As we have said many times lately, history rimes… Today´s world looks very much alike the 30s… See what David Rosenberg has to say about it:

“DARING TO COMPARE TODAY TO THE 30’S
Coming off a crash (‘29) and rebound (‘30); aftermath of an asset deflation and credit collapse banks fail (Bank of New York back then, Lehman this time around); natural disaster (dust bowl then, oil spill now); global policy discord (with the U.K. then, with Germany now); geopolitical threats; interventionist governments; ultra low interest rates (long bond yield finished the 1930s below 2%); chronic unemployment (25% then, 17% now); deflation pressures; competitive devaluations; gold bull market (doubled in Sterling terms in the 30s); debt defaults; sputtering recoveries and rallies; onset of consumer frugality.”

As we recommended at the end of 2009 : “We believe that the dominant focus should be on Capital preservation and Income orientation in any form of investment ( bonds, hybrids,Hedges,etc…) and consistent focus on reliable dividend growth and dividend yield.” (http://www.lateralthinking.biz/2010-forecast-new-normal-new-frugal.html)

Be careful out there !!!

The following note comes to us courtesy of Chad Starliper, the CIO at Rather & Kittrell:

“The 13-week annualized rate of the WLI is now at -23.46%, something that usually only happens in, or prior to, recessions. This is very ominous economic momentum. I haven’t seen anyone look at it this way, I suppose because the ECRI publishes their own smoothed growth rate.”

And from David Rosenberg :

“For the week ending June 11th, the ECRI leading index (growth rate) slipped for the sixth week in a row, to -5.7% from -3.7%.  Only once in the past – in 1987, but the Fed could cut rates then – did this fail to signal a recession.  But a -5.7% print accurately signaled a recession in the lead-up to all of the past seven downturns.”

It seems that with the double dip in housing being inminent, the Economy will have a tough end of the year !!!

SYMBIOSIS : Interaction between two different organisms living in close physical association, typically to the advantage of both.

We are not really sure that we will get this “typically to the  advantage of both ” this time…

The cost of doing business in China is going up.

FT: ” Chinese labour protests that have forced shutdowns at foreign factories have spread beyond south China’s industrial heartland, posing a dangerous new challenge for Beijing.”

Coastal factories are increasing hourly payments to workers. Local governments are raising minimum wage standards. And if China allows its currency ( Renmimbi) to appreciate against the United States dollar later this year, as many economists are predicting, the relative cost of manufacturing in China will almost certainly rise.

The salaries of factory workers in China are still low compared to those in the United States and Europe: the hourly wage in southern China is only about 75 cents an hour. But economists say wage increases here will eventually ripple through the global economy, driving up the prices of goods as diverse as T-shirts, sneakers, computer servers and smartphones.

The shift was illustrated last Sunday, when Foxconn Technology, one of the world’s largest contract electronics manufacturers and the maker of products that include iPhones, said that it was planning to double the salaries of many of its 800,000 workers in China, beginning in October. The new monthly average would be 2,000 renminbi — about $300, at current exchange rates.

Honda is following the same path after a strike. So in between strikes and protests maybe China is becoming the new engine for Inflation…

The PIIGS family is growing  to include Hungary as a spokesman for the PM of Hungary said their economy is “in a grave economic situation” and the possibility of default is “not an exaggeration.”!!!

Markets rolled over after the comments and the euro fell to a new 4 year low vs the US$. Hungary 5 yr CDS is higher by 15 bps to 323 bps, the highest since July ‘09. Hungarian stocks are lower by almost 4% and European banks are all lower including rumours that SG ( Societée Generale ) has a huge exposure to Eastern Europe through derivatives exposure.

The possibility of Europe heading towards a double deep recession whenever Greece, Portugal, Spain, Ireland, Italy, and now Hungary apply restrictive medicine is becoming a REAL possibility. If that happens, US will follow as it happened in 1931…