Poor Deven Sharma.

Here’s a quick history I thought would be interesting:

8-5-11  S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.

8-7-11  The credit rating agency Standard & Poor’s showed “terrible judgment” in lowering the U.S. government’s credit rating, Treasury Secretary Timothy Geithner said Sunday.  Yes, the same Tim Geithner who had to amend his tax returns for 5 years (2001 – 2006) soon after being nominated to head the US Treasury.  Yes, the same department that oversees the Internal Revenue Service…you just can’t make this stuff up.  Anyway, THIS guy questioned S&P’s move.

8-18-11  The Department of Justice (DoJ) is trying to establish whether analysts at S&P were put under pressure to keep higher ratings on mortgage-backed debt for business reasons by executives, according to The New York Times.

8-22-11  Dow Jones Industrial Average falls almost 1,000 points since the rating was cut on August 5th.

8-22-11  Associated Press reporting that Deven Sharma, President of Standard & Poor’s, is “stepping down”, an announcement coming only weeks after the rating agency stripped the US of its AAA credit rating.

8-22-11  Doug Peterson named new President of Standard and Poor’s.  What was Peterson’s last role you ask?  Why, he was the Chief Operating Officer of Citibank….yes, same bank that required $45 billion in 2008 to stay afloat.  Why wouldn’t the COO who drove a large US bank to the brink be the best candidate to objectively oversee credit ratings…especially credit ratings of old friends??

Pass the smell test for you???

TD

 

 

Hot Topics of the Day

Bloomberg appears to be one of the few high-profile financial news sources reporting on the fact that Venezuela’s central bank has requested its 99 tons of gold holdings from the Bank of England.  While Chavez is sort of a nut job, I think this is an interesting development.

Reuters is reporting that Goldman Sachs’ top crook (Lloyd Blankfein) has hired Reid Weingarten, high-profile Washington defense attorney.  Weingarten’s past clients include a former Enron accounting officer.  Goldman Sachs….dirty….really?  For those not aware of how despicable this company is, check out the following articles by  Matt Taibbi of Rolling Stone:

The Great American Bubble Machine | Rolling Stone Politics

The People vs. Goldman Sachs | Rolling Stone Politics

Bank of America came out today warning of a replay of 2008 with respect to policy errors that crushed the economy.  A few quotes:

For mortgages and housing, the 6-year pattern appears particularly problematic. Rates have hit new lows in each successive year since 2006 (Chart 13) but the response, in terms of increased home purchase mortgage applications (Chart 14), has also decreased in each year. The latest week’s sharp 9% drop in purchase activity, as mortgage rates hit a record low, was especially disturbing. The purchase index has not yet taken out the low from a year ago, but it is close to doing so. It appears as if the Fed’s multi-year move to lower rates has been pushing on a string all along when it comes to housing demand.

The environment has become too overwhelmed by uncertainty, particularly on the policy front. In our view, the pressure to “do something” is now far more likely to result in more desperate or radical measures, even if it is bad policy.

Coal Post…sorry, almost football season.

Table

• Average weekly coal commodity spot prices

Graphs

• Historical average weekly coal commodity spot prices
• U. S. monthly coal production
• U.S. eastern coal production
• Electric power sector coal stocks
• Average cost of metallurgical coal priced at coke plants

There’s an absolute ton of data on coal, so I’m going to give you my “quick” 2 cents on this.  The bottom line is that you can make the case on either side of coal.  On the one hand you have recently weakened demand, significant government regulation, tough competition from another high supply domestic energy source:  natural gas.  Finally, like other commodity sectors, the fortunes of the coal industry are closely tied to the health of the global economy.

On the other hand, it’s difficult to ignore the fact that  coal remains the cheapest and most abundant fossil fuel in the US.  Since I’m not a believer in the theory that our financial challenges are anywhere near over, I think you’ll see green energy (ie:  expensive governmental regulation) become very unpopular.  The unfortunate nuclear disaster in Japan will also bring some fringe interest back to both coal and natural gas.

From my perspective, coal is more of a trade than it is a long-term investment.  This is not to say a patient investor can’t make money long-term in coal.  There just seems to be a lot of unanswered questions at the moment.  Having said that, it does look interesting as a trade.  There are many coal and coal related stocks to consider in this respect, but three that I find interesting are Arch Coal (ACI), Alpha Natural Resources, Inc. (ANR) and Patriot Coal (PCX).  Based on technical aspects, seasonal considerations and the potential for a near term announcement on QE3  (versus individual fundamentals), I think these companies deserve a close look.

This is not an investment recommendation.  Instead, it’s one person’s view of a near term trading opportunity tied to coal.  Think for yourself and do your homework before making any investments based upon this post.

TD

What about coal?

Early take from Accuweather (see below) on upcoming winter is interesting and has me thinking about coal companies and/or the railroads that transport coal.  Check out the forecast below (not as harsh as last year, but appears to be supportive to this idea in the short term).  My basis for this thought is the idea that the green energy movement is about to lose one of it’s most crucial ingredients….financing.  Unfortunately, cheap/dirty energy such as coal is likely to benefit.  The Japanese nuclear crisis hasn’t hurt the coal story either.  I’ll hit back later with more details.

Snow Forecast for the Winter of 2011-2012

Aug 9, 2011; 8:58 AM ET

I am going to try to keep this simple since it’s a prelim forecast for the winter and will be updated in October and December.

The basis of the forecast is on the prediction that a weak La Nina will be forming this fall and continuing through the winter. Last year, we had a strong La Nina with blocking over Greenland that lead to a very snowy winter across the Midwest and Northeast. While the pattern will be similar to last year, there will be changes in the pattern that will lead to the heavy snow areas shown on the map.

I am not convinced that blocking will be prevalent across Greenland this winter, however, with the trough axis predicted to be in the Midwest, that will lead to storms developing along the East coast and racing northeast. The cold will be back in the Appalachians, and that will lead to heavy snow in that area. The major cities will probably be fighting many mix precip storms with the snow lovers along the I-95 corridor pulling their hair over heavy snow versus ice and rain.

A storm track coming out of the Rockies will lead to storms moving through the western Great Lakes and a band of above-normal snowfall across the Midwest and western Great Lakes.

I also went with an above-normal snow area along the Front Range of the Rockies due mainly to arctic air masses coming down from Alberta.

While overall, the winter will not be extremely cold for the country, it will be cold enough for ice concerns for areas from Oklahoma to North Carolina. Fronts may have a hard time making progress into the South simply due to this summer’s heat dome hanging in across parts of Texas, New Mexico and Arizona. The good news for that area, while above-normal temps will continue, we should see storms cutting through the southern Plains that will lead to much needed rainfall after a summer of extreme drought conditions.

The mountains in the West should see the normal amount of snow and not the extreme snow that fell last year.

via AccuWeather.com – Meteo Madness | Snow Forecast for the Winter of 2011-2012.

Huge Implications Related to Latest Twist in Greek Bailout

I’ve wondered about the end game of our US treasury bond scheme for a long time.  For example, what will happen when it’s clear that we’re going to either default or apply the screws via a massive devaluation in our currency?  At that point, we’ll have completely lost the trust of the global community and yet we’ll continue to have massive funding needs.  Hmmmm.  What usually results from these situations is a compromise  from the desired terms of the weaker side of the potential transaction.  In this case, the bankrupt nation seeking more money might have to add a little juice to the deal.

Last night, The New York Times broke a story that described a new obstacle in the Greek bailout.  Three of the euro zone countries involved in the bailout are now demanding……drum role please………COLLATERAL.  “If this spreads as we fear it could, it is not a minor complication,”   said one European official who spoke on condition of anonymity.  First, can we simply use “major” complication instead of  “not a minor” complication?

On a serious note, this should serve as a shot across the bow to the US.  It won’t and you’ll hear all kinds of reasons why we’re different than Greece.  Again, think for yourself and consider the facts as well as the biases of the talking heads that will continue to explain why everything is OK.

TD

Great comments from Zero Hedge last night on M2…

M2 money supply is a classification of money that economists use when trying to quantify the amount of money in circulation.  Since the dollar is subject to the law of supply and demand, its valuation can be impacted significantly by large moves in M2.  In this case, our friends at the Fed  feel that creating more dollars is our only way out of our current problems…hence the growth in M2.  This really shouldn’t be a shock to anyone familiar with Ben Bernanke, who referenced Milton Friedman in a somewhat historic 2002 speech. He shared his thought on stimulating the US economy by printing money and subsequently dropping said dollars from a helicopter onto the economy, which then lead to his nickname: “Helicopter Ben”.    OK, enough about one of my favorite villains, this is a decent set up for ZH’s otherwise sleepy quote:

With reference to last week’s near record surge in M2 money supply:

“And if QE3 proceeds as planned and if US consumers actually start borrowing, this number (M2) is going much, much higher.  This would be bullish….for makers of wheelbarrows.”

Maybe it’s me, but that’s funny….and NOT funny at the same time.  This virtual meltdown of our financial system is a bit of a train wreck and if you can’t  laugh a little while the whole deal unfolds, I think you’re going to lose your mind.

TD

Today’s market action and your broker.

I’m just wondering what the fee based investor is being told about these market gyrations.  I’m not a big proponent of fee based plans, as their success is dependent upon Modern Portfolio Theory.  While many feel very comfortable with MPT’s ability to minimize volatility while maximizing returns given individual risk tolerances, the theory simply does not (actually can NOT by design) account for “black swan” type market action.

From my perch, the economic and geopolitical backdrop appears to be out of control.  A strategy that fails to account for this is somewhat suspect in my mind.  Unfortunately, MPT is a great story to tell anxious investors….it all sounds so logical.  “I understand your concerns Mr. and Mrs. Jones and that is why we have a 16.73% allocation in Mid Cap Value Coastal Bangladesh C shares.”

Ladies and gentlemen, please fasten your seat belts…it’s going to be a bumpy ride.

TD

When it comes to gold, think for yourself.

With Wells Fargo’s warning on gold earlier this week, I thought I’d share my perspective on just how meaningless these calls usually are.  Let me begin by stating that I have no idea where this gold run ends.  I wouldn’t be surprised with a giant gap down, nor would I be shocked to see this train keep on a chuggin.  At this point in time, I am a firm believer in our government’s ability and willingness to run this ship directly into the ground.  Part of the outcome will likely be a weakened (actually, I think crushed would be more fitting of my view) US dollar.  Based upon this, I have allocated much of my time and energy thinking about ways to play the fall in the dollar….enter gold.  I’m by no means a Johnny Come Lately to this party and I realize that it’s getting a little overcrowded at the moment.

So you have a very quick synopsis on my gold thoughts.  But, one should also note that this call from Wells Fargo was preceded by three other investment firms the week before, all of which raised their targets for gold.  On August 8th, Goldman raised their 12 month target to $1880, on August 9th, JP Morgan called for a rise to $2500 by year-end 2011, and on August 10th, Merrill raised their 12 month target to $2000.  To be clear, I have no faith in any of these firms or their ridiculous prognostications.  These firms are going to act in their own self-interest and you should as well.  What does this mean?  Read, observe and think for yourself.  If you hear people whose intelligence you respect counter your thoughts, dig a little deeper and make sure you completely understand your basis for the investment (this goes for any investment).  If you hear uninformed or clearly biased people countering your thoughts, use that as confirmation that you are doing the correct thing.

On the topic of bias, I guaranty you that brokers (they like to be called investment advisors, financial consultants, etc.) are making an inordinate amount of annuity recommendations to a very unsuspecting public, while at the same time shunning investments such as gold as reckless, overbought, etc.  The bottom line is that annuities are one of the highest commission paying investment products available to the brokerage community.  On the other hand, gold is one of the most cumbersome and lowest grossing trades for the broker.  This stuff really isn’t that hard to figure out if you just think for yourself.

TD

 

 

Inflation is an issue, regardless of this morning’s PPI print.

I hope people  don’t seriously place much weight on governmental stats such as cpi and ppi.  I see headlines this morning suggesting that investors are anxiously awaiting this morning’s ppi data, which is set to be released at 8:30.  I realize the role of media sometimes involves the making of a story out of nothing, but waiting for government confirmation that inflation is a problem is the equivalent of a 5′ 5″, 400 pound man asking his doctor if he’s fat…come on man, you know the answer here.

Whether it comes in high or low, ppi data should be a non-event at this point.  Seriously consider the value of a currency backed solely by the “Full Faith and Credit of the United States Government”.  Don’t confuse this with a non-patriotic assessment; it’s an unfortunate truth.  There are times to call a spade a spade and this is one of them.  The ostrich strategy isn’t going to help anybody.

TD

Who in the world is Anthony Coley????

So let me get this straight, Anthony Coley believes that US bonds are still AAA investments. Since I know that many of you are asking the same question I was:  “Who is Anthony Coley?”, I’ll tell you.  It seems that the uber quoted Mr. Coley is the “spokesman” (aka:  snake oil salesman) for the US Treasury Dept.  Yes, the organization that has already sold $9.4 trillion in questionable bonds feels that their questionable bonds are solid.

With this logic, banks should no longer waste time running credit reports.  Instead, the next time a complete deadbeat walks in and asks for a loan to help him make payments on his existing debt, the banker should just ask said dead beat for his unbiased opinion of his own creditworthiness.

This just in:  “Clive Dinkensaucer, spokesman for McDonalds has just released a communique stating that McDonalds’ french fries are really, really good.”  Kidding McDonalds, but you get the point.