U.S. Economy

What We Can Learn From The Stock Market Genius That Wall Street Loves to Ignore

Mathematician Benoit B. Mandelbrot, the inventor of fractal geometry, died Oct. 14.

As mathematicians go, Mandelbrot was very likely the best of the last half-century. And that brilliance extended to the financial markets. In fact, his groundbreaking insights into the operations of the stock market could have been used to avert the 2008 crash - had those insights only been heeded.

But Mandelbrot - for all his stock market genius - has been largely ignored by Wall Street.

As investors, let's not make the same mistake.

To understand how to profit from Mandelbrot's insights, please read on...

To understand how to profit from Mandelbrot's insights, please read on...

We Want to Hear From You: Will "Mortgagegate" Affect You?

A potentially crippling crisis is flashing through the banking industry and threatening to derail the already struggling housing market and U.S. economic recovery.

Question of the Week Dubbed "Mortgagegate" - a nod to the earlier scandal-ridden crisis touched off by Watergate - this latest crisis involves such big lenders as Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C) and GMAC LLC (NYSE: GMA), which are alleged to have conducted negligent foreclosure practices.

Money Morning Contributing Editor Shah Gilani reported last week about the allegedly fraudulent business practices employed by lenders and their hired "robo-signers" that led to thousands of questionably reviewed foreclosure documents.

But Gilani warned that the headlines aren't telling the full story.

Read More…

What You Don't Know about "Mortgagegate" Could Crush the U.S. Banking System

What most Americans don't know about " Mortgagegate" is that "robo-signing" of foreclosure documents is the tip of the iceberg.

The breadth and depth of this newest mortgage crisis is so dangerous that the U.S. Federal Reserve last month pre-announced another potential round of quantitative easing (pundits are calling it "QE2") to address "potential negative shocks."

In fact, the fallout potential is so numbing and the actions that birthed it so scandalous that commentators have given the crisis the Watergate-esque title of " Mortgagegate" (or, as some prefer, "Mortgage Gate").

Here's what the news-story headlines aren't telling you.

For an investment strategy that will protect your portfolio from "Mortgagegate," please read on...

De-Coupling Back in Vogue as Emerging Economies Outshine the U.S.

While the U.S. economy is struggling to break its slump, growth remains strong in other places around the world - so strong, in fact, that analysts are breaking out a term that's spend much of the past two years on the shelf: De-coupling.

U.S. gross domestic product (GDP) will meandered along with a meager 1.7% expansion in the second quarter and is expected to grow by less than 2% for the full year.

Meanwhile, Brazil's GDP is on pace to expand by 7.5%, India's economy is projected to grow by 8.5% and China's economy is expected to grow by 9.5% this year.

Emerging market economies are moving ahead at such a brisk rate that their combined GDP will be bigger than developed countries by 2015, according to the World Bank.

Now, the biggest Wall Street firms - including Goldman Sachs Group Inc. (NYSE: GS) Credit Suisse Group AG (NYSE ADR: CS) and Bank of America (NYSE: BAC) - are betting that the global economy has de-coupled from the United States, and will shake off any slowdown in the world's largest economy.

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Controversial House China Tariff Bill Will Take America Down the Wrong Road

The U.S. House of Representatives this week overwhelmingly passed a bill that would enable the Obama administration to impose punitive tariffs on almost all Chinese imports into the United States - a controversial move that's intended to punish China for refusing to revalue its currency.

The House China tariff bill faces opposition in the Senate and from the Obama administration and isn't expected to become law. Let's hope that reluctance continues to hold: This bill is little more than a political con job and is quite possibly the stupidest thing that Washington could do right now.

Not only will this touch off a war the United States literally cannot afford to fight, but it's going to hamstring millions of already cash tight Americans by raising the cost of living dramatically while further eviscerating our already fragile gross domestic product (GDP).

Let me show you why...



To understand the hidden costs of the China tariff bill, please read on...

Question of the Week: U.S. Federal Reserve Keeping Low Rates Does More Harm Than Good

After their meeting last week, U.S. Federal Reserve policymakers said they are more worried about deflation than inflation and vowed to look for ways to help along an economy that is experiencing worrisomely slow growth.

In fact, the central bank's rate-setting Federal Open Market Committee (FOMC) said it plans to keep the benchmark Federal Funds rate at its record-low level unchanged between 0.00% and 0.25% for the 20th consecutive month. And, using its go-to line - central bank policymakers said rates could remain that low for "an extended period."

In the near term, that appears justified. Core inflation is running at only 0.9%, below the Fed's comfort-level target of 1% to 2% - where it says the inflation rate needs to be for price stability. Fed Funds futures at the Chicago Board of Trade (CBOT) now show that traders believe there is a 54% chance the Fed won't increase short-term rates until its November 2011 policymaking meeting.

Read More…

U.S.-China Tension Evident in Futile House Currency Bill

The U.S. House of Representatives today (Wednesday) will vote on legislation that would let the U.S. government take punitive actions against countries that undervalue their currencies.

The bill isn't likely to have any tangible impact on U.S. policy, but it's yet another manifestation of the growing friction between the world's two greatest economic powers.

The Currency Reform for Fair Trade Act (HR 2378) is the apparent result of increasingly harsh rhetoric towards China's currency policy, which U.S. lawmakers say keeps the yuan undervalued. It is a relatively toothless measure that will likely have no effect on U.S. policy, but instead serve as a rallying cry for Congressional lawmakers looking to win votes ahead of November's midterm elections, and perhaps, U.S. officials heading to a Group of 20 (G20) summit the very same month.

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Will the Mid-Term Elections Drive the Market Into High Gear?

The past five days added more hues to the emerging snapshot of U.S. economic growth that is sluggish and top-heavy, but still rolling forward -- kind of like a tank that can't get out of first gear. New data shows that U.S. GDP is back to 70% of its pre-recession strength, but jobs have recovered only 9%. It's this disconnect between output and employment that has made the current "recovery" seem so anemic.

That was fine for investors, who bid up risky assets in the past week just as they had the previous three weeks. The S&P 500 rose 2%, the Nasdaq 100 rose 3.5%, overseas large caps rose 3.3%, and emerging markets rose 2.5%. Gold rose 1.7%, silver rose 3%, crude oil rose 2.1%, and even bonds rose 1.5%. Among the overseas markets we care most about, ishares MSCI Thailand Index Fund (NYSE: THD) rose 5.6%, Wisdom Tree India Earnings Fund (NYSE: EPI) rose 3.3%, and ishares MSCI Singapore Index Fund (NYSE: EWS) rose 2.4%. 



To find out why the mid-term elections are important to the market read on...

Money Morning Mailbag: GOP Announces "Pledge to America" as Voters Question Obama's Economy

Republicans this week outlined their plan for reform in one-page summary entitled "A Pledge to America." Republicans today hope their pledge will do for them what the "Contract with America" did for Republicans in 1994 when the GOP gained 54 House seats and regained control of Congress for the first time in 40 years.

The proposal's goals include immediately canceling any unused funds from last year's $787 billion stimulus program, permanently extending the Bush tax cuts, repealing the new healthcare law, cutting $100 billion in discretionary spending, and freezing the size of the "nonsecurity" federal work force.  It also calls to end government control of Fannie Mae and Freddie Mac.

The plan comes at a time when many Americans are questioning the economic policies put forth by the Obama administration. With the unemployment rate stuck near 10%, President Obama two weeks ago  announced a new six-year infrastructure plan, which says will create a "substantial" number of jobs and improve the country's transportation system.

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Four Reasons to Invest in ETFs – And Five Ways to Get Started

A mere 15 years ago, selecting the right exchange-traded fund (ETF) was no big challenge. That's because the first ETF wasn't introduced until 1993, and the second didn't follow until 1995. Since then, however, the growth rate among these versatile investment vehicles has been exponential - so fast, in fact, that the monitoring firm Morningstar now tracks the performance of 854 ETFs, with new funds being added almost weekly.

So, from this mushrooming roster of new ETFs - now covering virtually every market sector, both domestic and international - how do you select the right one (or, more likely, ones) for your portfolio?

If you're not already familiar with ETFs, here are four reasons why you should consider adding some balance to your portfolio.

Read More…

We Want to Hear From You: Should the U.S. Federal Reserve Keep Interest Rates Low?

After their meeting yesterday (Tuesday), U.S. Federal Reserve policymakers said they are more worried about deflation than inflation and vowed to look for ways to help along an economy that is experiencing worrisomely slow growth.

In fact, the central bank's rate-setting Federal Open Market Committee (FOMC) said it plans to keep the benchmark Federal Funds rate at its record-low level unchanged between 0.00% and 0.25% for the 20th consecutive month. And, central bank policymakers said rates could remain that low for "an extended period."

In the near term, that appears justified. Core inflation is running at just 0.9%, below the Fed's comfort-level target of 1% to 2% - where it says the inflation rate needs to be for price stability. Fed Funds futures at the Chicago Board of Trade (CBOT) now show that traders believe there is a 54% chance the Fed won't increase short-term rates until its November 2011 policymaking meeting.

In the interim, faced with a still-wheezing economy, the central bank may even start buying back large blocks of U.S. Treasury bonds - a technique that pushes liquidity out where its needed.

Read More…

Will The Fed Fall Back on Treasury Purchases to Fuel Economic Growth?

Faced with a faltering recovery, the U.S. Federal Reserve today (Tuesday) will again consider ramping up purchases of Treasuries, a policy known as quantitative easing, to promote growth.

The Standard & Poor's 500 Index closed yesterday with a 1.5% gain on speculation that the Fed would at least indicate to investors that it is prepared to take further action to support the economy.

The Fed conducted its last major round of Treasury purchases from January 2009 to March 2010, buying $1.25 trillion in mortgage-backed securities and about $175 billion in debt owed by government agencies. The Fed planned on gradually reducing its balance sheet as the debt matured or was prepaid.

But last month the Fed signaled it might resume its quantitative easing steps when it voted to reinvest the principal payments in longer term Treasury securities. And with little improvement in the U.S. economy since then, analysts think the central bank is preparing to take the next step.

"The Fed's rhetoric will get the markets ready for the real possibility of expanding their balance sheet at a later meeting this year," Richard Clarida, a Columbia University professor and global strategic adviser for PIMCO, said Monday in a Bloomberg radio interview.

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Leaders Emerging as the U.S. Economy Shakes Off Its Stupor

The past five days added more color to the emerging picture of U.S. economic growth that is slow and unsteady -- but still in gear. Investors decided that was good enough, and bid up risky assets. The Standard & Poor's 500 Index rose 1.4%, emerging markets rose 1.8%, gold rose 2.2% and bonds fell.

Underlying breadth modestly weakened, as the market is primarily being propelled now by a withdrawal of sellers -- not an increase in buyers. News late in the week typified the entire span, as it mostly favored bulls.

Indeed, the U.S. economy faces an uphill climb but some companies are emerging as market leaders.

To find out which companies are dragging the economy forward read on...

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More Americans Tapping Into Entitlement Programs Swells Budget Deficit

As many U.S. citizens continue to rail against the ballooning budget deficit, the reality is that most Americans are unwilling to swallow the bitter pill it will take to tame it. 

Perhaps that's because nearly half of all Americans live in a household in which someone receives government benefits, more than at any time in history, according to a report from The Wall Street Journal.

At the same time, the number of American households not paying federal income taxes has grown to an estimated 45% in 2010, up from 39% five years ago, according to the Tax Policy Center, a nonpartisan research organization.

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Investors Flock to Gold and Silver on Recovery Worries

Investors worried about the global economic recovery pushed gold prices to fresh highs on Friday, marking the third time in a week the shiny metal set a new record. Silver also climbed to its highest price in thirty years.

Spot gold climbed above $1,282 an ounce in New York and London as a weakening dollar spurred demand from investors for wealth protection, while silver rose to $21.44 an ounce, its highest level since 1980.

Bullion, which usually moves inversely to the dollar, posted its biggest weekly gain since May as the greenback touched a five-week low against the euro.

Holdings in gold- backed exchange-traded products (ETP) reached a record this month as investors sought protection from financial turmoil and the prospect of slowing economic growth.

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