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November, Thursday 10, 2011

DOW + 112 = 11893SPX + 10 =1239NAS + 3 = 2625 10 YR YLD +.10 = 2.06GOLD – 10.60 = 1759.00SILV -.01 = 34.13PLAT – 6.00 = 1625.00 Lucas Papademos will lead a new unity government in Greece; he is a former vice president of the Eruopean Central Bank. He will certainly try to push through the Grand Bailout Plan proposed in Brussels last week. This is the plan that requires massive austerity, job cuts, spending cuts, and privatization of Greek national assets to try to pay down Greek debt over the next 50 years or so. The Greek people won’t get to vote on this. Silvio Berlusconi, Italy’s longest-serving Prime Minister, offered to resign as soon as Parliament passes an austerity package. Silvio’s resignation probably won’t be enough to prevent a death spiral for Italy’s $2.6 trillion in sovereign debt. Yields on 10-year Italian bonds topped 7% yesterday, a level seen as the tipping point where the cost to service the debt is greater than the ability to repay. The 7% level proved the tipping point for Ireland and Greece. Italy’s economy is bigger and slightly different, but it probably can’t survive the 7% tipping point. LCH.Clearnet, is a London-based clearing house, LCH raised the deposit it demands for processing the trades of Italian securities. The deposit protects LCH in case a deal fails and it gets stuck holding Italian bonds. For Italy, the LCH change “highlights the deterioration of its credit quality.” When Silvio finally leaves office, …

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November, Wednesday 09, 2011

Europe Falling Down   DOW –389=11780SPX  – 46 = 1229NAS – 105 = 262110 YR YLD -.11 = 1.95%OIL un = 96.80GOLD – 16.50 = 1769.60SILV – .86 = 34.04PLAT – 31.00 = 1631 O.K., let’s start with some good news – you know that asteroid that was hurtling toward earth – missed us by that much. Bruce Willis is still alive and the asteroid just went sailing past. That’s the good news. At some time or another we have all lost our balance; there is a precise point in time where you lose control and gravity takes control, and in that instant you realize there is nothing that can be done; you will fall; the laws of nature win and the certainty that you will fall becomes inevitable. The perceived tipping point was 7% yields on Italian bonds. Today, Italy smashed through the 7% barrier. Now we will watch the spectacle unfold, quickly or in slow motion, and try to measure or contain the carnage. But make no mistake, Italy is collapsing. Late yesterday Barclay’s issued a report on the European sovereign debt problem and the conclusion is that “Italy is now mathematically beyond point of no return.“ The European Central Bank, the ECB, said today that they were not the lender of last resort. The ECB intervened to buy Italian bonds in large amounts but remained reluctant to go further.  Like I told you yesterday, the reason for this is because they still don’t know who is in charge …

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November, Tuesday 08, 2011

 Earnings Smoke & Mirrors, Silvio is out, Iran heating up DOW + 101= 12170SPX + 14 = 1275NAS + 32 = 272710 YR YLD +.07 = 2.06%OIL +.73 = 96.25GOLD – 10.50 = 1786.10SILV -.08 = 35.00PLAT + 1.00 = 1663.00 Yesterday I reported that third quarter earnings have been extremely strong – coming in at record levels. With 90% of the S&P 500 companies reporting, the earnings and profits on a quarterly and one-year basis will almost certainly top the previous records set in the second quarter of 2007. If you add up the earnings per share for all S&P 500 companies over the last 4 quarters, you get a total of $94.80 compared to the previous peak of $91.47. If this market was based upon fundamentals like earnings, you might reasonably expect a big rally. Well, we have seen a rally, which we expected. What we haven’t seen is broad participation – in large part because there is a wall of worry coming out of Europe. Also, possibly because the earnings were achieved, in part, on cost cutting – and there are limits to profits based on cost cutting – so the outlook remains a bit shaky. And also, as an astute listener pointed out: “With all the lobbied for accounting options available to corporate America, their earnings need to be run through a forensic accounting validation testing process to ensure their real content.” Take away the smoke and mirror accounting and what are you left with? I don’t …

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November, Monday 07,2011

US Poverty, Supercommittee, Euromess, Transparency DOW +85 = 12068SPX + 7 = 1261NAS + 9 = 269510 YR YLD -=1.99%OIL + 1.70 = 95.96GOLD + 41.60 = 1796.60SILV + .85 = 35.08PLAT +23.00 = 1663.00 Over the past four years, what single thing has increased the net worth of the average American more than any other financial move? Defaulting on an underwater mortgage. Households have reduced debt by $549 billion since 2007, mostly by cutting mortgages through defaults and paying down credit cards. Households have cut mortgage debt by 10.6% since the mid-2008 peak, after adjusting for inflation. Credit card balances and auto loans outstanding are down 9.6%. During that time, the federal government has added more than $4 trillion in debt, pushing the country’s total borrowing to a record $36.5 trillion, excluding the financial industry, according to the Federal Reserve. Private borrowers reduce debt quickly, government borrows more, a period of government austerity follows  Have no fear – Congress is looking into fixing the debt problem. Just as 55 million Social Security recipients are about to get their first benefit increase in three years, Congress is looking at reducing future raises by adopting a new measure of inflation that also would increase taxes for most families — the biggest impact will hit low income families. If adopted across the government, the inflation measure would have widespread ramifications. Future increases in veterans’ benefits and pensions for federal workers and military personnel would be smaller. And over time, fewer people would …

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November, Friday 04, 2011

DOW – 61 = 11983SPX – 7 = 1253NAS – 11 = 268610 YR YLD -=2.05%OIL – .45 = 93.62GOLD – 10.40 = 1755.00SILV – .35 = 34.23PLAT unch = 1637.00 What is the single most important thing in the economy today? (clip) No it’s not Kim Kardashian’s divorce, even though that story topped the news cycle this week. When we’re talking about the economy (clip) we’re talking about jobs. So, how’s that working out? The economy gained 80,000 jobs in October, with the jobless rate falling to 9.0% from 9.1%. Government revisions showed that an additional 102,000 jobs were created in September an August. Maybe we should make a few new jobs for people who count jobs. Inflation adjusted wages fell 2.4% in the third quarter. The U6 unemployment rate dropped from 16.5% to 16.2%. The U6 number includes people who work part-time to scrape by and people who have been out of work for so long they don’t get counted in the headline numbers. Job gains were reported in business services; apparently call centers are doing a booming business, as wages in Iowa are now more competitive with wages in India. Also, jobs were added in the leisure and hospitality sector. But the biggest jobs gains came from adjustments in the birth/death method of counting jobs. In 2001, the Bureau of Labor Stats started to compensate for the tendency to miss new business formation. Previously, BLS tended to under report new jobs in the beginning of a cycle turn. …

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November, Thursday 03, 2011

DOW + 208 = 12,044SPX  +23 = 1261NAS + 57 = 269710 Yr YLD += 2.06% OIL – .27 = 94.02GOLD + 27.00 = 1765.40SILV + .21 = 34.58PLAT + 32.00 = 1643.00 Yesterday, Greek Prime Minister George Papandreaou went to Cannes, France whistling a tune about democracy and calling for a referendum on the bailout; let the Greek people vote on the deal; Papandreou trusted the people; he trusted democracy; and then he met with Sarkozy and Merkel. The late night conclusion of the meeting resulted in an admission that Greece might have to leave the European Monetary Union. Nobody knows for sure what that means – best guess is that the European Central Bank and all private and public creditors would have to write off their claims on Greece is one fell swoop. That would be followed by a Lehman Brothers style credit crunch. Money would stop dead in its tracks. The chain reaction would spread across Europe. The contagion would spread rapidly and uncontrollably. Call it Eurogeddon. We would all turn into brain chomping zombies. That was yesterday. Today, the Greek Prime Minister thinks a referendum is a bad idea. Democracy is anathema to the markets. It’s simple math. In the markets, money is power. If you have a billion dollars, you have power. If you have 100-billion you have even more power. In a democracy, you have one vote. A poor taxi cab driver in Athens who doesn’t have two drachmas to rub together has the …

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November, Wednesday 02, 2011

Uppity Greeks. Gloomy FOMC DOW + 159 = 11817SPX + 17 = 1235NAS + 28 = 263510 YR YLD = 2.00%OIL +.37 = 92.56GOLD = 17.50 = 1738.40SILV =.82 = 34.37PLAT + 13.00 = 1611.00 Yesterday I told you the Euro powers-that-be would not take kindly to their debt slaves acting all uppity. Today, German Chancellor Angela Merkel and French president Nicky Sarkozy met with the Greek Prime Minister Papandreaou – and they place their boot heel firmly on the throat of the Greeks. The Greeks were told that if they want a referendum on the bailout package, they must hold it by December 18, maybe as early as December 4th; they were told that if they reject the bailout plan, they will be considered in default and bankrupt and kicked out of the Eurozone; they were told that until such time as they vote, they will not get any more aid. The 8-billion-euro installment that was going to be paid in the next week – not gonna happen. Greece will likely run out of money within the next month, possibly before the December 18th referendum deadline. Surveys show the Greek voters overwhelmingly oppose the bailout plan. If the Greeks didn’t like the austerity plan being shoved down their throats, now they get to see how they like running out of money. Meanwhile, Papandreou is trying to calm politicians in his own party and a no-confidence vote is scheduled for Friday. If nothing else, the Eruoleaders are going to have …

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November, Tuesday 01, 2011

Financial Review: Greek Referendum, MF Thieves, BofA Fees, Food Stamps and Soup Kitchens DOW – 297 = 11657SPX  – 35 = 1218NAS – 77 = 260610 YR YLD – 0.17 bp = 2.00%OIL – .94 = 91.55GOLD + 4.80 = 1720.90SILV – .79 = 33.55PLAT – 7.00 = 1593.00 Greece is insolvent. According to the Grand Plan announced last week, Greece will continue to be insolvent for another 20 to 30 years, give or take. Even if the Greeks take the bailout money it will be insolvent.  And over that next few decades, the Greeks will be forced to tighten their belts, forced to pay higher taxes, forced to privatize big chunks of the government, public services will be cut even more, unemployment will rise, the Greek economy will contract, and the standard of living will fall. All the sacrifices won’t make Greece solvent again. And so Greek Prime Minister George Papandreou decided to put the bailout to a vote of the people; he has called for a referendum. If Greek voters reject the draconian terms of the bailout, there will be default, the Greeks will get tossed out of the European Union, unemployment will go higher, the economy will contract, and the standard of living of most Greeks will deteriorate. And then in about six months to 2 years – things will get better; Greece will be solvent and they will get a fresh start.  The Greeks’ economy will grow without the bankers’ boot heel pressing down on their …

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October, Monday 31, 2011

DOW – 276 = 11955SPX – 31 = 1253NAS – 52 = 268410 YR YLD –0.13 bp = 2.17%OIL – .46 = 92.73GOLD – 28.30 = 1716.10SILV – 1.05 = 34.34PLAT – 52.00 = 1601.00 For the month, the Dow rose more than 1,000 points. It gained 9.5 percent, its best showing since October 2002. The Standard & Poor’s 500 index, the broadest major market average, rose 10.8 percent for the month, the best since December 1991. On Oct. 3, both the Dow and the S&P closed at their lows of the year. The market had been through a brutal summer and was one bad day away from falling into bear market territory, down 20 percent from its most recent peak. So, did October “Turn the Bear Market”? We won’t know till after the fact, but there are several factors that gave us the rally. Seasonality – we moved into the best six months of the year, we’re headed for the holiday season, the presidential election cycle. Also, oil prices going inot October – oil prices were down Oil soared 17.7 percent in October. West Texas Intermediate, the benchmark oil in the U.S., jumped from about $79 to $93 per barrel during the month. Recession? Oil market says different. Emerging market demand – 7 billion people. Can we continue a rally with oil prices moving higher? And then there is the concern that the European situation could crumble, and the debt problems in the US – we postponed those until …

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October, Friday 28, 2011

DOW + 22 = 12231SPX +0.5 = 1285NAS – 1 = 273710 YR YLD – = 2.30OIL – .47 = 93.49GOLD –2.30 = 1744.40SILV +.20 = 35.39PLAT + 14.00 = 1651.00 It’s Friday! Just in time; I think my brain is going soft; a spongy degenerative condition perhaps. I just can’t seem to grasp the fine points of the Grand Plan that came out of Europe yesterday. I think I get the dominant theme – the Europeans are going to hand out FREE MONEY to the banks, but I just can’t seem to comprehend the non-existent details. What has me troubled is the notion that banks will take a 50% haircut but only on the condition that it does not trigger Credit Default Swap hedges. The plan asks Greece’s private creditors to take losses of 50 per cent on the country’s bond they hold. Along with new loans and other measures, that is meant to bring Greece’s debt down to 120 per cent of economic output by 2020. After the private creditors have swapped their Greek bonds for new ones with a lower value, the country’s rating is likely to remain in the ‘B’ category, only a few notches up from its current CCC grade. Fitch rating agency says the deal would result in a temporary default. However, the ISDA, the International Swaps and Derivatives Association, claims the default is not a default and will not trigger a payout on Credit Default Swaps because acceptance of the haircut is voluntary. …

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