Wednesday, April 14, 2010

Income falls 3.2% during Obama's term

Real personal income for Americans - excluding government payouts such as Social Security - has fallen by 3.2 percent since President Obama took office in January 2009, according to the Commerce Department's Bureau of Economic Analysis.

For comparison, real personal income during the first 15 months in office for President George W. Bush, who inherited a milder recession from his predecessor, dropped 0.4 percent. Income excluding government payouts increased 12.7 percent during Mr. Bush's eight years in office. (more)

World oil demand to hit record high this year: IEA

Global oil demand will hit a record high this year, the International Energy Agency (IEA) said on Tuesday, revising up consumption estimates as the world economy recovers from recession.

The Paris-based adviser to industrialized economies raised its forecast for world oil demand growth this year to 1.67 million barrels per day (bpd), up 100,000 bpd.

The agency said in its monthly Oil Market Report that world oil demand would reach an average of 86.60 million bpd this year, up from 84.93 million in 2009.

The previous record high for world oil demand was 86.5 million bpd in 2007 before the onset of the global financial crisis and economic slowdown. (more)

A danger in search for higher yields

In an era of money market funds yielding next to nothing, Southwest Florida's growing crowd of income-seeking retirees may be setting themselves up for a fall by committing their money to longer-term bonds or certificates of deposit in order to maximize their yield.

In 1980, less than a year after Susan Moseley began working as a stock analyst, she saw first-hand what a spike in interest rates can do to a bond portfolio.

Buying a newly issued 10-year U.S. Treasury note in the fall of 1979 would have felt smart at the time, with its annual yield of 9.33 percent. But by the end of 1980, that bond would have been a disaster -- at least on paper -- because yields on new bonds ended that year at 12.84 percent. Thirty-year bonds followed a similar pattern. (more)

Wine Beats Russell Stocks as Liquid Investment in Swiss Study

For the ultimate in liquid investments, try top-quality wine, which has outperformed one benchmark U.S. stock index for 13 years and withstood two recessions.

That’s the conclusion of Philippe Masset and Jean-Philippe Weisskopf, two Switzerland-based economists who compared wine prices with the Russell 3000 Index between January 1996 and January 2009. The researchers studied more than 400,000 prices on regularly traded wines from the 13-year period, which covers two bull markets and two bear markets for stocks, to construct a general wine index and a gauge of top vintages. (more)

Jay Taylor: Turning Hard Times Into Good Times

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S&P 500 Backed by Most Momentum Since 1986: Technical Analysis

U.S. stocks almost have the most momentum since 1986.

The 14-day relative strength index for the Standard & Poor’s 500 Index has exceeded 65 since March 5, the longest stretch since 1995, according to data compiled by Bloomberg. Today would mark the 27th consecutive day, the most in 24 years.

RSI identifies possible turning points by measuring the degree that gains and losses outpace each other. While readings of 70 or more are considered evidence that an index may decline, the current streak suggests investors are reluctant to sell, making a collapse unlikely, said Joseph Keating. (more)

Expert: Bear Market Can Last for Another Five Years

The bear market could drag on for another five years or more, says Bill Spiropoulos, CEO of CoreStates Capital Advisors.

"We continue to climb the wall of worry. No one believes this thing. And all the negative tales about how the world is going to end next month? They’re wrong," he said.

Investors should prepare for the bear market to stay, but Spiropoulos predicts that the Dow will reach 12,000 this year.

"When I say secular bear market, we’re talking about a sideways trend," Spiropoulos told CNBC.

After the bear market ends, inflation will erode into some investors' portfolios, he said. (more)

IMF Prepares For Global Cataclysm, Expands Backup Rescue Facility By Half A Trillion For "Contribution To Global Financial Stability"

And all the pundits thought that the IMF would be on the hook for just €10 billion... The IMF has just announced that it is expanding its New Arrangement to Borrow (NAB) multilateral facility from its existing $50 billion by a whopping $500 billion (SDR333.5 billion), to $550 billion. The current lending participant group of 26 entities will be increased by 13 new members all of whom will contribute token amount of capital to the NAB. The one country most on the hook in the new and revised NAB - the United States of America, will provide over $105 billion in total commitments, or 20% of the total facility. The US is currently on the hook for just $10 billion, meaning its participation in global bail outs just increased by $95 billion. And the bulk of these bailouts will certainly be located across the Atlantic. What is most troublesome is the massive expansion of the NAR. If the IMF believes that over half a trillion in short-term funding is needed imminently, is all hell about to break loose. (more)

Surging Interest Rates Ahead, Part I

Brace yourself for one of the greatest interest-rate surges in decades — beginning first in the long-term Treasury markets … later spreading to shorter term Treasuries … and ultimately enveloping nearly every loan, debt, credit, and money market instrument on the planet.

This rise may not begin with great fanfare. Nor will it immediately upset the apple cart of the economic recovery. But with the march of time, it WILL gain momentum and reach critical mass.

We have little doubt about this outcome. And today, we begin a two-part series to explain why — plus what to do about it. (more)

VIX Chart Showing Complacency

We’re definitely among the minority, however. The volatility index fell to its lowest level since June 2007 this week. The VIX is at 15 today… light-years from the 80-90s suffered during Lehman’s collapse.

Even in the 20-year history of the index, 15 is low.

"Fear gives intelligence to fools,” says Chris Mayer, citing the old proverb. “Turning it around a bit, we might say that lack of fear makes fools of wise men.

“Right now, fear looks cheap. With the VIX below 16, we are getting close to extreme territory. We are near the limits of what that great rubber band of life will absorb before it snaps back. The VIX usually hovers between 10-20. So we are not quite there yet, but the tension is building.

“Given all that is going on in the world, it is remarkable to find investors so unworried. The financial system is still a rather creaky affair. Leverage is still high. Banks remain undercapitalized. The credit cycle has not yet run its full course, as there are still significant credit losses hiding in the cupboards of banks.

“Then there are the governments of the world. The U.S. has awful credit metrics. It is bleeding money and owes huge debts. The states are also bleeding money and have large debts, including giant gaps in unfunded pension liabilities. They are perhaps worse off, because unlike the U.S. government, the states cannot print their own money. Then there is the EU. And Japan.

“There are only a few ways to cure such ills, and none is painless. One thing is for sure: These ills can’t go on forever. So despite being in the middle of a usual historical range, these are not usual times. In the context of our times, fear looks cheap.”

Chart of the Day