stock-market

‘Flash Crash’ Report: Waddell & Reed’s $4.1 Billion Trade Blamed For Market Plunge

October 1, 2010

WASHINGTON — A trading firm’s use of a computer sell order triggered the May 6 market plunge, which sent the Dow Jones industrial average dropping nearly 1,000 points in less than a half-hour. A report issued Friday by the Securities and Exchange Commission and the Commodity Futures Trading Commission determined the so-called “flash crash” was caused when the trading firm executed a computerized selling program in an already stressed market. The firm’s trade, worth $4.1 billion, led to a chain of events the ended with market players swiftly pulling their money from stock market, the report said. The report does not name the trading firm. But only one trade that day fit the description in the report. The firm Waddell & Reed, based in Overland Park, Kan., has acknowledged making such a trade that day. The free fall highlighted the growing complexity and diversity of the fast-evolving securities markets. Sleek electronic trading platforms now compete with the traditional exchanges, with stocks now traded on some 50 exchanges beyond the New York Stock Exchange and the Nasdaq Stock Market. Powerful computers give so-called “high frequency” traders a split-second edge in buying or selling stocks – based on mathematical formulas. The risk looms that electronic errors at high speeds could ripple through markets and disrupt them. The stock market was already stressed even before the plunge that day. Anxiety was mounting over a debt crisis in Europe. The Dow Jones was down about 2.5 percent at 2:30 p.m. when the trader placed an enormous sell order on a futures index of the S&P’s index. The trade on the E-Mini S&P 500 was automated by a computer algorithm that was trying to hedge its risk from price declines. In that one trade, 75,000 contracts were sold in a span of 20 minutes. It was the largest single trade of that investment since the start of the year. The firm’s previous transaction of that size took more than five hours, the report notes. The trade triggered aggressive selling of the futures contracts and that sent the index down about 3 percent in four minutes. In a previous statement, Waddell & Reed acknowledged that it had sold the contracts to reduce its funds’ risk quickly. It said traders were worried that the European debt crisis could spread to U.S. markets. The company maintained that the transaction “was not the cause of any abnormal price action.” It said the move involved just 1 percent of the contracts of that type that changed hands on May 6. The sale would not have caused problems in a normal market, the company said. “Our portfolio managers and the funds acted in a manner consistent with the interests of their fund shareholders,” it said. Nearly 21,000 trades were canceled in the ensuing weeks because the exchanges deemed them erroneous. Responding to the episode, the SEC and the major U.S. exchanges agreed on a six-month pilot program that briefly halts trading of some stocks that mark big price swings. The new “circuit breakers” are in effect until Dec. 10. Under the rules, trading of any Standard & Poor’s 500 stock that rises or falls 10 percent or more within a five-minute span is halted for five additional minutes. On May 6, about 30 stocks listed in the S&P 500 index fell at least 10 percent within five minutes. (This version CORRECTS where the firm is based. )

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Video: Lee Says October Could Be `Very Good’ for U.S. Stocks: Video

October 1, 2010

Oct. 1 (Bloomberg) — Thomas Lee, chief U.S. equity strategist at JPMorgan Chase & Co., talks with Bloomberg’s Julie Hyman and Mark Crumpton about the outlook for the U.S. stock market. Lee also discusses the Securities and Exchange Commission and Commodity Futures Trading Commission’s report on the May 6 stock market crash and his investment strategy. (Source: Bloomberg)

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Dan Dorfman: More Than Autumn Leaves Could Fall

September 30, 2010

With Halloween just around the corner, many of us will soon be shaking as we confront the usual array of ghosts, ghouls and goblins. Adding to our jitters will be a TV bombardment of such time-worn horror films as Frankenstein , Dracula and Night of the Living Dead . Equally significant from an investment standpoint, Wall Street will undoubtedly be shaking, as well, since October is notorious for having produced one of the bloodiest one-day showings in the history of the stock market. That was October 19, 1987, or “Black Monday,” as it’s called, a day that saw the Dow Jones Industrials dive a wicked 508 points or 22.6% and shed some $500 billion of market value. The reason: computer and insurance programs all flashed sell signals at the same time, which touched off a selling panic. What’s more, October has savaged investors with a series of additional hefty declines, namely, 20% in 1929, 17% in 2008, 14% in 1932 and 10% in 1937, I’m told by Standard & Poor’s chief investment strategist, Sam Stovall. October is a spooky month, says Stovall, pointing to such events as: the two biggest monthly declines in the stock market both occurred in October, five of the last 10 bear markets (declines of 20% or more) bottomed in October and four of 17 corrections (losses of from 10% to 20%) also ended in October. On the other hand, some market pros pooh-pooh any October fears, noting that the market is on a roll, what with the Dow — largely reflecting expectations of a zippier economy — having ballooned more than 700 points since late July. What’s more, the Dow posted a 7.7% gain in September, which is traditionally the market’s worst month of the year. A money manager at Baltimore-based investment biggie also plays down October worries, telling me “unless you’re blind, you can’t help but see the market wants to go higher, and it looks like that’s where it’s going.” Stovall agrees, arguing it’s pretty likely that the correction of 2010 bottomed in July. Further, he believes technically that the S&P 500 has undergone a bullish reversal and the bull market that started in March 2009 is likely to resume, albeit at a slower pace than the initial surge. Further, he points out, dating back to 1945, October has displayed a lot more vigor, averaging an 0.8% annual gain and rising in six out of every 10 years. Still, this October is saddled with a number of concerns. Among them on the investment front are a couple of closely tracked contrary market indicators which invariably signal lower stock prices. One of them is a report from Investors Intelligence that a recent survey of investment advisers showed 49.1% were bullish, far exceeding the 29.3% that were bullish. Another contrary indicator, recently highlighted by Michael Larson, editor of the Safe Money Report newsletter in a commentary to subscribers, took note of a release from the American Association of Individual Investors — viewed as Wall Street’s “dumb money” — that investors are more optimistic about the stock market than at any time since October 2007, May 2008 and January of 2010. That’s an unbelievably strong contrarian signal, observes Larson, who notes that these points in history, in fact, marked major stock market tops, leading to Dow declines ranging from 900 to 6,600 points. Tack on his expectations of a double-dip recession, a skid into the Dow 9,000s before year end and he says investors should be loaded to bear with inverse exchange-traded funds, a bet that these vehicles will go up in price as the stock market goes down. His favorites: ProShares Short Real Estate (REK), an inverse ETF designed to rise 1% for every 1% gain in the Dow Jones U.S. Real Estate Index, ProShares Short S&P 500 (SH), also designed to rise 1% for every 1% drop in the S&P 500, and ProShares Short Financials (SEF), likewise geared to advance 1% for every 1% decline in the Dow Jones U.S. Financials Index. Needless to say, if the market goes up, these investments will spell trouble with a capital T. Larson also favors a stake in what’s now everyone’s investment darling — that precious yellow metal. Here, he favors a gold bullion ETF, SPDR Gold Trust (GLD). Charles Biderman, the CEO of West Coast liquidity tracker TrimTabs Research, partially owned by Goldman Sachs, is another worry-wart, noting the U.S. economy is stalling, new offerings are soaring and insider buying is plunging. Near term, say for the next few weeks, Biderman is neutral on equities. But after that, he says, watch out. Given the enormous amount of debt in the economy, final demand is unlikely to grow rapidly over the next few years, he says. Unless incomes grow faster than 2% a year and above growth in unemployment — which is not what he expects — less money will be coming into equities over time. And that means, he believes, price-earnings multiples (now above 15, based on trailing 12-month earnings), could drop below 10. That’s as ominous a forecast as one could make. The S&P 500 is presently trading at around 1,145. Based on inflation-adjusted earnings for the past 10 years, the S&P 500 would have to fall to 550 for its PE ratio to drop to 10. If that were to occur, stock prices would be stripped of more than half of their value from current levels. Sounds incredulous, but no less incredulous than what actually took place between October 2007 and March 2009 — an astounding 53% drop in the Dow from 14,100 to around 6,500. It’s worth noting that one of my favorite indicators — call it the “Dorfman indicator” — reflects the thinking of an investment adviser who boasts an unenviable record of never being right. In other words, whatever he thinks, just go the other way. His latest market view: “We’re on the verge of a huge decline in stock prices.” It all reminds me of those colorful Autumn leaves that are already falling in many parts of the country. Relating that to the stock market, if our three bears are right, more than Autumn leaves will be falling. and that could include the economy, the number of Democratic House and Senate seats and President Obama’s already sinking approval ratings. What do you think? E-mail me at Dandordan@aol.com

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Video: Acampora Sees `Majority’ of Bad News Priced in Stocks: Video

September 30, 2010

Sept. 30 (Bloomberg) — Ralph Acampora of Altaira Wealth Management, talks with Bloomberg’s Carol Massar and Matt Miller about the outlook for the U.S. stock market and the potential impact of the November elections on equities. (This is an excerpt of the full interview. Source: Bloomberg)

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Is It Time To Ditch The Dow?

September 28, 2010

NEW YORK — It’s Caterpillar’s market. The Illinois maker of earth movers is just one of 30 companies in the Dow Jones industrial average, but you wouldn’t know it from its impact on the index recently. Caterpillar’s stock is responsible for 40 percent of the Dow’s climb since the beginning of the year. Translation: If not for Caterpillar Inc., the world’s most widely followed stock index would be up just 2.5 percent this year instead of 4.1 percent. Take out gains from the next three biggest contributors to the index – McDonald’s Corp., DuPont Co. and Boeing Co. – and we would be sitting on losses. “It’s all about Cat,” marvels BNY ConvergEx strategist Nicholas Colas in a recent report. “Names like Microsoft, Cisco, Bank of America and Intel might be large companies but as far as Dow impact goes, they are tiny.” Caterpillar is one of the great American success stories coming out of the recession. Sales of its loaders, excavators and harvesters jumped 37 percent in August, much of that thanks to demand abroad. So if you like to cheer on the Dow now that it’s risen for a fourth week in a row, news that Caterpillar is the pied piper of those gains should make you happy. Just don’t confuse the Dow with the stock market or the economy. Notwithstanding our attention to its every rise and dip, the Dow has a big flaw that explains its top-heavy nature. The index gives greater weight to high-priced stocks than to low-priced ones. You might think investing $30 in a mutual fund tracking the Dow means $1 is riding on each of the 30 stocks. In reality, the higher the price, the more of that $30 is allocated to that stock. Stock in Caterpillar closed Friday at $79.73 a share – more than four times the price of General Electric Co. or Intel Corp. That means if you put money into a mutual fund tracking the Dow, more than four times as much of that money will end up in this one stock than in GE or Intel. Now consider that this buying could raise the price of the stock, begetting more buying. So, as Caterpillar was leaving other Dow members in the dust with a 40 percent rise this year, more and more of each new dollar in the index went into this manufacturer. In fact, a fifth more of your money is going into Cat now than it would have at the beginning of the year. Meanwhile, the stock has gotten expensive, too. It trades now at 20 times estimated earnings this year versus 13 times for the average Dow member. Of course, you should really do the opposite: Buy more when stock is cheap. All this would be mere curiosity if so much of our mood and money didn’t seem to hang on the Dow lately. When the index is up, we’re up. When it’s down, we’re down. The question now: With the recovery in doubt, will the index confirm our hopes that better times are around the corner and continue to climb? In no small part, the answer is rather prosaic. Check back on Oct. 21 when Cat announces earnings for the third quarter. Analysts are expecting a profit of $1.07 a share, more than double what it reported a year earlier. The distortions of the Dow also matter because of the way we’re now investing. After two crashes in a decade, individual investors are pulling money out of stocks. For those sticking with equities, there’s an equally interesting shift in where we’re putting our money: mutual funds tracking equity indexes with computers rather than funds run by highly paid stock pickers. There are many indexes beside the Dow, of course. One that gets much more of our money is the Standard & Poor’s 500. It allocates dollars according to a company’s market value, or the stock price multiplied by the number of shares. The S&P also spreads its bets over 500 stocks so there’s less risk of a single soaring stock bringing down the index if it stumbles. But the S&P suffers from the same self-reinforcing ill of the Dow. As the market value of a company rises, S&P index funds buy more of the stock, lifting the price. As tech stocks rose in the late 90s, index funds pushed them higher still. Ditto for financial stocks before the last crash. Instead of protecting us from our all-too-human swings from greed to fear, the computers running the index funds exaggerate them. One index that tries to fix this problem is the PowerShares FTSE RAFI 1000. The index was designed by Research Affiliates, a money management firm run by famed S&P critic Robert Arnott. Instead of dividing money according to market values, it does so based on a company’s cash flow and other fundamentals. PowerShares is down -5.44 percent annually over three years, but that is 2.15 percentage points better than the S&P. The flaws of our most popular indexes aren’t new. They started when Charles Dow listed a handful of big stocks and their prices on a piece of paper and decided we should buy one share of each instead of multiples and fractions of those shares so our money and risk would be equally divided among the companies. His original sin should have doomed the measure but for one thing: He did this in 1896. Of course, old brands die hard. We’re drawn to them despite ourselves. “You can get some distorted results,” says Harris Private Bank strategist Jack Ablin of the Dow, though he concedes, “I still follow it.” ConvergEx’s Colas rips into its price-weighting as “arbitrary” but in the next moment is talking excitedly about how the index is older even than that most venerable symbol of American capitalism, the New York Stock Exchange Building (erected in 1903). And so warts and all, the Dow will continue to shape our views. “It influences our perception of the economy,” Colas says. “And right now perceptions matter.”

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Paul Abrams: The Politics and Economics of Tax Cuts: Make Each Bracket a Separate Bill, and a Separate Vote

September 20, 2010

It is very important for the Democrats to cut taxes for 98% and allow taxes to rise (4.6%) for the top 2%. To do that, they should write a separate tax bill for each bracket. They should bring each bracket, starting with the lowest, to a vote. This should be done in both Houses of Congress. The economic recovery depends upon both ends — providing more income to the 98% of the people to help repair their home balance sheets so they can feel comfortable about spending prudently again, and increasing revenues from the top 2% to build confidence in domestic and world financial markets that we can make some tough decisions. Republicans’ bitching and moaning would not get them very far. They would get a vote on the top 2%, and see how it fared. That process would shine klieg lights on the tax cuts, and debates and arguments could be advanced for each bracket. In the Senate, a filibuster of the lower rates would be a god-send to Democrats’ political fortunes, especially since Republicans can hardly argue that they will not get their vote for the wealthy, the people George Bush called “his base”. It would position the President to sign the cuts for each of the lower brackets, and defer deciding on the top 2% until the deficit commission reports in December whether the top 2% cut passes or not. The economic recovery that occurred under Reagan and under Clinton did not begin until each President raised taxes. That was not a coincidence. It had little to do with economic theory and everything to do with psychology: by biting the bullet, these Presidents showed domestic and world markets they were serious about deficits. Confidence grew and that led to investments and job growth. Cutting taxes for the top 2% would, on the other hand, very likely tank the stock market, send the dollar into a nose-dive, cause gold prices to soar and, through the lost-wealth effect, cause even further economic contraction. Why? Because it would show domestic and world markets that the United States of America is incapable of making tough fiscal decisions. Confidence in the United States would plummet and a vicious cycle could be triggered. It would also be a political disaster. It would portend even more draconian spending cuts in essential services down the road and, by causing a further economic decline, exacerbate the deficit even further. Republican extremists would like it, the Koch Boys would declare victory, but not everyone has the spare billions they do to ride it out. Republicans exist primarily for one purpose: to provide tax cuts for their wealthy paymasters like the Koch Boys and to allow as much economic anarchy as possible, each in the name of “limited government” that, curiously, does not seem to apply to staying out of peoples’ bedrooms, or end of life decisions, or lying us into wars, or voter intimidation. Of the two, tax cuts are much more important, since they can always pay their way out of regulations. That’s it. Everything else they do can be related directly back to these core imperatives. Of course, it is difficult to sell tax cuts for the wealthy alone, since 98% of the country is not financially wealthy. So, they drag in claptrap about lowering taxes for the wealthy creating more jobs (demonstrably false, and the worst alternative for stimulating growth) or “paying for themselves” (a canard dropped now even by rightwing economists who cannot sustain professional credibility by promoting it). So, it will be up to the Democrats to do the heavy lifting. Positioned properly, it will demonstrate to the mid-term electorate just who is on whose side. And, it will enable the economic recovery to pick up a bit of steam. “Class warfare”, you say? Such as that Republicans have been waging against the middle class? Well, it takes two sides to have a “war”. It is time our side showed up.

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Ellen Brown: Basel III — Tightening the Noose on Credit

September 17, 2010

The stock market shot up on September 13, after new banking regulations were announced called Basel III. Wall Street breathed a sigh of relief. The megabanks, propped up by generous taxpayer bailouts, would have no trouble meeting the new capital requirements, which were lower than expected and would not be fully implemented until 2019. Only the local commercial banks, the ones already struggling to meet capital requirements, would be seriously challenged by the new rules. Unfortunately, these are the banks that make most of the loans to local businesses, which do most of the hiring and producing in the real economy. The Basel III capital requirements were ostensibly designed to prevent a repeat of the 2008 banking collapse, but the new rules fail to address its real cause. Why Basel III Misses the Mark Two years after the 2008 bailout, the economy continues to struggle with a lack of credit, the hallmark of recessions and depressions. Credit (or debt) is issued by banks and is the source of virtually all money today. When credit is not available, there is insufficient money to buy goods or pay salaries, so workers get laid off and businesses shut down, in a vicious spiral of debt and depression. We are still trapped in that spiral today, despite massive “quantitative easing” (essentially money-printing) by the Federal Reserve. The money supply has continued to shrink in 2010 at an alarming rate. In an article in the Financial Times titled “US Money Supply Plunges at 1930s Pace as Obama Eyes Fresh Stimulus,” Ambrose Evans-Pritchard quoted Professor Tim Congdon from International Monetary Research, who warned: The plunge in M3 [the largest measure of the money supply] has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly. In a working paper called “Unconventional Monetary Policies: An Appraisal”, the Bank for International Settlements concurred with Professor Congdon. The authors said, ” The main exogenous [external] constraint on the expansion of credit is minimum capital requirements .” (“Capital” means a bank’s own assets minus its liabilities, as distinguished from its “reserves,” which apply to deposits and can be borrowed from the Federal Reserve or from other banks.) The Bank for International Settlements (BIS) is “the central bankers’ central bank” in Basel, Switzerland; and its Basel Committee on Banking Supervision (BCBS) is responsible for setting capital standards globally. The BIS acknowledges that pressure on banks to meet heightened capital requirements is stagnating economic activity by stagnating credit. Yet in its new banking regulations called Basel III, the BCBS is raising capital requirements. Under the new rules, the mandatory reserve known as Tier 1 capital will be raised from 4 percent to 4.5 percent by 2013 and will reach 6 percent in 2019. Banks will also be required to keep an emergency reserve of 2.5 percent. Why Is the BCBS Raising Capital Requirements When Existing Requirements Are Already Squeezing Credit? Concerns about the credit-tightening effects of Basel III were reported in a September 13 Huffington Post article by Greg Keller and Frank Jordans, who wrote: Bankers and analysts said new global rules could mean less money available to lend to businesses and consumers… European savings banks warned that the new capital requirements could affect their lending by unfairly penalizing small, part-publicly owned institutions. We see the danger that German banks’ ability to give credit could be significantly curtailed,’ said Karl-Heinz Boos, head of the Association of German Public Sector Banks. Insisting that French banks were ‘among those with the greatest capacity to adapt to the new rules,’ the country’s banking federation nevertheless said they were ‘a strong constraint that will inevitably weigh on the financing of the economy, especially the volume and cost of credit.’ Juan Jose Toribio, former executive director at the IMF and now dean of IESE Business School in Madrid, said the rules could hamper the fragile recovery. “‘These are regulations and burdens on bank results that only make sense in times of monetary and credit expansion,” he said. For smaller commercial banks and public sector banks (government-owned banks popular in Europe), the credit-constraining effects of Basel III are a serious problem. But larger banks, said Keller and Jordans, “were quick to praise the agreement and insisted they would meet the required reserves in time.” The larger banks were not worried, because ” The largest U.S. banks are already in compliance with the higher capital standards demanded by Basel III, meaning their customers won’t be directly affected .” Their customers, of course, are mainly large corporations. “Small businesses that rely on borrowing from community banks,” on the other hand, “may be more affected… They will try to make up for the higher capital requirements by lending at higher rates and stiffer terms.” If the big banks that brought you the current credit crisis can already meet the new requirements, what exactly does Basel III achieve, beyond shaking down their smaller competitors? As David Daven remarked in a September 13 article called “Biggest Banks Already Qualify Under Basel III Reforms”: “Indeed, on the day Lehman Brothers collapsed, they would have been in compliance with the Basel III standards.” Punishing Your Local Bank for Wall Street’s Misdeeds What precipitated the credit crisis and bank bailout of 2008 was not that the existing Basel II capital requirements were too low. It was that banks found a way around the rules by purchasing unregulated “insurance contracts” known as credit default swaps (CDS). The Basel II rules based capital requirements on how risky a bank’s loan book was, and banks could make their books look less risky by buying CDS. This “insurance,” however, proved to be a fraud when AIG, the major seller of CDS, went bankrupt on September 15, 2008. The bailout of the Wall Street banks caught in this derivative scheme followed. The smaller local banks neither triggered the crisis nor got the bailout money. Yet it is they that will be affected by the new rules, and that effect could cripple local lending. Raising the capital requirements of the smaller banks seems so counterproductive that suspicious observers might wonder if something else is going on. Professor Carroll Quigley, an insider groomed by the international bankers, wrote in Tragedy and Hope in 1966 of the pivotal role played by the BIS in the grand scheme of his mentors: [T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations . The BIS has now become the apex of the system as Dr. Quigley foresaw, dictating rules that strengthen an international banking empire at the expense of smaller rivals and economies generally. The big global bankers are one step closer to global dominance, steered by the invisible hand of their captains at the BIS. In a game that has been played by bankers for centuries, tightening credit in the ebbs of the “business cycle” creates waves of bankruptcies and foreclosures, allowing property to be snatched up at fire sale prices by financiers who not only saw the wave coming but actually precipitated it.

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A relatively clam day in the  U.S stock market that ended with sluggish gains

September 17, 2010

A relatively clam day in the

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Video: Cliggott, Keene Discuss Stocks, Corporate Use of Cash: Video

September 15, 2010

Sept. 15 (Bloomberg) — Doug Cliggott, U.S. equity strategist with Credit Suisse, and Andrew Keene, an independent options trader, talk about the performance of the U.S. stock market and the outlook for equities. Cliggott and Keene also discuss corporate use of cash for dividends and acquisitions. They talk with Carol Massar, Matt Miller, Adam Johnson and Dominic Chu on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Dan Dorfman: The Answer Is Blowin’ in the Wind

September 10, 2010

Hey, where are Sherlock and Lt. Columbo when we really need them? No, it’s not to set us straight on the Hound of the Baskervilles or figure out who stole what or who murdered whom, but rather to zero in on a more perplexing mystery that impacts all of us — the direction of the flip-flop economy. The myriad of views on the subject — which will have a major voice in determining the outcome of the fall elections — is enough to drive anyone nuts. For confirmation, just look at the financial pages of your local newspapers and leading business magazines. Or click on TV’s financial networks. Or scan the research commentaries of the major brokerages and investment advisers. It’s all the same. You’re bombarded with a slew of wildly conflicting economic scenarios that will have you shaking your head. For example, here’s what the experts are saying, kicking off with those who insist a double-dip recession is inescapable. Some of their key reasons: the government’s inability to effectively address the three most serious and critical economic ills — the housing depression, high unemployment and the refusal of banks to lend on a broad scale. In contrast, other economists vehemently disagree, insisting there will be no double-dip, certainly, they believe, not in an election year. The president’s new stimulus initiatives to bolster the economy by creating jobs, notably tax incentives and infrastucture spending, should help speed up the recovery, they argue. At worst, they say, we’ll see slow growth. Then again, some economists argue that the recession, which started in late 2007, has yet to say goodbye and importantly is apt to worsen because of diminishing stimulus and excessive debt at the consumer and business levels. That means, they point out, consumption will weaken as consumers, especially the retiring baby boomers, opt more for saving then spending, and business will be reluctant to expand. Meanwhile, a number of economists say the president’s new economic-boosting proposals won’t fly and are highly suspect because Republicans have no vested interest in seeing the economy improve before the November elections. Accordingly, Obama’s economic ideas, it’s thought, if not D.O.A. (dead on arrival), are almost certain to run into a Congressional stone wall and nothing will get done. On top of this, two of the country’s widely tracked economists, the New York Times ‘ Paul Krugman and Merrill Lynch’s former North American economic chief David Rosenberg, have recently told us we’re depression bound. Confused? Who wouldn’t be? So who should we believe? The answer, of course, is that it’s all guesswork, that no one can be cocksure of what’s ahead because of all the bumps on the economic road. For some thoughts, I rang up a voice of reason in this economic wilderness — Standard & Poor’s well regarded, astute senior economist David Wyss, a fella not prone to flamboyant and irrational comments. For starters, he belittles the president’s job-boosting proposals, noting they’re not particularly good because they’re only temporary. At best, he sees little more than a short term lift. The infrastructure spending should have been in his first bill, he says. As for fears of a double-dip, Wyss doesn’t see it. The recovery is fragile, but there’s nothing to push the economy down more, he says. “We’re having a half-speed recovery, nothing to get excited about, but it’s better than none.” On the plus side, he points to a pickup in consumer spending. “Consumers are starting to stick their heads out of the shell,” he says. Yet another plus is pretty good equipment spending, up 15% year over year. Underscoring the slow growth nature of the economy, Wyss looks for uninspiring GDP growth of 1.6% in the current quarter, 2% in the final quarter and 2.4% for all of 2011. What about those depression forecasts making the rounds? “No way, a gross exaggeration,” Wyss says. Our economic worry-wart also has his concerns, among them the threat of a major default, especially in Europe, and another freeze in the financial markets, with banks afraid to lend, an event that would further push home prices down and unemployment up. Likewise, he points to the danger of a Japanese deflationary scenario, a formula for weak growth and declining prices. As a result, home prices in Japan are down 35% from where they were 15 years ago, while its stock market is off 75% from where it was 20 years ago. All that aside, we’re plagued by a number of serious economic ailments that suggest any economic bull at this point is likely full of bull. Among those that come to mind: One in every six Americans is now getting some form of government assistance. A total of 40.8 million of us — expected to rise to 43.3 million next year — are collecting food stamps. About 78 million baby boomers, one eighth of the population, are headed for retirement with an average nest egg of just around $50,000. About 25% of all mortgages are under water (meaning the homeowners owe more on their homes than they’re worth). In addition, 4.2 million vacant homes (8.9 months supply) are looking for buyers, 7.3 million homeowners are at least 30 days delinquent on their mortgage payments, and another 4 million homes are in the foreclosure process. Around 14.9 million people are unemployed, a figure that jumps to 25.7 million if you include part-timers who can’t get full time employment and discouraged workers who’ve left the work force because of their inability to obtain a job. On top of this, my wife, Harriet, who walks several miles a day, tells me the number of New York City panhandlers and homeless people sleeping on the sidewalks is appreciably on the rise. “You see them everywhere,” she says I don’t know how you see all of this, but to me this is not what economic recoveries and bull markets are all about. It all reminds me of a catchy song, “Blowin’ in the wind”, written by Bob Dylan in the sixties, a period when the nation was caught up in the Vietnam War and people were looking for answers. Alas, we’re now once again looking for answers. What do you think? E-mail me at Dandordan@aol.com

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Tom Pappalardo: Gold & Silver Trading Biggest Scam in History Financial Armageddon Could Result

September 6, 2010

For those with a good memory this is the promised follow up to my piece on the manipulation of the silver market and its very scary ramifications. Before we get into the possible end of civilization as we know it details, a recap is in order. Andrew Maguire of London blew the whistle on JP Morgan Chase’s very likely profound manipulation of the silver market to the CFTC. As financial government watchdog agencies are wont to do these days, they did their best to sweep it all under the carpet. How the SEC handled Bernie Madoff’s ponzi scheme is a prime example of this. This matter is not a ponzi scheme but it is a the largest scam ever going into the trillions of dollars territory. But back to Maguire who was quite determined to clean up the business of commodities trading. He goes public with powerful compelling evidence of JP Morgan Chase’s manipulation of the silver market. This happens on a Kingsworld radio show. The next day someone tries to kill him by ramming a car into Maguire’s car. Maguire and his wife who was also in the car are hurt pretty bad but survive. After this in their infinite wisdom the commodities watchdog the CFTC decides to have a meeting with most of the key players in commodities trading but exclude Maguire from attending. At this meeting a secret is revealed that could easily tear apart the fabric of our barely functional financial system. The secret is that for every 100 ounces of gold and for every 100 ounces of silver traded on paper there is only one actual ounce of gold and one actual once of silver to back up these trades. Given that yearly there is trillions of gold and silver traded on paper this is the literally biggest scam in the history of scams. Now the guy who let this cat out of the bag didn’t think it was a big deal using the logic that as long as the buyer was paid the value of his purchase at the time he wants to sell it doesn’t matter if his purchase was backed up by an actual commodity. This cavalier attitude does seem to reflect the mind set of people working in our financial system that everything is smoke and mirrors except the money being exchanged. It is quite possible and even probable that someone with enough financial resources and the will to do it could turn our financial system upside down and make an enormous profit from it. This person would have to have no loyalty to western currency and the financial well being of western countries. So let’s assume a very wealthy Asian wants to take a shot at getting into Bill Gates’s wealth status. From what I gather the game plan would be a simple one. That is buy enormous amounts of what I like to call the paper version of silver and gold and buy even more actual silver and gold. Then start a run on Comex by demanding to replace your paper with actual gold and silver. The next part is for me admittedly a bit fuzzy so my play by play of this could be off a bit but I believe the general idea fits the situation. Given that commodities’ trading is a relatively small community, if the player of this scenario has purchased enough of these metals and starts demanding their paper be replaced with the real thing, their demands should cut fairly deep into Comex reserves and then the rumor mill will kick in big time. It shouldn’t take long for the word to get out that there is more paper of gold and silver out than actual gold and silver exists to back it up. Once this gets on the street it should not take long for the Comex reserves to get wiped out. Then financial chaos is right around the corner. However as chaos swirls around them those that possess actual silver and gold will see their investment shoot up perhaps skyrocket in value. I believe a conservative estimate would be to rise anywhere from 2 to 4 times in value. However given the volatility of anything financial these days I fully expect it to zoom to 5 to 10 times in value. That’s the good news if you are sitting on actual gold and silver but the bad news is really really really bad because the basis for all valuation including the stock market, the dollar the euro etc. etc. is gold and silver. Remove silver and gold from the valuation process and as one financial analyst recently told me the stock market probably drops to 25 percent of its value the dollar probably loses 30 percent of its value and so on. These figures are guesswork and possibly conservative but what is not a guess is that the value of stocks, the dollar, the euro and more will lose big chunks of their value enough to throw our fragile financial system into chaos. The value of silver and gold are bedrocks for building the valuation of currencies the stock market and other financial entities. Remove a bedrock and the house comes tumbling down or at least a good part of it probably most of it. Financial Armageddon anyone, sure we have already looked that bullet in the eye and dodged it. However, many financial wizards have predicted it could still occur and none as far as I know took into account the wipeout of the silver and gold reserves. However back to the gutsy whistleblower Maguire, he was scheduled to be interviewed back when all this broke out by all the big news outlets. However, quite suddenly all of these major media sources cancelled these interviews. So unless someone you know who is into the silver market brought this to your attention, it likely went completely under your radar. Presumably, the government the wolves of Wall Street and every other financial player who has a lot to lose are working hard to keep this on the way down low for as long as possible. I can’t really blame them for this given the impending catastrophe revealing this secret will release. However the trigger for all this going public is likely the DOJ and SEC’s investigation of JP Morgan Chase’s manipulation of the silver market. Once this investigation comes to a close there has to be some consequences which the media can’t completely ignore and then the stink storm hits the fan for most of us and for those that own silver or gold their personal value jumps up quite a bit. Between silver and gold, silver gives the much stronger appearance of giving an investor a more viable short term reward. Since the DOJ and SEC started investigating JP Morgan Chase’s very likely manipulation of silver, you no longer see silver pushed down hard after it has rallied up. In fact an interesting phenomenon has taken place recently regarding silver. Silver and gold used to be joined at the hip in that both would go up and down together as a matter of course. However, silver has continued to go up regardless of when gold goes down. Even more remarkably, silver has recently continued to go up even if the stock market goes down. This shocking behavior of silver only strengthens the case that JP Morgan was manipulating the silver market. That the silver market has such staying power is not really surprising given the big picture of high deficits, a weak dollar, a weak euro. Silver stands out as a relatively safe investment perhaps the safest investment anyone with a some extra money can make. Right now its just under $20 an ounce which is a whole lot more affordable for the average person than gold at around $1250 per ounce. Obviously, if any of you readers have some money and you can afford to sit on for 6 to 18 maybe 24 months, it is my opinion that buying actual silver or gold especially silver is one hot investment. I suggest this time frame because I suspect within ½ to 2 years the investigation of JP Morgan Chase’s obvious manipulation of the silver market will be concluded and made public. The government will no doubt drag this out as long as they can which is why I foresee this possibly lasting a good 2 years. It’s also possible that within that time frame, some enterprising filthy rich person is willing to blow up the silver and gold market to make to make themselves super rich. I wouldn’t just take my word on any of this. If this subject grabs your interest I strongly recommend you listen to an interview between Andrew Maguire and Adrian Douglass of GATA. GATA is the Gold Anti-Trust Action Committee and was organized in January 1999 to advocate and undertake litigation against illegal collusion to control the price and supply of gold and related financial securities. When you hear these two speak about the inevitability of the biggest fraud in the history of man being exposed you cant help but feel that its just a matter of time before what I like to call the big bang hits our financial system. One of the questions Douglass asks Maguire is why it was allowed to happen that we now only have 1 ounce of gold and 1 ounce of silver to back a 100 ounces of each that is being sold on paper. As I recall Maguire thinks it happened because at a low point it was a quicker way to juice the financial markets and eventually it all just got way out of control. I see a parallel in the steroids era of baseball and sports in general. After the baseball strike put the sport in a dark period, the lords of baseball looked the other way while some players juiced themselves up so they could hit more home runs in one season than had ever been hit before. This created a major buzz for baseball and quickly took them out of this dark period. However when the stink hit the fan baseball would be forever tarnished and would never be the same. Apparently the fools that run our government and our financial world also looked the other way and took the short term upside gambling against the long term loss. The question begs to be asked if and when this big bang hits given all the other bullshit that the protectors of all financial have allowed to be fostered upon the general populace, will said general populace ever again trust the members of the Fed Reserve, big banks the Secretary of Treasury etc etc ad nauseam ever again. There sure isn’t much left to trust so this new catastrophe ought to really wipe out any vestige of trust the peons of Main street still have for any and all of the big financial players. I doubt if this will lead to people stuffing cash into their mattresses but it will probably lead to the creation of more state run banks like the one that now exists in Montana. To any of you who read my first piece on the silver market please accept my apology for not keeping my promise of following up right away with a second piece. If you care for an explanation, at first I delayed because the BP oil spill seemed like more than enough of a major downer for everyone to handle and I didn’t want to pile on. Then I got distracted and lazy. Now after a two week vacation I feel renewed enough to finally keep my promise. Hope it was worth the wait. Lastly a note of caution given that I am recommending you readers to spend your hard earned cash on an investment, for those thinking of jumping into buying silver or gold or any investment, when contemplating making any purchase especially big ones, there are two lines not to cross. Crossing these lines is a leap from risk taking to gambling and I strongly recommend you don’t gamble with your money. In my considered opinion an action becomes a gamble when you risk something you can’t afford to lose like betting your rent money. The other line not to cross is taking unnecessary risks. I am not suggesting you should live like you are in a straight jacket but with money it’s usually best to be cautious. Taking lots of unnecessary risks can become as addictive as betting on the ponies or sports. The reason for this is both give you an adrenaline rush. The more someone takes unnecessary risks the more likely they will get burned. With that in mind please be conscious, be cautious be smart and pick your battles or risks wisely.

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Video: Konyn Says Buy China Stocks on Reversal of Tightening: Video

September 5, 2010

Sept. 6 (Bloomberg) — Mark Konyn, chief executive officer of RCM Asia Pacific Ltd., talks about the outlook for China’s stock market and economy. Asian stocks rose, driving the MSCI Asia Pacific Index higher for the fourth consecutive day, as better-than-estimated jobs data in the U.S. eased concern that global economic growth is faltering. Konyn also discusses emerging market stocks and the Hong Kong dollar’s peg to the U.S. He speaks with Rishaad Salamat on Bloomberg Television. (Source: Bloomberg)

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Video: Konyn Says Buy China Stocks on Reversal of Tightening: Video

September 5, 2010

Sept. 6 (Bloomberg) — Mark Konyn, chief executive officer of RCM Asia Pacific Ltd., talks about the outlook for China’s stock market and economy. Asian stocks rose, driving the MSCI Asia Pacific Index higher for the fourth consecutive day, as better-than-estimated jobs data in the U.S. eased concern that global economic growth is faltering. Konyn also discusses emerging market stocks and the Hong Kong dollar’s peg to the U.S. He speaks with Rishaad Salamat on Bloomberg Television. (Source: Bloomberg)

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Video: Konyn Says Buy China Stocks on Reversal of Tightening: Video

September 5, 2010

Sept. 6 (Bloomberg) — Mark Konyn, chief executive officer of RCM Asia Pacific Ltd., talks about the outlook for China’s stock market and economy. Asian stocks rose, driving the MSCI Asia Pacific Index higher for the fourth consecutive day, as better-than-estimated jobs data in the U.S. eased concern that global economic growth is faltering. Konyn also discusses emerging market stocks and the Hong Kong dollar’s peg to the U.S. He speaks with Rishaad Salamat on Bloomberg Television. (Source: Bloomberg)

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Video: Holland, Knippa Discuss U.S. Stocks, Oil Prices, Goldman: Video

September 3, 2010

Sept. 3 (Bloomberg) — Michael Holland, chairman of Holland & Co. LLC and Tres Knippa of Lotusbrokerage.com, talk about the U.S. stock market and crude oil prices. Holland, Knippa and Bloomberg contributing editor William Cohan talk with Carol Massar, Dominic Chu and Julie Hyman on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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6 Unusual Investments That Are Beating The Stock Market (PHOTOS)

August 30, 2010

Irregular times call for irregular investment strategies. Jeff Middleswart might be a poster boy for outside-the-box investing during the current downturn. In February, Middleswart took over as manager of a mutual fund that explicitly invests in “sin stocks” like cigarettes, alcohol, gambling and defense. Aptly named the Vice Fund , Middleswart’s impious portfolio is up 4.5 percent on the year, compared to the S&P 500′s 1.9 percent loss over the same period. Sin stocks are not the only unusual investments achieving above-average performance in the markets, while the traditional 401(k) has underperformed. Other alternative investments beating the recession include a couple luxurious goods and a foreign market that soared 53 percent in the first half of 2010. And while we’re not advocating for these investments outright, for the sake of comparison, here are six alternative investments that have outperformed the larger U.S. stock market either in the last year or the last few years:

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Bill Baker: Bernanke to World: "We’re Going to Fiddle While Rome Burns"

August 27, 2010

In Jackson Hole, Wyoming today Fed Chairman Ben Bernanke said the risk of an “undesirable rise in inflation or of significant further disinflation seems low.” Yup, can’t argue with that. If you are operating a bank, and you had lost your depositors’ funds by making bad real estate loans, normally you would be sweating bullets by now, or among the 14.6 million pounding the pavement looking for work. But you need not worry. You got $1.3 trillion of reserves to tide you over while your bad loans continue to deteriorate. Uncle Ben bailed you out, and he even gave you the money to pay back your other uncle, Sam. Now that you got rid of the TARP, you can go back to paying out big bonuses, even if they are on profits facilitated by the easing of accounting rules. So why is the spotlight on Ben now? Some employment, consumer confidence, and even national income data have weakened a little. But mainly the stock market has everyone a little scared. Big bank stocks have acted like a canary in the coal mine, failing to do much since a year ago. Some regionals have been sliding since this spring, in sympathy with FDIC Chairman Shiela Bair’s laying to rest a growing list of institutions outside the money centers. How come? Home prices are down maybe 30% from the top, which wipes out the equity of most “conservatively” financed purchases. Since real estate is about half of bank assets, another drop of say 15% would mean trouble. The FDIC has the barest sliver of funds. So outside of getting fresh Fed reserves into dodgy regionals, something the Fed is wont to do, the safety of your deposits rests on a thin reed. Not to worry, a diverse group of economists, real estate experts, investment and market strategists surveyed by MacroMarkets in June 2010 project that the U.S. housing market will experience double-digit cumulative appreciation between 2010 and the end of 2014, adding some $1.7 trillion to aggregate household wealth. Bernanke draws from the body of econometric knowledge generated by academics, which has proven beyond dispute that gold is a barbarous relic, and that the consumer price index, along with national income accounts, are the best indicators of whether we are launching into inflation or falling into a deflationary rathole. The media is hot and bothered as to whether the Fed will print a trivial amount of money again like it did in 2009, when in reality the printing presses shut down in 2008. Before everyone was all loaned up, banks used to print money – gobs of it – every year, maybe $1.5 trillion annually. Now broad money is shrinking. Being an economist of the Austrian school, I see why many of my brethren focus upon the explosive growth in the monetary base that has occurred under Bernanke, and why they focus upon the “true money supply,” which also rose quickly once the fix was in. But Ludwig von Mises, the father of this strain of economists, taught that money existed in two forms: money and money substitutes (i.e. deposits). Today the two are indistinguishable, whereas in times past gold or gold-exchangeable dollars were the reserve upon which the system was pyramided. No one asks you if your check or electronic payment came from the base or the tip of the pyramid, they just want bills paid. Bernanke and the monetarists and Keynsians are riding a horse with two blinders on: no deflation on the left, no inflation on the right. But his steed is running downhill, towards a glen filled with thorns and rocks. With the banks insulated from the credit crisis, they are like the patrons of Nero’s orgy, listening to the reassuring strains of Uncle Ben’s fiddle while the houses of Rome are burning. I can’t imagine a banking establishment or its titular leader more out of touch with mainstream America, clueless as to the most basic observation that it has run a fractional reserve lending system into a generational-sized ditch. William Baker is the author of “Endless Money: The Moral Hazards of Socialism.” (John Wiley, 2010) A Chinese language edition is due out soon. Disclosures: Long and short equities. Long gold, gold derivatives, and gold equities.

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The 14th Banker: New Banks Needed

August 25, 2010

This week news flow continues to indicate an economy that is significantly weakening from an already anemic activity level. There are wide-ranging destructive effects on every sector of the economy, households, businesses, and government. Some of these effects threaten to spiral into negative feedback loops causing further destruction and unpredictable outcomes from economic depression and attendant extreme unemployment, to deflation, to hyperinflation, to currency devaluation. All of these are possibilities. So what to do about it? The current state of the society reflects the nature of society. I have posted before on the stratification of society into various interest groups which I have compared to the conditions before the revolution in France. We have profound ethical issues confronting us at every turn. There is a lack of trust. Cronyism here in America is alive and well. Until we attack these underlying causes and conditions in a meaningful way, it is foolish to expect that we will have sustained economic recovery and general prosperity. The seriousness of the situation can be measured by our hopes. What we hope for is a little stimulus, a little inflation, a shift in exchange rates that will make exports more competitive, a return of the consumer to excessive spending, credit expansion. Are these the things that prosperity is made of? No! Getting much attention in the news these days is the asset price cycle. The immediate manifestations are the recent sharp declines and possible further declines in the prices of residential and commercial property, the manic-depressive stock market, bond price bubbles and collapsing interest rates. Amid this backdrop, one of the critical factors in an economic recovery will be the availability of credit to worthy businesses and investors. Already there are high net worth investors buying distressed property. Credit terms are tight and buying distressed property is still a risky investment. It is high risk with high potential reward. Facilitating these purchases are record low interest rates for super qualified borrowers. The opportunity for such returns, as usual, is for the rich. Those with idle cash have the opportunity to profit on the distress of others. Further stratification of wealth will be the inevitable result. One blogger this week sought to find deeper solutions. Eric Haseltine suggests that we quit reacting to the panic of the moment and focus on building up our people in aggregate to create conditions for creative expansions. Unless we overcome our temporal myopia, we’ll continue to put band-aids on this economy and it will continue to deteriorate: in other words, we’ll continue to treat symptoms and never go for a complete cure. And what would such a cure look like? Let’s start by looking at disease that afflicts us. The fundamental problem with America’s economy is a decline in the capabilities and motivation of our workforce. True economic growth — not the artificial kind spurred by fiscal policy — stems from innovations such as Google’s search engine that create entirely new businesses and markets. Such innovations grow out of technological advances, which in turn emerge from earlier scientific discoveries. Alan Greenspan, former Chairman of the Federal Reserve Bank, reinforced this idea when he said “Capitalism expands wealth primarily through creative destruction — the process by which the cash flow from obsolescent, low-return capital is invested in high-return, cutting-edge technologies.” Ingrained in this approach is the requirement that creative destruction must be followed by investment in new technologies. That requires a functioning financial sector. John Hussman agrees and fleshes out the arguments further in a previous market update. If we as a nation fail to allow market discipline, to create incentives for research and development, to discourage speculative bubbles, to accumulate productive capital, and to maintain adequate educational achievement and human capital, the real wages of U.S. workers will slide toward those of developing economies. The real income of a nation is identical its real output — one cannot grow independent of the other. Again, note that we must accumulate productive capital. This is a function of effective financial intermediation. Too much financial intermediation has been directed to speculative activity benefitting from market volatility and to the creation and sale of complex and opaque financial instruments that allow high profits from the lack of developed competitive markets and exchanges and frankly the ignorance of the buyers of these instruments. This is exploitative and is not productive capital formation. So do we regulate such banks or do we start new ones? The first question is, can the banking sector, if it even chose to, provide for the capital needs of the economy. This point/counterpoint article addresses just that, among other topics of the day. Mish Shedlock in citing the Jerome Levy Forecasting Center and agrees with but refines these particular points in the linked article. There are various theoretical reasons given for the liquidity trap, but let’s just focus on what is happening now and what is likely to happen in the years ahead. Presently, excess reserves are not inducing lending for several reasons, and adding to them further will not make much difference. First of all, banks are capital constrained, not reserve constrained. Second, interest rates could not fall far enough during this business cycle to enable troubled debtors to refinance their way out of trouble, so now banks remain worried about the volumes of bad debt they are carrying and how future loan losses will impinge on earnings and capital. Third, deflationary expectations are beginning to work their way into banks’ loan evaluation process on a micro level; in more and more areas, loan officers are looking at households with shrinking incomes and firms with deflating revenues. Fourth, the private sector has too much debt, and many households and firms are trying to reduce debt, especially as more of them worry about deflation in their own incomes or revenues. Point numbers one and two above are key factors in the financial intermediation part of this economic problem. Banks are capital constrained. Balance sheets are loaded up with problem debt. Future losses are embedded in booked exposures. The banking sector is not sufficiently healthy to support economic expansion or to reverse deflationary pressures. So the question is how do we evolve? The government has propped up the banking sector, believing systemic impacts of bank failures would trigger a tidal wave of further liquidity contraction and trigger depression. The propping up has not worked. Yes, it has prevented a massive financial system collapse, but it has not supported economic growth. We need creative destruction in the banking sector. Let these existing banks reap the rewards of their policies. Create new banks with new fresh capital, unencumbered by toxic assets, headed by wise risk managers, but ready to lend. The FDIC may not like this because they do not want new competitors to pressure earnings of existing institutions. But the piddling cost of bank resolutions is nothing compared to the destruction of value in a squeezed economy. Fund up the FDIC and let these banks trickle towards failure. If new institutions are in place and ready to go, asset prices will reach clearing level and new investment will recycle assets into productive use. Many assets are already at or near clearing levels. As I said before, high net worth individuals are buying distressed assets. If you combine this recycling with vibrant human capital and a new sense of optimism, now there is something to work with. The new banks could also have new business models that are supportive rather than exploitative. But that is for another post.

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Danny Schechter: Hard Times Are Getting Harder, Left Is Silent

August 25, 2010

Who is Talking About What Matters Aren’t job losses and foreclosures as important as a “Ground Zero Mosque” (that isn’t a mosque, hasn’t been built or isn’t even at ground zero?) We know we live in hard times that are on the verge of getting harder with 500,000 new claims for unemployment last week, a recent record. The stock market may be over for now as fear and panic drives small investors out. Big corporations hoard stashes of cash rather then hire workers. The D-Word (depression) is back in play. Foreclosures are up, and the administration’s programs to stop them are down, well below their stated goals, only helping 1/6th of those promised assistance. And here’s a statistic for you: 300,000. That’s the number of foreclosure filings every month for the past 17 months. This year, 1.9 million homes will be lost, down from 2 million last year. Is that progress? In July alone, 92, 858 homes were repossessed. At the same time, the number of canceled mortgage modifications exceeded the number of successful ones. According to Ml-implode.com, last month, “the number of trial modification cancellations surged to 616,839, greatly outnumbering the 421,804 active permanent modifications.” And don’t think this is only a problem that affects the homeowners about to go homeless. The New York Times quotes Michael Feder, the chief executive of the real estate data firm Radar Logic to the effect that we are all at risk. “My concern is that if we have another protracted housing dip, it’s going to bring the economy down,” Mr. Feder said. “If consumers don’t think their houses are worth what they were six months ago, they’re not going to go out and spend money. I’m concerned this problem isn’t being addressed.” The larger point is that even if you believe the economy is already down, it can go lower. No one knows how to “fix it” either just as BP couldn’t plug the “leak” that, truth be told, is still oozing oil. So what are we doing about it? Are we demanding debt relief or a moratorium on foreclosures? Are we shutting down the foreclosure factories? Nope. Progressives are spending time and wasting passion this August debating on an Islamic Cultural Center near Ground Zero, invariably responding to the provocations and agenda of adversaries. They are always on the defense, never taking the offense. Who is beating the drum for job creation and a new economic policy? Maybe the unions, but their voice is muted and ignored in the electronic noise machine. Marches are planned by the UAW and Rev. Jesse Jackson on August 28th in Detroit and in Washington on 10.02.10. But the expected war of the words between Rev. Al Sharpton and Glenn Beck over the legacy of the March on Washington is expected to generate more heat. Meanwhile, even as the administration seems to be finding signs of a “recovery,” a parade of failures march on from the discovery that there is an oil slick the size of Manhattan in the Gulf to the persistence of frauds in finance from state pension funds in New Jersey to the case against the head of the Bank of America. Even worse, Shorebank, one of the banks that community activists considered a national model of social responsibility has gone down in Chicago, the 104th bank to fail this year with fifteen branches including some in Detroit and Cleveland. It was also active in 40 countries. In June, it reported over $2 billion in deposits. By August, it was gone. In all, 349 US banks have disappeared since 2007. ShoreBank promoted itself as a community development and environmental bank. It was based in Michelle Obama’s old neighborhood with the slogan “Lets Change The World.” Now the world of Wall Street has changed the bank with a partnership of investors including American Express, Bank of America and Goldman Sachs taking over under the name “United Partnership.” Hundreds of other banks are on the FDIC hit parade and may be next. There were many worse casualties in banking in the past according to Barry James Dyke’s informative book, Pirates of Manhattan . He notes that ten thousand banks failed during the depression and 2,900 bit the dust in the S&L crisis. The current number may have been higher had Congress not bailed out the Banksters who used some of our money to play PacMan, gobbling up smaller institutions. AP reported, “ShoreBank lost $39.5 million in the second quarter amid soured real estate loans. The bank had been under a so-called cease and desist order from the FDIC for more than a year, requiring it to boost its capital reserves. ShoreBank was able to raise more than $146 million in capital this spring from several big Wall Street institutions. It was unable, however, to secure federal bailout funds it sought from the Treasury Department’s Troubled Asset Relief Program.” Republicans are “investigating” alleged administration support for the Bank. AP explained, “Rep. Darrell Issa of California, the senior Republican on the House Oversight and Government Reform Committee, sent a letter to a White House legal adviser asking specific questions on possible contacts between administration officials and executives of ShoreBank or potential investors. The White House has said no administration officials met with ShoreBank concerning its rescue or requested help from financial institutions on its behalf.” Questions raised by Republicans, of course, seek to politicize the issue when it is the FDIC ‘s deal with the big banks that needs to be probed, as Zero Hedge explains: “As it stands, Goldman and 11 other banks are receiving a multimillion dollar gift to conduct a portfolio liquidation run-off of ShoreBank’s assets, while merely making sure existing deposits are serviced.” (Note: the FDIC is led by a Republican.) Blogger Mike, “Mish” Shedlock concludes: “The FDIC’s handling of Shore Bank smells as bad as a pile of dead alewives on a Chicago beach in mid-July.” My question is: Why didn’t the administration help shore up ShoreBank (if it could be shored up) as they did so many of the “too big to fail” banks? Their hands-off attitude, perhaps in fear of being criticized, as they were anyway, helped doom the bank and, by extension, the idea that we could have socially responsible lending institutions. So much for the priorities and power of Obama’s “Chicago Mafia.” If they don’t have the guts to save a bank in their own hometown they know has meant so much to so many, is it any wonder they won’t take on the crimes on Wall Street? Last week, Treasury Secretary Tim Geithner was complaining that he is being falsely identified as a “Goldman Guy,” insisting he never worked for the financial institution that was recently branded a “Giant Squid On The Face Of Humanity.” He doesn’t seem to realize that the speculation is not based on the details of his resume but on an assessment of his track record with the pals he worked with when he ran the Federal Reserve Bank in New York. And by the way, Tim, why the hold-up on the appointment of Elizabeth Warren to run the new Consumer Financial Protection Bureau in your old institution? Is she too smart and popular for you? Why the fiddling while our modern Rome burns? News Dissector Danny Schechter directed Plunder The Crime of Our Tim e, a DVD and a companion book, The Crime Of Our Time on the financial crisis as a crime story. Comments to: dissector@mediachannel.org

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In Striking Shift, Small Investors Flee Stock Market

August 22, 2010

Renewed economic uncertainty is testing Americans’ generation-long love affair with the stock market. Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.

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Small U.S. Investors Pull $33.12 Billion From Mutual Funds

August 21, 2010

Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.

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Robert Reich: Forget a Double-Dip, We’re Still in One Long Big Dipper

August 14, 2010

It’s nonsense to think of the economy heading downward again into a double-dip recession when most Americans never emerged from the first dip. We’re still in one long Big Dipper. More people are out of work today than were last year, counting everyone too discouraged even to look for work. The number of workers filing new claims for jobless benefits rose last week to the highest level since February. Not counting temporary census workers, a total of only 12,000 net new private and public jobs were created in July — when 125,000 are needed each month just to keep up with growth in the population of people who want and need to work. Not since the government began to measure the ups and downs of the business cycle has such a deep recession been followed by such anemic job growth. Jobs came back at a faster pace even in March 1933 after the economy started to “recover” from the depths of the Great Depression. Of course, that job growth didn’t last long. That recovery wasn’t really a recovery at all. The Great Depression continued. And that’s exactly my point. The Great Recession continues. Even investors are beginning to see reality. Starting in February the stock market rallied because corporate profits were rising briskly. Investors didn’t mind that profits were coming from payroll cuts, foreign sales, and gimmicks like share buy-backs — none of which could be sustained over the long term. But the rally died in April when investors began to see how paper-thin these profits actually were. And now the stock market is back to where it was at the start of the year. What to do? First, don’t listen to Wall Street and the Right. Forget the Neo-Hoover deficit hawks who say we have to cut government spending and trim upcoming deficits. We didn’t get into this mess and aren’t remaining in it because of budget deficits. In fact, the only way to reduce long-term deficits is to restore jobs and growth so government revenues rise and expenses like unemployment insurance drop. Ignore the government haters who say we have to void or delay upcoming regulations of Wall Street and big business. We got here because Wall Street went bonkers, the housing bubble burst, and the middle class couldn’t continue to spend because their health-care bills were soaring and their pay was stagnating. New regulations of Wall Street and big business are necessary to avoid a repeat. And don’t believe the supply-siders who say we have to extend the Bush tax cuts for the wealthy. Because the wealthy save rather than spend most of their incomes, extending their tax cut won’t do squat. And restoring their marginal tax rate to what it was under Bill Clinton won’t harm the economy. The Clinton years had the best sustained economy in American history. The central problem is lack of demand — and that’s what has to be tackled. Three of the four sources of demand have stopped working. (1) Consumers can’t and won’t buy because they’re still under a huge debt load, can’t get more credit, are afraid of losing their jobs (or already have), depend on two wage earners, at least one of whom is working part-time and pulling in less, or have to save. (2) Businesses won’t invest and spend on creating more jobs if they don’t see consumers willing to buy more. (3) Exports are stalled because the dollar is so high they cost too much, much of the rest of the world is still struggling with recession, and American firms can make things for sale abroad more cheaply abroad. That leaves only one remaining source of demand — government. We need a giant jobs program to hire people and put money in their pockets that they’ll spend and thereby create more jobs. Put ideology aside and recognize this fact. If it makes you more comfortable call it the National Defense Jobs Act. Call it the WPA. Call it Chopped Liver. Whatever, we have to get the great army of the unemployed and underemployed working again. Also: Put more money in consumer’s wallets by eliminating payroll taxes on the first $20K of income (and make it up by applying payroll taxes to incomes over $250K.) Also: Get more hiring by giving the states and locales interest-free loans — so they can rehire all the teachers, fire fighters, police officers, and sanitation workers they’ve fired — to be repaid when their state employment rates hit 5 percent or below. Also: Get more credit by having the Fed return to “quantitative easing” — expanding the money supply by purchasing mortgage-backed and other types of securities. If we let the deficit hawks and government haters dominate this debate, as they have, the Big Dipper will continue for years. The Great Depression lasted twelve. This post originally appeared at RobertReich.org .

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More Evidence U.S. Economic Recovery Is Stalling

August 14, 2010

The U.S. economy and stock market ended one of the grimmer weeks of the year, as disappointing retail sales figures released Friday combined with other dismal data to heighten fears that the nation’s nascent recovery is stalling.

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Video: Prechter Sees U.S. Stock Market Lower, Dollar Higher: Video

August 11, 2010

Aug. 11 (Bloomberg) — Robert Prechter, founder and chief executive officer of Elliot Wave International, talks with Bloomberg’s Pimm Fox about the outlook for the U.S. stock market and dollar. He speaks with Pimm Fox on Bloomberg Television’s “Taking Stock.” (Source: Bloomberg)

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Video: Themis’s Saluzzi Sees `Complacency’ in U.S. Stock Market: Video

August 11, 2010

Aug. 11 (Bloomberg) — Joseph Saluzzi, co-head of equity trading at Themis Trading LLC, talks about the performance of the U.S. stock market, the U.S. economy and the outlook for equities. Saluzzi talks with Carol Massar, Matt Miller, and Adam Johnson on Bloomberg Television’s “Street Smart.” Stutland Equities LLC’s Dan Deming also speaks. (Source: Bloomberg)

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India may allow foreigners to invest in stock market

August 9, 2010

India may allow foreigners to invest in stock market

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Video: Catalpa’s McAlinden Sees New Highs for Stocks This Year: Video

August 5, 2010

Aug. 5 (Bloomberg) — Joseph McAlinden, fund manager at Catalpa Capital LLC, talks about the U.S. economy, stock market and Federal Reserve monetary policy. McAlinden speaks with Pimm Fox on Bloomberg Television’s “Taking Stock.” (Source: Bloomberg)

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Janet Tavakoli: Stranguflation: Deflation and Inflation Where it Hurts America Most

August 3, 2010

The U.S. is suffering from high unemployment combined with too much consumer debt in a weak economy. Current stock market exuberance reflects earnings increases at selective companies that benefited from sputtering stimulus programs. In late 2007 through the fall of 2008, our economy had an appendix attack, and Congress issued potent addictive painkillers instead of fixing our problems. Meanwhile, the financial system has strangled U.S. growth by parasitically growing from 3% of GDP in 1965 to 7.5% of GDP currently. As Jeremy Grantham pointed out in his quarterly letter to investors , financial services were sufficient for the economy when they were 3% of GDP, but that sector grew by strangling GDP growth elsewhere. The nation’s GDP growth slowed from 3.5% in 1965 to 2.4% between 1980 and 2007, and the slowdown occurred before our current crisis. In other words, our bloated financial sector has been sucking the life-blood out of the U.S. economy for years, and recent decisions insure it will continue to feed off taxpayers, while the host economy struggles for life. Jobless “Recovery” Unemployment exceeds 10%, counting the underemployed it is closer to 20%, and the figures soar beyond that when one counts our unemployed youth. The recovery is being strangled in its crib by low job creation, high consumer debt, high local government debt, high federal government debt, and falling tax revenues. Since the first meltdown, we’ve had rising–and still very high–consumer loan defaults. The Fed tried to monetize bad loans, which is just another way of saying the U.S. taxpayer is paying for bad lending decisions by Too Big To Fail financial institutions. Nominal income is falling. Selected prices have fallen more rapidly than income, but we’ve had a negative wealth effect. Housing prices and investment assets fell in value. Consumer loan payments of debt-loaded consumers have to come from falling nominal income. If we didn’t have too much borrowing (leverage) in our system, the Fed’s rapid pumping of money into the economy might have worked. Unfortunately, consumers and many financial institutions are still overleveraged and many of them will default or fail. This continues to be a drag on the economy and on consumer demand. Deflation Plus “Staple” Inflation The economic picture is distorted by both deflation and inflation. Interest rates are low for now, but consumer demand also remains too low. Banks are unwilling to lend to all but those who don’t need money in the first place. The negative wealth effect of reduced home prices, a weak housing market, and reduced value of investment accounts and retirement accounts is combined “staple” inflation on items like school tuition, utilities, certain food items, and even mundane items like printer paper. Many prudent investors and consumers are unwilling to borrow, even at low interest rates. Moreover, consumers are worried about potential local tax rises and federal tax rises, since many local government’s are broke, and our national debt is $13 trillion. If deflationary pressures combined with rising prices on many consumer items weren’t bad enough, many investors are carefully watching long-term U.S. treasury interest rates in case demand for U.S. debt falls and inflation takes off. The economy’s stranguflation is the result of wealth destruction and the quadruple threat of the weak economy, high government debt load, asset deflation with price inflation of essentials, and the fear of future overall inflation. In October 2009, I explained to Max Keiser of The Kaiser Report, why the economy would suffer an ongoing deflation crunch (instead of the stagflation I had originally expected): Janet Tavakoli’s book on the causes of the global financial meltdown and how to fix it is Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street . After Note (August 3): The bailouts were a perversion of capitalism and the principles upon which The Republic was founded. This was the result of influential interested parties reaching into the U.S. Treasury with no accountability. Capitalism doesn’t call for bailouts, instead investors take losses. Shareholders in failed financial institutions should have been wiped out, debt holders would have had to accept discounts combined with debt for equity swaps, and financial institutions would have then been recapitalized without taxpayers footing the bill. Instead banks lobbied for relaxed accounting and ineffective “financial reform.” No one, including bank managers, can tell how much capital is truly needed, and taxpayers’ ongoing heavy subsidies give these financial institutions the appearance of stability.

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Spending Cutbacks By Rich Dampens The Recovery

August 2, 2010

WASHINGTON — Wealthy Americans aren’t spending so freely anymore. And the rest of us are feeling the squeeze. The question is whether the rich will cut back so much as to tip the economy back into recession – or if they will spend at least enough to sustain the recovery. The answer may not be clear for months. But their cutbacks help explain why the rebound could be stalling. The economy grew at just a 2.4 percent rate in the April-June quarter, the government said Friday, much slower than the 3.7 percent rate for the first quarter. Economists say overall consumer spending has slowed mainly because the richest 5 percent of Americans – those earning at least $207,000 – are buying less. They account for about 14 percent of total spending. These shoppers have retrenched as their investment values have sunk and home values have languished. In addition, the most sweeping tax cuts in a generation are due to expire in January, and lawmakers are divided over whether the government can afford to make any of them permanent as the federal budget deficit continues to balloon. President Barack Obama wants to allow the top rates to increase next year for individuals making more than $200,000 and couples making more than $250,000. The wealthy may be keeping some money on the sidelines due to uncertainty over whether or not they will soon face higher taxes. The Standard & Poor’s 500 stock index has tumbled 9.5 percent since its high-water mark in late April. Home values fell 3.2 percent in the first quarter, according to the Standard & Poor’s/Case-Shiller 20-city home price index. Think of the wealthy as the main engine of the economy: When they buy more, the economy hums. When they cut back, it sputters. The rest of us mainly go along for the ride. Earlier this year, gains in stock portfolios had boosted household wealth. And the rich responded by spending freely. That raised hopes the recovery would strengthen. No longer. The dizzying plunge on Wall Street in May and June and lingering stock market turbulence have shrunk Americans’ wealth. The Dow fell 10 percent for the April-June quarter. The broader Standard & Poor’s 500 index dropped 11.9 percent. And the rich are once again more cautious about spending, economists say. The affluent went back to tightening their belts in June after months of vigorous showing. Data from MasterCard Advisors’ SpendingPulse showed luxury spending fell in June for the first time since November. The decline followed a solid rise in sales revenue earlier in the spring. “It isn’t a good omen for the consumer recovery, which cannot exist without the luxury spender,” said Mike Niemira, chief economist at the International Council of Shopping Centers. At the same time, government reports show shoppers as a whole cut back on their spending in both May and June. Companies have responded by refusing to step up hiring. The housing market is stalling. And Americans are seeing little or no pay raises. It adds up to a recipe for a grinding recovery to slow further. And it helps explain why economists expect the rebound to lose momentum in the second half of the year. Especially if the rich don’t resume bigger spending. “They are the bellwether for the economy,” says Mark Zandi, chief economist at Moody’s Analytics. “The fact that they turned more cautious is why the recovery is losing momentum. If they panic again, that would be the fodder for a double-dip recession.” That’s because whether they’re saving or spending, the wealthy deliver an outsize impact on the economy. What’s not clear is whether they will remain too nervous to spend freely again for many months. That’s what happened when the recession hit in December 2007 and then when the financial crisis ignited in September 2008. As their stock holdings and home values sank, the affluent lost wealth. Their jobs weren’t safe, either. Bankers, lawyers, accountants and mortgage brokers were among those getting pink-slipped. Those who did have jobs feared losing them. Neither group spent much. Instead, Americans’ savings rate spiked. And most of the increase came from the richest 5 percent, according to research by Moody’s Analytics. In the first quarter of this year, stocks rebounded, layoffs slowed and the rich were spending again. But now the rich are building up their savings and splurging less on discretionary items. That’s starting to show up in softer sales at upscale retailers, such as Neiman Marcus and Saks Inc. It’s because people like Angeli Gianchandani, 40, have cut back. She used to hit the mall every two weeks – flicking through the racks at Saks or Bloomingdale’s and returning home with a new frock. Not anymore. She’s limiting her splurges now. The downturn in the stock market has played a role. “Rather than spending more money, I’m keeping more,” says Gianchandani, who lives in New Jersey. Even with recent losses, household net worth has risen 13 percent from its bottom during the recession. Net worth – the value of assets like homes, checking accounts and investments minus debts like mortgages and credit cards – grew 2.1 percent in the first quarter. However, net worth would have to grow 21 percent more to regain its pre-recession peak. In the meantime, don’t expect the wealthy to suddenly start spending lavishly. “The affluent – as their wealth goes down – they’ll become more and more conservative,” predicts David Levy, chairman of the Jerome Levy Forecasting Center. ___ Associated Press Writer Anne D’Innocenzio in New York contributed to this report.

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Video: Nomura’s Darby Says China A-Shares May Be Poised to Rise: Video

August 1, 2010

Aug. 2 (Bloomberg) — Sean Darby, chief Asian equity strategist at Nomura Holdings Inc. in Hong Kong, speaks with Bloomberg’s Rishaad Salamat about China’s stock market and economy. China’s manufacturing grew at the slowest pace in 17 months in July as the government clamped down on property speculation and investment in energy-intensive and polluting factories. Darby also discusses China’s currency policy. (Source: Bloomberg)

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Irene Aldridge: Small Investors and the Implications of the Financial Reform Bill

July 27, 2010

About the time of the “flash crash” of May 6, 2010, many small investors appear to have left the U.S. stock markets, according to a recent Wall Street Journal article . The Financial Reform Bill, passed and celebrated with much fanfare last week, is sometimes thought to help bring those investors and their cash back into the equity markets. This articles takes a close look at the likely causes underlying the investor exodus, the Bill and its probable effect on investor behavior. First, a bit about the Bill. The Financial Reform Bill is certainly an accomplishment for the current administration. Earning a consensus on the complicated subject of financial regulation is a coup in its own right. By carefully reading through the text of the Bill itself, however, one may surmise that the Bill is really designed to benefit the U.S. Securities and Exchange Commission (the SEC) the most. The Bill gives the SEC the authority it needs to collect and analyze information on market activity, to gain more control over the regulation of commodities, futures (currently regulated by the Commodities and Futures Trading Commission), other non-equity securities, as well as large hedge funds with assets under management exceeding $100 million. The Bill also imposes tighter capital requirements on banks, but only the largest banks, those with total capitalization of at least $500 billion. Smaller banks (and in the U.S., one can open a bank with as little as $10 million in capital), are largely left to their own devices in the Bill. While it will probably take the SEC another year to interpret and implement the Bill into actionable regulatory items, some implications for investors are already predictable. According to the research I conducted during my PhD studies, stricter SEC regulation typically reduces volatility in the financial services sector, stabilizing stock prices of financial services firms. Reduced volatility, in turn, will translate into lower volatility for major stock market indexes, such as the Dow Jones or the S&P 500, infusing some confidence into investors. Yet, it remains to be seen whether the stability of the market will be enough to entice investors to bring out their cash. And the rationale for the investors’ reticence is simple. While many a traditional broker blames the investor exodus from the markets on the latest technological innovations, like high-frequency trading, many investors have taken out their cash out of stocks for more prosaic reasons: concerns about deflation and the dire financial situation of their local municipalities. Due to deflation , every $1000 kept in cash from the beginning of April 2010 through the end of June now has the purchasing power of $1004 ($4 increase) in comparison with April. In other words, an investor who held on to his $1000 cash from April through the end of June can buy $4 more in average goods now than he could in April. In comparison, an investor who kept his $1000 in the S&P 500 from the start of April through the end of June lost $9 in his investment over the same period, reducing his original $1000 to $995 in nominal terms and to $991 in deflation-adjusted April purchasing power. Naturally, as long as deflation continues and the S&P 500 generates return insufficient to cover deflation, stuffing cash into one’s mattress is an attractive “investment” strategy. Then there is all this mess with the municipalities. To finance even the most basic local services, such as public schooling and garbage collection, the local governments rely on municipal taxation of its residents. Due to the high unemployment rate lingering in the U.S. economy, tax revenues were pitiful in the past couple of years, draining government coffers. And while the Federal government can always solve this situation by printing more money, municipalities’ two options are 1) issuing additional debt, and 2) cutting public services. Some municipalities have such a low credit rating that they have to resort to option 2. Now imagine investors facing the following option: whether to invest the money into the stock market or to have the money in cash or bonds in order to pay for their basic daily services, like children’s school arrangements — avoiding the stock market clearly takes the upper hand in this situation. Overall, however, things are likely to look up in the stock market, at least until the Fall Elections. According to the latest research by Axel Dreher and Roland Vaubel ( Journal of International Money and Finance , 2009), the governments have tools at their disposal to create temporary bursts of economic activity. Predictably, these bursts are often summoned ahead of elections to buoy voters’ confidence in the incumbent politicians. As a consequence, the U.S. investors are likely to see solid returns in the markets through October 2010. Yet the future of the markets beyond the election date is highly uncertain, regardless of whether the Financial Reform Bill is acted upon or not.

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Midterm Elections 2010: Politicking Hovers Over Economic Decisions

July 22, 2010

WASHINGTON — Midterm politics are distorting economic decision-making as leaders of both parties spin rival views of the road ahead, offering visions based on questionable economics. The resulting political angst is leaving a mark on major legislation. A far-reaching financial overhaul bill signed by President Barack Obama on Wednesday reflects voter anger over bankers, bailouts and bonuses. A measure extending unemployment insurance, soon to be on Obama’s desk, was scaled back from an earlier, far more ambitious Democratic stimulus plan. Angling for advantage, Democrats look to troubles before Obama took office. “It’s a choice between the policies that got us in this mess in the first place and the policies that are getting us out of this mess,” asserts Obama. Republicans seek an edge by looking ahead. “More government, fewer jobs: This isn’t the picture of recovery; it’s the epitome of failure,” says House Republican Leader John Boehner of Ohio. Both sides are exaggerating, say economists and political analysts. And things will only get messier as November’s congressional elections draw closer. Politicians of all stripes are under heavy pressure from polls that show increasing voter worry about alarmingly high unemployment, growing government debt and rising skepticism over Obama’s ability to help the economy. By contrast, 64 percent of economists surveyed in a Wall Street Journal-NBC News poll said the economy would get better over the next 12 months – compared with just 33 percent among the general public who said they believed that. “The election is certainly coloring the decision-making process in Washington, as one would expect,” said Mark Zandi, chief economist at Moody’s Analytics. Zandi, who has advised both Republican and Democratic lawmakers, said the political gamesmanship comes as the economy remains “in a precarious situation” despite earlier signs of a rebound. Fed Chairman Ben Bernanke reinforced this view, telling Congress on Wednesday the economy is “unusually uncertain.” But he did not forecast that it would fall back into recession. In office 18 months, Obama is still running against the policies of George W. Bush and cites “nearly a decade of not paying for key policies and programs” such as the wars in Iraq and Afghanistan, big tax cuts and a costly Medicare prescription drug program. Bush came to office with a $236 billion budget surplus in 2001, says Obama. “The day I took office, eight years later, America faced a record $1.3 trillion deficit.” But blaming the country’s economic woes on Bush tax cuts and spending is a stretch. It ignores the fact that as recently as 2007, the budget deficit was just $162 billion – long after Bush’s tax cuts of 2001 and 2003 kicked in and spending on the two wars and on the Medicare program was in place. Furthermore, the projected surplus reflected a continuation of the bubble economy of the late 1990s, when the stock market was soaring, high-tech businesses were on a roll and corporate profits were surging. Those surpluses would have evaporated no matter who became president in 2001. The rise in the annual deficit from $162 billion in 2007 to over $1 trillion now is largely due to collapsing tax revenues from the recession that began in December 2007, and stimulus and bailout spending by both Bush and Obama, said Brian Riedl, a budget analyst at the Heritage Foundation. The Bush tax cuts and other policies are “a convenient scapegoat for past and future budget woes,” he said, but can’t be blamed for today’s trillion-dollar deficits – or future ones. “Over the next 10 years, virtually 100 percent of the rising deficits” will be driven by “entitlement” programs such as Social Security, Medicare and Medicaid and interest payments on the $13.2 trillion national debt, Riedl said. Most economists – as well as Obama – seem to agree. For their part, Republicans paint a grim picture of Obama’s stewardship, claiming his $862 billion 2009 stimulus package failed to produce many new jobs – with over 14.7 million Americans out of work and the jobless rate stuck for months near 10 percent. But economists generally agree that the Obama stimulus measures, plus bank and auto company bailouts begun under Bush, did keep the economy from plunging into another Great Depression and have recently contributed, at the least, to modest job growth. “Even GOP economists acknowledge that without the big fiscal stimulus and two years of near-zero interest rates, we wouldn’t have moved from losing half a million jobs a month to a small gain,” said Rob Shapiro, a former economic adviser to President Bill Clinton and now chairman of Sonecon, a consulting firm. “The Republicans are simply making a political case. The economy is slow, which is true. They’re blaming the stimulus, which is false. But their success in doing that has constrained Democrats as well,” Shapiro said. As a result, talking about budget restraint is clearly the order of the day – even though Obama himself and many economists warn some additional government spending is needed to keep the economy from slipping back into recession. This stimulus downshift can clearly be seen in the legislation to renew the extension of unemployment compensation for up to 99 weeks for more than 2.5 million out-of-work Americans whose benefits have expired. The roughly $34 billion cost of the plan will be paid for by new borrowing. Until this week, Republicans had blocked the bill for months, arguing that the expense shouldn’t be used to increase the $13.2 trillion national debt. And even though Senate Democratic leaders were finally able to eke out a victory this week, they had to scale back their proposal from an original plan for a $120 billion package that included various other new stimulus items, including aid to cash-strapped states. The House was expected to give final approval to the measure on Thursday. Obama is set to sign it as soon as it reaches him.

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Video: Springer Sees U.S. GDP Missing Forecasts as Demand Wanes: Video

July 21, 2010

July 21 (Bloomberg) — Keith Springer, president of Capital Financial Advisory Services, talks about the outlook for the U.S. economy. Springer also discusses the outlook for the U.S. stock market and his investment strategy. Springer talks with Pimm Fox on Bloomberg Television’s “Taking Stock.” (Source: Bloomberg)

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Video: Knapp Says Earnings Give `Some Scope’ To Rally in Stocks: Video

July 19, 2010

July 19 (Bloomberg) — Barry Knapp, head of U.S. equity strategy at Barclays Capital, talks about the outlook for the U.S. stock market for the second half of 2010. Knapp speaks with Matt Miller and Carol Massar on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Video: BoCom’s Law Says Hang Seng Index May Fall Below 18,000: Video

July 18, 2010

July 19 (Bloomberg) — Ka Chung Law, chief economist and strategist at the Hong Kong branch of Bank of Communications Ltd., China’s fifth-biggest lender, talks with Bloomberg’s Susan Li about his outlook for the Hong Kong stock market and global economy. Hong Kong stocks dipped on Friday after the U.S. reported manufacturing declined, heightening concern an economic recovery may falter. (Source: Bloomberg)

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Bank Of America 2Q Profit Jumps 15 Percent

July 16, 2010

NEW YORK — Bank of America said Friday its second-quarter net income rose 15 percent to $2.78 billion as improvements in the company’s consumer loan businesses made up for a drop in trading revenue. The bank’s results beat expectations and provided further evidence that losses from failed loans at the nation’s big banks may have peaked in the first half of 2010. Bank of America says it reserves to cover losses from loans fell 17 percent from the first quarter of this year and 39 percent from a year ago. Citigroup Inc. on Friday and JPMorgan Chase & Co. on Thursday also reported improvements in their consumer loan businesses. In a statement, Bank of America chief executive Brian Moynihan said the company’s “credit quality improved even faster than we expected.” Bank CEOs have been cautious throughout the aftermath of the 2008 financial crisis when reporting progess in their loan businesses. Economists and investors are looking to those loan loss levels as an indicator of how well the economic recovery is faring. Bank of America’s second-quarter net income, which reflected the payment of dividends on preferred stock, amounted to 27 cents per share. A year ago, the bank earned $2.42 billion, or 33 cents per share. Analysts expected profit of 22 cents per share in the most recent quarter, according to Thomson Reuters. Revenue totaled nearly $30 billion in the quarter, down 11 percent from a year ago. Despite the higher profit, investors took a dim view of the company’s results. Bank of America’s stock fell $1.16, or 7.54 percent, to $14.23. One concern for investors: how banks will make money going forward amid lower trading profits, weak loan demand and tighter federal oversight following the passage of the sweeping financial overhaul legislation. “There’s a lot of headwinds facing the banks, and investors are clearly worried about where the revenue will come from,” said Shannon Stemm, a financial services analyst with Edward Jones. Revenue in the company’s trading business, which includes the Merrill Lynch operation, fell 42 percent from a year ago to $6 billion because of the steep dive the stock market took during the spring. Citigroup and JPMorgan Chase reported a similar slump in trading income. The Standard & Poor’s 500 index, considered the best measure of how stocks have fared, fell 11.9 percent from April through June, its worst showing since the financial crisis devastated stocks in the fourth quarter of 2008. All the banks with big trading operations, particularly Goldman Sachs and Morgan Stanley, are expected to report a drop in their income from those businesses. Bank of America said revenue from trading of bonds, currencies and commodities fell $500 million from a year ago to $2.6 billion as the European debt crisis roiled financial markets. Revenue from stock trading fell $300 million to $1 billion. In a conference call with analysts, Moynihan said the bank nimbly adjusted its trading positions during the Europe debt crisis but said “we have to be much stronger risk managers” going forward. Moynhihan said the bank expects economic growth at an annual rate of 2.5 percent in the second half of the year. That’s more bearish than the Federal Reserve’s recently reduced forecast of between 3 percent and 3.5 percent growth for 2010. “Our experts don’t believe there will be a double dip,” or the economy falling back into recession, Moynihan said. Still, he added that the bank is worried about slowing momentum in consumer spending and is monitoring the housing market for more signs of weakness that could pressure profits and revenue. The Charlotte, N.C.-based bank was among the hardest hit during the credit crisis, and received $45 billion in bailout funds from the federal government including $20 billion for Merrill Lynch. It repaid the money last year. Like nearly all banks in the country, the company faced waves of loan defaults as more customers fell behind and investments soured. The defaults have slowed but remain elevated, leaving banks will billions in losses and making them reluctant to lend. And many consumers and small businesses are unwilling to take on more debt, a trend that reduces demand for loans. But the improving credit picture at Bank of America and JPMorgan offers hope that the economic recovery is taking hold and that banks’ lending businesses could be returning to normal. Both Bank of America and JPMorgan added money to their reserves against loan losses loans during the second quarter, but the amounts fell sharply. That means fewer Americans are falling behind on their loans for homes, credit cards and other items. Still, overall demand for credit remains “weak,” Moynihan said. Bank of America extended $174 billion in credit during the second quarter. Most of the money financed first mortgages and commercial real estate. However, Moynihan said business clients are saving money, not borrowing, as they wait for signs of a robust recovery. “They tell us that they are reluctant to expand due to uncertainty they see in the future,” Moynihan said. An increase in loan demand from small and midsize businesses is crucial to ensuring a sustainable recovery. A big question for Bank of America and other big banks is how the sweeping financial overhaul legislation will affect profits. Congress on Thursday passed the bill, the stiffest restrictions on banks since the Great Depression. The new rules on everything from capital levels to debit cards and trading of risky securities are aimed at preventing a repeat of the 2008 financial crisis. Moynihan said it will take time to adapt to the new rules and didn’t rule out adjusting customer fees to offset the expected hit to revenue. “All those (options) are on the table,” Moynihan said.

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Citigroup Profit Falls 10 Percent In 2Q, But Bank Sees Fewer Loan Losses

July 16, 2010

NEW YORK — Citigroup said Friday its second-quarter net income dropped 10 percent to $2.7 billion even as its losses from failed loans fell. The drop in income reflects the bank’s sale a year ago of the Smith Barney brokerage, which inflated its earnings at the time. Citigroup Inc. joins JPMorgan Chase & Co. and Bank of America Corp. in reporting earnings that rose in the April-June period as loan losses fell. That’s a positive sign for the economy, because it indicates that consumers are having an easier time paying their debts. But Citigroup, like the other banks, also had a decline in trading revenue because of the stock market’s plunge this spring. Citigroup was among the hardest hit banks by the financial crisis of 2008, and it was further hurt as many customers fell behind in loan payments during the recession. The bank’s losses from failed loans fell 31 percent to $7.96 billion during the April-June period from $11.47 billion a year ago. Despite the improving trend, CEO Vikram Pandit remained cautious about future growth, saying in a statement that “economic conditions remain challenging.” Like JPMorgan, Citigroup also removed some money from its reserves for future loan losses, which helps boost earnings. It’s also an indication that the bank is becoming more confident that the worst of the defaults is over and that delinquency and default levels are likely to shrink in the coming quarters. Citigroup removed $1.51 billion from its loss reserves during the quarter. A year earlier, the bank added $4 billion to those reserves. John Gerspach, Citi’s chief financial officer, said during a conference call with reporters that reserves could be released in future quarters as well if credit trends continue to improve. Loan losses have dropped four straight quarter, and Gerspach said he was particularly encouraged by a slowdown in new delinquencies in the credit card business. “It’s a business I’d expect to get back on its feet through 2011,” Gerspach said of Citi’s big credit card lending division. The stock market’s slump sent Citigroup’s revenue from its securities and banking division down 11 percent from a year earlier to $6 billion. That was down 26 percent from the first quarter. Citigroup said it earned $2.7 billion, or 9 cents per share, during the April-June period. That compares with $3 billion, or 49 cents per share, during the same quarter last year. The year-ago period’s profit was inflated because Citigroup recorded an after-tax gain of $6.7 billion during the quarter from the sale of a majority stake in Smith Barney to Morgan Stanley. Analysts forecast the bank would earn 5 cents per share. Total revenue fell 33 percent to $22.07 billion from $33.1 billion during the year-ago period. Citigroup’s revenue fell just short of the $22.16 billion analysts had forecast. Citigroup received $45 billion in government bailout money during the 2008 financial crisis. The company repaid $20 billion of the money late last year and the rest was converted into common stock. At the time Citi repaid the $20 billion, the government said it would sell the $25 billion in stock by the end of 2010. Earlier this month, the government said it has now sold a total of 2.6 billion shares at a profit. It still owns 5.1 billion shares. Shares of Citi fell 10 cents to $4.06 in pre-opening trading. Citi Holdings, which holds assets the company decided to sell including its worst-performing loans, lost $1.21 billion during the most recent quarter, compared with a profit of $1.22 billion last year. The year-ago figures includes the gain from the sale of Smith Barney.

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Don McNay: After Goldman Give Up, Why Would Wall Street Be Scared of SEC?

July 15, 2010

My father was a professional gambler and used to carry a roll of money that he called “walking around” money. Walking around money is what the SEC settled for in the Goldman Sachs case. $550 million is walking around money to a company like Goldman Sachs. It is less than 5% of the $10 billion in bonuses it paid itself last year. Maybe “walking around” money is an understatement. The stock market understood that Goldman got the best of the deal. Goldman’s stock price surged 4.43% on rumors of a settlement. As the Huffington Post pointed out, the stock gain was probably enough to cover the $550 million fine. Also, Goldman got a monkey off its back. It can go on without a lawsuit hanging over its head. If the SEC had taken the time to do a through and complete investigations, who knows what they would have found. In its never ending ability to accommodate Wall Street, the SEC announced the settlement on the day when the rest of the world was focused on passage of the financial reform bill. Thus, whatever “embarrassment” Goldman might have suffered was mitigated by the settlement not being a top news story. One of the first tricks they teach you in corporate public relations is to release bad news on a day when it will get buried. Goldman is rich enough to hire the best public relations people. And it looks like the best lawyers. There has to be some major high fives going on in the boardroom after getting such a sweet heart deal. I am not sure what the SEC hoped to accomplish with a quick and inadequate settlement. It didn’t make those of us on Main Street feel any better about our “watchdog.” It just gave more evidence that the SEC is safely in the arms of Wall Street. Don McNay, CLU, ChFC, MSFS, CSSC is an award-winning financial columnist and Huffington Post Contributor. You can read more about Don at www.donmcnay.com McNay has Master’s Degrees from Vanderbilt and the American College and is in the Hall of Distinguished Alumni of Eastern Kentucky University. McNay has written two books. Most recent is Son of a Son of a Gambler: Winners, Losers and What to Do When You Win The Lottery McNay is a lifetime member of the Million Dollar Round Table and has four professional designations in the financial services field.

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Intel Profit: Chipmaker Posts Biggest Quarterly Profit In A Decade

July 13, 2010

SAN FRANCISCO — Intel Corp. has booked its largest quarterly net income in a decade as the chipmaker benefits from a stronger computer market and more sophisticated factories. Large corporations bought more computers that use Intel’s most expensive chips, an encouraging sign for the economy that emerged from Intel’s second-quarter numbers, reported Tuesday after the stock market closed. Corporations have been stingy on upgrading their workers’ personal computers, a trend Intel is now seeing reverse. Intel gets most of its profit from the sale of chips that go into PCs. Intel CEO Paul Otellini said companies are starting to replace 4- and 5-year-old PCs now that they have some “breathing room in the economy and their budgets.” Intel has unique insight because it owns 80 percent of the worldwide market for microprocessors, the “brains” of PCs and servers. The numbers offer further evidence that companies are freeing their technology budgets, which should have helped other big technology companies. Intel’s main rival, Advanced Micro Devices Inc., reports its quarterly results on Thursday, while IBM Corp. and Microsoft Corp. issue their numbers next week. Intel’s results topped Wall Street’s forecasts, and the company raised its guidance. Its shares rose more than 7 percent in extended trading. Intel’s net income was $2.89 billion, or 51 cents per share, in the quarter ended June 26. Analysts expected 43 cents per share. The last time Intel’s quarterly net income topped $2.5 billion was in 2000 during the dot-com heyday, when Internet fever fueled spectacular computer sales. In the year-ago period, Intel lost $398 million, or 7 cents per share, when it paid a $1.45 billion fine in Europe over antitrust violations. Revenue was $10.77 billion in the latest period, above the $10.25 billion expected by analysts surveyed by Thomson Reuters. Intel’s third-quarter forecast was stronger than expected. It said it expects revenue of $11.20 billion to $12 billion. Analysts were projecting $10.92 billion. Intel’s profit forecast also got a lift. Intel now expects gross profit margin – a key measure of a company’s ability to control costs – of 64 percent to 68 percent of revenue for the full year. Its previous forecast was for 62 percent to 66 percent. Technological upgrades to its factories have made Intel’s chips more powerful and cheaper to make. That’s a major factor in Intel’s ability to increase its profit margins. Its business has improved over the past year and a half largely on robust consumer spending on discounted PCs. Corporate spending on PCs has been a troubled corner of the market. Many companies have resisted upgrading their workers’ PCs amid lingering fears about the health of their businesses. It has been more than a year since Intel CEO Paul Otellini declared that PC sales had “bottomed out” and were starting to recover after their worst stretch in six years. His analysis was accurate, but the semiconductor business is highly cyclical and now many analysts worry that another slowdown could be around the corner. The fears are being stoked by economic wobbliness in Europe and signs of slowing demand in China. More than half of Intel’s revenue comes from Europe and the Asia-Pacific region. On a conference call with analysts, Otellini said business in China and Europe was slow when the quarter started but “settled down” by the end of the quarter and were “nicely up” in both regions. Market research firms IDC and Gartner Inc. predict that PC shipments will grow a robust 20 percent this year. Shares of Intel, which is based in Santa Clara, rose $1.54, or 7.3 percent, to $22.55 in extended trading. In regular trading earlier, it jumped 44 cents, or 2.1 percent, to close at $21.01.

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Dan Dorfman: Day of the Lion or the Lamb?

July 13, 2010

Will the lion — the suddenly resurging stock market — continue to roar or revert back to a lamb? That was the question of the hour among Wall Street pros over the weekend, following a great week for investors. After a bruising six-week loss of 16% between early March and late April, the slumping, schizophrenic stock market suddenly looked like a lion again last week by awakening from its Rip Van Winkle slumber and transforming itself into Superman, LeBron James and Samson all wrapped into one. As a result, the Dow zoomed 5.3% or 511.55 points in four consecutive winning sessions, in the process racking up its best week of the year. That surge raises a perplexing question: Was the giant gain a fluke or the start of something big? Judging from what I hear from Sam Stovall, the chief investment strategist of Standard & Poor’s, don’t bet the farm on further near term gains. He opts for the meekness of the lamb, telling me “I’m getting concerned.” In effect, Stovall challenges those rosy market forecasts based on the expected emergence of a decidedly peppier economy, a logical extension of President Obama’s repeated promises of an economic scenario characterized by much better times ahead. Stovall is not alone in his skepticism. If indeed a zippier economy is factored into forecasts of a sunnier market, it would surely be viewed as pure hokum by the employees of Wells Fargo, which just announced plans to lay off 3,800 workers, as well as the folks at Merck, which followed with the news that it will ditch 15% of its workforce. You can also toss in a dubious note from the 15 million unemployed Americans who can’t find jobs. To give any credibility to expectations of a more vibrant economy means you must ignore or minimize the effects of a number of economic storm warnings that makes any exuberance highly suspect. Here are some of these warnings. The housing market is starting to crack. A jobless rate of 9% to 10% (now 9.5%) is expected by numerous economists to last for another couple of years, with some saying a workforce close to pre-recession levels is unlikely before 2013 or 2014 at the earliest. Consumer confidence is plummeting. Chinese economic growth is slowing. And the International Monetary Fund has just warned that Europe’s debt crises are threatening to spill over to other regions. Stovall, who leaned to the optimistic side in earlier interviews I did with him this year and has now shifted gears, voices some clear economic concern, given his belief the recovery will be half-speed at best, meaning, he says, GDP will likely grow 3% to 3.5% this year, versus a more normal 7% in the early stages of an economic recovery. Why a slower rate of economic growth? Stovall sees three main drags — continuing high unemployment (which he pegs at 9.7% this year and 9.2% next year), high consumer and government debt levels, which should pressure growth, and a further reduction in non-residential construction. Interestingly, a concerned Standard & Poor’s recently downgraded its expectations this year for the S&P 500 from 1270 to 1190 (now 2,196), and is recommending an underweighting in equities and an overweighting in cash. On a more bearish note, Stovall says several of the firm’s technical indicators suggest a 50% retracement of the bull market advance from March 9, 2009, through April 23, 2010. If that were to happen, he says, we would see the S&P 500 tumble to 950 and the resumption of a bear market, since the S&P 500 would have fallen 22% from its recovery high. Stovall blames the 16% market decline in the latter part of the second quarter on a four-letter word: fear. Defining these letters, he points to F — financial reform legislation; E — environmental impact of the Gulf Coast oil spill; A — Asian tensions, particularly as it relates to Chinese growth; and R — recession or the world slipping into a double-dip as a result of sovereign debt worries and a slowdown in U.S. consumer spending. Stovall, who has examined the patterns of 17 bear market declines (10% to 20%) since World War II, says history would suggest we now have a greater chance of morphing into a new bear market than we do of emerging from a correction. Stovall, who characterizes himself as a near-term bear and a long-term bull, notes that his cautious posture for now could be open to question based on the vigor, or lack of it, of second quarter earnings reports and company earnings guidance for the rest of 2010, both of which we’ll begin to see this week.. Stovall expects S&P 500 earnings to rise 42% in the second quarter, followed by decelerating growth of 31% and 28%, respectively, in the third and fourth quarters. He notes these are fairly optimistic predictions, but points out the comparisons are easy because we’re coming off a low base. For those investors who disagree with Stovall’s near-term worries and believe the giant four-day rally represents a positive market turn, he gave me his five favorite stocks for the long term, all sporting S&P’s highest five-star rankings. They are Chevron, CVS Caremark, IBM, Medtronic and Oracle, all rated market outperformers over the next 12 months. While they may seem appealing, keep in mind the jury is still out whether this will be the year of the lion or the lamb. With all the land mines out there, common sense, judging from Stovall’s thoughts, suggests that as far as putting new money to work in the market is concerned, be a lamb. What do you think? E-mail me at Dandordan@aol.com.

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Dan Dorfman: Day of the Lion or the Lamb?

July 13, 2010

Will the lion — the suddenly resurging stock market — continue to roar or revert back to a lamb? That was the question of the hour among Wall Street pros over the weekend, following a great week for investors. After a bruising six-week loss of 16% between early March and late April, the slumping, schizophrenic stock market suddenly looked like a lion again last week by awakening from its Rip Van Winkle slumber and transforming itself into Superman, LeBron James and Samson all wrapped into one. As a result, the Dow zoomed 5.3% or 511.55 points in four consecutive winning sessions, in the process racking up its best week of the year. That surge raises a perplexing question: Was the giant gain a fluke or the start of something big? Judging from what I hear from Sam Stovall, the chief investment strategist of Standard & Poor’s, don’t bet the farm on further near term gains. He opts for the meekness of the lamb, telling me “I’m getting concerned.” In effect, Stovall challenges those rosy market forecasts based on the expected emergence of a decidedly peppier economy, a logical extension of President Obama’s repeated promises of an economic scenario characterized by much better times ahead. Stovall is not alone in his skepticism. If indeed a zippier economy is factored into forecasts of a sunnier market, it would surely be viewed as pure hokum by the employees of Wells Fargo, which just announced plans to lay off 3,800 workers, as well as the folks at Merck, which followed with the news that it will ditch 15% of its workforce. You can also toss in a dubious note from the 15 million unemployed Americans who can’t find jobs. To give any credibility to expectations of a more vibrant economy means you must ignore or minimize the effects of a number of economic storm warnings that makes any exuberance highly suspect. Here are some of these warnings. The housing market is starting to crack. A jobless rate of 9% to 10% (now 9.5%) is expected by numerous economists to last for another couple of years, with some saying a workforce close to pre-recession levels is unlikely before 2013 or 2014 at the earliest. Consumer confidence is plummeting. Chinese economic growth is slowing. And the International Monetary Fund has just warned that Europe’s debt crises are threatening to spill over to other regions. Stovall, who leaned to the optimistic side in earlier interviews I did with him this year and has now shifted gears, voices some clear economic concern, given his belief the recovery will be half-speed at best, meaning, he says, GDP will likely grow 3% to 3.5% this year, versus a more normal 7% in the early stages of an economic recovery. Why a slower rate of economic growth? Stovall sees three main drags — continuing high unemployment (which he pegs at 9.7% this year and 9.2% next year), high consumer and government debt levels, which should pressure growth, and a further reduction in non-residential construction. Interestingly, a concerned Standard & Poor’s recently downgraded its expectations this year for the S&P 500 from 1270 to 1190 (now 2,196), and is recommending an underweighting in equities and an overweighting in cash. On a more bearish note, Stovall says several of the firm’s technical indicators suggest a 50% retracement of the bull market advance from March 9, 2009, through April 23, 2010. If that were to happen, he says, we would see the S&P 500 tumble to 950 and the resumption of a bear market, since the S&P 500 would have fallen 22% from its recovery high. Stovall blames the 16% market decline in the latter part of the second quarter on a four-letter word: fear. Defining these letters, he points to F — financial reform legislation; E — environmental impact of the Gulf Coast oil spill; A — Asian tensions, particularly as it relates to Chinese growth; and R — recession or the world slipping into a double-dip as a result of sovereign debt worries and a slowdown in U.S. consumer spending. Stovall, who has examined the patterns of 17 bear market declines (10% to 20%) since World War II, says history would suggest we now have a greater chance of morphing into a new bear market than we do of emerging from a correction. Stovall, who characterizes himself as a near-term bear and a long-term bull, notes that his cautious posture for now could be open to question based on the vigor, or lack of it, of second quarter earnings reports and company earnings guidance for the rest of 2010, both of which we’ll begin to see this week.. Stovall expects S&P 500 earnings to rise 42% in the second quarter, followed by decelerating growth of 31% and 28%, respectively, in the third and fourth quarters. He notes these are fairly optimistic predictions, but points out the comparisons are easy because we’re coming off a low base. For those investors who disagree with Stovall’s near-term worries and believe the giant four-day rally represents a positive market turn, he gave me his five favorite stocks for the long term, all sporting S&P’s highest five-star rankings. They are Chevron, CVS Caremark, IBM, Medtronic and Oracle, all rated market outperformers over the next 12 months. While they may seem appealing, keep in mind the jury is still out whether this will be the year of the lion or the lamb. With all the land mines out there, common sense, judging from Stovall’s thoughts, suggests that as far as putting new money to work in the market is concerned, be a lamb. What do you think? E-mail me at Dandordan@aol.com.

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Is The Stock Market Too Volatile For Small Investors? (POLL)

July 12, 2010

Things are just too hairy in the stock market for thousands of small investors , the Wall Street Journal reports this morning. Faced with this May’s puzzling “flash crash” and an increasing skepticism of Wall Street, the role of the everyday investor is waning and the market “increasingly dominated by professionals,” the paper notes . The WSJ ‘s look into the fear gripping the stock market comes on the heels of a recent profile in the New York Times of Robert Prechter , an analyst who predicts the Dow will fall to 1,000 in the next five or six years. Prechter’s advice, though certainly unorthodox, has struck a chord with many investors — and the profile was widely circulated on the web. He suggests that investors should move into cash and suggests the Depression-like drop in equities will be the trading opportunity of a lifetime. If nothing else, Prechter’s approach seems to echo the sentiment of many households with 401Ks that are still reeling from this year’s wild stock market volatility. As Prechter put it, “Other people are advising people to stay naked. If I’m wrong, you’re not hurt. If they’re wrong, you’re dead. It’s pretty benign advice to opt for safety for a while.” Reuters blogger Felix Salmon suggested that everyday investors are quite sensible to flee the stock market’s new age of volatility. Despite what you may think about the “equity premium” — the idea that stocks will outperform other assets over the long run — Salmon argued in May that most investors just can’t stomach the ups and downs of a rocky story market. Buried in the WSJ’s portrayal of a handful of small investors have become disillusioned with stock market is one key notion. Stocks have gone through more than a temporary dip, they’ve deeply underperformed for a huge swath of retail investors. As the WSJ put it: “Stocks had developed an almost cult-like following in the 1980s and 1990s, when they were among the best investments available. But in the past decade, big U.S. stocks have had the worst performance of nine major investment classes tracked by investment research firm Morningstar.” What do you think?

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Video: McNamara Says U.S. Retailers Relied on Discounts in June: Video

July 8, 2010

July 8 (Bloomberg) — Michael McNamara, vice president of research and analysis at MasterCard Advisors SpendingPulse, discusses sales by U.S. retailers in June and the impact of stock market and dollar on the sale of luxury items. U.S. retailers reported sales gains in June as record high temperatures on the East Coast pushed more shoppers into air-conditioned malls. McNamara speaks with Margaret Brennan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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Dan Dorfman: Hurry, Look for the Escape Hatch

July 3, 2010

“The winter of our discontent” was one of Shakespeare’s more memorable lines in Richard III. As far as Wall Street goes, a more appropriate designation for this season might well be our summer of discontent. The reason: Non-stop economic and financial decay around the globe, including here, which continues to rapidly erode stock prices. The numbers tell the abysmal story. After an 11.5% loss in May and June, the Dow tumbled another 457 points last week in five straight losing sessions. Wrapping up the week was Friday’s drop of 46 points in response to the disclosure of June’s disappointing unemployment report. The key question? Is a significant outbreak of panic selling — the kind that butchered the market in 2008 and early 2009 — on the way? Some Wall Streeters suggest a growing possibility, based on an onslaught of troublesome and potential economic-related stock market killers. Chief among them: –The growing threat of a global economic slowdown. –Mounting fears of a double-dip recession. –Slowing Chinese growth, as demonstrated by four consecutive monthly declines in China’s index of leading economic indicators –Expectations of a worsening sovereign debt crisis. –A tortoise pace of new job creations. –Growing signs of a new setback in housing, as seen in May’s decline in new and existing home sales and falling construction jobs. Let’s also toss in a recent warning from Nobel prize-winning economist Paul Krugman, who argues that we’re in for another Great Depression. Some of his peers think he’s off the wall on that one, but interestingly a number of them are no longer ruling out a double-dip recession, following some weak economic signals, such as a decline in May factory orders, a sharp drop in consumer confidence, rising jobless claims and May’s poor housing numbers. Likewise, there’s no sign on the horizon of any positive catalyst that could push stock prices higher or stave off a selling panic. San Francisco money manager Gary Wollin, who runs a tad above $100 million of assets under the banner Gary Wollin & Co. and a long term bull, seems to sum up the current mood of the worrywarts. “For the average guy, this is a good time to don your helmet and hide under the desk,” he says. Of concern to Carter Worth, Oppenheimer & Co’s well-regarded technical analyst, is that the shares of many of the country’s biggest and best known blue chip names–such as Google, Apple, Johnson & Johnson, IBM, Coca-Cola, JP Morgan Chase, General Electric and Microsoft–are performing poorly and look like they’re headed lower. Based on his research work, Worth tells me, the selling blitz looks like it’s far from over in the high quality names, meaning, he says, the rest of the market is also headed lower, perhaps another 6% to 7%, say over the next four to eight weeks. Worth calculates that about a third of the S&P 500, representing nearly $3.6 trillion in market value, is acting poorly, including such additional names as Exxon Mobil, Chevron, Procter & Gamble, Wells Fargo, Intel, Oracle, Pfizer, Cisco Systems and Wal-Mart Stores, all of which he also views as vulnerable to further erosion. Everyone, notes Worth, is trying to ferret out a winner, especially with many stocks at record low values, but there’s nothing to be lost by postponing all new purchases until you do damage control by reducing exposure. “This is the time to avoid risk, not to take on more of it,” he says. Standard & Poor’s, which has basically been cautiously bullish in its outlook this year, is also flashing some red lights. In a recent commentary, it cited a number of worrisome factors–among them a sluggish housing recovery, unwinding of the economic stimulus measures, continued consumer deleveraging, anemic European economic growth, signs of a slowdown in Asia and financial regulation. Accordingly, S&P is now holding out the possibility of greater market damage than it originally projected. Last month, it lowered its 12-month target on the S&P 500 from 1270 to 1190. Now, it thinks, the index (currently around 1022) could possibly drop to 1883. Support for the major indices, it notes, is giving way, suggesting “this correction may morph into a bear market.” S&P’s immediate outlook is that the market is likely to remain weak into the fall months, with a painful bottom in September and October. More immediate, Sam Stovall, S&P’s chief investment strategist, alerts us to another danger, namely that the third quarter has been the weakest quarter of the year since 1945, averaging an annual decline in this period of 0.5%. Wollin tells me that for the short term (at least 90 days), he would avoid any new purchases (except a dividend play like AT&T (yielding about 7%) since he sees the Dow possibly falling another 10%. “The market is too volatile, too headline driven and has no direction,” he says. “It’s scary out there and fear seems to be driving the market more than greed.” One of Wall street’s biggest bears is veteran investment adviser Richard Russell, publisher of the Dow Theory Letters, a 52-year-old newsletter out of La Jolla, Ca., which about a month ago advised its subscribers to get out of all stocks and keep the money in cash and gold. Reiterating that view, he contends we’re in a “papa bear market.” The market, he says, is in no man’s land, with rallies limited and an occasional downside jolt. Things will get worse, he believes, as the market continues to probe lower depths. In this bear market, he says, “the Dow (now around 9,686) could fall to 4,000 or 400. I honestly don’t know, but trends tend to carry further than anyone could imagine.” The bottom line here, which you can calculate as well as I – Run for the hills now! What do you think? E-mail me at Dandordan@aol.com

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Video: Holland Says `No Liquidity’ in U.S. Stocks, Likes China: Video

July 2, 2010

July 2 (Bloomberg) — Michael Holland, chairman of Holland & Co., discusses the prospects for the U.S. stock market and his investment strategy in China. Holland talks with Betty Liu, Adam Johnson and Sheila Dharmarajan on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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Video: Harris Private Bank’s Ablin Discusses U.S. Stocks, Jobs: Video

June 30, 2010

June 30 (Bloomberg) — Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, talks with Bloomberg’s Julie Hyman and Marc Crumpton about the U.S. stock market, economy and labor market. (This report is an excerpt. Source: Bloomberg)

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Richard Barrington: Look Before You Leap: There Are Dangers Outside the Stock Market Too

June 30, 2010

“Stop the market–I want to get off.” No one could blame you if you felt that way. From the beginning of April through mid-June, the Dow Jones Industrial Average had 15 days in which it lost over 100 points each. It was scant comfort that there were also 11 days during that span in which the Dow gained over 100 points. That’s simply served to underscore the erratic behavior of the stock market in recent weeks, and kept investors focused more on risk than reward . When risk is on people’s minds, they start to look for safer harbors: calm places where they can put money until the stock market settles down. However, it is important to examine each alternative from a risk management standpoint–otherwise, you may not find the safety you’re looking for. Alternatives to the Stock Market Here are some examples of the pros and cons of popular alternatives to stocks: Gold and other commodities. When markets are ailing, gold is often sold as something as of a wonder drug. However, the gold bubble looks hauntingly like the dot-com bubble, the real estate bubble and the oil bubble that preceded it. Even some commentators who are bullish on gold describe it as a bubble that will get bigger before it pops, but playing chicken with the financial markets is no way to find a safe harbor. Commodities have their place, especially as an inflation hedge under current circumstances. But don’t overload on any one commodity, because commodities can be every bit as volatile as stocks. With everyone’s favorite commodity having already tripled in price over the past decade, don’t fall for fool’s gold . Bonds. Since bonds and stocks often (but by no means always) move in different directions, bonds are a popular safe haven when the stock market gets scary. Even so, pay particular attention to who is issuing the bond. Corporate bonds may expose you to the same economic risks as stocks. Municipal bonds are a minefield of budget difficulties. Concentrate on general obligation bonds of fiscally sound municipalities with growing tax bases. US Treasury bonds are the safest call, but with short-term yields under 20 basis points (0.20%), they don’t offer you much beyond safety. Longer-term Treasuries have higher yields, but their prices can fluctuate more, so there is no guarantee you’ll be able to sell them at a good price when you are ready to go back into stocks. Savings, money market accounts, and other deposit vehicles. As long as you stay within FDIC limits (currently $250,000 per depositor per institution, and it looks like that number might become permanent), deposit accounts offer true safety, and bank rates are a little bit higher than short-term Treasury rates. Still, even plain-vanilla deposit accounts require smart shopping. Even though long-term CD rates are likely to be the highest bank rates you see, in this situation you shouldn’t lock your money into a long-term CD unless the penalty for early withdrawal is negligible. Otherwise, you might not be able to get at your money when you are ready to get back into the stock market. As a general rule, money market rates tend to run higher than savings account rates , and they reward you especially well for opening a jumbo account ($100,000 or more). No matter which account type you choose, be sure to shop around–bank rates vary greatly from one institution to another and are subject to frequent changes. Going with the first savings account you see could very well mean you’re leaving free money on the table. Beyond the individual advantages and disadvantages of the above alternatives, keep in mind that making wholesale moves in and out of the market is also inherently risky. Market timing doesn’t work, but sensible, value-based asset allocation can be an effective investment approach. Try to make your moves in and out of the market incrementally, selling more when prices are up and buying more when prices are down. And, when you do pull money out of the market, make sure you are moving towards safety and liquidity rather than more risk. The original post can be found at MoneyRates.com: Look Before You Leap: There Are Dangers Outside of the Stock Market Too

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Video: Fleckenstein Discusses Market Outlook, Strategy: Video

June 30, 2010

June 30 (Bloomberg) — Bill Fleckenstein, president of Fleckenstein Capital in Seattle, talks about the outlook for the stock market and the possibility that it has lost its “discounting mechanism”.¶ Fleckenstein speaks with Betty Liu on Bloomberg Television’s “In the Loop.” (This is an excerpt of the full interview. Source: Bloomberg)

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Video: Riverfront’s Smyth Sees Growth in Asia, Risk for Europe: Video

June 25, 2010

June 25 (Bloomberg) — Rod Smyth, chief investment strategist at Riverfront Investment Group, and Richard Regan of Protradingcourse.com speak about the U.S. stock market, global investment opportunities and this weekend’s Group of 20 meeting in Toronto. They talk with Julie Hyman, Matt Miller, Carol Massar, Adam Johnson and Dominic Chu on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Bank Stocks RISE On Financial Reform News – But Rest Of Market Slides

June 25, 2010

NEW YORK — (TIM PARADIS, AP) The stock market fell Friday after a disappointing gross domestic product reading added to investors’ discomfort about the strength of the economic recovery. Financial shares rose on relief that a banking overhaul bill is in hand. The said GDP, the broadest measure of the economy’s health, at a 2.7 percent annual pace in the first quarter, rather than the 3 percent it previously estimated. The report follows a string of weaker-than-expected economic numbers in the past week and raised investors concerns about the recovery. Check out a chart of the S&P 500 (orange) and the KBW Bank Index (blue): Uneasiness about the GDP report tempered investors’ upbeat reaction to the financial regulation bill that lawmakers agreed on early Friday. The bill would regulate banks’ ability to trade in derivatives, but the rules are less strict than investors had feared. Derivatives are complex securities that companies and investors often use to hedge against losses. But some derivatives are purely speculative investments, and some of this type of derivatives have been blamed for contributing heavily to the collapse of the housing market and the 2008 financial crisis. One investor concern was alleviated: A plan that would have had banks paying for the costs of unwinding mortgage giants Fannie Mae and Freddie Mac, was not included in the bill that will now go to the House and Senate for final approval. “The bill could have been a lot worse,” said Alan Valdes, vice president at Hilliard Lyons in New York. “It’s a bill we can live with.” That pushed bank stocks higher: U.S. Bancorp rose 2.1 percent, while Bank of America added 1.3 percent. Some of the big Wall Street banks that will see the most changes from the bill also edged higher in part on relief of knowing what is in the legislation and in part because not all parts of the overhaul were as onerous as feared. Goldman Sachs Group Inc. rose 1 percent, while JPMorgan Chase & Co. gained 1.4 percent. In late morning trading, the Dow Jones industrial average fell 42.55, or 0.4 percent, to 10,110.25. The broader Standard & Poor’s 500 index fell 2.49, or 0.2 percent, to 1,071.20, and the Nasdaq composite index fell 4.78, or 0.2 percent, to 2,212.64. Trading was expected to be heavy and volatile because Friday is the day that stocks within the Russell indexes are being added and deleted. That forces investors to buy and sell certain stocks if they have portfolios that follow the indexes. The Russell 2000 index of smaller companies rose 3.06, or 0.5 percent, to 636.23. Treasury prices rose, driving down interest rates. The 10-year Treasury note’s yield fell to 3.10 percent from 3.14 percent late Thursday. The euro, which investors have been treating as a measure of confidence in Europe’s ability to resolve its economic problems, was down at $1.2288. Crude oil rose 86 cents to $77.37 on the New York Mercantile Exchange. Investors are cautious after the latest economic reports have cast doubt on the strength of the recovery. On Thursday, a disappointing durable goods orders report from the government and downbeat forecasts from analysts raised questions about manufacturing and consumer spending. Investors are waiting to see what news comes out of the G20 meeting being held this weekend in Toronto. The world economy, including Europe’s debt problems, will dominate the talks. President Barack Obama will be among the leaders attending the meeting. U.S. Bancorp rose 47 cents, or 2.1 percent, to $23.08, while Bank of America climbed 19 cents, or 1.3 percent, to $15.21. Goldman Sachs rose $1.38, or 1 percent, to $136.36 and JPMorgan advanced 52 cetns, or 1.4 percent, to $38.55. Four stocks rose for every three that fell on the New York Stock Exchange, where volume came to 260 million shares, compared with 267 million traded at the same point Thursday. The FTSE-100 index in London fell 0.9 percent, while Paris’ CAC-40 index fell 1 percent and Frankfurt’s DAX index lost 0.6 percent. Earlier, the Nikkei 225 index in Tokyo closed down nearly 2 percent.

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