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HomeIMF Hedging on Global Recovery
Posted by Larry Doyle on July 9th, 2010 7:08 AM |
Do we truly need to focus on developments within the emerging economies of Asia or sub-Sahara Africa? I mean, you are probably thinking that we have enough on our plates right here at home to spend anytime thinking about economic developments half a world away. Why do we need to care, and why do we need to be aware of global economic developments? For the very simple reason that in a global economy overwhelmed by massive debts and limited pools of private and sovereign credit, what happens over there very clearly impacts us right here at home.
On this note, let’s review an International Monetary Fund report released yesterday. The IMF writes, World Recovery Continues, But Risks Increase:
…despite the stronger than expected first half recovery, the IMF warned that uncertainties surrounding sovereign and financial sector risks in parts of the euro area could spread more widely, posing difficulties for both financial stability and the economic outlook. (more…)
Kenneth Rogoff: “A Lot of Insolvent European Banks”
Posted by Larry Doyle on July 7th, 2010 5:30 AM |
Kenneth Rogoff
Should the European Union run bank stress tests or not? While that question has been hotly debated over the last few months, we received an answer today from one of the most highly respected economists in the world. Who might that be? Harvard’s Kenneth Rogoff, a Thought Leader and Sense on Cents Economic All-Star.
I have often referenced Rogoff’s work over the last eighteen months (go here) and hold him in the highest possible regard. So, about those European banks and the hotly debated stress tests? What does Rogoff think? Are you sitting down?
In a Bloomberg commentary, European Banks’ Hidden Losses Threaten EU Stress Test, we learn: (more…)
Rogoff: EU Bailout Will Not Stop Defaults
Posted by Larry Doyle on May 19th, 2010 8:57 AM |
Kenneth Rogoff
Shock and awe? The trillion dollar bailout of the debt-ridden nations within the EU was supposed to backstop the Euro and put investors at ease. As of this juncture, the politicians and central bankers are likely the only individuals left shocked and awed.
Rather than writing checks and overpaying for debt, perhaps these politicos and their central banker friends should call on those who have studied global economic and financial crises. Like who? Harvard’s Kenneth Rogoff, who pointedly details that the very structure of the EU-bailout will be insufficient in forestalling defaults within the EU. (more…)
A Sunday Morning Review
Posted by Larry Doyle on July 12th, 2009 7:36 AM |
I always enjoy reading the thoughts and opinions of John Mauldin, an economic All-Star here at Sense on Cents. Mauldin himself provides insightful perspectives, but he has a number of relationships who weigh in with probing analysis from around the globe.
Mauldin’s recent ‘Outside the Box’ article, “A Tale of Two Depressions,” provides a wealth of information and analysis on the global economy. I personally found this piece beneficial in juxtaposition to yesterday’s Recommended Weekend Reading, “Aftermath of Financial Crises” by Carmen Reinhart and Kenneth Rogoff.
I feel strongly that we need to focus on the current not the waves, the forest not the trees. On that note, I hope you find this commentary and all other work here at Sense on Cents to be helpful as you navigate the economic landscape!
Please join me this evening at 8PM to address these topics and others on my Sunday night radio show, NoQuarter Radio’s Sense on Cents with Larry Doyle.
LD
Recommended Weekend Reading
Posted by Larry Doyle on July 11th, 2009 1:28 PM |
I found these two pieces of writing to be insightful and hope you find them to be enlightening, as well.
The Crisis is Morphing Again
by Mohamed El-Erian
Pimco; July 2009
Are we entering a new stage in our economic crisis? A stage in which government officials are ill equipped to handle upcoming challenges? El-Erian maintains:
The bottom line is a simple yet powerful one. The global crisis is morphing again. Having already contaminated (in a sequential and cumulative manner) housing, finance and the consumer, it is now threatening the potency and credibility of the economic policy making apparatus. As far as I can see, there are no first best policy responses that are readily available and easy to implement. Instead, the economy will continue to struggle, navigating both the adverse implications of last year’s financial crisis and the unintended consequences of the experimental policy responses. Given the inevitable socio-political dimensions, this story will play out well beyond the realm of the economy, policymaking and markets.
Ouch….not exactly very calming.
The second treatise I recommend is one I addressed last December, but it is so powerful and so encompassing that I am compelled to resubmit.
The Aftermath of Financial Crises
by Carmen Reinhart of the University of Maryland and
Kenneth Rogoff of Harvard University
December 19, 2008
This 13-page historical economic review of past recessions is widely referenced. Please save it and use it for your own reference purposes as you navigate your own economic landscape.
Reinhart and Rogoff provide insightful analysis supported by compelling charts of housing, employment, GDP, equities, and overall debt levels. What did they learn and share? I won’t steal their thunder, but I’ll give you a hint . . . we may be here a while.
Do yourself a favor and review their work so you can have a broader perspective from that offered by our government officials, market analysts, and media mavens. Do your friends a favor and share it with them as well.
Enjoy!!
LD
Are We There Yet? “Aftermath of Economic Crises” Revisited
Posted by Larry Doyle on May 27th, 2009 3:25 PM |
Are we there yet? What parent does not hear those words ringing in their ears? Well, in regard to our economic trail, let’s revisit an insightful piece of economic analysis put forth by Professor Kenneth Rogoff of Harvard and Professor Carmen Reinhart of the University of Maryland.
I initially reviewed Rogoff’s and Reinhart’s treatise in my January piece, “Time, Why You Punish Me?” Let’s revisit and review if we’re there yet, and if not just how much further we may have to drive. I wrote at the time:
In the midst of ongoing reading and research, I was fortunate to come across a presentation prepared by Professor Kenneth Rogoff of Harvard University and Carmen Reinhart of the University of Maryland, entitled “Aftermath of Economic Crises”
This work reviews a total of 18 banking crises which led to economic recessions since WW II. They put particular emphasis on 5 of these crises: Spain in 1977, Norway 1987, Finland 1991, Sweden 1991, Japan 1992. Each of the crises they studied share three characteristics:
1. Asset Market Collapse
Housing price declines averaged 35% over a 6 year timeframe. Equity price collapses averaged 55% over three and a half years.
Our housing markets are widely divergent with the major metropolitan cities within CA, AZ, NV, FL, and MI down anywhere from 25-35% over the last 12 months and down approximately 10-15% the year before that. Other markets have held up much better and are down approximately 10-15% in the last year. The national average declined 19% in the last year.
Our equity markets are currently 40% off the highs having declined slightly north of 50% at the March lows. (more…)
Increasing Inflation or Playing With Fire
Posted by Larry Doyle on May 19th, 2009 4:09 PM |
There is a reason parents tell their children not to play with matches. Small campfires can take down an entire forest. In similar fashion, heightened levels of inflation also have the potential to explode in a ball of fire. Are our central bankers playing this 
game as a means of addressing our massive government and non-governmental debt burden? In my opinion, they most definitely are rubbing those sticks together mighty hard.
I have highlighted three means for central bankers to address excessive debt: default, restructure, devalue. Individuals and corporations are increasingly defaulting and will default at an increasing rate as evidenced by my post earlier this morning highlighting the surge in delinquencies. Individuals and corporations are looking to renegotiate and restructure debt burdens wherever possible. Our government is restructuring debt through the legislative process and not always consistent with generally accepted market and legal principles. Despite words to the contrary, I am convinced that Ben Bernanke and Tim Geithner are on course to devalue our debt, as well, via a promotion and acceptance of higher inflation.
I was somewhat surprised to read that two economists whom I highly respect are encouraging Bernanke specifically to raise the inflation target. Greg Mankiw, an Economics professor at Harvard, shied away from providing an actual inflation target but did offer that Bernanke should work towards a “significant” level of inflation. Kenneth Rogoff, also a Harvard professor and former chief economist at the IMF, believes Bernanke should target an inflation rate of 6%.
Rogoff and Mankiw are both highly regarded. In my opinion, they are calling for higher inflation because they are clearly concerned that the mix of stimulus programs (monetary, fiscal, and budgetary) will not be sufficient to jumpstart our economy. (more…)
“Time, Why You Punish Me?”
Posted by Larry Doyle on January 8th, 2009 2:22 PM |
I have tried to highlight that markets correct by price and time. While the National Bureau of Economic Research (NBER) has pinpointed that our current recession started in December 2007, the downturn clearly accelerated after the failure of Lehman Bros. in mid-September. You do not need me to remind you that our equity markets were down 35-40% last year.
Against that backdrop, the question on everybody’s mind is how quickly can the incoming Obama administration turn the economy around. A question I receive from friends and former colleagues is “how long” will this last. Wall Street insiders are in the business of selling products so throughout 2008, and from what I see so far in 2009, they are hedging on what I believe will be an extended downturn.
I am an optimist by nature and not one to promote a doom and gloom scenario, but let’s look at the cards that are already on the table and review past recessions that were financially driven rather than manufacturing driven. Let’s also look at forecasted earnings and what they portend for our equity markets.
