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The Score on Europe, Debt and the U.S.

Sep 27, 2011, 1:39 pm EST

Being an investor used to be so easy. Don’t you pine for the days of studying P&L statements, creating valuation spreadsheets, assessing management and determining the likelihood of success of a cool gadget or product or marketing scheme?

Now everything has gone “macro,” with the success of virtually every sector tied to your ability to forecast political events — not economic or financial events.

Since modeling politicians is a lot harder than modeling financials, this might be one of the toughest environments ever seen. My biggest complaint is that Europe seems unwilling to act with the sense of urgency that befits the current situation, with Greek debts due and potential knock-on contagion effects very real, no matter what the optimists tell you on television. Read 

Why Herman Cain Will Struggle to Win the Black Vote

Sep 27, 2011, 11:16 am EST

Richard Young engages in a thought experiment about Herman Cain winning the Republican primary (still a long shot) and going on to challenge President Barack Obama in the 2012 general election. He concludes that Cain can safely split the black vote with Obama. Two African-Americans running against each other for the American presidency would be unprecedented and probably make traditional political analyses moot. However, let us note the following impediments to Cain’s victory among blacks in the 2012 election:

1. Blacks vote overwhelmingly Democratic and have for decades. It’s a big leap to assume that you will see about half of them switch party affiliation.


Herman Cain’s Success Lies in the Black Vote

Sep 26, 2011, 1:15 pm EST

Americans cast 131 million votes in the 2008 presidential election. Barack Obama received 9,522,083 million more votes than did John McCain, and a swing of less than 5 million votes would have put McCain, rather than Obama, in the White House.

Americans were rightfully fed up with George W. Bush and his cabal of neocon nation builders. The Bush record was low-hanging fruit for any Democrat contender, especially against another neocon sympathizer with little conservative support. McCain ran a lousy campaign. There is no other way to characterize it. In went an unknown Barack Obama with nothing in the way of a presidential résumé.

Under Obama, America, for the first time in history, has lost its AAA-credit rating. Obama jammed through his intrusive Obamacare, among the most divisive pieces of legislation in history. The president’s policies of income redistribution have led to an unemployment rate that still stands at a staggering 9.1%, despite profligate spending of the highest order in combination with full-scale money printing at the Fed. Along the way, Obama has sent two ultra-liberal justices to lifetime jobs at the Supreme Court. The mess in Iraq and Afghanistan continues unabated. Read 

History Shows Promise for ‘Operation Twist’

Sep 26, 2011, 11:55 am EST

At the end of its two-day confab last week, the Fed said that — as expected — it would shift $400 billion of its enormous bond holdings from short-term to longer-term Treasuries in the hopes of knocking rates down further and stimulating the economy in what some are calling “Operation Twist.”

Have we heard this record before? In one way — yes, of course. But like many cover songs, this one comes with a different beat. Rather than spending new money, the Fed will sell short-term bonds (which should push yields higher) and buy longer-term bonds (which will push yields lower), flattening the yield curve. They don’t plan to do anything with their mortgage bonds other than to reinvest the interest and/or returned principal received on them.

For some historical perspective, it was more than 50 years ago that the Fed first put needle to vinyl on “Operation Twist.” In that version, which debuted in February 1961, the Fed initiated a similar strategy of selling short-term bonds and buying longer-term bonds. There still is some debate about how effective the measure was, but the Dow was up 7% a year after the policy took effect and up 50% four years later. Read 

Empty Stores Tell Tale of the U.S. Job Market

Sep 24, 2011, 5:30 am EST

In Obama’s Two Economies, Daniel Henninger wrote, “For Mr. Obama there is no such thing as the American economy. Instead, there are two Americas with separate economies — one public, the other private. … Because Mr. Obama and his circle divide the economy into two parts, with the private economy merely a satellite orbiting the public sun, he has proven incapable of offering policies for the whole nation. … The American Jobs Act is a jobs plan for Barack Obama’s America.”

Well, Henninger is dead right. While Wall Street is booming and exporters are in clover, thanks to the Bernanke/Obama cheap money policy of dollar debasement, Main Street America continues in recession and America’s retired and soon-to-be retired savers cannot earn a fair interest rate on retirement savings.

One of the most famous small coastal cities in New England had a median single-family home price of $414,550 in the third quarter of 2010. In the first quarter of 2011, that number was $260,000. Hard to believe. Like I said, out on Main Street, the recession continues with no end in sight. Read 

‘Operation Twist’ Snaps

Sep 23, 2011, 1:06 pm EST

This week’s global selling panic that was triggered but the Fed’s worrisome comments, major bank credit downgrades, continued fears of an imminent Greek default and just generally everybody and their dog running for the exit at the same time. Many Fed watchers are shocked at the adverse reaction to the Fed’s $400 billion “Operation Twist,” where it purposely flattens the yield curve via bond swaps, which normally would cause money to flee low yielding investments into stocks.

However, the fact the Fed said after its Federal Open Market Committee meeting that there are “significant downside risks to the economic outlook, including strains in global financial markets” effectively caused Asian and European investors to sell everything, including gold and other commodities. As a result, in the aftermath of the selling capitulation, there could be an incredible buying opportunity at hand.

Long-term Treasury yields are at record lows and the 30-year Treasury bond just had its biggest rally since 2008, resulting in plunging yields and the commensurate price increases of Treasury securities. Operation Twist essentially is expanding the Fed’s “0% interest rate policy” farther out the yield curve. The three-month Treasury bill now yields 0%, the six-month Treasury bill 0.03%, the one-year Treasury note 0.1%, the two-year Treasury note 0.2%, the three-year Treasury note 0.34% and the five-year Treasury bond 0.79%. Eventually, I predict that the Fed will push the five-year Treasury bond yield to 0.5% or less after Operation Twist is over. Read 

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