Tuesday, June 28, 2011

Second Quarter Earnings Growth Expectations

by Bespoke Investment Group

The first chart below shows how expectations for Q2 S&P 500 earnings growth have changed over the past four months. From the end of February through the end of April, growth expectations rose from 10.7% to 14.1%. Since the end of April, however, earnings growth expectations have drited lower and the consensus estimate currently stands at 13.3%. The peak in the Q2 earnings growth estimate coincides with the peak in the S&P 500 this year. Has the market dropped because of the drop in growth estimates, or have analysts lowered their estimates because of the market drop? Something tells us it's the latter.

Below we highlight the current consensus Q2 earnings growth expectations for the ten S&P 500 sectors. As shown, just two sectors are expected to see Q2 growth that is bigger than the S&P 500 as a whole -- Energy at 40.5% and Materials at 46.3%. Technology, Industrials and Financials are expected to see low double-digit Q2 earnings growth, while Health Care, Telecom, Consumer Discretionary and Consumer Staples have single-digit growth expectations. Utilities is the only sector with negative Q2 growth expectations.

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IEA Oil Dump A Disaster In The Making

by Brandon Smith

It’s amazing. In the wake of the 2008 derivatives and housing bubble collapse, created by the U.S. Treasury and the private Federal Reserve with engineered low interest rates and easy money designed to artificially pump up the economy after the effects of the dot-com bust, the faltering markets of 2000-2001, and the rapidly depreciating dollar, we have now seen these same entities pour Trillions, yes, TRILLIONS in fiat injections into every conceivable corner of the markets. They have spent incredible sums on toxic equities (worthless equities, and don’t let anyone tell you different) to “ease” the debt spiral, they have propped up almost every large international bank, they have propped up the Federal Government and the Dollar itself with sizable purchases of our own Treasury debt, and, they have even thrown money into the pockets of foreign institutions and corporate beggars. Keep in mind, that all the debt that these actions generate is eventually placed squarely in the lap of one group of people; the American Taxpayer!

They have manipulated unemployment figures. They have consistently released completely fraudulent CPI (inflation) figures based on calculations which neglect numerous factors that used to be counted only two decades ago. They have used coordinated naked short selling in precious metals markets to hold back the natural spikes in gold and silver values. They have blamed every negative development in the economy (that they could not hide) on extraneous circumstances and outside culprits rather than themselves. They have done all this, to conjure the illusion of recovery for an increasingly agitated general public.

So much tap dancing and snake oil selling, and all it took, was the pain of $4 a gallon gas to wipe everything away…

That’s right, when the cost of driving to work, driving to shop, or driving for vacation doubles, the na├»ve notion that everything is perfectly normal goes right out the window. Americans complain a lot, but they rarely accept a bad situation as inexorable and take measures to fix it themselves. There is always the “chance” that things will get better tomorrow, or so we tell ourselves. We just ride the wave, and expect the pack of sharks at our back will never quite catch up to our boogie-board of blind optimism. However, when something takes a Great White sized bite out our very wallets, we take notice, and search the horizon for a bigger boat.

I have commented in the past that after only a few months of high gas prices, the wind would easily be knocked right out of our puffed up bailout driven recovery, and so far, that is exactly what is happening. Retail sales are fumbling, vacation destinations are crippled, the housing market continues to dive, in part due to the relentlessly high price of energy. When people travel less, they spend less, they buy less, and they relocate less.

In response, the IEA (International Energy Agency), an organization of 28 countries, has made a very sudden and startling announcement; each member nation will begin dumping their strategic crude oil reserves onto the global marketplace to flood the supply side of the equation, and, in theory, drive down overall oil prices. The IEA will release over 60 million barrels a day for at least 30 days into the markets, half of which will come directly out of the strategic reserves of the U.S. This is only the third time in the 37 year history of the IEA that this kind of action has been taken. Surely, governments around the world have finally realized that inflation in energy is going to completely derail what’s left of our financial structure, and they are working to prevent this, right…?

Some economists and many in the public will cheer this decision as a fast and decisive solution to the growing oil crises. These people would be foolish. But, perhaps we should look at the debate points from their side of the field, or even the U.S. government and the IEA’s side of the field. Below, we will look at the arguments made in support of the IEA oil dump so far, and why they are utter nonsense…

Lie #1: Oil Prices Are High Because The War In Libya Has Diminished Supply

Better throw on some boots and grab a shovel! Digging through this crap might take all day…
I’ll tell you a little secret, something mainstream economic analysts would rather you didn’t hear: there is NO lack of supply in crude markets. Sorry, the facts are clear. I realize that there are also proponents of ‘peak oil’ out there that fervently want to believe that there is a current and substantial supply side crisis in crude. Whether they are correct or not about the eventuality of peak oil remains to be seen, however, we are certainly not seeing any semblance of an oil shortage today, despite events in Libya.

Libya’s crude production before the war accounted for only 2% of the world’s entire oil output. Oil prices were climbing back towards the high levels seen in 2008 long before the “Arab Spring” broke out in the region. In February, the IEA itself reported that the world oil supply rose to an all time high of 89 million barrels per day. After the Libyan conflict erupted, this production fell by a marginal 700,000 barrels per day:

The establishment’s assertion that Libya is somehow the direct cause of energy inflation is a distraction. Libya has little or nothing to do with anything.

Lie #2: The IEA Oil Dump Will Create A Supply Glut And Drive Down Prices

The position that a “lack of supply” is the culprit behind rising gas prices is an outright falsehood. In fact, markets are already awash in oil, and our government is fully aware of this. The U.S. Energy Department has shown a global trend of falling demand for gasoline, and, the IEA has even admitted that this trend is likely to continue through 2011:

Anyone who follows the Baltic Dry Index also knows that freight shipping has collapsed back down to levels near those that appeared right before the 2008 debt bubble burst. This means around the world there is less demand for nearly ALL goods, and many commodities necessary for manufacturing, not just oil. Lower demand means greater available supply. Therefore, supply is in no way the issue when it comes to high oil prices. Again, the supply argument is a distraction away from the truth. Yet, this has been Treasury Secretary Timothy Geithner’s primary rationale for supporting the IEA dump:

"We saw a very substantial sustained supply disruption. These reserves exist in part to offset those kind of disruptions," Geithner told CNBC television.

So, to reiterate, there is ALREADY a glut in oil markets, and there has been since at least 2008. If there was actually a supply side crisis, trust me, you would know it. If you want to study a true crude supply crisis, then you only need glance back at the energy crisis of 1979 when Jimmy Carter ordered a cessation of Iranian oil imports and the Iran/Iraq war began. When you have to wait in long lines at the gas station just for a few gallons of unleaded, then you might be in the middle of a supply crisis.

After we accept the fact that supply is high and demand is low, we are then faced with an important question; why in the world would the IEA report high supply and low demand, and then expect to have any significant effect on oil markets by dumping our strategic reserves?!

Lie #3: The IEA Oil Dump Was Designed To Hit “Speculators”, Who Are The “Real” Cause Of Energy Inflation

Back in 2009 after the first major gasoline spike subsided, I spoke often about the mainstream financial media’s strange obsession with “speculators”, and the consistent use of talking points obviously designed to condition the American public into associating all oil price jumps with scheming investors in the shadows out to corner the market. My theory back then was that once oil began to skyrocket again due to the crumbling value of the dollar, establishment pundits and government officials would come back once again to point a finger at the speculator boogie man, and draw attention away from our inflating currency. Sure enough…

As we have seen, supply is not an issue, and so speculation should not be either. However, if speculators have actually been hoarding stocks and supplies in order to artificially drive up the price of crude, then the IEA announcement should have sent them scrambling to phone their brokers to sell-sell-sell! The shock to oil markets should have been extraordinary. But what happened? Not much to write home about…

The Brent crude index saw a relatively moderate price drop from around $113-$115 a barrel down to $105 a barrel, and currently, the price is showing potential to climb back up!

Initiating the release of the strategic oil reserves of nations across the globe caused an overall price drop of a few bucks? I guess speculators weren’t having much of an effect on the market after all.

So, if speculators aren’t the cause, and neither is limited supply or high demand, then what IS the phantom driver of inflation in energy? There is only one other possible answer; devaluing currencies. The IEA can pour all the oil they want into the markets and it won’t change a damn thing, because higher supply does nothing to strengthen the foundation of the dollar, which is being swiftly eroded by the Federal Reserve. Have they accomplished a minor halt to rising prices and visible inflation? Yes. Will prices bounce back even higher in the near future as the Fed continue to inject fiat into the economy? Absolutely. 

The Consequences Of Reserve Depletion

The IEA announcement comes directly after the last OPEC meeting ended in a bitter split between member countries over whether to raise crude production levels. The decision by every country except Saudi Arabia to keep production steady was the right one, of course. However, elements of the U.S. and the EU were downright unhappy with OPEC’s unwillingness to help hide the weakness of their respective currencies. An OPEC decision to increase production would have at least influenced market psychology, and allowed prices to soften for a short time. So, without OPEC support, the central banker controlled apparatus turned to the IEA to open the floodgates of petroleum. OPEC nations, as one might imagine, are not happy…

There are several threats associated with this development, and there is a distinct possibility that these have been deliberately provoked, if one considers that a weakened America ripe for centralization is the true goal.

First, OPEC countries could easily retaliate against the IEA by dropping their own production levels. Not only will the IEA action be meaningless (as we have shown above), it could also directly trigger a REAL supply crisis if OPEC decides to dam up the river. The U.S. is very unpopular in the Middle East, Africa, and Venezuela already. Now, the IEA has just given these regions a perfect excuse to dish out some economic vengeance.

Second, traditionally, if there is a real supply side crisis caused by OPEC, our most important stop-gap would be to tap into our strategic reserves. Unfortunately, we have just put those reserves on the market without batting an eye. So, in essence, we paid a very high price for a bullet that we will one day shoot ourselves in the foot with. That is to say, we have dumped our strategic reserves and set in motion a possible disaster which those reserves were supposed to save us from! Its mind boggling!

Third, there is very little stopping OPEC at this point from decoupling from the U.S. dollar completely, especially if crude prices continue to rise despite the IEA dump. The fact of currency inflation and dollar implosion will be so exposed that no one, not even “Tiny Tim” Geithner, will be able to deny it. Once the illusions of “limited supply” and “speculation” are cast aside, the global focus will end up squarely on the dollar, and the IEA dump will have sped up the process dramatically.

I don’t know if anyone else has noticed, but this country has been thoroughly gutted over the past few decades. Our industrial base has been dismantled and shipped overseas to the benefit of foreign nations and corporate feudalists. Our grain reserves, once ample, have been depleted to an all time low. Our currency has been systematically debased. And now, our oil reserves, without rational cause, are being sold off only to feed the catastrophe our government is supposedly out to stop. Are the American people being prepped like a glazed ham for the fires of the globalist oven? Is this really all due to coincidence and stupidity as skeptics claim, or is there something else at work here? I find it hard to believe that the IEA and our government are not aware that their proposed strategies conflict with their own source data, or that they are completely oblivious to the destruction they are about to reap upon our economy. The latest IEA decision is just one more piece of evidence of an agenda of deliberate financial destabilization trending towards a disaster that serves the interests of a select few, to the detriment of all the rest.

Defensive is not always defensive

By Smart Money Europe

Gold mining shares are notoriously volatile. That is normal, because they depend on the price of the underlying metal, gold and silver, and input costs such as energy, labour and materials, which are volatile as well. As a group, gold mining shares, represented by the HUI-index, have a higher beta than the market average, meaning they rise and fall faster than the market on average.

But volatility, once again, is not the same thing as risky. Risk is the permanent loss of capital. An investment that is not volatile, i.e. a German government bond, may be extremely risky if exogenous factors such as interest rate hikes, hyperinflation and default destroy the principal investment.

To many investors, gold mining shares are very volatile, therefore they are risky. We believe this is a fallacy. In the current market environment, very few sectors of the economy are increasing margins, expanding production or increasing top line. Gold mining shares are completely discarded by the investor community. Most investors are not aware of the fact that fundamentals are improving by the day. To us, it is a miracle why gold mining shares have underperformed the underlying metal by such a wide margin over the past few months.

In the current market environment, many investors are positioned in what they perceive to be ‘defensive’ market segments, such as healthcare, telecoms, staples and utilities. To us, this is the wrong choice. Healthcare firms are struggling with patent expiries, telecoms and utilities revenues are low-hanging fruit for greedy governments, and staples are confronted with rising input costs.

In Belgium, discount retailer Colruyt, which has a great long-term track record and is commonly perceived as a defensive stock, saw its stock price plummet by 12% on Tuesday because the company reported disappointing earnings and rising costs.

So make no mistake, the only defensive options at the moment are cash, gold and gold mining shares. The latter are more volatile than the market average, but we are convinced that in the end they will prove to be less risky and will outperform mightily in a market setting that will be dominated by inflation, currency debasement and sovereign default risk.

Corn prices at risk of fresh speculator sell-off

by Agrimoney.com

Corn futures remain under threat of further liquidation by speculators despite the "largely indiscriminate" selling which has already slashed their long exposure to the grain – by some 20% in a week.
Corn accounted for a large chunk of the equivalent of 15m tonnes of crops and livestock sold by speculators on the main US farm commodity markets in the week to June 21, the latest data available.
Speculators' net long position in corn – the advantage in bets on rising prices of the grain over the short positions which profit when the market falls - fell to 239,000 contracts, down 57,000 lots in a week, on Australia & New Zealand Bank analysis of regulatory data.
Nonetheless, corn accounts for some 60% of the 53m tonnes of farm commodities in which speculators still hold a net long position, making it vulnerable to further liquidation should market jitters return.
"Corn still remains the most susceptible to ongoing selling of risk from outside markets," ANZ said.
Overbought, oversold
The bank also rated hard red winter wheat, the type traded in Kansas, as relatively overbought, on levels of interest by speculators, despite them shedding more than 10% of their net long position in the latest week.
However, soybeans have edged toward oversold territory, into which soft reed winter wheat, as traded in Chicago, is "moving fast", with speculators' net short position reaching 32,000 lots, the highest in seven months.
Cocoa is also oversold on this measure, as is coffee which Standard Chartered analysis on Tuesday showed reaching a speculative position within sight of its two-year low.
Analysts take a range of different approaches to analysing the investor positioning data released by US regulators, with some looking just at futures, and others, such as Standard Chartered, including options.
ANZ takes a broader view of speculators than some other observers, including "other" and "non-reportable" categories in the official reports, besides the widely-used "managed money" criterion.
'Largely indiscriminate'
The comments came as crops showed signs of pulling out of a decline which, as of Monday's close, had driven Chicago wheat down 20% so far this month, and corn down 15% in the previous fortnight.
The "largely indiscriminate" selling, fuelled by fears for Chinese and US economies and Greek sovereign debt, had left speculator's net long position in farm commodities at half the record level of 107m tonnes hit in February.
Standard Chartered analyst Abah Ofon said that a "key takeaway" from a round of client meetings in Hong Kong, London and Tanzania over the past month was that "instability in other asset markets would weigh heavily on agricultural commodity price sentiment", without fresh evidence of a squeeze on crop supplies.
The US Department of Agriculture will on Thursday release much-anticipated data on American grain stocks and sowings which many bullish investors hope will revive the rally in futures prices.

French Banks Scramble to Prevent Another Global Collapse

By Kerri Shannon

The threat of a Greek default has become so real that French banks, which constitute some of the top Greek debt holders, have intensified their efforts to ease the country's floundering finances.

French lenders, along with their government, have suggested a debt rollover program, the first private-sector proposal to help save Greece.

The proposal suggests reinvesting 50% of maturing Greek debt into 30-year Greek government bonds between now and 2014. The new securities would pay a coupon close to current loans' interest rates, and offer a bonus for additional Greek gross domestic product (GDP) growth.

Another 20% of maturing Greek debt would be put into AAA-rated securities, like French Treasury bonds, as a "guarantee fund" for repayment on the 30-year debt holdings. This would take some of the Greek debt holdings off of banks' balance sheets.

French President Nicolas Sarkozy introduced the plan at a Paris news conference yesterday (Monday), saying French banks and insurance companies were committed to making it a reality.

The plan is a stark illustration of how dire the situation has become.

It's well understood that the European Union could be debilitated by a Greek default, but the United States has just as much at stake.

"The largely untold 'rest of the story' is this: If the European banking sector implodes, the U.S. financial system could take an unqualified beating," said Money Morning Contributing Editor Shah Gilani. "Big U.S. banks have been lending generously to banks across Europe. Close to 29% of their lending books during the past two years have gone to their heavyweight European counterparts. While they have pulled back considerably as a result of recent turmoil, U.S. banks are widely believed to have $41 billion of direct exposure to Greece."

This link between U.S. and European banks could lead to the next global credit crisis, according to Gilani.

But will the French plan work?

Dodging Default

Many analysts said it's too early to tell if the plan would be a good move for the top Greek debt holders.

"The mechanics of the French plan are so daunting that I don't see how any bank can evaluate them," Carl Weinberg, chief economist of High Frequency Economics Ltd. told Bloomberg News. "Half the debt maturing over the next three years includes paper at 98 cents on the dollar and other paper at 54 cents. Do banks have a choice? If so, they would fork over the 2013s or the 2014s and hold on to the 2012s."

About $91.3 billion (64 billion euros) of Greek government bonds will come due for repayment over the next three years. Greece needs to pass proposed austerity measures this week to receive another $17.1 billion (12 billion euros) of additional bailout funds next month and meet its bond repayment obligations.

The proposal was discussed Monday at a meeting of the International Institute of Finance, where many representatives from the French and German banking and insurance industry attended. The plan will need support from fellow Eurozone governments to move forward.

Some European governments have already demanded private investors take a bigger role in resolving the Greek debt crisis, calling for them to roll over as much as $42.8 billion (30 billion euros) in Greek debt.

Germany had pushed for private-sector involvement earlier this year, but was met with strong opposition from France and the European Central Bank. The country said it will likely discuss its own plan at a Eurozone finance ministers meeting July 3 in Brussels.

"We could see more or less a French solution," one senior German banker told The Financial Times. "But 30 years is very, very long. Whether it will be 15 years or 10 years or five will be decided by the talks which have to follow."

French banks are among the most eager to avoid a Greek collapse because they have $53 billion (37.1 billion euros) in overall net exposure to Greek private and public debt, according to the Bank for International Settlements. German banks hold more sovereign debt than the French, but two of France's biggest lending institutions, Societe Generale SA (PINK: SCGLY) and Credit Agricole SA (PINK: CRARF), also have controlling stakes in Greek banks.

Moody's Investors Service earlier this month said the three largest French banks by market value, Societe Generale, Credit Agricole SA and BNP Paribas SA will be reviewed for a downgrade because of their exposure to Greek debt.

Before any bailout proposal can be seriously considered, Greek Prime Minister George Papandreou needs approval for his $111 billion (78 billion euro) of budget cuts and asset sales. The next Greek Parliament vote will be held today (Tuesday) and then followed up Thursday with a vote on how to implement the reforms. If passed, the European Union will announce the details of a new Greek bailout package at the finance ministers' meeting July 3, likely giving Greece new funds by mid-July.

The Eurozone's future still remains unclear, even though President Sarkozy said the French proposal should unite countries in the fight to save the currency.

"Each country could find it interesting and it shows we won't let Greece go and that we will defend the euro," said President Sarkozy. "It's in all our interest."

President Sarkozy said it would be "folly" for any country to exit the euro, but billionaire investor George Soros said in Vienna Monday that the Eurozone should prepare for countries to leave the group.

"There's no arrangement for any countries leaving the euro, which in current circumstances is probably inevitable," said Soros. "We are on the verge of an economic collapse which starts, let's say, in Greece, but it could easily spread. The financial system remains extremely vulnerable."

Credit Default Swaps: Why Washington Ignored Our Warning

By Martin Hutchinson

Three years ago, I told you that Wall Street's newest invention - credit default swaps - would cause a major financial crash.

Now, I'll concede that credit default swaps (CDS) weren't the only cause of the financial meltdown that brought about the collapse of Lehman Brothers Holdings (OTC: LEHMQ) and nearly brought down American International Group Inc. (NYSE: AIG). But these financial derivatives were a major exacerbating factor - which is why I also warned that credit default swaps should be banned.

Just three years later, we're embroiled in yet another financial crisis. But the stakes have grown: This time around we're talking about entire countries - and not just banks - defaulting on their debt. Not surprisingly, credit default swaps are once again at center stage.

Just yesterday (Monday), in fact, the possibility of a Greek-debt default drove spreads on Western European credit default swaps up to record levels, providing even more profits for those speculating against the overall health of the Western financial system. Those profits for speculators increase the overall losses in the world financial system whenever something goes wrong, creating the possibility that even moderate "credit events" could collapse the whole shaky edifice.

If Washington had heeded my warnings back before the first global financial crisis, you and I would be much better off today.

Three Options Washington Missed

Despite their clearly dangerous tendencies, credit default swaps have displayed an unparalleled ability to survive - and were largely unaffected by the 2,000 pages of regulatory legislation in the Dodd-Frank Wall Street Reform and Consumer Protection Act and several years of additional regulation.

That's a travesty, since Dodd-Frank - the Wall Street "overhaul" signed into law almost exactly one year ago by U.S. President Barack Obama - represented the best chance to blunt the hefty influence of these derivative financial instruments.

As daunting as this sounds, I assure you that there would have been three very clear ways of achieving this goal:

  • Ban the things altogether - a proposal that features the virtue of simplicity, and has little economic cost (since credit default swaps don't really do the job they were designed for, as I'll show you in a moment).
  • Ban the sale of a "naked" credit default swap - meaning one in which the party doesn't own the underlying debt (since it would bring the CDS market in line with the insurance market, where it has since 1774 been illegal to buy a life insurance policy on a stranger - ostensibly because the chance of an "accident" is too great).
  • Or require banks to assess the full value of their CDS obligations as loans, and count the appropriate percentage of them against capital, making it difficult for huge volumes of CDS trading to develop (since it would become hugely expensive for banks to write them).
As originally designed, credit default swaps were a form of "insurance" that protected the lender in the event of a loan default. In fact, when a lender buys a CDS from an insurance company, the loan turns into an "asset" that can be "swapped" for cash if the borrower defaults.

As we've seen, however, credit default swaps have largely been used as vehicles of speculation - and dangerous ones, at that. Credit default swaps aren't traded on any sort of formal exchange, and there's not any kind of requirement to report the transactions to a regulatory agency.

This lack of transparency - coupled with the CDS market's huge size (the market for credit default swaps is believed to have soared from $900 billion in 2000 to an estimated peak of $60 trillion in 2008) - had regulaors conceding that credit default swaps could pose a "systemic risk" to the overall economy.

A Failed Experiment

I ran a modest derivatives desk from 1982-87. Even back then we were looking at ways to design derivatives that revolved around credit events. There was an obvious market for shifting credit from banks to such entities as insurance companies and pension funds. You see, banks were good at originating loans, but had limited balance sheets. Insurance companies and pension funds, by contrast, had a very limited ability to source loan assets, but had plenty of appetite for properly remunerated credit risk.

The problem was that there was no fair way to calculate the payoff on bankruptcy, nor was there a watertight way to adjudicate in the innumerable situations that were not quite formal bankruptcies.

The upshot: We decided the technical problems of determining payoffs were just too great to get around.

It was another 10 years - in 1995, to be exact - when the first credit-default-swap agreements were finally carried out. That surprisingly late date indicates the shakiness of the structure.

By 1995, the profitability of all kinds of derivatives operations - assisted by the "funny money" that then-U.S. Federal Reserve Chairman Alan Greenspan was just beginning to create - made derivatives traders simply ignore the problems.

They put in place a mock auction procedure to determine the payoff on bankruptcies, one that was infinitely easy to "game," because it allowed an auction of a few millions of obligations to determine payoffs on billions of dollars of debt. This also led to complex and essentially unworkable rules to determine when a bankruptcy had occurred.

The bottom line was that the entire process was nothing but a sophisticated scam. That was clearly the case with AIG, where credit default swaps on the insurance giant paid off spectacularly at the same time as AIG was paying all its creditors in full - and using our money (as U.S. taxpayers) to do so.

Sophisticated operators such as Goldman Sachs Group Inc. (NYSE: GS) were thus able to get paid twice - once from the government on their AIG debt and then a second time through their holdings of AIG credit default swaps.

What's more, the problems with the actual credit default swaps that we've detailed here weren't the only problems that needed addressing: It's also clear in hindsight that banks grossly underestimated their risk.

The problem here is that - unlike with a currency position or a bond - the potential loss from a credit default swap if something goes wrong may be 100-times the premium received for selling the CDS instrument.

Thus the fluctuations in CDS prices in normal times are a tiny fraction of the potential loss on a default event.

At any point in time, if the maturity of one credit default swaps is the same as another, then the swap associated with the firm or country with the higher CDS "spread" is viewed by the market as being more likely to default. That's because a higher fee is charged to protect against this happening. But that's only if everything else is equal, and that isn't always the case.

Since Wall Street's risk management looks at normal price fluctuations and then assesses the maximum possible risk as a modest multiple of the daily fluctuation, it was completely inadequate in measuring the risk of a CDS book. That, in a nutshell, is why AIG went bust and had to be bailed out with $170 billion of taxpayer money.

After the dust cleared, it became clear that the CDS market bore a large part of the responsibility for the disaster. Credit problems were multiplied through them, so that when losses occurred they rippled through the entire banking system, rather than being confined to just those with a direct business relationship with the defaulter.

Credit Default Swaps: The Greek Connection

Given all of their flaws, credit default swaps clearly do not accurately hedge against the risk of loss from a loan default, so they differ very little from straight gambling contracts. Since we, as taxpayers, are forced to underwrite the losses of the banking system, we should have the right to shut down this "gambling" element of the CDS market.

Needless to say, since Wall Street lobbied hard to prevent any of its really profitable games from being closed off, last year's Dodd-Frank Act did nothing to shut down the CDS market; indeed it seems to have achieved very little other than adding bureaucratic cost and uncertainty to the financial system. According to the Bank for International Settlements (BIS), CDS volume outstanding had fallen from its $60 trillion peak in 2008 all the way down to $30 trillion at the end of last year.

But this apparent decline is actually spurious; it simply reflects the big dealers being more careful to net off countervailing operations as far as possible, to keep the total "optical" exposure down and prevent calls for further regulation.

In reality, the credit-default-swaps market is as active as ever. Indeed, yesterday's headlines underscore that credit default swaps are playing a major role in the struggle over Greece's possible default.

If Greece defaults, the losses to the banking system will not simply be some fraction of the $100 billion of Greek debt, but also the gamblers' payoffs on the CDS outstanding on Greece - current estimates say we're talking about an additional $100 billion.

Let's face it: A system that doubles the potential loss on a bankruptcy (and probably more than that, because the holders of Greek-debt credit default swaps will manipulate the foolish "auction" system of determining payout) is imposing a huge cost - not a benefit - on the world economy.

U.S. banks had total exposure of $41 billion to Greece by the end of 2010, according to a June 9 report from the BIS. About 83% of that total is tied to "guarantees" that range from protection for sellers of credit-default-swap contracts, to other third-party obligations.

Let's hope that - after we've suffered through a more-severe version of the 2008 financial crisis (something that appears increasingly likely, thanks to the world's foolish cheap-money polices) - governments around the world will finally wise up and get around to banning credit default swaps.

The unfortunate reality is that, as the hard-working taxpayers who shoulder most of the burden in the world's "real" economy, you and I will be considerably poorer by then.

At the end of the day, one thing is abundantly clear: When we sounded the alarm about credit default swaps more than three years ago, it's a damned shame that our feckless leaders in Washington just didn't listen.

See the original article >>

Exclusive: Up to 15 EU banks to fail stress test: sources

(Reuters) - Up to one in six European banks is set to fail an EU-wide financial health check, according to euro zone sources close to the stress-testing, as officials scramble to set up backstops for those at risk.

The result, which the European Central Bank (ECB) and others hope will persuade investors that the EU is finally coming clean about the extent of its banks' problems, will put pressure on reluctant states to prop up lenders if they cannot raise money themselves.

Euro zone sources said the European Banking Authority is set to announce within weeks that between 10 and 15 of the 91 banks being scrutinized in the tests had failed, with casualties expected in Greece, Germany, Portugal and Spain.

The checks will provide the first picture of the health of the region's banks since a previous round a year ago was deemed too lax. In that round, Ireland's banks were all given a clean bill of health -- just months before their difficulties drove the country to seek an international bailout.

The new checks will measure how well the core capital that banks rely on to absorb losses such as unpaid loans holds up when exposed to an economic dip or fall in property prices.

They also gauge the impact on banks should the bonds they own issued by states such as Greece lose value. But the tests stop short of assessing the full impact of a country default including the likely resultant freeze in interbank lending.

In the drive for credibility, the European Banking Authority (EBA), which runs the tests and the ECB, which sets the macro economic scenarios, are pushing for more banks to fail than last year's seven.

"How many do we expect to fail? I would say 10 to 15," said one senior euro zone central banking source.

The EBA wants the number of banks that do not pass the tests to be around that level to show the examinations are serious, said a second source, adding that the authority did not want to push for more, for fear it could spark panic and intensify the euro zone's debt crisis.

"In order to demonstrate that it is credible, the EBA would need to show that the number of bank failures is significant, without being substantial," said the source. "A number in the teens is about right."

A spokeswoman for the EBA said testing was still under way and declined to comment on what she called speculation about the outcome.


The tests are technical, as well as political. While the EBA and ECB want to show up the failures, national regulators want to stop their banks appearing on the list, concerned they would look incompetent for having failed to spot such problems themselves.

EU authorities want to expose failures around the EU, said the second source, avoiding too many problems in weak countries, such as Spain, as that could prompt international lenders to shun the country and its banks.

"They are going to find a way of preventing one center ... from sticking out," said the source. "If it were to be Spain, it would be very bad news. Failing German banks in a stress tests would be much safer."

The EBA, which is due to announce the results in mid-July to coincide with a meeting of EU finance ministers, also faces pressure from governments wanting to avoid failures that may force them to come up with financial support.

A dispute with Germany for failing to apply the stress-test criteria as strictly as it should recently delayed the conclusion of the stress tests by some weeks, said one EU official.

"Every national regulator will be fighting for none of their banks to be on the list," said the source. "It's a mark of incompetence. It's a reputational issue and it's an issue of money."

High-level officials from European finance ministries are now working on how to help those given a failing grade.

Andrea Enria, head of the EBA, called on governments last week to put plans in place to help banks that fail or are shown to be vulnerable.

On Tuesday, a spokeswoman for the EBA emphasized that governments must not be slow to plug any capital holes exposed in the checks.

"It is important that concrete and decisive actions by the banks and authorities are taken following the results, including ensuring that credible capital plans ... are taken to address deficiencies."

Although the EBA is insisting on the publication of each bank's sovereign debt holdings by maturity as well as size, it is ultimately the number of banks to fail that will establish the credibility of the checks.

"If it was the same as last time -- when seven failed, next to nothing -- then no one would believe it," said one source. "But you cannot fail 50, or the banking system would collapse."

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US Dollar to Trim Recent Gains as Greece Passes Budget Plan

Major Currencies vs. US Dollar (% change)

20 Jun 2011 24 Jun 2011
US Dollar to Trim Recent Gains as Greece Passes Budget Plan body Picture 5 forex

EUR/USD: Euro to Rise as Greece Passes Austerity Plan

The centrality of the Greek debt fiasco to market sentiment at large has forged an intimate correlation between the Euro and global stock prices. This week, this means the focus for both is the Greek parliament’s vote on a new set of austerity measures – a package including tax hikes, spending cuts, and government asset sales – tied to receiving a new round of EU/IMF funding designed to stave off default.

The vote is appears largely ceremonial: last week, Greek Prime Minister George Papandreou called and survived a confidence vote that was designed to give him the mandate to push through just such a package, so to think the same policymakers that were on board with the agenda then would undermine it now seems very unlikely.

While markets will surely remain jittery until the final outcome has been secured, the vote’s completion promises to boost confidence as markets breathe a sigh of relief having avoided the destabilizing effects of a sovereign default (for now). This points the way higher for the single currency over the near term, at least until expectations of slowing economic growth in all three leading engines of global output (China, US, Europe) through the second quarter re-emerge after the Greek crisis fades from the spotlight.

An early estimate of June’s region-wide Consumer Price Index reading and the US ISM gauge of manufacturing activity headline the economic data calendar for the remainder of the week.
US Dollar to Trim Recent Gains as Greece Passes Budget Plan body Picture 6 forex
Source: Bloomberg

GBP/USD: Pound to Gain with Recovery in Risk Appetite

The absence of any significant developments on the monetary policy front has brought risk appetite trends back into focus for the British Pound. Over the near term, this has aligned Sterling with the Euro while the Greek debt crisis dominates sentiment, hinting it too will rise as the safe-haven US Dollar comes under pressure after the likely passage of a new austerity plan that opens the door for a fresh round of funding for the beleaguered Mediterranean nation.

The UK unit’s advance may be somewhat limited compared with the single currency however considering it had been a beneficiary of stress in the currency bloc as a regional alternative to the Euro, and a positive outcome from Athens will invariably reverse some of those flows. June’s Manufacturing PMI reading headlines the economic calendar, with expectation calling for the sector’s growth to narrowly pick up for the first time in five months.
US Dollar to Trim Recent Gains as Greece Passes Budget Plan body Picture 7 forex
Source: Bloomberg

USD/JPY: Prices Look to Greek Vote, ISM for Direction

The spread between US and Japanese 2-year Treasury bond yields remains the core driver of USDJPY. IN the absence of major economic data for much of the week, Euro Zone debt concerns will indirectly play a role here as well. A successful vote in Greece is likely to send capital out of the safety of US Treasuries, putting bond prices under pressure and sending yields higher by default. The imminent completion of the Fed’s QE2 program will encourage this dynamic, making this pair one of the few where the greenback is likely to advance as Athens pushes their problems further down the road.

The US ISM Manufacturing reading to be released on Friday may cut the move short, however. Expectations call for the weakest reading in 22 months, which threatens to reignite fears of a broad-based global slowdown in the second half of the year, undermining sentiment and pressuring USDJPY lower anew. A large batch of Japanese economic releases including Unemployment and CPI figures as well as the Tankan manufacturing survey are also on tap.
US Dollar to Trim Recent Gains as Greece Passes Budget Plan body Picture 8 forex
Source: Bloomberg

USD/CAD, AUD/USD, NZD/USD: Stocks Still Leading the Comm Bloc

The so-called “commodity bloc” currencies remain firmly anchored to stock markets, the reflection of a sensitivity to the trajectory of global economic growth underpinning the trends driving both sets of assets. As elsewhere this week, this puts the spotlight on the Greek austerity vote for the majority of the week – an arrangement that suggests the path of least resistance is to the upside – but leaves the door open for a reversal as US ISM figures cross the wires. Australian Private-Sector Credit, New Zealand Business Confidence as well as Canadian CPI and GDP figures headline the homegrown data docket.
US Dollar to Trim Recent Gains as Greece Passes Budget Plan body Picture 9 forex
Source: Bloomberg
US Dollar to Trim Recent Gains as Greece Passes Budget Plan body Picture 10 forex
Source: Bloomberg
US Dollar to Trim Recent Gains as Greece Passes Budget Plan body Picture 11 forex
 Source: Bloomberg

The Deficit Is Worse Than We Think


Normal interest rates would raise debt-service costs by $4.9 trillion over 10 years, dwarfing the savings from any currently contemplated budget deal.

Washington is struggling to make a deal that will couple an increase in the debt ceiling with a long-term reduction in spending. There is no reason for the players to make their task seem even more Herculean than it already is. But we should be prepared for upward revisions in official deficit projections in the years ahead—even if a deal is struck. There are at least three major reasons for concern.

First, a normalization of interest rates would upend any budgetary deal if and when one should occur. At present, the average cost of Treasury borrowing is 2.5%. The average over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020. 

The 10-year rise in interest expense would be $4.9 trillion higher under "normalized" rates than under the current cost of borrowing. Compare that to the $2 trillion estimate of what the current talks about long-term deficit reduction may produce, and it becomes obvious that the gains from the current deficit-reduction efforts could be wiped out by normalization in the bond market.

To some extent this is a controllable risk. The Federal Reserve could act aggressively by purchasing even more bonds, or targeting rates further out on the yield curve, to slow any rise in the cost of Treasury borrowing. Of course, this carries its own set of risks, not the least among them an adverse reaction by our lenders. Suffice it to say, though, that given all that is at stake, Fed interest-rate policy will increasingly have to factor in the effects of any rate hike on the fiscal position of the Treasury.

The second reason for concern is that official growth forecasts are much higher than what the academic consensus believes we should expect after a financial crisis. That consensus holds that economies tend to return to trend growth of about 2.5%, without ever recapturing what was lost in the downturn.

But the president's budget of February 2011 projects economic growth of 4% in 2012, 4.5% in 2013, and 4.2% in 2014. That budget also estimates that the 10-year budget cost of missing the growth estimate by just one point for one year is $750 billion. So, if we just grow at trend those three years, we will miss the president's forecast by a cumulative 5.2 percentage points and—using the numbers provided in his budget—incur additional debt of $4 trillion. That is the equivalent of all of the 10-year savings in Congressman Paul Ryan's budget, passed by the House in April, or in the Bowles-Simpson budget plan.

Third, it is increasingly clear that the long-run cost estimates of ObamaCare were well short of the mark because of the incentive that employers will have under that plan to end private coverage and put employees on the public system. Health and Human Services Secretary Kathleen Sebelius has already issued 1,400 waivers from the act's regulations for employers as large as McDonald's to stop them from dumping their employees' coverage. 

But a recent McKinsey survey, for example, found that 30% of employers with plans will likely take advantage of the system, with half of the more knowledgeable ones planning to do so. If this survey proves correct, the extra bill for taxpayers would be roughly $74 billion in 2014 rising to $85 billion in 2019, thanks to the subsidies provided to individuals and families purchasing coverage in the government's insurance exchanges. 

Underestimating the long-term budget situation is an old game in Washington. But never have the numbers been this large. 

There is no way to raise taxes enough to cover these problems. The tax-the-rich proposals of the Obama administration raise about $700 billion, less than a fifth of the budgetary consequences of the excess economic growth projected in their forecast. The whole $700 billion collected over 10 years would not even cover the difference in interest costs in any one year at the end of the decade between current rates and the average cost of Treasury borrowing over the last 20 years. 

Only serious long-term spending reduction in the entitlement area can begin to address the nation's deficit and debt problems. It should no longer be credible for our elected officials to hide the need for entitlement reforms behind rosy economic and budgetary assumptions. And while we should all hope for a deal that cuts spending and raises the debt ceiling to avoid a possible default, bondholders should be under no illusions.

Under current government policies and economic projections, they should be far more concerned about a return of their principal in 10 years than about any short-term delay in a coupon payment in August.

Mr. Lindsey, a former Federal Reserve governor and assistant to President George W. Bush for economic policy, is president and CEO of the Lindsey Group. 

Hog futures dip amid doubts over breeding cutbacks

by Agrimoney.com

Hog futures tumbled in Chicago, sapped by weaker cash markets and doubts over production curbs by US producers who have, for the first time, achieved 10 piglets per litter.
Cash prices for hogs - which in Iowa-Minnesota averaged nearly $103.51 a hundredweight on Thursday - were $5.80 a hundredweight cheaper on Monday, US Department of Agriculture data showed, in a decline blamed by investors on high prices deterring demand.
Meanwhile, many investors took an increasingly downbeat view of a benchmark USDA report late on Friday which was initially seen as only modestly bearish, showing the domestic hog herd some 0.4% larger than the market had expected.
However, the overall figure concealed, at 12.4m animals, a significantly higher number of larger, 120-179 pound pigs than had been expected.
This figure is "bearish for cash hogs during the July-to-September time frame", during which they are likely to hit the market, US Commodities said.
'Conflicting data'
Furthermore, some observers questioned the prospect of muted hog production, as implied by falling farrowing intentions, which were forecast to fall 2.6% in the current, June-to-August period - implying a drop to a 25-year low.
"This report contains conflicting data," analysts at Paragon Economics and Steiner Consulting said, flagging the apparent contradiction of falling farrowing intentions with separate statistics in the USDA report showing a rise in the breeding herd.
"Logic does not support a decline in this important driver of total productivity and profits."
The analysts also highlighted the rise in surviving piglets per litter to a record 10.03 during the March-to-May quarter, taking the average growth rate over the last four years back over 2%, compared with 0.5% during the previous decade.
US farmers achieved fewer than 7.8 piglets per little 25 years ago.
Chicago prices
In Chicago, lean hogs for July delivery stood 2.1% lower at 93.95 cents per pound in late deals.
The better-traded August lot fell the daily limit of 3.0 cents at one stage before recovering some ground to stand at 92.375 cents per pound, down 2.825 cents, or 3.0%.

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Descending triangle in the Copper producer?

by Kimble Charting Solutions

Gasoline price are ahead lower?

by Kimble Charting Solutions

50 Best Performing US Stocks Year to Date

by Bespoke Investment Group

As we quickly approach the halfway point of 2011, below is a list of the 50 best performing stocks in the Russell 3,000 year to date. Technology stocks typically dominate this list, but at this point in the year, only one Technology stock ranks in the top ten (TeleNav in 10th place). Three Health Care stocks sit at the top of the list. Ampio Pharmaceuticals (AMPE) is currently the best performing Russell 3,000 stock year to date with a gain of 227%. Biolase Technology (BLTI) ranks second with a gain of 201.37%, followed by Oncothyreon (ONTY) at 182.70%. Global Crossing (GLBC) -- a Telecom company -- is the 4th best performing stock year to date with a gain of 174.54%, while Green Mountain Coffee (GMCR) ranks fifth with a gain of 158.67%. Other notables on the list of 2011 winners include Weight Watchers (WTW), MicroStrategy (MSTR), Select Comfort (SCSS), National Semiconductor (NSM), and Timberland (TBL). 

At What Point Does a Double Dip Become Just Another Recession?

by Bespoke Investment Group

With all the pundits out there calling for a double-dip, it may sound hard to believe that the current expansion is now approaching its two-year anniversary. While recent economic data may be showing some weakness, we would note that Q2 GDP is still forecast to show growth (2.3%) and the ISM Manufacturing and Non-Manufacturing indices are still above 50, which is the boundary for growth vs. contraction. 

Even if the month of June were to mark the end of this current expansion and the economy did go into a recession (a view we do not share), it would still make this expansion as long or longer than 8 out of the 22 (36%) prior expansions since 1900. We realize it is just a matter of semantics, but at what point does it become just another recession rather than a double dip? Or do those calling for a 'double dip' just use that term to evoke the painful memories of the last recession?

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Why GDP Is Useless and Deceptive: There Was No Recovery

By Jeff Harding

We have not recovered from the Great Recession and thus our current economic stagnation is less a new event than a continuation of the original collapse. The basis for the so-called “recovery” was a rise in GDP, that measure of what we have spent in the economy. It’s a fairly useless bit of data.

As we all know, GDP measures private Consumption, plus gross private Investment, plus Government spending, plus eXports minus iMports. It is a simple formula:


According to Ludwig von Mises:
It is possible to determine in terms of money prices the sum of the income or the wealth of a number of people. But it is nonsensical to reckon national income or national wealth. As soon as we embark upon considerations foreign to the reasoning of a man operating within the pale of a market society, we are no longer helped by monetary calculation methods. The attempts to determine in money the wealth of a nation or of the whole of mankind are as childish as the mystic efforts to solve the riddles of the universe by worrying about the dimensions of the pyramid of Cheops.
If a business calculation values a supply of potatoes at $100, the idea is that it will be possible to sell it or to replace it against this sum. If a whole entrepreneurial unit is estimated $1,000,000, it means that one expects to sell it for this amount. But what is the meaning of the items in a statement of a nation’s total wealth? What is the meaning of the computation’s final result? What must be entered into it and what is to be left outside? Is it correct or not to enclose the “value” of the country’s climate and the people’s innate abilities and acquired skill? The businessman can convert his property into money, but a nation cannot.
Human Action, 4th ed., p. 217.
At best GDP is a defective measure of a nation’s economic productivity. It isn’t as if the “economy” is a thing that produces stuff. Nations don’t produce anything, people do. I don’t know any business owner who uses GDP to tell him anything about his business. (I’m not talking about you traders.) Let’s face it, one can’t get any real important information by averaging the prices of Diet Coke and memory chips.

What does this mean:

Not much, yet that is what the GDP calculation does.

Let me give you another example of the problem in trying to measure economic growth. If GDP measures spending then, does the introduction of more fiat money into the economy represent organic economic growth or is it just a measure of the influx of new dollars. If we all wake up the next morning and find that our money has magically doubled and we go on a spending spree, does 2X spending mean that GDP has increased 100%? I think we know the answer to that. That is why economists and statisticians use deflaters to discount the impact of monetary inflation on prices. [1] As Rick Davis of Consumer Metrics Institute points out, the inflation rate Bureau of Economic Analysis uses for the deflater is behind the curve and if revised upward to reflect the current CPI-U, it would put GDP at a 0.73% annualized rate.

Even if you believe that you can measure “the economy” why does government spending get as much credit as private spending and investment? Talking about a deflater, it’s like comparing FedEx with the USPS in terms of efficiency and productivity. One could effectively argue that much of what the government spends is wasteful since they produce nothing. Yet, an important part of GDP spending measures.

That is why GDP doesn’t yield any useful information.

I don’t wish to get into the entire Austrian theory methodology (methodological individualism, as Mises put it), but it is an important concept in order to understand where I am going with this article.

The concept of GDP was developed during the New Deal by economist Simon Kuznets, a pioneer in econometrics. The New Dealers liked the concept because, as advocates of central economic planning, they believed they could control the economy and needed something to measure the efficacy of their meddling. Austrian theory economics rejects the notion of ”national accounts” and the government’s ability to “manage” the economy. This argument goes back almost 200 years, but let’s say that history has not been very kind to economic meddlers. Especially to Keynesians.

What it all comes down to is the Keynesian belief that a lack of spending is what ails the economy, and conversely, spending, any spending, is good for the economy. If we consumers aren’t spending enough, according to this idea, it is the duty of the government to spend in our stead. And if the government doesn’t have the money, it is OK to borrow and spend.

Economic growth doesn’t start with spending: it starts with saving and production and ends with spending. And that is why we should not rely on GDP to measure the health of the economy.

If spending were the key to economic growth, then, after running Federal deficits of more than $4.8 trillion since 2008, why haven’t we recovered? According to Keynesian theory, at least as defined by Paul Krugman, Brad DeLong, Ben Bernanke, Larry Summers, and Tim Geithner, it should have worked. Of course Krugman would say that we haven’t spent enough, but he always says that when evidence shows that it doesn’t work.

So when the conventional wisdom says that the economy recovered in June 2009, it didn’t. There are a number of other ways to measure this, and the dollar volume of industrial production and unemployment are two ways.

Here is an unemployment chart comparing various recessions:
This chart shows that since the official NBER dating for the beginning of the recession, December, 2007, to the present, we have 41 months of high unemployment. Compared to past recessions we can see this event is far more serious. We are at 9.1% unemployment now, a rate that is far higher and far longer than in the past.

Another measure to look at it is industrial production:
The dollar measures of industrial output, especially the private ones (such as the ISM and NFIB business surveys), reveals that it is stagnating which doesn’t give you a warm fuzzy feeling about the “recovery.” While we have the same problem in measuring industrial production that we do in measuring GDP, it does measure a specific sector of the economy, (some) manufacturing, which is a capital intensive business, and is a fair proxy for capital investment.

Industrial production and unemployment measures are real indicators of economic health. So how can we have a recovery when unemployment is still very high and industrial production is falling?

The same factors that caused the so-called 2007-2009 recession still exist. Thus, papering over the problems with fiat money and stimulus spending just gave the appearance of economic growth but it wasn’t real. That is why we have economic stagnation: the problems were still there when the money stopped.

Stimulus spending and fiat monetary expansion don’t create organic economic activities. That is, once the federal stimulus spending stops or the money “printing” stops, the economic activity they supported stops. Whereas in the private sector, assuming a business is doing something right, customers will come back and the business continues, jobs are created, and profits are made.

The lesson to take away from this is that you can’t trust GDP numbers to tell you anything important about the quality of the economy. It is a fiction created by economists who believe that the formulas of econometrics is a valid way to understand our behavior. It is even worse than that because they use such data to further meddle with the economy by targeting interest rates, to set money supply goals, to formulate fiscal policy, and to pass laws they think will make the economy grow.

What they miss are the real causes of economic prosperity.

In order to make the economy grow again we need to liquidate the projects that were built on fiat money during the boom years. We need to liquidate the debt attached to these malinvested projects. It’s called ‘bite the bullet and take the pain.’ We need to build up new capital through savings so that we can invest in new productive enterprises and create jobs that aren’t built on money steroids.

This is what people (the economy) do when they aren’t being manipulated by government actions.

If you wish to place blame then start with the Fed and your federal government. High unemployment and stagnation are painful to real people, not the “nation” yet it is government policies that prolong the problems. That is a cruel thing to do to our fellow Americans.

If you made economic decisions on the back of these GDP reports, that would be a mistake. More often than not, these numbers are false flags of growth. You may have bought a home based on a tax credit last year only to find that your new home is worth less than what you paid. You may have been an employer who hired new staff members based on tax credits only to find that demand has not materialized. You may have bought commercial real estate thinking the economy had turned around, but you will find your turnaround period will be far longer than you thought. You may have bought financial assets such as stocks based on a market that was inflated by QE money, and as money growth slows down the markets will suffer.

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