REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

In this story at the New York Post, economic/financial market skeptic John Crudele suggests that you lower your expectations for tomorrow’s labor report for the following reasons:

As I’ve reported before, the 2.689 million job loss turned into a gain of 243,000 only because Labor’s seasonal adjustment programs expected the job losses to be bigger. The warm winter weather probably kept some people from being put out of work, and this threw off Washington’s calculations.

New York PostWill that same thing happen with tomorrow’s number?

That isn’t likely. Yes, the weather has remained warm. But Labor’s computers are expecting undoctored, not seasonally adjusted growth of more than 800,000 jobs in February.

So there’s less chance that the seasonal adjustments will be pleasantly surprising.

And February isn’t one of those months in which Washington includes a huge guesstimate for jobs added by companies it thinks, but can’t prove, were just started. This so-called Birth/Death Model has been the biggest contributor to job growth — bogus job growth — over the past few years.

Also, John has spotted a link between Tuesday’s stock market dive and Wednesday’s story about the Fed’s latest thinking on the next round of money printing:

Even though one Fed official last week told investors to stop depending on “morphine” from the central bank, the cry for another version of quantitative easing went out less than 24 hours after the Dow Jones industrial average fell 203 points on Tuesday.

Why not give Wall Street what it wants?

Because the Fed’s money-printing operation is leading to higher commodities prices. And as thrilled as I would be to bail Wall Street out again, can’t we at least wait until it really needs our help?

That’s a good question (the second one, that is).







David Stockman: “The Fed is a Patsy”

David Stockman, White House budget director under Ronald Reagan and erstwhile critic of all things financial, is not at all optimistic about the U.S. economy and has a rather dim view of the nation’s central bank, going on at length on these and other topics in this widely distributed interview with the Associated Press.

Q: But the unemployment rate is falling and companies in the Standard & Poor’s 500 are making more money than ever.

A: That’s very short-term. Look at the data that really counts. The 131.7 million (jobs in November) was first achieved in February 2000. That number has gone nowhere for 12 years.

Q: What will 10-year Treasurys yield in a year or five years?

A: I have no guess, but I do know where it is now (a yield of about 2%) is totally artificial. It’s the result of massive purchases by not only the Fed but all of the other central banks of the world.

Q: What’s wrong with that?

A: It doesn’t come out of savings. It’s made up money. It’s printing press money. When the Fed buys $5 billion worth of bonds this morning, which it’s doing periodically, it simply deposits $5 billion in the bank accounts of the eight dealers they buy the bonds from.

Q: And what are the consequences of that?

A: The consequences are horrendous. If you could make the world rich by having all the central banks print unlimited money, then we have been making a mistake for the last several thousand years of human history.

Q: How does it end?

A: At some point confidence is lost, and people don’t want to own the (Treasury) paper. I mean why in the world, when the inflation rate has been 2.5% for the last 15 years, would you want to own a five-year note today at 80 basis points (0.8%)?

If the central banks ever stop buying, or actually begin to reduce their totally bloated, abnormal, freakishly large balance sheets, all of these speculators are going to sell their bonds in a heartbeat.

That’s what happened in Greece.

Here’s the heart of the matter. The Fed is a patsy. It is a pathetic dependent of the big Wall Street banks, traders and hedge funds. Everything (it does) is designed to keep this rickety structure from unwinding. If you had a (former Fed Chairman) Paul Volcker running the Fed today — utterly fearless and independent and willing to scare the hell out of the market any day of the week — you wouldn’t have half, you wouldn’t have 95%, of the speculative positions today.

I guess it shouldn’t come as too big of a surprise to learn that Stockman owns no stocks at present – he says his assets are mostly in cash with a smaller portion held in gold.

Know Your Asset Classes!

Also in the current issue of the Weekend Update at Iacono Research was the graphic below that  goes a long way in explaining why the Iacono Research model portfolio has done so well over the years and how it might continue to do so in the months and years ahead.

As noted in this item yesterday, the new combined blog/investment website will launch in just another week or two, at which time, the cost of the newsletter will be going up quite a bit, so, anyone interested in learning more about the chart above and saving some money on a new subscription might consider going here before that opportunity passes.

As always, there is a 60-day, no questions asked, money back guarantee.

Asset Class Mean Reversion

Here’s another fascinating chart by Jake over at EconomPicData in which the reversal of fortunes (well, at least, relatively speaking) for various asset classes is plotted in a scatter chart, a graphic format that, in my view, is underused by those wielding spreadsheets.

Of course, upper right being best and lower left being worst, it’s clear to see which assets have been the most consistent performers. But, interestingly, going back to the start of 2011 and using the iShares Barclays 20+ Year Treasury ETF (TLT), Long Treasuries are still outperforming spot gold, the former up 29.3 percent and the latter 25.1 percent higher.

Hedge Funds Bounce Back in 2012

Reuters reports that it’s been a good first month of the year for hedge funds as last year’s losers are turning into this year’s winners following the reversal of the late-2011 decline in early-2012. Even John Paulson seems to be doing well lately, his Advantage Plus Fund already up 5 percent this year after tumbling more than 50 percent last year.

This graphic from the Economist’s Daily Chart depicts how trying it’s been recently, particularly last year when many investors were probably wondering why they were paying big fees to hedge fund managers who underperformed a low cost stock index fund.

Interestingly, according to the Reuters story, after plunging 42 percent last year, the $116 million Henderson European Absolute Return fund claims the top spot in performance this year with a gain of 14 percent through late-January. This compares to a gain of almost 12 percent for the Iacono Research model portfolio so far in 2012 after a decline of 5 percent last year, the same as the average hedge fund performance in 2011.

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Bernanke’s Disingenuous Message to Savers

Skip to about the 28 minute mark in the video below of Federal Reserve Chief Ben Bernanke’s press conference yesterday and you’ll hear the confusing, not-very-helpful message the central bank has for savers in our super-low interest rate environment.

Basically, his answer to Gregg Robb of Marketwatch about the difficulties being experienced by fixed-income investors makes no sense as he confuses conservative investments with riskier ones in the rather disingenuous answer excerpted below:

In the case of savers, we think about all these issues and we certainly recognize that the low interest rates we’re using to try to stimulate investment and expansion of the economy also pose a cost on savers who have a lower return. And we do hear about that obviously and we do think about that.

I guess the response I would make is that the savers in our economy are dependent on a healthy economy in order to get adequate returns, in particular, people who own stocks, corporate bonds, as well as Treasury securities. And if our economy is in really bad shape, then they’re not going to get good returns on those investments.

So, I think what we need to do is, when the economy goes into a very weak situation, then low interest rates are needed to help restore the economy to something closer to full employment and increase growth and that, in turn, will lead ultimately to higher returns across all assets for savers and investors.

That’s little comfort for all the risk-averse savers out there just looking to get more than one percent on a certificate of deposit when the inflation rate is running at three or four times that amount (by government measure, your results may be much higher).

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