Crisis Just Beginning... Simon Johnson explains...
"We now have a financial system that is completely based on moral hazard...Crazy things happen when you have a financial system like that... The conventional wisdom is you can't have back to back major financial crises. I think we're going to push that.. The next 12 months could really be exciting... we are setting ourselves up for an enormous catastrophe."

Who Are the "Next 11"?... Ron Rowland explains the Next 11 (N-11) is a list of fast-growing countries identified by Goldman Sachs as potentially good investments in the coming years.. says "The Next 11 countries are the next big growth stories"... Mexico, Nigeria, Egypt, Turkey, Iran, Pakistan, Bangladesh, Indonesia (picture above is Mt Merapi Indonesia), Vietnam, South Korea, Philippines... http://www.moneyandmarkets.com/who-are-the-next-11-37234 (3*)

More Recessions But Higher Stocks this Decade... thinks BlackRock's Bob Doll, his predictions for this decade:
1. U.S. equities experience high single-digit percentage total returns, in the range of 6% to 8%.
2. Recessions occur more frequently.
3. Healthcare, information technology & energy alternatives are leading growth areas for the U.S.
4. The U.S. $ continues to become less dominant
5. Interest rates move irregularly higher in the developed world.
6. Country self-interest leads to more trade & political conflicts.
7. Aging & declining population gives Europe some of Japan's problems.
8. World growth is led by emerging market consumers.
9. Emerging markets weighting in global indices rises by 10 percentage points.
10. China's economic & political ascent continues.

Annualized S&P Returns by Decade,

Courtesy of Barry Ritholtz & Eric Willer

More Americans Working for the Govt

than Working to Produce Goods (!)

http://jessescrossroadscafe.blogspot.com/2010/01/more-government-employees-than-goods.html

2010- a Year of Reckoning... thinks Pimco's Bill Gross... sees economy in 1st half stronger than 2nd half... another govt stimulus thrust needed to address unemployment & economic recovery... if the Fed stops buying mortgage-agency securities, this is "significant from the standpoint of interest rates and interest-rate spreads in certain sectors. And I would even go so far as to say it might be a mistake"... suggests Pimco will buy sovereign bonds of higher quality like Germany instead of US... http://www.time.com/time/business/article/0,8599,1951623-1,00.html (4*)

Fed Missed This Bubble. Will It See a New One?... David Leonhardt summarizes the position of Fed Chairman Bernanke & other regulators: "If only we’d had more power, we could have kept the financial crisis from getting so bad"... considers what an empowered Fed might have done during the housing bubble, but concludes by saying it would be nice to hear them explain how they missed the biggest bubble of our time...
http://www.nytimes.com/2010/01/06/business/economy/06leonhardt.html (3*)

Courtesy of BCA Research:
http://www.bcaresearch.com/public/story.asp?pre=PRE-20100106.GIF

"Traders are plowing billions of $s, Euros, & yen into commodities & precious metals, betting on the debasement of all paper currencies. The resurgence of the “Commodity Super Cycle” is kicking into high gear, with G-20 central bankers fueling asset bubbles, by refusing to lift short-term interest rates. 'Paper money eventually returns to its intrinsic value – zero,' Voltaire, 1729." - Gary Dorsch
http://news.goldseek.com/GoldSeek/1262805613.php

"We have to rise to the highest expectation of our people and bring them the lasting change they have long, long fought for and desired... Whether it be by vetoes or delayed spending, I will not write bad checks... No longer are we going to run New York like a payday loan operation."

- New York Governor David A. Paterson

Optimist? Pessimist? Test your strategy!... Paul Farrell provides 12 'Dr. Dooms' that warn Wall Street's optimism misleads & will trigger a new crash... "take off your rose-colored glasses"... Marc Faber : "the average life span of the world's greatest civilizations has been 200 years ... Once a society becomes successful it ... overspends ... costly wars ... social tensions increase; & society enters a secular decline"... Jeremy Grantham : "learned nothing ... condemning ourselves to another serious financial crisis in the not too-distant future"... Joseph Stiglitz : "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"... check out the other 9 at link below...
http://www.marketwatch.com/story/12-dr-dooms-shred-2010-investing-optimism-2010-01-05?pagenumber=1 (4*)

3-part David Rosenberg Interview... discusses housing markets in North America & investment asset classes for 2010... emphasizes risk-adjusted returns approach on investments... recommends capital preservation & income yield, like utilities, health care, consumer staples... & commodities long-term, emerging markets, precious metals... thinks corporate bonds are "fair-value" now, but still good place for this year...
1. http://watch.bnn.ca/#clip252657
2. http://watch.bnn.ca/#clip252658
3. http://watch.bnn.ca/#clip252659

Asia's Emerging Markets... with Puru Saxena...

Christmas Eve Massacre... WSJ reports "The Treasury is hoping no one notices" when on Christmas Eve they lifted the $400 billion cap on potential losses for Fannie Mae & Freddie Mac as well as limits on what the failed companies can borrow...Note: The Constitution anyone? http://online.wsj.com/article/SB10001424052748704152804574628350980043082.html#articleTabs%3Darticle (4+*)

Annus Horribilis... John Browne looks back on the last year, fears that the US has gone down a road that will destroy the $ & may even threaten the political stability of the US... points out most commentators still conveniently ignore the deep freeze that persists in the credit markets - the lack of capital is strangling small businesses, the main creator of new jobs... "Despite the upward pressure on bond yields, the Fed is likely to prove desperate in its resistance to raising interest rates. Such an increase would cause politically untenable increases in mortgage rates, social security costs, and Treasury debt funding costs. Above all, the Fed hopes to avoid an interest-rate led crisis in the vast derivatives markets"... http://www.321gold.com/editorials/browne/browne010610.html (4*)

Gold to Double in next 5-10 Yrs?... Philip Roth: "Whether the dollar goes up or down, gold is still going to be a good investment because we have virtually all the important central bankers focused on growth and not inflation... They always say they're worried about inflation but they're not acting that way; they're acting to stimulate growth, and that's bearish for their currencies."

Courtesy of Agorafinancial.com

Comments on Oil by Sean Brodrick,

Click to Enlarge

Courtesy of David Rosenberg (5*)

(Click on image to enlarge)

Can America Rise Again?... The Atlantic's James Fallows explores the answer... finds reassurance in the American cycle of crisis & renewal, in the continuing strength of the forces that have made the country great: university system, receptiveness to immigration, culture of innovation... emphasizes fixing the governing system is the key to securing the nation's future... "America has been strong because, despite its flawed system, people built toward the future in the 1840s, and the 1930s, and the 1950s. During just the time when Frederick Law Olmsted designed Central Park, when Theodore Roosevelt set aside land for the National Parks, when Dwight Eisenhower created the Pentagon research agency that ultimately gave rise to the Internet, the American system seemed broken too. They worked within its flaws and limits, which made all the difference. That is the bravest and best choice for us now"...
http://www.theatlantic.com/doc/print/201001/american-decline (4*)

Predictions for 2010 by Blackstone's Byron Wien:
1. US economy grows at a stronger than expected 5% real rate during the year, unemployment drops below 9%...
2. Fed decides economy is strong, begins in 2Q to raise the Federal funds rate to 2% by year-end...
3. Heavy borrowing by govts drives the yield on the 10-yr Treasury above 5.5%...
4. S&P 500 rallies to 1300 in the first half, then runs out of steam and declines to 1000, ending where it started at 1115.10...
5. US$ rallies against the yen & euro...
6. Nikkei 225 rises above 12,000...
7. Obama endorses legislation favorable for nuclear power development...
8. The improvement in the US economy energizes the Obama administration...
9. Financial service legislation proves to be softer on the industry than originally feared...
10. Civil unrest in Iran reaches a crescendo... Pakistan becomes the hotspot in the region...
http://www.pr-inside.com/blackstone-group-s-byron-wien-announces-top-r1650143.htm (3*)

America's Finances... David Walker shares his insights on the federal budget & fiscal responsibility...

"Disaster on an Epic Scale" ?... Peter Boone & Simon Johnson : 3 lessons to be learned from the crisis - 1. we've built a dangerous financial system in the US & Europe & made it more dangerous in the recovery... 2. emerging markets proved resilient & their growth prospects look good... 3. the crisis has exposed serious problems in the euro zone... "But look a little farther down the road and you see serious trouble... The most worrisome part is that we are nearing the end of our fiscal and monetary ability to bail out the system. We are steadily becoming vulnerable to disaster on an epic scale"... http://bloomberg.com/apps/news?pid=20601039&sid=aKNBgGSnmi7c (4*)

EU Will Not Bail Out Greece?... European Central Bank Executive Board member Juergen Stark: "The markets are deluding themselves when they think at a certain point the other member states will put their hands on their wallets to save Greece"...
http://www.cnbc.com/id/34721320 (3*)

Interest Rates & Risks for 2010... Ed Yardeni discusses his views on bonds, mortgage rates & demographic challenges .. "the biggest risk we have right now for a sustainable recovery in the US" is that bond investors may lose confidence & sell .., which could push interest rates up & “slow the economy ..appreciably”.. click on image above to activate part 1 - part 2 & 3 readily activated from there.. courtesy of Financial Times...

Inflation Coming?... discuss Pimco's recent moves...

"GDP" is a mirage ?... Bill Bonner (author of the acclaimed "Empire of Debt") has articulated a favorite theme of Cliff Küle in his year end missive for the "Daily Reckoning": "GDP is...a 'counterfeit'. It pretends to measure the health - the growth - of an economy. In fact, it measures something much different...more appropriately called 'activity.' Without looking much deeper, you don't know whether the activity is making people richer...or poorer."(5*) Cliff Küle Note: A prime example of this concept ? Economic activity of maintaining an empire gets measured as if it is increasing the wealth of a nation, when in fact it may be impoverishing. For instance, when the Soviet empire invaded Afghanistan in the 1970's, the economic activity was measurable as GDP. In fact, that economic activity was instrumental in the impoverishment & collapse of the empire...

30-40% Chance U.S. Recession in 2010... says Paul Krugman ... “A recession is not a low probability event, 30 to 40 percent chance,” Krugman said in an interview in Atlanta, where he was attending an economics conference. “The chance that we will have growth slowing enough that unemployment ticks up again I would say is better than even.”... click on image above to activate Bloomberg video...

Oil Could "Easily" Hit $90?... Philip Roth sees plenty of reasons not to bet against the trend, sees "very little resistance over head" - believes momentum could "easily" move oil into to $90-95 per barrel range...

A Japanese Rx for the West: Keep Spending... Richard Koo interview... emphasizes America seems to be suffering from the same affliction as Japan "a balance-sheet recession", points out no matter how hard the Fed tries, it won't end until businesses de-leverage their heavy debt... http://online.barrons.com/article/SB126228908317212353.html (4*) (may need to register with Barron's first)

Courtesy of Tom Toles

Getting the Economy Back On Track... Robert Rubin explains what happened & how to get things working again... lessons of the crisis need to be addressed by enacting policies that promote competitiveness, growth & increased economic security... "the ultimate challenge for the market-based economic model, perhaps somewhat ironically, is effective governance in each country and internationally"... Cliff Note: Ironic quote from one who nixed attempts to regulate financial weapons of mass destruction.
http://www.newsweek.com/id/225623/page/1 (4*)

“Strategic default on mortgages will grow substantially..among prime borrowers & become..a serious problem. The sense that ‘everyone is doing it’ is already growing, and will continue to grow, to the detriment of mortgage holders. It will grow because of a building backlash against the financial sector, growing populist rhetoric & a declining sense of community with the business world. Some people will take another look at their mortgage contract & note that nowhere did they swear on the bible that they would repay.”
- Robert Shiller

Consumer Still Toast, Housing Down, Everyone Delinquent
- David Rosenberg (M-AA*) (4*)

Oil Prices in 2010... Jeff Rubin & Kevin Kerr...

Courtesy of Bloomberg,

Click to Enlarge
http://www.bloomberg.com/apps/news?pid=20601087&sid=aJFLmoxlrjhE&pos=7

Courtesy of: http://innovationandgrowth.wordpress.com/2010/01/04/national-savings-at-the-lowest-level-since-the-depression/

Simon Johnson Financial Crisis Presentation(4*) Courtesy of http://baselinescenario.com/2010/01/04/the-crisis-this-time/ Recovery and Crisis Presentation for Glab Sept 14 2009

Global Rally Destroyed Because of Japan?... Ambrose Evans-Pritchard thinks Japan will experience a sovereign bond crisis which will then spread around the globe... "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" ... we have only shifted the debt burden from private to govt shoulders... "... amid fear and investor revulsion, will we touch bottom. That will be the buying opportunity of our lives"... http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6927923/Global-bear-rally-of-2009-will-end-as-Japans-hyperinflation-rips-economy-to-pieces.html (4*)

Trading 2010: Schiff's Outlook...

Vladimir Lenin: "The best way to destroy the capitalist system is to debauch the currency" - John Hussman says that is what the US is now doing... "Every dollar of bad mortgage debt that should have been written off is now enshrined as two dollars of government-backed debt. One dollar as the original debt, which will now be made whole, and one dollar of new Treasury securities, which must be issued to make that original debt whole. Accordingly, the holders of both securities will have claims against our national assets & future wealth. A similar two-for-one obligation holds true for bailed-out bank losses."... the issuance of govt bonds will erode the value of the $... "I expect that we will tend to be buyers of commodities and hard, non-slack real assets on weakness, but this represents a longer-term view, not a near term forecast"... http://www.hussmanfunds.com/wmc/wmc100104.htm (5*)

Hot Hedge Fund Trades of 2010... Gregory Zuckerman tracks hedge funds, says many managers remain long: "The smart money is fully invested and even leveraging up right now... [but] they could turn on a dime"... discusses Japanese bonds, the PIIGS trade, gold...

BRIC to Eclipse G7... has been described as Goldman Sachs' "call of the decade"... Jim O’Neill first made the case for the 4 countries in a paper entitled "Building Better Global Economic BRICs"... http://www.bloomberg.com/apps/news?pid=20601116&sid=adQVT5VaMAiE (3*)

Flowchart To Figure Out Whether an Emerging Market Will Experience A Sovereign Debt Crisis This Year... click on image to enlarge... courtesy of http://ftalphaville.ft.com/blog/2010/01/04/119336/sovereign-debt-crises-2010-an-rbs-sapling/

That 1937 Feeling... Paul Krugman (M-AA*) worries that the govt & the Fed will begin reversing its stimulus programs as economic indicators begin turning for the better... "we’ll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened — and the economy promptly plunged back into the depths"... thinks policy makers already repeating the same 1937 mistakes - the fiscal stimulus fades out mid year & the Fed is discussing its "exit strategy" from its monetary stimulus... "Will the Fed realize, before it’s too late, that the job of fighting the slump isn’t finished? Will Congress do the same? If they don’t, 2010 will be a year that began in false economic hope and ended in grief"... http://www.nytimes.com/2010/01/04/opinion/04krugman.html (4*)

"The value of gold appears to be etched into the DNA of mankind. There's never been an instance since pre-Biblical times when men didn't lust after gold."
- Richard Russell

The Lion Lets Loose..Paul Volcker, former Fed Chairman... argues for separating commercial & investment banking... "I wish the Administration would pay more attention to what's needed to improve the ordinary functioning of government. We can't even fight a war with our own people any more. We've got to hire Blackwater. I think people have lost confidence in government, they've lost trust in government, and it shows. This isn't a question just of this Administration"... http://www.businessweek.com/magazine/content/10_02/b4162011026995.htm?chan=magazine+channel_the+week+in+business (5*)

“When historical relationships are taken into account, it is difficult to ascribe the house price bubble either to monetary policy or to the broader macroeconomic environment.”
-Chairman Ben S. Bernanke, Federal Reserve
Cliff Note: GeorgeOrwell could never have said it better
http://www.federalreserve.gov/newsevents/speech/bernanke20100103a.htm

PIMCO Covering Its Exposure... Paul McCulley: "For interest rate exposure.. we are..cutting back in the U.S. & U.K. ...we are underweight TIPS versus the benchmark, reflecting our view that risks are currently weighted toward a disinflationary environment." (4*)
PIMCO 2010

1st Day Markets...

"Now officially debt to GDP is 375%. It was 186% when the U.S went into depression after 1929. In other words, we started with a much higher debt level. In 1929 we didn't have Social Security and we didn't have Medicare and Medicaid and if you add these unfunded liabilities of Medicare and Medicaid and if you add Fanny Mae and Freddie Mac that have been taken over by the government, we are talking about the debt to GDP of over 600%."
- Marc Faber

Courtesy of Neil Irwin, Cristina Rivero &

Todd Lindeman, Washington Post (5*)

3 potential hazard scenarios... FT's John Authers sees the risks of China going "off the rails", the US & Europe lapsing back into a banking crisis & money spent on these problems leading to inflation or higher bond yields... details 3 scenarios -1- the recent crisis was only a panic & the risk of disaster has gone away 2- a standard bear market characterized by a trading range with the next direction downwards 3- a second great crash & crisis... (http://www.ft.com/cms/s/0/04f40cee-f73e-11de-9fb5-00144feab49a.html (3*) (may need to register with FT for free first)

Peak Gold?...

Sunday Night Special - Opportunities in Life's Setbacks... Apple's Steve Jobs relates 3 stories...

"A wise and frugal government, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government."

- Thomas Jefferson (1743-1826)

10 Lessons from Societe Generale
Markets Aren’t Efficient
Relative Performance is a Dangerous Game
This Time is Never Different
Valuation Matters (in the Long Run)
Wait for the “Fat” Pitch
Sentiment Matters
Leverage Can’t Turn a Bad Investment Good
Beware of Over Quantification
There is No Substitute for Skepticism
The Benefits of Cheap Insurance
http://myinvestingnotebook.blogspot.com/2009/12/james-montier-presentation-ten-lessons.html (4*)

Challenges of our post-crisis world... Martin Wolf: "we must manage to sustain a dynamic global economy, promote development, deliver environmental sustainability & ensure peaceful, co-operative international relations"... identifies conditions that must be addressed: massive budget deficits in the developed world, govt borrowing & spending substituting for private borrowing & spending - this can not go on for long... "the financial system remains damaged. Not only does it still own vast quantities of 'toxic assets' its 'talented' employees created, but the world is not addressing the structural causes of the crisis"... http://www.ft.com/cms/s/0/c58f64c6-f4af-11de-9cba-00144feab49a.html?nclick_check=1 (4*) (may need to register with FT for free first)

2010 Opportunities?... Joe Terril discusses...

Why Buffett is Betting on the Railroads... Lawrence Kaufman: "Raidroads have not been considered a true growth industry for more than a century. Thanks in large part to Warren Buffett they may be again"... http://www.nxtbook.com/nxtbooks/sb/ra1209/#/20 (4*)

Currency Crises & Deleveraging... Paul Krugman (M-AA*)'s presentation on several currency crises & comparison to the current US deleveraging cycle... courtesy of Calculated Risk...(4*)
Crises

"Numerous foreign governments have offered unusually blunt criticism of U.S. fiscal & Federal Reserve policies in the last year. Both private & official demand for U.S. Treasuries is unenthusiastic. Looming with uncertain timing is a panicked $ dumping & dumping of $-denominated paper assets. Such is the most likely event to trigger the onset of hyperinflation … With the creation of massive amounts of new fiat dollars (not backed by gold or silver) will come the eventual destruction of the value of the U.S. $ & related $-denominated paper assets…"

- John Williams, December 2009

Choosing Companies & Outlook for Small Cap Stocks... Charlie Dreifus on Wealthtrack

Economic Statistic of the Decade... Mike Mandel chooses 4 finalists: 1. housing prices... 2. global trade... 3. Chinese growth... 4. US household borrowing...

http://innovationandgrowth.wordpress.com/2009/12/31/economic-statistic-of-the-decade-awardfinalists/ (4*)

Investment Trends in 2010...

7 Factors Driving Gold Higher in 2010... Sean Brodrick provides chart (click to enlarge) also:

1. Gold suffered a correction of about 8% . This was much needed & took some of the froth out of the market. After consolidating, it’s easier to go higher.
2. $ sentiment has shifted. Speculators in the U.S. $ have finally shifted their betting positions from short to long. This clears the path lower for the $ ; higher for gold.
3. Risk of U.S. default rising?

4. Central banks have now become net buyers of gold.
5. Rising inflation fear – Inflation is a by-product of reflationary monetary policies, low interest rates, & expanding government debt in virtually all of the major industrial nations.
6. Growing investment demand – Gold investment demand went up by 25% to 220 tons in 2009. This trend should continue in 2010.
7. Despite the highest prices ever, world gold mine production is declining.