Who says US is on the brink of a recession?...
... the author does, and so does every possible statistics related to the United States.

(column by Toni Straka CEFA & financial journalist, Der Standard, Reuters)

Lakshmi has been very good to shareholders in the last weeks. Defying any gravity, the US stocks – and behind them most other markets – hit new all time highs, late May. But the Dow Jones, currently flirting with the 13,500 mark – not to speak of the Sensex’ record run above 14,000 – faces a lot of hurdles on the way farther north.

US economic indicators keep painting a bleak picture. The annual economic growth rate has now slowed down to a dismal 2.8% after expanding 4.4% a year earlier. A look at the key factors for the US economy shows no relief – with 70% of American GDP coming from consumers and falling incomes in 3 of the last 4 months, add to the worries of a housing market that is about to tip to the downside, exposing homeowners to the new horror word of 2007: negative equity or “my house is less worth than my mortgage.” All recent housing numbers have fallen back to recession levels, last seen years ago.

The only big spender in the United States sits in Washington: President George Bush needs another $800 billion for the mess in Iraq which will assure that the USA will be saddled with public debt in excess of $10 trillion once he leaves office in 2008 (The US Congress approved a multi-billion dollar Iraq war budget on May 24, after bowing to US President George W. Bush’s demands). Big government keeps growing bigger and at last count in April a quarter of all new jobs came from the government, leaving taxpayers with higher bills in the future.

A jump across the big pond to Europa lands one in economic mud these days. The official GDP growth rate in the European Union declined from 3.5% to an annual rate of 3.1% in early 2007, with quarterly figures confirming a continuing downtrend and an unchanged unemployment rate.

For good news, stay at home and look east – Both India and China look forward to another year of elevated growth. India’s economy is expected to cool from plus 9% to a more reasonable 8% to 8.5%. The cure of Reserve Bank of India, which lately raised the leading interest rate to 7.75%, keeping it in line ahead of inflation, seems to work so far without burdening the stock market which still enjoys huge FDI inflows.

Official China announced to see growth remain above 10% again but begins to admit that inflation is becoming a problem. But buyers beware! One should not take the current climate of low interest rates as a reason to think that the party of easy money will go on forever. Although markets love to climb a wall of worries, at one point the correction will come. With the Dow Jones trading at a loft y 17 times of EBITDA and most major markets blindly following the surge in the US, that is fuelled by a M&A rage never seen before in history, chances for a heft y correction are higher than before.

The technical picture of the Dow Jones is ghastly similar to 1929. Only in 2007, the Dow again rocketed uninterruptedly for more than 25 trading days in a row. Want another negative comparison? The buying of stocks on ‘margin’ (with borrowed money) has reached the same levels as 2000 just before the NASDAQ technology index nosedived up to 80%. Central banks have been doing the same as in the last days of the beginning of hyperinflation roughly 80 years earlier. Both European Central Bank (ECB) and the Federal Reserve fail to meet inflation with their leading interest rates.

The Federal Reserve hopes to ride out the ongoing implosion of the property market and has kept the leading Fed Funds rate unchanged at 5.25% for more than a year. But while Fed chairman Ben Bernanke tries to inject markets with optimism through every speech he delivers these days, his predecessor Alan Greenspan has become much more bearish, declaring in May that the USA has a 2 to 1 chance of declining into recession. Oil ascending into the $70 area does not make the case any easier.

Trembling but inactive hands in the ECB seem to secretly wish for a rate hike to 4% in the June meeting, to curtail galloping money supply that keeps its range solidly in double digits or far above the ECB’s own target rate of 4.5% for money supply M3.

ECB president Jean-Claude Trichet has been preparing the ground with European politicians for a rate hike who fear that higher rates may bring fragile growth to a halt. Now the ECB is challenged by another growing problem. The US dollar is only a split hair away from its all-time lows and a rate hike in Europe could lead to the globally feared sell-off of dollar debt paper, pushing the greenback into uncharted territory.

As fundamentals build a case to sell out while the bull still rages worldwide, having lift ed shares worldwide onto levels that can be explained by easy central bank money but not by their earnings power, investors are left with few choices in order to protect themselves from the massive correction that very much looms on the horizon.

Gold has proven to be the safe haven again despite the recent correction after almost touching the $700 level again. Gold experts worldwide have a hard time to explain why central banks try to prevent a surge of the yellow metal. Investors should take advantage of the massive selling as it cannot go on forever at the recent pace that showed for example the Bank of Spain selling off 40 tonnes of gold in a month. The announcement of International Monetary Fund to sell another 400 tonnes of gold in addition to the 500 tonnes from Western central banks gives investors ample time to stock up in gold at favourable prices over the monsoon period in order to see a sunny 2008.

The official outlook for gold in central banks stands in stark contradiction to the gold producers. And it’s not me, but Rob McEwen, Chief Executive of America’s biggest gold producer, Goldcorp, who predicts gold soon to smash through its 23 year peak of $730 and continue northwards. “I expect Gold to test $850 by the end of 2008, and by the end of this decade, north of $2,000, could possibly touch $5,000,” he said, McEwen further insisted that dollar troubles would eventually prompt a flight to the safety of bullion – as has been the case in the last 5,000 years of monetary history.

(End of Toni Straka column)

Warming up for doomsday?

From an apt mix of heat and water paving the way for new life forms to this present state of global warming, human needs and technology have consistently given the earth an increasingly deadly makeover ever since we started rolling the first wheel. Are we drawing our doom closer?

Mumbai Monsoon Madness

Although many fingers were pointed at Bombay Municipal Corporation for bad maintenance of sewage lines, it is unlikely that any amount of preparation could’ve helped on July 26 ’05. 37.2 inches of rain, all in a matter of 24 hours, brought the entire city and other parts of Maharashtra to a standstill. Such was the magnitude of the downpour that parts of Bengalooru and Rajasthan too were affected. Pune based Indian Institute of Tropical Meteorology did a study and found out that although the average rainfall in India remained pretty similar, rainfall patterns have changed drastically over a period of around 50 years. It showed increase in heavy rain events and its frequency and a decrease in moderate events, especially in central India.

Droughts Down under

The threat of global warming is creeping in faster than one can imagine. Rainfall patterns have changed with global temperatures increasing consistently over the last 50 years. The Prime Minister of Australia, John Howard had publicly expressed concern over the anomalous drought situation which has dried up her rich food and crop cultivation areas. The drought that has been on for the past 6 years has sucked dry, once existing water resources. With its warm clime, Australia’s flatlands are more susceptible to global warming. Professor of Natural Resources Science at Adelaide University, Wayne Meyer says, “We are the ones that are going to be at the forefront because we’re less buffered”. The cultivation of fruit products saw an enormous hit due to the drought, pushing up prices. If measures of conserving water resources are not set and followed, the brunt would be borne by the generation very next to this one. Without serious thought and implementation of a sound system of allocation and use of water resources, the drought will not only continue but spread further as well . . .

Forest Fires in Canada Forest Fires in Canada

A destructive force like a forest fi re has a positive ecological role to play as well, as it helps maintain health and diversity of forests. However, rising temperature due to global warming dry up more than just the land. When dry trees and plants rub against each other due to dry winds, they display a process which helped mankind reach this far, ‘starting a fi re’ but in this case it translates into a perilous pyre. The high amount of carbon dioxide (CO2) emitted in the atmosphere makes it a vicious cycle, as forest fires become both an outcome and a cause of global warming. As global temperature rises due to deforestation and industrial excesses, like its effect on other destructive natural phenomena, the frequency, intensity and the domain of destruction is amplify ed for forest fires as well.

Th e Canadian Forest Service (CFS) has developed many advanced systems and tools which would be able to monitor and describe forest fi re activities. CFS has had a research team since mid-1920s and Canada is now world’s best in forest fire research and management in a way which would help sustain a healthy forest but spectre of global warming will take some exorcising.

Hurricane Katrina Hurricane Katrina

A trail of death and destruction left the city of New Orleans ‘shaken and stirred’, in what has been described as one of the most destructive forces to have ever hit the United States. With every flood prevention and safety system failing in Katrina’s path, the city of New Orleans nearly perished.

The increase in intensity of hurricanes is being linked to global warming. Consistently rising sea temperatures coupled with cool and moist climate and mild winds are all the ingredients to stir up, well, more than just a storm. Researchers have found a surge in sea surface temperatures in recent years and gather that the frequency of formation of hurricanes and their intensity is on the rise due to this change. Plans for monitoring the behaviour of hurricanes and sea temperatures have already been put into action in an effort to conjure-up any possible remedy to prevent or at least be prepared for future occurrences.