Global Markets in Review: Despite Cheer, Risky Assets Look Weary 20 comments
- Prieur du Plessis' articles on Seeking Alpha
- Prieur's blog: Investment Postcards
- Subscribe to Prieur's blog
- Prieur's investment house: Plexus Asset Management
- Contact Prieur
-
Font Size:
-
Print
- TweetThis
Stock markets, in general, again logged gains last week as pundits perceived economic data to be better than expected. But the recovery path is not home and dry yet, as shown by declines in crude oil, a number of emerging stock market indices, small cap indices and high-yield corporate bonds. All said, risky assets displayed some fatigue despite positive economic reports.
Caution remained over the robustness of any economic upswing, as reflected by the solid performance of government bonds, with safe-haven currencies such as the U.S. greenback and the Japanese yen also edging up.
As expected, Federal Reserve Chairman Ben Bernanke was appointed by President Barack Obama on Tuesday to serve a second term. The Financial Times commented:
Mr Obama is said to credit Mr Bernanke with a leading role in helping to avert economic catastrophe. By reappointing Mr Bernanke - who worked in the Bush White House - Mr Obama can also emphasize his bipartisan credentials at a time when he is embroiled in a fiercely partisan battle over healthcare reform.
However, critics of Obama’s decision were plentiful and Morgan Stanley’s Stephen Roach, blaming Bernanke for his pre-crisis actions, said (via the Financial Times):
It is as if a doctor guilty of malpractice is being given credit for inventing a miracle cure. Maybe the patient needs a new doctor.
Bill King (The King Report) ascribed the stock market rising subsequent to Obama’s announcement to a “thank God it’s not Larry Summers” rally.
The past week’s performance of the major asset classes is summarized by the chart below - a set of numbers showing both the S&P 500 Index and government bonds rising, indicating an expectation of a subdued economic recovery and that the Fed’s monetary policy will stay easy for an extended period of time.
Click to enlarge:
Source: StockCharts.com
A summary of the movements of major global stock markets for the past week, as well as various other measurement periods, is given in the table below.
The MSCI World Index (+1.3%) and MSCI Emerging Markets Index (-0.2%) again followed separate paths last week as China, Hong Kong and Brazil underperformed. Mature stock markets have recorded gains for a straight seven weeks, whereas emerging markets have seen two back-to-back weeks of declines. The end result is that emerging markets have now underperformed developed markets for four weeks running. Could this be a sign of a retrenchment in risk appetite?
The major U.S. indices extended their gains to two consecutive weeks, including eight straight up-days in the case of the Dow Jones Industrial Index, before getting snapped by a decline on Friday. The year-to-date gains are as follows: the Dow Jones Industrial Index +8.7%, the S&P 500 Index +13.9% and the Nasdaq Composite Index +28.6%. With declines on three days, the Russell 2000 Index was the odd index out last week, but still boasts a respectable +16.1% gain since the beginning of 2009.
Click here or on the table below for a larger image.
Top performers in the stock markets this week were Lithuania (+28.2%), Estonia (+17.3%), Latvia (+12.6%), Egypt (+9.6%) and Iceland (+9.1%). The top three positions were all occupied by eastern European countries where worries over the risk of some economies collapsing have receded. At the bottom end of the performance rankings, countries included Nepal (-4.0%), China (-3.4%), Kenya (-2.7%), Uganda (-2.6%) and Bangladesh (-1.8%).
The Chinese Shanghai Composite Index recorded its fourth consecutive down-week as investors remained concerned about how long China’s exceptionally loose monetary policy will continue. The banking regulator has already instructed lenders to raise reserves to 150% of their non-performing loans by the end of this year - up from 134.8% at the end of June, and the central bank has increased money-market rates to drain liquidity.
However, US Global Investors opines that historically sustainable market rallies out of a cyclical trough usually start with an expansion in valuation multiples followed by a recovery in earnings. The report said:
China may be poised to enter this second stage against a favorable macro backdrop. With surging money supply and significantly lower commodity prices from a year earlier, corporate earnings in China could produce upside surprises going forward.
Click to enlarge:
Source: US Global Investors - Weekly Investor Alert, August 28, 2009.
Of the 96 stock markets I keep on my radar screen, 77% (last week 47%) recorded gains, 18% (47%) showed losses and 5% (4%) remained unchanged. (Click here to access a complete list of global stock market movements, as supplied by Emerginvest.)
John Nyaradi (Wall Street Sector Selector) reports that as far as exchange-traded funds (ETFs) are concerned, the winners for the week included CurrencyShares Russian Ruble (XRU) (+5.0%), First Trust Amex Biotechnology (FBT) (+4.8%), iShares MSCI Australia (EWA) (+4.5%) and iShares Silver Trust (SLV) (+4.2%).
On the losing side of the slate, ETFs included Claymore/AlphaShares China Real Estate (TAO) (-4.2%), Market Vectors Coal (KOL) (-3.1%), SPDR KBW Regional Banking (KRE) (-3.1%) and iShares MSCI Brazil (EWZ) (-3.0%).
As far as credit markets are concerned, Bloomberg reported that banks were increasing lending to buyers of high-yield company loans and mortgage bonds at what might be the fastest pace since the credit-market debacle began in 2007.
Federal Reserve data show the 18 primary dealers required to bid at Treasury auctions held $27.6 billion of securities as collateral for financings lasting more than one day as of August 12, up 75% from May 6. The increase over that 14-week stretch is the biggest since the period that ended April 2007, three months before two Bear Stearns Cos. hedge funds failed because of leveraged investments.
This is a sign of credit markets moving towards normalization.
Referring to the mind-boggling U.S. budget deficit, the quote du jour this week comes from 85-year old Richard Russell, author of the Dow Theory Letters. He said:
Comes the dawn - and the penalty. There’s a price to be paid for Bernanke’s all-out battle to thwart the bear market. And now it’s being told. Yesterday the White House itself admitted that the budget deficit over the next 10 years would be $2 trillion above their original outrageous estimate of $7 trillion dollars.
As I said all along, it would have been better to have allowed the bear market to run its course to conclusion. That would have been extremely painful, but the U.S. would have recovered. However, deficits in the trillions could ultimately ‘break’ this nation. I can’t imagine how Bernanke-Obama plan to handle the coming mind-blowing deficits, plus the interest on those deficits.
The pressure will be on the reserve status of the dollar, the level of the dollar compared to other international currencies, interest rates, and the standard of living of all of us living in the new ‘banana republic’, the United States of ‘bankrupt’ America.
When you take all this in, you can begin to see how this bear market could end with stocks selling below known values and people despising the stock market and capitalism.
Other news is that the Fed must for the first time identify the companies in its emergency lending programs - created to address the financial crisis - after losing a Freedom of Information Act lawsuit against Bloomberg. The Fed is likely to appeal against the order on the grounds that such disclosure would threaten the companies and the economy.
Also, the Federal Deposit Insurance Corporation (FDIC) on Thursday said (via the Financial Times) the number of “problem banks” had grown from 305 to 416 during the second quarter, representing total assets of $299.8 billion. In the meantime, the FDIC’s deposit insurance fund, which insures up to $250,000 per depositor in each bank, had fallen to just $10.4 billion - the lowest level since March 1993 - as a result of all the bank failures, tallying 84 so far in 2009.
Next, a tag cloud of all the articles I read during the past week. This is a way of visualizing word frequencies at a glance. Key words such as “market”, “Fed”, “bank”, “prices”, “rates” and “economy” featured prominently. Interestingly, “recovery” is still moving up the ranks as the global economy seems to have turned the corner.
The key moving-average levels for the major U.S. indices, the BRIC countries and South Africa (from where I am writing this post) are given in the table below. With the exception of the Chinese Shanghai Composite Index, which fell below its 50-day moving average about two weeks ago, all the indices are trading above their respective 50- and 200-day moving averages. The 50-day lines are also in all instances above the 200-day lines and therefore not threatening the bullish “golden crosses” established when the 50-day averages broke upwards through the 200-day averages.
The August 17 lows that represent short-term support levels for the major U.S. markets and are as follows: Dow Jones Industrial Index (9,135), S&P 500 Index (980) and Nasdaq Composite Index (1,931).
Click here or on the table below for a larger image.
For more on key levels and some ideas regarding the short-term direction of the S&P 500 Index, Adam Hewison’s (INO.com) short technical analysis provides valuable insight. Click here to access the presentation.
The chart below, courtesy of Bespoke, shows that the average short interest as a percentage of float for stocks in the S&P 1500 is currently at 6.9% - the lowest level since February 2007 when the average was 6.6%. “In 2008, it was the bulls who argued that high levels of short interest were a reason the market should rally. With the recent data, however, it is now the bears who will argue that low levels of short interest suggest that investors are now too bullish,” remarked Bespoke.
Click to enlarge:
Source: Bespoke, August 26, 2009.
Doug Kass (The Street.com) said:
The authorities have created a sugar high for speculation, with a Federal Reserve that has maintained interest rates so low that there is no return on savings and with an Administration that promises to provide stimulus until it manufactures economic growth. My view is that investors will shortly see through the current sugar high and the better-than-expected earnings cycle and will begin to look over the valley at the chronic and secular issues that have emerged from the past cycle and from policy decisions aimed at returning the domestic economy toward self-sustaining growth.
The last words on equities go to Jeff Saut, investment strategist of Raymond James, who said:
‘Breakout or fake out?’ is the question du jour. Yet as market maven Arthur Zeikel wrote decades ago, ‘Despite what theoreticians tell us, investing - particularly at the margin - is not the product of rational and objective analysis, but an emotional relative analysis - anxiety about the future.
My colleague Bob Ferrell put it this way: ‘Emotions are simply stronger than reason; people do not change and people make markets!’ Indeed, fear, hope and greed are only loosely connected to the business cycle. And, at session 30 in the ‘buying stampede’, we are clearly in the ‘greed phase’. We continue to invest, and trade accordingly.
For more discussion on the direction of financial markets, see my recent posts “Stages of a secular bear market“, “The lie of the investment land, according to Hugh Hendry“, “Picture du Jour: Stock market rally long in the tooth” and “RGE: Impact of China on financial markets“.
Economy
“Global business confidence remained positive last week for the third straight week. The last time confidence was consistently positive was nearly a year ago,” said the latest Survey of Business Confidence of the World by Moody’s Economy.com. “Businesses are responding most positively to broad assessments of the current economic environment and the outlook into early 2010; they are as strong as they have been since the financial crisis first hit in the summer of 2007.”
The Survey results suggest that the global recession is coming to an end, but isn’t quite over yet.
Click to enlarge:
Source: Moody’s Economy.com
The German economy expanded in the second quarter of 2009 with real GDP rising by 0.3% on a seasonally adjusted basis from the previous quarter. Also, the Ifo Business Survey reported that German business confidence improved to an 11-month high in August, indicating a further improvement in GDP in the second half of 2009.
Click to enlarge:
Source: Ifo, August 27, 2009.
Heading home from Jackson Hole a week ago, the world’s central bankers seemed in no hurry to start increasing interest rates - intent on not repeating the monetary policy tightening mistakes of the Great Depression. As reported by the Financial Times, Martin Feldstein, a Harvard professor, thought it would be possible to have “two years or more of very low interest rates” without risk of excess inflation, given the labor and factory capacity in the economy.
Meanwhile, after keeping the interest rate at a record low of 0.5% from April to July 2009, the Bank of Israel (BoI) became the first central bank to raise interest rates in this cycle, increasing the benchmark rate to 0.75%. Analysts believe Australia and Norway will tighten first among the G-10 central banks in 2010, as reported by RGE Monitor.
A snapshot of the week’s U.S. economic reports is provided below. (Click on the dates to see Northern Trust’s assessment of the various data releases.)
Friday, August 28
•“Cash for clunkers” lifts consumer spending in July
Thursday, August 27
•Jobless claims decline, but continuing claims including special programs advance
•Q2 real GDP unchanged at -1.0%
Wednesday, August 26
•Sales of new homes advanced, inventories are shrinking
•Defense and aircraft orders lift durable goods in July
Tuesday, August 25
•Case-Shiller Home Price Index and FHFA House Price Index - noteworthy recovery
•Gain in consumer confidence during August nearly erases losses of prior two months
Monday, August 24
•Chicago Fed National Activity Index - confirms positive signals of other reports
The S&P/Case-Shiller Home Price Index for June showed its second straight monthly increase. According to Bespoke, the last time home prices increased two months in a row was back in the summer of 2006 at the end of the last housing boom.
June’s 1.4% monthly gain was also the largest monthly increase since June 2005. There’s no denying that these numbers are showing considerable improvement.
Click to enlarge:
Source: Bespoke, August 25, 2009.
The White House confirmed on Tuesday that the U.S. deficit would be wider than they had previously estimated. The graph below, courtesy of Clusterstock - Business Insider, shows that although the budget deficit as a percentage of GDP has been revised down for 2009 - due to less bailout spending - it has been increased for every year through 2019.
Click to enlarge:
Source: Clusterstock - Business Insider, August 25, 2009.
“The longest and deepest recession of the postwar era has ended,” said IHS Global Insight chief economist Nariman Behravesh (via MarketWatch). However, he expressed concern that the recovery could lose steam in a few quarters, warning:
A sustained, robust global recovery depends on renewed growth in consumer spending and capital investment. The coming expansion will be restrained by cautious consumers in the United States and Europe, who are saving to rebuild depleted assets and reduce debt burdens.
Week’s economic reports
Click here for the week’s economy in pictures, courtesy of Jake of EconomPic Data.
Date | Time (ET) | Statistic | For | Actual | Briefing Forecast | Market Expects | Prior |
Aug 25 | 08:30 AM | Jul | - | NA | NA | NA | |
Aug 25 | 09:00 AM | Aug | - | NA | NA | NA | |
Aug 25 | 09:00 AM | S&P/Case-Shiller Home Price Index | Jun | -15.44% | -17.0% | -16.40% | -17.02% |
Aug 26 | 08:30 AM | Jul | 4.9% | 2.8% | 3.0% | -1.3% | |
Aug 26 | 08:30 AM | Durables, Ex Transportation | Jul | 0.8% | 0.4% | 0.9% | 2.5% |
Aug 26 | 10:00 AM | Jul | 433 | 380K | 390K | 395K | |
Aug 26 | 10:30 AM | Crude Inventories | 08/21 | +128k | NA | NA | -8.40M |
Aug 27 | 08:30 AM | 08/22 | 570K | 580K | 565K | 580K | |
Aug 27 | 08:30 AM | Q2 GDP - Preliminary | Q2 | -1.0% | -1.6% | -1.5% | -1.0% |
Aug 27 | 08:30 AM | GDP Deflator | Q2 | 0.0% | 0.2% | 0.2% | 0.2% |
Aug 28 | 08:30 AM | Jul | 0.0% | -0.1% | 0.1% | -1.1% | |
Aug 28 | 08:30 AM | Personal Spending | Jul | 0.2% | 0.3% | 0.2% | 0.6% |
Aug 28 | 08:30 AM | PCE Core | Jul | 0.1% | 0.1% | 0.1% | 0.2% |
Aug 28 | 09:55 AM | Michigan Sentiment | Aug | 65.7 | 64.8 | 64.0 | 63.2 |
Source: Yahoo Finance, August 28, 2009.
Click here for a summary of Wells Fargo Securities’ weekly economic and financial commentary.
The European Central Bank (ECB) will make an interest rate announcement on Thursday (September 3). U.S. economic data reports for the week include the following:
Monday, August 31
•Chicago PMI
Tuesday, September 1
•Construction spending
•ISM Index
•Auto sales
Wednesday, September 2
•ADP employment
•Productivity
•Factory orders
•FOMC minutes
Thursday, September 3
•Initial jobless claims
•ISM services
Friday, September 4
•Nonfarm payrolls
•Unemployment rate
Markets
The performance chart obtained from the Wall Street Journal Online shows how different global financial markets performed during the past week.
Click to enlarge:
Source: Wall Street Journal Online, August 28, 2009.
“Great minds talk about ideas. Average minds talk about events. Small minds talk about people,” said Eleanor Roosevelt. Let’s hope the news items and quotes from market commentators included in the “Words from the Wise” review will assist Investment Postcards readers to generate money-making ideas that look past the noise investors so often have to wade through.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
Top
StockTalkers.-
1
David Fry
-
2
Cliff Wachtel
-
3
Mike Havrilla
-
4
David White
-
5
Hedged In
Top StockTalkers » -
1
This article has 20 comments:
For the record, the following is a “Quick” snapshot of where we have been, where we are going and why! My apology for not being able to fit a 200 year history, into a few sentences! I encourage comment, to agree or disagree & most importantly I encourage you to propose solutions!
US Influence
Let me dwell for a moment, on the relationship between the USA & the Global Economy.
It has been suggested, in recent times, that the Global economy and in particular the BRIC countries, have De-coupled from the US and the influence of the US is now substantially lessened, on the World economy.
That said, the US economy, in GDP terms, is still greater than the next 3 countries GDP, combined.
For the Record, whilst some countries have room to manoeuvre slightly, they can not swim against the US tide and clearly, the current economic slowdown has put an end to the De-coupling suggestion, at this time!
Where are we Now
Let me put it this way, the US situation is as follows -
1) The Debt to GDP ratio is heading north quickly, to 100% and beyond.
2) Consumers have taken a massive hit, via falling housing equity, lower share values & reduced access to credit.
3) The economy is deleveraging and will do so, for some time to come. Derivatives is the other Elephant in the living room!
4) Two of the three major growth drivers (Oil & Population), have Peaked and are heading south.
5) Unemployment and Taxes are both rising.
6) Business Earnings are falling dramatically and bankruptcies are rising.
7) Tax revenues and consumption are both down.
8) Massive increases in Health and Social Security Costs, are on the way, again expanding government deficits.
9) Problems arising from Climate Change and Food Production are also set to interfere with future plans.
10) Share Markets first fell some 50% and have since increased some 50%, still leaving a massive reduction in total wealth.
How did we get here
There are seldom “Single Reasons or Silver Bullets” for events, such as these and this event is no different!
Going back in time, the last 200 years has seen 3 primary growth drivers –
1) Population Growth
2) Cheap & Abundant Energy (Oil)
3) Innovation
The Global Population attained 1 Billion around 1800, 2 Billion around 1930 and we have now reached over 6.5 Billion, having added 4.5 Billion in just 80 years, with WW2 intervening.
Previous energy supplies Peaked out, as the Global Population expanded, with Wood & Whale Oil giving way to the Cheaper & more abundant Crude Oil, as it started to come on stream, just on 150 years ago.
Man’s Innovation has also expanded incredibly, over the last 200 years, as the Industrial & Information revolutions, increased Production persistently, via means such as the Steam train, Aeroplane, Television, Medical technology, Nuclear fission, Computer & the Internet.
So, the scene was set and it culminated in the greatest economic boom in history, between 1995 and 2005!
This was the “Perfect storm”, for making money.
Finally, one of the oldest and most regular players came back into the game, when GREED joined the party, assuming the party would never end. Leveraging, via the Banking/Financial sector, went thru the roof, NINJA Loans came into being and the completely unregulated “Derivates Market”, went into the Stratosphere, at over US$600 Trillion, 10 times the Annual Global GDP!
However, there is a dilemma in the current economic/banking system; it REQUIRES exponential growth, within a finite environment!
The inevitable happened around 2005, two of the three major growth drivers (Population & Oil) Peaked and their combined effects had a profound influence on events. Population growth had already started to slow and the Baby Boomer generation had just started a 20 year transition, from their Peak Earning & Spending years, to being thrifty Retirees, before leaving us forever.
The slowing Population growth had already influenced the New US housing market, with construction in long term decline. However, the slowing Population Growth, combined with the Retiring Boomers, spilled over into Existing housing and that Bubble burst, as Demand slowed, forcing a vicious cycle, of falling housing values and rising Foreclosures, re-enforcing each other, in a race to oblivion.
Around the same time, Global Peak Oil, which had been long talked about, as a theory, became a reality. As Production effectively Peaked around 2005 and then started to fall, the Oil Price raced to $147 a barrel, and then, as the costs ballooned and economic reality set in, together with the perception of a faltering global economy, Oil Prices fell, as Demand also reduced.
The rest of the World joined the Party!
Many countries spent up, mainly by vastly increasing Debt and mortgaging the future, on a bet that the status Quo would return.
With Debt to GDP ratio’s approaching 100% and in some cases more, the status quo will not return!
What of the Future/Conclusions?
Now that the calm EYE of the Hurricane, created by Trillions in “government money” has nearly passed over, that “Perfect Storm” is about to re-appear, this time as a Category 5 Financial Black Swan Event!
We are now in the final stages of proving that the current system is not working & is actually unworkable, over time.
Recent increases in leverage, in the financial sector and the Peaking of two of the three major Economic drivers (of the last 200 years), are now conspiring, to bring economic growth to a shuddering halt!
The great era of Population Growth is now ending, as costs increase & Revenues fall, in line with an Aging Population and a Slowing Population Growth!
The economic enabler of Cheap & Abundant Oil (Energy), is also ending, as Production levels start to fall and EROEI (Energy Return On Energy Invested) falls from an initial 100/1, to under 10/1 now and still falling! This greatly reduces the Profit motive on some new Production and therefore the incentive to proceed with some new fields, may also lessen?
What proceeds from there, may not be pretty, but nor will be the final judgement of historians and future generations. That said, it is likely that economic Growth will ratchet down, as will share Prices & the Oil price will ratchet up, over the next 3-4 years.
Innovation, is now the final frontier for economic sustainability, the "exponential Economic Growth Fairy" is no more, it died of "shortages of natural causes (oil)”, in 2005, but in the long run, we are all dead.
The "fundamentals" are now changing!
What we do or don't do with this new paradigm, over the next 5-10, will set the course of humanity, for the next 200 years. Be advised, this new paradigm may lead back to the future, as Globalisation, gives way more and more to a local economy, unless a NEW Cheap & Abundant Energy source is put into Production, quickly.
That said, we must now go where there is no path and leave a new trail!
We can, the $64 Trillion question is, will we?
I would like to finish with the words of John Fitzgerald Kennedy, “Let us not seek the Republican answer or the Democratic answer, but the right answer. Let us not seek to fix the blame for the past. Let us accept our own responsibility for the future.” However, another JFK quote may finally prove more appropriate, "My fellow citizens of the world, ask not what America will do for you, but what together we can do for the freedom of man."
In short, irrespective of our Political or Economic leaning, we need to pull together Globally, NOW, for the sake of our own future and that of future generations!
So, other than those few minor issues, I don't see any reason why share prices shouldn't go straight thru the roof, into the stratosphere??
thanks!
wrtbearing.com
taobaotrends.com
Chinese Premier Wen in March set a new loan growth target of 5 trillion yuan in 2009 for the banking industry to revive economic growth that dropped to 6.1 percent in the first quarter, the slowest pace in almost a decade. New loans, which reached a record 7.73 trillion yuan as of July 31, may top 11 trillion yuan by the end of the year, BNP Paribas SA estimates.
Bank lending tripled in H12009 over H12008 and the money supply expanded at a 26% rate in the first half of this year. As a result, a number of interrelated developments within China that are causing banking authorities, in the most muted manner, to suggest further bank lending will be more carefully supervised and controlled to ensure (1) that additional surplus capacity is not built, (2) speculation in commodities, equities, housing and other sphere is drawn-in, and (3) that approved projects actually receive the approved funding.
Additionally, The China Banking Regulatory Commission last month required the nation’s lenders to raise reserves to 150 percent of non- performing loans by the end of this year, and on in July it announced plans to tighten rules on working capital loans. More recently, The regulator also sent draft rule changes to banks requiring them to deduct all existing holdings of subordinated and hybrid debt from supplementary capital, people familiar with the matter said last week. As a result, banks may need to rein in lending to meet capital requirements.
We also know that corporations with falling earnings are being extended additional credit and loans are being recapitalized to conceal the true level of non-performing loans. But, this may be just the tip of the iceberg because much of the lending is being done in support of the larger stimulus package. Little known, though, is only around 30 per cent of the stimulus cash will come from central coffers, with the rest provided by local governments and companies, largely funded by bank loans and bond issuances.
Aside from bank loans, a large chunk of financing is meant to come from a new type of local government bond. Since local governments are technically banned from running budget deficits, the Ministry of Finance issues these bonds on local governments’ behalf; cities typically use quasi-legal Municipal Development and Investment Companies (MDIC) to invest funds on the government’s behalf. The result is a tangle of murky financing that makes it impossible to establish the true budgets and debt positions of city governments.
What is known, though, is that cities and provinces making new loans are being strained and starting to buckle; they have very little in the way of revenue to retire these MDIC issuances. Poorer provinces, with scant resources, may default on their bonds, leaving the central government to pick up the bill. In this event, the central government may respond by withholding fiscal transfers from central coffers. Other, more prosperous, local governments have relied on land sales to fund investment. But with land rapidly running out and stimulus spending adding to the pressure, many are experiencing a funding squeeze.
Nobody can be certain how this will play out but all of these are pieces of a mosaic of aggressive monetary and fiscal policy that placing further strain on an economy challenged by collapsing exports. In my humble view, there are more stresses in China’s system that we are led to believe and China could easily stumble in leading the world out of the great recession.
Now, like dominoes, the applecarts are going to be overturned, one by one, around the world.
The authorities have created a sugar high for speculation, with a Federal Reserve that has maintained interest rates so low that there is no return on savings and with an Administration that promises to provide stimulus until it manufactures economic growth. My view is that investors will shortly see through the current sugar high and the better-than-expected earnings cycle and will begin to look over the valley at the chronic and secular issues that have emerged from the past cycle and from policy decisions aimed at returning the domestic economy toward self-sustaining growth.
lawrencegmcdonald.com
Banking is still getting worse with 400 more in trouble and the existing big boys with toxic assets; increasing foreclosures; creditcard defaults; auto loan payment defaults; commercial real estate defaults; credit default swaps......
The auto bailout will be a huge failure when the cash for clunkers is over.
Unemployment is still increasing and there is no way we are putting 15 to 20 million people back to work anytime soon.
Consumer spending is still in the toilet and will remain that way. This should kill retail in the long run and commercial real estate.
$2 Trillion of debt will create mega inflation at some point.
Everything that caused this fiasco has gotten worse since it started. When will the roof fall in again?
Those who would like to look forward to a stable future while pursuing more productive lives are in jeopardy. This can be largely summed up under the platitude: the mere idea that human beings can manage a productive, humane and stable civilization flies in the face of centuries of harsh experience.
Still, we ought not give up hope. The only socio-economic systems that we can be sure will fail are the ones we have tried. There must be something better. IMHO, some aspects of market economics and some aspects of macro-economic planning will be part of it. Perhaps the macro-stability can be achieved by placing honest machines at the controls. There are too many human minds which have reached their levels of incompetence and there are too many hands just trying to game the system (any system) and politicians who are obsessed by the next election cannot be counted upon for much else.
If you are saving that much up front, those who can buy (or can't) will come to agreement with an underwater seller by paying a little more.
I don't believe this means that housing is recovering. Similar to cash for clunkers, the incentives have made some jump into the market and pay a little more, whether they should or not, and at the expense of those who are frugal.
I'm a Doug Kass follower, also. Welcome aboard the ranks of my followers.
On Aug 30 04:28 PM convertbond wrote:
> Doug Kass from The Street.com said it best:
>
> The authorities have created a sugar high for speculation, with a
> Federal Reserve that has maintained interest rates so low that there
> is no return on savings and with an Administration that promises
> to provide stimulus until it manufactures economic growth. My view
> is that investors will shortly see through the current sugar high
> and the better-than-expected earnings cycle and will begin to look
> over the valley at the chronic and secular issues that have emerged
> from the past cycle and from policy decisions aimed at returning
> the domestic economy toward self-sustaining growth.
>
> lawrencegmcdonald.com