from FT:
The US is heading for a debt-driven “financial meltdown” within five to seven years, according to Judd Gregg, the outgoing Republican senator for New Hampshire.
In a robust and at times testy video interview for the Financial Times’s View from DC series, Mr Gregg also complimented China for showing rising alarm about the US’s mounting levels of public debt.
“We have had China say that they are looking for other places to put their reserves and that is probably a smart decision on their part,” said Mr Gregg, who will not seek re-election in November. “So the warning signs are pretty clear and the path is unsustainable and, at this point, unless we take different actions, unavoidable.”
But the senator...said he doubted that the two parties would get together to tackle it.
Thursday, February 25, 2010
U.S. Senator Says Debt-Driven Debacle Coming
"Profitability is found in the friction between perception and reality" - Todd Harrison
Harrison continues:
"the question is therefore begged, has the former finally caught up to the latter? While I foresee the inevitable consequences of our cumulative imbalances, I’m humble enough—and seasoned enough—to respect the motivation of cornered and scared animal spirits."
Wednesday, February 24, 2010
Shorts Increase in February
Short-selling rose at the New York Stock Exchange and the Nasdaq Stock Market during the first half of February.
But the SEC also voted today to impose new short-selling rules.
Treasury Bubble Theory Gets Boost From China
Treasuries are mostly unchanged today.
from Ambrose Prtichard-Evans at Daily Telegraph:
Evidence is mounting that Chinese sales of US Treasury bonds over recent months are intended as a warning shot to Washington over escalating political disputes rather than being part of a routine portfolio shift as thought at first.
A front-page story in the state’s China Information News said the record $34bn sale of US bonds in December was a "commendable" move. The article was republished by the National Bureau of Statistics, giving it a stronger imprimatur.
It follows a piece last week in China Daily, the Politburo’s voice, citing an official from the Chinese Academy of Sciences praising the move to "slash" holdings of US debt. This was published on the same day that US President Barack Obama received the Dalai Lama at the White House, defying protests from Beijing.
January U.S. New Home Sales Drop to Record Low
But the news is being drowned out by Bernanke's congressional testimony today. He's promising to keep rates artificially low and blow more bubbles. Stocks are nearly 100 points higher.
"The housing market remains very, very distressed," wrote Dan Greenhaus, chief economist for Miller Tabak & Co.
"There may have been some weather-related issues playing havoc with the sales data but clearly, these results are extremely unnerving," wrote Jennifer Lee, an economist for BMO Capital Markets. "There is nothing positive to glean from this report."
Sales of new homes are down 6.1% compared with January 2009's 329,000 units, which was the previous record low.
Tuesday, February 23, 2010
Heights of Cotton Prices Know No Bounds
U.S. exports of the fiber this year have surged 93 percent compared with the first six weeks in 2009, U.S. Department of Agriculture figures show. World cotton consumption is expected to climb 4.9 percent to 115.5 million bales in the year through July, the USDA said on Feb. 9. Stockpiles will reach 3.3 million bales, the lowest amount since 2004, the USDA said.
“The market is kind of caught in a tight situation,” said Jack Scoville, a vice president at Price Group Inc., a broker in Chicago. “Demand has really been good.”
Beans (Grains) Reverse, Give Up Gains
Natural Gas Back in Downtrend
from FT:
US natural gas prices dropped sharply on Monday as weather forecasts predicted temperatures in the US north-east would moderate after recent severe winter weather.
Natural gas prices have dropped 12.7 per cent this year and some traders believe that winter will end with gas stocks, currently about 2,025bn cubic feet, at record levels.
Soybeans Rise on Strong Demand
Consumer confidence # knocked trader confidence early, but beans providing stability based on demand; corn dn 2, beans up 3, wht dn 5
This is surprising given that stocks have taken a strong dip today.
Consumer Confidence Slides, Hits Stocks
The declines piled on quickly after the Conference Board, a private research group, said its index of consumer confidence plunged more than 10 points this month to 46.0. Economists surveyed by MarketWatch had been looking for a slight drop, to 55.5 points from January's previously reported level of 55.9.
The present situation index, a gauge of consumers' assessment of current economic conditions fell to 19.4, its lowest point in 27 years. See full story on confidence.
Investors said the plunge was unexpected and did not portend well for retailers and other businesses that rely on consumer spending.
"There's disappointment that we just haven't been able to create jobs yet and that that may now be starting to undermine consumer buying attitudes," said Jeffrey Kleintop, chief market strategist at LPL Financial.
Especially with government programs run by the U.S. Federal Reserve and the Treasury slated to expire this spring, consumers may not be able to support the recovery unless the labor market improves, he said.
Many retailers who opened the session trading up after posting strong earnings, quickly slid into the red following the consumer confidence data.
in other news:
WASHINGTON (MarketWatch) -- Home prices in 20 major U.S. cities fell a not-seasonally adjusted 0.2% in December compared with November, according to the Case-Shiller home-price index released Tuesday by Standard & Poor's.
"The pace of deterioration has stabilized for now," said David Blitzer, chairman of the S&P index committee. "However, the rate of improvement seen during the summer of 2009 has not been sustained."
The Psychology of Winners
from Dr. Brett:
Last year I gave a talk at a conference of traders and concluded the session by giving out my email address and phone number and inviting the attendees to contact me for any help they might need. I made it clear that I would not be soliciting them as commercial clients for coaching and that I would not charge them for time spent with them.
One of the participants approached me at the end of the session and expressed surprise that I would make myself so widely available at no charge. He noted that there were over 100 traders in the session and that I could easily be swamped with calls.
I smiled and simply said, "We'll see."
Within a two week period, I counted all the contacts that resulted and tracked who initiated them. It was a very easy task, because there was only one contact. It was from a very successful independent trader. No one else followed up.
And that's the way it usually is: Of the people with professed trading passions, only a fraction will sustain keeping any kind of journal or performance record; of those, only a fraction will use the journal and performance data to set and pursue concrete goals; of those, only a fraction will reach out for assistance in achieving those goals.
On the whole, people fail to reach high levels of success because they are not doing the things that successful people do: they are not on a path that can possibly lead to success. Traders can repeat positive affirmations and invoke positive images, but nothing replaces the hard work associated with preparation, practice, and focused work on oneself and one's craft.
The motivation to trade? Everyone has that. The motivation to be more than who you are: that's what makes winners.
And by the way, that one guy who did follow up and call me? He made well over $1,000,000 last year.
And he still calls.
More:
Turning Goals Into Habit Patterns
What Turns Goals Into Performance
Sunday, February 21, 2010
Euro Slump to Worsen
Feb. 22 (Bloomberg) -- Derivative traders are signaling that the euro’s slump to a nine-month low will continue even if European Union leaders bail out Greece.
Reuters: State Budgets to Worsen
WASHINGTON (Reuters) - The already gloomy conditions of states' economies are set to worsen, according to preliminary survey findings from the National Governors Association released on Saturday.
"The situation is fairly poor for a lot of states around the country. In fact, most states," Vermont Governor Jim Douglas, who is chairman of the association, said at a press conference at its annual meeting.
"What we're finding out from a fiscal standpoint is that the worst is yet to come," Douglas said.
Thursday, February 18, 2010
Beijing Bails on Treasuries
from Financial Times:
If there is one thing that gets investors twitchy, it is the fear that China is losing its appetite for US government bonds.
As the biggest and most liquid pool of assets in the world, the US Treasury market lies at the heart of the global financial system and allows the American government to finance its trillion-dollar budget deficits. Until recently, China has been the largest foreign official holder of US debt.
That is why the latest release of Treasury International Capital (Tic) data, showing that China’s holdings of Treasuries fell by a record amount in December, has caused something of a stir.
China’s holdings fell by $34.2bn to $755.4bn from the previous month, prompting renewed jitters that the country was diversifying from Treasuries over fears about their future value.
China’s holdings have fallen from a peak of $801.5bn in May 2009, and the data come at a time of heightened political friction between Beijing and Washington over issues such as Barack Obama’s meeting with the Dalai Lama, US weapons sales to Taiwan, and pressure on China to revalue the renminbi.
“These developments require monitoring because they could cause China to become even less enthusiastic buyers of US Treasuries,” says Yasunari Ueno, chief economist at Mizuho Securities in Tokyo. “A key issue now is how China will act in 2010 in light of the deteriorating bilateral relationship with the US.”
China may have indeed started to rebalance its foreign reserve portfolio from US Treasuries, he says, having piled into the asset class after the collapse of Lehman Brothers in September 2008. But most analysts, including Mr Ueno, believe the December dip in China’s holdings of US Treasuries more likely has more mundane explanations. They also caution against reading too much into the Tic data, which is prone to big monthly swings and is subject to so-called transactional bias.
by Pat Buchanan on World Net Daily:
"I used to think it would take a great financial crisis to get both parties to the table, but we just had one," said G. William Hoagland, a former adviser to the Senate Republican leadership on fiscal policy.
"These days, I wonder if this country is even governable."
Quoted in the New York Times' lead story, "Party Gridlock Feeds New Fear of a Debt Crisis," Hoagland nailed it.
America faces a crisis of democracy.
At its heart is a fiscal crisis. After the 2009 deficit of $1.4 trillion, we are running a 2010 deficit of $1.6 trillion. Trillion-dollar deficits are projected through the Obama years, be they four or eight.
Long before 2016, however, holders of U.S. public debt will stop buying Treasury bills or start demanding higher interest rates to cover the growing risk of a default.
This week, a smoke detector went off. China, in December, had unloaded $45 billion of its $790 billion in T-bills. Is Beijing bailing out?
To assure the world we are not Greece writ large, the United States must soon adopt a visible plan for slashing the deficit.
There are three ways to do it. One is through growth that increases the tax revenue flowing into the Treasury and reduces the outflow for safety-net programs like unemployment insurance.
But growth only comes slowly and can take us only so far.
Needed is a combination of big budget cuts and tax hikes. But the only place one can get budget cuts of the magnitude required is from the big entitlement programs, Social Security, Medicare and Medicaid. And the only place to get revenue of that magnitude is by raising taxes on the American middle class.
And here is where Barack Obama hits the wall.
Republicans are not going to give him a single vote for a tax increase. Not only would this violate a commitment most made to the people who elected them, it would be politically suicidal. For behind the GOP today, and its best hope of recapturing Congress in 2010, are the tea-party irregulars.
And tea partiers now play the role of Red Army commissars who sat at machine guns behind their own troops to shoot down any soldier who retreated or ran. Republicans who sign on to tax hikes cannot go home again.
Consider: Arlen Specter voted for the Obama stimulus and faced an immediate primary challenge from Pat Toomey, who took a 20-point lead, forcing Specter to quit the party to survive. Popular Gov. Charlie Crist embraced Obama on a Florida visit and got an immediate primary challenge from Marco Rubio, who now looks to be the next senator from Florida.
The tea-party folks are not into the Gerald Ford politics of compromise and consensus. They have seen what it produces: the inexorable growth of government.
Ex-Sen. Alan Simpson, a Republican and co-chair of Obama's National Commission on Fiscal Responsibility, has challenged the patriotism of conservatives who plant their feet in concrete.
"There isn't a single sitting member of Congress – not one – that doesn't know exactly where we're headed. ... And to use the politics of fear and hate and division on each other – we're at a point right now where it doesn't make a damn whether you're a Democrat or a Republican, if you've forgotten you're an American."
Simpson is right in his assertion that anti-tax Republicans went along with George W. Bush's spending spree – for two wars, prescription drug benefits under Medicare and No Child Left Behind.
Where he is mistaken is in suggesting "fear and hate" are behind the opposition to tax hikes. History, principle and honest politics explain much of that hostility.
Ronald Reagan, who consented to tax hikes in the 1982 TEFRA bill, told this writer he was swindled. Promised three dollars in spending cuts for each dollar in tax increases, he got the reverse.
George H.W. Bush won election by pledging: "Read my lips! No new taxes!" He broke his pledge, leaving many of the faithful with egg all over their faces. That may have cost him the presidency.
Principled conservatives are resisting tax hikes because they believe government has grown too huge for the good of the country. And if that means putting the beast on a starvation diet – no new tax revenue to batten on – so be it. Cold turkey time.
Anticipating gains in November, Republicans will not give Obama any new taxes before then. After November, their ranks swollen by tea-party support, they will be even more intractable.
Where does that leave Obama – and us?
Later this year or early next, to avoid a debt crisis, Obama will ask Congress to raise taxes and pare back entitlement programs.
Republicans will fight the taxes to the last ditch. Democrats, having lost dozens of colleagues in the November massacre, will rebel against the cuts in social spending.
And a paralyzed government will drift closer toward the maelstrom.
"Can Anyone Say Unsustainable?" Mish Shedlock
from Mish Shedlock:
Inquiring minds are investigating Monthly Receipts, Outlays, and Deficit or Surplus, Fiscal Years 1981-2009 as published by the US Treasury on its Monthly Treasury Service report.
Here are a couple charts I produced off the downloadable spreadsheets.
Receipts vs. Outlays by Quarter 1999 Q1 Thru 2009 Q4
Deficit or Surplus by Quarter 1999 Q1 Thru 2009 Q4
click on either chart for sharper image
Receipts are back in the range of where they were in 2002-2003 while outlays have gone through the roof. Trendlines drawn by Excel. Notice the widening gap between receipts and outlays in the first chart.
Can anyone say "Unsustainable?"
