More on Related Themes
2010-09-04 The Last Chapter by John Mauldin of Millennium Wave
Mauldin presents content from his forthcoming book. He reviews some fundamental precepts of economics, focusing on the Keynesian approach the US is taking to revive the economy. He presents data from Woody Brock showing that the US debt may rise by as much as $1.5 trillion per year. Ultimately, he says, the bond market will revolt and interest rates will rise and the results will be very unpleasant. Using taxes or savings to handle a large fiscal deficit reduces the amount of money available to private investment.
2010-09-03 The ECRI Weekly Leading Index by Doug Short of Doug Short
On Friday the weekly leading index of the Economic Cycle Research Institute registered negative growth for the 13th consecutive week, coming in at -10.1, a fractional decline from last week's -9.9. The rate of decline from the peak in October 2009 is unprecedented in the Institute's published data back to 1967. The published index has never dropped to the current level without the onset of a recession. Doug Short presents charts of the weekly leading index, GDP and the federal funds rate since 1967.
2010-09-02 Bernanke Out of Bullets, But Not Bombs by Michael Pento of Euro Pacific Capital
For good or ill (mostly ill), the Fed can never run out of ammunition. Their bullets cost nothing to produce. Unfortunately, unconventional monetary tools can cause far more damage to the economy than regular policy. We must understand that the Fed can shower liquidity directly on the consumer in any amount it wants. The political pressure to do so will only increase as unemployment rises and economic growth falters. Therefore, rather than fearing phantom deflation, investors should prepare their portfolios for the real upcoming battle with intractable inflation.
2010-09-02 Beggar Thy Neighbor by Niels C. Jensen, Nick Rees and Patricia Ward of Absolute Return Partners
Austerity hurts domestic economic growth, and all those countries facing harsh austerity programs over the next several years will thus realize that the only way out of the current predicament is through higher exports and/or lower imports. We cannot all export our way out of our problems, however. Somebody will have to do the imports. Lower economic activity will again lead to lower tax revenues for the public sector; it is a very unfortunate and rather vicious spiral which is also very deflationary.
2010-09-02 The Economy is in a Modern Day Depression by David A. Rosenberg of Gluskin Sheff
The economy is in a modern day depression. A depression, put simply, is a very long period of economic malaise, a series of rolling recessions and modest recoveries over a multi-year period of general economic stagnation as the excesses from the prior asset and credit bubble are completely wrung out of the system. Depressions usually are caused by a bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories. You tell me which description fits the bill today.
2010-09-01 No Chance of a V-Shaped Recovery by Nouriel Roubini of RGE Monitor
Given political and fiscal constraints and banks' unwillingness to lend, it is doubtful that policy can prevent a double-dip. Even if a new round of monetary and quantitative easing can provide limited stimulus, the real issue facing the U.S. is the need for balance sheet deleveraging and repair, and that will be a multi-year process. The U.S. must brace itself for a long period of below-potential growth.
2010-09-01 Is the Stock Market Cheap? by Doug Short of Doug Short
Doug Short provides charts of the S&P 500 since 1870, adjusted for both inflation and 10-year trailing earnings. The financial crisis of 2008 triggered an accelerated decline in the PE/10 toward value territory, with the ratio dropping to the upper fourth quintile in March 2009. The price rebound since the 2009 low pushed the ratio back into the first quintile, and it is now positioned just below the lower boundary around 20. By this historic measure, the market is expensive.
2010-09-01 A Schizophrenic Market by David Baccile of Sextant Investment Advisors
On the surface it seems the markets are experiencing a relative period of calm with equity prices about flat year-to-date and up around 10 percent versus a year ago. The credit markets have also stabilized since the second quarter when it appeared that one or more of the European countries could be forced into defaulting on their debts. However, a look beneath the surface shows some very deep and turbulent cross-currents.
2010-09-01 Land of Confusion … Bubbles and Omens Dissected by Liz Ann Sonders of Charles Schwab
Charles Schwab is sticking with its view that the recovery is square root shaped (a 'V' followed by a stall), and there's little question that we've entered the stall phase. In addition to the havoc the stall has wreaked on stock market volatility, it's taken yields on Treasury bonds to near all-time lows. This, of course, has generated a very strong upward price move in bonds (as bond prices and yields move inversely) and much talk about a 'bond bubble.' That could be the case if yields move higher, which could trigger a swift move out of bonds as an asset class.
2010-09-01 The Q Ratio and Market Valuation by Doug Short of Doug Short
The Q Ratio is the total price of the market divided by the replacement cost of all its companies. Doug Short provides mean-adjusted charts of the Q Ratio since 1900. The charts indicate that the market remains significantly overvalued by historical standards - by about 33 percent in the arithmetic-adjusted version and 44 percent in the geometric-adjusted version. Periods of over- and under-valuation, of course, can last for many years at a time.
2010-08-31 The Riskiest Pension Assets (and the Implications for Muni Bonds) by Robert Huebscher (Article)
State finances are in trouble, in large part due to unfunded pension liabilities. To assess the depth of those problems, one can look at what is likely the riskiest component of states' pension assets - their exposure to alternative investments and, in particular, to private equity. We assess those risks and look at the larger question of whether unfunded liabilities can trigger municipal defaults.
2010-08-31 Nitty Gritty Details of the Labor Market Make Headlines by Asha Bangalore of Northern Trust
The elevated 9.5 percent official unemployment rate and the broader 16.5 percent jobless rate highlight the dire status of the labor market even after four quarters of economic growth. Financial markets have yet to follow closely the report on job openings, however, which contains information each month about the total number of job openings, the pace of hiring and separations in the economy. Harvard economics professor Robert Barro discusses the implications of the job openings report in a recent article for the Wall Street Journal.
2010-08-31 Looking Further Into The Job Market by Scott Brown of Raymond James
The job market has been a critical focus in the economic recovery. People tend to concentrate on net employment figures (overall payroll gains or losses). However, there's a lot going on under the surface. The underlying details hold the key to why the economic recovery is going to be gradual.
2010-08-30 In Need of Reassurance by Charles Lieberman of Advisors Capital Management
Fed Chairman Bernanke's statement at the FRB Kansas City Jackson Hole conference didn't reveal anything new, or suggest any change in monetary policy, but it was nonetheless reassuring to a market fearful of a double-dip recession. Most importantly, Bernanke stated quite clearly that he remains committed to insuring an economic recovery, which should hardly be a surprise. And yet, this was taken as good news. Investors anticipate economic problems, despite the fundamentally stronger state of business and financial market conditions.
2010-08-30 Views on Developing Markets by Team of First Eagle Funds
As the developed world stumbles from crisis to crisis, many developing countries seem poised to continue taking a greater share of the world's wealth. This trend, however, is not an automatic signal to invest. China, India and Brazil, the most sought-after developing markets, now demand double-digit multiples, and have higher inflation and monetary growth than developed markets. These factors suggest that the margin of safety is significantly smaller in developing markets than in developed markets.
2010-08-30 Japan: Not This Time Either by Milton Ezati of Lord Abbett
If Japanese prime minister Naoto Kan wants to avoid the pitfalls of the past, he must take a longer-term, more gradualist approach to the nation's fiscal problems and find solutions that avoid heavier taxes. His present inclinations, however, suggest that Japan will in fact make the old mistakes and will consequently wait longer for sustained growth and, as in the past, will find little fiscal relief.
2010-08-30 The Structural Side of Cyclical Job Losses by Chris Maxey of Fortigent
The unemployment rate in the U.S. refuses to decline, despite a perceived recovery that began more than 12 months ago. While it is too early to declare whether structural problems are overtaking cyclical unemployment factors, it is obvious that labor markets in the U.S. are not as dynamic as in previous recoveries. Geographic immobility, economic uncertainty and a lack of skilled workers are elongating the headwinds faced by the economy, raising fears of a long and slow economic recovery.
2010-08-28 The Dark Side of Deficits by John Mauldin of Millennium Wave
At the start of each bull cycle, the markets had single-digit P/E ratios, with no exception. No secular bull market ever began with high P/E ratios, even though significant rallies often started from high P/E ratios. The lesson of history is that all periods of high valuations come to an unhappy end. The most significant driver of stock market returns is the valuation embedded in the P/E ratio. We are still in a secular bear market. Valuations, while lower, are still not at what could be called historical cyclical bottoms. Patience is the order of the day. We will get there.
2010-08-27 Debt Be Not Proud by Rob Arnott of Research Affiliates
The looming sovereign debt crisis may be the defining influence on capital market returns over the next 10 years. Greece recently hit a wall and had to break a lot of promises to its citizens, including retirees and prospective retirees from government employment. Greece certainly won't be the last. An exploration of the relationship between sovereign debt levels and the economic might of debtor nations reveals a scary situation, particularly for investors who cap weight their government bond market exposure.
2010-08-27 Why Another Fiscal Stimulus Won't Do by Mohammed El-Erian of PIMCO
The main debate in Washington today is whether or not to do more of the same: another fiscal stimulus and another round of quantitative easing by the Federal Reserve. This conflicts with evidence that a broader and more holistic response is needed. Policymakers must address key structural issues, including the drivers of growth and employment creation; the high risk of skill erosion and lost labor productivity; financial deleveraging in the private sector; debt overhangs; the uncertain regulatory environment; and the unacceptably high risks facing the most vulnerable segments of society.
2010-08-27 Double-Dip Economy: Does Quantitative Easing Really Matter? by Christopher Whalen of Institutional Risk Analyst
While the financial markets await the latest pronouncement from Fed Chairman Ben Bernanke, the Institutional Risk Analyst features a comment from friend and former colleague at the FRBNY Richard Alford. He asks whether any of the policy options being considered by the U.S. central bank are meaningful to the American economy. As Paul Krugman wrote in the New York Times on Friday, 'policy makers are in denial.'
2010-08-27 Increasing Risks by Tony and Rob Boeckh of Boeckh Investment Letter
Capital preservation is of critical importance in this volatile, highly uncertain world. Within that conservative context, Boeckh has been relatively bullish on risk assets. The time has come to add another layer of caution to portfolios. The S&P 500 may well remain in an extended trading range, but we may be much closer to the upper boundary than the lower. Seasonally, we are heading into a period when markets tend to be weak, and some important declines have occurred.
2010-08-27 The ECRI Weekly Leading Index by Doug Short of Doug Short
On Friday the weekly leading index of the Economic Cycle Research Institute registered negative growth for the 12th consecutive week, coming in at -9.9, a fractional improvement from last week's -10.1. The rate of decline from the peak in October 2009 is unprecedented in the Institute's published data back to 1967. The published index has never dropped to the current level without the onset of a recession. Doug Short provides charts of the weekly leading index, gross domestic product and the federal funds rate going back to 1967.
2010-08-27 Flying Blind by Peter Schiff of Euro Pacific Capital
Today's weak GDP numbers have finally caused the mass of economists to revise downward their formerly optimistic recovery forecasts, with many finally entertaining the possibility of a "double dip" recession. It should be obvious by now that these economists only have the capacity to describe where the economy is moving in the short-term...they have no ability to explain the reasons behind the macro trends or make predictions that go beyond the next data release.
2010-08-26 You Call This Capitulation? by David A. Rosenberg of Gluskin Sheff
The extent of the denial over U.S. double-dip risks is unbelievable. Investors Intelligence did show the bull share declining further this past week, to 33.3 percent from 36.7 percent. The bear share barely budged, however, and is still lower than the bull share at 31.2 percent. Are we supposed to believe that at the market lows, there will still be more bulls than bears out there? Hardly. At true lows, the bulls are hiding under table screaming 'uncle!.'
2010-08-25 The Fed's Biggest Bubble by Michael Pento of Euro Pacific Capital
Even top-flight Wall Street analysts seem to believe that the Fed's doubling of the monetary base after the credit crunch has not had an inflationary impact on our economy. Their logic can be summed up like this: "The money the Fed created and dropped from helicopters has all been caught in the trees." In other words, the Fed is creating money, but it is just being held as excess reserves by the banking system instead of being loaned to the public.
2010-08-25 What's With Equity Valuation? by David A. Rosenberg of Gluskin Sheff
Historically, the average consensus estimate forward price-to-earnings ratio on the S&P 500 has been 15.6x. And yet, what we actually end up with on average is 19.2x. The consensus, in other words, is systematically publishing earnings forecasts that make the market look cheap. Meanwhile, the Shiller P/E, which uses the 'bird-in-the-hand' earnings, takes them in inflation-adjusted terms, and cyclically-adjusts the earnings data, currently generates a multiple of 20.6x, which is 26 percent above the historical norm.
2010-08-25 Mind the (Current Account) Gap by Nouriel Roubini of RGE Monitor
Turkey's current account deficit is unlikely to show a sustainable decrease without significant reforms. This means country needs to keep attracting sufficient capital flows from abroad to finance the shortfall. Increasing short-term capital flows, however, are raising Turkey's vulnerability to sudden shifts in global risk appetite. The danger is that an increase in risk aversion could place upward pressure on interest rates to attract the necessary external financing.
2010-08-25 How 'Conservative' Is Your Municipal Bond Portfolio? by Monty Guild and Tony Danaher of Guild Investment Management
It is not just the Wall Street banks and large public companies who have used financial trickery in their balance sheets. After years of fiscal manipulation, many states, counties, municipalities, school districts and public utilities are going to have trouble refinancing their debts. Some municipal bond investors, underwriters and issuers are now hoping that the federal government money-printing machine will come to the rescue of insolvent states, counties and municipalities. Hope, however, is not a valid investment strategy.
2010-08-24 'Federal Debt and the Risk of a Fiscal Crisis' - Important Takeaway by Asha Bangalore of Northern Trust
U.S. government debt held has reached a level not seen since World War II. There will be consequences to this elevated level of public debt. In addition to the well-known outcomes of higher interest rates and the crowding out of private investment, at the extreme, high debt levels could trigger a sovereign debt crisis similar to the recent situation in Europe. Northern Trust presents charts of federal debt as a percentage of GDP, with projections extending to 2020.
2010-08-24 Carts and Horses by Peter Schiff of Euro Pacific Capital
In a CNBC debate last week, former Labor Secretary Robert Reich presented a set of contradictory beliefs that unfortunately reflect the conventional wisdom of modern economists. In a discussion with Wall Street Journal columnist Stephen Moore, Reich correctly and comprehensively listed the reasons why American consumers could spend so lavishly before the crash of 2008 and why they can no longer keep up the pace.
2010-08-24 Mr. Gross Goes to Washington by Bill Gross of PIMCO
Americans now know that housing prices don't always go up, and that they can in fact go down by 30-50 percent in a few short years. Having grown accustomed to a housing market aided and abetted by Uncle Sam, the habit cannot be broken by going cold turkey into the camp of private lending. Private mortgage lenders will demand extraordinary down payments, impeccable credit histories and significantly higher yields than what markets grew used to over the past several decades.
2010-08-24 Even More Job Loss Ahead? by David Rosenberg of Gluskin Sheff
The size of the securitized loan market has shrunk 60 percent in the past two years. Balance sheets, production, order books and staffing requirements are all rightsizing to this new semi-permanent landscape of reduced credit availability. In fact, we could see a situation where another 4 to 5 million jobs could be shed in the United States - especially in the three sectors that were, and remain, the most affected by the housing crisis and financial collapse: construction, finance and state and local government.
2010-08-23 Why Quantitative Easing Is Likely to Trigger a Collapse of the U.S. Dollar by John P. Hussman of Hussman Funds
A week ago, the Federal Reserve initiated a new quantitative easing program, purchasing U.S. Treasury securities and paying for those securities by creating billions of dollars in new monetary base. Treasury bond prices surged. With the U.S. economy weakening, this second round of quantitative easing appears likely to continue. Unfortunately, the unintended side effect of this policy shift is likely to be an abrupt collapse of the foreign exchange value of the U.S. dollar.
2010-08-23 We're Underperforming the Great Depression by Doug Short of Doug Short
Doug Short presents charts of the weekly leading index of the Economic Cycle Research Institute and the federal funds rate going back to 1967. The index registered negative growth for the 11th consecutive week on Friday, coming in at -10.0, a fractional improvement from last week's -10.2. The rate of decline from the peak in October 2009 is unprecedented in the Institute's published data. The index has never dropped to the current level without the onset of a recession.
2010-08-23 Is it Japan All Over Again? by David Rosenberg of Gluskin Sheff
Everyone has been contemplating the possibility that the U.S. could reenact Japan's Lost Decade of protracted slow growth- especially as the Treasury yield curve flattens out in sashimi-like fashion. What is interesting, however, is that things are evolving much more quickly in the United States than in Japan. Japan let its imbalances linger for longer, which is why their unemployment rate never did break above 5.6 percent, while today in the U.S. it sits at 9.7 percent.
2010-08-23 Tax Growth by Milton Ezrati of Lord Abbett
The Bush tax cuts of 2001 and 2003 are set to expire at the end of this year. If the president and Congress just sit on their hands, income taxes will rise across the board, from the lowest to the highest brackets, as will estate, capital gains and dividend taxes. Much debate swirls around the economic effects of these imminent tax increases. Most agree that the heightened tax burdens will detract from the flow of spending and the general dynamism of the economy.
2010-08-23 Markets Pushed Back by Eric S. Ende of First Pacific Advisors
After the events in Greece, it was clear that the shift from expansion to fiscal tightening would put a damper on economic growth. The question of whether the U.S. economy will fall into a double-dip recession therefore misses the larger point. If another recession happens, markets will weaken, governments will stimulate, and the whole cycle will start again. If the economy avoids the second dip, however, the level of economic growth for the next five years should still be lower than the five that preceded the downturn.
2010-08-23 We Knew Reagan... And He's No Reagan by Brian S. Wesbury and Robert Stein of First Trust Advisors
No matter how many of Obama's economists say that stimulus has a positive multiplier, it's simply not true. Stimulus spending does not stimulate, is de-stimulates, because it takes resources from growing sectors of the economy and pushes them to shrinking sectors of the economy. It taxes and borrows from good business models to support bad business models. It’s simple math. The larger the government's share of GDP, the higher the unemployment rate.
2010-08-20 Happy Birthday Social Security? by Neeraj Chaudhary of Euro Pacific Capital
In his weekly radio address this past Saturday, President Obama happily commemorated the 75th anniversary of Social Security. This milestone, however, is nothing to celebrate. For although the president spoke earnestly about the 'obligation to keep the promise' of Social Security, in reality, the program will wreck the government's finances within 10 years.
2010-08-20 The Bear Market in Housing Starts is Still Far From Over by David A. Rosenberg of Gluskin Sheff
With the homeownership rate still at 67 percent versus the pre-bubble norm of 64 percent, and with lending requirements more stringent, including a new emphasis on down payments, you can forget a revival in housing demand anytime soon. Instead, demand will shift toward the old room at Ma and Pa\'s, the basement guest room at the in-laws or space in the rental sector. Indeed, demand for apartments may actually do well in this environment. The critical question, however, is: \'Have the builders done enough cutting?\'
2010-08-20 The ECRI Weekly Leading Index by Doug Short of Doug Short
Doug Short presents charts of the weekly leading index of the Economic Cycle Research Institute and the federal funds rate going back to 1967. The index registered negative growth for the eleventh consecutive week on Friday, coming in at -10.0, a fractional improvement from last week's -10.2. The rate of decline from the peak in October 2009 is unprecedented in the Institute's published data. The index has never dropped to the current level without the onset of a recession.
2010-08-20 Take Your Pick: Sinking US or Soaring BRIC by John Browne of Euro Pacific Capital
If America is headed for depression, then US equity, real estate and even bond investments may become increasingly risky relative to the BRICs. Investors still holding US securities and bonds might wish to follow the example of the People’s Bank of China and begin harvesting their dollar gains. With the proceeds, investors should allocate to economies showing growth based on genuine demand and solid fundamentals.
2010-08-19 Debt and Growth Revisited by Carmen M. Reinhart and Kenneth Rogoff of VoxEU
With the advanced economies at a critical juncture, some economists are urging more fiscal stimulus while others argue that raising debt levels will stunt growth. This column presents the Reinhart-Rogoff findings on the relationship between debt and growth based on data from 44 countries over 200 years with a focus on the debt-growth link during high-debt episodes.
2010-08-19 Summer Camp For Stock Traders (But Will the 'Fall' Arrive Before Summer Ends)? by Team of Emerald Asset Advisors
There is no shortage of reasons to believe that the environment for stocks is weak, if not outright dangerous. Debts and deficits, for example, have climbed to record proportions. Consumers are learning what 'austerity' means. And governments in developed markets are acting as if they can continue to delay enforcing real, sustainable improvements. Maybe these real world concerns will matter this autumn, when stocks are historically very vulnerable. But the world's troubles seem to have little meaning to the summer campers.
2010-08-19 The Bond Bubble Debate: 'One Rosie' Takes on 'Two Jeremies' by David A. Rosenberg of Gluskin Sheff
What we have on our hands is a powerful demographic appetite for yield at a time when income is under-represented on boomer balance sheets. The two most significant determinants of the trend in long-term bond yields - Fed policy and inflation - continue to flash 'green' at a time when the yield curve is still historically steep and destined to flatten. Finally, the central bank has already assured us that short-term rates will remain at rock-bottom levels for as long as the eye can see. David Rosenberg also comments on growing acceptance of frugality by retailers.
2010-08-18 Dr. Keynes Killed the President by Peter Schiff of Euro Pacific Capital
Modern-day Keynesians seek to significantly increase debt levels in an effort to boost aggregate demand. In their view, only once recovery takes hold due to government spending, money printing, and borrowing does a discussion of deficits become appropriate. The U.S. has persisted under this theory for close to a century. As a consequence, Washington is now entirely dependent on the reserve currency status of the dollar and the continued hibernation of bond vigilantes. It's almost as if the federal government is daring its foreign creditors to pull the plug.
2010-08-18 Zombie Love: Do Fannie and Freddie Provide Any Benefit to the U.S. Economy? by Christopher Whalen of Institutional Risk Analyst
This commentary features a piece from Achim Duebel at Finpol Consult in Berlin criticizing U.S. fiscal intervention in the housing market. Duebel's comment was first written in 2003, when its publication in a housing finance journal was blocked by government-sponsored enterprise lobbyists. The striking thing about it is that almost nothing about the structure of the housing market has changed since it was first written. Christopher Whalen also comments on the current status of the housing sector, and double-dips both real and imagined.
2010-08-17 ProVise Bullets by Ray Ferrara of ProVise Management Group
Yields on 10-year Treasury bonds are hovering under 3 percent, which basically means that buyers anticipate inflation will only be 3 percent over the next 10 years. In spite of all the talk about deflation, however, can anyone really believe that inflation won't exceed 3 percent over the next decade given all the money the government has made available? That is why for the most part, ProVise is avoiding long-term bonds in their portfolios - remaining on the short to intermediate side of the yield curve.
2010-08-17 Not the Time For a Jubilee by David A. Rosenberg of Gluskin Sheff
We are in the early stages of a secular credit collapse following the biggest credit bubble in human history. The housing bubble was the result of a universal, irrational and linear belief in real estate asset appreciation that developed in the 1990s and reached its glorious peak in 2007. Now we are rolling back into pronounced economic weakness, with contraction in GDP likely to soon follow the stagnant economic conditions of the current quarter.
2010-08-16 A Fragile Economic Outlook Continues by John P. Hussman of Hussman Funds
The recent few quarters of economic expansion are the result of enormous fiscal and monetary stimulus, without much 'intrinsic' private sector expansion at all. Now that inventories are replenished and the fiscal stimulus is tapering off, the underlying and still uncorrected fragility in the economy is likely to reassert itself for a time. While the Economic Cycle Research Institute has expressed increasing economic concerns, however, it has not yet warned conclusively of a double-dip.
2010-08-16 Treasury Yields in Perspective by Doug Short of Doug Short
Doug Short presents charts of inflation, 10-year Treasury bond yields and the federal funds rate since 1962. Last week the Fed said it will reinvest payments on mortgage assets it holds into Treasury bonds. Not surprisingly, yields fell, with the 10-Year Treasury index, for example, closing the week down 4.6 percent from its level the hour before the Fed announcement. As the charts illustrate, Treasury bond yields have occasionally led the market. How the Treasury bond market plays out over the next few months will be of critical importance to equity markets and the economy as a whole.
2010-08-16 Double-Dip or Single Scoop? by David A. Rosenberg of Gluskin Sheff
It is only a commentary on the human condition and the innate need to be optimistic that the vast majority of economists, analysts, strategists and market commentators still seem to be acting like ostriches with their heads in the sand, even in the face of fairly substantial evidence that GDP growth was cut at least in half in Q2 and that there is negative momentum in real retail sales being 'built' into the current quarter. If we are realistic, however, we can actually deploy strategies that will generate profitable results - certainly better than zero percent yields on cash.
2010-08-16 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
While earnings remain quite good, the macro news on the economy warrants a more defensive stance as we head into the fall midterm elections. Clearly, the economy is not in the kind of trouble it was two years ago, but just as clearly, the policies emanating from Washington D.C., whether they be tax increases, healthcare mandates, oil drilling moratoriums or the recently concluded financial regulation monstrosity, are stifling business plans.
2010-08-14 Technical Market Take by Mike Hurley of Incline Capital
Market technical are of concern technically. Specifically, there was not only a noticeable absence of new 52-wk highs during the recent bounce in equities, but last week’s decline saw more than twice the number of new lows, than new highs (A). Most definitely action which supports the opinion that stocks may well be forming some type of cyclical top. The bottom line being, that the market continues to suggest that the wisest course of action going forward is to underweight equities (or avoid them entirely, depending on suitability) while overweighting bonds.
2010-08-13 Deciphering Today's Violent Market Moves by Mohammed El-Erian of PIMCO
Tuesday's Federal Open Market Committee statement confirmed what the high frequency partial data have been signaling for a few weeks now: that the U.S. economic recovery has lost momentum. Expectations have evolved in an interesting manner - from the more familiar bell curve (a dominant mean and thin tails) to a much flatter distribution with fatter tails. In such a universe of expectations, short-term news can have a disproportionate impact on market valuations. When you are potentially on the road to deflation, a small change in probability will have an amplified impact on markets.
2010-08-13 The ECRI Weekly Leading Index by Doug Short of Doug Short
Doug Short presents charts of the weekly leading index of the Economic Cycle Research Institute, gross domestic product and the federal funds rate. The index registered negative growth for the ninth consecutive week on Friday, coming in at -9.8, a fractional improvement from last week's -10.3. The rate of decline from the peak in October 2009 is unprecedented in the Institute's published data back to 1967. The published index has never dropped to the current level without the onset of a recession.
2010-08-13 No Exit - Stage Left or Right by Peter Schiff of Euro Pacific Capital
The coming doses of quantitative easing from the Federal Reserve will finally spark adverse reactions, first in the dollar and later in the bond market. When a falling dollar forces consumer prices and long-term interest rates to rise, the Fed's actions will be rendered impotent. The Open Markets Committee will have to make a horrific choice: fight inflation by tightening policy into a weakening economy, or fight recession by allowing inflation to burn out of control. It's obvious that they will choose inflation, all the while pretending that it doesn't exist.
2010-08-12 Asset Allocation: Volatility, Correlations and Returns in the New Environment by Tom and Rob Boeckh of Boeckh Investment Letter
Slow growth, high unemployment and weak inflation will keep interest rates very low in the short term. Rising government debt levels and heavy reliance on monetary ease from the Federal Reserve, however, suggest rising risks of price inflation later on, possibly much later. The current period of low long-term interest rates should thus be thought of as an extended base-building period for higher rates down the line. Investors should maintain a diversified portfolio, shifting equity exposure to defensive, non-cyclical sectors, and build positions in cash and safe sovereign debt.
2010-08-12 Bonds Have More Fun by David A. Rosenberg of Gluskin Sheff
Yields cannot go to microscopic levels, even with large-scale government debts. In the past, at the peak of bull markets in bonds, the yield curve has gotten so flat that the average spread between the long bond and the federal funds rate has been 100 basis points. It would seem that just as BB-grade sliver in the corporate bond universe was the laggard with the greatest return potential, within the Treasury curve it would seem that the long end carries with it the most compelling total return opportunity.
2010-08-11 Why Jobs Have Gone AWOL by Michael Pento of Euro Pacific Capital
There are three primary reasons why the U.S. is suffering from structurally high unemployment: a pervasively irresponsible monetary policy, the continued attenuation of our manufacturing base, and an overleveraged consumer who must now reconcile his balance sheet. In reality, the latter two conditions are a direct result of the first. They are the result of a government that seeks to micromanage the cost of money and the rate of economic growth.
2010-08-11 The Fed Gives the Treasury a Gift by Brian S. Wesbury and Robert Stein of First Trust Advisors
Tuesday's announcement from the Fed means that the U.S. Treasury will pay even lower interest rates to finance its burgeoning debt levels. By holding rates steady, the Fed will become more accommodative as the year progresses. As a result, Fed policy will cause both growth and inflation to accelerate throughout 2010 and into 2011. The bond market is stuck between a rock and a hard place. Fed policy on one hand is pulling rates down, while growth and inflation will push rates up. Easy monetary policy, however, eventually results in higher interest rates down the road.
2010-08-11 Global Market Commentary by Monty Guild and Tony Danaher of Guild Investment Management
The world is awash in fear: fear of war in Middle East, fear of a double-dip economic recession in the U.S. and Europe and fear of inflation in China and India, as well as many other potential problems. Gold and oil appear to be two of the wisest investment categories. India, Singapore, Malaysia, Thailand, China and Brazil also have strong potential for continued growth. Although it is less certain, we will probably see continued growth in Canada, Australia, Taiwan, and Korea. Europe, Japan and the U.S., meanwhile, appear to be set on low growth trajectories for the next few years.
2010-08-11 The Sick Man is Europe by Nouriel Roubini of RGE Monitor
Something other than leaves will fall in Europe this autumn. American attention, no doubt, will focus on Barack Obama's date with an angry electorate this November. Yet across the pond, governments of the right, left and center in Europe appear ready to crumble, their positions eroded by a wave of austerity and high unemployment and government debt, plus a smattering of nasty corruption scandals.
2010-08-11 Not in Kansas Anymore by David A. Rosenberg of Gluskin Sheff
The transition to the next sustainable economic expansion and bull market in these types of business cycles takes between five and 10 years, and is fraught with periodic setbacks. While an underweight positions in equities still makes sense, a bar bell between basic materials and defensive dividend stocks is a prudent strategy, with the overall emphasis in the asset mix tilted towards bonds, especially the BB-rated sliver or that part of the higher quality non-investment grade space that currently has the greatest unexploited potential for spread compression and capital gains.
2010-08-11 The Password Conundrum by Alon Nir of Predictably Irrational
A recent cyber-attack on a major Israeli apartment-listing website, as well as Pizza Hut's local website, led to the revealing of the credentials of more than 100,000 user accounts (roughly 2 percent of internet users in the country) on shady Turkish forums. The data reveals the extent to which people fail to think creatively and incorporate even a touch of randomness into their username and password selection.
2010-08-10 Monetary Cards on the Table by Peter Schiff of Euro Pacific Capital
The economic world seemed to be drifting into two opposing camps: the Washington-based 'stimulators,' who insist that more government debt is the best means to end the financial crisis, and the Berlin- and London-based 'austerians,' who argue that debt is the crisis itself. If recent economic data and currency movements can be considered votes of confidence, then the stimulators should be sweating.
2010-08-10 Double-Dip Double Take by Milton Ezrati of Lord Abbett
The ongoing and widespread concerns about an economic double-dip warrant still more discussion. Previous analyses here have looked at the government data and concluded that, whatever the risks, the probabilities favor continued, if moderate economic growth. This discussion extends the analysis to less common economic indicators, particularly measures of shipping. Though the picture here is mixed to be sure, it, too, leads to the conclusion that the double-dip, though possible, is not probable and that growth will likely continue, albeit slowly.
2010-08-09 Corporate 'Cash' - Cheering the Asset and Ignoring the Liability by John P. Hussman of Hussman Funds
There is a lot of apparent 'cash on the sidelines' because the government and many corporations have issued enormous quantities of new debt, often with short maturities, while other corporations have purchased it. It will remain on the sidelines until the debt is retired. The government debt has been issued to finance deficit spending. At the same time, a great deal of corporate debt has been issued over the past year apparently as a pre-emptive measure against the possibility of the capital markets freezing up again.
2010-08-09 El-Erian on Why the Payrolls Report Matters by Mohammed El-Erian of PIMCO
The employment picture constitutes yet another headwind - and a significant one - to the already-faltering U.S. recovery. More Americans are struggling to earn enough to maintain their standard of living. The time has come for Washington to realize that the existing policy mix is not appropriate for the task at hand.
2010-08-09 Systemic Regulator Risk: Does the Fed of New York Need a Haircut? by Christopher Whalen of Institutional Risk Analyst
Given its second lease on regulatory life, one might expect that the Fed's bank supervision function would be gearing-up to take a fresh, smart, and tough line with respect to financial company oversight. However, the appointment of Sarah Dahlgren as head of supervision by the Federal Reserve Bank of New York indicates this may not be the case. Ms. Dahlgren has been at the center of many of the Federal Reserve's most embarrassing failures in the area of bank supervision, including the fiasco surrounding American International Group.
2010-08-09 Some Salient Facts About the July Payroll Report by David A. Rosenberg of Gluskin Sheff
David Rosenberg outlines a number of reasons why last Friday' U.S. nonfarm payroll report was even weaker than we thought. He also comments on the recent 120 basis point decline on 10-year Treasury note yields, and its implications for the stock market.
2010-08-09 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
For some time we have been discussing the twin factors of a truly jobless recovery versus very strong corporate profits. While much of the media focuses upon the jobs issue because of its political impact, the stock market is mostly concerned with profits and productivity trends of those working. Corporations simply will not expand or hire under the uncertainty of changing tax, healthcare and energy policies. As a result, the economy is now being held hostage to the upcoming mid-term elections as an indication of just what direction the central planning policy of Washington D.C. will take.
2010-08-09 Please - No More Stimulus by Brian S. Wesbury and Robert Stein of First Trust Advisors
Canada has been cutting spending and tax rates for the past decade or so. If Keynesians are right, the U.S. economy should be outperforming the Canadian economy now and Canada should have done better back in the 1980s and 1990s, right? Wrong. It's the opposite. The unemployment rate in Canada is currently 8 percent and has been below the U.S. level since October 2008, when government spending started to go crazy. The lesson is clear: Less spending, less taxing and more freedom work. Let's not stimulate anymore. The U.S. economy just can't take it.
2010-08-09 It's the Jobs, Stupid! - Part III by Komal S. Sri-Kumar of TCW Asset Management
The unemployment rate is a leading indicator of economic activity in this business cycle due to the potent force of discouraged consumers, rather than a lagging indicator, as we have been taught in our economics courses. That, in turn, means that we cannot ignore the large number of jobless workers in the belief that economic growth will subsequently cure the problem – we won't have sustained economic growth unless we lower unemployment first. The disappointing employment numbers last Friday are indicative of this trend.
2010-08-09 Is There Hope For the U.S. Consumer? by Chris Maxey of Fortigent
Consumers face a challenging environment in the second half of the year as stubbornly high unemployment and stagnant wages will limit their ability or desire to spend. The rapid improvement in corporate profitability should encourage hiring at the beginning of 2011, but the road will be long and bumpy. Meanwhile, a series of economic reports this week are likely to provide confirmation that economic growth is slowing.
2010-08-07 And That's the Week That Was... by Ron Brounes of Brounes & Associates
Although the economy remains in recovery mode, the labor statistics confirmed that it may not be as strong as many were hoping. Several quarters of lackluster growth appear to be on the horizon. Even though the unemployment rate held steady at 9.5 percent, the June payroll data was revised lower and the 'underemployment' rate stands at a high 16.5 percent. Retailers braced for a feeble 'back-to-school' shopping season as same-store sales for July came in below expectations and department stores and teen retailers reported the most disappointing results.
2010-08-07 The Problem With Pensions by John Mauldin of Millennium Wave Advisors
A report just out from the Center for Policy Analysis indicates that state and local pension funds are drastically underfunded. By the authors' calculations, state and local pensions are underfunded by $3 trillion. Pension funding in some states will be required by law to consume 25-30 percent or more of tax revenues. That is going to mean much higher taxes or reduced services. John Mauldin also discusses a possible surprise from President Obama concerning Fannie Mae and Freddie Mac, and provides an economic update on China.
2010-08-06 Pandemic Uncertainty by Ronald W. Roge of R.W. Roge
We are headed into a global economy that can be best described as one of deleveraging, reregulation, de-globalization, and temporary mistakes in government policy responses. U.S. consumers now believe in spending less and saving more for the future. The current saving rate in the U.S. is about 6 percent. That's up from 0 percent a few years ago. All of this evidence points to a slow-growth economic recovery that will eventually improve as government policies fail and more logical policy responses prevail.
2010-08-06 Perspective Needed by David A. Rosenberg of Gluskin Sheff
We are heading into the third quarter knowing that there was minimal growth coming from U.S. consumers. July's data on chain store and auto sales were both below expectations. Personal bankruptcies jumped 9 percent in June, and 2010 is now on track to have the largest number of consumer insolvencies in five years. If capital spending is going to do the heavy lifting, then it will have to accelerate by nearly 10 percentage points for every percentage point slowing in household spending. Now that is a daunting task.
2010-08-06 The ECRI Weekly Leading Index by Doug Short of Doug Short
Doug Short presents charts comparing the Economic Cycle Research Institute's weekly leading index, gross domestic product and the federal funds rate. On Friday the index registered negative growth for the eighth consecutive week, coming in at -10.3, a fractional improvement from last week's -10.7. A significant decline in the WLI has been a leading indicator for six of the seven recessions since the 1960s. The index has never dropped to the current level without the onset of a recession.
2010-08-05 Just how risky are China's housing markets? by Yongheng Deng, Joseph Gyourko and Jing Wu of VoxEU
Reinhart and Rogoff's recent influential study of financial crises finds a recurring root - the country's property markets. This column argues that a similar housing bubble may be developing in China. Urgent research is needed to determine the risk of a full-blown crisis.
2010-08-04 Summer Quarterly Commentary by Alan T. Beimfohr and John G. Prichard of Knightsbridge Asset Management
One might have anticipated a large increase in inflation, given gold's five-fold increase in value since 2001. In fact, the polar opposite has occurred: Instead of inflation, we are now under threat of deflation. The reason for this reversal lies in investor fear of quantitative easing. The more signs emerge that deflation is on the horizon, the more likely it seems that the government will use quantitative easing, which in turn would hasten the day of monetary reckoning, when there will be no hope of debts ever being serviced, much less paid off.
2010-08-04 How the Other Half Looks by Nouriel Roubini of RGE Monitor
The global adjustment process has been delayed. In order to support growth and income generation, the over-saving investment- and export-driven nations - China, emerging Asia, Germany and Japan - continue to look to the overspending countries following an Anglo-Saxon model. There is a risk of a weak recovery of global aggregate demand relative to supply, which could contribute to deflationary pressures. As such, the recovery will continue to be multi-speed and rocky, exit strategies will remain uncoordinated and the risk of policy gridlock is high.
2010-08-03 Woody Brock: How to Achieve Growth without 'Bad' Deficits by Robert Huebscher (Article)
Of all the challenges facing our nation, none is as daunting as trying to achieve economic growth and reduce unemployment without adding layers of debt to our already bloated deficit. Legislators and economists have debated the merits of stimulus measures, changes in tax rates, and monetary policies, but they are no closer to a consensus than they were at the onset of the financial crisis. H. 'Woody' Brock, however, says a genuine solution is possible.
2010-08-03 Richard Koo: Lessons from Japan's Decline by Dan Richards (Article)
Richard Koo is the Chief Economist of Nomura Research Institute, and has served as an advisor to the Japanese government. In this interview with Dan Richards, Koo explains why Japan's recovery was thwarted by inadequate stimulus spending. This is a transcript of the interview.
2010-08-03 Richard Koo: Lessons from Japan’s Decline (Video) by Dan Richards (Article)
Richard Koo is the Chief Economist of Nomura Research Institute, and has served as an advisor to the Japanese government. In this interview with Dan Richards, Koo explains why Japan's recovery was thwarted by inadequate stimulus spending. This is a video of the interview.
2010-08-03 The Role of Taxes in Future Growth by Chris Maxey of Fortigent
Democrats who were previously in favor of allowing the Bush-era tax cuts to expire at the end of this year are suddenly swimming in the opposite direction, with several favoring extensions to the tax credit, given the poor economic backdrop. It is easy to find evidence to support both camps, but the simple reality is that economically restrictive policies will create a drag on growth at a time when the economy can ill afford them.
2010-08-03 Insights from the U.S. International Balance of Trade by Team of American Century Investments
The U.S. trade deficit increased to -$42.3 billion in May. Large and increasing trade deficits are sustainable as long as the rest of the world is willing to lend money to finance them. Growing trade deficits, however, are unhealthy in the long term. Trade imbalances also cause imbalances in capital flows. There was a time when it was argued that, as the U.S. entered a post-industrial society and economy, its growing trade deficit in goods would be offset by a growing trade surplus in services. Nearly three decades of experience, however, have demonstrated that this isn't the case.
2010-08-03 Agency Mortgage Valuations: Government Action and Unintended Consequences by Mitch Flack of TCW Asset Management
In its attempt to bolster housing and stem the tide of foreclosures, the government has enacted several new policies and mandates over the past year to provide underwater borrowers with poor credit histories with subsidized mortgage rates. These policies, however, will likely end the participation of many private mortgage investors. They will cost taxpayers, new home buyers, pensioners and private investors, while giving overseas investors the cold shoulder. Ultimately there is a limit to the assistance the government can provide private markets without doing more damage than good.
2010-08-03 Roller Coaster Economics: Prepare for the Next Downturn by Brian Reading of Boeckh Investment Letter
This commentary features a piece by Brian Reading, former advisor to the Bank of England, former economics editor of The Economist magazine and founding partner of Lombard Street research service, on what should be done about massive fiscal deficits and spiraling debt-to-GDP ratios. Reading argues that no amount of exchanging domestic imbalances within the U.S., UK and other deficit countries between the public and private sectors can prevent a resumed recession. The prerequisite for sustained global recovery is increased consumption in Eurasia and a reversal of payment imbalances.
2010-08-03 Clear as Mud by Scott Brown of Raymond James
The details of the GDP report suggested what many had already suspected – that the recovery has slowed. The personal savings rate rose in 2Q10, consistent with near-term restraint in consumer spending growth. Inventories rose at an even faster rate in the second quarter, and while these data will be revised, the pace is unsustainable, consistent with a near-term moderation in manufacturing. There's nothing in the report to suggest a double-dip, however, just a near-term slowdown in the pace of growth.
2010-08-02 Growing Federal Debt Will Cause Major Challenges in the Years Ahead by Team of Litman Gregory
A combination of sharply declining tax revenues and a surge in stimulus and bailout spending, both stemming from the financial crisis, caused the federal budget deficit to soar to almost 10 percent in 2009. Total debt to GDP ratios are climbing sharply, and could pass 90 percent by next year. The growth track of entitlement programs has led many to conclude that growing federal debt levels are unsustainable in the long term. Additionally, the Greek debt crisis could trigger increasing awareness of sovereign default risk with investors demanding higher rates for owning government debt.
2010-08-02 Is the Stock Market Cheap? by Doug Short of Doug Short
Doug Short provides charts of the S&P 500 P/E10 ratio since 1870. The historical average of the S&P 500 P/E10 ratio is 16.35. By this historic measure, at 21.7, the market is expensive.
2010-08-02 The Q Ratio and Market Valuation by Doug Short of Doug Short
Doug Short provides mean-adjusted charts of the Q Ratio since 1900. The Q Ratio is the total price of the market divided by the replacement cost of all its companies, and is a popular method of estimating the fair value of the stock market. The charts indicate that the market remains significantly overvalued by historical standards - by about 39 percent in the arithmetic-adjusted version and 51 percent in the geometric-adjusted version. Of course periods of over- and under-valuation can last for many years at a time.
2010-07-30 The ECRI Weekly Leading Index by Doug Short of Doug Short
Doug Short presents charts of gross domestic product, the Economic Cycle Research Instititute's weekly leading index and the federal funds rate since 1965. On Friday the WLI registered negative growth for the seventh consecutive week, coming in at -10.7. The rate of decline from the peak in October 2009 is unprecedented since the metric was first devised in 1967. A significant decline in the WLI has been a leading indicator for six of the seven recessions since the 1960s.
2010-07-30 Inflation in 2010 and Beyond? Practical Considerations for Institutional Asset Allocation by Michael Katz and Christopher Palazzolo of AQR Capital Management
Traditional institutional portfolios with risk characteristics similar to a 60/40 stocks/bonds allocation are not well-positioned for unexpected inflation. Stocks are not effective inflation hedges, particularly in the short and medium term. Meanwhile, traditional institutional allocations resemble a 'bet' on low inflation. A risk-based approach to strategic asset allocation, however, may generate more balanced performance across both inflationary and deflationary periods.
2010-07-30 Slow Motion Recovery and What Would Make Me Bullish by David A. Rosenberg of Gluskin Sheff
Legions of economists are claiming that it is normal to see the economy take a breather at this stage of the cycle, but in truth, what is 'normal' in the context of a post-WWII recovery is that four quarters into it, real GDP expands at over a 6 percent annual rate. That puts the current 2.4 percent growth rate into a certain perspective. David Rosenberg also lists 10 economic developments that could turn him bullish.
2010-07-29 Absolute Strategies Fund Q210 Portfolio Commentary by Jay Compson of Absolute Investment Advisors
If deleveraging trends persist and embed themselves into the economy, markets will need to adjust to the reality that the potential for deflation is a real risk. Labor, real estate, and state and local governments are structurally challenged as a result of weak consumer activity and limited credit availability. Heightened volatility in the credit markets is likely given the re-pricing of troubled sovereign debt and the potential for those concerns to catch up with the 'Amend, Extend & Pretend' refinancing of corporate debt.
2010-07-29 The Emerging Consensus; A Gold Buying Opportunity? by David A. Rosenberg of Gluskin Sheff
Almost everyone is dismissing double-dip risks in the U.S., while Wall Street research departments are concluding that the ECRI leading index is not foreshadowing another recession. This brings back memories of 2007 and 2008, when all the research houses came to the conclusion that once you strip out the effects of housing, the U.S. economy was still in fine shape. Meanwhile, even though the gold price will ebb and flow, gold is in a secular bull market and will retain its natural hedge against recurring concerns surrounding the integrity of the global financial system.
2010-07-28 Still Stressed After Tests by Nouriel Roubini of RGE Monitor
According to the Committee of European Bank Supervisors, only seven of the continent's banks failed to pass muster out of the 91 assessed in recent stress tests. These tests contained a crucial flaw, however: the absence of a sovereign default scenario. Optimistic commentators point to the rebound in U.S. markets after the Supervisory Capital Assessment Program, which faced significant criticism, as Europe's equivalent is now. However, while the U.S. SCAP tests modeled the key concern of the market - future property risk - and forced banks to recapitalize, the European tests did neither.
2010-07-28 Private Eye by Bill Gross of PIMCO
The economy's New Normal of deleveraging, reregulation and deglobalization will neither be aided nor abetted by a slower-growing population, or by cyclical policy errors that thrust Keynesian consumption remedies on a declining consumer base. Current deficit spending that seeks to maintain an artificially high percentage of consumer spending can be compared to flushing money down an economic toilet. It would be far better to create and mimic other government industrial policies aimed at infrastructure, clean energy, more relevant education and less costly health care services.
2010-07-28 Grey Owl Capital Management's Q2 Letter by Team of Grey Owl Capital
The equity and fixed income markets are still modestly overvalued. In addition, the economic recovery may only have been a mirage that the slow dwindling of the government stimulus will reveal. The majority of Grey Owl's equity portfolio is made up of 'high quality' companies – those with consistent earnings growth and low financial leverage. Japanese-style deflation and 1970s-style stagflation are both possible given the slow private sector growth, increasing government regulations, growing government debt loads, and expansive monetary policy.
2010-07-28 Market Thoughts and the Long-Term Outlook for Inflation by David A. Rosenberg of Gluskin Sheff
The bull market in bonds will end reasonably close to the point in time that inflation (or deflation) bottoms. This is because the major economic factor that correlates consistently with the direction of market-determined interest rates, at least for long term Treasury Bonds, is CPI Inflation. Core inflation should recede from around 1 percent now to near 0 percent in the next 12-to-24 months, which would imply an ultimate bottom in the long bond yield of 2.5 percent and 2 percent for the 10-year T-note.
2010-07-27 Sizing Up the Jobs Growth Challenge by Team of American Century Investments
While labor market data indicates the economy is still adding jobs, the pace of additions is far slower than what is needed to meaningfully reduce our 9.5 percent unemployment rate. Much of the half-a-percentage-point rise in employment during the second quarter of this year came from the hiring of up to 700,000 temporary workers for the decennial Census survey. Now that this effort is winding down, some economists are forecasting that short-term unemployment will rise again.
2010-07-27 Stress Test Zombies: Reverting to the Global Mean by Christopher Whalen of Institutional Risk Analyst
Some of the big American zombie banks - Citigroup, JPMorgan Chase and Bank of America in particular - are seeing positive results from the Fed's net interest margin drip. Many, however, are reverting back to the global mean for performance due to the zero-interest rate policy maintained by the central bank. In the end, the carry trade enhancement allowed by low interest rates amounts to a subsidy for credit losses by banks that comes out of the pockets of savers.
2010-07-27 We're All Chartists Now by David A. Rosenberg of Gluskin Sheff
Fed chairman Ben Bernanke may not be the world's best forecaster. He has the deepest rolodex, however, deeper than that of any CEO. And when he uses the phrase 'unusually uncertain' to describe the economic outlook, it is irrational to ascribe anything fundamental to the current market rally. The technical picture has indeed improved. The market gets it wrong, however, as often as it gets it right. There is still potential for many disappointments in earnings reports to come.
2010-07-27 America, the Odd Man Out by John Browne of Euro Pacific Capital
At long last, a good portion of mainstream economists now concede that a 'double-dip' recession is in the cards for the United States. To head off the pain, 16 top economists sent an open letter to the President urging him to 'stimulate' the economy with a massive new round of government spending. We feel this is a recipe for turning a recession into a depression.
2010-07-26 Betting on a Bubble, Bracing For a Fall by John P. Hussman of Hussman Funds
Investors who will need to fund specific expenses within a short number of years - retirement needs, tuition, health care, home purchases etc. - should not be relying on a continued market advance. If your life plans would be significantly derailed by a major market decline, get out. In contrast, if you are pursuing a disciplined, long-term investment strategy, and you know from your own experience of the past decade that you are diversified enough to ride out periodic losses without abandoning that strategy, ignore my views (and those of everyone else) and stick to your discipline.
2010-07-26 Earnings Season Masks the Slowdown in Q2 Economic Growth by David A. Rosenberg of Gluskin Sheff
Program trading, algorithms, momentum trading, technicals – all are at play. Meanwhile, the Treasury market has steadfastly refused to budge from a double-dip view, with real rates still under downward pressure, and while the breadth of the market has been decent, this rally has continued to lack volume – down a further 2 percent on Friday on the NYSE. We are also at another key technical juncture – the Dow and Nasdaq have retaken their 200-day moving averages while the S&P 500 and the Nasdaq are caught between the 50-day and 200-day m.a.'s.
2010-07-26 The Good, Bad and Ugly of Austerity by Brian S. Wesbury and Robert Stein of First Trust Advisors
It doesn't matter where we look: National, state and local government budgets are in crisis. This cannot continue. Major policy shifts are underway. The time for austerity has come. The only question is what form that austerity will take. There are three types of austerity: Good, bad, and ugly. Good austerity puts the pain on the government sector. Bad austerity tries to spread the pain across the public and private sectors. Ugly austerity tries to put all the pain on the private sector.
2010-07-24 Some Thoughts on Deflation by John Mauldin of Millennium Wave
We face the deflation of the Depression era, and central bankers of the world are united in opposition. This is due to excess capacity, high unemployment and massive wealth destruction. Deflationary pressures are the norm in the developed world (except for Britain, where inflation is the issue). The US has mild (1 percent) inflation now, but if it trends to deflation, the Fed will react by monetizing the debt.
2010-07-23 The ECRI Weekly Leading Index by Doug Short of Doug Short
Doug Short provides charts comparing the Economic Cycle Research Institute's Weekly Leading Index to GDP and the federal funds rate. On Friday the index registered negative growth for the seventh consecutive week, coming in at -10.5. This number is based on data through July 16th. The rate of decline from the peak in October 2009 is unprecedented since the metric was first devised in 1967. The question, of course, is whether the latest WLI decline is a leading indicator of a recession or a false negative. The index has never dropped to the current level without the onset of a recession.
2010-07-22 Musings on Asia by Vitaliy Katsenelson of Investment Management Associates
The popping of both the Chinese and Japanese bubble economies will lead to higher interest rates. The Japanese government will probably not be able to intervene in the economy for much longer, and so rates in that country will rise and there will be little they can do about it. China's government, meanwhile, seems to be mulling another multi-hundred-billion-dollar stimulus over the next few months. The Chinese government's actions are thus the wild card that will determine the duration and the magnitude of the bubble's pop - the longer they intervene, the direr the consequences will be.
2010-07-21 Fixed Income Investment Outlook by Team of Osterweis Capital Management
It is unlikely that the Federal Reserve will soon reverse its easy-money policies amidst worries about the European government debt crisis, meager job growth and low inflation in the U.S. In light of all these concerning developments, Osterweis continues to take a conservative approach by focusing on securities that will experience less volatility in the current unpredictable environment. These include short duration bonds and certain 'cushion' bonds, which are longer-term, high coupon bonds that will likely be refinanced in the near term, well in advance of their maturities.
2010-07-21 Caribbean Blue by Doug MacKay and Bill Hoover of Broadleaf Partners
There is no doubt that economic growth is slowing after a significant reacceleration off the Great Recession lows that occurred 16 months ago. The only question at this point is how much it slows. After peaking in the four percent vicinity, most economists now expect GDP growth to slow to something in the 2 percent range. It is nearly always the case that when deceleration occurs during a recovery, folks in our industry begin to wonder if growth will merely slow to a 'soft landing' outcome or if we will crash land in a 'double dip' recession.
2010-07-21 No Golden Ticket by Nouriel Roubini of RGE Monitor
Why aren't we giddy about gold? In the abstract, gold is most attractive as a hedge in one of three extreme scenarios: high inflation, persistent deflation, or when the risk of global financial meltdown is large. Once national balance sheets are repaired through a protracted and gradual deleveraging of households and governments following the relatively rapid deleveraging of the financial sectors, particularly in the United States, excessive deflation and inflation fears will subside.
2010-07-20 Cash Investing: Considerations for Investing in a Low Interest-Rate Environment by Northern Trust Investments (Article)
Northern Trust's chief economist, Paul Kasriel, forecasts that interest rates will remain low for the remainder of 2010. Investors are looking for guidance on how they should best position their cash and fixed income portfolios to take this environment into consideration, and should consider the tradeoff between liquidity and yield. We thank Northern Trust for their sponsorship.
2010-07-19 Don't Take the Bait by John P. Hussman of Hussman Funds
Investors who allow Wall Street to convince them that stocks are generationally cheap at current levels are like trout - biting down on the enticing but illusory bait of operating earnings, unaware of the hook buried inside. We should be skeptical about valuation metrics built on forward operating earnings and other measures that implicitly require U.S. profit margins to sustain levels about 50 percent above their historical norms indefinitely. More sober and historically reliable measures of market valuation create a much more challenging picture.
2010-07-19 Sediment or Sentiment? by David A. Rosenberg of Gluskin Sheff
The growth rate on the ECRI leading index sank further into negative terrain, to -9.8 percent during the week ending July 9, down from -9.1 percent the prior week. This was the 10th deterioration in a row. We have never failed to have a recession with the ECRI at current levels. There is, however, an inherent volatility in the index that requires acknowledgment. In the past few weeks, the index has gone from pricing in even-odds of a double-dip to two-in-three odds. It may take a while, but Mr. Market will figure it out before long.
2010-07-19 Sovereign Risks by Charles Lieberman of Advisors Capital Management
Fitch upgraded Argentina's bonds to B (stable) from Default last week, a rather questionable decision. Argentina and a few others belong in a special class, recidivist sovereign borrowers who default on a regular basis after they've lured new lenders to provide them with fresh money. It makes little sense to upgrade Argentina and downgrade Greece because the latter country's budget cutbacks are not politically popular. It is doubtful Argentina will act responsibly any time soon.
2010-07-19 U.S. Lessons From Last Week: A Fiscal Dead End by Komal S. Sri-Kumar of TCW Asset Management
With the Obama administration's $787 billion stimulus money mostly spent or committed, the fiscal deficit has risen and borrowing needs have gone up, but the private sector is still incapable of generating sufficient employment or economic growth. While the $8,000 first-time home buyer credit temporarily helped housing, and 'cash-for-clunkers' was a boon to the automotive industry and car dealers last fall, the end of programs like these has typically been marked by a falloff in demand.
2010-07-19 The Inflation Debate Rages On by Chris Maxey of Fortigent
Last week's reports on the Consumer Price Index and the Producer Price Index only served to confirm what everyone already knows – any discussion of budding inflationary pressure is naïve at the moment. It is too early to write off a full-blown deflationary episode. In addition to weakness at the consumer and producer levels, the rate at which money changes hands (a common means of inflation) is near its slowest pace in years. Other problems facing the U.S. are a rising personal savings rate and ever-slower demand for commercial loans.
2010-07-17 The Debt Supercycle by John Mauldin of Millennium Wave
The Debt Supercycle, as posited by the Bank Credit Analyst, is the decades-long growth of debt from small and easily-dealt-with levels, to a point where bond markets rebel and the debt has to be restructured or reduced or a program of austerity must be undertaken to bring the debt back to manageable proportions. The consequences for each country will be different, and the U.S. is a long way off from "the end." A key point will be the 2014 elections, when critical budget decisions must be made.
2010-07-16 Global Government Spending Hits the Tipping Point... by Jason R. Graybill and Neil D. Klein of Carret Asset Management
A combination of spending cuts and tax increases could weigh on economic growth. This is important to bond investors over the short term, as global deleveraging will create slower global GDP growth and provide lower levels of inflation. In the longer term, governments will probably use their printing presses to inflate their way to lower debt levels while investors will demand greater returns relative to the interest rate and credit risks they assume. Thus, with an outlook towards higher rates in the years to come, Carret remains focused on short-duration, high quality portfolios.
2010-07-16 Keynesian Economics: RIP by Team of Dana Investment Advisors
The American public and many members in Congress are waking up to the fact that Keynesian economics is not working. It did not work in the 1930s either, as we actually had a recession within the depression, and suffered double-digit unemployment throughout the decade. This time can be different if the public demands and Congress enacts legislation that will lift the veil of uncertainty and help build a more conducive environment for establishing new businesses and creating new jobs in existing businesses. Then money would come out of hiding and get this economy moving again.
2010-07-16 Government Policies Pushing Towards Depression by John Browne of Euro Pacific Capital
As leaders around the world look to tighten the reins on out of control spending, President Obama and his Democratic supporters in Congress believe that their stimulus actions have succeeded and should be redoubled. Armed with nothing more than faith in government and a belief that spending is both a means and an end, it appears that the U.S. stimulus policy will continue. The net result of these efforts will not be a more vibrant economy, but the perpetuation of fear and confusion in the business community and the continuing expansion of deficits that will lead inevitably to higher taxes.
2010-07-16 The ECRI Weekly Leading Index by Doug Short of Doug Short
Doug Short provides a chart showing the correlation between the Economic Cycle Research Institute's weekly leading index growth index, gross domestic product and recessions. The index has just registered negative growth for the sixth consecutive week, coming in at -9.8. The rate of decline from the peak in October 2009 is unprecedented since the metric was first devised in 1967.
2010-07-16 Sixty-two Percent Homeownership on the Horizon by John Burns of John Burns Real Estate
Eight million homeowners are currently not paying their mortgages, and 6 million of these owners will probably lose their homes to the bank in the next two years. This will reduce the homeownership rate to 62 percent. According to a recent study, another 5 percent of all households have no equity in their homes. This suggests that only 57 percent of U.S. households own a home with equity value. If many of these owners strategically default, this will push homeownership even lower. John Burns traces variables that will affect homeownership over the coming years.
2010-07-15 Stress Test Is No Shortcut to Stability by Mohammed El-Erian of PIMCO
Will the testing of 91 European banks by regulators stabilize the region's finances? After all, a similar approach in the U.S. last year may have helped normalize financial markets there. The U.S. stress test, however, applied to institutions that were the main cause of the financial instabilities, and the government had budgetary room to support the sector. Europe's concern about banks is a derived concern, reflecting worries about sovereign debt in some countries and the overall economic situation; and there are greater limits today on budgetary resources.
2010-07-14 Demographics, Destiny and Equity Markets by George Magnus of Boeckh Investment Letter
This letter contains a special feature by George Magnus, senior economic advisor at UBS Investment Bank, on the coming negative change in global demographics. The world population is aging rapidly and the proportion of retired to working people is rising sharply. While these are slow-moving forces compared to, say, banking crises, they are powerful and inexorable trends that cannot be 'fixed.' Rather, we, and governments, must adjust to them, and investors must pay attention to their complex investment implications.
2010-07-14 The Fundamental Trendline is Still Down by David A. Rosenberg of Gluskin Sheff
What we are grappling with is this: If the consensus earnings forecast is 'the market,' then the S&P 500 is de facto pricing in $96 of operating earnings next year - a new peak. That is a 35 percent increase from here, and it is extremely difficult to see profits soaring that much at a time when margins are already back at cycle highs and with the prospect of slowing nominal GDP growth. It just does not add up.
2010-07-13 Nouriel Roubini on Crisis Economics by Michael Edesess (Article)
There's good reason why Nouriel Roubini has been dubbed Dr. Doom. After reading his book co-authored with Stephen Mihm, Crisis Economics, one might despair for our economic system. Roubini makes the recent crisis seem inevitable, hard to stop, and very hard to keep from happening again.
2010-07-13 Deficits Monetary and Moral by Michael Lewitt (Article)
"The word 'deficit' has come to epitomize not only our economic dilemmas but also our moral and intellectual failures to address them in an era that should be boasting of new breakthroughs in the social and physical sciences," writes Michael Lewitt in the latest installment of his HCM Market Letter, Deficits Monetary and Moral. "Instead, our ability to solve complex problems is weighed down by flawed and corrupted government processes and the lack of courage to forthrightly change them."
2010-07-13 Total Return or Total Disappointment? by Doug Short of Doug Short
Doug Short provides charts of the S&P Composite since 1929 adjusted for real price and real total return. As the charts show, for the past 21 months, the secular bear market that began in 2000 has substantially underperformed the equivalent timeframe during the Great Depression.
2010-07-12 Misallocating Funds by John P. Hussman of Hussman Funds
The relative abundance of physical and educational capital has been a driver of U.S. prosperity for generations, and is the main reason why American workers earn more than their counterparts in the developing world. Neither advantage in capital, however, is intrinsic to American workers, and it will be impossible to prevent a long-term convergence of U.S. wages toward those of developing countries unless the U.S. efficiently allocates its resources to productive investment and educational quality.
2010-07-12 Recession Odds Still on the Rise by David A. Rosenberg of Gluskin Sheff
The Economic Cycle Research Institute's weekly leading index fell again last week despite the equity market bounce. The spot index fell 0.6 percent for the second week in a row, and the growth index slipped to -8.3 percent from -7.6 percent at the end of June. While this is the only indicator so far suggesting that recession odds are rising, once you get to -8.3 percent, looking at the historical record, downturns occur more often than not.
2010-07-12 Annualized Total Return Roller Coaster by Doug Short of Doug Short
Doug Short provides charts of the annualized rate of return of the S&P 500 over 10-, 20- and 30-year intervals. Imagine that 10 years ago you invested $10,000 in the S&P 500. How much would it be worth today, adjusted for inflation with dividends reinvested? Brace yourself: Your investment would have shrunk to $6,956, an annualized return of -3.57 percent. That's a loss of 30.4 percent. As many households have discovered, investing in equities carries risk. Households approaching retirement should understand this risk and make rational decisions about fixed income alternatives.
2010-07-12 Four Major Impediments to Economic Normalcy by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
Although the four coincident indicators that the NBER utilizes in judging recession troughs have turned positive, two of them (income less transfer payments and employment) have only marginally shifted upwards and are subject to significant revisions. Thus, history may come to judge that the NBER was very wise to hold off making this end of recession call. The past several quarters may be nothing more than an interlude in a more sustained economic downturn, with further negative quarters still ahead. Such an outcome will suppress inflation further and quite possibly lead to deflation.
2010-07-09 Challenging Your Own View by David A. Rosenberg of Gluskin Sheff
A big part of the 'income theme' has been this dramatic move in the disinflation process towards eventual price stability, and perhaps even deflation. Indeed, the Fed (except for some of the regional bank presidents) is taking the deflation risk so seriously, the Washington Post ran an article on methods the central bank is contemplating to head it off – ranging from even more direct rhetoric in the press statement to reinforce the message that rates will stay near zero indefinitely, to cutting rates charged on bank reserves, to expanding quantitative easing.
2010-07-09 The ECRI Weekly Leading Index by Doug Short of Doug Short
The Economic Cycle Research Institute's weekly leading index growth metric has had a respectable (but by no means perfect) record for forecasting recessions. Doug Short provides a chart showing the correlation between the WLI, gross domestic product and recessions. The question, of course, is whether the latest WLI decline is a leading indicator of a recession or a false negative. The index has never dropped to the current level without the onset of a recession.
2010-07-09 The Real Tragedy of Persistent Unemployment by Mohammed El-Erian of PIMCO
The US faces a low growth/high unemployment trap, which would have four consequences: erosion of skills in the labor force, pressure on social safety nets, dampened spending by those who are employed, and less risk-taking by companies. El-Erian suggests several policy initiatives to combat unemployment.
2010-07-08 Double-Dip Revisited by David A. Rosenberg of Gluskin Sheff
The U.S. economy is very fragile and more vulnerable to exogenous shocks than has been the case in the past. It takes time for these shocks to percolate - six months in 1995 and 12 months in 1998 - and we have yet to feel the full brunt of the European debt crisis hit home, in terms of the depressing impact of their aggregate demand on our export growth. Where the offset from government stimulus comes from next will be interesting to see. If it's not fiscal policy or the Fed, then something tells us that the bond market is going to have to work that much harder.
2010-07-07 Gloomy News on U.S. Employment by Nouriel Roubini of RGE Monitor
The most recent U.S. employment report was even worse than we thought it would be, less because headline employment retreated (this was expected due to Census layoffs) than because weekly hours worked, average hourly earnings, and private sector payroll gains all took a plunge. The second half of the year should bring even weaker growth as personal consumption growth aligns with income growth, inventory growth aligns with final sales (still a weak spot) and fiscal stimulus turns neutral or becomes a drag on growth.
2010-07-06 U.S. Economy Hits a Speed Bump, to Put it Mildly by David A. Rosenberg of Gluskin Sheff
There is certainly nothing on the fundamental front to elicit a rally at present as double-dip risks continue to rise; there should, at a minimum, soon be a growth slowdown of significance. The reason why everyone bought into the V-shaped recovery view was because the equity market told them that it must be the case. Now, however, we have a situation where $1.6 trillion of wealth has been wiped off the books in the past three months as a result of the stock market setback, and so it’s no coincidence that at the margin, question marks are surfacing over the longevity of the recovery.
2010-07-06 Stock Markets and a Sea of Change by Ron Surz (Article)
Ron Surz provides his award-winning market commentary, analyzing performance across global markets during the first half of this year. He also addresses several other topics, including the fiduciary standard, developments in target date funds, and distortions in style assignments created as a byproduct of the financial crisis.
2010-07-06 Implications of a Likely Economic Downturn by John Hussman of Hussman Funds
Instead of directing savings toward investments in real, productive assets that we would observe as physical output, fixed capital, and equipment (and claims on those assets in the form of corporate stocks and bonds), our economy has been forced to choke down a massive issuance of government liabilities in order to bail out bad debt. For every dollar of debt that should have defaulted, we now have two dollars of debt outstanding: the original debt, and a newly issued government security. What appears to be 'sideline cash' is simply the evidence of past spending.
2010-07-06 Happy Birthday, America! by Jeffrey Saut of Raymond James Equity Research
Since the 'flash crash' low of May 6, 2010, we have had a Dow Theory 'sell signal' (5-20-10), a sell-signal from my proprietary intermediate trading indicator (the first since December 2007), the monthly stochastic-indicator has turned negative, a downside violation of the 12-month moving average has occurred and most indices have broken below spread triple-bottoms in the charts. Last week we even got a 'death cross' when the S&P 500's 50-day moving average (DMA) crossed below its 200-DMA. All of this suggests that a cautious stance on stocks is warranted.
2010-07-03 The Dismal Science Really Is by John Mauldin of Millennium Wave
Yesterday's unemployment numbers were very bad, and Mauldin explains how they were calculated and the implications of adjustments, such as the birth/death model. Personal income was also down, which is a very rare occurrence. Other indicators, including the money supply, are not indicative of economic growth. The Fed will act aggressively to thwart deflation.
2010-07-02 The ECRI Weekly Leading Index by Doug Short of Doug Short
Today the Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) registered negative growth for the fourth consecutive week, coming in at -7.7. The rate of decline from the peak in October 2009 is unprecedented since the metric was first devised in 1967. The ECRI Weekly Leading Indicator has never dropped to this level without the onset of a recession.
2010-07-02 Stalemate in Toronto by John Browne of Euro Pacific Capital
The G20 summit was an attempt to ignore the out-of-control spending contained in Western governments' budgets and instead unite behind a banner that they called "financial responsibility." This is akin to a group of Mafiosi holding a summit on business ethics. President Obama had three goals going into the summit; none were achieved.
2010-07-01 Regression to Trend by Doug Short of Doug Short
Looking at various metrics describing today's economy, Doug Short poses the question, 'Are you bearish or bullish about the market?' Short looks at the bearish view, the bullish alternative, and various methods for calculating consumer prices. He ultimately concludes that the ideal method is 'somewhere between the revised BLS method and the historic method preserved by John Williams of Shadow Government Statistics' and comes down on the bearish side.
2010-06-29 Jeff Gundlach: The US will 'Politely Default' on its Debt by Robert Huebscher (Article)
Jeff Gundlach's keynote address at last week's Morningstar conference documented the immensity of U.S. debt obligations and the lack of choices available for alleviating that burden. As he has stated in the past, he does not view inflation to be a threat in the capital markets today. He cited six options open to policy makers, but believes a seventh - some form of default - is most likely.
2010-06-26 The Risk of Recession by John Mauldin of Millennium Wave
The risk of recession is 50/50, but several things could make it less likely: if the expiration of the Bush tax cuts are not as harmful as expected, if those tax cuts are extended, or if there is a pickup in bank lending. The ECRI leading indicators and the M3 money supply numbers are indicating a recession is likely. If there is a recession, it will be deflationary and the Fed will react with another dose of quantitative easing.
2010-06-25 When It Comes to Increasing Aggregate Demand, What’s Fiscal Policy Without Monetary Policy? by Paul Kasriel of Northern Trust
In order for an increase in government spending to result in an increase in total aggregate demand, the government's spending needs to be financed by the central bank and the commercial banking systems. Although the Fed and the banking system have helped fiscal policy to stimulate total aggregate demand through a cumulative increase in Treasury borrowing of $1,455 billion, the help was not all that spectacular. No wonder the results of the recent fiscal stimulus program were something less than awe-inspiring with regard to increasing aggregate demand.
2010-06-25 The Big Picture by David A. Rosenberg of Gluskin Sheff
Escalating global economic imbalances have dramatically increased the vulnerability of the global recovery. The chances of a growth relapse in the second half of the year are higher than the equity market and credit market have priced in. Treasury bonds seem to be the asset class that most closely shares these cautious views. Anyone with a pro-cyclical bent has to answer for why it is that the yield at mid-point on the coupon curve is below 2 percent, a year after a whippy rally in equities and commodities and what appeared to be a sizeable policy-induced GDP jump off the bottom.
2010-06-25 Market Volatility Update by Doug Short of Doug Short
The Chicago Board Options Exchange Volatility Index (VIX), which shows the market's expectation of 30-day volatility, has been rising to the 'above 30' warning level. It briefly crossed above 30 intraday but closed a shade lower at 29.74. Doug Short provides a chart series showing the VIX and S&P 500 over two timeframes.
2010-06-25 The ECRI Weekly Leading Index by Doug Short of Doug Short
Doug Short provides charts of gross domestic product and the Economic Cycle Research Institute's weekly leading index since 1965. The WLI just registered negative growth for the third consecutive week, coming in at -6.9. The question, of course, is whether the latest WLI decline is a leading indicator of a recession or a false negative. The index has never dropped to -6.9 without the onset of a recession. The deepest decline without a near-term recession was in the Crash of 1987, when the index slipped to -6.8.
2010-06-25 Suiting Up For a Post-Dollar World by John Browne of Euro Pacific Capital
The U.S. has always benefited from its reserve-currency status, which allows it to accumulate unsustainable debts for an unusually long period without the immediate repercussions of inflation or higher borrowing costs. This false sense of security, however, may be setting us up for a truly monumental crash. After two decades as net sellers of gold, foreign central banks have now become net buyers. What's more, more than half of central bank officials surveyed by UBS didn't think the dollar would be the world's reserve in 2035.
2010-06-24 Daring to Compare Today to the 30s by David A. Rosenberg of Gluskin Sheff
Look at what we have today: No room to cut rates. No room – let alone political will – to cut taxes. And, in contrast to starting a new war, the U.S. is going to be pulling troops out of Afghanistan, which is a good thing for the troops and their families, but in terms of GDP impact it does represent fiscal withdrawal. The options to resuscitate the economy when it enters a 2002-03 style growth collapse are extremely thin, and probably lie on the Fed’s balance sheet, which means the bond-bullion barbell will likely remain a viable strategy.
2010-06-23 Recipe for a Lost Decade, or Two by Paul Kasriel of Northern Trust
There are legitimate concerns that the U.S. could catch the 'Japanese' disease and endure a lost decade in terms of normal economic growth. As has been the case in Japan, weak U.S. money and bank credit growth is occurring in the context of very low monetary policy interest rates. The private financial system is not transforming the inexpensive credit being offered it by the Fed into credit for the private nonfinancial sector of the U.S. economy. Until this transmission mechanism between the Fed and the economy gets mended, we are unlikely to experience potential economic growth.
2010-06-22 Niall Ferguson on Japan, China, and the US by Dan Richards (Article)
Harvard's Niall Ferguson is arguably today's leading economic historian. In part two of this interview, Ferguson explains why he fears the future is bleak for Japan, why China may someday be the leading global superpower, and what all this means for the US. We provide a video and a transcript.
2010-06-21 The ECRI Weekly Leading Index by Doug Short of Doug Short
Doug Short provides charts comparing gross domestic product, the Economic Research Institute's weekly leading index and the federal funds rate since 1965, with recessionary periods marked off. A significant decline in the weekly leading index has been a leading indicator for six of the seven recessions since 1965. The question, of course, is whether the latest WLI decline is a leading indicator of a recession or a false negative. Unfortunately, the federal funds rate is already at zero. Can the Fed still take steps to avoid a double-dip?
2010-06-21 Why Own Gold? by John Petrides of Advisors Capital Management
Buyers of gold assume that a buyer will materialize who is willing to pay more for their shiny rock than they did. For this reason, buying gold is the epitome of a speculative investment. How does one value gold, from a fundamental standpoint? The conceptual answer is to match supply with demand and an equilibrium price is created, but how does one measure supply? Well, gold is mined, so that is one part of the equation, but what about holders such as central banks and investors, who keep the shiny rock in their vaults? How is that level of supply factored into the equation?
2010-06-18 An Intractable Fiscal Problem by David A. Rosenberg of Gluskin Sheff
Even with low interest rates, the massive debt bulge has become so large that interest charges on the public debt are within three years of absorbing over 30 percent of the revenue base, which then makes it that much tougher to reverse course. In other words, the fiscal problem is becoming increasingly structural and we are already at the stage where even if the economy were running flat out at full employment, the deficit would still be over 7 percent relative to GDP. At some point, this will begin to impede economic progress.
2010-06-18 Be Careful What You Wish For by John Mauldin of Millennium Wave
Governments can fight deficits by cutting spending, but that has the effect of reducing growth, which reduces taxes and income, essentially forcing a recession. This is the situation facing the US. The probability for a recession in the US in 2011 is 50%.
2010-06-17 Consumer Metrics Institute's Growth Index by Doug Short of Doug Short
Doug Short provides charts comparing the Consumer Metrics Institute's growth index with gross domestic product and the S&P 500 since 2005. Thus far the growth index has been an effective leading indicator of GDP. As such, a double-dip recession appears to be a distinct possibility amidst the end of the various government stimulus efforts, the potential contagion of the financial stress in Europe, the ongoing environmental catastrophe in the Gulf of Mexico and another round of consumer belt-tightening.
2010-06-17 Getting a Grip on Reality by David A. Rosenberg of Gluskin Sheff
Double-dip risks in the U.S. have risen substantially in the past two months. While the economy's 'back end' of industrial production is still performing well, this lags the cycle. The 'front end' of consumer sales and housing leads the cycle. We have already endured two soft retail sales reports in a row and now the weekly chain-store data for June is pointing to subpar activity. The housing sector is going back into the tank - there is no question about it. The recovery in consumer sentiment leaves it at levels that in the past were consistent with outright recessions.
2010-06-17 Assessing Investment-Grade Bonds by Team of Litman Gregory
Investment-grade bonds are likely to generate average returns in a 1 percent to 2 percent range in most scenarios over the next five years. That is markedly lower than any historical rolling five-year average annual return number since the mid-70s. Forward-looking scenarios project that bond yields and inflation higher than their current levels and capital losses due to rising yields will cut into income from coupon payments.
2010-06-15 'May Momentum Killers' Supported Economic, Rate Outlooks by Team of American Century Investments
Now that stocks are suffering a bona fide correction this quarter and Treasury yields are again pricing in low inflation expectations in the near term, the case for a long, slow, grinding economic recovery with continued low interest rates for months to come is a lot easier to make than it was seven weeks ago. Money market and FDIC-insured accounts should provide the most predictable path with the least price fluctuation. Investors who want more yield and return should consider high-quality short-maturity bonds and bond funds.
2010-06-15 Today’s Top Economic Historian: The Path to European Stability by Dan Richards (Article)
Harvard's Niall Ferguson is arguably today's leading economic historian. In this interview with Dan Richards, Ferguson discusses the current troubles and future outlook for Europe. We provide a transcript and a video.
2010-06-15 June Economic Update by Team of Cambridge Advisors
Former hedge fund manager Keith McCullough compares America's current situation to Lehman in 2008 in that it is borrowing short to fund long-term liabilities. We can see the effect that high sovereign debt is having in Europe, and the U.S. is heading down a similar path. U.S. debt as a percentage of GDP is already higher than that of troubled Spain. Analysts have warned that higher taxes alone will not be enough to solve America's debt problem. Reduced government spending is needed and higher inflation may be unavoidable.
2010-06-15 The Dow-Gold Relationship by David A. Rosenberg of Gluskin Sheff
David Rosenberg provides a chart comparing the Dow Jones Industrial Average to gold prices since 1900. If this ratio ends up retesting the two fundamental lows that it has achieved in the past, and if we are correct in our assertion that gold will go to $3,000 per ounce, then we may be getting a Dow 5,000 trough at some point down the road. Rosenberg also comments on the Fed's continued hold on monetary policy, and the threat posed by rising debt levels to growth.
2010-06-14 Born on Third Base by John P. Hussman of Hussman Funds
Wall Street seems to have no idea that every bit of growth we've observed over the past year can be traced to government deficit spending, with zero private sector expansion when those deficits are factored out. Unless the credit spreads, the S&P 500, or the yield curve reverse, a further decline in the Purchasing Managers Index to 54 or below would be sufficient to confirm a 'double-dip recession.' By itself, such a level might not be particularly troublesome. In concert with other evidence, however, it would be sufficient to complete the syndrome of risk factors.
2010-06-14 Double Dip, Anyone? by David A. Rosenberg of Gluskin Sheff
The data suggest that we are now seeing the consumer sputter with what looks like a very weak handoff into the third quarter. The housing sector is collapsing again. The export-import data are pointing to a sudden deceleration in two-way trade flows. Commercial real estate is dead in the water. Bank credit is in freefall right now. A double-dip is not yet a sure thing, however. Not only are the economists calling for 3 percent real growth, but the consensus among equity analysts is that we will end up seeing over 30 percent operating EPS growth to a new high of $95.59 for 2011.
2010-06-14 Flag Day and Leading Indicators by Doug Short of Doug Short
Doug Short provides overlay charts of the S&P 500 and the Economic Cycle Research Institute's Weekly Leading Index. The Weekly Leading Index recently hit a 44-week low and descended into negative territory. This would seem to indicate dramatic slowing of the U.S. economy in the months ahead. Short also provides a chart of the 91-day 'Trailing Quarter' Daily Growth Index with an overlay of GDP. If this indicator has credibility, then a prospect of a double-dip recession, something that's happened only once since the Great Depression, cannot be easily dismissed.
2010-06-11 The Q Ratio and Market Valuation by Doug Short of Doug Short
Doug Short provides charts comparing the Q ratio of the S&P 500 and market valuations from 1900 through Q1 2010, updated to include new flow of funds data from the Federal Reserve. The mean-adjusted charts indicate that the market remains significantly overvalued by historical standards - by about 37 percent in the arithmetic-adjusted version and 48 percent in the geometric-adjusted version. Periods of over- and under-valuation, of course, can last for many years at a time.
2010-06-11 The Frog in the Frying Pan by John Mauldin of Millennium Wave
Jonathan Tepper of Variant Perception, a research firm in London, writes this column as a guest contribution. He says that Mauldin's Muddle Through Economy is the product of several major structural breaks in the economy, which have important implications for growth, jobs, and the timing of a future recession: lower GDP growth will lead to more frequent recessions and higher economic volatility; high unemployment rates will be the norm, especially for less educated workers.
2010-06-10 The 10 Most Likely Contributors to the Next Market Panic by Rob Isbitts of Emerald Asset Advisors
Swings in the collective investment psyche have been particularly dramatic over the past few years. Starting in October 2007, a 55 percent decline in the S&P 500 Stock Index in 18 months was followed by an 80 percent gain over 13 months. Now we find ourselves in the midst of another decline and the accompanying high volatility. The question we must consider now is whether this correction is simply the breeding ground for the next global market panic.
2010-06-10 The 'Yield' Theme Continues Unabated by David A. Rosenberg of Gluskin Sheff
Fixed-income is woefully under-represented in U.S. and Canadian household balance sheets, while the average baby boomer is 55 years old and as a result is at an age where capital preservation strategies win out over a strict capital appreciation focus, which worked so well in the 80s and 90s. The market moves in 16- to 18-year cycles. Sadly, this secular down-phase in the equity market began in 2000 when the major averages hit their peak in real terms, so the best we can say now is that we are probably 60 percent of the way into it.
2010-06-09 Hungary Suffers from Foot-in-Mouth Syndrome by Nouriel Roubini of RGE Monitor
While Hungary may not be 'another Greece,' the country's government announced an economic action plan last week aimed at reining in public finances amidst growing investor concern. The plan includes a special bank tax, public sector spending cuts, a cut in the corporate tax rate, and a recommendation to ban foreign exchange-denominated mortgage lending. It's unclear, however, that this plan will be enough for Hungary to reduce its deficit to meet this year's 3.8 percent of GDP target agreed upon with the IMF.
2010-06-09 Not Your Typical Pullback by David A. Rosenberg of Gluskin Sheff
The outlook for the U.S. economy and the earnings backdrop have become highly uncertain due to the European debt crisis, which, with a lag, will end up hitting our shores. In the name of prudence, a higher risk premium must be applied to the investment decision-making process, which in turn means that a focus on income, capital preservation, and defensive, noncyclical strategies will work best. Trading up in quality and reducing risk will be the key to solid investment performance in coming months.
2010-06-08 Why Wall Street Won't be Reformed by Robert Huebscher (Article)
Michael Lewitt, author of the highly respected HCM Market Letter, has just released a new book, The Death of Capital. In this interview, he identifies the challenges facing those who seek to regulate Wall Street, and why most of the proposed reforms are likely to fail.
2010-06-08 Five Strategies for a Rising Rate Environment by Kane Cotton, CFA and Jonathan Scheid, CFA (Article)
The Federal Reserve can't accommodate forever, and the global stimulus effort will likely lead to inflation. Our growing indebtedness can only result in increased borrowing costs. That much we know. What we don't know is when and how quickly interest rates will rise. In this guest contribution, Kane Cotton and Jonathan Scheid examine five strategies for a rising rate environment.
2010-06-08 The Phantom Recovery by Peter Schiff of Euro Pacific Capital
Once the euro finally stabilizes against the dollar, commodity prices should resume their rise, especially oil. Normally, the uncertainty created by the disastrous oil spill in the gulf and the resulting moratorium on deep-water drilling would have sent crude oil prices skyrocketing. However, fears of a global slowdown, euro weakness, and general risk aversion have held prices in check. As Asia continues its growth and Europe regains its footing, there should be a delayed surge in oil prices, which will put yet another obstacle on the road to US recovery.
2010-06-08 Weekly Commentary & Update by Tom McIntyre of McIntyre, Freedman & Flynn
The year-over-year advance in current indicators is at a 50-week low and could be ready to turn negative soon. This has happened 12 times in the past and it produced only 3 recessions. Consequently, it is too early to predict a double dip for this year, but clearly a slowing down is in the cards and this along with the absence of temporary census workers will make for several months of disappointing employment numbers. President Obama needs to get some better advice from his advisers as to how to handle this situation.
2010-06-08 Bond Bubble? by David A. Rosenberg of Gluskin Sheff
The problem with trying to assess supply or demand in the current market environment is that everything is so confusing in the early stages of this new secular paradigm of a global credit collapse. Bond yields have been low for some time, and they will remain low. But don't be lulled into numerical micro-phobia. The near-30 percent slide in the Chinese stock market suggests that we have three to six more months of deflating commodity prices. And, if the trend in Japanese, German and Swiss yields are any indication, bonds in the United States and Canada have plenty of room to fall further.
2010-06-07 The European Disease by Niels C. Jensen of Absolute Return Partners
It should be blatantly clear that Greece is by no means the only country at risk of falling into the much dreaded debt trap. The United Kingdom, the United States, New Zealand, Spain, France, Portugal and Australia are all in dangerous territory and Ireland is in very deep trouble on this account. This cross-European contagion risk threatens the very existence of our banking system, and it is this risk that French and German leaders are thinking about when they say that Greece will not be allowed to go down.
2010-06-07 Extraordinarily Large Band-Aids by John P. Hussman of Hussman Funds
The fundamental problem with the global economy today is that we have not accepted the word 'restructuring' into our dialogue. Instead, we have allowed our policymakers to borrow and print extraordinarily large band-aids to temporarily cover an open wound that will not heal until we close the gap. That gap is the difference between the face value of debt securities and the actual cash flows available to service them. The way to close the gap is to restructure the debt. This will require those who made the bad loans to accept the associated losses.
2010-06-07 Growth Slowdown Coming by David A. Rosenberg of Gluskin Sheff
The declines in the financial sector, construction and state and local governments are vivid reminders that the parts of the economy that were most affected by the bursting of the housing and credit bubble are still licking their wounds and cannot be relied upon to play any role in helping revive a moribund job market. If it weren’t for the plunge in the labor force, the U.S. unemployment rate would have climbed to 10 percent in May. And it's remarkable that with interest rates so low that we would be seeing mortgage applications for new purchases down to a 13-year low.
2010-06-07 Jobs Report: Another Myth-Buster by Komal S. Sri-Kumar of TCW Asset Management
Three myths continue to circulate regarding the prospects for U.S. economic growth. The first is that an increase in the fiscal deficit would have a Keynesian multiplier effect in boosting the economy. The second is that strong economic growth since mid-2009 is proof of the success of the stabilization plan. The third is that the ongoing European sovereign debt crisis will not impede a U.S. economic recovery, because U.S. exports to Europe are a small part of total U.S. exports, which in turn are not a huge component of U.S. GDP.
2010-06-04 Variations on the Q Ratio by Doug Short of Doug Short
The Q ratio, developed by Nobel Laureate James Tobin, is a popular method for estimating the fair value of the stock market. It consists of the total price of the market divided by the replacement cost of all its companies. Doug Short provides charts of the Q ratio since 1900. The mean-adjusted charts indicate that the market remains significantly overvalued by historical standards - by about 39 percent in the arithmetic-adjusted version and 50 percent in the geometric-adjusted version. Periods of over- and under-valuation, however, can last for many years at a time.
2010-06-04 Key Indicators of a New Depression by Neeraj Chaudhary of Euro Pacific Capital
During the Great Depression, the U.S. was on the gold standard like everyone else, which forced the country to live within its means. Unfortunately, because of the responses of the Obama Administration and the Federal Reserve, this recession could develop into something far more devastating than its predecessor: a hyperinflationary depression. As bad as the current downturn has been, inflation would make it immeasurably worse. It would require an honest accounting of the problems we face today to avert the disaster we see coming tomorrow.
2010-06-04 The New Economic Reality - Part II by Monty Guild and Tony Danaher of Guild Investment Management
Some investors believe that deflationary influences will lead to an immense slowdown in world economic activity, and thus thus are selling stocks, buying bonds and short-selling commodities. Others think government action to forestall the deflation will end up creating inflation, and are buying commodities, buying stocks and avoiding bonds As the two sides pull markets back and forth, volatility will continue. To deal with the volatility, Guild is holding a large percentage of client assets in cash and gold, which can rise in either an inflationary or a deflationary situation.
2010-06-02 Be Water, My Friend! by Jeffrey Saut of Raymond James
As the old sailor's axiom states, you can't change the direction of the wind, but you can adjust the sails. Clearly, the stock market's 'winds' have been in a downdraft. Last month was the worst May for the S&P 500 since 1962. Granted, the May Melt could have been worse if the SPX had stayed at last Tuesday's low of 1040.78, but most oversold indicators are about as compressed as they ever get. This week markets will have to deal with yet another disappointment after BP's failed top-kill operation in the Gulf. The best strategy now is thus defense, until the 'sell signal' reverses.
2010-06-01 Oil and Red Ink by John P. Hussman of Hussman Funds
It's no longer reasonable to apply previous risk estimates even after we've observed a major disaster. Before the housing crisis, it might have been tempting to shrug off mortgage defaults as relatively isolated events, since the price of housing had generally experienced a long upward trend over time. Indeed, historically, sustained declines in home prices could be shown to be very low probability events. But as the bubble continued, investors made little attempt to assess the probability of a debt crisis.
2010-06-01 The New Economic Reality by Monty Guild and Tony Danaher of Guild Investment Management
There is too much debt throughout the developed countries, and not enough growth to service that debt. The first phase of the current deleveraging cycle began about 20 years ago, when Japan's giant real estate and stock market bubble began to deflate. The second began in 2007, when the U.S. real estate lending bubble burst. The third began this year, with the European sovereign debt crisis. U.S. investors should buy only on dips, be selective, and look for good income, strong balance sheets, and strong earnings growth generated from internal cash flow.
2010-06-01 Margins Peak, Gold Saves Lives by David A. Rosenberg of Gluskin Sheff
There is no ‘get-out-of-jail-free’ card when it comes to the places where market prices could go during this period of pullback in investor risk appetite. The appetite for risk usually comes back because the Fed cuts rates. This time around, we may have to see more balance sheet expansion and more money printed. Gluskin still loves the bond market, but gold is a very good hedge here just in case we are wrong on the inflation call or if the markets begin to anticipate the massive reflation efforts that are still to come.
2010-05-29 Uncertainty Reigns Supreme by John Browne of Euro Pacific Capital
Five factors contribute to uncertainty in the market: doubt as to whether the euro will survive, "lurching socialism" in western economies, increased lending between banks and lack of credit for companies, fear that the finance industry is being targeted by politicians, and measures by Germany - such as banning naked short-selling - in reaction to the euro crisis. Those five factors are driving increased volatility.
2010-05-28 May Volatility, Downward GDP Revision and Sputtering Labor Markets by David A. Rosenberg of Gluskin Sheff
We are still in the midst of a credit collapse. There is simply too much debt and debt service globally relative to worldwide income. The fact that we had a year-long respite does not alter this view, because that respite was induced by an unsustainable pace of bailout and fiscal stimulus in practically every country on the planet, not just in the United States. Governments bailed out the banks and stimulated the economy. But because the revenue cupboard was bare, public sector debt loads exploded at all levels of government, and to varying degrees, in every jurisdiction.
2010-05-28 Six Impossible Things by John Mauldin of Millennium Wave
You can run a trade deficit, reduce government debt and reduce private debt but not all three at the same time. Choose two. Choose carefully. The UK will likely allow the pound to devalue to reduce its deficit, but will face higher costs of imported goods. Greece, in contrast, has no good options, and ultimately will default on its debt.
2010-05-27 Sentiment Deteriorates - But Still Not Enough by David A. Rosenberg of Gluskin Sheff
Bullish sentiment, as per the latest Investors Intelligence survey, fell again to 39.3 percent from 43.8 percent; the bear camp rose to 29.2 percent from 24.7 percent. This means bearish sentiment has risen to July 2009 levels and bullish sentiment has declined to February 2010 levels. It can be argued that at real lows, the bull camp gets to 26 percent (historical average) while the bear camp gets to 49 percent, so we may well have further to go before sending the all-clear signal out.
2010-05-26 Two Will Get You Three (or) Three Will Get You Two by Bill Gross of PIMCO
Fiscal tightening and budget conservatism may have come too late for Greece and its global lookalikes. Continued deficit spending may be an exorbitant privilege extended to only a few. Caught in the middle are many developed countries that will likely face muted growth rates and a continued bumpy journey toward their destinations. Investors must respect this rather tortuous journey in the months and years ahead for what it is: a deleveraging process based upon too much debt and too little growth to service it.
2010-05-25 Seth Klarman is More Worried than at Any Time in his Career by Robert Huebscher (Article)
The concern that the dollars he earns for his clients will lose their purchasing power is always on hedge fund manager Seth Klarman's mind. The possibility that the government will continue to print money to solve our economic problems has left him more worried than at any time in his career. We report on Klarman's remarks at last week's CFA conference.
2010-05-25 Letter to the Editor by Various (Article)
In a letter to the Editor, a reader responds to Charlie Curnow's March 30 article, America's "Failing" Infrastructure?.
2010-05-25 Return of the Nervous Weekend by Mohammed El-Erian of PIMCO
Having over-romanticized the cyclical bounce, some investors are now scrambling to reposition their overextended portfolios now that structural problems are undeniable. The disruption in financial markets is not a garden-variety market fluctuation. Instead, it’s an overdue recognition that the global economy faces an uncertain future that involves slower growth and greater government regulation. Structural problems require structural solutions. The question is whether policymakers in Europe will acknowledge this, or remain hostage to hope for an immaculate recovery.
2010-05-25 W, Not V and Using ECRI Data as a Market Indicator by David A. Rosenberg of Gluskin Sheff
The downdraft in the market in recent weeks reflects the financial risk related to the European debt crisis, the monetary tightening in China and the re-regulation of the financial sector that is currently making its way through to Congress. The next leg down in the equity market specifically and cyclical assets more generally is economic risk. As the events of 2002 showed, more-than-fully valued markets do not need a double-dip scenario to falter - a growth relapse can easily do the trick. It’s still time to be defensive and too early in this correction to be picking the bottom.
2010-05-25 Sovereign Default Risk — the Next Concern by Eric S. Ende of First Pacific Advisors
In this letter, first published on April 26, First Pacific argues that it was government intervention last year that stabilized the stock market and allowed credit markets to begin functioning again. Not surprisingly, however, deficit spending has led to sharp increases in the amount of outstanding government debt compared to the size of economies. Around the world we should see lower debt ratings for weaker countries, accompanied by partial defaults. Please note that events, prices and outlook may have changed since this letter was first published.
2010-05-24 Don't Mess With Aunt Minnie by John P. Hussman of Hussman Funds
In medicine, an Aunt Minnie is a particular set of symptoms that is distinctly characteristic of a specific disease, even if each of the individual symptoms might be fairly common. Last week, we observed an Aunt Minnie featuring a collapse in market internals that has historically been associated with sharply negative market implications. Historically, we can identify 19 instances in the past 50 years where the weekly data featured broadly negative internals, coupled with at least 3-to-1 negative breadth, and a leadership reversal.
2010-05-24 European Discord? by Komal S. Sri-Kumar of TCW Asset Management
German taxpayers have started to view the European Union merely as a 'transfer union,' where they incur tax hikes and spending cuts in order to make transfers that enable their southern neighbors to maintain social welfare provisions. Sooner or later, the political willingness to continue this pattern merely in order to sustain a common currency will cease. At that time, the choice will be to reconstitute the euro area, or agree that weaker nations with debt problems need to reduce and restructure their debts rather than pile on more.
2010-05-20 Shiller P/E Ratios, Deflation, and FOMC Notes by David Rosenberg of Gluskin Sheff
During the past 130 years, whenever the Graham/Dodd/Shiller normalized P/E ratio goes above 20.6x (it is 21x today), the market experiences a significant correction - a correction of 31 percent on average over the next 16 months. It never fails. Rosenberg also examines new evidence of deflation from the labor market, and statements from the Federal Reserve suggesting that the central bank will not consider raising interest rates until 2012.
2010-05-19 European Stabilization Mechanism: Promises, Realities and Principles by Charles Wyplosz of VoxEU
Markets liked the European Stabilization Mechanism, but a closer look shows that the money announced is not available. When markets realize this, they may do to Portugal and Spain what they did to Greece. Worse still, crucial principles have been sacrificed for the sake of unconvincing announcements. The debt crisis is unlikely to go away and the monetary union will have to be reconstructed to re-establish the principle of collective fiscal discipline.
2010-05-19 Review of First Quarter 2010 by James F. Keegan of Ridgeworth
The recovery to date has largely consisted of an inventory correction and a response to various government stimulus programs; very little of it will prove to be organic or sustainable. Consumer spending has proven more resilient than anticipated, but this has come at the expense of savings. The consumer remains over-leveraged and the balance sheet repair process can't rely again on asset appreciation; hence, further gains in spending are unlikely. Meanwhile, capital expenditure plans remain tepid, and the tailwind from the stimulus plan is also diminishing.
2010-05-18 Weekly Commentary & Outlook by Tom McIntyre of McIntyre, Freedman & Flynn
The euro represents one currency, backed by 19 countries with various fiscal policy problems that range from bad to hopeless. The runaway government spending that dominates the euro area is now calling the future of the monetary union into question. One would hope that the Obama administration would look at Europe and wonder whether deficits in the U.S. at the federal, state and local levels could cause problems there. So far it is business as usual.
2010-05-18 Spain: After the Bubble by Charlie Curnow (Article)
Today, Barajas Terminal 4 one of the most visible artifacts of the profligacy that fueled Spain's property bubble and led to the country's current financial crisis. Spain, like several other European states, has continued to spend rapidly over the past two years, even as its economy has contracted. As a result, the Spanish government's debt has skyrocketed, raising fears of a possible sovereign default.
2010-05-17 Submerged Seconds: Zombie Love and the Failure of Mortgage Modification by Christopher Whalen of Institutional Risk Analyst
Fannie Mae and Freddie Mac, and the Federal Housing Administration have sucked out most of the credit problems from the banks. Now they are mutating into hideous, cash-eating monsters as loans go bad and federal guarantees are honored. The losses at Fannie, Freddie and the FHA come in large part because of the underwriting decisions made by the banks. Literally millions of homeowners are in various stages of delinquency or default on their mortgages - and for many, the federal government is now the guarantor.
2010-05-17 Two Choices: Restructure Debts or Debase Currencies by John P. Hussman of Hussman Funds
Without a central taxing authority, the common European currency can only survive if participating countries strictly control their deficits. It should not be difficult to recognize that confidence in any currency is tied to confidence in the assets which stand behind it, and associated confidence in the restraint of fiscal and monetary authorities. The bureaucrats in both the U.S. and European central banks have chosen to betray that trust.
2010-05-17 Gold, Oil and the European Economic Crisis by Monty Guild and Tony Danaher of Guild Investment Management
Why is oil falling while gold is rising during the European sovereign debt crisis? Gold is rising because quantitative easing in Europe will be highly inflationary in the long term and destructive to the standard of living of every citizen of the developed world, especially in Europe. Oil is falling as investors fear the austerity measures that are required in Europe will shrink economic demand. The other parts of Europe and the U.S. will all have their 'Greece Moment' in the coming months and years. When that happens, investors will be grateful for their gold holdings.
2010-05-17 Difficult Choices Still Facing Europe by Mohammed El-Erian of PIMCO
The beneficial impact of last weekend’s $1 trillion 'shock and awe' intervention by Europe to save Greece and safeguard the euro is fading - even more quickly than officials had feared. This is the result of two main factors. First, having analyzed the news out of Europe in depth, markets recognize that the liquidity-based approach cannot sustainably address what is at heart a solvency problem. Second, markets are concerned that short-term stability is being pursued at the cost of long-term viability.
2010-05-15 Europe Throws a Hail Mary Pass by John Mauldin of Millennium Wave
This week's $1 trillion EU bailout is analogous to the US TARP program, and represents a "Hail Mary" last-ditch attempt to save the eurozone. The problems in the EU run deeper than government debt; when private debt is included, overindebtedness is even more striking. Mauldin says the prospects for growth in the EU are dim, the euro will go to parity with the dollar, and the EU will dissolve in the next 5-7 years.
2010-05-14 Why the Depression is Ongoing; Gold Glitters by David Rosenberg of Gluskin Sheff
The "depression" is ongoing because real personal income, once you remove all the government handouts, has barely budged. Outside of the lagged impact of all the government stimulus and the arithmetic impact of inventory accumulation, the U.S. economy is not growing. Separately, gold has broken out to the upside even as the U.S. dollar has done likewise on the back of a renewed flight-to-safety bid.
2010-05-12 Eight Hundred Years of Financial Folly by Carmen M. Reinhart of VoxEU
This column, first posted on April 19, 2008, argues that sovereign debt crises have historically followed financial crises. Although data covering only the last thirty years might have given few hints about Greece's current problems, the Reinhart-Rogoff database spanning eight centuries reveals that today's event are very much in line with historical experience.
2010-05-12 Bazooka Bust and Gold Glitters by David Rosenberg of Gluskin Sheff
On July 15, 2008, former Treasury Secretary Hank Paulson described his plan to back the liabilities of Fannie Mae and Freddie Mac as a 'bazooka.' The stock market rallied that day by more than 1 percent, to 1,215 on the S&P 500, and the short-covering rally took the index above 1,300 by early August. Little did anyone know that we had almost 50 percent to go on the downside before reaching interim lows. Meanwhile, gold has managed to hit new highs in all currencies during the recent round of intense European-led volatility and financial market weakness.
2010-05-11 A Historical Perspective on the Slight Depression by Robert Huebscher (Article)
Armed with textbooks and formulas, economists attack a problem by drawing lines, forming equations and trying to fit data to the real world. Niall Ferguson, a historian by training, thinks you can learn more simply by analyzing what has already happened. So what's a historian's take on the current crisis? Ferguson says it has yet to run its course.
2010-05-11 Spring Quarterly Commentary by Alan T. Beimfohr and John G. Prichard of Knightsbridge Asset Management
The stock and bond markets are currently consumed with evaluating the risks from the crisis in Greece...and at Goldman Sachs. Each crisis could cause losses for investors. The simple fact, however, is that by the time most armchair investors have been alerted to impending tragedies, the tragedies have largely already occurred. That is why being reactive is seldom a prescription for loss avoidance, and why such crises are seldom viewed by investors as opportunities for gains.
2010-05-11 Across the Pond - Still a Sea of Red by David Rosenberg of Gluskin Sheff
It remains to be seen how Greece and the other problem countries in the euro area will manage to cut their deficits without at the same time controlling their monetary policy and their currency. While coincident economic indicators such as employment have improved in recent months, many of the leading indicators are pointing towards a discernible slowing in economic and earnings growth in the second half of the year and into 2011 as countries worldwide shift from stimulus to fiscal restraint.
2010-05-11 ECB Sterilization -Trichet's Maginot Line? by Paul Kasriel of Northern Trust
European Central Bank president Jean-Claude Trichet has stated that the ECB will drain by other means the amount of base money it creates through sovereign debt purchases. If Milton Friedman was correct that inflation is everywhere and always a monetary phenomenon, however, then Trichet need not worry about a sustained acceleration in euro area inflation given recent declines in euro area money and credit aggregates. Northern Trust also comments on the Federal Reserve's swap lines with other central banks, and a recent small business survey.
2010-05-10 Europe Fires the Bazooka by Charles Lieberman of Advisors Capital Management
Greece's risk of default has the potential to disrupt markets globally, depressing stock and most commodity markets, while pushing the safest bonds, Treasuries, to artificially high values. With Greece as a possible disruptive force to global capital markets, the Fed will be hesitant to raise rates. Moreover, restrictive fiscal policies in Greece, Spain, Portugal, Italy and the U.K. will weaken U.S. exports to Europe. While a less expansion oriented monetary policy will still be needed in the U.S., it will come later given the disruptive forces from Europe that will restrain global growth.
2010-05-10 Think U.S. Double-Dip: Again by Komal S. Sri-Kumar of TCW Asset Management
Even though the National Bureau of Economic Research, the unofficial arbiter of the start and end of U.S. recessions, has not yet decided that the most recent recession has ended, the consensus view is that the economy recovering. Positive developments notwithstanding, Komal Sri-Kumar expects signs of a renewed economic downturn to manifest themselves during coming months. The slingshot effect of monetary and fiscal stimuli has still been less than stellar given the steepness of the economic decline during 2008-2009.
2010-05-10 Greek Debt and Backward Induction by John P. Hussman of Hussman Funds
Despite the potential for a short burst of relief, the broader concern about deficits in the euro area make it unlikely that global investors will be appeased by a large bailout of Greece, or will go forward on the assumption that all is back to normal once that happens. Looking at the current state of the world economy, the underlying reality remains little changed: There is more debt outstanding than is capable of being properly serviced. Hussman also comments on overbought equity markets, and the current market climate.
2010-05-10 The Current Accredited Investor Rules Are Discriminatory... And About to Get Worse by Jeff Joseph of Prescient Advisors
Senator Chris Dodd’s financial reform bill that is on the way to the House floor contains new provisions that would reduce the number of individuals eligible to invest in private ventures. The original draft of the bill would increase the $1 million net worth threshold that defines an 'accredited investor,' which in turn determines an individual's eligibility to invest in exempted private securities offerings. This is bunk. The ability to invest in a new business should not be an exclusive privilege bestowed by politicians upon persons of a certain economic class.
2010-05-08 The Center Cannot Hold by John Mauldin of Millennium Wave
Citing a paper from the Bank for International Settlements, Mauldin says increasing sovereign debt has two consequences - higher interest rates for that debt and lower growth rates for the underlying economies. Growth in sovereign debt at its current rate is unsustainable and poses systemic risks for the global economy. Fiscal austerity is the only solution, and that seems unlikely, particularly in the case of Greece.
2010-05-07 Understanding the Greek Aftershocks by Mohamed El-Erian of PIMCO
The Greek crisis has already morphed into a regional shock. It now stands on the verge of morphing into a more global phenomenon. Some countries will benefit, mainly on account of capital flows coming out of the euro area. The majority will not. And even those that do benefit should remain vigilant and responsive. Like most other countries in the world, they will also end up suffering from the consequences of lower international demand and renewed disruptions to the global banking system.
2010-05-07 Thoughts on Unemployment and the Market by David Rosenberg of Gluskin Sheff
The U.S. employment report was strong on the headline but masked underlying deflationary trends beneath the surface. While the primary focus in the media and Wall Street research reports will likely be on the obvious - nonfarm payrolls surging 290,000 and an even stronger 550,000 gain in the household survey - what was most notable was the buildup of excess capacity in the labor market last month and further evidence of wage deflation coming to the fore. Gluskin also comments on yesterday's market dip.
2010-05-07 Is Sovereign Debt Crisis Contained to Subprime? by Peter Schiff of Euro Pacific Capital
When mortgage-backed securities started to go bad, it wasn't as if the problems emanated in subprime and subsequently 'contaminated' the rest of the market. All borrowers were infected with the same disease, but the symptoms merely expressed themselves sooner in subprime. The same is true on a national level, whereby Greece plays the part of the subprime borrower. Even though the U.S. is considered to be the highest order of 'prime' borrower, our debt-to-GDP levels are at crisis levels compared to historic precedents, and are not that much lower than those of Portugal or Spain.
2010-05-06 All Part of the Global Deleveraging Story by David A. Rosenberg of Gluskin Sheff
Greek default now seems inevitable, as does an exit from the euro zone. This is all part and parcel of the global deleveraging cycle. Entities or countries that massively overextended themselves during the boom years are going to be paying the piper, as we are now, on the opposite side of the credit cycle - the secular contraction phase. It may have started with U.S. banks and American real estate three years ago, but it is now about European banks and welfare states within the euro zone.
2010-05-06 The New Liar Loan by John Burns of John Burns Real Estate
The housing recovery being touted by elected officials is far from assured. There will be fewer homeowners thrown out on the street this month than would have occurred otherwise, but they will be tossed out later. The modification programs have helped stabilize home prices around the country, mostly because they have created so much confusion that people can live in their home for free for one year or more, and are buying time for thousands of banks to continue improving their balance sheets with earnings from good loans, while deferring write-offs of bad loans.
2010-05-05 Greek Contagion Spreads—Time for Plan B by Nouriel Roubini of RGE Monitor
The euro continued to plunge this week, and long-term government bond yields in Greece and in the periphery countries, including Italy, spiked upward again after a short rally before the recent International Monetary Fund-European Union rescue agreement. The market’s lukewarm reaction to the financing package confirms RGE’s view that a traditional financing package, extended at unsustainable interest rates, will not allay solvency fears, but rather will lead to a disorderly outcome and contagion.
2010-05-04 Lacy Hunt: Keynes was Wrong (and Ricardo was Right) by Robert Huebscher (Article)
Underpinning the Obama administration's economic policies is the work of John Maynard Keynes, the legendary British economist who called for large fiscal and monetary interventions to counter the Great Depression. On this critical issue, Keynes was wrong, says Lacy Hunt, the internationally renowned economist with Texas-based Hoisington Investment.
2010-05-03 Violating the No-Ponzi Condition by John P. Hussman of Hussman Funds
Greece has insufficient economic growth, enormous deficits (nearly 14 percent of GDP), a heavy existing debt burden as a proportion of GDP (over 120 percent), accruing at high interest rates (about 8 percent), payable in a currency that it is unable to devalue. This creates a violation of what economists call the 'transversality' or 'no-Ponzi' condition. Unless Greece implements enormous fiscal austerity, its debt will grow faster than the rate that investors use to discount it back to present value.
2010-05-01 The Bond Roller Coaster by Michael Nairne of Tacita Capital
The bond market has been characterized by long-term secular cycles. From 1946-1981 yields steadily rose; since 1981 they have steadily declined. The good times for bonds couldn’t last forever. Although some longer-term bond exposure is needed today as a hedge against a deflationary scenario, investors should recognize that in the next year or so the bond roller coaster is about to get underway.
2010-04-30 Europe's Troubles by Robert J. Horrocks of Matthews Asia
In the context of Europe's sovereign debt problems, we do not expect Asia to become a safe haven for investors in the near term. As solvent as China’s sovereign debt position is, questions still remain over the borrowing by local government investment vehicles during the recent stimulus plan and property boom. This is not a benign environment for Asia’s equity markets. But we do take solace in the long term, because these events once again show the relative health of Asia’s economies.
2010-04-29 Bleak Job Outlook, Consumer Reality Check and Bailouts by David Rosenberg of Gluskin Sheff
What really stands out in this recession is the permanency of job decay. The National Association of Manufacturers just announced that fewer than 30 percent of the manufacturing jobs lost in the sector will be recouped in the next six years. If this holds true for the economy as a whole, and assuming a normal cyclical upturn in the labor force participation rate, then the nationwide unemployment rate will be 15 percent in six years' time. How anyone can believe that we can squeeze inflation out of that scenario is a mystery.
2010-04-29 Greek Crisis Endangers Private Sector by Mohammed El-Erian of PIMCO
The Greek debt crisis has morphed into something that is potentially more sinister for Europe and the global economy. What started out as a public finance issue is quickly turning into a banking problem too; and what started out as a Greek issue has become a full-blown crisis for Europe. Absent some remarkable change in the next few days, things will get even more complex for the public sector. It may have no choice but to combine its own exceptional financing efforts with talks on a controversial approach that will be familiar to emerging market observers - private sector involvement.
2010-04-29 Declines in Bank Loans - Write-Downs or Pay-Downs? by Paul Kasriel of Northern Trust
The record decline in commercial bank loans/leases the U.S. experienced in 2009 was dominated by pay-downs (payments on loans) rather than write-downs (reductions in recognized value). Pay-downs have negative implications for new aggregate demand whereas write-downs are irrelevant with regards to new aggregate demand. Declines in capital limit the ability of banks to create new credit. The continued contraction in commercial bank loan/lease balances is cause for caution with regards to near-term growth in economic activity.
2010-04-29 Q110 Portfolio Commentary by Jay Compson of Absolute Investment Advisers
The potential for systemic risk continues to be very high, and Absolute Investment Advisors believes markets are only pricing in the optimistic outcomes and not the bad ones. This is the opposite of a year ago. The past few market cycles have been highly compressed as investors have appeared to recognize risks only after they occur. As such, the discounting mechanism of the markets has also become compressed as all assets have gone through stages of an escalator up and then an elevator back down (with very few floors to get off).
2010-04-28 the sideshow by tom brakke of the research puzzle
The real issues of the day have nothing whatsoever to do with the sideshow on Capitol Hill. The main event is playing out around the world, as evidenced by widening credit default swaps for sovereign and financial issuers, sizable currency moves, and dropping equity markets. There is the smell of contagion in the air. More pungent now, it has been there for awhile, and the U.S. equity market has refused to acknowledge the odor - reminiscent of its 2007 ignorance when the fissures in the mortgage market started emitting foul smells from the underground.
2010-04-27 Recovery U.S.A.? by David Rosenberg of Gluskin Sheff
Nobody would dispute that the U.S. government has spent the economy into some sort of statistical recovery. Look at the largesse - a 0 percent policy rate, a $2.3 trillion Fed balance sheet loaded up with mortgages, a $1.4 trillion fiscal deficit loaded with bailouts and freebies and accounting changes that have allowed the banks to mark-to-model their way back towards earnings heaven. The time gap between recessions is shortening, however, and growing government debt loads mean that next time the policy response will just not be there to turn things around.
2010-04-27 Gary Shilling: America’s Lost Decade by Robert Huebscher (Article)
The US faces 10 years of slow growth and deflation that could rival Japan's "lost decade" - two words which Gary Shilling did not utter but which unmistakably characterize his forecast. Shilling is founder and President of the New Jersey-based economic consulting firm A. Gary Shilling & Co.
2010-04-26 Looking Back, Looking Forward by John P. Hussman of Hussman Funds
The market is strenuously overvalued, faces a syndrome of overextended conditions that has historically proved hostile, and relies to an incredible extent on the absence of further credit strains. Accepting a greater level of market exposure will require, at minimum, that we clear the present syndrome of overvalued, overbought, overbullish, rising-yield conditions. The quickest way to a more constructive investment stance would be a meaningful improvement in valuations (which would most likely be associated initially with a deterioration in market action), and no further credit strains.
2010-04-23 Reports of Our Recovery Are Greatly Exaggerated by John Browne of Euro Pacific Capital
From all outward appearances, it seems that a grim chapter in U.S. economic history has come to an end. The economic position of the United States and the member states of the European Union, excluding Germany, however, is not as healthy as our media and politicians would have us believe. The danger is even greater when measured against the relative security and economic success of China, India, Brazil, Australia, Canada and New Zealand. In these countries, economic growth and financial responsibility are real. At home, the reports of our recovery are greatly exaggerated.
2010-04-22 Preliminary 1Q 2010 Delinquency Rates by Matthew Anderson of Foresight Analytics
This post contains advance estimates of final 1Q 2010 real estate and business loan delinquency rates from Foresight Analytics. Total mortgage delinquencies rose to a preliminary estimate of 14.0 percent during the first quarter, up from 13.2 percent in the fourth quarter 2009 and from 9.4 percent a year ago. Total construction lending delinquencies rose to an estimated 19.0 percent, up from 18.6 percent in Q4. The total commercial and industrial loan delinquency rate rose to an estimated 5.5 percent, up from 5.1 percent in Q4, and double the 2.7 percent rate in Q4 2008.
2010-04-21 The Bernanke Put: Creating Tetrodotoxin Investors by Cliff W. Draughn of Excelsia Investment Advisors
The 'Bernanke Put' of low interest rates over an extended period of time has effectively lured investors to pursue greater and greater levels of risk without critically thinking about the ramifications of upcoming mortgage resets, consumer spending versus income, credit contraction, valuations, and unemployment. Our country has never experienced leverage of this magnitude. In this environment, we must remember the lesson from Benjamin Graham: 'The margin of safety takes priority over all other investment considerations.'
2010-04-21 The Over-Under on Valuation by David Rosenberg of Gluskin Sheff
According to the Shiller P/E ratio, the S&P 500 is now 35 percent overvalued - a full one standard deviation event. It would be nice to say that a higher-than-normal P/E is justified by low inflation and low interest rates. Real bond yields are not that far from their long-run averages, but equity valuation is, and something is going to give at some point. The operative strategy is to buy low and sell high, not the opposite. Defensive income-oriented strategies make perfect sense right now.
2010-04-19 Earning More by Setting Aside Less by John P. Hussman of Hussman Funds
Overall, the current data presents at best a mixed picture of credit conditions. Investors should not be surprised by a significant second wave of credit strains. It seems unwise for investors to celebrate variations of a few basis points in delinquency rates, however. It seems equally unwise to celebrate 'favorable' bank earnings reports that are exclusively driven by reduced loan loss provisions, particularly when the volume of impaired loans has not declined proportionately.
2010-04-19 No Free Lunch by David Rosenberg of Gluskin Sheff
The fiscal mess will not be fixed through spending restraint because spending is increasingly being dominated by locked-in mandatory entitlement spending and interest costs on the rapidly rising stock of public debt. In addition, the fact that the Goldman Sachs revelation came at a time when bank earnings are being reported and showing that these guys are now making money hand-over-fist (mostly via trading and recoveries) thanks to the government's help is potentially huge from a political standpoint, especially since financial reform is front and center right in Congress right now.
2010-04-19 Consistency Counts (Well, If You're Into That Sort of Thing) by Rob Isbitts of Emerald Asset Advisors
Let's call the current global stock market what it is: a combination of government stimulus propping up prices, investors playing catch-up now that the S&P 500 is 75 percent higher than it was in March 2009, investors extrapolating forward recent improvements in the economy and concluding that the next opportunity in stocks is here, and investors who continue to spend and borrow until forced by law or contract to stop. We were here in 1987, we were here in early 2000, and we were here in mid-2007. Here we are again.
2010-04-16 Deflation Pressures Mounting - And What To Do With It by David Rosenberg of Gluskin Sheff
The economy may be doing better, but it could take years to absorb all the slack evident in the labor, product and housing markets. Deflation remains the primary trend, notwithstanding the bounce in commodity prices, which will surely act as a significant margin squeeze for retailers. There is no shortage of complaints that the disinflation trend is being skewed by lower rents. Rent matters a lot in the consumption basket, and the fact that it is deflating is a sign of stress in both labor markets and the housing market.
2010-04-14 Quarterly Review and Outlook by Van R. Hoisington and Lacy H. Hunt of Hoisington Investment Management
Massive government spending is unsustainable, and will not lead to economic growth. Recent research says that the multiplier for federal government spending is less than one (each dollar spent results in less than one dollar of growth), whereas the multiplier from tax reductions is greater than one. Other economic research suggests that in an extremely overleveraged economy, monetary policy does not work. With excessive levels of debt and contractionary monetary and fiscal policies in place, inflation will continue to moderate, thereby driving long term treasury yields lower.
2010-04-13 Shameless by Michael Lewitt (Article)
The fiscal train wreck in the United States has not been set back on the tracks, and the global imbalances that led to the financial crisis have not gone away. Quite to the contrary, writes Michael Lewittin Shameless, the latest edition of his HCM newsletter. In fact, if progress isn't made with respect to these issues, and if intelligent financial reform is not enacted, future instability is guaranteed.
2010-04-12 Extend and Pretend by John P. Hussman of Hussman Funds
A year ago, the Financial Accounting Standards Board suspended rule 157, which had previously required banks to mark their assets to market value when preparing balance sheet reports. The basic argument was that fair values were not appropriate because there was 'no market' for troubled assets, which was false even at the time. This 'extend and pretend' policy has created a gap between the reported value of assets and the value they would have on the basis of reasonable cash flows over the course of their maturity.
2010-04-09 Interest Rates are Creeping Up by Asha Bangalore of Northern Trust
The Fed is on hold in the near term, with nearly all its emergency programs either closed or expired. The effective federal funds rate has moved up in recent weeks, to an average of 16 bps in March, as have yields on other Treasury securities. The upward trend of Treasury market yields places the Fed is a tight spot, because the objective of easy monetary policy is defeated if Treasury market yields continue to move up and raise the cost of credit. Northern Trust's best bet is that interest rates will decline somewhat in the weeks ahead as bearish economic news comes out.
2010-04-09 Market Thoughts by David Rosenberg of Gluskin Sheff
The recent rally shows us that markets can stay overvalued far longer than many people realize. While technicals and momentum could take the market higher in the near term, investors should still not abandon capital-preservation strategies. The primary trend is what is important, not the noise surrounding it. Right now the primary trend is one of private sector credit contraction, as well as excess supply in finished goods, retail space, houses and labor, all of which is deflationary. This makes an ongoing emphasis on income-gathering securities and assets critical.
2010-04-08 Why the Greek Rescue Isn't Going According to Plan by Mohammed El-Erian of PIMCO
The triumphant announcement from Greece, the European Union and the International Monetary Fund a couple of weeks ago has not calmed markets, nor has it lowered Greek borrowing costs. Buoyed by a cyclical recovery, markets around the world have yet to recognize the complexity of this situation. When they do, it will also become apparent that Greece is part of a wider, and historically unfamiliar phenomenon – that of a simultaneous and large disruption to the balance sheets of many industrial countries.
2010-04-07 The Municipal Market by Rick Bookstaber of Rick Bookstaber
The municipal bond market displays many of the problems that plagued the mortgage market leading up to the recent financial crisis. Just as homeowners took their income and locked it up via secondary loans, much of the tax base for municipalities is already mortgaged through the sale of tax-related revenue streams such as tolls and parking fees. And once a few municipalities default, there is risk of a widespread cascade in defaults because the taboo against bankruptcy will diminish, especially if there is a taxpayer revolt.
2010-04-07 When the Facts Change by Niels C. Jensen of Absolute Return Partners
An echo bubble is upon us. Echo bubbles are the children of primary asset bubbles, and emerge when monetary authorities respond to the bursting of a primary asset bubble by slashing policy rates. Extraordinarily low interest rates are currently encouraging another bout of excessive risk taking. If policymakers raised rates now, however, they would almost certainly kill the fledgling recovery. The pressure is therefore on monetary authorities to keep rates low and feed the new bubble. Investors should steer toward assets that benefit from high volatility.
2010-04-05 Disclosure? It's Not Good Enough by Dan Ariely of Predictably Irrational
In compliance with a federal integrity agreement, pharmaceutical maker Pfizer released details of its financial involvement with the medical community. Several studies have shown, however, that when professionals disclose their conflicts of interest, this only makes the problem worse. This is because two things happen after disclosure: first, those hearing the disclosure don't entirely know what to make of it, and second, the discloser feels even more liberated to act in his own interest and to disregard the public good.
2010-04-05 Unpleasant Skew by John P. Hussman of Hussman Funds
Stock markets are overbought and overvalued, sentiment is too bullish, and yield trends are hostile. These high risk conditions tend to lead markets to successive but slight and marginal new highs. They also tend to invite nearly vertical drops of more than 10 percent over a period of weeks. The present conditions therefore recommend a defensive investment stance. The implied total return for the S&P 500 over the coming decade is just 5.7 percent annually, the lowest level observed in any period prior to the late 1990's met bubble.
2010-04-03 Is This a Recovery? by John Mauldin of Millennium Wave
"We will likely see a reduction in government spending (from all levels) over the next few years, a really nasty set of tax increases, which will hit small businessmen the hardest, and continued high unemployment, and all of it coming in a weakening economy by the end of the year," says John Mauldin. "I put the odds of a double-dip recession in 2011 at better than 50-50." Mauldin also offers asset allocation advice over a 10-year time frame.
2010-04-01 The Fed's Last Hurrah by Peter Schiff of Euro Pacific Capital
When the tech bubble burst, the Fed inflated a larger one in real estate. Now that the real estate bubble has burst, the Fed is inflating the biggest bubble of all - a bubble in government. The government bubble will cripple the economy and deliver widespread misery to the majority of Americans. As government grows, it deprives the private sector of the resources it needs to survive and grow. In the end, when runaway inflation and skyrocketing interest rates burst the government bubble, there will be no more bubbles to replace it – just one hell of a hangover.
2010-04-01 Construction Lending - 4Q 2009 by Matt Anderson of Foresight Analytics
Construction loans outstanding contracted by 8.3% during the fourth quarter (vs. 3Q 2009), on par with the 8.1% decline in 3Q 2009, but faster than the 4.6% average quarterly declines in 4Q 2008 through 2Q 2009. All major construction categories we estimate are in decline, including commercial real estate. Delinquency rates for all construction and land loans rose to 18.6% during the fourth quarter, up from 17.9% during 3Q 2009. This rate is closing in on the high of 19.2% in 1Q 1992.
2010-03-31 Corporate Cost Of Health Care: Announced Charges as of 3/31 by Team of Bespoke Investment Group
Since Congress passed the health care reform bill on March 21st, we have seen numerous companies announce that they will take charges to earnings. The charges stem from one aspect of the legislation that eliminates deductions for tax-free subsidies companies receive from the government for providing prescription drug benefits to retirees. Due to the material and quantifiable impact that the bill will have on their business and financial results, the companies are required by law to disclose it. So far at least fourteen companies have announced charges totaling at least $1.6 billion.
2010-03-29 I'm Entitled by Charles Lieberman of Advisors Capital Management
Greece's budget problems reflect the willingness of the government to pay workers wages and benefits that exceed the willingness of citizens to pay taxes. The simple lesson is that governments cannot promise benefits without considering their cost. It is therefore disappointing that the U.S. government chose to create a new healthcare entitlement program at a time when it is already running high budget deficits. Markets are not ready to stop financing U.S. budget deficits right now, but this may become a problem down the road.
2010-03-27 What Does Greece Mean to You? by John Mauldin of Millennium Wave
The potential consequences of the Greece debt crisis can be explained by chaos theory, where a small perturbation in one place (the Greek economy) can cause bigger ripples in the global economy. Greek debt is held by European banks, and a Greek default would weaken the European economy. The real crisis, though, is the impending end of a "60-year debt supercycle," which implies many years of deleveraging and a weak global economy.
2010-03-24 Taking the Man at His Word by Jeffrey Bronchick of Reed Conner Birdwell
Berkshire Hathaway is more economically cyclical that it has been in the past, and would have a much bigger tailwind in an improving economy. The stock also tends to be seasonally strong into the annual meeting. Investors should not squeeze every last dollar of potential profit out of an investment, however, without considering risk. We will therefore take the company at its word: 'The past growth rate in Berkshire’s book value per share is not an indication of future results and our book value per share will likely NOT increase in the future at a rate even close to its past rate.'
2010-03-24 Bull Market or Just Bull? by John Browne of Euro Pacific Capital
As the markets have rebounded from the brink of disaster, many Wall Street cheerleaders have proclaimed the dawning of a major new bull market. If we measure market cycles biannually, and if bull markets need not eclipse peaks achieved in previous cycles, then this forecast is spot on. The political, economic and financial fundamentals of our new big government era, however, do not support a sunny long-term outlook for U.S. stocks, and may even presage a second financial crisis.
2010-03-23 I Would Rather Be Wrong by Howard Marks of Oaktree Capital
Washington politicians are proving themselves unable to solve - or even tackle - our financial problems. Both parties refuse to budge from positions that dramatically narrow the grounds for problem solving. The Republicans' conservative base demands adherence to a no-tax pledge, while liberal Democrats demand their representatives to prevent cuts in spending on domestic programs.
2010-03-23 Tobin’s Q: A Stone’s Throw from a Sell Signal by Robert Huebscher (Article)
One of the most reliable measures of broad market valuation is Nobel Prize-winning economist James Tobin's Q-ratio. Data released less than two weeks ago show that the ratio is generating a bearish signal over the next three, five and ten years. Over the next year, though, the signal is neutral.
2010-03-22 An Update on Valuation and Forward Earnings Assumptions by John P. Hussman of Hussman Funds
The market's valuation looks overpriced based on widely tracked fundamentals. Price-to-normalized earnings, price-to-dividend multiples, price-to-book values and price-to-sales multiples all sit above long-term averages. Valuations based on forward operating earnings are also unfavorable. The long-term average P/E ratio based on forward operating earnings is about 12. The current multiple is 14.8, and this value assumes the continuation of near-record profit margins. Even a minor lowering of expected profits would cause the whole scale of the overvaluation to widen materially.
2010-03-20 The Threat to Muddle Through by John Mauldin of Millennium Wave
Mauldin criticizes Krugman's call for a 25% tariff on Chinese imports, and instead predicts that China will allow its currency to appreciate 5-7% per year for the next several years. Protectionism, he says, is the biggest threat to global recovery. In defense of his argument, Mauldin says similar tariffs could be imposed if the euro, Yen and the Canadian dollar continue their current trends. The larger problem is the growing US deficit, which must be dealt with in the medium term, or there will be no long term.
2010-03-16 Latest Unemployment Report Reveals the Growing Problem of the Long-Term Unemployed by Team of American Century Investments
Four out of 10 unemployed workers are designated as long-term unemployed, meaning that they have been seeking a job for at least six months. This rate exceeds any other since the 1940s. As we have evolved towards a service- and knowledge-based economy, people with at least an undergraduate degree have fared better both in terms of lower unemployment rates and higher wages. This trend has become even more pronounced during the recession that began in December 2007 relative to the past two periods of peak unemployment in June 1992 and 2003.
2010-03-16 Greeks Bearing Gifts by Michael Lewitt (Article)
We are again privileged to publish the most recent edition of Michael Lewitt's HCM Market Letter, Greeks Bearing Gifts. Lewitt comments on Goldman Sachs' derivative transactions that helped Greece hide its debt and its larger implications for the financial system, for the European periphery and for Spain in particular. Lewitt also addresses the state of decline of the US economy and other topics.
2010-03-15 Ordinary Outcomes of Extraordinary Recklessness by John Hussman of Hussman Funds
The recent credit crisis did not emerge as a surprise, but was the ordinary outcome of extraordinary recklessness. Overvaluation and reckless lending do not always translate into near-term market weakness, but they invariably haunt investors in the form of poor long-term returns. Significant damage in the stock market often takes place during the "recognition phase" where the troubling reality departs from optimistic expectations. Fundamental measures suggest that markets are currently overvalued, and recommend a defensive position for assets.
2010-03-13 Dollar Bulls Beware by Peter Schiff of Euro Pacific Capital
The market is perfectly positioned for a massive dollar sell-off. The fundamentals for the dollar in 2010 are so much worse than they were in 2008 that it is hard to imagine that people will keep buying them once political and monetary stability returns to Europe. Indeed, the euro has recently stabilized. Once the dollar breaks decisively below last year's lows, many traders who jumped ship in the recent rally will look to reestablish their positions, and this will bring attention back to the financial disaster unfolding in the U.S.
2010-03-13 The Implications of Velocity by John Mauldin of Millennium Wave
Mauldin examines the relationship between the velocity of money, economic growth and inflation. After reviewing the economic theory, he shows that the velocity of money in the US has decreased since the onset of the financial crisis, and attributes this to deleveraging and the pullback from the financial innovations that accelerated the velocity of money, particularly in the 1990s. The Fed has compensated for the slowdown in velocity by increasing the money supply, and Mauldin questions whether the Fed can effectively reduce the money supply once velocity increases.
2010-03-11 Budget Deficits: The Challenge Ahead in a Picture by Asha Bangalore of Northern Trust
Congressional Budget Office projections indicate federal outlays as a percentage of GDP will consistently exceed revenues even after the peak in outlays associated with the financial crisis and the recession. The fundamentals of the economy offer little hope for strong performance in the years ahead. A graying population and associated social costs will continue to add to projected outlays. Bangalore also comments on January's record low in the inventory-sales ratio, indicating strengthening demand.
2010-03-11 How to Handle the Sovereign Debt Explosion by Mohammed El-Erian of PIMCO
The simultaneous deterioration of public finances in many advanced economies represents a significant regime shift with consequential and long-lasting effects. In 2008 and 2009, governments had to step in to counter the simultaneous implosion of housing, finance and consumption, and now the world must deal with the consequences of how they did this. Governments will not be able to rely on growth or private sector holdings to overcome their debts. Policymakers will need to make difficult decisions about higher taxes and lower spending.
2010-03-11 Market Comment by David Rosenberg of Gluskin Sheff
Government stop-and-go policies have fostered an environment of intense volatility for equity markets over the past 12 years. The market has basically been flat for a buy-and-hold investor during this period. While this may make a great case for active portfolio management, chasing performance at this juncture is probably unwise. Housing is the quintessential leading indicator for economic activity, and many realtors still say business is slow. As the Japanese experience shows us, a double-dip recession may come faster than we think.
2010-03-10 V, U and W by Nouriel Roubini of RGE Monitor
Debate continues to rage over whether the U.S. economy will have a V-shaped recovery with a rapid return to above-potential growth, a U-shaped recovery with below-trend growth for the next two years, or a W-shaped double-dip recession. Poor economic data released over the past two weeks suggests a U-shaped recovery at best. Consumer confidence, home sales, construction and employment suggest significant downside risk even to the current anemic levels of growth. The eurozone debt crisis, meanwhile, presents the risk of a double-dip recession in Europe that could also drag down the U.S.
2010-03-09 Credit Contraction Continues by David Rosenberg of Gluskin Sheff
Consumer credit fell by $4.6 billion in December, according to a revision released Friday of the previous $1.7 billion figure. Revolving credit fell $1.7 billion in January, to $864.4 billion, the lowest figure since October 2006. The only gain in credit was a $10 billion increase in federal government loans due to a student loan program. Overall, lending and borrowing behavior suggests an ongoing credit contraction.
2010-03-09 A Looming Lack of Liquidity by Robert Huebscher (Article)
Headlines warn that the rapid buildup in the money supply, caused by the Federal Reserve's efforts to confront the financial crisis, is destined to result in inflation. That may be the case, but a more ominous signal from the money supply warns of impending economic contraction.
2010-03-08 Mark-to-Market Accounting: OneWest and WaMu by Christopher Whalen of Institutional Risk Analytics
One year ago, OneWest Bank Group purchased the banking operation of the IndyMac Federal Bank, which was being operated in conservatorship by the FDIC. As with the purchase of Washington Mutual by JPMorgan Chase, the subsidy in these deals came from the write-down of the assets of the failed bank. All of the potential claims against the parent companies of WaMu and IndyMac for rescission of securitized loans are sitting in bankruptcy court, where they will likely remain and die.
2010-03-08 The Rubber Hits the Road by John Hussman of Hussman Funds
If we are indeed at risk of a second wave of mortgage defaults and credit strains, it will first show up as a jump in 30-day mortgage delinquencies in data released over the next two to four months. A small initial round of resets, started in November 2009, is already in progress. A deleveraging cycle would likely establish a sequence of troughs, each at lower levels of valuation. It will still be possible, however, to trade within that range in proportion to expected stock returns. Fundamentals will take precedence over all other considerations.
2010-03-08 Turning Cautious by Scotty George of du Pasquier Asset Management
The current global rallies in stocks seem to be short-cycle upswings within the existing secular bear trend. Low interest rates are leaving no other suitable alternative for investors, and high grade fixed-income opportunities are few and far between. Interest rates may rise, however, before year end as global debt continues to mount. Investors should therefore look for an above-average exposure to cash in the short term while waiting for downward movement in stocks in the long term.
2010-03-05 The Dominoes of Default by John Browne of Euro Pacific Capital
The sovereign debt crisis in Greece has drawn attention to countries with similar fiscal conditions, including the United Kingdom. Fueled by socialist fiscal policies, the debt ratio in Britain is rapidly approaching Greek levels. The pound sterling has lost 25 percent of its value relative to the U.S. dollar since mid-2008. U.S. sovereign debt is in nearly the same proportion relative to GDP as debt in the U.K. If the U.K. defaults on its debt, the U.S. may be the next domino to fall.
2010-03-05 Greek Bailout: This is a Trojan Horse! by Komal S. Sri-Kumar of TCW Asset Management
Eurozone members may be reenacting the story of the Trojan Horse in their efforts to rescue Greece from a debt crisis. The bailout brings unintended consequences that could weaken the entire eurozone. Greece shows no indication that it will take the necessary austerity measures to keep its fiscal house in order after a bailout takes place. A Greek bailout could make Spain and Portugal think that they are entitled to a similar financial rescue. And a bailout could feed resentment from German taxpayers, who would bear much of the burden.
2010-03-05 Economic Update by Justin Anderson of Cambridge Advisors
In the coming months it will be important to track the changing dynamics in both the domestic labor market and international sovereign debt markets as these represent, quite possibly, the two most significant headwinds to growth in the US economy and stock markets in general.
2010-03-02 Budget Proposals - Red on Arrival by Milton Ezrati of Lord Abbett
The latest White House budget proposals reveal that fiscal policy will offer little control over the river of red budgetary ink already at flood. The White House expects the deficit to run at $1.6 trillion, up from last year's record $1.4 trillion, taking the deficit up to about 10.6 percent of GDP. Furthermore, despite optimistic growth projections, deficit forecasts barely get below 4 percent of GDP by 2014. These deficits would raise the country's overall debt from the present $7.5 trillion to $18.6 trillion, or about 80 percent of GDP, by 2015.
2010-03-02 Economic Warfare: China and the United States by Michael Schussele of Michael J. Schussele, CPA
The China Dream, a new book by senior Chinese army officer Liu Mingfu, argues that China will become the world's number one economic power within the next five years, and that this change will be a harbinger for economic warfare between China and the United States that could escalate into military conflict within the next 10 to 20 years. While the U.S. needs China to buy treasury bonds, there is controversy over whether Japan has displaced China as the largest holder of U.S. debt.
2010-03-02 Asset Allocation for Grantham’s Seven Lean Years by Geoff Considine, Ph.D. (Article)
Followers of Jeremy Grantham know his consistently accurate long-term forecasts well, as well as his ability to identify and avoid asset bubbles and steer clients into high-performing asset classes. Grantham's prescience is remarkable but not irreplicable. Geoff Considine shows that his Monte Carlo simulations nearly match Grantham's forecasts, and he reviews the implications for asset allocations.
2010-03-02 Asset Allocation Perspective by Scott Wittman, CFA (Article)
Scott Wittman, Chief Investment Officer for American Century Investments, provides his quarterly review of macro-economic factors and trends which influence the tactical weighting decisions for American Century's asset allocation funds. In the article, Wittman reviews and comments on recent events, trends and expected short-term future changes in monetary, fiscal, industrial, trade, regulatory, political and financial macro economic factors. We thank them for their sponsorship. This is sponsored content.
2010-03-02 Robert Pozen on the Financial Crisis, Social Security, and the Mutual Fund Industry by Dan Richards (Article)
Robert Pozen is the chairman of MFS Investment Management and a senior lecturer at the Harvard Business School. In this interview with Dan Richards, he discusses the financial crisis, Social Security, and the mutual fund Industry. We provide a transcript and a video replay of the interview.
2010-03-01 Reputational Risk: Living in a Derivative World by Christopher Whalen of Institutional Risk Analytics
While bank securities holdings are rising in the aggregate, loan portfolios and overall assets are shrinking at a quickening pace. This is evidence that deflation remains the chief threat to the global economy. The only way to reverse the deflation of bank balance sheets is to restructure and recapitalize insolvent institutions and allow interest rates to rise to positive real levels. This, however, will require the Fed and Congress to admit the policies of the past two years were wrong.
2010-03-01 Don't Care by Bill Gross of PIMCO
A lack of global aggregate demand, brought by twenty years of accelerated globalization, is the fundamental economic problem of our age. Many states have used government debt to make up for shortfalls in aggregate demand. But as the crises in Dubai, Iceland, Ireland and Greece show, not every state is able to pay off its new debt load. Investors should therefore concentrate on states that have lower credit or inflationary risk, such as Germany and Canada, and avoid higher-risk states such as Greece and the U.K.
2010-03-01 Lessons from the 'Naughties' by Robert D. Arnott of Research Affiliates
Sizeable real returns will be difficult in this decade, as they were in the last. Almost all asset classes are priced richly relative to historical norms. We can tilt the odds back in our favor, however, by tactically altering our portfolio risk based on measures as simple as yields and yield spreads. The surest path to success marries tactical asset allocation with a more efficient beta, such as the Fundamental Index methodology, and a full toolkit of alternative markets.
2010-03-01 Don't Bet on a Recovery by Peter Schiff of Euro Pacific Capital
Consumer spending increased 0.5 percent in January, but contrary to popular belief, this is not evidence of a bona fide economic recovery. Incomes and credit are still down, while the savings rate fell to its lowest level since 2008. Our government's plan for economic recovery is to print a bunch of money and give it to consumers to spend. This is not a plan for recovery but a recipe for disaster.
2010-03-01 Bank Credit Still Contracting by David Rosenberg of Gluskin Sheff
Outstanding bank credit fell $33 billion during the week of February 17, adding to a seven-week cumulative decline of $150 billion. Bank lending to households and businesses fell at a 12 percent annual rate over the past 13 weeks. As long as bank credit is shrinking, the jury will still be out on Fed rate hikes during the second half of this year and the ability of the economy to sustain above-potential growth. In addition, the revised Q4 GDP numbers indicate a lack of pent-up consumer demand with most spending directed to essentials, reinforcing a bearish, deflationary U.S. economic outlook.
2010-02-26 The Global Banking Crisis Continues... by Monty Guild and Tony Danaher of Guild Investment Management
The Icelandic and Greek financial crises can be seen as the second stage of the larger global banking crisis. This second stage, which centers on European sovereign debt, was caused by years of over-borrowing and now deleveraging. Many countries will print money to help ease the crisis, and this will keep developed economies and their currencies under pressure for years. Guild and Danaher also comment on rising demand for oil and gold, the U.S. stock market rally, rising interest rates and the continued rise of China and India.
2010-02-26 Will the Pause Refresh? by John Browne of Euro Pacific Capital
Western governments allowed their structural deficits to fester during the current lull in the economic storm. Major players in the world financial system such as the United Kingdom and the United States now face the threat of default. Countries such as China, India and Switzerland that have pulled their wealth into the sturdy shelter of gold, by contrast, will likely emerge battered but viable.
2010-02-25 Statement by Christopher Whalen Congressional Oversight Panel Hearing on GMAC TARP Assistance by Christopher Whalen of Institutional Risk Analytics
Christopher Whalen tells a TARP assistance congressional oversight panel in a prepared statement that bank holding company GMAC Financial Services must restructure before it can support the growth of General Motors and its community of dealers and consumers, and that there is currently no compelling business or financial reason to rescue GMAC. GMAC banking unit Ally Bank received an "F" rating from the Institutional Risk Analytics Bank Stress Index for the fourth quarter of 2009.
2010-02-24 I Am Worried about the Government Debt My Descendants Will Inherit by Paul Kasriel and Asha Bangalore of Northern Trust
Each American was responsible for an average of $38,651 in gross federal debt in 2009. That figure will grow to $62,808 by 2020, according to Congressional Budget Office projections. Short of changing Social Security and Medicare, all we can do to alleviate the strain on our descendents is increase our current savings rate. Kasriel and Bangalore also examine slipping consumer confidence figures and a rising home price index.
2010-02-24 Lacking Confidence by David Rosenberg of Gluskin Sheff
U.S. consumer confidence fell 10.5 points in February, to 46.0, the lowest reading since last April. The consensus estimate was 55.0. While some blame a seasonal bias or winter storms for the decline, news about European default risks, a declining stock market and continued employment difficulties may also be at play.
2010-02-22 Notes on a Difficult Employment Outlook by John Hussman of Hussman Funds
The 4-week moving average for unemployment claims stands at 468,500. This suggests monthly payroll job losses of about 80,000. Census hiring should make a positive impact on short-term job growth. Debt burdens could produce credit strains if weak employment conditions continue. Hussman also comments on the current market climate for stocks and bonds.
2010-02-20 The Pain in Spain by Mauldin of Millennium Wave
Mauldin examine the Greek crisis the the potential direction of the euro. Spain, he says, is a more threatening crisis because its debt is much greater than Greece's. "Pay attention to Greece and Spain and especially Japan over the next few years," he says. "Unless the US gets its fiscal house in order, we will be next."
2010-02-18 Just When We Thought They Were Out... by Chris Maxey of Fortigent
Equity markets were still oversold based on a number of momentum and sentiment measures last week as buyers pushed the both the S&P 500 and the Dow Jones Industrial Average indexes to volatile 0.9 percent gains. Headlines this week should center on Greece\'s bid for explicit financial support from other Eurozone members, as well as a slew of new economic data.
2010-02-17 Grecian Formula by Rob Isbitts of Emerald Asset Advisors
The market rally in the last 10 months of 2009 should have taken two or three years to unfold. The pace of advance thus has to slow, and this slowdown may manifest itself with temporarily lower stock prices. Furthermore, slowly increasing interest rates may suggest fears of inflation.
2010-02-17 The Return of the Primary Trend by David Rosenberg of Gluskin Sheff
If credit, equity prices and the economy are on a downward primary trend this year and 2009 was indeed a counter-trend bounce, then the appropriate course of action is to capitalize off the rally in assets last March and figure out how to still make money on a risk-adjusted basis. Rosenberg also examines February's recovery in the National Association of Home Builders housing market index and fiscal woes at the state level.
2010-02-16 ProVise Bullets by Ray Ferrara of ProVise Management Group
Ray Ferrara of ProVise Management Group says state and local governments could face revenue shortfalls of $175 to $200 billion this year, and notes that tax increases to fill budget gaps may be counterproductive in the current economic climate. He also examines a number of other issues in policy and finance.
2010-02-16 The Federal Reserve's Exit Strategy: Unlegislated Bailout of Fannie and Freddie by John Hussman of Hussman Funds
John Hussman of Hussman Funds says the U.S. Treasury and the Federal Reserve circumvented the need for Congressional approval and engineered a tacit government bailout of Fannie Mae and Freddie Mac. More than 60 percent of the U.S. foreclosure market falls under the umbrella of these two government-sponsored enterprises. He also examines other factors affecting the current market climate.
2010-02-16 Is the Fed's Zero Interest Rate Policy Driving Global Deflation? by Christopher Whalen of Institutional Risk Analytics
Christopher Whalen of Institutional Risk Analytics says the Federal Reserve's zero interest rate policy may be driving global deflation by holding down asset values. He says the central bank should allow interest rates to rise so banks and other investors may earn positive returns on assets.
2010-02-16 It's the Budget, Not the European Union at Risk by Charles Lieberman of Advisors Capital
The Greek government will likely use continued membership in the European monetary union as an excuse to raise taxes or cut spending, while the rest of Europe will help Greece stay in the common currency. Restrictive fiscal policies in Greece, as well as Ireland, Portugal and Spain will lead Europe to lag behind the global economic recovery.
2010-02-16 Boom and Bust by Michael Lewitt (Article)
The US and global economies are "trapped in a cycle of boom and bust as a result of fiscal and monetary policies from which there is no easy escape," says Michael Lewitt of Harch Capital Management. Lewitt believes the S&P will rally to 1,200-1,250, but says the long-term prognosis is "somewhere between grave and terminal." We are privileged to provide this excerpt from Lewitt's monthly newsletter and encourage our readers to subscribe to it directly.
2010-02-13 Fear Takes the Wheel by Peter Schiff of Euro Pacific Capital
Peter Schiff of Euro Pacific Capital says in his economic commentary that the recent strength of the stock market may be more attributable to fears of inflation than an improving economy. Growing U.S. debt levels threaten to swamp to dollar, and are leading investors away from dollars and treasury bonds.
2010-02-13 Between Dire and Disastrous by Mauldin of Millennium Wave
Mauldin discusses the Greek debt crisis and the options for resolving it. A Greek default "would bankrupt the bulk of the European banking system," but that is unlikely, he says. He cites Niall Ferguson's recent article in the FT and argues that the Greek crisis is a precursor to other countries facing similar sovereign debt problems.
2010-02-12 Denial and the Pan-European Debt Crisis by Michael Schussele of Michael J. Schussele, CPA
Michael J. Schussele says the ill-conceived economic restrictions imposed by the European Stability and Growth Pact made the Greek debt crisis inevitable, and Germany and other Eurozone members seem unwilling to commit to a solution. The situation in Greece may just be the beginning of a pan-European debt crisis that includes Spain, Italy and Ireland.
2010-02-12 Affordability is a 'C-': Are We Nuts? by John Burns of John Burns Real Estate
John Burns Real Estate president John Burns says in his monthly email that affordability has rarely been better for the entry-level home buyer, but affordability has rarely been worse for buyers who bought or refinanced their homes in the past decade and are considering a move up or down. He also explores several other statistics in his U.S. housing forecast.
2010-02-12 Bernanke Ain't Doin' Nothin' plus Comments on Commercial Real Estate and Employment by David Rosenberg of Gluskin Sheff
David Rosenberg of Gluskin Sheff says Federal Reserve Chairman Ben Bernanke won't try to tighten up liquidity conditions until after the deleveraging cycle runs its course. Bank lending to households and businesses shrank $28 billion last week, and is down by $100 billion since mid-January. He also takes a look at declining commercial real estate figures and improving jobless claims numbers.
2010-02-11 U.S. Congress a Help or a Hindrance? by Monty Guild and Tony Danaher of Guild Investment Management
Monty Guild and Tony Danaher of Guild Investment Management say markets are undergoing a correction after the 2009 rally. Debt in Portugal, Ireland, Greece and Spain will keep investors on edge over the next few weeks or months, as will inflationary fears in China.
2010-02-11 Chairman Bernanke on Fed's Exit Strategy/ Trade Gap Widens in December by Asha Bangalore of Northern Trust
Asha Bangalore discusses the “exit strategy” from quantitative easing, and notes that the interest rate on reserves could soon replace the federal funds rate as the Federal Reserve's main policy tool. The large volume of reserves in the current banking system and the resulting loss of activity and liquidity in the federal funds market have made the federal funds rate less reliable as an indicator. The Q4 trade deficit data are also discussed.
2010-02-09 Growing Problems in the Residential Housing Market by Team of American Century Investments
American Century Investments says in its weekly market update that rapidly rising delinquencies and foreclosures on residential housing could soon eclipse unemployment as an object of focus for economists, policymakers and the public. Delinquencies on loans secured by one- to four-unit properties, including home equity lines of credit, have soared since the end of 2007 to approximately 10 percent of the total value of mortgages.
2010-02-09 China’s Quest for a Shortcut to Greatness by Vitaliy Katsenelson (Article)
The Chinese economy must be getting out of control, because the Chinese government is doing the unthinkable: It is desperately trying to put the brakes on its economy. Author and fund manager Vitaliy Katsenelson looks back at how China got into this trouble and looks forward to China's prospects.
2010-02-09 It's Not My Fault by Emilio Vargas (Article)
In this guest contribution, Emilio Vargas says you don't need a Ph.D. in economics or a sophisticated computer model to figure out bubbles. Just look at their recent history.
2010-02-09 Letters to the Editor by Various (Article)
Our letters to Editor include two responses to our article about Joseph Stiglitz and one in response to Keith Goddard's article about asset allocation using Shiller P/E ratios.
2010-02-08 Cautiously Pessimistic by John Hussman of Hussman Funds
Hussman notes that he foresaw the market decline in his comments a few weeks ago, and that it would be a mistake to attribute that decline to a single piece of news. His most significant concern is a “significant second wave of defaults,” and he says those concerns (other than issues pertaining to Greece) have not been the focus of analysts’ attention. Hussman believes the decline in the unemployment rate to 9.7% is an “anomaly,” and expects unemployment to rise to 11-12%.
2010-02-08 Arlington Econometrics Weekly Commentary for the week of February 8, 2010 by Scotty George of du Pasquier
Financial markets need to stop picking at old wounds before they can heal,
says du Pasquier advisor Scotty George. Slow earnings acceleration, poor
industrial and consumer demand, job cuts, stagnant wages, currency
imbalances, expanding worldwide debt and skeptical consumer sentiment are
all keeping market numbers in negative territory.
2010-02-08 Are the Markets Oversold? by Chris Maxey of Fortigent
Fortigent senior analyst Chris Maxley says equity markets are quickly approaching oversold territory. The S&P 500 lost a mere 0.7 percent last week despite heightened market volatility. Sovereign credit issues continue to loom over markets, and improved earnings are still not inspiring traders.
2010-02-06 A Bubble in Search of a Pin by Mauldin of Millennium Wave Advisors
Mauldin covers three topics. He digs into the employment numbers and concludes that it is a "mixed bag" - the numbers of unemployed rose but the unemployment rate declined. Looking at the Reinhart-Rogoff book, he argues that Fed policy makers were at fault for failing to recognize the housing bubble. Last, he discusses Greece's fiscal problems in a historical context.
2010-02-04 Breakfast with Dave by Rosenberg of Gluskin Sheff
Rosenberg's bearish thesis is based on his belief that the "great policy reflation experiment is over." He notes that China, India, Canada and most of Europe are tightening budgets. The 2009 stimulus "cushioned the blow;" 2010 and beyond look much different. He recommends a conservative asset allocation.
2010-02-03 Obama's Recent Regulatory and Fiscal Proposals by Roubini of RGE Monitor
Roubini supports the Obama administration’s regulatory policies (e.g, the Volcker Rule) and says the proposed budget will lead to a “sluggish and jobless” recovery. “Obama simply lacks the political support to implement aggressive fiscal reforms,” he says, adding that Obama’s political capital is likely to deteriorate after the 2010 elections.
2010-02-02 Zombie Update: Loan Repurchases and REO Anyone? by Whalen of Institutional Risk Analyst
Whalen addresses the implications of the judge’s actions in the Lehman bankruptcy case of denying seniority to claims of default on CDS contracts. This legal action will have implications for banks in the amount of reserves they must set aside for repurchase transactions, and that this may impair reported earnings. On the economy, he says “There is no way to deal with the current [housing] backlog, much less the volume of new foreclosures in 2010, without immediate action by the financial industry on areas such as securitization and broad restructuring of current residential mortgages.”
2010-02-02 Stiglitz: U.S. Economy Will Falter without More Stimulus by Susan B. Weiner, CFA (Article)
The U.S. government has botched its handling of the economy over the last eight years, according to Nobel Prize-winning economist Joseph Stiglitz. He explained how the U.S. created the global recession - and how we can get out of it - in a public presentation on his new book, Freefall: America, Free Markets, and the Sinking of the World Economy.
2010-02-02 More Government in the Financial Sector to Save Capitalism by Vitaliy Katsenelson (Article)
In this article, Vitaliy Katsenelson argues that, despite his free market bias, the "too big to fail" banks will benefit from tighter regulation.
2010-02-01 Reported Earnings versus "Owners Earnings" by Hussman of Hussman Funds
Hussman discusses the distortions in reported corporate earnings, arguing that the true measure of value is that used by Berkshire Hathaway: the growth in book value plus dividends. He concludes that, “As is true for a variety of similar measures of normalized value, the valuation levels we observe today are comparable with the highest levels achieved in history, except for the bubble period since the mid-1990's.” He also discusses an op-ed piece by Volcker in yesterday’s NYT.
2010-02-01 Up, Then Down by George of du Pasquier Asset Management
“The aftermath of a bull leg is sometimes unpleasant. We are experiencing a normal capitulation in stock prices that follows the remarkable success of last year’s bull cycle. ‘Unleveraging the euphoria’ is far from crisis levels, yet, but unsatisfying, nonetheless, while it’s happening.”
2010-02-01 Breakfast With Dave by Rosenberg of Gluskin Sheff
Rosenberg provides an update to his bearish outlook. He says credit flows remain constrained, amid new bank failures last week. The spending freeze announced by the Obama administration will provide what amounts to a “rounding error” of improvement in the context of the unemployment situation. Investors should consider a defensive allocation – similar to what would have worked in 2008 but did not work in 2009.
2010-01-30 This Time is Different by Mauldin of Millennium Wave Advisors
Mauldin begins with an analysis of the reported Q4 GDP numbers, saying that it is not indicative of underlying growth in the economy. He then comments on the Reinhart-Rogoff book "This Time is Different," focusing on the point that governments can survive debt-fueled growth until confidence in them evaporates. He is discusses Greece's fiscal problems.
2010-01-30 The Precarious State of Our Union by Schiff of Euro Pacific Capital
“In this week's much anticipated State of the Union address, President Obama again demonstrated his poor understanding of the fundamental problems that confront our nation. By following the advice of the same people who helped guide our economy to the precipice of total collapse, Obama now threatens to push it over the edge.” Schiff criticizes Obama’s policies as being anti-free market, specifically excessive regulation and federal spending.
2010-01-29 Geronimo! by Browne of Euro Pacific Capital
Browne offers a bearish forecast for US equity and bond markets based on five factors: the steepness of the recent rally, uncertainty regarding interest rates, a poor outlook for the economy and uneas
2010-01-29 Quarterly Letter by Erber of Grey Owl Capital
Jeff Erber says the S&P is now 20-30% overvalued, but “with a no-end-in-sight loose monetary policy this rally could continue for quite some time. “ He discusses his firm’s investment process and add
2010-01-29 The Houdini Recovery by Rosenberg of Gluskin Sheff
“The growth bulls are out in full force today in the aftermath of the headline 5.7% QoQ annualized print on fourth quarter GDP growth in the U.S. We offer a slightly different perspective.” Rosenberg
2010-01-28 Monthly Investment Commentary by Team of Litman Gregory
When the dust settled on one of the most eventful and upended years in memory, investors had generous gains in stocks and certain segments of the bond market to salve the wounds of a disastrous 2008 a
2010-01-28 This is Not Supposed to Happen by Rosenberg of Gluskin Sheff
Rosenberg comments on the State of the Union Address, yesterday’s FOMC statement, the latest Investors Intelligence poll and the continuing flows of money into the bond markets. Most importantly, he
2010-01-27 Political Risk: The Bernanke Nomination and the Return of American Populism by Whalen of Institutional Risk Analyst
Whalen argues against the reappointment of Bernanke for a second term, citing his inability to fulfill either of the Fed’s mandates: price stability and full employment. Bernanke bears responsibility
2010-01-26 The Potemkin Market by Michael Lewitt (Article)
We are again privileged to publish the current issue of Michael Lewitt's newsletter, titled The Potemkin Market. Lewitt updates his forecast for the S&P 500, criticizes the current financial reform efforts and the ongoing GSE bailout and Fed Chairman Bernanke. Lewitt argues that risk is overpriced in many segments of the market.
2010-01-25 A Blueprint for Financial Reform by Hussman of Hussman Funds
Hussman’s commentary falls into four sections: (1) an 8-step “blueprint” for financial reform, in response to Obama’s proposed bank regulations; (2) a tongue-in-cheek plan for how to spend $1.5 trilli
2010-01-25 If M Does Not Pickup, Will V Save Us? by Kasriel of Northern Trust
“To summarize, M2 growth currently is extremely weak. It likely will remain relatively weak through 2010 as credit creation by depository institutions will be impeded by capital constraints. If invest
2010-01-23 Congress Sacks Samoan Economy by Schiff of Euro Pacific Capital
Schiff argues that the increase in the US minimum wage caused the closing of the tuna packing industry in American Samoa. 'This just serves to highlight, once again, how inflexible central plannin
2010-01-22 Reflections Across the Pond by Browne of Euro Pacific Capital
Having been among the economic engines of Europe for much of the past decade, it appears as if the British economy has run out of steam. Inflation is rising while bankruptcies and unemployment continu
2010-01-22 Thoughts on the End Game by Mauldin of Millennium Wave Advisors
"As for financial markets, we have come full circle to the concept of financial fragility in economies with massive indebtedness. All too often, periods of heavy borrowing can take place in a bubbl
2010-01-21 Breakfast with Dave: Market Musings and Data Deciphering by Rosenberg of Gluskin Sheff
In my view, three years after the detonation in residential real estate, it is still all about housing. And it will be interesting to see how the markets handle (i) a near-term renewed decline in the
2010-01-20 Political Potholes for Europe's IMF Borrowers by Roubini of RGE Monitor
Amid the global financial crisis, several European countries faced serious economic distress and turned to external creditors, including the EU and IMF, for emergency financing. This multilateral supp
2010-01-19 Inflation Myth and Reality by Hussman of Hussman Funds
It is in this context that we should consider inflation risks over the coming decade. At present, inflation risks are hardly considered to be problematic by Wall Street. From the standpoint of the nex
2010-01-19 G7 Weekly Economic Perspectives: 1/15/10 by Probyn of State Street Global Advisors
This week’s data were generally disappointing. They were not bad enough to believe that the recovery is in danger, but rather that despite a potential fourth-quarter growth “blip” caused by the invent
2010-01-19 A Market for Contrarians by Robert Huebscher (Article)
Along with Steve Leuthold, Rob Arnott, Doug Kass and DoubleLine co-founder Joe Galligan were among the speakers at Fortigent's conference. These three speakers' bearish sentiment extended across a wide range of asset classes, opening lots of possibilities for those who prefer contrarian bets.
2010-01-12 The Financial Crisis Post-Mortem: Suicide, Accident or Murder? by Michael Skocpol (Article)
Since the stunning collapse of America's financial system in 2008, questions have swirled around how we got here and who's to blame. The subsequent finger-pointing has yielded few answers, but now one economist has taken a cue from CSI's Gil Grissom and Law and Order's Jack McCoy. He performed an autopsy.
2010-01-05 Paul Krugman on Deficits, Taxes, Inflation, and Recovery by Dan Richards (Article)
Dan Richards' interview with Paul Krugman, the 2008 Nobel prize winner in Economics, covers his views on the size of the next stimulus package, how high marginal tax rates should go, and lessons from the Japanese experience. Whether or not you agree with him, Krugman is highly influential and his views may presage future policy decisions.
2009-12-29 End-of-Year Letter Templates by Bob Veres (Article)
Bob Veres is the editor and publisher of Inside Information, a publication focused on practice management and related issues for the financial planning profession. He just introduced a new monthly service, Client Articles, which will contain articles (and cartoons) that can be sent to clients, for example as part of your quarterly newsletters. He provides two sample letters.
2009-12-15 The Next Black Swan? Underfunded Public Pensions by Robert Huebscher (Article)
The plights of California and other states reveal an ominous threat our economy faces: underfunded public pension liabilities. We examine the size and scope of this problem, focusing on whether the underlying assumptions used to calculate liabilities are realistic.
2009-12-08 Dubai’s Moon Shot by Vitaliy Katsenelson (Article)
Dubai is like NASA; both have proven that anything is possible when you ignore economic costs. As Vitaliy Katsenelson writes, many technological discoveries were made in the process of putting a man on the moon; but the project did have, and was expected to have, a negative return on capital.
2009-12-01 Allen Sinai: Jobless Recovery and the Failure of Current Economic Policies by Robert Huebscher (Article)
As the Democratic leadership in Congress has looked for ways to simultaneously create jobs and reduce the deficit, a key person they have turned to and continue to rely on is Allen Sinai. Sinai now fears the US is in the "mother of all jobless recoveries" and that the economic policies of the Obama administration are not working.
2009-11-24 Gary Shilling's Version of the New Normal by Robert Huebscher (Article)
A dramatic reduction in consumer spending has doomed the US economy to slow growth and deflation, according to Gary Shilling. America's 25-year spree of profligate spending is over, and it will be supplanted by a decade-long retrenchment that will ultimately bring the consumer savings rate from 4% to double-digits, where it has not been since the mid-1980s, he said.
2009-11-17 Our Steroidally Challenged Economy by Vitaliy Katsenelson (Article)
Vitaliy Katsenelson writes that the US economy is like a marathon runner who, after suffering an injury, takes steroids in order to return to racing. His performance is fine, but what don't see are the risks, just as our economy is now "steroidally challenged."
2009-11-17 Disheartened by Michael Lewitt (Article)
We are again privileged to publish an excerpt from Michael Lewitt's HCM Market Letter. In this issue, titled "Disheartened," Lewitt argues that the powers-that-be are making limited progress addressing the structural problems in the economy, and that the greatest challenge is to achieve budgetary discipline.
2009-11-10 Bruce Greenwald on Structural Problems in the Economy and Unemployment by Robert Huebscher (Article)
Bruce Greenwald is a professor of finance at Columbia University, the Director of Research at First Eagle Funds, and perhaps the foremost expert on value investing. In part one of our two-part interview, he discusses the structural problems facing the economy, the parallels to the Great Depression, and the implications for the unemployment rate.
2009-11-10 Roubini: Fed Policies are Destabilizing the Financial System by Robert Huebscher (Article)
Nouriel Roubini, the once-obscure economist who gained celebrity and the title "Dr. Doom" after correctly forecasting the financial crisis, believes that current Fed policies are destabilizing the markets and pushing the economy toward another collapse.
2009-11-10 Letters to the Editor – The “V” Points Downward by Various (Article)
In a letter to the Editor, a reader responds to our article, The "V" Points Downward.
2009-10-06 Tobin’s Q Now Bearish Long-Term by Robert Huebscher (Article)
The latest data for Tobin's Q-Ratio, a valuation metric shown by academic studies to be highly predictive of market performance, show that investors should brace themselves for sub-par returns over the next 10 years.
2009-09-15 Mohammed El-Erian: We Have Not Reached Escape Velocity by Robert Huebscher (Article)
Kicking off this year's Schwab Impact conference in San Diego, Mohammed El-Erian told an audience of nearly 1,000 advisors on Sunday night that the US financial system has not fully emerged from the financial crisis. El-Erian and his co-presenter, Larry Fink of Blackrock, addressed a range of topics, including the safety of the financial system, the future of regulation, and the outlook for inflation.
2009-09-15 The 'Cash For Clunkers' Economy by Michael Lewitt (Article)
We are once again privileged to offer the latest edition of the HCM Market Letter, edited by Michael Lewitt, titled The 'Cash for Clunkers' Economy. Lewitt examines the drivers behind the current market rally, the health of the banking system and the housing industry, the the future for derivatives regulation. If you enjoy this newsletter, we encourage you to subscribe directly though the link provided with our article.
2009-08-25 Beating a Dead Dragon by Vitaliy Katsenelson (Article)
The last thing you may want to read is another article about China - how many ink cartridges have been exhausted writing about its phenomenal growth numbers in the past decade? - but what Vitaliy Katsenelson has to say may surprise you: China's economy is hardly as vibrant as everyone thinks it is.
2009-07-28 Flaws in the Case Shiller Methodology by Robert Huebscher (Article)
To forecast economic growth, it's essential to understand the trajectory of the housing market. Most observers rely on widely publicized data like the Case Shiller index, but those metrics can be very misleading if you don't understand how they are calculated. If you don't understand that there are factors beyond Case and Shiller's control that impact the data, according to John Burns, the founder and CEO of John Burns Real Estate Consulting, a 20-person firm based in Irvine, California.
2009-07-14 Letter to the Editor: Tobin’s Q Ratio by Various (Article)
We have a letter to the Editor regarding our article last week, The Q Ratio Sends a Modestly Bearish Long-Term Signal, and we publish John Mihaljevic's response.
2009-07-07 Gary Shilling: Recovery is a Year Away by Robert Huebscher (Article)
Among economists, Gary Shilling owns one of the most prescient forecasting records, having accurately predicted the credit crisis and the performance of key asset classes over the last several years. Now, he says, the chances that the current wave of "green shoots" will be the finale to the recession are "pretty low."e
2009-07-07 The Q Ratio Sends a Modestly Bearish Long-Term Signal by Robert Huebscher (Article)
Strong market performance during the second quarter has claimed a victim. Tobin's Q ratio, one of the most reliable barometers of market valuation, is now 0.72 - up from its March low of 0.33 - indicating the market is modestly overvalued for long-term investors.
2009-06-30 A Tale of Two Depressions: June 2009 Update by Barry Eichengreen and Kevin H. O'Rourke (Article)
In an update to an article we published two months ago, two economists compare today's global crisis to the Great Depression. World industrial production, trade, and stock markets are diving faster now than during 1929-30. Fortunately, the policy response to date is much better. The update shows that trade and stock markets have shown some improvement without reversing the overall conclusion -- today's crisis is at least as bad as the Great Depression.
2009-06-30 Letters to the Editor: The Road to Zimbabwe by Various (Article)
In the second set of our letters to the Editor, we publish responses to to our article, The Road to Zimbabwe.
2009-06-23 The Road to Zimbabwe by Robert Huebscher (Article)
John Williams of Shadow Government Statistics is best known for exposing inaccuracies and biases in government reporting of data - most notably the understatement of the CPI index. Williams says the US economy is on the brink of hyperinflation which will render the dollar worthless, as happened recently to Zimbabwe's local currency.
2009-06-16 Peter L. Bernstein Remembered by Robert Huebscher (Article)
The investment industry lost one of its leaders last week, when Peter L. Bernstein passed away at the age of 90. As an author, Bernstein provided clarity and insight to our understanding of risk and the way markets operate, through his books and his newsletter, Economics and Portfolio Strategy. We are republishing our interview with him last January, when he foresaw many of the elements of the current crisis.
2009-06-09 Nassim Nicholas Taleb’s Prescription for a Black Swan-Proof Economy by Bruce W. Fraser (Article)
According to Black Swan author Nassim Nicholas Taleb, the U.S. economy is broken - but not beyond repair - and that repair will not be a snap. It does not necessarily need more regulation, but more intelligent regulation - plus the will to let entities like Citibank and General Motors fail once they become too big and cumbersome and act irresponsibly.
2009-06-09 Jeff Gundlach: The Party is Over by Robert Huebscher (Article)
The easy money has been made in the credit markets, as investors have reaped strong year-to-date returns, topped by 17% in emerging market debt and 30% in high yield bonds. Now the markets are in a much riskier position, said Jeff Gundlach, Chief Investment Officer of the TCW Group, in his quarterly update to investors that he titled "It was Great While it Lasted."
2009-06-02 Market Perspectives from Janus' Seven Global Sector Teams by Janus (Article)
The last 18 months have challenged advisors, as they now wait for the market and economy to stabilize. Despite the generally bearish sentiment, Janus believes many individual investment opportunities in the market today offer compelling valuations and risk/reward profiles. We thank them for their sponsorship.
2009-05-26 Dan Fuss and the Eisenhower Recession Redux by Robert Huebscher (Article)
Those of us old enough to remember Studebakers and the military-industrial complex will recall the Eisenhower Recession, which began in 1957, lasted eight months and was followed by the 10 month "Rolling Adjustment" recession beginning in 1961. The W-shaped path of the US economy during this period is the correct analogy to today's crisis, according to Loomis Sayles and Company's Dan Fuss.
2009-05-12 Will the Commercial Property Market be the Next to Fail? by Robert Huebscher (Article)
If you've read a headline foretelling the next shoe to drop or domino to fall lately, it was probably about commercial real estate. We speak with two experts on this market and analyze the data to uncover the truth about whether investors should brace themselves for a collapse in commercial real estate.
2009-05-12 The Well-Meaning by Michael Lewitt (Article)
We are once again privileged to publish the latest version of the HCM Market Letter, edited by Michael Lewitt. Lewitt's analysis and writing are a cut above virtually everything else we see, and you will enjoy reading his latest thoughts. You can also subscribe directly to his newsletter using the link at the beginning of the article.
2009-04-28 Gary Shilling – Economic Forecast and Current Market Opportunities by Robert Huebscher (Article)
Gary Shilling is well-known for his forecasting record, having correctly predicted major economic events over the past several decades. Beginning in 2002, he warned his clients that the housing market "has taken on self-feeding, bubble dimensions that will sooner or later collapse," and continued to sound this warning through 2007, when his predictions came true. Dr. Shilling shares with us his current forecast for the economy and the market.
2009-04-28 Equity Income: A Fund for All Seasons by Matt Oldroyd and Shawn Connor (Article)
If the first quarter of 2009 is any indication, we appear to be in for another year (or longer) of extreme market volatility and uncertainty, the result of a worsening recession and a dismal profit picture, still frozen credit markets, a struggling auto industry, and doubtfulness about the government's stimulus package. Matt Oldroyd and Shawn Connor of American Century Investments explain why that's a strong case for investing in American Century's Equity Income fund - a fund for all seasons. We thank them for their sponsorship.
