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COMMENTARY for all articles by
Gordon T Long
CURRENCY WARS: Debase, Default, Deny!
In
September 2008 the US came to a fork in the road. The Public Policy
decision to not seize the banks, to not place them in bankruptcy court
with the government acting as the Debtor-in-Possession (DIP), to not split
them up by selling off the assets to successful and solvent entities, set
the world on the path to global currency wars.
By lowering interest rates and effectively guaranteeing a weak dollar, the
US ignited an almost riskless global US$ Carry Trade and triggered an
uncontrolled Currency War with the mercantilist, export driven Asian
economies. We are now debasing the US dollar with reckless spending and
money printing with the policies of Quantitative Easing (QE) I and the
expectations of QE II. Both are nothing more than effectively defaulting
on our obligations to sound money policy and a “strong US$”. Meanwhile
with a straight face we deny that this is our intention.
Though prior to the 2008 financial crisis our largest banks had become
casino like speculators with public money lacking in fiduciary
responsibility, our elected officials bailed them out. Our leadership
placed America and the world unknowingly (knowingly?) on a preordained
destructive path because it was politically expedient and the easiest way
out of a difficult predicament. By kicking the can down the road our
political leadership, like the banks, avoided their fiduciary
responsibility. Similar to a parent wanting to be liked and a friend to
their children they avoided the difficult discipline that is required at
certain critical moments in life. The discipline to make America swallow a
needed pill. The discipline to ask Americans to accept a period of intense
adjustment. A period that by now would be starting to show signs of
success versus the abyss we now find ourselves staring into. A future
that is now massively worse and with potentially fatal pain still to come.
READ MORE |
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CURRENCY WARS: Misguided Economic Policy
The
critical issues in America stem from minimally a blatantly ineffective
public policy, but overridingly a failed and destructive Economic
Policy. These policy errors are directly responsible for the opening
salvos of the Currency War clouds now looming overhead.
Don’t be fooled for a minute. The issue of Yuan devaluation is a political
distraction from the real issue – a failure
of US policy leadership. In my
opinion the US Fiscal and Monetary policies are misguided. They are wrong!
I wrote a 66 page thesis paper entitled “Extend
& Pretend” in the fall of 2009 detailing why the proposed Keynesian
policy direction was flawed and why it would fail. I additionally authored
a
full series of articles from January through August in a broadly
published series entitled “Extend & Pretend” detailing the predicted
failures as they unfolded. Don’t let anyone tell you that what has
happened was not fully predictable!
Now after the charade of Extend & Pretend has run out of momentum and more
money printing is again required through Quantitative Easing (we predicted
QE II was inevitable in
March), the responsible US politicos have cleverly ignited the markets
with QE II money printing euphoria in the run-up to the mid-term
elections. Craftily they are taking political camouflage behind an
“undervalued Yuan” as the culprit for US problems. Remember, patriotism is
the last bastion of scoundres
READ MORE
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Last Update:
11/03/2021 05:23 AM
SCHEDULE: 1st Pass: 5:30AM EST, 2nd Pass: 8:00 AM, 3rd Pass 10:30
AM. Last Pass 5:30 PM
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Greek Deputy PM Makes A Huge Gaffe, And Accidentally Reveals
The Country's Debt Plans |
BI |
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Fed Helping Spanish Debt Keeps ECB Mum on Dollar: Euro
Credit |
Bloomberg |
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Retire in France at 62? In Turkey, it’s 45 |
MW |
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UK MPs to be warned on 1.6m job losses |
FT |
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Debt costs jump for Dublin and Lisbon |
FT |
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Australia unexpectedly raises rates |
FT |
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USA |
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ISM Surges, Prints At 56.9, Beats Expectations of 54, As Inventories
Supposedly Decline Despite Contribution To Q3 Preliminary GDP Beat |
ZH |
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Societe Generale- The Commodity Rally Will End Because The ISM Manufacturing
Index Will Soon Plummet |
BI |
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U.S. Consumer Spending Rises Less Than Forecast, Prices Cool |
Bloomberg |
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Personal Income And Spending Both Miss Expectations, As Savings Rate Drops To
2010 Low |
ZH |
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Real Consumer Spending in September Bounces Back to Pre-Recession Level
of $9.35 Billion |
Carpe Diem |
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The wizards of ABS |
ATimes |
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Back Office Blues |
New Yorker |
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Number of the Week: 107 Months to Clear Banks’ Housing
Backlog |
WSJ |
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U.S. home prices expected to slide another 8% |
CNN |
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Chinese Economic Growth May Face `Big Drop,' CIC Chairman
Lou Jiwei Says |
Bloomberg |
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Sovereign Wealth Chief Warns Of Imminent "Big Drop" In
Growth Thanks To Demographic |
BI |
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STRATFOR'S TOP PREDICTIONS FOR THE NEXT DECADE- China
Collapse, Global Labor Shortages, New American Dominance |
BI |
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REMAINING |
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Food Inflation Rising as Cooking Oil Poised to Catch Grain
Gains |
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BP OIL |
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BP Profit Drops After Taking Further Charge on Gulf Spill |
FT |
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Gulf Spill Costs Hit BP's Net Profit |
WSJ |
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CENTRAL BANKING & MONETARY POLICY |
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The trillion pound drop |
Price |
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Quantitative Easing: Torching the Recovery |
Lamont |
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Bernanke’s snake oil and Obama’s leftism will be the undoing
of America |
Jackson |
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The Fed's clear goal: Inflation |
Fleck |
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Fed Risks Its Credibility on Bowlful of Mush |
Baum |
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Fed's, Bernanke's credibility on line with new move to boost
economy |
Irwin |
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Are the Fed's Honchos Simpletons, Or Are They Just Taking
Orders? |
Smith |
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Why the Fed’s QE2 could be just a tempest in a teacup |
FT |
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Opinions Are Split On Fed Policy Move |
WSJ |
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GENERAL INTEREST |
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10 countries on the verge of a demographic crisis |
BI |
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Global aging 2010: An irreversible truth |
Finance Asia |
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Chavez Says Venezuela's Golf Courses Should Be Seized, Put
to Other Uses |
Bloomberg |
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Global imbalances, the renminbi, and poor-country growth |
VOX |
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Ambac warns over prospect of bankruptcy |
FT |
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MARKET WARNINGS |
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Lessons From a Lost Decade |
Hussman |
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The grim reaper is back |
MW |
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Stocks Face Dark Side of Gridlock in Capital |
WSJ |
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Three signs that the stock market rally is on borrowed time |
Money Week |
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G20 MEETING |
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US shifts G20 currency focus to trade deficits |
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CURRENCY WARS |
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Q3
EARNINGS |
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Focus on Net Margins - Detailed Q3 Earnings Review |
Prag. Cap. |
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Rosenberg On The Revenue-Less, And Now Margin-Less, Recovery |
ZH |
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MARKET
& GOLD MANIPULATION |
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Conference Speakers Chime in on Silver Manipulation Story |
Kitco |
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Martin Wolf asks whether the current state of monetary
disorder demands a return to the gold standard |
FT |
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IMF speeds gold sales amid soaring prices |
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VIDEO
TO WATCH |
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Complete Legend to the Right, Top Items below.
Articles with
highlights, graphics and any pertinent analysis found below.
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1
1-SOVEREIGN DEBT |
2-EU BANKING CRISIS |
3-BOND BUBBLE |
4-STATE &
LOCAL GOVERNMENT |
5-CENTRAL & EASTERN EUROPE |
6-BANKING CRISIS II |
7-RISK REVERSAL |
|
8-COMMERCIAL REAL ESTATE |
9-RESIDENTIAL REAL ESTATE -
PHASE II |
10-EXPIRATION FINANCIAL
CRISIS PROGRAM |
11-PENSION CRISIS |
12-CHRONIC
UNEMPLOYMENT |
13-GOVERNMENT BACKSTOP
INSUR. |
14-CORPORATE
BANKRUPTCY |
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TODAY'S TIPPING POINTS UPDATE |
RED ALERT |
AMBER ALERT |
ACTIVITY |
MONITOR |
|

Click to Enlarge

|
11-02-10
GEO-POLITICAL TENSIONS - ISRAEL / KOREA / IRAN
IRAN
ISREAL
KOREA
1-
SOVEREIGN DEBT & CREDIT CRISIS |
GREECE
Greek Deputy PM Makes A Huge Gaffe, And Accidentally
Reveals The Country's Debt Plans BI
Classic gaffe here by the Greek Deputy PM Theodoros
Pangalos. According to Greek newspaper
Kathemirini, Pangalos said in an interview Sunday:
“Debts exist to be
restructured... We may pursue it ourselves or the option may be offered to us
and it could be in our interest to turn it down.” This is in radical contravention to the official party line out of Greece, which
is that restructuring would be a disaster. Of course, this is a classic gaffe in
that it's the truth. Opposition politicians have called on PM George Papandreou to sack Pangalos,
which Papandreou has declined to do. |
SPAIN
Fed Helping Spanish Debt Keeps ECB Mum on Dollar: Euro
Credit BL
European governments are getting an unlikely assist
from the Federal Reserve as the prospect it will buy more
Treasuries helps the bonds of Greece, Portugal, Italy and
Spain to their first simultaneous monthly gains since
July.
Speculation the U.S. central bank will pump more
liquidity into the bond market has helped revive investor
demand for higher-yielding European debt by driving
Treasury yields down. The Fed has asked bond dealers and
investors to estimate how much it might purchase in the
next six months in its so-called quantitative-easing
program and what the effect on yields will be, ahead of
this week’s policy meeting.
Portuguese bonds posted their first
monthly gain in three in October, delivering returns
of 2.6 percent, even as the government and opposition
struggled to strike a deal on the 2011 budget until just
days before parliament is scheduled to start discussions
on the measure. Longer-dated Greek bonds recorded
back-to-back monthly gains for the first time since March
and the
yield on 10-year Italian bonds fell in October to the
lowest level in more than four years.
“I’m not convinced the recent outperformance of
these bonds is being driven purely by improved
fundamentals,” said
Charles Diebel, the London-based head of market
strategy at Lloyds Banking Group Plc. “The debt
situation hasn’t changed much for a number of countries.
In some cases, it’s getting worse. What has changed is the
improvement in risk appetite and the expectation for
another round of Fed QE may have had a lot to do with it.”
|
GERMANY
FRANCE
Retire in France at 62? In Turkey, it’s 45
MW
UK
UK MPs to be warned on 1.6m job losses
FT
IRELAND
Debt costs jump for Dublin and Lisbon FT
Investors take fright at European
proposals
AUSTRALIA
Australia unexpectedly raises rates
FT
JAPAN
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ISM Surges, Prints At 56.9, Beats Expectations of 54, As Inventories
Supposedly Decline Despite Contribution To Q3 Preliminary GDP Beat
ZH
Major beat by the Chicago Manufacturing ISM, coming at
56.9, on expectations of 54, compared to 54.4 previous,
and the highest since May 2010. Yet not all is rosy, as
the majority of respondents still find conditions
deteriorating: "The dollar is weakening again,
which is resulting in higher costs for our materials we
purchase overseas. It is hurting our profit margins";
"Currency continues to wreak havoc with commodity
pricing"; "Customers remain cautious, placing orders at
the last minute, making supply planning a challenge."
Exports contribute substantially to resounding
beat as somehow every country is now seeing surging
exports to everyone else, and nobody admits to actually
importing. Lastly, inventories, the key contributor to the
Q3 preliminary GDP beat declined. Go figure.
Key ISM Components, all better than prior:
- New Orders: 58.9 vs. Prev. 51.1
- Employment: 57.7 vs. Prev. 56.5
- Prices Paid: 71 vs. Exp. 70.5 (Prev. 70.5)
Yet oddly enough, the main decline was in inventories,
the same category that contributed to a major beat in Q3
preliminary GDP.
Here are what the respondents are saying:
- "The dollar is weakening again, which is
resulting in higher costs for our materials we
purchase overseas. It is hurting our profit margins."
(Transportation Equipment)
- "Business slowing down but still double digit over
last year." (Chemical Products)
- "Currency continues to wreak havoc with
commodity pricing." (Food, Beverage & Tobacco
Products)
- "Customers remain cautious, placing orders
at the last minute, making supply planning a
challenge." (Machinery)
- "Our customer base — auto manufacturers — is
expanding capacity and making major capital
investments." (Fabricated Metal Products)
|
Societe Generale- The Commodity Rally Will End Because The ISM Manufacturing
Index Will Soon Plummet BI
The U.S. ISM manufacturing index for
October is set to be released at 10:00 AM this morning,
and the market is expecting a reading of 54 according to
Finviz, which indicates
continued expansion. It's a good time however to remind
ourselves that even if the ISM meets expectations today,
there are those who expect a sharp drop in the index by
year-end.
Take Societe Generale, for example,
whose Alain Bokobza warns the ISM could hit 48 by
year-end, which would indicate a contraction of
manufacturing activity. This could end the rally for
commodities-related plays, he believes:
SG's Alain
Bokobza:
Commodity prices face opposite forces:
backed by strengthening QE and its corollary, the USD fall
on one side, but also facing a significant slowdown of the
US economy by year-end. We’re currently neutral on the
commodity asset class within our portfolio, waiting for a
sell back to re-weight.
...
Don’t get
overexcited by commodities with the ISM at 48 soon!
Commodities prices are cyclical and
tend to increase in line with demand during economic
expansion and tend to drop during economic contraction.
Abnormal situations such as in 2008, when commodity prices
skyrocked while the economy slowed, never last long.
If the ISM drops below 50, do not expect a bull run in
Commodities.
|
U.S. Consumer Spending Rises Less Than Forecast, Prices Cool
BL
Personal Income And Spending Both Miss Expectations, As Savings Rate Drops To
2010 Low ZH
One thing is sure to happen when Americans buy more
iPads than they can afford: the savings rate will fall.
Sure enough, the just reported September savings rate
dipped to 5.3%, the lowest reading in 2010, and a decline
from August's downward revised 5.6%.
This is due to a miss in both personal income and
personal spending, the former coming at -0.1% vs Exp. of
0.2 (and a prior revised to 0.4%) with the latter at 0.2%
versus expectations of 0.4% (and an upward revised prior
to 0.5%). The savings rate has now declined in a straight
line since peaking at 6% (2010 high), to the current low.
In other words Americans have been spending more
than they were making for four months in a row. And on
wonders why consumer discretionary names have been doing
well... Luckily, it means that courtesy of Americans'
savings decline by nearly 20%, there are only so many
future landfill filling gadgets that will be bought going
forward.
Personal Savings Rate:
The reason for the first 2010 negative print in
personal income: expiration of unemployment benefits,
aka free government subsidies to buy iPad apps:
The September change in personal income reflects
provisions of unemployment compensation legislation,
which had boosted emergency government unemployment
benefits (within current transfer receipts) in August.
Excluding emergency government unemployment insurance
benefits, which are discussed more fully below,
personal income increased $8.7 billion, or 0.1
percent, in September, following an increase of $33.9
billion, or 0.3 percent, in August.
Expect this drag to accelerate as more unemployed hit
the 99 week limit, and more emergency benefits expire.
|
Real Consumer Spending in September Bounces Back to Pre-Recession Level
of $9.35 Billion Carpe Diem
The
BEA reported Monday that real personal consumption
expenditures reached $9.349 billion in September, the
highest level of U.S. consumer spending since the
recession started in December 2007, 33 months ago (see
chart above). On a year-over-year basis, September's 2.3%
increase in consumer spending was the largest percentage
increase in three years, since September of 2007 (see
bottom chart above). |
|
4- STATE
& LOCAL GOVERNMENT |
5-
CENTRAL & EASTERN EUROPE |
The wizards of ABS ATimes
8-
COMMERCIAL REAL ESTATE |
9-RESIDENTIAL REAL ESTATE - PHASE II |
Back Office Blues New Yorker
Number of the Week: 107 Months to Clear Banks’ Housing Backlog
WSJ
U.S. home prices expected to slide another 8%
CNN
10- EXPIRATION FINANCIAL CRISIS PROGRAM
|
11- PENSION & ENTITLEMENTS CRISIS
|
13- GOVERNMENT BACKSTOP INSURANCE |
14- CORPORATE BANKRUPTCIES |
Chinese Economic Growth May Face `Big Drop,' CIC Chairman Lou Jiwei Says
BL
Sovereign Wealth Chief Warns Of Imminent "Big Drop" In Growth Thanks To
Demographic BI
China needs to keep the pedal to the metal regarding growth
and urbanization... and that means, if you expect the country to
voluntarily limit its exporting power, like Japan did at the Plaza
Accord in the 80s, you're nuts - Joe Weisenthal Business Insider |
STRATFOR'S TOP PREDICTIONS FOR THE NEXT DECADE- China Collapse, Global
Labor Shortages, New American Dominance BI
19- PUBLIC POLICY MISCUES |
OTHER TIPPING POINT CATEGORIES NOT LISTED ABOVE
24-RETAIL SALES
26-GLOBAL OUTPUT GAP
31-FOOD PRICE PRESSURES
Food Inflation Rising as Cooking Oil Poised to Catch Grain Gains BL
32-US STOCK
MARKET VALUATIONS
GENERAL INTEREST
10 countries on the verge of a demographic crisis BI
Global aging 2010: An irreversible truth Finance Asia
Chavez Says Venezuela's Golf Courses Should Be Seized, Put to Other Uses
BL
Global imbalances, the renminbi, and poor-country growth VOX
Ambac warns over prospect of bankruptcy FT
FLASH CRASH - HFT - DARK POOLS
MARKET WARNINGS
Lessons From a Lost Decade Hussman
The grim reaper is back MW
Market declines could be more severe after FOMC
Stocks Face Dark Side of Gridlock in Capital WSJ
Three signs that the stock market rally is on borrowed time MoneyWeek
G20
US shifts G20 currency focus to trade deficits FT
CURRENCY WARS
Q3 EARNINGS
Focus on Net Margins - Detailed Q3 Earnings Review Pragmatic
Capitalist
Rosenberg On The Revenue-Less, And Now Margin-Less, Recovery ZH
A
week ago, we presented a comprehensive analysis by Moody's
highlighting the key items in the cash flow statement of
non-financial corporate America. Not surprisingly, we noticed that
one of the biggest sources of cash over the past several years, in
addition to cutting expenses to the bone and the resulting surge
in unemployment, was the lack of investment in organic growth
opportunities, via a plunge in Capital Expenditures, meaning that
a revenue flat lining is the best most companies could hope for as
most have now given up on traditional top-line growth and instead
are either hording cash or investing it in an occasional M&A
transaction. Now, in addition to that, courtesy of the Fed's free
money policy resulting in surging input prices (see
Jones Apparel), the next shoe to drop on the path to an
upcoming EPS collapse for the S&P is the imminent drop in gross,
operating and net margins for these very companies which are now
seeing a contraction at both the top and bottom line. Today, David
Rosenberg dissects this issue further, and sees nothing good on
the horizon.
NOTICE THE WORD "PRICE CUTS"?
And,
what the NYT had to conclude about 3M’s results? That it
“reduced the top end of its full-year forecast and said rising
raw materials costs and other pressures were cutting into
margins, sending the company's shares sharply lower.” Margin
compression at a time of low single-digit nominal GDP growth
does not equate to a $95 operating EPS stream for 2011.
Further on this file of compressed margin pressure, S&P
500 revenue growth is already slowing down, notwithstanding
the fact that 80% of the universe is beating their beaten-down
profit estimates. The cost-cutting wave certainly did go much
further than anyone expected but as the legendary Herb Stein
once remarked, “anything that can’t last forever, by
definition, won’t.” At some point, the well will run dry on
the cost-cutting front and slowing revenue growth will take
over — on track for +5.5% YoY in Q3 from 6.1% in Q2 and the
consensus now for Q4 is sitting at +4.9%. As an added signpost
of how this has proven to have been a revenue-less recovery,
the top-line growth since the profits rebound began just over
a year ago is running at barely more than half the average
pace recorded in the 2002-07 cycle.
For all the talk
about profits recovery, sales are still 11% lower now
than they were in the spring of 2008. And, if you are
wondering why it is that the stock market has still done
little more than range trade in 2010, it is because earnings
estimates are no longer rising as they were in 2009 —
they are falling. The bottom-up
consensus now sees 12.9% earnings growth for 2011 from 14.2% a
month ago and 20.9% back in the spring. Have a look at the
Paul Lim column on page 8 of the Sunday NYT business section —
Raising a Caution Flag on Corporate Revenue.
From Gluskin-Sheff
(full report
pdf)
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MARKET &
GOLD MANIPULATION
Conference Speakers Chime in on Silver Manipulation Story Kitco
Martin Wolf asks whether the current state of monetary disorder demands a
return to the gold standard FT
After the experience of the last three decades the monetarism
of
Milton Friedman is no longer a credible alternative. It was
abandoned for two simple reasons: first, it proved impossible for
monetarists to agree on what money is; and, second, the relation
between any given monetary aggregate and nominal income proved
unstable.
Recent experience suggests that we can no longer be so
confident that delegation to independent
central banks protects against severe monetary instability.
That system permitted a gigantic increase in credit, relative to
gross domestic product. It is equally clear that governments do
not wish to see this edifice collapse, for understandable reasons.
This being so, the ultimate solution may be to increase
nominal incomes, via inflation. Indeed, several economists
recommend this. If that did happen, it would support those who
argue for abandonment of the modern experiment with fiat money.
The biggest transition problem is the
mismatch between the value of official gold holdings and the size
of the monetary system. The value of gold held by central banks is
apparently about $1,300bn, while global deposits of the banking
system were about $61,000bn in 2008, according to the
McKinsey Global Institute. To survive the
slightest financial panic, the ratio of gold to bank money would
need to be perhaps an order of magnitude higher. One obvious
objection is that this would generate huge windfall gains to
holders of gold.
In short, we cannot and will not go back to the gold standard.
As L.P. Hartley wrote, “The past is a foreign country: they do
things differently there.” We cannot live in the 19th century. It
is foolish to pretend that we can.
|
IMF speeds gold sales amid soaring prices FT
If sales continue at their current rate, the Washington-based
lender could complete its planned disposal of 403.3 tonnes of
bullion – or one-eighth of its total reserves – by the end of this
year, ahead of earlier market expectations.
The IMF has been almost alone as a seller of gold from the
so-called official sector, which includes central banks,
governments and sovereign wealth funds as well as international
organisations. As a whole, the sector is expected to be a small
buyer of gold this year as purchases by Russia, the
Philippines, Thailand and others outweigh the IMF’s sales.
Most analysts and advisers to central banks believe that buying
will continue next year. Without the IMF’s sales as a
counterbalance, the official sector could become a large net
buyer.
“Barring something unexpected, central banks are going to be
net buyers,” said Tom Kendall, precious metals analyst at Credit
Suisse. “Net purchases could be quite significant next year:
100-120 tonnes or more.”
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Gordon T Long is not a registered advisor and
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TODAY'S NEWS
TUESDAY
11-02-10
NOVEMBER
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ARCHIVAL |
READING
THE RIGHT BOOKS? NO TIME?
WE HAVE IT ANALYZED
& INCLUDED IN OUR LATEST RESEARCH PAPERS!
ACCEPTING
PRE-ORDERS
TIPPING POINTS |
1-SOVEREIGN DEBT &
CREDIT CRISIS |
2-EU BANKING CRISIS |
3-BOND BUBBLE |
4-STATE & LOCAL
GOVERNMENT |
5-CENTRAL & EASTERN EUROPE |
6-BANKING CRISIS II |
7-RISK REVERSAL |
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8-COMMERCIAL REAL ESTATE |
9-RESIDENTIAL REAL ESTATE -
PHASE II |
10-EXPIRATION FINANCIAL
CRISIS PROGRAM |
11-PENSION CRISIS |
12-CHRONIC
UNEMPLOYMENT |
13-GOVERNMENT BACKSTOP
INSUR. |
14-CORPORATE
BANKRUPTCY |
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15-CREDIT CONTRACTION II |
16-US FISCAL IMBALANCES |
17-CHINA BUBBLE |
18-INTEREST PAYMENTS |
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19-US PUBLIC POLICY MISCUES |
20-JAPAN DEBT DEFLATION SPIRAL |
21-US RESERVE CURRENCY. |
22-SHRINKING REVENUE GROWTH RATE |
23-FINANCE & INSURANCE WRITE-DOWNS |
24-RETAIL SALES |
25-US DOLLAR WEAKNESS |
26-GLOBAL OUTPUT GAP |
27-CONFIDENCE - SOCIAL UNREST |
28-ENTITLEMENT CRISIS |
29-IRAN NUCLEAR THREAT |
30-OIL PRICE PRESSURES |
31-FOOD PRICE PRESSURES |
32-US STOCK MARKET VALUATIONS |
33-PANDEMIC |
34-S$ RESERVE CURRENCY |
35-TERRORIST EVENT |
36-NATURAL DISASTER |

Book Review- Five Thumbs Up for Steve Greenhut's
Plunder! Mish
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