Finance

• Commodity Price Fears and China’s Growth Forecasts

  Commodity markets lost more than $16 billion in value during last week’s selloff, Reuters reported in a special report. Equity and commodity markets plunged as growing anxiety over the global economic outlook spurred a flight to safe-haven bonds. The drop in prices wiped out $16 billion in value, mainly due to oil prices dropping 6 percent and investors losing $7.3 billion on paper, the report said. The rout was caused by S&P’s downgrading of the US’ “AAA” rating and panic over the unsustainable rise in Euro-zone debt spreads potentially pushing the region into a breakup of the Euro or a…

• Bank of England Governor: Global Economy is Back on the Precipice

  We don’t normally look to Mervyn King, governor of the Bank of England, as a luminary of the financial world. Not that Mr. King isn’t a clever fellow, but he has a rather unfortunately stodgy image that belies his considerable intellect. However, comments in the bank’s Inflation Report this week make such interesting reading that they deserve examination here. “There is only one way for the world to go,” he is quoted as saying in the Telegraph, “for the pent-up losses caused by the vast debts amassed in the boom to be shared between creditors and debtors. This,” he said,…

• Use the Melt Down to Load Up on India

  Take a look at the chart for the emerging market ETF (EEM) below and you will be surprised to see how well it has held up in the recent collapse. This is in sharp contrast to its performance during the 2008 crash, when emerging markets outperformed developed markets to the downside by a factor of two or three. So I thought it would be useful to spend some time with Sunil Asnani, portfolio manager at Matthews International Capital Management in San Francisco. He argues that you want to buy these markets during periods of market instability. Historically, they take the…

• Bernanke Says Buy Stocks, Or Else!

  I believe that the risk markets are discounting a recession that isn’t going to happen. Not yet, anyway. So I am going to start adding some small, limited risk call options here. After analyzing the statement from the Federal Reserve yesterday, it is clear that Ben Bernanke is holding a gun to your head, threatening to pull the trigger if you don’t buy stocks. By taking the ten year Treasury bond yield down to 2.0%, some 80% of equities now have dividend yields greater than bonds. A substantial number of companies are paying dividends double or more the ten year…

• Economics Will Never Be Value-Free

  Lately, everyone seems to be acting like an economist. Whether they are screaming that Keynesians are destroying the economy, that the debt will be the downfall of the US and European economies, or that the FED is an evil conspiracy meant to bring down the Constitution. All of these seemed to be linked to an economic theory that has been running rampant for the last 40 years under the guise of two different names: Neo-liberalism and Supply-side economics. Typically, those two words get attached to the word globalization, because then it is fancy and peaceful just bringing us all together…

• Is QE3 Back From the Dead?

  When I went to bed late last night, the (SPX) was trading down 30 points, and I was thinking “here we go again”. When I woke up, the market was up 30 points, and I had to blink hard. The overnight range was an unprecedented 60 points, or 560 Dow points. From the July high to the Asian low, the (SPX) has fallen 23% in 12 trading days. When QE2 ended on June 30th, I argued that there was zero chance of Ben Bernanke moving straight into another quantitative easing program. But as my recent performance has convincingly testified, I…

• Index Funds and Commodity Prices

  There has been a lot of growth over the last decade in funds that take long positions in commodity futures contracts in order to offer investors an asset that follows raw commodity prices. I've been looking into some of the data that have been used to measure the size of those positions. Hedge fund manager Michael Masters received a lot of attention in 2008 with his testimony before the U.S. Senate on the role that "financialization" of commodity futures markets may have played in the big increases in commodity prices being seen at the time. One of the ways he…

• What the S&P Downgrade Means to you and Me

  S&P lowered the US debt rating from AAA to AA+ on Thursday.  What does this mean to you and me? Well, S&P is only one of three debt rating services, and the other two have said they aren't going to downgrade, but this is historic, nonetheless. When your debt grade goes down, your cost of borrowing goes up.  This sad fact is NOT lambasted when you are a basic middle class person. It is made out to be the crime of the century when applied to "the poor" by the socioeconomic class divide and conquer folk. It means we have too much debt…

• The Real Crash is Coming in 2012: Are Stocks Now a Screaming Buy?

  I don’t think that we are going into recession immediately. I believe that we can eke out a few more quarters of 2% ish type growth before we put in the final top of the great bull market of 2009-2012. I think a real crash of the 50% variety will be a 2012 affair, not something that is on the plate in front of us staring back. There are two big positive developments which the lagging economic indicators have yet to see. The Ford and GM earnings told us that a serious recovery is going on in the automobile industry.…

• RIP for America’s Triple A Rating

  At long last, after months of warnings, leaks, hand wringing, and speculation, Standard and Poor’s has at last downgraded US Treasury bonds a notch to AA+. The change was the most telegraphed ratings change in history. You can bet this weekend saw a flurry of emergency board meetings across the country. Many institutions are only permitted to own AAA debt securities, and rules will need to be changed quickly to permit their continued residence in institutional portfolios. I don’t expect to see any major market impact, beyond a day or two. The fact is that America’s financial health has been…