October 5, 2007, iTulip

Today we roll out our United Banana Republic of America (UBRA) flag as we dig into the Labor Department’s numbers to see where all these jobs came from, but the fact is that our projection was wrong.

The good news: unemployment is only slightly up. The bad news: the banana republicization of America is proceeding apace.

Payrolls Pick Up by 110,000 but Not Enough to Stop Jobless Rate From Rising to 4.7 Percent

The new job market snapshot released by the Labor Department on Friday showed that employers boosted payrolls by 110,000, the most in one month since last May. In an encouraging note, the economy actually added 89,000 jobs in August. That marked an improvement from the net loss of 4,000 that the government first estimated.

To be sure, the ill effects of these problems are showing up at some companies. Construction firms cut 14,000 jobs in September, Factories slashed 18,000. Retailers got rid of just over 5,000 jobs. Financial services companies eliminated 14,000 slots.

However, gains in education and health services, professional services, leisure and hospitality, and in government work more than offset those losses, leading to a net gain in new jobs in September.

The magic of a depreciating currency is working. Foreign investors are buying UBRA stocks and other assets at fire sale prices. Tourism is up as visitors from Asia, Europe, Canada and all other countries whose currencies have appreciated against the bonar flock to visit the US for a cheap UBRA vacation, driving leisure and hospitality jobs within the service sector where most of the job growth occurred.  More …

October 4, 2007, iTulip

Today investors were again surprised by a Labor Department report that showed a gain in jobless claims and a drop in factory orders.

The Associated Press reports today that “Wall Street appears optimistic the Labor Department report Friday will indicate a rebound from August and include revisions to that month’s dismal numbers. August’s job creation report showed a decline in payrolls when economists had predicted a rise, and sent the Dow Jones industrial average down nearly 250 points the day it was released.”

AntiSpin: We’ve been tracking the duration of unemployment numbers because they, combined with other data, are a decent leading indicator of future unemployment, especially at turning points.

Early in an economic slowdown, six months or more before companies lay off employees, they slow then stop new hiring. As thousands of employers reduce then stop hiring as the economy slows, anyone who is laid off experiences finding a new job takes longer and longer.  More …

October 2, 2007, iTulip

Stocks Surge on Rate Cut Hopes
By JOE BEL BRUNO – 22 hours ago

NEW YORK (AP) — Wall Street shot higher Monday, sending the Dow Jones industrial average above 14,000 for the first time in 2 1/2 months as investors moved back into stocks at the start of the fourth quarter.

AntiSpin: Wall Street, of course, wants retail investors to focus on the price of securities, not the underlying risk. Prices may be rising, but risk rising faster.

The risk-adjusted return on stocks and bonds has been falling since iTulip re-started March 2006. The growing risks, in line with models going back to 2000, are: inflation and default, both corporations and bonds. The Fed’s bind is that all available tools to control one risk increases the other. The recent credit crunch was a forcing function that caused the Fed to chose one over the other by cutting rates 50 basis points, thus tipping its hand.  More …

September 27, 2007, iTulip

Dear iTulip,

As always, thanks for sharing your knowledge and insider access with our online community.

I have been a bit puzzled by EJ’s diagnosis of the housing market being composed of 50% fictitious value. It is stated that housing has historically risen at the rate of inflation. Since the CPI is no longer an accurate measure of inflation, shouldn’t the Shadowstats CPI be the benchmark? Seems to me the 3.3% historical average is no longer realistic based on today’s government abuse of our fiat currency.  More …

September 26, 2007, iTulip

by John Rubino

Yesterday I took part in a roundtable discussion with some seriously smart, articulate money managers, two of whom are putting their clients into foreign stocks. Well-run companies with nice dividends in fiscally-sound countries will outperform, they said. And a rising euro or yen or yuan will actually be a great thing for their countries when the dollar really starts to tank, because a rising currency will make these countries far richer. Their companies will be able to buy up foreign assets and their consumers will become engines of growth as they snap up increasingly cheap food, cars and toys.  More …

September 20, 2007, iTulip

Didn’t take long for US creditors to figure out that whether the US economy sinks from the economic impact of the collapsing housing, private equity, and other bubbles or is kept afloat by inflation, they lose either way.

Fears of dollar collapse as Saudis take fright
Sept. 20, 2007 (Ambrose Evans-Pritchard - Telegraph UK)

Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.

“This is a very dangerous situation for the dollar,” said Hans Redeker, currency chief at BNP Paribas.

“Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States,” he said.

The Saudi central bank said today that it would take “appropriate measures” to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg.

AntiSpin: Here at iTulip we call this process “Poom” and it ain’t pretty. “Poom” is the back end of the Ka-Poom Theory disinflation/inflation cycle that is both monetary cause and effect of the bubble cycle. The bubble cycle replaced the business cycle as the focus of monetary policy since the finance-based economy, popularly mis-labeled the “service economy,” aka the FIRE Economy, became the centerpiece of US national industrial/economic policy starting around 1980.  More …

September 18, 2007, iTulip

Decision September 18, 2007

11AM Eastern Time US

Summary: The majority of the iTulip ShadowFed Board agreed that the FOMC today will lower rates .25% today, take a cautious stance on inflation, note improvements in the credit markets, and note mixed performance in the economy

What the Fed will do: .25% cut

What the Fed should do: No cut

If the post count on the iTulip ShadowFed member discussion thread this week is any indication of level of controversy about the Fed’s policy decision today, at 107 posts it’s never been higher. The last record was the March 2007 ShadowFed meeting thread with 95 posts. Compare that with the March meeting at three posts and you get a sense of how much discussion went into this vote.

The 12 member iTulip ShadowFed committee meets before each Federal Open Market Committee (FOMC) meeting to decide both what the Fed is likely to do and what the Fed should in fact do, from the ShadowFed’s perspective.  More …

October 10, 2007, iTulip

A Distilled Markets and Macroeconomic Letter
October 2007

In my opinion, the Fed made an aggressive move in cutting their target rate by .50%. Many people were surprised by this including myself. The Dollar has moved down significantly. I don’t think this will solve the issues at hand. This seems to be a preemptive cut and my guess is that they are worried about deflation from a credit contraction.  More …

October 9, 2007, iTulip

The sliding US dollar is making headlines again.

This is the first of a several quick comments on the dollar to put the crisis facing the dollar into perspective. We address the questions, What’s pushing the dollar down? Why now? Where is the dollar headed long term?

We start with a look at a major factor, the United States’ current account.  More …

October 8, 2007, iTulip

by Dave Lewis - Dude, Where’s the Dharma?

“The language of the Social Security Trust Fund gives the illusion that it is an investment fund with tradable economic assets that can be held until needed to pay the benefits of future employees. But it is a fund in name only. It holds no real assets. Consequently it does not generate funds to pay future benefits. These so-called trust fund “assets” (essentially US Treasury IOUs) simply reflect the accumulated sum of funds transferred from Social Security over the years to finance other government operations.” - Former Congressional Budget Office Director June O’Neill

My previous post was written under the assumption back when Adam Smith wrote the Wealth of Nations, the preferred phrase was “under that head,” meaning belief structure … that Social Security was actually a Fund whose investments included nearly $2 trillion worth of Treasury Securities, albeit of the non-marketable variety, kind of like Savings Bonds.  More …

October 5, 2007, iTulip

by Dave Lewis

Time flies when you’re making money: 19 years have sped by since the start of the great bond bull market. So traumatic was the preceding bear market (it spanned the administrations of U.S. Presidents from Harry Truman to Ronald Reagan, 1946 to 1981) that fixed-income investors took a pledge: Never again would they be the dupes of a central bank. They would henceforth sell at the first sign of inflation.

So market interest rates would increase before the U.S. Consumer Price Index could spurt. The Fed might nod off, but the bond market vigilantes pledged they would never sleep again.

Now look at them. With a generation’s worth of capital gains tucked under their ample belts, they are snoring in hammocks or swatting golf balls. Financial markets the world over are worse off for their unannounced retirement. - James Grant

Many financial commentators have opined on the absence of the “bond vigilantes” from the US Treasury market. Bond traders now willingly accept low yields in the face of broad based commodity inflation, which hitherto would have, according to Mr. Grant, whose views I highly respect, above, inspired significant selling from the now “sleeping” bond vigilantes. I’ve been doing a bit of checking on the US bond market and think I have a few answers to the question, “where did the bond vigilantes go?,” although a better question might be, “whose efforts have swamped bond vigilantism in the Treasury markets?”  More …

October 3, 2007, iTulip

In the Wild Wild West of mortgage sales, the hills were full of mortgage gold

by Bryan Copley

Editor’s Note: iTulip is pleased to add Bryan Copley to its lineup of finance industry insiders writing about what they know. He worked in the mortgage industry during the bubble years and continues to work in the industry today. These are his war stories from the front lines of the credit bubble.

Picture this: you’re standing shoulder to shoulder in a room the length of a football field overflowing with howling, raucous young men. The leader of the pack is being hoisted upside down over a freshly primed and pumped keg full of beer. The whole throng erupts as he performs an honorary keg stand, suds gushing from his mouth, an appropriate salute to the members of this wild organization. You’re no doubt present for the induction ceremony at a local university frat house.  More …

October 1, 2007, iTulip

by Ben Stooge

Brainy types want to control and regulate the goo companies and tax them until they are ready to call it quits. Why subsidize with one hand and tax and regulate with the other? That’s like the government buying a hooker for a congressman then making him wear a raincoat. What’s the point?

(Editor’s Note: We have readers who claim to be unable to tell which column is the parody and which is the original. We’re pretty sure Ben Stooge’s column is parody, but these days you never know.)

I’ve done such a good job revising the history of my bad financial advice that you actually believe I’ve done you a service. Today I’m going to defend the poor, maligned, beleaguered, and downtrodden US oil industry.

Magical Pre-charged Chemical Battery

Billions of batteries are buried underground. Can you believe it? All we have to do is dig them up. We don’t even have to charge them. That’s been done for us by the sun back when struthiomimus, hadrosaurs, and dimetrodon roamed the steamy permian jungles. Huge leafy plants turned the sun’s energy into cellulose and other compounds. Then, over hundreds of millions of years, those compounds rotted into a stinking, gooey, black liquid that today run a hedge fund manager’s $1.7 million Bugatti Veyron. That’s a lot of pricey technology riding on dirty, old plant rot, isn’t it? Time to think about a newer, cleaner, renewable form of energy?

Nah, read on.  More …

September 26, 2007, iTulip

by Eric Janszen

Inflation versus deflation debate keeps contrarian economics and finance pundits pontificating for ten fabulous years. Fed flushes banks with funds and a fresh flurry of articles fills the blogosphere. Finally, the “financial economy” enters.

I’m glad to see the term “financial economy” entered the vocabulary in this inflation versus deflation discussion with a recent note I got from Aaron Krowne. We didn’t pick up on the idea until Bill Gross started talking about it in The Last Vigilante (Gross, Feb. 2004)  More …