by McMillan Analysis Corp.
Stock Market
$SPX broke out to the upside on Monday, easily overcoming the various resistance levels (January highs, May highs, and 200-day moving average). It then proceeded to pull back and test the breakout successfully, before advancing again today. Since none of our indicators are on sell signals, the path of least resistance is to the upside.
The 920-930 level now represents support (Wednesday's pullback reached a low of 923). Below that is the 20-day moving average, near 910. A violation of that average would be unpleasant in that it would indicate that the upside breakout was false. However, that wouldn't necessarily end the bullish phase that the market is currently in. A close below 880, however, would turn the picture negative.
The equity-only put-call ratios remain on buy signals, even as they are at very low levels on their charts. They will remain bullish as long as the ratios continue to decline. Only an upturn in the ratios would generate sell signals.
Market breadth moved back into overbought territory with Monday's large upside breakout day. The number of individual stocks that simultaneously broke out to new relative highs was extremely large. This is bullish action.
Volatility indices continue to decline, in general. That is bullish as well. $VIX remains near 30, which is still a very lofty level (which is why the daily movements in $SPX are still quite large). But as long as it continues to trend lower, it will remain on a buy signal.
In summary, the situation remains bullish, although overbought conditions indicate that sharp, but short-lived declines are possible at any time.
Note:
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Saturday, June 6, 2009
Weekly Market Update (6/5/09)
HEADLINE NEWS WEEK ENDING 6/5/09
Overview
The US economy shed 345,000 jobs in May, about half the average monthly decline during the prior six months, suggesting the labor market may finally be turning the corner. more...http://payden.com/library/weeklyMarketUpdateE.aspx
US MARKETS
Treasury/Economics
Interest rates moved higher this week as the safe-haven demand for Treasuries continues to abate. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Large-Cap Equities
The stock market rallied during this first week of June due to better-than-expected macroeconomic data. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Corporate Bonds
Investment grade primary activity remained robust with financings from a handful of large issuers. New issue concessions ranged from 0 to 25 bps, reflecting the market’s strong appetite for bonds. more...
http://payden.com/library/weeklyMarketUpdateE.aspx
Mortgage-Backed Securities
Mortgages suffered from general bond market apathy as yields breached the upper bound of the recent trading range on less bleak economic reports. more...
Municipal Bonds
While we witnessed more volatility in Treasuries this week, we saw rather modest changes in municipal bonds, as measured by the Thomson Financial Municipal Market Data (MMD) curve. more...http://payden.com/library/weeklyMarketUpdateE.aspx
High-Yield
The high yield market began the month of June in steady fashion, with strong performance driven by continuing large cash inflows. more...http://payden.com/library/weeklyMarketUpdateE.aspx
INTERNATIONAL MARKETS
Western European Equities
European stocks rose this week extending their third straight weekly gain. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +5.9% this week, while the Russian stock index RTS went up +5.7%. more...
http://payden.com/library/weeklyMarketUpdateE.aspx
Global Bonds and Currencies
With equity markets continuing their upward march and the latest US payroll data surprising on the upside, the past week put pressure on major non-US sovereign bond markets, although the sell-off in 10-year bonds was less marked than that experienced by 10-year US Treasuries. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week, as risk appetite remained strong on the back of continued encouraging economic data. more...http://payden.com/library/weeklyMarketUpdateE.aspx
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Overview
The US economy shed 345,000 jobs in May, about half the average monthly decline during the prior six months, suggesting the labor market may finally be turning the corner. more...http://payden.com/library/weeklyMarketUpdateE.aspx
US MARKETS
Treasury/Economics
Interest rates moved higher this week as the safe-haven demand for Treasuries continues to abate. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Large-Cap Equities
The stock market rallied during this first week of June due to better-than-expected macroeconomic data. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Corporate Bonds
Investment grade primary activity remained robust with financings from a handful of large issuers. New issue concessions ranged from 0 to 25 bps, reflecting the market’s strong appetite for bonds. more...
http://payden.com/library/weeklyMarketUpdateE.aspx
Mortgage-Backed Securities
Mortgages suffered from general bond market apathy as yields breached the upper bound of the recent trading range on less bleak economic reports. more...
Municipal Bonds
While we witnessed more volatility in Treasuries this week, we saw rather modest changes in municipal bonds, as measured by the Thomson Financial Municipal Market Data (MMD) curve. more...http://payden.com/library/weeklyMarketUpdateE.aspx
High-Yield
The high yield market began the month of June in steady fashion, with strong performance driven by continuing large cash inflows. more...http://payden.com/library/weeklyMarketUpdateE.aspx
INTERNATIONAL MARKETS
Western European Equities
European stocks rose this week extending their third straight weekly gain. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +5.9% this week, while the Russian stock index RTS went up +5.7%. more...
http://payden.com/library/weeklyMarketUpdateE.aspx
Global Bonds and Currencies
With equity markets continuing their upward march and the latest US payroll data surprising on the upside, the past week put pressure on major non-US sovereign bond markets, although the sell-off in 10-year bonds was less marked than that experienced by 10-year US Treasuries. more...http://payden.com/library/weeklyMarketUpdateE.aspx
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week, as risk appetite remained strong on the back of continued encouraging economic data. more...http://payden.com/library/weeklyMarketUpdateE.aspx
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Friday, June 5, 2009
U.S. job losses
U.S. job losses softened markedly last month, sending one of the strongest signals yet that the severe recession may be winding down. Nonfarm payrolls slid 345,000 in May, the U.S. Labor Department said, well below the 525,000 decline economists expected. The drop was the smallest since September 2008, when the recession intensified in the wake of the collapse of Lehman Brothers. The unemployment rate, which is calculated using a survey of households as opposed to companies, jumped 0.5 percentage point to 9.4%, the highest level since August 1983. http://online.wsj.com/article/SB124420479347588831.html#mod=djemalertNEWS
Market Reflections 6/4/2009
Improvement in the latest jobless claims report is tangible, though unfortunately precedes what are certain to be major layoffs in the auto sector. Still, the news raised hopes for improvement in tomorrow's jobs report, helping the stock market where the S&P 500 gained 1.1 percent to just over 940.
Chain-store sales reports were mostly weak though perhaps not weak enough to offset strength in vehicle sales and likely strength in sales at gas stations. Retail sales for May, which will be very closely watched following two prior months of disappointment, will be posted next Thursday.
Some call this year's strength in commodities a monetization of tangibles, reflecting doubts over the long-term value of the dollar. Commodities rebounded sharply following yesterday's sell-off, raising wide talk that investment demand, not commercial demand, is on the rise. Oil broke over $69 before ending at $68.80.
The gains in commodities underscore concerns of inflation, concerns also evident in the steepening of the Treasury yield curve where the 10-year note jumped 16 basis points to 3.70 percent vs. no change for the 2-year yield at 0.91 percent. The dollar index was slightly lower at 79.44.
Other news included the civil charges of insider trading against Angelo Mozilo, former CEO at mortgage firm Countrywide Financial that was at the center of the 2007 sub-prime meltdown.
Chain-store sales reports were mostly weak though perhaps not weak enough to offset strength in vehicle sales and likely strength in sales at gas stations. Retail sales for May, which will be very closely watched following two prior months of disappointment, will be posted next Thursday.
Some call this year's strength in commodities a monetization of tangibles, reflecting doubts over the long-term value of the dollar. Commodities rebounded sharply following yesterday's sell-off, raising wide talk that investment demand, not commercial demand, is on the rise. Oil broke over $69 before ending at $68.80.
The gains in commodities underscore concerns of inflation, concerns also evident in the steepening of the Treasury yield curve where the 10-year note jumped 16 basis points to 3.70 percent vs. no change for the 2-year yield at 0.91 percent. The dollar index was slightly lower at 79.44.
Other news included the civil charges of insider trading against Angelo Mozilo, former CEO at mortgage firm Countrywide Financial that was at the center of the 2007 sub-prime meltdown.
Thursday, June 4, 2009
The fate of GM
Magic Act: Conjuring Up a Profit at GM Like a magician who artfully controls his audience's attention, the government's General Motors investment is all about financial diversion. Here's the fancy trick: It won't be very hard for a revamped GM to succeed at making a buck. Its debts will be cut from about $73 billion to about $17 billion. Its labor costs will be reduced by as much as $2 billion a year. On Wednesday, GM got even more help. GMAC, which funds dealers and car buyers, began issuing $3.5 billion in three-year debt backed by the federal government. This should cost GMAC about 2.2% annually. Ford Motor Credit just priced a five-year bond. It's paying 8%. "New GM" will thus have a far easier road to turning a profit over the next 12 to 18 months. And you can bet that first profitable dollar will be cause for celebration in Washington and Detroit. But let's break the magician's credo and show how the trick works. Beneath the magician's table is a black box. It happens to be stuffed with about $65 billion in cash. That's taxpayer money. Some $20 billion of it was given to GM over the past few months, and another $30 billion is being used for the company's reorganization. About $15 billion of it goes to support GMAC, which the Obama administration says is essential to keeping GM alive. Like any lender, the government would be expected to demand this money be repaid. But that's not really happening here. Save for $8 billion in debt and another $2.1 billion in preferred stock, the money is being converted into an illiquid 60% stake in GM. Why didn't the government take more debt and less equity in GM? It worried that GM couldn't bear the interest expense. Explained another way: The new GM may "succeed" at getting to profitability, but only as much as taxpayers have absorbed tens of billions of losses in upfront equity. GM's Fritz HendersonIn President Obama's view, this is all part of the path to helping "this iconic company rise again and move toward profitability." Measuring it as an investment, it appears nearly impossible that taxpayers will get their $65 billion in equity back. The government's 60% stake backs into an implied GM market capitalization of about $70 billion. It will support another $26 billion in debt and preferred stock owed to the U.S. Treasury and the UAW. GM's best market cap was $60 billion in 1999, when it was cranking out high-margin SUVs. Even with huge amounts of debt and other liabilities, GM produced record annual revenue of $176 billion. Also, its pretax, preinterest profit margins were a stellar 12.6%. With the bankruptcy plan, GM will have shed four brands, its majority-ownership stake in GMAC and most of its European operations. Roughly speaking, this might put its annual revenue at about $100 billion. Assuming GM can return to Ebitda margins of 10% (they're currently negative) would mean GM's earnings power will have been cut by over half compared with a decade ago. What is that revenue stream worth? Through most of this decade, one of the world's best car companies, Toyota Motor, has been valued at about eight times its cash flow to enterprise value. Say an outside investor is willing to value GM's cash flows at six times. Roughly speaking, that makes GM's equity worth $33 billion, meaning taxpayers' stake would be worth only $20 billion, less than half their original $42 billion equity investment. And that doesn't include the uncertain fate of the $15 billion given to GMAC. Still, one day in 2010 or 2011, GM will declare itself profitable. The government's bailout plan will be hailed. But it will be an illusion created by taxpayers' black box of billions.
Milton Friedman on Greed
http://www.youtube.com/watch?v=RWsx1X8PV_A&feature=player_embedded
This is the classic answer to the burning issues of the day; by a Nobel Prize winning economist
This is the classic answer to the burning issues of the day; by a Nobel Prize winning economist
Government's Most Destructive Policy Yet
Right now, the so-called Waxman-Markey bill is snaking its way through the greasy halls of Congress.
"Waxman-Markey" is the name given to the new "cap and trade" bill designed to limit America's carbon emissions. It looks like it's the most expensive thing to hit the economy since the financial crisis began.
Even the normally mild-mannered Wall Street Journal called it "one of the most ambitious efforts to re-engineer American social and economic behavior in decades, presenting risks and opportunities for a wide array of businesses from Silicon Valley to the coal fields of the Appalachians."
First off, the stated objective of cutting carbon emissions by 83% by 2050 will go down in history as outrageous – akin to when Who drummer Keith Moon drove his Lincoln Continental into the pool at the Holiday Inn. I think members of Congress must be smoking the same thing Moon was.
To show you how patently ridiculous such a goal is, I turn to Questar's CEO, Keith Rattie. Questar is an oil and gas company. Rattie is an engineer. He has been in the business since the 1970s. He walks us through the basic math in a speech he made at Utah Valley University on April 2 called "Energy Myths and Realities." Rattie uses Utah as an example:
Utah's carbon footprint today is about 66 million tons per year. Our population is 2.6 million. You divide those two numbers and the average Utahan today has a carbon footprint of about 25 tons per year. An 80% reduction in Utah's carbon footprint by 2050 implies 66 million tons today to about 13 million tons per year by 2050. If Utah's population continues to grow at 2% per year, by 2050, there will be about 6 million people living in our state. So 13 million tons divided by 6 million people equals 2.2 tons per person per year.
Question: When was the last time Utah's carbon footprint was as low as 2.2 tons per person? Answer: Not since Brigham Young and the Mormon pioneers first entered the Wasatch Valley and declared, 'This is the place.'
You can extend this math over the whole country – a growing mass of 300 million people. To meet the Waxman-Markey bill's goals would mean we have to go back to a carbon footprint about as big as the Pilgrims' at Plymouth Rock circa 1620.
So I think the bill is absurd. I think it is also a great blow to what is left of American industry. But this is the way the world works. Politicians do dumb things.
Agriculture. Agriculture, for whatever reasons, is exempt from the new rules. So farmers don't have to worry about those manure pools out back or the flatulent cows emitting methane all over God's green meadows. Those big tractors? Burn up that diesel! Agriculture is a winner by virtue of not losing, like a hockey team that skates to a tie.
Steel. Big loser. U.S. Steel, AK Steel, and even foreign steel companies with U.S. operations all get a big kick in the family jewels on this one. Steelmaking emits all kinds of carbon dioxide. The worst-case scenario here is that the U.S. simply won't be making steel at some point in the future. The plants will all go to Brazil. China is already the biggest steel producer in the world. Now we just handed the country a bunch of new business. Avoid big steel in the U.S.
Oil refiners. Losers. This is an industry in which it is hard to make money most of the time as it is. Now, under the new bill, refineries are really screwed. Basically, they are on the hook for about 44% of U.S. carbon emissions. They would be among the biggest buyers of carbon emission allowances. I think with one stroke of the pen, the U.S. government just made the U.S. refining industry that much smaller. Lots of these older refineries will just have to close. U.S. imports for gasoline will rise.
I think the refinery industry already sees the writing on the wall. This is one reason why Valero, the biggest U.S. refinery, has been quick to get into the politically favored ethanol business. It's also expanding overseas. Avoid the refineries.
Trading desks. Winners. It figures. As if the government doesn't help financial firms enough, it is going to hand them a nice tomato in trading carbon credits. The head of Morgan Stanley's U.S. emission trading desk said: "Carbon, while relatively small, is a critical piece of our commodities offering." So some financial firms with trading desks in carbon get a nice little payday.
To sum up, this is only the beginning. At the end of the day, this obsession with carbon footprints means that Americans are going to have to pay a lot more for products that use fossil fuels. It means we are going to pay a lot more for energy. Obama and his crew can draw up whatever fantasies they want, but they can't repeal the laws of economics, which, like forces of nature, win out every time.
So there will be plenty of losers.
"Waxman-Markey" is the name given to the new "cap and trade" bill designed to limit America's carbon emissions. It looks like it's the most expensive thing to hit the economy since the financial crisis began.
Even the normally mild-mannered Wall Street Journal called it "one of the most ambitious efforts to re-engineer American social and economic behavior in decades, presenting risks and opportunities for a wide array of businesses from Silicon Valley to the coal fields of the Appalachians."
First off, the stated objective of cutting carbon emissions by 83% by 2050 will go down in history as outrageous – akin to when Who drummer Keith Moon drove his Lincoln Continental into the pool at the Holiday Inn. I think members of Congress must be smoking the same thing Moon was.
To show you how patently ridiculous such a goal is, I turn to Questar's CEO, Keith Rattie. Questar is an oil and gas company. Rattie is an engineer. He has been in the business since the 1970s. He walks us through the basic math in a speech he made at Utah Valley University on April 2 called "Energy Myths and Realities." Rattie uses Utah as an example:
Utah's carbon footprint today is about 66 million tons per year. Our population is 2.6 million. You divide those two numbers and the average Utahan today has a carbon footprint of about 25 tons per year. An 80% reduction in Utah's carbon footprint by 2050 implies 66 million tons today to about 13 million tons per year by 2050. If Utah's population continues to grow at 2% per year, by 2050, there will be about 6 million people living in our state. So 13 million tons divided by 6 million people equals 2.2 tons per person per year.
Question: When was the last time Utah's carbon footprint was as low as 2.2 tons per person? Answer: Not since Brigham Young and the Mormon pioneers first entered the Wasatch Valley and declared, 'This is the place.'
You can extend this math over the whole country – a growing mass of 300 million people. To meet the Waxman-Markey bill's goals would mean we have to go back to a carbon footprint about as big as the Pilgrims' at Plymouth Rock circa 1620.
So I think the bill is absurd. I think it is also a great blow to what is left of American industry. But this is the way the world works. Politicians do dumb things.
Agriculture. Agriculture, for whatever reasons, is exempt from the new rules. So farmers don't have to worry about those manure pools out back or the flatulent cows emitting methane all over God's green meadows. Those big tractors? Burn up that diesel! Agriculture is a winner by virtue of not losing, like a hockey team that skates to a tie.
Steel. Big loser. U.S. Steel, AK Steel, and even foreign steel companies with U.S. operations all get a big kick in the family jewels on this one. Steelmaking emits all kinds of carbon dioxide. The worst-case scenario here is that the U.S. simply won't be making steel at some point in the future. The plants will all go to Brazil. China is already the biggest steel producer in the world. Now we just handed the country a bunch of new business. Avoid big steel in the U.S.
Oil refiners. Losers. This is an industry in which it is hard to make money most of the time as it is. Now, under the new bill, refineries are really screwed. Basically, they are on the hook for about 44% of U.S. carbon emissions. They would be among the biggest buyers of carbon emission allowances. I think with one stroke of the pen, the U.S. government just made the U.S. refining industry that much smaller. Lots of these older refineries will just have to close. U.S. imports for gasoline will rise.
I think the refinery industry already sees the writing on the wall. This is one reason why Valero, the biggest U.S. refinery, has been quick to get into the politically favored ethanol business. It's also expanding overseas. Avoid the refineries.
Trading desks. Winners. It figures. As if the government doesn't help financial firms enough, it is going to hand them a nice tomato in trading carbon credits. The head of Morgan Stanley's U.S. emission trading desk said: "Carbon, while relatively small, is a critical piece of our commodities offering." So some financial firms with trading desks in carbon get a nice little payday.
To sum up, this is only the beginning. At the end of the day, this obsession with carbon footprints means that Americans are going to have to pay a lot more for products that use fossil fuels. It means we are going to pay a lot more for energy. Obama and his crew can draw up whatever fantasies they want, but they can't repeal the laws of economics, which, like forces of nature, win out every time.
So there will be plenty of losers.
Goldman Sachs: Expect oil prices to soar to $85 by December
Wall Street's largest commodity dealer Goldman Sachs is bullish on oil. This week, Goldman raised its end of year target price from $65 to $85.
Goldman cites all the usual suspects... dwindling supply growth from non-OPEC members... increasing demand. The firm ads that oil could hit $100 by 2010.
Goldman cites all the usual suspects... dwindling supply growth from non-OPEC members... increasing demand. The firm ads that oil could hit $100 by 2010.
Wednesday, June 3, 2009
Market Reflections 6/3/2009
Reports that Asian economies see little alternative to the dollar even if U.S. credit ratings are cut tripped big gains for the currency, rising 1.4 percent on the dollar index to 79.55. The gain in the dollar made for a rush of profit taking in commodities which for the last month have benefited from dollar weakness and resulting demand to hedge against inflation. Grains showed some of the deepest losses with wheat down 7 percent on the session. Silver fell 5 percent to $15.35 with gold down 3 percent to $962. Oil also fell 3 percent to end just below $66.50.
A run of soft economic data didn't help. ADP's count is pointing to another month of severe, but perhaps no more severe, job losses, as did ISM's non-manufacturing report that also showed a surprise decline in new orders, a sobering reminder that recovery is still well down the road. The S&P 500 fell 1.4 percent to 931.79. Demand for Treasuries rose with the 10-year yield down 7 basis points to 3.54 percent. In congressional testimony, Ben Bernanke played down the recent rise in long Treasury yields. He offered no surprises and no changes to the Fed's asset purchase plan.
A run of soft economic data didn't help. ADP's count is pointing to another month of severe, but perhaps no more severe, job losses, as did ISM's non-manufacturing report that also showed a surprise decline in new orders, a sobering reminder that recovery is still well down the road. The S&P 500 fell 1.4 percent to 931.79. Demand for Treasuries rose with the 10-year yield down 7 basis points to 3.54 percent. In congressional testimony, Ben Bernanke played down the recent rise in long Treasury yields. He offered no surprises and no changes to the Fed's asset purchase plan.
A bit sick of it all…The dollar will remain the reserve currency. Period!
The Chinese leadership said so yesterday, despite their previous intermittent cat-calls for a new currency. We suspect the cocky little student know-it-alls at Peking University (a common theme at most universities we might add, not just in China) are likely rolling on the floor in uncontrollable laughter at the thought of the US dollar lasting more than a few more months. They can’t wait to run out and sell the dollar and buy euro instead…oh wait, I forgot, they aren’t allowed to do that unless their masters in Beijing approve…so sorry.
Cat calls of a new currency order are coming from Russia now too. It is to laugh to watch President Medvedev blame the US dollar for all of Russia’s ills, loving it when all thingsThe Chinese leadership said so yesterday, despite their previous intermittent cat-calls for a new currency. We suspect the cocky little student know-it-alls at Peking University (a common theme at most universities we might add, not just in China) are likely rolling on the floor in uncontrollable laughter at the thought of the US dollar lasting more than a few more months. They can’t wait to run out and sell the dollar and buy euro instead…oh wait, I forgot, they aren’t allowed to do that unless their masters in Beijing approve…so sorry.
Cat calls of a new currency order are coming from Russia now too. It is to laugh to watch President Medvedev blame the US dollar for all of Russia’s ills, loving it when all thingscommodities were heading north and US-dollar based credit was pumping up all global asset markets. After all, criticizing the US fits nicely with the Putin Youth Thugs and pumps up the faithful (the crowd still carrying placards of a man named Stalin who murdered 60-80 million during his sick reign of power) who always seem to love a good dose of nationalism when things lurch from bad to worse thanks to cleptocratic leadership. Unlikely anyone on the “Obama Global US Apology Tour” will be sharing those views with the fawning media entourage. Is Bruce Springsteen the warm-up band on that tour? So we have the two countries that recently set their serfs free, to a degree, leading the charge for a new currency and slamming US “over-consumption.” It is fresh! For it was the symbiotic game of Western “overconsumption”, via “overproduction” surplus reserve recycling through the world’s most efficient financial system that nicely led to the enrichment of both the cat-call countries as it stimulated the insatiable demand for final goods. Even Mr. Geithner alluded to this in China, but few paid any attention. He said China must work to increase domestic demand because the good old days of the US consumer on a buying binge are over for a while.
He might have added that despite all the love for China’s forwarding looking infrastructure investment, which granted is a much better use of funds than the waste being generated by the current US Federal Budget, is a very risk bet on a V-shaped recovery even though seemingly all the analysts trotted out on CNBC, and many of the elite bank analysts institutional research heads, use it as justification for a new bull market that will continue as far as the eye can see; haven’t we heard that kind of talk before? It sounds so eerily familiar. Call us skeptical. We have been called much worse, which I am sure comes as no surprise. No doubt the United States has abused its world reserve currency status for the last several years—both leading parties must plead guilty as charged. But what I guess is galling is watching country after country blame the US for all ills.
They seem to forget the US was primarily responsible for setting up the global financial system, with the help of a pretty smart English fellow who knew a bit about monetary history and the like, which has served us very well and achieve the then immediate goal of restoring confidence in the global trading system after WWII and was key for getting worn torn Europe at el back on their feet. It was the dollar-based system that helped pull the world from the morass back then, not the gold standard, which is a system that continues to be overrated by those who seemingly know little about it. “The dirty little secret of the gold standard is that when the Bank of England raised interest rates, it did not see an net outflow of gold from Germany or France.
Germany and France managed to preserve their stocks of gold by putting pressure on their colonies and/or financial dependencies that would in turn transfer gold to the Reichsbank or the Banque de France.”commodities were heading north and US-dollar based credit was pumping up all global asset markets. After all, criticizing the US fits nicely with the Putin Youth Thugs and pumps up the faithful (the crowd still carrying placards of a man named Stalin who murdered 60-80 million during his sick reign of power) who always seem to love a good dose of nationalism when things lurch from bad to worse thanks to cleptocratic leadership. Unlikely anyone on the “Obama Global US Apology Tour” will be sharing those views with the fawning media entourage.
Is Bruce Springsteen the warm-up band on that tour?
So we have the two countries that recently set their serfs free, to a degree, leading the charge for a new currency and slamming US “over-consumption.” It is fresh! For it was the symbiotic game of Western “overconsumption”, via “overproduction” surplus reserve recycling through the world’s most efficient financial system that nicely led to the enrichment of both the cat-call countries as it stimulated the insatiable demand for final goods.
Even Mr. Geithner alluded to this in China, but few paid any attention. He said China must work to increase domestic demand because the good old days of the US consumer on a buying binge are over for a while. He might have added that despite all the love for China’s forwarding looking infrastructure investment, which granted is a much better use of funds than the waste being generated by the current US Federal Budget, is a very risk bet on a V-shaped recovery even though seemingly all the analysts trotted out on CNBC, and many of the elite bank analysts institutional research heads, use it as justification for a new bull market that will continue as far as the eye can see; haven’t we heard that kind of talk before?
It sounds so eerily familiar. Call us skeptical.
We have been called much worse, which I am sure comes as no surprise. No doubt the United States has abused its world reserve currency status for the last several years—both leading parties must plead guilty as charged. But what I guess is galling is watching country after country blame the US for all ills.
They seem to forget the US was primarily responsible for setting up the global financial system, with the help of a pretty smart English fellow who knew a bit about monetary history and the like, which has served us very well and achieve the then immediate goal of restoring confidence in the global trading system after WWII and was key for getting worn torn Europe at el back on their feet. It was the dollar-based system that helped pull the world from the morass back then, not the gold standard, which is a system that continues to be overrated by those who seemingly know little about it. “The dirty little secret of the gold standard is that when the Bank of England raised interest rates, it did not see an net outflow of gold from Germany or France. Germany and France managed to preserve their stocks of gold by putting pressure on their colonies and/or financial dependencies that would in turn transfer gold to the Reichsbank or the Banque de France.”“…The gold standard never worked according to theory because the world’ three main trading partners (UK, France, Germany) were transferring monetary pressures to their colonies, foreign possessions and dependencies. “The status of Serbia, Herzegovina, Morocco, the Ottoman Empire, Egypt, Baghdad, Basra, the Congo, the Cameroons, and the other debtors, suppliers and customers determined the status of gold-standard monetary relations among the main powers at the center, their domestic interest rates, employment levels and political stability. This, and not Balkan real estate per se, was the reason the First World War began in Sarajevo. “Because it left the issue of the global financial order unresolved, the First World War led directly to the Great Depression and then to the Second World War—as whose conclusion we saw the Bretton Woods conference that established a dollar world order, with the dollar anchor on a fixed price of gold. The exchange rates of the dollar against the postwar European and Japanese currencies were set at concessional levels (artificially expensive dollar and artificially cheap German Mark, French Franc, Japanese Yen, etc.) on purpose in order to allow the war ravaged countries to rebuild their economies on the basis of competitively priced exports. “There was a clause in the Bretton Woods agreements that these exchange rates would be renegotiated to restore dollar competitiveness when the European economies had recovered. But when the time came, in the late 1960s, Europe (led by President De Gaulle) refused to renegotiate the exchange rates, demanding instead a dollar devaluation with respect to gold. De Gaulle insisted on this as part of his broad ambition to return to the global system back to a full-fledged gold standard of the pre-1014 variety. President Nixon refused, instead formally delinking the dollar from gold during the summer of 1971.” “…With the present crisis, however, questions have arisen about the future role and status of both the dollar and the United States itself. These questions are frivolous. In a world of fiat currencies, there is no substitute for the dollar. And if the face of the failure of the gold standard (“the problem of 1914”), there is no substitute for a world of fiat currencies.”
Criton Zoakos, courtesy of our friend Al…both men are wise seers of the global macro world with a depth of experience to compare Dollar one-way bet sentiment extreme is building on the back of what we perceive is a lot of false rationales. But then again, what’s new!
Black Swan Capital LLC
www.blackswantrading.com
Cat calls of a new currency order are coming from Russia now too. It is to laugh to watch President Medvedev blame the US dollar for all of Russia’s ills, loving it when all thingsThe Chinese leadership said so yesterday, despite their previous intermittent cat-calls for a new currency. We suspect the cocky little student know-it-alls at Peking University (a common theme at most universities we might add, not just in China) are likely rolling on the floor in uncontrollable laughter at the thought of the US dollar lasting more than a few more months. They can’t wait to run out and sell the dollar and buy euro instead…oh wait, I forgot, they aren’t allowed to do that unless their masters in Beijing approve…so sorry.
Cat calls of a new currency order are coming from Russia now too. It is to laugh to watch President Medvedev blame the US dollar for all of Russia’s ills, loving it when all thingscommodities were heading north and US-dollar based credit was pumping up all global asset markets. After all, criticizing the US fits nicely with the Putin Youth Thugs and pumps up the faithful (the crowd still carrying placards of a man named Stalin who murdered 60-80 million during his sick reign of power) who always seem to love a good dose of nationalism when things lurch from bad to worse thanks to cleptocratic leadership. Unlikely anyone on the “Obama Global US Apology Tour” will be sharing those views with the fawning media entourage. Is Bruce Springsteen the warm-up band on that tour? So we have the two countries that recently set their serfs free, to a degree, leading the charge for a new currency and slamming US “over-consumption.” It is fresh! For it was the symbiotic game of Western “overconsumption”, via “overproduction” surplus reserve recycling through the world’s most efficient financial system that nicely led to the enrichment of both the cat-call countries as it stimulated the insatiable demand for final goods. Even Mr. Geithner alluded to this in China, but few paid any attention. He said China must work to increase domestic demand because the good old days of the US consumer on a buying binge are over for a while.
He might have added that despite all the love for China’s forwarding looking infrastructure investment, which granted is a much better use of funds than the waste being generated by the current US Federal Budget, is a very risk bet on a V-shaped recovery even though seemingly all the analysts trotted out on CNBC, and many of the elite bank analysts institutional research heads, use it as justification for a new bull market that will continue as far as the eye can see; haven’t we heard that kind of talk before? It sounds so eerily familiar. Call us skeptical. We have been called much worse, which I am sure comes as no surprise. No doubt the United States has abused its world reserve currency status for the last several years—both leading parties must plead guilty as charged. But what I guess is galling is watching country after country blame the US for all ills.
They seem to forget the US was primarily responsible for setting up the global financial system, with the help of a pretty smart English fellow who knew a bit about monetary history and the like, which has served us very well and achieve the then immediate goal of restoring confidence in the global trading system after WWII and was key for getting worn torn Europe at el back on their feet. It was the dollar-based system that helped pull the world from the morass back then, not the gold standard, which is a system that continues to be overrated by those who seemingly know little about it. “The dirty little secret of the gold standard is that when the Bank of England raised interest rates, it did not see an net outflow of gold from Germany or France.
Germany and France managed to preserve their stocks of gold by putting pressure on their colonies and/or financial dependencies that would in turn transfer gold to the Reichsbank or the Banque de France.”commodities were heading north and US-dollar based credit was pumping up all global asset markets. After all, criticizing the US fits nicely with the Putin Youth Thugs and pumps up the faithful (the crowd still carrying placards of a man named Stalin who murdered 60-80 million during his sick reign of power) who always seem to love a good dose of nationalism when things lurch from bad to worse thanks to cleptocratic leadership. Unlikely anyone on the “Obama Global US Apology Tour” will be sharing those views with the fawning media entourage.
Is Bruce Springsteen the warm-up band on that tour?
So we have the two countries that recently set their serfs free, to a degree, leading the charge for a new currency and slamming US “over-consumption.” It is fresh! For it was the symbiotic game of Western “overconsumption”, via “overproduction” surplus reserve recycling through the world’s most efficient financial system that nicely led to the enrichment of both the cat-call countries as it stimulated the insatiable demand for final goods.
Even Mr. Geithner alluded to this in China, but few paid any attention. He said China must work to increase domestic demand because the good old days of the US consumer on a buying binge are over for a while. He might have added that despite all the love for China’s forwarding looking infrastructure investment, which granted is a much better use of funds than the waste being generated by the current US Federal Budget, is a very risk bet on a V-shaped recovery even though seemingly all the analysts trotted out on CNBC, and many of the elite bank analysts institutional research heads, use it as justification for a new bull market that will continue as far as the eye can see; haven’t we heard that kind of talk before?
It sounds so eerily familiar. Call us skeptical.
We have been called much worse, which I am sure comes as no surprise. No doubt the United States has abused its world reserve currency status for the last several years—both leading parties must plead guilty as charged. But what I guess is galling is watching country after country blame the US for all ills.
They seem to forget the US was primarily responsible for setting up the global financial system, with the help of a pretty smart English fellow who knew a bit about monetary history and the like, which has served us very well and achieve the then immediate goal of restoring confidence in the global trading system after WWII and was key for getting worn torn Europe at el back on their feet. It was the dollar-based system that helped pull the world from the morass back then, not the gold standard, which is a system that continues to be overrated by those who seemingly know little about it. “The dirty little secret of the gold standard is that when the Bank of England raised interest rates, it did not see an net outflow of gold from Germany or France. Germany and France managed to preserve their stocks of gold by putting pressure on their colonies and/or financial dependencies that would in turn transfer gold to the Reichsbank or the Banque de France.”“…The gold standard never worked according to theory because the world’ three main trading partners (UK, France, Germany) were transferring monetary pressures to their colonies, foreign possessions and dependencies. “The status of Serbia, Herzegovina, Morocco, the Ottoman Empire, Egypt, Baghdad, Basra, the Congo, the Cameroons, and the other debtors, suppliers and customers determined the status of gold-standard monetary relations among the main powers at the center, their domestic interest rates, employment levels and political stability. This, and not Balkan real estate per se, was the reason the First World War began in Sarajevo. “Because it left the issue of the global financial order unresolved, the First World War led directly to the Great Depression and then to the Second World War—as whose conclusion we saw the Bretton Woods conference that established a dollar world order, with the dollar anchor on a fixed price of gold. The exchange rates of the dollar against the postwar European and Japanese currencies were set at concessional levels (artificially expensive dollar and artificially cheap German Mark, French Franc, Japanese Yen, etc.) on purpose in order to allow the war ravaged countries to rebuild their economies on the basis of competitively priced exports. “There was a clause in the Bretton Woods agreements that these exchange rates would be renegotiated to restore dollar competitiveness when the European economies had recovered. But when the time came, in the late 1960s, Europe (led by President De Gaulle) refused to renegotiate the exchange rates, demanding instead a dollar devaluation with respect to gold. De Gaulle insisted on this as part of his broad ambition to return to the global system back to a full-fledged gold standard of the pre-1014 variety. President Nixon refused, instead formally delinking the dollar from gold during the summer of 1971.” “…With the present crisis, however, questions have arisen about the future role and status of both the dollar and the United States itself. These questions are frivolous. In a world of fiat currencies, there is no substitute for the dollar. And if the face of the failure of the gold standard (“the problem of 1914”), there is no substitute for a world of fiat currencies.”
Criton Zoakos, courtesy of our friend Al…both men are wise seers of the global macro world with a depth of experience to compare Dollar one-way bet sentiment extreme is building on the back of what we perceive is a lot of false rationales. But then again, what’s new!
Black Swan Capital LLC
www.blackswantrading.com
Socialism
"The problem with socialism is that you eventually run out of other people's money." ---- Margaret Thatcher...
Market Reflections 6/2/2009
Markets took a breather following Monday's surge amid talk that stocks and commodities are overbought and particular talk that oil is most overbought of all. But as long as green shoots keep appearing, talk is not likely to turn into selling. Pending home sales, helped by first-time buyer credits, proved much better than expected and point to continuing gains for existing home sales -- a result that would finally justify expectations that the housing sector has bottomed. Vehicle sales proved surprisingly strong in May, showing a 7 percent gain vs. April and pointing to strength in next week's big retail sales report.
The S&P 500 gained 0.2 percent to just under 945. Oil ended at $68.50 ahead of tomorrow's meeting between President Obama and his host King Abdullah of Saudi Arabia who some are saying may offer a cooperative statement on oil prices. Gold ended at $981 with silver just under $16. The dollar continues to fall, reflecting a move out of safety and also questions on the risks of inflation. The dollar index fell 1.0 percent to 78.40 for the lowest level since October.
The S&P 500 gained 0.2 percent to just under 945. Oil ended at $68.50 ahead of tomorrow's meeting between President Obama and his host King Abdullah of Saudi Arabia who some are saying may offer a cooperative statement on oil prices. Gold ended at $981 with silver just under $16. The dollar continues to fall, reflecting a move out of safety and also questions on the risks of inflation. The dollar index fell 1.0 percent to 78.40 for the lowest level since October.
Tuesday, June 2, 2009
Be long oil E&P stocks
Three back of the envelope fundamental reasons to be long oil E&P stocks.
1. OPEC cuts are more than enough to offset declining demand by the most bearish estimates (and that is assuming less than full compliance).
The International Energy Agency (IEA) forecasts global crude oil demand to decline approximately 2.56 million barrels per day to 83.2 million barrels of crude oil per day. This happens to be the most bearish of the estimates between the major demand forecasters.
Obviously at first glance this is bearish news since reductions in demand are not typically bullish for price action. However, OPEC has taken action to effectively offset this reduced demand via production cuts. OPEC has a quota cut of 4.2 MMB/D. Of course, not all members of OPEC are 100% compliant with this production quota. In fact as of last month there was really only 76% compliance among OPEC members.
While it may appear that 24% is a significant amount of cheating, at a near record OPEC compliance of 76% or 3.2 MMB/D of production cuts, the production cuts more than offset the most bearish forecast for demand decline at 2.56 million barrels per day. This obviously doesn’t mean that supply will run short overnight. What it means is that over time the world will begin to draw inventories down and before you know it we will be in a supply crunch again.
2. The weak dollar doctrine will fuel commodity inflation in the United States
Well, it is official the U.S. is taking a 60% stake in General Motors (GM). It is all over the news headlines and will likely remain there for the next several weeks. It seems clear the Obama administration will do whatever it takes to promote their set of ideals which includes destroying the fiat currency of the world.
Interestingly enough, it is perfectly logical for Obama to follow a weak dollar policy doctrine. Why would I suggest that? The vast majority of politicians currently in power in this country are absolutely terrible people. They won’t stop at anything to gain votes and Obama is certainly not above that. Hence, the UAW gets a substantially larger stake in GM than the bondholders.
But back on point…if you are an extremely liberal President who seems to legitimately prescribe to socialism as an economic system…and you want to change the system in the United States to support your particular ideology…what would you do?
Beyond directly taking over the means of production, he is actually doing that…you destroy the value of your currency! Why would you do that? Because as the USD collapses goods produced in the United States appear more attractive, in terms of cost, for export.
Thus, by destroying the value of the U.S. dollar, Obama will effectively help promote blue collar unionized workers which effectively will keep the far left wing liberal members of the Democratic Party in office. The weak dollar doctrine will have unintended consequences…
So, for the last couple of years the USD and commodities (namely crude oil) have had a rather strong negative correlation such that when the USD falls in value relative to a basket of currencies, crude oil and commodities tend to rise in value. Effectively, with Obama’s weak dollar doctrine he is pursing policy that will directly lead to commodity price inflation.
Oil prices have been on a tear recently-some of the appreciation can be attributed to the deteriorating U.S. dollar and I believe this will be a multi year trend until the policy of the U.S. government changes.
3. Demand is stabilizing for some consumer fuels. Global demand growth will set in.
Economic data in certain areas of the globe are showing signs of a rebound. China is of course a huge driver of this and will likely continue to be a huge driver. The ripples of Chinese growth will be felt in many other places.
Of most interest to me are countries within South America such as Chile or Brazil. As China applies their stimulus money efficiently, they will begin meaningful expansion or at the very least they will meet their estimated required growth rate to maintain civil order. This will most definitely support surrounding Asian nations such as Taiwan and Malaysia (namely Singapore).
All of this leads to higher commodity consumption via bunker fuel and other petroleum products.
Disclosure: Long PCU, VALE,
1. OPEC cuts are more than enough to offset declining demand by the most bearish estimates (and that is assuming less than full compliance).
The International Energy Agency (IEA) forecasts global crude oil demand to decline approximately 2.56 million barrels per day to 83.2 million barrels of crude oil per day. This happens to be the most bearish of the estimates between the major demand forecasters.
Obviously at first glance this is bearish news since reductions in demand are not typically bullish for price action. However, OPEC has taken action to effectively offset this reduced demand via production cuts. OPEC has a quota cut of 4.2 MMB/D. Of course, not all members of OPEC are 100% compliant with this production quota. In fact as of last month there was really only 76% compliance among OPEC members.
While it may appear that 24% is a significant amount of cheating, at a near record OPEC compliance of 76% or 3.2 MMB/D of production cuts, the production cuts more than offset the most bearish forecast for demand decline at 2.56 million barrels per day. This obviously doesn’t mean that supply will run short overnight. What it means is that over time the world will begin to draw inventories down and before you know it we will be in a supply crunch again.
2. The weak dollar doctrine will fuel commodity inflation in the United States
Well, it is official the U.S. is taking a 60% stake in General Motors (GM). It is all over the news headlines and will likely remain there for the next several weeks. It seems clear the Obama administration will do whatever it takes to promote their set of ideals which includes destroying the fiat currency of the world.
Interestingly enough, it is perfectly logical for Obama to follow a weak dollar policy doctrine. Why would I suggest that? The vast majority of politicians currently in power in this country are absolutely terrible people. They won’t stop at anything to gain votes and Obama is certainly not above that. Hence, the UAW gets a substantially larger stake in GM than the bondholders.
But back on point…if you are an extremely liberal President who seems to legitimately prescribe to socialism as an economic system…and you want to change the system in the United States to support your particular ideology…what would you do?
Beyond directly taking over the means of production, he is actually doing that…you destroy the value of your currency! Why would you do that? Because as the USD collapses goods produced in the United States appear more attractive, in terms of cost, for export.
Thus, by destroying the value of the U.S. dollar, Obama will effectively help promote blue collar unionized workers which effectively will keep the far left wing liberal members of the Democratic Party in office. The weak dollar doctrine will have unintended consequences…
So, for the last couple of years the USD and commodities (namely crude oil) have had a rather strong negative correlation such that when the USD falls in value relative to a basket of currencies, crude oil and commodities tend to rise in value. Effectively, with Obama’s weak dollar doctrine he is pursing policy that will directly lead to commodity price inflation.
Oil prices have been on a tear recently-some of the appreciation can be attributed to the deteriorating U.S. dollar and I believe this will be a multi year trend until the policy of the U.S. government changes.
3. Demand is stabilizing for some consumer fuels. Global demand growth will set in.
Economic data in certain areas of the globe are showing signs of a rebound. China is of course a huge driver of this and will likely continue to be a huge driver. The ripples of Chinese growth will be felt in many other places.
Of most interest to me are countries within South America such as Chile or Brazil. As China applies their stimulus money efficiently, they will begin meaningful expansion or at the very least they will meet their estimated required growth rate to maintain civil order. This will most definitely support surrounding Asian nations such as Taiwan and Malaysia (namely Singapore).
All of this leads to higher commodity consumption via bunker fuel and other petroleum products.
Disclosure: Long PCU, VALE,
Market Reflections 6/1/2009
Monday was a great day for the green shoots, starting with purchaser reports out of China followed by a very solid ISM purchaser report on U.S. manufacturing where new orders, after 17 months, are finally on the increase. Other green shoots included a strong gain in personal income and better-than-expected construction spending data. There's more good news out of the banking sector as the Fed announced that 19 banks will start repaying their TARP injections next week. But Monday also marked the fully telegraphed bankruptcy of General Motors, a company that the government will downsize and will continue to support.
Stocks rallied powerfully on the data with the S&P 500 gaining 2.6 percent to 942.87. All the good news made for big talk of inflation which steepened the Treasury yield curve dramatically with the 10-year yield up 22 basis points to 3.68 percent. Gold shot up to $990 on the inflation concern before settling back to $975. Oil ended at $68. The dollar ended well up from lows, down only slightly with the dollar index off 0.1 percent to 79.24.
Stocks rallied powerfully on the data with the S&P 500 gaining 2.6 percent to 942.87. All the good news made for big talk of inflation which steepened the Treasury yield curve dramatically with the 10-year yield up 22 basis points to 3.68 percent. Gold shot up to $990 on the inflation concern before settling back to $975. Oil ended at $68. The dollar ended well up from lows, down only slightly with the dollar index off 0.1 percent to 79.24.
Monday, June 1, 2009
Changes in Dow Index
General Motors, which filed for Chapter 11 bankruptcy protection on Monday morning, and Citigroup will be removed from the Dow Jones Industrial Average. Cisco Systems will replace GM in the 30-company stock average, and Travelers Co. will replace Citi. The changes are effective June 8.
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