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Morning Musings From Art Cashin
Via UBS Financial Services
Stocks Slip On Greece – The troika (stocks, oil and gold) all dipped lower as the dollar (DXY) rallies.
Financial pundits and commentators struggled to fill up the allotted time by citing this or that for the movement in stocks. Unfortunately, the action could be summed up with a Carville-like comment – “It’s the dollar, dopey!”
Away from the greenback’s dominance, Wednesday’s action may have been notable for the reserved response of equities to the buck. The Dow and the S&P each dipped about 0.5%. The rest of the troika was significantly weaker. Oil fell over three times more (-1.75%) as did gold (-1.4%).
So, stock bulls should take heart that even on a currency dominated day, they held their own. Unfortunately, the selloff came on an increase in volume, making it the second “distribution day” in the last four sessions. That may bear watching.
Ouch! That Sounds Familiar – The Zero Hedge blog has had some nifty stuff in recent days. A friend passed along a citation they made of a quote from Kindleberger’s “The World in Depression”.
For a considerable time there was no understanding of what had happened. Then it became clear. The spurt in activity from October 1936 had been dominated by inventory accumulation. This was especially the case in automobiles, where because of fear of strikes, supplies of new cars had been built up. It was the same in steel and textiles - two other industries with strong CIO unions. When it became evident after the spring of 1937 that commodity prices were not going to continue upward, the basis for the inventory accumulation was undermined, and first in textiles, then in steel, the reverse process took place. Long-term investment had not been built to great heights and did not fall far. The steepest economic descent in the history of the United States, which lost half the ground gained for many indexes since 1932, proved that the economic recovery in the United States had been built on illusion. The reason that the citation strikes a nerve is found in the 4th Quarter GDP. As you may recall, it spiked a stunning 5.9%.
Optimists saw enough “green shoots” to make a salad for everyone in China. It was soon realized, however, that almost all the growth came from inventory replacement – just the kind of growth that Kindleberger was talking about. Let’s hope – “This time it’s different”.
Bonds Bend, Buckle And Almost Break – Has The Climate Changed? – The bond market, especially the Treasury
market got battered. To set the stage for the discussion, let’s start with an assessment by the very savvy Peter Boockvar of
Miller Tabak which was cited in Barry Ritholtz’s Big Picture Blog:
With the backdrop of a 5 yr note yield at the highest level since mid Jan, the 5 yr auction was not good and the higher yield was still not tempting enough. The yield at 2.605% was well above the when issued level of about 2.56-2.57%. The bid to cover of 2.55 is above the one year average of 2.46 but is the lowest since Sept ‘09. Indirect bidders totaled 39.7% which is the smallest since July ‘09 and direct bidders came in at 10.8%. I don’t know if it was the healthcare bill and the budget/debt concerns associated with it, or the Fitch downgrade of Portugal, or a reaction to the slow recent creep up in LIBOR rates or a delayed reaction to the optimistic message the stock market has sent on the economy or a reaction to the improving economy, however modest but something has changed in the US Treasury market and the benchmark 10 yr rate is just within 1-2 bps of breaking out.
While the auction certainly could have used a flea collar and a chew toy, bonds were markedly weaker before the auction results hit. There have been signs that the climate may be changing in the Treasury markets for days.
The ten year “swap spread” turned negative for the first time since swap trading began. Some of it is a function of people hedging purchases of riskier but better yielding corporate bonds. Part of it may be due to Libor inching up as hedges work on razor thin margins. Whatever the reason or reasons, it is a troublesome sign.
I have written of a possible bond credit bubble building as money flees from no return money market funds to reach for better yields. I am reminded of a marvelous quote from Ray DeVoe in his letter of March 9-10. The quote comes at the end of a paragraph on reaching for yield.
Pension and Investment Magazine regularly reports the increasing number of college endowment funds that are allocating more of their funds to “high yield investments,” which to me means “expletive deleted” bonds. The “shudder” reaction followed reading the lead column front page article in the New York Times of March 9, 2010 titled “Public Pensions Are Adding Risk to Raise Returns.” Another similar reaction came with the subtitles “Companies Shed Stocks as States Try to Make Up Lost Ground” and “More Than Half of Corporate Funds Are Reducing Their Stock Investments.” It was like a time travelling trip – to be back in 1999 again, only this time with bonds. Always repeated when institutions are adding risk is DeVoe’s Unprovable But Highly Probable Rule #3, that “More money has been lost reaching for yield than at the point of a gun.”
We hope to bring you more of Ray’s wit, if we can ever dry out those napkins from our “Marinating with the Mavens” dinner.
Finally, while we’re on the topic of bonds, rates and yields, somebody passed along a discussion of the “Taylor Rule” by Bud Conrad of the Casey Report. John Taylor is a fabled economist who is now a Stamford professor. He served as Assistant Treasury Secretary and co-authored the currently dominant economic textbook in universities.
The fabled Taylor Rule is a formula that suggests where the Fed should target Fed Funds (FF) given certain status in the economy. Mr. Conrad suggests his calculation of the Taylor Rule indicates that the funds rate should be 4% today not the current 0 – 0.25%. That should trouble the bond vigilantes a bit.
Taylor will be testifying along with Bernanke this morning. Let’s see if things get interesting.
Cocktail Napkin Charting – The napkins see S&P resistance around 1176/1179 and support around 1158/1161. Critical support is around 1150.
Spots Before My Eyes – My ham radio pal worked his way around the computer problems of his data source and sent me
the mid-month numbers on sunspots. For March 11th through 17th, the numbers were: 31, 36, 32, 30, 28, 21, 28. An early
peek from the satellite suggests that the next day, the 18th may also have been a 28.
Spots seem to be appearing more frequently bringing hopes that the long minima has passed but don’t reach for the suntan
oil just yet.
Consensus – EU summit convenes and goes into Friday. That should raise currency concerns. Bernanke/Taylor testimony will
be watched as well the seven year auction. Stay very nimble.
Trivia Corner
Answer - The day was Sunday. We don't have space for the step by step - but - if you insert day names in the riddle, you'll see it's the only day that works.
Today’s Question - What number should come next in this series (and why)?
A) 1, 2, 3, 5, 7, __
B) 1, 2, 4, 7, __
History:
On this day in 1911, it was a Saturday in New York. At a building downtown a group of immigrant girls were busy at work at their sewing machines. There were no clocks in the room - "clock watching" slowed production. But whisper of mouth said it was just a half hour to closing and, thus, the weekend.....(Sunday was a day off, after all). Suddenly at the end of the room, a spark ignited the stacks of fabric and boxes. In an instant the clutter was an inferno. Nearly 800 people were in the building, and, amid screams and scrambling, they clawed, crawled and climbed down toward safety. Under the weight of scores of people, the fire escape collapsed. Unfortunately, 147 of the young ladies who worked for the Triangle Shirtwaist Company died in the blaze.
The whole thing was over in less than a half hour - but the impact of the event would influence decades. Although the proprietors would be found "not guilty of negligence" the case became a national scandal. It led to a major change in the New York City building code - and became a shibboleth for socialist organizers - and allowed the International Ladies Garment Workers Union to blossom. It also led to new safety and building codes steered into law by a young legislator named Alfred E. Smith.
There was no fire on Wall Street yesterday. In fact, it was lethargy and apathy rather than tragedy that traders had to contend with.
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Methinks the Kool-Aid franchises actually belong to Cashin and Rosie. And anyone drinking their stuff has been dead for about one year now.
He didn't say don't trade it (nor did Rosie) simply said don't be married to it...
He didn't say don't trade it (nor did Rosie) simply said don't be married to it...
Kool-Aide drinkers of the world unite....America needs you more than ever!!!
Interesting History note by Art. Maybe the Unions DO exist for a good reason!
The unions DID exist for a good reason. But that day is long past...
Or maybe there is some redeeming value to building codes/building inspectors.
(and I thought the story was going to be about "hot chicks." Well I got that one terribly wrong!)
A ) 6
B) 5
a) infinity
b) faith+1
One's perception of a pattern does not mean there is a pattern. For instance, those numbers could be the sequence counted by a toddler who doesn't know how to count, and the next number could be mathematically nonsensical, but "correct".
A) 11
B) 13
A) 9
b) 11
fail.
A) 11
B) 12
Nice of Art to give ZH a High Five.
A) 10
B) 14
A) 9
B) 11
A) 11
B) 11
Correct.
Agreed.
a)11
b)11
a is just prime numbers, b is a geometric progression ( 1 higher, 2 higher, 3 higher, etc)
ahhh....1911...a good year for a good gun....
Skynet wants to break from its busy work of shanking the market up by informing you that although your result is correct that 11 is the correct answer, the reasoning underlying the sequence is an "arithmetic" and not a geometric sequence. It is much like Cramer's assertion that the market will continue to go up (which is correct) but not because the economy is improving but because of Skynet and BB's machination.
Now back to work you human slaves.
A) 1, 2, 3, 5, 7, __
I get the same "obvious answer" (11) as bam_man, although note that any anal-retentive mathematician might object that 1 is not considered to be a prime number (I prefer to think of it as "trivially prime").
An alternate "less obvious" inductive sequence - there are obviously infintely many of these which one can devise - is the 4-term recurrence x[n+1] = x[n]*x[n-1] - x[n-2]^3, where if we start with x[n+1] = 3, we have to insert a 0 before the 1 to provide the missing x[n-2] term ... that gives 1, 2, 3, 5, 7, 8, -69, ...
B) 1, 2, 4, 7, __
The "obvious answer" here is given by the 3-term recurrence x[n+1] = x[n] + x[n-1] + 1 which gives 1, 2, 4, 7, 12 ... an example of an alternate sequence is x[n+1] = 2^n - x[n-2], where we prepend three 0s to start things off:
x[0] = 2^0 - 0 = 1
x[1] = 2^1 - 0 = 2
x[2] = 2^2 - 0 = 4
x[3] = 2^3 - 1 = 7
x[4] = 2^4 - 2 = 14
x[5] = 2^5 - 4 = 28
x[6] = 2^6 - 7 = 57, etc.
As yz notes, even "more obvious" is x[n] = x[n-1] + n, where we start with x[0] = 1, x[1] = 1+1 = 2, etc. To also get x[0] according to the recurrence we`d have prepend x[-1] = 1 to the sequence.
The solution to Illlinois' "underfunded" public employee retirement plan, the most precarious in the nation, was proposed by the union leader. Problem: "unfunded." Solution: "fund." Or, in the words of little Jimmie to his grandmother, Gimme. Funding has become just another word for theft of the public purse and private businesses by the militant employee unions, granted power by the "people's representatives." Speaking of “a shibboleth for socialist organizers,” here’s more highway robbery, i.e., weatlh transfer, on what ZH’s Oppressed in California dubbed The Freeway to Serfdom:
Say Goodbye to Your Retirement and 401K by bcassill | iTulip contributor | O3|24/10
The hacks on Wall Street are at it again. They know that the debt bubble continues to implode, the FED is out of bullets, and with it the giant derivatives Ponzi scheme. The financial house of cards is collapsing for lack of liquidity and, more importantly, credit, the very life blood modern finance. Every dollar that is destroyed due to a default on a credit card, business loan, or mortgage is a dollar that is sucked from the economy. In the modern economy money is created as an instrument of debt, a promise to pay someone back. Normally, this debt is backed by a hard asset (like a home or auto) or by your willingness to trade your productive labor. In recent years, however, credit was extended to finance anything that could produce a revenue stream. This is the underlying mechanism for the carry trade (i.e. borrowing a currency at low interest rates and investing it in another nation's bonds or equities markets) and other speculative financial activities like borrowing money to purchase mortgage securities from a pool of subprime mortgages that have been fraudulently rated AAA by a complicit ratings agency. If you are going to speculate, it is always better to do it with someone else's money. Borrowing to invest in speculative investments is called "leverage" and it allows you to use just a little bit of your own money and a whole lot of other money created out of thin air to go and play the markets. This is the reason why the American financial sector, alone, has almost as much total debt as all of the business and consumer debt in the United States combined. This is the REAL reason behind the current crisis. People running up their credit cards and buying houses they couldn't afford is only a very, very small part of the story. The real crime is the borrowing of money by Wall Street firms and major banks around the world to engage in speculative trading activities.
The problem now is that the only party extending cheap credit is the FED through their ability to print money. Everyone knows that they cannot continue doing this without creating a hyperinflationary death spiral. They need to keep the game going with another source of cheap money, but how?
The answer is your retirement funds. Your social security was spent long ago by profligate politicians, but there are trillions in 401K's and pension funds all over the country waiting to be tapped if they could only get their hands on it. They know that no one is crazy enough to voluntarily give up their money, so they need a little spin. The scam works something like this.
Someone says "Hey, people are losing their retirement money. That's wrong. We need a way to protect people's retirement savings with an iron clad guarantee! The government needs to do something about this!" So, the government steps in and takes your money and gives you an IOU that says you will get a "guaranteed" pension when you retire. Sound familiar? ("social security, cough, social security"). The government then turns around and allows Wall Street access to those trillions and trillions of dollars that were just sitting there on the sidelines.
Gene J. Koprowski of the Money News has this to say:
Unions Want to Take Over Your 401(k)
One of the nation's largest labor unions, the Service Employees International Union (SEIU), is promoting a plan that will centralize all retirement plans for American workers, including private 401(k) plans, under one new "retirement system" for the United States.
In effect, government pensions for everyone, not unlike the European system and regardless of personal choice.
The SEIU, which was integral to the election of Barack Obama as president (emphasis mine), is working with the left-leaning Economic Policy Institute (EPI), and the National Committee to Preserve Social Security and Medicare, on SEIU's plan, called "the Retirement USA Initiative."
Claiming that the retirement system in place now has "failed most Americans," EPI vice president Ross Eisenbrey, told a labor union publication that "account balances have fallen by a third since late 2007, leaving many older workers unable to retire just as our economy is shedding millions of jobs.”
And from the SEIU's own blog:
SEIU, Coalition Partners Launch Retirement USA Initiative
Initiative will work to establish principles for a visionary retirement income system
SEIU partnered with The Economic Policy Institute (EPI), the National Committee to Preserve Social Security and Medicare and the Pensions Rights Center to launch Retirement USA, an initiative working for a new retirement system that, along with Social Security, will provide universal, secure, and adequate income for future retirees.
Why do we need the Retirement USA Initiative?
Because the system we have now has failed most Americans---a harsh reality that EPI Vice-President Ross Eisenbrey spelled out at the launch of the initiative yesterday:
"Only half of full-time workers have a retirement plan through their employer, and coverage is much lower for part-time workers. Participating in a plan doesn't mean a worker is adequately preparing for retirement. The median 401(k) account balance was only $25,000 in 2006---$40,000 for workers approaching retirement age. In other words, half of those who had a 401(k) were nearing retirement with less than $40,000 in their account. "Account balances have fallen by a third since late 2007, leaving many older workers unable to retire just as our economy is shedding millions of jobs. The failure is broad and deep. It's not just a few people falling through the cracks: most of us are already in the ravine. In the private sector, only two in 10 of us have a secure pension. Three in 10 have only a 401(k) or similar savings plan-and the rest of us are totally out of luck."
The Retirement USA principles will be used by SEIU and its partner organizations in this initiative as a framework for evaluating how well proposals would fulfill the goals of universal coverage, and secure and adequate income. The principals would include concepts such as:
· Pooled assets that are professionally managed; (emphasis mine)
· Shared responsibility among employers, employees and the government;
· Payouts only at retirement;
· Benefits that could move with you even if you change jobs
"The financial crisis and the economic recession have shone a spotlight on the inadequacies of today's system," said Stephen Abrecht, Director of Benefits and Capital Stewardship for SEIU. "The time to act is now."
Karen Ferguson, director of the Pension Rights Center, has invited others to submit proposals for a new system, which will be examined at the fall conference. Proposals will be posted on the Retirement USA web site at www.retirement-usa.org.
Of course, this wouldn't work if the government just mandated it. People might get mad. You need a "consumer friendly" complicit union or other entity to come up with the idea first.
The funny thing (or not so funny) is that folks like former Treasury Secretary Paulson are making noises as to the insolvency of Social Security and Medicare. "Sorry, we already spent the money. Sucks for you." Of course, it'll all be blamed on the bad economy, the avalanche of retiring Baby Boomers, and the fact that no one "saw the crisis coming" until it was too late. You can be sure to get a similar sob story about your "guaranteed" retirement pension when the bill comes due.
Meanwhile, the Criminal Oligarchs of Wall Street will have enjoyed another streak of record breaking bonuses over the next few years while the rest of the nation sinks deeper and deeper into economic depression.
If it is not clear to you now that Obama and fellow cabinet members Summers, Geither, et. al. are nothing more than whores of the Wall Street money interests (just like the last President and the one before that), then maybe a little refresher of the Lehman smoking gun might jog your memory:
Senator Kaufman Makes A Stand Against The Criminality Exposed By The Lehman Examiner Report, Questions The Core Principles Of US Democracy
How Lehman, With The Fed's Complicity, Created Another Illegal Precedent In Abusing The Primary Dealer Credit Facility
Lehman Brothers Dies While Getting Away With Murder: Regulatory Capture
The "Repo 105" Scam: How Lehman Fooled Everyone (Including Allegedly Dick Fuld) And How Other Banks Are Likely Doing This Right Now
Presenting The Lehman Bankruptcy Examiner Report
Ratigan And Spitzer Discuss Repo 105, Conclude "Civil Cases Will Be Brought"
These stories basically show that the NY Fed and the SEC had full knowledge of Lehman's securities fraud. And the person in the middle? Why none other than our friend Turbo Timmy Geithner.
Wresting control back from these greedy, evil morons will not be easy. These folks are not going away quietly. This process is not going to be quick or clean.
http://www.itulip.com/forums/showthread.php?t=14926
The problem I have with Art, is that, on one of my days off early April, 2009, he was looking at his super magicals charts and predicted that the stock market was going to roll back over and retest S&P 660. I tended to believe him and missed out on a nearly straight up 70% rally.
Now, I think for myself, thanks anyway, Art.
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