US Recession, Broadening Stock Market Top and the Commodities Boom
News_Letter / Financial Markets Jan 13, 2008 - 01:04 PM GMTBy: Nadeem_Walayat
The Stock Markets continued last weeks weakness on the back of further bad news in the financial sector as Merrill Lynch doubled its exposure to bad debts to $15 billion, and we may again see a doubling later in 2008.
The US Housing market continued to weaken as the monthly number of Adjustable Rate Mortgages (ARMs) resets continues to expans and not expected to peak until March/April 2008, with further indications of increasing defaults amongst prime mortgages occuring, therefore 2008 could be remembered for the meltdown in the prime mortgage market as 2007 was remembered for the sub-prime meltdown. Therefore confirming expectations of a weak stock market during the first half of 2008.
The Stock Markets continued last weeks weakness on the back of further bad news in the financial sector as Merrill Lynch doubled its exposure to bad debts to $15 billion, and we may again see a doubling later in 2008. The US Housing market continued to weaken as the monthly number of Adjustable Rate Mortgages (ARMs) resets continues to expans and not expected to peak until March/April 2008, with further indications of increasing defaults amongst prime mortgages occuring, therefore 2008 could be remembered for the meltdown in the prime mortgage market as 2007 was remembered for the sub-prime meltdown. Therefore confirming expectations of a weak stock market during the first half of 2008. The amount of write downs to date in the financial and banking sector of approx $70billion may only be as little as 10% of the total eventual write down, therefore expect much more pressure in the sector, and thus little easing in the interbank market which is increasingly pushing western economies and especially the USA towards recession. Countering this trend we have the continuing robust growth in the asian emerging markets that looks set to continue during 2008. In the UK, Northern Rock Bank continues to move towards nationalisation as the government recruits Ron Sandler as the provisional chairman. Confidence in the bank and the sector is not helped by news that senior staff are receiving secret bonuses of up to £100,000 a year despite the banks near collapse and a new blackhole in the companies pension funds. The question investors should be asking, who will be the next Northern Rock? Gold hit $900 this week, the run up from $800 has been spectacular with much speculation suggesting that the next stop is $1000. However on a technical front $920 could prove to be significant resistance and therefore signal a correction lower rather than an immediate assault on $1000. The US Election primaries roller coaster ended the week with Hillary Clinton as the clear leader for the democrat nomination, and John McCain the current republican front runner, though that could change on Super Tuesday 5th Feb., when 22 states vote. Usually run ups to November elections during the second half of the year tend to be bullish for stock markets. This weeks treat is from EWl's Chief Market Analyst Steven Hochberg who debunks some of the most widely held market myths and answers some of today's toughest questions for traders and investors, including:
Nadeem Walayat,
By: Elliot_H_Gue Natural gas prices have been on a roll in the past few weeks, with the 12-month New York Mercantile Exchange (NYMEX) strip rising to about $8.50 per million British thermal units (MMBtu) this morning, up more than $1 dollar off recent lows. As I discussed in a post on At These Levels yesterday, the NYMEX strip is the most relevant measure of natural gas prices in the US. On NYMEX, gas futures contracts trade with expirations every month. Prices vary wildly from month to month because of seasonality, expectations of future supply shortages or gluts, and the cost of gas storage, among other factors.
By: Tim_Wood In spite of its criticisms, the Dow theory is once again proving correct. The one thing that the advance up out of the 2002 low has proven is that the single most important aspect of Dow theory is the concept of joint price confirmation above and below previous secondary high and low points. Basically, nothing else matters. In accordance with this basic concept, the primary trend first turned bullish on June 4, 2003. As the market advanced in the wake of mountains of liquidity the values did not make sense. Also, when looking at the phasing aspect of Dow theory it appeared that the rally out of the 2002 low was a giant secondary reaction and counter-trend advance.
By: John_Mauldin In this issue:
By: Money_and_Markets Sean Brodrick writes: Recently, I told you that I expected oil prices could spike to $150 per barrel in 2008. But, if anything, that target might be too low! In fact, the head of the International Energy Agency just said that demand growth just from China and India alone could cause prices to rise to $150 per barrel. So imagine what other factors such as geopolitical disruptions would do to prices! Indeed, the fastest-growing bet in the oil market these days is that the price of crude will double to $200 a barrel by the end of this year.
By: Jim_Willie_CB Unproductive Assets, Wasted Productivity The US system has been the dog led by the financial sector tail, as the tail wags the dog, for over two decades. Systematically, the United States has abandoned manufacturing in favor of financial sector dominance with futile attempts to manage inflation, and money changers pushing to foreign lands the capacity that actually makes things and adds value. Such is the painful costly consequence of chronic monetary inflation. Unfortunately, the nation has invested heavily for decades in unproductive assets like military hardware and recently homes. The entire US Economy was made heavily dependent upon the housing boom and mortgage finance craze. Now that a housing crisis and mortgage debacle seems a nightmare without end, we are treated to utterly moronic opinions that the US Economy will glide through the storm. It will not.
By: Bob_Bronson Despite permabull hype, as reflected especially by many of Larry Kudlow's guests on CNBC, the second revision in 3Q GDP neither obviated nor postponed the persistently developing -- and very predictable -- recession. Our stock market and economic cycle template, or SMECT model clearly illustrates the "perfect storm" of several business and economic cycles contracting simultaneously and suggesting, well in advance, that the oncoming recession will be more severe than average
By: Hans_Wagner The beginning of a new year is a good time to make a new assessment of the important investment drivers and themes for the year. If you want to beat the market it is important to understand what is driving the markets and where are the best sectors to find good opportunities. By identifying these factors you will have a solid framework to assess the impact market movements and news events on your investment strategy. This is the first of a five part series on the outlook for the 2008 markets. The first part will discuss the key drivers ending with a mention of what sectors will benefit and those that will be hurt.
By: Donald_W_Dony Much has been written recently about the current market conditions. Many research reports maintain the concept that new highs in the equity markets can be anticipated in the near future. Yet month after month, fundamental and technical evidence continues to build a picture of a cooling U.S. economy and the fledgling start of a mild recession. One of the earliest indicators of mounting economic weakness came from one of the most reliable indicators; the banks.
By: John_Mauldin This week in Outside the Box John Hussman of The Hussman Funds strives to shed light upon the tumultuous and perplexing state that is the stock market. Having metaphorically, as in the Greek tale, driven by curiosity, opened Pandora's Jar (Box) of financial fantasy and unleashed the evil that has come to pass in the guise of subprime, all that remained was hope. Hussman intertwines hope with caution as we venture into the new year.
By: Brent_Harmes What lies dead ahead for our economy.- The main stream press is finally waking up to the economic realities that are starting to affect us here and now. The January 7, 2008 Forbes magazine has an article by Ernest Zedillo, (former President of Mexico and current Director of The Yale Center for the study of Globalization) titled, 2008: Year of Reckoning . This article is written by a very studied and intelligent man that has seen first hand the effects of currency and borrowing problems. He sees major problems dead ahead for the global economy and I think he absolutely hits the nail on the head with his analysis. Here are a few quotes from that article along with my comments:
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