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Monday, September 10, 2012 – When the Crack Pipe Fails to Satisfy

When the Crack Pipe Fails to Satisfy -by Sinclair Noe DOW – 52 = 13,254SPX – 8 = 1429NAS – 32 = 310410 YR YLD +.02 = 1.68%OIL -.30 = 96.24GOLD – 10.50 = 1725.80SILV – .34 = 33.44PLAT + 2.00 = 1599.00 Consumer credit shrank by $3.28 billion in July; this marked the first declines in consumer credit in nearly a year as Americans reduced credit card debt. Now for the scary part; I read a couple of stories on this today and they described the news as worrisome for the economy. I disagree. It might be worrisome for the credit card companies; it might be worrisome for the payday loan companies; it might be worrisome for the banks and other loan sharks, but I consider it good news for consumers and the economy in general. Consumer debt does not add to productivity; it doesn’t manufacture things. It’s debt. It’s inflationary. It’s takes resources which could be applied to greater purpose elsewhere. It doesn’t really matter because the Federal Reserve says they revised their earlier estimates for June, and it is likely we’ll all be paying with plastic again in August – you maybe, not me. Credit has been expanding almost continuously since mid-2010 as the country recovered from the 2007-2009 meltdown. The decline in July was the first drop since August of last year. In July, revolving credit, which includes credit cards, shrank by $4.82 billion. The data looks at declining credit as a negative because it is …

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Friday, September 7, 2012 – More Than You Want to Know About the Jobs Report

More Than You Want to Know About the Jobs Report By Sinclair Noe DOW + 14 = 13,306SPX + 5 = 1437NAS + 0.61 = 313610 YR YLD – .01 = 1.66%OIL +.89 = 96.42GOLD + 34.00 = 1736.30SILV + .97 = 33.78PLAT + 10.00 = 1597.00 The first Friday of each month the Bureau of Labor Statistics reports on nonfarm payrolls for the previous month. While that sounds rather mundane, the jobs report is a pretty big deal. The results attempt to measure some of the most vital data about the economy; who’s working and where and how much are they being paid; from this we can estimate how much people will or will not spend, the strength or weakness of businesses, the overall health of the economy. The fates of Presidents and political parties can hang on the results. The Federal Reserve will use the report to determine if they will turn on the printing press. This in turn affects the prices we pay for almost everything. So, it’s a pretty big deal. The economy added 96,000 jobs in August, far below the consensus of 125,000 to 150,000. In addition, July’s tally was revised down to 141,000 from 163,000. The unemployment rate unexpectedly fell to 8.1% from 8.3% and the “real” unemployment rate (U6) fell to 14.7% from 15%, but the unemployment rate came down for the wrong reason; a sharp drop in the size of the labor force. The labor participation rate fell to 65.3%, its lowest …

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Thursday, September 6, 2012 – Free Money With Strings Attached

Free Money With Strings Attached -by Sinclair Noe DOW + 244 = 13,292SPX + 28 = 1432NAS + 66 = 313510 YR YLD +.08 = 1.67%OIL – .67 = 95.82GOLD + 7.90 = 1702.30SILV +.44 = 32.81PLAT + 10.00 = 1589.00 Pop Quiz. Q: What does Wall Street love? A: Free money. The Standard & Poor’s 500-stock index jumped 2 percent by the close to its highest level since January 2008. The Dow Jones industrial average added about 244 points, or 1.9 percent. And the Nasdaq composite index gained 2.2 percent for its highest close since 2000. In Europe, stock market indexes closed with gains of more than 2 percent, with Spanish and Italian stocks up more than 4 percent. The DAX in Frankfurt added 2.9 percent. The FTSE 100 in London gained 2.1 percent. Today, the European Central Bank announced they will launch a new and potentially unlimited bond buying program to lower borrowing costs for countries struggling with debt. The idea is to buy bonds with maturity of three years or less. ECB President Mario Draghi claims this is within the mandate of the ECB. Germany’s Bundesbank reiterated its opposition to the plan. Draghi said the ECB would only help countries that signed up to and implemented strict policy conditions, with the euro zone’s rescue fund also buying their bonds, and preferably with the IMF involved in designing and monitoring the conditions. At a news conference, Draghi said: “Under appropriate conditions, we will have a fully effective backstop …

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Wednesday, September 5, 2012 – Just Waiting and Being Productive

Just Waiting and Being Productive -by Sinclair Noe DOW + 11 = 13,047SPX – 1 = 1403NAS – 5 = 306910 YR YLD +.01 = 1.59%OIL +.44 = 97.72GOLD – 2.80 = 1694.40SILV – .09 = 32.37PLAT + 2.00 = 1577.00 We wait for the ECB and as we wait we try to remain productive.  Three months ago, George Soros said the powers that be in the euro-zone, which is another way of saying Germany, could still correct their mistakes and reverse the trend and make things right, and they had a three month window to get their act together. Soros delivered the speech on June 2nd. The European Central Bank meets tomorrow and there is a rumor floating around that that ECB President Mario Draghi is ready to announce a plan to buy unlimited sovereign debt of countries that formally request assistance and agree to be bound to fiscal compliance.  So far, it is just a rumor but we have seen Italian and Spanish bond yields have dropped sharply. The German Constitutional Court is ruling on whether the ESM is constitutional, and German manufacturing is contracting; so the timing presents some challenges. The German Finance Minister today said people should lower their expectations. I don’t know what that means. Maybe Draghi has managed to cobble a deal to allow unlimited bond purchases; we won’t know until Thursday night, Friday morning; if a deal is in place it is a big deal. If a deal is not announced, it won’t …

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Tuesday, September 4, 2012 – Review of the Economic News

Review of the Economic News DOW – 54 = 13,035SPX – 1 = 1404NAS + 8 = 307510 YR YLD +.02 = 1.58%OIL +.26 = 95.56GOLD + 3.60 = 1697.20SILV + .26 = 32.46PLAT  + 21.00 = 1576.00 The Institute for Supply Management manufacturing index fell to 49.6% in August, lower than the 49.8% in July and the worst reading since July 2009. Readings below 50% indicate contraction in manufacturing companies surveyed. It appears to be part of a global trend; there has been a slowdown in manufacturing activity in Asia and Europe. Only eight of 18 industries as tracked by ISM were growing in August, led by printing, primary metals and food. August’s new-orders index fell to 47.1% from 48.0% in July; this points to manufacturers ratcheting down production activity, and that might also lead to a slowdown in hiring. The employment index fell to 51.6% from 52%; still positive but heading in the wrong direction. Another ISM survey of the services sector — things like banking, health care and entertainment — is also expected to show an economy plodding ahead. The services index is forecast to edge down to 52.5 from 52.6. The monthly jobs report is always an important chunk of economic data, and this Friday’s report takes on a little added significance because the Federal Reserve FOMC will be meeting next week to determine policy, and most likely announce something like QE3. It’s expected the economy added about 120,000 new jobs in August. While that’s enough …

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Friday, August 31, 2012 – Trout Fishing in America Benny

Trout Fishing in America Benny – by Sinclair Noe DOW + 90 = 13090SPX + 7 = 1406NAS + 18 = 306610 YR YLD -.06 = 1.56OIL + 1.75 = 97.51GOLD + 36.30 = 1692.60SILV + 1.30 = 31.84PLAT + 33.00 = 1545.00 First, let’s wrap up the month of August compared to July 31: DOW = 13,008 (up 82 for month)SPX = 1379 (up 27 mo)NAS = 2939 ( up 127 mo)10 YR YLD = 1.49 ( up .07 mo)OIL = 89.89 (up 7.62)GOLD = 1615.90 (up 76.70)SILV = 28.10 (up 3.74PLAT = 1421.00 (up124.00) Every August, the world’s financial markets shift their attention from the centers of global commerce — New York, London, Tokyo — to a mountain valley in northwest Wyoming. And for a day at least, Jackson Hole becomes the financial center of the globe. Why? The answer is trout. And it goes back to former Fed chairman Paul Volker, who enjoyed fly fishing. And yesterday, Bloomberg News marveled at the sight of Ben Bernanke at the airport, wearing blue jeans. Even central bankers wear jeans. It’s good to have these guys going fishing. It would be even better if they stayed in Jackson Hole and kept fishing and never went back. Chairman Ben Bernanke sent a clear message that the Federal Reserve will do something. We still don’t know exactly what or when. Bernanke described the U.S. economy’s health as “far from satisfactory” and noted that the unemployment rate, now 8.3 percent, hasn’t declined since January. …

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Thursday, August 30, 2012 – While We Wait for Fed, Banks Behave Badly

While We Wait for Fed, Banks Behave Badly -by Sinclair Noe DOW – 106 = 13,000SPX – 11 = 1399NAS – 32 = 304810 YR YLD -.03 = 1.62%OIL – .67= 95.88GOLD – .80 = 1656.30SILV -.29 = 30.54PLAT – 11.00 = 1512.00 Federal Reserve Chairman Ben Bernanke has returned to Jackson Hole Wyoming for the annual economic symposium.  Following the minutes of the most recent FOMC meeting, in which we learned the Fed felt compelled to take action unless the economy shows dramatic improvement, there has been general acknowledgment the Fed must certainly act sooner rather than later. Sooner being tomorrow or later being at the next FOMC meeting September 13th.  And although it is unlikely Bernanke will announce a major new program tomorrow, he must at least telegraph. Any new Fed actions are likely to have only a small effect on job creation. Among possible options, Bernanke might announce he’ll extend the Zero Interest Rate Policy to late 2014 or into 2015. He could move toward QE3, another round of bond purchases, most likely involving Treasury bonds and mortgage bonds. This would flood money into the economy and housing market, pushing record-low interest rates even lower. Both republicans and democrats have weighed in. Democrats say he should not be deterred from doing what’s needed to reduce unemployment; Republicans say new action should be avoided because of the risk of inflation. So we have a question of whether inflation or no job is the main culprit to eroding incomes.  …

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Wednesday, August 29, 2012 – Today’s Debt and GDP

Today’s Debt and GDP  By Sinclair Noe DOW + 4 = 13, 107SPX + 1 = 1410NAS + 4 = 308110 Yr Yld +.02 = 1.65% OIL – 1.02 = 96.80GOLD – 10.50 = 1657.10SILV – .17 = 30.83PLAT – 3.00 = 1521.00 The month of August has been basically flat, looking at the major market indices, just a couple of points movement. You may recall that last March I was warning you about the worst six months in the market, the old idea of “sell in May and stay away”. On May 1st, the S&P 500 closed at 1405. So, if you did get out in May, you’re doing O.K. Of course, the theory looks at the worst and best six months of the market, and based upon that you would avoid the market volatility in September and October. September is historically the worst month for stocks. The Dow Industrial Average has declined 1.4 percent on average in September since 1929. Taking a broader look at the market, September is by far the worst month for the S&P 500. It has posted an average decline of 1.3 percent since 1929. Over that period, it’s the only month to drop more than 50 percent of the time. Of course, there are no guarantees in the stock market; might go up, might go down; but I think it’s a safe bet that the lazy, hazy days of summer will give way to more volume and more volatility and it could start …

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Tuesday, August 28, 2012 – I Won’t Be Going to Jackson Hole

I Won’t Be Going to Jackson HoleSinclair Noe DOW – 21 = 13,102SPX – 1 = 1409NAS + 3 = 307710 YR YLD -.02 = 1.63%OIL + .57 = 97.48GOLD + 3.00 = 1667.60SILV +.18 = 31.00PLAT – 23.00 = 1524.00 The ECB announced that Mario Draghi had canceled plans to attend the Kansas City Federal Reserve’s annual economic symposium in Jackson Hole, Wyoming citing “a heavy workload”. So, I would just like to announce that I’m not going to be able to attend either. Further, I can tell you that none of that makes much difference; the markets are waiting on a Federal Reserve announcement and an ECB announcement. Relax, it’ll happen. Draghi faces a tougher row to hoe. ECB staff are still weighing a variety of approaches. Draghi, meanwhile, remains in conflict with Germany’s Bundesbank, which has reiterated its opposition to bond purchases of any kind. Meanwhile Fitch has downgraded ratings on 7 mid-sized Italian banks, based on the “current challenges in the operating enviroment” and the difficult of accessing wholesale funding. At the same time, the ECB is in a standoff with Spain, which remains reluctant to seek help from the euro-zone’s rescue fund, an action that Draghi and other ECB officials have made clear is an absolute prerequisite for any new bond-buying efforts. Apparently the Spanish have figured out that the medicine is worse than the ailment and they don’t want to be economically indentured for the foreseeable future. I can understand that Draghi is busy these …

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Monday, August 27, 2012 – Still Waiting on the Fed

Still Waiting on the FedSinclair Noe DOW – 33 = 13,124SPX – 0.69 = 1410NAS + 3 = 307310 YR YLD -.03 = 1.65%OIL +.25 = 95.72GOLD – 7.10 = 1664.60SILV – .10 = 30.82PLAT – 6.00 = 1549.00 The Greek economy shrank 6.2% in the last quarter. The European Monetary Union is insisting on even more austerity in return for emergency funding. They’re trying to see if they can contract the economy right into oblivion. And that’s the good news; the bad news is that 20% of Greek bank loans are now non-performing.  The non-performing loans in Greece are bound to get worse, as the government does not have enough cash to return VAT tax refunds to small businesses which depend on such rebates for survival.  So, it is highly likely that the non-performing assets in Greek banks will rise as small businesses fail. And in Spain, 9.5% of bank loans are non-performing, a record high and cause for a little concern. Italy’s fiscal deficit is swelling. Germany is still the strongest Euro-country and they will probably see economic contraction in the next quarter. The UK might be as bad as any of them, with the exception of Greece.  In China, the housing bubble is deflating.  Prices are falling rapidly.  Lack of new construction has had a worldwide impact on the prices of raw materials.  The slowdown in demand and the decline in raw material prices has significant negative implications for the commodity producing countries like Australia and Canada. …

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