JOHN PAULSON WILL BE WRONG THIS TIME

We have arrived at critical juncture in the ongoing financial crisis. Have the government actions of the last year successfully spurred the animal spirits of Americans, resulting in a self-sustaining recovery?

The Obama administration and most of the mainstream media would answer yes. GDP has been positive for the last four quarters. Consumer spending has increased in five consecutive months. Corporate profits have been relatively strong. The country has stopped losing jobs. The missing piece has been a housing recovery.

No need to worry. Famous or infamous (depending on your point of view) $15 billion man John Paulson has assured the world that house prices will rise 8% to 10% in 2011. His basis for this forecast is that California prices have rebounded 8% to 10% in the last year, and this recovery will spread to the rest of the nation. (more)

Yves Lamoureux: Far From a Bubble, Treasuries Are Still a Buy

Treasury yields fell Friday, with the 2-year note hitting a record low 0.55%, after the government said U.S. GDP grew a weaker-than-expected 2.4% in the second quarter.

Get used to both more weak economic data and lower Treasury yields says, Yves Lamoureux, investment advisor at Macquarie Private Wealth.

"If you're looking at leading [economic] indicators, they are pointing down," he says. "There's no doubt the next quarter and the one following are going to be disappointing." (On Friday, the ECRI said its weekly leading index rose to 121.1 for the week ended July 23 from 120.6 the prior week; but the index's growth rate fell for an eighth-straight week.)

With the economy slowing, the "secular bull market" in Treasuries should continue, Lamoureux says, predicting 30-year bond yields will fall as low as the average of comparable debt in Japan and Germany, which is currently 2.575%. (more)

FDIC flashes SOS – 1,000 bank failures before recession is over – FDIC not too far away from tapping into U.S. Treasury $500 billion taxpayer lifeline

By the end of the recession, there will be approximately 1,000 bank failures. Does this sound extreme? It should but the numbers don’t cover the entire story. Since 2008 the number of bank failures has reached 269 and this doesn’t include consolidations done through the FDIC where bigger banks ate up smaller banks before they officially failed. Last week, 7 banks failed. At that pace, we are looking at 364 bank failures per year and the actual number of closings per week has consistently gone up. The FDIC is in a precarious situation. The Deposit Insurance Fund (DIF) is technically speaking, broke. They have added additional cash reserves by front loading premiums on surviving banks but this can only stunt the financial bleeding for so long. The problems in the banking system run deep and many of the smaller regional banks are failing because of commercial real estate loans going bad. (more)

How To Stay on the Winning Side of the Trade

Simon Maierhofer,

The area was known to be an idyllic sanctuary. Snowcapped mountains, crystal clear lakes, warm summers, a gentle autumn ... you get the picture. For nearly 180 years, Mount St. Helens remained silent, towering over the beautiful scenery below.

However, there were early warning signs pointing towards a potentially catastrophic eruption of the volcano. Most viewed them as nothing more than hot air (no pun intended).

Doug, a farmer who lived close to the foot of the mountain refused to evacuate. 'My mountain wouldn't do that to me' he said. Less than 24 hours later, Doug and his farm were buried beneath 70 feet of mud and volcanic debris.

What's the moral of this story?

1) Even subtle signs can foreshadow a significant event

2) Just because an event doesn't occur regularly doesn't mean it can't happen.

What does the 1980 eruption of Mount St. Helens have to do with the stock market? More than you'd think. (more)

State and Local Debt Bombs Ticking Throughout U.S. Heartland

By: David A. Patten, Newsmax

The 50 states have racked up a record $2.4 trillion in bond debt during the economic downturn – the highest level of state and local indebtedness in history, economic analysts warn.

State and local bond debt now consume a whopping 22 percent of the nation’s annual Gross Domestic Product – a bigger slice of the economic pie than ever before, according to Manhattan Institute senior fellow and City Journal senior editor Steven Malanga.

Based on an analysis of federal data on state indebtedness, Malanga calculates that state and local debt has skyrocketed from 12 percent of GDP in 1980, to 15 percent of GDP in 2000, to an estimated 22 percent in 2010. That’s the highest it has ever been, and those figures do not include the estimated $3 trillion in state and local pension obligations. (more)

US Economic Calendar For August 02-06

Aug 02	10:00	Construction Spending	Jun		-0.4%	-0.8%	-0.2%
Aug 02	10:00	ISM Index	Jul		53.0	54.2	56.2
Aug 03	08:30	Personal Income	Jun		0.1%	0.1%	0.4%
Aug 03	08:30	Personal Spending	Jun		-0.1%	0.0%	0.2%
Aug 03	08:30	PCE Prices - Core	Jun		0.1%	0.1%	0.2%
Aug 03	10:00	Factory Orders	Jun		-1.0%	-0.5%	-1.4%
Aug 03	10:00	Pending Home Sales	Jun		-5.0%	-5.0%	-30.0%
Aug 03	14:00	Auto Sales	Jul		NA	4.0M	3.70M
Aug 03	14:00	Truck Sales	Jul		NA	5.0M	4.8M
Aug 04	08:15	ADP Employment Change	Jul		25K	25K	13K
Aug 04	10:00	ISM Services	Jul		52.0	53.0	53.8
Aug 04	10:30	Crude Inventories	07/31		NA	NA	7.31M
Aug 05	08:30	Continuing Claims	07/24		4500K	4530K	4565K
Aug 05	08:30	Initial Claims	07/31		460K	455K	457K
Aug 06	08:30	Nonfarm Payrolls - Private	Jul		70K	82.5K	83K
Aug 06	08:30	Unemployment Rate	Jul		9.6%	9.6%	9.5%
Aug 06	08:30	Hourly Earnings	Jul		0.0%	0.1%	-0.1%
Aug 06	08:30	Average Workweek	Jul		34.1	34.1	34.1
Aug 06	15:00	Consumer Credit	Jun		-5.0B	-5.7B	-9.10B

The World Financial report, July 30 2010

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