Bill Cara’s Blog for Aug 6, 2010 [See post-close report]

8:30 AM ET Employment Situation
3:00 PM ET Consumer Credit

SPY hit 200MA support and bounced. Roughly 11M shares traded before the bounce, compare to ~2M shares from yesterday's pre-market drop. ISEE sentiment was very bullish at the open yesterday, but closed sharply lower. Let's see how it opens.

i am still using this as my main compass. http://bit.ly/bocczL

Prices or politics? Elections coming up. they can try to hold the market up for only so long.

Isn't cap gains going up in 2011? so that would leave 4 months to sell and lock in the lower tax?

Today on CNBC John Paulson claims it is no more difficult to find a job today then during any other recession. (I leave the sound off, but it was on the crawl.)

I dare him to come here to the midwest and say that in a crowd of people.

Gold fell promptly after touching 1210. Today's move is more to do with us$ rather than Gold.

I also recall Mr. Cara being short silver mid-week. I too expect Silver to fall as today's us$ fall starts to revert to the mean.

C3, it sure did and remains above it. I have wondered whether $SPX or SPY was the most relevant in these situations as the former is under it's 200 day ma?

Is there much else to think about other wrt the markets than what the next stimulus is going to be? Let's all be honest here, if you were in charge and you had two options

OPTION A) Be prudent, clear out the bad debt, take the losses/closures on the banks (let new ones open), hurt your family/friend but live by sound ethics and money

OR

OPTION B) Try every means in the book to keep the ship afloat, hopefully ride out the waves while helping some of the voting-public and using that to curry favor through Patriotic speeches about how "the people are hurting and we all need to stick together and do everything we can..." ...and if things don't work out Wallstreet/BigCorp job will readily provide you shelter cause you scratched their back...

OPTION B is a no brainer and in fact, it can be argued there is no other way.

------------------

I'm trying to imagine the next stimulus. I'd love feedback from your crystal ball. One idea is that QE2 will be a housing forgiveness. The numbers aren't so large ...really. $1T would be enough to forgive 10% of the outstanding equity on every homeowner in America - it would take equity ownership that is around 48% right now to about 58%. That would be a jolt to the system! I'm not saying this is how they will enact it, but it is more to get a sense of the numbers.

Why would they NOT engage in something on this scale?

assumptions:
total homes 102,000,000
median home price 216,700
total equity 22,103,400,000,000
average equity 0.5
outstanding equity 11,051,700,000,000
10% forgiveness 1,105,170,000,000
stimulus per homeowner 10835

I don't think Obama will go for it because it will anger the 90% of the voters that don't get "forgiveness" (if your 10% number is correct). I know I'd be pretty angry. I bought a small house and worked hard to pay it off; now I should pay for my neighbor's house too? (who bought twice the house, and spent all his free cash on a boat and three cars). If Obama did that he'd have a zero percent chance for my vote (down from about a 5% chance now).

Just my two cents.

The Plan - Part Two...

Just did some searching on your housing forgiveness idea and I found this:

From Karl Denninger yesterday "Don't Bet On It (Mass Forgiveness):"

"...First, 30% of the people in this country own their homes outright - no mortgage at all. Of the remaining homes, about 30% are underwater. So that's 30% of 70%, or 21% of the total. Now subtract all those who are not paying (maybe half of the underwater loans?) and you get somewhere around 10% - perhaps 15% at best - of the homeowners. The other 85% won't get "helped"."

Politically untenable, according to Karl. I agree.

teamonfuego -

The trend is your friend and gold is clearly not trending down. You may want to reconsider gold's fundamentals before going short here.

Seamus,

You mentioned her age and I assume she's single.

Relocating becomes a real problem in areas like here where we have high unemployment (14.8% officially) and houses are virtually impossible to sell. In some cases it is too expensive to even travel to interview.

Paulson has no idea what real conditions are for some today.

ALOHA!!

Once again I would like to propose we eliminate the "middleman" from banking. In the case of the USA, get rid of the US FED and all its member banks hoarding reserves and charging high rates. I still do not understand why rates on a 30 year mortgage cannot be 1% and commercial for small business loans just as low. Whats with all these middlemen bankers skimming excessive profits and bonuses from exorbitant rates and fees? Where is the Middle Class "discount window"?

As I have said over a year ago Obama was on the right track when he said in a speech about student loans that he would eliminate the "middleman" to make loans cheaper to students. I mean if we are going to gamble and forgive things then why not start with students that represent America's future. Banks like us to be their slaves for a lifetime.

Well here is an article about the Commonwealth Bank Of Australia that demonstrates the idea is possible and it has been tested and succeeded.

“Australia’s own government-established Commonwealth Bank achieved some impressive successes while it was ‘the peoples’ bank’, before being crippled by later government decisions and eventually sold. At a time when private banks were demanding 6% interest for loans, the Commonwealth Bank financed Australia’s first world war effort from 1914 to 1919 with a loan of $700,000,000 at an interest rate of a fraction of 1%, thus saving Australians some $12 million in bank charges. In 1916 it made funds available in London to purchase 15 cargo steamers to support Australia’s growing export trade. Until 1924 the benefits conferred upon the people of Australia by their Bank flowed steadily on. It financed jam and fruit pools to the extent of $3 million, it found $8 million for Australian homes, while to local government bodies, for construction of roads, tramways, harbours, gasworks, electric power plants, etc., it lent $18.72 million. It paid $6.194 million to the Commonwealth Government between December, 1920 and June, 1923 - the profits of its Note Issue Department - while by 1924 it had made on its other business a profit of $9 million, available for redemption of debt. The bank’s independently-minded Governor, Sir Denison Miller, used the bank’s credit power after the First World War to save Australians from the depression conditions being imposed in other countries. . . . By 1931 amalgamations with other banks made the Commonwealth Bank the largest savings institution in Australia, capturing 60% of the nation’s savings.”

LINK: http://tinyurl.com/2elq5gm

This link was provided by Ellen Brown who has an article out entitled, "WHAT A GOVERNMENT CAN DO WITH ITS OWN BANK: THE REMARKABLE MODEL OF THE COMMONWEALTH BANK OF AUSTRALIA".

Banks are middlemen between WE THE PEOPLE and credit. Banks do not deserve the wealth of America, the People do. It is the People who have always struggled and worked hard every day creating real wealth, driving production and taking the risks. All the banks have done is shuffle paper and socialize their losses.

Why should any credit card ever be 30%? The Mafia is green with envy! Why should the IRS charge you 22% on penalties? Why should they charge you anything? The list of abuses against WE THE PEOPLE is extremely long and I am not sure why we bother putting up with it other than pure apathy.

- ELIMINATE THE US FED
- ELIMINATE INCOME TAX

Now if you wanted to see some major "Stimulus" then do those two items I listed above. Of course the size of the US government would have to shrink drastically, but we have been on the current path of expanding government exponentially and look where it has gotten us. The latest US Treasury data shows that our Treasury has withdrawn over $1TRIL from our Federal Reserve Account. Why do we even need an account at the Federal Reserve? Who died and made them God? We'll still be broke and on our own at the end of the path we are now on, but at least our kids will have a future once the smoke clears. The current path is nothing more than a prolonged deadening of America. Or is it we are so selfish and egocentric that we would prefer to remain in zombie voting mode stuck in our every so "comfortably numb" Stockholm Syndrome? Eh?

Hey guys,

I am leaving tomorrow for a week-long vacation, August being traditionally dead trading month et all. Wanted to leave you with this thing of beauty demonstrating that even in August market is readable and tradeable:

http://tradinglog.realitytrader.com/2010/08/aug-06...

Log with calls and discussions will be posted as always after the market close.

have a good time... pounding nails... Loannet, found a good deal, finally won a bid !! 12 month turnover.. good trades to all....

I read on Michelle Malkin's site that GM will invest in a plant to produce a new vehicle in Northern Mexico. Gotta love it. NOT! Our tax dollars at work.

MarkH,
US Corporations are flush with cash...other people's cash and all they have to do is sell pieces of paper.

Ha, Ha. I guess accounting rules are a fiction.

The folks at Zero Hedge are calling for everyone to withdraw $500 from their too big to fail bank account on August 12 as a general protest for all the shenanigans on Wall Street. If you support such an action, send the message to all your friends and relatives. For those happy with their bank... just ignore this message. I believe the protest is geared towards
the big 3 > Chase, Bank of America and Wells Fargo.

last night about the possible shortsqueeze today on a bad jobs report with selling drying up half hour into the trading day!!
Unbelievable and very, very good!
BRAVO!

ALOHA!!

My Mother protested yesterday and closed all her accounts at Bank America as well as her safe deposit box. When she went in and told them they made her wait 1.5 hours. I wonder how long she would have had to wait if she was depositing funds. She told me, "Every employee looks and acts like a high school kid!" Bank America is not the same bank it was in the 1960s when I first opened an account. I have no funds or brokerages with any of the major US banks. Bank of Hawaii and IB ...

ALOHA!!

The first word out of my mouth when I saw this headline at Google Finance was ... WRONG!

Jobs Report Shows Private Sector Still Wary of Hiring

Us small biz owners are not in the least bit wary of "hiring", we are hugely afraid of not knowing how much the government is going to stick us for in payroll and income taxes. We are really very wary of a government that keeps expanding into infinity and creating huge piles of debt as they go! Why hire and spend time and capital to train someone when you do not even know if you can afford their pay or their taxes in the near term future. Neither Congress or the White House or the US FED has shown they have the ability to create stability, both economic and monetary. Small biz is very adaptable. We can learn to live with less or no employees if need be.

November is around the corner so I expect the stock market to soar and gas prices to come down, just like when George Bush was up for re-election. Okay GS and JPM you have your marching orders ... make it happen!!!!

i understand the fundamentals based on what the gold bugs are telling everyone. i suspect that a good deal of that is priced in with a run from $200 an ounce and if we continue to grow jobs at a +75k to +100k run rate and continue to have strong earnings, i don't think the gold bugs will be happy with the outcome. either way, this is a trade. short term the charts don't look great, but i will be sure to use the 50 DMA as a stop out point.

Gold bugs. Hmmm. Labels can be summed up thusly:

'What most people call reason is really rationalization. Given a new set of data, the most people will search only for examples that support their existing beliefs. Their opinions are a tenuous collection of myths, anecdotes, slogans, and prejudices based largely on fear and greed. This is what makes propaganda so powerful; people do not bother to think critically. And in their ignorance they can find the will to do increasingly monstrous things, and rationalize them.' Jesse over at the cafe

I couldn’t refuse the invitation from Paramount Gold and Silver to visit their newly announced acquisition -- the past-producing “Sleeper Mine” in Nevada’s Slumbering Hills! The acquisition is being effected through an all-stock deal valuing Sleeper’s owner (X-CAL) at $31M.

Paramount had already set itself apart in my mind from the “herd” of juniors in 3 ways:
- CEO/founder is not a miner, but a CPA and turn-around specialist, who for 5 years was special assistant to Canada’s Finance Minister.
- CEO Christopher Crupi had attracted as his largest shareholder Albert Friedberg, long-standing backer of Seabridge Gold. (Crupi himself is the 2nd largest shareholder.)
- Crupi had also attracted to his board Seabridge’s CEO Rudi Fronk, and thus gained access to Seabridge’s geological talent, and strategic counsel.

Since late 1998, Seabridge stock has appreciated 285 times (28,522%!), the best record of any gold stock in the Morningstar/telechart database of US listed gold stocks.

In Mexico and now in Nevada, Paramount has been acquiring properties which seem well-suited to a “Seabridge strategy” of drilling and gradually proving up ounces on prospective land packages.

The Sleeper Mine is 4 hours Northeast of Reno. I was driven there by Larry Kornze, an X-Cal director and exploration geologist credited with co-discovering the Betze deposit in the Carlin Trend. In 2008, Barrick’s Betze-Post open pit yielded 1.3M oz. of gold.

At the Sleeper pit -- where AMAX Gold produced 1.7M oz from 1986-96 --we met X-Cal senior geologist Larry Martin who has, over the last 4 years, studied core and chip samples from Sleeper’s 4000 historical drill holes. As the two hadn’t “compared notes” recently, I was treated to several hours of intense “geo-dialogue” on their evolving interpretation of various targets outside the pit. The two Larries knew what a geological layman was in for, and encouraged me to interrupt at will – which I did often.

Under AMAX, 2000 holes had been drilled largely to steer excavation and production (rather than to develop a full technical model of the pit resource). Placer Dome sank another 2000 deeper holes averaging 444 ft. and generated preliminary estimates of the deposits in 1997. Through 2009, renowned consulting geologist Richard Sillitoe updated resource estimates. In 2009, a preliminary economic analysis (PEA) defined .75M oz indicated in-ground (Facilities, Westwood) and .7M oz. inferred above-ground in the heap leach pads and tailings from AMAX. (Gold prices have more than quadrupled since production ended. Therefore, “yesterday’s left-overs” can yield tomorrow’s profits.)

Kornze and Martin spoke of 4 additional prospective targets well outside the pit. The Sleeper land package encompasses 25 sq. mi. And, as they say, the best place to look for gold is next to a gold mine!

Wholly coincidentally and well before this visit, I had (months ago) come across a map from a company called Nevada Exploration (which conducts proprietary groundwater analysis throughout the state) that also indicated strong gold prospects just west of the Sleeper pit: http://www.nevadaexploration.com/properties/bull_c...

After visiting Sleeper, I took time to meet with the CEO of this company, and was impressed by their methods.

I asked why had X-Cal not on their own raised money to follow their PEA with a feasibility study, and for drilling of new targets? I was told X-Cal’s CEO had wanted to avoid the dilution and fees of “Canadian-style” financing, and had worked through his own list of US and European financing sources. Soon after meeting Paramount, a deal was done.

At 3.31.10, Paramount reported $21M cash with $0.2M in short-term liabilities. Exploration at San Miguel in Mexico is taking about $6M/yr. The Sleeper PEA calls for $6M in drilling and study to update it. It would seem Paramount could easily fund both without recourse to capital markets for well over a year.

There is a lot to work with on the property in terms of drill samples, data, and experience. My hosts know Sleeper well. Paramount also has access to Seabridge’s team – which has wrung increasing market value out of studies proving up ounces at their massive KSM deposit.

If Sleeper’s 2 defined resources can graduate to reserve status, nearly 1.5M oz. can be produced from this alone. Much of Sleeper’s geology reminded my hosts of Allied Nevada’s nearby Hycroft’s low-grade, bulk-tonnage material. Yet, unlike the continuity of geology they saw at the Hycroft or Midas mines, my hosts saw a variety of geological structures at Sleeper, and imagined the possibility of multiple high-grade veins and systems. Paramount’s stated goal in Mexico is 5M gold-equivalent ounces. I’d expect no less ambitious a goal at Sleeper.

Results for Paramount at Sleeper and at San Miguel will be driven by outcomes from drilling, study and modeling – which the company seems well-equipped to finance. Also, a second prospective property (in a second mining-friendly jurisdiction) spreads the company’s risk, and increases its chances for success. Having garnered a market cap of $150M, the price for Sleeper ($31M in stock) seems a relative bargain.

FD: no position; no financial ties to Paramount, which bore my travel costs of $1K.

Sounds like you could apply that to anyone, whether its the people calling for financial Armageddon (i.e., gold bugs) or the Polyannas. In shorting gold, I'm just thinking that:

(1) the economy will continue to grow gradually
(2) the political will to introduce another stimulus package and get it passed is almost nil, especially with elections coming up and with the public fuming about our govt debt levels
(3) at least some of the partial tax expirations (i.e., taxes on higher income earning people) amounts to a small austerity program
(4) the short term technicals on gold look weak
(5) the dollar will start rebounding as more countries will report that their own jobs growth is weak/non-existent (like Canada announced today)
(6) the Fed's ability to spark hyperinflation is far less than people think. They need a normal functioning banking system that can exponentially increase money throughout the system through extending loans. That's not going to happen because the larger banks still have crap loads of off balance sheet liabilities restricting them from lending capital. As a result, the Fed doesn't have the power to inflate our way out of this like the gold bugs think.

Gold has a massive public following and a huge premium because of that. I'd reckon that the vast majority of the public has been sold on the idea that gold is a safe haven and at some point they will get hurt very badly by investing in it. How many people that you know of that aren't exactly savvy investors are investing in gold?

Since October 2008 DPG has been cranking uphill. In the short term (July 27/28, 2010), it's up hill. GOLD up hill since 2001. ...and who is calling a trend change on that record? ...not me! ...not yet. There is still this little issue of FEAR, lack of trust. I believe it's the "C" word.
FD: Long GOLD
Good luck to the DZZ short trade. There is money to be made with the dips and manipulations but I want a life outside of day trading. I'm not a gold fanatic just watching the TREND!

BUT...
bet your money and take your chances.

"Right now, folks, gold is not value buying, but trend following. As per usual, retial money is following the trend (what have you done for me lately).

...

I know I will be flamed for this, but... there is little basis in history to suggest that, from here, far, far above its historical trend, gold is a good buy. To buy it you are essentially speculating that a very big bubble will form."
http://tinyurl.com/39wpotg

http://tinyurl.com/37h99ja
It's not always good to be #1

I don't know anything about gold except that my wife likes it fashioned into baubles. I suppose it is a store of value in that it don't rust much and little chunks seem to get you mucho colored confetti from time to time that banks and merchants use to settle accounts.

I know that an ounce circa 1900 would buy a gentleman's tailored suit and an ounce and a half would buy a 1,000 pound beef critter on the hoof (about 3 cents a pound give or take.) Perhaps gold has a 'price' that varies quite a bit over time.

I've no axe to grind with people that believe that gold is money. Actually gold can become money when exchanged for colored confetti and used to buy food, services or extinguish debts. Colored confetti can become gold as well since we still have a free exchange.

Maybe we are just talking about that dread word 'timing.' Let's look at Mr. 60 year old Joe Shmoe that put his retirement savings into gold in 1980 and needed to income or sell 4% of his holdings per year in order to maintain his lifestyle. The poor old nuggets didn't pay a dividend so he was forced to sell each year a greater and greater portion of his holdings. The price declined but his cost of living increased in colored confetti. Bad choice since the 'store of value' ate his inventory and left him a pauper with 20 years yet to live.

I've got no pat answers regarding the future price of gold. I might be $500/oz or $5,000/oz. I only know that if you demoninate gold in a currency, however flawed, then you must acknowledge that gold has a price at least at that time certain...

It's time for me to get on board. GO GOLD! My wife applauds my decision.

Dr S - right now according to Fed stats the private sector money supply is deflating. Bank credit of all sorts is on the downhill slide, and its been like that for the past two years. If the Fed does not print - or provides a tepid QE Lite - deflation will continue to prevail, and in that environment, actual cash should increase in value. Add to that wage deflation making it more difficult for consumers to pay the interest on their debts, and the destruction of money through foreclosure and default will accelerate.

The Fed has to print enough to overcome the current bank credit deflation, and then it must add some more so that consumers can pay the interest on their current debts. If it does that, the dollar will continue to fall and that should bring about the rise in gold you are expecting.

The wild card is our creditors/the bond market. What will they do if the Fed resumes printing? Can they limit the actions of the Fed? Enthusiastic printing is required to avoid deflation, that's for sure. But if it resumes, the dollar will fall, and if bondholders decide "this time" to dump their US dollar holdings (who wants to hold bonds in a dying currency being deliberately inflated - a double whammy for the foreign holder) might that cause the Fed to back off?

Or would the Fed go double or nothing - and print even faster to keep those long rates down? If the Fed abandons all pretense of "stimulating the economy" and moves to a public policy of outright debt monetization, that may well bring about the hyperinflation you are talking about - but only if that monetization resulted in a collapse in confidence. Would the Fed risk that? I"m not so sure.

There are a lot of ways this could still play out. And the whipsaws in the interim might be quite violent.

Selling puts is something new that I am trying. One particular stock that I wanted to get an entry into with a better than market-offered price has been BQI. I wonder if oil indeed does go up to $100 a barrel, whether the BQI price will also move up (I read in many places that for the oil sands project to break even, they need $80+ oil). I am proposing to sell a few October 2010 puts for the $2.5 strike price. At the moment, I have a buffer of about 7 cents (BQI is at 57 cents). For sure the puts will get assigned. Is this a good way to do covered puts? Any one else holding BQI ? What are your thoughts in the intermediate terms.

Kaimu said "The revenues are not there. The revenues were not there in FY2008 or 2009 either. But the S&P AAA is ... I just hope we learned something about credit ratings from the SubPrime days."

This issue of liabilities continues in a letter of Mauldin's:

http://www.frontlinethoughts.com/pdf/mwo080610.pdf

The following pithy little quote:

My friend Paul McCulley (of PIMCO, who I hope to see tonight) quipped that the ratings agencies were supplying fake IDs at a teenage drinking party, when it came to the subprime mortgage ratings. The pension consultants are providing a similar service to their clients, who are told what they want to hear, pay large fees for the privilige, and thereby increase the risk to taxpayers and reduce the current pain for politicians....

masks a more serious question that members here might like to investigate - starting with the chart of unfunded pensions as % of GDP for each US state, which can be found in the above link. Certainly pertinent to retirees thinking about wealth preservation.

Oh and read the opening paragraph of Mauldin's sourced from what he calls a serious Washington blogger - the bit about a possible surprise "gift" from Obama leading into the fall election. A bit of debt forgiveness from Fannie and Freddy anyone? At taxpayers expense of course. I'm with Mauldin in hoping this Alice in Wonderland stuff is exactly that - fantasy - but as Bill points out unless Washington decides to ground itself in a little reality soon, it's "fantasyland - here we come".

'Right now it seems like "bad economic news" results in a gold price spike - "bad news for the economy is good news for gold" ...'

While I believe the global contraction picture to be true and have been seeing it here in the Midwest for nearly two decades the problem with the above signal is distorted 24/7 news.

It's not just the equity cheerleaders of CNBC, but most main stream media. This seems to be what the average person is still willing to accept as "fact". To get anything more than a sound bite takes effort on the part of individuals.

"Good news" and "Happy Talk" may continue to hide the true economic picture, but I believe in (and own) gold for the awakening which will eventually come. Virtually all major countries have fiat currency and, while bonds are OK for a time, gold has a safe haven track record for thousands of years.
------------------

For any interested in the local picture in Illinois:

Just yesterday a good friend told my wife, "People could find work if they wanted to. We should simply stop paying unemployment and handing out food stamps." Her family is still untouched.

Her husband is a retired army officer. I can't find the current formula, but 50 years ago it was something like half pay at one grade higher than the last rank, included lifetime medical and COLA. Their home was paid for many years ago and they have no concept of not being able to sell it and "go where the jobs are" — as she advises.

Here we are at 14.8% unemployment and I can name a dozen former manufacturing clients I had for forty years who are gone — some out of the country and others out of business.

Still, even the local news remains upbeat and bragging about telemarketing jobs at $10/hr.

The push is on to make us a tourist area. We have no lake, no mountain and only historical sites of local interest. This means building water slides, bringing entertainment acts, and subsidizing all of the things to draw people to motels (mostly chain owned) and restaurants. (Not great paying jobs.) Our real estate taxes are rising and new "special taxes" are being proposed to pay for the transition from a machine tool center to a mini-Disneyland/Branson.

We need to make things we can trade with other countries, but they are now made in those other countries.

Instead we now own GM with a massive pension debt who will be building their new plant in Mexico — while the jobs our kids used to get in the summer are now filled by... Mexicans (and retirees) here.

I visited this website:

http://www.csrl.org

It was interesting at this link:

http://www.csrl.org/?page_id=9

Kaimu,our debt is out of control.

ON a related note...I bought me some GBE Friday. Do you have any reason it was up so much? Stability? GSA area?

I did glean this from Google finance:

Grubb & Ellis Company to Hold 2010 Second Quarter Conference Call on August 10

Live Call at 10:30 a.m. Eastern Time
SANTA ANA, Calif., July 26 /PRNewswire-FirstCall/ -- Grubb & Ellis Company (NYSE: GBE), a leading real estate services and investment firm, today announced that it will host a live webcast to discuss its second quarter 2010 results on Tues., Aug. 10, 2010, at 10:30 a.m. Eastern Time.
The Company will issue its financial results before the market opens that morning.
The conference call will be webcast on the investor relations section of Grubb & Ellis' website at www.grubb-ellis.com or may be accessed by dialing 1.866.578.5771 for domestic callers and 1.617.213.8055 for international callers. The conference call ID number is 26018455.
An audio replay will be available beginning at 1:30 p.m. ET on Tues., Aug. 10, until 7 p.m. ET on Tues., Aug. 17 and can be accessed by dialing 1.888.286.8010 for domestic callers and 1.617.801.6888 for international callers and entering conference call ID 65858047. In addition, the conference call audio will be archived on the Company's website following the call.

By no means do I have all the answers! An older article.

http://www.businessinsider.com/how-i-got-roubini-t...

Copied from article and asked by the author(Not Roubini):
"How can he(Roubini)explain the schmeissing in U.S. equities when, at the same time, certain risk measures (lower bank swap spreads, Libor, junk bond yields, a higher euro, etc.) and risk markets appear to have stabilized?

• Could the U.S. stock market be attractive in light of generally reduced economic expectations and lower corporate profit assumptions?

• Could the U.S. stock market be attractive with markets selling at less than 12x realistic 2011 S&P 500 profits vs. an historical average of 15.5x and at 17.0x when interest rates and inflation are quiescent?"
My question-(are these historically accurate...based on what?)

My questions:
With supposedly world cash flows to the US stock market at an all time low could the market just start rising from here sort of in your face like?
I wonder if investor monies are not in the market since the puppeteers have spun us dizzy already with corporate cash abundance stories? How do we know for sure?

How much have these factors(all of them)changed to the present from this earlier time? Are these factors the best ones to be looking at now or then?

How have the latest economic indicators, which Jim Rogers feels are backward looking and not consistent across countries, come in? Does that mean anything?

gforce,

"• Could the U.S. stock market be attractive with markets selling at less than 12x realistic 2011 S&P 500 profits vs. an historical average of 15.5x and at 17.0x when interest rates and inflation are quiescent?"

IMO, forward looking earnings are baloney touted by salesmen and their shills.

John Hussman had an article about this subject a few weeks ago.

-----------
Don't Take the Bait
Investors who allow Wall Street to convince them that stocks are generationally cheap at current levels are like trout - biting down on the enticing but illusory bait of operating earnings, unaware of the hook buried inside.
I continue to urge investors to have wide skepticism for valuation metrics built on forward operating earnings and other measures that implicitly require U.S. profit margins to sustain levels about 50% above their historical norms indefinitely. Forward operating earnings are Wall Street's estimates of next year's earnings, omitting a whole range of actual charges such as loan losses, bad investments, restructuring charges, and the like. The ratio of forward operating earnings to S&P 500 revenues is now higher than it has ever been.

http://hussmanfunds.com/wmc/wmc100719.htm

All this talk about US debt makes me want to diversify into currencies of countries with hard assets and less political risk/growth opps. Seriously considering Braz Real(BZF), Aussie(FXA), Loonie(FXC) and Yuan(CYB). Anyone else watching these? Futures, options out of the question. This particular account is IRA, meaning ETFs only for currencies or to short.

Felix Zulauf says no currency is safe nowadays and will not be until the financial system is transformed, perhaps into one formally backed by a basket of hard assets. In the meantime, he thinks commodities will suffer because of the global slowdown. Gold, however, may be the only safe haven.

My interpretation of his recent interview with Ritholz.

with Bill and Kaimu in my corner, this is how I feel courtesy ''METALLICA'' -- http://www.youtube.com/watch?v=bAsA00-5KoI

So close no matter how far (ABOUT GOLD & SILVER)
Couldn't be much more from the heart
Forever trusting who we are
And nothing else matters

Never opened myself this way
Life is ours, we live it our way
All these words I don't just say
And nothing else matters

Trust I seek and I find in you (BILL & KAIMU)
Every day for us something new
Open mind for a different view
And nothing else matters

Never cared for what they do (FED, HB&B, CNBC)
Never cared for what they know
But I know

So close no matter how far
Couldn't be much more from the heart
Forever trusting who we are
And nothing else matters

Never cared for what they do
Never cared for what they know
But I know

Never opened myself this way
Life is ours, we live it our way
All these words I don't just say
And nothing else matters

Trust I seek and I find in you
Every day for us something new
Open mind for a different view
And nothing else matters

Never cared for what they say (CNBC)
Never cared for games they play (HB&B)
Never cared for what they do (FED )
Never cared for what they know
And I know

So close no matter how far
Couldn't be much more from the heart
Forever trusting who we are
No, nothing else matters

Thanks for the link.

Obviously, as you are alluding to, we should be looking at net debt i.e. gross debt minus cash and other liquid investments. On the cash flow statement under "Financing activities" there is a row marked "Interest paid" — this is where I am looking for an improvement.

You make a good point about what they will choose to do with their cash. Glaxo, for instance, could use the cash saved to fund further acquisitions. I don't like the idea of engaging in buy-backs. This only really makes sense if shares are undervalued.

Hmm, not Keen huh? Well that's not good. Thanks for pointing it out Kaimu. That last slide clearly wasn't his either. I recall getting to this preso via a link sometime in the past, but I don't remember that last slide being on there.

http://ronsen.blogspot.com/2010/08/sunday-morning-...

Luggie -

Thanks for the kind words. I forgot to mention that in one 30 foot vertical section of the Sleeper pit, 96% of the gold came from 4% of the ore volume.

So, there is precedent for high-grade veins and systems on the Sleeper land package. Of course, only exploration and study will determine whether and how many high-grade veins and systems remain.

And, yes, Larry Kornze was fascinating to meet. Geologists with major discoveries under their belt are at a different level. His business card is burgundy color, and he lists two professions: goldfinder, winetaster!

He has a vineyard surrounding his Idaho home, and travels with wine he has produced, which he freely shares! A down-to-earth, unpretentious, and GREAT guy !

This was a post by a trader who worked in the pits before retiring. I thought everyone may find this interesting.

_____________________________________________

I'd say my biggest "edge" right now is acceptance. This mkt trades so much now like a commodity mkt where there were perhaps 4-5 major trade houses involved in the physical product. You might as well call this "Banana Futures" now as you are right, it has been destroyed for at least one generation as an investment vehicle.

The trade houses all had essentially unlimited funds, as do the major players. They would look at the positions of people, to the point of sending people down at 6 AM to look at the computer sheets dropped in floor broker's booths to figure the customer a broker traded for the day before, to see what the size was and begin to plan when they could bury them. For example, if a mkt had an O/I of 200,000 contracts and it jumped to 230,000 in a month they might know that was the saturation point. Also, buying would cease from them. Then they would place sell orders on the books. One broker might ask a broker "quietly" across the ring, "have you got any buying?" and he'd hold his card he wrote the orders on (there's a standard way all would do it) and the sell side couldn't fit another order in it and he's have two cards, and the buy side would be completely blank without a single bid. I would call that, "It's Polar Bear in a snow storm time again". Then each day they'd lower the selling. When they were sure the funds were not buying they might give a guy an order to sell 1000 contracts as hard as he could to see what happened. If no one came in to buy the mkt they drop all the selling that day and make sure the broker let people know it. Now you'd start to see some longs start to place sell orders in as well as stops. It was only a matter of time until the funds money management had them liquidate. And if the trade houses got lucky, and you could tell by the volume, not only would they get out, but they'd reverse and go short. It was wash, rinse, repeat. We were wondering when they would stop playing, and some funds would. But the way their systems were designed they had to commit some money to a market in the event it took off. So getting a market to move higher drew them in quicker and the payoff (gravity I call it) was always quicker too.

Only in a true bear mkt where the price collapsed with registered warehouses full would the price sink so low the funds rarely played as mkt range was very limited. At that point, you could sit for a year or two waiting for the lack, or shift, of plantings to take that supply away and they might come back. But until then they gamed them for every penny they could. What I see in stocks now is no different. Without a plethora of players, the ones you mentioned tilt the table. "8 ball in the side pocket with a 10 cushion bank"? No problem as they own the table.

I also can confirm a lot of this as I worked with an aeronautical engineer who became a trader for the biggest coffee importer, J. Aron, who is now owned by our friends GS, and started designing systems back in 1980-1981 where I left the floor as his offer was 5 times what I was making. He had a few systems when simple indicators, not yet available to the public, worked and we slid a card into a TI-59 calculator and I punched prices in all day. We cleaned up and I did well as he knew how they were doing it.

The worst thing the CFTC ever did for retail was publish their positions. Only in the most unexpected of circumstances, such as a natural disaster, did the manipulators get nailed. And when it was quiet, they'd nail the floor traders. I recall seeing the eyes-and-ears clerk of J. Aron tell a floor broker a number of times as he stretched a phone line to hand a broker a piece of paper, "and he said if it trades above that price you'll never get another order". Again, unlimited funds. Other than that unforeseen event they won every time...EVERY TIME. And that's what I think is happening now. The price is irrelevant. They will keep it where they get the best play, and especially with no physical product to deliver against it. So if the Dow drops 3000 pts they will just setup a new range and begin again.

It is total corruption. The bottom line is money. And it's very easy to watch as only those with a real desire to remain ethical (EDIT) WOULD NOT do anything for that house out in the Hamptons or even a jet. Forget the drugs and women, that was a given long before the real big money came.

"Welcome my son...welcome...to the machine".

http://watch.bnn.ca/#clip333639
the fund manager sent his minions down to scotiabank vaults to verify the holdins
BMG open ended funds offers simple exposure to gold silver and platinum bullion.
Go to about 4:40 of the clip. The US
Nick Barisheff

I've learned that in-country location of a server really IS key to a gov'ts ability to monitor blackberry "enterprise services". This is because traffic must be de-crypted for onward routing and other services.

This explains why countries which have servers on local carrier premises are NOT protesting the way UAE (Dubai), Saudi Arabia, and India have been - because these major governments ARE able to spy at will upon BB traffic transiting local carriers' servers.

I assume there are Blackberry enterprise servers in China, Russia, and Western countries, and fully understand why the protesting countries want to be on an equal footing.

I imagine RIM wanted corporate customers to carry on in blissful ignorance of the vulnerability of their internal traffic -- unless further levels of corporate-applied encryption are in use. (If anyone knows of this, I'd love to hear from them).

I think the GREATER concern for multi-nationals is that if local carriers have access to BB traffic, then such traffic may become available to their business rivals. Most likely in the US at least, after the "Patriot Act" ammendments provided indemnification against liability to US carriers who cooperate with NSA, standards of customer data protection generally will have become more lax.

I just wanted to thank you for an excellent series of posts on this thread. They are well considered here and always appreciated along with Bill's guidance.

Ben Bernanke came out of the woods with some pulp for his money printing recently only to be frustrated by some small investors as shown in the link. He then illustrates his technique for heating up the economy. Warning: Not appropriate for those without english sensibility.

http://www.youtube.com/watch?v=nyVsHNEBeBk

Cheers.

ez_money, I'm confused. You don't have to buy, you can always rent. Right?

davefairtex -

"Dr S - right now according to Fed stats the private sector money supply is deflating. Bank credit of all sorts is on the downhill slide, and its been like that for the past two years. If the Fed does not print - or provides a tepid QE Lite - deflation will continue to prevail, and in that environment, actual cash should increase in value. Add to that wage deflation making it more difficult for consumers to pay the interest on their debts, and the destruction of money through foreclosure and default will accelerate."

Read kaimu's discussion of Fed stimulus. Debt creation is stealthy and on-going. Banks have not contracted credit so much as transfer it to the public sector in the form of junk debt. Banks are loath to foreclose anything and risk expanding reserve ratios only to be shutdown by the SEC over the weekend.

Fed will print to maintain the elite's power. Deflation is not in the cards other than USD buying power. No way to turn back now. Just watch volatility soar. Can't default with reserve currency status so I expect global trade of oil to suddenly trade in a new currency and thereby defeat USD reserve status ... only then comes loss of Confidence and hyperinflationary currency event. It's that or WWIII. Can't fix Congress overnight. Private credit contraction is dwarfed by debt monetization in the money supply equation.

Cheers.

lessmore I had to also read it several times. Really brings home the point that average traders like us can be easy prey for them if we are not careful.

Dave,

Not confused at all, and looking back at my house in California, yes, renting would have been better. But, I have to live with my wife, not you; my wife wants to own, so I do not argue that.

Anyway, we thought about renting in Canada, but rents are about 2-3X's what they are here in Oklahoma. So in our best intertest we decided to stay here in Oklahoma, refinance to 3 7/8%, 15 year note on a house that does not have the leverage we would have had in Canada.

In the ned we will end up paying a lot less interest and have our home paid off in 5-7 years, while paying less interest. With the flexibility of making it 15 years instead if we need to.

I am young and now looking back I would have changed a lot, but I think we all can say that. If we don't we are lying to ourselves.

Grym Reaper -

"If no one needs to borrow or wishes to borrow how do all those dollars get into the system? The velocity of money has been slowing."

Well, they don't get to borrow for the most part. Fed just hopes to someday draw the credit back from the banking cartel before they can break rank and deploy it in some mischievous way and wreak an inflationary havoc while hiding all the bad credit (re-upped commercial notes in a drawer; extend 'n' pretend) by giving them free money with a fat spread to recover appropriate fractional reserve banking ratios. Draw back will be through rate increases or bank ratio modification, the key Fed policy tools to expand and contract money supply, or some unforeseen trick and abuse of the peoples' interests. On the other hand, the credit system is frozen out for small business (70% of GDP) and the middle and lower class consumer unless it's a continuation of the Freddie/Fannie/Ginnie (GSEs) grand social experiment to sponsor and balloon housing and education credit to the stratosphere and hold it there at gun point. LOL. Hyperinflation, which I don't think can happen until after oil trade changes exchange currency from the mighty dollar, will be a currency, not economic, event (Sinclair) induced by very rapid (no more than a week) loss in Confidence and spiked velocity of money into anything but the fiat paper (Armstrong).

"I certainly would not rule our WW3 by any means. Created 16 million military jobs in WW2, put all the men and many women — for the first time — into manufacturing jobs, destroyed enough in both Europe and Asia to keep us going for decades, took the heat off of Congress. What's not to like — except for the dead?"

These things take time and then all of a sudden ... all hell breaks loose. I've got a few decades left to be a witness. The big trend anaylsts studying patterns back to ancient times think it could come fairly soon.

Roman Republic expanded for first five centuries with its legions but struggled with internal discord for the second five centuries as an overexpanded territorial Empire. It took the iron fist of a military leader, both good and evil, to deal with internal economic turmoil. Modern version is, of course, Great Britain, which ended in debt, loss of empire, territory, reserve currency status, and a war against dictatorship. I would like to believe WE THE PEOPLE can find reformist representation by the rights invested in the U.S. Constitution and through the likes of the great Roman reformist leaders Gaius and Tiberius Gracchus, Julius Caesar, or Ceasar's nephew Augustus (Octavian). But, dear Grym, nothing lasts forever ... only Augustus lived to be an old man; the others met their fates by Senatorial assassins. Et tu, Brute? Or, later, the King is dead; God save the King!

Cheers.

Here's Mr. Hurd's nemesis. Pretty sad but really funny all a once.

http://www.businessinsider.com/jodie-fisher-mark-hurd

Tiger Woods golf game is a wreck just like Hurd's career.

Oh well.

joe - Engineers sign an at-will employment agreements drafted by lawyers for the firm, which is structured to the sole benefit of the firm. Executives and their lawyers negotiate their own personal, specially-drafted employment agreements with the firm; and those agreements are not quite so one sided. Possibly Hurd got some clause that netted him the payout regardless of the reasons for termination - or perhaps termination for cause was defined very specifically and did not include this particular reason.

Or perhaps as a quid pro quo for his rapid exit, the board agreed not to enforce the terms of the agreement, "for the good of the company", part of which might include Hurd saying some make-nice things on the way out, and agreeing to provide his successor with a reasonable brain dump of the current status of all the balls that were in the air before departing.

I'm not saying this is the "right way" to do things, but it's how I've seen things done.

Bev- You may be interested in Harry Markopolos' 'No One Would Listen,' an account of the Madoff investigation by the guy who first alerted the SEC.

The author points out in the first chapter (wherein he describes his own background in the financial industry) that the only way to gain an advantage in a business filled with smart people is to have more information. And the only way to obtain information others don't have is to gather data via social networking, one relationship at a time.

He doesn't say much beyond giving examples such as being able to glean valuable input from trades put on by traders whose idiosyncracies you have come to know, but it's easy to extrapolate the principle to other aspects of trading. For instance, it's possible to make consistent money trading only one stock/ETF- watching the daily ticks of a single stock or commodity certainly gives one an edge when interpreting its price movements. Another example might be piecing together remarks and observations the way a journalist would, allowing one to bet with better-than-even odds on how well/poorly a company is doing. Personally, I enjoy trying to fade my 'read/interpretation' of crowd behavior.

However, what stood out for me was his account of the degree of corruption that is considered 'acceptable' in the financial industry. Trading violations in the industry (if/when anyone bothered to report them) were routinely ignored by the NASD. He jokes that one learned quickly that dishonesty has consequences- often one ended up making a lot more money.

Trading can be a pretty dangerous game. Running stops, squeezing shorts, shaking out weak hands- is it any wonder traders enjoy reading Sun Tzu?

One of the first rules of business dating back at least 100 years is that one does not dip one's personal quill in the company inkwell. In Mr. Hurd's case, I think this is yet to be proven.

Unfortunately in our increasingly debauched era of political correctness, the potential for a 'payoff' has become temptingly easy. When we are bombarded with TV adds promising money from drug companies for 'harm or death' from side effects (www.baddrug.com) it's only a matter of time and some quack shysters will be running adds for sexual harassment in ye olde workplace. What nonsense. But where there is money there will always be opportunists.

Hurd was CEO of a U.S. corporation. I don't give a damn about his personal life. He didn't make tax policy, appoint judges or have any say in military deployments. He was an employee serving at the pleasure of his Board. HP has an excellent Board. They were smart enough to fire that girl CEO and I'm sure they will find another suitable replacement for Mr. Hurd.

Unless HP has become some national trust, I fail to see what this has to do with 'social equity'. Impail some congressional dudes and dudesses. The 'Hurd' incident is picayunish to an extreme.

Billy Graham had a life long policy of never being in a room or office with a female who was not a relative. He knew that scandal regarding sex or money was anathema to his ministery. Perhaps this will become the standard for corporate office. I hope not.

Hurd is not an Elmer Gantry. Allow a little perspective before you cast stones. I'll grant that payouts to prime management are stupid excessive but most shareholders aren't really corporate owners anymore, they are short term card counting gamblers.

In the end it doesn't matter much for me. Fair value, debt debauchment and social equity are just words that reflect someones disposition. I am a simple money market pirate. I intervene against the interveners and gamble with money as a ware. What could be more simple.

S&P +1.70 / +0.15%
Level 1,121.20
Fair Value 1,118.85
Difference 2.35
Nasdaq +3.00 / +0.16%
Level 1,905.50
Fair Value 1,901.80
Difference 3.70
Dow +12.00 / +0.11%
Level 10,625.00

or so says CNN money while I was looking at the futures:

http://money.cnn.com/data/premarket/

Weekly shows accumulation - the daily shows a breakout on Friday that might be worth watching for signs of distribution. When CNN starts talking up a brand I figure it might be good for a short. Timing is all of course. JMO

To echo Dr. Strangelove, Kaimu, I also want to thank you for your many thoughtful and insightful contributions to the CC board.

Your "It's the Debt Stupid" is one of the best finance related posts I have read anywhere.

Dr,

Thanks for your views, I appreciate the thoughtful reply.

BTW, my Grym signature stands for "Vicious". Some time ago I told a translator friend if I were to design a family coat of arms my motto would be Vicious When Riled and she came back with the Swedish version as Grym När Inflammerad.

I have felt increasingly "Grym" as I've watched so many people I know getting the short end from employers and our government.

Let's hope things take a turn for the better soon.

P,S. The speed at which things move these days took me from my best ever year in SKF with a huge gain to -15% in a little more than a week. After many stops being executed with an immediate bounce, I "knew" (in spite of the short ban on the big banks) it would come back and removed them. Never again!

When the rules can be changed in mid game — all bets are off.