Fin/Inv

Hat tip to Ken Lay in comments for finding this. Take a look at Henry Blodget's piece on the current income distribution in the US:


My Take:

Its official. We are all nothing but a large group of serfs now after being robbed by the oligarchy in this country. As you can see above, the disparity in income distribution has now officially passed the heydays seen in the roaring '20's.

Half of the wealth in this country is now owned by the top 10% of income earners. This is quite remarkable considering the economic plunge that we experienced last year.

Isn't it interesting that the criminals that caused this nightmare are wealthier than ever before?

Meanwhile, as the oligarchs thrive after pillaging the taxpayer, the average serf in America is left with a 50% loss in their retirement portfolio, massive debts, and no job. Why doesn't anyone seem to care? I just don't get it.

History has shown us that if you let bankers run wild without regulation, they will eventually empty the wallets of everyone around them. When its all said and done, whats happened here in the US will be known as the greatest heist in the history of the world.

To this day I will never understand how Congress allowed this to happen. What's even worse is the fact that they are now allowing the American public to be raped once again by forcing the taxpayer to replace the consumer in the form of the Fed.

The Federal Reserve has become nothing but a giant wallet for Wall St. It's clearly evident that this recent move in the markets was generated almost exclusively using their balance sheet along with smoke and mirror accounting that allowed the oligarchs to hide their losses and "look" profitable once again.

What disgusts me most here is the fact that Wall St will once again be able to lavish themselves with huge bonuses based on the illusion that they are profitable. Everyone knows this is a lie. Almost all of these banks are insolvent. Congress knows it too and its a damn shame that they refuse to do anything about it.

The consumer sentiment number was horrible today because 90% of America is suffering as a result of a crashing economy. The only people getting richer at this point are the people that don't need the money.

ITS TIME TO RISE UP AND STOP ALL OF THIS NONSENSE!

This is an absolute outrage!

TURN OFF AMERICAN IDOL AND GET INVOLVED PEOPLE! WRITE YOUR CONGRESSMAN!

TELL THEM THE BAILOUTS STOP NOW OR YOU WILL BE VOTED OUT OF OFFICE!

I am so tired of watching all of this stupidity. I think I will call it a day. Sorry for the rant. When I see this stuff I just want to vomit.

Weiter geht es mit dem üblichen Zweckoptimismus: "US-Industrie über Erwartungen - Die Industrie in den USA hat ihre Produktion im Juli überraschend deutlich gesteigert und damit Hoffnung auf ein Ende der Rezession genährt."

Die US-Industrieproduktion ist nach den heutigen Daten der US-Notenbank (FED) im Juli 2009 das erste Mal seit 9 Monaten wieder gestiegen, um +0,5% im Vergleich zum Vormonat. Im Vergleich zum Vorjahresmonat fiel der Output der Industrie allerdings um -13,1%!

> Im Chart die monatliche prozentuale Entwicklung der gesamten Industrieproduktion seit 1976, jeweils im Vergleich zum Vorjahresmonat. <

> Die Entwicklung des Total-Industrieproduktionsindex von Januar 1985 - Juli 2009. Der Industrieproduktionsindex stieg auf 95,9709 Punkte, nach dem Tief im Vormonat mit 95,4571 Punkten - dies entsprach dem Stand von Juli 1998! Das Hoch wurde im Dezember 2007 mit einem Indexstand von 112,3962 Punkten markiert! <

Der US-Index der Industrieproduktion misst die Leistungsveränderungen, die Menge des Produktionsausstoßes im verarbeitenden Gewerbe, aus den Fabriken, den Bergwerken und bei den Energieversorgern und nicht die erzielten Umsätze.

Die Produktion in den Fabriken, der Manufacturing Output sank im Juli um -14,4% im Vergleich zu Juli 2008!

Diese Langfristcharts sprechen Bände, dem größten Einbruch der Industrieproduktion aller Zeiten, folgte im Juli eine marginale Gegenbewegung kaum im Chart erkennbar. Es kann ja auch nicht nur linear abwärts gehen! Allerdings ein gewichtiger Teil des Anstiegs der gesamten Industrieproduktion von +0,5% zum Vormonat ging auf das "Cash For Clunkers" Programm! Um +17,4% stieg im Juli der US-Output der Autoproduktion an! Auch wenn eine Abwrackprämie eine fragwürdige Veranstaltung ist, da auf Grund dieser, die Nachfrage nur vorgezogen wird, zeigt Cash for Clunkers bei einem staatlichen Einsatz von nur 1 Mrd. Dollar im Juli, doch einen bemerkenswerten Effekt. Man stelle dem mal die Billionen Dollar an Hilfen des Staates und der Notenbank für das Bankensystem gegenüber und deren realwirtschaftliche Nulleffekte!

Nachdem im Vormonat Juni mit einer Kapazitätsauslastung von 68,1% für die gesamte US-Industrie ein Allzeittief seit Januar 1967 generiert wurde, stieg die Kapazitätsauslastung im Juli auf 68,5 Punkte! Wow, "was für ein Boom" - nur der Juni und der Mai 2009 waren seit 1967 schlechter. Der bisherige Tiefpunkt lag bei 70,9% im Dezember 1982! Im Juli 2009 lag die Kapazitätsauslastung mit 68,5% gewaltige 15,76 Prozentpunkte unter dem langfristigen Durchschnitt von 1967-2008.

> Die Kapazitätsauslastung der US-Industrie seit Januar 1967 im Chart. <

Eine erste kleine Gegenbewegung bei der Kapazitätsauslastung, nach einem unvergleichlichen historischen Einbruch wollen uns die Milliarden-Bonikassierer und ihre medialen Helfer als Ende der Rezession und als ein Produktivitätswunder verkaufen!

Die minimale Gegenbewegung des industriellen Outputs spiegelt sich demzufolge laut den letzten Daten des Bureau of Labour Statistics auch nicht in den Beschäftigtenzahlen im verarbeitenden Gewerbe im Juli wider!

> Auch im Juli 2009 sank die Zahl der Jobs in der Industrieproduktion (Manufacturing) um -52'000! Die noch 11,817 Millionen Beschäftigten in der US-Industrieproduktion markieren von der Anzahl her den tiefsten Stand seit Mai 1941, damals waren es 11,957 Millionen Beschäftigte. Im Juni 1979 wurde mit 19,553 Mio. Beschäftigten der höchste Stand verzeichnet. <

Die industrielle Wertschöpfung ist weiter auf einem besorgniserregend niedrigen Niveau. Ohne kräftige Investitionen in Wertschöpfung und daraus entstehenden neuen Jobs und Einkommen wird eine nachhaltige Wende nicht gelingen, trotz ein paar möglichen kleinen Erholungsversuchen!

Auch das Vertrauen der US-Konsumenten in ihre Finanzblasenökonomie fällt wieder, der Consumer Sentiment Index sinkt in der vorläufiger Ermittlung für August auf 63,2 Punkte!

> Das Verbrauchersentiment der Uni Michigan und Reuters seit Januar 1978. Im November 2008 markierte der Consumer Sentiment Index mit 55,3 Punkte ein 28-Jahrestief! Das sinkende Verbrauchersentiment kann man als Vorbote für schwächere Konsumausgaben sehen. <

Die US-Einzelhandelsumsätze waren auch im Juli schwach, die Retail and Food Services Sales fielen um -0,1% zum Vormonat und um -8,3% zum Vorjahresmonat auf 342,309 Mrd. Dollar. Ohne den Anstieg der Autoverkäufe, wegen der 4'500 Dollar US-Abwrackprämie, wären die Einzelhandelsumsätze sogar um -0,6% zum Vormonat gefallen!

In their research paper "The Value of Enterprise Risk Management," Robert Hoyt and Andre Liebenberg attempt to uncover whether there is firm value in implementing Enterprise Risk Management (ERM). As the authors discuss, ERM has generated considerable interest from the media in recent years as organizations begin implemented enterprise-level risk management programs, and consulting firms and universities look for ways to offer support, guidance, courses, and services related to ERM. Rating agencies have also begun to consider ERM in the rating process, and regulators are taking notice. The ideas of enterprise and system-wide "systemic" risk are also now being given serious consideration at the economic system level.

Put simply, ERM is focused on the idea that instead of managing and examining individual and separately managed silos of risk, firms are now looking at managing risk in a more integrated, enterprise-wide fashion. It is believe that doing so will help to avoid duplication of risk management expenses by exploiting natural hedges, and allow firms to better understand the aggregate risk. ERM programs also have the benefit of allowing firms to better inform outsiders (investors, regulators) of their risk profile, compared to firms that are more operationally complex. It is expected that such added visibility has the benefit of decreasing earnings and stock price volatility, increasing capital efficiency, and increasing enterprise risk awareness - allowing for more holistic operational and strategic decision-making. But enough flowery language. Does it work, and will it increase shareholder wealth?

[Note: I have offered university-level ERM courses in the past, and will do so again in the near future. Unfortunately, up until now there has not been an empirical study regarding the impact of ERM programs on firm value. Needless to say, I was interested in the results of the research.]

First, a little research background. For the study, the authors focused their attention on U.S. insurers in order to control for regulatory and market differences across industries. Financial institutions and insurers have been some of the first industries to adopt ERM, so this focus makes sense. Without going into further specifics of their modeling and analysis (please refer to the paper), the authors found:

"ERM usage to be positively related to factors such as firm size and institutional ownership, and negatively related to reinsurance use, leverage, and asset opacity. By focusing on publicly-traded insurers we are able to estimate the effect of ERM on Tobin’s Q, a standard proxy for firm value. We find a positive relation between firm value and the use of ERM."

In fact, beyond just adding value, the ERM premium was 16.5%, and found to be both statistically and economically significant, as well as being robust to a range of alternative specifications of both the ERM and value equations. In summary, it appears that added risk management disclosures inherent in ERM add value to the firm. As a bonus, by adding additional risk management transparency, firms are likely to reduce the expected cost of regulatory review, along with the amount risk capital that is allocated for less productive/profitable uses, each of which no doubts helps to increase firm value. Certainly something the proponents of ERM believed, but now there is some initial evidence to back up the claims - at least for insurance companies.

Of course, as investors, knowing that ERM adds value to a firm is good, but now it is necessary to determine which firms are in fact using ERM. Even the authors mention that identifying firms engaging in ERM is a challenge. Nonetheless, absent official disclosures, a search of financial reports and news wires (as performed by the authors) can help to locate candidates for study. Even with relatively strict filtering of data, the researchers were able to identify 117 out of 275 insurance firms that met the requirements of being classified as firms engaging in some type of ERM. As regulators begin to require additional transparency regarding risk management activities, such identification will become easier, and hopefully profitable to investors.

Even after the huge surge in the markets, the investors at Bespoke.com still are in the bearish camp. This is an unscientific poll and its hard to tell who the people are voting, but they have to be somewhat involved in the market to follow a site like this.This continues to support our bullish theme that investors still don't buy the recovery. Too many people look at how far the market has come

"There are 3 billion people in Asia who are trying to get a better life. People consume more sugar. People like sweets. Sugar is certainly going to go much, much higher during the course of the bull market", Jim Rogers, USA Today

"China has a huge water problem. In Northern China, they're running out of water. They know this and they're working on it, big time. But if they don't solve it or if they don't solve it in time, then China - as you put it - has failed." Money Morning

Check out this powerful speech from Ronald Reagan. He does a great job explaining how socialized medicine takes us one step closer to socialism.

This enforces my belief that the anger we saw at the town hall meetings last week went much deeper then simple health care reform. It represents a belief system that goes against everything this great nation was founded on.

Take a listen and lets hope that we can find strong leaders that will protect what our founding fathers fought so hard for:



I will have a market update later today.

According to the recent TIM (Trade Ideas Monitor) report for August 13th, the TIM Sentiment Index (TSI) in North America was 52.13, down 2.42 points, but still over the critical 50 mark (see last post, and previous post and the youDevise website for additional information on the TIM report). The TSI Worldwide Index averaged 53.40. Total new long ideas as a percentage of all new ideas sent to investment managers by way of the TIM remained high at 65.68%, but down slightly.

As for individual securities in the U.S. and North America, Cbeyond (CBEY), TW Telecom (TWTC), and Williams-Sonoma (WSM) were stocks with long broker sentiment, while Allegiant Travel (ALGT), Tellabs (TLAB), and Arch Coal (ACI) had short broker sentiment. In general, the utility, telecommunication, and consumer staples sectors had long broker sentiment, while the financial, material, and consumer discretionary sectors had short broker sentiment.

The University of Michigan consumer sentiment survey came out with much worse then expected results today. Why in fact is the consumer sentiment down in August from July? And why are consumers have such lower personal expectations while being more bullish on the national economy? My guess is that the media spent most of July and now August obsessing about job losses, foreclosures, and such that

It was only 5 short months ago, and prices on the major equity indices were below their simple 40 week moving averages. They were extremely below, and most were expecting some sort of snapback as the rubber band was stretched rather tightly. Well, the snapback has come and gone, and now we find prices on the other side of their 40 week moving averages, and oh by the way, we are entering extreme territory again (but on the other side of the 40 of course). The hot and cold market lives on as prices ping pong from one extreme to another.

FN: As these banks and more fail, and cash strapped FDIC is going to have to tap that $500 billion line of credit it setup with the Treasury. The question is, can the Treasury raise that kind of money when the time comes? Already serious signs of stress are evident in each bond auction as it becomes increasingly difficult to find enough buyers of US sovereign debt.

The KBW Regional Banking Index (KRX) is a good proxy for these troubled banks because it doesn't include the mega banks like Bank of America (BAC) and Citigroup (C) that tend to be treated especially favorably by the government.

Toxic Loans Topping 5% May Push 150 Banks to Point of No Return: "More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.

The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged. Almost 300 reported 3 percent or more of their loans were nonperforming, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full.

The biggest banks with nonperforming loans of at least 5 percent include Wisconsin’s Marshall & Ilsley Corp. and Georgia’s Synovus Financial Corp., according to Bloomberg data. Among those exceeding 10 percent, the biggest in the 50 U.S. states was Michigan’s Flagstar Bancorp. All said in second- quarter filings they’re “well-capitalized” by regulatory standards, which means they’re considered financially sound.

“At a 3 percent level, I’d be concerned that there’s some underlying issue, and if they’re at 5 percent, chances are regulators have them classified as being in unsafe and unsound condition,” said Walter Mix, former commissioner of the California Department of Financial Institutions, and now a managing director of consulting firm LECG in Los Angeles. He wasn’t commenting on any specific banks.

Missed payments by consumers, builders and small businesses pushed 72 lenders into failure this year, the most since 1992. More collapses may lie ahead as the recession causes increased defaults and swells the confidential U.S. list of “problem banks,” which stood at 305 in the first quarter."

The Quantifinder came up with quite a few studies last. Below is one that last appeared in the June 15, 2009 Subscriber Letter. (Stats are updated through 8/13/09.)

(click to enlarge)


This would suggest a pullback over the next few days is likely. While the pullback hasn’t necessarily been severe, it has been consistent.

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If you haven't taken a free trial before and would like to, simply click here to sign up and check out the Quantifineder and our other services. For those that may have trialed prior to the release of the Quantifinder in June, if you'd like another trial just send a request to support @ quantifiableedges.com (no spaces).

And remember, the Q1 2008 studies package comes free with all annual subscriptions.

Below are some links of interest for 8/14/09, just in case you missed them. Some have already been posted to Twitter.

• U.S. foreclosure activity hits a new record in July, increasing 7% from June and 32% for the year (Financial Times). The increase is being blamed in part on a lifting of previous foreclosure moratoriums.

• Retail sales fell 0.1% in July, even with the Cash for Clunkers program being considered - although August may include more data (WSJ). There were large declines in housing-related retailers and electronic stores. Stripping out autos, retail sales dropped 0.6%. Yet, there were some gains. Auto and parts sales increased 2.4% in July. In addition to autos, health and personal care stores, restaurants and bars, clothing, and mail order and Internet retailers were also up.

• The Federal Reserve plans to conclude its purchases of $300 billion in U.S. Government debt by the end of October (WSJ), in what may be both an admission that the Fed believes that the worst is over, and also a way to begin allowing long-term rates to move up, even as it plans to keep short-term rates near zero for the foreseeable future.

• Unemployment duration just keeps getting longer, even in good times (The Financial Ninja). This is increasing the need to emergency unemployment compensation (second The Financial Ninja article).

• Hotel occupancy fell 7.5% to end the week at 65.9%. RevPAR (Revenue per available room) for the week decreased 16.5% (Calculated Risk). Given that peak travel time is passing us by, this is not good news.

• When looking at quarterly report for Regions Financial, one wonders if the company is insolvent, even though the government says it is well capitalized (Bloomberg). Of course, that has not stopped investors from valuing the company near $6 billion. Meanwhile, looking at CDS market, 5-year protection written on Region's tier-2 debt is trading at spreads of 722bp over swaps (Reuters - Felix Salmon). What this implies (to Salmon) is "that bonds are the new stocks, and stocks are the new call options." Bonds are now giving you a high return for high risk. On the other hand, stocks run the risk of being wiped out entirely in return for the leveraged possibility that your investment could multiply in value in a matter of months. Of course, none of this seems to bother the stock or its investors. In the face of the Bloomberg story, the stock was up 7.9% Thursday, along with a 3.1% increase in the KBW Bank Index - much to the amazement of Michael Panzner (Financial Armageddon).
  

• Weak retail sales data caused an early correction in the futures market Thursday morning, but the market still rallied back on essentially no news (The Pragmatic Capitalist). This comes as rail data was also weak (second The Pragmatic Capitalist article). Is the market resilient or complacent? Is the move just short-covering and/or hedge fund managers trying not to get left behind?

• Based on available trading data, there seems to be a disconnect in short interest volume readings. The BATS short volume reading is accounting for over 46% of total volume, much more than the short interest data disclosed by the NYSE and Nasdaq ( Zero Hedge).
  

• Bespoke Investment Group has a list of the most heavily and least heavily shorted Russell 1,000 stocks. Chipotle Mexican Grill (CMG), and not surprisingly, AIG, top the most shorted list. CMG is still up 46.35% YTD. Of interest is that the average 2009 change for the most heavily shorted stocks, i.e., more than 20% of float, is 26.23%, almost double the gain for the overall market.
  

• In general, as the market has been moving up, the short interest ratio on the S&P 500 has been dropping, signaling a possible topping formation (The Disciplined Investor).
  

• The Pragmatic Capitalist worries that a weak hurricane season could cause crude oil prices to fall, dragging the stock market with it.

• The Coppock Curve technical indicator is continuing to rise and act bullish (Trader's Narrative). Then again, the S&P 500 would have to fall 200 points below 780 for the curve to stop climbing, so we could get the much talked about August/September correction before continuing to move higher later in the year, as some are expecting.
  

• The ratio of insider buying to selling transactions is 10 to 136 ($60.1 million buys to $1,146 million sells). There have been over $2.1 billion in insider sales over the last two weeks (Zero Hedge).

• Looking at inter-market returns YTD, crude oil is the best performer in 2009 - up almost 60%, followed by the Nasdaq - up 27% YTD, and the CRB Commodity Index - up 15% YTD (Afraid to Trade). The S&P 500 has risen 11% during the same period.

• In what seems to be daily hedge fund data, the Financial Times takes its turn reporting how traditional strategies such as equity long-short and convertible arbitrage continue to be the best hedge fund strategies for the year. Emerging market and fixed income arbitrage strategies are also doing well. Dedicated short sellers, not surprisingly, are getting killed. As the market continues to trend, black-box commodity trading advisers (managed futures) are once again generating interest after what has been a difficult year (Reuters). Anyone seen a SuperFund commercial lately?
  

• Looking at a recent 13-F, the John Paulson portfolio is heavily weighted towards three sectors: gold, financial stocks, and health care (The Pragmatic Capitalist). This basically results in three bets on seemingly different macro themes, possibly betting on re-inflation (gold, health care), while at the same time speculating on a recovery (banks).

• Researchers Mokoaleli-Mokoteli, Taffler, and Agarwal test whether sell-side analysts are prone to behavioral errors when making stock recommendations, as well as the impact of their investment banking relationships on judgment. The authors find that new buy recommendations on average have no investment value, whereas new sell recommendations do have value, although it takes time for the information to be assimilated by the market. Interesting research, and somewhat intuitive - or at least it should be. It looks like buy recommendations involve selling, and sell recommendations involve selling, ......., just different kinds (Bull Bear Trader).
  

• The MarketSci blog provides a nice breakdown of the quant analysis blogosphere into three components - situational analysis, mechanical strategies, and academic thinkers - and provides references for each.
  

• New Morningstar 5-star stock: SunPower Corporation (SPWRA).

In their paper "Behavioural Bias and Conflicts of Interest in Analyst Stock Recommendations," Journal of Business Finance and Accounting, authors Mokoaleli-Mokoteli, Taffler, and Agarwal tests whether sell-side analysts are prone to behavioral errors when making stock recommendations, as well as the impact of their investment banking relationships on judgment. The authors find that new buy recommendations on average have no investment value, whereas new sell recommendations do have value, although it takes time for the information to be assimilated by the market. They also find that new buy recommendations are distinguished from new sells both by the level of analyst optimism and conflicts of interest (no surprise there). Of interest, successful new buy recommendations are characterized by lower prior returns, while successful new sells do not differ from their unsuccessful counterparts in terms of these measures.

Interesting research, and somewhat intuitive - or at least it should be. New buy recommendations involve selling, and sell recommendations involve selling, ......., just a different kind.

"I expect now for the next couple of months a period of a recovering dollar and weak assets. A strong dollar means global liquidity tightening. The dollar will strengthen because the US economy is the least cyclical, but developing countries are more exposed. In a scenario where growth will be disappointing, I think emerging markets are vulnerable. I think we had huge increases in stock prices, a lot of markets have doubled in price." Marc Faber, CNBC

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

“The Chinese don’t have enough nickel, don’t have enough oil, and they don’t have enough copper. There’s a crisis coming. They are going around the world buying up what they can. They’re preparing for a rainy day.” Jim Rogers, Bloomberg