The Dollar to S&P 500 Relationship

What an utter joke.

Market share? Company prospects? P/E ratio? P/S ratio? Debt?  Revenue?  Heck, even technical analysis?  Useless.  Tell me where the dollar is and I'll do the opposite!

Here is the intraday chart of dollar vs S&P 500.  The STOOPID market (IQ 8 required) in visual form.

That is one day; here it is over the past month... as an American your perfect correlation as a stock speculator; you make 6% on the S&P 500, but you lose 6% as your dollar is crushed. You "win"... as long as you are oblivious.

[click to enlarge]

Does the Jobs Data Matter Tomorrow Morning?

Some sites are writing bears are not pressing due to the jobs number tomorrow.  To which I answer other than the technical reasons of we went to S&P 1151 and that's all you can ask for as a bear nowadays (a few hours of selling) - why does the number matter anymore?  Why does any economic data point matter at this point in fact? 

Let's say a miracle happens and 400,000 jobs are created.  Or a horror show occurs and 400,000 jobs are lost.  Who cares?  Bernanke's intelligence arm has found weapons of mass destruction and we're going in guns a blazin with QE either way.  So why does tomorrow matter?  Especially if you have been buying hand over fist due to Bernanke protecting you with his bazooka. 

Sure we can play the "wooo hoo beat by XXX" better than expected nonsense and gap the market up 1% in premarket tomorrow but it's inconsequential in the big picture.   Same with a "miss" - if you are on the QE bandwagon you just shrug your shoulders, say oh well, and buy - Ben has it taken care of.  No one of late is buying on the old fashioned reasons such as economic recovery.  V shaped recovery is so 2009; now the marginal buyer arrives each day on the basis of a rigged centrally commanded market.  That won't change tomorrow morning.

We're getting QE, and until the psychology changes from "I'm so pleased to get QE" to "what is so broken in the economy that we're addicted to QE?" the drivers remains the same and everything else is just details.  So the only question from here is when does the QE2 meme lose its power to continually drive the market up.  Our faith in our feckless Fed leaders has led to so many great outcomes the past 2 decades, it is great to watch the rats in the maze repeat the same behavior over and over whether Alan or Ben is behind the curtain.... oh lemmings humans.

So for the bears the story is dire in the near term (unless psychology changes overnight)... just as 1131 was defended as the urgent buyer came in to make sure it did not fall, so is 1150 currently.  Tomorrow is Friday and you know what that means - we're one trading session away from Magical Mondays.  There was a syntax error this past Monday as the rare selloff occurred so that needs to be addressed this coming Monday.  Surely with their new CEO in place Hewlett Packard can buy someone over the weekend, and with cloud computing stocks now down 14% on average (after running 300%) they are 'bargains'.

p.s. I almost bowled over laughing as I read over an AP writer discussing yesterday's ADP report.  "Thus far this year ADP has been understating the official government data by 75,000 jobs a month."  Hmmm... apparently said AP writer has never heard of the boon in small business across America throughout the recession (and recovery) via the birth/death model.  Even in the depths of the recession circa fall 2008 to spring 2009, our government statistician office pledged small business was faithfully creating ~100K jobs / month ... even in construction.  (seriously)  In fact, strangely the entire job growth year to date in 2010 will rhyme quite famously with the total growth of birth/death model jobs in 2010 - imagine that.  I'm sure at year end it will be the same. (chomp chomp, blue pill)

ADP says small business lost 14,000 jobs.  Government will say countless new small businesses sprung up in September (too small to count so we'll make it up) creating anywhere from 80-130K jobs.  Boo yah.

• Small businesses, defined as those with fewer than 50 employees, dropped a total of 14,000 jobs in the month.

The only thing of interest tomorrow is to see if this NY Post story has any legs and a surge of government workers shows up out of the blue [Sep 19, 2010: Are Poll Workers Being Used to Inflate Jobs Total?]
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Bookkeeping: Short OpenTable (OPEN)

Short in $61.90s; cover just under $57.50 - Larry Summers willing.  Shorting 2.4% exposure.

High beta stocks continue to take a beating; I continue to believe this is a canary in a coal mine (have I used that term enough the past 48 hours?)

The bulls POMO Master Brian Sack still have the ball over S&P 1150 but I see less chairs around and more fattened bulls, high on QE fumes, trying to find one by the hour.  We are back to the STOOPID market that has been dominant for much of the past few years - now the algorithm is "inverse dollar".  Dollar rallied a bit today, therefore everything must be sold.  The opposite of almost every day of September.  There is not 1 dollar bull left in the world - creating a good environment soon for it to rally for more than 3 hours.

Pulling out my Doug Kass hat, we are destined for fireworks sooner rather than later.  Complacency is overbought.  Further, if current pace continues in oil prices, many Americans will be frozen stiff as they enjoy their 'staycations' (since $3.50 gasoline is going to be an issue) in about 3 months, especially in the northeast where heating oil rather than nat gas is still prevalent.  On the plus side, I suppose that would reduce weekly unemployment claims; always a silver lining.

Remember, $3.50 gas and $125 oil will be 'success' in the world of Ben Bernanke.  To the frozen former middle class?  Not so much.

p.s. speaking of restaurants, as the economic recovery expands and blossoms, food stamp usage just hit a new record.  However, I only post about it when it reaches new "super cool" levels ... the next will be 1 in 7 Americans on food stamps.  [Nov 29, 2009: 1 in 4 Children, and 1 in 8 Americans Now on Food Stamps]  Not quite there but in the past 11 months we are getting very close  [fingers crossed!]  I expect sometime in early 2011 we will have reached the next level and we can then begin the journey to 1 in 6.  Of course due to the "wealth effect" the Fed is engineering, all these people need to do is put their food stamp debit cards into their Etrade account and buy some Netflix stock and they too can join the new path to American prosperity. 40 acres, a mule, and Netflix stock - everyone wins.

Short OpenTable in fund; no personal position

Bookkeeping: Closing Mercadolibre (MELI)

Since I still have a small profit (versus a much larger one just a week ago) I did not even realize the damage done to Mercadolibre (MELI) in the past week.  I guess as long as Apple (AAPL) goes up the NASDAQ will hold up, but we are seeing some quite serious damage under the surface since Oct 1st and the quarter end 'window dressing' is over.  This stock is now identical to VMWare (VMW) and Maidenform Brands (MFB) in that we have a busted chart - of course in a continued melt up the stock can rally, but now faces a lot more resistance as any rallies will be considered dead cat bounces in these eyes, until proven otherwise.  Fine for the daytrader section of the market, but for intermediate term holding trading types - we now have issues.

Since this has broken down, I am forced to close out the last 1% exposure with a 1% gain.  The stock is now in no man's land on the chart.  Some support at $62, but resistance at $68.

Very curious to see so many stocks on my watch lists taking such body blows the past week, but the index flat.  The past few days was a rotation into energy, today its retailers - not groups I have much exposure to, so definitely out of step with the quick movements in and out of sectors by HAL9000 right now.

No position


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Bookkeeping: Short Prudential Financial (PRU), Shanda International (SNDA), China Automotive Systems (CAAS)

I am rebuilding some individual short positions - almost all of these have been failures for 6 weeks in a row on the non stop melt up.   These are completely for technical reasons.  If we gap up tomorrow morning on 'better than expected' labor data - especially if we hit S&P 1170 - I'll be shorting against the index.  (I'll be curious to see if government jobs spike due to that NYPost story I noted recently re: poll workers having to file with IRS for first time ever)  But for now just individual stocks.

One thing I am noticing as I screened for names is how little volume is in so many of these mid cap stocks - everything in this market is so dependent on the ETFs or a narrow group of momo names, a lot of these stocks that even 12, 24, 36 months ago were full of retail traders seemingly have been abandoned.   In 2007 these Chinese stocks (I picked two popular ones) used to be full of retail traders... you can truly see the fleeing of the stock market by the individual when you scan through so many of these names with little participation.  They now are lucky to get a few hundred thousand shares a day traded.  Now I see why everyone is crowded in the same ole names like Netflix and Apple - there is so little liquidity everywhere else. I had a few other candidates for this entry, but had to abandon them because they are barely trading anymore.

--------------------------------

Prudential Financial (PRU) broke support a week ago, and now has rallied back to resistance.  This is either a 'break over' or not trade with obvious stop loss.  Shorting 2% just under $54.

Chinese gaming stock Shanda Interactive (SNDA) has rallied back to its 50 day moving average - that is my pivot point.  Shorting 2% allocation around $39.30.  A move over $40.25 or so, and I'll be out.

China Automotive Systems (CAAS) - identical to Prudential - it will either break over resistance or not.  2% allocation, with stop over the green line.

Short all names mentioned but Netflix, Apple in fund; no personal position

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Bookkeeping: Selling Majority of Remaining Gafisa (GFA), and One Third Polypore International (PPO)

I am going to sell almost all of the remaining Gafisa (GFA) [about 1% allocation) as the stock has run quite far and might have created a top.  More so that the stock the general market is an issue for me, and I want to lock in more gains and get into more cash - seeing multiple stocks I either own, owned, or on my watch list fall 15-20% in 2 sessions strikes me as a warning signal on the broader market.

I have a limit purchase order to buy at the 'gap' - more aggressive traders could short, and cover at the gap but since I am befuddled by the way the market currently behaves I am going the conservative route.  I'll retain a 0.1% exposure so I don't lose track of the name.  This sale will lock in about a 17% gain.

I am selling 1/3rd of Polypore International (PPO) for similar reasons.  This will lock in a 21% gain.

Long Gafisa, Polypore International in fund; no personal position


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Bookkeeping: Short Whirlpool (WHR)

I am try trying again with a short of Whirlpool (WHR) - I was stopped out on that break over the 200 day but thus far it looks like a head fake.  The computers took the price right over that key level to shake out all the stops and then took the stock back down.   I am shorting a 2.4% exposure near mid $81s.  Now that the game is obvious, a stop loss can be placed over the intraday highs of the past 2 days (around $83.70), rather than just above the 200 day moving average.   Frankly if my "berth" for the stop loss had been just a tad wider the last time around, I would have been ok in retrospect.

Short Whirlpool in fund; no personal position


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Bookkeeping: Cutting Back Acme Packet (APKT) by 75%

I only had a 1.7% type of position in Acme Packet (APKT) but going back to the theme of canary in coal mines, the leadership stocks continue to take some serious damage.  Acme is breaking support intraday (the close is more important than the current action but....) so I am going to take a cautionary stance and cut back the position by 3/4ths.  If there is no quick rebound the rest will go soon as (like many stocks) there are only acres and acres of vapor before any real support.

I'll be taking a 9% loss on the exposure let go today.

In a broader sense the leadership stocks in cloud/networking are taking another early hammering.

Long Acme Packet in fund; no personal position


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Bookkeeping: Buying F5 Networks (FFIV) and Riverbed Technology (RVBD) on the Open

The ability for the market to ignore the carnage in the leadership group of the 'cloud' yesterday was something to behold.  We remain in freight train status, as speculators simply shifted into the energy/oil complex and kept the train rolling.  There is a lot of damage done in some of the cloud charts and I am not yet convinced yesterday won't be looked back at a turning point but I definitely could be wrong.  Generally when your leadership stocks take such a hit, it is a canary in a coal mine... but I am going off historical reference; not a "Fed is manipulating prices upward" environment.

I was stopped out of a lot of exposure yesterday, so I am going to focus on some of the names whose charts sustained less damage.  With that I am putting about 1.5% into both Riverbed Technology (RVBD) and F5 Networks (FFIV).

I don't like the valuations at all, but am trying to keep some long exposure going so as to not completely miss all the gains the market is sure will continue with the Bernanke put in place.  Frankly at this point with the S&P 500 up 120+ straight points, all purchases are with reluctance. I will have tight stop losses in place, because all good parties end in tears - if this ends in 3 days, 3 months, or 3 years I don't know.  And I will be exiting a great portion of these positions no matter the case in a few weeks as earnings approach.

The charts above are still holding in there, versus a lot more damage done in names such as VMWare (VMW) and Salesforce.com (CRM)... I'll be especially curious to see if Salesforce.com (CRM) can recapture the $114+ level quickly - 2 analysts came to the defense this morning because we cannot have CRM down for more than a few days in a row.  To me, this one looks damaged technically.

Long all names mentioned in fund except VMWare; no personal position


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[Video] Kyle Bass of Hayman Capital at Barefoot Economic Summit - Part 1

CNBC's Strategy Sessions is down in Texas during the middle of this week, where a host of mover and shakers in the upper fringe of the investment world are being hosted by famous hedge hogger Kyle Bass.  It seems like quite an interesting place to be a fly on the wall, and probably he most concentration of wealth in one place in the country - at least this week.  Bass is always one I like to keep tabs on for his commentary - there is a 3 part interview with Bass and a fellow attendee (parts 2 and 3 here) but part 1 below is probably most pertinent in terms of macro economic view.  I do believe Strategy Sessions will be there today as well, so if there is anything interesting in the commentary I'll post it later in the day.

10 minute video (email readers will need to come to site to view)

Aside from stocks, one of Bass' biggest concerns is the Federal Reserve's effort to boost the economy.
"I also think with what we've been hearing from the Fed and what we've started to hear the Fed wants to print another trillion bucks. We have a monetary base of $2 trillion today and we're gonna print another trillion—what if that doesn't work?," Bass said.

"When you start printing money—as such a huge percentage of the monetary base—and the Fed itself has admitted in the last couple days in speeches that they don't know what they're doing. They just hope what they're doing works," he said.

[Aug 18, 2010: Kyle Bass on CNBC August 2010]
[May 13, 2010: Kyle Bass of Haman Capital - The Pattern is Set, Betting the Bank on a Keynesian Free Lunch]
[Jan 13, 2010: Kyle Bass of Haman Capital - Japan Defaults on Debt or Devalues in 3-4 Years; US in 10-12]
[Oct 5, 2009: Kyle Bass Hayman Capital October Letter to Investors]

Bookkeeping: Closing Maidenform Brands (MFB)

The cloud computing / momo plays that were hammered earlier today took another leg down of 3-5% across the board in the past hour and now many are in double digit loss areas.  These names have squeezed out any rationale short player the past few weeks, so once they turn all they have is vapor below them and the drops are dramatic.  So what I warned a few weeks ago might happen in earnings season, actually has started today due to EQIX-fever.  Unfortunately, no one told me Maidenform Brands (MFB) was a cloud computing play... but apparently woman don't care what their shape looks like in the cloud.   Amazing what one downgrade can do on the right day.

The chart is completely busted and my -5% loss is -9% in a few hours.  (this was a +6% gain about a week ago)  With the technicals trashed I am going to leave and return once Maidenform Brands disgorges its cloud computing business.

p.s. I should have shorted that stock at mid $107s I sold not 90 minutes ago, with target of gap fill at $100 after all, it's already down 5% from where I sold.  However, after being beaten like a seal by Ben Bernanke's club for 6 weeks straight you lose your fight, especially in a rigged market where Fed officials now blatnatly say out loud they are trying to manipulate asset prices.  What a joke the market has become.  An embarrassment.

From "Mr. POMO" himself

•  Brian Sack, who oversees the Fed's System Open Market Account at the New York Fed, "Nevertheless, balance sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be."

No position


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Bookkeeping: Sold Yesterday's Index Long Exposure

To lock in gains I've sold the index long exposure I bought yesterday (recall I sold 1/3rd of the SPY calls on the close yesterday).  This is in no way a reflection nor a prediction of where I think the market will be in 3 minutes, 3 hours, or 3 days.  These were short term instruments that were to play a breakout over S&P 1150 yesterday. Since the S&P 500 broke to a small marginal low (below 1158) today I am going to sell to keep the majority of my profits.  For all I know we gap up 9% on the open tomorrow on QE 2 squared cubed.

Profits are smaller than yesterday obviously but still nice.  I was rather hoping for a move to S&P 1170 today or tomorrow in straight up fashion, so I could dump these and turn to the dark side via short index exposure but the market is not that easy; instead it is like a box of chocolates... that you left in your car in error... in July.

No positions


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Bookkeeping: Stopped Out of Majority of Salesforce.com (CRM)

Today could be a day we look back on in 6 weeks as very important.  The "cloud plays" and most associated momo stocks in NASDAQ are taking a beating.    Equinix ... a stock most people don't follow or know is now down 30% and taking a lot of the cloud plays down.  This is damaging a lot of charts.    The cloud complex has been the 'go to' area for this entire move... and until last Friday (the day after quarter end window dressing) they were bullet proof.  Now the entire complex could be showing dangerous flashes.  At this moment the market has cordoned off this section of tech land and ignored it; time to rotate into new areas - I guess coal is the sexy sector HAL9000 chose today.

Last week, I was willing to give Salesforce.com (CRM) the benefit of the doubt on a buyback at support.  (I had already sold almost all of my original shares on the trade earlier)  However my stop was very tight.  This is what I wrote.

To compensate for the potential downside, my stop loss will be around $107.50, where I will exit today's purchase near $111. 

Well, that stop in the mid $107s triggered (I've sold all the shares I bought last Friday and am back down to a 0.1% exposure), and now $100 looks very much in play.  I was originally going to buy down there but again that is within a vacuum.  This sort of market is no vacuum.This market is "out of control" and stocks are acting 1999ish, which is increasingly dangerous.  That doesn't mean it ends today, or tomorrow or even next week - it just means the risk to make gains is increasing by the day as we continue to move in non stop fashion up.  Further, seeing some damage in these leadership stocks is also troubling.  Granted its related to 1 of their brothers taking a hit so its news specific, but that still creates potential trouble in the charts.

I am contemplating a short position here in the name to fill that gap at $100; but I don't have the cajones to short these types of stocks right now since the market has obliterated any attempt at shorting for weeks.  However, part of a hedging strategy is losing far less than the market on any downside moves.   I am still hoping for one more blow off top now that every bear has succumbed to the "move over S&P 1150".  But I said that on the "move over S&P 1130" as well.

The QE2 meme is getting very old... its been 6 weeks of buying on the same thesis.  This type of stuff does not last forever, no matter what the permabulls will tell you.  Eventually it is *in* the market.  We're drawing closer to that time - I watched Fast Money last night and I never saw the crew so bullish - even during the Kool Aid of fall 2007.  Not 7 weeks ago no one wanted to touch stocks.  This speaks to sentiment.  To keep betting on never ending upside is hoping the music never stops and chairs are everywhere.

Long Salesforce.com in fund; no personal position


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Polypore International (PPO) Breaks Out

Been waiting a while for this one to finally run.  Nearly every Tom, Dick, and Harry stock has been caught up in speculation - heck even China solar stocks are now back 'en vogue' so it is about time.  Heck DryShips (DRYS) might even begin to run - it's fall 2007 again!

Now the tough part - how far to let this run with a market on a heroin high, drunk on dreams of QE and weaving all over the highway at 120 mph.  It is so difficult to pile into stocks here, even the ones breaking out as the S&P 500 is up 120 straight points in 5 weeks!

Still hoping for a move to S&P 1170 (let's do 130 S&P points!), hopefully on 'better than expected' weekly jobless claims tomorrow.  I'd probably sell a good batch of Polypore (PPO) once we get there - if we do of course.

[Aug 5, 2010: Polypore International with Impressive Beat on Q2 Earnings]
[July 1, 2010: Beginning Polypore International]

Long Polypore International in fund; no personal position

Bookkeeping: Closing VMWare (VMW)

I have not liked the action in this name the past few weeks - unlike its brothers in arms, this former general of the market has not partaken in "the can't lose market".   Some of those other names ran, and ran, and ran... and ran without a breath while VMWare (VMW) sat on the park bench "only gaining" about 10%.  Yes we are getting spoiled around here, when a stock that does not run 20% in a month is "poor performance".  Not acceptable in this type of market.

Quite a few of the generals are actually taking out of the blue hits even as the broader market stands flat... strange action.  Maybe they all reacting to the carnage in EQIX (now down 30%) as "cloud computing" is not so bulletproof after all.   Wall Street is great taking a valid trend (China will grow the moon forever, therefore every commodity must be run up 400% - see spring 2008; the internet will change the world - buy any dot com - see fall 1999) and causing massive imbalances in prices - this is happening in cloud computing right now.   One of our "cloud" stocks ran up big Monday on a report it was a takeover candidate.... a YEAR AGO (and 75% lower in price)  It's reaching stoopid level but I've been a broken record for weeks ont hat end.

Whatever the case I don't like this relative weakness in VMW and with a gap at $79 beckoning plus a dangerous earnings season ahead for bloated tech stocks, I am going to close out the position here.

No position


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Maidenform Brands (MFB) Takes a Hit via Downgrade

Maidenform Brands (MFB) is being hit today by a downgrade from buy to hold... by BB&T.  (did not even realize the bank had a research department).  The stock surged right after purchase but rather than taking a quick 6% gain I decided to hold it, and +6% has turned into -5% in a very short period of time.  I'm keeping an eye on it here as it sits near its 50 day moving average.  If it closes below that level, and does not recover soon this analyst might have done some serious intermediate damage.

Long Maidenform Brands in fund; no personal position


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Goldman Sachs Says 2 Scenarios for U.S. Economy in Next 6 to 9 Months: (A) Bad or (B) Very Bad

There is often a short to intermediate term disconnect between the market and the economy, but rarely is it so great as it is now, and for reasons it is now.  Don't fight the Fed had a different meaning the past few decades when it was a matter of pumping the economy via lower rates, but outright flooding of the financial sector with dollars to manipulate asset prices upward is a whole 'notha animal.   A reader made a great comment about a week ago - he said at least during QE1 people were buying stocks on the Kool Aid that a "V" shaped recovery was in the offing and employment would be surging in 2010 (remember all that talk about how a spike in temporary workers SURELY will lead to a surge in full time?) - and we'd back to 'normal' soon enough.  But this time around people are bidding up risk assets without any delusion things will get materially better - because who really cares about the economy anymore?  As I said about 3-4 weeks ago, go forward through QE2 you just have to hear the economic data, digest it momentarily, but mostly ignore it.  Until the market cares again about it again that is.

The very well respected Jan Hatzius (he of the vampire squid) is laying out 2 scenarios for the economy in the next 6 to 9 months - either "bad" or "very bad".  I am surprising the market was not up 2% on the news because that means either "a very long QE2" or "QE2, QE3, and QE4".  What's not to love?

I will point out some positives ... for the debtor class at least.  Mortgages are at an unheard of 4.25% on the 30 year.  I joked about 2 years ago that things would get so desperate the Fed would try to drive down rates to 3.5% on the 30 year... this was at a time rates were probably near 5%ish.   It was a joke - not a prediction.   Now??? Who knows!

The other not much discussed item is the foreclosure moratorium we see happening in 23 states due to "robo signing" (I love our financial oligarchs! Always trying to cut corners even as we hand them nearly risk free profits)..  Congress is out this morning with some members calling for a national moratorium on foreclosures... just in time for election season of course.  Whether it is national or 23 states ... however long it lasts is going to be a boon to consumer spending.  So when you see the surge in the coming months don't say anything about countless additional millions not making a mortgage payment - just sing "recovery" and buy stocks.  The 'strategic default' stimulus - which I introduced almost a year ago, well ahead of the masses, [Nov 25, 2009: America's Stealth Stimulus Plan; Allowing It's Home "Owners" to be Deadbeats]  will only spasmatically grow even more in a temporary moratorium.   That's millions of people more who no longer need to make a payment on their mortgages and can go Christmas shop, get some new granite countertops, buy that new Harley they deserve, or take a cruise.   I've said the worst thing that can happen to this economy is people are foreclosed upon because these millions of households living mortgage free are goosing spending figures.  The longer the banks lie about what is on their balance sheet by not foreclosing the better for Cramerica. So with their claims in limbo, the ponzi economy gets a new turbocharged boost.  So it isn't so bad after all Jan!

By the way, since the recession "ended" summer 2009, by definition we cannot have a double dip as there are too many quarters of "non recession" between then and any future recession.  So the next one would be "new".  Unless of course you live near Manhattan, near Washington D.C., the farming Midwest, or Texas, are a weekly shopper at Tiffany's or are a public worker - at which point you most likely are still trying to figure out what recovery exactly we are enjoying.

Via Bloomberg

• Goldman Sachs Group Inc. said the U.S. economy is likely to be “fairly bad” or “very bad” over the next six to nine months.  “We see two main scenarios,” analysts led by Jan Hatzius, the New York-based chief U.S. economist at the company, wrote in an e-mail to clients. “A fairly bad one in which the economy grows at a 1 1/2 percent to 2 percent rate through the middle of next year and the unemployment rate rises moderately to 10 percent, and a very bad one in which the economy returns to an outright recession.”
  
• The “fairly bad” outlook for slow growth and rising unemployment without a recession will probably be the one that occurs, the e-mail said.
  
• Hatzius’ note reiterated comments he made yesterday at a forum in Washington, when he placed the odds of a renewed recession at 25 percent to 30 percent. He told reporters that was up from 15 percent to 20 percent at the start of the year.
  
• Another $1 trillion of asset purchases by the Fed would probably lower long-term interest rates by about 0.25 percentage point, adding a “few tenths of additional GDP growth,” he said yesterday.
  

Equinix (EQIX) Loses Quarter of Value on Revenue Warning

I said a few weeks ago, this was going to be a treacherous earnings season if stocks did not have a meaningful correction headed into the reports.   We had seen a few significant warnings at the time, but the market has been overwhelmed by the tsunami of euphoria over QE2.  In this market almost everything moves together so only when company specific news hits a stock, does it usually move out of step with the broader market.  But that only raises the risks ever further as batches of companies are flying up together regardless of their specific situations.

Equinix (EQIX) is a name we have not owned in a while, [Jul 23, 2009: Equinix - Hostess with the Mostest?] but this morning is down some 25% in premarket on a revenue warning.  While it never has been blessed with the sainthood of "cloud computing" it is not that different from current market darling Rackspace Holding (RAX) [also a previous holding] - which derives a whopping 11%ish of revenue from the cloud. [Jul 29, 2009: Colocation Stocks and Industry Overview]  I always cut back exposure on stocks going into earnings because they have become nothing more than a high stakes gamble on red or black, but these next 4-5 weeks are going to require a new level of vigilance since valuations have become so extreme in many stocks (and their charts so extended) that even 'matching analysts expectations' are going to leave many prone to significant pullbacks.

• Data center services provider Equinix Inc (EQIX.O) cut its third-quarter and full-year revenue outlook, citing underestimated churn assumptions in its forecast models in North America, sending shares down 23 percent after the bell.
  
• The company said greater-than-expected discounting to secure longer-term contract renewals and lower-than-expected revenue attributable to the Switch and Data business acquired in April also impacted the outlook.
  
• The company now sees revenue of $328-$330 million for the third quarter and full-year total revenue of about $1.22 billion. In July, it had forecast third-quarter revenue of $335-$338 million and full-year revenue of $1.23 billion.  Analysts on average were expecting revenue of $336.8 million for the third quarter and $1.23 billion for the full year.
• Last month, Chief Executive Steve Smith told Reuters that the company aims to double revenue to $2 billion in 3-5 years, banking on the growing popularity of "cloud computing" and demand from financial services clients.
  

No position

On the Road to S&P 1170

With my lack of long exposure the fund needed a nice win to finish up this period (which ends Friday).  Today was the day, barring a 2% drop in the closing minutes.  (I know, I know - just speaking in theory, of course the market cannot selloff into the close)  Earlier today I put on a 3% SPY index long position and about 4.2% TNA long position on, around S&P 1151.  So despite missing the first 1% in the premarket and opening 30 minutes, it's still a nice win.  Today has been a trend day, of which we saw more of in the first two quarters of the year - they make for excellent intraday trading to help goose returns with little risk, as you can have tight stops (my original mental stop was about 2 S&P points), and can be out by end of day and back into cash if you wish.  Or take partial profits by end of day and let the rest ride.

As of this moment, the SPY calls are up 43% and the TNA ETF about 6% due to the surge to S&P 1162.  Despite not being a huge amount of the portfolio, they are doing the trick - especially considering their shelf life has been 5-6 hours.  I still believe 1170 is in the cards, for no good reason other than my Fibonacci reverse engineering analysis (linked to earlier today).  If the market does not stall at 1170 and go back to fill the gaps in the chart, than Fibonacci retracement will be a failure this time around, and I will not have an idea of where the ultimate top of this move will be.   But on the other hand, it was not a failure because that number of 1170 kept me from trying to bet against the market as I mistakingly did in spring 2009 when Bernanke QE1 smashed me to itty bitty pieces for 2 months.  (long time readers will remember me betting against REITs, and casinos, and credit card companies, ho ho ho - what a chump).  Like a silicon algorithm I too can adapt... just slowly and with chagrin.  But with a tad more humor.

I'd love to see these poor pathetic unAmerican sad shorts squeezed into the bell here and a close over S&P 1165 at which point I'd take a good portion of these long index positions off.  While the probability of a gap down any morning nowadays is only 1 in 18ish, it would surely happen the day I have fat profits to protect.  I'll update this piece with decision making in the next 15-20 minutes.

EDIT 3:59 PM: no squeeze into the close so I kept all TNA ETF and sold 1/3rd of the SPY calls to lock in about 40% profit, riding the other 2/3rds.   Short of a 10 point S&P gap down tomorrow morning will exit with some form or profit.

x

SEC Puts New Shareholder Friendly Proxy Access on Hold Due to Business Roundtable Lawsuit

One surprising little nugget within the financial reform bill was a long needed move to let shareholders (you know... the actual owners of a company) have more say in the proxy process.  This was little discussed in the news on the bill, and frankly I found it by mistake when reading about other things.   Apparently at the time the White House (hi Tim) was fighting it [Jun 22, 2010: Board of Director Reform Being Undermined by... White House?]... after all, America (per the constitution) is run for the corporation, and by the corporation.  Last thing we want is meddling shareholders to act all unconstitutional.

Again this is only to NOMINATE someone - they still have to WIN on their own.

To refresh, from June:

• This issue predates the financial crisis; in fact it harkens to the scandals of the 1920s. The problem is that shareholders have no effective way to hold directors accountable. Proxy contests are all but rigged, because incumbent directors use corporate funds to solicit votes; dissidents must spend their own dough.  Typically, incumbents capture 99 percent of the votes. Not even Hugo Chavez polls that high , and it is no wonder that boards are so apt to ignore shareholder concerns. 
• Since the 1990s, reformers have realized that the key to genuine democracy is to grant legitimate non-management candidates access to the company ballot (the proxy card that the board distributes and that all shareholders pay for).  The Securities and Exchange Commission has proposed a rule that would allow nominations from minority shareholders that owned a reasonable minimum of shares. Of course, nominees would still have to win elections to join the board.
• Even that dollop of democracy is too much for the Business Roundtable, the lobbying group for chief executives. The Roundtable has been lobbying against proxy access since the idea surfaced. Also, foes of shareholder access have threatened to take the SEC to court if the agency dared to let the owners of a business actually nominate directors. 

So at that point, Senator Dodd with White House backing according to the story, were on the side of the Business Roundtable (of course per CNBC the White House hates business)

So the threat of lawsuit if this indeed happened loomed back in mid summer.

------------------------------

What happened last week?  Boo yah Cramerica.

• The U.S. Chamber of Commerce, the nation’s biggest business lobby, and the Business Roundtable sued the Securities and Exchange Commission to overturn a rule that makes it easier for investors to oust corporate directors.  The rule, which allows shareholders owning 3 percent of a company to nominate board members on corporate ballots, was passed by a divided SEC last month.
  
• The chamber and Washington-based Business Roundtable, which represents chief executive officers of the biggest U.S. companies, have retained Gibson Dunn & Crutcher LLP lawyersEugene Scalia and Amy Goodman to handle the case.
  
• The U.S. Chamber of Commerce and Business Roundtable called the rule "arbitrary and capricious"
  

Please keep in mind this could not even be used to oust a majority of board members, simply to get some face time on these crony boards.  Even that little amount is TOO MUCH for the vested interests.

• Under the regulation, shareholders would be able to nominate at least one director and as much as 25 percent of a board. Investors couldn’t use the rule if their intent is to oust a majority of board members and take over a company.
  

Here is where it gets rich... the lobbying group for big business & their CEOs - the U.S. Chamber of Commerce -  (even small businesses think this lobbying group works against them per various stories I have read) say this protects THEM from special interests.  Haha - you can't make this stuff up.  Of course a group of elite executives who scratch each others backs by nominating each other for each others boards, in a closed system of cronyism is NOT a special interest mind you.

• “These rules are wholly unnecessary,” said David Hirschmann, president of the chamber’s Center for Capital Markets Competitiveness. “This special interest-driven rule will give small groups of special-interest activist investors significant leverage over a business’ activities.”
  

Pssst. Mr Hirschmann.. say something about saving American jobs (which US multinationals are doing a heck of a job of the past 2 decades), and wave a flag while you say it.

• "This will undermine a company's ability to grow and create jobs."
  

Jackpot!

• The chamber has said that labor unions and public pension funds would hijack companies and push political agendas if given more power to nominate directors.
  

Holy smoke - we should only hope public pension funds were more involved as shareholders and actually acted like owners who cared about their long term interests.  Just imagine the savings to the taxpayer in the financial sector alone.  As it is now, only a small group of elite wealthy can even ATTEMPT to make successful nominations and even if with all their resources they often fail.

• Before the SEC approved its rule, shareholders could nominate dissident directors only by mailing a separate ballot and persuading other investors to vote with them. Activist investors such as Carl Icahn and Nelson Peltz have waged proxy fights to get their candidates elected to boards of companies they said were underperforming.
  
• Institutional investors vowed to fight the lawsuit and called it an assault on a fundamental shareholder right.   "Proxy access will make companies more responsive to their shareowners and more vigilant in their oversight of companies. This basic right is widely accepted in many other countries and the Council will fight to preserve it here."

Thankfully we are not like other countries where the 'little people' matter - we are the United States of Corporations.  Corporations are people too by the way (per Supreme Court ruling earlier this year).

Apparently this has been tried in the past and fought off by "businesses who only care about jobs" and hence why it was included in footnote # 214,181 in the financial reform bill.

• In the past decade, two other SEC chairmen have tried to adopt proxy access rules with no success. This time, the SEC had backing from the Dodd-Frank financial reform bill, which affirms the agency's authority to adopt proxy access rules.  The legislation is expected to help shield the SEC from some legal challenges, but it is not clear if that will be enough to withstand the lawsuit filed on Wednesday.
  

------------------------------

That was last week... this week?  Boom.  The move is now "halted".

• The government said Monday it is putting on hold new rules that make it easier for shareholders to nominate directors of public companies, after the U.S. Chamber of Commerce sued to block the changes.  The changes were long sought by investor advocates.
  
• The debate over the rules comes as investors are angry about risks some corporations are taking for short-term profit gains and extravagant compensation packages for executives.  The SEC voted 3-2 in August to adopt the new rules, with the panel's two Republican commissioners voting no.
  

Apparently the lawyer hired by the lobbyists firms is 3 for 3 against the SEC by finding procedural mistakes ... doesn't look good for the shareholders.

• Scalia is three-for-three in winning suits against the SEC..... on the grounds that the agency made procedural missteps in writing regulations.
  
• The proxy rule will be challenged on similar grounds that the SEC didn’t adhere to federal laws that dictate how agencies must consider and approve regulations, Scalia said at the news conference.
  

Anyhow, business as usual in a socialistic country.  Except our socialism is of the corporate kind.  Shows again why it does not pay to even have a glimmer of hope of things going to the right direction.  I hate when I take the wrong colored pill, and will now reattach myself to the Matrix, and clap in seal like fashion at the miracle of the market that can only go up.  Everything else is just details.

-----------------------------

(for those still detached from the Matrix, a great opinion piece on how this " capricious" rule that will let the "unions take over" and "kill American jobs" is just a small step, and in current form not even that much of a change, in helping owners have a say in how a company is run.)

• "Market forces will operate far more efficiently if board members are subjected to even the very small market test of a very limited ability for shareholders to put alternate candidates to a vote," she wrote last month after the SEC adopted its rule. "The complaints of those who see specters of 'special interests' are hypocritical and disingenuous. No one will be elected to the board without the support of more than 50% of the shareholders."

Remember, we are all about free markets as long as it does not impact our own interest.  Then those who decry socialism, ask that they be protected from free markets.

/this has been a huge pet peeve of mine for 15+ years.

[Video] Jim Rogers - Gold to $2000 in 5 to 10 Years, Silver Might be Even Better Buy Now

I haven't posted a Jim Rogers video in a long time.  He appeared on CNBC yesterday and his views are still consistent - the Fed is a failure, their policies are destructive to Americans, and buy commodities as a way to protect some buying power.  He actually seems to like silver more than gold at this point.  Not that much new for long time readers but I'll throw it up here since every financial website must talk about silver or gold at least 5x a week or be banished from the blogosphere...

• "Gold is going to go a lot higher over the next decade. It may slow down for a while because it's run up so dramatically here in the last few weeks. But gold's going to be much higher," Rogers said. "Adjusted for inflation it should be well over $2,000 now. When I say something like it's going to 2,000 in 10 years it's not a very dramatic statement given the state of the world. I'm sure it's a given."
  
• Rogers said one reason gold will continue to gain is because of what he called the failed policies of the Federal Reserve, its Chairman Ben Bernanke, as well as Treasury Secretary Geithner and other government officials. He said their efforts to prop up the economy have made things worse, not better.
  
• "They've all been dead wrong, totally unadulterated wrong," he said. "Unemployment is higher now than it was before. Everything is worse instead of better. Let people go bankrupt. Let the system clean out and start over."
  
• "If the world economy gets better I'm going to make money in commodities," Rogers said. "If the world's economy doesn't get better I'm going to make money in commodities, because (the Fed is) going to print money."
  
• He also said silver may even be a better buy now than gold because it is well off its historical high, while gold has been setting a series of new peaks lately. Rice will do well among soft commodities, he predicted.
  

10 minute video (email readers need to come to site to view)

Bookkeeping: Stopped Out of Whirlpool (WHR) Short

It was a good battle but eventually the forces of money printing overwhelmed the forces of rationality.  If companies that are warning about full year earnings are going to break out (which Whirlpool did last week),  there is really little a person can do on the short side.  Until the euphoria ends, it remains impossible to hold shorts for more than a few hours or a day or three.

I will take a 5% loss on the Whirlpool (WHR) short as my stop loss was just triggered over the 200 day moving average.  This might be one that peaks its head over a key resistance area based on the tidal wave of the greater market, but when the day comes we have a real drop in the broader indexes, will reverse quickly back down.

With that I've been expunged of all individual short equity positions.  I'll look for new candidates nearer to S&P 1170 but the list of choices is very narrow in terms of what has not punctured multiple resistance levels.  In the meantime, I drink Kool Aid.

No position

S&P 500 Priced in Silver Even Uglier than S&P 500 Priced in Gold

I have thrown the S&P 500 chart, priced in gold (rather than increasingly worthless US dollars) on the website often to show as you "gain" in nominal dollars, one loses in 'real' purchasing power.  But I've never looked in silver which is a hybrid of precious metal and traditional base metal used in industry.

First, you are telling me QE has no effect on asset prices?  Even talking of it (which started aggressively at Jackson Hole August 27th) has set this thing on fire.  Coincidence? Unlikely - unless you believe the global economy suddenly improved within 24 hours of Bernanke's promise to flood the world with little pieces of green paper.  Silver was dead in the water for months on end. (I'm smacking myself in my head as I held silver and gold for a long time, and dumped silver while keeping the gold exposure)

Now, the S&P 500 in silver in the "best September in 7 decades!" (as long as you don't hold the S&P in dollars)

Errr...

Best read up on 'nominal' vs 'real' right quick folks.

POMO Arigato Mr. Roboto.
POMO
POMO
POMO Arigato Mr. Roboto.
Thank you very much Mr. Roboto 

Long Powershares DB Double Long Gold in fund; no personal position

Bookkeeping: Adding Index Exposure Long on Hold of S&P 1150

I put on some conditional long index exposure via TNA ETF and SPY calls (Oct 115) with the caveat of holding these as long as the S&P 500 stays over 1150.  A break of 1149ish will have me out (very tight leash).

Translation: I am a marionette.  The marionette player above with a beard has me dancing.


POMO Arigato Mr. Roboto.





Styx - Mr. Roboto
Uploaded by manon42. - Music videos, artist interviews, concerts and more.

Long/short TNA in fund; long SPY Oct 115 calls; no personal position


x

A Close over S&P 1150 Would be Constructive

Coming into today the S&P 500 had touched S&P 1150 intraday seven of the previous eleven sessions, before retreating (only on one occasion did the index burst through on the charge higher premarket Thursday).  Obviously a key level in this market and closely watched by both carbon based life forms as well as silicon.  Since everyone is now a momentum trader, buyers will be found over 1150 and sellers below 1131 or 1116.  A close above 1150 would embolden bulls and give credence to a push to 1170 which has a Fibonacci chance of marking the top of this move. [Why S&P 1170 Would be a Perfect Fit as the Ultimate High]

ISM Services came in "better than expected" and the "you can have it both ways" market continues.  Good news = good news, and bad news doesn't matter because it means QE.   The Bernanke Fed likes to set the groundwork for what they are doing in speeches and based on what has been said the past 4-5 days by Bernanke and minions QE2 is now "in the bag" November 3rd.  So even if economic news was splendid from here on out, Bernanke has his Iraq in sites and will find weapons of mass destruction somewhere so he can devalue the dollar and we can all prosper.

From last evening:

• Federal Reserve Chairman Ben Bernanke said Monday he believes further asset purchases by the central bank could help the economy, a signal that the Fed is likely to make the move if the economic outlook remains weak.
  
• Speaking to college students, Mr. Bernanke said that even after the Fed cut short-term interest rates nearly to zero, it was able to lift the economy by buying $1.7 trillion of U.S. Treasury and mortgage-backed bonds in what he described as an "effective program."  "Additional purchases have the ability to ease financial conditions," he said.
  

What needs to be stressed in all the debate of what QE does or does not really do (I've outlined my views on how little it affects the real economy and how it is all about goosing asset values, punishing savers, and pushing people into risk assets) - all that matters in the near term is perception.  If the majority believe QE2 will move up commodities and stocks they will act on that, and it will self reinforce.  Just as a 200 day moving average means something on a chart when in truth its a totally arbitrary marker.  Analyzing if it is true or not, is more of an academic study in the near term - the herd believes it to be true, so it is effectively true as Bernanke is herding the lemmings.

And you thought the stock market had something to do with earnings, revenue, market share, or valuation?  Haha.  It's the Wizard of Oz behind the curtain... now dance speculators... dance!

Goldman Sachs Calls Top in Bond Rally

Looks like our normal Monday morning melt up was pushed out a day.  Not hard to understand considering we just had the end of month mark up, with little time to rest.  Back to your normally scheduled premarket futures rally which should take us near resistance; setting the table for ISM Services at 10 AM.

Interesting commentary out of Goldman Sachs, saying 10 years will peak here in the 2.45-2.50%.  Technically that would coincide with recent lows and form a potential 'double bottom' of sorts on the chart, setting up the potential for a reversal and big rally in yields.  However, this call essentially means QE2 will do little in terms of lowering yields (from here) i.e. QE2 is already priced into the market; well at least the bond market - of course QE2 can be used to goose commodities and stocks forever (and ever).

Definitely a contrary view.

Via WSJ:

• Goldman Sachs Group Inc., hitherto one of the biggest Treasury-bond bulls on Wall Street, now says the rally has seen its peak and the best trade going forward is to buy stocks, not bonds.  Francesco Garzarelli, chief interest-rate strategist at Goldman Sachs in London, said that the benchmark 10-year note's yield has seen its bottom in the 2.45%-to-2.50% area, breaking ranks with other bulls.
  
• The yield has plunged from this year's peak of 4.017% in April as worries about the U.S. economic outlook and euro-zone sovereign-debt problems spurred demand for safe-haven assets.  In recent weeks, the Treasury market got a boost from speculation that the Federal Reserve may step up government-debt purchases to aid the economy.  The yield tumbled to a record low of 2.034% in mid-December 2008.
  
• Goldman economists expect the Fed to buy about $1 trillion in assets in coming months. Such measures, known as quantitative easing, aim to push down mortgage rates and encourage banks to lend.  Yet Mr. Garzarelli said some of the quantitative-easing measures have been priced into the market, adding that most of the Fed buying is likely to concentrate on Treasurys maturing between two years and five years, as that is the section closely linked to mortgage refinancing.
  
• The monetary stimulus is likely to shore up investors' confidence to buy riskier assets that provide higher returns than Treasurys, Mr. Garzarelli said.  (somewhere Bernanke is saying "yes! yes! yes!")
  

Bank of Japan Surprises Market with Interest Rate Cut AND More Quantitative Easing; Gold Jumps

The global race to the bottom continues ...

Japan had almost no interest rate to cut (at 0.1%!) but just to make sure people were not getting the message, money is now "free"... and along with the past decade of quantitative easing (which obviously has been "working" like a charm), here is another $60B to boot. (relative to GDP this is about $150B USD).  Needless to say as every major developed economy works to trash their currency by debasing it, gold is having a party which is why it is difficult to get in front of that freight train. [Sep 28, 2010: I'd Say Gold and Silver are Overbought, but Bank of England Official Chimes in on Race to Bottom for Fiat Currencies]  So next on the docket will be the U.S., then certainly the U.K. will need to respond, and eventually the ECB will be dragged along.  And then Japan can do another round, than the U.S., then the U.K. and again with the ECB.  Then...

Well you see where this is headed... somehow every country is going to rebound via exports, with the small caveat that this is technically impossible.

Via Bloomberg:

• The Bank of Japan pledged to keep its benchmark interest rate at “virtually zero” until deflation has ended after unexpectedly reducing borrowing costs for the first time since 2008 and expanding its balance sheet.
  
• The bank cut the overnight call rate target to a range of 0 percent to 0.1 percent, the lowest level since 2006, from 0.1 percent, it said in a statement in Tokyo. Policy makers will set up a 5 trillion yen ($60 billion) fund to buy government bonds and other assets, inflating the balance sheet at a time when U.S. and U.K. central bankers are contemplating similar moves.
  
• Shirakawa told a post-meeting news conference today that the bank will consider expanding the fund “if necessary,” and wouldn’t rule out buying more types of assets. 
• The BOJ said it will keep the “virtually interest rate policy” until it decides that “price stability is in sight,” a stance it termed its “policy time horizon.”
  
• Central banks around the world are weighing the need for more stimulus as growth cools. Chairman Ben S. Bernanke said this week the Fed’s large-scale asset purchases improved the economy and further buying is likely to help more. The European Central Bank stepped up its government-bond purchases last week.
  

As you know, if it does not work the first time... try try (and try) (and try some more) (keep trying) (don't stop trying) again.  Thankfully as you know from the punditry, the U.S. is not Japan and in no way, shape, or form would follow similar policies.  Ahem.

• Japan introduced the zero rate policy for the first time in 1999.

WSJ: Americans Souring on Free Trade as Losing Their Jobs Overpowers Lower Prices

A very interesting cover story in the Wall Street Journal today on attitudes towards "free trade".   First,let's be truthful here - there is very little free trade in reality - certainly not an even playing field.  Go try to buy a U.S. car in Japan and report back on the enormous tariffs you have to pay for the honor of buying 'foreign' in that country.  Or try to compete with labor markets where safety is an afterthought, and there is no need to pay benefits.  Even the U.S. - which is quite open for product dumping into the country - has some protectionist arms up, especially in foodstuffs.  So it is a misnomer to call it free trade but we get the larger picture here.

The theory if you are not familiar is the whole world gets richer if you let every country specialize in what they do best and at lowest prices.  (In the U.S. that means home flipping, and financial innovation I guess)  Over the course of time as everyone gets richer, and middle classes are formed overseas in developing countries everyone demands more service and every person is lifted in the big hands of 'free trade' to a wonderful life.  And maybe that *will be* true over the long term (i.e. 3-4 generations)  But even if true it does not address the wrenching dislocations happening in the middle class of some developed countries - especially the most open, like the U.S. where multinational labor force migration has been huge.  And if it is not true - well then you just have Ross Perot's famous 'giant sucking sound'.

What this story points out is how the angst of Ross Perot being correct is moving up the food chain... at the earliest stages we were told just "low skill" grunt work would go overseas.  Then of course low skill service work.  But a funny thing happened - suddenly a mass of Research & Development jobs (in the U.S. very high paying 'science' 'engineering' type of work) has moved... because it only makes sense to put your R&D next to your manufacturing.

(Nov 2009)

• Applied Materials is the biggest maker of equipment to make solar panels. Last month, it opened the world's largest solar research facility – in China.
• "If the manufacturers are in China, that's where we need to go," Pinto says

And after a generation, higher level service jobs (as long as it does not require human to human contact) has begun to leave as well.  [Aug 15, 2008: NYT - Cost Cutting in New York City, but a Boom in India]  And this (in my opinion) is why those who brushed away any concerns about this trend in the higher income brackets are now turning tail.  It is easy to say 'globalization is great' when it is not your job or your peer's jobs going overseas.  But when it becomes a mechanical engineer, rather than a call center operator, Americans up the income strata now are questioning what the end game here is.

Whatever the eventual outcome, we are in the middle of a multi decade social experiment and at this point in the daisy chain a lot of Americans have lost their jobs, while multinationals have lowered their cost of labor dramatically, while opening up new sources of revenue.  So it is definitely good for businesses that export outside the country.  And as you know - what is good for the multinationals is good for America ;) after all S&P 500 profits is how you judge the well being of a country.  Of course many of these same companies that are benefiting from new lines of sales overseas, are not translating them to new jobs here ... which is the paradox.  Of course the factor oft cited on why Americans should be happy with the arrangement is lower prices at Walmart for the sacrifice of their jobs.  And somehow a service economy where we barter services (haircut for accounting) is fine as the bedrock of a country.  (Manufacturing down to 13% of GDP and 9% of employment).

From my own views, I will say what free trade is doing is creating a more level existence for human kind - a lot more people are going to a global mean.  As a human race that is a net positive.  That means positive things for those who were below the mean, but (at least to some degree, even if you disagree with this belief) has meant negative things for many above the mean - especially in this country where retraining, social safety nets, and the like are below that of other countries experiencing similar issues.

Now for those who live in ivory tower textbooks who worship at the alter of "free trade is only good" (especially in a world we all know not to be a true even playing field) I will ask these questions as I always do when we bring up the topic of global labor (wage) arbitrage   [Sep 14, 2009: Global Wage Arbitrade at the Micro Level: Marvell Technology] [Nov 5, 2009: Blue Coat Systems - More Global Wage Arbitrage] 

1. How many years will take place between the displacement of workers "today" in America and the "middle class demanding things in China" from America? 
2. What do we do with those workers in the meantime aside from plugging them into government work or pseudo government (health care)? 
3. What will happen to the income of said "displacements" as they move out of jobs from a very good high tech company to... (crickets chirping)? 
4. What exactly are Americans making today (in the country) that the Chinese want and need to import excluding large scale industrial weapons / defense? 
5. What exactly will Americans be making in "some day in the future" (10? 15 years?) when the Chinese middle class get to a level of wealth and can buy things from us... ?  
6. Whatever those products are you named in question 5, why can't the Chinese make them internally in 5, 10, 15 years?  Why will they need us to make them?

Of course none of this takes into account politics, and after a few decades of generally supporting the concept - it appears the tide has turned sharply.  And to that we go to the Wall Street Journal:

• The American public, already skeptical of free trade, is becoming increasingly hostile to it. In the latest Wall Street Journal/NBC News poll, more than half of those surveyed, 53%, said free-trade agreements have hurt the U.S. That is up from 46% three years ago and 32% in 1999.
  
• Across the country, politicians are responding accordingly, and that is clouding prospects for congressional approval of pending free-trade pacts with South Korea and Colombia. It is also prompting concern among U.S. businesses reliant on the rest of the world for growth.
  
• Even Americans most likely to be winners from trade—upper-income, well-educated professionals, whose jobs are less likely to go overseas and whose industries are often buoyed by demand from international markets—are increasingly skeptical.
  
• "The important change is that very well-educated and upper-income people compared to five to 10 years ago have shifted their opinion and are now expressing significant concern about the notion of...free trade," said Bill McInturff, a Republican pollster who helps conduct the Journal survey. Among those earning $75,000 or more, 50% now say free-trade pacts have hurt the U.S., up from 24% who said the same in 1999.
  
• Worries about side effects of trade and outsourcing seem one of the few issues on which Americans of different classes, occupations and political persuasions agree.   Opposition to trade is fueled by reports that many U.S. multinational companies, sitting on huge stockpiles of cash, are reluctant to invest in the U.S. and are looking overseas, and by the fact that China has pulled out of the global slump much faster than the U.S.
  
• John Wallis, 50 years old, blames imports for the 2001 death of his 12-employee business that made small electronic prototypes for the telecommunications industry and the subsequent loss of his Chicago-area home. "Trade is fine and dandy in a scenario where everybody wins," Mr. Wallis said. But the U.S. isn't winning, he said. Mr. Wallis now works in programming and design for an international manufacturer in Rhode Island, but doubts he'll ever be able to repay debts from his old business. "Financially we've never recovered," he said.
  

Pretty amazing statistic, professionals/managers even more so than blue collar (typically thought to take the brunt of outsourcing) blame outsourcing for the economic struggles.  One would expect the opposite - but both figures are sky high:

• In the recent Journal poll, 83% of blue-collar workers agreed that outsourcing of manufacturing to foreign countries with lower wages was a reason the U.S. economy was struggling and more people weren't being hired; no other factor was so often cited for current economic ills. Among professionals and managers, the sentiment was even stronger: 95% of them blamed outsourcing.
  

[Aug 18, 2010: Foxconn to Hire Up to 400,000 in 2011; Increasing Employment by 50%]
[Nov 2, 2009: Lack of Green Energy Manufacturing Capability in US Means 84% of Stimulus Goes to Foreign Firms] 
[Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?]