Tuesday, August 18, 2009

US Stocks Paced Higher By Home Depot, Target, AmEx

A string of better-than-expected quarterly reports from retailers, including Home Depot and Target, and an American Express-led bounce-back for financials helped stocks close higher Tuesday.

In the wake of steep declines in the past two sessions, consumer stocks had a solid move higher Tuesday. While concern about the health of the U.S. consumer remains, largely thanks to a still weakened labor market, some within the industry were able to quell some investor fears on the session.

Notably, Home Depot increased 82 cents, or 3.1%, to $26.93, as its fiscal second-quarter earnings fell a smaller-than-expected 7.2% and the world's largest home-improvement retailer by sales raised its fiscal-year earnings outlook. (more)

The Wall Street Journal Asia August 18 2009

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Coming Soon: Banking Crisis of Historic Proportions

With everyone (well, almost everyone - I am one of the lonely skeptics) convinced that we have stepped back from the "edge of the abyss", the title of this article may be viewed as laughable. When you connect the dots, as I will in this article, you will at least stop laughing, and, maybe, realize that we still have a big problem.

We have a confluence of five factors that have the potential to create damage to banking not seen in 80 years, and that includes the Great Depression. We'll hit these factors one at a time.

First Factor: Banks Are Not Doing Enough Business

Commercial bank credit growth has dropped to 2%, according to Jesse's Cafe Americain (here). The recent history of credit growth is shown in the following graph. (more)

Social Security crunch coming fast

Here's a frightening prediction: The public pension system's trust fund could go into the red in the next year, far sooner than expected. Will it get the next huge bailout?
The debate over health care has captured everyone's attention, but it appears the next big government program that needs to be addressed will be Social Security. That's the focus of the July 30 article "The next great bailout: Social Security" by Allan Sloan, Fortune's senior editor at large.
Those who've been paying attention have long known there is no money in the Social Security Trust Fund -- it's all been spent. Thus, former Vice President Al Gore's famous assessment that Social Security receipts should be placed in a "lockbox" was actually correct.

Given that so few people really understand the Ponzi nature of the current Social Security financing scheme -- created in 1983 by a commission chaired by none other than the world's greatest serial blower of bubbles, Alan Greenspan -- I decided to reprise Sloan's article. (The Social Security problem is especially important because it likely will put additional pressure on the dollar and on bonds, and exacerbate the funding crisis down the road.) (more)

Four Fascinating Facts on Gold

The recent rally in the U.S. dollar has sent gold lower, dimming the hopes of gold bulls and putting fire in the bellies of those who say the yellow metal is just a “barbarous relic.” Maybe so. But I think the rally in the dollar is overstated, and gold is just taking a breather on a journey much higher.

To be sure, I have a bullish bias on gold … only because I see the mountainous long-term problems for the U.S. dollar getting bigger. As the dollar goes down, gold, which is priced in dollars, should go up. And the point is, what I’m really biased toward is making money. If I thought gold’s bull run was over, I’d go make money somewhere else.

Here are four facts on my radar … facts you might want to consider in your own judgment on gold … (more)

Why Budget Deficits Matter

The notion that deficits do not matter is a widely held and deeply ingrained economic philosophy. This line of thought took a stronghold in the 1980s and has seemed to stick to our ever-growing dismay. Yet budget deficits do matter if we are looking at an economic horizon that is longer than one fiscal year. You need to put this into context of your own household. If you as an average American spend more than you make, it will eventually catch up to you. In a more distant past, the American consumer did not have access to debt as they do now. So they in effect had the ability to run localized deficits. Americans took this notion of spending more than you earn to heart. Many bought homes, cars, entertainment systems, and other consumer goods that simply did not jive with their income. This can last for a few years but eventually it will catch up. Now we are seeing the housing bubble burst and bankruptcies soaring. (more)

U.S. builders upbeat, manufacturing shows some life

More signs the U.S. economy was exiting its worst recession in 70 years emerged on Monday with reports showing confidence rising among homebuilders, factory activity perking up in New York state and credit card defaults slowing.

The data, however, failed to stem worries on Wall Street about weak U.S. consumer spending and the staying power of any economic recovery, as major indexes closed sharply lower.

The National Association of Home Builders and Wells Fargo said their Housing Market Index edged up one point to 18 in August -- the highest level since June 2008 and the second consecutive monthly gain. (more)

Corporate Bond Risk Jumps to Three-Week High on Economy Concern

The cost of protecting corporate bonds from default rose on concern a five-month credit market rally is “unsustainable” as Japan’s economy grew less than economists estimated and U.S. consumer confidence fell.

Credit-default swaps on JPMorgan Chase & Co. and Goldman Sachs Group Inc. climbed to the highest levels in a month, according to CMA DataVision. Contracts tied to U.S. investment- grade debt rose to a more-than-three-week peak, while those on a European index of corporate securities increased to the most since July 29. (more)

Iceland: what ugly secrets are waiting to be exposed in the meltdown?

For months rumours of share-ramping, market manipulation, excessive loans to their owners and unusual transfers off-shore have been circling Kaupthing, Glitnir and Landsbanki, whose failure last October left 300,000 British customers unable to access their money.

It has now become clear that this was no ordinary crash. Iceland's special investigation into "suspicions of criminal activity" at the three banks is likely to stretch from Reykjavik to London, Luxembourg and the British Virgin Islands.

Eva Joly, the French-Norwegian MEP and fraud expert hired by Iceland and now working with the Serious Fraud Office, now believes it will be "the largest investigation in history of an economic and banking bank collapse".

Many of the banks' secrets are likely to be inextricably bound up with corporate Britain and the success of these investigations in tracing and recovering assets is likely to affect every UK household. (more)