By Grant de Graf
Italy continues to wrestle with its own set of economic woes, a victim of one of the latter casualties of the European economic crisis. Lackluster business performance, a build up of government debt and a deepening recession are leading to alarm bells that would jump start any troop of Rockettes at Radio City Music Hall in Manhattan, New York City.
The only thing is that we are in Italy and we need a performance that will raise eyebrows, but will not have everyone jumping out their seat.
Austerity, as with the rest of Europe, has not worked well for Italy. It has resulted in slower growth, a further increase in debt and business activity is grinding to a halt.
A lower influx of tax income has prompted Uncle Giuseppe (Italy's version of Uncle Sam) to peruse a tax hunt for businessmen who have sought to evade their respective tax burden. As if that would help. Uncle Giuseppe misses the point. If every Italian citizen had to pay their full liability in tax, it is unlikely to make a dent on the economic tragedy which has struck home. This is because the essence of the problem lies in the European blueprint for the Euro Zone, which has been imposed on Italy.
To start with, it is unrealistic to control monetary policy centrally, at the EU level and then expect fiscal policy to be implemented locally, by Italian politicians. The two instruments have very different agendas and an instruction from either source (monetary or fiscal) is likely to be heard by the other.
Add to that the yoke of the Euro currency and Italy's inability to export goods at competitive prices, which it could do under the system of the Italian lira, I would say things are about to get hot.
Imposed austerity has only aggravated Italy's cause (as with so many other member nations of the EU) and indeed it is less likely that the street will stomach another round of austerity measures. If the future path for Italy's politicians is at stake, which it is, politics may well be the catalyst which throws off the yoke of austerity and prompts the country's leaders to inform EU officials, with true local fanfare, to go fly their kites.
This may not be such a bad thing. Seemingly, it will prompt Europe into recognizing that it is time to make make some adjustments.
Wednesday, January 30, 2013
Further Evidence that the EU is in Denial
By Grant de Graf
Further proof that the crisis in the EU is deteriorating and the the recession is deepening, is found in an article in the Economist's Free Exchange, "Tracking the euro-zone economy in real time."
The article reports:
Instead of dousing the wound with morphine, the infection has to be removed, before a long term recovery can begin. In short, the solution is hampered by the lack of politicians who are imbued with the skill to throw aside misplaced ideals. They are ideals which have become the baggage of the architects who helped father their blueprint, the function of which is leading to Europe's collapse. Absent are leaders who need to do what is necessary, to bring together common interests and fight for a cause that will be beneficial for Europe as a whole.
"As of the third quarter of 2012, the euro zone economy is officially in recession. GDP in the euro area shrank 0.1% in the three months to September after contracting 0.2% in the second quarter. That marks four consecutive quarters of flat of falling growth. Output fell sharply in peripheral economies like Spain and Italy but also tumbled in core countries like Austria and the Netherlands.
Conditions look like getting worse. An analysis of recent data points by Now-Casting, which publishes "real-time" economic forecasts, points toward deeper contraction in the fourth quarter of 2012. And on the current pace, the euro zone's recession will continue through at least the first three months of 2013."The unfortunate truth, is that you can wrap the injury in as many bandages as you like, but when you take the x-ray, the illness, a function of an economic blueprint which has clear failings, will still rare its ugly head.
Instead of dousing the wound with morphine, the infection has to be removed, before a long term recovery can begin. In short, the solution is hampered by the lack of politicians who are imbued with the skill to throw aside misplaced ideals. They are ideals which have become the baggage of the architects who helped father their blueprint, the function of which is leading to Europe's collapse. Absent are leaders who need to do what is necessary, to bring together common interests and fight for a cause that will be beneficial for Europe as a whole.
 |
| Euro Zone Weekly GDP in Real Time (Provided by now-casting.com) |
U.S. Economic Contraction Hits Economy
By Grant de Graf
The contraction of the U.S. economy in the last quarter of 2012 comes as little surprise.
The nation's gross domestic product shrank for the first time in 3 1/2 years during the fourth quarter, declining at an annual rate of 0.1% between October and December, the Commerce Department said Wednesday.
Although one can expect GDP to adopt a more positive track, growth is bound to be constrained. Additionally, the possibility of a European fallout remains possible and there no evidence of any initiative which may spur growth in the U.S.
At best, it will remain lackluster and while there is always room for a surprise, no one is buying tickets for the show.
Real estate could always make a comeback, but there still needs to be an improvement in core economic growth for any sustained solid recovery.
To realize solid growth and to circumvent the dangers which face the economy in respect to the fiscal cliff debate, the U.S. needs a national blueprint, supported by both Democrats and Republicans, which will facilitate the high levels of business expansion which the economy needs.
Economist John Mauldin joins WSJ's Markets Hub with an outlook on the U.S. economy, and his take on the Federal Reserve's effect on the stock market. Photo: Getty Images.
The contraction of the U.S. economy in the last quarter of 2012 comes as little surprise.
The nation's gross domestic product shrank for the first time in 3 1/2 years during the fourth quarter, declining at an annual rate of 0.1% between October and December, the Commerce Department said Wednesday.
Although one can expect GDP to adopt a more positive track, growth is bound to be constrained. Additionally, the possibility of a European fallout remains possible and there no evidence of any initiative which may spur growth in the U.S.
At best, it will remain lackluster and while there is always room for a surprise, no one is buying tickets for the show.
Real estate could always make a comeback, but there still needs to be an improvement in core economic growth for any sustained solid recovery.
To realize solid growth and to circumvent the dangers which face the economy in respect to the fiscal cliff debate, the U.S. needs a national blueprint, supported by both Democrats and Republicans, which will facilitate the high levels of business expansion which the economy needs.
Economist John Mauldin joins WSJ's Markets Hub with an outlook on the U.S. economy, and his take on the Federal Reserve's effect on the stock market. Photo: Getty Images.
European Economic Performance Suffers Blow
Grant de Graf
In yet another blow to the European Debt Crisis, the latest economic statistics underscore the severity of the recession and the absence of a recovery, despite higher levels of confidence and optimism in the EU.
Spanish gross domestic product fell 0.7% from the third quarter and 1.8% from the same period a year earlier, Spain's National Statistics Institute, or INE, said in a preliminary reading. It said output for the whole of 2012 fell 1.4% from 2011.
The statistics once again show the futility of the austerity measures (vs stimulus) which are being propagated in the EU as a source of hope for economic recovery. Although the reduction of government spending in certain unproductive sectors are necessary, optimizing public expenditure towards projects that will stimulate economic growth are paramount.
While the example of stimulus in the United States has proven to be a more effective means in circumvented a deep recession (than austerity), the lack of a clear and focused stimulus plan, will impede a strong and sustained recovery, and strengthen many a critic's view that officials are simply "kicking the can" and that a "pick-up point" will be necessary at some point on the road.
Europe will need to learn from the example and mistakes of the U.S. Additionally, Spain will need to exist the Euro if it and Europe wish to avoid the same fate as the Dodo. The quicker European officials can come to their senses and realize that that they need to formulate a new EU blueprint that will allow for the exit of the Euro for weaker countries, the sooner Europe can start to focus on achieving real economic growth and regaining its position as formidable powerhouse on the globe.
Dow Jones's Paul Hannon looks at the continued divergence in euro-zone economies despite the slight improvement so far this year. With the euro also rising, he questions the strength of a future recovery.
Spanish gross domestic product fell 0.7% from the third quarter and 1.8% from the same period a year earlier, Spain's National Statistics Institute, or INE, said in a preliminary reading. It said output for the whole of 2012 fell 1.4% from 2011.
The statistics once again show the futility of the austerity measures (vs stimulus) which are being propagated in the EU as a source of hope for economic recovery. Although the reduction of government spending in certain unproductive sectors are necessary, optimizing public expenditure towards projects that will stimulate economic growth are paramount.
While the example of stimulus in the United States has proven to be a more effective means in circumvented a deep recession (than austerity), the lack of a clear and focused stimulus plan, will impede a strong and sustained recovery, and strengthen many a critic's view that officials are simply "kicking the can" and that a "pick-up point" will be necessary at some point on the road.
Europe will need to learn from the example and mistakes of the U.S. Additionally, Spain will need to exist the Euro if it and Europe wish to avoid the same fate as the Dodo. The quicker European officials can come to their senses and realize that that they need to formulate a new EU blueprint that will allow for the exit of the Euro for weaker countries, the sooner Europe can start to focus on achieving real economic growth and regaining its position as formidable powerhouse on the globe.
EU Regulatory Challenges Highlighted
The WSJ reports in an article "In EU a Test of Wills" the realization by EU officials that the challenges related to increased banking regulation could constrain growth in the EU and delay or short circuit an economic recovery.
At odds are the restrictions which are being applied by regulators to banks and which effectively eradicate the benefits of a single market for financial services, unimpeded by national boundaries. This includes the prevention of moving funds across national borders, together with several other restrictions.
At least officials are aware of the hazards that could impact a recovery, but whether EU officials have the political muscle and will, to prevent regulatory obstacles taking their course, remain questionable.
At odds are the restrictions which are being applied by regulators to banks and which effectively eradicate the benefits of a single market for financial services, unimpeded by national boundaries. This includes the prevention of moving funds across national borders, together with several other restrictions.
At least officials are aware of the hazards that could impact a recovery, but whether EU officials have the political muscle and will, to prevent regulatory obstacles taking their course, remain questionable.
Dichotomy of Stock Performance With GDP
By Grant de Graf
In an interview with the WSJ, hedge fund manager, Oscar Schaffer, describes the unusual correlation between stock performance and GDP. (See "Stock Performance Enigma") Greece and China (among many other countries) are examples where the performance of stocks are inversely correlated to GDP. Although GDP in Greece disappointed, stocks experienced all time highs. Conversely, China which displayed an expanding GDP, incurred a retraction in stock trends.
Schaeffer defines stock performance being correlated to other factor like earnings and the inflow of funds. He anticipates that when bond yields start to increase, there will a long term outflow of capital from (long term) bonds into stocks, as investors are likely to be concerned about capital losses in the bond market.
However, the equation is not so simple and linear. The performance of stocks will ultimately depend on many other economic factors and should the risks in stock investment increase and the impact of a European fallout weigh against the U.S., investors may well direct capital towards short-term income yielding bonds and reduce their exposure in stocks.
In an interview with the WSJ, hedge fund manager, Oscar Schaffer, describes the unusual correlation between stock performance and GDP. (See "Stock Performance Enigma") Greece and China (among many other countries) are examples where the performance of stocks are inversely correlated to GDP. Although GDP in Greece disappointed, stocks experienced all time highs. Conversely, China which displayed an expanding GDP, incurred a retraction in stock trends.
Schaeffer defines stock performance being correlated to other factor like earnings and the inflow of funds. He anticipates that when bond yields start to increase, there will a long term outflow of capital from (long term) bonds into stocks, as investors are likely to be concerned about capital losses in the bond market.
However, the equation is not so simple and linear. The performance of stocks will ultimately depend on many other economic factors and should the risks in stock investment increase and the impact of a European fallout weigh against the U.S., investors may well direct capital towards short-term income yielding bonds and reduce their exposure in stocks.
Stock Performance Enigma
Hedge fund manager Oscar Schaefer explains that GDP growth doesn't always correlate with stock returns. And he tells us why Hertz shares will zoom higher.
Sunday, January 27, 2013
The Case For Not Exiting The Euro
By Grant de Graf
Professor Klaus Schwab's arguments for not exiting the Euro was published in the Huffington Post on January 19, 2013 "The Re-emergence of Europe: Why Exiting the Euro is a Bad Idea".
His arguments for not exiting the Euro can be summarized as follows:
Professor Klaus Schwab's arguments for not exiting the Euro was published in the Huffington Post on January 19, 2013 "The Re-emergence of Europe: Why Exiting the Euro is a Bad Idea".
His arguments for not exiting the Euro can be summarized as follows:
- Jettisoning the euro altogether and opting for national devaluation may eradicate a country's current account balance in the short term, but it will not lead to longer term growth.
- Even though a devalued currency may make exports cheaper and therefore more attractive to foreign buyers, imports would become more expensive and cause a decrease in real incomes.
- An overwhelming number of economists, international civil servants and policy-makers argue that a fragmentation of the Eurozone would cause a new depression and massive wealth destruction around the world.
- It would end the period of economic integration that has characterized world politics since the end of the Cold War. The important founding notion of solidarity would be broken. Old rivalries could be reignited.
- There is a high risk of financial chaos, as a country would have to quickly revert to its new currency.
- Lack of clarity as to who would set the exchange rate for the new currency.
- High probability of debt default, bank collapse and lack of access to international capital markets.
- There is no legal frame work for a member country to re-establish its own currency.
This is why the arguments are without foundation:
- The goal for exiting the euro was never to balance a current account deficit, but rather to provide a country with a viable framework to export its goods at competitive prices and consequently drive up local production and the economy.
- The higher cost of imported goods would swing demand towards local production and if anything result in higher levels of disposal income.
- Predicting the future is a dangerous game. What is the basis of the estimates which forecast further recession and wealth destruction? Is this scenario a consequence of higher administration costs or lower expected GDP? Clearly, the forecasts are not founded on sound economic principle or pragmatism.
- Economic fragmentation and political rivalry does not have to be the result of a country's exit from the euro. An exit from the euro needs to be effected with deliberation, planning and the full co-operation of the EU, regarded not as a rogue act of self-interest, but rather as a measure which is beneficial for all parties (which it is).
- The changes necessary to invoke the euro did not result in chaos and pandemonium. Similarly, if a country were to exit the euro, there is no reason to assume that with the correct planning, this would be any different. History provides us with a long record of successful instances, when nations took on new currencies.
- There is no more efficient setter of the exchange rate, than the market.
- Defaulting on debt and exiting the euro are two different things, with one having nothing to do with the other. In fact, an exit from the euro makes the case for default less likely. The higher prospects for economic recovery (following an exit) make access to capital markets more compelling.
- The lack of a legal basis for a country to exist the euro is unfortunate and possibly demonstrates the lack of planning that went into the creation of a single currency union. Irrespective, if exiting the euro is indeed the optimal route for a country and the EU to follow, there's little doubt that European leaders will devise a blueprint which will accommodate such an initiative.
Saturday, January 26, 2013
The Euro in Perspective
I'm commenting about the interview in Davos with the Blackstone Group's John Studzinki, by Reuter's Alex Smith (January 26, 2013) on future prospects of the Euro, which deserves clarity. See "Real Estate in Europe Ripe for Plucking".
Studzinki is correct in his assessment that Europe is calmer. Certainly, there is a greater sense of ease and patently absent is the rush from the madding notion that the Euro will collapse. However, the prospect of the Euro collapsing, of Germany and France being wiped into economic oblivion and of investors in the Euro having to take a bath, was never on the agenda. What is relevant, is whether the Euro will continue to exist in its current form or not.
Although some investors take comfort in the fact that governments are not caught in their regular fox hunt, seeking debt restructuring and assuring investors that the ECB has sufficient funds for a bail out (if the rabbit cannot be found), it's not over until it's over, and the likelihood of PIIGS vacating the Euro still remains high.
Is this a danger to the Euro currency or to European unity per se? No, it doesn't have to be that way, contrary to some opinion that makes its rounds in the coffee houses of some institutions located in the public service or to those who feel that their jobs, financial interests and vested future lies in the Euro, in its current state.
However, a Euro with PIIGS out of the way (although still very much part of the EU) will make for a stronger currency and a quicker resurgence of growth in Europe, which is currently sadly lacking.
Blackstone's Studzinki Declares Real Estate in Europe Ripe for Plucking
In an interview with Reuter's Alex Smith, John Studzinki from the Blackstone Group declared that Europe is much calmer (See Author's "Future of Euro's Sustainability is Vulnerable"), that the concern of a collapse of the Euro had been removed and consequently, U.S. companies that were flush with cash, would possibly consider European opportunities as a target for investment. This was particularly true as a result of low yields in the U.S. as business continues to generate cash in an "all dressed up, no where to go" mode.
Although Mr. Studzinki is remaining mum on whether Blackstone will be making further investment in Europe, he did concede that institutions' willingness to shed their real estate portfolios in Europe is lagging, and that the possibility of further activity in this arena is probable.
Asked whether banks would become a source for M&A, Studzinki believed that given the regulatory restructuring that was taking place, it was unlikely that banks themselves would present themselves as attractive investment opportunities.
Although Mr. Studzinki is remaining mum on whether Blackstone will be making further investment in Europe, he did concede that institutions' willingness to shed their real estate portfolios in Europe is lagging, and that the possibility of further activity in this arena is probable.
Asked whether banks would become a source for M&A, Studzinki believed that given the regulatory restructuring that was taking place, it was unlikely that banks themselves would present themselves as attractive investment opportunities.
Wednesday, December 12, 2012
Sunday, January 29, 2012
Friday, January 27, 2012
Thursday, January 26, 2012
Monday, January 23, 2012
Wednesday, January 18, 2012
Friday, January 13, 2012
Thursday, January 12, 2012
Wednesday, January 11, 2012
Tuesday, January 10, 2012
Thursday, January 5, 2012
Tuesday, January 3, 2012
New Hurdles Loom in Euro Crisis: Italy Bond Sales, France Vote Are Among Signal Events for Europe's Economy and the World's
FRANKFURT—The coming year will be a make-or-break one for the euro zone, as a crisis that began two years ago in tiny Greece threatens to engulf larger countries at Europe's core, sending ripples across financial markets and the global economy. READ MORE
HEADLINE NEWS * MARKET NEWS * SENTIMENT * TRENDING * BONDS * FOREX
Monday, January 2, 2012
Europe at the Brink
In this documentary, Wall Street Journal editors and reporters examine the origins of Europe's debt crisis and why it spread with such ferocity to engulf much of the continent and threaten the entire world.
HEADLINE NEWS * MARKET NEWS * SENTIMENT * TRENDING * BONDS * FOREX
HEADLINE NEWS * MARKET NEWS * SENTIMENT * TRENDING * BONDS * FOREX
Thursday, December 29, 2011
Friday, December 23, 2011
Lacking a Grand Plan on Debt Crisis, Europe Limps Ahead
In 2011, European leaders have been unswerving in their commitment to muddling through.
Not for them grand or decisive moves to resolve the euro zone's twin government and bank financial crises. Instead, they have settled on a series of smaller gestures, over which they have haggled publicly beforehand and often afterward. Some actions may have helped their currency union hobble through the year; others will at best reduce the chances of a future crisis. READ MORE...
HEADLINE NEWS * MARKET NEWS * SENTIMENT * TRENDING * BONDS * FOREX
HEADLINE NEWS * MARKET NEWS * SENTIMENT * TRENDING * BONDS * FOREX
Thursday, December 22, 2011
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