Oct 28, 2011, 7:23 am EDT
Is Europe’s crisis over? The short answer is “no,” Europe’s crisis is not over. But Thursday’s news was a major step in the right direction.
Europe’s leaders finally acknowledged what we all already knew: Greece is insolvent and cannot pay its outstanding debts. The country has reached the point where higher taxes and lower spending cannot balance the books; they instead cause the economy to contract, tax revenues to fall further, and the debt-to-GDP ratio to rise. Recent estimates had Greece’s debt-to-GDP ratio at nearly 170% of GDP, and with the country’s yawning budget deficit, that number was getting higher every month. It’s a vicious, ugly cycle with no other way out.
Greece had reached the point where its debt load was unsustainable and default was inevitable. The Europeans wisely chose to negotiate a large “voluntary” haircut of 50 percent between Greece and its bondholders rather than run the risk that Greece unilaterally decide to stop paying. It was not a popular move, and Europe’s leaders will no doubt take political heat for it from their electorates. But it was the only sensible move to make. Read
Oct 25, 2011, 3:05 pm EDT
China is taking some knocks lately over fears that a “hard landing” is in the cards for this booming emerging market. Admittedly, it all sounds a little overblown as China’s industrial output surged 13.8% in September over 2010 numbers — hardly indicative of an economic crisis. And although auto sales in China are lagging, they still are growing in what now is the largest vehicle market in the world after American car buying slowed to a crawl during the recession. And, of course, Macau casino stocks are booming as disposable income among wealthy Chinese continues to be in ample supply.
But those who watch manufacturing and consumer trends in China are buying into the head-fake. The fact is almost all production and consumption trends in this nation are subject to massive risks of Chinese banking and lending — a so-called “shadow banking” system that is unregulated, corrupt and wide-reaching in this communist nation.
Consider this: According to a study issued by the People’s Bank of China in 2010, non-banking-sector lending has expanded to anywhere between $1 trillion and $10 trillion — as much as 40% of the total lending activities of China’s economy. These loans come with exorbitant interest rates, ranging from 14% to as much as 70%. Read
Oct 25, 2011, 1:17 pm EDT
One of the GOP’s most important issues for the 2012 presidential election is destined for a date with the Supreme Court. The U.S. Department of Justice made a surprise decision a few weeks ago to ask the high court to hear a case regarding President Barack Obama’s Affordable Care Act (a.k.a. “Obamacare”) during its current term.
Four different lawsuits currently are in line for possible Supreme Court review. Although there are several types of challenges and possible outcomes, the most important and likely to be ruled upon is the “individual mandate” aspect of the law. This provision of the law requires almost all Americans to purchase health insurance. It is the logical and fiscal base of the reset of the legislation. If the mandate is struck down, much, if not all, of the rest of the law would be costly to implement. A decision of some kind most likely will come down before the 2012 presidential election.
Republican presidential candidates have been united in opposing the health care reform bill and demanding its full repeal. They have two basic arguments. First, they claim the bill is unconstitutional because Congress does not have the express power to require individuals to buy a product. Second, they assert the cost of implementing the law and the uncertainty of how it actually works is preventing firms from hiring. It appears the Supreme Court will weigh in on the first argument and, depending on its ruling, we might get to see whether the second has any real merit. Read
Oct 25, 2011, 6:00 am EDT
One of the most important players in any market is the Federal Reserve. It controls the amount and cost of money in the system, so it naturally has to be at the center of our attention at all times.
That’s what makes the release of its meeting notes so fascinating, if you have the slightest bit of policy wonk in you at all. It’s like putting your ear to the door and hearing (albeit three weeks after policies are announced) what the grownups are talking about.
BMO Financial senior economist Michael Gregory always does a nice job analyzing Fed minutes. His interpretation of the October notes is that the Fed, at its Nov. 2 meeting, is not likely to embark on another round of quantitative easing, if only “to allow some time for the past two actions to percolate.” But he thinks more easing is inevitable, which ultimately is going to be a plus for stocks — possibly from lower levels. Read