Morning Call [7:49am ET] Now that China has reached economic super-power status, any slowdown (or diminution as happened in 2009) of its yearly trillion dollar imports is likely to immediately impact the economies of Japan, Hong Kong, South Korea, US, Germany, Australia and Brazil. Such concerns are being echoed today as the explosive growth of China’s exports over slowing imports was reported. That country’s international trade surplus is now at an 18-month high.
http://www.bloomberg.com/news/2010-08-10/china-s-july-trade-surplus-surg...
Equity markets reacted negatively, albeit not to an extreme except in Shanghai where traders were worried that the trade data would result in a stronger Yuan, leading to a possible exporting related hurdle for many of its manufacturers. Traders elsewhere are mostly focused on the FOMC report from Washington today as the US is still the world’s #1 economic super-power and any Fed policy shift has an influence on share prices.
So we wait until 2:15pm ET. The Bears are hoping for some hint of tightening, leading to a stronger Dollar and falling yields on Treasuries, which would push Bonds higher, pulling capital out of equities. The Bulls, on the other side, are hoping for a hint of Quantitative Easing aka the sound of helicopters, which would send Bond prices and the Dollar lower as traders hopped aboard the equity train or the yellow brick road.
In true American style, we have to look for clues because nothing in the world of finance is straight-forward to the public whilst powerful capitalists work out their deals in the backrooms. The price and volume action, of course, is the biggest clue. For example, should Fed Chairman Bernanke bang his shoe on the table as he screams “Read my lips; there will be no QE!” and prices soar, you know his team have decided on QE.
Mostly these FOMC meetings tell us nothing. Not even the meeting minutes, which are published three weeks later, will say much. In fact, I think the Fed delays that publication mostly to cover the fact that a wink and a nod, and a few pre-meeting telephone calls, are where the action is, and in the twenty-one days that follow pretty much everything can and does happen in the capital markets that overrides the importance of anything the FOMC is purported to have argued.
If America truly wants to solve its problems before China and others become the biggest economic super-powers, I think it should drop these mind games and just deal with people straight-up.
In any case; it’s summer and many movers and shakers are on vacation. The FOMC report may stir up the VIX a bit, but I suspect not much else. Most of us are thinking ahead til post Labor Day.
Have a good one.
CTA Trading Desk Post-Close Report
After a rocky start equity markets bottomed early Tuesday morning above key short-term support at S&P 1107 (Tuesday low 1111.58), spending the balance of the session generally working higher and finishing in the top half of the daily range (S&P -0.60%, closing 9.5 points above print low).
Once again, the jury is still out as nothing has been decided. Bulls were content the close was higher than the open and support held, while Bears would counter the official beginning of QE II couldn’t even get the S&P above 1130, the ascending wedge anemic volume pattern indicating trend exhaustion.
One day – hopefully sooner rather than later – we will make a much more definitive call. The lack of volume during the recent advance is very disturbing, but why can’t the Bears get anything going on the downside with momentum divergences piling up?
The wait continues…
Have a great evening
Comments
Moody’s on ‘breaking the buck’ – and 208 near misses
http://bit.ly/aMAqGi
Cara 100 Update
continued from yesterday's blog:
PBR - Howard Weil Initiates with a Market Perform. Target $44
TXN - Texas Instruments upgraded to Outperform from Market Perform at Raymond James.
Pharma Times: SMC backs GSK's BPH combo Combodart
Cost regulators in Scotland have given the green light for GlaxoSmithKline’s new combination treatment for benign prostatic hyperplasia.
The Scottish Medicines Consortium has accepted Combodart (dutasteride/ tamsulosin) for use on the NationalHealth Service. It is the first fixed dose combination of a 5-alpha reductase inhibitor (dutasteride) and an alpha blocker and is indicated for the treatment of moderate-to-severe BPH and reduction in the risk of acute urinary retention and BPH-related surgery.
GSK noted that dutasteride which it sells as Avodart, delays progression of the disease by inhibiting the production of the male hormone dihydrotestosterone (DHT) that stimulates prostate growth. Tamsulosin, which is sold for BPH by Boehringer Ingelheim and Astellas Pharma under a variety of brand names (eg Flomax, Alna, Harnal) and is now available generically, provides rapid symptom relief by reducing smooth muscle tone in the prostate and bladder neck.
Combodart received marketing authorisation in the UK in May based on the 4-year CombAT trial results, which demonstrated that the combo significantly reduced the risk of AUR or BPH-related surgery by 66% compared with tamsulosin alone. It was also shown that combination therapy significantly reduced the risk of BPH disease progression by 44% compared with tamsulosin and 31% compared with dutasteride alone.
BPH affects an estimated 3.2 million men in the UK (one in three men over the age of 50 years) and this number is expected to increase with the growing elderly population.
If — is the key word.
"If America truly wants to solve its problems before China and others become the biggest economic super-powers, I think it should drop these mind games and just deal with people straight-up."
Bill, this is so true that I must question whether "america" truly wants to solve the problems.
The "america" (small "a" intended) making the decisions may just be getting what it "truly wants".... World-oriented economic control by the richest individuals and the most powerfully connected politicians at the expense of the rest of us.
What better world-takeover approach than one with little physical destruction of assets (WW2was so messy) and little likelihood of open rebellion?
With the arrogance we've seen lately, surely they believe they can manage the Chinese newly converted wanna-be capitalists.
Response to thread from yesterday
From Dave:
Re: Matt Simmons
Submitted by davefairtex (2114 comments) on Tue, 08/10/2010 - 00:21 #66961
Oh don't tell me we have someone with actual experience here. Awesome.
So, ez_money, tell me. What's the per-barrel cost of the unconventional reservoirs that you typically deal with? And perhaps as important, what's the flow rate compared to the rate from the regular, easy to extract reservoirs? Lastly, what's the total size of the resource (US) from these these types of reservoirs?
* cost
* flow rate
* total resource size
From this, we can get an idea of what additional production (mbpd) we're able to realize from your unconventional production. Its great that the oil is there, but if we can't get at it quickly, and/or most of it is not economical, then it might as well not exist. But since I'm not the expert here, I'm asking you!
Ok Dave, You have asked for three peices of information, 2 are relevent(cost resource and resource size), the third flow rate is harder to quantify becuase all wells decline, so I will give you a rate of return at a price.
For per barrel cost, you can look at any of the reports from most any unconventional company and look for the F&D cost. This is the finding and delivery cost. These are usually in the $10 per barrel range. NOw It itakes 6000 standard cubic feet (SCF) of gas to equal one barrel from an energy perspective. A typicall well will have aboiut a 30 year life and make about 2 billion SCF. So take 2,000,000,000 and divide by 6,000 to get equivalent barrels, 333,333 barrels. Using a $5 gas price, a typical well will make about half of its production in the first 5 years or so. So it will make 166,667 barrels in 6 yearr (or 1,000,000,000 SCF). If we use a gas cost of $5 per 1,000 SCF and discount rate of 0, this well will make $5,000,000 is 5 years and it will cost about $2,500,000 to drill. So you double your money in 5 years at 0 discount rate. Typical rates of returns can be from 20-50% at a 10% discount rate.
So, it is not a super profitable business, not like tech or pharma, but it does pay the bills, provide value to customers in a product of need (not want).
The total resource in North America alone is around 1,000,000,000,000,000 SCF (about 1 quatrillion TCF). There is one large conventional gas reservoir in the middle east (Called the North Field) it sits in the Arabian Gulf and is shared by Iran and Qatar which volume is estimated at 900,000,000,000,000 SCF alone.
As for unconventional oil, I think that unconventional gas is a much larger resource, but then again we never thought we would be producing economically from source rocks to begin with and now we are.
Cara 100 Update
INTC - Intel downgraded at RW Baird to Neutral from Outperform. The firm's checks indicate a sharp slowdown in PC order trends following a weak July. Target to $22 from $30.
JNJ - Downgraded at Morgan Stanley to Equal-Weight from Overweight on lower pharmaceutical growth and fewer leverage opportunities.
WFMI - was upgraded from Neutral to Buy at UBS. $45 price target. Post-earnings pullback has created a buying opportunity. Estimates also boosted, given improved cost leverage.
RIMM
Big early volume
dollar running hot
Dollar is hot today, dragging down SPX, gold, and oil. The euro is down off its 75 RSI reading, and its MACD looks to be rolling over. Might we have a dollar inspired move down for a week or so while the euro takes a break, or is this a trend change?
Re: Response to thread from yesterday
(Also response to yesterday.)
I've been following the interchange on the spill and one thing comes through to me...
We who are not experts, not on the scene and are subjected to 24/7 information and disinformation (PC for lies) really have no way of judging the situation.
There are those who have agendas on both sides of the issue who are working full time on spinning.
I for one have zero confidence in the government (either party) the industry (any company) or any form of news delivery (including internet).
I am sick about what is being done to my country by so many greedy, self centered people.
The sale of our jobs, the lack of border and port security, the removal of market and accounting rules, the idea that the US is no better than those who seek to destroy our values and freedoms and worst of all — that so many insiders are participating in our destruction.
Re: Response to thread from yesterday
ez_money - thanks for the breakdown on gas. Now just need to know how long it takes to drill a well, and we can figure out how long it will take to bring online enough gas to run all those cars that haven't yet been converted to gas...
I was also interested in the size of unconventional oil as a resource. You say you're not so worried about peak oil anymore, but our infrastructure really isn't currently set up to use gas just yet as a transport fuel (except the odd bus fleets that uses natgas), and I'm guessing it would take a bit of time to convert all those 200M cars to use gas (not to mention all the filling stations, etc).
So we kinda still need that oil, I think...
Questions on possibility of renewed quantitative easing & QE2
Credit Suisse responds to Question of the Day:
We (CS) have had a lot of questions recently on the possibility of renewed quantitative easing - and, in particular, on:
* When the Fed will restart QE 2;
* Whether it would work;
* How the market would react - and what should investors buy if QE is restarted.
1) When will the Fed start QE 2?
* Our economists believe very strongly that meaningful QE 2 will not restart unless there is a big shock to both growth and markets (Credit Suisse US economics research, Easy Does It, 29 July and FOMC Preview: Keeping Expectations in Check, 6 August.). There are three reasons why there is a high threshold for QE2 to be started:
* a) The initial purpose of QE was, according to Bernanke and Fed Vice President Kohn, "to support market functioning and reduce interest rates in the mortgage and private credit markets". Clearly with high yield spreads down from 19.9% to 5.5% and mortgage yields down to 3.5%, this has happened.
* b) To be effective, QE clearly has to be large ($1trn+). Yet, the larger the size of QE, the greater the potential political hurdles, the harder it is to unwind and also the greater the degree of certainty that the economic environment requires it. On the political front, our economists highlight that with the Fed/US government already owning or guaranteeing 70% of mortgages, QE2 would probably involve direct purchases of Treasuries - and that carries significant political risk (the Fed directly monetising US government spending). At the very least, it would be hard to see this occurring ahead of the midterm elections unless economic conditions were to deteriorate dramatically. Clearly QE is much harder to unwind than interest rate reductions, again adding to the rationale that a major shock is required to restart QE and at the June 22/23 meeting the Fed effectively said they would only restart QE if the economic outlook were to "worsen appreciably".
* c) The Fed still have a 3.8% GDP forecast for 2011 and a 1% core inflation forecast- hardly a scenario that calls for exceptional measures, even if the outlook us 'unusually uncertain.'
* So it appears pretty clear that the 'nuclear' option of sizeable QE would require sharply lower GDP estimates and thus sharply lower equity markets.
* The difficult question is how would the stock market treat a mild softening of policy, such as the re-investing of coupons (that is technically not QE, as it would leave the size of the Fed balance sheet unchanged but indicate that the Fed were willing to consider QE). While Credit Suisse economists do not expect any action on Tuesday, they believe that the reinvesting of MBS coupons is the most likely option if any action were to be taken, but the reinvesting of coupons would only amount to between $100bn and $180bn, relative to the Fed's portfolio of $2.3tn.
* We think that the risk is that any form of mild softening of policy would make the markets worry that there is a problem – but clearly do very little to resolve that problem.
* However, we also think the Fed realises that to fight the threat of deflation you have to risk overkill (as it is much easier to fight inflation than deflation) and be pre-emptive. The Fed can afford to be pre-emptive with inflation and inflation expectations so low. Thus, on the global equity strategy team we are biased to believe that, at the margin, comments and statements on QE will surprise positively - and that maybe the pain threshold for the Fed to re-implement QE might be lower than is generally thought. We agree with our economists that it is highly unlikely that we have the implementation of large scale QE2 on Tuesday - but hints in that direction still deserve being taken seriously.
* 2) Would a renewed round of QE work?
* Most clients believe that if QE 1 did not do the trick, then QE 2 will not do it either. We disagree. A combination of QE and fiscal easing produced a much larger initial recovery in growth (and markets) than many had expected.
* QE works via five routes:
* a) It pushes up asset prices (holders of government bonds or other bonds have cash and are forced to make an asset allocation decision in an environment where real bond yields are artificially low). Indeed, Charlie Bean, Bank of England Deputy Governor, highlighted that this was the key rationale behind the MPC's QE in 2009.
* b) The rise in asset prices has a wealth effect on the consumer and corporates (it becomes more expensive for corporates to buy, so they build*);
* c) Lower real bond yields/ credit spreads help to improve housing affordability;
* d) Low bond yields give governments more discretion on fiscal policy and might encourage a looser fiscal policy (as otherwise they might be forced into premature tightening by high and rising bond yields)-it is worth noting that in the last 3 weeks the US have de facto eased fiscal policy slightly as a result of lower bond yields (we saw $32bn of further unemployment benefit being renewed and more recently $26bn of help to states/local governments);
* e) Weaker currency. A weaker dollar in effect will export US monetary policy (if the Yen were to for example strengthen dramatically further, then the BoJ would probably resort to more aggressive QE).
* In Japan's case, we believe QE did not work because it was very late (it happened four years after deflation started) and also not sufficiently bold. Our Japan economist, Hiromichi Shirakawa, believes that buying JGBs did little to affect price expectations and that the BoJ needed to buy risk assets such as property-related securities, bad loans or equities.
Re: dollar running hot
The US dollar weekly and monthly moving averages show $81 to $82. The dollar looks over sold on daily basis.
The Euro FXE looks overbought on daily basis. FXE moving averages look like a rollercoaster ride right now.
my 2 cents....
Bear E
Re: Response to thread from yesterday
It takes about a month to drill and complete a well.
You can convert almost any car to CNG. It costs about $4000-8000, and with the natural gas infrastructure in North America, most people could have a filling station near their neighborhood. Where I live, you can even put a compressor at your own house and reduce you tax.
It would actually be very easy to convert all of the 200 million cars in the US to CNG.
I agree you still need oil, but if wre had to it could be done. Also currenlty on an energy equivalent basis you would pay abot 1/3 the cost of a gallon of gas if CNG were used (cheaper product and less taxes)
Finally, unconventional oil is out there, heck the tar sands in Canada dwarf the oil reserves of Saudi Arabia and our wonderful friends in Venzuela have similar quantities. So there is plent of oil, it just costs a bit more to produce, not a lot but a little.
Think of it this way, we have found the lions share of easy to produce hard to find hydrocarbn and now are producing the easy to find hard to produce hydrocarbon.
Three governmental
Three governmental investigative bodies have now pored through the AIG wreckage and turned up disturbing facts—the House Committee on Oversight and Reform; the Financial Crisis Inquiry Commission, which will make its report at year’s end; and the Congressional Oversight Panel (COP), which issued its report on AIG in June.
The five-member COP, chaired by Harvard professor Elizabeth Warren, has produced the most devastating and comprehensive account so far. Unanimously adopted by its bipartisan members, it provides alarming insights that should be fodder for the larger debate many citizens long to hear—why Washington rushed to forgive the very interests that produced this mess, while innocent others were made to suffer the consequences. The Congressional panel’s critique helps explain why bankers and their Washington allies do not want Elizabeth Warren to chair the new Consumer Financial Protection Bureau.
“The AIG rescue demonstrated that Treasury and the Federal Reserve would commit taxpayers to pay any price and bear any burden to prevent the collapse of America’s largest financial institutions,” the COP report said.
http://tinyurl.com/2dnqlw5
set up
looks like one in HLF following earnings.
..............
team... check ' apwr ' at 3 pm today... see if close to green... watch for 250,000 + vol. in final hr.
Re: APWR
Are you looking for a short covering rally?
westcoast,
not so much that, as a buy reversal.. maybe still toward 7.90 ish... they have good working relationship with US companies... if QE II pans out, it better be ' jobs creative ', or, as the saying for Congress goes, " if you are in, you're out "... Bill Fleckenstein cited a great artice ( last night ) about the quandry at the US Patent Office.. 1.2 million applications just sitting there, and budgets have been cut.. Those ideas would create more jobs than any could imagine, and in the US.. I will cite the specifics later.. it will confound the mind....
The nightmare charts the fed is looking at right now
supposedly:
http://www.businessinsider.com/fomc-meeting-deflat...
Four key debates happening inside the Meeting right now supposedly:
http://www.businessinsider.com/the-four-key-debate...
Question? If it gets too expensive for companies to buy their growth, will they choose to build so they can hurdle the rate of their cost of money; just asking:)
Here's Your Playbook Ahead Of A Very Dicey FOMC Meeting
Read more: http://www.businessinsider.com/fomc-preview-2010-8...
Sneak Peek: Everything You Need to Know Before the FOMC “Fed Day” Release
http://wallstcheatsheet.com/breaking-news/economy/...
Speculative $CDNX venture
Speculative $CDNX venture index has been up 13 of last 14 days, and 19 of the last 23 days. Today it's pulling back just over 1/2 percent at 1461.15.
RSI 7 hit a high yesterday over 86 = very overbought. The last time RSI 7 was that high on this index was April 9 of this year, which just happened to mark the top of the intermediate bull trend.
Fed announces QE lite
http://www.bloomberg.com/news/2010-08-10/fed-to-re...
Federal Reserve officials decided to reinvest principal payments on mortgage holdings into long-term Treasury securities, making their first attempt to bolster growth since March 2009 to keep the slowing U.S. economy from relapsing into recession.
Gold up 8, SPX up 5 and the euro up a full penny on the news.
Re: Fed announces QE lite
Initially bonds reacted well to QE lite, but now they've lost all their gains and more, almost a full point from the high. Perhaps bonds were overbought in anticipation of a more brisk QE 2?
Likewise, the overall market is not all that excited - Utilities are the leading sector, with gold miners and healthcare also green. Everything else red, with homebuilders bringing up the rear.
Market's initial reaction is certainly positive, but based on the sectors in the green, it is not looking like the market expects QE to solve the ills of the economy. Not with XLU as #1.
Short Stack
Short-stacked Fed throws in a chip. A weak bet.
Re: Fed announces QE lite
Bennie the bakers biscuits won't rise. More leavening please!
Just another episode in the continuing sit-com 'Toonces The Driving Cat.'
$RUT and $SPX
Versus their respective A/D lines smaller caps are showing divergences. If $RUT is a better indicator as has been suggested this could pose problems.
http://tiny.cc/8siav
http://tiny.cc/4wi58
The lighter side of debt
In the 1990s Canada experienced accelerating debt which appeared to be out of control. The Canadian dollar plunged. Here's a bit of humour from the time on the issue, starring "Jock McBile" of The Royal Canadian Air Farce. Americans may be able to draw parallels in circumstances and politics.
http://www.youtube.com/watch?v=CBMnvXrdPmA
Shout out to the Wizard - THANK U!!!
After reading the WIR Sunday, I picked up some PFE DEC '10 calls at the $16 (in the money) strike price for $1.07. I'm already up nearly 20% and not looking to book it quite yet (PFE looks very strong here).
And to think, we haven't even seen the upgrades yet...
Bill, you rock! Thanks.
Mauldin on The Problem with Pensions
Just read this. I can see a new exodus in search of high ground. (Move over Bill, Bahamas is looking good)
Also exposes the extent of the real estate bubble in China. More misallocated capital.
A chart shows states that have huge unfunded pension liabilities that they are legally not permitted to reduce (the payouts)
"First, understand that in most states the law will not allow for adjustment of pensions. Taxpayers are completely on the hook. That money WILL be found at the expense of either higher taxes or reduced services (such as health care, roads, or police). "
Either they do reduce benefits, or taxpayers better get the hell out because it's going to be expensive. Hawaii looks bad, Florida looks good.
It's not going to be pretty. Then you read about China. Who's going to rescue the lifeguards?
Re: Short Stack
Wait for the roar of the markets tomorrow. The Feds can't let the market tank the day after announcing QE - that would be bad form. No idea what this does to gold, but any day now I think we see a +300 pt rally on the dow.
Re: Mauldin on The Problem with Pensions
westcoaster -
No Mauldin link. Help.
Re: Mauldin on The Problem with Pensions
Dr,
Here it is.
http://www.frontlinethoughts.com/pdf/mwo080610.pdf
Re: Short Stack
The futures don't think so Joe.
http://tinyurl.com/2bo9ege
Re: Mauldin on The Problem with Pensions
Thanks Grym. That is indeed a shocking report about unfunded state pensions. Discount rates and cash flow models used in the pension plans are inherently flawed by optimism with underlying greed as a motive or as kaimu would say, the human condition.
Cheers.
WIR Wake Up Canada
Bill, in your WIR you mentioned Mark Carney, the former director of Goldman Sachs Canada, now our BOC Governor, and IGGY, the leader of our opposition, another Harvard, GS plant.
After being in Hogtown for a couple of weeks, hey the Argos beat Edmonton last week, the Amero was brought up.
What else are you hearing, more specifically, if a devaluation of the US dollar will occur, what are the implications for the Canadian Dollar, GM will not be making anything in Canada, a 1.15 dollar vs the Greenback is intolerable, perhaps this is why the BOC, and England have stepped up to buy more US debt.
I do have concerns about our currency being put into a blender with the USA and Mexico.
Re: Mauldin on The Problem with Pensions
Hi All - My departed father in law (one of the first ~100 certified actuaries) was bemoaning the corporate pensions he oversaw as overly optimistic with projections - some 25 years ago. Probably time for the powers that be to look at social security, government/corporate pensions across the board to install reality. Likely an interesting day tomorrow. Happy Trading
WIR Wake Up Canada
Mark Carney was instrumental in getting the tax on income trust in Canada. Stock holders of income trust paid 15% tax on their dividends, Harper the newly elected PM promised no new tax on income trust. After being elected nine months on October 31 he raised the tax from 15% to 41% for Americans. Politicians and GS are a crime family that just help each other out. Of course the old people in Canada that used income trust as part of their retirement money got screwed royally along with Canadian citizens.
Google ethics?
Some Luddites may be safe having no online life. However: if you have a google blog (check) a facebook account (check) 'friend' or 'like' the comments and pages of your friends (check) make comments on a public commmunity (check) write articles on an industry blog site (check) sign up for news alerts on a media resouce (check) create a loggin for any website (check) buy things online (check) keep a shopping cart open on Amazon (check) bid on or list items on Ebay (check) sign up yourself or your company on any business networks (triple check) apply for jobs or post your a resume online (check) pay for your business license onlne (check) pay your taxes online (check) change your address with the post office or library online (check) sponsor events using an event management online tool (check) cruise the internet for sales (check) search real estate listings online (check) read various news sources on the internet (check) sign up for news alerts from those sources (check) dare to sign a petition or forward it to friends online (check) write a letter to your congress bods online (check) speak in a public forum on C-span (check) post your family photos with captions on a free photo share site (check) watch videos on YouTube (check) download music (check) or subscribe to a particular group or cause online (check) YOU are one of the most understood and studied creatures on this planet. How's that spam inbox working for you?
At least I get fewer Viagra offers now.
Re: WIR Wake Up Canada
It was the largest ripoff in Canadian History,EVER, although I could see the government , saying , lets slowdown here every one wants to convert to a income trust, Telus,BCE, they had to draw a line in the sand.IMO the government could have grandfartherd the existing trusts. You are quite correct in your statement that Mark Berneke Carney, raised the tax from 15% to 41% for Americans. Ask Peter Schiff, a once strong proponent of income investing in Canada.
It also resulted in a draw down to 7-9% yield thanks to Irish Jack Flahertry our finance minister."Gangs of New York" "I think he was in the movie" "the knife thrower" who killed peoples retirement income in Canada, oops, I now remember it was the butcher.
Come the end of the year if you re getting 7-9 % on a income trust in Canada, how much more will the yield drop for the companies who have not made the conversion to tax paying corporations. IMO a lot which is why I am bailing on them right now and going to cash, and some spec miners
FD Long Physical Gold, recent acquisitions OGC.TO OSK.TO CRK.TO CAN.V, and Sprot bought 500,000 shares of this puppy,
I am in the Coffin, with the Coffin Brothers, on juniors, although the above are not their pics.
behind the Mideast "Blackberry Diplomacy"
The Economist opined that what's really eating the authorities in UAE, Saudi, India etc. is inability to spy on instant messages between blackberries -- even non-corporate blackberries avavailable to all. It seems that the blackberry messenger application generates a new public key for each new encrypted chat session, and that only the chatters' phones know the paired keys.
The Economist further speculates that an education process may be going on whereby gov'ts learn how to install spyware (likely without RIM's direct involvement) directly on non-corporate blackberries. (UAE's gov't made a crude attempt at this a few months ago through a "software update" which RIM publicly denounced, and advised users how to counteract).
The magazine was frustrated by RIM's refusal to answer questions, expected that NSA and UK's GCHQ can likely monitor BB IM, and observed that this situation leaves RIM in rather a tight box. RIM has to appear to be providing secure communications (it's their major selling point) while cooperating enough with host gov'ts to ensure continuity of service. What good to multi-nationals is a BB that won't work in Dubai or Mumbai?
All this is occurring as RIM is trying to focus attention on its new OS and handset - both deemed critical to fending off the rise tide of iphones and androids.
http://www.economist.com/blogs/babbage/2010/08/bla...
where does the money go?
So if the treasury spends money it doesn't have and borrows to do it, and the Fed ends up buying the treasuries, then for sure there is more money injected into the economy. Money printing = inflation. But if the treasury stops having a deficit, but the Fed still buys treasuries, does the money go into the economy in the same way? I'm thinking it only goes to financial assets at that point.
I'm more thinking about England, not the US here. The pound has gone up strongly ever since the new government came to power in 24 may 2010. Fiscal austerity combined with net credit deflation = a much, much stronger currency. "Fewer pounds chasing the same number of goods." But what happens if the BOE monetizes, with a fiscal austerity program in place? I'm guessing that's no longer money printing, but I'm not sure.
Futures 1:30am
S&P -8.50 / -0.76%
Level 1,111.20
Fair Value 1,118.78
Difference -7.58
Nasdaq -17.75 / -0.93%
Level 1,896.00
Fair Value 1,898.21
Difference -2.21
Dow -65.00 / -0.61%
Level 10,553.00
Quantitative Easing 2
Thanks to Bill for posting those CS comments earlier in the day. I found their analysis clear and logical. It is worth discussing further given that QE version 1, 2, and (3+?) are closely tied to the short leg of the trade of the generation (meaning the short sale or liquidation of owned US treasury bonds). The shocking part is that despite trillions in new supply over the past few years and trillions more on the horizon, the interest rate (10 year and 30 year) continues to fall, thus showing an INCREASE IN PRICES paid for treasuries against all logic.
The best explanation for this is the fake bid in the market coming from the Fed. To the extent that the Fed continues to monetize the US Treasury market, interest rates on the 10 year and 30 year can continue to fall as progressively higher and higher prices are paid by the Fed for the bonds.
How do we reconcile too seemingly contradictory themes?
1) Endless supply of US treasury debt forthcoming? (suggests lower prices and higher yields)
2) Unlimited demand for US treasury debt from the Fed which is purchased by printing newly minted dollars? (suggests higher prices and lower yields)
The reconciliation requires recognizing that the Fed printing new dollars to buy the treasuries does not sterilize their purchase. Base money supply is being created out of thin air to monetize these purchases and at some point when the Fed balance sheet hits 10 trillion or even 20 trillion, a loss of confidence will occur in relation to the system. A lot of commentators have discussed a failed auction..... I actually consider this the LEAST LIKELY outcome. The Fed's purchasing whether disclosed or undisclosed guarantees the reverse - that auctions will continue to pay higher and higher prices for the US treasury debt sold.
A more significant question is at what point the marginal sellers of treasury debt begin wholesale liquidation in order to diversify in to other investments with better long term return prospects? Martin Armstrong has this right when he explains that scared money gets parked in treasuries and will only become a marginal seller when the economy recovers and better opportunities to invest capital are apparent. Then the question becomes how can the Fed sell 2 trillion or 5 trillion or even 10 trillion of treasury debt? The short answer is they cannot without completing destroying the treasury market and they will effectively be the market for US treasury market. If the Fed owns 50%+ of the market they are for all intents and purposes the price setter.
The relationship between the market for US treasuries is linked to the value of US dollar.......I will let Kaimu handle the rest from here...... ;)
Record Bank Profits in Australia
so everything must be hunky dory right? Was curious to see Keen's response to the headline. As usual, he always has something interesting to say:
http://www.debtdeflation.com/blogs/2010/08/11/bank...
interesting to see in his model of financial instability that one sign is when the banker's slice of income to GDP increases at the expense of capitalists and workers.
Bullish!
Bullish! In order to fool the Quant Spider Bots (QSB's) , I would please ask everyone to put the word Bullish! into the the first word of every comment they make on every blog.
Futures 4:30am - There will be blood
S&P -11.50 / -1.03%
Level 1,108.20
Fair Value 1,118.78
Difference -10.58
Nasdaq -19.50 / -1.03%
Level 1,877.00
Fair Value 1,898.21
Difference -21.21
Dow -103.00 / -0.97%
Level 10,515.00
Re: Mauldin on The Problem with Pensions
Dr,
This is from Mish yesterday @ http://globaleconomicanalysis.blogspot.com/
"The have-nots are taxpayers who don’t have generous pensions. Their 401(k)s or individual retirement accounts have taken a real beating in recent years and are not guaranteed. And soon, many of those people will be paying higher taxes or getting fewer state services as their states put more money aside to cover those pension checks."
My real estate tax went up again this spring in spite of the fact that houses are not selling in my neighborhood — even those with "Price Reduced" have been on the market for over a year.
The only state pension changes I have read about are limits on "new hires". There will be none, so it is all BS.
I have friends who worked in and industry who were switched to 401(k)s back in the 1980s who had to draw on those plans early and pay the 10% tax penalty — they had no defense of "we have a legal contract."
It's time to get real about the effects of globalization. This means rolling back those cushy state benefits.
Re: WIR Wake Up Canada
Gary,
"I do have concerns about our currency being put into a blender with the USA and Mexico."
Good analogy.
I'm afraid we are all "in the blender" with Mexico, China, S. Africa — the real common denominators.
All except, of course, those too big to be touched. CEOs, Congressmen, unions (got their bonuses, auto-increases and pension COLA)
Check out the insider trading at some of these multinational corporations. For that matter even domestic ones...
Options cashed on same day as received at PNRA. If food chains expect lower prices where does that leave manufacturing and tech?
Re: where does the money go?
Dave,
I was wondering when I heard the Fed was taking money from its "mortgage investments" to buy Treasuries just how that would not have any effect since the toxic mortgages have been in limbo since TARP.
Since all Fed money is mouse-money these days if the Fed buys/holds those new T buys does anything really "go" anywhere? (Unless a tree falling in the forest is heard... etc.)
Maybe these questions are why I like the kind of gold I can touch.
It's not trading...
but I do appreciate the bad press that is beginning to stick to our elites:
http://blogs.telegraph.co.uk/news/nilegardiner/100...
http://www.nydailynews.com/opinions/2010/08/04/201...
Australia's no better.
Re: Bullish!
Stevo,
"BULLISH" looks like a typo of what I'm putting in so many of my emails these days. (minus a "T" of course)
Actually, I like your idea.
Re: Mauldin on The Problem with Pensions
Grym,
The public pension situation is quite complicated.
Public employees in general are being attacked for the abuses of a few, e.g., the 46 year old ex-cops on a bloated life time pensions and the politicians who benefit from special laws that enable them to retire rich.
To be fair, the vast majority are not in the same situation. Most make ordinary wages and in many states their pensions are in lieu of Social Security because the States have taken advantage of the law that allows them to opt out of the Social Security System upon adopting a pension plan. Thus, if the attack on their pensions were to prevail, they would be destitute.
I have no qualms about going after the abusers, but we should be careful not to fall into a trap in which one segment of the public unjustly demonizes another. If we continue on this path our society could disintegrate. We are fragile. We have been made fragile because we have been abused by the rich and the politicians and we are all feeling vulnerable. We need to critically evaluate propaganda rather than just accept it.
Re: Mauldin on The Problem with Pensions
lessmore,
I live in Illinois one of the more extreme cases, I believe. The governor just gave raises to employees and there is a provision for a raise again next June.
Meanwhile our schools go unfunded — state support has been behind for years and many other state agencies are in the same fix, but state employee unions refuse to give.
In our city, police and firemen can retire at a young age after 20 years. I can understand in such a job the physical demands may be too much for older people, but they are getting 75% of their best full time pay and often get overtime work to boost the numbers.
The math just doesn't work anymore regardless of the dangers or stresses.
At the same time those who worked even more years in private jobs have had serious reductions in retirement and benefits.
Re: Mauldin on The Problem with Pensions
lessmore,
I live in Illinois one of the more extreme cases, I believe. The governor just gave raises to employees and there is a provision for a raise again next June.
Meanwhile our schools go unfunded — state support has been behind for years and many other state agencies are in the same fix, but state employee unions refuse to give.
In our city, police and firemen can retire at a young age after 20 years. I can understand in such a job the physical demands may be too much for older people, but they are getting 75% of their best full time pay and often get overtime work to boost the numbers.
The math just doesn't work anymore regardless of the dangers or stresses.
At the same time those who worked even more years in private jobs have had serious reductions in retirement and benefits.
Re: Mauldin on The Problem with Pensions
Its common knowledge that the public employee unions are in bed with the politicians. Behind closed doors the state politicians and the public employee union officials work out contracts that protect the union officials and the unions are expected to be big contributors to the state politicians' campaigns. The contracts harm the public workers that will be laid off as much if not more than the public from whom ever higher taxes are being extracted. In fact they harm the public generally if fewer services are provided. Its a corrupt system and corrupt systems produce bad results.