This is not rocket science. When the world is in a mess, we flee to gold:
Weekend reading. Two quotes:
+ Earnings season is shaping up well. The 143 S&P 500 members reporting so far have beaten estimates by an average of 9%, triple the long-term average, according to Thomson Reuters. (Higher earnings may not be enough to stem the tide of dismal macro-economic events — like debt ceilings and debt problems.)
+ This is the sixth time in 18 months European leaders have announced a definitive solution to the Euro crisis.
John Mauldin on hte mess in Europe:
The Irish can’t afford to pay that debt. It should have never been taken on to begin with, and Irish voters threw the government that did it out of power. It cannot be lost on the leaders in Ireland that when the Greek prime minister called the EU’s bluff, the EU blinked. Trichet agreed to take on Greek debt after saying “non” for months, but with guarantees, kind of, sort of. Merkel caved. Ireland has to be paying attention.
Is Portugal any better off this week than last? Italy? Spain? Italy and Spain have barely any nominal growth in GDP, and the nominal growth of both these countries is below their debt-service growth. That is basically Ponzi-level finance. They have to issue new debt just to finance the old debt. And that is why interest rates are rising in both countries. Spanish banks have huge holes in their balance sheets from real estate loans that simply have not been written down. If Spain were forced to underwrite their banks, they would quickly be insolvent.
To get an idea of the relative size of the problem, Germany has a GDP of about $2.5 trillion. The Italians have issued DEBT of $1.9 trillion. Italy’s debt-to-GDP ratio is approaching 120% (if it’s not already there) and is the second highest in Europe, following Greece. There is not enough money in Europe to help Italy, should the markets start to really run up their interest rates, as they must roll over debt. And higher rates mean that the debt costs and interest payments will be even larger. Their latest budget deficit was 4.6% of GDP, which means they need to borrow rather large sums of money
Italy does have a few things going for it. Much of its debt is of longer duration, so they have some room to maneuver for a few years if interest rates can remain kind, but they must find a way to increase growth or they too will become a Eurozone problem. The latest budget and austerity measures may give them a surplus, which they can use to pay down debt; and that would placate the markets.
And don’t forget France. The French may talk a good game, but their budget is in a shambles and their entitlements are unsustainable. There is a French day of reckoning coming.
Who is Going to Buy that Debt?
I had a conversation with my good friend Lord Bridport, who runs a major bond trading house in Geneva, selling bonds to pension and insurance funds in Europe. The plan is for the Eurozone to issue eurobonds and sell them into the private market to back the various bailout schemes. I asked him whether he thought his clients would buy. He said very clearly he would recommend they do not buy until it is quite clear who and what will back them. Otherwise, buy German and other solvent-country bonds. This is going to be a tough sell in Europe, gentle reader, if Alex is saying “no”; and he is not alone.
You simply have to admire the commitment of European leaders to ignore common sense, simple arithmetic, and their voters in pursuit of the goal of a United Europe at all costs. It is really quite astounding.
I hope Europe pulls it off. I really do. They have done the US a huge favor by adopting this latest plan, as it keeps their banking system from imploding; because their banks are essentially insolvent with all the sovereign debt on their books. Such a banking crisis, which would be worse than 2008, in my opinion, would no doubt plunge a world already slowing down back into recession and pull our own slow-growth economy down into recession with them.
How long can they kick the can down the road? My guess is that it will be longer than we suspect.
I continue to predict the euro is going to parity against the dollar if it survives with all the current members intact. Parity may be optimistic.
Mauldin on the U.S. and its 9% eunemployment:
We keep hearing about what the government should do to create jobs. And the reality is that it can do precious little. Private businesses create jobs, and nearly all net new jobs for the last two decades have come from start-up businesses. What government can do is create an environment that encourages new businesses, get rid of red tape (especially in biotech, where the FDA is mired in the 1980s!), stop creating even more rules that make it costly for new businesses to hire, and so on. I could go on, but the fact is, we are in for a rather long period of higher-than-comfortable unemployment. And that means lower tax revenues and a more difficult economy.
Useful iPhone apps:
+ Maps. Excellent GPS and directions. Comes with the phone.
+ Viber is for free international calling. Best to be connected to WiFi.
+ Pandora for streaming music.
+ ThisAmLife — This American Life — over 400 programs of this popular NPR program.
+ Dragon Dictation. Dictate your thoughts into text — e.g. while driving. Remarkable accuracy.
Fun iPhone apps for your next party:
+ FatBooth. Take a picture and then improve it.
+ AgingBooth. Show your friends what they’ll look like when they’re as old as I am.
+ Boob Job. Give your favorite friend large breasts. A bargain at 99 cents.
+ Mustache. Talk through your iPhone.
Good ideas:
+ Upgrade to Firefox 5. Click here.
+ Don’t use the iPad charger on all your other USB chargeable devices — like your cell phone or Veriszon broadband access card. Use a smaller, less powerful charger. I don’t know why.
Favorite latest New Yorker cartoons.
Harry Newton who wonders if I’m the only person who can’t bear any longer to watch any politician on TV — whether Democrat, Republican, Tea Party or Dog Party. They all make me physically sick. And that includes our President who speaks well, but acts badly.
We need normal folk in Washington!
you voted for him Harry.it proves you`re no judge of character.sorry bout that.
Glad you published part of Maudlin's letter. I thought it as good.
The longer I'm in business, the more I wish someone would teach voters the high price of regulation. Every time the govt decides someone needs “protecting” or something needs to be “taxed,” every business owner has to stop focusing on running the business and start trying to figure out how those new changes/regulations/taxes are going to affect him. This “slows down” the economy, all by itself. Then, the business owner can't figure out the new thing because it's 2000 pages and not written in English, so he has to hire someone. That “slows down” the economy even more, because the money that he spends on a consultant is money he could have invested back into the business – hiring people, equipment, etc. Then, because the penalties are so severe, he becomes more cautious about whatever he does, because he doesn't want to make any mistakes regarding the new regulations. Or, he decides to do NOTHING in certain areas, because it's all too confusing.
Some time ago I analyzed the 2004 Census figures and came to the conclusion that 90+% of all businesses in the US employ 0 – 9 employees. That means that 90+% of the business owners in the country are running small businesses. They don't have accountants and lawyers on staff to help them figure out 2000-page bills. Nor do they have the time or experience to do it themselves. And these companies are where real growth comes from.
Ergo, more government, less jobs, not the other way around.
Kristin Zhivago
Author of Roadmap to Revenue: How to Sell the Way Your Customers Want to Buy
100% correct!
Worse, in many cases the regulations are being pushed by corporations that have something to gain by it, such as handicapping the competition.
Harry,
By taking care of yourself over the years, you are the healthy picture on the left, not Mr. Tubby on the right! Proper weight makes a huge difference, being in shape helps, and good genes are hard to beat, i.e., keeping your hair! Congratulations.
I wonder if the US crisis of 2008 and on-going EU crisis aren't actually good developments. They are a BIG wake-up call while things may be still fixable here and there. The insane direction, lead by governments and joined in by the Wall Streets of the world, was heading at 190 mph for a cliff, rather than the speed bump we did hit. But, it could and would have been worse the longer the insanity went on. The buddy-buddy too-big-to-fail relationship between government and big bankers is also a surprise to most of us and most dangerous. It leaves only the tax payer on the hook, far more than just the millionaires and billionaires. I even remember when having one million dollars made one a very rich person. Today, it may generate $40-50K annual interest, hardly enough to retire on. Another effect of government.
On job creation, the venture backed companies that go public, at least in the past, created most of the new jobs in America, but only after they went public and then reach very high rates of growth. That's been severely damaged by Sarbanes Oxley and other government interference, as Mauldin so correctly points out. Get out of the way and our economies will do just fine, and, yes, create more millionaires and maybe even a few billionaires. But, can Washington, Sacremento and Albany understand that?
Harry,
No you are not the only one who is sick and tired of a bunch of grown (mostly) men acting like little children whose parents never taught them anything, least of all responsibility. I wish, oh boy do I wish, we could wipe the slate clean and get rid of all these idiots from office and start clean with strict one-term limits on any elected office. They get in there with absolutely no concept of servant-leadership and forget that they are there to serve our/their country and get enslaved by their respective political parties (who control their nominations), their financial backers (who pay to get their names recognized), and their egos (which are about as big and empty as the Goodyear blimp.) Watching reruns of a TV show that didn't even make it past a single season is a better investment of one's time than watching those idiots (most, if not ALL politicians) say anything on TV.
Well said. Cut the pay in half, make any benefits identical to what we tax payers get (like social security) and one term limits. It's become far too rich, privileged, secure and isolated from the real world for our good.