Table On-Topic Summary - 03-Nov-2002
A compilation of this board's financial/economic posts From 44477 to 44497

Post  44477  by  jeffbas       OT: "Nuclear plants aren't nuclear bombs.&quo


Post  44478  by  uponroof       Reply
Debt in 97 was a badge of honor...
it's a little different now.

pmcw-I'm glad we're moving in the right direction, and I'm thankful for small favors, but the comparison to 97 is flawed if we are to assume the environments equal....which they are not. I'm not really impressed with shedding 10% over 5 years, especially given the climate over the last 3 years.

The markets, dollar and economy were booming in 97. Debt was respectable and viewed almost as a positive, considered a symptom of an agressive business. The sky was the limit...and of course...'this time it's different' applied to lack of concern over debt.

All in all, owning debt today is hardly as encouraging as it was in 97. There is precious little 'good debt' (another outdated catch phrase) these days.

.02




Post  44479  by  uponroof       Reply
Buyers Still On Strike, Despite the Rally.


U.S. equity funds lost an estimated $1.7 billion in the three days ending Thursday, October 17, for a monthly rate of -$13.0 billion.

Breadth was negative as 41 managements had outflows, while 15 were flat and 20 got new cash. Aggressive Growth lost $543 million while Growth & Income lost $513 million.

Technology outflows were $72 million, for the fourth period of outflows not in triple digits,
suggesting that the shares are now largely in strong hands. Small Cap lost $59 million, or 0.6% of assets. Gold got $4 million, or 0.5% of assets, as NAVs fell by 3.2%.

A large inflow into Short/Timer (Rydex) funds was unusual in that it was evenly split between the two long funds we track (Nova and OTC) and Ursa, the short fund.

Int'l funds lost $1.4 billion, but breadth was positive as 25 managements got new cash, while 7 were flat and 8 had outflows.

Worldwide lost $70 million, while Emerging Markets had an outflow of $15 million, or 1.4% of assets. Pacific ex Japan lost $38 million, or 6.3% of assets; NAVs rose by 6.0%.

Bond and hybrid funds got $1.5 billion, as. Hybrid got $343 million. Gov't/GNMA took in $291 million, while High Yield got $193 million.

-Charles Biderman


http://www.trimtabs.com/news/mutual/latest.html





Post  44480  by  uponroof       Reply
Rate Cut May Drive Investors Away
From Dollar: Currency Outlook

"...Expectations the Federal Reserve will lower interest
rates Wednesday may drive investors away from the
U.S. dollar, some economists said.

A rate cut ``might reinforce the idea the economy is
doing so bad that in the end it will help push the
dollar down,'' said Chris Rupkey, senior
financial economist at Bank of Tokyo- Mitsubishi Ltd.

With the Fed's benchmark rate target already at a
41-year low of 1.75 percent, a further cut would
make dollar-denominated assets less attractive relative
to those in countries with higher rates.

Lower rates are ``a double-edged sword'' for the
currency, which will likely trade at $1 per euro at
year-end, weaker than 99.63 U.S. cents late yesterday
in New York, Rupkey said..."


http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial%20News&s1=blk&tp=ad_topright_topfin&T=markets_box.ht&s2=ad_right1_topfin&bt=ad_position1_topfin&box=ad_box_all&tag=financial&middle=ad_frame2_topfin&s=APcPmnBa8UmF0ZSBD



Post  44481  by  ljpit       ot: lkorrow, interesting maps. At first I was wond
Post  44482  by  pacemakernj       OT: Linda, RE: Breast Cancer...


Post  44483  by  pacemakernj       Reply
Roof, I hate to beat a dead horse but isn't that what we've been talking about now for some time. Whether or not AG will choose between helping the economy or protecting the dollar and our ever growing trade deficit. Did I not say that ALL governments will choose inflation over deflation. Is that not what this debate is all about. The dollar MUST drop otherwise AG risks the deflation scenario that even he does not want to take on. We must reflate the economy and the only tool left is the dollar depreciation. Central bankers around the world are impotent. They are looking to the US to bail their sorry asses out of the ringer. Japan is a wreck, Europe doesn't get it, China well they are not ready for prime time to lead a global economy when all they are doing is exacerbating the problem. No, it's the dollar. The sooner we get on with it the better. But that will create other problems down the road, but that's a story for a different time. Regards, Pace.



Post  44484  by  pmcw       Reply
Roof, A couple points:

1) Many of those articles you post are not based on facts. Many of those that are, seem to distort reality in a fashion to make it look as though we are now seeing something worse than ever before. In the case of Corporate debt, we are not. BTW, it was the debt taken in in the last half of the 1990's that created the excess capacity problems of today. In other words, the debt of 1997 was a much worse situation than the debt of today because the funds derived from the debt were not invested prudently. Our capacity utilization over the last two years is at a near record low.

2) Too many people are looking for the boogie man in the wrong spots. It's not in the corporate world, the consumer world or even in the banking world. All three have unique challenges, but the most ominous are improving and those that are worsening (consumer) are far from being out of control. The boogie man is in the capitals of the US. Government debt (total Federal, State and Local) has ballooned by nearly $5T during the last five years. I've written many times about the problems facing states - many are fundamentally insolvent. Why do you think they are trying to "tax" corporate America in the civil courts? Most of us generally ignore state fiscal policy, but it will be to our detriment. State debt is and will continue to be a huge problem and eventually be the boogie man that can do some serious harm.

Let's take a look at some of the real numbers (not adjusted for inflation) and judge for yourself as to what is really happening. The number shown is the change since be beginning of 1997:

Corporate Debt: Down by $400B*
Federal Debt (marketable and non-marketable): Up by $800B
State and Local Government Debt (marketable and non-marketable): Up by $4.6T
Consumer Debt: Up by $536B
Automobile Debt: Up by $70B
Mortgage Debt: I don't have reliable historic figures, but I do know that if viewed from one angle it can be said that new mortgage debt equals roughly 90% of the GDP growth during the last year. In other words, as you worry about this growth consider the alternative - a depression, deflation and a dropping POG.

* One of the most amazing things about how this debt (inefficient spending) has worked its way out of the system is that we are now seeing banking ROE (Return on Equity) return to early 1997 levels. Currently, the ROE stands at 15.2% which is fundamentally equal to where it was at the end of Q1 1997. Even more astounding that that, ROA (Return on Assets) is at a record high and equal to the third quarter of 1999 - other than these two periods, it has never been even close to its current level. As I've said many times, supporting the banks while the work out bad debt is one of the primary reasons the FMOC has been cutting interest rates.

Roof, I hope you take this last paragraph as it is intended - friendly and with all due respect. I realize you believe in hard work and hard currency. I'll never criticize either. It would appear that your primary goal is to protect what you earn and that you are inherently conservative with your finances. I won't criticize that either; for some it is a great goal. However, you do occasionally go on binges where you try to lever your love for hard currency for huge gains. By this I mean the futures plays and some of the mining stocks you've played up and watched as they drop back down. I saw this as simply gambling and IMO, you're playing a game where you clearly don't understand the details governing the outcome. Some of the folks you're listening to are just as nutty as those who predicted NASDAQ 15K.

Regards, pmcw





Post  44485  by  uponroof       Reply
jeffbas...your favorite Cassandra, Prechter...
is interviewed in Barron's this week.

That shameless news letter peddler is getting some serious ink in Barron's.


Bear-Market Genius
Bob Prechter called the market top in 1987 -- and has continued to ever since
By JONATHAN R. LAING

There are few second acts for stock-market forecasters who blow major market moves. Who today talks about, let alone remembers, technician Elaine Garzarelli who purportedly called the 1987 stock market crash and then flamed out once she began to run real money? And what fate awaits Goldman Sachs' Abby Joseph Cohen, the doyenne of the 'Nineties Bull Market who since has been blindsided along with almost everyone else by the past three years' fierce market slide?

And then there's stock market timer Robert Prechter. After more than a decade of relative anonymity, Prechter, 53 years old, is red hot once again.

He was literally everywhere in the media early last month when the Dow Jones Industrial Average and Standard & Poors 500-stock index slumped some 35% and 50%, respectively, from their all-time highs. His smiling visage even appeared on a front-page article on the bear market in USA Today. Favorable reviews of his latest book "Conquer The Crash: You Can Survive and Prosper in a Deflationary Depression" have recently appeared in outlets as varied as Business Week, the Reuters Financial Wire and the Motley Fool's Personal Finance and Investing Website.

For Prechter, it was a trip back through the time warp to the 1980s when he achieved guru stature by being among the few who saw the post-1982 bull market coming long in advance. He also succeeded in keeping his subscribers in the market for virtually the entire ride up to the August 1987 peak in the Dow of over 2700 and getting them out before the crash that October.

At that point, however, his career went awry. Prechter decided that the 'Eighties bull market had been a mania and that the 1987 Crash was just the opening act in a collapse that would send the stock market into a tailspin and the U.S. economy into a depression. And he has stuck to that forecast ever since, recommending the haven of treasury bills during a 13-year period -- 1987-1999 -- that saw the Dow and S&P rocket up some six-fold and the Nasdaq soar more than 10 times. While he claims -- and institutional clients confirm -- that he got a lot of other markets right during that period, including gold, collectibles, Japanese stocks and the dollar, it really doesn't matter. He'd missed the greatest show on earth.

snip<

"October is typically a bear-killer month. We're at the bottom of the four-year and 20-year cycles, the decennial pattern bottomed this summer and we're going into the third year of the presidential election cycle next year which is traditionally good for stocks. Finally, we're on our way to our third year in a row of down markets which is almost unheard of. Yet despite all of this I feel good about remaining a bear. It's at least my belief that the wind is at my back."

snip<

Some commentators think that the sharp rally since Oct. 9 could be the early stage of a new bull market and the harbinger of economic recovery. But Prechter, a master at finding dark clouds beneath every silver lining, argues that bottoms aren't made when the dividend yield on the Dow Industrials is just 2.1%. The yield tends to rise to above 6% at moderate bottoms. In 1929 it soared to over 15%. At true market bottoms, he explains, fearful investors demand money up front from management rather than its promise.

Even more controversial is Prechter's assertion that the sinking stock market will lead to a depression. In fact, he asserts that a lethal deflationary slide in the economy has already started despite mainstream economists' assertions that the current tepid recovery will gather strength next year.

Signs abound, he avers. The Producer Price index has been going down for the past 12 months as has the implicit price deflator for non-financial corporations. Commercial and industrial loan volume has been shrinking for the past two years. Junk bonds are defaulting at a record rate. U.S. mortgage delinquencies and foreclosures are soaring. Prechter fears that the U.S. is on the verge of falling into the same contractionary abyss that swallowed up Japan in the 'Nineties and recently claimed Argentina and Brazil as victims.

As Prudential chief investment strategist Edward Yardeni argued in Barron's last week, deflation doesn't have to be a malignant force as long as corporations can more than offset downward price pressure on their products with strong productivity gains ("Deja Vu All Over Again," Oct. 28). Then companies can maintain their workforce and afford to pay them higher real wages.

But Prechter anticipates that the process will be far more lethal. Weakening pricing power will spur companies to cut employees in an attempt to rein in payroll costs and maintain profit margins. As the jobless rate rises, consumer confidence and spending will wilt, in turn triggering yet more layoffs. Productivity, or output per man hour, will likely continue to improve in this environment, but it will come as a result of layoffs and fearful exertions of the surviving workforce rather than technological innovation.

"This was the very reason economist Joseph Schumpeter pointed out that 'the Depression acted as an efficiency expert" and boosted productivity by 20% between 1929 and 1932," Prechter explains.

Deflation is above all a psychological phenomenon, and therefore, according to Prechter, not ultimately reversible by either stimulative fiscal policy or monetary policy. And it typically first shows up in the stock market. That's where social mood shifts always evince themselves first.

He elaborates: "You can sell stocks or other financial instruments in a matter of seconds while it takes months for, say, a company to change from an expansion to a contraction mode. The latter is like turning around an ocean liner. It takes time."

Mild stock market declines spawn recessions more often than not. In fact, the stock market has had a better predictive record than other leading indicators of economic activity. Overinvestment in capital goods only exacerbates the situation. Full-fledged stock market crashes have always preceded serious economic downturns. In large part, that's because panic selling snuffs personal wealth and destroys collateral values, which can beget further liquidation. The contagion then spreads to other asset classes and then to the real economy of prices and wages and corporate sales and profits, Prechter adds.

Lethal collapse

What will make the coming economic collapse so lethal, says Prechter, is the mania that has likewise taken place in the U.S. credit market over the past two decades. Total U.S. debt -- household, corporate and government borrowing -- has exploded from under 140% to nearly 300% of GDP in the last 20 years. The previous peak was the 264% level reached after the 'Twenties economic boom.

Like then, the shift from credit expansion to credit contraction this time around figures to catch everyone in its undertow: over-leveraged homeowners, free-spending state and local governments and even corporations with average debt loads, Prechter claims. This should be especially true these days when so many loans are either backed by dubious collateral value or finance consumption rather than productive enterprise.

Happily, chances are that Prechter will be proved wrong this time as he has so many times before in the last decade. We've only had two full-fledged depressions in the last 200 years, so they are rare occurrences indeed. The post-2000 bear market has already been notable in both its severity and length. The current rally seems to have legs.

But the unimaginable does sometimes come to pass, as the events of Sept. 11 so clearly illustrated. So, perhaps there's some value in considering a worst case scenario. A little paranoia, after all, can sometimes be an investor's best defense.

http://interactive.wsj.com/14_regchoice.html

********

sheesch! Think I'll go out, buy some more guns, dehydrated food, gold bullion, and dig a bunker. Nah!... in all seriousness I doubt we'll see the full extent of carnage Mr Prechter calls for....but perhaps a fair portion of it?

pmcw-I do appreciate your thoughts, and they do temper my own which can, as maniati so accurately states, "go overboard". It will be interesting to see what happens over the next few months, and to what extent the markets move (with conviction?) in either direction.

Gotta run

Good Luck

Cheers





Post  44486  by  jeffbas       Reply
"But they won't because they know the truth."

pace, that is a bit extreme. Your hypothesis is just a good guess. I think a more accurate comment would be "because having the issue is more important to them than discovering the truth". It is interesting how we see less plausible explanations seized over more obvious ones - another possible consequence of poor education (in science) and corrupt self-interest.

Note good old Occam's Razor:

Occam's razor is a logical principle attributed to the mediaeval philosopher William of Occam (or Ockham). The principle states that one should not make more assumptions than the minimum needed. This principle is often called the principle of parsimony. It underlies all scientific modelling and theory building. It admonishes us to choose from a set of otherwise equivalent models of a given phenomenon the simplest one. In any given model, Occam's razor helps us to "shave off" those concepts, variables or constructs that are not really needed to explain the phenomenon. By doing that, developing the model will become much easier, and there is less chance of introducing inconsistencies, ambiguities and redundancies.




Post  44487  by  jeffbas       Reply
roof, I won't repeat my views about Prechter, except to paraphrase what has disparagingly been said about teachers, "them that can make money investing, does; them that can't, give interviews and write books about it." As I have previously noted, if you throw enough S%#T against the wall some might stick that you can build a writing/speaking career around.

Buffett is one to read or listen to if you are serious about making money for yourself investing. In fact, I can say that I would have a lot more money myself now if I had asked myself every time I made an investment decision, "would Buffett do that?"




Post  44488  by  srudek       Reply
pmcw: where did you get these debt figures?

"The number shown is the change since be beginning of 1997:

Corporate Debt: Down by $400B*
Federal Debt (marketable and non-marketable): Up by $800B
State and Local Government Debt (marketable and non-marketable): Up by $4.6T
Consumer Debt: Up by $536B
Automobile Debt: Up by $70B "


What I like a lot about your entries is you have figures which I take to be "facts" taken from some source. My own entries and logic is often marred by my lack of hard, citable "facts" and my use of off-the-cuff guesstimates in their place. I've acknowledged that weakness before.

(As an aside, I'm really disappointed that the web hasn't encouraged more use of linkable citations. I don't know if its primarily a weakness in html, in browser support for building linked documents, in poor html support on many message boards, a concession to the short term {and fee based} nature of many links, or just primarily human laziness. It's a big disappointment, though, and something I hope will be fundamentally addressed in some future web. Information requires citations if it isn't going to degenerate into a babble of unsubstantiatable "noise".)

I'd appreciate an entry from you regarding how you do your research -- with a particular emphasis where you go for your figures. I don't know if you care to write such an entry, but it seems to me it might go far toward raising the level of citable facts backing opinions. I'd think that would make you happy. :-) It would certain make me happier.




Post  44489  by  pmcw       Reply
sr, Like most things in my life - it's self taught. The web has been an unbelievable wonderful experience for this old dyslexic ADD. It is the ultimate self-paced learning machine ever created.

I always start with google.com and just let the world unfold. Narrow or widen the search as the number of answers dictate and always seek the source (not a reporter's version) for your data. If you remember the recent consumer confidence numbers you'll certainly remember how the press played them up as a current event. In reality, when you go to the source, you find that is not the case. The survey is mailed the month prior and the tally is completed before the 17th. This means, IMO, that most answers are given between the 5th and the 12th of the month. Guess what, that's also when everyone got their 401(k) statements and the market was tanking. Think that might have a little to do with what they termed as a surprise drop in confidence?

You can find most US financial data at either the St. Louis Federal Reserve or bea.gov. The Treasury department will pick up some loose ends. If you hear a comment about a piece of legislation go to senate.gov and type in either a key word or a bill number and their search engine will do the rest. Another good place is Dr. Ed Yardeni's site. I suspect this is back up at Prudential now. I learned how to find the data he provides in other spots, but I intend to start reading his opinions in short order.

When you get done with these, let me know and I'll see what I can do to add to the baseline. If you have a hard time finding a certain piece of data, let me know that too, I'll see if I can crack the code. And, as I suspect, you'll soon be learning many new tricks I've yet to learn - please share those too.

Regards, pmcw




Post  44490  by  pmcw       Reply
sr, Here's some good google search hints:

Use OR
By default, Google returns pages containing all the words in your search query. If you don't want that, you can insert the word OR (all uppercase) between any two keywords, and Google will return pages containing either of those words. One good use for the OR option is to find something that goes by more than one name or spelling. For example, typing london apartments OR flats will return pages containing references to either apartments or flats in London, while community theater OR theatre will return pages containing both spellings of the word "theater."

Phrase Searches
If you're searching for an exact phrase, enclose it in quotation marks. For example, typing "english literature" is more likely to return pages specifically about English literature than the quote-free query english literature, which returns pages containing both words, whether or not they appear together. This technique is especially useful when you're trying to find longer, exact quotes.

Including Important Terms
Google usually excludes common English words (like "where," "how," and "to") and single letters (like "I" and "a"). But if a word or letter is essential to your search, you can precede it with a plus sign (+) to force Google to look for it. So, to find Web pages about how to bake pies, you might type +how +to bake pies to ensure that your search returns "how to" pages about pie baking.

Excluding Terms
To exclude pages that contain a certain word, type that word preceded by a minus sign (-). For example, if you wanted to find pages that discussed diving, but not scuba diving, you could type diving -scuba to exclude the term "scuba." Keep in mind that you can use the minus sign in conjunction with the plus sign: A search for diving +olympic -scuba tells Google that the pages returned must contain the word "Olympic" and must not contain the word "scuba"

Search Any Site
Rather than go to a site and use its built-in search engine to find the information you want, you can search from your Start Page. Simply type your search term, followed by the word site, a colon (:), and the address of the site you want to search. Example: To search CNN.com for information about child safety, type child safety site:www.cnn.com.

Regards, pmcw




Post  44491  by  maniati       Reply
pmcw: Honestly, sometimes you make me want to strangle you. Of course, I mean that in only the nicest way. :-)

You say that economics is only good for "predicting the past," and then you say that the Fed knew in August that it was going to cut rates in November. If you actually believe the Fed was engaged in such an elaborate lie, then it's no wonder you think economics isn't good for much. :-) But, I don't think you really believe any of this. You know better, and you're just trying to irritate me. C'mon, fess up.:-)

In fact, neither of those assertions is true. Economics does have some predictive value, even if it is not as hard a science as physics or chemistry. Even you have called for interest rate cuts and tax cuts/credits in order to stimulate the economy, and those ideas are right out of Keynesian Economics 101.

As for the Fed, I don't see why you want to make things so complicated. Back in August, the Fed did not know it was going to cut rates in November. If that were true, that would not only mean the Fed has been lying to us, but it would mean there has been a huge conspiracy, consisting of the members of the FOMC, their staff economists, employees, etc. The DC sniper task force and the Defense Department should be so lucky as to keep a secret that well. Moreover, there is not one shred of evidence to corroborate this, but there is a ton of evidence to suggest they have been honest. They simply saw no need for a cut in August or September, and they did not yet know what the situation would be in November.

It is commonly understood that a discount rate cut takes anywhere from 6 to 12 months to work its way through the system. If the Fed knew in August that consumer confidence and retailing were going to go into the toilet in October/November, with an uptick in unemployment, continued manufacturing sluggishness, and all the sluggishness described in the Beige Book, then, given the minimum 6 month delay before a rate cut begins to have an effect, even a rate cut in August would have been at least 2 months too late to save the holiday season!! A rate cut on Wednesday isn't going to do anything to help holiday retailing, which will need a Christmas miracle to save it. If the Fed knew any of this back in August, they would have cut back in August.

So, no, there is a much simpler explanation: the Fed simply did not know in August what would happen in November. They did not know whether they would be cutting rates or not. The Fed was hoping that consumer demand would be strong enough to withstand the mixed good-and-bad news of the summer, and eventually be able to boost corporate profits, which, in turn, would lead to renewed capital investment. That was the idea. That was the hope. They said so a bunch of times in their FOMC statements, Congressional testimony, and other speeches, and that is consistent with the actions they took. It's not any more complicated than that.

But, things haven't worked out the way they hoped. Consumer sentiment was significantly worse than most people expected, retailing is in trouble, lots of sluggishness elsewhere, unemployment etc., etc.

So, if we get a cut on Wednesday, and I think we will, that will be why. I said it would take unexpected bad news, and that's what we got - at least as far as the Fed is concerned. They were expecting things to be improving by now, setting up a good retailing season - not a bad one.

Now, I'm not surprised at where the economy is. And I don't think you are either. But the Fed was hoping for something better. Any other explanation requires tortured logic, conspiracy theories, and the like. It's just not that complicated.

Finally, you suggested that I believe that the Fed does not pay attention to the stock market. I have never said any such thing. Never. Never. What I have said, on countless occasions, is that the Fed does not obsess over the market the way investors obsess over the Fed. I have said that the Fed looks at the market to the extent that wealth affects the marginal propensity to consume. The Fed does look at the stock market, but only to the extent that it affects economic aggregates.

The economy and the stock market are two different things. I have tried to explain this a million times, but it's pretty tough trying to debunk all the goofy ideas that people get from watching too much CNBC. And I don't mean you, pmcw, when I talk about CNBC. But, when economists say "economy," I think a lot of people think "stock market." That is a mistake. The only reason the Fed cares about the stock market is to the extent that the stock market affects the economy, and the only tangible effect to which any economist gives lip service is the wealth effect on spending. Other than that, the stock market is irrelevant. I know that bums out investors, but it's true.

Actually, let me make one modification to that: the Fed sets margin requirements, so they care about margin requirements. What an irony, huh? Investors want to believe that the Fed raised rates in 99/00 because they thought the stock market was too high. No, if the Fed was worried about the stock market, they could have just raised margin requirements, rather than slam the brakes on the economy. So, no, the Fed raised rates because they thought the economy was overheating. I'm not saying they were right to do that; I'm just saying that their actions indicate they view the stock market as something related to, but separate from, the economy.

You have to ask yourself how it is that, when everyone else was screaming for rate cuts and predicting rate cuts in August and September, I correctly predicted that there would be no cuts. Some said there would be an emergency meeting in October, and I said there would not. Well, there's nothing magic about it. Again, the explanation is very simple: most investors were predicting or hoping for cuts because the stock market took such a beating over the summer; but I knew the Fed wouldn't care about the beating anyone took, except to the extent that it affected consumer demand, and, back then, consumer demand was holding up. Therefore, no cut. Simple.

If we get a cut on Wednesday, it won't be because it was planned along. If the Fed had met even 3 weeks ago, there probably would have been no cut. Most of the reasons for a cut are due to information that has only recently become available.

BTW, I do appreciate the compliment when you say my "investment acceleration" post was "seminal." I really do appreciate the compliment. And I'm glad someone was paying attention. But, even that was a pretty simple idea that I took right out of a textbook (albeit with one interesting little addition). Anyone else could have done it. One need only turn off CNBC and pick up an economics book.

There's no substitute for doing research and trying to think for oneself about an issue. Start with the basics, and work from the ground up. You know that, because that is exactly what you have done countless times, as evinced by your many posts on deficits, debt and Social Security.





Post  44492  by  maniati       Reply
srudek: Did you get my last 2 posts to you? I don't need a long answer. I just want to make sure you saw them, because they were several days late, and you don't seem to have been around much lately.




Post  44493  by  pmcw       Reply
maniati, I think you and I were the only ones saying, with any real vigor, that the Fed was not going to cut rates during the summer. We probably believed this much for the same reason. We also clearly understood that the economy was not in good shape in the summer and a little more juice (a rate cut) wouldn't hurt from a fundamental standpoint. I said it would hurt confidence because I felt there was no way to slip one in without changing forward bias. I'm not sure if you agreed with that or not. I do agree there was great, but highly guarded, hope that the economy would move in a positive direction. Sometimes one can find their way through the Valley of Death simply by not realizing the dangers they face. However, I stood alone in saying that one of their reasons for not cutting then was that they wanted to save the bullet for later. The holster holds only so many and I felt at least one would be needed in Q4.

I don't see why you don't feel it was obvious that consumer sentiment would crash after workers received their 401(k) statements. I think this was pretty clear and was the leading reason I predicted the many stocks would hit lows during October (my post on 10/1). I'm a bit surprised by the rate of recovery, but nevertheless, not by the hard drop. I think it was also clear that car sales wouldn't likely hold up. People buy cars on cycles and many bought early - at least according to the dealers I speak with frequently. I also feel it was safe to predict that new home sales would slow (they always do in the late fall) and therefore put durable goods at a risk of also slowing. I think we can also agree that it's been obvious for a long time that we probably won't have final election results Wednesday morning. Due to these, and several other reasons I feel were also visible last summer, IMO, the Fed was simply biding their time and saving the cuts for what was likely to come.

Rate cuts do several things. The mechanical aspects of a November cut are and will be needed by financial institutions to help them continue to absorb the debt bubble. They will also be needed by the industrial sector which is predicting a broad increase in IT spending (Greenspan wants to fuel this productivity engine). They will also be welcome by those who need to finance the consolodatation that I feel will pick up in 2003. These are all the three to six month things they will help.

Rate cuts also do things that hit the streets the next day. Chief among these is elevate spirits if they are not implemented with a change in forward bias. Shoppers will need all the feel good they can get to buy this year. Another round of home refinancing might be spurred, but don't discount the force of a positive move in the stock market - that wealth effect thing ya know. I think there's also a very good chance we'll have another ugly election and I don't discount the possibility of a terrorist act.

Please don't think I'm remotely suggesting conspiracy. I know that it is near impossible for a large diverse group to keep their mouths shut and I feel strongly that FMOC has operated above board and with integrity. I'm just suggesting that the leader (Greenspan) is, when he's on his game, a brilliant combination of chess and poker player. What I'm describing is what I feel he was thinking and quite likely keeping well to himself. This is not to even imply that he's been dishonest. All of his talks that have included optimism have been highly hedged and the optimism has been VERY guarded. He's made it abundantly clear that things could go either way and done a wonderful job at keeping us out of deep problems with both measured actions and words.

I guess that maybe this is just one I saw coming like the cuts I saw coming in October 1998 that should have been slipped slowing into the system earlier in the year. I suspect that folks at LTCM might agree with the latter.

Regards, pmcw

PS: The only reason I brought up the distinctions about the market in my last post was to insure you clearly understood I knew where it stood in relation to Fed policy. My comment about economics being best at predicting the past was somewhat tongue in cheek, but also a bit of reality. The problem that I tried to explain is that when the economists get too deep into their theory they are forced to make too many assumptions. Hence the old saying that if you laid them all end to end you still wouldn't have a conclusion. Econ101 is near perfect, but every class past it adds more theory and assumption. And, the farther one gets out on any one of the branches the shaker their perch.




Post  44494  by  jbennett53       Reply
http://ist-socrates.berkeley.edu/~pdscott/qfla.html




Post  44495  by  Warstud       Reply
Re: Rate Cut..

My guess is that we'll see a 1/4 point cut.




Post  44496  by  ttalknet2       Reply
The bleakest of reports

This message is very long.
There's too much info to check & verify
in a reasonable time frame. Reader beware. --tt2


THE INTERNATIONAL FORECASTER 2, November 2002 (#1)

An international financial, economic, political and social commentary.
Robert Chapman, Editor Vol. 6- No. 11-1
Phone & Fax: 941 639 4756

E-mail: bif4653@comcast.net or info@intlforecaster.com

(intro snipped)

US MARKETS

During the fiscal year ending October 31, 2001, Deere & Co., the tractor company, expected its pension plan and post-retirement benefit plans to produce investment gains of $657 million. In actuality, however, these plans had losses of $1,419 billion. That's a difference of more than $2 billion! These latest losses bring Deere's underfunded pension liability to more than $3 billion. "At some point," observes Apogee Research, "Deere will have to deposit actual cash into its underfunded pension plan to make up the $3 billion shortfall. And yes, that's real money to Deere...$3 billion represents more than five years' worth of average net income!"

The new productivity-enhancing capital investment that Sir Alan Greenspan talks of is deflationary. Prices in technology and innovation are falling. Manufacturers are cutting capital spending and laying off workers, not expanding and hiring. This is great for consumption because it brings lower prices but few have excess funds to spend, and those that can spend donít look for lower prices. Due to free trade, ten million Americans lost their jobs between 1999 and 2001 or 7.8% of our workforce. That, subscribers, is incredible. Every Congressman who voted for NAFTA and WTO should be thrown out of office and put in jail. Those already out of office should also go to jail. They have ruined our industrial base. All the transnational corporations should be confiscated and their assets should become the assets of the unemployed and the dispossessed. From May of 2001 to May 2002, 800,000 lost their jobs. All these terminations have forced wages lower and deflation will be the ultimate result. Our workers cannot compete with Chinese slave labor. That means we are becoming a second-class nation.

The ratio of home prices to home rental rates is way out of whack; in a review of 15 large markets, the cost of home ownership relative to renting is at the highest level for the past 12 years, and is 14% over the historical average. Residential property relative to disposable home income is at a 50-year high. 20% of Americans have cashed in on rising house prices. Of these, more than 20% bought their homes less than three years ago. A further 3% have taken out a second mortgage backed by the rise in house prices. 30% are paying down debts, but the other 70% are spending the rest. There is no question a bubble has been created. If it doesnít end on its own soon we would think the government would take measures to puncture the bubble. One of the measures that could be taken is a change in the tax treatment of homes.

Mexican President Vincente Fox and the Mexican government continue to press their excess population into the US. They are secretly working to integrate illegal aliens, through amnesty, into the US mainstream. There are some eight million in the US and Mexico would have us believe we couldnít function without them. Give us a break, how ridiculous. This is why Mexican consulates have lobbied all over the country for the acceptance of the Matricula, an ID card. That is designed to allow these felons to open bank accounts, and get library cards, utility accounts and driversí licenses. Tell us what other country is crazy enough to do such things.

Fannie Maeís shareholder equity has fallen to $14.96 billion in the third quarter from $20.75 billion in the first quarter. The third quarter figures were cooked. They reclassified $135 billion in mortgage assets of its choosing as available for sale. The move resulted in a gain of $4 billion so the figure should really be $10.96 billion not $14.96 billion, or 50% of its value six months ago. This is real Mickey Mouse bookkeeping. Itís legal and itís blatant. The move certainly was devised to deceive investors. This reclassification significantly affects their capital requirements. We are short Fannie Mae and we remain that way. Short Fannie Mae.

Some real estate agents say there is a fear in the air. Refinancings are retreating and mortgage requests have slipped 2%. Refinancings make up 78% of mortgage applications. Last year mortgage refinancings pumped $140 billion into the economy. And this yearís figures will be similar. About 29% of Americans polled viewed the economy positively, down from 45% in March. About 55% rate their own finances positively. Housing value is up 7% this year. As sellers wait for last yearís prices, real estate will head down.

Brokerage houses have been executing insider transactions for company executives by hedging their exposure via loans collateralized by the shares, which are sold short into the market. As a result, even though a corporate insider still legally controls the share, they have been sold. This way executives do not have to report their stock purchases within 10 days. They can also separately borrow against the shares. These transactions may be legal but they must be stopped. They are abusing the spirit of the law and deceiving shareholders and regulators.

We first wrote of the Unocal consortium oil and gas project in the Caspian area in 1990. Four years ago John Marecna, VP of International relations at Unocal told the House Committee on International Relations why the US had to invade Afghanistan and secure right of way for oil and gas pipelines. The Caspian Sea basin, including Azerbaijan, Uzbekistan, Turkmenistan and Kazakhstan have 60 to 200 billion barrels of oil. The market for this oil and gas is in Asia, mainly China and Japan. There will be little growth in Europe, Eastern Europe, Russia and in the newly independent states. Asiaís population will grow by 700 million people by 2010 and if Asiaís needs are not satisfied oil prices will climb. The delivery option is to deliver via pipeline south from Central Asia to the Indian Ocean. Going across Iran south is a straight line and the best route, but Iran is not friendly with the US. Now that Afghanistan has become an American protectorate, it is important for Afghanistan to have a reliable recognized government. Oil would flow from Turkmenistan and extend south through Afghanistan to an export port on the Pakistan coast on the Arabian Sea. Only 440 miles of the pipeline would be in Afghanistan. A gas pipeline would go to India and cost $2.6 billion. Now you can better understand what the recent war was all about, that and opium, which goes to Europe.

The US dollar is resurfacing as the biggest threat to American manufacturers beside free trade. The dollar is 20% higher than it was five years ago and must recede 20-30% to allow any semblance of competitiveness. The trade deficit and current account deficit is 5% of GDP and we need $1.5 billion a day from foreigners just to keep our economy from collapsing. The situation has become so dire that the National Association of Manufacturers are in revolt. Many transnationals have avoided the dollar problem by moving all their manufacturing out of the country and with them four million jobs over the last seven years. 40% of goods imported into the US come from these elitist transnational corporations. If we keep doing what we are doing we wonít have anyone with money and a job to buy these goods.

For the first time since 1998 two FOMC members have questioned Sir Alan Greenspanís judgment and one governor has proposed the FED adapt a target for inflation to help steer monetary policy, a step the Chairman opposes. After the greatest bull market in history we are faced with the longest bear market since the depression. US securities have lost $8.9 trillion. The market rout would have been far more severe if the Plunge Protection team hadnít been manipulating it. Once the DOW falls to 4,500 the public investor will finally get the message. The financial markets are going to deteriorate no matter what the FOMC and Sir Alan do. Itís simply too late. Another Keynesian buffoon Milton Friedman says Sir Alanís legacy is safe. We say who cares? He should have raised margin requirements in 1996 and didnít. He encouraged the feeding of the bubble. The elitists just got too greedy. Now, because of his folly, we and the remainder of the world face the worst depression in the past several hundred years. A deflation that will destroy the financial system and all order in our universe. The world is about to find out that Alan Greenspan is not a god, but simply another mortal. The good news is Sir Alan will probably step down in a year or two. The bad news is the elitists will then give us Robert Rubin who will play Nero in his final act.

Stock research departments are likely to cost Wall Street brokerage firms $2 billion. After the settlements, which of course do not include jail time for criminal fraud, we want to see how much of this money reaches investors. This amount will top the $1 billion paid to resolve charges of price-fixing on dealer price spreads for stocks traded on the Nasdaq market. Spread out over a number of firms and over five years the fines are chump change to these well-heeled lawbreakers. At the bottom line the fines will be a few pennies a share. As you can see, at the top level crime pays in America. These same firms made $16.3 billion during their crime spree in 1999, $21 billion in 2000 and $10.4 billion in 2001. That is $34.8 billion and all they have to pay back is $2 billion. Worse yet, the settlement doesnít require a complete separation between research and investment banking. They are back doing the same thing they did before. There is no change. Itís business as usual. This is a sweetheart deal. Research analysts will still be able to provide input to investment banking and if analysts influence the award of underwriting assignments to their firms, theyíll get those same enormous rainmaker payoffs they received before. Nothing has changed. These gangs of thieves will go on as before bilking the public. Analysts remain dependent on a corrupt system that has not been fixed. Analysts are still not independent. As you can see our justice system is still not working.

Interest rates could finally be lowered by the FED. The motivating factor would be orders for durable goods meant to last over three years fell 5.9% in September. Thatís the largest drop since 9/11 and October shouldnít fare any better. Economic numbers suggest a slowing economy, one that never recovered from recession. Third quarter GDP may have been up 3.5% but companies were virtually giving away vehicles and other long-life hard goods. That run on the purchase of durables is over. Daimler Chrysler will shut down four North American factories that make minivans, vans and large cars. In fact, October sales are down 25-30% even with zero, zero, zero.

Mellon Financial Corp has decided to bail out its investors in one of its offshore money-market funds after that fund reported a $4 million loss. The loss was taken on a note issued by Allmerica Financial Corp. The problem as we see it is that fund companies are not allowed to guarantee any losses. We ask how can they do this? Goldman Sachs recommended bank stocks on Monday, what else would you expect?

In the first three quarters of the year, the NASD Dispute Resolution Department received more than 5,600 complaints against brokers. They expect 7,500 cases this year, beating last yearís record by at least 10%. 50% of all cases are settled through mediation, 10% are withdrawn and 32% go to review or hearing. Clients prevail in 57% of cases up from 53% in 2000 and 2001.

10% of public companies have restated their accounts in the past six years. That is some sorry record. The accelerating trend is continuing to shake investorsí confidence and shows the need for corporate reform and criminal penalties. Restatements have risen 170% this year from 1997. There were 92 restatements in 1997 versus 250 this year, while the number of companies listed on the main exchanges fell 20%.

The CPI may be up 1-2% but the PPI, which leads the CPI, was down 1.9% in September from September 2001 and second quarter durable goods prices were 2.8% lower than a year ago. Manufacturers no longer have pricing power, which means they have to be more efficient. This efficiency not only focuses on cutting jobs but also cutting costs and expansion. The result is when all companies reduce capital goods orders, then cost cutting zeal restrains the overall demand in the economy and that is what we are now witnessing. The deflation of 1.9% is thus far mild, but once real estate starts to fall in price and production youíll see much more deflation. The escape route via Keynesian thought process is to lower interest rates an additional 1/2% to 1.25% and that will solve the problem. It wonít solve the problem, it will only gain time. If banks are not lending and business isnít borrowing, there can be no recovery. We have very low interest rates now and we are still in recession and the economy is unable to get any traction. Why would another 1/2% make any difference? Labor productivity growth may be 2-2 1/2%, but thatís not important when you have to give goods away at cost to sell them. Besides, many product markets are saturated, such as the vehicle markets. No, we just have to work our way through this financial purge and several years from now when the excesses sponsored by the FED are purged, we can get on with life again.

Record low interest rates are supplementing consumersí purchasing power by reducing monthly payments and increasing cash-outs of residential equity. Fannie Mae reports that an estimated $1.4 trillion in mortgages will be refinanced this year up from $1.1 trillion last year. Furthermore, both this year and last, homeowners took out an estimated $100 billion in equity. Once Iraq is defeated and their oil stolen its expected oil will descend to the $15.00 to $20.00 per barrel area. This normally would stimulate economic growth but we believe instead it will accelerate deflation. Monetary policy, excessive credit expansion by the FED and abusive federal spending has thus far stalled deflationary forces. The FED has only 1.75% left in interest rates before they canít cut any more. The GDP implicit price deflator is 1.1%. At non-financial corporations deflation shows a drop of 0.6% during the last year. Weaknesses in pricing are depressing the growth in nominal GDP in both Japan and the US. It has been negative in Japan since 1998.

The top line growth for many businesses is being sorely challenged. Deflation is caused by many things including: increasingly competitive markets resulting from free trade and peace, industrial deregulation, technology and productivity. These are at the root of microeconomic problems in competitive structure that are not easily eliminated by stimulative monetary and fiscal policies. Then comes the rescue of uncompetitive companies. The too-big-to-fail syndrome youíve heard so much about gains credence and the zombies are kept in business as they have been in Japan. They suck in much-needed capital that should go to productive successful enterprises. This deepens the deflation or depression. It garners political support and votes for claiming keeping unproductive people at work is a good idea. A thought of definitely socialist origin. Todayís US steel industry is a good example of zombies created by free trade. What we now have is depressed profits that forces companies to slash their payrolls and costs and increase productivity. Next comes the loss of consumer confidence, spending falls, while employment and prices continue to fall. We then fall into a normal depression. The situation will be worsened if our government pursues war. Then the situation will be much worse. All of this is exacerbated by corporate theft and the rich versus the poor syndrome that is followed by Mr. Bushís policy of perpetual war for perpetual peace. The world then becomes a very uncertain place because pre-emptive war opens up and justifies other nations striking out at others on the premise that the other country just might be an enemy and it has to be destroyed now.

Now we are supposed to feel grief for banks and brokerage firms that break the law. If you hadnít noticed District Attorneys and the US Attorney have not been bringing criminal charges against these crooks. They have been fining them. The reason why is they are considered too big to fail. Itís the order of the day. Itís already happening, itís just that the media doesnít want to talk about it. Our legal system has gotten the word, fine donít incarcerate. The reason why is if you prosecute criminally like in the Arthur Anderson case, you put thousands of people out of work. Thatís why JP Morgan Chase and Citicorp are getting away with their criminal behavior. If criminal charges are filed states canít go to these firms for financing and Eliot Spitzer canít become governor. Thatís why the analyst settlements will be sweetheart deals and nothing will change. Eliot has gotten the word, fine them and let them off the hook. Only Utah is threatening Goldman Sachs with a criminal action. Utah wonít lose thousands of jobs if Goldman goes under, New York City will lose these jobs. Thus, you can see the law is not being followed by our protectors, because they are more interested in protecting themselves and their own future.

During the 1990ís REITís did well. Office occupancy rates rose to 92.1% from 80.7% in 1991, while rents rose 52% to an average $25.85 per square foot from $17.03. These numbers provided an annualized return of 12% versus 17% for the S&P 500. Now reversal is taking place in commercial real estate. Office occupancy was down to 84.3% in the third quarter and the average rent fell to $22.11 per square foot and both are still dropping. From March 2001 to last week REIT returned 13% while the S&P declined 28%. REITíS long leases have locked-in returns. Now vacancy rates are soaring and subleases make up 28% of the vacancy rate. The current downturn has become vicious and itís really only just beginning. Once long-term rentals begin to expire REITís earnings will begin to drop. As investors you must find out the aging on leases. In this way you can anticipate when earnings will fall. That will allow you to sell before the REIT market corrects substantially. That may be now, so take a look.

Insurers face possible substantial losses from an array of business activities whose profitability is tied to the ability of corporations to pay off their bond debts. They are selling protection, now that the Mafia is almost extinct, under which theyíre stuck for payment of corporate bonds if an issuer defaults. They hold $8.8 billion in corporate bonds whose issuers are considered troubled by Moodyís and S&P. That represents 2.9% of the industryís surplus capital. Companies including AIG and Chubb have large volumes of directorsí and officersí liability insurance outstanding. Collateral damage from the rise in corporate bankruptcies and the dismal performance of the stock market over the past 30 months has serious implications for insurers, which covers missteps of executives. Claims for D&O insurance coverage is going to rise dramatically. These casualty insurers are also going to be facing an estimated $30 billion shortfall in reserves to pay asbestos claims over the next 20 years. That means their ratings will continue to fall along with reserves and the need to raise capital, for which theyíll have to pay even higher rates. Insurers are in a high-risk category and all their stocks should be sold. As premiums rise people and companies will drop or reduce coverage cutting even deeper into earnings and reserves. Worse yet, insurers have gotten into the business of credit derivatives, giving themselves yet another way to easy money when companies default on debt. Then there are the pools of sliced-and-diced corporate debt, as well as pools of individual credit-default swaps, known as collateralized debt obligations. Insurers will pay as credit deteriorates and bankruptcies abound at an ever-rising rate. The deterioration of the credit market has come home to roost and at the epicenter are the insurance companies. Insurers will take massive losses on derivatives as the markets become more volatile. Thus far, as an example, Swiss Reís face value of derivatives was $34.93 billion at the end of last year. By June 30th it had dropped almost $10 billion. Since 1994 we warned of what would happen with derivatives but few listened. The casualty insurersí losses are going to be horrific and may well go out of business. Stay out of them and anything to do with them. They are an accident that has already happened.

We are seeing the largest divergence figures ever recorded on our comparison model of the DOW versus European indexes. The figure is minus 915, when deducted from the DOW it gives a true DOW figure of 7,454. Just after the 11/4/02 elections we expect a quick fall to 7,200 Ė 7,400. If the war begins in early December, as we expect it will and JP Morgan Chase is either indicted for criminal fraud or is sued for civil fraud, the market should then break down to 5500 to 6450. This has been a long time coming due to the market manipulation and gold suppression of the Working Group on Financial Markets, the Plunge Protection Team, and their partners in crime Goldman Sachs, JP Morgan Chase, Citicorp and AIG. This should be breakdown time for the DOW and breakout time for gold.

We are putting on two more shorts, Proctor and Gamble (PG-NYSE) currently $80.01 cover at $74.08 and United Healthcor Group (UNA-NYSE) currently $95.64 cover at $62.42.

The average yields on six-month jumbo CDís of over $95,000 was 1.44% up from 1.42% a week ago. The five-years were 3.43% up from 3.36%. Small six-month CDís 1.33% up from 1.31% and two-years were 2.01% versus 1.95%. The five-years were 3.32% up from 3.25%.

The mortgage world has simply gone bananas. Credit Unions are offering 2.75% mortgages with no closing costs or fees with same day approval. Loans are being made for 120% of appraised value. Even Fannie and some banks are using 107%. Then there are interest only loans for up to 15 years. Itís like renting with the possibility of capital gains. Appraisals are whatever appraisers want them to be. Thirty percent of equity loans are used to pay down debt; 70% goes for all those playthings. If you miss three payments they just tack them on to the back of the loan. If you paid your rent for the last two years you qualify for nothing down. Yes, itís madness and it has to end.

A new proposal by the SEC would have companies disclose off-balance-sheet debt. All those special service entities will become part of the balance sheet. The FASB proposed in July that debts and assets of most off-books entities to be included on the balance sheet of companies that control them. Companies kept $2 trillion in debts in special-service entities. The end is near; reality and retribution are at hand. That is why we are so sure when we went short GE, JP Morgan and Citicorp so long ago all at $56 a share or so. Wait until their derivatives head south. The gold manipulation cartel and the central banks will loose. If you personally know any of these creatures tell them it wasnít so long ago that hangings were media events.

Are you sitting down? This is just incredible. If ever anything would force us to raise the storm flags this has to be it. This is not a misprint. Fannie Mae plans on issuing an unprecedented amount of debt next year. We got this from the Financial Times. We saw it nowhere else. Theyíll fund the US housing market with $290 billion in long-term debt (securities maturing in a year or more) in 2003, $65 billion more than expected in 2002. The money will be used to pay for mortgage purchases. In the third quarter, its commitments to buy mortgages soared to a record $128 billion as mortgage rates fell to 40-year lows. Fannie is stopping issuance of 30-year bonds next year and will use 10-year notes.

There are 90 companies that provide services normally provided by conventional military forces operating in 110 countries worldwide, providing military training, logistics and armed combat participation. Since 1994, the US Defense Department has entered into 3,061 contracts with 12 US-based private military companies. These mercenaries are part of the privatization of war. As always, international arms dealers are deeply involved. As you can see the dimensions of international conflict have changed and governments including the US are tapping mercenary sources.

It looks like the US fiscal deficit could be over $250 billion for the year ended 9/30/03. The prospects of war with Iraq and the deterioration of tax collections will substantially increase the deficit. The Congressional Budget Office sees the deficit at $145 billion. They obviously are engaging in wishful thinking or they are lying. The Treasury will raise their offerings and increase their frequency. We expect theyíll have to bring back the 30-year bond set to expire on 12/31/02. This need for liquidity to meet spending needs will again crowd business out of the market forcing interest rates higher. The only offsetting factor would be the FED increasing monetary aggregates by over 30%. Real trouble is brewing in the bond market.

British Petroleumís Lord Browne has fired a shot past the Bush administrationís bow in a warning not to carve up Iraq for its own oil companies in the aftermath of a future war. Lord Browne is Europeís most senior oil executive, who has impeccable political connections in Britain. We believe that Mr. Browne is speaking in behalf of the Royal Family and all the black nobility of Europe. They must think Mr. Bush is a mite too ambitious. As we told you long ago this is not a war on terror or a war designed to depose a dictator who may have weapons of mass destruction, itís a war about oil and geopolitics.

Each month the housing market slowly deteriorates. Sales of new and existing homes show a marked deceleration. The bond market rally that ignited the mortgage finance boom is over as applications for mortgage refinance fell 1348.3 points to 4240.4 for the week ended 10/25/02. The mortgage purchasesí index fell 22.9 points to 338.6 the lowest level since 4/12/02. Unemployment is growing and durable goods items such as vehicles are in a funk. The bubble could be breaking. Refinancings dropped 24% in the last week and they are off 40% from the October high.

Auto sales are taking gas. GM and Ford bonds are off with Fordís 10-year notes trading 570 points over Treasuries in the realm of junk. In December we expect $5,000 discounts on $35,000 cars with zero financing.

The USA Patriot Act allows electronic communications service providers to give customer records to law enforcement officials without a warrant. That includes all your e-mails. The House passed a bill in July called the Cyber Security Enhancement Act. Orrin Hatch (R. UT) has presented a similar act as an amendment to the Homeland Security Bill. Hatchís amendment expands the exception and eliminates the need for court oversight. It allows law enforcement to exercise good faith. Next comes the 3:00 a.m. knock on your door.

Fannie Mae thinks itís playing a game. They have a new mortgage product. "Payment Power" or "Skip a Payment" allows borrowers who receive an approval recommendation through Desktop Underwriters. Fannie Maeís automated system defers the regularly scheduled monthly mortgage payment, including principal, interest, taxes and insurance. This makes your mortgage a sort of piggy bank. You can use these non-payments for tuition, investments, or unexpected financial emergencies. The program started two months ago. This doesnít supplant the program for putting three-month delinquencies at the end of the loan. These programs come at a very strange time when households are behind more than ever on their payments and foreclosures are at an all-time high. Could it just be that Fannie is trying desperately not to foreclose on the deadbeats who should have never had mortgages in the first place? Could it be weíll next have payment moratoriums of six months or a year, or forever? Wait until unemployment hits 7% next year. These borrowers can now miss two payments a year or 10 over the life of the loan. This is total insanity and on the other hand itís the marvelous workings of a truly fascist government.

Who and where is John Galt? Whoever you are we need you now. US demand for machine tools, the most powerful of all economic in




Post  44497  by  pmcw       Reply
Watch the following retailers for a meaningful run in November. A rate cut will probably send retail up, but I don't see the high end doing well at all this year. If they run hard, they are excellent short candidates.

MAY
NMGA
DDS
SKS

Regards, pmcw