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After the U.S. downgrade: A reminder of how much debt still needs to be re-rated

posted on August 23, 2011 at 8:30 am
world bomb

On August 5 Standard & Poor’s downgraded the credit rating of the United States to AA+ from AAA.

What’s happened to the debt of the United States since then?

Treasuries have rallied and sent yields to historic lows. Last week the yield on a two-year Treasury fell to 0.19%. The yield on a 10-year Treasury closed the week at 2.06. That was slightly above the low set on Thursday of 1.97%. That was the lowest yield on the 10-year Treasury since 1950.

There’s no way to escape a certain amount of Schadenfreude. There is pleasure, admit it, in seeing the market thumb its nose at Standard & Poor’s, the credit rating company that got the mortgage-asset market so terribly wrong and helped create the global financial crisis by giving AAA ratings to so much paper that quickly demonstrated that it didn’t deserve an AAA rating by collapsing in price as the underlying mortgages went sour.

But I wouldn’t let the grim pleasure at Standard & Poor’s discomfiture become your primary emotional reaction to the rally in U.S. debt markets. That main emotion should be worry. This rally isn’t a sign of health in the financial markets. Read more

Maybe the euro debt crisis is really a developed economy demographic crisis

posted on August 12, 2011 at 12:30 pm

I don’t know what the evolution of the euro debt crisis looks like in the United States at the moment, but from Europe it’s got more twists and turns than an early hominid family tree.

When I arrived in Italy about a week ago now, the crisis narrative was all about contagion—Would Italy and Spain catch the Greek disease? With the U.S. debt downgrade and the plunge in global stock markets, the headlines shifted. Corriere della Serra, for example, blared, “Obama fails to stop market rout” in Italian, of course.

And then in the last few days the focus has shifted again. Now the worry is France, and some Europeans are starting to say that even the strongest EuroZone economies have a debt problem. Read more

I don’t think stocks have broken their long-term upward trend but that’s a worry that means this market will take a while to base

posted on August 11, 2011 at 12:30 pm

You’ll be hearing a lot of talk over the next days and weeks from the technical analysts about the damage that’s been inflicted upon the condition of the markets. That’s one reason, they’ll say, that this market won’t bounce back immediately from its extremely oversold current condition and begin a new rally.

But what does that mean when you translate it?

Actually, it’s pretty straightforward. What the technicians are saying is that the market’s plunge has taken stocks down to levels that make it hard to tell whether this is a short-term correction in what is still a market that is trending upward in the longer term or if this drop has broken the longer-term upward trend and the market is about to drop further.

For a while it was possible to believe that this decline would take the Standard & Poor’s 500 back to its November 2010 lows near 1170. Read more

The cooking oil indicator says inflation has peaked in China

posted on August 5, 2011 at 3:28 pm

I’m getting a ton of email yesterday and today from readers asking whether to buy, when to buy, and what to buy. Being down 500 points on the Dow Jones Industrial Average does raise those kinds of questions.

I do have one concrete suggestion in answer to all that—and it’s based on a bit of good news yesterday out of China.

The government in Beijing has lifted its ban on price increases in cooking oil.

Don’t laugh. This is huge. And I think it’s a signal that you can start to ease your way into (or deeper into) Chinese stocks.

Here’s my thinking. Read more

10 picks for a low/no growth global economy–and they’re certainly cheaper than they were a week ago

posted on August 5, 2011 at 8:30 am

Find me some growth! Please! Anywhere in the world.

Europe isn’t growing—the weaker economies are all locked into austerity budget cuts. The U.S. isn’t growing—unless you call 1.3% annual growth in the second quarter growth—and the budget cuts in the debt ceiling deal sure aren’t going to accelerate this economy. India is slowing. Brazil is slowing. Even China may be slowing.

So is it any wonder that the stock market is in a deep, deep funk. (Maybe we should call a 512-point drop on the Dow Jones Industrial Average something more than a funk, huh?) Sure stocks are reasonably priced or even cheap by historical standards—but that assumes something like normal economic growth. Do you see it? Anywhere?

And let’s be very clear on this: Without some growth there’s zero chance that the deeply indebted developed economies are going to dig their way out of debt. Or that stock markets will regain their legs and reverse the 10% drop of the last nine days.

What’s an investor to do? Well, as my contribution I’m going to give you 10 stocks that I think can still give you some earnings and revenue growth even in this slow global economy.

But let’s start with a quick survey of the growth—or lack thereof—landscape. Read more

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