Interesting Videoclips of the Week (December 5 – December 9, 2011)

Editor’s Note: In this series of articles, we include important or interesting videoclips with our comments. This
is an article that expresses our personal opinions about comments made
on Television and in Print. It is NOT intended to provide any investment
advice of any type whatsoever. No one should base any investing
decisions or conclusions based on anything written in or inferred from
this article. Investing is a serious matter and all investment decisions
should only be taken after a detailed discussion with your investment
advisor and should be subject to your objectives, suitability
requirements and risk tolerances.

1. Europe & the U.S. Stock Market

Finally, the Europeans came through with something. We will not waste time or web space by discussing what they did or whether it solves anything. At least, not today.

The best and most succinct reaction to the decision came from Sean Egan of Egan-Jones on CNBC Money in Motion Friday afternoon:

“better than most people feared and worse than most people expected”.

The U.S. stock market felt similarly. That is why the market just recovered Thursday’s losses and called it a week. The currencies did not do much either. The real reaction came from the 30-Year Treasury Bond which closed down 2% and the VIX which dropped by 13.76% on Friday.

Does that mean the much anticipated year-end rally is on? It will have to break through the 200-day moving average first. The S&P 500 has failed at this resistance for 4-5 times. Will it break through decisively next week or will it give up the ghost?

2. Technician Calls on the S&P 500

This week, we have to hand it to ElliotWave-Forecast.com. On Wednesday, December 7 at 11:11 pm EST, they predicted:

Since we believe a trend sequence in S&P500 (cash) ended at @1266.9, we see today’s rally as a B wave. Price has failed at resistance multiple times and there is a falling trend just above current levels (1270), therefore we would ideally expect a C wave down to about 1237 (C=1.618*A).

The S&P 500 dropped on Thursday to close at 1234 on Thursday. Then @ElliottForecast tweeted on Thursday evening (around 9:10 pm),

What a lovely C wave sell off in S&P 500 and DJIA as highlighted last night..I think the stage has been set and if tomorrow we don’t close below today’s low, then the market has the potential to start a strong rally and a lot of shorts might get burnt

The rally on Friday was also suggested by the report on VIX by Jon Najarian on CNBC Half Time Report on Thursday:

It was interesting that just 3 days ago people were very aggressively buying strikes at the 30, 32.5, 35 even the 40 strike (on the VIX) and that’s with the VIX down around 25-26. Now with it popping back up through 30……people are not buying anymore, they are not selling but they seem to have their fingers on the trigger ready to sell from whatever comes up either later today or tomorrow…..in other words the levels at which the VIX has gotten to very quickly have virtually terminated the trade of those who were buying calls …no more upside call speculation at all…

This was a very timely comment. It essentially told viewers to not sell in panic during Thursday’s vicious sell off. It also encouraged aggressive viewers to buy calls ahead of Friday’s EU decision.

Many well known technicians predict a sizable rally in the stock market in the next couple of weeks:

John Bollinger came on CNBC Fast Money to argue for a pretty big upside in the stock market (see clip 3 below).
Tom DeMark came on Bloomberg TV to predict an explosive move to 1,330-1,340 by December 21, in just 8 trading days (see clip 4 below).
Jim Cramer relayed the views of Mark Sebastian who argues for a move to 1300 based on downside in VIX (see clip 5 below).

But what about the first quarter of 2012? Jordan Kotick of Barclays is bullish on the month of December but sees the Euro crisis spreading to Asia in the first quarter of 2012.

3. The U.S. Economy & the Fed Meeting

Economist Michelle Meyer of BAC-Merrill Lynch was beaming (on CNBC Money in Motion) about her outlook on the U.S. economy on Friday and talked about Q4 US GDP growth at 3.5%. The fears about a recession are forgotten and are now almost jeered. That is why Bloomberg’s Tom Keene began his interview of Lakshman Achuthan by asking with “You had a recession call. What happened?” Mr. Achuthan was unrepentant (See clip 1 below).

It is happening…..The downturn we have now is very different than the downturn in 2010 which did not persist. This one is persisting…. A market economy that does not want to have a static state. It either accelerates or it decelerates…. The last reading is 0.28% on GDI. That is a big red recession signal.

David Rosenberg was invited on CNBC Closing Bell but was not allowed to comment on his recessionary slowdown call for 2012. The only cautionary comment he was able to make is to warn viewers that 20% of S&P 500 earnings come from Europe.

Larry Lindsey concurs (see clip 6 below):

I think things are slowing, I think margins will be compressed. We are going to see reductions in profit expectations
as January and February develop.

Let’s see what the Federal Reserve says next week.

4. Fund Flows

Michael Hartnett of BAC-Merrill Lynch said:

equity flows outflows from Long Only equity funds have been so large (-$20 billion over 5 weeks) that, according to their Global Flow Trading Rule, is inching closer to a “buy signal”. Another $9-10 billion over the next 2 weeks would trigger ” buy”.
EM funds saw 4th straight week of redemptions.
Biggest inflows to Muni Bonds in 15 months
Big rotation into High Yield Bonds (+$2.1 billion) from Investment Grade Bonds (-$2.1 billion).

5. Emerging Markets

China is the key to asset flows into emerging markets. The consensus is betting heavily on the smarts of Chinese leadership to manage that huge economy. Yet, anecdotes abound of wealthy & connected Chinese exodus into Vancouver, Melbourne, Sydney and other cities. Senator Chuck Schumer of New York appeared on CNBC Squawk Box to promote his idea of allowing wealthy foreigners (like the Chinese, he said) to stay in the US if they buy a $500,000 home in America.

This week, Jim Chanos, the most visible bear on China, reiterated his views on China in his appearance on CNBC Squawk Box on Friday. His most interesting comment was a major news item that had been missed by virtually all news organizations:

… the headline last night that actually got more people concerned…was that a developer missed a big payment to another developer and about 200, $300 million was due and was not made. This was the buzz in markets over there overnight.….but in any case, you’re going to see more stories about this, about missed payments and debt servicing problems. That’s where we are in the cycle.

For more details on his comments, see the summary on CNBC.com.

Chanos also reiterated the point he had made on Bloomberg TV on November 23, 2011 (see clip 1 of Videoclips of November 21 – November 25, 2011) that China’s massive FX reserves are not free assets but matched against China’s liabilities.

I sort of doubt China is going to be the savior of anybody but China.… There’s a big misconception. You had a guest on earlier talking about China’s reserves. as if it’s some pot of money sitting there waiting to be distributed to needy countries and whatever. The fact of the matter is any country that has FX reserves, there are liabilities against that. There are Chinese Currency liabilities…. It is not free money.

This point was, perhaps inadvertently, echoed by Jin Liqun, Chairman of the Board of Advisors of China Investment Corporation in his interview by CNBC’s Maria Bartiromo on Friday:

China is a developing country, still low income country. And all these hard won, hard earned, foreign exchange reserves are important for the Chinese economy.

James Bacchus, a former chairman of WTO’s appeals tribunal, knows China & the Chinese system the way very few do. He is not worried about China being strong. He is worried about China becoming weaker economically. His description of today’s China is chilling (see clip 2 below):

China
is in potential jeopardy now because it has an overextended government
and a very over extended economy. There is a credit bubble there, a real
estate bubble. The financial system is in entire disarray. They have
non-performing loans to the hilt.

Moving on to India, readers of our comments last week were not surprised to hear that the Indian Government suspended its new 100% FDI permission for multi-brand retailers. This flip flop is a clear sign of political weakness. And both the opposition and the allies of the Government smell blood. Expect more political volatility into the 2014 election. Next year might be spent by all parties, national and regional, in scoring political points.

But is much of this already factored in by the Indian stock market? May be, according to Marc Faber who said the following to Bloomberg’s Lisa Murphy and Adam Johnson:

Some emerging markets could rebound more strongly than the U.S. because they are more oversold. Like India, the currency is down 18% since July and the market is down 22%. Currency adjusted, the market has been extremely weak and is oversold. It could rebound somewhere here, but forget about new highs.

6. Predictions for 2012

The 2012 prediction season has officially begun.

Eric Van Nostrand, US Interest Rate Strategist for Credit Suisse, predicted on CNBC Closing Bell that the 10-year Treasury yield will drop to 1.50% by March 31, 2012. That is his base case.

Jens Nordvig, global head of G10 FX Strategy at Nomura, predicted on CNBC Money in Motion that that the Euro/Dollar will trade to 1.20 by March 2012:

I’m thinking about the first three months of 2012. I think it’s going to be a very challenging time for the Euro zone.… I think the main problem for Euro Zone Bond Markets is that the volatility we’ve seen over the last couple months has really scared away foreign investors. There’s a structural asset allocation shift going on away from euro zone assets and that’s going to be a major challenge to bring that confidence back. I think in the next couple months we will continue to see foreign investors exit euro zone markets.

Rebecca Patterson of JP Morgan asked him about the huge short Euro positioning in the FX market. Jens Nordvig replied:

I think it’s very important to distinguish between leverage money that is max short and …real money investors who hold big bond portfolios and have huge exposures, long exposures in euro zone bonds still. There’s been some evidence of Foreign investors reducing their spending on Italian but not yet their Belgium or French exposures. It’s not about whether people are already short in the leverage community but what the real money is doing.

The most detailed prediction was published by Richard Bernstein. Some of his favorite investment themes for 2012 include (in no particular order):

Overweight of the US equity market, and underweight of emerging markets.

He points out that S&P 500 has outperformed MSCI BRIC for four years. He thinks this is a major leadership change.
According to him, EM free cash flow yields were roughly 7% in 1998 when they were about 3-4% in the US. Today,…US free cash flow yields are 7-8% and EM free cash flow yields are less than 3%.
The US appears to have the strongest corporate sector in the world right now, and US corporations have produced their strong earnings while actually de-levering their balance sheets.

Overweight of smaller US stocks, with an eye for smaller, domestically-oriented financials.
Underweight commodities and gold for US dollar investors. Overweight for EM-currency investors.
Positions in treasuries to maintain portfolio diversification.
Increasingly avoid alternative assets.

He argues that most alternative assets’ returns are credit-dependent, and that these asset classes’ outperformance was largely driven by the bubbles’ increasing availability of credit.
He expects 2012 to be another year of political intervention as the global credit bubble continues to deflate.

The Bernstein report is a must-read in our opinion.

Featured Videoclips:

Lakshman Achuthan on Bloomberg’s Surveillance Midday on Thursday, December 8
James Rickards & James Bacchus on Bloomberg’s Money Moves on Friday, December 9
John Bollinger on CNBC Fast Money on Wednesday, December 7
Tom DeMark on Bloomberg’s Street Smart on Monday, December 5
Jim Cramer relays views of Mark Sebastian on Tuesday, December 6
Larry Lindsey on CNBC Closing Bell on Tuesday, December 6

1. It (the recession) is happening – Lakshman Achuthan with Bloomberg’s Tom Keene (08:22 minute clip) – Thursday, December 8

Whether the US faces a recessionary slowdown or not is, in our opinion, the most important determinant for performance of financial markets in 2012. That is why we give our pole position of the week to this clip.

This is a long clip and Bloomberg TV does not post transcripts on Bloomberg.com. We urge readers to watch this clip. It has a detailed discussion and good charts. We always learn something when we listen to Mr. Achuthan.

Keene – You had a recession call. What happened?
Achuthan – It is happening. What do you mean?
Keene – I saw too many economists talking 3% GDP.
Achuthan – First of all, we made the recession call two months ago. Economists focus on incoming data which is short term or coincident. There has absolutely been stronger coincident or short term data over the last couple of months. What we learned from that, leading indicators, coincident indicators, lagging indicators, is that the recession very likely did not begin in Q3.
Achuthan – We haven’t switched our call. If there is no recession in Q4 or the first half of 2012, then we are wrong. You are not going to know whether we wrong until a year from now.
Achuthan – Jobs data comes in strong. So there is no recession right? Wrong. In the recession that began in December 2007, the jobs data did not go negative for a couple of months. the 1973-75 recession. it took 9 months inside of the recession before jobs went negative.
Achuthan – A recession is a contraction in production, employment, income and sales. The downturn we have now is very different than the downturn in 2010 which did not persist. This one is persisting. That (the chart that is being discussed) is a forward looking indicator. So far we have been talking about coincident data, production, jobs. This is forward looking data. That forward looking data has remained weak, it is getting weaker. It is not turning up…..

There are those who say economy is firming and will continue to firm next year. We reject that. There is nothing here to suggest that at all.
There is a larger camp that says we are going to muddle through…I would point out that has never happened. We never muddle through. A market economy that does not want to have a static state. It either accelerates or it decelerates. And these forward looking cycle indicators say decelerate.

Achuthan – Gross Domestic Income (GDI). The problem here is that the GDI tends to be more accurate. The GDP tends to get revised towards the GDI. The Fed has been focused on this. And GDI was 0.3%. That is a far cry from a 2-handle. I read a Fed paper that is suggesting that (the revisions to GDP will go towards the much weaker GDI). The Fed points out that when you look at a 2-quarter growth rate of GDI, if it gets to 2% or lower, that is a recessionary stall speed. Here is a newsflash. That (GDI) has been trending downwards for 6 quarters. The last reading is 0.28% on GDI. That is a big red recession signal.
Achuthan – The pace of each expansion since the 1970s has been getting lower and lower and lower. And plus the cycle volatility, we will all agree, has gone up. The economy hasn’t gotten mellower. Volatility plus Low trend equals more Recessions. It is in that context that we are making this recession call.

2. QE3, Chinese Yuan-Dollar Peg – James Rickards & James Bacchus with Deidre Bolton on Bloomberg’s Money Moves (13:22 minute clip) – Friday, January 9

Jim Rickards, senior managing editor at Tangent Capital, is no stranger to readers of these articles. James Bacchus is the former chairman of the WTO appeals tribunal and now chair of global practice at Greenberg Traurig LLP.

In this long but insightful clip, Rickards and Bacchus discuss views that are generally not found on Financial TV. Kudos to Deidre Bolton for bringing us an interview of this caliber.

QE3 (minute 06:20 of the clip)

Bolton – Jim Rickards, you were saying some of shifts in trading patterns we are seeing tell us something about QE3. What have you noticed?
Rickards – We eased with QE and QE2. That was designed to break the peg of the Yuan. We sent inflation to China. They got enough inflation. They got worried about it. So they broke the peg and allowed Yuan to go up. Now they are cooling off, inflation is cooling off and their trade surplus is coming down. That means they are going to reestablish the soft peg as we discussed. But the Fed doesn’t want that. The Fed wants a cheap dollar. So that’s the signal for QE3. Lot of people think QE3 relates to monetary easing, economic growth in the US. It really relates to the currencies. Watch the Euro-US pair and the China-US pair. If you see the Dollar strengthening, that’s the signal for QE3.
Bolton – To what extent?
Rickards – Enough to break the peg. This is what Bernanke has taught and his associates agree – that you can create inflation by lowering interest rates. But when you get to 0%, you cannot lower them. You can continue to ease and create inflation by cheapening the currency. So now that our rates are at zero, currency is the only weapon we have left. So he will do whatever it takes. He will do as much QE3 as it takes to force China to continue its appreciation of the yuan. They are not where we want them to be yet.
Bolton – Jim Bacchus, then what does China do in response?
Bacchus – The danger would be that we got to protectionism with China. I agree with every word that Jim just said. I worry about a world in which the US, China and many other countries engage in competitive devaluations. That could disrupt trade, investment and the entire world economy. We do not want to have the currency wars that Jim foresees.
Rickards – The basic problem is there is too much debt in the system. The debt is stifling growth. How do you get out of that? Default is one way, we see that in Greece. Inflation is another way. That is what the US is trying to do. It is a lousy solution. The real answer is growth.

The US-China Relationship (excerpts)

Bolton –
I am looking at the Yuan, trading at the bottom of its trading range,
seven sessions in a row. This is different from the trading patterns we
have seen so far. So what does this say? Do you think China is going to
halt the appreciation of the yuan?
Rickards – In effect, that is what they are going to do. This is how the
currency wars play out. For about a year, the US has been winning. We
have been sending them inflation by printing money. They finally said
inflation was a threat and they let their currency appreciate. But
today, there were two big pieces of news… Their trade surplus is
shrinking and their inflation is coming way down. So that means that
their economy is cooling off. They are now going to retaliate in the
currency wars. That means they are going to go back to a soft peg. So we
have seen the end of the appreciation of the yuan for awhile. They
have to create the jobs.
Bolton – What does this mean for the relationship between US & China?
Bacchus – If China stops the appreciation of the yuan, it will
significantly increase the political pressures in the Congress of the
USA to pass the currency bill. That would not be good for the United
States or China.
Bolton – What is the biggest unknown? What is the biggest misconception in the trade relationship between the US & China?
Bacchus – Many Americans are worried about the rise of China. I am much
more worried about what would happen if China were to fall economically
because the fate of the US and China is joined at the hip.
Bolton – Jim (Bacchus), you are not worried about China being strong. You are worried about China being weak?
Bacchus – Every country in the world is trying to export its way out of these economic doldrums. Half of all new jobs we created in the United States have been through exports. China has been an export led economy for years. But if every country in the world is exporting, some one somewhere has to import something. China is in potential jeopardy now because it has an overextended government and a very over extended economy. There is a credit bubble there, a real estate bubble. The financial system is in entire disarray. They have non-performing loans to the hilt. The Chinese have to make a transition away from an export-led economy to a more consumer-driven economy. But at this point, consumer purchases account for only 35% of their GDP.

3. pretty big upside in the market – John Bollinger on CNBC Fast Money – Wednesday, December 7

John Bollinger, the founder of Bollinger Capital Management, is famous for the Bollinger Bands construct used widely in technical analysis. His comments in his last appearance on Fast Money on Thursday, August 18 proved prescient and profitable for CNBC’s viewers.

Bollinger – I‘m pretty constructive on stocks here. Part of the reason is that few other people are. If you look out there through media and chat rooms and various newspapers and shows like yours, we get very little bullish opinion here, yet the background is pretty bullish. We have good seasonals going for us. We have good market internals going for us.
Bollinger – … Seasonals are definitely a technical, and we have two good seasonals going for us here.

We’re just coming into the best part of the year to own stocks, December through May, and
in addition from the four-year perspective, this is the best part of the presidential cycle to own stocks. So we have two great seasonal plays here.

Bollinger – In addition, we’ve just gotten the Dow 30 Buy Signal where both the transports and the industrial averages have turned up and cleared resistance.
Bollinger – I‘d get in on any pullbacks here. I think virtually any pullbacks that we see in the market, a great place to enter. We’re in a net positive environment if you look at the advance decline line. It’s performing very well. There’s another positive fact there. Any places where we pull back, especially if we can get to the Lower Bollinger Band and turn up from there, those are great entry points. i don’t think you have to worry about stops so much here. you may have to do a little bit of hedging if we get some untoward news events here, but the big thing is most people are underinvested, individuals, institutions. Not only are institutions underinvested, they’re invested in lower beta defensive situations. there’s going to be a lot of catch up to play….we could see some pretty big upside in the market.

Fast Money Trader Tim Seymour added:

I would just say is watch 1280 because I think that’s a stop for a lot of guys that are shorts. I think you get a waterfall effect up to the 1330 level.

But John Bollinger also warned that:

Seasonality, you know, never works perfectly. It’s background information. At least two out of three times it will tend to work out.…It gives you a direction that you can follow if nothing else intervenes. So if we start to get some really bad economic news here and the internals start to crumble, advances and declines start to crumble, we start to see new lows expanding then we ignore the seasonals.

4. S&P 500 at 1,330 by December 21 – Tom DeMark with Bloomberg’s Adam Johnson – Monday, December 5

Tom DeMark, the founder of Market Studies, Inc., is a well known technician and a creator of indicators designed to show turning points in securities.

For a summary of his most recent call, see the article S&P 500 at 1, 330 by Christmas on Bloomberg.com. We include a couple of excerpts below:

The Standard & Poor’s 500 Index (SPX) may
advance to between 1,330 and 1,345 this month before the rally
reverses, according to Tom DeMark, the creator of indicators to
show turning points in securities.
“This month’s rally will end when the S&P 500
closes higher on four successive days, DeMark said.Today’s action is credible,” DeMark said in an interview
after the close of regular trading on U.S. exchanges on
Bloomberg Television’s “Street Smart” hosted by Lisa Murphy and Adam Johnson.
“I had the strongest short-term buy signal I’ve recorded
in 40 years” during the week of Thanksgiving, which fell Nov.
24, said DeMark, the founder of Market Studies LLC, in a phone
interview. “It’d be an explosive move to the upside“
“Today was a good job for the market, there
was some risk that it could move lower, but fortunately the
buyers came in after a weekend and that is usually a pretty good
sign.”
“The market should top out around Dec. 21,” DeMark said
today. “The market rhythm and market balance equilibrium all
require the market rally. Once that’s completed, the market will
have a vacuum on the downside and we should have a sharp
decline.”

This sounds wonderfully specific and precise. Unfortunately, our experience is that Mr. DeMark’s levels tend to go with the flow. In his interview on October 25 (see clip 5 of our Videoclips of October 24 – October 29, 2011 article), Mr. DeMark predicted:

It
is going to be tired and disappoint everyone. We are 4-5 higher
successively higher closes vs. yesterday’s close (approx. 1255), but they are going to
be modest..Once that happens, I think the market is going to build a trap and many of the people who are going to be bullish are going to be trapped into a market somewhat similar to what we experienced back in November 1973 if you go back to that period, it was sharp to the downside.

We did get a correction but it was no bull trap. Then on Friday, November 11, Adam Johnson tweeted the new level predicted by Mr. DeMark:

Tom DeMark to me
$SPX working higher to 1313, may take another 5-7 days. Still several
successfully higher closes away from the top

Then on Friday, December 2, Adam Johnson tweeted the new DeMark levels:

SPX upside remains (!!) 1313-1340 with 4-5 successfully higher closes above the 10/27 high close of 1284.

Then Mr. DeMark came on Adam Johnson’s show on Monday, December 5. This time, he made no mention of the 1284 level.

We have known of Tom DeMark for many years. He has been well regarded. But Bloomberg’s Adam Johnson seems to have gone into a hero-worship mode with Mr. DeMark. Watch this clip. You will hear Adam Johnson act more like Mr. DeMark’s publicity agent than as a journalist.

Having said that, we sincerely hope Mr. DeMark proves correct in his prediction of an explosive rally to 1,330-1,345 by December 21, a period of 8 trading days. At the money December 31 calls or call-spreads on SPY should be the ticket for all who follow him, shouldn’t it?

5. Significant Rally before the End of the Year – Cramer relays views of Mark Sebastian – Tuesday, December 6

Mark Sebastian, a smart technician, is the Chief Operating Officer and Education Director at OptionPit.com. Jim Cramer asked him to opine on the VIX or the Volatility Index of the stock market.

What comes next? Sebastian thinks the VIX could be moving down to a new lower volatility equilibrium. We are now on our fifth day in a row with the VIX trading below 30….that’s the longest period of time it’s held below 30% since August….this keeps going for another day or two, it could signal a new range for the VIX between 25 and 30.
Even as the market got obliterated in November, the VIX was still going lower instead of higher, which is an extremely bullish development and very different from what happened when the market was put through the meat grinder in August and the VIX flew through the top. Sebastian calls is a divergence and a sign of a genuine bottom in the market.
…That’s why Sebastian thinks there is a strong chance that the S&P 500 could break through its recent highs and threaten the 1,300 level, although at that point he thinks there could be a pullback unless the VIX can drop below 25%.

Jim Cramer then added his caveat:

As for me though, this lack of worry makes me fret that we could be getting too complacent. But I respect the VIX and Sebastian’s interpretation…. So if the extreme volatility period is finally over as Sebastian is suggesting that would be a green light for all the sideline money to come back in. It could propel us higher and give us a very nifty end of the year rally.

6. We will be Italy by 2014 – Larry Lindsey with CNBC’s Maria Bartiromo – Tuesday, December 6

Lawrence Lindsey is a former Fed governor and served as the director of the National Economic Council under President Bush.

Bartiromo – Do you think we’re on a path marching toward Italy?
Lindsey – Yeah, I think we are.…If you play the numbers forward without stopping them, we’ll be Italy by the end of 2014 with a Debt to GDP ratio of 120%. I think the way our political process works, we are not gonna see a lot get done until the November election. Then between then and say the July 4 holiday, which is when everything gets done in Congress as far as big deals go, they’ll have to do a major rehashing of entitlements, taxing, spending. It’s going to be a very very busy legislative session. Hopefully everyone involved will be able to come together and get something done. Otherwise, we will be Italy.
Bartiromo – Busy or more complicated? What is going on in Washington?
Lindsey – The public is evenly divided. 47% of the country pays no income tax at all. So the other 53% pay all of it. Well, that’s a good way to begin to understand what the problem is. I think what you’re going to have see is people come together in the middle. The reason you want to do is after an election, you have the maximum amount of time till the next election. Hopefully the voters will deliver a signal in November 2012. The new Congress and the President, whoever that may be, will have to carry it forward and try to get something done. I think they’ll be in the mood to compromise. I really do. I think the country wants it. Even if we have a divided outcome, I think there will be a lot of goodwill there.
Bartiromo – you’re talking about the 47% of the people who don’t pay any taxes. Michelle Bachman is on her way up here. She basically says her plan is everybody pays something, even if it’s $100, so everybody has a stake in this, which is an interesting take.
Lindsey – It is an interesting take. It doesn’t have to be a lot, but, you know, economists tend to forget we dwell on the numbers, not the psychology of it all. If you pay absolutely nothing, what stake do you have in the government? I think she makes a fair point.
Bartiromo – How would you characterize the environment in the US?
Lindsey – I think we are soft, but growing. And I think that is how we are going to be for awhile. The main reason the unemployment figure dropped is people are still leaving the labor force. Labor force participation rate is back to where it was in 1943. Not a good sign.
Bartiromo – So people have stopped looking and that is why the unemployment rate went down?
Lindsey – Absolutely. The total amount of job creation has not been enough to justify that kind of decline. People are literally leaving the labor force. What I find troubling is wages are going nowhere. They basically have been flat. They’ve been well below inflation. It’s going to be real hard to keep consumption going forward, to keep the economy going forward when wages are dropping, People, to cover for that, they’re now using the credit cards again.…long term it’s bad and certainly not sustainable.
Bartiromo – you think profit expectation will be down?
Lindsey – Yes, I do. I think things are slowing, I think margins will be compressed. We are going to see reductions in profit expectations as January and February develop.

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