Monthly Archives: March 2012

Mar 26, 2012

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For those that don’t believe me and want proof the markets are manipulated, Chris Sheridan over at financialsense.com reported this week the silver ETF (SLV) was forced downwards by a rapid number of machine-generated quotes exceeding a rate of 75,000 per second. Before you start to think that this was merely a bunch of people hitting the sell button all at once, consider this: They were all launched within the space of 25 milliseconds—ten times faster than you and I can blink!  What is the chance of that occurring by happenstance?

Here’s a chart of the second by second market activity in SLV where you can see the massive lightning-quick spike occurring at 13:22:33.  In less than 100th of a second, it drove the price down from $31.18 to $30.91. While that may not seem like much, if you were short 10s of millions of shares (there were over 200 million shares that traded hands this day) or in fact wanted to buy SLV, either way a drop in price of $.27 could make you millions of dollars.

Source: Nanex

Of course these unprecedented large volume price moves are not just limited to the extremely emotional gold and silver markets. A new study released last month, Financial Black Swans Driven by Ultrafast Machine Ecology, looked at 600 different markets around the world and found that these sorts of events happen routinely. Over the most recent five years of market data analyzed, 18,520 crashes and spikes occurred at a speed far exceeding human origin.

So what is going on here you might ask? Institutional traders armed with a view of every open order (and with help from some very smart mathematicians and programmers) have figured out a way to make money off human emotion by triggering sell-stops. As it turns out, millions of investors around the world reveal their emotional tolerance for how far a stock can vary before automatically buying or selling at a set price. With access to such highly valuable information and some very fast computers, one could make a killing by simply preying on the emotional levels of human greed and fear revealed by investors tipping their hand to the market.  At this point in time, not only is this perfectly legal, the oversight authorities feel the HFT’s provide the “necessary” liquidity to help the markets function.  While I am not very bright, this makes as much sense to me as allowing Congress to legally reap the rewards of privileged inside information when it is against the law for every other citizen they serve.

Mar 19, 2012

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Highlights from this past week

Did you know everyone see the piece on “pink slime” in the news?  If not, I encourage you to do some digging.

http://abcnews.go.com/blogs/headlines/2012/03/is-pink-slime-in-the-beef-at-your-grocery-store/

Let’s see if I have this right … at the slaughter houses, they gather up the trimmings (the connective tissue and other, ahem “extras” that can’t be sold as is) from hundreds of cows.  They heat them to 100 degrees and put it in a centrifuge, where the fat is spun off leaving the remaining byproducts. This “meat” by-product is susceptible to pathogens such as E. Coli and salmonella, so the meat has to be disinfected to make it so it won’t make you sick.  This is accomplished by treating it with ammonia gas.  The resulting “lean finely textured beef” is then used as filler in ground beef products. There are no precise numbers on how prevalent the product is (past estimates have ranged as high as 70 percent; one industry official estimates it is in at least half of U.S. ground meat and burgers).

Did you know that before pink slime beef approved by the FDA and was treated with ammonia and used by humans, it was used as dog food? Really! Makes you all warm and fuzzy knowing it’s okay to eat now because the USDA decided it is perfectly safe and healthy.  Hey I have a plan, let’s give it to (Mikey he’ll eat anything) our children for their school lunches. McDonald’s won’t use it anymore for their hamburgers, but somehow it’s perfectly ok for our schools lunch programs? Makes sense to me … in a Governmental sort of way (in an attempt to head off nasty emails – this is my attempt at sarcasm – I am only kidding!)

Talking about schools … 7 million pounds of “Lean Beef Trimmings” (pink slime beef) are used for school lunch programs. How much money do they save? How about 3 cents per pound or $210,000 per year.  That comes out to a savings of $4,200 per state and a whopping big savings of about 27.4 cents per student.   And for this, they are giving our children and grandchildren what used to be dog food?  Have we lost our minds?

Ok, I’ll get off the soap box but I do have to say sadly our Government has decided it is safe and as such does not require having it be labeled as a separate “ingredient”. I think consumers are perfectly capable of deciding whether or not to buy and eat pink slime, but they can only make that choice if there is transparency and labeling. Even if pink slime is technically “100% beef” let consumers decide what to eat and the only way to do that is by knowing the content of what we are eating.

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See, it’s not just California.  Makes you feel better, huh? – Harrisburg, PA will skip a March 15 $5.27M interest payment, reports Bloomberg. The city has been barred from a bankruptcy filing and a state-appointed receiver has been trying to come up with a plan for Pennsylvania’s capital to get out from under its massive debt load.

I hear patience is a virtue – A sobering spin on the jobs report is to gauge how far the economy still has to go. Using the Labor Department’s numbers, after the recession wiped out 8.8M jobs in about two years, the economy has only generated back about 3.45M in the following two. At a pace of 227K per month, it will still take a couple more years to get back to pre-financial crisis employment levels.

Complacency is at a level not seen since before the 2008 crash – Another down day for the VIX (VXX -2.9%) brings volatility (or fear) to its lowest level since the summer of 2007. The term structure – short-term risk relative to medium-term risk - plunges to its lowest level in at least a decade.

The Jason Borne market lives on – Investors should consider rotating out of hot emerging-markets dividend funds (DGS, DEM) and into defensive-minded domestic dividend plays like DVY, writes WisdomTree’s Neil Leeson. “We may be ready for the pullback,” he says, wishing “someone had put a dimmer switch on the doorway warning that the party is nearly full.”

Dr. Doom and the black swan’s latest – “I have no choice but to own stock,” says Nassim Taleb. “I don’t trust Treasury bonds. I’d rather have a dividend than a coupon,” he continues, succinctly making the case for big cap stocks. He’s also not afraid of the euro, saying “they know the problems in Europe,” but the U.S. does not.

No surprise here – The growth outlook for the Eurozone has deteriorated over the past 3 months, says Ernst & Young in its Spring quarterly forecast, now expecting 2012 GDP to contract 0.5%. Among the individual countries, Ireland’s GDP is expected to fall 0.1% against a previous forecast of +0.5%.

No!, I am not a part of the 17% and I still don’t get it - 17% of the world’s population used a social networking site in 2011, estimates eMarketer, and it sees that number rising to 20.4% this year. Facebook (FB) has single-handedly been responsible for much of this growth: though the company still gets over half of its revenue from the U.S., only 17% of its user base is expected to be American in 2012.

The 19% must be Facebook software coders - Optimism about the job market jumps in March, with 19% saying now is a “good time” to find a quality job, up from 13% previously, according to Gallup. It’s the highest read since September 2008, though still not a great number as 78% continue to say it’s a “bad time.”

As I have been saying forever … there is no way out - No central banker can admit it, writes Jim Leaviss, but today’s group doesn’t care about inflation, instead busily pressing real rates into negative territory to “erode the debt burden through stealth inflation … in the U.K., the Eurozone, and the U.S., central banks are keeping bond yields low enough to stop their governments from going bust – and that’s not going to change for the foreseeable future.”

Really!  This is shocking I say, shocking!  Whooda thunk? China really doesn’t provide accurate information – China’s National Bureau of Statistics highlights the problems of data collection in the country, saying officials in the city of Hejin in northern Shanxi province forced some hotels, coal miners and aluminum makers to report false numbers. The NBS “is demonstrating its resolve” to improve accuracy, says BofA’s Lu Ting, “but it has a long way to go.”

Now this is good news … finally someone is listening.  The CFTC plans to target high-speed trading firms that increasingly hold sway over the market and risk disruptions, according to Chairman Gary Gensler. The agency want to implement a new computer system that will help it download and track orders in an effort to keep up with trading algorithms that execute high volume strategies for firms in the blink of an eye.

Those darn Germans, I bet they are no fun at parties either – The Eurozone may increase the combined size of its bailout funds to €700B, according to officials. This would be over the “opposition” of the Germans who are at least talking a good game about keeping it at €500B.

Mar. 12, 2012

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I spent the weekend on the often arduous task of finishing up my 2011 taxes. If you have had the “pleasure” of doing the same, you probably noticed there were a few changes to where certain items were reported on the forms, most especially with regard to capital gains/losses. For those late starters among us, the IRS recently compiled a list of the top 12 changes it thinks you should know about for this year’s tax reporting.

1. Due Date Pushed Out a Couple of Days
The first thing you should know is that taxes are due this year on April 17, not April 15. That’s thanks to April 15 falling on a Sunday and April 16 being the Emancipation Day holiday in Washington, D.C.

2. Gotta Have the Paperwork
New forms are de rigueur this year for capital gains and losses (new Form 8949, Sales and Other Dispositions of Capital Assets) and foreign financial assets (new Form 8938, Statement of Foreign Financial Assets).

3. Expensing Mileage? Know When You Accrued it
You will need to divvy up your mileage for last year based on when you accrued it. For Jan. 1 through June 30, the rate is 51 cents per mile; for the rest of the year it is 55½ cents per mile. For medical and moving mileage the rate is different, of course; Jan.1–June 30, the rate is 19 cents per mile. For the rest of the year it is 23½ cents per mile.

4. Increases to Standard Deduction and Personal Exemption
Standard deductions and exemptions, says the IRS, are both up: the amount of the former depends on filing status for those who do not use Schedule A to itemize deductions, but the latter has been increased $50 to $3,700 for 2011.

5. Moving Things Around
The deduction for self-employed health insurance is no longer allowed on Schedule SE (Form 1040), but is now on line 29 of Form 1040 instead.

6. A Higher Alternative
Those subject to it this year will be happy to know that the AMT exemption amount has increased to $48,450 for singles, or $74,450 if married filing jointly or a qualifying widow(er); $37,225 if married filing separately.

7. A Matter of Health
If you have a health savings account or an Archer MSA, you will need to know that as of 2011, only prescribed drugs or insulin are qualified medical expenses. Also, the additional tax on distributions from HSAs and Archer MSAs that are not used for qualified medical expenses has increased to 20%.

8. Wrangling Roths
Did you convert or roll over money from a traditional IRA to a Roth IRA or designated Roth in 2010? If you did, and you did not elect to report the taxable amount on your 2010 return, you generally must report half of it on your 2011 return and the rest on your 2012 return.

9. Change to Alternative Motor Vehicle Credit
The alternative motor vehicle credit can only be claimed on a 2011 purchase if the vehicle is a new fuel cell motor vehicle.

10. Home Sweet Home (For Some)Most taxpayers are out of luck for the credit for first-time homebuyers; it expired for 2011. However, some military personnel and members of the intelligence community can still claim the credit in 2011 for qualified purchases.

11. Another Matter of Health
Recent legislation (there’s actually been some?) changed the amount of the health coverage tax credit, which pays qualified health insurance premiums for eligible individuals and their families. Participants who received the 65% tax credit in any month from March to December 2011 may claim an additional 7.5% retroactive credit when they file their 2011 tax return.

12. Make Sure you Send Your Forms to the Right Place
Last but far from least, the IRS would like you to know that the filing location has changed for a number of areas. If you are still relying on snailmail to send in your return, check the instruction book to see where it should go, or go to www.irs.gov.

Additionally, here’s a list of pertinent changes anticipated to occur by the end of the year and into 2013 (barring Congressional action) to be prepared for:

On Their Way Out
Five measures expire at the end of 2012. They are:

1. Payroll Tax Cut of Two Percentage Points
This will go away, resulting in the resumption of the customary 6.2% rate.

2. Top Income Tax Rate of 35%
This will change to 39.6%.

3. Capital Gains Tax Rates
Both the 0% and the 15% brackets will disappear, to be replaced by a single bracket of 20%.

4. Qualified Dividends Tax Rate
This bracket, which taxes qualified dividends at 15%, will disappear entirely and those dividends will be taxed as ordinary income.

5. American Opportunity Education Credit
This, too, will disappear.

Coming Next Year
Here are four tax increases scheduled to take effect in 2013. They are:

1. Net Investment Income Tax
This will be 3.8% for filers making over $200,000 (individuals) or $250,000 (married)

2. Phaseout of Personal Exemption
For a number of years the personal exemption was phased out as your income went up. While the phaseout expired (briefly), it is set to resurrect in 2013.

3. Itemized Deductions Limit
The “Pease” (named after the Congressman who proposed the limit) limit on itemized deductions, will hit those with incomes over $150,000.

4. Flexible Spending Account Limits
These are being cut from $5,000 to $2,500.

Source:

http://www.advisorone.com/2012/02/29/the-irs-speaks-top-12-tax-law-changes-for-2012

http://www.advisorone.com/2012/03/08/14-big-changes-for-tax-years-2011-13-tax-expert-be

 

Mar. 5, 2012

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It would be hard not to notice the recent rise in gas prices as they have risen more than 15% since the start of the year. The $10/bbl+ price rise in February alone has pushed prices at the pump nearing $4/gal average nationally while here in CA we “joyfully” welcome paying 10% more than that.

 

The estimates are that a sustained $10 increase in oil prices translates roughly into $25 billion in additional household energy spending. Assuming this price rise crowds out spending elsewhere in the economy, effectively acting as a tax, means that a sustained $10 rise in oil prices reduces annual real GDP growth by 0.2%.  Higher prices act as a governor and something we can little afford in the current tepid recovery.

As you would expect, the average American is starting to take notice and demand both answers and action.  In listening to both the talking heads and the media experts the “causes” are quite varied as you can see from what my research concluded below

1)      Early demand seasonality due to improved economy

2)      Refineries off line for maintenance in preparation for expected increased seasonality demands

3)      Saudi Arabian decision to reduce output

4)      Oil company greed

5)      Obama’s policies

6)      George Bush (it appears he is still the cause of everything bad in America)

7)      Increased demands from the growing emerging markets

8)      Disruption in Libyan output

9)      Tensions with Iran

10)   Commodity speculators

While I think that most of the above collectively contribute towards the increase, I would like to submit the following video as the major explanation for the long term rise (and, if so, what we can expect in our future).  The link is a youtube video and was (at the time of my viewing) clean of viruses and malicious code.