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Posts Tagged ‘economic recession’

United ‘Kingdom’ In Name Only

Posted by Larry Doyle on October 23rd, 2009 9:01 AM |

Are we witnessing the virtual fall of the United Kingdom? Reports this morning indicate the UK remains mired in recession. The UK GDP registered a very disappointing -.4%. Analysts expected the report to register a +.2% increase.

With the report, are we witnessing an acceleration in the demise of this ‘kingdom?’ I believe we are. The Wall Street Journal offers insights into the economy of this once proud and productive kingdom, in writing, The U.K’s Unbelievable Shrinking Economy:

A note from Goldman Sachs said it all. The U.K.’s latest gross domestic product data showing the economy shrunk by 0.4% in the third quarter and by 5.2% over the past year is “Unbelievable. Literally.”

This result wasn’t just wildly at odds with the Bank of England’s forecast for growth of 0.2% — also the consensus estimate in the markets — but is out of line with recent survey data showing a considerable pick-up in economic activity. These forecasts indicated growth of nearer 0.7% in the third quarter, according to Goldman Sachs.

If the official statistics are right, then the U.K. is in even more trouble than the market already thought. A sixth straight quarter of economic contraction would confirm this as the worst U.K. recession since World War II.

The reaction to this report was an immediate decline in the value of the British pound. Analysts project the British government will have to engage in further quantitative easing and fiscal stimulus. The money needed to support those government initiatives is money the U.K does not have.

The WSJ adds further:

With the latest government borrowing figures showing the Treasury is already on course to overshoot its £175 billion borrowing forecast this year, the biggest risk to the U.K. remains that the markets conclude its Triple-A rating is also literally unbelievable.

The U.K’s AAA-rating is nothing more than a joke at this point propagated by the rating agencies which have little credibility. I would venture that the UK has not been downgraded simply due to political pressures.

Long live the Queen, but given the current economic situation and projected ongoing fiscal deficits, the UK is a ‘kingdom’ in name only.


Is The Economy Turning The Corner?

Posted by Larry Doyle on April 21st, 2009 7:05 AM |

Markets correct by price (both up and down) and time (extended). Despite the 3+% price declines in equity markets yesterday, the markets are up approximately 20% since the market lows seen on March 6th. Some analysts believe this upward move signals an improvement in the economy largely due to the fiscal and monetary stimulus provided by Uncle Sam. I am not in that camp.

A few emerging economies, specifically China, have improved. Can the rest of the world, including the U.S., expect those economies to be the engine for a global turnaround at this juncture? I do not think so. I still see the following issues on our domestic horizon:

1. continued deterioration in loan performance on bank books

2. a banking system woefully capital deficient

3. an automotive industry which must downsize

4. municipalities which are faced with the predicamant of capital shortfalls and underfunded pensions

5. commercial real estate just starting to experience real defaults

6. a housing market with increased foreclosures pressuring prices

7. an unemployment rate clearly headed toward double digits

Earnings reports for the first quarter have been mixed. I view the recently reported bank earnings as largely “managed” via accounting gimmicks. Meredith Whitney believes the earnings for major money center banks will turn negative in the 2nd quarter. The regional banks, without the benefit of large capital market activities but facing credit writedowns, report earnings today. Key Corp just reported a loss of $1.09 eps (earnings per share) versus an estimate of -.21. I suspect we will see losses from other regional banks of a similar magnitude. (more…)

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