Posts Tagged ‘Euro’

With the stock market closing in on new highs, there are legitimate questions about the market being overbought in that it seems to be disconnected with economic fundamentals in the U.S. and overseas. On the heels of that, PIMCO’s Bill Gross is raising new questions about valuations in the credit markets, which he calls “somewhat exuberantly” priced.

First, the stock market: while there is certainly cause for optimism for the growth prospects for the U.S. economy this year versus the past couple of years, optimism is just that. True, housing markets are on the rebound, the job market is inching forward and consumer and business confidence is decent. OTOH, the upcoming sequestration and debt ceiling dramas (the sequester on the table now and the debt ceiling again in August) could potentially trim economic growth and dampen consumer confidence and events in Europe aren’t anything to write home about. Most EU economies are in active recession, even “official” unemployment numbers are alarming and voters are actively rebelling against austerity (see Italian elections).

I honestly don’t see where all this optimism is coming from and what is driving the stock markets to new heights, outside of the fact that the Fed’s low interest rate policies are driving investors into risk assets and overt speculation.

In terms of the bond markets, as interest rates have fallen and stayed at rock bottom lows during the past several years, various sectors have had their time in the sun, most recently, as Gross states, corporate credit and high yield. Before that Treasuries were on fire. He views the bond market at a six on a scale of one to 10 in terms of overvaluation.

The real shadow over the bond markets is the prospect of higher interest rates and inflation. Various pundits have been predicting inflation, followed by higher rates, for years but it hasn’t happened yet. There does seem to be more incipient inflation in the economy this year than in recent years and any inflation spike that is extended could force the Fed to raise interest rates sooner than expected.

All in all, both U.S. stock and bond markets seem to be in frothy territory, where asset prices aren’t supported by fundamentals. Time to be wary…

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Now that the election is over, the ongoing crisis in Europe is back front and center — if it isn’t on your radar, it should be. That’s because all the “solutions” so far have merely kicked the can down the road a bit farther. Meanwhile, as politicians negotiate, meet and talk, actual people are suffering. More.

Nowhere is this more evident than in Greece, which is about to be further brutalized by more austerity as the government just passed another multi-billion austerity package to keep the Euro’s leaders sweet. The bailout funds will keep rolling in, but at a steep price. If nothing else tells the story of the toll austerity is taking, this horrible photo of a riot police officer engulfed in flames should.

Protestors rioted in vain against this latest round of austerity, which looks to be the worst yet. More spending cuts will weaken the already frayed social safety net as tax increases will hit the poorest the hardest and labor reforms will allow further exploitation of workers. All this is happening with a backdrop of Greece entering its sixth year in a row of economic contraction with more than 25 percent of its population out of work.

The leader of the radical left main opposition Syriza party blasted the government for “leading the Greek people to catastrophe and chaos.” The government clung to the fact that these cuts will keep Greece in the Euro, which they believe is better than the alternative. Better for whom? The political and economic elite, no doubt, but not the unemployed, poor and disenfranchised, who make up an increasingly large share of the Greek populace.

I don’t see any good outcome for all of this. All the bailouts are doing is bailing out European banks, who could go under, bringing the entire financial system down with them a la Lehman Brothers. While I certainly don’t relish the idea of another global financial crisis, I really wonder if any kind of meaningful change is possible without one. The grip that the banks have on the political and economic leaders of the West is truly a stranglehold one, and I’m not sure what it would take to break it.

No regulatory reforms have succeeded in denting that power and it doesn’t look like the West has the political will to break the too big to fail banks and make the changes in the system necessary to restore some balance of power between the haves and the have-nots. No wishful thinking in the form of the granting of the Nobel Peace Prize to the Leaders of the Euro Zone or the G-7 leaders monitoring the crisis will have much of an impact. So, onward we go, with some type of economic crisis or catastrophe all but inevitable.

Until today, my answer has been unequivocally NOT to blog. I didn’t feel passionately enough about any one topic to commit to blogging week in and week out or day in and day out. Seemed like way too much work for way too little reward.

It’s a paradox: I write for money, not for fun, but if I’m gonna blog, it’s got to be about issues that tear me apart; stuff that makes me want to pound my desk with my fist; argue and shout about enough to matter, at least to me. This blog is for me, my platform, in a sense, to opine about the issues that mean something to me, to take what I’m tweeting about to another level beyond 140 characters per post.

So, every so often (could be daily, couple of times a week or weekly, not sure right now), I’ll be writing about whatever is going on in the world that strikes my interest, including economics, the housing market, currency issues, politics, the Red Sox, Green Day, Wall Street, the markets, investing, employment, economic inequity, Osama Bin Laden or #OMB, #legendofjedlowrie (nach), social networking and revolution in the Mid-East.

And because I spent a lot of money on an expensive accounting education that I’m not using much, I’ll post about accounting standards too, because where that goes has an impact on how investors understand companies and their operations, which is critical in our economy. And taxes, because I got an A in that class.

That’s just about enough, but here’s some food for thought in the form of some links before I close:

  • You Call that Tough? Joe Nocera of the New York Times calls out the government for not initiating nearly enough criminal prosecutions of bad banking behavior. Right on the money; such prosecutions are hard to win, but necessary to try to show both bankers and the world that reckless, criminal behavior should be at least called out, if not punished criminally.
  • When Benefits Bite Back Think that you can rely on you corporate benefits department to be straight with you about your benefits? Maybe not. The Supreme Court is hearing a case about whether employees and former employees can justly rely on representations made by corporate benefits departments both in writing and verbally. It’s likely that the corporations will win, in which case you better take out your magnifying glass and hire a lawyer to interpret your plan benefit document.
  • Red Sox Can’t Afford to Give Games Away Duh. The continuing debate over why the team that was supposed to be the best in the AL and the entire game in the pre-season can’t get it together when it matters.
  • The Breakup of the Euro Area An oldie but goodie by dollar/currency/econ guru Barry Eichengreen about why breaking up the Euro would/will be much harder than it seems. Tip to @cate_long
If you’re on twitter, and want to follow my ramblings there, I’m @lecreative