Interdum stultus opportuna loquitur...

Wednesday, December 10, 2008

USRant: Blame the Tumour, Not the Patient...

Note - from June 24th 2009, this blog has migrated from Blogger to a self-hosted version. Click here to go straight there.

I get really cheesed when people bang on about how the recent crisis represents a 'crisis of capitalism' or a 'failure of the free market' or some other such falderol. Every socialist twit on the planet is crawling out of the woodwork and proclaiming that the credit crunch and the ensuing decline in global equity markets, is a failure of the market system

Poppycock. Balderdash. Bollocks. Bullshit.

For a start: the moment government starts distorting the allocation of resources, any subsequent problem cannot be blamed solely on the market. 

Imagine trying to take an exam where there was a constraint: for example, if you were banned from answering any question if the question number was divisible by 3. 

Under such a system, your maximum test score would be 67% - a fair C, despite the fact that you answered every question you were permitted to answer, and every question you answered was answered correctly.

Now imagine that you're a budding entrepreneur. I can guarantee you that until your business is big enough to bribe politicians, government will take more than 1 dollar in three from you. You are hamstrung before you do so much as think up the business name. And that ignores the fact that government takes (roughly) half of all private sector earnings in taxes - so folks have fewer dollars to spend on your output in the first place.

So, young Capitalist... you can only keep a maximum 67% of what the market thinks your efforts are worth, and demand for your product will be at least 30% lower than it would be in the absence of government.

Let's set that down as the first point in the argument that genuine free-market capitalism has never actually been tried: the system operates under external constraints on expenditure and capital allocation, and those constraints are imposed by government - a group of parasitic careerists whose only aim is to enrich themselves and their mates, and the majority of whom have never done anything other than be politicians.

Politicians will extort one dollar in three (at least) but they will also tell you what you can produce and to whom you can sell it: entire markets may be off limits to you unless you fork over dough to the political-parasite class. Still other markets will be off limits because one group of political parasites (e.g., the US government) has a beef with another set (e.g., the Iranian government).

We're moving further and further from 'free markets'.

Another knife to the heart of genuine free markets: the fact that a bunch of politically-appointed career hacks attempt to 'pick' the optimal price of short-run credit for an economy of the size and complexity of a modern economy (or anything bigger than a local bake sale). 

Invariably the people anointed by the political parasites to do the Central Planning of the entire monetary system will have had no experience whatsoever in the private sector; Greenspan tried to be a consultant in the 670s and 70s but the company failed and he had to retreat to the bureaucracy. (Don't think for a second that I consider JPMorgan or Goldman Sachs as part of the 'private sector': JPMorgan became a de-facto government entity in 1895 and Goldman in 1991).

Central Planning the Yield Curve is the most hubristic exercise in the world - one that is always doomed. Dooooomed, I tells ye.

The Central Planning of the Yield Curve, plus 1990's government legislation to force banks to lend to unqualified homeloaners, is entirely to blame for the current crisis. Derivative messes and the CDO/subprime shenanigans - the attempt by the markets to shift risk away from mortgage originators - all stem from the quest for yield in a world in which a bunch of politically-appointed morons kept interest rates waaaay too low for waaaay too long.

I'm not saying that Wall Street (which is practically an arm of government) did not do some idiotic stuff - but they were responding to constraints and incentives that were furnished and magnified by government. What everybody did is respond to incentives subject to constraints. Both the incentives and the constraints were skewed by policy fiat, put in place by a bunch of parasites. I shudder to think of how the economy would have lkayed out under, say, Stalin or Mao.

And finally - as if the myth of free markets needed any further dis-assembly: from time to time, government will use some of the taxes it rips out of your business (and the paypackets of those who would buy from you) and launches an attack on some other country. Usually - in fact almost always - they do it in order to shore up the financial fortunes of a political crony: be it United Fruit in the Phillippines in 1898, of Halliburton/KBR/ChevronTexaco in Iraq in 2003.

And what's more, if they can't get enough tax out of you and your customers, they borrow the difference - saddling your kiddies and the kiddies of your customers with mountains of debt.

So considering that private enterprise (and private labour effort) has to carry a parasitic organism the size of the government (1/3 of the economy, at least - and therefore 50% of private sector effort and activity), I think it does a remarkable job just to stay afloat.

Imagine if Michael Jordan had suffered from a tumour that constituted 1/3 of his bodyweight - and yet he was still able to outshine every other player in the league. Would you cut the man some slack?

Economic News

The Treasury Budget showed a deficit of $164 billion - slightly better than the consensus estimate for a $171 billion deficit. The aggreage deficit for the last 12 months is $684 billion.

Bear in mind that this number is the deficit as calculated by the government itself - and it is calculated in a manner that would be judged misleading aif it was done by a rivate enterprise and the CEO of the enterprise would go to jail. 

The 'deficit' includes no accounting for accrued future obligations. That said, it is also not a 'cash in versus cash out' accounting either - there are 'off budget' items (most of the Iraq War spending for example) which are not included. 

In short, the only was to establish the actual net government cash flow position is to examine the Net Public Sector Borrowing Requirement - the actual net increase in government debt. That's grown at a staggering rate. 

Wholesale Inventories fell 1.1% (consensus was for a decline of 0.2%); more importantly Sales fell 4.1% and the Inventory-Sales ratio rose a tad as a result.

Inventory is a slippery thing - it can rise (or fall) due to planned production decisions to keep more (less) inventory, or changes in inventory may be due to weak demand. With sames as weak as the report suggests, inventory destocking would appear to have been a production decision.

Headline Indices

The Dow Jones Industrial Average index (DJI) added 70.09 points (0.81%) to 8761.42 points. The index high for the day was 8879.22 (set at 12:15 a.m. NY time), while the low was 8646.33 a little over two hours later.

Total volume traded in the 30 components of the index was 1.02bn shares. Within the Dow, advancers outpaced decliners by 1.5 to one, with 18 advancers to 12 decliners; however declining volume was greater than advancing volume by 630.78m to 390.98m shares. The biggest gainers (percentage-wise) were -

  • Alcoa (AA) +0.65 (6.8%) to $10.2 on volume of 22.24m shares;
  • Home Depot (HD) +1.09 (4.7%) to $24.29 on volume of 18.6m shares;
  • Chevron (CVX) +2.88 (3.8%) to $78.44 on volume of 17.51m shares;
  • McDonalds (MCD) +1.98 (3.3%) to $61.66 on volume of 11.32m shares; and
  • Caterpillar (CAT) +1.29 (3%) to $43.67 on volume of 15.35m shares.

The S&P500 index (SPX) added 10.57 points (1.19%) to 899.24 points. Total volume traded in the 500 components of the index was 4.05bn shares. Advancers outpaced decliners by 2.8 to one, with 357 advancers to 126 decliners. Advancing volume exceeded declining volume by 2.42bn to 1.54bn shares. The biggest gainers (percentage-wise) were -

  • Chesapeake Energy (CHK) +3.36 (23.2%) to $17.83 on volume of 47.94m shares;
  • Peabody Energy (BTU) +4.15 (19.1%) to $25.91 on volume of 10.39m shares;
  • Liz ClaiborneInc. (LIZ) +0.42 (16.2%) to $3.02 on volume of 3.22m shares;
  • ProLogis (PLD) +1.03 (16.1%) to $7.42 on volume of 15.14m shares; and
  • Freeport-McMoran Cp & Gld (FCX) +3.15 (16%) to $22.89 on volume of 38.51m shares.

The Nasdaq Composite added +18.14 points (1.17%) to 1565.48 points and the Nasdaq100 rose +9.93 points (0.82%) to 1222.38 points..

Total volume traded in the components of the Nasdaq100 was 901.73m shares. Advancers outpaced decliners by 3 to one, with 73 advancers to 24 decliners. Advancing volume exceeded declining volume by 629.46m to 263.54m shares. The biggest gainers (percentage-wise) were -

  • Focus Media Holding (FMCN) +1.3 (18%) to $8.54 on volume of 8.89m shares;
  • Steel Dynamics (STLD) +1.49 (15.1%) to $11.35 on volume of 12.65m shares;
  • Foster Wheeler (FWLT) +2.52 (10.7%) to $26.05 on volume of 6.25m shares;
  • Yahoo! (YHOO) +1.21 (9.9%) to $13.4 on volume of 45.57m shares; and
  • NVIDIA (NVDA) +0.74 (9.5%) to $8.55 on volume of 23.95m shares.


The CBOE Volatility Index dropped 3.18 points (5.4%) to 55.73 points and the CBOE Nasdaq100 Volatility Index slid 2.77 points (4.89%) to 53.82 points.

Breadth and Internals

A total of 3905 issues traded today on the NYSE; today's total volume was 5.17bn shares. A total of 2696 stocks posted gains for the day, and volume in advancing issues totalled 3.96bn shares. Exerting downwards pressure on the index were 1146 losers, which accounted for a total declining volume of 1.97bn shares. 11 stocks made new 1-year highs on the NYSE, while 101 shares plumbed new 52-week depths.

On the Nasdaq 2962 tickers traded today; total Nasdaq volume was 1.96bn shares. A total of 1841 stocks posted gains for the day, with aggregate volume of 1.25bn shares changing hands in the day's winners. The red zone of the 680m shares. 2 Nasdaq-listed stocks hit new 52-week highs, while 91 shares dipped to new 1-year lows.

Major Market Statistics
Index Close Gain(Loss) %
Dow Jones Industrial Average 8761.42 +70.09 0.81%
S&P500 Index 899.24 +10.57 1.19%
Nasdaq Composite 1565.48 +18.14 1.17%
Nasdaq100 1222.38 +9.93 0.82%
CBOE Volatility Index 55.73 -3.18 -5.4%
CBOE Nasdaq100 Volatility Index 53.82 -2.77 -4.89%

Dow Darlings

  • Alcoa (AA) +0.65 (6.8%) to $10.20 on volume of 22.2m units
  • Home Depot (HD) +1.09 (4.7%) to $24.29 on volume of 18.6m units
  • Chevron (CVX) +2.88 (3.8%) to $78.44 on volume of 17.5m units
  • McDonalds (MCD) +1.98 (3.3%) to $61.66 on volume of 11.3m units
  • Caterpillar (CAT) +1.29 (3%) to $43.67 on volume of 15.4m units

Dow Duds:

  • American Express (AXP) -1.73 (7.4%) to $21.56 on volume of 18.2m units
  • AT&T (T) -1.08 (3.7%) to $28.08 on volume of 44.2m units
  • Citigroup (C) -0.24 (2.8%) to $8.30 on volume of 163m units
  • General Motors (GM) -0.1 (2.1%) to $4.60 on volume of 41.7m units
  • Verizon (VZ) -0.61 (1.8%) to $32.74 on volume of 26.4m units

Most Traded Dow stocks:

  • Citigroup (C) --0.24 (2.8%) to $8.30 on volume of 163m units
  • Bank Of America (BAC) --0.26 (1.5%) to $16.69 on volume of 88.2m units
  • General Electric (GE) +0.22 (1.2%) to $18.00 on volume of 76.5m units
  • Intel (INTC) --0.03 (0.2%) to $14.27 on volume of 74.3m units
  • Microsoft (MSFT) +0.01 (0%) to $20.61 on volume of 60.9m units
Precious Metals

Precious metals futures advanced nicely -

Precious Metals Futures
Index Close Gain(Loss) %
Gold 810.1 35.9 4.64
Silver 10.26 0.41 4.16
Palladium 183.95 4.45 2.48
Platinum 842.4 29.9 3.68

The Gold Bugs index (XAU) rose 10.37 points (10.8%) to 106.43 points. Total volume traded in the 16 components of the index was 189.32m shares. All 16 index components registered a gain, with the biggest gainers (percentage-wise) being

  • Pan-American Silver (PAAS) +2 (17.8%) to $13.22 on volume of 1.65m shares;
  • AngloGold Ashanti (AU) +3.95 (16.4%) to $27.99 on volume of 4.02m shares;
  • Freeport McMoran (FCX) +3.15 (16%) to $22.89 on volume of 38.51m shares;
  • Agnico Eagle Mines (AEM) +4.7 (14.8%) to $36.44 on volume of 5.25m shares; and
  • Silver Stand Resources (SSRI) +1.26 (13.9%) to $10.31 on volume of 1.37m shares.
Energy Complex

Energy futures were solid rather than spectacular  -

Energy Futures
Commodity Close Gain(Loss) %
Crude Oil 43.89 1.82 4.33
Heating Oil 1.4086 -0.0283 -1.97
Natural Gas 5.685 0.106 1.9
Gasoline RBOB 0.9788 0.0424 4.53
Ethanol 1.482 0.026 1.79

The Oil Services index (OSX) gained 7.56 points (6.4%) to 125.62 points. Total volume traded in the 15 components of the index was 99.45m shares. All 15 index components gained, led by

  • Smith International (SII) +2.03 (9.3%) to $23.9 on volume of 3.58m shares;
  • Rowan Co (RDC) +1.35 (9.1%) to $16.16 on volume of 3.95m shares;
  • Noble Corp (NE) +2.1 (8.7%) to $26.29 on volume of 4.79m shares;
  • Oceaneering International (OII) +2 (8.4%) to $25.76 on volume of 1.2m shares; and
  • Global Industries (GLBL) +0.26 (7.8%) to $3.59 on volume of 1.63m shares.
Currency Futures

Currency futures are a bit 'all over the shop' - I have a feeling that the number I have below for the USDX is wrong, and the latest quote I have for EC futures shows it above $13000.

Currency Futures
Index Close Gain(Loss) %
U.S. Dollar Index 85.45 -0.425 -0.55
Euro FX 1.298 0.0092 0.71
Swiss Franc 0.8386 0.0055 0.66
Australian Dollar 0.6504 -0.0047 -0.72
Canadian Dollar 0.793 0.0011 0.14
Japanese Yen 1.0829 -0.0066 -0.61
New Zealand Dollar 0.5365 0.0011 0.21


The nine-stock group that makes up the Rant bellwethers declined on average by 1.9%. The fallout occurred as follows:

  • General Electric (GE) +0.22 (1.24%) to $18.00 on volume of 76.46m units.
  • Citigroup (C) -0.24 (2.81%) to $8.30 on volume of 163.02m units.
  • Wal-Mart (WMT) -0.56 (1%) to $55.25 on volume of 21.15m units.
  • IBM (IBM) +0.17 (0.21%) to $82.86 on volume of 7.94m units.
  • Intel (INTC) -0.03 (0.21%) to $14.27 on volume of 74.31m units.
  • Cisco Systems (CSCO) +0.17 (0.99%) to $17.33 on volume of 50.42m units.
  • Google (GOOG) +2.85 (0.93%) to $308.82 on volume of 5.21m units.
  • Fannie Mae (FNM) -0.09 (11.39%) to $0.70 on volume of 43.63m units.
  • Freddie Mac (FRE) -0.04 (5.06%) to $0.75 on volume of 13.76m units.
Other Indices of Interest...

The Banks index (BKX) dropped -0.49 points (1.04%) to 46.74 points. Total volume traded in the 24 components of the index was 487.27m shares. Decliners outpaced gainers by 2.1 to one, with 15 decliners to 7 advancers. Declining volume was greater than advancing volume by 435.35m to 32m shares. The main decliners (in percentage terms) were -

  • Suntrust Banks (STI) -1.66 (5.5%) to $28.38 on volume of 7.28m shares;
  • Wachovia (WB) -0.28 (4.7%) to $5.68 on volume of 31.78m shares;
  • Wells Fargo (WFC) -1.31 (4.3%) to $29.19 on volume of 50.87m shares;
  • Citigroup Inc (C) -0.24 (2.8%) to $8.3 on volume of 162.98m shares; and
  • Capital One Financial (COF) -0.8 (2.4%) to $32.08 on volume of 6m shares.

The Semiconductor index (SOX) gained 2.92 points (1.42%) to 208.57 points. Total volume traded in the 18 components of the index was 238.25m shares. Advancers outpaced decliners by 3.5 to one, with 14 advancers to 4 decliners. Advancing volume exceeded declining volume by 134.55m to 103.7m shares The biggest gainers (percentage-wise) were -

  • Taiwan Semiconductor (TSM) +0.37 (5.2%) to $7.5 on volume of 16.81m shares;
  • Teradyne (TER) +0.16 (4%) to $4.2 on volume of 2.88m shares;
  • Sandisk (SNDK) +0.33 (3.5%) to $9.87 on volume of 5.41m shares;
  • ST Microelectronic (STM) +0.2 (3.1%) to $6.7 on volume of 1.48m shares; and
  • Xilinx (XLNX) +0.31 (1.9%) to $16.99 on volume of 6.99m shares.

The ChildKiller ("Defence") index (DFX) rose 2.31 points (0.93%) to 250.46 points. Total volume traded in the 17 components of the index was 108.95m shares. Advancers outpaced decliners by 4.3 to one, with 13 advancers to 3 decliners. Advancing volume exceeded declining volume by 102.59m to 6.36m shares The biggest gainers (percentage-wise) were -

  • Gencorp (GY) +0.2 (7.3%) to $2.94 on volume of 0.35m shares;
  • Teledyne Tech (TDY) +1.26 (3.2%) to $41.02 on volume of 0.2m shares;
  • Embraer Empresa (ERJ) +0.49 (3.1%) to $16.47 on volume of 0.76m shares;
  • Boeing (BA) +0.86 (2.1%) to $41.68 on volume of 5.11m shares; and
  • ITT Corporation (ITT) +0.88 (2.1%) to $43.55 on volume of 1.62m shares.