Month: June 2013

By www.CentralBankNews.info Here’s today’s Central Bank News’ link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.

By MoneyMorning.com.au

We would be lying if we said this market is plain sailing for investors.

That’s why we don’t claim that.

If we thought this market was risk-free then we would tell you to put all your money into stocks.

But it isn’t. So we won’t.

We only suggest you have less than 50% of your investment savings in the stock market. Even though some say that’s still too much.

But whatever amount you set aside for the stock market, it should be something. Because the worst thing you can do is to avoid the market completely – especially right now. Here’s why…

We know it’s not cool to say that we like stocks. Not when the papers are full of talk about money printing, central banks and bond bubbles.

But we’re not interested in being cool. We’re just interested in making money…as much as we can. And our bet is you think pretty much the same way.

That’s why you read our email each day.

You want us to show you the best way to make money. Last Monday we claimed the best way to make money was to either start a business, or to invest in shares.

We gave you a couple of examples – Richard Branson and Kerry Packer. But perhaps that wasn’t enough to convince you. So today we’ll give you 10 more examples…

Investing in Stocks Beats Property on the Road to Riches

Below is a list of the world’s top 10 billionaires, according to Bloomberg (all amounts in US dollars):

1. Bill Gates – $72.1 billion
2. Carlos Slim – $67.8b
3. Warren Buffett – $61.1b
4. Ingvar Kamprad – $53.1b
5. Amancio Ortega – $53b
6. Charles Koch – $44.3b
7. David Koch – $44.3b
8. Larry Ellison – $40.8b
9. Christy Walton – $36.8b
10. Jim Walton – $35.1b

All these folks have one thing in common. They invest in businesses – a wide variety of businesses too. Bill Gates, of course, built his wealth through Microsoft [NASDAQ: MSFT]. Ingvar Kamprad built the IKEA furniture stores. And Christy and Jim Walton inherited wealth in Wal-Mart [NYSE: WMT].

And it’s not just the top 10 either. If you go down the list of the other 90 billionaires, you’ll find the same pattern – men and women who invest in business.

You can’t argue with those numbers. If you want to build wealth you need to invest in businesses. That’s true whether you want to be a billionaire or just a ‘plain old’ millionaire.

But what about property? As we said last week, property is a genuine way to build wealth…but it’s not a great way. Sure, plenty of folks have made a lot money from property – Trump, Lowy, Grollo.

But let’s look at the property billionaires in the Bloomberg top 100. How many do you think there are? 10? 20? What about 30?

Try three – Lee Shau Kee ($24.2b), Donald Bren ($14.3b), and Gerald Grosvenor (aka the Duke of Westminster – $12.7b). That’s not a great report card for property investment.

But we won’t give property investors too much stick. As we say, you can make money from property. In fact, you should check out this report  that unveils some remarkable claims about the Australian property market. It includes the extraordinary prediction that the Australian property market is on the cusp of a 14-year bull market run. Is that really possible? Check it out for yourself.

Besides, there are two investment classes that are a no-show in the top 100. Can you guess what they are?

Even After Recent Falls, Stock Investors are Still Ahead

The first one’s easy – cash. You won’t build lasting wealth for retirement by keeping all your savings in cash.

And as for the second (we’re sorry to say this to our gold investing pals), there isn’t a single person on the billionaire list who made their wealth primarily by investing in gold.

Of course, past performance isn’t always a guide to future performance, but if you believe that history is important when predicting the future, then history tells you that investing in businesses is the best way to create wealth.

That’s why we back the stock market every time over every other investment class…not for all your money, but for part of it.

It’s why we’ve never believed you should have all your money in gold and silver. And by the same token it’s why we’ve never believed you should have all your money in cash. Even when the market was as scary as heck we advised having at least 25% of your wealth in stocks.

So, are all businesses alike? Or should you pick a particular sector to invest in?

According to the Bloomberg list of top 100 billionaires, wealth accumulated and invested in diversified sectors takes the top billing with 22 billionaires.

But we prefer the second most popular category – technology. Not just because five of the top 30 billionaires are technology billionaires, but because we believe the technology sector will become the biggest path to wealth over the next 20 years. Not just for billionaires, but for everyone.

So yes, we get it. The stock market has rallied hard (1,200 points in 12 months), and now it has fallen (300 point in two weeks). But when you crunch the numbers, if you missed out on the rally because you were too scared to buy stocks, you’re much worse off than you could have been.

But don’t panic. If you missed that rally, that’s in the past. Just make sure you don’t miss out on the next one.

You’ve still got time. We still see the Aussie market tracking sideways for the rest of this year. It’s now trading at the bottom of the range, so it’s a great time to buy stocks. It’s not risk-free, but it’s a risk worth taking.

Cheers,
Kris
Join me on Google+

PS. Technology stocks will be the single best place to invest your money over the next 20 years. That’s why we’ll soon launch a new technology investing newsletter, Revolutionary Tech Investor. We’re so confident in this view that we’ve hired a technology analyst, Sam Volkering, to help out. He’ll help identify the best technology trends and which companies can offer the most profitable opportunities for investors. In today’s Money Morning, Sam introduces part one of a three part series discussing what he believes will be the 10 key technology trends of the future…

From the Port Phillip Publishing Library

Special Report: How to Buy Better Stocks

Daily Reckoning: Reckoning on the Perils and Potential of Property

Money Morning: Money Weekend’s FutureWatch: 1 June 2013

Pursuit of Happiness: How One Reader Saved $300 with a Simple Phone Call

By MoneyMorning.com.au

It’s almost impossible to predict the future with 100% accuracy. But that won’t stop me taking a stab at it. A big part of our new technology investment service will be working out which technologies have the best chance of succeeding and which will be a flash-in-the-pan.

What follows is just a sample of some of the technologies under development right now. Let me make this clear: I haven’t just made-up a lot of random futuristic ideas. The Revolutionary technologies you’ll read about below are projects being developed in laboratories and research centres round the world…

From hypersonic jet travel to near-space exploration and vacation, to medical and scientific breakthroughs that could rewrite the laws of physics.

It’s impossible to tell how many (if any) of these developments will succeed, but you should know that technology is rapidly changing the world. Even if none of these achieve commercial success, you can be sure that something just as incomprehensible and spectacular will. Read on for our take on the future…

1. Sydney to London and Back Again, Just for a Two Hour Meeting?

   When Concorde had its farewell flight on the 26th November 2003 it was a sad day in the progression of high speed intercontinental travel. But not all hope was lost.

   The pinnacle of terrestrial travel has been London to Sydney in less than four hours. That required speeds in excess of Mach 5, commonly referred to as the point of Hypersonic Travel.

   But the problem is at that speed, current engine technology gets too hot. Air flow reaches temperatures in excess of 1,000 degrees Celsius. That would melt most materials used in typical aircraft, so it’s not a good idea for an engine.

   Hence hypersonic travel has been out of reach. But what’s the best way to reduce the temperature of something that’s hot? Cool it. Simple. A joint program between the European Space Agency and Reaction Engines is working on a plane capable of Mach 5 flight cruising speed.

   Reaction already has the engine technology. The ESA are working on a body design.

   Put the two together and the next step is a fully functioning prototype for hypersonic travel. London to Sydney in four hours may be closer to reality than you think.

2. After China the Next Manufacturing Revolution Could be in Your Home

   There’s been a lot of talk about 3D printing for some time.

   Some say it’s great, some say it’s a fad. Let’s get one thing straight though. This technology is a part of the revolution in manufacturing that hasn’t happened since stonemasonry was established.

   3D printing isn’t just about making Yoda Bobble Heads for your Toyota Prius, or making a plastic gun to shuffle through airport security. It’s about taking this technology and putting the capability to make things into the hands of everybody.

   Here are a few things you probably didn’t know 3D printers have done:

   • Printed a custom fitted jawbone for an elderly lady that was otherwise going to have to eat through a straw for the rest of her life.
   • Printed a trachea splint for a newborn baby who otherwise would have suffocated to death.
   • Printed a pizza made from ingredients and protein abundantly found in nature.
   • Printed a car. Lightweight, aerodynamic and with the structural rigidity of racing cars.

   What this means is it’s not just some gimmick or fad. But a whole new approach to tackling problems to find innovative, creative solutions. It’s a change of attitudes towards the traditionally accepted methods of manufacturing.

3. The Rechargeable Battery That Rewrites the Laws of Physics

   The biggest issue with batteries is they run out and take forever to recharge.

   The same goes for electric cars.

   The bigger problem for electric cars is that if it runs out while you’re on the road, there may not be somewhere to recharge it.

   But what if there was an electric car that generated energy from the invisible radiofrequency that is all around us? A car that charged its battery while driving, and never ran out of charge?

   Some might say that’s impossible. But Nikola Tesla didn’t think so when he made his Tesla Pierce-Arrow electric car. But that vanished; along with proof his invention in 1931 was even real.

   But another man today has made his own version of the free electric car. Ismael Aviso has created an electric motor and battery that has 133% efficiency. In simple terms, it makes more energy than it uses.

   It does this by capturing energy from radiofrequency that is invisible, abundant…and free.

   Aviso has the world’s first demonstrated free energy engine. Importantly, this isn’t a trick a fake or a scam. The Philippine Department of Energy has also verified Aviso’s invention as legitimate. Aviso has put his engine in a car, and in effect now has a car with unlimited range. No fuel, no recharging…ever.

We’ll be back with part two of this series tomorrow, including why your mind could be the most powerful computer of the future…

Sam Volkering.
Editor, Money Morning
Join me on Google+

From the Archives…

Keep One Eye on Resource Stocks and the Other on the NASDAQ
31-05-2013 – Kris Sayce

Getting in on the ’99 Cent Craze’ with Crowdfunding
30-05-2013 – Sam Volkering

Buyer Beware: Japanese Government Bonds are Moving
29-05-2013 – Murray Dawes

The Best Contrarian Play on Gold I’ve Ever Seen…
28-05-2013 – Dr Alex Cowie

A Revolution in the Share Market is Coming…
27-05-2013 – Kris Sayce

USDCAD stays in a trading range between 1.0286 and 1.0420. Key support is at 1.0286, as long as this level holds, the price action in the range is treated as consolidation of the uptrend from 1.0013, one more rise to 1.0500 area to complete the upward movement is possible after consolidation. On the downside, a breakdown below 1.0286 support will indicate that the uptrend from 1.0013 had completed at 1.0420 already, then the following downward movement could bring price back to 1.0100 zone.

Daily Forex Analysis

By Chris Vermeulen, thegoldandoilguy.com

Timing stock market tops and bottoms is risky business and we all know the more the more risk we take the more potential gain would could also make. Correctly timing a top or bottom for any investment is flat out exciting not to mention financially rewarding. But this high risk trading tactic does come with some major issues which you must FULLY understand so that you can protect your capital and self-confidence.

On May 13^th I wrote a special report on how to spot market tops just before they happen and how to do it with a very high probability of success. I also explain the major pit falls to be aware of so you stay on the right side of the market.

I recommend you read this special report now: http://countingpips.com/forex-news/2013/05/how-to-spot-time-stock-market-tops/

That special report truly showed you what was going to happen a few weeks before it did. Much like how this report shows you what is likely to happen in June.

Looking at the market with my YOU ARE HERE type of using cycles, volume, price patterns and momentum to forecast what is likely to unfold in the coming weeks. Depending on the time frame used for my analysis I can figure out with a high probability where price will be in a few minutes, hours or days also.

Mall Market Directory – You Are Here

Stock market tops are tough to trade and time. That is because there are so many things happening in the media and emotions running wild that it’s tough to get a grasp on what you should really be focusing on to keep a level head trade around it.

Market tops are typically not an event but rather a progression that takes much longer than most individuals expect. I still find myself jumping the gun at times and I know this and have been through this process hundreds of times in various investments. The human brain is a powerful tool but emotions can force you to override your rules/strategy still.

Stop Fighting! – Bulls & Bears are BOTH Correct at this Stage

It does not matter where you go to get your stock market news and reports… Everyone is arguing their bullish or bearish case more than EVERY. There is a reason for this and it’s because the SP500, DJIA, RUT and NASDAQ appear to be entering a cycle top. What does this mean? It means the uptrend is almost over from a technical analyst point of view, and those who are have been bearish for a long time feel the market topping out more now than ever in their gut that this is the top.

Keeping it simple removing news, economic data, emotions and biases we are left with one thing which is technical analysis. This is based on price alone and that is important to remember because the only thing that pays you money for an investment is when price moves in your favor. Believe it or not price only has blips on the charts here and there which is based off news, economic data etc… In the big picture stock prices tend to lead economic data by several months and in some cases years.

So the big question is this… If price action is the only thing that pays you when trading why bother worrying about all the other opinions, news out there. That stuff only adds to the confusion and in most cases gets you on the wrong side of the market.

Timing the Market Top Conclusion:

In short, from a technical point of view the SP500 remains in an uptrend. But according to technical analysis the upside momentum is starting to slow. If we get a few more down days then the trend will flip and be down but it has not yet happened.

When the trend does reverse down you must remember that 80% of the time price will bounce back up to test near the recent highs before truly rolling over and collapsing. Think of it like a zombie movie. Just when you think you killed one it comes back to life for one last scare before its dead.

Just to touch on stock market bottoms so you do not get confused. Stock market bottoms are little different than tops so they are traded differently. I will cover them when the time comes.

Trading the market is not easy during this type of condition, which is why members and myself got long SSO on the 23^rd and two days later sold out for a 3.5% gain. I am now looking to reload this week for another bounce/rally play but only time will tell if we get another setup.

Download my FREE eBook on Controlling Your Trades, Money & Emotions: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

By www.CentralBankNews.info
    A return to normal economic conditions after years of quantitative easing is likely to be volatile for financial markets as investors adapt to rising interest rates, according to Stephen Cecchetti, senior economic adviser at the Bank of International Settlements (BIS).
    After disappointing U.S. economic data between mid-March and mid-April, signs of economic growth have improved since early May and sentiment among investors has become more optimistic, Cecchetti told journalists in connection with the release of the latest BIS quarterly review.
    While volatility in financial markets is normal and part of the adjustment to new information, Cecchetti warned that it also carries risks due to the large amount of bonds that are now owned by financial institutions, households and firms.
    “The ride to normality will almost surely be bumpy, with yields going trough calm and volatile periods as market participants digest sometimes conflicting news about the recovery,” Cecchetti said.
    Last week the yield on the benchmark U.S. 10-year Treasuries rose to over 2.2 percent from 1.6 percent in early May, a move that is hardly a surprise as interest rates rise as the economy recovers.
    But financial institutions and other investors now hold large amounts of interest-sensitive assets on their balance sheets and they are facing potential losses.
    “With the outstanding volume of government bonds greater than ever, interest rate risk – expressed as potential losses in relation to GDP – is at a record high in most advanced economies,” Cecchetti said.

    Economists have estimated that total outstanding debt has exploded by some $34 trillion since the eruption of the global financial crises in 2007 as authorities have fought to stimulate economic growth. It is estimated that central banks have taken about $10 billion of debt onto their balance sheets, leaving some $25 trillion in newly-issued debt that is held by financial institutions, households and firms.
   While sophisticated hedging strategies may shift this interest-rate risk from some banks to other institutions, it won’t completely eliminate the risk and there will be widespread losses, he warned.
    The best way to guard against the possible disruptions to financial markets and economic growth is high capital buffers and robust balance sheets, Cecchetti added.

    www.CentralBankNews.info
 

By www.CentralBankNews.info     A boom in credit usually foreshadows a financial crises but authorities failed to spot the build-up in total credit from the late 1990s through 2006 because they were looking the other way, according to an article in the latest quarterly review from the respected Bank of International Settlements (BIS).
    While authorities were busy looking at lending by domestic banks, which only rose slowly, credit created by foreign institutions and non-banks – the so-called shadow banking sector that includes pension funds, mutual funds, hedge funds, and insurance companies – exploded.
    “A new BIS database reveals, for example, that banks may provide as little as 30% of total credit to the private non-financial sector, as is currently the case in the United States,” said the article by senior BIS economist Mathias Drehmann.
    The database, which captures all sources of credit regardless of source or origin, provides more information than the traditional measurements of bank credit and is therefore useful as an early warning indicator for financial crises, Drehmann finds.
    That finding has very practical implications for banks as the Basel III global rules include countercyclical capital buffers that are based on a credit-to-GDP gap, but they don’t specify how national banking regulators should calculate that gap.

    The article finds that the BIS database meets the Basel guidelines for measuring such a gap. Regulators can therefore use it to ask banks to set aside more funds as a buffer against possible losses when there are signs that the credit-to-GDP gap is exceeding critical thresholds.
    Testing the validity of the measurements for total credit-to-GDP versus bank credit-to-GDP on the U.K., Drehmann found that the bank gap measure did not signal any large build-up in credit ahead of the global financial crises.
    “In contrast, the total gap clearly captured the run-up in credit from the early 2000s onwards,” as it reflects the role played by non-bank funding, such as securitization, the main driver behind the explosion in credit.

    The development of the database and the early warning indicator is part of the BIS’ focus in recent years on filling the gaps that were so glaringly exposed by the financial crises.
    Not only were authorities looking in the wrong direction of credit generation, and mainly focused on keeping inflation under control, they didn’t have the right tools to spot the flashing red lights.
    The latest BIS quarterly review makes further, practical progress in forging such new tools.
    In addition to Drehmann’s article, which proposes how authorities can avoid being blindsided in the future, the review includes articles on how to spot systemically important institutions and how to tackle the failure of a too-big-to-fail financial institution.
    The article by Chen Zhou of the Netherlands central bank and Nikola Tarashev of the BIS, looks to gauge the systemic importance of individual banks during financial crises.
    Given the relative rare event of financial crises, the authors use tools from so-called extreme value theory with measurements of bank size and probability of default.
    The authors find that the more systemically important banks tend to be larger, more leveraged and more active in interbank markets.
    In contrast, the banks that are less systemically important tend to have a higher share of net interest income in total income, resort more to stable sources of funding and have lower operational costs.
    A third article in the BIS review proposes a practical model for recapitalizing major banks that have failed or are at the brink of failure, an issue that was highlighted in Cyprus when authorities initially asked insured bank depositors to share some of the burden of rescuing the banking system.
    Policy makers worldwide are currently working on how to make sure that the failure of a major bank, the so-called too-big-to-fail banks, doesn’t threaten to bring down entire economies, as occurred during the global financial crises in 2007-2009.
    The article by Paul Melaschenko, and Noel Reynolds proposes a recapitalization mechanism for such too-big-to-fail banks that ensures that shareholders and uninsured private sector credits, rather than taxpayers bear the cost of resolution.
    The mechanism is simple, respects the existing creditor hierarchy, can be applied to any part of a bank, and can be carried out during a weekend, the authors write.

    www.CentralBankNews.info

Forex Weekend Update & Outlook: USD Specs bets up to $43.77 Billion

The weekly Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that large futures traders continued to add to their total bullish bets of the US dollar again last week. Total US dollar long positions have risen for four consecutive weeks and are at a new high level since 2008 when Reuters started calculating total amount of positions, according to Reuters.

Non-commercial large futures traders, including hedge funds and large International Monetary Market speculators, raised their overall US dollar long positions to a total of $43.77 billion as of Tuesday May 28th. This was an increase from the total long position of $41.0 billion registered on May 21st, according to position calculations by Reuters that derives this total by the amount of US dollar positions against the combined positions of euro, British pound, Japanese yen, Australian dollar, Canadian dollar and the Swiss franc.

See the full COT report & charts here…

US Dollar had Mixed Week vs Major Currencies

The US dollar had mixed results last week against the other major currencies in the foreign exchange trading markets. The greenback continued its ascent against the commodity currencies (Australian dollar, New Zealand dollar, Canadian dollar) while falling against the European currencies (euro, British pound sterling, Swiss franc) and also declining against the Japanese yen for a second straight week.

This week’s fundamental calendar is full of important economic events with a major focus on Friday’s US nonfarm payrolls report while there is also three interest rate decisions (Australia, euro zone, United Kingdom) for the markets to digest.

See the full Technical Currency Pairs post and charts here…

Upcoming Week’s Economic Events Highlights:

Monday, June 3

United States — ISM manufacturing
China — PMI
Australia — retail sales

Tuesday, June 4

Australia — interest rate decision
Australia — current-account
United States — US trade balance

Wednesday, June 5

Australia — GDP report
euro zone — GDP report
United States — ISM nonmanufacturing

Thursday, June 6

UK — Bank of England — interest rate decision
euro zone — European central bank — interest rate decision

Friday, June 7

United Kingdom — trade balance
Germany — trade balance
United States — nonfarm payrolls report
United States — unemployment rate
Canada — employment change and unemployment rate

See our full economic calendar for more events.

It’s not a surprise the Bank of Japan is failing at quantitative easing. Is America really so different that it will succeed here? My decisive answer: NO!

The central bank of Japan took to repeated rounds of quantitative easing to spur growth in the Japanese economy. Its main goal: improve exports. By selling more to the global economy, the country thought it could witness economic growth.

But the Japanese economy is experiencing the opposite. In April, the Japanese economy’s trade deficit increased to $8.6 billion. This was the widest gap in April trade since 1979. (Source: Bloomberg, May 21, 2013.) Instead of exporting more, Japan is importing at a record pace!

And retail sales in the Japanese economy declined 0.1% in April, continuing their decline from March, when they declined 0.3%. (Source: RTT News, May 28, 2013.)

Simply put, the Japanese yen has become a victim of quantitative easing—but it hasn’t helped the Japanese economy export more as was initially hoped. Since the beginning of the year, the yen is down 16% compared to other major currencies, as depicted in the chart below.

Chart courtesy of www.StockCharts.com

Just as it is here in the good old U.S., the only economic indicator that seemed to be benefiting from the Japanese money printing was the Japanese stock market. Since the beginning of 2013, the Nikkei 225 index has gone up more than 30%…but now it’s dropping like a rock, as corporate profits have failed to materialize to sustain the rally.

Returning to the U.S. economy, the quantitative easing by the Federal Reserve here could have the same effect that quantitative easing had in the Japanese economy—nothing. The demand from consumers in the U.S. economy is weak. The revised estimates of the gross domestic product (GDP) for the U.S. economy as reported by the Bureau of Economic Analysis (BEA) yesterday edged lower to 2.4% in the first quarter of 2013. (The BEA previously reported an increase of 2.5%.)

According to the BEA, inventories in the private sector U.S. businesses have been increasing, reaching $38.3 billion at the end of the first quarter of 2013, compared to $13.3 billion in the fourth quarter of 2012.

Through quantitative easing, the Federal Reserve has printed a significant amount of new money. But will we face the same music here? Instead of having a lower currency spur exports, will currency devaluation backfire for the U.S. just as it did in Japan?

As I have been writing for months, quantitative easing (money printing) is a short-term fix, which if left running for too long, will cause bigger problems than those it was first intended to resolve!

We’re following in the Japanese economy’s footsteps. Massive money printing there failed to boost the economy and only created another stock market bubble that is now bursting—the U.S. will face the same fate.

Michael’s Personal Notes:

Spain, the fourth-biggest economy in the eurozone, is showing us how troubles in the common-currency eurozone region are far from over.

The gross domestic product (GDP) of Spain contracted another 0.5% in the first quarter of 2013 from the fourth quarter of 2012, when it declined 0.8%. (Source: Bloomberg, May 30, 2013.) The Organization for Economic Cooperation and Development (OECD) just slashed its forecast for the Spanish economy and expects the unemployment rate in this eurozone nation to increase to 28%.

And adding to the worries…

The European Central Bank’s (ECB) assessment of the financial system in the eurozone suggested that due to the sharp economic slowdown in the region and a hike in bad bank loans, the risk of a further banking crisis is brewing. The ECB also commented that the weakest world banks were in the eurozone nations that have high unemployment and the most stressed housing markets. (No kidding!) (Source: New York Times, May 29, 2013.)

But it’s not just the small eurozone countries that are suffering; financially larger nations are experiencing an economic slowdown as well. Germany is begging for growth, and France is in a recession!

And austerity is failing miserably throughout Europe.

Consider Portugal, for example; it is experiencing a severe economic slowdown, and it expects to see its GDP contract in 2013 for the third straight year. This eurozone country has met all the requirements asked by those who bailed the nation out with more than $100 billion in cash. But exports to the country aren’t growing as much, and local demand hasn’t recovered. (Source: Wall Street Journal, May 27, 2013.)

The president of Portugal’s Supreme Court of Justice recently warned that the gap between the poor European nations and the richer ones will continue to widen unless Portugal and the other southern eurozone countries leave the common-currency region.

Note: there are political parties in countries like Portugal and Cyprus that have changed their opinions regarding their eurozone membership. Others in Italy want a referendum, two smaller parties in debt-infested Greece want out of the eurozone, and Germany is witnessing the rise of an anti-euro political party.

I realize I’m one of the few economic commentators who keep going back to these problems in the eurozone. I focus on them often because the eurozone troubles are not only unresolved and far from over, but they are also representing a huge risk to the global economy and, of course, a large risk to the U.S. economy. Many economists and the market in general are underestimating the repercussions of the eurozone mess.

What He Said:

“When I look around today, I see falling stock prices… I see falling house prices…and prices falling for retail goods stores. The media has it all wrong blaming (worrying about) inflation. In my opinion, the single biggest threat to the U.S. economy and to the Fed in 2008 is deflation. You can bet the Fed will expand the money supply and drop interest rates aggressively as deflation starts to rear its ugly head.” Michael Lombardi in Profit Confidential, December 17, 2007. Michael was one of the first to warn of deflation. By late 2008, world economies were embedded in the worst state of deflation since the Great Depression.

Article by profitconfidential.com

Spain, the fourth-biggest economy in the eurozone, is showing us how troubles in the common-currency eurozone region are far from over.

The gross domestic product (GDP) of Spain contracted another 0.5% in the first quarter of 2013 from the fourth quarter of 2012, when it declined 0.8%. (Source: Bloomberg, May 30, 2013.) The Organization for Economic Cooperation and Development (OECD) just slashed its forecast for the Spanish economy and expects the unemployment rate in this eurozone nation to increase to 28%.

And adding to the worries…

The European Central Bank’s (ECB) assessment of the financial system in the eurozone suggested that due to the sharp economic slowdown in the region and a hike in bad bank loans, the risk of a further banking crisis is brewing. The ECB also commented that the weakest world banks were in the eurozone nations that have high unemployment and the most stressed housing markets. (No kidding!) (Source: New York Times, May 29, 2013.)

But it’s not just the small eurozone countries that are suffering; financially larger nations are experiencing an economic slowdown as well. Germany is begging for growth, and France is in a recession!

And austerity is failing miserably throughout Europe.

Consider Portugal, for example; it is experiencing a severe economic slowdown, and it expects to see its GDP contract in 2013 for the third straight year. This eurozone country has met all the requirements asked by those who bailed the nation out with more than $100 billion in cash. But exports to the country aren’t growing as much, and local demand hasn’t recovered. (Source: Wall Street Journal, May 27, 2013.)

The president of Portugal’s Supreme Court of Justice recently warned that the gap between the poor European nations and the richer ones will continue to widen unless Portugal and the other southern eurozone countries leave the common-currency region.

Note: there are political parties in countries like Portugal and Cyprus that have changed their opinions regarding their eurozone membership. Others in Italy want a referendum, two smaller parties in debt-infested Greece want out of the eurozone, and Germany is witnessing the rise of an anti-euro political party.

I realize I’m one of the few economic commentators who keep going back to these problems in the eurozone. I focus on them often because the eurozone troubles are not only unresolved and far from over, but they are also representing a huge risk to the global economy and, of course, a large risk to the U.S. economy. Many economists and the market in general are underestimating the repercussions of the eurozone mess.

What He Said:

“When I look around today, I see falling stock prices… I see falling house prices…and prices falling for retail goods stores. The media has it all wrong blaming (worrying about) inflation. In my opinion, the single biggest threat to the U.S. economy and to the Fed in 2008 is deflation. You can bet the Fed will expand the money supply and drop interest rates aggressively as deflation starts to rear its ugly head.” Michael Lombardi in Profit Confidential, December 17, 2007. Michael was one of the first to warn of deflation. By late 2008, world economies were embedded in the worst state of deflation since the Great Depression.

Article by profitconfidential.com