Wednesday, May 5, 2010

Jay Taylor: Turning Hard Times Into Good Times

Click here for audio

John Williams: A Hyper-Inflationary Great Depression Is Coming

ShadowStats' John Williams has done his math and believes his numbers tell the truth. He explains why the U.S. is in a depression and why a "Hyper-Inflationary Great Depression" is now unavoidable. John also shares why he selects gold as a metal for asset conversion in this exclusive interview with The Gold Report.

The Gold Report: John, last December you stated, "The U.S. economic and systemic crisis of the past of the past two years are just precursors to a great collapse," or what you call a "hyper-inflationary great depression." Is this prediction unique to the U.S., or do you feel that other economies face the same fate?

John Williams: The hyper-inflationary portion largely will be unique to the U.S. If the U.S. falls into a great depression, there's no way the rest of the world cannot have some negative economic impact. (more)

Stock Market Disconnect in Options Reveals Risk

U.S. stocks are rallying the most in seven decades, housing prices are stabilizing and the economy is expanding again after the worst recession since the Great Depression. Yet Dean Curnutt, founder of options advisory and brokerage firm Macro Risk Advisors LLC in New York, is wary.

Curnutt studies the equity options market to gauge traders’ expectations of swings in stock prices, or volatility. He’s concerned because he’s picked up mixed signals in recent months, Bloomberg Markets magazine reports in its June 2010 issue.

On the one hand, the benchmark measure of volatility on short-dated options -- the Chicago Board Options Exchange Volatility Index, or VIX -- fell in mid-April to where it was before the global credit crisis, indicating that investors weren’t expecting any shocks for equities. At the same time, mounting U.S. debt and questions as to what the removal of government stimulus measures might mean for the recovery indicate that risks to the financial system remain. (more)

China May ‘Crash’ in Next 9 to 12 Months, Faber Says

Investor Marc Faber said China’s economy will slow and possibly “crash” within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst.

The Shanghai Composite Index has failed to regain its 2009 high while industrial commodities and shares of Australian resource exporters are acting “heavy,” Faber said. The opening of the World Expo in Shanghai last week is “not a particularly good omen,” he said, citing a property bust and depression that followed the 1873 World Exhibition in Vienna.

“The market is telling you that something is not quite right,” Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong today. “The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.” (more)

Where All That Money Went

Uwe E. Reinhardt is an economics professor at Princeton.

"We've lost almost $11 trillion of household wealth in the last 17 or 18 months," lamented Senator Christopher J. Dodd, the Connecticut Democrat, on last Sunday's "Meet the Press," urging Congress to proceed with speedy deliberations on a finance reform bill.

Eleven trillion dollars! That's over three-quarters of our current gross domestic product.

Where did all this wealth go? Did other folks get it? Or did it just go up in smoke? (more)

S&P-To-Gold Ratio: On Verge Of 1.00 Breakdown

As the attached chart demonstrates, the S&P may soon take out the 1.00x ratio to gold price per oz.

With the IMF facilitated Greek bailout, the euro is now a sideshow and nothing more than a political corpse in the hands of a few million Nordrhein-Westfalen voters next weekend. That a bailout of a country can hinge on whether the already indicated German majority (59% oppose the Greek bailout at last count) can manifest itself in the decisions of the weakest link, should be enough for even the biggest skeptics to bury their dreams of euro viability. And as we have long pointed out, what is the alternative - massively overpriced and overbought stocks, where a jittery market can wipe out 10% in flash, the dollar, which will certainly soon suffer the full wrath of i

ts natural born killer, the Federal Reserve, or industrial commodities, where oil is trading at prices that boggle the mind when considering the record inventories lying around, not to mention that China's rapidly changing liquidity policy may soon take make the lives of copper and other longs a nightmare. We are confident that gold, which over the past two weeks has been a one way ticket higher, will continue to strengthen, and once the 1:1 parity with the S&P is broken, the next resistance level will be in the $1,300's. (more)

BlackRock's Doll: Stocks Will Outperform Bonds, Cash

Bob Doll, vice chairman and chief investment officer for global equities at BlackRock, says stocks will outperform bonds and cash this year — and U.S. economic growth may well hit close to 4 percent.

Profit-taking can take over at any point, Doll observes. At any point in time we could have a pullback … but pullbacks could be short-lived and just be sideways consolidations.

“We do think we’re in a cyclical bull market, so (we would use) pullbacks to add for those who feel they have missed” (the rally), Doll says. (more)

Congress Members Bet on Fall in Stocks

Some members of Congress made risky bets with their own money that U.S. stocks or bonds would fall during the financial crisis, a Wall Street Journal analysis of congressional disclosures shows.

Senators have criticized Goldman Sachs Group Inc. for profiting from the housing collapse. And Congress is considering legislation to curb Wall Street risk-taking, including the use of financial instruments known as derivatives and of leverage, or methods that amplify returns.

According to The Journal's analysis of congressional disclosures, investment accounts of 13 members of Congress or their spouses show bearish bets made in 2008 via exchange-traded funds—portfolios that trade like stocks and mirror an index. These funds were leveraged; they used derivatives and other techniques to magnify the daily moves of the index they track. (more)

One for All and All for… Myself – Why you shouldn’t believe OPEC’s reports

In December 2008, after OPEC warned of “substantial cutbacks,” I voiced my strong opinion that the members of the Dirty Dozen would cheat, because cartels always cheat. Sure enough, despite all the talk about production cutbacks, even more oil flowed out of OPEC.

The harsh truth is that the whole honor and brotherhood thing may work for the Three Musketeers, but it’s a non-starter when, like the OPEC members, you have to foot the bill for hefty social programs.

On April 19, the Algerian energy minister said that OPEC would probably do nothing to restrain rising oil prices, despite concerns that persistently high energy costs would hurt the fledgling global economic recovery. (more)

Country Credit Risk

But as always, some nations rise while others fall. “For the first time since it defaulted on its $40 billion domestic debt in 1998, Russia issued $5.5 billion worth of eurobonds last week,” fund manager and Investment Symposium favorite Frank Holmes writes. “Investors embraced the five-year bond, purchasing $5.5 billion of Russian debt with The Wall Street Journal dubbing the offering Russia’s ‘triumphant return.’

“Bloomberg published this interesting chart last week comparing Russia’s credit-default swaps to the PIIGS (Portugal, Italy, Ireland, Greece and Spain). A credit default swap is the cost of insuring debt against default. The riskier the debt, the higher premium the market requires to insure it.

“Despite carrying a lower credit rating, this chart shows that investors are valuing Russia’s debt as less risky then these countries’. While this reflects the well-publicized debt problems these countries are having, it also shows how far Russia has worked to rebuild its credit the past 12 years.

“With foreign exchange reserves of $400 billion, Russia remains a net creditor to the world but the five-year bond issuance is part of a grander strategy. Russia is looking to establish a benchmark yield so its corporations have access to cheaper credit and stimulate business growth.

“Is Russia becoming a bastion of safety in a turbulent world? Bond investors seem to think so.”

Chart of the Day