Saturday, July 30, 2011

Who's to blame now for the uncertainty in raising the Debt Ceiling by Aug. 2nd?

Okay, this is the bottom line on who's to blame in this Debt Ceiling crisis. Senator Mitch McConnell, the same Mitch McConnell who said his number one priority is to ensure President Obama is a one term President, yesterday told the American people he and Senate Republicans were going to require 60 votes to pass Senator Harry Reid's plan to raise the debt ceiling! McConnell decided to Fillibuster instead of compromise! That's who's to blame! Remember, if we can't get the debt ceiling raised by August 2nd, and we default, you know who you should blame.

The House plan by Speaker Boehner only needed a simple majority to pass. They just got 218 votes for his plan. 24 Republicans voted against it and no Democrats voted for it.

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Friday, July 29, 2011

2nd Quarter GDP really disappoints!

This morning the Commerce Department released its numbers on the economy. Gross domestic product rose at a 1.3% annual rate in the second quarter following a 0.4% gain in the prior quarter that was less than previously estimated. What's even more striking to me than the 2nd quarter low number of 1.3% is the revision to 1st Quarter numbers. The 1st quarter numbers previously reported were 1.9% and now have been revised downward to 0.4%. That's a very large difference. In fact, for all practical purposes that's basically close to negative growth and if this quarter gets revised downward by Sept, it may have shown we are in a Recession right now.The official definition of a Recession is 2 consecutive quarters of negative growth.

If it smells like a recession, feels like a recession, and speaks like a recession, it most likely IS a recession!

In the mean time, the Futures markets are predicting today to be a significant stock market drop again. Hold on to your hats!

Consumer Sentiment data for July was also released and came in at a 63.7, which compares to a 63.8 reading for June. Again, not in the right direction for a recovery.

Watch the rise in those TZA Call Options today for October Expiration at a Strike price of $41. I said we could see $6.00 for those which you could have bought for $2.69 just last week.

UPDATE: 6:53am PST

The Chicago PMI came in at 58.8 this morning for July. The month of June came in previously at a 61.1 reading.

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Thursday, July 28, 2011

Stock market at a critical point

The debt ceiling crisis impasse resumes again tonight with Speaker Boehner not getting the votes he needed from his own Party. We are now getting close to the point of no return. As you can see from the 2 charts below, we are headed down. The Dow and Russell 2000 are below their respective 50 day and 100 day Moving averages. Tomorrow will be an interesting day and Monday even more interesting and volatile.

I recently purchased TZA Call Options at $2.69 and $2.81 for October expiration at a Strike price of $41. Those call options have increased in value now to $4.80 and I expect it to go to at least $6.00 before the debt ceiling issue is resolved.

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Initial Jobless Claims improved.

Expectations were that we would actually have 440K Initial Jobless Claims when the data was released this morning for the previous week, but instead, the data released showed only 398K were in fact what was recorded. That is the first time we have been below 400K in almost 2 months. However, it should be noted tha the week before this data's release was revised upwards from 418K to 422K. Still, today's release showed an improvement and at least is in the right direction.

Meantime, the debt ceiling standoff is approaching a critical moment for the Congress and the markets. Stay Tuned.

Tomorrow an important piece of data will be released, which may have a major impact on markets, a first look at 2nd quarter GDP, as well as the Chicago PMI and Michigan Sentiment.

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Wednesday, July 27, 2011

Durable Goods Orders for June 2011

Data released at 5:30am PST for Durable Goods Orders for June came in at -2.1% reading. This compares to a reading of +1.9% for May. See the chart below of Durable Goods Orders by Month going back to 2008 Monthly, from Financial Sense web site. The Monthly data on the chart is in grey bars on the chart and I have included today's reading with a red X. You will notice the yearly trend is going down, not up, as you would expect with an economy recovering from a recession.

UPDATE: 8:06am PST
Haver Analytics has posted a chart of Durable Goods orders which go back further in time, which I have posted below. Notice that we have only gone below the zero point one other time since the 2008-2009 recession.

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Tuesday, July 26, 2011

California Post Offices possibly slated for closing

If you follow this link you will see a list of Post Office possible closings released today for California buy the USPS. If you change the state in the URL you can get it for any state.

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I'm back! Here's my take on the Debt Ceiling crisis

I've been away on vacation for about 10 days so I apologize for not posting during that time, but you know that there are some remote places where there is no internet access. But I'm back now and ready to comment on this debt ceiling crisis.

I think there is now a 50% chance that both Parties in the Congress and the President will not come to an agreement to raise the Debt ceiling by Aug. 2nd. You know how this will affect the country in a negative way so I won't waste your time with those details. It seems obvious to me that President Obama has boxed himself into a corner as have both Republicans and Democrats over this issue. It seems to me the only thing left is for this President to make the unprecedented move to raise the Debt Ceiling using the 14th Amendment of the Constitution as the reason for this. This is what the 14th Amendment says:

""The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." Many read this to say the President has the authority to guarantee payment since the Treasury of the United States reports to the President and is a Cabinet position.

I think that this President needs to consider the possibility that this may be the only way to guarantee the debt ceiling is raised in time. Politically he most likely would not want to make this choice, but he might just have to because it is clear to even the most casual observer that the House Republicans are demanding things that can't pass the Senate and the Senate are demanding what the House Republicans won't pass. So we have an impasse. This issue has held government hostage unnecessarily and never before in history have we ever come to this point. If you are into the blame game, you can either blame or praise the Tea party Republicans for where we find ourselves today. Those praising their stance on this, I hope you still feel this good when government spending is significantly reduced at a time where spending is required to keep this economy from relapsing into a Great Recession of worst, Unemployment rises, the cost of borrowing increases significantly and causes the housing crisis to get worse. This Republican Party with its Tea party activists will more than own the economic problems and crisis going forward, because in their zeal to ensure President Obama is a one term President, as Sen. Mitch McConnell has repeatedly said. God help us all.

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Saturday, July 16, 2011

GDP: Are we in decline and, if so, who's to blame?

I have wondered, as many of my readers have, about the apparent decline of our economy in recent years. Many, especially the far right in the Republican Party, have blamed President Obama for this and many on the left have blamed George Bush for this. Are these points of view true? Let's look at the facts over time. The fact is that our economy has been in decline now for many years. The first chart below shows GDP for the period of 1960 to 2011. I have drawn red lines at the top GDP levels after eliminating the highest value for each line segment. So for the period of 1960 to 1979, I did not draw the line at the one highest point of 15%, but rather of the several lower ones at 10%. Imagine that, a several quarters of 10% GDP or greater. back then we were just like China today!

You can see from the 3 red lines that we have steadily dropped in GDP and that the years from 2000 to 2011 are the lowest GDP periods in the past 50 years. In fact the lower GDP period has mostly been for all of the years of the Presidency of George W. Bush and the years with President Obama. The facts are still unknown whether President Obama will be any better or worse than President George Bush was. Right now they look the same to me, but there isn't enough data to be conclusive. Let's look a little closer at the years from 2000 to 2011 and see more closely where we are. The next chart below shows this period. I'll let you interpret what you are observing here. But before you look, be aware that your point of view will determine what you see! Be honest with yourself here, as it is a great learning point.

What have you learned? Can you be honest with yourself and be an objective observer or are you biased to your original point of view. I say this to both Republicans and Democrats. Dare to make a comment on your learning? I invite you to make a comment below. But let us know if you are a Republican or Democrat in those comments. It makes the comment so much richer and interesting.

One last chart. below, I just had to post and this one is of GDP since 1947. It is similar to the chart from 1960. Charts constructed from data

Thanks! And while you are at it, take my Mini poll on the right margin.

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Friday, July 15, 2011

Market comments for July 15th UPDATE

The CPI data came in at -0.2% in June, compared to +0.2% in May. Core CPI came in at +0.3% in June and was up +0.3% in May. This is showing that core prices are really rising as many feared. This economy is sounding more like we are in "stagflation". These CPI Core numbers are in line with what is happening with what has happened to the Core PPI numbers as well. In June Core PPI rose to +0.3% from a May reading of +0.2%.

The Empire State Index came in at -3.76 in July versus in June it was -7.96. Expectations for July were for the number to be 0.0, so this is not a good number and indicates a slowing business climate. That's hard to imagine given the business climate has felt like it has almost stopped the past 3 months. This data is in line with the Inventories data which is also rising and showing that Manufacturing is slowing down even further. This data is feeding into fears a double dip recession is going to occur.

Later this morning, Industrial Production data will be released for June, as well as Capacity Utilization and Michigan Sentiment data for July. Here's what to watch for Industrial Production came in in May at +0.1% and expectations for June are for a +0.3% reading. I expect the number to disappoint. Capacity Utilization came in last month at 76.7% and expectations are for a reading of 77%, indicating more usage of existing capacity. I think this number will disappoint as well and be below 77%. And lastly, Michigan Sentiment in June came in at 71.5, and expectations are for it to be 70.0% reading. I believe this number will be somewhere between 71.5% and 70.0% and will not be off by much, resonating with the general feelings in the country of negativity, partly based upon the politics of the moment on the issue of whether the Congress is going to raise the debt ceiling and also the higher Unemployment numbers this month. The trends are not good and we may be very close to going back officially into a recession.

Bah, humbug! The Futures look positive this morning in advance of this data. The Dow Futures indicated +44 before the CPI data came out and the Empire State Index. Now the Dow Futures indicate a +43 reading, so nothing has really changed with respect to the Futures.

Today is Options Expiration for July so expect high volume today.

UPDATE: 6:55am PST

Industrial Production came in at +0.2%, not +0.3% as expected. But the huge news is that the Michigan Sentiment came in at only 63.8 vs an expectation of 70.0 and a reading last month of 71.5!!! This is a huge disappointment but a realistic data point on how people are really feeling.

Capacity Utilization came in at 76.7%, same as last month and not the 77.0% expected.

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Thursday, July 14, 2011

Market comments for July 14th

Initial Jobless Claims data was released this morning and came in at 405K. This is a reduction of 22,000 from the previous week, but still over 400K. Expectations were for only 370K this week. The data from the previous week, however, was revised upwards from 418K to 427K Initial Jobless Claims, so again, not in the right direction for a recovery.

The PPI came in at -0.4%, while expectations were for -0.2%. This shows deflationary, not inflationary pressures are building, as the Fed is worried most about.

Retail sales for June came in at +0.1%, which is not much, but expectations were for a -0.3% number. Retail Sales Ex-Auto came in unchanged from the prior month. Thus, we have stagnation in Retail Sales.

The Dow Futures are up about 26 points at this hour, but I have a difficult time being convinced the market will rise today, given the way the issue of raising the debt ceiling has taken over most news commentary as a gloomy outlook. But in a market manipulated by the Fed, anything is possible. And with Moody's threatening a downgrade of the U.S., this is indeed a major game of chicken being played out nationally.

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Monday, July 11, 2011

Sarah Palin: Is she running?

So she spoke yesterday and had people wondering again if she is going to run for President. Did she give a deliberate clue or was there an error in the use of her language? You see she said "I can win!" responding to questions from reporters. She didn't say, "I could win". There is a difference in meaning. The question is though did she make a deliberate statement of intention of running or did she mean she "could" win if she ran, and hasn't made up her mind.

I think it was an unconscious reflection of her intention. How would you interpret her use of can versus could?

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Sunday, July 10, 2011

Negotiations break down on raising debt ceiling and reducing the deficit

According to CNN and Bloomberg report this morning, the budget talks have broken down between the Republican Congress, represented by Speaker John Boehner, and the President. According to reports, "House Speaker John Boehner said he will pursue a smaller deficit reduction accord than the one that President Barack Obama is seeking, ($4 Trillion in reductions), because the White House won’t approve a bigger deal without tax increases."

This is a missed opportunity and is a major disappointment for our country. To not raise some taxes at this time is irresponsible by Republicans. The data this week shows we are not in good shape. The Unemployment rate rose to 9.2% from 9.1% in May. Other data includes the following: Initial Jobless Claims for the past week were still above 400K at a reading of 418K, Wholesale Inventories were up from 1.1% in April to 1.8% in May, the Average work week was down from 34.4 to 34.3 hrs, Hourly Earnings were flat at 0% for June, only 18K Non Farm Payroll jobs were created for June, and lastly, the ISM services data came in at 53.3 for June from 54.6 in May. This was not a good week to inspire confidence in our economy.

Watch all Futures markets for a major sell-off this week. While there might be a deal to accept the cuts already negotiated by the Republicans to get a vote on raising the debt ceiling passed, the war has just begun and the first shot will have been fired, which officially signals the start for the very soul of this country in the election of 2012. I hate this kind of politics as do most responsible people. In the meantime we all lose as much to get this economy moving will take well over another year of wasted time. Blame whom you like. My blame goes squarely on the Republicans for being unreasonable, stubborn and too idealogical.

The Debt ceiling will be raised with accompanying cuts of several Trillion dollars. The Republicans will call this the first victory in their campaign to shrink the government. The President will call this a victory as at least the debt ceiling was raised and he did not cut any Social Security or Medicare benefits.The Democrats will claim a victory as they stood firm that no more reductions came without standing up for the principle of shared sacrifice as they would not allow any more cuts without raising taxes on the wealthy. The bigger question is what will you see in this outcome, because that is what the fight will be about going forward, your vote for who was reasonable.

While you are here, take my new Mini Poll on the right margin. The question is as follows:

Which option do you favor most to help our economy?

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Thursday, July 07, 2011

Where do you think cuts in spending need to be made?

Since there are going to be round the clock negotiations to hammer out a compromise on reducing the debt this weekend. I thought I would summarize the results of my Mini Poll here. Remember all this drama is going on in order for the Republicans to get concessions for their votes to raise the Debt Ceiling. It is clear how folks think these trade-offs should be made. Here's the question and their Vote:

Where do you think cuts in spending need to be made?

Answers and Percent in Favor of the choice
1. Everything, no exclusions. 39%

2. Increase taxes on just the wealthy. 33%

3. Increase taxes on everyone. 7%

4. Cut mainly from Defense. 13%

5. Cut mainly from Medicare, Medicaid and Social Security 6%

6. Don't need to cut anything or raise taxes. 3%

So 39% are in favor of cutting everything and 33% say they would choose adding taxes on the wealthy. That's a 72% majority.

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Market and political comments for July 7th, 2011

Weekly Initial Jobless Claims data came in at 418K compared to last week's data of 428K and an expectation of 425K. This was better than an expected number of 425K and clearly better. The big question is can we get down below 400K again? The answer to that is not if, but when.

According to CNN Money today, " ADP numbers showed a gain in Manufacturing jobs in the Private sector for June of 157,000 new jobs. This is 4 times the number of jobs gained in May. Smaller businesses led the charge in June. Small businesses, defined as those with fewer than 50 workers, added 88,000 jobs in June. Medium-size businesses, defined as those with between 50 and 499 workers, gained 59,000.

Larger businesses, with 500 or more workers, added 10,000 jobs last month."

All US market Futures are up this morning in premarket. It looks like we are making a final push to the previous high of 12,800 before we correct. Clearly a "W" pattern, or Head and Shoulder pattern is forming and may be the last necessary ingredient before the market has its correction. But I have been waiting for that for far too long and I know it.

It looks like the President Obama is blinking by setting a precedent and putting both Social Security and Medicare changes on the table to negotiate with Republicans. This was not a good move at this time as it sets up future hostage situations when the debt ceiling must be raised, as inevitably it will. I am very disappointed in this man on some things and this is one of them. He doesn't seem to have any backbone in him. Very upsetting for Progressives in the Democratic Party. He doesn't have to negotiate on this, when almost 80% of Americans favor leaving both programs alone and untouched. That type of tinkering is best left until after the 2012 election.

To use a biblical reference, he is willing to cut the baby in half. He seems more interested in negotiating that in principles. I hope to God we never are in a situation with this President when we are looking at a military situation where surrender is an option the other side puts on the table.

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Wednesday, July 06, 2011

Market comments for July 6th

Data released this morning on the ISM Services sector came in at 53.3 for June versus a reading of 54.6 in May. This one is going in the wrong direction for a recovery. In addition to these numbers ISM Non- Manufacturing Index numbers came in at 60.9 for June vs 69.6 for May. This number also is in the wrong direction for a recovery.

The big number for the week will be Friday's Unemployment data for June. Last month the number rose to 9.1% for May and many expect it to rise to 9.2% for June. The Challenger Job cuts data also announced today didn't give many hope for a better number. The Challenger Job Cuts number was at +5.2% for June compared to it dropping in May to -4.3%.

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Monday, July 04, 2011

Reflections on how jobs are lost and created.

I went to the supermarket this morning to buy a few groceries so I can make a nice dinner today. As I went up to the register which was open, I noticed another man going to the self serve register. You know what those are. That's where you take your own groceries out of your cart, pass them by the bar code reader, then bag your own groceries and pay with a credit card. Well, this man was talking to another about the economy and the lack of jobs, without any awareness of what he was just doing using that self serve checkout system.

Come to think of it most Americans seem oblivious to the fact that is as much our responsibility to create jobs, as is the Congress, the President, and big business. Every time I go to the supermarket, I notice that some responsible person is bringing their shopping cart back to the area where they are stored and probably patting themselves on the back for doing it, rather than leaving the cart between cars or in walkways in the parking lot. But what I remember was when I was a kid of 16, that was my job. I was hired to get the carts and return them to their storage place so that customers didn't have to think about returning them or having them hit cars. It didn't pay terrifically but it did help me buy a car.

I ask you this Independence Day to consider what you do to eliminate jobs and what you can do instead to keep the ones we have and create more jobs. Try tipping a little more than usual for good service on the condition the person you give the tip to hears you say, "I'm tipping you a little extra today for your good service, but I have a favor. Please make sure you do the same and either pass it on to someone else who gives you good service with the same condition or treat yourself to something nice. The main thing is keep that tip moving to as many people as possible. If we all do that we will spur on this economy in spite of Congress, the President and big business. YES WE CAN!

Happy 4th of July.

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Friday, July 01, 2011

Interest Rates begin to move up

Here is a table of how Interest rates have moved up just since June 24th for various Bonds and their maturity timeframes. This really surprised me, but I haven't seen anything in the financial media or mainstream press mentioning this. Here's a Table that may surprise you too.

I want to wish everyone a happy, safe 4th of July weekend. If you don't have to drive, stay home and relax. If you do have to drive, drive safely and come back here next week.

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