GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
SOVEREIGN DEBT & CREDIT CRISIS
Consumer credit posts a gain in Sept., second in 20 months
Surprise! Consumer Credit Rises For The First Time In 8 Months
Consumer credit surprisingly increased in September, up
It was expected to fall.
Data shows the expansion had nothing to do with credit
cards, but instead with auto loans and student loans.
Car sales showed
substantial growth in October, and with students
heading back to start college in September, that may
account for part of the uptick.
Revolving credit (credit cards), however, fell
Check out this chart from @credittrader, showing the
decline in revolving credit:
Here's What No One Told You About The Supposedly Great Jobs Report
With a really fantastic headline number coming from the
Establishment Survey, we thought we’d take a closer look
at the other side of the coin. The Household Survey
showed the following today:
decline of 330,000 in the number of people
decline of 254,000 in the labor force;
• a decline in the
employment-population ratio to 58.3% from 58.5% in
increase of 462,000 in those not in the labor
increase of 76,000 in the number of people
The drop in the number of employed is concerning - and
brings into question the disparity between the labor force
and unemployment statistics in the Household Survey, and
job creation indicated by the establishment surveys.
These were not small differences.
The take-away is that final demand in the U.S. can only
be generated through an increase in the number of people
with jobs and/or the wages earned by those employed. A
material decline in the number of people employed
(especially with only meager changes in hour’s worked and
hourly wages) is not consistent with an improvement in
Furthermore, one questions why –
with the Establishment Survey showing such a robust number
– people are exiting the labor force, rather than entering
it in response to employment opportunities?
disparity between what the Household Survey and the
Establishment Survey are telling us is of some concern.
So we took a look at the ol’ net birth/death algorithm for
clues (it adjusts the Establishment Survey data). Note
below that the birth/death adjustment for the aggregate of
professional and business services, and education and
health services in October was +81,000 - over half of the
establishment survey's gains (and nearly 50,000 jobs
higher than the average of +32,500 for August and
September). We know that the NBDA has not had a very good
track record during this recessionary and
Structurally, it is also useful to note that the
increase in the number of unemployed, and number of people
exiting the workforce, came nearly entirely from the
statistical cadre over 25 with a college degree of higher
– (labor force dropping by 332,000, unemployed rising by
97,000). Higher paying jobs continue to shrink,
lower paying service sector employers hiring cheap labor.
Sticky wages starting to get unstuck as unemployed become
more hopeless? This would be a deflationary signal.
Keep an eye on that hourly wage number going forward.
HSBC and RBS see bumpy ride ahead FT
Banks warn on the outlook for the economy
The Next Major Disaster Developing for Bond Holders
Bernanke Defends Bond Purchases, Predicts Stronger Growth
& LOCAL GOVERNMENT
CENTRAL & EASTERN EUROPE
COMMERCIAL REAL ESTATE
9-RESIDENTIAL REAL ESTATE - PHASE II
Pending home sales drop 1.8% in September AP
10- EXPIRATION FINANCIAL CRISIS PROGRAM
11- PENSION & ENTITLEMENTS CRISIS
Is It Really a Pension? It’s a Problem NYT
In U.S., 14% Rely on Food Stamps WSJ
13- GOVERNMENT BACKSTOP INSURANCE
Fannie Mae Posts $1.3 Billion Loss WSJ
Fannie, Freddie Overhaul Could Cost $685 Billion
14- CORPORATE BANKRUPTCIES
Europe defies China’s Nobel threat FT
QE2 worsens China’s currency dilemma FT
China ushers in credit default swaps FT
19- PUBLIC POLICY MISCUES
Managing the Federal Debt National Affairs
OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE
26-GLOBAL OUTPUT GAP
31-FOOD PRICE PRESSURES
CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES
Doubts grow over wisdom of Ben Bernanke 'super-put'
The early verdict is in on the US
Federal Reserve's $600bn of fresh money through
quantitative easing. Yields on 30-year Treasury bonds
jumped 20 basis points to 4.07pc.
It is the clearest warning shot to date that global
investors will not tolerate Ben Bernanke's openly-declared
policy of generating inflation for much longer.
Soaring bourses may have stolen the
headlines, but equities are rising for an unhealthy
reason: because they are a safer asset class than bonds at
the start of an inflationary credit cycle.
Countries cannot easily shield themselves from the
inflationary effect of QE2 by raising interest rates since
this leads to further "carry trade" inflows in search of
yield. They are being forced to eye capital controls, with
ominous implications for the interwoven global system.
In London and Frankfurt the verdict was just as harsh.
"In our view, this is one of
the greatest policy mistakes in the Fed's history" - Toby
Nangle, Baring Asset Management.
angered the world's rising powers and prompted a reaction
with far-reaching strategic consequences." -
Ambrose Evans Prichard Telegraph UK
"a string of Asian
states share China's "deep bitterness" over dollar
debasement, and are examining ways of teaming up to
insulate themselves from the tsunami of US liquidity"
Li Deshui, Beijing's Economic Commission
"its central bank is
already in talks with neighbors to devise a joint
"the US move had
created excessive dollar liquidity which we are absorbing
forcing his country to restrict inflows" -
Brazil's central bank chief Henrique Mereilles
minister warned of "more bubbles."
Fed is gambling that the so-called 'portfolio
balance channel effect' – pushing money out of government
bonds and into other assets – will lift risk asset prices.
The gamble is that this boosts profits and wages, rather
than simply prices. We remain unconvinced. How will a
liquidity solution correct a solvency problem?" - Toby
Nangle, Baring Asset Management
"A policy error", the
wording of the Fed statement is "potentially dangerous"
because it leaves the door open to a further flood of
Treasury purchases if unemployment stays high. "It is a
bottomless pit" - Ulrich Leuchtmann,
"If long bond investors continue to
throw their collective toys out of the cot, it risks
upending the Fed's policy," - Michael Derk from FXPro.
"foreign funds may
take advantage of QE2 to dump their holdings on the Fed,
rotating the money emerging markets rather than US
assets."- Mark Ostwald from Monument
Bond funds are
already restive. Pimco's Bill Gross says the great bull
market in bonds is over, denigrating Fed policy as the
greatest "ponzi scheme" in history.
Warren Buffett has
chimed in, warning that anybody buying bonds at this stage
is "making a big mistake",
Volcker: Fed's $900 Billion Plan Won't Do Much To Boost Economy
"The thought that you can create a prosperous economy
by inflating is an illusion, in my judgment," he told
reporters after his speech. "And we should never forget
that. I thought we'd learned that lesson and I hope we
continue to learn that lesson."
Ron Paul vows renewed Fed audit push next year Reuters
|Paul is currently the top Republican on the House of
Representatives subcommittee that oversees domestic
monetary policy...That could create a giant headache for
`Hell Week' Ends With Central Banks Split on Recovery Policies
QE2 Is Likely to Be More Successful than QE1 Northern Trust
QE II is here, Its impact on the money supply Pollaro
Enter the era of dollar devaluation Saft
|For the U.S., which has long espoused a strong dollar
but in reality had a policy of benign neglect, this is the
equivalent of pushing the big red eject button in the jet
cockpit: something big is going to happen and we will have
to see how it will work out.
Bernanke leads us down the hole to wonderland! (more about QE2)
Bernanke soft-pedals QE2 risks Fortune (Barr)
Mohammed El-Erian, a top executive at giant bond
investor Pimco, contends in a
piece published in the Financial Times that
quantitative easing will fail to restart domestic growth
because it fails to address the real problems that are
holding down U.S. employment and output.
previously argued that the government needs to focus
on making structural changes such as boosting investment
in travel infrastructure, such as air and rail facilities,
and focusing on building a sustainable energy industry.
This, rather than expanding the monetary base, holds the
key over time to creating good jobs.
"Liquidity injections and financial engineering are
insufficient to deal with the challenges that the U.S.
faces," El-Erian writes. "Without meaningful structural
reforms, part of the Fed's liquidity injection will leak
right out of the U.S. and result in yet another surge of
capital flows to other countries."
There is the longer-term risk to the U.S. economy,
which has gained so much through the years through the
issuance of the world's reserve currency and the operation
of its deepest, most liquid financial makets. El-Erian
contends that these advantages will inevitably erode over
the years that Bernanke continues his expansive monetary
efforts, perhaps culminating in the long prophesied
Volcker: Future Inflation Risk Limits Easing Effect Reuters
US Policy 'Clueless': German Finance Minister Reuters
Emerging powerhouses vow action after Fed's bond move Shanghai
China Says Fed Must Explain Bond-Buying or Endanger Recovery
Federal Reserve Rains Money On Corporate America HP
QE2 likely won't help U.S. economy Advisor.ca
One of the Greatest Blunders in History GoldS
|I think history will come to view yesterday as the
beginning of the end for the dollar as the worlds reserve
currency and unless the Federal Reserve comes to their
senses soon the dollar is doomed to follow every other
fiat currency in history into an eventual hyperinflation
and total devaluation.
A Look Inside the Fed’s Balance Sheet WSJ
Flaw in Fed’s ideological repositioning on asset prices
Sit back and enjoy the ride that QE2 has set in motion
Consumers' right to file class actions is in danger LAT
Oil nears 2010 high; Commodities surge on investment flows Reuters
HSBC raises alert on emerging markets FT
FLASH CRASH - HFT - DARK POOLS
Small investors catch Wall Street’s big wave MWBullish sentiment hit a two-year peak at the end of October
No irrational exuberance — yet MW
World bull market faces no risks `any time soon': Mobius BL
Why Bernanke Is Gambling Comstock
|It is also likely, therefore that the strong market rally is
based on false assumptions, as were the runs to the tops of early
2000 and late 2007.
Geithner's 4% Solution May Be `Unworkable' as APEC Gathers BL
China tees up G20 showdown with US FT
Plan to deal with imbalances rejected
Emerging markets win more voting power in IMF FT
'Peer Pressure' Seen as Currency War Fix WSJ
South Korean President Lee said he was counting on pressure
from the world's top economies, not enforceable rules, to police
any currency deal made among leaders at the G-20 summit.
South Korea had hoped to make development issues the focus of
the G-20 summit but those plans were overtaken by currency
battles—and successful U.S. efforts to focus the meeting on
Chinese foreign-exchange practices. Mr. Lee said he was optimistic
for the summit but some G-20 negotiators outside the U.S. have
been frustrated by the turn of events.
FINANCE MINISTERS MEETING OUTCOME
The most attention has focused on a joint Korean-U.S. plan to
limit the trade surpluses and deficits that underlie and reflect
currency movements. At a G-20 finance ministers meeting late last
month, the group agreed to adopt "indicative guidelines" of what
constitutes an over-the-top deficit or surplus.
The International Monetary Fund would play umpire and name
countries that didn't meet the standard. The U.S. is pushing the
group to limit surpluses at 4% of gross domestic product, a
standard Washington believes would prompt China to let its
currency rise further.
Any deal, President Lee said, wouldn't be enforceable in the
way, say, trade decisions are enforced by the World Trade
Organization, which can authorize trade sanctions against losing
Currency issues have come to dominate the G-20, as a number of
countries have felt squeezed between China, which is widely
believed to keep its currency purposefully undervalued to benefit
its export companies, and the U.S., whose near zero-rate monetary
policy is prompting investors to shift money to emerging markets,
putting upward pressure on currencies there.
'Firewall needed' to prevent cash surge China Daily
Warning over capital influx as US starts 'unbridled money printing'
Xia Bin wrote in a newspaper under the Chinese central bank
|“As long as the world exercises no restraint in issuing global
currencies such as the dollar -- and this is not easy -- then the
occurrence of another crisis is inevitable, as quite a few wise
Brazilian Finance Minister Guido Mantega Reuters
|“Everybody wants the U.S. economy to recover, but it does no
good at all to just throw dollars from a helicopter”
President-elect Dilma Rousseff FT
| “The last time there was a series of competitive
devaluations...it ended in world war two”
on Net Margins Zacks Research via Pragmatic Capitalist
- Focus now on third quarter earnings: 16.3%
growth in total net income, 3.79% year-over-year revenue growth
expected. For the fourth quarter, 24.1% earnings, and 2.18%
revenue growth expected.
- Just 22 reports in, but off to a good start
(for what it’s worth). Surprise ratio 6.00 with a 8.96% median
surprise. 81.8% of all firms beat expectations. Total net income
- Sales Surprise ratio at 1.10, median
surprise 0.01%, 50.0% of all firms do better than expected on top
line. Total revenue growth 11.1%.
- New Tables on Net Margins added. S&P 500 net
margin expected to rise to 8.63% from 7.75% a year ago, but down
from 9.05% in the second quarter.
- Total earnings for the S&P 500 expected to
jump 39.0% in 2010, 15.6% further in 2011. Revenues expected to
rise 4.62% in 2010, 5.93% in 2011.
- Autos, Finance, Basic Materials and Energy
expected to be earnings growth leaders in 2010. Construction
expected to move from the red to the black. No sector expected to
see earnings decline in 2010.
- Huge net margin expansion expected to
continue in 2010 and 2011. Total net margins grow from 5.85% in
2008 to 6.42% in 2009, 8.61% expected for 2010, 9.31% for 2011.
Ex-Financials, net margins 6.63% in 2008, 7.58% for 2009, 8.72%
expected for 2010, 10.51% for 2011.
- Revisions ratio for full S&P 500 at 1.04 for
2010, at 0.89 for 2011, an improvement from last week. Ratio of
firms with rising to falling mean estimates at 1.11 for 2010, 0.79
for 2011. Very small sample size, especially for some of the
sectors, interpret revisions ratios with care
- S&P 500 firms earned a total of $546.5
billion in 2009, expected to earn $759.8 billion in 2010, $878.4
billion in 2011.
- S&P 500 earned $57.64 in 2009, $79.80 in
2010 and $92.78 in 2011 expected bottom up. Puts P/E’s at 19.8x
for 2009, 14.3x for 2010, and 12.3x for 2011.
- Top-Down estimates: $79.93 for 2010, $92.01
Berkshire Third-Quarter Profit Declines 7.7% on Derivatives BL
AUDIO / VIDEO
QUOTE OF THE WEEK
"It could unfold very, very quickly. Because deflation is a
swing of poverty feedback, it can take awhile to build up. If you
try to explain to people what's coming, because it doesn't happen
instantly, they tend to go back to sleep. The thing they need to
understand, however, is that when it does hit a tipping point, a
kind of critical mass, then it can unfold exceptionally quickly.
Then it's very much like having the rug pulled out from under your
feet. So I tell people all the time, prepare now because it's
better to be two years too early than five minutes too late. You
can't play with this sort of thing. In September, 2008, we came
within a few hours of the banking system seizing up, and that
could easily happen again. People wouldn't get a lot of notice.
For anyone who's not in the meeting room-it will be too late by
the time they find out. My worry is that if there are an enormous
number of people who just had the rug pulled out from under their
feet, they're going to run around like headless chickens, and the
human over-reaction to events will be really responsible for a
large percentage of the impact. “