Depression in the USA - Deflation verus Inflation

[tricha]

US sees job cuts as economy cools

Jobs have been cut in many industries

The US has seen the first decline in employment since August 2003, providing fresh evidence that the US economy could be entering a recession.
Employers cut 17,000 jobs from their payrolls in January, Labor Department figures showed. Economists had been expecting a rise of 80,000.
The US economy has slowed sharply in recent months as a housing market slump has dented consumer spending.
US interest rates have been cut twice in nine days to boost growth.
"Serious signs"
In a speech in Kansas on Friday, President George Bush acknowledged that the US economy was going through a rough patch and urged lawmakers in Washington to pass an economic stimulus package.
"Inflation's low. Productivity's high, but there are certainly some troubling signs, serious signs that the economy is weakening and that we've got to do something about it," Mr Bush said.
US Congress and the Bush Administration have agreed an economic stimulus package which would add $150bn in tax rebates.
The measure has already been passed by the House of Representatives but is still awaiting Senate approval.
Recession mode
The job losses were across all sectors of the economy including manufacturing and professional services.
"The economy is in recession mode," said Peter Morici, an economist at the University of Maryland.
The unemployment rate fell to 4.9% from 5% in December, a two-year high, but overall the number of people in the labour force declined.
We should expect to see more bad news on the labour market


Nigel Gault, Global Insight


The Federal Reserve cut interest rates to 3% from 3.5% on Wednesday.
It followed an emergency unscheduled cut last week, when the Fed slashed the cost of borrowing by the largest amount in 25 years to prevent the economy from slowing further. "We should expect to see more bad news on the labour market, at least through the middle of the year, before the heavy doses of monetary and fiscal stimulus begin to kick in," said Nigel Gault, an economist at Global Insight.

[Kookaburra]

I can only see the future of the US being a recession and as I do hold to the decoupling theory as it applies to sentiment I feel strongly that world share-markets have a long way to drop yet. Of course there will be bounces on the way down, like this week, but that is the normal course of a bear market. Apart from holding a token in gold stocks I will remain fully out of the market for some time yet. Each of your postings only serves to confirm my bearish sentiment.

[tricha]

I can only see the future of the US being a recession and as I do hold to the decoupling theory as it applies to sentiment I feel strongly that world share-markets have a long way to drop yet. Of course there will be bounces on the way down, like this week, but that is the normal course of a bear market. Apart from holding a token in gold stocks I will remain fully out of the market for some time yet. Each of your postings only serves to confirm my bearish sentiment.

Probably a wise move Kookaburra


US economy concerns knock shares

US service sector data has triggered the latest fall in share prices

World stock markets have declined on renewed fears about the health of the US, the world's largest economy.
Wall Street opened sharply lower after data showed that activity in the key US service sector contracted for the first time in nearly five years in January.
The US data raised fears that problems in housing and financial markets have spread to the wider economy.
European shares also dropped on the news as concerns that a US slowdown, would be felt globally.
The US benchmark Dow Jones average fell 1.76%, or 222.65 points, to 12,412.51 in morning trade.
The tech-heavy Nasdaq index slid 1.27%, or 30.21 points, to 2,352.64.
The Institute of Supply Management's index of business activity in the non-manufacturing sector slid to 41.9 from a 54.4 reading in December. Economists had forecast a milder decrease to 53.0. London's FTSE was down 2.09% at 5,900.2, Germany's Dax lost 2.73% to trade at 6,809.68 and France's Cac 40 fell 2.96% to 4,826.41.

[tricha]

My personal view on this recession is the price of oil will be the key to the severity of it all.
Do you think twice now, when you fill your car up about where you are going to go. All that gas money that could has been spent on something else



How much oil does the US import ?????????????????

.................................................. ................................................

I'm guessing at 15,000,000 barrels a day x it by $30 = $450,000,000

Try it again at $60 a barrel = $900,000,000

Try it again at $90 a barrel = $1,350,000,000

Try it at $150 a barrel = $2,250,000,000


The big picture is quite scary.

[stevo1]

They are big scary numbers.About two and a half years ago i found that my calculator could no longer compute various calculations because it wouldnt hold enough noughts.Think the rate of inflation was 1 to 3% world wide and generally still is(various governments world wide have manipulated the way they calculate cpi) .In effect the true measure of inflation is in oil gold property and other tangabiles and the way they have increased in price reflects governments' failure with their jiggery pokery and the debasement of peoples wealth(and propensity to save)by using fiat currencies and artificially low interest rates.So my guess would have been in the past a hua of a recession(prior to the emergence of the BRIC economies it would be a certainty)what is happening at the moment is the US fed throwing a lot more US pesos on the inflation fire in an attempt to stave off recession.I think the west has largely got away with this illusion in the past because of the cheap "stuff" coming out of China,(somewhat deflationary?apparently so .Allowing more disposable income to go into sharemarkets and housing,consumption etc) cheap money,easy credit and a wiiling consumer base.,The Chinese now are starting to export inflation and with Brazil Russia India China now wanting(needing) oil iron base metals and other tangabiles to continue into their capitalist culture these may continue upwards in price.Anyway i am even starting to bore myself with this .The "price of oil " may be the key to the severity of it but may more so be a measure of past (and possibly future) inflation and the price of it could be a direct indicator of recession or/and inflation.

[tricha]

Stevo1 -"The "price of oil " may be the key to the severity of it but may more so be a measure of past (and possibly future) inflation and the price of it could be a direct indicator of recession or/and inflation."

Thats the trouble BRIC want their share and there is not enough to go around.

Is the US recession contagious


Fresh worries on Japanese economy

Worries persist that Japan will be dragged down by problems in the US

Machinery orders by Japanese firms fell in 2007 for the first time in five years, government figures have shown.
Core private-sector machine orders - seen as a key indicator of corporate investment - were down by 4% from 2006.
The decline came after orders slipped 3.2% in December from the previous month, after a 2.8% drop in November.
The figures will add on fears Japanese firms are curtailing spending amid a US economic slowdown, and the data sent the Nikkei stock index down 1.44%.
There have been persistent concerns about whether Japan's fragile economic recovery will be able to withstand a sharp slowdown in growth in the US, its main export market.
"A slowdown in exports, which had led Japan's economy for the past five years, is now inevitable," said Naoki Murakami, senior economist at Goldman Sachs.
The Bank of Japan kept interest rates steady at 0.5% at its last meeting and some analysts are now predicting that the next move could be a cut - a dramatic change of tone from just a few months ago.
The economics minister, Hiroko Ota, said the government was keeping a keen eye on economic developments, but that orders were expected to pick up over the January to March period. She added: "We need not be overly pessimistic about the current state of machinery orders." The negative data hurt shares in Japan's construction equipment makers and sent the benchmark Nikkei 225 index down 1.44%, to close at 13,017.24.

[tricha]

Bargaining with
the Bear
London, England - Melbourne, Australia
Monday, 11 February 2008
In This Issue:Bargaining with the Bear…

Liquidation underway…

Commodities hit a new all-time high...

----------------------------------

From Dan Denning at the Old Hat Factory:

--Relentless. That's what this bear market in credit is. It won't quit.

--First it was subprime loans. Then Alt-A. It will probably include securitized credit card receivables before it's over. Now, we have trouble in the European junk bond market and rumblings in the corporate bond market. And at long last, liquidation in the CDO market.

--"The European high-yield bond market remains frozen, as spreads at the widest levels in nearly five years fail to draw investors worried that prices may fall further due to the global credit turmoil," reports Natalie Harrison for Reuters. The great unwinding of leverage may be about to hit another gear.

--"Unwinding of synthetic CDOs - which reference CDS contracts - is thought to be behind some of the rapid spread-widening on credit indices on Friday," reports Sam Jones at the Financial Times.

--It gets tricky here. But the basic explanation for Friday's action is that to shut down a CDO you have to buy protection in the credit default swap market. Like any market, higher demand usually leads to higher prices. The unwinding of CDOs will mean higher prices for credit default risk, and big losses on CDOs.

--DABDA. Denial, anger, bargaining, acceptance, depression, acceptance.

--Those are the stages of grief according to Elizabeth Kubler-Ross in her book, "On Death and Dying." This bull market in financial engineering and credit is either dead or dying. But you can see that various market participants are at different stages in the grieving process.

--Ben Bernanke is somewhere between denial and bargaining. He knows there's a problem, but he would like to bargain with the Bear. "Let me cut rates to help home owners. You can have your pound of flesh from savers if you'd like. But please Bear, be reasonable."

--The Bear is not reasonable, but he is thoughtful. He wants you to believe he can be reasoned with. That way he can swipe you one paw at a time at his own leisurely pace. If you run, it makes his job harder. He wants you to sit and be still. It's easier to eat a stationary target.

--Jean Claude Trichet is also bargaining. Until recently, the European Central Bank has been a rock in the fight against inflation. It has not cut rates to "stimulate" or promote growth. But the credit Bear even has Trichet spooked. He has sat down to offer the Bear some easy-money honey.

--"Uncertainty about the prospects for economic growth is unusually high," Trichet told reporters last week. "We have had a reappraisal of risk in financial markets which triggered unusually high uncertainty, so the risks are on the downside from that standpoint."

--Trichet used the word "growth" and not "inflation" suggesting every so subtly that the bias at his bank is to cut European interest rates to ignite "growth." This prompted a bout of U.S. dollar strength last week which could continue.

--How very strange. Just last week, the U.S. Treasury had trouble auctioning $9 billion in thirty-year bonds. The market seemed to tell Uncle Sam, we do not want to lend you money for 30-years at a mediocre interest rate of 4.45%. Yet relatively speaking, the dollar could rally. Why?

--We have no idea. In a world of relative currency movements, it's a constant battle between growth and yield over which determines the market value of a currency. Sometimes investors value higher yields on government debt, believing that makes a government's money strong. Other times, high growth economies are valued.

--Our prediction is that gold and silver will to better than paper money for the next few years, both relatively and absolutely. As Bill says, all paper money eventually finds its intrinsic value.

--For more on silver, see today's essay. Psychologically, precious metals accept the Bear in credit. Indeed, they hug him as safely as one can hug an angry, furry, be-clawed 300-kilo animal. The more he mauls financial assets, the better it ought to be for real assets.

--And be prepared for more mauling of financial assets this week. "There were reports that several large German banks will need capital infusions to complete some upcoming mergers," reports Leslie Wines at the Associated Press. As you can see from the figures below compiled by BNP Paribas, the losses in the global banking sector have already been substantial.

[tricha]

And now over to Bill Bonner in London, England:

Last week, Bernanke "failed to relieve gloomy sentiment," says the International Herald Tribune. Testifying before Congress, the Fed chairman must have made things worse, because investors promptly decided to stop buying stocks; instead they began to sell them. The Dow ended down 175 points.

Oil rose $2.19 to over $95... and gold held steady.

One thing that bothers us about our dim outlook for the U.S. economy is that so many others seem to see things the same way.

Tim Bond, strategist at Barclays Capital says the "world faces a future of inflation, higher interest rates, lower house and share prices and economic volatility."

Yep, that's what we think too.

He goes on to forecast, "rising real resource prices and a degenerating ecosystem, in turn catalyzing changes to the fundamental structure of the economy."

We're not sure about that last part, but we were with him up to there.

The reason for this assessment is also the same as ours. The world is over-leveraged. People have too much debt. And there are only two ways of reducing debt - either it is actually paid down, which would mean higher savings... less spending... and less "growth" for a consumer economy. Or it could be inflated away... which would bring problems of its own - a collapse of the dollar , most likely... collapse of the bond market... and a collapse of the dollar-based world financial system. The paths are much different, but they both lead to the same place: lower living standards in America... and Britain.

Mervyn King, head man at the Bank of England, said on Wednesday that it's time to face up to a "genuine reduction in our standard of living." He went on to predict that England would most likely see a combination of lower growth... and higher inflation.

Yes, dear reader, it's our old friend stagflation... back after 25 years. And yet, he looks just the same. More than 2/3 of fund managers surveyed by Merrill Lynch say they see stagflation coming for a visit. Which worries us, because we see it too. And these are the same fund managers who were buying subprime debt and borrowing money so they could speculate on Chinese shares at 40 times earnings. Now, the managers are moving to cash. "Risk aversion hits 7-year high," says the newspaper.

Stagflation is a devilish mixture. One part slump... one part inflation... and one part who-knows-what. Of course, the feds are eager to put more inflation into the brew. If they had their druthers, the concoction would have more of a kick - with more exciting price increases and less depressing slump. And to that end, they've come up with a number of rotgut proposals. For example, there is the "stimulus package' signed into law Wednesday. You've heard about it on the news, so we won't give the details. President Bush, signing the new law, applauded the U.S. economy with such gusto - it was as if he didn't realie he had just signed a rescue measure.

"The genius of our system is that it can absorb such shocks and emerge even stronger," said the president. But if the system were so robust, why was the doctor injecting $170 billion of adrenaline? He didn't explain.

Meanwhile, the next article in the same issue of the Financial Times (yesterday's) tells us that the feds also tossed a 'lifeline... to floundering borrowers.' You wouldn't think such a resilient economy would need to give borrowers a lifeline too. With all that adrenaline in their blood, you'd think they could swim up Niagara Falls without a paddle, as they say. "Project Lifeline" is meant to replace the last project called "Hope Now Alliance," for which all hope seems to have given out. How does "Project Lifeline" work? As near as we can tell, the people who took Alan Greenspan's advice to mortgage their houses aggressively, and who now find themselves 'upside down,' with more mortgage than house, can call a toll free number and buy themselves some time.

Meanwhile the news continues to encourage us. Not because it is good, but because it is bad.

Auto loan delinquencies are at a 10-year high. "Repo lots overflow with reclaimed cars," says the USA Today.

The Wall Street Journal reports that more families are falling behind on their heating bills.

And the Guardian , in the U.K., tells us that American students are the "next victims" of the credit crunch. Poor things, they're unable to get financing to continue wasting their time in school; now they're going to have to get a job.

From subprime, to prime, to home equity, to credit cards, to car loans, to buyout financing... the whole credit structure has been hit, some parts worse than others.

Today's news, for example, also tells us that Switzerland's biggest bank has fessed up to $11 billion in subprime related losses... sending the stock to a four-year low.

*** It is always worrisome when people in positions of responsibility agree with us. It troubles us, for example, that so many people think they see a recession coming. Maybe we won't have one after all.

Or... maybe we won't have the recession they all expect.

The experts are all said to be gloomy. But what kind of gloom is it when stocks in a communist country trade at 37 times trailing earnings? When Picassos and dead animals still sell as if they were works of great art? And when the yield on a 10-year T-note is still below the going rate of consumer price inflation? We know Treasury debt is supposed to be the safest investment in the world - but most of the holders are not U.S. taxpayers. They're foreigners, for whom a U.S. Treasury obligation is a wild (and to us, reckless) speculation on the dollar.

Are investors really risk averse - with the Dow selling near an all-time high and selling at 18 times earnings? Are they really running scared with house prices down scarcely 10% after a 70% run-up? Are they desperately worried when the price of gold is still only about 40% - in real terms - of its previous high set 26 years ago?

To return to the housing news, the SF Gate reports that it takes an annual income of $196,000 to be able to afford, comfortably, the average house in San Francisco. In Marin County, you need to earn $218,000. How many people actually earn that kind of money?

The story is the same throughout much of the nation. Housing prices in California are down 15% to 20%... but the average house is "still unaffordable" for the average house buyer.

And when Bernanke delivered the bad news to Congress yesterday, the news he gave out was not as bad as you might expect. He said the economy would be softer than expected, but that it would recover before the end of the year. That is the message that practically all the experts are peddling: look for a slump in the first part of the year, recovery later on.

Yesterday, we noted that homeowners typically believe that the downturn in housing prices may last one or two years. They still believe that "house prices always go up in the long run." Stock buyers seem to think the same thing. Many are talking about a bottom already. Some think the bottom has already come and gone - in January. They believe we're now in a new phase of what is, for them, an eternal bull market.

Mr. Market always has a trick up his sleeve. What if his big surprise is that this downturn doesn't go away after six months? What if house prices grind downward for five years... or more? What if we have begun a major bear market on Wall Street, with the Dow falling, in real terms, for the next 15 years? And what if Warren Buffett is wrong? What if America has topped out? What if, after 232 years of coming up in the world... it will go down for the next 232? What if it is now smart to short the United States - its currency, its stocks, its labor and even its military?

The U.S. enjoyed an extraordinary run of good luck. It had rich farmland... with huge oil deposits under it. It had energetic labor and low taxes. It had innovators, risk takers... and a government that left them alone. It had thrifty, hard-working people who asked for nothing but the chance to work. This combination of hard work and good luck put America on top of the world. But that's the trouble with being on top of the world; there's no where to go but down. Now, the U.S. is a net importer of food... and fuel. Its government seeks to control not only the lives of its citizens, but the fates of other peoples half way around the globe. Its citizens work harder than ever... but they are now competing with people who work even harder than they do... people who are willing to work for one tenth the compensation and then save half of what they earn. These same U.S. citizens are bending under the heaviest burden of private and public debt the world has ever seen, while their government encourages them to spend more.

Here's a surprise for you, dear reader. What if this great economy didn't "emerge even stronger"... but instead was crippled, and never recovered?

[JBmurc]

Are we heading for a bear market?

The recent falls we have witnessed in our market have been the biggest since October 1987. This has left many investors wondering if the share market is the best place for their money.
Should we buy, sell, or run for the hills? If history is any guide, a buying opportunity may actually be upon us. Since 1991 the market has fallen by over 20% five times. On four of those occasions, the following year provided strong returns for investors. The fifth fall greater than 20% was in January this year.


So when would you rather buy into some quality new positions? Now or when stock prices have already traded to new all time highs?

Here at wise-owl.com, our research analysts are always searching the market for investment opportunities and our bottom up stock picking approach ensures that regardless of overall market conditions, we can find exciting stocks for our members.

The Recent market downturn has created one of the best stock market sales seen in years and many high quality stocks are selling at bargain prices!
Much of the recent market downturn has been generated by panic and emotional selling rather than any strong facts. In reality, the biggest threat facing most investors at the current time is their own fear!

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.”
Warren Buffett

Make sure you don't miss out on this rare investment opportunity! Register your details here for your complimentary trial and learn which stocks you should be buying!



Take a look at the global economy.

The latest data shows that China and India are growing by 11.2% and 8.9%, respectively. The World Bank predicts China will grow by 9.6% this year.
The world economy is still in expansion phase with above average growth.
Australia’s resources are still in high demand.
Unemployment is at a record low of 4.4% in Australia with companies still hiring.
Consumer confidence is high.
Businesses are flush with cash after years of record profits.
When inflation is taken into account, global commodity prices are coming off 200 year lows.

Despite the subprime mortgage mess and slowing US growth, our most important export partner, China, is continuing to expand with the recent GDP data showing 11.2% annualised growth over the December quarter. A slowing US economy will no doubt affect China but not as much as some people might think. In fact, a minor slowdown in China would be a welcome change for policymakers as it would cool down inflationary pressures. Having taken into account the trade effects of a US and European slow down, the World Bank estimates that China should still grow at a healthy 9.6% clip this year.

The scale of industrialisation and urbanisation in China is unprecedented. This will keep our mining sector ticking along and gives credibility to the “stronger for longer” case. One just needs to travel to Perth to see the impact the mining boom is continuing to have. The growth in China and India should provide Australia with an element of insulation from a US slowdown. Most of China and India’s need for our commodities is for domestic use, a fraction of which is used for the production of US exports.

The last commodities boom, which started in the 1970s, lasted for 15 years and was a result of the industrialisation of Japan which had just 2% of the world’s population. The current boom is being led by the industrialisation and economic growth of China and India. Combined, these two countries have 36% of the world’s population. With more than a third of the world’s population enjoying elevated economic growth, the commodities boom will continue for many years to come.

Combine this with real commodity prices close to inflation adjusted 200 year lows, and you have a very bullish long term macroeconomic picture on your hands.

The worst may already be over
Market falls of more than 20% are often an indication the market is close to rock bottom. Recent history suggests that when a market falls, the bulk of the sell-off occurs early as people try to realise any gains they still have. Since 1991 there have been four 20%+ falls and every one of them was a precursor to strong gains. The January 22 market fall was the fifth time this has occurred, and hindsight may soon show us it was indeed yet another good buying opportunity.

Make sure you don't miss out on this rare investment opportunity! Register your details here for your complimentary wise-owl.com trial and learn how you can make profitable investment decisions today!


Wise-owl.com is Australia's leading independent investment research house providing expert advice on the stock market.


Happy Investing!

The wise-owl.com team

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[tricha]

US foreclosures up 57% in January

The number of homes receiving a notice was up in 30 states

The number of homes facing foreclosure in the US rose 57% in January compared with the same month of 2007.
Exactly 233,001 homes received at least one notice about overdue payments last month, compared with 148,425 in January 2007, US property site RealtyTrac said.
There was a 90% increase in the number of houses being repossessed by banks compared with January 2007.
The figures come despite attempts by lenders to modify loan terms and work
out long-term repayment plans.
"The loan workout modification programmes aren't having a significant material effect on keeping properties from going back to the banks," said Rick Sharga from RealtyTrac.
Prices falling
Lenders were increasingly forced to take possession of homes instead of auctioning them, suggesting that the owners had very little equity in their houses.
There was further bad news from figures showing that US house prices fell for the second quarter in a row.
House prices fell 1.3% in the last three months of 2007, compared with the previous three months, according to the Office of Federal Housing Enterprise Oversight.
They fell 0.3% compared with the last three months of 2006.
The figures came as the chief economist of the mortgage finance company Freddie Mac warned of falling house prices and rising foreclosures for the next two years. "2008 is not going to be a pretty year," Frank Nothaft said. "We'll see some improvement in 2009, but not for house prices."