It has now been nearly one year that I have been writing about the debt issues in Europe. In our monthly economic update The Seven Signs of a Changing Economy, posted at http://www.wealthstratgroup.com/, I have detailed how inter connected the banks of the world are. German and French banks hold very large amounts of debt from Greece, Portugal, Italy and Spain.
Where the U.S. banking system comes in is the guarantee they have made to the German and French banks in the event of Greece, Portugal, Italy and //or Spain defaulting. JP Morgan Chase and Goldman Sachs announced they alone have guaranteed over $5 TRILLION in default guarantees.
If Greece defaults the first domino falls pushing the next over, etc. Because of the uncertainty surrounding the change in leadership and cost cutting measures being scoffed at the governments of Italy, Spain and France are having to pay higher interest rates to borrow, which in turn increases their deficits and debt making them bigger and bigger risks.
It appears The European Monetary Union (EMU) is down to two choices. They can choose to split up, which in itself could be a financial disaster, or they could print money to back stop the lesser quality countries like Greece.
There is just one problem with that.......printing money by the EMU was specifically banned when the EMU was created! Can that be changed? At this point there does not seem to be any other way out of the maze! Unfortunately, the unintended consequences of this could be just as disastrous and ineffective as our QE-1, QE-2, Operation Twist, ....and QE-3 to come!
Friday, November 18, 2011
Friday, November 11, 2011
Weekly Update 11-11-2011
One of The Wealth Strategy Groups Seven Signs of a Changing Economy is JOBS! This is a key sign of economic change as it tells us a great deal about the economy in two quick observations. 1) if jobs are expanding it is because businesses are growing, i.e. selling more stuff. 2) that consumers are spending more. If they weren't businesses would not be growing and hiring new workers.
The reduction in new claims for unemployment suggests a flicker of growth here. It is only for the week and we really need to see this number trend down over the four week average claims number, and for an extended period before it has any impact, but it is a flicker. We will watch this to see if there is a trend developing.
I would suggest this is not a trend. Why? The "Birth/Death" calculation portion of this jobs report! As long time readers know, this is not the birth or death of people, but instead, of businesses created versus closed. As it turns out this number is just a guess by the stat trackers. It does get adjusted to a more accurate representation once a year, but as a rule is generally released high for obvious reasons. Example: For 2010 the new jobs created stat was reduced by over 1,000,000 jobs!
The key is this; if not for the Birth/Death adjustment in the jobs creation calculation, there would have been a jobs contraction versus the growth reported. The world equity markets loved the news, but I would suggest caution is warranted and a trend is not yet in place.
The reduction in new claims for unemployment suggests a flicker of growth here. It is only for the week and we really need to see this number trend down over the four week average claims number, and for an extended period before it has any impact, but it is a flicker. We will watch this to see if there is a trend developing.
I would suggest this is not a trend. Why? The "Birth/Death" calculation portion of this jobs report! As long time readers know, this is not the birth or death of people, but instead, of businesses created versus closed. As it turns out this number is just a guess by the stat trackers. It does get adjusted to a more accurate representation once a year, but as a rule is generally released high for obvious reasons. Example: For 2010 the new jobs created stat was reduced by over 1,000,000 jobs!
The key is this; if not for the Birth/Death adjustment in the jobs creation calculation, there would have been a jobs contraction versus the growth reported. The world equity markets loved the news, but I would suggest caution is warranted and a trend is not yet in place.
Friday, November 4, 2011
Weekly Update for 11-4-2011
The November edition of The Seven Signs of a Changing Economy is a must read! Go to http://www.weathstratgroup.com/ and tab down to the Signs of Change commentary. It is free so don't be shy!
Why a "must read"? Well, in the Weekly Update 10-7-2011, I outlined the number of new jobs that would need to be created to reduce the current unemployment rate of 9.0%,....... it was 9.1% before today's jobs report. In the recent issue I took a deeper dive in to the data that connects the jobs data to the growth of the economy, or lack there of.
The growth of our economy is measured by the Gross Domestic Product (GDP), or all of the goods and services we as a country produce. The Federal Reserve just announced a rather large reduction in this estimated growth. This reduced growth expectation does not paint a pretty outlook for jobs creation.
Since it is difficult to be a good consumer without a job, i.e. income and cosumer spending is 73% of our economic growth, it doesn't take alot of thought to come to the conclusion that we are in for a long slow economic recovery. Check out the details, it is quick read!
Why a "must read"? Well, in the Weekly Update 10-7-2011, I outlined the number of new jobs that would need to be created to reduce the current unemployment rate of 9.0%,....... it was 9.1% before today's jobs report. In the recent issue I took a deeper dive in to the data that connects the jobs data to the growth of the economy, or lack there of.
The growth of our economy is measured by the Gross Domestic Product (GDP), or all of the goods and services we as a country produce. The Federal Reserve just announced a rather large reduction in this estimated growth. This reduced growth expectation does not paint a pretty outlook for jobs creation.
Since it is difficult to be a good consumer without a job, i.e. income and cosumer spending is 73% of our economic growth, it doesn't take alot of thought to come to the conclusion that we are in for a long slow economic recovery. Check out the details, it is quick read!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Friday, October 28, 2011
WEEKLY UPDATE FOR 10-28-2011
The growth of the U.S. economy is measured via the Gross Domestic Product (GDP). This is a measure of all the goods and services produced by our economy. The first estimate of GDP growth for the first quarter of 2011 (3Q11) has been reported as +2.46%
This is a great improvement considering some of the negative news of late. In addition, it is significantly better then 1Q11 at +.36% and 2Q11 at +1.34%!
My complaint on the GDP growth number is the inflation rate used by the government to attain this "real", or after inflation, growth number. The inflation rate used does not include food or energy cost increases, which are both up significantly. However, it does include housing costs which are down significantly. These few items artificially push the GDP growth number up.
I continue to suggest inflation is closer to 6%. If this more realistic inflation rate were used in the GDP growth rate the 3Q11 GDP would be closer to -1.02% versus the reported +2.46%.
This is a great improvement considering some of the negative news of late. In addition, it is significantly better then 1Q11 at +.36% and 2Q11 at +1.34%!
My complaint on the GDP growth number is the inflation rate used by the government to attain this "real", or after inflation, growth number. The inflation rate used does not include food or energy cost increases, which are both up significantly. However, it does include housing costs which are down significantly. These few items artificially push the GDP growth number up.
I continue to suggest inflation is closer to 6%. If this more realistic inflation rate were used in the GDP growth rate the 3Q11 GDP would be closer to -1.02% versus the reported +2.46%.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Friday, October 21, 2011
WEEKLY UPDATE FOR 10-21-2011
As this is written on 10-21-2011 the equity values of Corporate America, as measured by the S&P 500, are almost exactly where they were one year ago. It has been one of the most volatile trends I have seen in my thirty years as a wealth manager.
On October 4th, 2011 the S&P 500 opened at 1,097.42. As I write this the S&P 500 stands at 1,233.93, a 14 day gain of +12.44%. Yet, none of the problems we all read about have gone away.
I think we are witnessing a "short covering" rally before options hedging expires today. I will drill into the detail in this months issue of The Seven Signs of a Changing Economy. In the meantime, this is a significant bounce up in value, but as of now it is not a trend. If and when the trend develops, up or down, we will start to invest our cash position.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Friday, October 14, 2011
Wednesday, October 5, 2011
WEEKLY UPDATE FOR 10-7-2011
I have written extensively that our economy must add 200,000 jobs per month. We need 100,000 jobs per month to replace the 8,000,000 jobs lost in the Great Recession plus an additional 100,000 jobs per month to absorb new entrants to the workforce each month.
Jobs growth is a by-product of growing the goods and services we create in our economy, i.e. our Gross Domestic Product (GDP). Our GDP must grow at 3% per year to create the by-product of 100,000 jobs per month and 5% per year to push the current unemployment rate down by just 1%. Our current annualized GDP growth rate is 2.1%.
Do the math and the conclusion is crystal clear: Until the economy grows at 5% or more per year, the unemployment rate is not going to trend down!
Jobs growth is a by-product of growing the goods and services we create in our economy, i.e. our Gross Domestic Product (GDP). Our GDP must grow at 3% per year to create the by-product of 100,000 jobs per month and 5% per year to push the current unemployment rate down by just 1%. Our current annualized GDP growth rate is 2.1%.
Do the math and the conclusion is crystal clear: Until the economy grows at 5% or more per year, the unemployment rate is not going to trend down!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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