12 Dr. Dooms shred 2010 investing optimism - MarketWatch

12 Dr. Dooms shred 2010 investing optimism - MarketWatch: "

Optimist? Or pessimist? Test your 2010 strategy!

12 'Dr. Dooms' warn Wall Street's optimism misleads, will trigger new crash

By Paul B. Farrell, MarketWatch

ARROYO GRANDE, Calif. (MarketWatch) -- Test time: A neuroeconomic peek inside your brain's new strategy as we enter the 'Doomsday Decade' and leave behind the 'Lost Decade' ('lost' because the Dow dropped from 11,497 to 10,428 in 10 years, while Wall Street got rich wiping out almost 10% of your retirement funds). Test your 2010 strategy. Are you an ...

1. Optimist? As the new decade starts, are you an optimist who trusts Wall Street's advice that 2010 will be a great time to buy stocks. Wall Street says the 'Lost Decade' (what a great title) is now behind us. So you believe that the 60% market rally since the March 2009 bottom will continue, with at least 20% gains in 2010.
   
   

2. Pessimist? Or, you're distrustful, cynical and pessimistic about all predictions made by Wall Street's bosses and pundits. You're particularly skeptical of any and all forecasts by the 'too-greedy-to-fail' bankers who stole trillions from taxpayers, the Fed and Treasury, then failed to stimulate the economy and now pocket mega-bailout bucks as record bonuses, just one year after we saved Wall Street from near bankruptcy.
   
   

This is a simple test of your mindset. Betting odds say most of you will pick answer '1.' Why? America was founded by optimists. You believe that a 'happy conspiracy' binds politicians, CEOs and Wall Street, making capitalism work and America a powerful nation: So you accept Wall Street's greed, lies and thievery as the price of 'free-market capitalism,' and part of America's DNA. You embrace 'capitalism-without-morals.'

Unfortunately, optimism also blinds us to our individual and national faults: Hidden saboteurs tell us we know more than we do, have amazing skills we don't, and are protected by divine forces against dark enemies and even our own irrational stupidity. Yes, optimism is our inner enemy that periodically triggers trillion-dollar meltdowns.

New strategy: 'Getting back to even' means new risks, more debt

True optimists are gung-ho about the future, expecting to recover losses and, as CNBC television host Jim Cramer preaches, 'get back to even' in 2010. But the problem is no one has a clue if the market will ever 'get back to even.'

Quite the opposite, since Fed chief Ben Bernanke is pushing the same optimistic cheap-money fantasies that his predecessor Alan Greenspan used to create the dot-com and the subprime crashes. We can expect to see the next bubble fizzle and pop, pushing us deep into the dreaded Great Depression 2 that the Fed and Treasury are trying to avoid by downstreaming today's problems onto future generations.

But soon future generations will start screaming: 'The buck stops here' and revolt when the buck isn't worth much, and they've lost faith in the dollar (just like China). Then the game of musical chairs will end, tragically, sadly, stupidly, unfortunately. Why? Because we failed to stop short of total disaster, failed to prepare, and it's too late.

So to all you optimists who plan to actively invest in 2010 because you accept that America's 'capitalism-without-morals' is working in spite of Wall Street's quasi-criminal behavior: Here's some dark-side input to factor into your investment equation for 2010 and beyond.

Listen closely to the words of our 12 'Dr. Dooms.' For a moment, take off your rose-colored glasses, step out of your denial, see the Great Depression 2 dead ahead, really look at the future our 'Dr. Dooms' see in their 'Doomsday Scenarios:'

1. Faber: The 'American Empire' has peaked, is on a decline

Hong Kong economist Marc Faber says 'the average life span of the world's greatest civilizations has been 200 years ... Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent ... overspends ... costly wars ... wealth inequity and social tensions increase; and society enters a secular decline.'

2. Grantham: Learned nothing, doomed to repeat past, only bigger

Money manager Jeremy Grantham warns that our irrational nightmare will repeat. A year ago we came dangerously close to the 'Great Depression 2.' Unfortunately, we've 'learned nothing ... condemning ourselves to another serious financial crisis in the not too-distant future.'

We had our bear-market rally. Next, historical cycles plus our irrational behavior guarantees another, bigger global meltdown. We 'learned nothing.'

3. Stiglitz: Wall Street creating short respite before next crash

Nobel economist Joseph Stiglitz recently warned: Unless Wall Street's incentive system is drastically reformed, 'the financial sector will only try to circumvent whatever new regulations we put in place. We will simply have a short respite before the next crisis.' Warning, nothing's changed, it's worse: Lobbyists run Obama, Congress and the Fed.

4. Johnson: Running out of time before Great Depression 2

Yes, 'we're running out of time ... to prevent a true depression,' warns former IMF chief economist Simon Johnson. The 'financial industry has effectively captured our government' and is 'blocking essential reform,' and unless we break Wall Street's 'stranglehold' we will be unable prevent the Great Depression 2.

5. Ferguson: Fed's easy money fuels new bubbles, meltdowns

In the 400-year history of the stock market 'there has been a long succession of financial bubbles,' says financial historian Niall Ferguson. Who's the culprit? The Fed: 'Without easy credit creation a true bubble cannot occur. That is why so many bubbles have their origins in the sins of omission and commission of central banks.'

Another bubble (and crash) is virtually certain, thanks to Washington's $23.7 trillion explosion in debt, the Fed's support for the $670 trillion shadow banking system and Wall Street lobbyists getting superrich thanks to Wall Street's insatiable greed.

6. Taleb: Fed haunted by ghost of Greenspan's failed Reaganomics

When Obama reappointed Bernanke, Nassim Taleb, risk-management professor and author of 'The Black Swan,' warned of a new disaster: 'The world has never, never been as fragile,' yet Obama reappoints an economist who 'doesn't even know he doesn't understand how things work.' New proof? At last week's American Economic Association, Bernanke was still shifting the blame: 'The best response to the housing bubble would have been regulatory, not monetary.'

Wrong: He conveniently forgets he was advising Bush earlier, did nothing. Now Obama's stuck with a Greenspan clone and an insane ideology focused solely on saving a failed banking system by flooding the world with inflated dollars guaranteed to trigger another meltdown

7. Soros: Dollar dead as a reserve currency, nest eggs dying

Billionaire investor George Soros' 'New Paradigm:' America's 25-year 'superboom ... led to massive deregulation ... blindly chasing free markets ... unleashed excessive greed ... created the dot-com and credit meltdowns' and a 'shadow banking system' of derivatives.

'The system is broken. The current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency,' warns Soros. 'We're now in a period of wealth destruction. It is going to be very hard to preserve your wealth in these circumstances.'

8. Hedgers: make billions shorting stupid politicians, bankers

Soros isn't alone. Lots of hedge fund buddies made hundreds of millions and billions betting on the stupidity of Washington with the Fed's cheap-money policies. Alpha magazine reports that four hedgers made more than $1 billion each in 2008. The top-25 'managers made $464 million each on average last year ... a kingly sum, especially during a year of global recession, stock market wipeouts and vanishing wealth.'

9. Shiller: Dot-com, subprime meltdowns, 'third episode' next

Economist Robert Shiller a 'Dr. Doom?' Remember a decade ago with 'Irrational Exuberance?' Now he's warning: 'Bubbles are primarily social phenomena. Until we understand and address the psychology that fuels them, they're going to keep forming. We recently lived through two epidemics of excessive financial optimism, we are close to a third episode, only this one will spread irrational pessimism and distrust -- not exuberance.'

10. Kaufman: Irrationality replaced reason, science, technology

Henry Kaufman was Salomon's chief economist and 'Dr. Doom' for 24 years: 'Why are we so poor at managing our key economic institutions while at the same time so accomplished in medicine, engineering and telecommunications? Why can we land men on the moon with pinpoint accuracy, yet fail to steer our economy away from the rocks? Why do our computers work so well, except when we use them to manage derivatives and hedge funds?'

Kaufman warns: 'The computations were correct, but far too often the conclusions drawn from them were not.' Why? Selfish, myopic politicians and bankers.

11. Biggs: Sell everything, buy guns, food, head for the hills

In his 2008 bestseller 'Wealth, War and Wisdom' former Morgan Stanley research guru Barton Biggs warns us to prepare for a 'breakdown of civilization ... Your safe haven must be self-sufficient and capable of growing some kind of food ... It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc ... A few rounds over the approaching brigands' heads would probably be a compelling persuader that there are easier farms to pillage.' Biggs sounds like an anarchist militiaman.

12. Diamond: Nations ignore obvious till it's too late, then collapse

The end will be swift. In our age of short-term consumerism and instant gratification, few hear the warnings of our favorite evolutionary biologist, Jared Diamond. Societies fail because they're unprepared, will be in denial till it's too late: 'Civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power.'

The warnings were everywhere in 2008, but Greenspan, Bernanke and former Treasury Secretary Henry Paulson were in denial: It will happen again with Obama. Downstreaming problems will fail. Future bubbles get too big, crashes more deadly.

WHY THIS ISN’T A NEW SECULAR BULL MARKET

WHY THIS ISN’T A NEW SECULAR BULL MARKET: "

Tyler over at Zero Hedge has an excellent chart from David Rosenberg at Gluskin Sheff comparing the secular bull in 1982 with the current environment. It clearly shows why we’re not in a new bull market. Though I agree with Rosenberg that the market remains in a secular bear, the power of money printing is likely to keep showering markets with kool-aid. Combined with very low earnings expectations and Mr. Rosenberg is likely wrong in his timing once again.

Source: Gluskin Sheff

The big story for 2010: sovereign debt worries?

The big story for 2010: sovereign debt worries?: "

Happy New Year.

Over the past couple of weeks, the cost of buying protection to insure against a default by the UK government has risen to exceed the cost of insuring a basket of European investment grade companies. The chart shows that 5 year Credit Default Swaps (CDS) for the UK sovereign are currently at 83bps per year, compared with 72 bps for the investment grade companies, which are all lower rated than Her Majesty's government and unlike the UK, the last time I looked weren't allowed to print bank notes to repay their debt. So it doesn't look right. But noises about a downgrade of the UK continue, and the plans from both the government and the opposition to reduce the debt remain unconvincing.

Elsewhere we've had sovereign debt scares in Dubai and in Greece, and yesterday in Iceland the President exceptionally overruled the legislature and stopped a payment to the UK and the Netherlands of £3.4 billion to cover money lost by savers in the Icelandic banks. Fitch downgraded Iceland to BB+ yesterday, although the bigger agencies still have the country in investment grade, but only just. Iceland CDS now trades at 470 bps. The decision by the Icelandic people isn't surprising, as the payment amounts to around £10,000 per person - a massive burden. I can't imagine that UK voters would agree to make such a payment to a foreign government should the table be turned, and the Icelandic economy is in a worse state than ours. This article in today's Irish Independent by David McWilliams is therefore a little worrying, as it probably does reflect the popular view that default is a better option that a strong credit rating or than having to wear a hair-shirt for a decade. Ireland has entered into significant austerity measures (including large pay cuts for civil servants) in order to restore the nation's finances. McWilliams concludes "Iceland proves there is an alternative - are any (Irish) politicians, from the President down, prepared to listen?". 2010 could be a year of angry populations and wobbly governments.

A Guide to the Cosmos

A Guide to the Cosmos: "

Via the NYT discussion of “Far Out: A Space-Time Chronicle,” we get these outstanding photos, an “an exquisite picture guide to the universe by Michael Benson, a photographer, journalist and filmmaker, and obviously a longtime space buff.”

The Andromeda Galaxy

Cat’s Paw Nebula

The colliding Antenna Galaxies

Carina Nebula (note the eerily suspended Bok Globules — larva-like clouds of molecular hydrogen, helium and silicate dust visible throughout the nebula)

Pillars of Creation” in the Eagle Nebula

Witch Head Nebula

Carina Nebula

NGC 2264, the region surrounding and including the Cone Nebula

Crab Nebula

Horsehead Nebula

“Anemic” galaxy NGC 4921

NGC 6559

The Pelican Nebula

The Snake Nebula

Rosette Nebula

Source:

Books on Science: A Guide to the Cosmos, in Words and Images

DENNIS OVERBYE

NYT, January 4, 2010
http://www.nytimes.com/2010/01/05/science/05books.html

Bespoke Investment Group: Final 2010 Strategist Predictions

Bespoke Investment Group: Final 2010 Strategist Predictions: "

Final 2010 Strategist Predictions

Below is a list of the 2010 S&P 500 year-end price targets of major Wall Street strategists as surveyed by Bloomberg prior to the first trading day of the new year. As a whole, strategists are looking for a year-end price of 1,225 for the S&P 500, which translates into a gain of 9.82%. Deutsche Bank's Binky Chadha has the highest target at 1,325, while Barclays' Barry Knapp has the lowest at 1,120. All strategists are forecasting a 2010 gain.

FT Alphaville - TrimTabs on that ‘US government-rigged stock market’

FT Alphaville - TrimTabs on that ‘US government-rigged stock market’: "

TrimTabs on that ‘US government-rigged stock market’

Posted by Tracy Alloway on Jan 06 08:58.

FT Alphaville loves a good conspiracy theory, so here’s one to kick off Wednesday morning.

It’s the TrimTabs report referenced in this morning’s 6am Cut, questioning whether the US government is secretly propping up stock markets.

And here it is, in full, with our emphasis:

TrimTabs Investment Research Asks Whether Federal Reserve and U.S. Government Rigged Stock Market, Pushing Market Cap up $6+Trillion since Mid-March

Only Logical Conclusion as to Why Market Soared, While Economy Faltered and Traditional Sources of Capital Remained Neutral

Sausalito, Ca, Jan. 5 – TrimTabs Investment Research CEO Charles Biderman in a special report said today that it wasn’t traditional sources of capital that pushed the U.S. markets up more than $6 trillion since March, and wondered whether it was the Federal Reserve and the U.S. government pulling the levers behind the sharp rise.

“We have no way of proving this,” said Biderman, “but what we do know is that it was neither the economy nor traditional sources of capital that created the boom in equities.”

Biderman warned that if government has been behind the sharp stock rise, it could trigger a major equities meltdown when the government stops buying and even worse, starts selling.

The special report follows below:

The most positive economic development in 2009 was the stock market rally. Since the middle of March, the market cap of all U.S. stocks has soared more than $6 trillion. The wealth effect of rising stock prices soothed the nerves and boosted the net worth of the half of Americans who own stock.

We cannot identify the source of the new money that pushed stock prices up so far so fast. Historically, the market cap has risen about 10 times the amount of net new cash invested in equities. For the most part, the roughly $600 billion of net new cash since March needed to boost the market cap $6 trillion did not come from the traditional players that provided money in the past:

• Companies. Corporate America has been a huge net seller. The float of shares has ballooned $133 billion since the start of April.

• Retail investors through funds. Retail investors have hardly bought any U.S. equities through funds. U.S. equity funds and ETFs have received only $20 billion since the start of April. Meanwhile, bond funds and ETFs have received a record $355 billion.

• Retail investors through direct investments. We doubt retail investors have been big direct purchasers of equities. Market volatility in the past decade was the highest since the 1930s, and retail investor sentiment has been mostly neutral since the rally began, although it brightened in the past week.

• Foreign investors. Foreign investors have provided some buying power, purchasing $109 billion in U.S. stocks from April through October. But foreign purchases may have slowed in November and December because the U.S. dollar was weakening last fall.

• Hedge funds. We have no way to track in real time what hedge funds do, and they may well have shifted some assets into U.S. equities. But we doubt their buying power was enormous because they posted an outflow of $9 billion from April through November.

• Pension funds. All the anecdotal evidence we have indicates that pension funds have not been making a huge asset allocation shift and have not moved more than about $100 billion from bonds and cash into U.S. equities since the rally began.

If the money to boost stock prices did not come from the traditional players, it must have come from somewhere else. We know that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers. Why not support the stock market as well?

As far as we know, it is not illegal for the Federal Reserve or the U.S. Treasury to buy S&P 500 futures. Moreover, several officials have suggested the government and major banks could support stock prices. For example, former Fed board member Robert Heller opined in the Wall Street Journal in 1989, “Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thereby stabilizing the market as a whole.” In a Financial Times article in 2002, an unidentified Fed official was quoted as acknowledging that policymakers had considered buying U.S. equities directly, not just futures. The official mentioned that the Fed could “theoretically buy anything to pump money into the system.” In an article in the Daily Telegraph in 2006, former Clinton administration official George Stephanopoulos mentioned the existence of “an informal agreement among the major banks to come in and start to buy stock if there appears to be a problem.”

Think back to mid-March 2009. Nothing positive was happening, and investor sentiment was horrible. The Fed, the Treasury, and Wall Street were all trying to figure out how to prevent the financial system from collapsing. What if Ben Bernanke, Tim Geithner, and the head of one or more Wall Street firms decided that creating a stock market rally was the only way to rescue the economy? After all, after-tax income was down more than 10% y-o-y in Q1 2009, and the trillions the government committed or spent to prop up various entities was not working.

One way to manipulate the stock market would be for the Fed or the Treasury to buy a nominal $60 to $70 billion of S&P 500 stock futures each month for as long as necessary. Depending on margin levels, as little as $5 billion to $15 billion per month was all that was necessary to lift the S&P 500 by 67%. Even $15 billion per month would have been peanuts compared to what was being doled out elsewhere.

Since the stock market was extremely oversold in early March, not only would a new $60 to $70 billion per month of buying power have stopped stock prices from plunging, but it would have encouraged huge amounts of sideline cash to flow into equities to absorb the $295 billion in newly printed shares that have been sold since the start of April.

This type of intervention could explain some of the unusual market action in recent months, with stock prices grinding higher on low volume even as companies sold huge amounts of new shares and retail investors stayed on the sidelines. Some market watchers have charted that virtually all of the market’s upside since mid-September has come from after-hours futures activity.

Much more over at the conspiratorially-inclined Zero Hedge.

"

Briefing.com: Risk Factors

Briefing.com: Risk Factors: "

Risk Factors

Last Update: 21-Dec-09 09:08 ET

Since 1928 the S&P 500 has registered a yearly gain 66% of the time. It is only fitting then that investors naturally possess a bullish bias when contemplating the stock market outlook.

That natural tendency has been challenged, however, with two, massive bear markets in the last 10 years alone. The biggest challenge perhaps to that natural bias was the realization in early 2009 that the S&P 500 had plummeted to a level that was also seen in 1996, thereby challenging the virtues of buy-and-hold investing.

The market has of course come bounding back from that lowly level and, despite still being down 30% from its all-time high, has ignited some animal spirits again in the investment community.

Oh, how we wish every investment year could go like this one did after the market hit its low on March 6.

The truth of the matter is that no one knows how any investment year will go. Forecasts are issued and confident declarations are made on TV by prognosticating pundits, but when it comes down to it, the best anyone can do is provide an educated guess as to where they think the market will likely go.

Our educated guess is that the market will achieve a single-digit to low double-digit percentage return in 2010, with the first half of the year looking better than the second half of the year in terms of performance.

However, since no one knows the future and since the behavioral finance machine that is 'the market' can shift on a dime, investing is inherently imbued with risk.

With that, we turn our attention to a number of factors that could pose a risk to the positive stock market outlook. We are not forecasting that they will happen, but we are generalizing that if any of them came to fruition, the stock market outlook could tip in a different direction.

--Patrick J. O'Hare, Briefing.com

Risks:

The unknown

We might as well get this risk out of the way first. The unknown coming to light is a notorious source of volatility since it produces uncertainty that, in turn, can provoke panic selling if the unknown factor cuts to the heart of conventional wisdom (e.g., the U.S. is not at risk of a major terrorist attack).

The impact of the unknown on the stock market will be proportional to the perception of the risk it poses to the real economy.

(Note: invoking the unknown factor as a risk for the stock market outlook gives pundits like us a convenient way to say 'we told you so' when the unknown factor was not part of a list of risks previously presented.)

No buyers of MBS after Fed exits

If the Federal Reserve stays true to its word, it will have essentially completed $175 billion worth of agency debt and $1.25 trillion worth of agency mortgage-backed securities by the end of the first quarter.

In an effort to ready the market to function primarily on its own accord, the Fed is reportedly slowing the pace of its purchases already. The Fed's exit from the MBS stage could very well be the market's first true test in 2010. The behavior of the MBS market after March 31 will send a signal as to the economy's readiness to stand on its own two feet.

If MBS yields track higher because of lackluster private demand for the securities, mortgage financing rates will press higher and interfere with recovery prospects in the housing sector.

If home sales slow, or decline, because of the higher cost of financing or a lack of funding, concerns will build about the sustainability of the rebound in the broader economy and the validity of rising earnings estimates for 2010.

Weakening dollar triggers trade war

There has been considerable attention paid to the weakening dollar and the benefit it is providing the U.S. in foreign trade. China is also benefitting in the export economy since its currency is pegged to the dollar.

Countries whose currencies are strengthening on the back of the dollar's weakness and interest rate differentials are apt to become increasingly hostile over the loss of competitiveness against U.S. and Chinese exports.

Continued weakness in the dollar will likely lead to competitive devaluations in the currencies of export-dependent countries and/or the increased use of tariffs to combat the competitive disadvantage.

Carry trade collapses

With interest rates at the zero bound in the U.S., the dollar has become a popular source of funding for carry trades in which traders use borrowed dollars to invest in higher-yielding assets.

A flight-to-safety to the dollar, triggered by some exogenous event, could lead to a disorderly unwinding of leveraged positions in higher-yielding assets as traders attempt to stem the increased cost of repaying dollar-funded trades.

Separately, a fundamental strengthening in the dollar that flies against conventional wisdom could also be a catalyst for a volatile unwinding of carry trades.

Deficit trends in wrong direction

In its mid-session review, the Office of Management and Budget raised its FY10 deficit estimate projection from $1.26 trillion to $1.50 trillion (the government ended FY09 with a $1.42 trillion deficit). With the current expectation that the deficit will widen slightly in FY10, it is clear that 2010 is shaping up to be another challenging year for the government as tax receipts remain depressed in the face of a double-digit unemployment rate.

States are also under a great deal of budget pressure and could require more assistance from the federal government to plug shortfalls than originally thought. By and large, there is not any real room in the federal budget for major spending surprises.

A deficit moving well above current estimates will be a disconcerting point for U.S. creditors (and ratings agencies) who are likely to demand higher rates of return to help finance the deficit. Higher rates will be a retardant on U.S. growth.

Terrorism

The threat of terrorism is omnipresent in the wake of 9/11.

Popular events with global reach, like the Winter Olympics and the World Cup, are generally considered to provide an opportune time for a terrorist attack. If a terrorist act were committed at either of these events, one could expect to see some knee-jerk selling interest that gets overdone, especially since large-scale terrorist acts have been fairly well contained since 9/11.

The lasting impact on the stock market of a terrorist act, though, depends largely on the economic damage it does. Terrorist acts at either the Olympics or the World Cup would be shocking in nature, but presumably more so from a human standpoint than an economic one.

Economically-speaking, a terrorist act in the U.S. that strikes at our sense of normalcy (e.g., bombs on buses, in restaurants, at movie theatres, etc.) would be the most damaging since it would feed a nesting trend among U.S. consumers who continue to be the most important driver for the global economy.

Natural disasters

We can do our best to contain Mother Nature, but we cannot stop her in her full fury as Hurricane Katrina demonstrated to the world. Similarly, we have no control over earthquakes, tsunamis, or blizzards.

We have tools that help predict these things and can offer early warning signals, but natural disasters always have the potential to be a freak of nature that can upset the economic outlook in a meaningful fashion by obstructing the transportation of goods, feeding a spike in commodity prices, and/or lowering consumer spending activity.

The arrival of higher tax rates

Barring any changes by Congress, the maximum long-term capital gains tax rate is due to jump from 15% to 20% beginning Jan. 1, 2011, and dividends will be taxed as ordinary income at one's highest marginal tax rate.

Income tax rates, meanwhile, are all slated to go back to where they were prior to the signing of the Economic Growth and Tax Relief Reconciliation Act in 2001.

Beginning in March, early entrants in the recovery rally will be eligible to take long-term capital gains at the lower tax rate. There could be a progressive uptake on that strategy as the year unfolds, particularly if the economy and stock market are sputtering in the back of 2010 and this tax break is not extended.

Passing a financial transactions tax

There are compelling arguments on either side of the debate dealing with imposing a financial transactions tax. The aim of such a tax, reportedly, is to curb speculative trading activity and to create a source of tax revenue that could help pay down the deficit.

The imposition of a tax on financial transactions would presumably be regarded as a negative by the market if for no other reason than it would create uncertainty about its impact on trading activity in the short-term and long-term.

Japan steps up selling of its Treasury holdings

With $746.5 billion in Treasury securities as of the end of October, Japan trailed only China ($798.9 billion) as the largest foreign holder of U.S. Treasuries. These holdings represent a ready source of funding to help Japan pay down its hefty debt, which is approaching 200% of GDP as Japan increases stimulus measures to boost its economy in an attempt to prevent a deflationary spiral.

With the run Treasuries have had, and the thinking that there is a lot more downside on price than upside at this juncture, Japan may see this as an opportune time to capitalize on those high Treasury prices to better its own fiscal situation and to keep ratings agencies at bay.

The dilemma for Japan is that repatriating proceeds from the sale of U.S. Treasuries would strengthen the yen. A stronger yen is a negative for Japan's exporters and would be a retardant on Japanese growth. The currency factor would be less of a dilemma if global economic activity grew strongly on a sustained basis.

Japan selling debt on a larger scale is likely a low probability event, but it would be an upsetting event if there were not ready buyers to soak up the excess supply.

China tightens stimulus measures

A great deal of hope and capital has been pinned on China as being the savior of the global economy.

China has certainly done a commendable job of stimulating its economy through a most difficult period, but if it subsequently steps up measures to cool down its growth in an effort to prevent asset bubbles from forming and/or to guard against importing inflation from the Fed's loose monetary policy (since the yuan is pegged to the dollar), it could result in a disorderly flight of capital from emerging markets.

A cascade of selling in emerging markets should benefit the U.S. Treasury market, the dollar, and, to a certain extent, the U.S. stock market.

Nonetheless, if China took steps to slow its growth before the U.S. economy was perceived to be on sound footing, the default trade would be predominately oriented toward seeking safety in the Treasury market.

Housing recovery turns into housing relapse

Sales of existing homes bottomed in January 2009 (at least we hope they did) at a seasonally adjusted annual rate of 4.49 million units, roughly 38% below the peak of 7.25 million units seen in September 2005.

In October, existing home sales climbed to an annual rate of 6.10 million units, which was up 23.5% versus the year-ago period. The median sales price of $173,100 in October, however, was still 7.1% below the year-ago period.

Low prices, low financing rates, and the first-time homebuyer tax credit have been successful in stoking demand, but can that demand persist?

A downturn in the housing market, which is in the realm of possibility if interest rates go up and the labor continues to be weak, would undermine economic growth expectations for 2010.

Double-digit unemployment rate lingers

A 10% unemployment rate does not sit well with anyone. It is particularly troublesome for the individuals who are in the deep pool of workers counted officially by the Bureau of Labor Statistics as being unemployed.

High rates of unemployment are a natural weight on consumption and a natural catalyst for a change in the balance of political power.

The risk of a double-digit unemployment rate will hang over the midterm elections. It will also hang on the minds of current workers, who fear they may soon lose their job, and the minds of unemployed workers who think there are not any good-paying jobs available.

If the labor market does not show encouraging signs of recovery (e.g., pickup in the avg. workweek, increased use of temporary workers, declining trend in initial claims, etc.), the high unemployment rate will be a well-documented marker that depresses spending and slows the housing recovery.

Geopolitical conflict

China attacks Taiwan.... Israel attacks Iran (or Iran attacks Israel)... North Korea invades South Korea. The conflict scenarios can go on and on, but scenarios such as these coming to fruition would be particularly harmful to markets around the globe.

We suspect the most troublesome conflict from an economic standpoint would be a military conflict between Israel and Iran since that would ultimately lead to a spike in oil prices.

A bear market in Treasuries

Whether one thinks the Treasury market is a bubble or not, a collapse in prices there that produces a marked upward shift in yields would be detrimental for economic, and earnings, prospects.

The cost of financing would go up for businesses and consumers alike which, in turn, would raise the risk of default for both groups in the event they need to roll over maturing debt.

A spike in Treasury yields that is the result of a lack of demand due to pressing concerns about the U.S. fiscal situation would be particularly onerous if the U.S. economy is not growing at its full potential. Higher Treasury yields in this instance could be a catalyst for a double-dip recession.

Sovereign debt default

With the resurgence in equity prices around the globe and the narrowing in credit spreads, a sense of complacency about the recovery has made its way into the marketplace.

A development like a default on sovereign debt would upset that sense of complacency and create a good deal of uncertainty about the financial/economic impact of that default and what country might be next in the default line.

The dollar would benefit from a rush to safety which, in turn, could cause additional unrest if that were to force a disorderly unwinding of dollar-funded carry trades.

Politicized policymaking

Increased regulation and oversight is the political order of the day in Washington, as lawmakers work to stem the possibility of another financial crisis like the one just experienced. There is a risk at a time like this, though, that Congress overplays its hand and does more harm than good for the economy and capital markets by doing what is popular as opposed to doing what is right.

Congress treading on the Fed's independence in setting monetary policy would be an example of doing what is popular as opposed to doing what is right.

Regulatory reform is certainly needed in some instances, but the bottom-line is that the more restrictions that are placed on how business is conducted, the less opportunity there is to maximize profit potential.

Lower profits means less hiring. Less hiring means less spending. Less spending means less growth potential.

Another banking crisis

It is hard to contemplate the idea of another banking crisis when the last one has yet to be fully resolved. Therein lies the risk. Having to deal with another crisis risks undoing the recovery that has already been established and further forestalling the ready extension of loans.

A sovereign debt default, another downturn in the housing sector, greater-than-anticipated losses on commercial real estate -- these and any other number of factors would create a crisis of confidence in the banking sector and stir concerns about systemic risk that would be projected in lower stock prices.

Commodity inflation without growth

Some degree of commodity inflation goes hand in hand with economic growth; however, commodity inflation without growth poses a risk to the economic outlook.

The dollar's behavior is a key thing to watch regarding commodity inflation. A weakening dollar would be supportive for commodity prices.

Geopolitical unrest, natural disasters, and trade wars are other elements that could stoke commodity inflation without a fundamental pickup in demand tied to a growing economy.

Fed miscalculates with policy decisions

Fed Chairman Bernanke has offered repeated assurances that the Fed has the policy tools at its disposal that can effectively shrink the money supply before inflation gets out of hand. The trick for the Fed is knowing when to use those tools.

If the Fed takes away stimulus measures too soon, it risks inviting a double-dip recession. If the Fed waits too long, it risks unleashing higher inflation and higher inflation expectations.

The task of unwinding the stimulus will be more challenging for the Fed than the task of providing the stimulus when the credit market was frozen.

Much is at stake and the Fed's actions -- or lack thereof -- will present an ongoing risk for the market as participants debate whether the timing of the Fed's policy decisions is right.

"

YouTube- Michael Owen Flies a Helicopter over Dubai

YouTube- Michael Owen Flies a Helicopter over Dubai: "
http://www.youtube.com/watch?v=uD-LjX_K9Cg"

THE ULTIMATE GUIDE TO 2010 INVESTMENT PREDICTIONS AND OUTLOOKS

THE ULTIMATE GUIDE TO 2010 INVESTMENT PREDICTIONS AND OUTLOOKS: "

We’ve compiled many of the very best outlooks from various analysts, gurus, hedge funds and investors. We hope you find the list helpful in mapping your successful 2010:

Wall Street Banks

• Goldman Sachs 2010 Investment Outlook

• Deutsche Bank 2010 Outlook

• Credit Suisse Is Cautious

• Morgan Stanley’s 2010 Outlook

• UBS 2010 Outlook

• RBC’s 2010 Outlook

• Saxo Bank’s Coming Black Swans

• 2010 Outlook From Northern Trust

• Bank Of America/Merrill Lynch Is Bullish On 2010

• Prudential’s 2010 Investment Outlook

• PIMCO’s 2010 Outlook

• PFG Best’s Look Back And Ahead

• Wall Street Is Very Bullish About 2010

Hedge Funds & Investment Gurus

• Marc Faber’s 2010 Investment Outlook

• Jim Rogers Is Still Skeptical

• Hussman: 80% Chance Of A Market Plunge

• Boeckh Investments

• Sprott Asset Management: The Rally Is Fake

• ECRI: The Recovery Will Continue In 2010

• Comstock Is Still Bearish

• Jeff Saut Debates Todd Harrison

• TCW’s 2010 Outlook

• Cumberland Advisors 2010 Outlook

• Biriyni’s 2010 Outlook

• Sam Stovall Is Cautiously Optimistic

• Steve Keen’s 2010 Investment Predictions

• Leuthold Turns More Cautious On 2010

• Robert Prechter: Stocks Will Fall In 2010

• David Tepper’s 2010 Outlook

• Richard Bernstein’s 10 for 2010

• 20 for 2010 By Doug Kass

• 2010 Outlook From ISI Group

Actionable Ideas, Alternative Assets & Potential Potholes

• RBC’s top trades for 2010

• How To Prep For An Uncertain 2010

• Goldman’s Top Trades For 2010

• Morgan Stanley’s Favorite Stocks

• JP Morgan’s Top Trades For 2010

• More Cost Cuts Could Help These 8 Firms

• 10 Stocks For 2010

• Will 2010 Be 2004 All Over Again?

• Where To Invest In 2010

• What Does History Tell Us?

• The 5 biggest risks to 2010

• 10 Themes For 2010

• The 10 Best ETF’s For 2010

• Gold Will “Super Spike” In 2010

• Gold Is In A Bubble And Could Crash

• The Housing Market Is Still In Trouble

• The Lumber Market Is Picking Up

• The U.S. Remains A Low Beta Investment

• Dividends Could Play A More Important Role In 2010

• Goldman’s 2010 Commodity Outlook

The Outlook Abroad

• JP Morgan Expects Emerging Markets To Rise 30%

• Nomura On China’s Positive Outlook

• Morgan Stanley Says Chinese Stocks Are Poised To Rally 30

• Bank Of Canada Says Stocks Are Overvalued

• Ignore Brazil At Your Own Peril

• The 4 Reasons Emerging Markets Will Outperform

"

Dow Jones Long Term Chart: Another Decade For Bear Market

Dow Jones Long Term Chart: Another Decade For Bear Market: "

Dow Jones Long Term Chart: Another Decade For Bear Market

Published December 31st, 2009 in Trading Tags: 18 year cycle, bear market, cycle, decade returns, Dow Jones, fund flows, long term chart, money market, pattern, sentiment.

The “naught” decade is officially over for the equity markets in the US. With it the stock market has put in only the second negative return for the Dow and the worst performance since the 1930’s. Something else stands out when you compare the performance of the Dow in decade increments: bear and bull markets cluster in twos:

Source: Chart of the Day

This is another way to show this long term chart chart of the Dow Jones Index spanning more than 100 years from 1900 to 2009:

This cycle of flat, trending, then again flat trading is something we’ve discussed before: 18 year stock market cycle. How ever you want to define it, whether the 17.6 or 18 or 2 decades cycle, the stock market has demonstrated rather predictable very long term patterns. That’s the good news.

The bad news is that we are in one of the wrenching long term bear markets and it could potentially last anywhere from 7 to 10 years more. If we take a bird’s eye view of these periods, they seem to be flat or range bound but zooming in shows a surprising amount of volatility. That’s why these seemingly flat trading periods grind down both bears and bulls to a pulp.

And that’s something that most forget. Bear markets don’t really make anyone a lot of money but erode prices to bring them in line with real value. To show you what I mean, let’s zoom into the two decades spanning 1920 to 1940 since they seem to be atypical (the 1920’s provided rich returns):

While the index finished slightly ahead, the white knuckle volatility would mean in practical terms that almost everyone, unless they were extremely astute and lucky, would have lost massive amounts of money. As we’ve seen in this bear market, even the most hardened long term investor reaches a point where they just can not take the pain any longer. Human nature makes sure that is usually right at or close to, the cycle low. Most recently we saw this as sentiment at the March lows was tremendously negative and everyone was fleeing to the safety of money market funds, liquidating anything risky.

So the wrong way to approach such a market is as a buy and hold investor. The right way is to be nimble and trade, timing the highs and lows as best as you can. Forget all the hogwash about the Efficient Market Hypothesis (EMH) which tells you that you can’t do that. There will be a time again to buy and forget. Now is definitely not that time.

"

Global bear rally of 2009 will end as Japan's hyperinflation rips economy to pieces - Telegraph

Global bear rally of 2009 will end as Japan's hyperinflation rips economy to pieces - Telegraph: "

Global bear rally of 2009 will end as Japan's hyperinflation rips economy to pieces

Milton Keynes will be vindicated. Lord Keynes will lose some of his new-found gloss. The Krugman doctrine that we should all spend our way back to health by pushing deficits to the brink of a debt spiral – or beyond the brink – will be seen as dangerous.

By Ambrose Evans-Pritchard, International Business Editor
Published: 6:15AM GMT 04 Jan 2010

Nikkei index - The shocker will be Japan, our Weimar-in-waiting Photo: AFP

The contraction of M3 money in the US and Europe over the last six months will slowly puncture economic recovery as 2010 unfolds, with the time-honoured lag of a year or so. Ben Bernanke will be caught off guard, just as he was in mid-2008 when the Fed drove straight through a red warning light with talk of imminent rate rises – the final error that triggered the implosion of Lehman, AIG, and the Western banking system.

As the great bear rally of 2009 runs into the greater Chinese Wall of excess global capacity, it will become clear that we are in the grip of a 21st Century Depression – more akin to Japan's Lost Decade than the 1840s or 1930s, but nothing like the normal cycles of the post-War era. The surplus regions (China, Japan, Germania, Gulf ) have not increased demand enough to compensate for belt-tightening in the deficit bloc (Anglo-sphere, Club Med, East Europe), and fiscal adrenalin is already fading in Europe. The vast East-West imbalances that caused the credit crisis are no better a year later, and perhaps worse. Household debt as a share of GDP sits near record levels in two-fifths of the world economy. Our long purge has barely begun. That is the elephant in the global tent.We will be reminded too that the West's fiscal blitz – while vital to halt a self-feeding crash last year – has merely shifted the debt burden onto sovereign shoulders, where it may do more harm in the end if handled with the sort of insouciance now on display in Britain.

Yields on AAA German, French, US, and Canadian bonds will slither back down for a while in a fresh deflation scare. Exit strategies will go back into the deep freeze. Far from ending QE, the Fed will step up bond purchases. Bernanke will get religion again and ram down 10-year Treasury yields, quietly targeting 2.5pc. The funds will try to play the liquidity game yet again, piling into crude, gold, and Russian equities, but this time returns will be meagre. They will learn to respect secular deflation.

Weak sovereigns will buckle. The shocker will be Japan, our Weimar-in-waiting. This is the year when Tokyo finds it can no longer borrow at 1pc from a captive bond market, and when it must foot the bill for all those fiscal packages that seemed such a good idea at the time. Every auction of JGBs will be a news event as the public debt punches above 225pc of GDP. Finance Minister Hirohisa Fujii will become as familiar as a rock star.

Once the dam breaks, debt service costs will tear the budget to pieces. The Bank of Japan will pull the emergency lever on QE. The country will flip from deflation to incipient hyperinflation. The yen will fall out of bed, outdoing China's yuan in the beggar-thy-neighbour race to the bottom. By then China too will be in a quandary. Wild credit growth can mask the weakness of its mercantilist export model for a while, but only at the price of an asset bubble. Beijing must hit the brakes this year, or store up serious trouble. It will make as big a hash of this as Western central banks did in 2007-2008.

The European Central Bank will stick to its Wagnerian course, standing aloof as ugly loan books set off wave two of Europe's banking woes. The Bundesbank will veto proper QE until it is too late, deeming it an implicit German bail-out for Club Med.

More hedge funds will join the EMU divergence play, betting that the North-South split has gone beyond the point of no return for a currency union. This will enrage the Eurogroup. Brussels will dust down its paper exploring the legal basis for capital controls. Italy's Giulio Tremonti will suggest using EU terror legislation against 'speculators'.

Wage cuts will prove a self-defeating policy for Club Med, trapping them in textbook debt-deflation. The victims will start to notice this. Articles will appear in the Greek, Spanish, and Portuguese press airing doubts about EMU. Eurosceptic professors will be ungagged. Heresy will spread into mainstream parties.

Greece's Prime Minister Papandréou will balk at EMU immolation . The Hellenic Socialists will call Europe's bluff, extracting loans that gain time but solve nothing. Berlin will climb down and pay, but only once: thereafter, Zum Teufel.

In the end, the Euro's fate will be decided by strikes, street protest, and car bombs as the primacy of politics returns. I doubt that 2010 will see the denouement, but the mood music will be bad enough to knock the euro off its stilts.

The dollar rally will gather pace. America's economy – though sick – will shine within the even sicker OECD club. The British will need the shock of a gilts crisis to shatter their complacency. In time, the Dunkirk spirit will rise again. Mervyn King's pre-emptive QE and timely devaluation will bear fruit this year, sparing us the worst.

By mid to late 2010, we will have lanced the biggest boils of the global system. Only then, amid fear and investor revulsion, will we touch bottom. That will be the buying opportunity of our lives.

"

The most played artists of 2009 according to my Last.fm profile

1		Bohren & der Club of Gore			198
2		Animal Collective			141
3		Vangelis			120
4		Massive Attack			119
5		Gotan Project			115
6		Dam-Funk			83
7		Onra			81
8		J Dilla			80
8		AZUNI			80
10		Pavarotti, Sutherland, Horne, Talvela - Solti Vienna Philharmonic			76
11		Hollywood, Mon Amour			71
11		Quetzal			71
13		Koushik			70
14		Hudson Mohawke			69
14		Kevin Reynolds			69
16		Bullion			67
17		Michael Jackson			66
18		FaltyDL			65
19		Venetian Snares			64
20		Q-Tip			63
21		Lone			62
22		Marilyn Manson			60
22		Machine Drum			60
24		Madlib			59
25		A Made Up Sound			58
26		Flying Lotus			57
27		Daedelus			56
28		Sa-Ra Creative Partners			53
28		Dorian Concept			53
30		Lost Highway Soundtrack			52
31		Comfort Fit			50
32		Paul White			49
33		Morgan Geist			47
33		MF DOOM			47
33		Rick Wade			47
36		Luke Vibert			45
36		Carlos Nino & Lil Sci			45
38		Prefuse 73			44
39		AFTA-1			43
39		Johann Sebastian Bach			43
41		Legowelt			42
41		Danger Mouse and Sparklehorse			42
43		E-603			41
44		DFRNT			40
45		Oh No			39
46		Doom			37
46		Mike Slott			37
46		Fink			37
46		Dabrye			37
50		Moodymann			35
51		Floating Points			34
51		Low Budget			34
53		Samiyam			33
53		Cro-Magnon			33
55		Actress			32
55		James Pants			32
55		Mister Modo & Ugly Mac Beer			32
55		4hero			32
59		Girl Talk			31
60		Radiohead			30
60		Martyn			30
60		Alif Tree			30
60		Ammoncontact			30
64		Build An Ark			29
64		Sonic Youth			29
64		Mono/Poly			29
67		Various Production			28
67		Synkro			28
67		datashat			28
67		Air			28
71		Drexciya			27
71		Débruit			27
71		Georges Bizet			27
74		Stuart A. Staples			26
74		Move D			26
74		iTAL tEK			26
74		Deadbeat			26
74		Nas			26
74		2562			26
74		Onra & Quetzal			26
81		Cyne			25
81		Instra:mental			25
81		Joker			25
81		The Beatles			25
81		Bonobo			25
81		James Pants & Dam Funk			25
81		John Robinson			25
81		Tricky			25 ...