Investment Asset Values

Cumulatively, asset values have risen twice as fast as GDP over the 50 year period. As Gross writes "you would have been far better off investing in paper than factories or machinery or the requisite components of an educated workforce."

Bernanke Speaks

Bernanke warns U.S., Asia to mind the gap. Fed chairman Ben Bernanke called on U.S. and Asian leaders to "avoid ever-increasing and unsustainable imbalances in trade and capital flows," saying the U.S. financial system is currently "overwhelmed" by an inflow of capital. Speaking Monday at a San Fran. Fed conference on Asia, Bernanke warned that while the U.S. trade deficits with developing countries are not as onerous as they were two years ago, they are still a threat to the global economy. World leaders believe global economic growth must begin to depend less on the U.S. consumer.

Fed tests exit tool... As global central banks begin to weigh inflation risks, the Fed confirmed Monday it has begun experimenting with "triparty" reverse repo agreements, but says their actual use is not imminent. In a reverse repo, the Fed pledges mortgage-backed securities and Treasurys it bought as collateral for short-term loans, thereby draining cash from the financial system. Reverse repos are normally the domain of the 18 primary dealers; the experiment involves extending that to deals with the $2.5T money-market mutual fund business.

Foreclosures Increase in Q3 - 2010 Foreclosure Projected to Increase

U.S. residential foreclosures hit record high in Q3. During the third quarter, home foreclosures in the U.S. reached a record high. "They were the worst three months of all time," RealtyTrac spokesman Rick Sharga said. The firm said 937,840 homeowners received some form of foreclosure notice. The number is 23% higher than that of last year's third quarter, RealtyTrac said. CNNMoney.com (15 Oct.)

It is projected that 50% of all homes with a mortgage will be underwater, i.e. the mortgage greater than the homes value by 2011. Therefore, the drop in home prices has not stopped, as headlines have indicated. The rate of drop as just has slowed down.

Dow Is The Talk - But Bonds Get The Money ($$$)

Bonds are the real deal. Although the Dow sailed past 10,000 on Wednesday, bonds continue to steal the show. U.S. fixed-income funds have been a cash magnet this year – attracting 18 times more money than stocks in 2009, despite the Dow surging 53% after hitting a 12-year low in March. Americans are deploying money they put in money-market accounts during the credit crisis back into the markets. And there's more ammo on the sidelines: almost $3.45T remains in U.S. money-market accounts.

Where Do Interest Rates Go From Here?

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Bond investors are filling the same squeeze that stock investor have been facing - what to do with cash? Based the chart below prices are up and yields are near or at there low. Wisdom would have one stay relatively short and in high quality.

Financial Tidbits

Office rents plunge. Office rents fell 8.5% Y/Y in Q3, the biggest drop since 1995, according to research firm Reis. The decline came as renters returned a net 19.6M square feet to landlords; YTD they've given back 64.2M square feet - the highest negative absorption rate on record. The vacancy rate of 16.5% is a five-year high. With more job losses still predicted, many say it's too soon to look for a bottom: "If employers are still shedding jobs, they are also going to shed space."

Better economy doesn't inspire spending. Consumers are feeling an improvement in the U.S. economy, but concerns about their personal finances are limiting their spending plans. Only 19% of respondents in Discover's U.S. Spending Monitor said they expect to spend more in the next month, even though 33% now feel an improvement in economic conditions. "There appears to be no indication consumers are willing to increase their spending," Discover's Julie Loeger said.

Source: SeekingAlpha.com, "Wall Street Breakfast: Must-Know News", 10-7-2009

Quote:

For those still in equities, we believe Tyler Durdern at Zero Hedge said it best,

Go long here at your peril.

Roubini Interview - "Too Much, Too Soon, Too Fast"

“Markets have gone up too much, too soon, too fast,” Roubini said in an interview in Istanbul on Oct. 3. “I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped. That might be in the fourth quarter or the first quarter of next year.”

‘Growing Gap’

“The real economy is barely recovering while markets are going this way,” Roubini said. If growth doesn’t rebound rapidly, “eventually markets are going to flatten out and correct to valuations that are justified. I see a growing gap between what markets are doing and the weaker real economic activities.”

source:Bloomberg.com, http://www.bloomberg.com/apps/news?pid=20601087&sid=aM2YCVc3cUOI

A Must View - Fox New Clip

Copy & Paste the following link into your browser:

http://video.foxbusiness.com/10261104/dollars-impact-on-markets/?category_id=1292d14d0e3afdcf0b31500afefb92724c08f046

Research Edge's Keith McCullough highlights potential issues we face in our economy and stock market.

As I have told all of my clients, the current market rebound is due to liquidity expansion (excess cash) than fundamentals (earnings growth and/or P/E expansion). Granted comparison earnings will look better year over year (yoy), just because last year looked so bad. But when you smooth out the earnings over multiply we still have a long way to go.

This is not the time to chase the market.