Sell-side analysts have adjusted their earnings estimates for REITs upward, and the bar is now higher. But same store net operating income (i.e., trends in rent pricing) is what really matters for investors’ expectations looking out several years. As rents remain depressed from tepid new business formation and slow retail sales, the supply of credit to REITs will once again tighten, which will dampen REIT owners’ expectations for future free cash flow.

The Dow Jones U.S. Real Estate Index has tacked on a hefty 30% rally since second-quarter earnings season in July. REITs are now priced for perfection, rather than being priced for the obvious multiyear depression staring REIT owners in the face.

REIT Retreat originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Here are a few:

1. The FDIC’s Deposit Insurance Fund is now promising to insure $6.2 trillion in deposits with just $10.4 billion in reserves. Expect to see another “special assessment” cutting a few billion dollars out of bank earnings later this year.

2. Credit card losses are at a record: 9.95%

3. 416 banks, or 5% of the nation’s banks, are on the ‘problem’ list.

4. FDIC-insured banks are sitting on $332 billion in loans more than 90 days past due, up from $290 billion in the first quarter.

5. Nonperforming loans now make up 2.77% of the entire banking industry’s assets. This is up from 1.4% in June 2008 and 0.47% in June 2006. As these loans get ‘worked out’ in today’s credit environment, the market will start to realize how severe net charge-offs will be.

In this new report, the FDIC published updated figures for the combined noncurrent loans and loan loss allowance at all FDIC-insured institutions. Here is an updated version of the chart we published in the Aug. 14 alert. The new figures – the moves from December 2008 to June 2009 – are highlighted in the dotted lines at the far right of this chart:

You can see how problem loans are increasing at a much faster rate than the rate at which the banking industry is adding to its loss allowance. This means that published capital ratios are misleadingly high.

More Pain Ahead for US Banks originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Here are six lawn mowers from the real economy – the parts that don’t revolve around Wall Street of Washington, DC – that could easily mow down the green shoots:

1. Stabilizing numbers for continuing unemployment claims are painting a misleading picture. In reality, hundreds of thousands are rolling off of the traditional six months of benefits into extended unemployment benefits rolls. The recent payroll data was temporarily inflated by a rebound in auto production from depression levels, and the government’s hiring of census workers. Also, the unemployment rate fell because the number of people actively looking for work keeps falling. There are absolutely no signs that those who were laid off will find a new job anytime soon.

2. The federal government’s income tax receipts are still collapsing. Paycheck withholding tax receipts are still falling sharply. As data services like TrimTabs have demonstrated, income tax receipts are far more accurate gauges of trends in personal income than the highly massaged employment figures from the government. Falling tax receipts translate into a higher threat of confiscatory marginal tax rates in the future, deficit monetization and more inflation.

3. Last Friday’s aggregation of July same store sales in the retail business confirms that end demand for many products remains bleak (aside from auto sales in the “cash for clunker” program, compliments of the ballooning national debt). For perspective, gasoline prices in July 2009 were about 35% lower than the $4-plus per gallon level of July 2008. One would think that this would be a major tailwind for retail, but it’s not.

4. The federal government is spending other people’s money like a drunken sailor, yet a good portion of the sugar high “stimulative” effect of this spending on GDP will be offset by lasting cuts in state and local government budgets.

5. The bond market will continue balking at absorbing trillions in new Treasury bond supply to fund the deficit. Rising mortgage rates, which are tied to Treasury Note yields, will limit the positive impact of refinancing those few homeowners that have any equity left in their homes.

6. Has the market noticed that the FDIC is stalling on its duty to shut down and eat heavy losses at several zombie regional banks – Corus, Guaranty, and Colonial to name a few? When it when it does so, it will have to draw down tens of billions of dollars from its emergency line of credit with the Treasury.

These factors all indicate that the economy is most certainly not returning to pre-credit bubble conditions. Yet the stock market is pricing in a return to such conditions – especially in the rallies in junk stocks that we’ve seen since the market lifted off on July 13.

I’ll add a seventh lawn mower: the growing risks posed by debt bubbles in China and other emerging markets…

The Chinese government realizes that its stimulus spending and pressure on banks to expand lending is inflating a massive bubble in the Chinese stock and property markets. The problem with unsustainable economy activity is, of course, that it must eventually end. Michael Cembalest, the Chief Investment Officer of J.P. Morgan Global Wealth Management, describes the Chinese lending bubble in his Aug. 6 “Eye on the Market”:

And in China, while there are positive recovery signals, I’ve never seen a country expand its loan base by 34% in one year without massive inefficiencies and asset speculation in its wake. Only 5% of this year’s loans went to private enterprises (which employ 75% of the urban workforce), as 95% went to state-owned enterprises or provincial entities. While there have been substantial productive improvements in rail and other infrastructure, our contacts in Asia also indicate that funds designated for stimulus are ending up pushing up land price auctions to 4 times the original bids.

This is mal-investment on a monumental scale. But for now, the Chinese have much more room to borrow and inflate than the US (which has spent the last few decades doing so). Eventually, the market will cut them off. The end will not be pretty, and at some point in the future, shorting Chinese stocks may be one of the best short selling opportunities in history.

But in the meantime, it makes no sense to bet against China. The Communist government has proven very efficient at stealing the resources of its people (via inflation and taxation) and channeling them into whatever infrastructure project they deem necessary.

This process could end next week, or next year. That’s the annoying part about bubbles: they tend to expand until the last patsy has bought in, and there’s no telling how many patsies there are. There are already signs emerging that the furious pace of loan growth is slowing down. Today, Bloomberg reports:

“China Construction Bank Corp. will reduce new lending by about 70 percent in the second half after a surge in loans in the first six months increased credit risk, President Zhang Jianguo said in an interview.

“CCB, the world’s second-largest bank by market value, plans to extend about 200 billion yuan ($29 billion) of loans, down from 708.5 billion yuan in the first half, said Zhang, 54. The company’s new lending through June 30 was 42 percent more than for all of 2008.”

Lots of debt loans are being made, but as long as loan growth is running hit, they will be hidden. Once loan growth stalls, bad loans will come to light, and the Chinese government may implement its own version of TARP to recapitalize its banks.

But the situation in the US is different…

Society has too much unaffordable debt at nearly every level. To top it off, we have a Federal Reserve run by central planners who not only misdiagnose their own complicity in the credit bubble, but also remain smugly confident that they can withdraw excess reserves before fears of inflation pick back up. This is turning out to be the financial market’s largest ever game of chicken: the Treasury and Fed acting in a brazen manner to depreciate all forms of US paper (government debt and dollars), and, with each passing year, foreign creditors with fewer and fewer reasons to hold the liabilities of a bankrupt government that’s accelerating its move deeper into bankruptcy.

The ingredients add up to the potentially explosive move up in gold-related assets. The more developments I see regarding economic fundamentals, and fiscal and monetary policy around the world, the more I want to own gold, and sell most stocks.

Regards,

Dan Amoss
for The Daily Reckoning

Green Shoots Do Not See the Mowers originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

The recent rally, starting on July 13, has raised the bar for corporate earnings over the next few quarters even higher, setting market participants up for another round of disappointment.

In the financial, REIT and consumer discretionary sectors, the market completely detached from reality. Part of this can be explained by the growth of program trading based on backward-looking statistical inputs, part by the triumph of technical analysis over critical analysis, and part by the herd behavior of fund managers.

Regarding the triumph of technical analysis over critical analysis, ridiculous notions like the following are clearly driving the market higher: “We just broke through ‘resistance’ at 950 on the S&P 500, so therefore, it’s a mathematical certainty that we’ll go to 1,050 or 1,100.” This kind of ‘analysis’ is dangerous. When we all start watching and reacting to charts and stop thinking critically about what stocks are intrinsically worth based on reasonable assumptions about the future, the adjustment process back to reality can be violent and painful. The 1987 crash is a case in point.

Stocks: Detached from Reality originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

The consensus seems to be looking for a return to something resembling the environment before the credit crisis. They’ll be waiting for a long time. Sure, there are still lots of wealthy people. But the essence of the financial crisis has to do with most consumers and businesses stretching their budgets and capital spending plans in unsustainable fashion. The next few years will reverse this trend, and we’ll continue to see economic development in emerging markets maintain pressure on commodity prices.

Mr. Market is now testing the conviction of the bears. But through the rest of 2009, the momentum favors the bears. The stock market is far below its peak, but this is justified by long-term fundamentals. In fact, the recent rally has priced in very rosy earnings for many sectors and stocks, including our short ideas.

Remain patient with your short positions. This rally will end soon enough, probably by the time the fourth branch of government — the mega banks — are done reporting their paper trading profits and we learn more about the bleak outlook for earnings in the real economy.

What the Market’s Missing originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

– Retail expert Howard Davidowitz on a May 14 Bloomberg Radio interview.

The day of reckoning has arrived for California’s state government. It will not be pretty. Spending cuts and tax hikes are unavoidable; unlike the federal government, the state cannot monetize its debt with its own fiat currency. On June 10, California Controller John Chiang said in an official statement: “Without immediate solutions from the governor and legislature, we are less than 50 days away from a meltdown of state government.”

The golden goose that funded irresponsible growth in state spending is dead. Chiang issued a report detailing a 39% year-over-year drop in personal income tax receipts, a 52% drop in corporate tax receipts, and an 8% drop in sales tax receipts.

Both consumer spending and capital investment will keep dropping in the state of California, because during the credit bubble, which paralleled growth in government spending, so much economic activity that would have taken place in the future was instead pulled into the present. Entrepreneurs suspect that state taxes on businesses will go up and will incorporate this into their plans.

“Sustainability” isn’t just a word for environmentalists. In fact, it has a lot to do with the various stages of our financial crisis. In short, unsustainable economic activity fueled by easy credit will fade away quickly under tight credit. As economist Herb Stein said: “If something cannot go on forever, it will stop.”

Like California’s government, the consumer discretionary sector – which includes specialty retailers, restaurant chains, auto manufacturers, and more – has not been acting in a sustainable manner.

California’s budget crisis provides a good example of what happens to institutions that wait until the last possible moment to correct mistakes and gets their fiscal houses in order. Like state governments, many businesses in the consumer discretionary sector must correct mistakes made during the bubble and write off uneconomic investments.

So while Wall Street’s shortsighted focus is on the growth rate of the so-called “green shoots” of economic recovery, at Strategic Short Report, we’re going to swoop in and seize not one, but two opportunities.

But first, you may ask why the consumer discretionary sector made so many uneconomic investment decisions. In hindsight, it was easy to see that we had, for example, too much auto production capacity. But in the heat of the credit bubble, it simply was easy to be fooled by artificially boosted trends in consumer demand. Think about it this way: Consumer borrowing and government budget deficits both pull what would have been future economic activity into the present, while pushing the associated costs into the future.

When this unsustainable behavior reaches its point of exhaustion, and people finally realize the folly of it all, employment falls, reckless investments are liquidated, and bad debts default. This is why it’s healthier (yet politically unpopular) to have small, frequent recessions to keep supply and demand in balance, rather than have massive debt bubbles followed by nightmarish depressions and currency debasement. Such are the perils of government-promoted, debt-driven economic bubbles. It’s like trying to live on a diet of candy and energy drinks, rather than wholesome food.

The 21st century gilded age for US consumers ended with the popping of the credit bubble. And this bubble was so big that it may take a decade for specialty retailers and restaurants to shrink store footprint, operations, and product lines to match a more sober customer. US consumers will save much more and spend only on things that provide clear value, and this will crimp demand for things like three-martini lunches.

Meanwhile, the stock market seems to have forgotten that we are facing a long-term adjustment in consumer behavior; it’s distracted by noise surrounding the latest taxpayer-funded bailout. Market participants are also mesmerized at the spectacle of the Federal Reserve transforming its balance sheet into a toxic waste dump. It’s like a bad reality television show that must up the ante to keep the audience interested.

Consumer discretionary stocks enjoyed full participation in the post-March 6 stock market rally. However, this sector must endure years of disappointing profits – thanks to the capital investments made during the bubble to meet a level of demand that turned out to be phony. As US consumer demand approaches a more sustainable level, the excess capacity in specialty consumer companies will come to light. In the coming years, bankruptcies, price wars, and shrinking competitive barriers will prompt the market to start treating these former darlings as “commodity companies.”

Take another look at the lead quote from Howard Davidowitz, a widely recognized expert on the retail sector. He has lived through booms and busts, seen the rise and fall of winners and losers, and is not sugarcoating the return to sustainability in retail. The message is clear: Extravagance is out and frugality is in.

Davidowitz may not be an economist, but his point about the federal deficit is one that all rational economic actors understand. He emphasizes that you cannot overspend without eventually suffering consequences. There’s no getting around the fact that as with California’s budget, profit margins in the financial and consumer discretionary sectors must shrink. Sustainability matters. Even the federal government will recognize this as the market charges high interest rates to fund its deficits.

Regards,

Dan Amoss
for The Daily Reckoning

Unsustainable Economic Activity originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Isn’t it ironic how creatively regulators were interpreting Reg FD laws with all of this week’s leaks to the press? The leaks may not be very relevant, but they are yet another sign that this stress test was designed for public consumption. It was intended to bolster public confidence in the banking system, and I’m shocked at the lack of skepticism among the professional investment community.

Once it was announced that bank executives were pushing back on regulators about their forecasted losses, the stress tests instantly lost a great deal of their credibility. What kind of test in school allowed you to argue with your teacher about the correct answer?

Just like a student either knows their subject or does not, a bank’s capital will be sufficient to weather this crisis without obscene levels of government subsidies, or it will not. If it is not, the FDIC should resolve it at a measured pace to minimize taxpayer losses. With Bear Stearns more than a year in the rearview mirror, there’s no excuse for top regulators to not have a mechanism for unwinding complex bank/brokerage institutions – in which losses would be borne by shareholders and bond holders – rather than taxpayers. Instead, the authorities are trashing the value of the U.S. dollar and blowing up the deficit to potentially unmanageable levels.

Independent regulators – not bank executives – should be the sole judges of capital adequacy under a stress scenario. We all know what kind of biases bank executives tend to hold about their own loan books.

We have probably not seen the end of the stress test process. If the future data flow on loan delinquencies comes in higher than the current “stress” scenario, then we may see a scenario where a major bank (or three) gets massively diluted. For a model of what night happen to shareholders at the most toxic of the megabanks, consider the proposed exchange offer for GM bondholders, which would leave current GM shareholders with a 1% equity stake in the “new” GM. Why any professional can justify investing client capital in such megabank stocks is beyond my understanding.

The market’s reaction to the stress test – in the form of soaring bank stocks – tells me that the consensus is treating this stress test as if it has the ability to magically predict yearend 2010 capital levels with pinpoint accuracy.

Most of us do not have magic predictive powers – only the ability to make judgments based on knowledge and experience. In my judgment, the stress test was not stressful enough. For instance, it is not really accounting for borrower behavior in a scenario where they are underwater on their mortgage and under- or unemployed.

The stress test’s estimated losses on second-lien mortgages in particular seem very low. In foreclosure, these are often total losses. With another big wave of Alt-A resets and foreclosures in the pipeline, the performance data on second lien mortgages should worsen. Several state-imposed and bank-imposed foreclosure moratoriums are ending.

The bulk of housing activity right now consists in foreclosure auctions and short sales. How much are second mortgage liens worth under this scenario? Not much.

Most big banks already have low levels of tangible capital relative to towering trillions in risky assets. The cash flow from their existing and new loans must exceed their loan losses in order to simply maintain existing capital levels (let alone increase capital). Here’s the illustration I used in the March 27 Strategic Short Report alert:

“Think of this situation as a bathtub. Bank capital is the amount of water in the bathtub, and the faucet pours new water into it (that’s cash flow from existing, paying loans and securities, plus new capital infusions) and the drain sucks it out (these are the loan losses). Pessimists claim that the drain of losses is sucking water out so fast that it will empty the bathtub within a year or two, depending on the bank. They tend to ignore or downplay the new water coming in. Optimists claim that if regulators allow the water level to fall to a very low level during this crisis (regulatory forbearance), in time, the water level will eventually rise back to normal levels. There’s a risk that if the optimists are wrong about the amount of new water coming in, we’ll be stuck with a Japanese-style “zombie bank” situation.

After this week, I think the risk of the zombie bank scenario is much higher. We’ll probably see this manifested in continued tight credit conditions. The banks under the most intense scrutiny will tend to reinvest cash flows into less risky assets like Treasuries and agency mortgage-back securities (another form of government guaranteed debt) – rather than write new commercial or consumer loans.

Regards,

Dan Amoss
for The Daily Reckoning

The Truth Behind the Bank Stress Tests originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

And few got the memo from Wall Street strategists that they are supposed to stop driving because oil is over $100 per barrel. Americans love their mobility, and they will pay a premium to keep it. I expect the resilience of energy demand to surprise many.

I checked the markets at the end of each day as the list of bear market casualties grew: Fannie, Freddie, Lehman, Washington Mutual, and now, AIG. It’s amazing how well the financial stocks we’re selling short in Strategic Short Report are holding up, since they’re all loaded with leveraged exposure to credit risk. But I’m confident our patience will be rewarded in the coming quarters.

My week off allowed plenty of time to think about the future of this credit crisis from a much broader perspective. Driving though Vermont’s scenic Green Mountains and New Hampshire’s White Mountains, we had plenty of time to listen to audio books.

One in particular – David McCullough’s excellent book 1776 – offered perspective on how far the U.S. has strayed from its founding principles. 1776 is a historical narrative of the American Revolution, with a focus on the early military engagements between General George Washington’s Colonial Army and the powerful, yet overconfident British Army.

Two themes from the book seem to parallel recent financial market events:

First, in one scene, British soldiers express their surprise at what motivated the colonists to revolt. Most Americans enjoyed a high standard of living, and nearly all were better off than British regulars. Why did they risk life and limb in a fight against British rule, when they had such material wealth and a decent amount of sovereignty? With historical perspective, we can appreciate even more just how much freedom most colonists enjoyed; taxes in particular were a pittance compared to today’s U.S. tax burden.

Despite their many sins – most notably slavery – the colonists had amazing sense of sacrifice and honor. Their willingness to fight for freedom from government abuses stands in stark contrast to the attitudes of most modern Americans. Now, politics focuses on wealth redistribution, rather than harness the American entrepreneurial spirit and human capital to compete effectively in the global economy. It’s gotten so bad that most Americans hardly seem to care when the federal government virtually takes over the mortgage industry – and most don’t even understand how we got into this mess in the first place.

Will my one-year old son Ben apply directly to the federal government, a.k.a. "Frannie," for a mortgage when he grows up? Will politicians now directly manage the mortgage industry? After this week, it’s far more likely to happen. We are watching the slow creep of socialism. That holds enormous long-term consequences for financial markets.

The second interesting point I drew from 1776 concerns leadership. George Washington didn’t posses the brightest mind, or the best oration skills, but he quickly learned how to lead through success and failure while maintaining great humility.

After a stinging defeat at the Battle of Long Island, Washington engineered a brilliant overnight retreat that salvaged the awkward, inexperienced Continental Army. Rather than gamble his army on a low-probability recovery of lost ground, he swallowed his pride, and retreated to fight another day.

Washington’s humility in retreat stands in stark contrast to the type of leadership we’ve seen in the boardrooms and executive suites on Wall Street. In nearly every big financial blowup of the past year, executives have failed to make tough choices that might have salvaged shareholder value, and instead gambled on a miraculous future turnaround.

Think about how much better off Lehman Brothers would be if its management hadn’t put off the process of reporting losses, dumping impaired assets, and raising new capital. Would its stock be $4 today? Probably not.

While all of those decisions would have been painful at the time, they could have salvaged much more shareholder wealth – just as a successful retreat preserves an army’s ability to fight another day.

The speed of Lehman Brothers’ deterioration is shocking even to its skeptics. Despite my already low opinion of Lehman management, expressed several times in this space, I’m amazed at its failure to structure a deal or asset sale to salvage a respectable amount of shareholder value. Lehman even had the advantage of immunity to a "bank run," thanks to the Federal Reserve’s lending facilities. Bear Stearns wished it could have used the same; it was finished as soon as creditors lost faith in its solvency. Lehman shareholders and its 25,000 employees deserved better.

These are tumultuous times – times that show us all the importance of good leadership. The importance of management leadership skills is never greater than it is in a crisis.

Best regards,

Dan Amoss, CFA
for The Daily Reckoning
September 18, 2008

The above essay was pulled from the most recent issue of Strategic Short Report.

Dan Amoss, CFA runs Strategic Short Report, and is a contributing editor for Strategic Investment. Dan joined Agora Financial from Investment Counselors of Maryland, investment advisor for one of the top small-cap value mutual funds over the past 15 years.

Dan brings with him the unique experience of an institutional background and a drive to seek out the most attractive investments within favored "big picture" trends. He develops investment ideas for his readers with a global network of geopolitical and macroeconomic analysts. Dan holds the Chartered Financial Analyst designation, a professional designation widely recognized within the investment community.

Oh my…

Yesterday, the earth shook. It was an important day. The Dow dropped another 450 points. But what really moved yesterday was an inert metal – gold.

The gold market rumbled and shot hot prices into the air. Alert investors knew what the shaking was all about. Our modern financial Vesuvius is beginning to boil…

You’ll recall the story of Pompeii. The mountain began groaning…and sending up clouds of smoke. Smart residents took to their boats. They didn’t want to stick around and see what would happen next. Others stayed behind, believing it would blow over. But instead of blowing over, Vesuvius blew up, burying the whole town under ash and lava.

Gold rose as much as $100 in intraday trading yesterday and ended up $50 – its biggest move ever. Investors were looking for a safe place to put their money. From the time of Pompeii, gold has been the refuge of choice for investors everywhere. It still is. And, looking at the market, gold is going to become the obvious choice for more and more investors. Get your gold now – and beat the rush.

But what exactly is blowing up?

A few days ago we warned against a "collision of scams" – in which the desire to get something for nothing in the markets runs headlong into the desire to use government to live at someone else’s expense. People invest in scammy investments – such as subprime MBOs – in the hope of getting rich…and then, when the investments go bad, they look to the government to bail them out. Then, when the scale of these deceits gets big enough…the whole system blows up.

That is what investors are worrying about now. Wall Street is melting down. Stock markets all over the world are headed down. Property prices in most places are going down. And the U.S. government is desperately trying to keep things going up – in the only way it can…by bailing out, injecting funds, lending money at negative interest rates, propping up, and guaranteeing everything.

Today brings news that the Fed is providing the biggest central banks in the world with liquidity to injection in the financial markets. MarketWatch reports:

"The move will allow the European Central Bank to auction as much as $110 billion in one-day and other short-term dollar loans to commercial banks in the 15-nation euro zone, up from its current level of $50 billion. The amount available through the Swiss National Bank was increased to $27 billion, a rise of $15 billion.

"The Fed also authorized new swap facilities that will enable the Bank of Japan to provide $60 billion in dollar liquidity, $40 billion by the Bank of England and $10 billion by the Bank of Canada."

A few weeks ago, the feds bailed out the mortgage industry…by nationalizing Fannie and Freddie and promising to put up $200 billion. Congratulations fellow taxpayer; now we own the world’s largest source of mortgage finance. This week, it was the insurance industry. They nationalized the biggest insurer in the world – AIG – with an injection of $85 billion. Congratulations again. Now we own 80% of AIG. Next in line is the auto industry, asking for $25 billion.

Where in the U.S. Constitution does it authorize the executive branch of government to go into the insurance business? We don’t know…but no one cares anyway…

The French nationalized their auto companies after the war. Then, when the socialists took control of the government in the ’80s, they nationalized the banks too. "Silly frogs," said American economists. "Don’t they know that a free market works best?" And so you see, dear reader, in all time zones and all languages, people are the same – always hustling up something for nothing, whenever they can get away with it.

But wait. Where do the feds get an extra $300 billion or so? The federal budget is already in deficit, about $400 billion worth. The only choice for the feds is to borrow more. But even the full faith and credit of the U.S. government has its limits. The sub-prime crisis came about because people borrowed money they couldn’t pay back. When investors realized what they had done, they dumped the packaged, AAA subprime credits…and ended a 26-year-old credit expansion. And what did they do with the money? They took refuge in the prime credits of the U.S. Treasury. The dollar rose. Bond yields fell.

Now they’re having second thoughts. And if they’re not…they should. The more the economy and financial sector weaken, the more money the feds must put up to rescue them. The more dollars they need, the more they must borrow. And the more they borrow, the more they don’t pay back… Already the amount unpaid – the official national debt – is almost $10 trillion. The interest alone is nearly $2 billion per day. Meanwhile, tax revenues are falling. Social costs – as people need more unemployment compensation, more free food and medicine, more subsidies and giveaways – are rising. Some economists are predicting budget deficits of $1 trillion…others say it could go to $2 trillion…

Oh yes…dear reader…this is where we hear the volcano heating up…

And this is when smart investors take to their golden barks… Not that they know what will happen. But they know the safest way to find out – from a distance…and, like refugees from time immemorial, with gold coins in their pockets.

*** "Nothing like this has ever happened before," said Peter Bernstein to Barron’s. "There have been credit crunches and housing crises and dollar crises, but having all the chickens coming home to roost at the same time and interacting with one another is unique. We have historical perspective on the parts, but not the whole, and that makes things both interesting and scary…"

Goldman fell off a cliff yesterday. The stock sold for $240 last November. Now, you can buy all you want for just $120.

So far this year, the Dow is down 16%. That makes it one of the world’s best performing markets! English stocks are down 22%. In Paris, the Bourse is off 27%. Indian stocks are down 33%. But Chinese stocks have lost twice as much – 67%.

Getting back to our "collision of scams," as Peter Bernstein puts it, there are a lot of feathered scams…and they’re all coming home to roost at the same time. There’s bound to be trouble in the coop.

In from the front yard comes the scam of ever-rising house prices. And it collides head on with the scam of the consumer finance coming from the henhouse roof (that people could borrow from their houses in order to increase spending)…

…that runs into the whole humbug of the consumer economy (that people can get richer by spending money they don’t have)…

…that smashes into the flimflam of subprime mortgage lending…

…which bumps into the scam of the financial industry’s business model (the masters of the universe claimed to be adding value by "allocating capital efficiently; what they were really doing was merely loading people up with debt)…

…which crashes into the big birds of Wall Street (now going broke)…

…which runs into the fraud of government bailouts (that the feds can put in money that comes out of thin air; in fact, any resources the put in to prop up failing institutions has to be taken from healthy ones…)…

…which creates one heck of a mess when it slams into the dollar and the counterfeit global monetary system since 1971 (in which the supply of paper money is unlimited…and the full faith and credit of the US government is thought to be infinite!)

We’re talking chicken gumbo! And the convergence of all these scams could wreak havoc on your portfolio…but only if you are unprepared. Take advantage of the resources available to you in the Strategic Financial Survival Library.

*** "That’s Louis de Monfort. And that’s Pierre Lamonte and his wife Louise. And over there, in the blue dress, is Anne-Marie…and that’s her husband, Jean-Louis…."

Elizabeth was helping us avoid social faux pas. We were at a party, with hundreds of people…many of whom we knew well…and many your editor thought he had never laid eyes on.

"Oh yes you have…" Elizabeth corrected him. "They were at dinner with the Roussettes… You met them at the Polignac’s wedding…"

"The who?"

"You’re hopeless…"

"Well, how do you remember so many names and details?"

"I have to remember. You get away with not knowing peoples’ names. You’re a foreigner. You’re a man. And you’re an intellectual. At least, that’s the way they consider you in France. So they give you an enormous amount of slack. They imagine that you’re thinking about other things…important things…like the national deficit…or the price of EDF stock. You put your head back and they think you’ve got lofty thoughts on your mind. They don’t realize that you’re really just looking for the bar.

"But women don’t get away with that. We’re expected to remember names…dates…relatives…who’s married to whom…and what people were wearing when we met them 10 years ago. Of course, men don’t care about that…but women care…and they care that other women remember these things.

"Now, over there is Sophie Remarck…do you remember her? We met her at the Declerc’s…the tall woman with the blond hair…

"No…"

"Oh, yes you do."

"No. I don’t remember the face…and I don’t remember the name…I’ve never met her…"

"Yes you have…she’s married to Henri…he’s from a very rich family…he owns a huge estate in Normandy, and a huge advertising business in Paris. They have a sumptuous apartment on the Avenue Foch…remember…we went there…"

"Oh…ooooh… Well, I can’t remember names. And I can’t remember faces. But I never forget a bank account. Yes, I remember Henri…nice fellow… the guy in the light jacket."

"No, that’s Pierre Verget. You are hopeless…"

Until tomorrow,

Bill Bonner
The Daily Reckoning

P.S. Long-time DR sufferers are familiar with the Agora Financial Reserve, the elite service that allows you to get all of our investment research and advice for life. While the feedback for that service is overwhelmingly positive, we realize that it is a lot of information to sift through.

What Wall Street Needs is a Few Good Men originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

If you are a modern central banker, anxious to implement your ivory-tower theories, deflation is enemy No. 1. (For the sake of clarity, by “inflation,” I mean rising prices, and by “deflation,” I mean falling prices).

Central bankers must be the only people who celebrate a 3 or 4% annual reduction in purchasing power.

Why is this? Because “moderate” inflation tends to be good for bankers. Too much inflation and debtors will repay loans in increasingly worthless money. With too much deflation, debtors will be more likely to default. The Federal Reserve wants to stay in that sweet spot.

If you were Bill Gross, you also would not like too much deflation. As chief investment officer at PIMCO, Gross manages $130 billion in fixed income investments. Gross thinks like a banker. After all, he’s essentially loaning his clients’ money to governments, corporations, and households (via mortgage securities). Spiraling deflation could push his bonds into default.

Gross’s good long-term track record owes a lot to the “great moderation” in inflation since the early 1980s.

You can generate very high returns by buying high-yielding long-maturity bonds when inflation is high and holding them while inflation cools off. This was the best strategy for bond investors from the early 1980s until today.

Rather than deflation, Gross should worry about a decade-long resurgence in inflation. But surprisingly, he fears that deflating house prices will drag the U.S. economy into a Japanese-style slump. His solution? He wants the government to print money and Treasury bills to prevent it.

In his July 2008 investment outlook, available on PIMCO’s Web site, Gross writes an open letter to Democratic presidential nominee Barack Obama. Presuming Obama will be the next president, Gross urges him to dramatically expand the federal budget deficit until it reaches a trillion dollars. I quote:

“While the Republicans will blame you for years and label you “Trillion-Dollar Obama” in future campaigns, there is, in fact, not much that you or any other president can do. You’ve inherited an asset-based economy whose well has been pumped nearly dry with lower and lower interest rates and lender-of-last-resort liquidity provisions that have managed to support Ponzi-style prosperity in recent years.”

The U.S. economy “will need an additional jolt of $500 billion or so of government spending real quick,” pleads Gross. His comically simple formula for GDP, this $500 billion “jolt” to the slowing real economy, is as follows:

“Some quick math for you, sir: Gross private domestic investment (machines, houses, inventories) has declined by $200 billion since its peak in late 2006. Due to higher unemployment and energy costs, domestic consumption will soon be $300 billion less than it should be if we are to return to historical economic growth rates. According to that old C [consumption] + I [gross investment] + G [government spending] formula (scratch the trade deficit for now), when C + I is reduced by $500 billion, then G should increase by that amount in order to fill the gap. The G, sir, is you – the government deficit, the fiscal stabilizer popularized by Keynes following the Depression. And since the fiscal deficit for 2008 is likely to press $500 billion even before you take the oath of office, well, there you have it: $500 billion + $500 billion = $1 trillion big ones, probably by sometime in 2011 or so.”

Only a Keynesian could argue that such an extraordinary waste of capital is a good thing. And only a Keynesian would believe that the simple GDP equation could summarize a vastly complex, adaptive economy.

I’ve always been skeptical of GDP as a measure of economic progress. It treats dollars spent and dollars invested equally (a dollar invested adds to capital formation, while a dollar spent subtracts from it). The GDP equation also treats government spending as a good thing. It is not. Aside from spending on the occasional “public good,” it just sucks capital out of the efficient, adaptive private sector and doles it out to politically powerful voting blocks.

Gross’ prescription to “save” the economy through wasteful spending would do much more harm than good. He aptly notes that the U.S. depends on foreigners to continually reinvest U.S. dollars back into the U.S economy and government.

As OPEC knows, many of the dollars recycled back into the U.S. were originally exchanged for oil imports. Gross acknowledges that the U.S. economy has an “energy cost” problem. But what does he think oil exporters’ reaction to an extra $500 billion spending “jolt” will be?

It won’t be pretty. Major oil exporters will demand higher oil prices and higher interest rates to offset what they know will be an ever-growing supply of U.S. dollar assets. Would you invest in an asset if you knew the future supply of that asset were guaranteed to increase at a rapid rate?

I have a more constructive suggestion for the next president:

DON’T dream up creative new ways to suck $500 billion in capital out of the private economy and redirect it into vote-buying programs. DO take a crash course on how the energy supply chain works, and invite Congress. Energy ignorance is the biggest immediate obstacle to the government being part of any sort of solution.

Inflation is here to stay, albeit with occasional “deflation” scares. Adjust your portfolio accordingly.

Regards,

Dan Amoss, CFA
for The Daily Reckoning
Ouzilly, France
August 28, 2008

Gold rose $3.50 – to $831. We may have just had – and may still have – a great opportunity to buy into gold. The yellow metal seems to have bottomed out. Time will tell, of course…

“You never know what will happen or when, but things always happen the same way…”

We were trying to explain the mysteries of market cycles to a neighbor at last night’s dinner. We might just as well have been trying to describe the Holy Ghost or tell him precisely where to find a photon. Our interlocutor was a practical man – a developer who had begun a huge project, building hundreds of new apartments on France’s Mediterranean coast. He wanted practical answers.

“Is there enough demand for those new apartments?” we asked mischievously.

“Well, there used to be…until recently…”

Throughout much of the world the story is the same. Lenders are more reluctant to lend than they were a year ago. Buyers – who can’t get ready credit – are less able to buy. Demand, and prices go down.

From the LA TIMES comes a report that prices in the Golden State have fallen 40% since the bear market in housing began. A year ago, the typical house cost $587,000, says the Times report. Now, you can buy it for $350,000.

A blogger on the Times’ website said that he had found a house marked down 77% – and still no buyer. We looked at the photo of the house. No wonder it had found no buyer. It is a shack, not a real house. Unfortunately, many of the houses on sale in California are shacks. At least, now they’re selling for less money.

“We’re going to have to cut prices,” said our developer friend, “or just put the project on ice until this situation turns around.”

Then came the obvious question: “When do you think things will return to normal?”

Our answer slipped out as easily as a silk handkerchief: “Things ARE normal now,” we replied.

As we explained yesterday, the eagerness of lenders to lend and the value of their collateral tend to rise or fall together. When mortgage lenders compete to give out money so people can buy houses, you have to expect prices for housing to go up. Eventually, houses become so expensive that even though people can still afford to buy them, they can’t afford to pay for them. This is when the lenders begin to have second thoughts. And once the lenders get scared, prices fall. All perfectly normal.

So far, everything is working just as it should. Boom follows bust, which follows boom. Over and over again, the same mistakes are made – but by new people.

But people don’t like to admit they’ve made a mistake. So, when markets begin to turn against them, they imagine that the turn is just a fluke. They expect things to return to ‘normal’ quickly, not realizing that it is normal for them to make mistakes and lose their money.

When housing first began to go down, at first people didn’t believe it. They’d learned that “property always goes up,” or that “you can’t go wrong with real estate.” Naturally, they took the first signs of a downturn as a buying opportunity. Later, they realized that it was a selling opportunity – the last chance to get out before the roof collapsed.

Likewise, when banks, hedge funds and mortgage lenders began to send out alarums, the problems were thought to be temporary and modest. “Containable,” is how Hank Paulson described the first little cracks in the sub-prime debt market. But the cracks widened. And now, some of the biggest financial edifices in the country – Bear Stearns, Lehman Bros., Fannie Mae and Freddie Mac – have either already fallen down or are leaning dangerously.

One in four junk bonds is in distress, says CFO.com. And the credit crisis is far from over. It has continued for more than a year, but with the value of the collateral still dropping, there are probably hundreds of billions in losses that have not yet been discovered, acknowledged and written off.

But maybe the collateral will stop falling in price…? And maybe, then, lenders will be more willing to extend credit…? And maybe the good times will roll again…?

“US home sales show signs of recovery as price declines ease,” is a headline in yesterday’s International Herald Tribune. The gist of the good news is that house prices fell less in June than they did in May (though the 12 months through June showed the biggest drop in housing in US history) and in July, sales of new and used houses actually went up!

At least 3 or 4 times over the past year, stock markets have rallied on news that “it’s over.” Eventually, of course, it will be over…but probably not before people have stopped looking for the end.

*** When will housing stop falling in price? Remember, housing is a consumer item, not an investment. It needs to be affordable. That is, the average fellow has to be able to buy the average house – and pay for it. Otherwise, prices must come down. How much must housing come down now so that the average person can buy a house? We saw estimates of about 30%-40%. And generally, there’s a little over-shooting. Nationwide, prices are down about 18% from their peak. We’d expect about as much more.

*** But while things are happening in a perfectly normal way in the housing market, in the broader world economy we are in the realm of the extraordinary. Never before have so many people in so many places had so much money. The Chinese are earning billions. The Arabs too. And Russians…

“This story coming out of Ossetia is very revealing,” said a fellow diner last night. “The region is much more complex than I realized. These people have been at each others’ throats for centuries. You know, they have about 50 different languages – and none of them related to any of the others. It is only when there is a strong imperial power in place that they settle down and behave themselves. The Tsar pacified the region in the 19th century. Then, the different cultures lived side by side. There were Catholic churches next to Orthodox churches next to mosques. And people mostly got along. And then, Stalin took over. He tried to erase a lot of the ethnic divisions…making them all communists…and forcing them all to learn Russian. But the Russians – either from the time of the Tsars or the time of the Soviets always had trouble along the southern periphery of the empire. They could never very easily bring the Muslims under control. That’s what the Crimean war was all about…and then, in Afghanistan, the Muslims kicked them out.

“But what I think is most interesting about this story is the way Russia is asserting itself. I don’t know what was going through the Georgian president’s head. You don’t attack Russia with just 17 tanks. He must have thought he had support from the U.S. and Europe. But what could the U.S. or Europe do? We know that the Russians can cut off natural gas to Europe anytime they want. They have the energy; we don’t. If they cut off the gas, it will be a long, cold winter for us. And the United States? Putin knows that the U.S. is bogged down in Iraq. And he knows too that the U.S. doesn’t have any money. In geopolitics, the country with the energy and the money wins. And right now, that’s Russia.”

Yes, dear reader, Russia looks like a winner. And China. And India. And all the countries that seem to be on the way up. Who knows which will succeed…or when? But it looks to us as though these countries are catching up – first in economic terms…later in military terms – to the United States.

What does this mean for investors? It probably means that, over the long run, shares in growing, developing countries are a better bet than those in the United States. And it probably means that the dollar is a bad way to store wealth – since it is tied to an economy in (relative) decline.

It probably also means that limited resources – gold, copper, land, water – will become (relatively) more expensive, because there are more and more people who want them and have the purchasing power to buy them.

And this situation with Russia most definitely put a spotlight on how dependence on foreign oil can be a country over a barrel…and the race is still on in the United States to find a viable alternative to the black goo. Our intrepid correspondent, Energy & Scarcity’s Byron King tells us of an untapped energy source that lies underground just north of San Francisco.

“It is a ’slow volcano’,” explains Byron, “brewing under the Earth’s surface, unable to erupt, but spews heat. It actually pumps out 750 megawatts of electricity…enough to power 750,000 homes, or a city the size of San Francisco.”

A recent piece of California legislation states that by December 2010, at least 7.6 million Californians are slated to get all of their electricity from renewable sources like “slow volcano” power.

“And I’ve found a small company – a share costs less than a newspaper – that is the only ‘pure play’ on California’s government-forced explosion in renewable energy.”

You can take advantage of Byron’s ’slow volcano’ research, and all of the rest of his Energy & Scarcity Investor recommendations for 4 months. If you aren’t satisfied at the end of this time period, you will receive a full refund – no questions asked.

Regards,

Bill Bonner
The Daily Reckoning

Welcome To A Trillion-Dollar Deficit, Mr. President originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

"So when you adjust for all of those things – vintages, CLTV, stated income, where it’s done – that’s what we’re seeing. You know, it’s very early in the loss curves…

"Prime looks terrible, and we’re sorry."

– J.P. Morgan CEO Jamie Dimon

The recent financial stock rally has all the signs of panicked short covering, rather than typical buying. Consider how the depository institutions most likely to eventually join IndyMac in federal custody – including Washington Mutual, Downey, and Huntington Bancshares – are rallying the most. So many shares had been sold short that a violent rally was inevitable.

Eventually, though, this rally should prompt two things:

1. Mutual funds selling financial stocks into strength. We’ve finally seen a shift in psychology away from buying financials on the dips. Many managers are preparing for an extended bear market in the sector.

2. Banks with capital shortfalls will announce secondary stock offerings. This will lower the cost of new capital, because higher stock prices allow the banks to issue fewer shares to raise a fixed amount of capital.

The SEC is implementing rules that will make it a bit harder to sell short stocks that are difficult to borrow.

I think "naked" short selling (shorting a stock when your broker has not yet located shares to short) must be stopped. This practice gives legitimate short selling a bad name.

Stock should be located and borrowed before it is sold short, not the other way around. If your broker cannot locate shares to short, you should move on to another idea, or use put options.

But the hysteria about "rumors" bringing down financial companies has gone too far, I think. This is the defense of CEOs who are looking to blame someone for their own incompetence – incompetence that put their firms in a vulnerable position in the first place. Short sellers did not conspire to force Wall Street firms to enter the business of securitizing dodgy debts. Firms like Bear Stearns ruined their own companies with the poor strategic decisions they made. The free flow of opinions is vital for the health of the stock market. One should be very suspicious about executives who try to suppress any negative opinions about the value of their stock. Allied Capital comes to mind.

You can read about Allied’s crusade against David Einhorn in his excellent book, Fooling Some of the People All of the Time.

Allied is still a good short idea looking out beyond a year because it’s running out of attractive assets to sell and finding it harder and harder to issue new equity.

Short sellers need to do their own fundamental research and form their own opinions. Only fools buy or sell short stocks based solely on rumors. Legitimate short sellers are very beneficial for the market. They provide liquidity at market bottoms by buying to cover their positions, and they are often the first to discover and put an end to accounting frauds and stock promotion schemes that siphon capital away from legitimate businesses.

Timing is important in the banking business. Also, as in investing, it pays to be a smart contrarian. Ideally, banks should make as many loans as possible once the economy bottoms. In an improving economy, borrowers can more easily pay down debts.

Loans made with disciplined underwriting guidelines ahead of an economic boom can be both safe and profitable.

On the other hand, aggressively expanding a loan book at the peak of a credit cycle and an economic cycle can lead to disaster.

Once credit cycles turn, loan portfolios, or loan books, become sources of risk, rather than profit. Look at the experience of Countrywide, which just got acquired by Bank of America for a fraction of is peak value. It blew itself up by aggressively expanding its mortgage loan book at the peak of the credit cycle – which happened to coincide with the biggest housing bubble in history.

Regards,

Dan Amoss, CFA
The Daily Reckoning
August 20, 2008

P.S. The best banks to sell short are the ones that got sloppy at the peak of the credit cycle. This month’s short idea got a bit sloppy, but has thus far flown under the radar screen. 

Dan Amoss, CFA runs Strategic Short Report, and is a contributing editor for Whiskey & Gunpowder. Dan joined Agora Financial from Investment Counselors of Maryland, investment advisor for one of the top small-cap value mutual funds over the past 15 years.

Dan brings with him the unique experience of an institutional background and a drive to seek out the most attractive investments within favored "big picture" trends. He develops investment ideas for his readers with a global network of geopolitical and macroeconomic analysts. Dan holds the Chartered Financial Analyst designation, a professional designation widely recognized within the investment community.

The happiest days are the saddest; the easiest times are the hardest; vacations are when the real work is done. Most of the year, we keep our heads down…working, going to school, doing what we must do. Then, on vacation, we look around us, and the world has changed. More below…

In the meantime, we remind readers that we are on vacation this week; don’t expect any serious reckoning.

The Dow fell 180 points on Monday. On Tuesday, it dropped 130 more.

Yesterday came more evidence that credit is still getting crunched. CDO defaults are increasing; CDO values are in "free fall," says the Financial Times.

Lehman Bros. is expected to announce a $4 billion write-down.

Single family housing permits are at a 26-year low; homebuilding is at a 17-year low. Naturally, suppliers – such as Home Depot – are reporting lower profits.

What is needed in the United States, says an article in the International Herald Tribune, is a "long period of frugality." No doubt about that. Thanks largely to reckless and dishonest credit cues from the Greenspan Fed, more people made more financial mistakes than at any time in history. It will take years of scrimping and saving to correct them. We don’t have to tell you what that means; less spending = less GDP growth = recession. A long, slow recession a la Japan.

Many investors are now betting that the whole world economy will fall into a soft, Japan-like nap. They’re buying the dollar…and U.S. Treasury bonds…as a protection. But we caution Daily Reckoning readers that there are big differences between the United States and Japan…between the dollar and the yen…and between today’s globalized economy of 2008 and Japan, Inc. of 1990. In a nutshell, Japan could drop into a cushy bed of savings and sleep for a decade or two. When the United States gets knocked down, on the other hand, Americans fall onto the cold concrete of debt. Rather than live off the credits they built up over the past 20 years, they’ll have to service the debt they incurred.

The U.S. is still running a trade deficit of about $2 billion per day. In order to continue financing that shortfall, it has to guarantee the rest of the world that its dollar will be at least as solid in the future as it has been in the past. But in a severe downturn, the pressure to let the dollar slip will increase.

All through the ’90s, the Japanese maintained a positive trade balance…and a strong yen, with falling consumer prices. Japan tried to stimulate the economy by running huge fiscal deficits and lending money at zero interest. The economy did not recover; but it didn’t collapse either.

But when the feds become desperate to revive the U.S. economy – if it comes to that – the results could be calamitous. More on that as the story unfolds…

*** Henry left for college yesterday. Was he ready to be on his own? Would he get distracted by campus life? Would he get up in the morning and do his work without his mother on his back? Would he lose his passport?

We spent the last 18 years preparing him; but when the day came for him to leave finally came, we weren’t ready for it.

He said goodbye to both grandmothers…to his brothers…to nieces who are staying with us this summer…to Damien, the gardener…to the cook…to friends and relatives. Then, his mother and father took him to the train station. The station was deserted. Henry bought his ticket and sat down with us outside the waiting lounge, facing the tracks.

"We’re going to miss you," said his father. "There are a lot more shutters to paint."

His mother was silent. She stroked his curly brown hair. She petted his shoulder. The sun reflected on the polished steel seats outside the station as if on a mirror. She turned her head down to avoid the glare, then looked up at him again…

After a few minutes, the moment she dreaded arrived; we saw the little blue train coming around the bend. Henry stood up, gathered up his two bags. His father hugged him. His mother kissed him on both cheeks. He got into the car and took a seat, while we waited on the dock. A young man with a long face stood at the doorway of the train, smoking a cigarette. He smoked rapidly, until the conductor blew the whistle. Then, taking one last, deep drag, he tossed the butt on the tracks and the door closed.

The train started to roll forward. The glass was tinted, so we could barely make out the people inside. Then, we saw him again…Henry waved…and the train sped up.

"He’ll be fine," we said, escorting Elizabeth to the car.

But she was in tears…not because she doubted Henry could take care of himself, but because she knew he could.

"I should have gone with him. But I wish he didn’t have to leave at all," said his mother. "Some mothers feel liberated when their children leave home. They feel as though they can finally do what they want. I don’t feel that way at all. I feel like I’ve been hit by a bus."

Until next we meet,

Bill Bonner
The Daily Reckoning

A New Short Idea in the Banking Sector originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.