Where and What Next?

I haven't thumbed a message on the train for some time. Is suspect part of it has to do with the inconclusive nature of the data of late as well as the fact that a direct function of that has been reflected in my market marking time. Equities while off recent highs still show resilient performance looking at the returns of the last six months, gold recently hit new highs and I imagine that the commodity currencies in particular are highly likely to take another run at recent achieved highs.

This weekend , I read two interesting pieces, one in the Globe and Mail and the second in the New York Sunday Times.

The first suggested that economists generally speaking invariably get it so wrong, that in fact we may well have a new economic nirvana ahead if we simply take a contra outlook. Now admittedly the focus was more Canadian. The second which was an editorial in the NY Sunday times pointed out a couple of rather scary numbers, that suggested that the underemployment rate was close to 17.5%.

Now note that's the underemployment rate, not unemployment rate. Its all a reflection on what's officially recorded and in the light of Fridays non-farm payroll, many would have you believe that the trend of the officially reported numbers is obviously positive. Clearly, that's one interpretation; but the brute reality is substantially different for the many that have exhausted unemployment benefits, and can no longer claim, and effectively fall of the rolls.

This however does not make them less unemployed and that number is becoming increasingly significant, to the extent that the notions of a second stimulus package or an extension of the very pervasive rescue package already underway will have to continue.

****The unemployment rate includes only jobless people who have looked for work in the past four weeks. The underemployment rate - which also includes jobless workers who have not recently looked for work and part-timers who need full-time work - reached 17.5 percent in October. And the long-term unemployment rate - the share of the unemployed population out of work for more than six months - also continues to set records. It is now 35.6 percent.

The official job-loss data also fail to take note of 2.8 million additional jobs needed to absorb new workers who have joined the labour force during the recession. When those missing jobs are added to the official total, the economy comes up short by 10.1 million jobs. *****[NY Sunday Times Editorial] http://snipurl.com/t5gxs

This rolls into the contention I have expressed previously in these comments and that is the hands of the FED will be tied for longer than they would necessarily like. Its evident that despite the massive amounts of largesse, only a few industries might have benefited and in fact many of the programmes undertaken have yet to yield fruit.

The G20 this weekend seemed to be in agreement

***The MSCI World gauge of equities in 23 developed countries increased 0.9 percent at 10:18 a.m. in London and futures on the Standard & Poor's 500 Index climbed 0.9 percent. Russia's 30- stock Micex Index added 2.9 percent. Gold gained 1.3 percent to $1,109.50 an ounce and crude oil jumped 2 percent. The dollar weakened against 14 of 16 major currencies tracked by Bloomberg.

Policy makers from the U.S., U.K., Japan and 17 nations said on Nov. 7 that it's too early to withdraw spending intended to revive growth. The MSCI World has surged 66 percent since March 9 as governments spent $12 trillion, by International Monetary Fund estimates, to rescue the global economy from its first recession since World War II.

"Markets don't need to be worried that these governments and central banks are suddenly going to take away all the stimulus measures," Stuart Bennett, a senior currency strategist at Calyon in London, said in an interview on Bloomberg Television. "Risk appetite should remain supported into the end of the year.". *****[Bloomberg]

We have a ways to go and this is hardly about a pessimistic outlook and more a realistic one. That would suggest to me that our markets will continue to stay range bound even as we creep higher from the lows of 13 months ago.

Dow 10,000, Infinity & Beyond!

I thought I would follow up on yesterdays late day missive.

SPX currently 19.5% above 200 day mva. Historically 20% above the 200day MA has proven to be a tough obstacle to overcome.

*During the 2002/2007 bull market, we never hit +20%.
*1986 and 1987 saw 19%/20%, but no higher.
*1982 saw the deviation briefly above 20%.
*1975 saw a marginal move above 20%.
*1943 saw the 20% deviation again prove good resistance.
*1935 and 1936 though saw the deviation above 20%.
*1933 saw the S&P 500 59% rich to its 200-day.
*1929 saw the 20% deviation again prove good resistance.
*94% S&P 500 stocks also now above their 200-day average.

You can't turn your nose at a 60% retracement from the lows and with the Dow at 10,000 again the equity community are likely celebrating the return of the heady days of the market.

Here is a very good comment picked up from Bloomy this morning.

****Intel Corp.’s sales forecast and earnings from JPMorgan Chase & Co. pushed the measure up as much as 1.6 percent to 10,027.73 yesterday. "A lot of people make fun of these milestones, but I think that it has an effect on psychology," said David Darst, the New-York based chief investment strategist at Morgan Stanley Smith Barney, which has $1.4 trillion in client assets. "That can have an effect on tipping people over to being more worried about being out of the market."*****[Bloomy]

Not so fast I say.

I suspect that there is money on the sidelines waiting to join the party; but for my purposes, I will continue to stick to the notion that we are about to enter the third leg of the W and thus currently sit at an inflection point. One of my market colleagues with many years in the business, had this to say - " I'm now thinking what's coming is leg 2 of a Nikkei-style Triple Waterfall" - which is a lot worse than my suggestion I suspect the new down leg won't reach anywhere near the lows we saw 7 months ago as buyers of dips that might not have participated in this massive run up, likely join in.

But wait one moment....last week we had punters in the Canadian market openly talking of the BoC likely raising rates sooner reflected by the sell-off in the BAX futures and we had a very violent move higher in US rates as the market started incorrectly interpreting the FED's statement as a desire to hike rates sooner than later I don't subscribe too either .

Yesterdays FED statement more accurately articulated at Alphaville this morning

*****DOLLAR HIT ON FED’S DOVEISH TONE - Posted at 04:57 by Gwen Robinson

The dollar fell on Wednesday after minutes from the Federal Reserve’s last policy meeting showed that while some committee members favoured increasing Fed purchases of financial assets to speed recovery, just one policymaker urged a reduction in buying. This overall doveish tone was echoed in the discussion of inflation, suggesting that the Fed is still a long way from raising interest rates. **** (FT Alphaville)

In Canada with the Canuckie Buckie roaring ahead (buy Cad Calls and wear diamonds, or if not sell strangles, after all recent history has shown us 12 big figures stronger from here for Funds is very do-able) the lack of an intervention desk, and the game of competitive devaluation now a fully global one (note the complete lack of vocal statements on a strong greenback policy from Geithner and the administration as the US dollar gets pilloried).

Let's look at other reasons for what might be deemed an artificially high level for equities and reasons why hikes are not likely in North America until the second half of 2010.

We have had a complete government sponsored equity market rally, we know banks are still not lending to each other despite where Libor might be as more hoarding takes place, we recognise that all the wobbly assets that are still off balance sheet will have to be brought back despite current ongoing deferrals, we know consumers are certainly not consuming as much and are certainly not borrowing as much and without the various credits and programmes , whether it was cash for clunkers or first time house buyer credits, that some of the results seen to date would have been even more woeful.

You have an FDIC almost out of cash, the FHA (Federal Housing Administration which insures mortgages with low down payments) likely requiring a bailout of its own, a much larger unemployed population than the data suggest due to the fact that benefit exhaustion rates are screaming higher and with that other impending situations, as we note Commercial Real Estate defaults increasing and with that CMBS's likewise.

But I suspect all eyes will be on equity markets as more good news comes in with Goldman easily surpassing ( not surprisingly) its EPS forecasts and I suspect BoA and CITI will show similar.

A New Forking Threshold - The magical Animal

I must admit the headlining is becoming somewhat tedious now, so that's the last time it will be used.
Its been a month since I started reading the Menu in Progress blog that provided me with the necessary inspiration to pursue my desire to make my own charcuterie. I seem to be almost there having crossed an initial threshold over the Labour Day weekend where I completed smoking my first two pork bellies after a week curing in the fridge and produced bacon that was then hand cut. I don't own a slicer...yet.


This was followed up by me trying to obtain a "magic fridge" ( a bar fridge essentially that I can use as a sanitary and temperature controlled environment for curing my products) with no luck.


However I still made a major stride forward by making my own sausage for the first time also, over a two day period. It has taken me quite a bit of time to get some of the more specific items such as the prague powder/pink salt and the hog and beef casings, as well as my temperature controller for the fridge I don't yet own.

Nonetheless, the products seem to have been very well received by a couple of friends, though I have to admit that the bacon was saltier than I had planned, so thank goodness for the Quebec maple syrup that i had added to the cure.


Now Pandora's Box is open, who knows what up next; but I have some ambitious plans , though the lack of my curing environment, has forced me to go slower and in fact it has been helpful as I continue to t eh read the excellent tome by Michael Ruhlman & Brain Polcyn - Charcuterie as my current food bible on these topics. AN excellent investment indeed.

I have added some pikkies from Picassa.

New Frontiers Ahead - Forking Good!

I seem to have gone a little crazy on the Charcuterie front of late.

I have wanted to try my hand at smoking sausages, bacon and all manner of meats for sometime; but have refrained from lack of knowledge, equipment and any number of other reasons including fear of failure and botulism.

I had a fab conversation with a young chef from what is to be a new restaurant BUCA, back in June, (the new restaurant associated with Jakobs Steak House and Brassai) as they fed us at the annual Set Sail for Hope Charity event on Toronto Island, one of my top if not my foremost event of the year. I asked the young chef if it would be possible for me to possibly use a wine fridge for curing as a more sanitary condition rather than the open area in one of the spare rooms in my basement, which while keeping a fairly consistent temperature, still had me concerned and worried about the sanitary nature of the environment. (The room is is primarily used to store dry and tin goods, extra clothes thats been packaged away, wine beer, a dusty rowing machine and any other types of stuff not in use that needs to be stored)

After quite a bit of dialogue and in particular probing on my part, I was 90% convinced that it could be done; the question was then some more research to get comfortable on exactly how I would go about this.

Luck and circumstance would seem to have delivered a path to me filled with knowledge, trials, experience success and failure and lots of pikkies through an exceptional blog if you are a "foodie" (general term) called Menu in Progress.

I say exceptional only because the writing is great, the pikkies excellent, the food very scrummy and not only are recipes provided; but there is wonderful detailing of the experiences.

So over the Simcoe Day holiday weekend I had the opportunity to visit the site a number of times and leave some comments, which were responded to by Mike who writes the blog.

This has led me to do a ton of research on what one might require to get going, for my initial attempts, which I suspect will be pancetta and bacon (start slowly).

This will provide me with the requisite time to get hold of the various equipment that I require from myriad sources. As I mentioned I may start off with bacon and pancetta; but i see a variety of sausages smoked, dried and fresh in my future as I try and advance my knowledge in this area.

Are We There Yet?

I was asked a few mornings ago with some other colleagues from different asset classes, what we felt might be the biggest impediment to the rehabilitation of the economy and markets over the next number of months. My response and concern was based on the reality of a market that seems hell bent on reading the tea-leaves as being positive for the market at all times and with every piece of data.
This should worry pretty much everyone. In particular the idiotic blabbers at CNBC (though there are a few there that should be paid attention to including the Guru of the Pit _ Rick Santelli) and their desire to find positive headlines and put positive spin on pretty much anything.

The most recent example was Mondays "New Home Sale" figure, which came in as up 11%. Sure its a good number; but the reality is that the number has to be understood in context, and that context represents a number of things that should provide food for thought. First no mention was made of the fact that median prices had dropped by over $13,000 from May at $219K to June at$206K as the folks at Housing Bubble put it

***This is pure economics with prices falling you will expect new home sales to increase especially in the spring and summer months which are normally stronger.**** http://www.doctorhousingbubble.com

This is hardly about being pessimistic and more about realism and pragmatism. The same article points to the growing and largely forgotten Alt A and ARM's situation that's still ahead especially in California.

However a recent publication this week on ZeroHedge's website by Tyler Durden with David Rosenberg (he of ex-Merrill fame and now brightening the firmament at Glusken Sheff here in Toronto) should be read for a reality check. While the document seems long, it’s primarily graphical and makes some very salient and focused points on the economy. It produces data with a little more depth and insight and is sufficiently worrying to leave one floundering in that the overly upbeat prognostications from government and media alike should be taken with more than just a grain of salt.

Specifically in its introduction it shares the following

“We believe an aggressive “fact-finding” investigation into the true depths of the recession is critical due to increased pressure by members of the Mainstream Media and conflicted Investment Banks to present a myopic, unjustified opinion. Furthermore, opinions based on overoptimistic projections and “hope” is the primary reason the Credit Bubble persisted as long as it did.

- As there is an all too real threat of a relapse into the same kind of optimistic zeal and the resultant formation of yet another asset bubble, Zero Hedge is presenting the factual side of the story . We demand that readers question any and all assumptions presented herein (as well as everywhere else) on this most critical subject “ - ZeroHedge Article

Here are a couple of morsels for general consumption that I found particularly chilling.
UNEMPLOYMENT: People have been on unemployment insurance so long it has expired. Benefits exhaustion rate hit a record 50%. Americans are rolling into various extended benefits programs such as Emergency Claims and Extended Benefits, which surged by 170,000 in the last week alone. While “unemployment” is still below 10%, U-6, or the broader underemployment metric is at 16.8%, 6.5% higher from a year ago
HOUSING: NAHB housing market improved in July… To 17 from 15 the 8th worst print on record. Sales outlook is stuck at 26, and anything under 50 is a contraction RealtyTrac disclosed that Q2 foreclosure activity was the highest on record. 􀁠 1.9 million foreclosure filings in the first half of 2009, a 15% increase from the prior year period *June foreclosure filings of 336,173 were the fourth straight month exceeding 300,000 *One in 84 housing units received at least one foreclosure filing in the first half and all this is occurring on the backdrop of an industry-wide housing moratorium *According to Whitney Tilson, foreclosures have been temporarily cut by 66% through moratoria which reduce supply *At some point the banks will need to release the flood gates – watch out below as millions of units in shadow inventory are unleashed on the few buyers out there

The full document can be found at this URL http://zerohedge.blogspot.com/ It is worth the time and effort to give it the once over.


My personal take is that we are some ways along in the process of rehabilitation and that it’s definitely not a V; but looking more like the W.
The kind of percentage returns that we have seen this year in the equity markets and in the S&P in the last couple of weeks alone should suggest that they are hardly likely to continue.

Undoubtedly risk appetite is back markets are on a better footing and business is once again underway; nonetheless the amazing compression in corporate and high grade spreads experienced over the last few months seems over done and unsustainable. Driven by supply (or rather lack of) and demand factors, that do not necessarily reflect the reality of the underlying US economy.
Even as our own Governor at the Bank of Canada tells us that we will be out of recession in Q3, I wonder about his certainty. Maybe it’s the rainy weather that has me all afoul and in need of amore upbeat disposition this week.

Man Without a Plan?

The other Bernanke my good mate Jimmy!

Maybe its the cynic in me; but I have read a any number of articles t his weekend dealing with Ben Bernanke's testimony last week and whether or not he will be re-elected in January of next year for another 4 years. There are the pros and cons; but before I deal with that there is still the conflicting statements of how he will take monetary policy ahead. Back in May I noted an article in market News that stated that the FED and Bernanke would try and adopt a two track approach to monetary policy within the very easy liquidity arrangements that have been instituted to drag us out of the current economic and credit malaise.
In this weeks testimony to Congress and even prior to that in a WSJ article the day prior to his confessions to Congress, Dr. Bernanke once again reflected on the trail balloon of May, the implications of which are t hat he could essentially drain the system very quickly, by paying for excess reserves held at the FED by banks at the same level as the Fed funds rate, while potentially retaining quantitative easing (vis-à-vis purchase of Mortgages and Treasuries).

It seems that Dr. Bernanke is speaking out of both sides of his mouth however or maybe its simple confusion on my part ( certainly wouldn't be a first), in that he is also stating that the Fed will retain rates at theses low levels for the foreseeable future (i.e. into 2010 as opposed to what the market believes is a necessary hike before year end).

Suddenly the unsmiling Dr. Ben is doing a world tour and has had more press in the last week than a politician running for office.
Well I guess he is running for office after all and so it should not be surprising; but I digress somewhat. It would seem that the there is a substantial split however on what and how Dr. Ben has done. I read two op-ed pieces in Sunday's NYT and I was horrified to find that Dr Roubini who wrote one, quite surprisingly was very supportive of the things that Bernanke had done to address the crisis; however I found myself siding with Anna Schwartz, the erstwhile and highly respected economist, who with great aplomb skewered Bernanke for his numerous failures ("Man without a Plan"). I am certainly with her. I was reminded that way too often the current incumbent of the position of Lord of The Universe like his predecessor Guru Greenspan, have chosen to articulate positions on all manner of things and have been horribly wrong in hindsight.

Where I would have to disagree is that part of his plan was always going to be about inflating the FED balance sheet. The 2002 speech referencing the printing press and distributing dollars from a helicopter has come to pass.

****"Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined
government can always generate higher spending and hence positive inflation." Dr. Ben Bernanke 2002****

The FED has liabilities galore and continues to print money at an unprecedented rate. This week alone the treasury will be issuing some US$211 bn between T-bills and the auctions for 2Y (42bn); 5Y (39bn) ; 7Y ( 27bn) and the TIPS (6bn).

Its interesting to note that even the disgraced Elliot Spitzer once deemed Wall streets own sheriff for his eager desire to prosecute wrongdoing is now accusing the Creature from Jekyll Island (the place the FED was born) of running a huge ponzi scheme based on discussion with the hubristic and substantially overpaid Dylan Ratigan ( I don't like him).

****Advocating in favour of a House bill to audit the Federal Reserve, Spitzer said: "The Federal Reserve has benefited for decades from the notion that it is quasi-autonomous, it's supposed to be independent. Let me tell you a dirty secret: The Fed has done an absolutely disastrous job since [former Fed Chairman] Paul Volcker left.
"The reality is the Fed has blown it. Time and time again, they blew it. Bubble after bubble, they failed to understand what they were doing to the economy.
"The most poignant example for me is the AIG bailout, where they gave tens of billions of dollars that went right through - conduit payments - to the investment banks that are now solvent. We [taxpayers] didn't get stock in those banks, they didn't ask what was going on - this begs and cries out for hard, tough examination.
"You look at the governing structure of the New York [Federal Reserve], it was run by the very banks that got the money. This is a Ponzi scheme, an inside job. It is outrageous, it is time for Congress to say enough of this. And to give them more power now is crazy." ******** [Source - rawstory.com]

Homecooking......

I cook and have done so for some time. Part of it has to do with my upbringing.
As the eldest of five and with a single parent, I learnt to cook early. Its amazing but cheese on toast with baked beans for 5 seemed back then as challenging as a putting out a beautiful roast rack of lamb with a potato pave, petit pois with carmelised shallots and a nice jus.
Furthermore my very first job and then the jobs that were to follow exposed me to the delights of quality cooking and restuarnats both as client and coverage.

In recent times I have tried to take my knowledge base up, by enrolling at George Brown College for their Continuing Education Series, specifically in Culinary Arts. At the start of the year I did a 12 week course, and I am about to finish a 10 weeks course, with a three week course coming up that will focus my knife skills. That’s my compulsories and over the next 2 years, taking 6 electives will provide me with my Culinary Certification. I think it simply suggest that I have attended and should have garnered some know-how along the way.

From Canada Day

I had pretty good food knowledge going into my courses; but have found that the classes have elevated that base, primarily because it has helped establish a framework for my knowledge thus expanded my understanding, as I have made connections within my knowledge base as well as learning new stuff.

While I knew that I liked cooking, I didn’t appreciate to what extent until I started attending class and found myself as excited as an eight year old on Christmas morning each Saturday, as I gathered my knife roll and other accoutrements for my four hour session at George Brown College.

The interesting thing is that most folks seem to assume that I want to work in or run a restaurant. Nothing could be further from the truth.
I simply want to be able to cook superb meals at home for both my family and friends. I am not talking about simply cooking elegant meals either.

One of the things that I have found out over time is that as much as I enjoy an elegant meal, beautifully cooked and expertly presented, I am as keen or possibly keener when it comes to braised foods. Ultimately it’s the whole low and slow approach, whether BBQ-ing or braising.
Using a relatively cheap cut, good seasoning and the process of low and slow, it is transformed into something super delicious.

This was evidenced this morning at our office, as I had BBQ-ed a pork butt Canada Day and shared the goodness with my colleagues this morning with my home made tangy BBQ sauce. I have posted a few pikkies of the BBQ process on my Big Green Egg (BGE) and some others from items I have made. Enjoy!