Roseman's Eruptions

Will U.S. Stocks Dominate Global Markets Post 2008?

Investors over-weighted in the major industrialized markets since 1998 have earned poor returns in nominal terms and negative results adjusted for inflation. U.S., European and Japanese equities have ranked as some of the worst investments over the last ten years in dollar terms as two bear markets, including the current credit crisis, deflates long-term returns.

Emerging markets, however, have earned impressive inflation-adjusted returns over the last decade and have protected investors from inflation.

The Greatest Short-Sale in History: U.S. Treasury Bonds

The federal government is now on course to engineer the greatest expansion of credit in the history of modern financial markets. The long-term consequences will ultimately be disastrous for American financial assets, particularly the dollar and Treasury debt.

Safe-Havens Now

This is no time for risk-taking.

I’ve been warning for months about deteriorating credit conditions and the urgent need to park your cash balances in government-only securities or mutual funds that are strictly designated “government” or “Treasury” money-market funds.

The entire world is now running hard to buy government bonds, both Treasuries and foreign government bonds like German bunds. Yields continue to decline.

Point of Maximum Pessimism Approaching as Fear Widespread

The point of maximum pessimism is rapidly approaching this week for global investors as another bomb shell hit credit and equity markets.

Credit spreads surged again yesterday with the entire gamut of risk based and conservative investment-grade securities declining in value. Even high-grade corporate bonds outside of the financial sector, many of whom don’t need financing, continue to post big declines. And a significant New York based money market fund saw its NAV fall below the $1 level as it struggles with recent losses tied to Lehman Brothers Holdings.

Market Decline now on Par with 1974

What a horrendous day. Black Monday was just awful for investors. And that’s after Treasury Secretary Hank Paulson called the day’s trading “orderly” considering the bankruptcy of Lehman Brothers Holding on Sunday night. Orderly it wasn’t.

U.S. Needs New RTC Bailout to Quash Systemic Risk

One of the most accurate forecasts predicting the severity of the credit crisis over the last 13 months lies with Merrill Lynch’s chief investment strategist, Richard Bernstein. I’ve followed his warnings since 2006 about housing and his track record is pretty stellar. Bernstein is still pretty bearish and believes the next phase of the credit crunch is spreading to consumer loans as the economy continues to struggle.

The China Factor and Commodities in 2008

The global economy is now slowing with several countries in Europe and Asia either in recession or at the brink of a contraction in output. But China, the world’s main driver of commodities consumption this decade, continues to grow, suggesting the severe declines witnessed for raw materials since July are way overdone.

Market Needs Evidence Central Banks can Beat Deflation

Since July, global markets have violently transitioned from one obsessed with inflation to deflation, or an environment of falling prices. Though I have no doubt the Fed and other central banks will ultimately win the battle against falling prices through the aggressive expansion of credit, the near-term direction of asset prices remains down. This implies a very defensive investment position, including only the highest quality debt securities, limited exposure to large-cap multinational blue-chip stocks and alternative investments, including reverse indexing and gold.

Negative Interest Rates, Booming Global Money-Supply Don’t Suggest End to Commodities Bull

Since hitting an all-time high on July 3, 2008, the benchmark Reuters-CRB Index has declined 24% while crude oil prices have tanked 29%. Other commodities have declined even more. Oil stocks, as measured by the Spiders XLE Index (XLE), are down 31% from their highs, while the Dow Jones Oil Equipment and Services Index is off 32% from its best level. And gold stocks, as measured by the XAU Gold & Silver Index, are down a blistering 45% since June, trading at the same levels as November 2005.

Bail-Out Round Two: Uncle Sam Dives into Mortgage Lending

Score another short-term victory for the global financial system. Unfortunately, taxpayers will eventually fund the latest salvo by the United States federal government.

The United States officially entered the mortgage lending business on Monday following the nationalization of Fannie Mae (NYSE-FNM) and Freddie Mac (NYSE-FRE), which combined are responsible for more than half of all mortgage lending or about $6 trillion dollars.