Wrapping up 2010

Well, that's it. From a trading perspective, 2010 is dust and ashes. So, how did the year do?

The Dow closed at 11,577.51, up 1029.00 (9.75%) from 12/31/2009. The NASDAQ closed at 2652.87, up 359.95 (15.7%) from 12/31/2009. The S&P 500 closed at 1257.67, up 131.07 (11.63%) from 12/31/2009. Meanwhile, the 10 Year Treasury Yield Index closed at 33.05, down 5.04 (-13.23%). We won't know until January 7th how unemployment ended up for December, but it was at 10% at the end of December 2009 and last month's figures don't give us much hope that things will be better for this year[1].

The Center for Economics and Business Research is predicting doom for 2011, though. they predict that Spain and Italy will have to refinance around 400 billion euros of bonds in Q2 2011, triggering a new sovereign debt crisis in the European Union. This will weaken the euro further, causing the stronger economies of the EU[2] to consider abandoning the currency. This, plus their considered opinion that the nations wit weaker economies[3] will fail to take any meaningful steps towards becoming competitive, will destroy the euro as we know it. "We give [the euro] only a one in five chance of surviving in its present form for 10 years. If the euro doesn't break up, this could be the year when it weakens substantially toward parity with the dollar."

North Korea is learning to "Bend it like Beckham". The North Korean version presumably involves kneecapping the opposing team's goalie the night before the big game, accusing the kneecapped goalie of having provoked the attack, and then swearing to wage sacred war on anyone who attempts to press charges. Also, only the actual members of the soccer team get to eat; everyone else is encouraged by the Glorious Coach to embrace the "Let's Eat Two Meals Per Day Campaign" while they hunt rats and consider cannibalism[4].

China's President Hu Jintao announced his nation's 12th Five-Year Program, which aims to adopt a "proactive" fiscal policy and a "prudent' monetary policy. They will continue the "one country, two systems" policy with regards to Hong Kong[5]. They still also do not desire to replace the United States as the world's sole economic and political superpower. Really. Just ask them.

And on that note, have a happy new year!

[1] Even if they look better, they may not be better. Remember, if you give up on finding a job, you don't count as unemployed anymore.

[2] *cough*Germany*cough**cough*

[3] *cough*PIIGS*cough**cough*

[4] That may have gone to a darker place than I intended...

[5] That is, they're still a repressive Communist dictatorship. But Hong Kong can continue to be a collection of capitalist running dogs just so long as they produce a lot of wealth for China as a whole and specifically for the Party officials.

The Iraqi Dinar: Penny Stock, FOREX Style

Apparently, the new hotness for the get-rich-quick schemes on teh intarwebz is investing in the Iraqi Dinar. A representative web site for this may be found at, say, DinarTRADE[1] - which also offers investments in the Korean Won, the Chinese Yuan, the Vietnamese Dong, and an Afghanistan currency they can't even be bothered to name[2]. For what it's worth, DinarTRADE guarantees that the Dinar they sell "are 100% authentic and of non-criminal origin."[4]

So how does investing in Dinar make you richer than Croesus? Here's how DinarTRADE pitches it: "Picture Iraq as a company selling stock. Each Dinar you purchase represents a share in Iraq's bright future. As Iraq recovers from the removal of Saddam Hussein, and starts rebuilding, the country's infrastructure resumes production. Boasting the 3rd largest oil reserves in the world, Iraq's economy can only improve. The Dinar will appreciate in value as the oil driven economy booms." They then show an approximate exchange rate (as of 12/30/2010) showing $1 = 1168 Iraqi Dinars[5], and then show a chart showing how you can get fabulously wealthy if the value of the Dinar leaps upward to $0.01, $0.10, $0.20, $0.50, and $1.00.

They also, in an attempt to assure you that they are legitimate, give you a link to their registration with the US Treasury. All this means is that they have filed the Registration of Money Services Business form (FinCEN Form 107). A money services business is defined by the Financial Crimes Enforcement Network of the United States Department of the Treasury as "any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following capacities:

1. Currency dealer or exchanger
2. Check casher
3. Issuer of traveler's checks, money orders or stored value
4. Seller or redeemer of traveler's checks, money orders or stored value
5. Money transmitter
6. US Postal Service"

Notice that it says nothing about acting as a FOREX solicitor. That's because FinCEN form 107 has nothing to do with FOREX trading. All persons and organizations that intend to do business as futures professionals must, under the Commodity Exchange Act, register with the National Futures Association (NFA). If a group - like DinarTRADE - is only citing their completion of FinCEN form 107 while selling you a story about how you will get rich through investment in Dinars, they are vigorously exploiting a loophole. They are not legitimate Retail Foreign Exchange Dealers.

Now, I could continue to make fun of their web sites and their advertising pitches and the fact that they really aren't what they imply through their ad copies[6]. But really. That's like taking candy from a baby. A small baby. One that hasn't learned to walk, yet. Instead, let's review their claims, which boil down to "if the Iraqi Dinar goes up in value, you will be mad bags of money, filthy disgusting rich!"

Technically, this is true. However, using their own $1 to 1168 IQD figure, buying Iraqi Dinars is something like buying a pink sheet stock trading at $0.0008561 per share. Sure, if it goes up, you stand to get rich. If it goes up. If Iraq doesn't dissolve into civil war. If Iraq doesn't begin to experience massive bouts of hyperinflation. If the United States doesn't just pull out, leaving their infrastructure shattered and their nation vulnerable to attack by Iran. Assuming they don't revalue the Dinar, making the old notes worthless.

Their claims also include a second serious flaw: "Picture Iraq as a company selling stock." This is not actually true. Paper money is constantly being printed, in whatever quantities the government needs, for whatever purposes they want. It would be slightly more accurate (well, slightly less inaccurate) to compare Iraq to a mutual fund company, because Iraq stands ready to constantly issue new shares. But not to redeem existing shares. Or to pay dividends. Or do anything else a mutual fund company would do.

In a nutshell, investing in the Iraqi Dinar is not a guaranteed get-rich scheme. At best, it is to FOREX trading what penny stocks are to equity trading. At worst, it is a scam.

[1] "Investing in your future"

[2] Two things here: first, the Afghanistan currency is the afghani. Second, if your foreign currency supplier can't even tell you the name of the currency, think long and hard about how wise it is to buy from them.[3]

[3] Answer: not very. (And yes, I'm aware that I've footnoted a footnote.)

[4] Well. I feel better now.

[5] Oanda, a real FOREX site, shows the Interbank exchange at 1181.530 Dinar to the dollar for 12/30/2010. So that's a 1.15% premium.

[6] Remember, DinarTRADE isn't the focus of this article. It's a representative sample.

Farm Prices, Farm Costs, and the Money Supply

Internationally and here in the states, there are no economic measures due to be reported. None. Zip. Nada. There are a few items from yesterday,though.

The Agricultural Prices report was released yesterday, falling unperceived and uncared for on the ears of the market. The All Farm Products Index of Prices Received by Farmers was up 0.6% in December (up 19% for the year), with the Crop Index up 1.1% and the Livestock Index down 0.7%. Meanwhile, the December Index of Prices Paid for Commodities and Services, Interest, Taxes, and Farm Wage Rates[1], which tracks changes in the costs of farmers, was up 1.6% in December and 7.3% for the year. There's a lot of data in the report, showing that you can expect to continue to pay more for your food in 2011 than you did in 2010, but who cares? That's all irrelevant noise, wisely ignored by those who calculate inflation[2].

Does anyone remember "Big" Ben Bernanke's December 5th interview with 60 Minutes? If so, do you remember him saying this: "One myth that's out there is that what we're doing is printing money. We're not printing money. the amount of currency in circulation is not changing. The money supply is not changing in any significant way." Well, the Federal Reserve's Money Stock Measures report came out yesterday. It shows a 2.9% increase in M1 money supply[3] from October to November (a 9% increase from January), and a 0.4% increase in M2[4] from October to November (a 3.7% increase from January).

Technically, "Big" Ben is probably right. The Fed probably isn't working the presses and generating more physical currency. But, through the magic of fractional-reserve banking, the Fed doesn't have to print physical money to increase the money supply by 2.9% in one month.

Oh, and that 9% increase in M1 in 11 months? That's pretty much the reason people are concerned about inflation.

[1] This has the helpful acronym "PPITW".

[2] If it's not core to inflation, it does it really impact your pocketbook?

[3] That's currency in circulation plus traveler's checks in circulation plus demand deposits plus other checkable deposits.

[4] That's M1 plus savings deposits plus time deposits less than $100,000 plus money-market deposit accounts for individuals.

Good News Is No News, Apparently

We had good economic data today. First time jobless claims were good. The Chicago PMI was spectacular. Pending home sales, which I forgot about entirely today, were up 290 bps to a level of 92.2. So naturally, the markets heaved a sigh of disgust and slunk a short distance into the red to sulk (Dow down 15.67, NASDAQ down 3.95, S&P 500 down 1.90). All told, it was a day filled with "meh".

Why should this be? Well, a few things crop up. A lot of the big traders have already closed their books out on yesterday's marginal high note, which has cut liquidity in the market (which always causes volatility in prices). We've got a weak dollar, with investors expecting it to weaken even further as the Fed churns the money out. In fact, the dollar lost out against both the Swiss franc and the euro (which is kind of sad, as the euro also lost out against the Swiss franc).

All in all, it feels like much of the market has already taken off for the weekend.

They Cite CPI, You Cite Chicago PMI.

Remember how I said that the analysts were looking for a contraction to a level of 62.0%? Yeah, well, we did a little better than that. the business barometer hit a seasonally adjusted 68.6%, marking a 610 bps increase. Production has hit the highest levels since October 2004, and employment hit the highest level in more than 5 years.

Sure, it's just Chicago. But the Chicago PMI is seen as a barometer for the whole nation. Because that's the Chicago way!

China In The News (Again), New Vatican Bank Rules, And First Time Jobless Claims

Looking to the global picture first, China is in the news[1]. They've released their Purchasing Managers Index, which dropped from 55.3% in November to 54.4% in December. Even though that's still considered to be an expansion in the marketing sector[2], this does indicate that manufacturing growth is slowing.

In further Chinese news, Jiang Yu has reiterated China's position that they are fully entitled to regulate the mining and exporting of their own nation's rare earth resources. "In the future, China will continue to supply rare earths to the international market and will take effective management steps over their export in accordance with WTO rules." Translated, this says "It's our stuff. It's in our nation. You don't like it? Wah."

Spinning round the globe to Europe, Italy reported a 0.4% increase in the PPI for November (putting it up 60 bps, and at 4.1% for the rolling year). That's not great news for one of the PIIGS, since it's a pretty good indicator that CPI will be going up over the next month or so.

European share trading in general is down a little right now, mostly on declining energy stocks and concerns about the "euro zone debt crisis". Copper prices have hit a new high ($9550 per ton) on expectations of rising emerging nations demand, and US crude oil prices are still near a two-year high. The dollar, on the other hand, is dropping like a stone - everybody expects the Fed's quantitative easing program to churn out more US currency in 2011 - bringing it to a 20-year low against the Australian dollar, a seven-week low against the yen, and a six-month low against the yuan.

Also in European news, Pope Benedict XVI has signed off on new rules to bring the Vatican's banking regulations in line with EU banking regulations. Why? Because Rome prosecutors have put the director of the Vatican Bank[3] and his deputy under criminal investigation for possible money laundering, and have seized 23 million euros worth of Vatican deposits at an Italian commercial bank (which were allegedly deposited without proper identification of the depositor or the recipient). Also, they have until tomorrow to bring themselves into compliance with EU banking regulations[4].

Moving westward across the Atlantic, the United States is braced for the First Time Jobless Claims for the week of Christmas with baited breath. For the week ending 12/18, we had 420k claims. Analysts are expecting a mild Christmas miracle (possibly driven by a last-minute surge in seasonal employment) which will hopefully bring Christmas cheer and a drop in first time claims to "only" 415k. Looking at the report, we see that the actual claims were only 388k - far, far better than expected.

So why are the futures flat? A couple of reasons, really. Everyone is still waiting to see the Chicago PMI (analysts are expecting a mild contraction in the growth rate to 62%) and the Pending Home Sales Index (no consensus yet).

[1] Isn't it always, these days?

[2] Any result over 50% is considered to be a sign of an expanding sector.

[3] Officially known as the Institute for Works of Religion.

[4] The EU, applying the "if it walks like a duck and quacks like a duck" rule, is no longer accepting the Vatican's position that the Institute for Works of Religion is not technically a bank.

Energy Stocks and Broken Trust

Once again, energy stocks seem to be driving the market. We're wrapping up the day up (mildly): the Dow closed up 9.84, the NASDAQ closed up 4.05, and the S&P 500 closed up 1.27. Chevron, ConocoPhillips and Exxon Mobile all hit 52-week highs today (before pulling back) - mostly on the fact that crude oil prices are near a 2-year high (thank you, Fimbulvetr!).

But, whatever good may have come from the Fimbulvetr's impact on those oil prices is more than being offset by the impact the blizzard (and the ravening packs of lean, hungry wolves) is having on retail sales. ShopperTrak is showing a 4.1% year over year decline in Christmas week retail sales, and is estimating that the blizzard has postponed about $1 billion in retail spending.

On the other hand, the S&P 500 is up 6.7% for the month (rising in 17 of the last 20 sessions). The bad news is that volume has been extremely light, indicating that investors are waiting to see if this is just a Santa Claus rally, or if this is sustainable.

In California, Operation Broken Trust strikes again. Winifred Jiau has been charged with one count of securities fraud and one count of conspiracy for leaking inside information about multiple publicly traded companies from 2006 - 2006. If convicted, she faces up to 20 years in prison.

German CPI, Rare Earth Excitement, and Man v. Internet

There's just not a lot of market data due out today. Germany has reported its Consumer Price Index for the month of December, and the news is brutal. In November, consumer prices rose 0.1%. For December, they rose 90 bps to 1.0%. But the German economy can take comfort in the fact that the entire jump was driven by the almost irrelevant forces of home energy, motor fuel, and food. If you strip all of that out and look solely at core CPI, prices haven't changed at all![1]

The Swiss KoF Leading Indicators[2] dropped 2 bps to a 2.10%; not great news, but it still points to a reasonable amount of growth in the Swiss economy.

Everybody in the world that is not China[3] is now complaining about China's move yesterday to cut exports of rare earth minerals. The US Trade Representative's office is "very concerned" about the quota reductions. The EU is demanding that China "respect its recent assurance of a guarantee of rare earth supplies to Europe". On the other hand, everyone in the world that isn't China that has the ability to mine these rare earth minerals is ecstatic. Demand for these rare earths is set to increase by more than 125% in the next 5 years, so that's money in the bank for anyone that can supply them.

Speaking of money in the bank, Paul Allen[4] is suing the entire internet for patent infringement. His suit claims that Interval Research holds patents on how data is related to information being browsed, the way information is relayed to a computer screen in an unobtrusive manner, and the way web browsers are alerted to new items of interest based on the activity of other users. AOL, Apple, eBay, Facebook, Google, Netflix, Office Depot, OfficeMax, Staples, Yahoo! and YouTube are the major companies named in the suit, which asks for damages and a ban on products that use the disputed patents[5].

Apple is also getting sued, in what the law firm bringing the suit hopes will become a class action lawsuit, over privacy issues. It is alleged that Apple apps "leak" personally identifiable data, despite Apple's policy that only allows data sharing if an app requires the information to keep running. Google may also face a similar lawsuit.

The SEC is also getting involved in the internet, by looking into trading in privately-held internet companies (such as Facebook and Twitter). It appears that there are some online trading services that allow trading of unlisted Internet firms, and the SEC would like some information about how the shares are being valued, and whether or not this trading violates SEC rules[6]. So far, the probe is in the early stages.

[1] Yay?

[2] A composite of business surveys from the industrial, retail, and wholesale sectors, used to try to project GDP growth about 8 months into the future.

[3] Still not wanting to replace the US as the world's sole economic and military superpower.

[4] Co-founder of Microsoft and founder of Interval Research Corporation, a company you probably have not heard of.

[5] This would include Google's search engine, iTunes, AOL Instant Messenger, Apple's Dashboard, Google Talk, Google's Gmail Notifier, and Google's Android phone system, just to name a few things.

[6] Specifically, private companies must either have fewer than 500 shareholders or else publically disclose significant financial information.

What Happened In The Market?

We had bad Case-Shiller and bad Consumer Confidence figures, and the markets still ended on the up side of mixed (Dow up 20.51, NASDAQ down 4.39, S&P 500 up 0.07). What happened?

Reuters, at least, gives the credit indirectly to the blizzard and directly to energy stocks being boosted by an increase in oil prices. Why the blizzard? It helped push oil prices near to a 26-month high (February oil futures were up $0.38 to $91.38 a barrel), and the rising oil prices helped push oil producers up in the markets.

I haven't seen the figures yet, but it wouldn't surprise me to see that commodities in general were either flat or down today - China announced that it will cut its export quotas for rare earth minerals[1] by 11.4%. This is a concern, because these elements are used in quite a bit of high-tech manufacturing[2], and because China produces something like 97% of these minerals. The EU, the United States, and Japan are particularly upset, and there is some possibility that the US will file a complaint with the World Trade Organization.

The Singapore Exchange is in the process of trying to take over the Australian Exchange to the tune of $8 billion US dollars. This is somewhat controversial in Australia, because their major exchange would become a subsidiary of the Singapore Exchange, and the government of Singapore owns 23.5% of the Singapore Exchange. As of December 15 the deal had been approved by the Australian Competition and Consumer Commission. Now it just has to be approved by the Treasurer of Australia, pass through the Australian Parliament[3], and then be approved by the Monetary Authority of Singapore. Investors are cautious.

[1] There's reasonable list available on Wikipedia.

[2] Wind turbines, hybrid cars, iPhones, flat screen TVs, and anything else that has a use for magnetism, luminescence, and strength.

[3] Which seems to be of the opinion that the merger is "fanatical marketism that is taking away our sovereign right to self determination"

Consumer Confidence Keeps On Slipping, Slipping, Slipping...

...into the future.

 

Consumer confidence is out.  Last month it came in at 54.1% (an increase), and analysts were expecting it to rise even further to 57.4%.  And did it?  No, not really.  The index actually fell180 bps to 52.5%, with the Present Situation Index dropping 200 bps to 23.5% and the Expectations Index dropping 170 bps to 73.6%.  Not such good news for December.

French GDP, Swiss Consumption, and the Case-Shiller HPI

Leaving Japan behind, we cast our eyes westward towards Europe and the United States. France reported its final revision for Q3 GDP, showing that it softened slightly in the third quarter (growing only 0.3%), with year over year growth remaining unchanged at 1.7%. UBS released its (Swiss) Consumption Index, showing growth in consumer spending decreasing 9 bps from October's 1.72% to November's 1.63%.

Also from Europe, Yves Mersch is now on record as saying that "the recent European proposals for reform of the economic governance of the euro area go in the right direction, but are not ambitious enough to ensure a healthy and efficient functioning of monetary union." He would like to see faster responses to excessive deficits, with automatic sanctions applied early. And why should anyone care what Yves Mersch says? Because he's on the Governing council of the European Central Bank, making him a voice that will be heard as debate about the future of the euro and the European Union continues.

Arriving in the howling arctic wastes that were once the eastern seaboard of the United States of America, the S&P/Case-Shiller Home Price Index is out. The 10-City Composite increased (barely) 0.2% while the 20-City Composite fell 0.8%, and home prices fell in all 20 metropolitan areas covered by the index.

Also in US news, the winter of our (fiscal) discontent is not made glorious summer by this son of Chicago. Not only do we not have a 2011 federal budget[1], now it has been announced that delivery of a FY 2012 budget will be delayed until around February 21. Mostly because the confirmation of the President's budget director wasn't finalized until November 18, and it takes a while to put a budget together.

Next up? Consumer confidence, in about half an hour.

[1] Blame for that can go to the Congress, though.

Turning Japanese

This update is brought to you by The Vapors.

Japan reported a massive load of economic data last night, enough that I'm not even going to play the "this is what was expected and this is what we got" game. Brace yourselves for a data dump.

CPI was nothing short of spectacular, falling 70 bps from 0.4% in October to -0.3% in November (and probably fueling deflationary fears). Core CPI fell 90 bps from 0.7% in October to -0.2% in November.

Household spending for a rolling twelve month period continued a downward trend. It was at -0.4% from October 2009 to October 2010, and was down another 0.4% from November 2009 to November 2010. Most of that drop was driven by clothing (down 7.8%), medical care (down 6.7%) and food (down 2.8%), balanced slightly by increases in spending on culture & recreation (up 14.9%) and housing (up 13.3%).

Unemployment stayed level from October to November, at 5.1%.

Industrial production increased 280 bps from October to November, climbing from -1.8% to 1.0% (that's rate of change; October saw production fall 1.8%, while November saw it rise 1.0%). The rolling year production rate increased as well, from 4.5% to 5.8%.

Retail sales climbed 150 bps, from the October year-over-year -0.2% to the November year-over-year 1.3%. I don't quite follow how household spending and the CPI can both decrease, only to see retail sales climb, but that's what happened.

Overall, the news was mixed. The Nikkei 225 seems to reflect that, with Bloomberg showing it closing down 0.61%,

Trading In A Winter Wonderland. Sorta. More Or Less.

Stock performance on Wall Street was mixed today (the Dow was down 18.46, the NASDAQ was up 1.67, the S&P 500 up 0.77, and the 10 Year Treasury Yield Index down 0.42), with blame being placed squarely on God and China.

God gets the blame because of a series of blizzards that have brought the Fimbulvetr[1] to the eastern coast of Canada and the United States. It's cancelled over 2000 flights, disrupted road and rail traffic, left tens of thousands of homes across the eastern seaboard without power, and - worst of all - threw a monkey wrench in the post-Christmas holiday sales. Yes, that's right. This massive blizzard could "push December 26 out of the running for one of the top 10 shopping days of the year." Sure puts that whole blizzard in perspective, doesn't it?

And China[2]? Well, they get the blame because - in what is obviously a Communist plot[3] - went and raised their benchmark lending rate and their benchmark deposit rate by 25 basis points each. Never mind that the Chinese central bank has been concerned about inflation, and so is taking steps to reign it in and keep their economy healthy. No, this was obviously a Communist plot deliberately timed to strike our economy at the same time as the blizzard[4].

Of course, things happened throughout the world without regard to the blizzard. Let's see what else is going on.

H&R Block was down 7% today on news that, thanks to the Office of the Comptroller of the Currency, they will not be allowed to offer tax refund anticipation loans. (Well, specifically, HSSBC can't offer them, and H&R Block uses HSBC.)

18 alleged militants were killed by missiles fired by US drones at the Mir Ali village in Pakistan. The people of Pakistan are not particularly amused.

Anyone remember AIG? Practically the poster child for the 2008 financial collapse? Something like 30 banks have banded together under the administration of JPMorgan Chase & Co to loan them $4.3 billion. That's "billion". With a "b". Assuming they can pay off their Federal Reserve Bank of New York credit line ($20 billion) by March 31.

Also, according to the European Union Times, it appears that WikiLeaks is set to reveal that the United States has been in a covert war against Antarctican UFOs since 2004.

[1] "Hard is it on earth, with mighty whoredom;

"Axe-time, sword-time, shields are sundered,

"Wind-time, wolf-time, ere the world falls,

"Nor ever shall men each other spare" sure seems to describe the current state of the economy.

[2] Still not wanting to replace the United States as the single dominant economic and military superpower in the world.

[3] Obviously.

[4]

Christmas Eve Eve News Wrap-Up

Let's see what we can see...

In a refreshing change of pace for a European nation, Standard & Poor's has maintained it's AAA rating on French sovereign debt. "The stable outlook is based on our view of the French government's substantial achievements with its budgetary consolidation strategy, enabling it to meet its fiscal targets through 2013." There had been some serious concern about the nation's credit rating, mostly due to it's public debt[1], and the cost of insurance for their debt has tripled this year.

Ireland's High Court ruled that Allied Irish Banks can be taken over by the Irish government without shareholder approval. This clears the way for Dublin to pump 3.7 billion euros[2] into AIB, taking their ownership stake from 19% to 92% in the process. (There are, in other words, legitimate reasons why AIB was down about 12% in trading today.) The company will also be delisting from the main Irish and London exchanges.

On the lighter side, an anonymous source at Wikileaks has leaked all of the quarter million or so US diplomatic cables and military records to the Norwegian Aftenposten news service. Quis effluiet ipsos effluoes?[3]

[1] France's public debt stands at 77.60% of GDP, which is worse than Portugal, Italy, or Spain.

[2] Which is about half of the 6.1 billion euros it needs by February 28th to hit its mandatory 12% capitalization.

[3] Who leaks the leakers?

Wrapping Up The Measures

Here's what I wrote earlier: "Consumer Sentiment, due at 9:55 AM EST, is expected to climb 80 bps to 75.0%. New Home Sales, due at 10 AM EST, are expected to climb 17k to 300k new units."

How did we actually do? Well, consumer confidence missed expectations, coming in at 74.5 for December. New home sales also missed expectations, with only 290k sales. Neither of these are considered major market movers, though, so they probably won't do much to shove the market down.

Probably.

Lucky Chinese PIIGS, Sacred (Crazy) War, And World Stocks

Anyone remember this quote from Monday? "Despite concerns from Friday, North Korea has not felt "any need to retaliate against every despicable provocation", and did not end up reigniting the shooting part of the as-yet unresolved Korean Conflict." Well, it's been three days and Pyongyang has apparently decided to change their minds on the subject. Now, Kim Yong-chun (the North Korean Minister of Armed Forces) is on record as saying that "to counter the enemy's intentional drive to push the situation to the brink of war, our revolutionary forces are making preparations to begin a sacred war at any moment necessary based on nuclear deterrent."[1]

China, which must be getting increasingly tired of North Korea[2], confirmed yesterday's report that it stands ready to bail out the PIIGS. Or, in the words of Foreign Ministry spokeswoman Jiang Yu from yesterday's press conference, "China-EU economic and trade cooperation is featured by mutual benefit, win-win outcome and sound development momentum. The two sides agree that in the context of slow recovery of the world economy and existence of many uncertainties and unstable factors, the two should strengthen cooperation for stable and healthy development of the two economies as well as strong, sustainable and balanced growth of the world economy."

And finally, in the (hopefully) good news category, the MSCI world equity index hit its highest level since September 2008 and is up nearly 10% just in 2010.

[1] Security analysts are pretty sure they don't actually have any way to launch the "nuclear deterrent".

[2] And which still doesn't want to replace the United States as the world's sole military and economic superpower. Really. Trust them.

Metrics? Yeah, We've Got Them

From all over the world, we have them. The majority are from the United States today, but we have an international coalition of economic activity to review.

Right off the bat, New Zealand has had some bad economic performance. Their Q2 GDP was revised downward to 0.1% growth. Analysts were looking for 0.2% growth for Q3, and were rather surprised to instead see a 0.2% decline. This puts their GDP up 1.4% for the rolling year, missing the expectation of 1.9% by 50 bps. The decline is largely blamed on the manufacturing sector (particularly petroleum, chemicals, plastics, rubber, and machinery and equipment manufacturing), although construction and real estate took a dive as well.

French Consumer Manufactured Good Consumption and PPI are out as well. October was a bad month for French manufacturers. Their PPI was up 0.8% (making production more expensive), and simultaneously consumption of manufactured goods was down a revised 0.6% (down 0.3% year over year). Greater costs plus less actual sales equals a manufacturing sector rocking back and forth in the corner muttering "Redrum, redrum, redrum"[1] over and over again. Did things get better in November, or do all work and no play make Jacque a dull boy?

Well, French manufactured good consumption was up 2.8% in November, beating expectations by 180 bps and bringing the rolling year figures up to 1.5% growth - most of it driven by a 15% increase in automobile sales. The PPI, meanwhile, was up 0.4% (exactly in line with expectations). After that, you'd think the CAC 40 would be doing better than it is today.

Leapfrogging across the Atlantic we arrive in Canada, where GDP (which was down 0.1% in September) is anticipated to be up 0.3% for October. Hope springs eternal, but has been dashed by a dose of cold reality - there was growth, but only 0.2%. This has also pulled their rolling year GDP down to only 3.3%. Weep for the Loonie, my friends. Weep for the Loonie.

And now, the United States! Right now we've got Durable Goods Orders, Personal Income and Outlays, and Jobless Claims. Later, we add Consumer Sentiment and New Home Sales to the mix.

Durable Goods Orders were down 3.3% in October, with analysts predicting a less pessimistic (but still not confident) increase to only down 1.0% for November. The actual Census Bureau report shows that we missed expectations, coming in at a 1.3% decline in durable goods orders. This was largely driven by a 11.9% decline in transportation equipment orders, mostly from nondefense aircraft and parts.

October Personal Income was up 0.5%, with consumer spending up 0.4% and the core PCE price index unchanged. For November, analysts are looking for 0.2% growth in personal income, 0.5% growth in consumer spending, and 0.1% growth in the price index. The Bureau of Economic analysis has not yet seen fit to make the official press release available, so we turn to Econoday to find Personal Income up 0.3% (beating expectations), consumer spending up .4% (missing expectations) and the core PCE price index up 0.1% (right in line with expectations).

First time jobless claims were revised upwards to 423k (up from the original report of only 420k) for the week ending 12/11, and analysts are expecting that same number to happen again for the week ending 12/18. Turning to the US Department of Labor, we see that the advance figure for the week ending 12/18 is 420k new claims - exactly in line with expectations. No single state really stood out with significant increases in first time jobless claims, while New York and North Carolina led the pack in reductions in new claims.

Consumer Sentiment, due at 9:55 AM EST, is expected to climb 80 bps to 75.0%. New Home Sales, due at 10 AM EST, are expected to climb 17k to 300k new units.

[1] Maybe that should be "Ertruem, ertruem, ertruem"?

Apps, Bills, Bonds, And Justice

Two important bills passed the Senate today. The first, known as the James Zadroga 9/11 health bill, provides 5 years of medical treatment (at a cost of $4.3 billion) for emergency responders with respiratory illnesses caused by inhaled dust from the World Trade Center. The up side is, of course, the simple fact that it's the right thing to do. The down side is that it adds another $860 million or so to the operating costs of the United States each year for the next 5 years, which will only compound everyone's concerns about the US budget deficit (particularly internationally, given the increasing concerns about sovereign debt). The other bill was the ratification of the nuclear arms control treaty with Russia[1], which requires both signatories to reduce their deployed long-range strategic nuclear missiles to no more than 1550, with no more than 700 deployed missile launchers. Peace in our time![2]

New York is in the news. Specifically, behold the new face of fear for Wall Street:

This is Eric Schneiderman, the New York Attorney General-elect. He has just named his deputies - I mean, his legal staff - and is getting ready to take over the civil fraud lawsuit against Ernst & Young.

Apple has dropped the WikiLeaks App[3], on the grounds that it violated Apple's developer guidelines. Apple does not appear particularly concerned about retaliation from Anonymous.

Oh, and last week saw the largest aggregate withdrawals from bond funds in more than two years ($8.62 billion, up from $1.66 billion for the week ending 12/8). Some analysts speculate that most of withdrawals were by instructional investors looking for better yields by directly buying bonds, although concern about interest rates drove some of it.

[1] Just check me on something. This is 2010, right?

[2] Pay no attention to the billions of dollars that will be spent to modernize the nukes that remain.

[3] Protecting banks that make money through the art of wrongful foreclosure? Yeah, there's an app for that.

POMO Days Are Here Again!

The sun is shining clear again!

We'll sing a song of cheer again!

POMO days are here again!

It's another outright coupon purchase today, looking for securities with a maturity/call date range of 2/15/2021 to 11/15/2027 (i.e. 11 to 17 years). $13,055 billion in assets were submitted to the program, and $2,070 million were purchased. Given the general laws of supply and demand[1], this would have driven prices down, so yields should be up. For these maturity ranges, anyway.

[1] A large supply drives prices down. A scarce supply drives prices up.

Existing Home Sales Are Not Good Enough

Not all that long ago, I wrote "The next big domestic economic measure due out today is existing home sales for November 2010. If you recall, October's sales were a depressing 4.43 million units (down 2.2% from September's 4.53 million units and missing expectations). Expectations are a little tamer (but still optimistic), with a consensus estimate for 4.75 million sales. The actual numbers aren't due out until 10 AM EST, though, so we have no idea (yet) how realistic that is."

Well, we now have an idea of how realistic that is. Not very. We came in at 4.68 million existing home sales in November. That's good - it's a 5.6% increase from October - but, since it missed expectations it will probably disappoint the Street.

A Day Full Of GDP Is Like A Day Full Of Sunshine

And today? Today has plenty of sunshine.

Great Britain reported it's final Q3 2010 GDP results about 4 hours ago. The first revision had put them at 0.8% growth for the quarter (with 2.8% growth from Q3 2009 to Q3 2010). Going into the day, analysts were expecting no change to the final revision. The final results, while not bad, did not quite live up to that expectation. Growth for the quarter was revised down to 0.7%, while year over year growth was revised downward to 2.7%. Mildly disappointing, but not (on its own, anyway) a source of soul-crushing despair.

US GDP is up next. The first revision put us at 2.5% growth for Q3 2010, with the price index[1] up 2.3%. The Street is feeling quite optimistic this morning, and is looking for the final revision to put us at 3.0% growth for Q3 with no change to the price index. Our results are slightly sunnier than Great Britain's, with the final revision of Q3 GDP revised upwards 2.6% and the price index revised downwards to 2.1%. Most of the GDP increase is credited to a "sharp deceleration in imports and an acceleration in private inventory investment".

The funny thing here? These results seem to have pushed the futures down. Go figure.

The next big domestic economic measure due out today is existing home sales for November 2010. If you recall, October's sales were a depressing 4.43 million units (down 2.2% from September's 4.53 million units and missing expectations). Expectations are a little tamer (but still optimistic), with a consensus estimate for 4.75 million sales. The actual numbers aren't due out until 10 AM EST, though, so we have no idea (yet) how realistic that is.

In the news, South Korea is continuing their largest peacetime military exercise ever. Mostly as a way of making President Lee Myung-bak look tough after what was commonly perceived as a "weak"[2] response to the shelling of Yeonpyeong Island. There has been no specific response to this from North Korea, to the shock of everyone and the disappointment of connoisseurs of fine crazy.

There was a three hour strike in Greece against the 2011 austerity measures about to be implemented by their parliament. So far, the strikers have managed not to murder anyone.

Speaking of the PIIGS, China[3] is coming to their rescue. They have struck a deal with Portugal to buy 4-5 billion euros of Portuguese sovereign debt. At least, that's what has been reported in the Jornal de Negocios. The euro is up in ecstatic jubilation on the news.

Closer to home, the Financial Report of the United States is out (you can choose to read either the 12 page Citizen's Guide or the 268 page full report), and it shows that the budget deficit has increased by 65.9% from FY 2009 to FY 2010 (in 2009 it was "only" a $1,253.7 billion deficit for the year, while in 2010 the deficit has increased to $2,080.3 billion).

And, wrapping up the GDP day, New Zealand's GDP is due out at 4:45 PM EST.

[1] Yet another measure of inflation.

[2] "Weak", because the word "sissy" rarely makes its way into Reuters. Although that's pretty much how the South Korean people looked at his response.

[3] Still not wanting to replace the United States as the sole superpower of the world - just ask them - and still tired of being treated like they're solely responsible for holding North Korea's leash.

"Outright Theft Is Consistent With Our Internal Policies"

Bank of America, which has seized the moral high ground by refusing to process any payments to WikiLeaks because it "may be engaged in activities that are, among other things, inconsistent with our internal policies for processing payments," is being sued for wrongful foreclosure.

Again.

In their defense, at least Ms. Ash was actually behind on her mortgage payments. This is not always the case.

Apparently, foreclosing on the homes of people who don't even have a mortgage is consistent with their internal policies for processing payments. It will be interesting to see what else is consistent with their internal policies.

Oh, and to quote WikiLeaks: "We ask that all people who love freedom close out their accounts at Bank of America."

Canada Has An Economy Too, Folks

And why should we care? We should care because Canada is the single largest trading partner the United States has. Our total trade[1] with Canada, for October alone, was $45.48 billion[2]. So it strikes me as just slightly important to pay attention to how they're doing.

Canada's CPI for November, and their retail sales figures for October, are out now. In October, Canadian CPI was up 0.7% for the month (and 2.4% for the rolling year). Expectations going in to this morning were an additional 0.3% increase for November (with the rolling year declining to a 2.3% increase). Meanwhile, Canadian Retail Sales were up a revised 0.4% in September (up 3.3% for the rolling year) with expectations for a slightly better October (up 0.5%).

How did our neighbors to the north fare? The CPI was up only 0.2% (2.0% for the rolling year), with 7 of the 8 CPI components increasing in cost[3]. The good news, for certain cynical values of "good", is that the core CPI was absolutely unchanged[4]. Turning to Retail Sales, October saw a 0.8% increase (maintaining the 3.3% rolling year increase).

[1] Defined here as the sum of exports and imports. Why the US Census Bureau doesn't break those out separately, I don' t know.
[2] China, our second largest trading partner, was only $44.12 billion.
[3] The exception was clothing and footware, which were down 3.2%.
[4] The Bank of Canada excludes the following extremely volatile consumer goods from their calculation of the core CPI: fruit, fruit preparations and nuts; vegetables and vegetable preparations; mortgage interest cost; natural gas; heating oil and other fuels; gasoline; inter-city transportation; and tobacco products and smokers' supplies.

Face Morphology, Budget Fail, and Repo 105

It's a short trading week going into Christmas, and there's plenty of odd little things happening in the news.

Right off the bat, UBS is in the news. Not for $17.2 billion in losses, or for $50 billion in mortgage writedowns, or for rolling over and releasing depositor information to the IRS (this time), or for the possibility that they will crush the Swiss economy. No, this time it's all about their dress code, and it includes highlights such as:

• "Leave, if possible, your outfit suspended in open air for two days after wearing. The fibers will gain rest and you will prolong the life span of your clothes."
• "At the neck, the shirt must be of sufficient magnitude to leave a space of at least one finger... The neck shirts must exceed approximately about 1 to 1.5 centimeter above the jacked collar..."
• "Don't wear the tie if it's not adapted to the morphology of the face."
• "Hands - do not have false nails and fancy colored nails"
• "Hair - don't have split ends"

Yes. It's nice to know they're focusing on what's important in this era of rising mistrust of financial institutions.

Despite concerns from Friday, North Korea has not felt "any need to retaliate against every despicable provocation", and did not end up reigniting the shooting part of the as-yet unresolved Korean Conflict. South Korean financial markets remain calm but concerned, but the cost of insuring South Korean sovereign debt is up 10%.

The United States still does not have a budget. The Senate is going to try and pass a temporary funding measure to get the government through to March 4, 2011, when it will be someone else's problem.

Ernst & Young LLC are about get sued by the New York State Attorney General's office over the collapse of Lehman Brothers. Why? Because Ernst & Young apparently advised them to use an accounting technique (Repo 105), which allowed them to hide $50 billion in liabilities. How? It would enter into repurchase agreements in which it would take (say) $100 in short term loans for each $105 in bonds it sold. Now, normal repurchase agreements are treated as collateralized short-term loans for accounting purchases (which is what they are). These "repo 105" repurchase agreements, because they're "sold" at a loss, get to be treated as actual sales on the books. So, they would sell under repo 105 just before the end of the quarter, take the "proceeds" of the "sales" to pay down debt, report that their end of quarter balance sheets looked pretty good, and then borrow money a bunch of money to buy the bonds back. It's not illegal, but the New York AG feels it was distinctly fraudulent.

The American Myth

So yesterday, the "don't ask don't tell" policy of the United States Armed Forces was repealed. And that set me to thinking.

It's really quite easy to get down on the United States, and the people who live in this nation. You look at current events and it all seems to be big business screwing the little guy for an extra percentage, or one set of corrupt politicians lying their way into electoral victories over another set of corrupt politicians so they can be the ones giving the electorate the finger, or the government grinding away at the rights of the people, or religious fanatics doing everything in their power to remake the world in their narrow and frightening world view, or any one of a thousand things that seems to make the world a sadder and grimmer place to live.

If you have a history degree, or even just an interest in the past that goes beyond the History Channel, it's even worse. Then it's easy to see the United States as the sum total of a legacy of genocide, colonialism, racism, sexism, religious hatred, and corruption. We - the United States - look like monsters viewed through the lens of history or current events.

Or, we can look that way. If all we focus on is the negatives.

The interesting thing is, in my opinion, that what we do really isn't all that different from what every other nation does (or would do, if they had our wealth and power). We get judged more harshly by outsiders, because we're doing it to them, instead of the other way around. And we get judged more harshly by ourselves, when we look at our behavior, because of... well...

Because we have a national mythology, that tells us we are better than that. We have a national mythology that we are a nation of free men and women, descended from people that came to this continent looking for a better life. A life where they could be free to worship and think and live freely, and where they could pass on that freedom to their children, and to their children's children. We have a national mythology that says that we are all equal before the law, that we all have the same opportunities, and that anyone - even the son of a poor immigrant - can be anything they want as long as they are willing to put in the work needed to achieve that goal. We have a national mythology that says we are the land of the free and the home of the brave, that we are great and good and generous, and that we saved the world from evil and made it safe for democracy.

Now the word "myth" comes from the Latin mythos, which comes from the Greek muthos. And what does "mythos" mean? "The complex of beliefs, values, attitudes, etc, characteristic of a specific group or society."

Like all other nations we have our flaws and our failings - and those flaws and failings are magnified a thousand-fold by our wealth, by our power, and by our influence on the world. But those flaws and those failings are not the whole story.

We are a great nation. We are a great nation because we believe our national mythology, because we value freedom and equality, because we want to be great and good and generous. For all of our failings, we keep trying. And look at what we have achieved.

My mother cannot remember a time in which women could not vote.

I cannot remember a time in which minorities could not vote.

My son will grow up in a time in which a black man was the President of the United States, and will - Gods willing - never remember a time in which a man or woman's sexual preference determined whether or not he or she could serve his or her country.

We are a great nation, because we believe our national mythology, because we want to be great and good and generous, and because we try our best to live up to those beliefs.

May we always be a great nation.

Madoff, The SEC, Tax "Compromise", And Predator Drones

Quick highlights to wrap up the day:

Jeffry Picower's estate has agreed to settle civil suits to the tune of $7.2 billion. What? He's not a household name? He was an investor in Bernie Madoff's trust fund, and he died back in October of 2009. The $7.2 billion represents the profits of his investment in the Madoff Ponzi Fund.

The SEC has issued subpoenas to a number of banks[1]. Why? It's the next step into their ongoing investigation of how they packaged mortgages for sale to investors. They're looking into the role of the "master servicers", which are the firms that select and maintain the pool of home loans that go into mortgage-backed securities. They also want to know how the performance of the underlying loans were monitored and whether or not the loans were properly transferred to the trusts. At least, that's what the anonymous source says, because it's not public. Why? Beats me[2].

President Obama signed the tax cut "compromise" bill into law today. Christmas is saved.

And we have apparently sent armed drones into Pakistan, where over 50 people have been killed. There's no word on whether or not we asked permission before violating Pakistani air space yet again[3], but we are being assured that only militants have been killed.

[1] Including Bank of America, JPMorgan Chase & Co, Goldman Sachs and Wells Fargo.

[2] It wouldn't be the first time the SEC hasn't bothered to really take action on information, though. I'm not saying that they're going to cover this up. Just that it wouldn't be the first time.

[3] Apparently we launch attack drones into Pakistan on a several times weekly basis.

Regional and State Employment and Unemployment (Monthly) News Release

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The latest Regional and State Employment and Unemployment news release (http://www.bls.gov/news.release/pdf/laus.pdf) was issued today by the Bureau of Labor Statistics. Highlights are below.
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In November 21 states and the District of Columbia had over-the-month unemployment rate increases, 15 had decreases, and 14 showed no change. Nonfarm payroll employment fell in 28 states, rose in 20 and the District of Columbia, and was unchanged in 2 states.

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News releases archives: http://www.bls.gov/schedule/archives/all_nr.htm
To subscribe or unsubscribe to BLS news releases please visit http://www.bls.gov/bls/list.htm
For help, email news_service@bls.gov
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Forecast Is for "Bad Craziness"

That's right. We're having one of those news days that cries out for the mad prose stylings of Hunter S. Thompson himself.

Unfortunately, you'll have to settle for me.

So let's get this party started right by inviting in the Crown Prince of Crazy himself, the Dear Leader Kim Jong Il and the People's Glorious Revolutionary Atomic Mushroom Brigade! South Korea has announced that they will be conducting a live fire artillery drill on Yeonpyeong Island from December 18-21. The response from North Korea Crazy? A neopolitan ice cream of insanity, offering three distinct flavors for the price of one. They are now accusing the south of attempting to "kick up hysteria of war of aggression against the DPRK"[1], they have put forward the claim that the reason the south is doing this is to undermine "the progress made in the June 15 era of reunification" and to derail "the dialogue and cooperation between the north and the south", and they are warning[2] that the live-fire exercise "will play out a more serious situation than on November 23 in terms of the strength and scope of the strike"[3].

There is some speculation that all of this is just a way to improve the north's position when negotiations begin again. Rather like the way a small child attempts to improve his position regarding the acquisition of a toy by pitching a tantrum. Only with high explosives. And death.

China, which is no doubt banging its collective head on its collective desk over the antics of its crazy eastern neighbor, has hit a 28-month high for consumer inflation. It's up 5.1% from November 2009 (mostly on food prices), about 210 bps higher than the 3% target they had for 2010 and 110 bps higher than their 2011 goal. This, of course, is considered an omen of rising reserve requirements and interest rates[4].

Spinning the globe around to Europe, Moody's has cut Ireland's credit rating from Aa2 to Baa1, putting them on the same level as Russia and Lithuania. That's still investment grade, but you almost have to throw the air quotes when you say that. Meanwhile, on day two of the EU summit to create a permanent financial safety net for the euro zone, leaders refused temporary steps such as increasing the size of the EU bailout fund or using the bailout fund to buy bonds. European traders pouted and demanded that the summit offer more short term guarantees, and possibly milk and cookies before bed.

On the positive side for Europe - or, at, for the two-time would be rulers of Europe - the Ifo Business Climate Germany is out. The business climate index, the business situation index, and the business expectations index are all showing an across-the-board 60 bps improvement. So, overall, businesses are doing well and expecting to continue to do well in Germany.

Closer to home, the House passed the tax "compromise" on a 277-148 vote. The IMF Managing Director is pleased, although I'm not certain why Reuters felt the need to bring his opinion into the article[5]. In possibly unrelated news, Senate Democrats also threw in the towel on passing a budget, and agreed to a temporary funding measure.

So that's some of what's driving the markets around. Fear and madness and bad craziness. And four witches.

[1] No, really. That's the official English translation.

[2] "Warning" as the word is defined in North Korea, means "kicking someone in the teeth out of nowhere, and then threatening them with a switchblade if they try to punch back".

[3] For good measure, they also threw a diplomatic bone to the US: "The state of armistice is persisting on the Korean Peninsula and danger of war is not defused there because of the U.S. hostile policy toward the DPRL and its wild ambition for aggression."

[4] And you don't even need to visit Delphi on the seventh of the month for that one.

[5] Although the CIA World Factbook confirms that our public debt as a percentage of GDP is actually 30 bps higher than Spain's, so maybe we should be courting the IMF's good graces now...