Thursday, September 3, 2009

The Wall Street Journal - 3 September 2009 (Europe)

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Jay Taylor Radio Show , September 1, 2009

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ETF Reckoning Day?

Commodity speculators take heed: The popular crude oil exchange-traded note DXO is kicking the bucket — quickly and controversially — and other similar securities might follow suit.

Deutsche Bank announced late yesterday that they were pulling the plug on the PowerShares DB Crude Oil Double Long ETN (better known as DXO). Most ETFs and ETNs die out because they can’t attract enough investors. DXO seems to have suffered the opposite fate.

In the new clampdown on commodity speculators, it’s no huge surprise to see the world’s most popular double-long, leveraged ETN fold suddenly. Deutsche Bank didn’t specifically claim that the Commodity Futures Trading Commission put the kibosh on the DXO, but their press release did cite a “regulatory event” as the principal reason for the closure. (more)

U.S. Consumer Bankruptcies Rose 24 Percent in August

U.S. consumer bankruptcy filings rose 24 percent in August from the previous year to 119,874, according to the American Bankruptcy Institute and National Bankruptcy Research Center.

“Consumers continue to turn to bankruptcy as a shield from the sustained financial pressures of today’s economy,” said Samuel Gerdano, the executive director of the American Bankruptcy Institute. “As a result, we expect consumer filings to top 1.4 million this year.”

While the August figure was an increase over the prior year, filings declined from July’s total of 126,434, the groups said in a statement. (more)

The $531 Trillion Dollar Derivatives Time Bomb

Titanic Derivatives

What are derivatives? Some investors describe them as "dormant economic weapons of mass destruction". They essentially are large leveraged bets on top of stocks, bonds and commodities. Money can be made within months or seconds by betting if a stock will go up, down or even remain the same. With no credit rating you can place a bet worth double your account balance. Big time investors get greater leverage with these instantaneous loans.

The New York Times, Oct 8th 2008: “The derivatives market is $531 trillion, up from $106 trillion in 2002″. This market is setup with odds similar to a racetrack. Trillions are won and lost (transferred) every second. But unlike a racetrack the big players have ultimate control. Their trillions can make stocks move. A 4% up swing in a stock can cause a derivative bet to rise more than 100% in value or vice versa. A low performing stock that rises only 6% a year could actually have many 3, 6 or 9 percent swings weekly or monthly (some stocks daily). There are billions to be made over and over again by the people that control billions and trillions thus the markets. A grand game approved by the top.

Barton Biggs Turns Bearish

I don't believe that an even more dramatic economic or stock-market apocalypse is nigh, but many, many wise people do, and I must admit I am more worried now than I was a few weeks ago. I have attended two large conferences of global investors in the last few weeks, and it was clear that at both more than half of the participants believed that the Obama administration has stumbled badly, that its programs are too little and too late and that the president's halo is disappearing.

Since late last week, confidence indexes in the U.S., Europe and Japan that had seemed to level out were once again showing growing consumer concern about the economy. The most highly regarded economists and strategists now expect a long, deep, global recession, with stock markets falling another 20 to 30 percent. A vocal hard core warns of years of hard times comparable to the Great Depression at worst or the Japanese lost decade at best. (more)

Loan Sharks Circle Credit-Starved Consumers

LONDON -- During Britain's boom, easy credit helped Eduardo Ireneo pile up £1,750 ($2,848) in bank debt. When the boom turned to bust in 2007, though, banks cut him off and he turned to a loan shark, an illicit credit source that is gaining steam.

Mr. Ireneo's case sheds light on a revival of illegal lenders, who are making hay as people's incomes fall and legitimate borrowing avenues shut down. For Mr. Ireneo, a caregiver at a London nursing home, financial problems led him to a loan shark who charged a staggering 60% interest rate. (more)

Peter Schiff On CNBC Fast Money

Market Experts See Risk Rising Fast

Financial journalist and neuroeconomist Jason Zweig says don't be happy, worry.

"It is at times like these, when a rising market sweeps our spirits up with it, that investors need to evaluate their emotions and consider whether their beliefs and actions are justified," Zweig writes in The Wall Street Journal.

Since last September through this past March, he notes, officers and directors of publicly traded companies sold twice as much stock in their own companies as they bought, considerably less than the historic average of 7 to one, according to TrimTabs Investment Research.

In August, that ratio jumped to 31 to one. (more)

Will Your Pensions Be Nationalized?