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Posts Tagged ‘fiscal policy’

Laurence Kotlikoff: “The U.S. Is Bankrupt”

Posted by Larry Doyle on August 12th, 2010 1:20 PM |

Nobody likes being told they are broke. While the truth may hurt, when you’re broke, you’re broke. Are we as a nation broke? Laurence Kotlikoff believes we are and expresses as much today in a Bloomberg commentary, U.S. Is Bankrupt and We Don’t Even Know It,

Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.

Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. (more…)

Barack Obama Has Ben Bernanke by the Balls

Posted by Larry Doyle on March 16th, 2010 3:32 PM |

Is the White House now in charge of both fiscal and monetary policy?

The Federal Reserve just released its March statement confirming no change in its monetary policy and little change in economic outlook. A brief overview of the Fed’s statement includes the following:

>> Maintains the Fed Funds range at 0-.25% for an extended period.

>> The quantitative easing program used to purchase $1.25 trillion in mortgage-backed securities and $125 billion in federal agency debt is nearing completion at the end of this month. The Fed will monitor economic conditions and employ policy tools as necessary to promote economic recovery and price stability.

>> Economic activity is generally improving. The overall pace of economic recovery is moderate. (more…)

What Are Credit Suisse Clients Doing and Saying?

Posted by Larry Doyle on October 9th, 2009 11:30 AM |

High five to a good friend for sharing with us tremendous insights just released by Credit Suisse. While individuals can and should develop opinions on the economy and markets, the global flow of capital from investors (obviously central banks now count as investors given massive quantitative easing programs) will determine overall market levels. Let’s navigate and assess how Credit Suisse’s client base has positioned themselves and decipher what it all means.

Credit Suisse research analysts report the following:

We are close to finishing our marketing trip in the US and Continental Europe—and take a look at the main issues our clients are focused on at the moment.

1. Caveated bullishness: Hedge funds appear optimistic (focusing on Q3 earnings as the next catalyst). Long-only funds seem cautious, while retail investors are buying bonds rather than equity. We feel there is enough scepticism to leave us bullish.

LD’s comment: CS means bullish on equities.

2. Many asset allocators still prefer credit (bonds) to equity, so there is switching potential.

LD’s comment: Asset allocators are money managers, investment advisors, et al. This comment translates into the fact that money which has been allocated to the bond market could move into equities causing a move higher in equities and a move down in bonds.

3. Investors’ main dilemma: Why have margins stabilised at such high levels? Most feel the reason is cyclical (leaving limited upside in earnings), but we suspect it could be more structural.

LD’s comment: Margins refer to corporate profit margins. The fact that CS believes that profit margins are being supported by structural developments in companies and the economy is a VERY positive assessment as it indicates a change in the foundation of the global economy which would drive equities higher.

4. Economy: Very few clients are positioning themselves aggressively on a macro view. There is little confidence on final demand given the level of excess household leverage. A third of investors are bearish on US housing (too many, in our view). Clients still see inflation, not deflation, as the main risk.

LD’s comment: investors would appear to be more cautious than optimistic with concerns that there is excess liquidity from central banks which will ultimately lead to inflation.

5. Consensus catalyst for next leg down is severe dollar weakness (LD’s highlight), leading to a US bond funding crisis or government tightening fiscal policy too early. Two areas of worrying consensus: 99% of investors appear to be dollar bears and nearly everyone believes the Fed will be very slow to raise rates.

LD’s comment: if 99% of investors are dollar bears and are positioning themselves that way in one way, shape or form, then the dollar will find support. Why? When too many people are on one side of a boat, that boat tips. If the dollar does rally, then many ‘dollar carry trades’ may enter the ‘pain chamber’ and risk-based assets would likely sell off.

6. Regions: Strong consensus to be long of emerging markets (NJA is felt to have large upside potential if US retail sales recover and the dollar remains weak). Clients are more positive on Europe than they have been for the past two years. Investors have quickly capitulated on a tactically positive call on Japan. Renewed focus on domestic plays in dollar-linked countries (especially the Middle East).

LD’s comment: NJA is non-Japan Asia

7. Sectors: We believe most clients have a bar-bell type strategy. Consensus longs are tech and commodities/gold. We found far too many oil bulls for our liking. There is a huge variance of views on banks. Sectors where there is still doubt: life companies (too opaque), media, telecoms, steel and pharma. There were very few questions on defensives.

8. Style: Clients are looking for quality growth, shifting away from the credit-related plays.

Overall, I view this report as decidedly constructive on the economy and markets, albeit with plenty of reasons for caution.

Thoughts, comments, questions always appreciated.

LD






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