October Gold closed lower due to profit taking on Friday

October Gold closed lower due to profit taking on Friday as it consolidates some of this week’s rally but remains above last February’s high crossing at 1008.70. The low-range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI are overbought, diverging but are neutral to bullish signaling that sideways to higher prices are possible near-term. This week’s breakout above February’s high has opened the door into uncharted territory and the possibility of significantly higher prices later this fall. Closes below the 20-day moving average crossing at 980.30 would confirm that a double top with February’s high has been posted. First resistance is Thursday’s high crossing at 1024.70. First support is the 10-day moving average crossing at 1003.70. Second support is the 20-day moving average crossing at 980.30.


Henry Blodget vs. Ken Fisher “We Need More Debt”

Courtesy of MISH

Numerous people sent me a link to a preposterous statement by fund manager Ken Fisher regarding debt. Please consider Too Much Debt? Please. We Need MORE Debt, Says Ken Fisher.

The conventional wisdom is that Americans are struggling to crawl out from under a mountain of debt that will restrain growth and weigh down the economy for decades.

As [the following] chart shows, the US debt-to-GDP ratio recently soared to an all time high of 370%, meaning that for every $1 of output we produce, we have borrowed $3.70. This compares to a long-term debt-to-GDP average of about 150%.

click on chart for sharper image

Last time we went on a massive debt binge, in the 1920s, our debt-to-GDP ratio hit a relatively mild 250%, and we spent the better part of two decades (and the Great Depression) working it off. Many economists think the same thing will happen this time around.

But they’re wrong, says Ken Fisher, CEO of Fisher Investments ($35 billion under management), in a wildly contrarian view.

The U.S. has too little debt, not too much, Fisher says. The U.S.’s return on assets is high and interest rates are low, so our borrowing capacity is much higher than our current debt levels.

Also, Fisher says, you have to look at the U.S. in the context of the world, because the U.S. is only 25% of world GDP. The world is way under-leveraged, so one country’s particular debt-to-GDP ratio doesn’t matter.

Inquiring minds will want to play the accompanying video

The idea that we need more debt is ludicrous. Consumers cannot service the levels of debt they have right now. This has increased defaults, foreclosures, bankruptcies, credit card writeoffs, and horrendous commercial real estate problems.

In the Business Insider Money Game Henry Blodget came to the conclusion, Ken Fisher is nuts.

We had Ken Fisher on TechTicker yesterday. Ken has managed money for nearly 40 years, and now has $35 billion of assets under management.

You make the big money on Wall Street when you hold a view that is so contrarian that most people think you are nuts. So Ken’s argument certainly merits consideration. But I have to admit that, right now, I think he’s nuts.

Contrarian or Nuts?

Just because someone has ridiculous views does not make them contrarian. For example, the flat-earth society view is hardly contrarian, nor does it merit consideration.

To a certain extent one has to wonder if Fisher believes the nonsense he is spewing. As noted above, record high levels of debt become a problem when they becomes impossible to service. When that happens there is credit contraction (deflation) and asset prices crash.

Can Fisher Ever Say Sell?

Whether or not Fisher is nuts boils down to how much he is talking his book. Let’s put this in perspective. When you are managing $35 billion, you can never say sell. Think about what it would do to stock prices.

Thus Ken Fisher will always be perpetually bullish. Moreover, it does not matter to Fisher whether stocks are going up in real (inflation adjusted) terms or not, he just wants them to go up. He does not care how or why.

When Fisher says “We need more debt” it’s possible he means “Ken Fisher for the benefit of Ken Fisher investments needs people to take on more debt”

Certainly the biggest bull markets in any country in nominal terms comes in periods where debt growth is exponential. So it’s possible Fisher is simply talking his book.

However, I happen to believe that Fisher believes the nonsense he is spouting. If so, I agree with Blodget: “Ken Fisher Is Nuts”.

Mike “Mish” Shedlock

Moody’s Does Not Expect Housing To Return To Pre-Bust Levels Before 2020

Zero Hedge

Troubled rating agency Moody’s, in its most recent Resi Landscape publication, has provided some very brutal projections for the housing market turnaround, which, if true, will promptly make any V-shaped recovery conversation moot. And for all homeowners who are holding on to underwater mortgages hoping for a quick bubble #2 inspired turnaround, you may want to reevaluate: quote Moody’s “It will take more than a decade to completely recover from the 40% peak-to-trough decline in national home prices.”

From the report:

Even under strong economic and demographic conditions, the demand for homes will increase moderately relative to both, with sales per households lower during the recovery period than the during the first half of this decade. The pace of new and existing single-family home sales will increase to 6.2 million per annum by 2012, well shy of the 7.5 million units sold at the peak in 2005. Similarly, homebuilding will rebound, but a lingering overhang of inventories, combined with consolidation in the industry and caution on the part of both homebuilders and lenders to builders, will keep the pace of construction from reaching the peak it achieved at the end of 2006 of over 2 million units. The overhang of inventories from the earlier construction boom will be drawn down by the end of 2011, bringing the supply and demand for homes in balance.

The reality is that even as the broader economy still suffers under record excess slack, and one could easily disagree with Moody’s on their rosy expectations for a broad economic turnaround, even the permabullish rating agency has to acknowledge that there is simply no demand to satisfy the glut of overbuilding seen during the bubble years. Between these two pillars of household net worth: the economy (traditionally manifested in the stock market, although no so much lately) and housing, the US consumer will likely be forced to continue retrenching for decades to come, which makes any talk of a V-shaped recovery, even ignoring for a moment the temporary impact of government stimuli, moot.

Additionally, Moody’s analyzes the expected “rebound” by geographic region, with an overall expected return to a “peak” level by 2020.

Hard-hit states such as Florida and California will only regain their pre-bust peak in the early 2030s, well after the nation does. New York will also be a laggard, although its overall decline in prices will be less severe. The main constraint on New York’s outlook is Wall Street. In general, the length of the downturn and the length of recovery in a region will depend on the degree of aggressive lending or overinvestment in housing that occurred during the boom. On the recovery side, states with weaker job growth will also take longer to return to peak.

Then again with Moody’s unprecedented track record of being wrong on everything, it would not be too surprising to see a compressed housing bubble peaking some time next year, comparable to what has been seen in Hong Kong, where the population has already forgotten about the excesses of two years ago and is bidding up matchbox apartments into the stratosphere. With the US economy now able to sustain only by creating and popping various asset bubbles, perhaps the best thing for America would be to go through one more quick housing ramp, followed by an even quicker crash, which would likely be the last one in the history of this once great country, as it would end with a completely worthless national currency and a decimated middle class.

Our asset-backed economy

The Mess That Greenspan Made

The Federal Reserve’s Flow of Funds report with data through the second quarter of 2009 was released yesterday and the $2 trillion improvement in household net worth was in all the headlines. As shown in the slight expansion of the green portion of the chart below, it was all about a rising stock market.
IMAGE The rising value of equities and mutual funds accounted for a whopping $1.6 trillion of the overall increase of $1.9 trillion in assets while liabilities fell by about $35 billion.

Clearly, the plan here is that, since consumers can’t really handle any more debt (especially since a growing number of them don’t have jobs), the government is stepping in to fill the void.

As for real estate, there is some good news for homeowners as the overall value of property ticked up during the second quarter.
IMAGE While the amount of outstanding mortgage debt owed by households fell by about $30 billion to $10.4 trillion in the second quarter, the value of real estate reportedly increased by 1.8 percent, from $17.949 trillion to $18.272 trillion.

This is largely consistent with the Case-Shiller national home price index that rose 2.9 percent from the first quarter to the second, though it’s hard to believe that this is the beginning of a new trend of rising home prices.

Then again, since the Federal Reserve has pushed mortgage lending rates down to freakishly low levels by printing money and the U.S. government now owns or guarantees virtually the entire U.S. mortgage market while Congress appears ready to double the $8,000 home buyer tax incentive … anything could happen.