Resident voice of reason at The Daily Reckoning, Bill Bonner takes a hard look at Goldman Sachs and replaces jealousy with admiration. “We pick up sword and shield, ready to fight for Goldman, after reading the Financial Times. The FT has devoted a whole page to Goldman bashing. It’s time someone stood up to say a kind word for the firm.”

Bill Bonner (The Daily Reckoning, UK):

The Lloyd’s Prayer

Our Chairman, who art at Goldman Blankfein be thy name The rally’s come God’s work be done On earth as there’s no fear of correction Give us our daily gains…

Poor Goldman Sachs. Everyone is on its case. Criticizing. Carping. Jealous. Envious.

So, today we rise in defense of the Wall Street giant. Yes, the Goldmen may be shysters. But they are honest shysters…

Besides, it was another slow day on Wall Street. Investors

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A rebounding dollar and persisting worries about the economy kept investors on a wait-and-watch mode and stocks fell broadly as weakness in energy shares, precipitated by reports of flush U.S. reserves, weighed on sentiments.  In a broad based decline, major stock indexes fell about 1% from their 13-month highs. 

The strength in US dollar, based upon its safe-haven appeal, undermined investors' appetites for riskier, high-yielding assets such as equities as upside guidance from DJIA components Wal-Mart and Hewlett-Packard failed to stem the retreat.

The Dow Jones industrial average fell 94 points, or 0.9%, to close at 10,197.47.  The S&P 500 retreated 11 points, or 1%, to close at 1,087.24, after climbing to an intraday high of 1,101.97.  The tech-heavy Nasdaq composite index retreated 18 points, or 0.8%, to settle at 2,149.02.  On the New York Stock Exchange, declining issues outpaced those that advanced in price by a four-to-one margin

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The yield of ten-year US Treasury Notes has surged by 34 basis points since the middle of October as market participants started adopting a more upbeat outlook on the economy and shied away from safe-haven assets.

Unsurprisingly, the following comes from the minutes of the meeting of November 4 of the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association: “Several members noted the graph discussing net fixed income supply in 2009 and 2010, and how issuance will ramp up dramatically in 2010. Federal Reserve purchases have taken an enormous amount of supply out of the market this past year across fixed income markets, but next year, financial markets should expect even greater issuance with no support. Such an outcome could pressure rates.” With quantitative easing set to expire during Q1, it is difficult not to see long-term rates rising, unless the economy falls

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I thought it of interest to see what surveys of forecasters indicate about two questions being asked: Is a dollar collapse imminent -- Martin Wolf is skeptical, while others [0] are convinced the end is nigh -- and is a double dip recession likely? I take a look at the messages conveyed by FX4casts.com and the WSJ October survey of forecasters.

The Dollar

First, let's take a look at what a survey of approximately 50 banks and financial firms indicates, for the value of the dollar (Fed broad index) and the euro/dollar exchange rate.

Figure 1: Log dollar index (broad) (blue), mean forecast (red squares), high and low forecasts (95% bounds) (teal +). Forecast dates typically pertain to 4th Thursday in each month. NBER defined recessions shaded gray, assumes last recession ends 09Q2. Source: Federal Reserve via St. Louis Fed FRED II, FX4casts.com, NBER, ...

Japan's US Treasury holdings through July in billions of $...

The market has definitely improved much since March, 09, but has it improved for the right reasons? Should investors still be bearish? In this article, I explore the biggest justifications held out by the “bears”.

“What’s with the insiders?”

Insiders are those people who have access to non-public information about a company – ie. Employees, senior management, executives. In recent months, insider selling has FAR outweighed insider buying by many multiples. With figures courtesy of TrimTabs (which tracks insider transactions), during August, insiders averaged $210 million worth of shares bought, while they sold $6.3 billion worth. That’s a whopping 30x sell-to-buy ratio! In the last week of August alone, there were $8 million worth of insider buys corresponding to $520 million of insider sales. That means a ratio of nearly 62x! If insiders are selling, and they know more than the market, then what does that show?

“Where is the volume?”

One of the …

The Fed’s FOMC announcement came out…

We got exactly what I expected, a kind of wishy-washy, “hedging our bets” statement from the Fed. You have to remember that Bernanke was Greenspan’s right hand man for much of the bubble days of the ‘90s and early ‘00s, so the guy is an expert at walking both sides of the line when it comes to policy and public statements.

For instance, the Fed announced it would keep interest rates between 0% and 0.25% for an “extended period.” No surprise there. As I’ve noted previously, 80%+ of the $200+ trillion in derivatives sitting on US commercial banks’ balance sheets are related to interest rates.

For the Fed to hint at raising rates (let alone raise them) would kick off a systemic implosion that would wipe out the very guys the Fed has been bailing out. Suffice to say the Fed won’t be raising interest rates …

In my father’s house are many mansions. Surely one of them has a room with no elephants in it….

Not to crunch too many metaphors right here at the top, but a consensus seems to be firming up in the animate jello of the Internet that we have entered the Season of the Witch. An odor of ripeness fills the virtual air — something between dead carp and apples baking.

Whatever else appears to be going on in the upper stories and verdigris-tinged turrets of capital finance — currency rackets, gold switcheroos, interest rate arbitrage games, concealment of losses under rugs and behind curtains, Chinese fire drills performed by Spanish prisoners, executive three-card-monte set-ups, boardroom work-arounds, accounting quicksteps, Peter-to-Paul-shuffles, check kitings, pigeon drops, Ponzi schemes, hugger-muggers, bezels, shucks, jives, and enough monkeyshines to make Lord Greystroke cry for mercy — apart, in other words, from business-as-usual, such as it is

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It is a gray morning, here in London. We sit in the building with the golden balls, look out the window, and wonder…

…how does it all work?

We’re doing some serious thinking this week. What is it that actually causes a depression? A stock market collapse? Or too much debt? How come government can appear to cure the problem sometimes – 2001-2007 – but not other times? How come the Japanese were not able to increase consumer prices? Even now… Japan’s inflation rate is negative. And how come, despite the most massive effort at monetary inflation ever undertaken, the US bond market still forecasts an inflation rate of less than 2%?

An interview with Richard Koo, author of ‘The Balance Sheet Recession,’ and a new book by Ken Rogoff and Carmen Reinhart are helping us understand what it going on. More to come…

In the meantime, the Dow went down 42 points

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This post provides links to a number of thought-provoking articles I have read over the past few days that you may also find interesting.

• John Hussman (Hussman Funds): Conditional expectations and September seasonality, September 14, 2009. One of the arguments we’ve seen a lot lately is the idea that September and October have historically been the worst months for the stock market, coupled with rebuttals by bullish analysts along the lines that the discussion of this historical tendency by the bears makes it likely that nothing bad will happen this time. The fact is that yes, on average, the combined September-October period has historically produced slight declines for the S&P 500 whether you look back since 1870, 1900, 1940 or 1970. But the variance around that slightly negative return is large enough that it’s really misguided, in my view, to base predictions on it.

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