Someone Please Help Me?

Mr. Carney of the Obama administration explains unemployment insurance as “one of the most direct ways to infuse money into the economy because people who are unemployed and obviously aren’t earning a paycheck are going to spend the money that they get . . . and that creates growth and income for businesses that then lead them to making decisions about jobs” resulting in more hiring.

This statement is very easy to understand, but I have a question. It “creates growth and income for businesses” which might lead to more jobs, and even if it does lead to more jobs, it tends to increase the jobs where the jobs are located. For example, if a scissor company makes scissors in China, and people buy more scissors, any additional jobs will be in China.

Why is not one economist or politician talking about this???

When John and Alice lost their jobs, the jobs were not eliminated. They were moved offshore. In previous American recessions the jobs were eliminated, and were then later restored as the economy recovered. But, this recession is different. Economists are implying that new jobs can be created overnight, but I have not seen one statistic regarding the historical growth of new jobs for “new products” because that is what we are talking about here.

So, someone, please tell me what economic policy that is being discusses today will bring Alice’s job back to America quickly.

About Derivatives and Credit

Here are two paragraphs from a Market Watch article from Brett Arends.

The derivatives time bomb is bigger than ever — and ticking away. Just before Lehman collapsed, at what we now call the height of the last bubble, Wall Street firms were carrying risky financial derivatives on their books with a value of an astonishing $183 trillion. That was 13 times the size of the U.S. economy. If it sounds insane, it was. Since then we’ve had four years of panic, alleged reform, and a return to financial sobriety. So what’s the figure now? Try $248 trillion. No kidding. Ah, good times.

Looking for a “credit bubble”? We’re in it. Everyone knows about the skyrocketing Federal debt, and the risk that Congress won’t raise the debt ceiling next month. But that’s just part of the story. U.S. corporations borrowed $513 billion in the first quarter. They’re borrowing at twice the rate as they were last fall, when corporate debt was already soaring. Savers, desperate for income, will buy almost any bonds at all. No wonder the yield on high-yield bonds has collapsed. So much for all that talk about “cash on the balance sheets.” U.S. non-financial corporations overall are now deeply in debt, to the tune of $7.3 trillion. That’s a record level, and up 24% in the past five years. And when you throw in household debts, government debts, and the debts of the financial sector, the debt level reaches at least as high as $50 trillion. More leverage means more risk. It’s Econ 101.

Read the Full Article Here.
http://www.marketwatch.com/story/the-next-worse-financial-crisis-2011-07-06

The Arithmetic of Debt

You may not like the author of this article, but he makes a compelling argument that the ‘arithmetic of debt’ is not as scary as you might think.

This argument supports the idea that the dollar might be stronger than most people predict, even if the debt ceiling is raised.

Click Here to read.

The Double-Dip Has Started, But They Won’t Admit It

In the first part of April the ICSC – International Council of Shopping Centers – stated that retail chains experienced a year-over-year gain of only 1.7% as of the end of March. At the same time the Fed announced that consumer credit increased at an annualized rate of 3.75%. That represents a gain of 2.05%. Don’t these numbers look good?

The Consumer Price Index is also reported to be 2.1%, so if we subtract the cost of 2.1 from the gain of 1.7 we find that the real growth rate is -0.4%. We all know that fuel and food inflation is robust (but not included in these numbers), which drives the negative factor further in the red.

Unfortunately the ICSC includes sales for Shopping Centers that sell gasoline that also makes the growth rate look better than it really is. If one arm of the gov’t removes fuel and food from its numbers, wouldn’t you think that the other one would also?

To add icing on the cake, their reports do not include the sales numbers for those stores that closed due to lower sales!!

In this day and age, wouldn’t you think that the use of computers and sensible analysis could provide us with accurate economic data?

Economists can’t figure out why the Consumer Sentiment is not higher, well now you know.

Spain Might Still Be A PIIG

Here is a very interesting article about Spain and its potential bailout that will affect the Euro.

The real estate bubble in Spain was bigger than Florida, yet the current values have only drawn down 20% compared to 50+% in Miami and Nevada.

This implies that there will be even greater pressure on the Spanish banking system that could require a bailout even though everyone is saying that it will not be needed.

No one admits that they do not know what will be needed.

See the full article here

John Williams Predicts HyperInflation Sooner Than You Expect

John Williams of www.shadowstats.com who is an economist and has been tracking the gov’t reports for his entire career of 40 years and has published articles on his website since 2004. He looks into the details and reveals how the gov’t changes the yard stick in order to place a positive spin on the economic forecasts.

This interview was recorded by McAlvanyWeeklyReport.com last week. To listen to this 60 minute interview just Click Here.

WikiLeaks Having a wide spread effect.

http://abcnews.go.com/Technology/wireStory?id=12212901

Interesting updates on the Wikileaks.

Is Bernanke Hooked on Quantitative Easing?

Great article on Forbes website by Peter Schiff….

“In the 16 months since Bernanke assured us that QE1 would not jeopardize price stability, oats prices are up 40%, concentrated orange juice up 45%, gold and rice up 50%, corn up 55%, coffee up 60%, copper up 70%, sugar up 90%, and cotton and silver up 100%! (The sluggish Dow Jones Industrials are “only” up 30%.)

Last week, Kraft Foods reported a 26% rise in third quarter revenue; however, because of steeply rising material costs, profits actually dropped 8.5% over the same period.”

He concludes with “In reality, quantitative easing will produce the exact opposite of its intended result. In the short-run, it may create the illusion of economic growth and temporarily add some service sector jobs, but once the QE ends, the growth and jobs will vanish. Then, the Fed will most likely try once again to douse the fire it started with another round of QE gasoline, creating an even larger and less manageable inferno. Let’s hope we can change policy before the whole economy burns to a cinder.”

This assures us Forex traders that the Dollar will continue to move in a dramatic fashion that will reward the technical trader.

Full article Here.

Weaker Dollar Coming Now?

On March 29 I posted an entry titled “Stronger Dollar Coming?” suggesting that the Dollar would gain strength as the consumer spending lessened. At the time the Eur$ was at 1.3440 and it did reach a low of 1.1875.

Today with the Eur$ in the 1.2660 area I see reason to believe that the reversal has begun with the information that follows in this posting.

As you are probably aware the Federal Reserve has a new program called Quantitative Easing, whereby the Fed purchases the securities of the government by printing money. Now that the mideast and fareast countries are no longer buying our securities as before, we are now buying our own.

The article referenced below is a must read for those of us who trade the Forex. The author makes a strong case for a weaker dollar. What this means to me is that the bias that occurs when the market drifts between major announcements will be in the direction of a weaker dollar. I will also trade any technical indicator in that direction even if the technicals are weaker than I would like.

Here is a quote from the article. “this second round of quantitative easing appears likely to continue. Unfortunately, the unintended side effect of this policy shift is likely to be an abrupt collapse in the foreign exchange value of the U.S. dollar.”

Here is the link for the full article http://www.hussmanfunds.com/wmc/wmc100823.htm

Yen strength and the Bank of Japan

Just my opinion, so take it for what it is worth.  I’m seeing a lot of comments from newer traders about how this is a great place to go long the UsdJpy since we are getting close to lows not seen for over 13 years….. that MAY be true.

However, I recommend taking a close look at what is going on with the Bank of Japan and the hands off view they have had as of late.  They continue to state that their main concern is volatility in the currency not strength at this point.  Yes their currency is getting stronger but at a steady rate not with wild swings.

The BOJ seems content to allow the U.S. economy to strenghten over the next few months or quarters.  This will in turn allow a bit of an equalization to occur between the US dollar and the Japanese Yen.

My main thought it to trade what you see and not trade based on some preconceived notion as to what you ‘think’ the market should do.  From a price action stand point, I’m not seeing a lot of reasons to look long, and from the fundamental comments I’m hearing I’m not seeing the Bank of Japan too excited to step in at this point.

Here is a quote from a recent Wall Street Journal article.  “The tone of Mr. Noda’s remarks was similar to that of his comments from last week, and market players said that suggests the MOF is still a few steps away from taking action through the Bank of Japan to curb yen gains.”

All I’m saying is don’t bet the house on the BOJ stepping in….. yet.

TraderCisco