Fears of economic slowdown hammer stocks

Fears that the economy is stalling sent the Dow Jones industrial average down 280 points Wednesday, erasing more than a quarter of the stock market's gains for the year. Treasury bond yields fell to their lowest level since December as traders put a higher value on safer investments.

The Dow Jones industrial average dropped 279.65 points, or 2.2 percent, to 12,290.14. It was the biggest point drop since June 4 of last year, and the largest percentage drop since August. The S&P index lost 30.65, or 2.3 percent, to 1,314.55. The Nasdaq composite fell 66.11, or 2.3 percent, to 2,769.19.

The yield on the benchmark 10-year Treasury note fell to 2.95 percent. Bond yields fall when prices rise.

Doubts about the economy's strength that built in May were compounded by weaker-than-expected reports on manufacturing and jobs. The Institute for Supply Management's manufacturing index fell to 53.5 in May from 60.4 in April. A reading of more than 50 indicates the manufacturing industry is growing, but the index had been as high as 61.4 in February. Private employers added just 38,000 jobs in May, down from 177,000 in April, according to payroll processor ADP. Analysts had expected 180,000 new jobs.

"It looks like this recovery has hit its second `soft patch,' which for a recovery that is less than two years old is troubling," said Paul Ashworth, chief U.S. economist for Capital Economics.

The manufacturing and jobs reports, plus a decline in automobile sales in May, led several economists to lower their expectations for the year. JP Morgan was among a handful of investment banks that revised down its estimate for GDP growth in the second quarter to 2 percent. The downgrade followed one the bank issued last week. The Dow was down nearly 180 points in midday trading and lost another 100 points after noon as asset management firms sent notes to their clients announcing their economic revisions.

The latest reports on retail sales, first-time applications for unemployment benefits and factory orders will be released Thursday and analysts say any additional signs of economic weakness could push the market even lower.

On the heels of those readings, the Labor Department's more comprehensive jobs report, which includes hiring by both private employers and the government, will be released Friday. The ADP figures include about 24 million workers at the 430,000 companies that use ADP to process their payrolls while the government's numbers capture the entire workforce of about 140 million. Analysts are already expecting those figures to be worse than they anticipated just a few weeks ago.

"As far as we can tell, employers have hugely overreacted to the surge in oil prices, which has slowed but not killed consumption," said Ian Shepherdson, chief U.S. economist for High Frequency Economics. The weak ADP results pushed him to cut his forecast for overall job growth in May to 75,000. He earlier had forecast Friday's report to show growth of 175,000 jobs.

Stock losses came across the market, with all 10 industry groups that make up the Standard and Poor's 500 index losing more than 1 percent. Companies that have benefited from expectations of worldwide growth were especially hard hit. Caterpillar, Alcoa, and Boeing all lost more than 3 percent.

The discouraging reports join a host of other news that has dampened hopes for a strong economic recovery and helped knock the S&P 500 down 1.4 percent in May. Still-high gas prices, a continued housing market decline, weaker-than-expected GDP and tepid consumer confidence -- along with concerns about debt problems in Europe and the debt ceiling in the U.S. -- have all weighed on markets.

Companies reporting results were not spared from the broad market drop. General Motors fell 5 percent after it said U.S. sales weakened in May. The car maker sold 221,192 vehicles, down 1.2 percent from a year earlier. It cited a decision to cut sales to rental car companies for the drop. Ford Motor Co. lost 4.6 percent after reporting similar declines.

Dollar General Corp. fell 9.3 percent after the discount store operator's first-quarter profit growth fell short of analysts' expectations. JoS. A. Bank Clothiers Inc. also reported first-quarter profit growth below analysts' expectations. The men's clothing maker fell 13 percent.

Five stocks fell for every one that rose on the New York Stock Exchange. Consolidated volume came to 4.4 billion shares. The Dow is still up 6.2 percent for the year, the S&P 500 4.5 percent.

All US Gold Gone? Russia says IMF Chief Jailed for Discovery.

A new report prepared for Prime Minister Putin by the Federal Security Service (FSB) says that former International Monetary Fund (IMF) Chief Dominique Strauss-Kahn [photo with Putin top left] was charged and jailed in the US for sex crimes on May 14^th after his discovery that all of the gold held in the United States Bullion Depository located at Fort Knox [photo 2^nd left] was ‘missing and/or unaccounted’ for.

According to this FSB secret report, Strauss-Kahn had become “increasingly concerned” earlier this month after the United States began “stalling” its pledged delivery to the IMF of 191.3 tons of goldagreed to under the Second Amendment of the Articles of Agreement signed by the Executive Board in April 1978 that were to be sold to fund what are called Special Drawing Rights (SDRs) as an alternative to what are called reserve currencies.

This FSB report further states that upon Strauss-Kahn raising his concerns with American government officials close to President Obama he was ‘contacted’ by ‘rogue elements’ within the Central Intelligence Agency (CIA) who provided him ‘firm evidence’ that all of the gold reported to be held by the US ‘was gone’.

Upon Strauss-Kahn receiving the CIA evidence, this report continues, he made immediate arrangements to leave the US for Paris, but when contacted by agents working for France’s General Directorate for External Security (DGSE) that American authorities were seeking his capture he fled to New York City’s JFK airport following these agents directive not to take his cell-phone because US police could track his exact location.

Once Strauss-Kahn was safely boarded on an Air France flight to Paris, however, this FSB report says he made a ‘fatal mistake’ by calling the hotel from a phone on the plane and asking them to forwarded the cell-phone he had been told to leave behind to his French residence, after which US agents were able to track and apprehend him.  

Within the past fortnight, this report continues, Strauss-Kahn reached out to his close friend and top Egyptian banker Mahmoud Abdel Salam Omar to retrieve from the US the evidence given to him by the CIA. Omar, however, and exactly like Strauss-Kahn before him, was charged yesterday by the US with a sex crime against a luxury hotel maid, a charge the FSB labels as ‘beyond belief’ due to Omar being 74-years-old and a devout Muslim.

In an astounding move puzzling many in Moscow, Putin after reading this secret FSB report today ordered posted to the Kremlin’s official website a defense of Strauss-Khan becoming the first world leader to state that the former IMF chief was a victim of a US conspiracy. Putin further stated, “It’s hard for me to evaluate the hidden political motives but I cannot believe that it looks the way it was initially introduced. It doesn’t sit right in my head.”

Interesting to note about all of these events is that one of the United States top Congressman, and 2012 Presidential candidate, Ron Paul [photo bottom left] has long stated his belief that the US government has lied about its gold reserves held at Fort Knox.  So concerned had Congressman Paul become about the US government and the Federal Reserve hiding the truth about American gold reserves he put forward a bill in late 2010 to force an audit of them, but which was subsequently defeated by Obama regime forces.  

When directly asked by reporters if he believed there was no gold in Fort Knox or the Federal Reserve, Congressman Paul gave the incredible reply, “I think it is a possibility.”

Also interesting to note is that barely 3 days after the arrest of Strauss-Kahn, Congressman Paul made a new call for the US to sell its gold reserves by stating, “Given the high price it is now, and the tremendous debt problem we now have, by all means, sell at the peak.”

Bizarre reports emanating from the US for years, however, suggest there is no gold to sell, and as we can read as posted in 2009 on the ViewZone.Com news site:

“In October of 2009 the Chinese received a shipment of gold bars. Gold is regularly exchanges between countries to pay debts and to settle the so-called balance of trade. Most gold is exchanged and stored in vaults under the supervision of a special organization based in London, the London Bullion Market Association (or LBMA). When the shipment was received, the Chinese government asked that special tests be performed to guarantee the purity and weight of the gold bars. In this test, four small holed are drilled into the gold bars and the metal is then analyzed.

Officials were shocked to learn that the bars were fake. They contained cores of tungsten with only a outer coating of real gold. What's more, these gold bars, containing serial numbers for tracking, originated in the US and had been stored in Fort Knox for years. There were reportedly between 5,600 to 5,700 bars, weighing 400 oz. each, in the shipment!”

To the final fate of Strauss-Kahn it is not in our knowing, but new reports coming from the United States show his determination not to go down without a fight as he has hired what is described as a‘crack team’ of former CIA spies, private investigators and media advisers to defend him.

To the practical effects on the global economy should it be proved that the US, indeed, has been lying about its gold reserves, Russia’s Central Bank yesterday ordered the interest rate raised from 0.25 to 3.5 percent and Putin ordered the export ban on wheat and grain crops lifted by July 1^st in a move designed to fill the Motherlands coffers with money that normally would have flowed to the US.

The American peoples ability to know the truth of these things, and as always, has been shouted out by their propaganda media organs leaving them in danger of not being prepared for the horrific economic collapse of their nation now believed will much sooner than later.  

www.whatdoesitmean.com/index1489.htm

Food is getting cheaper

Food is getting more and more expensive. Everybody knows that.  Figure 1 illustrates the evolution of the price index of food since 1913. At the same time, the US economy also grows including the growth in real GDP per capita which is shown in Figure since 1929 (chained, in 2005$).  One can easily estimate which of these two variables grows faster. Figure 3 depicts the ratio of CPI and GDP per capita relative to that in 1929. Overall, the food price falls relative to the GDP per capita, i.e. one has to pay a lower share of income (a fixed portion of GDP per capita)  for the same amount of food (we do not consider nomenclature and quality of food here).  Food is getting cheaper with time. It is interesting that the ratio in Figure 3 has not been falling much since 1975.

Figure 1.

Figure 2.

Figure 3.

Jay Taylor: Turning Hard Times Into Good Times

Does Divinity Matter in Our Materialistic World?




click for audio    HOUR #1       HOUR #2

Is the Bond Rally Over?

Technical analyst Chris Kimble offers some thoughts on the recent rally in Treasuries with a focus on a pair of ETFs: iShares Barclays 20+ Year Treasury (TLT) and the 7-10 Year Treasury (IEF).

Click for a larger image

Chris comments: Six weeks ago, TLT and IEF created the right shoulder of a bullish inverse head-and-shoulders pattern. Both have had a good six-week rally since the right shoulder was put into place.

Now both of these ETFs are facing some key resistance levels, as the majority of major stock indexes are on support dating back to the lows of March of 2009.

How bonds handle this resistance should say much about what stocks do in the near future.

An Introduction To Real Estate Futures

With the near future of real estate still in question, investors have been hungry for a fast way to play the market or to hedge against their volatile portfolios. Futures contracts have been an extremely popular method of balancing a portfolio in other markets, and real estate is, with a little knowledge, now in the same boat.

In 2006, the Chicago Mercantile Exchange (CME) started trading futures contracts for the S&P/Case-Schiller Home Price Index, which covered both U.S. residential and commercial properties. The Case-Shiller index, originated in the 1980s by Karl Caser and Robert Shiller, is widely considered to be the most reliable gauge to measure housing price movements.

Advantages of Futures Contracts Futures contracts that trade at a centralized exchange allow market participants more financial leverage, flexibility and are guaranteed by the exchange so there is no risk of counterparty default. They are also in and of themselves leveraged investments, which allow investors a way to benefit on movements in housing prices as well as provide them with the opportunity for a liquid short-term real estate investment. These futures also allow investors a way to speculate on housing prices with much lower capital requirements.

Contract SpecificationsThe CSI index futures and options are cash settled to a weighted composite index of U.S. housing prices. Contracts are available for 10 major U.S. cities, including Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington DC.

Each contract will be valued at $250-times the CSI index for that city. For example, if the value of the index for Los Angeles was reported at 270, the contract value would be $67,500 ($250 x 270 = $67,500). The minimum price fluctuation or tick will be 0.20 index points, or $50. The contract will trade only on the CME Globex platform Mondays through Thursdays, from 5pm to 2pm the next day.

The composite weight of the CSI index is as follows:

• Boston 7.4%
• Chicago 8.9%
• Denver 3.6%
• Las Vegas 1.5%
• Los Angeles 21.2%
• Miami 5%
• New York 27.2%
• San Diego 5.5%
• San Francisco 11.8%
• Washington DC 7.9%

Options do trade via open outcry in the Goldman Sachs Commodity Index (GSCI) pit Monday through Friday, 8 am to 2 pm. The options trade European style, and are exercised into futures contracts. The strike prices are in intervals of five index points above and below the underlying futures. Position limits for futures and options is set at 5,000 contracts, as set by the exchange.

The CSI futures will trade for the next 18 months, and will be listed on a quarterly cycle. Months include February, May, August and November. Futures will also trade 19 to 36 months out, but only for May and November. Futures for three to five years out will only trade for November. All contracts will be cash settled on the day the indices are released.

Seven investment banks (Credit Suisse, Goldman Sachs, Merrill Lynch and four others) have licensed the National Council of Real Estate Investment Fiduciaries to come up with an index to get into the over-the-counter market. Many people think that a liquid and specific property derivative could help smooth out pricing bubbles. A healthy derivatives market could allow investors the ability to short with relatively low transaction cost versus actually playing the market. The ability to trade real estate futures started in London a couple years before the CME.

Comparison to Other Housing IndicesAlong with the CSI, there are a couple other real estate indices like the National Association of Realtors (NAR) - which is quoted in terms of median home value - and the Office of Federal Housing Enterprise Oversight (OFHEO). Median home value can be skewed by remodeled homes or the addition/subtraction of luxury/low-cost housing in the area. The OFHEO utilizes a repeat sales methodology, similar to the CSI, but the OFHEO is confined to the mortgages of Freddie and Fannie, and is therefore biased to the low end of housing.

Market ParticipantsThere are two types of market participants for futures markets: speculators and hedgers. Speculators are investors who looking to speculate on price movements. Speculators include hedge funds, CTAs, individual investors, pension funds, etc. Hedgers are either consumers or producers of a certain commodity. In this case, hedgers would be property and real estate developers, banks, mortgage lenders and home suppliers.

Investors have been using CSI futures to speculate by investing directly for a while, but home owners looking to sell within a year or two can also go short home prices, looking to recoup losses on their homes.

John Williams: No Way Out! Hyperinflation is all but guaranteed

John Williams, Executive Editor of Shadow Government Statistics, received an A.B. in Economics, cum laude, from Dartmouth College in 1971, and was awarded a M.B.A. from Dartmouth's Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting economist, John has worked with individuals as well as Fortune 500 companies. Formally known as Walter J. Williams, his friends call him John. For nearly 30 years, John has been a private consulting economist and, out of necessity, had to become a specialist in government economic reporting.

Today on Financial Sense Newshour, John Williams discusses with Jim Puplava America's day of reckoning and hyperinflation.  CLICK HERE FOR AUDIO (WINDOWS MEDIA)