Saturday, April 6, 2013

BLOWING BUBBLES AGAIN

Pretend you're sitting on a three-legged stool. It's not quite stable. It wobbles a bit, especially to one side. 

Each leg has a name: bonds, real estate and equities. Two of the legs are much longer than the shortest leg. The names of the two longer legs are equities and bonds.

Now if you want to get the three legs the same length, you have a couple of choices: trim the two longer legs to match the shortest one or somehow lengthen the shortest one, real estate, to match the longer legs, equities and bonds.

Suspend your judgments about evaluation for a moment. Equities and bonds many believe are already bubbles. That leaves only real estate, a much bigger component some would argue in the job creation equation.

Janet Yellen is Vice Chair of the Federal Reserve. She is also a likely candidate to replace Big Ben when he finally packs his bags for greener pastures, most likely a high paying consulting gig on Wall Street.

General Douglas MacArthur once noted, "Old soldier never die, they just fade away." We'll, old Washington bureaucrats and politicians don't fade away, they just land rich consulting fees at investment banks or law firms.

In a speech last month that she went to some pains to point out was about communication and transparency, Yellen noted her own beliefs run somewhat counter to the Bernanke QE parade. 

She then resorted to one of Wall Street's usual suspects, a bromide about this is an exceptional time, meaning it's different from all those other rough patches throughout history that were also supposed to be different. 

Short interpretation: "Though I'm on board, if I were Queen of the Fed I'd do more to tackle the unemployment rate." The official rate is 7.2%, a figure that many believe is at least 50% shy of the real rate of today's jobless folks.

 As nearly all know the Fed is spending $85B a month priming the pump, much of that going to purchase mortgage-backed securities. In other words, to bring that shorter, lagging third stool leg to where the stool doesn't wobble so much and everyone feels comfortable and safe sitting on it.

Perception rules.

And when it comes to bureaucrats and elected officials, like aces in poker, three bubbles are better than two.

Friday, April 5, 2013

THE FOUNDATION OF WEALTH

A friend likes to say he'd rather be smart than lucky.

He also told me for a long time many of his friends believed it was just a cute play on the old saying, It's better to be lucky than good.

Lady Luck my friend says is at best fickle. She's a lot like my old girlfriend. I never knew when she was going to show up or suddenly depart. 
  
Knowledge is like a library or the Internet. It's all there you just have bring your own container.

But what it really gets down to is something the late Peter Drucker wrote about in the 1990s in Post Capitalist Society. The essence of Drucker's message, and something he wrote and talked about, long before the computer age, is a society shaped and altered by information.

Knowledge in Drucker's view is more significant than capital. It's a society with two kinds of workers, those who provide services and those who provide knowledge.

Knowledge providers are clearly the more important of the two because they're the idea people. You don't need capital to create ideas. 

And once created finding people to fund them will happen and it will happen without the traditional lenders of the great industrial period, banks and other lending institutions.

Much of that has been happening for a few years now in places like the Silicon Valley and venture capital groups. There's even a popular television program, Shark Tank, centered on this exact premise.

To Drucker knowledge is the foundation of wealth.
http://www.peakprosperity.com/blog/81365/peter-drucker-post-capitalist-economic-transformation

FRIDAY READS

FEW JOBS
http://www.usatoday.com/story/money/business/2013/04/05/march-employment-report/2052529/

USED TO BE SHOTGUN WEDDINGS NOW
http://www.thefiscaltimes.com/Articles/2013/04/03/What-You-Never-Knew-About-Todays-Subprime-Auto-Loans.aspx#page1

TUITION SQUEEZE
http://www.guardian.co.uk/money/2013/apr/04/student-debt-threat-private-university

WORKING FOR THE MAN
http://blogs.marketwatch.com/taxwatch/2013/04/03/youll-work-5-extra-days-for-uncle-sam-this-year/

WORKING FOR THE MAN ACT II
http://blogs.marketwatch.com/taxwatch/2013/04/04/gas-gets-more-taxing-per-gallon/

A TRIBUTE TO ROGER EBERT
http://t.ritholtz.com/bigpicture/#!/entry/violence-movies-thoughts-by-roger-ebert,515e0e7bd7fc7b56709aa0d2/1

RERUN
http://www.hussmanfunds.com/wmc/wmc130401.htm

JOBLESS CLAIMS
http://www.guardian.co.uk/business/2013/apr/04/us-unemployment-claims-four-month-high

10-YEAR TREASURY HIT 4 MONTH LOW
http://www.reuters.com/article/2013/04/05/markets-treasuries-asia-idUSL3N0CS06M20130405

OFF SHORE ANYONE
http://www.guardian.co.uk/uk/2013/apr/03/offshore-secrets-offshore-tax-haven

Thursday, April 4, 2013

CRYING TIME AGAIN

Looks like crying time again for the European Union as the ECB opts for the status quo and the latest bleak PMI numbers reveal the EU remains in an economic quagmire.

France, which we wrote about earlier, given all its political turmoil,  appears the sickest, with output falling faster than my relationship with my old girlfriend. 

How fast is that? Forget speeding bullets. Forget too any talk about real new orders. If manufacturing has a cold, services have the flu. Whatever you can say bad about one you can say worse about the other.

The service sector declined in March for the 14th straight month. New employment in the sector now sports a batting average of zero for 15 months.

Cyprus might be off the front page, but it appears to have cast a long shadow when it comes to confidence. Botched bailout is the kinder, gentler term to describe the Cyprus mess.

Italy is still trying to figure out Italy and how to hold a real election. Spain's demise has been greatly under-exaggerated.
And Germany, the one so-called bright star of probity in the whole galaxy, looks to be flat-lining, logging it feeblest growth in months.

Some observers after their meeting today accused ECB president Mario Draghi of being a drag. Steady as she goes on the rates and no new ideas about how to plug the gapping hole the bow of the Good Ship Euroland. 

The whole scene reminds of the little ditty we heard last time we were in Europe: "Don't let my boy grow up to be a Brussels' bureaucrat," the dying mother said. " Don't let him be a Brussels' bureaucrat, I'd rather see him dead."

Yes, it's crying time again and a lot of folks are hoping someone will get up and leave.



GREAT QUOTES

We love great quotes.

Especially when they're funny and true. The only thing missing in this one is Brussels.
http://www.moneynews.com/newswidget/Pickens-Washington-natural-gas-energy/2013/04/04/id/497780?promo_code=10907-1&utm_source=10907Financial_Content_Network&utm_medium=nmwidget&utm_campaign=widgetphase1

DOW THEORY STILL RELEVANT?

How many investors follow the Dow Jones Transportation Average?

It's supposed to be a leading indicator. In January it breeched new territory. Two months later the DJIA hit an all-time high.

The late Marty Zwieg, a renown investor in his own right, gained fame with his "Don't fight the tape!"mantra. The tape so far this year has been more directional than a one-way street sign.

Richard Russell, the publisher of the Dow Jones Theory and a longtime market follower, is the most noted proponent of Dow Theory. In early March Russell suddenly turned bullish after the DJIA hit a new high and urge his followers to invest.

Less than a month earlier he was decidedly bearish when he told his readers:

According to classic Dow Theory, the primary trend of the market can not be manipulated. Further, according to classic Dow Theory, the movements of one Average, unconfirmed by the other Average, are useless as a guide to direction, and are more than likely to prove deceptive.

Russell over the years has made some decent calls. But like the rest of us he's been incorrect too. As Mark Hulbert, publisher of Mark Hulbert Digest, a service that tracks market newsletters, recently wrote:
http://blogs.marketwatch.com/thetell/2013/03/12/how-bear-richard-russell-stopped-worrying-and-learned-to-love-the-dia/

The point here is how relevant is the Dow Theory given the changes  in the economy and even the make-up of the Dow components? The idea behind it is that the DJIA needs to make a new high and then be confirmed by the DJTA. 

The reverse is also true when confirming true bear markets. That translates into, as one market veteran noted, a possible time delay since a second indicator must show up to confirm the first.

Compared to the transportations and industrials, much of today's economy centers on banking and technology, two components that serve more as economic drivers than they once did.

Is Dow Theory still relevant?

MID-MORNING READ

Investors have been watching Japan to see what the BOJ would do about creating some inflation to turn their long-suffering economy around now that a new man is on the job.
http://www.marctomarket.com/2013/04/three-suprises-before-boe-and-ecb.html#more

THURSDAY READS


THE COST OF IT ALL
http://blogs.marketwatch.com/thetell/2013/04/03/big-macs-beers-and-the-search-for-global-bargains/

ZIP UP YOUR ZIP CODE WHEN SHOPPING
http://bucks.blogs.nytimes.com/2013/04/01/why-retailers-ask-for-your-zip-code/

BANK OF JAPAN TO BUY MORE BONDS
http://www.reuters.com/article/2013/04/04/us-japan-economy-boj-idUSBRE93216U20130404

TIMING, ISCKY ICKY TIMING BROUGHT ME TO YOU
http://blogs.marketwatch.com/thetell/2013/04/03/bill-gross-im-not-a-great-investor-warren-buffett-may-not-be-either/

EMERGING MARKETS STAGFLATION
http://www.marctomarket.com/2013/04/stagflation-lite-in-some-emerging.html

KRUGMAN  PINOCCHIO ECONOMIST
/http://news.investors.com/ibd-editorials/040313-650385-california-recovery-not-what-paul-krugman-claims-it-is.htm?p=full

A MOST IMPORTANT READ
http://www.testosteronepit.com/home/2013/3/24/economic-lessons-from-a-mexican-taxi-driver.html

Wednesday, April 3, 2013

MISCHIEF, MASSIVE POWER AND HEROIN

Peter Lynch once said something to the effect about new restaurants that depended on liquor sales for much of their revenue: The food better be good because liquor tastes the same everywhere.

For some who might not recall or know, Lynch was one of the rock star mutual fund managers at Fidelity in the 1980s who walked away early.

Stride through the halls of any pantheon dedicated to modern-day money managers and look up. You'll see Lynch's name.

Easy money policy and liquor are fungible. With the Bernanke-led Federal Reserve it's heroin, not liquor. 

http://www.marketwatch.com/story/stockman-fires-back-at-krugman-critics-2013-04-03?pagenumber=2



WEDNESDAY READS

CHEAPER GAS LURES BUSINESS
http://www.newsmax.com/US/natural-gas-europe/2013/04/02/id/497412

HOUSING MYTHS
http://blogs.wsj.com/economics/2013/04/02/three-myths-about-housing-market-rebound/

SOME TEX-MEX
http://news.investors.com/business-the-new-america/040213-650058-chuys-tex-mex-restaurant-beyond-texas.htm

THE BAILOUT PLAN
http://oilprice.com/Latest-Energy-News/World-News/What-Happens-to-Cypruss-Natural-Gas-with-the-Current-Bailout-Plan.html

ETHANOL FRAUD
http://www.thefiscaltimes.com/Columns/2013/04/03/Ethanol-Fraud-and-Why-You-Pay-More-at-the-Pump.aspx#page1

SILVER SLIPPING
http://www.futuresmag.com/2013/04/02/silver-falls-as-investors-shift-into-equities?ref=hp

CHEAT IF YOU CAN
http://www.guardian.co.uk/world/2013/apr/02/jerome-cahuzac-france-offshore-account