Debt. Debt. Debt.

Debt. Debt. Debt. That was all we heard about this summer and with good reason. The US is in horrible shape and the numbers below put it all in perspective.

Here is why S&P downgraded the US credit rating.

* U.S. Tax revenue: $2,170,000,000,000

* Fed budget: $3,820,000,000,000

* New debt: $ 1,650,000,000,000

* National debt: $14,271,000,000,000

* Recent budget cut: $ 38,500,000,000

Now let's remove 8 zeros and pretend it's a household budget.

* Annual family income: $21,700

* Money the family spent: $38,200

* New debt on the credit card: $16,500

* Outstanding balance on the credit card: $142,710

* Total budget cuts: $385

This Thursday the President is being called upon to explain how is going to get the economy going again. Unlike the last go around, his options are more limited. Because of the numbers above which we have all been living and breathing for the fast few months, he does not have the ability to keep spending, nor should he. The public is demanding jobs but the problem is that our economy was fueled by spending financed through debt, and that has all but dried up. It is time to get creative and provide incentives for the private sector to invest and thus create employment opportunites. We are likely going to be in this slow to no growth scenerio for a while. For those expecting miracles, you may have a long time to wait

The Debt Ceiling and the US Economy

Not a small topic for a short blog entry. For weeks the headlines have been all about the US hitting their debt ceiling and the possibility of a default on government debt. Now it seems like we have a 'deal' that will stop that from happening, a deal that likely no one really understands let alone buys in to. That said, thank goodness there is one. One could only imagine what the consequences of a default might have been, but it might well be the case that we begin to live them out due to lack of faith that the government of this great country of ours may be ever able to stop us from drowning in debt. Monika Mitchell of Good Business International gives a great overview of this crisis which you can access by clicking here.

Many have been asking my opinion about the economy, the equity markets, the bond market and more, so here it is in brief. I would continue to hold cash, gold, fundamentally strong global equities, commodities broadly speaking over the long run, and not much else right now. Further it is likely that the US dollar will continue on it's long term descent, so beware that if all you own are dollar denominated assets your purchasing power will be eroded away.

Why concern on US equities? I believe the fundamentals remain very poor. Yes corporate earnings and balance sheets are strong but because of cost cutting primarily, which is largely done. Without a robust domestic consumer how much hope can their be? Further the economic numbers have been horrible - employment, GDP, and more. I am particularly worried about the financials given that spreads (difference in yield between government bonds and corporate/mortgage/high yield debt ) in general are narrow, issuance is down, and the poor real estate market will work it's way in to write-offs.

US bonds. Rates are so low, artificially low due to the huge treasury buying program which cannot go on forever. You are simply not getting paid enough to go long duration. For more on this read the latest commentary by bond manager/guru Bill Gross of PIMCO.

Gold - protection against a depreciating dollar, financial insecurity, and the declining faith in the US dollar as the currency of choice. For so much more on gold check out this website - JSmineset.

Sorry wish I could be more positive on both the economic and market outlook but I really see little good news out there. Bottom line we have spent beyond on our means for some time now, at multiple levels, and sooner or later you have to pay the price.

I am officially taking a blogging vacation so wishing you all a fabulous August.

Gold

It has been a while since I have written about GOLD. For that matter it has been a while since I have written about the markets in general. John Hathaway is a personal friend, a lovely human being, and a brilliant investor. Read what he has to say about GOLD and perhaps more importantly, the US dollar. I agree.

The price of gold is more about the declining value of the US dollar, they it is about an intrinsic value of the commodity. He makes some strong claims in this piece including this one about how the government has artificially held down nominal interest rates - "That amounts to outright theft of wealth by government from its citizens and more recently non-U.S. investors." Bottom line - not good. Stay with the piece, it is a long one, but indeed very educational.

For Some - Judgment Day is Here

Though Harold Camping's prediction of Judgment Day came and went, many are facing another type of Judgment Day - of the financial kind. Click here to read more, my latest article for Women Advisors Forum.

Rising Rates

Over the past few weeks US interest rates have risen dramatically. ( click here from FB) For example 10 year US treasuries have gone from a low of about 2.30% t0 3.32 %. That is a 30% rise!!! This is a problem for a country that is addicted to very low cost money. This has occurred despite hundreds of billions of purchases from the FED ( I cannot imagine how much money they lost). The FED's famous QE program met with much scrutiny, especially from free market players who see this as massively disruptive. The big question is what next? Further what are the reasons for the rise? Is it the economy is improving or that investors are demanding higher rates from the US because of concerns about lack of fiscal discipline? I have more questions then answers but when I step back what remains somewhat shocking to me is despite the rise, how low interest rates are. Despite this, despite it, we are not experiencing any real growth. Yes savings rates have gone up dramatically but we are still a country that is way to indebted. ( household and government) The corporate sector fairs better but investment on their part does not make sense unless the demand is there. How can there be demand when the consumer remains over-spent? I continue to think it will be a slow road to recovery for the US with the potential for some major bumps along the way.

Are Stocks Overpriced? Yes says Jeremy Grantham

"It [the Federal Reserve] wants us to go out there and buy stocks, which are overpriced because bonds they have manipulated into being even less attractive," (click here from FB) said Grantham, who is chief investment strategist of Grantham Mayo Van Otterloo, a Boston-based asset management firm, and a respected voice in the financial world. "So, we’re being forced to choose between two overpriced assets. That is not always a terrific choice to make because there is a third choice, and that is, 'don't play the game and hold money in cash.'" ( From CNBC)

I agree with the above, but would point out that the primary goal of 'manipulating' interest rates was to provide support for the housing market, as well as making money more affordable to support both business investment and private spending. The rise in equity valuations since late summer has been astonishing, and at these entry points, I am on the sidelines as well. Our favorite asset continues to be Gold. Jim Cramer was jumping up and down about it yesterday and is in words " talk to me about price when it is 5% of portfolios."

Have a great day.

Elections, Quantitative Easing and more....

Sorry for the lack of blog entries this past week. I spent Monday and Tuesday at a board meeting for the Women's Funding Network and spent the rest of the week trying to catch up! I really don't have much to say about the election results, except that it is going to be tough going in Washington. There are so many problems that need tough, thoughtful analysis and decision making and I doubt much will get done over the next few years. More in my realm of expertise has been the action by the FED to expand their balance sheet by another trillion. The Wall Street Journal has been doing some excellent writing on this including Wednesday's oped "High Rollers at the Fed." They say "this is a monetary mistake" which will have fiscal risks. The Fed's balance sheet is more than $2.3 trillion, including $1.1 trillion of mortgage backed securities. When you add in what is held by Fannie and Freddie is is mind blowing. The good news ( ha ha ) is of course that the FED has earned $76 billion by driving down interest rates, but the bad news is that there is no exit strategy. If mortgage rates were to rise 100 bps from 4% to 5% it is estimated they would love $162 billion. Honestly, I cannot even wrap my mind around this. It is unprecedented and I think extremely dangerous for our economy. For a detailed analysis Bill Gross' recent commentary is a MUST READ.

Markets and the Economy - Who I go to

I am sure you may have noticed that I have not been blogging that much about either the economy or the markets. (click here to link to my blog from facebook) The main reason is because there is just so much exceptional commentary ( and free!) that says it better then I can. In general I remain quite bearish on equities, and bonds. (see Rosenburg's comments) So rather then going on and on about what I think, here is SHORT list of the people and places I go to for information:

1) David Rosenburg of Gluskin Sheff - formerly of ML. Click here to subscribe to his free daily newsletter. Great for the big picture!

2) Bill Gross of PIMCO - click here to acccess his monthly commentaries. Big picture plus bond market commentaries.

3) Nouriel Roubini of RGE Monitor - Robust, global economic and market commentary. Detailed analysis requires a subscription.

4) Michael Cembalest - JP Morgan. Again, not alot free, but put him on your google alerts.

5) Publications - The Financial Times, The Economist Magazine, Wall Street Journal

6) Blogs/Aggregators - Naked Capitalism -check out their incredible blog roll.

HAVE A GREAT DAY!

Existing Home Sales Drop 27% plus tomorrow is Women's Equality Day!

WOW. Scary number. I mean truly scary number for the US economy. This is the lowest number recorded in the series history! The main reason it seems was due the expiration of the homebuyer tax credit. Without a financial incentive to buy a new home demand collapsed. It truly seems like the US economy is going to struggle in this second half. The employment picture continues to be grim as well. This all plays in to how much people have to spend. Expect retail sales to be soft which of course feeds in to corporate earnings. Stocks have reacted with the DOW well off it's recent (52 week) high of 11,309 to now below 10,000. Uhg....

I jumped over to the PIMCO to see if investment guru Bill Gross had a comment on the continued houseing crisis, and YUP, he did. Better yet he recently presented to Treasury a solution to the Fannie Mae/ Freddie Mac disaster. GO BILL! I like his plan, and if anyone knows alot about the mortgage market, it is Bill. I met Bill a very long time ago when I ran the mortage pass-through desk at Goldman, and he truly is one smart, and uber intense, cookie. ( can a cookie be intense?) I too recently went to Washington and had a meeting at Treasury and it is an incredible experience to walk in to that building to share ideas. It is awesome that Treasury is inviting the likes of Bill Gross to take part in solution building. Now will they listen? I hope so....

Tomorrow is a big day. Well yes, it is the first day of school in our new town for my children, but that is not what I meant. It is Women's Equality Day!!! I have co-written an OPED with the amazing Linda Tarr-Whelan, author of "Women Lead the Way" and former Ambassador to the UN Commission on the Status of Women. A MAJOR news source is publishing it!!!!! Go team. I will post it first thing. Please put on your girl power, Wonder Woman, or Rosie Riveter T-shirts and say, GENDER EQUALITY MATTERs and a more balanced world, means a better world for ALL !!!

"Bonds as Lemons" - And US 10 Year Notes at 2.5%

Below is a comment on why US Gov't 10 year notes are at 2.5%. As a reminder I used to be a bond trader, and were I still one, I likely would have had my face handed to be for shorting 10 years long before they hit 2.5%. This piece comes from David Zervos at Jefferies. I hope he doesn't mind the reprint.

"Suppose the Congress controlled the production of all the lemons in US. Then assume the Federal Reserve decided that it was going to use its balance sheet to buy lemons as a means of adding liquidity into the market when times were tough. While the government ramped up lemon production during tough times, the Fed not only bought most of those lemons, but sent out a clear message that it stands ready to buy a whole bunch more lemons if the economy falters. Finally, suppose that the government started changing the rules and regulations forcing financial institutions to hold more lemons rather than limes - as lemons were deemed the only safe fruit. What happens to the price of lemons? The answer is a 2.50% 10 year note!

These are not “market prices”. The Congress, Fed and Treasury are controlling the supply, demand and the rules of the game in the US government bond market. And make no mistake – lemon production is ripping higher. Eventually people will realize there are not enough Corona bottles to stuff those lemons into and there will be lemonade all over the streets. Until then, please remember that this will go down as one of the greatest examples government price control and manipulation in history. Maybe soon we will be lining up at 15th and Constitution in DC - at the doors of the Treasury on odd and even days depending on our birthdays - in order to buy limited supplies of those precious lemons!! There is a great book by two gentlemen from the Hoover institution -http://www.amazon.com/Doomsday-Myth-Years-Economic-Crises/dp/081797962X. The stories span 10,000 years but they all have one thing in common – when governments distort asset prices, bad things happen. It is an easy and fun read. I encourage you to grab a copy.

Finally, it has been a humbling summer watching 10 year rates move to these levels. I remain steadfast in the view that we are at least 75 to 100bps expensive in long term rates. But with the supply, demand and rules fixed by the Fed/Treasury/Congress Troika, I probably should have been more prepared for this – mea culpa. In any case, I’ll fall back on one of the better calls we have had and that is in MBS space where price manipulation is just as rampant. In fact, we can see that as the Fed has decided not to treat MBS like lemons anymore, they were quickly turned to lemonade. Once again my market screens are all red in MBS – days with 5yr futures down 5 tics and FBCL6.5s down 11 tics are amazing to watch. The 5.5/4.5 swap which peaked at 5-15 has fallen to 2 points since April. There is a lot of pain in the MBS world and it may be a good preview to what happens when government price manipulation schemes unravel. Good luck trading!"

David Zervos
Managing Director
Global Fixed Income Strategy
Jefferies & Co

As an add. US Treasury notes are a benchmark for all spread products. It you agree that these rates are low because of manipulation, then what is the right "spread" for anything? I argue that investors should be looking at absolute yield levels versus the risk of the bond and asking themselves, does this make sense? I don't follow debt spreads too closely anymore, but if I were an investor I would be careful. If treasury rates break down, so will spread product... bigtime.

Market News not "Peachy"

It was a big week of market, economic and policy news, and none of it too positive. Here is quick summary:

- Quantitative Easing Continues - Federal Reserve to buy government bonds with proceeds from MBS. The FED has been on course doing exactly what they said they would do from way back. Money continues to flood in to the system seemingly with little effect. I continue to believe at some point inflation will be a problem.
- New foreclosure relief programs to help troubled homeowners announced – a few billion. ( $3 ?)
- Cash strapped states to get billions of federal funding.( $26 ?)
- Employment numbers not good.
- HUGE negative trade balance numbers.

Quote from David Rosenburg to finish up....

"The best way to describe the financial backdrop is that it is truly a meat-grinder market. The S&P 500 was at 1,090 back on October 14, 2009. It’s at 1,090 today. That means 208 trading days of doing nothing. Nada. While I am sure there were gems beneath the surface, we are talking about an entire asset class here — you were better off clipping coupons for the past nine months."

Sorry, not very perky. On a brighter note our peach crop is looking mighty nice so I thought I would include a photo from our orchard. (ABOVE) We are leaving BC and our beautiful orchard tomorrow to head back to the states to get geared up for school. Summer has gone by way to fast. Best wishes to all...

Bill Gross, Nouriel Roubini - The New Normal

The New Normal was an investment term first put out there by Bill Gross (picture left) of Pimco. ( Read Bill's most recent comments here.) Bill started talking about it a couple of years ago and it has developed in to a full investment thesis. Bill says - "Our New Normal, to repeat ad nauseam, is predicated upon deleveraging, reregulation and deglobalization, all of which promote slower economic growth and lower inflation in developed economies while substantially bypassing emerging market countries that have more favorable initial conditions."

This term was mentioned by another author, this time from one of the most well known economists, Nouriel Roubini, in his recent comments. I have met Nouriel and other members of his team many times and find them both thorough and thoughtful. Nouriel's website Roubini.com.

Roubini -"Since the end of 2009 we have been emphasizing that the recovery would be multi-speed—or at least two-speed—with much of the advanced world displaying a below-trend, anemic growth pace and the emerging world showing a more V-shaped recovery. Now, the global macroeconomic deterioration that we still see emerging in the second half of 2010 increasingly is becoming the consensus view. In much of the advanced world this low growth will feel like a recession even if these economies technically avoid a double dip. Meanwhile, emerging markets are showing that even their more robust recoveries are not insulated from the slowdowns and structural adjustments in advanced economies. We have never been subscribers to the decoupling thesis and believe that emerging markets also will have to partially adjust to a "New Normal."

I agree with this New Normal view and it will remain challenging to construct an investment portfolio with strong positive returns. Personally I remain very cautious on developed country equites and bonds. I think it will pay to hang out on the sidelines and see how this theory plays out. That said, for how to invest with this investment thesis in mind, follow or invest with PIMCO. They manage over $1 trillion in assets. Yes, $1 trillion. I am not sure how that is even possible with just over 1300 employees. I have had the pleasure of meeting many folks from PIMCO and it is one impressive shop.

David Rosenburg from his Daily Musings...

I have not written much on the markets of late, mainly because I have struggled to stay up to date with our move to Utah, but I am trying to get my head back in to it. My favorite commentators remain in the bearish camp, in particularly David Rosenburg from Gluskin Sheff. (formerly of ML) David has a FREE newsletter with is excellent. Click here to subscribe. Below you will find an excerpt from today.

YOU KNOW YOU ARE IN A DEPRESSION WHEN ...

"Congress moved to extend jobless benefits seven times, as has been the case over the past two years, at a time when almost half of the ranks of the unemployed have been looking for at least a half year.

The unemployment rate for adult males (25-54 years) hit a post-WWII this cycle and is still above the 1982 recession peak, and the youth unemployment rate is stuck near 25%. These developments will have profound long-term consequences – social, economic and political.

The fiscal costs of the depression continue to mount, with the White House on Friday raising its deficit projection for 2011 to $1.4 trillion from $1.267 trillion. That gap in the forecast – $133 billion – was close to the size of the entire budget deficit back in 2002. Amazing.

You also know it is a depression when you find out on the weekend that the FDIC seized and shuttered another seven banks, making it 103 closures for the year. What a recovery! "

Not exactly great news for a Monday morning. Sorry... This deficit number is haunting. I go back to something I wrote in one of my very first blog entries years ago. I fail to see how you can "spend your way out of a problem created by too much spending." Printing money and monetizing the debt continues to seem likely.

Shelby Knox on the New Wonder Woman! ( and a bit on the markets)

I just read a great essay by Shelby Knox on the new WW that is certainly worth sharing. ( thanks Gloria for sending it to me!) Check out more on Shelby in the about section - one super cool young feminist! The essay also links to a page on Facebook where you can join the movement to reclaim WW. Love it.

The Markets - Sorry for the lack of commentary of late but the whole moving process has been a bear and I have not been keeping up on all my reading. That said, my views have not changed that much. I continue to be quite bearish on the equity markets overall, but have started to sell puts to create some entry points below current levels. I see a few major problems domestically. The first is housing. Prices remain low and soft with inventory high. This has a major wealth and spending effect. The second is the upcoming tax increases. This again will hit spending and restrict growth. The third issue I worry alot about is our deficit. I am not in the Krugman camp that thinks deficits don't really matter. The good news is the US can fund cheaply at the moment and I am sure they are issueing as many long dated treasuries as possible. I continue to be somewhat obsesssed with the problems at Fannie Mae and Freddie Mac. This debacle of epic proportions will cost the American taxpayer hundreds of billions of dollars and as long as housing remains a mess, the losses will mount. Heartbreaking.

That said, it is a beautiful day in Park City! Sending you all my best...

Tax Rate Expirations

"The current top capital gains rate of 15% is set to rise to 20% in 2011. Next January also heralds both the expiration of capital gains treatment for dividends, returning them to ordinary income rates, and the return of a top 39.6% income tax bracket, up from 35%. This means that for 2011, dividend income could be subject to a federal tax rate of 39.6%, and in 2013, 43.4% (top income tax bracket of 39.6% plus 3.8% investment income tax). Likewise, in 2013, capital gains may be taxed at a top rate of 23.8%. There has been movement in Congress to maintain the capital gain and dividend rates at 15% for those with incomes under $250,000 (joint return) and $200,000 (single)." WTAS

Major tax increases are coming. Major. I cannot imagine how this is going to be a positive for the equity or credit markets. I just read the top income bracket in New York City will be paying over 52% total federal, state and local. California is giving tax refunds in the form of IOUs? NY is weeks away from running out of cash. We are already in a state budget crisis. There is going to be a battle between these three taxing bodies for dollars.

Latest News - Some Facts and Figures to Digest

I spent 10 hours on the soccer field yesterday and in between my daughter's games I had a chance to at least skim the stack of papers I had not had a chance to read this week. ( moving, injury... long story) There are about 100 topics I would like to link to, comment on, write-about ....... not going to happen. BUT... I did jot down some facts that I want to share that get behind some of these key issues affecting the markets and the economy. Food for thought...

- The losses or injections of gov't money in to Fannie and Freddie is already $145 billion. Double the profit of the last 35 years.

- According to MBS 9.38% of ALL LOANS outstanding are delinquent as of Q1.

- US inflation year 4 year lows ( as it is reported by the gov't)

- A NY Police Officer retired at 44 having had a base pay of $74,000 yr and now gets $101,333 a yr for life, retired. ( NYT)

- Our National Household New Worth - $54 trillion ( 18% less then summer 2007) - NYT

- The Median Retirement Account Balance for Heads of Households ages 55-60 - $80,000 NYT

- The Median Annual Salary for Full-Time Workers with a 4 yr College Degree $55,656 (2008) NYT

-$140.5 billion - Net Foreign purchases of long-term US securities, minus open market buys in March. ( Barrons)

- US Reform Bill Clears Senate Hurdle this week

- Surprising jump in US jobless claims

- Germany surprises the market by banning naked short selling on certain instruments

- Bangkok burns and Thai protests spread after a crackdown

- Credit Spreads widening from post crisis tights

- Lots of news about the state and local budget problems - LOTS. "The Center on Budget and Policy Priorities estimates that this coming year alone states will face an aggregate shortfall of $180 billion. In some states the gap is more then 30%." (WSJ)

- The Hedge Fund dudes head to Washington to lobby against an increase in carried interest profits from the cap gains rate to ordinary income rates.

- Cost of going to Georgetown University next year - $53,006 (WSJ)

- Seth Klarman - legendary investor - Baupost Group - "More Worried then Ever." ( WSJ)

- Default rate on credit card loans 9.14% - highest rate since index began to be calculated in 2004.

- Oliver Stone's sequel to Wall Street debuts at Cannes Film Festival.

Markets

- S & P - 1087 week down 4.23% ytd down 2.46% 52 week up 22.63%

- 10 yr treasuries 3.2%

- limber down 30% over the past month

- Asian Markets lowest level in 9 months

- Canada/US dollar out to $1.07 after almost hitting parity again

- GE drops $5.8% - $16.26 share (thurs)

- Euro down 17% versus US Dollar since December

-Nikkei 225 Average closes below 10,000 for first time since Feb. (down 6.48% on week)

Off to pack...

Fannie, Freddie and Financial Markets Terrorism?

Fannie Mae and Freddie Mac. If you are a regular reader you know I have mentioned them a lot over the years. Well they reported quarterly losses late last week but the number barely made a headline. Today in Gretchen Morgenson of the New York Times writes a front page article called "Ignoring the Elephant in the Room."

"Freddie — already propped up with $52 billion in taxpayer funds used to rescue the company from its own mistakes — recorded a loss of $6.7 billion and said it would require an additional $10.6 billion from taxpayers to shore up its financial position." It goes on..."Some $130 billion in federal money had already been larded on both companies before Freddie's latest request."

Gretchen questions why more people are not talking about this situation, and I could not agree more. This two agencies are barely if at all mentioned when talking about financial reform, and for those who think government might be the answer when it comes to running financial institutions, I beg you to think again. The same Washington folks who thought Freddie and Fannie could do no wrong, like ever, are the ones leading the charge for too big to fail institutions that don't include these two entities. It is nuts. It is scary and sad and nuts.

Ok on to the reason for the 1000 market crash. How is it possible that days later no one has a clue what caused this? ( "Origin of Scare on Wall Street Eludes Officials" NYT )Am I the only one out there that think this could have been an act of financial terrorism? If it was a 'fat finger' error how could officials not know from what institution the trade came? It just does not make sense and honestly, it is really frightening. First we had credit derivatives and synthetic CDOs as weapons of mass destruction and now this. We not only have to worry about dismantling physical bombs, but economic and financial ones as well? Capital markets, and especially stock exchanges, work because we have confidence in them. We assume that if you execute a trade in good faith it will be upheld. With what happened last week, including the cancelling of trades which occurred during the drop, it really makes me wonder what the heck is going on.

I think it is equally bizarre that they have no idea what caused the explosion on the oil rig and why NONE of the back-ups kicked in. I am not trying to get all Mel Gibson on you all but ..... Ok I know it is Mother's Day. I need to lighten up.

Thoughts From John Mauldin on the Crisis in Europe and more...

John Mauldin is one of my favorite economic writers and I highly suggest you subscribe to his free newsletters. His most recent ones, that you can find here and here, put a challenging context around recent events in Greece. What he suggests is that the problems faced by Greece we face here in the US as well.

"Let me briefly sum up last week's letter. They wrote: "Today, interest rates are exceptionally low and the growth outlook for advanced economies is modest at best. This leads us to conclude that the question is when markets will start putting pressure on governments, not if.

"When, in the absence of fiscal actions, will investors start demanding a much higher compensation for the risk of holding the increasingly large amounts of public debt that authorities are going to issue to finance their extravagant ways?" "

This is the fundamental question I started asking over two years ago when I began this blog. Put another way I suggested that you cannot solve a debt problem with debt. ( yes I studied business to figure that one one.. ha ha ) Sooner or later debts must be paid off, or written down. The former is more painful for the borrower, the second of course for the lender. It seems the day of reckoning is coming sooner versus later. Time to deal with the big problems. If you want to read an insightful comment read Chris Gray's from two blogs ago....

Thoughts on the Market from Merrill Lynch's Michael Hartnett

This just in from Merrill Lynch about the sell-off yesterday. The piece is called "While Athen Burns..." - Head Strategist Michael Hartnett

"Drivers of the sell-off: earnings, interest rates/liquidity and positioning. China
growth fears and European credit contagion & deflation are the key macro drivers."

"Global equities are off over 10% from their April 15th highs. Three reasons why:
earnings, interest rates/liquidity and positioning."

"New lessons
􀂄 The excess liquidity phase of the bull market is coming to an end
􀂄 European deflation a huge risk
􀂄 Market is now differentiating between creditors & debtors; companies with
ambitious funding schedules may be penalized.
􀂄 Companies are safer than countries
􀂄 Best of breed stocks to outperform"

Greece Problems and the Markets Takes a Big Nosedive

Greece. Spain. Portugal. Contagion. European Banking Crisis. Sovereign Defaults. These were some of the words being thrown around today to explain the big downward dive in global equity markets. A few weeks ago I mentioned Greece and made reference to John Mauldin saying "there is not a happy ending here." Still true. There is no happy ending to countries spending way beyound their means.

I have to say I had a sinking feeling on my way in on the train this morning. Why? Because I read the newspaper. The article that really caught my attention was yesterday's piece in the FT by Martin Wolf ( love him )"A bail-out for Greece is just the beginning." ( love the FT) The article describes the bailout package for GREECE and why they are unlikely to avoid a debt restructuring. Greece is certainly in the worst situation "but several (others )have unsustainable fiscal deficits and rapidly rising debt ratios." Just like the US subprime problem, there is a lot of debt that is going to need to be written down and it mostly the European banks that own it. Is round two of the financial crisis about to unfold? How the heck do I know, but I certainly think there are some very big problems out there that would argue for a more defensive posture.