Wednesday, June 2, 2010

HUMOR: How to Plug the Well in the Gulf?

Technical Indicator: Following the U.S. markets' worst May since 1940, the Standard & Poor's 500 Index is trying to rally to start June.

The upturn follows a failed test of the S&P's 200-day moving average last week, and all trends technically point lower until this area is reclaimed.

The S&P 500's (SPX 1,071, -18.70, -1.72%) hourly chart details the past three weeks.

As illustrated, the S&P stalled just under its 200-day moving average last week before pulling in from resistance.

Looking ahead, the 1,090 area marks a near-term inflection point, while significant resistance holds at the 200-day, currently 1,105. (more)

Beijing Adviser: China's Housing Problems Worse Than in US

Because China combines a potential bubble with the risk of social discontent, the problems in China's housing market are more severe than those in the United States before the financial crisis hit, according to an adviser to the Chinese central bank.

“The housing market problem in China is actually much, much more fundamental, much bigger than the housing market problem in the U.S. and U.K." before the financial crisis, says Li Daokui, a professor at Tsinghua University and a member of the Chinese central bank’s monetary policy committee.

“It is more than [just] a bubble problem,” Li says. “When prices go up, many people, especially young people, become very anxious. It is a social problem,” Li told the Financial Times. (more)

Jay Taylor: Turning Hard Times Into Good Times

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Commodities’ Biggest Drop Since Lehman Is Bear Signal

The biggest slump in commodities since Lehman Brothers Holdings Inc. collapsed is undermining Wall Street forecasts for accelerating economic growth and higher prices for everything from copper to crude oil.

The Journal of Commerce Industrial Price Commodity Smoothed Price Index that tracks the growth rate of steel, cattle hides, tallow and burlap plunged 57 percent in May, two years after a decline that foreshadowed the worst recession in half a century. The index of 18 industrial materials declined the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth.

Commodities extended their slump today, led by declines in industrial metals and energy prices, as separate reports showed manufacturing slowdowns last month in China, Europe and the U.S. (more)

Analysts Projecting 27% Gain in S&P 500 Defy El-Erian

The biggest monthly drop in the Standard & Poor’s 500 Index since February 2009 is ratifying Mohamed El-Erian’s prediction for a new normal of below-average returns. Analysts say not so fast.

Combined price estimates from more than 2,000 forecasters tracked by Bloomberg show the S&P 500 will rise 27 percent in the next year, the fastest projected rate since February 2009, data compiled by Bloomberg show. The rally above 1,350 will be led by industries most tied to the economy, according to analysts who boosted individual share projections by an average of 0.9 percent in May, the 14th straight monthly increase. (more)

Hedge Funds Post Biggest Monthly Losses Since Lehman Aftershock

John Paulson, Louis Bacon and Andreas Halvorsen navigated the global market turmoil of 2008 with little or no damage. They weren’t as successful last month as the Dow Jones Industrial average had its worst May since 1940.

Hedge funds lost an average of 2.7 percent through May 27, according to the HFRX Global Hedge Fund Index, as the sovereign debt crisis in Europe triggered declines in stocks, the euro and commodities, and the gap in yields between U.S. short-term and long-term debt narrowed. It was the biggest decline since November 2008, when hedge funds lost 3 percent in the wake of Lehman Brothers Holdings Inc.’s bankruptcy two months earlier.

Almost every strategy lost money in May, according to Hedge Fund Research Inc. in Chicago, as the Dow index of 30 big stocks sank 7.6 percent including dividends amid speculation that Greece’s debt problems would spread to nations such as Spain and Portugal. Some of the best-known funds saw their gains for this year erased. (more)


Investment Guru: Euro and Oil Will Continue to Plunge

The carnage isn’t over for the euro, which has dropped to a four-year low against the dollar, says investment guru Dennis Gartman.

Europe’s financial crisis will continue to drive the common European currency down — below $1.20, says the publisher of The Gartman Letter.

The euro recently traded at $1.2240.

"It’s having a rough month; it's having a rough year. It's probably going to continue to have rough times ahead. Are we going under $1.20? Almost certainly," he told CNBC. (more)

Why commercial real estate will plunge FDIC insured banks into closure

The commercial real estate bust is in full swing. This $3 trillion mortgage market is standing to push hundreds of banks into failure and adding additional strain to the embattled FDIC. Commercial real estate (CRE) is a good indicator of where things are heading economically because it is a reflection of what revenues are being brought in by certain properties. For example, a strip mall owner will lease out space to clients that ideally will earn more money each month to cover their rents. That is typically how CRE deals went down. But for the past decade people invested in CRE with the implied notion that they could always sell the underlying CRE for a higher price irrespective of the actual revenue stream the real estate could produce. For CRE this is sin number one.

Commercial real estate values went on a 91 percent tear from 2001 to 2008: (more)

Chart of the Day