Daily Digest - June 26

• Dylan Ratigan Asking the GOOD QUESTIONS..(Video)
• Downside skew
• CRE: "pretend and extend"
• Fear Factor (Chart)
• Swine flu 'could infect up to half the population'
• Joachim de Posada says, Don’t eat the marshmallow yet (TED Video)
• 16 Quick Lines That Explain Trend Following
• Executives Selling shares frantically. The Public will be the bag holders AGAIN!
• John Hodgman (I'm a PC) at Radio & TV Correspondents’ Dinner (Video)
  
• Risk Asset Rebound... Then Why are Insiders Selling
• The Worrying I in the C + I G + NX (Chart and link to Larry Summers study on page)
• Steve's Economic Forum - Two Beers with Steve (Podcast)

Economy

Dylan Ratigan Asking the GOOD QUESTIONS..(Video)

Downside skew

Downside skew, which gauges the relative cost of buying insurance against a slide in stocks, is now higher than it was when the Standard & Poor’s 500 Index dropped to a 12-year low on March 9. That indicates a “relatively high chance of downside moves,” the brokerage wrote in a report dated yesterday. ...

CRE: "pretend and extend"

Aside from the discussions of government policy, there was a consensus that banks largely are trying to delay the days of reckoning when they will have to recognize losses and writedowns by extending loans as much as they can. The phrase “pretend and extend” came up more than once, as in, banks are pretending that borrowers can pay off their loans and therefore granting extensions to them. However, no one thinks that can go on forever. As Barone described the process with dealing with troubled borrowers, “Banks are granting extensions at low rates and hoping the economy recovers quickly enough to get the loans performing. But things have gotten worse instead of better.”

Fear Factor (Chart)

Swine flu 'could infect up to half the population'

Economic toll: Pandemic to cost Britain £42bn

£42bn losses are predicted to hit Britain as a result of a three per cent fall in gross domestic product (GDP) due to the swine flu pandemic, according to a new report from the Oxford Economics think tank, due to be released tomorrow. Researchers claim that swine flu could threaten already fragile businesses and put further strains on financial markets in what could become a "vicious cycle that postpones the recovery".

Deflation is a "significant risk" as a result of the pandemic's impact on the economy – putting back economic recovery by two years, says the report. The predictions are based on a 30 per cent infection rate, should a pandemic begin in October and last for six months.

A $2.5 trillion cut in global GDP is a possibility – with a flu outbreak in the autumn hitting the world economy just as it starts to recover from the credit crunch.

 Joachim de Posada says, Don’t eat the marshmallow yet (TED Video)

Ability to delay gratficiation, years later how are we doing?

16 Quick Lines That Explain Trend Following

9. Trading Runs in Cycles, Some Good, Most Bad: Trade large and aggressively when trading well; trade small and ever smaller when trading poorly. In “good times,” even errors turn to profits; in “bad times,” the most well-researched trade will go awry. This is the nature of trading; accept it and move on.

10. Keep Your Technical Systems Simple: Complicated systems breed confusion; simplicity breeds elegance. The great traders we’ve known have the simplest methods of trading. There is a correlation here!

11. In Trading/Investing, An Understanding of Mass Psychology Is Often More Important Than an Understanding of Economics: Simply put, “When they are cryin’, you should be buyin’! And when they are yellin’, you should be sellin’!”

12. Bear Market Corrections Are More Violent and Far Swifter Than Bull Market Corrections: Why they are is still a mystery to us, but they are; we accept it as fact and we move on.

13. There Is Never Just One Cockroach: The lesson of bad news on most stocks is that more shall follow… usually hard upon and always with detrimental effect upon price, until such time as panic prevails and the weakest hands finally exit their positions.

Executives Selling shares frantically. The Public will be the bag holders AGAIN!

Insiders of Standard & Poor’s 500 Index companies were net sellers for 14 straight weeks as the gauge rose 36 percent, data compiled by InsiderScore.com show.

John Hodgman (I'm a PC) at Radio & TV Correspondents’ Dinner (Video)

Risk Asset Rebound... Then Why are Insiders Selling

Sales by CEOs, directors and senior officers have accelerated to the highest level since June 2007, two months before credit markets froze, as the S&P 500 rebounded from its 12-year low in March. The increase is making investors more skittish because executives presumably have the best information about their companies' prospects.

The Worrying I in the C + I G + NX (Chart and link to Larry Summers study on page)

Investment is important to long-term economic growth and/or recovery. One such study by Brad De Long and Larry Summers on the relationship between equipment investment and economic growth noted:

We find that producers’ machinery and equipment has a very strong association with growth: in our cross section of nations each percent of GDP invested in equipment raises GDP growth rate by 1/3 of a percentage point per year. This is a much stronger association than can be found between any of the other components.
For that reason, a massive drop in investment is not only cause for concern now, but for future and lasting economic growth. And the size of the drop in investment is massive.

Steve's Economic Forum - Two Beers with Steve (Podcast)

 In this episode we talk with another notable face from the www.chrismartenson.com website, Erik Townsend. Erik answers our questions about whether or not these green shoots of a recovery are legitimate and we again re-visit the question 'What if Nothing happens?'... at least not for the next few years.