The Consumer

Economists have a heck of a time with the consumer. These types see a tanked confidence report, work that into their forecast; then it’s converted to crow bait by reality the next month.

The consumer is a tad difficult to understand if you use the left side of your brain. If you sense directly, as we do, you’ll do just fine.

A US economist said recently that the consumer is a mystery. No he is not.

US consumer activity will continue to "surprise" to the upside, flattening Wall St estimates.

Wild card - gasoline prices tagged to armed conflict, Mid East.
　

Robert Craven

Core Exercise

We want to review anchors set earlier. We are interested in anticipating price change over the short to intermediate term so we don’t care so much about absolute levels, as reality vs consensus. This is always our core exercise.

We noted that clients could expect developments in Japan and China to broach consensus view. That is, more than expected from Japan despite a strong yen; more from China despite a Bk of China braking. We noted that Germany would remain resilient. Finally, we noted that consumer and employment activity in the US would broach estimates, St consensus.

Recent reports indicate we are reasonably on track. Japan’s GDP (8/15) was better than expected, as were today’s housing starts. Little from China. Today’s German unemployment and retail sales activity were both better than expected. US consumer activity as reported Monday was better than expected. We will see on Thursday and Friday how well our employment anchor has held.


Robert Craven

A Special Tribute to Albert E. Sindlinger

Our last post laments the lack of predictive content of present consumer surveys. Any FI manager for example that sets strategy off these, should be fired.

The product of Sindlinger & Co. however was a different animal indeed. We knew Albert quite well. His endorsement -"Bob Craven elevates my awareness of what moves the fixed income markets. He expertly decodes the flood of news and information and focuses on those elements with real market moving potency." - is one of our most valuable possessions.


Background: President Herbert Hoover wanted to understand the consumer. He told Sindlinger in the 1930's that not being able to understand the mind of the consumer crippled policy makers. So, with Hoover as an investor, Sindlinger started Sindlinger & Co in 1948.

We lost Sindlinger, Nov/2000. He was something. When he used the term "consumer confidence" it didn’t come from the position of present surveys. It came from an understanding that the financial condition of households was the key to understanding behavior. And his results carried - no surprise - considerable predictive content.

Sindlinger knew better than Michigan or the Board.

From the business writer John Cunniff: "During his long career, his sometimes raspy voice became familiar to scores of government and business officials. Determinedly independent, he was often too absorbed in his work to abide formalities, and he resisted buyout bids to guard what he considered his obligation to speak factually and truthfully, even if it cost him clients, which sometimes it did."

We miss you Albert, your generosity, your rigid adherence to truth, your wisdom. They don’t make ‘em like you anymore.

Robert Craven

Could It Be That Easy?

The Conference Board read for Aug took a dive. A similar measure in the EU did the same.

Consumer surveys are big business, darlings of the press. But are they of any use to strategists?

Could it be that easy? For traders, planners - take the read as gospel?

Would those 3000 households surveyed each month by the Board perhaps tell a little white lie? Apparently.

This is the only explanation of why the leading characteristics of this and similar surveys are very poor Somebody on the way to buy a refrigerator will always complain to the pollster, and play down his plans to go ahead with the Jacuzzi.


Robert Craven

The Horse is Long Gone

"When US consumer spending is improving, it’s a very good indicator that the US economy is improving," said Dan Weston, a portfolio adviser in Munich, referring to today’s numbers.

A tad late Dan. The horse is out of the barn, long gone. One must anticipate the print, not react.

Robert Craven

The Fed and the Mob

Pres candidate Paul Ryan is on to something, referring this pm to Bernanke - "...he is not having another Q3," ok, to correct, "..a Q3," but you get the point.

Ryan is right. Bernanke knew he would have his head taken off by the mob if he said just that this weekend.

Easier to put it off. By September the crowd will have dispersed.

To close the pattern just ahead, you must understand economics but you must not think like an economist.

An understanding of crowd behavior is far more important.


Robert Craven

Meltdown and Poor Ms Merkel

The EU remains the primary potential market mover this week, eclipsing even Friday’s Payroll report.

Past months we have maintained that the EU is doomed, simply a question of timing. Now we have plenty of company.

Fiscal austerity forced on the lesser credits and the ECB’s restrictive policy forced on all, past few months (memories of the Weimar ?) have brought the region right to the abyss.

We don’t envy Merkel; she likely wishes she’d stuck with physics (her major). A Christian Social Union document to be released on Monday, according to the Telegraph, "flatly rebuts the latest accord between Chancellor Merkel and French president Nicholas Sarkozy, saying plans for an ‘economic government for eurozone states are unacceptable. It demands treaty changes to let EMU states go bankrupt, and to eject them from the euro altogether for serial abuses." Whoa!

Hold on.


Robert Craven

Thank You Ben

We long ago learned to distill, to discard fluff.

Our example comes from a story Ben Franklin told to Thomas Jefferson as he, Jefferson, was struggling with the wording of the Declaration of Independence:

A hatmaker wanted to put this sign outside his shop: "John Thompson, hatter, makes and sells hats for ready money," accompanied with a figure of a hat. But John’s friends had other ideas. The first thought "hatter" should be stricken because it already said he made and sold hats. So it was omitted. The next thought the word "makes" should be omitted because his customers didn’t care who made the hats. It was struck out. The next thought the words "for ready money" were useless as Thompson did not sell on credit and everyone knew it. That left "John Thompson sells hats." But the next said, strike "sells" as no one expects you to give them away. But why bother with "hats" if one was painted on the sign? So a pic of the hat and John Thompson said it all.

Thank you for the inspiration Ben.

Robert Craven

Camouflage

Credit agency hijinks and EU deterioration have acted to camouflage US potential. Thus, price discovery in the debt and equity markets does not reflect US fundamentals.

For those who may bother to look, there are signs of vigor into year end. That is, the St view for stagnation is flawed.

Finally, authority figures (Fed / IMF) have scolded Washington to do the obvious. This will cheer potential employers, locked in place by the reality of suffocating regulation and fiscal imprudence.


Robert Craven

With The Fed Out of the Way....

With the Fed out of the way, we can be a tad more constructive on the US real sector.

Consensus has the US in stagnation, near term. No, there will be moderate growth into year end, on 6 of 8. Both employer and consumer (Irene ?) will surprise.

Canada will tag along, and both Japan and China will broach expectations. The emerging credits will continue to "emerge."

A judgement on the EU is necessary before setting trades however as that very potent wild card remains in place.

Robert Craven

Up to Washington (To Get Out of the Way)

Bernanke has learned that he’s firing blanks. At this point, "most of the economic policies that support robust economic growth in the long run are outside the province of the central bank," he said.

Bernanke noted quite correctly that it’s now up to Washington to institute pro-growth policies.

In our book this means rescinding obamacare and the rest, and then getting out of the way.

When we listen to business leaders we hear that it is Washington’s anti-growth policies that got us in this mess. We look to results of Nov 6, 2012 to guarantee our escape.


Robert Craven

The Weaning Process

What Bernanke did today was begin the weaning process. Good move Sir.

He may have recalled the fate of Capt Cook. A particular Hawaiian crowd manufactured Cook into a god. When they found out he was not, it did not end well for Cook.

Thus, Bernanke said further action will be considered at the Sep meeting. This is part of the weaning process.

There will be nothing in Sep, but by then, the crowd will have dispersed.


Robert Craven

The Crowd and Bernanke

The Philly Fed’s Plossner repeated to CNBC today that which most policy makers, we believe, fear to be true - a QE3 would do nothing to help the economy.

This is why we titled a recent sketch "Cheerleaders." This time Bernanke knows he is very much in a bind, one of his own creating. He is now hostage to expectations, to the demands of the mkt crowd.

If their god does not deliver, the crowd will resort to violence. Cooler heads had better stay indoors.

Robert Craven

What Happened (In 4 sentences)

Obama inherited a difficult situation, one which he had a direct hand in creating, and then made it much worse.

While in the Senate Obama voted to protect the twins (Fannie, Freddie) from much needed reform, in a partisan move to buy ghetto votes.

Once in office Obama immediately invented obstacles to job creation, Obamacare the first up.

The Fed acted properly Q4 ‘08, H1,‘09, but then blew it through bad judgement calls.

That bring us to the present.

Both the Fed and the administration may have learned to sit on their hands. If so, and after medication is applied by the free mkt, we will prosper.


Robert Craven

god

What we are witnessing is crowd behavior at its best. Be it lynch mob or mkt mob, all mobs manufacture a leader, their god-for-a-day. They surrender individualism and assume a lynch or mkt mentality. Then that crowd demands salvation be delivered by that god they have created.

From The Crowd by Le Bon, "The crowd unconsciously accords a mysterious power to the.... leader that for the moment arouses their enthusiasm. They demand a god before anything else."

Surrendering their fate to a god - in this case Bernanke - rarely ends up well in the end.
　

Robert Craven

Take the Pain

Kicking the can ahead simply delays the inevitable; we remain in a state of economic flux. "Too big to fail," was wrong, and a disaster. Obama’s stimulus was a tragedy, a complete failure (as we predicted it would be before a dime was spent). Bernanke’s QE2 sparked less-than-deserving equities for a handful, and inflation for the rest of the world, also as we predicted.

Architects of these measures may be public servants but they are not serving the public. All know what is required, just so long as it is applied under the next guy’s watch.

　
Robert Craven

Old Faithful

Bernanke might visit Old Faithful this week, given he’s close by. The geyser demonstrates regularity, and thus confidence on the part of its beholders. This is Mother Nature’s version of rule-based activity.

We know of course that Bernanke’s Fed has strayed far from rule-based activity, and through QE2 created a mess in the process.

Lesson learned? We’ll soon find out.


Robert Craven

Profoundly out of Their League

Headline this pm: Moody’s cuts Japan credit rating to Aa3.

Who cares? Nobody. This is posturing by a soon-to-be, all but ignored credit agency.

Japan enjoys the lowest borrowing rates in the world. Does that sound like a sovereign with a credit problem?

This is noise from one of three US credit agencies now under the gun; all three profoundly out of their league.


Robert Craven

Opportunity

Our method - an ongoing search for any major flaw to market-crowd view. Here are anchors set earlier as a result of that exercise: US vigor into year end will exceed expectations (nothing spectacular naturally). / Growth in China to be stronger than expected. There will be no hard landing / Japan’s resuscitation will continue to blow through estimates, this despite a firm yen.

Wild cards: Regional armed conflict, Middle East (Iran - Saudi) / EU meltdown.


Robert Craven

Cheerleaders

The Fed can call the next move anything they want. It’s cheerleading. The play book is empty.

Cheering equities temporarily is not a fix.

Charles Plosser of the Philly Fed is right. Plosser said in an Aug. 17 interview that the Fed is "risking its credibility because it’s doing things that don’t work."

Our clients have know that for some time.
　

Robert Craven

Thanks a Lot

It was French paranoia of US competitiveness that birthed the EU. Many understood early on it would fail. Many of these were not economists - Margaret Thatcher for example.

At ground zero - human nature. Karl Marx was wrong but the EMU’s architects, being the social democrats that they were, conveniently forgot that lesson.

Now they have made US bond holders very happy and caused equity types to wonder if they’ll see tomorrow.
　

Robert Craven

Thank You for the Transition Bernanke

There is the view today that given the +0.5% gain in July CPI yesterday, the Fed’s hands are now tied. But that the Fed’s hands had been tied all along.

The inflation spike H1 was cost push, due to higher commodity prices, much of that due to a weak $. And the weak $? A direct result of QE 2.

Of course Bernanke told us those higher commodity prices "will be transitory." He should know. This inflation kills real growth, and it did.

Thank you for the transition Bernanke.


Robert Craven

Skin in the Game

You’re track record is everything - money manager or consultancy. The rest - noise.

For example, Alan Sloan of Fortune, "I spent July on family leave, not writing columns, and watching with increasing horror as market-illiterate know-nothings, abetted by the craven leaders of the Republican Party (from which I'm about to resign) and the unspeakable ineptness of Obama and his minions, brought our country to within an inch of defaulting on its debts."

(Careful with the use of my name Alan, or you and I may settle with pistols at 30 ft, and I have a feeling things would not go well for you.)

My, my. "...increasing horror..." Poor Alan, how could you take the pain man?

These types have no skin in this game. They don’t care. Of course not, they love it. Shells for their scatter gun. No one holds them accountable.


Our hat goes off to Bacon, to Druckenmiller, to Soros (politics aside), to Niederhoffer. These guys have skin in the game; they are in the arena, marred by dust and sweat and blood.

They never heard of Sloan.


Robert Craven

Price Discovery

Adjustment, price discovery is more rapid nowadays. New technology has seen to that. What might be an otherwise extended reaction to any new mkt view is now a leap.

There is the growing view for a domestic slowdown. There is the view that stalwarts Germany, Japan and China have met headwinds.

There is the realization that the vibrant, emerging-mkt types cannot pack the load alone.

There is the fear that the US is vulnerable to the failed experiment of the EU, through exposure to
US facilities of European banks. There is the fear that those banks themselves may soon encounter funding problems (one has already tapped an emergency ECB lending facility for $500MM).

As a result, world investors leap to the US for sanctuary. Look no further than the US 10yr at 2.06% vs 2.25%, Aug/17, as evidence of that.


Robert Craven

Humility

The Phily Fed survey has very good leading characteristics. Today’s Aug print (-30.7 vs +4.0, consensus) we thought must be a typo!

For this and other reasons, we now question our constructive view re Q4.

Insight delivered Q4, ‘10, most of H1 was satisfactory. But then, in choosing June/4 as the cyclical low on US interest rates we totally ignored potential world quality flight. In predicting on Aug/5 that equities were a buy and that yields were at a bottom (abandoning a tradition of many years to eschew just this sort of thing) we were simply reckless.


Robert Craven

In League

The incestuous relationship between the Fed and money interests has been a secret only to the willfully blind. Under Greenspan, policy makers towed the party line or else. So did Wall St firms, or else.

Now, some policy makers have seen that in truth there is personal salvation. Both Charles Plosser, pres of the Philly Fed and Richard Fisher, pres of the Dallas Fed said Bernanke was wrong to protect stock investors, "inappropriate policy at an inappropriate time," noted Plosser.

We noted earlier that equities are very vulnerable because much of earlier gains was simply froth generated by QE 2.
　

Robert Craven

EU

Having problems getting your arms around this one? These guys are tanking your 401K or killing your nursery business? You don’t like getting fleeced by Europeans? No sense of humor?

Not sure about a "fiscal fusion," or EMU "debt union?" Confused about ECB intervention?

Want to make it easy? Recall the words of Karl Marx - "From each according to his ability; to each according to his needs." Ever known that to work? The folks up north are not happy about picking up the bill for the folks down south who figure they’re entitled.

That’s all there is to it.


Robert Craven

Oil?

Folks die in Syria. From today’s The National Interest: "The Saudis sense a strategic opportunity has opened in Syria, a unique chance to deal a mortal blow to one of their enemies, the Shia terror group Hezbollah, and a serious blow to their regional adversary Iran."

"Riyadh worries that Assad will be replaced by chaos, but it has now come to the conclusion the risk is worth the price. If the Assad regime is destroyed, so too will Syrian support for Hezbollah be destroyed. If a new regime emerges that reflects the will of Syria’s majority-Sunni population, it can become a base for destabilizing the Hezbollah-dominated government in Beirut. The power balance in the Levant could be tilted decisively against Hezbollah and undercut Iranian regional influence."

We don’t know enough about the region to assign odds to armed conflict between sovereigns. But we suppose those who do are not short oil.

　
Robert Craven

Anchor

Today’s results, stateside, fit our view for an acceleration into year end.

July Industrial Production made crow bait of estimates, printing 0.9% (and June was revised higher).

July Housing Starts were off, but not quite as bad as expected at an annualized pace of 604 million units. Of course they are sluggish but key now is to expect a positive trend ahead. Same for Existing Home sales. This will kick in, year end..


Robert Craven

Back to Housing

Ironic is it not? All the bad mouthing of America, the "credit downgrade" (by a thoroughly disgraced rating agency) and yet US rates are the lowest of any major credit. My, my.

We have ignored housing the past two years as there was no chance for a breech of consensus; that is, no opportunity for us. In the cellar is in the cellar. Now we’ve sensed something!

We can look for a spark, given 1) the tanking of US interest rates as world investors - thank you very much - ran for the covers, 2) the realization that civilization has not ended as we know it, that the powers of US resuscitation were not so much dormant as smothered; and finally, 3) the snowballing view that real estate is cheap!

We have July starts tomorrow. They were improved last month. Tomorrow’s reading may be off a tad, but then look for this and related housing reads to trend higher into year end.
　

Robert Craven

Wild Cards

We can remain constructive on US growth; that is, reality ahead will exceed expectations. The mkt crowd looks for stagnation. No. The US consumer, and job creation will both exceed forecasts.

Potent wild cards exist however. Most are giddy re oil prices but a Saudi / Iranian conflict would spoil that party. The "Arab Spring" is nearly forgotten but tensions remain.

Next, the EU posses a great threat. Recall we think EU developments were 70% responsible for last week’s mayhem. There has been a spike in O/N funding there; thus many institutions are finding their standard funding lines more difficult, more expensive to access. Not good. We will follow with a special on this region.

Robert Craven

Japan the Engine

We see this pm that Japan’s GDP for Qt 2 shrank only 0.3% vs expectations of - 0.7%.

Exactly. We have known that Japan’s recovery would flatten estimates. Down only 0.3% for goodness sake afer that tragedy? No one else could have done that.

Watch the Japanese print a big plus for Q3.

Now the media, nothing else to do, predict the strong yen will spoil the party. Nonsense.
　

Robert Craven

Shock Treatment

Many of us knew early on that the suffocating regulation that goes with an activist administration would act as a governor on any recovery, capping vigor. Now that insight is rapidly becoming consensus.

Much of what we have experienced then is little more than a cleansing, or a heaving up of the rich meals of the recent past.

This includes not only an abrupt halt in the journey towards a social democracy, but also the end to the excesses of a Fed too long the lap dog of the banking community. As to the later, this may be one reason Ron Paul did so well in the recent straw poll.

Employer and consumer alike were cheered by the results of the Nov/10 election. We expect this same bunch to become downright giddy at the 2012 results.
　

Robert Craven

Real Estate

A positive delivered by last week’s hysteria is substantially lower US Treasury rates, from which all mortgage activity - whether refi or outright - is based. If the mkt violence is the fever before the recovery, which is our view, then this sector will be sparked by this development.

Let’s hope we are right.
　

Robert Craven

300 in the Quarter Mile

We believe our early appraisal of the situation is about right. Roughly 70% of the turmoil last week - perceived problems of the EU as they may impact the US; roughly 30% - worries about US domestic considerations.

We have little direct exposure to EU sovereigns but indirect exposure by the way of bank lines to EU / UK banks that are exposed. We’re no longer close enough to that situation to know just how much, but observers think it may be a lot. That situation has been "band aided" for the moment. We cannot assign odds to an outcome.

The US real sector will surprise to the upside, H2. Most now look for stagnation. No, both employers and the consumer will cooperate, our anchor from earlier posts; the last two releases (Claims, Retail Sales) support our view.

We’ll recover, yes, but on maybe 6 of 8. It is government interference that stands in the way of full blown acceleration. Picture that railer (dragster), equipped with a blown Chrysler hemi block, putting out 1800 hrsp, pushing through 300 mph in the qt mile. The policy of the administration keeps the railers in the garage - no one can agree on the rules of the race, there’s nothing level or straight about the course. Nobody in his right mind wants to hit 300 and then be thrown a curve.

　

Robert Craven

Falling Knife

We stated after the close Friday, Aug/5 that equities were a buy, that bond yields were at a bottom and that there would be no meltdown Monday morning, Aug/8. Ooops.

For the week the Dow is off 175 and yields are 25 bps lower on the 10 yr Treasury.

Son-in-law Carter was right when he cautioned, "not to try to catch a falling knife."
　

Robert Craven

Monday, Monday

".....can't trust that day,
Monday Monday, sometimes it just turns out that way

Oh Monday morning, you gave me no warning of what was to be"

Seventy % of what was bothering folks was EU stuff. The ECB wised up, at least according to reports this pm.

Major melt down Monday morning? Of course not.



Robert Craven

The Convenient Core

We for some time have argued that the Fed errors in ignoring food and energy prices in measuring price change - relying instead on the so-called "core" CPI. It is the headline number that is most meaningful as anyone knows who’s been to the gas station or grocery store.

(Background: Under Nixon, Burns convinced Congress to make the change. Better to fire on all burners as Nixon preferred.)

We are now joined by James Bullard, president of the St. Louis Fed, in an article in that bank’s July/August 2011 Review, Measuring Inflation: The Core is Rotten. "Many of the old arguments in favor of a focus on core inflation have become rotten over the years. It is time to drop the emphasis on core inflation as a meaningful way to interpret the inflation process in the United States," notes Bullard. "One immediate benefit of dropping ....core inflation would be to reconnect the Federal Reserve with households and businesses who know price changes when they see them."

Nice to have you aboard President Bullard and let’s hope for a change in the near term.

If not, then we can expect another disastrous flooding of the economy with unneeded liquidity.

Robert Craven

Do I have to take charge of this thing?

I mean it. I’ve got things done in Washington before. Unfortunately, I may have to do it again.

This is nuts. Administration types, shouting out, holding hands together in the dark.

Wiser types know what to do, and have all along. There are plenty of us.

Two items are required - a sense of history and a sense of economics. Historically there has never been one example of gov’t intervention doing squat for the economy.

Henry Morgenthau, Sec’t of the Treasury under FDR: "We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong … somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot."



Robert Craven

FT Headline: "Bruised Investors Cherish QE3 hopes."

The process of price discovery is too complex to isolate "a cause" (even though the financial press pretends). One might say more accurately, "of the several causes..." And certainly one of the several causes of the recent tanking of equities was the collapse of foam, souffle style, created by Fed antics.

So some equity types may pray for more Fed slosh money, but it’s phony activity and it hurts the rest of us. Since we have no need of liquidity, most washes offshore, creating havoc in its wake.

Do as we instructed Obama to do Bernanke - sit on your hands.

　
Robert Craven

S&P Downgrade!!

What’s it mean? Almost nothing.

These guys are profoundly out of their league.  They couldn't find their way out of a wet paper bag.

Don’t worry. Smart money won’t.


Robert Craven

The 2 yr at 0.25%!

What is it with these interest rates? Well, as Mark Steyn explains, "as crazy as Washington is, Europe is perceived to be crazier."

Yep. Our Country is a miracle. It is the safest, soundest, fairest and sturdiest place on the planet. Everyone knows that (nursery class perhaps the exception). The rest of the world all complain and whine incessantly about our greatness, but when their sorry ass’s are in trouble, they park their money right smack dab in the very middle of the US financial system.

There's a lot of these types heading for the covers. That’s why the 2 yr’s at 0.25%.

　

Robert Craven

A Moment to Reflect

Offshore: We have predicted the end of EMU in past sketches - not problems, the end. It will fail. The expiry may be an implosion (a problem for all of us) of the death of a thousand cuts. It looks more like the former than the later at this moment.

US: By now most understand the key retardant - gov’t, and too much of it. Recall that in July alone, according to Wyoming Sen. John Barrasso, more than 600 new regulations came on line, adding $9.5 billion to businesses' annual cost."

Powers of resuscitation are not completely dormant however. In spite of a statist president, some folks are hiring. We saw that today.

We will see growth into year end. We will see the consumer shake a leg.

Robert Craven

YES!

Today’s July Payroll result cooperated quite nicely with our constructive view on the US real sector (+154M, private payrolls /av hourly earnings +0.4%).

　

The world mkt’s worry is 30% the US (and soon to go lower) and 70%, EU contagion.

Italy and Spain are headed to the dumpster unless the ECB, as there is no one else willing - buys their bonds. As Willem Buiter notes today, "the fundamental design flaw" to the EU is the lack of lender of last resort, referring to the doubts of many if the bank has treaty authority to buy a ton of Italian and Spanish debt. The ECB had better assume that role pretty quick. ECB Pres Trichet said Italy has to show it is "ahead of the curve," in taming its debt before we do that.

You big baby.

Robert Craven

Grounding

How’d we get here? Obama, Dodd, Frank, Clinton and others protected the twins (Fannie & Freddie) to buy black votes. They encouraged the twins to lower their standards, then forced banks through the CRA to make bad loans with the twins as back up. If they (banks) did not make a loan on a good jump shot, they could be sued or denied a bank expansion. So they gave in.

Predators on Wall St took it from there.

So the left got us in this mess, then made things worse. From the IBD, "Small businesses that create most of our new jobs now labor under the weight of hundreds of new rules and regulations, and the looming costs of ObamaCare. In July alone, according to Wyoming Sen. John Barrasso, more than 600 new regulations came on line, adding $9.5 billion to businesses' annual cost."

Wonder why we languish? May have to wait for Nov, 2012.


Robert Craven

Somebody Do Something!

Get over it. There is no one there and there is nothing to do.

BO had a hand is creating the original crisis, then made it much worse. Free enterprise punts when gov’t types abound. But this fool and those around him may have finally learned a lesson (we paid the tuition).

From the looks of things today, appears folks are a bit discouraged. Maybe even distraught.

Here’s what we do. We don’t care about equities much, kind of the tabloid of the financial world, but if you do, buy everything in sight.

Don’t buy another bond. Higher interest rates mean lower prices and that’s reality over the near term.

Own a home? Refi the heck out of it.

The pegs are in place for a healthier financial world ahead.

Robert Craven

Get Out of the Way

Obama’s administration scared the pants off potential employers. This explains the slow recovery. The Nov election results cheered employer and consumer alike and the economy perked up, Q4.

Then, we spotted a piano just overhead in the form of crude, tagged to the Arab Spring. Few appreciated how severely gasoline prices would smack the consumer. And the Fed blunder (QE II) inflated food prices.

This explains a puny H1.

Now energy prices are lower. Short of a Mid East wild card event, they’ll stay there. Corp profits are stronger than expected.

Perhaps the administration has learned - if there is a single major impediment to vigor ahead, it is suffocating government.

Get out of the way.


Robert Craven

Death Threats

It’s easy to run for cover, given the multitude of death threats directed at the world economy.

There is a slowing; there are pockets of weakness. Yes. But our main actors, highlighted in past posts, survive. Japan will continue to recovery quickly (the gov’t sold the Yen today, helping exports). Those who predict a "hard landing" for China are wrong. Germany will continue to fire on 7 of 8 - witness today’s June Factory Orders blowing through estimates.

Finally, reports of a US expiry are greatly exaggerated. Just today we see July results for the likes of Costco, Target, and other "chain stores" far better than expected. We expect tomorrow’s July Payroll result to cooperate.


Robert Craven

Out of Ammo? What Ammo?

In the Civil War, the South’s great guerrilla fighter Nathan Bedford Forrest more than once fashioned cannon out of tree stumps to fake out Sherman’s troops.

Reuters: "Obama, Bernanke out of ammo to boost jobs, growth." Correct.. Out of ammo. And key folks, it’s a head fake; they never had any.

We predicted, quite correctly, that BO’s stimulus would be at best a wash. We predicted, quite correctly, that Bernanke’s flood of money would only devalue the dollar, spark commodity inflation, and boost less-than-deserving equity prices.

They - gov’t types - simply cannot help themselves.

Now take control of your hands BO. That’s it. Now, sit on both of them.

Good Boy.


Robert Craven

Phony Buyer

Rumors today that the Fed might embark on another buying spree resuscitated the equity markets.

But a phony buyer of US Treasuries cannot make a difference in the end.

The result of the last intervention (QE II) was to cheapen the dollar, spark commodity inflation, and, as a by-product, bloat equity prices. Throw the excess at equities (which would other wise go wanting).

We have no need for liquidity. The Fed can make noise but can deliver nothing of substance.

Robert Craven
　

Take Heart

Scholars warn that fiscal prudence will tank world economies. "This is not the time," goes the cry. Even such astute observers at Evans-Pritchard at the Telegraph have been caught up, "The US, Britain, and Europe are together embarking on a sudden and severe tightening of fiscal policy, in unison, before economic recovery has reached safe take-off speed," he laments.

In fact, for every dollar lost to the "tightening of fiscal policy," a dollar and a half will be gathered from the emboldening of the spirit of free enterprise. The private sector simply punts when overwhelmed by big gov’t.

When gov’t is on the wane, free enterprise takes heart.

So should we.


Robert Craven

The Birthing of Opportunity, Or, Experience at Stream Side

An economist friend of ours wrote us the following note: "For what it’s worth, the wire reporters I spoke to today don’t want to hear it. They are all revved up to write about weakness and don’t want to know about improving real consumption."

They, "don’t want to hear it....don’t want to know anything about...." And herein folks resides opportunity. It is the ACHILLES heel of mkt crowd behavior.

Recall that trout, when "keyed into" a certain mayfly for example will at first ignore the much larger stone fly - the evidence, just beginning to float overhead.

Robert Craven

Sanctuary

World mkts are scared to death, one reason prices on US Treasuries spiked (yields tanked). The US is still considered the world’s safest harbor (the UK and Germany providing secondary anchorage).

Most observers can only see US weakness ahead. We’re more constructive (see earlier sketch). Friday’s July Payroll number will be the first test.

Next, many expect EU contagion to hit European banks. Indeed, these banks are finding short term funds (LIBOR) harder to come by, recent days; US m mkt funds are not buying their CD’s.


Robert Craven

World Growth - Consensus vs Reality

Consensus is for a slowing into year end for the US. We expect improvement into year end.

Consensus is for EU activity to slow, perhaps to a halt. Instead, Germany and France will coat tail the US.

View has been for months for a "hard landing" for China. Instead, China will surprise to the side of vigor, sparking US exports.

Finally, Japan’s recovery will continue to broach expectations, this in spite of a now expensive Yen.


Robert Craven

Putin and the d-word.

Putin today called the US a "parasite" on the global economy.

What is that, you midget?

Recall Aug/17/98 Putin? Your country went bankrupt, suspending all payments on your debt. Sure, Yeltsin was at the helm but you were there too, in spirit. Talk about a parasite - the ineptness of you and your colleagues sucked the life out of the Baltic region, nearly turning it into a dry bag.

Don’t lecture us.


Robert Craven

Inside Wall St

The head dogs of Goldman, BofA and others, in a letter, admonished Congress to settle, compromise. Patriots? Looking out for the rest of us?

"A default on our..obligations, or a downgrade of America’s credit rating...blow to business... individuals ..raising interest rates...roiling...bond markets...."

This is BS.

We know all about this club. We were there. Lay folk are chumps. Without a mammoth supply of Treasuries, these types, so-called "reporting dealers" would wither and die. If the US did not borrow, they would be history.

Did you know that good lay people?

They’re phonies.


Robert Craven

Nutshell

Certainly the Tea Party changed the playing field. We have a start - no tax increases / immediate spending cuts.

The rest of the work is put off to a "supercommittee," charged with lowering deficits by at least $1.5trl over the next decade. Their report is due Thanksgiving. Defense cuts are the most vulnerable, and tax hikes are possible. So no victory, yet.

Near term? The rating agencies have been discredited, profoundly so. A near term downgrade then means nothing substantive to anyone except the media.
　

Robert Craven