It's not quite Kübler-Ross' five stages of grief -- in fact, it's more like two -- but it seems that at least some mainstream media types have stopped drinking the Keynesian Kool-Aid. They are beginning to accept that an exponential increase in our nation's debt load could bring us to the point where our nation is forced make the kinds of "choices" -- I use that term loosely -- that used to be reserved for banana republics and failed states (as it happens, that shouldn't be too much of a surprise to those who read one of my earlier posts on the subject). As Newsweek economics columnist Robert J. Samuelson notes in "Up Against a Wall of Debt, Part II," when you owe too much to others, your options suddenly become limited.

Are the United States, Japan, Great Britain, and other first-world nations in danger of defaulting on their debt?

Well, it is not as if I relish rubbing salt into old wounds, but this quote from the latest piece by Ben Hall in Paris and Ralph Atkins in today's Financial Times is just too good to resist.

French manufacturing output rose at its fastest rate for nine years, according to a survey on Monday, confirming that France has become the economic powerhouse of continental Europe. Purchasing managers’ indices for manufacturing showed France performing significantly better than the continent’s other main economies – thanks to robust domestic demand.

When it comes to the housing meltdowns in the richest economies, the US has been matched only by Spain, Ireland and the UK. All four countries have seen spectacular losses of wealth in the housing sector over the last two years.

The response by all four governments was to apply as much stimulus as they reasonably could to prevent their economies from descending into free fall. This has opened up gaping holes in each country's government accounts. However, in contrast to the United States or the UK, both Spain and Ireland have the Euro as an external constraint which limits their policy choices. This has resulted in credit downgrades for the sovereign debt in Ireland and Spain.

A specter is haunting Europe, but this time it is not the specter of revolt by the popular masses, or even one of yet another wave of bank bailouts. No, the specter which is currently stalking the corridors of Europe's most prestigious institutions is one of a Spanish economy which stays on a flatline while Europe's other economies, one by one, start to struggle back to life.

And the main reason that this particular ghostly image is giving everyone so many sleepless nights is because Europe's current institutional structures, and especially the monetary policy tools available at the ECB, are scarcely prepared for such a nightmare eventuality.

Over the last year, swine flu has been the news story that just won’t die. After an early initial scare, H1N1 faded into the background of the minds of many for several months, before returning in full force as flu season approached. Of course, the threat posed by the disease never really diminished, and health authorities continued preparation for a worst case scenario behind the scenes (as did pharmaceutical companies around the world). The ultimate outcome of all this anxiety is still very much in doubt. Flu season could pass with an uneventful whimper or deliver thousands of fatalities and cause yet another global crisis.

Now that president Obama has declared swine flu a national emergency and the number of vaccines delivered have been far less than promised in many locations, swine flu in on everyone’s mind. As preparations continue, vaccine distributions commence, and speculation continues to swirl, H1N1 has caught the attention of investors around the world scrambling to analyze the potential impact of all possible outcomes. While some sectors could potentially benefit from a widespread outbreak, the general consensus is that swine flu stands to wreak havoc on domestic and international economies alike.

The elections are over in Germany and the new finance minister is making sobering statements about recovery. Germany is a major part of the European economy. With Italy limping and Spain bleeding, Germany’s statement is hardly welcome.

New York Times (October 25, 2009)

Culturally, the Japanese place such a strong emphasis on scholastic achievement…failure is simply not an option. So it’s not a big surprise to learn that Japan has the highest suicide rate of any industrialized nation.

On the other hand, how does one explain the next country in line… France. Doesn’t France shower its citizens with generous public health care? Don’t employees enjoy extraordinary job protection rules? And doesn’t the world at large envy the French for their easy-going enjoyment of life?

Nothing in the world of investing will ever come down to a single statistic. Yet I am intrigued by the idea that U.S. troubles may be, in part, tethered to its permanent status as a net importer.

So I decided to peruse the latest Economist for trade balance stats. I decided to separate the 5 largest net importers from the 5 largest exporters to see if one might find any discernible discrepancies between the groups.

Spain’s economic problems stemming from the housing collapse may not improve anytime soon, but the banking industry is propping up the country-related exchange traded fund (ETF).

The International Monetary Fund (IMF) projects Spain’s unemployment rate to top off at 20.2% in 2010 after hitting 18% by the end of 2009, according to Barcelona Reporter. The IMF also estimates that the country’s gross national product (GNP) will fall 3.8% this year and diminish 0.7% next year.

I am a sucker for a good argument presented with the correct dose of eloquence and cold facts, and John Hempton's latest tour of the balance sheet of the Spanish bank BBVA is just that. Essentially, John sets out to address the question of whether Spanish banks are hiding their losses or, as John ultimately goes on to argue, front-loading their eventual losses by extending credit to bad debtors in stead of writing down on the balance sheet.

Of course, this is not only a question of the practices of BBVA and whether you buy John's extrapolation from the case of BBVA to the case of the entire Spanish banking industry and on to the Spanish economy and the Eurozone itself, I believe the analysis and underlying points deserve a closer look. Personally, I do think that this is one of the most important questions we face in the context of the ongoing financial crisis, namely the extent to which the periphery of the Eurozone (and in particular Spain) harbour the ingredients to pull the whole edifice down or very close to the brink as a result of an unravelling which lies ahead in the beginning of 2010 as government and monetary stimulus begins to wane and/or the pressure from deleveraging and internal devaluation becomes too much.

Spain's current account deficit fell to 2.064 billion euros in July from 7.752 billion euros a year earlier as imports tumbled, according to the latest Bank of Spain data. This is a very sharp and dramatic fall, and my guess is that at this rate the gap will close in six months or so, which will be a very strong correction, and potentially very painful for Spanish living standards.

click to enlarge
In fact the Spanish current account deficit ballooned in the "good years" - from around 3% of GDP at the turn of the century, to around 10% in 2008 on the back of large external borrowing to acquire housing units and land, and the inevitable imports which were sucked in to fuel the consumption boom.

Well here's the first big news from yesterday's global manufacturing PMI reports: Spain's manufacturing contraction accelerated in September. Of course, how could it be otherwise? But I do wish all those people who are still in denial on what is now an all too evident reality would finally come out of the woodwork and do something. If Spain really goes down, it will drag the rest of the Eurozone with it, like Moby Dick, taking Ahab Trichet and his crew sinking down to the murky bottom with him. Brussels, Frankfurt, you need to react. Zapatero has to go, and he has to go now. Spain needs a set of rational policies to deal with the crisis, before things really get out of hand.

Spain's September PMI

Below is a table in order of the sum of the 3, 6, and 12 month returns for individual country ETFs. Each column represents returns for various timeframes and the percent each ETF is above (or below) the 200 day moving averages as of the close September 30th. Note that all country ETFs are above their 200 day moving average. The top 5 based on the sum of the 3-6-12 month returns are below-- at the end of July 3, the top ETFs were China related. Last month we saw a more diversified mix of strength and the absence of China: TUR (Turkey), EWD (Sweden), EWY (South Korea), EWP (Spain), EWO (Austria). At the end of September, there is a resource theme - 3 of the countries in the top 5 are resource rich. The country ETFs with highest momentum are TUR, THD (Thailand), EWZ (Brazil), EWA (Australia), RSX (Russia).

One potential strategy investors could use would be to purchase the top ETFs based on the sum of their returns over 3, 6, and 12 months. Or, one could purchase ETFs based soleley on 6 month returns (a strategy featured on ETF Screen). An additional twist would be to only purchase the top performing ETFs if they are also above the 200 day moving average.

Early Friday morning, eyes around the world will be focused on Copenhagen, Denmark, where the International Olympic Committee (IOC) will announce the host city for the 2016 Olympic and Paralympic Games. The announcement ceremony figures to be quite a spectacle, with heads of state from the four finalists expected to make last minute pleas for their respective cities. President Obama will appear to support Chicago’s bid, while King Juan Carlos of Spain will appear on behalf of Madrid and Brazilian Prime Minister Luiz Inacio Lula da Silva will represent Rio de Janeiro. New Japanese prime minister Yukio Hatoyama will also appear to bolster Tokyo’s campaign.

The opening ceremonies for the 2016 games are still more than six years away, but the winning nation could see an economic boost long before the opening ceremonies. As Beijing showed last summer, hosting the Olympics is a monumental endeavor that takes years of preparation, construction, and development to pull off. While estimates for the cash generated for hosting the games vary greatly, most economists agree that winning the right to host the games can provide a boon to almost any economy. As the very competitive race draws to a close, we take a look at several ETFs that could post gains following the final vote.

Over the weekend the Spanish government approved a 2010 budget featuring significant tax hikes to support increases in government spending. Spain has seen spending surge over the last year as the country attempts to avoid a prolonged recession that some analysts fear could result in a “lost generation” similar to Japan’s fate following the Nikkei bubble. Under the most recent version of the plan, the general VAT tax will increase from 16% to 18% in July, while the special VAT tax, which is applied to services, food production, and art, will rise from 7% to 8%.

Despite these additional revenues, Spain is projecting a budget deficit equal to 8.1% of GDP. This is a moderate improvement from the previous projection of 8.4%, but is well above the 3% limit imposed by the EU for users of the euro currency. The European Commission has given Spain until 2012 to bring its deficit down to the 3% level.

Recently Madrid-based influential real estate market analysts R.R. de Acuña & Asociados released the annual report on the property market in Spain. Releasing the report, Fernando Rodríguez y Rodríguez de Acuña, president of the company said “There are no green shoots around here” describing the state of the Spanish property market.

This is not surprising since Spain’s property markets has been booming to incredible levels until the credit crisis started. The construction sector offered jobs to millions of locals and migrants alike. However in recent months that has changed dramatically. The unemployment rate in second quarter reached to 17.9% more than twice the European average.

Below we provide our unique trading range charts for 21 major country indices. For each index, the light blue shading represents between one standard deviation above and below the 50-day moving average. When the price is within this trading range, it is considered to be in "neutral" territory. The red zone represents between one and two standard deviations above the index's 50-day moving average. Moves into or above the red zone are considered "overbought." Moves into the green zone (more than one standard deviation below the 50-DMA) are considered "oversold."

With the exception of a few Asian countries, most indices shown below are trading into overbought territory. China's Shanghai Composite is the only index trading below its 50-day moving average. Australia, Brazil, South Korea, Taiwan, the UK, and the US look to be the most overbought of the bunch. After trading in perpetual downtrends for nearly all of 2008 and the first few months of 2009, most countries have now been trading in solid uptrends for five months now, with only a brief pullback here and there. Brazil, China, Hong Kong, India, Malaysia, Mexico, Singapore, Sweden, Spain, South Korea, and Taiwan have all taken out their 52-week highs in recent months, while the rest still have a bit further to go.

Below is a list of ETFs hitting (but not necessarily closing at) 52 week highs as of the close on Friday, September 18th. Please note I filtered the screen by requiring the ETFs to have an average volume of at least 50k in order to filter some low volume issues and required they be trading for at least 1 year. There are several ways momentum investors can play a 52 week high, as I've detailed previously on Scott's Investments. In addition, many of the ETFs listed below are foreign ETFs. If the dollar weakness continues, as INO predicts, it will be bullish for many foreign companies and ETFs.

No Disclosures
Data Source: FINVIZ

By Daniel Harrison

There has been surprisingly little discussion this year about the iShares MSCI Spain Index ETF (EWP).

Today we highlight the demographic landscape of Spain, a country we believe will begin to feel the strong headwinds of a downturn in consumer sending from 2012 onwards (peak births 1972 plus 40 years).

The main concern over Spain is the health of its financial system post its vast property bubble. Edward Hugh pointed out strange going ons in his article "More Comedy from the Spanish banking system."

Now to put all this in plain English, we are talking here about the valuation of properties that are repossesed by the banks, and that the banks then have as part of their asset side, as goods awaiting sale. Now, Expansion raises the question: How can we know that these assets are being fairly valued (that is how can we assess the quality of part of the asset side in the bank balance sheet) when the banks themselves own (directly or indirectly) nearly half of the companies doing the valuing?