Relative Leverage

Four Indicators for When to Exit the Rally

I believe the markets will test their lows this year or early next year...and we'll probably get there sooner rather than later. It seems that EVERYBODY is "cautious" these days...which means the bottom will likely fall out quickly when it does...

As a matter of fact, Doug Kass posted a summary of his "bearishness" yesterday (see link below). Is it just me or is this guy all over the place?

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Crackdown on Consumer Credit Continues

Consumer credit isn't shrinking enough...

According to Comstock, it took $1.50 of debt to generate $1 of GDP in the 1960s, $1.70 to generate $1 of GDP in the '70s, $2.90 in the '80s, $3.20 in the '90s, and an unbelievable $5.40 of debt to generate $1 of GDP in the latest decade.

The deleveraging process will be painful. Here's a link to Comstock's recent piece titled Deleveraging the U.S. Economy:

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Economic Glimmers of Light

A "recovery" will be weak at best as the baby boomers start saving more and spending less...

Here's some interesting stats on our "entitlement" generation:

- $400 billion - Amount that will come out of annual U.S. consumption as boomers push the savings rate from 1% to 5%.
- 69% - Portion of boomers aged 54 to 63 who are financially unprepared for retirement.
- 47% - Boomers' share of national disposable income in 2005...they only contributed 7% of national savings.
- 78% - Boomers' share of GDP growth during the bubble years of 1995 to 2005.

Here's a great article about the Leaner Baby Boomer Economy (Business Week):

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People need to come to grips with the fact that economic growth is going to be well below the mean of the last 30 years...

Economic Stimulus: So, Is It Working?

The "stimulus" won't work becuase it will never be enough to offset the decline in spending from the baby boomers.

Here's some interesting stats on the "entitlement" generation:

- $400 billion - Amount that will come out of annual U.S. consumption as boomers push the savings rate from 1% to 5%.
- 69% - Portion of boomers aged 54 to 63 who are financially unprepared for retirement.
- 47% - Boomers' share of national disposable income in 2005...they only contributed 7% of national savings.
- 78% - Boomers' share of GDP growth during the bubble years of 1995 to 2005.

Here's a great article about the Leaner Baby Boomer Economy (Business Week):

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A "V-Recovery" seems almost impossible...

Jobless Data: Still a Long and Winding Road Ahead

James is right...the post-recession period will be very difficult for most people to stomach. I think there is a growing misconception that when the recession ends that it will mean that economic growth is right around the corner. The unfortunate truth is that the U.S. may move into a period of stagflation (i.e., slow economic growth, high unemployment, and inflation). That is a far cry from the "V-recovery" that I feel most are expecting...

The unemployment rate is extremely high (9.5%) and it will likely remain high for the foreseeable future. However, the reported number isn't even the real picture. It's been estimated that the real unemployment rate in the U.S. is closer to 20%. These estimates include “underutilized” workers in the U.S. (i.e., those without jobs, as well as those individuals who only work part-time and have become discouraged and stopped looking). Prior to the early 1990's, this was the method of calculation. Now the government manipulates the number in order to suit its political aims...

Regardless of which unemployment number you believe to be correct, the scary truth is that the U.S. is likely entering a "new normal"...and we may never see 5%-6% unemployment again. See my recent article discussing the "new normal":

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This may be hard for many people to grasp...

Dave's Top 10 Reasons This Recession Will Last Forever

I can't believe all the negative comments about this article. David's humor may be a little tongue-in-cheek, but the man is right!

If you think that this article is nonsense, then you are manifesting your only reality. Trust me, I wish some of the things that he highlighted weren't true...but they are...

If you haven't read Matterhorn Asset Management's recent newsletter, The Dark Years are Here (see link below), I highly suggest that you do...

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If you prepare for the worst and hope for the best, you will be much better off. Denying the truth is dangerous...

Explaining the Rally: Spreads Continue to Tighten

Narrowing spreads doesn't explain the rally...spreads are narrowing BECAUSE of the rally...

Watch what will happen to spreads if the S&P puts another 6-handle on. I actually wrote an article yesterday titled "Looming Corporate Defaults Suggest S&P May Retest Lows in 2010" (see link below).

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I believe that the S&P will test (or breakthrough) its low of 666.79 as corporate defaults peak in 2010. I promise you that spreads will be significantly wider at that point...

Fibonnaci Calls: The 38.2% Retrace Is Approaching

Good stuff, TM. The other thing that the 38.2% retrace has going for it is that it coinsides with the 200-month moving average...

Why Gold Could Hit $1,300 This Year

Nice analysis, but I think your upside estimate of $1300 is too conservative for gold. I think if we break through the $1050-$1100 level...gold could easily see $2000. It may not be for a few years, but I think the fundamentals and technicals are both pointing in that direction...

If you haven't read Professor Rozeff's piece discussing his top 10 reasons why you should make gold a core holding, I suggest you check it out (see link below).

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Looming Corporate Defaults Suggest S&P May Retest Lows in 2010

Mistrofan - I agree with you, it's tough to find good reward-to-risk trades right now. Personally, I would rather take the paltry yield from investment grade corporate bonds right now than take the risk in the high-yield space.

I am long commodities (primarily gold and natural gas). However, with regard to equities and bonds, I am primarily looking for setups on the short side right now...


On Aug 05 08:14 AM Mistrofan wrote:

> Very interesting analysis. Thank you. While I agree with equities
> retesting the bottom in 2010, allow me to have a different opinion
> in regards the HYB: the investors will be hard pressed to find any
> refuge to go out of stocks during the next 12 months. T-Bills and
> T-Bonds? No way - at this low interest rate levels. Commodities?
> Maybe - but then you bet on a reflation play which I do not think
> will happend ' till mid '10. What is left? Corporate bonds and TIPS.
> Safer LONG bets for the next 12 months I do not know. Between Corporate
> bonds BAA has a yield of 6.80% already too low. Then investors are
> effectively pushed into HYB. Opinions?

Dow Target 6,617, October 25, 2009: Here Is Why

Good article. I agree with you, Jason. The equity market will retest its lows sometime in the next 12 months.

However, I think the catalyst will be corporate defaults. If you look at the past two recessions, equity prices bottomed right around the same time corporate default rates peaked. I believe that default rates are not even close to peaking yet...it will probably be in Q1 or Q2 of 2010...

I just wrote an article on the topic if you are interested in the details:

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Gold Hits Highest Level Since June 5 - Next Stop $1,000?

I just realized I posted the wrong link above (sorry!)...

Here is the link to the Rozeff article:

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On Aug 05 04:40 AM Relative Leverage wrote:

> BullnBear - I agree with you, but it's tough to picture a scenario
> where the dollar would strengthen...
>
> Professor Michael Rozeff wrote a piece last week listing his top
> 10 reasons why you should have a core position in gold. His arguments
> are very compelling (see link below)...
>
> consequencesunintended...
>

Gold Hits Highest Level Since June 5 - Next Stop $1,000?

BullnBear - I agree with you, but it's tough to picture a scenario where the dollar would strengthen...

Professor Michael Rozeff wrote a piece last week listing his top 10 reasons why you should have a core position in gold. His arguments are very compelling (see link below)...

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The 'New Normal' for Unemployment

Pat C - You are absolutely correct with your revisions. The next 5-10 years will be a very interesting time indeed for the U.S.

There's a big difference between actual reality and a person's manifestation of reality...the longer it takes society to realize the change, the more radical the affect will be...

Still Missing the Last Green Shoot: Jobs

You are correct, there will not be a recovery in the U.S. with a 9.5% (or higher) unemployment rate...so it would be wise to follow the jobs picture very closely.

Unfortunately, the published unemployment rate isn't even the real picture. It's been estimated that the real unemployment rate in the U.S. is closer to 20%. These estimates include all “underutilized” workers in the U.S. (i.e., those without jobs, as well as those individuals who only work part-time and have become discouraged and stopped looking). Prior to the early 1990's, this was the method of calculation. Now the government manipulates the number in order to suit its political aims...

I posted an article last week highlighting the scary truth that the U.S. may never see 5%-6% unemployment again:

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Also, here is another great article (from the NY Times) discussing the emergency situation that the unemployment insurance program is facing right now. How long can the government afford this prolonged high unemployment???

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