US Economy, the stock market , and other investment/savings strategies

[G M]

Markets down only a smidgen over the last 5 days so my prediction so far is wrong.

It's just a matter of when, not if. The later, the better as there is more time to prepare, but I doubt we have much time left at this point. The global house of cards is teetering and the powers that be are out of tricks.

[Crafty_Dog]

New Orders for Durable Goods Plummeted 13.2% in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 9/27/2012

New orders for durable goods plummeted 13.2% in August (-13.9% including revisions to July), coming in well below the consensus expected decline of 5.0%. Orders excluding transportation fell 1.6% (-2.2% including revisions to July), falling short of the consensus expected gain of 0.2%. Overall new orders are down 6.7% from a year ago, while orders excluding transportation are down 1.1%.

The decline in overall orders was led by a massive drop in civilian aircraft. Orders for motor vehicles and machinery also fell substantially.

The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure was down 0.9% in August (-1.5% including revisions to July).

Unfilled orders were down 1.7% in August but are up 5.4% from last year.

Implications: Very ugly report today on durable goods. New orders fell 13.2% in August, the largest decline since January 2008. Most of the drop was due to the very volatile transportation sector. Orders for civilian aircraft fell 101.8% from a month ago – yes, that means civilian aircraft orders were actually negative for the month on a seasonally-adjusted basis! – and autos were down a sharp 11% as well. (The drop in autos makes up for the 12% surge last month; both up and down are due to changes in the timing of summer factory retooling.) But even apart from aircraft and autos, the report was still weak. Orders ex-transportation were down 1.6%, led by a 4.7% decline in machinery. Machinery orders are now down 10.1% from a year ago. Shipments of “core” capital goods, which exclude defense and aircraft, were down 0.9% in August. This is troubling as core shipments usually fall in the first month of each quarter and then rebound in the last two months. So far, the rebound hasn’t happened. The bottom line is that both the headline and underlying details suggest hesitation in business investment. We think some companies are postponing purchases of big ticket items until after the election, in the hopes of more clarity, and improvement, in public policy. If so, expect a rebound after the election. Monetary policy is loose, corporate profits are close to record highs, balance sheet cash is at a record high (earning almost zero interest), and we are still in the early stages of a home building recovery. All of these indicate more business investment ahead. In other news this morning, pending home sales, which are contracts on existing homes, declined 2.6% in August. Given this data and the large surge in existing home sales in August (counted at closing), expect a pullback in existing home sales in September. However, sales will still be up around 8 - 10% from a year ago.

[G M]

Bad news for Wesbury, Bernanke went to the plowhorse's stable with a QE-I shotgun and now a truck from the glue factory just pulled up....

[G M]

GM:  Please know that there are three threads dedicated to Survival issues 

Hey, if at this point you aren't investing in bullets, beans and bandages to some degree, you are setting you and yours up for very bad things.

[G M]

GM for the win.

Retail sales declined 0.2% in May, up 5.3% versus a year ago To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 6/13/2012
Retail sales declined 0.2% in May, matching consensus expectations, but were down 0.8% including downward revisions for March/April. Retail sales are up 5.3% versus a year ago.
Sales excluding autos declined 0.4% in May versus a consensus expectation that they would be unchanged. Retail sales ex-autos are up 4.3% in the past year.
The decline in retail sales in May was led by gas and building materials. The largest gains were for autos and non-store retailers (internet/mail-order).
Sales excluding autos, building materials, and gas were unchanged in May (-0.4% including downward revisions for March/April). This calculation is important for estimating real GDP. Even if these sales are unchanged again in June, they will be up at a 2.1% annual rate in Q2 versus the Q1 average.
Implications: Retail sales were relatively soft in May, but do not signal a broader economic slowdown. Given the financial problems in Europe, some downbeat analysts are eager to fit every negative piece of news about the US economy into that framework. Instead, we think the tepid sales reports of the last couple of months are caused by much more mundane factors. The leading cause of the decline in May was a steep drop in gas prices. Excluding sales at gas stations, retail sales rose 0.1%. The second weakest category of sales in May was building materials, which fell 1.7%. This past winter was unusually mild. As a result, home construction (on a seasonally-adjusted basis) picked up quickly during that period and so did retail sales related to that construction. Now, those kinds of sales are reverting toward the underlying trend, which is still up 5.3% from a year ago. In addition, a combination of the mild winter, which made it easy to shop, and the earliest Easter in the past few years, may be skewing the seasonal adjustment factors in the Spring, making sales look good through March and worse – temporarily – in April/May. Regardless, “core” sales, which exclude autos, building materials, and gas, were essentially unchanged in May (+0.02%) and have only dropped once in the past twenty-two months, a remarkably consistent record of sales gains. Even if these sales are unchanged in June, they will be up at a 2.1% annual rate in Q2 versus the Q1 average, which is also what we are estimating for the growth of “real” (inflation-adjusted) personal consumption in Q2 (including goods and services). Don’t be fooled by statistical noise. The US economy continues to grow.

http://www.aei-ideas.org/2012/09/its-all-unraveling-is-this-the-last-quarter-the-recovery/
Pethokoukis
‘It’s all unraveling’ | Is this the last quarter of the recovery?
James Pethokoukis | September 27, 2012, 1:04 pm
 
Image Credit: Editor B (Flickr) (CC BY 2.0)

Has the U.S. economy turned a corner? Yes, and then another corner and now it’s going backward. A slew of bad economic data today. A taste of what economists are saying:

– It’s all unraveling this morning. OK in the US jobless claims fell and the consumer comfort index improved.  But the downward revision to GDP and the chillingly large drop in Durable goods orders is enough to send chills up your spine. Yes, aircraft and defense orders were the bulk of the weakenss. But nothing there is reassuring. Have the NFL’s replacement officials been collecting economic data? Please tell me it is so. – Economist Robert Brusca
– Durable goods headline looks like an F, details look like a D. … The latest durable goods data point to some downside risk to our GDP forecast for the third quarter, though we are leaving our GDP forecast at 1.5%. – JPMogan

– … there is growing risk that a 2013 tax shock could push the economy into recession (and there is little the Fed can do to offset the fiscal shock). – RDQ Economics

– Today’s U.S. reports included a disastrous August durable goods … the ex-air equipment orders data are now tracking a recession trajectory, which may reflect fiscal cliff uncertainty that will eventually be reversed, but which send a notable red-flag for U.S. growth. … We lowered our 1.5% GDP growth forecasts for both Q3 and Q4 to 1.4% … – Action Economics.

– A trend weakening in core business investment outlays deserves the most attention. – Citi

Then we have this recession forecast from Strategas Research:



If the above forecast is correct, the National Bureau of Economic Research might wind up declaring that the U.S. economy slipped back into recession in late 2012 even though the economy was actually not yet contracting at that point. (Here is my post from earlier on why we are in the recession red zone.)

And if that happens, economic historians might well shove aside the weak three-year recovery and call the entire 2007-2013 period the Long Recession or some such. I already have been, just like the 1980-82 period was a long recession, two downturns sandwiching a brief recovery.

[Crafty_Dog]

Personal income increased 0.1% in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 9/28/2012

Personal income increased 0.1% in August, coming in slightly below the consensus expected gain of 0.2%. Personal consumption rose 0.5%, exactly as the consensus expected. In the past year, personal income is up 3.5%, while spending is up 3.6%.
Disposable personal income (income after taxes) was up 0.1% in August and is up 3.3% from a year ago. The gain in income in August was led by dividends, which are up 7.6% from a year ago, and small business income, which is up 4.1% in the past year.
 
The overall PCE deflator (consumer inflation) was up 0.4% in August and up 1.5% versus a year ago. The “core” PCE deflator, which excludes food and energy, rose 0.1% in August and is up 1.6% in the past year.
 
After adjusting for inflation, “real” consumption was up 0.1% in August and is up 2.0% from a year ago.
 
Implications:  The plow horse economy continues to push through the mud at the same modest pace. Consumer spending grew a healthy 0.5% in August, with consumers picking up more nondurable goods, probably a reflection of aggressive “back-to-school” buying. “Real” (inflation-adjusted) personal consumption was up 0.1% and, despite downward revisions to prior months, is 2% higher than a year ago. Respectable, but far from spectacular. Income gains were tepid in August, with disposable (after-tax) income up only 0.1%. However, real disposable income is up 1.8% from a year ago, which is enough to keep pushing consumer spending higher. Income gains are not due to artificial support from government transfers, which declined 0.1% in August. Real (inflation-adjusted) transfers are up only 1.2% in the past year, while real private-sector wages and salaries are up 2.9%. In other words, transfers are now holding down the growth rate of income. However, households’ financial obligations – recurring payments like mortgages, rent, car loans/leases, as well as other debt service – are now the smallest share of income since 1984. This allows consumers to stretch their income gains further. On the inflation front, overall consumption prices were up 0.4% and the core PCE, which excludes food and energy, was up 0.1% in August. Overall prices are up 1.5% in the past year while core prices are up 1.6%. Both are below the Federal Reserve’s target of 2%, but they are awfully close for a central bank with a very loose monetary policy. Expect higher inflation in the year ahead. In other news this morning, the Chicago PMI, which measures manufacturing activity in that region, fell to 49.7 in September from 53.0 in August, the lowest level since September 2009. Given this report as well as other data, we forecast that the ISM Manufacturing report will come in at 49.7 for September, up only slightly from 49.6 in August.

[DougMacG]

More famous people caught reading the forum.

Economic Signals Point to a 2013 Recession

By DAVID MALPASS

Data released this week by the Commerce Department waved bright red recession flags—orders for durable goods fell 13.2% in August and inflation-adjusted personal income fell 0.3%. President Obama is asking for more time to allow the lackluster recovery to pick up steam. His plan is to move the economy "forward" by keeping the current policy framework in place and adding higher tax rates on income and capital gains. But the new Commerce Department numbers, combined with his stay-the-course approach, point to recession in 2013.

http://online.wsj.com/article/SB10000872396390443816804578000484118713060.html?mod=WSJ_Opinion_LEFTTopOpinion

[Crafty_Dog]

________________________________________
Recession Risk Rising To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/1/2012
Economic forecasting was relatively easy from the end of World War II until the middle of the prior decade. Most of the time, you could just focus on monetary policy.
When the federal funds rate was much lower than the growth of nominal GDP – real GDP growth plus inflation – then the Federal Reserve was too loose and nominal GDP growth would go up. When the Fed kept the funds rate above nominal GDP growth, it was tight and nominal GDP growth would slow, raising recession risk and reducing inflation.
But then came the last recession, which had nothing to do with the Fed being too tight. Instead, falling home prices and mark-to-market rules rendered some major banks under-capitalized. A pure financial panic ensued, the likes of which we had not seen for 100 years. Consumers and businesses clung to as much cash as possible. As a result, the velocity of money – the speed with which money circulates through the economy – plunged.
But what if this was not a one-time event? What if we are now in a new era where shifts in the velocity of money often dominate the economic effects of changes in the money supply?
We are not saying this is definitely the case, but it now appears more plausible. And, if so, forecasting the economy just got a great deal tougher. Not just for the next few years, but, perhaps, for a generation. In this environment, we have to pay attention to data like we’ve seen in the past few weeks, including a 1.2% drop in industrial production (IP) and a 13.2% plunge in new orders for durable goods.
Both reports are likely the result of extenuating circumstances. For IP, output at mines, utilities, and automakers – all of which are very volatile – fell sharply. And, although manufacturing ex-autos declined 0.4%, it could have been due to hurricane Isaac or just statistical noise. With durable goods, almost all the drop was in the volatile transportation sector. But machinery, which is usually more stable, is down 10% from a year ago, something that almost never happens except when the economy is in a recession or on the verge of one.
Right now, we are forecasting 1.5% real GDP growth for Q3. But, given the drought, a much lower number – even below zero – cannot be casually dismissed. And if that happens, we have to recognize the chance of another plunge in monetary velocity, particularly given financial fears about Europe.
As a result, we are raising our odds of recession to 25%, the highest since mid-2009. Our base case is still modest growth, but the odds of a downturn are no longer very slim, like we said they were (correctly) during the soft patches of 2010 and 2011.
If a recession happens, it will not be the result of the typical causes: tight money, tax hikes, or protectionism. Instead, it would be our new nemesis, “uncertainty,” leading to a decline in velocity.
In our view, at the heart of the recent uncertainty is a massive growth in government spending and debt, and the fear of large future tax hikes if we stay on this path. Potential tax hikes are changing the risk-reward calculation of every business in America. In a few months, we should know how much of this potential will become reality.

[Crafty_Dog]

second post of morning


Rally fuelled by more realistic valuations
By Peter Oppenheimer

Amid all the angst over Spain’s banking and fiscal crisis, the relative buoyancy of financial markets has passed almost unnoticed.

Such optimism in the markets may seem at odds with the stream of economic and budget gloom. But, in fact, the rally has been underway for some time. Despite the obvious headwinds of economic stagnation, the slowdown in the US and Chinese economies, and the repeated speculation that the euro system may be about to collapse, equities have been among the strongest performing asset classes in the year to date. The MSCI World index has risen 14 per cent, the Stoxx Europe 600 is also up 14 per cent while US Treasuries have returned 4.5 per cent (all in US dollar and total return terms).

One of the major explanations for these different returns comes down to valuation. After years of de-rating, equities may have reached a point where they have more than adequately reflected the economic stresses and risks brought on by the financial crisis. At the same time the relentless decline in interest rates over the past three decades has pushed up the price of many government bonds to levels that no longer offer attractive returns to maturity.

Both the de-rating of equities (from unrealistic highs during the late 1990s technology bubble) and the re-rating of bonds (as inflation continued to surprise on the downside) were necessary given the starting points. The onset of the financial crisis has merely extended and exaggerated these trends as investors have become increasingly sceptical about the ability of economies to grow as they struggle with record amounts of debt.

The European sovereign debt crisis is the most recent in a long line of problems to have emerged as the huge global savings and investment imbalances have begun to unwind over the past five years. The European Central Bank’s bond purchase proposal in August has helped to reduce some of the systemic risks associated with the debt crisis by finding a way to break the intractable political cycle which was acting as an obstacle to a workable solution.

It is clear that a fall in the equity risk premium (the additional rate of return investors require for investing in equities over and above what they can get on a relatively risk-free asset like bonds) has been the main driver behind the rally in risky assets since July. In July the equity risk premium was as high as 9 per cent. Over the past two months it has fallen to 8 per cent on our estimates. This is still very high by historical standards: the long run average is close to 4 per cent. It is not surprising that the ERP remains unusually high, given the current macro dislocations, but our estimate of the appropriate level of the ERP is around 6.75 per cent.

We estimate a 1 per cent fall in the ERP, all else being equal, is worth about 20 per cent on the broad European equity indices. Although some of this may be achieved via a further rise in “risk free rates”, such as for German Bunds, there still appears room for a further moderation of about 50 basis points over the coming months.

From a political perspective the main risks may be shifting to the US given the impending “fiscal cliff” that the US is likely to reach by mid-February. Should Congress not act, the government would be forced into a drastic reduction in expenditures, pushing the economy into a recession that is not being priced into equity markets.

The other key driver for markets will be economic activity. Recent data suggest that the momentum of the global economy and, therefore, corporate profits remain moribund but is probably not deteriorating.

On the positive side, many central banks have increased their support through a range of policy actions aimed at kick-starting growth. While there is a debate about the effectiveness of these policies, at least it is something. Growth is unlikely to be strong in 2013, but risky assets typically perform well when the momentum and growth rate of the global economic cycle start to improve even if growth levels remain subdued. So far, such an improvement does not appear priced in.

While these issues will determine the trajectory and volatility in markets over the remainder of the year, the longer term prospects are more positive, at least for equities. Ultimately, what is most important is not just the pace of economic activity and corporate profit or dividend growth, but the outcome relative to the expectations priced in.

After years of de-rating to correct the over-optimistic expectations of the late 1990s, the uncertainty associated with savings and investment rebalancing have left valuations at levels that imply an unrealistically negative scenario, as long as the worst political tail risks can be contained. That is still the “investable opportunity”.

Peter Oppenheimer is chief global equity strategist at Goldman Sachs

[DougMacG]

_________________________________
Recession Risk Rising
"...Right now, we are forecasting 1.5% real GDP growth for Q3. But, given the drought, a much lower number – even below zero – cannot be casually dismissed..."

This is 3rd quarter starting today, so translated that means the recession may already have started.

Brian Wesbury appears Fridays on the Hugh Hewitt radio show http://townhall.com/talkradio/.  On the radio I find him to be quite a bit more open about his policy opinions than he is in these First Trust articles.

[Crafty_Dog]

The ISM manufacturing index rose to 51.5 in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/1/2012
The ISM manufacturing index rose to 51.5 in September from 49.6 in August, coming in well above the consensus expected 49.7. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were all higher in September and most were above 50. The new orders index gained to 52.3 from 47.1. The production index rose to 49.5 from 47.2 and the employment index increased to 54.7 from 51.6. The supplier deliveries index rose to 50.3 from 49.3.
The prices paid index increased to 58.0 in September from 54.0 in August.
Implications: Welcome news on manufacturing today. After three straight months below 50 – signaling contraction – the ISM manufacturing index came in above 50, easily beating consensus expectations for September. According to the Institute for Supply Management, a level of 51.5 is consistent with real GDP growth of 3%. For the third quarter as a whole, the ISM index averaged 50.3, which is consistent with a growth rate of 2.6%. However, these data only cover the manufacturing sector, and so don’t correct for the impact of the drought in the farm sector. As a result, we see today’s data as consistent with our forecast that real GDP expanded at a 1.5% annual rate in Q3. The best news in today’s report was that new orders bounced back into positive territory and the employment index rose to 54.7, the strongest sub-index within the overall ISM. On the inflation front, the prices paid index rose to 58.0 in September from 54.0 in August. We expect prices to continue to gradually move higher. In other news this morning, construction declined 0.6% in August, but was up 0.3% including revisions to prior months. The decline in August was due to less commercial construction, particularly power plants. Home construction was up 0.9% in August, led by new 1-family homes. The construction of new homes – 1-family and multi-family, combined – is up 11 months in a row and up 24% from a year ago.

[Crafty_Dog]

Even though this comes from Pravda on the Hudson, I must say that this makes sense to me:

A Speed Limit for the Stock Market
By ROGER LOWENSTEIN
Published: October 1, 2012

IMAGINE if the stock market were hijacked by computers that executed trades in a fraction of the time that it takes to blink. Since no mere mortal could understand the “thinking” behind such nanosecond trading, ordinary investors — even longtime institutional traders — would have little clue as to why any company’s share price was moving up or down in any moment. The values of well-established corporations would sometimes swing wildly from one second to the next and we slow-reacting, human investors wouldn’t know why.

You don’t really have to imagine this. This is how our stock markets function today. Some 50 percent to 70 percent of all trading is done by “traders” who live in server parks, are nourished by direct current and speak only in binary pulses.

Several other countries are starting to regulate this high-frequency trading, or H.F.T. But in the United States, the deep-seated bias toward “liquidity” — the notion that more volume will always make it easier for investors to buy and sell shares — has discouraged regulators from taking action.

Lately, though, after several well-publicized market blowups traced to H.F.T., officials are having second thoughts. In late September, the Senate banking committee held a hearing on the issue, and the Securities and Exchange Commission is getting into the act with a panel discussion today. Even Wall Street veterans have begun to question whether a market flooded with speed demons is good for society.

The purpose of financial markets, remember, is not to provide a forum for split-second trading. If you want to gamble, go to Las Vegas. Markets exist to provide some minimal level of liquidity, so that long-term investors have the confidence to invest. And they exist so that companies and investors can discover how much an ownership position in, say, Apple is worth. When Apple stock goes up, it sends a signal to other firms to invest in the same or similar technologies. Thus does a capitalist society allocate resources.
A well-functioning market can accommodate some hyperactive turnstile traders as long as it has enough legitimate investors — people who are thinking about the outlook for companies down the road.

The reason that market squares like me harp on the long term isn’t because we’re technologically illiterate. It’s because, again, society relies on the market to allocate capital. If market signals are based on algorithms that become outmoded in a nanosecond, we end up with empty factories and useless investment.
How much effort do high-speed traders devote to analyzing the future prospects of Apple? Precisely none. Their aim is only to exploit tiny price discrepancies that disappear in milliseconds.

Incredibly, we have let capital formation become subordinate to traders on electronic steroids — with some hedge funds setting up their servers just inches away from stock exchange servers to get a jump on other steroid-crazed traders. David Lauer, a former trader, told the Senate panel that high-speed technology was “a destructive force in the market” with “no social benefit.”

He’s right. The “liquidity” H.F.T. provides is long past the point of being helpful. When high-speed trading was new, trading costs for all investors seemed to dip, but that trend has stopped, suggesting a point of diminished returns. Volume on the New York Stock Exchange now is four times the level it was in 1999 — a year with so much excess liquidity that it witnessed the greatest stock market bubble in history.

And in exchange for providing the markets with more liquidity than they need, H.F.T. is creating a problem of a potentially enormous scale. It’s not just that such trading is unfair to traditional investors who, obviously, cannot take advantage of price movements they cannot see. (The truth is, parlor investors who try to beat the pros at short-term trading have always been easy fodder for Wall Street.) The greater concern is that it will subject markets to more destabilizing crashes and that prices will come to reflect the “judgments” not of investors, but of high-speed robots.

We’ve seen evidence of that already. In May 2010, several publicly traded companies briefly lost nearly $1 trillion of market value in a so-called “flash crash” that the S.E.C. said was triggered by a single firm using algorithms to rapidly sell 75,000 futures contracts. Unless something is done, the markets will grow only more volatile and less responsive to investment values.

Lawmakers in Germany, Australia and other countries are proposing to address the problem by imposing new restrictions on high-speed traders, and considering options like erecting superfast shutdown switches that might be able to cordon off damage in a crisis. But the better way to discourage this excessive, short-term market myopia is to take a page from anti-tobacco efforts: let high taxes discourage the antisocial behavior.

We already encourage long-term investing by taxing capital gains on investments held for more than a year at a rate of just 15 percent — in contrast to short-term capital gains, which are assessed at much higher rates. We could simply fine-tune that incentive even more. Intraday trades should be taxed at 50 percent. And “investments” that mature in 60 seconds should be regarded as, in effect, electronic errors — with any profit going to the government. This will greatly reduce high-speed trading and divert its remaining gains to the public.

Roger Lowenstein, an outside director of the Sequoia Fund, is writing a book about the origins of the Federal Reserve.
    

[DougMacG]

Even though this comes from Pravda on the Hudson, I must say that this makes sense to me:

I agree in concept.  Regulating the markets for both efficiency and to maintain a level playing field is the legitimate function of the SEC.

[Crafty_Dog]

The ISM Non-Manufacturing Index Increased to 55.1 in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/3/2012

The ISM non-manufacturing index increased to 55.1 in September, easily beating the consensus expected 53.4. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The direction of the key sub-indexes were mixed in September but all were above 50. The business activity index gained to 59.9 from 55.6 and the new orders index rose to 57.7 from 53.7. The employment index declined to 51.1 in September from 53.8 while the supplier deliveries index remained unchanged at 51.5.
The prices paid index rose to 68.1 in September from 64.3 in August.
Implications: Solid news on the economy coming from multiple reports yesterday and today. The ISM services index came in at 55.1, higher than the consensus expected in September, signaling a combination of some acceleration in that sector and an abatement of negative sentiment regarding Europe. This is the best reading on the index since March. The sub-index for business activity – which has a stronger correlation with economic growth than the overall index – soared to 59.9, the best reading since February. On the inflation front, the prices paid index rose to 68.1. This is consistent with our view that the recent lull in inflation is temporary given the loose stance of monetary policy. In other news this morning, the ADP employment index, a measure of private sector payrolls, increased 162,000 in September, narrowly beating consensus expectations. The report was consistent with our forecast that Friday's official Labor report will show payroll gains of 115,000 nonfarm (including government) and 150,000 private. In other recent news, automakers reported car and light truck sales at a 14.96 million annual rate in September, up 3 percent from August, 14 percent from a year ago, and the fastest pace since early 2008.

[DougMacG]

Orders placed with U.S. factories fell in August by the most in more than three years, signaling that slowdowns in business investment and exports restrained the economic expansion.

The 5.2 percent decrease in bookings was the biggest since January 2009.  Demand for durable goods dropped 13.2 percent.

http://www.bloomberg.com/news/2012-10-04/orders-to-u-s-factories-plunged-in-august-on-planes-computers.html
http://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf

[Crafty_Dog]

Is this visible to folks here?

http://www.youngresearch.com/researchandanalysis/economy-researchandanalysis/stimulus-fading-new-orders-falling/?awt_l=PWy8k&awt_m=3fnjvKtv4izlu1V

[Crafty_Dog]

Thelma, Louise and the Fiscal Cliff To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/8/2012

Everyone knows it’s coming. Thelma and Louise are about to drive off the cliff, in one last climatic scene of independence and stupidity. You don’t have to rent the DVD because our very own federal government is heading toward the fiscal cliff. It should be spectacular.

If a new budget agreement can’t be reached by the end of this year or early next year, federal spending gets automatically trimmed – sequestered – by $70 billion through September 30, 2013, about half of it from the defense budget. In perspective, government spending will be about $2.7 trillion from January to September 2013. So, we’re only talking about 2.6% of total spending – or 0.6% of GDP – over the last nine months of the fiscal year, which ends September 30.

No doubt this world hurt defense contractors and other recipients of government business and aid. But spending crowds out the private sector, so cutting spending by this little and showing that Washington is starting to get its fiscal house in order would probably have a positive effect on GDP, even in the short-term. Spending was cut about this much at the end of the first Iraq War in 1991, and the economy grew.

What concerns us more is the tax side of the fiscal cliff. These include (1) the end of the 2% payroll tax break of the past two years - $120 billion in extra revenue per year. (2) A new extra 3.8% tax on dividends, capital gains, and interest income and a 0.9% Medicare tax on high earners - $25 billion/yr. (3) lower thresholds for the Alternative Minimum Tax - $100 billion-plus. (4) A return to the 2000 tax rates on income, dividends, and capital gains, including a top official rate of 39.6% on ordinary income and dividends and 20% on capital gains - $150 billion-plus.

Right now, we see the odds of a recession at 25%. However, if all of these tax hikes happen at once, our odds of recession would have to go up considerably.

Our best guess is that the 2% payroll tax cut won’t be extended again. That, by itself, is not cause for much concern. Personal income is up $460 billion in the past year, so workers have enough income growth to absorb a reversal of the payroll tax cut and still increase their purchasing power. The economic expansion would survive.

The real threat is a simultaneous impact on investment and work effort from higher marginal tax rates on ordinary income, dividends, and capital gains combined with the unsettling impact on consumers and investors of losing a significant portion of their expected cash flow. As we wrote last week, we may be living in an era in which the economic cycle is more dominated by shifts in monetary velocity and the risk of a panic. If so, a major and sudden shift in tax burdens could be a cause for recession even if the supply-side effects on incentives are relatively small.

These tax hikes would not only damage the supply-side of the economy, but would subtract hundreds of billions of dollars of income from the private sector. Both sides of the political aisle understand this, which is why, in the end, we are still confident some agreement will be reached (as it was in 2010) regardless of the outcome of the election.

We do not expect an agreement before the election; the chances of that are extremely low. And we don’t expect a very quick agreement afterward; both parties have an incentive for brinksmanship to drive the best possible bargain for their supporters. Instead, get ready to wait until the waning days of any lame duck session, and watch the signals coming from the proverbial smoke-filled rooms for an agreement.

We do not expect tax rates to rise anywhere near high enough to cause a recession. Our base case remains that the US will continue to grow right through 2013. The Plow Horse will plow on despite the fiscal cliff. The stock market “gets” that and that’s why it’s going up despite the threat of the fiscal cliff.
Let the credits roll.

[G M]

Someone has to break it to Wesbury that the glue factory already carted the plow horse away

Thelma, Louise and the Fiscal Cliff To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/8/2012

Everyone knows it’s coming. Thelma and Louise are about to drive off the cliff, in one last climatic scene of independence and stupidity. You don’t have to rent the DVD because our very own federal government is heading toward the fiscal cliff. It should be spectacular.

If a new budget agreement can’t be reached by the end of this year or early next year, federal spending gets automatically trimmed – sequestered – by $70 billion through September 30, 2013, about half of it from the defense budget. In perspective, government spending will be about $2.7 trillion from January to September 2013. So, we’re only talking about 2.6% of total spending – or 0.6% of GDP – over the last nine months of the fiscal year, which ends September 30.

No doubt this world hurt defense contractors and other recipients of government business and aid. But spending crowds out the private sector, so cutting spending by this little and showing that Washington is starting to get its fiscal house in order would probably have a positive effect on GDP, even in the short-term. Spending was cut about this much at the end of the first Iraq War in 1991, and the economy grew.

What concerns us more is the tax side of the fiscal cliff. These include (1) the end of the 2% payroll tax break of the past two years - $120 billion in extra revenue per year. (2) A new extra 3.8% tax on dividends, capital gains, and interest income and a 0.9% Medicare tax on high earners - $25 billion/yr. (3) lower thresholds for the Alternative Minimum Tax - $100 billion-plus. (4) A return to the 2000 tax rates on income, dividends, and capital gains, including a top official rate of 39.6% on ordinary income and dividends and 20% on capital gains - $150 billion-plus.

Right now, we see the odds of a recession at 25%. However, if all of these tax hikes happen at once, our odds of recession would have to go up considerably.

Our best guess is that the 2% payroll tax cut won’t be extended again. That, by itself, is not cause for much concern. Personal income is up $460 billion in the past year, so workers have enough income growth to absorb a reversal of the payroll tax cut and still increase their purchasing power. The economic expansion would survive.

The real threat is a simultaneous impact on investment and work effort from higher marginal tax rates on ordinary income, dividends, and capital gains combined with the unsettling impact on consumers and investors of losing a significant portion of their expected cash flow. As we wrote last week, we may be living in an era in which the economic cycle is more dominated by shifts in monetary velocity and the risk of a panic. If so, a major and sudden shift in tax burdens could be a cause for recession even if the supply-side effects on incentives are relatively small.

These tax hikes would not only damage the supply-side of the economy, but would subtract hundreds of billions of dollars of income from the private sector. Both sides of the political aisle understand this, which is why, in the end, we are still confident some agreement will be reached (as it was in 2010) regardless of the outcome of the election.

We do not expect an agreement before the election; the chances of that are extremely low. And we don’t expect a very quick agreement afterward; both parties have an incentive for brinksmanship to drive the best possible bargain for their supporters. Instead, get ready to wait until the waning days of any lame duck session, and watch the signals coming from the proverbial smoke-filled rooms for an agreement.

We do not expect tax rates to rise anywhere near high enough to cause a recession. Our base case remains that the US will continue to grow right through 2013. The Plow Horse will plow on despite the fiscal cliff. The stock market “gets” that and that’s why it’s going up despite the threat of the fiscal cliff.
Let the credits roll.

[G M]

Yes, this could go many places, but I think it's best here.

http://www.forbes.com/sites/greatspeculations/2012/10/08/hyperinflation-hits-iran-like-weapon-of-mass-destruction/

Hyperinflation Hits Iran Like Weapon Of Mass Destruction
 Addison Wiggin, Contributor   

Tehran, Iran

“Better buy now,” advised the rice merchant in Tehran. The retired factory guard took him up on the advice, buying 900 pounds of the stuff to feed his extended family for the next 12 months.

“As I was gathering my money,” the retiree told The New York Times, he got a phone call. “When he hung up, he told me prices had just gone up by 10%. Of course, I paid. God knows how much it will cost tomorrow.”

Iran’s currency, the rial, collapsed 40% last week under the pressure of Western sanctions and homegrown blundering. We’re not sure if Iran is in hyperinflation, as Cato Institute researcher Steve Hanke asserted in Friday’s 5 Min. Forecast, but at the very least they’re on the cusp.

Austrian economists describe three stages of inflation. In the first stage, people still hang onto their money, expecting prices to come down. In the second stage, people part with their money to stock up on goods before prices rise again. In the final hyperinflationary stage, people buy anything they can get their hands on — even if they don’t need it — because the goods are more valuable than the currency.

As we said on Thursday, Iran today is looking more and more like Iran during the 1978-79 revolution. Now there’s corroboration from someone who lived through those days.

“The new government wanted to prevent flight capital from leaving the country,” recalls Chicago-based derivatives specialist Janet Tavakoli, who married an Iranian while in college.

“In the panic to leave the country with some of their wealth,” she wrote in her 1998 book Credit Derivatives, “citizens found that although there was an official exchange rate of 7 tomans (10 rials) to the U.S. dollar, there was no means to convert money. Banks were closed much of the time. The government put a further restriction on conversion of currency. Citizens could take only $1,000 in U.S. currency out of the country and could take only a suitcase of clothing. The idea was to prevent citizens from taking valuable carpets, now labeled national protected works of art, out of the country.”

“Before a currency goes into free fall,” she writes now at Huffington Post, “its value can be chipped away while a distracted population fails to notice that the currency buys cheaper-quality clothing and less food in a package at a grocery store. That’s the current situation with the U.S. dollar.”  You can see the visible effects of dollar weakening via a multi-year chart of the GLD or the UUP.

Iran, she says, is far beyond that stage. Where it leads this time, we have no idea but it’s nowhere good.

Cheers,
Addison Wiggin

[G M]

http://finance.yahoo.com/blogs/breakout/real-fiscal-cliff-much-bigger-think-warns-peter-131010466.html

The Real Fiscal Cliff Is Much Bigger Than You Think, Warns Peter Schiff
By Jennifer Carinci | Breakout – Wed, Oct 10, 2012 9:10 AM EDT

The warning from the International Monetary Fund's World Economic Outlook released yesterday was loud and clear: "Growth would stall in 2013 with the full materialization of the (fiscal) cliff…" Many large regions, including the entire world, saw growth forecasts cut by the IMF. But the world economists warned America's economic problems are home grown.

They predict the U.S. will continue its tepid growth rate of near 2% if the fiscal cliff is averted. On the flip side, if we go over the cliff, the IMF predicts the automatic spending cuts and tax hikes due to set in at year-end would take more than 4% out of the GDP rate for 2013, tipping us back into recession.

Washington may not be reacting, but Peter Schiff, President & CEO of Euro Pacific Capital and author of "The Real Crash" is. He's been beating the drum on America's fiscal crisis, but it's not necessarily the year-end cliff that could lead us into the next disaster.

"It's not because we go over this phony fiscal cliff, it's probably because we don't go over that one because the government cancels the spending cuts, cancels the tax hikes, and instead we end up going over the real fiscal cliff further down the road," he says.

By kicking the can down the road, Schiff believes interest rates will spike and we won't be able to afford to pay the interest on the enormous amount of debt that we have. "In fact, the real fiscal cliff comes when our creditors want their money back, and we don't have it," he states.

Schiff says QE3 can only take us so far and the Federal Reserve's money printing will do so much destruction to the dollar through inflation, that we'll see a currency collapse like never before, which will force a dramatic and painful new way forward.

"Our economy is so screwed up from years and years and years of bad monetary and fiscal policy that it's going to be painful to correct that problem. But we have to do it," he says. "We can't keep avoiding the pain and in the process making the problem worse, because then we're just going to have even more pain in the future to fix an even bigger problem."

For what it's worth, the IMF does back the Fed's latest round of quantitative easing:

"The recent measures by the Federal Reserve on additional quantitative easing and the extension of its low-interest-rate guidance until mid-2015 were timely in limiting downside risks. Monetary policy needs to remain accommodative while the government and household sectors continue to consolidate."-IMF World Economic Outlook

The Fed must stop printing money and politicians must create a real fiscal plan with budget cuts, tax reform and ultimately deficit reduction to avoid Schiff's predicted doomsday scenario. And it's not going to feel good. He likens the pain of money withdrawal to that of an addict in detox.

"If we address these imbalances and let the economy restructure, people are going to lose their jobs in some sectors, some investors are going to lose money, it's going to feel bad for a lot of people for a short period of time, but it will be very constructive pain," he says. "The only way around this is to stop the presses, let interest rates go up, and they're going to have to go way up, and let the chips fall where they may."

[Crafty_Dog]

IMHO a good case can be made for the IMF being a contra-inidcator.

[Crafty_Dog]

Tempted to put this in the Economics thread on SCH but well, here it is here:


25 Year Anniversary
•   by Doug Noland
•   October 19, 2012

I spent a memorable October 19, 1987 in front of Quotron and Telerate screens as a Treasury analyst at Toyota’s U.S. headquarters in Torrance, California.   After ending my stint as a Price Waterhouse CPA and heading south, I was introduced to the financial markets and macro analysis in 1986.  It was impassioned love at first sight.

And 1987 simply could not have been a more fascinating environment for learning.  Global currency and fixed income markets were in disarray.  The dollar index, which had traded above 160 in March of 1985, had fallen below 100 by January of ’87.  Bond yields, after beginning the year at 7%, were above 8% by May, and over 9% in September before jumping to 10.2% in mid-October.  Stock markets were increasingly unstable, as speculative excess gained a foothold.  At its August ’87 high, the S&P500 was sporting a frothy 39% y-t-d gain.

There were a few good articles this Friday commemorating the 25 year anniversary of “Black Monday.”  I particularly appreciated Floyd Norris’ “A Computer Lesson Still Unlearned,” from the New York Times.  Bloomberg (Nina Mehta, Rita Nazareth, and Whitney Kisling) did nice work with “Black Monday Echoes as Computers Fail to Restore Confidence.”  I’ll take a different tack, focusing more on that period’s extraordinary macro backdrop – one that is highly relevant to today’s even more extraordinary backdrop.

Portfolio insurance played an important role in the precipitate sell orders that overwhelmed and helped crash the market.  It was, however, a festering macro backdrop that had set the stage.  Importantly, global stock markets had turned highly speculative, having diverged from troubling fundamentals.  Global financial and economic imbalances had become a major issue.  The U.S., West Germany, the UK, France and Japan had agreed in the September 1985 “Plaza Accord” to take measures to devalue the over-extended dollar.  By early 1987, the dollar was seemingly trapped in a downward spiral.  “G6” (including Canada) countries reconvened in February 1987 (“Louvre Accord”) to try to stabilize global markets and halt the dollar’s fall.  The West Germans and others were worried that the U.S. was pointing fingers at its trading partners instead of addressing its own economic maladies.

The “twin deficits” were a major concern.  The U.S. fiscal situation had deteriorated significantly during the 1981/82 recession.  Our nation’s fiscal position then did not improve as expected by 1986, with the federal deficit still running at close to 5% of GDP.  The U.S. trade balance had deteriorated in tandem.  After running an almost balanced position for the period 1979-1982, the U.S. Current Account began to spiral out of control.  Our Current Account deficit jumped to $39bn in 1983, $94bn in 1984, $118bn in 1985, and $147bn in 1986.  By 1987, the U.S. was running quarterly Current Account shortfalls the size of its annual deficit from only four years earlier.

Credit excesses were certainly not limited to government finance.   Total Non-Financial Debt expanded 14.8% in 1984, 15.6% in 1985 and 15.6% in 1986.  The Credit boom was broad-based, with Federal, State & Local, Household, and Corporate debt all expanding at double-digit rates throughout the period.  Financial Sector Credit Market Debt was exploding, with growth of 17.5% in ’84, 19.3% in ’85, and 26.2% in ’86.  Importantly, this growth reflected the commencement of a historic expansion of non-bank Credit, led by (Agency/GSE) MBS and ABS, along with finance company and (“captive finance”) corporate borrowings.

The market and U.S. economic environments troubled Toyota executives back in 1987.  They were also plenty worried about Japan.  Japanese policymakers were under intense American pressure to stimulate their economy in order to remedy their widening trade surplus with the U.S.  After beginning 1986 at about 13,000, Japan’s Nikkei equities index surpassed 26,000 in the autumn of 1987.  The Japanese real estate balloon was also rapidly inflating, even as consumer prices remained well contained.  Toyota officials were increasingly worried that loose monetary policy and other stimulus measures had fostered a dangerous Bubble in Japan.  The 1987 crash proved but a minor setback for the Japanese Bubble, as “terminal phase” excesses in 1988 and 1989 sealed Japan’s fate.  The Nikkei ended 1989 at 38,916.  The Nikkei closed Friday, some 23 years later, at 9,003.

I’ve often contemplated where I might “officially” pinpoint a starting point for the prolonged U.S. and global Credit Bubble.  There is strong justification for choosing the early eighties, on the back of that period’s explosions in U.S. federal debt, non-bank Credit creation, and destabilizing Current Account Deficits.  I’ll instead propose October 20, 2012 as the 25 Year Anniversary of the Great Credit Bubble.   It was, after all, 25 years ago, on the Tuesday following “Black Monday,” that a statement changed history:  “The Federal Reserve, consistent with its responsibilities as the Nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.”

There were myriad critical issues that needed immediate attention by 1987 - and certainly in the Crash’s aftermath:  the root cause of problematic market distortions, including excessive speculation and new derivatives strategies (i.e. “portfolio insurance”); excessive system Credit expansion, especially the rapid growth of non-traditional Credit creation; federal deficits and attendant Current Account Deficits that had begun to fuel dangerous global imbalances, including the Bubble engulfing our important ally and trading/financing partner in Japan.

Yet, the fixation at the Federal Reserve and Washington was with the markets and the imperative of ensuring no repeat of the Great Depression.  The Greenspan Fed was willing to overlook serious fundamentals issues and instead ensure that market participants were emboldened by the Fed’s liquidity backstop.  Besides flooding the system with liquidity (concurrent with other measures), the Fed cut rates in the months following the Crash (from 7.25% before the crash to 6.5% in February ’88).  After surging above 10% in October of ’87, 10-year Treasury yields dropped to almost 8% in early ’88.  Financial conditions remained loose and the markets (and speculation) bounced right back.  Total Non-Financial Debt growth remained strong (9.1% in both ’87 and ’88).  Importantly, Federal Reserve largess ensured that areas of fledgling excess throughout the system actually gained critical momentum.  These included the Drexel Burnham junk bond scheme, the Wall Street “Gordon Gekko” M&A boom, and real estate lending excesses, especially on both coasts.

When this Bubble phase eventually burst in the early-nineties, eighties period excesses were referred to as “the decade of greed.”  In the name of fighting the scourge of deflation and depression, the Greenspan Fed responded even more aggressively.  The Fed went from guaranteeing marketplace liquidity to ensuring a steep yield curve (short-term rates pegged significantly below market bond yields).  This (manufactured borrow short/lend long "carry trade" profits) worked like magic to recapitalize a banking system deeply impaired from the late-80’s Credit boom.  It also provided spectacular returns for financial speculators and essentially unleashed the modern era of hedge funds and leveraged speculation, of which there has been no turning back.

Furthermore, the Fed’s activist market interventions/manipulations spurred rampant growth in non-bank Credit, including MBS, ABS, GSE balance sheets, “repos” and securities finance, and Wall Street finance more generally.  Indeed, the Fed’s statement the day following the ’87 Crash proved a seminal inflection point for finance and the global economy.  Amazingly, the Greenspan Federal Reserve even became outspoken proponents of New Age finance, including derivatives, hedge funds and Wall Street risk intermediation.  And the leverage speculating community, global derivatives and securities trading, and the proliferation of unconstrained marketable debt instruments changed the world.

The Greenspan Fed’s 1987 promise of market liquidity was the precursor for today’s zero rates, the Fed’s almost $3 TN balance sheet, and recent promises of “open-ended” quantitative easing (QE).  Over the years – and through every crisis – the Fed became only more zealous activists supporting the uninterrupted expansion of marketable debt.  The bigger the securities markets – and the more dominant the leveraged speculators – the more Fed policy revolved around ensuring a favorable liquidity and rate backdrop for unending leveraging and speculating.  

Especially after the ’87 Crash, the Federal Reserve and other regulators should have moved decisively to nip the derivatives boom in the bud, especially in the area of the dynamic hedging (i.e. selling S&P500 futures into a rapidly falling market to hedge market insurance derivatives written) of myriad market risks.  “Black Monday” provided unequivocal evidence of the serious flaws and dangers associated with the premise of “liquid and continuous” markets – an assumption that is really the foundation for contemporary derivative hedging strategies.  Instead of the Crash destroying this market fallacy, the Fed’s day-after statement validated the view that derivative contracts could be written and risk-strategies pursued on the belief that policymakers would be there to counterbalance market illiquidity and neutralize “tail risks” and system shocks.  This fundamentally changed finance, the pricing and trading of risk instruments, and risk-taking more generally.  The unprecedented proliferation of market risk insurance took the world by storm and played a pivotal role in runaway Credit excesses and associated global imbalances and economic distortions.

The Fed’s statement on October 20, 1987 commenced 25 years of serial (and escalating) booms and busts around the world.  We’re nowadays in the midst of “melt-up” Credit debasement, a “blow-off” top in global speculative excess, and complete policy capitulation in hope of holding the downside of the global Credit cycle at bay.  For a few years now, I’ve referred to the “global government finance Bubble” as the granddaddy of them all.  What started as excesses at the fringes of U.S. bank and junk bond finance back in the late-eighties eventually made its way to terminally infect Treasury and related debt at the core of our entire monetary system.  Global excesses, having fueled precarious Bubbles in Japan, SE Asia, Europe and the emerging economies over the years, afflicted China with its estimated population of 1.3 billion.   Today’s historic Bubble phase risks the loss of market trust in sovereign debt.  The current global “inflationist” policy regime risks being completely discredited.  And the historic Chinese Bubble risks a precarious post-Bubble day of reckoning.

Unlike the 80’s and 90’s, there’s no longer any attempt at a coordinated strategy to deal with global excesses and imbalances.  Policymakers have thrown in the towel - and these days have no strategy beyond reflation and Bubble perpetuation.  U.S. policymakers pay little more than lip service to incredible federal deficits.  This, however, is actually more than is paid to the massive Current Account Deficits that have been the root cause of now deep structural global imbalances and economic impairment.  More than 25 years later, our nation’s policy prescription for unmatched global imbalances is even looser monetary policy and added stimulus for all nations, everywhere, all-the-time.
And the way I see it, the Fed, ECB and global central bankers today fight a losing battle.  The mountain of global debt, securities, and derivatives, along with this destabilizing global pool of speculative finance, just inflate larger by the year – and after each policy response.  And the more outrageous the policy measures implemented to try to resolve each crisis, the more these desperate measures further inflate the global Bubble.  Ironically, the ongoing assurances of central bank liquidity seem to ensure an eventual crisis beyond the liquidity capacity of central banks.  Happy 25th Anniversary, you aged and ornery Credit Bubble.  They’ll be reading, writing about and studying you for at least the next century.

[DougMacG]

Are people still in the market with another correction coming?  If nothing is done, capital gains tax rates go up at the end of the year by 33-50%, and nothing is being done.  If Obama wins, under his plan they go up by as much as triple.  This doesn't affect you? If everyone but you sells, the value of your stock will go down - significantly.  MHO.

[G M]

I'm not sure it Romney can stop the crash, but with Buraq it's a done deal.

We are going to live through interesting times.

[Crafty_Dog]

Emotionally at this point in time I am a bear.  However, based upon my track record in recent years, I have come to view myself as a counter-indicator 

If Romney wins, Obamacare is done for.  That is a BFD.

If Romney wins, the fiscal cliff is going to be handled quite differently and that too is a BFD.

If Romney wins, Bernanke will become unemployed and that too is a BFD.

There's money on the sidelines, lots of it.  If Romeny wins, it comes to play.  That too is a BFD.

[G M]

All that is true. I don't think it will be enough. I really hope I am wrong.

[DougMacG]

I see a big win for Romney but there is also a real chance that Obama wins, with a Dem Senate, keeps Obamacare, lets tax rates go up, restarts the carbon war plus the not yet mentioned war against fracking, and kills off all growth.  That's a lot of uncertainty.  There could be recounts too, with either outcome.

Assume Romney wins, R's take the Senate and keep the House.  If they can enact the agenda then I am bullish bigtime on the long term - but not without turmoil in the short term.   

If they get it passed in March and make it retroactive to Jan. 1, that leaves months of unknowns starting now.  There will be a fight after the election over temporary tax rate extensions.  How does that end?  When does it end?  Nobody knows, I think it was Dec 24 last time.  Dems in the Senate could block things next year; some bills don't need 60 votes.

The market is up this year and up since the bottom in 2008.  People have profits to take before the year-end rate-hike possibility, and they have to sell before others do.  They can buy back into other stocks if they are bullish but widespread selling presents an opportunity for a downward spiral.

[Crafty_Dog]

Data Watch
________________________________________
New Orders for Durable Goods Jumped 9.9% in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/25/2012

New orders for durable goods jumped 9.9% in September (10% including revisions to August), coming in above the consensus expected gain of 7.5%. Orders excluding transportation increased 2.0% (1.5% including revisions to August), easily beating the consensus expected gain of 0.9%. Overall new orders are up 2.5% from a year ago, while orders excluding transportation are down 1.6%.
The rise in overall orders in September was led by a massive rebound in civilian aircraft, although ex-transportation orders were up as well. Machinery orders were up 9.2%, but are still down 6.0% from a year ago.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure was down 0.3% in September (-0.8% including revisions to August) and was down at a 4.9% annual rate in Q3 versus the Q2 average.
Unfilled orders were up 0.2% in September and are up 4.7% from last year.
Implications: Orders for durable goods bounced back sharply in September after a steep drop in August. Both the drop last month and now the rebound were mostly due to extreme moves in the always volatile aircraft orders. However, taking out the transportation sector, orders were still up 2% in September, led by a 9.2% rebound in machinery. That’s the good news. The bad news is that machinery orders are still down 6% from a year ago. Meanwhile, shipments of “core” capital goods, which exclude defense and aircraft, were down 0.3% in September, the third straight monthly decline. Core shipments usually fall in the first month of each quarter and then rebound in the last two months. This time, the rebound didn’t happen. These figures suggest a temporary hesitation in business investment, not recession. We think some companies are postponing purchases of big ticket items until after the election, in the hopes of more clarity, and improvement, in public policy. If so, expect a rebound after the election. Monetary policy is loose, corporate profits are close to record highs, balance sheet cash is at a record high (earning almost zero interest), and we are still in the early stages of a home building recovery. All of these indicate more business investment ahead. In other news this morning, initial claims for unemployment insurance declined 23,000 last week to 369,000. Continuing claims for regular state benefits declined 2,000 to 3.254 million. These figures and other recent data are consistent with a payroll gain of about 120,000 in October, both nonfarm and private. In other news this morning, pending home sales, which are contracts on existing homes, increased 0.3% in September after a 2.6% decline in August. These figures suggest existing home sales (counted at closing) should be roughly unchanged in October.

[Crafty_Dog]

________________________________________
Velocity, Uncertainty & the Economy To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/29/2012

Recently we lifted our recession odds to 25% from 10%. For some, this was worrisome. In recent weeks we’ve been asked, “If you guys get a little bearish on the economy, after being bullish for so long, shouldn’t I get really nervous?” Our answer to this question is “no.”
Our base case (75%) is the economy continues to grow. Not gangbuster growth; more plow horse data, such as the 2% real GDP growth for Q3 and what we expect to be a workmanlike 120,000 increase in payrolls for October.
We were focused on the potential for a drop in velocity – the turnover rate of the money supply. To put this in plain English, the M1 money supply (cash and checking accounts) stands at $2.4 trillion; M2 (M1 plus savings deposits, short-term time deposits, and retail money market funds), is $10.1 trillion. And, in the past year, total spending in the economy (nominal GDP) has been $15.5 trillion.
Velocity measures how often each dollar is spent. Dividing GDP by M1 shows that every dollar of M1 is spent 6.6 times while every dollar of M2 is spent 1.5 times. Both are down significantly in recent years (and even in recent quarters), partly because of quantitative easing which has artificially boosted M1 and M2 without any kick to GDP growth.
Milton Friedman postulated that velocity was either stable or grew at a stable rate. However, a panic – like the US had in 2008/2009 – obviously can cause a decline. And it is also apparent that quantitative easing, which boosts excess reserves held at the Fed, can also lead to a decline in the amount of GDP supported by a certain amount of money.
Despite the recent decline in velocity, the economy should continue to grow. Productivity and wealth gains from new technology (the cloud, smartphones, tablets, fracking,…etc.) are pulling the economy along against the headwinds of excessive government spending and regulation. The economy is growing slowly, not because of the recent financial crisis, but because of policy mistakes from Washington, DC.
Nonetheless, uncertainty has reached a crescendo. The election coming in just 8 days and the “Fiscal Cliff” at year end have created an environment that tilts measures of risk and reward for business leaders. The results include weak industrial production, new orders, and business investment. While we don’t expect this to lead to a recession, with velocity in play and uncertainty so high, the risks are real.
So far, weaker business investment is being offset by a stronger housing market, which means the economy is likely to avoid any dip in activity. We anticipate that the pullback in business activity will be reversed once the fog of uncertainty clears. Look for stronger growth in 2013.

[DougMacG]

Wesbury is right on the money with his key point here.  Velocity is the key determinant of what is wrong and what needs to improve and uncertainty is at the heart of it.  Worse than high tax rates we have total uncertainty about future tax rates.  No investor can make any calculated decision.  No company can know their after tax return on investment for all the plant building and expansion decisions that are not being made right now.  Pull back, sit still and wait is the only logical choice which means, generally, no new jobs.

I've mentioned that Wesbury is more candid about his political views on right wing radio (Friday Hugh Hewitt show for one) than he is writing for the investment house.  Wesbury thinks Romney is going to win and that will be good for the economy.  So do I, but my uncertainty level is 50% or more.

What he means by plowhorse economy is that the American private sector is strong but pulling this awfully burdensome load, the American public sector, including all the transfer payments.

If you believe recovery depends on a change of course and the change of course depends on knowing the result especially President and Senate on which the change of course depends, how can you know or predict the economic outlook?

"Recently we lifted our recession odds to 25% from 10%."

Right.  What that means is that we are headed into a recession - or we aren't.  You can base your investment decisions on that secure knowledge.

[Crafty_Dog]

Data Watch
________________________________________
Personal Income Increased 0.4% in September, Personal Consumption Rose 0.8% To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/29/2012

Personal income increased 0.4% in September, matching consensus expectations. Personal consumption rose 0.8%, coming in higher than the consensus expected 0.6%. In the past year, personal income is up 3.9%, while spending is up 3.8%.
Disposable personal income (income after taxes) was up 0.4% in September and is up 3.6% from a year ago. The gain in income in September was led by private wages and salaries, small business income, and government transfer payments.
The overall PCE deflator (consumer inflation) was up 0.4% in September and up 1.7% versus a year ago. The “core” PCE deflator, which excludes food and energy, rose 0.1% in September and is up 1.7% in the past year.
After adjusting for inflation, “real” consumption was up 0.4% in September and is up 2.1% from a year ago.
Implications: A good report on the consumer today shows the plow horse economy continues to push through the mud and clay. Consumer spending grew a healthy 0.8% in September, the biggest monthly gain since February. “Real” (inflation-adjusted) personal consumption was up 0.4% and is 2.1% higher than a year ago. Respectable, but far from spectacular. Income gains were also solid in September, with disposable (after-tax) income up 0.4%, the highest monthly increase since March. Real disposable income is up 1.9% from a year ago, which is enough to keep pushing consumer spending higher. The lion’s share of the income gains in September was due to worker compensation. Government transfers also added about a quarter of the gain, rising 0.5% in September, but this was after a decline in transfers in August. Government transfers are up 3.3% in the past year, while private-sector wages and salaries are up 4.6%. In other words, transfers are now holding down the growth rate of income. One factor that will help maintain spending growth in the year ahead is that households’ financial obligations – recurring payments like mortgages, rent, car loans/leases, as well as other debt service – are now the smallest share of income since 1984. This allows consumers to stretch their income gains further. On the inflation front, overall consumption prices were up 0.4% and the core PCE, which excludes food and energy, was up 0.1% in September. Overall prices and core prices are both up 1.7% in the past year, versus the Federal Reserve’s target of 2%. This is awfully close for a central bank running a very loose monetary policy. Expect higher inflation in the year ahead

[G M]

"Expect higher inflation in the year ahead"

[Crafty_Dog]

Umm , , , when the DOW was at 6500 you and I were calling for it to go to 6000.   That was 100% ago.   OTOH Wesbury got it right 

[G M]

Faber: Market To Drop 20% Now, 50% Later, Complete Global Societal Collapse In 5 Years
November 13th, 2012


The markets are going to go into meltdown soon so expect stocks to lose 20 percent of their value, Marc Faber, author of the Gloom, Boom and Doom report told CNBC on Tuesday.

“I don’t think markets are going down because of Greece, I don’t think markets are going down because of the “fiscal cliff” – because there won’t be a “fiscal cliff,” Faber told CNBC’s “Squawk Box.”

“The market is going down because corporate profits will begin to disappoint, the global economy will hardly grow next year or even contract, and that is the reason why stocks, from the highs of September of 1,470 on the S&P, will drop at least 20 percent, in my view.”

…

Faber argued that the “fiscal cliff,” a rise in taxes and automatic spending cuts, would actually involve some minor tax increases in “five years’ time” and some spending cuts “in 100 years.”

…

Faber told CNBC that central bank stimulus was useless and the implosion of markets was the only way to restructure the financial system.

“I think the whole global financial system will have to be reset and it won’t be reset by central bankers but by imploding markets – either the currency [markets, debt market or stock markets.”

“It will happen — it will happen one day and then we’ll be lucky if we still have 50 percent of the asset values that we have today.”
.
Read more at http://investmentwatchblog.com/faber-market-to-drop-20-now-50-later-complete-global-societal-collapse-in-5-years/

[G M]

Umm , , , when the DOW was at 6500 you and I were calling for it to go to 6000.   That was 100% ago.   OTOH Wesbury got it right 

I bet I have a better track record than Wesbury over time. I can repost how Wesbury wrote that the 2008 financial crisis was no big deal, if you like.

[DougMacG]

WSJ falls behind on its reading of the forum.  Just now catching up on the coming crash:  http://www.marketwatch.com/story/retiring-on-the-edge-of-the-fiscal-cliff-2012-11-13

Summarizing this long piece:  Sell.  Take point 1 for example, "Set aside 12 months of living expenses".  A full year of expenses in cash ought to get most people out of the market.  What is the downward price momentum after every investor sells off a full year's salary worth of equities?

Point 2, "Rebalance assets" also means sell equities.  So does point 3,
"Strategic asset allocation", point 4 "Avoid dividend-paying stocks", and especially point 6, "Harvest long-term capital gains", all equal sell.  Expect a GDP decline of 5% if the fiscal cliff cuts all materialize.  Who has been saying that?  These guys (WSJ/Marketwatch) have no shame in re-publishing our material.

Current environment is more like a “storm watch” rather than a “storm alert”. Really?  Maybe today or tomorrow Obama, Pelosi, Schumer and the House Republicans will all come together with a great big, budget balancing, free enterprise expanding deal (and the Vikings might win the Super Bowl).  To their credit, the piece was written before the Pres. started launching rockets and missiles at his opposition in yesterday's press conference.
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Retiring on the edge of the fiscal cliff
10 ways to protect your retirement savings

By Robert Powell, MarketWatch

One of the biggest risks that retirees and pre-retirees face is that of taxes; not just paying them but the risk that tax policy will change and throw a big wrench into one’s plans.

Well, that risk—in the form of the fiscal cliff—is now upon us and retirees and pre-retirees must now develop a plan of action for their portfolio should all, some, or none of the scheduled tax changes and spending cuts become a reality on Jan. 1.

“The ‘fiscal cliff’ may affect retirees, pre-retirees and the economy as a whole unless Congress acts,” said Thomas DiLorenzo, manager in the Employee Financial Services group at Ernst & Young LLP.

According DiLorenzo, increased taxes—higher income, higher dividend, and capital gains tax rates—are the primary personal finance concern as the Bush-era tax cuts are set to expire for all individuals. Among the changes:

    Marginal tax rates will rise from 10%, 15%, 25%, 28%, 33% and 35% in 2012 to 15%, 28%, 31%, 36% and 39.6% in 2013.

    The 15% maximum long -term capital gains rates will revert to 20% and qualified dividend rates will increase from 15% to being taxed at an individual’s marginal tax rate.

    Earned income tax credit, child tax credit, and the American Opportunity credits will all be reduced.

    Itemized deductions and personal exemptions will become subject to phaseout.

    Estate and gift tax exemption will drop from $5.12 million to $1 million and the top estate tax rate will go from 35% to 55%.

    And while not part of the Bush tax cuts, the 2% FICA tax reduction that has been in place for the past two years would also expire at the end of this year.

In addition, the lower Alternative Minimum Tax (AMT) exemption that is currently in place for 2012 would result in many more individuals being subject to the AMT if the exemption amount is not increased as it has been in previous years..

While there is still time for Congress to take action and every individual’s situation will be different depending upon their facts and circumstances, experts including DiLorenzo said retirees and pre-retirees ought to consider the following given that the fiscal cliff might become a reality.

Read related story, 5 fiscal-cliff tax moves for retirement savers.

Set aside 12 months of living expenses

Things might get a little bumpy as we approach the fiscal cliff. So, Stephen Smith, a vice president at Noesis Capital Management, recommends that retirees and pre-retirees set aside 10 to 12 months of living expenses in a money-market fund. “That should provide a cushion so that their investment portfolio can be managed according to their respective time frame and circumstances, with less regard for volatility over a six-month period,” he said.

Rebalance assets

In the event that we do go over the fiscal cliff for more than just a few weeks of 2013, “the ramifications could be quite significant,” according to a UBS Wealth Management Report.

So retirees and pre-retirees might consider how they will allocate their assets given any number of scenarios that could play out as we near the fiscal cliff.

In a worst-case scenario, for instance, UBS reports that there will be severe double-digit losses for U.S. and cyclical non-U.S. equities; U.S. Treasuries and highly-rated non-U.S.-government bonds will rally and credit spreads will spike across the board; the U.S. dollar and other safe-haven currencies will rally; and there will be severe double-digit declines in the broad commodity indexes, with energy and base metals being the most affected.

In its report, UBS outlined four other possible scenarios, including a scenario where lawmakers design a best-case grand bargain that avoids the fiscal cliff. In this scenario, UBS predicts that there will be a rally in stocks, fueled by multiple expansion and stronger earnings growth; Treasury yields will rise modestly, but remain low; the U.S. dollar will rise; and commodities won’t fall.

Others, however, have a different point of view. “Although tax policy for 2013 remains highly contingent on the outcome of U.S. Presidential elections—we think that most likely scenarios continue to favor our themes of preferring large cap over small cap and dividend payers/growers over non-payers,” said Lisa Shalett, CIO and head of Investment Management and Guidance for Merrill Lynch Wealth Management.

Strategic asset allocation

While many agree that you need to develop a plan for the best- and worst-case scenarios, some suggest that you consider what’s called strategic asset allocation.

“Investors should, in my view, one, have a plan for what to do if valuation levels in the current stock market go up or go down substantially; and two, adhere to that plan—strictly,” said Ron Rhoades, assistant professor at Alfred State College and the president of ScholarFi Inc.

According to Rhoades, the current valuation level of the overall U.S. stock market is currently slightly below normal levels seen over the past 30 years, perhaps 0% to 10% below mean valuation levels. “Given the substantial rise in equities which has occurred this year, and the macroeconomic risks present, a prudent investor might desire to ‘take gains off the table’ at present,” he said. “This would be done by selling longer-duration bonds and/or equities, and reinvesting in short-term bond funds or CDs. This would serve to minimize the risk present in a downturn.”

Rhoades is not suggesting that investors time the market with tactical asset allocation. Rather, he suggests “adopting a prudent long-term strategic asset allocation and undertake tax-efficient rebalancing of the portfolio on a periodic, perhaps quarterly or semiannually, basis…This forces the investor to ‘sell high’ and ‘buy low’—to a degree.”

Tactical moves

For investors with significant equity positions in their portfolio who might not want to reduce that allocation, Jeff Witt, the director of research at Private Asset Management, recommends buying longer-term put options on the S&P 500 index as a type of “insurance” for your portfolio. “Investors could also look at buying the VIX Index (either through Futures contracts or ETFs), which has traditionally been negatively correlated with the broader market,” he said. “These investments could lessen the impact of a potential pull back in the equity market, should one occur.”

For fixed-income investors, Witt said higher taxes should make tax-exempt municipal bonds relatively more attractive. “Therefore, for taxable accounts, repositioning a portfolio toward a higher concentration of municipal bonds might make sense,” he said.

Roger Aliaga-Diaz, an economist at Vanguard said in a recent webcast that investors should not move out of fixed-income assets. “You want to hold part of your portfolio in fixed income, only because of this low correlation to equities,” he said. “Only because in the situation like a fiscal cliff you would see the bond part of your portfolio really to buffer and to push in the impact on the more risky part.” Read the transcript of Aliaga-Diaz’ webcast.

Avoid dividend-paying stocks?

Others, meanwhile, say that retirees and pre-retirees need to rebalance their portfolios for the coming fiscal cliff, but suggest avoiding dividend-paying stocks.

“Normally in a down economy, investors might want a defensive stock with a high dividend,” said Lukas Dean, an assistant professor at William Paterson University. he said. “But with dividend rates taking such a significant increase, it is doubtful that investors will be as prone to turn that traditional safe haven.”

Witt is of the same opinion. “Should the Bush tax cuts be allowed to expire, the tax rate on dividends will increase,” he said. And that would make dividend-paying stocks relatively less attractive to income investments such as master limited partnerships and high-yield bonds. “We believe the utility and telecommunication services sectors are most at risk, as these sectors traditionally have high yields and relatively low growth rates,” Witt said. “Furthermore, both appear to be trading at fairly stretched valuations.”

Asset location

Experts often recommend that you not only make sure your assets are allocated based on your investment goals, but that those assets are also located in the right types of accounts. So, DiLorenzo recommends reviewing which assets you hold in your taxable and tax-deferred accounts and shuffling things around if need be. Move, for instance, the most tax-sensitive investments—dividend-paying stocks and fixed-income securities—from taxable to tax-deferred accounts, and move investments such as growth stocks that don’t pay a dividend from tax-deferred account to a taxable account. Doing so will improve your after-tax wealth and income.

In short, you want to optimize your use of tax-deferred account such as IRAs, 401(k)s and populate them with the most tax-sensitive (ordinary income) instruments,” said Shalett.

Speaking of trying to create tax-efficient income, Shalett also suggests using more tax-efficient investments and accounts, such as single stocks, separately managed accounts, and ETFs

Harvest long-term capital gains

Shalett also recommends rebalancing your portfolio before year-end with an eye toward tax management and harvesting of losses vs. gains, especially long-term gains. Selling assets that qualify for long-term capital gain treatment in 2012 will lock in the maximum 15% long-term capital gains rate, said DiLorenzo.

According to Paul Mauro, the managing partner of Legacy Financial Advisors, Inc. what moves you make with your portfolio will depend also on your level of income, not just your assets. So for instance, taxpayers who are in the 15% tax bracket and who would qualify to pay 0% on long-term capital gains might consider selling, for instance, their second home, assuming of course they have a gain on the property.

Prepare for a recession?

To be sure, it’s wise to prepare your prepare your portfolio for the coming fiscal cliff. But it’s also wise to contemplate what might happen to the economy and prepare for that as well.

It will be up to this postelection session of Congress to address this issue, according to a recent report by Jeff Applegate, the chief investment officer of Morgan Stanley Wealth Management.

What’s more, Applegate reminds us that the Congressional Budget Office has warned that failure to reduce the fiscal drag risks recession in 2013 and that Moody’s has warned that the US credit rating is at risk for another downgrade.

“Postelection, we think an agreement will take place to significantly mitigate and delay the fiscal cliff,” he said. “We expect most or all of the tax cuts will be extended for a year, but extended jobless benefits and payroll-tax reductions will lapse. We also expect Congress to override planned defense-spending cuts that are built into the automatic sequester. In all, a fiscal drag of 1% to 2% of GDP seems most likely to us, as opposed to the estimated 5% if all the cutbacks take effect.”

And lessening the drag reduces the near-term risk of recession, he said.

Don’t make bad decisions

“People are well aware of the potential problems because of the fiscal cliff,” said Gary Thayer, the chief macro strategist at Wells Fargo Advisors. “People need to understand what’s at stake. But we can’t predict the outcome yet.”

With the election over, however, Thayer said, there will be some better guidance. “Prior to the election, there was just a lot of speculation because neither party was really putting out substantive proposals until they knew there’s a chance that they can get something enacted.”

For the record, Thayer doesn’t think the worst-case situation is going to happen. “So, we are not telling people to panic or get too defensive,” said Thayer. “If the worst-case scenario doesn’t happen, the prospects for the economy remain favorable. But we can’t say for sure what’s going to happen. Right now things are sort of in limbo.”

Thayer likens the current environment to a “storm watch” rather than a “storm alert.”

“We don’t want to say that this is going to happen, but if there’s a storm watch, you pay attention but you don’t necessarily go to the basement,” Thayer said. “You don’t want to be making decisions about something that may not happen.”

[G M]

http://etfdailynews.com/2012/11/13/peter-schiff-thanks-to-federal-reserve-policies-like-qe3-were-all-screwed/

Peter Schiff: Thanks To Federal Reserve Policies Like QE3; We’re All Screwed
November 13th, 2012

Zeiler: U.S. Federal Reserve policies like QE3 are building up to an inflationary catastrophe, says economic expert Peter Schiff.
Schiff, the CEO and Chief Global Strategist of Euro Pacific Capital, made his remarks about the dire consequences of excessive quantitative easing in a video interview on Yahoo! Finance’s Breakout.

Schiff said he has dubbed the Fed’s third round of bond-buying, known as QE3, “Operation Screw” because “everybody’s pretty much screwed if they own dollars.”

 

He warned that the Fed can only continue its policies of buying U.S. Treasuries and mortgages by printing more money, and printing more money inevitably will drive much higher inflation.

“The Fed is now promising to print $85 billion a month,” Schiff said. “That’s over a trillion dollars a year. And I think that’s just their opening bid.”

QE3 Not “Inflation-Neutral’

Schiff, who is best known for predicting the collapse of the housing bubble and the 2008 financial crisis in his 2007 book “Crash Proof,” laughed at the claim made by Fed Chairman Ben Bernanke that QE3 is “inflation-neutral.”

“He’s lying,” Schiff said. “It is not inflation-neutral. It is the very definition of inflation. The government tries to mask how bad inflation is by giving us phony numbers that purport to measure it with the CPI or PCE or whatever Ben Bernanke wants to point to, but the reality is prices are already going up.”

Inflation isn’t running rampant now, he said, only because all that new Fed money hasn’t worked its way to the consumer yet.

“Inflation enters the market in different ways,” Schiff explained. “It goes through the banks, it goes through housing, it goes through stocks. Sometimes it takes a distorted path before it ultimately ends up in consumer prices.”

As proof that a major bout of inflation is lurking around the corner, he noted that gold prices have more than doubled since the Federal Reserve launched QE1, QE2 and now QE3. Rising gold prices indicate a weakening dollar.

“That’s a pretty good barometer of what’s going on,” Schiff said.

Peter Schiff: We’ll Be Standing in Line for Everything

When QE3-fueled inflation finally does strike, Schiff said, the impact will hit Americans hard.

“Ultimately, I think we’re going to see prices skyrocketing,” he said. “And I think we’re going to get shortages.”

Schiff said the long gasoline lines in New York and New Jersey in the aftermath of Hurricane Sandy are a taste of what’s in store for the broader U.S. economy when inflation takes off.

“They won’t let gas stations raise prices because they’ll prosecute them for price gouging,” he said. “So as a result, people have to wait in line five hours for gas.

“When prices start to skyrocket as a result of the inflation the Fed’s creating, you’re going to see price controls imposed on a whole bunch of products,” Schiff said, “which means we’re going to be standing in line for just about everything.”

The last time the U.S. government imposed price controls to combat inflation was during the administration of President Richard Nixon in 1971.

The effort failed spectacularly, leading to product shortages and only temporarily suppressing price increases, which resumed with a vengeance after the controls were lifted.

Whether U.S. President Barack Obama heeds this lesson from history or elects to use the discredited tool of price controls to assuage a citizenry irate over high inflation remains to be seen.

But in any event, Peter Schiff thinks the Fed’s QE3 already has guaranteed a big jolt of inflation.

“It’s only a matter of time before you see the increase in consumer prices,” Schiff said. “It’s like you’re standing on a train track and you can see a light, and you can hear a whistle. Get off the track because the train is coming. Don’t stand there until you get hit by it.”

[Crafty_Dog]

________________________________________
The Consumer Price Index (CPI) was up 0.1% in October To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein - Senior Economist

Date: 11/15/2012

The Consumer Price Index (CPI) was up 0.1% in October, exactly as the consensus expected. The CPI is up 2.2% versus a year ago.
 
"Cash" inflation (which excludes the government's estimate of what homeowners would charge themselves for rent) also rose 0.1% in October and is up 2.2% in the past year.
 
Energy prices slipped 0.2% in October while food prices rose 0.2%. The "core" CPI, which excludes food and energy, was up 0.2% in October and is up 2.0% versus a year ago. The consensus expected gain of 0.1% in October.
 
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – were down 0.2% in October and are down 0.7% in the past year. Real weekly earnings are down 0.6% in the past year.
 
Implications: Forget about consumer prices for a moment. The big economic news this morning was in the labor market, where initial jobless claims jumped 78,000 last week to 439,000 and continuing claims soared 171,000 to 3.33 million. If these numbers came out of nowhere, it would mean very bad news for the economy. Instead, the spike in claims is due to Hurricane Sandy. Based on the aftermath of Hurricane Katrina, expect claims to remain elevated for one more week and then move back down to the "pre-Sandy" range over the following four to six weeks. However, Sandy will likely affect the payroll survey for November, where our very early estimate is zero gain for the month. On the inflation front, consumer prices were up only 0.1% in October, as the consensus expected. However, the unrounded figure was 0.146%, so it was within a hair of being reported as 0.2%. "Core" prices, which exclude food and energy, were up 0.2%. The overall CPI is up 2.2% in the past year while the core is up 2%. Neither figure sets off alarm bells. But both are hovering right near the Federal Reserve’s target of 2% and yet the stance of monetary policy is still loose, suggesting inflation will move upward over the foreseeable future. Look for housing, which makes up about 30% of the CPI, to be a large contributor to higher inflation in the next few years. It’s important to recognize that inflation getting above the Fed’s stated objective will not change the Fed’s monetary policy anytime soon.  The Fed is focused on the labor market and is likely to let inflation exceed its long-term target for a prolonged period of time.  In other news this morning, the Empire State index, which measures manufacturing sentiment in New York, increased to -5.2 in November from -6.2 in October. The Philadelphia Fed index, another measure of regional manufacturing sentiment, declined to -10.7 in November from +5.7 in October. One explanation of the difference could be Sandy's proximity to Philadelphia as opposed to much of New York’s manufacturing being upstate and largely unaffected by the storm. 

[Crafty_Dog]

second post:

I've been increasing my percentage of cash.  On Friday I even sold a substantial (and substantially underwater) position in CREE, in which I continue to believe-- this to raise more cash and to have an offset to the gains my sales have triggered.

In order to avoid wash sale issues I will have to wait at least 30 days to get back in. 

I hate having to play these timing games , , ,

[Crafty_Dog]

Investment Falls Off a Cliff
U.S. Companies Cut Spending Plans Amid Fiscal and Economic Uncertainty.
by SUDEEP REDDY and SCOTT THURM

U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery.

Half of the nation's 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next, according to a review by The Wall Street Journal of securities filings and conference calls.

Nationwide, business investment in equipment and software—a measure of economic vitality in the corporate sector—stalled in the third quarter for the first time since early 2009. Corporate investment in new buildings has declined.

At the same time, exports are slowing or falling to such critical markets as China and the euro zone as the global economy downshifts, creating another drag on firms' expansion plans.  Corporate executives say they are slowing or delaying big projects to protect profits amid easing demand and rising uncertainty. Uncertainty around the U.S. elections and federal budget policies also appear among the factors driving the investment pullback since midyear. It is unclear whether Washington will avert the so-called fiscal cliff, tax increases and spending cuts scheduled to begin Jan. 2.

Companies fear that failure to resolve the fiscal cliff will tip the economy back into recession by sapping consumer spending, damaging investor confidence and eating into corporate profits. A deal to avert the cliff could include tax-code changes, such as revamping tax breaks or rates, that hurt specific sectors.

President Barack Obama called a number of business executives over the weekend, including Warren Buffett, Apple Inc. Chief Executive Tim Cook and J.P. Morgan Chase's James Dimon, to promote his solution to the looming budget crisis. All sides in Washington, in a departure from a year of deep divisions, have pledged to work together and compromise to avoid going over the cliff.

"The whole world is looking for stability and clarity from the United States," said David Seaton, chief executive of Fluor Corp., a large engineering and construction firm. If uncertainty isn't removed, he said, "people will sit on their war chests of cash and return it to shareholders. You'll have a retarded growth trajectory."

Should the White House and Congress strike a deal to avoid the fiscal cliff, the economy could get a boost. "You might very well get a burst of pent-up demand coming at the start of next year," said Paul Ashworth, chief U.S. economist at Capital Economics, a consultancy.

"Given the timing of the drop-off in business investment," he said, "you have to think it's not just a coincidence with the timing of the fiscal cliff."

Unless the business investment slowdown reverses quickly, it could weigh further on growth prospects and the stock market.

Collectively, the members of the Standard & Poor's 500-stock index spent $580 billion on plants and equipment in 2011, according to calculations by the Journal from data supplied by S&P Capital IQ. Spending has run ahead of that pace throughout the year but has slowed in recent months. The latest retrenchment includes such household names as Wal-Mart Stores Inc., Ford Motor Co., Boeing Co., Intel Corp. and Walt Disney Co.

During the 2007-09 recession, businesses cut back sharply on all kinds of spending. But investment helped propel the recovery, growing faster than the rest of the economy from the second half of 2009, once the recession ended, through the first half of this year. That helped many companies boost productivity and profits without adding new workers.

The Fiscal Cliff

If Congress doesn't reach a budget deal, the U.S. will see across-the-board spending cuts and tax increases for nearly everyone beginning in January 2013. Follow all of the Journal's coverage in  The Fiscal Cliff stream .

The pattern changed in the third quarter, when business investment fell at a seasonally adjusted annual rate of 1.3%, according to a preliminary estimate from the Commerce Department. The latest drop included a decline in investment in structures, such as buildings, at a 4.4% annual rate. Investment in equipment and software stalled after growing at a roughly 5% annual pace in the first six months of the year.

"We have really not seen tailwinds to the economy," said OfficeMax Inc. chief executive Ravi Saligram. "When that happens, American businesses focus on productivity. You always prepare for the worst and if things get better, that's great."

The slowdown in capital spending contrasts with a rebound in U.S. consumer spending and confidence, which has returned to a five-year high. Meanwhile, the latest survey by the Business Roundtable, which tracks expectations for sales and investment among its big-company CEOs, found the worst sentiment about the economic outlook in three years.

Consumers may be taking their cues from signs of stronger job growth, lower fuel prices and an improving housing market. Businesses, on the other hand, appear more worried about the future, as profit growth and the global economy slow and the outlook for U.S. government policies remains murky.

The mood appears better among small businesses than large corporations. A survey by the National Federation of Independent Business in October found an uptick in capital spending among small businesses. While overall sentiment among small businesses remains below its prerecession average, it has been resilient in recent months.

Snap-on Inc., which makes equipment for auto technicians, reports healthy investment among the 800,000 small businesses it serves across the U.S. "Their confidence is fair and reasonable," said Snap-on CEO Nicholas Pinchuk. "As you move up to bigger companies, their foresight becomes broader and their confidence starts to erode."

Slower global economic growth also is contributing to the investment slowdown. China for example, has reduced demand for coal and other minerals, slowing orders for earth-moving and other equipment from Caterpillar Inc.
At the start of the year, Caterpillar expected to spend $4 billion building and expanding factories in Illinois, North Carolina, Texas, China and Thailand, among others. Last month, Caterpillar said it wouldn't reach that target, and expects capital spending to fall next year.

In technology, Intel is facing lower demand for its semiconductors. Intel last month said it would shift idle factory space and equipment into producing its newest chips, reducing its capital spending this year to roughly $11.3 billion, from an earlier projection of $12.5 billion. Chief Financial Officer Stacy Smith told investors last month that spending could fall again next year.

Other semiconductor companies buying less new equipment include Texas Instruments Inc. and Harris Corp., which has cut capital spending by 46% so far this year, to $44 million from $82 million. Apple said it planned to spend $10 billion on new stores and equipment in the current fiscal year ending Sept. 30, 2013, down from $10.3 billion in the 2011-2012 fiscal year.

Among the companies cutting capital-spending targets, the biggest concentration is in the energy industry, where natural-gas prices are near record lows.   Devon Energy Corp. spent $6.2 billion in the first nine months of this year, up 13% from the same period last year, with boosted spending on oil projects.  But capital spending next year will be "significantly less than 2012," particularly in acquiring new leases, Devon chief executive John Richels told analysts.

[Crafty_Dog]

Second post of the day

Why We're Investing in America
The Carlyle Group sees safety and growth right at home, in a world where both are in short supply..
Article Stock Quotes Comments (9) more in Opinion | Find New $LINKTEXTFIND$ ».
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By WILLIAM E. CONWAY JR.
Since co-founding the Carlyle Group CG +1.02%in 1987, I have had the honor to invest in almost every region of the world, from Shanghai to St. Louis, Sweden to sub-Saharan Africa. Over these 25 years, different regions have stood out at different times as attractive places to deploy capital.

A decade ago, China was the most attractive place to invest. It was one of the largest emerging markets, so Carlyle opened offices, hired investors, and deployed capital there. But the world is different today than it was 10 years ago. China is no longer emerging but emerged, and while it remains an attractive place to invest, its emergence yields new challenges (GDP slowing to below 7% from 10%) as well as new opportunities (investment driven by a rising middle class).

Today we find ourselves in a world of no return. With government bonds paying next to nothing and the yield on high-grade corporate bonds at historic lows, investors are seeking safety in addition to growth. The United States offers a powerful combination of the two.

The U.S. is characterized by inherent attributes that are often taken for granted: freedom, the rule of law, confidence in regulatory agencies. America has admired universities, the deepest and most-liquid capital markets, peerless medical systems, and pockets of innovation such as Silicon Valley—all of which, though not perfect, are highly advanced and function smoothly.

Nowhere on the globe can my firm invest in companies with as much confidence as we do in the U.S. And while we take comfort in the long-term safety of U.S. assets, we also see opportunities for growth. This is because of a combination of very low interest rates, a strengthening housing market and significant domestic energy discoveries.

The high-yield market has become a low-yield market, with cheap credit available to promote investment. Incredibly low interest rates are good for our private-equity transactions, for corporations refinancing debt, for home buyers and for auto sales.

The housing market is improving, although investors see a different type of housing boom than before the financial crisis. Then, housing prices appreciated and consumers used home-equity loans like credit cards, driving up consumer spending. Today, the housing boom is grounded in real, sustainable investment in new and existing housing, compensating for underinvestment over the past five years.

Meanwhile, the discovery and production of new sources of crude oil and shale gas is lowering energy prices, jolting the U.S. into a new energy revolution. This development will lower costs and drive growth in U.S. manufacturing.

As other nations evolve to promote freedom, improve education, protect the rights of their citizens, enforce the rule of law, advocate transparency and stamp out corruption, they can and will compete with the U.S. not only in innovation, but in the quality of products and services sold. This competition will be good, not bad, for America, driving efficiencies and lowering prices.

In the first three quarters of 2012, Carlyle committed to invest $4.4 billion in equity in the U.S. ($4.2 billion in the rest of the world), with almost two-thirds of that in America's industrial or manufacturing sectors. Last year we also deployed the majority of our capital in the U.S.—$6.6 billion, compared with $4.7 billion in the rest of the world.

Many in America and beyond have been paralyzed by fear of the fiscal cliff, frustrated with Washington's partisanship, mesmerized by the presidential election or stunned by the post-Great Recession recovery. Any way you look at it, though, now is a great time to invest—and there is no better place than America.

Mr. Conway is co-founder and co-CEO of the Carlyle Group.

[Crafty_Dog]

The Cliff Ain't So Bad
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 11/19/2012

Last week, fresh off the election, it looked like Democrats and Republicans could quickly forge a bipartisan agreement to avoid the fiscal cliff. President Obama was talking about raising taxes but wasn’t wedded to higher tax rates. Meanwhile, Speaker Boehner put higher revenue on the table, as long as tax rates did not go up.
So they could have extended all the tax cuts just one more year – the “Bush” tax cuts dating back to 2001/03 as well as the payroll tax cut – and then gone to work on proposals like the Simpson-Bowles long-term budget plan. Or, in the alternative, they could have kept all income tax rates where they are, including a top rate of 35%, and raised tax revenue from the upscale by limiting itemized deductions.

Instead, President Obama is now asking for $1.6 trillion in higher taxes over ten years, which, in combination with pushback against tighter limits on itemized deductions, requires higher tax rates. In fact, Keith Hennessey, former head of the National Economic Council, thinks Obama and Boehner never meant the same thing when they were talking about tax rates. Boehner meant not lifting tax rates above today’s top rate of 35%; he thinks Obama meant not lifting the top rate above the 39.6% where it was already scheduled to go next year.

As a result, it now looks like a toss-up whether we hit January 1 without an agreement. So get ready for the doomsaying punditry to go crazy over the next few weeks.
By contrast, we do not think there is anything special about January 1. Most firms issue their first paychecks of the year on or after January 15th, and would have until that time to change withholding. Taxes on capital gains and dividends earned in 2013 are not due until April 2014. The Alternative Minimum Tax has to be “patched” for 2012, but those who owe AMT generally wait until March or April to pay their taxes.

In the end, we still think an agreement is highly likely because an uninterrupted dive off the fiscal cliff would cause a recession. In the end that agreement will likely contain some higher tax rates for investors. The official tax rates for capital gains and dividends would probably end up at around 20%. Extra taxes in the health care law would make the effective rate 23.8% on higher incomes.

Higher taxes on investors would certainly not be good news, but it would also not be a reason to panic or flee from the stock market. From the end of 1986 through the end of 1996 the S&P 500 went up 12% per year, excluding dividends, and the total return was 15% per year. Yes, that includes a huge rally in 1995-96, but it also includes the crash in 1987.

And during that entire period, the capital gains tax rate was 28% and the top tax rate on dividends (treated as regular income) went from 28% to 31% to 39.6%. In other words, higher tax rates on investment than we are likely to get next year did not prevent a bull market.

What really mattered during this timeframe was that the size of government was shrinking. Federal spending fell from 22.5% of GDP to 20.2%. At the time, it was the largest drop in any ten-year period since the wind-down after World War II. Ultimately, it’s the government spending that matters because spending redirects resources from the more productive private sector to the less productive government sector.

Given the election and the inevitable implementation of the health care law, we don’t expect a significant reduction in government spending. Nonetheless, agreement on the fiscal cliff is likely to trim government at the margin – even though it will be far less than we think is necessary.

Despite all this, as we recently explained (link to November 5 MMO), based on earnings and interest rates, the stock market is cheap. This is true, even if interest rates were to rise.  It is entirely plausible that some investors end up playing the fiscal cliff negotiations exactly right – selling recently as the fear rose and then buying before the market rises on an agreement. But this kind of perfect trading is rare. More likely, investors playing the cliff will wait too long and be underexposed to equities when the rally starts. We don’t know how to trade these things. Instead, when equities are undervalued, it’s better to stay invested all along.

[Crafty_Dog]

Real GDP Revised to a 2.7% Annual Growth Rate in Q3 from a Prior Estimate of 2.0%
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 11/29/2012

Real GDP was revised to a 2.7% annual growth rate in Q3 from a prior estimate of 2.0%. The consensus had expected a revision to a 2.8% annual rate.

Inventories and net exports were revised up, while personal consumption and business investment were revised lower.
The largest positive contributions to the real GDP growth rate in Q3 were personal consumption, inventories and government. The weakest component was business investment.
The GDP price index was revised lower at a 2.7% annual rate of change. Nominal GDP growth – real GDP plus inflation – was revised up to a 5.5% annual rate from a prior estimate of 5.0%.

Implications: The most newsworthy part of today’s GDP report is that corporate profits increased at a 14.8% annual rate in Q3 and are up 8.7% versus a year ago. Profits are now back at an all-time record high. Real GDP growth in the third quarter was revised up substantially, coming in at a 2.7% annual rate versus an original estimate of 2.0%. Despite a better growth number, the lion’s share of the increase was due to higher inventories. So, although the overall number came in much better than the prior estimate, the composition of growth was less promising for the economy going forward. In fact, real personal consumption growth is now estimated at 1.4%, down from the 2.0% originally thought. If we exclude inventories, final sales grew at a 1.9% annual rate. What we have here is another plow horse GDP report. Nominal GDP (real growth plus inflation) is up 4.2% from a year ago and grew at a 5.5% annual rate in Q3, the fastest growth since mid-2007. These figures suggest further quantitative easing is not helpful. Even zero percent interest rates are inappropriate when nominal GDP growth is this high. Despite that, it looks like the Fed may ramp up the expansion in the balance sheet in 2013. In other news this morning, new claims for jobless benefits declined 23,000 last week to 393,000 as disruptions from super storm Sandy are starting to recede. Continuing claims for regular state benefits declined 70,000 to 3.29 million. Also this morning, pending home sales, which are contracts on existing homes, rose 5.2% in October. Look for higher existing home sales in the coming month.

[Crafty_Dog]

Watch
________________________________________
Nonfarm Productivity Rose at a 2.9% Annual Rate in the Third Quarter To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 12/5/2012

Nonfarm productivity (output per hour) rose at a 2.9% annual rate in the third quarter, revised up from last month’s estimate of 1.9%. Nonfarm productivity is up 1.7% versus last year.
Real (inflation-adjusted) compensation per hour in the nonfarm sector fell at a 1.4% annual rate in Q3 but is up 0.1% versus last year. Unit labor costs declined at a 1.9% rate in Q3 but are also up 0.1% versus a year ago.
In the manufacturing sector, the Q3 growth rate for productivity (-0.7%) was substantially lower than among nonfarm businesses as a whole. The slower pace in productivity growth was due to hours remaining unchanged while output fell. Real compensation per hour was up in the manufacturing sector (0.1%), and due to the decline in output, unit labor costs rose at a 3.2% annual rate.
Implications: Productivity was revised up substantially for the third quarter, consistent with last week’s upward revision for real GDP growth. Output was revised up while the number of hours worked stayed the same, which means more output per hour. Productivity is up 1.7% in the past year, versus an average annual growth rate of about 2% over the past couple of decades. However, we do not think this means the productivity revolution has come to an end. It is not unusual for productivity to surge at the very beginning of a recovery and then temporarily slow down as hours worked increase more sharply. We believe the long-term trend in productivity growth will remain strong, due to a technological revolution centered in computer and communications advances. In fact, Q3 productivity rose at the fastest rate in two years. It’s nothing to write home about, but it’s consistent with a plow horse economy. In other news this morning, the ADP employment index, which measures private sector payrolls, increased 118,000 in November. Plugging all these figures into our employment models suggests Friday’s official Labor Department report will show a 75,000 gain in payrolls, both nonfarm and private. We may tweak this forecast one more time, though, when we get tomorrow morning’s report on unemployment claims.

[Crafty_Dog]

________________________________________
Non-Farm Payrolls Increased 146K in November, Easily Beating the Consensus Expected 85K To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 12/7/2012

Non-farm payrolls increased 146,000 in November, easily beating the consensus expected 85,000. Revisions to September/October subtracted 49,000, bringing the net gain to 97,000.

Private sector payrolls increased 147,000 in November (146,000 with revisions to September/October). November gains were led by retail (+53,000), professional & business services, including temps, (+43,000), leisure & hospitality (+23,000), and health care (+20,000). Government payrolls declined 1,000.
The unemployment rate fell to 7.7% (7.746%) from 7.9% (7.876%).
Average weekly earnings – cash earnings, excluding benefits – were up 0.1% in November and up 1.7% from a year ago.
Implications: Nonfarm payrolls increased a solid 146,000 in November, beating the gain predicted by all 91 economic groups that made a forecast. Obviously, super storm Sandy didn’t have as much impact as everyone thought. Although payrolls were revised down 49,000 for September/October, almost all of that downward revision was for government, not the private sector. Payroll gains have averaged 157,000 per month in the past year, so despite Sandy we ended up right near the trend. Given today’s technological advances, we should be doing much better, more like 300,000 jobs per month like in the 1990s. What’s holding us back from much faster gains is the huge increase in the size of government, particularly transfer payments, over the past several years. Civilian employment, an alternative measure of jobs that includes small-business startups, declined 122,000 in November, but this series is volatile from month to month and follows a gain of 1.3 million in September/October. Similarly, the labor force dropped 350,000 in November after a gain of one million in the past two months. As a result of the drop in the labor force, the unemployment rate fell to 7.7% (7.746% unrounded). However, the trend decline in unemployment is not due to a shrinking labor force. The labor force is still up one million in the past year while the jobless rate is down a full percentage point. Other figures from today’s report were mixed. Total hours worked were up 0.2% in November and 1.8% from a year ago. Average hourly earnings were up 0.2% in November and 1.7% from a year ago. As a result, total cash earnings (based on earnings and hours) are up 3.5% from a year ago (about 1.7% when adjusted for inflation), so consumers have room to increase spending. The bottom line remains that today’s report shows a continuation of the plow horse economy. In other recent news on the labor market, initial unemployment claims dropped 25,000 last week to 370,000. Continuing claims for regular state benefits dropped 100,000 to 3.21 million. These figures suggest payrolls will expand in December at a pace at or above the recent trend.

[G M]

http://pjmedia.com/tatler/2012/12/07/the-real-unemployment-rate-14-4-percent/

The Real Unemployment Rate: 14.4 Percent
by
Bridget Johnson

December 7, 2012 - 8:29 am     In the wake of today’s Labor Department numbers, the Senate Republican Policy Committee said the real unemployment rate is not 7.7 percent, but 14.4 percent for November.

The “real” number of unemployed Americans is 22.7 million, Sen. John Barrasso’s (R-Wyo.) committee said in a release. “These are people who are unemployed (12.0 million), want work but have stopped searching for a job (2.5 million), or are working part time because they can’t find full time employment (8.2 million).”

“The difference from when President Obama took office is 475,000 more Americans unemployed or underemployed,” the committee continued.

“The labor force participation rate is 63.6 percent, a decline of 0.2 percentage points or 350,000 people. If the labor force participation rate were the same as when the President took office, the unemployment rate would be 10.7 percent. …The number of Americans searching for work for more than 27 weeks is 4.8 million, a decrease of 200,000 from October. The average number of weeks a worker is unemployed is 40.0 weeks — double from when President Obama took office.”
Still, Democrats in the upper chamber declared the report to be positive news.

“There is no doubt our economy is moving in the right direction,” said Senate Majority Leader Harry Reid (D-Nev.). “The only question is whether Republicans will jeopardize the progress made so far by forcing a $2,200 tax hike on middle class families, or initiating another destructive fight over the debt ceiling.”

“Despite the critics and naysayers who want to say otherwise, today’s announcement that the US economy has added 146,000 jobs and unemployment fell to 7.7% is yet another positive sign of economic growth,” said Sen. Mark Begich (D-Alaska). “This is great news for Alaska families just before the holidays. I also hope this serves as a reminder to those who are playing politics with the middle class tax cuts of just how far we have come and why can’t turn back now. We must keep moving forward.”



Bridget Johnson is a career journalist whose news articles and opinion columns have run in dozens of news outlets across the globe. Bridget first came to Washington to be online editor at The Hill, where she wrote The World from The Hill column on foreign policy. Previously she was an opinion writer and editorial board member at the Rocky Mountain News and nation/world news columnist at the Los Angeles Daily News. She has contributed to USA Today, The Wall Street Journal, National Review Online, Politico and more, and has myriad television and radio credits as a commentator. Bridget is Washington Editor for PJ Media.

[Crafty_Dog]

Too bad Romney didn't have this datum as a centerpiece in his campaign , , ,

[G M]

Gee, I'm sure the professional journalists BD is a fan of would feature it in a prominent manner, right ?

[Crafty_Dog]

BD's intellectual integrity has my 100% respect, but I do think that occasionally, superbright and super-educated fellow that he is (and esteemed member of this forum) he is taken in by the pravdas, just as occasionally I get taken in by bombast.

[G M]

BD is a smart guy of good will, IMHO. I'm amazed that I have to debate the well documented corruption of the MSM-DNC with him.