Contrarian Stock Market Investing News - Featuring Bargain Stocks » Consumer Confidence

Consumer Woes to Continue as Confidence Slumps and Incomes Stagnate

Jason Simpkins — Mon, 31 Aug 2009 14:30:44 +0000

With unemployment hovering at 9.4% consumers continued to show reluctance in July as incomes stagnated. Furthermore, with the jobless rate expected to exceed 10% later this year, consumer confidence fell in August, keeping hopes of a sustained economic recovery at bay.

Purchases rose 0.2% in July, the Commerce Department reported Friday. However, that increase was largely the result of the government’s Car Allowance Rebate System (CARS), popularly known as “Cash for Clunkers,” which drove a 1.8% increase in durable goods spending. Sales of cars and light trucks rose to an annual pace of 11.2 million units in July – the most since September 2008.

Of course, the Cash for Clunkers program has since expired which could mean a significant drop in consumer spending throughout the rest of the year.
“The reality is that clunker cash is ultimately an unsustainable fuel source for consumer spending, Richard Moody, chief economist with Forward Capital, wrote in a note to clients. “Restrained growth in consumer spending beyond [the third quarter] is one factor behind our forecast that what will be fairly rapid real GDP growth for [the third quarter] will not be sustained over subsequent quarters.”

Incomes remained flat in July after dropping 1.1% in June. That led to a 0.3% drop in purchases of non-durable goods. Consumer spending, which accounts for 70% of economic activity, fell 1% in the second quarter.

“Consumer activity is being stymied by the lack of income,” Guy LeBas, chief economist and fixed-income strategist at Janney Montgomery Scott LLC told Bloomberg. “We can’t have a sustained recovery without growth in consumer spending.”

Unfortunately, the Reuters/University of Michigan index of consumer sentiment indicates that Americans feel even less confident in the economy than they did in July. The index fell from 66 in July to 65.7 in August – its lowest level since March.

“While consumers believe the economic free-fall is now over, consumers see little reason to believe that the economic stimulus package will improve their finances anytime soon,” said Richard Curtin, director of the Reuters/University of Michigan Surveys of Consumers.

Source: Consumer Woes to Continue as Confidence Slumps and Incomes Stagnate

Weak Consumer Data Saps Wall St Gains

Contrarian Profits — Fri, 28 Aug 2009 17:00:25 +0000

U.S. stocks gave up most of their gains on Friday after initially spiking to 10-month highs as weak consumer sentiment data offset an upbeat forecast from chipmaker Intel and better-than-expected profit from computer maker Dell.

A Reuters/University of Michigan survey showed consumer confidence fell to its lowest in four months in August on worries over high unemployment and dismal personal finances, though the mood improved from earlier this month.

The Nasdaq was buoyed after Intel Corp raised its outlook for third-quarter revenue and Dell Inc , the world’s No. 2 personal computer maker behind Hewlett-Packard Co , posted a strong quarterly performance and several brokerages raised their price target on the stock.

The PHLX semiconductor index <.SOXX> rose 2.2 percent, while Dell shot up 4 percent to $16.29, and Intel increased 4.6 percent to $20.36.

“You would think after the Intel blowout numbers the market would have really picked up a lot of steam,” said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore.

“It’s just telling you that this market has about as much good news baked into as it can take. We’re at that point now where there is no more good news that could come out that can really juice this market.”

The Dow Jones industrial average <.DJI> dropped 30.39 points, or 0.32 percent, to 9,550.24. The Standard & Poor’s 500 Index <.SPX> shed 0.77 points, or 0.07 percent, to 1,030.21. The Nasdaq Composite Index <.IXIC> gained 6.39 points, or 0.32 percent, to 2,034.12.

The Dow industrials were weighed down by declines in consumer companies like McDonald’s Corp , off 1.2 percent to $56.

Shares of Apple Inc rose 0.5 percent to $170.26 after China Unicom <0762.HK>, China’s No. 2 mobile carrier, agreed to sell the iPhone in China, giving Apple access to the world’s largest mobile market. China Unicom’s U.S.-listed shares gained 4.1 percent to $14.66.

Earlier Friday, the government said U.S. consumer spending rose as expected in July, lifted by the “cash-for-clunkers” program that fueled demand for autos.

After the market open, the S&P 500 rose to 1,039.47, its highest intraday reading since Oct. 14, 2008.

Aug 28 (Reuters)

Oil Dips as Wall Street and Dollar Drag

Contrarian Profits — Fri, 28 Aug 2009 16:00:33 +0000

Oil prices slipped below $72 on Friday as losses on Wall Street and gains in the U.S. dollar dragged on commodities markets.

U.S. crude for October fell 56 cents to $71.93 a barrel by 12:30 p.m. EDT (1630 GMT). London Brent fell 54 cents to $71.97 a barrel.

The losses came as a report showing U.S. consumer confidence at four-month lows pulled Wall Street stock indexes into negative territory, in turn pushing the dollar up against the euro.

Commodities markets have tended to move in tandem with equities and contrary to the greenback as investors look to stocks as a lead indicator of economic performance and buy resources as a hedge against inflation.

Oil’s losses Friday reverse much of Thursday’s $1.06-gain, made on the back of better-than-expected GDP and jobs data in the United States, the world’s largest energy consumer.

Supporting optimistic sentiment, data on Friday showed U.S. consumer spending rose in July and the U.K. economy shrank slightly less than expected in the second quarter.

“The vast majority of economic data that continues to circulate around the media airwaves is positive and suggestive that the worst is definitely over and the recovery has likely begun in most economies around the world,” said Dominick Chirichella, senior partner, Energy Management Institute, Point Pleasant, New Jersey.

But some analysts said stronger economic data in the short term does not overcome a gloomier long-term outlook.

“Despite our confidence in the recovery process over the next six months, there is precious little indication from the energy side that industrial activity in the U.S. is recovering,” analysts at J.P. Morgan wrote in their Oil Markets Weekly note.

Unsold crude stored in tankers at sea continued to hang over the oil market but had declined since the spring.

Norway’s Frontline, the world’s biggest independent oil tanker shipping group, said it estimated that 40 to 45 very large crude carriers (VLCCs), or around 10 percent of the world fleet, were storing crude oil.

Frontline had told Reuters on Aug. 6 that around 50 VLCCs were being used to store around 100 million barrels of oil, down from a peak of around 60 VLCCs in April.

Aug 28 (Reuters)

Wall St Rises as Home Sales Jump

Contrarian Profits — Wed, 26 Aug 2009 18:41:32 +0000

U.S. stocks advanced on Wednesday after data showed July new home sales rose at their fastest pace in almost a year, while durable goods orders increased, but less than forecast excluding transportation.

Sales of new homes rose for a fourth straight month in July and at their fastest pace since September 2008, while the inventory of unsold homes fell to the lowest level in 16 years, the government reported.

“These are great numbers, and they should definitely add fuel to the move higher in the market,” said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

“It’s all very positive, not just because of the macro implications but because they will drive consumer confidence numbers (higher).”

The Dow Jones industrial average <.DJI> added 19.57 points, or 0.21 percent, to 9,558.86. The Standard & Poor’s 500 Index <.SPX> rose 2.15 points, or 0.21 percent, to 1,030.15. The Nasdaq Composite Index <.IXIC> gained 5.05 points, or 0.25 percent, to 2,029.28.

Homebuilders were among the top gainers, with the Dow Jones home construction index <.DJUSHB> up 3.2 percent. Shares of D.R. Horton Inc jumped 5 percent to $13.70, and Pulte Homes Inc gained 3 percent to $13.45.

Buoyed by a surge in aircraft orders, durable goods orders jumped 4.9 percent, the largest advance since July 2007, after falling by a revised 1.3 percent in June, the government said.

Earlier, the Mortgage Bankers Association said U.S. mortgage applications rose for a second straight week, with demand for home refinancing loans rising to its highest level since early June.

Aug 26 (Reuters)

Why Brazil and Germany Will Outperform IMF Favorites China and India in 2010

Martin Hutchinson — Fri, 10 Jul 2009 15:00:49 +0000

Markets were cheered Wednesday when the International Monetary Fund (IMF) projected global growth of 2.5% for 2010, a slight increase from its earlier forecast of 1.9% growth. That’s good news for investors – but consumers in the United States and investors focused on it may not see much benefit.

The IMF forecast for the United States does not sound like a lot of fun: The organization is projecting growth of only 0.8% for this country next year. That forecast runs contrary to currently optimistic rhetoric about the recession bottoming out, and may account for the stock market’s weakness over the past year or so as the very real prospects of a sustained economic bottom begins to sink in with investors.

My own view is that the IMF is about right for 2010, largely because the U.S. economy may not yet have bottomed. While economic indicators have certainly improved from their dreadful levels of the first quarter, forward-looking signals – such as consumer confidence – are still at very low levels, indeed. And that signals a moderate decline, rather than stabilization of economic output.

What’s more, the U.S. federal government is running deficits far beyond the records ever seen in peacetime. That has already had an effect on the bond markets, which have seen a substantial rise in yields from a low of 2.07% in December to around 3.4% currently – not a usual feature of an economy whose gross domestic product (GDP) is declining substantially. That suggests that the normal healthy bounce from the bottom of recession may be muted by financing difficulties from the huge federal deficits, with the economy continuing to decline for longer than expected and recovering only feebly thereafter.

In that context, the Obama administration’s $787 billion stimulus may have been misguided, based as it was on economic theories that make very little sense. Such a large amount of extra federal spending has to come from somewhere, and if the government is running a budget deficit, that shortfall has to be borrowed. While a country with a modest fiscal deficit can afford a certain amount of stimulus, that’s not the case for a country whose budget was already in deficit by more than $1 trillion – or 7% of GDP – when President Barack Obama came into office.

By enlarging the deficit so much, the administration may well have destabilized the bond market, preventing the rapid turnaround in the economy that could otherwise have been expected. As a side effect, the stimulus may also have made it more difficult to pass President’s Obama’s hoped-for packages on global warming and healthcare, making it counterproductive politically as well as economically.

Beyond the U.S. borders, the outlook is somewhat brighter. Some countries – such as Britain, for instance – are in much the same mess as the United States, with excessive deficits and a money-printing central bank. Indeed in Britain, the central bank has for the last three months been buying enough government bonds to monetize the entire British budget deficit, reducing the upwards push on bond yields, but managing to re-ignite the British housing market, which had become even more overvalued than its also-overvalued U.S. counterpart.

The IMF forecast for Britain is worse than the projection for the United States – a decline of 4.2% in 2009 GDP, and a rise of only 0.2% in 2010. That looks about right, though some of the 2009 decline may be pushed into 2010 by the Bank of England’s actions.

In China, the picture is unclear. The IMF estimates growth of 7.5% in 2009 and 8.5% in 2010, by far the best performance of any major economy, but this both takes Chinese statistics at face value and underestimates the risks facing China’s economy.

Bank lending in China was more than $800 billion in the first quarter and was again running at record levels in June; it is thus likely that China is over-indulging in real estate projects with no tenants, as well as subsidies for hopelessly unprofitable state enterprises. This means there is a substantial downside risk for China’s growth, and 2010 may be much less pretty than 2009.

This is also true for India, where the IMF estimates 5.4% growth in 2009 and 6.5% in 2010, but does not take account of the out-of-control expansion in Indian government spending – up by 36% this year to spawn a deficit in excess of 10% of GDP.

In the past, India’s economic expansions have at times been choked off by credit crunches that surface when government deficits cannot be financed. This time around the same outcome is likely. As with China, I would expect 2010 to be much less likely than 2009.

Finally, there are two countries I believe the IMF is being overly pessimistic about: Brazil and Germany.

For Brazil, the IMF is forecasting a 1.3% GDP decline in 2009, followed by 2.5% growth in 2010. This looks too low. Brazil’s trend growth rate is around 5%, and it has little trouble selling its commodity-and-energy exports when China’s demand is still growing.

Furthermore, Brazil’s budget deficit is modest and its interest rates are just below 10% — still substantially above the country’s inflation rate of 4% to 5%. I would thus expect Brazil to considerably outperform the IMF’s forecast, showing little net decline in 2009 GDP and growth close to its 5% trend in 2010, with domestic demand joining exports as a source of strength.

Finally, the IMF is exceptionally pessimistic on Germany, forecasting a 6.2% decline in 2009 GDP and a further 0.6% decline in 2010. Since German industrial production rose by 3.7% in May and its trade surplus rose to a record 10.3 billion euros (about USD $14.4 billion), this is far too pessimistic.

Germany has been notably cautious in its stimulus, and the German budget deficit is still only around 3% of GDP. Consequently, that key European nation is likely to find expansion easy to finance, and will outperform significantly the rest of the EU in the months ahead, showing a brisk recovery from its sharp downturn. I would expect Germany’s 2009 GDP decline overall to be a mere 2%-3% and its 2010 growth to be substantial, at least 2.0%-2.5%.

The IMF and I agree that the world economy is once again decoupling, with 2010 growth much stronger outside the financial-services-oriented economies of Britain and the United States. However, we disagree on where growth would be strongest; my picks would be Brazil and Germany, not the IMF’s fashionable China and India.

Source: Why Brazil and Germany Will Outperform IMF Favorites China and India in 2010

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More Stimulus On The Way?

Chuck Butler — Wed, 24 Jun 2009 13:45:52 +0000

Euro leads currencies higher… Commodities rally back on FOMC thoughts… FOMC meeting today… NZ Consumer Confidence on the rise… And Now… Today’s Pfennig!
Good day… And a Wonderful Wednesday to you! Well… Yesterday, the title of The Pfennig was: So Far… It’s A Turn Around Tuesday! And… That theme played well throughout the day, and by day’s end, it had been quite the Turn Around Tuesday! Now, we have to see what’s in store for us today, as the last couple of weeks have seen the Wednesday trading quite the opposite of Tuesday’s trading! Strange trading pattern don’t you agree?

Overnight, the euro climbed as high as 1.4140, only to sit at the cusp of 1.41 as I begin to write this morning. Of course 1.41 certainly looks a lot different from the 1.35-1.40 range we’ve seen in recent days. But then, we’ve seen these probes above 1.40 before only end with the euro falling back to the 1.35-1.40 range again…

I would imagine that the thing weighing heavily on the euro to bring it back to 1.41 and now a little below that figure is the news that the European Central Bank (ECB) had allocated EURO 300 Billion in 12 month funds for liquidity… I think any sell off from this announcement is strictly a knee-jerk reaction to the announcement. But when the dust settles and the traders / investors realize that EU 300 Billion is far less than the numbers that were rumored (some as high as 1 Trillion euros), this knee-jerk reaction will slow…

One of these times it will shake the cobwebs off, and proceed to either move higher, or lower than the established range… For now, I would have to think that given the sentiment in the market that’s growing toward anger with the U.S. deficit spending tactics, the move would look to go higher… But, who knows? I can only look at things from a fundamentals viewpoint and from 17 years experience trading currencies…

Once the euro got going, or the Big Dog got off the porch, the other currencies (little dogs) were also on the rise VS the dollar… And Commodities, after spending Monday circling the bowl, came back with a vengeance! And we all know that when the Commodities rally, so do the Commodity currencies of Aussie, kiwi, Canada, Brazil, and South Africa!

Speaking of Brazil… Recall when I told you that this currency can give you whiplash? The volatile, wild swings in the currency are enough to make someone request oxygen! So, after a day (Monday) that saw the Brazilian real move back above “2″, it was posted the best performance of any currency on earth, on Tuesday!

Brazil’s real had its biggest gain in more than a month, as Commodities rallied, and… The currency also bounced back after investors “overreacted” yesterday to speculation the Central Bank will intervene to keep the real at “2″… The real gained 2.7 percent, the best performer in the world and its biggest gain since May 4, to 1.9794 per U.S. dollar.

The real has gained 17 percent this year, the best performance among the 16 most-traded currencies, as commodities rallied.

One thing that helped the Commodities rally yesterday was the fact that it finally “occurred” to traders and investors that the Fed’s FOMC meets today, and will probably signal that interest rates will be held to near zero in the U.S. for the rest of the year.

Now… Why would that be a feather in Commodities’ hat? Ahhh, grasshopper… You have to remember that the underlying fear in the markets is that the Fed will NOT be pro-active in removing their stimulus when inflation begins to knock at the door… And making a statement that interest rates will remain near zero for the rest of the year, simply makes those fears even stronger… And what will people flock to when inflation is racing toward double digits?… Commodities…

Of course, tomorrow will be a different story should the Fed not make an interest statement like that!

I listening to the radio, while I write… And the song that’s playing is Elton John’s “Friends”, which was the theme song of my senior prom! Now, that’s a really old song!

OK, I’m back now… See how my fat fingers decide to start typing things that pop into my mind?

So, the Fed’s FOMC is today… I just can’t see them doing anything but trying to calm the markets’ fears about inflation, while keeping rates Steady Eddie. You all know that I’m not a fan of the Fed… I just don’t see how a entity, who’s main job is to protect the value of our currency, could keep their job, given the fact that the dollar has lost over 90% of its value since they took over! I mean, the Fed is NOT a Gov’t Agency, folks… It’s supposed to be an independent entity… But now, it’s got it’s hands in all kinds of things that aren’t on their job description, and they are in cahoots with the U.S. Treasury, and before we know it they will be regulating all the banks and financial institutions… All, from doing such a good job at protecting the value of the dollar! I shake my head in disgust… And I should NOT be the only one doing so!

So… While I’m on my soapbox, and ranting at the Fed, and the people making the decisions… Big Ben Bernanke is up for reappointment… I think the thing I would like to see from Big Ben before I would reappoint him is for Big Ben to come out and say… “I’m in favor of Ron Paul’s Bill to audit the Fed” Now, that would cause me to fall out of my chair from the shock of disbelief!

Speaking of the bill to “audit the Fed” I believe every voting citizen should contact their representative and let them know you support the bill to “audit the Fed”…

And… While I’m up here on the soapbox, I might as well get this rant off my chest too… Well folks… I think we’re in for yet another stimulus package… yesterday, during a press conference the president was asked about that very thing, and his reply was not a resounding “NO”… it was a “not yet”…

Now you know me… I said after the first $150 Billion in the spring of 2008, that there would be more… and I said after the $787 Billion this past winter, that there would be more… and does a “not yet” from the Gov’t that loves to spend money, give you a warm and fuzzy that there won’t be another one? I didn’t think so!

Yesterday, the data cupboard gave us Existing Home Sales data… For the second consecutive month, sales of previously owned homes in the U.S. increased, but the improvement was less than expected, further fueling fears of a slow, weak recovery for the economy as a whole… And the most important thing from the report is that the Home Sales were driven by two things… A drop in home prices… The median price for an existing home last month was $173,000, down 16.8% from $207,900 in May 2008. And… The low mortgage rates that existed up until about 3 weeks ago… Mortgage rates have climbed back above 5% (remember when we thought that was a low rate?) and the message that I’m getting is that mortgage lending is drying up once again… Most of the lending had centered on re-fi’s any way, not Home Sales…

Hey! Remember earlier this month when the Jobs Jamboree number printed and everyone (except those that knew better because of the BLS) was celebrating? Well… I saw a piece on Reuters last night that caught my attention… Mass layoffs — at least 50 job losses by a single employer — grew to 2,933 last month, from April’s 2,712, the U.S. Labor Department reported. That is practically a tie with March’s figure, which set a record. Hmmm… That certainly paints a different picture of the labor market than the BLS Jobs Jamboree now doesn’t it?

The Data cupboard will also give us the latest readings on Durable Goods (don’t expect miracles here!) New Home Sales (no miracles here either!) and then the FOMC… The U.S. Treasury will also be auctioning $37 Billion of 5-year Notes today… Good luck!

Down in New Zealand… Consumer Confidence surprised to the upside, and is helping to boost the kiwi performance this morning… These are “index” numbers so they probably don’t make much sense on the outside… Just look at them as “better”… New Zealand Consumer Confidence rose to an 18 month high in 2nd QTR from 96.0 to 106. Optimism about near term prospects improved from -57 to -28.

And finally… Gold and Silver have taken some tough shots to their respective mid-sections this week… I even said to Chris Gaffney yesterday… “Silver sure is tempting below $14, isn’t it?” I’m reminded of an old saying we use to have on the Margin Desk in my early years in the brokerage business… Just input the asset and price to make this saying work… For instance, we’ll use Silver… “Hey! If you liked Silver enough to buy it at $15, you’ll Love it at $13.98!”

Of course, I personally don’t expect Gold and Silver to remain at these bargain basement prices too long, but then that’s just my opinion, and according to the Legal Beagles, I have to say that I could be wrong!

Currencies today 6/24/09: A$ .8010, kiwi .6435, C$ .8740, euro 1.4085, sterling 1.6585, Swiss .9320, rand 8.0830, krone 6.4120, SEK 7.85, forint 197.30, zloty 3.2180, koruna 18.56, yen 95, sing 1.4525, HKD 7.75, INR 48.52, China 6.8330, pesos 13.28, BRL 1.9790, dollar index 78.75, Oil $68.77, 10-year 3.64%, Silver $13.92, and Gold… $928.40

That’s it for today… The Heat Wave continues here… But, like I told someone yesterday… Hey! It’s summer, it’s supposed to be hot! When I was a young man playing my guitar around the country out of VW micro-bus, I built in-ground swimming pools as a day job. In Oklahoma! Now talk about a HOT job! YIKES! I know there are hotter jobs, but that was the worst for me! Nice game last night for my beloved Cardinals… And, my little buddy, Alex, has his last baseball game of the year tonight. At least it is an 8:15 game! Well, the doctor visit yesterday was interesting… He’s happy that I’ve done so well… But the honeymoon on the weight is over according to him! Of course, I have no idea what’s he’s talking about! HAHAHAHAHA! Let’s get this going… I hope you have a Wonderful Wednesday!

Source: More Stimulus On The Way?

Consumer Confidence, Retail Sales Grow

Bob Blandeburgo — Mon, 15 Jun 2009 17:00:51 +0000

Are consumers’ happy days here again, or are the recent signs that growth in sales, confidence and an overall improvement in the economy just a mirage?

Confidence among U.S. consumers rose this month for a fourth straight time, according to the Reuters/University of Michigan (UM) preliminary index of consumer sentiment. The index increased to 69, which is less than what was forecast but still the highest level in nine months. May’s index was 68.7.

“Confidence is slowly but surely coming back,” James O’Sullivan, a senior economist at UBS Securities LLC told Bloomberg News. “In the next few months we should see more follow-through in the labor market, which in turn should give confidence a further boost, which in turn should lead to a sustained recovery in consumer spending.”

Another report from Investor’s Business Daily and TechnoMetrica Market Intelligence’s “Economic Optimism Index” shows consumer confidence rose to 50.8 this month from 48.6 in May. A figure above 50 indicates optimism, while one below 50 reflects pessimism.

“Consumer confidence is building on the momentum that it picked up in April, reflecting the strength we are seeing in the stock market,”Raghavan Mayur, president of TechnoMetrica unit TIPP said in aReuters interview. “Across the board, there is an optimistic feeling that the economy is recovering.”

The rise in consumer confidence is not just idle talk-consumers are backing it up at retail with their wallets.

Retail sales in May increased by 0.5% over April following four straight drops, according to a Commerce Department report released last week. Economists were anticipating a 0.2% gain, according to The Associated Press. The general merchandise, food stores and restaurant categories were the ones in the sector that posted significant gains.

Retailers like The Home Depot, Inc. (NYSE: HD) reflect consumers’ confidence and the increase in sales. The home improvement chainraised its forecast for the year, saying its profit would anywhere from flat to a 7% drop. It previously gave guidance that profits would be down 7%.

But the optimism should be tempered, as the “rules of engagement” will be different in the post-recession economy, according to Deloitte Strategic Advisor Richard Hyman.

Big financing promotions, which propelled a lot of consumer spending in the last 10 years, is all but gone now that credit is tighter, according to Hyman.

“Consumers were also able to spend more because of the easy availability of credit, most notably through mortgage equity withdrawal and they responded by buying more items,” Hyman said. “These conditions underpinned retail growth for the past 10 years but have now disappeared. However, it’s worse than that. They will clearly not return once the recession is over.”

The worst economic downfall has produced scars on the spending habits of consumers, and it’s likely that when the dust clears, most will demonstrate they have learned their lesson about reckless spending.

“This will produce polarization: needs-driven spending will gravitate towards retailers able to tick the most important consumer boxes like price and convenience,” said Hyman. “Although it will remain the engine of retail growth, wants-driven spend will slow and consumers will be much more choosy.”

Source: Consumer Confidence, Retail Sales Grow

James Dale Davidson on Why You Should Own Gold

Contrarian Profits — Wed, 27 May 2009 20:07:54 +0000

Stocks surged yesterday. Gold sold off. And more “green shoots” appeared in the form of better than expected consumer confidence figures. Crisis Strategy Alert editor James Dale Davidson reckons the “green shoots” of recovery proposition are overbought. He also reckons gold is still the asset of choice to hold as the great deleveraging continues.

James emailed Notes with his thoughts on gold and stocks yesterday. We think he’s bang on the money with his forecast.

I had expected a sucker’s rally into May. In the last two epic credit cycle deleveraging events – in 1873 and 1929 – both experienced a reflex rally after the autumn crash that lasted through the 20th month after the peak, which is to say, through May. If you check the calendar, we could be following the same pattern.
The question, of course, is whether we continue to follow past patterns, or whether the massive intervention (quantitative easing) orchestrated by the US and British governments will break the pattern.

Here I assume that if the intervention proves successful it will trigger a lot of inflation in a hurry. Once ignited, it would seem likely to stay with us (rather than merely push gold to a spike only to then peter out to the $700 region). On the other hand, if the intervention proves futile, as I expect, this should be equally or more bullish for gold, which has always rallied in real terms in post-bubble contractions.

My guess is that we’re pretty close to seeing whether “this time is different.” Both silver and gold are overbought, and I think they are likely to correct over the next few weeks. I also suspect that the stock market in general is going to disappoint as well. All the CNBC types who are now pounding the drums over the green shoots are soon going to be back on their hands and knees with magnifying glasses.

If the pattern holds, after a near-term pullback in stocks and metals, stocks will head south for a long dormant period, and gold and gold stocks will experience epic rallies that will last longer than Gordon Brown’s government and Obama’s popularity.

I see the market here as behaving as if it were motivated to cause the maximum possible losses for both bulls and bears. It rotates from convincing investors that their world is unraveling to reassuring them that nothing has changed. Then it turns around and saws the legs off of everyone who takes its most recent lesson to heart. You can’t safely hold long or stay short.

History may be ultimately unknowable. But research convinces me that a pattern recurs in post-bubble contractions. Time and again, gold has been the asset of choice. I can only project that it will be more so than ever this time, as history’s greatest deleveraging unfolds.

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Maybe, Just Maybe A Break In The Link?

Chuck Butler — Wed, 27 May 2009 12:45:11 +0000

Currencies consolidate… Brazil posts a surplus! Dr. Marc Faber speaks… High yielders rule! And Now… Today’s Pfennig!
Good day… And a Wonderful Wednesday to you! A very tight trading range day was in place yesterday for the currencies… In yet another sign that maybe, just maybe, because you never know, the currencies could be breaking their link to stocks… U.S. stocks jumped 196 points yesterday, and the currencies range traded… Hmmm….

Not that this will become a “stock jockey journal”… Stocks jumped on the news that Consumer Confidence surged this month… Talk about looking at things through rose colored glasses! Any way, Consumer Confidence surged… Better to have blips in Confidence than to be all negative all the time I guess! I also guess the stock jockeys took what was behind door number 1 (consumer confidence) and not was what behind door number 2, which was the Case-Shiller House Price Index…

For the first quarter, the S&P/Case-Shiller U.S. National Home Price Index posted a 19.1% drop from a year earlier, the biggest quarterly decline for the reading’s 21-year history. So much for those (insert name to call them) that thought we would see Home Prices level off! Not that there’s anything wrong with “wanting” to see Home prices level stop falling, but come on… Where was the proof of that happening? So… Any way… Obviously, Home Prices continue their multi-year tumble… And, the most important thing about the report is that it gives no signs… Get that? NO SIGNS, of abating Home Price declines…

Alrighty then… We’ve got those two under our belt! Let’s get on with the news! So… Now, I read where N. Korea is threatening a strike against S. Korea… Not that we follow the S. Korean Won, but that can’t be a good thing for the S. Korea’s currency… Of course there are a lot worse things that could happen and people wouldn’t be worrying about the currency! But for now, it’s just words…

The good news this morning is that Brazil has posted their first Current Account Surplus in 19 months! $146 Million in April was the figure… And any Current Account figure that’s written in black is good for a country and their currency! And the real is no exception to this rule. The real is trading this morning at 2.0060, spittin’ distance from losing that “2″ handle! (real is a European Style priced currency, so the lower the price, the more value it returns VS the dollar) The real hasn’t seen the underbelly of a “2″ handle since October of last year!

You may recall last fall, I wrote about how the real was holding serve, but eventually it had to give up ground, with the euro losing value and commodity prices circling the bowl. But now that the Big Dog, euro, and commodity prices are on the rise, once again… The real is back in the driver’s seat… Ooh, ooh, ooh, driver’s seat… A free Pfennig to the first person that knows the name of the band that sings that song. No Googling it!

Don’t know if you look at these things or not… But Treasury yields continue to inch higher and higher… It’s almost as if they are looking for the pressure point that will cause the U.S. / Fed and Treasury too much pain… In the meantime… Holders of Treasuries are losing value… Of course if they hold them to maturity they get their principal back, so no loss of principal there… But how many of the Treasuries that were purchased last year in the “flight to safety” were made with the thought in mind to hold them to maturity? My guess, is very few… And so it goes for those that thought they were making a flight to safety!

And of course, the dollars they bought to make those Treasury purchases has lost quite a bit of ground since March, which means the Treasury holders get a double whammy / hit… Bond price, and currency price… Fun times at the old Treasury ranch, eh?

And while I’m on that subject… Recall that I’ve gone out on the limb (no worries, I picked a big strong limb!), and said that I believe that on the other side of this current deflationary asset price scenario we are in, we’ll see inflation that rivals the inflation we saw in the late 70’s, early 80’s… Inflation like that will absolutely kill the price of bonds…

And to that… We have a quote or two from Dr. Marc Faber. I sat on a panel with Dr. Faber at the New Orleans Investment Conference in 2007. A truly intelligent man with the ability to look ahead and see things that others don’t see… Well… Any way… What I’m trying to get at is an interview that Dr. Faber gave on Bloomberg TV… Here’s the good Dr.

“The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates.” He went on to say… “I am 100 percent sure that the U.S. will go into hyperinflation. The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

OK, back to me… Now, I think Dr. Faber mentioned Zimbabwe to illustrate his “hyperinflation” call… Myself? I think that just what I said above that inflation will rival that seen in the late 70’s, early 80’s… Dr. Faber has a point, that I’ve tried to make before, so let’s see if I can get it across now… When a Central Bank raises interest rates, the new Treasury supply they issue has a higher yield, than previous ones issued… That makes the previous ones issued, less valuable. So, what will the Fed do, when the first signs of run-away inflation show up? Do they bite the bullet and raise rates causing all their previous issues to lose value (hello, China, I’ve got bad news for you), or do they do what Dr. Faber suggests they will do… Nothing, absolutely nothing, say it again!

And what’s this all got to with currencies? Ahhhh grasshopper… Everything has to do with currencies! Those dollar denominated Treasuries when reversed and sold, will have the dollar purchases reversed and sold too!

And then throw in what I’ve been talking about lately with China already signing 6 currency swap agreements with countries that allows them to take dollars out of their trade equation with these countries, and put renminbi into wider use, and you’ve got the “Perfect Storm” forming for the dollar, folks… I know this is all what I see, and now “fact” per se… But, it’s staring us right in the face! I don’t know why more people aren’t talking about this!

OK… Let’s go somewhere else, all this talk is starting to give me a rash!

How about…. Asia? Yes, let’s see… There were rumors yesterday that Asian countries like Singapore, India, and Japan had to intervene in the markets because of the dollar’s decline. It’s likely that Asian Central Banks had to sell their currency and buy dollars to keep the fall in the dollar to a minimum. I really, truly don’t like when Central Banks get into the markets… It’s manipulation… And as long as they can do that, and… Print money… There really is no such thing as “free markets”, right? If, Alan Greenspan can manipulate interest rates to allow the stock market to run higher for years, was it the stocks that was the “root” of the rally, or was it the Fed Reserve manipulation? Yes, I’m sure you know the answer…

Well.. Gold continues to consolidate after last week’s huge run-up. I think that when you see assets stop to take a breather, it’s a good thing. 1. it allows those that were looking to buy a chance to buy without chasing a rising asset… And 2. Trading trends are not one-way streets, so as long as the asset doesn’t have a HUGE sell off, then the price action is good… It allows the asset to form a new base from which to spring higher!

I see the pound sterling trading this morning with a 1.60 handle… That’s the first times since November last year… Only this time the currency is rising instead of sliding down the slippery slope! I really don’t see the value in pound sterling, but apparently others do! This rise does give owners who wanted to get out of the currency an opportunity to do so at higher levels!

I heard one of the salespeople yesterday tell a customer that the South African rand had been the best performing currency this year… But that was before the Brazilian real posted its Current Account Surplus and rallied! Any way, I was going to talk about the rand… Now, I’ve always said that I wasn’t a huge fan of the rand, because it was volatile, and the corruption in the country just didn’t give me a warm and fuzzy… But, what’s going on right now is simply a case of the rand being 1. a high yielder, and 2. a commodity currency…

The need for higher yields is quickly becoming a growing concern for investors… They are difficult to find, and when you do find them, they’re mostly the property of Emerging market countries, or Commodity countries… Not your run-of-the mill “major” currency like euro, yen, or sterling! So… What I’m telling you, is simply be careful out there in high yield land!

The price of Oil spiked up yesterday to over $63!

And finally… The first test of the 2-year auction of Treasuries, passed… But getting investors to go short probably isn’t the real problem… The real test will be the 10-year and out… I told you earlier that yields were rising… Well… How does this sound? 10-year yields are up 129 Basis points so far this year and 103 Basis points since the March 18th quantitative easing announcement.

OK… The email server is down and out this morning, so I have no idea when this will actually get to you today… I’ve got some things to get done this morning, so I’ll just go ahead and go to the Big Finish, and hope it goes out!

Currencies today 5/27/09: A$ .7845, kiwi .6190, C$ .8980, euro 1.3930, sterling 1.60, Swiss .9190, rand 8.2870, krone 6.3830, SEK 7.6570, forint 203.50, zloty 3.1950, koruna 19.23, yen 95.30, sing 1.4515, HKD 7.7525, INR 47.70, China 6.8284, pesos 13.18, BRL 2.0067, Dollar Index 80.50, Oil $63.11, Silver $14.53, and Gold… $950.60

That’s it for today… Today is a very special day… It’s the first ever World MS Day… 100 nations around the globe are joining together to build awareness for multiple sclerosis. My mom had MS, so that’s why I point this out today. I see currencies selling off a bit since I did the currency round-up… The monsoons continue here in the Mid-West… The river that runs through my little town is swelling once again, with all this rain-fall I have to believe it will spill over its banks soon… And that makes getting to and leaving from my little town a bit difficult! Well… Mike’s here, that means I’m running late! Time to get on with this Hump Day… I hope your Wednesday is Wonderful!

Source: Maybe, Just Maybe A Break In The Link?

Investment News Briefs Tuesday, May 19, 2009

Money Morning Staff — Tue, 19 May 2009 14:00:57 +0000

China Ramps Up Oil Refining; Lowe’s Tops Forecasts; Toshiba Raising $3 Billion in Stock Sale; AIG Fast-Tracking Asian Subsidiary IPO; Obama Sets First Pollution Limits on Cars; Homebuilder Confidence Highest in 8 Months; State Street Sells $1.5 Billion in Stock to Repay TARP Funds; Oil Spikes on Africa Violence, U.S. Refinery Fire

China will increase its annual oil refining volume by 18% over the next two years to meet expected long-term demand. China’s State Council also said that it would boost stockpiles and encourage petro companies to merge operations, Bloomberg reported.

Lowe’s Cos. Inc. (NYSE: LOW) reported an analyst-beating quarterly profit and raised its full-year forecast. The No. 2 home improvement retailer cited improving consumer confidence and signs the housing market may be bottoming, Reuters reported.

Toshiba Corp. has begun a $3 billion stock sale to raise capital after posting a record loss last year. Japan’s biggest semiconductor maker plans to offer 870 million new shares priced at a 3% to 5% discount to the stock’s closing price the day the sale ends, which may be as early as next week, Bloomberg reported.

Seeking to pay back government loans, American International Group Ltd. (NYSE: AIG) is speeding up plans to list its Asian subsidiary, American International Assurance Co. Ltd., through an initial public offering, Reuters reported. AIG hopes the IPO will raise more than $4 billion, a small number considering the insurer has racked up a $180 billion debt to the U.S. government.

President Barack Obama will announce today (Tuesday) a federal standard for greenhouse-gas emissions from vehicles, the first nationwide limit on pollution scientists say is triggering global climate change. The emissions limit will be coordinated with new national fuel economy standards for cars and trucks, Bloomberg reported, citing people familiar with the matter.

U.S. homebuilders confidence rose in May to the highest level since September, providing further evidence that the housing slump that started in 2006 may be closer to a floor. The National Association of Home Builders/Wells Fargo index of builder confidence rose to 16 from 14 the prior month, the Washington-based agency said yesterday (Monday), capping the first back-to-back gain since February 2008. A reading below 50 means most respondents view conditions as poor, Bloomberg reported.

State Street Corp (NYSE: STT), the Boston-based custodial bank and asset manager, said it plans to sell $1.5 billion of stock and will also sell notes to help repay government bailout funds. The bank said it took a $3.7 billion charge to move some assets onto its balance sheet at a loss, and will said it will use proceeds from the securities sales to help repay a $2 billion infusion from the Troubled Asset Relief Program, Reuters reported.

Oil prices rose sharply yesterday (Monday), as violence in Africa’s top crude exporter Nigeria and a fire at a key U.S. East Coast refinery revived concern about supplies. U.S. crude for June jumped $1.98 to $58.32, while London Brent for July rose $2.51 to $58.49. The gains came after Nigerian militants said they had blown up two oil and gas pipelines in the Niger Delta and would blockade waterways in the region in an effort to disrupt energy exports from the Organization of Petroleum Exporting Countries (OPEC) member, Reuters reported.

An earnings surprise and a buy recommendation on a major U.S. bank sent U.S stocks skyward yesterday (Monday). The Dow Jones Industrial Average had its best day since April 9, zooming 235.44 points, or 2.85%, to close at 8,504.08 – as 29 of the 30 stocks that make up that closely watched blue-chip index rose. The Standard & Poor’s 500 Index recouped more than half of last week’s losses, advancing 26.83 points, or 3%, to close at 909.71. Home-improvement retailer The Lowe’s Cos. (NYSE: LOW) topped earnings estimates – sending its shares up more than 8% — while one analyst recommended buying shares of Bank of America Corp. (NYSE: BAC), and set a $15 price target. BofA’s shares closed yesterday at $11.72, up 9.84% each. The Nasdaq Composite Index surged 52.22 points, or 3.1%, to end the day at 1,732.36.

Investment News Briefs Tuesday, May 19, 2009