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HomeDebt/GDP: Ring of Fire
Posted by Larry Doyle on February 15th, 2010 11:45 AM |
All eyes within the markets and on the global financial landscape are currently fixated on Greece. Will it default? Will the EU bail out this island nation? If so, at what cost and on what terms? What is at the core of Greece’s fiscal nightmare? Excessive debt. So, what else is new?
Do not think that the excessive debt within Greece is the only nation on our global financial landscape facing this problem. What other nations do we need to keep on our radar? Bloomberg addresses this question in writing, Carney Says Investors Signal Stimulus ‘Limits’ as Deficits Grow:
Alongside Greece, Pacific Investment Management Co. identifies the U.S., Italy, France, Japan and the U.K. as economies sitting in a “ring of fire.” Each has debt above 90 percent of gross domestic product or the potential for it to rise there soon, slowing economic growth, Pimco said.
Deutsche Bank AG this month warned that the increased cost of insuring against debt defaults by peripheral European nations may be a “dress rehearsal” for the U.S. and U.K. Credit- default swaps on Greece’s debt rose to a record this month.
Living beyond one’s means is no recipe for future economic prosperity. While politicians may talk about the need for fiscal discipline, talk is cheap. Pork piled upon pork wrapped in more pork has stolen our children’s future. Washington may not appreciate the ring of fire, but Main Street is engulfed in it.
As we navigate our global economic landscape, we now need to make sure we pack fire retardant clothing in addition to other protective materials.
What a world.
LD
Will Geithner ‘Walk the Walk?’
Posted by Larry Doyle on November 18th, 2009 9:35 AM |
Do you have any confidence that Washington even knows how to properly address our massive and growing fiscal deficit? Rahm Emanuel, Tim Geithner and others understand that from a political standpoint they need to start talking about deficit control, but will that talk lead to action?
Do you think Congressional leaders, specifically Harry Reid and Nancy Pelosi, have the character and fortitude to ‘tighten the belt?’
The first real test for this crowd is already upon us. How so? The TARP, with a $700 billion commitment, expires on December 31, 2009. Of that $700 billion, $400 billion has actually been spent. Why wasn’t the other $300 billion spent? Well, don’t forget that Obama’s Stimulus Bill totaled $770 billion and assorted other programs implemented by Treasury have run into the trillions. As a result, Geithner did not immediately need to allocate those funds.
The question begs as to what will happen to that $300 billion. While Emanuel and Geithner are starting to ‘talk’ the fiscal discipline ‘talk,’ will they ‘walk the walk?’ (more…)
Dollar Devaluation Is a Dangerous Game
Posted by Larry Doyle on October 8th, 2009 9:24 AM |
Can we ‘devalue’ our way back to our days of economic ‘wine and roses?’
Many debt-laden countries throughout economic history have chosen to implicitly or explicitly pursue a devaluation of their currency as a means of improving their economies. Are the ‘wizards in Washington’ taking this approach? Aside from a few perfunctory comments in defense of the greenback, Washington has been largely silent on the topic of the declining value of the dollar. Many believe Washington very much favors a weaker currency as a means of supporting our economy. I believe this of Washington, as well. Let’s navigate.
Going back to the G20 in London last Spring, the Obama administration has attempted to curry political favor with emerging economies, especially the BRIC nations, by ceding dollar sovereigncy as the preeminent international reserve currency in return for support of global economic stimulus programs. Why does Washington believe a weak currency serves our economic interests? A weak currency generates and supports the following:
1. Promotes inflation as imports decline. Washington would like some inflation, given the massive deflationary pressures presented by falling wages and declines in the value of commercial and residential real estate.
2. Promotes exports for corporations with a multi-national presence.
3. Supports labor by making it more attractive for companies to keep jobs here as opposed to opening factories or sending work overseas.
So, in light of our current economic crisis, why wouldn’t we want a substantially cheaper dollar to maximize these benefits?
Recall that economists always need to keep certain variables static in order to study the impact of a change in another variable or multiple variables. This approach, known as ‘ceteris paribus,’ is not quite as easy as some may think. Why? Variables are NEVER static, or ‘ceteris is NEVER paribus.’ (more…)
Obama’s Lessened Popularity Is Helping the Market
Posted by Larry Doyle on July 30th, 2009 5:12 PM |
What is driving the equity markets higher?
1. an end to the recession?
2. green shoots?
3. better than expected earnings?
4. excess liquidity?
5. all of the above?
How about President Obama’s decline in popularity? In a perverse way, is a lessened approval rating for President Obama, in fact, supporting our markets?
Has the decline been statistically significant? What has caused the decline? Given that we are living in the Sense on Cents designated Uncle Sam Economy, we would be foolhardy to neglect what political polls are saying.
Gallup reports, Obama Approval Slips Three Points in Past Week:
Amidst President Obama’s push in July to revamp the nation’s healthcare system, Gallup finds his average job approval rating registering 56% for the seven-day period ending Sunday, down from 59% the previous week. This three percentage point drop is the largest week-to-week decline seen in Obama’s job approval thus far in his presidency, and punctuates a gradual descent from his 66% rating in early May.
The current week is starting off no better for Obama than the previous one. His job approval score in Gallup Poll Daily tracking, conducted July 25-27, is 54%; this is his lowest individual reading to date. Thirty-seven percent of Americans currently disapprove of the job he is doing and 9% have no opinion. (more…)
What is China Saying? Sustainability and Indirect Bidding
Posted by Larry Doyle on July 29th, 2009 9:47 AM |
Reading through the financial tea leaves this morning, I am struck by two developments yesterday. In the midst of the U.S.-Chinese economic summit in Washington, little surprise that Chinese diplomats voiced concern about the U.S. fiscal deficit. The Wall Street Journal highlighted this topic in reporting Chinese Convey Concern on Growing U.S. Debt:
A show of unity from the U.S. and China at the end of a high-profile two-day conference was overshadowed by continuing Chinese concerns about the U.S.’s growing pile of debt.
The U.S.-China Strategic and Economic Dialogue, a forum designed to foster closer cooperation, closed on a similar note to that set at the start by President Barack Obama, who stressed the countries’”mutual interests.”
The two powers vowed to maintain efforts to pull the global economy out of recession and shore up financial markets. They also agreed on a plan to create more-balanced global growth in the future.
But like a banker visiting an overextended borrower, Chinese economic leaders repeatedly conveyed to their U.S. hosts the importance of managing the U.S. debt. Chinese Vice Premier Wang Qishan, in talks with Treasury Secretary Timothy Geithner and other officials, urged the U.S. to protect the value of the dollar.
“As a major reserve currency-issuing country in the world, the U.S. should balance and properly handle the impact of the dollar’s supply,” Mr. Wang said through an interpreter Tuesday.
China’s Finance Minister Xie Xuren said the delegation “expressed the view that credible steps should be taken to prevent fiscal risks and to ensure sustainability” and that “high attention should be given to fiscal deficits.” He said Mr. Geithner “stated clearly” that the U.S. is placing “a lot of importance” on the deficit.
What exactly do the Chinese mean by sustainability? Clearly, they are emphasizing the need for America to lessen its deficit, which will likely surpass $2 trillion this year alone. (more…)
Midday Market Update . . . U-G-L-Y
Posted by Larry Doyle on March 5th, 2009 12:45 PM |
I had written that yesterday’s 2-3% upward move in the market was very likely a Dead Cat Bounce. Well, that cat is burrowing further into the ground as markets have more than fully retraced yesterday’s upward move and are making new lows. This type of price action, known as lower highs and lower lows, confirms bearish trends.
I hope our readers know that all financial information you could possibly want is on the Market Data tab on the Sense on Cents header. That resource provided by the Wall Street Journal is not only a great way to get a quick and comprehensive snapshot of all sectors of the market, but also a great way to keep your brokers and financial planners on their toes and working for you!!
Let’s take a quick look at the markets and then I will offer some commentary. (more…)
Overnight Trade
Posted by Larry Doyle on March 4th, 2009 6:31 AM |
Stocks in Asia rose on the heels of a report that China’s Wen May Announce New Stimulus Measures to Revive Growth
With China allocating this capital to a new stimulus, will that lead to lessened appetite for U.S. Treasury debt? In overnight trading, Treasuries Drop on Potential $60 Billion Note Sale Next Week.
In other market making news, the shine has come off gold somewhat. I had cautioned that I do not play in gold because of the large number of speculative traders. Gold dropped 3% overnight and is back to $910/oz.
The U.S. dollar continues to move higher versus the Japanese yen and is back close to par, 100 yen for $1 dollar.
I remain in the camp that the bond market will continue to be pressured by the global demand for capital.
One story that also bears watching is the “plundering” of Merrill Lynch. In breaking news the WSJ reports how Merrill Lynch paid a large number of individuals outrageous sums at the end of 2008. Merrill’s $10 Million Men highlights the details. If I am John Thain, I’m not sleeping well!!
LD
Mo’ Money…
Posted by Larry Doyle on March 3rd, 2009 2:48 PM |
There are a string of events in the market today that all highlight the need for entities to refinance debt and raise capital. Given the tightness of credit and the onerous terms being exacted within the bond market, many firms are massively capital constrained. These issues are global in nature. From our friends at Bloomberg, I offer the links to a number of these situations. In light of these types of situations, one does not need to be in a hurry to buy stocks. Additionally, given the demands for capital, I still maintain that rates are headed higher.
I will share with you some of the current problem situations getting serious attention:
1. GE Falls Below $7 on Concern Finance Unit May Need More Capital
2. Corporate Bond Losses Drive Investors ‘to the Bunker’
3. Metlife, Lincoln Sink as U.S. Stock Rout Increases Capital Need
4. German Real Estate Firms Owe Billions, Face Deadlines
LD
A Virtual Smorgasbord
Posted by Larry Doyle on March 2nd, 2009 4:24 PM |
On the heels of the news about AIG, Berkshire, and HSBC, the equity markets have found no support today and are down 4%. While the malaise of the markets has much of the focus, let’s review a few other items that I see on today’s menu:
1. In regard to AIG, current CEO Edward Liddy and former CEO Hank Greenberg have started some public feuding over the nature of AIG’s problems. Greenberg is trying to make the case that the risks underwritten at AIG occurred after his departure. Liddy responded that the culture, the compensation system, and the division housing the bulk of AIG’s risk all developed under Greenberg. Wow!! When our country is screaming for leadership, we have senior executives playing the blame game and pointing fingers. How pathetic!! (more…)
