The markets are almost closed. This is the last weekend before Christmas -- if you haven't finished your shopping, now is the time. So until Monday, here are the kids.
Gold Daily and Silver Weekly Charts - Capping the Gains
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While the rationale [for using spread analysis] may be compelling in normal times, we think that a focus on spreads can lead to misleading inferences during financial crises. Financial crises are often accompanied by a flight to quality during which the real return to Treasury securities falls dramatically, that is, the nominal return falls dramatically for reasons other than changes in expected inflation.
PERFORMANCE BY INDUSTRY
The two industries reporting growth in November — listed in order — are: Apparel, Leather & Allied Products; and Paper Products. The industries reporting contraction in November are: Nonmetallic Mineral Products; Fabricated Metal Products; Textile Mills; Printing & Related Support Activities; Machinery; Electrical Equipment, Appliances & Components; Primary Metals; Transportation Equipment; Furniture & Related Products; Plastics & Rubber Products; Computer & Electronic Products; Chemical Products; Petroleum & Coal Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Wood Products.
WHAT RESPONDENTS ARE SAYING ...
* "The only positive thing of late is that the U.S. dollar has strengthened significantly against other currencies. We import the majority of our materials so this will have the effect of lowering our COGS." (Transportation Equipment)
* "Steel industry is our main customer, and they have had a real slowdown." (Computer & Electronic Products)
* "Criteria for projects is significantly higher with very short ROI periods." (Food, Beverage & Tobacco Products)
* "We have revised downward our top-line sales estimates for CY2009 by 8 percent due to the continued softness we see in the housing sector." (Machinery)
* "Suppliers are trying to hold onto pricing, but petrochemical and commodity prices are dropping like a rock." (Plastics & Rubber Products)
The contraction underway in the manufacturing sector is of historic proportions, the results of November's ISM manufacturing report that shows a headline index of 36.2, down nearly 3 points in the month. The reading is the lowest since 1980 recession. Key components in the survey show greater weakness than the headline index including a 31.5 level for the production index that matches the record low in May 1980. New orders at 27.9 is at its lowest since the early 80s while, in perhaps the most stunning reading of all, prices paid is at 25.5, down 11.5 points in the month for the lowest reading since early data in 1949 -- a critical indication that demand is falling and falling very sharply.
Industrial production decreased 0.6 percent in November with declines widespread across industries. The drop in output in September was revised down, and the rebound in October was revised up, in large part because both the decrease due to the September hurricanes and the subsequent partial recovery in October were larger than previously reported.
Manufacturing production dropped 1.4 percent in November despite the resumption of activity in the commercial aircraft industry after the resolution of a strike early in the month. The output of mines advanced 2.5 percent, primarily as a result of a further post-hurricane recovery in crude oil and natural gas operations in the Gulf of Mexico. Taken together, the rebounds after the strike and the hurricanes added almost 1 percentage point to the change in industrial production. The output of utilities rose 1.6 percent.
At 106.1 percent of its 2002 average, total industrial production in November was 5.5 percent below its level of a year earlier. The capacity utilization rate for total industry fell to 75.4 percent, a level 5.6 percentage points below its average level from 1972 to 2007.
The Empire State Manufacturing Survey indicates that conditions for New York manufacturers deteriorated significantly in December. The general business conditions index, at -25.8, held near the record low set in November. The new orders and shipments indexes also remained near their recent record lows, and the unfilled orders index dropped to a new low. The indexes for prices paid and prices received fell below zero, and employment indexes remained deep in negative territory. Future indexes remained subdued, with the capital spending and technology spending indexes remaining well below zero.
Conditions in the region's manufacturing sector continued to deteriorate this month, according to firms polled for the December Business Outlook Survey. All of the survey's broad indicators remained negative this month and at relatively low levels. Firms reported declines in input prices and the prices for their own manufactured goods this month. Consistent with the weakness in current activity, most of the survey's indicators of future activity slid further into negative territory, suggesting that the region's manufacturing executives expect continued declines over the next six months.
Since September, members of the Organization of the Petroleum Exporting Countries have pledged cuts totaling 4.2 million barrels a day, or nearly 12 percent of their capacity, a record in such a short time.
10. (tie) "Anyone who says we're in a recession, or heading into one — especially the worst one since the Great Depression — is making up his own private definition of "`recession.'" — commentator Donald Luskin, the day before Lehman Brothers filed for bankruptcy, The Washington Post, Sept. 14.
One way to look at this is to examine the trajectory of employment relative to December 2007 levels (when this recession began) and compare it with the average trajectory of relative employment in other recessions:
A more apt comparison might therefore be the “bad” recessions of recent memory, the 1973–75 and 1981–82 episodes, which both lasted sixteen months.
Here, for your viewing displeasure, are those comparisons:
The trajectories suggested by the relatively long-lived, more severe recessions of 1973-75 and 1981-82 are almost certainly more sensible comparisons at this point. And, as bad as it is right now, we are still a fair distance from the pace of relative employment losses in those episodes.
The Commission has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action. I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them. Moreover, a consequence of the failure to seek a formal order of investigation from the Commission is that subpoena power was not used to obtain information, but rather the staff relied upon information voluntarily produced by Mr. Madoff and his firm.
SEC investigators are currently working with the trustee and other law enforcement agencies to review vast amounts of records and information involving Mr. Madoff and his firm. Those records are increasingly exposing the complicated steps that Mr. Madoff took to deceive investors, the public and regulators. Although the information I can share regarding an ongoing investigation is limited, progress to date indicates that Mr. Madoff kept several sets of books and false documents, and provided false information involving his advisory activities to investors and to regulators.
Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.
The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.
The Producer Price Index for Finished Goods fell 2.2 percent in November, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This decline followed decreases of 2.8 percent in October and 0.4 percent in September. At the earlier stages of processing, prices received by manufacturers of intermediate goods dropped 4.3 percent in November after falling 3.9 percent in the prior month, and the crude goods index declined 12.5 percent subsequent to an 18.6-percent decrease in October.
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 1.9 percent in November, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The November level of 212.425 (1982-84=100) was 1.1 percent higher than in November 2007.
In the wake of popped stock, housing and commodity bubbles, some see a fourth bubble building -- in Treasury bonds. Unlike those bubbles, this one doesn't have to end disastrously.
Treasury yields, which move inversely to prices, are at historic lows. Friday, the yield on the 10-year note fell to 2.47%, the lowest in Federal Reserve records going back to 1962 and well below the average of the past decade of about 4.7%.
Treasurys have been rare good investments in this awful year, returning 10% through November, according to Merrill Lynch chief North American economist David Rosenberg, a longtime bond bull. But even he recently told clients that Treasurys were "clearly heading into a bubble phase" and suggested there might be greener pastures in other fixed-income investments, such as debt backed by government-sponsored entities.
Meanwhile, the U.S. government may post a trillion-dollar budget deficit in the fiscal year ending in September and has pounding fiscal headaches looming far beyond that. Some key buyers of its debt, foreign central banks, are launching their own expensive stimulus packages and would seemingly have better uses for their cash.
And while the U.S. government's access to cheap money helps its efforts to stimulate the economy, it also may crowd out other borrowers. Municipalities and companies with good credit histories are paying exorbitant rates to borrow, arguably extending the pain of the credit crunch.
"We have a remarkable situation in which a 30-year loan to the U.S. government with a taxable instrument pays you 3% and a loan to the state of Ohio pays you 5% tax-free," said David Kotok, president of money-management firm Cumberland Advisors in Vineland, N.J.
What else do you see happening in the near term?
With the government guaranteeing all manner of private-credit claims, many investors may decide to get long "socialism," for lack of a better term. Or, as some euphemistically put it, this is partnering with the government. So in the short run, we could see a rally in risky assets and a selloff in Treasuries. But the economic deleveraging has barely begun, and that's my longer-term thesis. It all revolves around the idea that U.S. consumers are actually going to do the unthinkable -- they are going to save -- and that we will be more like Japan than anyone believes is possible.
Hence, consumption declines.
Right. Wages have been silently crowded out by benefits as a share of total compensation, as companies look to offset rising health-care costs. The result is that the share of income that consumers can actually spend is at its lowest in the post-war period. It had not been a problem, because consumers would just borrow to fill that gap. But now, they don't have appreciating assets against which to borrow. So while we could get a rally in risk assets -- including high-yield debt -- it's likely to be a short-term rally within a context of a secular bear market.
With gasoline prices plunging and auto sales on life support, U.S. retail sales dropped 1.8% in November for their fifth straight decline, the Commerce Department reported Friday.
Retail sales -- which account for about a third of final demand -- were down 7.4% compared with a year earlier. In the past three months, sales have fallen 4.7% compared with the previous three months.
But the extent of the decline was exaggerated by a historic drop in retail gasoline prices in November. Excluding the record 14.7% fall in sales at gas stations, retail sales fell just 0.2%.
However, excluding those two sectors and the weak building-materials industry, retail sales would have increased 0.5% for the month. With the economy losing half a million jobs in November, said J.P. Morgan Chase & Co. economist Michael Feroli, "the most plausible explanation for the increase...is that gasoline prices dropped a record 30% in the month, freeing up purchasing power for those lucky enough to keep their jobs."