IMF

The Markets or the Mattress: I Know Where My Money is Going

The next 1,000 points on the Dow Jones Industrial Average in either direction are going to be determined by what happens in two cities thousands of miles from our own shores...
Athens and Berlin.

What's more, the risks associated with Europe's redemption, or its failure, are more concentrated now than they were before the crisis began.

There are two reasons: a) Europe won't help itself and b) Wall Street may still have $1 trillion or more in exposure to European problems.

What makes me crazy right now is that European chatter is what's driving the markets.

Every sound bite from Europe is critical these days. Not because there is anything relevant in the political babbling from financial ministers tasked with fixing this mess, but rather that there is a cascade of events that could take us in either direction.

Fix this mess and the markets will take off for a 1,000 point gain that will leave anybody who is on the sidelines hopelessly behind.

Fail and the markets could tank.

It certainly fits the pattern established in recent months. News leaks suggesting solutions have brought on rallies, while negative leaks have caused a ripple effect that has quickly dumped stocks into the hopper.

Yet, it's not really the numbers that matter at the moment - even with the Fed rumored to be considering another $1 trillion stimulus and reports that the European Central Bank (ECB) and International Monetary Fund (IMF) may be seeking as much as $600 billion each.

No. The market swings we are seeing are all about confidence or, more specifically, the near complete lack thereof.

The Mattress vs. The Markets

A recent report from TrimTabs shows that checking and savings accounts attracted eight-times the money that stock, bond and mutual funds did from January to November 2011.

That is a whopping $889 billion that went under "the mattresses" versus only $109 billion that went into the markets.

In fact, CNBC is reporting that the pace of money headed for plain-Jane savings and checking accounts from September to November accelerated to nearly 13-times the average monthly flow rate of the preceding nine months from September to November.

What's significant about this is that the money has headed for the sidelines when the markets have rallied. Usually it's the other way around. Normally money floods into the markets when they move higher.

The other notable thing here is that, generally speaking, up days this year have had thinner volume than down days. This means that most investors just can't handle the swings. In other words, every time the markets dip, they're packing it in.

Pessimism is the Breeding Ground of Opportunity

Bottom line: Investors are making a gigantic mistake - especially those with a longer-term perspective.



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IMF Forecast: Can China Really Overtake the U.S. Economy by 2016?

According to the International Monetary Fund (IMF) "World Economic Outlook," China's output will surpass that of the United States in 2016 - only five years from now.

But don't worry. The IMF calculation is based on "purchasing power parity" (PPP), which does not reflect real money. It relies on projecting China's stellar growth rates five years into the future. And it relies on Chinese official statistics, which are more than a little questionable.

(In fact, after the media storm that resulted, the IMF apparently even soft-pedaled its prediction that China would leapfrog the United States in just five years; in a subsequent interview, an IMF spokesman reportedly said that, by non-PPP measures, the U.S. economy "will still be 70% larger by 2016." A recent World Bank forecast concluded that China could overtake the United States by 2030.)

This prediction - and the attention it continues to draw - serves a useful purpose, particularly if it's given the scrutiny that it deserves.

For global investors with China-based holdings, it reminds us of that country's long-term potential - and the fact that such potential is always tempered by near-term risk. For the rest of us, it reminds us that China's ascendance is inevitable - in fact, is already happening - and will be with us for a long time, even if that Asian giant isn't immediately going to overwhelm the rest of the world.

And for our elected leaders in Washington, the IMF report - false alarm or not - should serve as a wakeup call to attack and address the many problems that threaten this country's global leadership.



How long will it really take for China to overtake the U.S.? Read on ...

IMF Warns of Slower Growth As Currency War Rages On

Meetings of the Group of Seven (G-7) countries in Washington this week could feature a clash of views that have sparked an international currency war even as the International Monetary Fund (IMF) warned that growth in developed economies is slowing.

The conflict represents a fundamental disagreement about how to sustain the global economic recovery among countries that prefer flexible exchange rates like the United States, and others that are resisting calls to allow its currency to appreciate, like China.

A renewed push for easier monetary policy came as the IMF warned growth in advanced economies is falling short of its forecasts.

Read More…

Crude Oil Prices Tumble as IEA Warns Economic Woes Could Stunt Demand

Oil prices yesterday (Wednesday) fell below $80 a barrel after the International Energy Agency (IEA) warned that demand could be curtailed if global economic growth is weaker than expected.

The warning came even as the IEA, an energy adviser to 28 industrialized countries, slightly increased forecasts for global crude demand for this year and 2011.

However, those projections were based on revisions to historical oil-demand data and on forecasts issued by the International Monetary Fund (IMF) nearly four weeks ago. Since that time, economic news in the United has become gloomier.

The U.S. Federal Reserve said after its policy meeting on Tuesday that the pace of economic recovery had slowed in recent months and was expected to be "more modest in the near term" than previously thought.

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Hungary's Spat with the IMF and EU Could Signal Another Crisis to Come

The biggest financial news story out of the Europe this summer is getting very little play in the U.S. mainstream press. However, it has the potential to torpedo the European Union (EU), and has disastrous implications for borrowing costs worldwide.

Basically, a miniature banking crisis is festering in Hungary. If it isn't contained, it could grow into a genuine crisis that infects the secondary lending markets around the world.

Hungary is supposed to have about $30 billion in domestic liquidity for exchange, the equivalent of about five months of capital in its national account.  But it won't be getting additional funds from the EU machine in Brussels, or the International Monetary Fund (IMF), anytime soon.

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The Case for the Yuan: Why China's Currency Isn't the Problem Policymakers Make it Out to Be

By allowing the yuan to appreciate, China at least temporarily placated foreign trade partners that had expressed concern about the currency's value. However, the decision has done little to quell criticism from many U.S. policymakers and trade groups who are angry that the Obama administration refuses to brand China a "currency manipulator."

Still, while the yuan does need to appreciate, critics in the United States should remember that the dollar too is flawed, and that the uneven relationship between the two currencies has often worked to America's advantage.

Treasury Secretary Timothy Geithner has thrice declined to tag China as a currency manipulator in his biannual report to Congress. Geithner even delayed the release of the most recent report to give China more time to adjust its policy. That move paid off in June when just days ahead of the Group of 20 (G20) leaders' summit in Toronto, Beijing announced that it would allow the yuan to appreciate against the dollar. Since then, the currency has risen about 1% against the greenback.

Geithner, who made two visits to China in the spring for closed-door talks with top officials on the issue, called the policy shift a "significant step" in his report, but said the yuan remains "undervalued."

What matters now is "how far and how fast the renminbi [or yuan] appreciates," Geithner said, adding that the United States "will closely and regularly monitor the appreciation" of the currency.

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Uncertainty Undermining the Global Economic Recovery

The International Monetary Fund (IMF) said yesterday (Thursday) that the global economic recovery is losing steam because uncertainty in financial markets is keeping businesses and consumers from investing in future growth.

In a revision to its World Economic Outlook released yesterday in Hong Kong, the IMF said worldwide economic expansion will decline to 4.3% next year from 2010's 4.6% pace.  The forecast for 2010 was revised upwards by 0.4 percentage points to reflect faster-than-anticipated growth earlier this year.

However, "downside risks have risen sharply," the IMF warned, referring to European governments' debt problems and volatility in financial markets.

Read More…

Six Ways to Invest in Korea – Asia's Can't-Miss Market

With the U.S recovery looking a bit iffy after last week's unemployment report, Japan and Britain battling huge budget problems and Europe in trouble because of the Greek debt crisis, investors have quite naturally shifted their focus to Asia.

But even there the pickings seem a bit slim. Asian stalwarts China and India show signs of overheating (India more so than China). Taiwan and Singapore - both excellent markets - seem pretty fully valued right now.

That leaves us with one Asian market whose economy is enjoying well-balanced growth, whose government is a model of competence and efficiency and whose stock market is surprisingly reasonably valued.

I'm talking about South Korea.

To discover the five essential Korea profit plays, please read on...

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China Boosts Treasury Holdings as European Debt Contagion Sparks Investor Shift to U.S. Securities

China increased its purchases of U.S. Treasuries for the first time in six months in March as concerns about European debt contagion sparked an influx of foreign investments into dollar-denominated securities.

China's holdings of U.S. Treasury securities rose by 2% to $895.2 billion, the first increase since last September, as the Asian juggernaut cemented its position as the top holder of U.S. government debt, according to the monthly Treasury International Capital report, known as TIC. The boost follows net sales of $11.5 billion in February.

Japan, the second largest holder of Treasuries, also was a net buyer in March, lifting its portfolio holdings to $784.9 billion, from $768.5 billion in February.

China's purchases were reflective of a deluge of foreign investment in U.S. debt securities as concerns about a European debt contagion and a rebounding U.S. economy sparked greater interest in purchasing U.S. corporate debt.

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Does the EU Bailout Signal the Euro's Demise?

Does the European Union (EU) bailout signal an end for the euro currency?

Investment icon Jim Rogers and lauded economist Nouriel Roubini think so.

And they may be right.

Eurozone governments were forced to spring into action on Sunday to defend the besieged euro. The currency has come under tremendous pressure as investors wonder if Greece's fiscal crisis will spread to other heavily indebted nations.

Greece's deficit-to-gross domestic product (GDP) ratio is a staggering 13.6%, but Greece is No. 2 on the list of over-spenders. No. 1 is Ireland, whose deficit-to-GDP ratio is 14.3%. Spain comes in third at 11.2%; and Portugal is fourth at 9.4%.

The euro in the past six months has dropped by about 17% against the dollar, as investors rushed to ditch the currency.

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How the Greece Bailout Turned Gold Into a 'Must-Have' Investment

With so much uncertainty in the U.S. stock market - not to mention the debt-contagion concerns emanating from Greece and other European Union (EU) countries - it's more important than ever for investors to hold "hard assets," such as gold and other commodities.

In my view, what's happening in Europe is particularly important for investors to be aware of and understand. The so-called " shock-and-awe" bailout strategy undertaken by the EU and the International Monetary Fund (IMF) - which establishes a $1 trillion rescue package for member-countries facing financial crisis - will not be the answer.

To see how gold and other hard assets are becoming "must-have" investments, please read on...

To see how gold and other hard assets are becoming "must-have" investments, please read on...

European Debt Contagion Puts U.S. Stock Market on Rollercoaster Ride

Panic over European debt contagion sent the U.S. stock market on a wild ride today (Thursday), at one point sending the Dow Jones Industrial Average briefly below 10,000 for the first time since November 2009 before the market turned again.

The Dow was down nearly 1,000 points at 9,869.62 at about 2:40 p.m. EDT when it suddenly rebounded. The Dow ended up closing at 10,517 down 350.97 points or 3.2 % on the day.  The Nasdaq Composite Index closed at 2319 down 82.65 points or 3.4%, and the Standard & Poors 500 Index closed at 1127 down 37.85 points or 3.2%. 

The trading left the Dow down 6.1% from its yearly high of 11,205, set less than two weeks ago on April 26.

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The Greek Debt Crisis Will Slow the Yuan's Advance

Poor Tim Geithner.

Pushed by angry U.S. legislators anxious to brand China as a "currency manipulator," the U.S. Treasury secretary tried to strong-arm China into revaluing the yuan - all because of an assumption that the Asian giant wasn't allowing its currency to appreciate.

Unfortunately for Geithner, those efforts were stymied by a flood of data that actually demonstrates that China's currency has significantly appreciated against the already-wheezing greenback.

To find why China should not revalue the yuan, please read on...

Taipan Daily: Could Continent-Wide Bank Runs Collapse the Eurozone?

The eurozone's woes are giving us a preview of what could eventually happen in the United States (but not before Europe is engulfed first). As fears of sovereign debt crisis mount, the debt "contagion" spreads. It is not just Greece that has investors afraid, but Portugal. And Spain... and Italy... and so on.

The problem is classic, and long ago highlighted by Austrian economics. Building up a lot of debt, to make a slightly crass analogy, is like putting on a bunch of weight. It's hard work getting the debt off - the same as it is taking weight off.

The way to lose weight is to eat right and exercise. The way to get out of debt is to cut back on spending and increase productivity.

Read More…

$147 Billion Bailout Package for Greece Won't End European Debt Crisis

In an effort to stabilize the widening European debt crisis, the International Monetary Fund (IMF), together with Eurozone countries, agreed to extend an unprecedented $147 billion (110 billion euro) bailout package to Greece in return for deep cuts to the country's budget.

Under the three-year agreement reached late Sunday, Greece would receive $105 billion (80 billion euros) in loans from other Eurozone members and $40 billion (30 billion euros) from the IMF. The planned rescue is the largest ever attempted by the IMF and a first for the 16-member Eurozone. It still requires final approval from national governments.

Also, the European Central Bank (ECB) said on Monday it would indefinitely accept the country's debt as collateral regardless of its credit rating. The ECB didn't release figures, but the value of Greek assets used as collateral in its liquidity-providing operations is thought to be worth tens of billions of euros.

Many observers felt the huge bailout was designed not only to support Greece, but to shore up confidence in the euro, which has come under fire by currency traders. Just a few weeks ago, EU countries offered only $40 billion (30 billion euros) to help Greece.

Read More…

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