Nearly a year after Lehman Brothers collapsed, hedge funds are still waiting for the return of money held in prime brokerage accounts by Lehman Brothers International (Europe). More than $35 billion of hedge fund assets were frozen when the bank collapsed. For months the hedge funds have argued that the money needed to be returned to them promptly to avoid their own collapse. Around $13 billion has already been returned. Now PricewaterhouseCoopers, the administrators for bankrupt Lehman’s London-based unit, have put forth a plan that would let hedge funds recover up to $11 billion of those frozen assets. The proposal requires approval by 90 percent of Lehman’s clients, who have until December 2 to vote on the plan. If the plan is approved, PwC hopes to set a deadline for funds filing claims for the end of February. The assets could be returned by the end of March. An earlier attempt to speed up the return of the hedge fund assets was struck down by British courts. The long delay in getting assets out of Lehman demonstrates the wisdom of the modern day runs on the banks that we saw last year, when funds tried to pull money out of firms that were rumored to be in trouble. That was often described as a panic. But, with hindsight, we can now see that leaving money inside a failing financial firm can have serious costs. Reuters has more on the latest developments . Read the original post: Hedge Funds May Get $11 Billion Out Of Lehman Brothers As Early As March

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No big surprises in today’s FOMC minutes.  The Fed sees the economy rebounding and will remain accommodative.  I did find this line somewhat amusing, however: “As in June, nearly all participants judged the degree of uncertainty surrounding their projections of output growth and unemployment as higher than historical norms.” Ben Bernanke’s already broken crystal ball is even more cloudy than usual.  That likely means further dollar devaluation and ultra low interest rates until we recreate the next great financial crisis.  Ben’s reactive  approach continues…. Read the original post: FOMC MINUTES

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Tough words from Chinese bank regulators sent the Shanghai Index toppling 3.5% last night and also sent the dollar soaring as investors poured out of the risk trade.  The dollar carry remains a focal point of the rally.  Today’s FX View from IB : A slew of overnight woes concerning the health of banks around the world was limited in its support for the U.S. dollar. One year ago that evidence would have been enough to raise the heartbeat of the bears and send the pre-market futures down by 2%. Today, equity index futures continue to point to another positive North American session and the net impact is to provide a prop for the euro rather than the U.S. dollar. The euro also rose after the strongest reading for 15 months in a poll of investor sentiment. The euro is back to unchanged on Monday’s close at $1.4975. Asian markets felt the full impact of a fresh health-scare for Chinese banks. Shanghai stocks slumped 3.5% overnight after the mainland banking regulator warned banks to meet industry capital requirements or else be prepared to face its sanctions. According to media reports, a source with knowledge of the plans says that at least four Chinese lenders have submitted capital raising plans to regulators. An S&P report used in-house metrics to look at risk-adjusted capital ratios of European banks and served up a warning to several houses including UBS, Allied Irish and BBVA. In the meantime, Lloyds Banking Group announced terms of its attempted largest-ever domestic rights issue with a near-60% discount to where its shares are trading. Finally, WestLB – the state-owned regional German lender is reportedly going to be allowed to fail by its majority owners according to a major Frankfurt-journal. The bank said later that it is in discussions with SoFFin, the German financial market stabilization fund to isolate its toxic assets. Yet while all of the above continues to unwind negative news about the health of the financial sector we have to point out that as much as it is newsworthy today, it’s hardly new news. So some major banks are enacting plans to raise capital. Isn’t this a good thing? It is in our minds. Failure to accomplish the feat could be taken as a negative in the event that these entities fail to attract fresh cash and at the same time prevailing investors walk away. Hence our headline today that risk aversion is taking a back seat. The euro rebounded from an overnight low at $1.4888 after a report showed that German business confidence rose in November to a 15-month high. The IFO institute’s reading of sentiment from 7,000 business executives came in strong with a reading of 93.9 and above the expected 92.5. Third quarter manufacturing demand has boosted prospects for growth especially at a time when inventories were allowed to slip. The most significant component of today’s report comes from the 98.9 reading for expectations about the future for the economy. This confirms what we note above that current perceptions reflect buoyancy after the measures aimed at dealing with the stability of the financial sector. While today’s warnings might be necessary to keep a tight rein on the financial sector, it is ultimately beneficial for the ongoing recovery process. The dollar continues to lose ground against the Japanese yen at ¥88.68 with the yen refusing to cede ground against the dollar after as the initial bout of risk aversion appeared to subside. It very much confirms that the dollar’s loss of status is set to continue. The British pound continues to pare earlier losses against the dollar and is up to $1.6583 from an overnight low at $1.6504. Bank of England data shows a modest rise in the number of mortgage approvals while lending to consumers and businesses dropped again. In a quiet Australian session the Aussie dollar came under some selling pressure, reacting quickly to the latest bout of risk aversion as investors continued to lighten the load somewhat on long Aussie positions. At 92.06 U.S. cents the Aussie is firmly off its overnight low of 91.55 cents. Source: IB Follow this link: RISK AVERSION TAKES A BACK SEAT

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RBC has calculated that gold-related shares are currently pricing in a long-term gold price of $940, according to a chart highlighted by FTAlphaville . While such excel-model calculations always need to be taken with a grain of salt, by RBC’s numbers Barrick Gold (ABX) appears as relatively under-valued. It would be interesting to see by what model RBC arrives at these valuations. Barrick, for example, doesn’t only produce gold. See the rest here: Get Gold Exposure For Just $940 An Ounce

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After buying into the rally late last year, institutions have been selling into the rally since August according to the latest investor confidence survey from State Street.   At a reading of 100 institutions are no long allocating capital towards equities and have clearly moved to a more defensive posture since late summer.   Investors in Asia have turned decidedly more bearish as institutions reallocate capital from stocks to less risky assets.  The reading of 91.2 in the Asia represents a high level of pessimism regarding the recent move in equities.    This change in risk tolerance has also been evident in the underperformance of small cap stocks compared to large caps . The founders of the index, Ken Froot and Paul O’Connell had these comments on this morning’s reading: “Across all regions, institutional investors are largely treading water; neither increasing nor reducing their aggregate holdings of risky assets,” commented Froot. “However, the aggregate figures mask some country- and region-specific views. This month, for example, institutional investors aggressively pared their holdings in selected markets, such as Australia, while continuing to add to their emerging markets holdings. Overall, investors are displaying some caution about the current level of equity valuations, and a desire to see more evidence of real economic activity and aggregate demand, particularly in the US, before adding to equity exposures.” “European investors displayed some increased optimism this month, but elsewhere the evidence is that investors are in a consolidating mood,” added O’Connell. “There is an awareness that structural issues such as the US current account deficit, the Asian current account surplus, and the long-run decline of manufacturing employment will need time to be worked out. In the interim, governments continue to support demand, but investors have an eye on both the temporary nature of the stimulus, and its impact on the overall debt burden.” The big money is becoming skeptical of the rally. Along with the recent increase in insider selling this data becomes difficult to ignore particularly considering their prescience in allocating capital in late 2008 and early 2009. Original post: INSTITUTIONS TURN NEUTRAL ON THE RALLY, CONFIDENCE FADES

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CALGARY, Alberta, Nov. 24, 2009 (GLOBE NEWSWIRE) — Emerging Stock Report, a leading provider of sector specific independent investment research, today initiated coverage on NexMed, Inc. (Nasdaq: NEXM – News ). Emerging Stock Report is currently offering a complimentary trial subscription to the investment community. To view the Report in its entirety visit: http://www.emergingstockreport.com To get our alerts AHEAD of the market follow us on Twitter: http://twitter.com/EmergingStockRe About ESR: Emerging Stock Report is a leading provider of independent investment research for North American companies. Our services include research analysis on emerging growth companies, sector specific research, real-time news and financial data, market commentary and the ESR newsletter. Emerging Stock Report’s staff of investment professionals are dedicated to providing the the tools and resources necessary to help make important investment decisions. To view our research reports on a complimentary trial basis and take advantage of our other services, visit http://www.emergingstockreport.com and click on the complimentary trial subscription button on our home page, or go directly to our registration page at http://emergingstockreport.com/register.php About NexMed, Inc.: NexMed’s pipeline includes a late stage terbinafine treatment for onychomycosis, a late stage alprostadil treatment for erectile dysfunction, a Phase 2 alprostadil treatment for female sexual arousal disorder, and an early stage treatment for psoriasis. For further information, go to www.nexmed.com . ESR Disclosure: Emerging Stock Report is not a registered investment advisor and nothing contained in any materials should be construed as a recommendation to buy or sell any securities. Emerging Stock Report has not been compensated by any of the above mentioned companies. Please read our report and visit our Web site, http://www.EmergingStockReport.com , for complete risks and disclosures. Follow this link: Emerging Stock Report Initiates Independent Research Coverage on NexMed, Inc. (GlobeNewswire)

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CALGARY, Alberta, Nov. 24, 2009 (GLOBE NEWSWIRE) — Emerging Stock Report, a leading provider of sector specific independent investment research, today initiated coverage on AgFeed Industries, Inc. (Nasdaq: FEED – News ). Emerging Stock Report is currently offering a complimentary trial subscription to the investment community. To view the Report in its entirety visit: http://www.emergingstockreport.com To get our alerts AHEAD of the market follow us on Twitter: http://twitter.com/EmergingStockRe About ESR : Emerging Stock Report is a leading provider of independent investment research for North American companies. Our services include research analysis on emerging growth companies, sector specific research, real-time news and financial data, market commentary and the ESR newsletter. Emerging Stock Report’s staff of investment professionals are dedicated to providing the the tools and resources necessary to help make important investment decisions. To view our research reports on a complimentary trial basis and take advantage of our other services, visit http://www.emergingstockreport.com and click on the complimentary trial subscription button on our home page, or go directly to our registration page at http://emergingstockreport.com/register.php About AgFeed Industries, Inc.: AgFeed Industries ( www.agfeedinc.com ) is a U.S. company with its primary operations in China. AgFeed has two profitable business lines — animal nutrients in premix and blended animal feed and hog production. AgFeed is one of China’s largest commercial hog producers in terms of total annual hog production as well as one of the largest premix feed companies in terms of revenues. China is the world’s largest hog producing country that produced over 625 million hogs in 2008, compared to approximately 100 million hogs produced annually in the U.S. China also has the world’s largest consumer base for pork consumption. Over 62% of total meat consumed in China is pork. Hog production in China enjoys income tax free status. The pre-mix feed market in which AgFeed operates is an approximately $1.6 billion segment of China’s $40 billion per year animal feed market, according to the China Feed Industry Association. ESR Disclosure : Emerging Stock Report is not a registered investment advisor and nothing contained in any materials should be construed as a recommendation to buy or sell any securities. Emerging Stock Report has not been compensated by any of the above mentioned companies. Please read our report and visit our Web site, http://www.EmergingStockReport.com , for complete risks and disclosures. See the rest here: Emerging Stock Report Initiates Independent Research Coverage on AgFeed Industries, Inc. (GlobeNewswire)

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Yes, really. Off the wire this morning: FDIC Deposit fund had negative $8.2B balance in Q3 That’s broke.  Bankrupt.  Kaput.  Gone.  Poof.  Dead.  Rotting.  A corpse. Yes, yes, I know, Treasury has their back.  But let’s not forget – The FDIC does not have a legal “full faith and credit” guarantee from the US Federal Government and Treasury. It has a “sense of Congress” resolution, but not a formal, legally-binding guarantee. I am not, by the way, predicting an actual FDIC failure to pay.  Should such an event happen it would be tantamount to a declaration of revolutionary war (by the government about to be deposed!) as if there is one thing that would cause Granny to reach for her shotgun, it would be getting screwed out of her life savings after Sheila Bair and everyone else in our government has trotted out how their money is “fully safe” and that “nobody has ever lost a penny of insured deposits and never will ” for more than 20 years, including lots of pronouncements of exactly that mantra over the last year. Nonetheless this outlines the underlying problem the FDIC has – it has willfully and intentionally ignored the fact that banks have mismarked their “assets” to overstate their values, it has refused to demand that accounting be done on a strict “mark to market” basis by bank examiners, and indeed, it has backed the “extend and pretend” commercial real estate “rollover” provisions of recent months, all of which is manifestly unsound and intentionally misleading . The result?  THE FDIC IS BROKE . Let’s put this in common-man terms: YOUR SO-CALLED “DEPOSIT INSURANCE” AND THE SEVERAL TRILLION IN CITIZEN BANK DEPOSITS ARE BACKED BY THE SAME AMOUNT OF CAPITAL THAT AIG HAD TO BACK THEIR CREDIT DEFAULT SWAPS: BUPKIS . Congratulations Sheila – is that your resignation I see in your hand or is that your promotion from Obama – after all, we all know that in Government the more you screw up and screw the taxpayer, the better the job you’re offered. See the rest here: The FDIC Is Broke

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GDP 3Q 2009 “Second Estimate” is out and it is 2.8%. But let’s remember – it was 3.5% on the “preliminary” report. That’s a 20% decline. Was that an error, or was that an intentional overstatement to pump the markets and “confidence” in the original “preliminary” estimate? Oh, and cash-for-clunkers?  It was responsible for half of the so-called “advance” in the 3rd quarter (1.45%), it was a one-time deal, and it was and is just more pulled-forward demand. Government expenses?  Up 8.3%.  State and local governments?  They were essentially flat (down 0.1%) The GDP report also claims that real domestic purchases were up 3.5%, but the sales tax report says otherwise. Where did the “error” come from? The second estimate of the third-quarter increase in real GDP is 0.7 percentage point lower, or $23.7 billion, than the advance estimate issued last month, primarily reflecting an upward revision to imports and downward revisions to personal consumption expenditures and to nonresidential fixed investment that were partly offset by an upward revision to exports. Commercial Real Estate and actual personal spending. Both not what they claimed. Gee, such a shock, given the sales tax data from the states. NOT . PS: The claimed numbers are still, in my opinion, BS, as the sales tax numbers from the states do not support the claimed “expansion.” Link: GDP: 20% Miss (Yes, Really)

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The WSJ is starting to “get it” when it comes to housing: Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif. …. Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home’s value, the First American report said. More than 520,000 of these borrowers have received a notice of default, according to First American. …. Homeowners in Nevada, Arizona, Florida and California are more likely to be deeply under water, according to the analysis. In Nevada, for example, nearly 30% of borrowers owe 50% or more on their mortgage than their home is worth, said First American. More than 40% of borrowers who took out a mortgage in 2006 — when home prices peaked — are under water. Prices have dropped so much in some parts of the U.S. that some borrowers who took out loans more than five years ago owe more than their home’s value. This is the consequence of making loans that you have no reasonable expectation can and will be paid on the original terms. Folks, this is really quite simple when you distill it all down.  It comes down to the underlying free-market principle of sound lending: The check and balance for both borrowers and lenders against making or taking out bad loans – that is, loans that you will not be able to pay as agreed – is that both lender AND borrower will go bankrupt . The gross injustice in our nation today is that over the last twenty years we have increasingly forced borrowers who take out bad loans to not only go bankrupt but be unable to discharge their debt, so long as they are individuals .  The corporate bankrupt, however, maintain their “corporate veil” and thus can file Chapter 11 – or 7 – with impunity. This is the root of the problems in our economy.  It is the root cause of the credit bubble.  It is the root cause of the housing bubble and the ridiculously-pumped pulled-forward demand curve that is now inexorably collapsing, despite the protests of The Fed, Treasury and The Administration. We will not return to a balanced economy capable of organic growth so long as this imbalance exists.  We are precisely emulating the idiotic and in fact criminally-insane stupidity that was practiced in Japan when their property bubble imploded.  Desperate to protect the politically-connected banking interests that had become entrenched as a result of structural decisions within the Japanese Central Banking system the Japanese government knelt before the banking interests and allowed them to sweep their bad debt under the carpet. But that bad debt constrained lending and business activity, just as it has and is here.  This in turn prevented real economic expansion, just as it is here.  GDP growth was all government spending, but constrained in the ability to tax by weak consumption and pricing power, the government found itself on the business end of a debt ratio spiral – just as we are now here. The root cause in both cases is the concept of “primary dealers” – favored banks that in our case are the “agents” of The Federal Reserve and who deal with The Fed and Treasury in the market for federal debt. By creating these “Super Banks” the government and Fed have put the bank before the nation, and allowed themselves to be led around by the nose – literally.  What other explanation is there for UBS, for example, retaining its banking charter after admitting that it helped Americans intentionally evade taxes?  For Goldman being able to securitize and sell debt – without civil or even criminal consequence as documented in my November 20th Ticker relating to certain “subprime” loans?  For Citibank being bailed out from bankruptcy at least three times (and maybe four?) in the last 20 years? Let’s face reality folks – the “primary dealer” concept and implementation is nothing other than government capture.  It is a scam.  It is a device intended to profit a handful of ultra-large multinational firms at the direct expense of the American People – not just every day as they skim off their margin for “distributing” Treasury debt, but to an even larger degree whenever they decide to ignore the requirements of safe and sound lending and put the entire economy and indeed the government’s viability in jeopardy. This piece of embedded corruption provides cover for criminal conduct (felony tax evasion by American taxpayers) and knowingly unsound lending, with these firms confident that the US Taxpayer will be obligated to bail them out should there be trouble. But in this case the bailout has embedded structural trouble into the system, just as it did in Japan.  And let’s not kid ourselves – all we’ve done when it comes to housing is shift where the risk is. Recent analysis has shown that the FHA’s “AUS TOTAL” decision-making program (computer-based underwriting) has been intentionally calibrated to produce unsustainable loans.  Indeed, as I have documented FHA will provide an “approve” return on DTIs (when one includes the FHA “fudge factors”) as high as 49% of gross income.  This is clearly an unaffordable loan and is reflected in the current FHA delinquency and foreclosure rate which stands, at this point at more than one in five loans . The true ugliness here is that these stats are far worse than they first appear.  Why?  Because more than half of the FHA total loan portfolio has been originated in the last two years. Consider what this default ratio means given the portfolio composition, as there are only two possibilities – either the FHA is intentionally making loans that are defaulting quickly, within the first 24 months, or the older FHA loans are defaulting at an astronomical rate. FHA is less-than-forthcoming when it comes to testimony before Congress on this point, and apparently, Congress has buried its head in the sand as well.  Indeed, we have Congresspeople making statements that making dangerously-unsustainable loans is a “policy” intended to head off housing price declines. But does and will it?  Does giving someone a loan that will foreclose in a year or two actually head off housing declines?  Or does it simply bankrupt more Americans and defer the inevitable house price decline by a short period of time – a year or two at most, perhaps as little as a few months? If the latter then this sort of institutionalized rape of our citizens, this time under explicit Congressional authorization as a matter of “policy”, is in fact nothing more than yet another scam to allow those “primary dealers” (and others) to unload their deeply-underwater and compromised MBS into the government – where they will then detonate, forcing the taxpayer to bear a loss that should have been taken by those who lent money without a reasonable expectation of being paid back on the original terms.   Continue reading here: Housing: Yes, That Was (And Is) A Train Wreck

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‘Tis the season to take cheap shots at other pundits, it would seem. Let’s see. You’ve got Peter Schiff and Niall Ferguson vs. Roubini . You’ve got David Rosenberg throwing haymakers at cheery Jim Paulsen. And you’ve got Raymond Jamess strategist Jeff Saut, who in his latest letter wrote: The call for this week: As the S&P 500 traded out to new reaction “highs” in the first part of last week we heard a cacophony of crybabies. First was Meredith Whiney, banking analyst now turned strategist, who stated, “I have not been this bearish in over a year!” One-upping her was Nouriel Roubini who exclaimed, “The worst is yet to come.” Then there was Timothy Geithner’s statement that, “I can’t take responsibility for the legacy of crises you (read: Republicans) bequeathed the country.” While I think Tim Geithner has done a really good job, excuse me Mr. Secretary but wasn’t it you that resided over NY Fed as President from 2003 through January 2009, which also brings the privilege of being Vice-Chairman of the FOMC? Accordingly, it was you who served as regulator of the country’s large financial institutions. Thus, it was on your watch that the big banks ran amok. Despite such cantankerous cries, we have indeed entered the strongest seasonality of the year and we remain constructive. As the sagacious Bespoke Investment Group writes, “Since 1941, the Dow has averaged a gain of 0.50% in the week before Thanksgiving.” That said, we would not like to see the S&P 500 break below 1083. And speaking of breaking down, the Japanese stock market is breaking down and we are close to “uncle points” on those recommendations. View original post here: Saut: Market Keeps Pushing Higher Despite A “Cacophany Of Crybabies”

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Jeff Saut, Chief Investment Strategist at Raymond James, is unwavering in his year-end rally beliefs.   Like JP Morgan, the prescient strategist believes investment managers will continue to play catch-up and will subsequently buy any dips and chase the upside.  In his latest missive Saut says: “we think the upside should continue to be driven by ‘game theory,’ which suggests that the under-invested institutional portfolio managers have to buy stocks into year-end driven by their under-performance, their subsequent ‘bonus risk’, and ultimately their ‘job risk.’ Verily, many of the portfolio managers we know remain under extreme pressure to commit their outsized cash positions in an attempt to ‘catch up’ to their benchmarks between now and year-end (see the nearby Credit Suisse institutional cash versus retail cash on the sidelines chart).” He also isn’t buying all the fearmongering that was going on at the end of last week when Meredith Whitney proclaimed her questionably “new” bearish stance and Nouriel Roubini reaffirmed his bearish stance: “As the S&P 500 traded out to new reaction ‘highs’ in the first part of last week we heard a cacophony of crybabies. First was Meredith Whiney, banking analyst now turned strategist, who stated, ‘I have not been this bearish in over a year!’ One-upping her was Nouriel Roubini who exclaimed, ‘The worst is yet to come’….Despite such cantankerous cries, we have indeed entered the strongest seasonality of the year and we remain constructive. As the sagacious Bespoke Investment Group writes, “Since 1941, the Dow has averaged a gain of 0.50% in the week before Thanksgiving.” That said, we would not like to see the S&P 500 break below 1083. And speaking of breaking down, the Japanese stock market is breaking down and we are close to ‘uncle points’ on those recommendations.” How does Saut recommend playing the year-end rally?  Saut has been mindful of the recent divergence between large caps and small caps .  He believes the trend will continue as breadth narrows and investors reallocate capital from the best performers to a bit of more defensive posture.  This means large caps will outperform. In particular, he likes pharma stocks: we continue to think the improving fundamentals, and earnings, will serve as the “carrot in front of the horse” to keep investors chasing stocks even if we do get a near-term pullback. That said, we expect the breadth of the rally to narrow, which is why we have been favoring large caps (hopefully with dividends) versus small caps for the past few months. Big cap pharma is of particular interest to us. Worth noting is that in Friday’s Fade many of the pharmaceutical stocks rallied, potentially telegraphing that the hastily conceived healthcare bill is not going to pass. See the original post here: JEFF SAUT: THE RALLY WILL CONTINUE INTO YEAR-END

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Excellent reading here from Yale University.  Their conclusions are interesting & summarized here (entire paper attached below): 1. Assuming no major changes in federal government tax and spending policies, the federal debt as a percent of GDP rises to about 75 percent by 2020. This rise is similar to that of the CBO (2009b) and Auerbach and Gale (2009), although in the present case all the macroeconomic endogeneity has been accounted for. 2. A depreciation of the dollar leads to inflation, as expected, but this is of only modest help regarding the debt problem. It does not appear that the United States can inflate away its debt problem. The picture is worse regarding output if there is a flight from U.S. stocks as well as the dollar. 3. Personal income tax increases and transfer payment decreases have similar effects on the economy. A tax increase or spending decrease of 4 percent of nominal GDP is enough to solve the debt problem. The real output cost is about $300 billion per year. 4. A national sales tax is more contractionary in the model than are personal tax increases and transfer decreases, due in large part to decreases in real wealth and real wages. A national sales tax thus does not look like a good idea, although there is more uncertainty here regarding the ability of the model to deal with this case. 5. In the estimated interest rate rule of the Fed both inflation and unemployment matter, and so the Fed’s response to shocks depends on how these two variables are affected. The effects of interest rate changes on the economy are not large enough in the model to have the Fed come close to offsetting the effects of shocks. For example, much of the output costs to tax increases or spending decreases seem unavoidable. Link: THE PROBLEM OF DEFICITS

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The world’s largest defense contractor, Lockheed Martin ( LMT ) is expected to bring in sales of more than $45 billion this year. Yet the whole company sells for about $29 billion. The low price is likely owed to two worries. First, like many companies with pension plans, Lockheed must make large contributions to offset last year’s market losses, Management expects to contribute $1 billion this year and $1.4 billion next year, up from $109 million contributed in 2008. But the stock market’s rebound this year might have reduced Lockheed’s pension shortfall, and in any case, more money set aside today means less that will be needed tomorrow. Second, the federal government is overspending its tax receipts by a margin that seems unsustainable, making cuts to discretionary spending, including on defense, necessary. But Lockheed brass sees sales increasing by 4% to 5% in each of the next three years. Perhaps the bosses are too bullish, but shares at 10 times earnings seem amply cheap. Go here to see the original: 3 Stocks Priced 50% Below the Market

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Juicing P/B: Piotroski F_SCORE and LSV’s Two-Dimensional Classifications November 24, 2009 by greenbackd Price-to-book value is demonstrably useful as a predictor of future investment returns. As we discussed yesterday in Testing the performance of price-to-book value , various studies, including Roger Ibbotson’s  Decile Portfolios of the New York Stock Exchange, 1967 – 1984 (1986), Werner F.M. DeBondt and Richard H. Thaler’s  Further Evidence on Investor Overreaction and Stock Market Seasonality (1987), Josef Lakonishok, Andrei Shleifer, and Robert Vishny  Contrarian Investment, Extrapolation and Risk (1994) and The Brandes Institute’s  Value vs Glamour: A Global Phenomenon (2008) all conclude that lower price-to-book value stocks tend to outperform higher price-to-book value stocks, and at lower risk. Understanding this to be the case, the obvious question for me becomes, “Within the low price-to-book value universe, is there any way of further distinguishing likely stars from likely laggards and thereby further increasing returns?” The answer can be found in two studies: Joseph D. Piotroski’s seminal paper  Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers (.pdf) and Lakonishok, Shleifer, and Vishny’s original  Contrarian Investment, Extrapolation and Risk (1994). I’ll be discussing both of these studies in some detail over the next two days, starting with LSV’s Two-Dimensional Classifications tomorrow. Possibly related posts: (automatically generated) Follow us on Twitter Posted in About , Stocks , Value Investment | Tagged Price-to-book Value | No Comments Yet Comments RSS Leave a Reply

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Chart guru Robert Prechter was on Fast Money this evening, reiterating his comments about extreme declines. He states that bullishness has gone from 2% to 90% (though we’re not sure where that comes from), and that volume and breadth are down. Interestingly, when he was asked about gold, he demurred and said he was “very, very bullish” on the dollar. Visit link: Prechter: Everyone Is Bullish Now, So 2010 Will Be A Year Of Horrible Market Declines

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Barry Knapp, head of U.S. equity strategy at Barclays Capital, talks with Bloomberg’s Carol Massar and Matt Miller about the prospects for the U.S. stock market and Federal Reserve monetary policy. Follow this link: BARCLAYS HEAD OF U.S. EQUITY STRATEGY: JAPAN STAGNATION COMING TO AMERICA

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It looks like more big money is piling into the long gold trade.  Today, options traders were seen placing sizable bets on $1,500 gold prices.  The IB options desk has the details: GLD – SPDR Gold Trust ETF – Bullish options activity in the June 2010 contract on the gold exchange-traded fund suggests significant upside potential for the price of gold bullion. Shares of the GLD are up 1.35% to a new record high of $114.47. One investor established a call spread on the fund. The trader bought 10,000 calls at the June 124 strike for an average premium of 5.90 apiece, spread against the sale of 10,000 calls at the higher June 152 strike for 1.94 each. The net cost of the transaction amounts to 3.96 per contract and yields maximum potential profits of 24.04 apiece if shares sky-rocket to $152.00 by expiration in June. The investor breaks even on the trade if shares of the GLD rise to $127.96, a 12% increase over the current price of the fund. The trader may realize maximum potential profits of 24.04 per contract if shares of the underlying jump 33% to $152.00 in the next seven months. And while this would put the spot price of gold above $1,500 a dollar in decline and seemingly record prices for gold daily, who are we to argue? Source: IB Read more: TRADE OF THE DAY: BIG MONEY BETTING ON $1,500 GOLD

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Earlier we mentioned how in his latest letter, David Rosenberg takes off the gloves, and throws some punches at Jim Paulsen of Wells Capital Management . We knew Paulsen was bullish, based on his regular TV appearances, but FT Alphaville points us to a recent letter of his, and indeed, he sure seems excitable. The whole report is filled with exclamation marks, sunny-side interpretations of the news, and scribbled notes. On the job market, for example: Job creation will likely return by early next year. This chart provides another positive sign for the job market—business confidence has improved significantly relative to consumer confidence! The dotted line is a ratio of business confidence relative to consumer confidence, and it is pushed forward or is “leading” annual job growth (solid line) by two years. Historically, this confidence ratio has provided a consistent two-year leading signal of a turn in the job market. Currently, it suggests better job news by year-end and a strengthening labor market during the next couple of years!?!? As you can see below, the whole thing is like that: EMP1109 Go here to see the original: Why David Rosenberg Thinks Jim Paulsen Is An Embarrassing Perma-Bull

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Greenlight Capital, the $6 billion hedge fund run by David Einhorn, made CareFusion its second-largest US equity holding last quarter. What is CareFusion? Carefusion is a company that focuses on patient care. Recently it launched a “ knowledge portal ” to distribute patient information and a couple of weeks ago there was a statement released that CFN was launching a line of minimally invasive gynecoligical instruments. Greenlight did not change much else in its portfolio. What seems to be most notable is that they increased their holdings in a few other health-related companies: HealthNet (Dan Loeb’s Third Point also upped their HNT shares) and Cardinal Health. Greenlight’s largest stake is in another medical company, Pfizer. Marketfolly has the full report here . Go here to see the original: What The Heck Is CareFusion?

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Gee, what are they trying to hide? As I have repeatedly shown there was has been a “one click” P/E available for the S&P 500 – from S&P – basically forever. Here’s one (recent) example. Well that’s no longer “easily findable.” Indeed, now you have to compute it yourself , although they do make it somewhat easy – if you have Excel. You have to sign up for a (free) account now, and then you can download the spreadsheets with quarterly numbers. So I did. The interesting part of this exercise is that you get annualized P/Es doing so for three years, and then you get the quarterlies going into the current period. They show P/E for 2006 was 18.09, 21.65 for 2007, and a whopping 56.80 for 2008. What is it now?  On a 12-month trailing basis, 82.25, with nearly all of the S&P 500 now having reported third quarter (HP reports this afternoon.) The “outlier” if you will, that is, Q4 of last year, rolls off after this quarter.  It is ($23.13) and will disappear after the next quarterly report. So let’s assume a few things.  First, that the 4th Quarter will track roughly with 3rd quarter, which has posted $15.24.  This would give us a P/E of 21 – still radically expensive and roughly right where it was annually in 2007 before the market blew up! Hmmmm….. Earnings will continue to surprise to the upside eh?  They better.  I will note that historically bear markets have all bottomed with the P/E in single digits and dividend yield approaching 10%.  A bear market bottoming with a P/E of 130 (as it was a couple months ago) and dividend yield around 2%? That has never happened before. You’re free of course to continue to believe that earnings will accelerate to the upside.  But one must ask – from where will that come from?  A look inside the sectors shows that consumer discretionary is already producing near-peak earnings from 2007, staples are above (materially so) 2007 numbers, health care is well above 2007 as are information technology and utilities (the latter with one exception – for one quarter.) Indeed, the entire premise of “accelerating earnings” appears to rest in three places – financials, industrials and materials. Oh, this also assumes those sectors that have “achieved” their already-extraordinary (above peak) results won’t lose any of their moxie either – that is, their firing of employees won’t translate back into weaker purchasing power and thus lower sales (and profits.) The more you look into these figures and prognostications the more unsustainable they appear. View original post here: S&P Removes “One Click” P/E

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Today’s FX View from IB : St. Louis Fed President, James Bullard said in a speech over the weekend that the Fed should retain the flexibility to respond through continued purchases of mortgage securities in 2010 should it see the need. In conjunction with the views of Chicago’s Evans who sees perhaps no change in rates into as far as 2011, investors are today reveling in abundant liquidity and downplaying the prospects for the U.S. dollar. As they do so they are reversing last week’s theme of global slowdown. Equity futures have been propelled higher by this confluence of ways once again sending the dollar down the tubes. Commodity traders so far like what they are seeing so far today. Gold traded at a fresh record peak at $1,167.80 an ounce, while silver traded at its highest in 16 months and copper reached a 14-month high. That’s set the dollar’s ambitious rebound plans of last week back sharply and against the euro it’s trading lower at $1.4968 after having hit a weak spot at $1.4983 earlier in the overnight session. Against the Japanese yen the unit continues to come a marginal second best and the dollar buys ¥88.83. Of course the rally in commodities contrasts sharply with events at the tail end of last week when feint-hearted investors were forced out of long positions in the commodity dollars. The lure of higher yields in risky locations has made the Aussie dollar an appealing prospect. With sell orders driving prices down last week on weaker global recovery prospects, the revision to interest rate expectations helped force many investors’ hands sending the Aussie hurtling close to 90.50 U.S. cents on Friday. However, the altogether brighter growth scenario this morning – although we’re unsure exactly what this looks like – has seen a reemergence of risk appetite that has propelled the Aussie unit all the way back to 92.50 cents. The British pound too is knocking spots off the U.S. dollar and today buys 1.2 more cents than on Friday. At $1.6628 the pound is higher and it also buys ¥147.78 against the Japanese yen. One plausible reason behind a firmer pound today is that investors may well be relying on last week’s strength in retail sales data to deliver a positive upward revision to third-quarter GDP later in the week. The euro rose earlier in the session following a positive slew of reports covering purchasing managers’ intentions. The PMI manufacturing survey at 51, while lower than consensus still indicates expansion while the PMI service sector survey at 53.2 indicates an ongoing health recovery in the sector while the overall composite survey at 53.7 was also above forecast and hints at lesser problems stemming from a strong currency. Source: IB More: FED COMMENTS REVIVE RISK APPETITE

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If you remember my consistent position since this mess began in early 2007 has been that the banks have roughly $3-3.5 trillion in losses in residential real estate. The IMF now says that half of those losses remain unrealized and intentionally hidden: “It is our view we are still in the situation where a lot of losses haven’t been disclosed,” Strauss-Kahn said during questions at the Confederation of British Industry’s conference in London today. “How much is a difficult assessment, but let’s say something which is close to half of it.” Now consider the fact that the Central Banks, including The Fed, and governments, including ours (Treasury) have printed, lied, cajoled and otherwise “cushioned” the first half of these defaults and losses. But with interest rates at or near zero, gold skyrocketing and deficits running well north of $1 trillion annually in the US, the ability to pull that trick again has been extinguished. So what happens, my friends, when the second half of those losses “come out from the dark” and are forced to be recognized? Kudlow appears to have started to detoxify from the KoolAid to some extent, but he’s pretty much it.  Kneale and the other “useful idiots” continue to spew the party line – “it’s all getting better” – but none of them want to talk about what the IMF said over the weekend – and guess what – they’re telling the truth. Someone has figured it out. “We cannot spin a positive story from the fact that a third-of-a-trillion dollars a week is trying to lock down Treasury bill yields of less that 0.05 percent,” Bianco said. “There is still tremendous demand for the front end of the curve despite the fact that people are saying things like there is no yield there and that cash is trash.” $300 billion worth of “someones” – per week. Let’s cut the crap.  The IMF has (correctly) surmised that there will be no ability – politically or fiscally – to fund another bailout. The IMF has also (correctly) surmised that only half of the losses necessary to take have been realized, with the rest being papered over by government malfeasance, accounting chicanery and outright fraud. Now you might try to make a case that “the worst is over” and “it will all be good, we’re recovering in the economy”, but to do so you have to explain where the money is going to come from to absorb the other $1.5 trillion in residential real estate loan losses along with how we’re going to prevent the MBS on The Fed’s balance sheet from detonating - and we haven’t talked about the commercial real estate lending market yet. Have another glass of KoolAid folks – it’s grape-flavored, mixed by someone named “Jones” and tastes great! More: Uh, Better Cogitate On This One (Banks)

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The latest and greatest Monday morning ramp is being attributed to weekend comments by James Bullard, President of the St. Louis Fed.  He essentially retracted the implications of comments late last week by Trichet.  The U.S. has no intention of sapping the system of its marvelous high.  The intravenous drugs continue to be administered. Unfortunately, the cancer still exists….The dollar is getting smashed again and stocks in Hong Kong traded higher by 1.4% overnight.  Donald Tsang is loving the Fed right now . It appears as though the entire FOMC is oblivious to the potential risks of reflating bubble s that market forces have tried to correct.  20 years of intervening and attempting to guide market prices has gotten us essentially nowhere (besides becoming an even more fiscally irresponsible nation).  Will we ever learn from the boom/bust cycle that has failed us so miserably in recent times ?   As Anna Schwartz said , it truly feels like Ben is fighting the last war. Don’t get me wrong.  I am all for government intervention in times of crisis so long as it attacks the actual cause of the problem, but thus far we appear to have done little more than kick the debt can down the road while actually worsening the public debt problem.  Sure, the banks and bankers are all better off, but they’re part of the problem not the solution …. More solid housing data this morning.  Existing home sales were up 10% over last month and over 23% higher than last year.   As Annaly Capital showed, however, the housing rebound (much like the rally in other markets) appears to be more a result of government intervention than real demand.  Even Econoday is onto to the false housing bottom: “Government stimulus is having a big impact on the housing market, pulling future sales into current months. Talk this morning that policy makers may extend buybacks of mortgage-backed securities further underscores the depth of government involvement in housing. Stocks and commodities moved higher in immediate reaction to today’s report. New home sales will be posted tomorrow.” The beat goes on…. Link: RANDOM THOUGHTS….MORE INTRAVENOUS INJECTIONS

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Ed: I’d like to observe that not all that long ago, I went after Warren and got a rather stern “rebuke” of sorts from Janet, who engaged with me (via email) in a quite-spirited defense of Mr. Buffett. My, how the worm turns…. welcome to the conclusion I reached months ago Janet…. I still love ‘ya!     Warren Buffett, Stop Using My Credit Card! (pdf) TSF – Opinion Commentary – November 23, 2009 By Janet Tavakoli   I like Warren Buffett.  I even wrote a book about the financial crisis contrasting his principles of prudent finance with recent excessive leverage, bad lending, and malfeasance ( Dear Mr. Buffett ).  Buffett is not a regulator, an altruist, a consumer advocate, or an elected official.  As CEO and largest shareholder of Berkshire Hathaway, his goal is to maximize shareholder value.  U.S. capitalism has morphed into a financial oligarchy.  If Buffett’s choice is between getting along in the financial community or the public interest, public interest loses.  But he didn’t cause our financial crisis, and he spoke out in advance about excessive leverage and bad lending.  The financial markets are now wildly distorted.  Others have funding advantages Buffett can only dream about, so he exploits an advantage when it becomes available. I have been a trenchant critic of rampant financial malfeasance , and Buffett has only wished me well and told me to “keep writing.”   For my part, I try to keep in mind that we view the world through different lenses.  (Click the link above for the rest… it’s worth it.) See original here: Hoh Hoh: Tavakoli On Buffett

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It sounds like the “perma-bear” label is starting to get to Gluskin-Sheff economist David Rosenberg. In his daily note, he takes a big swipe at market strategist Jim Paulsen of Wells Capital Management, and a frequent guest on CNBC. We sifted through Barron’s over the weekend and found out in ‘The Trader’ column that Jim Paulsen of Wells Capital Management is “a favorite market strategist”.  Well, everyone is entitled to their opinion and we have debated Mr. Paulsen in the past, and just as we may be looked upon as ‘perma-bears’, he most certainly is a ‘perma-bull’.  We can’t lay claim to be able to pick every peak and valley but we have been consistent with our view that we are halfway through a secular bear market in equities, and while we were never quite optimistic enough during the credit and asset bubble from 2003 to 2007, we like to feel that we saved people who listened to us a lot of pain during what economists now call the Great Recession.   We saw it coming, and admittedly we were early on the call, but after re-read Bob Farrell’s market rules to remember and Charles P. Kindleberger’s “Manias, Panics and Crashes” and we’re confident that the housing and credit bubble would collapse under its own weight of dramatic excess.  We all make calls that in hindsight proved to be inaccurate.  But the question is where you were on the really big calls.  The calls that really mattered — that actually saved people their hard-fought wealth and capital.  Well, on November 22, 2007, a month away from the steepest economic downturn since the 1930s, and as a matter of public record, Mr. Paulsen had this to say:   “This thing hasn’t been about people losing their jobs and their incomes.  It’s been more about CEOs getting fired, banks writing off hedge fund losses and a showdown between Wall Street and the Fed.”    Mr. Paulsen wasn’t the only one to dismiss the credit bubble bursting and what was to follow.  But just because he stayed bullish and caught this year’s government-induced rally, pundits like him are now viewed as being a “favourite” in one of the most influential business journals is rather incredible.  But it does attest to the ‘what have you done for me now’ mentality that has gripped an equity market that has stayed so short-term focused.   A reader of our daily missives reminded us last week that as for the current non-fundamentally based situation, we might want to reference the beginning of Annie Hall when Woody Allen tells the joke about the family thinking about institutionalizing their crazy uncle who believes he’s a chicken.  Here it goes: This guy goes to a psychiatrist and says, “Doc, uh, my brother’s crazy.  He thinks he’s chicken.”   And, uh, the doctor says, “Well, why don’t you turn him in?”  And the guy says, “I would, but I need eggs.”  Read more: David Rosenberg Slams “Perma-Bull” Jim Paulsen

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I am often accused of being a “Permabear” or “Doomer.” Nothing is further from the truth. I simply call things as I see them.  I did so with Musings before The Market Ticker began publication, I did so back in the 1990s when I ran MCSNet, and I still do. And let’s not kid ourselves – the economic news is simply not good.  Nor is it likely to get better. Take the leading economic indicators.  People point to the six-month improvement in the LEI as a sign of a “strong recovery.”  But the internals of that number are more sobering – unlike every other recession since the LEIs began being reported , the “real economy” subset of the LEIs is showing less than half of the “improvement” found in “bubble” components such as “stock prices.” The problem is the willful blindness to the real problem in the economy – that is, excessive debt. James Bullard of the St. Louis Fed, who came out this weekend in support of “more asset purchases”, underlined the reality: The Fed has been buying literally 90% of all of the new issue in Treasuries and MBS this year .  While their “Treasury” program was “only” $300 billion, the MBS program has allowed various people to exit their MBS position and swap into Treasuries – thereby papering over the near-complete destruction of interest in Fannie and Freddie paper. This morning I awoke to CNBC with Mr. Kroszner, former Fed Governor and University of Chicago Booth Business School nutball, “laud” the fact that an “independent” central bank had led to “better” inflation outcomes.  Really? I suppose if you don’t include in “inflation” the change in prices of things people actually need, you might be right.  You know, things like houses?  Food?  Gasoline?  Pharmaceuticals? Never mind that Bullard’s “speaking” over the weekend (and let’s remember, he’s a voting member starting next year!) had the clear effect of further torpedoing the dollar. A clear statement of intent to further debase the currency by purchasing MBS that under any reasonable read of Section 14 are unlawful for The Fed to buy , securities that are likely carrying huge unrealized losses yet will be purchased at intentionally-overinflated prices, is destructive to the currency.  This is what Fed secrecy has brought and continues to bring. The fact is that Krozner is forced to resort to flat-out lying to continue to defend the indefensible acts of his cronies (and indeed his own acts of the last few years at The Fed), which is what so-called “economists” and professors have been reduced to.  Government is complicit in these lies; indeed, they have every reason to do so, especially when it comes to so-called “inflation” numbers, as to do otherwise would be to make clear to everyone in the market exactly what sort of outrageous behavior (and the impact it has had on the economy) they have engaged in.  The CPI is insanely fraudulent by being laced through with “hedonic substitution” (when steak is too expensive they substitute hamburger, and call it “equivalent” since both are beef!) and willful refusal to include certain categories of expenditure at all (e.g. “owners equivalent rent” instead of actual house prices, when more than 60% of American families own a house!) A more accurate way to look at “inflation” is to look at the debt load that has been served up by our “independent” central bank.  And here you find the following chart, courtesy of The Fed’s own data: Notice the change .vs. GDP, and the increase as a percentage. As I have repeatedly pointed out, we are running between 8-9% growth in debt outstanding – on a compounded annual rate – since 1951. If this is “better inflation outcomes” I’d like to ask “what would be a worse inflation outcome?”  And don’t try to claim that the “anomaly” in the 1970s skews the data either – that would be a flat lie.  In fact, since 1990 to present the rate of change has been 7.90% and since 2000 8.49%. Let’s not kid ourselves.  The claim that “inflation has been low and controlled” is a flat lie.  GDP has consistently run 2-3% below debt levels since the 1950s and that “spread” has in fact been increasing in the last decade. This is what our Federal Reserve has brought us in terms of “monetary policy” and it is why we are in this mess. I know I have presented the above chart many times, but it will continue to be presented until people wake up and smell the damn coffee!  It is the policies of The Federal Reserve that have led to this mathematically-impossible circumstance. Secrecy breeds complicity and fraud, and nowhere is that more evident than at The Fed.  The NY Fed, for example, did funnel a huge amount of taxpayer money through AIG to foreign and domestic banks after, in secret, making known that it and Treasury would not allow AIG to fail, thereby destroying their negotiating position.   It was through secrecy that this was able to happen without the public raising a well-justified amount of hell at the time and now we are stuck with the consequences. The FDIC has taken a page out of The Fed’s “bamboozle ‘em by keeping ‘em in the dark” playbook, refusing to act to close banks until they are 20, 30, 40, even 50% underwater on asset prices.  How does this happen?  How do “bank examiners” not know that these “assets” are worth far less (or just plain worthless) than their book value?  There are only two possible explanations – willful blindness or outright idiocy. Neither is acceptable. Then there’s this – apparent FDIC refusal to disclose REO auction results!   It seems to me that a well-placed FOIA is in order, but is one really necessary?  The fact of the matter is that underlying asset prices are still collapsing in the real economy , as the ability to take on more debt to support the bubblelicious values of yesteryear simply does not exist.  The FDIC’s refusal to disclose is a raw attempt to prevent the market from realizing the truth – these so-called “assets” are deeply impaired (at best) and there are literally hundreds of banks and other institutions (including most especially The Fed!) that have securities “backed by” these assets that are worth far less than their alleged “face” value.  Recognition of this will set off another leg down in this crisis and the regulators and Washington DC folks know it.  They have spent over two years playing “extend and pretend” in the futile belief that valuations would recover by now – but they haven’t.  It is in fact mathematically impossible for them to do so as the net debt carrying capacity of the private sector has been exceeded. There are about $10 trillion worth of mortgages outstanding in this country (according to The Fed Z1); of that well over half is linked to Fannie and Freddie.  The actual underlying value of the homes linked to that debt was overinflated by roughly half during the years 2001-2007. Deutche Bank has estimated that more than half of all homes with mortgages will be “underwater” by the end of next year.  Hiding the reality of this calamity has become the mantra of the government and its agencies at this point – there is literally more than $1 trillion, and perhaps as much as $2 trillion, in additional residential real estate losses that are being hidden in the system right here and now, and The Government, either directly or via The Fed, is on the hook for the majority of it. The IMF warned this weekend that a second bailout would “threaten democracy”: Dominique Strauss-Kahn told the CBI annual conference of business leaders that another huge call on public finances by the financial services sector would not be tolerated by the “man in the street” and could even threaten democracy. “Most advanced economies will not accept any more [bailouts]…The political reaction will be very strong, putting some democracies at risk,” he told delegates. I hope you’re prepared for that, because our government has intentionally lied its way through this mess so far.  We have refused to force those who are holding paper at well above its actual value to recognize their losses (and indeed have made such a policy via accounting changes!), we have allowed The Fed to monetize $1.5 trillion dollars in bad paper (into which The Treasury immediately issued more debt in order to fund giveaways of various sorts, thereby instantly destroying any beneficial aspect that this program would have otherwise had), and we still have literal hundreds of trillions of “off exchange” derivatives with no accurate accounting of where the net exposure resides or in what amount it exists. Yes, the Stock Market has had a big rally.  So what?  Is the stock market the economy?  No.  Were Tulip Bulbs reflecting the underlying demand for tulips in Holland during the mania?  No.  Were tech stocks reflecting the underlying demand and business prospects for Internet-based businesses in 1999?  No.  Were stock prices in October of 2007 reflecting a strong fundamental outlook for the economy?  No.  Were housing prices, as Bernanke repeatedly asserted to the public and Congress, reflecting a “strong underlying demand for homes” in 2006 and 2007?  No. I continue to hear rumors of incipient disaster.  One of the latest, which has come at me from multiple sources, is that Moody’s intends to downgrade multiple states , as many as 20, within days or weeks.  This has been floating around in whispers for the last month.  Is this reality?  It damn well should be – California, New York, Michigan, Arizona, Nevada and Florida are all in serious fiscal trouble.  All built up public salaries and pensions, protected by state law or worse their state constitutions from cutbacks, along with unions willing to literally go to war to prevent reductions in expense.  Yet their funding base has and is collapsing – property taxes are going unpaid by banks and the government holding REOs, property valuations (and thus the tax base) are collapsing, business is in the tank destroying sales tax receipts, and those states that charge a personal and corporate income tax have seen those taxes collapse as well. California has what appears to be a $20 billion budget hole all on its own , and no prayer of being able to close it.  Between these states there are literal thousands of firefighters and police officers who have platinum-plated pension plans that are additionally double-dipping in some fashion, all of them “earning” six figures.  Universities that have gorged themselves on debt-fueled increases in tuition and fees running at a double-digit rate for more than a decade are now finding themselves trying to force students and their families to eat the outcome of their profligacy.  The local school district here in my town built a new addition on its elementary school – complete with tens of thousands of dollars in each classroom for “smart boards” and plasma televisions – the latter of which is used to display THE SCHOOL CLOCK for 90% of the instructional day.   Yes, you read that right – we have a school here that uses a $5,000 plasma television to replace a $10 clock.  We have so-called “health care reform” being pushed while the pharmaceutical companies have raised prices by nearly 10% in inflation-adjusted terms over the last 12 months and health insurance premiums have been rising at a double-digit rate annually for more than a decade.  The “support” for all of this has been one and only one thing – the ladling on of more debt throughout the system, and now that the private sector has reached its limit and is choking on it the government is trying to replace all of it with more borrowing of its own. This is the sort of rank stupidity that everyone thinks will be “ok” and it is literally everywhere through government and the mainstream media. This morning I woke up to see The Dollar trashed , down almost 1% overnight.  The expectation was that this would “pump” the stock market, and it did.  But does this matter if your dollars buy nothing? CNBS is full of bubble-heads that smile and make it all sound good.  Is this good? You have to love how destruction of a nation’s currency is cheered, with CNBS trying like hell to lead everyone into the stock market. The public is having none of it – retail simply is not “in” at this point, and the “boyz” are starting to recognize that they aren’t going to be.  Why should they? The “boyz” and “media” have lied to the public twice in the last ten years.  First in the 2000 wreck everything was a “buy” all the way down.  People had their hopes, dreams and retirement destroyed – all led by a bubblicious media that was telling you that it was “time to buy” because “stocks were selling at a tremendous discount.”  The orgasms on CNBC and elsewhere in 2001 and 2002, when there was still plenty of downside left, every time the market put in a good rally was clear, convincing – and outrageous. The “bull market” callers all showed up again on CNBS this summer – right around S&P 900.  Where were they at SPX 666? Indeed if you bought at 900 you’ve done well – for a while.  But who bought into the rally at 900?  Not retail.  This is all a trader’s market; the people have had it.  They’re tired of being lied to and no matter how far the pumpers push things by trading things back and forth the investors of the world have figured out the scam and are sitting on their hands.   Most of the “inflow” from Money Markets has gone not to stock but rather to bond funds .  The lesson?  You can screw people only so many times before they tired of it and simply leave you to play in your rigged casino - with yourself. Gold?  It hit $1172 this morning.  But bonds – especially the short end – are yielding zero .  That makes no sense, and one of them is wrong.  You don’t buy bonds that yield zero on the back of a currency devaluation exceeding 15% unless you expect both the dollar to rocket higher and the stock market to collapse. Gold, to a large degree, is being hyped based on Internet-circulated stories of “salted” bars filled with tungsten.  If true – if the so-called “Gold” at Ft. Knox and elsewhere turns out to be false then there is a nightmare about to unfold, and the dollar could easily collapse – especially if this subterfuge is traced to the US Government. But if this is false, then you’re witnessing one of the biggest scams and correlated frauds ever in the history of the markets – and the bond market will be proved correct. Whichever the case may be someone is going to be proved critically wrong in the coming days, weeks and months.  There are times for tremendous caution, and when asset prices are supported by secrecy and outright fraud the public would be well-advised to stay well away from exposure to those parts of the market that would lead to a 50% or greater loss in a near-straight line. Unfortunately, at present, this is essentially every asset class – except perhaps copper-coated lead. Read the original: Turkeys All Around

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Turkeys All Around

Compared to “investing,” pure trading doesn’t get a whole lot of respect. The words “trader” or “speculator” are both frequently used as pejoratives, describing people who just want to make money, while being totally indifferent to the underlying asset. But if you’re willing to endure the criticism, a successful trader can make A LOT of money, in a real short period of time. Join us, as we walk through… See the rest here: The Greatest Trades Of All Time

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In his latest later, Raymond James strategist Jeff Saut argues that even if there is something like a bubble in stocks, everyone has to keep buying into it, or else they lose their jobs. Thus, the trend remains your friend. Nevertheless, we think the upside should continue to be driven by “game theory,” which suggests that the under-invested institutional portfolio managers have to buy stocks into year-end driven by their under-performance, their subsequent “bonus risk,” and ultimately their “job risk.”  Verily, many of the portfolio managers we know remain under extreme pressure to commit their outsized cash positions in an attempt to “catch up” to their benchmarks between now and year-end (see the nearby Credit Suisse institutional cash versus retail cash on the sidelines chart). Reinforcing that game theory point Jeremy Grantham notes: “In markets where investors hand over their money to professionals, the major inefficiency becomes career risk.  Everyone’s ultimate job description becomes ‘keep your job!’  (Manifestly) Career risk-reduction takes precedence over maximizing the client’s return.  Efficient career-risk management means never being wrong on your own, so herding, perhaps for different reasons, also characterizes professional investing.  Herding produces momentum in prices, pushing them further away from fair value as people buy because they are buying.” Jeremy goes on to note a couple of insightful points: “Refusing, on value principal, to buy in a bubble will, in contrast, look dangerously eccentric.  And when your timing is wrong, which is inevitable sooner or later, you will in Keynes’ words – ‘Not receive much mercy’” – he sums up what that means to the folks who try not to go with the herd and do the right thing, “Today the challenge is not getting the big bets right.  It’s arriving back at trend with the same clients you left with . . .” Plainly, we agree with Mr. Grantham, which is why we continue to think the improving fundamentals, and earnings, will serve as the “carrot in front of the horse” to keep investors chasing stocks even if we do get a near-term pullback. Read this articl e: Jeff Saut: Even If Stocks Are A Bubble, Everyone Has To Keep Buying

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The bears put together a little win streak last week, but it looks set to come crashing down, as they obviously failed to deliver any kind of real blow. Asia had a big night: WSJ : Chinese banks in Hong Kong jumped after a researcher under China’s State Council reportedly said the Chinese economy was likely to expand more than 10% in the fourth quarter. Gains in Reliance Industries boosted Indian shares after the market heavyweight announced a bid for Dutch firm LyondellBasell Industries. Hong Kong’s Hang Seng Index rose 1.4% to 22771.39 for its first advance in five sessions, while China’s Shanghai Composite rose 0.9% to 3338.66. Japanese markets were closed for a holiday. Australia’s S&P/ASX 200 rose 0.7%, Taiwan’s Taiex climbed 0.1%, South Korea’s Kospi slipped 0.1%, New Zealand’s NZX 50 ended flat and the Philippines’ main index fell 0.7%. Singapore’s Straits Times Index ended up 1.3% and in afternoon trading, India’s Sensex rose 0.8%. Europe was up too, and US futures are pointing solidly higher. Gold, meanwhile, is above $1165, a brand-new record. Follow this link: Asia, Europe, Commodities, Gold, All Up, S&P Futures Powering Higher

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Bloomberg offers up an interesting historical parallel to our current situation, in which stocks are soaring, but government debt yields practically nil. For the first time in seven decades, Treasury bills are paying no interest while stocks continue to appreciate — a divergence in U.S. financial markets that might be perilous if Federal Reserve Chairman Ben S. Bernanke didn’t know all about 1938. That’s when the Standard & Poor’s 500 Index climbed 25 percent even as bill rates tumbled to 0.05 percent from 0.45 percent. As 1939 began, stocks began a three-year, 34 percent decline after the Fed increased borrowing costs prematurely to stymie inflation that never materialized. The apparent contradiction between stocks and Treasuries has been debated hotly, but the smart money see it as a liquidity issue: “The question is what are you going to do with all the money that has been created?” said James Hamilton , a former visiting scholar at the Fed who teaches at the University of California, San Diego. “It’s not a contradiction at all to see very low short-term yields and at the same time have people trying to buy stocks. They are both reflecting that same force.” The currency argument is bolstered by the fact that not only are both Treasuries and stocks rallying, but they’re rallying in a symmetrical manner. This chart came from David P. Goldman , who has long argued that everything is being driven by currency expansion right now. Anyway, the premise of the above article is that in light of the similarities with 1938, there’s no way Bernanke willl raise rates. So, uh, party on! Read the original here: Ben Bernanke’s 1938 Parallel

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Insider selling surged in the latest week from $960MM in sales to over $1.39B .  Buying made a drastic improvement from $29MM to over $166MM.   The improvement in buying is a positive sign, but the vast discrepancy in selling continues to overshadow the buying.  Insiders are clearly viewing the run-up as a selling opportunity.  This is consistent with the very tepid recovery we’ve seen in organic revenue growth thus far during the economic rebound.  Executives are still unlikely to invest their personal fortunes in the companies they run due to the fact that they aren’t seeing the organic growth that so many equity buyers are hoping will develop once the government steps aside and stops propping up the economy.  Thus far, there are little to no signs of this occurring and this is perhaps most evident in the personal use of insider buying and selling. Latest buys Latest sells View original post here: INSIDER SELLING SOARS HIGHER AS EXECUTIVES SELL INTO THE RALLY

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Really interesting data out of MU Investments Co this week.  According to Hiroshi Mirokawa, a senior strategist at Tokyo based MU, investors are better off selling Japanese stocks and buying government bonds as government spending fails to lift the economy out of its deflationary troubles: “Under Japan’s deflationary environment, investors will probably be better off by selling stocks and buying government bonds with short maturity for income gains.” Of course, this has been true in Japan for nearly two decades so it’s not difficult to view this as a glimpse into America’s future (based on the current trajectory of monetary and fiscal policy).  As their deflationary spirals have persisted the government has failed to print their way to prosperity.  Bloomberg reports: The CHART OF THE DAY shows real interest rates, derived by subtracting inflation rates from yields on 10-year government bonds, have risen since the beginning of this year, while the Topix index, a benchmark equities gauge, lagged behind. Consumer prices, excluding fresh food and energy, slid 1 percent in September, the steepest fall since May 2001. Returns on 10-year government notes climbed to 1.475 percent on Nov. 9, a level not seen in five months on concern debt sales will rise, data compiled by Bloomberg showed. Last month, state agencies proposed in initial budgets to spend a record 95.04 trillion yen ($1.07 trillion) in the fiscal year from April 1, even as Japan posted a shortfall in corporate taxes for the first time on record in a first-half period. Japan’s debt burden is approaching 200 percent of gross domestic product, the Organization for Economic Cooperation and Development estimates, as the government pledged cash to child- raising families and lower school tuition. Falling wages and a worsening job outlook are discouraging consumers from spending, prompting companies to cut prices. As we’ve long argued here at TPC, Japan is the perfect example of an economy that attempted to spend its way out deflation and has failed .  Stocks have recently diverged from bonds as bonds continue to forecast debt plagued economic growth and stocks surge higher on Fed liquidity injections and prospects for more government stimulus.  More recently, Japanese stocks are 10% off their highs while stocks in the U.S. remain near their 52 week high.   If Japan is any preview of the U.S. it’s likely that bonds will ultimately prove to be correct and that stocks have moved far higher than they should.  Even worse, we are potentially creating a debt problem that could persist for far longer than anyone ever assumed…. The rest is here: A PREVIEW OF THE FUTURE UNITED STATES? A DEBT BURDENED NATION….

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As we all know by now government spending and the Fed’s liquidity programs have provided a substantial boost to the economy .  Some would argue that these government programs are simply delaying the inevitable and masking over the real problems in the system.  According to Annaly Capital Management , these programs are having an especially profound impact on the housing market.  As we’ve often argued, many of these programs are nothing more than grandiose wastes of taxpayer dollars and do nothing more than kick the can down the road while adding substantially to the debt burden of the future.  After all, this short-term painkiller does nothing to actually attack the long-term cancer that is plaguing the economy (it’s the debt, stupid! ).  Evidence of this false recovery is found perfectly in last months housing data as the government nearly let the homebuyers tax credit expire: We love the daily “event” of data releases.  On most mornings, you can look around our trading desk and gaze upon a sea of Bloomberg terminals all pointed to the ECO screen, the economic release calendar showing the estimates and actual of each data point to be released that day.  On 11/19/09, a data point showed up on the screen that we hadn’t really paid attention to before:  RPX Composite 28dy Index.  It came in at 193.96 for September 17, versus 200.29 in the prior period.  We didn’t know what any of that meant, but we are always in search of new data to track, so we went digging.  As it turns out, it’s pretty interesting. The data comes from Radar Logic , so we’ll let them explain in their own words what the numbers are: Radar Logic is a technology-driven data and analytics business that produces a daily “spot” price for residential real estate in major U.S. metropolitan areas. Data are captured from public sources and translated into the Radar Logic Daily TM Prices for 25 U.S. Metropolitan Statistical Areas (MSAs), the Manhattan condo market, and a 25-MSA composite.  The prices reflect the actual prices paid for residential real estate on any given day and are computed using proprietary and transparent algorithms. The 28 day index that we are looking at represents prices over the 28 day period ending September 17.  The index measures price per square foot.  There’s obviously a bit of a lag since we are just now getting September prices, but that’s fine because this particular time period is an interesting one.  The National Association of Realtors (NAR) had been on a campaign to keep potential users of the new homebuyer tax credit from missing the cutoff date.  All of the following quotes from NAR press releases are from NAR President Charles McMillan: 8/21/09 – potential homebuyers “should try to make contract offers by the end of September” 9/24/09 – “buyers have little time to act” 10/1/09 – buyers “must make a contract offer very soon to have a reasonable chance of qualifying” for the credit Based on the urgency of the message (Mr. McMillan is a practicing realtor himself in Texas), we’re guessing that the vast majority of buyers planning to use the credit had already made their offers by the end of September at the urging of their realtor.  Below, we take a look at the new housing recovery by graphing the Radar Logic price-per-square foot with another recent data point that disappointed, new single family housing starts. Interestingly enough, prices have already begun to fall by mid-September after a sharp rise following the initiation of the $8,000 first-time credit.  This is starting to remind us of another chart showing what happens when the government steps away.  The extension and expansion of the tax credit wasn’t approved by Congress until 11/5/09, so there was at least 1 month (October) of housing activity that we would call “normal”, unmolested by incentives.  It should be instructive to watch data releases for this month.  But alas, September data are still trickling in.  Our ECO screen tells us that next week we get  S&P/Case-Shiller and FHFA housing data for September.  Don’t worry, the housing market stimulus is back in effect until April 2010 , so we won’t have to worry about the housing market until then. Source: Annaly Capital Management See the rest here: WHAT HAPPENS WHEN THE GOVERNMENT STOPS PROPPING UP THE HOUSING MARKET?

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The following is a guest contribution from Value Expectations : In a recent Article by John Tamny, Forbes: To Fix The Global Economy, Fix The Dollar , the effects of a weakening dollar on the U.S. Economy were nicely summarized “When money loses value, it’s the equivalent of governments raising the rate at which we pay income taxes. But with taxes, we can at least see how much the government is removing from each paycheck.” A weakling dollar will likely be followed with higher inflation.   Although there are some who believe that a weaker dollar will strengthen our exports, the reality is that companies will be spending more to produce their goods and investors will require higher nominal pre-tax rates of return. Furthermore, an increase in the overall cost of capital for equities will result in less business expansion as companies must pay more to source their funds. So how do investors deal with a sluggish economy and declining dollar? As the U.S. economy faces many headwinds with a declining dollar, we recommend high quality, well managed, attractively-priced businesses with high foreign exposure.   Companies with a significant overseas exposure will likely benefit from currency appreciation against the dollar making sales in those currencies especially valuable. Using AFG’s proprietary research we thought we would provide you a solid list of well managed businesses, in the S&P 500 that also have over 50% in foreign sales. Using AFG’s proprietary research we thought we would provide you a solid list of well managed businesses, in the S&P 500 that also have over 50% in foreign sales. Source: Value Expectations Originally posted here: THE WEAK DOLLAR FAVORS COMPANIES WITH HIGH FOREIGN EXPOSURE

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Testing the performance of price-to-book value November 23, 2009 by greenbackd This site is dedicated to undervalued asset situations, but I haven’t yet spent much time on undervalued asset situations other than liquidations and Graham net current asset value stocks. Two areas worthy of further study are low price-to-book value stocks and low price-to-tangible book value stocks. I’ve found that it is difficult to impossible to find any research examining the performance of stocks selected on the basis of price-to-tangible book value. That may be because book value alone can explain most of the performance and removing goodwill and intangibles from the calculation adds very little. Tangible book value is of interest to me because I assume it more closely describes the likely value of a company in liquidation than book value does. That assumption may be wrong. Some intangibles have value in liquidation, although it’s always difficult to collect on the goodwill. If anyone knows of any study explicitly examining the performance of stocks selected on the basis of price-to-tangible book value, please shoot me an email at greenbackd at gmail or leave a comment in this post. Book value has received plenty of attention from researchers in academia and industry, starting with Roger Ibbotson’s Decile Portfolios of the New York Stock Exchange, 1967 – 1984 (1986) and  Werner F.M. DeBondt and Richard H. Thaler’s Further Evidence on Investor Overreaction and Stock Market Seasonality (1987). In Value vs Glamour: A Global Phenomenon , The Brandes Institute updated the landmark 1994 study by Josef Lakonishok, Andrei Shleifer, and Robert Vishny Contrarian Investment, Extrapolation and Risk . All of these studies looked at the performance of stocks selected on the basis of price-to-book value (among other value metrics). The findings are uniform: lower price-to-book value stocks tend to outperform higher price-to-book value stocks, and at lower risk. On the strength of the findings in these various studies I’ve decided to run a handful of real-time tests to see how a portfolio constructed of the cheapest stocks determined on a price-to-book value basis performs against the market. Constructing a 30-stock portfolio The Ibbotson, LSV and Brandes Institute studies created decile portfolios and Thaler and DeBont created quintile portfolios. I propose to informally test the P/B method at the extreme, taking the cheapest 30 stocks in the Google Finance screener (I use the Google Finance screener because it’s publicly available and easily replicable) and creating an equally weighted portfolio. Here is the list of stocks generated as at the November 20, 2009 close: For the sake of comparison the S&P500 closed Friday at 1,091.38. Perhaps one of the most striking findings in the various studies discussed above was made by DeBondt and Thaler. They examined the earnings pattern of the cheapest companies (ranked on the basis of price-to-book) to the most expensive companies. They found that the earnings of the cheaper companies grew faster than the earnings of the more expensive companies over the period of the study. DeBondt and Thaler attribute the earnings outperformanceof the cheaper companies to the phenomenon of “mean reversion,” which Tweedy Browne describe as the observation that “significant declines in earnings are followed by significant earnings increases, and that significant earnings increases are followed by slower rates of increase or declines.” I’m interested to see whether thisphenomenon will be observable in the 30 company portfolio listed above. It seems counterintuitive that a portfolio constructed using a single, simple metric (in this case, price-to-book) should outperform the market. The fact that the various studies discussed above have reached uniform conclusions leads me to believe that this phenomenon is real. The companies listed above are a diverse group in terms of market capitalization, earnings, debt loads and businesses/industries. The only factor uniting the stocks in the list above is that they are the cheapest 30 stocks in the Google Finance screener on the basis of price-to-book value. I look forward to seeing how they perform against the market, represented by the S&P500 index. [Full Disclosure:  No positions. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.] Posted in About , Stocks , Value Investment | Tagged Asset Value , Price-to-book Value , Value Investment | 1 Comment One Response I am very certain that this portfolio will be outperforming the market after a year. A year ago I created a portfolio of 30 stocks trading below liquidation value and it has outperformed the S&P 500 by 40% (or 4000 basis points). Comments RSS Leave a Reply

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Janet Tavakoli, of Tavakoli Structure Finance , deserves a huge amount of respect for continuing to shed the spotlight on the institutions that helped cause many of our recent economic problems.  She has been relentless in her attacks on Goldman and the other banks.  She isn’t backing down in her latest missive: The rest is here: TAVAKOLI RETRACTS GOLDMAN APOLOGY, CALLS FOR MORE REGULATION

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It’s staggering how wrong Ben Bernanke’s forecasting has been over the years .  Now again, Bernanke sees no undue risk taking or bubbles developing in any markets.   Many of the brightest minds in the investment world disagree.  Will Ben’s recent comments on asset bubbles be added to the already sizable highlight reel of Bernanke forecasting gaffes? Original post: PROMINENT INVESTORS THINK BERNANKE IS WRONG

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The interest rate outlook from PFG Best : Apologies for the lack of research since my last post on November 4 th , but I was out sick; luckily not the Swine Flu!  Let’s look back to that piece because frankly, my views haven’t changed much.  Of the two scenarios I laid out on the morning of November 4 th , I chose Scenario 2: “The FOMC does not change their language on rates.  Look for the 10 year T-Note futures to top out above 119-08 and 10 year T-Note cash yields to approach 3.35%.  This would add a small pop to stocks, a drift down in the USD and an increase in the price of gold; we are already seeing this scenario partially priced into the markets today.” This scenario has pretty much played out, although this week’s weak economic data added to the level of risk aversion in the markets, giving strength to the USD and pushing 10 year T-Note futures towards a new resistance of 120. We are continuing to experience the push and pull of risk aversion versus dollar weakness/interest rate concerns.   Post-FOMC comments, the US Dollar Index fell from 76.30 on November 4 th to 74.67 on November 16 th ; a 15 month low.  This move, coupled with weak economic data, played into a rebound in the US Dollar Index, bringing us a full point higher today at 75.67.  With these moves, the stock markets spiked up but have fallen from their highs on November 16 th .  I feel there is still some more room for the US Dollar Index to climb, with first resistance around $76.25-30, then $77.50 and near term support at $74.75. Next week should bring heavier volume trading on the 23 rd and 24 th and then a tapering in action beginning shortly after the 7 year T-Note auction on the afternoon of the 25 th given Thanksgiving.  Although we’re looking at a holiday week, numerous important data releases are occurring, so look for an increase in the VIX: November 23 rd : Existing Home Sales, 3 month and 6 month T-Bill auction (~ total of $62bn) and then the 2 year T-Note Auction (~$44bn) November 24 th : Q3 GDP, Case Shiller HPI, Consumer Confidence, 4 week T-Bill auction and then 5 year T-Note Auction (~$42bn). November 25 th : Durable Goods Orders, Personal Income, Initial Jobless Claims, Consumer Sentiment, New Home Sales, EIA Report and the 7 year T-Note auction ($32bn) Considering the numerous focus points of next week, I feel we should continue to see a pull back across the markets, excluding the USD, with a renewed aversion to risk.  For one reason, I believe we’ll see continued profit taking from gains made in November and increased concerns regarding the housing sector.  I believe we will see a downside correction in GDP for the 3 rd quarter, although only slightly.  I believe consumer confidence will slip again given the increasing unemployment rate and the impressively grim “underemployment” rate of 17.5% for October. What’s to Come : With this in mind, look for the S&P 500 to cross support at 1080, with solid support at 1065.  Look for Crude Oil to trade down to support just under $76 and then back up to resistance just above $80.  Late this week, 10 year T-Note futures bounced off of their support @ 120. However, given the possibility for negative surprises next week from economic data, coupled with the short/mid-duration treasury auctions, we will see a bounce between 118-16 to 120-16. However, if data next week surprises to the upside, which is much less likely, we could see the USD break support of $74.75 and approach $74.50 and 10 year T-Note futures approach the lower end of the channel.  Although there is room for the dollar to approach the $72 level we experienced in March 2008, it will be very difficult for this to actually happen for two reasons.  First, foreign central banks are in the process of deflating their currencies versus the USD.  Second, the FOMC is slowly, and slyly, changing their verbiage towards a stronger dollar “policy.” As the FOMC continues their “strong dollar” verbiage, not policy, the USD should strengthen as this verbiage is actually acting like policy for now.  Transparency from the FOMC is very important and it will be interesting to see how directly they address the USD and how its value is affecting the rest of the world and not just our economy over the coming weeks.  A weaker dollar makes sense for the US in order to balance our deficits and spark growth, especially exports.  Also, given the US has been prodding the Chinese to appreciate the Yuan for years now, a weaker dollar may be an interesting work-around to force the Chinese government to adjust their policies.  Looking out to when the FOMC might adjust rates, I still believe we will see a hike in the 2 nd quarter of next year; a rate reset to 50bps or 75bps is still an extremely low rate and well below historical levels. Additionally, as foreign central banks continue to sell their currencies and buy the USD to offset the appreciation of their currencies, we should see upside kicks to the USD, especially as the US Dollar Index bounces off of support levels just below $75; this is one reason for the recent strength in the US Dollar index. As we approach December and year-end, my main concerns are for potential profit taking at the end of the year as well as increased foreign central bank intervention and commentary.  With the massive gains that have occurred across the board in stocks and commodities, I believe we may experience a pullback in the 2 nd half of December from the recent highs alongside a strengthening of the USD.  However, outside of the profit taking, domestic and foreign central bank verbiage and policy will weigh heavily on markets as foreign nations begin to unravel their stimulus policies.  However, are investors ready for this unraveling and do they actually believe economies are strong enough to move forward on their own?  Only time will answer these questions, but it seems to me like the world economy is on a choppy but upward trajectory towards recovery. Eaven Horter PFGBEST Research Team ehorter@pfgbest.com See original here: THE TREND IS YOUR FRIEND…UNTIL IT’S NOT

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