Key Level to Watch on Euro Index and FXE

November 27th, 2010

From a simple charting standpoint, the Euro Index and corresponding ETF FXE have retraced into a key price zone that – whatever happens here – will likely be an important clue as to what to expect going forward.

Namely, is this pullback just a retracement in an ongoing strong uptrend… or potentially the beginning of a larger retracement or possible reversal?

Let’s see the level and then watch for follow-through in the week ahead.

Stripping the chart down to simplicity, the key index level to watch is 132.

Why?  That’s because the 200 day SMA currently rests at 131.50, and a prior index swing high occurred in August at the 132 level (technically above 133).

Also, the 61.8% Fibonacci Retracement (not shown) from the August low of 126 to the recent November high above 142 comes in at the 132.40 index level.

Round all these numbers to the 132 level to get the key level to watch which either will hold as a confluence floor of support and start a possible rally here… or shatter downwards, particularly under 130, which hints at best at a deeper retracement to follow or at worst the beginning of a short-term reversal swing.

The next downside level under the 132/130 confluence is the August/September low near 126.  Otherwise, if support holds, look for a bounce to test the daily 20/50 EMA convergence (crossover) at the 136 level.

Here’s the same structure on the tradeable FXE ETF, with additional recent insights from volume.

Volume spiked in mid-September as the Euro (index) broke above both the swing high and 200 day SMA at 132 (right back where we are now) and then noticeably declined as the index rallied to the $140 level.

Buyers were unable to overcome the negative momentum and volume divergences and the fund fell to where we are currently at the key $132 level.

Look at the recent past on the chart with respect to the 3/10 Momentum Oscillator to see how divergences can be helpful (not magic, but helpful) in determining possible turning points on the chart.

We’re not seeing an obvious positive divergence at the moment.

Keep the $132 level in mind, and then depending on what happens here, the immediate upside target of $135/$136 and the downside support target of $126.

I recommend playing for the next likely swing instead of trying to go too far out in your analysis.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
Key Level to Watch on Euro Index and FXE

ETF, Uncategorized

Yeah, Thanks A Lot!

November 26th, 2010

This week, Americans sit down in their sturdy chairs to enjoy a national feast. Businesses are shut down. Congress is adjourned. For one day at least, citizens can enjoy their peace.

In every hamlet, urban ghetto and rank suburb they gather, sacrificing turkeys to their deities, whoever they might be. Before they tuck in, they bow their heads and give thanks. But for what?

There have always been two parts to the Thanksgiving holiday – one sincere and personal, the other national, fraudulent and delusional.

One of the first Thanksgivings took place in 1623. The colony at Plymouth Rock had barely survived. The supply ships from England had not brought enough food. Harvests were poor. People died of hunger, cold, disease and malnutrition. Like all central planners, Governor William Bradford blamed it on the weather. Then, when communal farming was abandoned, what luck, the weather improved:

“The Lord sent them such seasonable showers, with interchange of fair warm weather as, through His blessing, caused a fruitful and liberal harvest…for which they blessed God. And the effect of their particular [private] planting was well seen, for all had…pretty well…so as any general want or famine had not been amongst them since to this day.”

Thanksgiving wasn’t made a national holiday until 1863. Then, it celebrated not the success of the American experiment, but the end of it.

Imagine a battle today in which 500,000 American soldiers died – almost as many as died in WWI and WWII combined. As a percentage of population that was the death toll at Gettysburg. That was what Lincoln chose to follow with a day of thanksgiving. Thanksgiving for what?

“…peace has been preserved with all nations, order has been maintained, the laws have been respected and obeyed, and harmony has prevailed everywhere [EXCEPT IN THE THEATRE OF MILITARY CONFLICT].” Emphasis added…. [And we] “commend to his tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife in which we are unavoidably engaged.”

Lincoln should have proclaimed a day of mourning. The battle and the War Between the States were not glorious achievements. They were national disasters. The fondest hope of the founders – that people could decide for themselves what kind of government they would have – died on the battlefield. But the nation’s course was set.

America may be in the New World, but it has one of the oldest governments on the planet. France, Italy, Germany, India, China – all have newer, fresher governments, as much as 200 years younger. Newer economies bustle with more energy and money too. America appears near exhaustion by comparison. China and India eagerly court the future; America seems desperate to hold onto the past. Her armies are stretched over the globe, trying to prevent anything really new from coming about. At home, her politicians and economists try to prevent anything old from going away. At great cost, banks and businesses, as well as the old timers themselves, are propped up…supported…and sustained.

Still, the typical American has much reason for gratitude. His house is bigger and gaudier than ever before. His car is a plush monster. He has more than enough to eat. He has gadgets and gizmos galore – including a machine that blows the autumn leaves off his asphalted driveway. And behind him is still the mightiest government the world has ever seen – ready to protect his vital interests in the Hindu Kush as well as Wall Street.

Yet, all his blessings seem to come with fuses attached. If the winter is severe, he may not be able to heat his palace. If the price of gasoline rises, driving his land barge could ruin him. If he looks in the bathroom mirror, he might get depressed. Our own polling tells us that 1 in 10 households will give thanks for their government this week. They should reconsider. Didn’t the federal government tempt them to buy a house by giving him tax breaks and subsidizing mortgage rates? Didn’t it egg them on to spend money by reducing the value of the dollar by 97% over the last 97 years? Didn’t the feds stymie every attempt to correct their over-consumption by cheapening credit and stimulating consumption even more? And isn’t it the government that has run up a net national “finance gap” of more than $200 trillion…so that each newborn American faces a burden of $700,000 in debt even before his first diaper has been changed?

And now, the government practically mocks him in an outrageous way. Ever since an amateur terrorist set his underwear on fire, the airport polizei are determined that a man should have his genitals checked before he boards an airplane. Thank god the would-be terrorist didn’t tuck his explosives into a body cavity!

It is fascinating from an ethnological point of view; the poor American has been led along, put upon and knocked around so much. Foreigners must look on in amazement, wondering how much abuse he’ll take. And now, his head bent over…the “butterball” turkey waiting for him…the American must feel the weight of his blessings. He is broke. He may lose his job. His country is in decline, headed for bankruptcy and his leaders are incompetents and scoundrels. To make matters worse, his central bank is keen to commit a new act of sabotage – intentionally trying to undermine his savings…his labor…and his standard of living.

Like Lincoln, he can say to himself…except for that…everything is okay…

Regards,

Bill Bonner
for The Daily Reckoning

Yeah, Thanks A Lot! originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Yeah, Thanks A Lot!




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

What My 336-Day Income Test Revealed

November 26th, 2010

What My 336-Day Income Test Revealed

Spend five minutes researching most investment strategies, and you'll run across something called “backtesting.”

Backtesting is when you look at historical data, apply your potential strategy, and see what sort of performance it would have had in the past. Basically, it's one way to hunt for a strategy that could work without putting anything on the line.

Therein lies the problem. There's no skin in the game. You can backtest anything and everything with no risk. That's why you sometimes run across off-the-wall claims like the length of women's hemlines has a bearing on winning stocks. (Don't believe me? Read this note from Barron's.)

Don't get me wrong; backtesting has its place. But a lot of strategies look good on paper and in hindsight. Shouldn't you be much more interested in the results of a test done with actual cash… and in real time?
Most retail investors can't test like this. If the test fails, it's their hard-earned money at stake, and many investors just can't afford any more risk right now. Luckily, I enjoy a luxury most retail investors don't — I have the backing of an entire company for my investment research.

And so in December of last year, I began what amounts to my biggest test to date. With $200,000 in actual cash fronted by StreetAuthority, I was given the go-ahead to build a portfolio using the “Daily Paycheck” strategy.

The strategy is straightforward. I'm building a portfolio of income stocks that pays me a dividend for every day of the month. And because I want to make those dividends grow as large as possible, I'm also reinvesting every cent of the payments.

It's a simple way to invest and many investors have heard about it before. But until now, most have only seen this sort of strategy backtested — not put in place in real life.

The good news is that while we all know being paid dividends regularly — and reinvesting those payments — is “supposed” to work, the actual results have been much more exciting than even I expected:

To the right are the actual stats of the $200,000 real-money portfolio within my Daily Paycheck advisory, where I'm conducting the test. This isn't backtested data or what “could” have happened. It's actual cash and real dividend payments.

So what does this 336-day (so far) test tell us about the “Daily Paycheck” strategy? Put simply, it works, and the results should only improve with time.

You might scoff. After all, during the first year of this experiment the total return of the portfolio is roughly in line with the performance of the S&P. How can that be a winning strategy?

It's because that performance comes with the equivalent of one hand tied behind my portfolio's back.

Remember, this test started out with $200,000 in cash at the start. It took several months to get even the majority of that cash invested in the right dividend payers. The good news is that now I'm fully invested, and the dividends are coming in hand over fist and helping add to all my positions.

In October alone the portfolio earned — and reinvested — more than $1,090 in dividends, marking my third straight month with more than $1,000 paid.

Action to Take –> So what can you take away from this test?

First and foremost, it proves what you've always heard, but perhaps took with a grain of salt. Investing in dividend-paying securities — and reinvesting those dividends — can be a very lucrative strategy. And even if you knew that, you may have thought it a strategy only for those with a focus on the extremely long-term.

But in less than a year, the dividends have ramped up to more than $1,000 a month. (Even if you had only $50,000 invest, it would still mean an extra $250 a month in your pocket, or in more shares.) That's some serious cash.

Uncategorized

What My 336-Day Income Test Revealed

November 26th, 2010

What My 336-Day Income Test Revealed

Spend five minutes researching most investment strategies, and you'll run across something called “backtesting.”

Backtesting is when you look at historical data, apply your potential strategy, and see what sort of performance it would have had in the past. Basically, it's one way to hunt for a strategy that could work without putting anything on the line.

Therein lies the problem. There's no skin in the game. You can backtest anything and everything with no risk. That's why you sometimes run across off-the-wall claims like the length of women's hemlines has a bearing on winning stocks. (Don't believe me? Read this note from Barron's.)

Don't get me wrong; backtesting has its place. But a lot of strategies look good on paper and in hindsight. Shouldn't you be much more interested in the results of a test done with actual cash… and in real time?
Most retail investors can't test like this. If the test fails, it's their hard-earned money at stake, and many investors just can't afford any more risk right now. Luckily, I enjoy a luxury most retail investors don't — I have the backing of an entire company for my investment research.

And so in December of last year, I began what amounts to my biggest test to date. With $200,000 in actual cash fronted by StreetAuthority, I was given the go-ahead to build a portfolio using the “Daily Paycheck” strategy.

The strategy is straightforward. I'm building a portfolio of income stocks that pays me a dividend for every day of the month. And because I want to make those dividends grow as large as possible, I'm also reinvesting every cent of the payments.

It's a simple way to invest and many investors have heard about it before. But until now, most have only seen this sort of strategy backtested — not put in place in real life.

The good news is that while we all know being paid dividends regularly — and reinvesting those payments — is “supposed” to work, the actual results have been much more exciting than even I expected:

To the right are the actual stats of the $200,000 real-money portfolio within my Daily Paycheck advisory, where I'm conducting the test. This isn't backtested data or what “could” have happened. It's actual cash and real dividend payments.

So what does this 336-day (so far) test tell us about the “Daily Paycheck” strategy? Put simply, it works, and the results should only improve with time.

You might scoff. After all, during the first year of this experiment the total return of the portfolio is roughly in line with the performance of the S&P. How can that be a winning strategy?

It's because that performance comes with the equivalent of one hand tied behind my portfolio's back.

Remember, this test started out with $200,000 in cash at the start. It took several months to get even the majority of that cash invested in the right dividend payers. The good news is that now I'm fully invested, and the dividends are coming in hand over fist and helping add to all my positions.

In October alone the portfolio earned — and reinvested — more than $1,090 in dividends, marking my third straight month with more than $1,000 paid.

Action to Take –> So what can you take away from this test?

First and foremost, it proves what you've always heard, but perhaps took with a grain of salt. Investing in dividend-paying securities — and reinvesting those dividends — can be a very lucrative strategy. And even if you knew that, you may have thought it a strategy only for those with a focus on the extremely long-term.

But in less than a year, the dividends have ramped up to more than $1,000 a month. (Even if you had only $50,000 invest, it would still mean an extra $250 a month in your pocket, or in more shares.) That's some serious cash.

Uncategorized

Myriad Responses to the Global Financial Crisis

November 26th, 2010

Yes, dear reader…we are on the job. Reckoning away…

And we are spoiled for choice this morning…so much to reckon with.

First, let’s begin with the US stock market. Up…down…up again. The Dow rose 150 points, Wednesday. Gold fell $4. What does that tell us? Nothing…

Meanwhile, in Europe, poor Ireland is suffering. On Wednesday, it agreed to further spending cuts…and to higher taxes too. Talk about austerity…! These guys will do practically anything to protect their bankers.

Bloomberg:

Ireland’s government said it will cut spending by about 20 percent and raise taxes over the next four years as talks on a bailout of the country near conclusion.

Welfare cuts of 2.8 billion euros ($3.8 billion) and income tax increases of 1.9 billion euros are among the steps planned to narrow the budget deficit to 3 percent of gross domestic product by the end of 2014. The shortfall will be 12 percent of GDP this year, or 32 percent including a banking rescue.

So far, the Irish people go along…like beasts of burden. Dumbly. Humbly. Fumbly. Whose side is the government on, they must wonder. We watch in amazement…we want to see how far they’ll go.

Of course, they’re not the only ones who seem willing to put up with anything. In the US, the central bank has pledged to reduce the value of Americans’ savings…to cut their real incomes…and make everything they buy more expensive.

Hey, whose side are they on?

A judge in England just handed down a jail sentence to four counterfeiters in Leeds. He said the clink was appropriate because the counterfeiters might have “undermined confidence in the system” and “caused a lot of people to lose money.”

If you get jail time for that, Ben Bernanke better watch out!

Meanwhile, millions of Thanksgiving travelers got to try out the TSA’s new “Grope and Fondle” system of terrorism fighting. Yes, the video proof is all over the airwaves…photos of the TSA patting down toddlers and grabbing crotches…

How much of this will Americans take? We wonder about that too.

Elsewhere, many people have decided they have had enough. Unfortunately, the ones who have had enough were the ones already getting too much – that’s right, the zombies.

Here’s the story from Associated Press:

Anger and fear about Europe’s seemingly unstoppable debt crisis coursed through the continent Wednesday. Striking workers shut down much of Portugal, Ireland proposed its deepest budget cuts in history and seething Italian and British students clashed with police over education cuts.

In Lisbon, strikers all but closed the airport, stranding passengers who couldn’t get in or out of the country.

“People have to fight for their rights,” Moreira, 51, told The Associated Press. “People have to fight against what is happening.”

Government policies have “sent people into poverty and misery,” said union leader Manuel Carvalho da Silva, noting that Portuguese civil servants will see wage cuts averaging 5 percent next year.

Italian students occupied university buildings and piazzas to denounce education cuts being debated by Parliament, clashing briefly with police in Rome and blocking five main bridges over the River Arno in Pisa.

In Britain, students decried government plans to triple tuition fees.

“Education is not a rich kid’s game,” said Tash Holway, a 19-year-old student in London. “If this keeps up, the entire industry will change. It won’t be about talent, but only about who can pay.”

Tempers even flared at the European Parliament in Strasbourg, France, where British legislator Godfrey Bloom was expelled from a debate on Ireland’s financial meltdown after he called a German legislator an “undemocratic fascist.”

So you see, dear reader, there was too much for us to reckon with. We couldn’t help ourselves…

Bill Bonner
for The Daily Reckoning

Myriad Responses to the Global Financial Crisis originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Myriad Responses to the Global Financial Crisis




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Myriad Responses to the Global Financial Crisis

November 26th, 2010

Yes, dear reader…we are on the job. Reckoning away…

And we are spoiled for choice this morning…so much to reckon with.

First, let’s begin with the US stock market. Up…down…up again. The Dow rose 150 points, Wednesday. Gold fell $4. What does that tell us? Nothing…

Meanwhile, in Europe, poor Ireland is suffering. On Wednesday, it agreed to further spending cuts…and to higher taxes too. Talk about austerity…! These guys will do practically anything to protect their bankers.

Bloomberg:

Ireland’s government said it will cut spending by about 20 percent and raise taxes over the next four years as talks on a bailout of the country near conclusion.

Welfare cuts of 2.8 billion euros ($3.8 billion) and income tax increases of 1.9 billion euros are among the steps planned to narrow the budget deficit to 3 percent of gross domestic product by the end of 2014. The shortfall will be 12 percent of GDP this year, or 32 percent including a banking rescue.

So far, the Irish people go along…like beasts of burden. Dumbly. Humbly. Fumbly. Whose side is the government on, they must wonder. We watch in amazement…we want to see how far they’ll go.

Of course, they’re not the only ones who seem willing to put up with anything. In the US, the central bank has pledged to reduce the value of Americans’ savings…to cut their real incomes…and make everything they buy more expensive.

Hey, whose side are they on?

A judge in England just handed down a jail sentence to four counterfeiters in Leeds. He said the clink was appropriate because the counterfeiters might have “undermined confidence in the system” and “caused a lot of people to lose money.”

If you get jail time for that, Ben Bernanke better watch out!

Meanwhile, millions of Thanksgiving travelers got to try out the TSA’s new “Grope and Fondle” system of terrorism fighting. Yes, the video proof is all over the airwaves…photos of the TSA patting down toddlers and grabbing crotches…

How much of this will Americans take? We wonder about that too.

Elsewhere, many people have decided they have had enough. Unfortunately, the ones who have had enough were the ones already getting too much – that’s right, the zombies.

Here’s the story from Associated Press:

Anger and fear about Europe’s seemingly unstoppable debt crisis coursed through the continent Wednesday. Striking workers shut down much of Portugal, Ireland proposed its deepest budget cuts in history and seething Italian and British students clashed with police over education cuts.

In Lisbon, strikers all but closed the airport, stranding passengers who couldn’t get in or out of the country.

“People have to fight for their rights,” Moreira, 51, told The Associated Press. “People have to fight against what is happening.”

Government policies have “sent people into poverty and misery,” said union leader Manuel Carvalho da Silva, noting that Portuguese civil servants will see wage cuts averaging 5 percent next year.

Italian students occupied university buildings and piazzas to denounce education cuts being debated by Parliament, clashing briefly with police in Rome and blocking five main bridges over the River Arno in Pisa.

In Britain, students decried government plans to triple tuition fees.

“Education is not a rich kid’s game,” said Tash Holway, a 19-year-old student in London. “If this keeps up, the entire industry will change. It won’t be about talent, but only about who can pay.”

Tempers even flared at the European Parliament in Strasbourg, France, where British legislator Godfrey Bloom was expelled from a debate on Ireland’s financial meltdown after he called a German legislator an “undemocratic fascist.”

So you see, dear reader, there was too much for us to reckon with. We couldn’t help ourselves…

Bill Bonner
for The Daily Reckoning

Myriad Responses to the Global Financial Crisis originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Myriad Responses to the Global Financial Crisis




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

“Next Generation” Vaccines

November 26th, 2010

In the early 1990s, DNA vaccines for the treatment and prevention of diseases first emerged. Excitement about this technology was matched only by unrealistic expectations regarding the timeline to market. Interest was driven, however, by the real potential of the technology. For the first time, “unvaccinatable” targets like HIV and hepatitis C were in the bull’s-eye. Traditional vaccine technology, using live or inactivated viruses, simply did not provide a viable way to provoke a protective immune response against these diseases.

Moreover, DNA vaccines could be used against diseases other than their historical target: viruses. Early on, it dawned on researchers that this new generation of vaccines could be used to train the immune system to attack cancers and a wide range of other malignancies that act like foreign invaders inside the body.

Conventional vaccines work by causing the body’s immune system to recognize unique antigenic proteins that are part of the virus, triggering an immune response against the invader. The elegance of DNA vaccines is that, rather than introducing into the body an actual virus, only the antigen is introduced. Scientists realized that they could turn cells in the body into protein-manufacturing plants. By isolating the DNA responsible for producing ONLY the foreign antigenic protein associated with a specific virus, they could get around various issues associated with live or weakened viruses.

Big Pharma companies like Merck, Wyeth and GlaxoSmithKline, as well as national labs and academic research facilities poured billions into a “first wave” attempt at producing commercially viable DNA vaccines. Problems delivering the DNA vaccines in a way that provoked a sufficient immune response soon dampened their enthusiasm.

Two basic problems prevented the development of truly effective DNA vaccines. The first was an immature understanding of genetics. In those days, researchers were only beginning to learn how to optimize the DNA sequences to produce antigens with maximum impact. Additionally, there was the familiar “delivery” problem. Cells didn’t absorb enough of the DNA plasmids to become effective antigen factories. Since the amount of antigens produced by the body was therefore low, the immune response was insufficient to form the basis of viable drugs.

As a result, early DNA vaccine trials in humans were disappointing. The flow of research dollars slowed. Behind the scenes, however, determined scientists in dedicated startups never lost confidence in the core science. As importantly, alliances were formed and diverse discoveries merged. In recent years, their work has finally begun to bear fruit. I have been aware of this fact for some time. Until now, however, I hadn’t identified a company that fits in the Breakthrough Technology Alert portfolio.

But thanks to a series of mergers, a single company holds all the talent and IP needed to deliver on the breakthrough potential of DNA vaccine technology. In fact, the company appears to have solved the problems faced by early DNA vaccine researchers.

Patrick Cox

for The Daily Reckoning

“Next Generation” Vaccines originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
“Next Generation” Vaccines




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

“Next Generation” Vaccines

November 26th, 2010

In the early 1990s, DNA vaccines for the treatment and prevention of diseases first emerged. Excitement about this technology was matched only by unrealistic expectations regarding the timeline to market. Interest was driven, however, by the real potential of the technology. For the first time, “unvaccinatable” targets like HIV and hepatitis C were in the bull’s-eye. Traditional vaccine technology, using live or inactivated viruses, simply did not provide a viable way to provoke a protective immune response against these diseases.

Moreover, DNA vaccines could be used against diseases other than their historical target: viruses. Early on, it dawned on researchers that this new generation of vaccines could be used to train the immune system to attack cancers and a wide range of other malignancies that act like foreign invaders inside the body.

Conventional vaccines work by causing the body’s immune system to recognize unique antigenic proteins that are part of the virus, triggering an immune response against the invader. The elegance of DNA vaccines is that, rather than introducing into the body an actual virus, only the antigen is introduced. Scientists realized that they could turn cells in the body into protein-manufacturing plants. By isolating the DNA responsible for producing ONLY the foreign antigenic protein associated with a specific virus, they could get around various issues associated with live or weakened viruses.

Big Pharma companies like Merck, Wyeth and GlaxoSmithKline, as well as national labs and academic research facilities poured billions into a “first wave” attempt at producing commercially viable DNA vaccines. Problems delivering the DNA vaccines in a way that provoked a sufficient immune response soon dampened their enthusiasm.

Two basic problems prevented the development of truly effective DNA vaccines. The first was an immature understanding of genetics. In those days, researchers were only beginning to learn how to optimize the DNA sequences to produce antigens with maximum impact. Additionally, there was the familiar “delivery” problem. Cells didn’t absorb enough of the DNA plasmids to become effective antigen factories. Since the amount of antigens produced by the body was therefore low, the immune response was insufficient to form the basis of viable drugs.

As a result, early DNA vaccine trials in humans were disappointing. The flow of research dollars slowed. Behind the scenes, however, determined scientists in dedicated startups never lost confidence in the core science. As importantly, alliances were formed and diverse discoveries merged. In recent years, their work has finally begun to bear fruit. I have been aware of this fact for some time. Until now, however, I hadn’t identified a company that fits in the Breakthrough Technology Alert portfolio.

But thanks to a series of mergers, a single company holds all the talent and IP needed to deliver on the breakthrough potential of DNA vaccine technology. In fact, the company appears to have solved the problems faced by early DNA vaccine researchers.

Patrick Cox

for The Daily Reckoning

“Next Generation” Vaccines originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
“Next Generation” Vaccines




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Why the Government Hates Deflation

November 26th, 2010

Being the naturally cynical type of guy that you would expect from someone so angry, so depressed, so outraged, so paranoid and so “Howard Beale” (“I’m as mad as hell, and I’m not going to take this anymore!”) as I am, people want to know “what is with” all of this “deflation” stuff that the Fed is worried about.

Some of them write to me, some beginning, “Dear Mogambo” or, “Dear Moron.” These are the ones I immediately delete without reading, as they did not have the proper opening salutation.

On the other hand, if the email is properly addressed, I will immediately read it, such as this latest one here that correctly begins, “Dear Handsome And Wise Mogambo (HAWM), What is with all of this fear of deflation? It is being portrayed as a dread so fearful that the treacherous, foul Federal Reserve feels somehow justified in using monstrous monetary policy to target inflation in prices to be at least 2% per year, which is the most horrifically terrible thing that the treacherous, foul Fed could do except target 3% inflation in prices, which is the most horrifically terrible thing that the treacherous, foul Fed could so except target 4% inflation in prices, which is the most horrifically terrible thing that the treacherous, foul Fed could do except target 5% inflation in prices, a point at which I assume it is unnecessary to continue along this obvious and tedious continuum because you get the point by virtue of your being as smart as you are handsome and wise! (signed) A Fan Of The Mogambo (AFOTM).”

Firstly, let me say that I am pleased to see that fawning and groveling has not gone completely out of style, and let me say that that obvious, sniveling, servile and undeserved flattery is always appreciated.

My pervasive bad mood got the better of me, however, and my answer was, “Dear AFOTM, Deflation is a fall in the money supply. Thanks for asking me instead of looking it up, you moron! –Mogambo”

Well, AFOTM immediately wrote back, using our sudden familiarity to eliminate the use of an unctuous salutation, saying, “Screw you moron! (signed) Former Fan (FF).”

Former fan! I viciously think to myself, “Two can play at this game!” and replied, “Dear FF, you treacherous little backstabbing moron, Deflation is a fall in the money supply, but it is always associated with falling asset prices, which is why that is also called deflation, too, which is when a lesser total money has to be spread among the same (in the short run) amount of actual assets, which means that the pro-rata money available for each asset goes down, which makes some prices go down, which hands losses to the owners of the assets, which they don’t like, which are thankfully netted against gains when paying taxes, which means less tax revenue to the government, which the government doesn’t like!”

Helpfully, I did not expand into bogus mathematical terms, which is that the ratio of Money Supply to Actual Assets (MS/AA) obviously goes down when the Money Supply goes down, which it can do for a variety of reasons, one of which is when any creditor has to take a loss, because fiat money is created by a bank at the instant that someone borrows money from a bank.

Therefore, then, money also literally disappears when the debt, underlying the fiat money, disappears when being defaulted upon because the guy who owes the money to the bank decided to default, jumped into his snazzy new car in the middle of the night and headed out of town and across state lines to start a new life, in a new place, with a new name, and an even snazzier, newer car.

Of course, unless you are a dealer of snazzy new cars, it is worse than this, as the losses are not constrained to being one-to-one with the number of dollars created! Oh, no! Losses are in huge multiples of the original money created, thanks to the outrageously out-of-control fractional-reserves insanity in the banks that the Federal Reserve, under the horrid Alan Greenspan, was allowing and abetting, and the huge financial spider web of derivatives so that we could have a gigantic stock market bubble, and a bond bubble, and a derivatives bubble, and a housing bubble, and huge, cancerous bubble in the growth of government, which is not to even mention a whole asset-management/retirement-account industry of such greed and corrupted ethics that it makes 40% of all the profits of America, and for doing very, very little except enriching itself, its friends and Congressional lapdogs.

It got so bad around the end of the housing bubble that that changes in bank reserves were, literally, zero, as nothing was held against the banks literally lending out as much new money as they wanted, whether they had additional deposits or not! Infinite leverage!

It’s not quite that way now, although bank reserves are still a piddly $68 billion, while the M2 money supply is up over $400 billion, to $8.76 trillion, from this time last year, which is an increase of about 4%.

And the Fed is already launching QE2 to create another $600 billion ($1.2 trillion annualized) so that the federal government can deficit-spend it in the next six months! I howl – Ahhooooohhh! – in outrage!

Hooper and Bandit, two animated characters at thewallstreetshuffle.com who do a very good job of discussing Austrian economics, note that “When the Fed finishes buying the $600 billion of US Treasuries and other debt, that they will be the largest single holder of US treasury debt in the world.” Wow! Wow and yikes!

They sum it up as, “This is just plain and simple gross monetization of our federal debt,” and that “the result will be a ‘financial Chernobyl’ with dollars spreading like radiation around the world.”

Dollars as radioactive death is an interesting metaphor, and should be alarming to those who hold dollars, but not to those buying gold, silver and oil as ways to save themselves against the predations of the Federal Reserve and the government.

To the buyers of gold, silver and oil, “dollars as radioactive death” means, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Why the Government Hates Deflation originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Why the Government Hates Deflation




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Why the Government Hates Deflation

November 26th, 2010

Being the naturally cynical type of guy that you would expect from someone so angry, so depressed, so outraged, so paranoid and so “Howard Beale” (“I’m as mad as hell, and I’m not going to take this anymore!”) as I am, people want to know “what is with” all of this “deflation” stuff that the Fed is worried about.

Some of them write to me, some beginning, “Dear Mogambo” or, “Dear Moron.” These are the ones I immediately delete without reading, as they did not have the proper opening salutation.

On the other hand, if the email is properly addressed, I will immediately read it, such as this latest one here that correctly begins, “Dear Handsome And Wise Mogambo (HAWM), What is with all of this fear of deflation? It is being portrayed as a dread so fearful that the treacherous, foul Federal Reserve feels somehow justified in using monstrous monetary policy to target inflation in prices to be at least 2% per year, which is the most horrifically terrible thing that the treacherous, foul Fed could do except target 3% inflation in prices, which is the most horrifically terrible thing that the treacherous, foul Fed could so except target 4% inflation in prices, which is the most horrifically terrible thing that the treacherous, foul Fed could do except target 5% inflation in prices, a point at which I assume it is unnecessary to continue along this obvious and tedious continuum because you get the point by virtue of your being as smart as you are handsome and wise! (signed) A Fan Of The Mogambo (AFOTM).”

Firstly, let me say that I am pleased to see that fawning and groveling has not gone completely out of style, and let me say that that obvious, sniveling, servile and undeserved flattery is always appreciated.

My pervasive bad mood got the better of me, however, and my answer was, “Dear AFOTM, Deflation is a fall in the money supply. Thanks for asking me instead of looking it up, you moron! –Mogambo”

Well, AFOTM immediately wrote back, using our sudden familiarity to eliminate the use of an unctuous salutation, saying, “Screw you moron! (signed) Former Fan (FF).”

Former fan! I viciously think to myself, “Two can play at this game!” and replied, “Dear FF, you treacherous little backstabbing moron, Deflation is a fall in the money supply, but it is always associated with falling asset prices, which is why that is also called deflation, too, which is when a lesser total money has to be spread among the same (in the short run) amount of actual assets, which means that the pro-rata money available for each asset goes down, which makes some prices go down, which hands losses to the owners of the assets, which they don’t like, which are thankfully netted against gains when paying taxes, which means less tax revenue to the government, which the government doesn’t like!”

Helpfully, I did not expand into bogus mathematical terms, which is that the ratio of Money Supply to Actual Assets (MS/AA) obviously goes down when the Money Supply goes down, which it can do for a variety of reasons, one of which is when any creditor has to take a loss, because fiat money is created by a bank at the instant that someone borrows money from a bank.

Therefore, then, money also literally disappears when the debt, underlying the fiat money, disappears when being defaulted upon because the guy who owes the money to the bank decided to default, jumped into his snazzy new car in the middle of the night and headed out of town and across state lines to start a new life, in a new place, with a new name, and an even snazzier, newer car.

Of course, unless you are a dealer of snazzy new cars, it is worse than this, as the losses are not constrained to being one-to-one with the number of dollars created! Oh, no! Losses are in huge multiples of the original money created, thanks to the outrageously out-of-control fractional-reserves insanity in the banks that the Federal Reserve, under the horrid Alan Greenspan, was allowing and abetting, and the huge financial spider web of derivatives so that we could have a gigantic stock market bubble, and a bond bubble, and a derivatives bubble, and a housing bubble, and huge, cancerous bubble in the growth of government, which is not to even mention a whole asset-management/retirement-account industry of such greed and corrupted ethics that it makes 40% of all the profits of America, and for doing very, very little except enriching itself, its friends and Congressional lapdogs.

It got so bad around the end of the housing bubble that that changes in bank reserves were, literally, zero, as nothing was held against the banks literally lending out as much new money as they wanted, whether they had additional deposits or not! Infinite leverage!

It’s not quite that way now, although bank reserves are still a piddly $68 billion, while the M2 money supply is up over $400 billion, to $8.76 trillion, from this time last year, which is an increase of about 4%.

And the Fed is already launching QE2 to create another $600 billion ($1.2 trillion annualized) so that the federal government can deficit-spend it in the next six months! I howl – Ahhooooohhh! – in outrage!

Hooper and Bandit, two animated characters at thewallstreetshuffle.com who do a very good job of discussing Austrian economics, note that “When the Fed finishes buying the $600 billion of US Treasuries and other debt, that they will be the largest single holder of US treasury debt in the world.” Wow! Wow and yikes!

They sum it up as, “This is just plain and simple gross monetization of our federal debt,” and that “the result will be a ‘financial Chernobyl’ with dollars spreading like radiation around the world.”

Dollars as radioactive death is an interesting metaphor, and should be alarming to those who hold dollars, but not to those buying gold, silver and oil as ways to save themselves against the predations of the Federal Reserve and the government.

To the buyers of gold, silver and oil, “dollars as radioactive death” means, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Why the Government Hates Deflation originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Why the Government Hates Deflation




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

There is No Food Inflation; the BLS Made Sure of That

November 26th, 2010

“Moreover, inflation has been declining and is currently quite low, with measures of underlying inflation running close to 1 percent… In this environment, the Federal Open Market Committee (FOMC) judged that additional monetary policy accommodation was needed to support the economic recovery and help ensure that inflation, over time, is at desired levels.”

-Federal Reserve Chairman Ben S. Bernanke, Sixth European Central Bank, Central Banking Conference; Frankfurt, Germany; November 19, 2010

“CORE U.S. INFLATION SLOWEST ON RECORD: Core consumer prices in the U.S are at their lowest pace since records began, bolstering the case for the Federal Reserve to complete its planned $600 bn in asset purchases and extend the programme to buy more….Excluding volatile food and energy prices, the consumer price index rose by only 0.6% on a year ago….”

-Financial Times – headline and lead story on page one, November 19, 2010

“A key gauge of U.S. inflation has fallen to its lowest level since record keeping began in 1957, underscoring continued weakness in the economy and bolstering the Fed’s case that it should continue its bond-buying program.”

-Wall Street Journal, first sentence, top of page one, November 19, 2010

A BRIEF REVIEW: The Federal Reserve launched QE2 (a.k.a.: printing money) on November 3, 2010. Chairman Bernanke justified this laboratory experiment as a measure to prevent deflation. He wrote in the November 4, 2010, Washington Post: “Most measures of underlying inflation are running somewhat below 2 percent, or a bit lower than the rate most Fed policymakers see as being most consistent with healthy economic growth….” This “2 percent” hokum is an invention of Bernanke & Comrades, but the chairman pretends it is chiseled into the Federal Reserve charter. The contention is important since it is on this rock the Fed has built its justification for launching the $600 billion asset purchase, referred to in the Financial Times headline above.

The media, as represented by the newspapers above, not only accept the Consumer Price Index as released by the Bureau of Labor Statistics, but also: (1): accept the rationale that food and energy prices should not be included in the price index because of their excessive volatility, and, (2): notify readers that such low inflation “bolsters” the Fed’s case to continue pumping up asset prices. Note that both papers link the happy inflation news to the $600 billion purchase with the word “bolster.” This has the whiff of a press release delivered by the Fed to the media.

It went unnoticed how the Bureau of Labor Statistics (BLS) relieved the volatile food and energy prices of volatility. The BLS also relieved the CPI of “extreme values and/or sharp movements [of prices] which might distort the seasonal pattern [which] are estimated and [are] removed from the data.”  So out went milk, cheese, oil, and cars from the CPI, if they did not meet the BLS volatility criteria.  (The excisions also include non-edibles and non-combustibles, including cards, trucks and textbooks.)

Below are some monthly lists of items removed from the monthly Consumer Price Index Summary calculation and the excuses for doing so. (The lists were cut-and-pasted from the BLS website at the time. It looks as though the BLS only posts tables (no words) from the monthly CPI releases prior to May 2007.) There is nothing particular to the months shown. The reader may note the lists stop in 2006. This is because the BLS stopped releasing the list of items after December, 2006; possibly because the deception was so clear as to show the entire CPI calculation is a fraud. This is suggested without much conviction since there weren’t ten people outside of the BLS or Federal Reserve who knew it existed, possibly because critics of BLS methods had so many other fish to fry: hedonic adjustments, geometric averaging, substitution bias, owners’ equivalent rent, and on and on it goes.

To keep this short, the BLS methodology is not discussed. It is described in “Intervention Analysis Seasonal Adjustment,” a paper on the BLS website. The “procedure” referred to is the “X-12-ARIMA Seasonal Adjustment Method,” which may or may not apply to a particular item since (quoting the BLS) “components change their seasonal adjustment status from seasonally adjusted to not seasonally adjusted, not seasonally adjusted data will be used in the aggregation of the dependent series for the last 5 years, but the seasonally adjusted indexes will be used before that period.” Yeah, right.

This prescribed method of stupefying the public successfully deterred me from attempting to understand the changes to food and energy prices.  And, as mentioned above, there are so many other distortions to the CPI that one is better off to assume the consumer price index is rising 5% to 10% a year and to adjust one’s life (and investments) accordingly.  John Williams, author of the Shadow Government Statistics website, calculates that if the BLS used the same methodologies for compiling the CPI today that it employed in 1990, the government’s number would be 4.5%. If the BLS used the same methodologies as in 1980, the official CPI would be 8.5%.

Year-in and year-out, some items (e.g. motor fuels, new cars) are apparently a nuisance to stable prices, with the same stated rationale for not including them. How can the errant products forever be in need of adjustment (or banishment), since the selection is supposed to include temporary aberrant conditions? Of course, this whole procedure should not exist, if the CPI is a measure of the change in consumer prices. But that is not its purpose. Chairman Bernanke cannot stop reminding us that one of the Federal Reserve’s “mandates” from Congress is “stable inflation.” Thus, throw out prices that change. The wonder is after primping the inflation calculation he still has such difficulty keeping it stable.

June 2002 – BUREAU OF LABOR STATISTICS RELEASE: CONSUMER PRICE INDEX – A NOTE ON SEASONALLY ADJUSTED AND NONADJUSTED DATA

Extreme values and/or sharp movements which might distort the seasonal pattern are estimated and removed from the data prior to calculation of seasonal factors.  Beginning with the calculation of seasonal factors for 1996, X-12-ARIMA software was used for Intervention Analysis Seasonal Adjustment. For the fuel oil, natural gas, motor fuels, and educational books and supplies indexes, this procedure was used to offset the effects that extreme price volatility would otherwise have had on the estimates of seasonally adjusted data for those series.   For the Nonalcoholic beverages index, the procedure was used to offset the effects of a large increase in coffee prices due to adverse weather.  The procedure was used to account for unusual butter fat supply reductions and decreases in milk supply affecting the Fats and oils series.  For the Water and sewerage maintenance index, the procedure was used to account for a data collection anomaly. It was used to offset an increase in summer demand in the Midwest and South for Electricity. For New vehicles, New cars, and New trucks, the procedure was used to offset the effects of a model changeover combined with financing incentives.

[My underlining. This preface introduced (until January 2007) each month's "Note on Seasonally Adjusted and Nonadjusted Data" in the BLS' Consumer Price Index. I left it out of the following examples.]

JUNE 2004 – BUREAU OF LABOR STATISTICS RELEASE: CONSUMER PRICE INDEX – A NOTE ON SEASONALLY ADJUSTED AND NONADJUSTED DATA

For the fuel oil, natural gas, motor fuels, and educational books and supplies indexes, this procedure was used to offset the effects that extreme price volatility would otherwise have had on the estimates of seasonally adjusted data for those series.   For the Nonalcoholic beverages index, the procedure was used to offset the effects of labor and supply problems for coffee.  The procedure was used to account for unusual butter fat supply reductions, decreases in milk supply, and large swings in soybean oil inventories affecting the Fats and oils series.  For the Water and sewerage maintenance index, the procedure was used to account for a data collection anomaly and dry weather in California.  For Dairy products, it mitigated the effects of significant changes in milk production levels and higher demand for cheese.  For Electricity, it was used to offset an increase in demand due to warmer than expected weather, increased rates to conserve supplies, and declining natural gas inventories.  For New vehicles, New cars, and New trucks, the procedure was used to offset the effects of a model changeover combined with financing incentives.

July 2005 – BUREAU OF LABOR STATISTICS RELEASE: CONSUMER PRICE INDEX – A NOTE ON SEASONALLY ADJUSTED AND NONADJUSTED DATA

For the Fuel oil, Utility (piped) gas, Motor fuels, and Educational books and supplies indexes, this procedure was used to offset the effects that extreme price volatility would otherwise have had on the estimates of seasonally adjusted data for those series.   For the Nonalcoholic beverages index, the procedure was used to offset the effects of sharp rises in the price of coffee futures.  The procedure was used to account for unusual butter fat supply reductions, changes in milk supply, and large swings in soybean oil inventories affecting the Fats and oils series.  For Dairy products, it mitigated the effects of significant changes in milk, butter and cheese production levels.  For Fresh vegetable series, the method was used to account for the effects of hurricane-related disruptions.  For Electricity, it was used to offset an increase in demand due to warmer than expected weather, increased rates to conserve supplies, and declining natural gas inventories.  For New vehicle series, the procedure was used to offset the effects of a model changeover combined with financing incentives.

December 2006 – BUREAU OF LABOR STATISTICS RELEASE: CONSUMER PRICE INDEX – A NOTE ON SEASONALLY ADJUSTED AND NONADJUSTED DATA

For the Fuel oil, Utility (piped) gas, Motor fuels, and Educational books and supplies indexes, this procedure was used to offset the effects that extreme price volatility would otherwise have had on the estimates of seasonally adjusted data for those series.   For the Nonalcoholic beverages index, the procedure was used to offset the effects of sharp rises in the price of coffee futures.  The procedure was used to account for unusual butter fat supply reductions, changes in milk supply, and large swings in soybean oil inventories affecting the Fats and oils series.  For Dairy products, it mitigated the effects of significant changes in milk, butter and cheese production levels.  For Fresh vegetable series, the method was used to account for the effects of hurricane- related disruptions.  For Electricity, it was used to offset an increase in demand due to warmer than expected weather, increased rates to conserve supplies, and declining natural gas inventories.  For New vehicle series, the procedure was used to offset the effects of a model changeover combined with financing incentives.

Regards,

Frederick Sheehan,
for The Daily Reckoning

[For more of Frederick Sheehan's perspective you can visit his blogs here and at www.AuContrarian.com. You can also purchase his book, Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009), here.]

There is No Food Inflation; the BLS Made Sure of That originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
There is No Food Inflation; the BLS Made Sure of That




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

There is No Food Inflation; the BLS Made Sure of That

November 26th, 2010

“Moreover, inflation has been declining and is currently quite low, with measures of underlying inflation running close to 1 percent… In this environment, the Federal Open Market Committee (FOMC) judged that additional monetary policy accommodation was needed to support the economic recovery and help ensure that inflation, over time, is at desired levels.”

-Federal Reserve Chairman Ben S. Bernanke, Sixth European Central Bank, Central Banking Conference; Frankfurt, Germany; November 19, 2010

“CORE U.S. INFLATION SLOWEST ON RECORD: Core consumer prices in the U.S are at their lowest pace since records began, bolstering the case for the Federal Reserve to complete its planned $600 bn in asset purchases and extend the programme to buy more….Excluding volatile food and energy prices, the consumer price index rose by only 0.6% on a year ago….”

-Financial Times – headline and lead story on page one, November 19, 2010

“A key gauge of U.S. inflation has fallen to its lowest level since record keeping began in 1957, underscoring continued weakness in the economy and bolstering the Fed’s case that it should continue its bond-buying program.”

-Wall Street Journal, first sentence, top of page one, November 19, 2010

A BRIEF REVIEW: The Federal Reserve launched QE2 (a.k.a.: printing money) on November 3, 2010. Chairman Bernanke justified this laboratory experiment as a measure to prevent deflation. He wrote in the November 4, 2010, Washington Post: “Most measures of underlying inflation are running somewhat below 2 percent, or a bit lower than the rate most Fed policymakers see as being most consistent with healthy economic growth….” This “2 percent” hokum is an invention of Bernanke & Comrades, but the chairman pretends it is chiseled into the Federal Reserve charter. The contention is important since it is on this rock the Fed has built its justification for launching the $600 billion asset purchase, referred to in the Financial Times headline above.

The media, as represented by the newspapers above, not only accept the Consumer Price Index as released by the Bureau of Labor Statistics, but also: (1): accept the rationale that food and energy prices should not be included in the price index because of their excessive volatility, and, (2): notify readers that such low inflation “bolsters” the Fed’s case to continue pumping up asset prices. Note that both papers link the happy inflation news to the $600 billion purchase with the word “bolster.” This has the whiff of a press release delivered by the Fed to the media.

It went unnoticed how the Bureau of Labor Statistics (BLS) relieved the volatile food and energy prices of volatility. The BLS also relieved the CPI of “extreme values and/or sharp movements [of prices] which might distort the seasonal pattern [which] are estimated and [are] removed from the data.”  So out went milk, cheese, oil, and cars from the CPI, if they did not meet the BLS volatility criteria.  (The excisions also include non-edibles and non-combustibles, including cards, trucks and textbooks.)

Below are some monthly lists of items removed from the monthly Consumer Price Index Summary calculation and the excuses for doing so. (The lists were cut-and-pasted from the BLS website at the time. It looks as though the BLS only posts tables (no words) from the monthly CPI releases prior to May 2007.) There is nothing particular to the months shown. The reader may note the lists stop in 2006. This is because the BLS stopped releasing the list of items after December, 2006; possibly because the deception was so clear as to show the entire CPI calculation is a fraud. This is suggested without much conviction since there weren’t ten people outside of the BLS or Federal Reserve who knew it existed, possibly because critics of BLS methods had so many other fish to fry: hedonic adjustments, geometric averaging, substitution bias, owners’ equivalent rent, and on and on it goes.

To keep this short, the BLS methodology is not discussed. It is described in “Intervention Analysis Seasonal Adjustment,” a paper on the BLS website. The “procedure” referred to is the “X-12-ARIMA Seasonal Adjustment Method,” which may or may not apply to a particular item since (quoting the BLS) “components change their seasonal adjustment status from seasonally adjusted to not seasonally adjusted, not seasonally adjusted data will be used in the aggregation of the dependent series for the last 5 years, but the seasonally adjusted indexes will be used before that period.” Yeah, right.

This prescribed method of stupefying the public successfully deterred me from attempting to understand the changes to food and energy prices.  And, as mentioned above, there are so many other distortions to the CPI that one is better off to assume the consumer price index is rising 5% to 10% a year and to adjust one’s life (and investments) accordingly.  John Williams, author of the Shadow Government Statistics website, calculates that if the BLS used the same methodologies for compiling the CPI today that it employed in 1990, the government’s number would be 4.5%. If the BLS used the same methodologies as in 1980, the official CPI would be 8.5%.

Year-in and year-out, some items (e.g. motor fuels, new cars) are apparently a nuisance to stable prices, with the same stated rationale for not including them. How can the errant products forever be in need of adjustment (or banishment), since the selection is supposed to include temporary aberrant conditions? Of course, this whole procedure should not exist, if the CPI is a measure of the change in consumer prices. But that is not its purpose. Chairman Bernanke cannot stop reminding us that one of the Federal Reserve’s “mandates” from Congress is “stable inflation.” Thus, throw out prices that change. The wonder is after primping the inflation calculation he still has such difficulty keeping it stable.

June 2002 – BUREAU OF LABOR STATISTICS RELEASE: CONSUMER PRICE INDEX – A NOTE ON SEASONALLY ADJUSTED AND NONADJUSTED DATA

Extreme values and/or sharp movements which might distort the seasonal pattern are estimated and removed from the data prior to calculation of seasonal factors.  Beginning with the calculation of seasonal factors for 1996, X-12-ARIMA software was used for Intervention Analysis Seasonal Adjustment. For the fuel oil, natural gas, motor fuels, and educational books and supplies indexes, this procedure was used to offset the effects that extreme price volatility would otherwise have had on the estimates of seasonally adjusted data for those series.   For the Nonalcoholic beverages index, the procedure was used to offset the effects of a large increase in coffee prices due to adverse weather.  The procedure was used to account for unusual butter fat supply reductions and decreases in milk supply affecting the Fats and oils series.  For the Water and sewerage maintenance index, the procedure was used to account for a data collection anomaly. It was used to offset an increase in summer demand in the Midwest and South for Electricity. For New vehicles, New cars, and New trucks, the procedure was used to offset the effects of a model changeover combined with financing incentives.

[My underlining. This preface introduced (until January 2007) each month's "Note on Seasonally Adjusted and Nonadjusted Data" in the BLS' Consumer Price Index. I left it out of the following examples.]

JUNE 2004 – BUREAU OF LABOR STATISTICS RELEASE: CONSUMER PRICE INDEX – A NOTE ON SEASONALLY ADJUSTED AND NONADJUSTED DATA

For the fuel oil, natural gas, motor fuels, and educational books and supplies indexes, this procedure was used to offset the effects that extreme price volatility would otherwise have had on the estimates of seasonally adjusted data for those series.   For the Nonalcoholic beverages index, the procedure was used to offset the effects of labor and supply problems for coffee.  The procedure was used to account for unusual butter fat supply reductions, decreases in milk supply, and large swings in soybean oil inventories affecting the Fats and oils series.  For the Water and sewerage maintenance index, the procedure was used to account for a data collection anomaly and dry weather in California.  For Dairy products, it mitigated the effects of significant changes in milk production levels and higher demand for cheese.  For Electricity, it was used to offset an increase in demand due to warmer than expected weather, increased rates to conserve supplies, and declining natural gas inventories.  For New vehicles, New cars, and New trucks, the procedure was used to offset the effects of a model changeover combined with financing incentives.

July 2005 – BUREAU OF LABOR STATISTICS RELEASE: CONSUMER PRICE INDEX – A NOTE ON SEASONALLY ADJUSTED AND NONADJUSTED DATA

For the Fuel oil, Utility (piped) gas, Motor fuels, and Educational books and supplies indexes, this procedure was used to offset the effects that extreme price volatility would otherwise have had on the estimates of seasonally adjusted data for those series.   For the Nonalcoholic beverages index, the procedure was used to offset the effects of sharp rises in the price of coffee futures.  The procedure was used to account for unusual butter fat supply reductions, changes in milk supply, and large swings in soybean oil inventories affecting the Fats and oils series.  For Dairy products, it mitigated the effects of significant changes in milk, butter and cheese production levels.  For Fresh vegetable series, the method was used to account for the effects of hurricane-related disruptions.  For Electricity, it was used to offset an increase in demand due to warmer than expected weather, increased rates to conserve supplies, and declining natural gas inventories.  For New vehicle series, the procedure was used to offset the effects of a model changeover combined with financing incentives.

December 2006 – BUREAU OF LABOR STATISTICS RELEASE: CONSUMER PRICE INDEX – A NOTE ON SEASONALLY ADJUSTED AND NONADJUSTED DATA

For the Fuel oil, Utility (piped) gas, Motor fuels, and Educational books and supplies indexes, this procedure was used to offset the effects that extreme price volatility would otherwise have had on the estimates of seasonally adjusted data for those series.   For the Nonalcoholic beverages index, the procedure was used to offset the effects of sharp rises in the price of coffee futures.  The procedure was used to account for unusual butter fat supply reductions, changes in milk supply, and large swings in soybean oil inventories affecting the Fats and oils series.  For Dairy products, it mitigated the effects of significant changes in milk, butter and cheese production levels.  For Fresh vegetable series, the method was used to account for the effects of hurricane- related disruptions.  For Electricity, it was used to offset an increase in demand due to warmer than expected weather, increased rates to conserve supplies, and declining natural gas inventories.  For New vehicle series, the procedure was used to offset the effects of a model changeover combined with financing incentives.

Regards,

Frederick Sheehan,
for The Daily Reckoning

[For more of Frederick Sheehan's perspective you can visit his blogs here and at www.AuContrarian.com. You can also purchase his book, Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009), here.]

There is No Food Inflation; the BLS Made Sure of That originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
There is No Food Inflation; the BLS Made Sure of That




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

Why I’m THANKFUL for the Bond Market Sell Off

November 26th, 2010

Mike Larson

I don’t know about you, but I’m still stuffed from yesterday! I ate enough turkey to feed a small army, and that’s not even counting all the trimmings.

But frankly, I wouldn’t have it any other way. Thanksgiving is a great time to get together with family, watch some football, eat well, and celebrate all we have to be thankful for. And believe me, there’s a lot … including the latest bond market sell off.

Yes, you heard me. I’m glad bonds are finally falling in price.

Why? As Americans, we’ve been forced to accept miserable yields on all kinds of income-generating investments …

  • Yields on 2-year government notes recently hit 0.34 percent, the lowest in U.S. history.
  • Five-year TIPS were just sold at a yield of negative 0.55 percent. Borrowers actually paid the government to take their money on the assumption the value of the TIPS would rise along with inflation in the coming few years.
  • Willing to lock your money up for longer in order to be fairly compensated? Ha! Uncle Sam was paying less than 3.5 percent on a 30-year bond a couple months ago. That’s far from adequate compensation for locking your money up for three decades.
  • Municipal bonds? No solace there! The average yield on a 20-year general obligation bond recently slumped to 3.82 percent.
  • Even high-yield, or junk, bonds saw their average yields slump to less than 8 percent. Yields on such bonds were well into double-digit territory a couple years ago.

Fed Officials Forcing Investors to
Take on More and More Risk

Bottom line: It’s been next to impossible to generate adequate income with bonds. You’ve had to take on more credit risk, more duration risk, more currency risk — more risk all around!

Income-seeking investors have had to accept more risk.
Income-seeking investors have had to accept more risk.

That’s precisely what the Federal Reserve wants you to do, by the way. The Fed wants to force investors to snap up all the riskier bonds and stocks they can get their hands on so it drives down corporate borrowing costs. They think that will help the economy recover and unemployment fall.

As I’ve pointed out repeatedly, though, all the Fed’s moves have done is drive up prices in the “asset economy.” They haven’t done much of anything for the “real economy.” Or in simple terms, the Fed has given Wall Street a big, fat Thanksgiving dinner to feast on … while only throwing a few scraps to Main Street.

Just look at the latest news on housing, one of the main focus areas of the Fed’s levitation efforts:

  • The National Association of Home Builders Housing Market Index came in at 16 in November, down from 72 at its peak in June 2005.
  • Construction spending was only $801.7 billion in September, down from $1.21 trillion in March 2006.
  • Construction employment slumped to 5.63 million in October versus 7.73 million in August 2006.
  • Housing starts were running at a seasonally adjusted annual rate of just 519,000 in October, compared with 2.27 million in January 2006.

In short, all of these indicators are flatlining or falling despite the biggest money-printing binge in world history. Plus unemployment is hovering just shy of 10 percent; and consumer and corporate spending isn’t ramping up.

But all kinds of bonds (and stocks) were levitating on a promise of easy Fed money.

Your Strategy as Yields Climb

All of this brings me back to the point I made earlier: We’re now getting a sell off, and it’s one I’m thankful for. That’s because bond rates move in the opposite direction of bond prices. Indeed, yields are shooting higher on mortgage bonds, corporate bonds, Treasury bonds, and municipal bonds.

With yields rising, you might consider dipping your toe into the bond market.
With yields rising, you might consider dipping your toe into the bond market.

If you avoided those longer-term bonds on my recommendation, you didn’t suffer any losses from the price declines. Now, you’re in a good position to start locking in higher, more attractive rates of return.

I wouldn’t put all my money into bonds yet because I think rates will likely keep rising in the months ahead. But if the sell off intensifies, you may want to consider legging in gradually as yields climb, especially in the hardest-hit markets like municipals.

That’s what I plan to do … once I finish digesting all that turkey!

Until next time,

Mike

P.S. This week we gave an encore presentation of one of our favorite Money and Markets TV episodes. We looked at an asset class that anyone buying supplies for Thanksgiving dinner is very familiar with: Soft commodities. And despite a recent drop due to concerns about slowing demand from China, soft commodities are still in the midst of a major bull market.

If you missed last night’s episode of Money and Markets TV — or would like to see it again at your convenience — it’s now available at www.weissmoneynetwork.com.

Read more here:
Why I’m THANKFUL for the Bond Market Sell Off

Commodities, ETF, Mutual Fund, Uncategorized

Why I’m THANKFUL for the Bond Market Sell Off

November 26th, 2010

Mike Larson

I don’t know about you, but I’m still stuffed from yesterday! I ate enough turkey to feed a small army, and that’s not even counting all the trimmings.

But frankly, I wouldn’t have it any other way. Thanksgiving is a great time to get together with family, watch some football, eat well, and celebrate all we have to be thankful for. And believe me, there’s a lot … including the latest bond market sell off.

Yes, you heard me. I’m glad bonds are finally falling in price.

Why? As Americans, we’ve been forced to accept miserable yields on all kinds of income-generating investments …

  • Yields on 2-year government notes recently hit 0.34 percent, the lowest in U.S. history.
  • Five-year TIPS were just sold at a yield of negative 0.55 percent. Borrowers actually paid the government to take their money on the assumption the value of the TIPS would rise along with inflation in the coming few years.
  • Willing to lock your money up for longer in order to be fairly compensated? Ha! Uncle Sam was paying less than 3.5 percent on a 30-year bond a couple months ago. That’s far from adequate compensation for locking your money up for three decades.
  • Municipal bonds? No solace there! The average yield on a 20-year general obligation bond recently slumped to 3.82 percent.
  • Even high-yield, or junk, bonds saw their average yields slump to less than 8 percent. Yields on such bonds were well into double-digit territory a couple years ago.

Fed Officials Forcing Investors to
Take on More and More Risk

Bottom line: It’s been next to impossible to generate adequate income with bonds. You’ve had to take on more credit risk, more duration risk, more currency risk — more risk all around!

Income-seeking investors have had to accept more risk.
Income-seeking investors have had to accept more risk.

That’s precisely what the Federal Reserve wants you to do, by the way. The Fed wants to force investors to snap up all the riskier bonds and stocks they can get their hands on so it drives down corporate borrowing costs. They think that will help the economy recover and unemployment fall.

As I’ve pointed out repeatedly, though, all the Fed’s moves have done is drive up prices in the “asset economy.” They haven’t done much of anything for the “real economy.” Or in simple terms, the Fed has given Wall Street a big, fat Thanksgiving dinner to feast on … while only throwing a few scraps to Main Street.

Just look at the latest news on housing, one of the main focus areas of the Fed’s levitation efforts:

  • The National Association of Home Builders Housing Market Index came in at 16 in November, down from 72 at its peak in June 2005.
  • Construction spending was only $801.7 billion in September, down from $1.21 trillion in March 2006.
  • Construction employment slumped to 5.63 million in October versus 7.73 million in August 2006.
  • Housing starts were running at a seasonally adjusted annual rate of just 519,000 in October, compared with 2.27 million in January 2006.

In short, all of these indicators are flatlining or falling despite the biggest money-printing binge in world history. Plus unemployment is hovering just shy of 10 percent; and consumer and corporate spending isn’t ramping up.

But all kinds of bonds (and stocks) were levitating on a promise of easy Fed money.

Your Strategy as Yields Climb

All of this brings me back to the point I made earlier: We’re now getting a sell off, and it’s one I’m thankful for. That’s because bond rates move in the opposite direction of bond prices. Indeed, yields are shooting higher on mortgage bonds, corporate bonds, Treasury bonds, and municipal bonds.

With yields rising, you might consider dipping your toe into the bond market.
With yields rising, you might consider dipping your toe into the bond market.

If you avoided those longer-term bonds on my recommendation, you didn’t suffer any losses from the price declines. Now, you’re in a good position to start locking in higher, more attractive rates of return.

I wouldn’t put all my money into bonds yet because I think rates will likely keep rising in the months ahead. But if the sell off intensifies, you may want to consider legging in gradually as yields climb, especially in the hardest-hit markets like municipals.

That’s what I plan to do … once I finish digesting all that turkey!

Until next time,

Mike

P.S. This week we gave an encore presentation of one of our favorite Money and Markets TV episodes. We looked at an asset class that anyone buying supplies for Thanksgiving dinner is very familiar with: Soft commodities. And despite a recent drop due to concerns about slowing demand from China, soft commodities are still in the midst of a major bull market.

If you missed last night’s episode of Money and Markets TV — or would like to see it again at your convenience — it’s now available at www.weissmoneynetwork.com.

Read more here:
Why I’m THANKFUL for the Bond Market Sell Off

Commodities, ETF, Mutual Fund, Uncategorized

The One Number That Spells Market Upside or Downside in 2011

November 25th, 2010

The One Number That Spells Market Upside or Downside in 2011

From 700 to 1,200. That's the stunning move made by the S&P 500 in just 20 months.

No one's expecting that index to tack on another +70% in the next 20 months, but more than a few market watchers are calling for moderate +10% to +15% gains next year. For that to happen, the economy must prove to be on a path to health, with 2011 GDP growth rates exceeding what we're getting in 2010. Indeed third-quarter GDP has just been upwardly revised from +2.0% to +2.5%. But a just-released forecast

Uncategorized

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