The Greatest Market Manipulation

If you had the ability to convince lenders to accept a lower interest rate at the precise moments you needed to borrow large amounts of money, would you?

Individuals do not have that unique ability and neither do corporations. Imagine you or I or even Microsoft had the ability to scare the whole world into buying your’s or their debt.  In fact most sovereign nations do not have that ability either.

However, when people are afraid they run for the hills to the “safest” investments. In a post 2008 world where asset backed securities (thing Freddie Mac and Fannie Mae bonds) used to play a large role in the low-risk asset pool, sovereign debt of just a handful of nations are about the only “no risk” investments left.  I quote “no risk” because that remains a topic of a different discussion.

Nonetheless, the United States and Japan end up two of the largest safe havens, not necessarily because they are in fact safe, but more importantly because they can provide ample liquidity on demand.  Imagine if China thought Norway to be safer than the United States as a place to park their reserves.  Well they might think Norway to be safer, but Norway and most other counties are not large enough as measured in domestic GDP to support the levels of debt demanded by countries like China who need to park hundreds of billions of dollars in “safe” places.  In fact, the US and Japan are the worls two largest economies followed closely by Germany which is why you see such demand for those currencies in general.  Soon China will usurp Japan as the world’s second largest economy, and evenentually and inevitably, whenever it occurs, China will beat out the US as measured by nominal GDP.  But who wants to hold Yuan now, also a topic for a different discussion.

At the end of the day the point here is that those countries whose currencies are sought as reserve currencies in fact do have the unique ability to potencially manipulate demand for their own debt if and only if they also have the ability to create fear and / or systemic risk.

Some media pundits have commented that Obama’s plans to stiffen regulation of the financial industry in the US is spurring demand for US debt.  While flattering to the adminstration (which I voted for), I think that is a far reach from reality.  Nobody is calmoring to own 2-year treasuries paying less than 80 basis points (0.8%).  The only reason people clamor for such paultry yields is becasue they fear deflation.

The timing of Obama’s recent announcements for regulating financial markets seemed to coincidentally overlap with the head fake media coverage of Bernanke’s reappointment (which is just for show in my opinion). Both of these events however also coincide with upcoming large treasury auctions and major announcements for a number of central bankers on monetary policy issues including interest rates.

US MONEY WEEK AHEAD: Treasury Auctions May Overshadow Fed

Has the current US regime found sanctity in Bush’s fear tactics? Bush used threats of physical destruction relating to terrorism  to his advantage to control the populace and to dictate foreign policy.

I am beginning to wonder if members inside the current administration are similarly using the fear bread by the 2008-2009 financial crisis to keep interest rates low and more important to keep our debt buyers content with ultra low interest payments.

While this type of manipulation is speculative at best, no one can argue that financing our deficit at lower rates is certainly better than financing it at higher rates.  I have said for a while that dollar weakness is a real and likely to be a long term issue, but there should be little concern that the dollar will lose its place in the global currency marketplace.  There simply are not enough of any other single currency to serve as the world’s leading reserve currency.  Global risk flares however are not just good for the US, they will also benefit Japan, who still seems to have a long way to go before domestic growth starts anew.  In the meantime I would remain suspect of the timing of risk flares around large Treasury auctions, or moreover, come to expect that their timing will coincide.  What is good for the goose is ultimately good for the gander as well.

Is there anyone out there disecting this issue?

Guide to 2010 Investment Predictions and Outlooks

Wall Street Banks

• Goldman Sachs 2010 Investment Outlook
• Deutsche Bank 2010 Outlook
• Credit Suisse Is Cautious
• Morgan Stanley’s 2010 Outlook
• UBS 2010 Outlook
• RBC’s 2010 Outlook
• Saxo Bank’s Coming Black Swans
• 2010 Outlook From Northern Trust
• Bank Of America/Merrill Lynch Is Bullish On 2010
• Prudential’s 2010 Investment Outlook
• PIMCO’s 2010 Outlook
• PFG Best’s Look Back And Ahead
• Wall Street Is Very Bullish About 2010

Hedge Funds & Investment Gurus

• Marc Faber’s 2010 Investment Outlook
• Jim Rogers Is Still Skeptical
• Hussman: 80% Chance Of A Market Plunge
• Boeckh Investments
• Sprott Asset Management: The Rally Is Fake
• ECRI: The Recovery Will Continue In 2010
• Comstock Is Still Bearish
• Jeff Saut Debates Todd Harrison
• TCW’s 2010 Outlook
• Cumberland Advisors 2010 Outlook
• Biriyni’s 2010 Outlook
• Sam Stovall Is Cautiously Optimistic
• Steve Keen’s 2010 Investment Predictions
• Leuthold Turns More Cautious On 2010
• Robert Prechter: Stocks Will Fall In 2010
• David Tepper’s 2010 Outlook
• Richard Bernstein’s 10 for 2010
• 20 for 2010 By Doug Kass
• 2010 Outlook From ISI Group
• 2010 Outlook From Byron Wien
• 2010 Outlook From Doug Kass

Actionable Ideas, Alternative Assets & Potential Potholes

• RBC’s top trades for 2010
• How To Prep For An Uncertain 2010
• Goldman’s Top Trades For 2010
• Morgan Stanley’s Favorite Stocks
• JP Morgan’s Top Trades For 2010
• More Cost Cuts Could Help These 8 Firms
• 10 Stocks For 2010
• Will 2010 Be 2004 All Over Again?
• Where To Invest In 2010
• What Does History Tell Us?
• The 5 biggest risks to 2010
• 10 Themes For 2010
• The 10 Best ETF’s For 2010
• Gold Will “Super Spike” In 2010
• Gold Is In A Bubble And Could Crash
• The Housing Market Is Still In Trouble
• The Lumber Market Is Picking Up
• The U.S. Remains A Low Beta Investment
• Dividends Could Play A More Important Role In 2010
• Goldman’s 2010 Commodity Outlook

The Outlook Abroad

• JP Morgan Expects Emerging Markets To Rise 30%
• Nomura On China’s Positive Outlook
• Morgan Stanley Says Chinese Stocks Are Poised To Rally 30%
• Bank Of Canada Says Stocks Are Overvalued
• Ignore Brazil At Your Own Peril
• The 4 Reasons Emerging Markets Will Outperform

Happy New Year

Happy New Year to all my readers.  I am sorry I have not been able to write much in the second half of 2009.  Hopeful 2010 will ring in more typing!  Best wishes to all.

Block Fox

Today Fox and Time Warner may end a standoff over whether Fox is entitled to charge Time Warner for rights to broadcast.  Historically the major “free” networks have never done this.

Tonight Fox is running incessant ads asking viewers to let Time Warner know they want to keep the Fox network on Time Warner.  I love 24, House and a hand full of other Fox shows.  However, I equally despise Rupert Murdoch and the Fox juggernaut.  If Rupert wins this poker game, it is going to mean higher cable bills for consumers everywhere as ever major broadcaster will follow suit, with every major cable operator around the country.

I am willing to live without my shows (I can always rent them later), in order to keep Rupert’s power in check, and so I can have a cable bill that wont require a third job to pay for it.

Boycott the Fox network if you are on Time Warner.  Don’t let Rupert win this battle.  He needs to be put back in his place.  If forced to pay for the free networks, I am sure that given the choices many people would opt to have CBS, NBC or ABC over FOX.

Tell Rupert to go to hell, and DON’T let him change the rules of the game, the only person it will benefit is him.

Twitteleh

1016 or 1121 on the S&P?

The S&P 500 closed today above the psychologically significant 1,000 level, the first time it has closed above 1,000 since just after Lehman failed in October 2008.  Today’s market action surprised a number of people who were expecting at least a day’s reprieve from last weeks run up for month’s end.

It’s anyone’s guess where this market will go, but for those who beleive in technicals, I have pasted a Fibbonacci retracement from the market high in 2007 to this morning, before the market broke 1,000.

S&P 500 Retracement 2007-Present

The retracement shows significant resistance ahead at the 38.2% level which is equal to 1,016 on the S&P.  If that fails to turn this market back down, 1,121 (a 50% retracement) will likely mark the end of this bear market rally.  Enjoy it while you can, and don’t forget to take some profits!

Alan Abelson in Barron’s “The Great Beer Bash”

Nice work from Alan in this weekend’s Barrons.  Fairly well tempered for Alan as well, which I think helps to propel his point, and bearish agenda.  Included are two quotes that I could see becoming quite precient decidely soon.

DAVE ROSENBERG IS AMONG the vanishing breed of die-hards (we confess, in case you haven’t guessed, to being another) who still cling to the notion that stocks’ explosive rise since March is perhaps the mother of all bear-market rallies, but nonetheless still a bear-market rally. The essence of his skepticism — which we happily second — is simply that the economy, contrary to Wall Street’s jubilant insistence, has yet to turn the corner.

He wonders, moreover, whether the March 6 lows in the stock market were the real McCoy. Although, in contrast to us, Dave persists in keeping an open mind, he’s doubtful that they were. On March 6, he recounts, the market was trading at two times book, with a 13 times multiple on forward earnings and a P/E of 18 on trailing earnings, and a 3% dividend yield. Pretty rich valuations by all three measures of earnings, but pretty skimpy on yield, to rate as a true market low.

And today, after a 45% rise, the metrics, to dip into the Street cliché, are positively mind-boggling. The dividend yield on the S&P 500, Dave notes, is a meager 2¾%, and payouts so far this year have lagged some 32% behind last year’s not-exactly-torrid pace.

In a like astounding vein, he observes, the trailing P/E on operating earnings (adjusted, he explains, “to take out everything that is bad”) is now at 24 times, while — and if you have a queasy stomach you can skip this number — on trailing reported earnings, the multiple is a mere 760-plus!

“Something tells us,” Dave sighs, “that the marginal buyer of equities today at that price may well be the same person who was loading up on real estate during the summer of ‘06.”

And a nice reminder of how we often misinterperate importate economic data is this gem below which comments on the recent decline in continuing claims.

As Bill King notes in the King Report, the “exhaustion rate” — that is, the percentage of the involuntarily idle who have used up their unemployment benefits — is now 49.8%. Which explains the decline in continuing claims that, in turn, has been a recent spur to stock prices. Reason enough to keep the bankers off the jobless line and let them have their million bucks.

The “real” bears are still weighing in, odds are they are more right than wrong after a 45% rally.

Source:
The Great Beer Bash
Alan Ableson, Barrons, August 3, 2009
http://online.barrons.com/article/SB124908131652898105.html?page=2#mod=BOL_hps_mag

A Few Short Reasons Why Main Street May Avoid Some of the Pain of Wall Street

1. We are no longer a country dominated by manufacturing, at least we weren’t leading upto the recent asset bubble.  Thus while there is painful contraction happening, and much talk about a jobless recovery, a lot of those lost jobs are “over there”.  We are a nation of consumers, not producers.  It’s the producers who get hurt most when consumption stops.

2. Industries that bubbled over were high paying like Real Estate and Finance.  Yes many of these people have had to downsize by a bedroom or two from the McMansion to the HappyMansion (named after the smaller and lower priced Happy Meal), but they are not out of house and home, for the most part.

3. This country is certainly feeling some “pain”, however as a percentage of disposable income, food remains quite small relative to other parts of the world.  During the Great Depression Americans spent over 25% of their disposable income on food.  If you consider that rent typically accounts for about half the average American’s after-tax wages, back then 25% pretty much was a hefty chunk of your pay.  Today American’s spend about 10% of their disposable income on food, a significant decrease, and a strong indication of the massive amount of wealth that we have created.  There is an excellent chart on this blog by Mark J. Perry and Economics Professor at the University of Michigan outlining the dramatic fall in the percent of disposable income we use for food.  American’s are not taking to the streets with push carts to feed their kin. They may put off upgrading their iBook to a MacBook and they may delay trading in their iPhone for a Palm Pre, but by in large Middle-Class American’s are not starving.

4. Global coordination of financial policies seem at least to be working.  Regardless of the immediate efficacy, the more important point is that countries across political, cultural and geopolitical divides seem to understand that such coordination now can dramatically reduce the need for a major global conflict.  This is driving efforts to re-inflate every major economy around the world, something that will eventually take root and avoid the kind of misery that led Hitler to power.

5. While a good deal of American wealth has been impaired or destroyed, the running joke is that a 401k is now a 201k.  Nonetheless, during the depression most people did not have enough saved/invested to regret the losses.  The losses for most people was the loss of work compounded with already lower living standards (compared to today) and a paycheck to paycheck lifestyle.  Not to dismiss the many people today who are in a similar situation, their numbers are far fewer than in the 1930’s.

6. The Obama Administration is bent on an egalitarian doctrine for rebuilding our economy.  This is likely to help inflate the middle-class and pull a larger number of upper-middle-class citizens back into the center pew.

First Book About Lehman’s Failure Soon to Hit Shelves

more about “untitled“, posted with vodpod

iPhone 3GS Application for NYC Subway Mapping

This might be the coolest mobile application I have ever seen.