Links, June 21

So, the Chinese announced that they'll enhance their exchange rate flexibility.

And the markets liked the news, at least at first. The yuan apparently hit a 2-year high, some inane MSM journalists were reporting --- nevermind that the currency has been FIXED for the last two years and all it moved was from 6.83 to 6.80!

Perhaps the market's sell-off as the day progressed was due to the realization that flexibility is a 2-way street. Yuan appreciation may be assumed, but it is not a given. This gives the Chinese the latitude to depreciate if they want/need to. And, given how the greenback strength can't have helped them (they do export to Europe too!), maybe they DO want to.

Born on 3rd base. John Hussman (last week).

Wall Street seems to have no concept at all that every bit of growth we've observed over the past year can be traced to government deficit spending, with zero private sector expansion when those deficits are factored out. As I noted last week, if one removes the impact of deficit spending, "the economy has recovered to the point where the year-over-year growth rate since early 2009 now matches the worst performance of any of the 50 years preceding the recent downturn." In effect, Wall Street's is seeing "legs" where the economy is in fact walking on nothing but crutches...

The following is our refined set of "Aunt Minnie" criteria for identifying oncoming recessions. In every instance we've observed these conditions, the U.S. economy has either already been in a recession, or has been within a few weeks of what turned out in hindsight to be the official beginning of a recession. There have been no false signals.

1: Widening credit spreads: ...This criterion is currently in place.

2: Moderate or flat yield curve: ...virtually any decline in the 10-year yield from here will put this criterion in place.

3: Falling stock prices: ...This criterion is currently in place.

4: Moderating ISM and employment growth: Manufacturing PMI (at or) below 54, coupled with either total nonfarm employment growth below 1.3% over the preceding year , or an unemployment rate up 0.4% or more from its 12-month low. At present, both of the employment measures are in place. Last month, the ISM PMI dropped from 60.4 to 59.7.

For all intents and purposes, unless the credit spreads, the S&P 500, or the yield curve reverse, a further decline in the Purchasing Managers Index to 54 or below would be sufficient to confirm a "double-dip recession."

Cliffhanger. Hussman (today).

my greatest concern remains that we may be nearing a point that mathematicians call a "discontinuity." With respect to the stock market, valuations remain uncomfortably rich, and market action is tenuous.... a deterioration in market action would likely trigger a substantial amount of liquidation by speculators, into a market where fundamentally-oriented investors would require large price adjustments in order to absorb it... When an overvalued market loses support from market internals, it frequently produces discontinuous outcomes ranging from brief "air pockets" to "panics" to "crashes." Emphatically, I am not forecasting or predicting a discontinuity as the only possible outcome, but it is important to recognize that the risk is elevated

Consumer Metric Institute's Growth Index. Doug Short.
includes this chart, among others:

Housing double-dip to slow economic recovery: Whitney. on CNBC.

Summer's storms and norms. Don Coxe, Basic Points, via zerohedge.

We believe that Gold’s recent rise began when investors sought a classic inflation hedge, but its real run came when deflation risks were far more obvious than any evidence of inflation.

As we have written in these pages, gold is the classic store of value. It should retain its value under both inflationary and deflationary conditions.

That means a great time to buy gold to make capital gains is when inflation is rising.

It also means a great time to buy gold to conserve existing wealth is when (1) prospective risk-adjusted returns on bonds and stocks look unattractive because the economic outlook is for slow growth with (2) a risk of a renewed downturn that would hammer the value of stocks—particularly financial stocks—and real estate anew, and (3) bond yields are too low given the endogenous risks in the currencies in which they are issued and (4) the range of future fiscal deficit forecasts is from grim to ghastly.

BP link of the day:

BP Hires Mercs to Block Oily Beaches. Wired.

something different:

Skeletal anatomy of cartoon characters. Why Evolution Is True.