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Does Hussman think that the stock market can continue to rally in the presence of rising 10 and 30 year rates?
http://biz.yahoo.com/rb/030609/markets_asia_5.html
Asian stocks hit multi-month highs
Monday June 9, 4:29 am ET
By Richard Baum
SINGAPORE (Reuters) - Asian stocks zipped to their best levels in months Monday, ringing up six-month peaks in Tokyo, after U.S. jobs data kept alive hopes for an economic recovery in Asia's main export market.
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A smaller-than-expected fall in U.S. payrolls also underpinned the dollar, following its recent fight back amid hopes the world's top economy would revive later in the year.
But Japanese government bond yields hit fresh record lows as investors saw no reason for optimism on the second-largest economy. Oil prices held near 11-week highs and gold fell.
Tokyo's Nikkei stock average rose 0.42 percent to 8,822.73, its highest close since December 11, as banks soared.
"Stocks that have lagged the recent rally have been leading the market up today," said Hiroyuki Nakai, chief strategist at Tokai Tokyo Securities.
"But it's gradually going to become difficult to push up much further," Nakai said, expressing concern that Wall Street's recent rally could end soon.
The broad MSCI Asia Pacific Free Index ex-Japan rose 0.5 percent to its best level since last July.
Taiwan gained 1.8 percent to a four-month peak, South Korea hit a five-month high after firming 1.2 percent and Singapore advanced 0.5 percent by midday to a seven-month best. Australia was closed for a holiday.
FEARS FOR WALL STREET'S RALLY
Investors in Hong Kong were less bullish, leaving the market flat at midday on worries that the recent strong run on Wall Street may cool down this week as corporate America starts the season where it warns about earnings disappointments.
"The case for a bull market is very strong and the bear market is behind us. But the stock market is overvalued, and the time for a correction is past due," said Hugh Johnson (News), chief investment officer at First Albany Corp in the United States.
Such caution was reflected in a mixed close on Wall Street Friday, where the Dow Jones Industrial Average rose 0.24 percent to 9,062.79 but the Nasdaq Composite Index fell 1.13 percent to 1,627.42.
That followed May jobs data that proved less dire than expected. The payrolls data showed a loss of 17,000 jobs, compared with forecasts in a Reuters poll for a loss of 39,000.
The data underpinned the dollar, which was quoted around 118.45 yen compared with Friday's late New York level of 118.71 yen. The euro was trading at $1.1692, little changed from the U.S. close at $1.1700.
U.S. light crude oil was steady at $31.30 a barrel, hovering near its highest level since mid-March on expectations that the OPEC (News - Websites)cartel could cut its output this week. Gold eased to $362.60 an ounce from $363.50.
Japanese government bonds extended their record run, with yields on 10-year and 20-year bonds falling to all-time lows as investors doubted the country's deflation and economic woes would end soon.
The yield on the 250th 10-year JGB sank by 1.5 basis points to 0.490 percent and that on the 20-year dropped 3.5 basis points to 0.830 percent.
STOCK STRENGTH SHUNNED
Traders said the market was paying little attention to the rise in Japanese stocks.
"The Nikkei is rising because U.S. stocks are strong. But as profit-taking set in Friday (on Wall Street), people still have doubts over the fundamentals," said Xinyi Lu, chief strategist at UFJ Bank.
Still, there were plenty of bullish signs in the Japanese stock market. The TOPIX index of all first-section issues rose for a ninth straight session, marking its longest winning streak since May 1990.
Leading the market's rise were Mizuho Financial Group and other major banks. Mizuho, the world's largest bank by assets, gained 13.3 percent, while UFJ Holdings Inc, Japan's fourth-largest banking group, gained 7.8 percent.
Banks were hit hard earlier this year as the stock market's plunge to two-decade lows in April stoked fears about their weak capital.
"The megabanks, particularly Mizuho, were oversold to a degree that would have been difficult to imagine until now," said Ken Masuda, senior dealer in equities at Shinko Securities.
The ticking time bomb of federal debt
By Clif Droke
©2003 Publishing Concepts
Jun 9, 2003
http://www.321gold.com/editorials/droke/droke060903.html
Much has been written about the various financial "bubbles" of our times, including the excess valuations in stock, bond and real estate prices. But comparatively little has been written about the even bigger "bubble" in federal debt. This enormous problem (which has now reached monstrous proportions) was lately put into even greater context by an independent study on the true nature of the federal debt with the findings presented to Congress.
The real shocker is that this study has found that the real U.S. fiscal deficit is actually 44 trillion dollars, not the much lower figure regularly discussed by the financial media. The study, undertaken by economists from the American Enterprise Institute and the University of Pennsylvania, found the fiscal imbalance of the country includes seven trillion dollars for Social Security and $36+ trillion for the Medicare health program.
In March 3 testimony before Congress, Kent Smetters of the University of Pennsylvania essentially stated that the United States is faced with two possible ways of addressing the debt monster: 1.) Increase federal taxation by 69%; or 2.) Cut federal spending by 50% immediately.
Smetters framed the debt crisis in the following words in his recent testimony: "The current fiscal imbalance is so large that it needs to be put into context... the government could, in theory, put the country on a sustainable course by raising the payroll tax on all uncapped earnings by 16.3 percentage points starting in 2004 and lasting forever. That would forever more than double the amount of taxes that are already being paid by employees to the Social Security and Medicare systems and the dollar-for-dollar matching paid by their employers. But even this calculation is conservative in that it assumes that taxes are raised on uncapped earnings, which is a larger tax base than used by Social Security. If capped earnings were taxed, an even larger tax rate would be needed.
"Waiting just four years (until 2008) to implement this type of tax hike would require a permanent tax increase of 17.4 percentage points to close an even larger imbalance of $51.5 trillion. The fiscal imbalance grows by about $1.5 trillion each year between 2004 and 2008. That number is about ten times the deficit that the government officially projects for 2004. As with government debt, the fiscal imbalance grows with interest if no reforms are taken."
Smetters noted that such tax increases "would probably put our economy into a tailspin, adding that the above example is not intended as policy advice. "But," he said, "these calculations show the magnitude of the current fiscal imbalance and emphasize the need for real reform today. The longer the delay in reforming the nation's fiscal policies, the more drastic are the changes required."
Smetters further testified, "Let me describe the current $43.5 trillion shortfall another way. Instead of raising payroll taxes, suppose we eliminate half of the rest of the federal government in 2004 except for Social Security and Medicare. In particular, we eliminate half of the federal government's spending on the military, homeland security, roads, education, veteran's affairs, agriculture, labor affairs, NASA, commerce, law enforcement, Medicaid, etc. -- everything expect for Social Security and Medicare. And we do this not just in 2004 but forever. Also suppose that we don't change federal taxes so that people continue to pay taxes as projected. Now, for example, the $150 billion deficit projected for 2004 would turn to a $600 billion surplus! That sounds like a lot of money. But we would still accumulate surpluses too slowly over time. In particular, we would still be left with a fiscal imbalance of about $3.2 trillion. In other words, shutting down half of the rest of government forever is not enough to put the U.S. fiscal policy on a sustainable course."
In either case, the huge federal deficit will still remain and the economy will still be on its headlong path toward total collapse.
R.E. McMaster, editor of The Reaper newsletter, has framed the national debt problem in no uncertain terms. He observes that while total federal debt is "officially" $6.47 trillion, an estimated $56 trillion in derivatives is floating around in the U.S. financial system, which is composed of $31 trillion in total debt (300% of U.S. GDP), total non-financial debt of $20.3 trillion and consumer debt of $1.7 trillion, not including mortgages, which soars total household borrowings to $8.2 trillion.
In a recent newsletter he writes, "The bottom line is that businesses must have available to them savings, profit potential incentives, technological innovation, and capital investment to prosper, for the economy to do well. These are sadly lacking in the U.S. today in large measure. As a result, consumers have to borrow to spend, but such non-productive debt is historically a form of slavery, and one of the root meanings of the word "debt" is "death." Ugh! Are we spiraling down to the bottom of the barrel? Americans are borrowing against the equity in their homes, so-called "creative refinancing," in an attempt to maintain their standard of living. That is akin to eating your arm when you are hungry. The U.S. is experiencing economic cannibalization. Moreover, not only is consumer spending prior to business investment backwards, consumer spending is 80% of the U.S. economy. Are we upside down or what? What happens to consumer confidence/borrowing/spending as increasing numbers of Americans lose their jobs, as is inevitably the case? Already, over 2 million Americans have lost their jobs during the latest Bush administration."
McMaster further points out that there are presently over 10.2 million unemployed workers in the U.S., of which nearly 2 million have been out of work for at least 6 months or more. Fully 1.4 million have stopped looking for work and half a million jobs have been lost in the past three months. Initial unemployment claims are continuing to exceed 400,000 week after week. Making matters worse, the Fed is monetizing the debt by directing purchase of U.S. Treasury securities.
Cycle expert Samuel "Bud" Kress of SineScope, has stated that the current economic long-wave (known as the "K-wave"), which is due to bottom sometime this decade, is the fourth K-wave in U.S. history. "Four in cycle theory is the number of completion, thus this fourth K-wave bottom for the U.S. should be the final one under our present constitutional form of government." The implication here is that with the K-wave leaning heavily against the U.S. financial edifice, once the economic collapses completely a new system of government will arise in place of the old one along with a new government and a new constitution. One can only speculate on its scope and nature.
Gold market observer Bob Moriarty commented on this monolithic problem recently when he said, "The recent testimony on the federal debt was essentially a declaration of federal bankruptcy. It's only a matter of time before the [economic] bomb hits, and regardless of what the 'official' reason is, the economy will collapse." Moriarty went further and established a link between gold valuations, the Federal deficit and the declining value of the dollar in stating that with the current *officially declared* holdings of gold in Ft. Knox, relative to the other factors just mentioned, gold will have to climb to considerably higher levels in coming years in response to the debt implosion.
Without exaggeration, the federal debt crisis is probably THE primary issue in the U.S. public forum. While the mainstream press may choose to ignore the issue and while mainstream Americans can ignore the problem and continue their perilous dance with death in their financially leveraged lifestyles, there is no ignoring the soon coming consequences of the debt bubble, which has now reached epic proportions. It's high time for individual Americans to get their financial houses in order while there is still a small window of opportunity left. For investors, it's time to allocate a larger percentage of capital holdings into the precious metals sector.
--Clif Droke
Jun 9, 2003
Nice Article.
Let's hope for revalaution to parity with the rest of the world.
I am getting very close to an intermediate term buy signal on bond yields (sell on bonds). I currently have buy signals on VXN and VIX (moves inverse to market as you know). If the bonds sell off the market is in big trouble IMHO.
I believe as you that the bond market is very close to a long term peak.
The stock market has benefited greatly from the low long term rates since bonds and stocks tend to some sort of return parity over the longer term IMO.
Thus, when bonds turn, I believe the stock market will have a headwind versus a tailwind and could retrace quite a bit of the gain.
I am not convinced of that. Some bond action over the last several weeks sure looked like some big player with a huge bankroll was pushing bond yields down (prices up).
BWDIK
>>> Without this manipulation (via the threat of direct Fed purchases) 10-year treasuries probably would be yielding at least 100 basis points more than the current figure of 3.3%.
<<<
And the yield will likely ratchet up quickly once the fed stops buying 10 year paper or even slows somewhat.
Yep, you called that one on the nose.
Nice entry on Friday. I was unable to find a fund in the 401 K to agument the sizable position I have in PRASX in an IRA.
If SARS scare eases, Southeast Asia could skyrocket.
Good luck.
Two significant events today for the short term:
Dollar Surges on Data Ahead of G8 Meeting
http://biz.yahoo.com/rb/030530/markets_forex_10.html
US Lowers Terror Threat Level Back to Elevated
http://story.news.yahoo.com/news?tmpl=story&u=/nm/20030530/ts_nm/attack_alert_dc_2
I have identified three ETF-type instruments to track what PRASX may do on an intraday basis: APB, GRR, SAF.
Do you play gold via individual stocks or funds?
TIA
Dave
I heard an analysis on Bloomberg radio yesterday that predicted a drop in POG to about $345.
I think that the buck is tied to $TNX. HIgher yields and stronger dollar go hand in hand.
$TNX continues to climb. That could put a hurt on gold for a while in here.
Plus the spillover effect of yesterday's nice run in US.
PRASX was up 1.23% today. Well under the American market moves.
Good luck to both of us.
>>> That is the way I am playing Asia too. <<<
With New Asia Specifically ?
So far they have let me move in and out. Will see if I can continue.
I have an order to repurchase a stake in T Rowe Price New Asia. It will be interesting if I am allowed to make the purchase or am locked out as a "short term trader".
George,
Do you think it is too late to enter the Asian markets?
Thanks,
Dave
Orange Alert May Put Airlines in Red
http://biz.yahoo.com/rb/030524/airlines_revenue_2.html
CHICAGO (Reuters) - The color orange may leave U.S. airlines seeing more red, as in ink, just as signs emerged of demand recovering after the war in Iraq, analysts said.
The U.S. government this week said it would raise its terror alert status to "high" from "elevated" because of renewed risk of attacks in the United States, which lifted the level to orange from yellow on the color-coded scale.
That could be more bad news for a cyclical industry that counts on summer leisure travel and still suffers from the slow economy and the pneumonia-like SARS virus, analysts said.
"Airlines have indicated that forward bookings were strengthening, but that was before the current Orange alert," Blaylock & Partners airline analyst Ray Neidl said in a note, adding that airlines have little leverage to raise fares.
Traffic for the most recent week ended Sunday, before the alert, declined on domestic and Latin American routes as well as on flights across the Atlantic and Pacific, Neidl said.
Last week's results were disappointing and could not be pinned on bad weather or another outside factor, Credit Suisse First Boston analyst James Higgins said in a note. Traffic was off 10 percent systemwide from a year earlier, compared with a 9.8 percent decline a week earlier.
"Furthermore, Tuesday's increase in the terror alert to orange cannot help traffic trends in coming weeks," he said.
Still, the intermediate term view on airline shares remains relatively favorable, Higgins said.
"Almost all that could go wrong ... has happened," Deutsche Bank Securities analyst Susan Donofrio said in a note.
The reactions came as the Air Transport Association, a lobbying group for U.S. airlines, released unit revenue results for April to members. Unit revenue is a key industry measure based on revenue generated for every seat on a plane.
Analysts said unit revenue for U.S. airlines fell more than expected at 4.2 percent in April compared with a year earlier and fell 18.4 percent compared with April 2000, before the downturn. March unit revenue fell 8.1 percent from a year ago.
Unit revenue for transpacific routes dropped 32.8 percent in April from a year earlier as SARS, or Severe Acute Respiratory Syndrome, took an increasing toll on travel. Unit revenue had dropped 19.5 percent in March from a year earlier.
For domestic routes, unit revenue declined 2.3 percent in April from a year earlier. Transatlantic route unit revenue fell 5.8 percent, improved from the March decline of 14.4 percent before and during the Iraq war.
If we don't see down in the next day, you may see a melt-up going into options expiration as short calls are covered.
Yep, you are right.
Clears the head after becoming emotionally trapped in a losing position.
Starting to slowly average out of the RYVNX position. I surrender.
At what point will you be hedging, when sto gets near low?
I managed to close about 20% of my 2x short-NDX Rydex fund a week ago on a dip. Dearly wish I had closed it all.
Trapped like Japan?
http://money.cnn.com/2003/05/09/commentary/bidask/bidask/index.htm
Deflation isn't the pressing worry for the U.S. economy. It's the possibility of a "liquidity trap."
May 9, 2003: 11:58 AM EDT
By Justin Lahart, CNN/Money Senior Writer
NEW YORK (CNN/Money) - Let's be perfectly clear: The United States is in no danger of becoming Japan.
In Japan, for instance, they tend to drive on the left side of the road. U.S. drivers prefer the right. In Japan, a baseball game can end in a tie -- something that could never, ever happen in America. The Japanese also have these things you would swear were jelly donuts, until you bite into one and find out it's filled with sweet bean paste...
Yet despite all of these big differences, there are some disturbing similarities between what the Japanese economy went through to get to its current sorry state and what the U.S. economy is going through now. In the 1980s, Japan had a great big investment bubble. In 1990s the United States got a bubble of its own. The popping of the Japanese bubble led to stagnation in Japan's economy. Ditto for what happened after the U.S. bubble busted. Japan's central bank (eventually) cut rates to the quick, but the Japanese economy couldn't get back on its feet. Since the beginning of 2001 the Federal Reserve has cut its fed funds target rate 11 times, bringing it from 6.5 percent to 1.25 percent. And yet, here we are.
Now, when people start talking about the similarities between the Japanese and U.S. economies, they usually go rushing to the topic of deflation, the nasty phenomenon of falling prices that can really knock the stuffing out of the economy.
But deflation didn't come until rather late in the game for Japan. For most of the 1990s, the problem in Japan was something else: a liquidity trap.
Here's how it works: For some reason (like a busted bubble) everyone gets tremendously worried about the future. The central bank cuts rates, the government passes fiscal stimulus measures, but consumers and businesses are so jittery that they just stuff all that money into the proverbial mattress.
Or at least in Japan, a nation of savers, they stuff it into their mattress. In the United States, a nation of debtors, the money would go (and it seems to be going) to "balance sheet repair." Now both saving and getting oneself out of hock are noble things, but when everyone does it at once, it does the economy no good at all. It's what the economist John Maynard Keynes called "the paradox of thrift."
How do you fix a liquidity trap? You print money until inflation is introduced to the economy. For savers, inflation means that the money they have in the bank today will be worth less tomorrow -- so they spend it. For debtors, today's debts will not cost them as much tomorrow, so they get less worried about their balance sheets and beginning to spend as well.
In its recent jawboning about inflation targeting, in its hints about possibly buying Treasury bonds, thinks Princeton economist Paul Krugman, the Fed is trying to introduce the idea that, by hook or by crook, it's going to make inflation happen.
"[T]he Fed has its eye on the ball," he wrote on his Web site. "It's not worried about deflation per se; it's worried about a liquidity trap."
The big question is when do foreign investors start to repatriate their investments in the US markets>
DOLLAR "STRUCTURALLY SICK"
But analysts said the euro buying trend is not likely to slacken any time soon.
'The dollar is structurally sick. Global capital has nowhere but to go to the euro. The euro will keep rallying but that will put Europe into trouble,' said Stephen Jen, chief currency economist at Morgan Stanley in London.
The dollar suffers not only from low U.S. interest rates, but also from a $500 billion trade gap that sends more cash abroad. A sluggish economy and sputtering financial markets are not attracting enough capital to raise demand for dollars.
Meanwhile, the dollar fell to 4-1/2-year low of 1.3089 Swiss francs.
http://biz.yahoo.com/rb/030508/markets_forex_6.html
Steve,
Do you mean sell-off followed by recovery ?
Dave
this thing keeps defying every thing in my book
Boy isn't that the truth?
Defying gravity here.
I suspect it was pointed out up front although relatives didn't understand the implications I am sure.
The real disgusting thing is that this shark masquerading as an "investment adviser" put an IRA (tax deferred instrument) into an annuity. The only redeeming feature of annuities that I have seen is the tax deferral and this is already embodied in an IRA.
Thanks Steve,
I don't want to trade often , but I do want the flexibility to reallocate for them and the amount that I can get out of these annuities annualy is limited by an incredible 8.5 % "surrender fee".
Regards,
Dave
Re: Mutual Funds
I wonder if anyone could comment on a good avenue to purchase a wide variety of mutual funds with no transaction fees and limited rules about short term and limited short-term redemption fees.
I am trying to extricate some elderly relatives from a usurious variable annuity investment that they made.
Thanks in Advance,
Dave
Re: Mutual Funds
I wonder if anyone could comment on a good avenue to purchase a wide variety of mutual funds with no transaction fees and limited rules about short term and limited short-term redemption fees.
I am trying to extricate some elderly relatives from a usurious variable annuity investment that they made.
Thanks in Advance,
Dave
Would you consider entering a general International fund here?
Specifically:
http://biz.yahoo.com/p/p/povyx.html
http://biz.yahoo.com/p/mh/p/povyx.html
Thanks,
Dave
Flat is how many market indicators look to end the day.
Trin right at 1.00 at this moment.
Good luck to you too. <GG>
Bearish even in the face of this screaming indicator?
http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=18853842
I know. Really stinks since I am quite short via RYVNX.