Saturday, November 21, 2009

Futures Analysis for 11/20

Instrument Contract Hany EMA Klinger DTA Anal Candle
Corn CH10 bearish bearish bearish consolidation na
Soybean Oil BOF10 bearish bullish exhaustion parallels none
Soybeans SF10 bullish bullish bullish parallels bull contin 
Soybean Meal SMF10 bullish bullish bullish parallels bull contin 
Wheat WH10 bearish bullish bearish bubble ending none
Oats OH10 bearish bearish bearish Bbands flat none
Rough Rice RRF10 bearish none bearish Bbands flat none
Sugar SBH10 bearish bearish flat Bbands flat none
Cotton CTH10 bullish bullish bullish new parall bull contin 
Cocoa CCH10 bullish bullish bullish none bull contin 
Coffee KCH10 bearish bearish bearish none bear contin
Orange Juice OJF10 bullish bearish bearish Bbands flat none
Live Cattle LCG10 bullish bullish bullish bubble ending none
Feeder Cattle FCF10 bullish bullish exhaustion bubble ending none
Lean Hog LHG10 bullish bullish bullish Bbands flat bull contin 
Pork Bellies PBG10 bearish bullish bullish Bbands flat consolidation
Lumber LBF10 bearish bearish exhaustion exit reversal
Class III Milk DAF10 bearish bullish none Bbands flat 6-day engulf
Cash Butter CBZ09 bearish bullish unknown bubble ending none
Dow YMZ09 bearish bearish bearish bubble ending hanging man
S&P 500 ESZ09 bearish bearish bearish unknown none
US Dollar Index DXZ09 bullish bullish bullish Bbands flat bull contin 
Euro ECZ09 bullish bearish bearish Bands flat none
Japanes Yen JYZ09 bullish bullish bullish parallels bull contin 
British Pound BPZ09 bearish bearish bearish Bands flat bull contin 
Australian $ ADZ09 bearish bearish bearish Bands flat bear contin
Canadian $ CDZ09 bearish bearish bearish Bands flat bear contin
Swiss Franc SFZ09 bearish bearish bearish Bands flat none
New Zealand $ NE1Z09 bearish bearish bearish Bands flat none
EuroYen RYZ09 bearish bearish bearish none bear contin

Mexican Peso MP1Z09 bearish bearish bearish flat but wide none
Russian Ruble RUZ09 bearish bearish bullish end parallels bear contin
Crude Oil CLF10 bearish bearish bearish Bands flat erratic
Natural Gas NGF10 bearish bullish bullish ending bubble none

Heating Oil

Eurodollar EDZ09 bullish bullish bullish parallels bull contin 
LIBOR EMZ09 bullish bullish bullish parallels bull contin 
Fed Funds FFZ09 bullish bullish bullish parallels bull contin 
10 Yr. Treas TYZ09 bearish bullish bullish ending bubble none
30 Yr Treas

Int Rate Swaps

Gold YGZ09 bullish bullish bullish parallels bull contin 
Silver YIZ09 bearish bullish bullish funnel stage none
Palladium PAH10 bearish bearish bearish bubble ending none
Platinum PLF10 bearish bullish bullish bubble ending bull contin 
Copper OCH10 bearish bullish exhaustion mixed none

Gartman, Mauldin Warn of Potential for Nasty Dollar Correction

Where the Wild Things Are is a beloved children's book and now a beautiful movie. But in the investment world there are really scary wild things lurking about in the hidden recesses of the economic landscape. Today we look at one of the unintended consequences of the Federal Reserve's low interest rate policy.
For quite some time, I have been arguing that we are faced with no good choices, not just in the US but in the entire "developed" world. I see a low-growth, Muddle Through world over the next years (with a double-dip recession just to liven things up). However, that does not mean that we will lack for volatility. Things could get volatile rather quickly. Let's quickly set the background.

It Is Not Just Japan
Let's look at today's interest rate picture. Yesterday, we had the bizarre occurrence of banks actually paying the government to hold their cash. Three-month treasuries yield a miniscule 0.01% in interest. If you opt to buy a one-year bill you get all of 0.26%. You can see the entire spectrum below.

Look at the graph of the yield curve below. It is as steep as we have seen it in a long time. But that is almost the point. Banks are essentially getting free money. If you are a banker and can't make money in this environment, you need to quit and find meaningful employment.

And that is part of the rationale that the Fed espouses with its low interest rate regime. Not only does it allow banks to repair their balance sheets, it also encourages investors to put money into riskier assets in order to get some return on their investments. Over $260 billion has gone into bond funds this year, and just $2.6 billion into stock funds. However, you have to balance that with the fact that some $400 billion has left money market funds paying less than 0.2%. So there is some movement to capture yield.
But is it just banks that are getting cheap money? And is encouraging investors to find riskier assets a sound policy? Maybe not.
The Euro-Yen Cross and the Dollar Carry Trade
I wrote a great deal in the past few years about the strong correlation of the euro-yen cross to stock markets all over the world in general. (The euro-yen cross is the exchange rate of the euro and the Japanese yen.) This was a proxy for the Japanese carry trade. The stock markets of the world rose and fell in synchronization with the yen versus the euro.
A currency carry trade is a strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates, which can often be substantial, depending on the amount of leverage used.
The Japanese drove their rates down to essentially zero in the 1990s. By early 2007, it was estimated that the yen carry trade was over $1 trillion. But when the world credit crisis hit, the world wanted dollars. They paid back the yen and bought dollars, driving the yen higher and killing the yen carry trade. Who wants to borrow in a currency that continues to rise, even if the costs are low? And often, large leverage was used, so small movements in the currency could destroy outsized amounts of capital.
But now, there are some who are beginning to ask whether there is a dollar carry trade. In the last nine months, the correlation between the dollar and the stock market has gone to about 90%. If the dollar rises, the stock markets and other risk assets tend to fall, and vice-versa. It would appear that investors and funds are borrowing cheap dollars on a short-term basis and investing in all sorts of risk assets. Not only have stock markets risen, but so have high-yield bonds, commodities, and so on.
We have seen the steepest rise in US stock markets coming out of a recession since the end of the last world war. The market is "discounting" a 5% GDP next year and a profit rebound beyond anything in past experience. Depending on the quarter, operating earnings are expected to rise by anywhere from 30-40%. P/E ratios are back at 23, well above the 17 we saw in the summer of 2007 (I am using 4th quarter 2009 estimates so as to not have to take into account the disastrous 4th quarter of last year.)
Worrying about a dollar carry trade is not just a preoccupation of my friends Nouriel Roubini or David Rosenberg or Frank Veneroso. Look as this story from Bloomberg:
"China's Liu Says U.S. Rates Cause Dollar Speculation
"Nov. 15 (Bloomberg) -- The decline of the dollar and decisions in the U.S. not to raise interest rates have caused "huge" speculation in foreign exchange trading and seriously affected global asset prices, said Liu Mingkang, chairman of the China Banking Regulatory Commission."
"The continuous depreciation in the dollar, and the U.S. government's indication, that in order to resume growth and maintain public confidence, it basically won't raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation," he told reporters in Beijing today at the International Finance Forum.
"Liu said this has 'seriously affected global asset prices, fuelled speculation in stock and property markets, and created new, real and insurmountable risks to the recovery of the global economy, especially emerging-market economies.'
"His view echoes that of Donald Tsang, the chief executive of Hong Kong, who said the Federal Reserve's policy of keeping interest rates near zero is fueling a wave of speculative capital that may cause the next global crisis."
"'I'm scared and leaders should look out,' Tsang said in Singapore Nov. 13. 'America is doing exactly what Japan did last time,' he said, adding that Japan's zero interest rate policy contributed to the 1997 Asian financial crisis and U.S. mortgage meltdown."
It is not just China. Brazil has moved to impose a tax (or tariff) on investment money coming into the country on a shorter-term basis, as they are worried about both a bubble in their markets and in their currency. Russia is openly considering similar policies.
I have been doing a lot of speaking in the last month. In almost every speech, I warn of the significant imbalance in the dollar. I walk to the very end of the stage to help illustrate that the world now has on a massive ABD trade. By that I mean Anything But Dollars. Everyone is now on the same side of the boat. They have borrowed dollars to buy other risk assets, assuming that the dollar, like the yen in the glory days of the yen carry trade, will continue to fall. Dollar bears are everywhere.
Explanations abound for why the dollar is a trash currency. It is Fed policy, or the Obama administration's willingness to run massive deficits, or the trade deficit or our health-care policy or (pick any number of issues). But I wonder.
Global trade collapsed last year and well into this year. Global trade was essentially done in dollars. If global trade is down 20% or more, then there is less need for companies in various countries to hold dollars and more need for local currency because of the crisis. Thus, after a rush to safety in the credit crisis, there is a rational selling of dollars by business.

Look at the above chart. Notice that the dollar is roughly where it was 20 years ago. And notice the recent jump during the credit crisis. We are not even back to where we were before the crisis.
What happens if world trade picks back up, as it appears to be doing? Admittedly, it is not a robust recovery as yet, but it is rising. That means more need for dollars. And dollars which are being borrowed (and probably leveraged!) on the assumption the dollar will continue to fall.
And I agree that, over time, the case for the dollar is not as good as I would like. But in the meantime, we could have one very vicious dollar rally, which would take equity markets down worldwide, along with other risk assets. Why? Because it would be a major short squeeze.
Barron's just did a survey. It revealed that the bullish sentiment on stocks is quite high and almost everyone hates US treasuries (graph courtesy of David Rosenberg of Gluskin, Sheff)

Whenever sentiment gets too strong in one way or the other, it is usually setting up the markets for a rally in the despised asset. Mr. Market like to do whatever he can to cause the most pain to the largest number of people.
I am not predicting a near-term crash or imminent precipitous bear, although in this environment anything can happen. I am merely noting that there is an imbalance in the system. The longer this imbalance goes on, the more likely it is that it will end in tears. And the irony is that a recovering world economy could be the catalyst.
The Wild Things? They may be hiding in a portfolio near you. Just food for thought. Stay nimble.

Thursday, November 19, 2009

Societe Generale Warns Clients to Prepare for Worst Case Scenario

from the Daily Telegraph:

Explosion of debt: Japan's public debt could reach as much as 270pc of GDP in the next two years. A bullet train is pictured speeding past Mount Fuji in Fuji city, west of Tokyo Photo: Reuters
In a report entitled "Worst-case debt scenario", the bank's asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.
Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of "deleveraging", for years.
"As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse," said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.
Under the French bank's "Bear Case" scenario (the gloomiest of three possible outcomes), the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.
Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105pc of GDP in the UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state debt would reach $45 trillion, up two-and-a-half times in a decade.
(UK figures look low because debt started from a low base. Mr Ferman said the UK would converge with Europe at 130pc of GDP by 2015 under the bear case).
The underlying debt burden is greater than it was after the Second World War, when nominal levels looked similar. Ageing populations will make it harder to erode debt through growth. "High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt," it said.
Inflating debt away might be seen by some governments as a lesser of evils.
If so, gold would go "up, and up, and up" as the only safe haven from fiat paper money. Private debt is also crippling. Even if the US savings rate stabilises at 7pc, and all of it is used to pay down debt, it will still take nine years for households to reduce debt/income ratios to the safe levels of the 1980s.
The bank said the current crisis displays "compelling similarities" with Japan during its Lost Decade (or two), with a big difference: Japan was able to stay afloat by exporting into a robust global economy and by letting the yen fall. It is not possible for half the world to pursue this strategy at the same time.
SocGen advises bears to sell the dollar and to "short" cyclical equities such as technology, auto, and travel to avoid being caught in the "inherent deflationary spiral". Emerging markets would not be spared. Paradoxically, they are more leveraged to the US growth than Wall Street itself. Farm commodities would hold up well, led by sugar.
Mr Fermon said junk bonds would lose 31pc of their value in 2010 alone. However, sovereign bonds would "generate turbo-charged returns" mimicking the secular slide in yields seen in Japan as the slump ground on. At one point Japan's 10-year yield dropped to 0.40pc. The Fed would hold down yields by purchasing more bonds. The European Central Bank would do less, for political reasons.
SocGen's case for buying sovereign bonds is controversial. A number of funds doubt whether the Japan scenario will be repeated, not least because Tokyo itself may be on the cusp of a debt compound crisis.
Mr Fermon said his report had electrified clients on both sides of the Atlantic. "Everybody wants to know what the impact will be. A lot of hedge funds and bankers are worried," he said.

Bloomberg on Mortgage Defaults

from Bloomberg:
Nov. 19 (Bloomberg) -- Foreclosures on prime mortgages and home loans insured by the Federal Housing Administration rose to three-decade highs in the third quarter, driven by the biggest job losses since the Great Depression.
One out of every six FHA mortgages was late by at least one payment and 3.32 percent were in foreclosure, the highest for both since at least 1979, the Mortgage Bankers Association said today. The delinquency rate for prime fixed-rate mortgages, considered home loans with the least risk, rose to 5.8 percent and the foreclosure inventory rose to 1.95 percent, the highest since at least 1972.
Homeowners are falling behind on their mortgages as the U.S. has lost more than 7 million jobs since December 2007, driving the unemployment rate to 10.2 percent in October, the highest since 1983. Declining home prices in most markets also are preventing many owners from selling their properties, said Jay Brinkmann, the Washington-based trade group’s chief economist.
“If you don’t have a job, you can’t pay a mortgage,” Brinkmann said in an interview. “You don’t pay a mortgage with economic output, you pay a mortgage with a paycheck.”
The share of all types of mortgages with one or more payments overdue climbed to a record seasonally adjusted 9.64 percent in the third quarter. The foreclosure inventory increased to 4.47 percent from 4.3 percent. Both were the highest in 37 years of data.

Foreclosures Continue to Rise to New All-Time Record

from MW:

CHICAGO (MarketWatch) -- Job losses caused more Americans to fall behind on their mortgage payments in the third quarter, leading to a record 14.41% of loans either in foreclosure or with at least one payment past due, the Mortgage Bankers Association's chief economist said Thursday.
"Despite the recession ending in mid-summer, the decline in mortgage performance continues. Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP," said Jay Brinkmann, chief economist of the MBA, in a news release. "Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07% to 1.42%."
Delinquency and foreclosure rates are expected to continue worsening before improving, he said. The employment picture is unlikely to improve until sometime next year, and even then jobs will grow at a slow pace.
"Perhaps more importantly, there is no reason to expect that when the economy begins to add more jobs, those jobs will be in areas with the biggest excess housing inventory and the highest delinquency rates," he said.
About 4 million mortgage loans are 90 days or more past due or in foreclosure, Brinkmann said. That compares with 3.9 million new and previously occupied homes now for sale, he said, adding that there is likely overlap between the numbers.
"The ultimate resolution of these seriously delinquent loans will put added pressure on the hardest-hit sections of the country," he said.
The delinquency rate for mortgage loans on one- to four-unit residential properties rose to a seasonally adjusted 9.64% of all loans outstanding at the end of the third quarter, up from 9.24% in the second quarter and 6.99% a year ago, according to the MBA's quarterly delinquency survey, released Thursday. That is the highest level of delinquencies on record, with data dating back to 1972.
Also breaking a record was the percentage of loans in the foreclosure process: At the end of the third quarter, that number was 4.47%, up from 4.3% in the second quarter and 2.97% a year ago.
Foreclosure actions were started on 1.42% of all mortgage loans outstanding at the end of the third quarter, up from 1.36% in the second quarter and 1.07% a year ago; the rate of foreclosure starts also set a new record.
The MBA survey covers about 44.5 million one- to four- unit residential properties, representing about 85% of all first-lien residential mortgages outstanding in the country.

Prime borrowers struggle

"Prime fixed-rate loans continue to represent the largest share of foreclosures started and the biggest driver of the increase in foreclosures," Brinkmann said. According to the survey results, 33% of foreclosures started in the third quarter were on prime fixed-rate loans.
The problems seen with this loan type are generally tied to the steady climb in unemployment -- even if there is a delayed reaction after a job is lost.
With prime fixed-rate mortgages, "when someone loses a job, chances are they don't go into default immediately" because these borrowers typically have reserves they can tap, he said. But reserves won't last forever, and the borrower's ability to keep that home depends on finding another job before his or her financial cushion runs out.
Also continuing to deteriorate is the performance of prime adjustable-rate mortgages, including pay-option ARMs, he said. Brinkmann noted, however, that pay-option ARMs have had some of the highest modification rates.
Meanwhile, foreclosures started on subprime fixed-rate and subprime adjustable-rate loans actually decreased, he said.
Four states continue to drive up the national foreclosure rate: Florida, California, Arizona and Nevada had 43% of all foreclosures started in the third quarter, down just slightly from 44% the previous quarter, according to the report.

FHA loans falter

The foreclosure rate of loans insured by the Federal Housing Administration also increased in the third quarter, even though there also has been a large jump in the number of FHA loans outstanding, he said.
"The number of FHA loans outstanding has increased by about 1.1 million over the last year. This increase in the denominator depresses the delinquency and foreclosure percentages. If we assume these newly-originated loans are not the ones defaulting and remove the big denominator increase from the calculation results, the foreclosure rate would be 1.76% rather than 1.31% reported," he said in the release.
The FHA has been dealing with losses in its capital reserve fund, due to problems with mortgages that originated before this year. Read about changes the FHA is considering to manage risk.
But newly originated FHA loans are not likely to be at as much of risk as those made in previous years, Brinkmann said. The new loans are likely of better quality, partly because seller-paid down-payment assistance is no longer available for FHA-backed mortgages; the assistance has been blamed for contributing to some of the problems, he said.
Also, loans being originated today are being done at what is believed to be at or near the bottom of the home-price cycle, he added. While home-price drops may still be ahead, they're unlikely to be of the magnitude seen in the past, Brinkmann said.
And it's possible that if, in fact, unemployment is nearing its peak, new borrowers today are more likely to hang on to their jobs -- and make their mortgage payments.
"Those with jobs now may be the most likely to keep their jobs," he said in an interview.

Ride the Wave(s)!

My job as a trader is to harmonize myself with the market and ride the waves of order flows to profits, just as a surfer rides the waves of the ocean. It can be done safely!

"Correct behavior is a learned process and not one that is always obvious." - Phantom of the Pits

"It is possible to build a life-long trading career from a small monetary base." - Phantom of the Pits

"Some of the BEST traders started out broke! And then they got more broke. Until SUCCESS!" Phantom of the Pits

Wednesday, November 18, 2009

Seasonal Firming Typical for Dollar

Usually the dollar firms up during Nov. It's basically done that: Look at what Dec brings for the dollar.

Wow! December looks like it is typically a bloodbath for the Dollar.

Harvard Medical School Dean Says Healthcare Reform Will Accelerate Higher Spending

"I find near unanimity of opinion that, whatever its shape, the final legislation that will emerge from Congress will markedly accelerate national health-care spending rather than restrain it." - Jeffrey S. Filer, Dean of Harvard Medical School

also from the same editorial on WSJ:
"...while the legislation would enhance access to insurance, the trade-off would be an accelerated crisis of health-care costs and perpetuation of the current dysfunctional system—now with many more participants. This will make an eventual solution even more difficult."

Natural Gas Hits New 2009 Low



Gold Reaches $1053 on Dollar Weakness

Doug Kass: "A Bubble in Quant Funds"

by Doug Kass:

"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing." -- Chuck Prince, former chairman and CEO of Citigroup (told to the Financial Times on July 10, 2007).
These words resonate to me in the current investment setting as many investors and traders are assuming the most benign of economic outcomes and have begun to dance and party like it's 1999. The media's talking heads are doing their best to fuel the celebration, just as they were at DJIA 14,000 before the market crashed last year. It is also the same group of cheerleaders that was mired in depression eight short months ago. Some, like myself, have been cautionary (and wrong) over the past few months, expressing concerns over emerging short- and intermediate-term headwinds that threaten a self-sustaining economic cycle, including the effect of the withdrawal of monetary and fiscal stimulus. Countering those concerns has been one overriding factor -- namely, the Fed's zero rate policy and curse on cash, which has already produced its desired effect of causing investors to "look over the valley" and to buy longer-dated assets (equities, bonds, commodities).
Here is the full article.

"market participants often rationalize the irrational" - Doug Kass

Tuesday, November 17, 2009

Mortgage Delinquencies Continue to Climb

For the three months ended Sept. 30, 6.25 percent of U.S. mortgage loans were 60 or more days past due, according to credit reporting agency TransUnion. That's up 58 percent from 3.96 percent a year ago.
Being two months behind is considered a first step toward foreclosure, because it's so hard to catch up with payments at that point.

Dollar Rebounds on Supportive Bernanke Comments

Question for Bernanke: HOW? It takes more than talk! It takes policy, too! Your cred is dead!


In rare public comments on the dollar, Federal Reserve chairman Ben Bernanke said the US central bank was monitoring currency markets "closely" and will conduct policy in a way that will "help ensure that the dollar is strong".
But the dollar - after a brief spike - fell against other major currencies while commodities, stocks and bonds gained ground as investors focused on his comments on growth, prices and interest rates instead. Mr Bernanke said the recovery would gain traction in spite of "headwinds" from credit and unemployment, while inflation was likely to remain "subdued".
He said that the Fed still expected to keep rates near zero for an "extended period" - although he stressed that this was a conditional forecast, not a commitment.
The Fed chairman added that he did not think that new asset price bubbles were forming in the US in spite of the strong rebound in stocks and other risky assets.
In remarks apparently aimed at reassuring markets and governments that the central bank is not indifferent to the fate of the dollar, the Fed chairman said: "We are attentive to the implications of changes in the value of the dollar."
He added that the Fed "will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability" - and that doing so would support the value of the currency.
For the Fed chairman to comment on currencies is highly unusual. By convention, the US Treasury secretary is the sole US official who talks about the dollar.
The comments came amid growing international unease about the weakness in the dollar, which forms a backdrop to President Barack Obama's tour of Asia. Liu Mingkang, China's banking regulator, criticised the Fed at the weekend for fuelling the dollar carry-trade in which investors borrow dollars at ultra-low interest rates and invest in higher-yielding assets abroad.
Mr Bernanke cited the dollar as one of four factors affecting US inflation, and linked it to a second factor - "the prices of oil and other commodities". In doing so, he indicated that the central bank would not focus exclusively on measures of core inflation that exclude food and energy prices.
"Notwithstanding significant cross-currents, inflation seems likely to remain subdued for some time," he said.
His message on asset prices was amplified by vice-chairman Don Kohn, who said one of the reasons the Fed was keeping rates near zero was "to induce investors to shift into riskier and longer-term assets".

Roubini: The Worst Job Losses Are Yet to Come

I like Roubini's frankness about job losses, but does he really believe that the answer is to do more of the same that brought us here? More spending, more bailouts, more debt, and more non-competitive union jobs?

from NY Daily News:
Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.
While losing 200,000 jobs per month is better than the 700,000 jobs lost in January, current job losses still average more than the per month rate of 150,000 during the last recession.
Also, remember: The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.
So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.
There's really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.
The long-term picture for workers and families is even worse than current job loss numbers alone would suggest. Now as a way of sharing the pain, many firms are telling their workers to cut hours, take furloughs and accept lower wages. Specifically, that fall in hours worked is equivalent to another 3 million full time jobs lost on top of the 7.5 million jobs formally lost.
This is very bad news but we must face facts. Many of the lost jobs are gone forever, including construction jobs, finance jobs and manufacturing jobs. Recent studies suggest that a quarter of U.S. jobs are fully out-sourceable over time to other countries.
Other measures tell the same ugly story: The average length of unemployment is at an all time high; the ratio of job applicants to vacancies is 6 to 1; initial claims are down but continued claims are very high and now millions of unemployed are resorting to the exceptional extended unemployment benefits programs and are staying in them longer.
Based on my best judgment, it is most likely that the unemployment rate will peak close to 11% and will remain at a very high level for two years or more.
The weakness in labor markets and the sharp fall in labor income ensure a weak recovery of private consumption and an anemic recovery of the economy, and increases the risk of a double dip recession.
As a result of these terribly weak labor markets, we can expect weak recovery of consumption and economic growth; larger budget deficits; greater delinquencies in residential and commercial real estate and greater fall in home and commercial real estate prices; greater losses for banks and financial institutions on residential and commercial real estate mortgages, and in credit cards, auto loans and student loans and thus a greater rate of failures of banks; and greater protectionist pressures.
The damage will be extensive and severe unless bold policy action is undertaken now.
Roubini is professor of Economics at the Stern School of Business at New York University and Chairman of Roubini Global Economics.

Inflation Awakens

from Arlan:
Food & energy costs drove wholesale inflation up 0.3% last month, but corn inflation dropped 0.6%;

Monday, November 16, 2009

Another New Dollar Low

Just hit another new low for the Dollar in 2009!

Gold Rises $25/Ounce Today

"Every Trader Started Out As a Small Trader" - Phantom of the Pits

"I believe in the small trader! I know what the potential is because I know every trader started out as a small trader. Not one big trader started just big. You must start. There is no better place to start than the start line. Only then can you say you went the entire course."
-- Phantom of the Pits

Gold Buyers Enter 1st of Each Month

Another technical trader pointed out to me this morning that when money hits the market at the beginning of each  month, gold rises. Note that gold showed weakness toward the end of the month, but rose at the beginning of each month.

Fed Should Listen to China -- But They Won't!

 from 24/7:
The Federal Reserve and most economists believe that keeping US interest rates at near zero has been critical to the recovery of the American economy. Even with rates at historically low levels, banks and financial companies have been stingy in their lending practices because of the fear of risk from providing capital to people and businesses whose financial positions have been crippled by the recession.
Fed officials have hinted that the agency may not move rates up at all until 2011 because unemployment and tight credit will only allow a very fragile advance in GDP between now and then.
China would like the US to raise interest rates based on its theory that the low cost of capital is causing massive speculation in equity and commodities markets. China claims that Fed policy will cause bubbles that will burst and cause both another sharp downturn in the global economy and damage to the credit markets.
Liu Mingkang, chairman of the China Banking Regulatory Commission, said in comments reported by Bloomberg that “The continuous depreciation in the dollar, and the U.S. government’s indication, that in order to resume growth and maintain public confidence, it basically won’t raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation.”
It is a matter of debate whether asset inflation is a major problem. Last week, the CEO of Exxon Mobil (NYSE:XOM) said that the price of oil is $20 higher than it would be if the dollar was not especially weak. He said that global crude supply was more than ample to handle the current very modest increase in demand.
The price of crude is not the only fact supporting Liu Mingkang’s case. The price of gold was $874 an ounce a year ago. The metal traded at $1,117 last week, a rise of 32% over the period. The DJIA is up over 40% from its March lows and the Nasdaq is up over 50% during the same period. The only major asset is  thestill rapidly losing its value in the US is real estate. That ongoing drop could be tied largely to unemployment. The irony is that low interest rates are supposed to help businesses get cheap access to capital which should increase hiring.
Liu Mingkang’s case will fall on deaf ears, at least in the US. China has its own $585 billion stimulus package which has provided enough liquidity to the economy of the world’s most populous nations to create sharp increases in prices of equities and real estate. The value of stocks in China’s Nasdaq-style stock market, ChiNext, rose an average of 200% on the first day that the new exchange was open.
China’s banking authorities may be right. Low interest rates in American could cause inflation in some asset classes. The problem is that without rates near zero, the US economy could face another catastrophe.
Douglas A. McIntyre

from MW:

TOKYO (MarketWatch) -- The dollar slipped Monday, a day after China's chief banking regulator criticized loose U.S. monetary policy as leading to increased speculation.
"The continuous depreciation in the dollar, and the U.S. government's indication that, in order to resume growth and maintain public confidence, it basically won't raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation," Liu Mingkang, chairman of the China Banking Regulatory Commission, said Sunday in Beijing at the International Finance Forum, according to news reports.
Low U.S. interest rates and a weaker greenback have "seriously affected global asset prices, fuelled speculation in stock and property markets, and created new, real and insurmountable risks to the recovery of the global economy, especially emerging-market economies," Liu said.

Is China Ready to Be a Major Global Player?

WSJ's Jason Dean speaks to professor Huang Yasheng from the MIT Sloan School of Management about whether China is ready for a global leadership role.
The dollar bought 89.45 yen, down from 89.72 yen in late North American trading on Friday. The euro bought $1.4956, up from $1.4903 late Friday.
China has kept its tightly controlled currency, the yuan, almost unchanged against the U.S. dollar for more than a year, in a move that gives Chinese exports a competitive advantage in U.S. markets.
Last week, China's central bank made a rare change of wording on its exchange-rate policy that was seen as a hint Beijing may let the yuan appreciate.
The People's Bank of China said in its quarterly policy report released Wednesday that it will consider "changes in international capital flows and the trends of major currencies" in managing the exchange rate. Read more on People's Bank of China currency statement.
U.S. President Barack Obama is on his first official visit to China this week to discuss a range of contentious issues, but is unlikely to push China too hard on currencies or anything else.

Corn, Wheat Rise Near Upper End of Trading Range

Soybeans have trade flat overnight.

Risk Appettite Buoys Stocks

Gold Continues Its March Skyward

Gold has reached $1033.60/ounce.The Dollar continues downward, but hasn't breached it recent lows yet.

excerpt from Marketwatch:
"This is a different type of gold rally, with support coming from both sides of the market -- investment [and] fundamental," said Darin Newsom, a senior analyst at Telvent DTN.
"A certain portion of the buying interest has come from the continued weakness of the dollar, but there is more to it than that," said Newsom.
"There is some 'safe haven' buying as well, but with copper holding firm and the Baltic Dry Index rallying, the Chinese economy seems to be gaining strength," boosting investor confidence, he said.
Additional buying for gold "has been tied to foreign governments and mining companies, who may have been short futures" as well as to exchange-traded fund buying, he said.
"All in all, everyone is getting bullish in this market as it continues to post new highs," he said.

Sunday, November 15, 2009

I had the flu during most of last week. Additionally, Wednesday was the Veterans Day holiday.