Tuesday, October 4, 2011

Goldman Raises US Recession Odds To 40%; Sees More Fed Easing, Expects Recession In Germany And France

We won't comment on the supreme imbecility of being able to predict something as amorphous as a recession in decile increments, but for what it's worth, here it is. Just out from the crack Goldman tag team of Hatzius and Dominic Wilson, who usually don't work together unless they have to make some big statement: "We now see the risk of a renewed US recession as around 40%." (this was 30% before - expect every other Wall Street idiot to follow suit with an identical prediction). Also, those wondering if Goldman is content with getting shut out on its IOER cut demand, we have the answer: no. To wit: "We expect additional easing of monetary policy beyond the ‘operation twist’ announced recently, although this may not come until sometime in the first half of 2012. In addition, the market’s focus on changes in the Fed’s guidance on future policies - including a greater emphasis on the employment part of the ‘dual mandate’ and/or a temporarily higher inflation target - is likely to intensify." Lastly, as relates to the saving grace in Europe, little surprise there - Goldman, whose plant Mario Draghi is about to take over the ECB, expects the very same ECB to open the spigots: "The increase in financial risk is likely to lead the European Central Bank to ease its liquidity policies further this month, and the economic weakness will probably result in a cut in the repo rate by 50bp to 1% by December." As for European economic prospects, well, sacrifices will be made: "we now expect a mild recession in Germany and France, and a deeper downturn in the Euro periphery." And with a former Goldmanite about to take over the European money issuance authority, we have a bad feeling about what will transpire in Europe after October 31, when Trichet finally exits stage left.

Full note:

World Growth Slows as Europe Stagnates

The further deterioration in the economic and financial situation in the Euro area has led us to downgrade our global GDP forecast significantly, from 4.3% to 3.5% in 2012. Over the next few quarters, we now expect a mild recession in Germany and France, and a deeper downturn in the Euro periphery. The increase in financial risk is likely to lead the European Central Bank to ease its liquidity policies further this month, and the economic weakness will probably result in a cut in the repo rate by 50bp to 1% by December.

The increase in spillovers from the Euro area, primarily via tighter financial condition, is the primary reason why we have also downgraded our forecasts for the US further. We now see the risk of a renewed US recession as around 40%. We expect additional easing of monetary policy beyond the ‘operation twist’ announced recently, although this may not come until sometime in the first half of 2012. In addition, the market’s focus on changes in the Fed’s guidance on future policies - including a greater emphasis on the employment part of the ‘dual mandate’ and/or a temporarily higher inflation target - is likely to intensify.

Despite the deterioration in the advanced economies, Table 1 shows that our baseline global growth forecast for 2012 remains at 3.5%—a downgrade of 0.8ppt from our prior forecast and well below the pace seen in 2010-2011, but still decent by historical standards. The main reason is that we expect only a modest slowdown in China and other emerging economies. Although the recent Chinese policy tightening and the downturn in export demand are likely to weigh on growth in the next few quarters, we expect the waning inflationary pressures to lead to a renewed easing of policy later this year, and this should underpin a moderate reacceleration in 2012.

The downgrade to our growth forecasts has led us to lower our targets for bond yields, commodity prices and equity prices. While even the new targets are generally above the forwards, the downside ‘skew’ to our market views has increased notably. (more)

What Housing Crash? Unlike the U.S and U.K, Canada’s Home Prices Are Still Escalating!

Canada, France and Switzerland stood alone among nine markets measured in recording annual price gains in home prices, based on second-quarter data, with inflation-adjusted price increases of 5%, 5% and 4%, respectively, compared todeclines of 6% in the U.S., the U.K. and Australia, 10% in Spain and 14% in Ireland. In fact, Canada’s home prices have escalated 44%, on average, since 2005 – and 68% in Vancouver! Words: 1244

Reports by Canada’s Bank of Nova Scotia, National Bank (see here) and the Canadian Real Estate Association (see here) paint a rosy picture for the housing scene in Canada over the past decade with no declines foreseen, on average, in the near future. Lorimer Wilson, editor of www.munKNEE.com(Your Key to Making Money!) has amalgamated the findings of these three reports and comments on said reports as found in the Globe and Mail into this article to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

1. Senior economist Adrienne Warren of Canada’s Bank of Nova Scotia says in her report that:

Canada’s Home Prices (Major Cities) Went UP 5.27% in Last 12 Months

Scotiabank expects housing demand around around the world to remain moribund until the recovery picks up and, while Canada’s real estate market is notable for its resilience and longevity, Warren anticipates, on balance, a modest slowdown in the volume of sales transactions heading into year-end, alongside relatively flat prices.

2. The latest Teranet-National Bank National Composite House Price Index reports that:

Canadian Home Prices Have Jumped 44.27% Since 20o5

As the chart below shows Canada has not experienced a housing bubble with prices continuing an almost uninterrupted advance as seen in the chart below:
Canadian house prices continue to increase in 2011

Since Teranet first started tracking prices in June 2005 with a base level of 100, home prices have jumped 44.27%. The Vancouver index leads the pack at 167.77, suggesting prices have gone up 67.77% since 2005. Toronto, meanwhile, has the lowest index rating at 131.26, meaning prices have accelerated “only” 31.26% in that time.

House Prices Went UP 1.3% in July in Canada’s Major Cities

House prices in 6 of Canada’s major cities across the country jumped 1.3% this past July, compared with the previous month That is the fourth straight monthly increase of more than 1% and the eighth straight rise in a row. The index is also up 5.27% compared with a year ago.

Prices were up in five of the six major metropolitan markets surveyed in July:

  • Calgary led the pack with a 2.3% increase (+0.9% y/y),
  • Toronto was up 1.7% (+4.8% y/y),
  • Ottawa came in at +1.o% (+4.1% y/y),
  • Vancouver was up 0.9% (+8.5% y/y), yes, 8.5%!,
  • Montreal rose +0.5% (+6.0% y/y) and
  • Halifax -0.9% (+3.3%y/y).

3. The latest Canadian Real Estate Association reports that:

Canada’s National Average Home Price is $349,916 (Canadian dollars)

The national average price for homes sold in August stood at $349,916, down from $372,700 in June. Despite the slowdown, however, prices have nonetheless gained 7.7% in the past 12 months. This number is at odds with the Teranet-National Bank National Composite House Price Index number of 5.27% because that report tracks prices in only 6 of Canada’s largest metropolitan cities whereas the Canadian Real Estate Association (CREA) numbers reflect the sale price of homes in every community across the country regardless of population.

CREA’s chief economist Gregory Klump says,

Earlier this year, the national average price was being skewed upward by sales in some expensive Vancouver neighbourhoods, but this factor is now diminishing. Upward skewing of the national average price is also shrinking due to overall sales trends in Vancouver, and most recently in Toronto…Economic and financial market headwinds outside Canada are keeping interest rates lower for longer [and] those headwinds will likely persist until, and indeed after, fiscal quagmires in the U.S. and Europe are resolved. In the meantime, the Bank of Canada will have ample reason to delay raising interest rates further, which is supportive for the Canadian housing market.

5 Safe Dividend Stocks for a Shaky Economy

Do you remember 2008? Wall Street is going crazy, we find out we're in the midst of a recession, and the Federal Reserve is forced to lower interest rates to practically zero and pump money into the economy alongside fiscal stimulus to avoid total economic doomsday.

Nearly every pundit frets that zero percent interest and all that money printing would be hugely inflationary. Many announce that the Fed's "panic actions" would cause "Zimbabwe-style hyperinflation." Peter Schiff -- by no means alone but among the most prominent of inflation-panic-mongers -- exclaims:

[The U.S. Dollar] is on the verge of collapse. People who don't get out [of it] are going to be completely broke. That is obvious to me that that's what's going to happen.... This is hyperinflation, this is Zimbabwe, this is the identical monetary policy that the Weimar Republic did, and we're gonna have the same result.

Take a deep breath. Three years later, none of that has happened. In fact, the opposite is happening. And that unusual fact can have enormous implications for your investments. Here's what's going on and five stocks to help keep your portfolio safe in this bizarre environment.

What's going on
Despite volatile prices in some high-profile commodities, inflation has been relatively tame. The red line below is the "core" inflation rate that excludes food and energy. The blue line includes them:


So why haven't we seen a lot of inflation? Part of it is because the huge decline in housing prices pushes down consumer price averages. A lot of it also has to do with the fact that money isn't being spent. The Fed could print a gazillion dollars, but if it got buried it in the ground, no one would notice.

Households, banks, and businesses are basically burying their cash today. Here's the rate at which money is turning over in the economy:


In the aftermath of a massive credit bubble, households and businesses are hoarding cash and repaying debt rather than spending. That's what's holding back the recovery. It's also a hugely deflationary force that ordinary inflationary measures -- such as low interest rates and a juiced money supply -- have to contend with just to keep the economy from sinking into a Great Depression-like morass.

Who cares?
A slow-growth, low-inflation economy can affect your portfolio in different ways. But here are four characteristics that are shared by companies built for safety in these shaky times:

  • Defensive industries: Companies that sell necessities tend to have more stable sales when customers are cutting back.
  • Low debt burden: Low inflation is great for creditors but painful for debtors because their debt is more expensive than it would be otherwise. I've written columns in the past explaining why specific creditors like Annaly Capital (NYSE: NLY ) and Chimera (NYSE:CIM ) make sense. Today, we'll consider the other side of the coin -- companies with limited debt or access to cheap credit.
  • Increasing sales: It's a good sign if a company is able to increase sales despite a slow economy.
  • Healthy dividends: Periods of low inflation and low interest rates leave many investors scrambling for income, which makes dividends more attractive. In fact, interest rates are so low right now that the S&P 500 actually yields as much as 10-year U.S. Treasury bonds.

Only a handful of companies meet these criteria. Here are five of the strongest:



Interest / Operating Income

1-Year Revenue Growth

Dividend Yield

Sysco (NYSE:SYY )Food distribution6%6%4.0%
Johnson & Johnson (NYSE:JNJ )Medical devices3%1%3.6%
Kimberly-Clark(NYSE: KMB )Personal products10%4%4.0%
AT&T (NYSE:T )Diversified telecommunications16%2%6.0%
PepsiCo (NYSE:PEP )Soft drinks and snack food10%29%3.3%

Source: Capital IQ, a division of Standard & Poor's.

Sysco is the undisputed king of food distribution -- a necessity if there ever was one. Health-care spending isn't something people choose to skimp on, and Johnson & Johnson doesn't have the same upcoming patent problems as many of the top pharmas. Kimberly-Clark sells a diversified batch of low-priced personal care products. AT&T operates in a rather steady, profitable, and consolidated industry. PepsiCo is a duopolist that enjoys huge, reliable margins selling sugar water at a large markup.

Each of these names operates in a defensive industry, has a relatively low interest burden on its debt, enjoys increasing sales, and pays a meaningful dividend. They're the sort of names income-seeking investors may want to consider in this shaky economy.

S&P 500 Valued Below Recessions Since ‘57 as Estimates Fall

The rout that erased $2.9 trillion from U.S. equities has pushed valuations in the Standard & Poor’s 500 Index 25 percent below the average level from the last nine recessions, even as profit estimates fall.

Companies in the benchmark gauge for American equities trade at 10.2 times 2012 forecast earnings, compared with the average in economic contractions since 1957 of 13.7, according to data compiled by Bloomberg. At the same time, analysts have cut projections for profits next year by 2.6 percent to $110.78 a share, the biggest eight-week drop since 2009, the data show.

Bears say analysts have just started paring earnings estimates and that shares will prove expensive when gross domestic product shrinks. Bulls say stock prices have fallen so much that even should earnings fail to increase in 2012, equities are inexpensive.

“What you’re seeing is a growth scare,” Wayne Lin, a money manager at Baltimore-based Legg Mason Inc., said in a telephone interview on Sept. 29. His firm oversaw $643 billion as of Aug. 31. “The question is, how much of that is priced in. I’d say that if we don’t have a double-dip recession, if earnings just stay flat, these valuations are reasonable. The market already expects those downgrades.”

Chinese Manufacturing

The S&P 500 fell 2.9 percent to 1,099.23 today. The U.S. benchmark gauge slipped 0.4 percent last week, extending its decline since July 22 to 16 percent, after reports showing Chinese manufacturing shrank and retail sales in Germany slumped fueled concern global growth is slowing. The index had climbed 67 percent since March 2009, with 455 of its members higher than their level at the bottom of the bear market.

Concern Europe’s debt crisis will trigger a global recession spurred investors to seek safety in the dollar and Treasuries during the third quarter. The U.S. currency’s 5.7 percent increase was topped only by U.S. bonds, which rallied 6.4 percent, according to Bank of America Merrill Lynch’s U.S. Treasury Master Index data. The S&P 500 tumbled 14 percent, the most since 2008, and the S&P GSCI Total Return Index of commodities lost 12 percent. (more)

Top Nomura Analysts: China Could Be Spiraling Toward A 2008-Style Credit Crisis

Fears over a Chinese credit crunch have been gaining traction in recent weeks. In a note this weekend Nomura analysts elaborated on a worrisome trend:

  • “In order to understand better how serious the problem is, we monitor the bill discount rate, which is the financing cost for firms when they sell commercial acceptance bills to banks for cash. A higher bill discount rate is a signal that the imbalance between supply and demand for credit has worsened. The 6-month bill discount rate has worsened at alarming pace since 2011, rising to above 10%.
  • The gap between the bill discount rate and the interbank rate has widened to 5.7 percentage points, the highest level since the data was made available. China’s credit market is becoming more fragmented. Financing costs for firms without access to bank loans have risen much more than those for large stateowned enterprises. The sharp rise in the bill discount rate may be partly driven by property developers who are facing worsening financing conditions given the lackluster sales.”
Data on Chinese credit trends is spotty at best. As I often say, their economy is a black box and the data out of the government is close to impossible to believe/decipher. Regardless, we continue to see red flags. Not a good sign…

5 More "Forever" Stocks on Sale: ETN, FDX, GILD, HAS, ITW,

A couple days ago, I told you that I thought the recent market rout had presented some real buying opportunities for the type of blue-chip "forever" stocks StreetAuthority Co-founder Paul Tracy preaches about to his Top 10 Stocks readers. During my research, I found 20 such potential long-term buys.

I've already gone through the first five, and here is round two...

6. Eaton Corp. (NYSE: ETN)
2002 sales: $7.2 Billion
2011 sales (est.): $16 billion

Eaton will be celebrating its 100th anniversary in 2016, and over the years, has built an impressive array of businesses. The company is one of the leading suppliers of power distribution components, hydraulic systems, auto drivetrains, manifold systems and more. It can be a cyclical business (sales fell 23% in 2009) but rose every other year in the past decade. More importantly, Eaton has always been profitable, typically earnings $2 to $ 3 a share.

Business is especially good right now, thanks to an expansion into emerging markets, setting the stage for EPS of $4 this year and perhaps $4.50 in 2012. Reflecting the company's impressive growth, Eaton's stock ran from $20 in 2000 to $30 to 2005 to a recent $56 this spring, but a recent plunge has pushed it all the way down to $33 -- or just eight times projected 2011 profits.

7. FedEx (NYSE: FDX)
Fiscal (May) 2002 sales: $22.5 billion
Fiscal 2011 sales: $39.3 billion

Much of the package delivery firm's growth came in the first half of the last decade, as sales had already reached $38 billion by fiscal 2008. You'd have to go back to fiscal 2006 to find peak profits, when EPS hit $6.48. This may explain why shares slipped from $110 in 2007 to $100 this past spring. And then the market storm blew in. Shares are now below $70, back where they were in 2004, when FedEx's revenue base was 35% smaller than it is now. It's hard to spot upside for this stock while the global economy slows down. This is a great long-term holding that has just had a "30% off" sign slapped on it.

8. Gilead Sciences (Nasdaq: GILD)
2002 sales: $467 million
2011 sales (est.): $8.4 billion

Gilead was a leading biotech in the fight against HIV, posting tremendous annual growth in sales and profits. Sales grew at least 26% every year during the last decade. Yet expectations of an eventual slowdown in growth led this stock to peak at $55 in 2008. Now, it sits below $40. Sure enough, sales growth cooled to 13% in 2010, and will likely be in the single-digits this year and next. The fact that this formerly hot biotech trades for just nine times projected 2012 profits tells you it's more of a value stock than growth stock these days.

But analysts think Gilead's era of go-go growth is not permanently over. They cite a very robust pipeline of cardio-pulmonary drugs that should fuel more robust sales growth in 2013 and beyond. Meanwhile, the HIV franchise still has plenty of life left in it as key drugs get tweaked to boost efficacy. That's why analysts think EPS can grow from $4.50 in 2012 to $5.25 in 2013 (making this $38 stock look like quite the bargain). Analysts at Needham have a price target of $48 on this once-and-future biotech highflyer.

9. Hasbro (NYSE: HAS)
2002 sales: $2.8 billion
2011 sales (est.): $4.7 billion

This toy and games maker hasn't come up with a lot of new characters and board games recently. But it's done a remarkable job of finding additional spin-off ideas and ancillary revenue streams for its core properties. As a result, per share profits are likely to hit a record $3 this year and could exceed $3.50 next year. Investors were increasingly bullish on the company's prospects, pushing shares up toward the $50 mark last fall, but they can now be had for around $35.

As this chart shows, this stock has been marked by gains and setbacks, but the long-term trend is higher. The current setback may just be a pause before the next upward move.

[You can read Adam Fischbaum's latest analysis on Hasbro here.]

10. Illinois Toolworks (NYSE: ITW)
2002 sales: $9.5 billion
2011 sales (est.): $17.9 billion

This is a similar play to Eaton. Illinois Toolworks provides a range of industrial components and equipment used by other manufacturers. Like Eaton, Illinois Toolworks is seeing great success with a push into emerging markets, helping sales rise in the low teens this year while the U.S. and European industrial markets have hit a temporary flat spot. Like Eaton, this is also a company that has never lost money in the past decade. The bottom-line should also have your attention: Illinois Toolworks earned $3 a share last year, but should earn around $3.75 this year, which would be a company record.

Risks to Consider: As is the case with many blue-chip stocks, this could be a "dead money" portfolio until the market finally regains its footing. Eaton and Illinois Toolworks likely have the greatest economic risk, and would see a large reduction in forward earnings estimates if the global economy fell into a prolonged slump. Gilead Sciences and Hasbro likely carry the least earnings risk.

Action to Take --> These are part of a group of 20 solid companies that possess solid long-term track records. There's no reason to suspect these companies won't flourish in the decades to come as well. And as I said in my previous article, many of these stocks are sitting at levels that represent compelling entry points for new investors.

Porter Stansberry: Risks Facing World Could Have These MAJOR Repercussions

Sorry. I don’t make the news. I just report it and I continue to believe the risks [facing the world] are so serious that…this is what will happen next. Soon Greece will default…[and] this will begin a chain reaction of [events leading to... I lay it all out in this short article and I think you will agree that it makes absolute sense.] Words: 912

So says Porter Stansberry (www.thedailycrux.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Stansberry goes on to say, in part:

Soon Greece will default…[and] this will begin a chain reaction of [events leading to] European bank failures, big losses in the commercial paper market, plummeting share prices, the global economy moving into recession, unemployment worsening, political tensions increasing, civil unrest, much lower commodity prices, more quantitative easing and the euro falling to parity with the USD.

Default of Greece>European Bank Failures>Major Commercial Paper Losses>

The default of Greece will begin a chain reaction of European bank failures because most banks in Europe have only written off a small portion (21%) of the value of the Greek bonds they hold. French banks are particularly vulnerable right now. This, in turn, will cause banks to stop lending to each other out of fear [and] it will also lead to big losses in the commercial paper market. That’s how the crisis will spread to the U.S. – our money-market funds still hold roughly 42% of the assets in loans to Europe’s banks.

Plummeting Share Prices>

Companies with exposure to European financial assets (like GE) and those that depend heavily on the commercial paper market for funding (like Capital One) will see their share prices plummet.

Recession>Higher Unemployment>Heightened Political Tensions>Civil Unrest

As the global economy stalls and then moves into recession, unemployment will worsen… and political tensions will greatly increase. I expect large-scale civil unrest in both Europe and the U.S.

Sharply Lower Commodity Prices Including Oil, Gold, Silver, Copper, Coal, etc.

In the short term, commodities are also likely to fall sharply. The crisis is nearing a breaking point. Europe represents the world’s largest economic area. I expect oil will fall at least in half from its peak. You could see silver fall, temporarily, by maybe another 30%. Gold could fall by maybe 25% from its peak. Base metal and energy commodities – stuff like copper and coal – will get crushed, like they did in 2008.

Much Higher Interest Rate Spread Between Junk Bonds and European Bank Debt>

In short, this is Europe’s turn to have a Lehman Brothers-like banking collapse. Only this time, it will involve dozens of huge banks and several different countries, all of which have different ideas about how the crisis should be solved – and that means it will probably be a longer and deeper crisis than Lehman Brothers. During the Lehman crisis, the peak interest rate spread between junk bonds and U.S. Treasuries was around 22%. The spread on European bank debt could get at least that high, as will most of the sovereign debt of the peripheral nations, and we’re just not there yet.

Further Quantitative Easing> Declining Euro to Eventual Parity With USD

Sooner or later, [however, we will] see a massive reversal. The Fed will step in to support the ECB, and a tremendous amount of new euro will be issued. I expect the euro to fall to parity – 1:1 – with the dollar before this crisis is over. The hard part will be knowing when the time comes to jump back into blue-chip stocks, strategic commodities (like oil shale assets), discounted corporate debt (which I believe will get much, much cheaper from here), and strategic metals (like gold, silver, copper, and iron).

Is there a chance I’m wrong? Is there any realistic way to solve this crisis without a Greek default and a European banking crisis? I don’t see how. Germany is the only truly solvent, large European country left and the German voters continue to hand the ruling party loss after loss in local elections, specifically because the public is almost unanimously against Germany bailing out the rest of Europe. Likewise, the German representative of the ECB resigned last week out of protest against any future quantitative easing, aka money-printing.

My Investment Advice for Such Times

What should you do while this crisis continues to deepen? The same advice I’ve been giving since March 2010. If you’re sophisticated, you want to build a large book of short sells to hedge your stock market exposure. You should own at a minimum 15% of your assets in gold and silver. If you’re unable or unwilling to hedge your portfolio, I recommend putting half your portfolio in Treasury notes (via the iShares short-term Treasury Bond fund, SHY) and half your portfolio into gold (via the iShares gold fund, GLD). Doing this 50-50 split between gold and the U.S. dollar is the only true way to go to “cash,” given the tremendous uncertainty in the future of the global paper money system.


I wish I had better news… or a more promising strategy I could endorse but, as always, I’ve got to write what I believe.

Copper Set To Tumble After CME Hikes Copper, Platinum Margins Once Again

It appears the US has decided to apply a scorched earth policy to China. While we are seeing flashing headlines that the Senate just passed a China currency bill 79 to 19 (we don't know what is in the bill yet), we doubt it will be something that China will be too pleased with, as most likely there will be some language about currency manipulation and/or some such typical politician propaganda. What is more troubling is that the CME just made sure the tens if not hundreds of billions of Chinese copper collateralized Letters of Credit just lost even more value following yet another margin hike in Copper, which raised initial and maintenance margins by 15%. If China perceives US actions as provocative (and it made very clear that US overtures in Taiwan already are), we may just see an 'oopsie' moment tomorrow when the Mainland decides to offload a few billions in US Treasurys. And the cherry on top was a 28.6% margin hike in Platinum: a direct warning to gold and silver longs once again.

The Top 5 Facts You Should Know About The Wealthiest One Percent Of Americans

As the ongoing occupation of Wall Street by hundreds of protesters enters its third week — and as protests spread to other cities such as Boston and Los Angeles — demonstrators have endorsed a new slogan: “We are the 99 percent.” This slogan refers an economic struggle between 99 percent of Americans and the richest one percent of Americans, who are increasingly accumulating a greater share of the national wealth to the detriment of the middle class.

It may shock you exactly how wealthy this top 1 percent of Americans is. ThinkProgress has assembled five facts about this class of super-rich Americans:

1. The Top 1 Percent Of Americans Owns 40 Percent Of The Nation’s Wealth: As Nobel Laureate Joseph Stiglitz points out, the richest 1 percent of Americans now own 40 percent of the nation’s wealth. Sociologist William Domhoff illustrates this wealth disparity using 2007 figures where the top 1 percent owned 42 percent of the country’s financial wealth (total net worth minus the value of one’s home). How much does the bottom 80 percent own? Only 7 percent:

As Stiglitz notes, this disparity is much worse than it was in the past, as just 25 years ago the top 1 percent owned 33 percent of national wealth.

2. The Top 1 Percent Of Americans Take Home 24 Percent Of National Income:While the richest 1 percent of Americans take home almost a quarter of national income today, in 1976 they took home just 9 percent — meaning their share of the national income pool has nearly tripled in roughly three decades.

3. The Top 1 Percent Of Americans Own Half Of The Country’s Stocks, Bonds, And Mutual Funds: The Institute for Policy Studies illustrates this massive disparity in financial investment ownership, noting that the bottom 50 percent of Americans own only .5 percent of these investments:

4. The Top 1 Percent Of Americans Have Only 5 Percent Of The Nation’s Personal Debt:

Using 2007 figures, sociologist William Domhoff points out that the top 1 percent have 5 percent of the nation’s personal debt while the bottom 90 percent have 73 percent of total debt:

5. The Top 1 Percent Are Taking In More Of The Nation’s Income Than At Any Other Time Since The 1920s: Not only are the wealthiest 1 percent of Americans taking home a tremendous portion of the national income, but their share of this income is greater than at any other time since the Great Depression, as the Center for Budget and Policy Priorities illustrates in this chart using 2007 data:

As Professor Elizabeth Warren has explained, “there is nobody in this country who got rich on his own. Nobody…Part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.” More and more often, that is not occurring, giving the protesters ample reason to take to the streets.


For an excellent resource about how much income Americans at these different income levels have, see the Tax Policy Center. The top one percent of Americans have an average income of $1.5 million.

The Three Safe Havens Where Big Money is Going

It seems everyone is looking for a place to put their hard earned money as uncertainty around the globe continues to rise. Oil, Gold, and Silver which have been the hot investments for the past few years took it on the chin over the past month with oil falling 13%, gold dropping 15%, and silver with a whopping 30% decline. We did actually see sharply lower prices, but last week these oversold commodities had a bounce and recouped some of their losses.

It has been a month since I covered the dollar index in detail and back on August 31st I pointed to a potentially large shift in the US dollar. The charts were pointing to a sizable rally which would likely send stocks and all commodities crashing lower. Since then we have seen just that and the so called safe havens (Gold, Silver, Oil) have dropped taking most investment and retirement accounts down with them. I did talk about these so called safe havens a couple weeks back stating my point of view on them.

My Cole’s Note Summary: “I do not consider any investment vehicle a safe haven if it can drop 15% in value within 1-2 days. And I would never put a large position of my account especially a retirement account into these investments if I were over 50 yrs of age.”

So where are the big, smart, and conservative traders putting their money to work?

Let’s dig down and take a quick look at the charts…

The 20 Year Bond – Daily Chart:

US Dollar – Daily Chart:

Utility Sector (Dividend Paying Stocks) – Daily Chart:

Weekend Trading Conclusion:

In short, I feel both stocks and commodities are oversold but need more time to bottom and we may see a few more days of lower prices in the near future. I see the dollar starting to get toppy on the daily chart and once that rolls over then stocks should bottom along with gold, silver, and oil.

Once equity prices start to bounce I anticipate money to flow out of the safe haven (Bonds) and into stocks where there are much larger potential gains to be had. All this could play out in a couple days so I am keeping a very close eye on everything.

Daily Market Commentary: 5% Loss in Small Caps

A bad day for the indices was made worse by the fact Small Caps suffered most of the selling. With Small Caps leading down it's impossible to see any long term improvement until investment returns to (speculative) growth stocks. There is little reason to be looking to the S&P or Dow to dig the market out of its deepening hole (especially given Large Cap underperformance throughout 2011).

If there comfort for bulls in the short term its perhaps the opportunity for a swing back tomorrow - especially if there is an opening gap down and bearish run over the first hour of trading. Value buyers need not rush in; investors with a long term outlook will look to a minimum price cross above the 50-day MA to offer some semblance of buying into strength. Bottom fishers would be best to wait for the S&P to get beyond 20% from its 200-day MA, although in an earlier post on the Zignals blog. buying could start once the S&P drifted 10% or more away from its 200-day MA.

As for the individual indices, the S&P saw a reversal in the early-stage 'buy' trigger for on-balance-volume, not to mention the distribution day. Any semblance of a 'bear trap' were blown away by Monday's selling. August lows are also broken.

via StockCharts.com

The Nasdaq returned net bearish technically after a (very) brief bullish spell. Volume climbed in distribution and like the S&P it lost August swing low support.

via StockCharts.com

Nasdaq Breadth also took a hit as the bearish wedge in the Percentage of Nasdaq Stocks broke to the downside as technicals returned net bearish.

via StockCharts.com