The following paragraphs come courtesy of John Hussman’s latest weekly newsletter, The rubber hits the road, and are republished below with the necessary permission.

“Last week, we observed a subtle shift in yield pressures, which has historically been associated with fairly abrupt ‘air pockets’ in which stocks have typically lost 10% or more within the span of about 6 weeks. As usual, this isn’t a forecast, but given that we are already defensive on the basis of broader considerations about overvaluation and the overbought status of the market, the pressures we’re seeing on the yield front make our aversion to market risk somewhat more pointed.

“Consider the following conditions: 1) market valuations above their.....

The comments below were provided by Kevin Lane of Fusion IQ.

We said several weeks back that it was hard to see the market top when bullish sentiment surveys were so neutral. Additionally we stated that tops were usually met with exuberant buyers not traders salivating to put on shorts. So here we are several weeks later and two indices - the Nasdaq Composite and the Russell 2000 - are both at new post-market low highs. When the Nasdaq and Russell 2000 are both making highs it again is hard not to maintain a bullish bias.

[Graphs inserted by PduP.]

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This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Brian Sack (New York Fed - transcript of speech): Preparing for a smooth (eventual) exit, March 8, 2010.
When the time comes to tighten monetary policy, the Federal Reserve will be embarking on a tightening cycle like no other in its history. First, this tightening cycle will have two policy dimensions, in that the FOMC will have to decide on the path of its asset holdings in addition to the path of the short-term interest rate. Second, we will be using tools to drain reserves that are new and.....

Economist Simon Johnson, a British-American economist and professor of entrepreneurship at the Sloan School of Management at MIT, says the US needs to reinstate financial regulation that encourages transparency and disclosure.

Source: CNN Money (CNN),  March 4, 2010.

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The chart below, the Affordability Index of US residential property, comes courtesy of the New Observations on Real Estate, Mortgages & Life (Real Estate) blog. The Index is computed by factoring in home prices, mortgage rates and income.

Let’s have an open thread and discuss in the comments section whether this represents a buying opportunity, or is it a question of fools rush in where wise men fear to buy? Click on “Comments” below the heading of this post and share with me your views on whether I should part with my South African rand for a residential property in some part of America.

The true unemployment rate in the United States is actually higher than we think - at 11.5%, said Stephen Roach, Asia chairman of Morgan Stanley.

“The (official) unemployment rate at 9.7% is distorted downwards by at least 3 million people who have simply given up looking for work and who have effectively taken themselves out of the work force for economic reasons,” Roach said on CNBC.

“For some bizarre reason, the US statisticians do not count these poor souls as unemployed. If you add them back in, the unemployment rate isn’t 9.7%. It’s 11.5%,” he said.

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This post is a guest contribution by Asha Bangalore* of The Northern Trust  Company.

The employment report of February summed up the current economic situation as showing small positive improvements from the prior month, with many worrisome aspects still in place. Lest we forget other notable developments in the market place; these pictures are on our watchlist among many other economic and financial variables we follow. Inflation stories are floating around, particularly in relation to the size of the Fed’s balance sheet. As usual, there are two camps - one that fails to see inflation as a major concern given the fundamentally weak status of the economy, and the other focusing on the.....

Source: Dave Granlund, Comics.com, March 8, 2010.

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This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Steven Sears (Barron’s): Controverting complacency, March 8, 2010.
It is now quite fashionable for anyone active in the markets to remark that investors are too complacent. As evidence, the Chicago Board Options Exchange’s Market Volatility Index is trotted out like some trick pony that talks and predicts the future. Yes, it is true that implied volatility, which is the true animating force of the options market, is markedly lower than, say, toward the end of 2008 when the world’s financial markets were crumbling. But options volatility declines for many reasons, like a.....

This video is a visualization of Matt Taibbi’s article “Inside the great American bubble machine” on how Goldman Sachs has engineered every major market manipulation since the Great Depression. Click here for Taibbi’s article.

Source: Lebed.biz (via YouTube), March 3, 2010.

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This post is a guest contribution by Dian Chu, market analyst, trader and author of the Economic Forecasts and Opinions blog.

Crude oil surged to its highest level in almost eight weeks and gasoline also rose to a 17-month high after the U.S. employment declined less than forecast in February. Encouraged by the upbeat news, investors moved into oil on the expectation that fuel demand will climb as economic growth picks up pace.

Extending the impressive gains of 9.3% in February, crude oil for April delivery settled at $81.50 a barrel on the New York Mercantile Exchange (NYMEX), the highest closing price since Jan......

Source: Nate Beeler, Comics.com, March 1, 2010.

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The Chicago Fed National Activity Index (CFNAI) is a US economic indicator that receives less publicity that others, but is worth keeping an eye on. According to the Chicago Fed, “when the three-month moving average of the CFNAI moves above -0.7 following a period of economic contraction, there is an increasing likelihood the recession has ended.”  The three-month moving average of the CFNAI has held above -0.70 since November 2009.

Interestingly, when plotting the Chicago Fed series together with US real GDP growth (courtesy of Agora Financial), the relationship would indicate growth of 3-4% for 2010 - a higher number than that forecast by most economists. I.....

In this video interview, Chris Wood, CLSA’s Asia strategist and author of the top “Greed & Fear” newsletter, shares his views on global markets with CNBC.

Wood said: “My view is that there is an inevitable endgame as a result of all this massive spending of taxpayer money in the West and Japan to bail out bankrupt banking systems, so in my view unfortunately the end game will be systemic government debt crisis in the western world.

“It will probably happen in Europe and will climax in the US, and I am expecting on a five year view the collapse of the.....

This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Andy Xie (China International Business): A change of mindset, March 5, 2010.
The biggest policy debate this year has thus far been when and how fast to exit from last year’s stimulus policies. Last year, in a moment of panic over the global financial crisis, central banks and governments poured monetary and fiscal stimulus into the global economy. The side effects of these misguided policies are already showing up: asset speculation has engulfed the global financial market again and consumer price inflation is creeping up uncomfortably fast, especially in.....

What are the US economic reports telling us? Is the economy facing a “double-dip” recession?

“The more plausible, bad scenario is not a double dip but just a very slow recovery … [where] the unemployment rate comes down but only over years,” says Robert Shiller of Yale University (via Yahoo Finance - Tech Ticker (Yahoo)).

Shiller, who co-created the Case-Shiller Home Price Index, is most concerned about the nascent US housing recovery, saying that housing is in a “precarious state”. He said: “I think there is a definite risk of a turn down again in home prices. If home prices decline 10% or 20% more, we are in.....

Yourself …

Your buyer …

Your appraiser …

And … your country’s tax assessor …

Source: Casey’s Daily Dispatch, March 5, 2010.

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This week on Wealthtrack, Consuelo Mack, sits down with Bruce Berkowitz. He is Morningstar’s Domestic Equity Fund Manager of the Decade and portfolio manager of the five-star Fairholme Fund.

Berkowitz explains how he has beaten the S&P by more than 200 percent over the past decade and where he is finding value now.

Note: The transcript of this interview is not available yet, but will be posted here as soon as it arrives.

Source: Wealthtrack, March 5, 2010.

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Different economists will come to different conclusions regarding Friday’s payrolls report. Asha Bangalore (Northern Trust) summarized the report as follows: “The positive aspects of the February employment report - steady unemployment rate, magnitude of job loss is shrinking, diffusion indexes have moved up, hiring has risen in some categories such as temporary employment and profession and business services, factory employment is stabilizing - are encouraging but they are inadequate to justify a significant change in the outlook of the economy in general and employment conditions in particular. Consequently, the Fed is predicted to remain on hold until early 2011.”

But let’s spare a thought for where we are coming from. The chart below, courtesy.....

Charlie Rose sits down with Elizabeth Warren, the Leo Gottlieb Professor of Law at Harvard Law School, where she teaches contract law, bankruptcy and commercial law. In the wake of the 2008-9 financial crisis, she has also become the chair of the Congressional Oversight Panel created to oversee the US banking bailout, formally known as the Troubled Assets Relief Program.

Legislation circulating in Congress this week suggests that financial reform could be coming. At the center of those discussions is a debate on the powers of a new consumer protection agency and where it might be located. Warren shares her views on these and other issues.

A link to the transcript of the interview follows at the end.....