Morning Indicators 11/30/11

Long Term Indicator: 63.34 (Bearish)
Short Term Indicator: -.4 (Neutral)

Morning Indicators 11/29/11

Long Term Indicator: 61.89 (Bearish)
Short Term Indicator: -1.2 (Bearish)

Morning Indicators 11/28/11

Long Term Indicator: 62.10 (Bearish)
Short Term Indicator:-1.6 (Bearish)

Morning Indicators 11/25/11

Long Term Indicator: 60.47 (Bearish)
Short Tem Indicator: -2 (Bearish; Distribution)

Morning Indicators 11/23/11

Long Term Indicator: 60.11 (Bearish)
Short Term Indicator: -2.2 (Bearish selling of stocks, distribution occurring)

US Government Continues To Fail Citizens

The brilliant idea  from Washington that we will put together a "supercommittee" with members selected evenly along party lines that will solve the budget problems was a huge joke from the very beginning.  The fact that our elected officials can't come to a resolution seems to be a surprise to nobody.  The committee was due to fail from its inception and again shows how bad things are in Washington.  There is no leadership among the ranks starting from the president and going all the way through the corrupted Congress who seem more concerned with serving the interests of their rich providers as opposed to the interests of the people that elected them. 

Over the last 30 years this country has witnessed a changing of the guard.  What was once the land of opportunity has become the land of the wealthy.  The income gap has been steadily widening as taxes on the upper class have been dropping.  Health care costs have been rising while pensions are becoming a thing of the past.  Regulation has been eliminated while the identity of what a person is has been blurred.  The results are nothing short of catastrophic on the middle class as we deal with falling home prices, rising healthcare costs, a greater need to put aside funds for retirement, and a threat from Washington to cut the social safety net from under us under the disguise of cutting spending.  The burden that the middle class has been carrying for the past 30 years is strange considering that the rich have done so well in this country during that time. Now that the country is in a time of need, it almost seems like a no brainer that the solution to the budget problem would be to demand more from the people that have reaped the benefits of Washington's generosity.  A no brainer however it isn't as these are the same people who fund our politicians reelection campaigns.

We are once again witnessing an interesting yet very destructive phenomenon which is occurring in Washington.  One which if not corrected soon will be directly responsible for the demise of this country.  The founding fathers of this country created our democracy to be run "for the people by the people (and no they didn't mean that business entities are people)."  By doing this they gave the citizens of this country a great responsibility.  A responsibility that everyone of us needs to stand up and exercise next year in an effort to find the right people who can carry the interests of the nation as a whole forward.  Not the interests of an ideology or a wealthy donor at the expense of the rest of us. 

It's time to take our country back and it should start by getting rid of some of the people in Congress who can't help but help themselves at the expense of the nation but then are smart enough of spin things in order to convince citizens that what they are doing is for the best of the country.  Can anybody say supercommittee?

Morning Indicators 11/22/11

Long Term Indicator: 61.34 (Bearish)
Short Term Indicator: -1.6 (Bearish)

Morning Indicators 11/21/11

Long Term Indicator: 61.19 (Bearish)
Short Term Indicator: -1.2 (Bearish)

Morning Indicators 11/18/11

Long Term Indicator: 60.3 (Bearish)
Short Term Indicator: -.8 (Neutral)

Great Post by Barry Ritholtz

Couldn't have said this better myself!

Morning Indicators 11/17/11

Long Term Indicator: 60.48 (Bearish)
Short Term Indicator: 0 (Neutral)

How Much Exposure to Europe to US Banks Have?

With the European debt crisis continuing and seemingly getting worse, a big question is how much exposure do US banks have to European sovereign debt?  Fitch downgraded the US banks today. 

In Bloomberg:

“Fitch believes that unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen,” the New York-based rating company said today in a statement. 

In addition:

Banks in the U.S. have manageable exposure tied to stressed European markets in Greece, Ireland, Italy, Portugal and Spain, “but further contagion poses a serious risk,” Fitch said. Gross exposures to larger European countries and major banks are greater than those of the five stressed countries, the rating firm said. It didn’t explain what it meant by contagion.

US markets were up at one point today on rumors that the Fed may be preparing to pump more money into the system to help with the crisis.

Unless we see the ECB committing to its role of lender of last resort along with central banks of developed countries priming the pump this can be a disastrous scenario.  Austerity at this point will not cut it.  Germany needs to realize that inflation is simply not in the cards right now so stop insisting that monetary policy remain too tight for the times.

In addition, the way fiscal policy is progressing on both sides of the Atlantic is a major contributor to this mess.  On the US side we have paralysis along ideological lines while the Europeans lack the coordination that is required in order to right the ship.

The bottom line is that things are getting worse, not better.  The implementation of technocrats in Italy and Greece might look good on paper but it's basically a comb over a bald spot.  Leaders right now need to step up and lead.

Morning Indicators 11/16/11

Long Term Indicator: 60.51 (bearish)
Short Term Indicator: 0 (neutral)

Euro Yields Rise

Looks like the panic that is Europe is continuing to spread.  Today the spreads between French, Spanish, and Belgian bonds vs. the German equivalent rose.  It looks as if Spain is approaching the dangerous 7% threshold that stirred things up in Italy last week.  Yet the ECB is still on record as saying that it will not serve as the lender of last resort.  Looks like this crisis is going to get a lot worse before it gets better.

Morning Indicators 11/15/11

Long Term Indicator: 60.47 (Bearish)
Short Term Indicator: 0 (Neutral)

Deficit Panel solution to Tax Increases...

Seems to be passing the buck to committees in each body of Congress.  It seems like this is going nowhere and the automatic cuts will take place.  Either way Grover Norquist doesn't seem to be too concerned about taxes being raised as the New York Times reports:

Grover G. Norquist, the president of Americans for Tax Reform, whose antitax pledge has been signed by most Republicans in Congress, said in an interview, “I am not losing any sleep” over the Republicans’ latest proposal. Mr. Norquist said he was confident that, “at the end of the day, the Republican House will not pass a tax increase.”

“As a face-saving measure,” Mr. Norquist said, the deficit reduction panel “could give lots of instructions to the tax-writing committees.” In complying with those instructions, he said, the House and the Senate could pass very different bills.

Lets hope that Democrats hold the line and not sacrifice the social safety net without getting significant tax hikes for the wealthy in return.

Morning Indicators 11/14/11

Long Term Indicator: 60.68 (Bearish)
Short Term Indicator: .2 (Neutral)

What Would Happen if Greece Defaulted?

A couple of reads that are well worth considering when wondering what will happen if Greece decides to default?

1. Nouriel Roubini-Full Analysis: Greece Should Default and Abandon the Euro
2. Stergios Skaperdas-NYT: How to Leave the Euro 

Why is Italy and Spain Worse Off Than the US

Good Op Ed by Paul Krugman.  I especially liked his summary on why countries like Italy and spain are having problems in spite of the fact that their economies aren't necessarily worse off than coutnries like the US, Great Britain, and Japan.  According to Krugman:

What has happened, it turns out, is that by going on the euro, Spain and Italy in effect reduced themselves to the status of third-world countries that have to borrow in someone else’s currency, with all the loss of flexibility that implies. In particular, since euro-area countries can’t print money even in an emergency, they’re subject to funding disruptions in a way that nations that kept their own currencies aren’t — and the result is what you see right now. America, which borrows in dollars, doesn’t have that problem.

The whole article is a good read.  It turns out that many countries that became members of the EU have become Germany's bitches and know that they need massive help Germany and it's puppet (ECB) are turning their backs on them.

Morning Indicators 11/11/11

Long Term Indicator: 60.17 (bearish)
Short Term Indicator: -.4 (neutral)

Morning Indicators 11/10/11

Long Term Indicators: 59.64 (bearish)
Short Term Indicators: 0 (neutral)

Good Read on Meritocracy vs. Plutocracy

From the blog The Big Picture, the post is by Invictus.  Good read on the income inequality here in the US.  The fact that CEOs' get these multi million dollar severance packages when they get fired is ridiculous.  These people should be held accountable for their actions.  The old saying is with great power comes great responsibility but that is not the case in the ivory towers.  If a janitor fucks up on the job there's a good chance he gets fired.  If a CEO fucks up he gets a golden parachute.  For what?  What has he created that's worth anything of value?  Has he created a world changing product or service?  No, he gets paid for tending the store.  Corporate reform should start at the very top.  The following would help to start:

1. CEOs' cannot serve as Chairman as well.
2. All directors should be independently appointed.  There should be no cronyism allowed.
3. There should be huge clawback provisions if a CEO or director is proven to have done wrong.
4. There should be no severance packages if a CEO or director are dismissed because of poor performance or behavior.
5. There should be limits to the number of boards an individual can serve on.  How can someone serve on multiple boards and still serve the interests of the shareholders of each corporation.
6. Stop allowing corporations to affect things in Washington.  Say no to lobbies and to corporate campaign contributions which help promote policy which benefits the few at the expense of the many.

Sorry for the rant.

Europe Still Doesn't Get It.

An excerpt from a recent wsj.com article.

New ECB President Mario Draghi said last week that the bank won't act as a lender of last resort to euro-zone governments, affirming the bank's stance that its mandate under the European Union treaty is limited to fighting inflation.

Europe still doesn't get it.  Greece is small potatoes.  Italy, on the other hand, is not.

In a nutshell:

1. Investors are no longer interested in buying Italian bonds as evidenced by the rising interest rates on these bonds (rates would be much higher if the ECB had not bought many of these bonds).
2. EFSF is nowhere near big enough to backstop Italy.
3. The biggest shareholders in the IMF (US) refuse to bailout another country.

At this point the ECB needs to throw out its ill planned mantra of price stability only and assume the additional role of lender of last resort before the EU goes down the crapper and takes the rest of the world economy with it.

The irony of this is that the fear of a replay of the unrest that the Germans remember during the 30's may end up being the downfall of their great European experiment.  It is this fear of inflation which could introduce a new round of chaos in Europe this time due to economic depression and collapse.

Another Case of the Patients Running the Assylum

European banks are looking for ways to modify their risk adjusted weightings of assets on their balance sheets in order to fill the capital requirements imposed on them by the latest European agreement.

Apparently they don't want to reduce bonuses and wages and they know it won't be easy to raise capital in financial markets given the circumstances so they again are turning to creative accounting to right the shortfall.  This falls in the same category as FASB allowing banks to "relax" mark to market accounting.  Neither of these issues, although legal, will actually allow investors to get a clear picture of what is going on in a bank balance sheet.

Bloomberg article here.

Morning Indicators 11/9/11

Long Term Indicator: 61.82 (bearish)
Short Term Indicator: 1 (stocks are being bought but without conviction)

Nice Post by Paul Krugman

Nice post by Paul Krugman on why unemployment is so bad in spite of the fact real rates of interest are negative and savings seems to be below average.  If people are spending because rates are so low then why is there such a high unemployment rate?  Krugman says it is the trade deficit.

Morning Indicators 11/8/11

Long Term Indicator: 60.30 (bearish)
Short Term Indicator: 0 (neutral)

Morning Indicators 11/4/11

Long Term Indicators: 62.46 (bearish)
Short Term Indicators: -.2 (neutral)

Morning Indicators 11/7/11

Long Term Indicator: 60.07 (bearish)
Short Term Indicator: -.4 (neutral)

Is this a Sign of Progress?

Are republicans actually considering putting taxes on the table when discussing deficit reduction?  Combine this with some long range spending cuts from the Democrats and we can finally show the people of this country along with markets around the world that U.S. can come together and work through this crisis.

All of the talk in Washington about uncertainty about regulation and taxes being the reason why businesses and consumers lack confidence in the economy is bullshit.  The uncertainty in this country has more to do with the politics and the unwillingness of the right to compromise at all.  In a time of crisis a leader should not be bound to certain ideologies or doctrines.  What he should be bound by is his commitment to the very people that have elected him as their representative. Protecting the rights of the top percent at the expense of the rest of the country is dumb and will backfire eventually. 

If the reps in Congress want to improve confidence in this country why don't they start by reaching some bipartisan agreement in helping us get out of this mess (Can anyone say pass the jobs bill)?  Reaching a bipartisan agreement in the supercommittee would be a start but only a start.

Comments on Fed Meeting.

C'mon big Ben.  Don't quit now.  Keep backing the economy with liquidity and more importantly keep putting the pressure on Congress to forget ideologies and focus on fiscal policy which will help jump start the economy.

ECB Cuts Rates!!!

In his first meeting in charge Mario Draghi and the ECB lowered rates by 25 basis points to 1.25%.  the move was a surprise to many economists.  That was the good news.  The bad news was the statement the Draghi said in his post meeting press conference.

“What makes you think that becoming the lender of last resort for governments is what you need to keep the euro region together?”

and

“ That is not really in the remit of the ECB. The remit of the ECB is maintaining price stability in the medium term.”

So the ECB still seems to miss the point.  They are the lender of last resort.  History has shown that central banks that don't take their role as lenders of last resort seriously have failed miserably.  Yet the ECB is still worried about price stability which is not an issue at this point.  As a matter of fact a little inflation would probably help things in Europe a bit.

Link to Bloomberg article here.

Morning Indicators 11/3/11

Long Term Indicator: 62.19 (Bearish)
Short Term Indicator: 0 (Neutral)

IIF on European Bank Recapitalization

Charles Dallara who is Managing Director of the International Institute of Finance said the following in a letter he submitted to G20 leaders before the start of the meetings in Cannes tomorrow and Friday.

“It is essential for the official sector to begin viewing the banking system as an indispensible partner in fostering recovery, rather than an adversary on which it is necessary to impose ever more punitive measures.” 

Interesting how the banks who are again on the brink of failure again are going against an increase in capital requirements which will help keep banks solvent and depositors safe.

Read Bloomberg story here.

Roger Lowenstein on Liquidity

Good Op-Ed by Roger Lowenstein in Bloomberg.  I particularly like the following part on liquidity and risk assessment:

Time and again, otherwise canny investors fall for the salve that in a liquid market, they can always get out, therefore what’s the problem? At Lehman, in the mid 2000s, executives took comfort in the notion that that the bank was in the “moving business” not the “storage business.” Then, the mortgage market froze, and everyone was in the storage business.

Liquidity is a backward-looking yardstick. If anything, it’s an indicator of potential risk, because in “liquid” markets traders forego trying to determine an asset’s underlying worth - - they trust, instead, on their supposed ability to exit. Investors now in low-yielding U.S. Treasury bonds may, one day, discover this lesson for themselves.

It’s hard to overestimate the extent to which the siren of liquidity has seduced even ordinary Americans. During the housing bubble, anyone who took out a mortgage they couldn’t afford, upon advice they could always refinance, was tacitly assuming they could trade their old loan for a new one. They were counting on continued liquidity in the mortgage market--and so were the banks that lent them the money.

To All Who Knock Regulation

For everyone who claims that regulation of Wall Street is not necessary.  That in a capitalistic society, the market is the regulator.  Please allow me to introduce MF Global, impersonating Lehman Brothers.  I think I've seen this movie before?!?!

Morning Indicators 11/2/11

Long Term Indicator: 62.38 (Bearish)
Short Term Indicator: 0 (Neutral)

Missing the Point?

Why is it that Washington always seems to miss the point?

1. Why does Washington insist on cutting spending at time when the government needs to support the citizens of the country by investing in productive things like infrastructure and education?
2. Why do the politicians who serve this country insist on catering to the few with deep pockets and not to the majority?
3. Why do Republicans insist on pushing deregulation and tax cuts to get us out of this mess when these issues are what got us into this mess in the first place?
4. Why do we bailout too big to fail banks but when it comes to helping out the victims of these banks all we can come up with are excuses?
5. Why do Republicans claim the other side is being partisan while they refuse to compromise on any issues?
6. Why do we still believe that low taxes and deregulation will help solve our problems when the last 30 years have proven that these policies fail miserably?
7. Why has this country forgotten what made us great?  We used to be the land of opportunity, now we are the land of the privileged few.
8. Can we stop claiming that class warfare is the result of political rhetoric and realize that policy is to blame?
9. Do we really believe that the majority of the unemployed are lazy freeloaders that are sucking from the government tit?
10. Why do we allow government officials to be so affected by money?
11. Why are there not term limits for all government representatives?
12. Why do we allow too big to fail banks which were bailed out by taxpayers to continue to exist?
13. Why do we look down on protesters and don't realize that if these people had jobs they wouldn't be out on the streets?
14. Why do we view corporations as people?  Is this a joke?
15. Why doesn't the government stop claiming that stimulus didn't work and pass a stimulus bill that will be large enough to make a difference?
16. Why does the right claim that corporations need tax breaks to create jobs when corporations are already sitting on a record pile of cash?
17. Why do we believe that in a capitalist society players will self regulate?

Washington is missing the point?

The Mess Called Europe

That lasted long.  The markets are now on day 3 of a continued downtrend after the latest agreement came out of Europe early last Thursday morning.  With many i's not dotted and many more t's not crossed there is a ton of uncertainty surrounding the latest deal from Europe.  This has been witnessed by the rising spread between Italian bonds and their German counterparts since the announcement.

Now to add another wrench into the spoke, the Greeks are going to referendum on the latest European proposals.  With the ruling PASOK party's approval at lows and the unpopularity surrounding the forced austerity measures that have increased taxes and unemployment, while cutting pensions and wages the prevailing belief in the market is that the Greek nation will vote down the latest moves.  This will probably force new elections which will cause further instability.  It will also force the EU into making the difficult choices that it has not been able to make in the last 21 months.  Europe will need to step up and backstop it's banks as Greece will probably default outright.  The ECB will need to step up and purchase bonds of the weakening member states aggressively and it will need to issue a statement telling the world that it will continue to do so until things stabilize.  It will also need to drop rates.  It's time the ECB grows a sack.  Everyone can appreciate the fact that the big fear in Europe is hyperinflation, but as the central bank of the largest union in the world, it needs to balance that concern with the pressing needs that surround it currently.

Since the crisis started it has become more and more evident that the measures that Europe has implemented to address the issues at hand are not sufficient.  The austerity measures that have been put in place have done nothing but increase the deficits and put handcuffs on the economies affected.  Without the ECB accepting it's role as lender of last resort this issue will not be resolved.  It's time to flood the market with euros' in order to help prop up the struggling EU economy and address the increasing likelihood that this contagion has the ability to swallow up all of Europe and thus destroy the great European experiment.

Morning Indicators 11/1/11

Long Term Indicators: 62.65 (Bearish)
Short Term Indicators: .4 (Neutral)