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Duncan	04-Jun-05, 06:41 AM (GMT)
"women outperforming"
Friday, 3 June, 2005, 12:29 GMT 13:29 UK Women 'better investors than men' Share certificates Women investors are consistently better at investing in shares than men, a survey has said. The study, by financial website Digital Look, said women were more successful because they tended to back a balanced portfolio instead of more risky stocks. The average woman's share portfolio grew by 17% in the year to 27 May, the survey found, while the average man's rose by just 11%. Over the same period, the FTSE Allshare index climbed by 13%. Balancing act The survey - which analysed more than 100,000 portfolios - found that women built up balanced share collections, favouring leisure, food and drink, and utility firms. "Women take a more balanced and considered view, and time and again it pays dividends" Andy Yates, Digital Look In contrast, men tended to favour stock market "fads", backing stocks in sectors such as mining and oil and gas. These shares are more vulnerable to wider price swings, Digital Look said, and have lost ground in recent months. The study noted many men have "had their fingers burnt" by not building up a balanced portfolio of shares. The same survey last year produced similar results, with the average woman's portfolio rising 10% - compared with a 7% rise in the FTSE Allshare index and a 6% climb in the average man's share collection. A previous survey in 2001 had also found women outperforming the market. "While men tend to take more risks with their hard earned savings, women take a more balanced and considered view, and time and again it pays dividends," said, Andy Yates, director at Digital Look.
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Duncan	04-Jun-05, 08:55 AM (GMT)
1. "Second waves often retrace so much of wave one that most of the profits gained up to that time are eroded away by the time it ends"
http://www.gold-eagle.com/editorials_05/gofsky060305.html Financial Market Update XAU "A-B-C" Wave 2 Bottom And $29 Uranium Edward Gofsky It looks like the wave (2) bottom in the XAU that I have been looking for has finally happened. Motive waves are the easiest to see on the chart, the classic 5 wave Elliott pattern. But it is the corrections that follow the 5 wave impulse patterns that are so hard to figure out, most of the time the true pattern will only show itself until after it has competed itself. This 5 year chart of the XAU gold index is a text book perfect example of a classic ABC flat correction. Anyone who owns Robert Prechters ground breaking book "Elliott Wave Principle" (which was written in the late 1970's at the top of the last gold bull market) can simply turn to page 45 for a complete description of an Elliott wave flat correction. Also the C wave bottom also marks the end of wave (2) and the start of wave (3) which author and Elliott wave practitioner Steven W. Poser likes to describe them as "The 3rd wave is the wave that elliotticians dream about". With general psychology in the gold stock sector very negative there is every indication that a wave C of (2) has been put in place. Let's go back into some of the Elliott wave text books and take a look at Wave 2 bottoms. P.77 of "The Elliott Wave Principle". "Second waves often retrace so much of wave one that most of the profits gained up to that time are eroded away by the time it ends. This is especially true of call options purchases, as premiums sink drastically in the environment of fear during second waves. At this point, investors are thoroughly convinced that the bear market is back to stay. Second waves often end on very low volume and volatility, indicating a drying up of selling pressure". P.15 of "Applying Elliott Wave Theory Profitably". " This leg will lead all brilliant analysts to boldly announce that they "told you so." Victory is at hand for the bears as the trend lower resumes. Unfortunately, defeat shall be snatched from the jaws of victory as prices never take out the previous lows. The drop should be in 3 waves (remember that if we get an A-B-C zigzag down, wave A would still develop in five waves, but the retrace amount of wave 1 should be rater small by the time wave A completes). Volume should be lower than it was during wave 1. Prices typically retrace 38% to 62% of the losses, and will often convince the crowds that the previous down trend is alive and well. If we are fighting off a major, entrenched bear market, or alternatively, are working on a very short time frame, the retrace can easily exceed 62 percent. Wave 2 can never retrace more than 100% of Wave 1. There are no exceptions to this rule; in general, if prices retrace more than 62%, there is high risk that you count is incorrect and that the bear market is actually alive. I truly believe that we have already seen the Wave C of 2 bottom in the XAU and that we are in the very early stages of a huge Wave 3 advance that should take us to 150 in the XAU. Just remember that gold stocks are very explosive and can catch fire at anytime. As you can see in the 20 year chart of the XAU below in late 1986 with the XAU at 60 it only took about 1 year for the index to rocket up to 150. The same goes for 1993 when again the XAU went from around 60 to 150 in 1 year. I think we are at a similar time right now where the XAU could make it to 150 sometime in 2006. On April 14 2005 there was an essay that was posted on Financial Sense Online by Frank Barbera who had some of the best Elliott Wave charts of gold and gold stocks that I have seen. His essay (The Coming Bull Market in Gold Stocks) is a must read for every gold stock investor or Elliott Wave student. His essay had 1 chart that I have been trying to find for years. The chart is a gold stock index going back to 1915. The chart clearly shows a developing five wave Elliott pattern in the gold stock index with wave 4 bottoming in 2001 which means that we are in the early stages of a huge wave 5 blow off top advance that could last for another 10 years. Why so long you ask? Well by looking at the 90 year old chart you can see that the 2 previous gold stock bull markets, Wave 1 was (1917-1939) and Wave 3 was (1959-1980). These two bull markets Wave 1 and Wave 3 where both around 20 years long, so if the wave 4 bottom in gold stocks was in 2001 then you could see rising gold stocks well into the next decade. The price of uranium has recently just hit a high of $29 a pound and has sent shock waves across the energy sector. I have been investing in uranium stocks for over 1 year and even I am surprised that the price of uranium is moving so fast. With oil over $50 a barrel and other forms of fossil fuel getting expensive or prone to terrorist attacks in the middle east and Saudi Arabia (please read Robert Baer's book "Sleeping with the Devil" to find out just how vulnerable Saudi Arabia is for a massive terrorist attack on oil infrastructure in an area that is the worlds #1 supplier of oil. Uranium is just getting started and I really think that the price will explode over the next few years to get some balance back into the uranium market. Because of the huge supply shortage. Over the next 10 years it will really pay off to have some uranium stocks in your portfolio to take advantage of this once in a life time supply crunch. Once one of these small uranium companies finds a huge deposit their stock price will explode and a mad rush will ensue to find the next big uranium discovery. Finally oil looks ready to explode to the upside once it passes through the $58 level. It has formed an awkward head and shoulders bottom pattern with the head of the pattern being a smaller head and shoulders pattern on a smaller fractal scale. The pattern is bullish and has potential to reach $70 by late summer. What is the Elliott Wave Principle and why do follow it and think it's the most valuable tool for every investor? Here is the best description of Elliott Wave Theory that I tell people. Page: 121. of Robert Prechter's 1978 book "Elliott Wave Principle" "In its broadest sense, the Wave Principle suggests the idea that the same law that shapes living creatures and galaxies is inherent in the spirit and activities of men en masse. Because the stock market is the most meticulously tabulated reflector of mass psychology in the world, its data produce an excellent recording of man's social psychological states and trends. This record of the fluctuating self-evaluation of social man's own productive enterprise makes manifest specific patterns of progress and regress. What the Wave Principle says is that mankind's progress (of which the stock market is a popularly determined valuation) does not occur in a straight line, does not occur randomly, and does not occur cyclically. Rather, progress takes place in a "three steps forward, two steps back" fashion, a form that nature prefers. More grandly, as the activities of social man is linked to the Fibonacci sequence and the spiral pattern of progression; it is apparently no exception to the general law of ordered growth in the universe. In our opinion, the parallels between the Wave Principle and other natural phenomena are too great to be dismissed as just so much nonsense. On the balance of probabilities, we have come to the conclusion that there is a principle, everywhere present, giving shape to social affairs, and that Einstein knew what he was talking about when he said, "God does not play dice with the universe." The stock market is no exception, as mass behavior is undeniably linked to a law that can be studied and defined. The briefest way to express this principle is a simple mathematical statement: the 1.618 ratio. The Desiderata, by poet Max Ehrmann, reads, "You are a child of the universe, no less than the tress and the stars; you have a right to be here. And whether or not it is clear to you, no doubt the universe is unfolding as it should." Order in life? Yes. Order in the stock market? Apparently. " June 3, 2005 Edward Gofsky www.edwardgofsky.com Eddy_gofsky@yahoo.com
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Duncan	04-Jun-05, 10:03 AM (GMT)
2. "My back of the napkin analysis suggests this was almost 6% of the total US GDP. If you slow the rise in the value of the homes down too much or, God forbid, you actually see a fall in home prices, it would suggest that mortgage equity withdrawals would be greatly reduced. That would clearly have a negative impact on economic growth, as consumer spending as financed by mortgage equity withdrawals would slow down"
June 04, 2005 Can the Fed Find the Sweet Spot? by John Mauldin The questions of the day seemed to revolve around Fed policy, the US trade deficit and the dollar. We look at all of these questions and more in today's letter. Specifically, I want to try to lay out three scenarios involving future Fed policy actions and what each possibility might mean for the US and global economies. Can the Fed Find the Sweet Spot? The Fed is in an extraordinarily difficult position. Some very distinguished observers believe the Fed should stop their tightening cycle now. Others think that not only should they keep hiking rates at a measured pace, they should continue to do so for the rest of the year (for a variety of reasons). Raising rates too much or too little each bring their own set of problems. But it is not altogether clear what the appropriate level of short term interest rates should be, and even if we found that appropriate level, it is not clear that the results would be what was first intended. Indulge me for a few paragraphs, while I use a golf analogy. The technology of golf clubs has improved over the years. But every club whether a hundred years old or fresh off the shelf has one thing in common. They have been designed with a "sweet spot." The sweet spot is that point on the club face that if you hit it square the ball will fly straight and true. Every golfer has had that moment of sublime bliss when he catches the ball just perfectly. There is something about a 250 yard down the middle drive that is simply good for the soul. Unfortunately, for most golfers, those are rare events. The pros, who hit tens of thousands of practice balls a year, regularly find the sweet spot. The rest of us just struggle, but every now and then we hit the shot that brings us back to the golf course the next week. But hitting the sweet spot doesn't necessarily guarantee a positive outcome. I remember the first time I played the beautiful Castle Harbor course in Bermuda. The course is very hilly, with lots of "blind shots." If you don't have a little course knowledge you can easily get into trouble. My partner was a local, who soon recognized that my game was not very good. I earn my 29 handicap the hard way. As we came to one par five, I hit a reasonable drive, but found myself in a valley with a very difficult downhill, side-hill lie and the next shot over a hill to a spot I could not see. Even for pro it was daunting. But you have to hit them where they lay. I asked my partner where I should aim, and he casually waved, "that way." The golf gods decided to have fun at that point, and I hit one of the better shots of my life. My partner gave me a funny look and said, "You may be in trouble. I didn't think you could hit it that good." Sure enough, I was in the water, and eventually had a bogey four. A few years later, I was playing the Nicklaus Course in Cabo San Lucas. The 16th hole (I think) is a beautiful par three on the ocean, with tall cliffs to your left. Again, you are hitting over a hill to a green you can't see. You don't know where your ball lands until you get over the rise. My two partners hit their balls straight and true at the green. I proceeded to badly pull two balls (for your purists, the second was a provisional) into the exact same place in the mountain on the left, and picked up my tee in disgust, deciding to stop sacrificing new balls to the golf gods. I rather dejectedly got back into the golf cart and drove over the hill. To everyone's surprise there were four golf balls on the green, one less than two feet from the hole. We all wondered who hit the lucky shot, and where did those extra golf balls come from? We had watched my balls go into the side of the mountain. As it turned out, I hit the right spot on the mountain which funneled my balls as the rolled down right to the hole, both ending up closer than the two shots of the far superior golfers who had found the sweet spot. (For the record, the first ball was the closest.) Of course there are the rare times when I hit the ball perfectly and actually get a perfect result. The more you practice, the more likely you are to hit the ball on the sweet spot and get a good result. The more familiar you are with the course, the more likely you will choose the right club and direction to aim the ball. Now what does that have to do with the Fed? The Fed is like an amateur golfer who is down in the valley, getting ready to hit a blind shot. Their partner, Mr. Market, is vaguely saying hit the ball "that way." What club should they use? Can they find the sweet spot, and if they do, where will the ball end up? Now, some might find it harsh of me to suggest that the Fed might be amateurs. After all, they are some of the best and brightest economists of our generation. I truly have a great deal of admiration for many of them, if only through their speeches and papers. But they are like the golfer, even a gifted athlete, who has had a great deal of instruction and not much actual playing time. But John, some will suggest, the Fed has been doing this for years. I would suggest that not with these set of circumstances. What worked in 1990 or 2001 might not be appropriate today. But how would we know? They have had no real experience with this course. They may know what their clubs will do with a given set of circumstances, but they are hitting blind. They have had multiple coaches who have all given them the one secret "swing thought" guaranteed to produce a perfect shot. "Use the Taylor Rule. No, you should be thinking about the natural rate. If you just focus on inflation everything else will work out. The most important thing to do is pay attention to the bond market. The most important thing to do is pay attention to the stock market. Make sure you don't get too close to deflation. Don't let another asset bubble develop in the housing market. Your primary focus should be on jobs. Think about the dollar, trade deficits and on and on." And every "coach" is loaded with academic papers proving that their approach is the correct one. What's a poor Fed governor to do? Just like that difficult and unfamiliar course in Bermuda, the Fed is now in a period without any real historical analogy. They are hitting blind. They understand the fundamentals as well as anybody. It's just not altogether clear which approach is best. The simple fact is they have to use their best guess at which theory is appropriate for today and step up and hit the ball. Then they have to get into the golf cart of time, go over the hill and see where the ball landed. Let's look at three possible scenarios, corresponding to tightening too much, too little and the sweet spot. Turning the Interest Rate Screws The Fed funds rate is now at 3%. It is almost certain that the Fed will raise another 25 basis points at its June meeting. The market in the form of Fed futures suggests the Fed will raise another 50 basis points after that to 3.75%. Today the 10 year bond settled at 3.98% after briefly touching 3.82%, because the unemployment data disappointed the markets. (Quite the wild ride for the boys in the pits.) As noted last week, Bill Gross suggests that the 10 year is going to 3%, and Rosenberg of Merrill Lunch suggests we could see 3.5%. If they are right, we would have an inverted yield curve if the Fed raised short term rates to 3.75%. Another 75 basis points clearly seems like too much to raise rates, doesn't it? Maybe not. Richard Berner of Morgan Stanley, among many others, argues that inflation is not yet tamed and lays out the data to demonstrate that increased inflationary pressures are clearly evident. Unit labor costs are rising rapidly and productivity is slowing which is something new. Such a trend suggests more inflation in the pipeline. The bond market will surely come around in time to understand this, he posits. If you hold that view it would explain why Greenspan might think the bond market is a conundrum. If inflation is increasing then long rates should be rising. Right now, there are only 70 basis points between the 2 year and the 30 year bond: 3.57% and 4.28% respectively. With the ten year at 3.98%, the difference is only 41 basis points. That is a very flat curve. Whatever your position on Greenspan is, he has spent a career, and built his reputation, as inflation fighter. Minutes from the FOMC meeting on May 3 released last week also showed that the Fed's policy-setting committee was keenly aware that inflation pressures had picked up. Recent speeches by several Fed governors in the past few months have made it clear that they are concerned about a new asset bubble in the housing market. They would like to see rates rise to the point where the rise in housing prices moderates considerably. Of course, this poses its own set of problems (see below). Historically, the Fed has tended to tighten for far longer and to a greater degree than what most observers originally felt they would. They have been nothing if not consistent in their fight against inflation. This is certainly Greenspan's last year. Is it not unreasonable to ask why he would back off in his fight against inflation at the end of his career? Open the Flood Gates And then there are those who argue that the economy is already weakening. And that the Fed should pause in its interest rate hikes. Last month's ISM is a perfect illustration. The ISM is a monthly barometer of the activity as noted by the purchasing managers of manufacturing companies. If the number is above 50, manufacturing is growing. The number for May was 51.4. But the trend is disturbing. Last year at this time the number was comfortably above 60. Each month since then we have seen the number drop slightly. Last month is dropped 1.9. Another such drop would put it below 50. The trend suggests that will happen this summer. Paul McCulley points out the Fed has never tightened when the ISM drops below 50. We could be nearing that point. Newly appointed Dallas Fed Governor Richard Fisher in a recent speech suggested that we are close to the end of the tightening cycle "We've gone through eight innings here, 25 basis points an inning," Fisher told the Journal, referring to the eight quarter-percentage point rate hikes made by the Fed since it began hiking borrowing costs this time last year. "The next meeting in June is the ninth inning. We'll take a look after that. We may have to go into extra innings in this contest against inflation." (BW Online) His comment was one of the reasons that interest rates on the long bond began to drop. I'm not certain how much weight we should give to a newly appointed Fed Governor; especially given the other Fed governors are suggesting that the "measured approach" is still the watchword for the day. Be that as it may, he may be right. Today's employment numbers disappointed with only 78,000 new jobs. But it may be worse than that. Buried in the report is something called the Birth/Death ratio. This is an effort by the Bureau of Labor Statistics to guesstimate how many jobs were created by the private sector in the last month. This month, the number was 205,000. But if the economy is slowing down as the ISM number and other economic factors seem to suggest, then 205,000 may be too high. Further, the B/D ratio for the last half of the year is typically much, much smaller. In July, the number will likely be negative. As I noted last week, the recent growth of the money supply has gone flat line. This is not a good scenario for economic growth or for the stock market. All of this suggests that when the Fed meets in August, the economic data could be quite disappointing. A slowing economy, a poor manufacturing environment and a weak jobs number might cause them to pause, especially if inflation pressures seem to be backing off. But what about those who argue that inflation is getting ready to come back? There are even more who argue that inflation is under control and is likely to begin heading down. What are the risks of the above scenarios? If rates are raised too much it could choke off the growth in the economy. Indeed as noted above, there are reasons to think that the economy is already slowing. However, if interest rates are too low, there is a risk that the economy could become overheated and inflation pick back up. If indeed inflation did rear its ugly head, it would in fact cause long rates to rise. If mortgage rates were to rise, as noted above, it would have a serious impact upon the US economy. This next little tidbit actually surprised me. "The economic consulting firm Economy.com estimates that total cash raised from the mortgage equity withdrawals exceeded $700 billion last year (8% of disposable incomes) up from $250 billion five years earlier." (BCA Research). My back of the napkin analysis suggests this was almost 6% of the total US GDP. If you slow the rise in the value of the homes down too much or, God forbid, you actually see a fall in home prices, it would suggest that mortgage equity withdrawals would be greatly reduced. That would clearly have a negative impact on economic growth, as consumer spending as financed by mortgage equity withdrawals would slow down. But if the housing market continues to rise at recent rates it becomes clear at some point that we have another asset bubble. This is a bubble that if it were to burst would have far more widespread consequences than the bursting of the stock market bubble. Thus the risks: too much tightening and we risk recession. Too little and we risk inflation. Either are bad for the housing market and the economy. Straight Down the Middle Of course there is a scenario that the Fed is trying to pursue: they want to hit it straight down the middle. They would like to see rates rise enough to slow the rise in home prices, but not enough to choke off the market. They would like to see rates stay low enough to help stimulate the economy if we are indeed getting ready to go through what looks like a "soft patch." If they can find the sweet spot, the current economic expansion, along with a rising trade deficit could last for several years longer. It won't make the problems go away, and indeed, the ultimate resolution may even be worse, but in the short term life would go on. Of course, the trick is to figure out what the right rate is. Where is the sweet spot? Is it 3% or 3.5% or 4%? Should they pause after the June meeting and then wait to see what happens to inflation and the economy before another rate hike? Will they preemptively continue to raise rates wanting to drive a stake in the heart of inflation? Greenspan, in one of the finest speeches he has ever given, told us two summers ago that the Fed has to take into consideration the possible negative impacts of their decisions and weigh them more than the potential positive impacts. "First, do no harm." The world is still a disinflationary world, and a recession in the next year would bring about a renewal of deflationary fears. If we were to enter a recession, with inflation relatively low, very little potential for stimulus from lowering rates and no potential stimulus from more tax cuts, it would be worrisome indeed. The Fed would not have the deflation fighting tools it had in 2001-2002. To use another golf analogy, it would be like playing with only 7 clubs rather than the normal 14. While Tiger Woods could probably play almost as well without a driver and a putter, it would be a serious handicap for the rest of us. The clear front runner for the new Federal Reserve Chairman is Ben Bernanke. He has made it quite clear that the Fed would be willing to use "unconventional means" (remember the printing press?) to fight any potential deflation. This is not a scenario that anyone wants to actually have happen. I think the Fed will come to see that the preponderance of risk is that raising rates chokes off the economic expansion. If inflation does become a problem at some later date they can always raise rates at that time. In fact, dealing with some future recession when inflation is higher than it is today would actually make it easier to deal with any potential deflation. So, you raise rates at the June meeting, and then see what the data from July tells you at the August meeting. You change the language at the June meeting to let everyone know that any future interest rate hikes are now determined on a meeting by meeting basis. To use Fisher's baseball analogy, you call a rain delay after the June meeting. Will it work? No one knows. No one knows what the natural level of interest rates should be. No one knows how all the myriad influences on the economy will play out. And it is not altogether clear that even if the Fed hits the ball on the sweet spot that it will land at a safe place. When you're hitting blind, all you can do is drive over the hill and hope for the best. This is why I would argue that we should more clearly define the role of the Federal Reserve. If the Fed focused on steady growth of the money supply in line with GDP, and the let the markets deal with the business cycle, we would have less of this uncertainty. If the US government were to have some fiscal discipline we would see our negative trade balance and other problems begin to dissipate over time. But since that scenario is the least likely of any I have painted, let's focus on what might likely happen. I would give the first two scenarios a probability of 40% each, and the middle scenario a probability of 20%. Finding the middle of the fairway when you're hitting blind is a very difficult task. We are getting closer to the end game, and I think the market realizes it. Each set of data is going to be seen as more and more important. That is a scenario for more volatility like we saw today. Chicago, La Jolla and Surf's Up, Dude I will be in Chicago for a brief visit next week to meet with clients at a dinner hosted by my partners at Altegris Investments. I may also get to go by the Merc for lunch on Wednesday and then back home. I am way behind on a few projects that I really need to catch up on over the summer, not the least of which is a complete re-write and re-work of my various web sites. I need to have those reflect our new international partnerships which deal with accredited investors and alternative investments such as hedge funds. We will be announcing an association with a Canadian firm this month and expect within a few months to have one with a firm that we will partner with in Latin America and Asia. We already have an associated group in Europe (Absolute Return Partners) The first two scenarios above pose issues for the broader bond and stock markets, in my opinion. My personal and professional approach is to look for appropriate alternative investments. If you are an accredited investor (basically $1,000,000 net worth or more -- see web site for complete details) I invite you to go to www.accreditedinvestor.ws and sign up for my free letter on hedge funds. I work closely with Altegris Investments in the US (and my international partners worldwide) to find and offer a variety of alternative investments, hedge funds and commodity funds. To find out more simply click on the link above. (In this regard, I am president of and a registered representative of Millennium Wave Investments, member NASD. See the important disclosures below.) In two weeks I will be in La Jolla where my youngest son will be surfing and Dad will be meeting with clients, potential clients and my partners at Altegris. We are setting meeting times now, so let us know if you are interested in meeting. It is time to hit the send button. This is going to be a busy weekend. It was nice to relax on Memorial Weekend, but I really have to get a lot done in the next few months. The good news is that except for the lawyers, I really, really enjoy what I do. (Don't get me wrong. I like my lawyers personally. It is just the time and money and absurdities of this business that drive you nuts.) I am having more fun than I have ever had at any time in my life, and I thank you for allowing me into your computer. Have a great week. Your trying to find his own sweet spot analyst, John Mauldin Frontlinethoughts.com Note: John Mauldin is president of Millennium Wave Advisors, LLC, (MWA) a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staff at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above. Mauldin can be reached at 800-829-7273. MWA is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS) an NASD registered broker-dealer. Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Funds recommended by Mauldin may pay a portion of their fees to Altegris Investments who will share 1/3 of those fees with MWS and thus to Mauldin. For more information please see "How does it work" at www.accreditedinvestor.ws. This website and any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement or inducement to invest with any CTA, fund or program mentioned. Before seeking any advisors services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Please read the information under the tab "Hedge Funds: Risks" for further risks associated with hedge funds. If you would like to reproduce any of John Mauldin's E-Letters you must include the source of your quote and an email address (John@FrontlineThoughts.com) Please write to info@FrontlineThoughts.com and inform us of any reproductions. Please include where and when the copy will be reproduced. John Mauldin is president of Millennium Wave Advisors, LLC, a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER. Copyright © 2005 John Mauldin. All Rights Reserved
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Duncan	04-Jun-05, 10:03 AM (GMT)
3. "the Fed somehow telegraphed to an extremely leveraged and speculative marketplace that there was nothing to worry about"
http://www.safehaven.com/article-3192.htm June 04, 2005 This Time it is Different by Doug Noland HIGHLY UNEDITED! Another volatile, interesting week... The Dow declined less than 1%, with the S&P500 about unchanged. The Transports and Morgan Stanley Cyclical index slipped slightly. The Utilities jumped 1.6%, while the Morgan Stanley Consumer index declined about 1%. The broader market rally continued. The small cap Russell 2000 and S&P400 Mid-cap indices gained 1%. Technology stocks were volatile, with the NASDAQ100 and Morgan Stanley High Tech indices about unchanged. The Semiconductors and NASDAQ Telecom indices were slightly positive, while the Street.com Internet Index was up less than 1%. The Biotechs were hit for 2.5%. The financials were mixed. The Broker/dealers were up almost 2%, while the Banks dipped 0.5%. With bullion up $1.85, the HUI gold index jumped 6%. The Treasury yield collapse was interrupted by today's sharp reversal. For the week, two-year Treasury yields dropped 7 basis points to 3.57%. Five-year government yields declined 8 basis points, ending the week at 3.73%. The 10-year Treasury yield was down 9 basis points for the week to 3.98%, this after trading to as low as 3.825% on this mornings jobs data. Long-bond yields sank 14 basis points to 4.28%. The spread between 2 and 30-year government yields declined 6 to 71. Benchmark Fannie Mae MBS yields dropped 10 basis points. The spread (to 10-year Treasuries) on Fannie's 4 5/8% 2014 note narrowed 2 basis points to 31, and the spread on Freddie's 5% 2014 note also narrowed 2 basis points to 31. The 10-year dollar swap spread declined 0.5 to 41.5. Corporate bond yields generally declined to one-year lows. The auto bond and CDS sectors improved, and junk bond spreads narrowed somewhat. The implied yield on 3-month December Eurodollars sank 12 basis points to 3.81%. With corporate yields falling to a one-year low, there was a solid $16.2 billion of corporate issuance this week (from Bloomberg). Investment grade issuers included Wells Fargo $3.5 billion, Wal-Mart $2.0 billion (increased from $1.5bn), GE Capital $1.75 billion, Barclays Bank $1.0 billion, Simon Group $1.0 billion, DaimlerChrysler $1.0 billion, Sun Life $600 million, Affiliated Computer Services $500 million, Noranda $500 billion, Centex $450 million, Appalachian Power $400 million, Beazer Homes $300 million, Camden Property Trust $250 million, Cascadia $300 million, Florida Power & Light $300 million, Radian $250 million, Kimco Realty $200 million, Prime Property Funding $200 million, and Teco Energy $100 million. In a noteworthy reversal after 15 weeks of outflows, junk bond funds saw inflows of $976.1 million (from AMG). Junk issuers included M/I Homes $200 million and Petroquest Energy $150 million. Convert issuers included Cephalon $800 million and Symmetricom $100 million. Foreign dollar debt issuers included Turkey $1.25 billion, Development Bank of Japan $700 million and El Salvador $375 million. Japanese 10-year JGB yields declined 0.5 basis points to 1.235%. Emerging debt markets continue to perform well. Brazilian benchmark dollar bond yields dropped another 19 basis points to 7.52%. Mexican govt. yields ended the week down 15 basis points to 5.36%. Russian 10-year dollar Eurobond yields dipped one basis point to 5.98%. Freddie Mac posted 30-year fixed mortgage rates dipped 3 basis points to 5.62%, (a 15-week low and down 62 basis points from one year ago). Fifteen-year fixed mortgage rates dipped one basis point to 5.21%. One-year adjustable rates rose 5 basis points to 4.26%. The Mortgage Bankers Association Purchase Applications Index declined 4.1%. Purchase applications were up 1% compared to one year ago, with dollar volume up almost 12%. Refi applications dipped 1.2%. The average new Purchase mortgage declined slightly to $238,900. The average ARM declined to $342,300. The percentage of ARMs declined to 33.3% of total applications. Broad money supply (M3) jumped $21.4 billion to $9.60 Trillion (week of May 23). Year-to-date, M3 has expanded at a 3.1% rate, with M3-less Money Funds growing at 5.3% pace. For the week, Currency added $0.2 billion. Demand & Checkable Deposits rose $20.9 billion. Savings Deposits declined $12.4 billion. Small Denominated Deposits added $4.3 billion. Retail Money Fund deposits declined $1.0 billion, while Institutional Money Fund deposits gained $2.3 billion. Large Denominated Deposits fell $1.5 billion. For the week, Repurchase Agreements increased $4.1 billion (up $47.6bn in 6 wks), and Eurodollar deposits gained $4.4 billion. In blow-off fashion, Bank Credit surged another $46.1 billion last week, increasing the year-to-date expansion to $388 billion, or 14.2% annualized. Securities Credit is up $143 billion, or 18.5% annualized, year-to-date. Loans & Leases have expanded at a 12.4% pace so far during 2005, with Commercial & Industrial (C&I) Loans up an annualized 20.4%. For the week, Securities increased $10.1 billion. C&I loans jumped $9.5 billion. Real Estate loans increased $10.1 billion. Real Estate loans have expanded at a 12.8% rate during the first 21 weeks of 2005 to $2.67 Trillion. Real Estate loans are up $295 billion, or 12.4%, over the past 52 weeks. For the week, consumer loans added $0.5 billion, and Securities loans increased $2.6 billion. Other loans jumped $13.3 billion. Total Commercial Paper declined $11.0 billion last week to $1.508 Trillion. Total CP has expanded at a 15.8% rate y-t-d (up 13.2% over the past 52 weeks). Financial CP fell $8.5 billion last week to $1.357 Trillion, with a y-t-d gain of $72.4 billion (13.3% ann.). Non-financial CP declined $2.4 billion to $151.5 billion (up 40.2% y-t-d and 26.4% over 52 wks). ABS issuance slowed to $4 billion (from JPMorgan). Year-to-date issuance of $274 billion is 12% ahead of comparable 2004. At $174 billion, y-t-d home equity ABS issuance is 19% above the year ago level. Fed Foreign Holdings of Treasury, Agency Debt surged $15.5 billion to $1.426 Trillion for the week ended June 1. "Custody" holdings are up $90.5 billion, or 16.0% annualized, year-to-date (up $206bn, or 16.8%, over 52 weeks). Federal Reserve Credit jumped $5.9 billion to $792.5 billion. Fed Credit has increased 0.6% annualized y-t-d (up $42.9bn, or 5.7%, over 52 weeks). International reserve assets (excluding gold) - as accumulated by Bloomberg - were up $581.1 billion, or 17.8%, over the past 12 months to $3.839 Trillion. Through the end of the first quarter, Chinese reserves were up 50% to $659 billion. Eurozone M3 was up 6.7% year-over-year during April, accelerating from March's 6.5%. EU "Credit to companies, households expanded 7.7%. Canada's M3 was up 10.7% from April 2004. Currency Watch: French and Dutch rejection of the European Union constitution weighed on the euro. The dollar index gained 2% for the week. Yet the Canadian dollar, Mexican peso, Taiwan dollar and Japanese yen all posted small gains against the greenback. On the downside, the South African rand dropped 4%, the euro 2.8%, and Danish Krone 2.8%, and Swedish krona 2.3%. Commodities Watch: June 3 - Financial Times (Caroline Daniel): "Henry Kissinger, former US secretary of state, yesterday warned that the global battle for control of energy resources could become the modern equivalent of the 19th century 'great game' - the conflict between the UK and Tsarist Russia for supremacy in central Asia. 'The great game is developing again,' he told a meeting of the US-India Business Council. 'The amount of energy is finite, up to now in relation to demand, and competition for access to energy can become the life and death for many societies. It would be ironic if the direction of pipelines and locations become the modern equivalent of the colonial disputes of the 19th century.'" May 31 - MktNews: "The idea of buying oil with foreign exchange reserves appears to be gaining momentum in China amidst growing calls within and without the government for its massive reserves to be put to better use. A decision use its reserves to buy oil could meet the government's concerns about energy security, help reduce exposure to the volatility of the global currency markets and even go some way to defusing criticism about the yuan's valuation, analysts said. China's reserves hit $659 bln at the end of March, with the creaking banking system and now oil reserves topping the list of suggested alternate uses for the cash." June 3 - Bloomberg (Claudia Carpenter): "Copper prices in New York rose to a 16-year high after global inventories fell to the lowest since May 1988 as demand continues to outpace production by miners. Copper futures for July delivery surged 4.1 cents, or 2.7 percent, to $1.5575 a pound on the Comex...the highest close since Jan. 26, 1989. Prices have gained 25 percent in the past year as stockpiles tumbled 67 percent." June 2 - Bloomberg (Matthew Craze): "Uranium prices will rise to a record in 2006 as governments, particularly in Asia, build nuclear plants to meet energy needs, according to JPMorgan Chase & Co.. The bank raised its 2006 uranium price forecast to $32.5 a pound, from a previous forecast of $29.6 a pound, (said) Anindya Mohinta, a London-based analyst... 'Political will appears to exist for a resurrection of the nuclear option,' Mohinta said. 'We project demand to increase from the East, particularly from China, Japan and India.' Wholesale uranium prices have more than doubled from $14 a pound in January 2004..." July crude oil jumped $3.18 to $55.03. For the week, the CRB advanced 1.9%, increasing y-t-d gains to 8.0%. The Goldman Sachs Commodities index surged 5.2%, raising the 2005 gain to 20.3%. China Watch: June 3 - Bloomberg (Rob Delaney and Amit Prakash): "China doesn't want a large increase in its foreign currency reserves, Commerce Minister Bo Xilai said today at a meeting of Asia-Pacific ministers... 'China does not want to have a large incremental reserve of foreign exchange holdings because it causes problems for the Chinese government,' he said... 'We will handle this matter appropriately in a very responsible way.'" June 2 - Bloomberg (Koh Chin Ling): "China plans by year-end to draw up a list of companies it aims to shut down by 2010 for causing pollution in a bid to curb a 30 percent annual increase in the number of public complaints about air quality." June 2 - Bloomberg (Clare Cheung): "Hong Kong property sales, mainly of apartments, surged in May from a year earlier, the third increase in five months... Sales of properties, including factory and office units, more than doubled to HK$54.1 billion ($6.95 billion)... Sales rose 13 percent from April." Asia Boom Watch: June 1 - Bloomberg (Lily Nonomiya): "Japan's monthly salaries rose for the first time in more than four years in April as companies passed growing profits on to workers. The average base salary for workers rose 0.3 percent to 255,607 yen ($2,360), the first increase since November 2000... Wages that include bonuses, overtime pay and commuting costs, rose 0.6 percent to 281,935 yen. Rising wages are stoking a rebound in household spending, fueling sales at companies including Toyota Motor Corp.... Consumer spending accounted for more than half of the first quarter's 5.3 percent annual pace of growth, which was twice as fast as economists expected." June 1 - UPI: "South Korea's exports recovered their double-digit growth in May after a slump in the previous month... Customs-cleared exports increased 11.8 percent in May from a year earlier to $23.3 billion, up from a 6.9 percent gain on last year the previous month, according to the Ministry of Commerce, Industry and Energy. Imports amounted to $21.2 billion last month, up 18.4 percent from a year earlier due to higher oil import prices..." May 31 - Bloomberg (Seyoon Kim): "South Korea's municipal governments will raise water charges, postage, subway and taxi fares from as early as June 1... Taxi fares in Seoul will rise by 17.5 percent from tomorrow, while cabs in Busan will charge 15 percent more from July or August...Water charges will rise 35 percent from July in Seoul and 9.8 percent in Busan." June 1 - Bloomberg (Laurent Malespine): "Thailand's unemployment rate in April fell from a year earlier as rising consumption boosted hiring in the retail and housing sectors, the government said today. The jobless rate was 2.2 percent, compared with 2.8 percent in April 2004, the National Statistics Office said... The number of jobless fell to 790,000 from 990,000." June 1 - Bloomberg (Anuchit Nguyen): "Thailand's inflation rate accelerated in May to a six-year high as fuel prices increased, reinforcing expectations the central bank will raise interest rates for a fifth time in less than a year. Consumer prices rose 3.7 percent from a year earlier, the highest rate since December 1998..." Unbalanced Global Economy Watch: June 3 - Bloomberg (Matthew Brockett and Brian Swint): "The European Central Bank said rising asset prices may pose the biggest risk to financial stability in the 12 countries sharing the euro. 'The main source of vulnerability appears to be associated with concerns that an underestimation of risk may have pushed asset prices beyond their intrinsic value, especially in fixed income markets,' the ECB said in its semi-annual report on financial stability..." May 31 - Bloomberg (Matthew Brockett): "Money supply growth in the 12 countries sharing the euro accelerated for the first time since January last month, adding to pressure on the European Central Bank to increase interest rates. M3, the ECB's measure of money supply, rose 6.7 percent in April from a year earlier after growing 6.5 percent in March... The bank says a rate above 4.5 percent risks fueling inflation." June 1 - Bloomberg (Sam Fleming): "The number of home loans approved by U.K. mortgage lenders in April increased at the fastest pace in nine months, suggesting the housing market may be picking up following a slowdown that began at the end of 2004." May 31 - Bloomberg (Francois de Beaupuy): "French housing starts rose 9.7 percent in the three months ended in April from a year earlier as homebuilders kept pace with demand underpinned by tax breaks and borrowing costs at the lowest in France since 1946. Building work began on 32,936 homes in April, taking housing starts in the quarter to 95,779, the Paris-based Housing Ministry said. Housing permits, a gauge of future construction, rose 14 percent in February-April period from a year earlier." June 2 - Bloomberg (Trygve Meyer): "Norwegian unemployment declined more than expected in May, falling for a fourth consecutive month, as companies stepped up hiring, the country's labor board said. The unemployment rate fell to 3.3 percent, the lowest since November 2002..." Latin America Watch: June 2 - Bloomberg (Elzio Barreto and Telma Marotto): "Banco Pactual SA, the top manager of stock offerings in Brazil, expects a surge in initial share sales by yearend as interest rates fall, said Rodolfo Riechert, a partner at the investment bank. 'We continue to be very optimistic for the Brazilian stock market,' Riechert, whose bank managed five of Brazil's seven IPOs in 2004, said... 'A lot of companies have already filed with the securities regulators for IPOs and that gives us a positive outlook from here on.'" June 2 - Bloomberg (Romina Nicaretta): "Brazilian new vehicle registrations rose in May from a year earlier to a four-year high...citing the Brazil's car dealers federation, Fenabrave. Registrations rose 16 percent to 143,000 units last month from May 2004..." June 1 - Bloomberg (Charles Penty): "Brazil's imports rose to a record in May as a stronger currency encouraged companies to buy more goods from abroad. Imports jumped 19.5 percent from the previous month to $6.37 billion, causing the country's trade surplus to shrink for the first time since January..." June 1 - Bloomberg (Eliana Raszewski): "Argentina's tax revenue rose 28.3 percent in May as a surge in consumption and income tax payments boosted collection, the government said." June 1 - Bloomberg (Alex Kennedy): "Venezuela's inflation rate jumped to a 16-month high in May as a currency devaluation drove up the cost of imports and rising consumer demand gave retailers more room to raise prices. Consumer prices rose 2.5 percent in May, almost double the 1.3 percent increase in April, after the central bank devalued the currency 10.7 percent on March 3... The increase in the monthly inflation rate pushed up the annual inflation rate to 17.4 percent..." Speculative Financial Bubble Watch: June 1 - Bloomberg (Brian Swint): "European Central Bank board member Tommaso Padoa-Schioppa said the risks to financial stability from hedge funds has grown, the Financial Times Deutschland newspaper said, citing comments at the ECB's presentation of its financial stability report yesterday. Padoa-Schioppa said the problem with hedge funds, private funds that attract rich and institutional investors, is that they take similar positions, boosting the concentration of risk. That may threaten stability if a crisis leads funds to abandon these investment positions quickly, the paper reported him as saying." Bubble Economy Watch: May 31 - New York Times (Motoko Rich): "Earlier this month, Michael Neeley, a real estate broker in this leafy, upscale suburb, closed on the sale of a contemporary ranch house. A few days later, the sellers of that house bought another, larger ranch house. Then, in a chain reaction, the sellers of the larger house closed on a $900,000 four-bedroom new colonial house. Mr. Neeley had a stake in all three deals... In less than two weeks, he said he cleared nearly $98,000 in commissions, after splitting with other brokers and his firm. The real estate boom has been good to agents like Mr. Neeley.... As the housing market has fueled the economy over the last five years, top real estate agents have been among the biggest beneficiaries. Until recently, the neighbors who drove the best cars, wore the best clothes and gave the best dinner parties were doctors, lawyers, bankers and stockbrokers. But now, with house prices skyrocketing and homes in the hottest markets selling in a matter of days, some real estate brokers are enjoying incomes and lifestyles that approach those of their wealthiest clients. Their success is inspiring a new generation of prospective sales agents... In addition to the Bentley, Mr. Neeley's blossoming wealth has allowed him to buy four Mercedeses, two Jaguars and two Range Rovers. He spends lavishly on theater tickets, Tiffany jewelry, Louis Vuitton belts and shoes, and owns 28 pairs of Alain Mikli eyeglasses, which are color-coordinated with his wardrobe... Meanwhile, the volume of homes sold, coupled with increased sale prices, has helped lift total commission revenues over the last few years. Real estate agents in the United States collected $61.1 billion in commissions last year, up 43 percent from $42.6 billion in 2000, said Steve Murray, editor of Real Trends, a real estate industry newsletter. In the most frenzied markets, some are making sums that recall the bonanzas enjoyed by stockbrokers in the late 1990's. In Manhattan, the best real estate agents cleared over $2 million last year, said Pamela Liebman, the chief executive of the Corcoran Group." June 2 - Bloomberg (John McAuley): "One of the Federal Reserve's most detested economic disturbances is labor cost inflation and recent data show it has suddenly popped onto the scene. On Thursday the Labor Department reported an upward revision to nonfarm productivity growth in the first quarter to a 2.9% annual rate... More remarkable, however, were the much larger revisions to the growth of hourly compensation and unit labor costs... Unit labor costs were revised to a 3.3% rate in the first quarter from 2.2%... Moreover, when the revised data are viewed over a longer time, the emergence of a worrisome - and sudden - inflationary trend emerges. Through all of 2001, unit labor costs only rose by 0.3%, in 2002 these costs fell by 0.6%, while during 2003 they edged 0.1% lower... In the third quarter of last year, however, it moved into positive territory with a 1.5% increase, a 3.0% rise in the fourth quarter and in the first quarter, the rate was 4.3% above the level in the first quarter of 2004." April Total Construction Spending was up 8.2% from one year ago. Residential expenditures were up 13.2%, with a two-year gain of 30%. April Factory Orders were up 0.9% for the month, the strongest gain since November. Factory Orders were up 6.8% y-o-y. June 2 - Bloomberg (Kerry Dooley Young): "About 1.3 million adults in the U.S. lose their employer-sponsored health insurance with each 10 percent average rise in premiums, according to a study from the University of California, Berkeley. Companies have been shifting a bigger portion of insurance costs to employees... The average employee contribution for a family insurance plan last year rose to $3,156, or 32 percent of the total cost, from $1,670, or 25 percent, in 2000." Mortgage Finance Bubble Watch: June 1 - MktNews: "The following is the statement released...by the Office of Federal Housing Enterprise Oversight... 'Average U.S. home prices increased 12.50% from the first quarter of 2004 through the first quarter of 2005. appreciation for the most recent quarter was 2.21%, or an annualized rate of 8.82%. The new data represent the largest four quarter increase since the third quarter of 2004, when appreciation surpassed any increase in over 25 years... 'The House Price Index shows the rise in house prices continues at an extremely strong pace and raises the potential for declines in some areas later on,' said OFHEO Chief Economist Patrick Lawler. 'House prices grew considerably faster over the past year than did prices of non-housing goods and services reflected in the Consumer Price Index. House prices rose 12.5%, while prices of other goods and services rose only 3.1%." May 31 - Bloomberg (Alison Fitzgerald): "Low interest rates and rising incomes have made houses more affordable than they were 10 years ago, suggesting talk of a national real estate bubble may be exaggerated, a study by the Federal Reserve Bank of Chicago said. It took less than 16 percent of the median household's income to cover the monthly mortgage payment on a home with the median sale price last year, the study by senior economist Richard Rosen found. That compares with 20 percent in the mid-1980s and 18 percent in the early 1990s. 'The increase in housing has come at the same time as mortgage rates have declined and incomes have increased,' Rosen wrote in the Chicago Fed Letter published today. 'These two factors have kept housing affordability for the United States as a whole roughly constant as housing prices have increased.'" June 1 - Bloomberg (Victor Epstein): "Contracts to buy previously owned U.S. homes rose in April by the most in 13 months as falling borrowing costs, rising job creation and speculative purchases drove demand. The index of signed purchase agreements, or pending home resales, rose 3.6 percent to 128.2, a record...The index averaged 120.6 last year...Resale contracts rose 9.2 percent in April from the same month a year ago. Pending resales gained in all four U.S. regions. Compared with a year earlier, the index increased 12.5 percent in the South, 10.1 percent in the Northeast, 8 percent in the West and 4.5 percent in the Midwest." June 2 - Baltimore Sun: "Gains in home prices in the Baltimore area and Maryland continued to outpace those in the nation in the first quarter as low mortgage rates and limited supply further fueled demand in a hot real estate market. Prices in the Baltimore area and the state rose nearly 21 percent since last year's first quarter, the Office of Federal Housing Enterprise Oversight (OFHEO) reported yesterday." June 1 - NBC (Kevin Tibbles): "For the Rhodes family, a bike ride near their home in Eagle County, Colo., is welcome quality time. But this isn't their real home; it's their second - purchased as a long-term investment. 'It's something that you can actually see, touch, feel, use,' says Jeff Rhodes, This Time it is Different: The global marketplace for financial assets - especially bonds and interest-rates - has become circus-like, recalling the fateful exuberance so prominent during the climax of the technology Bubble. And while Richard Fisher may be no Henry Blodget, the new President of the Dallas Fed embodies the current audacious and imprudent environment. Whether it is playing a simple game of basketball, trading securities, or managing monetary policy, blissful complacency welcomes a lack of focus and attendant blunders that will seem almost incomprehensible a that point when the expected positive outcome is seen to have needlessly slipped away. Hopefully, the Fed is not as complacent today as they were in early 1999 - with 4.75% Fed funds and ultra-easy "money" providing ample fuel for the building tech blow-off. The newest stripe of New Paradigmism envisions a Permanent Plateau of Low Interest Rates, Global Excess Savings, Abundant Marketplace Liquidity, Placid Inflation and General Financial Stability. The latest fads have bonds and houses as one-decision can't lose investments for the long-term. And while I don't hesitate to scoff at silly theories hailing from major market melt-ups, as an analyst I do recognize that This Time It Is Different. Examining the Economic Sphere, changes to the nature of output over this long boom cycle have been momentous. Inarguably, the U.S. has evolved into primarily a services-based economy. From today's employment data, we see that there were a total of 133.4 million jobs reported by the Labor Department (up 1.5% y-o-y) last month. At 14.3 million, Manufacturing employment declined 0.3% over the past year to now comprise just over 10% of the total workforce. Meanwhile, Service-producing positions increased 1.6% to 111.2 million. Retail Trade employment was up 0.8% y-o-y to 15.2 million, Wholesale Trade up 1.2% to 5.7 million, and Transportation/Warehousing up 3% to 4.4 million. Financial Activities jobs were up 1.8% y-o-y to 8.2 million and Professional/Business were up 2.7% to 16.8 million. Health Care/Social Services employment increased 2.1% over the past year to 14.5 million. Leisure/Hospitality jobs were up 2% to 12.7 million. Government positions were up 0.8% to 21.7 million. Especially after the major inflation in medical and drug costs, the healthcare sector has ballooned to comprise a major piece of the economic pie. Within the goods-producing arena, computers, high-tech equipment, software and telecom have grown tremendously as a share of output, while more traditional goods output arrives via low-cost foreign manufacturers. And with the proliferation of media and the Internet, the scope of the "digital" and "virtual" economy has expanded to beyond traditional economic comprehensibility. The Bubble Economy expansion of leisure, hospitality and "upscale" has similarly played a major role in the altered state of economic output. And let's not forget the massive distribution infrastructure that evolved to get imported goods from the docks to consumers' garages, cupboards, offices and entertainment centers. Throughout the expansive service sector, there are jobs and output that muddy the water of traditional economic analysis. This Time Economic Output Is Different. And I do feel comfortable with the insight that the Nature of Inflationary Manifestations is today as Different as the change in the nature of output. If it were today possible to calculate a legitimate consumer price inflation rate, it would still represent only one facet of inflationary processes. And I have no confidence that it is possible to successfully analyze contemporary "output" and worker hours to accurately differentiate "productivity" and quality enhancements from "inflation." Are doctors, attorneys, real estate agents, investment bankers, and hedge fund managers more productive these days, or is it more a case of atypical inflation dynamics prominently at play? As I explained last week, I do not believe there is a "general price level" - hence the notion of "real GDP" is an anachronism from a bygone - tangible GDP - era. "Real GDP" should be downplayed, with the focus on sectoral and nominal outputs. Recognizing the changing nature of output does not set the analytical world on fire. Things do, however, heat up when the debate moves on to ponder the ramifications as they relate to the Financial Sphere. This Time It Is Different - the nature of economic output (i.e. services, medical, admin, finance, digital, virtual and media) does profoundly impact the capacity of for the economy to "produce" inflated "output" (and income) without engendering traditional inflationary pressures (especially for CPI). Importantly, the New Paradigmers contend (mistakenly crediting the Fed for achieving "price stability") that new inflation backdrop/dynamics grant low Fed and market rates. As they see it, there is little risk associated with extended periods of generally loose monetary conditions. It is my contention that the changing nature of economic output - and the capacity for seemingly non-inflationary expansion - beckoned for judicious monetary caution and restraint. The financial sector indulges in unrestrained expansion, with basically limitless capacity to create "money" and Credit to fund output and the asset markets. And while contemporary output expands quiescently with each year of rising GDP, the associated Credit creation invariably inflates the Financial Sphere and the available pool of finance. Unconstrained financial sector expansion creates the extraordinary capacity to satisfy heightened borrowing demands without the normal corresponding increase in the cost of finance (higher rates). And while Bank Credit growth has been robust, non-bank "money" and Credit creation has been historic. The ABS market has expanded 185% in seven years to $2.9 Trillion, while MBS almost doubled to $3.5 Trillion. Total GSE Assets have increased 160% over this period to $2.9 Trillion. Broker/Dealer Assets are up 135% to $1.8 Trillion. Outstanding primary dealer repurchase agreements now exceed $3.3 Trillion, while global derivative positions now surpass $220 Trillion. Investments in hedge funds now exceed $1 Trillion. It is this unprecedented - and unappreciated - Financial Sphere Inflation that has created cheap liquidity to drive both robust "output" expansion and rampant asset price inflation, at home and increasingly abroad. Most prominently, Total US Mortgage Debt has doubled in seven years to $10.5 Trillion. And let there be no doubt, this $5 Trillion inflation in mortgage debt is the flipside (the liability side) of the much trumpeted but misnamed "excess global savings." That it is backed by inflated collateral and, in many cases, has been extended to marginal borrowers on aggressive terms is apparently today a non-issue. It will, however, be a critical factor come the inevitable (during our lifetime!) downside of the mortgage debt boom. Indeed, the New Paradigm notion of "excess savings" will die when the Mortgage Finance Bubble finally succumbs. This Time Mortgage Finance Is Different. Unconstrained Credit growth has financed an historic borrowing binge at - in contemporary finance-fashion - ultra-low interest rates. This flood of liquidity and resulting inflation (including housing and MBS pricing) has distorted market pricing mechanisms, certainly including the perception of Credit risk and lending profits. The upshot has been a surge in the number and type of mortgage lending institutions, an explosion in mortgage brokers, and the proliferation of progressively aggressive lending products and practices (to today's subprime, no-down, negative amortization ARMs!). It is Different This Time, with households today shopping the Internet for the low-cost variable-rate home equity loans (instead of tech stocks) that will be packaged in an ABS pool, sold to a hedge fund financing the instrument in the low-cost repo market (playing the spread). And this Liquidity Juggernaut will support "output," asset prices, marketplace liquidity and, in the process, generally reduced marketplace volatilities and risk premiums. Voila, the illusion of Financial Nirvana. It is, however, worth recalling that the biggest mistake the technology new paradigmers made was not appreciating the paramount role played by the late-'90s Speculative Bubble in telecom/junk/leveraged lending for the financing of blow-off industry excesses. This Time Money and Credit Are Different. Over several decades, the Credit system evolved from prudent bank loan officer and her benign bank loan, to aggressive loan originator and investment banker and their coveted marketable security. A large portion of this debt has been accumulated by financial speculators, earning windfall "profits" through heavy leveraging at low rates pegged by the newfound transparent Federal Reserve. You bet This Time it is Different! And this especially unmarket-like arrangement set the stage for an evolving speculative Bubble throughout finance, culminating with today's Credit Bubble Blow-off. Blow-off U.S. Credit system excesses have ensured that Things are Much Different This Time as well for the Global Financial System. Global central bank reserve assets have inflated by about $1 Trillion over the past 18 months (35%) to surpass $3.8 Trillion. Asian (Japan, China, Hong Kong, Taiwan, Singapore and India) central bank foreign reserves have more than doubled in just three years to $2.3 Trillion. The resulting unprecedented expansion of global liquidity (not "excess savings") has fueled powerful inflationary booms in the U.S. and throughout Asia. But resulting Monetary Disorder has nurtured international currency instability, major oil and commodities inflation, and unprecedented global imbalances. And while U.S. markets were this week enamored with notions of sinking interest rates and financial and economic nirvana, there were some unsettling developments. French and Dutch voters this week sent a message that they are increasingly impatient with the current economic and financial arrangement. The faltering dollar, rising energy prices and an over-liquefied Asia have taken a toll on Europe. And while a wounded euro will be interpreted by the goldilocks crowd as a positive development for the dollar, as well as the U.S. markets and economy generally, I would be cautious. Any loss of euro confidence is an unwelcome blow to a global currency "system" already tottering over its unsound dollar foundation. Moreover, perceptions of a weakened euro appear to be pressuring global interest rates lower, while taking pressure off the dollar. These are problematic developments in today's profligate environment, certain to only exacerbate U.S. Mortgage Finance and Credit Bubble excesses. Things were Curiously Different Wednesday. Stocks were strong, bonds were strong, commodities were strong and crude oil jumped 5%. Thursday saw a big jump in gold. For the week, the biggest price gains were found in the commodities markets, even as the dollar index surged higher. Crude oil traded above $55, while copper jumped to a new 16-year high. And this year's impressive commodities price gains are in the face of a stronger dollar. Global slowdown, or is it more a case of rampant global liquidity excess pushing global bonds, equities and commodities all higher? Have we been witnessing a classic example of The News and Fanciful Notions of Financial Nirvana following the direction of Bubble markets? If abundant liquidity has been more prominent in setting securities prices than sound analysis, I will suggest a few areas where conventional thinking could prove immoderately optimistic. First, the much anticipated U.S. economic slowdown could be postponed due to interest rate-induced extraordinary housing inflation, record construction, record home equity extraction, and continued strong gains in personal income and perceived wealth. Second, the notion that inflation has peaked is inconsistent with the interest rate and liquidity backdrop, not to mention the upward pressure on compensation. It is the nature of 3.5% inflation to beget 4% inflation, and one should not dismiss the secondary effects from an extended period of high oil and commodities prices. Third, pondering the global environment, perhaps the Chinese, Russian, Korean, and other central bankers will now quietly attempt to convert a portion of ever-inflating quantity of dollar balances into oil and other things with intrinsic value. Now that would be a particularly ominous development for the notion of Bretton Woods II - just when it was gaining prominent bull market enthusiasts. And perhaps the Fed is ready to declare quick victory, pack their briefcases and cheekily celebrate after nine effortless little baby-step innings. Yet little do they appreciate that it is a best-of-seven games series, and their wily opponent has been happy to spot them game one. The current interest rate, liquidity, speculation, economic and global backdrops are conducive to only greater Monetary Disorder and unwieldy imbalances - both at home and abroad. Would $70 crude, spiking commodities prices and a long, hot summer housing mania catch the Fed's attention? Well, I'm sticking with the view that the Fed will be forced to step up and play ball. And it is when times get tough - when unstable markets turn uncooperative - that everyone will be reminded as to why it is so important for a central bank not to fall so far behind the curve. This Time it is Different: In an extraordinarily uncertain and problematic environment, the Fed somehow telegraphed to an extremely leveraged and speculative marketplace that there was nothing to worry about. Doug Noland The Credit Bubble Bulletin PrudentBear.com
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Duncan	04-Jun-05, 10:15 AM (GMT)
4. "42 cents in every dollar spent by the companies reaches the successful claimants"
City comment Edited by Neil Collins (Filed: 04/06/2005) Harm that asbestos 'victims' inflict on others # Asbestos pays out $70bn The asbestos injury industry is huge, and one of the fastest-growing in the west, but it has taken some careful work from the Rand Institute to reveal just how big, and how fast-growing. It's hard to know which is the more shocking: the $70billion cost of the story so far in America, or the finding that only 42 cents in every dollar spent by the companies reaches the successful claimants. In truth, they are both pretty shocking. If anything, it seems that the number of claimants is accelerating, and it's likely that the total will reach a million in America alone. Some of these cases are truly ghastly; mesothelioma is "a virulent form of cancer for which asbestos exposure is the only known cause" as the Rand report puts it. Yet these open-and-shut cases are a very small percentage of the total, and most of the new claimants have "non-malignant" injuries which don't blight their lives. This category covers more than nine claims in every 10 submitted in the last decade. The Rand researchers are too polite to wonder whether those in this 90pc really are victims of asbestos-related injury, or have merely fallen for the prospect of riches, egged on by lawyers who have made a lucrative living out of finding new cases, and abetted by doctors who are under pressure to diagnose. Whether any real harm has been done to these "victims", they have certainly managed to inflict serious damage on others. Defending against claims is an expensive business, even for those companies which avoid bankruptcy. The first asbestos-related corporate failure was in 1976, and by 2004, at least 73 firms had gone bust, resulting in over 50,000 job losses in America alone, according to an earlier study. The workers lose as much as $50,000 in lifetime earnings, and an average of a quarter of their pension. The Turner & Newall workers in Britain might feel those are the lucky ones, since they have had to force a change in the law to get anything at all for their lifetimes of pension contributions. Given the way that more and more people are coming forward decades after the supposedly life-threatening event, the massive sums involved, and the fact that $40billion went to the lawyers (about equally split between claimants' and defendants' lawyers), it's no surprise that the report asks: Is there a better way? Given that America sometimes seems to be populated entirely by lawyers and litigants, it's no surprise that the answer from the combined brains of the Rand Institute is: We can't think of one.
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Duncan	04-Jun-05, 03:26 PM (GMT)
5. "um"
June 05, 2005 All that Euro-Hullabaloo ... by Alex Wallenwein First, the French vote "no" to the proposed EU constitution. Then the Dutch vote "no" - and now everybody is all up in arms. Why? Because everybody only looks at the next day's trading results. This short term perspective on the markets has cost gold investors untold amounts of money, headaches, and heartache, so here is the medium to long-term picture of the story. The "damage" to the euro is only short term, and not all that bad, if you look at it from a few steps back. And it remains to be seen who will end up suffering the most from the consequences. Europe? Or the United States? It is imortant to remember a few points here that were made in earlier Euro vs Dollar articles: 1. In the current world economic environment, a weak currency is a "plus" and is eagerly sought by all participants. 2. The Euro vs Dollar Monitor derives its name not from a naive faith in the "superiority" of the euro to the dollar, but from the fact that the ongoing war between these two currencies is great for gold, no matter which one of these currencies "wins" the war - and that remains true even if neither of them survive it. So, on to the meat of the matter. First of all, politically speaking, European integration has surely been dealt a severe "one-two" knockout blow. In my eyes, that's a good thing, though. I like individual countries with individual sovereignties, and I dislike centralization of power. But the question on gold investors' minds, of course, is not the political one. It's: What will happen to the euro, and to the dollar, and to gold?" * Doesn't a defeat of the European integration process throw a pall over the entire concept of the euro as the currency of a single European trading bloc? * Will this not mean that the euro has lost credibility and will continue to lose credibility? * Doesn't the recent upswing in the dollar's fortunes mean that the world is swinging back toward favoring the dollar over the euro as its main trading currency? * Doesn't this mean that the price of gold - since inverse to the dollar's forex value - is doomed? Whoa, there, wait just a minute. Let's take this one step at a time. First of all, the EU has pre-existed the public discussion about a European "constitution" for many, many years. It was not born out of a Constitutional convention like the US was. The treaty of Maastricht that formed and held the EU together until now is far "stronger" and provides for a far more centralized EU government than the Articles of Confederation did here on this continent. European economic and monetary union was deemed far more important by the designers of the euro than the EU constitution, and it was implemented far earlier. Also, the wording of the EU's "Growth and Stability Pact" was going to be watered down considerably by the proposed constitution, so the fact of its failing can actually be seen as a plus for the euro. Moreover, the ECB still has its independence, and it doesn't exactly have a history of bowing to member states' political pressure. Then, France and the Netherlands are still members of the EU and of the euro zone, and neither of them have expressed a desire to leave that arrangement. One of Italy's top honchos just did express this sentiment today, but he is not one of those who would participate in the decision, if one was to be made. And besides, maybe the Union would be better off without Italy. The dollar's foreign trade and current account deficits haven't changed or suddenly disappeared, either, and Japan isn't suddenly going to buy back the ten billion dollars' worth of US treasuries it sold last year. Nor is a strong dollar increasing the Dow's chances of surpassing its 1999-2000 high anytime soon. On Tuesday this past week, June 1, 2005, we received news of a "bad" ISM survey and the price of US debt went up and yields dropped while the Dow had a nice rally, too. Unusual, to say the least. The press tells us that the runup in treasuries was a "flight to quality" by investors scared of a bad economic picture in the future - but a flight from what? Surely not from the Dow and the other stock indexes, which increased across the board that day. At the same time we are told that the Dow gained because the bad economic performance indicated by the ISM survey makes a lot of future rate increases unlikely. So, let me get this straight: Indications of poor economic performance are now good for the Dow, right? And the drastically lower long term rates resulting from the treasuries' uptick are good for the dollar, even though the rising interest rate differential was supposed to be the reason why the dollar rallied this year in the first place, right? And the dimmer outlook for the US economy, the one that makes future rate hikes more unlikely, are also good for the dollar's reputation in the world, right? (If that's the case, then why doesn't the sorry performance of the EU economies make the euro rally?) Confused? Can't blame you. So, let's cut through all of this confusion right now. A lower euro actually helps EU economic performance because it is rather export oriented these days, especially since intra-EU demand is so weak. But a stronger dollar hurts US economic performance, because our economy really isn't all it's cracked up to be as we keep finding out (it's strong only in relation to Europe and Japan, which both suck, so there's no pride in that). And that is true especially after the latest ISM results. If a strong dollar is so good, why does Bush make himself look like a fool by constantly haranguing the Chinese to do what they surely must refuse, i.e., revalue the yuan, now? Doesn't he know they have no choice but to ignore him, thus making him look like something far less than a statesman? Would a weaker dollar or a stronger dollar put more pressure on Asians to keep buying the dollars they so detest? Naturally, only a weak dollar/strong euro would make them do this. So, who really benefits from a weak euro? The Asians, of course, because this way they can quietly unload their excess dollar and treasuries - which is exactly Rob Kirby and Bud Conrad have shown they were busy doing since March 2004. Is this continued dollar-strength giving the Asians more cover to dump their unwanted dollar reserves into this "strength?" You bet! Is euro-weakness the best guarantee for EU economies to catch a breather and recover a bit by being able to augment their sorry domestic demand with higher profits from exports? You bet! So, who's the "winner" - and who's the "loser" here? And what does all this mean for the euro's long-term outlook? What does it mean for the dollar's long-term outlook? And what does all this mean for gold? If gold is still perfectly dollar-inverse (which is no longer the case), the ability of foreign CBs to unload dollars onto the backs of international traders in this environment of dollar "strength" surely isn't dollar-supportive in the long run - so it's good for gold. If foreign countries' investors aren't buying US assets and debt any longer to equalize the current account deficit (and we now know they don't, except maybe for the Fed-financed Caribbean hedge funds), then what does that mean for the dollar? If they don't invest in US stocks anymore because the US economy is so shaky that it warrants slower rate hikes in the future, is that dollar-supportive? If the Fed really will see itself forced to abandon its continuous rate hiking pace because the economy isn't strong enough to take it, how does that bode for the future of the dollar? On the other hand, if the Fed keeps raising rates and thereby throttles US economic performance, how will that affect the dollar long term? Do you see a pattern here? Despite all of its artificially manufactured economic "prowess", the worldwide situation is so bad, so enormously out fo whack, so inundated with debt, and deficits, and imbalances of all sorts, that the US economy simply cannot sustain a strong and rising dollar. Despite all of its political woes and economic weakness, the EU's currency cannot and will not fall forever, and even if it falls for a long time, that will just help the EU economies. So, who's the winner, and who's the loser, here? Sooner or later, the world's investors will realize that neither the US, nor the EU, nor the yuan, can offer what they promise - and people will figure out that the Chinese were right to advise their citizens to accumulate gold bullion (which by the way is a first in the history of modern government, to my knowledge). Consequently, investors will start accumulating gold bullion themselves very soon. So, relax already. Margin Note: The preceding was written on June 1, 2005. Yesterday morning (June 2nd) I get up kind of late and - surpriiiiise! Gold was up more than six dollars. And what happened today, June 3rd? The dollar shot up despite a weak payrolls number -- and gold didn't even flinch! It closed $0.80 higher for the day and over four dollars higher for the week, even though the dollar closed the week 2.2% higher. When was the last time that happened? I didn't expect it this fast, but that just goes to show how quickly things can turn around. All you need to do is keep your nose pointed in the direction where gold is going long term - and know why. And Monitor subscribers do know why. Got gold? Alex Wallenwein Editor, Publisher The Euro vs Dollar Currency War Monitor What do you do when all your investments are doing great, when you have a high-paying job or successful business, but the dollars you earn are dropping and dropping in value? The euro continues to beat the tar out of the dollar (and your pocketbook) and there is no end in sight. How will this affect your money, your job/business, your retirement, and your kids' education? You owe it to yourself, your family, and your future to find out. Find out NOW - Free Report: 64735@currencywar.ez-optin.com
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Duncan	04-Jun-05, 03:30 PM (GMT)
6. "expect the major indices to be lower on Friday June 10 than they were on Friday June 3"
http://www.safehaven.com/article-3195.htm June 05, 2005 Technical Market Report by Mike Burk The good news is: • All of the broad based breadth indicators are still moving sharply upward. Summation indices (SI) are running totals of oscillator values. When the oscillator is positive the SI rises when the oscillator is negative, the SI falls. The chart below shows the NASDAQ composite (OTC) and NASDAQ SI's calculated from advancing issues - declining issues, new highs - new lows and upside volume - downside volume for the past year. The SI's offer a good indicator of the trend and all of the NASDAQ SI's are heading sharply upward. Last week I pointed out that the OTC had a run of 8 consecutive up days for the first time since December 1999. The implications of that for the next several months are positive, however, the short term implications of that extreme overbought condition are negative. The chart below shows the OTC along with an indicator that tries to identify a cyclical pattern in the NASDAQ advance - decline line (ADL). The chart covers the past year and I have drawn an arrow identifying last September. There are similarities between last September and the current period. The indicator was at the top of the screen for 2+ weeks going into the third week of September, a pattern similar to what we have now. The seasonal pattern of late September is similar to early June. The next chart shows the OTC with an average of every June since 1963 in yellow and an average of every June in just the 1st year of the presidential cycle in white. Since 1946 the average month has had 21 trading days, but they vary from 19 to 23 trading days. Data for the chart is calculated by taking the first 11 and last 10 trading days of the month. The result is in some years, days in the middle of the month are counted twice and in others they are not counted at all. On average, the high for the month has occurred on the equivalent of next Tuesday. The Russell 2000 (R2K) was first formulated in 1987 so we have a little less than 20 years of data for that index. The chart below shows the same averages as the chart above, but calculated from the R2K over its more limited time frame. The chart for the R2K is very similar to the OTC, but exaggerated. The next chart is similar to the previous two, but calculated from the S&P 500 (SPX) using data from 1928. Prior to 1946 the markets traded six days a week and there were usually 26 trading days in the month. In the chart below there are usually 5 trading days cut out of the middle of every month. The patterns are quite a bit different, but there is still a short term high on the 5th trading day of the month (next Tuesday). The market appears healthy in every way, but, by nearly every measure, it is as overbought as it has been at any time in the past year. Entering a period of seasonal weakness from an overbought condition suggests next week will be down. I expect the major indices to be lower on Friday June 10 than they were on Friday June 3. Last week the large cap indices were down slightly while the small cap indices were up slightly so I am calling my positive forecast a tie. This report is free to anyone who wants it, so please tell your friends. If it is not for you, reply with REMOVE in the subject line. If you are lucky enough to be in Minnesota this summer and would like to attend our FastTrack user group meeting on the 1st Wednesday of the month, let me know and I will put you on the meeting notification list. Mike Burk Guaranteed-Profits.com Mikes report is free to anyone who wants it. The SEC does not like statements like "Guaranteed Profits" and would be delighted to prosecute if Mike did anything that came under their juristiction such as offering individualized advice. So don't ask. Please visit his web site: Guaranteed-Profits.com
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Duncan	04-Jun-05, 03:45 PM (GMT)
7. "it is about evolving as a person"
Risks of Trading only trade with money you can afford to lose and then there is the emotional cost If you are not psychologically prepared to lose, your losses can depress you. Your behaviour changes Many people pretend, they have not made losses and deny those losses to other people Those same people mention / exaggerate their winnings – while ignoring their losses You don’t want to tell yourself that you had just lost Admissions are painful. Problems are real. Generally people don’t see the potential for these types of problems The Rewards of Trading Substantial build on an account the outcome of trading is you will evolve and develop into a different person from when you started. You will like this person better than when you started Trading is not all about money; it is about evolving as a person.
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Duncan	04-Jun-05, 07:42 PM (GMT)
8. " The Dow Industrial Average has consolidated in a narrow range above 10400 over the last two weeks. Volume does not yet give a clear indication of a potential breakout, although higher volume on Tuesday and low volume at could both be said to favor the downside. A close above 10560 would signal a test of resistance at 10900/11000; while a close below 10400 is also a reasonable possibility and would signal a re-test of support at 10000."
http://www.incrediblecharts.com/free/trading_diary/trading_diary.htm
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