Posts Tagged crisis
Europe Failed to Clear `Skepticism’ on Debt Crisis
Posted by Oksana Grebenjuk in Trading Markets on Январь 18th, 2011
Europe has yet to allay investor “skepticism” about the sustainability of the region’s debt, and any spread of the crisis would cloud the global economic outlook, the International Monetary Fund’s No. 3 official said.
“At least for now it looks like the spillover from the European sovereign crisis to areas outside of the region will be limited,” Naoyuki Shinohara, deputy managing director at the IMF, said in an interview in Tokyo yesterday. “However, if the European sovereign-debt problems were to become bigger, we need to keep in mind that that could bring about considerable downside risks.”
European officials have indicated they’re ready to expand their efforts to contain the crisis that erupted last year and has led to bailout packages for Greece and Ireland. German Chancellor Angela Merkel this week expressed willingness to take whatever steps are needed to stem the turmoil.
The extra yields investors demand to hold Greek and Irish bonds rather than German bunds “still remain very high, despite the rescue packages,” Shinohara said.
“That means skepticism over the sustainability of their debt in the market hasn’t been cleared away,” said Shinohara, 57, a former top currency official at Japan’s Ministry of Finance. “It’s important that countries reduce their budget deficit, but they also need to tackle structural issues including boosting growth and lowering unemployment.” Read the rest of this entry »
Euro crisis far from over
Posted by Oksana Grebenjuk in Currency, Favourites on Декабрь 21st, 2010
The euro crisis is far from over and the peripheral members of the euro zone should temporarily exit the currency bloc and get their financial houses in order, said a Pimco bond fund manager. Otherwise, current policies are ineffective in the absence of fiscal unity and will likely lead to a break-up of the euro.
In an interview with the German newspaper Die Welt, Munich-based Andrew Bosomworth warned that “market tensions” will persist into the new year and that the new “permanent bailout- mechanism” proposed by euro zone finance ministers has arrived too late since it will not become applied until 2013.
He cites that the European Union should have sought a more urgent solution to the problems of debt-stricken euro members.
«Greece, Ireland and Portugal cannot get back on their feet without either their own currency or large transfer payments,» he said. He suggested that these countries could begin fixing their financial and debt problems by re-adopting their original currencies, thereby enabling them to sell their exports cheaper to other countries.
Bosomworth also complains that by forcing weaker euro zone members to adopt harsh austerity programs defeats the purpose since they make it difficult for these nations to grow their economies and stabilize their debt. Read the rest of this entry »
Hard for Fed policy to lower unemployment
Posted by Oksana Grebenjuk in Budget on Ноябрь 29th, 2010
The Federal Reserve might risk higher inflation if it focuses on efforts to bring down unemployment, Richmond Fed President Jeffrey Lacker said. In a speech that hinted at his scepticism of the Fed’s latest efforts to stimulate the economy, Lacker, a vocal inflation hawk, said monetary policy can lower joblessness only temporarily.
«Trying to keep unemployment permanently lower than it otherwise would be … is a recipe for continually accelerated inflation,» he said, pointing to the inflation experience of the 1960s and 1970s as a cautionary tale.
With the jobless rate currently stuck at 9.6 percent and inflation running below the Fed’s implicit target of 2 percent or a bit below, the Federal Reserve this month announced it would buy an additional $600 billion in Treasury securities.
The measure, which comes as official interest rates are already effectively zero, is aimed at lowering borrowing costs and spurring lending, and hopefully to boost hiring in the process. However Lacker, who is not a voter this year on the Fed’s policy-setting Federal Open Market Committee, appeared suspicious of the policy. Read the rest of this entry »
Ireland Will Need Bailout — Portugal Next
Posted by Oksana Grebenjuk in Favourites, Trading Markets on Ноябрь 16th, 2010
From Morgan Stanley on the Irish debt crisis:
Financial markets in the periphery (bonds, CDS and in some cases banks) have become rather volatile in recent days. This escalation follows several weeks of spread widening in the three smaller peripheral markets (notably Ireland and, to a lesser degree, Portugal and Greece). While each country has its own interesting idiosyncratic story, the danger of contagion has clearly increased. In this note, we discuss political deliberations on tapping the European Financial Stability Fund (EFSF).
We outline how the process would work if it were to be activated and highlight the likely market reaction that could be expected on the announcement, based on what was observed in Greece. On balance, we believe that the sharp rise in market tensions over the last few weeks has increased the chances of the EFSF being tapped.
This is in particular true for Ireland, in our view, where it seems increasingly difficult for the government to effectively backstop the problems in the banking system. We would stress, however, that no country will apply to the EFSF lightly or ‘just’ to reduce debt-servicing costs: tapping the EFSF is a monumental decision that will shape economic, fiscal and financial policies in that country for many years to come. It is a step that a government would only take in case of no other viable alternative, in our view. Read the rest of this entry »
It will take 20 years to reduce unemployment
Posted by Oksana Grebenjuk in Budget on Ноябрь 15th, 2010
While this morning’s October jobs report was certainly encouraging, given the vast numbers of Americans who remain unemployed, the pace of job growth is still not sufficient to lower the unemployment rate to pre-recession levels.
Data from the Bureau of Labor Statistics indicated that jobs growth in the private sector climbed by 159,000, a faster pace than in recent months. Overall, nonfarm payroll employment rose by 151,000 in October.
However, Heidi Shierholz, an economist at The Economic Policy Institute, notes that given the backlog of 14.8 million unemployed workers in the U.S., at October’s rate of job growth it would take another 20 years to bring the unemployment rate back down to the 5 percent level of December 2007 (at the onset of the recession).
Shierholz also cited that the workforce dropped by 254,000 in October, pushing the labor force participation rate down to 64.5 percent, well below its prerecession level of 66.0 percent in December 2007.
“The pool of ‘missing workers,’ i.e., workers who dropped out of (or didn’t enter) the labor force during the downturn, remains large,” she said. Read the rest of this entry »
Bernanke Says Buy ‘Em, Trichet Says Not So Fast
Posted by Oksana Grebenjuk in Fund Markets on Ноябрь 11th, 2010
During the credit crisis the central bankers of the world bonded together in an effort to present a united front in the battle against a problem that very easily could have caused the global banking sector to crumble. However, with most of the world now well on the way to recovery, it appears that the paths of the U.S. Fed and the ECB are diverging greatly.
On Wednesday, Ben Bernanke tried to make a statement with the FOMC decision. Our view of what the FOMC said was as follows: There is not going to be a deflationary spiral on our watch. As a renowned scholar on the causes of the Great Depression, the Fed Chairman appears determined to do whatever it takes in order to stave off the potential for a repeat of the mistakes made by Japan over the past 20 years.
On that score, it is our humble opinion that Bernanke & Co. are planning to err on the side of caution for a while. How else does one explain the committee’s citing of too little inflation as a means to provide additional stimulus? Too little inflation, really?
Don’t take that wrong as we are all for the QE II and more stimulus (the more the merrier, right!). However, the justification for additional bond buying during a period of economic expansion might be a bit of a reach at this stage of the game. And before you start sending the hate mail about the need to «do something» to help unemployment, I agree that this step will likely help – in the long run. It’s just that based on my 30+ years of Fed watching, this move is clearly a little out of the ordinary. Read the rest of this entry »
Full text: G20 Communiqué of the Meeting of Finance Ministers and Central Bank Governors
Posted by Oksana Grebenjuk in Favourites, Trading Markets on Ноябрь 3rd, 2010
Communiqué Meeting of Finance Ministers and Central Bank Governors, Gyeongju, Republic of Korea
Gyeongju, Korea, October 23, 2010
1. We, the G20 Finance Ministers and Central Bank Governors, met with a sense of urgency to fully address the economic challenges facing us today in preparation for the Seoul Summit.
2. The global economic recovery continues to advance, albeit in a fragile and uneven way. Growth has been strong in many emerging market economies, but the pace of activity remains modest in many advanced economies. Downside risks remain and are different from country to country and region to region. Yet, given the high interdependence among our countries in the global economic and financial system, uncoordinated responses will lead to worse outcomes for everyone. Our cooperation is essential. We are all committed to play our part in achieving strong, sustainable and balanced growth in a collaborative and coordinated way. Specifically, we will:
? pursue structural reforms to boost and sustain global demand, foster job creation and increase growth potential; complete financial repair and regulatory reforms without delay;
· ? in advanced countries, formulate and implement clear, credible, ambitious and growth-friendly medium-term fiscal consolidation plans in line with the Toronto Summit commitments, differentiated according to national circumstances. We are mindful of the risks of synchronized adjustment on the global recovery and of the risks that failure to implement consolidation, where immediately necessary, would undermine confidence and growth; Read the rest of this entry »
The Recession Is Over!
Posted by Oksana Grebenjuk in Budget, Favourites on Октябрь 27th, 2010
It turns out the recession ended more than a year ago. Feeling better now? The panel that determines the timing of recessions concluded Monday that this one ended — technically, anyway — in June 2009, and lasted 18 months. The duration makes it the longest since World War II.
It may be over, but you won’t be hearing any cheers from the millions of Americans who are struggling to find a job. Or are worried about the ones they have. Or have lost their homes. Or are behind on the mortgage.
«Every single one of the individuals who wrote the report needs a serious reality check,» said Bob Johnson of the Queens borough of New York, who is 46, had worked in communications and has been looking for a job for more than three years.
Not that it’s the fault of the academics — in this case the National Bureau of Economic Research, a group of economists based in Cambridge, Mass. It’s their job to declare when recessions officially begin and end.
Their finding is one that economic historians spend a lot of time pondering. Politicians care, too. They don’t want to be blamed for downturns that happen on their watch. Read the rest of this entry »
Earnings-yield on S&P 500 at two decade-high
Posted by Oksana Grebenjuk in Favourites, Fund Markets on Октябрь 6th, 2010
The earnings yield (EY) on the S&P 500 index is now above 7 percent, which is typically the kind of yield an investors would get from an average junk bond.
EY amounted to 7.09 percent for the S&P 500 as of June 30, 2010 — the highest quarter-end level in two decades.
This either means that stocks are very cheap (relative to bonds) and might make an attractive buy; or that investors have such a pessimistic view of the economy that they expect earnings growth to slow down over the next few quarters (or even years), given the grim economic backdrop.
EY is simply the earnings per share for the recent 12-month period divided by the current market price per share.
Generally speaking, if the EY of a broad stock index is less than the rate of the 10-year Treasury yield, stocks could be considered overvalued. If the earnings yield is higher, stocks might be considered undervalued relative to bonds
Traditionally, stock investors have demanded an extra risk premium of several percentage points above the risk-free rates of Treasuries to compensate for the greater risk inherent in owning equities. Read the rest of this entry »
Indonesia claws its way to economic superpower status
Posted by Oksana Grebenjuk in Trading Markets on Октябрь 5th, 2010
Indonesia is one of the «rising stars» of emerging Asia and some economists believe this vast nation will one day become a regional superpower, behind only China and India, as global economic activity increasingly shifts towards east Asia, away from the faltering developed nations of the west and Japan.
The country is delivering a torrid 6 percent annual GDP growth rate. Indeed, the Jakarta Stock Exchange has soared almost 40 percent this year, recently touching a new record closing high.
The Asian Development Bank expects Indonesia to grow its economy by 6.1 percent this year, and 6.3 percent in 2011.
“Economic recovery in many Western countries affected by the global financial crisis is uncertain,» Deloitte Asia Pacific CEO Chaly Mah told The Jakarta Post in a recent interview. «It’s relatively patchy. They are still struggling with economic challenges, and the unemployment rate remains high. There is still no clear sign of economic growth there.»
Indonesia, boasting a population of 240-million, also features a huge working class population (estimated at 58-million), an expanding manufacturing base, moderate labor costs, a sound financial services sector, tremendous natural resources (including oil and gas reserves), as well as a relatively stable political system. Read the rest of this entry »
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