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Thursday, February 20, 2014 – Searching for Inflation

Searching for Inflationby Sinclair Noe DOW + 92 = 16,133SPX + 11 = 1839NAS + 29 = 426710 YR YLD + .02 = 2.75%OIL + .02 = 102.86GOLD + 12.10 = 1324.00SILV + .29 = 21.92 The Conference Board’s Leading Economic Indicators rose 0.3% in January following no change in December. Over the six months through January, the LEI rose 3.1%. The LEI tracks 10 indicators designed to signal business cycle peaks and troughs. In the most recent report, 5 of the 10 indicators were positive, including a drop in jobless claims and a pickup in factory orders; on the negative side, declines in building permits and hours worked. Meanwhile, the Conference Board’s index of coincident indicators, a gauge of current economic activity, rose 0.1 percent for a second month. Overall, the leading indicators point to moderate expansion once the nation gets past inclement weather, with the caveat that consumer demand needs to pick up. No surprises in that report. The Consumer Price Index rose 0.1% in January after a 0.2% gain in December. The CPI measures prices at the retail level. The core rate, excluding food and energy prices, also rose 0.1%. Over the past 12 months, consumer prices were up 1.5%, and the core CPI was up 1.6%. Energy costs increased 0.6% from a month earlier and were up 2.1% over the past 12 months. Food costs rose 0.1%. Gains in the cost of hotel rooms, medical care and rents were mostly offset by declining costs for new …

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Wednesday, December 18, 2013 – According to Plan

According to Plan by Sinclair Noe Don’t worry. Everything is going exactly according to plan. The Fed will taper just a little; cutting back to $75 billion a month in Treasury bond and mortgage backed securities; the cuts will trim back equally from both categories. You’ll hardly notice. The Fed said: “In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the committee decided to modestly reduce the pace of its asset purchases.” Great news for people in the hunt for a job; everything is good. And for those of you with two jobs, well your doubled efforts have not gone unnoticed. The Fed expects unemployment to dip to 6.3% to 6.6% by the end of the year, what with more people dropping out of the workforce and the participation rate shrinking. Besides, the current 7% unemployment is apparently just good enough to avoid civil unrest, or as the Fed calls it “progress toward maximum employment.” The central bank also said it “likely will be appropriate” to keep rates near zero “well past the time” that the jobless rate falls below 6.5 percent. Again, this confirms that everything is going exactly according to plan…, for the bankers; for the rest of us – not so much. But if you are a banker, you have to love free money from the Fed. It’s not like they could continue QE forever; they were running out of stuff to buy. The federal deficit has …

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Thursday, December 05, 2013 – 46664

46664 by Sinclair Noe DOW – 68 = 15,821SPX – 7 = 1785NAS – 4 = 403310 YR YLD + .03 = 2.87%OIL + .18 = 97.38GOLD – 18.20 = 1226.10SILV – .28 = 19.54 Nelson Mandela is dead. News reports say the former South African President died peacefully at his home. He was 95. Nelson Mandela will be remembered as the person who, more than any other, brought an end to apartheid, the heartless policy of “separate development” in which white, black and South Asian South Africans were obliged to live apart. It is part of his towering achievement that the very notion of racial segregation is anathema throughout the civilized world. Yes, the stock market was down again today but the economy is doing better than you thought. Third quarter gross domestic product grew at a 3.6% pace, revised up from earlier estimates of 2.8%. Wow, sounds great, until you dig into the numbers. A large part of the revision, almost half, comes from an increase in inventories. Businesses were stocking the shelves. Were they predicting a gang-buster holiday shopping season or were they caught flat-footed by a lack of demand? We won’t know with certainty until we get through the fourth quarter, but most indications are that the economy is still slogging forward, and there doesn’t seem to be a need for such a large inventory buildup. We know businesses accumulated more than $116 billion in inventories in the quarter, the most since the first quarter of …

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Wednesday, November 20, 2013 – Fed Minutes, Fed Conundrum

Fed Minutes, Fed Conundrum by Sinclair Noe DOW – 66 = 15,900SPX – 6 = 1781NAS – 10 = 392110 YR YLD + .09 = 2.79%OIL – .01 = 93.33GOLD – 32.40 = 1243.80SILV – .49 = 19.95 The Federal Open Market Committee, Federal Reserve policy makers, met October 29-30, and to no one’s surprise they did not change monetary policy. Today, minutes of that meeting were released. The policy makers “generally expected that the data would prove consistent with the Committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months.” They think the economy is improving, despite the government shutdown and ongoing political dysfunction, the economy is getting better and the FOMC is considering how and when they can exit Quantitative Easing; they would like to scale back $85 billion per month in purchases of Treasuries and mortgage backed securities without triggering a rise in interest rates that could slow economic growth and wipe out gains in the labor market. That is not to say they are ready to raise their Fed Funds target for interest rates. That target has been right at zero and will likely remain at zero for at least a year or more. They want to get out of the bond buying business without the market noticing, and independently pushing interest rates higher. It’ll be a fine trick if they can pull it off. In a speech to the National Economists Club, Ben Bernanke …

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Friday, November 15, 2013 – Stuck in the Monetary Tar Pit

Stuck in the Monetary Tar Pit by Sinclair Noe DOW + 85 = 15,961 SPX + 7 = 1798 NAS + 13 = 3985 10 YR YLD + .01 = 2.70%OIL – .04 = 93.72GOLD + 3.10 = 1291.40SILV + .04 = 20.88 Record highs for the Dow and the S&P 500; with the Dow closing in on 16,000, and the S&P closing in on 1800 or maybe 2000 if you blink. The Nasdaq is nowhere near record highs but it is close to 4,000 and that’s a 13 year high. It’s rare that the Attorney General discusses an active investigation, but the New York Times reports Eric Holder is talking about the currency markets and how some of the biggest banks may have rigged trading in the largest and least regulated market in the financial world. Holder said: “The manipulation we’ve seen so far may just be the tip of the iceberg. We’ve recognized that this is potentially an extremely consequential investigation.” The investigation still seems to be in the early stages; no one has been accused of wrongdoing, yet. The DOJ apparently has at least one trader who is providing evidence, and they have gathered a whole bunch of emails, instant messages, chat-room conversations, and other documents. Nine of the largest banks in currency trading have announced they are facing inquiries. The banks placed about a dozen traders on leave pending the outcome of the inquiry. And several banks are considering limiting the ability of their traders to …

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Thursday, August 15, 2013 – Who’s in Control?

Who’s in Control? by Sinclair Noe DOW – 225 = 15,112SPX – 24 = 1661NAS – 63 = 360610 YR YLD +.04 = 2.75%OIL + .41 = 107.26GOLD + 29.60SILV + 1.14 = 23.11 Let’s start with the economic data: The Labor Department said its producer price index (PPI) remained flat in July, surprising economists who were expecting a rise of 0.3%. Meanwhile, core prices, which exclude food and energy costs, edged 0.1% higher — less than the 0.2% climb projected by economists. By comparison, June saw gains of 0.8% and 0.2%, respectively. Meanwhile, the consumer price index (CPI) showed retail prices rose a seasonally adjusted 0.2% on gains for gasoline, housing, clothing and food, among other goods. Excluding energy and food, the core consumer-price index also rose 0.2%. The core CPI increased 1.7% in July from the same period in the prior year, slightly up from June’s annual growth. Overall consumer prices have increased 2% over the past 12 months. That year-over-year growth in the overall CPI has trended higher in recent months. Just the other day, James Bullard,  the St. Louis Fed president said he is concerned about low inflation levels, which he said will be a factor in whether the Fed will scale back its bond-buying program. Bullard said: “There has not been much indication, so far, that it has been ticking back up toward target.” Also, the number of people who applied for new regular state unemployment-insurance benefits fell 15,000 to 320,000 in the week that …

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Wednesday, February 20, 2013 – Seeds of Change

Seeds of Change by Sinclair Noe DOW – 108 = 13,927 SPX – 18 = 1511NAS – 49 = 316410 YR YLD – .01 = 2.02%OIL – 2.28 = 94.82GOLD – 40.50 = 1565.10SILV – .87 = 28.67 We may be seeing the seeds of change. Today, the Federal Reserve released the minutes from the January 30 meeting of the Federal Open Market Committee. The minutes reveal that several FOMC policymakers think it might be time to shake things up, vary the pace of their $85 billion dollar per month bond purchase program. According to the minutes, the debate “emphasized that the committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved.” The minutes of the FOMC meeting states: “Several participants noted that a very large portfolio of long-duration assets would, under certain circumstances, expose the Federal Reserve to significant capital losses when these holdings were unwound. Others pointed to offsetting factors, and one noted that losses would not impede the effective operation of monetary policy.” The Fed  at its January meeting decided to continue buying $45 billion a month of Treasuries and $40 billion in mortgage- debt without setting a limit on the duration or total size of the purchases. Policy makers also affirmed their pledge to keep the target interest rate near zero “at least as long” as unemployment remains above 6.5 percent and inflation …

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Thursday, January 31, 2013 – Friedman, Von Mises, Adam Smith, and Inflation

Friedman, Von Mises, Adam Smith, and Inflation by Sinclair Noe DOW – 49 = 13,860SPX – 3 = 1498NAS – 0.18 = 314210 YR YLD – .02 = 1.99%OIL – .49 = 97.45GOLD – 12.90 = 1664.50SILV – .56 = 31.56 Let’s cover some of the economic news and then I’ll try to tackle one of the most pressing questions of our time. The Commerce Department reports personal incomes rose a seasonally adjusted 2.6% in December, the fastest pace in eight year. Sounds good, but the numbers are a bit of a fluke. Personal dividend income jumped 34.3% in December, pushed forward by concerns about the fiscal cliff. That is income that won’t be paid out on a regular schedule, so the big increase will be matched by a later decrease in dividend income. Excluding the dividends and other distortions, personal income rose 0.4% in December. Wages and salaries rose 0.6% in December after a 0.8% gain in November and were up 5.4% year-on-year. Consumer spending rose 0.2% in December, in line with expectations. With incomes running faster than spending, the personal savings rate rose to 6.5% of disposable income from 4.1% in November. It was the highest savings rate since May 2009. Initial jobless claims jumped 38,000 to a seasonally adjusted 368,000 in the week ended Jan. 26. A separate survey this week produced by the payroll processor ADP said the U.S. gained 192,000 private-sector jobs in January, the highest in nearly a year. The ADP report is not …

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Thursday, December 13, 2012 – Federal Reserve Targets

Federal Reserve Targets by Sinclair Noe DOW – 74 = 13,170SPX – 9 = 1419NAS – 21 = 299210 YR YLD +.03 = 1.73%OIL – .67 = 86.10GOLD – 14.30 = 1697.30SILV – .91 = 32.64 What happens when the unemployment rate gets to 6.7%? Or when the inflation rate gets to about 2.4%%? Yesterday, the Federal Reserve announced it would keep interest rates at super-duper low levels and they would buy about $85 billion dollars a month in mortgage backed securities and Treasury bonds until the unemployment rate drops to 6.5% or until inflation kicks up to about 2.5%. So, what happens when the unemployment rate hits 6.7% or inflation hits 2.4%? The next question, and it is probably going to turn into an obsession for market traders trying to figure which target gets hit first, inflation or unemployment. Of course, that is working on the assumption that Fed policy will improve the jobs picture and that the Fed’s policy will result in inflation. Maybe. What we know with greater certainty is that the Fed’s policy is a boon for banks. They can offer loans and keep a very wide spread, also known as a profit. And the banks can be very particular about the quality or vintage of loan they make; which in turn keeps the spread high. The banks don’t really need to make mortgage loans to consumers;Ttey can get an even bigger spread on high interest credit card accounts; they can get an even higher interest …

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Thursday, November 15, 2012 – Pick One or Pick All Four

Pick One or Pick All Four by Sinclair Noe DOW – 28 = 12,542SPX – 2 = 1353NAS – 9 = 283610 YR YLD =1.59%OIL – 1.01 = 85.31GOLD – 11.50 = 1717.10SILV – .14 = 32.70 We had a few economic reports; they deserve mention; we also had a few flashpoints; we’ll get to those soon. Consumers paid somewhat higher prices for food, rent and housing in October, offsetting a decline in the price of gasoline at the pump. The consumer-price index edged up a seasonally adjusted 0.1% last month. Inflation-adjusted hourly wages, meanwhile, fell by 0.2% in October. Wages fell slightly, even as consumer prices rose, to account for the decline. Real wages have fallen 0.7% over the past 12 months, meaning consumers have less buying power compared with one year ago. Consumers got some relief in October, however, from the falling price of gasoline. The government’s price index of gas, which spiked 16.6% from July to September, tapered off 0.6% last month. The more important number to consumers — the actual cost of a gallon of gas — fell by almost 7% in October and retail prices continued to decline in the first two weeks of November. The average national cost is about $3.50 a gallon, down from nearly $4 a few months ago. Hurricane Sandy contributed to negative readings for both Philadelphia- and New York-area manufacturing gauges in November; not a surprise. First-time jobless claims soared by 78,000 to a seasonally adjusted 439,000 in the week …

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