Posted April 20, 2010 at 2:04 pm
The global economy is currently taking the “botox” cure. A flood of money from central banks and governments – “financial botox” – has temporarily covered up unresolved and deep-seated problems.
Bad Risks …
In 2009 there was a ‘recovery’ in financial asset prices. The low or zero interest rate policy (“ZIRP”) of major central banks helped increase asset prices. Very low returns on cash or near cash assets forced investors to switch to riskier assets in search of return.
The chase for yield drove rallies in debt and equity markets. Low interest rates acted like amphetamine as investors re-risked their investment portfolios.
High credit spreads for investment quality companies, driven by the panic of late 2008 and early 2009, subsided and rates returned to pre-Lehman levels. Credit spreads for investment-grade borrowers fell to just over 100 basis points from their highs of 300 basis points in March 2009. Credit spreads for non-investment grade or junk borrowers market fell to over 500 basis points from the high of 1,300 basis points in the same period, driving returns of over 50% per annum. Extremely low rated bonds, such as CCC rated bonds (a mere one notch above default), generated even higher returns, falling from rates of 30-40% per annum to around 10%.
Re-risking was helped by the return of the “carry trade” as investors used near zero cost funds, especially in dollars, to finance holdings of risky assets. Any asset offering a reasonable return rose sharply in value. Morgan Stanley analyst Greg Peters outlined the outlook for 2010 in the Financial Times: “We like the junkiest of the junk …”
Posted April 7, 2010 at 8:05 am
by David Weidner
NEW YORK (MarketWatch) — For those who underestimate the power of the banking lobby as financial “reform” weaves its way through Washington, one need only look back five years ago to see how influential banks are at pressing their agenda.
In 2005, Congress yielded to an eight-year, $100 million campaign by banks to change personal bankruptcy law. In effect, the Bankruptcy Abuse and Consumer Protection Act made it harder for individuals to wipe away their debts under Chapter 7 of the U.S. Bankruptcy Code. More had to file under Chapter 13.
Posted March 23, 2010 at 6:21 am
by Mark Perry:
The US Dollar depreciated by 37% between 2002 and 2008 (data here), see graph above.
Tough talk from abroad, an editorial in the London Telegraph:
“Obama has called on China to adopt a more “market-oriented exchange rate.” The US Treasury Department, meanwhile, has set a mid-April deadline to decide whether China truly is a “currency manipulator,” warning that America could impose new levies on Chinese products if that’s judged to be the case.
The president is playing with fire. For one thing, his country is being kept afloat by China’s willingness to keep buying U.S. government debt. Obama really should tread carefully. At the same time, the US is now at risk of sparking what could be an all-out trade war.
The reality is that America’s “weak dollar” policy – its long-standing practice of allowing its currency to depreciate in order to lower the value of its foreign debts – amounts to the biggest currency manipulation in human history. At the same time, the U.S. has…
Posted March 6, 2010 at 7:47 am
by Michael Economides:
While China has been praised by some Western politicians and pundits, including Al Gore for the country’s miniscule non-hydrocarbon activities (“… we will trail China in the race to develop smart grids, fast trains, solar power, wind, geothermal and other renewable sources of energy”), it is China’s global pursuit of oil and gas that has grown to a crescendo.
The Chinese refer to their recent purchases as global acquisition and diversification. But amidst the maelstrom of global warming rhetoric, their aggressive moves are getting precious little attention.
China’s latest purchase came last month when PetroChina paid $1.7 billion to buy a 60% stake in a Canadian oil sands operation from Athabasca Oil Sands Corp. The production from the oil sands investment is expected to be as high as 500,000 barrels per day under full development.
The Canadian acquisition is among the latest in China’s shopping spree for global oil and gas assets. And those purchases are further increasing the size of China’s biggest oil companies — CNPC, Sinopec and CNOOC – which are now among the largest oil companies in the world.
Last November, Petroleum Intelligence Weekly published its list of the world’s 50 biggest petroleum companies. China’s three biggest energy companies were ranked, respectively, as number 5, 25, and 48.
China has seized the opportunity of the global economic crisis and the decline in oil prices to solidify its energy security. And it sees access to foreign oil as a crucial element of its economic future.
Last year, the country imported 50% of its oil for the first time.
Posted February 24, 2010 at 9:28 am
by Tom Lindmark:
So, a weak consumer confidence survey confirms what anyone with an ounce of sense and the ability to engage in social conversation with a broad swath of Americans could have told you months ago.
A lot of people are hurting and those that aren’t know too many who are and are, therefore, terrified that they could be next in line.
Outside of New York and Washington, things are bleak even for those who are employed. Everyone is looking over their shoulders just to make sure that the ax isn’t poised above their neck.
Supposedly secure occupations like teachers, cops and firemen don’t look so untouchable any longer. Cities and states that government workers were counting upon to come through with their retirement packages are teetering and just to make the potion more distasteful, new taxes, fees and surcharges are being piled onto already stretched budgets.
John Carney has a good post up about what went wrong, or more appropriately, why all the great thinkers got this recovery talk all wrong. Here’s a bit of what he has to say, but take a couple of minutes and read the whole post:
Posted February 24, 2010 at 9:00 am
WASHINGTON — Federal Reserve Chairman Ben Bernanke told Congress today that a weak job market and low inflation would likely allow the central bank to keep interest rates at very low levels for a long time.
In his first appearance before Congress following a testy confirmation vote in the Senate last month, Mr. Bernanke offered a relatively somber assessment of the U.S. economy despite recent signs of strong growth.
The country has lost 8.4 million jobs since the start of the economic downturn, the deepest since the Great Depression. The Fed chief said job losses were abating, but also acknowledged the recession’s toll on American workers.
Posted February 19, 2010 at 12:27 pm
From The Jutia Group:
One of our favorite posts was when I covered Brazil in “Bright Signs of an Early Carnival for Traders Utilizing Brazilian ETFs“. So, with the Winter Olympics in full-throttle I want to shine the light on some safe and steady Canadian investments.
As of this morning, the U.S., Germany and Canada lead the Olympics with the most medals per country, respectively. Canada may not be placing first in the Olympics, but they are economically benefiting from the attention on Vancouver and the wallets being opened in surrounding areas right now.
Posted February 19, 2010 at 12:19 pm
by Bill Jenkins:
Ever since the War Between the States (circa 1860), there hasn’t been a serious (or at least widespread) move for succession from the United States. However, there is a call by some for the State of California to be removed.
Have you heard about this? As you may know, California is bankrupt. That ball got rolling
Posted February 10, 2010 at 12:40 am
by Stephen Dinan:
The era of big government has returned with a vengeance, in the form of the largest federal work force in modern history.
The Obama administration says the government will grow to 2.15 million employees this year, topping 2 million for the first time since President Clinton declared that “the era of big government is over” and joined forces with a Republican-led Congress in the 1990s to pare back the federal work force.
Most of the increases are on the civilian side, which will grow by 153,000 workers, to 1.43 million people, in fiscal 2010.
The expansion could provide more ammunition to those arguing that the government is trying to do too much under President Obama.
Posted February 2, 2010 at 7:28 pm
Substantial and unmistakable signs of profound change in the global strategic framework have become concrete in the past year. The stress in the structure has already developed into fissures. The transformation, in reality, has been underway since the end of the Cold War, and will continue and compound for at least another decade.
The balance of power is changing. Apart from the wave of globalization, which was really a precursor event, what is now emerging is the first truly fundamental change since the end of the Cold War, and, in global terms, it is a change which may redefine entire civilizational blocs. It is the most profound geopolitical change since the end of World War II, and part of possibly the most profound change in human history since the Industrial Revolution.
Within this context, energy is the driving physical factor.
It has been the critical physical component of economic, military, and social strength since the Bronze Age.
The Industrial Revolution, however, beginning in the 18th Century spurred an increasingly intense use of, and dependency on, more and more varieties and quantities of energy, culminating with the present situation in which no society can remain se-cure, or competitive, without access to cheap, high-volume energy. Given the present needs for energy, and the indicators of changing megatrends, which I will discuss shortly, the questions of how society will use and need energy, and, conversely, how energy forms and trade will affect societies are the vital components of economic wealth and security going forward.
One of the key symptomatic indicators of the change in the…