Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1249.5 | 3.5 | 0.28% |
| Eurostoxx Index | 2328 | -2.420 | -0.10% |
| Oil (WTI) | 100.99 | 0.630 | 0.63% |
| US Dollar Index (DXY) | 78.188 | -0.200 | -0.26% |
| 10 Year Govt Bond Yield | 2.13% | 0.06% |
Markets are pausing after yesterday’s furious rally. There was a sense of unreality to melt-up, and perhaps it wasn’t a coincidence that yesterday happened to be 11/30, the end of the month. Fund managers don’t do window-dressing at the end of the month, do they? Especially at the end of a month as lousy as November 2011. Yesterday’s coordinated action by the central banks provided the perfect cover to play some mark-up games – the S&P 500 rallied 12 handles (1%) in the last hour of trading yesterday.
Euro sovereign debt continues to rally, and both Spain and France sold 8 billion euros worth of bonds today. Initial Jobless Claims came in at 400k, vs. expectations of 390k for the holiday shortened Thanksgiving Day week. While we are seeing signs of life in some of the economic indicators, employment continues to be a drag. Wall Street has had a lousy year, and the big banks continue to let people go. Construction spending increased .8% month on month for October, and Napalm (the National Association of Purchasing Managers) Purchasing Managers Index came in at 52.7 – better than expectations but still lower than earlier this year.
This is the first Thursday of the month, and that means retailers are releasing same-store sales for March. Overall, same store sales look solid, but the Street may have bumped up expectations a little too much. Costco, Limited Brands, Macy’s, Nordstrom reported better than expected SSS. Kohls, Target, JC Penney, The Gap missed. Promotional activity appears to have driven the divergences.
S&P Case-Schiller was released on Tuesday, with the index coming in at 142, a 57bp drop month on month, and a 3.6% drop year on year. The chart of the index is not a picture of strength, to say the least:
Filed under: Uncategorized |
All Things in Moderation 
Couple of links I picked up from the PL this morning:"It’s a rare moment in an increasingly polarized Washington: One of the highest ranking Republicans endorsing the bureaucrat that the Obama administration hopes will oversee implementation of its health care law. But when we spoke this morning, House Majority Leader Eric Cantor was resolute in his support for Marilyn Tavenner, the woman the White House hopes will oversee the Center for Medicare and Medicaid Services."Cantor: “I really expect great things from Marilyn Tavenner.”"China's Superior Economic ModelThe free-market fundamentalist economic model is being thrown onto the trash heap of history.By ANDY STERNAndy Grove, the founder and chairman of Intel, provocatively wrote in Businessweek last year that, "Our fundamental economic beliefs, which we have elevated from a conviction based on observation to an unquestioned truism, is that the free market is the best of all economic systems—the freer the better. Our generation has seen the decisive victory of free-market principles over planned economies. So we stick with this belief largely oblivious to emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better." "China's Superior Economic Model
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Brent:Look forward to this post every day. And everything else I read yesterday basically echoed your explanation yesterday. So, thanks again for that.Also, manufacturing numbers were low in Euro and China.New data showed manufacturing activity in the 17 nations that share the euro was weaker than expected, falling to a 28-month low in November and fueling fears that the region “is in clear danger of sliding back into recession,” said Howard Archer, economic analyst with IHS Global Insight.Separately, manufacturing data in China, the world’s second-largest economy, showed its worst performance since 2009.WaPo on central bank moveAnd the debate over whether cede some control to ECB:What’s being debated is nothing short of a reordering of the European political and financial system. Governments would transfer some of their sovereign power over spending and taxes to a central authority, responsibility for individual government debt would be collectivized across the 17 euro nations, and — potentially — the European Central Bank would take a more aggressive role in shoring up the regional economy. Make up or break up Sounds very messy.
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Mike, Thanks.Re China…China's economic growth reminds me a lot of Japan in the 70s and 80s. The Japanese market was driven by a cheap currency, strong manufacturing, and a real estate bubble. While the Japanese economy was riding high, people fretted that they somehow "got it right" and used the Japanese success to argue for our version of MITI – The Ministry of Economics, Trade and Industry, which was an industrial policy ministry. The "third way" between unfettered markets and state run economies. Nowadays, nobody talks about trying to emulate the Japanese model. As the US discovered, as the Japanese discovered, a real estate bubble can mask a lot of bad policy and bad economic decisions. Or as Warren Buffet put it: It is only when the tide goes out do you discover who was swimming naked. Advocates of greater state involvement in the economy like Thomas Friedman and Andy Stern are now making the same mistake (I believe) in revering China's industrial planning model. China is awash in capital and has a real estate bubble of epic proportions. The median price / income ratio for an apartment in Beijing is 57x. The economy is slowing and credit is drying up for real estate. (Sound familiar?) If the real estate bubble in China has indeed finally burst, in a few years we will be scratching our heads wondering what convinced the Chinese government to build vacant cities and 26 mile bridges. And no amount of empirical data will convince the Thomas Friedmans and Andy Sterns of the world that centrally planned industrial policies inevitably create more problems than they solve.In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical.
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Andy Grove and Andy Stern are making a slightly different argument I believe. I.e. only manufacturing provides a significant source of value added jobs for the "working class" and to the extent you are concerned about mass employment of people with limited education, you have to have an industrial policy even if it's not the most economically efficient thing to do.I'd also note that there's an argument to be made that there needs to be more reciprocity when China manipulates the free trade system to it's benefit. You can't have a true free market when only one side is complying with the rules.
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Also worth noting:A C.E.O.’s Moral Stand"By D. MICHAEL LINDSAYPublished: November 30, 2011 Wenham, Mass.IT seems that every week we hear of a C.E.O. who earned millions from a golden parachute after demonstrating poor business judgment or cutting thousands of jobs with no financial downside for executives. These stories feed the fires of the Occupy movement growing all over the world.But on Tuesday, we heard something different. American Airlines, once the largest airline in the United States, declared bankruptcy. This is not surprising news for the beleaguered airline industry; what is different is what is emerging from the wreckage. Gerard J. Arpey, American’s chief executive officer and chairman, resigned and stepped away with no severance package and nearly worthless stock holdings. He split with his employer of 30 years out of a belief that bankruptcy was morally wrong, and that he could not, in good conscience, lead an organization that followed this familiar path."
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The usual IT problems at the WAPO today. I guess using Kaplan students full time in the IT department isn't paying off for them!
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Golden Parachutes were never intended to be a severance package for CEOs who screwed up. They were intended to align the incentives of CEOs and shareholders in corporate control situations. They were intended to prevent CEOs from using the "Just Say No" defense when a company was approached with a bear hug or a hostile takeover offer. The promise of a big payout if the the deal succeeded and the manager was fired by the new company would outweigh the lost salary from staying independent. Thus, CEOs would be more willing to execute their fiduciary duty to shareholders and auction off the company if it was put in play.
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Brent, I too should thank you daily for these briefings.As opposed to MITI or the Chinese model, I wonder why we do not look more closely to see if we can learn anything from Germany.
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"Brent, I too should thank you daily for these briefings."Agreed."As opposed to MITI or the Chinese model, I wonder why we do not look more closely to see if we can learn anything from Germany."You can make an argument that both China & Germany's export model is somewhat dependent on favorable currency controls.
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"You can make an argument that both China & Germany's export model is somewhat dependent on favorable currency controls."Exactly. China uses the non convertibility of its currency to peg it to the dollar. This was fed their real estate bubble.Germany uses the profligate spending of its Mediterranean siblings to weigh down the Euro and help its manufacturers. There is no doubt that the German Deutschmark would be trading at a much higher rate than the 51 euro cents it initially fixed. Glad you guys like the daily reports.
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Me too Brent, even though I give you a little argument occasionally, I appreciate the information that I would never be able to gather on my own, or understand. So ThanksI had better luck getting conservatives, libertarians and financial guys over here than liberals, lol.
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"I had better luck getting conservatives, libertarians and financial guys over here than liberals, lol."I for one appreciate your efforts.
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"I had better luck getting conservatives, libertarians and financial guys over here than liberals, lol."lms is truly a saint. she's hangs withs the lepers.
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"Exactly. China uses the non convertibility of its currency to peg it to the dollar. This was fed their real estate bubble.Germany uses the profligate spending of its Mediterranean siblings to weigh down the Euro and help its manufacturers. There is no doubt that the German Deutschmark would be trading at a much higher rate than the 51 euro cents it initially fixed. "Do you think this puts U.S. manufacturers at a competitive disadvantage vis-a-vis China and Germany and if so what would you recommend to remedy it?
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"Danger, danger Will Robinson" (robot arms flailing)Treasury yields up again today. You flood the world with dollars, and sooner or later people start to notice!
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""I had better luck getting conservatives, libertarians and financial guys over here than liberals, lol."lms is truly a saint. she's hangs withs the lepers.""I'd rather laugh with the sinners than cry with the saintsthe sinners are much more fun…"- Billy Joel: Only The Good Die Young (1977)
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"she's hangs withs the lepers"lol, you have no idea!!!!!!!!! If you only knew some of the seniors I work with, talk about conservative, luckily for me I don't talk politics or they'd throw me out on my ear.
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Dean Baker, the Charles Barkley of economists, is now calling for the Fed to backstop all of Europe. Saw him on Kudlow last night. How long can Krugman stand being upstaged like this?
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"You can make an argument that both China & Germany's export model is somewhat dependent on favorable currency controls."Will flooding the world with dollars have a comparable impact on our exports?
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All foreign trade is dependent on favorable currency conditions. For instance as the Canadian dollar became stronger, their energy exports increase because of the inherent price stickiness, while the viability of alll their other exports decrease.
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john:Treasury yields up again today. You flood the world with dollars, and sooner or later people start to notice!How long before people start to notice that Europe still isn't fixed? I'll wager we see 3% on the long bond again before we see 3.30%. 3.142% right now, so slightly on my side of the mid, but trending your way all day.
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"Do you think this puts U.S. manufacturers at a competitive disadvantage vis-a-vis China and Germany and if so what would you recommend to remedy it?"Yes I do. However, we are the reserve currency of the world and a stronger currency goes with the territory. Better than the alternative.However, there nothing we can do with the Chinese other than cajole. And with the Europeans, no Treasury Secretary will ever deviate from the "we want a strong dollar" line. As a matter of fact, GWB put in industry CEOs as Treasury Secretary – remember the Tin Man and the Snow Man?. Both should have favored a weaker dollar, and both were complete disasters.You really can't do much about strong currencies – they are going to go where they go. The Japanese Yen bottomed at 280 in 1982 and hit a high of 76 a month ago. The Japanese manufacturers are able to compete at these levels. Watch out if the yen depreciates back in the 150 range. They will be tough…
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For the libertarian take on yesterday, see:"Leaping Toward the Keynesian Dream"http://dailyreckoning.com/leaping-toward-the-keynesian-dream/
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scott:I got jammed bad on an interest rate bet yesterday, but was smart enough to get out. Oh well. LOLPredictions will kill the best of these days. I think we are days away from an IMF leap into euro debt funding. That will be followed by more QE. The Morgan Stanley guy yesterday said end of 1st quarter, but that's too late. Fed has to draw our attention away from the dollars going to Europe very soon.
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lmsinca: "luckily for me I don't talk politics or they'd throw me out on my ear."Interesting how married people get to their politics. I have a very conservative friend who is the programmer director for a community radio station, does some music representation and deal-making, and spends a lot of his work-life surrounded by very liberal people. So, he doesn't talk politics, and when people do, he says he nods or says, "That's interesting." He acts apolitical, because, as you say, he'd otherwise get "thrown out on his ear". Because he does his job or puts together events or runs charity auctions any differently? Nope. But people get very invested in their tribal affiliations. 😉
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programmer director = program director.
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scottHow long before people start to notice that Europe still isn't fixed?Don't most people technically already know this? I didn't understand the exuberance yesterday if that's what it's called.
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"For the libertarian take on yesterday, see:"Leaping Toward the Keynesian Dream"http://dailyreckoning.com/leaping-toward-the-keynesian-dream/ "I fancy myself a libertarian and even I think this is a bit much:"Ben Bernanke, however, is different: he is revealing himself to be an unreconstructed Keynesian with an unlimited faith in the power of paper money to solve all the world’s problems."I tend to associate Keynesian economics more with fiscal policy, multipliers, pump priming, and the like. I do think you can make a good case that Bernanke is a monetarist, but as the article from John Carney indicated, there may be an actual contraction in the money supply in Europe going on ala the start of the Great Depression. Europe's Real Problem? Deflation
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"Predictions will kill the best of these days. I think we are days away from an IMF leap into euro debt funding. "12/9 is the new date to watch, correct?
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jnc:On no doubt. I just think they write some interesting things at the Daily Reckoning. I would tend to agree with your idea of Bernanke as a monetarist, because it's hard to be Keynesian without controlling fiscal policy also.
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KevinInteresting story re politics and business. Last year I renewed our medical insurance independently of our insurance agent. They weren't too happy about it as it essentially cut them out but I was having better luck on my own. One of the girls from the office called to try to convince me they could do more for us than I probably realized, doubtful IMO, but she used the term "Obamacare" in describing the difficulty in navigating treacherous insurance waters. Needless to say, she didn't win back our business. When her supervisor then called to try again to win us back I told him what she had said and he just chuckled as if it was an unimportant slip of the tongue. I agree but it still didn't encourage me to employ their services again, lol. He just didn't seem to understand that it's probably not a good idea to mix politics with business I guess.
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jnc:In my view, they already reached the agreement when Geithner was there as far as US participation, but now they need the euro zone nations to finish up among themselves.
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"After an intense battle over government spending shut down its government for 20 days this summer, the state now is forecasting an $876 million surplus over the next two years. That’s a huge surprise compared to the $5 billion projected deficit that Minnesota expected in July, setting off a national, highly-partisan battle over the best way to close that gap.What changed? State officials chalk a lot of the good news up to factors specific to Minnesota. The state has seen its revenue increase as its unemployment rate is lower than the national average. The state has, for example, regained about a third of the jobs lost since the recession began. Nationally, that number stands at 22 percent."Bad, Bad, Austerity, now go to your room!
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john:I got jammed bad on an interest rate bet yesterday.Surprise event risk can be a killer. Somehow it always seems to go against you, doesn't it?
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lms:Don't most people technically already know this?You would think so. But hope can be haze that obscures what people "know". Plus, a not everything trades on a long view, so a short trend can feed itself for a while even if few people believe it can be sustained.
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As you know, you hope at the end of the day to be in the black. I have heavily committed to commodities in the last month because I believe the above listed action are coming, so overall I did okkkkkkk.
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You know what else I like about the Morning Report? It's nice to have a place to discuss economics without everyone telling us how boring we are, even though we are. It's much more important imo than most discussions, unless I'm here selling the middle class taxpayer, lol.
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Plus, a not everything trades on a long viewMaybe we'd be better off if it did.
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another melt up in progress. You either love program trading or you hate it. There's no in between.
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lmsinca: He just didn't seem to understand that it's probably not a good idea to mix politics with business I guess. I once had a very conservative supervisor who expressed his political opinions a little too often. I knew it costs us business, but . . . whatcha gonna do? Been a long time since I worked there, and that business is out of business, so . . . best not to proceed in your business life like everybody worth doing business with is going to agree with you about everything.
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"He just didn't seem to understand that it's probably not a good idea to mix politics with business I guess. "Or the term "Obamacare" is so ubiquitous that they didn't realize they were doing so.
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jnc, he admitted to knowing it was a derogatory term in some circles. I'm a big customer service freak, being in business myself, and so they failed on two points.
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