ECRI Predicts End of Home Price Downturn

The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, says their pronounced, pervasive and persistent leading indicators predict the end of the home price downturn is in sight. (more about ECRI)

Wednesday the New York Times reported:

"U.S. home prices rose in May for the first time in three years, the latest sign suggesting the battered housing market is stabilizing, but a weakening job market hit consumer confidence in July and could prevent near-term economic recovery."

ECRI predicted this months ago:

"END OF HOME PRICE DOWNTURN IN SIGHT"
Professional Report Excerpt - How to become a Pro Client)
(Full report received by ECRI Pro clients on 19-May-09)

"With U.S. home values far below their boom-time highs, most observers are resigned to an indefinite downdraft in home prices. It is this uncertainty about the ultimate bottom in home prices that has converted so many mortgage-related derivatives into toxic assets. Yet, at long last, the end of the home price downturn is in sight.

One key reason for the turnaround in the outlook is housing affordability, which is hovering around all-time highs. The current combination of drastically reduced home prices and very low mortgage rates has hardly ever been seen in living memory…

Most importantly, the U.S. Leading Home Price Index (USLHPI), designed to predict cyclical turns in real home prices, has now been rising for five months… But a three P’s analysis (see chart below) of the level of the USLHPI reveals an even more promising picture… the recent upturn in the USLHPI is almost as pronounced as the median in comparable past cycles… it is almost as pervasive; and … it is just as persistent. The implication is clear: this is a genuine cyclical upturn in the level of the USLHPI. Such an upturn in the USLHPI amounts to a forecast of a cyclical upturn in the level of home prices this year…

ECRI’s apparent optimism about the economy is very much at odds with a stubbornly downbeat consensus. When almost every seasoned analyst is so pessimistic, doubts about the likelihood of an upturn are entirely understandable.

click chart for full size image

But we also know that this is precisely the phase of the business cycle when, in the wake of a major crisis, a “giant error of pessimism” runs rampant. It is therefore especially important to remember at this juncture that the opinions we express are based not on our gut feel, but on a system of objective leading indicators with a stronger theoretical foundation and a more rigorously tried and tested record that any others in existence. Its real-time track record is also unrivaled. Our confidence in their predictive power is based on long experience with these indicators.

While more analysts are coming around to our view about the economic recovery, there are plenty that remain doubtful. Only the reality of the recovery will convince such skeptics, but by then it will be much too late for decision makers to take timely steps to stay ahead of the curve.

We understand that some will be incredulous about our home price upturn call, coming on the heels of our business cycle recovery forecast… it is worth remembering that our apparent boldness is merely a reflection of what our objective leading indexes are telling us today."

The above contains excerpts from a full report received by ECRI Pro clients on 19-May-09 ( How to become a Pro Client)

• more about ECRI
  
  
• July 29, 2009 NY Times: "U.S. Housing Turning Corner "
  
  
• July 21, 2009: ECRI Predicts The End of the Recession is Imminent
  
  
• April 3, 2009: Upturn in ECRI's WLI Growth Rate Says US Business Cycle Recovery Ahead
  
  
• March 28, 2008: ECRI Calls it "A Recession of Choice"
  
  
• January 05, 2008 ECRI Says Fed Has Room To Cut Rates Despite Fears of Inflation

Microsoft and Yahoo! Agree to Terms for New Search Agreement

Terms of Search Agreement Between Microsoft and Yahoo!

Yesterday Microsoft (MSFT Charts) and Yahoo! (YHOO) announced they reached an agreement for search advertising collaboration. Note that "search" includes Microsoft's AdCenter which is similar to Google's AdSense that I have on this blog and my web pages where I am compensated by Google when people click ads.

For this collaboration to be successful, Microsoft and Yahoo! will need to offer pay-per-click rates high enough to get content providers from The Wall Street Journal to bloggers like me to choose or switch to their platform. The only way they can do that is to increase scale to reduce overhead so they can pay a higher percentage per click.

Microsoft will now power Yahoo! search while YHOO will become the exclusive worldwide relationship sales force for both companies' premium search advertisers.

The key terms of the agreement are as follows:

• The term of the agreement is 10 years;
• Microsoft will acquire an exclusive 10 year license to Yahoo!’s core search technologies, and Microsoft will have the ability to integrate Yahoo! search technologies into its existing web search platforms;
• Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo! sites. Yahoo! will continue to use its technology and data in other areas of its business such as enhancing display advertising technology.
• Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers. Self-serve advertising for both companies will be fulfilled by Microsoft’s AdCenter platform, and prices for all search ads will continue to be set by AdCenter’s automated auction process.
• Each company will maintain its own separate display advertising business and sales force.
• Yahoo! will innovate and “own” the user experience on Yahoo! properties, including the user experience for search, even though it will be powered by Microsoft technology.
• Microsoft will compensate Yahoo! through a revenue sharing agreement on traffic generated on Yahoo!’s network of both owned and operated (O&O) and affiliate sites.
• Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88% of search revenue generated on Yahoo!’s O&O sites during the first 5 years of the agreement.
• Yahoo! will continue to syndicate its existing search affiliate partnerships.
• Microsoft will guarantee Yahoo!’s O&O revenue per search (RPS) in each country for the first 18 months following initial implementation in that country.
• At full implementation (expected to occur within 24 months following regulatory approval), Yahoo! estimates, based on current levels of revenue and current operating expenses, that this agreement will provide a benefit to annual GAAP operating income of approximately $500 million and capital expenditure savings of approximately $200 million. Yahoo! also estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million.
• The agreement protects consumer privacy by limiting the data shared between the companies to the minimum necessary to operate and improve the combined search platform, and restricts the use of search data shared between the companies. The agreement maintains the industry-leading privacy practices that each company follows today.

In the Microsoft Press Release Microsoft Chief Executive Officer Steve Ballmer said the agreement will provide Microsoft’s search engine, Bing, the scale necessary to more effectively compete, attracting more users and advertisers, which in turn will lead to more relevant ads and search results.

The agreement does not cover each company’s web properties and products, email, instant messaging, display advertising, or any other aspect of the companies’ businesses. In those areas, the companies will continue to compete vigorously.

The companies have established a website at http://www.choicevalueinnovation.com to provide consumers, advertisers and publishers with additional information about the benefits of the agreement.

Disclaimer: I own GOOG and MSFT in my personal portfolio. I also cover GOOG and MSFT in "Kirk Lindstrom's Investment Letter." I may buy or sell all or some at any time without public announcement beforehand.

Gary Shilling Predicts S&P500 - He Remains a Bear

In the August 3 issue of Forbes Magazine, that I got in the mail a few days ago, A. Gary Shilling (Books by A. Gary Shilling) gave his latest predictions for the market. He thinks it will fall 32% to 600 from where it is "now." Shilling wrote:

• the market gained 31% from its March 9 low
  and
• the stock market is "exhausted"
  and
• "I continue to forecast $40 per share in S&P500 operating earnings in 2009. Put a generous P/E of 15 on that and you get an S&P500 of 600, 32% below where it is now."
  

The low is 666 intraday and 676 on a closing basis. Thus, the market was between 872 and 886 when he made his prediction for the S&P500 falling to 600 or lower sometime in 2009.

• 131% x 666 = 872
• 131% x 676 = 886

The market closed Friday July 24, 2009 at 979.26, about 100 points and 12.2% higher than when Shilling said the market was "exhausted." The dashed red line on the chart below shows Shilling said the market was "exhausted" just as the biggest pull back since its March 9 low ended and the market soared to a new bull market high.

Click chart courtesy of stockcharts.com for full size image.

Shilling also wrote:

• "False signs of a recovery are common in recessions"
• "It will get worse before it gets better."
• "Expect another big stimulus package within a few months, but it may not help much until next year."

In sharp contrast to ECRI, Shilling expects the recession to end in 2010:

• "I see this economic downturn dragging into 2010, followed by a recovery so weak you might not know it has arrived."
  
  
• July 21: ECRI Predicts The End of the Recession is Imminent

Shilling concludes with "Overseas, things will be worse. Both developed and emerging countries have relied on the American consumer for decades. They party's over. Expect the prices of commodities, including oil, to fall. Investors will head back into safe havens like Treasury bonds and the US Dollar."

Books by A. Gary Shilling

Post and Read Comments

NASDAQ Short Interest - Largest Positions and Changes

Yesterday Reuters reported short interest on the Nasdaq rose 4.1% in mid-July, reflecting an increase in bearish sentiment in the stock market.

Below are data and charts for the five Nasdaq stocks that experienced the largest increases and decreases in their short positions in the first half of July. Also included are data and a chart for the five largest NASDAQ short positions as of July 15, 2009.

FIVE BIGGEST INCREASES:
COMPANY                   July 15     June 30  NET CHANGE  %CHANGE
-------------------------------------------------------------------
E*Trade Financial(ETFC) 135,357,993  95,942,774  39,415,219  41.08
Cell Therapeutics(CTIC)  31,428,479  14,244,326  17,184,153 120.64
Evergreen Solar  (ESLR)  30,912,624  22,979,653   7,932,971  34.52
Applied Materials(AMAT)  54,661,221  47,382,033   7,279,188  15.36
Starbucks Corp   (SBUX)  48,176,793  41,999,418   6,177,375  14.71

Click Chart courtesy of stockcharts.com for full size image

FIVE BIGGEST DECREASES
COMPANY                   July 15     June 30  NET CHANGE  %CHANGE
-------------------------------------------------------------------
Sirius XM Radio  (SIRI) 146,038,635  194,820,020 -48,781,385 -25.04
Sanmina-SCI Corp (SANM)   1,771,396   11,172,618  -9,401,222 -84.15
Intel Corp       (INTC)  79,599,664   88,709,534  -9,109,870 -10.27
Level 3 Comm Inc (LVLT) 101,482,009  109,950,552  -8,468,543  -7.70
Finisar Corp     (FNSR)   1,200,475    8,521,489  -7,321,014 -85.91

Click Chart courtesy of stockcharts.com for full size image

FIVE BIGGEST POSITIONS:
COMPANY                   July 15     June 30  NET CHANGE  %CHANGE
-------------------------------------------------------------------
Sirius XM Radio  (SIRI) 146,038,635  194,820,020 -48,781,385 -25.04
E*Trade Financial(ETFC) 135,357,993   95.942,774  39,415,219  41.08
Level 3 Comm Inc (LVLT) 101,482,009  109,950,552  -8,468,543  -7.70
Microsoft Corp   (MSFT)  80,868,407   86,848,410  -5,980,003  -6.89
Intel Corp       (INTC)  79,599,664   88,709,534  -9,109,870 -10.27

Click Chart courtesy of stockcharts.com for full size image

Questions for the SEC and Congress:

1. Why is there a nine day delay in making the data public?
   
   
2. Why is this data not made available in real time or at the end of each trading day?
   
   
3. Who has access to this data before the public and are they allowed to trade on this undisclosed to the public information?
   
   
4. If anyone who is allowed to trade on the information, then what happened to enforcing Regulation FD that limits selective disclosure and insider trading?
   

If ANYONE has access to the data to make these calculations, then I think it is criminal that this data is not made available as soon as available to everyone.

Disclaimer: I own in my own portfolio and cover in "Kirk Lindstrom's Investment Letter" AMAT, FNSR, INTC and MSFT. I may buy or sell at any time without announcement beforehand.

Post and Read Comments

ECRI Predicts The End of the Recession is Imminent

The Economic Cycle Research Institute, ECRI - a New York-based independent forecasting group, says their pronounced, pervasive and persistent leading indicators promise the end to the worst recession since the Great Depression is imminent. (more about ECRI)

SYNCHRONIZED SURGE STRENGTHENS SINCE APRIL
Professional Report Excerpt - How to become a Pro Client)
(Full report received by ECRI Pro clients on 18-Jun-09)

The modest pullback in stock prices that followed the springtime rally, along with a worse-than-expected June jobs report, allowed the skeptics to re-emerge, asserting that without actual improvement in hard economic data, the “green shoots” had wilted away. What they do not realize, as we reasserted in ECRI’s June U.S. Cyclical Outlook report to Professional Members, “is that the cyclical improvement in the economy is proceeding in a textbook sequence, from long leading indicators to short leading indicators to coincident indicators.” In fact, “there are now pronounced, pervasive and persistent upturns in a succession of leading indexes of economic revival.”

When approaching a cyclical turning point in economic growth, the growth rate of the U.S. Long Leading Index (USLLI) typically turns first, followed by the growth rate of the Weekly Leading Index (WLI), growth in the U.S. Short Leading Index (USSLI) and growth in the U.S. Coincident Index (USCI).

As noted in the report, “the levels of the USLLI, WLI and USSLI are now all rising.” In fact, as the chart below shows, by May USLLI growth (top line) had already surged to a four-year high. Meanwhile, WLI growth (second line) has spurted to a two-year high, having crossed over into positive territory. Following in their footsteps, USSLI growth (third line) has shot up to a one-year high, but is still in negative territory.

Finally, the USCI is still declining, indicating that as of June, the U.S. economic recovery had not yet begun. Yet, USCI growth (bottom line), which represents the rate of growth of aggregate economic activity, has risen for three months. While still in negative territory, it is now at a six-month high. Thus, the growth rate cycle upturn that we predicted in March has evidently begun.

But the sequential upswings in the leading indexes are not just about less negative growth. We clearly have “pronounced, pervasive and persistent upswings in a succession of leading indexes of economic revival – the most powerful possible predictor of a business cycle recovery. What is impressive here is the degree of unanimity within and across these leading indexes, along with the classic sequence of advances in those indexes. Such a combination of upturns does not happen unless an end to the recession is imminent,” as we noted in our June report.

If so, why is there such widespread doubt among analysts about an imminent end to the recession? The problem “is a widespread inability to distinguish among leading, coincident and lagging indicators, along with the vast majority of economic indicators that do not fall neatly in any of those three categories. Thus, indicators are typically judged by their freshness, not their foresight. Since most market-moving numbers are coincident to short leading, while corporate guidance is often lagging, it is no surprise that analysts do not discern any convincing evidence of an economic upturn.”

The arguments marshaled by standard bearers of the pessimistic consensus hold little water. Usually, their “analysis” is based on gut feel, bolstered by any seemingly plausible argument that would support their case.

For instance, last month, with oil prices and interest rates staging somewhat of an advance from their lows, skeptics opined that this would nip any potential recovery in the bud. But it is hardly unusual for such indicators to turn up in anticipation of economic revivals, which would never take place if higher oil prices or interest rates were able to head them off.

This month, the rise in the jobless rate to a 25-year high is being taken by some as an argument against recovery because supposedly, consumers will not spend when joblessness is mounting. Apparently, they are unaware that even the 1929-33 recession ended when the jobless rate was over 25% – and still rising!

The “second-derivative rally” in equities has provoked much derision, especially from those who missed it. As we reported last month, “ECRI’s leading indexes now have positive second derivatives. But, more importantly, they have already had positive first derivatives for some months. It is worth reminding calculus-challenged analysts who doubt the significance of these cyclical upswings of the second derivative test: when the first derivative of a univariate function rises to zero and its second derivative turns positive, it marks the low point of the function. That development is already in the rear-view mirror for every one of ECRI’s leading indexes of economic activity.”

In fact, “what is impressive here is the degree of unanimity within and across ECRI’s leading indexes, along with the classic sequence of advances in those indexes. Such a combination of upturns – a resounding confirmation of our April forecast that the recession will end this summer – does not happen unless an end to the recession is imminent.

In sum, the economy has a raft of problems that will take a long time to resolve. But none of them can head off the imminent economic recovery that ECRI’s objective leading indexes are promising today.”

Note: Shaded areas in chart represent growth rate cycle downturns.

The above contains excerpts from full report received by ECRI Pro clients on 18-Jun-09 ( How to become a Pro Client.)

• more about ECRI
  
  
• April 3, 2009: Upturn in ECRI's WLI Growth Rate Says US Business Cycle Recovery Ahead
  
  

• March 28, 2008: ECRI Calls it "A Recession of Choice"

• January 05, 2008 ECRI Says Fed Has Room To Cut Rates Despite Fears of Inflation

Jon Stewart on Goldman Sachs (NYSE:GS) [Video]

Jon Stewart comments on the news that Goldman Sachs is on track to pay out as much as $20B in bonuses, nearly $700,000 per employee, more than 14 times the average American household income.

========================================

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Pyramid Economy
www.thedailyshow.com
Daily Show Full Episodes Political Humor Joke of the Day

========================================

PRESS RELEASE: (slow loading pdf)

NEW YORK, July 14, 2009 - The Goldman Sachs Group, Inc. (NYSE: GS) today reported net revenues of $13.76 billion and net earnings of $3.44 billion for its second quarter ended June 26, 2009. Diluted earnings per common share were $4.93 compared with $4.58 for the second quarter ended May 30, 2008 and $3.39 for the first quarter ended March 27, 2009. Annualized return on average common shareholders’ equity (ROE) (1) was 23.0% for the second quarter of 2009 and 18.3% for the first half of 2009.

$3.44B earnings on only $13.76B in revenue means of every dollar they collected, 25% or 25¢ was profit. Aren't you glad Hank Paulson, former CEO of GS, saved Goldman when he was Treasury Secretary?

Although "The Daily Show" calls itself Fake News and it's on Comedy Central it speaks for how many Americans far from Wall Street feel about many important issues of the day.

Some Jon Stewart zingers:

• The US economy is basically a pyramid....Goldman Sachs is the eye... we must protect the eye.
  
  
• First the Government let a couple of GS competitors... collapse.
  
  
• Then it gave AIG $13B to give to GS.
  
  
• "The supports are giving out. Quick, everybody, throw your bodies under Goldman Sachs to cushion its fall! Children first, they are the softest!"

Doubled Money in a Down Market!

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 114% (over a double!) vs. the S&P500 DOWN 9.2% vs. NASDAQ down 14.0% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 28.1% (All through 7/16/09.)

As of July 16, 2009, "Kirk's Newsletter Explore Portfolio" is up 10.2% YTD vs. DJIA down 0.7% vs S&P500 up 5.7% YTD

(More Info & FREE Sample Issue)

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New Support Levels for the S&P500 are Holding

I show two support Levels for the S&P500 on the graph below.

Click chart courtesy of stockcharts.com for full size image

#1 200-day-moving-average MA(200) was solid resistance not penetrated since May 2008. Now it is support that has been tested several times from above before the last rally.

#2 The dashed green line on the chart is the neckline of an inverted head and shoulders bottom pattern. One shoulder is "somewhat hidden" as only some components of the S&P500 were weak while others were quite strong. The pattern broke out in May and has successfully tested the neckline from above. All we need now is a rally with volume to feel very bullish.

If you have trouble seeing the inverted head and shoulder's bottom, perhaps this chart of FedEx (more FDX Charts) will make it easier.

• More info on Head & Shoulders Bottom
  
  
• more FDX Charts
  
  
• more S&P500 Charts
  

Disclaimer: I currently personally own and I cover FDX and SPY in "Kirk Lindstrom's Investment Letter" where I currently have both in my explore portfolio.

Doubled Money in a Down Market!

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 114% (over a double!) vs. the S&P500 DOWN 9.2% vs. NASDAQ down 14.0% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 28.1% (All through 7/16/09.)

As of July 16, 2009, "Kirk's Newsletter Explore Portfolio" is up 10.2% YTD vs. DJIA down 0.7% vs S&P500 up 5.7% YTD

(More Info & FREE Sample Issue)

HURRY! Subscribe NOW and get the July 2009 Issue for FREE! !
(Your 1 year, 12 issue subscription will start with next month's issue.)

Best Investment Newsletter - More than Doubled Your Money in a Down Market!

Did your current investment newsletter tell you to raise cash by taking profits near the market top in 2007?

Mine did! I took profits to increase the cash position of my most aggressive "explore portfolio" to 30%.

• See the October 2007 "Take Profits" page from my newsletter
  
  
• FREE Sample

Did your current investment newsletter tell you to use cash raised when the markets were near their highs to buy a blue chip DOW stock when the markets were at their lowest levels in 13 years?

Mine did! When the markets made a 13 year low, I had cash in the portfolio and told my subscribers to use some of it to buy some General Electric (GE Charts) shares at $6.76.

• click to view PDF file: GE March 4 Buy Alert at $6.76
  
  
• Today at $11.65, GE is up 72%!

Click to view full size GE chart courtesy of stockcharts.com

Doubled Money in a Down Market!

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 114% (over a double!) vs. the S&P500 DOWN 9.2% vs. NASDAQ down 14.0% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 28.1% (All through 7/16/09) (More Info)

As of July 16, 2009, "Kirk's Newsletter Explore Portfolio" is up 10.2% YTD vs. DJIA down 0.7% vs S&P500 up 5.7% YTD

Did your current investment newsletter tell you to use cash raised from when the markets were near their highs to buy a speculative, very high growth telecom growth stock when the markets were at their lowest levels in 13 years and that telecom stock was making an all time low?

Mine did! I had cash in the portfolio and told my subscribers to use it to buy some some Finisar (FNSR Charts) shares at $0.24.

• click to view PDF file: Finisar Mar 3 Buy Alert at 24¢
  
  
• Today at 56¢, Finisar is up 133%!

Click to view full size chart courtesy of stockcharts.com

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 114% (over a double!) vs. the S&P500 DOWN 9.2% vs. NASDAQ down 14.0% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 28.1% (All through 7/16/09) (More Info)

As of July 16, 2009, "Kirk's Newsletter Explore Portfolio" is up 10.2% YTD vs. DJIA down 0.7% vs S&P500 up 5.7% YTD

(More Info & FREE Sample Issue)

HURRY! Subscribe NOW and get the July 2009 Issue for FREE! !
(Your 1 year, 12 issue subscription will start with next month's issue.)

More information:

• S&P500 charts at a glance

• Stock Market Graphs at a Glance
  
  
• US Treasury Rates at a Glance
  

Nouriel Roubini, Dr. Doom, Still Gloomy

The market turned sharply up today. Some TV commentators attributed the timing of this turn to Dr. Doom, aka Dr. Nouriel Roubini, improving his outlook for the US economy.

As of July 16, 2009, "Kirk's Newsletter Explore Portfolio" is up 10.2% YTD vs. DJIA down 0.7% vs S&P500 up 5.7% YTD

(More Info & FREE Sample Issue)

Dr. Roubini appeared on CNBC after the market closed to correct this false impression. Next he sent this press release to those of us on his mailing list.

FOR IMMEDIATE RELEASE
July 16, 2009
STATEMENT ON U.S. ECONOMIC OUTLOOK BY DR. NOURIEL ROUBINI

The following is a statement from Dr. Nouriel Roubini, Chairman of RGE Monitor and Professor, New York University, Stern School of Business:

It has been widely reported today that I have stated that the recession will be over “this year” and that I have “improved” my economic outlook. Despite those reports - however – my views expressed today are no different than the views I have expressed previously. If anything my views were taken out of context.

I have said on numerous occasions that the recession would last roughly 24 months. Therefore, we are 19 months into that recession. If as I predicted the recession is over by year end, it will have lasted 24 months with a recovery only beginning in 2010. Simply put I am not forecasting economic growth before year’s end.

Indeed, last year I argued that this will be a long and deep and protracted U-shaped recession that would last 24 months. Meanwhile, the consensus argued that this would be a short and shallow V-shaped 8 months long recession (like those in 1990-91 and 2001). That debate is over today as we are in the 19th month of a severe recession; so the V is out of the window and we are in a deep U-shaped recession. If that recession were to be over by year end – as I have consistently predicted – it would have lasted 24 months and thus been three times longer than the previous two and five times deeper – in terms of cumulative GDP contraction – than the previous two. So, there is nothing new in my remarks today about the recession being over at the end of this year.

I have also consistently argued – including in my remarks today - that while the consensus predicts that the US economy will go back close to potential growth by next year, I see instead a shallow, below-par and below-trend recovery where growth will average about 1% in the next couple of years when potential is probably closer to 2.75%.

I have also consistently argued that there is a risk of a double-dip W-shaped recession toward the end of 2010, as a tough policy dilemma will emerge next year: on one side, early exit from monetary and fiscal easing would tip the economy into a new recession as the recovery is anemic and deflationary pressures are dominant. On the other side, maintaining large budget deficits and continued monetization of such deficits would eventually increase long term interest rates (because of concerns about medium term fiscal sustainability and because of an increase in expected inflation) and thus would lead to a crowding out of private demand.

While the recession will be over by the end of the year the recovery will be weak given the debt overhang in the household sector, the financial system and the corporate sector; and now there is also a massive re-leveraging of the public sector with unsustainable fiscal deficits and public debt accumulation.

Also, as I fleshed out in detail in recent remarks the labor market is still very weak: I predict a peak unemployment rate of close to 11% in 2010. Such large unemployment rate will have negative effects on labor income and consumption growth; will postpone the bottoming out of the housing sector; will lead to larger defaults and losses on bank loans (residential and commercial mortgages, credit cards, auto loans, leveraged loans); will increase the size of the budget deficit (even before any additional stimulus is implemented); and will increase protectionist pressures.

So, yes there is light at the end of the tunnel for the US and the global economy; but as I have consistently argued the recession will continue through the end of the year, and the recovery will be weak and at risk of a double dip, as the challenge of getting right the timing and size of the exit strategy for monetary and fiscal policy easing will be daunting.

RGE Monitor will soon release our updated U.S. and Global Economic Outlook. A preview of the U.S. Outlook is available on our website: www.rgemonitor.com”

Note ECRI predicts the recession will end sooner. See:

• Upturn in ECRI's WLI Growth Rate Says US Business Cycle Recovery Ahead

Doubled Money in a Down Market!

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 114% (over a double!) vs. the S&P500 DOWN 9.2% vs. NASDAQ down 14.0% vs. Warren Buffett's Berkshire Hathaway (BRKA) up 28.1% (All through 7/16/09)

As of July 16, 2009, "Kirk's Newsletter Explore Portfolio" is up 10.2% YTD vs. DJIA down 0.7% vs S&P500 up 5.7% YTD

(More Info & FREE Sample Issue)

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Current LIBOR Rates Near Historical Lows

This table shows LIBOR rates are down significantly from a year ago. LIBOR is important to people with mortgages because some banks use LIBOR in setting rates for adjustable-rate mortgage (ARM) loans.

Updated 7/8/2009 from bankrate.com	This week	Month ago	Year ago
1 Month LIBOR Rate	0.30	0.32	2.46
3 Month LIBOR Rate	0.54	0.65	2.79
6 Month LIBOR Rate	1.02	1.27	3.10
1 Year LIBOR Rate	1.53	1.60	3.29

See Libor Rates at a Glance for current rates and graphs.

Lenders typically add one to three points to the LIBOR rate to cover their expenses and generate their profits.

For example, if you have a an ARM that adjustes once a year to "1-year LIBOR plus 2.25%" then your new rate will be (1.53% + 2.25%) 3.75% for the next year.

Definition: LIBOR is the London Interbank Offered Rate. It is a daily reference rate based on the interest rates banks in the London wholesale money market (or interbank market) offer to lend unsecured funds to each other. LIBOR is usually slightly higher than the London Interbank Bid Rate (LIBID). LIBID is the rate the same banks are prepared to accept deposits.

• Current Libor Rates
  
  
• Historical Libor Rates
  
  
• Libor Rates at a Glance
  

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Lenny Dykstra, Jim Cramer's Top Stock Picker, Files for Bankruptcy

On Tuesday, 46 year old Lenny Dykstra filed for bankruptcy. He claimed $50,000 in assets and liabilities somewhere between $10 million and $50 million according to a Tuesday filing with the U.S. Bankruptcy Court in the Central District of California.

Jim Cramer said Lenny Dykstra was one of the best stock pickers in the world and one of the very few he would listen to.

Here is the Jim Cramer interview telling how good Dykstra, aka "Nails" was at picking stocks.
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According to the REUTERS story:

• "the event triggering the bankruptcy filing was a planned foreclosure sale of a southern California residence that Dykstra bought from hockey legend Wayne Gretzky for $17.5 million in 2007."
  
• "according to the bankruptcy petition, Dykstra's largest unsecured creditors include units of JPMorgan Chase & Co, owed $12.9 million, and Bank of America Corp, owed a combined $4.2 million."
• "According to an April article on ESPN.com, Dykstra put his net worth at $60 million, and also owned a black Rolls Royce Phantom and Gulfstream II jet."

I watched Dykstra talk about this on CNBC. He said he was told he could refinance later on at an "affordable rate" so he is going to sue the banks that gave him the loans and refuse to give him an affordable loan. It sounded to me like the value of the property fell and he could not get a loan at a lower rate like many others that are under water with real estate.

ECRI's Leading Home Price Index Up Year-over-year

LOS ALTOS, CALIFORNIA -- ECRI's gauge of future U.S. home prices rose and turned positive in May, the Economic Cycle Research Institute research group said on Monday. This upturn raises hopes that the end of the housing downturn is in sight.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Monthly Leading Home Price Index (LHPI) rose to 116.6 in May 2009 up from 115.0 in April 2009.

• More about ECRI

On a year-over-year basis, ECRI's LHPI was up 0.7% from 115.8 in May 2008.

Shaded areas represent cyclical downturns in real home prices.

In the article "Recession will end this summer" ECRI's managing director Lakshman Achuthan said

"We'll definitely see the end of this recession this summer. As unique and unprecedented as this recession has been, the transition to recovery is showing up in a textbook way in the leading indicator charts."

Achuthan said the recovery is also showing up in the longer, shorter and coincident indexes maintained by ECRI - plenty of evidence that it has a life of its own.

"When you have a pervasive move in the leading index as we have now, it suggests a more virtuous cycle that feeds on itself has begun."

Specific to housing prices, Achuthan said:

"Another kind of game changer relates to home prices, where if we have a stabilization in home prices - and there's evidence that is happening - then the toxic assets that have been at the heart of the crisis start to get neutralized. The reason that's important is if home prices stop falling, these essentially 'zombie' banks start to come back to life."

More ECRI Articles:

• April 3, 2009: Upturn in ECRI's WLI Growth Rate Says US Business Cycle Recovery Ahead
  
• October 30, 2008: ECRI Warned Us; We Are In A Recession Now
• March 28, 2008: ECRI Calls it "A Recession of Choice"
• January 25, 2008: "ECRI Says There Is A Window of Opportunity for the US Economy"
• January 05, 2008: "ECRI Says Fed Has Room To Cut Rates Despite Fears of Inflation"

Discuss the data with Lakshman Achuthan, managing director at ECRI, in our facebook forum "ECRI - Economic Cycle Research Institute." If you are not already a member, then you may need to request invitation to "Investing for the Long Term" on Facebook.

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