Thursday, December 10, 2009

Too Few Bears Spells T-R-O-U-B-L-E

Albert Edwards of Société Générale makes the simple contrarian arguement that the low number of equity bears is a bad sign for equities:

“The current extremely low number of equity bears (the lowest since the market top of 2007 – see chart below), the likelihood is that the next leg of the long-term structural valuation bear market is closer than people might realise.”

New underground economy

The underground or "black" economy is rapidly rising, and the fault is mainly due to government policies.

Here is the evidence. The Federal Deposit Insurance Corp. (FDIC) released a report last week concluding that 7.7 percent of U.S. households, containing at least 17 million adults, are unbanked (i.e. those who do not have bank accounts), and an "estimated 17.9 percent of U.S. households, roughly 21 million, are underbanked" (i.e., those who rely heavily on nonbank institutions, such as check cashing and money transmitting services). As an economy becomes richer and incomes rise, the normal expectation is that the proportion of the unbanked population falls and does not rise as is now happening in the United States.

Tax revenues are falling far more rapidly at the federal, state and local level than would be expected by the small drop in real gross domestic product (GDP) and changes in tax law that have occurred since the recession began. The currency in circulation outside the U.S. Treasury, Federal Reserve banks and the vaults of depository institutions - that is, the currency held by individuals and businesses - has grown by 13.3 percent in the last two years, while real nominal (not inflation-adjusted) GDP has not grown at all, and real (inflation-adjusted) GDP incomes have fallen by more than 3 percent. With the growth of electronic means of payment and financial service providers, it would be expected that the currency component of GDP would fall, not rise. (more)

McAlvany Weekly Commentary

Globalization Impaired

December 9th, 2009

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The Silent Crisis: Topsoil

Chris Mayer of the Daily Reckoning,

The world continues to deplete its base of arable land. Though it’s been going on for some time, the dramatic blows are only now showing their effect. In East and North Africa, in the plains of India all the way to Turkey, the story is the same. Some of it is just human carelessness about the land. Some of it is climate driven: the declining snowmelts of the Himalayas and more frequent crop-killing heat waves in places such as India…

China, you may recall, is now the largest net importer of soybeans in the world. A mere 15 years ago, it made more than it needed and exported soybeans. Now India may import rice. Some think that India could import as much as 2 million metric tons, the most in the world. Traditionally, India has been the world’s third largest exporter. (It’s already banned overseas rice sales in an effort to keep rice at home.)

The Philippines, thanks to typhoon damage, will also be a net buyer of rice this year. South America will produce less, and there is potential trouble with the crop in the Mississippi Delta. Yes, Thailand and Vietnam appear to have healthy rice supplies. But it won’t be enough.

All of this puts Brazil in the catbird seat, as more people are starting to figure out. “Superpower Is Ready to Feed the World,” reads a Financial Times headline. You may quibble with the FT’s exuberant labeling of Brazil as a superpower. But Brazil is now the top exporter of chicken and beef, orange juice, green coffee, sugar, ethanol, tobacco and the soya complex of beans, meal and oil. It is No. 4 in maize and pork. It is, agriculturally speaking, deserving of the superpower label.

RIM Bulls Bet on Rally as BlackBerry Expands in China

Traders are snapping up options on Research In Motion Ltd., betting the shares will climb 31 percent in five weeks as prospects for sales improve, especially in China.

Investors buying contracts to purchase RIM for $80 through Jan. 15 helped drive bullish contracts on the stock to twice the level of bearish ones, the highest ratio since March 2006, according to data compiled by Bloomberg. The last time so-called calls outnumbered puts by as much, shares of the Waterloo, Ontario-based BlackBerry maker quadrupled in 19 months.

Traders are speculating RIM will rebound from a 26 percent decline since the company forecast sales in September that were below analysts’ estimates, said Nick Agostino, an analyst at Research Capital Corp. in Toronto who has recommended the shares for more than three years. RIM is expanding distribution in China and its BlackBerry Curve surpassed Cupertino, California- based Apple Inc.’s iPhone as the top-selling consumer smart phone last quarter, helped by price cuts. (more)

Ex-Fed chief Paul Volcker's 'telling' words on derivatives industry

The former US Federal Reserve chairman told an audience that included some of the world's most senior financiers that their industry's "single most important" contribution in the last 25 years has been automatic telling machines, which he said had at least proved "useful".

Echoing FSA chairman Lord Turner's comments that banks are "socially useless", Mr Volcker told delegates who had been discussing how to rebuild the financial system to "wake up". He said credit default swaps and collateralised debt obligations had taken the economy "right to the brink of disaster" and added that the economy had grown at "greater rates of speed" during the 1960s without such products. (more)

Recession puts U.S. halfway to emissions goal

The recession has slashed U.S. output of planet warming gases and puts the country on track to reach President Barack Obama's short-term emissions goal, but cutting the pollution further will take more effort as the economy recovers.

"Losing weight by starving is different than shedding pounds through exercise," said Kevin Book, an analyst at ClearView Energy Partners, LLC.

He said as the economy recovers electricity demand should rise, pushing up emissions from that sector. That will require the world's second largest emitter of greenhouse gases after China to move faster to low-carbon sources like renewable energy if Obama's short-term goal is to be met, he said.

Obama is expected to pledge next week at a U.N. climate meeting in Copenhagen that the United States will cut output of gases blamed for warming the planet, including carbon dioxide, roughly 17 percent below 2005 levels by 2020. (more)

Elizabeth Warren: Death of the Middle Class