Interesting Comments From Liu Mingkang

Here is a link to a November 16 Wall Street Journal article titled "China's Blunt Talk for Obama":

http://online.wsj.com/article/SB125826103009548975.html

I found this to be particularly interesting:

"Liu Mingkang, chairman of the China Banking Regulatory Commission, said that a weak U.S. dollar and low U.S. interest rates had led to "massive speculation" that was inflating asset bubbles around the world. It has created "unavoidable risks for the recovery of the global economy, especially emerging economies," Mr. Liu said. The situation is "seriously impacting global asset prices and encouraging speculation in stock and property markets."



SPX at 1109.80 as this post is written

Ben Bernanke On Unemployment

Ben Bernanke gave a speech on Monday at the Economic Club of New York. Here is the link:

http://www.federalreserve.gov/newsevents/speech/bernanke20091116a.htm

I found his comments on unemployment to be noteworthy:

Here are some excerpts:

"In addition to constrained bank lending, a second area of great concern is the job market. Since December 2007, the U.S. economy has lost, on net, about 8 million private-sector jobs, and the unemployment rate has risen from less than 5 percent to more than 10 percent.6 Both the decline in jobs and the increase in the unemployment rate have been more severe than in any other recession since World War II.7

Besides cutting jobs, many employers have reduced hours for the workers they have retained. For example, the number of part-time workers who report that they want a full-time job but cannot find one has more than doubled since the recession began, a much larger increase than in previous deep recessions. In addition, the average workweek for production and nonsupervisory workers has fallen to 33 hours, the lowest level in the postwar period. These data suggest that the excess supply of labor is even greater than indicated by the unemployment rate alone."

also:

"The best thing we can say about the labor market right now is that it may be getting worse more slowly."

also:

"As the recovery becomes established, however, payrolls should begin to grow again, at a pace that increases over time. Nevertheless, as net gains of roughly 100,000 jobs per month are needed just to absorb new entrants to the labor force, the unemployment rate likely will decline only slowly if economic growth remains moderate, as I expect."



SPX at 1110.32 as this post is written

Gold And XLF

One of the charts that I follow is the ratio of Gold to XLF. As XLF is a prominent ETF of the financial stocks, it can serve as a proxy to "paper assets."

While I think it is difficult to make concrete conclusions based upon the Gold:XLF chart, I think it does provide a "feel" for some aspects of Gold's performance.

Here is the daily chart from 2007:




Chart Courtesy of StockCharts.com

In the above chart, Gold:XLF is plotted highest, with Gold and XLF plotted separately below. I find it interesting that while Gold's price has been performing strongly recently, the peak in the Gold:XLF ratio actually came in March. This seems to cast doubt upon the idea that Gold's recent strong performance is being driven by its "safe haven" qualities. As I commented in my November 10 post on Gold:

"In effect, could the current strong performance of Gold somehow be a precursor of (more) economic problems? The answer ... can certainly be “yes.” However, if so, it would be odd to have Gold rising strongly at the same time low quality paper assets have been rising strongly as well. From a long-term historical perspective, usually Gold’s “safe haven” qualities are most highly valued when “paper” assets are suffering."

Many people have traditionally viewed Gold as an "alternative" asset - one that should hold its value if other asset values fell. Given Gold's performance over the last few years, a Gold investor should assess if such an inverse relationship still exists, or if Gold has somehow transmogrified into just another asset that is (highly) correlated with all other assets.



SPX at 1107.02 as this post is written

The Latest Wall Street Journal Economic Forecast Survey

Here is a link to the latest (November) WSJ Economic Forecast Survey:

http://online.wsj.com/article/SB125797275784744057.html

There doesn't appear to be any major changes in expectations among the surveyed economists. As the survey states, "The economists expect gross domestic product to expand around 3% at a seasonally adjusted annual rate through 2010, slightly slower than the 3.5% recorded in the third quarter."

Also:

"More than half of the respondents see a U-shaped recovery with some slowness followed by solid growth, and 31% forecast a stronger, V-shaped recovery. Just 11% of economists expect an L-shaped rebound where economic activity stabilizes at a low level, and only 7% see a double-dip recession—another drop in gross domestic product after a short rebound—as the most likely scenario."

I find the 7% figure that see a double-dip scenario as being somewhat surprising. However, what I really found amazing was found in the detail section of the survey. The question was presented:

"What is the most likely potential asset bubble?"

Commodities 41%
Emerging-market equities 27%
Emerging-market real estate 22%
Treasurys 6%
High-yield bonds 4%
U.S. equities 0%

I found the responses to the last five categories (Emerging Market Equities to U.S. Equities) to be very low, and the 0% response to U.S. equities is amazing.

One other miscellaneous comment attached to the above "asset bubble" question was notable as well: "Rebounds in markets after widespread depression worries is not the making of a bubble."

_____

Regular readers of this blog know that I am not in agreement with the consensus displayed by economists with regard to the present and future economic condition...

As an FYI, I put together a recap of various economic forecasts and predictions made from mid-2007 through March 2009. They can be found on this page under "Predictions", the second article listed:

http://economicgreenfield.blogspot.com/p/directory-of-articles.html

Economic forecasts since mid-March 2009 can be found under the "Economic Forecasts" Category.


SPX at 1111.05 as this post is written

Singapore's Healthcare System

I ran across this piece, titled "What Singapore Can Teach the White House," in the Wall Street Journal from October 20. I found it very interesting, as it discussed the healthcare system for Singapore.

SPX at 1110.73 as this post is written

A Note On Healthcare Legislation

There is so much that can be said about our healthcare system and the reform efforts underway. My previous post on the topic is from August 19.

There is one special aspect of the current legislation that I would like to comment upon. This aspect is that no member of Congress or the President would participate in the proposed healthcare program.

I find this highly notable, and I am very disappointed by it.

It is a responsibility and obligation of leadership for them to be included in such a proposal. As well, their enrollment in the plan would signal confidence in the quality and benefits of the legislation.

If they have acted in a forthright and dignified fashion, and have fulfilled their fiduciary responsibilities as well as moral obligations in creating this legislation, they would ostensibly have no objection in including themselves in such a plan.



SPX at 1087.24 as this post is written

Ron Paul - "Be Prepared for the Worst"

I would like to comment on a commentary by Ron Paul in the November 16 edition of Forbes. It is titled "Be Prepared for the Worst" and subtitled "The large-scale government intervention in the economy is going to end badly."

The commentary can be found at this link:

http://www.forbes.com/forbes/2009/1116/opinions-great-depression-economy-on-my-mind_print.html

While I don't agree with everything that Ron Paul says, I did find this commentary to be very interesting and well worth reading. Here are some excerpts that I found particularly noteworthy:

"A false recovery is under way."

also:

"This is nothing less than the creation of another bubble. By attempting to cushion the economy from the worst shocks of the housing bubble's collapse, the Federal Reserve has ensured that the ultimate correction of its flawed economic policies will be more severe than it otherwise would have been."

also:

"What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years."



SPX at 1095.85 as this post is written

Food Bank Article

On October 30 The Chicago Tribune had an article titled "Trying to keep up with hunger." The article was about food assistance provided by the Northern Illinois Food Bank, of which Dennis Smith is executive director and CEO.

There are some interesting (and disturbing) passages in the article. Here are a few:

"'The number of people visiting the 525 food pantries, soup kitchens and youth locations across the region has gone up 35 percent from a year ago,' Smith said."

"'Hunger is exploding in northern Illinois and the small agencies are being hit harder than ever before,' Smith said."

"'A lot of the people we're seeing today have never been to a food pantry before,' he [Smith] said during the Oct. 22 tour."

_____

The last quote shown above further reinforces a trend that I commented upon in a July 15 post.  I called this trend the "first time of adversity" effect, a very important concept.


SPX at 1104.90 as this post is written