In 2008, the U.S. faced a significant credit crisis and was saved only by the Federal Reserve Board pouring in trillions of dollars.  Now, the second phase of the credit crisis has begun.  Greece was the starting point to be followed by Central Europe, Eastern Europe and other countries.  Contagion is spreading and will eventually be global.  There is no bailout possible for all this debt.  The Central European banks face a major risk.

What do I see for 2011-2012?

1. New stock market lows – below 6600 on the Dow Jones in this second phase of the global bear market. Bear markets will continue for the next several years. Sell all rallies.
2. Global deflation will grow and be especially harmful to commodities, real estate,      and other tangible assets.
3. A double dip recession worldwide is very likely because the U.S. money supply is declining at a very dangerous rate.  Central banks have put in an estimated 3 trillion dollars for support, but losses are estimated at 25 trillion dollars.
4. Credit will continue to drop as there is no trust between borrowers and lenders and between banks. De-leveraging will stay as the focal point along with risk aversion.
5. More Government intervention, additional new programs, and higher taxes will slow economic growth. Unemployment may reach 20%.
6. Globally, world economies will slow as monetary contraction in Asia (China and India) and fiscal contraction in Europe continues.
7. The U.S. dollar will stay king for a while as the Euro heads for 90 cents.

Bear market–phase 2 is a post from Bull Bear Times, providing breaking insights about markets, investing, and the global economy.

Economies extend excess credit until a bubble occurs. The results: excess leverage and after an extended period of time, de-leveraging and credit contraction start. This is where we are today.

Now, after a large down move in 2007-2008 in stocks and the economy, we had a very sharp counter trend bounce that is ending. The next phase down is just starting and should be much longer in duration and more severe in price.

The global stock markets have major risk as we enter the second half of 2010 through 2012.

1. Where stocks bottomed in March 2009, now in March-April 2010, you see the opposite–the mirror image.

2. Three things caused the 2009 rebound: a) the government stimulus, b) a weak U.S. dollar, and c) massive cost cutting. All of these have ended.

3. Government intervention into all areas of our economy will continue to restrict economic growth.

4. The U.S. dollar will continue higher most of this year and cause negative effects for most commodities.

5. Risk aversion by investors will result in a move to cash and cash equivalents.

6. Government debt defaults–as in the Greece default–will be a greater problem than the sub prime problem of 2007 and 2008.

7. Watch the Dow Jones– a close under 9800 will be a major warning.

8. Deflation risk is very high as credit availability is limited and higher taxes return.

9. Emerging markets have extreme risk. The Chinese economy is likely to contract under current government restrictions.

Critical Time in Stock Market and Economy is a post from Bull Bear Times, providing breaking insights about markets, investing, and the global economy.

The January 11th Dow Jones top at 10,723 looks completed. Expect the Dow Jones to fall below 10,000 over the next several weeks. Then, expect another move up into March/April to complete the bull market top. Commodities, oil, and gold should fall with the stock market over the second half of 2010. The U.S. dollar should rise during this same period.

Bull market top forming is a post from Bull Bear Times, providing breaking insights about markets, investing, and the global economy.

Markets begin 2010 very overbought (meaning stocks have risen too steeply and too fast). Bullish sentiment indicators are at extremes (meaning people are very bullish–even more than in October 2007 when the Dow was at 14,000, an all-time high). Look for short-term weakness and a major top over the next 60-90 days. Sell rallies. A Dow Jones close below 10,235 would be a good indication that the major top has already occurred.

Major stock market top approaching is a post from Bull Bear Times, providing breaking insights about markets, investing, and the global economy.

If you’re looking for a simple explanation of the VIX indicator–let me see if this helps. First, the VIX is actually called the Volatility Index and more formally–the Chicago Board Options Exchange (CBOE) Volatility Index. This is a forward-looking index that shows the market’s expectation of 30-day volatility. Because it’s a widely used measure of market risk, it has been called the gauge of investor fear. Many consider it the premier benchmark for U.S. stock market volatility.

The VIX is calculated on a real-time basis throughout each trading day. If interested in the details of the formulas, check out this document.

VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty. If there’s fear in the marketplace, the seller (of options) wants to be compensated for the additional risk. On October 24, 2008, the VIX reached an intraday high of 89.53.

Values below 20 generally correspond to less stressful times in the markets. The December 24, 2009 CBOE Volatility Index was relatively low at 19.47.

The VIX was introduced by Robert Whaley.

The VIX is discussed in a paper by Robert Whaley titled “Derivatives on Market Volatility: Hedging Tools Long Overdue,” published in the Journal of Derivatives (Fall 1993). His more recent working paper gives an updated explanation of what VIX is and is not, why it was created, what causes it to move, and why it should be an important piece to investors. You can download the paper at this link.

The first VIX, in 1993, was a weighted measure of the implied volatility of eight S&P 100 at-the-money put and call options. Ten years later, it expanded to use options based on a broader index, the S&P 500, which allows for a more accurate view of investors’ expectations on future market volatility.

What is the Volatility Index? is a post from Bull Bear Times, providing breaking insights about markets, investing, and the global economy.

An imminent debt default in Dubai looks unlikely at this time. Expect stock and commodity market rallies to continue through end of year. Use all rallies to sell into–liquidate securities and commodities as markets rally. Signs of deflation–where prices go down rather than up– should be much more prevalent in 2010. Commercial real estate refinancing should be more difficult as real estate pricing and defaults are feared. Credit contraction–less lending by financial institutions–should continue and make an economic recovery more difficult.

Economic recovery should slow in 2010 is a post from Bull Bear Times, providing breaking insights about markets, investing, and the global economy.

The U.S. dollar continues to be the key to most investment markets. A weak dollar policy by the U.S. government (where the value of the dollar goes down) accomplishes the following:

• It makes our real estate and stocks cheaper for foreign investors.
• It makes our goods cheaper for export.
• It helps our large multi-national companies increase their sales and earnings.
• It increases the value of commodity prices as a substitute for dollars; investors would rather own tangible assets such as gold instead of a depreciating dollar.

The negative side of a falling dollar is that it eventually leads to higher inflation because a cheaper dollar is the result of printing more money that chases fewer goods; thus the price of goods will rise–inflation.

Eventually a falling dollar will force world investors to defer purchasing our U.S. bonds because bonds go down during inflationary times. If foreign buyers purchase a U.S. bond that gets a 3% return on their money, and the dollar depreciates 8% like it has done this year (because the government has been printing more money to fund its deficit spending), then the value of the investment has decreased 5%–that’s a negative return. This will eventually drive away foreign buyers of our debt. With fewer buyers, interest rates will rise.

The U.S. Dollar–a long-term depreciating asset is a post from Bull Bear Times, providing breaking insights about markets, investing, and the global economy.

The stock market rally that started in March appears to have ended October 21–with approximately a 50% return. Coincidentally, the same return was seen in the rally (from November 1929 to April 1930) after the October 1929 stock market crash.

So despite much better third quarter earnings than expected and a much stronger third quarter GNP, most markets ignored the news and closed lower in October.

Expect market volatility as we approach year end and use rallies during the next two months to sell. If for any reason the Dow Jones closes below 9,200, be aggressive in reducing your positions.

Stock market top is a post from Bull Bear Times, providing breaking insights about markets, investing, and the global economy.

Read our November 1st (Sunday evening) post for an update on the intermediate sell signal we received this past week.

Intermediate sell signal is a post from Bull Bear Times, providing breaking insights about markets, investing, and the global economy.

Key findings from “The Anguish of Unemployment”--a report conducted by the John J. Heldrich Center for Workforce Development at Rutgers, The State University of New Jersey–reveals the economic and personal costs of prolonged joblessness.

This national survey conducted among 1,200 Americans nationwide who have been unemployed and looking for a job in the past 12 months, including 894 who are still jobless. Survey results portray shaken, traumatized people coping with serious financial and psychological effects from an economic downturn of epic proportion.

• Two-thirds of respondents say they are depressed.
• Over half have borrowed money from friends or relatives.
• A quarter have skipped mortgage or rent payments.
• 60% of the recently unemployed lost their jobs suddenly–without advance warning.
• Eight in ten got two week’s notice or less.
• Only 15% received severance.
• None were offered retraining.
• Only 40% of the currently unemployed received unemployment insurance. Most are concerned that the benefits will end before they find a job.
• Only half of the jobless have health benefits.
• More than half think the changes in the economy will be fundamental and lasting.
• Over half of the unemployed have lost their jobs for the first time, while 4 in 10 had held the same job for three or more years.
• Eight in ten say they do not expect that they have much chance of returning to the place they once worked, even though most workers (72%) held what they had thought were permanent jobs.
• More than one in four of those who were unemployed for the first time earned $75,000 or more in their previous job.
• One in four first-time unemployed workers have at least a four-year college degree.
• The personal and family impact on the respondents suggests a mental health epidemic that could have long-lasting effects on people’s willingness to spend, invest, save, and take risks.
• Three-quarters of the still jobless report stress in their daily lives, two-thirds report being depressed, three-fifths feel helpless, and more than half say they’re angry.

According to some economists, it could take at least eight years to get back to 5% unemployment.

Unemployment not an easy fix is a post from Bull Bear Times, providing breaking insights about markets, investing, and the global economy.