Today was the third worst final day of the year in history for stocks (via SentimenTrader). The S&P 500 closed below 1121, the 50% retracement level that's proven to be key resistance for the past month or so. I guess we should expect no less from the decade than for it to go out with a thud.
Wow, I know things are better than they were one year ago but are they so dramatically better with little downside risk? According to stock market newsletter writers the answer is yes. The level of Bears in today’s Investors Intelligence reading fell to 15.6% from 16.7% last week and is now at the lowest level since April 1987. Back then the bulls were right for another 6 months and then something bad happened. Combine this sentiment reading with the VIX at 20 and 2010 will be interesting, especially with the very likely prospect of higher interest rates.
.png)
Obama’s best move would be to stop spending. [Koo would strongly disagree with this.] But given that he won’t, and that he has three more years in office, the right kind of infrastructure splurge might not be such a bad idea -- especially if you don’t call it a stimulus.
Today the country can ill afford another trillion in stimulus. But if such an outlay is inevitable, then let that trillion go to a national Big Dig [exactly what Koo is promoting]. As Eisenhower demonstrated, a growth project like a road can be superior to a new social program. A road, or a railway, or a plan to collect water in space, after all, reflects more hope. Obama will achieve the happiest outcome if he simply makes like Ike and plows forward.
.png)
The immediate risk is the economy. We've had a nine-month rally. We think it's a false rally... In real terms, can we get cut in half from here? We think so. S&P earnings are distorted because of accounting changes for banks and brokers; if banks were marked to market, S&P earnings next year could fall to $45 a share. Bullish sentiment is rivaling the 2007 top, and volatility has fallen dramatically. We like the VXX, an exchange-traded note that's based on S&P 500 short-term volatility as measured by the VIX index. It's down 67% this year, and fits into the whole idea that complacency is very high.
[The big] banks STILL have to much debt, too little capital. They [sic] books are festooned with bad loans, which, thanks to our corrupt Congress, they no longer have to disclose appropriately. Thanks to Mark-to-Make-Believe, they can pretend these assets are worth near what they paid for them. In reality, they cannot sell them even at 50% off.
Lending money is a risky business; there is the possibility of loss. Under-capitalized banks cannot take that chance. By not lending, their capital base goes up. IT is the rational thing to do from their perspective.
Rather than engage in traditional money lending, these banks have decided to simply borrow from the Fed at 0%, and make risk free loans to the Treasury at 3%.
Yes, prices are still falling the Bend. They tumbled 5.6 percent between the second and third quarter, the biggest decline in the country. Las Vegas was right behind Bend, down 5 percent. That’s according to the IHS Global Insight “House Prices in America” report out today.
In nearly 200 years of recorded stock-market history, no calendar decade has seen such a dismal performance as the 2000s.
Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress. Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade.
.png)
The key factor to consider is that the so-called ‘great recession’ was caused by a credit crisis following an artificial boom and therefore bears more resemblance to the great depression following 1929 or Japan after 1989 than it does to the series of recessions experienced in the post World War II period... Despite the deep recession into early Summer, the consumer is still being forced to adjust to a far lower level of spending. When that level is eventually reached the economy can again grow in a robust manner, but we are not near that point now. The massive fiscal and monetary stimulation put into effect over the last nine months has mitigated the credit crisis and prevented a global collapse, but has not avoided the need for the economy to readjust to a new set of circumstances. We are still faced with historically high debt levels, a low household savings rate and a subdued housing industry. Reducing debt and getting the savings rate up will take an extended period of time. Furthermore, as a result of reduced consumer spending there is also an excess of capacity that will impede capital expenditures as well.
The Federal Deposit Insurance Corp. in the next year plans to add more than 1,600 staffers, mostly to handle bank failures, and is pushing its budget up 35% as the number of tottering banks climbs...
More than 130 banks have failed this year, and the agency's inventory of assets in liquidation has more than doubled from the beginning of the year to $36.8 billion through the end of November. The FDIC has also agreed to share future losses on the assets of more than 80 failed banks, representing $108 billion in additional exposure.
In the agency's 2010 operating budget, released Tuesday, the FDIC would spend $2.5 billion to fund its bank failure operations out of a total budget of $4 billion. The agency's entire operating budget for 2009 was roughly $2.6 billion.
"It will ensure that we are prepared to handle an even larger number of bank failures next year, if that becomes necessary, and to provide regulatory oversight for an even larger number of troubled institutions," FDIC Chairman Sheila Bair said in a statement.
.png)
Some of the biggest buyers of gold may be sending the strongest signal to sell it, if past performance is indicative of future results.
Central banks, holding about 18 percent of all gold ever mined, are expanding their reserves for the first time in a generation as a nine-year bull market drives prices to a record.
The banks will buy 13.8 million ounces (429 metric tons) this year, worth $15.5 billion, for the first net expansion in reserves since 1988, New York-based researcher CPM Group estimates. Gold fell 15 percent that year and took another 15 years to trade again at the same price as central banks from Switzerland to the U.K. cut their holdings.
I'm acutely aware of the risk of saying this, but it is truly different this time. Here are some nontraditional headwinds that we expect to undermine economic growth. First, the credit aftershock is going to continue to haunt the economy. The unregulated shadow-banking industry, which includes numerous consumer-lending companies, is really maligned. The securitization market is still adrift and not operating, and both [sectors] will not fill the role of credit feeders, if you will, as they did a few short years ago. Second, housing has stabilized, but its recovery is going to be muted. And I really don't see any growth drivers to replace the important role taken by the real-estate markets in the prior upturn. Third, commercial real estate has only begun to enter a cyclical decline. It might not be as deep as many expect, but it won't provide much of a contribution to growth the way residential real estate did. Fourth -- this is really important -- municipalities have historically provided economic stability as we came out of economic weakness. But no more. We all recognize that municipalities are broadly in disrepair, as their receipts are out of whack with their revenues. And, finally, it is important to recognize the emergence of a very negative attitude toward wealth in our country and that our fiscal condition as a nation has very negative long-term implications. That's one of the reasons why I am skeptical about the low yields in the Treasury note and the bond market. We are going to have sales-tax increases, along with local and state and federal tax increases -- possibly dramatic ones -- in order to fund the deficit and to appease the populist administration.
To defend—and profit—from a big rise in inflation, investors have piled into gold or inflation-protected bonds. In November, investors put $2 billion into inflation-protected mutual funds and exchange-traded funds, according to Morningstar Inc. Another $3.9 billion went into commodity funds and commodity exchange-traded funds, primarily gold funds. So far this year, those categories of funds have raked in $59 billion. In contrast, investors have pulled $52 billion from U.S. stock funds and U.S. stock-focused ETFs.
