This is a short video which shows the future of the US if we keep making the same mistakes.
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Marc Faber's November Outlook
Equity Markets--Faber is still bearish on the markets in the very short-term. He thinks QE 2 will disappoint investors, which will precipitate a sell-off in equity markets. In particular, Faber mentions the high level of bullishness in the recent AAII sentiment Survey as a signal of overly-optimistic sentiment among investors. However, the S&P 500 will not break below 1040 because that would encourage the Fed to print more money to prop up prices. The point is that a decline in the market should be bought. For the first time Faber mentions the possibility of a "crack-up boom" in the US and world economy. Money printing will provide a temporary boost to the economy which would be very bullish for stocks and commodities. The "crack-up boom" scenario could last for between 6 months to a year.
Commodities--While they may be vulnerable in the short-term, commodities should be bought on any weakness. In particular, agricultural commodities (wheat, corn, etc) and related stocks like the fertilizers will remain attractive. Do not purchase agricultural ETFs that own commodity futures because you will lose on the monthly roll.
Gold & Silver--All investors should own some gold and silver. Right now, Faber thinks silver could provide a better return than gold and could reach $30. This would be especially true under a crack-up doom scenario where industrial metals like silver and palladium would soar because of strong demand. The bull market in precious metals will continue as long as the US has negative real interest rates. Finally, Faber likes gold and silver stocks. Previously, he mentioned Centamin Egypt as a good gold play.
Bonds--Do not purchase US government bonds. Rates are incredibly low, and any positive economic news would negatively impact bond prices. A possible crack-up boom would severely hurt bond investors as money moves out of bonds and in to equities.
Currencies--In the short-run, the dollar could rally from very oversold levels. This would likely coincide with a market sell-off. But this dollar strength would only be temporary. Regarding other currencies, Faber thinks the Yen and Franc could decline because they are very overbought. This makes him bullish on Japanese and Swiss equities, which should do well with weaker currencies.
There you have it: Faber's outlook for November. Good luck trading!
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AAII Sentiment At Extreme Level--Sell-Off May Be Imminent
Is The AAII Sentiment Survey A Reliable Indicator?
Yesterday I noted that the AAII sentiment survey was flashing a warning sign because of the extreme level of bullishness and lack of bears. Currently, the AAII sentiment suvey stands at Bullish 51.2%, Neutral 27.2%, and Bearish 21.6%. Most people who follow this indicator would say this means a sell-off is near. Instead of simply following the consensus, I took a look at the raw data from the AAII survey all the way back to 1-01-04 to see what actually happens when we have similar conditions. The conditions I used were a bullish reading above 51% and bearish number of below 22.0%. I decided to use a 3 week date to see if the indicator was reliable. Here are the results:
Have a good weekend!
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AAII Sentiment At Extreme Level--Sell-Off May Be Imminent
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- Since the beginning of 2004 there have been 24 occurrences (6.7% of the time) that met the criteria stated above
- In 15/24 occurences the market declined 3 weeks later, which gives the indicator a 62.5% success rate
- It should be noted that during the 1990-2000 time frame this indicator was almost useless with the market continuing to advance despite overly-bullish AAII sentiment
- The all time record high for bullish sentiment was 75% back on 1-6-00
- The market peaked a litte more than 2 and a half months later
- The lowest ever reading for bullishness was 12% back on 11-16-90
- The market rallied over 13% during the next 3 months
- The all-time high for bearish sentiment was 70; 27% reached on 3-05-09 (SP at 713)
- 3 months later the S&P 500 traded at 932, up over 30%
Have a good weekend!
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AAII Sentiment At Extreme Level--Sell-Off May Be Imminent
China's Plan To Use Rare Earths As A Weapon
It is estimated that China has 27 million tons of rare earths, which accounts for about 30% of the global supplies. It produced 120,000 tons in 2009. However, China now says it will reduce production to only 100,000 tons or less from 2010 onward and has allocated 40% less for export this year than last year.
With the introduction of clean technology and new consumer electronics, rare earth elements have become strategically important. China currently controls 95% of production and has leveraged this advantage for political purposes. A few months ago China took the drastic step of halting exports of rare earths to Japan over a territorial dispute surrounding the Senkuku islands. Within days of China's export ban, Japan caved and released the fisherman involved in the altercation. This incident shows revealed that China was willing to use rare earths as an economic weapon and the need for alternate suppliers.
This need for new suppliers has led to an investment boom in junior rare earth miners who have seen their stocks increase several hundred percent. I have an investment in Stans Energy, a junior who is planning to put back into production a previously producing mine in Kyrgyzstan. This mine used to supply 80% of the Soviet Union's rare earths so there is no exploration risk. The only real risk is financing but that should be minimal because of the deposits strategic importance. I have little doubt the Japanese will be willing to sign an off-take/financing agreement to get the mine back into production. Japan do not want to continue to be held hostage to China's belligerent use of rare earths. This will mean significantly less dilution, which is always good for shareholders.
My only concern about investing in rare earth companies is the risk of a price bubble which comes crashing down like dot-coms in 2000-2001. I do not think that we are at the point of a bubble yet, despite the large run up in some stocks. However, you really have to be prepared to get out before the mania collapses.
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Investment Managers Turn Cautious--NAAIM Survey
The National Association of Active Investment Managers released its weekly sentiment survey which acts as a contrary indicator. Every week investment managers are asked to describe their total equity exposure. This week the average equity exposure of respondents was 57.66%, down from last weeks reading of 72%. Generally a number north of 70% is considered extreme and usually marks a top in the market. So despite the market's rally, investment managers have scaled down their total equity exposure. This may seem like a bullish sign but it should be noted the NAAIM survey is very volatile and does not perfectly correlate with the market. Nonetheless it is always important to keep an eye on what the pros are doing and how they are positioning their portfolios. As a trading indicator, I would not be relying on the NAAIM survey right now as it is giving mixed signals.
Click chart for larger image
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Click chart for larger image
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AAII Sentiment At Extreme Level--Sell-Off May Be Imminent
Today we got the weekly AAII sentiment survey which shows what the retail crowd is up to. Bullish sentiment rose to 51.23% from 49.62%, but bearish sentiment fell 21.60% from 25.19% during the previous week. The percentage of investors who described themselves as neutral on the stock market rose to 27.16% from 25.19%, according to the poll.
Above 50% signals extreme bullishness and usually coincides with a decline in the stock market. However, if you take a look at the charts below you will see that bullish sentiment has been high for quite some time and yet the market continued higher. That being said we have the necessary ingredients for a market top, especially when you consider how low bearish sentiment currently is at 21.60%.
Here is a short-term chart of AAII sentiment.
Click charts for larger image
Here is a longer term which shows AAII bullish sentiment compared to the S&P 500.
Here is a longer term chart which shows AAII bearish sentiment compared to the S&P 500.
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Above 50% signals extreme bullishness and usually coincides with a decline in the stock market. However, if you take a look at the charts below you will see that bullish sentiment has been high for quite some time and yet the market continued higher. That being said we have the necessary ingredients for a market top, especially when you consider how low bearish sentiment currently is at 21.60%.
Here is a short-term chart of AAII sentiment.
Click charts for larger image
Here is a longer term which shows AAII bullish sentiment compared to the S&P 500.
Here is a longer term chart which shows AAII bearish sentiment compared to the S&P 500.
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Will The Fed's QE 2 Program Cause a Market Downturn?
A very interesting article from the WSJ on the Fed's likely QE 2 program. As you probably know, Mr. Hilsenrath has become the man in the know when it comes to future Fed decisions. He seems to be the preferred person by the FOMC to leak information to the market. Well, he had an article in the WSJ today which mentioned that while QE 2 was guaranteed, it may not be as large as previously thought. Some estimates from Goldman and Morgan Stanley estimate between $1-4 trillion. As it turns out, the hawks on the FOMC may force Zimbabwe Ben into a compromise of only a few hundred billion. If true, this may not please the market as everyone and his brother is long risk assets (commodities, stocks, carry trade). Could this let down by the Fed lead to a market downturn? Marc Faber thinks so. At the end of the article, I have included a video of Marc Faber being interviewed by Bloomberg. From the WSJ article:
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The central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis. The announcement is expected to be made at the conclusion of a two-day meeting of its policy-making committee next Wednesday.
The Fed could leave open the possibility of more purchases in the future, particularly if inflation is projected to remain below 2% and the unemployment outlook remains high, which is currently the expectation of many officials. Or it could halt the program if the economy or inflation surprisingly take off, officials have said.
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Durable Goods Disappoint
Overall, this was a depresing number because it showed US corporations are not spending. Why should they? Resource utilization is low and many industries are experiencing excess capacity. No reason to increase capital spending until you see a real pick up in demand. From Dow Jones:
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Durable-goods orders in September increased by 3.3% to a seasonally adjusted $199.16 billion, the Commerce Department said Wednesday, the biggest rise since January. Economists surveyed by Dow Jones Newswires expected a 2.5% rise. But excluding transportation, orders for all other durables fell 0.8% last month.
Not including defense, durables orders rose 2.9%. New orders for non-defense capital goods excluding aircraft, a barometer of capital spending by businesses, fell 0.6%.
"Overall, these figures suggest that the industrial recovery is nearing extinction," said Capital Economics economist Paul Dales. "Without it, the overall economy is going to struggle."
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Does Weak Air Freight Demand Suggest A Slowdown In Asia?
I don't usually cover air freight indicators, but I came across a surprising statement by the International Air Transport Association (IATA). Every month the trade group issues a report covering international passenger traffic and air freight demand. The good news was that passenger traffic increased 2.1% month over month in September. However, the part that caught my eye was the disclosure that air freight (a leading economic indicator) declined 2.7% compared to August (seasonally adjusted). The report noted that this was the second consecutive month on month decline for air freight, and the number is down 6% since the peak in May 2010. The decrease was blamed on weak consumer and business confidence and the fact that inventory re-stocking has run its course. Without final demand, there is nothing left to pick up the slack, which has resulted in a contraction in air freight. The head of IATA Giovanni Bisignani said "the freight numbers are worrying.... the accelerating decline of air freight, including in Asia, is an early indicator of some turbulence ahead.”
Of course, a few months of weakness does not indicate a future recession, but it is worth keeping your eye on. Asia (led by China) has been the real powerhouse of growth for the world economy over the last 2 years, so it is important to look for any signs of a potential slowing in the region.
Further evidence of a slowdown in China is provided by Ambrose Evans-Pritchard who included two very revealing charts in his last article. The first chart shows Chinese orders of semi-manufactures from Taiwan. Pritchard noted:
click charts for larger image
The second chart shows world steel production along with Chinese steel production through August 2010. You can see how much it has fallen. Current weakness in the steel market can be discerned from looking at the poor performance of steel stocks like US Steel, Nucor, etc. These stocks have not rallied at all despite the market's relentless advance.
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Of course, a few months of weakness does not indicate a future recession, but it is worth keeping your eye on. Asia (led by China) has been the real powerhouse of growth for the world economy over the last 2 years, so it is important to look for any signs of a potential slowing in the region.
Further evidence of a slowdown in China is provided by Ambrose Evans-Pritchard who included two very revealing charts in his last article. The first chart shows Chinese orders of semi-manufactures from Taiwan. Pritchard noted:
“The indicator – which tends to anticipate China’s overall import growth quite accurately by about two months – has been decelerating for five consecutive months, from close to 60pc (y-on-y) in March to just 8.8pc in August. The product mix shows a sharp decline in China’s orders for electronics and IT products as well as other light manufacturing items such as precision instruments, clocks, and watches.”
click charts for larger image
The second chart shows world steel production along with Chinese steel production through August 2010. You can see how much it has fallen. Current weakness in the steel market can be discerned from looking at the poor performance of steel stocks like US Steel, Nucor, etc. These stocks have not rallied at all despite the market's relentless advance.
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Truck Tonnage Indicator Inches Higher Despite Industry Doldrums
One of the indicators I follow to gauge the health of the US economy is the American Trucking Association's Truck Tonnage Index. During September truck tonnage increased 1.7% after falling 2.8% in August. The general trend is that the economy is growing, but just barely. I think one of the other reasons for weak trucking demand is the high cost of oil, which makes rail a more practial mode of transporting goods across country. From the ATA:
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The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 1.7 percent in September after falling a revised 2.8 percent in August. The latest gain put the SA index at 108.7 (2000=100) in September from 106.9 in August.
The not seasonally adjusted index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, equaled 112.4 in September, down 0.9 percent from the previous month.
Compared with September 2009, SA tonnage climbed 5.1 percent, which was well above August’s 2.9 percent year-over-year gain. Year-to-date, tonnage is up 6.1 percent compared with the same period in 2009.
ATA Chief Economist Bob Costello said that truck tonnage over the last few months fits with an economy that is growing very slowly. “While I am glad to report that tonnage grew in September, the fact remains that truck freight volumes leveled off over the summer and early autumn. This is a reflection of an economy that is barely growing.” Costello noted again this month that the trucking industry is significantly smaller than it was prior to the recession, but as a result, is better equipped to deal with slower than normal tonnage growth.
Legendary Trader Paul Tudor Jones Slams "Free Trade" With China--Says It is Destroying The US Economy
Note this comment is not from some Steelworker's union or Democrat protectionist, it is from one of the world's best hedge fund mangers Paul Tudor. Dealbreaker.com got a hold of his letter to investors which goes through the history of trade with China and how it has destroyed the US economy, leaving it only with high rates of unemployment and trillions in debt. It is nothing but a parasitic relationship where China wins (along with multinational corporations) and the US loses. The main reason is the manipulation of China's currency. Despite what some economists say Tudor believes the Renimbi is undervalued by at least 30% and perhaps as much as 60% (and remember he is one of the best forex traders in world). The US he notes has been in a trader war for the last 20 years with China and is losing He goes on to state that free trade is nothing but a myth and that the US should introduce tariffs to protect its economy. This really is a must read. Here are the key excerpts:
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The root cause of the unemployment woes is quite obvious. In the United States alone, in the last two decades, nearly six million jobs in manufacturing have been lost overseas. This equates to nearly four percentage points of the current 9.7% US unemployment rate. As importantly, the migration of these jobs contributed to the most unsustainable economic imbalance in the world today—China’s persistent bilateral trade surplus with the United States. During the last decade, China accumulated almost $1.4 trillion of US debt and at least $2.3 trillion in global assets. These figures could grow to $3.8 trillion and $7 trillion, respectively, over the next decade if the current renminbi/US dollar (RMB/USD) exchange rate continues to be artificially suppressed from appreciating.
One entity owning this much debt of one debtor, let alone a foreign government, creates too much risk concentration, and has possibly repressed volatility for debtor and creditor alike. The risk may seem manageable now, but who knows what the nature and temperament of the Chinese and American leaders will be in ten years? Isn’t it possible that either side could weaponize financial imbalances to the detriment of domestic and global stability?
Case-Shiller Home Price Index Dips In August
The much anticipated Case-Shiller Home Price Index was released today and reported that home prices fell slightly (0.2%) in August from July. Declines were seen in 15 of 20 cities surveyed, but prices were still up on a year over year basis. The index is now off 29% from its all time high and should continue to fall in the months to come. It must be kept in mind that this index uses a 3 month weighted average so the months included are June, July, and August. Most of the deterioration in home prices was seen in late July-August period. Personally, I am surprised home prices did not fall much more (I was expecting around 1%). From the press release:
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“A disappointing report. Home prices broadly declined in August. Seventeen of the 20 cities and both Composites saw a weakening in year-over-year figures, as compared to July, indicating that the housing market continues to bounce along the recent lows,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Over the last four months both the 10- and 20-City Composites show slowing growth, after sustaining consistent gains since their April 2009 troughs.
“The month-over-month growth rates tell the same story. Fifteen of the 20 MSAs and the two Composites saw a decline in the month of August as compared to July levels. The 10- and 20-City Composites fell 0.1% and 0.2%, respectively. Indeed, the housing market appears to have stabilized at new lows. At this time, it does not seem that any of the markets are hanging on to the temporary momentum caused by the homebuyers’ tax credits.”
Black Swan Insights
August Home Prices Declined 1.5 Percent Year Over Year--CoreLogic
This data along with the info from Clear Capital further confirms the double dip in housing despite Fed money printing. Will another $1 trillion do anything? Of course not. Regarding Corelogic's Index, it uses a three month weighted average which means it reflects data from June, July, and August. Because it is released before Case-Shiller I like to follow it to get a heads up on what to expect. Based on this we can probably expect a decline in Case-Shiller of around 1%. From Corelogic:
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...Home Price Index (HPI) which shows that home prices in the U.S. declined for the first time this year. According to the CoreLogic HPI, national home prices, including distressed sales, declined 1.5 percent in August 2010 compared to August 2009 and increased by 0.6 percent* in July 2010 compared to July 2009. Excluding distressed sales, year-over-year prices declined 0.4 percent in August 2010.
Highlights as of August 2010
• The top five states with the highest appreciation, including distressed sales, were: Maine (+5.8 percent), New York (+3.7 percent), Connecticut (+2.5 percent), Virginia (+2.4 percent), and South Dakota (+2.1 percent).
• The top five states with the greatest depreciation, including distressed sales, were Idaho (-14.0 percent), Alabama (-10.4 percent), Utah (-7.3 percent), Oregon (-6.3 percent) and Florida (-6.2 percent).
“Price declines are geographically expanding as 78 out of the largest 100 metropolitan areas are experiencing declines, up from 58 just one month ago” said Mark Fleming, chief economist for CoreLogic.
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5% Chance Of Sustained Deflation--SF Fed
You would not know it by listening to Zimbabwe Ben and company, but the chance of sustained deflation in the US is extremely low according to research from the San Francisco Fed.
The full article is available here
The bottom line from the Fed's own research:
Click chart for larger image.
What this research indicates is that the only people even mentioning deflation are unconnected academics (most of whom said housing was not in a bubble). The market sees no such outcome. The only time when the market saw the possibility of prolonged deflation was after Lehman's collapse when the entire financial system was almost destroyed. You can see from the chart below what the market thinks of inflation (blue line--5 year break even rate). One thing to keep in mind about this chart is that it only goes to Aug 13. 2010. The 5-year break-even rate has rebounded during the interim to 1.55%. So far, the bond market is predicting low inflation, at least for the time, but the risk is to the upside not downside.
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The full article is available here
The bottom line from the Fed's own research:
The recent economic slowdown has raised concerns about the possibility of sustained deflation in the years ahead. However, a refined model of inflation-indexed and non-indexed Treasury bond yields, which captures accurately the possible inflation outcomes perceived by bond investors, suggests that the probability of sustained deflation is just 5.3%. The model accounts accurately for the behavior of inflation-protected Treasury bond yields during the financial crisis and could prove reliable in evaluating deflation risk.
Click chart for larger image.
What this research indicates is that the only people even mentioning deflation are unconnected academics (most of whom said housing was not in a bubble). The market sees no such outcome. The only time when the market saw the possibility of prolonged deflation was after Lehman's collapse when the entire financial system was almost destroyed. You can see from the chart below what the market thinks of inflation (blue line--5 year break even rate). One thing to keep in mind about this chart is that it only goes to Aug 13. 2010. The 5-year break-even rate has rebounded during the interim to 1.55%. So far, the bond market is predicting low inflation, at least for the time, but the risk is to the upside not downside.
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Update On Stans Energy
As you know one of my investments is a little rare earths company called Stans Energy. I wrote it up a few months ago which is available here. Since then there has been a lot of news concerning China and its reduction of export quotas for rare earths. The stocks have all moved up significantly so it is a good time to review the investment.
A few days ago Stans Energy CEO Robert Mackay gave an interview with Theinvestar.com, which covered important aspects of the rare earths market and in particular Stans Energy. In fact it answered most of my concerns regarding Stans. Here are a few excerpts.
From theinvestar.com
I really believe that given the strategic nature of Stans deposit, they will be able to arrange some sort of off-take/financing agreement with a major user of rare earth minerals. This should keep dilution much lower than if they were forced to rely exclusively on equity financing.
My only real concern after listening to this interview was Mr. Mackay's reference to possible acquisitions. For a company with no cash flow and no mine until late 2012 (best case), it is way to early to get distracted with acquisitions. Furthermore, this course of action would lead to severe dilution. I really hope Stans does not make any acquisitions until the mine is in production and cash flow positive. Then you will have all the money required and will not have to dilute shareholders. The primary concern has to be the rare earths mine.
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A few days ago Stans Energy CEO Robert Mackay gave an interview with Theinvestar.com, which covered important aspects of the rare earths market and in particular Stans Energy. In fact it answered most of my concerns regarding Stans. Here are a few excerpts.
From theinvestar.com
Full interview: Click Here
Theinvestar.com: What does the timeline look like to get to production?
Robert Mackay: This is the big question. Time is a function of money and right now we’re progressing our project as fast as we can while conserving the money we have. Our plan is to have all the pieces for a feasibility study at the beginning of January, 2011, one year after the purchase of the mine. From there, with debt financing and some upgrades, best case scenario would be production in late 2012.
Theinvestar.com: How much is it going to cost to refurbish the mine, buildings and surrounding infrastructure?
Robert Mackay: The other big question… That is for a feasibility study to determine, and we are currently in negotiations for the processing facilities, so I cannot comment on the buildings. As far as infrastructure is concerned, it’s all there; roads, rail, power and water. You can drive a Cadillac into the bottom of the pit. There are even many knowledgeable people still living in the area who used to work at the mine. On a relative basis, it is safe to say that Kutessay II will require a fraction of the capital necessary for many other REE properties.
Theinvestar.com: Will you need to raise any funds over the next 6-12 months?
Robert Mackay: We may need to raise money for the feasibility study, and possibly for additional acquisitions, however over the past couple months we’ve been contacted by a number of institutions including a bank who are interested in our project, so we will have financing options.
Theinvestar.com: Are you going to go it alone on this project, or could you take on partners?
Robert Mackay: We are a growth oriented company, and so we will try to stay nimble. We believe that end-users are going to determine which REE projects are successful and which aren’t. A partner in Japan would be ideal as they are the biggest importer of HREEs in the world.
I really believe that given the strategic nature of Stans deposit, they will be able to arrange some sort of off-take/financing agreement with a major user of rare earth minerals. This should keep dilution much lower than if they were forced to rely exclusively on equity financing.
My only real concern after listening to this interview was Mr. Mackay's reference to possible acquisitions. For a company with no cash flow and no mine until late 2012 (best case), it is way to early to get distracted with acquisitions. Furthermore, this course of action would lead to severe dilution. I really hope Stans does not make any acquisitions until the mine is in production and cash flow positive. Then you will have all the money required and will not have to dilute shareholders. The primary concern has to be the rare earths mine.
Black Swan Insights
World Trade Rebounds In August
From Dow Jones:
The only thing you can extrapolate from this is that US exports were probably weak in August and into September as well (following subdued outbound port volumes). No problem, the US is back in the old habit of buying useless garbage from China at record amounts.
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World trade volumes rebounded in August, an indication that the global economic recovery may still have some momentum. Figures released by the Netherlands Bureau for Economic Policy Analysis, also known as the CPB, Monday showed trade volumes rose 1.5% from July when it fell 1.0%.
The CPB's figures are closely watched by policy makers, including a number of central banks, because they provide the earliest available measure of global trade.
"In most parts of the world, import volumes rose significantly," the CPB said. "On the export side, emerging economies outperformed advanced economies, the euro zone being the only one of three major [developed] blocks to achieve positive export growth. In Japan, both import and export volume declined substantially."
The only thing you can extrapolate from this is that US exports were probably weak in August and into September as well (following subdued outbound port volumes). No problem, the US is back in the old habit of buying useless garbage from China at record amounts.
Federal Reserve's Balance Sheet By Duration
Below is chart of the Fed's balance sheet.
Click chart for larger image.
You can see how the the Fed has been primarily buying Treasuries in the 1-10 year range. According to Goldman and Morgan Stanley QE 2 will target the 5-7 year range. Morgan Stanley noted that that there are only about $550 billion of Treasuries outstanding with a remaining maturity of greater than 10 years. If the Fed really wanted to really lower longer term yields it would concentrate its buying on longer dated maturities.
The one real risk for the Fed is a rise in interest rates, which could force them to potentially sell assets at a loss. It would be politically uncomfortable for the Fed to report large losses.
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State Unemployment Charts
The Bureau of Labor Statistics released the unemployment situation for all 50 states. Most states reported a flat or slight decline in the unemployment rate.
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Here are the best states with the lowest unemployment rate. You can see that the states with the lowest unemployment rate have a large agricultural sector which is largely immune for the business cycle.
Click charts for larger image
Next up are the worst states with the highest unemployment rate.
No surprise my home state communist California is among the top 3. You would think that with an unemployment rate of 12.4%, the legislature would do all it could to promote job growth. Instead they are going ahead with their carbon taxes and fake green economy rhetoric. Despite the fact it will destroy not create jobs. Californians have the opportunity to stop these carbon taxes by voting yes on prop 23, which would prevent the implementation of California's Global Warming Act of 2006 until unemployment falls below 5.5%. This seems like a fair proposal considering the dire economic condition in California. So far the proposal is losing so I guess Californians get what they deserve--one of the highest rates of unemployment in the country.
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Predictions From Intrade
One of my favorite indicators is Intrade, a site which allows people to bet on future events. While the stock market is no longer a predictor of the economy, other markets like Intrade are thriving and show that not all markets are broken. So lets see what Intrade is currently forecasting:
2010 Elections
There you have it, the future according to Intrade. Personally, I have found Intrade more accurate than opinion polls so I always keep an eye on what it is predicting.
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2010 Elections
- Republicans will take back control of the House of Representatives (90% certainty)
- There is a good chance that Republicans will gain 50 or more seats (57% chance)
- Democrats will lose seats in the Senate but will still maintain a slight majority (56.9%)
- In California Jerry Brown will be the next Governor (85% chance)
- Barbra Boxer will defeat Carly Fiorina for the Senate in California
- Rand Paul (of the Tea party) will win the Senate in Kentucky (81% chance)
- California will defeat the marijuana legalization proposition (only 36% chance of passing)
- There is a very low chance of the US/Israel attacking Iran by Dec 2011 (only 23%)
- No chance of ever catching Bin Laden by June 2011 (8% chance)--he is probably dead anyway
- Guantanamo Bay prison will still be open by the end of 2011 (6% chance of it being closed)
- The US economy will not enter a recession during 2011 (only 30% chance)
- Sarah Palin will run for President before the end of 2011 (70%)
- But she will not win the Republican nomination (only 18% chance)
- Currently Romney is the front runner for the Republican nomination (29%)
- Obama has a slight edge in 2012 against a Republican challenger (60%)
There you have it, the future according to Intrade. Personally, I have found Intrade more accurate than opinion polls so I always keep an eye on what it is predicting.
Black Swan Insights
The Double Dip Arrives For Housing--Clear Capital
An interesting piece from Clear Capital about the sudden fall in home prices. The double dip is on big time for the residential housing market. Get ready for another homebuyer tax credit by the increasingly desperate keynesians. From Clear Capital:
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Most recent data shows a two-month 5.9% price decline representing a magnitude and speed of decline not seen since March 2009; similar declines for September and October expected to appear in other industry indices in coming months.
“Clear Capital’s latest data shows even more pronounced price declines than our most recent HDI market report released two weeks ago,” said Dr. Alex Villacorta, senior statistician, Clear Capital. “At the national level, home prices are clearly experiencing a dramatic drop from the tax credit-induced highs, effectively wiping out all of the gains obtained during the flurry of activity just preceding the tax credit expiration.”
All Credibility Lost: Bernanke and Fed Face Tough Criticism by Hedge Fund Manager
The once venerable title of Fed Chairman has been reduced to nothing more than a joke. At one time, direct criticism of the Fed and its members was taboo for most investment professionals and the media. But how times have changed, thanks to Zimbabwe Ben and his money printing ways. Today, respected hedge fund manager Paul Singer of $15 billion Elliott Management publicy derided QE and warned that the US could suffer inflation that "no American can imagine." Furthermore, he rejected the notion that QE does anything positive for the economy. All QE has done is juice the stock market in nominal terms. Monetary policy cannot solve the problems facing America, including high employment, loss of competitiveness, and stifling regulation.
Mr.Singer made these comments at the New York Hedge Fund Roundtable in front of over 100 hedge fund industry participants. He went on to say that the threat of a Weimar Republic style hyperinflation keeps him up at night. The challenge for money managers is not only about simply generating returns, but also about staying ahead of inflation in real terms. He notes " the path [of inflation] can be torturous. It is not a straight line, but it is a road with lots of twists and turns." This dynamic makes it very hard for managers who do not want simply to buy billions of dollars in gold and sit tight.
The fact that it is now acceptable to openly mock the Fed shows how far the US has fallen as it spirals down to Third World status. It really doubtful that we have any rational or good intentioned officials left. Instead, we only seem to have corrupt bureaucrats who make their money by looting the taxpayers. The situation has become so endemic that it no longer makes headlines--people have come to accept it. Even when prominent people criticize these insane and misguided policies, it makes no difference since those who are in control no longer pretend to care what the people think. "Back in the day," officials at least used to pretend they cared, but they are now quite open about their disdain for the public. The Fed is clearly printing money to monetize the debt and create inflation. As if we have not had enough inflation over the last 75 years! Now the Fed openly states that higher inflation is the goal. Inflation is the secret confiscation of our wealth by government (or its sidekick The Fed).
The Fed's credibility is now on par with that of the Reserve Bank of Zimbabwe when it comes to inflation and currency debasement. Every time Bernanke opens his mouth, gold and other hard assets rise, signaling the market's complete loss of faith in the Chairman and the Fed. QE may work for boosting stocks in nominal terms, but beware of the stock market's performance in real terms. Down, Down, Down. Depending on what measure of inflation you use (let's just use the CPI to make it easy), the market is down more than 30% over the last 10 years. With commodity prices surging, and gold at new all time highs, we are told deflation is the threat-- not inflation. I don't know about you, but most most Americans cannot afford any more of this new style of "deflation"--$3.70 copper, $80 oil despite record inventories, and $1350 gold. Deflation? It's a nice concept but an elusive one in the real world. At least during the Depression, prices actually fell significantly to compensate for lower wages.
This time around, we face the opposite scenario: declining wages and rising commodity prices. The worst of both worlds, courtesy of Bernanke and his bankster friends. If Bernanke wants inflation so desperately, he might revert back to the 1990 method of calculating the CPI, which is currently showing 5% inflation (Shadowstats).
Black Swan Insights
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Mr.Singer made these comments at the New York Hedge Fund Roundtable in front of over 100 hedge fund industry participants. He went on to say that the threat of a Weimar Republic style hyperinflation keeps him up at night. The challenge for money managers is not only about simply generating returns, but also about staying ahead of inflation in real terms. He notes " the path [of inflation] can be torturous. It is not a straight line, but it is a road with lots of twists and turns." This dynamic makes it very hard for managers who do not want simply to buy billions of dollars in gold and sit tight.
The fact that it is now acceptable to openly mock the Fed shows how far the US has fallen as it spirals down to Third World status. It really doubtful that we have any rational or good intentioned officials left. Instead, we only seem to have corrupt bureaucrats who make their money by looting the taxpayers. The situation has become so endemic that it no longer makes headlines--people have come to accept it. Even when prominent people criticize these insane and misguided policies, it makes no difference since those who are in control no longer pretend to care what the people think. "Back in the day," officials at least used to pretend they cared, but they are now quite open about their disdain for the public. The Fed is clearly printing money to monetize the debt and create inflation. As if we have not had enough inflation over the last 75 years! Now the Fed openly states that higher inflation is the goal. Inflation is the secret confiscation of our wealth by government (or its sidekick The Fed).
The Fed's credibility is now on par with that of the Reserve Bank of Zimbabwe when it comes to inflation and currency debasement. Every time Bernanke opens his mouth, gold and other hard assets rise, signaling the market's complete loss of faith in the Chairman and the Fed. QE may work for boosting stocks in nominal terms, but beware of the stock market's performance in real terms. Down, Down, Down. Depending on what measure of inflation you use (let's just use the CPI to make it easy), the market is down more than 30% over the last 10 years. With commodity prices surging, and gold at new all time highs, we are told deflation is the threat-- not inflation. I don't know about you, but most most Americans cannot afford any more of this new style of "deflation"--$3.70 copper, $80 oil despite record inventories, and $1350 gold. Deflation? It's a nice concept but an elusive one in the real world. At least during the Depression, prices actually fell significantly to compensate for lower wages.
This time around, we face the opposite scenario: declining wages and rising commodity prices. The worst of both worlds, courtesy of Bernanke and his bankster friends. If Bernanke wants inflation so desperately, he might revert back to the 1990 method of calculating the CPI, which is currently showing 5% inflation (Shadowstats).
Black Swan Insights
Barclays Bullish On Gold--Sets $1850 Price Target By Dec 2011
The RELIC, as its detractors like to call it may not be so useless after all according to Barclays. The firm has set a price target for the yellow metal of $1850 by Dec 2011. They cloak their bullish argument on generic reasons like demand from emerging markets and supply constraints. Those factors may be important, but the real reason for gold's rise is dollar devaluation (same can be said for the Euro, Pound, Yen, Yuan, Peso, etc.). The RELIC, as it turns out has a very important use: protection against competitive currency devaluations. Unfortunately, most people will not realize this fact until it is too late. From Barclays :
Gold prices are likely to hit $1850 an ounce by the end of next year on strong demand from emerging economies and supply side constraints, Paul Horsnell, managing director of Barclays Capital said in a media briefing in Mumbai on Thursday.Black Swan Insights
Gold will first slide to $1,310-1,325 early next year on profit booking. But, the precious metal will get good buying support from central banks in Asia and West Asia regions, who are looking for opportunities to increase their gold portfolio.
Any aim to pick up gold in good volume will raise prices steadily to $1,450 by mid-next year and then the targeted $1,850 towards the end, Horsnell said.
Gold surged over 34 per cent since October 1, 2009 and 23 per cent so far this year.
The New Normal: Jobless Claims Remain Stubbornly High
Despite the market's relentless rally, there has been little improvement in the jobs market. The DOL announced that initial jobless claims came in at 452,000, a decrease of 23,000 from the previous week's revised figure of 475,000. The 4-week moving average was 458,000, a decrease of 4,250 from the previous week's revised average of 462,250.
While claims fell week over week, they remain very high for a typical recovery and have been stuck above 450,000 for quite sometime.
Here is a chart of initial jobless claims (4-week moving average) since 1980.
Click chart for larger image.
Here is a chart of continuing claims (4 week moving average) since 1980.
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While claims fell week over week, they remain very high for a typical recovery and have been stuck above 450,000 for quite sometime.
Here is a chart of initial jobless claims (4-week moving average) since 1980.
Click chart for larger image.
Here is a chart of continuing claims (4 week moving average) since 1980.
Black Swan Insights
Retail Traders Are Bullish According To AAII Survey
The American Association of Independent Investors released its weekly survey of retail traders. Bullish sentiment rose to 49.6%, up from 47.1%. Bearish sentiment declined 2.5 points to 25.2%, down from 26.8%. The number of investors describing themselves as neutral was down slightly to 25.2%.
Historically, a number of 50% or more has marked tops in the stock market. Furthermore, bullish sentiment has been elevated for an extended period of time indicating that retail traders are very bullish. Since this is a contrarian indicator, it would suggest that now is not the best time to be long stocks. That being said, AAII sentiment has not been very helpful during the last 4 weeks. It has remained extremely bullish for some time and yet the market has continued to climb.
Here is a short-term chart of AAII sentiment.
Click chart for larger image.
Here is a longer term chart which compares AAII bullish sentiment with the S&P 500
Here is a chart which compares AAII bearish sentiment with the SP 500.
AAII Sentiment Down Despite Strong Market--Oct 14,2010
Marc Faber's October Outlook
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Historically, a number of 50% or more has marked tops in the stock market. Furthermore, bullish sentiment has been elevated for an extended period of time indicating that retail traders are very bullish. Since this is a contrarian indicator, it would suggest that now is not the best time to be long stocks. That being said, AAII sentiment has not been very helpful during the last 4 weeks. It has remained extremely bullish for some time and yet the market has continued to climb.
Here is a short-term chart of AAII sentiment.
Click chart for larger image.
Here is a longer term chart which compares AAII bullish sentiment with the S&P 500
Here is a chart which compares AAII bearish sentiment with the SP 500.
Black Swan Insights
Related Articles:
AAII Sentiment Down Despite Strong Market--Oct 14,2010
Marc Faber's October Outlook
Investment Managers Are Bullish
Today the NAAIM released its weekly survey of investment manager sentiment. The results indicate a rebound in bullish sentiment compared to last week. Currently, investment managers have a 72% equity exposure. As you can see from the chart below this is a very volatile number much like the AAII poll. Generally a reading above 70% indicates caution and signals that we may be nearing a short-term top, which usually coincides with a reading of around 80%. However, it should be noted that this number can remain elevated for a while so it is best to combine it with other trading indicators.
Click chart for larger image.
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Related Articles:
NAAIM Manger Sentiment Declines--Oct 14, 2010
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Click chart for larger image.
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Related Articles:
NAAIM Manger Sentiment Declines--Oct 14, 2010
Bernanke's Greatest Fear Realized
Sometimes it is worthwhile to try to understand the madness of Zimbabwe Ben and his merry criminals at the Federal Reserve. During the last few months, members of the FOMC have argued that inflation is too low and that they must print money to increase inflation to an "acceptable rate". To the average layman this statement is absurd, after all, low inflation is a good thing. Why on earth would the Fed openly state they want higher inflation?
Below is a chart which compares Core inflation in the US and Japan-post bubble. So far, US inflation has tracked Japan on the way down, despite money printing by the Federal Reserve and the 2009 stimulus package. This is why the Fed is so eager to initiate QE 2. They see these parallels and want to avoid Japan's deflationary spiral at all costs. To the Fed, low inflation signals QE 1's failure and increases the risk that the US may be falling into the dreaded liquidity trap where monetary policy is rendered ineffective.
Click chart for larger image.
Chart Source: Economistsview
Personally, I do not see the Japan scenario as a likely outcome. The main reason is demographics. The major determinant of Japan's deflation was a declining population. This resulted in a continuous reduction in demand for goods and services. However, in the US we have an ever increasing population, which leads to a continual increase in demand for goods and services. It is hard to have a period of prolonged deflation when there are more and more people entering the economy every year. Regardless of economic conditions people need a certain amount of stuff to live and more people need more stuff. The US economy is not set up for deflation in the long-term.
Black Swan Insights
Related Articles:
Bernanke Explains How To Escape The "Liquidity Trap"
Cat's Out of the Bag: Fed's Own Research Predicts QE 2 Failure
Is The Fed Really Out of Bullets?
Read more >>
Below is a chart which compares Core inflation in the US and Japan-post bubble. So far, US inflation has tracked Japan on the way down, despite money printing by the Federal Reserve and the 2009 stimulus package. This is why the Fed is so eager to initiate QE 2. They see these parallels and want to avoid Japan's deflationary spiral at all costs. To the Fed, low inflation signals QE 1's failure and increases the risk that the US may be falling into the dreaded liquidity trap where monetary policy is rendered ineffective.
Click chart for larger image.
Chart Source: Economistsview
Personally, I do not see the Japan scenario as a likely outcome. The main reason is demographics. The major determinant of Japan's deflation was a declining population. This resulted in a continuous reduction in demand for goods and services. However, in the US we have an ever increasing population, which leads to a continual increase in demand for goods and services. It is hard to have a period of prolonged deflation when there are more and more people entering the economy every year. Regardless of economic conditions people need a certain amount of stuff to live and more people need more stuff. The US economy is not set up for deflation in the long-term.
Black Swan Insights
Related Articles:
Bernanke Explains How To Escape The "Liquidity Trap"
Cat's Out of the Bag: Fed's Own Research Predicts QE 2 Failure
Is The Fed Really Out of Bullets?
Credit Managers See Signs Of Stability
The International Association of Credit Portfolio Managers conducts a quarterly survey of credit managers at 94 financial institutions in 17 countries. It is a good indicator of how the pros are positioned and their outlook for the economy. The survey indicates that credit managers are slightly more optimistic about the economy and expect credit spreads to tighten From the IACPM:
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The latest IACPM Credit Outlook Survey has turned positive for the third quarter, as respondents forecast fewer defaults over the next 12 months and tighter credit spreads over the next three months. The IACPM Credit Default Outlook Index is positive 14.8, while the IACPM Credit Spread Outlook Index is positive 20.9. Both results are in contrast to last quarter, when survey respondents forecast somewhat higher defaults and wider credit spreads.
IACPM Executive Director Som-lok Leung cautions, however, that respondents may not be predicting significantly better conditions so much as not expecting trends to get worse. “Stability appears to be the key for a number of the survey takers,” commented Mr. Leung. “They’re not expecting a lot of improvement but they believe conditions have at least stabilized, if at more subdued levels.”
The latest forecast results are clearly positive but perhaps hint at an element of uncertainly, as survey respondents are generally split between those who believe conditions will improve in coming months and those who see no change. For example, 44 percent of respondents forecast a decline in corporate defaults, while 39 percent expect them to remain at current levels. Just 17 percent, however, think corporate defaults will increase. Similarly, 41 percent of respondents predict consumer defaults will drop, 35 percent expect no change and 24 percent think they will increase.
Highlights From The Beige Book
The always anticipated Beige Book was released today, which reports on economic activity across all 12 Fed districts. Here are some of the highlights:
Macro Economy
Economic activity continues to expand but at a slow pace
Manufacturing
Still expanding with many districts reporting increases in new orders. Semiconductors in particular showed strength along with Auto production.
The problem is that hiring within the manufacturing industry remains very weak. Companies seem to be comfortable with current production, and capital spending is expected to remain limited, except for the St. Louis district which saw an increase in future capital spending.
Non-Financial Services
Remained flat to slightly positive led by strong demand for IT services. Demand for transportation services declined, in particular freight volumes. Railroads continue to report positive volumes but growth is at a slower rate than in the past.
Consumer Spending & Tourism
All districts reported an increase in retail sales except for the Richmond and Atlanta districts. Back to school spending is looking good. Retailers reported that consumers are still price conscious and hesitant to purchase large discretionary items.
Tourism also saw an increase but still remain weak. The Atlanta district saw continues weakness because of the oil spill in the Gulf. Airline traffic remains soft but has improved considerably over the past year thanks to business traveling.
Real estate and Construction
This remains the weakest sector of the economy. Home sales are declining and in some districts are below year-ago levels. The only districts which reported slight increases in home sales were Philadelphia, Dallas, and Kansas City. Housing inventories remain high in all districts while home prices were stable since the last report. Declining home prices were reported in Kansas City, New York, and Minneapolis. Home builders remain in a tough situation and continue to report declining price pressures. Construction activity remains at depressed levels with most industry respondents expecting the situation to remain soft through the end of the year.
Commercial real estate remains subdued with reports of falling rent rates. The only sub-sector which showed any strength was apartments. With continued softness in commercial real estate, developers remain on the sidelines. Most respondents expect commercial real estate to remain weak for a prolonged period of time.
Banking and Finance
Lending activity and demand for loans remain weak. This is especially true for businesses who have delayed future capital spending until the economic outlook improves. Consumer demand for loans was flat with some reports of slight increases (mainly in refinancing activity).
Prices and Wages
Input prices rose across the board, but were not passed through to consumers. Agricultural and shipping prices accounted for most of the increase.
Wage pressures remained contained expect for an expected increase in health care related costs.
Corporations do not have future plans to hire permanent workers, although demand for temporary work has been strong.
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Macro Economy
Economic activity continues to expand but at a slow pace
Manufacturing
Still expanding with many districts reporting increases in new orders. Semiconductors in particular showed strength along with Auto production.
The problem is that hiring within the manufacturing industry remains very weak. Companies seem to be comfortable with current production, and capital spending is expected to remain limited, except for the St. Louis district which saw an increase in future capital spending.
Non-Financial Services
Remained flat to slightly positive led by strong demand for IT services. Demand for transportation services declined, in particular freight volumes. Railroads continue to report positive volumes but growth is at a slower rate than in the past.
Consumer Spending & Tourism
All districts reported an increase in retail sales except for the Richmond and Atlanta districts. Back to school spending is looking good. Retailers reported that consumers are still price conscious and hesitant to purchase large discretionary items.
Tourism also saw an increase but still remain weak. The Atlanta district saw continues weakness because of the oil spill in the Gulf. Airline traffic remains soft but has improved considerably over the past year thanks to business traveling.
Real estate and Construction
This remains the weakest sector of the economy. Home sales are declining and in some districts are below year-ago levels. The only districts which reported slight increases in home sales were Philadelphia, Dallas, and Kansas City. Housing inventories remain high in all districts while home prices were stable since the last report. Declining home prices were reported in Kansas City, New York, and Minneapolis. Home builders remain in a tough situation and continue to report declining price pressures. Construction activity remains at depressed levels with most industry respondents expecting the situation to remain soft through the end of the year.
Commercial real estate remains subdued with reports of falling rent rates. The only sub-sector which showed any strength was apartments. With continued softness in commercial real estate, developers remain on the sidelines. Most respondents expect commercial real estate to remain weak for a prolonged period of time.
Banking and Finance
Lending activity and demand for loans remain weak. This is especially true for businesses who have delayed future capital spending until the economic outlook improves. Consumer demand for loans was flat with some reports of slight increases (mainly in refinancing activity).
Prices and Wages
Input prices rose across the board, but were not passed through to consumers. Agricultural and shipping prices accounted for most of the increase.
Wage pressures remained contained expect for an expected increase in health care related costs.
Corporations do not have future plans to hire permanent workers, although demand for temporary work has been strong.
ASA Weekly Index Still Strong
The American Staffing Association reported today that its weekly index, which tracks temporary and contract work held steady at 100. Historically, the demand for temporary work has been a leading indicator of permanent jobs. However, this has not been the case during this cycle as companies remain hesitant on account of economic uncertainty. From the ASA:
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During the week of Oct. 4–10, 2010, temporary and contract employment dipped slightly (-0.21%), maintaining the ASA Staffing Index at a value of 100.
At a current index value of 100, U.S. staffing employment is 45% higher than the level reported for the first week of the current year and is 23% higher than the same weekly period in 2009.
Black Swan Insights
Commerical Real Estate In Free Fall--Back To 2002 Levels
The depression continues for US commercial real estate. Today, Moody's reported that its Moodys/REAL Commercial Property Price Index declined 3.3% in August, which means prices have fallen back down to levels not seen since 2002. The index is now 45% off its all time high reached back in Oct. 2007.
Below is a chart which shows the performance of the index since 2001.
What is disturbing is how quickly the index has fallen over the last few months. The index is down almost 10% since the beginning of the year. It should be noted that the majority of transactions are distressed sales which are largely responsible for the sharp decline. This is the major reason banks are not foreclosing on commercial properties. They don't want to be stuck with the losses when trying to resale the property. No wonder banks have been so willing to restructure and extend loan terms for commercial real estate. Extend and pretend is the name of the game right now.
Black Swan Insights
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Below is a chart which shows the performance of the index since 2001.
What is disturbing is how quickly the index has fallen over the last few months. The index is down almost 10% since the beginning of the year. It should be noted that the majority of transactions are distressed sales which are largely responsible for the sharp decline. This is the major reason banks are not foreclosing on commercial properties. They don't want to be stuck with the losses when trying to resale the property. No wonder banks have been so willing to restructure and extend loan terms for commercial real estate. Extend and pretend is the name of the game right now.
Black Swan Insights
Fed's Fisher: Why QE Failed
Dallas Fed President Richard Fisher made a speech today where he gave a great example of why QE failed. Unfortunately, Fisher is not a voting member of the FOMC but he really nails it. Corporations are using cheap QE money to increase capital spending in emerging markets to the detriment of the US. They are investing abroad where there are lower taxes and better economic fundamentals. More from Fisher's speech to the New York Association for Business Economics:
So in essence, QE has done nothing but provide cheap financing for corporations to invest abroad. Companies borrow at extremely low rates and use the proceeds to build manufacturing plants in Brazil, China, and other emerging markets. The bottom line is that capital is fleeing the US and flowing to other countries. No wonder US unemployment is currently at 9.5%.
Black Swan Insights
In my darkest moments, I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places. The Treasury International Capital, or TIC, data released yesterday morning show that foreign interest in buying Treasuries remains robust. Yet, far too many of the large corporations I survey that are committing to fixed investment report that the most effective way to deploy cheap money raised in the current bond markets or in the form of loans from banks, beyond buying in stock or expanding dividends, is to invest it abroad where taxes are lower and governments are more eager to please. This would not be of concern if foreign direct investment in the U.S. were offsetting this impulse. This year, however, net direct investment in the U.S. has been running at a pace that would exceed minus $200 billion, meaning outflows of foreign direct investment are exceeding inflows by a healthy margin. We will have to watch the data as they unfold to see if this is momentary fillip or evidence of a broader trend. But I wonder: If others cotton to the view that the Fed is eager to “Open (the) Spigot,” as proclaimed on the front page of the Oct. 6 Wall Street Journal, might this not add to the uncertainty already created by the fiscal incontinence of Congress and the regulatory and rulemaking excesses about which businesses now complain?
So in essence, QE has done nothing but provide cheap financing for corporations to invest abroad. Companies borrow at extremely low rates and use the proceeds to build manufacturing plants in Brazil, China, and other emerging markets. The bottom line is that capital is fleeing the US and flowing to other countries. No wonder US unemployment is currently at 9.5%.
Black Swan Insights
Contrarian Analysis Of Gold--Mark Hulbert
An interesting piece from Mark Hulbert. For those who do not know, Hulbert has a popular newsletter tracking service and has developed many popular sentiment indexes. He is certainly no goldbug, but has a bullish contrarian analysis on gold. His main point is that despite gold's parabolic rally, bullish sentiment among newsletter writers is still low, indicating that we are nowhere near a major market top. From Dow Jones:
Gold may continue to decline in the short-term, but sentiment never got bullish enough to indicate a major top. From a longer term perspective this is a good thing because it shows how much skepticism remains in the gold market.
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Consider the average recommended gold-market exposure among a subset of the shortest-term gold market timers tracked by the Hulbert Financial Digest (as represented by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). This average currently stands at 59.2%, which means the average gold timer tracked by the Hulbert Financial Digest is currently allocating more than 40% of his gold trading funds to cash.
There are several ways of appreciating how significant it is that the HGNSI would be this low. One is to compare the current reading to the HGNSI's all-time high, which is 90%. Since the normal pattern is for timers to become more bullish as the market rises, and more bearish as it declines, we would otherwise expect the HGNSI right now to be at least as high as 90%--if not even higher.
That this sentiment index today is nevertheless some 30 percentage points lower than the previous all-time high suggests the gold market is not suffering from the excessive bullishness that so often accompanies major market tops.
Another perspective on the HGNSI's current level comes to a similar conclusion: a comparison with gold sentiment late last year and earlier this year. In January, for example, the HGNSI got as high as 60.9%, and in November and December it rose even higher--to 68%. Yet on those prior occasions, an ounce of gold bullion was trading in the low $1,100s.
Gold may continue to decline in the short-term, but sentiment never got bullish enough to indicate a major top. From a longer term perspective this is a good thing because it shows how much skepticism remains in the gold market.
Black Swan Insights
Housing Starts Increase In September
Today we got new housing starts and building permits. Housing starts came in at seasonally adjusted annual rate of 610,000, which was better than expected. Building permits were weak at 539,000. From the Census Bureau:
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HOUSING STARTS
Privately-owned housing starts in September were at a seasonally adjusted annual rate of 610,000. This is 0.3 percent (±10.3%)* above the revised August estimate of 608,000 and is 4.1 percent (±12.0%)* above the September 2009 rate of 586,000.
Single-family housing starts in September were at a rate of 452,000; this is 4.4 percent (±13.9%)* above the revised August figure of 433,000. The September rate for units in buildings with five units or more was 150,000.
BUILDING PERMITS
Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 539,000. This is 5.6 percent (±1.4%) below the revised August rate of 571,000 and is 10.9 percent (±2.3%) below the September 2009 estimate of 605,000.
Single-family authorizations in September were at a rate of 405,000; this is 0.5 percent (±1.3%)* above the revised August figure of 403,000. Authorizations of units in buildings with five units or more were at a rate of 111,000 in September.
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