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Posts Tagged ‘debt’

Bill Gross Projects The ‘Threshold of Mediocrity’

Posted by Larry Doyle on July 3rd, 2010 7:31 AM |

Pimco’s Bill Gross, a Sense on Cents Economic All-Star, recently released his Investment Outlook for July 2010.  In my opinion, Gross is an outstanding writer with an uncanny ability to communicate effectively on a host of financial, social, and psychological topics from both a macro and micro standpoint. Given those skills along with the fact that he manages the largest bond fund in the world, “sense on cents” dictates that we ponder his words of wisdom.

These words focus on the structural changes at work in the world today, and how investors should brace themselves for returns that are on the ‘threshold of mediocrity.’

Gross writes:

Global financial market returns stand at the threshold of mediocrity. With bonds priced not for recession but near depression, most major global bond indices now yield less than 3%, surely a forerunner of returns to come. (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…)

U.S. Markets Play “Follow the Leader”

Posted by Larry Doyle on October 7th, 2009 9:40 AM |

Yesterday’s rise in rates by the Australian central bank is a bellweather sign of the global shift in the balance of economic power. While the rise in rates by the Aussies is the first central bank move, it certainly will not be the last. Why did the Aussies raise rates and what does it mean both in the short term and for the long haul? Let’s navigate.

The Australian economy did not have near the level of debt that burdens the U.S. and Europe and thus they did not need near the amount of monetary stimulus to weather this global recession. Additionally, Australia has benefited from extensive trade in the Asian hemisphere.

The knee jerk reaction in the markets was focused primarily on a selloff in the greenback which supported a move higher in commodities and global equities via the ‘positive carry trade.’ The commodity which garnered the greatest focus was gold, which moved toward $1040/ounce.

What do these moves mean? I see cross currents on the economic landscape, including:

1. The dollar may not necessarily continue to weaken, but given its current weakness it will support those companies which garner a greater degree of sales overseas.

2. A weak dollar is usually affiliated with inflation. I do not think we are in a position to look at prices in terms of one overall index. Why? Given the technical and fundamental factors in our economy, certain price components will likely project increased inflation while others will not.

To be more specific, given the labor situation in our country, I do not see any appreciable increase in wages anytime soon. In fact, I think it is likely wages will trend lower.

Given the glut of supply and vacancies in both the residential and commercial real estate markets, I have a tough time believing these prices will move appreciably higher anytime soon.

Commodities may very well move higher. Why? High five to MC for sharing with me that there is increased dialogue in the international trade community to move oil away from trading in dollars. In fact, that story likely had a big impact in yesterday’s trading. Even if there is not an immediate shift in this market dynamic, the mere fact that it is being discussed will support oil specifically, oil-based products broadly, and other commodities as well.

Given that these commodities are primarily inputs, the prices for the outputs will likely move higher. This development is clearly inflationary.

3. What happens to interest rates here in the United States? While on one hand we have some deflationary forces at work which would keep rates low, we have the tug of other factors pushing them higher. How does it play out? My gut instinct tells me that overall pools of capital will be flowing away from the United States and, as such, people and private corporations will have to pay more to attract capital here in our country. I think those entities which focus the bulk of their economic activity here in the United States will be forced to pay higher rates to attract funding.

4. What about our equity markets and the Fed? While the Fed will want to keep our rates low for an ‘extended period,’ they may not have that luxury. If other nations follow Australia in raising rates, the U.S. may need to withdraw some liquidity sooner rather than later. Kansas City Fed chair Thomas Hoenig made this very assertion yesterday.

What would higher rates mean or even the thought of higher rates mean? Slower growth and a tough road for equities going forward.

Thoughts, comments, questions always appreciated.

LD

Related Sense on Cents Commentary

Dollar Carry Trade Drives Global Equities (September 16, 2009)

Tune in to No Quarter Radio’s “Sense on Cents with Larry Doyle”

Posted by Larry Doyle on March 22nd, 2009 9:35 AM |

Please join us this evening from 8-9 p.m. ET for No Quarter Radio’s Sense on Cents with Larry Doyle. With the stock market near 12 year lows, what is driving soc-promo5the flows? What is truly going on in the economy? Where are markets headed? Given the Washington political circus, how will new legislation impact the future of Wall Street? So much to cover.

Additionally, I will talk with Chuck Doyle of Business Capital in San Francisco. Chuck is one of the leading professionals in the field of debt restructuring and recapitalization, and he has been highlighted regularly in major media outlets including The Wall Street Journal and CNN. In the midst of our current economic turmoil, this conversation will be both timely and enlightening.

These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere! What is on your mind? What would you like to address? Please share your questions and thoughts by calling in to (347) 677-0792, and also join our live chat room, which I’ll start up about 10 minutes before the show begins!

As a reminder, all NO QUARTER RADIO programming is archived and can be played back at any time. Just go to the NO QUARTER RADIO site and look for previous episodes. In addition, each program is available as a podcast on iTunes.

Many thanks to Larry Johnson and the rest of the team at No Quarter USA blog for providing such a vibrant vehicle as NO QUARTER RADIO. I look forward to having you join me Sunday evening as we collectively navigate the economic landscape!!






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