Today we received the official first guesstimate of US Q1 GDP from the BEA. In real, after-inflation terms, we were told that the economy grew for the second quarter in a row by a sub-par but conveniently positive .6% "annualized".

Taking this number as prima facie good news, some markets cheered this evidence that the US had thus far escaped recession.

Not all of us are comforted by an optimistic spin on the data. Congratulations! It’s a Recession! was the take from many who have been discounting the government- fudged inflation numbers for some time now.

"..the goal of GDP should be to figure out how much the economy is expanding or contracting--not how much prices rose. By any honest measure of inflation--and not the 3.5% BEA price index for gross domestic purchases--both of the past two quarters would have been negative."   more »

Ms. Park was the guest Portfolio Manager on BNN, Market Lookahead today at 9:20am. The clip is available for replay on line for a limited time after the appearance at www.bnn.ca.   more »

Today the latest S&P/Case-Shiller Home Price Index fulfilled my expectations with an accelerated decline of -12.7% Y/Y in February, down from -10.7% Y/Y in January.
The Composite-10 index was even worse at -13.6% Y/Y, down from -11.4% Y/Y in January.

On a regional basis, it should be no surprise that the cities in the South and Southwest regions of the U.S. are faring the worst, with Las Vegas home prices leading the pack at -22.9% Y/Y. "There is no sign of a bottom in the numbers," says David Blitzer, Chairman of the Index Committe at Standard & poor's." You can see the full report here.

If there is no bottom yet in sight for housing, I can't see the bottom yet in sight for this economic downturn.

   more »

There has been a strengthening price cycle in hard assets over the past 8 years. In the past couple of years, as prices have doubled and tripled, many have been salivating over the double digit growth of China and India as the fundamental argument for endless demand and boundless prices.

Too often overlooked though is the fact that China's economy has already been growing at a double digit clip for the past 30 years. How can this long standing growth justify increases of 500 and 600% in many commodity prices over just the past couple of years? The answer that commodity fans hate to hear is that a speculative bubble has been driving commodity prices to recent heights.

Notwithstanding the developing country demand story, money flows into commodities have recently been driven primarily by a falling US dollar and sub-par investment opportunities in more conventional assets like real estate, stocks and bonds. "Hot funds" flowing from hedge funds and pensions desperate for yield are driving prices to a fevered pitch posing greater and greater risk to capital and world stability.

Ironically many pension funds today are facing daunting deficits because of their double or nothing speculation in stocks in the late 90's tech bubble. Rather than face the need to admit mistakes and increase funding, many are now grovelling ‘round the commodities craps table for one more hopeful toss against mounting odds.   more »

I recently wrote an article for Investor’s Digest May 2 issue entitled “Market cycles—timing is everything.” It sheds ( I am told) welcome light on the significance of shorter market cycles within long secular trends and the recent run in commodity and stock markets.

Investor’s Digest is a subscription publication but they have provided my blog readers with a one page pdf free copy of the article here. The full publication is available in stores now.   more »

There are days when we humans can seem hopelessly doomed. You know the drill: "the world is doomed to self-destruct, resistance is futile." I say bunk. That is just jargon for "I am too lazy to change any of my habits and ideas." There is no species on the planet that can respond with the creativity and genius of human beings when we focus our minds on devising solutions. Life is really busy. We don't have time in our day to debate with people over whether change is needed. The question is only how best can we get on with the change? In this sense, we need to ask each other only "who here is prepared to help with this work?" Helpers please step up to the front, nay-sayers and doomsayers please step out of our way.

An inspiring article in April's Canadian Geographic magazine caught our attention this month, "Sun power: How Ontario is jump-starting the solar-energy economy."

Although arguably the most obvious, perfect and available energy source on this planet, sun power has been so far little championed in a world battling over black gold.

"The sun fires enough energy at the Earth in a single hour to satisfy the world's electricity cravings for an entire year." Read this sentence over a few times and let it sink in.


   more »

"This is going to be one of the worst economic downturns since the Great Depression," said Stiglitz. (Nobel Prize Winner 2001/Columbia University professor)

He explained that the main cause of the current situation is historically unique—and thus is befuddling those charged with creating solutions.

Other downturns were primarily caused by excesses in inventories or inflation; but this slowdown is due to the condition of "badly impaired" banks and financial entities, which are unwilling and/or unable to lend capital -- stymieing the very borrowers who usually drive the country back to vitality, Stiglitz said. And the Federal Reserve may have used up its ammunition -- and the faith investors and planners have put in it."

Stiglitz co-hosted CNBC this afternoon for a couple of hours. How they let his bearish self in and on for so long is quite remarkable given CNBC's usual obsession with optimistic only, bullish guests.

The interview is worth watching here.   more »

Thanks to Victor Adair and Howestreet.com for posting a clip to our interview last week in Calgary, "Risky Business and the on-going credit crunch."   more »

I have the good fortune of travelling with my work. Each trip I take an interest in gleaning what I can from local people on the state of their economy.

Over the past 18 months I was not surprised to hear pessimistic comments from Americans, particularly about their real estate markets. Over the past several months this pessimism seemed to spread to the UK, parts of Europe and recently Australia and New Zealand. But for the most part it seemed that people in my homeland of Canada were feeling still quite confident and optimistic about continued strength in real estate. Generally I think it fair to say that while Canadians have become increasingly aware of troubles in other parts of the world, we have so far enjoyed a sense of "not in our backyard" immunity.

   more »

A Merrill Lynch report from David Rosenberg yesterday entitled Recession Roadmap gave us an exceptional overview of the current global economic situation. The piece is comprised of over 90 historical charts on a host of key metrics. With very little text or spin, these pictures paint some valuable perspective. Everyone should take a look; even a quick scan offers an enlightening overview.

One of the more important take-aways is that the stock market has historically bottomed about 60-70% of the way through each economic downturn or recession (see chart 16 of the Rosenberg report). Since World War II the average recession has lasted 10 months. This means the stock market has typically bottomed well before the overall economy but not before some 6 to 7 months of economic contraction.

Presently our best estimate is that the current US contraction began in December 2007. If we were to get an average run-of-the-mill contraction this time it would last until October 2008. A 10 month contraction would suggest a stock market bottom this time in and around June or July 2008.

Optimists who are declaring January 2008 as the market bottom this cycle are doing so after only 1-2 months of contraction. If that is the case it would be a most incredible bottom indeed!    more »

There has been a lot of pessimism about the economy over the past few weeks. Today was a big relief rally on news that some companies like JP Morgan and Intel had fared better than feared.

For those of us that had anticipated present problems before they became widely recognized, we can’t help but feel surprise now at how “unexpected” recent bad news is to many mainstream commentators.

That said stock markets have been thrashing wildly in violent fits and drops. Will markets break out to a fresh new bull from here? Obviously no honest person can say with certainty. Those of us that know markets well know that strange things can happen. But it is noteworthy that healthy market expansions do not exhibit this extreme volatility day to day, week to week. Healthy markets are not so bi-polar.

For the time being, we are watching our technical indicators with care as always. If there is a meaningful and sustained break through long-term support we will see it. But we are not there yet. Until then we are still in a bear market, the same bear market that we have avoided while it harmed others over the past 12 months.

Fortunately we are not desperate to pile back in to ride this wild market wherever it may take us. That is the beauty of having a management discipline while others flip-flop madly about.

Markets may rally on hope that the credit crunch worst is past. That may be correct. But I suspect that even if it is, more typical cyclical issues will inevitably stomp into focus:
   more »

I am off to Calgary this weekend to speak at the 2008 Resource Investment Conference organized by Cambridge House. I will be doing a presentation on current market cycles as well as taking part on 3 expert panels over Saturday and Sunday.

There are a great line up of speakers and interesting (not mainstream) topics. If you will be in the area, you can register for free in advance here.   more »

A story in Saturday's Globe April 5, "Knowing when to pull the plug on a loser fund," makes a classic point about why the investment world is full of expensive and ultimately useless advice and commentary.

The article asks three investment advisors what to do with funds that have fallen disastrously over the past year. (We are in bear market after all, falling is what stocks and stock funds do in bear markets). As a sample it posts the following list of big name losers over the past 12 months and how these funds have fared versus their peers:


The advisors go on to suggest how they would advise clients now in reaction to enormous losses. If a fund is down more than its peers or the overall index, they suggest exit strategies.

Two key points are made clear in this piece.    more »

Good article today on the consumption mentality that spawned our present woes, "Pamela Anderson caused the debt crisis." I couldn't agree more. It wasn't just that the central bankers and regulators left their post this cycle. Regular folks have also played a leading part in our own demise. It’s the same story different actors that caused all of the other credit implosions in history. At least we humans are consistent:

"while a big part of what fuelled the [American] dream was the concept of hard work and a better life (and things), another big part of the equation was more hard work, deferred gratification and shame.

We seem to have forgotten the main ingredients (hard work, deferred gratification) and begun to OD on the others (better life, better things and a total lack of shame). Here’s where Pam, Paris, Britney, Lindsay and all the other posers and pretenders come in to the equation.

Want that big house? Go for it. Britney has one just like it that I saw in People (TWX). Can’t afford the mortgage? Turn in the keys. You’re upside down on the equity equation anyway. Let it be the bank’s problem.

There used to be all kinds of names for people who walked out on debts and obligation. Today you’re considered a sucker if you don’t (there also used to be names for those morally bankrupt jerks who preyed on innocent people and sold them a bill of goods they couldn’t afford)."

These are some of the themes I highlight in "Juggling Dynamite." You can enjoy the whole article here on Minyanville.   more »

This week a NY Times article: To see a stock market bubble bursting, look at Shanghai, reminded me of some familiar human themes. In the past 2 years, Asian stocks had gone through an incredible bubble.

Chinese share prices had climbed 500%, setting off a national stock buying frenzy. As the fever peaked last year, people were quitting regular jobs to day trade shares full time. Millions were lining up around the block to open broker trading accounts. "Everybody was talking about how much they had earned, how much more they would invest, and which stocks had jumped 20, or even 30 times."

Then the bubble burst. Since market highs last October, the Shanghai composite index has plunged 45%. In India and Japan stock prices have plunged 31%, in Vietnam a whopping 53%. Now people are angry and distraught, crying and burning a security regulator effigy in the street. Families are straining under the financial stress and the regret of capital now evaporated. Many people were trading on borrowed money desperately levering themselves into the soaring markets.

   more »

Today markets are bouncing with another surge of hope. As I have noted before, bear markets are typically populated with many days and even weeks of strong up rallies. But here is the thing. If world stock markets have put in their bottom already this cycle, then it will be a very resilient, shallow, even miraculous bottom. It will be one of the shallowest declines, stopping at the richest valuation levels ever in history. And it will achieve this remarkable feat amidst the on-going terrors of the worst credit and housing recession since the great depression. I would like to believe in this miraculous outcome, but I confess that I have a difficult time accepting that we have seen this bottom yet.

Here are a few relevant articles that I think we should consider before jumping blindly on to the bull bandwagon:   more »