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Global Markets

A Bubble in Complacency – John Mauldin

By John Mauldin | January 29, 2011

In this issue:
The Recent GDP Numbers – A Real Statistical Recovery
Consumer Spending Rose? Where Was the Income?
A Bubble in Complacency
Egypt
Rosie, Las Vegas, Phuket, and Bangkok

This week I had the privilege of being on the same panel with former Comptroller General David Walker and former Majority Leader (and presidential candidate) Richard Gephardt. A Democrat to the left of me and a self-declared nonpartisan to the right, stuck in the middle and not knowing where the unrehearsed conversation would take us. As it turned out, to a very interesting conclusion, which is the topic of this week’s letter. By way of introduction to those not familiar with them, David M. Walker (born 1951) served as United States Comptroller General from 1998 to 2008, and is now the Founder and CEO of the Comeback America Initiative. Gephardt served in Congress for 28 years, was House Majority Leader from 1989 to 1995 and Minority Leader from 1995 to 2003, running for president in 1988 and 2004.

Some housekeeping first. We have posted my recent conversation with George Friedman on the Conversations with John Mauldin web site. And on Saturday we will post the Conversation and transcript I just did with David Rosenberg and Lacy Hunt, which I think is one of the more interesting (and informative!) ones I have done. You can learn more about how to get your copy and the rest of the year’s Conversations (I have some really powerful ones lined up) by going to www.johnmauldin.com/conversations. Use the code “conv” to get a discount to $149 from the regular price of $199. (If you recently subscribed at $199 we will extend your subscription proportionately. Fair is fair.)

And go to www.johnmauldin.com to contribute comments on this letter. I do read them!

The Recent GDP Numbers – A Real Statistical Recovery

Now, before we get into our panel discussion (and the meeting afterward), let me comment on the GDP number that came in yesterday. This is what Moody’s Analytics told us:

“Real GDP grew 3.2% at an annualized pace in the fourth quarter of 2010. This was below the consensus estimate for 3.6% growth and was an improvement from the 2.6% pace in the third quarter. Private inventories were an enormous drag on growth, subtracting 3.7 percentage points; this bodes very well for the near-term outlook and means that current demand is very strong. Consumer spending, investment and trade were all positives for growth in the fourth quarter; government was a slight negative. The economy will see very strong growth in 2011 as the tax and spending deal passed in December stimulates demand and the labor market picks up, creating a self-sustaining expansion.”

[Read more…]

First, Let’s Lower the Bar – John Mauldin’s Weekly E-Letter

Thoughts from the Frontline Weekly Newsletter

First, Let’s Lower the Bar

by John Mauldin
November 12, 2010
Visit John's Home Page
In this issue:
Health-Care Realities
The Chinese Renminbi is Going Down, Not Up
First, Let’s Lower the Bar
They Need to Borrow How Much? Really?
Irish Eyes Are Not Smiling
La Jolla, New York and a Forbes Cruise
China’s currency is rising ever so slowly against the dollar. But is that hurting China? We will look at a very interesting chart and some research. And then we’ll gain some more insight into why the employment numbers seemed to surprise. I guess if you lower the bar, it’s easier to jump over. I also deal with the pushback from last week’s Outside the Box! And Ireland is on my radar. There is a lot to cover, so let’s jump in.

I start this week’s letter on a flight from Cleveland (where I was at the Cleveland Clinic meeting with my good friend and doctor Mike Roizen (of Oprah and the various “YOU” books with Mehmet Oz) on some non-health-related business, and we talked last night about the state of health care. Mike keeps pointing out that much of our health-care cost comes from chronic diseases that are either directly or partially lifestyle choices. And he is right. The data shows it. Smoking, overeating, lack of exercise – all contribute to our health-care bills. And health care was on my mind.

Now, a little mea culpa. I get letters from readers who start their missive out with something like, “I know you probably won’t read this, but…” Well, I can’t say I read every letter, but someone does and I get and read as many as I can. And my rule is that I get all the negative ones, and any letters that show particular thoughtfulness and give me suggested reading or just good suggestions. I do pay attention to you. It takes some time, I admit, but I think it is important.

And the feedback I got on last week’s Outside the Box on health care was definitely running much more on the negative side. And as it turns out, for good reason. There were just simply some factual errors in the piece that made it more partisan than it sounded when I first read it. And many readers justifiably took me to task for that. [Read more…]

Robert Prechter: Investing in Extreme Markets – Video (Part 3)

Video (Part 3): Prechter – Investing in Extreme Markets

(Note: This interview was originally recorded on September 20, 2010)

In the video below, Robert Prechter talks to Yahoo! Finance Tech Ticker host Aaron Task and Henry Blodget about a technical pattern he sees forming in the Dow.


Get Up to Speed on Robert Prechter’s Latest Perspective — Download this Special FREE Report Now.

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

iShares Brazil ETF – EWZ – Let the carnival begin!

Here’s a market that we like a lot more than the US market. It looks set to take out the highs that were seen in December of 2009. If that’s the case, we could see this market make all-time highs quickly. You definitely want to have the iShares Brazil ETF on your radar screen.

In this new short video, I show you what I’m looking at and how we showcased this market last week when we did our last webinar. This webinar is set to be rebroadcast on Friday, September 24th at 5pm EST/9pm GMT.

This market is still looking good and looking strong. Pay very close to it this Friday because if it closes well, it should bode well for the following week.

Learn the Basics of Elliott Wave Analysis – Free Tutorial

June 28, 2010

By Elliott Wave International

Ralph Nelson Elliott discovered the Wave Principle in the 1930s. Over the decades, his discovery was kept alive by a handful of individuals. A few of those, such as Bolton, Prechter and Frost, educated investors on how to use pattern analysis in financial markets.

To help out Elliott Wave International’s readers in learning the basics of the method, we put together a free 10-lesson online tutorial. Here’s an excerpt. To get it in full, look for details below.

EWI’s Basic Elliott Wave Tutorial
Lesson 1, excerpt

At that time [of his discovery], with the Dow in the 100s, R. N. Elliott predicted a great bull market for the next several decades that would exceed all expectations at a time when most investors felt it impossible that the Dow could even better its 1929 peak. As we shall see, phenomenal stock market forecasts, some of pinpoint accuracy years in advance, have accompanied the history of the application of the Elliott Wave approach.

Under the Wave Principle, every market decision is both produced by meaningful information and produces meaningful information. Each transaction, while at once an effect, enters the fabric of the market and, by communicating transactional data to investors, joins the chain of causes of others’ behavior. This feedback loop is governed by man’s social nature, and since he has such a nature, the process generates forms. As the forms are repetitive, they have predictive value.

The market…is not propelled by the linear causality to which one becomes accustomed in the everyday experiences of life. Nor is the market the cyclically rhythmic machine that some declare it to be. Nevertheless, its movement reflects a structured formal progression. In markets, progress ultimately takes the form of five waves of a specific structure.

Three of these waves, which are labeled 1, 3 and 5, actually effect the directional movement. They are separated by two countertrend interruptions, which are labeled 2 and 4, as shown in Figure 1-1. The two interruptions are apparently a requisite for overall directional movement to occur.

At any time, the market may be identified as being somewhere in the basic five wave pattern at the largest degree of trend.

Read the rest of this 10-lesson Tutorial and see multiple charts now, free! All you need is to create a free Club EWI profile.

Read the rest of this 10-lesson Basic Elliott Wave Tutorial online now, free! Here’s what you’ll learn:

  • What the basic Elliott wave progression looks like
  • Difference between impulsive and corrective waves
  • How to estimate the length of waves
  • How Fibonacci numbers fit into wave analysis
  • Practical application tips for the method
  • More

Keep reading this free tutorial today.

This article, Learn Basics of Elliott Wave Analysis, was syndicated by Elliott Wave International. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Understanding the Fed: Free 34-page eBook now available

Our friends at Elliott Wave International have just released a free 34-page eBook, Understanding the Fed. It’s the free report the Federal Reserve doesn’t want you to read!

This eye-opening free report, which represents more than 10 years of research by Robert Prechter, goes beyond the Fed’s history and government mandate; it digs into the Fed’s real motivations for being the United States’ “lender of last resort.” In this 34-page report, you’ll discover how the Fed’s actions, combined with public outrage, may ultimately lead to its demise, plus much more about its secret activities and how it affects your money.

Download your free copy of EWI’s Understanding the Fed eBook, here.

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

Dow’s Winning Streak Screeches to a Halt

by Javier C. Hernandez

The Dow Jones industrial average was stopped in its tracks on Friday as it tried for a ninth consecutive session of gains, a feat last achieved in 1996.

A sharp drop in the price of oil weighed on shares of energy companies, and by day’s end, stocks were firmly in negative territory.

The market was hurt as the price of oil retreated nearly 2 percent, briefly dipping below $80 a barrel. That bolstered the appeal of the dollar, which strengthened against the euro and the British pound amid concerns about unwieldy deficits in Europe.

Despite the losses, the Dow ended the week 1.1 percent higher. On Friday, it fell 37.19 points, or 0.35 percent, to 10,741.98. The Standard & Poor’s 500-stock index fell 5.93 points, or 0.51 percent, to 1,159.90. It was 0.85 percent higher for the week.

The Nasdaq fell 16.87 points, or 0.71 percent, to 2,374.41, posting a 0.28 percent gain for the week. It was held back by the smartphone maker Palm, which fell more than 29 percent after offering a disappointing revenue forecast.

A decision by the central bank of India to raise interest rates for the first time in nearly two years brought jitters to the world’s equity markets. Analysts worry that the announcement could encourage other high-growth countries to follow suit as concerns about inflation grow. But investors bristled at the prospect of higher rates, which make lending more expensive and can hurt profit.

Currency markets were in flux on Friday amid lingering uncertainty about Greece, which is grappling with a wide budget deficit as deadlines for debt payments loom. No clear resolution has emerged for the nation, with Germany recently backing off its support of a European-led rescue package. Europe’s wealthier countries are now looking to the International Monetary Fund for help.

Germany’s words exposed new fissures in the effort to ward off a crisis for the Continent and its monetary union.

“It does not look like Europe has a united face to deal with the Greece situation,” said Marc Chandler, the global head of currency strategy at Brown Brothers Harriman.

The pound also weakened, falling more than 1 percent against the dollar, as an official at the Bank of England raised the possibility that the British economy could fall into another downturn. Andrew Sentance, a member of the monetary policy committee, told CNBC, “There is some risk of a double-dip recession but it is not the central forecast.”

Investors also remain concerned that looming elections could result in a fractured Parliament that would be unable to tackle Britain’s deficit problems.

The dollar benefited from those concerns, strengthening against most world currencies. Mr. Chandler said a consensus was emerging that the Federal Reserve would soon move to raise the rate it charged banks on short-term loans, known as the discount rate.

Interest rates were steady. The Treasury’s 10-year note fell 4/32, to 99 14/32, and the yield rose to 3.69 percent, from 3.68 percent late Thursday.

The stock market’s movements were clouded on Friday because of “quadruple witching,” the expiration of futures and options for stocks and stock indexes.

Despite Friday’s losses, investors said they thought some optimism had returned to the market. Economic data has been largely positive lately, and traders are expecting first-quarter earnings to show strong revenue growth. Many also say they think a government report on the labor market to be released next month will show that the economy created jobs in March.

“Investors are starting to get their confidence back, starting to get their feet back underneath them,” said M. Jake Dollarhide, chief executive of Longbow Asset Management.

But recent gains for the market have been small, and trading has been light on some of the most enthusiastic days, raising doubts about the durability of an upward turn.

“It’s a very tenuous, nervous time for Americans,” Mr. Dollarhide added.

New York Times

What Does NOT Move Markets? Examining 8 Claims of Market Efficiency

How a 3-in-1 chart formation in cotton foresaw the January selloff

By Susan Walker

If everyone says that shocks from outside the financial system — so-called exogenous shocks — can affect it for better or worse, they must be right.

It just sounds so darned logical, right? Economists believe this trope to be true, mainly because they believe that investors are rational thinkers who re-evaluate their positions after every new bit of relevant information turns up.

Beginning to sound slightly impossible? Well, yes.

It turns out that logic is exactly what’s missing from this it-feels-so-right idea of rational reaction to exogenous shocks. Read an excerpt from Robert Prechter’s February 2010 Elliott Wave Theorist to see how Prechter deals with this widely held belief.

Find out what really moves markets — download the free 118-page Independent Investor eBook. The Independent Investor eBook shows you exactly what moves markets and what doesn’t. You might be surprised to discover it’s not the Fed or “surprise” news events. Learn more, and download your free ebook here.

* * * * *

Excerpted from Prechter’s February 2010 Elliott Wave Theorist, published Feb. 19, 2010

The Efficient Market Hypothesis (EMH) argues that as new information enters the marketplace, investors revalue stocks accordingly. … In such a world, the market would fluctuate narrowly around equilibrium as minor bits of news about individual companies mostly canceled each other out. Then important events, which would affect the valuation of the market as a whole, would serve as “shocks” causing investors to adjust prices to a new level, reflecting that new information. One would see these reactions in real time, and investigators of market history would face no difficulties in identifying precisely what new information caused the change in prices. …

This is a simple idea and simple to test. But almost no one ever bothers to test it. According to the mindset of conventional economists, no one needs to test it; it just feels right; it must be right. It’s the only model anyone can think of. But socionomists [those who use the Wave Principle to make social predictions] have tested this idea multiple ways. And the result is not pretty for the theories that rely upon it.

The tests that we will examine are not rigorous or statistical. Our time and resources are limited. But in refuting a theory, extreme rigor is unnecessary. If someone says, “All leaves are green,” all one need do is show him a red one to refute the claim. I hope when we are done with our brief survey, you will see that the ubiquitous claim we challenge is more akin to economists saying “All leaves are made of iron.” We will be unable to find a single example from nature that fits.

* * *

In his February 2010 Elliott Wave Theorist, Prechter then goes on to show charts that examine each of these claims that encompass both economic and political events:

Claim #1: “Interest rates drive stock prices.”
Claim #2: “Rising oil prices are bearish for stocks.”
Claim #3: “An expanding trade deficit is bad for a nation’s economy and therefore bearish for stock prices.”
Claim #4: “Earnings drive stock prices.”
Claim #5: “GDP drives stock prices.”
Claim #6: “Wars are bullish/bearish for stock prices.”
Claim #7: “Peace is bullish for stocks.”
Claim #8: “Terrorist attacks would cause the stock market to drop.”

To protect your personal finances, it’s important to think independently from the crowd, particularly when the crowd buys into what economists say.

Find out what really moves markets — download the free 118-page Independent Investor eBook. The Independent Investor eBook shows you exactly what moves markets and what doesn’t. You might be surprised to discover it’s not the Fed or “surprise” news events. Learn more, and download your free ebook here.


Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company.

Surviving Deflation: First, Understand It

Deflation is more than just “falling prices.” Robert Prechter explains why.

By Editorial Staff
The following article is an excerpt from Elliott Wave International’s free Club EWI resource, “The Guide to Understanding Deflation. Robert Prechter’s Most Important Writings on Deflation.”

The Primary Precondition of Deflation
Deflation requires a precondition: a major societal buildup in the extension of credit. Bank credit and Elliott wave expert Hamilton Bolton, in a 1957 letter, summarized his observations this way: “In reading a history of major depressions in the U.S. from 1830 on, I was impressed with the following: (a) All were set off by a deflation of excess credit. This was the one factor in common.”

“The Fed Will Stop Deflation”
I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let’s try one.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To everyone’s delight, it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy. Sales again slow, so it lowers the price to $900 each. People return to the stores to buy two or three, or half a dozen. Why not? Look how cheap they are! Buyers give Jaguars to their kids and park an extra one on the lawn. Finally, the country is awash in Jaguars. Alas, sales slow again, and the government panics. It must move more Jaguars, or, according to its theory — ironically now made fact — the economy will recede. People are working three days a week just to pay their taxes so the government can keep producing more Jaguars. If Jaguars stop moving, the economy will stop. So the government begins giving Jaguars away. A few more cars move out of the showrooms, but then it ends. Nobody wants any more Jaguars. They don’t care if they’re free. They can’t find a use for them. Production of Jaguars ceases. It takes years to work through the overhanging supply of Jaguars. Tax collections collapse, the factories close, and unemployment soars. The economy is wrecked. People can’t afford to buy gasoline, so many of the Jaguars rust away to worthlessness. The number of Jaguars — at best — returns to the level it was before the program began.

The same thing can happen with credit.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing credit and providing it to as many people as possible. To facilitate that goal, it begins operating credit-production plants all over the country, called Federal Reserve Banks. To everyone’s delight, these banks offer the credit for sale at below market rates. People flock to the banks and buy. Later, sales slow down, so the banks cut the price again. More people rush in and buy. Sales again slow, so they lower the price to one percent. People return to the banks to buy even more credit. Why not? Look how cheap it is! Borrowers use credit to buy houses, boats and an extra Jaguar to park out on the lawn. Finally, the country is awash in credit. Alas, sales slow again, and the banks panic. They must move more credit, or, according to its theory — ironically now made fact — the economy will recede. People are working three days a week just to pay the interest on their debt to the banks so the banks can keep offering more credit. If credit stops moving, the economy will stop. So the banks begin giving credit away, at zero percent interest. A few more loans move through the tellers’ windows, but then it ends. Nobody wants any more credit. They don’t care if it’s free. They can’t find a use for it. Production of credit ceases. It takes years to work through the overhanging supply of credit. Interest payments collapse, banks close, and unemployment soars. The economy is wrecked. People can’t afford to pay interest on their debts, so many bonds deteriorate to worthlessness. The value of credit — at best — returns to the level it was before the program began.

Jaguars, anyone?

Read the rest of this important 63-page deflation study now, free! Here’s what you’ll learn:What Triggers the Change to Deflation

  • Why Deflationary Crashes and Depressions Go Together
  • Financial Values Can Disappear
  • Deflation is a Global Story
  • What Makes Deflation Likely Today?
  • How Big a Deflation?
  • More

Elliott Wave International (EWI) is the world’s largest market forecasting firm. EWI’s 20-plus analysts provide around-the-clock forecasts of every major market in the world via the internet and proprietary web systems like Reuters and Bloomberg. EWI’s educational services include conferences, workshops, webinars, video tapes, special reports, books and one of the internet’s richest free content programs, Club EWI.

More Credit Default Swaps Means Trouble for European Debt

By Editorial Staff
Government debt is no longer just a problem for emerging countries. Portugal, Spain, France and Greece (as we have seen in recent weeks) are living in fear of credit default. Consequently, the value of their credit default swaps is skyrocketing.

The following is an excerpt from the February issue of Global Market Perspective. For a limited time, you can visit Elliott Wave International to download the rest of the 100+ page issue free.

High levels of global debt are both financially debilitating and deflationary because they commit scarce cash to servicing interest payments. Up until now, most sovereign credit defaults occurred in emerging-market countries, such as Argentina and Russia. The deflationary tide, however, is starting to lap up against more developed Eurozone economies.

The chart shows the value of credit default swaps — an instrument similar to an insurance contract that pays holders (if they are lucky) in the event of default — for Greece, Portugal, Spain and France. In recent weeks these contracts have soared, with credit-default swaps on Greece’s and Portugal’s debt already surpassing the January-March 2009 extremes established in the latter part of Primary degree 1 down.

Government Debt Troubles

Obviously, the market is growing more skeptical that Greece can pay its debts, so the cost of protecting against default is rising fast. Greece’s budget deficit is 12.7% of gross domestic product, and Portugal faces a budget shortfall that’s more than twice the European Union’s limit. Traders are now buying default protection on sovereign debt at a rate of more than five times that of specific company bonds. “Greece’s neighbors would ‘step in’ to prevent a debt default to avoid ‘a problem for the whole of Europe,’” a Tokyo-based bondsalesman says. Maybe so, but who will step in to bail out Portugal, Spain, the next sovereign default or the one thereafter?

The world is running out of money to service its mounting debts, and this chart simply depicts the front edge of the next great wave of credit contraction, which will sweep into more established countries throughout Europe and eventually to the United States.

Read the rest of this issue now free! You’ll get 100+ pages of insights about:

  • World Stock Markets
  • Global Interest Rates
  • International Currency Relationships
  • Metals and Energy
  • Social Trends and Observations
  • More

Visit Elliott Wave International to download your free 100+ page issue.


Elliott Wave International (EWI) is the world’s largest market forecasting firm. EWI’s 20-plus analysts provide around-the-clock forecasts of every major market in the world via the internet and proprietary web systems like Reuters and Bloomberg. EWI’s educational services include conferences, workshops, webinars, video tapes, special reports, books and one of the internet’s richest free content programs, Club EWI.