Saturday, July 17, 2010

The World Financial report, July 16, 2010

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Behind the Credit Numbers: (Deleveraging Will Continue)

During the past week there has been a flurry of Federal Reserve reports and commentary concerning the levels of credit in the current economy. The two most notable were:

► On July 8th they reported that the level of seasonally adjusted outstanding U.S. Consumer Credit (their G.19 report) decreased during May by $9.1 billion, representing an annualized rate of credit contraction of 4.5%. Although even this change is above the average for the preceding twelve months, it is much smaller than a quiet revision to the previously published April U.S. Consumer Credit figure -- which is now reported to have decreased by $14.9 billion (a 7.3% annualized contraction rate).

The Federal Reserve fails to put these numbers into perspective:

1) Consumer credit has contracted during 15 of the past 16 reported months, and it is down a record total $148 billion over that time span. (more)

Norris: How to Tell a Nation Is at Risk

Which governments will not be able to pay their bills?

The ones with private sectors that are not doing well enough to bail out the government.

That should be one lesson of the near default this year of the Greek government. Government finances are important, but in the end it is the private sector that matters most.

If so, those who focus on fiscal policy may be missing important things. Spain appeared to be in fine shape, with government surpluses, before the recession hit. Now Spain is being downgraded and has soaring deficits. (more)

Bloomberg Businessweek - July 19 - July 25, 2010

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BNN: 'Era of the fiscal stimulus is over': Rosenberg

BEST OF BNN: Noted bear David Rosenberg says the risk of a double-dip recession is growing. The chief economist at Gluskin Sheff tells BNN why he is bullish on bonds, and why he's worried about the affect fiscal tightening will have on the global economy.

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The Yo-Yo Market and You

provided by The Wall Street Journal,

The stock market will suffer dizzy spells until the fog of monetary policy uncertainty is lifted.

Bull markets, it is said, climb a wall of worry. Smart investors buy in early when worries about profits or inflation or wars scare away the faint of heart. Latecomers then bid up stocks as each worry becomes unfounded, until there is nothing left to worry about. Once there is only good news, the market peaks as there is no one left to buy.

Bear markets, on the other hand, fall into what I like to call the pit of doom. Forget about worries—actual bad stuff happens, until nothing bad is left to happen and the market bottoms as there is no one left to sell.

From early May through last week, the market dropped 1500 points into the pit, on the backs of gushing BP oil, riots in Europe, a 30% drop in pending home sales and the news that maybe your next door neighbor is a Russian spy. But now we've seen 680 Dow points added over seven straight up days before a sharp end-of-week decline. What the heck is going on? (more)

Treasury Prices Rise On Weak Consumer Data; Post Weekly Gains


NEW YORK (Dow Jones)--Prices of Treasurys rose Friday as a soft consumer-sentiment report added to concerns about the U.S. economic outlook, bolstering demand for safe assets.

The bond market posted a weekly price gain, with the benchmark 10-year note's yield down by more than 10 basis points. Investors flocked to Treasurys as weak economic releases this week, ranging from reports on consumers to the manufacturing sector, cemented arguments among many participants that the economic recovery could falter in the second half of the year.

The Federal Reserve has cut its outlook for the economy and inflation, according to minutes of the central bank's June policy meeting. That fed a growing belief in financial markets that the Fed is likely to keep interest rates at record lows near zero well into 2011 to prevent another downturn in the economy, thus supporting lower bond yields.

"In order for yields to rise, economic data need to strengthen substantially enough to boost job growth, because it is what is needed to promote a self-reinforcing condition for the U.S. economy," said Tony Crescenzi, portfolio manager at Pacific Investment Management Co., or Pimco, in Newport Beach, Calif. "Absent meaningful job growth, both inflation and the Fed's policy rate will stay low, supporting Treasury prices." (more)

The Economist - July 17th - July 23rd 2010

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Gold Plunges; Paulson Liquidation Speculation Abounds Again As Fund Rumored To Be Down $1 Billion For The Day

Tyler Durden, Zerohedge
There are some crocodile tears over at the 50th floor of 1251 Avenue of the Americas this morning. With a holding of 168 million shares of BAC and 506 million in Citi, Paulson and Co. is down nearly $300 million on just its top two positions alone. When one adds the other top ten positions, which include $3.5 billion worth of GLD, as well as massive positions in ANG, CMCSA, STI, TRE, RIO, BSC, COF, WFC, MGM and many others, it is not surprising that the market is rife with rumors that the once vaunted bearish and now very much bullish (who according to Goldman's carefully crafted settlement press release yesterday, only achieved his subprime-related wealth due to prospectus misrepresentations by Goldman, which is now permanently in the public record) is down about $1 billion for the day so far. Of course, on a NAV of $31 billion this is not all that big, but likely will not help with the recent surge in redemption requests.... Or the need for liquidations. Gold is plunging, and according to market rumors the primary culprit is once again JP, whose GLD holdings that are merely a type of share class (which needs to be indexed lower as the AUM drops) are getting liquidated, pushing spot far lower. (more)

Peter Schiff: The Dollar Is Going To Fall

ECRI Index annualized change almost a lock for double dip territory

The ECRI Weekly Leading Index (WLI), a measure of future U.S. economic growth stands at 120.6 unchanged from a week ago. We first began actively talking about the WLI in April as a predictive indicator for either sustained recovery or a double dip recession. However, the gauge most of us are looking for is the annualized year-on-year change. Reuters says:

The index was last below 120.6 in the week of July 24, 2009, when it measured 120.3, according to ECRI. The index’s annualized growth rate fell to minus 9.8 percent from minus 9.1 percent the previous week, originally reported as minus 8.3 percent.

The index is saying that growth is slowing quite rapidly. But there is no imminent recession on the horizon. However, what happens by the end of the year or in 2011 is another story. David Rosenberg mentioned in June that a minus ten reading is a recession lock for the entire 42 years of ECRI data available. The minus 9.8 reading is about as close to a double dip warning as you are going to get from the WLI. These numbers are telling us that the manufacturing and inventory led recovery is so stalled that a double dip recession is likely within six months. (more)

Chart of the Day