Financial Sense Online Market WrapUp with Frank Barbera, 01/30/07

Financial Sense Online Market WrapUp with Frank Barbera, 01/30/07: "Blissfully unaware, the average American sails through another day listening to the radio reports of a growing economy and the illusion of deep-seated prosperity. For twenty years, the US economy has been in a “boom,” with technology spearheading the economic growth and the standard of living continuously on the rise. At least this is the impression that has been created."

Decision Point ®: Top Advisor's Corner: John Kosar

Decision Point ®: Top Advisor's Corner: John Kosar: "In our January 10th Stock Sector Overview, we said:
'...although this (Materials) sector appears to be susceptible to more near-term weakness and relative underperformance, we believe that the sideways activity of the sector’s relative strength line versus the broad market during the past six months is indicative of a larger, more significant emerging bottom as is being suggested by a multi-year under-invested extreme in our Rydex Materials Ratio. A stabilizing and eventually outperforming Materials Sector later on this year squares with our larger view that an increase in inflationary pressures is likely to be a key economic factor for both the Fed and the financial markets in 2007.'"

Mish's Global Economic Trend Analysis: Mr. Practical on the Yen, Carry Trade, and Credit Expansion

Mish's Global Economic Trend Analysis: Mr. Practical on the Yen, Carry Trade, and Credit Expansion: "But these are not normal times. With GDP growing at 2-3% (I believe this to be overstated) and M3 (broad money) growing at an astounding 13% for the world’s largest economy, we have our first clue that things are not normal. Money is free to any who want to take the risk. When money supply grows you can by definition be sure that debt is growing commensurately. Debt is not used prudently because it is created easily for anyone and everyone out of thin air by central banks. Almost all of the current liquidity is coming from debt creation. This is the definition of inflation."

Not normal times

But these are not normal times. With GDP growing at 2-3% (I believe this to be overstated) and M3 (broad money) growing at an astounding 13% for the world’s largest economy, we have our first clue that things are not normal. Money is free to any who want to take the risk. When money supply grows you can by definition be sure that debt is growing commensurately. Debt is not used prudently because it is created easily for anyone and everyone out of thin air by central banks. Almost all of the current liquidity is coming from debt creation. This is the definition of inflation.

PIMCO Bonds - Investment Outlook- February 2007 "100 Bottles of Beer on the Wall"

PIMCO Bonds - Investment Outlook- February 2007 "100 Bottles of Beer on the Wall": "my critical point is that asset prices are no longer entirely a function of the real economy: it can be just the reverse. The real economy is being driven by asset prices, which in turn are influenced by financial flows of non-historic origin, composition, and uncertain longevity."

Gerard Minack --Crash a coming

Courtesy Gerard Minack Morgan Stanley Sydney"I keep insisting that equity markets are a bubble,but not a TMT-like PE bubble, an earnings bubble.Look at the US as an example. US earnings per shareare now almost 70% above their long-term trend(Exhibit 1). Earnings haven't been that far above trendin a long time – since 1916, in fact. In other words, thissort of bubble is rarer than a 5-0 Ashes whitewash.The earnings surge has taken the after-tax profit shareof GDP to a post-1945 high. The profit-share is 54%above its long-term average. The only time the profitshare has been further above its average was in 1929.This is bearish big-picture stuff – so long as you believethat returns (or profit share) mean-revert. The counterargumentis that in a globalized world it makes nosense to compare profits of US firms, which can beearned anywhere in the world, to US GDP. In fact, it'sworth noting that 1916 – when EPS saw its largest-evergap to the trend – was at the end of the great Victorianera of globalization. In other words, globalizationremoves or loosens domestic constraints on profits.However, I'm not so sure it is the principal reason whymargins are so now high, at least in the US. Here are afew points to note:First, note that even after adjusting for the profits USfirms make on their offshore sales, margins on sales inthe US are around post-1945 highs.Exhibit 2 shows two series. One is after-tax profits ofUS corporates (relative to corporate GDP), whichreflects their US-sourced earnings, as well as profitsmade offshore. The second is profits earned in the US,which includes the profits made by non-US firmsoperating in America.

Expensive workers are good for you

Sanders Research Associates - The Rise and Decline of the Great American Corporation: "Expensive workers are good for you
The problem of cheaper labor abroad has been treated as if it was a problem with no solution. There is simply nothing that can be done, one reads, which means that the American working and middle classes are doomed. If the cost of labor were indeed the main consideration in production, this would be true. But it most emphatically is not true.
The central factor in the creation of economic wealth and growth is not the cheapness of labor, but the productive power of machinery. If cheap labor were the road to international competitiveness, then the oversupply of near-starving peasants in China and India would have kept them at the top of the world food chain for the last 1000 years."

Sanders Research Associates - The Rise and Decline of the Great American Corporation

Sanders Research Associates - The Rise and Decline of the Great American Corporation: "But surely these corporations are smarter than that, they must have some plan to deal with a shrinking American market? No. Advised by a class of professional economists who are trained to explain why this is the best of all possible worlds as long as the corporations can do whatever they want, blinded by greed and the low-hanging fruit of greater profits from lower wages, no CEO will think to do what Henry Ford did when he introduced the $5 day for workers. Ford justified his largesse by pointing out that his workers could now afford to buy his cars."

Sanders Research Associates - Why a democratic economy would be a more efficient economy, Part I

Sanders Research Associates - Why a democratic economy would be a more efficient economy, Part I: "Agricultural societies are where hierarchies first became established. Whether this happened from necessity, imposition from outside, or both, one can not know; but the result was that a grain surplus was created by the unfortunate field workers which the elite used to keep themselves and their military compatriots in fine fettle. Effectively, the poor peasants were forced to create the food to feed their masters. A priest class emerged to create religions to try and convince the masses that servitude was what the gods wanted; today, neoclassical economists serve essentially the same function."

Former aide criticizes Carter over Mideast book - Los Angeles Times

Former aide criticizes Carter over Mideast book - Los Angeles Times: "Stein, who was director of the Carter Center from 1983 to 1986 and had continued to serve as a fellow there, spoke to a crowd of nearly 1,000 Thursday night at Los Angeles' Sinai Temple. His comments came against a backdrop of escalating controversy over the former president's bestselling book 'Palestine: Peace Not Apartheid.'

In the book, Carter traces the stops and starts of the Israeli-Palestinian peace process, beginning with his first visit to Israel in 1973 and continuing to the present, through his 1977-1981 presidency and the historic peace accord he brokered between Israel and Egypt. "

euphoria too excessive

immobilienblasen: question the euphoria / disaster risk may rise : "Jan. 8 (Bloomberg) -- Bennet Sedacca, president of Atlantic Advisors LLC in Winter Park, Florida, recalls being an equity trader during the October 1987 stock-market crash, .....

...... In the last three months he has reduced his holdings of stocks and raised investments in short-term Treasury and other securities on the view that another crash may be coming, two decades later.

``Disasters may be rare, but I see the kind of conditions that could make one happen,'' said Sedacca. ``It's like a big keg of dynamite with a fuse. I don't know when, but I think the conditions exist for the explosion to eventually occur.'' "

US Dollar/Euro/OPEC/Iran War/Iran Oil US Dollar/Euro Replacing US Dollar For Oil/Death Of The Dollar

US Dollar/Euro/OPEC/Iran War/Iran Oil US Dollar/Euro Replacing US Dollar For Oil/Death Of The Dollar: "The Euro-zone does not run a huge trade deficit nor is it heavily indebted to the rest of the world like the US and interest rates in the Euro-zone are also significantly higher. The Euro-zone has a larger share of world trade than the US and is the Middle East’s main trading partner. And nearly everything you can buy for dollars you can also buy for euros—apart, of course, from oil. If OPEC were to convert their dollar assets to euro assets and then require payment for oil in Euros, their assets would immediately increase in value, since oil-importing countries would be forced to also convert part of their assets, driving the prices up. [Common Dreams Nov 15/04]
In the coming rearrangement of the world economic order, the euro could easily hold equal parity with the US dollar—if not supplant it outright as the world’s premiere “product”."

Global Liquidity issues

immobilienblasen: The global gusher / economist: "First, average real interest rates in the developed world are still below their long-term average. Second, America's huge current-account deficit and the consequent build-up of foreign-exchange reserves by countries with external surpluses has also pumped vast quantities of dollars into the financial system. A large chunk of Asia's reserves and oil exporters' petrodollars have been used to buy American Treasury securities, thereby reducing bond yields. In turn, low bond-market returns have encouraged bigger inflows into higher yielding emerging-market bonds, equities and property, especially in Asia. Liquidity has been further boosted by the use of derivatives, and by carry trades(borrowing in currencies with low interest rates, such as yen, to buy higher-yielding currencies).

The spread on emerging-market bond yields over American Treasury bonds fell to another record low last week. Share prices in emerging economies have risen by 243% on average from their trough in 2003. That still leaves the average price/earnings ratio below its historical average and less than that in developed countries, so for most markets it is premature to talk about bubbles. But if asset prices continue to climb at their recent pace, central bankers will become increasingly nervous. "

The Mortgage Lender Implode-O-Meter

The Mortgage Lender Implode-O-Meter: "I set this page up to keep track of mortgage lenders in the US going bust since approximately December 2006, when it seems the first of them started going under. Many observers (including myself) have been anticipating this for some time, as rising home prices (and other financial assets) have collided with the deteriorating consumer balance sheet and low-as-they-can-possibly-go interest rates (heavily reliant on the dole of China and the oil exporters). "

BitTorrent Sites Compared

Ten Most Used BitTorrent Sites Compared: "I was rather surprised with these results, BTJunkie has nearly double the amount of torrents as the next leading competitor. The reason for such the dramatic increase is that they index both private and public trackers. Keep in mind that this benchmark is not very reliable because these sites all have different removal policies, making the quality of these numbers range"

Gold's rise points to inflation

Gold's rise points to inflation: "The real annual inflation rate is closer to 8% than the 2% or 3% governments claim, a prominent U.S. economist said yesterday.
David Ranson, president of Boston-based H. C. Wainwright & Co. Economics Inc., defines inflation as a decline in the purchasing power of a national currency. He prefers that definition to flawed ones like the rising cost of living or increasing labour costs.
Official government-massaged measures such as the consumer price index (CPI) do not detect the onset of inflation as quickly as financial markets, he says. The latter indicate 'current inflation is much higher than policymakers realize and is still accelerating.'"

Eaton Vance manager: Markets poised for upset | Industry Summits | Reuters.com

"NEW YORK (Reuters) - Financial markets are vulnerable to a significant correction in the next 12 months that might be triggered by an event in the derivatives markets, a well-known municipal bond manager said on Tuesday.
'I will be very surprised if we don't get an accident in the next months,' Thomas Metzold, who invests roughly $4.5 billion in the Eaton Vance National Municipals Fund, told the Reuters Investment Outlook Summit in New York.
'Whether it is in the credit default swap market or a leveraged buyout scenario, there is going to be a major default and all this liquidity that is out there can dry up pretty quickly,' Metzold said.
Looking back to 1998 when hedge fund Long Term Capital Management collapsed, Metzold said the biggest problem was that LTCM had so much exposure to counterparties that none of them knew how much the others had. 'And it all came tumbling,' he said."

A Brief, Superficial, and Arbitrary History of Property-Price Collapses

PrudentBear.com - The One-Stop Shop for the Bear Case: "The Anderson Forecast team at UCLA might restore one’s hope that academic economists fulfill a productive function. Having disparaged the California housing boom through its ascent, a springtime presentation by one of its economists predicted the swoon that has come to pass. Alas, he stumbled. Asked if a real estate crash was in store, he reverted to form: Southern California is in no way comparable to such one-industry towns as Houston, and besides, California had never suffered a real estate meltdown. On the first point, with 2% of adults in California now proudly waving real estate licenses to sell, houses to California today may be as dominant a force as oil to Houston in the 1980s. On the second point, one of the worst real estate debacles in the history of the United States occurred on the ground where he stood."

The Dow Jones all time high and the coming correction! | Dr. Marc Faber

The Dow Jones all time high and the coming correction! | Dr. Marc Faber: "In short a combination of factors that has usually led to a sharp correction (1987) or a serious bear market (1973/74)). And whereas I think that stock markets could still make a new high into early next year, the majority of equities may already have peaked out.

As a contrarian, I would therefore now rather be short the S&P 500 than maintain long positions. The expected Fed fund rate cuts have probably already been largely discounted by the stock market. In short a combination of factors that has usually led to a sharp correction (1987) or a serious bear market (1973/74)). And whereas I think that stock markets could still make a new high into early next year, the majority of equities may already have peaked out.

As a contrarian, I would therefore now rather be short the S&P 500 than maintain long positions. The expected Fed fund rate cuts have probably already been largely discounted by the stock market. "

Raymond James - Investment Strategy by Jeffrey Saut

Raymond James - Investment Strategy by Jeffrey Saut: "“’My solution to the current market,’ the Great Winfield said. ‘Kids. This is a kids’ market. This is Billy the Kid, Johnny the Kid, and Sheldon the Kid.’
‘Aren’t they cute?’ the Great Winfield asked. ‘Aren’t they fuzzy? Look at them, like teddy bears. It’s their market. I have taken them on for the duration.’
‘I give them a little stake, they find the stocks, and we split the profits,’ he said. ‘Billy the Kid here started with five thousand dollars and has run it up over half a million in the last six months.’ ‘Wow!’ I said. I asked Billy the Kid how he did it.
‘Computer leasing stocks, sir!’ he said, like a cadet being quizzed by an upper classman. ‘The need for computers is practically infinite,’ said Billy the Kid. ‘Leasing has proved the only way to sell them, and computer companies themselves do not have the capital. Therefore, earnings will be up a hundred percent this year, will double next year, and will double again the year after. The surface has barely been scratched. The rise has scarcely begun.’
‘Look at the skepticism on the face of this dirty old man,’ said the Great Winfield, pointing at me. ‘Look at him, framing questions about depreciation, about how fast these computers are written off. I know what he’s going to ask. He’s going to ask what makes a finance company worth fifty times earnings. Right?’ ‘Right,’ I admitted."