Friday, September 30, 2005

Open standards

Massachusetts embraces open standards, shuns Microsoft
The commonwealth of Massachusetts has decided to only use products that conform to the Open Document Format for Office Applications, or OpenDocument. All state agencies that are part of the executive branch must migrate to OpenDocument-compliant applications by January 1, 2007. Since Microsoft, whose business model relies on closed, proprietary standards to lock-in people to their Windows-Office based platform, does not support OpenDocument format, Bill Gates & Co. will soon find themselves ousted from Massachusetts executive government.
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Thursday, September 29, 2005

Working So Hard

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Demand side

Hurricane Katrina - A Supply Shock Interacts With Preexisting Demand Restraint
The conventional wisdom is that the contractionary-growth implications of Hurricane Katrina are from the demand side, not as I have argued, from the supply side. (Since the Keynesian "revolution," almost all slowdowns in output growth are thought to result from insufficient aggregate demand.)
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Monday, September 19, 2005

Crash warning

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Thursday, September 15, 2005

Corporate world and the US Government

Where do we go from here? by Craig Harris
Inflation as reported by the CPI, has very little to do with the actual cost of living for ordinary Americans. The actual cost of living as measured by the expenses of ordinary Americans like Health Care, Insurance, the price of a home, food and energy.the largest ands most important ongoing expenses, is literally skyrocketing, while wages are stagnant to slightly rising. This charade has been going on for years now but it has been accelerating. Any American who plots their monthly expenses on a spreadsheet and keeps records can see this clearly. Going forward, the CPI will continue to show very little inflation. Always. Forever.
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What is the VIX really telling us?

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Monday, September 12, 2005

The Wolf Is At The Door

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Manipulating the markets

The visible hand
It is acknowledged that the bond and currency markets are influenced by policy-makers, but equities are considered different territory altogether. Current mythology holds that share prices rise and fall on the basis of market forces alone.
Such sentiments appear to be seriously mistaken. A thorough examination of published information strongly suggests that since the October 1987 crash, the U.S. government has periodically intervened to prevent another destabilizing stock market fall. And as official rhetoric continues to toe the free market line, manipulation has become increasingly apparent.
Some of these interventions have apparently occurred with the active participation of selected investment banks and brokerage houses. In this regard, evidence from credible sources, including a former top adviser to President Clinton, appears to confirm the existence of a so-called “Plunge Protection Team” (PPT). This group is not simply the figment of creative imaginations, and we are not alone in this conclusion.
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Saturday, September 10, 2005

Overconfidence

The problem with forecasting
Let me speculate, despite the fact that the first part of this letter was about the uselessness of forecasts and speculation. I think the Fed is going to increase rates until the rampant speculation (no pun intended) in the housing market goes away. They are going to raise rates until housing slows down. Of course, since 40% of new jobs in the last 4 years have come from the new housing sector, and since a great deal of the increase in new consumer spending has come from cash out financing, this is likely to slow the economy as well. They are prepared for that.
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$70 Tank of gas

What will cause the next recession?
The rule of thumb is that for every $10 rise in the price of oil, you will see a loss of about 0.4% of GDP. Thus the recent rise in energy is enough to slow down the economy but not enough to push it into recession. Yes, nine out of the last ten recessions have been associated with rising oil prices. But nearly all of those were supply driven. Today's rise in oil prices are demand driven. Prices are rising because demand in the US, China, India and everywhere else in the world is rising. Rising demand is because the world economy is relatively strong. And that is a good thing.
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Thursday, September 08, 2005

We Could Get a Recession Out of This

Hussman Funds - Weekly Market Comment: September 6, 2005 - We Could Get a Recession Out of This
Financial volatility is a combination of two conditions: inelasticity and illiquidity.

Inelasticity is essentially the failure of demand or supply to respond to changes in price. We typically think of energy demand as relatively “inelastic,” meaning that even substantial increases in price don't typically reduce demand by much.
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First Crack in the Housing Bubble ... And Everyone Missed It

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Domino

Bill Cara: The Katrina Domino, Tues., September 6, 2005, 5:40 AM
Traders have to understand the magnitude of what happened before they can begin to appreciate the implications of what’s to come. We can now refer to “After Katrina” just like “post-9/11”. Our future may indeed be called the Katrina Era.

First, the U.S. economy now stands a likelihood of going into recession. S&P states that the chance of that occurrence has more than doubled to 25 pct.

Second, the U.S. government has approved the initial funding of $10.5 billion for emergency relief measures. By the time the final bill is tabulated for replacement of lost assets, and lost tax and personal income, and the negative effect on corporate profits, the smallest number you can consider is at least ten times that one.

The U.S. economy is huge, but there will be a domino effect at work that will soon cut it down in size.

Had Katrina not destroyed so many assets in the U.S. Oil and Gas industry, the final tabulation of costs would be much smaller. But, I fear that because of the resolve by Americans to prevent such an affront to their national security recurring, I suspect the world will never again see Crude Oil prices less than $35 a barrel.
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Tuesday, September 06, 2005

VIX in 1994

Safe Haven | Why We Bought The VIX
In 1994 a false breakout of a three-year downtrend in the Vix yielded a final selloff to below the 10 handle and below the Bollinger band. This month we saw a long-legged doji occur to the outside of a Bollinger band, which alongside a bullish divergence in momentum measures almost always says a reversal is in!! We bought Vix futures two weeks ago then again this week with 3 to 1 leverage for an expected rally to 20 and potential 300% gain.

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One of the best indicators for the hard asset / financial asset trend is the Dow to gold ratio. It is amazing how many market professionals are unaware of the simplistic beauty of this ratio. In fact, at this year's Reuters Round Table discussion on the dollar your editor defended James Turk from the PhD types that thought the ratio was ill informed.

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In short, we feel the September-December period will be bearish for the dollar followed by a renewed advance from January to July 2006. If this were to play out, it would set up a MASSIVE head and shoulders pattern and a major short selling opportunity in 2006.

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Monday, September 05, 2005

¿Why buy?

Safe Haven | Slaughter of the Housing Speculators
"Let's look at the economics of a 'poster property' in San Diego called Park Place. The New York Times reported recently that a one bedroom condo is being offered for $719,000. A prospective buyer would expect to pay about $3,775 a month for a mortgage, plus maintenance fees, taxes and insurance. These additional costs can bring the monthly out-of -pocket total to well over $5,000 a month, or $60,000 a year. However, a renter, who would benefit from the same granite countertops, hardwood floors and fantastic views, can rent a nearly identical unit for only $2,400 a month, or $28,800 a year. At these price levels, the speculator who bought in could run an annual negative cash flow of close to $31,000 if they were forced to rent because no buyers could be found."
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Boat

Safe Haven | A Slow Boat to China or Hollywood Hubris?
The Baltic Dry Index [the spot cost of hiring a ship] is set daily in London, England, has historically been a reliable proxy of world trade in dry goods and is a composite of daily inputs from the players in the global shipping industry. As you can see, this index 'crashed' in the past three months.

Remember folks, China is no more a natural exporter of crude oil than you or I are builders of space ships. In fact, they've actually begun rationing the stuff. China needs oil and particularly right about now with their own Strategic Petroleum Reserve due to be completed in August 05. Being the silly guy that I am, I start asking myself - why would a country that imports 45 % of its voracious and growing oil demand suddenly become a seller of crude oil?

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Fed Funds Rate

Safe Haven | Our Position on the U.S. Dollar and an Update on Energy Prices

Historically, the direction of the Fed Funds rate has led the performance of the U.S. Dollar Index by 18 to 20 months..
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Friday, September 02, 2005

Pictures

The "recovery" in pictures
The only "strong" chart was vehicle sales but then again GM lost over a thousand on every car they sold. Nonetheless, some have suggested that the Chicago PMI is just slowing down because of those sales and inventory will have to be built back up again.

I disagree. Take a good hard look at those sales. I think we had a blowoff top, that GM is producing vehicles that no one will want, especially with rising gas prices. More to the point, pure exhaustion will likely set in. If you disagree with that latter statement, please take a look at that chart and tell me what possible pent up demand for autos there can possibly be, except perhaps to dump SUVs for something more gas efficient. Unfortunately, GM is gearing up to produce more SUVs.
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Oil rise, rate rise.

Safe Haven | Combination of Oil Price and Interest Rate
For some time already, we have asked ourselves the following question: As oil price and U.S. interest rates continue to grow simultaneously, when will the U.S. economy capitulate? When will it reach the level when the pain becomes too big? Will it happen at a combination of oil price and interest rate of USD 80 / barrel and 5%? Or later or earlier?
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Hedge funds versus mutual funds

Hedge Funds for All
But mutual funds, despite this financial clout, have limitations. According to Strachman, mutual funds primarily take long positions on stocks. Hedge funds, by their very nature, often hedge bets by taking short positions in stocks or establishing offsetting positions in other securities. Hedge funds also use leverage to beef up returns (or losses if the investment goes bad) — something mutual funds can't do.

"I don't think there's more risk in hedge funds," says Strachman, who also teaches a class on hedge funds at the New York Society of Security Analysts. "I'd personally feel safer in a portfolio that's both long and short the market than one just long the market."
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Chinese cookie crumbling?

Peter Brimelow: Chinese cookie crumbling?
"None to date have had a return on capital above its cost. Even more wonderful, they actually believe they know the true balance sheets of the banks they are buying. 1,500 years ago, the Chinese not only invented accounting, they then invented quadruple accounting; a true set for limited internal use, another for the government, one for the investors and then one for their wives."
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20 Rules To Stop Losing Money

20 Rules To Stop Losing Money
Trading should be boring most of the time, just like the real job you have right now.
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Supply shock

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The Kirk Report : Spending Patterns Will Change

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