Complacency among investors is extremely dangerous. Many investors, both retail and institutional, have very short memory spans.
It wasn’t too long ago that the eurozone was in the midst of a financial crisis. While the worst appears to be over—at least temporarily—economic growth still remains elusive for the eurozone.
Yet in spite of all the dangers, investors have returned to the eurozone en masse. Spain recently sold one-year bills yielding just 0.994%, the lowest since 2010. Demand is extremely strong for these periphery nations, even though it’s clear that many parts of the eurozone are lacking economic growth.
Currently, Spanish 10-year bonds yield approximately 4.29%, which is down from last summer when they were yielding 7.75%. (Source: Benoit, A., et al., “Spain Sells Bill at 3-Year Low Yield as Banks Hired for Bond,” Bloomberg, May 14, 2013, accessed May 14, 2013.)
Investors are becoming complacent yet again. Instead of simply dipping their toes into the water, they’re plunging into some of the riskier parts of the eurozone that have the least potential for economic growth, and these investors are hoping that if things don’t work out, the European Central Bank (ECB) will bail them out.
The danger is that the ECB has previously stated that it will only consider short-term duration investments for possible support, not the long-term bonds. Either way, economic growth needs to re-ignite for long-term investments in the eurozone to make sense.
However, recent data from even the strongest eurozone member, Germany, indicate that a rebound in economic growth is far from certain.
According to the Center for European Economic Research (ZEW), its index of investor expectations … Read More
George Soros knows a thing or two about making money from big bets. In 1992, Soros made a $10.00 short wager on the British pound and walked away with a billion dollars in profits.
Soros is now convinced Germany needs to rethink its strategy toward the sustainability of the eurozone and, in a draconian manner, believes the country should leave the euro.
Of course, should this happen, the 17-country eurozone would collapse, triggering a massive economic Armageddon and financial crisis in Europe that would ultimately generate chaos for the global economy.
Now, I doubt Germany or France—the two pillars integral to the eurozone—will exit the euro, but the reality is that the situation in the economic zone remains in a financial crisis with little hope of revival.
The problem is that the eurozone is firmly in a financial crisis and recession, trying to find its way out.
Greece, Portugal, Spain, and Italy are a drag on the ability of the eurozone to get out of its financial crisis. The unemployment rate in Greece and Spain is over 25% and worsening.
Italy just formed a new government, but there’s tons of work left for that debt-ridden country before it can exit its own financial crisis that has been building for years.
With all of this bad news, it’s not surprising to see people in the eurozone feeling the despair. According to the European Commission, economic morale in the eurozone remains weak after declining in March and April. (Source: Emmot, R., “Economic mood in euro zone sours again in April,” Reuters, April 29, 2013.)
And it appears that the solution will again … Read More
Consistent jobs growth remains an issue here in the U.S.
We also know that the lack of jobs is a worldwide problem that is only made worse by the world’s growing population and the stalling global economy.
The reasoning behind this worldwide jobs problem is simple.
Jobs are created when the economy expands, which drives the need for more workers. Of course, modern technology, industrial efficiencies, and the increased use of robots all combine to pressure jobs growth, and I expect this pressure to continue.
Just take a look at China. In that country’s vast manufacturing landscape, the key driver is the masses of unskilled workers who are required to toil at their workstations for 12 hours or more each day.
China’s companies can make use of robotics to help in many of the assembly areas, but it seems that these companies use human labor instead—perhaps because creating jobs for the masses is a goal of communist China.
According to the International Monetary Fund (IMF), China’s unemployment rate has managed to hold pretty steady at just over four percent since 2003. In 2012, the unemployment rate was 4.1%, the same as in 2010 and 2011, and the estimate for 2013. (Source: “China: Unemployment rate from 2003 to 2013,” Statista web site, last accessed April 23, 2013.)
But in the more industrialized countries, like the United States and countries in Europe, there has been a move toward modern industrial techniques and the use of robotics.
And while America struggles to create jobs growth, the situation is extremely dismal in Europe.
As I commented in these pages a few weeks back, the … Read More
The eurozone and the euro are still around, but the more I see what is happening in that region, the more I think something must be done, given the financial crisis.
You have the eurozone in a recession and a financial crisis specifically driven by turmoil in Spain, Italy, Portugal, Greece, Cyprus, and Ireland.
Greece is broke, and it could take decades to recover from its financial crisis. Heck, Greece may have to go and ask for another round of bailout money if the financial crisis in the eurozone holds.
The financial crisis in Cyprus is a red flag that needs to be watched. And despite the small size of Cyprus’ economy, the country is a mess, with no recourse but to seek more bailout funds or risk a default and exit the euro.
The two pillars of the eurozone, Germany and France, are stalling. Germany contracted 0.6% in the fourth quarter and is another negative quarter away from a recession. France is in a similar predicament and will need to wrench its way out of its potential financial crisis.
Even big-time investor George Soros, who knows a thing or two about economies in trouble having made a billion dollars shorting the pound decades ago, is pretty convinced that Germany needs to rethink its strategy and consider leaving the euro to avoid its own financial crisis.
The problem that arises is that Germany is the major reason why the eurozone is still intact, when it maybe should have looked at kicking out Greece and Cyprus.
But as long as Germany is staying in the eurozone, the probability of survival, in … Read More
There is a potential financial crisis brewing in Cyprus, and no one in the U.S. really seems to be that concerned. Just like our out-of-control national debt, sequestration, and growing number of unemployed and poor. Stocks continue to move higher, and it appears as though nothing can stop them.
There is clearly a financial crisis in the eurozone, which I feel traders in the U.S. have largely pushed aside during the American stock market rally.
In Cyprus, we all know the government tried to place a tax on all bank deposits in an attempt to raise $7.6 billion in capital as part of the country’s bailout deal. The strategy was turned down; so here we have the tiny island of Cyprus in the Mediterranean Sea where the estimated gross domestic product (GDP) of $22.45 billion in 2012 (source: International Monetary Fund) would be ranked dead last amongst the U.S. states, finishing behind Wyoming with just over $25.0 billion in GDP in 2011 (source: U.S. Department of Commerce).
So what’s the deal with Cyprus, and why should you be concerned?
While Cyprus is tiny and pretty well insignificant as far as its economic clout goes, a financial crisis, especially within the country’s fragile banking system, could drive widespread mistrust and confidence issues throughout the eurozone. This is the concern; that Cyprus could foreshadow a deeper financial crisis in the problematic regions of Italy, Spain, and Portugal.
Greece went through its financial crisis roller coaster, including two bailouts, and it is currently surviving on loans and credit. It’s going to take decades for Greece to recover from its financial crisis.
The fear … Read More
While I do like gold, I’m somewhat perplexed over the metal’s near-term stock chart. The chart shows indecision and indicates a potential downside break at $1,550, with gold potentially falling out of its current sideways channel.
And it also appears that the professional money has mixed feelings about gold. Famed investor George Soros cut his gold holdings, but Paulson & Co. made no changes. (Source: Rooney, B., “Soros dumps gold as prices sink,” CNN, February 16, 2013, last accessed March 12, 2013.)
Despite gold’s reputation as a safe haven to stash your money, there is a lack of buying interest across the board, as the sentiment toward gold is rapidly declining; hedge funds are selling.
So, is a major downward move on the chart coming?
In my view, gold is at a crossroads. It could continue to trade in its sideways channel, where you can simply buy on weakness down to $1,550 an ounce and sell on rallies.
While I agree the near-term risk is high and could see prices move downward toward $1,500 an ounce, any major declines in gold prices should be viewed as a potential opportunity to accumulate gold as a contrarian investment, especially if the eurozone mess intensifies and an asset bubble surfaces in China (which is also seeing a dangerous rise in inflation to 3.2%). The problem in China is that the new government’s strategy to drive consumer spending to spur economic growth will only add to the inflationary pressures and overall market risk that are already present.
I also sense that the market is underestimating the major debt and growth situation in Italy and … Read More
With the relative calm in the eurozone lately, one might be led to believe that the worst is over and economic growth is about to ignite. Nothing could be further from the truth.
The latest data on the eurozone show that unemployment increased in January to a record high of 11.9%. This is the highest unemployment rate since 1995, when the 17 nations within the eurozone started to keep record. (Source: Brittain, A., “Unemployment Worsens in Euro Zone,” Wall Street Journal, March 1, 2013.)
Recent elections in Italy revealed the growing anger from the eurozone’s citizens at the country’s lack of economic growth. Italy experienced one of the largest increases in unemployment within the eurozone for January, jumping to 11.7%, an increase of 0.4% from December.
While the European Central Bank (ECB) and politicians in every country have been trying to re-ignite economic growth, the fact is that the eurozone reported a decline in its gross domestic product (GDP) of 0.6% from the third quarter to the fourth quarter 2012.
This isn’t just far from economic growth; it’s a serious contraction. This should worry Americans, because our own economic growth is stalling. If the major industrialized nations have no economic growth, who’s going to pull us out of the quagmire our economy is in?
The ECB still has some ammunition left in its arsenal, since inflation is actually receding. The latest inflation numbers for the eurozone showed an annual rate of 1.8% in February, a decrease from the two-percent level in January. With the ECB holding its main interest rate at 0.75%, there is room for additional monetary easing.
The … Read More
There’s talk of hedge funds dumping gold. Despite its attractiveness as a safe haven to stash your money, there is a lack of buying interest across the board, as the sentiment toward gold is declining fast. Some are even saying the bulls should pack it in. While I agree the short-term risk is high and prices could move down toward $1,500, I continue to like the longer-term outlook, as I believe that any major decline in gold should be viewed as an opportunity to accumulate the precious metal as a contrarian investment.
We are hearing more whispers predicting prices could spiral lower, but while I’m neutral at this point, I continue to be convinced that gold will rally higher in the long term.
The jury is still out on the potential of gold. The situation in the eurozone remains fragile, but there have been some signs of improving sentiment, which is what traders want to see.
In early January, Marc Faber, also known as “Dr. Doom,” in an interview with CNBC suggested gold could correct 10% or more to as low as $1,550–$1,600. (Source: Belvedere, M.J., “‘Dr. Doom’ Faber Sees Possible 10% Gold Correction,” CNBC, January 8, 2012, last accessed February 25, 2013.)
In my view, gold continues to be a place to park some capital; and for this reason, I feel the metal will continue to attract support above $1,500 after 11 straight up years.
The chart shows sideways trading with major support around $1,550 and upper resistance at $1,800, as indicated by the horizontal blue lines in the stock chart below. Within this trading band, there’s a downward … Read More
One of the biggest detriments to global economic growth has been the weak eurozone region. Not only has economic growth been dismal within the eurozone area, but the level of financial instability over the past few years has left investors and businesses uncertain about the future.
While there was some indication that economic growth might have been rebounding within the eurozone, new data point to a much weaker underlying economy than previously thought.
According to Markit Economics, which just published its Eurozone Purchasing Managers Index (PMI) for February, the situation amongst the region’s economies seems to be getting worse. The Flash Eurozone PMI Composite Output Index was 47.3 in February, down from 48.6 in January. Both the services and manufacturing PMI indexes also decreased for the eurozone. (Source: “Markit Flash Eurozone PMI,” Markit Economics web site, February 21, 2013.)
Even strong nations within the eurozone are experiencing a halt to any expansion in economic growth. The German PMI Composite Index was 52.7 in February, down from 54.4 in January. The U.S. PMI, meanwhile, showed a relatively strong manufacturing reading of 55.2 for February, down from 55.8 in January. (A number above 50 indicates economic growth; a number below 50 means economic contraction.)
This is an indication that the eurozone is far from generating strong economic growth. While many have hoped that strong nations, such as Germany, could pull up the rest of the eurozone into reasonably stable economic growth levels, it appears that the periphery eurozone nations might be bringing the stronger countries down.
For investors who have begun to dip their toes into eurozone investments, this appears to be … Read More
In my previous commentary, I discussed the ongoing financial mess in the eurozone and its negative impact on the gross domestic product (GDP) growth of the 17 countries in the region. Yet, with the eurozone in a recession that could last another few quarters, the negative impact on the global economy should also be considered when you are looking at foreign investing opportunities.
The current stalling in China could be linked directly, in part, to the situation in the eurozone, and I expect this will continue to be the case as long as the eurozone struggles.
At the same time, the areas most at risk from the eurozone crisis will be the emerging regions in Eastern Europe; they will be much more at risk than Asia simply due to the proximity of the markets.
Russia, the largest economy in Eastern Europe, is estimated by the World Bank to report GDP growth of 3.5% in 2012, down from GDP growth of 4.3% in 2011. (Source: “World Bank Keeps Russia’s GDP Forecast at 3.6% in 2013,” RIA Novosti, January 16, 2013.) However, the report is estimating that the country’s GDP growth will slowly rally to 3.9% in 2014 and 3.8% in 2015, which is still below the five-percent-plus readings from 2003 to 2007. (Source: “Data,” The World Bank web site, last accessed February 20, 2013.) Of course, the actual rate of the recovery will largely depend on whether the eurozone can recover from its mess.
Poland, the second-largest economy in Eastern Europe, is really struggling. The negative impact from the eurozone has wreaked havoc on the Polish economy and its GDP growth. … Read More
Traders appear to have forgotten the massive economic mess happening across the Atlantic in the eurozone. Remember Greece? The European debt crisis took Greece down with two separate bailouts. It has been so dire for this beautiful country on the Mediterranean Sea that Greece required a second bailout to make the payments on its first emergency loan.
The reality is that the eurozone financial crisis is still around; the eurozone problem is not going away.
Consumer confidence in the eurozone came in at -23.9 in January, which was an improvement over the -26.5 in December, but the region has a long road ahead. (Source: European Commission web site, last accessed February 15, 2013.) The problem with the eurozone is not only tied to the massive debt loans that have impacted Greece, Spain, Ireland, Portugal, and Italy; it’s also tied to the ongoing recession and high unemployment rate.
The eurozone has recorded three straight months of contraction in its economy, contracting 0.6%, or about 2.5% on an annualized basis, in fourth quarter 2012, according to data from Eurostat. What was also a red flag were the economies of the eurozone’s two largest members: Germany, which shrunk by a worse-than-expected 0.6% in the fourth quarter, and France, whose economy contracted by 0.3% in the fourth quarter. My major concern is that the mess in the weak countries is driving down growth and pushing up the unemployment rate in France and Germany, the two pillars holding up the eurozone. Capital Economics suggested France and Germany will face another recession in 2013.
At the same time, a major issue is the region’s super-high unemployment … Read More
One of the most important factors to consider and one of the most difficult to comprehend when it comes to the market is investor sentiment. Investor sentiment is usually far ahead of both the general public and the economic data.
A perfect example is how investor sentiment in the housing sector was clearly far ahead of the recent data showing strength for the homebuilder stocks and new home construction.
One stock that has performed quite well lately is Ford Motor Company (NYSE/F). Many times last year, when much of the public was negative on the economy and housing, Ford came out with extremely strong results. Of course, this is partially due to their pickup truck division, which is directly correlated with the boom in new home construction.
For the fourth quarter of 2012, Ford reported the highest pretax profit in over a decade, with $1.7 billion, a huge jump of $577 million from the fourth quarter of 2011. For the full year, Ford reported a pretax profit of $8.0 billion, and the firm ended 2012 with a gross cash level of $24.3 billion. (Source: “Ford Posts Highest Fourth Quarter Pre-Tax Profit in More Than a Decade,” Ford Motor Company web site, January 29, 2013, last accessed February 4, 2013.)
However, a big problem for Ford, along with many other automotive stocks, has been the eurozone. Ford’s revenues in the eurozone dropped from $33.8 billion for the full year 2011 to $26.6 billion in 2012. The company is making strategic revisions to its eurozone division.
We all know the eurozone has been in trouble for quite a long time. Recent data … Read More
We have nearly eight percent of Americans pounding the pavement, but it is more likely double that if you count the workers actually unemployed or underemployed. But the problem of high unemployment is not only an ongoing issue in America; it’s a problem that is found in pockets all around the world, from the rust belt in Ohio to the massive manufacturing plants in China.
Japan, which used to have an unemployment rate of about one percent, is currently struggling to find jobs for its citizens. The country’s unemployment rate stood at 4.1% in November 2012, according to the Ministry of Internal Affairs & Communications. By comparison, Japan’s unemployment rate averaged a mere 2.7% from 1953 to 2012, which is why the current rate is a concern. (Source: “Japan Unemployment Rate,” Trading Economics web site, last accessed January 23, 2013.) Japan’s efforts to lower its unemployment rate continue to be hindered by the country’s stalled economic growth.
The unemployment problems are becoming a global issue. According to the International Labour Organization (ILO), the amount of unemployed in the world could set a record this year and could continue to rise higher until 2017. The report from the ILO estimates 202 million people will be searching for work this year, based on its Global Employment Trends report. (Source: Barnato, K., “World Unemployment to Hit Record High in 2013,” CNBC, January 22, 2013.)
Surging unemployment remains a thorn in Europe’s side, with a super-high unemployment rate encompassing the eurozone and the entire continent. In the eurozone, the unemployment rate was 11.8%, or about 18.8 million unemployed, in November, the highest number since … Read More
For the past few months, the eurozone financial crisis has significantly subsided, at least on the surface. However, because of the fragility within the eurozone, it won’t take much for a new financial crisis to be sparked.
There are new questions arising about the future of the eurozone, and these begin not with the giant nations of that union, but with tiny Cyprus.
Finance ministers from the eurozone countries are hotly debating much-needed bailout funds for the tiny island of Cyprus. One organization missing from these talks in Brussels is the International Monetary Fund (IMF).
As it stands, funds from the 700-billion-euro European Stability Mechanism (ESM) can only be dispersed if the IMF agrees to the cash payments. However, the IMF is disagreeing with some European nations as to the viability of Cyprus being able to pay back its debt under the current restructuring agreements. (Source: Pauly, C., et al., “Troika Travails: Split Emerges Over Cyprus Bailout Package,” Der Spiegel, January 21, 2013.)
Clearly, the financial crisis within the eurozone is not over if a nation like Cyprus is expected to have its debt load at 140% of its gross domestic product (GDP) by 2014—a clearly unsustainable level. This is the conclusion that the IMF has determined, and it is demanding that creditors of the banks within Cyprus incur a haircut in their principal or a decrease in their total claims.
Another serious worry for eurozone members is that Cyprus has a reputation of money laundering. With the financial crisis still a worry for many, especially the super-rich, having funds in accounts across the eurozone is clearly a problem. All … Read More
In April 2011, when silver was trading at $50.00 an ounce, Bank of America Merrill Lynch was extremely bullish and suggested $80.00 was possible. (Source: “Prospect of silver hitting $80 shakes up stock, ETF markets,” International Business Times, May 1, 2011, last accessed January 22, 2013.) Of course, this hasn’t been the scenario, as the metal faces tough resistance at $35.00. Until there is a strong breakout here, I doubt the $40.00-level will be achievable.
While the majority of investors focus on gold, I feel silver could actually have more price upside, given its more speculative nature as more of a trading commodity.
In reality, the buying in the white metal is generally in line with the global economic growth, driving the demand for industrial goods that use silver as a raw material, pushing up income levels, and increasing the global demand for jewelry.
Here in the U.S., the economic recovery is faring well. The better-than-expected U.S. gross domestic product (GDP) growth, revised up to 2.7% for the third quarter, along with other encouraging economic data are also adding some optimism of economic renewal. China is offering some hope of a turnaround, but the stagnant condition in the eurozone and Europe remains an issue.
As I said, while gold is considered more of a pure-play hedge against risk, any sign of industrial recovery helps, as silver, unlike gold, is used in numerous industrial applications.
As you can see on the chart, silver is caught in a sideways channel, largely between $30.00 on the support side and $35.00 on the top of the channel. Silver is currently testing its 50-day moving … Read More
When oil prices recently fell to below $80.00, I said don’t sell.
The U.S. Energy Department increased its projections for crude oil prices for this year, adding that global oil consumption will rise to a record high in 2013. (Source: “U.S. Energy Department Raises 2013 Oil Forecast,” Bloomberg, January 8, 2012.)
Take a look at the price chart for the December West Texas Intermediate (WTI) futures contract. After trading at $115.00 in May 2011, we have seen oil prices slide, despite multiple attempts at rallying back to the $100.00 level. The spot WTI is trying to hold at its 50-day moving average (MA), currently above its 200-day MA of $85.08.
Yet the chart is displaying what looks like a bullish flag formation setting up, which means that higher oil prices could be coming, rising above $100.00 in the best-case scenario, based on my technical analysis. You need to be watchful of the $80.00 support level, which was breached on several occasions, but in each case, there was a rally after.
Chart courtesy of www.StockCharts.com
I believe oil will continue to hold above at least $80.00 a barrel going forward and will rally as the global economy strengthens. If you extend the oil futures contract to 2021, the current prices range from $83.00 to $96.00, so I’m not that worried and don’t have the urge to go and sell.
Helping to add support will be the continued erosion in the major economies in the eurozone, along with its impact on the U.S. and China.
Also add in the geopolitical issues in the Middle East. Iran and North Korea are real threats … Read More
Gold is currently in a holding pattern at below $1,700 an ounce, but one thing is for sure: in spite of what some pundits are saying, it’s not time to sell yet. In an interview on CNBC, Marc Faber, also known as “Dr. Doom,” suggested that gold could correct 10% or more to as low as $1,550 or $1,600. (Source: “‘Dr. Doom’ Faber Sees Possible 10% Gold Correction,” Yahoo! Finance via CNBC, January 8, 2012.) While I’m not as negative, I do believe gold could retest support between $1,600 and $1,625 in the near term. Failure to hold could see a sub-$1,600 price.
In my view, gold continues to be a place to park some capital, and for this reason, I feel the metal will likely continue to hold above $1,500 after 11 straight up years.
For instance, if we assume the global economy will weaken, especially in the eurozone, the impact on global gross domestic product (GDP) growth would be negative. Stock values would fall, so you would need a safe haven to park your capital, which many of you know is in gold.
There’s been plenty of talk around here regarding whether the precious metal is heading for $2,000. In my view, the current global risk will support and drive gold higher.
The chart shows sideways trading around the 50-day moving average (MA) with weakening technical indicators, based on my technical analysis. I view downside moves as an opportunity to accumulate the precious metal, given the current macro situation.
Chart courtesy of www.StockCharts.com
I continue to like gold going forward, given the massive financial distress and recession in … Read More
Happy New Year to all of our Investment Contrarians readers!
In 2012, small-cap stocks were the second-best performing group, following the technology sector. The Russell 2000 was the top performer in December and has been since the end of the first quarter. How the small-caps fare this year will, again, depend on the global economy.
My stock analysis tells me that what happens in January will be an important indicator for the year as far as performance. Historical records indicate that stocks have increased an average of 1.6% in January since 1969, according to the Stock Trader’s Almanac. In 2012, January was a strong month, so it was not a surprise to see the relatively good advance in stocks.
As we move into 2013, the focus will be on any remaining fiscal cliff fallout and the impact of the deal, along with the eurozone mess, the U.S. national debt, and jobs growth.
For 2013, my stock analysis is cautious to start the year, based on the high global risk.
The fact that the economy is triggering some jobs growth is encouraging. My analysis is that this will likely continue in 2013, although the unemployment rate is expected to remain relatively high at over seven percent.
My stock analysis shows that we need to see leadership from such areas as the financial and technology sectors. The big banks were strong in 2012, but we also need to see technology take a leadership role.
It definitely will be a tricky year, given the global and domestic issues, along with suspect earnings and revenue growth to start the first quarter.
Again, as I … Read More
The Federal Reserve is busy looking at what to do next to try to keep the economic renewal on track, as the central bank meets for the last time this year. The Fed also understands its impact will be hindered by the ongoing battle in Congress regarding the pending fiscal cliff.
The Federal Reserve is speculated to continue its third quantitative easing (QE3) program of buying mortgage bonds each month. The effect will see the Fed increase its holdings of mortgage bonds to nearly $4.0 trillion, according to a Bloomberg survey. (Source: “Fed Seen Pumping Up Assets to $4 Trillion in New Buying,” Yahoo! Finance via Bloomberg, December 11, 2012.)
The bond buying has helped to ease financing rates and drive the housing market higher.
The Fed has spent $40.0 billion a month to buy mortgage-backed securities and, in theory, lower the financing rates. The yield on the 10-year Treasury stands at 1.6% versus 1.8% prior to the establishment of QE3—so it’s working.
For the Fed, as the QE3 works its way through the system, job creation is expected to be a major benefactor.
The Federal Reserve recognizes that the jobs market continues to be problematic and needs to be addressed, despite the unemployment rate falling to 7.7% in November. There are still over 21 million Americans looking for work.
To date, the super-low interest rates at between zero and a quarter of a percent have helped to prevent the country from falling into the abyss. If not for the low rates, the carrying cost of the $16.0 trillion in national debt would be suffocating and making the situation worse, … Read More
I realize many people might be getting tired of hearing about the eurozone and the lack of economic growth in that union; however, we must be aware that what does occur in the eurozone and the trajectory of its economic growth can and will have an impact on the American economy. The global economy is more closely tied together now than ever before, and a lack of economic growth in one area could spread into another nation.
As I wrote several days ago in my article “Global Recession Fears Grow as Strong Nations Weaken,” Finland is showing signs of extremely weak economic growth. On Friday, we had more reports from the eurozone that economic growth is far below what is acceptable.
Germany’s central bank, the Bundesbank, announced that its estimate for economic growth in 2013 will only be 0.4%, a huge decrease from earlier estimates in June for economic growth in 2013 to be 1.6%. Austria’s central bank also slashed its 2013 estimates to 0.5%, as compared to previous estimates of economic growth of 1.7% in 2013. (Source: “German, Austrian central banks see grim 2013 as crisis bites,” Reuters, December 7, 2012.)
The level of adjustment in economic growth rates for both of these central banks is massive, and it’s a sign that the eurozone is far weaker than anyone previously thought. A good example of how weak economic growth is in Germany, the core country within the eurozone, is the statement by the Bundesbank that “The cyclical outlook for the German economy has dimmed. Enterprises are cutting back their investment and hiring fewer new staff.” (Source: “German, Austrian central … Read More
It has been several years since the financial crisis within the eurozone erupted, resulting in weak and anemic economic growth that still eludes that union. The eurozone has been inundated with uncertainty and volatility in the financial markets. This has led to a loss in confidence by businesses and, ultimately, consumers.
It appears that the lack of economic growth within the eurozone is spreading to financially stronger nations. I have already mentioned that there are signs that Germany might be witnessing a slowdown in economic growth; now, we get a report from Statistics Finland that the recession has spread to that nation, as the country’s economy contracted by 0.1% in the third quarter from the second quarter of 2012. Compared to the third quarter of 2011, Finland’s economy shrank by 1.2% year-over-year. (Source: “Gross domestic product contracted by 0.1 per cent from the previous quarter and by 1.2 per cent year-on-year,” Statistics Finland, December 5, 2012.)
The volume of exports decreased by 1.8%, while imports decreased by 4.1% (both year-over-year figures). With the lack of economic growth within the eurozone now seeping into the stronger countries, this raises serious questions as to the possibilities of a continuation of financial strain on that economic union and a spreading of the financial crisis worldwide.
One serious worry is the 4.4% decline in investments year-over-year. For the eurozone countries, economic growth needs a certain level of business investment. If businesses don’t feel that there is a strong possibility for economic growth in the future, this will lead to lower levels of capital expenditures, which will reduce the long-term economic growth potential.
The fear … Read More
When making an economic forecast, whether it is for the global economy or a specific nation, one of the most fundamental inputs is the growth of wages for the average citizen. Since consumer demand supports so much of the modern economy, especially in the U.S., a lack of wage growth will certainly filter into a weaker overall economy.
While we have seen some improvements in the number of jobs created this past year, clearly this is not enough, as we have not seen any improvement in wages. My economic forecast for America in 2013 will continue to be muted, as real wages are actually declining, in addition to the global economy being extremely weak.
I was looking at the data from the Bureau of Labor Statistics and it reports that real wages, which take inflation into account, have fallen every month since February 2011 except one, in which real wages were flat. Over this period, my economic forecast for America continued to be lower than consensus, because there was no sustained increase in income. Without real wages growing, the wealth of the average citizen continues to decline.
America certainly cannot look to the global economy to help pull us out of the trough. In fact, a recent economic forecast on the global economy by the Organization for Economic Cooperation and Development (OECD) has also shown that it, too, has reduced expectations for growth.
The OECD now has an economic forecast that the global economy will grow 2.9% this year, versus an earlier estimate of 3.4%. The OECD has also drastically reduced next year’s economic forecast for the global economy to … Read More
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
When it comes to making money, one of the long-time leaders has been The Goldman Sachs Group, Inc. (NYSE/GS). Many people been having critical of Goldman Sachs due to its influence in nations around the world, which can lead to favorable terms for the company. Regardless of one’s opinion about the firm, its actions can be a good indicator of underlying trends.
Goldman Sachs is currently turning down the role of lead stock underwriter for firms located in the southern eurozone nations. If this firm that has been so successful at making money is so worried about the eurozone that it’s avoiding certain areas completely, then this is quite a negative sign. I would highly suggest following its lead and avoiding companies with exposure to the weaker eurozone nations.
There is much talk in the newspapers about a new deal for Greece, and attempts to keep the eurozone together. If the eurozone really was this close to a deal and this far away from a financial crisis, I’d think that Goldman Sachs would be jumping at the chance to be part of any underwriting deals. But because it would be liable to losses if the eurozone financial crisis were to worsen, and since it has far more access to information than you or me, its decision to avoid the region altogether is one in which I see a large amount of legitimacy and credence.
Goldman Sachs has rejected being underwriter in a $3.2-billion rights offering by Banco Popular Espanol SA (MCE/POP) due to concerns of potential losses. Again, if the eurozone was as strong as some politicians make it appear … Read More
The only people crying “Y2K” back in 1999 were information technology (IT) professionals looking for job security. Even without their help, disaster was averted, the rising sun greeted the world on January 1, 2000, and life was good.
Fast-forward to 2012, and the doomsayers are at it again. Except this time, it’s the members of the U.S. government wailing about an “economic Armageddon” if the fiscal cliff isn’t averted come January 1, 2013. Unlike Y2K, the fiscal cliff is a real issue that needs to be addressed; but the end result will be the same: at the last second, disaster will be averted.
Unfortunately, as we make our way to the end of the calendar year, indecisiveness and political jockeying are spooking the global investing community and wreaking havoc on the markets. At a time when the international community needs the U.S., the world’s largest economy, to show confidence, it’s the political infighting capturing the spotlight.
In spite of all the wailing and gnashing of teeth, the fiscal cliff will be avoided and life as we know it will continue. And that’s when the real problems begin. With the centric fiscal cliff stealing all the limelight, it’s been tough for investors to focus on the fact that America’s economic rebound is contingent on a financially strong international community. Domestic economic growth cannot be stimulated in isolation.
In January 2013, investors will see that the real underlying factor affecting the stock market is the global economy and its impact on corporate earnings.
On November 15, it was announced that the collective economies of the eurozone fell by 0.1% between July and … Read More
As 2012 is winding down, many analysts and investors are trying to determine their economic forecast for the fourth quarter and fiscal 2013. While America has its own serious issues, let’s not forget that the eurozone could become a huge problem for many nations in 2013.
One thing that has been constant regarding the eurozone is that many analysts who have come out with an economic forecast have consistently been revising it downward. It’s extremely difficult to properly come up with a framework that is viable over the long term if the economic forecast one is using is flawed.
Another piece of data that might help shed light on the fourth-quarter economic forecast for the eurozone was the recently released business survey conducted by research firm Markit. The Purchasing Managers’ Index (PMI) for the service sector was 45.7 this month, far below the 50.0 level that separates growth and contraction. Not only has this indicator shown contraction for 10 straight months, but the service industry is accelerating its decline, too. (Source: “Eurozone Faces Deepest Downturn Since Early 2009,” Reuters, November 22, 2012.)
While the manufacturing PMI came in slightly above expectations, it also was below 50.0, which denotes contraction in that sector for the eurozone. Many analysts use this key piece of data in their economic forecast for not only the fourth quarter, but also next year. When creating an economic forecast, trends are important. We continue to see that declines are not only consistent, but they are also getting worse within the eurozone.
However, making an economic forecast for the eurozone cannot be done simply by one data point. … Read More
We are heading toward the key Thanksgiving “Black Friday” to “Cyber Monday” retail sales period, and if all goes well, there could be some quick profits to be made in the market.
In 2011, strong retail sales on Black Friday gave a boost to the stock market, as the S&P 500 climbed nearly nine percent between November 25 and December 7, 2011.
The same could happen this year, except we still need to deal with the pending fiscal cliff.
Yet I feel that a strong showing in retail sales during the four-day key selling period beginning on Friday could help to attract some buying from Wall Street—a near-term boost, at the least, for a market that is full of uncertainties.
Let me first say that this holiday retail sales season will be critical for retailers.
Retail sales have increased for three straight years, according to the National Retail Federation (NRF), and the hope is for a fourth year of increases.
The NRF is optimistic and estimates that this holiday retail sales season will generate sales of $586.1 billion, up from $563.0 billion in 2011 (Source: “Holiday FAQ,” National Retail Federation, accessed November 19, 2012.)
There is also optimism for those shoppers who choose to shop from the comfort of their homes or convenience of their mobile devices. I know I’m in that group.
According to Adobe Systems Incorporated (NASDAQ/ADBE), online sales on Cyber Monday, the Monday following Thanksgiving, are estimated to rise 18% year-over-year to $2.0 billion. (“Adobe Predicts Online Sales Will Reach $2 Billion This Cyber Monday, Growing by 18 Percent Over 2011,” Daily Finance via Business Wire, November … Read More
While many investors in America are focusing on domestic issues, we have to remember that we live in a global economy. What happens to other nations can certainly hit our shores. While some people have been optimistic that the financial crisis within the eurozone has turned the corner, new evidence points to the contrary.
The latest information from the eurozone shows just how weak the continent is and how much damage the financial crisis has done to its economic union. Germany’s industrial production in September fell by 1.8%, far worse than many economists have estimated. There was also a decline of 2.2% in intermediate goods and a 3.5% loss in capital goods in September on a monthly basis. (Source: “German industry output drops in Sept, manufacturing weighs,” Reuters, November 7, 2012.)
Germany has been the strongest member within the eurozone, holding up in the face of the financial crisis in the weaker periphery countries. Recent data points to the fact that even the strongest members of the eurozone are succumbing to the financial crisis as it spreads across the borders.
Germany’s Economy Ministry stated that it believes its nation will experience weaker economic conditions over the winter period. With output decreasing and exports to other eurozone members declining, the Ministry stated that it doesn’t believe Asian demand will be enough to counteract the weakness from the other eurozone members. (Source: “German Growth Set to Slow as Eurozone Crisis Hits Home,” Reuters, November 9, 2012.)
The backstop to the financial crisis in the eurozone has been the European Central Bank (ECB). However, the latest statements by ECB President Mario Draghi do … Read More
With the rise of instability within the European Union (E.U.), gold bullion has become increasingly attractive as a backstop. Next to America, Germany has the second-largest holding of gold bullion, with approximately 3,600 metric tons. What is interesting at the current moment is that many voices within Germany are calling for the Bundesbank, its central bank, to check its international holdings, namely in the U.S., as not all of the gold bullion held by Germany is being stored on the country’s own soil.
A recent report by the German Federal Audit Office criticized the Bundesbank for its lack of a better international inventory system. While the German central bank has a strong handle on its domestic gold bullion inventory, its knowledge of its holdings in other countries, especially the U.S., is not as thorough as some would like. (Source: “Why Germany Wants to See its US Gold,” Der Spiegel, October 30, 2012.)
With gold prices at very high levels, there is a greater concern to ensure the accuracy of the level of gold bullion actually being held. With approximately half of Germany’s gold bullion being stored in America, the lack of proper auditing by German officials worries some within Germany.
Of Germany’s 3,600 metric tons of gold bullion in total, 1,536 are being held at the Federal Reserve Bank of New York. (Source: Der Spiegel.) Some within the German community have been calling for a return of the gold bullion to help fund other proposed ventures, including a natural disaster relief fund or an education fund. With gold prices so high, many people believe this would be a more practical … Read More
Nothing motivates like fear. Barack Obama won the U.S. presidential election on November 4, 2008, and gun sales surged. For the week of November 3, 2008, the Federal Bureau of Investigation (FBI) received more than 374,000 requests for background checks on gun purchasers, a 49.0% increase over the same period in 2007. (Source: “Gun sales surge after Obama’s election,” CNN, November 11, 2008.)
The surge was attributed to fears that a Democratic president and Democratic-controlled Congress would restrict firearm ownership. Similar surges accompanied the election of Bill Clinton, the last Democratic president.
Fast-forward to 2012 and it’s déjà vu. In August, firearm sales checks were up 27.8% year-over-year to 1.04 million. (Source: “August sees 27.8% increase in firearms sales checks,” Buckeye Firearms Association, September 6, 2012.) In September, they were up 14.7% to 1.07 million. This marks the 28th straight month that the National Instant Criminal Background Check System (NICS) figures have increased year-over-year. (Source: “September 2012 NSSF-Adjusted NICS Background Checks Up 14.7 Percent,” National Shooting Sports Foundation, last accessed October 26, 2012.)
In fact, gun ownership is near a 20-year high, generating $4.0 billion in commercial gun and ammunition sales. With an estimated 300 million guns, America is the most heavily armed nation in the world. (Source: “Behind America’s Gun Boom: Inside the Comeback At Sturm, Ruger,” Forbes October 17, 2012.)
Is there any truth to support a Second-Amendment crisis under Obama?
Since 2008, the few times Obama has done anything related to guns, it has been to expand the rights of gun owners. He signed a law that allows people to bring their guns into national parks (source: … Read More
With the recent steps taken by the European Central Bank (ECB) to stem the financial crisis within the eurozone, the situation will get worse before it gets better, as I have stated several times. One of the concerns for investors is the possibility that the financial crisis could spread to the strong nations within the eurozone. It appears that this is indeed the case, as new data from Germany show that unemployment is rising at a much faster rate than anyone expected.
The seasonally adjusted number of people unemployed in Germany rose 20,000 in October, which was higher than the 10,000 expected from a Bloomberg survey. The unemployment rate also increased from a rate in August of 6.8% to 6.9% in both September and October. (Source: “German Jobs Machine Falters For First Time in Three Years,” Bloomberg, October 30, 2012.)
Many international investors have been hoping that the German economy would be able to withstand the financial crisis that is spreading from the weaker eurozone nations and would pull that union up out of its trough. It appears that the massive level of weakness is pulling down the strong nations within the eurozone.
To put the data in context, Germany is still a strong economy. Unemployment there is still much lower than the rest of the eurozone, and even lower than in America. But we should all be aware of any changes in trends. Up until now, the situation was that Germany has been able to withstand the financial crisis stemming from the weaker eurozone nations. If the situation worsens, it could have a dramatic impact on worldwide markets.
Of … Read More
The eurozone financial crisis has been an ongoing topic of discussion for quite a long time. I can appreciate why some readers might be tired of hearing about the eurozone and the lack of economic growth within that union; however, I would remind Americans that what happens in the eurozone will certainly have an effect here at home.
The latest data have been a disappointment, as it appears that economic growth continues to elude the eurozone. The Purchasing Managers’ Index (PMI) survey, run by the financial information company Markit, is a great gauge to understand the true level of economic growth around the world. Currently, PMI data is available for 32 countries, not just the eurozone.
The latest eurozone PMI composite index came in at 45.8 for October, a drop from 46.1 in September. This represents the lowest PMI composite reading in 40 months. While the service sector PMI was up marginally to 46.2 for October, as compared to 46.1 in September, the manufacturing PMI declined to 45.3, as compared to 46.1 in September. (Source: Markit, October 24, 2012.)
There are two things to remember about the PMI readings: a number above 50.0 represents economic growth, and a number below 50.0 represents a decline in economic growth; and secondly, the trend is important. While the number below 50.0 represents declining economic growth, if the trend was improving, it would be a positive sign for the future. However, the worry within the eurozone is that these numbers are generally weakening, especially in manufacturing, which will weigh down the chances of economic growth.
Another worry for future economic growth within the eurozone … Read More
Recent analysis by management consultants regarding stress tests for bank stocks within the eurozone are showing more signs of concern for investors around the world. One of the biggest concerns is the eurozone’s Spanish banking system. Spanish bank stocks have seen their bad loans increase as a percentage of total lending for 17 straight months. According to Bloomberg, bad loans went up 0.72% in 2006 and stood at a massive 10.5% in August. (Source: “Spain Banks Face Pain as Worst-Case Scenario Turns Real,” Bloomberg, October 18, 2012.)
That is a shocking increase for bank stocks to deal with, considering the economy is still in decline. The eurozone itself is experiencing massive economic difficulties, and there appears to be little relief for bank stocks in that region over the short term. Bloomberg also noted that management consultant firm Oliver Wyman Group considered a decline of 6.5% in Spanish economic activity from 2012 to 2014 during its stress test. What was surprising to me was that the Bank of Spain only gave this scenario a one-percent chance of occurring. I’m not sure how they came to that figure, but a six-percent decline is very realistic for the Spanish economy over the next couple of years.
The problem for the eurozone is that bank stocks within the union have assets that continue to underperform, this creates a reduced incentive to increase lending and transactions that are needed to grow an economy. Much like an individual who has taken on too much debt, bank stocks have less excess reserves to spend, and even less willingness to spend them. Bank stocks are obviously an integral … Read More
The financial crisis in the eurozone has continued for some time, and there is still no end in sight. What was once perhaps a nice theory on paper is currently crumpling under the strains of reality. It’s still a surprise to me that the founders of the eurozone did not realize the possibility of a financial crisis and the importance of having a fiscal union to go along with the monetary union. I’m sure every person knows that they shouldn’t cosign a loan with someone unless they can trust in that person’s ability to repay their debt. Instead, the eurozone has essentially given a blank check to the weaker nations, specifically the PIIGS—Portugal, Ireland, Italy, Greece, and Spain.
With this financial crisis unfolding, many are surprised that the eurozone is still holding together. So the question is: why would the wealthy northern part of the eurozone continue to support the poor and fiscally irresponsible countries during this financial crisis? Why not just break up the union? It appears that the costs associated with breaking up the eurozone might be far higher than most people realize. In fact, perhaps the eurozone members themselves know the true costs and are thus willing to throw in hundreds of billions of dollars to prevent the loss of trillions.
A new study by research company Prognos has come out with an estimate; if Portugal, Greece, Italy, and Spain were to leave the eurozone, in terms of growth, it would cost approximately 17.2 trillion euros, or US$22.3 trillion, by 2020. (Source: “Euro Exit by Southern Nations Could Cost 17 Trillion Euros,” Spiegel Online October 17, 2012)… Read More
I hate that “R” word, but here we go—recession.
Don’t worry too much about the economic recovery in the U.S.; the real threat, as I have said on many occasions, will be the inevitable deterioration of the eurozone. What happens in the eurozone will have a domino effect on the rest of the industrialized and emerging markets worldwide.
Credit ratings agency Standard & Poor’s lowered its growth forecasts for the eurozone and suggested that the findings “paint a bleak picture” for the region. This shouldn’t be a surprise to you; I have long been bearish on the eurozone despite the bailouts and bond buying.
Standard & Poor’s estimates the eurozone will see its GDP growth contract by 0.8% this year, down from the previous -0.7%, followed by no growth in 2013, versus the previous estimate of 0.3% growth.
Spain and Italy were highlighted as the trouble regions. Spain will see its economy contract 1.4% in 2013. The country is working on austerity measures that are expected to be introduced this week, as the country may be looking at resolving its own debt issues and recession before requesting money from the ECB and other lenders.
A tough austerity program would bind Spain’s spending and have an impact on its ability to climb out of this recession. The country’s economic strength is declining. The country’s economy has fallen to 12th in the world in 2011, according to the International Monetary Fund (IMF). Previously, Spain’s economy was the ninth largest, but with its continued financial crisis, it has since been surpassed by Russia, Canada, and India. Regardless, a collapse in Spain would be … Read More
Oil prices recently briefly traded at $100.00 a barrel prior to retrenching back down towards the $90.00 level. Yet, having been in a bear market in June, oil has since rallied. The November West Texas Intermediate (WTI) futures contract is up 16.7% from its 12-month low. While the November oil is displaying a bearish death cross on the chart with the 50-day moving average (MA) of $93.92 below its 200-day MA of $97.52.
The chart appears to be showing a bullish flag formation setting up, which means that higher oil prices—to over $115.00 in the best-case scenario—could be coming, based on my technical analysis.
I believe oil will continue to hold above at least $80.00 a barrel going forward and will rally as the global economy strengthens. Extending the contract to 2020, the current prices range from $86.00 to $93.00.
Helping to add support will be the continued erosion in the major economies in the eurozone, the U.S., and China. Also add in the geopolitical issues in the Middle East and rising tensions in the South China Seas between China and Japan.
Chart courtesy of www.StockCharts.com
I also expect oil prices to be supported by the Organization of Petroleum Exporting Countries (OPEC) oil cartel. OPEC estimates oil prices in nominal terms could hold in a range of $85.00 to $95.00 a barrel for the rest of this decade, according to its internally produced World Oil Outlook (WOO). The report blames the spikes in oil prices on speculators, which I fully agree with, but it’s part of the business. An interesting note in the WOO report is the assumption that oil … Read More
There are many players in the eurozone placing large bets on the union and the euro surviving. Not only are massive sums of money being used to try and reduce the financial crisis, but many businesses would be hurt at least in the short term if the euro were to break apart. While it may seem that the financial crisis is averted based on the recent announcement by the European Central Bank (ECB) of additional monetary support, I would say it’s been postponed at best.
The first sign is that there is currently a large amount of money leaving the poorer, troubled nations and being moved up into the stronger members of the eurozone. This flight of capital can certainly accelerate any financial crisis, especially one so close to the edge. According to data from Bloomberg, approximately $425 billion (326 billion euros) left Spain, Greece, Ireland, and Portugal in the past fiscal year, ended July 31. Bloomberg also states that approximately 300 billion euros moved into the economies of the seven core members of the eurozone, including Germany.
While the eurozone is supposed to be “one” economic block, it’s obviously becoming increasingly fragmented. This type of distortion will certainly lead to greater difficulty in trying to prevent a financial crisis from erupting. As many monetary policies enacted by the ECB affect all eurozone members, having such massive differences economically and financially makes it extremely hard to zero in on the core issues.
For example, if we look at current monetary policies, can we really state that one interest rate is appropriate for both Germany and Spain? It seems silly to … Read More
Last week it seemed that the financial crisis in the eurozone might be temporarily averted, as the European Central Bank (ECB) President Mario Draghi announced a plan to buy unlimited amounts of short-term government bonds for countries that are in trouble. The yield on some of these troubled nations was starting to skyrocket, creating the very real possibility of the financial crisis escalating within the eurozone.
This announcement by the ECB president temporarily drove down yields for nations such as Spain, where investors are having serious doubts about their ability to repay their debts.
The eurozone financial crisis is now at an inflection point. Greece was a small, tiny part of the eurozone, and the financial crisis there has done little to affect the eurozone, as seen with respect to the overall gross domestic product (GDP) of the European Union. However, Spain and Italy are huge parts of the eurozone and are integral to its structural base. While the ECB is stating that it’s too big to fail, real questions are arising that suggest it’s too big to save.
However, this past weekend, some cracks appeared in one of the plans for the eurozone that involves having one bank supervisor overseeing the rules and regulations for all of the continent’s banks. To help prevent a future financial crisis from spreading, the proposal to have a single supervisor and a banking union would be a positive step in unifying the rules and regulations between all of the eurozone countries.
With this initiative scheduled to begin on January 1, 2013, several eurozone countries are now voicing concerns that there’s not enough time … Read More
The muted growth in Europe is far-reaching and negatively impacting the global economy…and the evidence for this is mounting.
Six eurozone countries are in a recession, and Germany and France could join in next year.
China, the world’s second largest economy, may still be heading for a hard landing, albeit, the government will likely do whatever it can to prop up its economic growth and make sure the growth is given help. The country’s 2012 gross domestic product (GDP) is estimated at a 7.5% GDP growth rate, according to Premier Wen Jiabao. This would be the lowest economic growth since 1990. Other pundits feel that China could still expand at over eight percent this year; however, much of the growth will be dictated by what happens with the debt crisis and muted economic growth in Europe and the eurozone, which has lessened the demand for Chinese-made goods.Japan, the world’s third largest economy, is also in an economic stalemate that is negatively impacted by the lack of economic growth in Europe.
But while the world’s top industrialized countries are at risk, the higher risk from the eurozone crisis will be on the emerging regions in Eastern Europe, much more than Asia and the United States. These emerging economies tend to be more driven by export demand.
Russia, the largest economy in Eastern Europe, is expected to see GDP growth of 3.5% for 2012, down from the previous 3.7% estimate, and 4.3% in 2011, according to internal government estimates. Inflation is also a mounting problem in Russia.
The second largest economy in Eastern Europe, Poland, reported GDP growth of 4.3% in 2011, … Read More
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
I can guarantee you that a key point of discussion in the build-up to the presidential election will be the jobs market.
In my view, despite all the fuss about the July job numbers, job creation is dead.
Just ask the 12.7 million or so Americans searching for work or the over 23 million or so who are unofficially unemployed. These are real people looking for appropriate work in the jobs market. Moreover, there are also the millions working part-time or underemployed.
Wall Street is not hiring, technology companies are firing, and manufacturing is losing jobs to cheap overseas plants, where workers are willing to work for dirt-cheap wages.
We are seeing more college graduates working at low-level jobs just to pay the bills. And the reality is that given the dire situation in the jobs market, it could take years to resolve. There are also the mounting student loans that will take decades to pay, but then that’s another story.
The media pointed to the July jobs market numbers showing the creation of 163,000 new jobs, but the unemployment rate edged higher to 8.3%. The chart shows the inconsistency and the fact there needs to be a steady rise in jobs to cut into the unemployment rate.
Chart copyright Lombardi Publishing Corporation,
2012; Data Source: Bureau of Labor Statistics
The jobs market is even worse when you consider that the consensus among economists is that the country would need to add 500,000 jobs monthly to make a dent in the unemployment rate and get it moving towards full employment at around six percent.
President Barack Obama has … Read More
There seems to be a collective sigh of relief among central banks and investors around the world that a pro-eurozone coalition government has been formed in Greece—at least for today.
While the debate rages on what global effects Greece leaving the eurozone would have on financial markets and economies around the world, no one is talking about what is best for Greece.
Many economists believe the worst thing Greece could do is leave the eurozone, because it would cause such havoc and lead to severe economic pain for the people of Greece.
The latest figures from the eurozone have the unemployment rate in Greece at 22.6%, while youth unemployment is 52.7%. Greece’s economy has been contracting for five years straight and will continue to contract, which means unemployment will worsen. This is better than leaving the eurozone?
Greece’s government debt exceeds its gross domestic product (GDP). As the economy continues to contract, government debt will only get worse. The eurozone is asking Greece to implement austerity measures that will hopefully see Greece reduce its debt-to-GDP to 120% by 2020.
That’s not an improvement; it’s a mitigated disaster. There is no way Greece can pay for its debt. I’m not suggesting that declaring bankruptcy and starting over again is a painless process; but at least then the Greek people can start over and begin to grow again.
The alternative is to watch government debt that can never be repaid continue to rise, while the economy contracts and the unemployment rate continues to soar.
In the meantime, the National Bank of Greece is preparing to sell its most prized resort along … Read More
I previously discussed the debt-binge party that got the eurozone into the mess it is currently in. Now, I’d like to focus the discussion on the key country that I believe will decide how this grand plan called the eurozone will be determined: Germany.
In the early 1920s, Germany experienced what can only be described as the perfect hyperinflation storm. It ravaged the country, leading to hunger, suicides and destitution of unimaginable proportions. The scars of that hyperinflation still resonate with the German people today.
But the scars run deeper and influence policy today in the eurozone because it was from this hyperinflation depression that the destitute people desperately searched for answers with which to alter their lives. The answer came in the form of Adolph Hitler.
After the debt party that I previously discussed, Germany was determined not to join in the call for money printing because its central bank—the Bundesbank—has erected symbols of the Weimar hyperinflation in its halls. It was money printing that led to the hyperinflation, which then led to Hitler gaining political power. So, Germany said “never again.”
Although the rest of the world and the rest of the eurozone claim that Germany is overreacting, I’d argue that if our culture was responsible for not only hyperinflation, but also Hitler, we’d be just as hesitant to follow policies that led to the disastrous events of the 1920s.
After the financial crisis hit in 2008, Germany resisted the calls to print money and was able to have France by its side, which went along with the German ideology of austerity. Germany deemed austerity measures to be … Read More