A few days ago a Seeking Alpha article, "4 Scary Charts Warning Of The Next Financial Crisis" provided analysis of the Japanese debt situation. Its concluding recommendation:

If the crisis I foresee unfolds it could make 2008 look like a blip. If such an event occurs, investors should prepare to diversify across a range of assets, such as short-term US Treasuries (SHY), gold (GLD) and US dollars (UUP).

The difficulty I have with this recommendation is with GLD currently. This is because since the beginning of the year Japanese rates and gold, as shown by the GLD exchange traded fund, have been negatively correlated (except for the 7 day lag).

(click to enlarge)

Specifically this is the Japanese Government Bond (JGB) 10 Year rate daily change compared to the daily change of GLD. Here is a graph of the levels:

(click to enlarge)

One can see the

Over the weekend it was announced that depositors of accounts in Cyprus' banks will be forced to take a "haircut" in order for a bailout to proceed. Initial indications are for a 6.75% haircut for deposits under €100,000 and 9.9% above this amount, although this could change.

This means if an investor had €100,000, then, after the "bank holiday" in Cyprus, they would have €93,250. Of course this news started a run for cash at ATM machines.

The Cyprus banking industry has been known as an off-shore heaven for Russian assets. However, this news will most likely affect all investors and asset classes. Why?

Because the most basic asset of bank deposits, or money, just saw a jump in its "risk premium". Bank deposits, especially small ones, are not supposed to have a default risk premium. They might have a very small "inflation premium", as seen with

What has happened to Apple (AAPL)? This is the question that has investors scratching their heads over the last 6 months. In summary - economics 101 happened to the company's gross margin, as it fell from a high of 49.26%, in March 2012, to 41.55%.

When Apple reported quarterly earnings it showed sales increasing over last year 17.65%, from $46,333 mm to $54,512 mm. Most CEO's would love 17%+ sales growth. However, the cost of goods sold rose from $25,630 mm to $33,352 mm, or 30.52%. More specifically, in the short run, marginal cost was greater than marginal revenue for the last quarter.

After taking out SG&A expenses, Apple was left with operating income falling from $17,340 mm to $17,210 mm. A decline of - $130mm or -.75%. Apple's marginal revenue product was negative and it ....

"follows the law of diminishing marginal returns. As the number

Many investors say they are not concerned about inflation, created by the Federal Reserve asset purchases, since the reserves are not being loaned out, and simply sit on the Fed's balance sheet as excess reserves. I decided to test this hypothesis.

First, I downloaded the following annual data series from the St. Louis Fed's data site, FRED:

The data was downloaded using Fred's excel tool which made an annual time series for each year, out of the monthly average for said year. I then took the adjusted monetary base and subtracted the excess reserves to arrive at a data series of reserves, which do indeed support loans and lending.

I then imported this data into the econometrics software Gretl. I made a time series of log difference returns from the

The Congressional Budget Office releases forecasts for how much the economy can grow, presumably without causing unwanted inflation. The latest forecast for nominal GDP in Q4 of 2023 is $26.58 Trillion.

(click to enlarge)

Source: Fred Data

One can also find that last quarter's nominal GDP was $15.85 Trillion.

(click to enlarge)

Source: Fred Data

One can then simply find the expected growth rate over the next 11 years using excel. Just paste in:

=rate(11,0,-15851.2,26579.5)

And excel will spit out the answer of 4.811% annual nominal GDP growth.

The questions to investors this brings up is:

How will the stock market in general achieve significant gains above this rate?

How much of this growth is already discounted by interest rates?

The answer to the first question is that substantial gains are unlikely to occur, if the nominal GDP "target" is accurate. First, let's look at the total returns of the

I have been looking into General Motors (GM), annual report ever since it was released in February, and have previously reported on how the company derived its net income from taxes and its subprime lending; now, I will delve into its production and sales.

In the last two years GM has produced more cars then it has sold. This information can be found on pages 2-3 of its annual report filing with the SEC. I made the following table from the information on these pages.

(Click to enlarge)

One can see that over the last two years GM has produced 444,000 more vehicles than it has sold, in anticipation of future demand. But just where do these vehicles go if not sold?

First, an investor must take care of the note GM makes on page 5:

GMNA vehicle sales primarily represent sales to the end customer. GME,

Last week, I came across an excellent article explaining the basics of the "All Weather" portfolio, which is attempting to replicate an asset allocation strategy, used by the hedge fund Bridgewater Associates, with mutual funds and ETFs open to all investors.

The "risk parity" portfolio put together had excellent risk adjusted return over 10 Years vs the benchmarks. However, as this article explains, the trouble is with the expected returns in the next 10 Years. Just as winning two Superbowls in a row is hard, a 7.3% average annual return will be very difficult to repeat!

Source: Above mentioned article

The problem stems from the weights, and therefore returns, used in the asset allocation. Based on a 10 Year optimization (with constraints - see article) over 42%

Every Friday the U.S. government's watchdog, the Commodity Futures Trading Commission (CFTC), releases the composition of futures markets, in a report known as the "Commitment of Traders", or COT to use trader's abbreviated vernacular. The data represents positions as of the previous Tuesday.

Last Friday's release showed that Gold (GLD) producers/merchants had the smallest net short position since November 17, 2008. Money Managers even had a smaller net long position then they did in GLD's major bottom in October of 2008! If an investor believes in contrary investing then now is the time to look for long entries in the gold market for at least a short term up move.

(Click to enlarge)

The CFTC reports how much in each category is long, short or spreading in the futures market. For my analysis I took the net percentage reported. I find this more meaningful than saying, "X is

The Philly Fed made investors concerned about the economy upon its release but another resource I use to gauge the strength of the economy -- the movement of railcars -- is confirming these bearish indications.

Obviously, commodities and goods have to be transported across the country in the supply chain to their final destination within the economy.

(Click to enlarge)

Source: railfax.transmatch.com

One can obviously see the pullback in the data during the financial crisis and recession, and the growth since then.

Now investors are left with the question of whether another recession is on the way, what with real GDP falling in the 4th Quarter of 2012.

Rail traffic has shown a contraction for most of 2013 and only recently made it up to unchanged. Even the growing "sectors" of rail traffic have witnessed a sharp drop compared to a year ago. This data is

On February 15, 2013, a day after its earnings release, General Motors (GM) filed its Annual Report with the SEC. Again, by looking in the footnotes an investor can see the credit quality of customers it sells vehicles to.

It can be found under "GM Financial Finance Receivables, Net (Notes)." GM North America grew sales 3.56% in the fourth quarter, but sales to customers with a credit score less than 540 still grew faster than this at 4.77%. The data for GM's subprime lending is shown in the tables below:

(click to enlarge)

Note: Amounts are in millions

(click to enlarge)

Source: credit-score-range.blogspot.com /

In the GM's conference call the company even stated:

"... GM Financial percentage of GM's U.S. consumer subprime financing and leasing was 20% on the quarter."

[and]

"Our U.S. subprime penetration in the fourth quarter has increased over the prior year to

General Motors (GM) reported full year 2012 earnings on February 14, 2013, and management was very happy with the results:

From every vantage point, 2012 was another solid year for General Motors. As you can see on slide two, we grew both our sales and top line revenue [and] in earned net income attributable to common stockholders of about $4.9 billion.

Source: Seeking Alpha Call Transcript

However, let's look at how GM "earned" this $4.9 billion. Below is a spreadsheet I made from GM's earnings release:

click to enlarge)

One can see that in 2012, GM "earned" $34.8 billion from income taxes (highlighted in orange), which then let the company report a profit to common shareholders.

I also computed GM's operating costs before goodwill was written down, since in 2012 GM wrote down goodwill by $27 billion, and found that operating income was -$3.2 billion in 2012 (highlighted

For years investors and traders have been speculating about how much central banks participate in the gold market (GLD). One knows about purchases and sales (eventually); but what about "off balance sheet" gold leasing? How much is supplied, via leases, to the gold market from a central bank's horde?

A small, glimpse into the dimly lit area of central bank gold leases was given recently by the central bank of Austria. From information it disclosed we can now reverse engineer the amount it leases to the gold market. An educated estimate is that 84 tons of gold is leased onto the market. This is approximately 30% of Austria's central bank's gold holdings, which we can now surmise are being supplied to the market. Below I show how I calculated this estimate from the information disclosed, and the effects on gold and foreign exchange analysis.

In response to a parliamentary question

Google, GOOG, reported earnings after the close on January 22, 2013. Investors' first reaction to these financial results was positive as the stock went up over 5% in after hours trading, to about $738.50, when I last looked.

This bullish attitude is reflected by the following quote:

"Business looked really strong, especially from a profitability perspective. They really grew their margins in the core business," said Sameet Sinha, an analyst with B. Riley Caris.

Many investors look at a company's EBIT, or income from operations, to check and evaluate the health of a company. So let's look at what GOOG reported and see how its margins are doing.

(click to enlarge)

One can see that "Income from operations" fell from $3,507 mm a year ago to $3,397 mm, as highlighted in red. But the analyst above spoke of the "core business," so let's look at the figures with

Most casual investors believe gold underperformed stocks in 2012. SPY went from $122.78 (dividend adjusted) on Dec. 30, 2011, to $142.41 on Dec. 31, 2012, a return of 15.99% (dividends included). GLD moved from $151.99 to $162.02 over the same time period to return 6.60% (data from Yahoo Finance).

Trivially, 15.99% > 6.60% and this leads too many investors to proclaim that gold has underperformed stocks. However, this initial investigation is superficial. Remember, the name of this website is "Seeking Alpha." Alpha refers to Jensen's alpha, which is explained in an article here. The article offers the following formula:

Click to enlarge images.

Since the risk-free rate is currently zero, the formula reduces to the following:

Alpha = Return - [Beta(GLD,SPY) * Return]

I calculated the beta, using Excel, for the daily returns of GLD and SPY to be .3022 over 2012. Hence, plugging all of the inputs

General Motors (GM) reported Q3 earnings on Halloween, October 31. This was greeted as a treat by the market as the stock rallied over 9.5% on the day from $23.28 to $25.50.

Readers should be aware of my previous negative stance on the company in articles such as GM: Caveat Emptor, GM: Caveat Emptor Update, and GM: Turbocharged By Subprime Under The Hood.

Indeed, GM is still being tuned up by extending subprime credit as found in the footnotes of its 10-Q filing. Accounts receivable with credit scores under 599 increased by $501 million, or 6.9%, in the Q3. This compares to a drop in sales of $38 million which is -0.1%.(click to enlarge)

One can add together the automotive and financial receivables and find that they grew over 12.4% in the quarter. Restricted Cash, as measured by Cash & Equivalents + Marketable Securities, rose

A little over a month ago I wrote about the bias that occurs around scheduled FOMC meeting dates. The original article and research can be found here.

The research found a bias for buying on the close of the day proceeding a scheduled FOMC announcement and then selling on the close of the announcement. For the SPY there was found an average return of .70% a trade, before costs, from 2007 until June of 2012. Indeed, on August 1, 2012, it was appearing this bias would continue as SPY gaped open from 137.71 to 138.70. This was an overnight move of approximately .7%.

(click to enlarge)

Source: Barchart.com

One can see this movement in the graph above. It shows that the high for the day was made in the opening minutes of trading for the day. It even appeared that the SPY might still return a very small positive

There is a lot of talk in the financial media about there being a "Bernanke Put" for the stock market. Indeed, some authors even believe there is a global central bank "put." This is the belief that the Fed Chairman will do whatever is necessary to keep the stock market and economy from going down. The notion was popularized in the 1990s under former chairman Alan Greenspan.

The rest of this article will, for the sake of argument, take the premise of Ben Bernanke providing puts to the stock market to be true. Let me be clear, I am not claiming this is in fact true, but only using it as a reasoning device. With that said, what are the consequences of Bernanke selling puts to the market?

First, let's look at the equation for put-call parity for a European Option:

Call + Cash (Present Value [P.V.]) = Put

This week I was researching U.S. Government data for corporate profits. The data can be found on the BEA website. I looked at the "peak" year in corporate profits prior to the 2008 financial crisis.

The year was 2006, two years before the financial crisis. Housing was booming. Sub-prime loans were thought to "help" people, according to most politicians. CDOs would provide "AAA" high yields to investors. And fixed income hedge funds were "hip" and their managers the next "masters of the universe."

Then things changed in 2008. However, I will digress and not explain why but simply move on to what happened to corporate profits over the business cycle. Looking from 2006 - 2011 corporate profits grew by about $219 Billion. However, most of this growth came from outside of the U.S., around $182 Billion. U.S. domestic industries grew by only $36.6 Billion.

Now the U.S. growth figure

The USDA released its latest corn crop estimates today in its WASDE report. It reported an average yield per acre of 123.4 b/a, which was a significant drop from the July estimate of 146 b/a. I had written about a potential large drop in an article a week ago. This drop in yields caused the USDA to report:

Ending stocks for 2012/13 are projected at 650 million bushels, 533 million lower and the smallest carryout since 1995/96. The 2012/13 season-average farm price for corn is projected at a record $7.50 to $8.90 per bushel, up sharply from the $5.40 to $6.40 per bushel projected in July. (my emphasis)

Wow, a record farm price of $7.50 - $8.90, which I will round up to $9.00 even. However, this is priced in nominal terms -- it is not adjusted for inflation. Below is a chart from 1866 to

In late June, I wrote about the potential of a bull market occurring in the corn market. On August 10, 2012, the USDA will release its most recent estimate of the yield and size of the U.S. Corn crop in its WASDE report. The last report, released on July 11, dropped the yield estimate from 166 to 146 bushels/acre( b/a).

At that time, the percentage of the U.S. corn crop rated excellent or good was 40%. Because of high temperatures and lack of rain, crop conditions have continued to fall. The most recent release had crop conditions falling to 24% in the good to excellent category, and 48% in the poor or very poor category.

The previous year, I wrote an article that provided an econometric estimate of the August crop yield, after finding a statistically significant relationship between the crop condition in the combined excellent