Wednesday, March 10, 2010

One Year Later…

Gluskin Sheff chief economist David Rosenberg highlights some of the major differences in the equity markets throughout the last year.

• The VIX was 50, not 17.
• The yield on the 10-year Treasury note was 2.9%, not 3.7%.
• The budget deficit was $900 billion, not $1.5 trillion.
• Baa spreads were 540bps and tightening, not 260bps and widening.
• The market was 20% ‘cheap’ as per Shiller P/E ratio, not 25% overvalued.
• The DXY was at 90 and depreciating, not 80 and appreciating.
• Oil was at $47/bbl, not $82/bbl (we can see $80+ crude being good for the Saudi market; we’re not sure how it fits in bullishly to the S&P call).
• Equity PM cash ratios were at 5.5%, not 3.6%.

The only thing we’d like to add is some jobs data. Unemployment rate has soared from 8.1% in February 2009 to 9.7% last month. But 651,000 jobs were lost in February 2009, compared to only 36,000 last month.

Can California Declare Bankruptcy?

California passed a gas tax last week to help make up for its nearly $20 billion budget gap, the latest in a series of measures to right the state's teetering economy. The country of Greece is in even worse shape, with accumulated debt higher than 110 percent of GDP, set to reach 125 percent this year. Can a state declare bankruptcy? Can a country?

No and no. Chapter 9 of the U.S. bankruptcy code allows individuals and municipalities (cities, towns, villages, etc.) to declare bankruptcy. But that doesn't include states. (The statute defines "municipality" as a "political subdivision or public agency or instrumentality of a State"—that is, not a state itself.) For one thing, states are said to have sovereign immunity, as protected by the 11th Amendment, which means they can't be sued. In other words, they don't need any protection from angry creditors who would take them to court for failing to pay their debts. As a result, states can simply borrow money ad infinitum. (more)

Jay Taylor: Turning Hard Times Into Good Times with Marc Faber

Click here for audio

BNN: Peter Grandich

Part 1 click here

Part 2 click here

Fund Manager: Avoid U.S. Treasuries, Govt Debt

Investors should avoid government securities, including U.S. Treasuries and the debt of other nations, because of the risks associated with excessive borrowing, a leading U.S. fund manager said on Tuesday.

"The most dangerous market there is national government debt because the borrowing doesn't seem to be ending soon — and it's not just a U.S. phenomenon," Dan Fuss, vice chairman of investment manager Loomis Sayles, told Reuters.

"I call it the new 'large-cap market' for its burgeoning size," he said.

Fuss does not expect the U.S. Federal Reserve to raise short-term interest rates at any time in 2010, noting that the economy still has not turned the corner on recovery. (more)

Pound falls again on deficit fears

Sterling fell on the currency markets again this morning following fresh concerns over Britain's soaring deficit and its trade gap.

The pound fell by 1.3 cents, taking it back below the $1.50 level at $1.494 after ratings agency Fitch said Britain must take firmer action to tackle the budget deficit. Brian Coulton, Fitch's head of Europe, Middle East and Africa sovereign ratings, warned that the government's current plans fell far short of what was needed, and said Britain's credit profile has deteriorated in recent months.

Coulton told a conference in London that Fitch was "uncomfortable with the fiscal adjustment path set out by UK authorities", and wants to see "more credible and stronger fiscal consolidation plans during the course of 2010". (more)

43% have less than $10k for retirement

The percentage of American workers with virtually no retirement savings grew for the third straight year, according to a survey released Tuesday.

The percentage of workers who said they have less than $10,000 in savings grew to 43% in 2010, from 39% in 2009, according to the Employee Benefit Research Institute's annual Retirement Confidence Survey. That excludes the value of primary homes and defined-benefit pension plans. (more)

Ron Paul: If the Fed didn't exist there would be no deficits

Frugal Foundations

“Asia’s rapid growth hogs the emerging-markets spotlight,” writes Frank Holmes, a mainstay at our annual Investment Symposium, “but Russia and the other countries of Emerging Europe (EE) also deserve some attention.

“For starters, EE economies have tight fiscal policies and are carrying far less debt than many developed economies, both positives for sustained economic growth.

“In the chart above, the best place to be is in the southeast quadrant, and that’s where EE nations are clumped. Russia’s debt position is minimal and there is ample strength in the consumer sector going forward. In January 2010, wages were up 11% from a year ago, to 19,000 rubles per month. This has kept domestic consumption levels around 65% -- on par with Brazil and above both China (30%) and India (57%).

“In addition, Russia’s oil production -- the country’s main profit center -- came through the crisis more robust than many expected, even surpassing Saudi Arabia in terms of production.

“But Russia is looking beyond oil and gas. In February, Time magazine reported that President Dmitry Medvedev has ambitious plans to create a high-tech haven where geniuses can think up world-changing inventions.

“The intellectual capital is there. Despite years of exodus of scientists and engineers from the Soviet bloc during the 1990s, the combined number of researchers in Russia and its former satellite states in Emerging Europe is not far behind the United States and China and is many times ahead of Brazil and India.”

Chart of the Day

Ailing Banks May Require More Aid to Keep Solvent

Some of the nation’s large banks, according to economists and other finance experts, are like dead men walking.

A sober assessment of the growing mountain of losses from bad bets, measured in today’s marketplace, would overwhelm the value of the banks’ assets, they say. The banks, in their view, are insolvent.

None of the experts’ research focuses on individual banks, and there are certainly exceptions among the 50 largest banks in the country. Nor do consumers and businesses need to fret about their deposits, which are federally insured. And even banks that might technically be insolvent can continue operating for a long time, and could recover their financial health when the economy improves. (more)