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Featured Video Are the Markets Oversold? More than $4.4 trillion have been wiped out from equity market values worldwide amid a sell-off that drove the MSCI All-Country World Index down more than 10 percent from this year's high into a so-called correction. What's going on? Watch the video as Marc Faber, publisher of the Gloom, Boom & Doom report, talks about the global financial markets and what he thinks will happen next after the massive sell-off. |
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Dear Readers,
In less than in a few weeks, more than $4.4 trillion was wiped off stock markets around the world. On Thursday, we had the biggest one day decline since October 2008.
The markets, the European crisis, and the political battles are wreaking havoc on our summer vacation.
Adding more fuel to the fire, the S&P just lowered their long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating. Let's not forget, this is the same S&P that gave triple-A ratings to some of Wall Street's riskiest packages of mortgage-backed securities and collateralized debt obligations that infused the crash of 2008.
Could things get any worse?
While I can't sit here and confidently predict day-to-day events given the political climate, I can't say I am surprised at what happened. For months I have been saying the markets are overvalued and that the US is in trouble - both long and short term. Does that mean the markets will continue to freefall?
The simple answer is no - the bottom for this summer drought appears to be forming.
P/E ratios are incredibly low and many stocks have now been battered so badly that even the mediocre ones seem like bargains. This isn't a repeat of 2008. There is tons of liquidity in the system and the economy is nowhere near as bad as 2008. By the end of the year, we will look back at summer and wished we had more cash to buy more stocks.
That doesn't mean you should go out there and dump everything you have into the markets. I continue to like gold, silver, and related stocks - especially over a longer period of time. However, we still don't know what politics and what Europe has in store for us. Will the downgrade make a difference in the markets? Will Bernanke implement QE3? Maybe, maybe not. But if you remember during the debt ceiling debate, I said (see The Next Big Wave) the debt ceiling will be resolved in the eleventh hour, and it was. So while I can't tell you what's going to happen tomorrow, I can tell you confidently what I think will happen before the year is over.
Before I do that, I want to go back to a previous letter I wrote in June, titled, "Time to Feel the Pain." If you already read it, it's worth reading to refresh your memory. If you haven't, I suggest you do so.
In the meantime, here is a brief excerpt:
While there will be bargains, that also means the overall markets may still have further downward pressure. Especially when Federal Reserve Chairman Bernanke looks so defeated.
Last week (June 5, 2011) I said, "With all of the money spent through all of the US' loose fiscal policies, nothing has changed." On Tuesday, Bernanke reiterated those statements causing the markets to fall even further down south.
In his Tuesday speech, he said that seven months after the central bank began a historic round of monetary stimulus, growth in the broader economy has been disappointing. But with the amount of money printed and no real results, Big Ben has planned to stay on course, ending stimulus on schedule this month and keeping monetary policy steady for the immediate future.
Bernanke has finally admitted what we already know. The recovery has fallen short of the central bank's expectations by a number of different measures. Six out of ten leading indicators are bad and the other four appears to be getting worse: Unemployment is high, and anyone who has found work must accept lower wages than they previously earned. Home prices are falling at a newly accelerating rate (see The Greatest War in History), making homeowners more vulnerable to default and foreclosure. Manufacturing is down and oil is trading at levels reminiscent of 2008, when months of record-high fuel prices helped drag the economy into recession (combine that with OPEC's recent objection of raising supply.) All obvious points that I have mentioned in previous letters.
The central bank's ability to boost the economy, or its willingness to attempt to do so, has reached a limit. Or has it? Was the amount of money being spent really used to bolster the economy or was it used to bolster the wallets of the Fed by lending as much money as possible to the world's most powerful nation?
Bernanke has made it clear that there will be no QE3...yet. But before we make any judgements, let's not forget that after QE1, he hinted there wouldn't be a need for QE2.
The truth is, the next QE, be called QE3 or something completely different, will eventually happen. But before it does, America will need to feel the pain. Without pain, there will be no political will.
That was written June 12, 2011. It is now August 7th. We're starting to feel the pain.
America, like it or not, will have to do something drastic to keep things moving. In an exclusive interview with the Wall Street Journal, Donald Kohn and Brian Madigan - the last two directors of the Fed's powerful monetary affairs division - said the Fed should consider a third round of bond purchases only if inflation slows from recent elevated levels and if the economy continues to underperform.
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The signs Kohn and Madigan speak of are here. This recent flash crash has caused the perfect storm for implementing QE3. The economy is underperforming. Inflation is moderating - commodities prices have eased and measures of inflation expectations have retreated a bit recently. The stock market is getting crushed. The US has been downgraded. And investors are fleeing. We're feeling the pain.
While I think the S&P rating on US debt is a complete sham (Moody's and Fitch have maintained US' AAA rating), the markets may think differently. I go back to how ignorant a mob can become. Their panic selling will cause them to lose their shirts but it will also allow those who are calm to seize the opportunities.
I know next week can be scary but I don't think the downgrade will mean much to the market. If you believe in value, taking some more risk during this time could prove very rewarding - as it did for those who purchased stocks after the 2008 crash. I'd be a buyer on dips next week.
"Be fearful when others are greedy, and be greedy when others are fearful" - Warren Buffett
This coming Tuesday, the Federal Open Market Committee will convene and Bernanke will speak. What he says will undoutedbly have an effect on the market, so be prepared. While he may hint at QE3, this may not neccesarily be enough to satisfy the battered and bruised investors. For the most part of August, we still need to be careful.
If next Tuesday fails to provide anything, the focus will quickly shift to August 26 for Bernanke's speech at the Jackson Hole, Wyoming Fed conference. And that's where I expect Bernanke to really pump up the markets, as he did last year with QE2.
If you remember on April 11, 2011, I wrote the letter, "Beware the April Fool":
Bernanke's statements have a major impact on the markets. Earlier in the week, the Dollar rallied simply because he told us that "inflation must be watched extremely closely." Imagine the consequences of an open press briefing.
In his August 27, 2010 speech at the Fed's Economic Symposium in Jackson Hole, Wyoming, Bernanke signalled the possibility of QE2 (Quantitative Easing 2):
"I believe that additional purchases of longer-term securities, should the FOMC choose to undertake them, would be effective in further easing financial conditions,"- Ben Bernanke, Fed Chairman
A couple of months later in November, the central bank announced plans to purchase $600 billion in long-term Treasury securities by the end of June 2011.
The S&P 500 is up more than 25 percent since Bernanke's speech at Jackson Hole.
If historical political events are any indication of what's going to happen, expect Bernanke to hint at QE3 sooner than later. While it may not have as strong of an effect on the market as QE2, it should be more than enough to push the market into another short term rally. This will give us another opportunity to make some money and then begin our own selloff before May 2012.
The market mob has turned every investor into a day trader. If you're not a day trader, don't act like one.
Until next week,
Ivan Lo
Equedia Weekly
Questions?
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Five Things You Need to Know About the Economy
By David Galland, Casey Research
At any point during the recent negotiations in Washington over the debt, did you seriously think for even a second that the U.S. was about to default?
Of course, in time the U.S. government (along with many others) will default. However, they are highly unlikely to do so by decree or even through the sort of legislative inaction recently on display. Rather, it will come about through the time-honored tradition of screwing debtors via the slow-roasting method of monetary inflation.
Yet most people still bought into the latest drama put on by the Congressional Players - a troupe of actors whose skills at pretense and artifice might very well qualify them for gilded trophies at awards banquets. Instead, rather than glittering statuettes, these masters of the thespian arts settle for undeserved honorifics and the pole position at the public trough. Followed by lifelong pensions.
But to the heart of the current matter, do I think that the latest antics out of Washington will have any more lasting effect on the trajectory of the economy than what I had for breakfast this morning (raw oats with a dab of maple syrup, milk, a sprinkling of strawberries, and half of a banana, sliced)?
Absolutely not. Sorry to say, but the trajectory of the economy at this point is well established, and closely resembles that of a meteor streaking through the night sky. What's left of the solid matter of the nation's accumulated private wealth is fast being burned off by an unstoppable inferno of government spending, inevitably leading to an earth-shaking crash.
I make this dire prediction not out of an aberrant psychology (I hope), or in an outburst of self-promotion for Casey Research because the big-picture scenario we have so long warned of is unfolding according to script, but rather due to certain fundamental truths about our current situation.
And that brings me to the five things you need to know about the U.S. economy (much of which also applies to the other large developed nations)...
1. The U.S. remains in the grip of a debt-induced depression. While personal levels of debt have eased somewhat since the crash, most of the improvements have come at the expense of debt repudiation, and are offset by the steep decline in housing prices that have left something like 50% of mortgages underwater. Meanwhile the debt on the balance sheets of the U.S. government and the country's largest financial institutions remain at record highs - and much of that debt is toxic.
So, what's the one thing that the heavily indebted - individual or institution - most fears? Answer: Rising interest rates.
2. Interest rates can't stay low. Despite the debt, interest rates remain near historic lows - which is to say, well below the norm. At some point they have to at least revert to the mean, which would push the 10-year treasury rate north of 5% from current rates below 3%. But in reality, the levels of monetary inflation, the nature of the debt, and mind-numbing scale of the government's other financial obligations - in total upwards of $70 trillion - all but guarantee that interest rates must go much higher than 5%. That in turn torpedoes the half-sunk real estate market and risks kicking off a debt death spiral as higher interest payments suck the financial juice out of the economy and causes debtors to demand even higher rates. Say hello to Doug Casey's Great Depression.
The last time the U.S. economy found itself in such dire straits was back in the 1970s, when the problem was raging price inflation. Back then, though, the debt levels were considerably lower than they are now. Then, Fed Chairman Paul Volcker had the latitude to raise rates and by so doing helped to choke out inflation. By contrast, today the Fed is virtually helpless. Rates certainly can't be pushed lower by any appreciable amount, and the Fed sure as hell doesn't want them to go up. While the Fed has been a primary factor in controlling interest rates up to this point in the crisis, in the near future the direction of interest rates - particularly long-term rates - will increasingly be determined by skittish market participants. Specifically, the sovereign and institutional buyers whom the U.S. Treasury so desperately needs to keep showing up at their auctions.
To use a metaphor, the situation today is akin to a bunch of gunfighters facing off in a dusty street, hands poised over their six-shooters, eyes nervously shifting this way and that - to the eurozone, to the housing markets, to the situation in Japan, to the U.S. government spending, to the crumbling balance sheets of the banks, to the Fed. Everyone is anxiously watching, waiting for someone else to start making the first move. The standoff can't last - and when the lead starts flying, there will be few places to hide.
3. There is no non-disruptive way to resolve the debt. I can't stress this point enough. Simply, there is no magic wand that can be waved in order to make the debt go away. In order for this crisis to end, someone's ox has to be gored, and gored badly.
Yet, because we live in a democracy, where any politician wanting to be re-elected has to cater to their constituency - and politicians make their careers by being re-elected - it is considered business as usual for the denizens of Washington to hand out bread and put on circuses. It is this situation that has brought us to this place in the first place.
But it is the flip side of that equation that provides a clear signal as to where things are headed. Namely that politicians will jump through every possible hoop in order to avoid making politically unpopular decisions - even if they know that failing to act will have serious and lasting negative consequences for the nation. The trick is to make sure that those consequences only become acute during the next guy's watch.
The key point is...
Click Here to Continue Reading
More Casey Research Articles
> Compromise, D.C.-Style
> U.S. Debt: Has its Past Become its Future?
> Glow at the End of the Tunnel
> The Buzz Around Gold is Growing Louder
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A Relative Price Strength Screen for All Markets
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With the market going down over the last few weeks, Kevin has been screening for stocks that are actually going up or at least not going down as much as the market.
Think about it: If somebody were to ask you what your best stocks are, your best stocks would be the ones moving up and your worst ones are the ones moving down. Stocks moving higher have a tendency of moving even higher.
And the stocks Zack's analyst Kevin Matras ha been looking at recently are indeed the ones moving higher. Or at the very least, stocks with a relative price strength better than the market.
Watch the video as Kevin Matras goes over a Relative Price Change screen to help you find top performers no matter what the market is doing.
More Zacks Videos:
> Debt Deal Emerges as Outlook Sinks > Value Stock Picks - August 1, 2011 > Aggressive Growth Stock Picks - August 2, 2011 > Momentum Stock Picks - August 3, 2011 > Growth & Income Stock Picks - August 4, 2011 > Bull & Bear of the Week - August 4, 2011 |
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Technical Trading with Harry Boxer
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Harry has more than 40 years of Wall Street investment and technical analysis experience, including eight years on Wall Street as chief technical analyst with three brokerage firms. Watch the video as he walks you through his technical analysis on a whole bunch of stocks he thinks you should be watching from last week. To see more videos, Click Here.
Like his analysis?
Click Here to receive a Free 15-Day Trial to Harry Boxer's Real-Time Technical Trading Diary for Equedia members. |
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Upload Your Own Videos - Embed Videos
Is there a video on Youtube or another website that you want to post without uploading it through our technology?
With our new Embed feature enabled, you can now upload and embed any object or video into your blog post. Many of our users are already embedding videos from Fox, Youtube, and CNBC and sharing them with our users.
Embedding is simple. Just copy and paste the embed codes from another website ino the main blog section of your post (not the exceprt).
Where do you find these embed codes?
Embed codes for videos are usually right beside a video.
Here is an example of where the code is on Youtube, highlighted in yellow:
So share what you find with everyone! To learn more, feel free to email or call us at 1-888-EQUEDIA
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Equedia Tips - The Markets Tab
Using the search function at the top right corner of the website, search for any company. Let's use Research in Motion as an example. Once you reach their profile page, click on the MARKETS TAB. You should now see 12 seperate tabs underneath their logo. Try clicking on them and you will find in-depth information such as:
Detailed Quotes - Depth/Level II - Options - Java Charts - News - Profile - Financials - Insiders trades - Filings - Analyst Consensus - Earnings - Historical Data (Highs/Lows, Volumes, Closing/Opening Prices)
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Additional Features (you may not know)
Equedia has many features (you may have overlooked) that will help you manage your investment life and ensure a more enjoyable and useful experience.
Here are just a few of them:
Calendar subscriptions: Keep track of your business events, subscribe to other events, and have access to your online calendar from anywhere in the world. In the near future, we will be working with public companies to add their events to the calendar so that shareholders will never miss an important event again. So call your companies and get them to participate!
Tagging companies to videos and images: Did you know that all of your videos and images can be tagged to public companies? Do you have a video about Google? How about a blog with an image? How about just a blog? Tag it to Google in your blog post, so that anyone searching for Google's quotes and finances can find your coverage!
Buy, Sell, and Hold Ratings: Once you log in, you can submit your buy, sell and hold ratings on the ratings tab so that other shareholders can see what YOU think. You may also access your associates' ratings and see what they think of the shares you hold.
Blog feed subscriptions: Once you add someone as an associate, you will have access to all of their blog posts through your blog feeds. Simply go to your "blog feeds" tab once you log in!
Search function: By far one of the most overlooked but important functions on Equedia. Using the top right hand corner search function, you can find and add any corporations, media users, or investors to your network.
Markets Tab: Under any corporate profile, you will find this tab. Under this tab, you can find the company's news, level 2 depth (delayed), options, charts, profile, financials, insider trades, filings, analyst overviews, earnings, and historical data (these may not be available for all companies)
There are many more useful features on Equedia.com but we think its better if you experience them for yourself. The more associates you have, the more useful Equedia will become for you. So use the new "invite my contacts" function and get started!
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Forward-Looking Statements
Except for the statements of historical fact, the information contained herein is of a forward-looking nature. Such forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of the Company to be materially different from any future results, performance or achievements expressed or implied by statements containing forward-looking information.
Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that statements containing forward looking information will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on statements containing forward looking information. Readers should review the risk factors set out in the Company's prospectus and the documents incorporated by reference.
Cautionary Note to U.S. Investors Concerning Estimates of Inferred Resources
This presentation uses the term "Inferred Resources". U.S. investors are advised that while this term is recognized and required by Canadian regulations, the Securities and Exchange Commission does not recognize it. "Inferred Resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of "Inferred Resources" may not form the basis of feasibility or other economic studies. U.S. investors are also cautioned not to assume that all or any part of an "Inferred Mineral Resource" exists, or is economically or legally mineable.
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This Week's Most Wanted
The Stock Market's Most Interesting Videos That You Should Watch
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 Companies Under Evaluation This Past Week
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Rants and Raves
Inside the mind of Equedia's editor - unrated, uncut, and unedited
I hate politics. Yet, they are a neccessary evil.
We have an American company giving its own country a downgrade, which in my opinion, is all in the name of politics.
The Republicans want Obama to be the first President to receive a downgrade - they succeeded. Now what?
At the very least, commodities and oil prices took a dive, which should hamper inflation slightly - just slightly enough to allow QE3 to flourish.
As we feel the pain and commodity prices ease, it allows the Fed to implement QE3 without as much backlash if this flash crash didn't happen. Like I said before, we need to feel the pain before anything will be done. The question is, how much pain is too much pain?
Here is the downgrade report: CLICK HERE
If investors are smart, they would realise that this is the same company that gave AAA ratings, the highest rating, to some of the riskiest packages of mortgage-backed securities and collateralized debt obligations. The same ones that helped infuse the 2008 market meltdown.
Moody's and Fitch maintained their AAA ratings for the US. Are investors going to panic? Or do they give a flying crap about a company who couldn't do its job in the first place?
At the end of the day, these schemes are all controlled by the same bankers that took over the US in the first place. When you think about, it is perfectly orchestrated. The number one nation in the world now owes the bankers more money than ever. The perfect storm.
Those who think gold is a farce should take one look at where gold prices are and where the trend continues to head. They laughed at $1000 gold. Are they still laughing?
The world is de-leveraging and it will take years to rebuild a system that took a few minutes to collapse. Currencies are what they are - fake money used and employed by the bankers who truly control the world. Nothing we can do.
I know this. It doesn't matter. Use it to your advantage.
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