From Green to Red – Is Credit Crunch 2.0 Imminent?
By Satyajit Das - August 28th, 2011, 8:00AM
READ THE ENTIRE ARTICLE HERE
Satyajit Das is author of Traders, Guns and Money: Knowns and unknowns in the dazzling world of derivatives (August 2006) and Extreme Money: The Masters of the Universe and the Cult of Risk (August 2011)
Fact 1 – The European debt crisis has taken a turn for the worse.
There is a serious risk that even the half-baked bailout plan announced on 21 July 2011 cannot be implemented.
Fact 2 – Problems with banks have re-emerged.
Banks globally, especially European banks, are seen as increasingly vulnerable to European debt problems. The total exposure of the global banking system to Greece, Ireland, Portugal, Spain and Italy is over $2 trillion. French and Germany banks have very large exposures.
Fact 3 – Money markets are seizing up
Banks and financial institutions are finding it increasingly difficult to raise funds. Costs have risen sharply.
Fact 4 – The broader economic environment is deteriorating.
The global economic recovery is stalling. The risk of a recession or minimal growth is significant.
Sunday, August 28, 2011
Wednesday, August 24, 2011
Is the market forecasting war? By Todd Harrison, 8/24/11
Is the market forecasting war?
Commentary: Fitting together the puzzled pieces in an unsure world
By Todd Harrison, Aug. 24, 2011
NEW YORK (MarketWatch) — The future is now; we must now decipher what it will be.
The stock market is a forward-looking discounting mechanism and throughout our slow-motion summer crash, Minyanville has diligently discussed what the market is trying to tell us. See: Where do we go from here?
When I awoke yesterday, after checking the overseas price action and scrolling through the headline news — but before my plain vanilla yoga — I checked my inbox to find a handful of folks proclaiming, “There it is!”
Stratfor, the well-respected global intelligence service, reported that an Israeli-Arab conflict is approaching.
CLICK THE TITLE LINK TO READ THE WHOLE ARTICLE
Commentary: Fitting together the puzzled pieces in an unsure world
By Todd Harrison, Aug. 24, 2011
NEW YORK (MarketWatch) — The future is now; we must now decipher what it will be.
The stock market is a forward-looking discounting mechanism and throughout our slow-motion summer crash, Minyanville has diligently discussed what the market is trying to tell us. See: Where do we go from here?
When I awoke yesterday, after checking the overseas price action and scrolling through the headline news — but before my plain vanilla yoga — I checked my inbox to find a handful of folks proclaiming, “There it is!”
Stratfor, the well-respected global intelligence service, reported that an Israeli-Arab conflict is approaching.
CLICK THE TITLE LINK TO READ THE WHOLE ARTICLE
Tuesday, August 23, 2011
Japan: A bug in search of a windshield (John Mauldin)
Japanese downgrade may weigh on US stocks
Moody's rating service is downgrading Japan's debt.
Moody's doesn't like Japan's huge deficits and slow growth since the March earthquake.
By Charley Blaine on Tue, Aug 23, 2011
My comment....
John Mauldin has for several years described Japan's economy as a bug in search of a windshield, the result of a rapidly aging population together with an economy that has been economically depressed since its real estate bubble burst and its equities market crashed in 1990.
Moody's rating service is downgrading Japan's debt.
Moody's doesn't like Japan's huge deficits and slow growth since the March earthquake.
By Charley Blaine on Tue, Aug 23, 2011
My comment....
John Mauldin has for several years described Japan's economy as a bug in search of a windshield, the result of a rapidly aging population together with an economy that has been economically depressed since its real estate bubble burst and its equities market crashed in 1990.
Boomer Retirement: Headwinds for U.S. Housing Market?
This graph from CalculatedRiskBlog (www.calculatedriskblog.com) shows existing home sales (left axis) and new home sales (right axis) through July, 2011.
After the housing bubble burst in 2005, new home sales fell much faster than existing home sales, giving rise to what CalculatedRiskBlog calls the distressing gap because of the flood of distressed sales, which has bouyed existing home sales, while depressing new home sales. Why? Because builders cannot build new homes as cheaply as foreclosed properties can be purchased.
The following post, titled Boomer Retirement: Headwinds for U.S. Housing Market? is also worth reading. With a little effort you can overlay the above chart with the ones in the following post. There is every indication that existing home sales will continue to fall, possibly fifty percent from this point. Why? Because as Baby Boomers are selling equities to fund their retirement, they will also be selling their homes in order to free home equity to find their retirement. They will be downsizing, moving into retirement homes, and living with their children. This will likely depress the U.S. housing market for at least the next decade. It's not a good time to be a real estate developer, builder, or agent.
Boomer Retirement: Headwinds for U.S. Equity Markets?
Boomer Retirement: Headwinds for U.S. Equity Markets?
By Zheng Liu and Mark M. Spiegel
FRBSF Economic Letter: Federal Reserve Bank of San Francisco
www.frbsf.org; August 22, 2011
Historical data indicate a strong relationship between the age distribution of the U.S. population and stock market performance. A key demographic trend is the aging of the baby boom generation. As they reach retirement age, they are likely to shift from buying stocks to selling their equity holdings.
My comment...
As Baby Boomers retire and cash in their 401k and IRA accounts, there will be downward pressure on stock prices; it is simply the law of supply and demand. Buying stocks or equity mutual funds now virtually guarantees sub-par returns over the next decade or longer. This demographic trend is shown in the above charts as the M/O ratio, where M is the middle-age-cohort (age 40-49) and O is the old-age-cohort (age 60-69). As the 77-million strong Baby Boom generation (born from 1946 to 1964) ages, the M/O ratio which peaked around 2002 will continue to fall, and as equities selling pressure increases and buying pressure decreases, the P/E ratio will fall in sync with the falling M/O ratio.
Sunday, August 21, 2011
The Recession of 2011? by John Mauldin Aug. 19, 2011
The Recession of 2011?
By John Mauldin, August 19, 2011
www.investorsinsight.com
John Mauldin's Thoughts From The Frontline is a highly acclaimed blog that's primarily focused on private money management, financial services, and investments.
My comment...
The oncoming recession will make the last one look like a picnic. The focus now is on cutting government spending rather than more government stimulus, so a third Federal Reserve Quantitative Easing (QE3) is highly unlikely, and would be ineffective, anyway. Expect the stock market to lose 40% or more of its value. In a deflationary environment, cash is king.
By John Mauldin, August 19, 2011
www.investorsinsight.com
John Mauldin's Thoughts From The Frontline is a highly acclaimed blog that's primarily focused on private money management, financial services, and investments.
My comment...
The oncoming recession will make the last one look like a picnic. The focus now is on cutting government spending rather than more government stimulus, so a third Federal Reserve Quantitative Easing (QE3) is highly unlikely, and would be ineffective, anyway. Expect the stock market to lose 40% or more of its value. In a deflationary environment, cash is king.
Rob Arnott on bogus U.S. GDP numbers... 5/15/2011
U.S. GDP numbers are totally bogus because they fail to take into account how much of the economic expansion is government stimulus driven by federal deficit spending. Remove that deficit spending and the U.S. economy is essentially bottom-bouncing along the same GDP levels as back in 1998. Our economy is showing no signs of sustainable recovery.
Here are some quotes from the article. And, you can read the entire article HERE:
But what if the [GDP] number turns out be fake? That's the provocative question posed by renowned U.S. money manager Rob Arnott, who makes a convincing argument that what passes for growth in the U.S. and a bunch of other deficit-ridden economies is less than it seems.
... the chairman of California-based Research Affiliates is absolutely certain that next week's revised U.S. GDP number will be as bogus as a three-dollar bill. That's because it will not take into account how much of the American expansion stems from the government's deficit-spending binge.
Gross domestic product is used to measure a country's economic growth and standard of living. It measures neither, Mr. Arnott says flatly. GDP measures spending. It does not measure prosperity. Unfortunately, the finance community and global centres of power are wedded to a measure that bears little relation to reality.
The problem, he argues, is that the GDP figure fed to the public does not distinguish between consumption that is covered by current income and that which is financed by deficit spending. He likens it to a family with too many credit cards. The more credit they use, the higher the family GDP climbs. But that expansion is unsustainable. Once they are forced to slice up their cards, their GDP must plunge.
People would have a truer gauge of the economy's performance if the government provided what he calls structural GDP, which does not include debt-financed consumption. Currently, per capita GDP in the U.S. is not far off an all-time high. But excluding deficit spending, the real number is 10 per cent below the peak reached in 2007. Indeed, it has fallen back to levels not seen since 1998.
If structural GDP fails to grow as a consequence of our deficits, then deficit-spending has failed in its sole and singular purpose, he says. What we find is that this recession is horrific.
He would also isolate private-sector GDP by subtracting government spending (excluding transfers). Lo and behold, this measure is also back at its 1998 level. What his calculations show is an economy bottom bouncing and showing no signs of recovery. All we're doing is borrowing more and spending more. That's the only GDP growth we've got.
Ultimately, the addiction to debt-financed consumption has got to come down.
What should an investor make of all this?
As deficit-spending is reined in, either voluntarily or because the capital markets choke on new debt, that could have an effect on capital markets as quantitative easing winds down, Mr. Arnott says. It's hard to identify uncertainties that could drive markets massively higher, but relatively easy to identify those that could drive them massively lower.
Which means now is a wonderful time to have a very defensive investment posture.
Here are some quotes from the article. And, you can read the entire article HERE:
But what if the [GDP] number turns out be fake? That's the provocative question posed by renowned U.S. money manager Rob Arnott, who makes a convincing argument that what passes for growth in the U.S. and a bunch of other deficit-ridden economies is less than it seems.
... the chairman of California-based Research Affiliates is absolutely certain that next week's revised U.S. GDP number will be as bogus as a three-dollar bill. That's because it will not take into account how much of the American expansion stems from the government's deficit-spending binge.
Gross domestic product is used to measure a country's economic growth and standard of living. It measures neither, Mr. Arnott says flatly. GDP measures spending. It does not measure prosperity. Unfortunately, the finance community and global centres of power are wedded to a measure that bears little relation to reality.
The problem, he argues, is that the GDP figure fed to the public does not distinguish between consumption that is covered by current income and that which is financed by deficit spending. He likens it to a family with too many credit cards. The more credit they use, the higher the family GDP climbs. But that expansion is unsustainable. Once they are forced to slice up their cards, their GDP must plunge.
People would have a truer gauge of the economy's performance if the government provided what he calls structural GDP, which does not include debt-financed consumption. Currently, per capita GDP in the U.S. is not far off an all-time high. But excluding deficit spending, the real number is 10 per cent below the peak reached in 2007. Indeed, it has fallen back to levels not seen since 1998.
If structural GDP fails to grow as a consequence of our deficits, then deficit-spending has failed in its sole and singular purpose, he says. What we find is that this recession is horrific.
He would also isolate private-sector GDP by subtracting government spending (excluding transfers). Lo and behold, this measure is also back at its 1998 level. What his calculations show is an economy bottom bouncing and showing no signs of recovery. All we're doing is borrowing more and spending more. That's the only GDP growth we've got.
Ultimately, the addiction to debt-financed consumption has got to come down.
What should an investor make of all this?
As deficit-spending is reined in, either voluntarily or because the capital markets choke on new debt, that could have an effect on capital markets as quantitative easing winds down, Mr. Arnott says. It's hard to identify uncertainties that could drive markets massively higher, but relatively easy to identify those that could drive them massively lower.
Which means now is a wonderful time to have a very defensive investment posture.
Wednesday, August 17, 2011
Starbucks CEO to DC: You've been cut off
Starbucks CEO to DC: You've been cut off
By Charles Riley CNNMoney August 16, 2011
money.cnn.com
Starbucks CEO Howard Schultz is fed up with Washington. And he is doing something about it -- taking a stand against political contributions until lawmakers come up with a compromise deal on the debt ceiling.
READ THE ENTIRE ARTICLE HERE
My comment...
Well, I wouldn't exactly call this a grassroots movement - corporate CEOs not being in my definition of grassroots but it is certainly a step in the right direction. Good for you Howard Schultz !! Now, if we can get a few more Seattle-area-based CEOs (Amazon, Costco, Microsoft) to join Mr. Schultz, that would be great !!
By Charles Riley CNNMoney August 16, 2011
money.cnn.com
Starbucks CEO Howard Schultz is fed up with Washington. And he is doing something about it -- taking a stand against political contributions until lawmakers come up with a compromise deal on the debt ceiling.
READ THE ENTIRE ARTICLE HERE
My comment...
Well, I wouldn't exactly call this a grassroots movement - corporate CEOs not being in my definition of grassroots but it is certainly a step in the right direction. Good for you Howard Schultz !! Now, if we can get a few more Seattle-area-based CEOs (Amazon, Costco, Microsoft) to join Mr. Schultz, that would be great !!
Tuesday, August 16, 2011
Market in Death Cross Mode
Market in Death Cross Mode: Stay on the Sidelines Says Louise Yamada
finance.yahoo.com
Fast markets are emotional markets. In case you had any doubt on that, I would refer you to the comment section of Breakout stories from last Wednesday when bears ruled the roost, and the comments from yesterday when the dominant theme was the impossibility of "timing the market" (by, say, opining that stocks had hit a near-term bottom at 1,100).
READ THE ENTIRE ARTICLE HERE
My comment...
This is good stuff, especially if you're in the stock market and thinking about getting out, or vice versa. I really like her quote: There are only two losses that you take. Loss of capital and loss of opportunity. I'd rather be out of the market wishing we were in, than in the market wishing we were out.
finance.yahoo.com
Fast markets are emotional markets. In case you had any doubt on that, I would refer you to the comment section of Breakout stories from last Wednesday when bears ruled the roost, and the comments from yesterday when the dominant theme was the impossibility of "timing the market" (by, say, opining that stocks had hit a near-term bottom at 1,100).
READ THE ENTIRE ARTICLE HERE
My comment...
This is good stuff, especially if you're in the stock market and thinking about getting out, or vice versa. I really like her quote: There are only two losses that you take. Loss of capital and loss of opportunity. I'd rather be out of the market wishing we were in, than in the market wishing we were out.
Monday, August 15, 2011
George Friedman on a Crisis of Political Economy
George Friedman on a Crisis of Political Economy
www.stratfor.com
April 12, 2011
STRATFOR CEO George Friedman says the current economic problems in the United States, Europe and elsewhere are the result of systemic failure in two major communities: the financial and political elite.
My comment...
First the financial system and its elite lost credibility, then the political system gridlocked and the political elite lost credibility. Now, in all major countries of the world - U.S., China, E.U. - we have a general systemic problem born of the gross incompetence (and possibly corruption) of the financial and political elites.
www.stratfor.com
April 12, 2011
STRATFOR CEO George Friedman says the current economic problems in the United States, Europe and elsewhere are the result of systemic failure in two major communities: the financial and political elite.
My comment...
First the financial system and its elite lost credibility, then the political system gridlocked and the political elite lost credibility. Now, in all major countries of the world - U.S., China, E.U. - we have a general systemic problem born of the gross incompetence (and possibly corruption) of the financial and political elites.
Thursday, August 11, 2011
How the Fed Got Itself Boxed In - by Barry Ritholtz
How the Fed Got Itself Boxed In - The Big Picture
By Barry Ritholtz - August 10th, 2011, 7:20AM
www.ritholtz.com
The Federal Reserve (unlike most other central banks) has a dual mandate: Maintain full employment and keep inflation at bay. History informs us that these two factors are often opposed to each other: Growth begets price rises, and excessive price elevation retards growth. Hence, for the Fed to do its job well, they have a neat balancing trick to perform. We can trace the origin of the current Fed situation to a drift away from those two mandates. This occurred sometime in the 1990s, when then Federal Open Market Committee (FOMC) chair Alan Greenspan somehow began focusing on markets, asset pricing and a nonsensical catchall investor confidence.
My comment...
Barry Ritholtz, who wrote the excellent book Bailout Nation, gives us a short, clear, succinct explanation of what happened after Alan Greenspan's Federal Reserve decided that supporting risky asset prices to instill investor confidence became part of the Fed's mandate in the mid-1990s.
By Barry Ritholtz - August 10th, 2011, 7:20AM
www.ritholtz.com
The Federal Reserve (unlike most other central banks) has a dual mandate: Maintain full employment and keep inflation at bay. History informs us that these two factors are often opposed to each other: Growth begets price rises, and excessive price elevation retards growth. Hence, for the Fed to do its job well, they have a neat balancing trick to perform. We can trace the origin of the current Fed situation to a drift away from those two mandates. This occurred sometime in the 1990s, when then Federal Open Market Committee (FOMC) chair Alan Greenspan somehow began focusing on markets, asset pricing and a nonsensical catchall investor confidence.
My comment...
Barry Ritholtz, who wrote the excellent book Bailout Nation, gives us a short, clear, succinct explanation of what happened after Alan Greenspan's Federal Reserve decided that supporting risky asset prices to instill investor confidence became part of the Fed's mandate in the mid-1990s.
Global Economic Downturn: A Crisis of Political Economy
Global Economic Downturn: A Crisis of Political Economy
By GEORGE FRIEDMAN, STRATFOR, August 9, 2011
www.stratfor.com
The current crisis must be understood as a global event with one overriding theme: the relationship between the political order and economic life.
My comment...
George Friedman at STRATFOR has written an easy-to-understand explanation of how our current crisis developed and where it might be going...
By GEORGE FRIEDMAN, STRATFOR, August 9, 2011
www.stratfor.com
The current crisis must be understood as a global event with one overriding theme: the relationship between the political order and economic life.
My comment...
George Friedman at STRATFOR has written an easy-to-understand explanation of how our current crisis developed and where it might be going...
A Second Recession... Worse Than the First ?
A Second Recession in the U.S. Could Be Much Worse Than the First
By CATHERINE RAMPELL, NY TIMES
Published: August 7, 2011
www.nytimes.com
Policy makers exhausted their resources in the last recession and, in a weaker economy, would have few options the next time.
If the economy falls back into recession, as many economists are now warning, the bloodletting could be a lot more painful than the last time around.
Given the tumult of the Great Recession, this may be hard to believe. But the economy is much weaker than it was at the outset of the last recession in December 2007, with most major measures of economic health — including jobs, incomes, output and industrial production — worse today than they were back then. And growth has been so weak that almost no ground has been recouped, even though a recovery technically started in June 2009.
It would be disastrous if we entered into a recession at this stage, given that we haven’t yet made up for the last recession, said Conrad DeQuadros, senior economist at RDQ Economics.
By CATHERINE RAMPELL, NY TIMES
Published: August 7, 2011
www.nytimes.com
Policy makers exhausted their resources in the last recession and, in a weaker economy, would have few options the next time.
If the economy falls back into recession, as many economists are now warning, the bloodletting could be a lot more painful than the last time around.
Given the tumult of the Great Recession, this may be hard to believe. But the economy is much weaker than it was at the outset of the last recession in December 2007, with most major measures of economic health — including jobs, incomes, output and industrial production — worse today than they were back then. And growth has been so weak that almost no ground has been recouped, even though a recovery technically started in June 2009.
It would be disastrous if we entered into a recession at this stage, given that we haven’t yet made up for the last recession, said Conrad DeQuadros, senior economist at RDQ Economics.
Recession Warning, Dr. John Hussman 8/08/3022
Recession Warning, and the Proper Policy Response
Weekly Market Comment by Dr. John Hussman
Hussman Funds - August 8, 2011
www.hussmanfunds.com
My comment...
Dr. John Hussman's letter pulls no punches... through joblessness, unresolved housing strains & sovereign debt crises, policy makers have repeatedly opted for fiscal band-aids and monetary distortions instead of addressing the core problems: carelessly feeding asset bubbles and refusing to restructure bad debt.
Weekly Market Comment by Dr. John Hussman
Hussman Funds - August 8, 2011
www.hussmanfunds.com
My comment...
Dr. John Hussman's letter pulls no punches... through joblessness, unresolved housing strains & sovereign debt crises, policy makers have repeatedly opted for fiscal band-aids and monetary distortions instead of addressing the core problems: carelessly feeding asset bubbles and refusing to restructure bad debt.
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