debt crisis Archives • Rutherford Investment

Stocks Surge On Hopes Of Resolution Of Europe Debt Issues

Published December 12, 2011
As officials continue to struggle to save the European Union, save the euro and resolve sovereign and bank debt issues, global leaders are making concessions.

The long simmering sovereign debt crisis in Europe has brought the EU to the verge of breakup. Some analysts have been predicating its demise in the very near future. Meanwhile, the fate of the euro also hangs in the balance.

Both of these matters threaten the stability of Europe, politically and financially. European leaders have long struggled to find a solution, but without success. The problem is difficult because all member states must agree to any proposed solution.

Germany and France have emerged as the dominant voices of the struggle, but even French sovereign debt is under siege. Other peripheral, AAA-rated European countries have found their debt under attack, S&P has warned them all. Clearly an answer is needed.

A European summit was scheduled for Dec. 9. In the days leading up to the meeting, some developments have occurred and some concessions have been made.

Angela Merkel, the German chancellor, wants tougher rules written into the treaties governing the European Union. However obtaining these consents will be a long process that may last years. Nicolas Sarkozy, the French president, although generally supportive, has reservations.

One wonders how the treaties could be amended without the common effort of the French and Germans.

Others want the European Central Bank to back up European banks and sovereign states. But the ECB has maintained that this is beyond the mandate of the ECB. Anyway, the Germans do not support this notion, because they know they will be the ultimate backstop. Additionally, a recent auction […]

December 16th, 2011|Categories: Daily Journal of Commerce|Tags: debt crisis, debt issues, european banks, european summit, governing the european union, sovereign debt|Comments Off

What In The World Is Going On?

In the last quarter we saw the market move 200 points or more 18 times. We saw it move over 400 points four days in a row. What is causing such gyrations? Surely the U.S, economy is not that volatile. While the economy is struggling, it is not careening as wildly as the equity markets.

The reason for the volatility can be summarized in one word: Europe. For over a year Europe has been dealing with a mounting sovereign debt crisis. The focus has been on Greece, but Italy, Spain and Portugal are also under scrutiny and France may not be far behind. The problem is that these countries, particularly Greece, will have difficulty paying their bills as they come due. Since many banks in Europe hold bonds issued by these countries, the fate of the banks is in doubt as well. This is what is being referred to as the contagion effect.

There are several obvious solutions to the problem, but none are very satisfactory. For instance Greece could default on their debt. But, because of the contagion effect, no one is quite sure where that would lead, and furthermore, it would set a precedent for bad behavior in the European Union, and many countries don’t like that prospect, particularly the Northern European countries.

Greece could be excused from the EU. Even that does not avoid default, and in addition it would be very difficult to do.

The likely outcome will be that the EU collectively will have to guarantee every bank in Europe and every country from insolvency, but that is unpopular too as it would be like you being asked to guarantee your neighbors, or partners, or fellow board members debts. Furthermore, the longer this crisis […]

October 24th, 2011|Categories: Comments from Bill|Tags: contagion effect, debt crisis, economy, european union, sovereign debt|Comments Off

Economic Growth Slows; Bernanke Takes Congress To Task

Published September 9, 2011
After rolling through Labor Day, we continue to have high unemployment. It’s at 9.1 percent, and even President Obama says it will remain high through 2012. If so, Republicans are salivating over the opportunity to retire the president after only one term.

The pundits already are expecting Republicans to gain enough seats to take control of the Senate. Because of Democrats’ large victory in 2006, they have about twice as many seats to defend as Republicans. This gives the Republicans a big advantage going into the elections, so it is their election to lose.

As if high unemployment wasn’t enough bad news, housing starts have been moribund, the Philly Fed index fell to its lowest level since March 2009 – the recent market bottom. The consumer confidence index tumbled as well, to its lowest level since April 2009; the drop was far bigger than anticipated. As the global economy slows, and fears of the European debt crisis continue, worries over another
recession have put a damper on the markets. According to David Kelly, chief market strategist at JP
Morgan Funds, “… the market is an engine flooded with liquidity but without a spark.”

Economic growth is surely slowing not only in the U.S. but globally as well. Economic forecasters are
expecting GDP to grow from 1.5 percent to 2.9 percent next year. At 1.5 percent, we are not in a
recession; however, it will feel a lot like one. Employment really needs GDP growth of 2.5 percent to
reduce unemployment.

What will the market do between now and the end of 2011? As always, the pundits are divided. While
the case can be made for the S&P of […]

September 14th, 2011|Categories: Daily Journal of Commerce|Tags: consumer confidence index, debt crisis, global economy, jp morgan funds, recession|Comments Off