CLASSIC EXAMPLE

The NYT motto reads "All the news that's fit to print."

After you read the posted story you should know why it ought to say: "All the news that's fit to spin."

Let's start at the top, the title: "The Incredible Shrinking Budget."

The only thing incredible about the incredible shrinking budget is whoever wrote this headline. If nothing else it shows you what contempt the NYT has for you.

The article claims the deficit is not only falling but falling rapidly. They then quote a report from Goldman Sachs aka in many eyes as Government Sachs. This is the same GS that shorted gold then put out a report to clients that gets spread to the public by MSM to short gold.

For anyone but GS that's called front running; it's illegal for you and me. It's also designed to pry the retail crowd loose from their metal ETFs and send a message about the economy.

Take a closer look at the paragraph below.

“Revenues have also exceeded expectations, with a 12 percent gain fiscal year to date. What is more notable is that the strength in revenues preceded the payroll tax hike at the start of the year, and the spending decline does not seem to reflect sequestration, which has just started to take effect.” To translate: the deficit could come in even smaller than currently anticipated because of spending cuts and higher tax rates.

To begin with, there's more qualifiers ("does not seem, "could come") in there than you'll see next month at the Indy 500.

The strength in revenues was no surprise. People cashed in some winnings to avoid higher taxes that they knew are coming. This was true at the state level also. Even tax-crazy California reported higher revenue.

This next paragraph would be even funnier if not for such blatant cheerleading. The growing economy, bolstering tax revenues, reducing the need for spending on unemployment insurance, the budget is finally coming into balance. Enough already.

"Washington has gotten its act together" and they write this BS with a straight face. The next time Washington gets its act together will be the first time.

On the face of it, this sounds like something to applaud: The growing economy is bolstering tax revenue and reducing the need for spending on programs like unemployment insurance. Washington has gotten its act together. The budget is finally coming back into balance. Indeed, Goldman now expects the budget deficit to fall to just 2.7 percent of economic output by the 2015 fiscal year. Many economists consider budget deficits that small to be sustainable — particularly if the federal government is investing in public goods like schools and roads — with the accrued debt paid off by later years’ economic growth.

This next paragraph is their coup d' gras, the final haymaker to knockout sequestration.

But a number of budget experts are booing rather than applauding, including the fiscal hawks at the International Monetary Fund. Last week, the fund nudged down its estimates for United States growth in 2013 and 2014. It said it saw many bright spots in the American economy, including the strength of the private sector, but it criticized Washington for imposing too much austerity, too soon, and thus sapping strength from the recovery and preventing the unemployment rate from coming down faster.

There always has to be another reason for the failure of the unemployment rate to decline. It couldn't be lousy government policy in the first place owing to huge budget deficits, big debt and out-of-control slopping at the public trough.  

You can't blame the author, though. She probably doesn't know yet: she's just another pawn. Toss her a by-line, a few chips, some guacamole and she's good to go.

http://economix.blogs.nytimes.com/2013/04/22/the-incredible-shrinking-budget-deficit/

CORRELATION

You hear a lot of talk today about correlation.

Many believe things now are more correlated than ever. In other words, what happens in Asia doesn't just stay there. That's just one of the concerns with all the QE Japan's doing.

Think emerging markets and growth. More developed, industrialized nations want to capitalize on that growth. It's a two way street. Correlation doesn't just apply to markets, however. There's something called asset correlation.

And that brings us to commodities. Recently they've taken a hit while equities have climbed, not historically unusual between the two asset classes, notwithstanding the last few years when they've somewhat surprisingly shown more correlation.

In simple terms commodities and equities are usually believed to be negatively correlated. They don't both tend to rise or fall at the same time. With bonds and commodities even more so.

When people think about emerging markets hunger comes up. And that's correct. But it's not all nutritional hunger.  The so-called experts estimate there are now seven billion people inhabiting the Good Ship Planet Earth with another two billion projected in the next 20 years.

More hunger, again not all the nutritional kind. In 1929 when the stock market crashed there were 120 million people in the US. Today in California alone there are 34 million and those are the ones we presumably know about.

 So here are a few reasons you want to own some commodities.

1. Commodities are historically negatively correlated to equities and bonds while throwing off decent returns. It's called diversification.
2. Inflation protection. Commodity prices tend to rise with inflation.
3. Growth is usually correlated with industrialization. And that brings us full circle to emerging markets and how to play them.

Welcome what the market gives you. Just make sure you do your homework.

BRIEFS

Recently we wrote about Goldman Sachs sacking gold. Here's quote from a statement released today from the bank advising their clients to cover their shorts in the precious metal.

"Our bias is to expect further declines in gold prices on the combination of continued ETF outflows as conviction in holding gold continues to wane as well as our economists' forecast for a reaccelerating in U.S. growth later this year," they said. 

This is designed to shake more retail investors out of gold ETFs and help the Fed further pump up the equity bubble. Bottom line message:  "See. We told you everything is fine."
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Beware of chains. President Obama's new budget plan wants to swap the current CPI used to gauge inflation to a chained CPI. What's the difference? The new CPI, owing to some nebulous economic mumbo-gumbo, factors in possible substitutions. Like if gasoline prices get too high we'll all start riding tricycles.

The key word here is possible as in substitutions one might make. Pork prices jump up while beef prices stay the same. Everyone is assumed to switch or substitute pork for beef, including those allergic to both. It's called egalitarianism.  How would you like yours-- with or without mayo?

If hardly a new concept and it's designed to screw the COLA folks, all those yield-starved seniors Obama and his cronies claim they care so much about.

Tax brackets are indexed to the current CPI. With the new one they aren't. That means higher taxes for everyone, middle class included. Even the left of center Tax Policy Center calls it "a back door tax hike of $100 billion."

About the only thing going to get chained if this economic political voodoo flies is you and me.
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Here a quote from Mohamed El-Erian, Pimco. talking about airport delays.

“Any avoidable headwind to growth – and this one is self-manufactured by Congress – is a travesty for an economy that is already struggling to grow by 2% a year, has an unemployment rate of 7.6% (with some 40% composed of long-term joblessness), has seen its labor participation rate fall to a level last seen in 1979, and still needs to de-leverage safely over time.”

WEDNESDAY READS

More Headwinds 
http://blogs.marketwatch.com/thetell/2013/04/23/pimcos-el-erian-sequester-flight-cancellations-signal-more-headwinds-for-economy/

Accountability
http://management.fortune.cnn.com/2013/04/23/success-laziness-accountability/

Political Chicanery Trumps People Again
http://online.wsj.com/article/SB10001424127887324874204578438913145965432.html?mod=WSJ_hp_mostpop_read

Defense Japanese Style
http://www.marctomarket.com/2013/04/great-graphic-japanese-uridashi-issuance.html#more

Bargain Hunter
http://www.inc.com/julie-strickland/price-psychology-.html?cid=em01015week17e

SPEAK UP

Contriving, backstabbing, evil people.

No, we're not talking this time about one of our old girlfriends though the description is close.

We're talking about the Obama administration and the air traffic controller mess. Now before many of you get too froggy and want to start jumping, the Republicans would be doing the same thing given the chance.

And that's the point: the triumph of politics over people. These contriving, backstabbing, evil folks care less about you and yours and any inconveniences you suffer. When are you going to get your head around that fact?

These people are among the most selfish, egotistical, power-hungry lot around and it's our fault. We put up with it. You and your children and your ideals are just political pawns.   

We'd say that they're infantile, but that would be an insult to children everywhere.

What you can do about it is get angry, real angry. Show them what real bipartisan anger looks like. The people stranded at these airports cross all political, racial and religious lines. They're young and old and infirm. En mass they're apolitical.

It's an in-your-face insult. You can sit there and take it, shrug it off or do something.

TUESDAY READS

Bears Versus Bulls Sentiment Indicator
http://www.minyanville.com/business-news/markets/articles/Why-Barron2527s-Prediction-of-Dow-16/4/22/2013/id/49365

The Secret World Of Gold http://www.dailyspeculations.com/wordpress/?p=8318

Oil Down
http://www.marketwatch.com/story/oil-slips-on-china-data-ahead-of-supply-figures-2013-04-23?link=MW_home_latest_news


EU Transaction Tax 
http://www.futuresmag.com/2013/04/21/eu-nations-split-over-transaction-tax-after-uk-fil

Austerity Support Waning EU Bureaucrat Says
http://online.wsj.com/article/SB10001424127887324874204578438250267965718.html?mod=ITP_pageone_3

SHOW ME YOUR CONVICTION

Let's put a few things in perspective.

As the graph below from the WSJ shows investors are in the market. But it's heavily skewed toward defensives issues.

If that makes you feel comfortable, it reminds us of the old big toe dip in the bath water, not a plunge based on confidence.

Caterpillar, the huge machinery firm, came out with weak earnings. The stock closed at $82 and change a little over four bucks from its 52 week low and roughly $30 off its 52 week high. 

The company manufactures construction and mining equipment. The mining sector has been hard hit not the least of which is owing to the drop in metal prices, commodities and the Chinese slowdown.

Energy prices are weak. Housing's being propped up by the Fed and the MSM cheerleaders.  People want to believe. Show me your conviction. They're paying up for that defense.

A while back we mentioned the smell test. We also mentioned taking what the market gives. Well, this graph is telling you what most investors don't like. 

If this is another off-to-the-races bull market based on a solid recovery, how far can it get without energy, materials and the like?

And when do you want to buy them? 

GOLD AND THE MEDIA

It should strike you as interesting especially since the sell off in gold how many commentators stick an epithet on the end of gold to describe gold followers.

This is not new. 

Now we're not among the so-called goldbugs though we have followed the yellow stuff since even before it fell from its $800 pedestal in the early 1980s.

In fact, back when the stuff traded at $278 an ounce we used to fly to another state where there was no sales tax and a much lower premium to buy it for our clients. The point here is, we don't call the paper asset folks, equity bugs or bond roaches or derivative dermatophytes. Or how about subprime pimps?

You know the term goldbugs carries a derisive tone to it. It's one of those PC we're-better-than-you-and-we're-superior attitudes you see so often in today's media. A recent example is this article, "The Evil Fed and Gold Prices: Fear-Mongering Fail" by someone named Dee Gill from the website YCharts.

It's one more example of journalists and their haughty snobbishness. It's also an example of why more and more people today disdain MSM in particular and journalists in general. It's another gauntlet tossed down.

You don't have to be a so-called gold bug to question the reckless and feckless Federal Reserve policy of Big Ben. We've seen it before under Sir Alan. And chances are better than good we'll see it again.

We also know interest rates have been in a long term decline and that politicians and bureaucrats have screwed up mightily before. With rates as low as they are, inflation doesn't have to jump by much to cause major dislocations.

Too many apparently myopic members of the media seem to think it has to return to those early 1980's levels to hurt. It doesn't.

The other side of the coin is the phony government inflation numbers the media and its lackeys continually parrot. It's still early in the game, not so much for the price of gold but for the after effects of all the monetary easing madness.

Shakespeare in his great wisdom suggested decimating the legal profession first. If he were around today he might be inclined to rethink that order. 

MONDAY READS

Who's Afraid Of Gold
http://www.cnbc.com/id/100658922

Paulson On Gold
http://www.economicpolicyjournal.com/2013/04/john-paulson-on-why-gold-will-climb.html

Copper Starting To Smell
http://investorplace.com/2013/04/dr-copper-catches-the-flu/

Housing Bubbles
http://www.nytimes.com/2013/04/21/business/before-housing-bubbles-there-was-land-fever.html?pagewanted=2&pagewanted=print

Caffeine-spiked Foods Of Your Choice
http://online.wsj.com/article/SB10001424127887323809304578428662107511422.html?mod=WSJ_LifeStyle_Food

You Read You Decide
http://www.bloomberg.com/news/2013-04-21/dealers-say-no-end-to-qe-in-2013-as-hatzius-sees-2016-rate-rise.html

GRIDLOCK ITALIAN STYLE

Suppose one day you're at this important meeting. You shuffle casually through the meeting brochure awaiting the main speaker.

And there it is, right on the second page in the bold print of his bio: the main speaker reveals he's had 33 jobs in 38 years. Lots of diversity, not much else. And it's no spreadsheet error. Spreadsheets have been properly vetted and banned from the meeting.

How much confidence does that instill in you? The title of his talk isn't about changing jobs rapidly. It's about managing companies. A gross exaggeration you claim. Maybe. But whether you realize it, you've just been introduced to the Italian government.

Only for the record it's worse, much worse. It's 63 governments in the last 68 years. One guy, Silvio Berlusconi, the one-time friend of George W. Bush, managed to interrupt that merry go round.

Berlusconi is the only one to serve out his full five year term. The irony of his downfall centered on a, surprise, sex scandal. Europeans always criticize the US for it prudishness. But the truth is sex scandals have sabotaged more political careers there than you can wiggle a G-string at.

Italy represents the third largest economy of the of EU, no small change matter. They just elected  87 year old Giorgio Napolitano to a second term in a compromise vote to try to remove what's been an ugly standoff from the front burner when the February election deadlocked. 

For the past two years Italy's endured an economic crisis that recently suffered another blow when it's bonds were downgraded to BBB+ and a scandal over derivatives at Monte dei Pachi, the world's oldest and Italy's third largest bank, in February complicate what many now believe adds to the Eurozone's many already significant fiscal problems. 

Gridlock American style can't hold a G-string to Italy's. So does that give us a sigh of relief and yet another good reason to justify more QE? Can someone please run that by Paul Krugman?