Wealthtrack – The intersection of stocks, politics and energy

Sunday, January 31st, 2010

This week on Con­suelo Mack’s Wealth­track: the inter­sec­tion of stocks, pol­i­tics and energy and what they mean for your port­fo­lio. Con­suelo sits down with Wall Street’s num­ber one Wash­ing­ton ana­lyst, ISI Group’s Tom Gal­lagher; five-star FPA Cres­cent Fund man­ager, Steve Romick; and Wee­den & Co.’s leg­endary energy ana­lyst, Charles Maxwell.

This is excel­lent view­ing mate­r­ial. Click play to watch:

Note: The tran­script of this inter­view is not avail­able yet, but will be posted here as soon as it arrives.

Source: Wealth­track, Jan­u­ary 28, 2010.

Tags: Charles Maxwell, Consuelo Mack, Energy Analyst, Five Star, Fpa Crescent Fund, Intersection, Isi Group, Politics, Portfolio, Stocks, Tom Gallagher, Wall Street, Weeden
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Paul Volcker On How to Fix the Financial System

Sunday, January 31st, 2010

Paul Volcker's Op-Ed in the NY Times:

“The phrase “too big to fail” has entered into our every­day vocab­u­lary. It car­ries the impli­ca­tion that really large, com­plex and highly inter­con­nected finan­cial insti­tu­tions can count on pub­lic sup­port at crit­i­cal times. The sense of pub­lic out­rage over seem­ingly unfair treat­ment is pal­pa­ble. Beyond the emo­tion, the result is to pro­vide those insti­tu­tions with a com­pet­i­tive advan­tage in their financ­ing, in their size and in their abil­ity to take and absorb risks.

As things stand, the con­se­quence will be to enhance incen­tives to risk-taking and lever­age, with the impli­ca­tion of an even more frag­ile finan­cial sys­tem. We need to find more effec­tive fail-safe arrangements.

In approach­ing that chal­lenge, we need to rec­og­nize that the basic oper­a­tions of com­mer­cial banks are inte­gral to a well-functioning pri­vate finan­cial sys­tem. It is those insti­tu­tions, after all, that man­age and pro­tect the basic pay­ments sys­tems upon which we all depend. More broadly, they pro­vide the essen­tial inter­me­di­at­ing func­tion of match­ing the need for safe and read­ily avail­able depos­i­to­ries for liq­uid funds with the need for reli­able sources of credit for busi­nesses, indi­vid­u­als and governments.

Com­bin­ing those essen­tial func­tions unavoid­ably entails risk, some­times sub­stan­tial risk. That is why Adam Smith more than 200 years ago advo­cated keep­ing banks small. Then an indi­vid­ual fail­ure would not be so destruc­tive for the econ­omy. That approach does not really seem fea­si­ble in today’s world, not given the size of busi­nesses, the sub­stan­tial invest­ment required in tech­nol­ogy and the national and inter­na­tional reach required.”

Def­i­nitely worth reading.

Source: How to Reform Our Finan­cial Sys­tem. PAUL VOLCKER. NYT, Jan­u­ary 30, 2010

Tags: Adam Smith, Commercial Banks, Competitive Advantage, Critical Times, Depositories, Everyday Vocabulary, Financial Institutions, Implication, Leverage, Liquid Funds, Ny Times, Nyt, Paul Volcker, Payments Systems, Public Outrage, Reliable Sources, Substantial Investment, Substantial Risk, Unfair Treatment, Worth Reading
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Which Way Now? Hard Assets or Government Bonds?

Sunday, January 31st, 2010

The debate in the mar­ket between infla­tion­ists (major­ity) and defla­tion­ists (minor­ity) con­tin­ues to com­pli­cate investors' abil­ity to make deci­sions about where to deploy funds.

Dur­ing the course of the year, infla­tion­ists ben­e­fited from the tail­wind pro­vided by the declin­ing value of the dol­lar. The rally in risk assets came thanks to Bernanke's deflation-busting pol­icy, and, iron­i­cally, there­fore, as long as the news remained dire on GDP growth and unem­ploy­ment, we could count on inter­est rates to remain around zero per­cent, and the dol­lar to con­tinue lower as faith­less investors ditched it.

For nine months, the dol­lar declined as the mar­ket put risk back "on." At the very begin­ning of the rally, in March 2009, the market's mood was very dark. The gen­e­sis of the rally was the short cov­er­ing of bank stocks and finan­cials, and the full scale launch of the dol­lar funded carry trade, mostly tak­ing place in insti­tu­tional and hedge fund trad­ing rooms. Except for the wil­i­est, it most cer­tainly was not dri­ven by retail investors. The retail investor is usu­ally late to the party once fear of miss­ing oppor­tu­ni­ties sets in.

The rally in the dol­lar as of late Novem­ber has con­fused the infla­tion­ist view as the tail­winds appear to have reversed. This has been, and remains a dif­fi­cult time to make risk-based invest­ment decisions.

Read the whole arti­cle here.

by Pierre Dail­lie (AdvisorAnalyst.com), GlobeAdvisor.com, Jan­u­ary 31, 2010.
http://www.globeadvisor.com/advisoranalyst/aa20100131.html

Tags: Bank stocks, Bernanke, GDP, GDP Growth, Genesis, Globeadvisor, Government Bonds, Hedge Fund, interest rates, Investment Decisions, Late November, Launch, Nine Months, Rally, Retail Investor, Retail Investors, Short Covering, Tailwind, Tailwinds, Zero Percent
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Correction Characterized by Typical Risk Aversion Patterns

Sunday, January 31st, 2010

The past week’s per­for­mance of the major asset classes is sum­ma­rized in the chart below — a set of num­bers indi­cat­ing height­ened risk aver­sion on the back of grow­ing con­cerns about sov­er­eign debt issues, the longevity of the global eco­nomic recov­ery and Chi­nese pol­icy tight­en­ing. The only asset classes to end the week in the black were the US dol­lar (+1.5%) and Trea­sury Inflation-Protected Secu­ri­ties (TIPS) (+0.3%).

Source: StockCharts.com

The chart below, obtained from the Wall Street Jour­nal Online, also includes the per­for­mance of a few other finan­cial mar­kets dur­ing the past week.

Source: Wall Street Jour­nal Online, Jan­u­ary 29, 2010.

On the topic of risk aver­sion, and more specif­i­cally as far as equity mar­kets are con­cerned, a num­ber of indi­ca­tors make for inter­est­ing reading.

Stock mar­ket leadership

It is inter­est­ing that since the start of the nascent US stock mar­ket cor­rec­tion on Jan­u­ary 20, cycli­cal sec­tors such as the Mate­ri­als SPDR (XLB), Tech­nol­ogy SPDR (XLI) and Energy SPDR (XLE) have been lead­ing the mar­ket lower. Tra­di­tion­ally defen­sive sec­tors such as Con­sumer Sta­ples SPDR (XLP), Health Care SPDR (XLV) and Util­i­ties SPDR (XLU) also declined, but to a lesser extent than the S&P 500 Index as a whole (-6.6%) and the cycli­cal sectors.

Source: StockCharts.com

Emerg­ing markets

The chart below shows the rel­a­tive per­for­mance of the MSCI Emerg­ing Mar­kets Index ver­sus the Dow Jones World Index. After strong out­per­for­mance by emerg­ing mar­kets since Novem­ber 2008, the rel­a­tive per­for­mance has been mov­ing side­ways for the past three months, with emerg­ing mar­kets under­per­form­ing since early January.

Source: StockCharts.com

Small caps

Small-cap stocks have strongly out­per­formed large caps since the start of the March rally (see chart below). The rel­a­tive line has been volatile since Octo­ber, but it would not come as a sur­prise if small caps are head­ing for a bout of under­per­for­mance (i.e. a declin­ing line).

Source: StockCharts.com

The above are some of the pat­terns one would expect typ­i­cally to emerge dur­ing a cor­rec­tion phase. These will be on my radar screen in an attempt to assess the mag­ni­tude of the nascent correction.

Tags: Asset Classes, Chinese Policy, Consumer Staples, Debt Issues, Emerging Markets, Energy Spdr, Inflation Protected Securities, Market Leadership, Msci Emerging Markets, Msci Emerging Markets Index, Outperformance, Relative Performance, Risk Aversion, Small Cap Stocks, Small Caps, Stock Market Correction, Treasury Inflation Protected Securities, Us Stock Market, Wall Street Journal, Wall Street Journal Online, Xlu
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Global Stock Markets: Performance Round-up

Sunday, January 31st, 2010

A sum­mary of the move­ments of major global stock mar­kets for the past week and var­i­ous other mea­sure­ment peri­ods is given in the table below.

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

The nascent stock mar­ket cor­rec­tion gained momen­tum over the past week on the back of grow­ing con­cerns about sov­er­eign debt issues, the sus­tain­abil­ity of the global eco­nomic recov­ery and Chi­nese pol­icy tight­en­ing. The MSCI World Index and the MSCI Emerg­ing Mar­kets Index declined by 2.6% and 3.1% respec­tively dur­ing the past week, tak­ing the losses for Jan­u­ary to 4.2% and 5.6%. Among mature mar­kets, the Scan­di­na­vian bourses and Bel­gium bucked the trend, whereas Rus­sia, Venezuela and Chile returned pos­i­tive num­bers among devel­op­ing markets.

Top-performing indices this week were Esto­nia (+11.4%), Lithua­nia (+8.2%), Bangladesh (+5.7%), Slo­va­kia (+3.5%) and Ukraine (+3.3%). At the bot­tom end of the per­for­mance rank­ings, coun­tries included Lux­em­bourg (-4.8%), South Korea (-4.7%), China (-4.5%), Japan (-3.7%) and Aus­tria (-3.4%).

Notwith­stand­ing the huge rally since the March lows, only the Chile Stock Mar­ket Gen­eral Index — again a solid per­former as a result of a pos­i­tive assess­ment of Sebas­t­ian Pinera’s elec­tion vic­tory — has been able to reclaim its 2007 pre-crisis peak and is now trad­ing 8.8% higher.

As far as the US indices are con­cerned, Wall Street closed on a weak note, revers­ing gains of ear­lier in the week to record a third con­sec­u­tive down-week. All ten eco­nomic sec­tors (as mea­sured by the SPDR exchange-traded funds [ETFs]) closed lower, with the defen­sive sec­tors out­per­form­ing the cycli­cal ones.

The major moving-average lev­els for the bench­mark indices are also given in the table above, with most trad­ing below their 50-day mov­ing aver­ages. With the excep­tion of the Chi­nese Shang­hai Com­pos­ite Index, all the indices are still trad­ing above the key 200-day mov­ing averages.

Of the 99 stock mar­kets I keep on my radar screen, 40% recorded gains, 55% showed losses and 5% remained unchanged. The per­for­mance map below tells the past week’s rather bear­ish story.

Emergin­vest world mar­kets heat map

Source: Emergin­vest (Click here to access a com­plete list of global stock mar­ket movements.)

Tags: Austria 3, China, Chinese Policy, Debt Issues, Economic Sectors, Election Victory, Emerging Markets, ETF, ETFs, Exchange Traded Funds, Global Stock Markets, Mature Markets, Moving Averages, Msci Emerging Markets, Msci Emerging Markets Index, Msci World Index, Performance Rankings, Radar Screen, Russia, Sebastian Pinera, Shanghai Composite Index, Showe, Sovereign Debt, Spdr, Stock Market Correction
Posted in Canadian Market, China, ETFs, Markets | Comments Off

Year-End/New-Year Indicators: Progress Report

Saturday, January 30th, 2010

An old stock mar­ket saw tells us if the month of Jan­u­ary is higher, there is a good chance the year will end higher, i.e. the so-called “Jan­u­ary Barom­e­ter”. On the other hand, every down-January since 1950 has been fol­lowed by a new or con­tin­u­ing bear mar­ket or a flat year. “As Jan­u­ary goes, so goes the year,” said Jef­frey Hirsch (Stock Trader’s Almanac).

The result for Jan­u­ary is in, and it is not a good one: The Dow Jones Indus­trial Index closed 3.5% down on the month and the S&P 500 Index 3.7% lower.

Also, accord­ing to Hirsch, the “Decem­ber Low Indi­ca­tor” says that should the Dow Jones Indus­trial Index close below its Decem­ber low any­time dur­ing the first quar­ter, it is fre­quently an excel­lent warn­ing sign. The key num­ber to watch was the low of 10,286 (Decem­ber — now his­tory with the Dow down to 10,067.

Although this is not par­tic­u­larly sci­en­tific research, it is clear we are not see­ing a good start to 2010 and should at least be mind­ful of these indicators.

Con­sid­er­ing the short-term tech­ni­cal pic­ture of the Nas­daq Com­pos­ite Index, Adam Hewi­son (INO.com) pro­vides a short analy­sis show­ing a rather neg­a­tive down­side break. Click here to access the pre­sen­ta­tion. (He also recently ana­lyzed the Dow Jones Indus­trial Index and the S&P 500 Index. Click here and here.)

Tags: Almanac, Barometer, Bear Market, Dow Jones, Dow Jones Industrial, Dow Jones Industrial Index, Downside, First Quarter, Good Chance, Jeffrey Hirsch, Key Number, Month Of January, Nasdaq Composite Index, New Year, Progress Report, Stock Market, Stock Trader, Warning Sign, Year End
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Picture du Jour: Gold price benefits from declining production

Saturday, January 30th, 2010

With the bul­lion price (tem­porar­ily?) under pres­sure — and it really is anybody’s guess how the short term will unfold — a long-term met­ric such as gold pro­duc­tion pro­vides an inter­est­ing perspective.

Research by Cor­mark Secu­ri­ties (via US Global Investors — Weekly Investor Alert), shows that global gold pro­duc­tion peaked in 2001 at 2,600 met­ric tons. World out­put has been steadily declin­ing from that point because of lower grades and higher cap­i­tal costs that are mak­ing it uneco­nomic for pro­duc­ers to bring new gold onto the market.

I expect the pro­duc­tion trend to keep head­ing south and thereby pro­vide solid sup­port to the yel­low metal in the medium term.

Source: US Global Investors — Weekly Investor Alert, Jan­u­ary 29, 2010.

Tags: Bullion Price, Cormark Securities, Global Gold, Global Investor, Global Investors, Gold, Gold Bullion, Gold Market, Gold Price, Gold Production, Guess, Investor Alert, Metric Tons, New Gold, Perspective, Producers, Production Trend, Term Source
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Chinese Stocks Break Down

Saturday, January 30th, 2010

The Chi­nese Shang­hai Com­pos­ite Index — the index that led the turn­around in global stock mar­kets by five months — seems to be in trou­ble. The Index has just become the first major index to breach its key 200-day mov­ing aver­age, often seen as an indi­ca­tor of the pri­mary trend. In order to guard against whip­saw­ing one would have to wait a few days for the break to be confirmed.

Source: StockCharts.com

Tags: Break, Chinese Stocks, Few Days, Five Months, Global Stock Markets, Major Index, Moving Average, Shanghai Composite Index, Turnaround
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Is a Narcissist Keeping You Awake At Night?,
and other Weekend Reads

Friday, January 29th, 2010

Here are AdvisorAnalyst's week­end reads. Have a great weekend.....keep warm!

How Come I Feel More Tired When I Sleep Longer?

There's noth­ing more frus­trat­ing than sleep­ing longer to "catch up" on much-needed sleep, only to feel even more tired that day. Some­times, sleep­ing longer than usual does the trick for reju­ve­nat­ing an over-tired body, but some­times it can make mat­ters worse. Why does this hap­pen? More impor­tantly, how can you avoid it?

Is A Nar­cis­sist Keep­ing You Awake At Night?

Nar­cis­sists can keep a neu­rotic awake, because the fear, hurt and/or anger (and sub­se­quent guilt and anx­i­ety over being so angry) a neu­rotic feels at being cared so lit­tle about can play over and over in their mind, mak­ing it dif­fi­cult to fall asleep. What can you do about it if you're sleep­ing with a narcissist?

5 Foods To Help You Snooze

Can't sleep? Maybe it's some­thing you ate–or didn't. The foods we eat can dra­mat­i­cally affect how much, and how well, we sleep. Some calm and relax, some wake up the ner­vous sys­tem, and some just down­right wire you for the night.

Young adults at 20 now at risk of heart disease

Your kids have now joined you in the grow­ing num­ber of Cana­di­ans at risk for car­dio­vas­cu­lar dis­ease, accord­ing to the Heart and Stroke Foun­da­tion of Canada.

Divorce And 5 Rea­sons Not To Go To Bed Angry!

Get­ting angry may really be a cry for con­tact, hav­ing lost our con­nect­ed­ness with each other; it may be express­ing feel­ings of rejec­tion, grief, lone­li­ness, or a long­ing to love and be loved. Often anger is say­ing I love you, or I need you, or please hear me, yet we are hurl­ing abuse at each other instead.

The His­tory of Valentine's Day

Every Feb­ru­ary, across the coun­try, candy, flow­ers, and gifts are exchanged between loved ones, all in the name of St. Valen­tine. But who is this mys­te­ri­ous saint and why do we cel­e­brate this hol­i­day? The his­tory of Valentine's Day — and its patron saint — is shrouded in mys­tery. But we do know that Feb­ru­ary has long been a month of romance. St. Valentine's Day, as we know it today, con­tains ves­tiges of both Chris­t­ian and ancient Roman tra­di­tion. So, who was Saint Valen­tine and how did he become asso­ci­ated with this ancient rite? Today, the Catholic Church rec­og­nizes at least three dif­fer­ent saints named Valen­tine or Valenti­nus, all of whom were martyred.

"Doga", yoga and med­i­ta­tion for dogs and their owners

Dog-owners and yoga-lovers have finally found a way to bring their two pas­sions together: doga. Yoga classes for dogs and their own­ers are sprout­ing all around the United States, com­bin­ing mas­sage and med­i­ta­tion tech­niques with gen­tle canine and human stretch­ing. Ludi­crous or bliss­fully relaxing?

Popcorn's Dark Secret

Sit­ting in a dark movie the­ater with your friends and a tub of but­tery pop­corn sounds like a per­fect way to spend a Sat­ur­day night — and it could be, if you are will­ing to share your pop­corn with the entire row of movie­go­ers around you.

How To Make Red Vel­vet Cupcakes

There are many hol­i­days that would ben­e­fit from the addi­tion of red vel­vet cup­cakes to your cel­bra­tion. Top them with candy hearts for Valentine's Day, blue­ber­ries for Memo­r­ial Day or the 4th of July, and green sprin­kles for Christ­mas. Of course, you don't need a "red" hol­i­day to enjoy these sin­gle serv­ing treats. Whip up a batch of red vel­vet cup­cakes when­ever you're in the mood.

Split­ting House­hold Chores Between You and Your Partner

"I picked up the kids from day­care all week; you bathed the dog."

13 Dis­ci­pline Tricks from Teachers

As I sat on a teeny-tiny chair read­ing to Vivian in her kinder­garten class­room, I noticed her teacher, Deb­bie, do some­thing that made my jaw drop. "David called me 'liar liar pants on fire!' and he didn't stop!" one boy reported to Deb­bie. Deb­bie took David's hand and said, "Come over here and help me make sure I have enough milk for snack."

Eat what you are

A sliced Car­rot looks like the human eye. The pupil, iris and radi­at­ing lines look just like the human eye...and YES sci­ence now shows that car­rots greatly enhance blood flow to and func­tion of the eyes.

Ste­fan Aschan: Get­ting Raw With Honey

Honey, yes honey. No, not your sweet­heart — the one you adore and want to spend the rest of your life with. Rather, the honey that is pro­duced from the busy bees.

F Me Cufflinks

Social media has taken over the way we con­nect and com­mu­ni­cate with our friends and fam­ily. From your boy/girlfriend to the ran­dom kid who ate glue in grade school, we now can keep up with goings-on of every­one we cross in our path.

Exer­cis­ing feet can help avoid injuries to back, other body parts

Our feet are the most used and abused part of our body. Our feet are our foun­da­tion; they are built for energy propul­sion and shock absorp­tion of the entire body. Yet we give them so lit­tle atten­tion. As we all get back to our fit­ness pro­grams, take care of your feet so you can achieve your goals.

Is sleep depri­va­tion inter­fer­ing with your kids' learning?

Teach­ers no doubt saw plenty of yawn­ing, sleepy-eyed kids stum­bling to school this week, strug­gling to adjust to the time change.

Valen­tine Pan­cakes with Maple Rasp­berry Sauce

Make break­fast spe­cial with these heart-shaped but­ter­milk pan­cakes topped with a sweet ane easy-to-make raspberry-maple sauce. Other than tast­ing great, they can also be made ahead a reheated for an any-time treat.

Valentine's Day Gifts We Actu­ally Want

I like get­ting Valentine's Day gifts as much as the next girl, but I can't help but nit­pick when I get a rose bou­quet from the gas sta­tion. This year, instead of being pas­sive (or worse, passive-aggressive), I'm for­ward­ing this con­ve­nient list on to my sig­nif­i­cant other — I won't be dis­ap­pointed, and he'll be happy that the pressure's off.

Tags: Canadian Market, Candy Flowers, Cardiovascular Disease, Connectedness, Expressing Feelings, Flowers And Gifts, Heart And Stroke, Heart And Stroke Foundation, Heart And Stroke Foundation Of Canada, Heart Disease, History Of Valentine, Loneliness, Longing, Narcissist, Narcissists, Patron Saint, Risk Of Heart Disease, St Valentine, Valentine Day, Valentine S Day, Young Adults
Posted in Canadian Market, Markets | Comments Off

India's Growing Appetite for Energy

Friday, January 29th, 2010

India’s appetite for energy con­tin­ues to grow, push­ing Indi­ans to con­sume coal in ever great quan­ti­ties. Whole cities, like Jharia, in east­ern India, are dis­ap­pear­ing. At a time when Global Warm­ing is at the top of world’s agenda, FRANCE 24 takes you to a town sac­ri­ficed to the pur­suit of energy. Click the image for the video.

Tags: Agenda, Appetite, Coal, Eastern India, Emerging Markets, France 24, Global Warming, India, India India, Indians, Quantities
Posted in Bonds, Emerging Markets, Gold, India, Markets | Comments Off

Money Never Sleeps

Friday, January 29th, 2010

This is the trailer for Wall Street 2 : Money Never Sleeps.

Tags: Money, Wall Street
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Niall Ferguson: Others will Follow Greek Debt Tragedy

Friday, January 29th, 2010

The world debt over­hang is threat­en­ing the world recov­ery, because mar­kets will real­ize at some point how risky it is and the yields on bonds will increase, Niall Fer­gu­son, pro­fes­sor of his­tory at Har­vard Uni­ver­sity, told CNBC on Thursday.

“I think we have a sit­u­a­tion where Greece is lead­ing the pack but other coun­tries will fol­low,” Fer­gu­son told “Squawk Box Europe.”

Very few coun­tries were able to cope with debt of over 100% of GDP in the past, and “the clas­sic ques­tion is whether or not you default or try to inflate it away,” Fer­gu­son said.

The United States is in con­trol of its cur­rency and can print more to reduce its debt, but Greece and other coun­tries in the euro can­not do this, there­fore the cost of their debt will rise, he predicted.

Source: CNBC, Jan­u­ary 28, 2010.

Tags: Bonds, Classic Question, Cnbc, Countries In The Euro, Currency, Debt Overhang, Europe, GDP, Greece, Greek Tragedy, Harvard University, Niall Ferguson, Reduce Debt, Squawk Box, United States, World Debt
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Technical Talk: Buying Power Argues for Contained Correction

Friday, January 29th, 2010

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

As seen in the chart below, indi­vid­ual investor allo­ca­tions to equi­ties have only recently moved back above its 21-year mean allo­ca­tion of 60%. The mas­sive under-allocation to equi­ties in late 2008 into the 2009 low was one of the major rea­sons we became so bull­ish on stocks since it sug­gested that sell­ing was washed out of the mar­ket and mas­sive liq­uid­ity (aka — buy­ing power) was built up ready to buy back into stocks.

That said we have seen assets rotate back to equi­ties over the last 10 months and the mar­ket, being a liq­uid­ity dri­ven ani­mal, has responded accord­ingly. Cur­rently investors have only a slight over­weight to equi­ties at 4.0% above the 21-year mean or stated another way investors are now 64.0% allo­cated to equi­ties ver­sus the 21-year mean of 60.0%. This is one rea­son why we con­tinue to believe that after a bit of a cor­rec­tion stocks can move higher as investor liq­uid­ity is not tapped out yet.

While not as ample as near the lows buy­ing power remains ade­quate to power/move stocks higher and keep cor­rec­tions fairly well contained.

Source: Kevin Lane, Fusion IQ, Jan­u­ary 28, 2009.

Tags: Allocations, Assets, Fusion, Individual Investor, Investors, Iq, Kevin Lane, liquidity, Lows, Market Driven, Move Stocks, Overweight, Power Move
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Rogoff: Economy to crash if it keeps debt appetite

Friday, January 29th, 2010

The world econ­omy is likely to crash and burn if it keeps gorg­ing on debt, Ken­neth Rogoff, pro­fes­sor of eco­nom­ics at Har­vard Uni­ver­sity, told CNBC in Davos on Thursday.

Source: CNBC, Jan­u­ary 28, 2010.

Tags: Appetite, Cnbc, Crash And Burn, Crash Burn, Davos, Economics, Harvard University, Kenneth Rogoff, World Economy
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Technical Talk: A Correction — not a Top

Thursday, January 28th, 2010

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

A few days before the cor­rec­tion began, we stated:

“Now that said, can we have a cor­rec­tion of five to ten per cent? Of course!! How­ever, we con­tinue to find it hard to believe the ‘top’ is in play when every­one con­tin­ues to call for it! After all, tops are formed when every­one becomes so com­fort­able with stocks they invest all their avail­able liq­uid­ity with­out hes­i­ta­tion or a care in the world. And clearly that is not the cur­rent sentiment.”

We fur­ther stated, “Again it is very likely we will have some sem­blance of a decent size pull­back soon, see­ing the S&P 500 has run up 10% from just Novem­ber 2009, 31% since July 2009 and 64% from the March 2009 lows.”

How­ever, do we think a major top is in? The answer again remains no.

But regard­ing the pro­tec­tion of cap­i­tal from a draw­down or the risk of putting new money to work today, a dif­fer­ent answer is required. The answer in this sce­nario is the run-up in equi­ties puts investors at risk to a cor­rec­tion, not a top, but a cor­rec­tion. Our guess is that the cor­rec­tion would be sim­i­lar in size and scope to the June/July 2009 cor­rec­tion that saw the S&P fall 9.0%.

All that said, we still believe this is a cor­rec­tion. Cor­rec­tions tend to be fast and furi­ous and down 5+% on the S&P 500 in five days would meet the def­i­n­i­tion of fast and furi­ous. We do believe this cor­rec­tive wave will go lower still, likely another 5% before we see a more sus­tain­able bounce.

At this stage we are of the opin­ion that stop losses should be hon­oured and risk dis­ci­plines adhered to as cor­rec­tions (even though they may not be tops) can be very painful if one just watches like a dear in the head­lights. A 10% cor­rec­tion would take the S&P 500 down to its first Fibonacci retrace­ment (sup­port) level near 1,035. Near that level we would expect the mar­ket to stabilise.

Our faith that this is not a major top lies in sev­eral obser­va­tions: First, many indus­try groups still remain in pos­i­tive price trends (even with the cur­rent sell-off taken into account). Sec­ond, sen­ti­ment remains too neg­a­tive and dis­af­fec­tion­ate towards stocks for this to be a top. Tops are formed on exces­sive opti­mism, com­pla­cency and a lust for stocks (none which presently exists). Last but not least, investor liq­uid­ity remains more than ade­quate as most asset allo­ca­tion sur­veys still have equi­ties under­weight rel­a­tive to their his­tor­i­cal norms.

So for now the tape remains defen­sive and the sell­ers for the first time in a while are in con­trol of that tape. While this con­di­tion exists it will be hard to see any­thing but shal­low bounces.

How­ever, at lower lev­els we believe buy­ers will re-emerge. When they do, along with the neg­a­tive sen­ti­ment and trad­ing strate­gies that are cur­rently in place, equi­ties are likely to surge once more.

Source: Kevin Lane, Fusion IQ, Jan­u­ary 27, 2010.

Tags: Corrective Wave, Dear In The Headlights, Decent Size, Disciplines, Drawdown, Few Days, Fibonacci Retracement, Guess, Hesitation, Indu, Iq, liquidity, Losses, Lows, New Money, Pullback, Scope, Semblance, Sentiment
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Alert: Shanghai and Greenback Threatening 200-day Averages

Thursday, January 28th, 2010

I men­tioned in a post two days ago that all the major stock mar­ket indices were still trad­ing above the key 200-day mov­ing aver­ages — an indi­ca­tor of the pri­mary trend. The Shang­hai Com­pos­ite Index (2,994 this morn­ing) has since fallen to within a hair’s breadth of the 200-day line (2,989).

Also, the US Dol­lar Index (78.77) is right up against its 200 DMA (78.59).

These are impor­tant lev­els and one should keep a close eye on them to see where major breaks materialize.

Source: StockCharts.com

Source: StockCharts.com

Tags: Breadth, Dma, Greenback, Major Breaks, Moving Averages, Shanghai Composite Index, Stock Indices, Stock Market Indices, Trend, Us Dollar Index
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Stock Market Leadership Points to Risk Aversion

Wednesday, January 27th, 2010

As far as lead­er­ship since the start of the nascent US stock mar­ket cor­rec­tion on Jan­u­ary 20 is con­cerned, it is inter­est­ing that cycli­cal sec­tors such as the Mate­ri­als SPDR (XLB), Finan­cial SPDR (XLF), Energy SPDR (XLE) and Tech­nol­ogy SPDR (XLI) have been lead­ing the mar­ket lower. Tra­di­tion­ally defen­sive sec­tors such as Con­sumer Sta­ples SPDR (XLP), Util­i­ties SPDR (XLU) and Health Care SPDR (XLV) also declined, but to a lesser extent than the S&P 500 Index as a whole (-5.1%) and the cycli­cal sectors.

This is the type of pat­tern one would expect typ­i­cally to emerge dur­ing a cor­rec­tion phase.

Source: StockCharts.com

Turn­ing to the broader mar­ket, Adam Hewi­son (INO.com) pro­vides a short tech­ni­cal analy­sis and poses the ques­tion “Is the Dow in trou­ble?” Click here to access the presentation.

The final words go to David Fuller (Fuller­money) com­ment­ing as fol­lows from across the pond: “Why might this be no more than another cor­rec­tion rather than the begin­ning of a new bear trend? Unless the mod­est global eco­nomic recov­ery is about to slide back into another slump, which I doubt, I do not see the cat­a­lysts for another stock mar­ket col­lapse. Instead, and despite the cur­rent uncer­tainty, I think this could still be an eco­nomic sweet spot for stock mar­kets char­ac­ter­ized by mod­est global GDP growth, rea­son­ably accom­moda­tive mon­e­tary pol­icy and gen­er­ally low infla­tion­ary pressures.

“Yes, there has been some over­heat­ing in emerg­ing Asia, espe­cially China where the PRC’s mon­e­tary author­i­ties have moved early and incre­men­tally to con­tain this prob­lem, as I have said before. In North Amer­ica and Europe cen­tral banks are talk­ing about end­ing quan­ti­ta­tive eas­ing but that is not the same as a mon­e­tary squeeze. His­tor­i­cally, the US stock mar­ket has usu­ally con­tin­ued to rise dur­ing the early stages of a cycle of higher short-term inter­est rates from the Fed, and this has yet to commence.”

Tags: Central Banks, China, Consumer Staples, Correction Phase, David Fuller, Emerging Asia, Emerging Markets, Energy Spdr, GDP Growth, Global Gdp, Inflationary Pressures, Leadership Points, Market Collapse, Market Leadership, Monetary Authorities, Stock Market Correction, Stock Markets, Us Stock Market, Xle, Xlp, Xlu, Xlv
Posted in Canadian Market, China, Markets | Comments Off

The Deleveraging Has Begun

Wednesday, January 27th, 2010

The post below is a guest con­tri­bu­tion by Com­stock Part­ners, the highly regarded invest­ment man­ager run by Charles Minter.

Barron’s mag­a­zine printed the first part of its annual Round­table dis­cus­sion of 2010 this past week.  We noticed that many of the par­tic­i­pants were very con­cerned about the debt (mostly gov­ern­ment debt while we think total debt is a much more use­ful met­ric).  Marc Faber, in fact, talked about a 7,000 word New York Times arti­cle by Pro­fes­sor Paul Krug­man.  He stated that the arti­cle “How Did Econ­o­mists Get It So Wrong?” never men­tioned that exces­sive credit growth or lever­age was the cause of mon­e­tary insta­bil­ity and brought about the finan­cial cri­sis.  Bill Gross stated that by low­er­ing inter­est rates we pro­mote con­sump­tion instead of man­u­fac­tur­ing.  Cen­tral bankers were forced to respond with liq­uid­ity to a prob­lem that devel­oped over the past 25 years.  There was more dis­cus­sion of credit growth (another way to say debt growth) in the macro analy­sis that is always pre­sented in the first part of the three Barron’s arti­cles of the Round­table.  The amaz­ing thing to us is that most of the round­table par­tic­i­pants under­stand the same prob­lems we talk about almost every sin­gle week, yet are mostly very pos­i­tive on the mar­ket for 2010.

It seems that most of the round­table par­tic­i­pants under­stand the debt prob­lem we have been talk­ing about for the past 14 years. The worst period of the debt explo­sion started with the out­ra­geous inter­net bub­ble in the late 1990s, con­tin­u­ing through the cor­rec­tion in the inter­net bub­ble, then the hous­ing bub­ble which should have been obvi­ous to every­one (even the Fed) and then the finan­cial cri­sis of 2008.  We are astounded that we have the poten­tial for another bub­ble in the stock mar­ket now.  We expected the rebound from a much over­sold mar­ket in March of 2009, but not a 70% rebound from the lows.  We don’t believe it is pos­si­ble to fool the investors in the U.S. stock mar­ket one more time. Espe­cially this close to the 2003–2007 and 1996–2000 bubbles.

Hope­fully, all of our reg­u­lar view­ers know that we have been, and still are, very con­cerned about the debt sit­u­a­tion in this coun­try– and many oth­ers.  Until bal­ance sheets are repaired we don’t think the stock mar­ket will do well and expect the sec­u­lar bear mar­ket to con­tinue.  We really don’t know why the round­table par­tic­i­pants, or vir­tu­ally any­one else for that mat­ter, do not bring up the fact that the total debt in this coun­try dou­bled from 2000 to present (from $26 tril­lion to $53 tril­lion).  This drove the debt (both pub­lic and pri­vate) to 375% of GDP in this coun­try before recently declin­ing to 370%.  This 370–375% num­ber is the high­est since the Great Depres­sion when it reached 260% at the peak, even with a col­laps­ing GDP. Even more incred­i­ble is that the present debt level does not include the enti­tle­ment and pen­sion oblig­a­tions that would just about dou­ble the total debt from where it is now.

This U.S. debt to GDP started accel­er­at­ing in the 1960s (with the Viet­nam War, Space Race and con­tin­u­a­tion of the Cold War) when it took $1.53 to gen­er­ate an addi­tional $1 of GDP.  Then dur­ing the 1970s, with the con­tin­u­a­tion of the Viet­nam War, it took $1.68 to gen­er­ate $1 of GDP.  In the 1980s (includ­ing Lever­aged Buy­outs and Star Wars) it took $2.93.  In the 1990s (with the inter­net bub­ble) the debt it took to gen­er­ate $1 of GDP climbed to $3.12.  How­ever, the most incred­i­ble of all was the first decade of this cen­tury when it took over $6 to gen­er­ate an addi­tional $1 of GDP.  That decade included the war on ter­ror, two wars, pri­vate equity firms (new name for lever­aged buy­outs) and hous­ing and another stock mar­ket bub­ble, as well as promises of enti­tle­ments that we have no pos­si­bil­ity of being able to keep.  Clearly, need­ing over $6 to gen­er­ate $1 of GDP is unsustainable.

We have been try­ing to com­pare the U.S. total debt to GDP to other coun­tries for some time and have some fig­ures that were just cor­rob­o­rated with a recent McK­in­sey report.  As high as our U.S. debt to GDP num­ber is, believe it or not, it is not as bad as many other coun­tries accord­ing to a recent report by McK­in­sey Global Insti­tute (the research arm of McK­in­sey & Co.).  The UK debt to GDP is about 470%, Japan 460%, Spain 340%, South Korea 340%, Switzer­land 315%, France and Italy about 300%, Ger­many 275%, and Canada 245% (all are records of debt to GDP).  The BRIC coun­tries (Brazil, Rus­sia, India, and China) all have debt to GDP under 160%.  We have been warn­ing our view­ers about the pain of delever­ag­ing for some time (Spe­cial Reports-’Deleveraging the U.S. Econ­omy” 8/09-comparing our delever­ag­ing to Japan, and “Debt Dynam­ics Will Hold Back Econ­omy” 11/09).  The McK­in­sey report agrees that the delever­ag­ing will be painful and take years to resolve.

You may think that since China and the other BRIC coun­tries are not as lever­aged as the more devel­oped coun­tries that they could grow enough to pull up the global econ­omy. But you have to remem­ber the McK­in­sey report was as of 2008.  China had a stim­u­lus pack­age that was three times the size of the U.S. stim­u­lus pack­age rel­a­tive to GDP.  This means the U.S. stim­u­lus pack­age of $787 bil­lion would have been over $2 tril­lion if we had a pack­age as large as China.  Also, the Chi­nese gov­ern­ment encour­aged bank lend­ing, and banks loaned out $1.3 tril­lion dur­ing 2009.  They could now be more lever­aged than the United States.  China also could be the next bub­ble as they are build­ing up their econ­omy to sell prod­ucts to a world that is deleveraging.

As we stated in many com­men­taries and “spe­cial reports” in the past we expect the delever­ag­ing of Amer­ica, as well as many other coun­tries, to be the pri­mary focus of cen­tral banks worldwide-not the escape from the finan­cial cri­sis, not the earn­ings that are sup­ported by cost cut­ting, and not the eco­nomic rebound sup­ported by the stim­u­lus and inven­tory rebuild.  The delever­ag­ing of Amer­ica and much of the global econ­omy will trump every­thing else.

In the past when a nation’s total debt rose to unsus­tain­able lev­els it would just debase its cur­rency enough to try to export its way to pros­per­ity, and even this didn’t always work.  How­ever, when all its major trad­ing part­ners also need to debase their cur­ren­cies, it becomes an impos­si­ble task.  This takes us to the “Cycle of Defla­tion” chart (attached) which we authored and point to in almost every dis­cus­sion of our debt prob­lem.  We are still in the com­pet­i­tive deval­u­a­tion part of the cycle; how­ever, you can only devalue or debase your cur­rency rel­a­tive to other coun­tries in order to gain a com­pet­i­tive advan­tage. And when all of your trad­ing part­ners are in the same boat as you, then you are forced to take more dras­tic mea­sures, and that brings you down the “Cycle of Defla­tion” to “Beggar-thy-Neighbor poli­cies.  This essen­tially means that the coun­try in trou­ble will do what­ever it takes to sell its prod­ucts abroad.  When a coun­try needs to keep its plants open it might have to sell its prod­ucts at less than cost, or put restric­tive tar­iffs on imports and/or sub­si­dize exports.

Essen­tially, we believe we are still in a con­tin­u­a­tion of the finan­cial cri­sis we entered in 2008.  We have been headed for this cri­sis for a few decades but are just now real­iz­ing the con­se­quences of the debt build up over the years. Before this is over we expect the pri­vate debt in the U.S. to drop sub­stan­tially (from $40 tril­lion now towards $30 tril­lion or even as low as $20 tril­lion) while the gov­ern­ment debt explodes to at least dou­ble the $15 tril­lion presently.  And since most of our trad­ing part­ners are in the same boat as we are, they will also be forced to become more pro­tec­tion­ists.  This does not bode well for the global economy.

In con­clu­sion, we can­not empha­size enough that the total debt to GDP is so oner­ous for the economies of most mature coun­tries as well as China, that the global econ­omy will suf­fer tremen­dously over the next few years.  We have dis­cussed this over and over again and, in fact, with a lit­tle “tongue in cheek” stated in many com­ments and “spe­cial reports” that when Obama real­izes what he inher­ited he will “demand a recount” of the 2008 elec­tion.  The masses don’t trust the lib­er­als and they don’t trust the con­ser­v­a­tives –they don’t like Democ­rats and they don’t like Republicans-they don’t like any insti­tu­tion be it gov­ern­ment, jour­nal­ism, or any­thing else-they just want things to CHANGE.  The reg­u­la­tion of the bank­ing indus­try, the tea par­ties, the pop­ulist demands, the elec­tion in Mass­a­chu­setts, the health­care reform, even the employ­ment sit­u­a­tion all take a back seat to the enor­mous amount of debt rel­a­tive to GDP.  The masses want a change because of the pain they are going through presently and just don’t under­stand the invis­i­ble hand of the inter­est on the debt absorb­ing so many dol­lars that could have been used to sup­port the economy.

This invis­i­ble hand is caus­ing the masses to want change even though they don’t under­stand why they feel so uncom­fort­able and don’t know who is to blame.  They are just “mad as hell and can’t take it any­more” (from the movie, “Net­work”).  All of this causes the delever­ag­ing as shown in our Cycle of Defla­tion as the pri­vate sec­tor pays down debt or defaults. This process is very painful while tak­ing many years to resolve.  The process has already started as busi­ness loans and con­sumer credit are shrink­ing at record rates while the gov­ern­ment debt is expand­ing at record rates.  This delever­ag­ing we expect will take place on a global scale and will take many years to resolve.  Japan has already suf­fered two “lost decades” and has still not solved its prob­lem.   We expect this to take place glob­ally and will con­tinue to be painful.  We hon­estly don’t want to be cor­rect in this assess­ment for the global econ­omy, but we can’t see how this delever­ag­ing process and the con­se­quences of the process be avoided.

Tags: Barron, Barron S Magazine, Bill Gross, Brazil, BRIC, BRICs, Canadian Market, Charles Barron, China, Debt Growth, Debt Problem, Emerging Markets, Financial Crisis, Government Debt, Housing Bubble, India, Internet Bubble, Investment Manager, Lows, Macro Analysis, Marc Faber, Minter, Monetary Instability, New York Times, Paul Krugman, Professor Paul, Roundtable Participants, Russia, U S Stock Market, York Times Article
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Q&A with Paul Volcker

Wednesday, January 27th, 2010

With the “Vol­cker Rule” regard­ing US finan­cial reg­u­la­tion tak­ing cen­ter stage, Paul Volcker’s response to ques­tions on finan­cial inno­va­tion at the “Future of Finance Ini­tia­tive” six weeks ago makes for inter­est­ing view­ing material.

Source: Wall Street Jour­nal, Jan­u­ary 26, 2010.

Tags: Center Stage, Finance Initiative, Financial Innovation, Material Source, Paul Volcker, Six Weeks, Taking Center Stage, Wall Street, Wall Street Journal
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Bill Gross: Beware the Ring of Fire

Wednesday, January 27th, 2010

Bill Gross, co-founder and co-CIO of PIMCO, is to my mind one of the shrewdest money men around. His monthly newslet­ter, this month enti­tled “The Ring of Fire”, there­fore always makes for thought-provoking reading.

Here is the audio ver­sion, read by Bill Gross himself:

The Ring of Fire

The fol­low­ing are a few excerpts from the report:

“In this New Nor­mal envi­ron­ment it is instruc­tive to observe that the oper­a­tive word is ‘new’ and that the use of his­tor­i­cal mod­els and econo­met­ric fore­cast­ing based on the expe­ri­ence of the past sev­eral decades may not only be use­less, but coun­ter­pro­duc­tive. When lever­ag­ing and dereg­u­lat­ing not only slow down, but move into reverse gear encom­pass­ing delever­ag­ing and rereg­u­lat­ing, then it pays to look at his­tor­i­cal exam­ples where those con­di­tions have pre­vailed. Two excel­lent stud­ies pro­vide assis­tance in that regard — the first, a study of eight cen­turies of finan­cial cri­sis by Car­men Rein­hart and Ken­neth Rogoff titled This Time is Dif­fer­ent, and the sec­ond, a study by the McK­in­sey Global Insti­tute speak­ing to ‘Debt and delever­ag­ing: The global credit bub­ble and its eco­nomic consequences.’

“… bank­ing crises are fol­lowed by a delever­ag­ing of the pri­vate sec­tor accom­pa­nied by a sub­sti­tu­tion and esca­la­tion of gov­ern­ment debt, which in turn slows eco­nomic growth and (PIMCO’s the­sis) low­ers returns on invest­ment and finan­cial assets. The most vul­ner­a­ble coun­tries in 2010 are shown in PIMCO’s chart ‘The Ring of Fire’. These red zone coun­tries are ones with the poten­tial for pub­lic debt to exceed 90% of GDP within a few years’ time, which would slow GDP by 1% or more. The yel­low and green areas are con­sid­ered to be the most con­ser­v­a­tive and poten­tially most sol­vent, with the poten­tial for higher growth.

“What then is an investor to do? If, instead of econo­met­ric mod­els founded on the past 30–40 years, an analy­sis must depend on centuries-old exam­ples of delever­ag­ing economies in the after­math of a finan­cial cri­sis, how does one select and then time an invest­ment theme that can be expected to gen­er­ate out­per­for­mance, or what pro­fes­sion­als label “alpha?” Care­fully and cau­tiously with regard to tim­ing, I sup­pose, but rather aggres­sively in the selec­tion process under the assump­tion that it’s never “dif­fer­ent this time” and that his­tory repeats as well as rhymes. Rein­hart and Rogoff’s book, if any­thing, points to the inescapable con­clu­sion that human nature is the one defin­ing con­stant in his­tory and that the cycles of greed, fear and their eco­nomic con­se­quences paint an indeli­ble land­scape for investors to observe. If so, then investors should focus on the fol­low­ing 30,000-foot obser­va­tions in the selec­tion of global assets:

1.     Risk/growth-oriented assets (as well as cur­ren­cies) should be directed towards Asian/developing coun­tries less lev­ered and less eas­ily prone to bub­bling and there­fore the neg­a­tive delever­ag­ing aspects of bub­ble pop­ping. When the price is right, go where the growth is, where the con­sumer sec­tor is still in its infancy, where national debt lev­els are low, where reserves are high, and where trade sur­pluses promise to gen­er­ate addi­tional reserves for years to come. Look, in other words, for a savings-oriented econ­omy which should grad­u­ally evolve into a consumer-focused econ­omy. China, India, Brazil and more miniature-sized exam­ples of each would be excel­lent exam­ples. The old estab­lished G-7 and their looka­likes as they delever have lost their posi­tion as dri­vers of the global economy.

2.     Invest less risky, fixed income assets in many of these same coun­tries if pos­si­ble. Because of their reduced liq­uid­ity and less devel­oped finan­cial mar­kets, how­ever, most bond money must still look to the ‘old’ as opposed to the new world for returns. It is true as well, that the ‘old’ offer a more favor­able envi­ron­ment from the stand­point of prop­erty rights and ‘will­ing­ness’ to make inter­est pay­ments under duress. There­fore, see #3 below.

3.     Inter­est rate trends in devel­oped mar­kets may not fol­low the same his­tor­i­cal con­di­tions observed dur­ing the recent Great Mod­er­a­tion. The down­ward path of yields for many G-7 economies was remark­ably sim­i­lar over the past sev­eral decades with excep­tion for the West German/East Ger­man amal­ga­ma­tion and the Japan­ese expe­ri­ence which still places their yields in rel­a­tive iso­la­tion. Should an investor expect a sim­i­larly cor­re­lated upward wave in future years? Not as much. Not only have credit default expec­ta­tions begun to widen sov­er­eign spreads, but ini­tial con­di­tion debt lev­els … will be impor­tant as they influ­ence infla­tion and real inter­est rates in respec­tive coun­tries in future years. Each of sev­eral dis­tinct devel­oped econ­omy bond mar­kets presents inter­est­ing aspects that bear watch­ing: 1) Japan with its aging demo­graph­ics and need for exter­nal financ­ing, 2) the US with its large deficits and explod­ing enti­tle­ments, 3) Euroland with its dis­parate mem­bers — Ger­many the extreme saver and pro­duc­tive pro­ducer, Spain and Greece with their exces­sive reliance on debt and 4) the UK, with the high­est debt lev­els and a finance-oriented econ­omy — exposed like Lon­don to the cold dark win­ter nights of deleveraging.

"Of all of the devel­oped coun­tries, three broad fixed-income obser­va­tions stand out: 1) given enough liq­uid­ity and cur­rent yields I would pre­fer to invest money in Canada. Its con­ser­v­a­tive banks never did par­tic­i­pate in the hous­ing cri­sis and it moved toward and stayed closer to fis­cal bal­ance than any other coun­try, 2) Ger­many is the safest, most liq­uid sov­er­eign alter­na­tive, although its lead­er­ship and the EU's poten­tial stance toward bailouts of Greece and Ire­land must be watched. Think AIG and GMAC and you have a sim­i­lar com­par­a­tive predica­ment, and 3) the U.K. is a must to avoid. Its Gilts are rest­ing on a bed of nitro­glyc­er­ine. High debt with the poten­tial to devalue its cur­rency present high risks for bond investors. In addi­tion, its inter­est rates are already arti­fi­cially influ­enced by account­ing stan­dards that at one point last year pro­duced long-term real inter­est rates of 1/2 % and lower."

“The last decade — the ‘aughts’ — were remark­able in a num­ber of areas: job­less recov­er­ies in major economies, neg­a­tive equity returns in US and other devel­oped mar­kets, and of course the finan­cial cri­sis and its after­math. If an invest­ment man­ager and an invest­ment man­age­ment firm proved to be good stew­ards of cap­i­tal mar­kets dur­ing the tur­bu­lent but vapid ‘aughts’, they may be granted a license to nav­i­gate the rapids of the “teens,” a decade likely to be fed by the melt­ing snows of debt delever­ag­ing, offer­ing life for unlev­ered emerg­ing and devel­oped economies, but risk and uncer­tainty for those overfed on a diet of financed-based con­sump­tion. Beware the ring of fire!”

Click here for the full article.

Source: Bill Gross, PIMCO — Invest­ment Out­look, Feb­ru­ary 2010.

Tags: Bill Gross, Brazil, Canadian Market, Carmen Reinhart, China, Credit Bubble, Econometric Models, Economic Consequences, Emerging Markets, Escalation, Financial Assets, Fire Bill, Global Credit, Government Debt, Gross Co, India, Mckinsey Global Institute, Money Men, Operative Word, PIMCO, Public Debt, Red Zone, Returns On Investment, Ring Of Fire, Vulnerable Countries
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