Saturday, October 23, 2010

Whalen: Foreclosure Crisis Will Collapse Some Big Banks

Institutional Risk Analytics' Chris Whalen says nonpayment by mortgage borrowers and mounting foreclosure backlogs could collapse some of the largest U.S. banks in 2011.

"The improvement in loan-default rates is a mirage,” Whalen said during a recent presentation to the American Enterprise Institute, adding that banks’ subprime-mortgage losses have been hidden by bad accounting.

“The use of loan modification to make bad credits appear ‘current’ is an economic fraud perpetrated by Washington that is already becoming apparent via foreclosure moratoria,” says Whalen.

Moreover, the U.S. banking industry is entering a new period of crisis where operating costs are rising dramatically due to foreclosures and defaults, and we are actually less than one-quarter of the way through mortgage foreclosures.

“The third stage of the banking crisis involves degradation of bank operating efficiency as restructuring accelerates, expenses rise and lenders involuntarily become nonoperating REITs,” says Whalen. (more)

The Economist – 23 October 2010

The Economist is a global weekly magazine written for those who share an uncommon interest in being well and broadly informed. Each issue explores the close links between domestic and international issues, business, politics, finance, current affairs, science, technology and the arts.

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HES Radio : The World Financial Report

The World Financial Report brings you timely information on the worlds most exciting markets like oil, precious metals, currencies, commodities and hard money markets like very rare color diamonds and collectibles. The World Financial Report makes predictions and gives investment advice and has been very successful in identifying trends in the marketplace.

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The US Dollar Is Doomed

Austerity be damned, at this rate Mr. Bernanke will go down in the history books as one of the greatest money creators ever to have walked this planet!

Never mind sky-high deficits and a crushing debt overhang, at its most recent FOMC meeting, the Federal Reserve all but guaranteed another round of quantitative easing.

While the American central bank did not officially expand its quantitative easing program last month, it did reiterate its willingness to institute more aggressive monetary policy measures in order to combat the risks of deflation. Furthermore, Mr. Bernanke did officially downgrade the Federal Reserve’s outlook for inflation.

The truth is that the US is insolvent and its policymakers will stop at nothing in order to avoid sovereign default. So, it should come as no surprise that at its latest meeting, the Federal Reserve downplayed the risk of inflation, thereby setting the stage for another round of money creation. (more)

Fear Factor: Relying on a scientific investing instrument

The common perception out there is that our investment dollars are floating on top of an ever more turbulent sea.

This sense was been reinforced by the onslaught of 2008-09 and then, more recently, the little episode we had in Europe a few months ago. Still, the way most Canadians view market turbulence or volatility is a subjective one and this is why it’s difficult for some to get a handle on what risk is.

Whereas economists and portfolio managers think in terms of risk=volatility=standard deviation, may relate volatility to how much one’s statement value bounces around month to month.

Indeed, I have found that this is a great way to hone in on the discussion of risk, but sometimes it’s useful to be able to refer to something more (gulp) scientific. And the most reported on instrument out there has been the Chicago Board Options Exchange Volatility Index, or VIX.

A Volatile Leading Indicator

The VIX, which has been around since January 1990, is essentially an indicator of future volatility in the S&P500 basket of stocks - specifically, the weighted average of the implied volatilities embedded in stock options. (more)

Rick Rule - Physical Supply Shortages in Silver

With gold and silver correcting, King World News interviewed one of the great minds in the resource world, Rick Rule. Rick is one of the most level-headed individuals in the business, so what he said about silver was shocking, “We are seeing huge inflows into physical silver, and that may create a shortfall of available physical silver.” He also mentioned, “Silver strip and silver coin demand continues very, very strong as well.”

Rick Rule continues:

“I just think it was overbought, the trade was getting very crowded. There were a lot of momentum players and they are not investors. So they jumped ship at the first sign of weakness.

They were attracted to the strength in gold, and as soon as the tape turned weak they were gone. I would expect further weakness in both gold and silver. I’m still very constructive longer-term on both, but the silver market may not decline like the gold market.

You hear from dealers about delays in shipping product. I would assume given the extraordinary amount of coins being minted and the demand, that we may be close to running into physical supply shortages as a consequence of extraordinary demand for minted products.” (more)

BRIC Stocks May Double as Valuations Soar on Fed, SocGen Says

Stock markets in the biggest developing nations may double as the Federal Reserve’s monetary stimulus sends valuations back to their 2008 peak, according to Dylan Grice, a global strategist at Societe Generale SA.

Investors have poured record amounts of money into emerging-market equity funds this year as U.S. benchmark interest rates near zero spurred demand for higher-yielding assets abroad, EPFR Global data show. Fed Chairman Ben S. Bernanke said last week more monetary stimulus may be warranted after $1.7 trillion of debt purchases failed to spur growth.

Low interest rates under Bernanke’s predecessor Alan Greenspan helped fuel the U.S. housing boom and bust that precipitated the global financial recession two years ago, economists including John Taylor of Stanford University have said. The MSCI BRIC Index of shares in Brazil, Russia, India and China has surged 164 percent from its 2008 low, beating the 40 percent gain in the Standard & Poor’s 500 Index.

“If central banks know anything, it’s how to blow bubbles,” Grice, who is based in London and was ranked the No. 2 strategist behind SocGen’s Albert Edwards in Thomson Extel’s Pan-Europe 2010 survey, wrote in a research report e-mailed today. “Emerging-market valuations could go much further before they could be considered seriously stretched.” (more)

The Next Oil Shock?

The US Department of Energy (DoE) calls oil “the lifeblood of modern civilisation”.1 Around 86 million barrels (13.7 billion litres) are consumed each day. Oil supplies 37 percent of the world’s energy demand,2 including 40 percent of New Zealand’s energy demand.3 It powers nearly all of the world’s transportation, without which production and trade would grind to a halt. Studies have shown that GDP growth is very strongly related to increased use of oil.4

When the price of oil increases, the cost of nearly all economic activity rises. This often induces recessions. High oil prices have been associated with three major periods of economic recession in the past 40 years, including the lead-up to the recent global economic crisis.5

The world’s oil production capacity may not be sufficient to match growing demand in coming years. The potential for short-falls arises from geological, infrastructure, and political/economic constraints limiting the ability of world oil production capacity to grow while demand continues to rise. If oil supply cannot meet demand a price spike may be triggered, with major detrimental effects on economies, especially those heavily dependent on oil imports like New Zealand. (read the full report)

Zacks Releases Four Powerful ''Buy'' Stocks: Ann Taylor, TJX Companies, Caterpillar and Innophos

Four free stock picks are being made available today on The industry’s leading independent research firm highlights one Zacks #1 Rank Strong Buy or a Zacks #2 Rank Buy stock for each of the four main styles of investing: Aggressive Growth, Growth & Income, Momentum, and Value.

The four highlighted picks are: Ann Taylor (NYSE: ANN - News), TJX Companies (NYSE: TJX - News), Caterpillar, Inc. (NYSE: CAT - News) and Innophos (NasdaqGM: IPHS - News).

Zacks #1 Rank Stocks have nearly tripled the S&P 500 since 1988, producing an average annual return of +28%. Performance has been notable even during volatile and down times. For example, during the last bear market, 2000-2002, the market tumbled -37.6% – but Zacks #1 Rank stocks gained +43.8%. (more)

Gary Shilling On Why Underwater Homeowners Will Double From 23% to 40% Shortly

Arguably nothing can ever be quite as amusing as the Michael Pento-Simon Hobbs incident from July in which the now brainwashed Brit told the recent EuroPac addition that he was just "peddling the power of nightmares" (not even Pento getting booted off by Erin Burnett, although the fact that some idiot uttered the now legendary phrase "nothing is in a bubble when people want to buy it" certainly gives the clip brownie point for retention in the annals of CNBC's worst all time bloopers) when all the outspoken critic of the . Alas, today's interview of Gary Schilling by the same British H1-B/Green card holder comes nowhere close, however it certainly should be highlighted. Following up on Diana Olick's presentation of Clear Capital surprising announcement that home prices had dipped 6% in just two months (we can't wait for Cramer's take on this development even as housing "bottom" last June), and warning that fraudclosure will certainly cause prices to dip even more, it is Gary's turn to "peddle some nightmare powers" to Hobbs. To wit: the CEO of Gary Shilling & Co. sees home prices tumbling another 20% over the next few years, and the number of underwater mortgages nearly doubling from 23% to 40% (meaning nearly half of America will likely strategically default as nobody has any initiative to pay down their mortgage when they know there is no equity value left). And even when Hobbs tries to pull the old Pento one-two, and tells Shilling that "you do admit in your own writing that very few people would agree with you" to which the old fox answers: "what forecast is really worth much if everybody agrees with a consensus: it doesn't add much value..." Sorry, Gary, you are preaching to the wrong propaganda station: this is easily the first time they have ever encountered such a radical and subversive idea. (more)

Bloomberg Businessweek – 25 October 2010

Bloomberg Businessweek
- World's leading business magazine.
Timely, useful, provocative, innovative. Each issue of Businessweek features in-depth perspectives on the financial markets, industries, trends, technology and people guiding the economy. Draw upon Businessweek's timely incisive analysis to help you make better decisions about your career, your business, and your personal investments.

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Stocks end higher for 3rd straight week

(AP) -- The Dow Jones industrial average rose for a third straight week, capping a two-month period in which the index has ended 7 out of 8 weeks higher than where it started.

Stocks ended on a mixed note Friday at the close of a busy week of earnings news. The Dow finished slightly down, while the broader Standard and Poor's 500 index and the technology-focused Nasdaq both ended with gains.

The market appeared to be in a holding pattern as investors turned their attention to a meeting of finance ministers and central bank governors in Korea. The group is meeting as tensions grow over a brewing currency battle that could affect global trade.

"Everyone is trying to get out of the economic doldrums by exporting," said Bruce McCain, chief investment strategist at Key Private Bank. "And everyone is trying to do it at one time."

There are worries that some countries, like China, are holding their currencies at artificially low levels. That gives them an advantage in exporting goods as the global economy slowly recovers from a deep recession. (more)