User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Saturday January 3, 2009 - 11:03:35 GMT
Thoughts from the Frontline -

Share This Story:
| | Email

Forex Blog - 2008: Annus Horribilis, RIP

2008: Annus Horribilis, RIP
January 2, 2009
By John Mauldin

2008: Annus Horribilis, RIP
The Aftermath of Financial Crises
ISM: Anywhere You Look It Is Bad
Another Round of Earnings Disappointments
A Bear Closes His Short Fund
La Jolla, Bermuda, Florida, and Writing

I meant to take yet another Friday away from my writing, but as I am researching for next week's annual prediction issue, there is so much material that begs to be covered that I thought I would put out a short letter with 3 or 4 points as a preface to my prognostications of next week.

This week we look at a very interesting, if not altogether encouraging, piece of research on the length and severity of recessions that come during periods of financial crisis, which can apply to not just the US but all countries that are involved in the current crisis. But being forewarned is better than blindly stumbling through, so we will take some time to peruse it. Then we (briefly) look at the depth of the manufacturing numbers in the US, which leads us into the recent bout of earnings downgrades and some thoughts as to where that might suggest the market is going. That should be enough for this week.

But first, and quickly, my annual Strategic Investor Conference that is co-hosted by my partners Altegris Investments will be April 2-4 this year in La Jolla. We will have information out next week, but save the date in your calendar. Like last year, we expect it to sell out. We have the best line-up of speakers ever: Martin Barnes, Dr. Woody Brock, Dennis Gartman, Louis Gave, and George Friedman are already committed, and we have a few who we expect to announce soon.

And we had a large response to the Richard Russell Tribute Dinner for that Saturday night, April 4. That, too, looks like it could sell out. If you have already responded that you are interested, we will contact you shortly. If you haven't and would like to be part of a dinner honoring Richard Russell for a lifetime of service to investors through writing his Dow Theory Letters, then drop me a response and we will add you to the list of invitees. And now to the letter.

The Aftermath of Financial Crises

What happens to an economy after a financial crisis? Since there are few who would deny that we have been in and are experiencing a financial crisis, it might be instructive to look at what has happened in previous crises in other countries. Fortunately, the work has been done for us by Professors Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard, in a recent paper entitled "The Aftermath of Financial Crises."

There are very real differences between normal business-cycle recessions and a recession brought on by a financial crisis. The latter are much more severe. Sadly, we are in the latter type.

Reinhart and Rogoff had done an earlier paper on financial crises and their aftermath, just in developed countries, and now they have expanded their research to include developing countries as well. What they have found is that there is not that much difference in general between developed and developing economies after a crisis. (About which I will comment later, but first let's look at their work.) Quoting:

"In our earlier analysis, we deliberately excluded emerging market countries from the comparison set, in order not to appear to engage in hyperbole. After all, the United States is a highly sophisticated global financial center. What can advanced economies possibly have in common with emerging markets when it comes to banking crises? In fact, as Reinhart and Rogoff (2008b) demonstrate, the antecedents and aftermath of banking crises in rich countries and emerging markets have a surprising amount in common.

"... Broadly speaking, financial crises are protracted affairs. More often than not, the aftermath of severe financial crises share three characteristics. First, asset market collapses are deep and prolonged. Real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years. Second, the aftermath of banking crises is associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls (from peak to trough) an average of over 9 percent, although the duration of the downturn, averaging roughly two years, is considerably shorter than for unemployment. Third, the real value of government debt tends to explode, rising an average of 86 percent in the major post-World War II episodes.

Interestingly, the main cause of debt explosions is not the widely cited costs of bailing out and recapitalizing the banking system. Admittedly, bailout costs are difficult to measure, and there is considerable divergence among estimates from competing studies.

But even upper-bound estimates pale next to actual measured rises in public debt. In fact, the big drivers of debt increases are the inevitable collapse in tax revenues that governments suffer in the wake of deep and prolonged output contractions, as well as often ambitious countercyclical fiscal policies aimed at mitigating the downturn."

As long-time readers know, I believe you must be very careful when using average numbers of past performance of investments or economic data. While they can be useful in helping to determine direction, using them as an absolute predictor of future patterns can be quite misleading. As an example, it would be misleading to say that unemployment in the US or England will rise to 11% because average unemployment is up 7% over the recent trend numbers in good times. The actual level will in all likelihood turn out to be higher or lower, depending on a number of factors.

That being said, the numbers do suggest that unemployment will be much higher than we see in a typical recession and will last longer. How much higher and how much longer we won't know for some time. Let's look at a few graphs which tell the story about housing prices and equity markets after a financial crisis.

The next graph shows that equity price declines are much steeper, but shorter in duration.

Interestingly, on unemployment they note:

"... that when it comes to banking crises, the emerging markets, particularly those in Asia, seem to do better in terms of unemployment than do the advanced economies. While there are well-known data issues in comparing unemployment rates across countries, the relatively poor performance in advanced countries suggests the possibility that greater (downward) wage flexibility in emerging markets may help cushion employment during periods of severe economic distress. The gaps in the social safety net in emerging market economies, when compared to industrial ones, presumably also make workers more anxious to avoid becoming unemployed."

So much for the Detroit bailout.

The 9.3% drop in GDP they noted as the average drop illustrates the problem of using averages as predictors. The really horrible drops were mainly due to the Asian crisis of 1997 and the Argentinean debacle of 2001. Throw those out and my guess is that it looks like an average drop of 5%, which is still a very serious recession indeed.

I will let you read their conclusion, as it is short and instructive. You can read the entire paper at It is short (for an economics paper) and quite readable. Now, their conclusion [emphasis mine]:

"An examination of the aftermath of severe financial crises shows deep and lasting effects on asset prices, output and employment. Unemployment rises and housing price declines extend out for five and six years, respectively. On the encouraging side, output declines last only two years on average. Even recessions sparked by financial crises do eventually end, albeit almost invariably accompanied by massive increases in government debt.

"How relevant are historical benchmarks for assessing the trajectory of the current global financial crisis? On the one hand, the authorities today have arguably more flexible monetary policy frameworks, thanks particularly to a less rigid global exchange rate regime. Some central banks have already shown an aggressiveness to act that was notably absent in the 1930s, or in the latter-day Japanese experience. On the other hand, one would be wise not to push too far the conceit that we are smarter than our predecessors. A few years back many people would have said that improvements in financial engineering had done much to tame the business cycle and limit the risk of financial contagion.

"Since the onset of the current crisis, asset prices have tumbled in the United States and elsewhere along the tracks lain down by historical precedent. The analysis of the post-crisis outcomes in this paper for unemployment, output and government debt provide sobering benchmark numbers for how the crisis will continue to unfold. Indeed, these historical comparisons were based on episodes that, with the notable exception of the Great Depression in the United States, were individual or regional in nature. The global nature of the crisis will make it far more difficult for many countries to grow their way out through higher exports, or to smooth the consumption effects through foreign borrowing. In such circumstances, the recent lull in sovereign defaults is likely to come to an end. As Reinhart and Rogoff (2008b) highlight, defaults in emerging market economies tend to rise sharply when many countries are simultaneously experiencing domestic banking crises."

ISM: Anywhere You Look It Is Bad

The Institute for Supply Management (ISM) has been giving us data on US manufacturing for 50 years (formerly as the NAPM). Many other countries now have similar numbers, often published by a "PMI" or Purchasing Management Institute. The data is presented in a similar fashion. If an item is growing it is above 50, and if it is contracting it is below 50. Depending on how good or bad the data is, the index can be well above or well below 50. While a level of say, 57, as opposed to 62 or 52, for the manufacturing index does not reveal all that much, there are two things that are very useful in the surveys. First, is the number above or below 50? Quite simply, are we growing or contracting? Second, what is the trend over the past 3-6 months?

And looking at those two factors, it is ugly all over the world. In some places, very ugly indeed. Russia is at 33.8, down 20% from November. India is down to 44, and the trend is downward. Hong Kong is down for six months in a row, to 39. Australia is at 33.7. (Thanks to Dennis Gartman for the world tour.) We will look next week at China, whose numbers show a sharp decline in export growth.

We got the US ISM numbers today, and they were just awful. The overall index is down to 32.4, down over 25% in the last three months. This is the lowest level since 1980, in what was a severe recession. The ISM survey points to one of the deepest contractions in industrial output in the post-World War II era, this quarter. The forward-looking details were weak and point toward further declines in the ISM manufacturing index. Businesses are cutting orders, inventories, and workers because of tight credit conditions, declining final demand, and shattered confidence. Manufacturers reported in December that their customers' inventories were too high, a bad omen for future production.

But when you look at the components, it gets even more sobering. New Orders are down over 50% from six months ago, to 22.7. This is the lowest number since they began keeping records in 1949. Production is down to 25.5. New Export Orders were way down (35.5), as was Order Backlog (23).

"Another standout in the December report was the decline in the prices-paid index [down to 18! -JM] which fell to its lowest level since 1949. The abrupt decline in energy and other commodity prices is driving the index lower. Lower input costs may entice manufacturers to pass on the savings via reducing their prices. If businesses broadly across industries cut prices to preserve some sales, it will heighten the threat of deflation." (

This is all suggestive of an economy in serious decline. The GDP for the 4th quarter should be down somewhere between 4-5%. It is likely we are going to see even more earnings downgrades in the next few months, and as I outline below, we have probably not yet hit bottom. As long as the ISM numbers look like the ones we just analyzed, things are likely to be getting more difficult. And that goes for the world in general, not just the US economy.

Another Round of Earnings Disappointments

So, how did the US market respond to this data? The Dow was up 258 (almost 3%) and the NASDAQ up a sprightly 3.5%. Nothing to worry about.

However, earnings, as you might expect, are not doing all that well. For the last year I have been highlighting how earnings estimates are dropping for the S&P 500, as analysts try and catch up with the reality on the ground. They are still behind the curve.

Let's look at their estimates for earnings in 2008. They started at $92 in early 2007 and are now down to $48. This chart is not something to inspire confidence in stock analysts.

On a trailing one-year basis, that puts the Price to Earnings Ratio (P/E) at over 19 as of today's close at 925, which does not make the market cheap. But last year's earnings are history. What about 2009? Again, the analysts are in a race to find the bottom.

The current projections are for $42.26 for 2009. That makes the forward P/E 22. That doesn't look like value at all, when the historical average is closer to 15.

Bulls would argue that the market is forward-looking and that all the bad news has been priced into the market. I would counter that the market has so far done a bad job of pricing in bad news, given the fall of the markets last year in the face of a recession. As I repeat incessantly, the US stock market falls an average of 43% during recessions. The stock market was not discounting a recession last January or even in May, even after a very serious financial crisis.

But how bad can it get? Analysts must surely by now have lowered their estimates to more realistic numbers. Shouldn't we start to price in the recovery from here? Well, no, not if you look at the last recession.

In 2001, as-reported earnings were $24.67. Operating earnings in 2002 were $27.57. Does anyone think the current recession will be milder than the last one? Or shorter?

And it gets worse. Core earnings, which take into account pension and other under-reported liabilities, were less than $16 in 2001, and so P/E on a core earnings basis topped out at 71, and on an as-reported basis were as high as 46!

Of course, after that the stock market went on a tear, almost doubling over the next five years. And today the market seems to be suggesting that many people are afraid to miss out on the fun of the next bull market run.

A Bear Closes His Short Fund

I had a long conversation with Bill Fleckenstein today. Bill runs a short-only hedge fund and has done so for many years. He is one of the more outspoken and well-known bears. And he told me that he is closing his short fund. Shutting it down and sending all the money back.

"Right now, my list of stocks that I want to be long is longer than the list I want to short." In the current environment he wants the ability to go long as well as short. For those of you who are long the market, that is probably as good an indicator as any that we are closer to the bottom than we are from the future top!

Interestingly, we agreed on a possible scenario for the first half of the year. We both see a very tradable rally going into spring. Then, when we get even more earnings disappointments at the end of the first quarter and warnings at the end of the second quarter, we could see another test of the November 20 lows. Earnings disappointments are the catalyst for protracted bear markets. But the wild card is the coming economic stimulus package. We have never been in a situation like this.

While I am negative on the stock market (and markets around the world) in general, there are some stocks which are now at reasonable values. When you can find a stock with a P/E ratio lower than its dividend, and with that dividend reasonably well protected, I can't argue with a long-term investor buying that stock. 6% dividends can cover a lot of market sins at these levels. (Don't ask for stock recommendations: I don't analyze stocks. My business is analyzing the economy and money managers. A man has to know his limitations.)

The market seems to be thinking the economy will be coming out of recession in the third quarter of 2009, hence the rally. I think that is optimistic. As the research above suggests, this could be a longer and deeper recession than anyone younger than 50 can possibly remember.

Next week, we will get into the actual forecast for 2009.

La Jolla, Bermuda, Florida, and Writing

I fly to La Jolla week after next to meet with my partners Altegris Investments and plan our year. Next week good friend Cliff Draughn flies into Dallas and we get to meet, share dinner, and watch the Mavericks.

I will be spending some time at the end of the month in Bermuda and a few months later in Florida, for speaking engagements. Tiffani and I are working hard on our book, Eavesdropping on Millionaires, and I expect that some of that Bermuda R&R time will be spent writing. Our intention is to have the book in the hands of the publisher by the end of February.

And speaking of intentions, I turn 60 this year in October. It is my intention to be down another ten pounds to 185 and to be bench pressing 185 and hopefully doing 60 push-ups, to greet the last half of life. That goal, along with finishing my long-delayed book, The Millennium Wave, is enough to have in the way of New Year's resolutions. If I get those done, it will be a good year.

And I am optimistic about the coming year. There are lots of opportunities, and I hope to be able to find a few, and maybe share one or two of those ideas with you. Let me close by very sincerely wishing you a very happy and healthy New Year!

Your planning to be in the gym a lot this year analyst,

John Mauldin
[email protected]

Copyright 2009 John Mauldin. All Rights Reserved

If you would like to reproduce any of John Mauldin's E-Letters you must include the source of your quote and an email address ([email protected]) Please write to [email protected] and inform us of any reproductions. Please include where and when the copy will be reproduced.

John Mauldin is the President of Millennium Wave Advisors, LLC (MWA) which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS) an NASD registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). Millennium Wave Investments is a dba of MWA LLC and MWS LLC. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions.

Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above.

Note: The generic Accredited Investor E-letters are not an offering for any investment. It represents only the opinions of John Mauldin and Millennium Wave Investments. It is intended solely for accredited investors who have registered with Millennium Wave Investments and Altegris Investments at or directly related websites and have been so registered for no less than 30 days. The Accredited Investor E-Letter is provided on a confidential basis, and subscribers to the Accredited Investor E-Letter are not to send this letter to anyone other than their professional investment counselors. Investors should discuss any investment with their personal investment counsel. John Mauldin is the President of Millennium Wave Advisors, LLC (MWA), which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS), an FINRA registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Millennium Wave Investments cooperates in the consulting on and marketing of private investment offerings with other independent firms such as Altegris Investments; Absolute Return Partners, LLP; Pro-Hedge Funds; EFG Capital International Corp; and Plexus Asset Management. Funds recommended by Mauldin may pay a portion of their fees to these independent firms, who will share 1/3 of those fees with MWS and thus with Mauldin. Any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest with any CTA, fund, or program mentioned here or elsewhere. Before seeking any advisor's services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Since these firms and Mauldin receive fees from the funds they recommend/market, they only recommend/market products with which they have been able to negotiate fee arrangements.



Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."

Actionable trading levels delivered to YOUR charts in real-time.

Register To Test Your Amazing Trader

GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium

Tue 17 July 2018
AA 08:30 GB- Employment
A 13:15 US- Industrial Production
AA 14:00 US-Powell Testimony
Wed 18 July 2018
AA 08:30 GB- CPI
A 12:30 US- Housing Starts/Permits
AA 14:00 US-Powell Testimony
Thu 19 July 2018
AA 1:30 AU- Employment
AA 08:30 GB- Retail Sales
A 14:30 US- EIA Crude
A 12:30 US- Weekly Jobless
Fri 20 Jun 2018
A 12:30 CA- CPI/Retail Sales

John M. Bland, MBA
co-founding Partner,

Global-View Affiliate Program

We are starting an affiliate program to market some of our products.

Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.

Put the word "affiliate" in the email subject line.

Contact us

Start trading with forex broker Markets Cube

Max McKegg's Daily Forex Trading Forecasts

Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.

Request a TRIAL of Max's Forex Service.


Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map

Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.



By using this website, you are agreeing to our Privacy Policy and Terms of Use, and Cookie Policy

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105