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Lemley Yarling Management Co
15624 Lemley Drive
Soldiers Grove, Wi 54655
Bud: 312-925-5248       Kathy: 630-323-8422

November 30, 2010

Model Portfolio Value As of 30 November 2010

$ 613,918


Thoughts

We have retuned from our Thanksgiving week business and turkey fest. Markets were confused while we were away and remain so this morning with most around the world lower. The European debt crisis is the stated reason for the recent unrest. Gold is $1360 and Oil ahs an $84 handle as the trading day begins.
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While away we bought a few more shares of Ford; switched BankAmerica to KBE (large bank ETF) on a dollar basis: sold KRE (regional bank ETF); added some Talbot’s; and repurchased Goodyear in accounts where we traded out last week.
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(WSJ) LONDON--Spanish and Italian bond spreads over German bunds rose sharply to new highs, as did the cost of European sovereign-debt insurance, while the euro kept tumbling as euro-zone contagion fears continue to roil currency and debt markets. The premium demanded by investors to hold Spanish 10-year bonds over the benchmark German bund rose more than 0.3 percentage point to top three percentage points Tuesday, while Italy's 10-year bund spreads rose more than 0.2 percentage point to 2.15 percentage points, according to Tradeweb, record highs in both cases. Spreads then recovered slightly, dropping back to 2.88 percentage points for Spain and to 2.04 percentage points for Italy. "Spain has a funding requirement in excess of 150 billion euro for 2011 and Italy needs close to 340 billion euro," Gary Jenkins, head of fixed-income research at Evolution Securities in London, said in a note. "With the market moving rapidly onto Spain and Italy it is possible that 'too big to fail' becomes 'too big to bail'."
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We have wanted to buy into natural gas for the last year. We think natural gas prices are ‘nuts’ on the low side compared to the price of other energy sources. And so we air buying Chesapeake Energy in accounts to hold although all stocks are anchovies if the price is right-or wrong.

(Yahoo) Chesapeake Energy Corporation, together with its subsidiaries, produces natural gas in the United States. The company focuses on discovering, acquiring, and developing conventional and unconventional natural gas reserves onshore in the United States, primarily in its six natural gas shale plays: the Barnett Shale in the Fort Worth Basin of north-central Texas; the Haynesville and Bossier Shales in the Ark-La-Tex area of northwestern Louisiana and east Texas; the Fayetteville Shale in the Arkoma Basin of central Arkansas; the Marcellus Shale in the northern Appalachian Basin of West Virginia, Pennsylvania; and New York and the Eagle Ford Shale in south Texas. It also has operations in the Granite Wash Plays of western Oklahoma and the Texas Panhandle regions, as well as various other plays, both conventional and unconventional, in the Mid-Continent, Appalachian Basin, Permian Basin, Delaware Basin, south Texas, Texas Gulf Coast and Ark-La-Tex regions. As of December 31, 2009, the company owned interests in approximately 44,100 productive wells; and had proved reserves of 14.254 (22,900 net) trillion cubic feet of natural gas equivalent. The company was founded in 1989 and is based in Oklahoma City, Oklahoma.
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A negative story on Chesapeake is the reason it is down. We don’t like the debt level but we do like the strategy of buying natural gas assets when the gas prices are weak.

From the street .com:
Shares of "profligate spender" Chesapeake Energy are declining by more than 3% in early trading on Tuesday, more than twice the decline of the energy sector, after Argus Research downgraded the stock to a sell. Argus Research energy analyst Phil Weiss focused in on the long-time schism in the Chesapeake story: quality natural gas assets, but an approach to spending that leaves open questions about Chesapeake's financial vulnerability.

The Argus Research analyst wrote in his Tuesday downgrade, "Although we believe Chesapeake has one of the industry's best collections of natural gas assets, we are lowering our rating from hold to sell due to our continuing concerns about the company's profligate spending and its impact on the balance sheet."

The Argus analyst has been skeptical of Chesapeake's spending strategy for some time previous to the downgrade, commenting to TheStreet previously that each time Chesapeake takes a step to shore up the balance sheet, it seems to be followed by another levering up of the portfolio.

Argus' Weiss noted in his downgrade of Chesapeake to a sell that the company not too long ago claimed the land grab was over, but went on to spend $3.7 billion acquiring natural gas and oil, both proved and unproved properties, through the year's first nine months. Chesapeake has agreed to spend in excess of $1 billion more on acreage subsequent since June 30.

Most recently, Chesapeake announced an $850 million purchase of Appalachian oil & gas assets from Anschutz Corp. The deal followed shortly after Chesapeake announced a funding agreement with China's CNOOC for its Eagle Ford assets in Texas. Funding agreements of the CNOOC type have been a primary financing method for Chesapeake as it seeks to increase production without having to further leverage the balance sheet.

The Argus Research 2010 EPS forecast for Chesapeake is reduced to $2.78 from $2.95 and its 2011 estimate to $2.55 from $2.75. The specific earnings per share declines are attributed to a weak commodities outlook offsetting production increases from Chesapeake.

There is another negative story here with more explanation of recovery costs than you will ever want to know: http://seekingalpha.com/article/239231-estimating-the-breakeven-costs-of-shale-gas?source=yahoo. Our answer to this catcall is that eventually gas prices will rise-they always do.
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From S&P: Broad-based Declines in Home Prices in the 3rd Quarter of 2010
Data through September 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices ... show that the U.S. National Home Price Index declined 2.0% in the third quarter of 2010, after having risen 4.7% in the second quarter. Nationally, home prices are 1.5% below their year-earlier levels. In September, 18 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were down; and only the two composites and five MSAs showed year-over-year gains. While housing prices are still above their spring 2009 lows, the end of the tax incentives and still active foreclosures appear to be weighing down the market.
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(gawker.com) The Kardashian sisters have backed off their latest pyramid scheme capitalist endeavor, the Kardashian Prepaid MasterCard, which is marketed to children and has hidden fees so unconscionable, even elected officials were denouncing it. (Right after they have a staffer write a briefing paper on "What the hell is a Kardashian, anyway?") The Connecticut Attorney General opened an investigation to figure out if the Kardashian Prepaid MasterCard was illegal or just tasteless, causing the sisters K to return the money MasterCard gave them and demand to have their faces removed from the card. Will they refund current users' fees? Unknown. Moral of the Story, Part I: When your crass greed actively impoverishes others, it has gone too far. Moral of the Story, Part II: The credit card business is a shell game that even the most superficial of hollowed-out Hollywood shells cannot master.
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Merry Christmas from the Republicans in Congress. Half these folks probably voted for Republicans so the chickens have come home to roost for them.

(huffingtonpost.com)
Tempers flared at an unemployment office in Louisville, Ky. as the end nears for federally-funded extended jobless benefits. Local CBS affiliate WLKY captured a bit of the scene on Monday -- amid some commotion, a man can be heard saying in a raised voice, "What did you just say to me?" WLKY reported that "at least two people were escorted out" of the office. With the threat of benefits expiring for 100,000 Kentuckians, WLKY reported, "tempers are flaring." It's the type of scene that contributed to the Indiana Department of Workforce Development's decision to add armed guards to each of its 36 field offices where workers can file unemployment claims (previously only some of the offices had armed security). "There's obviously increasing stress, especially among the long-term unemployed, and also the upcoming expiration of these federal extensions will add additional stress," department spokesman Marc Lotter told HuffPost earlier this month. (The decision to hire armed guards prompted Fox News to ask, "Are America's unemployed getting dangerous?")  Two federal programs, Emergency Unemployment Compensation and Extended Benefits, which together provide up to 73 weeks of aid on top of 26 weeks of state benefits, expire this week because Congress has not renewed them. The National Employment Law Project estimates that 800,000 people (including Kentuckians) will be dropped from EB within a week, and an additional 1.2 million people will be ineligible for further "tiers" of EUC by the end of December.
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Barnes & Noble Inc. said its fiscal second-quarter loss narrowed on strength at its website but the bookseller gave a downbeat outlook, projecting a much-wider-than-anticipated loss for the year and third-quarter earnings below analysts' expectations. The company's stock sank sharply in Tuesday morning trading on the news, down more than 17% at one point, but then rebounded.

In the latest period, the performance of the nation's largest bookstore chain was helped by a full quarter of revenue from a college-bookselling business it bought from its chairman last year. Gross margin, however, fell to 23.6% from 29.5% as same-store sales dropped 3.3% at its retail business and 1.5% at the college business. On the bright side, its online operation posted 59% growth.

We added shares of Barnes & Noble on the drop. Eventually Riggio or Burkle or somebody will hopefully make a bid. We also are back in American Eagle at fifty pennies more than our last sales.
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On October 20 the following was reported on thestreet.com:
Coldwater Creek(CWTR_) is among the biggest decliners Tuesday morning, after the women's apparel retailer said it expects to report a loss in its third quarter. The company now foresees a loss between 14 cents and 19 cents a share, from prior guidance of a profit between 1 cent and 4 cents. Coldwater is also predicting about a 20% plunge in same-store sales during the quarter.

Shares of Coldwater Creek are tumbling 32.1% to $3.64, and bringing down other women's apparel retailers.

We have been trading CWTR profitably this year and luckily we sold the last time at $4.94 before the drop. CWTR reports Thursday night and we are adding shares at $3.42 to accounts with room for more.
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(AP) — Americans' confidence in the economy rose to a five-month high in November, showing increased optimism for the first half of next year. The report offered some comfort to the nation's retailers during the holiday shopping season, but shoppers still remain downbeat as they grapple with a high unemployment rate. Moreover, the latest report on housing, released Tuesday, showed that home prices weakened in September. The Conference Board, a private research group based in New York, said Tuesday that its Consumer Confidence Index rose to 54.1 in November, up from a revised 49.9 in October. The November reading is the highest since June, when the index stood at 54.3 just as the economy's recovery started to lose momentum. Economists surveyed by Thomson Reuters expected 52.0. It takes a level of 90 to indicate a healthy economy, which hasn't been approached since the recession began in December 2007.
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Stock markets in Italy and Portugal fell more than 1%, leading a day of red ink in Europe as investors fretted that more euro nations will need help. Losses were modest in the biggest nations, and the FTSE 100 fell 0.4%. Oil ended at $84.21 and Gold at $1386.
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Wikileaks says it holds documents from a BankAmerica executive and will release them in the New Year. It’s time for the government to get serious and put Wiki out of business. Releasing State Department memos is one thing; releasing internal memos of BankAmerica exposing its perfidy cannot be tolerated.
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Stocks traded on the negative side most of the day but rallied into the close as they did yesterday while still closing lower. Breadth was 2/1 negative and volume light. Retailers were strong and Financials mixed with Techs pulled down by Google and Apple.
*****

 

November 29, 2010

Model Portfolio Value As of 29 November 2010

$ 614,921


November 26, 2010

Model Portfolio Value As of 26 November 2010

$ 614,254


November 24, 2010

Model Portfolio Value As of 24 November 2010

$ 615,157


November 23, 2010

Model Portfolio Value As of 23 November 2010

$ 613,322


November 22, 2010

Model Portfolio Value As of 22 November 2010

$ 615,679


November 19, 2010

Model Portfolio Value As of 19 November 2010

$ 617,060


Thoughts

Buy the rumor sell the news. Ford ticked lower yesterday on the GM IPO. Traders are suggesting the Ford money is moving into GM. Makes sense to us but we do think Ford is the better holding.
*****

China Raised reserve ratios and that has markets around the world slightly lower. Oil has an $82 handle and Gold is $1355 as the trading day begins.
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(WSJ) European stock markets ended mostly lower as investors reduced positions amid uncertainty over when a potential bailout deal for Ireland may be agreed. But Irish stocks rose. Oil ended at $82.25 and Gold closed at $1353 in NYC.
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The major market measures were higher at the close after trading lower in the morning. Breadth was positive and volume light. We’ll be back in a week.
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Krugman
http://www.nytimes.com/2010/11/19/opinion/19krugman.html?_r=1&hp

Axis of Depression
Published: November 18, 2010

What do the government of China, the government of Germany and the Republican Party have in common? They’re all trying to bully the Federal Reserve into calling off its efforts to create jobs. And the motives of all three are highly suspect.

It’s not as if the Fed is doing anything radical. It’s true that the Fed normally conducts monetary policy by buying short-term U.S. government debt, whereas now, under the unhelpful name of “quantitative easing,” it’s buying longer-term debt. (Buying more short-term debt is pointless because the interest rate on that debt is near zero.) But Ben Bernanke, the Fed chairman, had it right when he protested that this is “just monetary policy.” The Fed is trying to reduce interest rates, as it always does when unemployment is high and inflation is low.

And inflation is indeed low. Core inflation — a measure that excludes volatile food and energy prices, and is widely considered a better gauge of underlying trends than the headline number — is running at just 0.6 percent, the lowest level ever recorded. Meanwhile, unemployment is almost 10 percent, and long-term unemployment is worse than it has been since the Great Depression.

So the case for Fed action is overwhelming. In fact, the main concern reasonable people have about the Fed’s plans — a concern that I share — is that they are likely to prove too weak, too ineffective.

But there are reasonable people — and then there’s the China-Germany-G.O.P. axis of depression.

It’s no mystery why China and Germany are on the warpath against the Fed. Both nations are accustomed to running huge trade surpluses. But for some countries to run trade surpluses, others must run trade deficits — and, for years, that has meant us. The Fed’s expansionary policies, however, have the side effect of somewhat weakening the dollar, making U.S. goods more competitive, and paving the way for a smaller U.S. deficit. And the Chinese and Germans don’t want to see that happen.

For the Chinese government, by the way, attacking the Fed has the additional benefit of shifting attention away from its own currency manipulation, which keeps China’s currency artificially weak — precisely the sin China falsely accuses America of committing.

But why are Republicans joining in this attack?

Mr. Bernanke and his colleagues seem stunned to find themselves in the cross hairs. They thought they were acting in the spirit of none other than Milton Friedman, who blamed the Fed for not acting more forcefully during the Great Depression — and who, in 1998, called on the Bank of Japan to “buy government bonds on the open market,” exactly what the Fed is now doing.

Republicans, however, will have none of it, raising objections that range from the odd to the incoherent.

The odd: on Monday, a somewhat strange group of Republican figures — who knew that William Kristol was an expert on monetary policy? — released an open letter to the Fed warning that its policies “risk currency debasement and inflation.” These concerns were echoed in a letter the top four Republicans in Congress sent Mr. Bernanke on Wednesday. Neither letter explained why we should fear inflation when the reality is that inflation keeps hitting record lows.

And about dollar debasement: leaving aside the fact that a weaker dollar actually helps U.S. manufacturing, where were these people during the previous administration? The dollar slid steadily through most of the Bush years, a decline that dwarfs the recent downtick. Why weren’t there similar letters demanding that Alan Greenspan, the Fed chairman at the time, tighten policy?

Meanwhile, the incoherent: Two Republicans, Mike Pence in the House and Bob Corker in the Senate, have called on the Fed to abandon all efforts to achieve full employment and focus solely on price stability. Why? Because unemployment remains so high. No, I don’t understand the logic either.

So what’s really motivating the G.O.P. attack on the Fed? Mr. Bernanke and his colleagues were clearly caught by surprise, but the budget expert Stan Collender predicted it all. Back in August, he warned Mr. Bernanke that “with Republican policy makers seeing economic hardship as the path to election glory,” they would be “opposed to any actions taken by the Federal Reserve that would make the economy better.” In short, their real fear is not that Fed actions will be harmful, it is that they might succeed.

Hence the axis of depression. No doubt some of Mr. Bernanke’s critics are motivated by sincere intellectual conviction, but the core reason for the attack on the Fed is self-interest, pure and simple. China and Germany want America to stay uncompetitive; Republicans want the economy to stay weak as long as there’s a Democrat in the White House.

And if Mr. Bernanke gives in to their bullying, they may all get their wish.
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Aggressive lobbying defends mortgage-trading system
http://www.washingtonpost.com/wp-dyn/content/article/2010/11/18/AR2010111806137.html

While Wall Street was celebrating the IPO of GM maybe there should have been a moment of silence for the widows and orphans who owned GM stock and were wiped out in the bankruptcy.

In this same vein we notice that the FDIC is going to investigate bank executives of 50 banks that have been taken over by the FDIC for possible criminal prosecution. There was no mention of the FDIC investigating the CEOs and other executives of all the major investment banks and money center banks who lost multiple billions of dollars for shareholders and their companies while collecting huge salary payouts: Too big to fail, too big to be prosecuted.
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Real Death Panels courtesy of Republican lawmakers and the for profit health insurance industry. Say What !

In Arizona, 98 low-income patients approved for organ transplants have been told they are no longer getting them because of state budget cuts.

The patients receive medical coverage through the Arizona Health Care Cost Containment System (AHCCCS), the state's version of Medicaid. While it may be common for private insurance companies or government agencies to change eligibility requirements for medical procedures ahead of time, medical ethicists say authorizing a procedure and then reversing that decision is unheard of. .... Randy Shepherd is 36 and 6-foot-3, but he has to toss baseballs to his 3-year-old son, Nathan, while sitting in a lawn chair. Shepherd has cardiomyopathy; his heart muscle is deteriorating. The condition is the result of rheumatic fever he had as a child. As a teenager, he had his heart valves replaced, but that was 20 years ago.... AHCCCS (pronounced like "access") was the only health insurance Shepherd could get because he had a pre-existing condition and, since he was forced to stop working in his plumbing business, little money. The agency authorized his transplant more than a year ago. "The nurse who's the transplant coordinator did tell me about two months ago that I'm the next one of my body size and blood type, so the next [heart] that's available is mine," Shepherd says. But as of Oct. 1, AHCCCS said it is unable to pay for Shepherd's transplant. In fact, facing a $1.5 billion budget deficit, Arizona has cut out all state-funded lung transplants, some bone-marrow transplants and some heart transplants — including transplants for the condition Shepherd has....... "If I were to die because they didn't give me the transplant, I've had the last 18 months with my kids that I wouldn't have had otherwise because AHCCCS paid for my pacemaker," Shepherd says. Now on federal disability, he will become eligible for Medicare next year. That gives him some hope whatever the Arizona Legislature does. Meanwhile, 96 other patients in Arizona wait.
http://www.npr.org/2010/11/11/131215308/arizona-budget-cuts-put-organ-transplants-at-risk
*****

Ah! The banksters and their fees:
The Ad:

Meet the Kardashian Prepaid MasterCard®, (for Kim Kardashian), a fast and convenient way to manage money. The KARDASHIAN KARD is a prepaid card that allows cardholders to make purchases, obtain money at ATM’s, send and receive money instantly from a mobile phone, online, or anywhere Debit MasterCard is accepted worldwide. And, there are no credit checks, or ChexSystems or employment verification. Sign up today and receive approval in seconds by completing the quick and easy application form.

If you read the fine print you will see that to activate the prepaid card you are charged $60 and then every month after 6 months you are charged $8 per month etc. (remember this card is prepaid which means the banksters are charging you for the pleasure of spending your own money that they already possess.

  • Card Purchase (Includes monthly fees for 6 months) $59.95
  • Card Purchase (Includes monthly fees for 12 months) $99.95
  • Monthly Fee (Applies after initial purchase period) $7.95
  • Card Replacement - Primary or Companion $9.95
  • ATM Withdrawal - Domestic $1.50
  • ATM Inquiry or Decline - Domestic $1.00
  • ATM Withdrawal - International $2.50
  • ATM Inquiry or Decline - International $2.00
  • Point of Sale - Decline -Domestic $1.00
  • Point of Sale - Decline - International $1.00
  • External Checking or Savings Transfer (To/From) $1.00
  • Account to Account Transfer * $1.00
  • Retail Load Fee (MoneyGram) $1.00
  • Load Account by Debit/Credit Card ** $1.00
  • Cancel Account - Request Balance Mailed by Check $6.00
  • Service Center Care-Live operator $1.50
  • Bill Pay - Per Item $2.00
  • Replacement Card Expedite Fee (Overnight) $25.00

*Fee for transferring money from external accounts and to other cardholder accounts
** 2.5% surcharge of transaction amount applies


*****

Mortgage Bubble Blamed, Ludicrously, on the Government by Matt Taibbi

The bullshit train just keeps rolling on.

In the ongoing effort to rewrite history and deflect blame from Wall Street for the financial crisis, former U.S. Treasury official and current American Enterprise Institute swine Peter Wallison has issued a lengthy analysis of the mortgage bubble that, surprise, surprise, lays the blame for the crash at the feet of government efforts to expand home ownership to "those who normally would not qualify."

The Washington Times piece about the Wallison study includes the following coda near the top. The emphasis here is mine: "Without waiting for the evidence, many in the political class, particularly those on the left, bought into the argument that the financial crisis was caused by greed."

I'm going to come back to that remarkable line written by senior Cato Institute fellow Richard Rahn, who's just jumped to the very top of my shit list, in a second. But just quickly, the argument goes on to summarize the conclusions in Wallison's study, which is described as a "stronger and more empirically-based" argument, having been done by one of what Rahn calls the "somewhat more sophisticated observers" who didn't just rush to blame the whole thing on greed without waiting for the evidence.

The essence of Wallison's argument is that the crisis was caused by the fact that the government in the late 1990s started forcing Fannie Mae and Freddie Mac to acquire increasing numbers of "affordable" housing loans.

Which is true. The Clinton administration did issue a mandate instructing Fannie and Freddie to purchase a larger portfolio of low-income housing loans. But this had nothing, or very little, to do with the mortgage bubble. What's fascinating about this AEI stance is the evolution of the right-wing argument: the first effort to explain the mortgage crisis involved, of all things, the Community Reinvestment Act of 1977, the anti-redlining law that required banks to issue a certain percentage of home loans to the people who made up the bulk of their depositors. That propaganda effort was only mildly successful for the screamingly obvious reason that the law in question was passed in the seventies, across thirty years of crisis-free American history. That, plus the fact that the CRA had absolutely no real impact on the sudden explosion of subprime home loans in the early part of the last decade, made this a propaganda non-starter.

So now they're coming back with this, pegging the whole mess not to greed but to Clintonian policies involving Fannie and Freddie. Note that although they could have done so, the AEI is not criticizing Clinton for the things he was actually guilty of, like repealing the Glass-Steagall Act and signing off on the Commodity Futures Modernization Act (which deregulated the types of derivatives that made the mortgage-backed securities boom possible) in 2000.

No, the criticism here is not really partisan; it's designed more to put class and race at the middle of the crash discussion, pitching the financial crisis as the result of a botched socialistic scheme to put "those who normally would not qualify," i.e. poor white trash and poor black and Hispanic people, in fancy homes.

Here is why this argument is bullshit, and I'm not the only one saying so.

The reason there was a sudden rush to lend out homes to subprime borrowers was not because of Fannie and Freddie, but because the banks had discovered fancy new derivative tools like CDOs and CMOs that allowed them to chop up bundles of home loans and turn them into AAA-rated securities. Countrywide was not trolling the streets looking for jobless indigents to lend mansions to (this literally happened, by the way) because the government was forcing them to. It was because big banks like Goldman and JP Morgan Chase and Bank of America were letting them know that they had a virtually limitless market for mortgage-backed securities, thanks to the new derivative tools that allowed them to sell billions of subprime MBS as AAA-rated investments to suckers like German land-banks and Icelandic trade unions and the like.

Every time the AEI or some other stooge comes out with one of these "But the government made us lend this shit!" arguments, we need to stand up and repeat: no, sirs, it did not. This was not a government program to put people in homes. This was an international fraud scheme to disguise crappy American home loans as AAA-rated safe investments so that they could then be hawked to foreigners and insurance companies and pension funds. The fact that a whole bunch of people who probably didn't deserve credit ended up owning mortgages and buying homes was actually an incidental side-effect, a kind of collateral damage, to the underlying fraud scheme. Not about greed, Richard Hahn? This crisis was about banks bundling subprime mortgages and selling it off as AAA-rated gold to pension funds.

That means a bunch of jackasses on Wall Street with $1000 suits and slicked-back hair were passing the word to Countrywide lenders that they needed masses of crap loans that they could then turn into investment-grade paper and sell it all off to, say, the state pension fund of Indiana.

That way, thousands of Indianan toll booth operators and teachers and prison guards and janitors who'd been working their whole lives and saving up nest eggs were made into customers of this toxic crap these bankers knew would blow up eventually. Indiana's pension fund lost $5 billion during the crisis. Virtually every state in the union suffered similar fates. Why? Because a bunch of used-car salesmen on Wall Street sold them fleets of lemons with no engines under the hoods.

I don't know what Richard Rahn would call making your yearly bonus goal by robbing some janitor in Indiana out of his pension. As a flack for the Cato Institute, I'm sure he would call it good business. But in my mind, if that's not greed, I don't know what the hell is.

This has to be repeated: Fannie and Freddie did not invent this scheme to turn subprime crap into AAA-rated gold. They were not the ones who were mismarking dicey home loans; that was the fault of the ratings agencies, who did so because they wanted to retain relationships with the big banks. Here's what Fannie and Freddie did do; they followed the market and bought lots of these loans after the banks had already collected them and chopped them up and mismarked them. As Barry Ritholz points out, they were essentially just another in a long line of dumb banks that jumped ass-first into the MBS market once it started to bubble up.

There's certainly a legitimate debate about government housing policy and whether or not it makes sense to have the Government-Sponsored Entities like Fannie and Freddie putting so much of our capital at risk to help low-income borrowers get houses. It may very well be that the Clintonian dictums went too far and were ultimately unsustainable. But that is an entirely separate issue, very different from the question of what caused the mortgage bubble and, by extension, the crash.

Plain and simple, the mortgage bubble was caused by the unregulated mass-marketing of mismarked, or fraudulently marked, subprime mortgages to customers who had no idea or only a very dim idea of what they were buying. This was high-tech fraud and stealing, and not just greed but unconscionable, criminal greed on a grand scale.

As for Richard Rahn talking about observers in the "political class" who blamed the crash on greed "without waiting for the evidence," let me just ask this: on the literary totem pole, what could possibly be lower than a flack for an industry-fattened think tank taking a paycheck to defend greed? I guess there are all sorts of creatures in God's kingdom, but man, are some of them ugly.

p.s. Thanks to reader Sean Ausmus for calling the Rahn piece to my attention.

http://www.rollingstone.com/politics/matt-taibbi/blogs/TaibbiData_May2010/235102/83512
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November 18, 2010

Model Portfolio Value As of 18 November 2010

$ 616,627


Thoughts

November 17, 2010

Model Portfolio Value As of 17 November 2010

$ 615,449


Thoughts

November 16, 2010

Model Portfolio Value As of 16 November 2010

$ 616,016


Thoughts

It looks like all the institutions now have to own a piece of General Motors.

(Barron’s) General Motors this morning said it raised the estimated price range for its initial public offering to $32 to $33 per share, up from a prior range of $26 to $29 offered back on November 3rd. GM also increased the size of the offering of preferred shares from $3 billion to $4 billion.
*****

Asian markets were lower and European bourses are down 1% and more at midday. Oil has an $83 handle and Gold is $1347. The ten year Treasury has moved from a yield of 2.34% on October 8 to a yield of 2.90%. That is a large move and traders are taking the move as a condemnation of the Fed’s QEII buying. We understand Bernanke’s flooding the system with money since the Congress is too myopic to act on fiscal policy. The legislators are much more comfortable letting the Fed do the heavy lifting while condemning the Fed move.
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(Yahoo/Finance) The October Producer Price Index increased 0.4%, which is more tepid than the 0.8% increase that had been commonly expected among economists polled by Briefing.com. The rate of increase was steady with that of the prior month. As for core prices, or those that exclude food and energy, they actually fell 0.6%, which contrasts with the consensus call for a 0.1% increase among surveyed economists. Core prices had increased 0.1% in the prior month.
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We closed out or QID (double short NAZZ 100) for a plus scratch in accounts. No matter how hard we try we are not able to be short the market. That’s not because we don’t think the major market measures are headed lower. Rather we have always worked the market from the long side and we guess we are too entrenched in our ways after 40 years to feel comfortable on the short side.

Since we think Ford will move higher from here as comparisons to GM’s share price become relevant and so we have repurchased a position in Ford shares.
*****

We continue to have an interest in Nokia but are holding off for more attractive pricing close to where we sold a few months ago.

From http://seekingalpha.com/article/237092-what-is-the-impact-on-nokias-margins-from-smartphones?source=yahoo

Rising competition in the handset market, lower phone prices, and rising R&D expenses have chipped away at Nokia’s (NOK) profit margins in recent years. Nokia competes with Research in Motion (RIMM), Apple (AAPL), Motorola (MOT), Samsung (SSNLF.PK) and Google’s (GOOG) Android devices in the smartphone segment and a host of players in the basic handset business.

From 2007 to 2009, Nokia’s EBIT margin (a measure for profitability) for mobile phones declined from 20% to around 13% on a firm wide basis.[1] We expect this trend to continue over our forecast period, slipping to around 7.5% by 2016. However several items might turn margins around including new initiatives like its online app store called Ovi, an upgraded operating system (OS) and its push into smartphones.

The average Trefis member forecast suggests that emerging market profit margins will remain flat rather than decline steadily as we forecast, implying around 25% upside to our price estimate of $12.44 for Nokia’s stock, which is about 21% above the current market price of $10.31. We also pose the question of the corresponding impact on unit sales from its smartphone strategy below.

Symbian, Ovi Help Smartphone Sales

If Nokia can deliver on its improved Symbian operating system and the Ovi app store, we believe this will facilitate Nokia’ already strong push into the smartphone market. By upgrading its OS and providing more apps, games and services, this attracts new smartphone customers and help retains current ones.

According to IDC research, Nokia’s smartphones shipments grew 61% year-on-year in Q3 of 2010.[2] In an earlier article, we explained how emerging markets account for a major portion of Nokia’s smartphone sales, and how increasing sales can create potential upside to its margins.

By looking at the forecasts among Trefis users, a consensus is forming that Nokia’s emerging market profit margins will be supported by a greater mix of smartphone sales. Some think this implies that Nokia will lose market share on the low-end segment and erode its handset sales though we have not seen data to support this.

Above, the average forecast of Trefis members for mobile phones EBIT margin for emerging markets indicates that margins will stay flat at around 12.5%, compared to the baseline Trefis estimate of a decrease from 10.5% in 2010 to 7.5% during the same period. This translates to around 25% upside to our price estimate.

We realize that there will likely be an impact on unit sales as well and want to see more data before adjusting our estimates.

We include the chart below so that the reader can adjust market share data for emerging markets to see how this factor alone impacts our price estimates. To see the combined impact – higher EBIT margins and adjusted unit sales – please visit our site below.

http://seekingalpha.com/article/237092-what-is-the-impact-on-nokias-margins-from-smartphones?source=yahoo
*****

The major market measures are off 2% at 11AM.

The question of the day is: Why are the markets tanking the day before the GM IPO? Goldman Sachs is running the books on the GM offering? Maybe the big boys and girls are setting up for rallies tomorrow and Thursday.
*****

With the DJIA down 200 points we have doubled our KBE (major bank ETF) position at a price 5% lower than the last purchase and also repurchased positions in BankAmerica, Goodyear and GE.
*****

From http://gawker.com/5691241/sam-zell-asshole-leaving-tribune-after-destroying-it

Gnomish billionaire Sam Zell has announced that he'll soon be leaving Tribune Co: "I will turn it over to whoever the creditors decide they want to run it, and wish them a lot of good luck." Thanks for nothing, jerk.

2007: Sam Zell, a man with no experience in the media industry, takes control of the Tribune Co, using a tiny bit of his own money and a whole lot of his employees' money. In retrospect, this was about the worst possible time that anyone could have bought a newspaper company: prices were still high, and prospects were terrible.

  • As a manager, Sam Zell turns out to be a profane asshole. This plain-spokenness is a mark of genius! You'll see!
  • Tribune's new employee handbook says, in essence, laugh at all jokes, or you suck. In retrospect, that should have been a red flag.
  • Zell continues to be an asshole. That wasn't just a one-time thing. His tough talk is just what the old company needs!
  • Zell's handpicked managers, pulled from the ranks of the radio industry, were, in retrospect, not the best choices.
  • The newspaper industry continues to go to hell. Tribune gets chainsawed.
  • It gets so bad that the company and its employees are suing each other.
  • Tribune goes bankrupt. In retrospect, its employees will wish that the company hadn't been purchased with their pension money.
  • The company gets a big old press beatdown. And now, Zell's out, on a terrible note. Our condolences to all of his victims.

*****

As Sara Palin might ask: How’s that ole’ cooperation thingie going for ya, Baracky Boy?

(NYT) President Obama’s hopes of ratifying a new arms control treaty with Russia this year appeared to unravel on Tuesday as a Senate Republican leader moved to block a vote in what could be a devastating blow to the president’s most tangible foreign policy achievement.

Mr. Obama had declared ratification of the New Start treaty his “top priority” in foreign affairs for the lame-duck session of Congress that opened this week. But the chances of winning the two-thirds vote required for passage of the treaty appeared to collapse with the announcement by Jon Kyl of Arizona, the No. 2 Republican in the Senate and the party’s point man on the issue, that the Senate should not vote on it this year.
*****

(WSJ) European stocks fell amid heightened concerns about sovereign debt and the potential for further fiscal tightening in China, while a series of downbeat U.S. data releases added to the somber tone. Oil dropped $2.40 to $82.38 and Gold dropped $34 to $1347
*****

Why markets dropped today:

(Bloomberg) Global stocks fell for a seventh day, the longest streak since January, and commodities slid on concern China will act to slow its economy and speculation grew that the debt crisis in Ireland, Greece and Portugal is worsening. U.S. Treasuries snapped a two-day decline.

(Yahoo) The stock market is at its lowest level in almost three weeks in what is shaping up to be its worst single-session drop in three months. The selloff comes as the dollar bounds and participants pare risk. Stocks have been under pressure since the open. Their weakness initially marked an extension of the prior session's late slide and rekindled concern about how an interest rate hike in China could slow global growth following news that Korea raised its target rate. Concern also continues to surround the state of finances in Ireland. CNBC reported that the country's prime minister stated that his country's banks are meeting European Central Bank funding requirements. It was added that the country has not asked for aid, although it has been known that aid has been available for months. Greece was brought back into the center of sovereign debt concerns by news that Austria has opted to withhold bailout funds for Greece because Greece may miss its deficit reduction target. Those themes have stirred support for the dollar, which is now up 1.0% after it had been flat ahead of the open.

(AOL) The Dow Jones industrial average traded below 11,000 for the first time in nearly a month Tuesday as worries mounted about inflation in Asia and as European leaders met to discuss a bailout of Ireland.
The Dow dropped nearly 200 points in afternoon trading, with the Travelers Companies Inc. leading the way. Only two of the 30 stocks that make up the Dow rose. Home Depot Inc. and Wal-Mart Stores Inc. both posted gains after reporting better results.
Asian markets started a global sell-off in stocks after South Korea's central bank raised interest rates to curb inflation. Shares also fell in Shanghai and Hong Kong as speculation spread that China will take more steps to rein in its red-hot economy, which would dampen global demand for industrial goods.
Basic materials companies, which have benefited from the booming demand from China, were among the biggest losers in U.S. trading. Freeport-McMoRan Copper & Gold Inc. fell 4.7 percent, Alcoa was off 3.4 percent, and Monsanto Co. was off 2.5 percent. See full article from DailyFinance: http://srph.it/cupeHD

(WSJ) Stocks had their biggest one-day drop in nearly a month as fears of a slowdown in Chinese economic growth and criticism of the Federal Reserve's recent action mounted.
The Dow Jones Industrial Average earlier dipped below the 11000 level, and was recently down 190 points, or 1.7%, at 11012. The Dow hasn't closed below 11000 since Oct. 19, when the measure fell 2%.

(NYT) Worries about Europe’s debt crisis and possible moves by authorities in Asia to slow fast-paced growth there swept the world’s markets on Tuesday and pushed stocks in the United States sharply lower. As finance ministers from the 16 countries that use the euro met in Brussels to discuss the problems in Ireland, investors worried that the debt crisis could spread across the Continent to Portugal, and even to Spain.
“There is a worry about the state of things overseas. It is the European debt crisis that is causing this,” said Zach Pandl, economist at Nomura in New York.
Stocks, which have been grinding lower since the Federal Reserve announced its asset purchase program to stimulate the economy, were down for the seventh consecutive day.

(Lemley Letter) There were more anxious sellers than there were anxious buyers.
*****

The major market measures ended on their lows with all down about 2%. Apple held the $300 level into the close. Breadth was 8/1 big time negative but volume was moderate.
*****

 

November 15, 2010

Model Portfolio Value As of 15 November 2010

$ 616,630


Thoughts

Caterpillar is paying $9 billion (25 times earnings) for Bucyrus International. EMC is acquiring another tech company for $2 billion. The markets like the takeover news and are higher in light trading. Breadth is 2/1 positive. Overnight Asia was mostly higher (small) as is Europe at midday. Gold is flat at $1365 and Oil also at $85.43 as the trading day begins.
*****

Goldman Sachs Wealth Management is bullish short and long term on U.S. markets in case you were wondering.
*****

Financials are up and Techs are week at the 2 hour mark of the trading day.
*****

We eliminated our trading position in BankAmerica for a 15 pennies loss.
*****

Ford is storing on news that the GM IPO price may be raised to the $30 range.
*****

http://www.calculatedriskblog.com/

From the NY Fed:

The Empire State Manufacturing Survey indicates that conditions deteriorated in November for New York State manufacturers. For the first time since mid-2009, the general business conditions index fell below zero, declining 27 points to -11.1. The new orders index plummeted 37 points to -24.4, and the shipments index also fell below zero. The indexes for both prices paid and prices received declined, with the latter falling into negative territory. The index for number of employees remained above zero but was well below its October level, and the average workweek index dropped to -13.0.
......

And from the Census Bureau: September 2010 Manufacturing and Trade Inventories and Sales report Inventories. Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,402.9 billion, up 0.9 percent (±0.1%) from August 2010 and up 6.3 percent (±0.4%) from September 2009.

Inventories/Sales Ratio. The total business inventories/sales ratio based on seasonally adjusted data at the end of September was 1.27.
.....

On a monthly basis, retail sales increased 1.2% from September to October (seasonally adjusted, after revisions), and sales were up 7.3% from October 2009.

Retail sales increased 0.4% ex-autos - about at expectations.
*****

Why should anyone listen to Greenspan?

Greenspan 2001:
Before the Committee on the Budget, U.S. House of Representatives
March 2, 2001

....The challenges you face both in shaping a budget for the coming year and in designing a longer-run strategy for fiscal policy have been brought into sharp focus by the budget projections that have been released in the past month and a half. Both the Bush Administration and the Congressional Budget Office
.....The key factor driving the cumulative upward revisions in the budget picture in recent years has been the extraordinary pickup in the growth of labor productivity experienced in this country since the mid-1990s. .... These most recent indications have added to the accumulating evidence that the apparent increases in the growth of output per hour are more than transitory.
....To be sure, these impressive upward revisions to the growth of structural productivity and economic potential are based on inferences drawn from economic relationships that are different from anything we have considered in recent decades. (Clinton raised taxes in 1994 over republican opposition) The resulting budget projections, therefore, are necessarily subject to a relatively wide range of uncertainty. CBO, for example, expects productivity growth rates through the next decade to average roughly 2-1/2 percent per year--far above the average pace from the early 1970s to the mid-1990s, but still below that of the past five years.
.....In contrast, the experience of the past five to seven years has been truly without recent precedent. The doubling of the growth rate of output per hour has caused individuals' real taxable income to grow nearly 2-1/2 times as fast as it did over the preceding ten years and has resulted in the substantial surplus of receipts over outlays that we are now experiencing. Not only has taxable income risen with the faster growth of GDP, but the associated large increase in asset prices and capital gains has created additional tax liabilities not directly related to income from current production.
.....The most recent projections from OMB and CBO indicate that, if current policies remain in place, the total unified surplus will reach about $800 billion in fiscal year 2010, including an on-budget surplus of almost $500 billion. Moreover, the admittedly quite uncertain long-term budget exercises released by the CBO last October maintain an implicit on-budget surplus under baseline assumptions well past 2030 despite the budgetary pressures from the aging of the baby-boom generation, especially on the major health programs.
.....These most recent projections, granted their tentativeness, nonetheless make clear that the highly desirable goal of paying off the federal debt is in reach and, indeed, would occur well before the end of the decade under baseline assumptions. This is in marked contrast to the perception of a year ago, when the elimination of the debt did not appear likely until the next decade. But continuing to run surpluses beyond the point at which we reach zero or near-zero federal debt brings to center stage the critical longer-term fiscal policy issue of whether the federal government should accumulate large quantities of private (more technically, nonfederal) assets.
.....At zero debt, the continuing unified budget surpluses now projected under current law imply a major accumulation of private assets by the federal government. Such an accumulation would make the federal government a significant factor in our nation's capital markets and would risk significant distortion in the allocation of capital to its most productive uses. Such a distortion could be quite costly, as it is our extraordinarily effective allocation process that has enabled such impressive increases in productivity and standards
..... To repeat, over time, having the federal government hold significant amounts of private assets would risk sub-optimal performance by our capital markets, diminished economic efficiency, and lower overall standards of living than would be achieved otherwise. ......In general, for reasons I have testified to previously, if long-term fiscal stability is the criterion, it is far better, in my judgment, that the surpluses be lowered by tax reductions than by spending increases. The flurry of increases in outlays that occurred near the conclusion of last fall's budget deliberations is troubling because it makes the previous year's lack of discipline less likely to have been an aberration.
.....But let me end on a cautionary note. With today's euphoria surrounding the surpluses, it is not difficult to imagine the hard-earned fiscal restraint developed in recent years rapidly dissipating. We need to resist those policies that could readily resurrect the deficits of the past and the fiscal imbalances that followed in their wake.

Full testimony at http://www.federalreserve.gov/boarddocs/testimony/2001/20010302/default.htm
*****

Greenspan 2010:

(Reuters) - The United States must move to rein in its massive budget deficits or it faces the risk of a bond market crisis, former Federal Reserve Chairman Alan Greenspan said on Sunday.

"We've got to resolve this issue before it gets forced upon us," Greenspan said of the ballooning U.S. debt levels.

He spoke as a panel, chaired by former White House chief of staff Erskine Bowles and former Senator Alan Simpson, is due to deliver a report on debt and deficits by December 1.

A draft report made public last week offered a series of politically tough tax and spending choices that would seek to reduce the debt by $4 trillion by 2020.

The suggestions received a lukewarm reception from some politicians and outright condemnation by others, including House of Representatives Speaker Nancy Pelosi, who pronounced the ideas "simply unacceptable."

Greenspan, who spoke on NBC's "Meet the Press," said he believed "something equivalent" to what Bowles and Simpson recommended would eventually be approved by Congress.

"The only question is, is it before or after a bond market crisis? Because there's no alternative," he said.

He said the deficit, which hit $1.3 trillion this year, may begin to frighten the bond market, which could undermine the recovery and push the economy back into recession.

"The big, serious problem is whether or not the outlook for the longer-term deficit spooks the bond market to a point where long-term interest and mortgage rates move up very sharply," said Greenspan. "If that happens, that will cause the double dip."

Greenspan caused a stir last week when he said in a Financial Times column that Washington was pursuing a policy of weakening the dollar, prompting Treasury Secretary Timothy Geithner to insist that the United States would never deliberately weaken its currency.
*****

Europe closed higher. Oil ended at $84.85 and Gold was $1368.
*****

Stocks gave up their gains in the last two hours of trading as the techs were lower. The NAZZ and S&P 500 closed lower and the DJIA was up 9 points. Breadth was flat and volume light.
*****

 

November 12, 2010

Model Portfolio Value As of 12 November 2010

$ 616,366


Thoughts

Will China raise interest rates? That is the question of the day that has market lower worldwide. Or so they say. They are the media gurus who have to place a reason on every minor market move. Maybe the markets are just tired and need a rest.

Oil has an $86 handle, it sure needs a rest or rather the specs who are trading Oil need to rest a while. Gold is back under $1400 this morning as it too takes a rest.

The one trillion dollar question is how long and how severe the rest will be. We have no idea.
*****

Disney missed by a penny or more depending on how the usual special charges are considered. Revenues also missed.
*****

Cisco missing yesterday and Disney last night are significant events- at least we think they are.
*****

http://www.calculatedriskblog.com/
From Buck Wargo at the Las Vegas Sun: Condo sales at CityCenter a mixed bag

CityCenter projects it will have closed on 435 condominium units by the end of November out of 2,387 units it had on the market. ... even though it trimmed prices 30 percent a year ago
...

According to Las Vegas-based SalesTraq, more than 4,000 high-rise units remain unsold along the Strip.

The CityCenter (18% sold) is even doing worse than Trump Tower (25% sold). It will take years to clear this inventory.

Note: high rise condo units are not included in the new home inventory report from the Census Bureau, and they are also not included in the existing home inventory report from the NAR (unless they are list for sale). This is hidden inventory, and for certain cities like Las Vegas, this is significant.
*****

How did the Democrats choose as their lead representative on the Debt Commission a fellow named Erskine Bowles. Joe Smith or Bill Brown are OK, but Erskine?

By the by, pushing up the retirement age may be OK for lawyers and doctors but is a non starter for construction and factory workers whose bodies give out at about the same age they always have. By raising the age to 69 the commission would be forcing those who take early retirement at 62 to take an even larger discount on their payouts than they currently do. And the only folks who take their money early are folks who can’t keep working for physical reasons or because they lost their jobs.
*****

For future reference:

(AP) -- Shares of graphics card maker Nvidia Corp. rose sharply Friday after the company posted solid third-quarter results and raised its revenue forecast for the following quarter, exceeding analysts' expectations.

THE SPARK: The Santa Clara, Calif., company, whose graphics cards can be found in desktop and laptop computers, said Thursday that it had net income of $84.9 million, or 15 cents per share, beating the 14 cents per share expected by analysts surveyed by Thomson Reuters.

The company also predicted a 3 to 5 percent growth in revenue during the fourth quarter. Its estimated revenue of $869.2 million to $866.2 million beats analysts' $866.1 million estimate.

THE BIG PICTURE: Many PC manufacturers choose Nvidia's graphics cards when designing laptop and desktop computers. Nvidia's strong results bode well for PC manufacturers, which have had the challenge of selling computers against lighter, less expensive tablets. However, Nvidia will face increasing competition in the tablet category from heavyweights such as Intel Corp. and Advanced Micro Devices Inc.

THE ANALYSIS: Analyst firm Sterne, Agee & Leach Equity Research reiterated its "Neutral" rating on Nvidia , saying Friday that in the short-term, the company will benefit from a rebounding PC market, an uptick in sales of powerful, professional-grade workstation computers and graphics shortages. Longer-term, however, Nvidia will have to compete with Intel and AMD when it comes to selling chips to tablet makers.
*****

www.minyanville.com

Why White-Collar Criminals Don't Fear Getting Caught

By Justin Rohrlich Nov 12, 2010 11:20 am

From the amount of media coverage the Bernie Madoff case generated, it’s easy to forget that there are thousands of other Madoffs in our midst. He got caught. But how many white-collar criminals don’t?

According to the FBI’s 2009 Financial Crimes Report, “The recent financial crisis saw the Dow Jones Industrial Average fall from its high of 14,164 in October 2007 to 6,547 in March 2009. As a result, the FBI witnessed a prolific rise in Ponzi and other High Yield Investment Fraud (HYIF) schemes as the frauds were exposed as investors sought redemptions. With the development of new schemes, such as securities market manipulation via cyber intrusion, and the trend in exposure of Ponzi schemes due to market deterioration, securities and commodities fraud is on the rise. Over the last five years, open securities and commodities fraud investigations have increased by 33%. During this time period, the losses associated with these types of schemes have increased to billions of dollars.”

It then explains that, “At the end of FY 2009, the FBI was investigating 1,510 cases of securities and commodities fraud and had 177 Special Agents assigned to address this crime problem.”

The latest Bureau of Labor Statistics data available, from 2008, lists 317,200 securities, commodities, and financial services sales agents, 208,400 personal financial advisers, and 250,600 financial analysts.

That’s 776,200 in all, with 177 FBI agents to keep watch, which comes out to 0.0002 investigators per.

Reasonably small odds of getting caught. Is that why so many people continue to do it?

Probably.

What about the SEC?

The Securities and Exchange Commission, for fiscal year 2010, had an enforcement budget of $350 million and about 1,200 staff.

The Commodities Futures Trading Commission had a fiscal year 2010 enforcement budget of $60 million and a staff of 200.

According to the SEC, the agency has filed 634 civil cases since its fiscal year began last October. The CFTC filed 57 actions.

Even if you were to double those figures and assume the SEC and CFTC could ramp up to a combined 1,372 total cases, it’s still minuscule in comparison to the number of transactions being performed in any given year.

Then, of those caught, how many people are able to remain out of law enforcement’s grasp?

Out of approximately 1,000,000 total federal fugitives, the US Marshals Service captured 36,400 last year.

That’s a success rate of 0.03%. From the amount of media coverage the Bernie Madoff case generated, it’s easy to forget that there are thousands of other Madoffs in our midst. He got caught. But how many white-collar criminals don’t?
*****

European stock prices fell Friday. Oil dropped $3 to $84.77 and Gold was down $33 to $1369.
*****

The major market measures closed down over 1% and volume was light. Breadth was 4/1 negative.
*****

Why is the government spending taxpayer money to collect debts for private companies?

In jail for being in debt
By CHRIS SERRES and GLENN HOWATT, Star Tribune staff writers
June 9, 2010

As a sheriff's deputy dumped the contents of Joy Uhlmeyer's purse into a sealed bag, she begged to know why she had just been arrested while driving home to Richfield after an Easter visit with her elderly mother.

No one had an answer. Uhlmeyer spent a sleepless night in a frigid Anoka County holding cell, her hands tucked under her armpits for warmth. Then, handcuffed in a squad car, she was taken to downtown Minneapolis for booking. Finally, after 16 hours in limbo, jail officials fingerprinted Uhlmeyer and explained her offense -- missing a court hearing over an unpaid debt. "They have no right to do this to me," said the 57-year-old patient care advocate, her voice as soft as a whisper. "Not for a stupid credit card."

It's not a crime to owe money, and debtors' prisons were abolished in the United States in the 19th century. But people are routinely being thrown in jail for failing to pay debts. In Minnesota, which has some of the most creditor-friendly laws in the country, the use of arrest warrants against debtors has jumped 60 percent over the past four years, with 845 cases in 2009, a Star Tribune analysis of state court data has found.

Not every warrant results in an arrest, but in Minnesota many debtors spend up to 48 hours in cells with criminals. Consumer attorneys say such arrests are increasing in many states, including Arkansas, Arizona and Washington, driven by a bad economy, high consumer debt and a growing industry that buys bad debts and employs every means available to collect.

Whether a debtor is locked up depends largely on where the person lives, because enforcement is inconsistent from state to state, and even county to county.

In Illinois and southwest Indiana, some judges jail debtors for missing court-ordered debt payments. In extreme cases, people stay in jail until they raise a minimum payment. In January, a judge sentenced a Kenney, Ill., man "to indefinite incarceration" until he came up with $300 toward a lumber yard debt.

"The law enforcement system has unwittingly become a tool of the debt collectors," said Michael Kinkley, an attorney in Spokane, Wash., who has represented arrested debtors. "The debt collectors are abusing the system and intimidating people, and law enforcement is going along with it."

How often are debtors arrested across the country? No one can say. No national statistics are kept, and the practice is largely unnoticed outside legal circles. "My suspicion is the debt collection industry does not want the world to know these arrests are happening, because the practice would be widely condemned," said Robert Hobbs, deputy director of the National Consumer Law Center in Boston.

Debt collectors defend the practice, saying phone calls, letters and legal actions aren't always enough to get people to pay.

"Admittedly, it's a harsh sanction," said Steven Rosso, a partner in the Como Law Firm of St. Paul, which does collections work. "But sometimes, it's the only sanction we have."

Taxpayers foot the bill for arresting and jailing debtors. In many cases, Minnesota judges set bail at the amount owed.

In Minnesota, judges have issued arrest warrants for people who owe as little as $85 -- less than half the cost of housing an inmate overnight. Debtors targeted for arrest owed a median of $3,512 in 2009, up from $2,201 five years ago.

Those jailed for debts may be the least able to pay.

"It's just one more blow for people who are already struggling," said Beverly Yang, a Land of Lincoln Legal Assistance Foundation staff attorney who has represented three Illinois debtors arrested in the past two months. "They don't like being in court. They don't have cars. And if they had money to pay these collectors, they would."

The collection machine

The laws allowing for the arrest of someone for an unpaid debt are not new.

What is new is the rise of well-funded, aggressive and centralized collection firms, in many cases run by attorneys, that buy up unpaid debt and use the courts to collect.

Three debt buyers -- Unifund CCR Partners, Portfolio Recovery Associates Inc. and Debt Equities LLC -- accounted for 15 percent of all debt-related arrest warrants issued in Minnesota since 2005, court data show. The debt buyers also file tens of thousands of other collection actions in the state, seeking court orders to make people pay.

The debts -- often five or six years old -- are purchased from companies like cellphone providers and credit card issuers, and cost a few cents on the dollar. Using automated dialing equipment and teams of lawyers, the debt-buyer firms try to collect the debt, plus interest and fees. A firm aims to collect at least twice what it paid for the debt to cover costs. Anything beyond that is profit.

Portfolio Recovery Associates of Norfolk, Va., a publicly traded debt buyer with the biggest profits and market capitalization, earned $44 million last year on $281 million in revenue -- a 16 percent net margin. Encore Capital Group, another large debt buyer based in San Diego, had a margin last year of 10 percent. By comparison, Wal-Mart's profit margin was 3.5 percent.

Todd Lansky, chief operating officer at Resurgence Financial LLC, a Northbrook, Ill.-based debt buyer, said firms like his operate within the law, which says people who ignore court orders can be arrested for contempt. By the time a warrant is issued, a debtor may have been contacted up to 12 times, he said.

"This is a last-ditch effort to say, 'Look, just show up in court,'" he said.

Go to court -- or jail

At 9:30 a.m. on a recent weekday morning, about a dozen people stood in line at the Hennepin County Government Center in Minneapolis.

Nearly all of them had received court judgments for not paying a delinquent debt. One by one, they stepped forward to fill out a two-page financial disclosure form that gives creditors the information they need to garnish money from their paychecks or bank accounts.

This process happens several times a week in Hennepin County. Those who fail to appear can be held in contempt and an arrest warrant is issued if a collector seeks one. Arrested debtors aren't officially charged with a crime, but their cases are heard in the same courtroom as drug users.

Greg Williams, who is unemployed and living on state benefits, said he made the trip downtown on the advice of his girlfriend who knew someone who had been arrested for missing such a hearing.

"I was surprised that the police would waste time on my petty debts," said Williams, 45, of Minneapolis, who had a $5,773 judgment from a credit card debt. "Don't they have real criminals to catch?"

Few debtors realize they can land in jail simply for ignoring debt-collection legal matters. Debtors also may not recognize the names of companies seeking to collect old debts. Some people are contacted by three or four firms as delinquent debts are bought and sold multiple times after the original creditor writes off the account.

"They may think it's a mistake. They may think it's a scam. They may not realize how important it is to respond," said Mary Spector, a law professor at Southern Methodist University's Dedman School of Law in Dallas.

A year ago, Legal Aid attorneys proposed a change in state law that would have required law enforcement officials to let debtors fill out financial disclosure forms when they are apprehended rather than book them into jail. No legislator introduced the measure.

Joy Uhlmeyer, who was arrested on her way home from spending Easter with her mother, said she defaulted on a $6,200 Chase credit card after a costly divorce in 2006. The firm seeking payment was Resurgence Financial, the Illinois debt buyer. Uhlmeyer said she didn't recognize the name and ignored the notices.

Uhlmeyer walked free after her nephew posted $2,500 bail. It took another $187 to retrieve her car from the city impound lot. Her 86-year-old mother later asked why she didn't call home after leaving Duluth. Not wanting to tell the truth, Uhlmeyer said her car broke down and her cell phone died.

"The really maddening part of the whole experience was the complete lack of information," she said. "I kept thinking, 'If there was a warrant out for my arrest, then why in the world wasn't I told about it?'"

Jailed for $250

One afternoon last spring, Deborah Poplawski, 38, of Minneapolis was digging in her purse for coins to feed a downtown parking meter when she saw the flashing lights of a Minneapolis police squad car behind her. Poplawski, a restaurant cook, assumed she had parked illegally. Instead, she was headed to jail over a $250 credit card debt.

Less than a month earlier, she learned by chance from an employment counselor that she had an outstanding warrant. Debt Equities, a Golden Valley debt buyer, had sued her, but she says nobody served her with court documents. Thanks to interest and fees, Poplawski was now on the hook for $1,138.

Though she knew of the warrant and unpaid debt, "I wasn't equating the warrant with going to jail, because there wasn't criminal activity associated with it," she said. "I just thought it was a civil thing."

She spent nearly 25 hours at the Hennepin County jail.

A year later, she still gets angry recounting the experience. A male inmate groped her behind in a crowded elevator, she said. Poplawski also was ordered to change into the standard jail uniform -- gray-white underwear and orange pants, shirt and socks -- in a cubicle the size of a telephone booth. She slept in a room with 12 to 16 women and a toilet with no privacy. One woman offered her drugs, she said.

The next day, Poplawski appeared before a Hennepin County district judge. He told her to fill out the form listing her assets and bank account, and released her. Several weeks later, Debt

Equities used this information to seize funds from her bank account. The firm didn't return repeated calls seeking a comment.

"We hear every day about how there's no money for public services," Poplawski said. "But it seems like the collectors have found a way to get the police to do their work."

Threat depends on location

A lot depends on where a debtor lives or is arrested, as Jamie Rodriguez, 41, a bartender from Brooklyn Park, discovered two years ago.

Deputies showed up at his house one evening while he was playing with his 5-year-old daughter, Nicole. They live in Hennepin County, where the Sheriff's Office has enough staff to seek out people with warrants for civil violations.

If Rodriquez lived in neighboring Wright County, he could have simply handed the officers a check or cash for the amount owed. If he lived in Dakota County, it's likely no deputy would have shown up because the Sheriff's Office there says it lacks the staff to pursue civil debt cases.

Knowing that his daughter and wife were watching from the window, Rodriguez politely asked the deputies to drive him around the block, out of sight of his family, before they handcuffed him. The deputies agreed.

"No little girl should have to see her daddy arrested," said Rodriguez, who spent a night in jail.

"If you talk to 15 different counties, you'll find 15 different approaches to handling civil warrants," said Sgt. Robert Shingledecker of the Dakota County Sheriff's Office. "Everything is based on manpower."

Local police also can enforce debt-related warrants, but small towns and some suburbs often don't have enough officers.

The Star Tribune's comparison of warrant and booking data suggests that at least 1 in 6 Minnesota debtors at risk for arrest actually lands in jail, typically for eight hours. The exact number of such arrests isn't known because the government doesn't consistently track what happens to debtor warrants.

"There are no standards here," said Gail Hillebrand, a senior attorney with the Consumers Union in San Francisco. "A borrower who lives on one side of the river can be arrested while another one goes free. It breeds disrespect for the law."

Haekyung Nielsen, 27, of Bloomington, said police showed up at her house on a civil warrant two weeks after she gave birth through Caesarean section. A debt buyer had sent her court papers for an old credit-card debt while she was in the hospital; Nielsen said she did not have time to respond.

Her baby boy, Tyler, lay in the crib as she begged the officer not to take her away.

"Thank God, the police had mercy and left me and my baby alone," said Nielsen, who later paid the debt. "But to send someone to arrest me two weeks after a massive surgery that takes most women eight weeks to recover from was just unbelievable."

The second surprise

Many debtors, like Robert Vee, 36, of Brooklyn Park, get a second surprise after being arrested -- their bail is exactly the amount of money owed.

Hennepin County automatically sets bail at the judgment amount or $2,500, whichever is less. This policy was adopted four years ago in response to the high volume of debtor default cases, say court officials.

Some judges say the practice distorts the purpose of bail, which is to make sure people show up in court.

"It's certainly an efficient way to collect debts, but it's also highly distasteful," said Hennepin County District Judge Jack Nordby. "The amount of bail should have nothing to do with the amount of the debt."

Judge Robert Blaeser, chief of the county court's civil division, said linking bail to debt streamlines the process because judges needn't spend time setting bail.

"It's arbitrary," he conceded. "The bigger question is: Should you be allowed to get an order from a court for someone to be arrested because they owe money? You've got to remember there are people who have the money but just won't pay a single penny."

If friends or family post a debtor's bail, they can expect to kiss the money goodbye, because it often ends up with creditors, who routinely ask judges for the bail payment.

Vee, a highway construction worker, was arrested one afternoon in February while driving his teenage daughter from school to their home in Brooklyn Park. As he was being cuffed, Vee said his daughter, who has severe asthma, started hyperventilating from the stress.

"All I kept thinking about was whether she was all right and if she was using her [asthma] inhaler," he said.

From the Hennepin County jail, he made a collect call to his landlord, who promised to bring the bail. It was $1,875.06, the exact amount of a credit card debt.

Later, Vee was reunited with his distraught daughter at home. "We hugged for a long time, and she was bawling her eyes out," he said.

He still has unpaid medical and credit card bills and owes about $40,000 on an old second mortgage. The sight of a squad car in his rearview mirror is all it takes to set off a fresh wave of anxiety.

"The question always crosses my mind: 'Are the cops going to arrest me again?'" he said. "So long as I've got unpaid bills, the threat is there."
*****

November 11, 2010

Model Portfolio Value As of 11 November 2010

$ 616,436


Thoughts

“Fifty percent of success in life is just showing up. The other fifty percent is having millions of dollars in the bank and a senator's home phone number on speed dial.”

http://www.dailykos.com/


*****

Cisco earnings and sales were in line but it warned going forward and that has place a damper on U.S. futures in preopening trading. CSCO is down 17%. The warning on revenues and earnings going forward is a big deal since Cisco is a big deal.

Asian markets were higher, Europe is down small and commodities remain strong. Oil has an $88 handle and Gold is at $1414 as the trading day begins. There is no Treasury trading today as the National Holiday for Veterans Day is observed except by the money kids on Wall Street.
*****

(Reuters) - Cisco Systems gave a dismal revenue outlook, stunning investors who had hoped for proof of a recovery in technology spending, and sending major tech stocks falling. Forecasts for quarterly and yearly revenue fell far short of Wall Street's expectations, a big disappointment for a company known for solid management and seen as a top beneficiary of the surge in global wireless and Internet traffic. Cisco shares tumbled 13 percent after-hours. John Chambers, one of the longest-serving CEOs in Silicon Valley whose views on economic trends are well regarded, cautioned of "short-term challenges" in Europe and public sector spending, as well as weakness among its most important customer segment: service providers. "First of all, our view on this guidance is, we are disappointed," he said. "We are obviously not projecting growth as fast as we would like over the next several quarters," Chambers told analysts on a conference call. The world's top manufacturer of routers and switches forecast revenue growth of 9-12 percent in fiscal 2011, well below the 13.1 percent analysts had expected on average. A projection for 3-5 percent revenue growth in the fiscal second quarter -- the current period -- also fell far short of Wall Street's expectations for 13 percent.

(WSJ) Kulicke & Soffa fiscal fourth-quarter profit soared as revenue more than doubled and margins improved. But shares dropped 4.6% to $6.08 in after-hours trading as the maker of equipment for assembling semiconductors and light-emitting diodes predicted revenue for the current quarter of $125 million to $135 million, far below analysts' average estimate of $214.6 million, according to a poll by Thomson Reuters. The stock was up 18% this year as of the close.
*****

Foreclosure Figures for October:

RealtyTrac® ... today released its U.S. Foreclosure Market Report™ for October 2010, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 332,172 properties in October, a 4 percent decrease from the previous month and almost exactly the same total reported in October 2009. ...

“October marks the 20th consecutive month where over 300,000 U.S. homeowners received a foreclosure notice,” said James J. Saccacio, chief executive officer at RealtyTrac. “The numbers probably would have been higher except for the fallout from the recent 'robo-signing' controversy — which is the most likely reason for the 9 percent monthly drop in REOs we saw from September to October and which may result in further decreases in November."
...

A total of 100,575 U.S. properties received default notices (NOD, LIS) in October, a 2 percent decrease from the previous month and a 19 percent decrease from October 2009 — the ninth straight month where default notices have decreased on a year-over-year basis.


...

Lenders foreclosed on 93,236 U.S. properties in October, down 9 percent from the record high in the previous month but still up 21 percent from October 2009.

For more: http://www.calculatedriskblog.com/
*****

What happened to all the media (Fox news) angst about the Moslem center in Lower Manhattan? Oh, that’s right, the election is over.
*****

“Cash has a virtue that people don’t appreciate fully, and that is its ‘optionality,’ ” said Grantham, who is chairman of Grantham Mayo Van Otterloo, a Boston-based asset management firm, and a respected voice in the financial world. “If anything crashes and burns in value—say the US stock market—if you have no resources, it doesn’t help you,” he explained. “If the bond market crashes, and you have not resources, it doesn’t help you. What cash is is an available resource.” http://dealbreaker.com/
*****

We added Cisco to accounts that own KBE. The shares are down $4 today and that 18% one day drop represents more than we think the overall markets will correct. We also sold our TWM in trading accounts for a negative scratch.
*****

(Bloomberg) -- Goldman Sachs Group Inc. recommended clients exit a bet that Hong Kong-listed companies in China will gain on concern the central bank will raise borrowing costs to tame inflation.

Investors who followed the New York-based firm’s advice would have earned a return of 11.3 percent as the Hang Seng China Enterprises Index of 40 companies rose above 14,000 from 12,616.01 since April 1, when the trade was initiated, analysts Robin Brooks and Dominic Wilson wrote in a research note today. The recommendation was among the nine “Top Trades” Goldman Sachs made for 2010.

China’s annual inflation rate jumped to a two-year high of 4.4 percent in October while retail sales rose 18.6 percent from a year earlier, the statistics bureau said today. China increased reserve requirements for some banks twice yesterday, taking the total increase to 100 basis points for a few lenders, according to two people with direct knowledge of the situation.

Inflation is above policy makers’ “comfort zone” and more policy “tightening” will likely occur, the New York-based analysts wrote in the report. “The near-term risk-reward for this position also looks unappealing as we approach the year-end ‘roll-off,’” they said.
*****

Gold ended at $1407 and Oil was $87.77. European bourses closed lower.
*****

The major market measures were down from the opening and closed near their worst levels down 1% on the NAZZ and .75% on the DJIA and S&P 500. There was some strength in Retailers and weakness in Techs and Financials. Breadth was negative and volume was moderate with Cisco trading over 500 million shares.
*****

November 10, 2010

Model Portfolio Value As of 10 November 2010

$ 615,986


Thoughts

Welcome to the Gold standard. OK folks, the media may like to talk about going back on a gold standard because the hedgies are pumping their positions to dump them on the public but a Gold standard ain’t going to occur. Period.

Today is the story of raising margin requirements on Silver and Irish bonds.

Asia was mixed overnight and Europe is lower at midday. Gold is down $12 at $1400 and Oil is $86.81.

(Bloomberg) -- Irish 10-year bonds dropped for a 12th consecutive day after the nation’s soaring yields prompted LCH Clearnet Ltd. to demand higher margin requirements from investors trading the nation’s debt.

And in case you were wondering:

(Bloomberg) -- The subprime mortgage crisis isn’t the only calamity Wall Street created that’s upending the finances of U.S. states and cities.

For more than a decade, banks and insurance companies convinced governments and nonprofits that financial engineering would lower interest rates on bonds sold for public projects such as roads, bridges and schools. That failed promise has cost more than $4 billion, according to data compiled by Bloomberg, as hundreds of borrowers from the Bay Area Toll Authority in Oakland, California, to Cornell University in Ithaca, New York, quietly paid Wall Street to end agreements since 2008.

California’s water resources department this year spent $305 million unwinding interest-rate bets that backfired, handing over the money to banks led by New York-based Morgan Stanley. North Carolina paid $59.8 million in August, enough to cover the annual salaries of about 1,400 full-time state employees. Reading, Pennsylvania, which sought protection in the state’s fiscally distressed communities program, got caught on the wrong end of the deals, costing it $21 million, equal to more than a year’s worth of real-estate taxes.

“It was brilliant, and it all blew up on me,” said Brian Mayhew, chief financial officer of the Bay Area Toll Authority, the state agency that gave Ambac Financial Group Inc., the New York-based bond insurer that filed for bankruptcy this week, $105 million to end $1.1 billion of interest-rate agreements. The payments equal more than two months of revenue on seven bridges the authority oversees around San Francisco.
*****

We turned on CNBC this morning to the strange site of the Original Tea Partier Rick Santelli saying the Commodities Futures Trading Commission was perfectly justified in raising margin requirements on silver. Santelli, in his television persona, hates all government authority and says let the free markets prevail. He or his friends must be short silver.
*****

Silver leads dive in precious metals after 'margin' requirement is raised: http://latimesblogs.latimes.com/money_co/2010/11/silver-gold-futures-margin-cme-dollar.html

Wild times for precious metals got even wilder Tuesday. The rocket-like performance of silver in recent days apparently prompted the parent of the New York Comex market to boost margin requirements on silver futures -– a move that fueled a steep sell-off in precious metals after regular trading ended.

Near-term silver futures, which closed at a new 30-year high of $28.90 an ounce in regular trading, up $1.47 for the day, dived as low $26.42 in electronic trading after the Comex’s parent, CME Group, announced the higher margins.

Margin is the amount an investor must put up to trade a futures contract. There also are minimum margin requirements to hold a contract. CME raised silver margins by 30%. The maintenance margin, for example, jumped to $6,500 per contract from $5,000.

Margins typically are raised on futures contracts in times of extreme volatility. Silver prices had soared 23% just since Oct. 25 as money continued to pour into commodities in general.

The question now is whether the margin move will drive more investors out of the silver market. In electronic trading Tuesday evening the price had recovered somewhat, to about $27.40 an ounce, but that still was down 5.2% from closing high in the regular session.

Gold, which rose as high as $1,423 an ounce in regular trading before pulling back to close at $1,409.80, up $7 for the session, fell as low as $1,382 in electronic trading? The metal was recently trading at about $1,399.

It may not help the metals if their archrival, the U.S. dollar, continues its recovery. The DXY index of the dollar’s value against six other major currencies was up for a fourth straight session in Asian trading early Wednesday.

Have the dollar bears been sated for the moment?
*****

Howard Fineman, The Huffington Post:

Ben Bashing has begun, and this time it's not a fringe issue, but a central focus of our frightened, blame-spreading Great Recession politics. At this point in America, you can tell when a new Enemy of the People has arrived: when Sarah Palin and Newt Gingrich race onto Twitter to denounce him. They've now done that to Ben Bernanke, and the whole flock of Republican presidential wannabes is sure to follow.

In the old days, which is to say before September 2008, anger about and interest in the Federal Reserve Board and its chairman -- and his predecessor, Alan Greenspan -- were pretty much confined to gold bugs, the financial press and libertarian conspiracy theorists. No more. The tea party itself -- judging from its 10-point "Contract From America," at least -- did not make the Fed a top concern; they were focused on spending issues. But the tea party tide also swept in numerous libertarian hard-money types and fellow travelers, a cadre soon to grow. They hate the very idea of the Fed, not to mention Bernanke's activism in running the place.
*****

The reality is that Bernanke is acting because Obama and the Congress can’t or won’t. We don’t think monetary policy- flooding the economy with money and keeping interest rates low -is the answer but it is the only game in town since fiscal policy is hostage to gridlock.
*****

Jobless claims were 435,000 down from last week and better than expectations(less than).
*****

Investors’ Intelligence has Bulls 48% Bears 23%.
*****

Looks like the mystery missile from yesterday’s post was a jet contrail:

A blogger reckons he may have solved the mystery over the vapor trail spotted off the southern coast of California on Monday.

Liem Bahneman on Wednesday pinpointed America West flight 808 as the likely cause -- backing up an explanation offered by a senior military official to Fox News Channel that the contrail caught on video by a news helicopter “was more likely caused by an airplane than anything else."

Bahneman wonders if he is the first to call it: "I did a lot of extrapolation of what flights could be at the right position (off the coast) at the right altitude (for contrail formation) and came down to two possibilities: UPS flight 902 (UPS902) or America West flight 808 (AWE808)."  ... "As I was researching tonight (24 hours later), I realized that today's (Tuesday's) AWE808 current position (at around 4:50pm) was almost the same as it was the day of the incident. I quickly pulled up a Newport Beach webcam and found that (apparently) AWE808 was making an identical contrail, 24 hours later!"

A video image on his web page seems to back up his theory but Bahneman's explanation of what exactly happened in near space off California may do little to dispel conspiracies circulating in cyberspace.

A US Defense Department official told Fox News on Tuesday that a missile launch had not been ruled out, saying US Strategic Command (Stratcom) and US Northern Command (Northcom) were both asked to “count noses,” or ensure all missiles are in their arsenals.

The official did not rule out the possibility that a missile could have been launched as part of a covert operation.

Read more:
http://www.nypost.com/p/news/national/blogger_solves_calif_vapor_trail_Ez6423ms1R9WogswyBvT0K#ixzz14tXZadUw
*****

What Problem? Congress folk have health care paid for by the government so why worry about the folks that don’t. If they got jobs they could afford the $15,000 per year it costs for a decent health insurance program. http://www.americablog.com/

Nearly 59 million Americans went without health insurance coverage for at least part of 2010, many of them with conditions or diseases that needed treatment, federal health officials said on Tuesday. They said 4 million more Americans went without insurance in the first part of 2010 than during the same time in 2008. "Both adults and kids lost private coverage over the past decade," Dr. Thomas Frieden, director of the U.S. Centers for Disease Control and Prevention, told a news briefing.
*****

Well good for us: http://www.dailykos.com/

Rep. John Shimkus (R-Ill.), who will seek the Energy and Commerce Committee chairmanship, maintains that we do not have to worry about climate change because God promised in the Bible not to destroy the world again after Noah’s flood.
*****

Fiscal commission chairs' mark- initial proposal of Deficit Reduction -not the Committee Proposal

http://www.scribd.com/doc/41917130/The-plan1

The commission's final recommendations aren't due until December 1. The commission can basically recommend whatever it wants, but if 14 of the 18 commissioners agree with the recommendations, then Congress has agreed to take them up. So that's basically the key charge of the commission co-chairs: create enough of a consensus plan that 14 commissioners can support it. Without that, the recommendations become just another report gathering dust on a shelf. http://www.talkingpointsmemo.com/archives/2010/11/why_now_2.php#more?ref=fpblg

Comments from TPM Reader HW ... http://www.talkingpointsmemo.com/archives/2010/11/all_the_standard_cw_from_commission.php#more?ref=fpblg

I took a very quick look at this document and what's amazing to me is that they came up with these draconian cuts in Social Security, which is off-budget and currently in the black, but have barely anything for Medicare, where the government is hemorrhaging money.

They have several pages of material with almost no concrete ideas that adds up to minor savings (they claim savings that rise to $47 billion in 2020, but $13 billion of that comes from vague promises like "reform the sustainable growth rate" and "enact tort reform.")

If you look at the spending side of the federal budget, Medicare is the single item that drives growth out of proportion with the nation's population and income growth. Yet these guys seem to be hacking away at every other part of the federal budget more to make room for Medicare rather than contain it.

One other thing: they call for a cap of 21% of GDP for revenues and spending. But doesn't that exceed the mandate here? We are looking to these guys to tell us how to bring the budget into balance, not what the role and size of government ought to be. I would think liberals and conservatives ought to be able to agree in saying, who the hell are these guys to put their finger arbitrarily on the number 21% and tell us that's where it should be (I'd assume conservatives would like to see it lower, and I don't necessarily disagree with the number, but don't know why we'd set it in stone)? Its like my accountant telling me how much my income should be, in addition to how I should balance my family budget.
*****

We added TWM (Double short Russell 2000) to our trading accounts. We also bought BankAmerica in those accounts.
*****

Europe closed lower; Oil ended at $87.70 up $1 and Gold dropped $12 to $1400.
*****

The major market measures traded lower for half the day and then slowly moved to positive at the close. Breadth was positive and financials had a bid. Volume was light today. Tomorrow is Veteran’s day and banks are closed but the stock markets are open.
*****

November 9, 2010

Model Portfolio Value As of 9 November 2010

$ 616,400


Thoughts

"Life is mundane until it is not, and then the mundane can look serene."

Dave Kindred "Morning Miracle," a book about The Washington Post and when writing about the Virginia Tech shootings


*****

Asia was mixed overnight and Europe is mildly higher at midday. Gold is at $1420 and Oil has an 87 handle as the trading day begins.
*****

http://www.calculatedriskblog.com/

The WSJ has some interesting facts on the Ireland residential housing market: Ireland's Next Blow: Mortgages

More than 36,000 borrowers, representing 4.6% of Irish mortgage loans, were at least 90 days behind on their loans as of June 30, according to Ireland's financial regulator. ... nearly 200,000 Irish mortgages—about one of every four outstanding home loans—is expected to be "underwater" by the end of the year.

As a comparison, the Q2 CoreLogic report showed 11 million American mortgages, or 23 percent of households with mortgages, were underwater - about the same percentage as in Ireland. In the U.S. about 4.3% of mortgages are more than 90 days delinquent, and another 3.8% are in the foreclosure process.

The Ireland 10-year bond yield hit a record 7.86% today. Ireland will not have to borrow until next year, but if the 10-year yield moves above 8% or so, then it is likely that Ireland would use the European Financial Stability Fund (EFSF).
*****

(WSJ) Junk-Bond Sellers Find Risk Too High

By MATT WIRZ

Alok Makhija piled into battered high-yield bonds and loans last year, scooping up bargains that enabled his hedge fund, Ore Hill Partners, to generate a 67% return.

Now, Ore Hill's $110 million Man Prospect Mountain fund has sold much of its high-yield debt, driven out by the flood of money from mainstream investors that has sent prices of junk debt soaring.

Prices are so high, "you have to take too much risk to hit your targets" in junk debt now, said Mr. Makhija, who focuses on distressed debt and buying or short-selling securities in anticipation of significant events. The fund is now heavily invested in mortgage debt. Mr. Makhija is among a growing number of hedge funds and other professional investors that are getting out of junk bonds and buying assets like mortgage debt and stocks instead. As they exit, mom-and-pop investors are flooding in, along with mutual funds that are usually dedicated to other investments, like stocks and government debt. All are lured by the outsize returns delivered by the junk-bond market over the past 18 months amid tepid gains in stocks and rock-bottom yields on Treasuries.

The mutual funds these individuals piled into now own about one-third of all high-yield debt and account for half of the market's growth—measured by the par value of bonds outstanding—since the beginning of 2009, according to Barclays Capital.

As the money flows in, prices of junk bonds are at their highest in three years, the credit-quality of the companies selling debt is falling, and they are all paying increasingly lower interest rates.

The Barclays U.S. Corporate High Yield Index returned 5.71% in just the three months through Oct. 29, far outpacing the 1.87% return from the Barclays Capital U.S. Government index, which tracks Treasuries.

At the same time, the average price of high-yield bonds peaked at more than 101 cents on the dollar in recent weeks, the highest level since October 2007.

Retail broker Brian Rehling says he has been trying unsuccessfully to get his clients into stocks. But most of them, he says, still want to buy junk bonds, drawn by the relatively high returns.

"We're advising [clients] get into equity, but you'll have to wait for a few months of positive equity performance to see that," says Mr. Rehling who is senior fixed-income strategist at Wells Fargo Advisers, the brokerage and financial-advisory arm of Wells Fargo & Co. "By then, they'll have missed a good chunk of the move, but that's how it always goes."
*****

The Deficit Commission Tsunami
http://my.firedoglake.com/deanbaker/2010/11/08/the-deficit-commission-tsunami/
By: Dean Baker Monday November 8, 2010 4:31 pm

During the mass unemployment of the Great Depression, Keynes once quipped that if we couldn’t find any productive work that needed to be done, in order to reduce unemployment we could just pay workers to dig holes and fill them up again. Keynes was being sarcastic, but it seems that the Washington crew picked up on this suggestion. This is the only plausible explanation for the proliferation of deficit commissions in our nation’s capital.

There are three separate deficit commissions prepared to share their wisdom with the American people before the end of the year. These three commissions all have two important features in common: not one member of these commissions warned of the catastrophe that would be created by the collapse of the housing bubble, and they all think it is a good idea to cut Social Security.

The country is currently experiencing its worst economic downturn in 70 years with more than 25 million people unemployed, underemployed or having given up looking for work altogether. It might have been appropriate for a commission that purports to be giving advice on the future of the country’s most important social programs, as well as the overall budget, to include at least one person who was awake enough to notice the $8 trillion housing bubble that wrecked the economy.

But these commissions that want to tell the public what is best for us don’t feel that they need to bother with trivialities like the economic collapse. In fact, the commissions include many of the people who had helped guide our economy off the cliff. They see their credentials in this capacity as lending to their credibility. This is sort of like an officer from the Titanic using this experience as a basis for being appointed ship’s captain.

In fact, these commissions don’t have much other than their credentials to support their recommendations for cutting Social Security and Medicare. While the media have been hyperventilating at length to try to build fears about the budget deficits, it is easy to show that these fears are unwarranted.

In the short term, the United States has large budget deficits for the simple reason that private sector spending collapsed. The arithmetic is straightforward. The collapse of the bubbles in residential and nonresidential real estate led to a plunge in annual construction demand of more than $600 billion a year. The indirect effect of the loss of $6 trillion in housing bubble wealth was to reduce annual consumption by $600 billion a year.

With a total loss of $1.2 trillion in private sector demand, the choice for the government is either to boost the economy by running large deficits or allow the economy to contract further and let the unemployment rate rise even higher. If our deficit hawk commission members knew their economics, they would have been warning of the housing bubble in 2002-2006. Then, we could have avoided this economic collapse – and we would have had smaller deficits.

It is important to realize that the debt that we are incurring at present need pose zero burden on future generations. We are putting to use resources that would otherwise be idle, not pulling resources away from the private sector. While the deficit hawks eagerly threaten us with the prospect of our children paying interest on trillions of dollars of debt, the Federal Reserve Board could simply buy and hold this debt, leading to no net interest burden on future generations. (The Treasury pays interest on the debt to the Fed, which then refunds the interest payments to the Treasury at the end of the year, leaving no net interest burden.)

While the longer-term projections do show a serious deficit problem even after the economy has recovered, this is due to projections of exploding health care costs. Since more than half of our health care is paid by the public sector, if health costs really do grow out of control, then it will lead to very serious budget problems. Of course, if health care costs follow the projected path then they will also devastate the private sector.

The point is that we have a health care problem. If we don’t fix our health care system, then our economy will be in serious trouble, with one problem being large budget deficits. If we do fix our health care system, then there is no long-term deficit problem.

The basic story is that, in the short term, there is no deficit problem; the problem is a plunge in private sector demand caused by the collapse of the housing bubble. In the longer term, the deficit problem is actually the problem of a broken health care system. The facts are as clear as can be.

So, why then do we have all these deficit commissions? It’s simply modern Washington’s way of digging holes and filling them up again. It gives these people something to do. Let’s hope it ends up being harmless.
*****

Mystery Missile Launch Seen off Calif. Coast

http://gawker.com/5685362/nobody-knows-who-launched-that-icbm-off-the-california-coast-last-night
*****

The Soap Opera continues.

(Reuters) - Oracle Corp has hired private investigators to track down Hewlett-Packard CEO Leo Apotheker, believing testimony by the former SAP chief will help its efforts to claim about $4 billion in damages for software theft, a source with knowledge of the situation told Reuters.

Oracle has subpoenaed Apotheker -- who began his job only last Monday -- but HP has refused to accept the subpoena, saying the U.S. software corporation is trying to harass him. Experts say HP may be wary of exposing their new chief, whose appointment surprised Wall Street and Silicon Valley, to a courtroom attack that may undermine his credibility.

Oracle and Europe's top software maker are engaged in a legal battle that has transfixed Silicon Valley.

Executives with SAP, which has admitted to software theft by a subsidiary, TomorrowNow, but argues it owes Oracle only tens of millions of dollars, have said Apotheker was put in charge of the unit, but shut down the operation as soon as he discovered wrongdoing.

Oracle hired Mark Hurd, the CEO Hewlett Packard fired.
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=ao_tzU11O5os
*****

The Rich Are Different From You and Me
(Bonfire of the Vanities in Real Life)

http://digbysblog.blogspot.com/

Years ago I heard a caller on Limbaugh say that he wanted his boss to get a tax cut so that he (the caller) could make more money some day. The multi-millionaire Limbaugh, of course, patted him on the head and told him that's the kind of thinking that made America great.

That was just the beginning:

A Morgan Stanley wealth manager will not face felony charges for a hit-and-run because Colorado prosecutors don't want him to lose his job

Martin Joel Erzinger, who manages more than $1 billion in assets for Morgan Stanley in Denver, is being accused only of a misdemeanor for allegedly driving his Mercedes into a cyclist and then fleeing the scene, Colorado's Vail Daily reports. The victim, Dr. Steven Milo, whom Erzinger allegedly hit in July, suffered spinal cord injuries, bleeding from his brain and, according to his lawyer Harold Haddon, "lifetime pain."

But District Attorney Mark Hurlbert says it wouldn't be wise to prosecute Erzinger -- doing so might hurt his source of income. Here's Vail Daily:

"Felony convictions have some pretty serious job implications for someone in Mr. Erzinger's profession, and that entered into it," Hurlbert said. "When you're talking about restitution, you don't want to take away his ability to pay."

"We have talked with Mr. Haddon and we had their objections, but ultimately it's our call," Hurlbert said.

Of course. These Master of the Universe are the producers, the people who make this nation's wealth so that parasites won't starve. They can't be held to the same silly standards of behavior to which the rest of us are held -- if they have to take something as prosaic as "risk" into account, the whole system will break down. And if these Very Superior People (also known as "Gods") are kept down by some bourgeois notions of "personal responsibility" it will be the poor who end up paying the price because there won't be any small change available to help the unfortunates they runs over with their Bentleys.

Unfortunately the liver transplant surgeon he ran over seems less concerned with getting some fast cash than with justice:

"Mr. Erzinger struck me, fled and left me for dead on the highway," Milo wrote. "Neither his financial prominence nor my financial situation should be factors in your prosecution of this case."

We have known for quite some time now that the wealthy have different rules. Every once in a while they throw one of their own into the maw of the legal system in order to keep the rubes from rising up in anger but for the most part they have always bought themselves expensive lawyers and make political deals on the QT. Lately, however, they are just outright arguing that they are too important to the world to be subject to the US system of justice --- and they seem to have convinced the people of just that. This is what refusing to look into the rear view mirror gets you.

Vail Daily News story here:
http://www.vaildaily.com/article/20101104/NEWS/101109939/1078&ParentProfile=1062
*****

(WSJ) Commodities hit multi-year highs Tuesday as producers of metals and agricultural goods are finding it more difficult to meet robust demand.... On Tuesday, December gold futures reached a record $1,423.80 an ounce on the Comex division of the New York Mercantile Exchange, gaining additional momentum from renewed fears about the European Union's ability to handle some members' high sovereign-debt levels.

The Question is whether the demand is coming from consumption or speculation. We would go with the latter as the momentum hedge funds continue to crowd into an already crowded trade. But while the fun lasts....
*****

Oil ended at $86.75 down 31 pennies. Gold closed flat at $1404. Europe closed higher.
*****

The Tribune Co. is asking a Delaware bankruptcy judge to approve up to $43 million in bonuses for top executives and managers this year. The plan calls for some 640 people to receive bonuses totaling from $16.5 million to $42.9 million if certain cash flow targets are met. The request will be the subject of a hearing Wednesday. Tribune scaled back the incentive plan this summer after complaints from creditors and an employees union. The company also agreed this week to require repayment of bonuses given executives found to have breached their fiduciary duties or engaged in wrongdoing related to Tribune's 2007 leveraged buyout. An independent examiner found that five members of Tribune's current management may have been involved in such wrongdoing.
*****

The HFT kids must have decided that the easiest course was down today. The major measures lost 1% in light trading. Breadth was way negative at the close.
*****

November 8, 2010

Model Portfolio Value As of 8 November 2010

$ 617,079


Thoughts

Asia and Europe were mixed overnight and U.S. futures are slightly lower as the trading week begins. Gold is off a few dollars and Oil is flat with an $86 handle. The S&P 500 has been positive five weeks in a row and is up 200 points (25%) since it July 2 low. The S&P began its rise in negative territory and so it is up 9% for the year.

We have been more cautious and because we didn’t drop as much because of that caution our accounts are not up as much with most of the larger accounts up 2% to 5% and the small up 10%. We continue to believe that the markets are now ahead of themselves and that a correction is in the cards but our investment stand is getting lowlier by the day. With preservation of capital our main concern at this juncture we will maintain our large cash position for the present.
*****

If markets are going higher the banks will lead and so we are back in KBE for further trade.
*****

When Life Gives You Lemons, it’s Time for a Lemon Party

By: Attaturk Monday November 8, 2010 1:30 am http://firedoglake.com/

Last week David Broder declared the idea of beating the Iran War drum a most awesome idea, because it will produce those jobs that Iraq and Afghanistan haven’t. And really, it’s an idea he once ran by the Kaiser with approval.

Now, rejoining the Chorus Morte of old aspiring murderers is the very definition of “reasonable war criminal” Lindsey Graham: Graham, a South Carolina Republican who sits on the Armed Services Committee and the Homeland Security Committee, said Saturday the U.S. should consider sinking the Iranian navy, destroying its air force and delivering a decisive blow to the Revolutionary Guard.  He says they should neuter the regime, destroy its ability to fight back and hope Iranians will take a chance to take back their government.

Yes, because we all know people NEVER think of being more angry at the people who are bombing them than their own government. That’s why the 8th Air Force TOTALLY brought down Hitler all by itself rather than strengthening the Fuhrer’s hand…no matter what all those historical facts say. Nothing will make the Iranians love ‘Murica more than our awesome bombs killing their relatives.
*****

Gold hit $1400 an ounce.  Ok let’s get real Gold has gone from $1100 to $1400 this year. That’s like an $11 stock going to $14. AEO and NVDA have done that since August. Ford is up 60% this year and ANN is up 80%., enough with the gold talk.
*****

(WSJ) European stock markets finished mostly lower Monday, as investors focused on sovereign-debt worries in Ireland, Portugal and Spain. Greek shares rose after ruling Socialists did well in elections. Oil ended at $87.02 and Gold was $1407 at the end. The two year Treasury yields 0.4%. Thank you banksters.
*****

The major market measures were lower most of the day but more out of boredom than from any real selling. Breadth was flat and volume moderate. The banks and financials couldn’t find any traction and so neither could the markets.
*****

November 5, 2010

Model Portfolio Value As of 5 November 2010

$ 617,150


Thoughts

(Yahoo/Finance) Nonfarm payrolls for that month reportedly climbed by 151,000, which is much better than the 60,000 increase that had been expected among economists polled by Briefing.com. It was also the biggest increase since May. Nonfarm payrolls for the prior month were revised upward to reflect a decrease of 41,000. Private payrolls for October increased by 159,000 in October. That was their biggest increase since April and also exceeded the 60,000 increase that had been widely expected. Private payrolls for the prior month were revised upward to reflect an increase of 107,000 increases. The headline unemployment rate still stands at 9.6%, as expected.
*****

Asia was higher overnight while Europe is lower at midday. Oil ahs an $86 handle and Gold is off $4 form yesterday’s big jump as the trading day begins.
*****

Markets are flat after the good jobs news. The reaction to the news is often more important than the news. We remain bearish and so we sold J Crew, BankAmerica, GE and KBE for nice trading profits. We also reduced our position in QID at a loss in our trading accounts.
*****

A diatribe on free trade with which we agree: http://www.taylormarsh.com/

You get a free trade deal. ….and you get a free trade deal… And you get a free trade deal! That should be the banner accompanying Pres. Obama on his trip today.

Before Chris Matthews was taken ill with a permanent case of Clinton derangement syndrome, his blue collar, working-class sensibilities, minus his overly pious religiosity, made his show must see TV. What he’s talking about here is what I mentioned yesterday about what splitting the union vote cost Democrats. It cost us Joe Sestak. The job losses in what is called the “rust belt,” which Matthews refers to as “Scranton to Oshkosh,” have been decimated by the decline of American building power. It’s these people that Barack Obama just might have lost for the duration.

Ironically, one of the Left’s arch nemeses Patrick J. Buchanan was on this case over 16 years ago, talking about the decline in the manufacturing base and what it would eventually do to this country.

No one will ever be able to sufficiently explain to me why Pres. Obama’s first action as president wasn’t to begin a green energy jobs moon shot to match J.F.K.’s target to get to the moon. Or better yet, why “Bullet America” wasn’t launched, with the goal of constructing a coast-to-coast bullet train to connect fly-over country with everyone else. I’ll simply never understand the puny priorities of Mr. Obama, which led the only place it could on Tuesday given the needs of this country.

Pres. Obama has no vision. He’s transactional all the way.

Ducking out as quickly as he could after the midterm carnage and beginning his to Asia, planned long before reality landed because someone in the White House showed a political pulse after it was too late, Pres. Obama has a plan. It’s not a good plan, but he’s on a roll of disastrous consequences so doubling down shouldn’t surprise anyone.

It proves Mr. Obama hasn’t learned squat.

From The Hill: http://thehill.com/blogs/on-the-money/801-economy/127651-ford-slams-south-korea-trade-deal-as-obama-officials-renew-talks

Ford has launched an aggressive advertising campaign against the South Korea free trade agreement (FTA), which it argues would lock in unfair trade between the countries. In newspaper advertisements running within and outside the Beltway, Ford argues that for every 52 cars Korea ships to the U.S., the U.S. “can only export one there.” The ad states: “We believe in free trade, and this isn’t it. In fact, Ford has supported every trade agreement approved by Congress since 1965 — until this one.” [...]

While the GOP is seen as reflexively more free-trade, Ford Vice President for International Governmental Affairs Steve Biegun said the company has received strong support from Republicans in Congress on the trade deal. The company is the only U.S. automaker that did not accept a bailout from the government in the aftermath of the financial recession, and is seen as having clout on Capitol Hill.

South Korean auto producers sold 552,000 cars and light trucks in the U.S. in 2009, many of them made at U.S. plants, but Ford sold fewer than 3,000 cars in South Korea that year. Ford argues the reason is non-tariff barriers and other unfair rules. ..

I swear to God, it’s hard to be surprised anymore. The economic policies and priorities of Pres. Obama and his administration couldn’t be much worse. After his “shellacking” all we’re going to get is a more drastic right-ward tilt, something that never cured anything and only exacerbated our challenges.
*****

There is no free lunch and there is no free trade.

How to create jobs that involve useful products: One suggestion, create a program to install solar panels made in the U.S. on every building in the country. The Feds should offer an unlimited tax credit for the cost of the panels and installation expenses. Too simple, we know.
*****

Can the Fed be far behind?

(Reuters) The Bank of Japan kept interest rates at zero and held off on easing monetary policy on Friday, after the Federal Reserve's bond buying plan failed to trigger yen gains sharp enough to warrant an immediate policy response.

The central bank fleshed out its plans to buy exchange-traded funds (ETFs) and real estate investment trust funds (REITs) under its new 5 trillion yen ($62 billion) asset-buying scheme.

Details are as follows:

.......

-- The BOJ will buy exchange-traded funds (ETFs) linked to the benchmark Topix .TOPX and the Nikkei average .N225. The two make up most of Japan's 2.6 trillion yen ETF market.

-- It will buy REITs rated AA, which denotes very high creditworthiness, or above. Since it will be the first time the BOJ has bought REITs, it decided to play it safe and not include those rated BBB; of Japan's 3.2 trillion yen market for REITs, those rated AA or above make up roughly 1.6 trillion yen.

-- The BOJ will buy ETFs and REITs through a trust bank to avoid intervening directly in the market.

-- When buying REITs, the BOJ will limit its purchases to up to 5 percent of a particular fund's total issue amount.

-- The maximum amount of each ETF and REIT to be purchased will be in proportion to each issue's market value.

-- The BOJ adopted somewhat more cautious language in its economic assessment. It said Japan's economic recovery seemed to be pausing, the central bank's way of describing the economy as in a lull. It downgraded its assessment on exports and production, saying they have been more or less flat. ($1=80.72 Yen)
*****

Europe ended higher. Gold was up $12 at $1395 and Oil finished at $86.88.
*****

nuanced’?

(WSJ) The top Securities and Exchange Commission official in charge of the federal inquiry into the May 6 "flash crash" said high-frequency trading firms didn't cause the huge selloff in stocks.

"We do not have evidence that they had triggered or had caused a wave of trading," Gregg Berman, senior advisor in the SEC's Division of Trading and Markets, said.

Mr. Berman said the role played by high-frequency firms "is a little more nuanced and complex" than previously thought, with these firms both taking and adding liquidity that day.
*****

We are heading out early. At 2PM the major measures were mixed and volume was moderate. Breadth was flat.
*****

Worth the read: http://digbysblog.blogspot.com/

Griftopia

by tristero

I just finished reading Matt Taibbi’s newest book, Griftopia, and it’s wonderful. Taibbi has a bloggy sense of outrage and a Heifetz-level virtuosity in the proper employment of profanity to advance an argument. He is also, despite his occasional digs (most well-deserved) - a liberal. He is mostly, though, one helluva talented reporter. Matt's political/cultural beat for Rolling Stone has given him an opportunity to write in a thoroughly cynical voice but to do so, oddly enough, with an utterly sincere astonishment. Not too many people can pull off something as contradictory as that and make it seem perfectly natural - it really does take a kind of genius.

Here is an extraordinarily succinct - and outraged, and thoroughly entertaining - summary of the housing crisis:

…Almost everyone who touched that mountain turned out to be a crook of some kind. The mortgage brokers systematically falsified information on loan applications in order to secure bigger loans and hawked explosive option-ARM mortgages to people who either didn't understand them or, worse, did understand them and simply never intended to pay. The loan originators cranked out massive volumes of loans with plainly doctored applications, not giving a shit about whether or not the borrowers could pay, in a desperate search for short-term rebates and fees. The securitizers used harebrained math to turn crap mortgages into AAA-rated investments; the ratings agencies signed off on that harebrained math and handed out those AAA ratings in order to keep the fees coming in and the bonuses for their executives high. But even the ratings agencies were blindsided by scammers who advertised and sold, openly, help in rigging FICO scores to make broke and busted borrowers look like good credit risks. The corrupt ratings agencies were undone by ratings corrupters!

Meanwhile, investment banks tried to stick pensioners and insurance companies with their toxic investments, or else they held on to their toxic investments and tried to rip off idiots like [AIG sleazeball] Joe Cassano by sticking him with the liability of default. But they were undone by the fact that Joe Cassano probably never even intended to pay off, just like the thousands of homeowners who bought too-big houses with option ARM mortgages and never intended to pay. And at the tail end of all this frantic lying, cheating, and scamming on all sides, during which time no good jobs were created and nothing except a few now-empty houses (good for nothing except depressing future home prices) got built, the final result is that we all ended up picking up the tab, subsidizing all this crime and dishonesty and pessimism as a matter of national policy.

We paid for this instead of a generation of health insurance, or an alternative energy grid, or a brand-new system of roads and highways. With the $13-plus trillion we are estimated to ultimately spend on the bailouts, We could not only have bought and paid off every single subprime mortgage in the country (that would only have cost $1.4 trillion), we could have paid off every remaining mortgage of any kind in this country-and still have had enough money left over to buy a new house for every American who does not already have one.

But we didn't do that, and we didn't spend the money on anything else useful, either. Why? For a very good reason. Because we’re no good anymore at building bridges and highways or coming up with brilliant innovations in energy or medicine. We're shit now at finishing massive public works projects or launching brilliant fairy-tale public policy ventures like the moon landing.

What are we good at? Robbing what's left. When it comes to that, we Americans have no peer. And when it came time to design the bailouts, a monster collective project spanning two presidential administrations that was every bit as vast and far-reaching (only not into the future but the past)) as Kennedy’s trip to the moon, we showed It.

Taibbi’s attitude towards the political landscape of America in the Third Millenium is, in some ways, similar to Thomas Frank’s, that there’s a bait and switch being pulled, that the real action is not the social issues - it never is - but rather the money. The looting of America by the Biggest, Ballsiest Crooks Ever is the only genuinely important story. For Taibbi, the teabaggers’ racism, sexism, xenophobia, libertarianism, and other extremisms seem to serve much the same function as geologists see for trees and grass: sure, it's striking sometimes, but ultimately, it's merely hair that covers the bald truth about the world. I’m not sure I entirely agree - but damn, when you read Matt describe what’s really been going on, without any sugar coating or euphemisms, and with that throat-slittingly sharp style... damn if Taibbi doesn't have a point:

Here's the real punch line. After playing an intimate role in three historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ in the early part of the 2000s, after pawning off thousands of toxic mortgages on pensioners and cities, after helping drive the price of gas up above $4.60 a gallon for half a year, and helping 100 million new people around the world join the ranks of the hungry, and securing tens of billions of taxpayer dollars through a series of bailouts, what did Goldman Sachs give back to the people of the United States in the year 2008?

Fourteen million dollars.

That is what the firm paid in taxes in 2008: an effective tax rate of exactly 1, read it, one, percent. The bank paid out $10 billion in compensation and bonuses that year and made a profit above $2 billion, and yet it paid the government less than a third of what it paid Lloyd Blankfein, who made $42.9 million in 2008.

How is this possible? According to its annual report, the low taxes are due in large part to changes in the bank's "geographic earnings mix." In other words, the bank moved its money around so that all of it earnings took place in foreign countries with low tax rates. Thanks to our completely fucked corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions up front on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to pay no taxes at all. A Government Accountability Office report, in fact, found that between 1998 and 2005, two-thirds of all corporations operating in the United States paid no taxes at all.

This should be a pitchfork-level outrage- but somehow, when Goldman released its postbailout tax profile, barely anyone said a word: Congressman LLoyd Doggett of Texas was one of the few to remark upon the obscenity. "With the right hand begging for bailout money," he said, "the left is hiding it offshore."

Finally, I thought I'd leave you with Taibbi's inspiring conclusion. It’s as pure an expression of the unshakeable faith Matt Taibbi has in the capability of America's citizens to dig itself out of the mess the Biggest Assholes in the Universe created as ever we are likely to read:

...a country whose citizens purport to be mad as hell about growing government influence has still said little to nothing about that bizarre sequence of events in which the entire economy was rebuilt via this series of back-alley state-brokered mergers, which left financial power in America in the hands of just a few mostly unaccountable actors on Wall Street. We still know very little about what really went on during this period, who was calling whom, what bank was promised what. We need to see phone records, e-mails, correspondence, the minutes of meetings to know what the likes of Paulson and Geithner and Bernanke were doing during those key stretches of 2008.

But we probably never will, because the country increasingly is forgetting that any of this took place. The ability of its citizens to lose focus so quickly and to be distracted by everything from Lebronamania to the immigration debate is part of what makes America so ripe for this particular type of corporate crime. We have voters who don't pay attention, a news !media that ignores key subjects or willfully misunderstands them, and a regulatory environment that bends easily to lobbying and campaign financing efforts, And we’ve got a superpower’s worth of accumulated wealth for the taking, You put that all together, and what you get is a thieves’ paradise-a Griftopia.
*****

The Focus Hocus-Pocus

By PAUL KRUGMAN

Democrats, declared Evan Bayh in an Op-Ed article on Wednesday in The Times, “overreached by focusing on health care rather than job creation during a severe recession.” Many others have been saying the same thing: the notion that the Obama administration erred by not focusing on the economy is hardening into conventional wisdom.

But I have no idea what, if anything, people mean when they say that. The whole focus on “focus” is, as I see it, an act of intellectual cowardice — a way to criticize President Obama’s record without explaining what you would have done differently.

After all, are people who say that Mr. Obama should have focused on the economy saying that he should have pursued a bigger stimulus package? Are they saying that he should have taken a tougher line with the banks? If not, what are they saying? That he should have walked around with furrowed brow muttering, “I’m focused, I’m focused”?

Mr. Obama’s problem wasn’t lack of focus; it was lack of audacity. At the start of his administration he settled for an economic plan that was far too weak. He compounded this original sin both by pretending that everything was on track and by adopting the rhetoric of his enemies.

The aftermath of major financial crises is almost always terrible: severe crises are typically followed by multiple years of very high unemployment. And when Mr. Obama took office, America had just suffered its worst financial crisis since the 1930s. What the nation needed, given this grim prospect, was a really ambitious recovery plan.

Could Mr. Obama actually have offered such a plan? He might not have been able to get a big plan through Congress, or at least not without using extraordinary political tactics. Still, he could have chosen to be bold — to make Plan A the passage of a truly adequate economic plan, with Plan B being to place blame for the economy’s troubles on Republicans if they succeeded in blocking such a plan.

But he chose a seemingly safer course: a medium-size stimulus package that was clearly not up to the task. And that’s not 20/20 hindsight. In early 2009, many economists, yours truly included, were more or less frantically warning that the administration’s proposals were nowhere near bold enough.

Worse, there was no Plan B. By late 2009, it was already obvious that the worriers had been right, that the program was much too small. Mr. Obama could have gone to the nation and said, “My predecessor left the economy in even worse shape than we realized, and we need further action.” But he didn’t. Instead, he and his officials continued to claim that their original plan was just right, damaging their credibility even further as the economy continued to fall short.

Meanwhile, the administration’s bank-friendly policies and rhetoric — dictated by fear of hurting financial confidence — ended up fueling populist anger, to the benefit of even more bank-friendly Republicans. Mr. Obama added to his problems by effectively conceding the argument over the role of government in a depressed economy.

I felt a sense of despair during Mr. Obama’s first State of the Union address, in which he declared that “families across the country are tightening their belts and making tough decisions. The federal government should do the same.” Not only was this bad economics — right now the government must spend, because the private sector can’t or won’t — it was almost a verbatim repeat of what John Boehner, the soon-to-be House speaker, said when attacking the original stimulus. If the president won’t speak up for his own economic philosophy, who will?

So where, in this story, does “focus” come in? Lack of nerve? Yes. Lack of courage in one’s own convictions? Definitely. Lack of focus? No.

And why would failing to tackle health care have produced a better outcome? The focus people never explain.

Of course, there’s a subtext to the whole line that health reform was a mistake: namely, that Democrats should stop acting like Democrats and go back to being Republicans-lite. Parse what people like Mr. Bayh are saying, and it amounts to demanding that Mr. Obama spend the next two years cringing and admitting that conservatives were right.

There is an alternative: Mr. Obama can take a stand.

For one thing, he still has the ability to engineer significant relief to homeowners, one area where his administration completely dropped the ball during its first two years. Beyond that, Plan B is still available. He can propose real measures to create jobs and aid the unemployed and put Republicans on the spot for standing in the way of the help Americans need.

Would taking such a stand be politically risky? Yes, of course. But Mr. Obama’s economic policy ended up being a political disaster precisely because he tried to play it safe. It’s time for him to try something different.
*****

November 4, 2010

Model Portfolio Value As of 4 November 2010

$ 615,774


Thoughts

Asia strong; Europe strong; U.S. futures strong; Oil has an $85 handle and Gold is up $24 to $1362. It is a wonder what $600 billion can do for the psyches of the bulls; us, not so much.
*****

(Bloomberg) -- More Americans than forecast filed applications for unemployment benefits last week, showing the labor market will take time to improve. Jobless claims rose by 20,000 to 457,000 in the week ended Oct. 30 from a revised 437,000 the prior week, Labor Department figures showed today in Washington. The total number of people receiving unemployment insurance fell, while those on extended payments increased.
*****

We added Bank America to our trading accounts. At the same time in those accounts we reinitiated the short Russell 2000 TWM. We also added KBE to accounts that we think can use more bank exposure.
*****

We bought back into American Eagle with purchases in accounts that own J Crew. It sold off on the following news but since all the other retailers are higher we want to go back into the stock given their decent third quarter performance.

(AP) -- American Eagle Outfitters Inc. said Thursday revenue at stores open at least a year fell 2 percent in October, worse than the increase analysts predicted, but the company raised its third-quarter guidance on better than expected sales and margins. Analysts expected the figure to rise 1.4 percent during the four-week period ending Oct. 30, according to Thomson Reuters. The figure is important for retailers because it measures growth at existing locations, and excludes new or closed ones. Total net revenue for the month fell 1 percent to $188 million. For the third-quarter, revenue at stores open at least a year rose 1 percent while total net revenue rose 2 percent to $752 million. That came in ahead of the $750 million analysts expected. The company also said its margins were better than expected. So it now expects adjusted earnings per share from continuing operations to range from 28 cents to 29 cents per share, up from its prior range of 27 cents to 28 cents and year-ago profit of 25 cents per share. The latest guidance excludes 12 cents per share for security charges. Analysts expect earnings per share of 28 cents, according to Thomson. Their estimates typically exclude one-time items.
*****

We are up on the BAC trade and so we are going to take a 4 pennies loss on the TWM since markets that are higher all day through 1PM tend to close higher. We have our large underwater QID trade as our continuing negative bet to hedge our long positions that we would be comfortable holding in any correction if we don’t trade out of them before the correction occurs.
*****

(WSJ) Blue-chip indexes in the U.K. and Germany closed at their highest levels in more than two years as European stocks surged in response to the Federal Reserve's $600 billion program to boost the world's largest economy. Gold ended at $1382 up $45 and Oil was $86.49 up $1.94.
*****

The major markets zoomed higher and remained there all day. Breadth was 4/1 to the good and Volume was moderate but well ahead of recent days. The DJIA and S&P 500 gained almost 2% while the NAZZ was up a bit over 1%.
*****

November 3, 2010

Model Portfolio Value As of 3 November 2010

$ 614,436


Thoughts

Repubs win the House; Dems keep the Senate- sort of-; and the Fed speaks at 1:15pm. Asia and Europe were mixed small overnight and U.S. futures suggest a flat opening. The election results were as expected and now the attention turns to the Fed program of adding more money to the economy. And thankfully the political ads and robo calls have ended.
*****

We sold the TWM for a 25 pennies loss in the early going. We are taking our loss on the trade and hoping we are wrong. We have no idea how the market will react to the Fed and we still own a large position in QID (double short NAZZ 100) as our negative balance to our long positions.
*****

Diane Swonk, Chief Economist Mesirow Financial
ADP Surprises on the Upside, but Still Weak

The preliminary report on employment issued by the payroll-processing company, Automatic Data Processing (ADP), suggests that the private sector continued to add jobs, but at a modest pace during the month of October. Moreover, the employment data for September was revised up slightly, which means that the private sector likely offset at least a portion of the declines that we have seen in the public sector.

Large companies, which had been supporting private sector gains, lost some ground during the month. Small and medium-sized businesses, however, posted gains which provided a ray of hope for hiring this fall.

The service sector was the big winner, as healthcare and some retailers (most notably restaurants) staffed up a bit, while construction and manufacturing continued to lose ground. The loss in manufacturing contrasts with the results of a survey by the Institute for Supply Management (ISM) plus anecdotal reports by the automakers, so manufacturing could end up posting an increaseinstead of a decline for the month when all the data is in.

The Bottom Line: Payroll employment likely reversed course and expanded again in October. Our own bet is that jobs increased somewhere in the neighborhood of 60,000, with gains in the private sector more than offsetting additional public sector layoffs. Those increases will not be enough, however, to reduce the unemployment rate. Indeed, we could even see the unemployment rate tick up slightly to 9.7% as discouraged workers try to re-enter the labor force and take advantage of seasonal hiring by retailers.
*****

We think banks and financials and large corporations will benefit from the Republican induced gridlock. With that in mind we initiated positions and added to GE in accounts today.
*****

Good Luck with this idea:

Mohamed A. El-Erian is chief executive and co-chief investment officer of the investment management firm Pimco, the world’s largest fixed income manager with over a trillion dollars under management.

... Simply put, these realities make it necessary for Washington to resist two years of gridlock and policy paralysis. Democrats and Republicans must meet in the middle to implement policies to deal with debt overhangs and structural rigidities. The economy needs political courage that transcends expediency in favor of long-term solutions on issues including housing reform, medium-term budget rules, pro-growth tax reforms, investments in physical and technological infrastructure, job retraining, greater support for education and scientific research, and better nets to protect the most vulnerable segments of society.

Success requires an element of policy experimentation as well as confidence that mid-course policy corrections will be identified and undertaken on a timely basis. And such efforts must be wrapped in an encompassing economic vision that acts as a magnet of conversion nationally, counters growing international frictions and facilitates much-needed global economic coordination.
http://www.washingtonpost.com/wp-dyn/content/article/2010/11/02/AR2010110207877.html
*****

The Fed is going to do a little more total buying of Treasuries ($600 billion new money plus $200 billion of maturing money) and a little less ($75 billion newly printed dollars) monthly ($110 billion total monthly buying including maturing) buying than the markets expected. Right before the announcement the DJIA dropped 60 points then rallied to positive on the announcement before settling down slightly negative after ten minutes of trading.

By the way, the Fed says it will keep interest rates lower forever and ever and ever or until.....
*****

Oil ended with an $84 handle and Gold closed at $1333. Europe closed before the Fed announcement and was lower.
*****

(Reuters) - U.S. auto sales hit their highest growth rate of 2010 in October while the largest automakers Toyota Motor Corp) and General Motors [GM.UL] sputtered behind rivals amid the gradual industry recovery. Still reeling from the aftermath of a wave of safety recalls earlier this year, Toyota posted a 4 percent sales decline. The top global automaker was the only company to report a drop in sales for the month. GM, which is expected to provide pricing details on its planned IPO as soon as Wednesday, reported a 3.5 percent sales increase overall supported by its pickups and SUVs. Other major automakers all posted double-digit gains.

Ford Motor continued to gain share in its home market with a 19 percent sales increase overall, supported by pickup trucks. Ford trailed GM for the U.S. top spot in total sales, but widened its lead over the No. 3 seller in the U.S. market, Toyota. J.P. Morgan analyst Himanshu Patel called the Ford result "better than expected." Ford shares were up more than 4 percent on Wednesday afternoon, hitting their highest level since 2004.

U.S. auto sales sank to the lowest levels in more than a quarter century in 2009 under the severe recession and so far this year have been recovering at a slower pace than the industry or its analysts had expected.

October auto sales reflected a slow recovery in consumer spending that has fallen short of initial expectations for the year, Nationwide chief economist Paul Ballew said.
*****

The major measures closed mildly higher in moderate trading. Techs and large bank stocks were higher.
*****

November 2, 2010

Model Portfolio Value As of 2 November 2010

$ 614,288


Thoughts

Asia and Europe were and are mixed small ahead of the U.S. elections. Gold is $1357 in the early going and Oil has an $83 handle.
*****

We initiated our TWM and SDS trades again this morning when the major measures moved almost 1% higher in the first half hour of trading. We also added QID (the double short NAZZ 100) to accounts that own KBE.
*****

European bourses closed higher.
*****

We took a 10 pennies loss on the SDS.
*****

We are leaving early but will be here tomorrow. At 1PM the major stock measures are higher (NAZZ +2%, S&P+1% and the DJIA up 0.8%) in light trading.
*****

 

November 1, 2010

Model Portfolio Value As of 1 November 2010

$ 615,760


Thoughts

Asia was higher except Japan and European markets are mixed as an interesting trading week begins. Gold is at $1363 and Oil has an $82 handle.

The Fed meets to decide on how much more money it is going to throw into the system to try and get the economy revving higher. Of course the elections will bring in a Republican majority in the House at least- or so the wise men/women say. Thursday brings individual retail sales for October and Friday the Employment Report with 60,000 new jobs expected. All in all, this week is an HFT paradise.
*****

Every day new acquisitions of companies by others are announced. That of course is good for the folks who own the acquired companies but usually bad for its employees any number of whom may lose their jobs. And so the FED floods the economy with dollars and companies use those dollars to acquire and fire instead of build and hire. And the beat goes on.
*****

We added SDS (double short S&P) and TWM (double short Russell 2000) to accounts in which we have been trading them.
*****

(WSJ) U.S. consumers spent only modestly ahead of the key holiday season despite very low prices as incomes unexpectedly fell in September for the first time in more than a year. Consumer spending rose 0.2% after increasing 0.5% the previous two months. Incomes, meantime, fell by 0.1% after a 0.4% rise in August. It was the first decline in incomes since July 2009. Economists surveyed by Dow Jones Newswires had forecast spending would climb by 0.4% in September. Incomes were expected to increase by 0.2%.
*****

Diane Swonk, Chief Economist, Mesirow Financial

Consumers Tap Saving to Spend in September

Consumer spending increased 0.2% in September, despite a 0.1% drop in income during the month. As a result, the saving rate continued to decline over the month, reflecting the consumer's desire to spend in the face of ongoing economic stress.

Much of the "drop" in income can be attributed to distortions to income growth created by extensions to unemployment insurance, which added more than $20 billion to income last month, but disappeared this month. A drop in public sector employment also took a toll on income growth, particularly as budget cuts at the state and local level intensified.

Separately, both overall and core measures of consumer inflation based on the spending data moderated in September from August. This is unwelcome news to Federal Reserve Chairman Ben Bernanke who is worried about the destabilizing effects of disinflation and/or the risks of a more broad-based deflation.

The Bottom Line: Consumer balance sheets remain frail and slow to heal, one of the many reasons the Fed will use to justify its attempts to stimulate the economy further at the conclusion of its meeting on Wednesday. Whether it will work or not is a complete unknown.

Construction Spending and ISM Rise

Construction spending increased an unexpected 0.5%, supported by a rebound in housing construction, but remains more than 10% below the levels that we saw a year ago. Commercial real estate remains particularly weak, as all that was in the pipeline has been built; any new money is going to purchase existing properties rather than build new.

Separately, manufacturing activity posted stronger than expected gains with the Institute for Supply Management (ISM) manufacturing index rising to 56.9 in October from 54.4 in September, a five month high.

Orders, employment, and inventories all expanded, which could help support the forecast for a modest increase in payroll employment in October. We are expecting payrolls to increase by about 60,000 during the month when the data is released on Friday, which marks a sharp turnaround from the 95,000 jobs that we lost in September, but will still not be enough to bring down the unemployment rate.

The Bottom Line: The recovery remains extremely uneven and driven by gains in multinational companies. The rebound in construction activity is welcome, but not enough to pop Champagne corks.
*****

The Repubs are not yet in power and already the War with Iran drumbeat commences: http://www.washingtonpost.com/wp-dyn/content/article/2010/10/29/AR2010102907404.html

David Broder suggests that war with Iran will solve our economic problems, yes, David Broder, the grand pooh bah commentator for the Washington post.

Can Obama harness the forces that might spur new growth? This is the key question for the next two years.

What are those forces? Essentially, there are two. One is the power of the business cycle, the tidal force that throughout history has dictated when the economy expands and when it contracts.

Economists struggle to analyze this, but they almost inevitably conclude that it cannot be rushed and almost resists political command. As the saying goes, the market will go where it is going to go.

In this regard, Obama has no advantage over any other pol. Even in analyzing the tidal force correctly, he cannot control it.

What else might affect the economy? The answer is obvious, but its implications are frightening. War and peace influence the economy.

Look back at FDR and the Great Depression. What finally resolved that economic crisis? World War II.

Here is where Obama is likely to prevail. With strong Republican support in Congress for challenging Iran's ambition to become a nuclear power, he can spend much of 2011 and 2012 orchestrating a showdown with the mullahs. This will help him politically because the opposition party will be urging him on. And as tensions rise and we accelerate preparations for war, the economy will improve.

 I am not suggesting, of course, that the president incite a war to get reelected. But the nation will rally around Obama because Iran is the greatest threat to the world in the young century. If he can confront this threat and contain Iran's nuclear ambitions, he will have made the world safer and may be regarded as one of the most successful presidents in history.

Can Limbaugh and Beck and Chris Mathews and all the other talking heads be far behind?
*****

Interesting article from Reuters on GM and the coming IPO:
http://www.reuters.com/article/idUSTRE69U0X820101101?pageNumber=1
*****

We sold the TWM for 40 pennies profit and the SDS for 35 pennies profit.
*****

Our tech guru says that if the S&P 500 closed on its lows today after opening 1% higher that a Soup Nazi sell signal will have been generated, in case you were wondering.
*****

The Regional Bank ETF is down 4% today. That drop may be related to the announcement that M&T banks will acquire Wilmington Trust in a take-under. The take-under price is 40% below Friday’s close.
*****

Gold lost $6 to $1351. Oil ended up $1.28 at $82.43. European bourses closed mildly higher.
*****

Indiana Braces For Violence, Adds Armed Guards To Unemployment Offices In Anticipation Of 99-Week Jobless Benefits Expiration

http://www.zerohedge.com/article/indiana-braces-violence-adds-armed-guards-unemplyment-offices-anticipation-99-week-jobless-b
*****

Well the Soup Nazi is heading back to the kitchen as the Major measures closed mixed after being 1% higher in the early going. The HFT boys and girls had fun and we made a few dollars for our trading accounts. Apple held above $300 and that stock is this markets finger in the dike. Breadth was negative at the close and volume light.
*****

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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