Financial Review

Tuesday, January 03, 2012

DOW + 201 = 12418SPX + 21 = 1278NAS +44 = 264910 YR YLD +.09 = 1.96%OIL +4.22 = 103.05GOLD +37.20 = 1604.60SILV +1.85 = 29.81 (biggest % gain in 3 years)PLAT + 32.00 = 1435.00 Here is the basic question for investing in 2012: will we see a turnaround? Will we see economic growth or is the economy so inherently damaged that you should fear it and possibly short it? The Federal Reserve has been driving the bus, so let’s start there. The Fed has been active in Quantitative Easing. This means the Fed has been adding tremendous amounts of money into the financial system by selling treasuries directly from the government to the big banks at auction.  The Fed then purchases the treasuries from the big banks, also known as primary institutions, and pays the banks by crediting their accounts. The big banks get paid for holding the treasuries in reserve. And the big banks now have new “cash” for their banking activities. You have to think the Fed intervention had something to do with treasury bonds posting one of their biggest annual gains last year. Further, the Fed has a ZIRP Policy, or Zero Interest Rate Policy. The Fed has held interest rates to the big banks at near zero for the past 3 years, and they announced today they will communicate any intention to change the ZIRP – there will be no surprise interest rate hikes, but eventually there must surely be an interest rate hike. …

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December, Friday 30, 2011

DOW – 69 = 12,217SPX –5.42 = 1257.60NAS – 8 = 260510 YR YLD -.03 = 1.87%OIL -.65 = 99.00GOLD =20.90 = 1567.40SILV +.09 = 27.96PLAT +30.00 = 1403.00 One year ago DOW = 11,577.51SPX = 1257.64NAS = 2652.8710 YR YLD =3.31% OIL =79.36GOLD = 1410.25SILV =30.63PLAT =1731.00 US Dollar Index 78.22 on 12/31/2010  & 80.57 on 12/30/2011 Auld Ange Syne – the song always make me miss people, though I’m not sure whom I’m to be missing specifically; I suppose there’s always somebody, isn’t ther? The Pacific island nation of Samoa is taking 186,000 citizens through a national time warp by moving west of the international dateline, forfeiting the last Friday of 2011 and jumping straight from Thursday into Saturday. So, it’s Saturday in Samoa. It never was Friday. For Samoans, this solves a practical question: Why remain 18 to 23 hours behind chief trade partners Australia and New Zealand? Of course, it doesn’t answer the question: Why didn’t they do this on a Monday? The worst performer among the Dow 30 industrial stocks? Bank of America – which isn’t really an industrial stock to begin with. BofA was down 58% for the year, wiping out $80 billion of shareholder value. The bank also ended 2011 last in the Standard & Poor’s 500 Financials Index and the KBW Bank Index. It was BofA’s worst annual performance since 2008, when it dropped 66 percent. Other big banks performed poorly. Citigroup dropped 44%, JPMorgan Chase dropped 22%, Goldman Sachs dropped 46%, …

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December, Thursday 29, 2011

DOW +135 = 12287SPX +13 = 1263NAS +23 = 261310 YR YLD -.01 = 1.90OIL +.45 = 99.81GOLD – 10.80 = 1546.50SILV +.62 = 27.87PLAT –18.00 = 1377.00 Or listen to this http://www.moneyradio1510.com/Audio-Archive You always have to be careful when you read the news or watch it on TV or listen to it on the radio or the web of internets. Take this snippet from the AP: “The European Central Bank said banks had parked $590.72 billion with it overnight, surpassing the record set only Monday. That means European banks were less willing to take the risk of making short-term loans to each other, opting instead to earn low interest rates from the ECB. The move shook confidence in the euro currency, which dropped to $1.2910 at one point on Wednesday — its lowest level against the dollar in nearly a year.” It seems fairly straightforward, however the big problem is that the bankers aren’t earning anything – they are being given a gift – a gift of money stolen from taxpayers. The banks are not working for the money, they are not producing anything, and you would have to be brain dead to believe the banks are “earning” anything in this situation. The next problem is that European banks aren’t making short-term loans to each other because they all know what they have on their own books, and if the other banks hold the same garbage on their books (and they do) then all the banks are essentially insolvent …

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December, Wednesday 28, 2011

DOW –139 = 12,151SPX –15 = 1249NAS –35 = 258910 YR YLD -.10 = 1.91%OIL –1.75 = 99.59GOLD –36.00 = 1557.30SILV –1.58 = 27.25PLAT –42.00 = 1390.00 The Euro fell to its lowest level against the dollar in nearly a year. Italy held an auction of short-term bonds; it went well, but there is another auction tomorrow. Eurozone banks are reportedly hoarding the cash injected by the European Central Bank, and not lending the money out – for some reason, some investors found this news alarming, even though it is straight out of the Federal Reserve playbook. Oil prices fell after Saudi Arabia said it will offset any loss of oil from a threatened Iranian blockade of a crucial tanker route in the Middle East.The US Navy warned that any disruption of traffic through the vital Strait of Hormuz “will not be tolerated.” Pretty much everything was down in the US markets, and the S&P 500 moved back into negative territory for the year. It’s that time of year where everybody is putting together lists of this that and the other for the old year and the new year. I ran across a good list on the Calculatedrisk blog. It’s a list of the top 10 economic questions for 2012. it’s a good list because it just asks questions and doesn’t give answers. 1) House Prices: How much further will house prices fall on the national repeat sales indexes (Case-Shiller, CoreLogic)?  2) Residential Investment: Residential investment (RI) made a modest positive contribution to GDP growth …

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December, Tuesday 27, 2011

DOW – 2 = 12,291SPX +0.1 = 1265NAS + 6 = 262510 YR YLD -.02 = 2.01%OIL +1.59 = 101.27GOLD –14.70 = 1593.00SILV -.40 = 28.83PLAT +2.00 = 1437.00 How do you feel? Good, yeah? You not only made it over the river; you made it through the woods; you’ve almost made it holidays and you are oh so close to surviving 2011 – no small feat. The Conference Board index of consumer confidence jumped to 64.5 this month from a revised 55.2 in November. Consumer confidence is up nearly 25 points in the past three months and now sits at its highest level since April. Consumers are more optimistic that business conditions, employment prospects and their financial situations will continue to get better. Yep, the American consumer is unfazed and confident – maybe it’s that $41 billion in unspent gift cards we’ve squirreled away for a rainy day. Apparently holiday cheer is contagious. Each year the Associated Press surveys top economists, strategists, and analysts to peer into their crystal balls and prognosticate. The big thinkers say stocks will gain 10% in 2012. U.S. companies are generating record profits. Americans are spending more than expected and factories are producing more. The job market is showing a pulse – weak, but a pulse. The economy has generated at least 100,000 new jobs for five months in a row — the longest such streak since 2006. The economists expect the country to create 177,000 jobs a month through Election Day 2012. That would …

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December, Friday 23, 2011

DOW + 124=12,294SPX +11 = 1265NAS + 19=261810 YR YLD +.08 = 2.03%OIL +.33 = 99.86GOLD + 1.60 = 1608.00 SILV unchanged = 29.23PLAT +6.00 = 1425.00 Not much economic news to propel the markets into the holiday weekend. Lets cover the data points quickly: Seasonally adjusted annual rate for sales of new single-family houses increased to 315,000 last month. The pace of sales is up 9.8% from the prior year. The median sales price fell to $214,100 in November from $222,600 in October. Durable-goods orders rose 3.8% in November. For some reason, there was a huge surge in airplane orders. Go figure. Personal income rose 0.1% in November, as consumer spending also gained 0.1%. At this pace we’ll see income get back to where we were in December 2007 in another 5 years, not counting inflation. Yesterday we talked about the sweetheart deal the Departmetn of justice offered Bank of America to settle allegations of discrimination against 200,000 clients of Countrywide. The American ideal of “equal and impartial justice under law” has repeatedly been undermined by attempts to concentrate power.  Our political system has many advantages, but it also provides motive and opportunity for resourceful people to become so strong they can elude the legal constraints that bind others.  The most obvious example is the oil and railroad trusts at the end of the nineteenth century.  A version of the same process is happening again today but what has become concentrated is not a vital energy source or the nation’s …

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December, Wednesday 21, 2011

DOW + 4 = 12,107SPX +2 = 1243NAS –25 = 257710 YR YLD +.04 = 1.97 OIL +1.78 = 99.02GOLD – .20 = 1616.00SILV -.24 = 29.42PLAT – 4.00 = 1434.00 For the past few months you’ve been hearing me telling you the Europeans were going to follow the Federal Reserve Playbook. I’ve told you there were lots of bright boys and girls who believe they have learned valuable lessons from the near collapse of 2008, and they would apply those lesson in Europe, with subtitles. And yet, for the past three months you’ve also heard stories about how the European Central Bank, the ECB has claimed they won’t be the lender of last resort, they won’t act like the Federal Reserve. You’ve heard how the ECB does not have a mandate to do the things the Fed does. Today, the ECB reported that it had doled out almost half a trillion euros, or about $640 billion dollars, in low-cost three-year loans to 523 Euro banks to keep credit flowing at a time when European banks are finding it all but impossible to finance their operations through normal market channels. I told you a little about this yesterday, and today we are getting confirmation. Here is how it works: in exchange for collateral, lenders borrowed at the ECB’s benchmark interest rate, currently 1 percent; then they use the funds to purchase the debt of euro zone governments, pocketing the difference as profit. Spanish bonds, for example, yield around 3.4 percent …

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December, Tuesday 20, 2011

DOW +337 = 12,103SPX +35 = 1241NAS +80 = 260310 YR YLD +.11 = 1.92%OIL +3.12 = 97.00GOLD +21.30 = 1616.20SILV +.76 = 29.66PLAT +21.00 = 1437.00 Yesterday, Euro finance ministers confirmed they would loan close to $200 billion dollars to the IMF for a fund to help needy Euro countries. It is a less-than-hoped for amount.  The ECB President Mario Draghi said the ECB would not have a Federal Reserve version of Quantitative Easing. So, yesterday was a down day in the markets because the governments weren’t handing out free money. Spain held a bond auction today and there were buyers. Spain has large debts and large deficits and high unemployment, so it was encouraging to see a good bond auction.  The implication is that Spain can actually pay back their debts. It was only about $7 billion dollars worth of debt, but that was enough to kick start European debt and equity markets, and set an optimistic tone for a scheduled auction of 3-year bonds by the ECB later in the week. Who was really buying? Well there is a good chance that the ECB was propping up the sale – maybe. But it would be wrong to think the ECB and the powers that be are not doing anything. Today marked the first day for the new ECB bank lending facility, offering unlimited funds to the banks at 1% for up to 3 years. So, a bank can borrow euros from the ECB at 1% and they …

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December, Monday 19, 2011

DOW – 100 = 11,766SPX –14 = 1205NAS – 32 = 252310 YR YLD -.04 = 1.81%OIL +.47 = 94.00GOLD – 5.30 = 1594.90SILV -.94 = 28.90PLAT –9.00 = 1413.00 The ratings agencies have been busy over the past few days – better late than never, I suppose. Fitch put Belgium, Spain, Slovenia, Italy, Ireland, and Cyprus on its negative watch list. Moody’s cut Belgium’s credit rating by two levels. Standard & Poors is expected to cut France’s credit rating this week. Fitch says a solution to the Eurozone crisis is “technically and politically beyond reach.” And credit downgrades make a solution fall even further out of reach. For any borrower – corporation or country – the worse the credit rating, the higher the interest on a loan is likely to be.For many Eurozone countries, they are having a hard time paying their debt right now; if interest rates move higher, it just increases the probability of default. It is a vicious cycle; deteriorating credit leads to higher interest rates and additional costs, which over time further damage the country’s credit rating. Another potential problem area is interbank lending might freeze up. Banks constantly have to borrow money from each other for a day or two because the balance between loans and money on hand is constantly shifting. But when banks begin to worry about possible losses on Eurozone bonds at other institutions, they may refuse to lend money overnight. Short-term money gets frozen in place. The European Central Bank …

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December, Friday 16, 2011

DOW – 2 =11,866SPX +3 = 1219NAS +14 = 255510 YR YLD -.06 = 1.85%OIL +.08 = 93.95GOLD +28.60 = 1600.20SILV +.46 = 29.84PLAT +14.00 = 1427.00 The Irish economy shrank 1.9% in the third quarter. The news on the declining Irish GDP comes as legal advisers are preparing a draft of a referendum on whether Ireland wishes to remain in the Eurozone.  Any deal to keep Ireland in the European Union would likely result in at least a decade of austerity. Countries with a debt-to-GDP ratio of over 60 per cent would agreed to reduce their debt by 5 per cent each year – a clause which would force Ireland, with a debt-to-GDP ratio of around 90 per cent, to take billions more out of each Budget for the medium-term future. Eurozone leaders have been talking up Ireland as a shining example of how you can combine austerity with membership of European Monetary Union and still get growth. So much for the Irish miracle. The National Institute for Statistics and Economics says France’s GDP will contract by 0.2% in the fourth quarter and shrink 0.1% in the first quarter of next year. A different report is forecasting Italy’s economy will shrink by 1.6% in 2012. Toss in Portugal, Greece, and Spain and it is pretty obvious that Europe is now in a recession. Three top US officials testified before Congress this morning on the Euro Crisis. New York Federal Reserve Bank President William Dudley, Treasury Deputy Assistant Secretary for …

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