Morning Market Report

On the strength of continuing home sales, the markets all showed serious strength yesterday. All indices were up in excess of 1% with the dow closing over 10,450 and also a 13 month high. It also once again came at the expense of a weakening dollar again.



There's breaking economic news this morning. The third quarter GDP was revised slightly downward.

The economy grew at a 2.8 percent pace last quarter, as the recovery got off to a slower start than first thought.

The Commerce Department's reading on gross domestic product released Tuesday wasn't as energetic as the 3.5 percent growth rate for the July-September period
estimated just a month ago.

The main factors behind the downgrade: consumers didn't spend as much, commercial construction was weaker and the nation's trade deficit was more of a drag on growth. Businesses also trimmed more of their stockpiles, another restraining factor.

It's not only a time honored tradition to have estimates be different than projections, but it's also a time honored tradition to make revisions to the initial survey. So far, equities haven't changed that much. All indices were roughly even before and they're still about even.



Meanwhile, bonds are showing strength again. The ten year U.S. Treasury bond is now back to 3.34% after reaching 3.39%. It's traded in a fairly narrow range over the last two weeks, between 3.32-.340% and a slightly larger range 3.30-3.52 over the last four to six weeks. The yield spread between the two and ten year is now 2.59%. That's slightly lower and on the low end of its range. The new bond security to watch is the three month treasury bill. That's still trading at a negative rate, currently at -.01% yield. That's a bad sign for the near term for equities, and famously, in 1938, such a relationship caused a 30% decrease in equities the next year. Crude oil is down slightly to $77.29 a barrel. Meanwhile, gold continues to set records and is currently trading at $1168.80 an ounce.



Stocks in Europe were mixed. The FTSE is up .21%, the DAX in Germany is down .01% and the Spanish index is down .06%. Meanwhile, it was relatively dour in the Far East. The Hang Seng in China was down 1.51%, the NIKKEI in Japan was down 1.01%, and the Chinese index was down 3.44%.



The dollar is mixed this morning. It's up by .12% against the Euro, down by .13% against the British Pound, and down .6% against the Japanese Yen.



Finally, the chief of the Bank of England has made a "startling" revelation.

Bank of England Governor Mervyn King said he’s concerned that some banks receiving taxpayer-funded bailouts are too eager to return to investment banking.

“I have in one or two instances been concerned that banks, particularly those in receipt of government support, felt that it was more attractive to go down the road of re-establishing an investment-banking operation as opposed to what I thought their intention originally was, which was to go back to some good old- fashioned commercial banking,” he told lawmakers today.

Banks are seizing on the biggest financial crisis since the Great Depression to buy assets and lure staff from rivals to create global investment firms. Royal Bank of Scotland Group Plc, which has been rescued by the world’s most expensive bank bailout, is “moving away from the hubris that characterized the last decade” as it seeks to serve its customers and allow the U.K. to sell its controlling stake at a profit, Chief Executive Officer Stephen Hester said yesterday.

That analysis could be made about domestic banks. Looking at Goldman, Chase, etc. they all received TARP money at some point and they're all making money in trading, investment bank, etc.

Americorp Scandal Update

Byron York has the latest on this scandal.

Just hours after Sen. Charles Grassley and Rep. Darrell Issa released a report Friday on their investigation into the abrupt firing of AmeriCorps inspector general Gerald Walpin, the Obama White House gave the lawmakers a trove of new, previously-withheld documents on the affair.

It was a twist on the now-familiar White House late-Friday release of bad news; this time, the new evidence was put out not only at the start of a weekend but also hours too late for inclusion in the report.The new documents support the Republican investigators' conclusion that the White House's explanation for Walpin's dismissal -- that it came after the board of the Corporation for National and Community Service, which oversees AmeriCorps, unanimously decided that Walpin must go -- was in fact a public story cobbled together after Walpin was fired, not before.

This is in fact the sort of thuggish behavior that is directed at almost every whistle blower. Hopefully, this case not only shines the spotlight on the Obama administration's heavy handed and often thuggish behavior but the thuggish behavior directed almost all whistle blowers.

O'Reilly Vs. Palin III

Bill O'Reilly had his final of three parts to his interview with Sarah Palin tonight. I was actually generally disappointed with the interview. O'Reilly said the interview would focus on "policy". There were two questions on Iran, one on Afghanistan, one on domestic policy, none on health care, and no questions on social issues.

That's not really focusing on policy but rather scratching the surface on policy. Tonight's interview was on the "hateful attacks" and whether or not Palin wants to lead the tea parties. All of this is interesting but what I want to know is what Palin would do to fix health care, about the economy, Russia, Iran, China, etc.

These cultural questions are interesting but they say very little about whether or not Palin has serious answers to serious policy questions. O'Reilly barely even mentioned China and Russia in the entire interview. All of Palin's critics say she knows little about foreign policy. O'Reilly neither confirmed nor denied that stance because he barely asked her about policy position toward Russia.

O'Reilly says that Palin wants to leave the new populist movement. Maybe, that's true, but that's ultimately of little consequence. I don't care if she wants to lead a populist movement. I want to know if she has the acumen to deal with geopolitical heavyweights like Vladimir Putin. I expected O'Reilly to ask her enough probing questions to get an idea of that. I was disappointed.

Mike Volpe and Bobby Knight V

Introduction: If you're unfamiliar with the backstory, you may be confused in the beginning. Please bear with the piece. It all comes together at the end.

Michael Gaynor is at it again. In a piece that starts out attacking Breitbart, moves to attacking Marcel Reid and ACORN 8, he ends up attacking me, though he never mentions me by name.

The scurrilous claim promoted by the ACORN 8 and its blogger tools that Ms. MonCrief has not been back because Fox News suddenly discovered that Ms. MonCrief had put some personal expenses on a company credit card without permission is demonstrably false.

I am the "blogger". The facts are the facts. It's true that Moncrief had mentioned her theft before April however, Fox News didn't know it until Beck's people discovered after more rigorous research. In fact, Beck was willing to let all of it go when Moncrief told him she couldn't be on his show and wound up on another the same day. Then, he cut her off and Fox News cut her off with it. That comes from two sources that have spoken with Beck and his staff fairly regularly.



In fact, most of the piece is a response to this piece of mine in which I ask a series of questions of Gaynor, Michelle Malkin and Anita Moncrief. He once again tries to pad the so called ACORN resume of Anita Moncrief. Moncrief is the former employee of Project Vote that spoke to New York Times reporter Stephanie Strom about email lists that were shared between ACORN and the Obama administration.



Moncrief is also the source of the only seven pages in Michelle Malkin's book, Culture of Corruption, that you couldn't read anywhere else. Both Malkin and Gaynor have written obsessively about Moncrief since May, for Malkin, and April, for Gaynor, of this year.

This is all the latest reincarnation of what started as an investigative series by me into media corruption between Anita Moncrief, Michelle Malkin, and Michael Gaynor and it devolved into a pseudo blog war between Gaynor and myself. That's because everytime I wrote a piece in the series, it was Gaynor acting as the protector, defender, and attacker. Malkin has continued to, in my opinion a totally cowardly manner, sit idly by and allow Gaynor to speak for her in all of this.

This all started when I commented on an October 5th piece by Michelle Malkin. In that piece, Malkin both dishonestly propped up Anita Moncrief and quoted Michael Gaynor in attacking a third party, Michael McCray of ACORN 8.

Former ACORN/Project Vote worker Anita MonCrief — the independent whistleblower who worked closely with NYTimes reporter Stephanie Strom on exposing ACORN financial shenanigans last year before Times editors “cut bait” just weeks before Election Day — informed Strom that the true figure was $5 million.

...

Michael Gaynor noted at the time in response to McCray: “Tellingly, Mr. McCray did NOT complain about keeping the information from prosecutors and the public. Perhaps that is because ACORN 8 leaders also kept important information from prosecutors and the public and put off the possibility of legal action to protect then presidential candidate Obama’s election prospects. Incredibly, Mr. McCray essentially claimed that bad leadership is ACORN’s only problem. Mr. McCray admitted that the ACORN 8 are out to replace the current ACORN control group, but the ideological difference is limited…Mr. McCray and the ACORN 8 did not complaint that ACORN has functioned wrongfully as an unofficial arm of the Democrat Party for many years. Instead, Mr. McCray celebrated ACORN’s “effectiveness” and complained only about ACORN leadership corruption.

The true figure is NOT $5 million. It might be five million dollars, but in fact, only the very top of the ACORN hierarchy know how much the embezzlement was. That figure was one of many mentioned at an ACORN board meeting. Anita Moncrief isn't on the board of ACORN. So, she only knows about this figure because someone on the board told it to her. Her information is second hand and it's not definite. Neither of those things were mentioned by Malkin as she systematically mislead her audience.

On top of this, she never identified who Michael Gaynor is. He's attacking Michael McCray and it's a tough attack. The audience needs to know what his standing is to attack McCray. In fact, besides being someone that has attacked McCray, Michael Gaynor has no standing. Michael McCray is a former ACORN board member and current ACORN 8 communications director. Michael Gaynor is a blogger that speaks to Anita Moncrief often. So, besides being someone that attacks Michael McCray, there's absolutely no reason to quote Gaynor here.

That's the sort of systematic misinformation that Gaynor and Malkin have routinely put up on their websites in support of Moncrief and in attacking Moncrief's enemies, real or perceived. Both have claimed that Moncrief is of major significance to the ACORN story. In fact, she was a low level staffer, a development associate, in an office of Project Vote. The former chief organizer, Wade Rathke, told me that he may have met her but didn't remember it. In other words, while both claim that she's the key to the story, she wasn't actually known by the head of the organization.

Both have claimed that Moncrief is a major source for media like Fox News, the Washington Examiner and others. In fact, Fox News cut her off months ago after discovering her theft, fraud, and subsequent firing from Project Vote. The Washington Examiner will quote her from time to time but she's often the second or third person quoted and almost always at the end of the piece where most don't even read. That's of course BECAUSE SHE WAS A LOW LEVEL STAFFER.

More than that, both claim that the key to the ACORN story runs through Anita Moncrief because she provides the connection between the Obama administration and ACORN. In fact, she claims to have email lists shared by both. I say claims because while both refer to these lists neither will release them. (ironic since Gaynor then demands that other groups like ACORN 8 release all sorts of documents) Even if this is true, this is the key to nothing. That's a violation of FEC rules. I won't minimize the corruption. It's there. Yet, it would lead to a fine of $1 million. That's it. ACORN has been implicated in a mountain of wrongdoing, and if all you have on Obama are these lists, you don't have much. Beyond that, the only person that can corroborate what Anita Moncrief is saying is Anita Moncrief. No one else is making these charges or claiming to have this evidence.

Then, there's Anita Moncrief's theft, fraud, and firing. Both conveniently almost never mention any of the three. When Malkin mentions it, she links to Anita Moncrief explaining them. She never details herself what happened. In fact, Anita Moncrief was working for Project Vote when she falsely applied for a Project Vote credit card, used that credit for personal purchases, and then was fired. Only after she was fired did Moncrief begin to "blow the whistle" as both Malkin and Gaynor call it. Both Malkin and Gaynor use the term "whistleblower" to apply to Moncrief in a courageous manner. In fact, Anita Moncrief blew the whistle in a manner that was no different than Henry Hill and Sammy The Bull. Unless both are willing to call them "courageous", they are misleading the audience when they refer to her as a whistle blower.

This has been the game they've been running and the entire thing is for the benefit of Anita Moncrief. It's also for the benefit of Michelle Malkin. After all, if Anita Moncrief isn't viewed favorably, a lot of people would sour on her book. It's for the benefit of Michael Gaynor because no one of importance will speak to him besides Moncrief. That's why, suddenly, Michelle Malkin has written 30 blog posts about Anita Moncrief since May and Gaynor is at near 100 since April.

You'd think that such blatant corruption would be something a lot of media would cover. Instead, I'm the only one. Now, you could say that's because I am seeing ghosts, but that would assume that our media isn't corrupt itself. Instead, Michael Gaynor uses every opportunity to attack me. Michelle Malkin ignores me, sort of. Since I started this series, she's written about Anita Moncrief 5 times. That's in nearly two months. In the month prior to the series, she wrote about her 13 times. That also just happened to be a critical time for her book. She's also only called her a whistleblower twice out of the five times prior to that she referred to Moncrief as a whistle blower about 90% of the time. Once she referred to her as a "development associate". So, either Malkin suddenly, and coincidentally, lost her appetite to write about Moncrief, and call her a whistle blower, or she's taking her marching orders from me, all while pretending not to acknowledge me. Like I said, Malkin is the height of journalistic cowardice.


That brings me back to Gaynor's latest piece. In it, he starts out talking about Breitbart and ends up talking about Anita Moncrief. What's the connection? There is none, except an excuse for Gaynor to again point out how courageous Anita Moncrief is. In a similar fashion, Michelle Malkin quotes Anita Moncrief, who talks about the New York 23rd district race though that's really an excuse for Moncrief to attack ACORN 8.

ACORN is a Democrat scandal and it is hard to separate one from the other. Corruption is the overriding theme and it comes mostly from the left. Another particularly odd pairing continues to be the radical reformers of ACORN and top Conservatives and Republicans. The ACORN 8, a group of former ACORN board
members, have formed a Scozzafava-like partnership with the Republicans. In attempting to expose ACORN, some appear to have ignored key facts and overlooked a pattern of withholding key information to coincide with opportunistic timing aimed at aiding Democrats. An example of this is the complete removal of two longtime Obama ACORN cronies from a complaint filed with the United States Justice Department last January by the ACORN 8. Madeline Talbot is described by Stanley Kurtz of the National Review Online as “the woman who first drew Obama into an alliance with ACORN.” And Keith Kelleher is Talbot’s husband, the Chief Organizer of SEIU Local 880 in Chicago

Some conservatives ask me why I write this series. Look at this corruption. Only Jayson Blair on his worst days could have boasted to being more corrupt. Michelle Malkin just quoted Anita Moncrief as Anita Moncrief attacked ACORN 8 during the course of a piece on the New York 23rd election. To be clear, ACORN 8 had nothing to do with the New York 23rd district race. They're an activist group working to reform ACORN and also working on behalf of whistleblowers. Just as support for Anita Moncrief has no business in a piece on Andrew Breitbard, so to an attack on ACORN 8 has no business in a piece on New York's 23rd. Why is Anita Moncrief attacking ACORN 8? It's because they wouldn't support her when she wanted to link Obama to ACORN and they soured on her after they found out about her theft. For this, Moncrief turned on ACORN 8 and Malkin allows her to use Malkin's pages to attack them.

Conservatives should be furious. If this what passes for journalism on our side, we have no business criticizing the left. On their worst day, the New York Times couldn't dream of anything this corrupt. It's not only corrupt but amateurish. It isn't some small time journalist, but the mainstay conservative blogger, Michelle Malkin. She's broken every rule. When Gaynor attacked McCray, she never reached out to McCray for comment. When Moncrief attacked the ACORN 8, she never reached out to ACORN 8 for comment. She uses Anita Moncrief both as a source and as an author. She routinely lies about Moncrief's worth to the ACORN story. She routinely refers to Moncrief as a "whistleblower" without providing context to that description. She does all this knowing that the fate of Anita Moncrief's reputation is intertwined with the fate of her book, and her own reputation with it. She never discloses the plethora of conflicts all of this creates. (all while criticizing other's conflicts with righteous indignation and all while criticizing the left media for their corruption) To top it off, she gets into bed with a total hack that passes off gibberish for journalism. (that's Gaynor)

All the while, Malkin sits back while Gaynor attacks me and pretends to know nothing about it. Just conveniently, she changes entirely her pattern of reporting on Anita Moncrief in response to my writing. What a coward? What a totaly disgrace to the profession that's made her. If this were happening on the left, she'd be screaming for heads from every mountain top. Instead, she engages in the worst sort of media corruption all while having the gaul to write a book called Culture of Corruption. If she had an ounce of integrity, she'd immediately do a Mea Culpa and donate all that she's made on the book to her favorite charity. Instead, she sits knowing exactly how corrupt she is and pretends she didn't do anything wrong. She hopes that some hack, Gaynor, attacking me a few times will make it go away and hopes my stature doesn't grow so that some people actually notice what I'm writing. Like I said, it's exactly the sort of corruption that the same Michelle Malkin would be screaming about if it happened on the left. So, besides cowardly, she's also a total hypocrite.

Video, Quote and Word of the Day

cadge

to beg

First they ignore you, then they laugh at you, then they attack you. Then you win

Ghandi

The Asset Bubble is Forming

The latest piece in the rapidly forming asset bubble is now in place. Short term treasury bills are now below zero.

For the first time in seven decades, Treasury bills are paying no interest while stocks continue to appreciate -- a divergence in U.S. financial markets that might be perilous if Federal Reserve Chairman Ben S. Bernanke didn’t know all about 1938.

That’s when the Standard & Poor’s 500 Index climbed 25 percent even as bill rates tumbled to 0.05 percent from 0.45 percent. As 1939 began, stocks began a three-year, 34 percent decline after the Fed increased borrowing costs prematurely to stymie inflation that never materialized.

In my mind, the difference between inflation and a bubble is this. During periods of inflation, all prices go up. During a bubble, the prices of one area goes up extraordinarily. Often the forces that set each in motion are the same. It's only a matter of how those forces spread through the economy.

Right now, equities are zooming at the exact same time that short term bonds couldn't be trading any better. Keep in mind, if you were to buy a three month T Bill, you would get near a negative rate. That means you'd get less money back then when you started. Yet, investors are buying them in bunches.

Such anomoles are almost always a sign that there's trouble ahead. Throughout 2006, we had what's called an inverted yield curve. By that, short term rates were higher than long term rates. That caused ARM's to go out of style since they were worse than the regular fixed mortgages. (in other words an adjustable rate mortgage actually had higher rates than fixed rates, meaning there was no reason to get them) That was a sign of upcoming recession. That's exactly what happened.

Now, we have nearly zero yields on very short term rates and a massive yield spread. The yield spread is the difference between the two year U.S. Treasury bond and the ten year U.S. Treasury bond. That's been bouncing but it's often, over the last six months, between 2.50%-2.70%. That's near a record of 2.75% set in June. This is a sign of upcoming inflation.

We're alread seeing signs of upcoming inflation. The Dow is skyrocketing. Gold is skyocketing. Oil is zooming up. Even emerging market assets are zooming up. All of it is coming at the expense of a weak dollar. The weak dollar is entirely caused by both irresponsible fiscal policies and loose monetary policies, which are financing the irresponsibility. With massive debt, and a massive creation of new dollars, both those have combined to weaken the dollar.

Inflation is defined as too many dollars chasing too few assets. I define a bubble as assets being enticed into an industry by outside forces rather than fundamentals. So, if the weak dollar is forcing investors into equities, commodities, and emerging markets, then what we have is a bubble forming. In fact, there isn't necessarily a long term correlation between a weak dollar and strong equities. That's because in the long term equities trade based on fundamentals not the strength or weakness of the dollar. Now, people are rushing to get dollars cheaply and take advantage of that weakness. By that, we have a bubble forming.

People aren't buying because the fundamentals in the market are strong. We have 10% unemployment, record foreclosures, record deficits. Those aren't necessarily fundamentals for strong growth. People are buying because they can get the dollar cheap.

That won't last forever. At some point, the Fed will have to reverse itself. It will have to contract the money supply. That will strengthen the dollar. All those that rushed in to get their assets cheaply will rush out to cash out of the strong dollar. That's how bubbles that form burst. That's what we have.

It's happening again because the Fed, again, has caused the next crisis by fixing the current one. The Fed saw the internet bubble forming so it popped it by increasing rates. That lead directly to the recession. So, it lowered rates, TOO MUCH. That lead directly to the housing bubble. Now, it's lowered rates again to expand growth. This is leading to the next bubble.

A Mixed Bag from the NABE

The National Association for Business Economists is the gold standard in economic projections. In fact, we've dismissed such "trivialities" as waiting for two consecutive quarters of actual job growth in favor of these 48 economists telling us when recessions begin and end. They've come out with their forecast for jobs.

Leading economists who just last month declared the end of the recession, which began in December 2007, but warned of continued job struggles, said today in a new survey the economy is poised to add jobs "within the next few months."

The survey from the National Association for Business Economists reaffirmed the October assertion the recession is over.

"While the recovery has been jobless so far, that should soon change. Within the next few months, companies should be adding instead of cutting jobs," said NABE President Lynn Reaser, chief economist at Point Loma Nazarene University.

The news isn't all good. The NABE predicts that unemployment will still be at 9.6% by the end of 2010. It predicts that we won't gain all our jobs back until 2012.



Now, let's put some context to this. The same NABE predicts the monthly jobs number along with a plethora of other economic statistics. If you follow the jobs number or just about any other economic statistic, then you know the real shock is when they actually predict it right. I am not knocking any of the NABE. Predictions are very difficult. Just look at any so called experts' prediction pre season for the World Series, Super Bowl, etc.



Predictions are almost always worthless except that reality is always measured against them. Markets turn not simply based on a number alone but on how that number fared against the prediction. The latest jobs' number wasn't good or bad, most importantly, it was slightly worse than expected.



So, the markets will digest this number and then they'll digest reality. If reality is better than the prediction the markets will go up and vice versa. If these numbers eventually reflect anything near reality, the Democrats have serious problems. Going into mid terms with near double digit unemployment having spent trillions and telling America that unemployment won't pass 8% is not a place I'd want to be.



2012 is significantly more difficult to believe. Most people look at the current situation. If unemployment is between 5.5%-4.% as the NABE predicts, that will be good for the party, no matter how long it took to get there. Still, 2012 is a long way away. Much will happen between now and then.

November 2010 is much closer. If the NABE is right, I predict that Republicans will challenge for majorities in both chambers.