Ned Brines

Weekly Market Notes: Jobs Summit a Success - Just Look at Employment Numbers

Deregulation has its pros and cons, and like all dogmas can be taken too far. The obvious mistake (among many) was the repeal of Glass Steagall. Let banks bank, let investment banks take risk, let insurers insure. Don't mix the three.


On Dec 07 08:51 AM kingaj12 wrote:

> Good stuff Ned.
>
> For the "anarchy is best" crowd, though, I do have to observe that
> the credit bubbles appear to coincide with periods of major financial
> sector deregulation and/or unregulated activity.
>
> So, please advise: how does the argument go? Partial deregulation
> is worse than no regulation?

Weekly Market Notes: Jobs Summit a Success - Just Look at Employment Numbers

Agree-both groups have been complete morons.


On Dec 07 08:35 AM MarketGuy wrote:

> Fantastic round-up article Ned. Many of your points, the TARP points
> in particular, are what I've been touting for some time now.
>
> My only comment is with your "political appointee experience chart",
> we see opposite ends of the spectrum with GWB and Obama with different,
> but equally devastating, results. It may prove several things:<br/>1.
> A balance is essential for governing success or,
> 2. "It's the government stupid", and doesn't matter anyway because
> there's always Congress there to throw a stick in the spokes. (a
> bit more on the cynical side, I know)

Weekly Market Notes: Jobs Summit a Success - Just Look at Employment Numbers

enigmaman-the average investor should be cautious. We have been advocating higher quality names at reasonable valuations. There are still high quality companies out there (think some of the multinationals like JNJ), however, valuations are getting stretched. From an equity standpoint I'd be taking profits on higher beta, lower quality companies (think small caps, energy and tech).

From an asset allocation standpoint it's a bit of a conundrum. On one hand treasury bonds are extremely overvalued, yet corporates have also moved. There are some opportunities in munis, but stay away from anything that isn't a GO (general obligation bond). That means avoiding project related munis such as toll roads, bridges, etc that aren't repaid from the general budget.


On Dec 07 08:15 AM enigmaman wrote:

> And the over riding good news is, what? What or where is the opportunity
> for the average investor?

Weekly Market Notes: Jobs Summit a Success - Just Look at Employment Numbers

Papaswamp-we show those numbers quite often. The title of the note was obviously very tonque in cheek. Longer term readers know that I am very skeptical of the government statistics. Sometimes they are so obviously manipulated that they don't deserve comment.


On Dec 07 06:16 AM Papaswamp wrote:

> How about showing a total number of those 'no longer in workforce'?
> The government is merely peeling a larger percentage of unemployed
> from the stats making it appear the unemployment rate is going down.
> It seems they really are trying to talk their way our of this recession.
> 'Convince people everything is better and it will be.'
> This tells me that the economy is so bad nothing can be done. Our
> debt insurmountable, similar to Japan, that this is the new normal
> everything is ok level."

Weekly Market Notes: Don't Fight the Fed

Here is the exact quote "Now the Fed wants to be the systemic risk regulator. But the Fed is the systemic risk. Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem. I am not going to go along with that and will use all my powers as a Senator to stop any new powers going to the Fed. Instead, we should give them less to do so they can do it right, either by taking away their monetary policy responsibility or by requiring them to focus only on inflation."


On Nov 09 11:15 AM Rick S. wrote:

> Did Senator Bunning actually say "systematic risk"? Twice?
>
> When you don't have the right word, you very likely don't have the
> correct concept either.

Weekly Market Notes: Finish Line Is in Sight

I'll dig around and see what I can find on the growth of food stamps. It is logical that usage is at an all time high on an absolute basis as the total number of unemployed, under-employed, and those near the poverty level has never been higher. On a percentage basis this period is second to the '30's. Also, I'm not sure when the food stamp program came into existence. As I think of the famous soup kitchen lines of the '30's, it makes me wonder if food stamps existed then or were another outgrowth of that downturn?

Weekly Market Notes: Finish Line Is in Sight

As Alan Reynolds said "Unfortunately, the eternal ambition of Robin Hood economics is to steal money from those who earned it and "redistribute" it to those with more political clout." Regarding the income contribution of the top 5% in CA, I don't have that number in my hands right now (will obtain and post it later). The most recent figures I can find on a national basis come from CBO estimates which show that in 2003 the top 10% of earners accounted for 38.3% of pretax income and 33.7% of post-tax income versus 39.3% of pretax income in 1979. Nationally the top 10% paid over 70% of the personal income taxes in the US in 2007 (and 66% in 2003). They are paying more than 2x their share of the income. The numbers for the top 5% and 1% are even more concentrated, paying 61% and 40% respectively.


On Oct 26 11:20 PM User 425118 wrote:

> What % does the top 5% make of the state's income? If it's 80% and
> they only pay 55% of the taxes then the fairness issue shifts from
> your conclusion, on the other hand if they earn less than 55% of
> the state's income then your argument is correct.

Weekly Market Notes: 2.6% Market Gain Relatively Ho-Hum

Thanks, I saw David's note and agree. I too remember placing buy orders on the crash in October 1987-had to wait 2-3 days for trade confirms. Early in 2008 I wrote extensively about the similarities between that market and 1987. The biggest difference today is that yields haven't backed up, they seem to be in a trading range. If you recall in 1987 the market ran through the first 8 months of the year while bonds fell the entire time.

Today the bull/bear camp on bonds is looking at flat to negative GDP growth versus longer term concerns about inflation due to the dollar. David is more focused on near term deflation, and if you look at the capacity utilization numbers, soft demand, and consumer balance sheets that viewpoint makes sense if you are only concerned about supply-constrained inflation. The type of inflation we are concerned about is one caused by a declining dollar, which would drive up the cost of imports and commodities, regardless of domestic demand.

To me the economy looks more like 1974-75, while the stock market has similarities to any of the last three years of the 90's or 2003-each of which was driven by loose monetary policy driving excess capital into an economy which couldn't absorb it.

Thanks for the note.

Weekly Market Notes: On the Verge of Recovery?

That is why the question mark is in the title, because we feel there is a very long way to go. Long time readers know that we have been very cautious since mid 2006, and have also been very accurate on the bear market rallies and subsequent pullbacks over the past 9+ months.

"Our view is that while the economy could technically emerge from the recession sometime in the next two quarters, growth will be extremely slow. Additionally, we feel there is a significant risk of a double dip recession, much like the one in the early 1980s. What will this mean for the markets? Buy and hold will be a rough way to make any money in this type of environment."


On Jul 20 07:12 PM WAKEUP wrote:

> "On the Verge of Recovery?" Maybe, if we consider the "verge" to
> be light-years wide.

Weekly Market Notes: Calm Before the Earnings Storm

That correction is in the works, and thanks for the note. That's what happens when you write at 1:30 AM.


On Jul 13 08:59 AM Roger Knights wrote:

> "Nouriel Roubini, author of the Black Swan ..."
>
> Nope, that was Nassim Taleb.

Weekly Market Notes: Milton Friedman vs. Ben Bernanke

You should have read the next line where I said I missed the bottom by a country mile.

Weekly Market Notes: Milton Friedman vs. Ben Bernanke

It sounds like you are accusing me of being a capitalist like it is something bad. I am proud to be a capitalist, because the alternatives are pretty unpalatable. I believe there should be little or no capital gains for three reasons. First, this money has already been taxed (typically at marginal rates which are confiscatory), so why should it be taxed again? Second, capital investments provide companies with non-debt financing, enabling them to expand plant, equipment, and hiring-all of which we are sorely in need of today. Third, the taxation of capital is skewed to overly penalize gains versus losses since losses can't be used to offset ordinary income (beyond $3K per year). I don't believe in directing, rewarding, or penalizing behavior with the tax code, and am against tax credits and deductions (although I am for a home ownership deduction, but not based on mortgage interest paid which just encourages people to take on more debt, but instead a flat annual credit).

I am also a Libertarian, and believe that the best government is..., well, it doesn't exist. So the next best government is one whose mandate is limited and is constantly starved of cash.

As far as my view on how people earn their profits and your comment that it is part of the same attitude which caused the present financial catastrophe, you are off base. First, I didn't say that it didn't matter how people made their money-I said the timing of capital gains shouldn't make a difference in how these gains are taxed. I'd say that imaginary oversight by regulators and financial institutions, a lack of common sense and understanding of leverage by a delusional public, a Federal Reserve Chairman bent on creating his own legacy, complete disregard for credit standards, a lack of due diligence by investors in esoteric securities, an unregulated shadow banking system created by too much margin credit, and the repeal of Glass-Steagal are some of the main causes of our present situation. Don't be fooled by the rhetoric coming from Washington which blames compensation structures for this crisis. This is just another way to move the blame away from DC, and in case you haven't noticed, while the press has been busily looking for someone to blame, they are overlooking the rapid onslaught of a European type government structure in the US. Europe is a great place to visit, however, there is a reason that economic growth has been stagnant there since the 50's.

In investing the only one "right" is the market, everyone else just has opinions. Whether my view on capital gains is right or wrong is irrelevant given the fact it will probably never happen, just as your view that it would add to the financial problems of this country is also irrelevant for the same reason.

Happy investing.

Weekly Outlook: Japan to the Rescue!

Lawrence-the current recession is the gray bar at the bottom of the chart (starting December 2007).

What I didn't publish is that Ed also missed the entire economic expansion of the 90's, waiting for the next recession. He still had his recession call active when the 2001 recession hit. Even as late as Spring 2008 he was thinking this would be a mid-cycle correction as opposed to a recession.

Ed does great work and has unbelievable data series and I really enjoy his work. That being said, I try to use lots of data providers to create my own macro outlook.


On Jun 15 11:18 AM Lawrence of London wrote:

> "Ed Hyman of ISI, who successfully called the 1991 recession..."
>
>
> An interesting call as this recession doesn't appear on the chart!

Weekly Outlook: Japan to the Rescue!

The title was tongue in cheek. In older notes I have had a long running theme about the structural difficulties facing Japan as they have failed to emerge from the malaise created by their financial crisis.

Without getting into too many details, I have also tracked and noted many comparisons to Japan and the US, not the least of which are the demographics and banking similarities.


On Jun 15 10:45 AM Mad Hedge Fund Trader wrote:

> Don't expect Japan to rescue anyone. You know things are bad when
> traders celebrate a Q1 GDP of minus 4%, better than the 4.4% that
> had been forecast, but still the worst in history. The main causes
> were a 26% decline in exports and a strong yen, which diluted foreign
> profits. Apparently, people don’t rush out and buy a new Lexus when
> they lose their jobs. Many economists are hoping for a recovery when
> the government’s $160 billion stimulus package hits seriously pared
> back inventories. However, global asset allocators are facing a
> larger quandary. What is Japan’s role in the “new” world? It is not
> an emerging market, nor is it Europe or the US. It is on the doorstep
> of the world’s worst demographic problem, and its labor is not exactly
> cheap. But chastened by its own financial crisis that started 20
> years ago, it has some of the few global banks left standing, as
> well as some world beating companies, and a great neighborhood customer
> in China. As American power declines, will it fall into the Chinese
> orbit? Maybe country allocations don’t matter anymore. Until either
> the Japanese or I figure this out, I’d rather stand aside. This is
> coming from someone who lived there ten years

Weekly Outlook: Japan to the Rescue!

I don't disagree with your comment about the IMF. What it does represent is a tidal shift of sentiment by the world's emerging economies away from the dollar. Why? Because we have been horrible stewards of our currency. As always, much of this is posturing by these countries in an effort to force the US to treat the dollar with respect.


On Jun 15 06:54 AM Moon Kil Woong wrote:

> The IMF becoming a competing currency with the dollar is laughable.
> For one thing the US is the biggest donor to the IMF. Perhaps that's
> why they don't reccomend an austerity program for this beleaugered
> country that is heavily in debt. Surely if it were anyone else they
> would.