1/27/11…income or growth?

TB saiz: If a party turns on itself, who loses? It and the people!


The U.S. economy grew 2.8% in Q4 missing estimates. Backing out Inventories which added 1.9%, it grew at just 0.8%. For the entire year the economy expanded at just 1.7% vs 3% in 2010. Meanwhile the Core Price Index rose just 1.1%, least in a year and Real Disposable Income rose at just 0.8% on Q4. Consumer Spending in Q4 grew at just 2%, also less than forecast. Spending on Equipment and Software rose at just 5.2%. Government Spending in U.S. fell 2.1% for the entire year, the most since 1971…tea party: is this a good thing? Meanwhile even the Savings Rate fell to 3.7%, lowest since Q4 2007!


Market Reaction: Stock futures lower: Dow -52; SPX -6.50; NDQ -5.50. Bonds stronger with 30’s now 3.08%. In this environment the big winners are TIPS: 30 yr is up 1-3/16 to 0.56% while the 5 year yields 1.33% LESS than the inflation rate! There is a big bet!!! 10 year is now -0.24%! Little change in dollar or commodities, except Crude which is back below $100.  


If we try to balance the budget, fail to revise the tax code (which cannot and will not happen in an election year especially considering where the money is coming from for the hopefuls), we are dooming ourselves to slow growth and without higher wages and more jobs it will be impossible to raise the savings rate…ask yourself: is this a good thing?


Bloomberg Top Stories:


*Greek Debt Dispute May Trigger Default Swaps as EU Sees Deal – isn’t that special???

*Lagarde Keeps Pressure on Greek Creditors for Better Offer as Talks Resume

*Euro Strengthens After Italy Bill Sale; Treasuries Drop Before GDP Report

*Fighting Bernanke Hazardous in Gundlach View of Housing Market

*P&G Cuts Full-Year Profit Forecast on Unfavorable Currency Exchange Rates – oh, oh!

*Ford Falls Short of Estimates While Reporting Biggest Profit Since ‘08

*Legg Mason Net Income Tumbles 54% as Managing Fees Decline on Lower Assets

(poor performance and the loss of the legendary Bill Miller running flagship fund!)   

*Lehman Investors Traded $32 Billion of Bankrupt Company’s Debt Last Year

*Record Pace of Bond Sales Cools as IMF Downgrades Economy – where is safe harbor?

*Most Profitable Carry Trade Spurred by Colombia’s Interest-Rate Increases

*Eastman Will Buy Solutia for $4.7 Billion to Expand in Specialty Plastics

*Canadian Province Sales Reach Record as Fed Pledge Spurs Yield Grab

*Insuring Organic Crops is Money Loser for U.S. Taxpayers

*Ackermann Era Ending in Davos as Deutsche Bank Chief Poised to Cede Power

*Incredible Shrinking Bankers at Davos See Humbler Future as Austerity Hits – hmmm?

*Romney Run Seen Costing Private Equity as Public Pensions Warn of Backlash

*Romney Assails Gingrich on Campaign Tactics, Policy Push for Apology

*Monti Takes on Italian Bureaucracy in Latest Effort to Rejuvenate Economy     


Volume climbed even higher to an above average 4.5B shares from 4.39B shares in a MIXED session where the Dow struggled to stay positive but closed off 22 points Only Dow Transports and Utilities were up, but not much. NYSE stocks executed on the Big Board rose to 866M shares from 830M shares, still about 200 million short of the twelve month average. 49 of the last 52 sessions have been less than 1B! Advance/Declines were slightly negative: -1.1:1 vs +3.3:1 vs +1.2:1 vs +1.4:1 vs +1.4:1on NYSE and -1.2:1 vs +2:1 vs +1.5:1 vs -1.2:1 vs +1.5;1 on Nasdaq. Breadth was similar: -2x vs +3.4x vs +1.2x vs +1.4x vs +1.2x on NYSE and -2x vs +2.8x vs +1.2x vs -1.1x vs +1.4x on Nasdaq. New 52 week highs soared to 370 from 276 while new lows were slightly lower at 20 vs 23. The ratio jumped to 19x positive! The S&P VIX rose to  18.57 +.26. Investors still unwilling to put their money where their mouth is except day and high frequency.

Here are the results of the past five sessions: Dow -0.2% vs +0.6% vs -0.3% vs -0.1% vs +0.8%; Transports +0.4% vs +1.5%v vs -0.7% vs -0.8% vs -0.4%; Dow Utilities +0.1% vs +1.6% vs -0.8% vs +0.3% vs +0.3%; S&P 500 -0.6% vs +0.9% vs -0.1% vs +0.1% vs +0.1%; Nasdaq Composite -0.5% vs +1.1% vs +0.1% vs -0.1% vs -0.1%; Nasdaq 100 -0.5% vs +1.3% vs -0.1% vs flat vs -0.2%; Russell 2000 -0.3% vs +0.9% vs +0.7% vs -0.2% vs +0.3%; NYSE Financials -0.4% vs +0.5% vs -0.4% vs +0.6% vs +1%. NYSE Leaders: BAC -0.7% vs +0.8 vs +0.6% vs +2.6% vs +1.6% vs +2.4%; PFE-0.4%; F-1.1% vs -0.9% vs +1.3%; T -2.5%; WFC -3.8%..


European equity markets weaker, Asia better except Japan: FTSE -0.5% vs +1.2% vs -0.7% vs -0.8% vs -0.1%; CAC 40 -0.5% vs +1.2% vs -0.9% vs -1.1% vs -0.5%; DAX +0.2% vs +1.5%; Nikkei -0.4% vs +1.1% vs +0.2% vs -0.5% vs +1.5%; Hang Seng +0.3% vs +1.6%; Korean KOSPI +0.4% vs +0.3% vs +0.1%; Indian Sensex +0.9% vs closed vs +0.5% vs +1.5% vs +0.4% vs +0.6%. U.S. Futures slightly weaker, but coming back from session lows: DOW -21; SPX -2; NDQ +0.50. Bonds weaker again: 10’s still below 2%, 30’s still above 3%. 10 yr 1.94% -1/16. RECORD low 9/23 of 1.6855%; 30 yr 3.11% -7/16; Long TIP 0.70% UP 3/8; 0.57% at high. The 5 yr TIP yields MINUS 1.21% vs -1.24%!!!; 10 yr -0.22%. 3 mo. Libor 0.55%, and 0.79%, steady. Bills 0.04% 1 month; 0.05% 3 months, 6 months 0.07%. Reverse Repo 0.16%, steady.

Gold had another stellar session roaring $26.90 to close at $1728.80 with an intraday high of $1731.50 for the highest close since 12/6! It is well above the 200 day ($1647), and has been above $1600 for 12 straight sessions. It is now $1725.80 -$4.10. The record high is $1923.70, a buying climax on 9/6. Sup is $1667, the 50 day, further support $1653, the 40 day m/a. Res is $1770, the 12/2 high! Crude did not participate in the metals rally, closing at $99.70 +.30. It is now $100.21 +.51, and weak with resistance/support at $100 and further support at the 40 day (99.50), the 50 day (99.28), and $95.20, the 200 day.


…”my sister…my mother, my sister…my mother.” Remember that Faye Dunaway quote from Chinatown and the admonition to not go there? With stocks the bet is whether growth or income being the place to be in 2012. TB thinks it is income again, meaning solid dividend payers, good preferreds, and mortgage REITS (only with govt. guaranteed mortgages!). That is not to say that both classes may underperform but despite the Fed’s outlook of slow growth out to 2014 at least (a mid-term election year by the way), how much is left in bonds? Well, at least more than the room for money market yields to decline. The question is: is the Fed trying to dissuade savings? Consumption is key to our economy but so is rebuilding solid balance sheet for the populace. It will serve nothing to force growth when debt levels remain high, jobs remain scarce and pay raises…except for CEO’s and friends…can’t even keep pace with the low inflation rate.


Remember the best performing sector last year in stocks? Dow Jones Utilities! They were UP 19.7% (with reinvested dividends) for the entire year and aside from three blips had pretty steady growth. That gain has shrunk to 16.9% though since yearend. Just like the Dow, which was the best performing pure stock index, which rose 8.4% the key was DIVIDENDS! But unlike Utilitites, the gains have continued so far and it is now up 13.1% for the extended period. Note however that the dividend YIELD has shrunk dramatically for both over this time period and since Utilities depend much more on the dividend they are underperforming so far this year. The dividend yield on the Dow is down to 2.5% while Utilities yield 4.04% down from a healthier 5%(?). Look before you leap into anything these days…it’s a jungle out there!


. . .   – – –  . . . note that the same old SOS applies…perhaps more so!

Another mea culpa: TB hates that but in talking about unemployment he slipped saying ‘inflation’ which gave it an entirely different meaning. What he meant was that we will not see the ‘headline’ unemployment rate below 7%…6.7% until 2014. They should be careful saying even that as look how the GOP has called Obama a liar for promising lower unemployment while fighting the GOP and as local governments continue with layoffs due to their own budget problems…not a good thing. TB also pointed out the REAL unemployment rate including discouraged workers and part-timers who want an need full-time jobs is stuck at 16%…last night Gingrich said it is 18% in Florida. Thanks to those of you who commented as it is hell being the ‘all-night DJ’ and not knowing if anyone is really out there.


TB is a masochist…this can be confirmed by the fact that he has listened to nearly every GOP debate hoping for some words of wisdom but instead only hearing how to blast your opponents without expletives. The only ‘pearl’ last night was Rick Santorum, who stands no chance of getting the nod, saying while they are trashing one another, they are handing the election to Obama. Anyone but Obama, anyone?


Now for a prediction…one that TB can’t take credit for as it was espoused by none other than Robert Reich: Hillary will be the VP on the ticket. No sooner had Reich written that then it was labeled preposterous by the pundits. But the announcement of her resignation to go home and be a good wifey and rest up, is even more preposterous. She is the consummate politician and if ‘drafted’ by Obama would certainly run with him. That would set her up for the presidential run she so desired/desires. TB heard that she has been the most admired woman for the past TEN years…imagine what has gone on over that time frame, much of it including her. Place your bets, boys and girls…


As for Obama, he would be wise to choose her over Biden who always looks bored at the SOTU speech and who Reich says wants to be Secretary of State. The GOP has made it so easy for him…he doesn’t have to pay to create ads, just reproduce the ones the GOP candidates have done blasting whoever becomes the eventual candidate. The wheels have come off the GOP and the Tea Party isn’t going to like it. All Obama has to do is look…well…presidential.


Have a great weekend, this week really flew!




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