Leaders of the Group of 20 meet on Thursday and Friday in Pittsburgh and U.S. President Barack Obama said on Sunday he would push world leaders for a reshaping of the global economy in response to the crisis.

World stocks, measured by MSCI have risen over 26 percent this year, recouping more than half of last year’s losses, underpinned by repeated pledges by G20 policymakers to keep emergency support for the economy in place.

“The market might look slightly overbought near term, but the economy is definitely improving, corporate profits are definitely improving, interest rates are staying low, valuations aren’t expensive,” said Nick Nelson, European equity strategist at UBS. MSCI world equity index <.MIWD00000PUS> fell 0.7 percent, while the FTSEurofirst 300 index <.FTEU3> lost 0.6 percent.

Emerging stocks <.MSCIEF> also dropped 0.6 percent.

U.S. stock futures were down around 0.5 percent , paring losses after Dell said it would acquire Perot Systemsfor $3.9 billion. Perot System’s shares surged 66 percent in pre-market trading.

EXIT STRATEGY

The Fed is expected to keep its benchmark Fed Funds rate unchanged at 0.25 percent on Wednesday, and investors are looking for signs of how quickly it might remove its extraordinary programmes to revive lending and hiring.

While any signal that the Fed might start unwinding its loose monetary policy shows the central bank is acknowledging the recovery, it could be negative for risky assets as it could fan speculation of an interest rate hike.

The Fed has pledged to buy up to $1.45 trillion of mortgage-backed securities and debt issued by government sponsored Fannie Mae and Freddie Mac by end-2009.

Concerns about weak fuel demand pushed U.S. crude oil down 2.4 percent to $70.25 a barrel after Asia’s No.1 refiner Sinopec said that diesel China continued to lag economic recovery with fuel sales so far this year still below the rates seen a year ago.

The September bund future was steady, unable to take advantage of falling equities and investors grew concerned about the prospect of euro zone and U.S. debt supply.

The dollar <.DXY> rose 0.6 percent against a basket of major currencies, after hitting a one-year low last week, while the U.S. currency rose 1 percent to 92.21 yen .

“The yen may end up being the biggest winner against the dollar. It has yet to significantly overshoot against the dollar, unlike every other G10 currency. Real yields are moving in its favour and nominal yields versus the U.S. are negligible,” Deutsche Bank said in a note to clients.

“Dollar/yen will likely break below last year’s low of 87 and could even reach 80 over the next 3-6 months.”

Sterling fell to a five-month low of 90.79 pence per euro after the Bank of England said the British currency’s long-run sustainable exchange rate may have fallen due to an increased focus on Britain’s economic imbalances following the global credit crisis.

(Reuters Sept. 21)

When the U.S. Commerce Department on Friday said the U.S. economy contracted at a 1% annual pace in the second quarter, the report was actually seen as good news: It was a slower decline than in each of the two prior quarters, and economists had expected a contraction of 1.5%.

“This is good news,” Nariman Behravesh, an economist with IHS Global Insight Inc. (NYSE: IHS), told The San Francisco Chronicle.

But here’s the wild card: Although government spending did increase during the April-to-June quarter, only about 7.7% – $60.4 billion – of U.S. President Barack Obama’s stimulus package had actually made its way into the U.S. economy by June 30, the quarter’s official conclusion. Of that total, the largest component went to U.S. states to help defray the jump in Medicaid costs, CNNMoney.com reported.

Much of the $43 billion in stimulus tax relief – including the “Making Work Pay” tax credit for individual workers – also took effect during the second quarter, CNNMoney said.

At this point, it’s really difficult to “see how the effect of stimulus has been very large,” Edward Lazear, an economics professor at Stanford’s Graduate School of Business – who served as an advisor to former U.S. President George W. Bush – told CNN. “Very little has gone out.”
And that’s the problem.

In short, it looks like we’re already experiencing an economic rebound – without the Obama stimulus having really even kicked in … yet. In fact, the impatience over the continued U.S. malaise, the slowness of the economic turnaround and the fact that when growth does return we’re almost assured of a “jobless recovery” actually has some Washington legislators already pushing for a second stimulus.

That means the economy will be in rebound mode when nearly three-quarters of a trillion dollars in stimulus money starts to flow in. Dumping all that money into an already-growing economy won’t just serve as a simple tailwind that gives the economy a gentle push; it will be more like the head-snapping start followed by the thunderous charge down the quarter mile that we see from one of the supercharged Top Fuel Funny Cars driven by National Hot Rod Association (NHRA) star John Force. (From a standing start, Top Fuel Funny Cars cover a quarter mile in less than five seconds at speeds well in excess of 325 miles per hour).

And there’s only one outcome from that scenario – rampant inflation. In fact, U.S. consumers are probably headed for the worst bout of inflationsince the 1980s. And that makes the so-called “exit strategy” of U.S. Federal Reserve Chairman Ben S. Bernanke all the more important.
To be sure, the Obama stimulus has given the economy a bit of a boost. So far:

• The states have deployed what stimulus money they have received, which helped fuel the biggest surge in state and local spending since 2007.
• Some early pieces of the stimulus – such as the $25 increase in unemployment benefits – have allowed consumers to spend more.
• And one economist – Economic Policy Institute’s Josh Bivens – said Obama stimulus money may have boosted growth by as much as three percentage points during the second quarter.

But other economists say that – given the environment – the second-quarter GDP numbers were much too strong. After all, business spending dropped 8.9% and hours worked fell 7%. Somehow that doesn’t translate into a mere 1% drop in GDP. That latter figure will most certainly be revised downward in the future.

Unless or until that happens, look for the third quarter GDP statistics to give us a better picture of the U.S. economy’s health. Complaints that the promised stimulus money isn’t getting where it needs to be have Obama’s economic team working overtime to iron out the problems that keep cropping up.

Mark Thoma, an economics professor at the University of Oregon, toldCNNMoney that “the third quarter will be a critical time period for assessing the stimulus package.”

And for assessing the inflation threat – which Money Morning has repeatedly warned is a very real threat. Gold, commodities, and other hard assets will be key holdings. The same is true for dividend-paying stocks. And make sure to go global – the best growth prospects will continue to be overseas.

Market Matters

A report by the New York Attorney General’s Office claims the initial nine institutions that received Troubled Asset Relief Program (TARP) money paid out $33 billion in bonuses in 2008.  Of particular note, Citigroup Inc. (NYSE: C) and Bank of America (NYSE: BAC) rewarded a combined 900 employees (combined) with bonuses of at least $1 million, despite having received $45 billion each in government aid (and that doesn’t count the $3.6 billion Merrill Lynch & Co. Inc. employees received).  Imagine how much they would have made if the companies were actually doing well?

While President Obama continued his road trip across America to promote health care reform, a group of conservative Democrats (Blue Dogs) came up with their version of a bill, but offered no timetable for completion.

Meanwhile, regulators pushed forward with proposed rules aimed at reducing speculation in the marketplace and focused on so-called “naked” short selling and on lpacing strict limits on commodities contracts.

In corporate news, deals were the theme of the week.  Microsoft Corp. (Nasdaq: MSFT) made amends with Yahoo! Inc. (Nasdaq: YHOO) and forged a 10-year partnership to cut into Google Inc.’s (Nasdaq:GOOG) share of the Internet search business. And International Business Machines Inc. (NYSE: IBM) is expanding its software empire with the purchase of SPSS Inc. (Nasdaq: SPSS) for $1.2 billion.

On the earnings front, energy companies highlighted the week’s reports and the results were not pretty (though were expected).  On a positive note, Motorola Inc. (NYSE: MOT) surprised analysts by reporting an unexpected profit, while offering a promising outlook, and Deutsche Bank AG (NYSE: DB) continued the favorable trend among (previously depressed) financials by posting strong earnings on solid investment banking operations.

Investors digested the mixed earnings news and chose to focus more on the positives.  Despite a temporary setback in China (5% index decline before encouraging comments by its central bank), the Dow Jones Industrial Average moved higher late in the week after General Electric Co. (NYSE: GE) was upgraded to a “Buy” by a major analyst, a sign of an improving climate.  The Nasdaq Composite Index even flirted with 2,000 for the first time since October 2008, and theStandard & Poor’s 500 Index edged closer to 1,000, a level not seen since last November.

The Dow ended July with its best monthly performance since October 2002.  Japanese stocks moved to their highest levels in about 10 months and European equities soared to nine-month highs.  Bond investors breathed sighs of relief as a record $115 billion Treasury auctions came to a close and foreign bankers emerged as buyers on the final day.

Economically Speaking

Has Fed Chairman Bernanke suddenly become Mr. Optimist these days? Early in the week, he proclaimed that the financial debacle ultimately would produce favorable results as “not only will we will be back on track, but the economy will be stronger than it had been before this started.”  He also urged Congress to move forward with a regulatory reform package to ensure that such dire times will not be repeated.

The Fed’s Beige Book showed that the economy remained weak, though signs of stabilization and improvements in manufacturing, housing, and even labor are occurring across several regions of the country.  Some districts reported enhanced corporate hiring, particularly within the healthcare and technology sectors.

The afore-mentioned second-quarter GDP report was better than expected, giving yet another indication that the recession is drawing closer to an end.

Still, it’s a much deeper recession than most realized: For the first time since records have been kept (1947), economic activity has declined for four consecutive quarters.  New homes sales skyrocketed in June by 11%, the fourth increase in the last six months, and home prices even climbed on a month-over-month basis for the first time since July 2006 according to the S&P Case-Shiller index.

Durable good orders fell in June, though once the volatile transportation category was removed from the statistic, orders actually increased.  Consumer confidence fell in June, as ongoing pressures on the labor markets brought continued concerns and many Americans are refraining from major purchases (now and for the foreseeable future).

On the other hand, jobless claims rose in the most recent week, though analysts pointed to discrepancies from the auto industry.   Looking at the four-week moving average as a better gauge, claims for unemployment benefits actually fell to the lowest level since January and continuous claims unexpectedly declined, as well.

Weekly Economic Calendar

Source: Why the Obama Stimulus Has Us on a Collision Course with Inflation

• Senate Democratic leaders late yesterday (Thursday) abandoned plans for an overhaul of the nation’s $2.4 trillion healthcare system before Congress recesses in August – dealing U.S. President Barack Obama a major political blow. The decision was delivered by U.S. Senate Majority Leader Harry Reid, D-Nev., who said that “it’s better to have a product based on quality and thoughtfulness rather than try to jam something through.” The decision to reject President Obama’s ambitious timetable – he wanted a vote on the plan before Congress adjourned – had been anticipated for weeks. Sen. Reid’s comments mirrored those of Republicans, who feared the implications of a quick vote on such a politically charged issue.

• Sagging worldwide PC and server sales resulted in a 17% revenue decline and a 29% drop in Microsoft Corp.’s (Nasdaq: MSFT)fourth quarter ended June 30. The company reported a net income of $3.05 billion, or 34 cents per share on revenue of $13.1 billion, compared to a net income of $4.29 billion, or 46 cents per share on revenue of $15.83 in the same quarter last year. For the year, the software giant posted a net income of $14.56 billion, or $1.63 a share on revenue of $58.43 billion, compared to a net income of $17.68 billion, or $1.90 per share on revenue of $60.42 billion in the same quarter last year.

• Initial unemployment benefit claims in the United States grew by 30,000 to 554,000 for the week ended July 18, according to the Department of Labor. However, the less volatile four-week moving average shrank, falling by 19,000 to 566,000. “The numbers have come down but they still have a ways to go down before the bleeding of jobs is over,” said Andrew Gretzinger, a senior economist at MFC Global Investment Management in a Bloomberg News interview. “The labor market is still weak and is going to remain that for some time to come.”

• Deutsche Bank AG (NYSE: DB) has raised its target for Apple Inc. (Nasdaq: AAPL) from $150 to $225 following its strong second quarter showing and impressive iPhone sales. Apple moved 5.2 million units of its lucrative iPhone, exceeding Deutsche’s projection of 5 million. Deutsche estimates iPhone margins to be roughly 60%. Another reason for Deutsche’s optimism regarding Apple is it expects the iPhone’s international reach to expand from 18 to 80 countries by the end of the September quarter, with a possible partnership with China Unicom Limited (NYSE ADR:CHU) as early as this fall, representing the iPhone’s debut in the emerging market.

• Existing home sales in June rose by 3.6% to a 4.89 million annual rate from a revised 4.72 million in May, when the number rose by 2.4% according to the National Association of Realtors. “Housing may no longer be the weakest link,” said Joel Naroff, president and chief economist at Naroff Economic Advisors Inc. “Demand has clawed itself back to where it was a year ago, a very nice signal that the market has not only hit bottom but is making its way back.” In another sign the housing market may be on the upswing, rates on fixed-rate mortgages increased this week to 5.20%, up from 5.14% last week, Freddie Mac (NYSE: FRE) Vice President and Chief Economist Frank Nothaft said in a prepared statement.

• Increasing landline cancellations and heavy iPhone subsidies contributed to a 15% drop in profit for AT&T Inc. (NYSE: T). The company reported a net income of $3.2 billion, or 54 cents a share on revenue of $30.73 billion for the quarter ended June 30. That compares to a net income of $3.8 billion, or 64 cents a share on revenue of $30.86 in the same quarter last year. The company did benefit from the new iPhone model released last month, activating 2.4 million accounts for the smartphone in the United States.

• Rising customer traffic and operating income could not helpMcDonald’s Corp.’s (NYSE: MCD) profit, which fell 8.1% in the second quarter due to currency fluctuations, the company said. The fast-food chain posted a net income of $1.09 billion, or 98 cents a share on revenue of $5.65 billion for the quarter ended June 30. That compares to a net income of $1.19 billion, or $1.04 a share on revenue of $6.08 billion in the same period last year.

• 3M Co. (NYSE: MMM) suffered an 18% drop in its profit, but beat expectations due to stronger demand for electronic healthcare products in its second quarter ended June 30.  The conglomerate posted a profit of $783 million, or $1.12 a share on revenue of $5.7 billion, compared to a net income of $945 million, or $1.33 a share on revenue of $6.7 billion in the same quarter last year.

Source: Investment News Briefs Friday, July 24, 2009

U.S. crude futures traded down $1.01 to $63.04 a barrel by 1:13 p.m. EDT (1713 GMT) as investors sought safer havens. London Brent crude fell 74 cents to $63.31 a barrel.

“The worries are that the pace of the economic recovery hasn’t materialized the way that people who plunged into the commodity markets thought, and now they are running for the exits,” said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut. “The question is how far they will run.”

Safe-haven currencies such as the dollar gained on the concerns about a potential turnaround to the global economic crisis, while U.S. stocks fell.

Crude prices have dropped from $73 a barrel in late June on worries a rebound in global fuel demand may be far off, after economic optimism helped lift prices from lows under $33 struck in December.

The U.S. Energy Information Administration raised its outlook for global oil demand by 170,000 barrels per day (bpd) in a report released on Tuesday.

“There has been stronger economic activity in Asia than was previously anticipated, and the current forecast reflects higher expected oil consumption in that region,” the EIA said.

Surging demand from China and other developing economies launched oil and other commodities on a six-year rally that sent crude to a record high near $150 a barrel last year, before the economic crisis hit demand.

Weekly U.S. inventory data is expected to show a fall in crude oil stockpiles and a build in gasoline and distillate stocks in the week to July 3, the build up to the long U.S. Independence Day holiday weekend when summer gasoline demand typically peaks.

Data from the American Petroleum Institute is scheduled to be released later Tuesday, with the EIA’s weekly inventory report due out on Wednesday.

Crude has found limited support from OPEC member Nigeria, where militants have launched at least four attacks against oil installations in the past 10 days, helping to underpin prices on Tuesday.

NEW YORK, July 7 (Reuters)

Given that more than $800 billion of federal money has been earmarked for U.S. “stimulus” projects, one would actually expect that the frightening job losses of the past six months would quickly reverse, and that the U.S. economy would soon start creating the 3 million jobs that U.S. President Barack Obama has promised.

Unfortunately, that has not been the case.

That’s not to say that the outlook is for a Great Depression, an economic reversal in which a country’s output plummets by 25% or more from its peak level. While the current U.S. recession may well be the “worst since the Great Depression,” it’s becoming clear that the peak-to-trough output decline will be something like 5% – worse than the recessions of 1973-75 and 1980-82, both of which saw output declines of about 3.5%, but not all that much worse.

After all, the money supply has not been allowed to collapse as it did during the 1930s and there has been no repetition of the infamous Smoot-Hawley Tariff Act, though the “Buy America” provisions in the original stimulus outline and the corresponding “Buy China” provisions inChina’s corresponding package indicate that “Smoot-Hawleyism” still lurks just beneath the surface.

However, the following four factors make it almost certain that the U.S. economy will be slow:

• Record-low interest rates make it impossible for the U.S. central bank to use rate cuts to jump-start growth.
• The huge U.S. budget deficit will force the federal government to continue its heavy borrowing – potentially “crowding out” private-sector players seeking loans to finance their own growth.
• The growing size and influence of the U.S. public sector.
• And an over-growth of government regulation.

Let’s consider each one.

First and foremost, the U.S. Federal Reserve has loosened money supply inordinately over the last year, with short-term interest rates at 0.00% and money supply growth at 15% per annum. Thus, there is no Fed loosening available to spur employment.

Interest-rate-sensitive sectors – especially housing and construction – are likely to remain depressed for years. These sectors are major employers of low-skilled and semi-skilled labor, which will not be picking up their normal slack.

A second adverse factor is the exceptionally large federal budget deficit - expected to reach $1.85 trillion, or 13% of the U.S. economy, in this year alone, according to the nonpartisan Congressional Budget Office(CBO). That deficit will stretch several years into the future, thanks to the stimulus package and various bailouts initiatives.

In the short term, these rescue-oriented provisions have helped U.S. employment, not the least by allowing federal and state governments to do some hiring. But in the longer term, the federal borrowing they have caused will restrict the private sector’s access to the capital markets. That will hinder small businesses in particular. Indeed, the private sector will find it difficult to fund capital expansion, and again the result is likely to be a dearth of hiring.

A third adverse factor is the expansion of the public sector itself. To some extent, it does not matter how budget deficits are financed; the important consideration is the transfer of resources from the private sector – allocated by the automatic optimization of the so-called “price mechanism” – into the public sector, where no such considerations apply.

It’s not just a question of government itself; it’s now clear, for example, that Chrysler LLC and General Motors Corp. (OTC: GMGMQ) are to be controlled by the government – with subsidies – at our expense.

When General Motors announces, as the company did Wednesday, that it will build automobiles on the basis of an assumed oil price of $100-$120 per barrel, one sees at once a politically motivated strategy; GM will cease making the large cars that in the past have been its principal source of profit. If oil prices average $50 or less, as is perfectly possible in a long period of sluggish global growth, General Motors will be a mess – and will need to be bailed out by us again.

The late William F. Buckley Jr. once claimed that 500 names chosen at random from the Boston telephone book could do a better job of running the country than Congress; I wouldn’t mind betting that such a random selection would also make a better job of running General Motors than the government.

Related to the growth in government is the growth in regulation. For example, President Obama’s “cap-and-trade” plan to address global warming will impose a new tranche of costs on the U.S. economy, without any great offsetting spurs to employment. In areas such as energy production and heavy industry, employment will be depressed by the additional cost burdens those areas bring, as well as by the simple difficulty of complying with the new regulations.

To see where a larger state sector and more regulation can lead, one need only look at the European Union (EU). Whereas U.S. unemployment was below 5% for much of the last decade, the lowest rate reached since 2000 was 8.8% in the EU. What’s more is that certain areas of the EU have much worse records than this.

In Spain, for example, unemployment was close to 20% for much of the 1980s and 1990s, and has now soared once again to no less than 18.2%.  The EU is not ensconced in a Great Depression and Spain remains a relatively wealthy country; nevertheless, the rigidities in the European system are such that unemployment remains persistently high, with adverse social effect, such as the rioting in the Paris banlieus.

The European Commission (EC) recognized this problem as early as the 1980s, and has been gradually pushing Europe towards the more open U.S. labor market, with only moderate success.

Because of over-loose money, excessive budget deficits, growing government and impending regulation, it is thus unlikely that the U.S. economy and its job market will bounce back as quickly as it has in the past.

The investment “takeaway” from this is obvious, I fear: A substantial part of one’s money should be invested in the free-market economies of East Asia, where regulation and taxation are lower, so even though a recession has also hit, recovery is likely to be much more robust.

Source:  The Four Key Reasons the U.S. Economy is Facing a ‘Jobless Recovery’

The Obama administration yesterday (Wednesday) continued its assault on highly paid Wall Street executives, announcing plans to appoint a “pay czar” to oversee compensation at financial firms receiving Troubled Asset Relief Program (TARP) funds.

The government also will create a new program to give shareholders at nonparticipating firms a vote on executive pay packages.

President Barack Obama has targeted executive pay practices as part of a larger effort to overhaul regulations and prevent a repeat of the worst financial crisis since the Great Depression.

Obama will unveil a “series of specific proposals” on June 17 designed to streamline and reorganize regulations, White House spokesman Robert Gibbs told Bloomberg News.

The administration originally proposed regulations in early February to put a $500,000 per year lid on the salaries of executives at firms that tapped into the government’s $700 billion TARP rescue fund. The only exceptions would be in the form of restricted stock or other long-term incentives.

But the plan was compromised when Senate Banking Committee Chairman Christopher Dodd, D-CT, spearheaded a provision that limited bonuses to no more than one-third of executive compensation. The provision was eventually tacked on to the $787 billion stimulus legislation, along with another stipulation that made it easier for banks to repay TARP funds and avoid the new regulations.

The two-pronged approach announced by the Obama administration Wednesday was designed to reconcile the administration’s initial pay policy with the Congressional bill and prevent financial companies that pay back the government funds from circumventing the guidelines.

Leading the administration’s charge has been Treasury Secretary Timothy Geithner who has repeatedly pointed to executive compensation policies based on short-term profits as a key factor in the financial crisis.

Geithner, who has said compensation practices became “divorced from reality,” met with Securities and Exchange Commission (SEC) Chairman Mary Schapiro, Federal Reserve Governor Daniel Tarullo and other compensation experts, to further discuss how to put the clamps on the practice.

“A centerpiece of sensible reforms will be to tie compensation to better measures of long-term investment and return, and to adjust them to reflect the risk” incurred by executives’ decisions, Geithner said recently during a hearing at a Senate Appropriations subcommittee.

Kenneth Feinberg, who oversaw the government’s compensation to the survivors of the September 11, 2001, terror attacks, will take over the pay czar role, Reuters reported, citing a source familiar with the administration’s plan.

The pay czar, or “special master,” will review compensation structures for the top 100 salaried employees of firms receiving exceptional assistance, such as Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C) and insurer American International Group Inc. (NYSE: AIG), the source said.

“In the case of a company receiving exceptional assistance, the special master would have the authority to disapprove of a company’s compensation plan if he determined they were paying excessive and unjustified salaries to their top executives,” the official said.

The other initiative would give the SEC authority to force financial firms to allow shareholder votes on executive pay packages. The nonbinding vote would cover everything from bonuses and salaries to severance packages, and would need Congressional authorization.

Geithner has supported the so-called “say-on-pay” rules ever since he took office. In a May 18 speech in Washington, he said that giving shareholders a vote on compensation would bring a “kind of disclosure that can help a lot.”

“It clearly is going to force companies to be more transparent with their disclosure” on compensation, Irv Becker, national practice leader for Philadelphia-based Hay Group’s executive compensation practice toldBloomberg.

Even if the measure is implemented, it likely will take several years before shareholders begin to confront management, Becker predicted.

“It’ll kind of be novel the first year, maybe the first two, and then likely be a little bit more serious in future years,” said Becker, a former head of compensation and benefits at Goldman Sachs Group Inc. (NYSE: GS).

Nevertheless, Geithner vows to press ahead with the new measures, and perhaps others still on the drawing board.

“As you’ll hear from us in the next few days, the SEC has some important responsibilities and obligations in this area, and some tools and authorities they may seek,” Geithner said.

Source: Obama Administration Wants New “Pay Czar” and Shareholder Vote to Reign in Executive Compensation ]]> http://www.contrarianprofits.com/articles/obama-administration-wants-new-%e2%80%9cpay-czar%e2%80%9d-and-shareholder-vote-to-reign-in-executive-compensation/17785/feed 0 http://www.contrarianprofits.com/articles/investment-news-briefs-wednesday-may-27-2009/17146 http://www.contrarianprofits.com/articles/investment-news-briefs-wednesday-may-27-2009/17146#comments Wed, 27 May 2009 15:45:41 +0000 Money Morning Staff http://www.contrarianprofits.com/?p=17146 Consumer Confidence Leaps; Hong Kong Injects More Stimulus; Virgin Atlantic Sees Cloudy Skies; South Africa Enters Recession; Experts: Supreme Court Nominee Neutral on Business; Hedge Funds Bet Big on Commodities; GM Gets Labor Concessions in Canada; Russian Firm Takes $200 Million Stake in Facebook

• The Conference Board’s index of consumer confidence jumped to 54.9 in May, up from a revised 40.8 in April. The leap marks the biggest one-month gain since April 2003, and was set in motion by tighter credit and oversupply of homes pushing down prices, Reuters reported.

• Hong Kong’s government will inject another HK$16.8 billion ($2.2 billion) into the economy via tax cuts, fee waivers and spending, Bloomberg reported. Added to previous stimulus measures, Hong Kong’s government has pumped HK$87.6…

Not that it ever really left, of course. Preoccupied with a sea of financial troubles, the world had simply put it out of sight and out of mind for a while.

Now, with all the thundering force of an underground nuclear explosion, our heads are turned to the globe’s unstable flashpoints once again…

North Korea: “Look at Me”

In North Korea, the Kim Jong Il Regime has just conducted a fresh nuclear test (and fired three short-range missiles). “World leaders reacted with outrage,” according to CNN, in response to the unlawful test. The U.N. Security Council held a special emergency session to “condemn” the move.

“North Korea is directly and recklessly challenging the international community,” U.S. President Barack Obama said. The president added that “It [North Korea] will not find international acceptance unless it abandons its pursuit of weapons of mass destruction and their means of delivery.”

Therein lies the rub. In reality, North Korea doesn’t give a damn about international acceptance. What Western leaders do not say, but quietly recognize, is that all their peaceful plans and prescriptions for North Korea are viewed as poison pills by the Kim Jong Il regime.

To understand the situation, put yourself in Kim’s shoes for a moment. Were North Korea to act logically and responsibly in the eyes of the international community, gushers of aid would come flooding in. Treaties would be signed… borders would open… the country would begin to heal… and the totalitarian machine that has crushed North Korea beneath its fist for decades would be swept away in a sea of populist uprising, its leaders thrown in jail to rot for war crimes against humanity.

That is to say, thrown in jail or shot like dogs. Or perhaps hung like common thieves. North Korea’s leaders have CNN too – they saw what happened to Saddam Hussein. Does anyone imagine they really intend to let the same thing happen to them?

The Kim Jong Il regime is crazy, but not suicidal. Their tendency towards self-preservation explains why they hang on to the nuclear option with a death grip. It’s their only form of insurance against getting turfed out like Saddam. That further explains why North Korea is unlikely to actually unleash a nuclear attack on a rival power.

But North Korea is a huge headache for the rest of the world nonetheless. While the regime is unlikely to use weapons of mass destruction, it can certainly sell blueprints and materials to the highest bidder. If some aspiring terrorist leader – a sort of Bin Laden 2.0 – had the cash and contacts to make something happen, Kim Jong Il & Co. would be high on his list of folks to see.

Some hope that if we only wait long enough, North Korea will eventually collapse of its own accord. But that isn’t a very attractive option either. For one thing, a true collapse would again mean the bloody end of the regime – and there’s no telling what a nasty dictator at the end of his rope might do.

What’s more, China lives in quiet fear of a mass influx of North Korean refugees (as does South Korea). Such a flood of terrified, impoverished North Koreans could be economically and politically devastating for the border country forced to receive such an influx on short notice.

Iran: “Us Too”

Somewhat overshadowed by the North Korea news, Iran has made moves of its own that would have surely dominated headlines in any other news cycle.

Earlier this month, Iran test-fired a surface-to-surface missile with a 2,000 km (1,200 mile) range, according to Reuters – far enough to reach U.S. and Israeli military bases in the region.

In further escalation, Admiral Habibollah Sayyari announced this week that “Iran has dispatched six… warships to international waters and the Gulf of Aden region in an historically unprecedented move by the Iranian Navy.”

As you can see, North Korea isn’t the only country that wants attention…

“Iranian waters stretch along the Gulf, the Strait of Hormuz and the Sea of Oman,” Reuters goes on to add. “Iran has threatened to block the Strait of Hormuz, through which about 40 percent of the world’s oil is shipped, if it were attacked over its nuclear program.”

Once again, this isn’t a case where the West can just ask Iran to play nice. It’s a game of high stakes poker in which Iran is determined at all costs to reach its goal – full-scale nuclear capability – and is willing to openly threaten 40% of the world’s oil supply in order to achieve that goal.

Israel: “We’ll Be Ready”

And the country watching Iran with the wariest eye of all? That would be Israel.

Next week Israel will be conducting a five-day drill, dubbed “Turning Point 3″ by Home Front Command. The drill is meant to prepare Israel’s rapid-response capability in the event of simultaneous missile strikes and terrorist attacks, the Jerusalem Post reports.

On the third day of “Turning Point 3,” a siren will go off “throughout the entire country,” at which point all citizens of Israel will head to the nearest bomb shelter (or makeshift equivalent). Suggested reaction times vary by region – from less than 30 seconds in the Golan Heights to a full three minutes in Jerusalem.

“This isn’t an imaginary situation,” says Israel Deputy Defense Minister Matan Vilnai. “This isn’t detached from reality and if there is a war, it’s very likely that this is what will happen.”

According to a poll released by Tel Aviv University on Sunday, 51% of Israeli citizens back an immediate strike on Iran’s nuclear sites. The other 49% prefer awaiting the outcome of U.S. negotiations. That mix could change quickly, obviously, depending on how future events unfold.

To further ensure readiness, in the past ten days the Israeli air force has held drills simulating “all-out war.” Again according to the Jerusalem Post: “Fighter jets, cargo planes and missile defense systems of the corps took part in the drill where defense from a simultaneous attack against Israel from the south and north was simulated.”

Make no mistake – there are some real storms brewing here. And we haven’t even touched on other flashpoints like Pakistan, Venezuela and Nigeria… tomorrow we’ll take a closer look at what this all means.

Source: North Korea, Iran and Israel – The Return of Geopolitical Risk

Oil prices have recovered, climbing over $60 a barrel, the recent stock market rally has lured many investors back off the sidelines, and President Barack Obama’s clean energy agenda has breathed some life back into the browbeaten sector.

Now, solar energy stocks – some that lost more than two-thirds of their value last year – have come roaring back.

After topping $300 a share last spring, shares of First Solar Inc. (Nasdaq: FSLR) plummeted to just $85.28 a share in November. But since then the company has bounced back, soaring 125% to Friday’s close of $191.72 a share.  Shares of Trina Solar Ltd. (NYSE: TSL) hit $52 last summer before bottoming out at $5.61 in November. That stock is up more than 260% since Nov. 21.

Global economic growth is far from guaranteed at this early stage, but there’s good reason to believe that when a recovery does get underway, solar stocks will be shooting for the moon.

California’s Gold Standard

While many other solar energy companies have collapsed under the weight of the economic downturn, a small upstart out of California has managed to greatly expand its business.

That company is BrightSource Energy, which last week agreed to what the company’s Chief Executive Officer, John Woolard, called the “the largest solar deal in the world.”

Pacific Gas and Electric Co. agreed to purchase 1,310 megawatts (MW) of solar thermal power from BrightSource Energy for a sum that analysts’ believe tops $3 billion.

BrightSource had already agreed to transmit 900 MW of solar power to PG&E in a deal that analysts valued at $2 billion to $3 billion. The terms of the new deal, which expands upon the original 900MW agreement, will build on top of that figure.

BrightSource plans to build seven solar power plants in the Mojave desert of California that will use mirrors to direct sunlight onto a group of centralized water towers to create steam that will, in turn, power turbines. PG&E estimates that the amount of energy produced by the plants will be sufficient enough to power 530,000 homes.

Earlier this year, BrightSource signed a similar 1,300 MW agreement with Southern California Edison Co. – an indication that, despite economic hardship, the solar energy business is still hot.

But a lot of BrightSource’s recent activity has to do with California’s newly adopted state energy policy. In 2006, California passed a law that required electrical utilities to get 20% of their power from renewable sources by 2010.

However, on November 17, 2008, California Gov. Arnold Schwarzenegger took the state’s green energy mandate further by signing Executive Order S-14-08, which requires that utilities generate 33% of their power through renewable sources by 2020.

Indeed, the state of California has led the country in adopting renewable sources of energy, particularly solar.

Renewable energy accounts for 13.5% of the state’s energy consumption, and for the past three years, the California Energy Commission has been managing $400 million targeted for solar on new residential building construction. That includes an ambitious “Million Solar Roof” initiative that will create 3,000 megawatts of installed photovoltaic capacity by 2018.

But California is more than an energy pioneer. It’s an early indication of where U.S. energy policy is headed.

If President Barack Obama’s administration has its way, mandates similar to those issued in California will be employed across the country over the next 10 years. In fact, they already are.

Solar Shift

Obama announced Tuesday that he is making California’s standard for vehicle fuel efficiency and greenhouse gas emissions the new national standard.

Under Obama’s new proposals, vehicles would be 30% cleaner and more fuel efficient by 2016. And that’s just the beginning.

The President’s budget incorporated $646 billion in revenue from capping global-warming pollution, while allocating $150 billion to renewable energy investment over the next 10 years, making his green-funding initiative the largest such effort in U.S. history.

Among other things, Obama’s recent stimulus package provides a tax credit of up to 30% for home solar installations.

The Obama administration also advocates a policy that would require 25% of U.S. electricity demand be met by renewable energy by 2025. The President has the support of the Democrat-led Congress. U.S. Sen. Jeff Bingaman, (D – N.M.), Chair of the Senate Energy and Natural Resources Committee, is working on legislation that aims to make 20% of U.S. energy demand renewable by 2021.

While a renewable energy policy was largely neglected by the administration of George W. Bush, Obama’s effort can hardly be described as partisan. It is more representative of a shift in political ideology that arose when gas prices soared above $4 per gallon last summer.

A recent Gallup Poll showed that the majority of Americans support higher fuel efficiency standards such as those Obama announced Tuesday. In March, 80% of Americans said they favored higher fuel efficiency standards for automobiles.

Currently, just 28 states have renewable energy goals, but with the Obama administration’s effort and a shift in public opinion, it won’t be long before all 50 are enacting their alternative energy mandates.

According to a study by Allianz Global Investors, 78% of investors think green technology could be the “next great American industry,” and 97% of investors believe the development of alternative fuel sources will remain important even if oil prices remain relatively low.

And statistics bear that out. Venture capitalists invested $4.1 billion in alternative energy projects in 2008 – a 54% increase from the year prior, according to a report by PricewaterhousCoopers. What’s more, 45% of that money went to solar projects, compared to 23% in 2007.

“Alternative energy’s rise isn’t going to be smooth, but it’s going to be one of the great new growth industries,” Steven Berexa, managing director of research for RCM Informed, an Allianz subsidiary, told Kiplinger’s Personal Finance magazine.

A Global Industry

In addition to the United States, solar energy is gaining traction around the world.

After subsidizing 2,400 MW of solar projects last year, the Spanish government will subsidize an additional 500 MW this year. Japan aims to create more than 100,000 new jobs in its solar industry as part of an effort to jumpstart its flailing economy. Proposals for solar energy plants are also being considered in the Middle East and northern Africa.

Even BrightSource’s Woolard has attributed some of his company’s success to its overseas operations.

“PG&E looked hard at what we’d done,” Woolard told The San Francisco Chronicle. “They looked at the results from our plant in Israel, and that built a lot of confidence that we were meeting milestones and delivering.”

Most recently, Australia announced plans to build a solar power station that will rival BrightSource’s Southern California operation. The network is expected to produce about 1,000 MW of energy, but won’t be operational until at least 2015.

“We don’t want to be clean energy followers worldwide, we want to be clean energy leaders worldwide,” Prime Minister Kevin Rudd told the Financial Times.

The Australian government hopes renewable energy will account for 20% of the country’s power grid by 2020. Rudd said the government intends to spend about $1 billion (A$1.4 billion) of the $3.6 billion (A$4.7 billion) it has pledged to clean energy initiatives over the next decade.

Like in the United States, the Australian government hopes its alternative energy initiative will be a catalyst for private investment. John Connor, head of the Sydney-based Climate Institute, told the FT that Australia’s clean energy plan will drive an estimated $15.5 billion (A$20 billion) in private investment.

Another country with an ambitious solar agenda is China. A country with notoriously high greenhouse gas emissions, China installed about 50MW of solar capacity last year, more than double the 20 MW in 2007, Renewable Energy World reported.

Beijing plans to expand the installed capacity to 1,800 MW by 2020, as the demand for new solar modules in China could be as high as 232 MW each year from now until 2012.

China is also a good place to find promising solar companies. LDK Solar Co. Ltd. (NYSE ADR: LDK), Yingli Green Energy Holding Co. Ltd. (NYSE ADR:YGE), and JA Solar Holdings Co. Ltd. (NYSE ADR: JASO) have all been beaten down by the market, but could post a strong rebound when China’s solar initiative takes full flight.

Many analysts also like the aforementioned First Solar and Trina Solar Ltd., which stand a better shot of withstanding the recession because of their size and experience.

[Editor’s Note: Money Morning Investment Director Keith Fitz-Gerald is the editor of the new Geiger Index trading service. As the whipsaw trading patterns investors have endured this year have shown, the ongoing global financial crisis has changed the investment game forever.

Uncertainty is now the norm and that new reality alone has created a whole set of new rules that will help determine who profits and who loses. Investors who ignore this “New Reality”will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive – they will thrive. With the Geiger Index, Fitz-Gerald has already isolated these new rules and has unlocked the key to what he refers to as “Golden Age of Wealth Creation” The Geiger Index system allows Fitz-Gerald to predict the price movements of broad indexes, or of individual stocks, with a high degree of certainty. And it’s particularly well suited to the kind of market we’re all facing right now. Check out our latest report on these new rules, and on this new market environment.

Source: Is the Dark Cloud Over Solar Energy Beginning to Break?

I read twenty or thirty books a year on average. A fascinating book I am reading now is Secrets of the Temple: How The Federal Reserve Runs the Country by William Greider. I’ve absorbed more than a few books on the inner workings of the Fed these past few years. But this is the first time I’ve gotten around to Greider’s magnum opus.

Secrets of the Temple is more than two decades old now. It was finished in 1987, before Alan Greenspan’s time (which is fine by me, as I am more than sick of that guy). Here and now in 2009, it feels like the perfect time to be reading Greider’s book. So much of what we are going through now has keen resonance with the past, the subject matter is more fresh and relevant than ever.

Greider opens the book in the summer of 1979, shortly before Jimmy Carter’s famous “malaise” speech… and just as the sweep of history is about to force the President’s hand. The Carter administration did not want to appoint Paul Volcker, a stubborn outsider with a vocal conservative bent, as Chairman of the Fed. Carter was in fact warned by his minions against doing so. But by the time the decision came, Carter felt he had little choice in the matter.

In addition to a gripping narrative covering Volcker’s tenure at the Fed, Secrets of the Temple digs deep into the question of money. Greider takes you on multiple journeys as you read… back and forth through the grand sweep of history, to see how the Federal Reserve was truly formed and why, and deep into the hidden nooks and crannies of policy and politics. The author’s own biases are not concealed from the reader, but that does little to take away from the story.

An Alien World

It really is eye-opening how swiftly times can change. Just a few years ago, the trials and tribulations of the 1970s seemed like ancient history – forever sealed in the vault of the past. The very mindset of the 1970s seemed unfathomable. A period of aggressive and relentless inflation that lasted for years on end? An entrenched conviction that inflation was here to stay, never to depart? Relative to the last quarter-century, it almost sounds like an alien world.

And in many ways the economic climate of the 1970s really was an alien world, at least in comparison to what most of us know. There are two terms that help describe why that inflationary past feels so inaccessible to us – chronological snobbery and recency bias.

“Chronological snobbery,” a phrase attributed to C.S. Lewis and Owen Barfield, refers to mankind’s general habit of seeing the present as superior to the past. To imagine the people and problems of twenty, fifty or a hundred years ago, say, is to imagine a world of folks less enlightened than we are… and thus, to put it bluntly, to see the mistakes of the past as “dumb” errors we are too smart to commit ourselves.

“Recency bias,” a more common term, refers to the human habit of placing too much psychological weight on familiar events. If conditions persist for a certain amount of time, it is natural for people to assume those conditions will last forever. This isn’t a conscious bias so much as a subconscious one. People don’t realize it when they shift from “it’s always been this way” to “this is how it will always be.” But that is exactly what people do – especially when entire careers have played out under one general set of conditions, as is the case with the current crop of Wall Street money managers who, prior to 2008, knew nothing but low inflation and equity bull markets.

The Turning of the Wheel…

The best antidote to recency bias – and to chronological snobbery for that matter – can be found in the study of market history.

It is easier to stay detached, and to see all the various possibilities in the turning of the wheel, if one is familiar with the major cycles that have come and gone. Someone who spends little or no time thinking about market history will likewise have little or no reason to question his or her own bias towards the present day. Someone who grasps the idea of multi-decade-cycles, however, will be more open to the possibility of breathtaking change.

As we head into ever more turbulent times, your humble editor is more convinced than ever that getting the big picture right will be vitally important. What type of world will we be living in? What mental models will prove most useful…. what lessons learned from the past most worthy of dusting off?

As I read Greider’s book, my conviction is strengthened that the 1970s could be a powerful historical analog. And I am openly beginning to wonder… could Barack Obama turn out to be the next Jimmy Carter?

…and a Familiar Rhyme

The parallels here are deeper than just the men. They also relate to the deeper philosophies that the Carter and Obama administrations bring to the table, and the type of problems both administrations were forced (or will be forced) to deal with.

It is perhaps a further irony that, at exactly the same time America is faced with the twilight of fiscal hegemony in the eyes of the world, the country now seems poised and determined to heap even more spending on the pile than has ever been witnessed before.

This is not an endorsement of President Obama’s Republican opposition (or of any political party anywhere). It is merely a reflection on what may be coming next. What’s more, this observation is not just political in nature – or political for its own sake – but could have a very powerful effect on what happens to your money. Because if the 1970s rhyme holds true, we are going to enter an era in which fiscal policy is weak, debt burdens are high, and growth is lax for years and years to come. And that means serious inflation.

We obviously have no clear bead on what 2012 will look like. But I suspect the brainy, idealistic and breathtakingly accommodative (dare I say Carteresque?) policies of the Obama administration will eventually lead to a loss of fiscal control… in turn leading to a backlash so strong that Obama could be forced to find his own Volcker. (Assuming the genuine article isn’t up for a rematch.)

Tomorrow we’ll dig deeper into the Obama/Carter parallels, and make a more detailed case for the similarities between then (the 1970s) and now. And then, as always, I’ll ask you what you think…

Source: Is Barack Obama the Next Jimmy Carter? (Part One)