Saturday, June 12, 2010

World Financial Report, June 11, 2010

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The Death Of Las Vegas

There are quite a few U.S. cities that are complete and utter economic disaster zones in 2010 (Detroit for example), but there is something about the demise of Las Vegas that is absolutely stunning. In recent decades, Las Vegas has become a symbol for the over-the-top affluence and decadence of America. But now it is a microcosm of the economic nightmare that has gripped the entire nation. When the subprime mortgage crisis stuck, no major U.S. city was more devastated than Las Vegas. When the recession went from bad to worse, Americans decided that they really didn't need to gamble so much and casino revenues plummeted. Suddenly unemployment started to increase dramatically in Vegas and even today it continues to soar. Like so many other cities that are highly dependent on tourism and entertainment, Las Vegas has gone from boom to bust. Local officials are hoping that the worst will soon be over, but the truth is that the worst is yet to come. As the U.S. economy continues to unravel, average Americans will be spending what little money they do have to put a roof over their heads and to feed their families. The truth is that the glory days of Las Vegas are over and they are not coming back. (more)

New Japan Prime Minister Warns Country May Default

When he was Japan's finance minister, Naoto Kan advocated loose monetary policy to end two decades of deflation.

But since his sudden promotion to prime minister, Kan has been crying out about public debt levels. Today, he even used the signal word for austerity: Greece.

"Our country's outstanding public debt is huge. Our public finances have become the worst of any developed country. We cannot sustain public finance that overly relies on issuing bonds. As we can see from the eurozone confusion that started in Greece, there is a risk of default if growing public debt is neglected and trust lost in the bond market." (more)

The Economist - 12 June 2010 PDF

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US Economist Fears Greek Debt Default in August

Greece will eventually default on its debt because the country is highly indebted and the euro zone's approach towards saving it is the wrong one, Carl Weinberg, chief economist at High Frequency Economics, told CNBC Friday.

A restructuring of Greek debt could happen as soon as August, when the Balkan country is due to receive another tranche of funds from its lending agreement with the International Monetary Fund (IMF) and the European Union, according to Weinberg. (more)

Bloomberg Businessweek - June 14 - June 20 2010

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Bond Bubble Forming, Gurus Warn

Bond prices continue to defy gravity, with the 10-year Treasury yield dropping about 65 basis points this year to 3.20 percent.

But the party may end soon. That’s because the Federal Reserve will eventually raise short-term interest rates from their current record lows near zero.

In addition, the exploding government debt burden threatens to spark an inflation outbreak, which would push long-term rates higher too.

Government debt totaled 56 percent of GDP last year. (more)

International Forecaster: Bob Chapman on The Alex Jones Show Fri 06.11.2010

Perspectives On Gold Demand

In today's letter, David Rosenberg, among other things, answers the question of where demand for gold is coming from. For many this is rhetorical: a mere glance at ETF gold accumulation, and PHYS' recent follow-on are sufficient. Today, GLD alone bought 8 tons of gold to hit a new all time record of 1,306 tonnes. Yet for some, like the author of the WSJ's ongoing hit piece on gold, this is not sufficient, so here is Rosie, patiently explaining to the cheap seats, that even at record prices, demand for gold is not going away. (more)

Crash and Rally Comparison

Perhaps the U.S. stock market senses this on some subconscious level, which is why it’s exhibiting the sort of financial bipolar disorder we’ve diagnosed the last couple of weeks. Yesterday brought us another manic episode, propelling the major indexes up nearly 3% and the Dow past 10,000 again, for no obvious reason.

Today? A depressive episode. Markets opened down nearly 1%. Before the open, the Commerce Department reported a 1.2% drop in retail sales from April to May… the first drop in eight months. This is another one of those “unexpected” numbers that are increasingly whacking traders upside the head. In this case the numbers were “much worse than expected,” according to MarketWatch.

The folks at Westwood Capital put together these nifty charts with two commonalities -- a bubble peak and a period of panic selling followed by a rapid rebound. You’ll also see what may turn out to be a third commonality -- the rebound petering out in April 1930, and perhaps doing the same in April 2010.

Obviously, there are differences. In ’29, it took only three months to go from peak to trough. This time, it took nearly 18. As Mark Twain said, history doesn’t repeat, but it does tend to rhyme.

Debt Spreading 'Like a Cancer': Black Swan Author

The economic situation today is drastically worse than a couple years ago, and the euro is doomed as a concept, Nassim Taleb, professor and author of the bestselling book "The Black Swan," told CNBC on Thursday.

Nassim Taleb
Nassim Taleb

"We had less debt cumulatively (two years ago), and more people employed. Today, we have more risk in the system, and a smaller tax base," Taleb said.

"Banks balance sheets are just as bad as they were" two years ago when the crisis began and "the quality of the risks hasn't improved," he added.

The root of the crisis over the past couple of years wasn't recession, but debt, which has spread "like a cancer," according to Taleb, who is now relived that public attention has shifted to debt, instead of growth. (more)