Nobel laureate Joseph Stiglitz, professor at Columbia University, told the media in Singapore that the likelihood of the U.S. economy sliding back into recession is "very, very high" in 2010. Stiglitz attributes this risk to the lack of job creation as our so-called "V-shaped" recovery takes place. Stiglitz argues that the U.S. economy must grow at 3% annually in order to create enough jobs for the expanding workforce. The probability that U.S. can sustain a 3% pace of recovery is low. Interestingly, Stiglitz suggests that the federal government should prepare another stimulus package aimed at providing job growth. This third stimulus bill would inevitably be wracked by the political pork which made the second $787 billion bill a complete waste of tax payer money and Congressional effort. I agree with Stiglitz that the 'jobless' nature of this recovery will not be a benign thing. There is no way that the U.S. economy can increase productivity indefinitely without an expansion in employment and the failure of job growth in the second half of 2010 will likely cause further recession. Complete Story »
The investing community remains split over how the financial sector will perform over the next couple of years. Having gone through one of the greatest booms, and subsequently one of the greatest busts of all time, investors are struggling to pin down the 5 year outlook on the industry. We believe that financials will underperform the indices over the next couple of years, despite having played a lead role in the violent rally that has taken place since March. The collapse of the tech bubble gives us a blueprint for analyzing the future of financials. After leading the market upwards in the late 1990s, tech underperformed over the subsequent bull market of 2003-2007.Complete Story »
Charles Lieberman submits:In anticipation of our next commentary on the economic and investment outlook for 2010, it seems appropriate to review what happened over the past year to better understand where we are. Conventional wisdom holds sub-prime and Wall Street lending practices responsible for the meltdown that produced the worst recession since the Great Depression. Lending practices were poor, but these faults were exacerbated by poor regulatory and supervisory activities and compounded by pro-cyclical accounting rules that enlarged losses further by forcing sales at depressed prices. Since these failings are still largely unaddressed (nor do they seem to be the focus of various reforms), the possibility remains for a repeat performance somewhere down the road. It is all too easy to blame the collapse in housing on bad behavior behind sub-prime lending. But all sub-prime loans taken together were a small fraction of the losses suffered by the financial system. The problems really did begin with housing, where construction in 2005 and 2006 was significantly above the rate of household formation, yet builders continued to build. The easy credit terms of the period clearly helped, as did the willingness of some bad actors to fabricate loan documents to enable poor credits to qualify for mortgages, as well as the sloppiness of lenders to accept such faulty documents. But this activity postponed and exacerbated the day of reckoning. If the unethical behavior had never occurred, the housing market would have still experienced a significant meltdown because there was simply no way to reconcile the high level of new construction with the size of the population.Complete Story »
John D. Frankola submits:After much debate, negotiation, and deal making, the Senate health care reform bill appears to be on track to be passed this week. Following President Obama’s election in November 2008, the consensus investment opinion was that health care insurers would suffer under any likely health care reform scenario.In looking at stock price performance since the day after the November 2008 presidential election through yesterday’s closing prices, the health insurers have delivered phenomenal performance, especially compared to the S&P 500 Index.Complete Story »
Individual Global Investor submits:“Inflation or deflation?” This is the question that markets have been wrestling with for the last year and will likely do so for another few. With reports of the record steep yield curves upon us, it should give us pause to ask which direction we are headed. Clearly central banks around the world are doing everything possible to ensure that inflation is at least positive, even though these steps might be detrimental to the long term health of their economies. A look at industrial production for the U.S. and other major exporting nations does not seem to justify this view of rising activity. It is countries like Germany and China that are in an uptrend for production. As we saw last week, trade is gradually recovering, even after the end of some stimulus programs. However, it remains far off the pace of last year and unlikely to cause tightness in labor or the markets for raw materials any time soon. Furthermore, yield curves for various countries don’t correlate particularly well to the fiscal responsibility of their nations.Complete Story »
The Advance/Decliner Index is our effort to quantify the anecdotal price information we find in our every day reading about global steel price trends. We also are looking at relative prices in the U.S. versus abroad in our attempt to gauge international price pressure/opportunities heading our way.Advance/Decliner Index Pulls Back. Our Advance/Decliner Index fell modestly to 68% from 73% last week. The index has remained within the 62% - 73% range for the last six weeks as global steel prices are steadily rising – any reading over 50% means more price increases than decreases. Our China index jumped to 91% after two weeks in the 60% range. The small price cuts we have seen recently have abated and Chinese prices are regaining strength on strong demand and easing production. Our ex-China index fell to 62% from 74% the prior week, due entirely to multiple price cuts in Japan.Complete Story »
Mike Havrilla submits:Last week, Mentor Capital (MNTR.PK) announced plans to launch an actively managed Cancer Immunotherapy (CI) Index fund shortly after New Year’s Day that will be based on the underlying Mentor Capital CI Index, which has gained 45% on an equal-weight basis since its inception on 7/10/09. MNTR.PK intends to invest a significant portion of the cash proceeds from the exercise of warrants which are currently outstanding on a stepped-price basis at $1, $3, $5, and $7 per share. The Company also announced that $1.2 million each in initial seed funding for the CI Index will be provided in approximately equal parts by Mentor Capital management, WellCap Partners (fund administrator) , and MNTR.PK Series C warrant holders. Mentor Capital currently has about 900,000 shares outstanding and the Series C warrants were called last week at $0.65 (for a period of 45 days) to provide approximately one-third of the initial seed funding for the CI Index fund. New companies will be evaluated over time for inclusion in the index and MNTR.PK will invest on a passive basis in all of the CI Index components. The actively managed fund will seek to outperform the overall CI Index performance by establishing larger weightings among the companies it judges to have the best commercial and medical technology development potential.Complete Story »
Cam Hui submits: For many people, this is a time of year for reflection (instead of year-ahead forecasts which I already touched upon here). So let me share with you my personal concerns about those who are less fortunate.A growing class-based chasm?This is a theme that I have expressed concerns about in the past. A fraying social fabric and a threatened middle class which endangers political stability.Complete Story »
Tzifardeah submits:The WSJ has crunched the numbers and concluded that: In nearly 200 years of recorded stock-market history, no calendar decade has seen such a dismal performance as the 2000s.Complete Story »
I didn't expect it to come this soon, and by all means there is no cofirmation yet that it has indeed arrived, but there are initial signs that the inverse relationship between stocks and the US dollar is dissipating. Yesterday, stocks rallied with the US dollar (US dollar index up 0.41% with stock indices up 1% across the board). Read my previous post "Waking Up To A Stronger Dollar... What Now?", where I talked about a possible end to the inverse relationship as a signal that the economic recovery is firmly in place. Complete Story »
The Baseline Scenario submits: by James KwakNew York Times headline: “U.S. Limits Tarmac Waits for Passengers to 3 Hours.” Just imagine …Complete Story »
Harry Long submits:Since June 17, 2008, I have written 11 articles on Fremont Michigan Insuracorp (FMMH.OB) on Seeking Alpha, put up a website called BuildFremont.com, written to the board, met with management, and advocated specific changes in the company to improve shareholder valueMy goals have been to:Complete Story »
David Merkel submits: It does not matter how you measure it, the US Treasury yield curve is at its steepest level ever. Away from that, the value for expected five-year inflation, five years from now is at its highest level ever, excluding the noise that we had as our markets crashed in the fourth quarter of 2008. This concerns me. Any time we hit new extremes on critical financial variables, it makes me think, “What next?” Treasury yield curve slope and inflation expectations are fundamental. Reaching unprecedented levels is a big thing.Complete Story »
