Professor Elam

Yields Rising

Tuesday Jan 5 2009

 

The weekly exponential moving averages called the decrease in rates, and the decrease in stocks shown above pretty well. We previously posted these MAs on the stock market. The SPX is at the top. Notice that yields followed the stock market down. IN the recovery yields have followed the market up. 

Conventional wisdom has it that yields should be rising as the Government issues more debt. But if the stock market turns down, what will yields do the same in the face of the massive government desire for more money?  The best answer will be to continue to examine this chart For the time being, rates are trending up against resistance at 4%.

 

Two different markets but the same graph. Robert Prechter's group at www.elliottwave.com has identified this as 'All the Same Market' with stocks bonds and even oil looking like the same chart pattern. 

So we suspect oil will continue up, particularly if the dollar weakens and as China and other holders of dollars seek to diversify out of them and into physical commodities. 
 

Burj Tower Opens

Building skyscrapers and new football stadiums re signs of market optimism, and often market tops! The developers of the Burj Tower say it is 90% sold. But apparently that means sold to sub developers who are looking to re sell the parts of the building they bought, or lease them out. Apt prices have fallen from $1900 a sf to about half that. Hmm, really?

You will be relieved to know that there are safe floors every 25 stories or so. The structure is concrete and said to be airplane resistant unlike the steel structure of the WTC, at least that is the theory. By the way Dubai World is not the owner of this structure. 

And so we have two giant construction projects on opposite sides of the world opening in the same two months, City Center in Las Vegas and the Burj. Good luck guys. 

A Tax Free Society, the Sunday News

Sunday Jan 3, 2009 San Antonio Express News

governments can keep Ponzi schemes going for a very long time so long as nobody demands his dime back

T R Fehrenbach P 9b Other Views

Fehrenbach notes that only Norway can afford the socialist welfare state the European nations have created. Norway has only a few million people and the oil income, like the mid East to support it This is hardly the case for other countries like Greece. 

Now let's jump to page 1a and the headline, 

Millions of American report income of zero

Gee really?

Six million Americans receiving food stamps report they have no other cash income. 

This is probably an oversight on their part, claiming some income would likely make them eligible for the Earned Income Credit, the negative income tax which pays one cash, if you qualify by earning a little, but not much. the article goes on to cite three apparently healthy able bodied men and women who claim they simply cannot find any job, hard to believe as I saw two or three help wanted signs just yesterday. Okay so they are in Miami, but one woman claims to have been selling homes, making six figures and living in such a house herself, gee do you suppose she put anything down on the house? But with more and more folks piling onto the food stamp, read Lone Star Card in Texas, rolls, does anyone think they will willingly give the perk up should they find a job?  No, as Fehrenbach explains,  barter and cash underground economy will provide the needed income to make things work, it just will not be reported. 

Over half of America now pays no income tax.  And a very small portion, less than 10%, pay over half of the total in come tax. Will that work?

No One Plans to Fail...

Sat Dec 26 2009

They just fail to plan, so goes the axiom in the life insurance industry.

Arrow Trucking of Tulsa OK apparently did both, Arrow cancelled the gas credit credit cards of its truck drivers this past Tuesday.This left drivers stranded across the country.  Worse, drivers received bus tickets to get home

As the article says, a company with hundreds of trucks would normally have  a planned bankruptcy. It sounds as though the company delayed making a decision until there was literally nothing left. We study budgets and planning in cost accounting. This is a tragedy for Arrow, and even more so for its employees.

Best Business Books of 2009

USA today compiled its list of Best Business Books for 2009. 

1930 All Over Again?

We regret that stockcharts.com does not have data for the 1930s. Here is however a linear graph of what happened. THe market topped in 1929 and crashed that fall. 

High 390

Low 196

Recovery 294

At the recovery high everyone then, Hoover among them assumed things were back to normal. We are experiencing the same deja vu now, politicians are declaring their heroic efforts have saved the day. 

But as the chart shows, the market rolled over and then really crashed over two years losing 86% of its post crash high! So where are we now?

 

One has to go back to October 2007 to pinpoint the pre crash high. THe market wandered for a longer period but finally settled down and crashed from 11,000 in the fall of 2008. It recovered this year and appears it will still be doing so into the spring, So the time horizon has been lengthened this time. The purple arrow and line duplicate the line at 300 shown on the top graph. 

Note at top it took two years from that spring to find a bottom at 41! 1972-74 offers another parallel.

 

The stagnation of the 1970s presents the same picture, huge rallies followed by huge declines. 

We expect this will continue the next few years. The unemployment, the  negative equity in real estate, the weak bank sector all speak to problems to be addressed. 
 
 

 

Taxpayer Funded Pension Plans?

Tuesday Dec 22, 2009

Pension plans helped sink GM and are now doing the same to YRC. YRC is the remnant of Yellow Freight and Roadway, now drowning in debt, and pension obligations. Seems that the surviving company is on the hook for all the laid off Teamster drivers of failed companies. Mish Shedlock takes an extensive look in his Dec 22 2009 post. 

The chapter on pensions is far too detailed in my opinion, it fails to give students the big picture of what is really happening in terms of liability to the employer, we will all be reading this column in Intermed II next semester. 

2010 will be characterized by these types of failed promises. Our template for the near future is 1968-82. This period was a series of ups and downs for the stock market, politicians and everything else. NYC actually defaulted because of its difficulties with municipal worker contracts. Now cities and states and employers have all made similar agreements that cannot be kept. This will come crashing down in spectacular fashion. Mish details how a congressman is trying to move the target on calculating the pension obligation. But there is no way all this can be paid. Expect pension funds to ask for bank status and TARP or other federal assistance. 

Hawaii, Latest Trainwreck

Obama may be their native son but he has certainly hurt more than helped. After excoriating companies for trips to posh vacation spots, many companies cancelled trips to both Las Vegas and Hawaii. Well guess what, both economies are now on the intensive care list. 

Read about Hawaii here. 

As the say ing goes Mr. President, with friends like these.....

Chinese Find It Harder to Buy US Treasuries

Even closed mouth China is choking on US Treasuries, the irony continues as Bernake is named Man of the Year, printing Treasury debt like there is no tomorrow. 

Pittsburgh's Fair Share Tax

Pittsburgh's City Council is proposing a 1% tax on the have nots, the city's college students, to fund the pensions of retired city employees.  It is brazenly called the Fair Share Tax. And it is referred to as 'an untapped revenue source.'

Let's follow the logic here. The City makes promises to city union employees that cannot be kept. Rather than just say no, or raise contributions from exisitng employed union workers, the City looks elsewhere. Would you go to college in Pittsburgh and pay more for a retired city employee?  

The latest Barron's quotes some financial planners that are putting clients into municipal bonds since 'taxes are going up.'  No question taxes are going up. But I doubt this sort of tax increase will be gladly born by the taxpayers.  The looming municipal fiscal crisis is simply another postponed train wreck. THe Barron's article noted that in the Great Depression only the state of Arkansas defaulted. This is not a valid analogy. In the 1930s we did not have union shop states and cities promising beanstalk to the sky pensions that the stock markets now cannot hope to fund. This is a time bomb that will eventually take some cities to default just as the unions took New York City to default in 1976.