13 March 2012


Hi Friends,

The following article is Excerpted from the recent issues of Elliot Wave Theorist & The  Elliot Wave Financial Forecast published by Elliot Wave International (EWI) the world's largest Market Forecasting Firm.

This is not Technical Analysis but much more important than Technical itself. As I believe in Economic Analysis. And when the Largest Economy in the World is on the verge of breakdown how do one justify the rise in stock prices?

This might be little boring or does not seem relevant to my Indian Friends.. But this is something really worth reading..

If the Economy's "Recovering," Why is the Largest-Ever U.S. City Bankruptcy on the Horizon?

As pundits chatter about an economic recovery, 80 miles east of San Francisco you'll find a city (pop. 292,000) facing bankruptcy: Stockton is on the verge of becoming the largest city in the United States to declare bankruptcy...

Stockton also has one of the nation's highest home foreclosure rates and has been called "Foreclosureville USA."

Yet in recent months investors have been enamored with municipal bonds.
No matter how thick the storm clouds over state and city finances become, the belief in a bullet-proof municipal bond market just seems to grow. As the [chart below] shows, the ratio of AAA municipal bond yields to comparably-dated U.S. Treasury yields rose...in August.

...investors still believe munis are safe, but we'll stick with our bearish forecast...the evidence continues to mount that a change for the worse is underway. Deflation will only accentuate the impact of waning revenue streams, underfunded pension liabilities and bloated labor costs.
- Financial Forecast, Dec. 2011
Other municipalities facing recent bankruptcy include:
  • Jefferson County, Alabama (home of Birmingham)
  • Central Falls, Rhode Island
  • Boise County, Idaho
Jefferson County, Alabama is the biggest U.S. municipality to face bankruptcy; Stockton is the biggest city.

In fact, as of December there were eleven municipal bankruptcies in 2011. Many other cities face extreme financial woes.

- Elliot Wave International

I'm personally working on US  Municipal Bond Market. And recently gone through Stockton's Financials.

With the little knowledge of the Finance & Economics I have I can say the picture of US Economy which is painted as Recovering with all those Good Housing and Jobs Data and blah blah blah is surely not that Rosy.

And there is much more pain left ahead.

For more insights on US Economy read Part - II

Thanks & Regards,

Harsh Dixit.