US Stocks Mark New 2009 Closing Highs

The continued steady stream of buying in Caterpillar, General Electric, DuPont and a host of other industrial and materials companies paced all three major indexes to new closing highs for the year Tuesday.

Going into September, many investors had preached caution on stocks, noting the month is historically one of the market's weakest. Moreover, given the previous few months had provided significant market gains, there was serious trepidation about a possible round of profit-taking among the investing public.

But so far this month, these concerns haven't come to fruition as each day's rally has been followed by another one in the past two weeks. As the gains continue, even more trepidation seems to be building, which some say could be a contrarian indicator. (more)

Silver and Gold Topped Out?

...Since I wrote that, gold has tried to pierce $1010 and has failed so far. The candlestick chart below shows that gold is again reaching very overbought levels in the short term and has not had a significant correction since April.
Furthermore, the Commitments of Traders report released on Friday shows a very interesting development. The Commercial Traders’ short position increased by a near record 54,089 contracts in one week, resulting in a four year record net short position of 270,797 contracts. I understand that these positions may be offsetting long positions in other less transparent markets, but the Commercial’s short position is often a very good indicator near market tops and bottoms. When they are very short, there is a good chance a large correction is coming soon. If the offsetting long traders are forced to liquidate, it could precipitate another sharp drop in gold. Check out the chart below to see how extreme the short position has become. It may be a little hard to see the near vertical spike last week in the blue, red and green lines: (more)

Derivatives still pose huge risk, says BIS

The BIS said in its quarterly report that total turnover of derivatives rose 16pc, mostly due to a surge in futures and options contracts on three-month interest rates.

Stephen Cecchetti, the bank's chief economist, said over-the-counter markets for derivatives are still opaque and pose "major systemic risks" for the financial system. The danger is that regulators will again fail to see that big institutions have taken far more exposure than they can handle in shock conditions, repeating the errors that allowed the giant US insurer AIG to write nearly "half a trillion dollars" of unhedged insurance through credit default swaps. (more)

U.S. Economy May See Its Slowest Recovery Since 1945

The U.S. recovery may be the slowest since World War II to regain all the ground lost during the recession, even if economists’ more optimistic forecasts for expansion turn out to be right.

The slump this time was so deep, said JPMorgan Chase & Co. chief economist Bruce Kasman, that the 3.5 percent average quarterly growth rate he sees in the next year won’t be enough to bring gross domestic product back to its $13.42 trillion pre- crisis peak. That’s in contrast with the last 10 recoveries, when GDP returned to its previous levels within 12 months. (more)

Stiglitz: Financial Woes Worse than a Year Ago

Nobel laureate economist Joseph Stiglitz says that despite all the government intervention since the collapse of Lehman Brothers a year ago, the financial system is no safer.

In fact, the opposite is true, he told Bloomberg.

“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz maintains.

“The problems are worse than they were in 2007 before the crisis.”

Other experts share the Columbia University economist’s concerns, including former Federal Reserve Chairman Paul Volcker and Bank of Israel Governor Stanley Fischer. (more)