Thursday, September 29, 2011

Francois Trahan Wealthtrack Video Interview

Excellent Wealthtrack video interview with Francois Trahan. Interesting stuff and well worth your time. As usual, Consuelo Mack does a great job. Enjoy.

Topics covered:

  • Uncertainty in the world
  • Europe and the possible disintegration of the Euro
  • Fed not effective anymore
  • Gold’s best days might be over
  • Economic recovery probably starting in the first half of 2012
  • US treasuries
  • US Dollar’s function as safe haven
  • Still too early to bet on the banking sector
  • It will get ugly first. No 4th quarter recovery.
  • Inflation / deflation

Robert Shiller: Stock Prices, “Still High By Historic Standards”

Following last week's dismal showing, stocks were heading higher early Wednesday, seeking a third fourth-straight gain.

In such a highly volatile, uncertain market, many investors are feeling whipsawed by the dramatic swings. "Where do you get a grip on what reality is?," asks Yale Professor Robert Shiller.

The answer, as you might have already guessed, is the cyclically-adjusted P/E model Shiller co-created. By this measure, which values stocks based on the past 10 years of earnings — in order to smooth out cyclicality — the stock market is "still high by historic standards," at a cyclically-adjusted P/E around 20, Shiller says. "I'm kind of surprised stocks are expensive as they are given the economic turmoil we're going through."

That said, Shiller believes equity returns will be low single-digits over the coming decade -- "not bad" especially relative to Treasuries and TIPS. But it's a "very risky, very uncertain return," he adds, citing the "precarious economic situation."

In the accompanying video, Shiller discusses his view on equity valuations and responds to recent comments from Wharton Professor Jeremy Siegel, who discussed the flaws in the Shiller P/E model here last month. (See: Jeremy Siegel: Stocks Are Cheap! And Getting Cheaper)

Stocks looks "alright…but I'm not Jeremy Siegel in my enthusiasm," Shiller says.

BMO forecasts Canadian dollar to slip to 93 cents US by end of the year

The Bank of Montreal is predicting that the loonie will slip to as low as 93 cents US by the end of the year as the global economic slowdown weighs on commodity prices that support the Canadian dollar.

BMO said in a report Wednesday that it expects the loonie to remain around that level until the second half of next year, before global growth helps ro push it back to parity with the U.S. dollar.

"While market action over the past few days has been positive in the hope of a broad European solution, we expect the crisis to linger well into 2012, if not longer," the report said.

"Even if European leaders are able to satisfy markets with bold action, global growth isn't likely to rebound quickly, which should weigh on commodity prices and the loonie. Indeed, European economies are likely to be hamstrung by austerity measures and restructuring for at least the next few years."

The Canadian dollar was down 0.42 of a cent to 97.66 cents U.S. in trading Wednesday.

Trading in the Canadian dollar has been volatile in recent days. The currency lost about five cents against the U.S. dollar last week amid the turmoil of the European government debt crisis.

The BMO forecast suggested that the loonie would remain near 95.2 cents U.S. until the second half of 2012, by which time the global economy would start to improve.

"Accelerating global growth will provide support to the Canadian dollar, pushing it back to parity by the end of 2012," the report said, noting that it would appreciate further as the Bank of Canada raised rates ahead of the U.S. Federal Reserve .

However, once the U.S. Federal Reserve starts hiking interest rates in the second half of 2013, the loonie would be expected to weaken, settling towards a long-run value of 95.2 cents to 90.9 cents U.S.

McAlvany Weekly Commentary

A European Tragedy of Errors: David McAlvany in Brussels

A Look At This Week’s Show:
-Euro zone now estimates 2 Trillion Euro’s needed for adequate “Shock and Awe” backstop to Euro banks
-Last week’s realization that recession is far from over triggered a flight to liquidity (Dollars and long bonds)
-The selloff in Gold and other commodities was purely a “paper” sale to raise quick liquidity. Real physical gold is not being sold and is in fact become harder to acquire

SHILLER: House Prices Probably Won’t Hit Bottom For Years

The July numbers for the most widely followed measure of house prices, the S&P/Case-Shiller Index, were released this morning.

The numbers weren't terrible--on a seasonally adjusted basis, July was basically the same as June--but one of the creators of the index, Professor Robert Shiller of Yale University, isn't taking much solace in them.

The economy has deteriorated significantly since July, Professor Shiller observes, and he suspects that the housing market has followed suit. And, from a broader perspective, house prices are still down more than 4% year over year.

In February, Professor Shiller startled those looking for an imminent "bottom" in house prices by suggesting that house prices could still fall 10% to 25%. He's standing by that assessment.

House prices won't necessarily plunge from here in nominal terms, but in real terms--after adjusting for inflation--they could still drop significantly, Professor Shiller says. And the bottom might not arrive for years.

Head Of UniCredit Securities Predicts Imminent End Of The Eurozone And A Global Financial Apocalypse

Either the YesMen have infiltrated Italy's biggest, and most undercapitalied, bank, or the stress of constant, repeated lying and prevarication has finally gotten to the very people who know their livelihoods hang by a thread, and the second the great ponzi is unwound their jobs, careers, and entire way of life will be gone. Such as the head of UniCredit global securities Attila Szalay-Berzeviczy, and former Chairman of the Hungarian stock exchange, who has written an unbelievable oped in the Hungarian portal which, frankly, make Alessio "BBC Trader" Rastani's provocative speech seem like a bedtime story. Only this time one can't scapegoat Szalay-Berzeviczy "naivete" on inexperience or the desire to gain public prominence. If someone knows the truth, it is the guy at the top of UniCredit, which we expect to promptly trade limit down once we hit print. Among the stunning allegations (stunning in that an actual banker dares to tell the truth) are the following: "the euro is “practically dead” and Europe faces a financial earthquake from a Greek default"... “The euro is beyond rescue”... “The only remaining question is how many days the hopeless rearguard action of European governments and the European Central Bank can keep up Greece’s spirits.”...."A Greek default will trigger an immediate “magnitude 10” earthquake across Europe."..."Holders of Greek government bonds will have to write off their entire investment, the southern European nation will stop paying salaries and pensions and automated teller machines in the country will empty “within minutes.” In other words: welcome to the Apocalypse...

But wait, there's more. From Bloomberg:

The impact of a Greek default may “rapidly” spread across the continent, possibly prompting a run on the “weaker” banks of “weaker” countries, he said.

“The panic escalating this way may sweep across Europe in a self-fulfilling fashion, leading to the breakup of the euro area,” Szalay-Berzeviczy added.

Szalay-Berzeviczy has just arrived in Hungary from a trip abroad and can’t be reached until later today, a UniCredit official, who asked not to be identified because she isn’t authorized to speak to the press, said when Bloomberg called Szalay-Berzeviczy’s Budapest office to seek further comment.

And now, for our European readers (first) and everyone else (next), it is really time to panic.

Full op-ed from, google translated from Hungarian. Some of the nuances may be lost, but the message is bolded. If any one our Hungarian-speaking readers have a better translation, please forward it to us asap.

Europe's common currency is virtually dead. The euro's doomed situation. The only open question now is, that European governments and the European Central Bank's desperate rearguard action even number of days to keep the spirit in Greece. For the moment, when Athens is declared bankrupt, a "10 magnitude" earthquake will shake Europe, which will be the overture to a whole new era in the life of the old continent.

Indeed, Greece is not only bankruptcy will mean that the Greek government securities holders did not get back their money invested, but also to the interior of the state will not be able to meet its debts. (more)

5 Water Stocks To Tap Into : AWK, AWR, CWT, SJW, WTR

Usually when the talk shifts to resources where demand outstrips supply, the focus is oil or precious metals, but there is another resource that is finding its way into these discussions - clean water.Two-thirds of the Earth's surface is covered by water, but only a fraction of that is potable. While desalinization efforts may help satisfy some of the demand, increasing population and pollution has made water a very fragile and important resource. (Discover ways to invest in this scarce resource, check out Water: The Ultimate Commodity.)

Another factor to consider is the high cost to tap sub-surface water supplies, and to create the infrastructure necessary to transport it to remote areas. Unfortunately, this makes accessing and distributing water quite difficult for struggling economies. Companies that treat waste water are also important because they play a major role in keeping our environment clean and preventing transmittable diseases. Investors may get in on the demand for clean water by investing in this resource.

Water Stocks to Know
The following is a list of larger, better known public companies that provide water services or wastewater treatment:


Market Capitalization

American Water Works Company, Inc. (AWK)


Aqua America Inc. (WTR)


California Water Service Group (CWT)


American States Water Company (AWR)


SJW Corp. (SJW)


Data as of 9/28/2011

Bottom Line
The growing world population means that companies that process, deliver and/or transport water will always be in high demand. The stocks covered here are definitely worthy of follow up research for investors looking to capitalize on the attractive long term fundamentals that exist with water.

Investors Intelligence: Nearing Extreme Pessimism Readings

from King World News:

With stock markets and commodities, including gold and silver, tumbling, today King World News interviewed 32 year veteran John Gray from Investors Intelligence. When asked what we were seeing in the way of pessimistic readings, Gray responded, “Normally when you start to see the number of bears exceed the number of bulls, and we have seen that by a modest margin the past three weeks, that generally signals the end of a correction or at least the area of a bottom. That is also what we saw at the end of August, 2010, after about three and a half months of sideways trading at that time.”

John Gray from Investors Intelligence continues: Read More @

More Gloom Lies Ahead for Cities, Report Says

Nearly a third of the nation’s cities are laying off workers this year. More than half have canceled or delayed infrastructure projects. And two out of five have raised their fees.

The catalog of service cuts and fee increases comes as America’s cities are bracing for what they expect will be their fifth straight year of declining revenues, according to a survey of city finance officers to be released on Tuesday by the National League of Cities.

One of the main culprits is the property tax, which many cities and local governments rely on heavily. Property tax collections, which are usually quite resilient, are projected to fall by 3.7 percent this year — their second year in a row of declines — as tax assessments belatedly catch up with the lower property values left behind by the battered real estate market. Sales tax collections are projected to be slightly higher this year, but income tax collections are projected to be slightly lower, as unemployment and lower wages take their toll in many places.

“For cities, the collective impact of property values continuing at levels far below their 2007 peaks, consumer spending slowing, consumer confidence eroding and markets possibly entering a double-dip recession is the worst since the Great Depression,” according to the survey, a copy of which was obtained by The New York Times. The report raises the possibility that “lower property values and declining sales may portend something entirely new, a ‘new normal.’ ”

In what passes for a bright spot in an overwhelmingly gloomy report, the number of city finance officers who said their cities would be less able to meet their fiscal needs has dropped. This year 57 percent of the 272 finance officers surveyed said their cities would be less able to meet their needs than they were last year. In 2010, 87 percent said so. But the number was still high this year when it came to cities that rely heavily on property taxes: nearly three quarters said they were less able to meet their needs.

One of the report’s authors, Christopher W. Hoene, said many cities were still unsure if the worst was over. “The question is, are we going into the low point or are we emerging out of it?” said Mr. Hoene, director of the Center for Research and Innovation at the league of cities. “Right now, in the early fall of 2011, the answer to that question is unclear.”

Cities have been unable to look for help in some of the traditional places. Half of the cities reported that their state aid has been cut since 2009, as states struggled to balance their own budgets.

So many cities have resorted to service cuts. Two in five report cutting things like libraries and parks and recreation programs. Nearly a fifth are making cuts to public safety. Nearly three-quarters are cutting their personnel costs through hiring freezes, wage freezes or reductions, layoffs or reduced health benefits for their workers.

In recent days mayors from both parties have gone to Washington to speak in support of President Obama’s proposal to increase infrastructure spending and give more aid to states and cities, but the proposal is still deeply unpopular with Republicans in Congress.

With cities and states required to balance their budgets, city officials see the federal government as the one entity that can spend more money now to get them through the lingering downturn. The survey finds that the outlook for cities next year was not much brighter. “The effects of depressed real estate markets, low levels of consumer confidence and high levels of unemployment,” the report said, “will continue to play out in cities through 2011, 2012 and beyond.”

Copper breaks key technical level: What it means

Copper has broken a key support level, and that does not bode well for the equity market because the two assets have been positively correlated, with Katie Stockton, MKM Partners.

Add The Ukraine To List Of Countries On Verge Of Technical Default

In this messed up post-Keynesian world which is so insolvent, it is virtually impossible to keep track of who is about to default, either technically, selectively, or really, who is already bankrupt, who is hyperinflating, and so forth. And while we all know that Europe and the US can at best hope to kick the can for a month at a time until finally they all have to face the truth, we are happy to bring to your attention the latest entrant to the technical default club: Ukraine, which will shortly join its former USSR satellite Belarus in the hyperinflation club. The fact is that the Ukraine is slowly imploding - the government had stopped Treasury payments for all budget expenses in an attempt to accumulate the cash needed to make a coupon payment on debt and which apparently investors are unwilling to roll. In all fairness, the news update indicates that the country just barely made the 5.3 billion hryvnia payment, but that may be it for now. What about the next one? Time to add some Ukraine CDS to that bankrupt sovereign basket, no matter how overflowing it may be at this point.

From, google translated:

A few hours of Ukraine may find itself in a state of technical default

Since Friday, September 23, TREASURY stop the flow of funds for all treasury accounts at the central and local levels.

This is the Ukrainian Center for entrepreneurship with reference to this derzhustanovi.

VTSSPD believes that this situation indicates an attempt to accumulate the funds needed to repay the September 28, two series of bonds totaling over 5.3 billion USD.

"As of 5:00pm on Sept. 28 debt is not paid. This suggests that within a few hours of Ukraine may find itself in a state of technical default" - said in a statement.