Is There an Ulterior Motive for Bailing Out Greece?
Since back in December, when Fitch Ratings Inc. slashed its credit rating on Greece's debt to below investment grade for the first time in 10 years, there's been a mind-numbing flood of media coverage of that European country's debt crisis.
And yet, despite high-volume of high-level media coverage, none of the stories have picked up on a very basic – yet very key – fact…
The bailout being developed is as much for Germany as it is for Greece.
Let me explain …
Retailers Make a Surprising Comeback
You may be hearing a lot of bearish commentary centering on the premise that the market's advance is unsustainable because it has benefited so much from government spending.
But one big swath of the rise in stock prices has come from retailers, and it's hard to make a direct link between fiscal spending and chain store sales.
When the government pays for things like more highways and military goods, more people gain employment and then their families go out and purchase things at companies like Family Dollar Stores Inc. (NYSE: FDO) – a position in our Strategic Advantage portfolio that is fast on the rise. But that's really a "second-derivative" concept, as the statisticians say.
Employment and wage improvements have been the big catalysts.
Fastest Recovery Ever Could Push Corporate Profits to Record Highs in 2010
Sometimes we get a little carried away talking about esoteric subjects like bulls, bears, supply, demand, moving averages and the like. But if you just want to focus on something real, then look at corporate profits. When they're rising from a low, that's good; when they're flat-lining or declining, that's bad. Pretty simple.
Much of the rally of the past year has been in anticipation of a profit recovery. And now that recovery is actually coming in a bit better than bulls expected, which is why they are able to elbow bears so effectively. ISI Group now figures that corporate profits will clock in at +38.8% for the first quarter (year over year) of 2010, then +42.4% in the second quarter, +36.8% in the third quarter and then +30% in the fourth quarter (against harder comparisons). That would put profits in 2010 up a record 36.1% overall.
To read more about how corporate earnings will shape the market click here.
Four Ways to Profit From a Business-Driven Rebound
Last week we learned that the U.S. economy expanded by a whopping 5.7% annual rate in the 2009 fourth quarter – the biggest jump since 2003. This was well ahead of the 4.5% consensus estimate and solidly beats the 2.2% growth rate achieved in last year's third quarter. The turnaround is the largest in almost three decades.
The main driver of the performance was a big slowdown in the rate at which businesses were drawing down their inventories. This alone contributed 3.4% to overall growth in the quarter. Paul Ashworth at Capital Economics in London believes that inventory rebuilding will continue to boost gross-domestic-product (GDP) growth for another two or three quarters.
But what happens after that – especially after the stimulus spending out of Washington winds down later this year? Will this rate of growth continue?
Investors who know the answer to that question will be the best-positioned to profit.
Billionaires Turn to Beggars as Financial Crisis Torches the World's Fortunes
The holiday season is traditionally the time when society extends a helping hand to the less fortunate among us. But this December, thanks to the world's continuing economic unease, we've got a whole new class of "poor" people to worry about.
They're called billionaires – or, even more tragic, "ex-billionaires" – and, according to Forbes magazine, they've taken a bigger financial hit in the past 15 months or so than in any year since the magazine started tracking the fortunes of the world's richest people back in 1987.
In fact, the most recent Forbes survey found that the total number of billionaires around the globe plunged from a record 1,125 in early 2008 to just 793 in March 2009 – a net decline of 332, or 29.5%. Even worse, the total net worth of the world's recognized billionaires plunged 45.4%, from $4.4 trillion in 2008 to just $2.4 trillion this year (numbers are based on stock prices and other values assessed in mid-February). That translates to an average net worth of just $3 billion, down 23%, or $910 million, from 2008.
Lawmakers Looking to Use Excess TARP Funds for a Second Stimulus
With the unemployment rate still lingering above 10%, House Democrats are suggesting some of the excess funds from the government's Troubled Asset Relief Program (TARP) be used to promote job creation in what would essentially be a second stimulus.
The Obama administration said in August that TARP – which Congress funded with $700 billion of taxpayer money – would only cost the $341 billion once banks repay government loans, injections and other investments. Now, the U.S. Treasury can take another $200 billion off of that, Reuters reported, citing an anonymous Treasury official.
"We're going to explain that we're going to have substantial savings, that we're going to have very substantial resources we can make available to support not just the immediate priorities the country faces in spurring investment in job creation, but also to meet our long term fiscal challenges," Treasury Secretary Timothy Geithner said in an interview with Bloomberg.
Although President Obama Warns of a “Double-Dip” Recession, Money Morning Expects U.S. Recovery to Continue
In a warning that focuses on the need to contain the soaring federal deficit, U.S. President Barack Obama yesterday (Wednesday) said that a continued accumulation of government debt could be enough to blunt the recovery and then drop the U.S. economy into a “double-dip” recession.
It was President Obama's most-severe warning yet about the dangers of growing budget deficits at a time when the U.S. unemployment rate is at 10.2% and climbing. The comments were made to Fox News during an interview granted in Beijing during the president's nine-day trip through Asia.
Investors Needn't Fear a Double-Dip Recession
A new report contains some very good news for investors: Double-dip recessions are very rare. That means that a drop back into recessionary conditions looks less and less likely even as unemployment creeps higher and has crossed the 10% threshold for the first time in a quarter century. After reviewing U.S. economic history all the [...]
Is the Government Rehabilitating the Economy or Delaying the Inevitable?
While all the talk at present is about economic corners turned and markets charging ahead, no one is paying much notice to an American economy that’s deteriorating right before our eyes.
These myopic commentators seem to be simply moving past the now almost-universally held conclusion that, before the crash of 2008, our economy was on an unsustainable course. If these imbalances had been corrected, then perhaps I, too, would be joining in the euphoria. But evidence abounds that we have not veered at all from that dangerous path.
The U.S. Bureau of Economic Analysis just reported that consumer spending as a percentage of U.S. gross domestic product (GDP) has risen to 71%, a post-World War II record. This level is notably higher than other wealthy industrialized countries, and vastly higher than the levels sustained by China and other emerging economies. At the same time, our industrial output is contracting, our trade deficit is expanding once again (after contracting earlier in the year), and our savings rate is plummeting (after an early year surge).
Where to Find Big Profits in a Post-Crash World
[Editor's Note: The essay that follows was adapted from "Fiscal Hangover," a brand-new global investing book written by Money Morning's Keith Fitz-Gerald. For more information - including details on how to get a $10 discount off of the cover price - please click here.] As I write this, everyone from Wall Street to Main Street [...]