Rats can teach humans some investing savvy

"In the experiment, researchers flash two lights, one green and one red, onto a screen. Four out of five times, it’s green; the other time, the red light flashes. But the exact sequence is kept random.

When rewarded for correct picks, rats and pigeons quickly discover the best strategy is to always pick green, guaranteeing an 80 percent correct-pick rate.

Humans, however, tried to anticipate when the red light would come on. This misguided strategy, on average, leads people to pick the next flash accurately only 68 percent of the time.

Stranger still, humans persist in this behavior even when researchers tell them the flashing lights are random. And while rodents and birds quickly learn how to maximize their score, people often perform worse the longer they try to figure it out.

Humans often see what they think are long-term trends but base their analysis on short-term data."

Americans' Wealth Jumps 3.8 Percent

"Thanks to a rebounding stock market, Americans' household wealth increased by $2.1 trillion last year, even as high unemployment and a sagging real estate market weighed down the economic recovery.

At the end of last year, American households saw their net worth rise 3.8 percent over the previous year to $56.8 trillion, according to figures released this week from the Federal Reserve."

The stock market hates dirty air

One of the main arguments against regulating air pollution is that the regulations hurt business. But, in an ironic twist, a new study suggests that the pollution itself hurts business where it arguably counts most: the stock market. Analyzing daily index returns from several stock exchanges over a 10-year period, the authors of the study found that stock returns were generally lower on days with poor air quality ratings in the vicinity of the stock exchange. The effect is significant: Trading stocks based on day-to-day air quality ratings might have allowed you to beat the annual return on the S&P 500 by several percentage points.
Levy, T. and Yagil, J., “Air Pollution and Stock Returns in the US,” Journal of Economic Psychology (forthcoming).

The myth of the small-town pol If your only view of reality came from political rhetoric, you couldn’t be blamed for thinking that most politicians come from small towns, a.k.a. the heartland. Guess again. According to a new analysis of gubernatorial and US Senate candidates from 1996 to 2006, most candidates were denizens of the most populated areas, in greater proportion than even that area’s share of the population. Republican nominees to the US Senate were even less likely than their Democratic counterparts to come from small towns. Meanwhile, state capitals were much more likely to produce candidates, especially for Democrats. This pattern raises the question of whether rural areas are fairly represented in our political system.

Gimpel, J. et al., “The Wellsprings of Candidate Emergence: Geographic Origins of Statewide Candidacies in the United States,” Political Geography (January 2011).

Does baseball scouting work? A key tenet of modern management is to recognize and promote talent early on. To do so, managers need metrics that reliably predict future performance. Given that sports like baseball are rife with metrics, it stands to reason that team managers must have already figured out the science of early recruiting. Yet, a new study of baseball pitchers by researchers at the University of Massachusetts Amherst finds that minor-league performance is actually not very predictive of major-league performance. Although performance at the higher levels of minor-league baseball is somewhat better at predicting major-league performance, it’s still a lot less predictive than major-league play itself. This suggests that organizations need to be even more careful with their human resources strategy. An average entry-level performer may become a star later on.

Longley, N. & Wong, G., “The Speed of Human Capital Formation in the Baseball Industry: The Information Value of Minor-League Performance in Predicting Major-League Performance,” Managerial and Decision Economics (forthcoming).

Bzzzt! You’re smarter When told to put your thinking cap on, wouldn’t it be nice if you could actually do that? Well, new research seems to deliver. People were asked to solve problems requiring analytical insight while a pair of saline-soaked sponge electrodes were placed on opposite sides of the scalp. A weak direct current flowed in one direction for some people, in the opposite direction for other people, and, as a control, no current was used for a third set of people. In one direction, the authors report, the electrical field produced a remarkable effect: “a three-fold increase in the likelihood of solving the problems. This is the strongest cognitive enhancement we are aware of for a brain stimulation study.” According to the authors, when the electrical field is applied with a certain polarity, it inhibits top-down thinking from the left hemisphere and stimulates bottom-up thinking from the right hemisphere.

Chi, R. and Snyder, A., “Facilitate Insight by Non-Invasive Brain Stimulation,” PLoS ONE (February 2011).

The leer effect It’s tempting to assume that the objectification of women is only a problem in the media, or that it doesn’t have much of an effect, or that women ignore it. Not so, according to a new study. Men and women were paired with someone of the opposite sex — who was actually working for the researchers — to compete as a team on a math test for money. The experiment was rigged so that some of the subjects were given several objectifying gazes — looking at the subject’s chest — and given feedback that made brief mention of their looks. Women, but not men, who were objectified in this way performed worse on the math test. However, these same women — but, again, not the men — were subsequently more interested in spending time with the other person.

Gervais, S. et al., “When What You See Is What You Get: The Consequences of the Objectifying Gaze for Women and Men,” Psychology of Women Quarterly (forthcoming). 

Pennsylvania budget calls for deep spending cuts

Another State with unprecedented fiscal problems.

Calling the state's fiscal problems unprecedented, Pennsylvania Gov. Tom Corbett unveiled Tuesday a budget that asks state employees to forgo pay increases and pay more for their health care.

The state is facing a budget gap of more than $4 billion, and its new governor is keeping his promise not to raise taxes to close it. Instead, he is looking for concessions from public employees and for cuts from a wide array of agencies. Also, some 1,500 positions would disappear in the budget that cuts overall spending by 3%.

"We have to spend less because we have less to spend," Corbett said. "We must tax no more because people have no more to give."

Secular Trend In Oil

The secular trend (message) in oil is up.

Dear CIGAs

This and other reasons amplify and solidify my call for $150+ oil in 2011.
monty.

Subject: From STRATFOR - Bahrain and the Battle Between Iran and Saudi Arabia...by George Friedman (good read)

By George Friedman
The world?s attention is focused on Libya, which is now in a state of civil war with the winner far from clear. While crucial for the Libyan people and of some significance to the world?s oil markets, in our view, Libya is not the most important event in the Arab world at the moment. Thedemonstrations in Bahrain are, in my view, far more significant in their implications for the region and potentially for the world. To understand this, we must place it in a strategic context.

As STRATFOR has been saying for quite a while, a decisive moment is approaching, with the United States currently slated to withdraw the last of its forces from Iraq by the end of the year. Indeed, we are already at a point where the composition of the 50,000 troops remaining in Iraq has shifted from combat troops to training and support personnel. As it stands now, even these will all be gone by Dec. 31, 2011, provided the United States does not negotiate an extended stay. Iraq still does not have a stable government. It also does not have a military and security apparatus able to enforce the will of the government (which is hardly of one mind on anything) on the country, much less defend the country from outside forces.

Filling the Vacuum in Iraq

The decision to withdraw creates a vacuum in Iraq, and the question of the wisdom of the original invasion is at this point moot. The Iranians previously have made clear that they intend to fill this vacuum with their own influence; doing so makes perfect sense from their point of view. Iran and Iraq fought a long and brutal war in the 1980s. With the collapse of the Soviet Union, Iran is now secure on all fronts save the western. Tehran?s primary national security imperative now is to prevent a strong government from emerging in Baghdad, and more important, a significant military force from emerging there. Iran never wants to fight another war with Iraq, making keeping Iraq permanently weak and fragmented in Tehran?s interest. The U.S. withdrawal from Iraq sets the stage for Iran to pursue this goal, profoundly changing the regional dynamic.

Iran has another, more challenging strategic interest, one it has had since Biblical times. That goal is to be the dominant power in the Persian Gulf.

For Tehran, this is both reasonable and attainable. Iran has the largest and most ideologically committed military of any state in the Persian Gulf region. Despite the apparent technological sophistication of the Gulf states? militaries, they are shells. Iran?s is not. In addition to being the leading military force in the Persian Gulf, Iran has 75 million people, giving it a larger population than all other Persian Gulf states combined.

Outside powers have prevented Iran from dominating the region since the fall of the Ottoman Empire, first the United Kingdom and then the United States, which consistently have supported the countries of the Arabian Peninsula. It was in the outsiders? interests to maintain a divided region, and therefore in their interests to block the most powerful country in the region from dominating even when the outsiders were allied with Iran.

With the U.S. withdrawal from Iraq, this strategy is being abandoned in the sense that the force needed to contain Iran is being withdrawn. The forces left in Kuwait and U.S air power might be able to limit a conventional Iranian attack. Still, the U.S. withdrawal leaves the Iranians with the most powerful military force in the region regardless of whether they acquire nuclear weapons. Indeed, in my view, the nuclear issue largely has been an Iranian diversion from the more fundamental issue, namely, the regional balance after the departure of the United States. By focusing on the nuclear issue, these other issues appeared subsidiary and have been largely ignored.

The U.S. withdrawal does not mean that the United States is powerless against Iran. It has been reconstituting a pre-positioned heavy brigade combat team set in Kuwait and has substantial air and naval assets in the region. It also can bring more forces back to the region if Iran is aggressive. But it takes at least several months for the United States to bring multidivisional forces into a theater and requires the kind of political will that will be severely lacking in the United States in the years ahead. It is not clear that the forces available on the ground could stop a determined Iranian thrust. In any case, Iraq will be free of American troops, allowing Iran to operate much more freely there.

And Iran does not need to change the balance of power in the region through the overt exercise of military force. Its covert capability, unchecked by American force, is significant. It can covertly support pro-Iranian forces in the region, destabilizing existing regimes. With the psychology of the Arab masses changing, as they are no longer afraid to challenge their rulers, Iran will enjoy an enhanced capacity to cause instability.

As important, the U.S. withdrawal will cause a profound shift in psychological perceptions of power in the region. Recognition of Iran?s relative power based on ground realities will force a very different political perception of Iran, and a desire to accommodate Tehran. The Iranians, who understand the weakness of their military?s logistics and air power, are pursuing a strategy of indirect approach. They are laying the foundation for power based on a perception of greater Iranian power and declining American and Saudi power.

Bahrain, the Test Case

Bahrain is the perfect example and test case. An island off the coast of Saudi Arabia, Bahrain and Saudi Arabia are linked by a causeway. For most purposes, Bahrain is part of Saudi Arabia. Unlike Saudi Arabia, it is not a major oil producer, but it is a banking center. It is also the home of the U.S. 5th Fleet, and has close ties to the United States. The majority of its population is Shia, but its government is Sunni and heavily linked to Saudi Arabia. The Shiite population has not fared as well economically as Shia in other countries in the region, and tensions between the government and the public have long existed.

The toppling of the government of Bahrain by a Shiite movement would potentially embolden Shia in Saudi Arabia, who live primarily in the oil-rich northeast near Bahrain. It also would weaken the U.S. military posture in the region. And it would demonstrate Iranian power.

If the Saudis intervened in Bahrain, the Iranians would have grounds to justify their own intervention, covert or overt. Iran might also use any violent Bahraini government suppression of demonstrators to justify more open intervention. In the meantime, the United States, which has about 1,500 military personnel plus embassy staff on the ground in Bahrain, would face the choice of reinforcing or pulling its troops out.

Certainly, there are internal processes under way in Bahrain that have nothing to do with Iran or foreign issues. But just as the internal dynamic of revolutions affects the international scene, the international scene affects the internal dynamic; observing just one of the two is not sufficient to understand what is going on.

The Iranians clearly have an interest in overthrowing the Bahraini regime. While the degree to which the Iranians are involved in the Bahraini unrest is unclear, they clearly have a great deal of influence over a cleric, Hassan Mushaima, who recently returned to Bahrain from London to participate in the protests. That said, the Bahraini government itself could be using the unrest to achieve its own political goals, much as the Egyptian military used the Egyptian uprising. Like all revolutions, events in Bahrain are enormously complex ? and in Bahrain?s case, the stakes are extremely high.

Unlike Libya, where the effects are primarily internal, the events in Bahrain clearly involve Saudi, Iranian and U.S. interests. Bahrain is also the point where the Iranians have their best chance, since it is both the most heavily Shiite nation and one where the Shiites have the most grievances. But the Iranians have other targets, which might be defined as any area adjoining Saudi Arabia with a substantial Shiite population and with American bases. This would include Oman, which the United States uses as a support facility; Qatar, headquarters of U.S. Central Command and home to Al Udeid Air Base; and Kuwait, the key logistical hub for Iraqi operations and with major army support, storage and port facilities. All three have experienced or are experiencing demonstrations. Logically, these are Iran?s first targets.

The largest target of all is, of course, Saudi Arabia. That is the heart of the Arabian Peninsula, and its destabilization would change the regional balance of power and the way the world works. Iran has never made a secret of its animosity toward Saudi Arabia, nor vice versa. Saudi Arabia could now be in a vise. There is massive instability in Yemen with potential to spill over into Saudi Arabia?s southern Ismaili-concentrated areas. The situation in Iraq is moving in the Iranians? favor. Successful regime changes in even one or two of the countries on the littoral of the Persian Gulf could generate massive internal fears regardless of what the Saudi Shia did and could lead to dissension in the royal family. It is not surprising, therefore, that the Saudis are moving aggressively against any sign of unrest among the Shia, arresting dozens who have indicated dissent. The Saudis clearly are uneasy in the extreme.

Iran?s Powerful Position

The Iranians would be delighted to cause regime change throughout the region, but that is not likely to occur, at least not everywhere in the region. They would be equally happy simply to cause massive instability in the region, however. With the United States withdrawing from Iraq, the Saudis represent the major supporter of Iraq?s Sunnis. With the Saudis diverted, this would ease the way for Iranian influence in Iraq. At that point, there would be three options: Turkey intervening broadly, something it is not eager to do; the United States reversing course and surging troops into the region to support tottering regimes, something for which there is no political appetite in the United States; and the United States accepting the changed regional balance of power.

Two processes are under way. The first is that Iran will be the single outside power with the most influence in Iraq, not unlimited and not unchallenged, but certainly the greatest. The second is that as the United States withdraws, Iran will be in a position to pursue its interests more decisively. Those interests divide into three parts:

1. eliminating foreign powers from the region to maximize Iranian power,

2. convincing Saudi Arabia and other countries in the region that they must reach an accommodation with Iran or face potentially dangerous consequences, and

3. a redefinition of the economics of oil in the Persian Gulf in favor of Iran, including Iranian participation in oil projects in other Persian Gulf countries and regional investment in Iranian energy development.

The events in the Persian Gulf are quite different from the events in North Africa, with much broader implications. Bahrain is the focal point of a struggle between Saudi Arabia and Iran for control of the western littoral of the Persian Gulf. If Iran is unable to capitalize on events in Bahrain, the place most favorable to it, the moment will pass. If Bahrain?s government falls, the door is opened to further actions. Whether Iran caused the rising in the first place is unclear and unimportant; it is certainly involved now, as are the Saudis.

The Iranians are in a powerful position whatever happens given the U.S. withdrawal from Iraq. Combine this with a series of regime changes, or simply destabilization on the border of Saudi Arabia, and two things happen. First, the Saudi regime would be in trouble and would have to negotiate some agreement with the Iranians ? and not an agreement the Saudis would like. Second, the U.S. basing position in the Persian Gulf would massively destabilize, making U.S. intervention in the region even more difficult.

The problem created by the U.S. leaving Iraq without having been able to install a strong, pro-American government remains the core issue. The instability in the Persian Gulf allows the Iranians a low-risk, high-reward parallel strategy that, if it works, could unhinge the balance of power in the entire region. The threat of an uprising in Iran appears minimal, with the Iranian government having no real difficulty crushing resistance. The resistance on the western shore of the Persian Gulf may be crushed or dissolved as well, in which case Iran would still retain its advantageous position in Iraq. But if the perfect storm presents itself, with Iran increasing its influence in Iraq and massive destabilization on the Arabian Peninsula, then the United States will face some extraordinarily difficult and dangerous choices, beginning with the question of how to resist Iran while keeping the price of oil manageable.

Jake Furlow
Institutional Equity Sales
Direct: (415) 229 - 1591
Toll free: (800) 421-0160
Fax; (310) 943-2174
AOL instant message: jfurlowjefco

In The News

Icahn is returning 25% of the money in his fund because he doesn't want the headaches brought about by another market crisis. Don't follow the words, follow the money.

Headline: Icahn says he will return his investors' money

Carl Icahn, the billionaire investor, is returning all of the money that outside investors hold in his hedge funds.

In a letter to limited partners, Icahn said he did not want to be responsible to investors for "another possible market crisis," especially given the rapid increase in markets over the past two years. Icahn said he was also concerned about the economic outlook and political tensions in the Middle East.

"While we are not forecasting renewed market dislocation, this possibility cannot be dismissed," Icahn said. The letter was dated Monday and disclosed in a regulatory filing Tuesday.

Fiat Money Is All About Confidence

We often talk about the intrinsic value of the raw materials that compose coins and bills, but it’s really end-user “confidence” that provides fiat money value. Confidence is a fickle thing. It's there without question one minute and gone the next. When confidence vanishes, regardless of raw material costs, money quickly finds more practical uses.

Burning Marks As Fuel for Wood Burning Stove, Weimar Republic 1923-1924)


Headline: Guess what? Dollar bills are made of cotton

Sure, packs of T-shirts and socks are getting expensive because of skyrocketing cotton prices. Guess what else is made of cotton? The dollar bill in your wallet.

In 2010, the cost of making one note jumped 50% from what it cost the government in 2008.

81Email Print The government produced 6.4 billion new currency notes last year. Each one cost 9.6 cents to produce, including the cost of paper and printing.

In 2008, it only cost 6.4 cents a note, a tiny bit more than it did in 2007, according to the U.S. Bureau of Engraving and Printing.

With the price of raw cotton at a 140-year high, things could get worse.

Gold Market Saying Living Standards Doomed To Fall In U.S.

Gross suggests that living standards doomed to Fall in the U.S. The gold market, and experts that interpret it, has been conveying this message for years. The secular trend in gold will accelerate when the pubic finally recognizes the severity of this message. Acceleration in gold tends to be associated with some sort panic.

Headline: “No Way Out” of Debt Trap, Gross Says: U.S. Living Standards Doomed to Fall

PIMCO founder and co-CIO Bill Gross has previously said that if the United States were a corporation, no one in their right mind would lend us money. For the last decade, we’ve been “relying on the kindness of strangers” to help cover our debts, he tells Aaron in the accompanying clip.

By “strangers” he is referring to our foreign counterparts, like China for example. Basically, for years Americans have spent their hard-earned dollars on less-expensive Chinese made goods. With great gratitude, China turned around and used all those dollars to buy up U.S. Treasuries and other dollar-denominated assets.

But now after years of reckless spending, America’s debt level is nearing a breaking point and can no longer rely on foreign capital as a last resort. “When a country reaches a certain debt level, confidence in that country’s ability to repay that debt becomes jeopardized,” says Gross, citing the work of Ken Rogoff and Carmen Reinhart in This Time Is Different.

Video

Vicious Cycle In Real Estate

It's called a vicious cycle. Lower real prices are squeezing the heck out of homeowners buried under too much mortgage debt. It's the main reason why QE1, QE2, and the coming QE3 are not helping real estate.

It will take decades to over come both the recognized and unrecognized supply overhang.

Months Months Supply of New One-Family Houses for Sale And Change YOY


Headline: Underwater mortgages rise as home prices fall

The number of Americans who owe more on their mortgages than their homes are worth rose at the end of last year, preventing many people from selling their homes in an already weak housing market.

CoreLogic says about 11.1 million households, or 23.1 percent of all mortgaged homes, were underwater in the October-December quarter. That's up from 22.5 percent, or 10.8 million households, in the July-September quarter.

Gold Shares Continue To Following Sector Breakout

Gold shares from juniors to majors are following the massive breakout of the 30 year consolidation within the gold shares sector. The majors and mid-tier producers, consistent with previous secular gold bull markets (see dividend payout of homestaking mining), are also raising dividends.

S&P Gold (Formerly Precious Metals Mining)*
*S&P Gold from 1945, Barron's Gold Stock Index from 1939-1945, 1922-1939 Homestake Mining


Goldcorp (GG):


Headline: Goldcorp profit jumps on higher prices, production

Goldcorp (G.TO) reported better than expected quarterly earnings on Thursday, as profits surged due to higher gold and silver prices and increased bullion production, sending its shares up more than 2 percent in after-hours trade.

Vancouver-based Goldcorp, the world's second largest gold miner by market capitalization, also raised its full year dividend payout by 11 percent to 40 cents a share and outlined plans to develop two major gold projects in Canada.

The Inevitable End of 1946-2011 Jefferson Nickel

The cost to produce the copper/nickel clad nickel is $0.0697 and rising. In other words, just like 90% silver coins and 95%/5% copper pennies, it's only a matter of time before the copper/nickel clad nickel will disappear from circulation. What the public fails to realize is that the re-examination of coin composition, not only in the U.S. but also across the world, reflects the growing pressures of hyperinflation. This disappearance of smaller denomination coinage from circulation is next.

U.S. Mint initiates process for major U.S. coinage overhaul

Basically, the Treasury Secretary and the U.S. Mint are conducting a major re-examination of minting and coinage laws.

For instance, the Mint now has the authority to research and test less expensive alloy alternatives for coins. Currently the Lincoln Penny and the Jefferson nickel cost more to produce than their corresponding face values. The Treasury Secretary is expected to address this situation under the auspices of the new act.

Saudis mobilise thousands of troops to quell growing revolt

Any material development here will send the dollar lower and gold higher.

Headline: Saudis mobilise thousands of troops to quell growing revolt

Saudi Arabia was yesterday drafting up to 10,000 security personnel into its north-eastern Shia Muslim provinces, clogging the highways into Dammam and other cities with busloads of troops in fear of next week's "day of rage" by what is now called the "Hunayn Revolution".

Saudi Arabia's worst nightmare – the arrival of the new Arab awakening of rebellion and insurrection in the kingdom – is now casting its long shadow over the House of Saud. Provoked by the Shia majority uprising in the neighbouring Sunni-dominated island of Bahrain, where protesters are calling for the overthrow of the ruling al-Khalifa family, King Abdullah of Saudi Arabia is widely reported to have told the Bahraini authorities that if they do not crush their Shia revolt, his own forces will.

Fed must be flexible given oil prices, Lockhart says

QE1, QE2, QE3, and so on.

Headline: Fed must be flexible given oil prices, Lockhart says

Dennis Lockhart, the president of the Atlanta Fed, said that while his first instinct is to be “very cautious” about making another round of bond purchases once the Fed’s $600 billion bond-buy program expires in June, he said he would consider them depending on oil prices.

Given the new risks from the Middle East turmoil, “I prefer a posture of flexibility as regards to policy options,” he said in a speech at the National Association for Business Economics.

Source: marketwatch.com

Utah House Passes Bill Recognizing Gold, Silver as Legal Tender

The fact that this news probably surprises a large cross section of the public implies far too many high school U.S. government classes no longer study or read the U.S. Constitution beyond “We the People.”

Headline: Utah House Passes Bill Recognizing Gold, Silver as Legal Tender

Utah took its first step Friday toward bringing back the gold standard when the state House passed a bill that would recognize gold and silver coins issued by the federal government as legal currency.

The House voted 47-26 in favor of the legislation that would also exempt the sale of gold from the state capital gains tax and calls for a committee to study alternative currencies for the state.

Source: foxnews.com

Deteriorating Confidence Makes Governments Insolvent

The inability of governments to pay their obligations in constant dollars, also recognized as inflation by the public and ongoing default by capital, has been occurring since 1934. It certainly intensified in 1971. The secular gold trend suggests that 1971 was simply the dress rehearsal for a bigger show taking place right now. As a side note, the association of hyperinflation with lower stock price under the fiat currency model is not historically consistent.

Headline: Hidden Debt Makes Governments Insolvent: Bear

As we prepare for the two-year anniversary of the March 9 lows for stock markets, investors are confronted with a number of worries that make it difficult to celebrate the near 100 percent jump in equities since then.

Oil prices are soaring off the back of unrest in the Middle East, there is talk of rate hikes from European Central Bank President Jean-Claude Trichet and unemployment remains stubbornly high despite some better news from the US on Friday.

On top of these, a mountain of debt is growing but because it is off governments' balance sheets it has been so far ignored, one man who worries perhaps more than most, Albert Edwards from the global strategy team at Societe Generale, said.

One of the world's most famous bears, Edwards is adamant the global economy and financial markets are not in a good place.

Source: cnbc.com

Wall of Worry or Bubble?

Real estate was the “can’t lose” investment of a generation in 2007. Borrowing and consumption skyrocketed, and very few experts saw the formation of a stock market bubble. In other words, the headlines reflected growing optimism that the boom/bust cycle had been broken.

The stock market “bubbles” tend to pop when least expected. That is, when headlines are saturated by economic and financial optimism after years of rising prices.

Large Cap Stocks Capital Appreciation Index (LCSCAI) and Z Scores from Primary Trend (48 Month)


Headline: After historic gains, are stocks nearing a bubble?

Federal Reserve Chairman Ben Bernanke fielded the usual questions about inflation, tax cuts and government debt during a trip to Congress last week. Then a new question popped up: Is the Fed creating another bubble in stock prices?

Bernanke told the Senate Banking Committee he saw "little evidence" that was happening. But he cautioned: "Of course, nobody can know for sure."

That's the problem with bubbles. You only know you're in one when it pops.

Source: finance.yahoo.com

She's in a cla$$ by herself

Eric:

I’m a loyal follower. Great work/site.

I read the NY POST-for not only the obvious scandals, the cartoon, etc., but also for some real hard hitting stories other papers won’t touch. Geez, they had Slick Willie nailed in 1991.

Anyway, check out this beauty:

Syosset Central School District at a glance:

6,687 students
623 classroom teachers
10 schools (one high school, two junior highs, seven elementary)
$188.8 million 2010-11 budget
1% of students need free or reduced price lunches
97% students are white or Asian (3% black or Latino)
83% of third-graders scored proficient or higher on this year’s state’s English test; 90% on math exam.

Syosset school compensation

* $506,322: Carole Hankin, superintendent
* $382,382: Jeffrey Streitman, deputy superintendent
** $238,221: Joseph LaMelza, assistant superintendent
$145,114: Dean Strohmayer, gym teacher
$129,818: Jeffrey Rozran, English teacher

*Includes fringe benefits, retirement funds, perks
** Includes fringe benefits

Mark

This is an education in extravagance.

The Syosset Central School District, which serves an enclave of gated communities, ritzy eateries and children's boutiques like "Spoiled Rotten," takes the crown in employee compensation.

The school superintendent, Carole Hankin -- who oversees 6,687 kids in 10 schools -- is the highest-paid in the state with $506,322 in total compensation. She collects a $386,868 salary, $67,454 in fringe benefits and $52,000 in retirement funds and expenses including use of a "late model car," plus gas.

By contrast, New York City Chancellor Cathie Black, in charge of 1.1 million students and 1,600 schools, takes home a $250,000 salary, plus health and pension benefits. She gets a driver.

Source: nypost.com

From Mark

Euro Will Strength Through Addition By Subtraction

Market forces and economic reality, not rating agencies, have been tipping Greece closer to the brink. Rating agencies only specialize in locking the barn door after the horses have bolted.

In a surprise turn, the Euro continues to rally against the negative news flow. Clearly, capital sees something that the headline expectations cannot. For starters, it’s an alternative to the U.S. dollar. Also, capital is beginning to anticipate a contraction in the size of the European Union (EU). Essentially, the EU and Euro will strengthen through a process known as “addition by subtraction.”

Euro ETF (FXE)


Headline: Moody's downgrade tips Greece closer to brink

Moody's slashed Greece's credit rating by three notches on Monday, raising the specter that the distressed euro zone sovereign may be forced to restructure its debt, perhaps even before 2013.

The move increased pressure on European leaders to ease repayment terms on bailout loans to Greece, just as Germany and its allies appear to have turned their backs on radical steps to help Athens reduce its debt through bond purchases or buy-backs.

Source: finance.yahoo.com

There Are Bigger Gorillas In The Room

While investors have become preoccupied with the battle in Wisconsin, they seem to have forgotten the bigger budgetary Gorillas in the same room. States such as California, New York, Illinois, New Jersey, etc have much bigger defects. Bigger problems tend to mean bigger sacrifices and greater social and economic consequences.

The debate/battle ends when local and state governments can't find enough buyers for their debt offerings. That's already happening. Market forces, capital balancing reward relative to risks, ensure that the printing press disguised as infinite quantitative easing will be the only acceptable policy choice going forward.

Headline: Little-known LA police/fire retirement plan pays pension, salary at same time

The DROP program is an expensive public pension program that hardly anyone knows about, but pays out lump sums that average $200,000 and up to nearly a million dollars in some cases. KPCC's Madeleine Brand spoke with KCET's Judy Muller, who investigated the DROP program.

"DROP" stands for Deferred Retirement Option Plan. LAPD and L.A. Fire Department personnel who've worked for at least 25 years and are at least 50 years old can "retire," then go back to work immediately. When they return to work, pension payments are held while they continue collecting a salary, and after five years, they can leave and collect that money in a lump-sum payment.

Source: scpr.org

Slow And Steady Transition In Natural Gas

Leverage money flows illustrate the continuation of a net long transfer from retail to commercial traders in natural gas.

Natural Gas (UNG) and the Commercial (C) & Nonreportables (NR) Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


The slow and steady reduction commercial shorts since 2001 and increase in longs since 2009 reflects a market in transition.

Natural Gas (UNG) and the Commercial Traders COT Futures and Options Stoch Weighted Average of Long & Short As A % of Open Interest


Natural gas is an interesting market. It quietly awaits a trigger; A headline reason that will focus other people's money (OPM). The trigger, whatever it make be, will transition the market from professional accumulation to mark up.

Oil Is Headed Higher

Aggressive inflation will send oil a lot higher than $200 (USD) by the end of this cycle. Of course, gold will be significantly higher by 2016. This suggests that $200-$300 (USD) oil won't carry the same real cost as it would in 2011.

Let it not be said that the lunatic fringe cannot see the forest through the trees.

West Texas Intermediate Crude Oil (OIL) AND Oil to Gold Ratio (OILGLDR):


Headline: $200 Oil Is a "Totally Exaggerated" Forecast, Says Energy Analyst Gheit

Oppenheimer oil and energy analyst Fidal Gheit unequivocally believes that the uprisings, which have also been seen in Egypt, Tunisia and Bahrain, will spread until authoritarian dictatorships are ousted throughout the Middle East. (See: Saudia Arabia's Regime Wll Fall, Says Analyst)

If that does eventually happen, he expects oil to hit $120 to $130 a barrel -- but not $200 or $300, as some have speculated. Those calls, he says, are "totally exaggerated and totally irresponsible."

Source: finance.yahoo.com

China Signals Dominance in Stealth Jet Test Flight

A far more likely scenario than Pomfret's musings is that Hu is playing a cagey game. By hinting that the People's Liberation Army made the decision without civilian knowledge, Hu is showing he is reasonable and not warlike but the test underscores China will no longer be bullied by America.

This carries monetary implications going forward.

Washington Post columnist John Pomfret argues the recent test flight of the J-20 stealth fighter just hours before U.S. Defense Secretary Robert M. Gates met with Chinese President Hu Jintao was a blunt challenge by the military establishment to Hu's power. (Click here for Youtube video of the fighter jet) Pomfret surmises there is chaos within China's political circles because it appeared to Gates that Hu did not know of the test. Pomfret's hypothesis would certainly be a scary if true.

But is Pomfret right? Is the military really taking on President Hu in a power struggle? Is China about to crack?

Far from it. The opposite is true. President Hu is undoubtedly quite in control of China and displayed his power to Gates by employing a plausible deniability ploy.

A far more likely scenario than Pomfret's musings is that Hu is playing a cagey game. By hinting that the People's Liberation Army made the decision without civilian knowledge, Hu is showing he is reasonable and not warlike but the test underscores China will no longer be bullied by America. Hu's ploy of plausible deniability is in fact a common negotiating technique by the Chinese and it is surprising that Pomfret and other pundits missed that.

Source: finance.yahoo.com

Investment History Made One Day At A Time

The gold stocks, following three taps and out trading heuristic, broke away from long-term consolidation on May 2010.

S&P Gold (Formerly Precious Metals Mining)*
*S&P Gold from 1945, Barron's Gold Stock Index from 1939-1945, 1922-1939 Homestake Mining


As expected, the gold shares have also tightened their correlation with gold.

Historical Correlation Gold Stocks and Gold

2010.12


2011.02


Now gold and silver, breaking away from upper channel resistance, are beginning to accelerate to the upside.

Silver, London P.M. Fixed


Investment history is made one day at time, yet few investors seem to recognize the key events.

Perhaps the rumors of the possible introduction of McLobster provides just enough distraction to keep the public investing in the old paradigm. :)

The Problem Is Debt, Not Jobs

The rate of job destruction has slowed appreciably. This is illustrated by the slow and steady climb of Jobs Creation Histogram (JCH) towards zero. While this is good news for job seekers, it does not suggest an end of the economic problems that continue to plague the global economy. The headlines and talking heads seem unable to recognize is that today’s economic problems are debt rather than job based.

Gold has and will not decline on “good” jobs news, because job creation is not driving it. Gold is rising as a result of currency devaluation across the globe. Currency devaluation, i.e. printing money to meet obligations, has been the politically acceptable solution to excessive debt burdens that trouble most industrialized economies.

Job Creation Histogram (JCH): Net Nonfarm Payrolls Added/(Lost) less Civilian Labor Force Added/(Lost), 12 Month Average.


Headline: February payrolls jump, jobless rate near 2-year low

Employers hired more workers in February than in any month since May last year and the unemployment rate fell to a near two-year low, the strongest sign yet the recovery has become self-sustaining.

Nonfarm payrolls increased 192,000, the Labor Department said on Friday, in line with expectations. Data for December and January was revised to show 58,000 more jobs created than previously estimated.

Source: finance.yahoo.com

U.S. Dollar Index At Important Technical Juncture

The dollar index is dangerously close to completing the "three taps and out" trading heuristic of a large consolidation pattern that formed in 2008. A break of this pattern would signal not only continuation of the secular downtrend and but also, and more importantly so, further loss of confidence in the dollar and the paper it denominates.

U.S. Dollar Index

One Heck Of A Mess

That’s because Mr. Gross is no dummy. He knows that economic growth is highly dependent on public sector spending. This is fact – right or wrong. Economic growth will crash faster than public support for increased taxation if the flow from the spending spigot is restricted too quickly. States, according to the Constitution, cannot declare bankruptcy (at least not yet) and unlike their Federal counterpart they lack the ability to devalue to meet their growing obligations. This means the federal government, like it or not, is coming to the States' or peoples’ rescue sooner or later. It will likely be sooner rather than later. The "rescue" will be either through direct cash infusions to State coffers or indirect federal stimulus and quantitative easing to combat the massive drop in local, state, and personal spending. It could be characterized as one heck of mess, but that might be an over simplification.

Headline: PIMCO Gross urges slow pace of deficit cuts

Bill Gross, co-chief investment officer of PIMCO, the world's biggest bond fund manager, on Thursday urged lawmakers to cut the massive federal deficit but not so swiftly as to choke off the nascent economic recovery.

Speaking exclusively to Reuters Insider, Gross said: "Let's cut the deficit, but let's do it gradually," so that real economic growth can take hold.

Lawmakers struck a deal on Wednesday that delays for two weeks a showdown over the current year's spending plan. Republicans are seeking some $61 billion of cuts to help reduce the deficit, estimated to hit $1.65 trillion this year, but Senate Democrats are preparing a measure that would keep funding essentially flat.

Source: finance.yahoo.com

Rising Stock Markets Don't Always Translate Into Currency Adjusted Profits

The proper description would be Wall Street jumps on optimism that quantitative easing will continue unabated until the wheels fall off. That verison is not as user friendly, so as George Gershwin once wrote,

You like "po-tay-to" and I like "po-tah-to",
You like "to-may-to" and I like "to-mah-to";
Po-tay-to, po-tah-to, to-may-to, to-mah-to!
Let's call the whole thing off!

Most investors have yet to realize that rising stock markets don't always translate into currency adjusted profits. And, so continues the real-time lesson in currency devaluation.

U.S. Large Cap Stocks Capital Appreciation Index (LCSCAI); S&P 500 to Gold Ratio


Headline: Wall Street jumps on optimism before jobs data

Stocks rallied on Thursday as oil prices slipped and better-than-expected economic data raised expectations of a strong employment report on Friday.

With oil prices pausing from their recent climb, investors focused on the U.S. economy, which has shown steady improvement in reports this week. Many believe the Labor Department's report could be a turning point for the recovery.

"The expectations are high," said Bill Strazzullo, partner and chief investment strategist at Bell Curve Trading in Boston. "I don't think anybody wants to be short going into tomorrow's payrolls number."

Source: finance.yahoo.com

Economic and Social Problems Stem From Failing Debt

Nothing unexpected. The problems we face today stem from failing debt - not the number of people requesting unemployment benefits. It still works because the need to believe outweighs most higher order, economic reasoning skills.

Average Weekly Initial Claims State Unemployment (AWIC) And YOY Change


Headline: Unemployment aid requests fall to near 3-year low

The number of people requesting unemployment benefits last week plunged to a nearly three-year low, bolstering the likelihood that companies will increase the pace of hiring this year.

Applications for unemployment benefits fell by 20,000 to a seasonally adjusted 368,000, the Labor Department said Thursday. It was the third decline in the past four weeks. Applications are now at their lowest level since May 2008.

Source: news.yahoo.com

Mailbox

Mike,

I appreciate your and all comments, but respectfully suggested a more comprehensive review of my analysis before reaching any broad conclusion. As I have explained numerous times in the past, nominal charts (unadjusted for currency depreciation) are useless when studying secular trends. Dow 10,000 is meaningless is but one of many commentaries that supports this perspective.

The identification of secular trends, whether it be stocks, real estate, silver, gold, or any other asset, can be achieved only through the study of stationary time series. Assets priced in depreciating currencies are nonstationary. Historical comparisons within a nonstationary time series will lead to statistically unsound conclusions and inhibit proper recognition.

The US dollar or nominal chart illustrates one of many messages from the silver market. The message that should be attracting investor’s attention is the change in the trend’s acceleration – nothing more. While price is a concern at the point of purchase and sale, it is but one dimension of profit. A large spread between purchase and sales price becomes increasingly insignificant as the total number of ounces acquired decreases.

Respectfully Yours,

Eric

Eric,

How can a chart dated from 1971 be used to make projections into the future, without that chart being inflation adjusted (either by government CPI or better, honestly, as per SGS.) The US dollar of 1971 bears no resemblance in value whatsoever to the dollar of today. Just like an inflation adjusted chart would bear no resemblance to the silver chart published today. Yet I see minds as great as yours, Sinclair's and Armstrong's doing this. I respect and deeply appreciate your work, but isn't this like trying to take accurate scientific altitude measurements while standing in quicksand?

Mike

Hedge Fund Titan's Principles

Every once and awhile (a long while) F-TV produces a guest that provides a moment of economic and financial clarity for the mainstream.

Hedge Fund Titan's Principles

Sprott, CEO of Sprott Asset Management

BNN talks to one of the world's leading investor's and investment strategists Eric Sprott, CEO of Sprott Asset Management and finds out just how precious the metals are.

Video: watch.bnn.ca : The Street : March 1, 2011 : Silver is Money

The 2003-2011 linear trading channel has been broken to the upside. This increases the probability of a higher-order (parabolic) advance into resistance.

Silver, London P.M. Fixed

Boise County files for bankruptcy

And, so it begins, driven not by politics (leadership) but rather market forces.

In a move rare in the United States and perhaps unprecedented in Idaho, Boise County is filing for federal protection against a multimillion dollar judgment.

“This was not our first option. This was our last option,” said Jamie Anderson, chairwoman of the three-member Boise County Board of Commissioners. “This protects us so we can continue to operate.”

Chapter 9 protection, from a section of federal code expressly for financially distressed municipalities, means that creditors can’t collect while the county is developing a plan for reorganizing its debts.

Dan Chadwick, an attorney and executive director of the Idaho Association of Counties, said he is not aware of any other county, city or taxing district in Idaho ever filing for bankruptcy. He’s been with the association for 20 years and before that was at the Attorney General’s Office for 10 years, he said.

Source: idahostatesman.com

From Bob

The Average American Doesn't Stand A Chance

So, while I take those commodity price increases very seriously, I don't think they are primarily a dollar phenomenon.

In Testimony to House Panel, Ben Bernanke

As a result,

The Average American:



Headline: HIGHLIGHTS-Bernanke's testimony to House panel

BERNANKE: NO MAJOR SHIFT AWAY FROM THE DOLLAR:

"I just don't see at this point that there is a major shift away from the dollar. I would add also, on the commodity prices, that, first, that the fears of some foreign governments that we were, quote, manipulating the currency, by which one means that we were reducing the value of the dollar, has not come true. The dollar has not moved very much at all. And commodity prices have risen just about as much in other currencies as they have in terms of the dollar. So, while I take those commodity price increases very seriously, I don't think they are primarily a dollar phenomenon."

Source: uk.reuters.com

Real Economic Growth Remains Anemic

Unexpected, or surprising strength, always grabs investors’ attention. It screams the right message – the economic recovery gains traction. Unfortunately, the analysis fails to reveal that liquidity (inflation) is driving growth. In other words, real (inflation adjusted) growth remains weak. ISM’s prices paid (PP) to national purchasing manager’s index (PMI) ratio illustrates this trend since 2008. Today’s economic recovery, positioned as the Great Recession buster, is simply following in the footsteps of the previous liquidity driven recovery from 2001 to 2008. The only exception being is that this recovery will have greater amplitude or price distortions as the number, size, and duration of the liquidity injections have increased substantially.

ISM Prices Paid Index (PP) to National Purchasing Manager's Index (PMI) Ratio:


Headline: Manufacturers see fastest growth since 2004

Activity at American manufacturers expanded in February at the fastest pace since 2004, though companies have grown more concerned about rising inflation, according to a closely followed index released Tuesday.

The Institute for Supply Management said its manufacturing gauge rose to 61.4% in February from 60.8% in the prior month. Any reading over 50 indicates that more manufacturers are expanding instead of shrinking.

Source: marketwatch.com

Headlines Sell Drama

Headlines convey concern while a message from the market supports a coming turn. This is not revealed as an aid to time the market but rather an illustration of how drama rather than analysis sells headlines. While drama encourages clicks, it is of little use in the world of investing profits.

New York Composite Index:


Headline: Stocks take another pounding amid oil price fears

Stocks took a pounding Wednesday as oil prices edged higher once again amid concerns over how the crisis in Libya will end now that the oil-rich North African country is effectively split in two.

Insecurity has spread through markets as the international community remains at odds about how forcefully to intervene in Libya and the regime of longtime leader Moammar Gadhafi claws back some ground lost to the rebels.

Source: finance.yahoo.com

Labor Market Still 'Sickly"

Again, anyone suggesting an early end to quantitative easing (QE2) is delusional. Headline analysis will skip over this trend.

Challenger, Grey, and Christmas Announced Layoffs (ALO) And YOY Change:


Headline: Planned layoffs spike in February

Don't look now, but one measure of job market health is starting to look a tad sickly.

Employers announced plans to cut 50,702 jobs in February, a 32% increase over January, according to outplacement consulting firm Challenger, Gray & Christmas.

Source: money.cnn.com

Vicious Downward Cycle Intensifying

The vicious downward cycle (see Jim's formula) that started that started in 2001 and rematerialized in 2008 is beginning to intensify in 2011. This suggests an acceleration in the trend toward a lower standard of living for Americans as the shockwaves of public spending cuts negatively impact local, state, and eventually federal coffers. The public sector, contracting under the weight of a massive debt burden, has few options without the bankruptcy protection or ability to devalue. The message from national municipal bond market reflects this “damned if you do, damned if you don’t policy quandary. Expectations calling for an end of quantitative easing will once again be proven premature.

US Federal Budget (Surplus or Deficit As A % of GDP, 12 Month Moving Average) and Gold London P.M. Fixed:


Headline: Wis. governor proposes deep cuts for schools

Even though Walker isn't ordering immediate layoffs, his budget will put tremendous pressure on schools and local governments, which will be asked to shoulder huge cuts without raising property taxes to make up the difference.

Walker's budget includes a nearly 9 percent cut in aid to schools, which would amount to a reduction of nearly $900 million. The governor also proposed requiring school districts to reduce their property tax authority by an average of $550 per pupil.

Source: news.yahoo.com

Ohio union plan like Wisconsin draws protests

Are domestic protests, civil in comparson to their international counterparts, any less significant in terms of social and economic consequences despite the lighter media coverage? The markets say no.

Headline: Ohio union plan like Wisconsin draws protests

More than 5,000 protesters converged on Ohio's state capital on Tuesday as state lawmakers considered a bill like one in Wisconsin to curtail collective bargaining rights for public workers and eliminate their right to strike.

Republican supporters of the Ohio proposal said the limits to public workers' ability to bargain are necessary to give local governments flexibility and help reduce the state's two-year budget deficit of about $8 billion.

"Over time, these contracts have often incorporated demands that frankly belong to public employers rather than employees -- things like specifying the number of workers that should be assigned to a specific job," said Jason Mauk, a spokesman for Ohio State Senate Republicans.

Source: finance.yahoo.com

Mailbox

I would add that the gloves are off for gold and silver. This is happening for a reason.

Eric

When the fraudulent truth of OTC Derivatives surfaces it will lay waste to the international investment banks and distributors.

Jim

Subprime securities litigation could run Goldman's legal tab up by $3.4 billion

by KERRI PANCHUK
Tuesday, March 1st, 2011, 10:41 am

Litigation and regulatory actions tied to Goldman Sach's selling of mortgage-backed securities could cost the investment bank an additional $3.4 billion in legal expenses, Goldman's said in a Securities and Exchange Commission filing this week.
The $3.4 billion is a "worst-case scenario" projection and does not reflect the true risk Goldman faces, but rather what could happen if the firm lands on the losing end of all litigation, a spokesman for the firm said.
The company's projection of greater-than-budgeted for legal expenses puts it in company with Bank of America, Wells Fargo & Co. and JPMorgan & Co., all of which are facing billions in extra legal expenses in 2010 to fight consumer and investor litigation, as well as regulatory actions.
"The firm is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of the firm’s businesses," Goldman said in its filing. "Many of these proceedings are at preliminary stages, and many of these cases seek an indeterminate amount of damages."
Goldman landed in the firing line of the Financial Crisis Inquiry Commission when the group investigated the causes of the 2008 financial meltdown.
The commission weighed heavily into Goldman Sachs for allegedly pushing subprime mortgage-backed securities while simultaneously shorting the same instruments.
Many of the legal filings pending against Goldman Sachs were filed by purchasers of subprime mortgage securities who are either demanding damages or asking Goldman's to repurchase the securities they sold.
Goldman is also fighting multimillion-dollar lawsuits that claim a similar strategy was employed by the investment bank's marketing of a collateralized default obligation platform, known as ABACUS.

JB Slear
Fort Wealth Trading Co LLC.
866-443-0868 Ext 104
817-717-5489
Fax: 817-764-2537
http://www.fortwealth.com/

An Island of Stablility With Cat 5 Hurricane Bearing Down On It

The Yen described as a traditional island of safety? Investors will find no safety in any island (safe haven) with a category 5 'monetary' hurricane bearing down on it. People will always view the world according to their biases, so arguing against this assertion tends to be a waste of time.

Don’t let your biases establish your perceptions. If the Yen or any other paper money was an island of stability as suggested, the major and broad currency gold price trends illustrated below would characterize a ski slope rather than growing mountain.

Gold London PM Fixed and U.S. Dollar Major Currencies Index Ratio:


Gold London PM Fixed and U.S. Dollar Broad Index


Headline: Investors Are Seeking Safety in New Harbors

For years, whenever significant political or financial turmoil reared its head anywhere on the globe, investors would turn to the U.S. dollar as a safe haven.

Yet as the chaos in North Africa has grown over the past month, investors have largely shunned the dollar and sought shelter elsewhere. They have turned to other traditional islands of stability, buying Japanese yen and the Swiss franc.

Source: online.wsj.com

Between the Lines Analysis of TIC Data Reveals A Market In Turmoil

The frequency of revisions within the TIC data series suggests a paper market in turmoil. One would never know that from the headline interpretations. The revisions are becoming so frequent that historical comparisons are becoming increasingly difficult. Yet, anyone believing that world's paper shufflers will allow data releases such as the TIC to communicate failing demand for key paper markets is likely delusional. The interpretation will be "all-is-well" right up to the point where it is clearly not and spin cannot communicate otherwise.

Major Holders of U.S. Long Term Treasuries:


Headline: China's holdings of US debt jump 30 percent

China, the biggest buyer of U.S. Treasury securities, owns a lot more than previously estimated.

In an annual revision of the figures, the Treasury Department said Monday that China's holdings totaled $1.16 trillion at the end of December. That was an increase of 30 percent from an estimate the government made two weeks ago.

The government made the change to its monthly report based on more accurate information it obtains in an annual survey. That survey more does a better job of determining the actual owners of Treasury securities.

Source: finance.yahoo.com