Financial Review

Batten Down the Bonds

Sinclair Noe — November 14, 2016

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DOW + 21 = 18,868
SPX – 0.25 = 2164
NAS – 18 = 5218
10 Y + .10 = 2.22%
OIL + .26 = 43.67
GOLD – 7.60 = 1221.00

Another record high close for the Dow.

U.S. bond yields are sharply higher across the board following a public market holiday on Friday. The yield on the benchmark 10-year Treasury note topped 2.25%; they surged 37 basis points last week, the most in three years, amid speculation Trump’s plans to boost spending and cut taxes will widen the budget deficit and stoke inflation.

The 30-year Treasury bond yield is over 3% for the first time since January. The two-year yield crossed the 1.00% threshold for the first time since January.

The movement has also lit a fire under the greenback, with the U.S. dollar index up more than 1%, hitting 100 for the first time in almost a year.

The global bond rout is intensifying. Long-dated bonds are getting hit hardest in Europe. The selloff wiped a record $1.2 trillion off the value of bonds around the world last week. Investors rotated into stocks, as global developed-market shares beat investment-grade debt by the most since 2011 amid concern the stimulus will stoke inflation and lead the Fed to increase rates.

President-elect Donald Trump has made the first official appointments to his White House administration after a shake-up on Friday that saw VP-elect Mike Pence replace Chris Christie as the head of his transition team. RNC Chairman Reince Priebus has been selected as Chief of Staff, while Trump’s campaign Chairman and former head of news outlet Breitbart, Steve Bannon, will lead as Chief Strategist and Senior Counsel.

The common view is that the inflation trade has been reignited by the election results. If this were so, the two major inflation markers in the commodity market, gold and oil, would have rallied strongly. Instead, gold sold off approximately $70 or over 3% from its level a week before the election, while the price of oil has been slightly weaker. Industrial metals, especially copper, did see major rallies.

This was not across the board, however. Aluminum, which has almost as widespread commercial use as copper, fell about 3%, while copper was up 17% in the days immediately following the election. Tin was up around 6% and nickel 9% from a week earlier. The inflation argument came mostly from action in the global bond markets.

While it is true yields soared, they have been at unsustainably low rates for years now. Still, it looks like the bond market is sending a message about a fiscally expansive, deficit spending growth agenda – there will be price to pay.

And while the Dow and the S&P rallied following the election, the big winner was the Russell 2000 index of smaller stocks. And while small-cap stocks can outperform in inflationary environments, this rally is probably provoked by the idea that small-cap companies are less likely to do business internationally and more likely to get most of their sales domestically. The companies that tend to have most of their sales overseas are tech companies, and the tech-heavy Nasdaq hasn’t rallied at all. So, the stock rally has been selective and not broad-based.

Next, consider that the Federal Reserve will probably raise rates sooner and later. Fed funds futures rates are pricing in an 84% probability of an interest rate increase at the Fed’s meeting in December. PIMCO said the central bank may move three times by the end of 2017. Those rate hikes will hit the markets much sooner than any legislative action, which tends to move very slowly.

Japan’s economic growth handily beat expectations in the July-September period, expanding for a third straight quarter as exports recovered, but weak domestic activity cast doubt on hopes for a sustainable recovery. While GDP grew at an annualized 2.2% pace, household spending and capital investment were flat on quarter.

Mixed Chinese economic data for October came out overnight, released by the National Bureau of Statistics. Retail sales rose a weaker-than-expected 10%, slowing from the previous month’s 10.7% growth, while industrial output expanded 6.1%, matching September’s pace but remaining a hair below expectations.

After gathering in Brussels to discuss the future of Europe-U.S. relations, EU foreign ministers said the bloc would stand by its key foreign-policy positions on issues including the Iran deal, Russia’s annexation of Crimea and climate change, but vowed to work with the Trump administration. Not everyone attended the emergency meeting. Britain’s Boris Johnson called it “unnecessary.”

Colombia’s government and Marxist FARC rebels have agreed on a new peace pact to end a 52-year war, six weeks after the original was narrowly rejected in a referendum amid objections it was too favorable to the rebels. The new accord, which will be presented to Congress for a vote, includes several new provisions – from requiring FARC to surrender money and holdings to infrastructure development for the countryside.

Just one day after the IEA warned the world could drown in oil if production does not fall beneath demand sometime soon, OPEC released a new market whammy, offering up the cartel’s production figures, which largely jive with figures reported by the IEA yesterday: OPEC has increased its oil production. OPEC’s Monthly Oil Market Report revealed daily oil production for the cartel of 33.64 million barrels for October—up by 240,000 barrels per day in September—largely confirming the IEA’s report.

A little over 90% of S&P 500 companies have reported their quarterly results, and it’s become clear that the recession in corporate profits has come to an end. Since the second quarter of 2015, S&P 500 earnings reports have shown a decline in profits – year-over-year. A decline for two consecutive quarters indicates an earnings recession.

Based on the companies that have reported so far this quarter, S&P earnings will be up 2.75% from the prior year’s third quarter. Leading the comeback is the financial sector, which posted growth of 13.1% in profits from the third quarter of last year. According to FactSet, 71% of companies that have reported beat their estimates, higher than the five-year trailing average of 67%.

Samsung Electronics is buying Harman Industries for $112 a share in cash, or a total equity value of about $8 billion, placing the company in the vanguard of the auto industry. The deal – Samsung’s largest acquisition in its history – will reshape the pecking order in the global automotive supply chain.  Samsung could combine its display and semiconductor operations with a business that already provides sound, electronics, and other smart components for a new generation of digitally connected cars.

In Europe, Novartis AG is said to be in talks to acquire U.S. generic-drugs maker Amneal Pharmaceuticals in a deal which could value the closely-held company at as much as $8 billion. Siemens, meanwhile, agreed to buy software company Mentor Graphics for $4.5 billion, a premium of 21 percent on Friday’s closing price.

American Apparel files for bankruptcy. The retailer filed for Chapter 11 bankruptcy protection for the second time in just over a year, (so maybe we should call it Chapter 22) listing assets and liabilities in the range of $100 million to $500 million. The company exited court protection in early 2016 but quickly encountered trouble again.

Toyota will pay up to $3.4 billion to settle claims that some of its trucks and SUVs lacked proper rust protection, leading to premature corrosion of vehicle frames. The proposed settlement covers about 1.5 million Tacoma compact pickups, Tundra full-size pickups and Sequoia SUVs and estimates the value of frame replacements at around $15,000 per vehicle. However, Toyota admitted no liability or wrongdoing in the proposed settlement.

Hedge fund filings will give investors a chance to see what they were betting on when the third quarter ended. Hedge funds have had a tough time of it recently with some $50 billion flowing out of the industry this year. Hedge fund managers are required to disclose their holdings to the SEC in a Form 13F. Filed four times a year, the reports show which sectors these traders were betting on when the quarter ended, roughly 45 days ago.

Out of 13 western states, California and Texas have the highest number of single-family residential homes in extreme risk wildfire areas, per a new report from CoreLogic. CoreLogic’s scale has four categories: low, moderate, high and extreme risk, and 1.8 million homes across 13 western states fall into the high and extreme risk category.

While only a small percentage of the millions of homes that fall somewhere on the scale, these 1.8 million homes represent a combined total reconstruction value of nearly $500 billion. The other 27 million homes on the scale — those at low and moderate risk — have an estimated reconstruction cost value of $6.7 trillion.

Financial Review

$6 Battery

Sinclair Noe — May 5, 2016

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DOW + 9 = 17,660
SPX – 0.49 = 2050
NAS – 8 = 4717
10 Y – .04 = 1.75
OIL + .34 = 44.32
GOLD – 1.40 = 1278.60

The number of Americans filing for unemployment benefits rose more than expected last week, posting the biggest gain in more than a year. Initial claims for state unemployment benefits increased 17,000 to a seasonally adjusted 274,000 for the week ended April 30. The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 2,000 to 258,000 last week.

Another report showed a 35 percent surge in planned layoffs by U.S.-based employers last month. Most of the announced job cuts were concentrated in the energy sector.  Challenger, Gray & Christmas said US-based companies announced 65,141 job cuts last month.

The jobs report for April due out tomorrow morning. Investors will be watching closely to see if it could have any impact on the Federal Reserve’s plans for raising interest rates at its next policy meeting in June. The report is expected to show jobs grew by 200,000 last month while the unemployment rate stayed at 5 percent.  A strong jobs report would be a possible indicator of Fed tightening. An early rally on Wall Street this morning faded into the close.

MetLife said it’s seeking to exit most of its hedge-fund portfolio after a slump in the investments. The insurer is seeking to redeem $1.2 billion of the $1.8 billion in holdings, a process that may take a couple of years to complete. The portfolio, which posted negative returns in the quarter, was cut by about $600 million in 2015. MetLife reported profit Wednesday that missed analysts’ estimates. Investment income fell 17 percent to $4.5 billion, hurt by both hedge funds and low bond yields.

American International Group posted a third-straight unprofitable quarter on losses from hedge funds and declines in the value of other investments. AIG is reshaping its portfolio, expanding bets on highly rated bonds and property lending while scaling back on hedge funds after the company was burned on those investments.

AIG also is among insurers that have large holdings of energy bonds that were pressured by declines in commodity prices. And it isn’t just the insurance companies that are abandoning hedge funds; the New York City Employee Retirement System, the city’s largest pension fund, announced last month it was liquidating its hedge fund portfolio, citing big fees and bad performance.

Hedge funds have been underperforming. A challenging trading climate in 2015 left a composite index of hedge funds down 0.9 percent for 2015. By comparison, the Standard & Poor’s 500 inched up 1.38 percent for the year. The market pain continued into the first quarter of 2016, when investors pulled $15.1 billion out of the hedge fund industry, the largest outflow since 2009.

It also looks bad for junk bonds. HYG, the high yield ETF, just experienced a 4 day, $2.3 billion outflow, which is the fastest and largest redemption it has ever experienced. Which could mean nothing or it could mean the nearly 60% bounce in crude oil prices from the 2016 low is just a temporary move.

Alibaba Group, China’s biggest e-commerce company, said fourth-quarter revenue rose 39 percent, beating Wall Street estimates, helped by growth in gross merchandise volume. The number of mobile monthly active users rose 42 percent to 410 million. Alibaba represents a big part of the spending by Chinese consumers and so a re-acceleration in volumes is an indication that the Chinese consumer continues to be strong.

Amazon.com could take as much as a 30 percent stake in a large cargo airline, its second such deal this year as the e-commerce giant steps up efforts to take control of its own delivery logistics. As part of the agreement, Atlas Air Worldwide Holdings will operate 20 Boeing 767-300 cargo planes for Amazon. The Seattle-based retailer is moving quickly to build up its delivery network, seeking to wean itself from dependence on United Parcel Service and FedEx.

Tesla Motors on Wednesday posted quarterly results that were just slightly better than Wall Street’s expectations. The electric automaker reported a first-quarter loss of 57 cents per share on $1.6 billion in revenue, but the big news was the guidance from CEO Elon Musk; Tesla delivered just over 14,000 cars in the first quarter; Musk said he expects production of 100,000 to 200,000 Model 3 vehicles in the second half of next year, and 500,000 cars in 2018.

If that sounds like a pretty outrageous promise, well… yes, except Tesla already has more than 400,000 pre-orders for the Model S. The challenge isn’t in the sales numbers, it will be the ability to transition from technology and design to manufacturing.

Merck reported lower-than-expected quarterly revenue, hurt by disappointing sales of its Januvia diabetes treatment and Remicade arthritis drug. But the second-largest US drug maker beat first-quarter earnings forecasts because of cost controls and a weakening dollar, and it slightly raised its full-year profit outlook.

The Consumer Financial Protection Bureau unveiled a proposed rule this morning to restrict the use of arbitration clauses in consumer financial contracts, a step that would shift power to consumers and away from companies for a wide range of financial products from credit cards to bank accounts to private student loans. The CFPB aims to prohibit financial companies from using mandatory-arbitration clauses in contracts with consumers as a way to block class-action lawsuits and force customers into private negotiations to solve disputes. The new rule does not require congressional approval.

Class action suits might not be the easiest way to get your day in court, and the big winners tend to be the lawyers. The argument for arbitration is that it is a quick, easy, and inexpensive way to resolve a dispute; the reality is that very few cases, only about 100 a year, for cases under $2,500, end up in arbitration after their path to class action is blocked. And of those cases that make it to arbitration, the customer typically loses, more than 95% of the time.

One reason why arbitration works so well for the companies is that they select the arbitrators. The arbitrators that are chosen to serve are not only screened to be big institution friendly; arbitrators that wind up ruling in favor of customers have this funny way of being moved to the bottom of the selection list. The result is that companies using arbitration clauses tend to act with impunity. Class actions are the only way that companies can be brought to heel.

California Governor Jerry Brown has signed a pack of bills that will raise the smoking age from 18 to 21, restrict the use of electronic cigarettes in public places and expand no-smoking areas at public schools. The new laws, which take effect June 9, are a big boost to a movement that is turning into the next major challenge for the $100 billion tobacco industry. Lawmakers in 10 other U.S. states are currently considering similar legislation.

Meanwhile, the FDA announced it will regulate e-cigarettes and vaporizers, also cigars and pipe tobacco. Congress gave the FDA authority to oversee tobacco products in 2009, but until now the agency had not finalized rules to regulate e-cigarettes and cigars.

The rules prohibit sales to minors, ban free samples, require package warning labels, and call for makers of products released after 2007 to seek FDA permission to remain on store shelves. Companies will have 24 months to file pre-market applications for their products, according to the rule. The FDA then has a year to review the submission, during which the products can remain on shelves.

YouTube is planning a paid subscription service. Alphabet’s YouTube is planning to launch a subscription-based bundle of streaming cable channels. The new service will be called “Unplugged,” and it is set to launch as soon as 2017. It is not yet clear what channels will be included.

The ECB is also discontinuing production of the €500-euro note due to concerns that it could facilitate illegal activities. Terrorists and drug cartels need cold hard cash to operate, and the European Central Bank is taking a big step to make it harder for them. The ECB will stop printing its 500 bill in the next two years, though it will still be in circulation.

Another oil and gas bankruptcy? SandRidge Energy is in discussions with creditors about reaching a restructuring deal ahead of a possible bankruptcy filing. According to its annual report, SandRidge had $3.6 billion in debt at Dec. 31.

My smartphone has more computing power than the first Apollo space mission that landed on the moon. I don’t use all that computing power. I send text and emails, take pictures, use the maps, and check out stuff on the interwebs. Sometimes I make phone calls. It’s a couple of years old and the battery started fading a couple of weeks ago. I went to Best Buy for a replacement battery; they didn’t have it in stock but the clerk suggested an upgrade to a new phone. I did not buy.

I went to Amazon.com and ordered a new battery for $6 dollars compared to a new phone at about 100 times that price. My old phone is working great again. Smartphone upgrades have been steadily declining over the last five years. For the first time, smartphone growth went into the negative for the first quarter. Seems people just aren’t upgrading like they used to.

Tuesday, May 06, 2014 - Quickly Aging Here

Financial Review with Sinclair Noe

DOW – 129 = 16,401
SPX – 16 = 1867
NAS – 57 = 4080
10 YR YLD  - .02 = 2.59%
OIL + .38 = 99.86
GOLD – 1.80 = 1308.90
SILV - .04 = 19.65

There was a pretty broad selloff on Wall Street today. AIG posted lousy earnings late yesterday, and today they dragged down most of the financials. Twitter proved a drag on the tech stocks. Twitter reached the 6 month expiration of a lock-up period that had restricted sale of about 82% of its outstanding stock. Share prices dropped about 18% today, but home prices in Silicon Valley are likely to move a bit higher in the next month. After the close, Disney posted better than expected earnings.

Let’s start with economic data; the trade deficit narrowed in March, down 3.6% to $40.4 billion. March exports came in at about $193 billion and imports were around $234 billion, resulting in a $40 billion shortfall. Exports are 17% above the pre-recession peak, while imports are about 1% above the pre-recession peak. Exports of capital goods, industrial supplies and materials, and automobiles increased in March. Exports of services hit a record high, while those of non-petroleum goods were also the highest on record. Exports to Canada, South Korea and Germany all touched all-time highs in March. Imports of food and non-petroleum products hit record highs in March.

Last week we saw the estimate for first quarter gross domestic product showing 0.1% growth; that estimate worked with an assumption that the trade deficit for March would come in at $38.9 billion, not the $40.4 billion reported today. So, this implies that the GDP number could be re-estimated by two-tenths, which would mean a negative -0.1% GDP for the first quarter, or maybe just a bit worse. There will be other data considered in the final GDP number, but it now looks like a negative number. And most economists are calling for a bounce back in the second quarter.

Corelogic reports home prices nationwide, including distressed sales, increased 11.1% in March 2014 compared to March 2013. This change represents 25 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased 1.4% in March 2014 compared to February 2014.

Excluding distressed sales, home prices nationally increased 9.5% in March 2014 compared to March 2013 and 0.9% month over month compared to February 2014. So, home price increases are slowing, and this might also prove a drag on GDP, but it doesn’t necessarily mean the housing market is in the dumps. One of the bright points in the report is that there are fewer distressed sales, that means there is also less inventory, and there is less negative equity.

A separate report from Black Knight Financial, a mortgage research firm finds the number of mortgages on which lenders initiated foreclosure in March fell to the lowest level in more than 7 years. Banks initiated foreclosure on 88,000 properties in March, down more than 27% from a year ago, and well below the high of more than 316,000 in March 2009.

Foreclosures should continue to trend down because the share of mortgages that are behind on their payments is also declining. Around 2.1% of all loans were in some stage of foreclosure in March, the lowest level since late 2008, and another 5.5% of all borrowers were 30 days or more past due on their loans but not yet in foreclosure, the lowest since late 2007. Both of those are still well above pre-crisis levels but they are down sharply from a few years ago.

Growth in the services sector accelerated in April, rising at the fastest pace in eight months as new orders jumped and overall activity quickened by the most since early 2008. The ISM said its services sector index rose to 55.2 in April from 53.1 in March, topping expectations for a read of 54.1. The data provides further evidence that economic activity is regaining momentum after lagging through much of the winter.

Today is the anniversary of one of the scariest days in market history. On May 6, 2010, the Dow plunged nearly 1,000 points in a matter of minutes in what became known as the flash crash. The crash wiped out $1 trillion in wealth in the blink of an eye, only to recover, kinda, sorta. High-frequency computerized trading was believed to at least be part of the cause of the technical breakdown. And the regulators have not figured it out to this day, and yes it could happen again.  

Last week, SEC Chair Mary Jo White testified before Congress that the markets were not rigged. Today, the SEC announced they have sent out subpoenas demanding records from brokerage companies to try and figure out how customers’ orders are routed, and how firms are being paid for order flow. The good news is the SEC is investigating; the bad news is that dark pool and high frequency trading has been going on for years and the SEC appears totally clueless.

Institutional Investor released its Rich List, a list of the 25 top income generating hedge fund managers. David Tepper of Appaloosa Management topped the list with $3.5 billion in earnings. Second on the list was Steven Cohen of SAC Capital, who might have fared better if his firm hadn’t been guilty of insider trading. Just for reference, $3.5 billion works out to $400,000 an hour.

I also ran across an article that puts the Fed’s QE into perspective. The Federal Reserve has spent approximately $3.2 trillion in the post-Crisis era, with most of the money being dropped from helicopters hovering over Wall Street banks. The Fed mainly bought Treasuries and mortgage backed securities, but they could have mailed a check for $10,223 to every person in the US; they could have bought back all the US debt owned by China, Japan, and Belgium; they could have created 12.8 million jobs in 2009, each paying $50k a year, and still be making payroll for them today – which actually would have met their mandate. And that’s just based upon large scale asset purchases under QE; by some estimates the Fed has dished out my than $17 trillion to prop up the financial order. A trillion here, a trillion there, pretty soon it adds up to real money.

The Census Bureau released a report on the demographic makeup of the US; the population is aging rapidly; about 1 in 5 Americans (21%) will be 65 years old and up by 2050, compared with just 13% in 2010 and less than 10% in 1970. It sounds like a lot of old people, but it seems less so when compared with other countries. In 2050, around 40% of Japan’s population will be 65-plus, up from 24% in 2012. In Germany, Italy, Spain, and Poland over 30% will be 65 plus. China will have about 26% of its population over the age of 65, which amounts to more old people in China than the entire population of the US.

The concern with an aging population is that there will be a much slower economy: less spending, less saving, lower economic output, and slower growth; fewer working age people paying taxes, less money going into social programs like Social  Security and Medicare, and more money coming out of those programs. But the Census report also finds that the working age population will increase, mainly due to immigration.

The White House today released the 2014 National Climate Assessment, written by 300 climate experts and reviewed by the National Academy of Sciences. The full report, at more than 800 pages, is the most comprehensive look at the effects of climate change in the US to date. Don’t worry, they also provided a Cliff Notes version that weighs in at a mere 137 pages, thereby killing fewer trees. The short and sweet is that we’re all going to fry; it’s too late, climate change is here and now, and it will just get worse and worse.

Average temperatures in the US have increased 1.3 degrees to 1.9 degrees Fahrenheit (depending on the part of the country) since people began keeping records in 1895, and about 80% of that warming has come in the past 20 years. The period from 2001 to 2012 was warmer than any previous decade on record, across all regions of the country. And it will keep getting hotter. If we really get very serious about cutting emissions, temperatures will rise by 3 to 5 degrees, depending on location, over the next 80 years; if we keep going the way we’re going, temperatures will rise 5 to 10 degrees, and maybe by 15 degrees in some places. That means 115 degree days in the desert southwest could be 125 to 130 degrees.

In addition to extreme heat, you can add wildfires, and drought, and hurricanes, and extreme downpours – real gulley washers, plus rising sea levels. The report says that in much of the US, especially the Midwest and Northeast, more rain is falling in short-duration, heavy bursts, leading to more flooding. The Northeast and Midwest may continue to get wetter, while the Southwest becomes even more parched, raising water supply and energy concerns there.

The report warns the Southwest to prepare for major disruptions ahead due to climate change: "Increased heat and changes to rain and snowpack will send ripple effects throughout the region’s critical agriculture sector, affecting the lives and economies of 56 million people –- a population that is expected to increase 68% by 2050, to 94 million. Severe and sustained drought will stress water sources, already over-utilized in many areas, forcing increasing competition among farmers, energy producers, urban dwellers, and plant and animal life for the region’s most precious resource."

The report says the Southwest will be plagued by drought, which is not really uncommon, but the droughts will be hotter and drier and longer and will lead to a big increase in wildfire activity, which has already started to take place.

The report notes that American society and its infrastructure were built for the past climate, not the future. It highlights examples of the kinds of changes that state and local governments can make to become more resilient. One of the main takeaways is that you don't want to look at the weather records of yesteryear to determine how to set up your infrastructure.

U.S. Markets: A Week of Inexplicable Events

You can excuse the average investor if, this week, he found himself and his thoughts drifting, perplexed and panicky. The inexplicable was found lurking everywhere starting with the normally spineless Democrats handing President Obama a historic legislative victory on healthcare reform, Sunday. Opponents feared that the $1 trillion price tag, and the disputable commandeering of 17% of the annual national budget was too ambitious, and that the increase in taxes necessary to cover an additional 32 million Americans health insurance would impede economic growth.

The stock market continued rising into the close; on Tuesday, up 102 points, on below average volume. The respective 17 month highs were 10,752.41 on the Dow Jones Industrial Average; 1,174.17 for the Standard & Poor’s 500 Index, and 2,415.24 on NASDAQ. Some call this a melt-up rally, a term describing a short squeeze in search of a pullback, which never comes, especially during end of the quarter window-dressing buying. If you don’t take any profits now at least buy SPY or QQQQ puts for portfolio protection in April.

But another inexplicable event occurred. Bloomberg reported that the 10-year US treasury swap spread closed negative for the first time ever. Ft.com/Alphaville provides a concise definition:

“A negative swap spread means the Treasury yield is higher than the swap rate, which typically is greater given the floating payments are based on interest rates that contain credit risk, such as the London interbank offered rate, or Libor. The 30-year swap spread turned negative for the first time in August 2008, after the collapse of Lehman Brothers Holdings Inc. triggered a surge of hedging in swaps.”

The negative spread widen on Wednesday accompanied by a below average 5-year treasury auction priced at a 2.605%. The 10’s and 30’s sold off by the close at 3.83% and 4.72%, respectively. The treasury auction calendar is stuffed with offerings as far as they can see. At some point, the market will lose its appetite for governments. It may be happening now, if so, buy puts on TLT.

Another head-scratcher Wednesday was Pimco’s bond maestro Bill Gross comments on CNBC professing his affection for equities: “Let's suggest the economy looks good, that risk assets— whether it's high-yield bonds or whether it's stocks—have a decent return relative to the potential of declining bond prices," he said in an interview. "I'll go with the stock market."

We also learned what we already knew when S & P lowered Portugal’s credit rating, that the western world is broke. Before I forget, this day also included Google (GOOG) and Go Daddy quitting China, the US accusing China of currency manipulation, and financial regulation reform disappearing into a Washington DC black hole.

But enough about inexplicably strange; let us return to good old-fashion butt-ugly economic data. Negative housing data again filled the landscape pointing towards a funky economy in 2010 for the average citizen. The Mortgage Broker’s Association purchasing index, ending March 19, rose 2.75% while its refinancing index fell 7.01%. The average 30-year mortgage increased 10 basis points to 5.01%.

February new home sales fell 2.2%, to an annual rate of 308,000. Two years ago, the annual rate was above 600,000 homes. Supply swelled to 9.2 months while the median price of a home rose 6.1% to $220,500 and the average price up 5.1% to $282,600. The first-time home buyer tax credit ends in five weeks.

Finally, the US Census Bureau, 2009 State Government Tax Collection Data was released. State revenue was down in 2009 versus 2008 some $66.9 Billion dollars. Fourteen states saw their tax revenue fall 10% or greater. The fourth quarter figures are available at the end of March.

This snapshot of the market and the economy shows that things are far from normal, or what we once considered normal. The calculus that propelled investing over the last 30 years has dissolved. The new formula is being being created and tested in real time. The stock market and investing is currently unreal - it’s devolved awhile ago into, or, if you prefer, transformed itself into a momentum investing affair in an unraveling world.

This great casino awash with taxpayers’ cash can only speculate on when the world will end and where shall the end begin; Greece, Portugal, Spain, Italy, the UK? Who shall be savaged first and who shall be saved? Where can I hide and make a profit? It wasn’t in gold Wednesday; the yellow metal lost $15 an oz. due to a rising dollar. However, currently, the dollar is the dog with the least fleas – and it will not rise indefinitely.

If this report reads unfocused and schizophrenic, it’s the market, it isn’t me.