The alternative engine

Asia and the world economy | The alternative engine | Economist.com: "AMERICAN consumers have been one of the main engines of global growth for the past decade. But now, as America's housing boom threatens to turn into a bust, many forecasters expect household spending to stall. A few even worry that America could come perilously close to a recession in 2007. Previous American downturns have usually dragged the rest of the world economy down, too. Yet this time its fate will depend largely upon whether China and the other Asian economies can decouple from the slowing American locomotive.
According to conventional wisdom, American consumers have single-handedly kept the world economy chugging along, whereas cautious Europeans and Asians have preferred to save. Yet the importance of America's role in global growth is often exaggerated. During the past five years America has accounted for only 13% of global real GDP growth, using purchasing-power parity (PPP) weights."

Risks of recession continuing to rise | Chicago Tribune

Risks of recession continuing to rise | Chicago Tribune: "Most major polls of economists have said the chances of a recession and its ill-begotten progeny, a bear market, are very low.

While stock market bulls may take comfort in that, they should remember this: Not one recession in the past 50 years was forecast in advance by a major poll of economic forecasters, said James Stack, a market historian and editor of InvesTech Research.

Recessions and bears can and often do arrive unexpectedly. Savvy investors simply cannot rely on assurances that the economy won't lapse into recession, generally defined as two consecutive quarters of negative economic growth.

Recent polls of economists put the odds of this at less than 25 percent.

'At this stage of an economic recovery, now going into the fifth year, it is time for investors to get more defensive and more conservative,' Stack said. 'They have to navigate their portfolio through treacherous waters for the next six to nine months.'

That's because bear markets typically presage recessions and can lop off 20 percent or more of an investor's portfolio."

Credit Extreme

Safe Haven | Credit Extreme Emotion: "Sentiment Update
For the last 11 days, MBH Commodities' Daily Sentiment Indicator (DSI) has recorded a 90% or higher bullish reading for the S&P500 index. This is the highest 10 day average ever recorded in the 19 year history of this indicator. Investors are now more optimistic towards this index than they were at tops in late 1987 or early 2000, which led to falls of 35% and 50%, respectively. The NASDAQ's sentiment is also at extreme levels. For the last 10 days, an average of 92% of investors surveyed believe the NASDAQ will go higher. What makes this even more amazing is that the S&P500 and NASDAQ indexes are not making new highs. With extreme optimism levels not seen in over 19 years in these equity markets, it would be wise to prepare for a historic sell off."

Credit Crunch

The Comming credit crunch

Despite the steadily expanding U.S. economy, a perfect storm of rising mortgage rates, disappearing health-insurance coverage, stagnant wages and relentless college-tuition increases is gathering on the financial horizon for many Americans, threatening a flood of debt and bankruptcies. The warning signs are hard to miss:

The amount of consumer credit outstanding, led by brisk growth in credit card use, more than doubled in the first six months of the year, according to the Federal Reserve. Over the past two years, consumers increased their non-mortgage debt by 12.5 percent, reaching an average of $11,669 early this year, says Experian Consumer Direct, a company that compiles credit reports and scores. Meanwhile, the average number of late payments rose 19 percent, indicating increasing difficulty managing the greater debt load.

Mortgage foreclosures are on the upswing from historic lows, says Bob Visini, a spokesperson for First American LoanPerformance, a mortgage data company in San Francisco. There also is a significant increase in late mortgage payments among sub-prime borrowers, generally those with credit scores below 680 on a scale of 300 to 850. Nationwide, just over 10 percent of sub-prime borrowers are at least 30 days late on their mortgage payments."

This week in Nuclear

Click here to get your own player.

Please, Proceed to the Nearest Exit

PrudentBear.com - The One-Stop Shop for the Bear Case: "Today, as I write this article, a financial storm continues to build. Still, most people don’t want to be bothered with the details. With such pretty pie charts predicting fair winds, they feel secure aboard the “USS Stocks for the Long Term,” chanting the “Buy-n-Hold” mantra should they ever feel a tinge of concern. Yet, when this modern marvel collides with the iceberg of science and history, the pain will cause them to begin searching for what went wrong. Understandably, they want their lives to go as normal. Unfortunately, the thinly disguised marketing materials most investors (and advisors) look to for guidance carry a heavy consequence which will affect many for the rest of their lives."

Guardian Unlimited Business | | America is living beyond its means

Guardian Unlimited Business | | America is living beyond its means: "It's 2056. After a coup in Saudi Arabia, the new government announces it is cutting off supplies of its dwindling stock of oil to the United States. The White House responds by sending in the troops, but is forced to withdraw after Beijing says it will only continue shoring up the dollar if the military action is called off.
Marking the 100th anniversary of Suez, the Americans have no choice but to comply. Fanciful? Ludicrous? Certainly, that would have been the reaction of the traders on Wall Street who last week sent the Dow Jones industrial average to within a whisker of its all-time high. But even if the US can avoid a hard landing in the short term, as equity dealers believe it can, the medium and long-term risks to the economy remain."