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Man Who Sold the World

ilene's picture




 

Market Shadows: Man Who Sold the World

Here's the latest installment of MarketShadows: The Man Who Sold the World: Sept. 2, 12.

(Named after the song, "The Man Who Sold the World." Pic credit: Jesse's Cafe Americain)

Overview:

  1. Nothing announced at Jackson Hole.
  2. Jobs gained since 2008 were disproportionally low-wage jobs, as middle class jobs have been steadily declining (outsourced).
  3. Gains in the stock market since 2009 have been largely due to the Fed's zero interest rate policy (ZIRP) and quantitative easing (QE).
  4. A majority of GDP growth has been due to the consumer, and the stock market. Obama has cut government jobs.
  5. The stock market reflects the moves in the Dollar; the Dollar is at a critical point.
  6. Exelon Corporation (EXC) is our stock pick this week. It's going into the virtual portfolio as a buy-write--we're selling a call and selling a put against 100 shares.
  7. Pause in Treasury supply next week, enough liquidity for market party to continue--assuming no surprises.

Excerpts

The U.S. stock market notched a third month of gains in August! Friday’s premarket pump kept the longest monthly rally alive for everyone to enjoy the holiday weekend.

Ben Bernanke made no earthshaking announcements on Friday, at his annual appearance at the Kansas City Fed's economic symposium in Jackson Hole, Wyoming.  As the Economist reported:

“The world was wondering whether [Ben] would send a definitive sign that action was coming. He did not, merely repeating the key sentence from the August statement, that the Fed ‘will provide additional policy accommodation as needed to promote a stronger economic recovery.’ This should not have been surprising; Fed chairmen don't like to front-run the Federal Open Market Committee [FOMC].

 

“Mr Bernanke had a different goal than signaling to Wall Street. Pressure on the Fed has become intense in the last year, from hawks and conservatives (not necessarily, but increasingly, the same) who think the Fed has done all it can do and going further risks inflation, monetization of the debt, and a loss of credibility for the central bank; and from doves and liberals who accuse Mr Bernanke of having shirked his responsibility and his own prior advice to the Bank of Japan by not more aggressively using the tools and alternative frameworks available to boost employment.”... (The road to QE3)

 

Wondering whether Bernanke's hands will be tied going into September, and speculating on a relatively decent non-farm payrolls number for August, Bruce Krasting wrote, 

"I would think so, but I don’t think like Bernanke.

.

"If the economy produces, on average, only 150k new jobs per month, then the unemployment rate will remain high (8+%), for a long-time. Ben doesn’t want that as his legacy. The talk on Wall Street (and the manipulated financial press) is that a new round of QE is coming in a fortnight. It will be $500B in size (spread over 6 months). It will be directed at MBS securities...

.

"There are extremely asymmetrical results associated with more QE. Yes, there might be a few more months of 'party time.' But when the party ends (it will), the cost will be ten times the short-term gain.

.

"Ben Bernanke can afford to throw another party in September. The reason is that he will not be around when the inevitable cleanup of his mess starts. He’ll be back in Princeton when the SHTF."... (SSA on NFP, Unconventional Policy and the Hangover)

 

Of course, the upcoming presidential election raises the stakes and politicizes the Fed’s actions.

Jobs gained in the ‘recovery’ have largely been jobs paying lower wages. In last week’s MarketShadows, we discussed a study by Senier Research showing that median household income fell 4.8% to $50,964 since the recession ended in June 2009. Data from the Naional Employment Law Project shows why. During the recession, employment losses occurred throughout the economy, but were concentrated in mid-wage occupations. In contrast, during the recovery, employment gains were concentrated in lower wage jobs. Lower wage jobs grew 2.7 imes faster than mid-wage and higher-wage jobs. Specifically:

“Lower-wage occupations were 21 percent of recession losses, but 58 percent of recovery growth.

.

“Mid-wage occupations were 60 percent of recession losses, but only 22 percent of recovery growth.

.

“Higher-wage occupations were 19 percent of recession job losses, and 20 percent of recovery growth.

.

“The lower-wage occupations that grew the most during the recovery include retail salespersons, food preparation workers, laborers and freight workers, waiters and waitresses, personal and home care aides, and office clerks and customer representa- tives.”

 

 

Median household income by age revealed that most of the income losses occurred among people in the early stages or final stages of their careers. Moreover, older workers' ability to retire has taken a substantial hit, resulting in the elderly taking positions from younger workers. The Fed’s Zero Interest Rate Policy (ZIRP) - loss of income from safe investments - has intensified the pain. This factor has forced investors into riskier assets--Bernanke’s third and unofficial goal: propping up the stock market.

Not surprisingly, the National Employment Law Project also concluded that, “The unbalanced recession and recovery have meant that the long-term rise in inequality in the U.S. continues. The good jobs deficit is now deeper than it was at the start of the 21st century.”

Since the financial meltdown in 2008, the Fed has been expanding its balance sheet. Bernanke believes, without evidence, that his balance sheet policies are effective: “After nearly four years of experience with large-scale asset purchases, a substantial body of empirical work on their effects has emerged. Generally, this research finds that the Federal Reserve's large-scale purchases have significantly lowered long-term Treasury yields... These effects are economically meaningful.”

Economically meaningful to some. The stock market has responded to the balance sheet expansion lock-in-step. But does quantitaive easing increase employment? Not significantly. Has it helped the middle class? No. (Bruce discusses this in SSA on NFP, Unconventional Policy and the Hangover)

QE gives money to the banks, which were theoretically supposed to lend out excess reserves. However, individuals have enough debt and have been de-leveraging. Small businesses have not been hiring, but have been complaining that is it difficult to secure loans. While large companies have money on their balance sheets, many have been laying off workers.

In effect, QE primarily benefited the banks and the stock market (higher net worth individuals). The banks have taken systemic risks in the market. Indeed, evidence demonstrates that quanitaive easing helped the banks and the largest companies, but not the little guy or the American economy as a whole.

 

 

Over the past few years, the government has been drag on  the US   GDP   growth.  ‘Austerity’ measures implemented  by Obama and Congress have been  pulling growth   the wrong way. It seems counterintuitive, because the deficit is growing! What  is  the government spending our money on? Defense, Health  and Human Services, and interest on the debt itself.

[...]

Looking ahead, Lee Adler of the Wall Street Examiner reported:

Connecting the dots, I think that the huge amount of new supply [Treasuries] had a lot more to do with the stock market buckling on Thursday than the economic news did. But the pundits and the media never make the connection between massive Treasury supply and market disruptions. Instead, they concoct all kinds of spurious excuses for it....

.

There still appears to be more than enough liquidity flowing into US markets to continue to support bull moves, so that when one market takes a hit, the other tends to see some of the excess cash flows...

.

But withholding tax collections have again been running weak, so there’s a chance that the government may need to roll those bills or increase the size of the 4 week bill. We’ll know better on Monday... (Withholding Improves but Treasury Out of Cash Again, Pounds Market With Supply)

 

Next week should also see some fireworks with the ECB and August unemployment numbers.

Until then, have a wonderful week.

- Market Shadows writers/Ilene

Full newsletter here.

 

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Tue, 09/04/2012 - 11:33 | 2760500 MFLTucson
MFLTucson's picture

This whole group belongs behind bars for treason.

Tue, 09/04/2012 - 09:29 | 2759932 LawsofPhysics
LawsofPhysics's picture

Liquidity trap combined with a bloated defense budget - FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  FAIL  .............

Tue, 09/04/2012 - 10:45 | 2760224 Winston of Oceania
Winston of Oceania's picture

and a bloated social welfare budget - FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL FAIL .............

Tue, 09/04/2012 - 10:29 | 2760138 Hedgetard55
Hedgetard55's picture

What are you trying to say dude?

Tue, 09/04/2012 - 06:15 | 2759574 blueridgeviews
blueridgeviews's picture

Austerity measures implemented by Obama?  WTF? Are you serious? $1 trillion in deficits for 4 years running.

Tue, 09/04/2012 - 10:11 | 2760053 MisterMousePotato
MisterMousePotato's picture

Actually more like 1.5 trillion deficits. That's a two trillion dollar difference, or thereabouts. More than a rounding error.

Tue, 09/04/2012 - 10:00 | 2760028 hardcleareye
hardcleareye's picture

That is why the word 'Austerity' was put in quotes, he intended it to be tongue in cheek...

Tue, 09/04/2012 - 11:25 | 2760448 kaiserhoff
kaiserhoff's picture

He, she, it???

Tue, 09/04/2012 - 05:16 | 2759539 falak pema
falak pema's picture

is the purpose of society to serve man or to serve "some men"?

Philosophical question which Big bad Ben will debate with Ron PAul when they cross those pearly gates one day...

Deflation truths and inflation lies; only Saint Peter can fish the dregs from the wine, the chaff from the wheat! 

Meanwhile sharpen your knives as its mayhen time all over the sunny tinsel town of 2° temp rise brave new world! 

Musical chairs on the Titanic as the tilt starts to jilt the Oligarchs from their bunga bunga rip-offs. 

See thieving thieves by BK on this trend. Thieving Thieves | ZeroHedge

Costa Concordia captains of financial ships, will the bank runs show us the scammers from the drowners? 

Run to Caymanista land, with the shoal of people's redemption hot on your heels. People Piranhas vs Oligarchy Sharks. 

Awesome battle of the mad dog city species. Nine lives is what we all need now. 

 

Tue, 09/04/2012 - 03:05 | 2759487 Money 4 Nothing
Money 4 Nothing's picture

World Trade Center aka Trading the World for Centralization

Mon, 09/03/2012 - 22:12 | 2759238 robertocarlos
robertocarlos's picture

I never lost control.

Mon, 09/03/2012 - 21:36 | 2759177 CharlieSDT
CharlieSDT's picture

500 bil will not be nearly enough, that much of a disappointment will be bearish and have the opposite effect on the markets than what Ben is going for.

Mon, 09/03/2012 - 23:52 | 2759364 otto skorzeny
otto skorzeny's picture

that amount is ( as my pap would say)  like pissin' up a rope

Mon, 09/03/2012 - 21:35 | 2759172 Temporalist
Temporalist's picture

Doesn't the Fed now own everything with increasingly debased debt currency units?  Mortages and MBS and backstops all state debt and govt. bonds as well as student loans and sovereign debt and via bailouts owns corporations and global banks.  What don't they own?

Tue, 09/04/2012 - 01:42 | 2759444 cynicalskeptic
cynicalskeptic's picture

The Fed owns all the garbage banks and Wall Street wanted to get off their balance sheets..... What the Fed DOESN'T own is QUALITY paper that's worth its face value.

Mon, 09/03/2012 - 21:35 | 2759167 otto skorzeny
otto skorzeny's picture

You know what is disgusting and ironic- when you click on that  great Nirvana video there is a Windows ad at the beginning -Bill Gates IS the man who sold the world. Music died when Kurt C. died. At least he didn't live long enough to see the shit music that corporate America foists on the I-Fag generation. Jay-Z, Kanye,Thug rap and Gaga-puke.

Mon, 09/03/2012 - 22:00 | 2759222 bunnyswanson
Mon, 09/03/2012 - 21:56 | 2759215 Ned Zeppelin
Ned Zeppelin's picture

And let's not forget that David Bowie wrote the song. I think.

Tue, 09/04/2012 - 11:24 | 2760433 TX-Mike
TX-Mike's picture

With all due respect to Kurt (and appreciation for the great cover), it is most certainly a David Bowie song!

Everone owes it to themself to go find a good quality video of the YOUNG David Bowie singing his song.

Mon, 09/03/2012 - 23:51 | 2759358 otto skorzeny
otto skorzeny's picture

Bowie did-but Kurt owned that f'ing song

Tue, 09/04/2012 - 11:27 | 2760460 TX-Mike
TX-Mike's picture

Kurt had a compelling cover, but did he really understand and connect with the lyrics that David Bowie authored?  Since all we get on the radio is Kurt's cover, I air guitar and sing along with the best of them, but I still "hear" David singing it in my head.

It will be one of the top 10 songs in our play list in our "intentionally community" once TSHTF.

Tue, 09/04/2012 - 00:59 | 2759432 Al Gorerhythm
Al Gorerhythm's picture

Owned it? Dang!.........   The bugger was reading the lyrics!

Mon, 09/03/2012 - 21:32 | 2759164 nmewn
nmewn's picture

"Over the past few years, the government has been drag on the US GDP growth. ‘Austerity’ measures implemented by Obama and Congress have been pulling growth the wrong way."

Fortunately for me, I read everything bottom to top in order to save myself time on Ilene posts.

Just what austerity measures over the last few years are we talking about here?

Tue, 09/04/2012 - 10:24 | 2760123 Hedgetard55
Hedgetard55's picture

I don't bother to read her crap, just the comments.

 

Quoting Bruce K? Oh brother.

Tue, 09/04/2012 - 00:43 | 2759421 masterinchancery
masterinchancery's picture

None, of course.

Mon, 09/03/2012 - 22:02 | 2759226 LMAOLORI
Mon, 09/03/2012 - 20:55 | 2759104 DavosSherman
DavosSherman's picture

Long on pitchforks & torches.

Hell, I may even get cable to watch this episode Maiden Lane.

Tue, 09/04/2012 - 00:54 | 2759429 Al Gorerhythm
Al Gorerhythm's picture

Barry advised me to "Vote".

I think I'll turn up with those tools in hand. Know a handy retailer?

Tue, 09/04/2012 - 00:38 | 2759397 Freddie
Freddie's picture

Looks at all those "depts" that could be abolished. Energy, Education, Agriculture and the list goes on.  Let the states handle it.  Education should be at the local level.  Dept of Energy? Why?

Also stick with the Bowie version of The Man Who Sold The World not the Nirvania remake.

Tue, 09/04/2012 - 10:22 | 2760109 ilene
ilene's picture

Comes down to me liking the Nirvana version better. ~ Ilene 

Tue, 09/04/2012 - 01:37 | 2759443 RECISION
RECISION's picture

Dept of Energy = Dept of Nuclear Weapons

Tue, 09/04/2012 - 04:26 | 2759524 Parrotile
Parrotile's picture

Go long on weapons-grade plutonium??

(then once what's left of the Planet settles down, maybe consider ye olde bow & arrow??)

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