Tuesday, July 20, 2010


NOURIEL ROUBINI : Fasten seatbelts for a double dip

The global slowdown will accelerate in the second half - and policymakers are running out of tools
The global economy, artificially boosted since the recession of 2008-2009 by massive monetary and fiscal stimulus and financial bailouts, is headed towards a sharp slowdown this year as the effect of these measures wanes.

Worse yet, the fundamental excesses that fuelled the crisis - too much debt and leverage in the private sector (households, banks and other financial institutions, and even much of the corporate sector) - have not been addressed.

Private-sector deleveraging has barely begun. Moreover, there is now massive re-leveraging of the public sector in advanced economies, with huge Budget deficits and public-debt accumulation driven by automatic stabilisers, counter-cyclical Keynesian fiscal stimulus, and the immense costs of socialising the financial system's losses. (more)

Hussman: Stocks Aren't Cheap but Are 40 Percent Overvalued

Economist John Hussman says the S&P 500 remains about 40 percent above historical norms on the basis of normalized earnings.

"Think of it this way," Hussman writes in a note to investors. "Suppose your poodle is 40 percent overweight. Someone sells you a scale where every pound shown on the dial represents 1.4 pounds of actual weight."

When your poodle steps on that scale, the dial will report that your dog’s weight is ideal.

"That may be comforting if you don't like to face reality, but the truth is, you've still got one sick puppy," Hussman says.

Virtually every assessment that "stocks are cheap" is based on the ratio of the S&P 500 to year-ahead operating earnings estimates, and often comes with a comparison of the resulting "earnings yield" with the depressed 10-year Treasury yield, Hussman explains. (more)

15 Mind-Blowing Facts About Wealth And Inequality In America

The rich are getting richer and the poor are getting poorer. Cliché, sure, but it's also more true than at any time since the Gilded Age.

While politicians gloat about our "recovery," our poor are getting poorer, our average wages are still falling behind inflation, and social mobility is at an all-time low.

But, yes, if you're in that top 1%, life in America is grand.

Housing Bubble Leaves $4 Trillion Hangover: Chart of the Day

The bursting of the U.S. housing bubble has left homeowners buried under about $4 trillion of excess mortgage debt, according to Dhaval Joshi, the chief strategist at RAB Capital.

The CHART OF THE DAY compares the total amount of home loans outstanding with the value of residential real estate, as compiled by the Federal Reserve, for the past two decades. The latter is adjusted to reflect the average 40 percent debt-to- value ratio that prevailed from 1990 to 2005.

Mortgage balances were $3.64 trillion higher than the adjusted figure as of March 31, as shown in the top panel. The actual ratio, which stood at 62 percent at the end of the first quarter, appears in the bottom panel. (more)

Homebuilder confidence at 15-month low

(Reuters) - Home-builder sentiment fell more-than-expected in July to the lowest level in more than a year after a popular home-buyer tax credit expired in April, the National Association of Home Builders said on Monday.

The NAHB/Wells Fargo Housing Market index fell two points to 14, the lowest level since April 2009, the group said in a prepared statement. It was the second straight decline in the index.

Economists polled by Reuters had expected the index to fall to 16. June was revised lower to 16. A reading below 50 indicates more builders view sales conditions as poor than good. The index has not been above 50 since April 2006.

Ireland's credit rating downgraded by Moody's

Credit agency Moody's has downgraded Ireland's government bond ratings to Aa2, blaming banking liabilities, weak growth prospects and a substantial increase in the debt to GDP ratio.

However, Moody's lead analyst for Ireland Dietmar Hornung said it was a "gradual, significant deterioration, but not a sudden, dramatic shift", and the agency believed Ireland has "turned the corner".

The general government debt-to-GDP ratio was at 64 per cent at the end of last year, up from 25 per cent before the financial crisis took hold, and is continuing to rise.

“Today’s downgrade is primarily driven by the Irish government’s gradual but significant loss of financial strength, as reflected by its deteriorating debt affordability,” said Mr Hornung. (more)

Economic Meltdown: The Final Phase

By Giordano Bruno

In the financial life of every culture built upon faulty monetary policy, there are points at which the thin thread of economic faith; the thread that ties the entire failing system together, the thread made tangible by the hopes (and sometimes ignorance) of the general populace, finally snaps. From Ancient Rome, to Weimar Germany, to Argentina, to modern day America, no society fueled by unsustainable debt and fiat inflation can duck the ‘Fiscal Reaper’ for very long. The U.S. alone has survived since the early 1970’s (after Nixon removed the last vestiges of the gold standard) on nothing but questionable credit practices and baseless optimism, but there is a limit to the power of fantasy. This is a fact that most mainstream financial analysts and some in the American public refuse to grasp. Mere belief in the enduring nature of the marketplace is not enough; the fundamentals must also support that belief. (more)

Top Chinese Economists Call For Government To Ditch U.S. Treasuries And Buy Gold

A former advisor to the Chinese central bank, and influential economist, has called for his nation to diversify away from U.S. treasury holdings.

This comes after China cut its U.S. treasury holdings by $32.5 billion in May:


"Although assets in other currencies and forms are not an ideal replacement for U.S. Treasury bonds, diversification should be a basic principle," Yu wrote in the China Securities Journal.

"When demand for U.S. Treasury securities is strong, it's a rare opportunity for us to gradually pull back. That way, it will not have a big impact on prices and China will not suffer too much," he said.

Zhang Monan, a researcher with the State Information Center, a think tank under the powerful National Development and Reform Commission, told the paper that China should invest more of its $2.5 trillion of foreign exchange reserves, the world's largest stockpile, in hard assets such as gold. (more)

Is the euro on shaky ground?

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Gold, Oil & S&P500 Trading Patterns

It was an interesting options expiration week for equities that's for sure. We saw some very choppy price action with large waves of buying and selling as the bulls and bears fought for control.

Both Gold and Oil closed lower for the week which is not a good sign considering the US Dollar dropped like a rock along with them.

Below are a few of my charts

GLD - Gold ETF Price Action

Gold continues to pull back from the June highs. It looks as though it could form an ABC retrace pattern if the July 7th low is broken. If $1085 is broken we should see gold drop to $1065-75 level. On the GLD ETF that would be around the $112.50 - $113.50 level. That should shake out the majority of weak positions and start to rally towards the $1250/60 level. (more)

BNN: Larry Berman

Larry Berman takes your calls and email questions on stocks, ETFs, bonds and more.

click here for video #1

click here for video #2