Back in Action

October 31, 2012

  • Stunning feat of flood recovery has stock traders back in action [you’ll have to picture our tongue firmly in cheek]…
  • Halfway through a rotten earnings season, Dan Amoss asks an uncomfortable question
  • “Serendipity” knocks down crude to the mid-$80s: Byron King asks another uncomfortable question
  • Items other than toilet paper that fly off the shelves when a storm approaches… the evils of the AMT, then and now… a mega-bank’s faithful customer gets the third degree… and more!

  For the first time since Friday, U.S. stocks are trading this morning — an astounding recovery considering the floor of the New York Stock Exchange was flooded with water three feet deep a mere 36 hours ago.

Hey, it was on TV, right? It must be true…

  As they did during the Supreme Court health care ruling, the establishment media truly distinguished themselves during Hurricane Sandy.

“According to the National Weather Service, through broadcast media, there’s three feet of water on the trading floor on Wall Street,” said CNN meteorologist Chad Myers Monday night. “Three feet of water on the New York Stock Exchange.”

Soon Erin Burnett — she who insists TARP was a moneymaker for U.S. taxpayers when TARP’s own inspector general says otherwise — chimed in: “It’s a wooden floor, and it’s a historic building, the damage it could do would be amazing.”

“This will have an influence worldwide on people’s wealth,” correspondent Ali Velshi added.

Well, it might if it were true. Evidently, none of these clowns ever did a gig at the old City News Bureau of Chicago, where the motto was, “If you mother says she loves you, check it out.”

Or in this instance, maybe look at a live cam of the exchange floor, bone-dry…

[Image by Instagram user fashionweeknyc]Myers absolved himself of responsibility by attributing the rumor to “the National Weather Service chat bulletin board.”

Hey, it was on the Internet. It must be true, right?

Meanwhile, everyone at Agora Financial headquarters in Baltimore emerged mostly unscathed. By yesterday morning, the worst was over and folks could have driven in to the office had the mayor not issued a ban on driving that was in effect till noon. For our own good, of course.

  Even though the NYSE floor is dry, it is not “back to normal” this morning.

“I’ve spoken/email/Tweeted to a substantial number of traders and fund managers,” writes Big Picture blogger and Vancouver favorite Barry Ritholtz. “Very few people seem to be operating normally, regardless of where they live. Lots of quote issues, Bloomberg not running normally, connectivity problems. This is not remotely an ideal set of conditions for trading.”

“Perhaps sitting in my cold, dark living room is affecting my perspective,” he acknowledges, “but it is what it is.”

The blue chips opened up strong — the Dow approaching 13,200, the S&P at 1,419. The Nasdaq and the Russell 2000 are also up, but not nearly as much.


  • Gold is showing its first real movement all week — up to $1,719. Silver’s at $32.25
  • Crude has firmed to $86.43, still on the low end of its recent range
  • The dollar index has retreated slightly to 79.8
  • Treasury yields are slipping, the 10-year currently 1.722%. The 30-year has dipped below 2.9%.

100  While U.S. markets were closed the last two days, the rest of the world carried on… and the United States fell out of the top 10 most prosperous nations.

The Legatum Institute — the research arm of a Dubai-based private investing outfit by the same name — is out with its sixth annual rankings of wealth and well-being around the world.

Covering eight categories from economic strength to education to governance, the rankings give top marks to the Scandinavian countries. The United States, No. 10 the last three years, is now No. 12.

Note this is a different animal from the “competitiveness” rankings put out by other institutions.

Legatum has a subcategory for “entrepreneurship and opportunity.” Here too the United States comes in at No. 12, while Denmark is No. 1 and Hong Kong — ranked best in other surveys — registers at No. 15.

  “We’re about halfway through a disastrous earnings season,” writes our macro strategist Dan Amoss.

“It’s not disastrous because of third-quarter results; rather, the guidance from management teams, and slowing capital investment and hiring plans, points to many more quarters of earnings weakness ahead.

“The much-celebrated consumer confidence and housing numbers will fall when the job market indicators turn down again.”

Distant warning signals are already appearing: Since Sept. 1, North American companies have announced plans to cut 62,600 jobs, according to figures from Bloomberg. That’s the biggest two-month drop since early 2010. More may be on the way in the estimation of Challenger, Gray & Christmas, the big human-resources consulting firm.

  “Investors,” Dan elaborates, “have embraced an overly simple belief: the belief that central banks can prod investors into stocks against their will.

“Investing is not that simple. The comparison between bond yields and stock yields — two completely different investments — has become absurd.

“Bonds are contracts involving a fixed stream of cash flows and a predetermined maturity date. Stocks are claims on highly uncertain streams of future free cash flows that often stretch out for decades. Many risks can enter the picture and alter the trajectory of free cash flow — and investors’ expectations of them.

“We’ll see if investors are willing to pay ever-rising P/E ratios for a declining stream of earnings,” says Dan. “I doubt it.”

  “Both in the U.S. and Europe, oil prices are falling,” says Byron King of recent energy trends. “Some oil traders say things like, ‘Oil is plentiful. Prices are dropping.’

“To which, my reaction is, ‘Oh, really?’ Hey, I’m sorry, but something tells me that the perception of ‘plentiful’ oil is a temporary thing.

“The oil price pullback is a combination of several serendipitous things — if you believe that weak prices are a consequence of serendipity. We’ve had a couple strong years of drilling in the U.S. and Canada, after which any number of wells are coming online. Plus, there’s economic weakness in Europe. And Saudi Arabia is flooding markets with oil due to Iran sanctions — which is the nicest way I can characterize what the Saudis are doing.

“But things could turn around quickly in the world of oil supply, if not demand. We’ll see how fast those new North American wells deplete in the next 12 months or so. We’ll see what happens with energy demand in Europe in the event that the eurozone economy picks up — as is happening in Britain, apparently.

“And indeed, we’ll see how much oil the Saudis pump on, say, Nov. 7 and afterward. Heck, I can envision the Saudis throttling back just to make sure that we in the West — certainly our president for the next four years — know who’s in charge of setting the global oil price.”

  One more note about Sandy, and the law of supply and demand: It’s not only bottled water, milk, bread and toilet paper that run out as a storm approaches.

Here’s a snapshot ricocheting around the Internet. It might be from Connecticut. Or it might be someone’s Photoshop wizardry. But if it is, it’s still illustrative…

Readers of a “prepper” mind-set looking for barter items to stockpile… consider yourselves informed.

True, beer doesn’t have much of a shelf life. But rolling papers presumably last forever and take up little space. And latex condoms are good for up to five years, according to Wikipedia. (If it’s on the Internet, it must be true, right?)

  “HOW STUPID!” reads a comment at The 5’s blogsite. “I couldn’t believe, when I heard the stock market was shut down by this exotic thunderstorm.

“My god. The Japanese worked through the entire tsunami and nuke disaster. Hard to believe our grandfathers came from the same country that stormed the beaches of Normandy.”

  “For those of you that don’t understand inflation,” a reader writes: “Last week, my standing bakery order went from $6.07 to $7.15.

“It doesn’t sound like a lot, however, that is what 17.79% inflation looks like. Apply that to everything you buy on a regular basis.”

  “It was the ’70s,” a reader writes after Byron King’s discussion of the alternative minimum tax (AMT).

“Mortgage rates were 17%. An oil embargo had created huge lines for gas. My employer and I were buying gold and silver. I had finally gotten my accounting degree and was preparing income taxes for my employer’s many companies, and then his personal taxes.

“I thought I had all his bases covered with close to $10,000 put aside for his personal tax deposits, and then I had to look at this fairly new thing, the AMT by the IRS for, quote, ‘the wealthy.’

“This man that I worked for since starting college was truly an entrepreneur. Numerous businesses and employees, who supported the employees’ families. Long story short, the AMT cost him an additional $36,000 in additional income taxes that year. Back in the ’70s, that was a good size chunk of change and was equivalent to one employee’s very good annual wage.

“Now, unfortunately, project that to 2012 dollars and there will be many ‘entrepreneurs’ getting one big tax surprise with this AMT. Now, how many family living wage jobs will that equate to?

“Wasn’t there a revolution once about taxation without representation?”

  “My run-in with Wells was as I was trying to refinance a line of credit,” writes a reader who manages to simultaneously weigh in on two ongoing topics — the trouble getting credit even if you’re a good risk and the War on You.

“I have been a customer 40 years — many loans, always paid well before the due date. Received a call from WF wanting to know where a large deposit came from ($2,500) and to produce a copy from who sent it to me.

“I also have auto-deposit with them and have been getting this deposit for seven years in this account as part of a company buyback. And then they wanted to know why I kept such a large balance in the checking account — about $20,000, enough to pay expenses for a year. I guess I could have hidden it under the bed and then the local law could take it as drug money.

“I have since canceled the loan application and gone to a different lender. The loan app is ongoing over two months, by the way. I was told the government has mandated they observe accounts such as mine.

“Keep up the good work. Love the comments — some good, some questionable, but some truth in all of it.”

  “About a year ago, I received in the mail a ticket for running a red light in Fife, Wash.

“It was at an intersection with little traffic in an area that is not that highly traveled. I came to a stop and then turned right, but according to the camera, it wasn’t a full stop. I was so mad I made FOIA requests for revenue on that camera and fell off my chair when I was shown docs that said that one leg of the intersection nets about $600,000 per year. No wonder the police all have new cruisers in the area.

“These cameras are supposed to be for ‘public health and safety,’ but they are being used for income. In Redmond, Wash. they had to remove their cameras because the citizens complained about the abusive nature of the fines and the fact that it was about revenue, not safety.

“Once again, governments on all levels won’t level with us.”

  I was recently talking to some friends and I brought up the War on You issue. My friends were skeptical.

“Can you put together a compilation of the War on You so I can show my friends what exactly I’m referring to? I bet there are others that would like to refer to this.”

The 5: We’re in the process of assembling three special reports, each with its own focused subject matter: The war on your wallet, the nickel-and-dime regulations that bleed you dry and the incipient police state. Stay tuned…

  “Blessings to you, the Agora family, and all in Sandy’s wide path,” reads a short email from a reader in North Carolina.

The 5: Thank you for the sentiments. We made it through OK. Please keep in mind those who weren’t as fortunate.


Dave Gonigam
The 5 Min. Forecast

P.S. We’re slowly getting back up to speed at our Baltimore headquarters. If you’ve emailed or phoned our customer service team, be assured they’re doing their level best to catch up with the backlog and they’ll get back to you as soon as they can!


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