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Monday, January 23, 2012

S.S. Gingrich More Seaworthy, and the S.S. Mitt Romney Off Course...

in South Carolina.

Okay, enough with the nautical metaphors. The S.C. Primary votes were as follows:

                   Pct      Votes
Gingrich    41%    243,153   
Romney     28%    167,279  
Santorum   17%    102,055  
Paul           13%      77,993  
Perry            0%       2,494

One thing missing from various analyses of the results I've read--and the Politico's is outstanding-- is any mention of the possibility that, as a Georgian, Gingrich might have been inherently more appealing to South Carolinians than the forrmer Governor of a blue, Yankee state.   

Of course, Newt's expert display of righteous (I stifle a chuckle here) indignation at the media for piling on about the open marriage thing didn't hurt. Neither did Romney's inexplicably weak response to the charge of 'vulture capitalism'. 

Does Romney suffer from that dread killer of candidates, the disease known as the Crown Prince Complex ? That would explain why Mitt and/or his brain-trust failed to anticipate and prepare a doughty defense for such attacks, which had been made against Mitt before--and to good effect--by Ted Kennedy during his 1994 U.S. Senate re-election campaign.

Maybe if Romney had run for re-election as governor--had deigned to defend his record--he would've acquired grit and innoculated/hardened himself and his campaign against such an onslaught. But no, Mitt took the last two years of his one and only term of office off, to run for President, during which two years he showed supremely poor taste by maligning his "home state" repeatedly. 

Oh yes, about his one and only victory in a REAL election, in 2002--Mitt won that (1) against a candidate severely weakened in a gruelling and expensive primary (2) by five whole percentage points, (3) by a plurality (4) and in a year that was big for Republican candidates, largely as a consequence of 9/11.

Thursday, January 19, 2012

Wacky GOP Week : Does it help anyone but Obama ?

UPDATED 1/20/2012

Maybe Romney. But I doubt it.  After all, one minute he's the Iowa winner, the next, he isn't.

Still, I confess...

- That I'm not at all disappointed that Jon Huntsman finally returned to the Mother Ship.  He struck me as being every bit as genuine and full of unshakeable conviction as Mitt Gumby. And by endorsing Mitt, he's well positioned... to inherit Mitt's minions and run as the GOP's 2016 candidate.

- That I'm somewhat entertained when Newt Gingrich shrugs off questions concerning the curious amendment he allegedly his second marriage.  Of course, we should wait to hear Newt's side of the story before reaching any conclusion on the matter. I'm sure it'll be every bit as plausible as the explanation he offered about his consulting work

- That I marvel at Rick Perry's perfect timing... leaping from his own sinking ship onto Gingrich's. It ranks right up there with that of the captain of the ill-fated Costa Concordia, who claims to have stumbled overboard into a lifeboat, the difference being that the latter's wasn't taking water at the time.

( Meantime, on the NYT Op Ed Page, Maureen Dowd asks what I've wondered about for some time :  what, if anything, is at Mitt's core ? Which, let's face it, is not exactly evident in this video.  Clearly if there were something there, that voters could apprehend, regard as genuine, and connect with, something winning-- Romney wouldn't be stuck at 30-35% of the Republican caucus/primary vote. Then again, he'd still have to explain how you create American jobs by stashing $$$ in the Caymans.)

- That I'm glad the GOP field has narrowed to four ( not necessarily these four, mind you ). It should make for more focused and interesting debates.

Tonight, Blogger DJ goes operatic...

...with the finale of Wagner's Parsifal

Nur eine Waffe taugt: -
die Wunde schliesst
der Speer nur, der sie schlug.
Sei heil - entsündigt und entsühnt!
Denn ich verwalte nun dein Amt.
Gesegnet sei dein Leiden,
das Mitleids höchste Kraft
und reinsten Wissens Macht
dem zagen Toren gab.

But one weapon serves:
only the Spear that smote you
can heal your wound.
Be whole, absolved and atoned!
For I now will perform your task.
O blessed be your suffering,
that gave pity's mighty power
and purest wisdom's might
to the timorous fool!

For the full text and translation follow this link.

From time to time, even professed Christians need to be reminded of what the Apostle Paul wrote in his first letter to the Corinthians

Paul 1 Corinthians 13

1 If I speak in the tongues of men or of angels, but do not have love, I am only a resounding gong or a clanging cymbal.

2 If I have the gift of prophecy and can fathom all mysteries and all knowledge, and if I have a faith that can move mountains, but do not have love, I am nothing.

3 If I give all I possess to the poor and give over my body to hardship that I may boast, but do not have love, I gain nothing.

4 Love is patient, love is kind. It does not envy, it does not boast, it is not proud.

5 It does not dishonor others, it is not self-seeking, it is not easily angered, it keeps no record of wrongs.

6 Love does not delight in evil but rejoices with the truth.

7 It always protects, always trusts, always hopes, always perseveres.

8 Love never fails. But where there are prophecies, they will cease; where there are tongues, they will be stilled; where there is knowledge, it will pass away.

9 For we know in part and we prophesy in part,

10 but when completeness comes, what is in part disappears.

11 When I was a child, I talked like a child, I thought like a child, I reasoned like a child. When I became a man, I put the ways of childhood behind me.

12 For now we see only a reflection as in a mirror; then we shall see face to face. Now I know in part; then I shall know fully, even as I am fully known.

13 And now these three remain: faith, hope and love. But the greatest of these is love.

International Thursday #3 : China's Growth Story Strictly Fiction ?

That may be too severe a judgment. Still, before you buy the GDP stats recently released by the Chinese, read the fine print, urges Patrick Chovanec in SEEKING ALPHA:

Today, China’s National Bureau of Statistics (NBS) released the end-of-the-year GDP figures of 2011. According to official tallies, China’s GDP grew 8.9% in the 4th Quarter, a steady but modest decline compared to 9.7% in Q1, 9.5% in Q2, and 9.1% in Q3. GDP growth for the full year was 9.2%.
There are two pieces of data I saw today, easily lost in the fine print, that I found particularly revealing. First, the NBS disclosed that real estate investment accounted for 13% of China’s GDP in 2011 (compared to Stephen Roach’s estimate of 10%), and grew at a rate of 27.9%. However, I noticed something that I admit I missed before, in my earlier calculations — that this is a nominal rate (not adjusted for inflation) whereas the GDP growth rate figures are real (they take inflation into account). The real (and therefore comparable) rate of expansion for real estate investment in 2011 was 20.0%. 
So I went back and re-ran the numbers, using these more accurate figures. Given GDP growth of 9.2% (a higher starting point than I used in my initial calculations), a real growth rate of 20.0% for real estate implies a real growth rate of 7.6% for the rest of the economy. If, in 2012, real estate construction were merely to level off at zero growth, and the rest of the economy was unaffected, that would bring overall GDP down from 9.2% to 6.6%. That’s higher than the number I initially came up with, but still well into “hard landing” territory. The fall-off of 2.6% is also closer to the 3.0% drop I initially calculated than the 1% decline predicted by Stephen Roach. I errored in my back-of-the-envelope exercise, but my point remains a valid one. Keep in mind, these calculations assume no impact on dependent industries like steel and cement, no impact on the financial system, and no correlation to related risks in the Chinese economy — the latter two of which I will expand upon in my next post of the series.
Keep in mind, these calculations assume no impact on dependent industries like steel and cement, no impact on the financial system, and no correlation to related risks in the Chinese economy. 
How realistic is a leveling-off of real estate investment? This is where the second piece of data I noticed fits in. The NBS — somewhat curiously– did not publish December figures for property and other fixed asset investment. However, the Financial Times did interview Wei Yao, an economist at Société Générale, who made some of his own calculations. According to him, the growth rate for real estate investment saw a rapid deceleration from 20.1% in November to 12.3% in December (it’s clear from looking at the original source data that these are nominal rates; the real rates to plug into the GDP equation would be substantially lower). 
The FT article also notes a nearly 25% decline in new housing starts in December and a 26% year-on-year rise in unsold property. And it’s not merely real estate investment that’s decelerating. Nominal growth in fixed asset investment as a whole — hitherto the main driver of growth in the Chinese economy — dropped from 25% y-on-y in October to 21.2% in November and 18.5% in December. That’s precisely the kind of broader deceleration I’m going to be focusing on the next installment of my analysis.

* * *

Paul Santos, also in SEEKING ALPHA, sees a Chinese downturn already occurring. Beyond the drop in the Baltic Dry Index, Santos points to "a serious slowdown in demand, and that, too, is already registering on public statistics, pertaining to cement consumption, automobile production or pig iron ", whose broader implications are as follows :
First, it's perhaps not a coincidence that commodities have shown to be on a downtrend for months now. But given that the real time impact that still seems to be happening now, one would expect such a downtrend to continue. Crude has managed to avoid most of the brunt of this downtrend, but taking into account the magnitude of China's importance, one would expect that Crude, too, will be hit.
This trend will obviously not only hit commodities, it will also hit commodity producers hard, both countries and companies, with a special emphasis on iron producers like VALE, BHP Billiton BHP and Cliffs Natural Resources CLF, given China's position as the world's largest producer of steel by far, as well as steel's importance to the Chinese investment boom. It is no coincidence that these companies are trading at such low multiples, this is what happens in these kinds of cyclical industries when they are about to face a negative cycle.
Beyond iron and other commodities, one would expect coal to also be hit hard. Not only will it be facing a huge slowdown on the steel industry, but it also faces incredibly low natural gas prices as well, which will pressure coal prices on electricity generation. Here, too, the shares have already taken a huge impact, yet if this slowdown continues one would expect that impact to extend further and for prices and estimates to plunge a lot more. Some names that might be hit further include Peabody Energy Corporation BTU, CONSOL Energy CNX, Alpha Natural Resources ANR, Arch Coal ACI, Patriot Coal Corporation PCX and others. This trend was actually in the news on Friday, with Patriot Coal speaking of lower exports for coal used in steel making.
The Chinese economy slowdown is no longer some speculative story. It's real and already showing in the economic statistics. This slowdown can have broad market impact, and will hit some sectors particularly hard. While I highlighted commodities in general, and iron plus coal in particular, the impact will certainly be much broader.

International Thursday #2 : It's the Falklands--or the Malvinas--Again !

What's the big deal about the Malvinas, or if you prefer, the Falkland Islands ?  What's at stake there, besides national pride and maybe a few tons of fish, in the year 2012 ?

Glad you asked.

Oil, baby, oil.

As BLOOMBERG's Brian Swint reports,
Oil explorers are targeting 8.3 billion barrels in the waters around the islands this year, three times the U.K.’s reserves. Borders & Southern Petroleum Plc (BOR) will drill the Stebbing prospect next month, one of three Falkland wells that Morgan Stanley ranks among the world’s top 15 offshore prospects this year. Meanwhile, Rockhopper Exploration Plc (RKH) is seeking $2 billion from a larger oil company to develop the Sea Lion field, the islands’ first economically viable oil find.  
“The area is underexplored and highly prospective,” said New York-based Morgan Stanley analyst Evan Calio. “These could be like the high-impact wells in Ghana and Brazil a few years ago that opened up a whole host of basins.” 
A major drilling success will further raise the political temperature as Argentina maintains its claim over the U.K’s South Atlantic territory, 300 miles (483 kilometers) from the Latin American coast. President Cristina Fernandez de Kirchner said Britain is taking her country’s resources, while Thatcher’s successor David Cameron yesterday accused Argentina of a “colonialist” attitude that didn’t account for islanders’ rights.  
[Prime Minister] Cameron has approved contingency plans to bolster U.K. troops on the islands, and Prince William, a search and rescue pilot and the second in line to the British throne, may spend six weeks there this year, the Times reported today in London.
Tensions between the Brits and Argentinians over this oil have been building for some time, exacerbated as plans by a British company to drill in the area advanced, according to Rory Carroll and Annie Kelly of the GUARDIAN (Feburary, 2010) :
"What they are doing is illegitimate," said Jorge Taiana, the foreign minister. "It's a violation of our sovereignty. We will do everything possible to defend and preserve our rights."
Last week the government summoned Britain's chargé d'affaires – the ambassador was out of the country – to receive a protest note. Buenos Aires has reportedly warned Argentina-based oil companies against exploring waters around the Falklands and there are rumours it may use civilian vessels to disrupt the rig.
British diplomats brushed aside the protests and said it was longstanding UK policy to let the Falkland Islands government develop a hydrocarbons industry within its waters. They did not expect any Argentinian military forays.
Authorities on the islands were also unconcerned. "There will be quite a bit of rhetoric and Argentina has every right to protest if it wishes. But it will no doubt conduct itself in a proper manner," said Rendell. She was unaware of any plans by Buenos Aires to disrupt drilling.
And in December of 2011, Sara Miller Llana of the CHRISTIAN SCIENCE MONITOR reported that the nations of South American trading bloc Mercosur--Brazil, Paraguay, Uruguay and Argentina -- announced they would bar Falklands-flagged vessels from their ports.

International Thursday, #1 : French Electoral Fly in EuroCrisis Ointment ?

Seems so, given the prominent role French President Nicolas Sarkozy has played in attempts to manage, if not resolve, the EuroCrisis thus far, for with his nation's elections a scant three months away, Sarkozy lags in recent polls.

According to DER SPIEGEL's Stefan Simon...
He is a haunted, restless president, battling his crumbling popularity amid economic misery. He faces rising debt, a growing budget deficit, endemic unemployment and then the embarrassing downgrade by the ratings agency Standard & Poor's last week. Sarkozy seems both stricken and nervous.
Despite a temporary rise in the poll ratings for Sarkozy, most opinion researchers are currently predicting a clear victory in the French election for Francois Hollande, the candidate of the Socialist Party (PS).
Even among Sarkozy's faithful followers, the negative ratings have caused widespread anxiety. "He has been hit, and is groggy, like a boxer on the ropes," newspaper Les Echos, which is close to his conservative UMP government, recently quoted a prominent member of the party as saying. The statement came after the president gave a hot-headed response at a news conference in Madrid to a question about the ratings downgrade. Others are even worried because Sarkozy, instead of looking like a fighter, recently displayed a "crestfallen facial expression."
He has enough reason to do so. In France, feelings of dissatisfaction, hostility, and sometimes even bitter hatred run deep towards the president. Sarkozy, once ridiculed as buddy to the Glitterati, a friend of the rich, and king of scandals, wanted with his "policy of disruption" to bring the country in line with the practices of the 21st century. But even among conservative voters these targeted attacks on old taboos were seen as an attack on the symbols of the Republic. And the mix of the private and public spheres -- displaying both marital crises and domestic bliss -- proved to be a faulty attempt at creating sympathy for the president. 
Echoing Simon above are BLOOMBERG's Mark Deen and Helene Fouquet :
...the cut to AA+ may hurt Sarkozy’s reputation for economic management and diminish his stature in discussions to end the European debt crisis, said political analysts such as Emmanuel Riviere, a pollster at TNS Sofres in Paris.
“Sarkozy has built his whole strategy on being the most credible candidate on the economy, on being the surest leader in a crisis,” Riviere said. “That line is getting harder and harder to hold. It’s getting harder to say that he’s an equal in the Franco-German couple, that he’s a power at European summits.”
Trailing Socialist challenger Francois Hollande in the polls, Sarkozy called on French voters yesterday to back his “economic reforms” in his first comments since the downgrade, saying “the crisis can be overcome on condition that we have the collective will to do so.” Although Hollande stepped up attacks on the president, he too may have to water down campaign promises in response to the rating change.  
And as Angelique Chrisafis of THE GUARDIAN (U.K.) notes :
With the Socialist François Hollande leading the polls and Marine Le Pen of the extreme right Front National biting at his heels, Sarkozy is under severe political pressure over the recession and unemployment.
Last month more than half French voters felt losing the AAA would have a big impact on their lives. France is the world's "most pessimistic" country in terms of economic outlook, with the lowest recorded score in more than 30 years, according to a poll this month. "Even in 1978, after the second oil crisis that called into question an entire economic system, the French have never shown themselves as pessimistic as today," Gallup International said.
Up to 15m French people have trouble making ends meet at the end of the month.
One key impact would be on local authorities, many heavily in debt to banks after taking out large loans. French communes have been described as "hundreds of little Greeces" by the economist Karine Berger in the Nouvel Observateur. 

Tuesday, January 17, 2012

Does a Greek Default Threaten U.S. Banks ?

Hell yes, says Motley Fool Blogger imyoung, in the post Eurozone U.S.Bank Exposure - Take Two,  to the tune of about $37.B.

How much of that consists of CDS's-Credit Default Swaps, dubbed  'Weapons of Financial Mass Destruction'  by Warren Buffett--who knows ? And why should we care ?

Glad you asked.
...if Greece were to default, the direct losses would be 93.5% for European creditors and only 5% for US creditors but 56% of the default insurance pay outs would come from US banks and insurance companies and only 43% from European institutions. With a partial default, the CDS contracts do not become due. With a Greek default, they will have to be honored. Perhaps the Eurozone members’ ‘dithering’ and lack of alacrity to get Greece’s debt issue resolved to our governments satisfaction means the Eurozone members are secretly preparing for a Greek default. That choice would be easier on the taxpayers of the Eurozone, especially the Germans. For the average Greek, there will be no happy ending regardless of road taken.   
For Investopedia's background article on CDS, check out this link.

For info on European banks' exposure to Greek debt, check out this article in THE (UK) GUARDIAN.

For info on Canadian banks' exposure to Greek debt, check out this article in THE (TORONTO) STAR.

Friday, January 13, 2012

SKYNET Alert : Aerial Drones Coming to a Police Department Near You ?

That depends, reports Larry Copeland in USATODAY, on how the FAA responds to requests from domestic law enforcement to use UAV's, unmanned aerial vehicles such as those employed in Afghanistan and Pakistan for various missions.

The FAA is expected this year to propose new rules for smaller unmanned aircraft, a process that will include input from the public, says FAA spokesman Les Dorr. The agency also is talking with the Justice Department and national law enforcement groups "about possibly trying to streamline the process of applying for certificates of authorization" to operate such planes, he says. 
The FAA authorized the Physical Science Laboratory at New Mexico State University to research the issues involved. "We're extremely interested in being able to pave the way to integrate unmanned aircraft into the civil airspace," says Doug Davis, deputy director of the Technical Analysis and Applications Center at NMSU.
One of the chief obstacles to widespread use of UAVs is their inability to "see and avoid" other aircraft as required by federal regulations, a key to flight safety. Davis says he believes operators on the ground can comply with federal rules if they can see the aircraft and the surrounding environment.
That's not to say such drones aven't been tested, or even employed within the confines of the U.S. on police business.
As  Copeland notes...
Drones have flown in the USA for several years but have been limited to restricted airspace and to portions of the borders with Canada and Mexico.
The Miami-Dade Police Department has tested two 18-pound UAVs equipped with a camera for about 18 months, Sgt. Andrew Cohen says. The department has been licensed to operate the craft up to 200 feet in the air, but the drone must remain within 1,000 feet of the operator.
Moreover,  Brian Bennett of the L.A. Times' Washington Bureau reported that in June of last year, police in North Dakota's Nelson County "made the first known arrests of U.S. citizens with help from a Predator [B]", one of two such UAV's which are based at Grand Forks Air Force Base and which, according to Bennett, had flown two dozen surveillance missions since June [2011]. 
Whose drones are they, and what are they doing in North Dakota ? Glad you asked.
The drones belong to U.S. Customs and Border Protection, which operates eight Predators on the country's northern and southwestern borders to search for illegal immigrants and smugglers. The previously unreported use of its drones to assist local, state and federal law enforcement has occurred without any public acknowledgment or debate.
Congress first authorized Customs and Border Protection to buy unarmed Predators in 2005. Officials in charge of the fleet cite broad authority to work with police from budget requests to Congress that cite "interior law enforcement support" as part of their mission.
In an interview, Michael C. Kostelnik, a retired Air Force general who heads the office that supervises the drones, said Predators are flown "in many areas around the country, not only for federal operators, but also for state and local law enforcement and emergency responders in times of crisis."
But former Rep. Jane Harman (D-Venice), who sat on the House homeland security intelligence subcommittee at the time and served as its chairwoman from 2007 until early this year, said no one ever discussed using Predators to help local police serve warrants or do other basic work.
Using Predators for routine law enforcement without public debate or clear legal authority is a mistake, Harman said.
"There is no question that this could become something that people will regret," said Harman, who resigned from the House in February and now heads the Woodrow Wilson International Center for Scholars, a Washington think tank.

Thursday, January 12, 2012

"It's the Economy, Stupid !", Last of Three : So, How the Hell Do We Get out of This Mess ?

No, I'm not suggesting the Baywatch bunch can save us.
The above pic is merely a puerile attempt at comic and other, sundry forms of relief.

Daniel Alpert of Westwood Capital, Robert Hockett of Cornell University, and Nouriel Roubini (yeah, that Nouriel Roubini) of  New York University take a stab at a solution.

There's no point in my excerpting their paper, "The Way Forward : Moving From the Post-Bubble, Post-Bust Economy to Renewed Growth and Competitiveness".  You should read it its entirety. Then check out SI's Swimsuit Issue.  

"It's the Economy, Stupid !" Second of Three : If the Fed Says It's Time to Panic, Housing-Wise, It's Time to Panic

suggests Bruce Judson, in his piece, "The Foreclosure Crisis: A Nation In Denial".  

Lost in the various MSM whirlwinds surrounding the New Hampshire Primary, NFL Playoffs, and the usual welter of celebrity riff-raff stories were (1) the fact that Hellicopter Ben Bernanke sent an unsolicited memo warning Congress' finance committees about how housing imperils the economy and (2) the fact that three Fed grandees echoed Bernanke's concerns in separate speeches.

What to make of all this ? Glad you asked. Excerpts from Judson's enlightening article [where all emphases are mine] appear below.

* * *

This memo is notable for several reasons. First, it's important to remember that when the Fed speaks, it does so in sober, limited terms. So an unprompted Fed warning suggesting "a persistent excess of supply" and a "resultant drag on the economy" is comparable to the Secretary of Homeland Security holding a press conference to warn of the risk of an imminent national emergency. Second, an unprompted memo from Bernanke to the House means that he is so deeply worried he felt the need to speak out in as strong a voice as his position permits. Third, the Fed rarely speaks on issues unrelated to its direct activities. Indeed, The Wall Street Journal subsequently wrote that, "For an institution that jealously guards its independence, the Federal Reserve is wading into treacherous political waters." This further underscores the severity of the risks the Fed foresees.

Finally, a further indicator of the depth of the Fed's concerns is what may be an apparently unprecedented set of coordinated speeches by three top Fed officials. On Friday, the presidents of the New York and Boston Fed banks, and Betsy Duke, a Fed Governor, all gave speeches detailing the need for aggressive action to spur a housing recovery.

Today, an estimated 29 percent of all homes with mortgages are underwater. In addition, at least one respected analyst estimates that a total of 14 million homes will be foreclosed on from 2007 to the end of the crisis [emphasis mine]. This represents a hard-to-imagine one in every four mortgages. With foreclosures increasing, there is now such a looming imbalance of supply and demand that, as the Fed notes, further decreases in home prices are likely. Some believe home price reductions of another 20 percent are likely. This would, in all likelihood, have disastrous consequences on at least three fronts--and ripple effects that are impossible to predict.

First, many homeowners would be so far underwater that massive walkaways would be likely. The negative impact on consumer spending of such price declines would almost certainly lead to a vicious cycle of more job losses, leading to further walkaways by struggling consumers.

Second, the mortgage securities market would be in chaos. Nonperforming loans would lead to the forced recognition that bank capital (based on the value of mortgages in bank portfolios) is weak or insufficient.

Third, it is almost impossible to imagine foreclosures on the massive scale anticipated without dire social consequences or even some form of social unrest.

Detailed proposals for addressing this extraordinary risk do exist [see above]. However, they will require a determined effort. There are solutions, but they are not simple.

"It's the Economy, Stupid !" First of Three : Demographics = Destiny ?

As far as the value of risk assets is concerned,  Nicholas Pardini answers,' Yes !'

For Pardini's reasoning, check out his SEEKING ALPHA post, "Why A Demographic 'Great Sell Off' Will Anchor Down Markets", excerpted below.

* * *

Due to the eventual retirements of the Western and Japanese baby boomer generation and the economic struggles of young people across the globe, I expect a global "Great Sell Off" on risky assets such as stocks, venture capital, speculative real estate, options, and commodities in favor of lower risk and income focused investments.

[This is largely a function of the] heavy concentration of assets disproportionately controlled by those over fifty and retirees. Once these people start to retire and or die off, they will need to sell of their financial assets and real estate to cover retirement expenses or the needs of estates. The problems lies in the fact that during the time when the elderly liquidate their assets, the smaller and poorer youth will not be able to afford to buy these products at their previous highs. Factoring out inflation expectations, these investments will need to be sold at fire sale prices as desperate sellers will need the money to support retirement living or for paying estate taxes.

What does the "Great Sell Off" mean for investors' portfolio strategy [?]  Keep money in liquid securities such as stocks, cash (watch out for inflation risk), or liquid ETFs of commodities and bonds. Committing money into a long term bond, CD's, or real estate would be a bad idea as pressured selling throughout the next decade will open up bargain opportunities in the future. Also, quality companies with high dividend yields (DVY) will trade at a premium to historical averages due increased retiree demand. Capital inflows from retirees will also have similar effects in the high yield corporate bond market and government debt stable nations such as Australia (AUD, New Zealand, Switzerland, Chile, and the Scandinavian countries. Growth stocks in US and emerging markets equities on the other hand can underperform due to changes in older investors risk capacities and the lack of capital coming from young investors who can afford to take the risk.

Due to a combination of disparity between the current wealth and future income levels of baby boomers and those currently under 35 years old, I expect there to be a "Great Sell Off" in risky assets and a transition of capital to fixed income and high income paying stocks. The delaying of retirement among many baby boomers may slowdown this trend and lower the volatility of asset declines, but the same pressures will still be intact. Investors need to pay attention to this trend because it may cause severe macroeconomic tensions (such as a Japanese debt crisis) in the near future. Valuations of specific asset classes such as dividend stocks or speculative growth companies must also be analyzed differently in this new demographic paradigm.

Wednesday, January 11, 2012

Less than four months until the 2012 Masters Tournament at Augusta ! early April, followed by the U.S. Open at the Olympic Club, San Francisco in June, the [British] Open Championship at Royal Lytham St. Anne's in July, the PGA Championship at Kiawah Island, S.C. in August, and the Ryder Cup at Medinah CC, Ill. in September. Can't wait !

Friday, January 6, 2012

Take the 'L' out of 'BLS' and you get...

...what the Bureau of Labor Statistics successfully peddles to the credulous or partisan MSM. But canny observers, such as Daryl Montgomery know that what appears to be an improvement in the labor situation is essentially statistical sleight of hand. How so ? Read the following excerpts from Montgomery's SEEKING ALPHA post, U.S. Non-Farm Payrolls: The Statistical Illusion Of Jobs.

* * *

The smaller the labor force is, the better the headline unemployment rate becomes. The BLS claims these 3 million plus people left the labor force and this justifies purging them from the statistics. There is a problem with their line of reasoning, however. Large numbers of people only leave a labor force during periods of severe economic distress. It does not happen during economic recovery. It does not indicate an employment situation that is improving. Yet, the BLS produces numbers showing things are getting better when this happens. This violates the first rule of statistics - the results must reflect reality. The BLS numbers do not.

Dividing the number of employed in December 2011 by the size of the labor force that should exist based on the population numbers produces an unemployment rate of 9.6%, not 8.5%. This is the headline number that should be reported. If the BLS wants to insist however that more than three million people have indeed left the labor force (and this has continued in the last year - the size of the labor force in December 2011 is smaller than it was in December 2010), it should also make it clear that this indicates that there has been an ongoing recession and no economic recovery has taken place. Both can't happen at the same time, except for a brief period. Either the economic recovery story is a lie or there hasn't been a shrinking labor force.

While mainstream economists will insist that employment is a lagging indicator (more than two years is some lag), this has only been the case in the U.S. years after statistical "improvements" were introduced in the 1980s and 1990s in how government economic numbers were determined. Before that, employment recovered with improving GDP as should be the case. If you think about it, the term jobless recovery makes as much sense as tall midget or genius moron.

The improvement in the weekly unemployment claims is also being cited as evidence of an improving jobs picture. It would be more accurate to say that it is evidence of a jobs picture that can't continue to get worse. As I have stated since at least mid-2010, the weekly claims number will regress toward the mean (move to its long-term average) because eventually there will be few workers who remain to be laid off. After being elevated for several years, the only way that weekly claims can now increase is with a big jump in bankruptcies. This will be avoided as long as the economy holds steady.

What is keeping the U.S. economy from getting worse is the unprecedented budget deficits that the U.S. is running.

Thursday, January 5, 2012

China's Looming 'Demographic Tsunami' Is Geriatric

report Frederik Balfour and Alfred Cang in a Bloomberg article, excerpted below.

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The latest government census shows 178 million Chinese were over 60 in 2009. That figure could reach 437 million -- one third of the population -- by 2050, the United Nations forecasts. While the elderly were looked after in the past by their children, urbanization and the nation’s one-child policy have eroded the tradition of family care.

“It’s a demographic tsunami,” says Joseph J. Christian, a fellow at the Asia Center at the Harvard Kennedy School, and former DLA Piper partner in Hong Kong, who specializes in senior housing issues in China. “The whole multi­generational housing model has disappeared.”
China’s challenge is similar to that faced by Japan in the 1990s, with one essential difference: China will grow old before it gets rich. With tens of millions of parents left to fend for themselves, the government set up a National Committee on Aging to try to devise a comprehensive strategy (CHGE7) to ensure their health and comfort.

The latest five-year plan still gives families primary responsibility for elderly care. Even so, the government is looking to the private sector, nongovernmental organizations, and local communities for a more sustainable solution. So far only a handful of companies provide service comparable to the West, and even care like the kind offered by the clinic where Wang Fuchuan lives is relatively rare.
“Elderly health care is in its infancy” in China, says Ninie Wang, founder of Beijing-based Pinetree Senior Care Services, which employs 500 nurses providing in-home support to 20,000 seniors in Beijing.

China has about 38,000 institutions serving the elderly with 2.7 million beds, enough for about 1.6 percent of the population over 60, according to the World Bank. That compares with about 8 percent in developed countries, the bank says.

Debt Bomb's Ticking even in Germany !

Per capita world debt,  illustrated in DER SPIEGEL
In part 3 of a 5-part DER SPIEGEL article on the world debt crisis, Alexander Jung details just how profligate German politicos have been, and what the nation's actual liabilities are. Some excerpts follow.

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In addition to the official national debt of roughly €2 trillion, there are €4.6 trillion in future benefit promises to retirees, the sick and people requiring nursing care -- commitments that are not documented anywhere. When these commitments are included, Germany's real debt is not 80 percent of GDP, as quoted officially, but 276 percent.

As a result, an invisible mountain of social insurance debt rests on every German citizen's shoulders. According to Raffelhüschen [Bernd Raffelhüschen, an economist at the Market Economy Foundation] , to pay off this debt, each citizen would have to pay the government €307 a month throughout his life -- all because the government makes financial promises it cannot keep. It even touts its promises as benefits, and yet citizens are the ones paying for them in the end. The method has been part of the system for generations.

Wednesday, January 4, 2012

Abundant Natural Gas From Shale, Without Water Pollution ?

Apparently it is possible for the U.S. to have its energy cake and eat it too : abundant natural gas from shale without having to consume or pollute large quantities of water through the process of hydraulic fracturing or 'fracking' ( see figure to the right).

In place of water, gas fracturing or 'Gasfrac' employs LPG (liquid petroleum gas) in the extraction process, is nearly pollution-free, and far less destructive to the geological formations involved than its hydraulic counterpart, as Nawar Alsaadi explains in a recent SEEKING ALPHA post, Gasfrac Energy Services: Fracturing Game Changer .

For more on this technology, check out Anna Driver's article in REUTERS, Propane substitutes for water in shale fracking.