International Forecaster Weekly
Anger against bonus packages paid out by rescued banks coming from the American public, bear market rally continues, unemployment already at shocking levels, massive leveraging by banks - 50 times assets deliberately allowed by central banks, pressure from all over to make change happen in the banking system,Bernanke can explain where 2 trillion went, no more currency swaps for the Fed,
Bowing to populist anger, the House voted Friday to prohibit pay and bonus packages that encourage bankers and traders to take risks so big they could bring down the entire economy.
Passage of the bill on a 237-185 vote followed the disclosure a day earlier that nine of the nation's biggest banks, which are receiving billions of dollars in federal bailout aid, paid individual bonuses of $1 million or more to nearly 5,000 employees.
This is not the government taking over the corporate sector," Rep. Melvin Watt, D-N.C, said of the House action. "It is a statement by the American people that it is time for us to straighten up the ship."
Employment compensation for U.S. workers has grown over the past 12 months by the lowest amount on record, reflecting the severe recession that has gripped the country.
The Labor Department said Friday that employment costs rose by 1.8 percent for the 12 months ending in June, the smallest annual gain on records that go back to 1982.
The department said that for the April-June quarter, its Employment Cost Index rose by just 0.4 percent, just slightly above the 0.3 percent rise in the first quarter, which had been the smallest quarterly gain on record.
Companies, struggling to cope during the current hard times, have been laying off workers, trimming wage gains and holding down overtime to save costs.
The 1.8 percent increase in overall compensation for the past 12 months included a record low 1.8 percent rise in wages and salaries, which account for 70 percent of compensation costs.
Benefits, which include such things as health insurance and contributions to pension plans, also rose by 1.8 percent during the past year, the lowest annual gain in this category since a similar increase during the 12 months ending in September 1997.
This past week the market rose slightly. The Dow rose 0.9%, S&P rose 0.8%, the Russell 2000 rose 1.5% and the Nasdaq rose 0.3%. Cyclicals rose 5.5% as utilities fell 2.4%. Banks rose 8.4%; broker/dealers 3.7%; semis increased 0.3% and biotechs 0.7% as high tech fell 0.2% and Internets fell 1.3%. Gold bullion gained $2.10 as the HUI fell 0.2%.
Two year T-bills rose 5 bps to 1.01%, the 10-year notes fell 18 bps to 3.48% and the 10-year German bunds fell 18 bps to 3.305.
Freddie Mac’s 30-year fixed mortgage rates rose 5 bps to 5.25%, the 15’s added 1 bps to 4.69% and one-year ARMs rose 3 bps to 4.80%. The jumbo 30-year fixed rates fell 2 bps to 6.36%.
Fed credit fell $0.06 billion, up 125% yoy. Fed foreign holdings of Treasuries, Agency debt jumped $6.2 billion to a record $2.793 trillion. Custody holdings for foreign central banks have expanded 19.1% ytd and 18% yoy.
M2 narrow money supply rose $8.9 billion, or 8.2% yoy.
Total money market fund assets fell $22 billion to $2.634 trillion. Year-to-date they have fallen 8.9% annualized.
This past week the dollar index, USDX, declined 0.6% to a 2009 low of 78.31.
The stock market continues its bear market rally, which is very similar to the rallies in 1930 and 1932. What we are seeing at this stage of the rally is the shares of smaller companies and companies with low ratings outperforming better issues on low volume. 85% of the market has broken out above its 50-day moving average, but the quality of leadership is very questionable. After 50 years of observing markets we know from experience that these kinds of rallies at this stage end the overall rally. This is a low-quality rally and it is very overbought. That is enunciated by low volume and short covering. The gains at this juncture should be miniscule leaving those who are still long a chance to exit what will end up being a trap. Keep in mind as well that the depression is not ending and unemployment is still climbing. We see no signs of a sustainable recovery. Most of the important earnings reports have been made and absorbed by the market. As long as companies are laying off and cutting back on hours they won’t be increasing inventory, especially with retail sales continuing to slide. There are no signs of a sustainable recovery. Even if inventories are increased it will be a one shot deal. The recovery, if there is to be one, will be production led. How can that happen as layoffs continue and banks continue to cut back on lending? Any recovery is contingent on bank lending. Plus, we are seeing continued deleveraging in all sectors. The credit is not available to support higher production. Capacity utilization is hanging around 85, which means there is already major idle capacity. Consumers are simply not buyers. That happened in the last recession in 2002, but that lack of participation was supplanted by the real estate bubble. We are seeing twice as much asset deflation and triple the job losses of the last slowdown. That means recovery is a long way off. All stimulus packages do is prolong the agony, worsen and distort the systemic problems. Forty percent of total disposable income is coming from government programs, whereas the remainder, wages and salaries from the private economy, are declining at a 3.1% rate. If you add in inflation, which no one seems to talk about anymore, you have at least a 10% annual loss in purchasing power. Even $3 billion in rebates in “cash for clunkers” is not going to have any lasting economic effect. It is just a prolongation of the problem although workers deserve a break, after the Treasury and the Fed commit American taxpayers for $23.7 trillion, most of it going to bail out Wall Street, banks and insurance companies. The administration just threw the workers a $3 billion bone. It should also be noted that what amounts to zero financing has been going on for nine years. The market was saturated and to keep the assembly lines working and workers employed to fend off recession.
Earnings increases came at the cost of major unemployment over the past six months assisted by mark-to-model pricing of assets and other games of 3-card Monte. Be as it may in today’s culture of crime the market has priced in a 40% increase in earnings next year, which is ridiculous. Worse yet, financials have flattened out and they were among the leaders upward and discretionary consumer stocks have taken over the lead. As well stocks profoundly affect by the depression, such as gaming stocks, homebuilders, home furnishings, advertisers, hotels, automakers and retail shares. In two weeks the back to school retail numbers will start coming in and they will not be nice. That should trigger downside in the market. Prices are being cut 30 to 70 percent. How can companies make money that way? All they will do is reduce inventory. Discretionary spending is out. The game has changed. Incidentally, Europe and the UK are experiencing the same thing. As well there is lots of negativity being driven by the swine flu propaganda. A falling dollar and rising gold and silver prices will point out what trouble the US and world economy has gotten itself into.
Read more here:
Posts
No comments:
Post a Comment