Friday, August 6, 2010

US economy 'on the road to deflation', warns Pimco boss El-Erian

Mohamed El-Erian, the head the world's largest bond fund, has said the United States faces a one in four chance of suffering deflation and a double-dip recession.

US consumers and companies are holding on to their dollars in a way that was unthinkable just two years ago

“I do not think the deflation and double-dip is the baseline scenario, but I think it’s the risk scenario,” Mr El-Erian, chief executive officer at Pacific Investment Management Co. (Pimco), told reporters in Tokyo on Thursday.

"If you wonder how meaningful 25pc is, ask yourself the following question: if I offered you that I would drive you back to work, but there's a one in four chance that I get into a big accident, would you come with me?"

Mr El-Erian, who helps manage more than $1 trillion in assets, warned that action needed be taken quickly to prevent a economic slowdown. (more)

Gerald Celente/Trends Research: Obama Performs for “The View”, Ducks Debate with Ahmedinejad

Last Thursday President Obama made an appearance on the mid-morning pop-TV show, The View. Criticized by opponents for brazenly exploiting the female-friendly platform to boost his sagging ratings, the appearance was applauded by supporters for cleverly reaching out to a normally unpolitical audience to drum up approval for his accomplishments and build support for his agenda.

Yucking it up with a panel of five ladies, the President of the United States of America fielded questions about Lindsay Lohan, Mel Gibson, Snooki, Chelsea’s wedding … and why he wasn’t invited.

Obama’s performance on The View generated saturation media coverage. What was not covered by the press, was that while Mr. Obama could find time for a third appearance on The View, he had (for a second time) rejected an invitation from the President of Iran to engage in a TV
debate on matters of war and peace, life and death. (more)

3 Stocks for Investors Fleeing Bonds

Corporate bonds seem priced like Las Vegas houses, circa 2006. Current yields are puny – about 3% on 10-year issues of decent credit quality. Investors who collect them accept the risk of losing money if they sell before maturity, particularly if the economy falters or interest rates rise. Yet, investors continue stuffing cash into corporate bonds because short-term deposits pay nearly nothing and wild stock market swings make shares look unstable.

There's a case to be made for stocks at the moment (prices are too low relative to earnings) and against them (earnings are too high relative to the economy's size). Whichever seems more convincing, stocks look like a better deal than bonds. The earnings yield for the S&P 500 index (that is, earnings as a percentage of the stock market value of America's big companies) stands at more than 6%. The gap between that number and the 10-year Treasury yield is the widest in three decades, The Wall Street Journal recently reported.

The three companies below have earnings yields over 8% and dividend yields that are greater than the benchmark 10-year corporate rate of 3%. Also, these companies boosted their dividends within the past year. Bond investors are typically stuck with fixed payment rates. (more)

Hourly Action In Gold From Trader Dan

courtesy of

Intermediate Low in Precious Metal Stocks?

By Chris Puplava
The Market Vectors Gold Miners (GDX) exchange traded fund has attempted three times in the past year to exceed its 2008 highs but has failed on each attempt. Prior attempts occurred after prolonged rallies that had exhausted much of their energy just to reach the 2008 high. However, in the present case the GDX is oversold on an intermediate basis and yet it is only a stone’s throw away from its former all-time high.

The Market Vectors Gold Miners (GDX) exchange traded fund has attempted three times in the past year to exceed its 2008 highs but has failed on each attempt. Prior attempts occurred after prolonged rallies that had exhausted much of their energy just to reach the 2008 high. However, in the present case the GDX is oversold on an intermediate basis and yet it is only a stone’s throw away from its former all-time high. What this means is that it could retest its former highs and still not be overbought, leaving plenty of energy left to rally further before becoming significantly overbought and depleted of much of its momentum. Perhaps the fourth time is the charm for precious metal stocks? (more)

Social Security: More going out than coming in

( -- It's official: Social Security will reach its tipping point this year.

For the first time in nearly 30 years, the system will pay out more benefits than it receives in payroll taxes both this year and next, the government officials who oversee Social Security said on Thursday.

And while Social Security cash flow will likely head back into the black for a few years after that, starting in 2015 it looks to stay in the red for the long haul, the trustees said in their annual report.

"The improving economy is expected to result in rough balance between Social Security taxes and expenditures for several years before the retirement of the baby boom generation swells the beneficiary population and causes deficits to grow rapidly," Treasury Secretary Tim Geithner said. (more)

Nassim Nicholas Taleb Blows the Cover on an Insider Scam

There's a limit to how much money the FDIC will insure for any individual on any given account. That limit is currently $250,000. Unless, that is, if you are "in" with Alan Blinder.

Blinder currently teaches at Princeton and served on President Bill Clinton's Council of Economic Advisors (Jan 1993 - June 1994), and as the Vice Chairman of the Board of Governors of the Federal Reserve from June 1994 to January 1996. Treasury Secretary Geithner is currently waving around a report by Blinder and Mark Zandi that claims the Obama Administration has done wonderful work with its political payoffs stimulus package. Stanford Professor John Taylor has issued a major critique of the Blinder-Zandi study for its weak modeling techniques and failure to use actual data.

But, issuing a bogus report which props up the current administration has its advantages. Nassim Nicholas Taleb explains: (more)

Mortgage Rates Fall to Record Low Again

The benchmark 30-year fixed-rate mortgage fell 5 basis points this week, to 4.66 percent, according to the national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.42 discount and origination points. One year ago, the mortgage index was 5.65 percent; four weeks ago, it was 4.74 percent -- at the time, a record low.

The benchmark 15-year fixed-rate mortgage fell 6 basis points, to 4.11%. The benchmark 5/1 adjustable-rate mortgage tumbled 12 basis points, to 3.95%. The benchmark 30-year fixed-rate jumbo mortgage fell 9 basis points, to 5.34%.

All of those rates -- the 30-year fixed, the 15-year fixed, the 5/1 ARM and the jumbo -- are record lows in Bankrate's survey. Records from the National Bureau of Economic Research suggest that the 30-year fixed hasn't been this low since the mid-1950s. (more)

Why Japan Is Doomed (and the U.S. and E.U., too): Demographics, Low Savings, Ballooning Debt

Japan muddled through the past 20 years because its vast domestic savings self-funded its stupendous public debts. That dynamic has reversed, and the consequences cannot be pushed aside for much longer.

Japan's debt crisis has been building for a decade. Back in 2001 I wrote an essay on Japan's exploding debt and the dire consequences of what I called Japan's Runaway Debt Train (2001):

Imagine, if you can, an economic Hell in which the U.S. government was borrowing 40% of its annual budget, creating annual deficits of 900 billion dollars a year; where 65% of all tax revenues were gobbled up by interest payments on a mind-boggling $13 trillion public debt; and where there was no conductor in sight to stop this runaway debt train.

Welcome to Japan, where that Hell is reality. (more)

Pair Trade Idea Of The Day: Short PHK (Good Luck Finding Borrow), Long JNK

If you have always been waiting for a relatively risk-free pair trade, which also has the added bonus of allowing you to put your money against Bill Gross, today's pair trade idea of the day, courtesy of Damien Cleusix is just for you, although as A.B. points out, good luck finding borrow: hopefully by now you have some incriminating pictures of your repo desk guy, which will force him to release a couple thousand shares your way.Of course, if Mr. Gross is long a sufficient amount of domestic insurance company debt (i.e. Fidelity which has no borrow whatsoever), doesn't matter how much clout you may have - it is 'the Gross' way or the Pacific Coast Highway. (more)

Wheat prices soar. Are bread prices next?

( -- With wheat futures soaring to their highest level in two years, you could soon find yourself paying more for a loaf of bread at your local grocery store.

The price of wheat has surged more than 80% from its seven-month low in June. Prices continued to rally Thursday, surging to their highest level since August 2008, after Russia said it would ban grain exports until Dec. 1 due to a drought that has destroyed more than 20% of its wheat crop.

If prices continue to surge, you could wind up paying 25% to 30% more for a loaf of bread and at least 10% more for a pizza by the end of August or early September, said Darin Newsom, a senior analyst at Telvent DTN, an agriculture and commodities information company.

That would translate into a price hike of as much as 90 cents more for a $3 loaf of bread, and a bump of $1.40 for a $14 pizza. (more)

VIPS Warn of a Possible Israeli Attack on Iran