Jeff Saut: Don't get bearish yet.

"[W]e could see a few days of consolidation, but..

Saut:"[D]o not get bearish.The time to be bearish should come in July! "buzzandbanter.appspot.com/twitterShare.a…

— Vitus Capital (@ibilln) May 17, 2013

Saut Daily: The world is underinvested in US equities.

"Now that the anticipated move above 1600 has occurred the SPX should trade towards 1700 by July because the world remains profoundly underinvested in U.S. equities. After July, stocks should become vulnerable to a more substantial decline."

Saut: The world remains profoundly underinvested in US equities.buzzandbanter.appspot.com/twitterShare.a…

— Vitus Capital (@ibilln) May 15, 2013

Saut Daily: Keep the faith

"I think over the intermediate term the major market averages' declines should be contained somewhere between 1610 (minor support) and 1590 to 1600 (major support)"

Saut: Good stuff in ... 3rd Paragraph (sigh) (bullish) buzzandbanter.appspot.com/twitterShare.a…
— Vitus Capital (@ibilln) May 10, 2013

"I have said investors should scale-sell Utilities and Consumer Staples because they are about as expensive as they ever get. They should use that "freed up" money to buy Technology/Healthcare, which are trading at cheaper valuations than the Utilities"

Saut:Buy Tech, Healthcare buzzandbanter.appspot.com/twitterShare.a…

— Vitus Capital (@ibilln) May 9, 2013

Saut Daily: Well put arguments for prudent bullishness

[Due to Japan QE] it is believed that somewhere between ¥10 trillion and ¥20 trillion will find its way into foreign markets, likely in the U.S. and Europe, in search of better returns. Now it seems as if Draghi and company are getting ready to open their monetary spigots, which is why I have been saying for a very long time, "You can get cautious, but do not get bearish."

Saut:. buzzandbanter.appspot.com/twitterShare.a…
— Vitus Capital (@ibilln) May 8, 2013

DeLong: IT'S NOT THAT WE CAN'T MANAGE OUR DEBT, IT'S THAT RIGHT-WING REPUBLICANS SEEK TO BREAK THE ECONOMY AND THE GOVERNMENT

[T]he story isn’t “irresponsible politicians will always squander the good years”; it is “conservative Republican politicians run up debt even in good years, because they want to force cuts in social programs.” Charts/details by Krugman.

The Fed: A buoy for stocks. Restated.

David Kotok, 5.5.13: No central bank wants to shock the economy the way the Fed did in the late 1930s, with its too-soon response. Chairman Bernanke, Vice Chairman Yellen, and their colleagues in the Fed’s governance structure are very familiar with Fed history and the mistake made in the 1930s. They have written about it and referred to it.

That experience suggests that they will err in the direction of waiting too long before removing QE or tapering the existing process. They will not be symmetrical in the decision-making process between too soon and too late: too late wins this argument. For investors, that means a prolonged period of very low interest rates, which are bullish for asset classes of nearly all types.

Saut Daily.

Jeff Saut. Suggest reading first paragraph here...buzzandbanter.appspot.com/twitterShare.a…

— Vitus Capital (@ibilln) April 26, 2013

Market Perspective

We like charts 1,2,3 here as perspective/reminders. 4,5 - Eh...

Some Charts That Help Paint Our Current Field Position buzzandbanter.appspot.com/twitterShare.a…

— Vitus Capital (@ibilln) April 26, 2013

Housing: The Gen X, Gen Y factor

Peter Tchir: Housing is Great? Housing is okay. It may even be good, but I don’t see the “greatness”. Sales seemed to have stabilized and maybe even slowed down. Sitting around talking to people, I don’t know anyone who is looking to buy. Rich people buying a second home, I see some of...but I don’t see people looking to buy. Maybe I am talking to the wrong people (and I admit I don’t know many Frackers in the Appalachians) but I can count on one hand the people I have come across looking to buy homes for themselves, but I would need a spreadsheet to track those who are buying things in their portfolios in anticipation others will be buying homes.

I don’t think housing is bad. I think it is stable here. The system is slowly working its way through many of the issues, but the latest idea there is a supply shortage seems more like spin than reality.
Yes in certain areas where economic growth is good, there is a potential shortage of housing. There may even be good locations ava to develop. That is good.

The lower mortgage rates and time have done a lot to clean up the shadow inventory.

On the other hand, people under a certain age, call it 35? Seem to have no interest in buying a home or even having a big place. This is not just because of the bust we saw in housing, but is a function of a “mobile” generation. At one end of the spectrum we have people who live by landline [phones] (and are largely on medicare). In the middle (where many of us probably are) is some mix of cell phone usage, but a deep-set notion that not having a landline is one step away from being homeless. Then there is the new generation, who sees no need to have to deal with a landline. Who could care less about area code because there are no roaming charges based on phone number anymore, who can’t understand why anyone would have two phones (let alone actually use them to talk).

Note the housing section - T-Report:buzzandbanter.appspot.com/twitterShare.a…
— Vitus Capital (@ibilln) April 25, 2013

Fun With Pilot Small Smith

Noah Smith: KrugTron the Invincible



If you grew up in the 80s [Vitus:  80's?  Yikes!] you probably remember Voltron. Although the show often had convoluted plotlines, it would somehow always end with Voltron (a super-powerful robot formed from five mechanical lions) facing off against a monster called a "Robeast". Voltron had plenty of weapons, but he would invariably strike the killing blow with his "Blazing Sword". Eventually the show became kind of routine, but to a four-year-old, it was pure gold.

In the econ blogosphere, a similar dynamic has played out over the last few years. Each week a Robeast will show up, bellowing predictions of inflation and/or soaring interest rates. And each week, Paul Krugman...I mean, KrugTron, Defender of the Blogoverse, will strike down the monster with a successful prediction of...low inflation and continued low interest rates. Goldbugs, "Austrians", New Classical economists, and harrumphing conservatives of all stripes have eagerly gone head-to-head with KrugTron in the prediction wars, and have been summarily cloven in twain.

Don't remember? Well here's a quick (partial) episode guide: Here. Fun.

Saut Daily (vs. Rosenberg)

Continuing our Daily Saut report, which is, in our opinion, the most reasonably stated bull case extant. This is of course in contrast to David Rosenberg who continues to make the case that the economy is punk, therefore the market dangerous.
---
Saut: Yesterday's economic reports showed weakening manufacturing data with the PMI falling to 52.0 from 54.6 versus the consensus call of 53.9. The shortfall was due to declining new orders, employment and output, making one old Wall Street Wag comment, "When stocks ignore bad news, that's good news!" March new home sales, however, rose 1.5% MoM to an annualized run rate of 417,000 versus February's 411,000. Moreover, existing house prices are better by 12% YoY. Keep in mind that is hugely positive for consumer net worth, consumer confidence, and business confidence. And what the stock market is doing only amplifies those improving net worth trends. Yesterday's action lifted the S&P 500 (SPX/1578.78) back above its 10-DMA, making last week's test of its 50-DMA look successful. Tuesday's Triumph left the SPX with a strong move above 1562, and thus in a position to trade to a new all-time high since the daily internal energy of the stock market is now rebuilt on a daily basis. While the market's weekly energy levels are continuing to build towards a fully loaded level, the daily's level should be enough to lift stocks higher.
---
Rosie, 3/19: Make no mistake... growth is weakenrng. We see it in China. Russia is caught in the throes of a five-quarters-in-a-row slownown. European car sales are down 10% from year-ago levels. Unemployment in the U.K. is rising at its fastest pace in a year as the jobless rate drifts hack up towards 8%. In the US. we have the NY Empire and Philly Fed combined pointing to a 48 ISM reading for April - the manufacturing renaissance story is losing some of its lustre. Single famiiy starts dropped 4.8% in March and the April NAHB index slumped to a six-month low - the bloom is off the housing market's rose, a view bolstered by the 10% correctlon of late that we have seen in lumber pnces. And the coincident indicator of economrc actnnty nudged dorm 0.1% in March, the second drop in the past three months. In fact the coincident indlcator contracted 3% at an annual rate over the past three months - the last time It happened was July 2009.

Schwab down for last 30+ min.

Gawd.

WOT (World Of Twitter)

NEW YORK | Tue Apr 23, 2013 1:27pm EDT

(Reuters) - Stocks turned volatile on Tuesday, sharply cutting gains for a few minutes and then bouncing back, after a "bogus" Associated Press report about explosions at the White House.
---
Vitus:  Some folks lost some serious money here.  Since the drop and pullback was so violent, it was probably "professionals", so who cares :-).

In days of yore BT (Before Twitter) there was no way for AP to post a spurious instantly widely seen report. The issue of COT (Crap on Twitter) continues to rear it's head (dark-skinned male sought as suspect in Boston; Bullying, blah).

We hate the term, but we think Twitter, at least, has a good chance of "self-regulating":

A tweets:  CNN: North Korea nukes Japan!
---30 seconds---
B tweets:  CNN says this is bogus.

Tweeps will learn to watch for this.  Don't know what the longer term implications are.

History

Basically, Bush was an incompetent guy and a weak leader who believed too much in the virtuousness of his friends and backers.
— Noah Smith (@Noahpinion) April 23, 2013

Saut

Jeff Saut Daily buzzandbanter.appspot.com/twitterShare.a…

— Vitus Capital (@ibilln) April 22, 2013

More Saut

Jeff Saut buzzandbanter.appspot.com/twitterShare.a…

— Vitus Capital (@ibilln) April 19, 2013

(The last post was from Saut, but now his short takes are tweetable).

Rally intact we think

A guy we like and have been following (at Raymond James -Yikes...) says the following this AM:

When the equity markets are in a "bull move," one thing investors watch is the Advance/Decline numbers to see if the rally has good participation or if it is being driven by merely a few key stocks like it was in late 1999 and early 2000. Yet, after being range-bound for much of 2012, the S&P 500 Cumulative A/D Line has broken out on the upside and is at a new rally high. Also confirming that the markets have more room on the upside is the Selling Pressure Index that resides at new multi-month lows. However, the Buying Power Index is lagging, suggesting last week's rally was more about a lack of sellers rather than earnest buying. Speaking to sectors, Healthcare (+3.29%), Consumer Services (+3.14%), Consumer Goods (+2.72%), and Telecommunications (+2.29%) were the best performers and have left 8 of the 10 macro sectors trading in overbought territory. Along that same line, the SPX is still pretty stretched on a short- term basis, trading at roughly 10% above its 200-day moving average. Meanwhile, the market's daily internal energy level was somewhat depleted by last week's rally, and the weekly internal energy indicator is only half way charged up. Putting it all together suggests that while the equity markets may pause/pullback on this morning's China news, there is nothing in the "tea leaves" suggesting a repeat of the double-digit declines that began in the spring of the last three years.

Totes Hillair

North Korean missiles. Because any Taepodong is better than Nodong. twitter.com/azizonomics/st…
— Noah Smith (@Noahpinion) April 11, 2013

Thatcherism

'ol Glenda is an MP. 'case you thought this was some TV spot.

Save the children! (From the conservatives...)

Larry Summers (HT DeLong): I do not believe that the long run can be ceded to the avatars of austerity.

I am the father or stepfather of six children. Yes, on their behalf, I am concerned about the possibility that an overly inflationary psychology will develop in my country. Yes, on their behalf, I am concerned that an excessive debt not be placed upon them.

But I am vastly more concerned, because I care about their long-run future, that a slack economy will not provide them with adequate jobs when they leave school. I am vastly more concerned, on behalf of their long-run future, that they will live in a country with decaying infrastructure that will not permit investment to maintain leadership. I am more concerned on their behalf that inadequate resources forced by countercyclical austerity will stunt the ability of their generation to be educated. I am more concerned, on their behalf, that excessive austerity-oriented policies will lead to slower economic growth, and as a consequence to ultimately higher debt-to-annual-GDP ratios--and more pressure, in terms of higher tax burdens, on the future.

Those concerns, which come out of the improper management of current conditions, seem to me to be a larger issue especially for the long run than the concern that somehow unstable and overly expansionary policy starting from where we are now will stunt the opportunities that are open to them.

Now, of course, if policy were starting from a different place I would reach a different judgment.

But starting from where the United States or much of Europe or much of the rest of the industrialized part of the world is starting today, the risks of profound stagnation are a more pressing concern than the risks of a resurrection of stagflation.

What will the legacy of today's Jihadist Conservatism be? Brad DeLong provides a fact(Yikes!)-based estimate.

Brad DeLong:  In the 12 years of the Great Depression – between the stock-market crash of 1929 and America’s mobilization for World War II – production in the United States averaged roughly 15% below the pre-depression trend, implying a total output shortfall equal to 1.8 years of GDP. Today, even if US production returns to its stable-inflation output potential by 2017 – a huge “if” – the US will have incurred an output shortfall equivalent to 60% of a year’s GDP.

In fact, the losses from what I have been calling the “Lesser Depression” will almost certainly not be over in 2017. There is no moral equivalent of war on the horizon to pull the US into a mighty boom and erase the shadow cast by the downturn; and when I take present values and project the US economy’s lower-trend growth into the future, I cannot reckon the present value of the additional loss at less than a further 100% of a year’s output today – for a total cost of 1.6 years of GDP. The damage is thus almost equal to that of the Great Depression – and equally painful, even though America’s real GDP today is 12 times higher than it was in 1929.

When I talk to my friends in the Obama administration, they defend themselves and the long-term macroeconomic outcome in the US by pointing out that the rest of the developed world is doing far worse. They are correct. Europe wishes desperately that it had America’s problems.

Nevertheless, my conclusion is that I should stop calling the current episode the Lesser Depression. Yes, its shape is different from that of the Great Depression; but, so far at least, there is no reason to rank it any lower in the hierarchy of macroeconomic disasters.

The US bond market agrees with me. Since 1975, the nominal annual premium on the 30-year Treasury bill has averaged 2.2%: in other words, over its lifespan, the 30-year nominal T-bill yields are 2.2 percentage points more than the expected average of future short-term nominal T-bill rates. The current 30-year T-bill yields 3.2% annually, which means that, unless the marginal bond buyer today is unusually averse to holding 30-year Treasuries, she anticipates that short-term nominal T-bill rates will average 1% per year over the next generation.

The US Federal Reserve keeps the short-term nominal T-bill rate near 1% only when the economy is depressed, capacity is slack, labor is idle, and the principal risk is deflation rather than upward pressure on prices. Since WWII, the US unemployment rate has averaged 8% when the short-term nominal T-bill rate is 2% or lower.

That is the future that the bond market sees for America: a slack and depressed economy, if not for the next generation, at least for most of it.

Barring a wholesale revolution in thinking and personnel at the Fed and in the US Congress, activist policies will not rescue America. Once upon a time, policymakers understood that the government should tweak asset supplies to ensure sufficient supplies of liquid assets, safe assets, and savings vehicles. That way, the economy as a whole would not come under pressure to deleverage and thus push production below potential output. But this basic principle of macroeconomic management has simply gone out the window.

A majority of the Fed’s governors believes that aggressive monetary expansion has reached, if not exceeded, the bounds of prudence. A majority in the US Congress is taking its cues from “Theodoric of York, Medieval Barber” (a staple of the US comedy show Saturday Night Live in the 1970’s). It believes that what America’s infirm economy needs is another good bleeding in the form of more rigorous austerity.

As Oscar Wilde’s Lady Bracknell says in The Importance of Being Earnest: “To lose one parent…may be regarded as a misfortune. To lose both looks like carelessness.” It was America’s misfortune to undergo one disaster of the Great Depression’s scale; to undergo two does indeed look like carelessness.

What, then, should economists who seek to improve the world do, if we can no longer realistically expect to nudge policy in the right direction?

At a similar point in the Great Depression, John Maynard Keynes turned away from focusing on influencing policy. Instead, he attempted to reconstruct macroeconomic thought by writing his General Theory of Employment, Interest, and Money, so that the next time a crisis erupted, economists would think about the economy in a different and more productive way than they had between 1929 and 1933.

This week, the economist and frequent US official Lawrence Summers, in a lecture at the London School of Economics, called for another reconstruction of macroeconomic thought – and of the institutions and orientation of central banking. That is a Keynesian ambition, but can it be accomplished? A latter-day Keynes is nowhere to be found, and no Bretton Woods-style global consensus to reform central banking is on the horizon.  (Vitus emphasis)

Richard Posner: The Failure of Capitalism

"Let the market decide!" That has been the battle cry of free market aficionados from the day Adam Smith first suggested that private avarice might transubstantiate into public virtue right through to the unspoken suppositions buried deep within Congressman Paul Ryan's god-awful budget that tax cuts pay for themselves and the whole point of national fiscal policy is to lift from the minds of America's job-producing investor class the dark clouds of uncertainty...

In his 2009 diagnosis of the most recent financial crisis, The Failure of Capitalism, [Richard] Posner concluded that the fundamental problem with free market capitalism is that behavior which is perfectly rational when pursued by individuals, and individual firms, is disastrous when that behavior is aggregated across the entire society...

The "rational maximization" of businessmen and consumers all legally pursuing their self-interest, together and intelligently, within a framework of property and contract rights, was all it took to "set the stage for economic catastrophe."

It's this "rational indifference" to the consequences of one's own business and consumption behavior, which is an indifference baked into the very nature of the "free" market itself, that explains why government has a duty to do more than merely prevent fraud, theft and other infringements of property and contract rights, even though this "is the only duty that libertarians believe government has," as Posner says.

Government also has an obligation to regulate financial behavior, says Posner, for without such regulation "the rational behavior of law abiding financiers and consumers can precipitate economic disaster."  link  HT Ritholtz.

More DeLong: Debunking the Makers-Takers meme. Once and for all.

Exactly how did once-respectable conservative economists get swept up in “moocher class” mania?

...The economics I was taught was the economics of Adam Smith and John Stuart Mill and Alfred Marshall and John Maynard Keynes and Milton Friedman and Paul Samuelson and even Friedrich Hayek. That economics was concerned with the nature and causes of the wealth of nations, and with efficiency and equity: efficiency because it was wasteful not to produce what necessaries, conveniences, and luxuries we could; equity because it was wasteful to have the avarice and luxury of the rich doing little to add to the sum total, while the poverty of those sleeping under bridges and begging for bread in the streets did much to reduce the sum total of human felicity. And deserts—the fact that some people deserve what they have and others do not? That idea never made any sense to Adam Smith, for he saw that the overwhelming bulk of our wealth is our joint product through our collective division of labor, rather than the individual creation of some Randite John Galt, who if truly left to stand alone on his own two feet without the social division of labor would soon have his bones bleaching in some Colorado canyon...

DeLong: Clear thinking (and writing) about government debt, deficits, and the resultant impending doom.

DeLong: Briefly: (a) federal government spending creates fiat money--liquid debt of the federal government. This money can then be uncreated by (b) levying taxes or by (c ) open-market operations that transform non-interest paying reserve deposits into interest-paying federal debt. Whether you do (b) or (c ), and how much you do of (b) or (c ), are technical financing decisions, but there is no such thing as "undermin[ing] the financial integrity of the nation". Federal spending is always funded by money creation, and the government then adjusts the money supply by levying taxes and conducting open-market operations...

When will our deficits and debt accumulation start the process of beginning to create real financial risk we need to guard against? We don't know. But we do know that the bond market will be very happy to tell us when the process starts.

Obama is the only person in Washington who actually wants a Grand Bargan.

DeLong:  "It is hilarious how much the centrist deficit-hawk Grand Bargain cheerleaders detest Obama and blame him for his failure to get a Grand Bargain, because he often seems like the only person in Washington who legitimately, sincerely wants one. So Barack Obama did his 'charm offensive'…. The problem isn’t actually that Barack Obama was insufficiently charming. The problem is… Barack Obama wants to cut the deficit. Republicans don’t care about the deficit. Barack Obama wants to cut the deficit by raising more revenue and cutting social insurance programs. Republicans hate taxes and don’t actually want to cut social insurance programs for old people… 'charm' is not really the problem…"  Vitus emphasis.

Dear Google

Please respond as to which services will be discontinued, and the timeframe therefore.  We note that Reader seems to be gone already.  Thank you.
---

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DeLong: A clear, precise, short, and wise discussion of QE and friends.

DeLong:
Re: "The recent emergence of Obama Federal Reserve Board appointee Jeremy Stein as the intellectual leader of those engaged in trying to push the Federal Reserve to abandon its policy of persistent low interest rates and massive asset purchases as soon as possible...":

As I understand Jeremy Stein's view, it goes more or less like this:

Bankers want profits. Bankers fear reporting losses, for a bank officer who reports a loss is likely to lose his or her job. And a bank has costs above and beyond the returns on its portfolio. For each dollar of deposits it collects, a bank must spend 2.5 cents per year servicing those deposits.

In normal times, when interest rates are well above 2.5 percent per year, banks have a normal, sensible attitude to risk and return. They will accept greater risk only if they come with returns higher enough to actually diminish the chances of reporting a loss. But when interest rates fall low enough that even the most sensible portfolio cannot reliably deliver a return on the portfolio high enough to cover the 2.5 cent per year cost of managing deposits, a bank will "reach for yield" and start writing correlated unhedged out-of-the-money puts so that it covers its 2.5 percent per year hurdle unless its little world blows up. Banks stop reducing their risk as falling returns mean that diversification and margin can no longer be counted on to manage them but instead embrace risks. They are not gambling for resurrection--they are not insolvent. But they are gambling for job tenure--and they do so in ways that regulators are unlikely to be able to catch.

In the late 1980s, when the savings and loans of Texas found themselves underwater, they mobilized their senators to get them regulatory forbearance so that they could use risk, chance, and the government's guarantee of their deposits to try to refloat themselves. If they did not try, they would be shut down. If they won, good. And if they lost--well, that was the government's problem. They lost--and the government had to set up the RTC and ride out the 1991 recession.

Stein's contention is that the same processes are now growing in America's commercial banking sector, growing larger with each year that interest rates remain at their current super-sub-normal levels.

It is Stein's judgment that right now whatever benefits are being provided to employment and production by the Federal Reserve's super-sub-normal interest rate policy and aggressive quantitative easing are outweighed by the risks being run by banks that are reaching for yield.

I do not know why this is Stein's judgment. I do not know how I would go about making such a judgment. I do think that Stein's arguments are one more reason that we ought to have a much more aggressive and expansionary fiscal policy--that we should not be satisfied with the current macroeconomic situation not just because of the out-of-equilibrium sub-normal level of employment, but also the out-of-equilibrium sub-normal level of interest rates--and a more aggressive and expansionary monetary policy via a higher inflation target as well.

Scariest Chart in the World

Not the first to post this (S&P)...

Rosenberg Daily - What to buy

There are parts of the equity market I like and parts I do not. That much is true. What I truly do not like are simplistic themes like this ‘Great Rotation` theme, or when I hear or read (see page 21 0f Barron's) that “Americans remain underinvested in stocks" and cite data like private pensions that “have only 35% of their assets in equities, well below the long-term average near 45%”. Well, what if they were overinvested at that 45%? What does that even mean - you aren't “over" or “under” based on some historical average, but based on your benchmark target, assuming you have one. If you are bullish, then be bullish for the right reasons - that you agree with the Bloomberg consensus view of 7% EPS growth (though these estimates are coming down at a fairly rapid clip), that your valuation metrics are flashing a “green light", or that this 85% correlation between the Fed's balance sheet and the S&P 500 manages to stay intact and avoid the laws of diminishing returns.

I do happen to like stocks that trade like bonds (hybrids dividend growth) and bonds that trade like stocks (credit arbitrage - corporate hond spreads are still quite attractive). Payout ratios of 36% are up from 29% two years ago but still far below the 50% long-run norm. See Shaking the Money Tree on page 26 of Barron's - it cites analysis showing how a yield-and-­payout strategy would have delivered better than a 13% total annual average return over the past Sixteen years.

Combine that with a “hard asset" hedge in deeply undervalued sectors too - for examples, see How to Play the Battered Gold-Mining Stocks on page M9 ofthe current Barron's and A Comeback for Coal on page M11.

Rosenberg Daily - Bonds still good

[A]ll this talk ofthe ‘Great Rotation' was just that - talk. Yes, equity funds took in $42 billion in January, the sixth largest net inflow on record (weekly data point t0 a further $18 billion net inflow in February). But what is key is that this was not at the expense of bonds or bond proxies, but rather cash on the sidelines being deployed (money market saw net outflows of $10.7 billion in January. as an example). Bonds are not seeing a negative rotation at all - in fact, taxable bond funds actually posted net buying of $25.7 billion which was nearly triple the $10.4 billion recorded in December, while hybrids (income equity that trade like a bond) attracted a record high $9.9 billion last month. The ‘Great Rotation' is a cash story, not a bond story - which was our point all along.

Carrying Water for the Rentiers

Ludwig Von Mises mocks those who would dare point out the obvious: (HT DeLong)

"Nonetheless, many people, and especially intellectuals, passionately loathe capitalism. As they see it, this ghastly mode of society’s economic organization has brought about nothing but mischief and misery. Men were once happy and prosperous in the good old days preceding the Industrial Revolution. Now under capitalism the immense majority are starving paupers ruthlessly exploited by rugged individualists. For these scoundrels nothing counts but their moneyed interests. They do not produce good and really useful things, but only what will yield the highest profits. They poison bodies with alcoholic beverages and tobacco, and souls and minds with tabloids, lascivious books and silly moving pictures. The “ideological superstructure” of capitalism is a literature of decay and degradation, the burlesque show and the art of striptease, the Hollywood pictures and the detective stories." ---The Anti-Capitalist Mentality (1956)

Von Mises, born in 1881, came of age in the 19th century. Note the humor and irony in the above. Not so humorous or ironic? Certainly not to a modern ear.

Actually, the passage is, to Vitus, a fairly clear antecedent of modern conservative "thought" - the poetry of class warfare. Poetry? Yes - not science, not economics, not history, not moral philosophy, not facts. Just name-calling - but effectively, artfully so. A free-verse art is, sort-of by definition, poetry. In Von Mises' case, art of the 19th century; admittedly a bit flat on today's scale.

"They do not produce good and really useful things, but only what will yield the highest profits." - The imagined complaint of of, in today's parlance, the Takers, of the Makers. But we are a hundred years more knowledgeable now. We know that the Marxist characterization of Capitalists as only interested in profits, while having an echo of truth, is clearly naive. We know about Silicon Valley.

Capitalism is many things. It it's Steve Jobsian form, it produces goods and services which, through markets, are rendered useful, affordable and valuable to many. It is responsible for the amazing advance of the human condition in the 20th century. It -does- "produce good and really useful things".

In capitalism's Mitt Romnyian form, it is venal, mean, self-serving, and value-destroying. In the latter link Vitus makes the case that if the success of your business depends on a material change to the regulatory regime, if you spend your time working the system rather than building things or providing value in some clear way, then you manifestly deserve the Marxist vituperation that Von Mises mocks. You have met the enemy and he is you.

Galtian minions such as Beck, Limbaugh, and Paul Ryan, use the poetry of class warfare to charm the innocents of America, who never suspect they are carrying water for their overlords. It's much easier to charm the masses to give you money, than to do actual work. Von Mises:  The Glen Beck of 1956.

Krugman Daily

• Obamacare's Vast Cost: [I]sn’t it bizarre that governors who protest bitterly about the cost of Obamacare, and in general about wasting taxpayers’ money, are willing to throw away lots of money via corporate welfare? Actually, no; it’s only puzzling if you think they believe anything they say.
• Austerity vs. Democracy: Those preaching austerity probably do not see themselves as contributing to a crisis of democracy, but they are. The Italian elections should remind eurozone leaders to pay attention to their voters. Economic fixes have failed to staunch a political crisis that has the capacity to harm not only EU integration, but the legitimacy of the continent’s democratic order itself.
• Lying Republicans: [S]ome years ago Malaysia’s ruling party took a good look at leading pundits and policy intellectuals in the conservative movement, reached a judgment about their personal and intellectual integrity or lack thereof...Funny how Malaysia gets who these people are and what motivates them — while our own press corps doesn’t.

A short course in the history of the crisis, courtesy of Prof. Krugman

The financial crisis of 2008 and its painful aftermath, which we’re still dealing with, were a huge slap in the face for free-market fundamentalists. Circa 2005, the usual suspects — conservative publications, analysts at right-wing think tanks like the American Enterprise Institute and the Cato Institute, and so on — insisted that deregulated financial markets were doing just fine, and dismissed warnings about a housing bubble as liberal whining. Then the nonexistent bubble burst, and the financial system proved dangerously fragile; only huge government bailouts prevented a total collapse.

Instead of learning from this experience, however, many on the right have chosen to rewrite history. Back then, they thought things were great, and their only complaint was that the government was getting in the way of even more mortgage lending; now they claim that government policies, somehow dictated by liberals even though the G.O.P. controlled both Congress and the White House, were promoting excessive borrowing and causing all the problems.

Every piece of this revisionist history has been refuted in detail. No, the government didn’t force banks to lend to Those People; no, Fannie Mae and Freddie Mac didn’t cause the housing bubble (they were doing relatively little lending during the peak bubble years); no, government-sponsored lenders weren’t responsible for the surge in risky mortgages (private mortgage issuers accounted for the vast majority of the riskiest loans). Link.

Paul Ryan: You have a friend in Moscow!

MOSCOW  -- A meteor streaked through the sky and exploded Friday over Russia's Ural Mountains with the power of an atomic bomb, its sonic blasts shattering countless windows and injuring more than 750 people. The spectacle deeply frightened thousands, with some elderly women declaring the world was coming to an end...Vladimir Zhirinovsky, the nationalist leader noted for vehement statements, said "It's not meteors falling, it's the test of a new weapon by the Americans," the RIA Novosti news agency reported.

Fun with Uncertainty

Well...  If you had been reading Vitus' musings these last several years, you would be inured against the fundamentally humorous "uncertainty" meme which the radical right trots out whenever in danger of loosing the economic argument (all the time?).  Still, nice to occasionally see others notice the gorilla in the room.

Carolyn Baum, Bloomberg (HT Mark Thoma):  ...brings me to the subject of uncertainty, the presumed source of all things ailing the U.S. economy. Uncertainty is omnipresent. No one speaks of uncertainty during good times. There was lots of uncertainty in March 2000, when the Nasdaq Composite Index breached 5,000 as investors bought shares of Internet companies with no revenue, no profits and, in at least one case, no known business. No uncertainty back then; just a case of irrational exuberance.

In good times, the word uncertainty rarely appears in policy discussions. In bad times, it’s the default setting. Why not call it by what it really is, which is pessimism? When businesses say they aren’t going to invest because of uncertainty, what they mean is, they don’t think their investments will produce a substantial profit. (Vitus bold)
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Update:  And, kiddies, why won't investments produce profits?  Uh... no customers?  See "uncertainty meme" above.
Update2:  Marco Rubio, 2/13, in the Repub's response to the SOTU: "[T]he uncertainty created by the debt is one reason why many businesses aren’t hiring.” (link).  Raaht-on Bubba.

In Depth Commentary On The Latest from Paul Ryan: Sheesh.

From DeLong:
Yes, Republican Paul Ryan Is a Clown. Why Do You Ask?: "House Budget Committee Chairman Paul Ryan (R-Wis.), talking to CBS News yesterday, on automatic sequestration cuts: '"Don't forget it's the president who first proposed the sequester," Ryan continued. "It's the president who designed the sequester as it is now designed."' House Budget Committee Chairman Paul Ryan (R-Wis.), talking to Fox News in August 2011, on automatic sequestration cuts: 'What conservatives like me have been fighting for, for years are statutory caps on spending, legal caps in law that says government agencies cannot spend over a set amount of money. And if they breach that amount across the board, sequester comes in to cut that spending, and you can't turn that off without a supermajority vote. We got that in law. That is here.' These can't both be true. Either, as Paul Ryan said at the time, Republicans got the sequester in law, or this is all President Obama's idea."

US Airline mergers

Ritholtz strikes again.

Interesting graphic: How you are not likely to die

Economist; Ht Ritholtz

Companion to previous post - sent to Vitus clients yesterday

Vitaliy Katsnelson, who Vitus thinks highly of, thinks Apple is worth $600-800.  FYI. (below)

Vitus?  We think we are in a very stealth and selective bull market.  Lots of gut-wrenching pullbacks ahead.  The one thing which has changed for Vitus is that for the first time in our lives we are buying tech - modestly (stealthily; selectively).  These days it's a widely stated but not widely acted upon meme that the 90's-era tech world is the new value world.  Apple yielding 2.3%; Cisco yielding 2.6%, Msft yielding 3.4%.  Qcom 1.51%, Orcl 0.7%  Whoda thunk?

As we say, fyi.  

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Understanding Apple Requires an Analysis of Fundamentals and Psychology 

How Much Would You Pay for the Apple Ecosystem?
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Update:   Ritholtz on Apple.

Vitus turning tentavely bullish on stocks

Kevin Lane: Majority market opinion is calling for a correction or using the industry’s most over used term, “overbought.” The current street banter seems to center on the theme equities are overbought, speculation is rampant and it’s a stock love fest. However, our experience is that we have never seen a significant correction when everyone is talking about how “overbought” the market is or how stocks are way “too extended.” We find it hard to believe that after hiding under a rock for nearly five years, that a few months of equity inflows means investors have gone from petrified to exuberant. That process in our opinion is a longer arc, not a singular event. While clearly markets can and will have pullbacks. We think the overbought chatter comes from many investors rationalizing aloud why they are under-invested.

Also, see this. Note the chart. At Vitus, we think this is a persuasive chart.  (However, note the log scale).

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Qualification: We are guaranteed to have several vary gut-wrenching pullbacks in the medium term (over the next three years).

Rosenberg Daily - Bond selloff - not.

Bond markets are taking it on the chin so far today as the risk-on trade suddenly reasserts itself. As I have said before, seasonals, technicals and supply are at play. The overall disinflation fundamentals remain a powerful tallwind and will win the day, rest assured. I was taken by the article on page B1 of todays WSJ showing how the discount stores are adding tremendous capacity as they seek to meet the demands of an ever increasing costconscious consumer - and in the meantime, cannibalizing their own businesses. Maybe we will soon be calling them half-dollar stores. Dollar General said last week that it is opening 635 new stores this year (!) to its base of around 11,000 shops. Dollar Tree is adding 200 to its stock of 4,400 and Family Dollar, which has more than 7,000 outlets, is adding 500 more after 200 openings last year.

This is not the consumer foundation for a resurrection of inflation. It is a prolonged post-bubble era of frugality. Higher taxation will only serve to heighten this trend. So for the bond market- please. Take a deep breath. It always sells off in the first quaner and it is largely seasonal in nature. The 10year T-note yield rose 34 basis points in the first quarter of 2010 and the yield went on to decline the rest of the year. In 2011 Q1, much the same with a l7bps increase in yield followed by a complete reversal the rest of the year. In the first quarter of 2010, when escape velocity and economic rejuvenation was all the rage, the 10-year yield was little better than range-bound and then in the next three quarters fell more than 50 basis points. Bill Murray in Groundhog Day could not possibly play this role any better.

The Grand Old Party

"Government Of the people, By the people, and For the people."

Republicans: "the" is spelled s-o-m-e, right?

Quote of the day

Krugman:
Republicans don’t care about the deficit. They care about exploiting the deficit to pursue their goal of dismantling the social insurance system. They want a fiscal crisis; they need it; they’re enjoying it. I mean, how is “starve the beast” supposed to work? Precisely by creating a fiscal crisis, giving [one] an excuse to slash Social Security and Medicare.  ...Vitus emphasis
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Update.  So, the above is about one set of yellers about the deficit - Randian true believers who go forth into the world to rid it of undesirables:   Moochers, takers, and of course old people.  Sort of like an SS for the new era.  The deeply weird Paul Ryan is head cheerleader.

The other set is a (large) group of folks who's thing is simply to pay no taxes.  They've got theirs; why "give" money to anyone else?  No government, no tax!  But -  not to say the latter out loud - not polite.  Hide it in a serious-sounding (but content-free) argument about saving the grandchildren from certain destruction.  (Poor babies! - yuk yuk yuk)  Kochs and Petersons come to mind.  Mitt Romney, though, is a master.  Not only pay no taxes... arrange for the government to give you money.

What a country.

Vitus on AAPL

For several days the whole market has been furiously discussing AAPL. After yesterday's disappointing earnings announcement, all the pundits are out declaiming AAPL's many obvious flaws. Note that the pundits were not declaiming so loudly before the earnings report, nor were the flaws' obviousness so widely acknowledged.

We are not AAPL fan-persons (we do have a Mac, which, after trying all the PC's available, we actually do love), but we must demur from the consensus, which was aphoristically (since we are into aphorisms today) captured in Mr. Cooper's article below, as basically ".. when everyone you know has an iPhone and an iPad, the cool can rub off quickly." Another view is from a prop. source: "Ultimately, my big fear is that Apple suffers from ongoing multiple compression on higher and higher earnings, resulting in a stagnant stock price a la Microsoft"

The reason we basically disagree is that the personal computing firmament is switching (finally!) from a desktop / local data world to a mobile (phone/tablet) / cloud-centric world.  (See the Mac data in the earnings report link, above.)  This is almost as important as the switch from mainframes to PC's, in our humble opinion.

AAPL is the leader in phones and tablets, and has one foot in the cloud. At Vitus we prefer Android technology over IOS, but for the vast majority, the iPhone/iPad world is a perfect world. There's is a brand bandwagon which will keep rolling for a very long time. AAPL does need to fix their hideously brain-dead iCloud stuff, but one can just ignore it and use DropBox, Google Docs, or whatever.

The point is that AAPL is very well positioned for the future and has a good footprint in legacy technology (Macs). Microsoft has been bringing up the rear on the future for a number of years. Fundamentally different.

Is AAPL vulnerable on mobile (iPhones, iPads, IOS)?  Of course (NB Google). But AAPL is the new and current king of the hill, whereas MSFT has (had?) been king for a very long time. AAPL has had several near-death experiences. The DNA at Apple is to run scared. Remember the concept of The HP Way? A company built with a specific vision imbued in the culture is very, very robust.

Sure, AAPL is now more of a value play than a huge grower. The predictions of a $1000 AAPL stock are revealed to be over-reach. But at Vitus we like the stock, esp. at this price. See the Buffett quote below.

Apple aphorism... (?)

Confident Investor ‏@ConfidentInvest

It is better to buy a wonderful company at a fair price than to buy a fair company at a wonderful price. -Warren Buffett

It's not about earnings...

Market aphorisms inspired by Apple today by Jeffrey Cooper:  

It’s not about the earnings. There is zero correlation between a stock's performance and its earnings in any one-year period. Over the long haul, yes, but not in any given year.

It’s about being over-owned and under-owned -- that quaint concept of supply and demand. That old familiar free market concept is what drives stock price: more buyers than sellers, more sellers than buyers.

A stock is either under accumulation or under distribution, or going sideways, having reached equilibrium.

This is the backbone of the perversity of Mr. Market, whose job at the end of the day is to hurt the most people. Mr. Market’s just doing his job, just like the Bear must ultimately do his job: the vast majority cannot side-step a bear market because it’s the job of the Bear to wring out the excesses and clean the slate.

At the bottom in 2009, the values present by several measures such as book value were not what they were at the bottoms in 1974 or 1982.

I think the likelihood is that this is going to happen. That means the odds are that there is a 3rd leg down in this apparent diamond pattern that began in 2000 -- a pattern that echoes what we saw in the 1970’s.

We should be near the false breakout top that occurred in January 1973 analogue, which was roughly 6 years from the Go-Go Top that occurred in 1966.

We are in the 6th year from the 2007 top.

One of the big bricks in the current wall of worry may be that  the markets were able to shrug off its badge, Apple, and advance despite the rust and the red in the icon.