austerity measures
Time’s Running Out; Fiscal Cliff Needs a Resolution
By George Leong for Investment Contrarians | Dec 6, 2012
America is fast approaching the $16.4-trillion limit in national debt that is legally allowed under the current debt ceiling. With the current debt at $16.24 trillion, time is running out, which is why we need to either resolve the fiscal cliff or, as the President wants, hike up the national debt ceiling in order to allow the government more flexibility in its spending. Failure to raise the national debt limit would mean that the government would need to access emergency funds to avoid a default and initiate the fiscal cliff cuts and tax increases in some form.
So far, the talks between House Speaker John Boehner and President Obama have resolved little. Just last week, Boehner offered up a new 10-year, $2.2-trillion strategy that entailed adjustments to Medicare and Social Security benefits but also avoided a return to higher taxes for the nation’s top income earners. In response, the President is willing to look at reviewing the highest tax rate for the rich, but at the same time, he wants to cut loopholes.
With just over three weeks left in the year, something will need to be done. In the event that a resolution is not achieved, the government will have to access emergency funds until a deal is agreed upon. This is the dilemma that we are at now; but something has to be done, or America could be leaving a much worse financial mess for the generations ahead, including a possible recession and massive national debt.
Moody’s Investors Service warned it may cut the U.S. triple-A debt rating for a second time in 2013, should the government not … Read More
32 Days: Countdown to the Fiscal Cliff
By George Leong for Investment Contrarians | Nov 30, 2012
There were two winners of the Powerball lottery jackpot of $588 million Wednesday night. I was wondering if there was any chance they could help out with paying down some of the country’s burgeoning $16.2 trillion in national debt, its out-of-control deficit, and its runaway spending. Hey, isn’t that what the fiscal cliff is all about?
With 32 days remaining in the year to resolve this financial crisis, President Barack Obama and Republican House Speaker John Boehner are hard at it, trying to come to a compromise.
The reality is that, like many of you, I’m growing weary of hearing the “FC” term: financial crisis. Let’s just deal with the financial crisis stalemate and work out a deal that makes both parties happy, and slows down the frivolous printing of money that has allowed America to spend endlessly and create the financial crisis that is now lurking.
When I think about it, the government is operating a Ponzi scheme. They’re printing money and using it to pay for the undisciplined spending; when the money runs out and payments are due, they go out and print more money to cover them, and so on. This Ponzi scheme must be halted.
Just take a look at the market action. We are seeing a ridiculous number of U.S. companies declaring “special dividends” to try to help investors avoid higher dividend taxes in 2013 if the fiscal cliff is allowed to move forward.
From the end of September to mid-November, Bloomberg reports that 59 companies belonging to the Russell 3000 Index announced special cash dividends, versus 15 companies in the same timeframe in 2011. … Read More
For the 50th Time, the Eurozone’s Digging Its Own Grave
By George Leong for Investment Contrarians | Nov 28, 2012
Greece finally received approval for its austerity measures and, in the process, will get another $70.0 billion or so in loans. The money is not earmarked for growing the Greek economy out of its deep recession; rather, it will be used to keep the lenders away as the country tries to get out of its financial crisis. What is happening in Greece and the eurozone is absolutely an economic farce that will likely take years to rectify. For Greece, the country will be stuck in its own economic abyss for years, even decades. The problem for Greece is that the deep budget cuts are occurring at a time of fiscal confusion, massive unemployment, and negative gross domestic product (GDP) growth. The deep cuts will hurt the country more in the short term, but they are needed to help Greece become a contributing member of the eurozone. As I said, it could take decades. Don’t believe me? Just take a look at the two-decade drought in Japan.
The Organisation for Economic Co-operation and Development (OECD) just suggested the global economy was on shaky ground again, with weakness in 31 of 34 member countries. (Source: Matt Nesto, “The Five-Year Funk: OECD Slashes Global Growth Estimates,” Yahoo! Finance, Breakout, November 27, 2012.) The report “Global Economy Facing Hesitant and Uneven Recovery” called for the eurozone to experience another two years of mild recession. GDP growth in the U.S. is estimated at a mere two percent for 2013, which is not unexpected, given the current conditions in America. Failure to resolve the fiscal cliff will make the growth worse.
The way I view it … Read More
How to Protect Your Portfolio from a Slumping Dollar in 2013
By John Whitefoot for Investment Contrarians | Nov 21, 2012
No one said austerity measures would be an easy pill to swallow. But, after decades of overspending, they’re become an unwanted necessity. And the fed-up workers of Europe are uniting!
Protests broke out Wednesday across Europe in a coordinated day of action over ongoing austerity policies. While some of the largest and most violent protests took place in Spain, Portugal, Greece and Italy also took to the streets.
Over the last three years, Spain, Portugal and Greece have all slashed spending on pensions, public sector wages, hospitals, and schools in an effort to get public finances back on track.
It hasn’t kicked in yet. In Portugal and Greece—both rescued with European funds and under strict austerity programs—the economic downturn increased in the third quarter. Portuguese unemployment jumped to a record 15.8%. In Spain and Greece, one in four of the workforce is jobless. (Source: Tisera, F., and Alvarena, D., “Anti-austerity marches turn violent across southern Europe,” Reuters, November 14, 2012.)
Sound familiar?
In an effort to stem the economic slide of the U.S. housing collapse that first surfaced in 2005, the Federal Reserve initiated quantitative easing in November 2008. To date, the Federal Reserve has printed off close to $3.0 trillion. That number climbs by an additional $85.0 billion each month. It was supposed to increase lending, create more jobs, kick start housing, and lower the unemployment rate.
What has really happened? After three rounds of austerity measures, unemployment is rising, company profits are falling, financial markets are fragile, and the housing sector is still in disarray. What has it done? It’s created a weak dollar and an anemic economy…. Read More
Don’t Forget the Eurozone Mess
By George Leong for Investment Contrarians | Aug 21, 2012
Bellwether parcel delivery company FedEx Corporation (NYSE/FDX) recently announced it was cutting jobs due to the slowing demand from Europe and Asia. However, the stalling from Europe is not confined to a single sector, but spreads out across the board, and this poses stock market risk. Economies around the world, from the U.S. to Europe and China, are impacted.
This dire situation is not going away soon, and in my view, it will take years—perhaps decades in the case of Greece—to resolve, adding to the stock market risk. The irony is that traders appear to be underestimating the potential impact from Europe and the stock market risk.
In reality, the market is betting on a resolution and calm returning to the eurozone. Spain will likely require a full bailout when it makes a formal request. European Central Bank (ECB) president Mario Draghi said the central bank would help Spain once it formally requests a bailout. Spain has already received about $130 billion to avert a financial crisis in its fragile banking system. In my opinion, the ECB wants to see Spain put together a tough austerity program in exchange for a bailout, but Spain is trying to avoid this.
The yield on the 10-year Spanish bond fell to a seven-week low of 6.2% on Monday after trading over the critical 7.0% level. Optimism towards a Spanish bailout is helping to support and is reduce the high stock market risk for traders.
The yield had been on a steady upside move since trading around 5.0% in late February. The reality is that the high yields are unsustainable and add to the … Read More
Europe’s Growth Pact Is Missing the Growth
By Danny Esposito for Investment Contrarians | Jul 5, 2012
The newly elected French President, Francois Hollande, made a promise—like all other politicians who are elected—to introduce an economic growth pact in Europe to counter the suffocating austerity measures that continue to see Europe in a recession.
Hollande returned to France from meeting with other European leaders in Rome, declaring himself triumphant because the economic growth pact was enacted by European Union (EU) members.
Like most promises that emanate from politicians, the headlines suggest powerful shifts in the economy from the economic growth pact. But if anyone bothers to spend some time sifting through the details, there is a lot lacking.
The amount decided upon for the economic growth pact was 130 billion euros, which will be split mainly between three areas to stimulate economic growth.
The first is the EU’s structural funds. This is provided to areas of Europe that need it most, presumably the southern countries like Greece and Spain. This funding is meant to help provide capital for newly founded companies to counteract austerity measures the governments must implement. What is odd is that the EU funding committee decides what it feels are the “right” companies to get behind and fund. Governments are usually terrible at capitalism, which means the odds of this money being misallocated and not resulting in a solid return on investment are high.
The second area the economic growth pact targets is the European Investment Bank (EIB). If private money wants to invest in projects within Europe, the EIB sees itself as a partner to help provide the capital to get the project off the ground. The EIB provides very strict rules on … Read More
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