second-largest economy was lower than that of Spain and Italy—and almost down to Greek levels (video), as Reuters’ Jamie McGeever explains. What’s most worrying is when you look at how France’s data stacked up against the euro zone’s as a whole, which were also published today. While the euro zone’s PMI (blue line) and its GDP growth (orange line) have moved pretty closely in sync, France’s PMI has become unhinged in the last couple of years. And that’s bad because, as PMI reflects business confidence, it’s typically a leading indicator of GDP growth . . . " (read more at link above)

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Saturday, March 23, 2013

Stopping Employers from Hiring

"For many small businesses, simply keeping up to speed with changing regulations is challenging. Elizabeth Milito, Senior Executive Counsel of the NFIB, says, “Our members want to comply with the law. They don’t want to discriminate against applicants or employees, but they struggle to decipher confusing and sometimes contradictory laws.” She points out that small firms typically don’t have HR execs or in-house counsels available to wade through the legalese. In the past year, one of the more vexing issues has been conflicting signals on the use of background checks and the hiring of criminals. A year ago, the EEOC determined that policies that preclude hiring people with criminal records have a “disparate racial impact,” since African American men are seven times more likely than whites to have been in jail. The agency urged employers, instead of ruling out such hires, to take into account the "nature of the crime, the time elapsed, and the nature of the job” in deciding whether or not to take on an individual. In other words, firms will be required to perform extensive research, which could prove costly. . . Worse, some businesses are prohibited to hire ex-cons by law; complying with the EEOC mandate could expose them to prosecution elsewhere. As Newsmax reports, this problem was exposed when the EEOC “took action against G4S Secure Solutions, which provides guards for nuclear power plants…for refusing to hire a twice-convicted thief as a security guard – even though Pennsylvania state law forbids hiring people with felony convictions…” Read more at http://www.thefiscaltimes.com/Columns/2013/03/13/How-Obamas-White-House-Stops%20Employers-from-Hiring.aspx#mzR3OA27gICOzUrx.99

Raghuram Rajan: From financial crisis prophet to next RBI chief?
Economic Times
NEW DELHI: The man widely expected to be next RBI favours clipping the autocratic power of the role and giving more say to a monetary policy committee. Raghuram Rajan, who in 2005 predicted the global financial crisis, also believes that inflation of ...

Responding to Financial Crisis, Britain Overhauls Its Regulators ...
Britain, unlike other economic powers, is responding to the financial crisis by creating two new agencies, one to oversee institutions and another to watch for ...

Bespoke Investment Group - Think BIG - Relive the Financial Crisis ...
The bull market turned four this weekend, and in honor of the anniversary what better way is there to relive the events of the Financial Crisis than by having a ...

Geithner to write book on financial crisis
(New York Times) Timothy F. Geithner, the former Treasury secretary who managed the Obama administration's response to the global financial crisis of 2008 ...

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Thursday, March 21, 2013

February Unemployment Rate Didn't Really Decline

RealClearMarkets - February's Unemployment Rate Didn't Really Decline: "When the unemployment rates for the past two months are calculated out to two decimal places, the results are 7.92 for January and 7.74 for February. The monthly decline is 0.18, which is within the BLS error range. (The BLS uses a 90 percent confidence interval for monthly changes.) Dare it be uttered? It appears that the so-called drop in the February unemployment rate fails the BLS test of statistical significance. In the language of statisticians, the 0.18 recorded change cannot be said to be different from zero. Or more plainly, it can't be said that the unemployment rate declined last month. One might wonder why BLS has historically reported monthly changes in unemployment rate confidence intervals out to two digits, yet rounded the reported unemployment rate to one digit, and then called monthly changes of 0.2 point significant (saying the jobless rate went up or down) based on the figures rounded to one digit. As the result of this practice, as happened last month, some month-to-month changes that are not statistically significant become significant and possibly misleading."

Spaniards denounce EU's handling of financial crisis
Press TV
Thousands of people have taken to the streets of Spain to protest against European Union leaders' handling of the financial crisis and the austerity measures imposed by the government. The Spaniards took part in a march organized by Indignados protest ...

Press TV

Why today's Cyprus bailout could be the start of the next financial crisis
Washington Post (blog)
For the past six months, the global financial markets have become increasingly complacent, convinced that the euro-zone crisis is, for practical purposes, over. Cyprus is the test of whether that is correct, or whether the complacency was instead ...

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Tuesday, March 19, 2013

China will have to act avert financial crisis

China will have to act avert financial crisis, Nomura says
“We believe China faces rising risks of a systemic financial crisis and that the government needs to take action quickly to contain such risks.“ The cautious assessment from Nomura came as China re-appointed Zhou Xiaochuan, 65, as governor of its ...


Financial crisis forces households to cut spending by £3000 a year
Mr Lloyd said: “The squeeze on incomes and collapse in consumer confidence has led households to slash their spending during the financial crisis, with a devastating impact on the wider economy. “The longer the squeeze goes on, the longer this spending ...


China Fills Out Economic Team With Lou as Financial Risks Mount
The world's second-biggest economy faces a rising risk of a financial crisis because of excessive credit, elevated property prices, declines in the labor force and limited productivity gains, Nomura said in a report on March 15. A slowdown in “reform ...

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Saturday, March 16, 2013

Wary of Borrowing as Student Loan Debt Balloons (video)

Video - Young People Grow Wary of Borrowing as Student Loan Debt Balloons - WSJ.com: "Young people are racking up larger amounts of student debt than ever before, but fresh data suggest they are becoming warier of borrowing in general: Total debt among young adults dropped in the last decade to the lowest level in 15 years. A typical young U.S. household—defined as one led by someone under age 35—had $15,000 in total debt in 2010, down from $18,000 in 2001 and the lowest since 1995, according to a recent Pew Research Center report and government data. Total debt includes mortgage loans, credit cards, auto lending, student loans and other consumer borrowing."

Cheers Are Few as Dow Jones Average Hits Milestone - NYTimes.com: "Robert J. Shiller, a professor of economics at Yale, has built a model for gauging whether stocks are cheap or expensive. Right now, stock valuations are above historical averages, but well below the stratospheric highs they have reached in bubbles, he said. According to his model, stocks are signaling that they can return about 3 to 4 percent a year. “That’s not horrible,” he said, though he was quick to add that the stock market had a mind of its own. The stock market’s volatility has scared retail investors for several years. A total of $556 billion has been taken out of mutual funds focused on American stocks since October 2007, according to the Investment Company Institute. That is an enormous pot of money that largely missed out on the market’s recovery. But recent figures show a sudden change of mind among retail investors. Over $55.1 billion flowed into equity funds in January and February, according to TrimTabs Investment Research, the highest two-month figure in the data company’s records."

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Thursday, March 14, 2013

Profiting from a Rigged Financial System

Yes, the Financial System Is Rigged. Why Shouldn't You Profit From That Knowledge? - Businessweek: " . . . Now, we see housing ascendant again. Corporate profits are breaking records, thanks in no small part to a Federal Reserve—the wealthiest bank in the world—hell-bent on seeing both things happen. “At least the first part of this rally is a rock solid foundation,” remarked financial blogger Barry Ritholtz. “The second half, the argument goes, is built on inorganic matter, primarily Fed liquidity and generosity.” By his estimate, the Dow would be 20 percent to 30 percent lower, absent the Fed’s finger on the scale. “You cannot,” he said, “understate its impact on corporate earnings.”. . . ."

Big Banks and Derivatives: Why Another Financial Crisis Is Inevitable - Forbes: " . . . . Bad as these scandals are and vast as the money involved in them is by any normal standard, they are mere blips on the screen, compared to the risk that is still staring us in the face: the lack of transparency in derivative trading that now totals in notional amount more than $700 trillion. That is more than ten times the size of the entire world economy. Yet incredibly, we have little information about it or its implications for the financial strength of any of the big banks. Moreover the derivatives market is steadily growing. “The total notional value, or face value, of the global derivatives market when the housing bubble popped in 2007 stood at around $500 trillion… The Over-The-Counter derivatives market alone had grown to a notional value of at least $648 trillion as of the end of 2011… the market is likely worth closer to $707 trillion and perhaps more,” writes analyst Jenny Walsh in The Paper Boat. “The market has grown so unfathomably vast, the global economy is at risk of massive damage should even a small percentage of contracts go sour. Its size and potential influence are difficult just to comprehend, let alone assess.”. . . .

Dow passes intraday record; markets undaunted by Washington gridlock - The Washington Post: " . . . The Dow’s record high confirmed that the ongoing political paralysis in Washington has failed to spook the markets much in the past year. As lawmakers and President Obama lurch from one fiscal deadline to the next — from the debt-ceiling crisis in 2011 to the fiscal cliff to the steep budget cuts triggered last week — the markets have soldiered on with hardly a bump. “The stock market and the American public are looking at the political theater with a jaundiced eye,” said Ted Weisberg from the New York Stock Exchange, where he has been a trader on the floor for more than four decades. The markets hardly reacted on March 1, when severe domestic and defense cuts went into effect. The Dow Jones Industrial even rose 0.25 percent that day. A popular index for gauging fear in the markets called the CBOE Volatility Index, or the VIX, dropped nearly one percent. Wall Street’s reactions have developed into a pattern of near-indifference followed by optimism when a political resolution is found. In the days building up to the fiscal cliff at the end of last year, the markets were sanguine. But when a compromise was reached on New Year’s Day, the Dow surged more than 308 points, or 2.35 percent. The S&P 500 jumped 36.25 points, or 2.54 percent. Many on Wall Street feel they’ve seen this movie before, even dismissing the dire warnings of politicians as all theater. “My sense is that our president and the White House are crying wolf,” Weisberg said of President Obama’s warnings about the sequester last week. Yu-Dee Chang, chief trader at Ace Investment Strategists in Vienna, said the impact of the sequester is being felt more strongly in Washington than on Wall Street.

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Tuesday, March 12, 2013

Pimco's Gross on Irrational Exuberance Now

Pimco's Gross: Irrational Exuberance, the Sequel | Fox Business: "Pimco’s Bill Gross says investors who believe double-digit market returns will continue are irrationally exuberant and warns they better lower expectations on all asset classes. Gross again takes characteristically pointed jabs at the Federal Reserve’s easy money policies in his latest investment letter. PIMCO’s Gross warns investors that, on a scale of one to ten, markets are now a six for “asset price irrationality," which is “moving in an upward direction,” as the markets are in shouting distance of record highs set in October 2007. . . ."

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Saturday, March 9, 2013

Grand Bargain Doubtful, Opportunity in Uncertainty

Why Won't Americans Listen to Alan Simpson and Erskine Bowles? - Businessweek: " . . . The fate of the grand bargain will likely be determined over the next six to eight weeks, as sequestration hits and funding for the government runs out on March 27. If Congress muddles through with still more short-term fixes, the chance for major reform may vanish for years. Washington will move on to immigration, gun control, and the next election. Simpson-Bowles will be forgotten. If, however, the economy stalls, health-care inflation picks up again, or any number of other scenarios unfold, the plan may be resurrected—or as Simpson once put it, the “cadaver will rise from the crypt.” “Nobody knows when, but at some point the markets will force us to deal with this,” says Bowles. “And when they do, there’s just not that many other solutions.” In that event, Simpson and Bowles will win Washington’s standard consolation prize—having failed to fix the problem, they’ll at least be able to say they were right."

Buffett sees opportunity in uncertainty - FT.com: "What was clear is that 82-year-old Warren Buffett remains an optimist. Declaring that “opportunities abound in America”, he took fellow chief executives to task for using “uncertainty” as a reason not to invest. Providing the perspective of a man who made his first stock purchase in 1942, “when the US was suffering major losses throughout the Pacific war zone”, he said that “America has faced the unknown since 1776. It’s just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them.” So Mr Buffett said that he and his vice-Chairman Charlie Munger would continue to invest large sums, both in the existing businesses of the conglomerate that sells everything from lollipops to jet propelled planes, as well as in stocks and large acquisitions similar to the recent $28bn purchase of Heinz with partner 3G Capital."

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Thursday, March 7, 2013

Ben Bernanke, the Balance Sheet, and the Future

RealClearMarkets - Ben's Balance Sheet Blues: " . . . . Bernanke is banking on the hope that his policies will jump start the economy which will then be able to motor along on its own. However, the current era of cheap money and fiscal stimulus will never create an economy that is capable of standing on its own legs. Instead, it is propping up a parasitic economy that is completely dependent on the very supports the Fed believes it can one day remove. But if the Fed does not remove them on its own, the markets eventually will. Bernanke also defended himself against some members of Congress, particularly economically savvy New Jersey representative Scott Garrett, who pointed out the hypocrisy of Bernanke's claims that Fed policies are responsible for the recent rise in home prices (while simultaneously absolving the Fed of any responsibility for rising home prices during the real estate bubble). To justify this claim, Bernanke made the self-serving distinction that while the Fed is currently purchasing mortgage-backed securities (in order to lower mortgages rates and boost home prices), no such actions existed prior to the 2008 financial crisis. As a result, he claims the Fed could not have been responsible for the bubble. On this point he is dead wrong. Fed policy during the mid-years of the last decade had an enormous effect on mortgage rates and home prices. By holding short-term rates too low for too long, the Fed was responsible for the proliferation of Adjustable Rate Mortgages and the popularity of the ultra-low teaser rates without which the housing bubble never could have been inflated so large in the first place. In other words, the Fed broke it then, but it sure can't fix it now." (author--Peter Schiff is the CEO of Euro Pacific Capital, read full article at link above) 

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Tuesday, March 5, 2013

Time to Take Profits per PIMCO’s El-Erian

Equity Prices Are Artificially High — It’s Time to Take Profits: PIMCO’s El-Erian | Daily Ticker - Yahoo! Finance: " . . . El-Erian explains that central banks have been compelled to undertake unconventional measures, things they haven’t done before, because other policymakers are not stepping up to take responsibility on the fiscal side. But central bank activism can be risky. For example, the more liquidity a central bank injects into the financial system, the more likely that nation's currency will drop in value against other currencies. Imports become more expensive in that nation while exports become cheaper. Other nations may take up similar policies in response. Can this result in beggar-thy-neighbor policies and a "race to the bottom"? El-Erian says yes, but “it can also work.” Here’s how. El-Erian asserts that by putting a lot of liquidity into the system and pushing up asset prices, central banks can make us all feel better and this can trigger “wealth effects” – we feel richer and therefore spend more. It can also trigger “animal spirits” – we get all excited and invest more. The hitch, El-Erian says, is that in the process, central banks may “break” something. A currency war would fall into this camp. So it’s “high-risk, high-reward and no one can tell for sure which way it’s going to tip,” he says. El-Erian says the U.S. economy can go from supported growth to genuine growth, but Congress has to first become less dysfunctional. “The key issue is for politicians to exploit the window being bought for them by central banks,” he notes. In terms of equity markets, El-Erian says investors are split into two camps. One camp believes that everything will go higher and central banks will succeed in their efforts. The other camp believes asset prices are going to come down to meet the fundamentals. El-Erian puts himself in the second camp. “We think that prices are artificially high, that maintaining them here is going to be hard as central banks become less effective, and that it’s time to book some profits and to wait for some better entry points,” he explains. He clarifies that this is not a “Lehman moment." But “prices that have gotten way ahead of what policy can deliver," he declares. . . ."

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Saturday, March 2, 2013

No exit from the Fed's madness

No way out--and no exit from the Fed's madness--

TCW.com - And All Our Yesterdays: " . . . The Fed has dutifully sat by the patient’s side for over four years. But when Mr. Bernanke originally administered his concoction of zero rates and quantitative ease, the Fed was confident that these truly extraordinary monetary actions were emergency measures from which “exit” was a year, at most two, away. The Fed had diagnosed the “patient” as suffering from a shortage of aggregate demand and concluded that the doctor needed to “manufacture” consumption so as to get the patient back on the playground. The Fed commanded short rates be zeroed out and quantitative easing initiated. To what end? According to the Fed’s essentially Keynesian logic, the negative rate environment facilitated by these policies foster an intertemporal shift away from savings and towards consumption. In so doing, consumer demand is lifted and realtime economic growth is enhanced. Additionally, the never-this-low in recorded history level of mortgage rates is intended to spur a “wealth” effect by pumping up the housing market. According to theory, if you get enough people spending and enough people feeling wealthy, the demand side of the economy will throw a party, inducing businesses to hire, leading us to a sustained prosperity. . . . So now we live one of the great economic experiments of all time. . . . we may well come to see that much of what is called “stimulus” today is merely a convenient term for redistributing wealth and resources according to the priorities of the Fed and the national government. If so, then we will find that the reconfigured economy of tomorrow will be inefficiently constructed. Perceived stability today just might be setting us all up for a sucker punch of stagflation tomorrow. And tomorrow does eventually come."

Fed Signals Possible Slowing of QE Amid Debate Over Risks - Bloomberg: "At the December meeting, Fed officials were “approximately evenly divided” between those favoring a mid-2013 end to purchases and those advocating a later date, according to minutes from the gathering. Chairman Ben S. Bernanke has pledged to buy bonds until there’s a “substantial” improvement in a labor market burdened by 7.9 percent unemployment. The minutes released yesterday didn’t indicate a discussion about when to end quantitative easing. “They’re changing the debate toward when to scale it down rather than debating the point where it suddenly ends,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York. “With the economy looking more solid than they feared a few months ago, financial-sector risks take on more importance.”"

SCHILLER: A history of the national debt - Washington Times: " . . . .The CBO says the current debt trajectory will shave 1.7 percent off GDP by 2022. The U.S. Senate hasn’t passed a budget in four years. Congress sidesteps fiscal responsibilities by passing continuing resolutions that provide “temporary” and “emergency” funding for Uncle Sam. Without those budget Band-Aids, the government would have to shut down, as it did on 17 occasions from 1976 to 1996. . . . The public is fed up with soaring debt and Congress‘ inability to exercise fiscal restraint. People have near-zero confidence in Congress, which spills over into their perceptions of the economy. They see runaway deficits, soaring debt and a complete lack of fiscal leadership. These perceptions restrain investment spending, deter consumer purchases, constrain bank lending and slow foreign investment. The end result is slower economic growth and persistently high unemployment. When economists such as Paul Krugman claim that the United States still can afford larger deficits and debt, they fail to understand the psychology of market participants and the consequences for market behavior. The markets are saying, “Enough is enough.”" Read more: http://www.washingtontimes.com/news/2013/feb/19/a-history-of-the-national-debt/#ixzz2LSubfDjd 

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