Hendry: Fears of inflation could trigger bigger downturn

Tuesday, June 30th, 2009

We have fol­lowed Hugh Hendry, the out­spo­ken and bold CIO of Eclec­tica Asset Man­age­ment, and one of the few prof­itable absolute return hed­gies dur­ing the last 12 to 18 months, as he built his high con­vic­tion case for defla­tion, and invested as such, in long dated gov­ern­ment bonds, Gilts and 30-year US trea­sury bonds. Last year, it was Hendry who pointed out that 10-year US trea­sury bonds were sig­nalling defla­tion, and that in a sea of risky assets, they were the only asset that was up, and up by 15%, while stocks declined in value by 20% or more, the first half of 2008. Falling inter­est rates, a flat­ten­ing yield curve, which came as a result of investors flight from risk in equi­ties and com­modi­ties, paid off, with Hendry end­ing the year up some 40% in his flag­ship Eclec­tica hedge fund.

In the months since the begin­ning of March, how­ever, his the­sis has been chal­lenged by the market's renewed embrace of infla­tion risk, and stocks recov­ered off bru­tal lows, as a result of the deemed "risk" trade. By April, Hendry, who is not known for being a buy and hold investor, despite his stand­ing beliefs, reduced his posi­tions in long dura­tion gov­ern­ment bonds, trea­surys and gilts in the short term, chal­lenged by yields return­ing to last year's lev­els as the eco­nomic "green shoots" teased.

We recently posted Hendry's June 2009 let­ter to investors in which he re-iterates his view on inflation/deflation, and explains in fair detail that rough waters lie ahead for stocks and com­modi­ties as a result of the mar­kets' over-anticipation of the effects of the whirring cen­tral banks' print­ing presses. He has avoided invest­ing in stocks for most of the last year, mak­ing almost all of his fund's returns from own­ing long dura­tion gov­ern­ment securities.

Hendry, an avid mar­ket his­to­rian, believes it pos­si­ble that we have already expe­ri­enced the very infla­tion and hyper­in­fla­tion the mar­ket fears, dur­ing the 2002–2007 period where cred­i­tor nations (BRIC) amassed enor­mous forex reserves in the tril­lions, while gold broke out of a 27-year trend and oil sky­rock­eted to $147 per bar­rel. In yesterday's inter­view, he also points out that dur­ing in the last 7 years the US dol­lar lost 40% of its value, an occur­rence which is often over­looked or under­played, but that he calls unprece­dented. He explains this view in yesterday's CNBC inter­view. As usual Hendry's clar­ity on the mat­ter is enlight­en­ing, as he has a mas­tery of the com­plex­ity of cur­rency effects aris­ing from carry trades and cur­rency crosses.

One year ago, Hendry warned the Hun­gar­ian finance min­is­ter that the Hun­gar­ian econ­omy, and oth­ers like it in East­ern Europe, which were financ­ing their growth with Yen and Swiss Franc crosses and/or carry trades, would be unable to keep up with the spec­tre of cycli­cal cur­rency fluc­tu­a­tions which could rapidly destroy the mon­e­tary liq­uid­ity they were awash in dur­ing the "strong Euro" era.

Click play to watch the June 29, 2009 interview:

CNBC: Fears about infla­tion and hyper­in­fla­tion could cre­ate another eco­nomic down­turn, big­ger than the one the world went through, Hugh Hendry, chief invest­ment offi­cer at hedge fund Eclec­tica, told CNBC Tuesday.

The stock mar­kets are due for a cor­rec­tion after hav­ing risen dra­mat­i­cally this year, but this is not likely to come in the sum­mer and another rally is pos­si­ble, Hendry, who said he was remain­ing risk-adverse this year, told "Squawk Box Europe."

"We have a huge intel­lec­tual con­vic­tion… that this is a more pro­found down­turn that we're expe­ri­enc­ing and mar­kets will be under pres­sure," Hendry said.

"Peo­ple get more get more con­cerned about gov­ern­ment debt… and it sows the seeds of its own destruc­tion," Hendry said. "We're actu­ally tight­en­ing the screw, we make mon­e­tary pol­icy tighter and tighter."

Long-term yields on gov­ern­ment bonds have been ris­ing, as investors fear cen­tral banks, espe­cially in the US and the UK, will have to absorb excess liq­uid­ity from the sys­tem and raise inter­est rates to fend off infla­tion once an eco­nomic recov­ery takes hold.

"I think this para­noia today that infla­tion is hap­pen­ing today I think it puts in place a motion for a decline in the econ­omy," Hendry said. "I think they're not print­ing enough money… with regards to the wealth destruc­tion that has been hap­pen­ing over the past 18 months."

"We raised inter­est rates and actu­ally we killed the golden goose," he added.

Stock Mar­ket Correction

A cor­rec­tion in the stock mar­ket is likely, but it will not come over the sum­mer, and the S&P 500 index may even hit 1,000 before the down­turn, accord­ing to Hendry, who admit­ted he is not step­ping in to catch the tail of the rally.

"It's kind of fun watch­ing it from the side­lines, I must say I'm not par­tic­i­pat­ing," he said. "My flower opens in the win­ter, not in the summer."

There is a tight cor­re­la­tion between the oil price and the Chi­nese cur­rency, the yuan, with oil prices ris­ing as the yuan was strength­en­ing, Hendry said. This is because Chi­nese spec­u­la­tors had bor­rowed in dol­lars as the yuan firmed, and all that liq­uid­ity was thrown into the oil mar­ket last year.

"The one non-confirmation in the world is that, since July, the Chi­nese cur­rency has done noth­ing, it was flat vis-à-vis the dol­lar," he added.

Hendry said he still prefers con­ven­tional gov­ern­ment bonds, and admit­ted they were the cause his fund was 3 to 4 per­cent down on the year. But, he added, gov­ern­ment bonds were down 20 per­cent – although he doesn't think they will end the year like this.

China and other coun­tries with a cur­rent account sur­plus are not as safe as they seem at first glance, because their economies are still hugely depen­dent on exports to the US, which is still "down on its luck," he said.

"If that's the case, the last place you want to be is the sur­plus coun­tries," Hendry said.

Source: CNBC, June 29, 2009

http://www.cnbc.com/id/15840232/?video=1167997692&play=1

Tags: Absolute Return, BRIC, BRICs, Central Banks, Chief Investment Officer, Cnbc, Cnbc Interview, Commodities, Creditor Nations, Duration Government, Economic Downturn, Excess Liquidity, Finance Minister, Flattening Yield Curve, Forex Reserves, Gilts, Government Bonds, Government Debt, government securities, Hedgies, Hugh Hendry, Hyperinflation, Inflation Deflation, Inflation Fears, Inflation Risk, Intellectual Conviction, Investing In Stocks, Lows, oil, Printing Presses, Risky Assets, Rough Waters, Squawk Box, Stock Markets, Stocks And Commodities, Term Yields, Treasurys, Trillions, Us Treasury Bonds
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Poll results: Stock market – buy, hold or sell?

Monday, June 29th, 2009

I posted an opin­ion poll about the out­look for the US stock mar­ket on Tues­day last week. In essence, the poll set out to deter­mine read­ers’ views about the direc­tion of the stock mar­ket over the next few months. More specif­i­cally the poll asked about the level of the S&P 500 Index (893 at the time of the poll) by the end of Sep­tem­ber 2009 and Decem­ber 2009 respectively.

A total of 615 peo­ple par­tic­i­pated in the Sep­tem­ber poll and 511 in the Decem­ber poll, answer­ing as shown in the tables below.

The S&P 500 improved on the first three days of the poll, but declined mar­gin­ally on the last day, leav­ing the Index 2.9% higher over the vot­ing period.

The poll results indi­cate quite neg­a­tive investor sen­ti­ment. As far as the three-month period to Sep­tem­ber 30 is con­cerned, 71.9% of the read­ers see the S&P 500 declin­ing, while a major­ity (55.1%) also see the Index down by the end of the year.

If serv­ing only one pur­pose, and admit­tedly based on a rel­a­tively small sam­ple, the vot­ing indi­cates that there is not uni­ver­sal bull­ish­ness as is often cited by pun­dits as an argu­ment in sup­port of equi­ties hav­ing expe­ri­enced noth­ing more than a bear mar­ket rally since the March lows.

Inter­est­ingly, the bear­ish poll results are con­firmed by last week’s sur­vey by the Amer­i­can Asso­ci­a­tion of Indi­vid­ual Investors (AAII), indi­cat­ing 48% of investors were bear­ish while 28% were bull­ish. As reported by Bespoke, the bull-bear spread of –20.8% was the low­est level since the week ended March 12.

Source: Bespoke, June 25, 2009.

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Tags: 511, American Association Of Individual Investors, Bear Market, Bull Bear, Buy Sell, Cape Town, Direction, Essence, Investor Sentiment, Lows, Market Rally, Opinion Poll, Outlook, Poll Results, Postcards, Pundits, Target, Us Stock Market, Week Ended March
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Technical talk: Telling Week for Stock Market

Monday, June 29th, 2009

The com­ments below were pro­vided by Kevin Lane of Fusion IQ.

This week’s trad­ing on the S&P 500 should tell us a lot about the stock mar­ket. The ques­tions likely to be answered this week are the fol­low­ing: Is this just a pause that refreshes and prices then rise or are we enter­ing a cor­rec­tive phase in line with the typ­i­cal sea­sonal sum­mer weakness?

As seen from the chart below the mar­ket is equally con­fused, as the S&P 500 has been fairly direc­tion­less since early May, mov­ing a few per­cent­age points above and below the 920 level. To gain some direc­tion (up or down) the Index needs to break either above 923 or below 875 (key inter­me­di­ate term support).

Sen­ti­ment remains the market’s friend as most sen­ti­ment mea­sures sug­gest that investors have not endorsed the cur­rent rally.

Kevin Lane, Fusion IQ, June 29, 2009.

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Tags: Cape Town, Corrective Phase, Fusion, Investors, Iq, June 29, Kevin Lane, Lot, Measures, Percentage Points, Postcards, Rally, S Trading, Sentiment, Stock Market, Target
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Words from the (Investment) Wise (June 22 – 28, 2009)

Sunday, June 28th, 2009

“Words from the Wise” this week comes to you in a short­ened for­mat as I do not have access to my nor­mal research resources while on the road in Europe (also see my post “Gone A.W.O.L. — to Slove­nia and Switzer­land“). Although very lit­tle com­men­tary is pro­vided, a full dose of excerpts from inter­est­ing news items and quotes from mar­ket com­men­ta­tors is included.

While investors’ hopes of an eco­nomic recov­ery might have got ahead of real­ity, the car­toon­ists con­tin­u­ally reminded us of wor­ri­some issues …

Source: Signe Wilkin­son, Wash­ing­ton Post, June 18, 2009.

The past week’s per­for­mance of the major asset classes is sum­ma­rized by the chart below — a mixed bag so to speak.

Source: StockCharts.com

A sum­mary of the move­ments of major stock mar­kets for the past week, as well as var­i­ous other mea­sure­ment peri­ods, is given below. Although many indices saw lit­tle change, some short-term swings occurred in between.

Click here or on the table below for a larger image.

Stock mar­ket returns for the week ranged from top per­form­ers Côte d’Ivoire (+7.5%), Hong Kong (+3.8%), Tai­wan (+3.5%), Argentina (+3.3%) and Bangladesh (+3.0%), to Ghana (-12.7%), Egypt (-11.1%), Nige­ria (-10.7%), Cyprus (-6.6%) and the United Arab Emi­rates (-6.1%) at the other end of the scale. (Click here to access a com­plete list of global stock mar­ket move­ments, as sup­plied by Emergin­vest.)

John Nyaradi (Wall Street Sec­tor Selec­tor) reports that as far as exchange-traded funds (ETFs) are con­cerned, the lead­ers for the week included iShares MSCI Tai­wan Index (EWT) (+6.6%), Mar­ket Vec­tors Gold Min­ers (GDX) (+5.9%) and iShares MSCI Hong Kong (EWH) (+4.4%). On the other side of the per­for­mance spec­trum, lag­gards were cen­tered in the energy sec­tor, includ­ing United States Gaso­line (UGA) (-5.9%) and iShares Dow Jones US Oil and Gas Explo­ration (IEO) (-5.2%).

Next, a tag cloud of all the arti­cles I read dur­ing the past week. This is a way of visu­al­iz­ing word fre­quen­cies at a glance. Key words such as “bank”, “finan­cial”, “econ­omy”, “Fed”, “growth” and “prices” fea­tured prominently.

Back to the stock mar­kets: the key mov­ing aver­age lev­els for the major US indices are given in the table below. The indices are all trad­ing above the 50-day mov­ing aver­age, but whereas the S&P 500 Index, Nas­daq Com­pos­ite Index and Rus­sell 2000 Index are also trad­ing above their respec­tive 200-day lines, the Dow Jones Indus­trial Aver­age and the Dow Jones Trans­porta­tion Index are still below this key line. In order for a major uptrend to man­i­fest itself, an upturn in the 200-day aver­age itself also needs to take place.

Click here or on the table below for a larger image.

For more dis­cus­sion on the direc­tion of stock mar­kets, see my recent posts “Richard Rus­sell: Com­pet­i­tive deval­u­a­tions to spur on gold“, “Video-o-rama: Pot­pourri of bulls and bears“, “Global stock mar­ket declines — threat­en­ing mov­ing aver­ages“, “Bill King: Defla­tion trade back in vogue” and “Tech­ni­cal talk: Sea­sonal trends less bull­ish“. (And do make a point of lis­ten­ing to Don­ald Coxe’s web­cast of June 26, which can be accessed from the side­bar of the Invest­ment Post­cards site.)

Econ­omy
“Busi­nesses are grow­ing steadily less dour. Global busi­ness sen­ti­ment improved last week to its best level since last Octo­ber. Con­fi­dence remains con­sis­tent with a con­tin­ued global reces­sion, but the down­turn is mod­er­at­ing,” said the lat­est Sur­vey of Busi­ness Con­fi­dence of the World con­ducted by Moody’s Economy.com. “Busi­nesses are notably more opti­mistic regard­ing the out­look towards year’s end; expec­ta­tions regard­ing the out­look are as strong as they have been since sum­mer 2007 when the finan­cial cri­sis began.”

Source: Moody’s Economy.com

A snap­shot of the week’s US eco­nomic data is pro­vided below. (Click on the dates to see North­ern Trust’s assess­ment of the var­i­ous data releases.)

June 26
• Strong increase in Per­sonal Income is tem­po­rary, Con­sumer Spend­ing on track for decline in Q2

June 25
• Q1 real GDP minor upward revi­sions, out­look for Q2 unchanged
• Job­less Claims — tem­po­rary set­back or rever­sal of improvement?

June 24
• Sales of new homes — mixed bag of news
• Durable Goods Orders gather momen­tum, but ship­ments remain weak

June 23
• Exist­ing home sales — inven­to­ries are declining

June 22
• Cap­i­tal stock of the US econ­omy — history

The Fed­eral Open Mar­ket Com­mit­tee (FOMC) announced no change to mon­e­tary pol­icy fol­low­ing its meet­ing on Wednes­day. The com­mu­niqué said the Com­mit­tee expected to keep the Fed funds rate tar­get in the 0–0.25% range “for an extended period”. How­ever, the com­ments regard­ing the cur­rent eco­nomic sit­u­a­tion were some­what more opti­mistic, say­ing that “the pace of eco­nomic con­trac­tion is slowing”.

The Fed’s quan­ti­ta­tive eas­ing pro­grams remained unchanged, tar­get­ing the pur­chase of mortgage-backed secu­ri­ties ($1.25 tril­lion), agency debt ($200 bil­lion) and long-dated Trea­sury secu­ri­ties ($300 billion).

Sum­ma­riz­ing the US eco­nomic out­look, Asha Ban­ga­lore (North­ern Trust) said: “We are pro­ject­ing a con­trac­tion of real GDP in the sec­ond and third quar­ters and a small increase in the final three months of 2009. The unem­ploy­ment rate is expected to peak in the first half of 2010, while infla­tion will not present prob­lems until 2011/2012.”

Week’s eco­nomic reports
Click here for the week’s econ­omy in pic­tures, cour­tesy of Jake of Econom­Pic Data.

Source: Yahoo Finance, June 26, 2009.

Across the pond the Euro­pean Cen­tral Bank (ECB) will make an inter­est rate announce­ment (Thurs­day, July 2), while in the US eco­nomic high­lights for the week include the following:

Source: North­ern Trust

Click here for a sum­mary of Wachovia’s weekly eco­nomic and finan­cial commentary.

Mar­kets
The per­for­mance chart obtained from the Wall Street Jour­nal Online shows how dif­fer­ent global finan­cial msar­kets per­formed dur­ing the past week.

Source: Wall Street Jour­nal Online, June 26, 2009.

“Never spend your money before you have it,” said Thomas Jef­fer­son (hat tip: Charles Kirk). And when you do have it, let’s hope the news items and quotes from mar­ket com­men­ta­tors included in the “Words from the Wise” review will help you to invest wisely.

That’s the way it looks from Slovenia’s delight­ful cap­i­tal, Ljubl­jana — pro­nounced “Loob-li-yana” and mean­ing “the beloved” — where I will be spend­ing the next week. (For short com­ments – max­i­mum 140 char­ac­ters – on top­i­cal eco­nomic and mar­ket issues, web links and graphs, you can also fol­low me on Twit­ter by click­ing here.)

Source: Dilbert.com, June 26, 2009 (hat tip: Barry Ritholtz).

Casey’s Charts: Les­son from a 38-year track record of bailouts
“In the wake of Penn Cen­tral fil­ing for bank­ruptcy, America’s largest rail com­pany at the time, Con­gress passed the Rail Pas­sen­ger Ser­vice Act of 1970 and Amtrak was born. The new fed­eral monop­oly was expected to be self-sufficient by 1974.

“Today, 38 years of fed­eral sub­si­dies and over $33 bil­lion tax dol­lars later, the com­pany has yet to turn a profit. So what is Congress’s solution?

“Throw­ing the dys­func­tional enter­prise $13 bil­lion more tax dol­lars over the next five years, plus another $1.3 bil­lion towards infra­struc­ture and security.

“If the bureau­crats’ ongo­ing exper­i­ment with Amtrak is any indi­ca­tion of GM or Chrysler’s future, then Amer­i­can tax­pay­ers are in for a world of hurt.

“Grow­ing gov­ern­ment inter­ven­tion and con­trol of the econ­omy is a big trend now in motion.”

Source: Casey’s Charts, June 25, 2009.

The New York Times: Some law­mak­ers ques­tion expanded reach for the Fed
“No sooner had Pres­i­dent Obama pro­posed a new reg­u­la­tory road map for the country’s finan­cial sys­tem on Wednes­day than senior law­mak­ers expressed reser­va­tions about one of the plan’s cen­tral ele­ments — to broadly expand the reach of the Fed­eral Reserve to reg­u­late finan­cial risk across the entire system.

“Mr. Obama said that the plan would pro­tect con­sumers, impose new restraints on finan­cial behe­moths and guard against the murky prac­tices that caused the mar­ket crisis.

“‘A cul­ture of irre­spon­si­bil­ity took root from Wall Street to Wash­ing­ton to Main Street,’ he said in a speech to indus­try exec­u­tives and senior offi­cials in the East Room of the White House. ‘A reg­u­la­tory régime basi­cally crafted in the wake of a 20th cen­tury eco­nomic cri­sis — the Great Depres­sion — was over­whelmed by the speed, scope and sophis­ti­ca­tion of a 21st cen­tury global economy.’

“Admin­is­tra­tion offi­cials said that much of the pro­posal would not require Con­gres­sional action and would be adopted by reg­u­la­tors. These include rais­ing the amount of the finan­cial cush­ion that insti­tu­tions must hold against losses, set­ting new con­flict of inter­est rules for credit rat­ing agen­cies and impos­ing new require­ments that banks hold on their own books a per­cent­age of the mort­gages they issue to dis­cour­age the mar­ket­ing of abu­sive or ill-suited loans.

“But the most sig­nif­i­cant ele­ments would require new laws. Min­utes after Mr. Obama’s speech, the two Demo­c­ra­tic chair­men whose com­mit­tees will put their own imprint on the plan vowed to com­plete leg­is­la­tion by the end of this year, but only on Congress’s terms.

“Sen­a­tor Christo­pher Dodd of Con­necti­cut, chair­man of the Sen­ate Bank­ing Com­mit­tee, said the cen­tral bank’s fail­ure to be a tough-minded reg­u­la­tor over the last decade had left him and other law­mak­ers with­out ‘a lot of con­fi­dence in the Fed at this point’. One of the crit­i­cisms is the Fed’s fail­ure to stop the sale of sub­prime mort­gages and other dan­ger­ous home loans that helped cause the finan­cial crisis.

“Mr. Dodd said giv­ing the Fed a new role as over­all risk reg­u­la­tor might also com­pro­mise its inde­pen­dent sta­tus and con­flict with its man­date to con­trol infla­tion and man­age the sup­ply of money by set­ting inter­est rates.

“Rep­re­sen­ta­tive Bar­ney Frank of Mass­a­chu­setts, who until recently was pub­licly sup­port­ive of an expanded role for the Fed, said a sig­nif­i­cant num­ber of law­mak­ers have raised con­cerns and that it would prob­a­bly be one of the harder issues to resolve.

“Some large finan­cial insti­tu­tions are expected to lobby against giv­ing the Fed more power to police the sys­tem. They fear that the cen­tral bank would sig­nif­i­cantly raise the amount of cap­i­tal they must hold against losses, which would reduce their prof­itabil­ity and make them less com­pet­i­tive with smaller com­pa­nies that have lower cap­i­tal rates.”

Source: Stephen Laba­ton, The New York Times, June 22, 2009.

Bloomberg: Bernanke defends his record on Bank of Amer­ica talks
“Fed­eral Reserve Chair­man Ben Bernanke defended the cen­tral bank against law­mak­ers’ charges it put undue pres­sure on Bank of Amer­ica Corp. to take over Mer­rill Lynch & Co. last year at the height of the finan­cial crisis.

“‘The Fed­eral Reserve acted with the high­est integrity through­out its dis­cus­sions,’ Bernanke said today in tes­ti­mony to the House Over­sight Com­mit­tee. He said actions by the Fed and other cen­tral banks last year helped avert a finan­cial melt­down that would have pro­duced a ‘Depression-like environment’.

“Leg­is­la­tors are try­ing to deter­mine whether Bernanke over­stepped his author­ity in pres­sur­ing Bank of Amer­ica to com­plete the pur­chase of Mer­rill. Bernanke’s record on the issue and law­mak­ers’ reac­tions may also fig­ure in whether he will be reap­pointed by Pres­i­dent Barack Obama, and in debates on over­haul­ing the Fed’s pow­ers and responsibility.

“‘These are the kind of ques­tions that need to be answered before the pres­i­dent makes his deci­sion,” Eli­jah Cum­mings, a Mary­land Demo­c­rat and mem­ber of the com­mit­tee, said in a Bloomberg Tele­vi­sion inter­view ear­lier today.

“One is to allow large banks, but to take steps that will pro­tect the econ­omy if in fact one comes to the brink of fail­ure,” an approach cur­rently pro­posed by Trea­sury, Bernanke said. “The other pos­si­bil­ity is to restrict the size of banks. I think it is legit­i­mate to dis­cuss both options.”

Source: Craig Tor­res and Scott Lan­man, Bloomberg, June 25, 2009.

John Authers (Finan­cial Times): Great Reces­sion
“After deep con­fu­sion, ele­ments of agree­ment are emerg­ing. Offi­cial econ­o­mists and investors in dif­fer­ent coun­tries that have been affected in dif­fer­ent ways by the cri­sis agree on some points.

“Wednesday’s eco­nomic fore­cast from the Organ­i­sa­tion for Eco­nomic Co-operation and Devel­op­ment expressed the emerg­ing ortho­doxy as well as any.

“Any­one read­ing a year ago what the OECD had to say would have been hor­ri­fied. It said the nadir for the devel­oped world had not been reached and a recov­ery would be so weak that unem­ploy­ment in the US and west­ern Europe would exceed 10% and stay there.

“Yet any­one read­ing it dur­ing the worst months of the cri­sis late last year would have been relieved. The OECD is argu­ing that a Great Depres­sion induced by a bank­ing col­lapse has been averted; we will have a Great Reces­sion instead.

“The OECD said that extremely aggres­sive pol­icy cen­tred on cheap money should stay in force. Only a few weeks ago, this was con­tentious; now it is accepted.

“A dis­parate group of cen­tral banks with dif­fer­ent pri­or­i­ties seem to agree. The US Fed­eral Reserve this week refused to offer any guid­ance on when it would exit from its loose mon­e­tary pol­icy; the Euro­pean Cen­tral Bank added liq­uid­ity to money mar­kets much more aggres­sively than had been expected; and it seems the Swiss National Bank pushed down its own currency.

“So there is the con­sen­sus: dis­as­ter averted, no strong recov­ery as the devel­oped world relies on China for its growth, and no quick end to extreme pol­icy measures.

“This con­sen­sus is con­sis­tent with another con­sen­sus, that the nadir for share prices in March was ‘the’ bot­tom. If the con­sen­sus is right, the March bot­tom should hold. Let us hope it is right.”

Source: John Authers, Finan­cial Times, June 25, 2009.

Bloomberg: World Bank says global eco­nomic reces­sion to deepen
“The World Bank said the global reces­sion this year will be deeper than it pre­dicted in March and warned that a flight of cap­i­tal from devel­op­ing nations will swell the ranks of the poor and the unemployed.

“The world econ­omy will con­tract 2.9%, com­pared with a pre­vi­ous fore­cast of a 1.7% decline, the Washington-based lender said in a report today. Growth will be 2% next year, down from a 2.3% pre­dic­tion, the bank said.

“The bank, formed after World War II to fund health and devel­op­ment projects in poor coun­tries, said that while a global recov­ery may begin this year, impov­er­ished economies will lag behind rich nations in ben­e­fit­ing. The lender called for ‘bold’ actions to has­ten a rebound and said the prospects for secur­ing aid for the poor­est coun­tries were ‘bleak’.

“The bank is more pes­simistic than its sis­ter orga­ni­za­tion, the Inter­na­tional Mon­e­tary Fund. The IMF, which is fore­cast­ing a global con­trac­tion of only 1.3% this year and growth of 2.4% in 2010, said June 19 that it plans to revise esti­mates ‘mod­estly upward’.

“The lender’s view also con­trasts with that of bil­lion­aire hedge fund man­ager George Soros, who on June 20 told Pol­ish tele­vi­sion that the worst of the global finan­cial cri­sis ‘is behind us’.

“The World Bank cut its fore­cast for the US this year, call­ing for a 3% drop in the world’s biggest econ­omy, after pre­dict­ing a 2.4% con­trac­tion in March.

“Japan’s gross domes­tic prod­uct will shrink 6.8%, more than the pre­vi­ous pre­dic­tion of a 5.3% decline, the lender said. The euro area’s econ­omy may shrink 4.5%, com­pared with the pre­vi­ous esti­mate of a 2.7% contraction.

“Global trade may drop by 9.7%, com­pared with a March fore­cast of a 6.1% decline.

“Eco­nomic growth in the devel­op­ing world will be 1.2%, the World Bank said, scal­ing its out­look back from 2.1%. Devel­op­ing nations in east­ern Europe and Cen­tral Asia will be some of the hard­est hit, the revised fore­casts show. The region’s econ­omy is likely to shrink 4.7% this year, down from the 2% decline pro­jected in March.”

Source: Tim­o­thy Homan, Bloomberg, June 22, 2009.

Mon­eyNews: Soros — worst of global cri­sis behind us
“The worst of the global eco­nomic cri­sis is over, multi-billionaire financier George Soros told Pol­ish news chan­nel TVN24 on Sun­day urg­ing the cre­ation of inter­na­tional reg­u­la­tions to over­see global markets.

“‘Decid­edly the worst (of the cri­sis) is already behind us,’ said Soros, a 78-year-old Hungarian-born Amer­i­can with Jew­ish roots.

“He did not elab­o­rate but went on to stress the unique­ness of the cur­rent eco­nomic turmoil.

“‘This is not like pre­vi­ous crises but marks the end of an era. The sys­tem to date had been based on the false assump­tion that mar­kets can inde­pen­dently regain their equi­lib­rium and that the sys­tem is self-correcting,’ he explained.

“He also said the reg­u­la­tion in the econ­omy should be aimed at con­trol­ling mar­ket bubbles.

“‘We need inter­na­tional reg­u­la­tions to retain inter­na­tional mar­kets. This won’t be easy … If we won’t be able to do this … than glob­al­iza­tion, as we now know it, will fall apart,’ he said.

“To deal with the cur­rent cri­sis he said ‘the state must step in, give guar­an­tees to finan­cial insti­tu­tions and increase gov­ern­ment spend­ing’, adding that he sup­ported anti-crisis mea­sures under­taken by the US administration.

“Since that could cre­ate a risk of hyper­in­fla­tion he said the state must dimin­ish its role once the credit sys­tem is restored.”

Source: Mon­eyNews, June 22, 2009.

Finan­cial Times: ECB pumps €442 bil­lion into bank­ing sys­tem
“The Euro­pean Cen­tral Bank on Wednes­day pumped hun­dreds of bil­lions of euros in one-year loans into the eurozone’s weak­ened bank­ing sys­tem, mak­ing record amounts of emer­gency finance avail­able in a bid to unlock credit mar­kets and revive the region’s economies.

“The move came as the US Fed­eral Reserve pushed back against expec­ta­tions of an early rise in US inter­est rates.

“In a dra­matic step dubbed ’stim­u­lus by stealth’ in finan­cial mar­kets, the ECB lent €442.2 bil­lion for 12 months to more than 1,100 banks at its cur­rent bench­mark inter­est rate of 1%.

“The high demand for the funds, in what was the ECB’s first ever auc­tion for one-year loans, reflected a grow­ing real­i­sa­tion by the banks that emer­gency fund­ing may not be avail­able again on such favour-able terms.

“The cen­tral bank’s action could boost the eurozone’s recov­ery prospects by low­er­ing mar­ket inter­est rates and cre­at­ing more scope for banks to lend to the pri­vate sector.”

Source: Ralph Atkins, Krishna Guha and David Oak­ley, Finan­cial Times, June 24, 2009.

David Hauner (Banc of Amer­ica Securities-Merrill Lynch): EEMEA growth intact
“The growth model of Emerg­ing Europe, Mid­dle East, and Africa (EEMEA) remains alive in spite of the finan­cial and eco­nomic cri­sis, believes David Hauner, head of emerg­ing EMEA eco­nom­ics at Banc of Amer­ica Securities-Merrill Lynch.

“Offer­ing a marked con­trast to the widely-held view of EEMEA as a prime vic­tim of the cri­sis, he argues that some coun­tries may even expe­ri­ence an accel­er­a­tion in growth.

“Mr Hauner acknowl­edges that the credit-dependent region will be chal­lenged by delever­ag­ing. ‘Cap­i­tal inflows and GDP growth may not be as abun­dant as in the boom — but that proved unhealthy anyway.

“‘Still low income lev­els mean EEMEA will keep on play­ing catch-up. With low wages, com­pet­i­tive exchange rates and prox­im­ity to Euro­pean mar­kets, the belea­guered cen­tral and east­ern Euro­pean (CEE) region will remain a prime des­ti­na­tion for for­eign investment.’

“He believes com­bined EEMEA GDP growth over the next ten years is still likely to aver­age 3–4.5% a year — and some coun­tries might even enjoy bet­ter growth in the next decade than in the last.

“‘The prime can­di­date is Turkey which could finally live up to its poten­tial thanks to greater macro sta­bil­ity. South Africa may also improve as the gov­ern­ment is aggres­sively invest­ing in infra­struc­ture. But Rus­sia and CEE will prob­a­bly slow as the easy pro­duc­tiv­ity gains from post-socialist restruc­tur­ing peter out.’”

Source: David Hauner, Banc of Amer­ica Securities-Merrill Lynch (via Finan­cial Times), June 23, 2009.

Jim O’Neill (TimesOn­line): We need Brics to build the world econ­omy
“Last week the four lead­ers of the Bric coun­tries (Brazil, Rus­sia, India and China) for­mally met together in their first sum­mit. I have been asked a num­ber of ques­tions about the event. First, did I really think this would ever hap­pen? Sec­ond, would it have hap­pened if I hadn’t cre­ated the acronym? Third, what real pur­pose did it serve, and fourth, where do I think the Bric path is heading?

“I’ve also been asked a cou­ple of sup­ple­men­tary ques­tions: why these four coun­tries and why not Indone­sia, Turkey or indeed Iran? And do I think the global credit cri­sis has changed the pic­ture from our pre­dic­tion a num­ber of years ago, that the com­bined GDP of the Bric economies could exceed that of the G7 coun­tries before 2040?

“Let me try to answer each of these ques­tions, start­ing with the last. For the past 12 months, we have believed that it is con­ceiv­able that China’s GDP could become as large as the GDP of the United States by 2027, i.e., in less than 20 years and, as a result of that, the com­bined GDP of the Bric coun­tries could be as big as the G7.

“Part of the rea­son­ing behind this view is sim­ply that, in the first seven years since I cre­ated the acronym, three of the four Bric coun­tries, China, India and, impor­tantly, Rus­sia have all grown con­sid­er­ably more than we had assumed. The fourth, Brazil, grew a bit less but, encour­ag­ingly, in the year run­ning up to the cri­sis and since the worst of it has calmed, Brazil is show­ing signs of its trend growth rate ris­ing. The other rea­son, which is increas­ing our con­fi­dence, is that most of the Bric coun­tries have had a ‘bet­ter’ cri­sis than their devel­oped counterparts.

“Impor­tantly, given that they are the most pop­u­lous coun­tries, both China and India could almost be said to be enjoy­ing a ‘good cri­sis’. In the case of India, con­sen­sus fore­casts for 2009 and 2010 are that it will grow by close to 6%, a rate dou­ble that of the so-called Hindu decades of 3%. Not bad at a time when the world econ­omy is likely to have actu­ally declined.

“In China, I find myself increas­ingly argu­ing that the cri­sis has been really good for China’s sus­tain­able growth, as it has been suf­fi­ciently shock­ing for pol­i­cy­mak­ers in Bei­jing to realise that the days of mas­sive export growth are over. By under­tak­ing huge fis­cal and mon­e­tary stim­u­lus, as well as begin­ning seri­ous social secu­rity reform and devel­op­ment, China appears com­mit­ted to an era where devel­op­ment will be led by growth in domes­tic demand.

“As a result, we fore­cast that China will still man­age to grow by more than 8% this year despite weak exports. We fore­cast that, in 2010, domes­tic demand will accel­er­ate to more than 12%, allow­ing GDP to grow in excess of 10%. Both coun­tries could quite con­ceiv­ably grow by close to 10% for many years at the same time.

“Rus­sia, undoubt­edly the weak­est of the four, is too depen­dent on oil, but now that oil prices have started to rise again, Russ­ian growth will recover and only requires it to grow by an aver­age of 3–4% a year to jus­tify its place in Brics.

Click here for the full article.

Source: Jim O’Neill, TimesOn­line, June 23, 2009.

Bespoke: Coun­try GDP growth
“Below we high­light 2009 esti­mated GDP growth for 21 coun­tries. As shown, only China and India are expected to actu­ally grow in 2009, while the other coun­tries are expected to con­tract. China’s 2009 GDP growth esti­mate is at 7.66%, while India’s is at 4%. The US is closer to the top of the list than the bot­tom with an esti­mate of –2.49%. It ranks only behind Canada among other G7 coun­tries. Japan and Ger­many are expected to see the biggest con­trac­tion in GDP in 2009 at –6.61% and –6.06% respec­tively. The UK is at –3.74%, Rus­sia is at –2.77%, and France is at –2.75%.”

Source: Bespoke, June 26, 2009.

Bespoke: Coun­try infla­tion rates
“Below we high­light a big bar chart show­ing the most recent infla­tion rates for 77 coun­tries. The aver­age unweighted infla­tion rate for all of the coun­tries is 4.11%. Fifty-nine coun­tries are cur­rently see­ing prices rise ver­sus a year ago, 14 are see­ing prices decline, and 4 are flat. Venezuela has the high­est infla­tion rate at 27.7%, fol­lowed by Kenya, Iran, Ukraine, Pak­istan, Guatemala, and Russia.

“Ire­land is see­ing the most defla­tion with a year over year decline in prices of 4.7%. China has the third biggest decline in prices at –1.4%, while the US is right behind at –1.3%. Whether or not you use this chart to make any invest­ment deci­sions, it does pro­vide a good look at where each coun­try stands in regards to price movements.”

Source: Bespoke, June 23, 2009.

Mon­eyNews: Faber — 20% infla­tion com­ing
“Con­trar­ian guru Marc Faber pre­dicts we’ll soon see infla­tion of 10–20%.

“The num­bers will rise so fast because the gov­ern­ment ‘mas­sively’ under­states the country’s infla­tion rate, Faber said.

“To get a true read­ing he advises ditch­ing core infla­tion num­bers, includ­ing the Con­sumer Price Index. ‘It’s a lie what they pub­lish,’ Faber told CNBC.

“‘If you under­weight edu­ca­tion costs, and if you under­weight health care costs, then you come to a totally dif­fer­ent result,’ he said.

“Since the cre­ation of the Fed­eral Reserve Bank in 1913, the dol­lar has lost 95% of its pur­chas­ing power, Faber said. ‘It took 100 years to lose 95% (but) I think the next 94% loss in pur­chas­ing power will hap­pen very quickly,’ he said.

“In such a volatile mar­ket, Faber thinks the safest place to invest is in equi­ties or assets, even real estate. ‘I’m not very bull­ish about real estate prices in the US, but I’d rather be in real estate than in 30-year US bonds,’ he said.

Julie Craw­shaw, Mon­eyNews, June 25, 2009.

Stu­art Thom­son (Ignis Asset Man­age­ment): Defla­tion lives
“Reports of the death of defla­tion have been greatly exag­ger­ated, says Stu­art Thom­son, econ­o­mist at Ignis Asset Management.

“‘The num­ber of men­tions of defla­tion in the press has fallen to the low­est since the col­lapse of Lehman Broth­ers,’ he says. ‘But if cre­at­ing infla­tion was as sim­ple as the mar­kets sug­gest, the Japan­ese author­i­ties would have done it years ago.’

“Mr Thom­son says Japan failed to cre­ate infla­tion in the 1990s because infla­tion­ary expec­ta­tions remained very low due to wage defla­tion caused by globalisation.

“‘West­ern economies, with the excep­tion of Ger­many, largely escaped these pres­sures because heavy con­sumer bor­row­ing and asset price infla­tion main­tained wage growth.’

“How­ever, Mr Thom­son says ris­ing unem­ploy­ment in the major indus­tri­alised economies, together with delever­ag­ing and widen­ing out­put gaps, is expected to exert down­ward pres­sure on wage infla­tion over the next few years.

“‘We believe the cost of cap­i­tal must fall so as to match lower labour costs and pro­vide the nec­es­sary invest­ment to cre­ate new indus­tries that will absorb this sur­plus labour, close out­put gaps and cause wage rates and infla­tion to rise on a sus­tained basis.

“‘Dis­in­fla­tion over the past quar­ter cen­tury has dri­ven the out­per­for­mance of gov­ern­ment bonds. This is unlikely to be repeated over the next 25 years — but over the next 3 years, defla­tion is a greater risk than inflation.’”

Source: Stu­art Thom­son, Ignis Asset Man­age­ment (via Finan­cial Times), June 25, 2009.

Bill Fleck­en­stein (MSN Money): Will economy’s “green shoots” wither?
“FedEx last Wednes­day tem­pered the enthu­si­asm of folks on ‘green shoot’ watch. While stat­ing its belief that the econ­omy had hit bot­tom, the com­pany also said it had no ‘vis­i­bil­ity’ to pre­dict future earn­ings or any expec­ta­tions of a real uptick in business.

“Much of this eco­nomic green shoot talk has cen­tered on slight improve­ments in still-weak/sloppy busi­ness con­di­tions. But a lot of that has been a func­tion of com­pa­nies restock­ing inven­tory after the col­lapse in busi­ness at the end of last year and the start of this one.

“That, cou­pled with money print­ing and the stock mar­ket rally, fed on itself and caused a lot of peo­ple to get excited about eco­nomic prospects improv­ing dras­ti­cally by the year-end.

“But now that the mar­ket rally has stalled, neg­a­tive macro­eco­nomic and cor­po­rate news could eas­ily pre­cip­i­tate a reassess­ment of this whole green-shoots-growing-into-a-beanstalk idea that a recov­ery has begun.

“This means the Fed­eral Reserve’s predica­ment will become even clearer. Given the path it has cho­sen, the Fed will have to print even more money. That’s likely to mean upping its quan­ti­ta­tive eas­ing at some point, as Trea­sury yields have ratch­eted up and mort­gage rates have fol­lowed suit.

“Weigh­ing in on the sub­ject, a knowl­edge­able source I often refer to as the ‘Lord of the Dark Mat­ter’ told me: ‘Make no mis­take, it is a total dis­as­ter, with most banks now offer­ing 30-year fixed (mort­gages) in the mid– to high-5% range, and then only for the best FICOs. Then again, it was tremen­dously naïve or, more likely, arro­gant in the first place to assume that you could indef­i­nitely run a pub­lic sec­tor bor­row­ing require­ment of 13% of GDP and keep mort­gage rates down at a level that induces a mas­sive, per­ma­nent refi boom.’

“In any case, due to the ram­i­fi­ca­tions (both present and future) of the Fed’s money print­ing, it has now resorted to the jaw­bone pol­icy. The Fed thinks that by talk­ing tough enough, it can boost its cred­i­bil­ity and get bonds to rally (low­er­ing rates), thus wrig­gling itself out of the box. But given the dam­age wrought by its own hands, that will be hard to do.

“Thus, some­where in the not-too-distant future, the Fed is liable to find itself back in the posi­tion of need­ing to cre­ate more stim­u­lus. (To the extent that stocks are weak, you can be sure that the Fed’s tough talk will evaporate.)”

Click here for the full article.

Source: Bill Fleck­en­stein, MSN Money, June 22, 2009.

Asha Ban­ga­lore (North­ern Trust): FOMC Meet­ing — Fed chooses to leave plans to pur­chase secu­ri­ties unchanged
“The Fed held the fed­eral funds rate unchanged (0–0.25%) as expected. The mod­i­fi­ca­tions to the pol­icy state­ment were con­sis­tent with the incom­ing eco­nomic reports indi­cat­ing that the pace of decline in activ­ity has slowed.

Econ­omy in gen­eral, June 24, 2009
“‘Infor­ma­tion received since the Fed­eral Open Mar­ket Com­mit­tee met in April sug­gests that the pace of eco­nomic con­trac­tion is slowing.’

April 29, 2009
“‘Infor­ma­tion received since the Fed­eral Open Mar­ket Com­mit­tee met in March indi­cates that the econ­omy has con­tin­ued to con­tract, though the pace of con­trac­tion appears to be some­what slower.’

“The Fed appears to be less con­cerned about defla­tion com­pared with the sit­u­a­tion in April, given the mod­i­fi­ca­tion of the state­ment today.

Inflation/deflation, June 24, 2009
“‘The prices of energy and other com­modi­ties have risen of late. How­ever, sub­stan­tial resource slack is likely to dampen cost pres­sures, and the Com­mit­tee expects that infla­tion will remain sub­dued for some time.’

April 29, 2009
“‘In light of increas­ing eco­nomic slack here and abroad, the Com­mit­tee expects that infla­tion will remain sub­dued. More­over, the Com­mit­tee sees some risk that infla­tion could per­sist for a time below rates that best fos­ter eco­nomic growth and price sta­bil­ity in the longer term.’

“The fed­eral funds rate is expected to hold steady for an extended period as indi­cated in the state­ment today: ‘The Com­mit­tee will main­tain the tar­get range for the fed­eral funds rate at 0–1/4% and antic­i­pates that eco­nomic con­di­tions are likely to war­rant excep­tion­ally low lev­els of the fed­eral funds rate for an extended period.’

“The Fed left its quan­ti­ta­tive eas­ing pro­grams intact with­out expan­sions, for now. The pol­icy state­ment reit­er­ated the size of the pro­grams tar­geted at pur­chas­ing mortgage-backed secu­ri­ties ($1.25 tril­lion), agency debt ($200 bil­lion), and long-dated Trea­sury secu­ri­ties ($300 billion).”

Source: Asha Ban­ga­lore, North­ern Trust — Daily Global Com­men­tary, June 24, 2009.

Finan­cial Times: Fed begins slow exit from inter­ven­tion
“Even as Ben Bernanke on Thurs­day faced a bruis­ing grilling on Capi­tol Hill over the Bank of America-Merrill Lynch takeover, the Fed­eral Reserve took the first steps towards curb­ing its emer­gency sup­port for the finan­cial system.

“Senior Fed offi­cials said the tim­ing of the announce­ment was dri­ven by the need to co-ordinate with for­eign cen­tral banks involved in cur­rency swap lines with the Fed — and not related in any way to the hearing.

“Nonethe­less, the coin­ci­dence high­lights the pres­sures on Mr Bernanke, as the cen­tral bank moves from aggres­sive eas­ing to putting pol­icy on hold, and con­tem­plates an exit strat­egy. The tim­ing is sen­si­tive for Mr Bernanke, whose term as Fed chair­man expires early next year.

“Thursday’s announce­ment means the Fed is start­ing to con­sider exit ques­tions, with emer­gency credit and liq­uid­ity pro­grammes likely to be unwound slowly, before the cen­tral bank even­tu­ally raises inter­est rates.

“The cen­tral bank extended its finan­cial mar­ket sup­port pro­grammes — includ­ing swap lines with 14 global cen­tral banks — due to expire in Octo­ber to Feb­ru­ary, but trimmed them back very slightly.

“It said it was scrap­ping a never-used pro­gramme, the money mar­ket investor fund­ing facil­ity, and scal­ing back two oth­ers. The Fed will reduce the max­i­mum size of its term secu­ri­ties lend­ing facil­ity (TSLF) to $75 bil­lion from $200 bil­lion plus options, and the max­i­mum size of its term auc­tion facil­ity (Taf) to $500 bil­lion from $600 billion.

“While leav­ing open the option of expand­ing the pro­grammes if needed, the Fed said it antic­i­pated that TAF fund­ing ‘will grad­u­ally be reduced further’.

“Unless infla­tion expec­ta­tions move sharply against the Fed, it will prob­a­bly raise rates only once the unwind­ing of these extra­or­di­nary pro­grammes is well under way.”

Source: Krishna Guha, Finan­cial Times, June 25, 2009.

Bespoke: Michi­gan Con­fi­dence at high­est level since Jan­u­ary 2008
“Michi­gan Con­fi­dence joins the grow­ing num­ber of indi­ca­tors that are now at or bet­ter than Pre-Lehman lev­els. Today’s read­ing of 70.8 is actu­ally the high­est since Jan­u­ary 2008. This month’s read­ing is also the fourth con­sec­u­tive month-over-month increase in con­fi­dence. A read­ing of 70.8 is still well below the monthly aver­age of 86.8 since 1978, but it’s also nicely above the level of 55 that we saw in late 2008.”

Source: Bespoke, June 26, 2009.

Asha Ban­ga­lore (North­ern Trust): Q1 real GDP minor upward revi­sions, out­look for Q2 unchanged
“Real gross domes­tic prod­uct (GDP) of the US declined at an annual rate of 5.5% in the first quar­ter of 2009, which is a small upward revi­sion from the pre­lim­i­nary esti­mate of a 5.7% drop.

“Upward revi­sions of inven­to­ries, net exports, and gov­ern­ment spend­ing more than off­set down­ward revi­sions of con­sumer spend­ing and invest­ment expen­di­tures (both res­i­den­tial and non-residential) to yield an upward revi­sion of the head­line num­ber. The final esti­mate also included a small upward revi­sion of cor­po­rate profits.

“The more impor­tant issue is the out­look for the rest of 2009. We are pro­ject­ing a con­trac­tion of real GDP in the sec­ond and third quar­ters and a small increase in the final three months of 2009. The unem­ploy­ment rate is expected to peak in the first-half of 2010, while infla­tion will not present prob­lems until 2011/2012.”

Source: Asha Ban­ga­lore, North­ern Trust — Daily Global Com­men­tary, June 25, 2009.

Asha Ban­ga­lore (Noth­ern Trust): Job­less claims — tem­po­rary set­back or rever­sal of improve­ment?
“Ini­tial job­less claims rose 15,000 to 627,000 dur­ing the week ended June 19. The ini­tial claims esti­mate of last week was revised to 612,000 from the prior count of 608,000. Con­tin­u­ing claims, which lag ini­tial job­less claims by one week, advanced to 6.738 mil­lion from 6.709 mil­lion. The insured unem­ploy­ment rate held steady at 5.0%.

“The per­ti­nent ques­tion is if the lat­est jump in ini­tial job­less claims rep­re­sents a sec­ond leg of weak­ness in the demand for labor. The recent low of ini­tial job­less claims is 605,000 and the cycle high is 674,000. The path of eco­nomic recov­ery is fraught with ups and downs. Based on other reports indi­cat­ing that a nascent sta­bi­liza­tion is under­way, for now, the lat­est hike in job­less claims appears to be a tem­po­rary set­back. Given the large fis­cal stim­u­lus that is under­way and the aggres­sive quan­ti­ta­tive eas­ing put in place, it would be a sur­prise to see a fur­ther round of lay­offs and a larger num­ber of appli­cants for unem­ploy­ment insurance.”

Source: Asha Ban­ga­lore, North­ern Trust — Daily Global Com­men­tary, June 25, 2009.

Busi­ness­Week: A lost decade for jobs
“Pri­vate sec­tor job growth was almost non-existent over the past ten years. Take a look at the hor­ri­fy­ing chart below.

“Between May 1999 and May 2009, employ­ment in the pri­vate sec­tor only rose by 1.1%, by far the low­est 10-year increase in the post-depression period.

“It’s impos­si­ble to over­state how bad this is. Basi­cally speak­ing, the pri­vate sec­tor job machine has almost com­pletely stalled over the past ten years.”

Source: Michael Man­del, Busi­ness­Week, June 23, 2009.

CNBC: CEOs see reces­sion eas­ing but still cut jobs, spend­ing
“US chief exec­u­tives took a slightly less grim view of the econ­omy in the sec­ond quar­ter, but still plan to cut jobs and cap­i­tal spend­ing, accord­ing to a Busi­ness Round­table sur­vey released Tuesday.

“The quar­terly CEO Eco­nomic Out­look Index rebounded to 18.5 in the sec­ond quar­ter from a record low of neg­a­tive 5 in the first quar­ter. But it was still the third-lowest read­ing in the survey’s six-year history.

“A read­ing below 50 means CEOs expect eco­nomic con­trac­tion rather than growth.

“‘What we basi­cally see is more vis­i­bil­ity in that we don’t see us in con­tin­ued free fall,’ said Ivan Sei­den­berg, chair­man and CEO of phone com­pany Ver­i­zon Com­mu­ni­ca­tions and chair­man of Busi­ness Round­table. ‘The signs appear less neg­a­tive than they were last quar­ter, but no one is ready to sug­gest they are going to begin hir­ing to start growth.’

“Cor­po­rate chief­tains still plan to cut costs for the next six months, with 51% intend­ing to reduce cap­i­tal spend­ing and 49% expect­ing to cut US jobs. Forty-six per­cent antic­i­pate a decline in sales.

“Those plans indi­cated a less grim out­look than in April, when two-thirds of CEOs were plan­ning to cut jobs and cap­i­tal spending.”

Source: CNBC, June 23, 2009.

Asha Ban­ga­lore (North­ern Trust): Strong increase in Per­sonal Income is tem­po­rary, Con­sumer Spend­ing on track for decline in Q2
“Per­sonal income moved up 1.4% in May after a 0.7% increase in the prior month. Both of these strong monthly gains reflect tem­po­rary pay­ments aris­ing from the pro­vi­sions of the Amer­i­can Recov­ery and Rein­vest­ment Act of 2009 (fis­cal stim­u­lus). Wages and salaries declined 0.1% in May fol­low­ing a 0.1% increase in April, which is more rep­re­sen­ta­tive of the under­ly­ing eco­nomic con­di­tions com­pared with the over­all gains in per­sonal income. This tem­po­rary boost will be reversed when the June report on per­sonal income is published.

“As a result of only a mod­er­ate increase in nom­i­nal con­sumer spend­ing (+0.3%) and a tem­po­rary boost to per­sonal income, per­sonal sav­ing as a per­cent of dis­pos­able income shot up to 6.9% in May. As noted ear­lier, the per­sonal sav­ing rate should be smaller when per­sonal income is scaled back in June but the future tra­jec­tory of sav­ing is likely to show an upward move­ment in the months ahead.”

Source: Asha Ban­ga­lore, North­ern Trust — Daily Global Com­men­tary, June 26, 2009.

Asha Ban­ga­lore (North­ern Trust): Durable goods orders gather momen­tum, but ship­ments remain weak
“Orders of durable goods moved up 1.8% in May, match­ing the increase seen in the prior month. In addi­tion to defense orders (+7.4%), book­ings of air­craft (+68.1%) and gains in other com­po­nents exclud­ing autos (-8.1%) were the high­lights of the report. Orders of all durable goods have increased in three out of the last four months.”

Source: Asha Ban­ga­lore, North­ern Trust — Daily Global Com­men­tary, June 24, 2009.

Asha Ban­ga­lore (North­ern Trust): Sales of new homes — mixed bag of news
“Sales of new single-family homes were vir­tu­ally flat in May (342,000 ver­sus 344,000 in April). Sales of new homes in March and April were revised down slightly. On a year-to-year basis, sales of new single-family homes fell 34.7% match­ing the decline posted in April. The largest year-to-year drop was recorded in Jan­u­ary 2009 (-45.5%).”

“The inven­tory of unsold new homes is down to a 10.2-month sup­ply ver­sus the peak read­ing of a 12.4-month sup­ply in Jan­u­ary 2009.

Source: Asha Ban­ga­lore, North­ern Trust — Daily Global Com­men­tary, June 24, 2009.

Asha Ban­ga­lore (North­ern Trust): Exist­ing home sales — inven­to­ries are declin­ing
“Sales of all exist­ing homes increased 2.4% to an annual rate of 4.77 mil­lion units in May. A large part of the gains in sales was from multi-family units (+6.1%), with pur­chases of single-family units post­ing a 1.9% increase to an annual rate of 4.25 mil­lion units. Sales of exist­ing single-family homes have risen in four of the last six months. Accord­ing to the National Asso­ci­a­tion of Real­tors, 33% of the sales in May were dis­tressed prop­er­ties, down from 45% in April. The $8,000 tax credit for first time home buy­ers has helped to reduce inven­to­ries of unsold homes.

“The inven­tory of all unsold exist­ing homes fell to a 9.6-month sup­ply in May from a 10.1-month sup­ply in April. The inventories-sales ratio for exist­ing single-family homes was 8.9 months ver­sus 9.1 months in April. The cycle high was an 11.3-month sup­ply in Novem­ber 2008.”

Source: Asha Ban­ga­lore, North­ern Trust — Daily Global Com­men­tary, June 23, 2009.

Bianco Research: Equity in house­hold real estate
“Fas­ci­nat­ing chart show­ing the total level of equity in house­hold real estate from 1952–2009.”

Source: Bianco Research (via The Big Pic­ture), June 25, 2009.

TimesOn­line: World’s wealthy lose faith in fund man­agers
“Almost half of the world’s 8.6 mil­lion wealth­i­est investors have lost con­fi­dence in their fund man­ager, accord­ing to a report that lays bare how the credit crunch has dam­aged their per­sonal fortunes.

“Investors’ lack of faith prompted a quar­ter of those with finan­cial assets of more $1 mil­lion to pull funds from a man­ager or dis­miss their adviser last year, accord­ing to a report by Mer­rill Lynch Wealth Man­age­ment and Capgem­ini, the consultant.

“Indi­vid­u­als of high net worth and ultra-high net worth, who need finan­cial assets of more than $30 mil­lion to qual­ify, are worth a col­lec­tive $32.8 tril­lion, accord­ing to Mer­rill and Capgemini’s annual World Wealth Report, pub­lished yesterday.

“How­ever, this is down 19.5% com­pared with the pre­vi­ous year, with the num­ber of indi­vid­u­als qual­i­fy­ing for the high-net worth cat­e­gory also down, by 14.9%, accord­ing to the report.

“The report will trig­ger alarm bells in the City and other finan­cial centres.

“More than 90% of those sur­veyed said they had lost wealthy clients last year.

“The sur­vey, which polled more than 200 rich and super-rich investors across the globe, also found that more than three quar­ters of them had lost con­fi­dence in finan­cial reg­u­la­tors in the wake of the credit cri­sis and plung­ing world markets.”

Source: Miles Costello, TimesOn­line, June 24, 2009.

Finan­cial Times: Fitch report high­lights neg­a­tive equity woe
“One in 10 bor­row­ers with an excel­lent credit record are trapped in neg­a­tive equity, owing more on their mort­gage than the value of their homes, says a report that fore­casts a peak-to-trough fall in house prices of up to 35%.

“Tuesday’s report by Fitch Rat­ings, which is based on loan infor­ma­tion from 2.7 mil­lion bor­row­ers, found the high­est con­cen­tra­tion of neg­a­tive equity was in Northamp­ton, where 17% of bor­row­ers were under water.

“There, nearly a quar­ter of all loans by value were secured against prop­erty that was worth less than the sums owed.

“Lenders with the high­est lev­els of bor­row­ers in neg­a­tive equity included North­ern Rock, which was nation­alised in 2008, Brad­ford & Bin­g­ley, also res­cued by the gov­ern­ment, Birm­ing­ham Mid­shires, which is part of HBOS, and Alliance & Leices­ter, owned by San­tander, the Span­ish bank­ing group.

“In its report, Fitch said neg­a­tive equity could rise to 23% of all bor­row­ers and to a third of all loans by value if its fore­cast of a peak-to-trough decline in house prices of 30–35% was correct.”

Source: Norma Cohen, Finan­cial Times, June 22, 2009.

Bespoke: Coun­try P/E ratios
“Yes­ter­day we released a report tak­ing a look at val­u­a­tions, growth expec­ta­tions, and stock mar­ket per­for­mance for more than 20 coun­tries that have track­able ETFs. The report high­lights which coun­tries cur­rently look the most and least attrac­tive based on var­i­ous char­ac­ter­is­tics. One sim­ple data set high­lighted was the cur­rent P/E ratios for these coun­tries. Below is a chart show­ing these val­u­a­tions. As shown, Rus­sia cur­rently has the low­est P/E ratio at 6, fol­lowed by Italy (10) and France (11). At 14, the US is more attrac­tive based on its P/E ratio than most coun­tries. Tai­wan has the high­est P/E at 60, and the UK is sur­pris­ingly bad at 34. It’s val­u­a­tion is worse than China’s. Ger­many also has a very high P/E ratio at 27.”

Source: Bespoke, June 25, 2009.

Bespoke: Coun­try stock mar­ket per­for­mance since the recent top
“Bloomberg’s World Index made a rally high on June 2. Below we high­light the stock mar­ket per­for­mance for 83 coun­tries since June 2 and year to date.

“Since the 2^nd, 14 coun­tries have seen stock prices con­tinue to rise, while the other 69 have seen prices fall. Lebanon, Kenya, Sri Lanka, and Mau­ri­tius are the only coun­tries with double-digit per­cent­age gains. The biggest coun­try to show gains dur­ing a time when global stocks have strug­gled is China. China’s Shang­hai Com­pos­ite has ral­lied 6.18%. The other three BRIC coun­tries have not fared as well. India is down 3.7%, Brazil is down 7.82%, and Rus­sia is down a whop­ping 21%. Rus­sia has been the sec­ond worst per­form­ing coun­try dur­ing the recent downturn.

“Look­ing at G7 coun­tries, Japan has held up the best since June 2 with a decline of 1.59%. The US has been the sec­ond best at –5.21%, fol­lowed by the UK, Canada, France, Ger­many, and then Italy.”

Source: Bespoke, June 23, 2009.

Bespoke: Two strate­gists up their 2009 price tar­gets
“Each week Bloomberg sur­veys Wall Street strate­gists for their year-end S&P 500 price tar­gets. Since we last updated our table high­light­ing the var­i­ous price tar­gets a few weeks ago, two firms have upped their year-end num­bers. Deutsche Bank’s Binky Chadha upped his price tar­get from 900 to 1,060, while Mor­gan Stanley’s Jason Todd upped his from 825 to 900. The aver­age year-end tar­get for the S&P 500 is now 968, which is 5.59% above the index’s cur­rent level.”

Source: Bespoke, June 25, 2009.

Barry Ritholtz (The Big Pic­ture): Mar­ket cap­i­tal­iza­tion as a per­cent­age of GDP
“Another inter­est­ing pair of charts from Ron Griess of The Chart Store. These two look at NYSE and NASDAQ rel­a­tive to nom­i­nal GDP.”

Source: Barry Ritholtz, The Big Pic­ture, June 24, 2009.

BCA Research: The out­look for cor­po­rate earn­ings
“The resiliency of non-financial mar­gins to the eco­nomic down­turn largely reflects the better-than-normal cycli­cal per­for­mance of productivity.

“A recent from BCA’s monthly pub­li­ca­tion argues that S&P earn­ings are not always the best mea­sure of the cor­po­rate sector’s under­ly­ing per­for­mance. Earn­ings reported in the national income and prod­uct accounts (NIPA) exclude cap­i­tal gains and losses and do not reflect income from cur­rent pro­duc­tion. Real domes­tic non-financial prof­its have grown at an annual pace of 4.4% since 1993, based on the NIPA measure.

“The recent profit reces­sion has pushed real prof­its below its long-term time trend. Remark­ably though, domes­tic non-financial prof­its have held up bet­ter than expected. The resilience of prof­its in the past year does not reflect stronger-than-expected sales. Instead, the sur­prise has been how well mar­gins have held up as a result of healthy gains in pro­duc­tiv­ity. Indeed, pro­duc­tiv­ity growth has not shown its usual con­trac­tion in the face of a steep decline in out­put. Firms have been extremely aggres­sive in terms of shed­ding labor and cut­ting costs.

“The big ques­tion is whether pro­duc­tiv­ity growth will con­tinue to hold up, allow­ing mar­gins to remain at his­tor­i­cally ele­vated lev­els. We are rea­son­ably opti­mistic on this score. Other key ele­ments in the out­look are the prospects for earn­ings in the finan­cial sec­tor and from over­seas subsidiaries.”

Source: BCA Research, June 22, 2009.

Bespoke: Breadth gets bad
“Head­ing into today [Wednes­day], the per­cent­age of stocks in the S&P 500 trad­ing above their 50-days took a major turn for the worse. After trad­ing above the 50% level for a few months, this breadth indi­ca­tor dropped all the way down to 39%. And the drop was even worse for cer­tain sec­tors. In the Energy sec­tor, just 13% of stocks are above their 50-days after being near 100% just a cou­ple of weeks ago. Indus­tri­als dropped down to 21%, Con­sumer Dis­cre­tionary dropped to 23%, and Finan­cials, Mate­ri­als, and Tele­com dropped to the low 30s. Con­sumer Sta­ples, Health Care, and Util­i­ties (all defen­sives) are the only sec­tors with a breadth read­ing above 50%. Talk about a quick pullback.”

Source: Bespoke, June 24, 2009.

Yahoo Finance, Tech Ticker: Har­ri­son — “ani­mal spir­its” could boost S&P to 950, the “most impor­tant level of the year”
“With the ‘ani­mal spir­its’ alive at quarter’s end, the S&P 500 has a win­dow to make a run at 950, ‘the most impor­tant level of the year’, accord­ing to Todd Har­ri­son, CEO of Minyanville.com.

“Why is 950 so crit­i­cal? It’s the upper band of the 875–950 trad­ing range the index has been in since early May and just below the index’s post-March high of 956 (intra­day on June 11). It’s also ‘con­flu­ence of [tech­ni­cal] trend lines’, says Harrison.”

Source: Yahoo Finance, Tech Ticker, June 26, 2009.

Bespoke: VIX makes a new short-term low
“Yesterday’s equity mar­ket rally sent the VIX volatil­ity index to a new short-term low of 26.36. While the VIX made a new low, the S&P 500 still has a ways to go before tak­ing out its recent highs. Hope­fully the VIX is a lead­ing indi­ca­tor that the rally is set to continue.”

Source: Bespoke, June 26, 2009.

CNBC: Paul Desmond — more sub­stan­tial cor­rec­tion ahead?
“Dis­cussing whether a more sub­stan­tial cor­rec­tion is still to come, with Paul Desmond, Lowry’s Reports, and Bill Straz­zullo, Bell Curve Trading.”

Source: CNBC, June 24, 2009.

David Fuller (Fuller­money): Cor­rec­tion is under­way
“Investors are emo­tional, par­tic­i­pat­ing in the crowd’s manic / depres­sive mood swings. Con­se­quently finan­cial mar­kets are vastly more volatile than actual changes in the under­ly­ing eco­nomic conditions.

“Arguably, stock mar­kets over­shot on the down­side in Octo­ber and Novem­ber 2008 and again in March 2009, when stim­u­lus pack­ages were still being announced. This was cer­tainly the Fuller­money view.

“Sub­se­quently, the pen­du­lum of sen­ti­ment has pre­dictably swung away from extreme pes­simism as stock mar­kets rebounded. Although still a long way from eupho­ria, equi­ties have arguably run ahead of the eco­nomic recov­ery to date. Con­se­quently we remain cau­tious for the short to inter­me­di­ate term.

“Most tech­ni­cal evi­dence shows that a reac­tion and con­sol­i­da­tion is under­way. This could eas­ily turn into a medium-term cor­rec­tion, includ­ing base for­ma­tion exten­sion for the many OECD lag­gards. Tech­ni­cally, they have yet to con­firm that the March 2009 lows will hold, as we have men­tioned on a num­ber of occasions.

“Based on our behav­ioural tech­ni­cal analy­sis and the lead­er­ship of stronger mar­kets, includ­ing Fuller­money themes, we think that lag­ging OECD stock mar­kets, not least the USA, will even­tu­ally pro­vide pos­i­tive con­fir­ma­tion that a new bull mar­ket is underway.

“Now that most uptrends for OECD stock mar­kets since March have been bro­ken, the cur­rent reac­tions or cor­rec­tions need to find sup­port above the lows. Ide­ally, they would retain over half the gains seen to date although this is not crit­i­cal. More impor­tantly, fol­low­ing a reac­tion low which is above the March trough, the next rally should carry to new recov­ery highs and above the lag­ging 200-day MAs which also need to turn upwards.

“A timetable for all this is dif­fi­cult to esti­mate but I would hope to see pos­i­tive con­fir­ma­tion for lag­ging OECD stock mar­kets by 4Q 2009 or 1Q 2010. The higher-beta Fuller­money themes might cause them to under­per­form dur­ing a cor­rec­tion but I would expect them once again to pro­vide upside lead­er­ship there­after, jus­ti­fied by their supe­rior fun­da­men­tal background.”

Source: David Fuller, Fuller­money, June 23, 2009.

Finan­cial Times: Apres le rally, look to Asia and to gold
“Hold on equity investors — and look to Asia, if some are to be believed. There is gen­eral unease among investors ahead of this week’s FOMC meet­ing. But that amounts to mere sur­face jit­ters com­pared to more sub­stan­tial con­cerns about the approach­ing end of the ‘bear mar­ket rally’ — or what­ever you want to call the recent upward tra­jec­tory of equi­ties in mar­kets around the world.

“Indeed, the pre­dic­tion de jour among pun­dits is an end to what CLSA’s Christo­pher Wood calls the ‘global equity counter trend rally’. But, warns Wood in his lat­est Greed & Fear newslet­ter, don’t ‘bet aggres­sively’ on this view in terms of short­ing mar­kets on a lever­aged basis, since the base case remains that the rally peters out later this sum­mer with a S&P 500 tar­get range of 1,000–1,050.

“Still, if Wall Street cor­re­lated equi­ties are to cor­rect, the sell-off is likely to take the form it did last sum­mer, being led by a decline in oil and related com­modi­ties, a rally in the dol­lar and in US gov­ern­ment bonds. In this sense, he notes, renewed con­fir­ma­tion of defla­tion­ary pres­sures in the west ’still has the abil­ity to unnerve equity investors’.

“In Wood’s view, dol­lar debase­ment or debt default — ‘or some ugly com­bi­na­tion of the two’ — can­not be ruled out in the medium term while own­er­ship of gold remains an essen­tial form of insur­ance, to ‘hedge the sys­temic risks caused by the pan­icky response of West­ern pol­icy mak­ers to grow­ing defla­tion­ary pressure’.

“Under­stand­ably, Wood — CLSA’s Asian equity strate­gist — sees Asia and emerg­ing mar­ket asset prices as the biggest ben­e­fi­cia­ries of mon­e­tary eas­ing in the west. There is, he says reas­sur­ingly, a real pos­si­bil­ity that Asia can ‘enjoy an asset bub­ble before the West­ern fiat paper cur­rency sys­tem finally implodes’.

“That said, Asian stock mar­kets will still be cor­re­lated the next time Wall Street cor­rects mean­ing­fully, he warns. The hope this time, how­ever, is that ‘Asia will be con­sid­er­ably more resilient on the down­side’ than it was in 2008 given the clear evi­dence of domes­tic demand resilience in China and India.”

Click here for the full article.

Source: Gwen Robin­son, Finan­cial Times, June 22, 2009.

Mon­eyNews: Samuel­son — dol­lar dis­as­ter on the way
“Nobel lau­re­ate Paul Samuel­son, whose intro­duc­tory eco­nom­ics text was used by col­lege stu­dents from the 1960s to the 1980s, sees dark days ahead for the dollar.

“While he approves of the Fed­eral Reserve’s mas­sive eas­ing, the MIT econ­o­mist tells The Atlantic mag­a­zine, ‘I don’t want you to think that I think every­thing for the next 15 years will be cozy.’

“‘I think it’s almost inevitable that, with a bil­lion peo­ple in China wide awake for the first time, and a bil­lion peo­ple in India, there’s going to be some kind of a ter­ri­ble run against the dol­lar,’ Samuel­son says.

“‘I doubt it can stay orderly, because all of our own hedge funds will be right in the van­guard of the oper­a­tion. And it will be hard to imag­ine that wouldn’t cre­ate dif­fer­ent kind of meltdown.’

“Still, on the fis­cal side of the ledger, Samuel­son says more stim­u­lus is nec­es­sary. ‘One shot spend­ing gives you only one-shot response,’ he says.

“‘It’s got to be sus­tained. The way we got out of the 1929 Great Depres­sion in the US, and this hap­pened not only in the US but also in Ger­many and each place in which there was almost a third unem­ployed, was heavy deficit spending.’

Source: Dan Weil, Mon­eyNews, June 22, 2009.

Forbes: IMF says dol­lar adjust­ment might be needed
“An increase in exports is needed for a sus­tained recov­ery in the United States and this may require an adjust­ment in the value of the US dol­lar, IMF chief econ­o­mist Olivier Blan­chard said on Monday.

“‘For the US, it is absolutely no ques­tion that a sus­tained recov­ery has to come from a large increase in exports, that may not be very easy to do. This may require fairly sub­stan­tial adjust­ments in the dol­lar,’ he told a conference.”

Source: Forbes, June 22, 2009.

Busi­ness­Wire: World Gold Coun­cil wel­comes clar­ity regard­ing IMF gold sales
“World Gold Coun­cil wel­comes the news that the US Con­gress has passed the Mil­i­tary Sup­ple­men­tal Bill thereby final­is­ing the process allow­ing the IMF to sell 403.3 tonnes of gold in a man­ner that will have no impact on the smooth run­ning of the inter­na­tional gold market.

“This process began with the Crock­ett Report in 2007, which rec­om­mended that the IMF adopt a new income model, includ­ing the estab­lish­ment of an endow­ment, funded by the pro­ceeds of lim­ited and struc­tured gold sales. More recently at the G-20 Lead­ers Sum­mit in April of this year, heads of state pro­posed to use addi­tional resources from the gold sales to pro­vide an extra US $4 bil­lion for poor and indebted coun­tries over the next 2–3 years. This will not impact either the total level or the man­ner of the gold sales.

“The IMF has stated pub­licly that its gold sales should be coör­di­nated with cur­rent and future Cen­tral Bank Gold Agree­ments (CBGA), whereby sig­na­to­ries have agreed to limit their gold sales to no more than 500 met­ric tons annually.

“Aram Shish­man­ian, CEO, World Gold Coun­cil, said: ‘We are pleased to see that the IMF’s plan to sell gold in a struc­tured and non-disruptive man­ner has gone through due polit­i­cal process with­out prob­lem, which is a credit to the respon­si­ble behav­iour of all par­ties involved in the process. These sales will not con­sti­tute any net addi­tion to the amount of gold the mar­ket is already expect­ing from offi­cial sec­tor sources as a whole, and there­fore we antic­i­pate zero mar­ket impact.’”

Source: Busi­ness­Wire, June 19, 2009.

Mon­eyNews: Roubini — oil, gold over­val­ued
“Some experts, such as investor Jim Rogers, say com­modi­ties are off to the races. New York Uni­ver­sity econ­o­mist Nouriel Roubini begs to differ.

“He says the recent rally that has taken oil to an eight-month high of $73 a bar­rel and gold to $935 an ounce has gone too far.

“‘The oil price gain is ‘too high too soon’, Roubini told the Reuters Invest­ment Out­look Sum­mit in New York.

“And if spec­u­la­tors insist on push­ing the price toward $100, the move would cre­ate an ‘eco­nomic shock’ just like last year’s spike to $147, he says.

“That jump added to wor­ries about reces­sion, which ulti­mately sent the price back down below $40.

“Roubini stresses that the econ­omy con­tin­ues to face defla­tion­ary risks. The con­sumer price index dropped 1.3% in the year through May, the largest drop in 59 years.

“‘For the next two years, defla­tion­ary pres­sure is going to be dom­i­nant,’ Roubini says. ‘It is going to become a time bomb down the line if and when we keep mon­e­tiz­ing large deficits.’

“‘It may be too soon to hedge with gold,’ he says. ‘Unless we have high infla­tion, or … other risks like depres­sion, gold looks toppy.’”

Source: Dan Weil, Mon­eyNews, June 22, 2009.

Bill King (The King Report): Crude oil ver­sus nat­ural gas
“The pop­u­lar nat­ural gas-oil spread is a green shoots indi­ca­tor. Indus­trial demand dri­ves nat­ural gas. China can­not stock­pile nat­ural gas. Ergo the spread between nat­ural gas and oil shows no green shoots but infla­tion. This has vexed numer­ous wise guys who have play­ing for nat­ural gas to tighten with oil.”

Source: Bill King, The King Report, June 22, 2009.

Bloomberg: Japan export slump deep­ens, cast­ing doubt on recov­ery
“Japan’s export slump deep­ened in May, cast­ing doubt on the nation’s growth prospects as the econ­omy strug­gles to emerge from its worst post­war recession.

“Ship­ments abroad dropped 40.9% from a year ear­lier, more than April’s 39.1% decline, the Finance Min­istry said today in Tokyo. The median esti­mate of econ­o­mists sur­veyed was for a 39.3% decrease. From a month ear­lier, exports fell 0.3%, the first dete­ri­o­ra­tion since February.

“Declines in ship­ments to Asia accel­er­ated for the first time since Jan­u­ary, damp­ing hopes that demand from the region will spur a recov­ery in the world’s second-largest econ­omy. A world­wide stock mar­ket rally stalled this month on con­cern that the global reces­sion will deepen.

“‘Final demand just isn’t pick­ing up and it’s still hard to expect a very strong eco­nomic recov­ery,’ said Azusa Kato, an econ­o­mist at BNP Paribas in Tokyo. Kato said the econ­omy will ‘barely expand’ in 2010 once the effect of Japan’s own eco­nomic stim­u­lus mea­sures fades.”

Source: Jason Clen­field, Bloomberg, June 24, 2009.

Irish Times: Econ­omy to shrink by 13.5%, says bleak IMF assess­ment
“The Irish banks face losses of €35 bil­lion to the end of 2010, the econ­omy will shrink by 13.5% from 2008 to 2010 and unem­ploy­ment will climb to 15.5% next year, accord­ing to a bleak assess­ment by the Inter­na­tional Mon­e­tary Fund (IMF).

“The global finan­cial watchdog’s annual report on Ire­land offers a gloomy pic­ture of the State’s eco­nomic prospects, pre­dict­ing only a ‘modestly-paced recov­ery’ after fur­ther con­trac­tion next year.

“The report iden­ti­fies bank restruc­tur­ing, restored com­pet­i­tive­ness and fis­cal con­sol­i­da­tion as crit­i­cal to ensur­ing that the econ­omy recov­ers and acknowl­edges the Government’s actions to address these priorities.

“‘The pro­posed National Asset Man­age­ment Agency (Nama) is poten­tially the right mech­a­nism to sep­a­rate the good from the bad assets. Its suc­cess requires a com­pre­hen­sive and real­is­tic assess­ment of impaired assets,’ says the report.

“The Gov­ern­ment responded to the IMF’s esti­mate of the losses fac­ing the Irish banks, which equate to 20% of Ireland’s gross domes­tic prod­uct, say­ing the ‘vast major­ity’ of the losses would be absorbed by the banks’ own risk cap­i­tal and oper­at­ing profits.

“The IMF said it might be eas­ier to price toxic bank assets mov­ing to the State’s ‘bad bank’ Nama, if the banks were tem­porar­ily nation­alised. ‘An advan­tage would be that prices at which these assets are trans­ferred would become less of an issue,’ said the IMF, adding that such a move could also be used as a step towards merg­ers and the restruc­tur­ing of the bank­ing sector.

“Pre­dict­ing that the bud­get deficit for 2009 could reach 12%, the IMF notes the pol­icy dilemma fac­ing the Government.

“The fund calls for fur­ther cuts in pub­lic sec­tor pay and employ­ment, and a shift away from uni­ver­sal social wel­fare ben­e­fits towards assis­tance tar­geted at the most vulnerable.

“‘Reduc­ing fis­cal deficits is needed to main­tain cred­i­bil­ity with mar­kets but deep­ens the eco­nomic con­trac­tion,’ says the IMF. ‘Expen­di­ture reduc­tion, as dis­tinct from rais­ing taxes, is the supe­rior approach to fis­cal con­sol­i­da­tion but, unless care­fully man­aged and pri­ori­tised, risks hurt­ing the most vulnerable.’”

Source: Denis Staunton and Simon Car­swell, Irish Times, June 25, 2009.

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Tags: Asset Classes, Bill Gross, Brazil, BRIC, BRICs, Canadian Market, Cartoonists, Commodities, Dow Jones, Emerging Markets, energy, energy sector, ETF, Ewh, Exchange Traded Funds, Global Stock Market, Image Stock, India, Interesting News, Laggards, Market Commentators, Market Vectors Gold Miners, Msci Taiwan, Natural Gas, Natural Resources, oil, Oil And Gas Exploration, Performance Spectrum, Stock Market Returns, Taiwan Index, United Arab Emirates, Vectors Gold Miners, Washington Post
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Rebecca Wilder: World economic updates (June 19–26) – Seeing some light … Really!

Saturday, June 27th, 2009

This post is a guest con­tri­bu­tion by Rebecca Wilder*, author of the of the News N Eco­nom­ics blog.

Glim­mers of hope are start­ing to emerge in the hard data. Exports in Asia are form­ing a more decided bot­tom; but since the trough is –20% to –30% off over the year, the recov­ery may be a long haul (or it may not). By some mea­sures, home val­ues in the UK and the US are show­ing signs of sta­bi­liza­tion, as the annual pace of decline slows. Ger­man busi­ness sen­ti­ment con­tin­ues its ascent, mov­ing past its 1993 low! In con­trast, infla­tion main­tains its steady descent; Japan is hard hit.

Over­all, the global econ­omy is find­ing its foot­ing on the path toward stabilization.

Exports in Asia: look­ing a lit­tle bet­ter, but still WAY down over the year!

UK and US home val­ues: signs of hope? Yes and no.

The US mea­sure, the Fed­eral Hous­ing Finance Agency (used to be OFHEO) includes only con­form­ing mort­gage homes; and there­fore, it doesn’t cap­ture the full mar­ket (there are other mea­sures of home val­ues, i.e., the S&P Case Shiller indices, that do not sig­nal such a decided sta­bi­liza­tion in home val­ues). This is a weak mar­ket; and with fore­clo­sures per­sist­ing and inven­to­ries high, prices are likely to fall a bit further.

Accord­ing to the Ifo Insti­tute for Eco­nomic Research, Ger­man busi­ness sen­ti­ment saw its fourth monthly gain! Here is an excerpt from the release:

The bright­en­ing was solely the result of the firms’ expec­ta­tions — the pes­simism of the sur­vey par­tic­i­pants with regard to the six-month busi­ness out­look has again weak­ened. Their dis­sat­is­fac­tion with the cur­rent busi­ness sit­u­a­tion is just as strong as it was in May. The sur­vey results con­firm that the Ger­man econ­omy is grad­u­ally stabilizing.

Infla­tion remains in (or is near­ing) the red for Sin­ga­pore, Hong Kong, and poor Japan.

The global econ­omy this week: looks a lit­tle brighter but still bad.

Source: Rebecca Wilder, News N Eco­nom­ics, June 26, 2009.

* Rebecca Wilder is an econ­o­mist in the finan­cial indus­try. She was pre­vi­ously an assis­tant pro­fes­sor and holds a doc­tor­ate in economics.

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Tags: Business Outlook, Business Sentiment, Business Situation, Conforming Mortgage, Dissatisfaction, Economic Research, Economic Updates, German Business, German Economy, Glimmers, Global Economy, Home Values, Housing Finance Agency, Ifo Institute, Long Haul, Pessimism, Signs Of Hope, Singapore Hong Kong, Survey Participants, Weak Market
Posted in Markets, Outlook | 1 Comment »

A Potpourri of Bulls and Bears

Saturday, June 27th, 2009

This week’s video-o-rama comes to you a day late as I make my away from Cape Town to Europe. Notwith­stand­ing ter­ri­bly slow broad­band at South African air­ports, I have man­aged to com­pile an inter­est­ing pot­pourri of clips.

Top­ics ranged from another round of dis­cus­sions about the pro­posed reg­u­la­tory reform to Fed chair­man Ben Bernanke fac­ing a grilling on Cap­i­tal Hill over the Bank of America-Merrill Lynch deal to the usual dose of debate on the out­look for the econ­omy and finan­cial markets.

The stars of this week’s round-up include Steven Pearl­stein, Pete Peter­son, War­ren Buf­fett (US econ­omy in “sham­bles”), Nouriel Roubini (US econ­omy “sort of sta­bi­liz­ing”), Puru Sax­ena, Edmund Phelps, Mohamed El-Erian, Robert Prechter (a “lot more” bear mar­ket) and T. Boone Pickens.

The com­pi­la­tion kicks off with Barry Ritholtz, author of must-read “Bailout Nation” and edi­tor of The Big Pic­ture blog, shar­ing his views on the finan­cial col­lapse, and con­cludes with Den­nis Gart­man, edi­tor of The Gart­man Let­ter, call­ing War­ren Buf­fett an idiot.

TheStreet.com: Tales from “Bailout Nation”
“Barry Ritholtz, author of the new best­seller “Bailout Nation”, blames Alan Greenspan for America’s finan­cial col­lapse and says trou­bled banks should be allowed to fail.”

Source: TheStreet.com, June 22, 2009.

CNBC: Issa ver­sus Bernanke
“Rep. Dar­rell Issa (R-CA), ques­tions Fed Chair­man Ben Bernanke regard­ing the Fed­eral Reserve’s influ­ence in the Bank of America-Merrill deal, and whether the Fed actu­ally tried to cover it up.”

Source: CNBC, June 25, 2009.

Char­lie Rose: A con­ver­sa­tion about reg­u­la­tory reform with Steven Pearlstein

Source: Char­lie Rose, June 18, 2009.

CNBC: Pete Peter­son on the finan­cial cri­sis, econ­omy and reg­u­la­tion
Pete Peter­son, co-founder and for­mer chair­man of the Black­stone Group, shares his thoughts on the econ­omy, the finan­cial cri­sis and regulation.”

Source: CNBC, June 23, 2009.

CNBC: US econ­omy in “sham­bles”
“In a live inter­view on CNBC today, War­ren Buf­fett said there has been lit­tle progress over the past few months in the ‘eco­nomic war’ being fought by the coun­try. ‘We haven’t got the econ­omy mov­ing yet,’ he told Becky Quick.”

Click here for the transcript.

Source: CNBC, June 24, 2009.

Bloomberg: Nouriel Roubini — US econ­omy “sort of sta­bi­liz­ing”
“Nouriel Roubini, pro­fes­sor at New York University’s Stern School of Busi­ness, talks with Bloomberg’s Deirdre Bolton and Tom Keene about the state of the US econ­omy. Roubini, speak­ing from Lon­don, also dis­cusses Fed­eral Reserve mon­e­tary pol­icy, per­sonal sav­ings and the out­look for the US unem­ploy­ment rate.”

Source: Bloomberg, June 24, 2009.

John Authers (Finan­cial Times): Market’s reac­tion to Fed’s rate announcement

Click here for the article.

Source: John Authers, Finan­cial Times, June 24, 2009.

CNBC: Credit mar­ket prob­lems to creep up again?
“‘We are now return­ing to some dis­tress in the credit mar­kets,’ Puru Sax­ena from Puru Sax­ena Wealth Man­age­ment said, adding that is why he has sold off all of his long posi­tions. Sax­ena told CNBC the mar­ket is wrong to expect hyper­in­fla­tion. Chris­t­ian Blaab­jerg from Saxo Bank joins the discussion.”

Source: CNBC, June 23, 2009.

Bloomberg: Phelps says US wealth may take 15 years to rebound
“Edmund Phelps, a pro­fes­sor at Colum­bia Uni­ver­sity and win­ner of the 2006 Nobel Prize in eco­nom­ics, talks with Bloomberg’s Elliott Gotkine about the out­look for the US econ­omy. Phelps said, ‘The only way we’re going to get a healthy, full recov­ery is over a long period of time, involv­ing house­holds rebuild­ing their bal­ance sheets and com­pa­nies in trou­ble rebal­anc­ing their bal­ance sheets.”

Source: Bloomberg, June 22, 2009.

Con­suelo Mack (Wealth­Track): Lo & Asness — apply­ing hedge fund skills to mutual funds
“On this week’s Con­suelo Mack Wealth­Track: two inno­v­a­tive hedge fund man­agers chal­lenge con­ven­tional invest­ment wis­dom and explain why they have recently brought their hedge fund skills to the mutual fund world. MIT’s Pro­fes­sor of Finance and port­fo­lio man­ager of the ASG Global Alter­na­tives Fund, Andrew Lo, and AQR Cap­i­tal Management’s Cliff Asness, port­fo­lio man­ager of the recently launched AQR Diver­si­fied Arbi­trage Fund dis­cuss their invest­ment out­look and strategies.”

Source: Con­suelo Mack, Wealth­Track, June 26, 2009.

CNBC: El-Erian on the mar­kets
“Mohamed El-Erian, CEO and co-CIO at Pimco, shares his mar­ket insight.”

Source: CNBC, June 25, 2009.

Bloomberg: Robert Prechter sees a “lot more” bear mar­ket, defla­tion
“Robert Prechter, chief exec­u­tive offi­cer of Elliott Wave Inter­na­tional Inc., talks with Bloomberg’s Betty Liu about the out­look for the US stock mar­ket. Prechter, speak­ing from Atlanta, also dis­cusses his expec­ta­tions for infla­tion and emerg­ing markets.”

Source: Bloomberg, June 19, 2009.

John Authers (Finan­cial Times): Swiss franc inter­ven­tion
“FT’s John Authers on why the Swiss National Bank decided to inter­vene in for­eign exchange mar­kets to weaken its currency.”

Click here for the article.

Source: John Authers, Finan­cial Times, June 24, 2009.

Mon­eyNews: Pick­ens — oil could go to $300 a bar­rel
“Leg­endary oil man T. Boone Pick­ens says that if the US doesn’t take major steps to curb its reliance on for­eign oil, the con­se­quences will be dras­tic. ‘Let’s say in 10 years, you do noth­ing,’ Pick­ens tells For­tune. ‘You will be import­ing 75% of your oil (up from 68% now), and you’ll be pay­ing $300 a bar­rel. That’s $2 tril­lion a year going out of this country.’”

Source: Dan Weil, Mon­eyNews, June 16, 2009.

Chris Giles (Finan­cial Times): OECD fore­sees end to global slide
“The OECD has revised its World Eco­nomic Out­look upwards for the first time in two years, con­clud­ing that the global eco­nomic slump is approach­ing a nadir. Chris Giles, eco­nomic edi­tor, explains the sig­nif­i­cance of the find­ings for the ‘green shoots’ debate.”

Click here for the article.

Source: Finan­cial Times, June 24, 2009.

CNBC: China could outdo its 8% growth tar­get
“China could do bet­ter than 8% growth this year, says Ken­neth Cour­tis, chair­man of Next Cap­i­tal Part­ners & also for­mer vice chair­man of Gold­man Sachs. He explains his opti­mistic view to CNBC’s Mar­tin Soong and Amanda Drury.”

Source: CNBC, June 23, 2009.

CNBC: Another thorn on China’s side?
“The US and Euro­pean Union have filed a com­plaint to the World Trade Orga­ni­za­tion over China’s export curbs. Jing Ulrich, MD & chair­man of China equi­ties at JPMor­gan, assesses this news, with CNBC’s Mar­tin Soong and Cheng Lei.

Source: CNBC, June 24, 2009.

CNBC: Japan’s exports show deeper slide in May
“Japan’s exports fell 40.9% in year-ago terms in May, show­ing a slightly deeper slide, but its trade sur­plus came in stronger than expected, though it con­tin­ued to fall. Luca Silipo, chief econ­o­mist at Natixis digests the data, with CNBC’s Amanda Drury and Mar­tin Soong.”

Source: CNBC, June 24,2009.

Char­lie Rose: Update on Iran
“Update on Iran with Roger Cohen of ‘The New York Times’ and ‘Inter­na­tional Her­ald Tri­bune’ from Iran, and Robin Wright of ‘The Wash­ing­ton Post’ from Washington.”

Source: Char­lie Rose, June 22, 2009.

CNBC: War­ren Buf­fett an idiot?
“Den­nis Gart­man, The Gart­man Let­ter, says War­ren Buf­fett made some ter­ri­ble mis­takes last year.”

Source: CNBC, June 22, 2009.

Tags: Emerging Markets, oil
Posted in Emerging Markets, Gold, Markets, Outlook | Comments Off

Richard Russell: Competitive devaluations to spur on gold

Saturday, June 27th, 2009

I often quote Richard Rus­sell, the 85-year-old writer of the Dow The­ory Let­ters, in my blog posts. Although I may not nec­es­sar­ily always agree with his views, they are always stim­u­lat­ing and impor­tant to con­sider when piec­ing together the finan­cial puz­zle. His arti­cle on com­pet­i­tive deval­u­a­tions and the impli­ca­tions for fiat cur­ren­cies and gold bul­lion makes for par­tic­u­larly inter­est­ing read­ing and the para­graphs below have been excerpted from it.

“Every nation wants to export. The obses­sion to export has resulted in fill­ing the world with prod­ucts, things, and mer­chan­dise of every kind. There’s a world over­flow of prod­ucts, and the result is defla­tion. Just too much stuff being man­u­fac­tured. Buy­ers from import­ing nations can’t han­dle it all. The result is asset deflation.

“One rea­son why every nation wants to export is to lift employ­ment. Noth­ing scares politi­cians like unem­ploy­ment. Why? Because unem­ployed work­ers VOTE just the way employed work­ers do. The les­son — if you want high employ­ment, learn to export. Export­ing cre­ates jobs. China and Asia learned that les­son, and they cap­tured world export mar­kets with the help of one valu­able item — low wages — that along with no Social Secu­rity, no med­ical, no pen­sions, no any­thing, just plain low wages with none of the extras.

“Ooops, I left some­thing out. What I left out was the big sec­ond advan­tage — cheap cur­rency. Every nation, par­tic­u­larly the exporters, wants a cheap, com­pet­i­tive cur­rency. The US is no excep­tion. Obama tells the world that the dol­lar is a strong, hard cur­rency, but the dol­lar has been weak. The administration’s pol­icy is to talk a “hard dol­lar” but hope for a soft dollar.

“The result of all this is com­pet­i­tive deval­u­a­tions. Nations no longer devalue their cur­ren­cies against gold, they sim­ply print oceans of their own cur­ren­cies, and with that paper they buy dol­lars, hop­ing to raise the price of dol­lars against their own cur­ren­cies. The result is a grow­ing sea of fiat junk paper.

“The greater the world ocean of fiat paper, the higher gold goes. You see, gold is the secret, unstated world stan­dard of money. Gold can’t be deval­ued or mul­ti­plied out of thin air. So as the var­i­ous cur­ren­cies of the world decline in rela­tion to each other, gold stands alone. It can’t be cheap­ened or deval­ued or bank­rupted. While the cur­ren­cies of the world decline in pur­chas­ing power in rela­tion to each other, they all decline in pur­chas­ing power against gold. In other words, as time passes, it requires more of each cur­rency to pur­chase one ounce of gold.

“In the mean­time, the US con­tin­ues to spend out­ra­geously, not only run­ning up debts for the present but also for the chil­dren of the future. The US deficits and national debt will run into the multi-trillions in com­ing years.

“How will these mon­ster debts ever be paid off? They’ll be paid off by deval­ued dol­lars, they’ll be paid off by addi­tional bor­row­ing, they’ll be paid off by infla­tion, they’ll be paid off with higher taxes and prob­a­bly a VAT tax, they’ll be han­dled by pro­ject­ing them into the future for other admin­is­tra­tions to strug­gle with.

“As they say in New York, ‘all right already, so what do we do about it?’.
“Short and medium term, you want dol­lars, as many of them as you can save. Long-term you want gold. Some­where ahead gold will come into its own. I can’t time gold, but I can iden­tify the time when gold is ready to ‘take off’. When gold climbs above 1,004 it will be the sig­nal for the begin­ning of the third phase gold rush. What I’m say­ing is for­get quick prof­its in gold, for­get tim­ing gold, just own some.

“The way the world is going, ‘gold will be the last man stand­ing’. Gold will be wanted because unlike every­thing else, gold can not go bank­rupt. Gold has no debt against it, gold is not the prod­uct of some nation’s cen­tral bank. Gold is pure intrin­sic wealth. It needs no nation to guar­an­tee it. Gold is out­side the paper system.”

Source: Richard Rus­sell, Dow The­ory Let­ters, June 25, 2009.

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Tags: Cheap Currency, Dow Theory Letters, Export Markets, fiat, Fiat Currencies, Financial Puzzle, Gold, Gold Bullion, Hard Currency, Hard Dollar, Obama, Obsession, Oceans, Paragraphs, Pensions, Richard Russell, Soft Dollar, Unemployed Workers, Wages, World Export, World Overflow
Posted in Gold, Markets | 1 Comment »

Global Equity Market P/E Ratios

Friday, June 26th, 2009

Below is a chart show­ing global equity mar­ket val­u­a­tions, as pro­duced by Bespoke Invest­ment Group. Cana­dian stocks are cur­rently fetch­ing a P/E of 13X, and given Canada's rel­a­tively stronger eco­nomic fun­da­men­tals, from a fis­cal and bank­ing indus­try stand­point, and its sig­nif­i­cant com­mod­ity com­plex, are rel­a­tively attrac­tive. It is notable that Canada's P/E was around 9X back at the begin­ning of March, so the strong rally since has aided sig­nif­i­cant P/E mul­ti­ple expan­sion off the lows.

Bespoke: As shown, Rus­sia cur­rently has the low­est P/E ratio at 6, fol­lowed by Italy (10) and France (11).  At 14, the US is more attrac­tive based on its P/E ratio than most coun­tries.  Tai­wan has the high­est P/E at 60, and the UK is sur­pris­ingly bad at 34.  It's val­u­a­tion is worse than China's.  Ger­many also has a very high P/E ratio at 27.

Tags: 13x, Banking Industry, Canadian Market, Canadian Stocks, China, Commodities, Commodity, Economic Fundamentals, Equity Market, Germany, Global Equity, Investment Group, Italy, Lows, Market Valuations, Rally, Ratios, Russia, Standpoint, Taiwan
Posted in Canadian Market, Markets | 3 Comments »

Global Stock Markets – Positive Breadth

Friday, June 26th, 2009

In order to mea­sure stock mar­ket breadth, I find it very use­ful to mon­i­tor the per­cent­age of stocks in the S&P 500 Index (or on the Nas­daq or New York Stock Exchanges) trad­ing above their 50– and 200-day mov­ing aver­ages. These mea­sures serve as yard­sticks of the direc­tion of the sec­ondary and pri­mary trends of the broad market.

In the same way as one applies this method­ol­ogy to the con­stituents of a spe­cific index or stock exchange, one can also con­sider the per­cent­age of coun­try indices trad­ing above their respec­tive aver­ages. I am some­what restricted as far as with data are con­cerned, but have man­aged to include 26 mature mar­kets and 23 emerg­ing mar­kets in the research sample.

The chart below shows the per­cent­age of coun­tries in the over­all group trad­ing above their 50– and 200-day lines respec­tively. Inter­est­ingly, the major­ity of the mar­kets (87%) are trad­ing above the 200-day aver­age — an indi­ca­tor of a bull­ish pri­mary trend. As far as the sec­ondary trend is con­cerned, 68% of the coun­tries are still trad­ing above the 50-day aver­age, hav­ing cor­rected from an over­bought level of 100% a few weeks ago.

Click on the images below for larger graphs.

When con­sid­er­ing devel­oped and emerg­ing mar­kets sep­a­rately, sim­i­lar pat­terns emerge, although a larger com­po­nent of devel­op­ing mar­kets (95%) is in pri­mary bull mar­kets (see charts for emerg­ing mar­kets below).

In short, based on the 200-day indi­ca­tor global stock mar­kets in gen­eral are trad­ing in bull­ish ter­ri­tory, but the 50-day indi­ca­tor sig­nals that the sec­ondary cor­rec­tion might not have played itself out fully yet. How­ever, as always, one should be care­ful to base deci­sions on a sin­gle tool.

I am about to catch a plane to Europe, but will do more work to refine these indi­ca­tors upon my return.

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Tags: Base Decisions, Broad Market, Bull Markets, Cape Town, Constituents, Emerging Markets, Global Stock Markets, Graphs, Indices Trading, Market Breadth, Mature Markets, Methodology, Moving Averages, Nasdaq, New York Stock, New York Stock Exchanges, Postcards, Stock Exchange, Stock Market, Target
Posted in Emerging Markets, Markets | Comments Off

Goldman Sachs: "Engineering Every Major Market Manipulation Since The Great Depression"

Friday, June 26th, 2009

Matt Taibbi, the con­tro­ver­sial Rolling Stone inves­tiga­tive colum­nist who has been stalk­ing Gold­man Sachs, et al, to unearth the deep dark secrets as well as the alchemists of the cur­rent credit cri­sis, boldly alleges that Gold­man Sachs has been "engi­neer­ing every major mar­ket manip­u­la­tion since the Great Depres­sion." The arti­cle cov­ers a lot of ground, and while it may be dif­fi­cult to agree with all of it, there are some glar­ing and enlight­en­ing con­fir­ma­tions that a good deal of it is plau­si­ble. For cer­tain, this Rolling Stone arti­cle will make for great week­end reading.

Felix Salmon: Matt Taibbi’s 12-page screed on Gold­man Sachs has appeared on news­stands... Suf­fice to say that in the sec­ond sen­tence of the piece Taibbi describes Gold­man as “a great vam­pire squid wrapped around the face of human­ity”; later on, he calls it “the planet-eating Death Star of polit­i­cal influ­ence”. He’s also a dab hand at the pen-portrait:

Rubin was the pro­to­typ­i­cal Gold­man banker. He was prob­a­bly born in a $4,000 suit, he had a face that seemed per­ma­nently frozen just short of an apol­ogy for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exte­rior; the only human feel­ing you could imag­ine him expe­ri­enc­ing was a nigh­mare about being forced to fly coach.

Taibbi makes the case that it’s not just wheat futures which have been over­run by index spec­u­la­tion, but com­modi­ties in gen­eral and oil in par­tic­u­lar. Indeed, Taibbi puts Gold­man, Zelig-like, at the cen­ter of no fewer than four spec­u­la­tive bub­bles: one in the 1920s in which Goldman-controlled enti­ties ended up los­ing an aston­ish­ing $475 bil­lion in today’s dol­lars; the tech bub­ble; the hous­ing bub­ble; and the oil-price bub­ble end­ing in 2008. He calls the US “a gang­ster state, run­ning on gang­ster eco­nom­ics”, and is very explicit about exactly who he thinks the gang­sters are. (Clue: they paid just $14 mil­lion in tax on $2 bil­lion in 2008 profits.)

To view the whole arti­cle, click here.

Hat tip: Zero Hedge

Source: Felix Salmon, Reuters, June 24, 2009 — Matt Taibbi vs. Gold­man Sachs

Tags: Alchemists, Click The Button, Columnist, Commodities, Confirmations, Credit Crisis, Current, Dab Hand, Dark Secrets, Death Star, Goldman Sachs, Great Depression, Hat Tip, Housing Bubble, Major Depression, Market Manipulation, Matt Stone, Matt Taibbi, Newsstands, Nighmare, oil, Oil Price, Pen Portrait, Political Influence, Rolling Stone, Screed, Speculative Bubbles, Stalking, Stone Article, Top Hat, Wheat Futures, Zelig
Posted in Gold, Markets | 3 Comments »

Puru Saxena: Transfer of wealth

Thursday, June 25th, 2009

This post is a guest con­tri­bu­tion by Puru Sax­ena*, founder of Hong Kong-based Puru Sax­ena Wealth Man­age­ment.

After decades of excess credit and over-consumption, the devel­oped world is finally being forced to deal with private-sector delever­ag­ing. How­ever, the gov­ern­ments seem to have other plans and they’ve decided to fight these defla­tion­ary forces tooth and nail. Their solu­tion — even more credit and consumption!

Rather than accept a painful adjust­ment period, pol­i­cy­mak­ers are des­per­ately try­ing to revive the party. And in the process, they are mak­ing the sit­u­a­tion much worse. All over the world, gov­ern­ments are spend­ing tril­lions of dol­lars in order to clean up the mess. Unfor­tu­nately, the stark real­ity is that these gov­ern­ments have no money. So, in most instances, these glo­ri­ous state-sponsored spend­ing pro­grams are being financed by bor­row­ing and money printing.

Most peo­ple seem to for­get that these fis­cal spend­ing pro­grams aren’t cre­at­ing any real wealth and are sim­ply trans­fer­ring wealth from the savers to the debtors. Essen­tially, gov­ern­ments are tak­ing money from the sol­vent and re-distributing these funds amongst the insolvent.

Need­less to say, by bail­ing out the incom­pe­tent and buy­ing their toxic assets, the gov­ern­ments are clean­ing up the private-sector bal­ance sheets but at a huge cost. In the process of sav­ing a few ‘too big to fail’ cor­po­ra­tions and their bond­hold­ers, pol­i­cy­mak­ers are greatly increas­ing the risk of sov­er­eign defaults. In a nut­shell, pol­i­cy­mak­ers are erro­neously trans­fer­ring private-sector risk to the state.

So far in the ongo­ing credit cri­sis, we haven’t really seen many sov­er­eign bank­rupt­cies but I sus­pect they will fol­low. And you can bet your bot­tom dol­lar that pol­i­cy­mak­ers will not hes­i­tate to use the print­ing presses if it results in escap­ing sov­er­eign default. As a result of the world’s bank­ing sys­tem being a mul­ti­ple of world GDP, the sad truth is that politi­cians don’t have very many options.

What we’ve wit­nessed over the past few months is that gov­ern­ments around the world have decided to main­tain the sta­bil­ity of their bank­ing sys­tems in order to pre­serve the trust of their pop­u­lace. Basi­cally, pol­i­cy­mak­ers have opted to save the banks even if it means putting entire nations at a great risk. And the most likely out­come is that the politi­cians will con­tinue on this infla­tion­ary road to nowhere.

In my opin­ion, as the pri­vate sec­tor con­tin­ues to pay back debt, the use of the print­ing press won’t result in imme­di­ate infla­tion. How­ever, over the medium-term, all these need­less bailouts are going to cre­ate a mas­sive infla­tion problem.

Amidst all this eco­nomic uncer­tainty and ram­pant money print­ing, con­fi­dence in gov­ern­ments will plum­met and peo­ple will turn to ‘old fash­ioned’ stores of value — those assets which rep­re­sented money long before pieces of paper backed by empty promises became fash­ion­able. Indeed, the invest­ment com­mu­nity has already begun mov­ing towards pre­cious met­als and I expect this trend to continue.

It is inter­est­ing to note that only 160,000 tons of gold has ever been mined from the face of this planet and at US$950 per ounce, it is worth US$4.9 tril­lion. Now, con­sider that the total amount of paper money in cir­cu­la­tion (cur­ren­cies, sav­ings, deposits, money-markets and CDs) is worth US$60 tril­lion or approx­i­mately twelve times the value of the gold in exis­tence. Now, there is no doubt in my mind that as world gov­ern­ments debase their cur­ren­cies, many peo­ple will begin to ques­tion the via­bil­ity of paper money as a store of value and they will turn to gold, sil­ver and plat­inum. Even if a small frac­tion of paper money rushes towards the small gold and sil­ver mar­kets, what do you think will hap­pen to their prices? No ques­tion, pre­cious met­als’ prices will explode!

Accordingly,I sin­cerely rec­om­mend that investors allo­cate at least 10% of their wealth to phys­i­cal bul­lion. Over the next few days, it is likely that pre­cious met­als will cor­rect and this may be the final oppor­tu­nity to buy gold and sil­ver at these lev­els. Those look­ing for extra lever­age should invest money in the pre­cious met­als min­ing stocks. So far in the pre­cious met­als bull mar­ket, we’ve had mas­sive ral­lies every two years. If this trend remains intact, after the usual sum­mer cor­rec­tion, we should see an explo­sive move until spring next year.

Source: The Daily Reck­on­ing, June 24, 2009.

* Puru Sax­ena is the founder of Puru Sax­ena Wealth Man­age­ment. He is a reg­is­tered invest­ment advi­sor and money man­ager with the SFC of Hong Kong. Sax­ena con­ducts in-depth macro-economic research, for­mu­lates his firm’s invest­ment strat­egy and man­ages dis­cre­tionary invest­ment port­fo­lios. He is also the edi­tor and pub­lisher of Money Mat­ters — a monthly eco­nomic report he has been writ­ing since 2000.

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Tags: Adjustment Period, Balance Sheets, Banking System, Bondholders, Bottom Dollar, Credit Crisis, Debtors, Deflationary Forces, Excess Credit, Glorious State, Gold, Gold Bullion, Money Printing, Policymakers, Printing Presses, Sad Truth, Sector Risk, Stark Reality, Trillions, Wealth Management, World Gdp, World Governments
Posted in Gold, Markets, Silver | Comments Off

Global stock market declines – threatening moving averages

Wednesday, June 24th, 2009

Con­sid­er­able media cov­er­age has been given to the S&P 500 Index flirt­ing with its key mov­ing aver­ages (remem­ber to poll your vote here). How­ever, it makes for inter­est­ing read­ing also to con­sider the mov­ing aver­ages of non-US stock markets.

The table below pro­vides a sum­mary of the 50– and 200-day aver­ages per­tain­ing to a num­ber of global indices. The orange shad­ing indi­cates indices still trad­ing below their mov­ing aver­ages and shows the per­cent­age gain required in order to reach the moving-average line. Con­versely, the green shad­ing shows those indices that have already breached the mov­ing aver­ages to the upside and the num­bers indi­cate the per­cent­age decline that will reverse the break.

Click here or on the table below for a larger image.

The 50-day mov­ing aver­age is an indi­ca­tor of the sec­ondary trend. How­ever, the longer-term 200-day mov­ing aver­age is of more impor­tance as an indi­ca­tor of the pri­mary trend. Although it is a lag­ging indi­ca­tor by con­struc­tion, it ful­fils a use­ful role in keep­ing investors on the right side of the long-term trend.

It is impor­tant to note that three con­di­tions must be met in order to flash new equity bull mar­kets, namely (1) the index in ques­tion must pen­e­trate the 200-day aver­age, (2) the 50-day aver­age must cross the 200-day line, and (3) the 200-day aver­age must turn upwards.

As far as the US mar­kets are con­cerned, the cur­rent sit­u­a­tion is that only the Nas­daq Com­pos­ite Index is trad­ing above both its 50– and 200-day aver­ages, although the other major US indices are mostly either on or within close range of their averages.

Of the other mature mar­kets on the table above only the Copen­hagen KFX Index, the Dublin ISEQ Index and the Span­ish IBEX 35 Index are trad­ing above both aver­ages. The other indices are a mixed bag, but have mostly started encoun­ter­ing resis­tance at the aver­ages prior to the declines of the past few days.

Most of the emerg­ing mar­kets are above their respec­tive 200-day mov­ing aver­ages, but a num­ber — Brazil, Rus­sia, Mex­ico, South Africa, Venezuela, Tai­wan and South Korea — have fallen back to below their 50-day lines. In most cases, the 50-day lines are still above the 200-day lines.

Study­ing chart pat­terns of the var­i­ous global bourses leads one to con­clude that in the case of most emerg­ing mar­kets base for­ma­tions have pos­si­bly been com­pleted. How­ever, in order to argue that the cycle lows are in, it is imper­a­tive that the key 200-day sup­port should hold. As far as mature mar­kets go, the pic­ture will remain incon­clu­sive until the pri­mary trend indi­ca­tors turn positive.

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Tags: Brazil, Bull Markets, Close Range, Copenhagen, Emerging Markets, Global Indices, Global Stock Market, Ibex 35, Iseq Index, Kfx, Lagging Indicator, Mature Markets, Media Coverage, Moving Averages, Nasdaq Composite Index, Percentage Decline, Percentage Gain, Shading, Spanish Ibex, Stock Markets, Term Trend
Posted in Brazil, Emerging Markets, Markets | Comments Off

Tim Bond on China and the Fed’s “punch bowl”

Wednesday, June 24th, 2009

Tim Bond, head of asset allo­ca­tion at Bar­clays Cap­i­tal, dis­cusses in the video clips below the out­look for Chi­nese growth, as well as gov­ern­ment bond yields and when the Fed­eral Reserve Board will start rais­ing rates. FT’s invest­ment edi­tor John Authers con­ducts the two-part inter­view that also cov­ers a num­ber of other top­i­cal issues.

Part 1:
Will Chi­nese domes­tic growth be the sav­iour of the global economy?

Click here or on the image below to view the interview.

Part 2:
Are bond yields nor­mal­is­ing? When will the Fed start rais­ing rates?

Click here or on the image below to view the interview.

Source: John Authers, Finan­cial Times, June 22 and June 23, 2009.

Tags: Asset Allocation, Barclays, Barclays Capital, Bond Yields, China, Chinese Growth, Federal Reserve, Federal Reserve Board, Financial Times, Global Economy, Government Bond, Image, Interview Source, John Authers, June 23, Punch Bowl, Saviour, Tim Bond, Topical Issues, Video Clips
Posted in Markets, Outlook | Comments Off

Bill King: Deflation trade back in vogue

Tuesday, June 23rd, 2009

This post is a guest con­tri­bu­tion by Bill King*, well-respected and straight-talking author of The King Report.

For the past few weeks we have pro­vided ample evi­dence, mostly via pri­vate indus­try data and ora­tion, that “green shoots” are just another Bernanke equiv­o­ca­tion and Street yearning.

We also opined that req­ui­site “insider” banks have fleeced pat­sies for nec­es­sary cap­i­tal, so mar­ket, beware.

Another of our themes is that the dol­lar, bonds and com­modi­ties keep check­ing the Fed across the big game board. And in order to avoid being check­mated, the Fed would have to sac­ri­fice stocks.

The past week or so we have argued that this “sec­ond deriv­a­tive” rally, which is the lat­est permabull/Street shill euphemism for “dead cat bounce”, is occur­ring on very poor tech­ni­cals. Vol­ume is con­tract­ing, which is con­trary to the start of any bull mar­ket. And lead­er­ship is by the mis­fits, which is never good.

On June 16 we noted that tech­ni­cal indi­ca­tors on the Dow Jones Trans­porta­tion Aver­age were declar­ing that its rally had ended; and because stocks were still in a ‘weekly’ sell, the daily ’sell’ sig­nals took on added gravitas.

Numer­ous pun­dits noted that insider sell­ing had reached 2007 lev­els as did sen­ti­ment “jigginess”.

And finally, if all of the above escaped one’s con­scious­ness, Gold­man CEO Lloyd Blank­fein, a week and a half ago, stated that this is not a recov­ery, the reces­sion will be ‘long and pro­tracted’, and any recov­ery would be ’shal­low’. Astute traders snick­ered that Gold­man now had to be short.

Ergo, there have been enough warn­ings to induce the pru­dent to lighten up and move to the sidelines.

The FOMC Com­mu­niqué [on Wednes­day, June 24] will be impor­tant only if it clearly indi­cates a sig­nif­i­cant change in pol­icy. Any­thing else is a sideshow that will pro­duce a fleet­ing effect on the markets.

So unless the Fed changes the table, the defla­tion trade is back in vogue. Stocks and com­modi­ties should fall; the dol­lar should rally. The big ques­tion is: will bonds rally or wallow?

… stocks CANNOT afford another spir­ited decline. 875 and 850 are sup­port. 825 is the line of demar­ca­tion; a breach would induce great fear that the next down-leg was under way …The Dow Jones Indus­trial Aver­age and S&P 500 Index are now a clear sell on a daily basis and have remained a sell on a weekly basis dur­ing the rally. Gold is a strong sell on a daily basis and is nearly a weekly sell.

The CRB, which is still a weekly sell, is now a daily sell … Gaso­line and oil indi­cate sell, daily. Bonds and the dol­lar, both weekly sells, are close to sig­nal­ing a daily buy.

Source: Bill King, The King Report, June 23, 2009.

* Bill King is mar­ket strate­gist with Chicago-based broker-dealer M. Ram­sey King Secu­ri­ties. He has over 30 years’ equity trad­ing and man­age­ment expe­ri­ence with major Wall Street firms includ­ing Nikko Secu­ri­ties Inter­na­tional, E F Hut­ton, Nomura Secu­ri­ties Inter­na­tional, Dean Wit­ter, and Jef­fries and Co. To sub­scribe to The King Report, e-mail Bill at billking@ramkingsec.com.

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Tags: Ample Evidence, Big Game, Bill King, Commodities, Dead Cat Bounce, Deflation, Dollar Bonds, Dow Jones, Dow Jones Transportation, Equivocation, Game Board, Misfits, Necessary Capital, oil, Oration, Private Industry, Shill, Sidelines, Sideshow, Stocks And Commodities, Technical Indicators, Transportation Average
Posted in Gold, Markets | Comments Off

Corporate Spreads Still Have a Way To Go

Tuesday, June 23rd, 2009

Cor­po­rate spreads have declined con­sid­er­ably since the “panic peaks” of late last year. For exam­ple, the cur­rent Baa spread in the US is 374 basis points com­pared with 611 basis points in Decem­ber as shown in the chart below.

The chart also shows cor­po­rate spreads dur­ing other peri­ods of intense eco­nomic, finan­cial and geopo­lit­i­cal strains. Strik­ingly, cor­po­rate spreads widened to 724 basis points in 1932 dur­ing the Great Depression.

David Rosen­berg, chief econ­o­mist and strate­gist at Gluskin Sheff & Asso­ciates, said: “To be sure, cor­po­rate spreads have come in a long way from their near cri­sis highs, but look­ing at prior peaks around major events and eco­nomic down­turns, it does appear as though there is still a lot of very bad news priced into the sector.”

Most indi­ca­tions are that the credit mar­ket tide has turned on the back of the mas­sive refla­tion efforts orches­trated by cen­tral banks world­wide and that the credit sys­tem has started thaw­ing. How­ever, although the con­va­les­cence process seems to be well on track, it still has a way to go before con­fi­dence in the world’s finan­cial sys­tem returns to more “nor­mal” lev­els, liq­uid­ity starts to flow freely again, and the eco­nomic recov­ery can commence.

Click here or on the image below for a larger chart.

Source: Gluskin Sheff & Asso­ciates, June 19, 2009.

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Tags: Bad News, Basis Points, Cape Town, Central Banks, Chart Source, Chief Economist, Convalescence, David Rosenberg, Economic Downturns, Economic Recovery, Gluskin Sheff, Great Depression, liquidity, Periods, Postcards, Strains, Strategist, Target, Tide
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Technical talk: Seasonal trends less bullish

Tuesday, June 23rd, 2009

The com­ments below were pro­vided by Kevin Lane of Fusion IQ.

As seen in the chart below, the S&P 500 Index bounced off its uptrend line near 900 a few ses­sions ago and man­aged a slight rally. How­ever, that rally stalled at what is now new minor resis­tance near 925. So the S&P 500 is cur­rently between an uptrend line and resis­tance. Above 925 the rally has a chance to resume, whereas a move below 900 will result in the cur­rent cor­rec­tion deepening.

The next stop down on any break of 900 would be the 875–880 sup­port zone. This is a more crit­i­cal sup­port area and the area the S&P def­i­nitely needs to hold. Any break below that and the S&P 500 would see a much deeper correction.

Typ­i­cally, as we enter the mid– to lat­ter sum­mer, sea­sonal trends also tend to become less bull­ish as the sum­mer rally is replaced by the sum­mer dol­drums. So, after an S&P 500 rally that went up 43.41 % from its trough to the recent peak, to expect a cor­rec­tive wave dur­ing the sea­son­ally weak mid– to late sum­mer is not a far stretch.

At this point in the game we would sug­gest tight­en­ing up stop-loss lev­els and being less patient with pull­backs in names on the long side that are not per­form­ing well.

Source: Kevin Lane, Fusion IQ, June 22, 2009.

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Tags: Cape Town, Corrective Wave, Critical Support, Far Stretch, Fusion, Game, Investment, Iq, Postcards, Pullbacks, Resistance, Seasonal Trends, Sessions, Stop Loss, Summer Doldrums, Summer Rally, Support Zone, Target, Trough, Uptrend Line
Posted in Markets | Comments Off

You Matter...

Monday, June 22nd, 2009

Tags: Legacy, Lifetime, Love, Nobel Prize Winner, People, Rush, Seth Godin, Slum, Special Thanks
Posted in Markets | Comments Off

"Loonie a Thoughtful Choice" (WSJ.com)

Monday, June 22nd, 2009

The Wall Street Jour­nal sug­gests that Amer­i­cans should think about invest­ing in Cana­dian assets to take advan­tage of the recent interim weak­ness in the Loonie, as Canada's eco­nomic out­look hinges on China and emerg­ing mar­kets' demand for oil and com­modi­ties.

WSJ: While the loonie might bounce around in the next few weeks, the expected long-term trend is for Cana­dian vigor. Econ­o­mists at TD Bank Finan­cial Group fore­cast the U.S. and Cana­dian dol­lars will reach par­ity by year's end, thanks to gen­eral U.S. dol­lar weak­ness and Canada's stronger fis­cal posi­tion. Canada, the world's 10th-largest econ­omy, has avoided bank bailouts and central-bank interventions.

The retail sales fig­ures aren't expected to reflect the recent rise in com­mod­ity prices that will likely buoy Cana­dian spend­ing in the sec­ond half of the year. The U.S.'s neigh­bor to the north has long been tightly linked to the U.S., its biggest trad­ing partner.

But the rise of the com­mod­ity demand from Asia is giv­ing Cana­di­ans some­thing else to watch.

Ben­jamin Tal, econ­o­mist at CIBC World Mar­kets, likens Canada's expo­sure to the U.S.'s woes as like a sec­ond­hand smoker. Bad but not a direct hit.

And with China scoop­ing up oil and met­als that Canada pro­duces, China is tak­ing a big­ger role in Canada's fortunes.

Source: WSJ.com, June 19, 2009

Tags: Bank Financial Group, Canadian Assets, Canadian Dollars, Canadian Market, CIBC, CIBC World Markets, Commodities, Commodity Prices, Direct Hit, Dollar Weakness, Economic Outlook, Emerging Markets, Fiscal Position, Fortunes, Hinges, oil, Parity, Retail Sales Figures, Td Bank Financial Group, Term Trend, Vigor, Wall Street Journal, Woes, Wsj
Posted in Emerging Markets, Markets, Outlook | Comments Off

Global retail sales – looks bad, consumption very weak

Monday, June 22nd, 2009

This post is a guest con­tri­bu­tion by Rebecca Wilder*, author of the of the News N Eco­nom­ics blog.

Con­sump­tion spend­ing is the “wild card” for the eco­nomic out­look in many devel­oped economies (and devel­op­ing, too, i.e., China). Mas­sive wealth loss has increased sav­ing around the world; and in coun­tries like the US, I still see a very big ques­tion mark as to how dis­crete will be the shift in sav­ing behav­ior. Or bet­ter yet, how far will the delever­ag­ing process go? Will sav­ing remain at its cur­rent 5.7% of dis­pos­able income? Go to 7%? Or 10%?

The answer is that nobody really knows. Nev­er­the­less, the effects of increased sav­ing and/or reduced con­sump­tion on eco­nomic growth to date have been dev­as­tat­ing. In the US, con­sump­tion took –2.75% and –2.99% from over­all growth in Q3 and Q4 2008, respec­tively (see the BEA’s con­tri­bu­tions to GDP growth table).

The drag com­ing from con­sump­tion is global. Below are sev­eral regional illus­tra­tions of the aver­age annual retail sales growth rate (per month) for 2008 and 2009 to date. Out of the 27 coun­tries listed below, 18 posted a pos­i­tive aver­age annual growth rate in 2008, while just 5 saw the same in 2009 ytd. Note: I do not have access to “good” data for Latin Amer­ica. I urge you to visit Vito­ria Saddi’s blog, Latin Amer­ica and Brazil — On Eco­nom­ics and Pol­i­tics; she recently wrote a nice piece sum­ming up the expan­sion­ary mon­e­tary pol­icy across Latin America.

Note: For each graph below, the month listed in paren­the­sis next to the coun­try name indi­cates the lat­est data point for retail sales. 2008 is the aver­age annual growth rate span­ning the months Jan­u­ary to Decem­ber. 2009 is the aver­age annual growth rate Jan­u­ary to date.

Retail Sales in Asia: Aus­tralia and China hold­ing on

Retail Sales in West­ern Europe: Ire­land and Greece give the rest of Europe some perspective

Retail Sales in Emerg­ing Europe: Latvia suf­fers, and Poland just barely hold­ing on. The RGE Mon­i­tor had a nice arti­cle about Latvia and Emerg­ing Europe not too long ago.

Retail Sales in the US and Canada: US con­sumers dropped off the map; both coun­tries are show­ing signs of sta­bi­liza­tion (the “not falling as quickly” story).

Looks bad — no won­der the con­sumer out­look is key to many eco­nomic futures.

Source: Rebecca Wilder, News N Eco­nom­ics, June 21, 2009.

* Rebecca Wilder is an econ­o­mist in the finan­cial indus­try. She was pre­vi­ously an assis­tant pro­fes­sor and holds a doc­tor­ate in economics.

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Tags: Asia Australia, Bea, Brazil, Canadian Market, Consumption, Disposable Income, Economic Growth, Economic Outlook, Emerging Europe, Expansionary Monetary Policy, GDP, GDP Growth, January To December, Latin America, Massive Wealth, Q3, Q4, Question Mark, Retail Sales Growth, RGE Monitor, Western Europe, Wild Card
Posted in Brazil, Markets, Outlook | 1 Comment »

Albert Edwards: Expect new equity lows in H2, China is global Achilles’ heel

Sunday, June 21st, 2009

Albert Edwards, global strate­gist of Société Générale, has always been a firm favourite among read­ers of Invest­ment Post­cards. His lat­est “Global Strat­egy Weekly” offers thought-provoking read­ing at a crit­i­cal junc­ture in finan­cial mar­kets. The para­graphs below come cour­tesy of Tyler Dur­den of Zero Hedge.

Not only does Edwards, who was pre­vi­ously vil­i­fied then praised for call­ing the 1997 Asian Bub­ble, see a sig­nif­i­cant drop in equi­ties before the end of the year, but his main con­cern is also every optimist’s great­est green shoot: China.

“Most areas in the mar­kets have now dis­counted a V-shaped recov­ery. Any doubt will trig­ger a rapid rever­sal in prices. I con­tinue to be extremely scep­ti­cal and see recent events as part of a 1930s-like, long march to revul­sion. Talk­ing about long marches, nowhere in the world fills me with more scep­ti­cism than the Chi­nese eco­nomic recov­ery. The con­tin­ued enthu­si­asm for all things China reminds me so much of the way investors were almost totally blind to the fact the US growth mir­a­cle was built on sand. China could be the biggest dis­ap­point­ment yet.”

Edwards fol­lows up with some very amus­ing obser­va­tions on mass delusions:

“It is amaz­ing how eas­ily group-think takes a vice-like hold in the finan­cial mar­kets. As the BRIC economies meet for their debut sum­mit, few dare to speak out against the new, ‘New Par­a­digm’. We also saw this same investor mania 13 years ago with the Asian Bub­ble, which the con­sen­sus thought was a growth mir­a­cle. But to go that far against the con­sen­sus invites a del­uge of hate mail. That is why I keep a copy of a World Bank book enti­tled Thailand’s Macro­eco­nomic Mir­a­cle: Sta­ble Adjust­ment and Sus­tained Growth. It was pub­lished in Octo­ber 1996, less than a year before Thailand’s (and Asia’s) eco­nomic collapse.

“It is all too easy for investors to buy into beguil­ing ‘growth’ sto­ries that are in fact utter non­sense. If the bub­ble of belief in China’s medium-term growth prospects finally bursts, it will have huge invest­ment impli­ca­tions. I will be writ­ing far more about this sub­ject over this sum­mer. But one thought, if China is doing so well, how come Chi­nese com­pany prof­its in the year to April are down some 30% yoy (see chart)?”

“SG has an excel­lent Asian econ­o­mist, Glenn Maguire, who, unlike me, has been totally right about the recov­ery in the Chi­nese data this year. But it was notable that when the 6.1% yoy rise in Q1 GDP was pub­lished, he said the real out­turn was actu­ally more like 3.5% yoy, but that the author­i­ties ’smooth’ the data at turn­ing points. Let me put that into plain Eng­lish. The Q1 6.1% GDP out­turn is sim­ply a lie — and it helps explain why the Chi­nese data are derided by so many eco­nomic com­men­ta­tors. Many have high­lighted that the GDP seems incon­sis­tent with other data such as elec­tric­ity out­put. This lat­ter series remains weak. In May it declined 3.2% yoy and by 3% on the smoothed basis.”

“Yet few dare to point out that the emperor’s clothes might be absent. When, for exam­ple, the Inter­na­tional Energy Agency had the temer­ity, a few weeks back, to sug­gest that the Chi­nese author­i­ties were inflat­ing the data (link), they were met with a robust broad­side from the Chi­nese National Bureau of Sta­tis­tics. The NBS said on its web­site ‘It is regret­table that the point of view in the orig­i­nal arti­cle is ground­less … We believe that, for an inter­na­tional orga­ni­za­tion, this approach lacks seri­ous­ness’ — link. I think this is a case of me thinks thou doth protest too much. Nev­er­the­less, an arti­cle on Radio Free Asia reported that The National People’s Con­gress had found “seri­ous fab­ri­ca­tion” in offi­cial sta­tis­tics — link and link.”

Hat tip: Zero Hedge, June 17, 2009.

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Tags: 13 Years, Achilles Heel, Amusing Observations, BRIC, BRICs, Critical Juncture, Deluge, Economic Collapse, Economic Recovery, Financial Markets, Global Strategist, Global Strategy, Hate Mail, Lows, Mass Delusions, New Paradigm, Optimist, Revulsion, Scepticism, Societe Generale, Tyler Durden, Utter Nonsense
Posted in Emerging Markets, Markets | Comments Off