Wednesday, November 3, 2010


No Surprises From Obama

There were no surprises in the President's speech.

Freight Folds

Check out the rollover in the Baltic Dry Index.

Next Stop, Screwflation

Screwflation's ugly head is revealed in the ISM non-manufacturing report this morning, as the prices paid index rose by 8.2 points to the highest level since September 2008.

The increase is the largest one month jump in prices paid in almost five years.

We remain on the road to screwflation.


Headline earnings disappointed, but core earnings were fine.

LNC reported disappointing headline earnings after the close, but most of the shortfall was in non-trending items, including:

* negative adjustments following the review of DAC and other assumptions (chiefly interest rates); and

* adverse mortality.

Adjusted for these, core earnings were fine.

Sales and deposits were strong.

Government Irrelevance May Deliver Market Sorrow

Don't be too sure that the election results will have a dramatic effect on the market.

A transformative jobs policy is no closer at hand than it was yesterday.

We have many economic issues that need to be addressed, and gridlock may not be the answer this time......

"I don't see anything about this president that speaks to making peace and getting along with the other side of the aisle, and I don't see the other side coming together with him either because, beginning tomorrow, we will be in presidential-election mode."

-- Jim Cramer, Government Irrelevance Is Bliss

As Saturday Night Live's Emily Litella would say, the 2010 midterm elections are now over -- is it time to expect the president to embark on a mid-course erection in policy?

In 2008, the Democratic tsunami-like victory was overstated (in its consequence) by the pundits. Rather, it turned out to be a blessing for the Republican Party.

Similarly, the 2010 Republican tsunami last night is likely being overstated in its positive market consequence going forward.

Most commentators expect the administration to move to the center, and, in doing so, to extend middle-class tax relief indefinitely and, for the top taxpayers, to grant it an extension of two years. Those pundits would add, for dessert, expectations for a reduced (20%) tax on dividends (rather than going to the taxpayers' marginal tax rate as recommended by the administration).

I am dubious.

Interestingly, I view the anticipated inertia, gridlock and growing government irrelevance (Jim's great term) emphasized and supported as a positive by Jim Cramer's remarks late yesterday as a negative -- as I do negatively view, unlike Jim, the likely efficacy and further market impact of QE2.

Importantly, the needed fiscal response and transformative jobs policy are no closer at hand today than they were yesterday before the election results were handed down. Attention to deficits, too, is a loser, with the impractical and more radical agenda (in their suggestions of closing important departments of the U.S. government) of the Republican Party's right wing (the Tea Party) not demonstrably better than the Democrats in holding down the current account balance.

Arguably, with monetary (not fiscal) policy front and center, investors in the gold market seemed to have been handed an election win last night.

The domestic economy faces numerous challenges to growth -- in the form of an overleveraged consumer, still-elevated joblessness and large fiscal imbalances (local, state and federal) -- that need to be addressed posthaste.

Indeed, the current anemic trajectory of growth exposes the economy to policy mistakes, a further drop in consumer and business confidence and other unknown and exogenous factors (such as geopolitical risk).

Stated simply, a government divided is not a price/earnings-expanding event, nor is it a recipe for a new leg of a bull market.

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