NYSE Blog?

Yup,

The NYSE has just started a blog. I don't think they've quite gotten the hang of it yet but we here at The Moon and the Sixpence would like to extend our warmest welcome, and offer our full veteran blogging support to this young upstart.

Three cheers for establishment propaganda! er, I mean the NYSE blog marketing campaign.

NYSE, The End of the Innocence

After two hundred and thirteen years, the NYSE will finally join the rest of America as a capitalist--for profit--institution. On March 7th it merges with Archipelago.

Here's the Article from Bloomberg.

Through the merger it also joins forces with the Pacific Exchange, the equity options trading floor in San Francisco, an institution in desperate need of some new lifeblood. First step? Fire all of the old managers and then steam clean their offices before bringing the new leaders in.

Buying the PCX is like buying a fixer-upper, it's gonna take a litle cash and a whole lotta sweat equity to make the thing pay off.

Then again who knows if the management team of the NYSE itself is capable of running a for-profit corporation, answerable to shareholders and competing with other very aggressive exchanges? The first year will be crucial.

You boys better hit the ground running, or you may be the subject of the next takeover and house cleaning.

Capitalism is coool.

Fleckenstein on Bernanke

New Fed chief Bernanke is talking tough, but Bill Fleckenstein isn't having any of it:

While in the Fed-words-in-lieu-of-action department, I heard from a knowledgeable friend who expressed surprise "that Ben expects investors to hold firm to the concept that 12%-plus growth in short-term credit and 8%-plus growth of M3 is evidence that the Fed has reined in its past accommodations." The Fed has, of course, not reined in its past accommodations, and, in my opinion, has no intention of doing so.

For the moment, though, some folks seem to think the Fed is actually tight and inclined to be tighter -- a notion that I find almost laughable.

Beyond Equities

Think the interest in trading and investing in commodities is temporary? The big trading houses don't.

Here's Kevin Morrison at FT.com

“If you ask me again in three years time, I would say that the size of the market will have doubled again,” said Mr de Vitry.

An Austrian View of Fooled by Randomness

James Sheehan finds common ground between Nassim Talebs Fooled by Randomness and Austrian economics.

Though Taleb was influenced by Hayek's The Road to Serfdom, he seems otherwise unaware of the Austrian critique of mainstream economics and the use of mathematics in economic theory.

This reminded me of a similar situation back in the eighties reading Michael Rothschild's, Bionomics. It too was a very enlightening book whose main theme paralleled the Hayekian ideas of spontaneous orders and the use of knowledge in society.

But it's author made not one reference to any Austrian thinker, apparently unaware that he was not exactly discovering virgin territory. Even a college dropout at minimum wage job playing Nattie Bumpo in the high sierras knew better.

Anyway, what's Taleb's main point, you ask?

It's this: you know less than you think you do, so don't sell those way out of the money calls or puts.

Taleb is a buyer and he's patient--and time, is on his side.

Nasdaq's Low Volatility Index

With earnings season over it's laying down for a nap. Would someone pull down the shades and turn off the lights, please?

Government Fiction # 14708: The Savings Rate

The news is replete with government supplied "data" on the economy. Frank Shostak at Mises.org isn't fooled by it. Are you?

Now, since it is not possible to quantitatively establish the status of the total of real goods and services, obviously various data like real income, real personal consumption expenditure, or real GDP that government statisticians generate shouldn't be taken too seriously. The data that are generated by means of mathematical methods is just a fiction.

Yet this fiction passes as the facts of reality, which allows economists to make comments with a straight face regarding the likely future direction of the real economy. The debate is often confined to the decimal point of the rate of growth. Thus it is debated whether the economy will grow by 3.1% or by 3.5%.

The fictitious data are served as a benchmark against which various economic theories are validated. Also, once it is accepted that it is "possible" to quantify the state of the real economy then one can also establish another fiction — the price level. This in turn provides the rationale for the importance of keeping the price level stable. And this in turn provides the justification that the central bank ought to navigate the economy towards the path of stable price level and stable real economic growth.

Red Help Lowers Rates

An article on Bloomberg.com by William Pesek Jr. gives us a good idea about why our long term treasury yields are so low, and it has little to do with domestic "inflationary expectations" or "investors expecting a slowdown in the economy" or any of that other gibberish the experts blabber on about.

Foreign central banks buy a huge amount of these things; the Chinese are one of the biggest holders.

About $250 billion of China's reserves are in U.S. Treasuries. China's purchases ``put Pimco's Bill Gross to shame and contribute to low yields'' in the world's biggest economy, said Nouriel Roubini...

The press tends to hyperventilate over Gross's frequent comments about U.S. debt yields. The reason: He manages Newport Beach, California-based Pacific Investment Management Co.'s $90.6 billion Total Return Fund. Investors might be wise to pay more attention to where the really big money is: in Beijing.

Why do they hold foreign currency reserves, of which Treasury Bonds are a big part? According to Pesek:

Asia's currency-reserve arms race reflects two things. First, a desire to keep currencies from rising so that exports aren't hurt. Second, a determination to avoid a replay of 1997, when the region lacked ample reserves to fight speculators attacking currencies.

You should thank the commies for that low rate mortgage of yours. Their central bank is working hard for you.

It's Getting Warmer

Bloomberg news gives us the latest on the inflation front:

Costs of intermediate goods, those used in earlier stages of production, rose 1.2 percent last month and are up 9.3 percent in the 12 months ended in January. Prices of raw materials, or so- called crude goods, fell 0.5 percent and were up 23.6 percent in the last 12 months.

Crude goods prices are up 23.6% in twelve months! These are the goods that are furthest away from the consumer in the structure of production, the higher order goods. They are used primarily to make the capital goods which, themselves are needed to make and move lower order goods, consumption goods, to there final destinations.

Among other characteristics they are very sensitive to the business cycle. You might even say that they are the clearest evidence of it.

When the boom begins they rise to the sky and everyone is feeling groovy. When the inevitable bust appears, they get crushed the worst and no one will touch them. But you don't buy crude goods so why should you care, right?

Faced with rising raw-material costs, manufacturers are raising prices. Caterpillar Inc., the world's largest maker of earthmoving equipment, said last month that fourth-quarter profit surged 54 percent, helped in part by higher prices. The company raised its earnings forecast for this year and announced a price increase of as much as 5 percent, effective Jan. 1.

...and on down the chain of production they are passed, higher prices. But they would not be sustainable without the artificial expansion of money and credit by the central banks, the Fed in the United States. A price increase here would be offset by a price decrease there; no general rise in prices would be seen.

With all the talk about the Fed focusing in on the fixing of the Fed Funds rate very few people these days keep track of the changes in the money supply. Doug Noland from the Credit Bubble Bulletin gives us the latest Fed data:

Broad money supply (M3) rose $9.3 billion to a record $10.280 Trillion (week of Feb. 6). During the past 38 weeks, M3 has inflated $654 billion, or 9.3% annualized. Over 52 weeks, M3 has expanded 8.2%, with M3-less Money Funds up 8.3%. For the week, Currency added $0.4 billion. Demand & Checkable Deposits fell $26.4 billion. Savings Deposits jumped $24.2 billion, and Small Denominated Deposits increased $2.6 billion. Retail Money Fund deposits slipped $0.6 billion, while Institutional Money Fund deposits rose $11.0 billion. Large Denominated Deposits declined $11.0 billion. Over the past 52 weeks, Large Deposits were up $264 billion, or 23.3% annualized. For the week, Repurchase Agreements jumped $12.6 billion. Eurodollar deposits declined $3.5 billion.

Bank Credit gained $2.8 billion last week (5-wk gain of $103bn) to a record $7.591 Trillion. Over the past 52 weeks, Bank Credit has inflated $676 billion, or 9.8%. For the week, Securities Credit declined $6.1 billion. Loans & Leases were up 12.0% over the past 52 weeks, with Commercial & Industrial (C&I) Loans up 15.3%. For the week, C&I loans declined $3.6 billion, while Real Estate loans expanded $8.9 billion. Real Estate loans have expanded at a 10.9% pace over the past 20 weeks and 14.5% during the past 52 weeks. For the week, Consumer loans were about unchanged, and Securities loans increased $7.6 billion. Other loans declined $4.3 billion.

Total Commercial Paper dropped $14.5 billion last week to $1.675 Trillion. Total CP is up $25.4 billion y-t-d (7wks), while having expanded $241 billion over the past 52 weeks, or 16.8%. Last week, Financial Sector CP borrowings declined $13.5 billion to $1.537 Trillion, with a 52-week gain of $247 billion, or 19.2%. Non-financial CP declined $1.0 billion to $137.7 billion, with a 52-week decline of 4.0%.

Now I ask you, do those annual numbers leave you with the impression that we are living in a restrictive monetary environment?

Take monetary expansion down to zero and let rates go where they will, then we'll call it neutral.

Until then the business cycles will continue.

Big Cap Twenty

This weeks IBD big cap twenty list is out, you can see the first ten here and the second ten here.

Looking it over, there are a few things that one might notice. First, some of the biggest leaders have fallen off since the earnings season began. As IBD points out, Apple, Google, Ebay and Yahoo are gone. Mainly taken out by huge price corrections, and from here on out long stock holders will probably be using rallies in these stocks to unload more of their holdings because they know the short term party is over.

Second, the list is dominated by oil and commodity related names: SLB, HAL, PCZ, OXY, BHI, TLM,WFT, NEM. Also up are transports and big capital builders: NSC, CAT, BNI, CNI; and the big money houses of: LM, MER, LEH, and GS.

Techs are barely represented with BRCM and ADBE.

What's the point, you ask?

It's looking more and more like the beginnings of the Mises-Hayek Austrian business cycle. Money and credit is created out of thin air by the central bank providing "liquidity" to the economy and lowering the complex of interest rates below what would have existed without their intervention.

These false signals induce capital investments that otherwise would not have occurred, the boom phase, and lead to malinvestments which will eventually have to be corrected by business failures and unemployment, the bust phase. There are no free lunches, as Uncle Miltie has said.

But the desire in them to maintain political power is overwhelming. So the beat goes on...

Intro to Polycentric Law

I know you've been looking around for brief explanation of Polycentric law. Tom W. Bell offers one up here.

Economists since Adam Smith have argued that competition in production serves consumers' interests, while monopolies tend toward sloth and waste. Gustave de Molinari, editor of the Journal des economistes, was probably the first legal theorist who dared to ask why this should not be as true of the law as it is of apples, cotton, and iron. He argued that under the state's monopoly of law " Justice becomes slow and costly, the police vexatious, individual liberty is no longer respected, [and] the price of security is abusively inflated and inequitably apportioned. . . ." He therefore advocated a non- monopolistic legal system and projected that once " all artificial obstacles to the free action of the natural laws that govern the economic world have disappeared, the situation of the various members of society will become the best possible."

Thanks to Stefan Karlsson for the pointer.

The Trade Deficit Story

Frank Shostak at mises.org explains why the trade deficit is not a threat to the economy but the central bank is.

Our analysis doesn't imply that the US economy is in healthy shape - far from it. However, what we maintain is that the key factor behind the erosion of US fundamentals is not the widening in the trade account as such, but rather the policies of the Fed. During the reign of Alan Greenspan between August 1987 and December 2005, money AMS has increased by 173%. Greenspan's strong monetary pumping was accompanied by a massive artificial lowering of interest rates. The federal funds rate was lowered from 6.5% in 2000 to 1% in 2003. Obviously then such reckless policies must have severely undermined the process of real wealth formation. However, focusing on the trade account statements only diverts the focus of attention from the true culprit behind the erosion of US economic fundamentals.

The fear of a growing trade deficit is used to bully protectionist legislation through Congress, the threat of which could easily disrupt the economy and send the market into a freefall.

Then again, if you happened to be long puts, that would be a good thing.

VXN: Nasdaq Volatility Index

On the rise through January. What it means is that prices for both calls and puts on the nasdaq 100 stocks have been on the rise.

A number of worries for the market are out there including earnings season, the FOMC meeting, oil and other commodity prices continuing to go higher, and Iranian sanity problem, to name a few.

CBOE Plans New Exchange Index

The CBOE follows the lead of The Moon and the Sixpence and announces plans for an index of one of the fastest growing new industries in the country: trading exchanges.

The index "will provide an essential composite look at this new market, and will provide the benchmark that investors and analysts will use as the indicator for this emerging business sector," said CBOE Chairman and CEO William Brodsky in a statement. He expects options and futures to be listed on the index soon.

The Index symbol wil be "EXQ".