Published October 10, 2016
As we head into the fourth quarter of this year, the outlook is decidedly mixed. European bank worries, the Federal Reserve and interest rates, elections and corporate profits all weigh on the economy. After a long period of negative interest rates, the European economy is softening and its banks are struggling. The negative rates have hurt those most intended to benefit. Bank profits have fallen, interest yields have collapsed and European economies have suffered.
The most notable bank to suffer is Deutsche Bank, with over 100,000 employees and 1.6 trillion euros in assets. Long a bulwark of the German economy and itself a large investor in German companies, Deutsche Bank has seen its market capitalization plummet. Other banks have declined to do business with Deutsche Bank, and hedge fund managers are shorting the stock. Market value has dropped dramatically. Nor is Deutsche Bank alone: Commerzbank, Germany’s number two bank, is laying off 10,000 workers, Greek banks have become penny stocks and Monte De Peschi, the oldest bank in the world, is barely surviving.
It is not just that Deutsche Bank is struggling, but that it represents great systemic risk – […]
Published September 12, 2016
Each week Fed leaders take to the luncheon circuit to speak in favor of higher interest rates. Each time they seem ready to raise rates something gets in the way. If it is not China, it is Brexit, or it is employment data. The one time the Fed did raise rates, the market corrected sharply.
Ever determined, the Fed speakers are again calling for rate increases. After Chairwoman Janet Yellen opened the door just a crack at the Jackson Hole economic conference, it seemed very likely that the Fed would raise rates in September. This contrasts with previous Fed expectations not to raise rates before December and maybe not at all this year. But a subpar jobs report showing hiring of 151,000 workers in August stunned the markets, again reflecting the weak economy. With 24,000 fewer jobs than expected, the jobless rate held steady at 4.9 percent.
The labor participation rate remained at a meager 62 percent. The report is likely to keep the Federal Reserve on hold when it meets on Sept. 21.
Furthermore, the Institute for Supply Management Non-Manufacturing Business Activity Index showed a surprise massive slowdown in growth […]
Published August 8, 2016
The gross domestic product numbers just posted show U.S economic growth at 1.2 percent for the second quarter of 2016, and when added to the numbers for the first quarter, they show anemic 0.9 percent growth for the year to date. Economists had expected 2.6 percent growth after seven years of slow to no growth; the U.S. now exhibits more of the same.
The U.S. economy has grown at a 2.1 percent annual rate since the recovery began in 2009. The current expansion remains smaller than the one during Richard Nixon’s administration, and that expansion lasted a mere three years. Even Janet Yellen, the Federal Reserve’s chairwoman, sees slow long-term growth.
During this “recovery,” 3.1 million more people fell into poverty, and the percentage of Americans in poverty climbed from 14.3 percent to 14.8 percent.
Sixty percent of households saw their income shrink between 2009 and 2014, while the bottom 20 percent saw their incomes decline by 8 percent over that time.
More people are on food stamps. According to the U.S. Department of Agriculture, 8.7 million more people were on food stamps in April than when the recovery started.
The number of […]
Published July 11, 2016
Voters in the United Kingdom awoke with a bad hangover recently. They were dazed and angry, but mostly confused. The nation had just voted to leave the European Union. Millions of people signed a petition in protest. The opinion polls had said that after 43 years, Britain would vote to remain in the European Union. The markets were positioned for a vote to remain. But by a razor-thin margin, the voters said to leave. Some votes in favor of leaving may have been in protest, not expecting them to contribute to such a result. But there it was, for better or worse: Leave!
In rapid order, the prime minister offered his resignation to take effect in October, with an election to find a new leader. The person thought most likely to succeed was Boris Johnson, former Lord Mayor of London and a proponent of Britain leaving. But Johnson dropped out of the race when one of his best friends and supporters, Michael Grove, filed for the office. That prompted one member of Parliament to say that there had to be a special place in hell for Grove.
Johnson consulted other […]
By now you are probably aware that the U.K. has voted to leave the European Union (EU). The vote came as a shock to the markets even as it was known that the margin go or remain was razor thin.
What began as an experiment after the Second World War has run aground in a very short time from a historical perspective. For centuries Europe has had a history of turmoil with major wars following about every fifty years. After World War I an attempt was made for a lasting peace with the League of Nations, but that did not last long. After the carnage of World War II, Konrad Adenauer and Charles DeGaulle set about avoiding yet another major war on the continent. If the countries of Europe could be united economically, it was reasoned, maybe they could avoid future wars. Beginning with small agreements, initially about coal, and later about tariffs in general, the seeds of the European Union were planted. Out of that initial effort came an economic union, a common currency and the ability to travel and ship goods freely throughout Europe. No longer were hours long waits […]
Published June 13, 2016
Last month I asked a rhetorical question: Should we sell in May and go away as the old market saw suggests? I pointed out that what was once a predictable market event has shown, in recent years, to be unreliable.
This May turned out to be no exception, as the markets once again confounded the experts. If you sold in May, you left the party too soon. The Standard and Poor’s index rolled up a 1.53 percent gain in May – 1.8 percent with dividends reinvested. For the three months ending in May, the blue chip index was up 9.12 percent with dividends. The markets were expected to decline because the Federal Reserve was expected to raise rates in June or July.
Once again the Fed has egg on its face, as the most recent jobs report showed that only 38,000 jobs were created in May. The consensus forecast of economists was 160,000 new jobs. This was the worst job growth number in five years. Jobs growth for previous months was also revised downward. Even 160,000 new jobs is a paltry number, because the economy needs to create 250,000 jobs […]