M4 Support

Never Short a Country That Has $2 Trillion in Cash

Posted February 4, 2010 at 1:16 pm

By Keith Fitz-Gerald:
via Minyanville.com

The first rule of successful global investing — to paraphrase the words of New York Times columnist Thomas Friedman — is a simple one.

Never short a country with $2.3 trillion in currency reserves.

I’m well aware that bond king Bill Gross has been sounding the alarm about a China bubble, and that Forbes magazine is predicting a major meltdown by the Asian giant. I’ve also heard all about noted short-seller James S. Chanos — who made his name by correctly calling the Enron Corp. demise — who recently described China as “Dubai times 1,000– or worse.”

Just yesterday (February 3), in fact, US stocks suffered their worst beating of the New Year on fears that new bank lending curbs in China might blunt the worldwide economic rebound. Asian markets also were down yesterday.

So what’s really going on here? China is making its banks tighten credit. Some of the biggest banks, I’ve heard, have actually suspended loans for the rest of January!

Many analysts and media pundits believe this is the beginning of the end of the Great China Growth Story.

Don’t believe it.

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16 Geopolitical Megatrends Affecting Every Aspect of your Life

Posted February 2, 2010 at 7:28 pm

via OilPrice.com:

Substantial and unmistakable signs of profound change in the global strategic framework have become concrete in the past year. The stress in the structure has already developed into fissures. The transformation, in reality, has been underway since the end of the Cold War, and will continue and compound for at least another decade.

The balance of power is changing. Apart from the wave of globalization, which was really a precursor event, what is now emerging is the first truly fundamental change since the end of the Cold War, and, in global terms, it is a change which may redefine entire civilizational blocs. It is the most profound geopolitical change since the end of World War II, and part of possibly the most profound change in human history since the Industrial Revolution.

Within this context, energy is the driving physical factor.

It has been the critical physical component of economic, military, and social strength since the Bronze Age.

The Industrial Revolution, however, beginning in the 18th Century spurred an increasingly intense use of, and dependency on, more and more varieties and quantities of energy, culminating with the present situation in which no society can remain se-cure, or competitive, without access to cheap, high-volume energy. Given the present needs for energy, and the indicators of changing megatrends, which I will discuss shortly, the questions of how society will use and need energy, and, conversely, how energy forms and trade will affect societies are the vital components of economic wealth and security going forward.

One of the key symptomatic indicators of the change in the…

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Common Myths about Stock Market Risk

Posted February 2, 2010 at 7:21 pm

by Ed Rempel:

“Slump? I ain’t in no slump. I just ain’t hitting.” – Yogi Berra

How did you do with the 12 questions in stock market quiz? We have found that most investors have quite exaggerated views about stock market risks, especially after 2008.

The bear market has created fear, much of which is completely unrealistic, based on actual market history. These exaggerated fears have seriously negative results for many Canadians:

1. Being too cautious during the great buying opportunities when markets are low.

2. Investing far too conservatively to be able to reach their retirement goal.

Here are the facts regarding some of the most common misconceptions and myths.

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Faber Says S&P 500 May Drop 20% on Economic, Earnings Prospects

Posted February 1, 2010 at 1:07 pm

By Rita Nazareth:

Jan. 27 (Bloomberg) — The Standard & Poor’s 500 Index may retreat 20 percent from a 15-month high because stocks are expensive given prospects for economic and profit growth, Marc Faber said.

The benchmark index for U.S. stocks, which closed at 1,150.23 on Jan. 19, may fall to 920, said Faber, 63, who recommended buying stocks in March, before the biggest rally since the Great Depression. The index surged 70 percent from a 12-year low in March before dropping 5.1 percent to 1,092.17 through yesterday. The S&P 500’s price-earnings ratio had jumped to 25, the highest since 2002, data compiled by Bloomberg show.

“The market has become overbought,” Faber, who publishes the Gloom, Boom and Doom report, said in a phone interview from Switzerland. “There isn’t a meaningful improvement in the economy taking place. The economy may disappoint somewhat in the next few months. The statistics that are being published are very questionable. The economy has stabilized, but isn’t really expanding.”

Consumer spending, which accounts for about 70 percent of the economy, probably increased at a 1.8 percent annual rate in the fourth quarter after rising at a 2.8 percent pace in the previous three months, economists said before a Jan. 29 report from the Commerce Department. The jobless rate held at 10 percent in December, near a 26-year high, the Labor Department said on Jan. 8.

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Best Economic Gauge You’ve Never Heard Of

Posted January 29, 2010 at 3:29 pm

from ritholtz.com:

While everyone awaits GDP data this morning, why don’t we look at the best economic gauge you have never heard of:

It doesn’t appear on any economic calendars that I’m aware of. It flies under just about everyone’s radar.  Technically, it’s not a data point itself but a weighted amalgam of 85 other distinct economic data points, an all-in-one look at the United States economy.

And it does an excellent job of tracking the economy’s health.

It’s the Chicago Fed’s National Activity Index (CFNAI), and it just printed for December.

Say the folks in Chicago:

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“Billions of dollars worth of bad investments litter the country..”

Posted January 28, 2010 at 7:55 pm

by Tom Dyson
The 12% Letter

I look out my window and see a large bank, built of sandstone. They’ve carefully landscaped the forecourt and there’s a big blue awning over the front door. This bank is four years old, but it looks newer.

Inside, there’s a neat row of teller stations set up behind glass windows that reach the ceiling. They have flat-screen televisions on the wall, tuned to the Bloomberg channel. Outside, there’s a four-lane covered “drive-thru.” There’s room for 20 cars in the parking lot.

This bank must have cost $10 million to build and probably costs $1 million a year to operate. It serves fewer than 50 customers a day.

The problem is, this bank was built in a period when credit was easy and house prices were rising every month. The owners made assumptions based on those conditions, but conditions changed and those assumptions turned out wrong.

All over America, I see the same problem. Billions of dollars worth of bad investments litter the country. These investments aren’t generating returns for their owners, and they need to be liquidated.

The liquidation process began in 2008, and it would have been near completion by now. Unfortunately, the government intervened and propped up these bad investments by making even more bad investments and encouraging everyone else to do the same.

So here I sit, watching the bank out of my window, wondering when the great American liquidation sale will resume.

Could the liquidation be starting now?

The market is overvalued in every metric I follow. Investor sentiment is uniformly bullish. Meanwhile, the S&P 500 has fallen 6% in the last seven trading sessions, and the major European bourses are all forming downtrends.

Check out this chart of the Chinese stock market. It’s entering a steep dive…

Meanwhile, the dollar is strengthening, and government bonds are starting to rise again as investors run for cover.

[ Editor's Note: For some ways to play, and profit from, the above market behavior, go to the WVA Notices section of your Wealth Vault members area, if you're not already logged in ]

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2 keys to whether this rally continues or is dead…for now

Posted January 25, 2010 at 5:15 pm

By Ian Woodward:

Last week was a bad week for the Stock Market – it has the Heebie-Jeebies, i.e, the Jitters are very apparent and of 2008 proportions with a 500 point drop in the DOW.   This week can add fuel to the demise of the 10 month rally we have enjoyed since March 2009 or give us a renewed boost to the rally.

It stands to reason that Politics more so than Earnings will be front and center as we look forward to the vote on the Fed Chairman, Ben Bernanke, and the State of the Union Address by President Obama on Wednesday.  The REACTION by Wall Street to both may seal the fate of the rally and bring about the Intermediate Correction that so many have touted for so long, or find a fresh move to the upside to continue the rally and keep the Golden Cross alive.

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Wall St’s Route Seen as Onset of Correction

Posted January 25, 2010 at 4:06 pm

By Reuters:

The sharp slide in U.S. stocks this week portends more trouble for Wall Street in the days ahead as investors worry if the recent rally is sustainable.

With major indexes breaching key technical support levels on Wednesday, market technicians said Wall Street was likely to see the onset of a long-anticipated correction following a 70 percent run-up in the benchmark S&P 500 from March 2009.

“This is the beginning of a correction. It’s been brewing for months,” said John Kosar, market technician and president of Asbury Research in Chicago. “There’s more risk on the downside than opportunity on the upside here until we get a correction.”

Besides grappling with a deteriorating technical picture, Wall Street is also starting the new year with an even less reassuring fundamental picture as the Obama administration pushes to limit banks’ risk-taking.

Additionally, there are concerns that China, the world’s third-largest economy, risks derailing the nascent global economic recovery by tightening lending too soon to prevent its economy from overheating.

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Oil Prices Drop Below $78 US

Posted January 20, 2010 at 11:39 pm

by Edward McAllister, Reuters
via FinancialPost.com

NEW YORK — Oil prices fell below US$78 a barrel on Wednesday as the dollar strengthened and Wall Street slipped on worries about bank lending curbs in China.

U.S. crude for February delivery. which expired on Wednesday, fell US$1.40 to settle at US$77.62 a barrel. March crude fell US$1.58 to settle at US$77.74. In London, Brent crude for March delivery lost US$1.31 to settle at US$76.32 a barrel.

U.S. equities suffered their worst slide of 2010 on Wednesday as investors worried that bank lending restrictions in China could hurt the global economic recovery.

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After the Stimulus Binge, a Debt Hangover

Posted January 19, 2010 at 7:10 am

Trillions of dollars have been spent keeping the global economy afloat. But now fears about the Great Recession are giving way to worries about something else: The Great Reckoning

By William Pesek:

Government policymakers from Washington to Tokyo are tallying the bill for last year’s stimulus binge, and the results won’t be pretty for investors or elected officials. Since the collapse of Lehman Brothers in September 2008, the Group of 20 largest industrialized economies have spent more than $2.2 trillion—much of it borrowed—trying to restore growth.

This unprecedented public debt glut will complicate the global recovery. That’s because the government debt entering the bond markets will make it harder for private companies to issue debt of their own, either to expand or simply ride out the lingering effects of the credit crisis.

This so-called crowding-out dynamic, together with rising borrowing costs, will depress job growth. The more that small- and medium-sized businesses are starved for credit, for example, the fewer new employees they will add. The crowding also could lift interest rates for consumers.

That’s the downside of a stimulus binge: It pumps up growth initially, but the hangover can be painful across an economy for years to come.

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