December, Wednesday 07, 2011

DOW +46 = 12,196
SPX + 2 = 1261
NAS –0.35 = 2649
10 YR. YLD. -.08 = 2.20%
OIL -.73 = 100.55
GOLD +13.70 = 1744.10
SILV -.25 = 32.61
PLAT +1.00 = 1533.00

(#1)(#2) A Day that will live in infamy. Under calm skies 70 years to the day of the attack on Pearl Harbor, about 120 survivors gathered this morning in Hawaii to mark the anniversary with ceremonies that began with a moment of silence for the 2,400 Americans who lost their lives. (#3)About half of the casualties were from the USS Arizona. For 24 of the survivors, it was their first time back to Pearl Harbor in the last 70 years. Today only 7 survivors of the Arizona attended the ceremony at Pearl Harbor. The ashes of Vernon Olsen, who was on the Arizona during the attack, were placed on his ship today. Today was the last day for such ceremonies; the Pearl Harbor Survivors Association announce that it would disband at the end of this month; the remaining members of the association are getting too old and are in poor health. (#4)

Once again Europe is dominating the headlines and determining the direction of the markets. I had an email from a listener that gave a good summation:
The EU leaders are now discussing a second bailout fund without even agreeing
on how to fund the first one.  In either case, the amounts they are discussing are
way too low.  They are going to need tens of trillions not billions.
So far, the EU has provided a lot of hot air but no action.
Yep. That pretty much says it. And that means the next few minutes are going to be somewhat redundant.
There is widespread belief that the powers that be will not allow Europe to impode; and so the markets have been moving generally higher, in fits and starts, over the past couple of months. There will be another big Euro summit on Friday, and they’ve got high hopes for getting something accomplished, and then today, people started looking around and they realized fixing Europe wouldn’t be easy. For example, there is a big elephant in the room – the federalization of the Euro Zone, which means a complete shift from the original Maastricht and Lisbon Treaties, which is being done without the vote of the public.This economic and political restructuring is now being called radical integration, and it is being called critical to the survival of the European Union. The calls for major changes to the current treaties have little to do with the debt crisis.
Now the objective is to tear down the legal strength of monetary and political union, and replace it with a stricter budgetary discipline known as the ESM, the European Stabilization Mechanism, to support countries in difficulty. How would they accomplish this? By stripping away sovereign control of economies and replacing local leadership with committees that would control the budgeting and fiscal policies of the 17 nations.
The economic side involves the Euro countries, including France and Germany, pooling their collective assets and liabilities through euro bonds as a means of stabilizing the debt of the weakest nations that have been dragging the euro under. It also involves using the ECB as the lender of last resort for all euro-zone debt; and of course, the Federal Reserve acting as a backstop for the ECB.
The International Monetary Fund, IMF, was busy this afternoon denying reports that it was considering a $600 billion lending program for Europe. How much is this going to cost? Probably tens of trillions. One of the things we learned is that the Federal Reserve will pass out money with reckless abandon and with no regard for transparency. Remember the story from Bloomberg about the $7.7 trillion the Fed loaned out after the collapse of Lehman. Well, maybe tomorrow I’ll tell you about how the amount was really much more than $7.7 trillion, and Europe is going to be bigger still.
European leaders have a way of holding summits and avoiding getting any thing done. So, today S&P called their bluff and placed a large block of European banks on negative credit watch, BNP, SocGen, Deutsche, and pretty much all the big Euro banks. We’ll see what gets done on Friday. Here is the problem; if the dog an pony show looks good, the markets will continue to rise; if anything goes wrong, the Euro mess could fall apart in the blink of an eye. There will probably be a period of decent upside in the markets, but this is definitely a period of time to be concerned with return OF capital instead of return ON capital.
President Obama delivered an economic speech in Kansas yesterday at the same site where Teddy Roosevelt gave his “New Nationalism” speech in 1910. Like Teddy, the president seemed to be willing to take on the powers that be. Only time will tell if he has the backbone for that task. I will say the New Nationalism Speech was one of the most important economic speeches of the last century, at least in my opinion. But I will give you a homework assignment. Read the text of the Obama speech, without commentary or analysis from the talking heads and read Roosevelt’s “New Nationalism” speech. I can email you a link to the speeches if you would like. It’s just a few pages of reading.
If Arizona’s economy were a hospital patient, she would be out of intensive care, but still in the hospital. In other words, the economy is doing better and certainly on the road to recovery, but it isn’t recovered yet. And the patient is not likely to feel healthy again for another couple of years: the economy won’t be back to normal until at least 2015 or so.
That was the assessment of economists at the WP Carey JPMorgan Chase Annual Economic Forecast luncheon yesterday.

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