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You Might Not Realize How Awful This Market Is

by Joe Weisenthal

The benchmarket S&P 500 index is not really down by that much from its highs. The decline is on the order of 7%, which is significant, but not a massacre.

However, there are massacres happening in this market if you look at the right places, and especially if you look at some areas which are very economically sensitive.

Check out a chart of BP, which is getting hit by the double whammy of a slowing economy and falling oil.

We’re talking about a third of the company gone.

Read more:  You Might Not Realize How Awful This Market Is – Business Insider.

Why Ben Bernanke Is Like A Bartender At An Alcoholics Anonymous Meeting

imageJoe Weisenthal

In an interview on Consuelo Mack Wealthtrack (which we took notes on here), Paul McCulley likened Ben Bernanke to a “bartender at an Alcoholics Anonymous meeting.”

Now at first blush, this statement might sound highly critical and moralistic, like saying that Bernanke is feeding the worst habits of the economy, when in reality the economy needs to be cut off from cheap leverage and go cold turkey.

And since elsewhere in his interview, McCulley slammed moralistic interpretations of macro-economics, this seems odd.

But here’s the full line from McCulley: “Suddenly the Federal Reserve is the bartender at an AA Meeting: You Keep cutting the price, but nobody’s drinking!”

So he actually wasn’t making a judgment, but rather just describing the reality of an economy that’s in deleveraging (or as put it, in a liquidity trap). When people want to have less debt, no amount of rate cutting will want them to take on more. When people are quitting alcohol, lowering the price doesn’t matter (or at least, it’s not the price that will make them change their mind.).

Unlike in past recessions, where households were sensitive to changes in the price of credit, in this economy they’re not, and Bernanke’s actions do very little.

So according to McCulley (who sounds very Richard Koo-like, when talking about all this) the answer is: Fiscal, fiscal, and more fiscal stimulus. Let the government lever up, so that the private sector can finishing levering down without an economic collapse.

Read our full notes from the interview here >

CHART: Why Savers Are Furious In America

Joe Weisenthal | Mar. 31, 2012, 7:38 AM

Combing through the personal income and spending data (which was released yesterday) reveals all kinds of interesting nuggets.

For example, we observed the big surge in rental income in America, thanks to a surge in both rent prices, and the number of people who are renting homes, rather than buying them.

And then also the data reveals that the savings rate is back to collapsing.

Anyway, here’s another fun one. Check out income earned from interest as a percentage of GDP.

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As rates have declined, interest income as a total share of the economy is back to levels not seen since the early 70s.

It’s interesting to compare this chart with 10-year yields.

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As you can see, interest income as a share of the total economy actually stayed pretty high throughout all of the 80s, even as rates dropped precipitously. And through rates are at all time lows, interest income isn’t quite there yet. But for savers and retirees, the trend is still not looking good.

And though people blast Bernanke for a policy of zero interest rates, that’s misguided. It’s the massive glut of savings (people wanting risk-free assets all around the world) and the still-poor growth prospects that conspire to make a scenario where you can’t earn any money on your cash.

Read more: BI

There is One World Leader Running For President Who’s Loving These High Oil Prices

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Joe Weisenthal | Feb. 28, 2012, 11:37 AM

Putin.

From Citigroup, the connection between the Russian market and the price of oil.

Source

BERNANKE TO SAVERS: We Don’t Owe You A Living

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Jeff Miller, A Dash of Insight

While we wait for the employment report, there was another big story yesterday — the Fed treatment of savers.

Fed Chair Bernanke testified before the House Budget Committee, responding to some illuminating questions from Committee Chair Paul Ryan (R. WI).  Joe Weisenthal, who is usually on the track of the biggest story, anticipated this one yesterday:

DEAR SAVERS AND RETIREES: Stop Whining About Those Lousy Rates You’re Getting From The Bank

Here is Joe’s conclusion:

And while we sympathize with people not getting returns on their money, the fact of the matter is that the big problem we have right now is that people have too much debt, not an abundance of cash that’s just sitting there not returning anything.

The bottom line is this: Yes, it sucks that pensioners and garden-variety savers aren’t getting returns, but it also sucks for everyone in the U.S. right now, because the economic outlook seems to be so mediocre. Welcome to the club!

Until growth and inflation return to anything that looks robust, savers will have to be stuck with the same garbage returns boat the rest of us are in.

The confirmation came in Congressional testimony by Fed Chair Ben Bernanke and the ensuing questions.

There is a lot of buzz about the role of the Fed and also the leadership of Bernanke.  The leading Republican candidates all want to fire Bernanke, and some of them even want to abolish the Fed.  Some of the GOP House Budget Committee members have joined the criticism.

Here at “A Dash” I focus on investments, not politics.  Years ago some readers called me a “Bush apologist” and a blatant “supply sider.”  I have tried to explain that I do not have a partisan perspective, but an investment perspective.  I want to find the best investments no matter who is in power.  My perspective changes with the evidence.

With that in mind, let me suggest a few propositions for your consideration.  If these are not obvious, I recommend more research.

  • Bernanke is a Republican, with a conservative background.  This is typical for Fed Chairs.
  • If President Bush had been re-elected, the current GOP fiscal argument would be different.  There would be support for stimulus, including both tax cuts or spending.  If you do not believe this, look back in history to the end of the Bush administration.
  • If President Bush had been re-elected, the GOP monetary story would be different.  They would be screaming for easy money, as both parties have always done, including past GOP administrations, and including Bush senior.
  • Paul Ryan is an ambitious and aspiring VP candidate who has a theme that resonates — balancing the budget.  It is an effective political argument — for the party out of power.

Meanwhile, the Fed is doing a good job of ignoring politics and focusing on the economy.

Investment Conclusion

I continue my plea:  Look beyond politics.  Most recently, look beyond the popular ploy of making a villain out of the Fed.

The Fed has a dual mandate including both price stability and employment.  Here is the official statement:

The Congress established two key objectives for monetary policy–maximum employment and stable prices–in the Federal Reserve Act. These objectives are sometimes referred to as the Federal Reserve’s dual mandate.

There are many who have criticized the US approach suggesting that there should be only a single mandate – price stability.

So let us all be clear about this — very clear.

The Fed has no Third Mandate.  There is no interest rate guarantee for savers!

It is difficult enough to balance economic growth and price stability.  The idea that the Fed should be judged by a third criterion — maintaining interest rates for savers — is misguided, politically biased, displaying favoritism for one group, and basically wrong.

More importantly, it is not going to happen.  Our investment decisions should be based upon reality, not the wishful thinking of those with a partisan agenda.

I understand the plight of savers and senior citizens.  I work with such investors every day, helping them find a combination of a bond ladder, dividend stocks, and enhanced yield.  Those who do not have a job at all face a more difficult problem.  Until we have a stronger economic recovery, we are all in this together.

Read more: BI

BELGIUM: Things Are Getting Worse By The Minute

Joe Weisenthal | Nov. 23, 2011, 5:58 AM

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What the heck is going on in Belgium?

A belgian reader sends us in the latest.

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Today, Belgium has been without a government with full authority for more than 527 days. Things are getting worse by the minute:

  1. Dexia – which has been nationalized on taxpayer‘s expense – is trading around 0.30 EUR a share;
  2. Belgium’s interim government (which does not have full authority) finally realizes that the price paid to the French for the Belgian part of Dexia is way too high (4 billion EUR) and, worse, that the guarantees provided by the Belgian tax payer are unrealizable (almost 55 billion EUR). Therefore, they are looking to re-negotiate parts of the deal with France. Why the French would be willing to accept other terms (and risk their AAA-rating) is a mystery for me;
  3. This morning (11/23), Tijd.be calculated that the sum of all guarantees provided by Belgium to its banking sector amounts to an astonishing 130 billion EUR. To put this number in perspective: Belgium’s GDP in 2010 was approx. 353 billion EUR. Let’s hope not all of these guarantees will be claimed, otherwise…
  4. Elio Di Rupo (Parti Socialiste) – who was trying to form a new government – offered his resignation to our King Albert II on Monday (11/21) after criticism from the Liberal party (OpenVLD) and other stakeholders (among others: Belgian entrepreneurs) that the proposed reforms are too much “taxing” and too little “reform”. This criticism has many followers in the Flemish part of Belgium, much less in the French part (Wallonia). So, after 527 days, it seems like not that much has happened, apart from endless talks about topics which do not impact the everyday lives of the Belgians;
  5. The yield-spread between German/Belgian 10-year bonds is rapdily increasing (300 basispoints +) and our current 10 year yield is exploding higher (as we speak: approx. 5.14%);
  6. After Dexia’s share decline brought down Arco (a cooperative related to the Catholic trade union and labor movement which only a couple of weeks ago went bust but, nevertheless, got bailed out by the Belgian taxpayer although technically these were “shareholders” and not “savings-accounts”), today, it seems other cooperatives are getting into serious trouble due to the declining shareprice of the bank in which they were invested. CERA, cooperative which owns shares of Belgian bank and insurance company “KBC Bank” is currently considering if they will apply for a government guarantee. CERA is virtually bankrupt as their KBC-holdings are valued at 31 EUR on their balance sheet while KBC is currently trading around 8,80 EUR.

Conclusion: although it’s always darkest before dawn, I hope our political “leaders” will soon find the courage to take the highly necessary measures:

  1. to modernize the decision-making-procedures of this country;
  2. to put a cap on government spending and reduce our national debt asap;
  3. to find a solution to our very costly social security system (restricting unemployment benefits in time would be a good start);
  4. to re-energize our country: we are way too depended on foreign nations for our energy-supply;
  5. to stop giving guarantees to each and every financial group which gets into trouble;
  6. to offer a perspective to its citizens which is worth some sacrifices;
  7. to stop talking about “solidarity” when all they mean is “those who want to work will be taxed so we can give it to those who do not (want to) work”;
  8. to encourage and reward entrepreneurship (“Some see private enterprise as a predatory target to be shot, others as a cow to be milked, but few are those who see it as a sturdy horse pulling the wagon”, W. Churchill);

Best regards,

@bdemyttenaere

Source

Here’s The Chart That Shows How Workers Got Totally Screwed In This Recovery

Charts don’t get much more self-explanatory than this one from economics professor Mark J. Perry:

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Image: Mark J. Perry

by Joe Weisenthal

With the latest GDP data that’s come out, the US has now resurpassed its all-time record for GDP, and yet that’s been accomplished with 6.6 million fewer jobs.

Of course, people are going to try to draw all kinds of different lessons from this chart. For example, some will see it as a sign that we’re in a golden-age of technological productivity, that’s allowed the overall economy to prosper, while a cohort of unemployable, skill-less workers suffer.

There’s also a political angle, namely that the needs of workers are obviously not in alignment with the interests of corporate America: Remember, the corollary to that record GDP is record corporate profits, as seen here.

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Image: FRED

Regardless of the root cause of the disconnect, this is a real and growing problem, as the lack of jobs translates into political strife, and perhaps even unrest.

Source

Mapping Out The European Crisis In One Gigantic Chart

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by Joe Weisenthal

A super-cool chart from Morgan Stanley, which basically examines different kinds out potential outcomes in Europe (with the top-right quadrant being the best, and the bottom-left quadrant being the worst), with some ideas about what kinds of policies get you to where.

Click Here – Morgan Stanley

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