High Volume High/Volume Off the High 1/3/13

The dearth of any new stock or funds coming off the highs continues. As for the new high volume high, there are handful of names, one being Hormel. This follows the company's purchase of Skippy peanut butter and probably indicates investors belief that the deal adds significant value.

Congress Sold the US Public Down the River- Schiff

Despite some views that the Fiscal Cliff 'resolution' will be benign to growth (see here), I am more of the opinion with Schiff that problems still persist.

The FOMC Speaks and Gold Tanks, Opportunity May Just Ahead?

The FOMC releases the minutes from their latest meeting and it sent gold traders running scared. Both the price of the yellow metal and the Spider Gold Trust (ticker GLD) declined more than 1% on elevated volume.

I will not report the entire FOMC minutes here- but they are worth the read and can be found here- but this paragraph is what I think worried investors.

In their discussion of monetary policy for the period ahead, all members but one judged that continued provision of monetary accommodation was warranted in order to support further progress toward the Committee's goals of maximum employment and price stability. The Committee judged that such accommodation should be provided in part by continuing to purchase MBS at a pace of $40 billion per month and by purchasing longer-term Treasury securities, initially at a pace of $45 billion per month, following the completion of the maturity extension program at the end of the year. The Committee also maintained its existing policy of reinvesting principal payments from its holdings of agency debt and agency MBS into agency MBS and decided that, starting in January, it will resume rolling over maturing Treasury securities at auction. While almost all members thought that the asset purchase program begun in September had been effective and supportive of growth, they also generally saw that the benefits of ongoing purchases were uncertain and that the potential costs could rise as the size of the balance sheet increased. Various members stressed the importance of a continuing assessment of labor market developments and reviews of the program's efficacy and costs at upcoming FOMC meetings. In considering the outlook for the labor market and the broader economy, a few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013, while a few others emphasized the need for considerable policy accommodation but did not state a specific time frame or total for purchases. Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted. 

It sounds like their may be some growing dissent on the board and it is not just Lacker. 

This may just be the event may just turn out to be what gold and gold stock investors, this one anyway, has been waiting for. Any growing expectation that the QE program may end sooner than expected may shake out the weak hands and provide astute buyers a chance to invest at better prices.

Krugman Admits- Inflation 'WILL' be a Problem

This is from Krugman New York Times blog....

But leaving the debt ceiling on one side, isn’t it true that since spending can currently be financed by Fed money printing, we shouldn’t care at all about the notional debt owed to the Fed? Alas, no.

It’s true that printing money isn’t at all inflationary under current conditions — that is, with the economy depressed and interest rates up against the zero lower bound. But eventually these conditions will end. At that point, to prevent a sharp rise in inflation the Fed will want to pull back much of the monetary base it created in response to the crisis, which means selling off the Federal debt it bought. So even though right now that debt is just a claim by one more or less governmental agency on another governmental agency, it will eventually turn into debt held by the public.

We are living in weird economic times, where many of the usual rules don’t apply and there are big free lunches to be had. But not everything is a free lunch, even now. Sorry.

I wonder is Krugman realizes that in economics there are no free lunches, just people and companies willing to take risk for potential reward. I also wonder if he has fully thought through the process of the Fed pulling back much on the monetary base it created and the major market disruptions that would likely create. Maybe I am being short-sited, but I really cannot see how the Fed can reduce its balance by $2 to $3 trillion, if the Fed's balance sheet does increase to an estimated $4 trillion, without some economic pain. 

Schiff vs. Liesman and the Outlook for Investable Assets

Regardless of your opinion, this is some great back-and-forth.
  

And not that Leisman is reading this little blog, but you can most certainly say something will happen. It is what I call the market uncertainty principle- one can know what or when something will happen, but very rarely both.

Crony Capitalists Win in Fiscal Cliff Legislation

This excerpt is from Tim Carney at The Examiner...

The "fiscal cliff" legislation passed this week included $76 billion in special-interest tax credits for the likes of General Electric, Hollywood and even Captain Morgan. But these subsidies weren't the fruit of eleventh-hour lobbying conducted on the cliff's edge -- they were crafted back in August in a Senate committee, and they sat dormant until the White House reportedly insisted on them this week.

The Family and Business Tax Cut Certainty Act of 2012, which passed through the Senate Finance Committee in August, was copied and pasted into the fiscal cliff legislation, yielding a victory for biotech companies, wind-turbine-makers, biodiesel producers, film studios -- and their lobbyists. So, if you're wondering how algae subsidies became part of a must-pass package to avert the dreaded fiscal cliff, credit the Biotechnology Industry Organization's lobbying last summer.

and

A Republican Senate aide familiar with the cliff negotiations tells me the White House wanted permanent extensions of a whole slew of corporate tax credits. When Senate Republicans said no, "the White House insisted that the exact language" of the Baucus bill be included in the fiscal cliff deal. "They were absolutely insistent," another aide tells me. (The White House did not return requests for comment.)

Sure enough, Title II of the fiscal cliff legislation is nearly a word-for-word replication of the Family and Business Tax Cut Certainty Act of 2012.

More here

Chinese Debt Still an Economic Spector

Lets face it, despite having capitalistic qualities China is still a command economy and the authorities in the country have plowed money and resources into continued development. No doubt you have seen the many videos on the web of China's empty cities, buildings, malls, etc. At some point, this will come back to haunt them.