In some Guggenheim-Frankenstein fashion, Bear Stearns is going to be brought back to life.

Former Bear Stearns CEO Alan Schwartz, new chairman of New York asset-management firm Guggenheim Partners, has made a move to hire Kenneth Savio to build an equity-trading desk.  Savio is former co-head of trading and sales at Bear Stearns.  Is Schwartz really trying to "rebuild his lost brokerage empire" like the NYPost is reports?

A person familiar with the matter said Schwartz has ambitions to "hire people from across the board" to rebuild Guggenheim's lesser-known investment banking, research and brokerage divisions into "the next Bear Stearns."

It's alive!

Don't look to deceitful Wall Street for direction on where the economy is headed. Look at the bond market, it never lies.

Here are examples of the contradiction between what is said by speakers, and what the current bond yields say.

1. The International Monetary Fund said last week the economic recovery will be faster than it forecast in July, investors pushed yields on government debt to the lowest level since April, according to the Merrill Lynch & Co. Global Sovereign Broad Market Plus Index.

2.  European Central Bank President Jean-Claude Trichet said that while the economy is no longer in “freefall,” it faces “a very bumpy road ahead.”  Which may be more accurate than Federal Reserve Chairman Ben Bernanke's assertation that “prospects for a return to growth in the near term appear good” on Aug. 21, since bond yields have only fallen since then.
 
Bloomberg sums it up: The bond market isn’t buying all the optimism over the end of the global recession. 

Debt investors can’t see a recovery strong enough to spur central bank interest rates anytime soon, especially with the Obama administration forecasting that unemployment in the U.S. - - the world’s largest economy -- will rise above 10 percent in the first quarter. After stripping out the effects of the U.S. government’s “cash for clunkers” program to buy new cars, consumer spending was unchanged in July, according to Commerce Department data released on Aug. 28.

Two-year Treasury note yields fell 7 basis points, or 0.07 percentage point, last week to 1.02 percent, and are down from this month’s high of 1.36 percent on Aug. 7, according to BGCantor Market Data. The 1 percent security maturing on August 2011, sold by the government Aug. 25, ended the week at 99 31/32.

The two-year note yield fell 2 basis points to 1.00 percent as of 8:39 a.m. today in London.

After Disney announced it acquired Marvel Entertainment for $4 billion, becoming the new owner of characters including Spider Man, Iron Man and the X-Men, shares of Marvel jumped over 2% in premarket trade.

Marvel shares last traded at $48.40, up 25.2 percent from their closing price on Friday. Disney shares closed at $26.84 on Friday.

After all the panic over bank failure, and the anger over the fairness of taxpayer bailouts, it turns out, the U.S. really did make out like a bandit.  Investing in the bad bank loans was profitable after all.

The Federal Reserve made $14 billion in profits on loans made in the last two years, according to The Financial Times today, which cited officials in-the-know.

Here's the kicker: if the Fed had invested the same amounted loaned out in three-month Treasury bills since August 2007, it would have earned a measely $5 billion in interest!

Did Bernanke know all along how profitable this crisis would prove to the Fed Reserve?  But more importantly, does this mean that us taxpayers are going to get a cut of that profit?  C'mon guys, please?

In February, Amazon.com Inc. unveiled an upgrade of its electronic book reader, the Kindle 2, at the venerable Morgan Library in New York. A few months later, Amazon went to Pace University in New York to debut the Kindle DX, a larger model designed for easy reading of newspapers and textbooks.

Not to be outdone, incumbent Sony Corp. -- developer of one of the early e-book readers -- on Tuesday unfurled a new device that also has wireless access. Sony held a coming-out party for its Reader Daily Edition at the iconic New York Public Library, in an attempt to win back lost ground.
 
But the quest to find the most prestigious literary locale pales in comparison with the brewing battle to become the premier distributor of books via digital bits. It is now clear that Amazon's effort to become both the iPod and iTunes of the nascent electronic book market is under attack.

Sony easily had first-mover advantage here. The Japanese electronics giant launched its first e-reader in September 2006, more than a year before the first Kindle ever saw the light of day. But the Sony device was limited by lack of big books and clunky user interface. Users had to plug it into a PC to load new book titles.

By contrast, the Kindle offered a large store of bestsellers right at the start, plus a wireless connection that allowed users to buy and download new titles anytime, anywhere.

Other new players have emerged since then, making it clear this landscape is going to evolve. It is worth asking whether Amazon has what it takes to maintain its early leadership in e-books. Other companies have far more experience building technology products, and the book-publishing industry is looking to avoid a replay of what has happened in the music business.

Read the rest from Therese Poletti

 

Jailed scam artist R. Allen Stanford’s relationship with the chief regulator of his Antigua bank was closer than most.

Mr. Davis pleaded guilty on Thursday to fraud and conspiracy in Federal District Court in Houston. Mr. Davis, who oversaw the movement of vast sums of money at Stanford International Bank, also said in a plea agreement that Mr. Stanford ordered him to report false revenue and false investment portfolio balances to banking regulators as far back as 1988, when Mr. Stanford ran an offshore bank on the Caribbean island of Montserrat.

The most interesting thing about their co-dependent scam, which the NYTimes found in a plea agreement, was that upon going into business together in 2003, they became blood brothers, cutting their wrists and mixing their blood in a “brotherhood ceremony.”

Seriously?  But this is from the NYTimes, not the tabloids!

Will this really do anything to help Davis' case?  Or will the judge be more keen now to lock him up, knowing he is willing to engage in bloody bizarre ceremonies and take super bowl ticket bribes, to keep a man's multibillion-dollar scam secret.

Thanks to cash for clunkers.  But don't expect American consumers to lead the country out of this recession with their spending, because that ain't gonna happen.  At least not until incomes and employment rates rise.

Consumer spending in the U.S. rose in July because households took advantage of the government’s ‘cash- for-clunkers’ program to buy new cars.  The flip-side to the good news is that the government program did dig the country's deficit a little deeper...

The 0.2 percent gain in purchases for July was in line with forecasts and followed a 0.6 percent increase in June, the Commerce Department said today in Washington. Incomes were unchanged, causing the savings rate to decrease.

As quoted in Bloomberg,
“The consumer is simply not in a position to lead us in this recovery,” Joseph Brusuelas, a director at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “Household finances will remain on shaky ground.”

Companies aren't joining forces much these days.

U.S. mergers and acquisitions activity plunged to a 15-year low in August, while global fees for completed deals hit their lowest level since at least 1998, preliminary data showed on Friday.

Thomson Reuters data showed announced U.S. M&A for the month totaled $13 billion, its lowest since February 1994, while global M&A stood at $72 billion, the lowest since February 2003.

Tiffany & Co posted higher-than-expected quarterly earnings on cost cuts and slightly recovering demand for jewelry, and raised its full-year outlook, sending its shares up more than 8 percent.
The jeweler said sales in various markets such as Europe, China and Australia showed modest improvement in the second quarter compared with the first quarter.

Tiffany still expects sales to decline this year, albeit at a slightly lower rate. Executives said on a conference call the forecast assumed economic conditions would not change meaningfully from their current state.  Read more.

Also out today, Whirlpool Corp said on Friday that it plans to shut a manufacturing facility in Evansville, Indiana, and move some production to Mexico next year, a change that will eliminate about 1,100 full-time U.S. positions but will not affect the company's 2009 forecast.

Whirlpool said its 2009 earnings and cash flow outlook remain unchanged. Last month, the company raised the low end of its 2009 earnings estimate to $3.50 a share from $3.00 while keeping the high end at $4.00.   Read more.

This is too good to pass up.  Since Robert Benmosche wasn't crossing the Atlantic unless Croatia caught fire, Reuters visited AIG's new CEO in his vacation home.

"Wearing flip-flops, khaki shorts and a green polo shirt, the new chief executive of bailed-out insurer American International Group Inc says he's getting a lot of work done from his massive villa overlooking the Adriatic."

In fact, he told Reuters that he "can work here as well as in the office in New York."  Hey, me too!  I could be uber-productive from my jacuzzi, surrounded by a vineyard vista.

Jealous?  Definitely.  But in all fairness, Benmosche, 65, did already retire.  He was CEO of MetLife Inc, the largest U.S. life insurer.  Ability to work from his home in Croatia must have been one of his stipulations to agree to leave retirement bliss.

Then again, he was only on the job a few days, starting August 10, before heading out for vacation.  And, after all, AIG was bailed out by the taxpayers...

Nevertheless, this postcard home is to let us all know that Benmosche makes no apologies for his passion for Croatia.  Or for his palatial villa with 12 bathrooms and his vineyards on the Peljesac Peninsula.  And if you were wondering—no—he is not even part Croatian.

If the chairman of the Federal Reserve is not safe, that just goes to show we are all at risk for identity theft.  They should really use Ben in the next identity theft prevention commercial.

According to court documents, the Fed chairman and his wife were swindled in 2008 by a skilled team of crooks.  Newsweek got a hold of court records showing that the Federal Reserve Board chairman was one of hundreds of victims of an elaborate identity-fraud ring, headed by a convicted scam artist known as "Big Head," that stole more than $2.1 million from unsuspecting consumers and at least 10 financial institutions around the country.

No wonder "Big Head" has a big ego.  He heisted Mrs. Bernanke's purse, including the couple's joint check book, and began cashing checks to his heart's content.  For those who have had their identity stolen, you all know what a pain in the bank account the ordeal is.  How time and energy draining it is, all the while your account may also be drained for months.

To top it off, this happened last summer, just as the financial crisis began to hit the economy with full force.  Double bummer for Bernanke.

The ringleader of the sophisticate crime ring, Clyde Austin Gray (aka Big Head) was arrested and  pleaded guilty to conspiracy to commit bank fraud in federal court in Alexandria, Va., just last month. Gray employed an army of pickpockets, mail thieves, and office workers to swipe checks, credit cards, military IDs, and other personal records, according to his plea agreement and other court records filed in his case.

Like taking candy from a baby.  Hedge fund manager John Paulson claims that Citigroup is totally undervalued.

He is going on a Citi shopping spree, sources told the NY Post, that Paulson has already acquired close to a 2 percent stake in Citigroup.  Can't prove it though, because that's still below the 5 percent bar that requiring him to report his investment in a securities filing.
 
The hedgie became a billionaire by predicting the housing market collapse, and placing his bets against those bad loans.  So many investors are watching, copying his moves. Paulson has a following.

What does this mean?  Well, it means that you may have already missed out on the chance to scoop up Citi shares at their "undervalued" price.  Citi will likely get a rally out of the news today.

The competition is fierce.  Drum roll please.... Nokia just unveiled its first phone that uses Linux software.

Good for Nokia, because the whole Apple-Google alliance was leaving it in the dust in terms of high-end cells.

Nokia also unveiled a new Solutions business unit, which aims to better tie together its phone operations and new mobile Internet services offering.
 
Linux is the most widely used free, public open source computer operating, and competes with Microsoft, which charges for its Windows software and opposes freely sharing its code.  Free the OS!

On the loop-de-loop roller coaster ride the US is riding in terms of jobless reports, last week was good news.

The number of U.S. workers filing new claims for jobless benefits fell to 570,000, and those collecting long-term unemployment benefits dropped to the lowest level since April!  Well, it’s nothing to pop champagne over, but it’s something.

Here are the details from Reuters—

Analysts polled by Reuters had forecast new claims slipping to 565,000 in the week ending August 22 from 580,000 the prior week, which had been previously reported as 576,000.

Continued claims fell to 6.133 million in the week ended August 15 from 6.252 million the prior week. That was the lowest since the week ending April 4, when they were 6.045 million.

It's been a banner year for long-beleaguered U.S. bank stocks, but now investors have to worry if the shares will flag.


After two years on life support, bank stocks and broader industry indexes have enjoyed strong gains in 2009, including a 3 percent rise in the sector's major index and a several-fold spike in share prices for the biggest U.S. banks since a March bottom.

Many analysts say the industry is resurgent, like the banking boom in the 1990s that followed the commercial real estate crash, but others are skeptical.

Read the full analysis from Joe Rauch

The government's "Cash for Clunkers" program was wildly succesfull while it lasted.  And here begins the onslaught of trade-in copycat deals.   First to follow Cash for Clunkers is Toys R Us, with the "Cash for Cribs."

It's too bad not everyone can keep their cool this summer without their air conditioners.  Because all across the country, more Americans are having their power shut off since they can't pay their bills.

USA Today shows the trend with numbers:
Luckily, despite global warming, it has been cool enough this summer for me to forgo turning on the air conditioning.  In addition to coolest NYC summer I can remember, I am also on my tightest budget ever.  So really, my $35 electric bill is oh so necessary, and I have no problem squeezing that out each month.

What do Goldman Sachs and Dollar Tree have in common? They are both exceptions to the recession, flourishing despite being faced with economic crisis.

Retailer Dollar Tree Inc reported a higher-than-expected jump in quarterly profit on Wednesday and boosted its full-year sales and earnings forecast, sending its shares up nearly 5 percent.


The company, which sells most of its merchandise for $1, said net income rose 51 percent to $56.9 million, or 63 cents per share, in the second quarter ended August 1 from $37.6 million, or 42 cents per share, a year earlier.

Analysts on average had been expecting profit of 54 cents per share, according to Reuters Estimates.
While other retailers have faltered in the recession, Dollar Tree has flourished as the downturn forces shoppers to seek out deals in its stores to stretch limited budgets.

Rio Tinto, the global mining and resources group, is gearing up to open a mine in Serbia in about five years to exploit Jadarite, a mineral used to produce mobile phone batteries, officials said on Tuesday.



"The mine could open in five or six years," Radivoje Milanovic, the state secretary at the Energy and Mining Ministry, told Reuters. "It contains an estimated 100 million tonnes of exploitable reserves."

In a separate statement, the ministry said that Energy Minister Petar Skundric met a Rio Tinto delegation led by Preston Chiaro, member of Rio's Executive Committee.

"Rio Tinto is satisfied with the findings collected from two locations and has expressed interest in launching a pre-feasibility study on Jadarite exploitation in the Jadare Valley," the Energy and Mining Ministry said in a statement.

Jadarite is used for the production lithium carbonate—widely used for the production of lithium batteries for mobile phones, computers and hybrid or electric cars—with the global demand estimated to be growing at 10 percent a year in the coming years, the ministry said.

"This (Jadarite) deposit could satisfy Europe's needs for lithium carbonate over several decades," it added.

Let the truth out of the bag! Finally, we are going to find out who all the emergency funds really went to...

The Federal Reserve must for the first time identify the companies in its emergency lending programs after losing a Freedom of Information Act lawsuit.

Manhattan Chief U.S. District Judge Loretta Preska ruled against the central bank yesterday, rejecting the argument that loan records aren’t covered by the law because their disclosure would harm borrowers’ competitive positions.

The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under 11 programs, most put in place during the deepest financial crisis since the Great Depression, saying that doing so might set off a run by depositors and unsettle shareholders. Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued on Nov. 7 on behalf of its Bloomberg News unit.

Do the math: American consumers are being slowly swept out to a sea of debt because the interest rate tides turned, and not in their favor.

Credit card interests are sky-rocketing, while at the same time, CD rates are at the lowest they've been in a long time.  So the spread between what a typical American will pay on their credit and earn on their investment is a gap too wide to allow for an "economic recovery."

According to Market Ticker's math, the recovery will be impossible, like in Japan, until all the bad loans are out on the table and realized.

That excess spread comes off GDP each and every year until the bad paper is either removed from the system or amortized and the excess spread disappears.  Since most of this paper (especially that related to houses!) has amortization schedules measured in decades and an underwater homeowner cannot refinance, this drain on our economy is going to remain for years, not months.
There is only one way to stop it: FORCE all of the bad paper into the open immediately, close all the defunct institutions that this uncovers, and remove the excess liquidity so that the rate spread contracts back to a reasonable level.  This means that I will once again be able to get a 5% CD and I will once again see "good credit risks" offered revolving credit at under 10%.

Amen!

US mortgage delinquencies hits new record. Meanwhile, B of A's Countrywide lost it's court ruling on mortgages.

Thanks to the ultra-high unemployment rate, the delinquency rate breaks the record set last quarter. The records are based on MBA data dating back to 1972. Since unemployment isn't going away, neither will foreclosures: expect even more over the next year and beyond.

Late payments on U.S. mortgages increased to a record in the second quarter, with almost one in eight homeowners delinquent or in the foreclosure process, the Mortgage Bankers Association said Thursday.

Ironically, this news comes in tandem to a federal judge ruling that Bank of America Corp cannot have a lawsuit by investors seeking to force it to buy back mortgages heard in federal court, saying he lacks jurisdiction to decide the case.

Tuesday's ruling by Judge Richard Holwell of the U.S. District Court in Manhattan means the case will move to state court. "Congress passed two statutes within a year of each other to address the mortgage crisis," the judge wrote. "In neither of these statutes did Congress federalize the case."

The ruling is a win for investors, to the extent that Holwell rejected a claim by the bank's Countrywide Financial Corp unit that new federal laws to encourage loan modifications to help struggling borrowers stay in their homes govern this case.

Countrywide had argued that the laws negated obligations it might have had to buy back modified loans. In 2008, Countrywide agreed with some 11 state attorneys general to modify $8.4 billion of loans made to roughly 400,000 borrowers.


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Goldman Sachs officially became a "financial holding company" as of August 14. But we all just found out today.
An investment bank by any other name... is still an investment bank. Goldman, what are you up to now?

The designation of Goldman as a Financial Holding Company was granted by the Federal Reserve on August 14th, according to a person familiar wth the matter. Goldman only announced the news today because it wanted to avoid pre-empting the official announcement by the Federal Reserve, which only announces changes in designation periodically.

Goldman had said it planned to seek FHC status when it first converted to a Bank Holding Company. The designation allows a bank to engage in non-banking, financial activitties. Of course, Goldman has been doing this all along under temporary permission from the Fed.

"It's a natural progression from being a Bank Holding Company," Goldman Sachs spokesman Lucas Van Praag told us. "We've said it was our intention to become a FHC since becoming a BHC (check our most recent 10-K for more on the subject). FHCs are permitted to engage in a broad range of financial and other activities. We do not expect that our change of status will materially affect our business strategy."

Apparently many banks, including Fifth Third and Bank of America, are both Bank Holding Companies and Financial Holding Companies. Morgan Stanley applied to become a financial holding company long ago.

"The email says that Goldman is now 'a type of bank holding company that is permitted to engage in a broad range of financial and related activities," one Goldman insider tells us. "Which is murky!"

Here's the Federal Reserve's definition of a FHC.

A financial entity engaged in a broad range of banking-related activities, created by the Gramm-Leach-Bliley Act of 1999. These activities include: insurance underwriting, securities dealing and underwriting, financial and investment advisory services, merchant banking, issuing or selling securitized interests in bank-eligible assets, and generally engaging in any non-banking activity authorized by the Bank Holding Company Act. The Federal Reserve Board is responsible for supervising the financial condition and activities of financial holding companies. Similarly, any non-bank commercial company that is predominantly engaged in financial activities, earning 85% or more of its gross revenues from financial services, may choose to become a financial holding company. These companies are required to sell any non-financial (commercial) businesses within ten years.

Robert Benmosche, the newly appointed CEO of AIG, phoned the US from his vacation, to place a promise of repayment.

Only at AIG, the king of vacations. Remember, the retired Metlife Insurance Chief just left retirement to take over at AIG on August 10. Though it seems he did not whole-heartedly leave retirement, since he immediately left the country to go to his summer villa in Croatia.

Anyway, despite Benmosche being halfway around the world, he is making headlines from afar because he has promised Bloomberg that today is payback day.

"At the end of the day, we believe we will be able to pay back the government and we hope we will be able to do something for our shareholders as well," Benmosche said in an interview with Bloomberg while on holiday in Croatia.

"My first charge is to get the company to operate at the level it used to operate, being the world's best," he said, according to the report. "The fact is we owe the U.S. government a lot of money and we are not going to be able to pay it back just by our profits, so we will sell some of the company off but only at the right time at the right price."

Benmosche's task is to repay more than $80 billion in loans from the U.S. Federal Reserve and Treasury while keeping AIG stable.

AIG shares were up 13.9 percent at $30.34 in morning trading, their highest level since a 20-to-1 reverse stock split on July 1, according to Reuters data.

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That's right. It has mysteriously been lowered by $262 billion, which means the first guesstimate was probably overshot.

The bad news is, the total debt the White House expects us to be in for the year of 2009 is still a jaw-dropping, show-stopping, whopping $1.58 trillion.


An anonymous official said they reduced the total deficit because they now expect fewer bank failures than anticipated, so FDIC spending will be $78 billion less than forecast.


Post-revision, the deficit figure amounts to 11.2 percent of the nation’s economy, the official said.


Whew! That is the biggest share since 1945. Sounds like the U.S. can look forward to being at 10% unemployment AND 11% in debt.

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Where will you be in 20 years, when the housing market has fully rebounded? Already safely tucked away in your cheap Florida retirement condo you basically got for free back in 2010?

You know where the housing market has been. You may not want to know where it's headed.

There are tentative signs the depressed housing market may finally be close to bottoming out. That might sound like good news, but hitting bottom doesn't mean an upward rebound will follow anytime soon. Economist Celia Chen of Moody's Economy.com has published a forecast suggesting that residential real estate could take 10 years to recover in most states--and 20 years in Florida and California.

Chen predicts that house prices will stop falling by the second quarter of 2010, which is consistent with what the Federal Reserve and many other forecasters have said. But her longer-term outlook helps explain why many economists are gloomy about the nation's economic prospects for the next several years. Some of Chen's predictions:

By the time house prices stop falling, they'll be down 43 percent from peak prices reached in 2006, as measured by the Case-Shiller home-price index.

That will mark the deepest housing correction since 1890, and probably ever in the United States (meaningful data go back only to the late 19th century). The prior worst housing bust was from 1916 to 1932, when house values fell 37 percent. Beating that dismal record suggests we're no smarter now than in the Great Depression.

Nationwide, price levels won't regain the peaks of 2006 until 2020. In the worst-hit states, Florida and California, the rebound will take until 2030. Five other states won't hit their 2006 peaks until after 2023. Anybody who doubts that it could take that long should consider the real estate bust in Japan, where prices are still down by half from the peaks they reached 15 years ago.

Other states, mainly those where the housing boom was muted, will bounce back faster. Homes in Texas, Oklahoma, and a handful of southern and Farm Belt states could regain peak prices within seven years, after falling by less than 10 percent. If it felt as if the housing boom was passing you by earlier this decade, count your blessings.

Forecasts like this should temper some of the recent hype over the stock market rally and a dip, probably temporary, in the national unemployment rate. If housing remains as depressed as this forecast suggests, it will be extremely hard to mount the kind of recovery it will take to bring back jobs and boost consumer spending. Housing represents a huge chunk of the economy--about 16 percent--and at such depressed levels it would take runaway growth in other areas to compensate for a moribund housing market.

But that's unlikely too, since housing is also a source of much of the personal wealth that fuels consumer spending. The plunge in home values has been the major factor in the evaporation of $14 trillion of Americans' net worth, and that in turn is likely to depress spending for the foreseeable future. In past recessions, a housing rebound has been the spark that helped turn the economy around. This time, we'll need a lot of other sparks.

By Rick Newman

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Warren Buffett, legendary investor and CEO of Berkshire Hathaway, warned of the dangers the "mountain of debt" piling up in the U.S. will cause.

Namely, he says the U.S. economy is in danger of becoming a banana republic. Buffett is generally a supporter of Barack Obama, and as an investor, he actually benefits from the bailouts, so his soapbox mount comes from his heart.

In his Op-ed for the NYTimes yesterday, he paints the picture of how high the mountain of debt is: This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.

And then he goes for the punch, eloquent and pleading:

"I want to emphasize that there is nothing evil or destructive in an increase in debt that is proportional to an increase in income or assets. As the resources of individuals, corporations and countries grow, each can handle more debt. The United States remains by far the most prosperous country on earth, and its debt-carrying capacity will grow in the future just as it has in the past.

But it was a wise man who said, "All I want to know is where I’m going to die so I’ll never go there." We don’t want our country to evolve into the banana-republic economy described by Keynes.

Our immediate problem is to get our country back on its feet and flourishing — "whatever it takes" still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.

Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.



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Thanks, Chief, but we figured that one out already. It's obvious the run-up is done. El-Erian says we have entered a massive 'tug of war.'
It doesn't take a Chief who oversees $850 billion in Pimco assets to tell us that the August U.S. stock rally is as good as over. But he said it anyway.

Mohamed El-Erian, the chief executive of bond fund manager Pacific Investment Management Co, said on Tuesday that the rally in U.S. stock markets has topped out, as valuations are running ahead of fundamentals.

Asked if U.S. stocks have hit a wall, El-Erian told Reuters Television: "I think we have and I think what you are seeing is a massive tug of war going on."

World stock markets fell Monday, with the Dow Jones industrial average .DJI declining 186.06 points, or 2 percent, while China's Shanghai Composite Index .SSEC fell 5.8 percent on Monday, shaking off recent optimism amid doubts about the sustainability of a solid economic recovery.

"On the one hand pushing stocks higher are powerful technicals, the fact that very low yields on the front end have pushed cash out of the money market segment and into the risk assets," El-Erian said. "But on the other hand, the fundamentals are such that valuations are ahead of fundamentals. What you have seen over the last couple of days is a recognition that fundamentals matter."

The global equities rally has been tempered by unexpectedly weak economic data. Tuesday, investors received news that U.S. housing starts unexpectedly fell in July, pulled down by multifamily dwellings, while last week the Reuters/University of Michigan consumer sentiment survey showed a growing number of Americans were increasingly worried over jobs and wages.

El-Erian, who oversees $850 billion in assets, including equities, said corporate profitability has been driven by cutbacks in layoffs and capital spending.