CEOs Turn Pessimistic

CEO Roundtable just released their findings, Q3 2010. They are more pessimistic than the prior quarter. Below is a chart from the report (click to enlarge).



Copy of Press Release

BAD TIMING - Enemy # One for Investors

Morningstar published a interesting article noting that investor's "Bad Timing" destroyed their investment returns. The past decade ("The Lost Decade") helped demonstrate this as investors chased returns. They bought last year's winner and sold last year's loser, i.e. bought high sold low. The article is linked below for further reading. In the end it was the investors who caused his own destruction.

Morningstar Article

Second Wave of Short Sales

U.S. homeowners in trouble increasingly turn to a short sale. A second wave of distressed-home sales is sweeping through the U.S., but it is much quieter than the first because borrowers who cannot pay leave before foreclosure, turning instead to a short sale. The volume of short sales has tripled since 2008. Researcher CoreLogic forecast 400,000 short sales for this year. The Washington Post (26 Sep.) , Sun-Sentinel (Fort Lauderdale, Fla.) (23 Sep.) , Bloomberg (27 Sep.)

Washington Post Link

Fed Comments and More

At the September Federal Open Market Committee (FOMC) meeting, the Fed announced that it is "prepared to provide additional accommodation if needed to support the recovery" and "return inflation to levels consistent with [the Committee’s] mandate." The Fed maintained the view that the recovery in output and employment had slowed and acknowledged that current inflation was running below target. The tone of the statement released in August was more cautious than that of the previous meeting in June, reflecting the softer economic data in the intervening period.

So they have "deflation" concerns, i.e. do to deleveraging. And their answer is to put us back on the crazy borrowing treadmill that got us in this mess to begin with.

Must Read Article

Recession Ended in June of 2009

U.S. recession officially ended in June 2009, committee says. The Business Cycle Dating Committee, an arm of the National Bureau of Economic Research that decides when U.S. recessions start and stop, ruled that the most recent recession ended in June 2009. That makes the downturn, which started in 2007, the longest recession in the U.S. since World War II. The Economist (20 Sep.)

Article Link

Note sure if America agrees.

Shiller: There Will Be More Bubbles

It’s amazing how much money and effort the government has thrown at the financial crisis over the last few years and yet it’s looking more and more like they’ve accomplished very little. The stimulus was a short-term fix, the housing stimulus has simply propped up prices, and the financial regulatory reform bill is unlikely to prevent future crises.

In the following segment Robert Shiller discusses how the government actions have failed us. He believes the economy remains very weak and that the government has not done enough to target the right areas of the economy. He is worried that house prices could decline further and that we’re entering a soft patch that could reveal underlying private sector weakness:

Video Link

Unlimited Support and First Hints of Inflation

In response to a string of weak economic data in July and early August, Bernanke announced a new round of quantitative easing. He said he will do whatever it takes to keep the economy growing. “Whatever it takes” could include purchasing more treasuries, corporate bonds, or possibly even stocks. There is no limit to how much money Bernanke can print, but excessive printing will eventually lead to severe inflation. We have begun seeing the first signs of moderate inflation. Prices are rising at a pace of about 2% a year. This is not meaningful in itself, but has significant policy implications. When the country was experiencing deflation, Bernanke could print money with impunity. Now that we have low inflation, more printing could quickly lead to high inflation. To be clear, without a significant negative shock to the economy, significant inflation is a high likelihood within the next year or two. A negative shock like a debt crisis or severe double dip recession would likely postpone the inflationary pressure for at least a few more years.

The above was pulled from the following post on SeekingAlpha.com - Article Link

When we add Fannie Me and Freddie's latest "zero down" offering into the equation I believe the Fed is doing every and any thing they can to ignite INFLATION, i.e. artificially holding asset values up. Isn't this part of the problem that got us into trouble to begin with???

US Failures to Turn Tech into Profit

U.S. failure to turn technology into profit worries experts. Researchers and engineers in the U.S. have turned out a stunning array of technological breakthroughs in the past 20 years, only to see jobs and economic benefits they generated end up overseas. Without better policy, foreign manufacturers likely will to continue to reap the benefits of U.S. innovation, experts said. For decades, while the U.S. adopted tax and other policies to encourage companies to move offshore, Germany, Japan and South Korea used their government power to keep production at home, the experts said. Los Angeles Times (13 Sep.)

LA Times Article Link

Next Bubble - China's Property Market

China's property-market bubble is poised to burst. Property has emerged as the preferred investment choice for the Chinese, and the situation is fueling concern that the market is bubbling. A prominent economist said China's property market has overheated. "Many of them are bought by property speculators betting on a constantly rising property market," Yi Xianrong wrote in a commentary in People's Daily. "This is a serious threat to the sustainability of China's economy." FinanceAsia.com (08 Sep.)

Article Link

US Dividend Yield High Than Bond Yields

U.S. stock dividends are exceeding bond yields the most in 15 years. With U.S. corporate profit increasing at the fastest rate in two decades, more stocks are paying dividends higher than bond yields than at any time in the past 15 years. Shares in Johnson & Johnson, the world's biggest health-product company, pay a 3.66% dividend, compared with a 2.66% interest rate on the company's 10-year debt sold last month. Companies increased payout by 6.8% in the second quarter, according to data compiled by Bloomberg. Bloomberg (07 Sep.)

Krugman is Wrong!