In one of the most bullish gold calls since the Federal Reserve announced a new round of easing last week, one strategist sees a 36 percent jump in the metal’s price, to $2,400 an ounce, by the end of 2014.

“The new target reflects our view that the Fed will maintain mortgage purchases until the end of 2014 and will move to buy Treasuries following the end of Operation Twist this coming December,” wrote Francisco Blanch, a global investment strategist with Bank of America Merrill Lynch, in a note to clients Tuesday.

“Given the new open-ended nature of QE3, the upward pressure on gold prices should continue until employment is strong enough to require a change in policy,” Blanch added. “In our view, this is unlikely to happen until the end of 2014.”

Last week, the Federal Reserve announced its third round of stimulus since the financial crisis, saying it would buy $40 billion in mortgage-backed securities each month.

The Fed used open-ended language in describing how long so-called QE3 would last, saying in its statement it would continue these purchases — and possibly employ other methods — until the outlook for the labor market improves substantially.

“The combination of open-ended MBS purchases and the possibility of additional Treasury bond purchases starting in December could further lift gold prices by adding over $2 trillion to the Fed’s balance sheet over the next two years,” explained Blanch in his report entitled “Gold Under QE-Infiniti.”

Gold is up two percent since the Fed’s statement as others besides Bank of America pile into the metal on fear these actions may spark inflation and leave the metal as the only store of value in a world of paper currencies. Morgan Stanley also upped its gold forecast today, saying the metal would average about $1,800 an ounce next year.

“Since the Roman Empire, all fiat currencies have ended poorly,” said Guy Adami, managing director of StockMonster.com and a long-time bullion bull. “With that in mind, all roads lead to gold.”

Whether a third round of quantitative easing and European central bank bond buying actually happens is still in question, but both are becoming ever more likely as both high unemployment in the United States and the eurozone crisis persist. While it seems that many stocks in the S&P 500 have been pricing in possible stimulus, other asset classes such as gold, as measured by the (GLD) and (IAU), have yet to see such moves. In recent articles I have suggested that gold prices could have some tailwinds in the form of inflationary pressures and have recommended picking up the gold miners as a way to play it. Now that we are in a situation where the stock market has already begun aggressively pricing in more stimulus, I would like to highlight three ways to invest in silver given that I have stated that it could outperform gold in the next few months.

There are three ways investors can get exposure to silver and I recommend them all as buys right now at current prices. My top approach for silver exposure is purchasing physical silver bullion and coins, followed by purchasing shares of ETFs that track silver prices, and finally through the stock of the individual silver companies/miners.

Physical bullion or coins: This is the best way to invest in silver in my opinion. I encourage people to carry away as much as they can from local dealers while silver prices remain depressed at current levels. There are numerous dealers in most cities and on the Internet where you can buy silver bullion bars and/or coins. I not only consider physical silver as a wise investment given potential government stimulus, but I also consider it to be a form of insurance in case of a total meltdown of the fiat currencies and modern financial systems we have in the world today. If you decide to invest in physical silver assets do so only from a reputable dealer. This is especially important if you’re purchasing over the Internet, where you will want to look for a well established dealer with a long history and stability in the business. The only downside from Internet purchases is high shipping and insurance costs as well as the possibility of a required minimum purchase. Whenever possible, buy locally to avoid such excessive fees. Read More...

Gold prices rose on Monday, extending the last session’s recovery from four days of declines, as investors bet that Friday’s better-than-expected jobs data would not be enough to head off another round of monetary easing in the United States.

 The metal briefly dipped in the wake of data showing that U.S. employers added more jobs than expected last month but quickly rebounded as traders digested a rise in the jobless rate.

Speculation that the Federal Reserve may have to unleash another round of quantitative easing — essentially, printing money — to boost U.S. growth has firmly underpinned gold prices this year.

Spot gold was up 0.6 percent at $1,613 an ounce, while U.S. gold futures were up $5.50 an ounce at $1,612 an ounce.

Further monetary easing would maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom as well as weighing on the dollar and boosting inflation expectations in the longer run.

“There is still room for easing if it is required, and there is still a perception that it may be required,” Mitsui Precious Metals analyst David Jollie said. “The question of when that is, with the U.S. elections approaching, makes it difficult to be super bullish on gold, but that doesn’t alter the fact that (the perception is there).”

Prices have traded within a tight $75 range for the past four weeks, supported by QE expectations but also under pressure from soft physical investment flows, lighter demand in key Asian markets and threats to the euro from the euro zone debt crisis.

The single currency was little changed on Monday, with investors still cautious about how effective European policymakers’ latest pledges to resolve the bloc’s debt crisis would be.

European equities rose meanwhile to touch fresh four-month highs on Monday, with investors reluctant to push the market too far down in the face of the European Central Bank’s pledge to step in and fight the euro zone debt crisis.

“We expect the wider June-July range to remain intact, with some dull trading for gold at the start of this week as players take a breather from Friday’s action, focusing on euro zone headlines,” VTB Capital said in a note.

Shipments to China

Gold shipments from Hong Kong to mainland China, which is challenging India to become the world’s biggest gold market, fell 10 percent in June from the previous month to 67,747 kg, the Hong Kong Census and Statistics Department said.

“Although this was down on the previous month’s figure, it was well above the year-on-year level,” Commerzbank said in a note. “In the first half year, China thus imported 382.79 tons of gold from Hong Kong, following a figure of 64.95 tons in the same period last year.”

“Considering that gold mining production in China itself climbed 7.7 percent to 177 tons in the first six months of the year, according to the China Gold Association, it is clear that there has been a pronounced rise in gold demand in China.”

Hedge funds and money managers sharply raised their net long position in U.S. gold and silver futures and options in the week to July 31 as price gains based on speculation of more Fed stimulus prompted speculators to boost bullish bets, data from the Commodity Futures Trading Commission showed on Friday

Inflows into gold-backed exchange-traded funds also picked up after a soft July, with data from the largest showing its holdings up 3 tons so far this month.

Among other precious metals, silver was up 0.65 percent at $28 an ounce, while spot platinum was up 0.15 percent at $1,399 an ounce and spot palladium was up 1.6 percent at $576 an ounce.

Gold maintained its premium over platinum at above $200 an ounce on Monday, a level it surpassed last week for the first time since early January.

Platinum prices are being held down by worries over demand from car makers, the main consumers of the auto catalyst material.   

Most lawmakers were headed home to make their party’s case for who should be entitled to tax cuts, how the government should avoid automatic cuts to defense and domestic programs and who should be the next president. Many will drop by the Republican and Democratic presidential conventions in Tampa, Fla., and Charlotte, N.C., respectively. .

The last day, Thursday, saw lawmakers fall short in finding agreement on two pressing problems: how to help livestock producers suffering from the widespread drought and how to protect critical industries from cyberattacks launched by terrorists or other enemies. The GOP-led House narrowly approved a bill that would revive expired disaster relief programs for cattle and sheep farmers who have seen the price of feed soar because of drought damage to corn and other crops. But the Senate, controlled by Democrats, sidestepped action on the bill, saying that it was insufficient and that the House should instead consider a comprehensive five-year farm policy bill that the Senate passed in June.

The Senate also reached an impasse on legislation to bring the government and businesses together to protect the nation’s infrastructure from cyberattacks. The main stumbling block was the role the Homeland Security Department and other federal agencies should play in protecting U.S. businesses. Republicans blocked further consideration of the Senate bill, supported by the White House, saying it would lead to Washington imposing a heavy hand on the private sector without substantially reducing risks. Both parties said they were committed to approving a final bill when they return in September, although bridging differences in their approaches will not be easy   Read More…

 Steven P. Orlowski, CFP® is a veteran financial planner and investment adviser. He has helped retire thousands of people while educating his clients on the methods of Retirement Income Planning, Estate Planning and Investment Planning. He has expert knowledge of the financial markets, notably… More

• Company: Steven P. Orlowski, CFP
• Blog: Profits of Doom

July 26, 2012  | 16 comments  |  includes: AGOL, DGZ, GLD, GLL, SGOL

Earnings season is upon us and by the looks of it things may be a little gloomy. Certainly it depends on whether you are a glass half full or half empty kind of person but ultimately, no matter our personal bias, reality will step to the fore.

Recent testimony from our pal Ben Bernanke, economic reports like the one from the Philly Fed and some of the first earnings reports and projections (UPS anyone?) must have put a smudge on the gloss of the half full glasses. Distinct avoidance and denial within the “Bernank’s” testimony last week, although he admirably answered many stupid questions, did little to clear anything up.

What we know is what we know: the tepid recovery may be slowing and the Fed will do what it needs to do but for now it is doing nothing until such time that the recovery/slowdown worsens.

So what about gold?

Gold backers like Peter Schiff and Goldman Sachs ($2000 by the end of the year) have yielded little to the calls for gold’s last days as a safe haven. I agree with Schiff and Goldman and I also think gold is not just a safe haven. It is a vital and viable means of exchange; real money. The correction gold is tolerating these days is very reminiscent of the correction back in 2008 and I am certain it is no more than that – a correction.

Gold spot prices hit a historical high in March of 2008 at $1011.25. Prices then fell for 8 months, with a whole lot of volatility, back down to $712.50, a 30% giveback. What’s reminiscent about that pullback was the similar smack-talk that accompanied that price decline as is accompanying this one. Gold was over. We’d never see $1000.00 ($1900.00) again. Gold is a relic. And there was Peter Schiff, claiming gold would hit ever greater heights. Well he, me and a bunch of others were correct (Yeah me, right here at Seeking Alpha).

Gold did bottom that November and we all know the circumstances which propelled it through $1000 and higher.

From that November low gold went on a nearly unmitigated tear. It eventually peaked in a parabolic spike near the end of the summer of 2011 after having pierced through the much anticipated $1900.00 barrier, a nearly 270% increase. Which brings us to today and back with Bernanke, Schiff, the crappy “recovery” and the debate over gold

It might be refreshing for me to take the other side and proclaim gold’s demise, but I can’t do that. The scary thing is that circumstances in the US and around the globe are actually worse, not better, when you consider all that has already been done to fix the myriad problems

Yeah, we can quibble over a variety and multitude of statistics but if we knew back then how little progress we’d experience through today things would probably have been handled a little differently. It’s been 6 yearssince the peak of the housing bubble, that great machination of the Federal Reserve and the US government that helped us create artificial wealth and a massive credit overhang. SIX YEARS! We’re still talking housing recovery. We still having exceptionally high unemployment that the sitting president wants us to believe is an improvement. After the fall we had you could argue that all these improvements are nothing more than a dead-cat bounce!

All that stimulus has done very little to improve things in the US. And let’s not discuss Europe, or the slowing Emerging Market countries. I think things can and will improve but not for many years, and probably not without another recession.

Gold’s correction this time from $1900 to just under $1600 is far less percentage-wise than it was in 2008 but about the same in dollar terms, $300.00 per ounce. A decline on a percentage basis commensurate with the correction in 2008 would take it down to about $1330.00 ounce. I don’t see that happening.

Gold is important for more than just defending oneself from the questionable actions of central banks around the world. And the financial crisis has made it known that gold ownership is necessary, for both people and governments

Many emerging countries are actively buying gold. Developed countries are buying gold. People are still buying gold. Sellers of gold, individuals or nations, are selling ’cause they need the cash. Don’t be fooled. Gold is here to stay. Could the correction worsen? Of course. Will gold be worth more in the future? Yes, and probably worth a lot more
Read More…

While this quarter’s earnings reports have crossed a substantially lowered profit bar, future expectations through the year indicate a recession could be on the way.

Estimates for the third and fourth quarters have been dropped to levels not seen since the days of the 2008 financial crisis, below even the muted 2 percent expected level of inflation.

That’s an ominous recession sign for an economy that has barely managed to attain positive growth this year even with the strong level of earnings beats, according to an analysis by Nicholas Colas, chief market strategist at ConvergEx in New York.

“Revenue estimates for the back half of 2012 have been slowly working their way lower this year,” Colas said. “This trend, however, has accelerated to the downside over the past 30 days and we are fast approaching levels where these estimates are unambiguously pointing to the risk of a U.S./global recession later into 2012 and 2013.”

For the current quarter, about 69 percent of companies in the Standard & Poor’s 500  have beaten analyst profit estimates. Only 42 percent, though, have beaten on top-line revenue estimates, indicating that growth is weakening.

That’s evidenced by a rash of downward forward revisions from analysts.

In the broader S&P 1500, analysts have cut outlooks for 792 companies and raised for just 323, with the decreases especially prevalent in technology, which saw half its components down, the highest level since February 2009, according to Bespoke Investment Group.

In Colas’ analysis, though, he limited his look to the companies in the Dow Jones Industrial Average  

Analysts now expect revenue to grow at just 1 percent to 1.5 percent pace in the third quarter. The forecast for the fourth quarter is 3.9 percent, though Colas says “I doubt any analyst could defend this point of view unless they expect a rapidly weakening dollar…or a truly epic round of liquidity-pumping operations from the world’s central banks.”

Colas is not alone in his expectations for recession.

Laksman Achuthan, at the Economic Cycle Research Institute, made headlines late last year when he said he expected recession to hit the U.S. in the first quarter, which, according to the most current data, didn’t happen.

But he recently said in media appearances that he is sticking to the call, saying the country already could be in recession or is progressing toward one later this year.

“There have been a lot of economists and analysts who have had their blinders on for quite some time,” said Brian LaRose, an analyst at United-ICAP in Jersey City, N.J. “We’re not bullish on the recovery here in the U.S. We think that there are far greater problems ahead that have yet to be addressed.”

Colas also is not alone in his surprise that stock prices have continued to trend higher despite the bleak economic prospects.

The only reason he, and other strategists, have devised for the climb in equities has been hope for more Federal Reserve intervention. The Fed has carried out two asset buying programs called quantitative easing, as well as a third program that entailed buying and selling debt in equal amounts known as Operation Twist, which it voted to extend last month.

“When corporations feel the pinch from a slower economy, they lay off workers,” Colas said. “When they lay off workers the Fed executes on its dual mandate and increases liquidity. And when the Fed increases liquidity, stocks go up.”

LaRose, though, thinks investors “want a QE3 so badly, they refuse to accept the fact that there will be no QE3.”

The rise in stock prices that has accompanied those easing hopes in fact, may be what actually thwarts another round. Fed Chairman Ben Bernanke favors the stock market as a gauge of economic health and the vehicle for a wealth effect that boosts sentiment.

“If the economy was plummeting into a recession then it would be obvious that monetary policy needed to be eased,” said Paul Dales, chief U.S. economist at Capital Economics. “But, even allowing for the deterioration in the incoming data, the economy is still growing modestly, stock markets have not tanked and the euro-zone crisis is still rumbling along without ever really developing into a full-scale meltdown.”

Should the economic data continue to deteriorate and earnings through the rest of 2012 come in as low as Colas expects, the case will become clearer for a  recession and, perhaps, more Fed intervention.

Bank of America Merrill Lynch has been below consensus economic forecasts, looking for just 1.1 percent growth this quarter, and said Friday that if anything it could be too optimistic.

“The European crisis shows no sign of fading and, in the usual lagged fashion, should have increasing rather than decreasing collateral impacts on growth outside Europe,” Ethan S. Harris, BofA’s North American economist, said in a note.

“Last but not least, the risks of the fiscal cliff have just started to work their way into corporate psychology,” he added. “We are frankly a bit puzzled by the persistent optimism in consensus and official forecasts.”

© 2012 CNBC.com

Benchmark U.S. COMEX gold futures for August delivery were last up $6.50 at $1,620.30 an ounce. The contract was up about 3 percent so far this year on uncertainty over the euro zone debt crisis and possible further U.S. monetary easing.

Disappointing demand in India for gold has been offset by strong demand in China, which will likely overtake India as the world’s largest consumer of gold this year, analysts at Commerzbank said.

However, jewelry demand in India was expected to recover after the monsoons, due to the wedding season and important Hindu festivals in the following months.

“A good monsoon season has a positive effect on the incomes of the rural population, which accounts for around 70 percent of gold demand in India,” the analysts said.

Commerzbank lowered its forecast for silver this year to $35 an ounce due to slow economic growth.

The bank forecast platinum $1,750 an ounce and palladium at $750 an ounce by the end of the year after a recovery in the second half.

Spot gold was last up 0.72 percent at $1,621.15 an ounce, down from an earlier high of $1,615.20, while U.S. gold futures for August delivery were up $9.30 at $1,623.10 an ounce. The spot price climbed as high as $1,617.40 an ounce on Tuesday as a move through key chart levels prompted fund buying.

Concerns over the outlook for the euro zone continued to simmer after worries over Spain’s banking sector were heightened on Tuesday by a sharp rise in its borrowing costs, while Greece headed for elections this weekend that could determine its future membership of the euro zone.

Although gold has failed to react positively to elevated risk in the euro zone, signs that economic jitters are spreading from Europe to the United States may prove supportive to prices. The metal rallied on June 1 as poor U.S. jobs data reignited expectations for another round of U.S. quantitative easing (QE), which could undermine the dollar and boost interest in gold as an alternative to volatile currencies.

“(Federal Reserve Chairman Ben) Bernanke, in comments made to the Congress committee last week, seemed to be intimating that QE was off the table,” said Citigroup analyst David Wilson. “But I wonder (whether) if Europe continues to drag, the likelihood of QE continues to grow,” he added. “That in itself should be supportive for gold.” He said he expected no further monetary stimulus before the November U.S. elections, however.

European shares inched down, yields on safe-haven German bonds rose and the euro flat-lined on Wednesday on worries about contagion from Spain’s banking crisis and the Greek elections.”So far the financial aid promised to Spanish banks has failed to have its desired effect. On the contrary, the sell-off of Spanish and indeed Italian government bonds continues,” Commerzbank said in a note. “The sovereign debt crisis can be expected to keep the markets on tenterhooks for quite some time yet and cause demand for gold to pick up again — not only among retail investors.”

Next Big Level

From a chart perspective, gold is currently holding near its 50-day moving average at $1,613.07. Technical analysts identify the $1,640 an ounce area as the next big level to break for gold.

“Only a break above the current June high at $1,641 will (put) the 50 percent Fibonacci retracement of this year’s decline at $1,659.07 and the May high at $1,672.10 in (gold’s) sights,” Commerzbank said in a note. “Below here, the outlook will stay neutral.”

Kazakhstan, which last week said it planned to boost its gold reserves to 15 percent of its total gold/forex holdings, has now announced it will raise that proportion to 20 percent through the acquisition of 20 tons of gold from the Kazzinc mining corporation and a further 4.5 tons from Kazakhmys.

Kazakhstan is one of a number of countries, including Russia, Mexico, Colombia and South Korea,  that have built up their official gold holdings in recent years. Most buying has been seen from Asian and emerging market central banks.

Among other precious metals, silver was last up 0.35 percent at $29.04 an ounce, tracking gains in gold.

Spot platinum was last up 1.18 percent at $1,464.25 an ounce, while spot palladium was up 0.38 percent at $622.75 an ounce. The platinum/palladium ratio, which measures the number of palladium ounces needed to buy an ounce of platinum, rose to its highest in a week on Friday at 2.34 as platinum marginally outperformed, boosted by supply fears from major producer South Africa.

Wednesday June 6, 2012

For all of the hemming and hawing about spending cuts in Washington, the Congressional Budget Office’s latest long-term budget forecast reflects two painful facts for Washington: How large the nation’s problems remain, and how the GOP’s 2010 surge into Washington has had only a limited impact in changing America’s fiscal trajectory.

The annual report, released on Tuesday by Capitol Hill’s nonpartisan budget umpires, argues that if Congress’s current policies continue – meaning that the Bush tax cuts are renewed at year’s end and Medicare providers don’t face drastic reductions in payments, among other issues – federal debt held by the public will reach 93 percent of gross-domestic product (GDP) by the year 2022. That’s down about seven percentage points from CBO’s 2011 forecast, which saw the nation’s debt as a share of GDP rising to 100 percent by 2021.

That’s thanks in large part to the Budget Control Act of last summer – also known as the debt-ceiling deal – where Congress achieved more than $2 trillion in savings over the next decade through a combination of spending cuts and discretionary spending caps.

Could ‘fiscal cliff’ push US into recession? Five questions answered.

In 2010, however, the CBO foresaw debt at 109 percent of GDP by 2025 – a number that would match America’s post-World War II high for debt as a share of GDP. This year, the CBO sees the nation breaching that historical ceiling only a single year later under current policy.

The tea-party backed conservatives who helped Republicans retake the House have had only 18 months as part of the majority in one half of Congress. But election-year promises to cut federal spending back to 2008 levels, for example, have not come to pass.

It’s important to acknowledge what the CBO means by “current policy,” which is different from current law. Under current law, a bevy of tax cuts and spending decreases will crash onto the economy in 2013. That would improve the debt picture, but a separate CBO analysis found that allowing all of current law to come into effect would likely put the economy back into a recession.

“Current policy” assumes that Congress will find a way to avoid that fate and continue on a path similar to the one in effect now. Looking current policy reinforces the massive fiscal challenges confronting the US. Simply put, following current policy puts the nation into dire financial straits faster. Under current policy, debt spirals to nearly 200 percent GDP by 2037. Beleaguered Greece, by comparison, had debts of 165 percent of the nation’s GDP in 2011.

And that’s not the worst case: under the CBO’s most pessimistic economic assumptions, America’s debt hits 2.5 times GDP in 2035, creating an economic scenario so dire that the CBO’s forecasting model breaks down.

It’s not something Congress hasn’t heard.

June is picking up right where May left off — with a string of bad economic news that is among the worst the market has ever seen.

On Monday, reports showed that factory orders fell unexpectedly in April, while New York business activity entered contraction mode.

That followed Friday’s hugely disappointing May jobs report, confirming that the US economy is rapidly weakening.

In fact, last week’s batch of 21 economic reports—at least compared to expectations—was the worst ever, with 18 missing forecasts and only one beating them, according to Bespoke Investment Group, which began tracking the difference in 1998.

“That’s a truly unbelievable stat, and we have to believe that this is what the Fed was talking about when they said that they’re ready to act if the economy shows signs of weakening,” Bespoke’s Paul Hickey said.

As if the major miss in expectations for May job creation wasn’t enough — a gain of just 69,000 against predictions for about 155,000 and the unemployment rate [cnbc explains] rising to 8.2 percent — the economy also fell short in terms of housing, consumer confidence and manufacturing, among a slew of other indicators.

The result, according to Bespoke, is that economic reports have missed the mark 15 times more than they have beaten over the past 50 days, which is comparable to what happened during downturns in the past two years.

“Historically, minus 15 has been an inflection point aside from the huge drop we saw in 2008, so hopefully we’ll see a rebound soon,” Hickey said. “If global leaders continue to fail to come up with any kind of resolutions to ongoing problems, however, we’ve got our hands up in the air.”

While conditions definitely are slowing, one factor in the dismal performance may be with economists themselves.

One reason for the proliferation of data misses is that expectations are too robust for an economy that faces pressures from the European debt crisis [cnbc explains] as well as the fiscal cliff in the U.S., said Ethan S. Harris, North American economist for Bank of America Merrill Lynch.

The “cliff” refers to the slew of tax increases and spending cuts that will kick in at the end of the year unless warring congressional factions work out a compromise.

Economists are using outdated forecasting tools that assume business cycle bounces, mean reversion — the tendency of growth to return to normal — and predictable reactions to economic shocks, Harris said.

“In this slow, erratic ‘rehab’ recovery, some of these forecast methods have worked very poorly,” Harris said.

The retreat has been so acute that yields on German two-year bonds have gone negative, meaning investors have become so wary of losses elsewhere that they are willing to pay for the privilege of lending money to the German government. Stocks and commodities have been hammered.

And with the economic picture dimming in the United States and major developing economies, including Brazil, India and China, brave is the major corporation willing to take on new workers. The pace of hiring in the United States in May was the slowest in a year.

“What we’re seeing is a sharp deterioration in economies worldwide. It’s a very unstable situation. Markets are being driven by fear, and they’re tougher to call than ever,” said Gregory Whiteley, who helps manage $35 billion at DoubleLine Capital in Los Angeles.

The scariest part is this: the tighter people batten down the hatches, the worse things can get. Slower growth will worsen government budget deficits as tax revenue dries up in the United States and Japan, while making it all but impossible for indebted European countries such as Spain, Ireland or Italy to grow their way back to health.

If activity slows enough, large swathes of the world could tumble back into recession less than four years after the collapse of Lehman Brothers triggered the global financial crisis and brought many nations to edge of a precipice.

The grim outlook has already toppled a series of European political leaders in the past two years and is compromising U.S. President Barack Obama’s chances of winning reelection in November. With the jobless rate soaring in some European countries, the risk of widespread social unrest has increased.

And this time around, with interest rates in the developed world pinned down near zero, and stressed budgets leaving less room or appetite for stimulus spending, there isn’t so much that governments and central banks can do to help.

High Stakes in Europe

Europe tops the list of concerns for now. If Greece leaves the euro zone after an election set for June 17, many fear it could spark bank runs in Spain, freeze credit worldwide and maybe even spell the end for the euro.

Finance officials from the Group of Seven most developed powers will hold emergency talks on the euro zone debt crisis on Tuesday, which some analysts see as an attempt to pressure Germany into supporting European banks and stimulating the region’s economy.

“The top concern is really one word — contagion,” said King Lip, chief investment officer at Baker Avenue Asset Management in San Francisco, adding he had cut clients’ Europe exposure to 10 percent to 15 percent, about half of typical holdings.

“If something happens in Greece, it could cause a credit freeze across Europe, and people are concerned that what’s going on in Europe is going to cross the pond.”

In most cases, EU officials are working on proposals that could take months and years to put in place, including Germany’s push for a closer European fiscal union. But those with money — whether a depositor with a modest account at a Spanish bank or a giant fund with billions of dollars at stake — are demanding action in days.

That is what worries many in the market.

If Greece quits, “the Europeans will have to do extraordinary things to avoid contagion of the sort that could knock out Ireland, Spain and Portugal pretty quickly,” said Gabriel de Kock, director of FX research at Morgan Stanley. “If you make the wrong decisions, you don’t get a do-over. And the Europeans have made a lot of mistakes over the past two years.”

Companies Saying “No Deal”

Those fears have blistered stock markets, erasing the Dow industrials’ gains for the year, while European stocks hit five-month lows, having shed some 15 percent from their March peak, and Hong Kong stocks on Monday fell to their lowest level of 2012.

Another troubling sign: commodity prices have plunged, signaling real concerns about the strength of demand from manufacturers and construction companies in China and elsewhere. Brent July crude oil touched a 16-month low of $95.63 a barrel on Monday after dropping more than $30 from its post-2008 peak of $128.40 at the beginning of March.

Meanwhile, copper, which is used in many industrial and building products, has touched low for this year.

Instead, investors have poured money into debt issued by the most credit-worthy governments, including the United States, Germany and Britain. That drove the yield on benchmark 10-year U.S. Treasuries to record lows beneath 1.50 percent at the end of last week.

That is a problem for some small nations, such as Switzerland and Denmark, as the flood of money has lifted the value of their currencies to a point where they fear their exports will become uncompetitive.

Elsewhere, companies far beyond Europe’s borders are delaying deals. On Monday, Australia’s Brambles, the world’s biggest pallet supplier, scrapped the sale of its information management business because of low offers. At least five large Asian initial public offers of shares were postponed or pulled last week, including the $3 billion Singapore listing of motor sport racing company Formula One.

“Financing markets have certainly choked up over the last few weeks,” said a senior private equity executive in New York.  “The Europe thing is scaring people. I don’t see that folks see what the end game is here, and until that settles down a little bit, it’s going to be very, very tough out there.”

Added another senior Wall Street deal maker: “It takes so little anymore to give people pause that when you combine JPMorgan, Spain and Greece, the Facebook IPO, and the U.S. economy (going) down, the Chinese economy (going) down … it’s a lot of red.”

Small hedge funds are increasingly throwing in the towel in Asia as they struggle to attract money from risk-wary investors. The latest to quit is former Lehman Brothers trader Allan Bedwick, who is shutting his $120 million Asia-based fund after giving it a two-and-half-year run, fund documents obtained by Reuters showed.

Raising money has also grown tougher for global companies, with equity, bond and loan markets becoming prohibitively expensive for all but the highest-quality corporate borrowers.

According to IFR data, volume in the U.S. investment grade bond market has dwindled from $284.8 billion in the first quarter to just $118.7 billion in April and May.

If things get worse, emerging markets in particular will be most affected, as they were following Lehman’s 2008 demise.

Georgia’s state railways monopoly and Russian real estate investor O1 Properties pulled planned London listings, blaming market uncertainty over Greece that had deterred investors from sinking money into IPOs and emerging markets.

Globally, money raised from stock market flotations so far this year is down 46 percent from the same period in 2011, according to Thomson Reuters data.

“Fragile Sense of Confidence”

Against such a backdrop, it’s little surprise that U.S. companies have grown skittish about adding new workers. The U.S. economy created just 69,000 new jobs in May, its worst showing in a year, while the jobless rate rose.

The biggest U.S. phone company by revenue, AT&T is not seeing many jobs being created by either its big or its small corporate clients. “We are not seeing any hiring in the upper end of business in the U.S.,” said CEO Randall Stephenson at an investor conference in New York on Friday. “People aren’t hiring a lot in the U.S.,” he said.

Even with its rate of growth slowing to 1.9 percent in the first quarter, the U.S. economy is more robust than many in Europe that are on the verge of or already in recession.

Some say that means there’s still hope.

“Every time I speak to other CEOs, who don’t necessarily make cars, there’s no indication of the fact that the economy here in the United States is at all coming to a grinding halt,” said Sergio Marchionne, head of No. 3 U.S. automaker Chrysler.

But the outlook for hiring still looks gloomy. Anxiety about the upcoming U.S. elections is another reason, particularly since tax increases and spending cuts planned for next year could send the U.S. economy into recession unless politicians pull back from what markets have termed the “fiscal cliff.”

“It’s nervousness about the election and regulation and taxes,” said Scot Melland, CEO of Dice Holdings which runs websites that recruit technology and finance workers. “It’s uncertainty about what the business environment is going to be like.”

Central Banks to the Rescue?

In the past few years, central banks have come to the rescue when markets were turning downward – first by slashing interest rates to record lows and then by flooding the financial system with money.

But it’s not clear they can stage a repeat performance. The European Central Bank briefly stabilized markets earlier this year by offering more than 1 trillion euros in cheap loans to European banks, but is not likely to take new steps this week.

Investors are starting to expect the U.S. Federal Reserve, which has already pumped more than $2 trillion into the financial system through purchases of government and mortgage bonds, to do more when it meets later in June.

But not everyone thinks throwing more money at the problem will do much good.

“The Fed is always saying it has a range of tools at its disposal, but the fact is, they don’t have too many,” said DoubleLine Capital’s Whiteley. “It can buy bonds, but that’s about it. And it’s not clear to me that’s going to have much impact on the economy.”

That has left some investors hoping China can save the day with a repeat of 2009′s 4 trillion yuan stimulus package.

They may be in for a surprise.

With the Chinese economy slowing, some economists fear Beijing can ill afford to run up more debt.

“Not only is the policy room smaller, but the incentives for the government to produce a large stimulus package are smaller,” said Qinwei Wang, a China economist at Capital Economics in London.

Perhaps the best indication of how worried people are rests with veteran investors like Donald Gimbel, a senior managing director at New York-based Carret Asset Management.

Concern about Europe has prompted him to spend the first five months of the year increasing the cash position of the firm’s $1.6 billion under management, taking it from 2 percent to about 15 percent by May – the highest since 2008.

In the past, Gimbel, 70, said that he would have started using all that cash to scoop up potential bargains in equity markets. But this time, he said he was prepared to wait for solid evidence of progress in Europe before coming off the sidelines.

“I’m more patient now than I was 20 years ago,” he said. “If you try to catch a falling knife, the only thing that happens is you get blood on your hands.”

Copyright 2012 Thomson Reuters.