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Financial Skeptic Bulletin, September 2012

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

This one year old selection of news. It's really funny to read forecasts that are just one year old.

Note: Despite doom and gloom stock market went from 1260 to 1460 in one year. This new stock and bonds bubble was supported by Fed.

NEWS CONTENTS

Old News ;-)

[Sep 24, 2012] Jon Stewart -- Chaos On Bullshit Mountain

A kleptocracy is sucking the life out of working men and women by force and fraud. "Tell Your Grandparents to Stop Being Jerks to Mitt Romney"
Jesse's Café Américain

What kind of a people could delight in machine-gunning the lifeboats of those who are attempting to escape, not to thrive but to merely survive, the mayhem and chaos that these same sociopaths have created through their selfish and criminal actions? And what sort of gullible fools will listen to them, and assist them in their work even if passively by saying nothing?

"The inability to identify with others was unquestionably the most important psychological condition for the fact that something like Auschwitz could have occurred in the midst of more or less civilized and innocent people.

What is called 'fellow traveling' (collaboration) was primarily business interest: one pursues one’s own advantage before all else and, simply not to endanger oneself, does not talk too much. That is a general law of the status quo."

Theodor Adorno

Have we truly learned nothing? Must we make the same mistakes over and over again?

These 49% include for the most part the elderly, students, the working poor, soldiers and their families, and the disabled.

These 'handouts' include Social Security and unemployment insurance which people have paid for when times were good. The ranks of the working poor have swelled for sure, because of a financial collapse brought on by unfettered greed and fraud of Wall Street, and a stagnant real median wage for the past 20 years in the face of rising costs, often driven by monopolies, fraud, and cartels.

A kleptocracy is sucking the life out of working men and women by force and fraud. A group of sociopaths, who have committed one of the great crimes in history, not only blithely walk away with their loot unpunished, but come back to rob their victims once again, to finish the job. And they gorge themselves on the public trust even while begrudging the widow her pittance, or trying to steal it.

[ Sep 20, 2012 ] Uncertainty, Unemployment, and Inflation

FRBSF Economic Letter

Sylvain Leduc and Zheng Liu of the San Francisco Fed examine how changes in uncertainty impact the economy (As I rush off to jury duty -- can hardly wait -- I'll just note that I wish we knew more about what is driving the changes in uncertainty they use in their empirical work.)

Uncertainty, Unemployment, and Inflation, by Sylvain Leduc and Zheng Liu, Economic Letter, FRBSF: Heightened uncertainty acts like a decline in aggregate demand because it depresses economic activity and holds down inflation. Policymakers typically try to counter uncertainty's economic effects by easing the stance of monetary policy. But, in the recent recession and recovery, nominal interest rates have been near zero and couldn't be lowered further. Consequently, uncertainty has reduced economic activity more than in previous recessions. Higher uncertainty is estimated to have lifted the U.S. unemployment rate by at least one percentage point since early 2008.

The U.S. economy has slowed substantially in recent months. Many commentators argue that uncertainty about future economic conditions has been an important factor behind the tepid recovery. According to a recent New York Times article, “A rising number of manufacturers are canceling new investments and putting off new hires because they fear paralysis in Washington will force hundreds of billions in tax increases and budget cuts in January, undermining economic growth.” However, evidence supporting this view is scant. In a 2011 Wall Street Journal interview, University of Chicago economist Robert E. Lucas, Jr., said he had “plenty of suspicion, but little evidence” that uncertainty was holding back the recovery.

[Sep 14, 2012]  Roubini Fiddling at the Fire

What voters want in most advanced economies is more tax-free capital gains, more asset price bubbles. Had a power elite ever redistributed wealth willingly in recorded history?

Economist's View

Blissex

...What voters want in most advanced economies is more tax-free capital gains, more asset price bubbles. 70% of voters in the USA, UK, and other countries have invested 100% or often more of their savings in houses and shares.

These people will never let that go, to the bitter end and they don't realize that it is them who are the marks of a big pump-and-dump scheme.

Therefore keeping asset prices high and wages low is still the main priority of most advanced country voters, and politicians who disagree don't survive elections, not that many would disagree.

These people will never let that go, to the bitter end and they don't realize that it is them who are the marks of a big pump-and-dump scheme.

Therefore keeping asset prices high and wages low is still the main priority of most advanced country voters, and politicians who disagree don't survive elections, not that many would disagree.

Just as to houses, in one of the most disturbing cases, the BBC writes that in the UK:

http://www.bbc.co.uk/news/business-19288208

«In 2001, the average price of a house was £121,769 and the average salary was £16,557, according to the National Housing Federation. A decade on, the typical price of a property is 94% higher at £236,518, while average wages are up 29% to £21,330,»

This means that in 10 years owners of average houses have enjoyed tax-free capital gain of around £10,000 per year, or 50-70% of the after-tax average income, while the private debt to GDP ratio ballooned to absurd levels to fuel the insatiable demand by voters for ever higher asset prices. Now average house prices are 11 times average (personal) incomes.

The outcome will be like Japan (if lucky), like Ireland (if not so lucky) or most probably like Argentina.

Cynthia

I think people feel like kicking the can, or "extend and pretend" doesn't have an immediate cost, it does! Either the bank will break first or people will break first, it doesn't really matter, when you don't have anything to lose and everything to gain, you storm the Bastille! Until then we watch football...

Min

Sorry, I don't know what you mean by kicking the can in this context.

Goldilocksisableachblonde said in reply to Min...

She means that the middle-class has a massive internal bleed , while Dr. Bernank is handing out aspirin and packs of Skittles.

SB

As long as the commentary isn't going to be insightful, I'll add that NR throws really nice parties, serves drinks to his guests himself, and is quite funny.

John Yard :

Blissex: Excellent points. What the middle class and working class needs is the relative wage growth that has been lacking since 1970. Wage stagnation in the developed world is killing demand; this will be resisted tooth and nail by the economic elites.

William of Ockham:

Had a power elite ever redistributed wealth willingly in recorded history?

Puzzled:

"Ineffective governments with weak leadership are at the root of the problem."

What would governments be doing if they were effective. Dr. Roubini does not say. Even the commenters here don't seem to have much advice. Income/wealth redistribution?

Larry:

The world is changing at a steadily growing RATE. Governments take as long as ever to react. Anybody see a problem here?

[Sep 13, 2012] Bernanke in Drag(hi)?

SP 500 and NDX Futures Daily Charts

The markets went coo-coo for Cocoa Puffs today as the Fed threw an amount slightly less than the 2009 Wall Street bonus pool at mortgage market debt in the US, about $40 billion per month.

As I told one of my friends, you might have to dust off the Weimar calibrator in your financial mind before too long.

The financials were leading the charge. When Citi outdistances AAPL you know its not Kansas that they put on that blotter paper that day.

Is this Ben's Draghi moment? I think today's rally is fine, but the Street is going to start pressing him for details soon, and hard. And if he turns out to be Slam Bam Ben it won't be pretty.

And so far the Fed has not really made a dent in the real economy, just the banks and bonds. And helped some gold bugs feel better about themselves.

Part of this is certainly the government's fault, but quite a bit is the Fed's, for their coddling of the Banks with their excess reserves and gambling ways.

A reckoning is coming.

[Sep 13, 2012] No Recovery: Real Median Household Income Continues Its Decline

There is no recovery, not yet at least, except for the one percent.
“You’re really struck by the unevenness of the recovery. The top end took a whack in the recession, but they’ve gotten back on their feet. Everyone else is still down for the count.”

Lawrence Katz, Professor of Economics, Harvard

There is a lot of wishful thinking and perception management going around, but the bailouts and tax breaks are flowing upwards in this predatory economy. I know. Let's have another bubble, for old time's sake. The economic hitmen have come home. This is from John Williams:
Real Median Household Income Is at Its Lowest Level Since 1995. Consumer income remained in contraction during 2011, with both real (inflation-adjusted) median household income and real median individual income sinking on an annual basis. Given consumers lack of ability to expand their borrowing in order to make up for shortfalls in income, the chances of there having been a full economic recovery since 2009 (as reflected in the GDP), or of a recovery pending in the immediate future, are nil.

[Sep 13, 2012] Where Have All the Workers Gone?'

Jessie Romero of the Richmond Fed analyzes why so many people are leaving the labor force, and what they are doing after they exit:
Where Have All the Workers Gone?, by Jessie Romero, Richmond Fed: Since September of last year, the unemployment rate in the United States has declined nearly a full percentage point, from 9 percent to 8.3 percent. On its face, this is an encouraging signal about the health of the labor market. But some of the change is due to a potentially troubling trend: a dramatic decline in the number of Americans who are part of the labor force. Prior to the recession, 66 percent of the population (not counting active duty military or people in a nursing home or in prison) over the age of 16 was in the labor force. Just four years later, this rate — known as the “labor force participation rate,” or LFPR — has fallen to 63.7 percent. While this might not sound like a large decline, it is unprecedented in the postwar era. The dropoff is all the more striking because it does not include unemployed workers who are actively seeking work; such workers are still considered to be part of the labor force. It is only when the unemployed decide to stop looking for jobs, perhaps because they have given up on the possibility of finding one, that they are considered out of the labor force...
Not-in-LF

[Sep 07, 2012] Gross Says Jobs Growth to Spur Fed on Quantitative Easing By John Detrixhe and Tom Keene

Sep 7, 2012 | Bloomberg

...Gross cut the proportion of U.S. government and Treasury debt in his $270 billion Total Return Fund to 33 percent of assets in July from 35 percent the prior month, according to the latest data on Pimco’s website. Mortgages were his largest holdings at 51 percent, down from 52 percent in June.

The Total Return Fund gained 8 percent during the past year, beating 97 percent of its peers, according to data compiled by Bloomberg. The fund gained 0.4 percent in the past month, topping 85 percent of comparable funds.

Gen Y:

Like Quantitative easing helped the country's chronic U-6 unemployment rate of 15.6%.
If it didn't work the first 10 times, why do they insist on putting us at high risk for inflation during times of high unemployment? What's that called? STAGFLATION.

Oh btw, has anyone noticed how both Mario Monti and Mario Draghi both have revolving doors between Goldman Sachs and the Italian government?

[Sep 05, 2012] Bull Markets Die Hard, Here’s How This One Could End Breakout

Correction can well be 50%. When it will come nobody knows... Schatz sees this bull market drying up in 2013 or possibly into 2014. He advises watching for deterioration in market leaders Apple, Google, and Amazon as the first warnings of the next downturn.
Yahoo! Finance

September is kicking off with a whimper after the release of U.S. and Chinese manufacturing data and Moody's (MCO) warning of a rating downgrade for the European Union. The U.S. ISM reading ticked down to 49.6% in August, versus an expected 50.2%. China's official Purchasing Manager's Index slid to 49.2 in August from 50.1 in July. For both measures, below 50 indicates manufacturing activity contracted.

The market will likely tread water ahead of some big events later this week including an ECB meeting on Thursday and the U.S. employment report on Friday.

Regardless of these short-term, potentially market-moving events, investor Paul Schatz, president of Heritage Capital says this bull market is running out of steam and a few strong stocks have been masking that reality.

Schatz calls Apple (AAPL), Google (GOOG), and Amazon (AMZN) the generals of the market holding up the major indices, particularly and obviously the Nasdaq (^IXIC). While these stocks are posting gains for outpacing the broader market since the start of the bull run in 2009, in his opinion, investors are fleeing other areas of the market.

"Bull markets die hard, at the end this is what happens," he says.

Here's how the major indices stack up against the stock trio since early March 2009:

----------

"It doesn't end well," he predicts. "If you look at historical examples, the story stocks are hit anywhere from mildly 30%, and in a bad case like we saw in '07 to '09, 60 or 70%."

Schatz sees this bull market drying up in 2013 or possibly into 2014. He advises watching for deterioration in market leaders Apple, Google, and Amazon as the first warnings of the next downturn.

Is the bull market story over? Let us know your thoughts in the comment section below or visit us on Facebook.

Patrick:

The periods in between crises are getting shorter. 2001-2008, 2008-2011, 2011-2013. The first crash was mostly American, the second one mostly European, the third one will be worldwide. A perfect storm of unresolved issues around the globe.

William

When the Fed can no longer print dollars to finance the US Gov's enormous debt issues because fools no longer with accept a negative return the jig is up. As long as the perception of low infation can be maintained the game can run.

Dave K

Bull markets die hard, Bullsh_t markets go out in a puff of smoke.

Larry

There seems to be a total dis connect between wall street and main street. I think part of that is due to the fact that the people on main street are dealing with real time problems that wall street is not giving full weight to.

Casey

May and John, are you morons, imbeciles, or idiots? There is no more $ pouring into 401Ks and pension funds GOING to wall street investments. People are on to the game and choose to pay down debt and make the most of their money. The little guy has left wall street to computers and foreign money.

John

Our National Public Debt is killing us. People, this is YOUR DEBT. Every man, women and child owes over $50,000. Every taxpayer owes over $140,000. Factor in unfunded liabilities and it rises to $1.4 MILLION. We are in a depression and will fully realize it soon.

The stock market is not a market. Just as the bond market is not a market. Both, and most other markets, are overtly and covertly manipulated by the FED and anyone keeping an eye on the ball knows it.

[Sep 1, 2012] I.M.F. Reduces Forecast for U.S. Growth by ANNIE LOWREY

The fund cut its estimates of American growth to 2 percent in 2012 and 2.25 percent in 2013 in the report. In April, it estimated growth of 2.1 percent in 2012 and 2.4 percent in 2013.
July 3, 2012 | NYTimes.com

WASHINGTON — The International Monetary Fund on Tuesday lowered its estimates for United States economic growth for this year and next, and urged policy makers to do more to help the housing sector and support the tepid recovery.

In its annual assessment of the American economy, the fund also had a sharp warning for Washington: avoid the fiscal cliff at the end of the year, when the Bush-era tax cuts expire and mandatory spending cuts across the government go into effect. The sudden shock could be enough to put the country back into recession, the fund warned, with global repercussions.

In a news conference, Christine Lagarde, the fund’s managing director, also said that Congress should “promptly” raise the debt ceiling to avoid spooking the global debt markets and raising the country’s borrowing costs. The government is expected to hit its statutory borrowing limit late this year.

Should policy makers fail to ease the end-of-the-year fiscal blow and raise the debt ceiling, “the domestic effects would be severe, with negative spillovers to the rest of the world,” warned Ms. Lagarde.

The fund cut its estimates of American growth to 2 percent in 2012 and 2.25 percent in 2013 in the report. In April, it estimated growth of 2.1 percent in 2012 and 2.4 percent in 2013.

A number of other government and private forecasters have done the same recently. On Tuesday, for instance, Macroeconomic Advisers, a private economic consulting firm, cut its estimate of the current pace of economic growth to an annual rate of 1.5 percent a year, down from 2.6 percent in early April. And last month, the Federal Reserve lowered its estimate of 2012 growth, to a range of 1.9 percent to 2.4 percent, from a range of 2.4 percent to 2.9 percent as projected in April.

The fund cited numerous reasons for the slowdown. The need for households to pay down their debts has cut into consumer spending and reduced economic demand. Job creation has slowed this year, and the unemployment rate remains seriously elevated. The long-simmering debt crisis in Europe and recent slowdown in big emerging markets have cut into exports.

“Business fixed investment also seems to have lost some momentum, despite favorable financial conditions for the cash-rich corporate sector,” wrote the fund’s analysts. “Large firms can tap bond markets at low rates and enjoy easy access to bank credit. In contrast, access to mortgage credit is still tight for households, notwithstanding historically low rates.”

The fund applauded recent efforts to support the housing market but said that Washington should do more. It said that the government should support broader refinancing, and that Fannie Mae and Freddie Mac — the government-sponsored mortgage finance giants — should allow principal reduction. The Obama administration has backed the idea, but top housing finance regulators have resisted it.

It also suggested allowing courts to reduce the amount homeowners in personal bankruptcy owe on their mortgages without the consent of their lenders — so-called cram-downs. Mortgage lenders have strongly opposed courts cutting outstanding loan balances.

The I.M.F. also warned of downside risks to American economic growth. Most notably, an intensification of the euro zone crisis could affect the United States by causing investors to flee to safe assets and sapping exports, said Ms. Lagarde.

The fund also advised the United States to reduce its significant debts in the medium term, calling a “credible” fiscal plan “urgently needed” to avoid scaring global investors and damaging the recovery.

“We believe fiscal consolidation is necessary — but not any fiscal consolidation. It has to be sensible, and certainly not excessive,” said Ms. Lagarde. She described a “small” amount of deficit reduction — about 1 percent of economic output — as “perfectly appropriate” for next year, given the expected weakness in the economy. 



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