Financial Sense Blog

In December a Wall Street analyst with a big mouth and a business to build (The Meredith Whitney Advisory Group), declared that there would be “hundreds of billions” of dollars of municipal bond defaults in 2011.

Regardless of their ideological persuasion, pundits and politicos reliably repeat the mantra that "small business is the engine of jobs growth." The mantra is followed by the pundit-politico's belief that a "small business jobs boom is right around the corner."

Once again, the latest U.S. employment numbers for January 2011 gave mixed signals. Employment rose by a mere 36,000 yet the unemployment rate fell to 9.0% from December's 9.4% rate. How can that be? Moreover, how should we make sense of these numbers? On average, the U.S. economy needs to generate 120,000 new jobs each month to absorb all the new entrants. Since the latest recession began, the number of people without jobs grew to more than 8 million with another 8 plus million either giving up or working part time. If the economy generated 320,000 jobs per month, it would take more than 6 years to get back to a "full employment" level. This is why so many people believe the economy will struggle for years to come. Yet if we look deeper into the jobs picture, the problem is both alarming and a sign that things are improving. While a deeper employment problem will be with us for years to come, the economy is generating more jobs than the 36,000 number implies.

When you are involved in a roaring bull market, a great number of imaginary views come into existence around you. Great care must be taken so you don’t become enveloped in these imaginary dreams, and then find yourself destroyed by nightmares of reality.

There is really just one question about China, the Western mindset’s “enigma wrapped in mystery”. How could the Chinese have made the colossal mistake of investing their hard-earned savings in the debt of the U.S. government — to the tune of $ 1 trillion, the largest sum one country has ever loaned another in all history. (There is only one other puzzle greater than this: How could the U.S. government in good faith allow its debt to accumulate in Chinese hands? But we leave that question for another occasion to discuss.) U.S. debt is easy to buy but hard to get rid of. The harder, the larger are the sums involved.

Stocks moved to a fresh set of new highs for the current bull market cycle on Monday, leaving little doubt in the minds of investors that after a brief scare relating to Egypt, the trend continues to be up. And while the popular press continues to beat the drum about the moves to new 2.5 year highs seen in the Dow and S&P 500, you might want to check out a monthly chart of the Midcap index as it powered to yet another all-time high yesterday. Yep, that's right; there is no sign of a secular bear market in the 'middies' as this chart continues to look quite strong.

"Mr. Bernanke, do you believe any of the growing political unrest around the world is linked to higher food prices which result from the Fed's large-scale asset purchases?"

In the first installment of this series, I examined Robert Prechter and Elliott Wave International's current wave analysis and proposed some alternate views. In this segment I will examine EWI's market timing record. First, I'll run down the history of EWI's market calls from March 2009 to present. In conclusion, I will analyze a few of the flaws in trading methodology which led to the failed trading results documented here. In subsequent installments of this review I'll analyze larger issues of data and epistemological methodology that underly EWI's conclusions of a deflationary depression.

In a recent article, The Case Against Gold David Berman interviews a Canadian fund manager who is bearish for all of the wrong reasons. As do the vast majority of analysts and writers, he totally misunderstands how the gold price is formed.

The 2-year Treasury note is trading around 0.78% today, from a low of 0.54% on January 28. The 10-year Treasury note yield has moved up to 3.67% from 3.36% in the same period (see Chart 1). The bond market essentially signals the U.S. economy is turning around and is most likely to establish sustained growth in 2011. A part of the bullish sentiment commenced after Bernanke's speech in the last week of August 2010 when the Fed signaled that a second round of support was on its way.