STOCK MARKET WATCH, Tuesday December 1.....(#1)

Too Many Holes in the Dike to Keep it Plugged

The economic news keeps getting better. For most Americans it appears as if the good times are here again. The economy is improving, the job picture has brightened, and stock prices keep heading higher. What’s not to like about this picture? The situation in Iraq remains a bit cloudy if not troublesome, but most Americans are concerned foremost about the economy and not what happens over there. So for now unless a series of rogue waves hits the economy in the form of a major terrorist attack on U.S. soil or a major financial institution’s derivative portfolio blows up, it would appear that it is smooth sailing from here through the elections.

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The financial markets have also remained buoyant thanks to amply supplied liquidity coming from the Fed. However, money supply growth has declined recently and is now negative over the last 13 weeks. This trend is visible across the whole money spectrum from MZM to M1-M3. The Fed is hoping that by keeping interest rates artificially low and below economic growth rates that enough stimulus can be supplied to the markets and the economy to keep momentum going forward. With a fed funds rate of 1% and economic growth rates of 4-7% there are still plenty of stimuli coming from the Fed. The Fed’s main problem is keeping the bond markets pacified and the dollar from plunging. The Fed has gone out of its way to convince bond investors that it will keep short interest rates down. Last week just about every Fed governor on the board was out making speeches in an effort to assuage the bond market’s fears. Keeping bond investors pacified is an important Fed Strategy in keeping long-term interest rates low. The Fed controls short-term rates while the bond market controls long-term rates. By keeping the fed funds rate at 1% the Fed is encouraging the spec community to play the carry trade. Speculators can borrow short-term at interest rates of 1% and then reinvest the borrowed money into long-term Treasuries paying over 5%. The carry trade and foreign central bank purchases of Treasury debt is what is keeping long-term rates artificially low.

There is only one problem with this strategy; it is in direct conflict with the Fed’s other goal of ratcheting up inflation rates in order to avoid asset deflation. The Fed is deeply concerned about asset deflation occurring in the financial markets. Falling stock prices such as we experienced in 2000-2002 created all kinds of problems from debt defaults to economic contraction. The Fed needs to keep all of the financial bubbles inflated—from stocks to bonds and from mortgages to real estate. However, the more money and liquidity it injects into the financial system the greater danger there is of that ocean of money spilling over into the real economy. Commodity prices are already hitting new records not seen in decades. Today copper prices rose to their biggest gains in over two years. Copper for March delivery rose 4.7 cents or 5.1% to 96.1 cents, a level that is close to a six-year high. Gold prices also hit a 7-year high today with the price of real money closing at $403.80, up $5.80 on the session.

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Right now there is nothing supporting the dollar other than near universal bearishness. Interest rates in the U.S. are among the lowest in the world, the trade deficit continues to climb while foreign investors have been lightening up on their U.S. investments. As the trade deficit grows larger over the next year it is highly unlikely that foreign savings will be large enough to finance the deficit. If it were not for Asian central banks the dollar would be much lower and interest rates in the U.S. would be much higher. Asian central banks have been instrumental in keeping the dollar’s fall orderly, intervening when necessary when it appears the dollar is ready to crumble. The crack in the dollar is another major hole in the dike that appears to be widening.

http://www.financialsense.com/Market/wrapup.htm

That's all for me this morning, folks. I have to bolt out of town for work. It is imperative that work be done while we are all feeling so wealthy from a buoyant stock market.

While I am here, I might as well mention a few things. I welcome any comments.

The dollar valuation has me very concerned over the long-term aspects of a falling dollar, inflation (of things that matter, like food) and various significant expenses relative to the cost of living.

A trip to the grocery store two days ago was a jolt. Prices are rising. Too bad that we cannot eat DVD players.

Fuel prices are all over the map here in Georgia. The lowest gasoline taxes in the country can be found here. Yet the prices remain in flux. Among stations equipped with electronic price marquees, the price can vary throughout the day - like a stock ticker. I also noticed a report that petroleum prices are at an all-time low in inventory. Sounds like manufactured scarcity to me.

A little money I have had in a money market fund used to earn a wink above 2% interest three years ago. Now it earns about 3/4%. Where's the incentive to save, in general, and where's a safe place to keep your money? It's a casino on Wall St. and bonds do not look so secure when backed by "the full faith and credit of the United States Government".

So I will ponder these mysteries as I journey today.

The whole point I have for keeping money in a savings account at the bank is that it means "free checking"--no fees=non-taxable interest on the savings. It's also that emergency cushion, just in case.

Finding ways to use the system without getting used by it too badly is becoming an art.

lots of balls are being juggled in the air this week -

there's that lovely guessing game of "will he" or "won't he" regarding the steel tariffs. From "set in stone" to "aides are trying to convince" the stories flow like oozing slime into the pages of the papers -

then there are the currencies that do not wish to climb too high, too fast - Canada, Britain, Australia and even Switzerland (can be too upsetting to their own economies), so they nick them here and shave them there - never really adding up to much, but enough to slow the (what appears to be inevitable) crumble of the dollar -

this morning's numbers are "up" but still show very little sign of stability

http://quotes.ino.com/chart/?s=NYBOT_DXY0

Last trade 90.45 Change +0.10 (+0.11%)

and here are some words

http://www.boston.com/business/markets/articles/2003/12/02/dollar_softer_as_data_fail_to_inspire/

"Over the past few weeks, the dollar has not got any lift from strong economic data because the market somehow seems to have factored them in beforehand," said Hideaki Furumaya, head of the interbank desk at Trust & Custody Services Bank.

<snip>

Traders said the dollar's lackluster performance despite strong U.S. economic indicators suggested those record lows would likely be retested soon.

<snip>

Still, the dollar managed to hold above 109 yen on wariness of market intervention by the Japanese authorities and worries about Japan's exposure to geopolitical risks after the death of two Japanese diplomats in Iraq at the weekend.

Japan has conducted a record 17.8 trillion yen ($162.8 billion) of yen-selling intervention so far this year to limit the harm the currency's rise can inflict on exports.

...more...

from what I have read, there will be very few bond offerings (more debt by the Fed) between now and year-end - that would lead me to think that they are trying to firm up the bond market (long term financing of the debt) and keep everyone's attention away from the larger financial problems that the Fed is facing.

What a great wrap-up today! Indeed, it seems free-money cannot lsat forever. I too have long harbored the idea that the longer we put off our reckonin the worse it will be.

We saw lots of the doubt yesterday re: the bondmarket the WU mentions.

I see gold was down this morning to only just over $400. <snarf>

Oy! I feel like we are trying to put out a fire with gasoline.

More later...

Julie

. . for the Post to change

from

"STOCK MARKET WATCH"

to

"STOCK MARKET CRASH"


I fear that it is only a matter of time

Too many people/organizations have been "cooking the books" to not expect something to "burn" sooner or later

Just My Humble Canuk Observation

Thought y'all might find this POV and facts interesting...

The Unemployment Myth
By AUSTAN GOOLSBEE
The government's announcement on Tuesday that the economy grew even faster than expected makes the current "jobless recovery" even more puzzling. To give some perspective, unemployment normally falls significantly in such economic boom times. The last time growth was this good, in 1983, unemployment fell 2.5 percentage points and another full percentage point the next year. That's what happens in a typical recovery. So why not this time? Because we have more to recover from than we've been told.
The reality is that we didn't have a mild recession. Jobs-wise, we had a deep one.
The government reported that annual unemployment during this recession peaked at only around 6 percent, compared with more than 7 percent in 1992 and more than 9 percent in 1982. But the unemployment rate has been low only because government programs, especially Social Security disability, have effectively been buying people off the unemployment rolls and reclassifying them as "not in the labor force."
In other words, the government has cooked the books. It has been a more subtle manipulation than the one during the Reagan administration, when people serving in the military were reclassified from "not in the labor force" to "employed" in order to reduce the unemployment rate. Nonetheless, the impact has been the same.<more>

The Productivity Paradox

By STEPHEN S. ROACH
Despite the economy's stunning 8.2 percent surge in the third quarter, the staying power of this economic recovery remains a matter of debate. But there is one aspect of the economy on which agreement is nearly unanimous: America's miraculous productivity. In the third quarter, productivity grew by 8.1 percent in the nonfarm business sector — a figure likely to be revised upwards — and it has grown at an average rate of 5.4 percent in the last two years.

This surge is not simply a byproduct of the business cycle, even accounting for the usual uptick in productivity after a recession. In the first two years of the six most recent recoveries, productivity gains averaged only 3.5 percent. The favored explanation is that improved productivity is yet another benefit of the so-called New Economy. American business has reinvented itself. Manufacturing and services companies have figured out how to get more from less. By using information technologies, they can squeeze ever increasing value out of the average worker.

It's a great story, and if correct, it could lead to a new and lasting prosperity in the United States. But it may be wide of the mark.

First of all, productivity measurement is more art than science — especially in America's vast services sector, which employs fully 80 percent of the nation's private work force, according to the United States Bureau of Labor Statistics. Productivity is calculated as the ratio of output per unit of work time. How do we measure value added in the amorphous services sector?

Very poorly, is the answer.<more>

and so true. For instance my hubby is GM of a restaurant. He's got some 40+ there. How does one measure their productivity, exactly? Sure performance etc. but really now.

And the constant revising of numbers is alarming to boot. Mysterious formulas to measure productivity and constant revision=trouble.

Julie

Someone posted it in Editorials, I think, but it's an incredible read for his conclusions about "hollow corporations" from "downsizing," too.

Could you paste some more on how it is calculated, or rather, start a whole new discussion (in economic issues).

What unit of work time? Output per hour or year? Makes big difference. What is meant by value added, what Marx meant or something else?

How is "work" defined? How much time a prole stays in office/factory?

This is a big complicated mess, and if possible, I'd like to get scientific on it, real understanding and insights...

regarding the employment numbers (you have a clearer grasp than I do on that front by far)

if the weekly unemployment claims are averaging over 350K and the cheerleaders are getting excited when they "add" 120K in a month, is there not still a HUGE gap between jobs lost and jobs added? Or does that 120K number exceed the number of "lost" jobs and we are actually adding 1,590K or almost one and one-half million jobs per month (like that is even a remote possibility)?

(note: math equation would be 350K times 4.2 weeks per month plus 120K jobs added)

thanks!

That is, they are the number of people who lose a job, but those jobs are not "lost"--the job may still be there, but the person isn't. A certain amount of churn is normal in the system.
The usual understanding is that the job market is contracting (real job loss) when the Initial Claims are above 400K--that's why the big hoo-ha about the falling figures lately. However, I wonder if this figure is still valid considering the long months of contraction.

Now, the added jobs are another kettle of fish. For the general health of the economy and to accomodate the rise in population, we need to add about 170,000 jobs per month. Add the overall loss of almost 3 MILLION jobs since Dubya took over and we need a tad more than that :eyes: As I see it, the hole isn't getting smaller yet, but we're using a tinier shovel. Or as the Red Queen would say, you have to run faster than that to get anywhere.

from Companies to encourage employees to leave, aren't counted, nor are the "Severance Packages" which give employees income so they are still paid but don't show up as unemployed. Some of these folks with hefty severance packages, are now not finding work (mid and upper level managers being let go from major Pharma and Telecommunications Companies
commonly receive "Buy Outs and Big Severance Packs).

This has been going on since the late nineties. The most recent "Layoffs" since Bush are not really showing up in the counting, yet.
I know five people who can't find work and they are examples of either "Buy Outs for Early Retirement," or Severance. All of them are in late 40's early 50's and want to find a job...two have Ph.D's and the rest MA in Business, and they have not been able to find anything, because of the "downsizing and mergers."

This is all over the country and reaches across all age groups. Yet, it really isn't discussed as skewing these Government numbers into fantasy land.

I guess they feel people will "believe the lie" that companies are now hiring and that this Economy is just "roaring along." Those who can't find work when they are highly qualified are made to believe that there's just something wrong with "them," that they can't find a job.

are the under- and un-funded pension plans.

Looks like the taxpayers may be the lucky duckies on this one!

http://www.clarionledger.com/news/0312/02/b09.html

Bill on pension gaps may cost companies (isn't that a lovely misleading headline?)

Big stock losses during the bear market combined with low interest rates have left many companies with hefty funding gaps to fill in their pension plans. The government's proposed measures would stem those costs, at least for the immediate future.

Should this go through, taxpayers along with perfectly healthy companies could get stuck footing at least some of the bill. But if companies don't get a reprieve, they would have to come up with the needed cash, and that could take a bite out of their earnings, (wouldn't that be terrible!) sending stock prices tumbling and cutting into dividends.

A pension plan is considered underfunded when its obligations — what it owes to retirees — exceed its assets by at least 10 percent. At that point, companies must cover the difference.

...more...

But heaven forbid we feed hungry people! What is wrong with this country??? :eyes:

Julie

I just caught a blurb on CNBC, the Great Santelli, talking about some 52 billion in debt auctioned today (not sure for who). Said yesterday there was 32 billion in short term debt, 2 yr t-bills, auctioned. All that he said, coupled with all the debt auctions of the recent past, worries me.

It seems that the American consumer isn't the only group living on credit. The gubberment and corporate America too.

Anybody got any limits on that debt???

Julie--who doesn't like debt

http://www.cbsnews.com/stories/2003/05/22/politics/main555108.shtml

(CBS) Without comment or ceremony, President Bush on Tuesday signed a bill allowing a record $984 billion increase in the amount the federal government can borrow, to a record $7.4 trillion.

The increased federal borrowing will enable the government to pay for the $350 billion economic stimulus package that the GOP-led Congress passed last week at Mr. Bush's behest.

Mr. Bush will hold a signing ceremony at the White House on Wednesday to celebrate passage of that legislation, White House spokesman Ari Fleischer announced. The package includes $330 billion in tax cuts and $20 billion in aid for states.

Passage of the bill raising the nation's debt ceiling came last Friday, only hours after the tax-cut bill was approved. Congressional Democrats had sought to spotlight the federal IOUs that have resumed piling up under Mr. Bush.

and just for a bit of contrast - On January 27, 2002, the United States of America's National Debt was $5,932,251,321,548.21, a difference of $1,017,308.571,910.79.

Also, just another aside, the debt when GWB assumed his throne was $5,674,178,209,886.86 (debt as of 9/29/00)

and the current national debt is



http://www.brillig.com/debt_clock/

The estimated population of the United States is 292,669,238
so each citizen's share of this debt is $23,745.44.

The National Debt has continued to increase an average of $2.64 billion per day since September 30, 2003!

Horrifying. Truly.

Julie

The National Debt has continued to increase an average of $2.64 billion per day since September 30, 2003!

According to this Reuters article:

http://biz.yahoo.com/rf/031201/economy_cashbalance_1.html

The national debt subject to limit was $6.880 Trillion at Nov.28 up from $6.869 Trillion at Nov. 26. Or an increase of $11 Billion in two days.

Was drunken sailor mentioned by someone?

10:10 and no fireworks either way:


Dow 9,874.97 -24.08 (-0.24%)
Nasdaq 1,987.34 -2.48 (-0.12%)
S&P 500 1,068.65 -1.47 (-0.14%)
10-Yr Bond 4.405% +0.013

Bit of a busy morning here in Julie-world. Will check back later. :hi:

Julie

over $405 an ounce

am away for the rest of the day now

Have a Great Day Marketeers!

+ 0,66% and still heading upwards.

Coincidence?
Same thing the day they said gold went up due to the odor on the subway, Euro dropped, gold came down just a bit later, but there was not yet an explanation for the odor.
:shrug:

DJIA 9,868.46 -30.59 -0.31%

Nasdaq 1,989.94 +0.12 +0.01%

S&P 500 1,068.69 -1.43 -0.14%

Dow Util 253.07 +0.26 +0.10%

NYSE 6,144.67 -2.68 -0.04%

AMEX 1,119.59 +7.04 +0.64%

Russell 2000 555.25 +0.66 +0.12%

Semcond 530.63 -1.90 -0.36%

Gold future 404.50 +0.70 +0.18%

30-Year Bond 5.19% +0.03 +0.62%

10-Year Bond 4.43% +0.04 +0.83%

11:26

Gold is up and last time I saw the Euro (1/2 hour ago or so) it was over $1.20. Money leaving the markets and Treasuries too. Interesting to say the least.

Julie

when I made those observations.
I will need to take a closer look at the actual numbers from now on.
These certainly are interesting times we live in.
Again, thanks to all in the Stock Market Watch! You folks rock.

conventional wisdom seems out the window most times lately. Thanks for your kind words. :-)

Julie

Some may look for a safe haven, I'd guess.

12:08 and we see a slow climb:

Dow 9,879.94 -19.11 (-0.19%)
Nasdaq 1,992.47 +2.65 (+0.13%)
S&P 500 1,069.92 -0.20 (-0.02%)
10-Yr Bond 4.424% +0.032

Rally in energies today. Slight bruising in Treasuries, eh?

Julie

2:31:

Dow 9,847.49 -51.56 (-0.52%)
Nasdaq 1,983.85 -5.97 (-0.30%)
S&P 500 1,066.22 -3.91 (-0.36%)
10-Yr Bond 4.396% +0.004

Heading south.

Julie

Dow 9,860.09 -38.96 (-0.39%)
Nasdaq 1,982.55 -7.27 (-0.37%)
S&P 500 1,067.01 -3.12 (-0.29%)
10-Yr Bond 4.380% -0.012

Dow 9,860.24 -38.81 (-0.39%)
Nasdaq 1,982.47 -7.35 (-0.37%)
S&P 500 1,067.13 -3.00 (-0.28%)
10-Yr Bond 4.380% -0.012

Bond. I always get that one mixed up.

In other (very simple) words...good for bond owners, not good for bond buyers. Basically, if you own bonds, you want the price to go up (which effectively brings the yield down). If the price goes down, the yield goes up.

Dow 9,858.69 -40.36 (-0.41%)
Nasdaq 1,982.24 -7.58 (-0.38%)
S&P 500 1,067.24 -2.89 (-0.27%)
10-Yr Bond 4.380% -0.012

I'll leave the explanation of the bond market to Ms Julie--that's her area!