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Words from the (Investment) Wise for the Week That Was (June 29 - July 5, 2009): Part II

Asha Bangalore (Northern Trust): Labor market report - details less bearish than headlines
"Household Survey - The jobless rate inched up to 9.5% in June from 9.4% in May. The unemployment rate is a lagging indicator which is most likely to peak in 2010. In June, the broad measure of unemployment (includes those working part-time because they cannot find full-time jobs and those not looking for work but want and are available in addition to those included in the tally of unemployed in the headline jobless rate) increased to 16.5% from 16.4% in the prior month.

"Establishment Survey: Nonfarm payrolls fell 467,000 in May after an upwardly revised 322,000 decline in May. The April and May revisions of payroll employment led to a net increase of 8,000 jobs. The headline number includes a loss 49,000 government jobs related to the 2010 Census.

"The path of economic recovery is not a straight line; ups and downs in hiring are part and parcel of the expected trajectory of employment. Stepping back in time, payroll employment showed a firm trend only in 1993 (+2.1 million jobs) although the 1990-1991 recession ended in March 1991. Payroll jobs declined in 1991 (-1.106 million) and rose only 338,000 in 1992, reflecting tepid quarterly gains. After the 2001 recession, hiring gathered momentum only in the fourth quarter of 2003.

"Therefore, it is important to note that payroll growth occurs well after a recession has ended. At the present time, the recession has not ended yet and it follows that it is premature to see significant gains in employment in the near term. In fact, it is noteworthy that on a quarterly average basis, payroll employment fell 1.551 million in the second quarter compared with a loss of 2.065 million jobs in the first quarter of 2009."

Source: Asha Bangalore, Northern Trust - Daily Global Commentary, July 2, 2009.

CNBC: Mounting jobless claims force states to borrow funds
"Fifteen states have depleted their unemployment insurance funds so far, forcing them to borrow from the US Treasury.

"A record 30 of the country's 50 states are expected to have to borrow up to $17 billion by next year, said Rick McHugh of the National Employment Law Project, a nonpartisan advocacy group.

"'We are setting the stage for big pressures for states to restrict eligibility and benefit levels,' McHugh said. 'Those type of restrictive actions undercut the (Depression-era program's) economic and social stability purposes.'

"The state-run unemployment insurance programs are normally financed with payroll taxes paid by employers on each worker. But the funds' tax revenues are falling at the same time as benefit demands are rising.

"Nine million Americans are receiving jobless benefits, triple the number who got checks at the beginning of the year. Experts predict the number of recipients will peak sometime this summer as long-term unemployed run out of benefits, which were recently extended and last for 59 weeks in most cases."

Source: CNBC, June 26, 2009.

Asha Bangalore (Northern Trust): Consumer Confidence Index slips in June
"The Consumer Confidence Index fell to 49.3 in June from 54.8 in the prior month. Both the Present Situation Index (24.8 versus 29.7 in May) and the Expectations Index (65.5 versus 71.5 in May) fell in June.

"The outlook about the job market turned pessimistic with a larger percentage of respondents indicating that it is hard to find jobs in June versus May (44.8 versus 43.9 in May) and a fewer percentage of respondents noting that jobs are plentiful (4.5 versus 5.8 in May)."

Source: Asha Bangalore, Northern Trust - Daily Global Commentary, June 30, 2009.

BCA Research: Jump in US income bodes well for spending
"Tax cuts, aggressive monetary easing and some pent up demand suggest that consumer spending should grow at least modestly in the coming quarters, now that the saving rate has adjusted higher.

"Personal spending rose 0.3% in May, as households saved most of a 1.4% boost to income from government social payments and tax cuts (the saving rate rose to almost 7%). The ability of the equity market to advance hinges importantly on consumer spending. A modest upturn in spending would provide investors with greater confidence that the economy will not lapse back into recession in 2010.

"It is always difficult to see how consumers will boost spending when payrolls are shrinking, especially given the tremendous loss of wealth. However, in a typical recovery consumers become more upbeat on the outlook and spending edges higher. This generates increased income and sets off an inventory restocking phase, which then feeds back into stronger consumer confidence and spending. With a lag, payrolls begin to expand again.

"The chart compares the current recession with the average of past cycles, each aligned with the end of the recession. One difference this time is that real disposable growth income has accelerated before the upturn in consumer spending. The contraction in wages and salaries has been more than offset by lower taxes and government transfer payments. This year's tax cut has a greater chance of being spent than the one-off rebate checks mailed out last year. The jump in income provides some leeway to increase spending without resorting to credit cards.

"Bottom line: there are good odds that the equity market will benefit in the coming months from better news from the consumer sector."

Source: BCA Research - Daily Insights, June 29, 2009.

Charlie Rose: A conversation about the sentencing of Bernie Madoff
"A conversation about the sentencing of Bernie Madoff with Diana Henriques of 'The New York Times', and victims of Madoff's ponzi scheme, Dominic Ambrosino and his wife Ronnie Sue Ambrosino."

Source: Charlie Rose, June 29, 2009.

Bespoke: Equities - a wild ride so far
"lf you went to sleep at the end of 2008 and just woke up today, you'd see the S&P 500 up 1.78% for the year and probably assume it's been a pretty boring six months in the market. Oh how you'd be wrong, however. As shown below, the market has taken investors for a wild ride so far this year. On March 9, the index closed the day down 25% for the year. From March 9 through today's close, the index has rallied 36%. Down 25% and then up 36% turns into up 1.78% at the midway point.

"And while the S&P 500 is up as a whole, only three of the index's ten major sectors are positive in 2009. Technology has been the big winner so far with a gain of 24.08%. Materials is up the second most at 12.28%, and Consumer Discretionary ranks third at 7.52%. And even though sectors like Industrials and Financials have been going up for months now, both are still down for the year. The Industrials sector is down the most at -7.68%, while Financials are down 4.76%.

"While the year started off horribly for the market, it is heading into July in a nice uptrend even though it has been floundering for a few weeks now. While some investors are getting frustrated with the market's inability to break to new highs, they easily forget how bad things were just a few months ago. Up 1.78% in '09 with everything that has happened - we'll take it!

Source: Bespoke, June 30, 2009.

TimesOnline: Ten top investment tips from Mark Mobius
"Dr Mark Mobius is one of the most experienced fund managers in the industry. He has been managing the Templeton Emerging Markets Investment Trust since its launch 20 years ago.

"Here Dr Mobius draws on his years of experience to offer ten investment tips to Money Central readers.

1. Keep an eye on value
Is a share selling for below its book value? What is the relationship between the earnings and the price?

2. Don't follow the herd
Many of the most successful investors are contrarian investors. Buy when others are selling and sell when others are buying.

3. Be patient
Rome was not built in a day and companies take time to grow to their full potential.

4. Dripfeed your money into the market
No one knows exactly where markets are going so dripfeed your money into the market by making regular investments. That way you will average out the ups and downs of the market.

5. Examine your own situation and your appetite for risk
You should not go into equities if you are the type of person who is nervous every time you read a stock market report.

6. Diversify your portfolio
You must never put all your eggs in one basket unless you have a lot of time to watch that basket - and most of us don't.

7. Don't listen to your friends or neighbours when it comes to making investment decisions
Your own situation is different from everyone else's so you should be making the decisions.

8. Don't believe everything you read in newspapers, because things tend to be exaggerated
Don't be swayed by headlines and look at what is going on behind the scenes.

9. Go into emerging markets because that is where the growth is
Emerging markets have consistently grown much faster than the developed countries in virtually every year since 1988.

10. Look at countries where populations are relatively young
Countries with young populations are going to be the most productive in future years."

Source: TimesOnline, June 30, 2009.

Gareth Williams (ING): Peak seen in profit warnings
"The European profits warning cycle looks like it has peaked, boding well for the second quarter results season, according to Gareth Williams, equity strategist at ING.

"'As the first half of the year draws to a close, the tally of profit warnings so far in 2009 stands at 65,' he says.

"'This is less than half of the 142 total recorded in the second half of 2008 and is also lower than the comparable first half figures for both 2007 and 2008.'

"But the improvement needs to be placed in the context of a number of companies abandoning profit guidance altogether, as well as greatly reduced expectations.

"'Twelve-month forward earnings forecasts have been cut by around 40% over the last year.'

"Even so, current warnings trends point to a shorter downturn than in 2001-03, he says.

"At the rate implied by the first half, the number of warnings in the whole of 2009 looks set to come in at 138, 35% lower than in 2008 and back to pre-crisis levels.

"Mr Williams says an analysis of warnings by size reveals that mid-cap stocks are still suffering, in contrast to an improving picture for large and small caps. "'We would attribute this to a greater degree of domestic cyclicality within mid-caps.'

"Profit warnings are addictive, he says. 'Nearly half of the large-cap stocks warning this year warned last year too.'"

Source: Gareth Williams, ING (via Financial Times), June 29, 2009.

Bespoke: Q2 EPS growth expectations are ugly, but getting less ugly
"The second quarter reporting period begins next week with Alcoa's (AA) earnings release, and below we highlight the Q2 consensus earnings growth expectation for the S&P 500. As shown, analysts currently expect S&P 500 earnings to decline 33.5% versus Q2 2008. While this is an ugly number, it's a little less ugly than it was in May and early June."

Source: Bespoke, June 29, 2009.

Financial Times: Record fundraising buoys banks' earnings
"Buoyant capital markets activity underpinned US banks' second-quarter earnings, with a boom in equity and debt issuance helping offset continued losses on toxic assets, bankers and analysts said.

"With two days to go before the end of the quarter and a fortnight before banks begin reporting results, executives said the strong performance in trading and underwriting in the first quarter was exceeded in the three months to June.

"The completion of the US government's stress tests set off a flurry of activity on Wall Street, with financial institutions reaping large fees for helping rivals raise equity to plug capital shortfalls and repay federal aid.

"Banks and other financial groups raised $89 billion in equity via 92 deals in the second quarter, the highest number of deals on record and the highest dollar volume for a year.

"US groups' second-quarter equity issuance of $259 billion was more than three times the $71.3 billion raised in the first quarter, according to Dealogic.

"A rebound in high-yield bond activity and unusually high margins in fixed income trading also contributed to what one Wall Street executive called a 'perfect storm for investment banking businesses'.

"The boom in securities' markets has benefited banks such as Goldman Sachs and Morgan Stanley, whose business models had been called into question at the turmoil's height due to fears over their ability to fund themselves without retail deposits."

Source: Francesco Guerrera, Saskia Scholtes and Michael MacKenzie, Financial Times, June 28, 2009.

Bespoke: Percentage of stocks above 50-day moving averages
"Another down day in the market has sent the percentage of stocks above their 50-day moving averages in the S&P 500 back below 50%. Currently, 45% of stocks are above their 50-days. The worst sector by far is Energy. Just 8% of Energy stocks are above their 50-days, even as oil has been strong for the past few months. Industrials is the second worst at 22%, followed by Consumer Discretionary, Telecom, and Materials. Technology, Consumer Staples, Health Care, and Utilities are the four sectors that still have a reading above 50%."

Source: Bespoke, July 2, 2009.

Richard Russell (Dow Theory Letters): Stock market forming head-and-shoulders
"Below is a daily of the Dow covering the last three months. The potential 'head-and-shoulders' formation that I have been warning about can now be seen very clearly. The blue horizontal line defines the support at 8,300. Note that volume is contracting as the head-and-shoulders pattern is forming. A Dow close decisively below 8,300 should send the Dow heading south to join the weak Transportation Average and probably mean a top-out for the whole rally since March 9.

"Remember, and this is crucial, the Obama government is doing everything it can to create asset inflation. If the Dow breaks down here, I think the market will be saying that the government has failed and deflation is the winner. I've said that Bernanke will stay on the inflation path until the bonds say they must stop their spending. Wait, it may be the Dow that will say, 'You've failed, and the forces of deflation are stronger than the government's attempt to inflate'.

"The primary trend of the market remains bearish. The primary trend is more powerful than the Fed and the Treasury and Congress and the president taken together."

Source: Richard Russell, Dow Theory Letters, June 30, 2009.

Richard Russell (Dow Theory Letters): Lowry's statistics behaving bearishly
"The Lowry's statistics back up my Dow Theory suspicions. After the March 9 widely-held 'bottom', Lowry's Buying Power Index (reflecting demand) rallied from the March 9 low to a May 8 peak. But enter weakness - as of June 23. Buying Power lost 86% of its gains from its March 9 low to its May 8th peak. Moreover, Lowry's Selling Pressure Index (reflecting supply) has moved basically sideways since March 9. In new bull markets, the Selling Pressure Index typically declines well before the bottom and then continues to decline after the bottom has passed. Thus, neither the Buying Power Index nor the Selling Pressure Index has behaved as though March 9 was a bear market bottom.

"Let's look at the actual Lowry's figures:

March 9 - Buying Power Index at 96.
May 8 peak - Buying Power Index at 172 - an increase of 76 points from the March 9 low.
June 26 - Buying Power Index back at 110 - a loss of 62 points from the May 8 peak. Buying Power has been declining ever since May 8, a bearish indication."

Source: Richard Russell, Dow Theory Letters, June 29, 2009.

David Fuller (Fullermoney): Equities - probable bumps in the road
"Recoveries since last October by the world's leading emerging markets, or progressing markets as I have often described them, will come as no surprise to Fullermoney subscribers. Now we need to be aware of potential and probable bumps in the road, while also considering the longer-term outlook.

"First among the probable bumps is a an extension of the reactions to date, which have affected all important stock markets recently except for China. This is likely to be triggered by Wall Street and / or China - by far the two most important markets in terms of global investor sentiment.

"In some respects, the next reaction or correction by China could be the most important trigger, even though the USA's stock market capitalisation is still much larger. The difference is narrowing and China is the ascendant power. Global investors have poured money into China and other leading emerging markets in recent months - wisely in my view, but these remain high-beta markets.

"The higher China moves in the short term, and it is currently accelerating, the sharper the reaction is likely to be. I think we are close to the commencement of a medium-term correction. Some may wish to sell in anticipation of this move or on the first downward dynamic shown on the Shanghai Composite Index. Certainly that would be preferable to selling after a reaction or correction.

"I personally will hold on to my long-term investment positions in China, provided the mild acceleration to date does not become extreme, because I think it most unlikely that China will end a bull trend in one sustained, reaction-free advance. I would regard either a ranging reaction or a sharper correction as buying opportunity.

"Meanwhile, the Wall Street leash effect, which was positive from early March into early May, and no worse than neutral subsequently, is in danger of turning negative once again. This would be signalled by a break beneath the current narrow range, the first evidence of which would be a close beneath 885 for the S&P 500 Index.

"Of course there are many other stock markets of interest to all of us but these are the two which really count in terms of leash effect, thus my focus on them. A reaction by China combined with a downward break by the S&P would have an immediate bearish effect on global stock market sentiment. Moreover, Wall Street would quickly become the bigger concern because whereas China leads in terms of bullish expectations, the US's economic problems remain shocking.

"Technically, while the Shanghai Composite Index confirmed its bull market status months ago, the S&P 500 Index has yet to complete a base formation. Until it does by sustaining a break above 1,000, many investors will understandably remain nervous.

"The other big bump in the road to recovery is the price of crude oil. This has probably commenced at least a reaction. However a sustained move above $75 will introduce a headwind, increasing in strength with each additional dollar to the upside. It will happen and almost certainly before we have evidence of a synchronised global economic recovery, which I suspect will be modest in terms of OECD countries.

"Other bumps will include the next rise in long-dated government bond yields. Currently these are in retreat and therefore not a near-term concern. Also, the next decline in the USD, should it gather pace, would weigh on sentiment.

"Last but certainly not least in terms of the medium to longer-term outlook for stock markets will be monetary policy. Monetary policy tightening will eventually kill off the current bull market, such as it is. This is not a near-term risk for the US market or that of any other OECD country. My guess is that monetary tightening will eventually be led by China, as we saw in the last bull market cycle. When that occurs, and I expect it to be a leading indicator, we should plan our exit strategies."

Source: David Fuller, Fullermoney, July 2, 2009.

Bloomberg: Emerging markets outlook is "optimistic", Faber says
"The outlook for emerging markets is 'far more optimistic' than for developed economies as growth picks up, said investor Marc Faber, who advised investors to buy gold before its eight-year rally.

"'We are living through major changes in the world,' said Faber, the publisher of the Gloom, Boom and Doom report. Emerging markets such as China are becoming more significant to the global economy, and 'I don't think this will be reversed', he said today at an Asian Investor magazine forum in Seoul.

"The MSCI Emerging Markets Index has jumped 35% since the end of March, headed for a record quarter after inflows from investors surged and stimulus plans from China to Brazil bolstered confidence. That compares with a 21% increase in the developed-market MSCI World Index.

"'I agree that emerging markets' fundamentals are improving, as some leading indicators show,' said Christian Jin, a global-equity fund manager at HI Asset Management Co. in Seoul, which oversees the equivalent of $7.6 billion in assets. 'The developed nations are still saddled with the problems in their financial sectors and housing markets caused by subprime.'

"No developed markets rank among this year's 10 best performers out of 89 global indexes, according to data compiled by Bloomberg. Peru and China have led gains."

Source: Kyung Bok Cho, Bloomberg, June 30, 2009.

Bloomberg: Mobius says Russian stocks to "pick up nicely"
"Russian and Polish stocks may 'pick up nicely' this year as rising oil and metals prices help boost profits at commodity producers, Templeton Asset Management's Mark Mobius said.

"The Russian Micex Index's 13% decline this month is 'just a correction' and prospects for the market 'remain good', Mobius said at a meeting with investors and the media during a visit to the Warsaw Stock Exchange today.

"'A new bull market has already started,' said Mobius, who helps oversee about $24 billion of emerging-market assets as executive chairman of Templeton. 'The overall trend on commodities is upward.'

"Russia's Micex has rallied 91% since a four-year low on October 24, as investors returned after oil more than doubled and the nation's currency, the ruble, recovered from a 19% slide against the dollar last year.

"Mobius expects oil prices to continue rising because of demand from China and India, and as investors use commodities to hedge against a weakening dollar.

"'The reason why we've been so bullish on commodities is of course this demand-supply issue and also because commodities are denominated in dollars,' Mobius said."

Source: Pawel Kozlowski, Bloomberg, June 29, 2009.

MoneyNews: Rogers - dollar on shaky ground
"Super investor Jim Rogers hasn't changed his pessimistic view of the global economy, but he sees no need to change any of his trading positions at the moment.

"He expects to sell US dollars soon and remains enamored with commodities.

"'I have no shorts for one of the first times in my life,' Rogers told Reuters TV. 'On the other hand I don't see much to buy.'

"The massive fiscal and monetary stimulus around the globe, and the debt burdens it will create, means trouble ahead for most major currencies, he said.

"Rogers likes the Canadian dollar, one of the 'soundest' currencies, whose fate is closely tied to commodities.

"'I've got out of my pounds. I will be getting out of my (US) dollars soon,' Rogers said.

"Commodities are his real favorite.

"'I'd rather be a farmer than a stockbroker for the next couple of years,' he said. 'No one you went to school with became a farmer ... so we have a shortage of farmers.'

"Rogers also still favors Asia over competing economies."

"Asked if he still sees the economy in 'shambles', Buffett said, 'I'm afraid that's true.'"

Source: Dan Weil, MoneyNews, June 30, 2009.

Reuters: China requests reserve currency debate at G8
"China has asked to debate proposals for a new global reserve currency at next week's Group of Eight summit in Italy and the issue could be referred to briefly in the summit statement, G8 sources said on Wednesday.

"One G8 source who was involved in the negotiations said China made the request during preparatory talks about a joint statement to be issued on the second day of the summit in L'Aquila by the G8 plus the G5 (Brazil, India, China, Mexico and South Africa) and also Egypt.

"This forum, the so-called 'G14', meets on July 9 to discuss the financial crisis, trade and climate change and for the first time a G8 summit will also produce a joint G14 statement.

"A European source with knowledge of preparations for the summit also said China had raised the subject of a reserve currency debate and that it might be mentioned during the meeting, though the source added: 'Any country at the meeting can raise issues they see fit.'

"The debate centres on proposals by some emerging powers that an alternative should be found to the US dollar as the global reserve currency, to reflect the shifting balance of power in the globalised economy.

"China's central bank governor said in March the world should consider using the International Monetary Fund's Special Drawing Rights (SDRs) as a super-sovereign currency. The SDR is an international reserve asset allocated to IMF members and its exchange rate is determined by a basket of dollars, euros, sterling and yen."

Source: Reuters, July 1, 2009.

Richard Russell (Dow Theory Letters): Gold is getting interesting
"I want to say a few words about gold, because the situation is getting kinda interesting. Below we see a weekly chart of gold. The blue horizontal line is the resistance at 1004. You can see that gold has made four stabs at the resistance, and each time gold has been turned back. Gold is now fluctuating just above its 10-week MA. But what's so interesting is that the rising blue 10-week MA is above the rising red 40-week MA, and gold is trading bullishly above both rising MAs.

"Does gold have the strength to attack the 1004 resistance level again? That's what we're going to find out in this fateful month of July. The red arrow points to the juncture where the 10-week MA bullishly crossed above the 40-week MA."

Source: Richard Russell, Dow Theory Letters, July 2, 2009.

Bespoke: Baltic Dry Index stuck in a holding pattern
"After an impressive rise (547%) off the lows of devastating decline (-94%), the Baltic Dry Index is currently stuck in a narrow range making lower highs and higher lows. With investors searching high and low for signs that the global economy is coming back to life, you can bet you'll be hearing about it if it breaks out to the upside."

Source: Bespoke, June 30, 2009.

Financial Times: Japan past worst of slump, says minister
"Japan has passed the worst of its current slump and is on course for growth in its next fiscal year, but the recovery of the world's second largest economy could yet prove vulnerable, Kaoru Yosano, finance minister, warned on Tuesday.

"The comments by Mr Yosano, who is also minister for economic and fiscal policy, came just before a quarterly Bank of Japan survey showed that business confidence had risen for the first time in two and a half years.

"In an interview with the FT, Mr Yosano cited industries such as automaking, steel and electrical machinery as leading the rebound after an 'unthinkably bad' first quarter of 2009.

"'Previously, economic conditions were akin to diving head-first off the Eiffel Tower, but since April indicators for all sectors have shown gradual improvement,' the finance minister said.

"He said the government was likely to announce an economic growth forecast of 0.5% or 0.6% for the year from April 2010, compared with an expected 3% decline for the current fiscal year.

"'This year will be a year Japan must endure. But I'm convinced that next year there will be positive growth,' he said.

"Optimism about Japan's prospects has been fuelled in recent weeks by rising industrial output and the end of an export rout, with further cheer offered on Tuesday by the news that household spending in May was up 0.3% year-on-year.

"However, economists said spending had been supported by the short-term effect of the government's Y2,000 billion ($20.8 billion) cash handout. Data released on Tuesday showed unemployment rising to a half-decade high of 5.2%.

"Mr Yosano warned that the recovery could still be hit by 'many kinds' of possible negative factors, citing in particular uncertainty about whether the US and Europe had truly resolved the problems in their financial sectors."

Source: Mure Dickie, Financial Times, June 30, 2009.

James Pressler (Northern Trust): Japan - is the worst truly over?
"During the last quarter of 2008 and the first quarter of this year, Japan's economic performance has truly been abysmal, and not to many people's surprise. Exports accounted for almost 20% of the Japanese economy as of Q3 2008 (the highest level in over 30 years), so when global demand suddenly seized up, one-fifth of the economy took it right on the chin. Now after two quarters of severe contraction, the recent Tankan report suggests that the situation is looking up - albeit from a very low point.

"The Tankan survey focuses on manufacturers, thus providing an excellent look into the export sector. Not surprisingly, the headline index has hit all-time lows of late, but the Q2 reading rose just a touch - to -48 from -58 in Q1 and from +5 in Q2 2008. Not a huge gain in itself, but compared with the economy's trajectory of late, any good news is appreciated.

"More importantly perhaps, this rise between Q1 and Q2 signals a brief respite for the manufacturing sector and for the economy in general, even though the figure came in below the consensus forecast of -43. It appears that this slight recovery had something to do with companies replenishing some of their inventories last quarter, perhaps related to fiscal stimulus measures implemented in the new fiscal year that started in April, and perhaps spurred by some of the talk about 'the worst is over for the global economy' and 'green shoots of recovery.'

"Whatever the reason, analysts are now forecasting that Japan's Q2 GDP on a quarter-on-quarter basis grew by 0.4%. And as surprising as that may sound, we generally agree with the consensus. A reading of -48 still suggests a manufacturing sector truly in dire straits, but viewed in isolation the difference between quarters is still +10, and that difference tracks quite nicely with the quarterly change in GDP.

"Looking past this brief burst of growth, however, we are definitely not as bullish as Japanese manufacturers. The Tankan's forecast index suggests that in Q3, business conditions will rise another 20+ points, furthering the gains already witnessed last quarter, and we just do not see it. Last quarter, economies across the globe felt the rush of huge fiscal stimulus packages being initiated and dramatic monetary easing, and they showed up in plenty of indicators. However, most of the effects were sharp, one-off jolts rather than the resumption of economic activity, and of late analysts are recognizing that the burst of fiscal energy is being replaced with a sobering recognition that even if the worst is over, any type of self-sustaining recovery is still a long way away."

Source: James Pressler, Northern Trust - Daily Global Commentary, July 1, 2009.

Financial Times: UK economy shrinks most in 50 years
"Official figures on Tuesday confirmed the UK had suffered its worst slump in output for 50 years. Economists warned Britain would almost certainly have to wait at least two years before it regained the output lost over the past year.

"The figures showed a 2.4% quarter-on-quarter fall in gross domestic product for the first three months of 2009 - much sharper than the 1.9% initially calculated.

"Not since the time of Harold Macmillan have we 'had it so bad'. It was the worst quarterly performance since the second quarter of 1958. The 4.9% drop compared with a year earlier was the largest since records began in 1948.

"Macmillan told Britain in 1957 it had 'never had it so good'. The economy nosedived the next year. But the 2.7% fall in output in the second quarter of 1958 was a blip between two periods of rapid growth.

"This year's disastrous start underscores the depth of the current recession, following three consecutive quarters of shrinking output. Come the election, Gordon Brown, the prime minister, will struggle to paint as rosy a picture as Mr Macmillan did.

"Even if the economy recovers in the second quarter to its normal 2.5% annual growth rate, something economists think is highly unlikely, it is likely to take until 2011 before output returns to its pre-recession levels.

"More worrying for the Treasury was the sharp downward revision in the cash value of the economy, since this will depress tax revenues and add to government borrowing. Nominal GDP fell 3% in the first quarter, even faster than inflation-adjusted output, because prices had fallen, said the Office for National Statistics.

"'You've never had it so bad' seems the most apt summary of the state of the UK economy in the first quarter,' said Ross Walker, economist at RBS. 'Although to some extent this is 'old news', it does serve to emphasise the size of the hole out of which the UK must climb.'

"Since the end of March, there have been signs the economy is stabilising. Manufacturing output grew in March and April, while survey data suggest the economy has returned to growth.

"The National Institute for Economic and Social Research, a respected forecaster, said it thought the economy began to grow again in April."

Source: Daniel Pimlott, Financial Times, June 30, 2009.

Nationwide: UK house prices - a significant improvement
"The second quarter saw a significant improvement in house price trends across all UK regions, but especially in London, the South East, East Anglia and Wales. Each UK region saw a moderation in the annual pace of decline, and in some cases these improvements were quite substantial. In addition, eight out of thirteen regions saw an increase in prices between the first and second quarter of the year. For the UK as whole, prices rose by 1.1% in the second quarter, leading to an improvement in the annual rate of change from -16.5% in the first quarter to -11.7%.

"Following five consecutive quarter-on-quarter declines, house prices in Greater London rose by a seasonally adjusted 4.8% in the second quarter of 2009. This increase pushed the annual rate of change up from -18.2% in the first three months of the year to -10.2% in the second quarter.

"Although the fall in employment and incomes in the City of London remains a headwind for the capital's property market, the substantial fall in the value of the pound against major currencies does appear to have attracted some significant interest from foreign buyers, especially in prime locations. A limited supply of good quality homes also appears to have underpinned prices over the spring months."

Source: Nationwide, June 30, 2009.

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