Thursday, December 3, 2009

Holiday Sales Flat, Shoppers Spending Less

from Nielsenwire.com

Economic conditions in the U.S. may be stabilizing, but the grim reality is that jobless claims are still high, unemployment is in the double digits, foreclosures for August 2009 were 18% higher than a year ago, and credit markets are still tight. This, of course, translates to weak holiday sales. Nielsen reports that 42% of U.S. consumers plan to spend less on holiday gifts in 2009—up from 35% last year.

HolidaySalesOutlook_Charts_1
In consumable categories, Nielsen projects that holiday sales will be flat with a dollar sales gain of 0.03% and a unit sales decline of -0.11%. The National Retail Federation predicts sales will fall 1% this year compared to 2008.
Deals, deals and more deals
Consumers plan to use a wide array of tactics to save money this year—deal seeking is the predominant course of action:
  • 53% of consumers will wait for sales
  • 46% will buy lower priced gifts
  • 42% will bargain hunt more extensively this year
  • 39% plan to use coupons
  • 37% plan to shop at less expensive retailers and more online
  • 23% will give homemade gifts
  • 22% will make fewer shopping trips
Online decline
For the first time since 1999, when the U.S. Commerce Department started tracking online sales, 2008 and 2009 reported quarter-to-quarter and year-to-year retail e-commerce sales decline. Additionally, a Nielsen survey reports that the online shopping population may shrink this year. In 2008, 71% people of people planned to do holiday shopping online. This year, that number drops to 63%.
HolidaySalesOutlook_Charts_2
Those determined to shop online expect to spend significantly less this holiday season.  In 2008, 42% of shoppers planned to spend more than $300 on their online holiday purchases, but this year only 31% intend to spend that amount. Not only are consumers spending less money online, but they are planning to spend a smaller amount of their total holiday budget online compared to brick and mortar stores.
The top two motivations for shopping online focus on convenience…
Changed perceptions
The Internet may have lost its cache as a value channel. While consumers still shop online for money-saving reasons, the top two motivations for shopping online focus on convenience. Almost 70% of consumers enjoy the all day/all night benefit of shopping, whenever they like and 57% shop online to avoid holiday crowds in stores.
HolidaySalesOutlook_Charts_3
The top items consumers plan to shop for this holiday season include toys and video games (40%), clothes, shoes and accessories (39%), movies (38%), books (37%), gift cards/certificates (35%), music (29%), home electronics (23%), computer hardware and software (17%) and jewelry, health & beauty products, gourmet food/gift baskets (14%).
However, most product categories are expected to see lower levels of spending compared to 2008. Gift cards/certificates and movies are the only categories expected to grow this year. Movies are benefitting from the trend towards in-home entertainment and the dropping prices of Blu-ray technology. The growth of gift cards is likely attributed to the recession—gift givers are aware that needs, as opposed to wants, will be greater this season. In addition, more people (55%) would rather receive a gift card rather than a purchased gift.
Shipping and handling charges are a major deterrent…
Barriers to online success
While convenience and money savings factors are clear benefits to shopping online, the fact is, less than 4% of all purchases are made online. A Nielsen survey found shipping and handling charges are a major deterrent, with 53% of consumers stating they will not buy all their gifts online to avoid this fee. More than half (51%) of consumers cited that they need to see or touch the product. Consumers reported many of the physical benefits of in-store shopping—ease of return, instant gratification, access to sales people—as reasons they will not shop online for holiday gifts.
While the majority of purchases are made offline, the Internet is playing an important role in purchasing behavior. Deal-seeking activities—like comparing prices and finding coupons—drive consumers to go online first before ultimately making an in-store purchase. Deal-oriented websites attract a sizeable and varied audience—not just those with lower household incomes. In general, online deal-seekers tend to be female between the ages of 25–50 years old coming from a wide range of income levels.
Go beyond traditional TV and printed circulars and use social media…
Talk it up
Social media has changed the way consumers seek and share online and offline holiday deals. Frugal shoppers actively rely on these sites to learn about where to find the best deals, product recommendations, gift ideas and money saving tips. Retailers have an opportunity to go beyond traditional TV and printed circulars and use social media outlets to get shoppers excited about their holiday deals. Shoppers enjoy being the first to find out about a deal and share it with their network. Many retailers are using social media to drive traffic on Black Friday.
There’s still time
While Internet sales will not be the salvation for most multi-channel retailers this year, online announcements of deals through retailer websites and social media networks can improve share for their brick and mortar stores. Multi-channel retailers must use their websites and physical locations as differentiation, helping shoppers find the right product effectively, ensuring a simple purchase fulfillment and return policy and providing excellent follow-up support. The Internet may not be seen as a value channel, but it is seen as a value media.

Tuesday, December 1, 2009

Self Development in Trading

from Dr. Brett:

I want to thank Abnormal Returns for passing along this excellent New York Times article on the role of habits in learning and creativity.

The article highlighted a few ideas that I think are very relevant to the development of trading expertise:

1) Much of performance learning is the cultivation of positive habit patterns - If you have to make efforts to follow trading rules, that is effort not devoted to tracking markets. The key to success is turning rules into habits, so that they can be followed without effort, preserving mental capital for analysis and decision-making.

2) The development of new habits opens the door to fresh ways of thinking and behaving - I've long noticed that successful traders periodically remake themselves and their trading, adapting to changing market conditions. They cultivate new habits, which aids them in developing new skills and ways of making money.

3) We will learn and perform best by making maximum use of our learning strengths - This is an extension of the notion of operating within a trading niche. If we're engaged in a concerted program of learning and development, it makes sense to ground our efforts in learning competencies.

4) Performance improvement often occurs in small, continuous steps forward - This is an idea central to quality and performance improvement among manufacturing firms. The successful trader may set a single goal each trading session and track progress faithfully. Over the course of a year, that is hundreds of opportunities missed by the trader who lacks such goals. Take a look at this excellent New Yorker article on Toyota and the notion of kaizen. The path of kaizen is difficult to follow, but it's a sure path to excellence.

RELEVANT POST:

Trading Psychology Observations

Trading: What Benefit to Society?

from Dr. Brett:

An interesting question that arose during the Chicago trading seminar today was: What is the value of trading beyond making money?

It's a question that arises for many traders. So many occupations derive their nobility from contributing to the welfare of others in direct ways. Where is the nobility in trading?

In my reply, echoing Ayn Rand, I challenged the notion that nobility is solely or primarily a function of assisting others.

In mastering risk and uncertainty; in learning to pursue opportunity in effortful ways; in making ourselves better as decision makers; in becoming more disciplined actors; we improve ourselves as human beings. That carries over to many areas of life, so that we can become better business partners, spouses, parents, and friends.

Indeed, this might be the most important distinction between trading well and trading poorly: When we trade well, we make ourselves stronger, better; we tap into the best within us. When we trade poorly, we succumb to our lowest common denominators.

The value of trading is the value of any competitive performance activity: in its mastery, we become just a bit closer to our ideals--and that ripples throughout our lives.

RELEVANT POST: Achieving Greatness Through Trading

Trading and Personal Development

from Dr. Brett:
Is trading a useful activity? A thoughtful reader writes:

"I am unable to reconcile as to how traders are providing any value to the society by what they are doing. I accept that we may be called providers of liquidity (which I really doubt we are) or guys who determine correct asset price helping bring market efficiency, but it still does not make trading relevant from a social perspective...I sometimes feel that as a trader we are pretty selfish guys concerned with our own well being. When we make profits, we do not regard the losses someone else made and trading seems like a zero sum game to me."

I addressed this issue in the post on the value of trading. See also the post on the dual road to trading success.

The real issue here is the assumption that one's value--and the value of one's activities--is a function of help to others.

The great scientific discoveries, for the most part, have reflected the very selfish concerns of investigators who become consumed with finding the answers to challenging questions. Doing what they love and following their passion does indeed bring benefit to others: that is the happy synthesis. In starting a business and seeking success, an entrepreneur brings jobs and needed goods and services to the world. In creating a great work of art, a painter absorbs herself in her medium and brings something of beauty to others.

When you make the most of yourself, you become a greater value to the world.

Like all performance disciplines, from sports to games of skill, successful trading requires self-development. In developing ourselves and mastering our own thought processes and behaviors, we have the opportunity to not just become better traders, but to also become better human beings. And, yes, that brings benefit to those with whom we interact: from the role modeling we provide to younger people to the fruits of self-mastery that aid our roles as parents and spouses.

Please review the post on the value of trading, particularly the last paragraphs. Trading is a useful activity to the degree that it pushes us to become more than we are: to enact the best within us, not just in markets but throughout life.

Manufacturing Crises for Radical Change and Restructuring of Society

from Nancy Coppock at American Thinker:
Using borrowed money for a band-aid bailout of the economy should seem backwards to most people. However, it likely is a planned strategy to promote radical change. Those naively believing that President Obama is simply rewarding his far-left base, and will then move to the political center, must wise up.

The assumption that Obama will need the nation to prosper in order to protect the 2010 mid-term election incorrectly assumes that he esteems free market capitalism. He does not. Rather than win through superior ideas and policies, the Democrat plan for success in the mid-term elections is to win by destroying political opposition.
Obama adheres to the Saul Alinksy Rules for Radicals method of politics, which teaches the
dark art of destroying political adversaries. However, that text reveals only one front in the radical left's war against America. The Cloward/Piven Strategy is another method employed by the radical Left to create and manage crisis. This strategy explains Rahm Emanuel's ominous statement, "You never want a serious crisis to go to waste."


The Cloward/Piven Strategy is named after Columbia University sociologists Richard Andrew Cloward and Frances Fox Piven. Their goal is to overthrow capitalism by overwhelming the government bureaucracy with entitlement demands. The created crisis provides the impetus to bring about radical political change.


Rather than placating the poor with government hand-outs, wrote Cloward and Piven, activists should work to sabotage and destroy the welfare system; the collapse of the welfare state would ignite a political and financial crisis that would rock the nation... [Emphasis added.]

Making an already weak economy even worse is the intent of the Cloward/Piven Strategy. It is imperative that we view the American Recovery and Reinvestment Plan's spending on items like food stamps, jobless benefits, and health care through this end goal. This strategy explains why the Democrat plan to "stimulate" the economy involves massive deficit spending projects. It includes billions for ACORN and its subgroups such as SHOP and the Neighborhood Stabilization Program. Expanding the S-Chip Program through deficit spending in a supposed effort to "save the children" only makes a faltering economy worse. 

If Congress were to allow a robust economy, parents would be able to provide for their children themselves by earning and keeping more of their own money. Democrats, quick to not waste a crisis, would consider that a lost opportunity.

The Cato Institute reports that the plan will harm a faltering economy, intentionally causing increased job losses leading to increased demands for the aforementioned programs. Even the jobs to be created are set apart to render social justice, not economic revival. Robert Reich believes new infrastructure jobs should not go to white construction workers. Meanwhile, workers at Microsoft, IBM, Texas Instruments, and the retail market find themselves experiencing the life of the welfare poor.

If highly educated and trained workers continue to lose jobs and business falters as a whole, where will these jobless workers go? Could this be construed as revolutionary social reorganization that puts the underachiever above the achiever? Where is the future economic strength when jobless professionals collect welfare and unemployment while dreaming of a minimum wage job? For whites, there's not even the hope of a good paying construction job.

Because these programs are financed with deficit spending, the effect of the Cloward/Piven Strategy becomes doubly destructive. Talk about a perfect storm! The Democrat stimulus plan is a mechanism whose goal is the destruction of the traditional American way of life. It is bitter irony that the American taxpayer will actually fund the destruction of his own ability to live according to the values of our Founding Documents. It is not alarmist to identify this situation as a coup d'etat.

As the flow of money from the top of the economy dries up, job losses and mortgage busts will mount exponentially. The Democrat stimulus plan provides for welfare expansion but not for a robust economy that creates high paying jobs. Is this what Obama means when he warns, "It's going to get worse before it gets better?" If we are not bailing out corporate America so they can regain profitability, we must conclude Obama is working toward another end goal. Recognizing these attack methods reveals the only logical response -- an unwavering wall of "No!"

from Cloward-Piven.com:

Cloward-Piven is a strategy for forcing political change through orchestrated crisis.

The strategy was first proposed in 1966 by Columbia University political scientists Richard Andrew Cloward and Frances Fox Piven as a plan to bankrupt the welfare system and produce radical change. Sometimes known as the "crisis strategy" or the the "flood-the-rolls, bankrupt-the-cities strategy," the Cloward-Piven approach called for swamping the welfare rolls with new applicants - more than the system could bear. It was hoped that the resulting economic collapse would lead to political turmoil and ultimately socialism.

The National Welfare Rights Organization (NWRO), founded by African-American militant George Alvin Wiley, put the Cloward-Piven strategy to work in the streets. Its activities led directly to the welfare crisis that bankrupted New York City in 1975.

Veterans of NWRO went on to found the Living Wage Movement and the Voting Rights Movement, both of which rely on the Cloward-Piven strategy and both of which are spear-headed by the radical cult ACORN.

Both the Living Wage and Voting Rights movements depend heavily on financial support from George Soros's Open Society Institute.





On August 11, 1965, the black district of Watts in Los Angeles exploded into violence, after police used batons to subdue a man suspected of drunk driving. Riots raged for six days, spilling over into other parts of the city, and leaving 34 dead. Two Columbia University sociologists, Richard Andrew Cloward and Frances Fox Piven were inspired by the riots to develop a new strategy for social change. In November 1965 - barely three months after the fires of Watts had subsided - Cloward and Piven began privately circulating copies of an article they had written called "Mobilizing the Poor: How it Could Be Done." Six months later (on May 2, 1966), it was published in The Nation, under the title, "The Weight of the Poor: A Strategy to End Poverty."



The article electrified the Left. Following its May 2, 1966 publication, The Nation sold an unprecedented 30,000 reprints. Activists were abuzz over the so-called "crisis strategy" or "Cloward-Piven strategy," as it came to be called. Many were eager to put it into effect.



Richard A. Cloward was then a professor of social work at Columbia University. He died in 2001. His co-author Frances Fox Piven was a research associate at Columbia's School of Social Work. She now holds a Distinguished Professorship of Political Science and Sociology at the City University of New York.



In their 1966 article, Cloward and Piven charged that the ruling classes used welfare to weaken the poor. By providing a social safety net, the rich doused the fires of rebellion. Cloward and Piven wanted to fan those flames. Poor people can advance only when "the rest of society is afraid of them," Cloward told The New York Times on September 27, 1970. Rather than placating the poor with government hand-outs, activists should work to sabotage and destroy the welfare system. The collapse of the welfare state would ignite a political and financial crisis that would rock the nation. Poor people would rise in revolt. Only then would "the rest of society" accept their demands. So wrote Cloward and Piven in 1966.



The key to sparking this rebellion would be to expose the inadequacy of the welfare state. This Cloward and Piven proposed to do, in classic Alinsky fashion, by forcing welfare bureaucrats to live up to their own book of rules.



The authors noted that the number of Americans subsisting on welfare - about 8 million, at the time - probably represented less than half the number who were technically eligible for full benefits. They proposed a "massive drive to recruit the poor onto the welfare rolls." Cloward and Piven calculated that persuading even a fraction of potential welfare recipients to demand their entitlements would bankrupt the system. The result, they predicted, would be "a profound financial and political crisis" that would unleash "powerful forces… for major economic reform at the national level."



Their article called for "cadres of aggressive organizers" to use "demonstrations to create a climate of militancy." Intimidated by black violence, politicians would appeal to the federal government for help. Carefully orchestrated media campaigns, carried out by friendly, leftwing journalists, would float the idea of a "a federal program of income redistribution," in the form of a guaranteed living income for all; working and non-working people alike. Local officials would clutch at this idea like drowning men to a lifeline. They would apply pressure on Washington to implement it. With every major city erupting into chaos, Washington would have to act.



The Cloward-Piven strategy never achieved its goal of system breakdown and a Marxist utopia. But it provided a blueprint for some of the Left's most destructive campaigns of the next three decades. It will likely haunt America for years to come since George Soros' Shadow Party has now adopted the strategy, honing it into a far more efficient weapon than any of its Sixties-era promoters could have foreseen.



Cloward and Piven recruited a militant black organizer named George Wiley to lead their new movement. For more information on Wiley and his welfare rights movement. In the summer of 1967, Wiley founded the National Welfare Rights Organization (NWRO), with headquarters in Washington, DC. Wiley's tactics closely followed the recommendations set out in Cloward and Piven's article. His followers invaded welfare offices across the nation - often violently - bullying social workers and loudly demanding every penny to which the law "entitled" them. By 1969, NWRO claimed a dues-paying membership of 22,500 families, with 523 chapters across the nation.



Regarding Wiley's tactics, The New York Times commented on September 27, 1970, "There have been sit-ins in legislative chambers, including a United States Senate committee hearing, mass demonstrations of several thousand welfare recipients, school boycotts, picket lines, mounted police, tear gas, arrests - and, on occasion, rock-throwing, smashed glass doors, overturned desks, scattered papers and ripped-out phones."



These methods proved effective. "The flooding succeeded beyond Wiley's wildest dreams," writes Sol Stern in the Manhattan Institute's City Journal. "From 1965 to 1974, the number of single-parent households on welfare soared from 4.3 million to 10.8 million, despite mostly flush economic times. By the early 1970s, one person was on the welfare rolls in New York City for every two working in the city's private economy."



As a direct result of its reckless welfare spending, New York City - the financial capital of the world - was forced to declare bankruptcy in 1975. The entire state of New York nearly went down with it. Leftist agitators swooned in triumph. The Cloward-Piven strategy had proved its effectiveness.





The Backlash

The Cloward-Piven strategy depended on surprise. Once society recovered from the initial shock, the backlash began. New York's welfare crisis horrified the nation, giving rise to a reform movement which culminated in "the end of welfare as we know it" -- the 1996 Personal Responsibility and Work Opportunity Reconciliation Act, which imposed time limits on federal welfare, along with strict eligibility and work requirements. Both Cloward and Piven attended the White House signing of the bill as guests of President Clinton.



Most Americans to this day have never heard of Cloward and Piven. But Mayor Rudolph Giuliani attempted to expose them in the late 1990's. As his drive for welfare reform heated up, Giuliani accused the militant scholars by name, citing their 1966 manifesto as evidence that they had engaged in deliberate economic sabotage. "This wasn't an accident," Giuliani charged in a 1997 speech. "It wasn't an atmospheric thing, it wasn't supernatural. This is the result of policies and programs designed to have the maximum number of people get on welfare."



Cloward and Piven never again revealed their intentions as candidly as they had in their 1966 article. They learned to cover their tracks. Even so, their activism in subsequent years continued to rely on the tactic of overloading the system. When the public caught on to their welfare scheme, Cloward and Piven simply moved on, applying pressure to other sectors of the bureaucracy, wherever they detected weakness.



The Cloward-Piven strategy - first proposed in 1966 - seeks to hasten the fall of capitalism by overloading the government bureaucracy with a flood of impossible demands, thus pushing society into crisis and economic collapse. Application of this strategy contributed greatly to the turmoil of the late Sixties. Cloward-Piven failed to usher in socialism, but it succeeded in generating an economic crisis and in escalating the level of political violence in America - two cherished goals of hard-Left strategists.



Radical organizers today continue tinkering with variations on the Cloward-Piven theme, in the perennial hope of reproducing '60s-style chaos. The thuggish behavior of leftwing unions such as SEIU and of certain elements of George Soros' Shadow Party can be traced, in a direct line of descent, from the early practitioners of Cloward-Piven.



Cloward-Piven's early promoters cited radical organizer Saul Alinsky as their inspiration. "Make the enemy live up to their (sic) own book of rules," Alinsky wrote in his 1989 book Rules for Radicals. When pressed to honor every jot and tittle of every law and statute; every Judaeo-Christian moral tenet; and every implicit promise of the liberal social contract, human agencies inevitably fall short. The system's failure to "live up" to its rule book can then be used to discredit it altogether, and to replace the capitalist "rule book" with a socialist one.



In its earliest form, the Cloward-Piven strategy applied Alinsky's principle to the specific area of welfare entitlements. It counseled activists to create what might be called Trojan Horse movements - mass movements whose outward purpose seemed to be providing material help to the downtrodden, but whose real purpose was to draft poor people into service as revolutionary foot soldiers.



The specific function of these Trojan Horse movements was to mobilize poor people en masse to overwhelm government agencies with a flood of demands beyond the capacity of those agencies to meet. The flood of demands was calculated to break the budget, jam the bureaucratic gears into gridlock, and bring the system crashing down. Fear, turmoil, violence and economic collapse would accompany such a breakdown - providing perfect conditions for fostering radical change. That, at least, was the theory behind the Cloward-Piven strategy.



In 1982, partisans of the Cloward-Piven strategy founded a new "voting rights movement," which purported to take up the unfinished work of the Voting Rights Act of 1965. Like ACORN, the organization that spear-headed this campaign, the new "voting rights" movement was led by veterans of George Wiley's welfare rights crusade. Its flagship organizations were Project Vote and Human SERVE, both founded in 1982. Project Vote is an ACORN front group, launched by former NWRO organizer and ACORN co-founder Zach Polett. Human SERVE was founded by Richard A. Cloward and Frances Fox Piven, along with a former NWRO organizer named Hulbert James.



All three of these organizations - ACORN, Project Vote and Human SERVE - set to work lobbying energetically for the so-called Motor-Voter law, which Bill Clinton ultimately signed in 1993. The Motor-Voter bill is widely blamed today for swamping the voter rolls with "dead wood" - invalid registrations signed in the name of deceased, ineligible or non-existent people - thus opening the door to the unprecedented levels of voter fraud and "voter disenfranchisement" claims that followed in subsequent elections.



The new "voting rights" coalition combines mass voter registration drives - typically featuring high levels of fraud - with systematic intimidation of election officials in the form of frivolous lawsuits, bogus charges of "racism" and "disenfranchisement" and "direct action" (street protests, violent or otherwise). Just as they swamped America's welfare offices in the 1960s, the Cloward-Piven team now seeks to overwhelm the nation's understaffed and poorly policed electoral system. Their antics set the stage for the Florida recount crisis of 2000, and have introduced a level of fear, tension and foreboding to U.S. elections heretofore encountered mainly in Third World countries. For more information on the Voting Rights Movement, see the entry for "Project Vote."



Both the Living Wage and Voting Rights movements depend heavily on financial support from George Soros's Open Society Institute. It is largely thanks to money from Soros that the Cloward-Piven strategy continues even now to eat away at America's political and economic infrastructure. 

from Washington Times:
There is plenty blame to go around for the financial crash. Yet, there is a distinct odor of the shadowy Cloward-Piven strategy as the taproot of abusive practices that triggered the crisis. The strategy's goal is to bring about the fall of capitalism by overloading and undermining government bureaucracy.
Its supporting tactics include flooding government with impossible demands until it slowly cranks to a stop; overloading electoral systems with successive tidal waves of new voters, many of them bogus; shaking down banks, politicians in Congress, and the Department of Housing and Urban Development for affirmative-action borrowing; and, now, pulling down the national financial system by demanding exotic, subprime mortgages for low-income Americans with little hope of repaying their loans. These toxic mortgages are an important source of the foul smell engulfing the entire financial bailout.
Developed in the mid-1960s by two Columbia University sociologists, Andrew Cloward and Frances Fox Piven, much of their strategy was drawn from Saul Alinsky, Chicago's notorious revolutionary Marxist community organizer. The Association of Community Organizations for Reform Now (ACORN) succeeded the National Welfare Rights Organization in the execution of the Cloward-Piven grand tactics of using the poor as cannon fodder to tear down the capitalist system. It was low-income, mostly black and Hispanic people, who were used by ACORN guerrillas to take subprime toxic mortgages.
An Obama campaign dispatch on October 6 had the right perspective in observing that "the backward economic philosophy and culture of corruption that helped create the current crisis are looking more and more like any other major financial crisis of our time." True enough.
The root causes for the 2008 financial panic were sown some 40 years ago when the Institute for Policy Studies, the notorious "Think Tank of the Left," held socialist seminars geared toward undermining the American capitalist system. Beginning in 1964 and continuing to the present day, the Institute for Policy Studies has used seminars especially scoped to influence congressmen and their assistants to support the "progressive," that is to say "socialist," viewpoint. A 1969 "Housing and Property" seminar, hosted by the Institute for Policy Studies, for example, treated Capitol Hill denizens to mind-stretching leftism. Bringing together speakers from big-city tenants councils, neighborhood legal services, FHA insurance, savings-and-loans entities, and the Shannon and Luchs Realty Company, the Institute for Policy Studies "plinked" the first domino that led to the current crisis.
At about the same time that the Institute for Policy Studies was holding the 1969 "Housing and Property" seminars, it was also conducting "Experimental Education" seminars in January-April 1969, for federal legislators and their aides that included Bill Ayers, an Obama confidant and Weatherman terrorist, as a guest speaker. According to the Senate Subcommittee on Investigation, 4,330 bombings occurred in the United States, about nine a day, from January 1969 to April 1970.
The socialist test case for using society's poor and disadvantaged people as sacrificial "shock troops," in accordance with the Cloward-Piven strategy, was demonstrated in 1975, when new prospective welfare recipients flooded New York City with payment demands, bankrupting the government. As a consequence, New York state also teetered on the edge of financial collapse when the federal government stepped in with a bailout rescue.
The 2008 financial crisis has all of the earmarks of a Cloward-Piven strategy assault against the capitalist system. Stanley Kurtz of the Ethics and Public Policy Center recently explained that "community organizers" (1) "intimidate banks into making high risk loans to customers with poor credit," (2) "occupy private offices, chant inside bank lobbies, and confront executives at their homes," and, through these thuggish tactics, (3) compel "financial institutions to direct hundreds of millions dollars in mortgages to low-credit customers." "In other words," Mr. Kurtz explained during a presentation at the Hudson Institute's Bradley Center for Philanthropy and Civic Renewal, "community organizers help to undermine America's economy by pushing the banking system into a sink-hole of bad loans."
A key element of the contemporary crisis certainly reflects many years of a "backward economic philosophy and culture of corruption" cited by the Obama camp. But much of the associated backwardness and deception were secretly peddled by the Institute for Policy Studies. Its war against the financial system used improvised non-ethical devices (INEDs) designed to destroy capitalism and support Mr. Obama. One of those roadside INEDs was the Cloward-Piven strategy.
Robert Chandler is a retired Air Force colonel and former strategist for the White House, the Departments of State, Defense, Energy and Justice, and the CIA.


Gold Takes Out $1200/Ounce


Dollar Death and Destruction


Saturday, November 28, 2009

First Time Unemployment Claims Were NOT the Real Figure

from John Mauldin:

The headlines said that initial claims dropped to 466,000 here in the US, finally falling below 500,000. This was greeted with proclamations of recovery. First, let me say that 466,000 people filing for unemployment is still way too high. That is a lot of people losing their jobs, and when we first crossed over 450,000 a few years ago that level was seen as a sign of recession.

Second, the headline number was a seasonally adjusted number. The actual number was 543,926. What is happening is that we are coming off of wickedly high numbers in 2008 and a seasonal number that was much lower in the preceding years. It is another part of the Statistical Recovery. And this trend is likely to keep on for the rest of the quarter. My friend John Vogel, who analyzes the unemployment numbers for me each week, shows pretty convincingly that the average for this current quarter will be over 500,000 per week on a non-seasonally adjusted basis. This is less than a 10% drop from last year for the same quarter. Job losses are continuing to mount, and we are on our way to an 11%-plus unemployment number by next summer. Statistical Recovery, indeed.

Friday, November 27, 2009

"The best way to destroy the capitalist system is to debauch the currency."

"The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens."
-- John Maynard Keynes, Economist, Fabian Socialist

Admittedly, an amazing confession from the man who justified just such a confiscation!

"Successful investing is anticipating the anticipations of others." Doug Kass

Wild Markets

This reminds me of the Martin Luther King holiday in 2007, when stocks dropped over 500 points due to a rogue trader's shenanigans at Societe Generale.Stocks recovered and close higher the next day.

Gold - drops $50, then recovers $30



Dollar -- rebound on Dubai turmoil


Stocks -- shrugging off Dubai imbroglio



Oil -- hit hard by turmoil

Thursday, November 26, 2009

Turmoil in Markets

tweet from Arlan:

Euro equity mkts see biggest 1-day losses in 7 months; Japans mkts following tonight; $$ nearly erased Wed. big losses on Dubai fears.

To say nothing, especially when speaking, is half the art of diplomacy. Will Durant

Dubai Debt Default Spooks Investors, Sends Stock Futures Tumbling


from FT:

Global stock markets endured heavy selling on Thursday as investors were spooked by the spectre of a default by Dubai and after a febrile foreign exchange market saw the yen surge to a 14-year high against the dollar.
The turmoil caused a flight to less risky assets. Gold, which had challenged $1,200 in Asian trading, fell back from its highs and money flowed into havens such as German government bonds.

Daily chart -- look at that 12-day engulfing pattern

Wednesday, November 25, 2009

Yen Rockets to Multi-Year Highs on Japan Finance Minister's Remarks

from Reuters:

The yen rallied to a 10-month high against the greenback as investors bet interest rates in the United States will remain low. The dollar also slumped to a 15-month low against a basket of six currencies.
Recent dollar weakness is becoming a dilemma for Japan's new government, which has only been in power for two months, as it threatens exporters' earnings and could slow an economic recovery.
Investors are increasingly on edge, and that has sent the Nikkei stock average to a four-month low and pushed 10-year Japanese government bond futures to a seven-week high.
"The dollar has weakened again," Noda told Reuters. "We are not considering intervention right now."
The dollar last traded at 87.43 yen. The greenback skidded to 87.21 yen on trading platform EBS on Wednesday, the lowest since January.


Japanese Finance Minister Hirohisa Fujii played down the significance of the yen's 10-month high against a sliding dollar on Wednesday, saying it was due to dollar weakness, Kyodo news reported.

Picture Perfect Parallels


Natural Gas Through the Roof


Theme and Variations on New Gold High


The theme remains the same -- a new high for the price of gold. The only variation is the ever-higher price! Liquidity is poor because of the up-coming Thanksgiving holiday and because I just rolled to a new contract.

More Dollar Dumping As Greenback Reaches New 2009 Low


Tuesday, November 24, 2009

"Life is not about making money - money is about making a life..." Atlantic Capital Investments

"As for the future, your task is not to foresee it, but to enable it." ~ Antoine de Saint-Exupery

"It is no measure of health to be well-adjusted to a sick society." ~ Jiddu Krishnamurti

Who Is Prospering In Troubled Times?

from City Journal:

The economy is struggling, the unemployment rate is high, and many Americans are struggling to pay the bills, but one class of Americans is doing quite well: government workers. Their pay levels are soaring, they enjoy unmatched benefits, and they remain largely immune from layoffs, except for some overly publicized cutbacks around the margins. To make matters worse, government employees—thanks largely to the power of their unions—have carved out special protections that exempt them from many of the rules that other working Americans must live by. California has been on the cutting edge of this dangerous trend, which has essentially turned government employees into a special class of citizens.
When I recently appeared on Glenn Beck’s TV show to discuss California’s dreadful fiscal situation, I mentioned that in Orange County, where I had been a columnist for the Orange County Register, the average pay and benefits package for firefighters was $175,000 per year. After the show, I heard from viewers who couldn’t believe the figure, but it’s true. Firefighters, like all public-safety officials in California, also receive a gold-plated retirement plan: a defined-benefit annual pension that offers 90 percent or more of the worker’s final year’s pay, guaranteed for the rest of his life (and the life of his spouse).
Government employees use various scams to boost their already generous benefits, which include fully paid health care and cost-of-living adjustments. The Sacramento Bee coined the term “chief’s disease,” for example, to refer to the 82 percent (in 2002) of chief’s-level employees at the California Highway Patrol who discovered a disabling injury about one year before retiring. That provides an extra year off work, with pay, and shields 50 percent of their final retirement pay from taxes. Most of these disabilities stem from back pain, knee pain, irritable bowel syndrome, and the like—not from taking bullets from bad guys. The disability numbers soared after CHP disbanded its fraud unit.
As I document in my new book, Plunder!, government employees of all stripes have manipulated the system to spike their pensions. Because California bases pensions for employees on their final year’s salary, some workers move to other jurisdictions for just that final year to increase their pay and thus the pension. Even government employees convicted of on-the-job crimes continue to collect benefits. Municipalities have adopted Defined Retirement Option Plans, or DROPs, in which the employee earns his salary and his full defined-benefit retirement pay at the same time, with the retirement pay going into an account payable upon actual retirement. And as average Americans work longer to sustain themselves, public employees can retire in their early fifties with their plush benefits.
The old deal seemed fair: public employees would earn lower salaries than Americans working in the private sector, but would receive a somewhat better retirement and more days off. Now, public employees get higher average pay, far higher benefits, and many more days off and other fringe benefits. They have also obtained greatly reduced work schedules, thus limiting public services even as pay and benefits shoot ever higher. The new deal is starting to raise eyebrows, thanks to efforts by groups such as the California Foundation for Fiscal Responsibility, which publishes the $100,000 Club, a list of thousands of California government retirees with six-figure, taxpayer-guaranteed incomes. But even in these tough times, public employees continue to press city councils for retroactive pension increases, which amount to gifts of public funds for past services. Officials fear the clout that these unions, especially police and fire unions, wield on Election Day.
The story doesn’t end with the imbalance in pay and benefits. Government workers also enjoy absurd protections. The Los Angeles Times did a recent series about the city’s public school district, which doesn’t even try to fire incompetent teachers and is seldom able to get rid of those credibly accused of misconduct or abuse. Misbehaving teachers are sometimes kept from teaching, but they may spend years, even a decade, getting paid while they fight attempts to fire them. A state law referred to as the Peace Officers Bill of Rights, along with excessive privacy restrictions, likewise makes it nearly impossible to fire police officers who abuse their authority.
The media have finally started to take notice, largely because of some impossible-to-ignore financial excesses, particularly the tens of billions of dollars in “unfunded liabilities”—that is, future debt—run up by politicians more interested in pleasing union officials than in looking after the public’s finances. News reports have also focused on scandals at CalPERS, the California Public Employees’ Retirement System, which has faced record losses after making risky leveraged investments in bizarre real-estate deals. (The government pension system encourages such risky behavior: with defined-benefit systems, union members stand to gain if the investments go well, while taxpayers shoulder the burden if they don’t.) Meanwhile, the Los Angeles Times reported on a politically connected insider who received $53 million in finder’s fees from CalPERS, raising questions of pay-to-play deals.
But the real scandal is a two-tier society where government workers enjoy benefits far in excess of those for whom they supposedly work. It’s past time to start cleaning up the mess by reforming retirement systems and limiting the public unions’ power. If we don’t, California’s financial problems will become insurmountable.
Steven Greenhut is the author of Plunder! How Public Employee Unions Are Raiding Treasuries, Controlling Our Lives And Bankrupting The Nation. He is the director of the Pacific Research Institute’s Journalism Center in Sacramento and was a longtime columnist for the Orange County Register in Santa Ana.

Strong Trends for 11/24/09

Today's trends include:

Cotton - bullish

Stocks - bullish

Gold - bullish

Nominal GDP Still Lower

from Econompic Data blog:

And while real GDP is the real production of the economy, nominal GDP is important for a debt burdened economy as debt is in nominal terms. Since the recession started in December 2007 nominal GDP is cumulatively negative (over 7 quarters), something that has not happened since WWII.



Some recovery.

And from Market Talk:
The downward revision in 3Q GDP isn’t a surprise, but it also shows that anyone expecting a rapid recovery may need to think again.
The government said GDP rose 2.8% in 3Q, down from its initial 3.5% estimate, reflecting a wider trade deficit and lower consumer spending. The growth measure fell 0.7% in 2Q.
Nearly 3% growth is a welcome change from a declining figure, but the Economist’s Free Exchange blog reminds that the economy needs multiple quarters of even more rapid growth to reduce the unemployment rate.
In the two years following the 1982 recession, the economy grew at a more than 5% annual rate, but unemployment still hovered above 7%.
“The key takeaway is that cyclical unemployment is very high, and growth rates are not high enough, at present, to bring unemployment down,” blog says. “That both the Fed and the federal government are sitting on the sidelines is quite troubling.”
Princeton economist Paul Krugman is even more pessimistic about the downward revision.
This is really quite grim. At this growth rate it’s far from clear that we’re doing anything to reduce the output gap — the gap between what the economy could produce and what it’s actually producing. Correspondingly, there’s no reason now for even a bit of optimism on unemployment.
If growth continued at a 3.5% annual pace, Krugman says the US wouldn’t see full employment for another decade. “Given the latest number, the date at which we can expect to see a return to full employment is…never.”
There’s also no guarantee that the economy will keep growing at this pace. He argues the effects of government stimulus have peaked and will turn into a “net drag” in 2H10. And he doesn’t think the inventory bounce in 3Q is sustainable.
“Basically, we may be in a technical recovery, but we’re not recovering,” Krugman writes.

Crude Oil Drops Below Recent Trading Range, Bollinger Bands


Weak demand concerns have finally pushed the price of crude oil below recent trading ranges. If prices don't rebound above both the EMA and Bollinger Band over the next few days, it could be a sign of a price decline.

Mixed Signals: Consumer Confidence Higher, Mortgage Mess Deepens, GDP Revised Lower


Stocks dipped at the open, but have now recovered.

WSJ:
The U.S. economy's recovery wasn't as strong as earlier believed, the government said Tuesday, revising its third-quarter numbers to show a wider trade deficit and lower consumer spending than previously estimated.
In a separate report, U.S. consumer confidence improved in November, recovering somewhat from a sharp drop in October to beat economists expectations, according to a report Tuesday. However, other elements of the report showed that U.S. consumers continue to be especially anxious about a sluggish U.S. economy.
Gross domestic product rose at a 2.8% annual rate July through September after falling by 0.7% in the second quarter...

from Daily Finance:
There have been a number of attempts to come up with a figure about how many U.S. home mortgages are under water -- in other words, the value of the home loan is more than the value of the house.
All estimates are bound to be wrong because no one has had the time or money to appraise every house in America and match it with the value of its mortgage plus any second mortgages. But The Wall Street Journal has asked First American CoreLogic, a real estate research company, to give it a try. The report, which is available free online, says that that 23% of mortgages were under water at the end of the third quarter.
The data makes two salient points: 1) Negative equity and near negative equity mortgages account for nearly 28% of all residential properties with a mortgage nationwide, and 2) The rise in negative equity is closely tied to increases in pre-foreclosure activity.
A number of economists have voiced concerns that falling housing prices actually offer people a perverse incentive to turn their keys in to the bank and desert their homes. A homeowner who believes that his house will never be worth more than its mortgage foresees the day that he will sell his most important asset and have to write his lender a check for the difference between the value of his home and its mortgage.
The news about under water real estate is nearly as bad for banks as it is for homeowners. Default rates and foreclosures will almost certainly continue to rise. Banks will end up owning more and more properties that they are ill suited to sell. Many of those homes will be auctioned off at a fraction of what their values were two or three years ago.
And the housing death spiral will continue to circle downward.
Douglas A. McIntyre is an editor at 24/7 Wall St.

Even worse is the news that of home purchases this year, 9% also have mortgages that are under water. What a sour gift to new homeowners! 

Monday, November 23, 2009

Become An Adult

“I’ve read good books on the adult-child theory in trading. We start out as the child, and traders often never go beyond that point. Our thinking must become adult in trading, and that is from understanding and knowing what is correct. As a child, we often don’t need a reason but just the rule. As an adult, to be effective in trading, it is important to know why and not just the rule.” – Phantom of the Pits

Striking Commodity Reversal


Even gold reversed by $10, but the trend is still higher. This chart for crude oil is symbolic for the day. Arlan Suderman suggested that fund flows reversed on the eve of the Thanksgiving holiday. Risk is being removed. The grains not only reversed, but closed marginally/modestly lower. Only stocks remain firmly bullish.

Overcoming Frustration While Trading

from Dr. Brett:
A while back, I wrote on the topic of steps to take to break patterns of frustration in trading and suggested resources for traders who find that frustration is interfering with their trading.

Much of what is viewed as a loss of discipline is actually the result of impulsive decision-making under conditions of frustration.

What that means is that you can best work on mastering frustration when you are actually in a frustrated state. It is difficult to prepare for making decisions in the heat of battle when you're in a cool and collected state.

This is where guided imagery is particularly helpful. By mentally rehearsing frustrating scenarios (such as missing a trade or getting stopped out) and including in the rehearsal a mental walk-through of what you want to be doing to handle the frustration, you can prepare yourself for adverse scenarios. This is very helpful in avoiding impulsivity, as you gravitate toward the positive coping that you've been rehearsing each day.

There are a range of brief therapy techniques that are effective in combating frustration. Check out this earlier post on short-term change methods, as well as Chapter 7 of The Daily Trading Coach, which describes behavioral techniques for overcoming stress.

In my next post on the topic, I'll address frustration from a different angle.

John Hussman Accuses Fed of Unconstitutional Abuse of Power

from Mish Shedlock:
John Hussman is always a good read. A week after it came out, I am catching up on reading reading "Should Come as No Shock to Anyone".

Hussman is about as level-headed as they come, so it was interesting to see him accuse the Fed and Geithner of "Unconstitutional Abuse of Power". Here is the pertinent snip:

There is most probably a second wave of mortgage defaults in the immediate future as a result of Alt-A and Option-ARM resets. Yet our capacity to deal with these losses has already been strained by the first round that largely ended in March. The Federal Reserve has taken a massive amount of mortgage-backed securities onto a balance sheet that used to be restricted to Treasury securities. The purchase of these securities is reflected by a surge in cash reserves held by banks. Not only are the banks not lending these funds, they are contracting their loan portfolios rapidly. Ultimately, in order to unwind the Fed's position in these securities, it will have to sell them back to the public and absorb those excess reserves, so to some extent, the banking system can count on losing the deposits created by the Fed's actions, and can't make long-term loans with these funds anyway.

Increasingly, the Fed has decided to forgo the idea of repurchase agreements (which require the seller to repurchase the security at a later date), and is instead making outright purchases of the debt of government sponsored enterprises (GSEs such as Fannie Mae and Freddie Mac). Again, the Fed used to purchase only Treasuries outright, but it is purchasing agency securities with the excuse that these securities are implicitly backed by the U.S. government.

This strikes me as a huge mistake, because it effectively impairs the Fed's ability to get rid of the securities at the price it paid for them, should Congress change its approach toward the GSEs. It simultaneously complicates Congress' ability to address the problem because Bernanke has tied the integrity of our monetary base to these assets. The policy of the Fed and Treasury amounts to little more than obligating the public to defend the bondholders of mismanaged financial companies, and to absorb losses that should have been borne by irresponsible lenders. From my perspective, this is nothing short of an unconstitutional abuse of power, as the actions of the Fed (not to mention some of Geithner's actions at the Treasury) ultimately have the effect of diverting public funds to reimburse private losses, even though spending is the specifically enumerated power of the Congress alone.

Needless to say, I emphatically support recent Congressional proposals to vastly rein in the power (both statutory and newly usurped) of the Federal Reserve. Starting with the Bear Stearns deal, the Fed under Ben Bernanke has made a sharp and distinct departure from its historical role, in violation of its charter. As I noted when the bondholders of Bear Stearns were rescued, “The troubling aspect of the Fed's action was not that it lent to a non-bank entity. That ability is clearly authorized by Section 13(3) of the Federal Reserve Act. The problem is that it made its “loans” as “non-recourse” funding – meaning that it would not stand to be repaid if the collateral itself was to fail.” This is still what the Fed seems determined to accomplish.

In my view, deeper loan losses are ahead, and if we deal with the next round the same way that we dealt with the last, we will ultimately succeed in debasing the U.S. dollar. There's little inflationary pressure at present, and chances are that fresh credit concerns will create enough demand for government liabilities to forestall inflationary pressures for several years more. But we cannot reimburse the losses of irresponsible lenders with trillions freshly issued government liabilities without those liabilities ultimately eroding in value. The probable real, after inflation return on stocks and bonds over the coming decade is likely to be very unsatisfactory.
I certainly agree and that is why we need the Fed audited in Ron Paul fashion, not some watered down proposal that makes allowances for and covers up the Fed's unconstitutional abuse of power.

Shifting Emotional Gears As a Trader

from Dr. Brett-
A worthwhile blog post written by Richard Friesen describes what happens to traders when their brains downshift into flight or fight responses. In the post, he suggests a breathing and visualization exercise to achieve control of both body and mind. As I noted a while back, an effective way to prevent yourself from going on tilt in your thinking and trading is to exercise physical self-control.

Still another way to exercise self-control after a difficult trading period is to strictly control your trading size and the risk taken per trade. Large increases in position sizing magnifies the variability of profit/loss swings, which in turn magnify our emotional responses. The drama created by the increased risk creates potential trauma emotionally; once we're scarred from negative experiences, we end up trading scared.

A little while ago, I hit a high water mark in my yearly P/L and then took a full-sized position in a longer-term trade idea. Now, of course, we can increase the risk of trading not only through position sizing, but also through holding periods: the longer we hold a position, the greater the variability in returns. After all, the market moves up and down more in a week than in a day; more in a day than in a 20-minute period.

By trading full size over a much larger time frame (my average bread and butter intraday trade lasts less than 30 minutes; this one was a hold for several days), I increased my risk significantly. I felt justified in doing so, because I was confident in the trade idea.

Was I emotionally prepared, however, for a possible 20 point ES futures swing against me? Not at all. Instead of thoroughly thinking through that scenario and making sure I could live with it, I allowed my confidence to blind me to the possibility of being wrong.

And wrong I was. I took my largest loss of the year in a couple of days, erasing the gains of the prior two weeks.

Worse still, the experience left me frustrated and wanting to get back to my high water mark. The next day, eager to get back into the market, I forced myself to sit and watch. When I returned to the market, I limited myself to a single trading setup (a variation of my trusty transition pattern) and my short-term (intraday, under one hour holding time) framework. My trading size was kept moderate, so that potential losses would be entirely manageable.

Within a week, I recouped the loss and returned to my high water mark. I did so by chipping away at the drawdown, focusing only on my highest probability trades. The key was turning the frustration of the bad trade into a doubling-down of my determination to trade well. To accomplish that doubling-down, however, I needed to shift gears emotionally. Hitting the sidelines for a day and lowering my risk per trade were central to that effort. Had I tried to trade while I was hot, using size to recoup my losses all at once, I surely would have dug myself a deep hole.

Even though I've traded since the late 1970s, and even though I'm a psychologist who works with traders and all too familiar with trading pitfalls, I make the same mistakes--and am subject to the same biases and faulty decision making--as everyone else. No psychological techniques eliminate bias and bad trading. The best we can do is learn to shift gears, control risk, stay emotionally intelligent, and play to our strengths. That's what builds a trading job into a long term career.

Just Say "No" to Tyranny!

from Rasmussen polls:
Just 38% of voters now favor the health care plan proposed by President Obama and congressional Democrats. That’s the lowest level of support measured for the plan in nearly two dozen tracking polls conducted since June.
The latest Rasmussen Reports national telephone survey finds that 56% now oppose the plan.
Half the survey was conducted before the Senate voted late Saturday to begin debate on its version of the legislation. Support for the plan was slightly lower in the half of the survey conducted after the Senate vote.
Prior to this, support for the plan had never fallen below 41%. Last week, support for the plan was at 47%. Two weeks ago, the effort was supported by 45% of voters.
Intensity remains stronger among those who oppose the push to change the nation’s health care system: 21% Strongly Favor the plan while 43% are Strongly Opposed...
Only 16% now believe passage of the plan will lead to lower health care costs. Nearly four times as many (60%) believe the plan will increase health care costs. Most (54%) also believe passage of the plan will hurt the quality of care.
As has been the case for months, Democrats favor the plan while Republicans and voters not affiliated with either major party are opposed. The latest numbers show support from 73% of those in the president’s party. The plan is opposed by 83% of Republicans and 70% of unaffiliated voters.

Too BIg to Fail Becoming Too Big to Bail Out!

from CNBC, appears to be a reprint from NYT:
The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.

But that happy situation, aided by ultralow interest rates, may not last much longer.

US Capitol Building with cash
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.
The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.
Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.
The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.
“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”
So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them. Indeed, the government paid less interest on its debt this year than in 2008, even though it added almost $2 trillion in debt.
The government’s average interest rate on new borrowing last year fell below 1 percent. For short-term i.o.u.’s like one-month Treasury bills, its average rate was only sixteen-hundredths of a percent.

“All of the auction results have been solid,” said Matthew Rutherford, the Treasury’s deputy assistant secretary in charge of finance operations. “Investor demand has been very broad, and it’s been increasing in the last couple of years.”
The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government.
“What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”
The current low rates on the country’s debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money.
On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages.
Those conditions are already beginning to change. Global investors are shifting money into riskier investments like stocks and corporate bonds, and they have been pouring money into fast-growing countries like Brazil and China.
The Fed, meanwhile, is already halting its efforts at tamping down long-term interest rates. Fed officials ended their $300 billion program to buy up Treasury bonds last month, and they have announced plans to stop buying mortgage-backed securities by the end of next March.
Eventually, though probably not until at least mid-2010, the Fed will also start raising its benchmark interest rate back to more historically normal levels.
The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates.
Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education.
But that could seem like a relatively modest pinch. Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury’s tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year.
The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.
To lock in low interest rates in the years ahead, Treasury officials are trying to replace one-month and three-month bills with 10-year and 30-year Treasury securities. That strategy will save taxpayers money in the long run. But it pushes up costs drastically in the short run, because interest rates are higher for long-term debt.
Adding to the pressure, the Fed is set to begin reversing some of the policies it has been using to prop up the economy. Wall Street firms advising the Treasury recently estimated that the Fed’s purchases of Treasury bonds and mortgage-backed securities pushed down long-term interest rates by about one-half of a percentage point. Removing that support could in itself add $40 billion to the government’s annual tab for debt service.
This month, the Treasury Department’s private-sector advisory committee on debt management warned of the risks ahead.
“Inflation, higher interest rate and rollover risk should be the primary concerns,” declared the Treasury Borrowing Advisory Committee, a group of market experts that provide guidance to the government, on Nov. 4.
“Clever debt management strategy,” the group said, “can’t completely substitute for prudent fiscal policy.”
This story originally appeared in the The New York Times


Everything Through the Roof -- Except the Dollar

Stocks, gold, commodities are all skyrocketing this morning. Only the lowly Dollar is sinking! There is no use in even posting them, since they are all moving parabolically higher or lower. This is a theme that our politicians and the Fed had better awaken to, or we will court disaster. Unfortunately, history, if it repeats itself, indicates that both the Fed and the politicians will deny any accountability for the bubbles, spending, and consequences of both, until the economic blood runs in the streets!


One chart should suffice. Gold is up nearly $25/ounce overnight!

Sunday, November 22, 2009

Grains Grind Higher


lead by soybeans