Thursday, February 11, 2010

McAlvany Weekly Commentary, Feb 10, 2010

The Global and American Paradigm Shift

February 10th, 2010
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2010 = 1929 Market - History to Repeat?

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Money Supply Data Reveals “New Major Dip” Ahead

Trillions of dollars have been spent on US stimulus, and like all activities — the good, the bad, and the extremely dubious — it must eventually, necessarily come to an end. This is true if for no other reason than it’s simply too expensive to support. Heck, even the Brits have ended their version of quantitative easing… and so now Bernanke is reviewing US options for doing the same.

An article in Barron’s today suggests the stimulus has been a good thing, and points to the fact that “the money stock is shrinking in real terms” to defend why it should persist. To support the case, John Williams of ShadowStats is cited:

“As John Williams, the proprietor of Shadow Stats, explains, the drop in real M3 is a sign of the double-dip ahead. ‘In modern economic history, every time there has been such a year-to-year liquidity contraction, the economy subsequently has turned down, or if already in recession, the economic downturn has intensified,’ he writes in a report to clients. (more)

Morgan Stanley Says Buy Commodities on Recent Dip

Earlier, one Morgan Stanley analyst recommended investors use the recent pullback in commodities as a buying opportunity. The analyst cited rising demand for raw materials such as copper, platinum and oil.

“The global economy is in much better shape today and, with economic growth back on track, we view this as a strong buying opportunity for commodities.”

Stocks in the Energy complex are among the strongest performing today. With about one hour left in the trading session, the sector, as a whole, is up about 2.4%.

Experts: Emerging Market Stocks Set to Soar

Experts say emerging market stocks will come back strong from their 13 percent drop over the past four weeks.

That decline was the largest in 11 months.

But Jonathan Garner, head of emerging market research for Morgan Stanley, predicts the MSCI Emerging Markets Index will jump 34 percent by year-end, as corporate profits surge 40 percent, Bloomberg reports.

And Thomas Deng, managing director at Goldman Sachs Asia, predicts China’s CSI 300 Index will gain 36 percent in the next 10 months.

“Strategically we’re still positive on the market,” he told Bloomberg. (more)

US trade deficit widens to 40.2 billion dollars

The US trade deficit widened sharply in December to 40.2 billion dollars, capping a year that saw a massive drop in the trade gap, government data showed Wednesday.

The Commerce Department reported total US exports of goods and services of 142.7 billion dollars and total imports of 182.9 billion dollars.

The trade gap mushroomed to 40.2 billion dollars after a revised 36.4 billion dollars in November.

For the full year, the US trade imbalance with the rest of the world improved impressively. (more)

Banks facing commercial property meltdown

At the height of the property boom in 2006, Shrewsbury's shopping centre was sold for £118m with only six of its 135 units lying empty.

The value of shopping centres had soared as money poured into commercial property.

Four years and one slump later, 29 units are empty in Shrewsbury's centre which was sold last month at a price believed to be half of the 2006 figure.

All over the UK, negative equity is now widespread in the whole of the commercial property sector - one informed estimate says it could be as much as £50bn. (more)

Sugar Shortage May Turn ‘Acute’ in Third Quarter

A global sugar shortage, which drove prices to the highest level in three decades, may peak in the third quarter this year on demand from the U.S., Mexico, India and Pakistan, according to U.S.-based Tropix Capital Management.

“As we enter the second quarter, we enter the inter-crop period for South Brazil when export supply is minimal,” Sean Diffley, founder of the hedge fund and former head of sugar trading at ED&F Man Holdings Ltd., said by email. “Countries like Russia will return to the market in force. The acutest part of the deficit may not be apparent until the third quarter.”

India, China, Indonesia, Pakistan, Egypt and Russia are among countries planning to buy sugar to cool domestic prices, worsening a deficit that may reach 11.92 million tons in the year ending April 30, up from 8.32 million tons predicted in October, Kingsman SA said yesterday. The shortfall may be 5 million to 6 million tons this season, according to Tropix. (more)

The Dumping Begins: Chinese Reserve Managers Notified That Any Non-USG Guaranteed Securities Must Be Divested

It appears that this time China's posturing is for real. Following up on our earlier post that Chinese military officials want to "punish" America by selling Treasuries, Asia Times Online is reporting that an explicit directive by the Chinese government has notified reserve managers to sell all risky US assets, including asset backed and corporates, and just hold on to explicitly guaranteed Treasuries and Agency debt. And from following TIC data we know that China's enthusiasm for MBS/Agencies over the past year has been matched solely by that of one Bill Gross. (more)

Zillow: The Housing Double Dip Began In December

Stan Humphries, the chief economist at real estate site, declares that the housing double dip began in earnest in December:
December brought signs that the fledgling recovery of home values in many markets is slowing again. U.S. home values got a bit lower again in December relative to November levels and the rate of decline got just a little bit higher as well. The national Zillow Home Value Index (ZHVI) was down 0.21% on a monthly basis in December to $186,200 versus a monthly decline of 0.16% in November. Annualized depreciation was 5.0% nationally. See Figure 1 below for monthly and annualized rates of change for the ZHVI.

More significantly, a number of large markets saw an end to their streak of consecutive monthly gains, including Atlanta, Baltimore, Boston, Denver, Minneapolis, and Portland, Ore. In total, one in five (29) of the 143 markets tracked by Zillow saw monthly depreciation or flattening of home values in December after having experienced at least five consecutive month-over-month increases in home values during 2009. If these declines are sustained, as we expect to happen in many markets, the result will be a “double dip ” in home values, defined as two periods of sustained declines in home values separated by a brief period of stabilization or recovery. (more)

Bankruptcy Bloodbath May Hit Muni Owners: Joe Mysak

Public officials shouldn’t think about filing for Chapter 9 municipal bankruptcy to solve mounting labor costs and pension liabilities.

Even talking about this action will invite an inquiry from Fitch Ratings, the company said in a report published Jan. 27.

“The more bankruptcy is publicly discussed as an option for financial relief, the more its tarnish wears off, increasing the likelihood of its actual use,” Fitch said.

The biggest financial crisis since the Great Depression is squeezing municipalities across the country. Since Vallejo, California, successfully petitioned for bankruptcy protection in May 2008, California’s towns, Detroit’s schools and Pennsylvania’s capital city of Harrisburg have all talked about Chapter 9. (more)