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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (724)	9/12/2003 11:00:52 AM
From: russwinter	Read Replies (1) \| Respond to of 110194

Guest Commentary, by Max Fraad Wolff De-Servicing, Hiding in Plain View? September 12, 2003 Max Fraad Wolff is a Doctoral Candidate in Economics at the University of Massachusetts, Amherst, Mfwolff@aol.com History- not to mention our personal lives- reminds us time and again that essential facts often hide in the shadows cast by our noses. Real consideration requires much more than repeating the hopeful cliché that employment is a lagging indicator. The Bureau of Labor Statistics dutifully reports downbeat numbers with a positive spin. Sure, the labor force keeps shrinking as the population grows, the pool of discouraged workers is growing and jobs are being lost- almost 3 million of them since the peak. The BLS informs that labor force participation rates for those aged 19-24 hit a 37 year low in July. Don’t worry, the official unemployment rates are falling and productivity is up, up and away. That’s the bullish message, but there is a bigger more bearish message in these numbers and it is hiding in plain view. I see long term structural changes in the American labor force. Given the debt this group carries and their essential role as the world’s purchasing power, this is profoundly important. Let’s not forget that consumption accounts for 65% of GDP. If the 1970s were defined by the de-industrialization of America, we now face the prospect of the first decades of this millennium being defined by de-servicing. White collar jobs, from data entry and call center work, to equity and bond analysis, are being sent overseas. Given the long downswing, the possibility of outsourcing has become seductive. Competent and educated employees are available for under $10,000 per annum in India, China and beyond. Recent Federal Reserve Bank of New York studies suggest that lay-offs increasingly mean the loss of careers, not their temporary cyclical suspension and resumption. Forrester research recently opined that in coming decades 3.3 million jobs, presently compensating to the tune of $130 billion, may get a one way ticket to the developing world. This comes alongside the previous movement of tens of thousands of service jobs to India and China by America’s leading technology and service firms. Of course if you step on the earnings that support the purchases of your end products there are huge long run risks. This may be part of the reason we see skyrocketing productivity alongside stagnant wages, falling payrolls, unspectacular profit reports, massive trade deficits and 37 months of falling manufacturing employment. Manufacturing employment- down better then 16% over the last 4 years - is unlikely to pick-up the slack. When China opens up its Three Gorges Dam it will be able to tap into an even cheaper pool of hundreds of millions of interior residents. This may serve to further weaken sputtering domestic manufacturing. Wage and salary growth in the first 2 quarters of 2003 is running well below its 10 year average. Spending stays up on debt growth and low carrying costs. For how long can we accumulate debt, reduce home equity and spend ahead of income? As with the loss of manufacturing, a process that began in the late 1960s, de-servicing will proceed in fits and starts. Ebbs and flows will move with new communication and transportation technologies, political conditions and macroeconomic cycles. Early evidence of this trend is beginning to trickle in. Purchasing power fueled by earnings is being slashed alongside costs. Leading firms are left to scramble for the dangerous but lucrative job of lending to a consumer base that can pay only with debt offered at unsustainably low rates and in ignorance of rising credit quality risk. GM and Ford provide dramatic examples- they earn from financing not selling cars to people who can afford them. This may explain why serious labor sector weakness is very poorly summarized by dated measures still relied upon but, profoundly lacking in explanatory power. Present employment measures ignore the rising mass of discouraged workers, involuntary part-timers, labor force participation rates and a long term secular down trend in real average weekly earnings. The existence of 30 million working poor and the recent Hewitt Associates release that salary and wage raises hit their lowest levels in the 27 years the study has been conducted, suggest a possible resumption of the secular downtrend in real average weekly earnings witnessed across the period from 1970-1990. Bulls are ever excited to inform us that this is a new economy. If it is so new and different, why should we be convinced of its health by ignoring poor employment figures that are understated? If the trend toward de-servicing is real, however, the exodus of both manufacturing and service industry workers will be difficult to place in a positive light.

To: Jim Willie CB who wrote (724)	9/12/2003 11:11:48 AM
From: mishedlo	Respond to of 110194

Just spoke with the Dave Megar at Alaron. He just was talking with the trading pits where someone was running all the silver stops. I added a large contract near 5.20. On a bounce of .08-.10 I will probably write CC's on it I am in from 5, 5.10, and 5.20 with covered calls written on the contract from 5.10. I wrote the CC when it hit 5.22 I added at 5.20 and will write a CC at 5.28 or so M

To: Jim Willie CB who wrote (724)	9/12/2003 1:56:43 PM
From: russwinter	Read Replies (1) \| Respond to of 110194

This is precisely my view. The market does look exhausted and my shorts are starting to work, but the Fed keeps coming at it with more repos and a set of permanent injections. Of course they're out in force trying to talk bond yields down to try to get a few more people deeper in the hole with a little refi uptick in time for XMAS. Just don't see it working.

To: Jim Willie CB who wrote (724)	9/12/2003 2:12:09 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

From Minyanville Since June, nearby crude futures have been in a $28.50-$33 trading range. This morning, they broke below the June lows and are just about at $28. If that break holds and crude can head to the mid-20's, that would be a positive factor for both the economy and financial market prices. ===================================================================== Well the conspiracy theorist in me says they need some positive economic news and will do anything to get it. Let's see how low they can get oil by shorting it. I would like to buy a oil future at 24 or so, the snapback to 40 should be a doozy when something bad happens in Saudia Arabia M

To: Jim Willie CB who wrote (724)	9/12/2003 4:01:58 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

All told, foreigners bought almost 80 percent of the net increase in Treasury and agency debt during the quarter. They now own 38 percent of outstanding Treasuries, more than double the figure of a decade ago. Is this a good thing?

To: Jim Willie CB who wrote (724)	9/12/2003 4:43:19 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

From dailyreckoning.com. Comments? To wit: China is planning to issue dollar and Euro-denominated government bonds. Now this, to me, cowering in my reinforced-steel bunker, is proof positive of how the Chinese are smarter than we are, and that is why they ARE going to eat our lunch. The plan is simplicity itself. The yuan is currently pegged at 8.3 to the dollar. They issue these dollar-denominated bonds, and get 8.3 yuan for each dollar that somebody invests in these bonds. Then they de-peg the yuan from the dollar. The dollar plunges in value, and now they have a lot of debt where they got 8.3 yuan that they can now literally pay back at pennies on the yuan!

To: Jim Willie CB who wrote (724)	9/12/2003 7:29:51 PM
From: mishedlo	Read Replies (3) \| Respond to of 110194

How would you respond to this point counterpoint? ===================================================== So how scary is it now when foreign countries and investors own 38% of the treasuries? And what would be the effect of the foreigners starting to think that maybe the treasuries (a.k.a. "securities") are worth a little less than when they first bought them? =========================================================== What's the big deal? We already have their money. And if they dump them making the price go way down, the treasury buys them back at a huge discount and we win again. Then foreigners begin to buy them back because they can't find any place to put that money without a much higher risk than if they would have just held on the the US bonds in the first place. The problem with people who make these doom and gloom assessments is they look at things in terms of thousands, 100 thousands, and millions. What in the hell is someone going to do with multiple billions that has less risk that US bonds? The US is the chief buyer of goods made in other countries. If the US starts to wobble, the rest of the world will die first because no one will buy their stuff. Risk is relative. Whatever risk there is in the US is multiplied many many times anywhere else for mutil-billion dollar accounts.

To: Jim Willie CB who wrote (724)	9/12/2003 9:21:32 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

Iraq needs to import oil. WTF? biz.yahoo.com Earlier this year Halliburton was granted, without competition, a contract by the Army Corps of Engineers to repair and restore Iraq's oil fields. As of Sept 8, the total cost of that contract to taxpayers was just under $948 million, spokesman Scott Saunders said on Friday. That's about $200 million higher than projected just last month, mostly because the U.S. has been forced to import oil and fuels into Iraq, which has the world's second-largest oil reserves after Saudi Arabia. Importing oil, gasoline, diesel and propane is costing the United States about $6 million per day. "We didn't expect to have this much trouble getting production back up, or to have pipelines blown up and power stations sabotaged," Corps spokesman Scott Saunders said.