Every time economic statistics are released by an entity, other than the Bureau of Labor Statistics (BLS), we get a much better read on what's really going on. Private company Automatic Data Processing (ADP), a firm which handles payroll accounting for employers, released its employment report this morning and the results were dramatically at odds with the hype emanating from the White House.
Non-farm private employment decreased 23,000 from February to March on a seasonally-adjusted basis, according to the ADP National Employment Report®. The estimated change of employment from January 2010 to February 2010 was revised down slightly, from a decline of 20,000 to a decline of 24,000.
The March employment decline was the smallest since employment began falling in February of 2008. The lack of increase in employment from February to March is consistent with the pause in the decline of initial unemployment claims that occurred during the winter. I'm sure this is all the weather's fault (sarcasm intentional)!
The ADP survey covers only private-sector jobs, while the numbers produced by the BLS on non-farm employment, to be released Friday, includes government workers. The addition of workers for the 2010 census is expected to lift federal government payrolls. This makes any rise in employment suspicious, temporary and subject to substantial downward revision in the coming months after the census is completed.
The ADP number is very disappointing given the expectations of a 50,000 gain projected by economists in a Dow Jones Newswires survey. The change in employment from January 2010 to February 2010 was revised down slightly, from a decline of 20,000 to a drop of 24,000.
Economists surveyed by Dow Jones expect the BLS will report that March payrolls jumped by 200,000 jobs, following a drop of 36,000 in February, when blizzards along the east coast cut into business hours and kept workers snowed in. Should this report disappoint, at least we'll know the weather was at fault (sarcasm intentional)!
Other economic data, released this morning, was a bit more positive, however.
Demand for manufactured goods rose by 0.6% in February, to a seasonally-adjusted $383.53 billion, the Commerce Department said. The increase is the 10th in the past 11 months. Orders in January rose 2.5%, revised up from a previously reported 1.7% increase.
U.S. consumer confidence rebounded in March from a sharp February drop. The Conference Board, a private research group, said this week that its index of consumer confidence increased to 52.5 in March, from 46.4 in February.
However, the index remains below its readings of December and January, as Americans remained concerned about jobs and, presumably, the weather!
Job losses since the beginning of the downturn in late 2007 have reached 8.4 million.
Regardless of the Friday BLS report, the more reliable private data continues to show that the "recovery" is a complete phantom. Given that the massive stimulus of the Federal Reserve's "quantitative easing" is now ceasing with the end of the first quarter, one can only wonder how bad the economy will get once the heroine needle of monetary juicing is removed or even curtailed.
Marko's Take
Some of our favorite sites: http://www.youtube.com/markostaketv, http://www.lemetropolecafe.com/, http://clivemaund.com/ and http://www.stockmavrick.com/.
Wednesday, March 31, 2010
Tuesday, March 30, 2010
Taxing Banks Gains Favor, But Is It The Answer?
In January, President Obama floated an idea to tax banks as a means of compensating America for the tremendous financial damage caused by the collective stupidity and greed of the banking sector. That idea is gaining support on both sides of the Atlantic.
Anti-Wall Street sentiment, in conjuction with concerns over the ballooning budget deficit, have Democratic leaders on Capitol Hill embracing the proposal. Obama's proposal is expected to raise up to $117 billion to cover projected bailout losses. Republicans have been silent as their instinctive opposition to tax increases is in conflict with their fear of defending big bankers.
The administration has opposed interfering with bonuses in the past, saying shareholders and Boards of Directors should be responsible for determining corporate compensation.
“We’re already hearing a hue and cry from Wall Street suggesting that this proposed fee is not only unwelcome but unfair,” he said. “That by some twisted logic it is more appropriate for the American people to bear the cost of the bailout rather than the industry that benefited from it, even though these executives are out there giving themselves huge bonuses.”
The proposed tax would apply to bank, thrift and insurance companies with more than $50 billion in assets and would start after June 30. It would not apply to certain holdings, like customers’ insured savings, but to assets in risk-taking operations.
The concept is gaining momentum in Europe. However, different countries have proposed varying structures.
Germany and Sweden would use the money to fund a "resolution authority" that would use the money to shut troubled banks whose failure would put the broader economy at risk. Others, such as France, would assess the fee after a crisis passed.
Officials in the U.S., Europe and the IMF say the bank-tax concept has gained so much momentum that it is likely to be on the agenda when of the Group of 20 industrial and developing nations meet in Canada in June. "Reforms would put in practice the principle that large institutions should bear the costs of any losses to the taxpayer," U.S. Treasury Secretary Timothy Geithner said in a speech last week.
In the U.K., Prime Minister Gordon Brown has been championing a global levy, including one in which revenues would be used to help pay down deficits. The opposition Conservative Party says it will press ahead regardless, although the fee's size will depend on how far other countries follow
The IMF plans to recommend a bank tax when global economic officials convene in Washington in April and is leaning toward a fee in advance to fund a resolution authority, said officials involved with the IMF effort.
Support for a bank tax isn't unanimous among the G-20. Canada, which now has an outsized role in the group's deliberations because it hosts this year's meeting, opposes a tax on its banks.
Instead, Canada, whose banks weathered the crisis well, is pressing the G-20 to stiffen leverage requirements to avert problems, a proposal that has already been on the group's agenda. India and China haven't taken positions.
Unfortunately, any industry specific tax, like the old "windfall profits tax" imposed on oil companies in the 1970's, will only make a troubled situation worse. The problem in the finacial industry has always been "moral hazard", the practice of allowing banks take excessive risks and then rescuing them when their ill-advised risk-taking backfires. This practice incentivizes a "heads I win, tails I DON'T lose" mentality.
The other problem is the very "cozy" relationship between the big banks, the Treasury, the Federal Reserve and the administration itself. Major banks should be treated at arms-length, but they're not. With an administration made up of Goldman Sachs alumni, the "conflicts of interest" will undoubtedly lead to legislation that looks tough on the surface, but will instead leave the banks with a "bank-door" way to coin money.
The only mechanism to enforce a fair playing field is to HAVE a fair playing field. WE DON'T.
Marko's Take? Don't waste our time with legislation that will only buy votes from angry Americans and get out-of-bed with these institutions. Only then can we create a competitive and fair financial system.
Marko's Take
Please visit us on You Tube at http://www.youtube.com/markostake and our friends at LeMetropole http://www.lemetropolecafe.com/ and http://www.stockmavrick.com/.
Anti-Wall Street sentiment, in conjuction with concerns over the ballooning budget deficit, have Democratic leaders on Capitol Hill embracing the proposal. Obama's proposal is expected to raise up to $117 billion to cover projected bailout losses. Republicans have been silent as their instinctive opposition to tax increases is in conflict with their fear of defending big bankers.
The administration has opposed interfering with bonuses in the past, saying shareholders and Boards of Directors should be responsible for determining corporate compensation.
“We’re already hearing a hue and cry from Wall Street suggesting that this proposed fee is not only unwelcome but unfair,” he said. “That by some twisted logic it is more appropriate for the American people to bear the cost of the bailout rather than the industry that benefited from it, even though these executives are out there giving themselves huge bonuses.”
The proposed tax would apply to bank, thrift and insurance companies with more than $50 billion in assets and would start after June 30. It would not apply to certain holdings, like customers’ insured savings, but to assets in risk-taking operations.
The concept is gaining momentum in Europe. However, different countries have proposed varying structures.
Germany and Sweden would use the money to fund a "resolution authority" that would use the money to shut troubled banks whose failure would put the broader economy at risk. Others, such as France, would assess the fee after a crisis passed.
Officials in the U.S., Europe and the IMF say the bank-tax concept has gained so much momentum that it is likely to be on the agenda when of the Group of 20 industrial and developing nations meet in Canada in June. "Reforms would put in practice the principle that large institutions should bear the costs of any losses to the taxpayer," U.S. Treasury Secretary Timothy Geithner said in a speech last week.
In the U.K., Prime Minister Gordon Brown has been championing a global levy, including one in which revenues would be used to help pay down deficits. The opposition Conservative Party says it will press ahead regardless, although the fee's size will depend on how far other countries follow
The IMF plans to recommend a bank tax when global economic officials convene in Washington in April and is leaning toward a fee in advance to fund a resolution authority, said officials involved with the IMF effort.
Support for a bank tax isn't unanimous among the G-20. Canada, which now has an outsized role in the group's deliberations because it hosts this year's meeting, opposes a tax on its banks.
Instead, Canada, whose banks weathered the crisis well, is pressing the G-20 to stiffen leverage requirements to avert problems, a proposal that has already been on the group's agenda. India and China haven't taken positions.
Unfortunately, any industry specific tax, like the old "windfall profits tax" imposed on oil companies in the 1970's, will only make a troubled situation worse. The problem in the finacial industry has always been "moral hazard", the practice of allowing banks take excessive risks and then rescuing them when their ill-advised risk-taking backfires. This practice incentivizes a "heads I win, tails I DON'T lose" mentality.
The other problem is the very "cozy" relationship between the big banks, the Treasury, the Federal Reserve and the administration itself. Major banks should be treated at arms-length, but they're not. With an administration made up of Goldman Sachs alumni, the "conflicts of interest" will undoubtedly lead to legislation that looks tough on the surface, but will instead leave the banks with a "bank-door" way to coin money.
The only mechanism to enforce a fair playing field is to HAVE a fair playing field. WE DON'T.
Marko's Take? Don't waste our time with legislation that will only buy votes from angry Americans and get out-of-bed with these institutions. Only then can we create a competitive and fair financial system.
Marko's Take
Please visit us on You Tube at http://www.youtube.com/markostake and our friends at LeMetropole http://www.lemetropolecafe.com/ and http://www.stockmavrick.com/.
Monday, March 29, 2010
Recovery, Recession, Or Depression ?: An Update
Nothing like economic "statistics" to clarify things. Unfortunately, the numbers coming out of Washington are now so "massaged" that it's absolutely impossible for us mere mortals to understand what on Earth is going on with the economy. Our first-hand experience is generally sending us messages that things still stink. Yet, we are constantly told that things are improving and handed a slew of data supposedly proving it.
We posted a "Marko's Take" on this very topic in December (http://markostake.blogspot.com/2009/12/recovery-recession-or-depression.html) and were equally as confused as we are now. Here we are 3 months later... and things continue to baffle.
Corporate earnings for the end of 2009 have been reported and they came in strongly. Pretax profits increased 8% to a seasonally-adjusted $1.5 trillion annual rate in the fourth quarter from the third quarter, the Commerce Department said Friday, as well as slightly revising its estimate of fourth-quarter economic growth downward.
Gross Domestic Product (GDP) grew at a 5.6% inflation-adjusted annual rate. The small adverse change of 0.3% stemmed from weaker than previously estimated business and residential investment, as construction spending declined. Economists are currently projecting more modest growth for the first quarter, with most estimates around 2.8%.
The 8% quarterly increase in profits, which isn't adjusted for inflation, followed a 10.8% increase in the third quarter. Profits were stimulated by an increase in output, as companies re-stocked inventories and non-existent growth in wages, which boosted profit margins.
The combination pushed fourth quarter pretax profits 30.6% higher than a year earlier — marking the biggest increase in 25 years. For the full-year, however, 2009 profits were down 3.8% from 2008.
While conditions are clearly improving for companies, consumers still aren't yet confident in the economic recovery. An index of consumer sentiment remained flat at 73.6 in March from the prior month, the University of Michigan and Reuters said Friday. Clearly this reflects the joblessness of the recovery.
Consumers' gauge of current conditions improved slightly, but their optimism about where the economy is headed declined.
While there is some good news to be sure, the bad news is quite troublesome. The nation's money supply, as broadly measured, has now begun to contract on a year-over-year basis. The falloff in real M3 since late-2009 is suggesting an imminent intensification of the extraordinarily protracted and deep economic contraction.
So, despite the apparent economic recovery, the ongoing pattern of job losses has yet to abate. Of course, this may change with the Friday jobs report, but thus far, all the stimulus and spending has yet to create any uptick in employment.
Here's to hoping YOUR sentiment remains positive!
Marko's Take
Please visit our YouTube channel at http://www.youtube.com/markostaketv. Our next episode on the legality of the Personal Income Tax will be posted within the next 48 hrs.
We posted a "Marko's Take" on this very topic in December (http://markostake.blogspot.com/2009/12/recovery-recession-or-depression.html) and were equally as confused as we are now. Here we are 3 months later... and things continue to baffle.
Corporate earnings for the end of 2009 have been reported and they came in strongly. Pretax profits increased 8% to a seasonally-adjusted $1.5 trillion annual rate in the fourth quarter from the third quarter, the Commerce Department said Friday, as well as slightly revising its estimate of fourth-quarter economic growth downward.
Gross Domestic Product (GDP) grew at a 5.6% inflation-adjusted annual rate. The small adverse change of 0.3% stemmed from weaker than previously estimated business and residential investment, as construction spending declined. Economists are currently projecting more modest growth for the first quarter, with most estimates around 2.8%.
The 8% quarterly increase in profits, which isn't adjusted for inflation, followed a 10.8% increase in the third quarter. Profits were stimulated by an increase in output, as companies re-stocked inventories and non-existent growth in wages, which boosted profit margins.
The combination pushed fourth quarter pretax profits 30.6% higher than a year earlier — marking the biggest increase in 25 years. For the full-year, however, 2009 profits were down 3.8% from 2008.
While conditions are clearly improving for companies, consumers still aren't yet confident in the economic recovery. An index of consumer sentiment remained flat at 73.6 in March from the prior month, the University of Michigan and Reuters said Friday. Clearly this reflects the joblessness of the recovery.
Consumers' gauge of current conditions improved slightly, but their optimism about where the economy is headed declined.
While there is some good news to be sure, the bad news is quite troublesome. The nation's money supply, as broadly measured, has now begun to contract on a year-over-year basis. The falloff in real M3 since late-2009 is suggesting an imminent intensification of the extraordinarily protracted and deep economic contraction.
So, despite the apparent economic recovery, the ongoing pattern of job losses has yet to abate. Of course, this may change with the Friday jobs report, but thus far, all the stimulus and spending has yet to create any uptick in employment.
Here's to hoping YOUR sentiment remains positive!
Marko's Take
Please visit our YouTube channel at http://www.youtube.com/markostaketv. Our next episode on the legality of the Personal Income Tax will be posted within the next 48 hrs.
Sunday, March 28, 2010
Treasuries Having Harder Time Finding A Good Home
It was inevitable. You can't spray the world with an endless supply of something and not expect an adverse price effect. The U.S. has been living on borrowed time, but now our bonds are looking square in the eye of the "Grim Reefer". Country after country has either drastically curtailed buying our debt, stopped buying our debt altogether, or is looking for ways to offload it on someone else.
It's utterly amazing that nothing has happened... yet! Now, the over-supply is creating a saturation in the market place, whose consequences have yet to be felt. Another week, another financial problem. That's what happens in a BEAR market: whatever CAN go wrong, WILL go wrong!
For more than a year, analysts have been warning that record-sized debt sales by the U.S Treasury were utterly inconsistent with a 10-year yield below 4%. This past week, the yield on 10-year notes jumped from 3.65% to as high as 3.92% on Thursday. On Friday, it was 3.87%.
Tame "reported" inflation, rising unemployment, the housing market slump, the Federal Reserve’s policy of a virtually zero Fed Funds rate and its purchase of up to $1.7 trillion in bonds have all helped keep Treasury yields near historic lows.
But, this week the mood sharply deteriorated as yields for $118 billion of newly-issued U.S. debt were much higher than forecast, sparking overall selling of Treasuries. Sentiment also deteriorated in the U.K. bond market after the government’s proposed budget failed to resolve doubts over future spending and debt reduction.
It hasn’t helped that the U.S. announced a big overhaul of its healthcare system this month, adding to worries about the scale of U.S. spending. Thank you Obamacare! (sarcasm intentional!)
Also un-nerving U.S. investors this week was a report by the Congressional Budget Office that falling payroll taxes, resulting from high unemployment, means that Social Security will pay out more in benefits than it receives for this fiscal year.
“A sustained rise in yields is upon us and bond funds will start to incur losses,” says Jim Caron, Global Head Of Interest Rate Strategy at Morgan Stanley. He expects 10-year yields to reach 4.5% in the second quarter, as investors pull their money from bond funds. March looms as the first month for negative returns for investors in Treasuries this year. Year-to-date, Treasuries have returned a scant 0.7% and threaten to slip into negative territory.
The 10-year note’s yield rose 15 basis points, or 0.15% , to 3.85%, according to BGCantor Market Data. The price of the 3.625% note due in February 2020 fell $12.19 per $1,000 face amount.
The increase in the yield was the biggest since an advance of 0.27% for the week that ended Dec. 25. The yield touched 3.92% on March 25, the highest level since June 11. The two-year note’s yield rose 0.05% to 1.04% and reached 1.12% this week, the highest level since Jan. 4.
Unfortunately, the unsatiable appetite to fund America's bloated budget can only get worse. The world has had it with our fiscal irresponsibility and the era of low interest rates will become harder to sustain.
Marko's Take
For new readers, please visit us on YouTube at http://www.youtube.com/markostaketv. Our newest episode on the legality of the Personal Income Tax will be posted in the next two days.
It's utterly amazing that nothing has happened... yet! Now, the over-supply is creating a saturation in the market place, whose consequences have yet to be felt. Another week, another financial problem. That's what happens in a BEAR market: whatever CAN go wrong, WILL go wrong!
For more than a year, analysts have been warning that record-sized debt sales by the U.S Treasury were utterly inconsistent with a 10-year yield below 4%. This past week, the yield on 10-year notes jumped from 3.65% to as high as 3.92% on Thursday. On Friday, it was 3.87%.
Tame "reported" inflation, rising unemployment, the housing market slump, the Federal Reserve’s policy of a virtually zero Fed Funds rate and its purchase of up to $1.7 trillion in bonds have all helped keep Treasury yields near historic lows.
But, this week the mood sharply deteriorated as yields for $118 billion of newly-issued U.S. debt were much higher than forecast, sparking overall selling of Treasuries. Sentiment also deteriorated in the U.K. bond market after the government’s proposed budget failed to resolve doubts over future spending and debt reduction.
It hasn’t helped that the U.S. announced a big overhaul of its healthcare system this month, adding to worries about the scale of U.S. spending. Thank you Obamacare! (sarcasm intentional!)
Also un-nerving U.S. investors this week was a report by the Congressional Budget Office that falling payroll taxes, resulting from high unemployment, means that Social Security will pay out more in benefits than it receives for this fiscal year.
“A sustained rise in yields is upon us and bond funds will start to incur losses,” says Jim Caron, Global Head Of Interest Rate Strategy at Morgan Stanley. He expects 10-year yields to reach 4.5% in the second quarter, as investors pull their money from bond funds. March looms as the first month for negative returns for investors in Treasuries this year. Year-to-date, Treasuries have returned a scant 0.7% and threaten to slip into negative territory.
The 10-year note’s yield rose 15 basis points, or 0.15% , to 3.85%, according to BGCantor Market Data. The price of the 3.625% note due in February 2020 fell $12.19 per $1,000 face amount.
The increase in the yield was the biggest since an advance of 0.27% for the week that ended Dec. 25. The yield touched 3.92% on March 25, the highest level since June 11. The two-year note’s yield rose 0.05% to 1.04% and reached 1.12% this week, the highest level since Jan. 4.
Unfortunately, the unsatiable appetite to fund America's bloated budget can only get worse. The world has had it with our fiscal irresponsibility and the era of low interest rates will become harder to sustain.
Marko's Take
For new readers, please visit us on YouTube at http://www.youtube.com/markostaketv. Our newest episode on the legality of the Personal Income Tax will be posted in the next two days.
Saturday, March 27, 2010
Obamacare Making Corporate America Sick
A few months ago, we did a 3-part in-depth analysis of Obamacare. If you find the issue complex and hard-to-fully understand, "Extra, extra, read all about it!' by clicking the following series of links: (http://markostake.blogspot.com/2009/12/obamacare-part-1-whos-fer-it-whos-agin.html), (http://markostake.blogspot.com/2009/12/obamacare-part-2-when-us-gets-involved.html) and (http://markostake.blogspot.com/2009/12/obamacare-part-3-economic-reality.html).
I've maintained all along, and will continue to insist, that this ill-conceived piece of legislation will NEVER be enacted, unless preceeded by the complete suspension of civil rights and is MANDATED by some sort of executive order. America not only does not want it, 36 states are suing to ENJOIN it!
This is probably the most incredible act of political suicide I think I've ever seen. Any one voting "yea" will be voting either himself, or herself, out of office in 2010. If you know a congressperson, send a subscription to "Marko's Take" will ya? It's free and they might learn something!
It's been a humungously "successful" week for Democrats. Obamacare passed Congress in its final form on Thursday night and the dividends are already being realized. Yesterday AT&T announced that it will be forced to make a $1 billion writedown due solely to the health bill in what has become a wave of such corporate losses.
This utter unabated destruction of wealth and capital came with more than ample warning.
Using their well-lubed "spin machine" to make this new entitlement look affordable under Washington, D.C. accounting conventions, Democrats decided to raise taxes on companies that do the public service of offering prescription drug benefits to their retirees instead of dumping them into Medicare. Democrats waved off objections from Corporate America as self-serving or "political."
Of course, Democrats are acting only in the interest of "average Americans" (sarcasm intentional!).
On top of AT&T's $1 billion, the political wrecking ball so far includes Deere & Co., $150 million; Caterpillar, $100 million; AK Steel, $31 million; 3M, $90 million; and Valero Energy, up to $20 million! Verizon has also warned its employees about its new higher health-care costs - and there will be many more in the coming days and weeks.
John DiStaso, of the New Hampshire Union Leader, reported this week that Obamacare could cost the Granite State's major ski resorts as much as $1 million in fines, because they hire large numbers of seasonal workers without offering health benefits. "The choices are pretty clear, either increase prices or cut costs, which could mean hiring fewer workers next winter," he wrote.
All this in two days? Thank God we have Obamacare, since I, and the rest of America are about to get pretty damn sick.
Think I'm being unfair to the "well-intentioned" and "non-political" Democratic Party, our President or the Obamacare at large? TAKE ME ON!
Marko's Take
We will be posting our next YouTube video on the legality of the Personal Income Tax in the next couple of days. If you haven't seen some of our video blogs, we hope you take a minute to check us out at http://www.youtube.com/markostake.com.
I've maintained all along, and will continue to insist, that this ill-conceived piece of legislation will NEVER be enacted, unless preceeded by the complete suspension of civil rights and is MANDATED by some sort of executive order. America not only does not want it, 36 states are suing to ENJOIN it!
This is probably the most incredible act of political suicide I think I've ever seen. Any one voting "yea" will be voting either himself, or herself, out of office in 2010. If you know a congressperson, send a subscription to "Marko's Take" will ya? It's free and they might learn something!
It's been a humungously "successful" week for Democrats. Obamacare passed Congress in its final form on Thursday night and the dividends are already being realized. Yesterday AT&T announced that it will be forced to make a $1 billion writedown due solely to the health bill in what has become a wave of such corporate losses.
This utter unabated destruction of wealth and capital came with more than ample warning.
Using their well-lubed "spin machine" to make this new entitlement look affordable under Washington, D.C. accounting conventions, Democrats decided to raise taxes on companies that do the public service of offering prescription drug benefits to their retirees instead of dumping them into Medicare. Democrats waved off objections from Corporate America as self-serving or "political."
Of course, Democrats are acting only in the interest of "average Americans" (sarcasm intentional!).
On top of AT&T's $1 billion, the political wrecking ball so far includes Deere & Co., $150 million; Caterpillar, $100 million; AK Steel, $31 million; 3M, $90 million; and Valero Energy, up to $20 million! Verizon has also warned its employees about its new higher health-care costs - and there will be many more in the coming days and weeks.
John DiStaso, of the New Hampshire Union Leader, reported this week that Obamacare could cost the Granite State's major ski resorts as much as $1 million in fines, because they hire large numbers of seasonal workers without offering health benefits. "The choices are pretty clear, either increase prices or cut costs, which could mean hiring fewer workers next winter," he wrote.
All this in two days? Thank God we have Obamacare, since I, and the rest of America are about to get pretty damn sick.
Think I'm being unfair to the "well-intentioned" and "non-political" Democratic Party, our President or the Obamacare at large? TAKE ME ON!
Marko's Take
We will be posting our next YouTube video on the legality of the Personal Income Tax in the next couple of days. If you haven't seen some of our video blogs, we hope you take a minute to check us out at http://www.youtube.com/markostake.com.
Friday, March 26, 2010
When Irish Eyes Aren't Smiling: More Problems In The Euro-Zone
The Euro-Zone is falling apart country-by-country. We've written about the panoply of problems facing Greece, Portugal and Great Britain (http://markostake.blogspot.com/2010/03/soverign-debt-redux-spill-over.html).
Ireland is also suffering and perhaps as badly as Greece (http://markostake.blogspot.com/2010/03/greek-crisis-threatening-global.html).
Ireland's deeper recession continued in the fourth quarter of 2009, as the economy shrunk another 2.3%, as the result of devastating floods in the west of the country and a steep decline in building activity, following the crash in real estate.
This marked a reversal from the third quarter, which had shown a small increase in Gross Domestic Product (GDP) of 0.3% – giving rise to false optimism that Ireland had come out of recession. Third quarter GDP was later revised to a negative 0.1%.
Minister of Finance, Brian Lenihan, said the year-on-year GDP decline of 7.1% was “marginally better” than the estimate at the time of the budget in December of 7.5%.
Economists, however, were more gloomy. Alan McQuaid, of Bloxham Stockbrokers, said “not only did Ireland not come out of recession in Q3, but it actually went into a deeper downturn in the final quarter”.
He calculated the cumulative decline in GDP since the end of 2007 was a “staggering” 12.7%, more than double the rate of the slowdown in the Euro-Zone as a whole!
Ireland is particularly beset with fall-out from the "boom-bust" in real estate. Officials estimate the number of house completions in 2009 at 26,000, half the 52,000 built in 2008. With an overhang supply of 120,000 houses for sale or rent, not including vacant homes, the rate of housebuilding in 2010 is expected to halve again.
At the height of the boom in 2007 there were 87,000 houses built in Ireland. This compares with England and Wales, an area with 13 times the population, where house building is running at about 150,000 units a year.
Finance Minister Lenihan warned on Tuesday that the nation faced “the challenge of [its] life”, as he slapped higher taxes on the middle classes in an emergency budget aimed at tackling the spiralling economic crisis.
Mr. Lenihan outlined plans to set up a national asset management agency to take over an estimated €80 billion-€90 billion of bad loans extended by local domestic banks to developers and property companies that now look as if they will not be able to repay.
Forecasting an 8% drop in Ireland’s GDP this year, Lenihan said he had to tackle soaring government borrowing and called on political opponents to “set aside narrow sectional interests” and support the tax increases, which are highly unpopular domestically.
Rating agency Standard & Poor’s recently downgraded Ireland’s sovereign debt. Even after Tuesday’s measures, Mr Lenihan forecast government borrowing would be the equivalent of 10.75% of GDP – more than 3 times the limit on countries joining the Euro.
So, unhealthy countries continue to get less healthy. Tragically, this vicious cycle is threatening the entire Euro-Zone and is making it impossible for the EU, as a whole, to provide emergency aid. As a result, the situation threatens to be a contagion to the entire global financial community.
Marko's Take
If you're wondering about the legality of the Personal Income Tax, our latest video blog will be posted in the next several days covering this complex topic as we head into tax season. To view our current YouTube videos, you can visit them here http://www.youtube.com/markostaketv.
Ireland is also suffering and perhaps as badly as Greece (http://markostake.blogspot.com/2010/03/greek-crisis-threatening-global.html).
Ireland's deeper recession continued in the fourth quarter of 2009, as the economy shrunk another 2.3%, as the result of devastating floods in the west of the country and a steep decline in building activity, following the crash in real estate.
This marked a reversal from the third quarter, which had shown a small increase in Gross Domestic Product (GDP) of 0.3% – giving rise to false optimism that Ireland had come out of recession. Third quarter GDP was later revised to a negative 0.1%.
Minister of Finance, Brian Lenihan, said the year-on-year GDP decline of 7.1% was “marginally better” than the estimate at the time of the budget in December of 7.5%.
Economists, however, were more gloomy. Alan McQuaid, of Bloxham Stockbrokers, said “not only did Ireland not come out of recession in Q3, but it actually went into a deeper downturn in the final quarter”.
He calculated the cumulative decline in GDP since the end of 2007 was a “staggering” 12.7%, more than double the rate of the slowdown in the Euro-Zone as a whole!
Ireland is particularly beset with fall-out from the "boom-bust" in real estate. Officials estimate the number of house completions in 2009 at 26,000, half the 52,000 built in 2008. With an overhang supply of 120,000 houses for sale or rent, not including vacant homes, the rate of housebuilding in 2010 is expected to halve again.
At the height of the boom in 2007 there were 87,000 houses built in Ireland. This compares with England and Wales, an area with 13 times the population, where house building is running at about 150,000 units a year.
Finance Minister Lenihan warned on Tuesday that the nation faced “the challenge of [its] life”, as he slapped higher taxes on the middle classes in an emergency budget aimed at tackling the spiralling economic crisis.
Mr. Lenihan outlined plans to set up a national asset management agency to take over an estimated €80 billion-€90 billion of bad loans extended by local domestic banks to developers and property companies that now look as if they will not be able to repay.
Forecasting an 8% drop in Ireland’s GDP this year, Lenihan said he had to tackle soaring government borrowing and called on political opponents to “set aside narrow sectional interests” and support the tax increases, which are highly unpopular domestically.
Rating agency Standard & Poor’s recently downgraded Ireland’s sovereign debt. Even after Tuesday’s measures, Mr Lenihan forecast government borrowing would be the equivalent of 10.75% of GDP – more than 3 times the limit on countries joining the Euro.
So, unhealthy countries continue to get less healthy. Tragically, this vicious cycle is threatening the entire Euro-Zone and is making it impossible for the EU, as a whole, to provide emergency aid. As a result, the situation threatens to be a contagion to the entire global financial community.
Marko's Take
If you're wondering about the legality of the Personal Income Tax, our latest video blog will be posted in the next several days covering this complex topic as we head into tax season. To view our current YouTube videos, you can visit them here http://www.youtube.com/markostaketv.
Thursday, March 25, 2010
Soverign Debt Redux: Spill-Over Affecting Healthy Countries
Lately, we've observed the number of countries in trouble and whose sovereign debt has been both under scrutiny and appears to be signalling a global domino effect (http://markostake.blogspot.com/2010/03/greek-crisis-threatening-global.html) and (http://markostake.blogspot.com/2010/03/more-euro-zone-problems-whos-next.html).
Greece and Portugal have been front-and center in the news, rattling investors on both sides of the pond, but now another country is now gotten in the mix - China (http://markostake.blogspot.com/2010/03/non-bull-in-china-shop.html). Clearly, China is now recognizing that the Euro-Zone problems could affect the tenuous Chinese economy.
Growing concerns about spreading sovereign debt issues got China's attention. Until recently, China had remained fairly mum on the issue. Yesterday, a senior Chinese central banker warned that the Greek crisis was just the beginning.
“We don’t see decisive actions telling the market we can solve this,” Zhu Min, a deputy governor of the People’s Bank of China, was reported as saying. One has to wonder, how China will react to this crisis.
His comments caused the Euro to dip to a new 10-month low versus the dollar, and encapsulated a growing worry among a growing group of investors that high levels of government indebtedness is one of the main risks facing the global economy.
Of immediate concern is the Euro-Zone. A two-day summit of European leaders convenes today and investors need to hear that they have been able to knit together a safety net for Greece, which has had trouble rolling over the €20bn of debt maturing over the next couple of months.
But there is a potentially a more important issue emerging.
The poor reception given to the auction of $42 billion of US 5-year notes on Wednesday points to reluctance among buyers of US government debt. If this continues, yields will rise, but not for the hope-for reason – economic recovery. Instead, it will signal a undigestable supply and lack of demand. This could jeopardize the apparent economic recovery and adversely affect asset markets - particularly equity markets hard.
Moody's investor service, on Monday said that the world's largest AAA rated issuers: the U.S., Great Britain, Germany and Spain, were all in danger of losing their blue chip status.
Meanwhile the Greek crisis continues in limbo and further raises the prospect that this situation will spread to a global financial crisis. Yet, no definitive solution appears imminent.
Disturbing is the lack of consensus of how to address the issue. All potentially affected countries agree as to the magnitude of the problem, but the proposed solutions have absolutely no consensus and have created divisions among the affected countries. In the case of Germany, domestic controversy and oppostion to jeopardizing Germany's solid financial status have led to heated internal politcal debate.
The only positive note is that troubled Dubai appears to be making progess on its debt issue thanks to commitments from Abu Dhabi
(http://www.ft.com/cms/s/0/d74e16b8-37e3-11df-9e8e-00144feabdc0.html).
Despite the good news from the Dubai situation, more cracks are appearing in the global dam than are being plugged.
Marko's Take
Please visit our new YouTube channel at http://www.youtube.com/markostaketv. Our new piece on the legality of the personal income tax will posted within the next several days, followed every week or so by a series of new videos primarily covering more political issues and world events.
Greece and Portugal have been front-and center in the news, rattling investors on both sides of the pond, but now another country is now gotten in the mix - China (http://markostake.blogspot.com/2010/03/non-bull-in-china-shop.html). Clearly, China is now recognizing that the Euro-Zone problems could affect the tenuous Chinese economy.
Growing concerns about spreading sovereign debt issues got China's attention. Until recently, China had remained fairly mum on the issue. Yesterday, a senior Chinese central banker warned that the Greek crisis was just the beginning.
“We don’t see decisive actions telling the market we can solve this,” Zhu Min, a deputy governor of the People’s Bank of China, was reported as saying. One has to wonder, how China will react to this crisis.
His comments caused the Euro to dip to a new 10-month low versus the dollar, and encapsulated a growing worry among a growing group of investors that high levels of government indebtedness is one of the main risks facing the global economy.
Of immediate concern is the Euro-Zone. A two-day summit of European leaders convenes today and investors need to hear that they have been able to knit together a safety net for Greece, which has had trouble rolling over the €20bn of debt maturing over the next couple of months.
But there is a potentially a more important issue emerging.
The poor reception given to the auction of $42 billion of US 5-year notes on Wednesday points to reluctance among buyers of US government debt. If this continues, yields will rise, but not for the hope-for reason – economic recovery. Instead, it will signal a undigestable supply and lack of demand. This could jeopardize the apparent economic recovery and adversely affect asset markets - particularly equity markets hard.
Moody's investor service, on Monday said that the world's largest AAA rated issuers: the U.S., Great Britain, Germany and Spain, were all in danger of losing their blue chip status.
Meanwhile the Greek crisis continues in limbo and further raises the prospect that this situation will spread to a global financial crisis. Yet, no definitive solution appears imminent.
Disturbing is the lack of consensus of how to address the issue. All potentially affected countries agree as to the magnitude of the problem, but the proposed solutions have absolutely no consensus and have created divisions among the affected countries. In the case of Germany, domestic controversy and oppostion to jeopardizing Germany's solid financial status have led to heated internal politcal debate.
The only positive note is that troubled Dubai appears to be making progess on its debt issue thanks to commitments from Abu Dhabi
(http://www.ft.com/cms/s/0/d74e16b8-37e3-11df-9e8e-00144feabdc0.html).
Despite the good news from the Dubai situation, more cracks are appearing in the global dam than are being plugged.
Marko's Take
Please visit our new YouTube channel at http://www.youtube.com/markostaketv. Our new piece on the legality of the personal income tax will posted within the next several days, followed every week or so by a series of new videos primarily covering more political issues and world events.
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