Matt Blackman

Chart of the Day: Dollar/Equities Correlation

Welcome to a Made in Japan 1990 strategy in the US. Unless I am missing something, we should expect similar performance in the years to come. You can't repeal the laws of nature and natural selection in the corporate world without paying a heavy price.

We should sent Forest Gump to Washington. His message is something that Congress and the Fed should understand, "Stupid is as stupid does."

Will Regulation Hobble Capitalism?

Interesting article except for the fact that the government can't even come close to enforcing current regulations. Yes, there may be a need for some tweaks to present day regulations but could someone please explain just how is new reams of regulation and an even more bloated government sector is going to help markets?

The Gold Standard: As Relevant as Ever

Great article and a subject that is being pretty much ignored. Just finished Fiat Paper Money: The History and Evolution of our Currency by Ralph Foster which is a must read for anyone with any assets.

One important lesson from the book standouts out. Without exception , since the the first recorded use of fiat paper money in Szechwan, China in 1024 AD, every fiat paper currency since has suffered a strikingly similar fate. This set of events with different casts played out four more times over the next two centuries in China and then countless times in other parts of the world over the next nine hundred years in just about every civilized nation in the world. And although the characters and locations changed, the plot remained strikingly similar that like a Shakespearian tragedy, could be broken down into five all-too predictable acts including the death of the play’s central character – the currency.

See a more detailed discussion and link to book at tradesystemguru.com/co...

America: A Bona Fide Plutonomy

Interesting point but Michael Moore has yet again done his best to suck the public into his truth-distorted sensationalist mockumentary world. Those who take him seriously do so at their financial and intellectual peril.

But the Citigroup findings do bring up an interesting point. Although the top10% income group earned 43% of the total income, in the same year (2006) the top 10% paid 70.22% of total taxes in the US and this proportion has been steadily rising according to the National Taxpayers Union.

Translation? While the percentage income earned by the top brackets has been rising, the amount the government claws back through higher taxes is rising even faster.

But if the conclusion that the wealthy have done better through this meltdown versus the Great Depression is true, it means that all the stimulus money has had a proportionately greater benefit to the wealthy - most certainly an unintended consequence of the Obama plan that is designed to take more from the rich. But it would seem that the rich are better at catching the money being thrown out of Fed Reserve and government helicopters....

The Recession Is Over

Anyone who makes such a sweeping conclusion based on one indicator is a few bricks short of a full load. This rally and supposed recovery may be a real recovery but it also has a lot of similarities to past bear market rallies. In other words, your conclusion is little more than wishful thinking at this point!

The Perils of Data-Fitting

Interesting! I saw the Bloomberg chart posted on Zerohedge.com so did some of my own research pricing the two indexes (SPX and Nikkei) in gold. There is little doubt that the BAC analyst was grasping for straws...

See chart at tradesystemguru.com/co...

As you can see from the charts of the Nikkei and SPX (offset 10 years) they have been going in opposite directions for the last five years in real terms....

Marc Chandler's Compelling Perspective in 'Making Sense of the Dollar'

Marc C;
So are you saying then that total credit market debt of $53 trillion (Q1-09) which is 375% of GDP and has grown 35% faster than GDP since 2000 is a good thing? And is such a situation sustainable?

Here are some fun numbers. Take TCMD of $53 trillion and add total unfunded liabilities of $59 trillion (usdebtclock.org) = $112 trillion.

Now divide by the current estimated number of US households of around 118 million.

Total = $950,000 per US household (unless I've misplaced a zero somewhere). A sobering number but what is more sobering is the rate at which total debt is growing relative to national economic output.

Chart US Treasury international capital flows (line 30) of the Treasury report and you will see 2 things - 1) A strong negative trend and 2) A rapidly widening gap between US government monthly deficit demand and the supply of Treasury buyers (see 4th chart at tradesystemguru.com/co.../ ).

Given the size of debt (govt and otherwise) and the rate at which its growing, how long before debt demand outstrips the supply of dollars from those buying Tbonds? Or is that a healthy thing as well?

The Unemployment Picture

A comparison between today's unemployment rate of 9.4% and that of the 1980s is not valid since the way unemployment is calculated has been drastically altered by successive administrations. If we calculate unemployment as it was before changes were made, the unemployment rate today is 20.6% ( tradesystemguru.com/co.../ ).

Bernanke Is a Man with a Plan

I wonder who Bernanke is trying to kid with a piece that opens, "The depth and breadth of the global recession has required a highly accommodative monetary policy..."?

The Fed's "highly accommodative monetary policy" is what got us into this mess in the first place. The rest of the article represents some of the most blatant spin-doctoring we have seen in the last decade. So what does he mean when he says, "My colleagues and I believe that accommodative policies will likely be warranted for an extended period."? The Fed funds rate is now 0. Will the Fed start paying banks to access the discount window next?

I wonder how Mr. Bernanke figures the economy and American people will repay the more than $23 trillion (latest total bailout package cost from the special inspector general for the Treasury's Troubled Asset Relief Program..)? Is it any coincidence that Obama's goal is to raise tax revenues 40% by 2013?

Finally, when are investors going to wake up and realize just how challenging the investment environment will be over the next decade?

Canada vs. U.S. - Whose Banks Are Safer?

Interesting analysis. But anyone who thinks the Canadian housing market will avoid the global downdraft is deluding themselves. Some very good research has been conducted by BMO Capital Market's Doug Porter who showed a very convincing 2 year lag between Canadian and US housing prices. So although the Canadian housing market appears to be in better shape, their downward cycle just began last year and I expect prices here will drop a minimum 25% if not more. The amount of the final correction will depend on how bad this recession gets...

As long as housing prices fall, Canadian banks will suffer downward earnings pressure which means lower stock prices.

Animal Spirits: Rationality vs. Economics vs. Populism

Hold on. Hasn't the cash voucher idea already been tried? The Bush Administration earmarked $100 billion (or so) for tax rebates amounting to around $400 per taxpayer (if I remember correctly) and most intelligent economist and analysts agree that it was a colossal waste of money. Unfortunately, that hasn't stopped the new Administration from adopting a nearly identical program in TARP 2. which is by the way the single most costly item with a $116 billion price tag.

On another note, thanks again David for your attempt to re-affirm the efficient market hypothesis. Real traders know it for what it is, a complete myth but it keeps bringing investors back to the table so traders can take their money.

The Manipulation of Gold Prices

Does anyone know how to contact Dr; James Conrad (who wrote this article)? My search has come up blank.

Thanks,
Matt Blackman

It's 1974 for the U.S., but 1929 for China

And the Chrysler bailout didn't happen in 1974, it was 1980...

It's 1974 for the U.S., but 1929 for China

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President-Elect Obama and the U.S. Dollar

Interesting analysis. It is certainly not technically based. You mention that jobs losses are a lagging indicator - with very few exceptions all fundamental indicators lag. But your average number of jobs losses per month is wrong, the actual number is 93,900 (see chart 2 at tradesystemguru.com/co...). Also not sure about what you mean about some of the secondary statistics showing improvement. The latest ISM number of 38.7 is well below the contraction threshold and the lowest reading in more than 2 decades (see chart 1 at tradesystemguru.com/co... ) .

Another major challenge facing any sustained dollar rally is the deficit. If it soars to or above $1 trillion as projected, who is going to buy US Treasuries in sufficient amounts to finance it? Right now Treasury needs to sell more than $30 billion per month just to pay the roughly $400 billion annual deficit. That number will soar to above $80 billion/month in 2009 (based on the cost of the current crisis and Obama fiscal promises) and as you can see from the latest Net Treasure Income Flows, they are having trouble doing that now (see tradesystemguru.com/co... ).

I also agree with the above poster. At this point, who is in the White House is relatively unimportant for the time being. But if he follows through on his many promises, most of which are pro-tax & spend and anti-business, it will mean any recovery will take considerably longer to take effect.

Maybe the dollar will continue to rally from here but your article did little to explain how. With a target rate of 1% (with an effective fed funds rate of 0.30%) the US has the lowest interest rates of any OECD country with the exception of Japan and will bring that rate to zero based on the strategy in Washington.