Tom McClellan writes in The McClellan Market Report, daily edition:
The Baby Boom started in 1946, and continued through 1964.  Boomers saw their first instance of a financial bubble in the 1970s when gold was finally released from its permanent fix to the dollar, and was allowed to float.  It went from $42 to $900 in a decade, then collapsed throughout the 1980s.

After the gold bubble of the 1970s, Boomers and others swore they would never get caught up in another bubble in something as frivolous as gold.  No, no, from now on they would only invest in things that actually had earnings, like technology stocks.

After the Internet bubble hit is peak in 2000, Boomers swore they would never invest in something ephemeral like Internet stocks. From now on, they would stick to something safe, something real, like real estate.

And now, after the 2007 peak of the real estate bubble led to a collapse of the stock market and a deep economic slowdown, Boomers are again making resolutions to never again get caught up in something so speculative.  No, no, from now on, Boomers are deciding to stick to something safe, something like bonds. After all, people are supposed to invest more in bonds when they get older, aren't they?

The problem is that the Baby Boomers are such a large group that whenever they all try to crowd into the same room, their combined weight is more than can be balanced by the rest of the investing public.  So having Boomers all decide that bonds are the place to be creates some interesting disruptions in the financial markets.

And this new investing fashion that has Boomers piling into bonds arrives just as interest rates are nearing the bottom of the 60-year cycle in interest rates.  One important point to remember is that bond yields move inversely compared to bond prices.  So seeing bond yields fall like this is another way of saying that bond prices are rising.

 In his 1940 book, "Turning Points in Business Cycles", Leonard Ayres compiled a set of high grade corporate bond data going back to 1831.  Ayres is perhaps better known as the guy who first thought it might be useful to compile data on advancing and declining issues while he was working for the Cleveland Trust Company in the 1920s.  He also gained notoriety working as a senior logistics officer for General John J. "Blackjack" Pershing during World War I.

There are important bottoms for interest rates which can be seen near the decadal marks of 1770, 1830, 1890, and 1950.  Each of these bottoms arrives approximately 60 years after the prior one.  The next major bottom for interest rates is ideally due in 2010, plus or minus.  This cycle expectation just happens to coincide with the arrival of Baby Boomers at an age when they figure they ought to load up on bonds, just to be safe.  So once again, Boomers are all piling into another financial asset type at precisely the wrong time.
 

There will be no blog Tuesday as I will be recuperating from a late late flight to England from Portugal.

    I am leaving it to the Germans to deal with the Bundesbank's Thilo Sarrazin's interview with Die Welt am Sonntag. He said Jews have “a particular gene” that sets them apart and that Muslims have more problems assimilating in Europe than other immigrants, according to an interview in the Sunday newspaper. German politicians  starting with Chancellor Angela Merkel and Jewish representatives criticized Herr Sarrazin's, but the Bundesbank is rigorously independent. A former finance minister for the city-state of Berlin, Sarrazin told Die Welt am Sonntag he’s not racist. With a name like Sarrazin he hardly could be anti-Arab, but there is a particular gene amongst Germans which tends to tigger anti-Jewish  sentiments.

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Q2 German economic recovery hit 2.2% growth year over year, the best level since the country was reunified. Germany now looks like leading the European Union (EU) out of the global economic crisis if it learns to work and play and share with others.

The German economic grwoth spurt also saw the Germany statistical office Destatis revising upward its earlier Q1 2010 growth from 0.2% sequentially to 0.5%. So after a slowdown related to bad weather at the start of the year, to quote Nouriel Roubini, "the German economic upswing gained substantial momentum in H1 2010, leading the recovery in the eurozone".

Not so fast. Because Germany is of course the export dynamo of Europe and was well positioned to gain from the low Euro exchange rate earlier this year along with demand for its technology from the BRIC countries. But apart from a bit of spillover to Holland and Austria, its neighbors, German growth tends to stay in Germany. It does not work as a locomotive for the rest of Europe.

Another country doing surprisingly well on exports if not on growth is Portugal where I now am. The government now expects 2010 to see growth at a level of 0.7%, not exactly stunning but much better than EU experts and others had predicted. Moody's in its latest report figures that Portugal's growth in 2010 will be 0.5%, not as optimistic, but still ahead of the European Union executive forecast which was 0.3%.
For Portugal, 2010 still shows an economic crisis because of the government deficit, to equal to 7.3% according to Lisbon and 7.5% according to Moody's. Portuguese exports have been on a roll, and account for most of the growth being booked, with H1 exports growing 11.3% in nominal terms, and at an even higher 12.3% in Q2.

These figures come from a speech Premier Jose Socrates delivered last night. He concluded, giving a hostage to fortune, "these encouraging signals that we are on the right path show that the Portuguese economy is recovering." Portugal, with under 8 million people, is not exactly a well-watched economy. If Germany is the locomotive, Portugal is the caboose.

Portuguese exports range from food and wine to cork, from cars to many spare parts for them, from cheap textiles to pulp and paper, from natural gas to renewable (windmill) electricity, from upmarket footware to stripped down elementary school computers, from gizmos to gunk (cross-traded). But financial services is the surprising winner.

Portuguese banks are cashing in without any stress (or stress tests) thanks to a huge boost in riskless commission income from operations, up 12.6% in H1. We are not talking about investment banks, but the deposit-taking, loan-making commercial banking business. The top 5 here earned 7.7 mn euros per day in commissions during H1.

Of course low interest rates help because bank charges tend to be sticky. But there is another factor. Portuguese banks are winning business from abroad, not just the classic tourism-linked foreign exchange operations for British and Scandinavian visitors (whose numbers are off this year from the crisis.)

They are developing a new service market, for Portugal's only near-land-neighbor, Spain. Worried about their own real-estate-loan-strapped banks and caixas, Spanish savers and businesses are moving money into Portugal, incurring foreign exchange fees which are profitable for the Big 5 banks, plus Santander and Barclays which also are active in Portugal. While Euros operate as a single currency all over the EU, banks still charge for cross-border transfers. According to an Algarve banker source, the main inflows are from corporate accounts and the commissions and fees are negotiated, but still very profitable for the Portuguese banks.

He denies that Portugal is peddling to other Europeans access to its own unique offshore banking center, in Madeira, which belongs to Portugal. But he would say that, right? Today two top-level Spanish bankers have been charged with insider trading over the BHP bid for POT.

Gaining from the troubles of others is what both Portugal and Germany are doing for their economies now.

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The real problem in Australia, from where we have good news for our portfolio, is that the key to Labour holding power is in the hands of the anti-business Greens, who are more or less Reds. They will insist on new taxes on mining after plans to impose them were cut by Labour during the campaign, on environmental grounds and because they don't like business.

There is plenty of US data due this week to set the tone of markets, starting with existing
(Tues.) and new (Weds.) home sales, durable goods (also Weds.) , and then GDP on Friday. Wall Street will fall if there are any hints that housing is slowing more and if there are more indications of the famous double dip. GDP revisions are forecast to be downward, to 1.4% from 2.4% mainly from trade and inventory figure changes. If it is worse than that, take cover. But our economic sources say that private demand will show continued strength in Q2 figures so that the US economy will still be growing, if modestly.

Strong imports growth is a proof of strong USA demand. So my view is that Ben Shalom Bernanke's speech on the economic outlook on Friday night will not indicate that the Fed means to print more money.

My note on the Crypto-Jews of Belmonte drew much comment including one from a DC reader who noted that Jewish women confined to the balcony in Orthodox synagogues do not maintain silence during the service. My idea was that from being the sacerdotas of the crypto-Jewish ceremonials, the ladies would not like to take second place to bearded rabbis officiating at the service in their stead.

A major and controversial academic expert on crypto-Judaism was Ben-Zion Netanyahu, father of the Israeli Premier. The elder man argued (based mostly on New World evidence) that crypto-Jews did not exist when the Inquisition began trying to root out “Judaicizers”. The motive for the attack on New Christians, he insisted, was to get hold of their wealth, rather than concern for their Catholic orthodoxy or its risks for the country.

The Netanyahu thesis required that he deny any Jewish content to the ceremonies discovered in Belmonte, like the baking of matzohs (unleavened bread) for the Passover Seder, deliberately done a month after the date of Passover (the 15^th of Nissan) on the 15^th of Iyar to confound the spies of the Inquisition.

Stubbornness seems to be a Netanyahu family trait and I hope very much the resumption of Israeli-Palestinian peace talks next month will see the fruit falling a bit further from the proverbial tree than it has so far from Benjamin Netanyahu, son of the scholar.

While nobody knows the real number of Crypto-Jews in the Portuguese border towns, because the families keep their religious views secret not only from their neighbors, but also from folks from other towns, there is a definite movement by some younger Crypto-Jews to formally rejoin Judaism. Thanks to the efforts of Spanish and Portuguese Sephardic synagogues in the USA and Britain, the Belmonte and Corvilha Jews were not required to formally convert. They were treated as having been Jews all along. Similar flexibility is shown to crypto-Jews from the Balearics in Israel and the Azores (part of Portugal) in the USA.

Such liberalism did not greet Russian emigrants coming to Israel, many of them of mixed religious background, forced to meet the demands of the Orthodox rabbinate to get classified as Jewish, at which many failed. PM Netanyahu has left it to the Israeli Ashkenazic rabbis in this case.

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Frida Ghitis writes: Here in Sri Lanka, where a three-decade war has just ended, war-weary civilians hope peace will hold, while savvy investors rub their hands, already counting their juicy peace dividend. The Colombo exchange has already climbed 40% this year, the best in Asia. Investors are betting peace will, indeed, hold.

A few years ago, James Surowiecki wrote “The Wisdom of Crowds.” He argued that large numbers of individuals deciding independently can prove smarter than “experts” at making predictions. Markets and economies tell us the opinions and predictions of crowds. That’s why I was so interested when I heard that, amid frightening predictions of war in the Middle East, the Israeli economy is firing on all cylinders. Among other important things, what happens in Israel has a powerful impact on our stock holdings.

A number of highly-regarded experts are predicting an imminent attack – by the US and/or Israel – against Iran’s nuclear facilities. The experts tell us this would unleash attacks against Israel from Iran’s friends Hamas and Hezbullah, which have the whole of Israel within rocket range.

The wise crowds, however, are not afraid. Israel’s economy is booming, growing faster than anyone predicted, even as the rest of the developed world struggles to revive economic activity.

Growth topped 4.7% in Q2, embarrassing economists who had predicted a slowdown from Q1’s 3.6%, and sending unemployment lower. Exports are soaring, as is domestic consumption. Tourist arrivals – despite war fears – have reached a new record. The Tel Aviv bourse, meanwhile, has climbed more than 20% in the last year. Not too bad for a country possibly on the verge of war. One can only imagine what would happen if the clouds of wars ever dissipated. Milk and honey, anyone?

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