Bonds & Interest Rates

Western Debt in a Glance

Posted by Chart of the Day

on Friday, 22 June 2012 11:03

For some perspective on the European sovereign debt crisis, today's chart illustrates the forecasted 2012 debt to GDP ratio for each of the PIIGS (red bars) plus a handful of today's major economies (blue bars). While the PIIGS are currently enduring relatively high debt loads, it is noteworthy how some of the relatively safe nations/bond markets (e.g. United State and Germany) are not far behind. These relatively high debt loads are of concern as they could lead to higher taxes sometime in the future and can risk fiscal crises if bond holders sense an increasing risk of default. The current crisis in Europe provides a clear example of the bond market's reaction (i.e. higher bond yields) to increased default fears. This leads to a very interesting case study that is Japan. With a debt to GDP ratio of over 200%, the Japanese 10-year bond yield is a relatively low 0.83%. Why? At the moment, the bond market feels that the Japanese have the ability to repay their debts -- in part due to Japan's perceived ability to raise taxes. To that end, Japanese Prime Minister Yoshiko Noda just won opposition support for the doubling of the nation's sales tax to 10% by 2015. So it's not just the amount of debt but also convincing your banker that you are good for it.


Quote of the Day
"I like players to be married and in debt. That's the way you motivate them." - Ernie Banks


Where's the Dow headed? The answer may surprise you. Find out right now with the exclusive & Barron's recommended charts of Chart of the Day Plus.


Personal Finance

Understanding the Real Estate Cycle

Posted by ContrarianInvestor.com: Personal Investing for Smart Peope

on Friday, 22 June 2012 09:15

Real estate is a cyclical business and like any other industry or market, it goes through periods of contractions and expansions. These booms and bust takes place in different cities, states, and countries. Understanding the real estate cycle is critical for real estate investors, realtors, and developers.

A common misconception among many real estate investors is that prices are always going towards equilibrium and that the market sets a fair price. This belief is misleading because markets are rarely in equilibrium – they fluctuate between overvaluation and undervaluation, like a pendulum. The market swing between phases of excess and shortfall due to market imperfections and time lags as information slowly spreads among market participants. Excess inventory and shortfalls are caused by time delays of new housing developments. Shortages in inventory make developments profitable; while excess inventory curtail prices and limits the profits of the real estate developers. This process creates a cyclical real estate market.

Real estate is also a function of jobs – and a strong local economy will produce a health real estate market. A vibrant economy with high paying jobs is the foundation for high property values. Looking at a home price to income ratio you can determine whether housing is overvalued or undervalued based on historical data. Specific geographic information can be found at zillow.com


The table below shows the highs and lows in the real estate cycle in the United States over the past 200 years. The average length of the real estate cycle is about 18 years. 


....view more charts and commentary HERE



Stocks & Equities


Posted by David Fry via Seeking Alpha

on Friday, 22 June 2012 08:29


readers know I’ve been on the “down low” waiting for the Greek elections and FOMC statement. This, and staying liquid, proved the right move for now. After all, as someone famously said, “tomorrow’s another day.”

Markets started the trading day inundated by a litany of crummy economic data. Jobless Claims (387K vs 383K expected & prior revised higher as per normal to 389K) made for a mild headline beat but overall the trend is worsening. The “flash” (why do we need one?) PMI estimate came in cold (52.9 vs 53.8 expected & prior 53.9); Bloomberg Consumer Comfort Index fell again (-37.9 vs -36.8 previous); Existing Home Sales were poor dropping 1.4% (4.55M vs 4.62M prior) or housing market not “fixed”; if that weren’t enough, the important Philly Fed Survey imploded (-16.6 vs .5 expected & prior -5.8).

Put these together and Operation Twist seems pathetically inadequate requiring perhaps another Fed meeting adjustment which would be seen by many as more politically motivated. Let’s face it; Bernanke & Co have gotten things wrong. The administration and congress haven’t been helpful either.

Goldman Sachs (GS), and no doubt prepositioned, issued a short S&P 500 call. Late in the trading day rumors Moody’s would issue bank downgrades this evening and into Friday morning. Names mentioned for downgrade include Citigroup (C), Bank of America (BAC), JP Morgan (JPM), Goldman Sachs (GS) and Morgan Stanley (MS). For some banks this could mean margin calls especially for MS.

In the eurozone, the Bundesbank rejected Italy’s Monti call for ECB bond purchases—Europe not “fixed”.

On the earnings front, Micron (MU), Red Hat (RHT) and CarMax (KMX) all reported results that missed analysts’ expectations and those stocks fell sharply as did just about everything else

Commodity markets (DBC), (USO) & (JJC) for example continued their decline. The dollar (UUP) was higher on eurozone confusion and gold (GLD) fell sharply as investors scramble for cash to meet inevitable margin calls.

Volume was higher by recent averages on the large sell-off which is quite common for days like this. Breadth per the WSJ was quite negative and short-term overbought conditions (noted here yesterday) have been wiped-out.


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The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

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The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.

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The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.

Moody's made the announcement of lowering ratings on 15 banks. The funny news is Morgan Stanley was only cut 2 notches causing the stock to rally in late trading because it was better than expected. Really, you can't make this stuff up.

Here is the full statement.

There is no economic news Friday unless some ring in from the eurozone.

Disclaimer: The ETF Digest maintains active ETF trading portfolio and a wide selection of ETFs away from portfolios in an independent listing. Current "trading" positions in active portfolios if any are embedded within charts: Lazy & Hedged Lazy Portfolios maintain the follow positions: VT, MGV, BND, BSV, VGT, VWO, VNO, IAU, DJCI, DJP, VMBS, VIG, ILF, EWA, IEV, EWC, EWJ, EWG, & EWU.

The charts and comments are only the author's view of market activity and aren't recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations aren't predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Gold & Precious Metals

Gold Daily and Silver Weekly Charts - Goldman Says 'Sell' And So They Do


on Friday, 22 June 2012 07:18

June 21/12 Stocks were shaky but unchanged this morning, when Goldman came out and issued a 'sell' on the SP 500.

This shook the markets, but what really started them sliding were rumours that spread across the financial news channels and trading desks that Moodys would downgrade 17 global banks tonight, with a three level downgrade on Morgan Stanley.

Now whether this was true or not, the selling increased, and stocks and commodities went out on the lows in a steady trade. 

I suspect quite a bit of this was engineered by some clever boys with an eye to the Russell index rebalancing tomorrow, and the end of month tape painting next week. They were playing games with the financials trying to suck in the bulls before the Goldman announcement for example.

But let's see what happens.

I took out the triple ETFs I owned today, including TZA and FAZ, since they had nice gains and I don't like to hold them except for brief trades.

I won't call bottom here for sure, but I did add a silver position for the first time in a while at this price below 27.




Timing & trends

12 Reasons US Recession Has Arrived (Or Will Shortly)

Posted by Mike Shedlock - Mish's Global Economic Trend Analysis

on Friday, 22 June 2012 02:00

  1. Europe is a disaster.
  2. US manufacturing is cooling rapidly
  3. China is cooling rapidly: China Manufacturing PMI 7-Month Low, Sharpest Decline in New Export Orders Since March 2009
  4. US Monetary policy is at best useless, but more likely net harmful, especially to those on fixed income.
  5. First year presidential politics are frequently recessionary
  6. US still needs fiscal tightening
  7. Unemployment insurance has expired for millions: 200,000 Lose Unemployment Benefits This Week, Nearly Half From California
  8. Self-Employment desperation: 100% of U.S. Jobs Added Since 2010 Have Been Self-Employment, Contractor, or Other Jobs Without Unemployment Insurance Benefits
  9. Last two jobs reports have been dismal: Another Payroll Disaster: Jobs +69,000, Employment Rate +.1 to 8.2%, April Jobs Revised Lower to +77,000; Long-term Unemployment +310,000
  10. The 4-week moving average of weekly unemployment claims is at the highest rate of the year, at 386,250.
  11. New home sales cannot gain significant traction: New Home Sales Hype vs. Reality
  12. Tax Armageddon

Durable Goods Orders Plunge

markit US manufacturing 2012-06-21-1

......read more and view charts HERE


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