Skyrocketing costs are pressuring companies, sending a major employer into bankruptcy protection
By Jamie Smith Hopkins, The Baltimore Sun
CORDOVA — -- On Maryland's Eastern Shore, everything leads back to chickens.
The complete article can be viewed by clicking HERE
Monday, June 27, 2011
The publisher of this document has given us permission to publish this "subscriber only" post. It's lengthy but you better read it. It tells us where the economy is almost certainly going and why.
Click here to read article
Click here to read article
Why the Jobs Situation Is Worse Than It Looks
We will continue to ask what our lawmakers are doing to ease unemployment until they actually do something to ease unemployment.
Click here to read article
Click here to read article
Sunday, June 19, 2011
UK banks abandon eurozone over Greek default fears
Read this and be warned. Something big and unpleasant is about to happen.
UK banks have pulled billions of pounds of funding from the eurozone as fears grow about the impact of a “Lehman-style” event connected to a Greek default.
Senior sources have revealed that leading banks, including Barclays and Standard Chartered, have radically reduced the amount of unsecured lending they are prepared to make available to eurozone banks, raising the prospect of a new credit crunch for the European banking system.
Standard Chartered is understood to have withdrawn tens of billions of pounds from the eurozone inter-bank lending market in recent months and cut its overall exposure by two-thirds in the past few weeks as it has become increasingly worried about the finances of other European banks.
Barclays has also cut its exposure in recent months as senior managers have become increasingly concerned about developments among banks with large exposures to the troubled European countries Greece, Ireland, Spain, Italy and Portugal.
In its interim management statement, published in April, Barclays reported a wholesale exposure to Spain of £6.4bn, compared with £7.2bn last June, while its exposure to Italy has fallen by more than £100m.
One source said it was “inevitable” that British banks would look to minimise their potential losses in the event the eurozone crisis were to get worse. “Everyone wants to ensure that they are not badly affected by the crisis,” said one bank executive.
Moves by stronger banks to cut back their lending to weaker banks is reminiscent of the build-up to the financial crisis in 2008, when the refusal of banks to lend to one another led to a
seizing-up of the markets that eventually led to the collapse of several major banks and taxpayer bail-outs of many more.
While the funding position of UK banks is far stronger now than it was back in 2008, the banking systems of several other major European countries, including Spain, Germany and Italy, are showing increasing signs of weakness.
Analysts at UBS have warned that eurozone banks are “particularly exposed” having not done enough since the crisis to cut their reliance on the wholesale funding markets and remain acutely sensitive to the withdrawal of liquidity from the inter-bank market.
Simon Adamson, a banks analyst at CreditSights, said it was clear many eurozone banks had been having trouble funding themselves for several months.
“Clearly there are some banks that are finding it difficult to access markets. I think this is a long term sign of the way the markets are going,” he said.
Spanish banks have become the main focus of market concerns with the latest European Central Bank (ECB) figures showing that Spanish banks have been forced to increase their use of ECB lending facilities and borrowed a total of €58bn (£51bn) in May, up from €44bn in April.
“We have been amazed at the ability of Spanish banks to find ways to fund themselves, but it is clear they are running out of options,” said one senior analyst at a major investment bank.
http://www.telegraph.co.uk/finance/financialcrisis/8584442/UK-banks-abandon-eurozone-over-Greek-default-fears.html#.Tf1xs7fCK6A;email
UK banks have pulled billions of pounds of funding from the eurozone as fears grow about the impact of a “Lehman-style” event connected to a Greek default.
Senior sources have revealed that leading banks, including Barclays and Standard Chartered, have radically reduced the amount of unsecured lending they are prepared to make available to eurozone banks, raising the prospect of a new credit crunch for the European banking system.
Standard Chartered is understood to have withdrawn tens of billions of pounds from the eurozone inter-bank lending market in recent months and cut its overall exposure by two-thirds in the past few weeks as it has become increasingly worried about the finances of other European banks.
Barclays has also cut its exposure in recent months as senior managers have become increasingly concerned about developments among banks with large exposures to the troubled European countries Greece, Ireland, Spain, Italy and Portugal.
In its interim management statement, published in April, Barclays reported a wholesale exposure to Spain of £6.4bn, compared with £7.2bn last June, while its exposure to Italy has fallen by more than £100m.
One source said it was “inevitable” that British banks would look to minimise their potential losses in the event the eurozone crisis were to get worse. “Everyone wants to ensure that they are not badly affected by the crisis,” said one bank executive.
Moves by stronger banks to cut back their lending to weaker banks is reminiscent of the build-up to the financial crisis in 2008, when the refusal of banks to lend to one another led to a
seizing-up of the markets that eventually led to the collapse of several major banks and taxpayer bail-outs of many more.
While the funding position of UK banks is far stronger now than it was back in 2008, the banking systems of several other major European countries, including Spain, Germany and Italy, are showing increasing signs of weakness.
Analysts at UBS have warned that eurozone banks are “particularly exposed” having not done enough since the crisis to cut their reliance on the wholesale funding markets and remain acutely sensitive to the withdrawal of liquidity from the inter-bank market.
Simon Adamson, a banks analyst at CreditSights, said it was clear many eurozone banks had been having trouble funding themselves for several months.
“Clearly there are some banks that are finding it difficult to access markets. I think this is a long term sign of the way the markets are going,” he said.
Spanish banks have become the main focus of market concerns with the latest European Central Bank (ECB) figures showing that Spanish banks have been forced to increase their use of ECB lending facilities and borrowed a total of €58bn (£51bn) in May, up from €44bn in April.
“We have been amazed at the ability of Spanish banks to find ways to fund themselves, but it is clear they are running out of options,” said one senior analyst at a major investment bank.
http://www.telegraph.co.uk/finance/financialcrisis/8584442/UK-banks-abandon-eurozone-over-Greek-default-fears.html#.Tf1xs7fCK6A;email
'Brother, Can You Spare a Regulation?'
Last week, in a much-discussed, open, live, televised forum, Jamie Dimon, the CEO of JPMorgan Chase, asked Federal Reserve Chairman Ben Bernanke the $64 trillion question. While most commentators focused on the apt question, it was Bernanke's answer that shocked me when I heard it -- and ought to shock the nation much more than it so far has.
Question: "Now we're told there are going to be even higher capital requirements, and we know there are 300 (financial regulatory) rules coming, has anyone bothered to study the cumulative effect of these things? And do you have a fear -- like I do -- that when we look back and look at them all that they will be the reason that it took so long for our banks, our credit, our businesses and most importantly, our job creation, to start going again? Is this holding us back at this point?"
Answer: "Nobody has looked at it in all detail, but we certainly are trying, as in each part to develop a system that is coherent and that is consistent with banks performing their vital social function in terms of extending credit."
Before breaking ground on the construction of a building, bridge or other substantial construction project, the architect calculates the cumulative stresses on all the load-bearing parts of his structure -- so that he can be sure that when the thing is built, it will not collapse of its own weight and kill thousands of its occupants.
After President Obama, Bernanke is the man with the most comprehensive responsibility for designing the new financial regulatory structure of the U.S. (and in fact, of the entire world -- as Bernanke and the United States are also the dominant force in designing the coordination between the U.S and European and Asian financial regulatory structures).
The bald-faced admission that there has been not even an effort at assessing the cumulative load-bearing effect of the proposed new regulations on our financial system brings into question the minimal competence of both the Federal Reserve governing board and the most senior elective and appointive level of the U.S. government -- which has the ultimate responsibility for the new financial regulations.
After all, it's only the fate of the economic survival of 300 million Americans that is at stake if the federal government miscalculates the new financial regulations it is busy promulgating. If our financial system buckles under the combined weight of all those "300" new regulations, no one -- from CEOs to assembly-line workers (if we have any left after this is over) -- will be safe from the collapsing edifice. Think of the terrible image of the thousands of people running from the collapsing World Trade towers on Sept. 11, 2001 and project it (figuratively) to all of us running from a collapsing economy induced by unbearable regulatory weight on our financial institutions.
Maybe this is part of the explanation for last week's CNN poll, in which 48 percent of all Americans believe it is "likely" that America will be in a new Great Depression within the next twelve months. Maybe half of the country is worried about something that has not dawned on our Federal Reserve chairman or other senior executive branch officials.
"Nobody has looked at it in all detail" said Bernanke. Why in heaven have they not "looked at it?"
If I were the president of the United States, speaker of the House or majority leader of the Senate (or other elected officials), I would have raised holy hell when the Federal Reserve chairman made that admission on live television last week.
Short of war and peace -- and maybe even more important -- is the financial system of our country. It is the life blood of our economy. If through ineptitude and inattention the federal government imposes a regulatory structure that crushes our financial system, not only our jobs and prosperity are threatened, but even our national strength and sovereignty.
Many historians believe that starting in the 17th century, the reason the British Empire surmounted the French Empire and became the dominate force on the planet for two centuries was the greater strength and stability of British finance over French finance.
Who can doubt that American dominance in the world -- even the capacity of our industry to out-produce our enemies during WWII -- has been the result of the great power and stability of our financial institutions?
And as we go about the most comprehensive rewriting of our financial regulations since the original Great Depression, the Fed chairman admits he hasn't even tried to calculate the combined effect of all the daffy regulatory ideas being put forward -- and there is not a peep of critical comment from the White House, Treasury or Congress?
No wonder half the country is bracing for a new depression.
http://www.rasmussenreports.com/public_content/political_commentary/commentary_by_tony_blankley/brother_can_you_spare_a_regulation
Question: "Now we're told there are going to be even higher capital requirements, and we know there are 300 (financial regulatory) rules coming, has anyone bothered to study the cumulative effect of these things? And do you have a fear -- like I do -- that when we look back and look at them all that they will be the reason that it took so long for our banks, our credit, our businesses and most importantly, our job creation, to start going again? Is this holding us back at this point?"
Answer: "Nobody has looked at it in all detail, but we certainly are trying, as in each part to develop a system that is coherent and that is consistent with banks performing their vital social function in terms of extending credit."
Before breaking ground on the construction of a building, bridge or other substantial construction project, the architect calculates the cumulative stresses on all the load-bearing parts of his structure -- so that he can be sure that when the thing is built, it will not collapse of its own weight and kill thousands of its occupants.
After President Obama, Bernanke is the man with the most comprehensive responsibility for designing the new financial regulatory structure of the U.S. (and in fact, of the entire world -- as Bernanke and the United States are also the dominant force in designing the coordination between the U.S and European and Asian financial regulatory structures).
The bald-faced admission that there has been not even an effort at assessing the cumulative load-bearing effect of the proposed new regulations on our financial system brings into question the minimal competence of both the Federal Reserve governing board and the most senior elective and appointive level of the U.S. government -- which has the ultimate responsibility for the new financial regulations.
After all, it's only the fate of the economic survival of 300 million Americans that is at stake if the federal government miscalculates the new financial regulations it is busy promulgating. If our financial system buckles under the combined weight of all those "300" new regulations, no one -- from CEOs to assembly-line workers (if we have any left after this is over) -- will be safe from the collapsing edifice. Think of the terrible image of the thousands of people running from the collapsing World Trade towers on Sept. 11, 2001 and project it (figuratively) to all of us running from a collapsing economy induced by unbearable regulatory weight on our financial institutions.
Maybe this is part of the explanation for last week's CNN poll, in which 48 percent of all Americans believe it is "likely" that America will be in a new Great Depression within the next twelve months. Maybe half of the country is worried about something that has not dawned on our Federal Reserve chairman or other senior executive branch officials.
"Nobody has looked at it in all detail" said Bernanke. Why in heaven have they not "looked at it?"
If I were the president of the United States, speaker of the House or majority leader of the Senate (or other elected officials), I would have raised holy hell when the Federal Reserve chairman made that admission on live television last week.
Short of war and peace -- and maybe even more important -- is the financial system of our country. It is the life blood of our economy. If through ineptitude and inattention the federal government imposes a regulatory structure that crushes our financial system, not only our jobs and prosperity are threatened, but even our national strength and sovereignty.
Many historians believe that starting in the 17th century, the reason the British Empire surmounted the French Empire and became the dominate force on the planet for two centuries was the greater strength and stability of British finance over French finance.
Who can doubt that American dominance in the world -- even the capacity of our industry to out-produce our enemies during WWII -- has been the result of the great power and stability of our financial institutions?
And as we go about the most comprehensive rewriting of our financial regulations since the original Great Depression, the Fed chairman admits he hasn't even tried to calculate the combined effect of all the daffy regulatory ideas being put forward -- and there is not a peep of critical comment from the White House, Treasury or Congress?
No wonder half the country is bracing for a new depression.
http://www.rasmussenreports.com/public_content/political_commentary/commentary_by_tony_blankley/brother_can_you_spare_a_regulation
Thursday, June 16, 2011
From Gerald Celente
Everything is not all right. And things are going to get worse … much worse. The economy is on the threshold of calamity. Wars are spreading like wildfires. The world is on a razor’s edge.
Not so, say world leaders and mainstream media experts. Yes, there are problems, but the financiers and politicians are aware of them. Policies are already in place and measures are being taken to correct them.
Whether it’s failing economies, intractable old wars or raging new wars, the word from the top always maintains that steady progress is being made and comforts the populace with
assurances that the brightest minds and the sharpest generals are in charge and on the case. On all fronts, success is certain and victory is at hand. Only “patience” is required … along with more men, more time and more money.
As far as these “leaders” and their media are concerned, the only opinions that count come from a stable of thoroughbred experts, official sources and political favorites. Only they have the credentials to speak with authority and provide trustworthy forecasts. That they are consistently, if not invariably, wrong apparently does nothing to diminish their credibility.
How can any thinking adult possibly imagine that the same central bankers, financiers and politicians responsible for creating the
economic crisis are capable of resolving it? Within days of its announcement, we predicted that Bush’s TARP (Troubled Asset Relief Program) was destined to fail, and subsequently predicted the same for Obama’s stimulus package (The American Recovery and Reinvestment Act). They were no more than cover-ups; there would be no recovery.
Meet the New Plan, Same as the Old Plan
Democrat or Republican, it makes no difference. Despite the heated rhetoric, solving economic problems had less to do with the party in power and more to do with professional competence. Both sides had their turn in office. Both used their power to initiate policies that created the problems. Both sides had their shot at fixing the messes they were responsible for. Both sides failed, as we predicted. Given who they are and what they’ve done, we confidently predict an unbroken sequence of bipartisan failures in the future.
The Beltway Incompetents are in the driver’s seat. What person
with a healthy instinct for self-preservation would believe the promises of politicians or trust the judgment of central bankers or Wall Street financiers whose only real interest is self interest?
Not “Business as Usual” In the 1920s, US President Calvin Coolidge declared, “The business of America is business.” Four score and 10 years later, the business of America has become war: The forty-year War on Drugs; The ten-year War on Terror; the Afghan War (longest in American history); the eight-years-and-no-end-in-sight Iraq War; the covert wars in Pakistan and Yemen; and most recently, the “time-limited, scope-limited
kinetic military action” in Libya.
While the justifications for engaging in these wars were all different, all were murderous, immoral, interminable, ruinously expensive and abject failures. Why would anyone believe the optimistic battle communiqués issued by the “czars” in charge and the battlefield brass who keep reassuring the public that reapplying previously failed strategies would, this time, lead to success?
Yet even in the face of their proven failures and gross incompetence, anyone daring to challenge the party line or the conventional wisdom is dismissed as an “alarmist,” “fear monger,” or “gloom-and-doomer.” However unwelcome our forecasts may be – pessimism, optimism, like or dislike
are all irrelevant – only their accuracy counts. We correctly forecast:
Afghan and Iraq Wars would be debacles
Bursting of the housing bubble
The “Gold Bull Run"
The “Panic of ’08"
European Monetary Union crisis
Failure of US bailout/stimulus packages to revive housing and create jobs
Falling governments, spreading civil wars and social upheaval on a global scale
We also said that the Federal Reserve’s sighting of economic “green shoots” in March 2009 was a "mirage” and predicted that their much vaunted “recovery” was no more than a temporary solution, a quick-fix to be followed by “The Greatest Depression.” And now, in June 2011, with the Dow on a down trend and the economic data increasingly pointing in the direction of Depression, Washington and Wall Street remain in denial. The only debate among the “experts” is whether or not a “double dip” recession is likely.
However, for the man on the street – pummeled by falling wages, higher
prices, intractable unemployment, rising taxes and punitive “austerity measures” – “Depression,” not “recession,” and certainly not “prosperity,” is just around the corner.
According to a June 8th CNN/Opinion Research Corporation poll, 48 percent of Americans believe that another Great Depression is likely to occur in the next year – the highest that figure has ever
reached. The survey also indicates that just under half of the respondents live in a household where someone has lost a job or is worried that unemployment may hit them in the near future.
Suddenly, after years of obvious economic hardship experienced by tens of millions of Americans–only when the suffering and pain can no longer be cloaked in abstractions and cooked statistics–does an emboldened media dare utter the forbidden “D” word.
For Trends Journal readers, alerted to this emerging trend some three years ago, the prospect of Depression should come as no surprise. Neither should the idea that, when it hits and can no longer be denied, a long suffering public will take to the streets.
When I made this forecast back then it was written off by most of the major broadcast and print media. Now, however, when one of their own, belatedly and hesitantly, raises that possibility he is elevated to sage status and it becomes big news. In early June,
Democratic strategist James “It’s the Economy, Stupid” Carville, having finally mastered the higher math of adding two plus two, warned that decaying economic conditions heightened the risk of civil unrest.
As I described it all those years ago: “When people lose everything, and have nothing left to lose, they lose it.”
Trend Forecast: The wars will proliferate and civil unrest will intensify. As we forecast, the youth-inspired revolts that first erupted in North Africa and the Middle East are now breaking out in Europe (See “Off With Their Heads,”
Trends Journal, Autumn 2010)
Given the trends in play and the people in power, economic collapse at some level is inevitable. Governments and central banks will be unrelenting in their determination to wring every last dollar, pound or euro from the people through taxes while confiscating public assets (a.k.a. privatization) in order to cover bad bets made by banks and financiers.
When the people have been bled dry financially and have nothing left to give, blood will flow on the streets.
Trend Lesson: Learn from history. Do you remember when it first became apparent that the US economy was in deep trouble and heading toward the “Panic of 08”? Not many will. Most people were in a summer state of mind and in
Everything is not all right. And things are going to get worse … much worse. The economy is on the threshold of calamity. Wars are spreading like wildfires. The world is on a razor’s edge.
Not so, say world leaders and mainstream media experts. Yes, there are problems, but the financiers and politicians are aware of them. Policies are already in place and measures are being taken to correct them.
Whether it’s failing economies, intractable old wars or raging new wars, the word from the top always maintains that steady progress is being made and comforts the populace with
assurances that the brightest minds and the sharpest generals are in charge and on the case. On all fronts, success is certain and victory is at hand. Only “patience” is required … along with more men, more time and more money.
As far as these “leaders” and their media are concerned, the only opinions that count come from a stable of thoroughbred experts, official sources and political favorites. Only they have the credentials to speak with authority and provide trustworthy forecasts. That they are consistently, if not invariably, wrong apparently does nothing to diminish their credibility.
How can any thinking adult possibly imagine that the same central bankers, financiers and politicians responsible for creating the
economic crisis are capable of resolving it? Within days of its announcement, we predicted that Bush’s TARP (Troubled Asset Relief Program) was destined to fail, and subsequently predicted the same for Obama’s stimulus package (The American Recovery and Reinvestment Act). They were no more than cover-ups; there would be no recovery.
Meet the New Plan, Same as the Old Plan
Democrat or Republican, it makes no difference. Despite the heated rhetoric, solving economic problems had less to do with the party in power and more to do with professional competence. Both sides had their turn in office. Both used their power to initiate policies that created the problems. Both sides had their shot at fixing the messes they were responsible for. Both sides failed, as we predicted. Given who they are and what they’ve done, we confidently predict an unbroken sequence of bipartisan failures in the future.
The Beltway Incompetents are in the driver’s seat. What person
with a healthy instinct for self-preservation would believe the promises of politicians or trust the judgment of central bankers or Wall Street financiers whose only real interest is self interest?
Not “Business as Usual” In the 1920s, US President Calvin Coolidge declared, “The business of America is business.” Four score and 10 years later, the business of America has become war: The forty-year War on Drugs; The ten-year War on Terror; the Afghan War (longest in American history); the eight-years-and-no-end-in-sight Iraq War; the covert wars in Pakistan and Yemen; and most recently, the “time-limited, scope-limited
kinetic military action” in Libya.
While the justifications for engaging in these wars were all different, all were murderous, immoral, interminable, ruinously expensive and abject failures. Why would anyone believe the optimistic battle communiqués issued by the “czars” in charge and the battlefield brass who keep reassuring the public that reapplying previously failed strategies would, this time, lead to success?
Yet even in the face of their proven failures and gross incompetence, anyone daring to challenge the party line or the conventional wisdom is dismissed as an “alarmist,” “fear monger,” or “gloom-and-doomer.” However unwelcome our forecasts may be – pessimism, optimism, like or dislike
are all irrelevant – only their accuracy counts. We correctly forecast:
Afghan and Iraq Wars would be debacles
Bursting of the housing bubble
The “Gold Bull Run"
The “Panic of ’08"
European Monetary Union crisis
Failure of US bailout/stimulus packages to revive housing and create jobs
Falling governments, spreading civil wars and social upheaval on a global scale
We also said that the Federal Reserve’s sighting of economic “green shoots” in March 2009 was a "mirage” and predicted that their much vaunted “recovery” was no more than a temporary solution, a quick-fix to be followed by “The Greatest Depression.” And now, in June 2011, with the Dow on a down trend and the economic data increasingly pointing in the direction of Depression, Washington and Wall Street remain in denial. The only debate among the “experts” is whether or not a “double dip” recession is likely.
However, for the man on the street – pummeled by falling wages, higher
prices, intractable unemployment, rising taxes and punitive “austerity measures” – “Depression,” not “recession,” and certainly not “prosperity,” is just around the corner.
According to a June 8th CNN/Opinion Research Corporation poll, 48 percent of Americans believe that another Great Depression is likely to occur in the next year – the highest that figure has ever
reached. The survey also indicates that just under half of the respondents live in a household where someone has lost a job or is worried that unemployment may hit them in the near future.
Suddenly, after years of obvious economic hardship experienced by tens of millions of Americans–only when the suffering and pain can no longer be cloaked in abstractions and cooked statistics–does an emboldened media dare utter the forbidden “D” word.
For Trends Journal readers, alerted to this emerging trend some three years ago, the prospect of Depression should come as no surprise. Neither should the idea that, when it hits and can no longer be denied, a long suffering public will take to the streets.
When I made this forecast back then it was written off by most of the major broadcast and print media. Now, however, when one of their own, belatedly and hesitantly, raises that possibility he is elevated to sage status and it becomes big news. In early June,
Democratic strategist James “It’s the Economy, Stupid” Carville, having finally mastered the higher math of adding two plus two, warned that decaying economic conditions heightened the risk of civil unrest.
As I described it all those years ago: “When people lose everything, and have nothing left to lose, they lose it.”
Trend Forecast: The wars will proliferate and civil unrest will intensify. As we forecast, the youth-inspired revolts that first erupted in North Africa and the Middle East are now breaking out in Europe (See “Off With Their Heads,”
Trends Journal, Autumn 2010)
Given the trends in play and the people in power, economic collapse at some level is inevitable. Governments and central banks will be unrelenting in their determination to wring every last dollar, pound or euro from the people through taxes while confiscating public assets (a.k.a. privatization) in order to cover bad bets made by banks and financiers.
When the people have been bled dry financially and have nothing left to give, blood will flow on the streets.
Trend Lesson: Learn from history. Do you remember when it first became apparent that the US economy was in deep trouble and heading toward the “Panic of 08”? Not many will. Most people were in a summer state of mind and in
The Story of Spending
A disturbing timeline of government spending since the Great Depression.
http://townhall.com/video/the-story-of-spending
http://townhall.com/video/the-story-of-spending
US Is Nearing Even Worse Financial Crisis: Jim Rogers
The U.S. is approaching a financial crisis worse than 2008, Jim Rogers, chief executive, Rogers Holdings, warned CNBC Wednesday.
"The debts that are in this country are skyrocketing," he said. "In the last three years the government has spent staggering amounts of money and the Federal Reserve is taking on staggering amounts of debt.
"When the problems arise next time…what are they going to do? They can’t quadruple the debt again. They cannot print that much more money. It’s gonna be worse the next time around."
The well-known investor believes the government won't shut down in August if agreement isn't reached on raising the debt ceiling, but he did say "draconian cuts" are needed in taxes and spending, especially military spending.
"We’ve got troops in 150 countries around the world. They’re not doing us any good, they’re making enemies. They’re costing us a fortune," he said.
Rogers said he is "not long anything in the U.S." and short on American tech stocks. He owns Chinese stocks as well as commodities and would love the world price of silver and gold to come down so he could "pick up the phone and buy more."
He said he owns Chinese stocks, currencies and commodities, adding the Chinese yuan will be a safer currency than the dollar.
"The U.S. is the largest debtor nation in the history of the world," he said. "The debts are going through the roof. Would you keep lending money to somebody who's spending money and not doing anything about it? No you wouldn't."
The pound sterling lost 90% of its value when it was no longer the world's reserve currency, he said, and the dollar will, too. In keeping with his philosophy he said he owns the U.S. dollar and is waiting for a rally. "If it doesn't happen I'll have to sell and take my losses."
He called Federal Reserve Chairman Ben Bernanke a "disaster" who has "never been right about anything" since he's been in Washington. "I hope he doesn't come back with QE3 but that's all he knows. The only thing he knows is to print money."
He predicted that after the Fed ends its quantitative easing program, known as QE2, this month, it may come back under another name.
"They're gonna bring it back because [Bernanke will] be terrified and Washington will be terrified," he said. "There's an election coming in November 2012. Washington's gonna print more money."
http://m.cnbc.com/us_news/43328325
"The debts that are in this country are skyrocketing," he said. "In the last three years the government has spent staggering amounts of money and the Federal Reserve is taking on staggering amounts of debt.
"When the problems arise next time…what are they going to do? They can’t quadruple the debt again. They cannot print that much more money. It’s gonna be worse the next time around."
The well-known investor believes the government won't shut down in August if agreement isn't reached on raising the debt ceiling, but he did say "draconian cuts" are needed in taxes and spending, especially military spending.
"We’ve got troops in 150 countries around the world. They’re not doing us any good, they’re making enemies. They’re costing us a fortune," he said.
Rogers said he is "not long anything in the U.S." and short on American tech stocks. He owns Chinese stocks as well as commodities and would love the world price of silver and gold to come down so he could "pick up the phone and buy more."
He said he owns Chinese stocks, currencies and commodities, adding the Chinese yuan will be a safer currency than the dollar.
"The U.S. is the largest debtor nation in the history of the world," he said. "The debts are going through the roof. Would you keep lending money to somebody who's spending money and not doing anything about it? No you wouldn't."
The pound sterling lost 90% of its value when it was no longer the world's reserve currency, he said, and the dollar will, too. In keeping with his philosophy he said he owns the U.S. dollar and is waiting for a rally. "If it doesn't happen I'll have to sell and take my losses."
He called Federal Reserve Chairman Ben Bernanke a "disaster" who has "never been right about anything" since he's been in Washington. "I hope he doesn't come back with QE3 but that's all he knows. The only thing he knows is to print money."
He predicted that after the Fed ends its quantitative easing program, known as QE2, this month, it may come back under another name.
"They're gonna bring it back because [Bernanke will] be terrified and Washington will be terrified," he said. "There's an election coming in November 2012. Washington's gonna print more money."
http://m.cnbc.com/us_news/43328325
'Bloom Boxes' have Mars roots and sky-high expansion hopes
Once known as Ion America, California-based Bloom Energy is a company that had its roots on Mars.
At the University of Arizona, KR Sridhar, the founder and current chief executive officer of Bloom, had been asked by NASA to create a technology that could sustain life on the distant planet. They came up with a device that could make air and fuel from electricity, and create electricity from air and fuel.
After the project ended in 2001, the team decided to continue their research and start a company.
Venture capitalists John Doerr and Kleiner Perkins became the first investors in the company in 2002.
For years, their progress and goals stayed secret as they worked to perfect the technology.
Then, in 2006, the privately held company shipped a unit to the University of Tennessee in Chattanooga for testing. More field trials in Tennessee, California, and Alaska were a success, and in 2008, the first commercial fuel cell units were shipped to Google to power operations there.
Last year, with a number of large customers already buying units from a West Coast production site, the company decided it was time to tell the public what it was doing and where it was headed.
"Now we're ready to expand to the East Coast," said Josh Richman, Bloom's vice president of business development.
Current customers for on-site 'Bloom Boxes' include Google, Staples, eBay, Walmart, Cox Enterprises, FedEx, Bank of America and Coke.
http://www.delawareonline.com/apps/pbcs.dll/article?AID=2011106100372
At the University of Arizona, KR Sridhar, the founder and current chief executive officer of Bloom, had been asked by NASA to create a technology that could sustain life on the distant planet. They came up with a device that could make air and fuel from electricity, and create electricity from air and fuel.
After the project ended in 2001, the team decided to continue their research and start a company.
Venture capitalists John Doerr and Kleiner Perkins became the first investors in the company in 2002.
For years, their progress and goals stayed secret as they worked to perfect the technology.
Then, in 2006, the privately held company shipped a unit to the University of Tennessee in Chattanooga for testing. More field trials in Tennessee, California, and Alaska were a success, and in 2008, the first commercial fuel cell units were shipped to Google to power operations there.
Last year, with a number of large customers already buying units from a West Coast production site, the company decided it was time to tell the public what it was doing and where it was headed.
"Now we're ready to expand to the East Coast," said Josh Richman, Bloom's vice president of business development.
Current customers for on-site 'Bloom Boxes' include Google, Staples, eBay, Walmart, Cox Enterprises, FedEx, Bank of America and Coke.
http://www.delawareonline.com/apps/pbcs.dll/article?AID=2011106100372
Delaware woos firm, 1,500 jobs
The state has convinced an innovative California manufacturer of electricity-producing fuel cells to build its East Coast manufacturing facility on the site of the old Chrysler plant in Newark, bringing as many as 1,500 much-needed jobs to Delaware and boosting the University of Delaware's vision for a thriving high-tech center.
Bloom Energy of Sunnyvale, Calif., turned down more generous offers from several other states in deciding to base its first East Coast expansion in Delaware, according to Josh Richman, vice president of business development at Bloom, considered a prominent player in the emerging field of fuel cells.
Over the next five years, Bloom expects to hire about 900 for a manufacturing facility on the southwestern portion of the Chrysler site, and predicts a minimum of 600 more jobs will follow as its suppliers open Delaware bases of operations. State officials anticipate six of those suppliers will set up shop on the Chrysler property, which qualifies as a "brownfield" given its 60-year history of automaking.
Bloom expects to break ground on its 200,000-square-foot facility this fall, and the factory should be up and running in mid-2012. Construction is estimated to create 350 jobs this year and the 900-worker goal should be attainable in just two years, said Alan Levin, Delaware's economic development director.
The company will receive millions of dollars in incentives from the state but must reach employment milestones within the next five years. Key aspects of the deal are contingent on regulatory, municipal and legislative approvals, which are expected to be addressed soon.
A total price tag on the investment by Bloom was not disclosed by the company or state officials.
"This is something that we have been working on for a very long time -- 14 months," Gov. Jack Markell said in disclosing the deal, which was forged with the help of some established relationships -- DNREC Secretary Collin O'Mara already knew Richman, for example.
Working behind the scenes, Markell and his advisers, with some help from U.S. Sen. Tom Carper, convinced Bloom that Delaware had the right location, workforce and accommodating atmosphere for the company to begin its push for East Coast business.
To continue reading article click HERE
Bloom Energy of Sunnyvale, Calif., turned down more generous offers from several other states in deciding to base its first East Coast expansion in Delaware, according to Josh Richman, vice president of business development at Bloom, considered a prominent player in the emerging field of fuel cells.
Over the next five years, Bloom expects to hire about 900 for a manufacturing facility on the southwestern portion of the Chrysler site, and predicts a minimum of 600 more jobs will follow as its suppliers open Delaware bases of operations. State officials anticipate six of those suppliers will set up shop on the Chrysler property, which qualifies as a "brownfield" given its 60-year history of automaking.
Bloom expects to break ground on its 200,000-square-foot facility this fall, and the factory should be up and running in mid-2012. Construction is estimated to create 350 jobs this year and the 900-worker goal should be attainable in just two years, said Alan Levin, Delaware's economic development director.
The company will receive millions of dollars in incentives from the state but must reach employment milestones within the next five years. Key aspects of the deal are contingent on regulatory, municipal and legislative approvals, which are expected to be addressed soon.
A total price tag on the investment by Bloom was not disclosed by the company or state officials.
"This is something that we have been working on for a very long time -- 14 months," Gov. Jack Markell said in disclosing the deal, which was forged with the help of some established relationships -- DNREC Secretary Collin O'Mara already knew Richman, for example.
Working behind the scenes, Markell and his advisers, with some help from U.S. Sen. Tom Carper, convinced Bloom that Delaware had the right location, workforce and accommodating atmosphere for the company to begin its push for East Coast business.
To continue reading article click HERE
Friday, June 10, 2011
Many of us won’t be able to retire until our 80s
Well, it turns out that working longer is indeed an option, according to the Employee Benefit Research Institute latest study. The only problem is that the latest research shows that you’ll have to work much longer than you anticipated. In fact, many Americans will have to keep on working well into their 70s and 80s to afford retirement, according to the study, titled “The Impact of Deferring Retirement Age on Retirement Income Adequacy.”
Embrace the rat race, even in retirement
Don't just sit there, embrace the rat race! That's the advice of economist Todd Buchholz in his book "Rush," who says competition makes people smarter and more satisfied.
What’s more, it’s even worse for low-income workers, according Jack VanDerhei, one of the co-authors of the study. Those who earned (on average over the course of their careers) less than $11,700 per year, the lowest income quartile, would need to defer retirement till age 84 before 90% of those households would have just a 50% chance of affording retirement.
Those who earned between $11,700 and $31,200 will need to work till age 76 to have a 50% chance of covering basic expenses in retirement. Those who earned between $31,200 and $72,500 will need to work to age 72 to have a 50% chance and those who earned more than $72,500, those in the highest income quartile, catch a break; they get stop working at age 65 to have a 50/50 chance of funding their retirement.
So what can be done to make sure you have enough income in retirement? Well, the sad truth is that not working is no longer an option and working past age 65 is fast becoming a fact of life, at least for those in the lowest three income quartiles.
One bright spot, according to John Nelson, co-author of ‘What Color is Your Parachute? For Retirement’ is that working works: “For those in the lower half of the income spectrum, delaying retirement from 65 to 69 has a profound effect,” he said. “It increases retirement income adequacy by 25% to 50%! That’s a powerful incentive.”
The new normal
Now the reality about EBRI’s findings is that many Americans — who are able to continue working and whose skills are still in demand — are already working past age 65. In 2009, 17.2% of Americans age 65 and older were in the labor force, according to recent AARP Public Policy Institute report, “Family Income Sources for Older People, 2009.”
And about 14.2 million older persons (36.7% of the older population) had family incomes from earnings in 2009. The median family income from this source was $32,330, while the mean was nearly 1.6 times as large — $50,971. Read the AARP report here.
And the new normal isn’t that people are working past age 65, rather it’s this: They are also hunting for second jobs as all, according to Art Koff, founder of RetiredBrains.com. “Even those older Americans who are still working are looking for ways to make additional monies,” he said.
And many, judging from the page views at RetiredBrains.com’s website, are often exploring ways to work from home. “Those older Americans who are looking for a job, those who have already retired and those who are working but need additional income or want to start something that they can continue into their retirement years are all reading (the work-from-home) pages,” Koff said.
Making it work
To be sure, many Americans haven’t figured out how to make working later a real option, instead of just a fantasy. And for them, Nelson has this advice: “You need to pay attention to your career and your health.”
“First, for your career, do some in-depth research and planning. Second, for your body, take a health risk assessment. You may need to keep both of them in shape longer than you thought,” he said.
Work and save
Working past age 65 is certainly one way to make sure you have enough income to fund retirement expenses. But EBRI also noted that Americans who work past age 65 who continue to save for retirement in a 401(k) or some such account earmarked for retirement increase the odds of having enough income in their golden years. “One of the factors that makes a major difference in the percentage of households satisfying the retirement income adequacy thresholds at any retirement age is whether the worker is still participating in a defined contribution plan after age 65,” the co-authors of the report. “This factor results in at least a 10 percentage point difference in the majority of the retirement age/income combinations investigated.” The EBRI report can be found at this website.
A new compact
Others, meanwhile, have a different take on EBRI’s study and findings. “This report just reinforces the need for a new social compact that provides increased financial security in return for increased contribution,” said Marc Freedman, author of “The Big Shift: Navigating the New Stage Beyond Midlife and CEO of Civic Ventures.”
“We need to enable the many people who want and need to work longer, without hurting those who are not able to,” Freedman said.
http://www.marketwatch.com/story/many-of-us-wont-be-able-to-retire-until-our-80s-2011-06-09
Embrace the rat race, even in retirement
Don't just sit there, embrace the rat race! That's the advice of economist Todd Buchholz in his book "Rush," who says competition makes people smarter and more satisfied.
What’s more, it’s even worse for low-income workers, according Jack VanDerhei, one of the co-authors of the study. Those who earned (on average over the course of their careers) less than $11,700 per year, the lowest income quartile, would need to defer retirement till age 84 before 90% of those households would have just a 50% chance of affording retirement.
Those who earned between $11,700 and $31,200 will need to work till age 76 to have a 50% chance of covering basic expenses in retirement. Those who earned between $31,200 and $72,500 will need to work to age 72 to have a 50% chance and those who earned more than $72,500, those in the highest income quartile, catch a break; they get stop working at age 65 to have a 50/50 chance of funding their retirement.
So what can be done to make sure you have enough income in retirement? Well, the sad truth is that not working is no longer an option and working past age 65 is fast becoming a fact of life, at least for those in the lowest three income quartiles.
One bright spot, according to John Nelson, co-author of ‘What Color is Your Parachute? For Retirement’ is that working works: “For those in the lower half of the income spectrum, delaying retirement from 65 to 69 has a profound effect,” he said. “It increases retirement income adequacy by 25% to 50%! That’s a powerful incentive.”
The new normal
Now the reality about EBRI’s findings is that many Americans — who are able to continue working and whose skills are still in demand — are already working past age 65. In 2009, 17.2% of Americans age 65 and older were in the labor force, according to recent AARP Public Policy Institute report, “Family Income Sources for Older People, 2009.”
And about 14.2 million older persons (36.7% of the older population) had family incomes from earnings in 2009. The median family income from this source was $32,330, while the mean was nearly 1.6 times as large — $50,971. Read the AARP report here.
And the new normal isn’t that people are working past age 65, rather it’s this: They are also hunting for second jobs as all, according to Art Koff, founder of RetiredBrains.com. “Even those older Americans who are still working are looking for ways to make additional monies,” he said.
And many, judging from the page views at RetiredBrains.com’s website, are often exploring ways to work from home. “Those older Americans who are looking for a job, those who have already retired and those who are working but need additional income or want to start something that they can continue into their retirement years are all reading (the work-from-home) pages,” Koff said.
Making it work
To be sure, many Americans haven’t figured out how to make working later a real option, instead of just a fantasy. And for them, Nelson has this advice: “You need to pay attention to your career and your health.”
“First, for your career, do some in-depth research and planning. Second, for your body, take a health risk assessment. You may need to keep both of them in shape longer than you thought,” he said.
Work and save
Working past age 65 is certainly one way to make sure you have enough income to fund retirement expenses. But EBRI also noted that Americans who work past age 65 who continue to save for retirement in a 401(k) or some such account earmarked for retirement increase the odds of having enough income in their golden years. “One of the factors that makes a major difference in the percentage of households satisfying the retirement income adequacy thresholds at any retirement age is whether the worker is still participating in a defined contribution plan after age 65,” the co-authors of the report. “This factor results in at least a 10 percentage point difference in the majority of the retirement age/income combinations investigated.” The EBRI report can be found at this website.
A new compact
Others, meanwhile, have a different take on EBRI’s study and findings. “This report just reinforces the need for a new social compact that provides increased financial security in return for increased contribution,” said Marc Freedman, author of “The Big Shift: Navigating the New Stage Beyond Midlife and CEO of Civic Ventures.”
“We need to enable the many people who want and need to work longer, without hurting those who are not able to,” Freedman said.
http://www.marketwatch.com/story/many-of-us-wont-be-able-to-retire-until-our-80s-2011-06-09
China ratings house says US defaulting: report
A Chinese ratings house has accused the United States of defaulting on its massive debt, state media said Friday, a day after Beijing urged Washington to put its fiscal house in order.
"In our opinion, the United States has already been defaulting," Guan Jianzhong, president of Dagong Global Credit Rating Co. Ltd., the only Chinese agency that gives sovereign ratings, was quoted by the Global Times saying.
Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies -- eroding the wealth of creditors including China, Guan said.
Guan did not immediately respond to AFP requests for comment.
The US government will run out of room to spend more on August 2 unless Congress bumps up the borrowing limit beyond $14.29 trillion -- but Republicans are refusing to support such a move until a deficit cutting deal is reached.
Ratings agency Fitch on Wednesday joined Moody's and Standard & Poor's to warn the United States could lose its first-class credit rating if it fails to raise its debt ceiling to avoid defaulting on loans.
A downgrade could sharply raise US borrowing costs, worsening the country's already dire fiscal position, and send shock waves through the financial world, which has long considered US debt a benchmark among safe-haven investments.
China is by far the top holder of US debt and has in the past raised worries that the massive US stimulus effort launched to revive the economy would lead to mushrooming debt that erodes the value of the dollar and its Treasury holdings.
Beijing cut its holdings of US Treasury securities for the fifth month in a row to $1.145 trillion in March, down $9.2 billion from February and 2.6 percent less than October's peak of $1.175 trillion, US data showed last month.
Foreign ministry spokesman Hong Lei on Thursday urged the United States to adopt "effective measures to improve its fiscal situation".
Dagong has made a name for itself by hitting out at its three Western rivals, saying they caused the financial crisis by failing to properly disclose risk.
The Chinese agency, which is trying to build an international profile, has given the United States and several other nations lower marks than they received from the the big three.
http://m.yahoo.com/w/news_america/china-ratings-house-says-us-defaulting-report-054309883.html?orig_host_hdr=ca.news.yahoo.com&.intl=ca&.lang=en-ca
"In our opinion, the United States has already been defaulting," Guan Jianzhong, president of Dagong Global Credit Rating Co. Ltd., the only Chinese agency that gives sovereign ratings, was quoted by the Global Times saying.
Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies -- eroding the wealth of creditors including China, Guan said.
Guan did not immediately respond to AFP requests for comment.
The US government will run out of room to spend more on August 2 unless Congress bumps up the borrowing limit beyond $14.29 trillion -- but Republicans are refusing to support such a move until a deficit cutting deal is reached.
Ratings agency Fitch on Wednesday joined Moody's and Standard & Poor's to warn the United States could lose its first-class credit rating if it fails to raise its debt ceiling to avoid defaulting on loans.
A downgrade could sharply raise US borrowing costs, worsening the country's already dire fiscal position, and send shock waves through the financial world, which has long considered US debt a benchmark among safe-haven investments.
China is by far the top holder of US debt and has in the past raised worries that the massive US stimulus effort launched to revive the economy would lead to mushrooming debt that erodes the value of the dollar and its Treasury holdings.
Beijing cut its holdings of US Treasury securities for the fifth month in a row to $1.145 trillion in March, down $9.2 billion from February and 2.6 percent less than October's peak of $1.175 trillion, US data showed last month.
Foreign ministry spokesman Hong Lei on Thursday urged the United States to adopt "effective measures to improve its fiscal situation".
Dagong has made a name for itself by hitting out at its three Western rivals, saying they caused the financial crisis by failing to properly disclose risk.
The Chinese agency, which is trying to build an international profile, has given the United States and several other nations lower marks than they received from the the big three.
http://m.yahoo.com/w/news_america/china-ratings-house-says-us-defaulting-report-054309883.html?orig_host_hdr=ca.news.yahoo.com&.intl=ca&.lang=en-ca
Thursday, June 9, 2011
Conservatives Protest Secret RGGI Carbon Auction in NYC Today
Opponents of state level cap and trade schemes will hold a rally in front of the offices of the Regional Greenhouse Gas Initiative, 90 Church Street in New York City at 12:00 noon today.
This rally will take place at the same time as RGGI officials conduct their latest secret Internet auction of carbon permits which will result in higher energy costs for families and businesses across Delaware.
The rally is taking on a national scope as the list of special guests and media attending continues to grow.
Republican Presidential candidate, Herman Cain will be one of the main speakers at the conference. Mr. Cain is a leading conservative who believes that heavy-handed government politics, high taxes and out-of-control regulations are destroying jobs and stifling economic growth in this country.
John Stossil of FOX NEWS is set to cover the rally.
Here's Politico's coverage of the event:
http://dyn.politico.com/printstory.cfm?uuid=70BB1F14-37EC-4F52-B23C-96039298C3FD
This rally will take place at the same time as RGGI officials conduct their latest secret Internet auction of carbon permits which will result in higher energy costs for families and businesses across Delaware.
The rally is taking on a national scope as the list of special guests and media attending continues to grow.
Republican Presidential candidate, Herman Cain will be one of the main speakers at the conference. Mr. Cain is a leading conservative who believes that heavy-handed government politics, high taxes and out-of-control regulations are destroying jobs and stifling economic growth in this country.
John Stossil of FOX NEWS is set to cover the rally.
Here's Politico's coverage of the event:
http://dyn.politico.com/printstory.cfm?uuid=70BB1F14-37EC-4F52-B23C-96039298C3FD
Lack of buyers may force Treasury to boost rates
The U.S. Treasury next month will go back to relying on the kindness of strangers like never before to purchase the nation’s burgeoning debts — and taxpayers may have to pay higher interest rates to attract enough foreign investors, analysts say.
Though a significant rise in interest rates could be toxic for a softening U.S. economy, the Federal Reserve has said it will end its program of purchasing $600 billion in U.S. Treasury bonds as planned on June 30. The Fed is estimated to have bought about 85 percent of Treasury’s securities offerings in the past eight months.
That leaves the Treasury, which is slated to sell near-record amounts of new debt of about $1.4 trillion this year, without its main suitor and recent source of support, and forces it back into the vagaries of global markets. Among the countries that will have to step forward to prevent a debilitating rise in interest rates are China, Japan and Saudi Arabia — and even hostile nations such as Iran and Venezuela with petrodollars to invest, according to one analysis.
The central bank launched the unusual bond-buying campaign last fall in an effort to lower interest rates and boost the sagging economy — and it was successful at drawing down long-term interest rates to record lows last winter. In particular, 30-year fixed mortgage rates fell to unprecedented lows near 4 percent and spawned a refinancing wave that helped consumers to discharge debts, purchase homes and increase spending.
But by the start of the year, a pickup in inflation — led by a surge in oil and other commodity prices that some economists blamed on the Fed’s easy money policies — wiped out the boon for consumers and home buyers and started to weigh on the economy. With the economy relapsing back to tepid rates of growth around 2 percent, some Fed officials argue that it should continue the easing program, but fear that the commodity boom could turn into a serious inflation threat makes it difficult for the Fed to do so.
Federal Reserve Chairman Ben S. Bernanke said in a speech Tuesday that the Fed remains on track to withdraw from the Treasury market, stressing that the central bank must remain vigilant against inflation at the same time it tries to nurture the economy back to healthy growth.
Not an easy task
The end of the Fed’s program would never be easy given the huge onslaught of scheduled Treasury borrowing, but the task will be more difficult because foreign investors in the past six months have been reducing their sizable holdings of U.S. debt, not increasing them.
That means to get those buyers back, the Treasury may have to raise the rates it pays on the debt.
“With the Fed pretty much out of the picture after June, it seems clear that foreign demand for Treasuries holds the key going forward,” said David Greenlaw, an analyst at Morgan Stanley. “Continued heavy buying by the largest foreign holders of Treasuries will probably be necessary” to prevent interest rates from rising, he said.
China and Japan remain the largest foreign buyers of Treasury debt, followed by oil exporters such as Saudi Arabia and Qatar. Even oil exporters that are hostile to the U.S. such as Iran and Venezuela have been among the buyers supporting the Treasury in the past, according to Morgan Stanley estimates.
China and many of the oil exporters often channel their investments through London and such offshore investment havens as the Channel Islands, so the origin of the funding is sometimes difficult to track. The uncertainty of where the money is coming from in itself will cause rates to rise and increase volatility in the Treasury market after the Fed exits, Mr. Greenlaw said.
Brazil, Taiwan and Russia also are among the Treasury’s major creditors. But many countries have been cutting back on their purchases of U.S. securities in the past six months out of concern about the rapid decline of the U.S. dollar and rising inflation, which hurts their investment values.
Vassillli Serebriakov, an analyst at Wells Fargo, said many foreigners were put off by the Fed’s bond-purchase program, which appeared to trigger a foreign sell-off of about $100 billion in Treasury holdings since last fall.
In some countries, the program was portrayed as the Fed “printing money” to finance profligate congressional spending and tax cuts — a charge the Fed vehemently denies.
Still, given the wariness overseas about the Fed’s policies and untamed federal deficits, going back to relying on foreign buyers to finance the lion’s share of the debt could be tricky, he said.
“The key question is to what extent one can expect the recent deterioration in the long-term capital flows to be reversed,” he said.
An undetermined future
Foreign investors have applauded the Fed’s decision to end the program as it improves the prospects for keeping a lid on inflation. But they will continue to be concerned about uncontrolled deficits and declines in the dollar that diminish the value of their investments, he said.
“Some of the reduction in FedTreasury purchases could be replaced by increased demand from foreign investors, but this channel is less certain,” he said.
Peter Schiff, president of Euro Pacific Capital, said he does not expect enough foreign or private buyers to step forward and purchase Treasury’s huge slate of debt offerings — a potentially catastrophic development that he thinks will force the Fed to backpedal and renew its bond-buying program.
“Do they expect the Chinese to reverse course on their current policy and start heavily buying U.S. debt once again?” he asked.
“That seems extremely unlikely given” that China has been investing less in Treasury bonds partly in response to demands from the United States that it stop skewing trade relations between the countries by hoarding huge surpluses of dollars it earned through trade and reinvesting them in Treasuries.
Mr. Schiff noted that Bill Gross, the head of America’s own Pimco bond fund, the largest buyer of bonds worldwide, recently reduced Pimco’s holdings of Treasuries to zero out of concern that they weren’t yielding enough given the risks of inflation and deficit spending.
“It is not clear what would convince Gross to get back into the market with both feet, but one might expect at minimum it would take much higher interest rates,” Mr. Schiff said.
Jeffrey Kleintop, chief market strategist at LPL Financial, said he is not worried about the Treasury finding buyers or about other market disruptions as the Fed pulls back.
“While interest rates are likely to rise modestly, we do not anticipate a spike resulting from the lack of Fed buying that would put the economy at risk,” he said.
A failure by Congress and the White House in coming weeks to agree on a plan to curb deficits would be a much bigger problem for the markets, Mr. Kleintop said.
“The budget and debt-ceiling debate may be of more importance since fiscal policy could tighten sharply or a failure to control the deficit could spike interest rates, in either case putting the economy at risk,” he said.
http://www.washingtontimes.com/news/2011/jun/7/lack-of-buyers-may-force-treasury-to-boost-interes/#.Te-NUHDWTmc;email
Though a significant rise in interest rates could be toxic for a softening U.S. economy, the Federal Reserve has said it will end its program of purchasing $600 billion in U.S. Treasury bonds as planned on June 30. The Fed is estimated to have bought about 85 percent of Treasury’s securities offerings in the past eight months.
That leaves the Treasury, which is slated to sell near-record amounts of new debt of about $1.4 trillion this year, without its main suitor and recent source of support, and forces it back into the vagaries of global markets. Among the countries that will have to step forward to prevent a debilitating rise in interest rates are China, Japan and Saudi Arabia — and even hostile nations such as Iran and Venezuela with petrodollars to invest, according to one analysis.
The central bank launched the unusual bond-buying campaign last fall in an effort to lower interest rates and boost the sagging economy — and it was successful at drawing down long-term interest rates to record lows last winter. In particular, 30-year fixed mortgage rates fell to unprecedented lows near 4 percent and spawned a refinancing wave that helped consumers to discharge debts, purchase homes and increase spending.
But by the start of the year, a pickup in inflation — led by a surge in oil and other commodity prices that some economists blamed on the Fed’s easy money policies — wiped out the boon for consumers and home buyers and started to weigh on the economy. With the economy relapsing back to tepid rates of growth around 2 percent, some Fed officials argue that it should continue the easing program, but fear that the commodity boom could turn into a serious inflation threat makes it difficult for the Fed to do so.
Federal Reserve Chairman Ben S. Bernanke said in a speech Tuesday that the Fed remains on track to withdraw from the Treasury market, stressing that the central bank must remain vigilant against inflation at the same time it tries to nurture the economy back to healthy growth.
Not an easy task
The end of the Fed’s program would never be easy given the huge onslaught of scheduled Treasury borrowing, but the task will be more difficult because foreign investors in the past six months have been reducing their sizable holdings of U.S. debt, not increasing them.
That means to get those buyers back, the Treasury may have to raise the rates it pays on the debt.
“With the Fed pretty much out of the picture after June, it seems clear that foreign demand for Treasuries holds the key going forward,” said David Greenlaw, an analyst at Morgan Stanley. “Continued heavy buying by the largest foreign holders of Treasuries will probably be necessary” to prevent interest rates from rising, he said.
China and Japan remain the largest foreign buyers of Treasury debt, followed by oil exporters such as Saudi Arabia and Qatar. Even oil exporters that are hostile to the U.S. such as Iran and Venezuela have been among the buyers supporting the Treasury in the past, according to Morgan Stanley estimates.
China and many of the oil exporters often channel their investments through London and such offshore investment havens as the Channel Islands, so the origin of the funding is sometimes difficult to track. The uncertainty of where the money is coming from in itself will cause rates to rise and increase volatility in the Treasury market after the Fed exits, Mr. Greenlaw said.
Brazil, Taiwan and Russia also are among the Treasury’s major creditors. But many countries have been cutting back on their purchases of U.S. securities in the past six months out of concern about the rapid decline of the U.S. dollar and rising inflation, which hurts their investment values.
Vassillli Serebriakov, an analyst at Wells Fargo, said many foreigners were put off by the Fed’s bond-purchase program, which appeared to trigger a foreign sell-off of about $100 billion in Treasury holdings since last fall.
In some countries, the program was portrayed as the Fed “printing money” to finance profligate congressional spending and tax cuts — a charge the Fed vehemently denies.
Still, given the wariness overseas about the Fed’s policies and untamed federal deficits, going back to relying on foreign buyers to finance the lion’s share of the debt could be tricky, he said.
“The key question is to what extent one can expect the recent deterioration in the long-term capital flows to be reversed,” he said.
An undetermined future
Foreign investors have applauded the Fed’s decision to end the program as it improves the prospects for keeping a lid on inflation. But they will continue to be concerned about uncontrolled deficits and declines in the dollar that diminish the value of their investments, he said.
“Some of the reduction in FedTreasury purchases could be replaced by increased demand from foreign investors, but this channel is less certain,” he said.
Peter Schiff, president of Euro Pacific Capital, said he does not expect enough foreign or private buyers to step forward and purchase Treasury’s huge slate of debt offerings — a potentially catastrophic development that he thinks will force the Fed to backpedal and renew its bond-buying program.
“Do they expect the Chinese to reverse course on their current policy and start heavily buying U.S. debt once again?” he asked.
“That seems extremely unlikely given” that China has been investing less in Treasury bonds partly in response to demands from the United States that it stop skewing trade relations between the countries by hoarding huge surpluses of dollars it earned through trade and reinvesting them in Treasuries.
Mr. Schiff noted that Bill Gross, the head of America’s own Pimco bond fund, the largest buyer of bonds worldwide, recently reduced Pimco’s holdings of Treasuries to zero out of concern that they weren’t yielding enough given the risks of inflation and deficit spending.
“It is not clear what would convince Gross to get back into the market with both feet, but one might expect at minimum it would take much higher interest rates,” Mr. Schiff said.
Jeffrey Kleintop, chief market strategist at LPL Financial, said he is not worried about the Treasury finding buyers or about other market disruptions as the Fed pulls back.
“While interest rates are likely to rise modestly, we do not anticipate a spike resulting from the lack of Fed buying that would put the economy at risk,” he said.
A failure by Congress and the White House in coming weeks to agree on a plan to curb deficits would be a much bigger problem for the markets, Mr. Kleintop said.
“The budget and debt-ceiling debate may be of more importance since fiscal policy could tighten sharply or a failure to control the deficit could spike interest rates, in either case putting the economy at risk,” he said.
http://www.washingtontimes.com/news/2011/jun/7/lack-of-buyers-may-force-treasury-to-boost-interes/#.Te-NUHDWTmc;email
Australia poised to allow camel cull
Killing a camel to earn a carbon credit may seem a curious way to tackle climate change, but one country is poised to allow investors to do precisely that.
The camel culling plan is one of the first to arise under the Australian government’s new “carbon farming initiative”, a scheme that lets farmers or investors claim carbon credits if they can show they have cut greenhouse gas emissions.
To read the rest of this article, click here
The camel culling plan is one of the first to arise under the Australian government’s new “carbon farming initiative”, a scheme that lets farmers or investors claim carbon credits if they can show they have cut greenhouse gas emissions.
To read the rest of this article, click here
Tuesday, June 7, 2011
Decline and fall of the American empire
The economic powerhouse of the 20th century emerged stronger from the Depression. But faced with cultural decay, structural weaknesses and reliance on finance, can the US do it again?
America clocked up a record last week. The latest drop in house prices meant that the cost of real estate has fallen by 33% since the peak – even bigger than the 31% slide seen when John Steinbeck was writing The Grapes of Wrath.
Unemployment has not returned to Great Depression levels but at 9.1% of the workforce it is still at levels that will have nerves jangling in the White House. The last president to be re-elected with unemployment above 7.2% was Franklin Delano Roosevelt.
The US is a country with serious problems. Getting on for one in six depend on government food stamps to ensure they have enough to eat. The budget, which was in surplus little more than a decade ago, now has a deficit of Greek-style proportions. There is policy paralysis in Washington.
The assumption is that the problems can be easily solved because the US is the biggest economy on the planet, the only country with global military reach, the lucky possessor of the world's reserve currency, and a nation with a proud record of re-inventing itself once in every generation or so.
All this is true and more. US universities are superb, attracting the best brains from around the world. It is a country that pushes the frontiers of technology. So, it may be that the US is about to emerge stronger than ever from the long nightmare of the sub-prime mortgage crisis. The strong financial position of American companies could unleash a wave of new investment over the next couple of years.
Let me put an alternative hypothesis. America in 2011 is Rome in 200AD or Britain on the eve of the first world war: an empire at the zenith of its power but with cracks beginning to show.
The experience of both Rome and Britain suggests that it is hard to stop the rot once it has set in, so here are the a few of the warning signs of trouble ahead: military overstretch, a widening gulf between rich and poor, a hollowed-out economy, citizens using debt to live beyond their means, and once-effective policies no longer working. The high levels of violent crime, epidemic of obesity, addiction to pornography and excessive use of energy may be telling us something: the US is in an advanced state of cultural decadence.
Empires decline for many different reasons but certain factors recur. There is an initial reluctance to admit that there is much to fret about, and there is the arrival of a challenger (or several challengers) to the settled international order. In Spain's case, the rival was Britain. In Britain's case, it was America. In America's case, the threat comes from China.
Britain's decline was extremely rapid after 1914. By 1945, the UK was a bit player in the bipolar world dominated by the US and the Soviet Union, and sterling – the heart of the 19th-century gold standard – was rapidly losing its lustre as a reserve currency. There had been concerns, voiced as far back as the 1851 Great Exhibition, that the hungrier, more efficient producers in Germany and the US threatened Britain's industrial hegemony. But no serious policy action was taken. In the second half of the 19th century there was a subtle shift in the economy, from the north of England to the south, from manufacturing to finance, from making things to living off investment income. By 1914, the writing was on the wall.
In two important respects, the US today differs from Britain a century ago. It is much bigger, which means that it benefits from continent-wide economies of scale, and it has a presence in the industries that will be strategically important in the first half of the 21st century. Britain in 1914 was over-reliant on coal and shipbuilding, industries that struggled between the world wars, and had failed to grasp early enough the importance of emerging new technologies.
Even so, there are parallels. There has been a long-term shift of emphasis in the US economy away from manufacturing and towards finance. There is a growing challenge from producers in other parts of the world.
Frenzy
Now consider the stark contrast between this economic recovery and the pattern of previous cycles. Traditionally, a US economic recovery sees unemployment coming down smartly as lower interest rates encourage consumers to spend and the construction industry to build more homes. This time, it has been different. There was a building frenzy during the bubble years, which left an overhang of supply even before plunging prices and rising unemployment led to a blitz of foreclosures.
America has more homes than it knows what to do with, and that state of affairs is not going to change for years.
Over the past couple of months, there has been a steady drip-feed of poor economic news that has dented hopes of a sustained recovery. Optimism has now been replaced by concern that the United States could be heading for the dreaded double-dip recession.
In the real estate market, which is the symptom of America's deep-seated economic malaise, the double dip has already arrived. Tax breaks to homeowners provided only a temporary respite for a falling market and millions of Americans are living in homes worth less than they paid for them. The latest figures show that more than 28% of homes with a mortgage are in negative equity. Unsurprisingly, that has made Americans far more cautious about spending money. Rising commodity prices exacerbate the problem, since they push up inflation and reduce the spending power of wages and salaries.
Macro-economic policy has proved less effective than normal. That's not for want of trying, though. The US has had zero short-term interest rates for well over two years. It has had two big doses of quantitative easing, the second of which is now ending. Its budget deficit is so big it has led to warnings from the credit-rating agencies, in spite of the dollar's reserve currency status. And Washington has adopted a policy of benign neglect towards the currency, despite the strong-dollar rhetoric, in the hope that cheaper exports will make up for the squeeze on consumer spending.
Policy, as ever, is geared towards growth because the great existential fear of the Fed, the Treasury and whoever occupies the White House is a return to the 1930s. Back then, the economic malaise could be largely attributed to deflationary economic policies that deepened the recession caused by the popping of the 1920s stock market bubble. The feeble response to today's growth medicine suggests that the US is structurally far weaker than it was in the 1930s. Tackling these weaknesses will require breaking finance's stranglehold over the economy and measures to boost ordinary families' spending power and so cut their reliance on debt. It will require an amnesty for the housing market. Above all, America must rediscover the qualities that originally made it great. That will not be easy.
http://www.guardian.co.uk/business/2011/jun/06/us-economy-decline-recovery-challenges
America clocked up a record last week. The latest drop in house prices meant that the cost of real estate has fallen by 33% since the peak – even bigger than the 31% slide seen when John Steinbeck was writing The Grapes of Wrath.
Unemployment has not returned to Great Depression levels but at 9.1% of the workforce it is still at levels that will have nerves jangling in the White House. The last president to be re-elected with unemployment above 7.2% was Franklin Delano Roosevelt.
The US is a country with serious problems. Getting on for one in six depend on government food stamps to ensure they have enough to eat. The budget, which was in surplus little more than a decade ago, now has a deficit of Greek-style proportions. There is policy paralysis in Washington.
The assumption is that the problems can be easily solved because the US is the biggest economy on the planet, the only country with global military reach, the lucky possessor of the world's reserve currency, and a nation with a proud record of re-inventing itself once in every generation or so.
All this is true and more. US universities are superb, attracting the best brains from around the world. It is a country that pushes the frontiers of technology. So, it may be that the US is about to emerge stronger than ever from the long nightmare of the sub-prime mortgage crisis. The strong financial position of American companies could unleash a wave of new investment over the next couple of years.
Let me put an alternative hypothesis. America in 2011 is Rome in 200AD or Britain on the eve of the first world war: an empire at the zenith of its power but with cracks beginning to show.
The experience of both Rome and Britain suggests that it is hard to stop the rot once it has set in, so here are the a few of the warning signs of trouble ahead: military overstretch, a widening gulf between rich and poor, a hollowed-out economy, citizens using debt to live beyond their means, and once-effective policies no longer working. The high levels of violent crime, epidemic of obesity, addiction to pornography and excessive use of energy may be telling us something: the US is in an advanced state of cultural decadence.
Empires decline for many different reasons but certain factors recur. There is an initial reluctance to admit that there is much to fret about, and there is the arrival of a challenger (or several challengers) to the settled international order. In Spain's case, the rival was Britain. In Britain's case, it was America. In America's case, the threat comes from China.
Britain's decline was extremely rapid after 1914. By 1945, the UK was a bit player in the bipolar world dominated by the US and the Soviet Union, and sterling – the heart of the 19th-century gold standard – was rapidly losing its lustre as a reserve currency. There had been concerns, voiced as far back as the 1851 Great Exhibition, that the hungrier, more efficient producers in Germany and the US threatened Britain's industrial hegemony. But no serious policy action was taken. In the second half of the 19th century there was a subtle shift in the economy, from the north of England to the south, from manufacturing to finance, from making things to living off investment income. By 1914, the writing was on the wall.
In two important respects, the US today differs from Britain a century ago. It is much bigger, which means that it benefits from continent-wide economies of scale, and it has a presence in the industries that will be strategically important in the first half of the 21st century. Britain in 1914 was over-reliant on coal and shipbuilding, industries that struggled between the world wars, and had failed to grasp early enough the importance of emerging new technologies.
Even so, there are parallels. There has been a long-term shift of emphasis in the US economy away from manufacturing and towards finance. There is a growing challenge from producers in other parts of the world.
Frenzy
Now consider the stark contrast between this economic recovery and the pattern of previous cycles. Traditionally, a US economic recovery sees unemployment coming down smartly as lower interest rates encourage consumers to spend and the construction industry to build more homes. This time, it has been different. There was a building frenzy during the bubble years, which left an overhang of supply even before plunging prices and rising unemployment led to a blitz of foreclosures.
America has more homes than it knows what to do with, and that state of affairs is not going to change for years.
Over the past couple of months, there has been a steady drip-feed of poor economic news that has dented hopes of a sustained recovery. Optimism has now been replaced by concern that the United States could be heading for the dreaded double-dip recession.
In the real estate market, which is the symptom of America's deep-seated economic malaise, the double dip has already arrived. Tax breaks to homeowners provided only a temporary respite for a falling market and millions of Americans are living in homes worth less than they paid for them. The latest figures show that more than 28% of homes with a mortgage are in negative equity. Unsurprisingly, that has made Americans far more cautious about spending money. Rising commodity prices exacerbate the problem, since they push up inflation and reduce the spending power of wages and salaries.
Macro-economic policy has proved less effective than normal. That's not for want of trying, though. The US has had zero short-term interest rates for well over two years. It has had two big doses of quantitative easing, the second of which is now ending. Its budget deficit is so big it has led to warnings from the credit-rating agencies, in spite of the dollar's reserve currency status. And Washington has adopted a policy of benign neglect towards the currency, despite the strong-dollar rhetoric, in the hope that cheaper exports will make up for the squeeze on consumer spending.
Policy, as ever, is geared towards growth because the great existential fear of the Fed, the Treasury and whoever occupies the White House is a return to the 1930s. Back then, the economic malaise could be largely attributed to deflationary economic policies that deepened the recession caused by the popping of the 1920s stock market bubble. The feeble response to today's growth medicine suggests that the US is structurally far weaker than it was in the 1930s. Tackling these weaknesses will require breaking finance's stranglehold over the economy and measures to boost ordinary families' spending power and so cut their reliance on debt. It will require an amnesty for the housing market. Above all, America must rediscover the qualities that originally made it great. That will not be easy.
http://www.guardian.co.uk/business/2011/jun/06/us-economy-decline-recovery-challenges
Monday, June 6, 2011
Why we must end Medicare ‘as we know it’
Almost everyone agrees that America’s health-care system has the incentives all wrong. Under the fee-for-service system, doctors and hospitals get paid for doing more, even if added tests, operations and procedures have little chance of improving patients’ health. So what happens when someone proposes that we alter the incentives to reward better care, not more care? Well, Rep. Paul Ryan and Republicans found out. No surprise: Democrats slammed them for “ending Medicare as we know it.”
This predictably partisan reaction — preying upon the anxieties of retirees — must depress anyone who cares about the country’s future. It is only a slight exaggeration to say that unless we end Medicare “as we know it,” America “as we know it” will end. Spiraling health spending is the crux of our federal budget problem. In 1965 — the year Congress created Medicare and Medicaid — health spending was 2.6 percent of the budget. In 2010, it was 26.5 percent. The Obama administration estimates it will be 30.3 percent in 2016. By contrast, defense spending is about 20 percent; scientific research and development is 4 percent.
Uncontrolled health spending isn’t simply crowding out other government programs; it’s also dampening overall living standards. Health economists Michael Chernew, Richard Hirth and David Cutler recently reported that higher health costs consumed 35.7 percent of the increase in per capita income from 1999 to 2007. They also project, that under reasonable assumptions, it could absorb half or more of the gain between now and 2083.
Ryan proposes to change that. Beginning in 2022, new (not existing) Medicare beneficiaries would receive a voucher, valued initially at about $8,000. The theory is simple. Suddenly empowered, Medicare beneficiaries would shop for lowest-cost, highest-quality insurance plans providing a required package of benefits. The health-care delivery system would be forced to restructure by reducing costs and improving quality. Doctors, hospitals and clinics would form networks; there would be more “coordination” of care, helped by more investment in information technology; better use of deductibles and co-payments would reduce unnecessary trips to doctors’ offices or clinics.
It’s shock therapy. Would it work? No one knows, but two things are clear.
First, as Medicare goes, so goes the entire health-care system. Medicare is the nation’s largest insurance program, with 48 million recipients and spending last year of $520 billion. About 75 percent of beneficiaries have fee-for-service coverage. If Medicare remains largely fee-for-service, the rest of the system will, too.
Second, few doubt that today’s health-care system has much waste: medical care that does no good; high overhead costs. In a paper, Cutler documented some evidence. In one survey, 20 percent of patients reported that doctors repeated tests because records were unavailable; the health-care sector has twice as many clerical workers as nurses and nine times as many as doctors; care of patients with chronic conditions is often slapdash, so that, for example, only 43 percent of diabetics receive recommended treatment.
Fee-for-service is open-ended reimbursement; the government’s main tool to control Medicare’s costs is to hold down reimbursement rates. Doctors and hospitals respond by ordering more services to offset the rate limits. For all its flaws, say Ryan’s critics, this system beats his. Indeed, the Congressional Budget Office has estimated that in 2022, Ryan’s plan would be more than a third costlier than the status quo, because Medicare’s size makes it more effective at restraining reimbursement rates.
If the CBO is correct, Ryan’s plan fails; beneficiaries’ out-of-pocket costs would roughly double to cover the added expense. But the CBO may be wrong. When a voucher system was adopted for Medicare’s new drug benefit, the CBO overestimated its costs by a third; the Centers for Medicare and Medicaid Services’ overestimate was 42 percent. When fundamental changes are made to a program, the green-eyeshade types can’t easily predict the results. Moreover, as health expert James Capretta notes, “managed care” plans in the Medicare Advantage program in 2010 did not have higher costs than Medicare’s fee-for-service for similar coverage.
Under Ryan’s plan, incentives would shift. Medicare would no longer be an open ATM; the vouchers would limit total spending. Providers would face pressures to do more with less; there would certainly be charges that essential care was being denied. The Obama administration argues that better results can be achieved by modifying incentives within the existing system. Perhaps. But history suggests skepticism. Presidents since Jimmy Carter have made proposals to control spending, with meager results. From 1970 to 2008, Medicare spending per beneficiary increased an average of 9 percent annually.
It’s Ryan’s radicalism vs. President Obama’s tinkering. Which is realistic and which is wishful thinking? This important debate should rise above cheap political rhetoric. Burdened by runaway spending, Medicare “as we know it” is going to end. The only questions are when and on whose terms.
http://www.washingtonpost.com/opinions/why-we-must-end-medicare-as-we-know-it/2011/06/05/AGs7AmJH_story_1.html
This predictably partisan reaction — preying upon the anxieties of retirees — must depress anyone who cares about the country’s future. It is only a slight exaggeration to say that unless we end Medicare “as we know it,” America “as we know it” will end. Spiraling health spending is the crux of our federal budget problem. In 1965 — the year Congress created Medicare and Medicaid — health spending was 2.6 percent of the budget. In 2010, it was 26.5 percent. The Obama administration estimates it will be 30.3 percent in 2016. By contrast, defense spending is about 20 percent; scientific research and development is 4 percent.
Uncontrolled health spending isn’t simply crowding out other government programs; it’s also dampening overall living standards. Health economists Michael Chernew, Richard Hirth and David Cutler recently reported that higher health costs consumed 35.7 percent of the increase in per capita income from 1999 to 2007. They also project, that under reasonable assumptions, it could absorb half or more of the gain between now and 2083.
Ryan proposes to change that. Beginning in 2022, new (not existing) Medicare beneficiaries would receive a voucher, valued initially at about $8,000. The theory is simple. Suddenly empowered, Medicare beneficiaries would shop for lowest-cost, highest-quality insurance plans providing a required package of benefits. The health-care delivery system would be forced to restructure by reducing costs and improving quality. Doctors, hospitals and clinics would form networks; there would be more “coordination” of care, helped by more investment in information technology; better use of deductibles and co-payments would reduce unnecessary trips to doctors’ offices or clinics.
It’s shock therapy. Would it work? No one knows, but two things are clear.
First, as Medicare goes, so goes the entire health-care system. Medicare is the nation’s largest insurance program, with 48 million recipients and spending last year of $520 billion. About 75 percent of beneficiaries have fee-for-service coverage. If Medicare remains largely fee-for-service, the rest of the system will, too.
Second, few doubt that today’s health-care system has much waste: medical care that does no good; high overhead costs. In a paper, Cutler documented some evidence. In one survey, 20 percent of patients reported that doctors repeated tests because records were unavailable; the health-care sector has twice as many clerical workers as nurses and nine times as many as doctors; care of patients with chronic conditions is often slapdash, so that, for example, only 43 percent of diabetics receive recommended treatment.
Fee-for-service is open-ended reimbursement; the government’s main tool to control Medicare’s costs is to hold down reimbursement rates. Doctors and hospitals respond by ordering more services to offset the rate limits. For all its flaws, say Ryan’s critics, this system beats his. Indeed, the Congressional Budget Office has estimated that in 2022, Ryan’s plan would be more than a third costlier than the status quo, because Medicare’s size makes it more effective at restraining reimbursement rates.
If the CBO is correct, Ryan’s plan fails; beneficiaries’ out-of-pocket costs would roughly double to cover the added expense. But the CBO may be wrong. When a voucher system was adopted for Medicare’s new drug benefit, the CBO overestimated its costs by a third; the Centers for Medicare and Medicaid Services’ overestimate was 42 percent. When fundamental changes are made to a program, the green-eyeshade types can’t easily predict the results. Moreover, as health expert James Capretta notes, “managed care” plans in the Medicare Advantage program in 2010 did not have higher costs than Medicare’s fee-for-service for similar coverage.
Under Ryan’s plan, incentives would shift. Medicare would no longer be an open ATM; the vouchers would limit total spending. Providers would face pressures to do more with less; there would certainly be charges that essential care was being denied. The Obama administration argues that better results can be achieved by modifying incentives within the existing system. Perhaps. But history suggests skepticism. Presidents since Jimmy Carter have made proposals to control spending, with meager results. From 1970 to 2008, Medicare spending per beneficiary increased an average of 9 percent annually.
It’s Ryan’s radicalism vs. President Obama’s tinkering. Which is realistic and which is wishful thinking? This important debate should rise above cheap political rhetoric. Burdened by runaway spending, Medicare “as we know it” is going to end. The only questions are when and on whose terms.
http://www.washingtonpost.com/opinions/why-we-must-end-medicare-as-we-know-it/2011/06/05/AGs7AmJH_story_1.html
US house price fall 'beats Great Depression slide'
The ailing US housing market passed a grim milestone in the first quarter of this year, posting a further deterioration that means the fall in house prices is now greater than that suffered during the Great Depression.
The brief recovery in prices in 2009, spurred by government aid to first-time buyers, has now been entirely snuffed out, and the average American home now costs 33 per cent less than it did at the peak of the housing bubble in 2007. The peak-to-trough fall in house prices in the 1930s Depression was 31 per cent – and prices took 19 years to recover after that downturn.
The latest Case-Shiller house price index was just one of a slew of disappointing economic data from the US yesterday, which suggested ebbing confidence in the recovery of the world's largest economy. The Chicago PMI manufacturing index showed a sharp slowdown in the pace of expansion in May, missing Wall Street forecasts and sending the index to its lowest since November 2009.
And in the latest Conference Board consumer confidence survey more people expressed uncertainty over their future economic prospects. The confidence index fell unexpectedly to 60.8 from a revised 66.0, when economists had expected it to rise to 67.0. Falling house prices and negative equity combined with high petrol and food prices and a still-weak jobs market to raise consumers' fears for the future.
Thomas Di Galoma, the managing director of government securities at Oppenheimer & Co, said: "Based on the weakness in housing prices, Chicago PMI and consumer confidence, it appears as though the economy could be headed for a double dip, especially as federal and state spending slows rapidly over the next six months."
Economists warned not to expect any immediate relief to the gloom from the housing market. Banks continue to demand high deposits from potential buyers and are pressing on with foreclosures against those who have fallen behind on mortgages, adding to the glut of unsold homes on the market.
Prices are back to their 2002 levels, according to the Case-Shiller National House Price Index out yesterday. "The national index fell 4.2 per cent over the first quarter alone, and is down 5.1 per cent compared to its year-ago level," David Blitzer, the chairman of the Index Committee at S&P Indices, said. "Home prices continue on their downward spiral with no relief in sight."
http://www.independent.co.uk/news/business/news/us-house-price-fall-beats-great-depression-slide-2291491.html
The brief recovery in prices in 2009, spurred by government aid to first-time buyers, has now been entirely snuffed out, and the average American home now costs 33 per cent less than it did at the peak of the housing bubble in 2007. The peak-to-trough fall in house prices in the 1930s Depression was 31 per cent – and prices took 19 years to recover after that downturn.
The latest Case-Shiller house price index was just one of a slew of disappointing economic data from the US yesterday, which suggested ebbing confidence in the recovery of the world's largest economy. The Chicago PMI manufacturing index showed a sharp slowdown in the pace of expansion in May, missing Wall Street forecasts and sending the index to its lowest since November 2009.
And in the latest Conference Board consumer confidence survey more people expressed uncertainty over their future economic prospects. The confidence index fell unexpectedly to 60.8 from a revised 66.0, when economists had expected it to rise to 67.0. Falling house prices and negative equity combined with high petrol and food prices and a still-weak jobs market to raise consumers' fears for the future.
Thomas Di Galoma, the managing director of government securities at Oppenheimer & Co, said: "Based on the weakness in housing prices, Chicago PMI and consumer confidence, it appears as though the economy could be headed for a double dip, especially as federal and state spending slows rapidly over the next six months."
Economists warned not to expect any immediate relief to the gloom from the housing market. Banks continue to demand high deposits from potential buyers and are pressing on with foreclosures against those who have fallen behind on mortgages, adding to the glut of unsold homes on the market.
Prices are back to their 2002 levels, according to the Case-Shiller National House Price Index out yesterday. "The national index fell 4.2 per cent over the first quarter alone, and is down 5.1 per cent compared to its year-ago level," David Blitzer, the chairman of the Index Committee at S&P Indices, said. "Home prices continue on their downward spiral with no relief in sight."
http://www.independent.co.uk/news/business/news/us-house-price-fall-beats-great-depression-slide-2291491.html
More Americans Think Economy Will Never Recover
The mixed signals regarding the economy's health are taking a toll.
Americans are growing increasingly doubtful about direction of the US economy, according to the latest survey from business-advisory firm AlixPartners.
In fact, an increasing number, some 61 percent, say they don't expect to return to their respective pre-recession lifestyles until the spring of 2014, if ever.
What's worse, a full 10 percent said they expect they will never return to pre-recession spending.
That's a more pessimistic view than last year, when those surveyed expected that they could be back to pre-recession spending levels by the middle of 2013.
"Americans continue to push their expectations for return to a pre-recession 'normal' further and further into the future—close enough for comfort, but far enough away to seem realistic," said Fred Crawford, CEO of AlixPartners. "But as that happens, more and more it seems normal is actually where we are right now."
The latest employment report, which showed that U.S. employers hired far few workers than expected in May, only serves to reinforce these attitudes.
"It's a vicious cycle," Crawford said. "Americans need to see a significant decrease in unemployment to feel confident in the economic recovery, but companies are waiting to see increased demand for their products and services before they begin hiring and making job-creating capital expenditures."
In the latest survey, some 63 percent of Americans said they feel "not good" or "bad" about the state of the US economy, representing a significant increase from May 2010 when only about 49 percent of those polled felt this gloomy.
The survey also found that Americans overwhelmingly expect to delay by at least 12 months major purchases and expenditures such as spending on new cars, home repairs and vacations.
There have already been signs of this in the latest retail sales reports that came out earlier this week from a handful of major retailers.
Overall, sales at stores open at least a year rose 5.0 percent in May, which is below the 5.4 percent increase that Wall Street expected, according to Thomson Reuters data.
While some analysts used a number of excuses, including high gasoline prices, poor weather, and lackluster merchandise, to explain away the disappointing results, the findings of the survey may suggest that consumers are hunkering down amid the uncertainty.
The view was expressed Thursday by Target CEO Gregg Steinhafel, who said that traffic at Target stores slowed in the second half of the month.
"Our guests continue to shop cautiously in light of higher energy costs and inflationary pressures on their household budgets," Steinhafel said, in the company's monthly sales press release.
AlixPartners is by no means the first organization to recognize this growing pessimism.
Goldman Sachs economist Jan Hatzius said the number of consumers who believe they have a chance to bring home more money one year from now is at its lowest level in 25 years, based on his analysis of the University of Michigan and Thomson Reuters consumer sentiment poll.
http://m.cnbc.com/us_news/43268037
Americans are growing increasingly doubtful about direction of the US economy, according to the latest survey from business-advisory firm AlixPartners.
In fact, an increasing number, some 61 percent, say they don't expect to return to their respective pre-recession lifestyles until the spring of 2014, if ever.
What's worse, a full 10 percent said they expect they will never return to pre-recession spending.
That's a more pessimistic view than last year, when those surveyed expected that they could be back to pre-recession spending levels by the middle of 2013.
"Americans continue to push their expectations for return to a pre-recession 'normal' further and further into the future—close enough for comfort, but far enough away to seem realistic," said Fred Crawford, CEO of AlixPartners. "But as that happens, more and more it seems normal is actually where we are right now."
The latest employment report, which showed that U.S. employers hired far few workers than expected in May, only serves to reinforce these attitudes.
"It's a vicious cycle," Crawford said. "Americans need to see a significant decrease in unemployment to feel confident in the economic recovery, but companies are waiting to see increased demand for their products and services before they begin hiring and making job-creating capital expenditures."
In the latest survey, some 63 percent of Americans said they feel "not good" or "bad" about the state of the US economy, representing a significant increase from May 2010 when only about 49 percent of those polled felt this gloomy.
The survey also found that Americans overwhelmingly expect to delay by at least 12 months major purchases and expenditures such as spending on new cars, home repairs and vacations.
There have already been signs of this in the latest retail sales reports that came out earlier this week from a handful of major retailers.
Overall, sales at stores open at least a year rose 5.0 percent in May, which is below the 5.4 percent increase that Wall Street expected, according to Thomson Reuters data.
While some analysts used a number of excuses, including high gasoline prices, poor weather, and lackluster merchandise, to explain away the disappointing results, the findings of the survey may suggest that consumers are hunkering down amid the uncertainty.
The view was expressed Thursday by Target CEO Gregg Steinhafel, who said that traffic at Target stores slowed in the second half of the month.
"Our guests continue to shop cautiously in light of higher energy costs and inflationary pressures on their household budgets," Steinhafel said, in the company's monthly sales press release.
AlixPartners is by no means the first organization to recognize this growing pessimism.
Goldman Sachs economist Jan Hatzius said the number of consumers who believe they have a chance to bring home more money one year from now is at its lowest level in 25 years, based on his analysis of the University of Michigan and Thomson Reuters consumer sentiment poll.
http://m.cnbc.com/us_news/43268037
Bank of America Gets Pad Locked After Homeowner Forecloses On It
Collier County, Florida -- Have you heard the one about a homeowner foreclosing on a bank?
Well, it has happened in Florida and involves a North Carolina based bank.
Instead of Bank of America foreclosing on some Florida homeowner, the homeowners had sheriff's deputies foreclose on the bank.
It started five months ago when Bank of America filed foreclosure papers on the home of a couple, who didn't owe a dime on their home.
The couple said they paid cash for the house.
The case went to court and the homeowners were able to prove they didn't owe Bank of America anything on the house. In fact, it was proven that the couple never even had a mortgage bill to pay.
A Collier County Judge agreed and after the hearing, Bank of America was ordered, by the court to pay the legal fees of the homeowners', Maurenn Nyergers and her husband.
The Judge said the bank wrongfully tried to foreclose on the Nyergers' house.
So, how did it end with bank being foreclosed on? After more than 5 months of the judge's ruling, the bank still hadn't paid the legal fees, and the homeowner's attorney did exactly what the bank tried to do to the homeowners. He seized the bank's assets.
"They've ignored our calls, ignored our letters, legally this is the next step to get my clients compensated, " attorney Todd Allen told CBS.
Sheriff's deputies, movers, and the Nyergers' attorney went to the bank and foreclosed on it. The attorney gave instructions to to remove desks, computers, copiers, filing cabinets and any cash in the teller's drawers.
After about an hour of being locked out of the bank, the bank manager handed the attorney a check for the legal fees.
"As a foreclosure defense attorney this is sweet justice" says Allen.
Allen says this is something that he sees often in court, banks making errors because they didn't investigate the foreclosure and it becomes a lengthy and expensive battle for the homeowner.
http://www.digtriad.com/news/watercooler/article/178031/176/Florida-Homeowner-Forecloses-On-Bank-Of-America
Well, it has happened in Florida and involves a North Carolina based bank.
Instead of Bank of America foreclosing on some Florida homeowner, the homeowners had sheriff's deputies foreclose on the bank.
It started five months ago when Bank of America filed foreclosure papers on the home of a couple, who didn't owe a dime on their home.
The couple said they paid cash for the house.
The case went to court and the homeowners were able to prove they didn't owe Bank of America anything on the house. In fact, it was proven that the couple never even had a mortgage bill to pay.
A Collier County Judge agreed and after the hearing, Bank of America was ordered, by the court to pay the legal fees of the homeowners', Maurenn Nyergers and her husband.
The Judge said the bank wrongfully tried to foreclose on the Nyergers' house.
So, how did it end with bank being foreclosed on? After more than 5 months of the judge's ruling, the bank still hadn't paid the legal fees, and the homeowner's attorney did exactly what the bank tried to do to the homeowners. He seized the bank's assets.
"They've ignored our calls, ignored our letters, legally this is the next step to get my clients compensated, " attorney Todd Allen told CBS.
Sheriff's deputies, movers, and the Nyergers' attorney went to the bank and foreclosed on it. The attorney gave instructions to to remove desks, computers, copiers, filing cabinets and any cash in the teller's drawers.
After about an hour of being locked out of the bank, the bank manager handed the attorney a check for the legal fees.
"As a foreclosure defense attorney this is sweet justice" says Allen.
Allen says this is something that he sees often in court, banks making errors because they didn't investigate the foreclosure and it becomes a lengthy and expensive battle for the homeowner.
http://www.digtriad.com/news/watercooler/article/178031/176/Florida-Homeowner-Forecloses-On-Bank-Of-America
Delaware government: Traffic studies bill hits nerve
DOVER -- A legislative effort to put developers on the hook for improving roads that become congested by their projects ran into opposition Wednesday from Delaware's Department of Transportation, Delaware's counties, business groups and unions.
Rep. Deborah Hudson said her bill was prompted by DelDOT and New Castle County's leniency in allowing the development of a major office and commercial complex at Barley Mill Plaza without a full traffic impact study.
Click HERE to read the rest of this article.
Rep. Deborah Hudson said her bill was prompted by DelDOT and New Castle County's leniency in allowing the development of a major office and commercial complex at Barley Mill Plaza without a full traffic impact study.
Click HERE to read the rest of this article.
Chicago cancels July 4 fireworks, leaves shows to Navy Pier
Chicago is getting out of the Independence Day fireworks business.
There will be no city-run July 3rd or July 4th fireworks show this year — not even a scaled-down version — thanks to former Mayor Richard M. Daley’s decision to hand off the Taste of Chicago to the Park District to reverse $7 million in festival losses over the last three years.
That means Chicago’s only official fireworks will be the previously scheduled show at 9 p.m. July 4 at Navy Pier. That 15-minute show is paid for by the Metropolitan Pier and Exposition Authority.
Chicago Park District spokesperson Jessica Maxey-Faulkner said the decision to cancel even last year’s smaller fireworks at three lakefront locations was a sacrifice demanded by the economic times.
It’s the same reality that forced the Park District to fold the city’s four least-popular music festivals — Viva Chicago, Country Music, Gospel and Celtic fests — into the Taste as one-day events focusing on local acts instead of making them stand-alone weekend fests with big-name talent.
“When the Chicago Park District inherited the Taste, we did so with an eye on cutting expenses and bringing the focus back to a family-friendly food festival,” Maxey-Faulkner said, noting that last year’s show cost $110,000, not including police expenses.
“Knowing that Navy Pier has fireworks shows scheduled for July 2 and July 4, we felt that was a reasonable expense to cut.”
Last year, declining city revenues and disappearing corporate sponsors claimed the annual July 3 fireworks extravaganza in Grant Park.
Instead of having one fireworks show on July 3 that drew more than 1.2 million people and stretched city services to the brink, Chicago held smaller synchronized fireworks shows on July 4: at Montrose Harbor and 59th Street to coincide with the previously scheduled show at Navy Pier.
City Hall hoped to cut security costs by making the switch, but it didn’t quite work out that way.
Policing three fireworks venues cost $756,476, including $251,377 in “regular tour pay,” $444,251 worth of “accumulated compensatory time” and $60,846 in overtime, records show.
The only venue that drew an overflow crowd was Navy Pier, where attendance was so big, police were forced to shut off access for the first time in history.
The Pier closing started at 7:20 p.m. and continued for “two or three hours,” barring even those who had reservations at Navy Pier restaurants.
“We stopped counting at 250,000” people, Navy Pier spokesman Jon Kaplan said of the record crowd on that day.
“Only employees working in Navy Pier stores and people with tickets to the theater or tickets previously purchased for boat cruises were allowed in.”
Two years ago, Venetian Night, the annual parade of illuminated boat floats, was sunk by Daley’s cost-cutting, ending a 52-year-old summer tradition.
Viva Chicago, Country Music, Gospel and Celtic Fests were next on the chopping block — at least as stand-alone festivals.
Now, there’s no more city fireworks show.
“The city is broke. We can’t afford the circuses. Perhaps fireworks are a luxury we can do without,” said Ald. Joe Moore (49th).
Civic Federation President Laurence Msall agreed that the fireworks fizzle is “a sign of the financial distress the city finds itself in.”
But, he said, “Although we understand the need to cut expenses, we’d like to see it tied to a long-term plan for all the city’s special events and promotional activities when it comes to encouraging people to come downtown and enjoy the lakefront.”
http://www.suntimes.com/5700733-417/chicago-cancels-july-4-fireworks-leaves-shows-to-navy-pier.html
There will be no city-run July 3rd or July 4th fireworks show this year — not even a scaled-down version — thanks to former Mayor Richard M. Daley’s decision to hand off the Taste of Chicago to the Park District to reverse $7 million in festival losses over the last three years.
That means Chicago’s only official fireworks will be the previously scheduled show at 9 p.m. July 4 at Navy Pier. That 15-minute show is paid for by the Metropolitan Pier and Exposition Authority.
Chicago Park District spokesperson Jessica Maxey-Faulkner said the decision to cancel even last year’s smaller fireworks at three lakefront locations was a sacrifice demanded by the economic times.
It’s the same reality that forced the Park District to fold the city’s four least-popular music festivals — Viva Chicago, Country Music, Gospel and Celtic fests — into the Taste as one-day events focusing on local acts instead of making them stand-alone weekend fests with big-name talent.
“When the Chicago Park District inherited the Taste, we did so with an eye on cutting expenses and bringing the focus back to a family-friendly food festival,” Maxey-Faulkner said, noting that last year’s show cost $110,000, not including police expenses.
“Knowing that Navy Pier has fireworks shows scheduled for July 2 and July 4, we felt that was a reasonable expense to cut.”
Last year, declining city revenues and disappearing corporate sponsors claimed the annual July 3 fireworks extravaganza in Grant Park.
Instead of having one fireworks show on July 3 that drew more than 1.2 million people and stretched city services to the brink, Chicago held smaller synchronized fireworks shows on July 4: at Montrose Harbor and 59th Street to coincide with the previously scheduled show at Navy Pier.
City Hall hoped to cut security costs by making the switch, but it didn’t quite work out that way.
Policing three fireworks venues cost $756,476, including $251,377 in “regular tour pay,” $444,251 worth of “accumulated compensatory time” and $60,846 in overtime, records show.
The only venue that drew an overflow crowd was Navy Pier, where attendance was so big, police were forced to shut off access for the first time in history.
The Pier closing started at 7:20 p.m. and continued for “two or three hours,” barring even those who had reservations at Navy Pier restaurants.
“We stopped counting at 250,000” people, Navy Pier spokesman Jon Kaplan said of the record crowd on that day.
“Only employees working in Navy Pier stores and people with tickets to the theater or tickets previously purchased for boat cruises were allowed in.”
Two years ago, Venetian Night, the annual parade of illuminated boat floats, was sunk by Daley’s cost-cutting, ending a 52-year-old summer tradition.
Viva Chicago, Country Music, Gospel and Celtic Fests were next on the chopping block — at least as stand-alone festivals.
Now, there’s no more city fireworks show.
“The city is broke. We can’t afford the circuses. Perhaps fireworks are a luxury we can do without,” said Ald. Joe Moore (49th).
Civic Federation President Laurence Msall agreed that the fireworks fizzle is “a sign of the financial distress the city finds itself in.”
But, he said, “Although we understand the need to cut expenses, we’d like to see it tied to a long-term plan for all the city’s special events and promotional activities when it comes to encouraging people to come downtown and enjoy the lakefront.”
http://www.suntimes.com/5700733-417/chicago-cancels-july-4-fireworks-leaves-shows-to-navy-pier.html
Bull Market in Stocks Is Ending: Strategists
The bull market in stocks, which began two years and two months ago on the tail end of the deepest recession since the Great Depression, has handed investors gains of 80 percent.
But, according to fund managers and analysts including Standard & Poor's Chief Technical Strategist Mark Arbeter and Capital Advisors Chief Executive Officer Keith Goddard, the end is nigh.
Europe's tumultuous debt woes, Japan's recession, the end of the U.S. Federal Reserve's massive bond-buying program and peak profits among American companies signal a slowdown in the pace of equity gains that may, in a worst-case scenario, result in a decline of as much as 20%.
Calling stock-market tops and bottoms is more art than science, though in a research note last week, S&P's Arbeter said stocks will fall 15% to 20%, perhaps more, with a slide extending into next year.
His evidence: A breakdown in commodities, a potential intermediate- to longer-term bottom in the U.S. Dollar Index, lagging emerging markets and a rise in Treasury yields. All of which raise costs for U.S. businesses, crimping profits.
"In our opinion, this reflects concerns about the economy, and many times, is a bearish omen for the overall stock market," Arbeter writes, noting recent outperformance in sectors like consumer staples, health care, telecom and utilities.
Although Arbeter made his call through the prism of market technicals, other stock-market watchers agree with his bearish assessment. Nouriel Roubini, the economist who rang the warning bell ahead of the global financial crisis in 2008, recently said unemployment will continue to rise in the U.S. over the next year. Roubini has frequently warned of global economic woes, and he continues to see problems in Europe as a threat to a global recovery.
The threats to the future of the bull market read like a laundry list of events set to occur at the end of days. Inflation from rising commodity, agriculture and materials costs is a major concern, as is the end of the Federal Reserve's purchase of $600 billion in U.S. Treasurys, known as QE2, which provided a massive boost of liquidity that helped to increase asset prices.
There are several other concerns that aren't mentioned nearly as much as inflation and the end of the second round of quantitative easing. Fitch Ratings cut Greece's credit rating on Friday due to the risk of a sovereign default. Last year, the European Union and International Monetary Fund bailed out Greece, but even that rescue may not be enough to help the country manage its debt and deficit. Worry continues to mount over a potential debt restructuring.
In the U.S., economic reports have suggested sluggishness ahead. Unemployment remains at 9%, and new jobless claims have stayed stubbornly above 400,000 each week.
First-quarter GDP has been initially pegged at 1.8%, which is anything but robust.
And in the past week, the Conference Board said leading economic indicators fell 0.3% in April, the first decline since June 2010, and a separate report showed housing starts and building permits continue to drop.
Bullish investors have pointed to earnings performance as one reason the market still has legs. But the excitement over first-quarter earnings, which recently wrapped up with Wal-Mart's [ WMT 53.76 +0.10 (+0.19%) ] release, doesn't quite match reality.
Bespoke Investment Group's market analysis says out of 2,132 U.S. companies that reported earnings this quarter, 59.5% beat estimates.
"This is by far the lowest quarterly 'beat rate' reading of the bull market, and it's 7 percentage points below the 'beat rate' last quarter," Bespoke writers noted in last week's post.
There has also be a shift in leadership, another potential sign of an impending market swoon. Lower-quality stocks led the equity market higher until about a month ago. Both the Russell 2000 and the S&P 500 ($INX) are up 6% this year — a far cry from bear-market territory — but the small-cap index is down 2% over the past month as the S&P 500 has held steady.
Despite mounting evidence, there is much conflict about whether this is the end of the bull market's run.
"Bull markets, as they say, have been killed historically by restrictive monetary policy. I'm not aware of a bull market being killed my anything else," says Mark Schultz, fund manager at M&T Bank. "We're a little ways away from that, according to the authorities at the Fed."
Other fund managers and investment advisors are a little more concerned. TheStreet spoke with several bullish and bearish investors and got their take on whether the bull market is dying. Their views are presented on the following pages.
Brian Peery, Hennessy Cornerstone Growth Fund
"It's not about timing the market, it's about time in the market," says Brian Peery.
"I've never been good at picking tops or bottoms. I'm going to invest for the long term, so I want to pick high-quality companies that are going to be around in five years and make sure I'm not paying too much for them."
Peery is the co-portfolio manager of the Hennessy Cornerstone Growth Fund (HFCGX), a $200 million fund with a tilt toward small- and mid-cap equities such as Mercer International (MERC) and Atlas Energy (ATLS).
"There's always going to be that wall of worry. You could make a case for the end of the world being near," Peery says.
"But if you can separate the individual companies and their performance from the overall economy, there are a lot of cash-rich companies that are making a lot of money that are sitting on this capital."
Peery is solidly in the bullish camp of investors, as he says a hypothetical 20% market pullback would "be a huge buying opportunity." But even he acknowledges the challenge investors face with the weak economic rebound.
"We're not in an environment where the economy is rip-roaring, so you're only getting incremental growth on the top line," he says. "The economic numbers haven't been all that great. If you don't have a job, the recession is still going on. But people are feeling more secure about spending and they're loosening the purse strings a little."
Peery says it will still be a stock pickers' market, and that investors have to look for high-quality companies selling at a discount. He says there are an abundance still out there, including Dell [ DELL 15.905 +0.315 (+2.02%) ] and, in particular, Chevron [ CVX 99.68 -1.32 (-1.31%) ].
"Chevron is making a truckload of money," Peery says. "What do you do with that $12 of earnings per share? You could increase your dividend, you could invest in infrastructure to make yourself more profitable, or you could do some M&A. We're seeing companies like Chevron that are yielding high."
Peery advises people to take a long-term approach, as it's still early in this bull market in his eyes.
"We could have a dip along the way and have continued growth, so I would look at any time the market comes down as potential buying opportunities," he says. "I still think valuations are relatively low."
Keith Goddard, Capital Advisors
Keith Goddard, president and CEO of Capital Advisors, says there are two important things that are making the climate more difficult for investors: the end of QE2 and the peaking of profit margins.
Based in Tulsa, Okla., with $900 million in assets under management, Goddard says that while investors will debate whether interest rates will rise or fall on the termination of the Fed's quantitative easing in June, there is no debating the market will transition from an environment of easy monetary policy to one of incremental tightening.
Secondly, Goddard argues that profit margins are peaking. "We're right up against records, and that series is mean-reverting. It's one of the most mean-reverting elements of capitalism," he says. "Profit margins will come down at some point. We think it's starting."
Rising interest rates are never good for stocks, and that coupled with idea that companies will begin negative earnings preannouncements in June is something that scares Goddard.
"The risk in your portfolio goes up because you'll have more stocks that don't make it through earnings season without a drop," he says.
"If you get both of those things beginning in June and July, it will make the second half of the year that much harder."
Goddard says his firm is getting more defensive, although he's not quite expecting a bear market yet. He is calling for "an old-fashioned earnings-based correction sometime in the next 30 to 60 days based on a resetting of expectations for lower corporate profits."
Capital Advisors is navigating the market by looking for stable earners that are high-quality companies with global diversification and solid balance sheets, Goddard says. He also looks to find companies that have a thin margin between analysts' estimates. If the spread is narrow, it's more likely that analysts have a good handle on the business and therefore the earnings estimates can be relied upon.
Some of these names are PepsiCo [ PEP 68.89 -0.08 (-0.12%) ], Procter & Gamble [ PG 65.50 +0.07 (+0.11%) ], Johnson & Johnson [ JNJ 66.05 -0.04 (-0.06%) ] and Wal-Mart [ WMT 53.76 +0.10 (+0.19%) ].
But Goddard says he also has very high conviction in Ford [ F 13.91 -0.10 (-0.71%) ] for a different reason altogether: analyst estimates are too low.
"Ford earned $1.91 a share when auto sales were below 12 million. Consensus estimates for 2011 and 2012 are around $2 a share, but we expect auto sales to hit 15 million by 2012," Goddard says.
"If we hit 15 million in auto sales, they're going to earn more than $2 a share. I'll eat my hat if they don't."
The wild card, though, is a third round of quantitative easing by the Fed, according to Goddard. He says that the market is already feeling its way through the dark with QE2, and that there comes a point where QE2 or QE3 ceases to be beneficial to asset prices.
"The Fed has been buying two-thirds of all Treasurys issued since November, so it is not logical to assume that rates will not react to that buyer walking away," Goddard says. "But it is debatable whether the markets will cheer QE3 or not. QE3, if it happens, will smell more like monetizing the national debt than inflating asset prices."
Even if there is a negative market reaction to QE2, that correction won't grow to 20%, Goddard says.
"There is too much on the sidelines that has been waiting for an entry point for two years. I don't think they'll wait for 20% to start buying. We saw a 7% pullback related to the Japan situation this spring, and the buyers came in."
Jeff Sica, Sica Wealth Management
A handful of investment managers say the market has been overvalued for some time and that the decline is just beginning.
Jeffrey Sica, president and chief investment officer of New Jersey-based SICA Wealth Management, is one of those investors. He is currently predicting a 15% to 20% decline by the end of the summer, as the economy doesn't support more gains.
Sica says the market is now dependent on added liquidity and the willingness of the Fed to further inflate stock prices. He says that even an artificial boost by another round of quantitative easing by the Fed won't fix the problem.
"If the economy should slip into trouble, there was a willingness to do a QE3," Sica says, referencing the recently released minutes from the last meeting of the Federal Open Market Committee. "The problem will be the inflation spring."
Sica, whose firm manages about $1 billion in assets, says the Fed is in a no-win situation. If the central bank raises interest rates, they risk slowing the economy. However, there is also an inflation factor.
When Sica sees GDP estimates at 1.8% for the first quarter, he says he begins worrying about stagflation — stagnant economic growth mixed with inflation, a combination that tends to destroy investments.
In order to invest during stagflation, investors must have no willingness to buy and hold. "We're bearish because we're seeing that these initiatives will have a negative impact on the overall economy, creating greater inflation which will cause increased interest rates," Sica says.
Sica is recommending that investors purchase gold, silver or other precious metals like platinum due to the lack of faith in currency and lack of faith in government to preserve the value of currencies.
"I certainly think we have another 25% up on gold. Silver could be in the mid-$40s," Sica says. "We're still buying it and we're going to continue to buy it."
Sica also contends that the bond bubble "is absolutely ready to burst. No matter what the Fed does, they can't initiate enough stimulus to stop interest rates from going up. So we think it is a good time to be ultra-defensive and to short the U.S. Treasury market as rates go up."
For that reason, Sica has been looking to the ProShares Short 7-10 Year Treasury ETF [ TBX 38.2832 +0.1132 (+0.30%) ], the ProShares UltraShort 20+ Year Treasury ETF [ TBT 33.56 +0.46 (+1.39%) ] and the ProShares UltraShort 3-7 Year Treasury ETF [ TBZ 37.50 +0.05 (+0.13%) ] to capitalize on the inevitable rise in interest rates.
For now, Sica says he plans to stick to this short-term trading style. "Things have to change a lot for me to go back to buy and hold. I think those days are over," he says.
"The economy, the deficit, the dollar, and the global view — a lot has to improve."
Kevin Mahn, Hennion & Walsh Asset Management
The stock market typically advances nine months before any true economic gains. Without sustainable economic growth, Kevin Mahn argues that this market recovery has rallied too high, too fast absent fundamentals.
"I have a great deal of reservation with respect to how we're going to continue to grow our economy in light of higher material costs, higher agricultural costs and higher energy costs on consumers that are already stressed," says Mahn from his Parsippany, New Jersey-based office.
Mahn argues that market bulls are overestimating the strength of the U.S. consumer as well as the ability and the willingness of the developed world to continue to provide financing for fiscally lead economic stimulus.
Consumer spending accounts for over two-thirds of economic growth in the U.S., and Mahn questions how willing is this U.S. consumer to continue to spend at the rate that we need to grow our economy.
"Inflation isn't here? Try and tell Mr. and Mrs. Smith, who are paying more for bread and milk and can't afford to fill up their gas tank more than once per month," Mahn says.
"That's real inflation that we need to concern ourselves with. Not to mention, there are still 400,000 new people who have filed for unemployment."
Looking at equities specifically, Mahn asserts that the rate of companies beating earnings expectations cannot continue at the current clip of roughly 70%, and he adds that forward-looking forecasts from many of these companies are not as promising.
"If you were just a pure large-cap-centric investor, you should brace yourself for some bumps in the road ahead," Mahn says. "That said, there are a tremendous amount of opportunities for individual investors if you look outside of the U.S. and you don't stay in large-cap stocks."
Mahn says he is looking at alternative asset classes, such as ETFs to play commodities and agriculture, REITs, and investments that stand to benefit from a rebuilding of Japan. Mahn says he still favors multinationals that pay strong, consistent dividends.
http://m.cnbc.com/us_news/43167897
But, according to fund managers and analysts including Standard & Poor's Chief Technical Strategist Mark Arbeter and Capital Advisors Chief Executive Officer Keith Goddard, the end is nigh.
Europe's tumultuous debt woes, Japan's recession, the end of the U.S. Federal Reserve's massive bond-buying program and peak profits among American companies signal a slowdown in the pace of equity gains that may, in a worst-case scenario, result in a decline of as much as 20%.
Calling stock-market tops and bottoms is more art than science, though in a research note last week, S&P's Arbeter said stocks will fall 15% to 20%, perhaps more, with a slide extending into next year.
His evidence: A breakdown in commodities, a potential intermediate- to longer-term bottom in the U.S. Dollar Index, lagging emerging markets and a rise in Treasury yields. All of which raise costs for U.S. businesses, crimping profits.
"In our opinion, this reflects concerns about the economy, and many times, is a bearish omen for the overall stock market," Arbeter writes, noting recent outperformance in sectors like consumer staples, health care, telecom and utilities.
Although Arbeter made his call through the prism of market technicals, other stock-market watchers agree with his bearish assessment. Nouriel Roubini, the economist who rang the warning bell ahead of the global financial crisis in 2008, recently said unemployment will continue to rise in the U.S. over the next year. Roubini has frequently warned of global economic woes, and he continues to see problems in Europe as a threat to a global recovery.
The threats to the future of the bull market read like a laundry list of events set to occur at the end of days. Inflation from rising commodity, agriculture and materials costs is a major concern, as is the end of the Federal Reserve's purchase of $600 billion in U.S. Treasurys, known as QE2, which provided a massive boost of liquidity that helped to increase asset prices.
There are several other concerns that aren't mentioned nearly as much as inflation and the end of the second round of quantitative easing. Fitch Ratings cut Greece's credit rating on Friday due to the risk of a sovereign default. Last year, the European Union and International Monetary Fund bailed out Greece, but even that rescue may not be enough to help the country manage its debt and deficit. Worry continues to mount over a potential debt restructuring.
In the U.S., economic reports have suggested sluggishness ahead. Unemployment remains at 9%, and new jobless claims have stayed stubbornly above 400,000 each week.
First-quarter GDP has been initially pegged at 1.8%, which is anything but robust.
And in the past week, the Conference Board said leading economic indicators fell 0.3% in April, the first decline since June 2010, and a separate report showed housing starts and building permits continue to drop.
Bullish investors have pointed to earnings performance as one reason the market still has legs. But the excitement over first-quarter earnings, which recently wrapped up with Wal-Mart's [ WMT 53.76 +0.10 (+0.19%) ] release, doesn't quite match reality.
Bespoke Investment Group's market analysis says out of 2,132 U.S. companies that reported earnings this quarter, 59.5% beat estimates.
"This is by far the lowest quarterly 'beat rate' reading of the bull market, and it's 7 percentage points below the 'beat rate' last quarter," Bespoke writers noted in last week's post.
There has also be a shift in leadership, another potential sign of an impending market swoon. Lower-quality stocks led the equity market higher until about a month ago. Both the Russell 2000 and the S&P 500 ($INX) are up 6% this year — a far cry from bear-market territory — but the small-cap index is down 2% over the past month as the S&P 500 has held steady.
Despite mounting evidence, there is much conflict about whether this is the end of the bull market's run.
"Bull markets, as they say, have been killed historically by restrictive monetary policy. I'm not aware of a bull market being killed my anything else," says Mark Schultz, fund manager at M&T Bank. "We're a little ways away from that, according to the authorities at the Fed."
Other fund managers and investment advisors are a little more concerned. TheStreet spoke with several bullish and bearish investors and got their take on whether the bull market is dying. Their views are presented on the following pages.
Brian Peery, Hennessy Cornerstone Growth Fund
"It's not about timing the market, it's about time in the market," says Brian Peery.
"I've never been good at picking tops or bottoms. I'm going to invest for the long term, so I want to pick high-quality companies that are going to be around in five years and make sure I'm not paying too much for them."
Peery is the co-portfolio manager of the Hennessy Cornerstone Growth Fund (HFCGX), a $200 million fund with a tilt toward small- and mid-cap equities such as Mercer International (MERC) and Atlas Energy (ATLS).
"There's always going to be that wall of worry. You could make a case for the end of the world being near," Peery says.
"But if you can separate the individual companies and their performance from the overall economy, there are a lot of cash-rich companies that are making a lot of money that are sitting on this capital."
Peery is solidly in the bullish camp of investors, as he says a hypothetical 20% market pullback would "be a huge buying opportunity." But even he acknowledges the challenge investors face with the weak economic rebound.
"We're not in an environment where the economy is rip-roaring, so you're only getting incremental growth on the top line," he says. "The economic numbers haven't been all that great. If you don't have a job, the recession is still going on. But people are feeling more secure about spending and they're loosening the purse strings a little."
Peery says it will still be a stock pickers' market, and that investors have to look for high-quality companies selling at a discount. He says there are an abundance still out there, including Dell [ DELL 15.905 +0.315 (+2.02%) ] and, in particular, Chevron [ CVX 99.68 -1.32 (-1.31%) ].
"Chevron is making a truckload of money," Peery says. "What do you do with that $12 of earnings per share? You could increase your dividend, you could invest in infrastructure to make yourself more profitable, or you could do some M&A. We're seeing companies like Chevron that are yielding high."
Peery advises people to take a long-term approach, as it's still early in this bull market in his eyes.
"We could have a dip along the way and have continued growth, so I would look at any time the market comes down as potential buying opportunities," he says. "I still think valuations are relatively low."
Keith Goddard, Capital Advisors
Keith Goddard, president and CEO of Capital Advisors, says there are two important things that are making the climate more difficult for investors: the end of QE2 and the peaking of profit margins.
Based in Tulsa, Okla., with $900 million in assets under management, Goddard says that while investors will debate whether interest rates will rise or fall on the termination of the Fed's quantitative easing in June, there is no debating the market will transition from an environment of easy monetary policy to one of incremental tightening.
Secondly, Goddard argues that profit margins are peaking. "We're right up against records, and that series is mean-reverting. It's one of the most mean-reverting elements of capitalism," he says. "Profit margins will come down at some point. We think it's starting."
Rising interest rates are never good for stocks, and that coupled with idea that companies will begin negative earnings preannouncements in June is something that scares Goddard.
"The risk in your portfolio goes up because you'll have more stocks that don't make it through earnings season without a drop," he says.
"If you get both of those things beginning in June and July, it will make the second half of the year that much harder."
Goddard says his firm is getting more defensive, although he's not quite expecting a bear market yet. He is calling for "an old-fashioned earnings-based correction sometime in the next 30 to 60 days based on a resetting of expectations for lower corporate profits."
Capital Advisors is navigating the market by looking for stable earners that are high-quality companies with global diversification and solid balance sheets, Goddard says. He also looks to find companies that have a thin margin between analysts' estimates. If the spread is narrow, it's more likely that analysts have a good handle on the business and therefore the earnings estimates can be relied upon.
Some of these names are PepsiCo [ PEP 68.89 -0.08 (-0.12%) ], Procter & Gamble [ PG 65.50 +0.07 (+0.11%) ], Johnson & Johnson [ JNJ 66.05 -0.04 (-0.06%) ] and Wal-Mart [ WMT 53.76 +0.10 (+0.19%) ].
But Goddard says he also has very high conviction in Ford [ F 13.91 -0.10 (-0.71%) ] for a different reason altogether: analyst estimates are too low.
"Ford earned $1.91 a share when auto sales were below 12 million. Consensus estimates for 2011 and 2012 are around $2 a share, but we expect auto sales to hit 15 million by 2012," Goddard says.
"If we hit 15 million in auto sales, they're going to earn more than $2 a share. I'll eat my hat if they don't."
The wild card, though, is a third round of quantitative easing by the Fed, according to Goddard. He says that the market is already feeling its way through the dark with QE2, and that there comes a point where QE2 or QE3 ceases to be beneficial to asset prices.
"The Fed has been buying two-thirds of all Treasurys issued since November, so it is not logical to assume that rates will not react to that buyer walking away," Goddard says. "But it is debatable whether the markets will cheer QE3 or not. QE3, if it happens, will smell more like monetizing the national debt than inflating asset prices."
Even if there is a negative market reaction to QE2, that correction won't grow to 20%, Goddard says.
"There is too much on the sidelines that has been waiting for an entry point for two years. I don't think they'll wait for 20% to start buying. We saw a 7% pullback related to the Japan situation this spring, and the buyers came in."
Jeff Sica, Sica Wealth Management
A handful of investment managers say the market has been overvalued for some time and that the decline is just beginning.
Jeffrey Sica, president and chief investment officer of New Jersey-based SICA Wealth Management, is one of those investors. He is currently predicting a 15% to 20% decline by the end of the summer, as the economy doesn't support more gains.
Sica says the market is now dependent on added liquidity and the willingness of the Fed to further inflate stock prices. He says that even an artificial boost by another round of quantitative easing by the Fed won't fix the problem.
"If the economy should slip into trouble, there was a willingness to do a QE3," Sica says, referencing the recently released minutes from the last meeting of the Federal Open Market Committee. "The problem will be the inflation spring."
Sica, whose firm manages about $1 billion in assets, says the Fed is in a no-win situation. If the central bank raises interest rates, they risk slowing the economy. However, there is also an inflation factor.
When Sica sees GDP estimates at 1.8% for the first quarter, he says he begins worrying about stagflation — stagnant economic growth mixed with inflation, a combination that tends to destroy investments.
In order to invest during stagflation, investors must have no willingness to buy and hold. "We're bearish because we're seeing that these initiatives will have a negative impact on the overall economy, creating greater inflation which will cause increased interest rates," Sica says.
Sica is recommending that investors purchase gold, silver or other precious metals like platinum due to the lack of faith in currency and lack of faith in government to preserve the value of currencies.
"I certainly think we have another 25% up on gold. Silver could be in the mid-$40s," Sica says. "We're still buying it and we're going to continue to buy it."
Sica also contends that the bond bubble "is absolutely ready to burst. No matter what the Fed does, they can't initiate enough stimulus to stop interest rates from going up. So we think it is a good time to be ultra-defensive and to short the U.S. Treasury market as rates go up."
For that reason, Sica has been looking to the ProShares Short 7-10 Year Treasury ETF [ TBX 38.2832 +0.1132 (+0.30%) ], the ProShares UltraShort 20+ Year Treasury ETF [ TBT 33.56 +0.46 (+1.39%) ] and the ProShares UltraShort 3-7 Year Treasury ETF [ TBZ 37.50 +0.05 (+0.13%) ] to capitalize on the inevitable rise in interest rates.
For now, Sica says he plans to stick to this short-term trading style. "Things have to change a lot for me to go back to buy and hold. I think those days are over," he says.
"The economy, the deficit, the dollar, and the global view — a lot has to improve."
Kevin Mahn, Hennion & Walsh Asset Management
The stock market typically advances nine months before any true economic gains. Without sustainable economic growth, Kevin Mahn argues that this market recovery has rallied too high, too fast absent fundamentals.
"I have a great deal of reservation with respect to how we're going to continue to grow our economy in light of higher material costs, higher agricultural costs and higher energy costs on consumers that are already stressed," says Mahn from his Parsippany, New Jersey-based office.
Mahn argues that market bulls are overestimating the strength of the U.S. consumer as well as the ability and the willingness of the developed world to continue to provide financing for fiscally lead economic stimulus.
Consumer spending accounts for over two-thirds of economic growth in the U.S., and Mahn questions how willing is this U.S. consumer to continue to spend at the rate that we need to grow our economy.
"Inflation isn't here? Try and tell Mr. and Mrs. Smith, who are paying more for bread and milk and can't afford to fill up their gas tank more than once per month," Mahn says.
"That's real inflation that we need to concern ourselves with. Not to mention, there are still 400,000 new people who have filed for unemployment."
Looking at equities specifically, Mahn asserts that the rate of companies beating earnings expectations cannot continue at the current clip of roughly 70%, and he adds that forward-looking forecasts from many of these companies are not as promising.
"If you were just a pure large-cap-centric investor, you should brace yourself for some bumps in the road ahead," Mahn says. "That said, there are a tremendous amount of opportunities for individual investors if you look outside of the U.S. and you don't stay in large-cap stocks."
Mahn says he is looking at alternative asset classes, such as ETFs to play commodities and agriculture, REITs, and investments that stand to benefit from a rebuilding of Japan. Mahn says he still favors multinationals that pay strong, consistent dividends.
http://m.cnbc.com/us_news/43167897
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