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December, Thursday 01, 2011

DOW – 25 = 12020SPX – 2 = 1244NAS + 5 = 262610 YR YLD +.05 = 2.12%OIL – .37 = 99.98GOLD – 4.10 = 1746.30SILV – .10 = 32.83PLAT + 5.00 = 1565.00 Today was a fairly quiet day in the financial markets; I guess that is to be expected the day after the central banks saved the world! With 24 hours to reflect, the world didn’t look particularly saved. Europe still looked like Europe. The head of the European Central Bank says the ECB stands ready to act more aggressively to fight Europe’s debt crisis; that script hasn’t changed in two years. Europe’s political leaders will meet next week to work on tighter budgets for the euro zone. They’ve been holding meetings next week for the past couple of years. The ECB can’t legally act as a lender of last resort, so the idea du jour  is to force individual countries’ central banks to make contributions to the International Monetary Fund and the IMF will serve as lender of last resort. Germany wants the European Commission to grant it power to veto other nations’ budgets; in other words, they want to hold a gun to the head of their euro zone partners; this is a business model that has not worked well in Europe. And I don’t know how it could work now. Is fiscal integration meant to involve some kind of democratic political control of fiscal policy? If so, one can only wonder what sort of voting …

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November, Wednesday 30, 2011

DOW + 490 = 12045SPX +51 = 1246NAS + 104 = 262010 YR YLD +.07 = 2.07%OIL +.71 = 100.50GOLD +34.00 = 1750.40SILV + .91 = 32.93PLAT + 21.00 = 1566.00 Who wants some free money? Anybody who wants some free money raise your hand and get in line. The Federal Reserve has teamed up with the European Central bank, the Bank of Japan, the Bank of Canada, the Bank of England, and the Swiss National Bank and they are handing out cash. Unfortunately, you probably won’t be getting any of this free cash, but Wall Street loves the idea of free money. Today’s announcement from the Central Banks actually involves lowering the cost of emergency U.S. dollar funding for banks and expanding currency swap lines between countries. So, the cash will go to the banks; the moves will reduce funding costs and improve liquidity. It’s not completely free money – it’s just a half off sale. The dollar market had been drying up; today’s move might help prevent a credit freeze. Maybe, maybe not. There is still a big problem of solvency. Many European countries still have unsustainable levels of debt. Many European banks have government assets on their books. There used to be an assumption that those assets were “riskless”; the idea was that Greek bonds or Spanish or Portuguese or Italian bonds were safe – backed by the European Union. Well.., it turns out they weren’t safe. And so the cash needed for day to day operations …

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November, Tuesday 29, 2011

DOW + 32 = 11,555 SPX + 2 = 1195NAS – 11 = 2515 10 YR YLD +.04 = 2.00% OIL + 1.29 = 99.50GOLD +5.50 = 1716.40SILV -.14 = 32.02PLAT – 4.00 = 1540.00 It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way – in short, the period was so like the present period that comparisons would seem inevitable. In the eight decades before the recent depression, there was never a period when as much as 9 percent of American gross domestic product went to companies in the form of after-tax profits. Now the figure is over 10 percent. During the same period, there never was a quarter when wage and salary income amounted to less than 45 percent of the economy. Now the figure is below 44 percent. Corporate profits after taxes were estimated to be $1.56 trillion, or 10.3 percent of the size of the economy – the highest ever. Wage and salary income was only 43.7 percent of G.D.P., the lowest number for any period going back to 1929. Corporations …

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November, Monday 28, 2011

DOW +291 = 11523SPX + 33 = 1192NAS +85 = 252710 YR YLD -.01 = 1.96%OIL +.98 = 97.75GOLD +29.60 = 1710.90SILV + 1.08 = 32.16PLAT + 15.00 = 1549.00 Europe was totally copasetic, at least for today; I’ll get to the details in a moment. Here in the USSA, we spent the weekend doing what we do best, overeating and over-shopping. I want to start today with a news item that did not move the markets, but it is worth noting. A US District Judge in Manhattan actually stood up to Wall Street and refused to let the SEC sweep yet another case of high-level criminal malfeasance under the rug; the judge refused to let a major bank walk away with a slap on the wrist. There is a chance we could see actual justice, and the odds of that happening are so rare, the probabilities so astronomical – you are more likely to see a team of pink unicorns and Haley’s Comet. The SEC had brought an action against Citigroup for misleading investors about the way a certain package of mortgage-backed assets had been chosen. The case is very similar to the Abacus Case  involving Goldman Sachs, in which Goldman allowed short-selling billionaire John Paulson (who was betting against the package) to pick the assets, then told a pair of European banks that the “designed to fail” package they were buying had been put together independently.   This case was similar, but worse. Here, the SEC accused Citi …

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November, Wednesday 23, 2011

DOW – 236 = 11,257SPX – 26 = 1161NAS –61 = 246010 YR YLD -.06 = 1.88% OIL – 2.19 = 95.82GOLD – 7.10 = 1693.30SILV – 1.01 = 31.86PLAT – 23.00 = 1554.00 Today’s lesson is on basic supply and demand. Let’s say you manufacture widgets; and let’s say you produce 100 widgets and you have enough customers to sell all 100 widgets. Now let’s say that you start producing 1,000 widgets, even though your market hasn’t changed. What happens to the price of each widget? That’s right, the price of widgets goes down, and you might not be able to sell all the widgets you’ve produced. Yesterday the IMF said they would backstop European nations with loans up to 10 times their quota. Now imagine that you are a European nation trying to sell bonds and the IMF just announced that the supply of bonds might increase by 1,000%. What happens to the price of each bond? That’s right, the price of bonds goes down, and you might not be able to sell all the bonds you’ve printed. Germany held a bond auction this morning; they failed to get bids on 35% of the 10 year bonds that were offered for sale. The auction was basically a disaster. Germany is the strongest nation in Europe and if they have this kind of difficulty in raising capital then you have big questions about upcoming auctions in other Euro countries.  Wait a second; Germany has Europe’s strongest economy, and traders …

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November, Tuesday 22, 2011

DOW – 53 = 11493SPX – 4= 1188NAS – 1 = 252110 YR YLD -.02 = 1.94%OIL +.83 = 97.75GOLD +22.10 = 1700.40SILV + 1.13 = 32.87PLAT + 21.00 = 1571.00 The U.S. economy grew at a slightly slower pace than previously estimated in the third quarter. The Commerce Department issued its second estimate on Gross Domestic Product and they revised the growth down to 2.0% from the initial guess of 2.5% growth.The good news is that the fourth-quarter growth pace could exceed 3 percent, which would be the fastest in 18 months.The GDP report also showed inflation pressures subsiding. A price index for personal spending rose at a 2.3 percent rate in the third quarter, instead of 2.4 percent.The economy was pretty flat last quarter but banks racked up big profits – posting net income of $35 billion in the third quarter, the best performance in 4 years. The FDIC’s list of “problem” banks fell for a second straight quarter, declining to 844 from 865 three months earlier, the agency said. There were 26 bank failures in the three-month period that ended Sept. 30, bringing the year’s total to 74, compared with 127 a year earlier.It is an interesting juxtaposition; the economy slows but banks make big profits. There is no doubt the financial sector has a significant impact on the economy, what is less clear is the contribution financial services make to the real economy. There is a good chance that the value of financial intermediation services is …

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November, Monday 21, 2011

DOW – 248 = 11547SPX –22 = 1192NAS –49 = 252310 YR YLD -.05 = 1.96%OIL+.13 = 97.80GOLD –47.50 = 1678.30SILV – .77 = 31.74PLAT – 46.00 = 1556.00 The Super Committee is dead. The committee suffered from a deficit of common sense and patriotism combined with an excess of partisanship and dogma; the combination proved fatal. Of course, whenever there is a monumental failure in Washington DC, the politicians deny culpability and the taxpayers will be forced to pay. Any member of Congress facing a close race can breathe a sigh of relief now that the supercommittee has kicked the bucket. For Republican incumbents they don’t have to face the prospect of voting for tax increases; for Democratic incumbents they don’t have to explain cuts to social programs. That said, new candidates for office have also been given a gift. Congress’s approval rating is at record lows and the supercommittee’s failure only serves to underline the fact that those in office right now probably aren’t the ones who are going to fix the budget. The bottom line – they’re all a bunch of pathetic losers.  November 23rd is the official deadline for a deal, but today is the effective deadline since the Congressional Budget Office would need time to evaluate a proposed solution. Failure to reach a deal on deficit reduction would trigger $1.2 trillion in cuts over the next decade, beginning in 2013. Of course that leaves plenty of time to kill off parts that the politicians find onerous. If …

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November, Friday 18, 2011

DOW + 25= 11796SPX  -.0.48 = 1215NAS  – 15 = 257210 YR YLD +.05 = 2.01%OIL – 1.37 = 97.44GOLD + 4.70 = 1725.60SILV +.65 = 32.46PLAT + 10.00 = 1598.00 For the week, the Dow fell 2.9 percent, the S&P dropped 3.8 percent and the Nasdaq lost 4 percent. A major question has been whether the European Central Bank will find a way to act as a lender of last resort – essentially will they act like the Federal Reserve in 2008. Speculation has grown the ECB could lend money to the International Monetary Fund to bail out some euro zone members. Nothing today, but clearly this is the game plan moving forward. Quietly, The Swiss National Bank, that’s the Central bank for Switzerland, has imposed significant restrictions on its two biggest banks, UBS and Credit Suisse – forcing the banks to reduce risk and shrink, possibly selling off parts of the bank, and also forcing the banks to increase capital reserves perhaps by double.  Meanwhile, here in the USSA, we force our banks to do – umm – nothing. There’s an election in Spain on Sunday. Next week, we’ll wrap up third quarter earnings reports. Also, a shortened week because of the holiday, and then Thursday will be Black Friday – the start of the holiday shopping season, which actually started just before Labor Day. The Congressional SuperCommittee will need to have a deal in place by Monday, if they hope to meet their deadline on Wednesday.  If …

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November, Wednesday 16, 2011

DOW – 190 = 11905SPX –20 = 1236NAS – 46 = 263910 YR YLD – .03 = 2.02%OIL + 2.38 = 101.75GOLD – 18.90 = 1763.00SILV – .87 = 33.80PLAT – 21.00 = 1627.00 We have a bunch of stuff to cover, so I’ll try to be quick. The Greek parliament gave a vote of confidence to the interim government of Lucas Papademos. This was an important step to getting a bailout for Greece. Greece’s economy shrank 5.2% in the third quarter. Greeks will have a nationwide protest tomorrow. Spain’s government admitted for the first time today it will miss its 2011 economic growth target. There is a confidence vote scheduled Sunday. It is widely expected that the government will lose the vote and get kicked out. Spain held a bond auction today; they had trouble finding buyers. Yields on one-year bonds now top 5.02%, which is more than the yield on 10-year bonds just 40 days ago. Fitch Ratings said further contagion from Europe’s debt crisis will pose a risk to American banks. Italy’s 10-year bond yield stayed above the precious 7% line. Mario Monti formed a new Italian government without a single politician, drawing upon bankers, diplomats and business executives for a team to steer Italy away from financial disaster. Monti will serve as Italy’s economy minister as well as its premier; he is calling for “sacrifices” from across the political spectrum to solve the economy’s woes and get it growing again. Italy is giving us a possible …

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November, Thursday 17, 2011

DOW – 134=11770SPX –20=1216NASDAQ –51 = 258710 YR YLD -.07 = 1.96%OIL –3.96 = 98.62GOLD –42.30 = 1720.90SILV –1.99 = 31.81PLAT –36.00 = 1588.00 I have been reading reports that masked youths clashed with riot police outside Greece’s parliament and the U.S. embassy. Thousands of austerity-weary Greeks marched through Athens in an annual commemoration of a bloody student uprising in the 1970s. The protest commemorates the squashing of a pro-democracy student uprising in 1973 by the military dictatorship that ruled Greece from 1967-74; just to jog your memory, the United States backed the military. Police fired tear gas and stun grenades to disperse the rioters. Some 28,000 people took part in the march, according to police estimates. About 15,000 people took part in a similar protest in the northern city of Thessaloniki that turned violent when a couple of hundred protesters threw projectiles and Molotov cocktails at police, who responded with tear gas. The demonstrations were the first test of public sentiment for the new technocratic government of Lucas Papademos. The yield on 10-year Italian bonds fell 17 basis points, or 0.17 percentage point, to 6.84 percent. The new technocratic Italian leader Mario Monti pledged urgent action to curb the nation’s deficit. And just as Italy seemd to be getting better, Spain seems to be getting worse. The 10-year Spanish yield climbed seven basis points to 6.48 percent, after reaching a euro-era record 6.97 percent. Spanish Prime Minister Jose Luis Rodriguez Zapatero called on the European Commission and European Central Bank …

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