In this Week’s Issue: July 1, 2011

• Weekly Snapshot
• Market Barometers
• Halftime Reports
• Recommended Read/Audio

Weekly Snapshot
• Euro area seasonally-adjusted unemployment rate was 9.9% in May (Eurostat)
• Purchasing managers’ indexes in Asia and Europe at multi-month lows (Reuters)
• Japan’s Tankan survey shows sentiment worsened sharply after quake (WSJ)
• U.S. corn futures have suffered their steepest fall in 15 years (FT)
• The Fed ended its $600 billion bond-buying program (QE2) on June 30th (Reuters)
• The European Central Bank signaled rate hikes as inflation stays high (Reuters)
• Euro area inflation is estimated at 2.7% in June 2011 (Eurostat)
• BofA to pay $8.5bn to settle claims over mortgage-backed securities (WSJ)
• Greece passed an unpopular austerity plan critical to avoiding a debt default (Reuters)
• Christine Lagarde was named the new head of the International Monetary Fund (AP)

Market Barometers

Halftime Reports
Time flies they say.  Yes, the first half of 2011 is already over.  This calls for a mini-review of how the markets faired during the first six months of this year.  Please find the charts below indicating the performance of the major stock markets as well as the returns of the major currencies and commodities. It has been an interesting and choppy first half so far.  The curious investor’s mind is waiting to see what’s next…

Recommended Read/Audio
Here’s an interesting take on the inflation debate. Please consider: Recalculating the Consumer Price Index by David Gura.

Listen to this podcast.

Leo A. Mallette, EdD

Conferences will often be your first foray into publishing. But, do you understand how the conference publication process works?

1. Did you know that you will be required to prepare a publishable paper AND will have to prepare slides for presenting at the conference? Bring your slides with you on a USB drive and bring a backup.
2. Did you know that your presentation will be followed by a question and answer session? This immediate feedback on your presentation, by people who are interested in your talk and can converse in the technical language of your studies, can be invaluable advice.
3. Did you know that you can search the web and find Calls for Papers in almost any city or country? I personally believe that most conferences are held in very interesting places.
4. Did you know that you may have to pay for travel, registration, hotel, and food costs for the conference (unless your company or university will help subsidize your trip)? It could cost from a few hundred dollars for a local conference to several thousand dollars.
5. Did you know that conferences are the single most useful place to network with peers in your field? Where else might you find yourself in a buffet line with the author of one of your graduate texts; or getting a question from a manager from a company you intend to send a resume to; or introducing yourself to a professor with whom you’d like to do graduate work?

That’s why I co-authored: Writing for Conferences: A Handbook for Graduate Students and Faculty. It serves as an essential guide for graduate students who want to publish the results of the research projects of their graduate program to maximum effect. It explains the conference publication process step-by-step and answers all of the questions asked by students inexperienced in publishing. The book is also a valuable reference manual for previously published authors, providing insightful sections on ethics in publishing, dress and grooming, presentation tips, and networking techniques to develop further research and career opportunities.

Due to the quick turnaround and oral presentation requirements, immediate feedback, and abundant networking opportunities, publishing at a conference event is a significantly more complex—and for many, more intimidating—proposition than traditional journal and book publishing. However, the additional benefits of successfully presenting your research project at a conference are well worth the effort.

Click on image to download full 2011 Economic Forecast report

“I have been a little bit optimistic lately, and for those who know me, that’s a relatively unusual thing,” said Christopher Thornberg, founding principal of Beacon Economics at “What’s Next LA?,” the recent 2011 Los Angeles Economic Forecast conference, cosponsored by the Graziadio School of Business and Management.

Despite an onslaught of recent statistic depicting the economy heading back into downturn, including the falling Case Shiller Home Price Index, Thornberg used some “quantitative easing” of his own, offering peace of mind to audience members with a variety of statistical analyses. Thornberg noted that these “shocks to the economy” are only transitory, and predicted positive growth of 4 percent in the second half of this year, 3 percent in 2012, with things slowing down in 2013.

Check out Thornberg’s full presentation here:

US Economic Forecast 2011

Brad Kemp, director of regional research at Beacon Economics, also offered a presentation on the Los Angeles regional economic forecast, which can be viewed in full here:

Los Angeles 2011 Forecast Presentation

In this Week’s Issue

• Weekly Snapshot
• Market Barometers
• Weekly Charts
• All About Oil
• Connecting The Dots

Weekly Snapshot
• Chinese premier Wen Jiabao declares inflation victory (FT)
• New orders for durable goods in the U.S. increased 1.9%, to $195.6bn (ESA)
• U.S. real GDP grew at an annual rate of 1.9% in the first quarter of 2011 (ESA)
• U.S. new home sales down 2.1% from April level, but up 13.5% a year ago (ESA)
• International Energy Agency will release 60 million barrels of oil next month (MSNBC)
• The Fed held interest rates, no hint of further asset purchases (FT)
• Fed cut its forecast for 2011 GDP growth to 2.7% to 2.9% from a 3.1%-3.3% (AP)
• U.S. existing home sales fell 3.8% in May; down 15.3% from a year ago (AP)
• Bank of England hints at second round of quantitative easing (Reuters)
• John Paulson’s hedge fund lost $500m from investment in Sino-Forest (Economist)
• Greek Prime Minister survives vote of confidence (FT)
• Japan’s exports fall 10.3% yr/yr versus forecast 8.4% drop (Reuters)

Market Barometers

Weekly Charts

Lots of interesting developments in the commodities markets this week.  Here’s a neat chart, courtesy of FT.com, reminding us how energy markets and political developments have always been deeply interconnected.

Source: www.ft.com

All About Oil
When the International Energy Agency decided to release 60 million barrels of oil from its strategic oil reserves over the next month, the markets were taken somewhat aback. Oil prices tumbled on the news putting more downside pressure on an already shaky commodity weakened by a sluggish economic recovery. The announcement stirred up quite a bit of a debate among analysts. A perfectly timed announcement one might think as the West sends a clear signal on oil to some of the oil producing countries who elbowed OPEC into not increasing the supply of oil in their recent meeting.

Although the IEA’s role is not to manipulate prices, several said they saw it as a more of a policy move designed to bring down commodity prices at a time when western governments are struggling with unemployment that remains high and consumers that are hurting from high commodity prices.

Libya’s conflict and the often quoted supply-disruption argument is clearly visible in the difference between the two most widely watched oil futures contracts: Brent Crude Oil traded in London and Light Sweet Crude Oil (West Texas Intermediate Contract) traded at NYMEX. In recent months the roughly $15 premium of Brent Crude over Light Sweet Crude had many traders baffled into thinking this would be a temporary anomaly. Not quite, as we learned…

This unusual price difference was recently examined by Izabella Kaminska in her post: WGO – What’s going on in Brent-WTI?

Whether it is the supply shortage or the rise of a new type of contract that will dominate prices in this market remains unclear.  It also remains questionable to what extent the IEA and other governmental organizations can actually influence commodity prices in the long term. However, we have now arrived at a price level that has captured some traders’ attention as they evaluate technical and momentum factors in their next trading decision.  Although we don’t like to commit to a specific price target, you can rest assured that oil prices won’t stay here for an extended period of time. Traders already staked out numerous price targets on both sides of the trend line. Having just taken some profits from this week’s clear sell signals, I am staying on the side lines for now. But like many others, I will be watching closely to see which side of the trend line these prices will be on next week.

Connecting The Dots
It isn’t every day that the president of a country writes an op-ed piece, let alone the premier of a major global economic power like China. Please consider: How China plans to reinforce the global recovery by Wen Jiabao. I’m not quite sure what to make of this article but it does feel strange it would appear now.

Similarly, one must question the intent and timing of this week’s IEA’s decision to try and keep a lid on energy prices. This leaves us to wonder what, if any, alterior motives might be at play here. Below are some recent events and news stories that cry out for someone to connect the dots and tell us if there are indeed too many coincidences. Who would like to connect the dots?

• Fed cuts U.S. economic growth forecast
• Fed holds interest rates on hold but is concerned about inflation
• $14.3 trillion U.S. debt ceiling—out of cash in August
• IEA decides to release 60m barrels of oil from strategic reserves
• Oil price plunges over 4% on Thursday
• China’s food price inflation is at record levels
• Concerns about Chinese property prices persist
• Hedge fund loses $500m from investment in Sino-Forest
• Chinese Premier Wen Jiabao writes an op-ed piece in the Financial Times
• Hang Seng snaps three-week losing streak, ends up 1.9%
• Shanghai up 2.2%, its biggest intra-day gain in four months
• Chinese banks see biggest jump on HK and Shanghai bourses

Can’t view this video? Click here to open in new window.

“Twitter in Japan,” a film produced by Bassett & Partners (http://blog.bassett.tv), features the expert commentary of Charla Griffy-Brown, PhD, associate professor and discipline lead of information systems at the Graziadio School of Business and Management at Pepperdine University. She contributes to a discussion of the cultural relevance of Twitter in Japan during and after the devastating earthquakes that took place in March 2011.

The video taps a study that demonstrates a rise in emotive keywords, such as shock, sadness, love, and hope,  in the Japanese Twitter-sphere post-disaster. Griffy-Brown notes the connection between Twitter and haiku, a poetic form that took root in Japanese culture hundreds of years ago.

Charla Griffy-Brown, PhD

Dr. Griffy-Brown serves as the director of the Center for Teaching and Learning Excellence. The Center aims to advance the School’s understanding of marketplace dynamics affecting working professionals given current and future economic challenges, while also enhancing teaching effectiveness in delivering business education that has relevant and practical value and affirms a higher purpose for business practice.

She also serves as editor-in-chief of Technology in Society, an international journal dedicated to the economic, political and cultural dynamics of our technological business world, published by Elsevier Ltd. The journal focuses on the social forces that shape technological decisions and the choices that are open to society with respect to the uses of technology. Dr. Griffy-Brown has been a contributor to the journal since 2007.

Dr. Griffy-Brown is a member of the Center for Applied Research, undertaking the mission to promote relevant research that makes an impact on the business community, as well as foster engagement between industry leaders and Graziadio Faculty for research opportunities.

She currently serves as part of an international research team examining technology and business development issues. In 2004, she received a research award from the International Association for the Management of Technology in which she was recognized as one of the most active and prolific researchers in the technology management and innovation field. A former researcher at the Foundation for Advanced Studies on International Development, Tokyo, Dr. Griffy-Brown has also served as associate professor at the Tokyo Institute of Technology. Dr. Griffy-Brown’s research is currently funded by an SAP University Alliance Grant, and she also has funding from the Pepperdine Voyager/Lilly Foundation, and the Rothschild Research Endowment as well as the Graziadio School of Business Funds for Excellence.

She has worked for NASA at the Kennedy Space Center and has taught innovation/technology management courses in Australia, Singapore, Indonesia, Malaysia, and Japan. Dr. Griffy-Brown has also served as a consultant for the United Nation’s Global Environmental Facility and the European Commission. Dr. Griffy-Brown’s publications include more than 40 articles as well as books in the areas of technology management, information systems, and techno-economic development. She has also conducted information systems research at large enterprises such as American Honda Motor Corporation, as well as in more than 100 small- and medium-sized enterprises in Japan, the U.S., and China.

Dr. Griffy-Brown is a Harvard University graduate, a former Fulbright Scholar and holds a Ph.D. in Technology Management from Griffith University in Queensland, Australia.

In this Week’s Issue

• Weekly Snapshot
• Market Barometers
• Weekly Charts
• Lines In The Sand
• Recommended Video

Weekly Snapshot
• U.S. leading economic index increased 0.8% in May to 114.7 (Conference Board)
• U.S. headline inflation rate in May rose 3.6% from a year earlier (Economist)
• Euro area annual inflation was 2.7% in May down from 2.8% in April (Eurostat)
• U.S. housing starts up 8.7% from April and 5.2% above May 2010 (US Census)
• India raises key interest rates by 0.25 percentage point to 7.50% (WSJ)
• Yields on Spanish 10-year bonds at 5.6% – highest in a decade (FT)
• U.S. trade deficit increased to $119.3 billion in the first quarter of 2011 (BEA)
• Chinese consumer prices rose 5.5% in May; biggest increase in 3 years (FT)
• China’s politically sensitive food prices surged by 11.7% (Economist)
• S&P cuts Greece’s longterm credit rating by three notches to CCC (FT)
• The Bank of Japan has kept its key interest rate at 0%-0.1% (Bloomberg)

Market Barometers

Weekly Charts

It was all about the Greek credit crisis again this week.  Images of violent protests in the streets of Athens sent shock waves through the financial markets squeezing the nervous investors’ arteries just a little tighter still. Greek government bond yields spiraled into stratospheric levels. After some of the ratings agencies dealt Greece a final blow declaring them essentially at default level, the yield on the 10-year Greek government bond touched 18 percent. Worse still, the two-year and three-year bond yields shot up to about 30 percent. Unthinkable for a European country one might assume; then again, investors’ memories are notoriously bad.  Those who had witnessed the Greek financial tragedy early last year had been warned that there might be a slight problem with Greece’s ability to pay back its creditors.

In our article: A Series Of Unfortunate Events For Europe, we highlighted some of the important events leading up to the crisis.

The ongoing struggle to implement austerity measures has run its course; no significant improvement of their government coffers have been made which is why Greece is back to square one.  Worse than that in fact, since they now have to borrow at essentially twice the cost of capital from a year earlier.  When Monsieur Sarkozy and Frau Merkel embraced in harmony to come up with yet another negotiated bailout compromise of some sort, the market breathed a sigh of relief for a moment. While the Euro fared remarkably well, all things considered, it remains questionable how much longer the Greek tragedy can continue. Greece is clearly at a point where it will be increasingly difficult to find able and willing creditors. In this country we know what it means to “kick the can down the road” all too well.  Lessons to be learned?

Lines In The Sand
Last week, we discussed the notion of lines in the sand suggesting that a price level of 1250 for the S&P 500 might be one of those important technical support levels upon which many traders hinge their next moves.  The line in the sand has been holding but we came fairly close to it when the S&P 500 touched the 200-day moving average on Thursday.

Since March 2009, the market has made a remarkable recovery. Considering a still rather sluggish recovery on main street, the market is now looking for the next impetus to move higher. What is your take? Will 1250 hold or will we step back into the uncomfortable bear market territory again?

Chris Thornberg, PhD

Christopher Thornberg, PhD, is founding partner of Beacon Economics, LLC and an expert in the study of regional economies, real estate dynamics, labor markets, and business forecasting. He has established a reputation as one of the state’s leading economic forecasters, currently serving as chief economic advisor to the California State Controller’s Office and serves as Chair of California State Controller John Chiang’s Council of Economic Advisors—the body that advises the state’s chief fiscal officer about emerging economic issues. Thornberg earned a PhD in business economics from The Anderson School at UCLA, and a BS in Business Administration from the State University of New York at Buffalo.

In this podcast interview, Thornberg discusses the slew of recent data that portrays faltered growth for the American economy, and whether or not these hard economic times may indicate potential for a double-dip recession. He also discusses pressing issues such as oil prices and the housing market, and offers some insight into their effects on the national and state economies.

On June 21, 2011, Thornberg will join some of California’s most reputable forecasters at the upcoming event What’s Next LA? Entrepreneurialism and California’s Competitive Future. Speakers will deliver a new outlook for the U.S., California, and Los Angeles economies,  revealing insights as to the direction the economy will take in the near and long-term future. The event will take place from 8 to 11 a.m. at the Westin Bonaventure Hotel & Suites in downtown Los Angeles. To register or learn more about the 2011 Los Angeles Economic Forecast Conference, visit BeaconEcon.com.

In this Week’s Issue

• Weekly Snapshot
• Market Barometers
• Weekly Chart
• Lines In The Sand
• Recommended Read

Weekly Snapshot

• Dow sinks below 12,000; stocks had the sixth straight weekly loss (AP)
• China posted a smaller-than-expected trade surplus in May of $13.1bn (Reuters)
• The average U.S. homeowner now has 38% equity, down from 61% a decade ago (AP)
• Fed surpassed China as the largest holder of U.S. Treasuries (Reuters)
• ECB kept interest rates at 1.25% but signalled July rate hike (CNBC)
• Brazil increased interest rates by 25 basis points to 12.25% (Economy.com)
• Revised data showed Japan’s economy shrank 0.9% in the first quarter (Reuters)
• U.S. trade deficit narrowed by 6.7% in April to $43.7 billion (AP)
• Fitch warns: U.S. Treasuries could be rated junk in August (Reuters)
• Fed survey: Economy falters in several U.S. regions (AP)
• Euro area GDP rose 2.5% compared with the first quarter of 2010 (Eurostat)
• Bernanke signals that the Fed is not planning to ease monetary policy (FT)
• Industrial producer prices for April rose 6.7% y/y in Euro area (Eurostat)
• OPEC unexpectedly decides to keep oil production output unchanged (AP)

Market Barometers

Weekly Chart

QE2 (Quantitative Easing) is coming to an end this month. Sounds like a good time to assess some of the impacts of the Federal Reserve’s recent asset purchases. Please consider our weekly chart courtesy of Global Macro Monitor. In case you were wondering why interest rates are still at rock bottom, here is part of the answer. However, as many prominent names including PIMCO’s CEO Bill Gross have been asking: What happens when the Fed stops purchasing treasuries?

Lines In The Sand

Another week, another big sell-off and I can’t help thinking how much this market reflects the “June-Gloom” weather here in Southern California. We have been looking at the S&P 500 chart with a cautious approach for quite some time now and suggested that there is some considerable risk for a market correction. In one segment we referred to Barry Ritholtz who recommended drawing some lines in the sand. How much pain are you willing to take in terms of your portfolio?

There is some hope though in that the majority of traders seem to agree where that line in the sand is; 1250 on the S&P 500 has been the consensus for a major support. Most of the chartists seem to point to that level as a hard line in the sand. This also suggests a sort of self-fulfilling prophecy might be at play here—it is the main reason why technical analysis works in the first place. When enough people believe 1250 to be a strong support, it may actually come true.

The previous low earlier this year was 1249. This week, we came one step closer to that all-important support of 1250. Yet, the momentum is also slowing down, suggesting that the sellers have been reducing some of their positions recently.

What’s next for you? If your time horizon is short-term, you would have been stopped out of the market some time ago already. As for those who have a slightly longer investment horizon, you may want to draw your own line in the sand, perhaps not directly at 1250 but somewhere close enough below it. How much pain you are comfortable with determines your line in the sand.