BIGCAPITAL's Blog

April 10, 2010

Polish president, central bank head die in crash

Filed under: Uncategorized — bigcapital @ 6:55 pm

 

Polish president, central bank head die in crash

Polish President Lech Kaczynski was killed when a plane carrying 132 people crashed in thick fog on its approach to a Russian airport on Saturday, killing everyone on board, officials said.

Central bank governor Slawomir Skrzypek and several senior government officials were also among those on board the Tupolev Tu-154 plane, which came down as it neared Smolensk airport in western Russia.
Read more: http://www.intermoney.org/

Advertisements

April 9, 2010

How free markets sank the US economy: Joseph Stiglitz

Filed under: Uncategorized — bigcapital @ 3:57 pm

 

How free markets sank the US economy: Joseph Stiglitz

Two years ago, a poisonous brew of bad economics, lax regulation, and egregious behaviour boiled over, scalding the financial system and
pitching the United States into its steepest downturn since the Great Depression.

The antidotes to the crisis, concocted by many of the players who stirred the original toxic brew, have pulled the U.S. economy back from the brink.

But those remedies won’t prevent future crises, Joseph Stiglitz, winner of the 2001 Nobel Prize for Economics, writes in “Freefall: America, Free Markets, and the Sinking of the World Economy” (Norton, $27.95).

In contrast to the regulations that emerged from the Great Depression, which promoted growth and stability, the response to this crisis has led to a less-competitive financial system dominated by banks that are too big to fail, he writes.

Stiglitz, former chief economist at The World Bank and now a professor at Columbia University in New York, focuses on banks’ failure to assess and manage risk, especially when risk is disguised by complex financial instruments. Such “modern alchemy” transformed risky sub-prime mortgages into A-rated products dubbed safe enough to be held by pension funds, he says.

America’s financial markets also failed to allocate capital productively, he says. “At their peak in 2007, the bloated financial sector absorbed 41 percent of profits in the corporate sector,” Stiglitz writes.

To add insult to injury, some of those profits were spent influencing Congress to make certain the government would not regulate risky derivatives or curb predatory lending.

Finally, flawed incentive structures fostered corruption, encouraging deceptive accounting that would lead to higher stock prices and higher bonuses for Wall Street managers.

By 2008, the nation’s economy was in a freefall and the United States, a country that purported to revile socialism, had to socialize the risks banks had taken and intervene in markets in unprecedented ways, Stiglitz writes.

But where does that leave the financial system and, more importantly, the U.S. economy?

“It’s very likely we will have a very slow recovery, I hope not as protracted as the Japanese did, but no one thought in 1990 that they would have one that long either,” Stiglitz said in a recent conversation with Reuters.

Japan is viewed as having lost a decade of growth during the 1990s before the economy bounced back in 2004-06.

Stiglitz said one difference between Japan and the United States is that Japan has zero labour force growth, while the United States has a 1 percent labour force growth rate.

Thus, if U.S. jobs grow at a 1 percent pace, “it’s as bad as Japan’s growing at zero percent,” he said.

Other differences exist between Japan and the United States, some of which argue for a quicker comeback for the United States and others than point to a slower one, Stiglitz said.

For one thing, while Japan could export its way out of its slowdown, the United States cannot because European growth is also slow.

For another, Japan began its recession with a high savings rate and that enabled it to expand by decreasing savings and increasing consumption.
“The United States is in the opposite situation, having begun with a savings rate of zero,” Stiglitz said. “Thus, the likelihood that our savings rate is going to go up is very high and rising savings can contribute significantly to a prolonged slowdown.”

The healthcare situation in the United States, with its issues of equity and access, also has implications for U.S. growth, Stiglitz told Reuters. Health affects productivity, and the cost of healthcare affects competitiveness, he said.

“To make things worse, we have made the fundamental mistake of linking the provision of healthcare to employment, creating strong interactions between deficiencies in the health care system and problems in the labor market,” he said.

The solution to that problem would be to move to a single payer system that recognizes health as a social cost, not an employment cost, Stiglitz said.

“Providing low-skilled workers who earn minimum wage with health insurance almost doubles the cost of employing them so the adverse affects of the current system are most marked on the low-wage part of the labour force,” he said.

But the biggest risk to the economic recovery is the “very, very strong political risk” posed by those who argue for deficit reduction, he said.

“President Obama is trying to walk a very fine line on that issue now, saying he will cut the deficit over the long run and stimulate the economy over the short run,” he said. “But the myopia of the deficit hawks won’t let them buy into that.”

Why Interest Rates Will Explode Higher Starting Later in 2010

Filed under: Uncategorized — bigcapital @ 3:54 pm

 

Why Interest Rates Will Explode Higher Starting Later in 2010

Financial pundits have been cheering the declining U.S. trade deficit, but they should be careful what they wish for. Once the U.S. is no longer running a huge trade deficit, then all those exporter nations will no longer have hundreds of billions of dollars floating around, looking for a home in Treasury bonds. Interest rates are about to start rising, and will continue rising for a generation. Words: 782

In further edited excerpts from the original article* Charles Smith (www.oftwominds.com) goes on to say:

The Fed has created massive artificial demand for more U.S. debt in two ways:
1. by direct purchase of bonds being auctioned and
2. by secretly buying Treasury bonds from “primary dealers” (banks) which give the appearance that some private parties are actually buying T-bills to hold, when in fact they are only temporary proxies for cloaked Fed purchases.

Now, however, as the Fed ends some of its lavish support of the Treasury debt and Congress and the Obama Administration are stepping up their borrowing to unprecedented levels it begs the question as to who will be the “buyer of last resort”. It won’t be China for a number of reasons:

1. When China’s trade surplus with the U.S. was expanding into the hundreds of billions every year, the Chinese needed a place to park all those dollars. U.S. Treasury bonds were liquid, supposedly safe and available in limitless quantities. Keeping interest rates cheap for their American “consumer” debt junkies made good sense as well. Now, however, the gargantuan trade surpluses are shrinking, and the torrent of dollars has diminished.

Financial pundits have been cheering the declining U.S. trade deficit, but they should be careful what they wish for. Once the U.S. is no longer running a huge trade deficit, then all those exporter nations will no longer have hundreds of billions of dollars floating around, looking for a home in Treasury bonds.

2. China holds about $2.27 trillion in foreign reserves, about two-thirds of it in US dollars, making it the world’s largest holder of US Treasuries outside the United States, according to the US Treasury Department. Now, however, it has fewer dollars to park in T-bills and has started trimming its holdings of long-term Treasury debt.

OK, let’s add this up: the two primary sources of demand for new Treasury debt are scaling back or even dumping their holdings, while supply of new Treasury debt is increasing at record levels. Thus, according to the laws of supply (increasing rapidly) and demand (falling), the Treasury’s ability to palm off hundreds of billions in new debt every few months is about to outstrip demand by a long shot. The only way to increase demand will be to raise interest rates, which will then spread to all layers of the economy. All interest rates will rise, including mortgages.

There really is no escape from this conclusion and this is about 2010 through 2035, as bond rate cycles tend to run between 18 and 26 years. Just as interest rates fell for 26 years, now they will rise for a generation or so.

For those who think the newly frugal American household or corporation will step up and buy the $1.4 trillion in new debt and the $2 trillion in debt being rolled over each and every year–dream on. American households were, in fact, net sellers of Treasuries in the second quarter of 2009, and on a massive scale. Purchases by mutual funds were modest, while purchases by pension funds and insurance companies were trivial. The key, therefore, becomes the banks.

a) U.S. banks’ asset allocation to government bonds is about 13 percent, which is relatively low by historical standards. If they raised that proportion back to where it was in the early 1990s, it’s conceivable they could absorb about $250 billion a year of government bond purchases but that’s a big “if.”

b) That just leaves two potential buyers: the Federal Reserve, which bought the bulk of Treasuries issued in the second quarter; and foreigners. Morgan Stanley’s analysts have crunched the numbers and concluded that, in the year ending June 2010, there could be a shortfall in demand on the order of about a third of projected new issuance.

If the Fed and Chinese cut back, due to not having more dollars to squander on T-bills or from various other constraints, then the pressure to sell Treasuries at whatever the market demands could cause rates to explode higher, to the surprise of virtually all observers.

Source: http://www.intermoney.org

April 2, 2010

Should you sell stock in April and go away?

Filed under: Uncategorized — bigcapital @ 11:07 am

 

 

Should you sell stock in April and go away?

Spring forward?

Commentary: Should you sell stock in April and go away?

By Mark Hulbert, MarketWatch

Should you try to get a head start on those who are planning “sell in May and go away?”

If so, then you will be looking for an opportunity to sell your stocks in April and go to cash, thereby beating the many investors who will

instead wait until a month from now.
But before you rush to sell everything, bear in mind that the odds of success are quite low. Stock market timers in general have very poor

success rates, rarely doing better over the long term than simply buying and holding. Why would we think that they can do any better timing

their entries and exits in October and April than in any other month of the year?

Well, the proof of the pudding is in the eating.

Read more: http://www.intermoney.org/

April 1, 2010

Tax Increases Will Pop Market Rally: Trader

Filed under: Uncategorized — bigcapital @ 10:05 am

 

Tax Increases Will Pop Market Rally: Trader

As the first quarter comes to a close, the Dow is barreling toward 11,000, fueled by low rates, earnings optimism and typical end-of-quarter buying. But one thing could pop the rally: Higher taxes.
“I think you’re probably going to see the highs for the year sometime in the second quarter or early third quarter — probably low to mid 1200s on the S&P,” said David Rovelli, the managing director of equity trading at Canaccord Adams.

“Then, people will come to the reality in the second half that a lot of adjustable-rate mortgages are resetting and taxes are going up on the rich,” he said.

“Our [U.S.] debt is going to be increasing and taxes will be raised year in and year out,” Rovelli explained, referring to the recently signed health-care legislation, which is set to increase income and investment taxes in the next few years.

So how do you trade the ascent?
Rovelli said tech is blazing the trail — notably Apple .

“As long as Apple goes higher, the Nasdaq goes higher,” he said.

And, he thinks semiconductors could see another leg up in the meantime.

“Semiconductors usually have the incentive to lead the market higher — they’re in everything,” he said.

Exhibit A: Qualcomm , which makes chips for cellphones and other gadgets, today raised its earnings and revenue forecast.

Rovelli is looking at the Philadelphia Stock Exchange semiconductor index to see if it can hold for a few consecutive days above 370.

Halftime Report: Pullback Or Profit Taking?

A new all time high for a number of stocks couldn’t keep the S&P in the green on Tuesday.

Is the action just end of quarter profit taking or are we heading for a pullback?

Strategy Session with the Fast Money traders

I think we’re seeing profit taking with investors perhaps looking for a bit of a pullback, says Pete Najarian. There’s no denying that volume is absolutely awful. As far as I can tell, investors are ready to close up the quarter right here.
Moves lower in Citi and BofA   look like profit taking, counsels Todd Gordon of Forex.com. But there is another stock that’s making me worry about a pullback. Goldman failed around 178 – that’s the 2010 high. I think that’s a cause for concern. And it’s gone under the radar.

I’m a little concerned about financials too, says Patty Edwards of Storehouse. However, I’m long Goldman but it’s for the long term. And broadly I’m neutral on the market.
 

What must you know?

Volume in the oil market is very light, says Addison Armstrong of Tradition Energy. I expect the oil market to be sleepy into the holiday. I think we see crude bounce around and test below $82.

And despite a bullish outlook from Goldman about nat gas , I just see no reason for nat gas to rally, Armstrong adds.

Hedge Fund Managers: CALL THE CLOSE

Pete Najarian: I think people are ready to close up the quarter and finish it right here.

Patty Edwards: I’m neutral on the market.

Todd Gordon: I think we’re heading lower in the euro.

Addison Armstrong: I think we see crude bounce around and test below $82.

Source: http://www.InterMoney.org

Blog at WordPress.com.