Does the U.S. Want or Not a Weak Dollar: Triggers Surge in Exports

Although Bernanke and Geithner repeatedly point out that the U.S. does not want a weaker dollar and are not orinting money, the reality is that that weak U.S. dollar does wonders for the U.S. exports.

Bloomberg reports that the trade deficit in the U.S. narrowed 13% to $38.7 billion, and exports were the strongest since August 2008, with Mexico and... China (!) buying record amounts of U.S. products.
"The trade gap was projected to be little-changed at $43.8 billion from an initially reported $44 billion in September, according to the median forecast of economists surveyed. Estimates ranged from deficits of $39.5 billion to $46.6 billion. The Commerce Department revised the September shortfall up to $44.6 billion.

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit fell to $45.2 billion, the lowest since April, from $50.3 billion. The figure was smaller than the third-quarter average, indicating trade will contribute to growth this quarter.

Exports increased 3.2 percent to $158.7 billion, boosted by sales of foods, automobiles, engines and industrial supplies like fuel oil and natural gas".

IMF: Europe Remains in Trouble; Worsening Problems Can Degenerate into Wars and Undermine Democracy

Dominique Strauss-Kahn, the IMF's Managing Director, said today in Geneva that Europe remains in a troubling situation and that the effects of the global financial turmoil are far from over.

“The situation in Europe remains troubling and the future is more uncertain than ever.”

According to Bloomberg, he says Europe “needs a coordinated economic policy and we have not reached that level yet,”
[...] the situation of the U.S. “is less certain” than other regions, indicating it will be necessary to see how the fourth quarter pans out".

Strauss-Kahn called for a supervision of the financial sector “that is not afraid of saying no to powerful interests.”

Won't that be the banks? Is that going to happen?

"The financial sector has to shoulder a substantial yet fair share of the costs that risk-taking imposes on the economy". He alludexd to the tax on financial activities proposed by the IMF that has so far been without success.

“There is no certainty whatsoever that if a similar crisis occurred, that parliaments would be prepared to cough up billions to save the financial system [...] Are taxpayers going to be ready to finance such a thing? It’s uncertain.”

Troubles undermining democracy and can degenerate into wars

“Today, as in the past, when economic and financial problems worsen, they upset the social balance, undermine democracy, weaken trust in institutions, and can degenerate into war, civil or foreign, Making global economic governance more legitimate means policy makers “are working for peace.”

NO MORE SHOUTING: Google Kills the Caps Lock

The new Google laptop, which runs ChromeOS for course, is being released for testing this week. It is a laptop (more like a cloud-based netbook) that can boot in 10 seconds (joy!).

Among its other features, it has no movable parts, storage is flash based, and has a full size keyboard.

Reportedly, its keyboard does not have a CAPS LOCK key!

The Case for RIM: No iPhone in India

While the press and many bloggers are pounding on RIM, the company derives most of its revenue from overseas and is growing by leaps and bounds in places like India, where few can afford an iPhone.

Here are straddles for December, which will become profitable as long as the company moves the necessary amount, currently about 3%. Computed with the free  StraddlesCalc Tool.

Please do your own due diligence. This is not advice. Options are very dangerous and may cause 100% loss.

Brazilian Inflation Jumps in November, Highest in 5 Years; Food Rises 37% in 3 Years

While the U.S. deals with potential deflation, the opposite happens in China and Brazil. The Brazilian institute of statistics has just released the inflation numbers for November, showing the highest in 5 years: 0.83% for the month, bringing the cumulative value to 5.63%.

Monthly numbers:

Food in partcular has the highest rise in 8 years. An interesting figure is that since 2007 until the current month food has risen 38%.

Can Ireland Cut Budget Like Canada? No, Why Canada Did Not Fall Through The Cracks

In light of the deep budget cuts being proposed for Ireland, Rob Brown, Senior Lecturer in Journalism at Independent College Dublin, comments on the similarities and differences between Ireland's cuts and Canada's cuts: "Fiscal consolidation worked for the Ottawa government in the 2000s – but it won't be the same for Ireland now"

From the Irish Tribune: "Canada has become the prime bolthole for traumatised Celtic tiger cubs piling out of this banjaxed republic in planeload after planeload. The twinkling skyscrapers of downtown Toronto are the new Ellis Island for yet another generation of Irish emigrants, while Vancouver has become a snow-capped sanctuary where no one mentions the 'R' word".

Mr. Brown quotes Canada's finance minister, Flaherty, as having hailed Ireland as Europe's leader in fiscal reform: "Ireland certainly has led the European Union in taking the necessary decisions towards fiscal consolidation."

"Visit Canada, however, and you soon discover that Flaherty is flattering our finance minister. Deep down, he knows that draconian budgets cuts are the last thing any country, far less the world economy, needs as it teeters perilously on the brink of a double-dip recession or even another Great Depression".

Although a fiscal conservative to his fingertips, Flaherty can no longer walk the talk. He is so spooked by a downward spiral he has ceased to practise in Ottawa the creed he has preached throughout his political career – although he still preaches it in Dublin.

Flaherty's chief strategy for keeping Canada sheltered from the global financial storm has been to adopt a strikingly Keynesian approach. Even though he knew he would be demonised by dyed-in-the-wool conservatives, he swiftly decided "to stimulate the economy with government money, with taxpayers' money, to replace the absence of private demand".

Banks were different

Canadian banks are far better placed to weather a storm as they are much more regulated.

By the mid-1990s, Canada's national debt had rised to almost 80% of GDP. By 2007, after over a decade of fiscal responsibility, Canada's debt burden had been slashed to just 15% of GDP.

It was Paul Martin, however, the Liberal government's finance minister at the time, who designed the austerity plan and dragged the country back from the brink of bankruptcy in 1995. He implemented what he called "the largest set of actions in any Canadian budget since demobilisation after the second world war".

Relying on U.S.'s credit bubble, not so now

However, asgues Mr. Brown, Canada's "redemptive decade" "coincided with a credit-fuelled boom in the US. With the US accounting for almost 80% of Canada's trade, American prosperity contributed enormously to an expansion of the Canadian private sector. Without that, Canada's savage cutbacks could have been as catastrophic as Ireland's are currently proving to be".

"There is a time and a place for fiscal consolidation. Canada from 1995 to 2007 was one such place. Ireland in 2010 is anything but."

Watch Bernanke's Interview With 60 Minutes; Says Housing Can't Get Any Weaker

Bernanke's full interview with 60 Minutes is below.

He says the chances of a double dip recession are very low because housing is very weak and can't get any weaker. He also says the fed is not printing: money and that they are only lowering rates by buying bonds and not increasing the amount of money in circulation.

So does this assume then thar the Fed can buy bonds forever and that would not be negative? I wish the interviewer would have asked: "this money being used to buy bonds, where did it come from? Did it exist already or was it created"  (not printed of course).

When asked how confident he was that the Fed could contain inflation if it materializes, he answered "100%". I think he has lost credibility on that one. If it is 100% certain for the Fed to fix things, why are things not fixed, in fact far from it?

The Top Dividend ETFs For The End of 2010 (and 2011?)

The relative strengh index (RSI) of a stock price gives a good indication of overbought and overbought conditions. We computed the RSI of all dividend ETFs and then ordered the by short and long timeframes. Short timeframes are measured in days, long timeframes are measured in months.

Here they are ordered from most oversold to overbought.

Short timeframe

There are no oversold ETFs in the short timefranme. The "cheapest" in this sense is DOO, the Wisdomtree International Fund, which tracks and index that measures the performance of high dividend-yielding international stocks outside the financial sector.

The worst are VIG and DON, Vanguard Appreciation dividend ETF, and WisdomTree midcap dividend ETF.
Long timeframe

Again in the longer timeframe, there are no oversold ETFs, with the best value represented by DXJ, Wisdomtree's Japan's dividend ETF. The worst (most overbought) are DON, DTN and the Canadian CDZ, Claymore TSX dividend ETF. It's buyer beware with these.

Overall

This is the average of all three timeframe indicators, daily, weekly, and monthly.

DOO figurs again as the bets value, with VIG, CDZ, and VIG the worst values, all figures consistent with the short and long timeframes as discussed above.

RBS Recommends Buying CDS Insurance Against Possible Chinese Debt Default That Will Have Ramifications Across Asia

Well, this is new. RBS, Royal Bank of Scotland has advised its clients to take out protection against the risk of a sovereign default by China. That is as one of its top trade trades for 2011.

Tim Ash, the bank’s emerging markets chief says that "Many see China’s monetary tightening as a pre-emptive tap on the brakes, a warning shot across the proverbial economic bows. We see it as a potentially more malevolent reactive day of reckoning,"

"Inflation is a redistributive mechanism in favour of the few that can protect living standards, against the large majority who cannot. The political leadership cannot, will not, take risks in that regard,"

It warns that the Communist Party will have to puncture the credit bubble before inflation reaches levels that threaten social stability. According to The Telegraph, this in turn may open a can of worms.
"Officially, inflation was 4.4pc in October, and may reach 5pc in November, but it is to hard find anybody in China who believes it is that low. Vegetables have risen 20pc in a month.

RBS recommends credit default swaps on China’s five-year debt. This is not a forecast that China will default. It is insurance against the "fat tail risk" of a hard landing, with ramifications across Asia.

China is trying to keep the game going as if nothing has changed, but cannot do so. It dares not raise rates fast enough to let air out of the bubble because this would expose the bad debts of the banking system. The regime is stymied".

[...]

"The sons of Mao insist that they have studied the Japanese debacle closely and will not repeat the error. And I can sell you an ocean-front property in Chengdu."

Groupon Walks Away From $6B Acquisition by Google

The Chicago Tribune reported today that Groupin has walked away fron a $6B acquisition by Google.

Groupon has  over 35M users and offers coupons for local markets, which you can see on the left side of this screen.

This would have been the biggest acquisition by Google, twice as expensive as DoubleClick.

It appears that Groupe has decided on an IPO instead.

Groupon's founder was reportedly concerned about the strategic direction the company would take, about what could happen to merchant relationships and his employees.

Should you accept a $5B cheque or walk away? "Chicagoans Eric Lefkofsky and Andrew Mason of the Internet sensation Groupon Inc. have decided to turn down a multibillion-dollar acquisition offer from Google, two sources with direct knowledge of the situation said Friday night. They have decided they would prefer to keep Groupon independent" (Chicago Tribune).

What's a Billion these days...

Twitter: The $3B Company

Bloomberg reports today that Twitter Inc., with 175M users,  is considering obtaining new funding that would value the company at more than $3B.

The possible new investors named are capital firm Kleiner Perkins Caufield & Byers and Russian investment company Digital Sky Technologies.

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Bill Gross: Fed Will Not Raise Rates For Years

Speaking of bond bubbles popping, in an interview with Bloomberg radio today, Bill Gross, said the Federal Reserve is not likely to raise interest rates for several years as employment continues to grow less than forecast (see unemployment report for today).
"The front end of the yield curve is the best segment for investors with the Fed on hold, Gross, said today in a radio interview on “Bloomberg Surveillance” with Tom Keene".

Dreadful Jobs Report: 39,000 vs Expected 159,000, Unemployment Now 9.8%; Census Workers Not Being Hired

When the stock amrket was popping on supposedly good news, here comes the non-farm payroll report showing a gain of 39,000 jobs versus the expected 159,000.

The census workers are not being hired by private companies.

Unemployment actually rose to 9.8%, the highest level since the spring.

Private payrolls excluding government agencies rose by 50,000 in November. versus economists projections of 160,000.

Stiglitz on the Economist: The U.S. Is Entering A Japanese Malaise; New Normal is Very Inadequate

The Economist interviewed Joseph Stiglitz yesterday.

He says we are a long way from being normal, and a new normal that is very inadequate. It is unlikely that unemployment will come down, it is an astronomical level. Growth will not be strong enough to create jobs. It is  a version of Japanese style malaise.

Banks are not working, they are awash in excess reserves. Giving them more reserves will not cause them to lend (Q: so is the Fed's policy just to make the bank more profits?). The violations have been massive and they are undermining the rule of law in America, bad mortgages still fester.

Is the Bond Bubble Finally Popping?

On the supposedly good economic news of the recent weeks, in thepast 3 weeks the yield of the 1-year note has gone from 2.63% to 3%, and from 2.40% since October, huge moves and poential indications that the bond bubble was bursting - until the dreadful jobs report this morning!

Note that we track all bond ETFs live here.

Overheated Brazil Raises Bank Reserve Requirements to 20% to Prevent Bubbles

Brazil's hot, or overheated, economy has prompted the Central bank to raise bank reserve requirements from 15% to 20%.

The requirement is on cash and time deposits in an attempt to slow consumer lending whihc has been growing 20 percent annually and also to prevent a credit bubble.
Additional requirement for cash deposits will also raise  to 12% from 8%.
The CB says that reserve requirements are now at a level that is slightly tighter than before the 2008 global credit crunch.

We track all Brazilian ETFs live here. Should be very interesting today.

The measures taken today could cause interest rates charged to consumers to rise.

Money, Money, Money: Russia and Qatar Win 2018 and 2022 World Cups

Russia will invest $17.5B. And you can arrive by water taxi at the stadiums in Qatar. They will be luxurious air-conditioned buildings of course.

They will build 9 stadiums, apparently within a 30Km radius (one with a giels all around TV screens, 420,000 sq. ft of TV area). One wonders what will they use the stadiums for after the WC ends.

Qatar's presentation:

European Crisis: Portugal Should Seek Loans from Brazil

Brazilian newspaper O Estado de Sao Paulo reports today that Portuguese authorities consider it more advantageous to negotiate loans with Brazil to solve its debt crisis than to seek financial help from the International Monetary Fund (IMF) or the European Union (EU).

A source close to Dom Duarte, Duke of Braganza and head of the Portuguese Royal House, noted in conversation with the Associated Press that "there is a tendency within and outside government (Portuguese) to request the support of Brazil." Also according to this source, "the purchase of Portuguese titles would at present highly advantageous" for both Portugal and to Brazil.

Volcker: U.S. Dollar Is In Danger, U.S. Example No Longer Inspires Trust From Other Countries

Paul Volcker, chairman of President Barack Obama’s Economic Recovery Advisory Board and former Federal Reserve Chairman says the U.S. dollar is in danger of losing its role as a global benchmark currency.

Bloomberg reports him saying: “The growing question is whether the exceptional role of the dollar can be maintained,”
He says that the reasons are the decline of the U.S. economy, political gridlock, the two wars the U.S. is in, and geopolitical issues in the Middle East and Asia, all "have undermined the ability of the U.S. to influence global events",

“This is a troubling time for America, a troubling time for the world,” "the U.S. is facing its most difficult economic crisis since World War II." “If ever there were a need for clear-headed, confident leadership, nationally and internationally, that time is now.”

The U.S. example no longer inspires other countries to trust U.S. leadership and the U.S. is "hobbled by lobbyists and an unwillingness to pass realistic budgets". In addition, its civil service has lost its ability to attract America’s best and brightest to public service.

“The time is gone when the U.S. could lay claim as the putative superpower with both unchallenged economic and military might,”

“The growing sense around much of the world is that we have lost both relative economic strength and more important, we have lost a coherent successful governing model to be emulated by the rest of the world,” “Instead, we’re faced with broken financial markets, underperformance of our economy and a fractious political climate.”

Fed To Name Today Who Received $3.3T During Crisis

Noon today will be very interesting to watch as the Fed will release the names of the recipients of $3.3T emergency aid. The Fed is not doing so willingly, it is following order of congress (and this had nothing to do wit Wikileaks).

The data will include most emergency programs but will exclude the discount window, this is the well publicized one that Bloomberg sued for access, and won, but is in limbo as group of banks is appealing to the Supreme Court.


Bloomberg: " The information spans six loan programs as well as currency swaps with other central banks, purchases of mortgage-backed securities and the rescues of Bear Stearns Cos. and American International Group Inc.

The data will probably show the magnitude of central bank support to companies including Bank of America Corp. and General Electric Co. after the collapse of Lehman Brothers Holdings Inc. spurred a surge in private borrowing costs. Lawmakers demanded disclosure after the Fed approved aid dwarfing the federal government’s $700 billion Troubled Asset Relief Program".

"Today’s information relates to aid from Dec. 1, 2007, through July 21, 2010, when President Barack Obama signed Dodd- Frank into law. The act requires the Fed, after a two-year delay, to identify firms that, following the law’s passage, borrow through its discount window and participate in its purchases or sales of assets such as mortgage-backed securities and Treasuries".