Just got around to reading John Hussman’s weekly market commentary, which is a must read for me although I may not get to it every Monday when he publishes it. Hussman is one of the guy’s who correctly predicted the recession, and then got killed by his critics in 2009 as the stock market rallied and he steered clear.
This week he warns that a full bored program of quantitative easing will lead to a dollar collapse. Which makes sense when you think about it, because “quantitative easing” is really just a modern form of debasing the currency. It may be physically electronic in its form, with the Fed essentially creating credit out of thin air, but in essence it is no different from some old king mixing copper in with his gold coins, and debasing the currency always led to a collapse in that currency.
You should read the whole thing yourself, but these two paragraphs jumped out at me so forcefully I had to reproduce them here:
My impression is that Ben Bernanke has little sense of the damage he is about to provoke. A central banker who talks about throwing money from helicopters is not only arrogant but foolish. Nearly a century ago, the great economist Ludwig von Mises observed that massive central bank easing is invariably a form of cowardice that attempts to avoid the need to restructure debt or correct fiscal deficits, avoiding wiser but more difficult choices by instead destroying the value of the currency.
Von Mises wrote, “A government always finds itself obliged to resort to inflationary measures when it cannot negotiate loans and dare not levy taxes, because it has reason to fear that it will forfeit approval of the policy it is following if it reveals too soon the financial and general economic consequences of that policy. Thus inflation becomes the most important psychological resource of any economic policy whose consequences have to be concealed; and so in this sense it can be called an instrument of unpopular, that is, of antidemocratic policy, since by misleading public opinion it makes possible the continued existence of a system of government that would have no hope of the consent of the people if the circumstances were clearly laid before them. That is the political function of inflation. When governments do not think it necessary to accommodate their expenditure and arrogate to themselves the right of making up the deficit by issuing notes, their ideology is merely a disguised absolutism.”
This essentially describes government policy since Nixon took the country off the gold standard. This is what our leaders, in both parties, in both the legislative and executive branches, have been doing. When Poppy Bush called out the supply-siders and said their theories were ”voodoo economics,” he was more on target than anybody imagined. But nobody listened, we elected the charming actor with the aw-shucks, can-do goodness we were so desperate for, and, well, here we are today, wondering if the Fed chairman, with a straight face and apparently sober, is going to flat-out in full view of the world debase the U.S. dollar. And the markets will cheer him when he does.
East Shore Partners market strategist Joan McCullough perfectly summed up this morning’s jobs report:
This is a real klinker.
Couldn’t have said it any better. Economy shed more jobs than expected in July, while the unemployment rate held steady at 9.5%. Nonfarm payrolls fell 131,000 last month, well ahead of the 60,000 drop economists were expecting. The number was skewed as 143,000 census workers were let go. But perhaps more importantly, 71,000 private-sector jobs were added last month, well short of the expected 100,000 gain.
All in all, not much to like about this report. Even the unemployment rate holding steady at 9.5% has an underlying negative tone. The steady rate, even as jobs keep declining, largely reflects more and more folks dropping out of the labor force. In July, 181,000 people flat out gave up looking for work. And 791,000 frustrated folks have left the labor force since July 2009.
Those are all people that will likely return to the labor force at some point, especially when they think their prospects for getting jobs look brighter. When that happens, expect to see the unemployment rate ramp higher as the workforce expands.
- Time’s Curious Capitalist blogger John Curran offers several themes to keep an eye on about current market conditions. “First, stocks are going nowhere,” he says, as there are lots of headlines and big moves in both directions, but the market is still flat year-to-date. Corporate earnings are way up, though mostly on cost-cutting. Oil prices are inching backing up, especially as dollar weakens. Consumer spending isn’t improving, savings rate is increasing and European debt crisis isn’t over.
- AOL’s struggling so much that it couldn’t even meet the Street’s diminished 2Q expectations. MediaMemo blogger Peter Kafka notes two important themes to watch: AOL’s ad business and rate of decline at its subscription business.
- Investors and consumers have been so conditioned to look out for inflation that the threat of deflation, particularly in housing and wages, isn’t being taken as seriously as it should be, Yves Smith writes at naked capitalism. “It is hard to prove in a tidy way, but I see more signs of discounting in the economy, even in goods and services aimed at upper income consumers supposedly unaffected by the downturn.”
- “Inflation expectations are falling and there is currently no end in sight,” notes David Beckworth, assistant professor of economics at Texas State University. “Let me be very clear what all of this implies: by failing to stabilize inflation expectations the Fed is effectively tightening monetary policy at a most inopportune time. I hope this is not how the Fed wants to be remembered.”
- Hackers have released their latest set of instructions to help iPhone 4 owners run their devices on multiple carriers.
- Bearish sentiment among advisers fell for a second-straight week, according to Investors Intelligence. Now, only 33% of the survey’s respondents say they are in the bearish camp. “While a decline in bearish sentiment is typical when equities rise, one could make the case that it should be lower,” Bespoke Investment Group says. “After all, the current level of bearish sentiment is the same now as it was when the S&P 500 was trading at it correction lows in early July.”
- “Maybe, just maybe, the thing to do is let the deleveraging/saving/expense cutting process take place,” Credit Writedowns says. “Just as forest fires are a part of the natural life cycle of forests, so is the cleansing and seeding process of an economic downturn.”
- Research In Motion’s (RIMM) Torch may be the best BlackBerry to date, but it’s not as good as Apple’s (AAPL) iPhone or the plethora of phones using Google’s (GOOG) Android software, Dan Frommer writes at Silicon Alley Insider. “The biggest problem is that RIM has not been able to build a mobile operating system that feels nearly as modern and elegant as Android or Apple’s iOS,” Frommer says. “As a result, even RIM’s newest phone feels old next to a new iPhone or Android device.”
- Oracle’s Larry Ellison joins other billionaires in following a call by Warren Buffett and Bill and Melinda Gates to pledge the majority of their wealth to charity.
- Mosque near Ground Zero gains approval, but opponents are expected to fight it in court.
- The main difference between Citigroup’s (C) $75M settlement with SEC Goldman Sachs’ (GS) $550M settlement is GS was guilty of misleading clients while Citi was guilty of negligently misleading shareholders. But the public is much angrier over GS case, which the “Kid Dynamite” blogger finds hard to fathom. “People should be furious about this Citi case and settlement, but you’ve probably hardly heard a whisper about it.”
- Prospects aren’t looking bright for the restaurant industry. Same-store sales and customer traffic both declined for a third-straight month in June, Calculated Risk reports. “Restaurants are a discretionary expense, and this contraction could be because of the sluggish recovery or might suggest further weakness in consumer spending in the months ahead.”
- Roughly 25% of Americans sit in FICO’s least-creditworthy category, a significant jump from only 15% before the recession. “Some people will lament this, but it has a silver lining,” FusionIQ CEO Barry Ritholtz says. “Deleveraging is certainly a good thing, and forcing consumers off of the credit treadmill may actually help these folks over the long haul.”
- The commercial real estate market is getting ugly, slowly but surely. Delinquent unpaid balance for CMBS increased $3.1B in June to $60.45, and has more than doubled from a year ago, according to Realpoint. “This isn’t quite the disaster in the making that subprime was,” Yves Smith notes. But “I’m not sure why people say there isn’t a CRE crash. It’s just happening in slow motion, so far.”
- ISM manufacturing index fell for a third-straight month in July, but at 55.5, it exceeded economists’ expectations. “Bottom line, while the ISM remains firmly above 50, just ten of the 18 industries surveyed reported growth, with four reporting outright contraction and the drop in new orders is worth watching,” writes Miller Tabak’s Peter Boockvar. “With this said, the market is breathing a sigh of relief that while down for a third month, the ISM is still hanging in as inventory builds, albeit at a slower pace, and export growth continuing.”
- Newspaper advertising sales were less bad in 2Q vs a quarter ago. “But less bad is not the same as good — and the outlook for the remainder of the year is decidedly murky,” writes Newsosaur blogger Alan Mutter.
- A new website — JailbreakMe.com — has sprung up offering an easy way to hack, or “jailbreak,” an iPhone to run applications not authorized by Apple (AAPL).
- “This market is one that moves largely on the basis of economywide hopes and fears,” NYT’s Floyd Norris says. “Company specifics take a back seat.”
- “Remember when we weren’t allowed to say the word ‘recession?’ Like it was anathema?” Todd Harrison says at Minyanville. “Or when we weren’t ‘patriotic’ if we weren’t ‘bullish’ after 9/11?,” he recalls. “Is ‘deflation’ the modern day equivalent of ‘recession?’”
- Battle over the proposed Ground Zero mosque is picking up steam.
Been eyeing the tight correlation between euro/US dollar and US stocks (specifically the Dow Industrials) for a couple months now, and lately they seem like one of those couples that can’t live without each other.
The euro goes up, the DJIA giddily chases behind. Euro slips, stocks dutifully follow. That’s been the setup since about mid-April, with equities tanking through May as the euro swooned amid sovereign debt agita, and tagging after the single-currency’s bold rebound as those concerns eased.
If you can, check out an intraday overlay chart of EUR/USD and DJIA, and you’ll see on most occasions these two partners dance together like Rogers and Astaire. At times it’s not so clear which one is leading the other, but euro strength ahead of the US market open has often been the type of positive table-setter bulls need to spark a rally or sustain some follow-through. And when confidence in stocks has wavered, you can almost see the DJIA leaning on EUR strength for support.
Maybe there’s a fundamental connection, perhaps a sense that the euro’s gains reflect faith in Europe’s economy, and European growth will help sustain the torrid pace of US corporate profit growth. Maybe.
The second quarter started off with a lot of promise, and it’s ending it with a lot of doubt. That’s the topic of today’s Markets Hub (now moved to about 11 a.m. ET.)
Three months in three minutes. Where else can you get that?
This post should go under the tag of “thinking out loud.” I don’t have anything to base this on besides my sense of skepticism, but it seems to me that China’s “surprise” move on its currency peg is just a little too convenient. I’m just not buying it.
Most commentary seems to think the move stems from either one of two motivations: the Chinese are trying to squelch any criticisms at this week’s G20 meeting, or the Chinese are doing their big to alleviate the global imbalances between countries like China that are sitting on mountains of cash and countries like the U.S. that are sitting on mountains of debt. Either one, either way, generally assumes an almost benign enlightenment from the Chinese.
But what if it’s neither of those? What if something else is driving the Chinese? I’m no China expert, so I must once again emphasize that I am speculating. But what if something internal is driving the Chinese? What if it has nothing to do with the G20 or global imbalances? What if the Chinese are worried about the potential for a deflationary spiral in Europe, a big market for Chinese products, at the same time as their work force is getting more vocal? China’s had a couple of high profile strikes recently at auto plants, and of course the horrible tragedy of all those suicides at that Foxconn plant.
What is the yuan move had more to do with domestic issues than international issues?
I don’t have an answer, I’m just trying to get a thought out here. The China story just never sits right with me. I have a hard taking statements at face value from a totalitarian leadership. So when it appears the Chinese just want to play nice with everybody else, I wonder what it is they’re not telling us.
The Chinese took just about everybody by surprise with the weekend announcement on the yuan, and that’s what we’re discussing on this morning’s Markets Hub.
Personally, I’m skeptical that this is anything more than posturing. The Chinese are not going to upset their apple cart just to please Chuck Schumer, and a currency appreciation of somewhere from 2% to 5% is just that, posturing. But, you know, I could be wrong.
Stock markets around the globe storm higher following China’s weekend statement suggesting more flexibility with the valuation of its currency.
Move’s being taken as a signal of confidence in its own economy and in the global rebound, though details are kind of thin in terms of how far China will go in allowing yuan revaluation. Looks as if China’s throwing its currency critics a bone ahead of the G-20 meeting, and it’s being chased as if there’s a lot of meat left on it.
No economic data today, but the calendar this week includes May existing and new home sales, durable goods, regional manufacturing reports and final look at 1Q GDP.
S&P futures up 16.90, Dow futures up 133. Ten-year note lower, yield at 3.29%. Euro hovering around $1.24.
(Editor’s note: the embedding code for some reason originally put David Cottle’s video in this space. While we’re fans of David’s, let him plug his videos on his own blog. Hopefully, we’ve now got this fixed.)
This is the bulls moment to take this thing back. The euro’s stabilized, even as Goldman Sachs throws in the towel on its estimates, and data out of Asia look better. But there are still counterweights: weekly jobless claims remain stubbornly stuck around 450,000, and the financial regulation bill is nearing its final form, which will likely crimp some bank profits.
The recent Bank for International Settlements FX market survey unvelied a number of trends. One that didn’t get much coverage was some of the reordering of the top ten trading centers around the world. Not huge shifts but interesting nonetheless. For example, Switzerland – home of two of the largest FX trading banks in UBS [...] […]
