Saturday, November 28, 2009

Hush... Hush...

Hush... Hush...
If you have not heard by now Dubai hit a proverbial bump in the financial road... According to sources, Dubai has asked creditors to forestall a 60 billion dollar loan repayment scheme until spring. This really wasn't new news. The story was out on Tuesday to be exact. And there was little to no reaction that day. So the day before Thanksgiving, I flipped on Fox News, and there was a heightened sense of fear with Dow Futures indicating a 232 point drop at the opening.

China was first to react by claiming the Chinese creditors had little to no exposure.. or should we say minimal exposure to Dubai... Later, banking analyst sensation Dick Bove followed suit claiming that U.S. financial interests had little exposure to Dubai as well.

This leads us to the next point. Maybe just maybe international banks do have less exposure to Dubai. But no one is asking whether Dubai has exposure to our markets. For instance, Dubai's sovereign fund was specifically mentioned in the bailouts of Citi and MGM's City Center in Las Vegas. Is there a correlation? I don't know but let the record state that something it rotten in Dubai... and I believe it is their investments in a few American interests. If this is the case, the specter of systemic risk will again rear its ugly head just when we thought the markets were well on the road to recovery.

Hush, Hush, Helicopter Ben and Tim Geithner will undoubtedly knock on the right doors to keep our market floating. However, Ron Paul's push to audit the Fed easily made it out of conference committee, and will soon head to the House floor for a formal vote. This alone could do a considerable amount to rattle financial markets. However, I am certain the Senate will derail this bill. Come what may, the Senate is not as closely linked to the citizenry, and that will make it much easier to ignore a reactionary movement on Main Street, and bow down to pay homage to the powers that be on Wall Street.

Tuesday, November 10, 2009

Inflation... Inflation... Everywhere...

Inflation... Inflation... Everywhere...

My children have a kiddie pool. When we are not at the community pool, we fill the kiddie pool with the hose, and let them play. We will the pool with toys, squirt guns, and sponge balls. One time my daughter turned the hose back on and filled the pool to the rim. The pool filled so high that water started running over the sides, but it was such a slight over-flow that all the toys rose to the rim of the pool.

I think the equities market is a lot like that pool. The government has turned on the spigot and allowed Treasury to continue pumping money into the economy to avoid a depression. Loans are cheap, money is readily available (to those who qualify), and Obama et al. have parlayed a recovery to easy money and government spending. Trading volume of this "rally" is still low compared to 2007. And it would appear to any outsider that Wall Street has utilized the easy Fed. money to create a rally in which they have been the primary beneficiary. All that money flowing through the economy has also created an effect just like the kiddie pool. Equities have risen right along with inflation. However, one must note the continued deterioration of the U.S. Dollar and conversely the rise in metal prices in general, and gold in particular. When there was a gold standard this could never happen... Benton Woods has opened up Pandora's Box.

While the auto industry has reported signs of life with quarterly profits from Toyota and Ford, neither are willing to say that the red ink is over. Sure Cash for Clunkers gave them a profits jolt, let us understand that adrenalin injection is over. Sure reports are trickling out that Ford and Toyota are revamping plants to meet the anticipated recession end, most experts agree that non e of the manufacturers are out of the woods yet. Tom Libby who is President of the Society of Automobile Analysts believes that "even though the auto companies have done a good job cutting costs, that won't be enough to produce sustained profits unless there is a significant increase in demand for vehicles worldwide." It might be a good time to consider a short position on one of the automakers like Hyundai which saw record numbers during Cash for Clunkers.

John Williams makes a few assumption on the "real" state of the economy, and it is not good. His site entitled Shadow Government Statistics paints a rather grim picture of the real employment picture. According to one of the charts he has created, Williams suggests that "real" unemployment should be rolled into a number based on a collection of those who are 1. currently unemployed, 2. those who are unemployed and benefits have run out and 3. the under-employed. Williams' number reflect a 22.3% figure which even if moderately accurate belies a more troubling figure. That being said, it appears as though Williams' opinion is not important when it comes to rolling with this market. No news has been bad enough to derail this rally. However, should the inflation-equities factor through a tightening of rates, or a sopping up of dollars by Treasury, or a slower than expected recovery, they John Williams will be able to say "I told you so."

Wednesday, November 4, 2009

One for Me... One for You...

One for Me... One for You...
I guess I have always thought people from Ohio to be a little smarter than most others... Maybe in part due to the images from places like Texas, Nevada, and California... Maybe it is just a bit of the Midwestern common sense... Our work-ethic... Our lifestyle... Whatever it is, it just seemed like people from Ohio just had it together more than most other states... The Reverend Thomas Grey from NCALG told me ten years ago that Ohio is too smart to allow casinos into the state... Evidently, a lot has changed over the last 10 years.

Yesterday constituents from the states of Ohio voted to allow casino gambling in Cleveland, Columbus, Cincinnati, and Toledo. That in of itself is bad, but the average voter doesn't realize that the state constitution will now be amended for the the best interests of two private entities... Dan Gilbert (see Quicken Loans and The Cleveland Cavs) and Penn Gaming (see gambling operation in Pennsylvania). Sure there's the promise of jobs, tax revenue, and entertainment...but let's face it... the casino interests are only rich and opportunistic millionaires trying to become billionaires at the public's expense.

I explained to my students that Ohio has granted Dan Gilbert a piggy bank in Cleveland and Cincinatti that is guaranteed to take in more than it pays out... And that Gilbert and his casino cronnies were willing to spend more on this campaign than Obama did to win in last year's election. I wonder why anyone would spend $35 million on a campaign...

I'm not just a bit bitter about this whole thing... I am actually pissed off. This thing is a loser for the people of the state and it is another tear in our moral fabric. There are a couple of options:

1. Contact your State Congressman to support a ballot measure that would tax these institutions into oblivion.

Ohio House Ohio Senate
2. Do not go to these casino in hopes that they go belly up.

3. Support grass roots efforts for another referendum to strike casino gambling from the state.

A lot has changed in Cleveland over the past 100 years. In 1909 Standard Oil and John D. Rockefeller brought business and wealth to Northeastern Ohio. This created good jobs and many secondary businesses sprang up as a result. One hundred years later, we have replaced Standard Oil with a business doesn't give to Ohio, but only takes away. One thing is for certain, Gilbert is no Rockefeller.

Economic Watch...

Ax is right... This is one crazy market which really does not seem to have a real direction. Gold continues to inch up and silver is going along for the ride. But there really is no leader in the market anymore. I do note that China, India, and Saudi Arabia are hedging their bets in equities and the dollar by loading up on gold. (India finalized a purchase on two hundred meteric tons of gold from the IMF!!!) While this move could be good for India as a future hedge of inflation, let us not be fooled that it can also be seen as a hedge against future erosion of the U.S. Dollar.

I will look to enter into PQ calls again... 1/8s are sounding pretty attractive right now. As reports of China's oil consumption rose 14% yoy, the report was rather quick to brush off any suggestions that China would have little to no impact on global demand. Still though, if pundits are still preaching a recovery, then demand will automatically go up. I say this because there is no coincidence that Buffet's market saving announcement to purchase BNSF was done as a hedge against higher oil prices... somethng that inflation will naturally egg on!

I am counting on a dismal employment number Friday... followed by a further slash in consumer credit. Obama et al. may be looking for banks to start lending... the question is to who? For the full Economic Calendar click here.