Archives for October 2012

Flawed Poll Models Underestimating Romney’s Lead

This is an interesting review of election surveys by Russ Winter. In my (limited) sphere, hardly anyone is happy about either candidate. Bigger questions seem to be: Should I bother voting against the one I dislike most? Which one is that? ~ Ilene 

Flawed Poll Models Underestimating Romney’s Lead

Courtesy of Russ Winter of Winter Watch at Wall Street Examiner

Partisans on both sides have been making claims of a lead in the polls — the Republicans cite the national polls and the Democrats the state. I’m not a partisan or a Romney supporter, but I feel compelled to argue that the poll models are flawed and underestimating Romney’s lead.

As far as modeling in these polls, the example of Marist and Mason-Dixon in Florida is illustrative of skewing. Marist tends to report big Obama leads, and M-D has reported decent Romney results.

From the Tampa Bay Herald: “Mason-Dixon, which has been polling in Florida for 28 years, uses a survey sample based on people’s voter actual registration to match the electorate in Florida, while Marist uses a sample based on whether people say they consider themselves a Republican, Democrat or independent. About 20 percent of the likely voters in the Marist poll were Hispanic, while 13 percent were Hispanic in the Mason-Dixon poll, more in line with the Florida voting patterns.”

Nationally, Pew Research illustrates Obama’s problem, as does a new Washington Post poll. The first Pew chart shows Romney’s strong supporters exploding in October, once he showed up at the debates appearing to be a moderate.  Right now, each candidate has about the same level of strong supporters..

 
 

However, the badly flawed state polls don’t show that 5 percent fewer strong Obama supporters are more likely to vote than among Romney’s base.

Obama’s problem is even worse among leaning Democrats. This support, as I have predicted, hasn’t materialized. Only 62% of Democrats and Dem leaners were likely to vote or even registered to vote, and figure that hasn’t budged since September. That’s the real knockout blow for Obama.

Meanwhile, GOP and GOP leaners likely to vote have risen from 69% in September to 76% this month, which is a big 14% spread over Dems. This suggests that Dem leaners could be over counted in these polls relative to Republican leaners.

The Washington Post/ABC poll considers “partisan independents,” for which the gap is 8 percent Republican. Of Republican-leaning independents, 92 percent say they plan to support Romney, while 84 percent of Democratic-leaning independents are backing Obama.

The less partisan the voter, the worse outcome for Obama. When tracked for likely independent voters (including true independents), the Washington Post poll reveals an even more disastrous scenario for Obama. In the Post’s last three polls, Obama trailed Romney among independent voters by a range of 16 to 20 percent. That’s a striking reversal since 2008, when Obama won independent voters (who were 29 percent of the electorate) by 8 points over Sen. John McCain of Arizona. Another poll NPR gives Romney a 50-37 lead among independent voters definitely or probably going to vote.

Finally, Obama has lost considerable support among two groups of likely voters: whites and seniors. In 2008, Obama trailed among white voters by 12% over McCain. This election, it’s 20%. It’s even worse among voters over 65.  Obama trailed seniors 8 percent in 2008 and lags 19 percent today, according to the Pew poll. Obama has overwhelming support among black voters, but turnout is expected to drop to 59 percent this year, compared to the record breaking 65% in the last election. Among more unlikely voters ages 18-29, Obama has lost 13% of his margin since 2008, and can expect a much lower turnout to boot.

Purple Strategies (PS) illustrates some of the skewing issues with the state polls. It gives Ohio to Obama by 2 percent and Colorado to Obama by 1 percent. However, the PS independent-vote tally doesn’t square with the Post/ABC at all. PS labels 32 percent of Colorado voters as “independent” and surveyed a 42-42 split between Obama-Romney. They label 38 percent of Ohio voters as independent and gave those votes to Romney, 42-40. Yet, as mentioned before, the Post/ABC poll has consistently scored independents as favoring Romney, 16-20. PS used a 34(D)-33(R) sample in their registered-voter split, yet there are 837,732 active registered Republicans and 739,778 active registered Democrats in Colorado.

Further, even if the PS assessment is correct or even close, the likelihood of an Obama-leaning independent showing up to vote is much less likely  than a Romney-leaning independent. Among all registered voters, 69 percent of Republican-leaning independents say they are following the election closely, while just 49 percent of Democratic-leaning independents say the same. Among “pure” independents, 41 percent say they are closely following the election.

Democrat-voter registration is down in many key battleground states, and there has been a big increase in Independents — even more so than Republicans. In Ohio, about 7.9 million people are registered to vote in Ohio for the November election.  That’s down from about 8.2 million registered to vote in 2008. In Cuyahoga County alone (a Obama hotbed in 2008) , there are about 80,000 fewer registered voters than there were four years ago.

The Gravis poll in Iowa identifies its sample as 41 percent Democrats, 35 percent Republicans and only 24 percent Independent. The Dems and Reps surveyed said they were voting along party lines, while the Indies favored Romney 48-36, or 12 points. Because of the Dem-skew in the survey’s sample, Gravis gives Iowa to Obama by 4 points. Current Iowa voter registration figures show 35 percent are registered Independent, 33 percent GOP and 32 percent Democrat.

Even a more balanced national poll like IBD/TIPP, which gives Obama a 1.4% lead, shows a heavy 38-31 Dem skew in their sample that’s almost along the lines of the 2008 vote. The reason Romney is close is that the poll scores the Independent vote fairly high at 32 percent, although the 8-percent spread to Romney is lower than with other polls. The poll’s details: Sample size reflects 942 likely voters, who were identified from 1,091 registered voters with a party affiliation of 38 percent Democrat, 31 percent GOP and 32 percent Independent.

In sum, my election prediction is a 3-percent edge for Romney in the popular vote, and 301 to 237 lead in the electoral vote (see second to last chart) — and that’s giving Obama’s battleground-state ground-game strategy considerable credit for getting leaners into the voting booth. I project Pennsylvania will be close, with the outcome dependent on whether the 828,000 people without power get services restored before the election. Michigan may be closer than generally believed. Gasoline should be spiking by Election Day, which could psychologically effect voter outcome. Turn out nationally will be 6 percent below 2008 levels.

A Romney outcome would be perfectly consistent with Europe, where incumbents are booted out and replaced with new incumbents, who quickly become unpopular. Romney will have a huge mess on his hands.

This final chart shows national polls that are more accurately skewed and show a small Romney lead.

 

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Copyright © 2012 The Wall Street Examiner. All Rights Reserved. The above may be reposted with attribution and a prominent link to The Wall Street Examiner.

Back to Work Wednesday

Back to Work Wednesday

(Picture from Gov. Christie’s Sandy page at Facebook)

Courtesy of Phil’s Stock World 

Forget the insurance companies.

Yesterday they were saying $20Bn in damages but the NYC subway system alone may have more than $20Bn in damage. Who’s insuring it? I have no idea.

But things like that and the devastation along the Jersey shore, where single homes are worth well over $1M, and 100 miles of home-filled coastline was hit with record flooding, means we could, ultimately, be looking at $50-$100Bn worth of total (not all insured) damage from hurricane Sandy.

So we’re not going to go bargain-hunting for insurance companies – it’s a very hard group to pick winners and losers in, but some segments, like title insurers, tend to sell off with the group. Those can make for some good fishing once the dust settles.

At the moment, the futures are up slightly (8am), but only because the Dollar took a dive to 79.75 as the Euro broke over $1.30 . It remains to be seen if the Dollar will stay under 80 and the Euro will stay over $1.30 – otherwise we’ll be back on the downward path very quickly.  The oil inventory report has been postponed until tomorrow and oil is back up at $86.35. With 1/3 of the country not driving or flying for a few days, don’t expect a lot of fuel to be used in the NEXT report – this one only covers through Saturday.

 

In Europe, Unemployment remains stubbornly high at 11.6% for September, up from 11.5% in August with both Spain and Greece topping 25% unemployment.

Spain, for it’s part, seems to have narrowed its deficit to 4.39% of GDP from 4.77% just a month ago, mainly on an increase in VAT taxes. VAT taxes are doing their trick and increasing revenues for the Government.  The 5% drop in the deficit in the first month of a tax increase bodes well for Spain and gives credibility to the Government’s resistance to the EU bailouts and their draconian terms (ie. the Paul Ryan budget).

We get our own Unemployment Report with the Non-Farm Payrolls on Friday morning. We’re expected to have added 130,000 jobs in October, which would leave Unemployment at roughly 7.8% in the US – nothing to crow about but thank goodness we’re not Europe!

Higher payrolls mean more demand for Dollars but not necessarily a strong Dollar, as the Fed has already made it clear that it will continue pumping money into the economy long after we don’t need it anymore. Of course, if Romney is elected, he plans to replace Bernanke, presumably with someone more hawkish, and that could turn the Dollar up quickly, which would be bad for stocks and commodities in the short-run – so we’ll keep an eye on that next Tuesday.

 

 

As you can see from the chart from the WSJ above, despite the little bump in the road we’ve been having, the S&P is still up 12.3%, year-to-date, while an admittedly modest recovery in new home sales has sent the Dow Construction Index (ITB) up 80.3%. That may seem like a lot, but it was down from 50 in 2006 to 6.50 in 2009 and only made it back to 12 at the beginning of this year, pretty much doubling with the rest of the market . Like XLF, it had taken a much harder hit and, even back at 20, is still down 60% from the top . Our housing market still has a very long way to go before it’s back on track – at least another 50% to 600,000 annual starts and even that only replaces the nation’s 110M residential properties at a rate of once every 183 years so it seems like a pretty good bet that new home construction should continue to trend higher and we’d love to add some ITB on a pullback ($19.50 is the 50 dma, $16.50 is the 200 dma but not likely to see that again).

 

The S&P/Case-Shiller index of property values in 20 cities rose 2 percent from August 2011, the biggest year-to-year gain since July 2010, after climbing 1.2 percent the prior month, the group said today in New York. The stabilization in values is rippling through the economy after the housing slump helped trigger the recession, supporting gains in consumer confidence and spending that are benefiting companies such as LOW and WHR.

“The housing recovery has had modest momentum,” said Anika Khan, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, a subsidiary of the largest U.S. mortgage lender. “We still are looking for housing improvement and think that trend will continue.”

Over 25% of the nation’s unemployed are in the construction industry.  If we can keep this momentum positive in 2013, it won’t matter that much what Europe or Asia do as a housing recovery in the US will trump most other issues.

Meanwhile, we still have this mess to clean up, then the elections, then the fiscal cliff so let’s not pop any champagne corks just yet…

Try Phil’s Stock World FREE here >

Real Economy Still Sliding As ‘Eating Out’ Continues to Go Down

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

While real consumer spending growth remains perilously close to recessionary levels for another year, one of our favorite indicators of real consumer sentiment (as opposed to the anchoring bias-driven surveys we are force-fed a few times per month) is the growth in spending on eating meals out. As Bloomberg Briefs notes, spending on dining out has fallen from 4.5% growth at the beginning of the year to under 1.8% growth currently (the lowest since May 2010). Add to this the slowdown in jewelry spending and the drag on discretionary spending likely from Sandy and we suspect the modicum of estimate revisions that have started to be published by sell-side analysts will need a little more adjustment.

Real Consumer Spending remains stagnant…

 

while easting out is plunging…

 

Charts: Bloomberg Briefs

Asia drug boom fuels surge in opium cultivation: UN

Asia drug boom fuels surge in opium cultivation: UN (via AFP)

Opium cultivation in Southeast Asia has doubled over the last six years as growing demand for heroin in China and the rest of Asia lures more farmers to grow poppies, the UN said Wednesday. Opiate users in East Asia and the Pacific now account for about a quarter of the world total, the UN Office on…

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ADP Grossly Overstates Job Growth for Last 12 Months by 419,000 Jobs

Courtesy of Mish.

ADP has announced revised methodology to “enhance” its monthly job reports, no doubt because its prior numbers simply were grossly inaccurate.

Indeed, I stopped commenting on ADP numbers because I thought they were absurd.

Let’s take a look at their revised methodology. Here is the ADP Jobs Report for September using the revised methodology.

“Private sector employment increased by 88,200 jobs from August to September, according to the September ADP National Employment Report®. The report, which is derived from ADP’s actual payroll data, measures the change in total U.S. nonfarm private employment each month on a seasonally adjusted basis. Last month’s employment estimate was revised down from 80,000 to 76,400 jobs.”

Please note that last sentence. Compare to what ADP actually reported last month:

Employment in the U.S. nonfarm private business sector increased by 162,000 from August to September, on a seasonally adjusted basis. The estimated gains in previous months were revised lower: The July increase was reduced by 17,000 to an increase of 156,000, while the August increase was reduced by 12,000 to an increase of 189,000.”

Got that? September private business sector increased by 162,000 but now we see September was revised down to 76,400 from 80,000 (not 162,000 as actually reported).

Revision Matching

Check out this statement from ADP FAQs.

Using this methodology developed for ADP by Moody’s Analytics, our adjusted historical ADP National Employment Report data dating back to 2001 has a 96 percent correlation with the revised BLS numbers.

ADP revisions match BLS revisions over time. Lovely.

Spotlight on Revisions

ZeroHedge totaled up the ADP revisions for 2012 and concluded ADP “Cancels” 365,000 Private Jobs Created In 2012.

I conclude the same thing. However, things are even worse than Zerohedge states. Here is a chart that I put together of ADP revisions.

Continue Here

7 Things I Learned from Hurricane Sandy

By James Altucher

Let’s clean up some myths first: Hurricane Sandy is not good for the economy. People in the media always claim hurricanes are good because of the rebuilding. This is bullshit.  Yes, people will be buying new furniture, etc. But if it were good for the economy I’d come and smash your house every other month and that would be even better for the economy. So that’s wrong. It’s never good to destroy hard-earned resources.

Second, Hurricane Sandy is not retribution for any societal ills. I’ve seen “gays” blamed and I’ve seen a “two state Israel/Palestinian solution” blamed and I’ve seen “global warming” blamed. It’s none of those  things. Death tolls per capita per natural disaster have gone down since the 1950s in developed countries so all of those suggestions are ridiculous.

(scary)

Third, 90 people have died and 60 million touched in some way by the hurricane.  There’s no way around it – natural disasters suck.

Claudia and I live right next the Hudson River. Early Monday the Hudson River was already climbing above the rocks and crawling it’s way down the street. That was eight hours before high tide and some guy was kayaking in the street while everyone laughed and the police begged him to stop.

My neighbors started taping up their doors and putting sandbags in front of them. I’m always too late to the whole “fix-it” thing so I asked someone if they were just handing out sand bags somewhere. He laughed and said he bought them at the Home Depot a week ago. “There are none left,” he said, and kept on taping. Lot of stuff to do. I pretended like I had something to do also. The alien mothership was going to land and destroy us all but I was embarrassed that I didn’t know what to do in preparation for it.

Keep reading: 7 Things I Learned from Hurricane Sandy Altucher Confidential.

FacePalm: Short To Zero

FacePalm: Short To Zero

Courtesy of Karl Denninger, The Market Ticker

From Janet T:

When insiders sell stock, that's usually a strong sell signal for everyone else.  As I mentioned in a previous post, many of Facebook's early investors cashed out rather than hang onto their shares, and the stock price plummeted from the IPO price of $38 (at one point the share price had risen to $45) to close at $21.94 on Friday.  In after-hours trading, Facebook (ticker symbol FB) traded down another 1.33% to $21.65.  Trading was closed Monday and Tuesday due to Hurricane Sandy, but trading reopens today.

After trading hours on Friday, October 26, several senior Facebook officers made required filings of 4s forms to the SEC reporting that on October 25, they converted their newly unlocked restricted shares from  Class B common shares, which get ten votes, to Class A common shares which only get one vote.  Unlike the Class B shares, the Class A shares can be traded in the public market.  In fact, the only reason to give up the ten times voting rich Class B shares for Class A shares is to ready yourself to sell the shares, since Facebook offers no economic value when the exchange is made.  In other words, as soon as their shares were unlocked, Facebook's officers got them ready for sale in the open market.

That's not a surprise, right?  After all, when the rats start abandoning the ship, one is usually wise to look for the lifeboats and life jackets lest you find the water rising around your ankles.

The bigger problem Facebook has is the intrusion issue.  Janet noted something that I've noticed as well on my page in the last couple of weeks — the company has ramped up it's abuse of users in the form of "liking things."

That is, suddenly my top-level page has all sorts of product and service "touts" that I don't think people intentionally posted there.  But it sure looks like it from a casual glance.  This, incidentally, led me to update my status warning people that I'd be more than happy to prune those who are "friends" and both have and will continue to do so.

The funny thing about this is that FacePalm seems to think that they're the "creator of value" with such stunts.  They're wrong.  Like so many other allegedly "value-creating" enterprises on The Internet the mistake they make is thinking they can appropriate the actions of their users and sell them on a forward basis without eventually*****ing people off. 

That has never proved to work in the history of The Internet and it won't this time either.

I maintain my view that Facebook is ultimately a zero; it's cost of operation will exceed its revenue eventually, and when it does it will simply bleed out until the carcass is washed into the drain of history, much as happend with Myspace.

Disclosure: I own PUTs.

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Oh Look, A crApple In The Storm

Oh Look, A crApple In The Storm

Well now isn't this amusing?

Apple Inc. (AAPL) said mobile software head Scott Forstall and retail chief John Browett are departing as Chief Executive Officer Tim Cook embarks on a sweeping management overhaul at the world’s most valuable company.

Not for long.

Forstall will leave next year and serve as an adviser to Cook until then, Cupertino, California-based Apple said yesterday in a statement. Executives Jony Ive, Eddy Cue, Bob Mansfield and Craig Federighi will take on added management responsibilities, the company said. Forstall was pushed out, according to a person with knowledge of the dismissal who asked not to be identified because the matter is private.

Yeah, ok.  It's "private" you know, because, well, public companies are "private" smiley

Forstall was well-known as a Steve Jobs boot-licker (who often rewarded such people) and was responsible for Siri and the mapping system.

You know, the one that showed bridges that looked like roller coasters and was generally (and widely) believed to be massively inferior to Google's maps, which Apple tried to replace?

Yes, that.

The problem with "iBoy" cult followings is that eventually the sheeple (that's you, incidentally) start to wonder if the cool breeze they're feeling is coming from the repeated shearing they take from over-priced and underwhelming products.  Cheerleading is all fine and well and of course positively-reinforced self-delusion is powerful with all cults, and Apple is no exception.

But eventually people start to wonder if the shears will be exchanged for a saw, and if the next "shearing" will be to one's neck.  Further, even if it isn't advancement of competitors continues in a relentless fashion, such as the just-announced 10" Nexus 10 — for $399.

I still find the entire tablet "thing" to be puzzling.  I've got a couple of them around here and have played fairly-extensively with all except the new "Surface", and I just don't see the reason for them to exist.  They make a decent media consumption device but that's IMHO their "best and highest use", and for that I find them too damned expensive.  At half the current ask I can see the argument for them on a widespread scale, but not where prices are today.

Apple, of course, has its much-vaunted "valuation" on the premise that you can con people into overpaying for something forever.  This rarely works; saturation happens and from there you run into a problem.  The iPod has already reached and rolled off that point, which nobody seems to pay attention to, but the numbers are what they are irrespective of the refresh cycles that keep coming and yet fail to drive new unit sales records.  Now there is some evidence in the numbers that the iFeminineProduct is beginning to find the same kneepoint. As this little bit of reality spreads through the Apple product line risks to performance go materially higher and more mistakes will be made such as were made with maps as the desperation level rises precipitously along with blood pressures in the Apple executive suite.

I give this game little remaining time; I'm sure that a big part of the impetus for the firings, er, "movings on" came from the roughly $100 decline in Apple's stock over the last month or so.

Just wait until it gets cut in half or more.

Disclosure: The author rode Apple down short and got essentially all of its recent declines, taking the position down just before earnings, and is very much looking forward to more profits as the "iBoi" story continues to bleed out.

Greece warns on grim economic outlook as EU says no debt deal yet

Greece warns on grim economic outlook as EU says no debt deal yet (via AFP)

Greece unveiled a tough new austerity budget on Wednesday, sparking a call for a 48-hour general strike, as the EU said there was still work to be done before the recession-hit country can access loan funds needed to stave off bankruptcy. Finance Minister Yannis Stournaras unveiled the 2013 budget,…

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HFT Caught-Red Handed In FX Trading

Courtesy of ZeroHedge. View original post here.

BanksySubmitted by Tyler Durden.

After decimating equity and commodity markets, the HiFreqs have boldly gone and broken another market – FX. But that is not news: we reported over two years ago, that while HFT accounting for all of the churn – not liquidity – in stocks, bonds, and commodities, HFT had moved on to the final frontier, FX, where even the smallest moves now are catalysts for avalanche-like surges and plunges on the most meaningless of newslfow. What is news it that finally it has been caught in the act.

From Reuters, which is also an involuntary accomplice in this latest HFT unmasking, courtesy of its institutional FX trading platform: "Thomson Reuters Corp is investigating whether one of its currency trading customers gained an unfair advantage when making high speed foreign exchange trades on its platform. Lucid Markets, a privately held electronic trading firm registered in Great Britain, may have benefited from trades using several connections on the Thomson Reuters Matching platform."

More:

"As the operator of one of the largest FX dealing communities, providing a level and fair playing field for the community is paramount," said a Thomson Reuters spokeswoman.

The spokeswoman confirmed that an investigation was initiated when Thomson Reuters became aware of the issue, saying, "Thomson Reuters takes any accusations seriously and uses all the tools at its disposal to enforce its rules." She declined to provide further details as the investigation has not yet concluded.

Dierk Reuter, a founding partner at Lucid Markets in London who has no other known association with Thomson Reuters, said his firm is collaborating with Thomson Reuters on the probe. "We believe that we have been in compliance with Thomson Reuters instructions at all times," he said.

Clients are allowed two connections: one for trading and another as a backup.

A spokesperson for Lucid Markets in New York said the company is "still currently connected and trading through Thomson Reuters."

And now you know why the next time a patently fake and flawed rumor comes out of Europe, the EURUSD moves by 100 pips on what is completely debunked moments later, even as the new (and improved) price level sticks. Because in a market in which fundamentals have no bearing on anything, the only thing left is momentum… which works until mean reversion takes place.

Canada GDP “Unexpectedly” Shrinks; Pollyannas Come Out Of Woodwork

Courtesy of Mish.

Economists who cannot see anything but the rear view mirror were surprised to learn Canadian Economy Shrinks as Oil, Mining Slump.

The Canadian economy shrank unexpectedly in August, pointing to a sharp third-quarter slowdown in growth from the first half and reinforcing the Bank of Canada’s message that interest rate hikes are less imminent.

The surprising 0.1 percent contraction in August from July reflected broad weakness across most industries, prompting economists to revise forecasts down. The Canadian dollar weakened to below parity with its U.S. counterpart.

August’s dip was the first monthly contraction in GDP since February. Statistics Canada said on Wednesday it was largely caused by decreased production in the natural resources sector – oil and gas extraction and mining – as well as in manufacturing,

Statscan said temporary maintenance work at some mines and oilfields was partly to blame. But some economists argued that the economy had stalled more broadly.

“There are too many negatives in this report to dismiss the headline weakness as being attributable to just temporary disruptions in some sectors,” said Derek Holt and Dov Zigler of Scotia Capital.

Doug Porter, deputy chief economist at BMO Capital Markets, noted that output fell in 10 of 18 sectors. “We can’t brush this off as driven by special factors,” he said.

Flaherty was more sanguine. “We’re going to see some variations, but overall, for the year we are on track with GDP growth,” he told reporters.

Flaherty expects 2.1 percent growth this year, based on the average forecast of private sector economists his office surveyed this month.

The Bank of Canada has also suggested the third quarter was an anomaly. Last week it halved its forecast for third-quarter growth to an annualized 1 percent, but predicted a rebound to 2.5 percent growth in the fourth quarter and average growth of more than 2 percent through 2014.

Pollyannas Come Out Of Woodwork

BMO and Scotia Capital analysts may be late to the recession party (or not, I do not know previous calls),  but otherwise, Pollyannas like Jim Flaherty, Canada’s Finance Minister, and officials at the Bank of Canada and Statscan are still looking for growth.

Forget about it. This is not an anomaly as suggested by the Bank of Canada.

Continue Here

The Financial Super-Storm of 2013

Courtesy of Charles Hugh-Smith of OfTwoMinds blog

The next "Frankenstorm" to hit New York will be financial.

The destructive whirlwind that hits New York in 2013 will be a financial Frankenstorm.

Four years of glorious central-planning "extend and pretend" have enriched the political and financial Aristocracies, and imbued them with a bubble-era hubris that they have indeed gotten away with murder: the $6 trillion the Federal government borrowed over the past four years, the Fed's $2 trillion in fresh cash, the Fed's $16 trillion bailout of the banking sector and various perception management manipulations have righted the storm-tossed ship. All those with power in 2008 remain in power and all those with outsized wealth in 2008 still hold their outsized wealth.

The global tsunami of borrowed and printed money lifted the water-logged dinghies of the debt-serfs enough to give them hope of better times; meanwhile, their adjusted income has declined 8%: they are poorer while the neofeudal Aristocracy is much wealthier: same as it ever was, right?

Except the financial tides and winds have shifted, and the linearity of central planning is about to be disrupted by nonlinear, positive-feedback storms. Let's list a few of the major storms brewing:

1. Destabilization of the euro. I have covered the fundamentals many times here:

The European Model Is Also Doomed (February 7, 2009)

When Debt-Junkies Go Broke, So Do Mercantilist Pushers (March 1, 2010)

Why the Euro Might Devolve into Euro1 and Euro2 (March 2, 2010)

Why The European Union Is Doomed (March 28, 2011)

Why the Eurozone and the Euro Are Both Doomed (June 23, 2011)

Three More Reasons the Eurozone Is Doomed (September 22, 2011)

Yet Another Reason Why the Euro Is Doomed (October 17, 2011)

EU Leaders Throw Europe a Plutonium Life Preserver (October 27, 2011)

What's Lost With the Demise of the Euro? Only What Was Unsustainable (November 22, 2011)

A Crazy Idea That Might Just Work: Greece's New Currency, the U.S. Dollar (May 14, 2012)

The Tiresome Eurozone Soap Opera Has Entered Re-Runs (June 18, 2012)

Sorry, Bucko, Europe Is Still in a Death Spiral (July 2, 2012)

 

2. The U.S. dollar will rise significantly, crushing overseas corporate profits that have lofted the U.S. stock market ever higher. I have covered the many positive feedbacks that will continue pushing the dollar higher. Dollar goes up, stocks go down.

What's Hated Most May Be a Contrarian Buy (U.S. Dollar) (April 19, 2011)

About Those Permanently Rising Corporate Profits… (August 12, 2011)

Why the U.S. Dollar Is Not Going to Zero Anytime Soon (July 23, 2012)

What Will Benefit from Global Recession? The U.S. Dollar (October 9, 2012)

 

3. The "China Story" runs off the rails. We are feeling the first stiff breezes from China's tidal paradox: as it starts pushing its neighbors around, resuming its Imperial ambitions, it undermines the source of its wealth, its export machine.

China has placed an informal boycott on Japanese goods as a result of the Senkaku Island conflict, which by the way cannot be resolved in the current paradigm. China, Japan and the Senkaku Islands: The Roots of Conflict Go Back to 1274 (September 25, 2012)

China's newfound wealth was always more fragile than true believers in the "China Story" could fathom. China had what it took to go from rural backwater to global industrial power, but it lacks the necessary foundation to move beyond that stage. Once the Eurozone and U.S. economies gather downward momentum, the export machine's inefficiencies and malinvestments will catch up with it.

And once that happens, the real estate bubble's inefficiencies and malinvestments will catch up with it.

China: Ascendant Superpower Or Just Another Nation with Structural Problems? (April 24, 2009)

China and the U.S.: Dysfunctional Real Estate Bubble Twins (January 21, 2010)

The Myth of "Decoupling" and the Chinese Consumer (September 14, 2010)

Why China's Housing Bubble Is Unsustainable (September 16, 2010)

Why The Wheels Are Falling Off China's Boom (June 15, 2011)

 

There are structural dynamics in play that supercede any national policy.

Neofeudalism, neocolonalism, financialization, centralization and consumerism have all reached the stagnation-decline phase on the S-curve.

 

Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012)

The Master Narrative Nobody Dares Admit: Centralization Has Failed (June 21, 2012)

Financialization's Self-Destruct Sequence (August 16, 2012)

Is Anybody Else Tired of Buying and Owning Stuff? (September 7, 2012)

When these financial storms arise and feed each other, Wall Street and New York will experience losses that will exceed the hurricane Sandy damage by an order of magnitude, for the Wall Street Status Quo will crumble under its own dead weight.

“Google Law” Yet Another Warped Policy by Hollande; Government Motors French Style

Courtesy of Mish.

French president François Hollande took two more swan dives into the pool of ludicrous actions in the past few days, first with car-maker Peugeot, quickly followed up with a guaranteed-to-fail proposal regarding search engine giant Google.

Government Motors French Style

Bloomberg reports France Guarantees Peugeot Debt in Exchange for Influence

The French government stepped in to rescue PSA Peugeot Citroen (UG), Europe’s second-largest carmaker, by guaranteeing as much as 7 billion euros ($9 billion) in new bonds in exchange for greater influence over company strategy.

The state and workers will each receive a seat on the board of directors, and an outside committee will be set up with veto power over any “significant” changes in Peugeot’s operations, the French Finance Ministry said today.

“The state will want to see this business run more in the interest of government, rather than in the interest of the shareholders,” said Erich Hauser, a Credit Suisse analyst with a neutral rating on the shares. “The rising debt of Peugeot clearly shows that the core things are getting worse.”

Sheer Madness

I would like to point out how ridiculous this action is, but Pater Tenebrarum at the Acting Man blog beat me to it.  He did a first-class job of making Hollande look foolish in his post Peugeot Bailed Out, More Trouble for the Banks.

The government and workers will receive board seats? Are they sure this is going to work out? We believe that this latest socialistic experiment is highly likely to turn into a bottomless pit for France’s tax payers.

Not surprisingly, competing car makers in other European countries are rather unhappy that an inefficient competitor is kept on artificial life support. They are perfectly right to complain. To keep companies that are not competitive artificially afloat harms the economy at large, but it is especially detrimental to more able companies in the same branch of industry.

However, the French government insists that it is actually not providing aid to Peugeot, and will therefore not run afoul of EU regulations that forbid such state aid. It is not giving aid, it is merely providing ‘support’.

Hang on, it gets even better. Guess who Peugeot is now in an alliance with to produce new cars consumers will – hopefully – want? You guessed it…. GM, the original  ‘government motors’: Peugeot said today it’s making progress with GM on the alliance and the two have selected four vehicle projects to work on together.

“Google Law” Another Sign of Hollande’s Warped Mind

That piece by Tenebrarum is a tough act to follow. Nonetheless, please consider the Wall Street Journal article France Calls On Google to Settle Rift With Publishers

France will consider adopting legislation that would force Google Inc. GOOG to pay for the right to cite news articles online if the U.S. search giant fails to settle a long-running dispute with French news publishers over how to share advertising revenue, the office of France’s President François Hollande said on Monday.

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How to Eliminate $4.5 Trillion of Debt

Courtesy of Bruce Krasting

Note: It’s dark north of NYC. Only those with generators have lights, heat and the ability to communicate.  I counted 27 trees down on my property; the costs to make the damage right will be about $10k. Insurance will not pay a dime. I got off easy.

You’ve seen the pictures by now, big trees hanging on downed wires. What you miss from the pictures is the scope of the devastation; it’s massive. Whatever your estimate for the cost of Sandy, and how long it will take to get back to “normal”, double or triple it. And it’s getting cold. Anyway, allow me a (lengthy) ramble on a somewhat bizarre idea that has been floating around.

 

Tear Up the Paper

 

Total global debt is around $200Tn. World GDP is less than $70Tn (300% global debt to global GDP). Advanced economies have a higher percent of total Debt/GDP then developing countries. So the crux of the problem lies with Japan, most of the EU and the USA.

The question of what to do with all this debt has become a topic of discussion of late. The catalyst was (surprisingly) the IMF. Some deep thinkers at the IMF have resurfaced an old idea. Just cancel the debt; make it disappear. FTAlphaville, Ambrose Pritchard, and Zero Hedge have had articles that discussed the IMF paper.

 

 

 

 

This sounds beautiful. According to the IMF, the mechanism for debt cancellation is already in place. The proposal is to simply eliminate all of the US Treasury debt that is purchased by the Fed (QE). At the end of the day, the citizens “own” both the Treasury and the Fed, so the loss to the Fed from cancellation is the gain of the Treasury. One pocket is full of Assets; the other pocket is full of Debts. Both pockets are emptied; no one is richer or poorer as a result.

Hmmm. What’s wrong with this?

-The Fed would have a loss. Does this matter? I’m not sure. The most important Central Bank in the world would have a negative net worth. But the Fed would still have the Full Faith and Credit of the USA behind it, so the loss is irrelevant.

-If the Fed wanted to tighten monetary conditions at some point in the future it would normally sell the bonds that it had purchased. But if the bonds had been cancelled, the Fed would have nothing to sell, and therefore could not reduce reserves.

Ideas like this scare the crap out of worriers like me. The result of debt cancellation (ala the IMF) is a permanent increase in money outstanding (signorage). But the reality is, the bonds purchased by the Fed ARE permanent. The Fed will never be able to sell the trillion or two of Treasury bonds that it owns, so we might as well just recognize that fact, and just cancel the bonds.

-The problem that I see is one of scale. How much additional Treasury debt could the Fed buy and then cancel? It currently has approximately $1Tn that is eligible for cancellation. There is a limit to the purchases that could be accomplished. I don’t think the Fed could buy an additional $3Tn without serious consequence to the government bond market.

-This is a goofy concept. Arbitrarily cancelling publicly issued debt has a bad ring to it. This has the appearance of a desperate act. Destabilizing the Fed might have negative consequences.

 

The IMF's objective is to reduce debt by a meaningful percentage, and to accomplish that without consequence. If that is the case, I have a an alternative proposal. America could eliminate $4.5Tn of IOUs with the stroke of a pen. Debt to GDP would fall from today’s perilous level of 102% to a much more comfortable 70%.

That also sounds nice, BUT, I hope to show that there ain’t no free lunch when it comes to tearing up IOUs.

 

The Plan

The Social Security Trust Fund (SSTF), the Federal Workers Retirement Fund (FERF) and the Military Retirement Fund (MRF) are sitting on a whopping $4.6Tn of Special Issue Treasury Securities. This category of debt is referred to as intergovernmental debt. What would happen if all of this debt was erased? Not a damn thing. That may sound impossible; follow the money.

SSTF, FERF and MERF all have the same operating profile:

-They take in real cash money.

-They pay benefits.

-They have assets in the form of those Special Issue securities.

-They earn interest on their assets. Importantly, interest is not paid in cash, it is paid with more paper.

-The Funds are running annual cash deficits. (Tax receipts are less than benefits paid).

 

Consider what happens with SSTF. In 2012 it will have an operating cash shortfall of $50Bn. It must have cash in hand to pay the benefits, so it must sell (redeem) an amount of its portfolio of SI bonds to cover the shortfall. It redeems the necessary amount with the Treasury. The Treasury has no cash lying around so it must issue more Debt to the Public. The result:

 

Pre-SSTF cash shortfall

 

Debt to Public = 12.0Tn

IG Debt = 4.5Tn

Total = 16.5Tn

 

Pro-forma a $100Bn SSTF cash shortfall:

Debt to Public = 12.1Tn

IG debt = 4.4Tn

Total = 16.5Tn

 

Note that Debt to Public (DTP) increases, IG goes down, total debt is unchanged. Now consider what happens when IG debt is eliminated:

 

Pre-SSTF cash shortfall

 

Debt to Public = 12.0Tn

IG debt = 0

Total = 12.0Tn

 

Pro-forma a $100Bn SSTF cash shortfall:

 

Debt to Public = 12.1Tn

IG debt = 0

Total = 12.1Tn

 

So there you have it. It doesn't matter at all if the Intergovernmental Account is eliminated and all those Special Issue Treasuries are ripped up. $4.5Trillion of US debt is just a fiction.

I know that there will be some who look at this and say, "But the bonds held by the SSTF are my security that SS will continue to pay monthly checks". There is not one shred of truth to that line of thinking. Congress can alter the benefits paid by SS anytime it chooses. The existence of the SS Trust Fund has nothing to do with that promise to pay.

When you peel back the onion that is the Intergovernmental Account, you find that there are no real assets, just paper and accounting gimmicks.

If the objective is reduce debt, there are cosmetic ways to do it. But eliminating the debt does not eliminate the underlying problem. As long as the SSTF, FERF and MRF run annual cash deficits (they will for the next 75 years) the real debt that America has, will have to rise.

The result of eliminating the IG debt is not unlike the consequences of the IMF's Chicago Plan. It looks like something is being achieved. The result is an immediate reduction in debt. But really that is just a charade. The liability just pops up someplace else. The pain of debt is not eliminated, just hidden so we feel better about it. Sorry IMF, it won't work.

 

 

 

The Number One Cause of Death from Sandy in New York City Was Drowning or Storm Surge Related, Despite Misleading Reports

Courtesy of Pam Martens.

Lydia Callis, Sign Language Interpreter and Mayor Michael Bloomberg of New York City, at 11 a.m. Press Conference on Hurricane Sandy, Tuesday, October 30, 2012

By Pam Martens: October 31, 2012 

Yesterday, New York City Mayor Michael Bloomberg held two press conferences to provide updates on the aftermath of Hurricane Sandy.  At both press conferences, the nature of the deaths from the storm in New York City received short shrift.  The Mayor appeared to be saying to reporters, nothing out of the ordinary there — fallen tree, downed power wire– move along. 

But then early this morning came the news that Long Island’s Nassau and Suffolk counties, with a population of almost 3 million, had just 4 deaths from the storm while New York City, with a population of roughly 8 million, had a striking 22 deaths from the storm, according to the NYPD.  (The Mayor put the figure at 18 at his second press conference yesterday.) 

The New York Times ran a detailed story on storm-related deaths in New York City yesterday, going into great detail about the lives of the individuals they singled out for focus.  But the actual death count, when one looked carefully at the Times article, was just 8 individuals accounted for.  As for the major reason for the deaths, the Times said: “Most of all, it was the trees.” 

Having previously lived 40 years on Long Island, where massive oaks and maples dot the landscape, it seemed impossible that only 4 deaths occurred there (two from fallen trees) while New York City, where a sea wall surge of over 13 feet of water was reported, was experiencing more fallen tree related deaths than water-related. 

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Asia battles drug-resistant malaria

Asia battles drug-resistant malaria (via AFP)

Drug-resistant malaria is spreading in Asia, experts warned as a high-level conference opened Wednesday with the aim of hammering out an action plan to strengthen the region's response. Resistance to the drug used everywhere to cure the life-threatening disease has emerged in Cambodia, Thailand and…

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New York in shock over storm horror

New York in shock over storm horror (via AFP)

New York confronted the devastation of superstorm Sandy, which left at least 18 people dead in the city and threatened to bring prolonged chaos and misery. Firefighters battled blazes and carried out rescues in flooded houses a day after the storm set off an explosion at a power station. Scores of…

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Value in the eye of the storm

Value in the eye of the storm

Here’s this week’s newsletter: Value in the eye of the storm

One of the best. Please give us your feedback in comments below.

Random Excerpts:

Third quarter Gross Domestic Product (GDP) showed that the US economy expanded more than forecast (2% vs. 1.8%). The increase was due to consumer spending, a rebound in government outlays, and gains in residential construction. The housing market is improving (see last week’s A Little Perspective)…

Nevertheless, since September 1, North American companies have announced plans to eliminate more than 62,600 positions at home and abroad. This is the biggest two-month drop since 2010…

As discussed with Jesse of Jesse’s Cafe Americain in “As Far As The Eye Can See: Stagnation,” consumers are suffering from wage stagnation. Interest rates are being kept artificially low by the Federal Reserve buying government bonds. Foreign money has also moved into US bonds, as lending money to EU countries has become more risky. Thus US bond prices, supported by the Fed and by inflows from foreign countries, are higher – some would argue in a bubble.

Barry Ritholtz’s chart shows that the correlation between the S&P and treasuries has generally been positive, averaging +0.2 between 1875 and 2002 – stocks up, bonds up, yields down. Lower yields push people out of bonds, towards equities. But since 2002, the correlation has been negative (-0.3). As Barry Ritholz noted, “The problem is that the last ten years were an outlier…”

Arguing that stocks are not cheap, John Hussman wrote, “The enormous volume of debt being held at high valuations should be a red flag for bond market investors, but is it a green flag for stocks?

“According to Ned Davis Research… Valuations are wicked once you normalize for profit margins… Stock valuations are not depressed as a share of the economy. Rather, they are elevated because they assume that the highest profit margins in history will be sustained indefinitely (despite those profit margins being dependent on massive budget deficits – see Too Little to Lock In for the accounting relationships on this). In my view, there are red flags all around.” (The Data-Generating Process)

Dr. Paul Price of Beating Buffett (this week’s featured author) takes the other side: “We now live in a world with fiat-based paper money being printed with impunity. There are no risk- free assets anymore, anywhere. Good-quality stocks offer the best chance of protecting your wealth in the times to come. Bonds are in the biggest bubble in the history of the world. I own none. While shares could get hit short-term, I think holding paper money is a bigger risk than owning stocks of firms with low or no debt.”

Paul disagrees with the general gloominess about stocks. In his opinion, bad news sells, and scaring people out of stocks is a media tactic to attract viewers:

Scare Tactics – Prepare Yourself to be Bombarded

Last Tuesday’s 243 point drop in the DJIA represented an unpleasant 1.82% daily de- cline. It came just days after the broad market set a post-2007 high. After the dip the DJ In- dustrial index is still plus 7.2% year to date. The S&P 500 was down a relatively lesser 20.71 points or (1.44%). It’s still ahead by 12.4% YTD.

Would you panic if a $10 stock went down 18 cents? Why, then, should you be getting sweaty palms when the DJIA makes the same percentage move to the downside?

Probably because of click-producing, real- time charts like the ones below…

“I Never Met a Rich Pessimist”

Paul takes these words to heart in investing. We have to be hopeful about something (even if it’s the assent of gold, farmland and guns). We need a plan, a strategy. Without those, what begins as trading or investing often ends in chaos and regrets.

Paul’s recent article ”Stop Calling Markets, Start Buying Individual Values” explains his philosophy of not relying on isolated chart patterns and absolute numbers… Paul’s goal, in a nutshell, seems be to “buy low, sell high.” In looking at stock prices, Paul considers many company-specific factors. But in looking at the indices, he weighs macro-economic factors more heavily.

For example, Paul noted that when the DJIA peaked in October of 2007, the trailing P/E for the index was 17.7x. That’s high by historical standards. The chart below compares the valuations (P/Es) of stocks in the DJIA in October, 2007, to valuations today.

166130 13501353076763687 Paul Price Never met a rich pessimist

 

166130 13501353809111884 Paul Price Never met a rich pessimist

 

Never Met a Rich Pessimist: Interview with Dr. Paul Price

Excerpt:

Ilene: According to your research, lately, higher corporate profits have placed trailing and forward P/Es at discounts to “normalized” market valuations. After the recent weakness in earnings, do you still believe that stocks are trading at discounts?

Paul: The overall market appears somewhat undervalued but there is a wide variation among individual stocks. I see both great bargains and some very overpriced compa- nies.

….

Ilene: Recently, you wrote,

“Equities must always compete with fixed income when fighting for market share of the total investment dollars that need to be put to work. CD, Treasury bond and corpo- rate bond coupon rates have an inverse effect on where P/E ratios tend to settle out.

“When risk-free returns are high, multiples tend to be low and vice versa. Both 10 and 20-year rates have plummeted over the past five years. In theory, P/E multiples should now be way above what they were at the time the DJIA peaked in 2007. Instead we have exactly the opposite situation.”

Why do you think there’s a discrepancy between the lower yields, and lower than normal P/Es?

Paul: These are unprecedented times. The Fed’s artificially low interest rates make any fixed-income investment a guaranteed loser.

Typically, rates even higher than today’s would have sent the market soaring to new heights. Even a 20 multiple equals a 5% after-tax return. That means anything less than an outrageously high P/E offers a better return than bonds, CDs or treasuries…

Also in the newsletter: Springheel Jack’s Speculative BuysPaul’s Exploration into Value Stocks and

Schizophrenic ‘Rear-View Mirror’ Covers from Barrons

Barron’s weekly investment magazine is published by Dow Jones. Many people seek it out for insights into how best to play the financial markets.

Two fairly recent cover stories show that Barrons really is telling you what’s already happened rather than what is likely to come along next. Their September 3, 2012 issue (published Aug. 31) pictured an indestructible Bull while noting that, “Most Wall Street strategists see stocks rising further from here.”…

Read: MarketShadows (10/29): Value in the Eye of the Storm

****

Special Offer: Click on this link to try Phil’s Stock World Free! 

Governor Chris Christie Strongly Praises Obama’s Response to Sandy; Could Christie’s Comments Tip the Election?

Courtesy of Mish.

Here’s a headline story including an interview on Fox news that caught me by surprise: New Jersey Chris Christie Praises Obama, Doesn’t ‘Give a Damn’ about Election Day

The presidential candidates have canceled all campaign events on Tuesday, but Republican New Jersey Chris Christie seemed to be stumping for President Barack Obama by appearing on several networks to praise the federal response to Hurricane Sandy.

In an interview on NBC, Christie called Obama “outstanding” for expediting relief efforts. He also told MSNBC that Obama “deserves great credit. He gave me his number at the White House and told me to call him if I needed anything,” Christie said.

The New Jersey governor even took his message to Fox News, saying that Obama had helped “tremendously.”

“I spoke to the president three times yesterday,” he explained. “He called me for the last time at midnight last night asking what he could do. I said, if you can expedite designating New Jersey as a major disaster area that that would help us to get federal money and resources in here as quickly as possible to help clean up the damage here.”

Chris Christie Video

Will Christie’s Comments Tip the Election?

New Jersey, Christie’s home state is solidly in the Obama column. However, storm-damaged Virginia is in a virtual dead heat. Praise from Governor Christie certainly cannot hurt Obama’s election chances.

Mathematically, I do not believe Romney can win if he loses either Ohio or Virginia. Romney certainly cannot win if he loses both of them.

Here is question of the day: Is this genuine praise or is Christie looking to run for president in four years? I suggest both.

Regardless, widespread perception that Obama is doing a good job in response to Sandy, fueled by gushing praise from Christie may be enough to tip Virginia into the Obama column, and the election right with it.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com…

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Thoughts on Gold

Courtesy of Russ Winter of Winter Watch at Wall Street Examiner

Grant Williams put out a very good presentation on the bond bubble/mania and a prospective gold bubble.  Of course I most certainly agree about the bond bubble, but Williams also offers up the plausible theory that once the bond bubble bursts it would also set off a central bank lead fear driven panic into gold and launch a parabolic mania phase. Williams now sees gold as being late in the awareness phase.

 

 

I have no strong conviction that a gold mania phase will necessarily occur, but if one did, it would likely center around a huge collapse of false confidence in what I’ve called the sistema.  In my view gold has been manipulated by the sistema, especially given the psychological hit that would be taken should gold really get out of the bag.  Therefore as long as the sistema can effectively operate, gold will stay generally repressed.  I think the sistema’s  reign is on a short fuse, and once confidence is ultimately shattered then we will have a new ball game.

Once factor that will bust up the sistema and the bond market is continued excess money printing which has negative consequences for the real economy and real people. Inflation expectation were already two standard deviations outside the band even before QE3 hits.

Until that point, gold is trading around a negative correlation with the dollar. I see the USD as neutral, and in fact feel the USD could rally against the Euro short term.  In the near term I feel the election will be a factor, at least as far as the initial response. The consensus is that a Romney win will result in a bit harder money and perhaps the appointment of John Taylor to replace Bernanke. Secondly despite the fact that Romney leads in five out of six of the most recent polls, the odds makers are putting on 64-36 odds he loses. I agree with the consensus on the market reaction to a Romney victory, but I put the odds of him winning closer to 50-50, not 64-36. I see Obama voters as a mile wide and an inch deep.

 

Source: Real Clear Politics, first number is Romney

 

Therefore a Romney win would be a bit of a market surprise. The initial reaction might be a USD rally especially against the Euro taking gold down to long term support, which would be about 158 on GLD or $80 down from here. That would be temporary because I don’t see Romney going the Taylor route, he will pick bankster sycophants instead.  Secondly it will be awhile before Romney can have an impact on Fed policy and Fed members.

Should Obama win, as consensus believes, gold could rally, but there is resistance nearby overhead at about $168.37.  To me this suggests the pre-election skew is GLD 157.93-168.37.

-My commentary on how to trade this is available at Actionable. Subscription information can be seen in the right hand column.

 

 

 

For additional analysis on this topic and related trades subscribe to Russ Winter's Actionable – risk free for 30 days.The subscription fee is $69 per quarter and helps support Russ.s work on your behalf. Click here for more information.

Copyright © 2012 The Wall Street Examiner. All Rights Reserved. The above may be reposted with attribution and a prominent link to The Wall Street Examiner.

Japan Manufacturing PMI Falls to 18-Month Low

Courtesy of Mish.

The Japanese economy continues to skid as evidenced by the October Japan Manufacturing PMI™

Key points

  • Output and new orders both down at sharper rates
  • Employment falls at fastest pace since July 2009
  • Average output charges pared to steepest degree since December 2009

Summary

October’s PMI data indicated a further deterioration in the performance of the Japanese manufacturing sector. Orders and output both continued to fall during the month, while evidence of rising excess capacity led to a first reduction in employment for half a year. Manufacturers also intentionally cut back on their stock holdings as order books deteriorated and the outlook remained uncertain.

Production and new orders both fell at similarly marked rates during the latest survey period. Panellists reported that the car industry was a particular source of softer demand. Overseas new orders also fell during the month, the seventh successive month that a decline has been recorded.

As volumes of new orders and output fell further in October manufacturers were again able to make significant inroads into their work outstanding. Nearly a quarter of the survey panel indicated that backlogs were down in October and, with spare capacity seemingly rising, a number of companies also chose to lower their staffing levels.

I have little to add that I have not said before numerous times. The entire global economy is heading South in a major way, and Japan is in serious trouble given its monstrous debt levels.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

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Is Santa Coming Early for Gold & Gold Mining Stocks?

Is Santa Coming Early for Gold & Gold Mining Stocks?

Courtesy of Chris Vermeulen – www.TheGoldAndOilGuy.com

If you own physical gold, gold mining stocks or plan on buying anything related to precious metals before year end, you are likely going to get excited because of what my analysis and outlook shows.

Since gold topped abruptly a year ago (Sept 2011) with a massive wave of selling which sent the price of gold from $1920 down to $1535, technical analysts knew that type of damage which had be done to the chart pattern could take a year or more to stabilize before gold would be able to continue higher.

Fast forwarding twelve months to today (Oct 2012). You can see that gold looks to have stabilized and is building a basing pattern (launch pad) for another major rally. The charts illustrated below show my big picture analysis, thoughts and investment idea.

Weekly Spot Gold Chart:

The weekly chart can be a very powerful tool for understanding the overall trend. This chart clearly shows the last major correction and basing pattern in gold back in 2008 – 2009. Right now gold looks to be forming a very similar pattern.

Keep in mind this is a weekly chart and if you compare the 2009 basing pattern to where we are today I still feel it could take 3 – 6 months before gold truly breaks out to the upside and kicks into high gear. The point of this chart is to provide a rough guide for what to expect in the coming weeks and months.

Gold Stock Investing

 

Weekly Chart of Junior Gold Miner Stocks:

If you follow gold closely then you likely already know junior gold mining stocks can lead the price of gold up to two weeks. Meaning gold mining stocks which you can track by looking at GDX and GDXJ exchange traded funds will form strong bullish chart patterns and generally start moving up in price before physical gold.

The chart below shows the junior gold miner ETF with a VERY BULLISH chart and volume pattern. Remember that gold stocks are a leveraged play on gold in most cases. For example, if gold moves up 1% we typically see GDX and GDXJ move 2-4%. Because they act as a leveraged play on physical gold smart money and big institutions start accumulating these investments in anticipation of gold rising.

GDXJ has formed a tight bull flag and the volume levels confirm there is big money moving into these investments. The first price target on GDXJ using technical analysis for a measured move points to the $32 area. Looking forward twelve months with gold trading above $2000 we could see this fund more than double in value.

Bonus: while most traders focus on GDX gold miner fund, I prefer the GDXJ fund because its almost identical in price performance BUT it pays you a 5% dividend…

Junior Gold Mining Stocks

 

Gold’s Seasonality:

It’s that time of year again where gold tends to move higher. Below you can see where we are and what the price of gold typically does in November.

Gold Seasonality Trading

 

Gold Investing & Trading Conclusion:

Looking forward one month (November) and factoring in the recent pullback in gold to known support levels along with strong buying of junior gold mining stocks, I feel gold will take another run at the $1800 level and for GDXJ to test its previous high of $25.50 at minimum. If both those levels get taken out then a massive bull market for precious metals could be triggered. 

 

Get my Daily Trading Analysis & Trade Setups at: www.TheGoldAndOilGuy.com

Chris Vermeulen

Disclaimer:
This material should not be considered investment advice. Technical Traders Ltd. and its staff are not a registered investment advisors. Under no circumstances should any content from this website, articles, videos, seminars or emails from Technical Traders Ltd. or its affiliates be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. Our advice is not tailored to the needs of any subscriber so go talk with your investment advisor before making trading decisions This information is for educational purposes only.

WTI Crude Oil & Oil Stocks Seasonality & Year-End Outlook

WTI Crude Oil & Oil Stocks Seasonality & Year-End Outlook

By Chris Vermeulen – www.TheGoldAndOilGuy.com

Crude oil has had some large price swings this year and another one may be on its way. This report shows the seasonality of crude oil along with where oil is trading and what the oil service stocks are telling us is likely to happen going into year end.

Since WTI Crude Oil topped out in September at the $100 resistance level (Century Number) many traders are looking for a bounce or bottom to form in the next week. Historical charts show that on average the price of oil falls during November and the first half of December.

The charts of oil and oil stocks shown below have formed patterns on both time frames (weekly & daily) that lower prices are to be expected. If you did not read my Gold Seasonality Report I just posted be sure to review it here: Gold Seasonal Report

 

Crude Seasonality

 

WTI Crude Oil Weekly Chart:

Here you can see that price tends to fall going into Christmas and rallies during the last week of trading. This price action falls in line with Dimitri Specks seasonal chart providing us with insight as to what we should expect. Later this week I will finish my report on the Election Cycle Seasonality report which shows weakness in the market during Oct & Nov when a president is up for re-election.

 

Crude Oil Price

 

Oil Services Stocks – Weekly Chart:

If you follow oil closely then you likely know that oil related stocks can lead the price of oil by a couple weeks. What this means is that if big money is flowing into oil stocks (bullish price patterns with strong volume), then you should expect the price of crude oil to rise in the coming days. If money is flowing OUT of oils stocks then lower or sideways oil price should be expected.

The weekly chart oil stocks show a very large bearish head & shoulders pattern. While I do not think the neckline will be broken it is very possible.

One of the most important pieces of data on the chart is the VOLUME. Notice the lack of it… Volume tells us how much interest and power is behind chart patterns and declining volume clearly tells us these investments are out of favor currently and that big money is not moving into them.

 

Oil Stocks Weekly

 

Oil Services Stocks – DAILY Chart:

Zooming into the daily chart of the oil service stocks we can see there is yet another bearish pattern unfolding. Another head & shoulders pattern which looks as though it is just starting to breakdown as of this writing. Next support level is $35-36.

 

Crude Oil Stocks Daily

 

WTI Crude Oil and Oil Service Stocks Trading Conclusion:

Looking forward 1-2 months (November – December) taking the seasonal price swings in oil, re-election cycle seasonality and price action of oil stocks, I think oil will trade sideways or down from here. With that said, I expect crude oil to rally during the last week of the year. 

 

Get my Daily Trading Analysis & Trade Setups at: www.TheGoldAndOilGuy.com

  Chris Vermeulen is Founder of the popular trading analysis website www.TheGoldAndOilGuy.com. There he shares his highly successful, low-risk trade ideas. Since 2001 Chris has been a leader in teaching others to skillfully trade Currencies, Stock Indices, Bonds, Metals, Energies, Commodities, and Exchange Traded Funds. Reach Chris at: Chris[at]TheTechnicalTraders.com 

Disclaimer:
This material should not be considered investment advice. Technical Traders Ltd. and its staff are not a registered investment advisors. Under no circumstances should any content from this website, articles, videos, seminars or emails from Technical Traders Ltd. or its affiliates be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. Our advice is not tailored to the needs of any subscriber so go talk with your investment advisor before making trading decisions This information is for educational purposes only.

Debt And Deficits – Killing Economic Prosperity

Courtesy of ZeroHedge. View original post here.

Submitted by Lance Roberts of Street Talk Live,