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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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March, Friday 16, 2012

DOW – 20 = 13,232SPX + 1 = 1404NAS – 1 = 305510 YR YLD +.02 = 2.30%OIL + 2.04 = 107.15GOLD + 2.80 = 1661.10SILV + .02 = 32.66PLAT – 13.00 = 1675.00 You look at the markets and you’re confused. I know. The markets can be confusing. We heard that the Federal Reserve FOMC was feeling sanguine; the economic outlook was copacetic. And in the pretzel twist that passes for logic, that meant the Fed was not going to approve a new round of Quantitative Easing; the Fed would not shovel free money from a helicopter to rain down on Wall Street. Certainly, the markets would convulse and complain, they would twitch like a junkie past due for a fix. So far, no problem. Pretty much every asset class has been moving higher. Go figure. It’s pretty simple. The Fed will continue to provide free money to their Wall Street banking buddies; that’s what the Fed does. There is no exit strategy from QE. In fact, not easing would be the equivalent to tightening. Really, it’s just a matter of timing and deciding on a good name. It might not be called QE3; it might be called Operation Twist Some More, Maybe they’ll call it the Sterilized Accommodation, or maybe just the New QE. Make no mistake, the Fed will have a purchase program that involves purchases of mortgage backed securities and Treasuries. The Fed’s balance sheet will expand. There are several reasons to expect more free money …

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