Tuesday, October 12, 2010

Economy & Market Week Ended 10/8/2010

The unemployment report for August  showed a net loss of 95,000 jobs.  Private employment was up 64,000 but public employment was down 159,000.  The unemployment rate remained unchanged at 9.6%.  The official discouraged worker figure increased to 17.1% up from 16.7% the prior month.  If one used the old 1994 calculation for discouraged workers the number would be closer to 22.8-23%.  The unemployment to population ratio remained unchanged at 58.5% and the labor participation rate was 64.7%.  Part-time involuntary workers increased 612,000 to 9.5 million.  We have long maintained that continued high unemployment is being used to hold inflation down while the financial sector builds its capital ratios back up.  The growing question is why do the rich get bailed out on the backs of the general citizenry?

Gold continues to advance to new highs and silver is at 30 year highs.  There is some market talk to a possible gold resistance line around $1355.  Bottom line, if your local newspaper has articles on owning gold and people in Starbucks are talking about buying gold, it could very well be time to sell and harvest profits.  The use and value of gold is very misunderstood as we have said time and time again.

In the context of gold, consumers should be wary of traveling gold buyers and research local gold buyers for the best price. Along the same line, over a year ago we profiled the VA benefit called the special Aid & Attendance Benefit with the help of an Illinois Department of Veteran's Affairs counselor and how the seminars by "financial advisers" on how to get these benefits, etc are a scam.  No veteran or their family can be charged more then $10 to help get benefits.  VA and State offices are prepared to help veterans and their families obtain benefits and provide information for free.  Those so-called advisers attempt to sell an unnecessary trust with its own checking account and/or annuity and life insurance as well as charge the trust for their services.  When it comes to veteran's benefits always contact the VA or State veteran's offices.

The mortgage Foreclosure Gate continues to unfold and grow with the banks desperately waging a PR and lobbyist campaign to insure the White House will not take any action to protect the American people as is being very well documented on the blog nakedcapitalism.  Many others are also wading into this subject with Mike Konczal's analysis of how the foreclosure fraud is worked and its meaning being a classic must read.  Felix Salmon has made three common sense suggestions for resolving the mess none of which, in my opinion, will be acted upon, because they defeat the profitable purposes of the foreclosure fraud by the banks and the title insurance companies are scared.

John Hussman is his weekly commentary (10/3) emphasized that the economic date we see coming in is mixed and, while it is a bit less negative than expected, it continues "... to deteriorate in a manner consistent with stagnate economic activity".  A look at economic activity of several indices show that the "... data implies tepid growth but not outright contraction".  He maintains that a fresh downturn in the economy is not only a possibility but a likelihood.

Robert Reich had an excellent post on income inequality and how the rich have not only become wealthier but also more politically powerful to the extent that tax cuts, despite being less economically stimulative, for the rich are more important than tax cuts for the other 99% of the citizenry who need the help.

The Small Business Jobs and Credit Act of 2010 has some provisions in it that effect how workers can treat their deferred accounts.  It allows carving out a part of a deferred annuity to create an immediate annuity.  It allows the holder of a 401(k), 403(b), or 457 plan the ability to convert at least part, although in a more limited way than that available to holders of a traditional IRA, to a Roth 401(k).

The meme of uncertainty, which has been so prevalent since June, has temporarily given way to fear of a currency war.  Nations around the world have for some time been defending themselves against the weak dollar and attempting to either boost exports or control prices, interest rates, and investment bubbles.  If this were to get out of hand, the protectionist policies which would ensue and multiply around the world would be economically disastrous.  While China's currency is undervalued, it is also pegged to the U.S. dollar.  In fact, the talk and fear of a currency war serves the same purpose as the uncertainty meme; it is a sideshow, a diversion from the actual problems which exist in different countries, such as China and the United States, which must be dealt with by each country internally with an understanding that there are global, as well as nationally, consequences for right and wrong actions.  If China appreciates the yuan (renminbi), the dollar is devalued.  It would appear that the United States wants a further devaluation of the U.S. dollar beyond that caused by lower interest rates, which has also led to a flood of money into emerging countries driving their exchange rates up.  If the Fed and other central banks around the world are to engage in quantitative easing by buying bonds and mortgages and lower interest rates, the potential global deflation could be staggering.  Quantitative easing may be fine for banks liquidity and profits, but it is not relevant to spurring economic growth.


Market Report:  No banks failed this week.  The unofficial problem bank list is up to 877 banks.

                  DOW/ Volume                                            NASDAQ/Volume

Mon         <78.41>/down 12.8%                            <26.23>/down 1%

Tue           193.45 /up 30.9% (highest vol since 9/1)    55.31 /up 15%

Wed           22.93 /down 20.9%                                 <19.17> /down 1.4%

Thu           <19.07>/down 6.3%                                 3.01  /down 14.4%

Fri               57.90 /up 3.1%                                              18.24/up 7.7%

Week         176.80                                                             31.16

Mon    Oil down 11 cents to $81.47; Dollar stronger
            Weak economic news for the day.
Tue     Oil up 1.35 to 82.82; Dollar weaker
           Market liked Bank of Japan QE plan and 0 to .1% interest rate.
Wed    Oil up 41 cents to 83.23; Dollar weaker but mixed against the pound
            ADP private employment survey was down more than expected; tech stocks were down; oil 
            supplies   were up 3.1 million barrels, gas supplies were down 2.6 million barrels; distillate was                      down 1.1 million barrels.
Thu      Oil down 1.56 to 81.67; Dollar stronger but mixed against the yen
            Teen retailer and luxury sales are up; weekly jobless claims were down 11,000 to 445,000; 4 week
            moving average was down 4000 to 455,750; continuing claims were down 48,000 to 4,462,000.
Fri        Oil was up 99 cents to 82.66; Dollar weaker
             Weak unemployment report <64,000> farm stocks up; market appears to want QE  --- will
             there be a sale off in the market if we get QE in November?

United States:

ECRI Weekly Leading Index at <7.0> up from <7.8>.

Gallup survey shows unemployment up to 10.1% in September in a last 1/2 month surge which was probably not picked up in the BLS unemployment report released this week.

BLS annual job loss revision (February for January 2011 report) preliminary estimate is <366,000>, which means there were that many less jobs than reported during 2010.

U.S. factory orders were down .5% August; ex transportation orders were up .9%.

Pending U.S. home sales were up 4.3% August to 82.3 (still 20 below a year ago).

ISM non-manufacturing index was up to 53.2 from 51.5 (August) which was more than the 52.0 expected; employment was up to 50.2 from 48.2.

Office vacancy rate is at a 17 year high.

According to the American Bankers Association, consumer delinquency rate was 3.00% up from 2.98% in Q2; it had been dropping.

As of June 30, 78 bailed out banks have problems severe enough to threaten survival.

U.S. bankruptcies were down 11% in first 9 months of 2010.

Sanofi-Aventis $69/share offer for Genzyme has turned hostile.

Evans (Chicago Fed) favors more accommodation in the face of continuing high unemployment; Fed might aim to overshoot 2% inflation target temporarily to bring down high cost of credit.

ADP private employment survey is down 39,000 jobs in September (expected up 20,000).

88% of NYSE stocks are overbought as of Wednesday.  There is a massive short accumulation in the Nasdaq 100.

If economic growth is 2% per year, unemployment will grow to 11.9% by 2020; if 3% growth, unemployment will be 45% by 2020; if 6% growth, unemployment will be 5% by 2012.

40% of Americans fear they will run out of money for health care and are delaying retirement.

Joseph Stiglitz said the Fed monetary easing and quantitative easing has created chaos globally in currencies.

U.S. consumer credit in August was up 1.75% annualized; revolving credit decreased 7.25%; non-revolving credit increased 1.25%.

Fisher (Dallas Fed), who opposes QE, said the debate at the next FOMC (Fed Open Market Committee) will still continue.


U.S. city tax revenues are down 3.2% in 2010.

Bullard (St. Louis Fed) said the decision at the next FOMC (Fed Open Market Committee) will be tough, because the economy has slowed but not so much that something should be done.

Bank of America extended its mortgage foreclosure freeze to all 50 states; PNC is halting in 23 states for a month.

Wholesale inventories were up .8% in August.

International:

China has offered to buy Greek bonds and Chairman Wen said China will undertake great effort to support the eurozone.  China is diversifying it's currency holdings.  It has also bought Spanish bonds.

China also said the global financial crisis has demonstrated the need for China to focus on "structural problems" and stimulate domestic demand to stabilize and grow the economy.  Even before the recession, China's economic development lacked balance, coordination, and sustainability according to Chinese officials.

The United Kingdom Accounting and Actuarial Board has opened an investigation into Ernst & Young and its report to the FSA (UK financial regulatory authority).

Bank of Japan announced $418 billion monetary easing program to buy corporate debt as well as government debt and cut interest rates to a range of zero to one-tenth of a percent.

The Markit eurozone services PMI (Purchasing Managers Index) was down to 54.1 September from 55.9; six month low.

Moody's warned it may cut Ireland's credit rating again, citing need for additional austerity.  To me, this appears to be counter productive as Ireland is suffering from austerity which is stagnating growth while publicly bailing out Irish banks to the benefit of shareholders, officers, and bondholders at great expense to GDP.

Australia central bank kept its interest rate at 4.5%.  There is growing concern about the appreciation of the Australian dollar.

The ECB will accept one week deposits to drain excess (?) liquidity from the market; it also stepped up bond purchases with $730 million last week.

Eurozone retail sales were down .4%.

Eurozone wants China to appreciate the yuan (renminbi).

Bank of England held interest rate at .5%; QE is on hold.

ECB held interest rate at 1%.

Estonia's inflation rate is up 4.0% annualized and .8% for the month.

German manufacturing orders were up 3.4% in August on strong foreign demand.  German exports were down .4%; production was up 1.7%; manufacturing output was up 3.4% (primarily cars).

France's trade gap was up in August.

Canadian building permits were down 9.2% by value.

China sold a record 2.02 trillion yen ($24.5 billion) of Japanese debt in August after seven months of buying.

French service sector index was up 1 to 102 in September.

Canadian jobs were down 6600 in September (expected up 10,000) which may indicate jobs growth is faltering; its workforce shrank 11% with unemployment at 8%.


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