Financial Reform: Three Ways to Fix Wall Street
The financial-reform bill introduced by U.S. Sen. Christopher J. Dodd, D-CT, seems likely to pass both houses without all that much alteration.
And that should immediately raise our suspicions. After all, the U.S. financial-services business has a very effective lobby, so if there isn't huge opposition to the legislation, it probably won't achieve all that much.
It won't fix Wall Street.
But there's another issue here: It's also not clear to me that we know just what we want the financial-reform initiative to achieve. By that, I mean: What banking-sector reforms would we implement in an ideal world, to reduce the danger from the sector while preserving the essentials of a free market?
Question of the Week: Overlooked Problems Will Kill the U.S. Bull Market
The U.S. stock market has staged one of its most powerful rallies in history, zooming nearly 70% in the 12 months that followed the March 9, 2009 market low. U.S. stocks soared another 5% during the first three months of 2010 – its best first quarter in a dozen years. But where do we go from here?
Between the New York Stock Exchange continuously reaching new highs, the Dow Jones Industrial Average rising up along its eight-day average, and a rebounding retail sector, there's reason to celebrate what appears to be a market recovery offering investors profit opportunities.
"You can't bury your head in the sand and ignore what's happening," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "If you did that, you've missed a 60%-plus rally in the [Standard & Poor's 500 Index] since early last March. You cannot fail to acknowledge what's happening" in the markets, even though top traders understand that cheap money from the government bailout – and not a well-rounded economic recovery – is most likely behind the torrid run-up in U.S. share prices.
Money Morning Question of the Week: Is this a true bull market? A year from now, are U.S. stocks – as measured by the Standard & Poor's 500 Index – trading higher, lower, or at the same level as they are today?
What follows are some of the most well thought-out responses we received (as well as a previous comment regarding the bull vs. bear market argument posted on our Web site) with many agreeing this bull market is too good to be true.
We Want to Hear From You: Are You Confident in the U.S. Employment Outlook?
The U.S. unemployment rate held steady at 9.7% for the third straight month in March as the world's largest economy added jobs at the fastest pace in three years – the most-certain sign yet that the worst job market in a generation is finally improving, economists say.
Factories, retailers and hospitals stepped up their hiring, and the overall employment market got a boost thanks to hiring related to the U.S. Census. Overall, the economy added 162,000 jobs for the month, with about a third of those gains coming from the Census. The private sector added 123,000 jobs, the most since May 2007. And the outlook ahead is good, since about 700,000 Census workers will be hired for the formal U.S. population count this spring.
"This recovery is for real," Chris Rupkey, an economist at The Bank of Tokyo Mitsubishi UFJ Ltd., said in a statement.
Still, there are causes for concern.
- Inflating Government Bubble Can Only Lead to a Major Financial Hangover
Why the Fed Won't Rescue America's Plunging Savings Rate
In the 1992 election campaign, H. Ross Perot predicted a "giant sucking sound" of U.S. jobs heading for Mexico if the North American Free Trade Agreement passed. Perot seems to have been wrong on that – wherever U.S. jobs have gone, it's not Mexico.
Nevertheless, if you listen carefully there's still a "giant sucking sound" – but this time it's the sound of U.S. capital headed overseas.
Why the Outlook for U.S. Stocks Could be Much Better Than You Think
Could the U.S. bull market actually be for real?
That's the question investors have been asking since U.S. stocks essentially bounced off of their March 2009 post-crash lows – only to be launched into one of the strongest rallies in U.S. market history.
More than a year later, U.S. investors still don't know what to believe – or what to expect, says Jon D. Markman, a market commentator and best-selling author who is also a Money Morning contributing writer. The most recent sentiment poll by the American Association of Individual Investors, or AAII, showed that only 41% of investors are bullish. Cash flows at mutual funds that invest in U.S. stocks are telling a similar story, with a $5.1 billion monthly outflow, Markman says the most recent data shows.
Question of the Week: Is it Too Late to Stage an Intervention for Our Government's Spending Addiction?
As government debt levels soar, is America on the road to ruin?
The Obama administration's 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years – $1.2 trillion more than the administration predicted and enough to bring the federal debt to 90% of U.S. gross domestic product (GDP) by 2020, the Congressional Budget Office reported two weeks ago.
U.S. public debt was $6.3 trillion, or $56,000 per household, when President Barack Obama took office in the middle of the worst financial crisis since the Great Depression. It's now at $8.2 trillion ($72,000 per household) and if the present course continues, federal debt will hit $20.3 trillion (in excess of $170,000 per household) in 2020, the CBO predicts.
U.S. debt hasn't been that high since the end of World War II, when the debt-to-GDP ratio hit 109%. Greece – the focus of global default fears – currently has debt that's at 115% of GDP.
Money Morning Question of the Week: Are you worried about U.S. debt levels? Are we headed down the road to ruin? Why or why not? Would you favor tax increases and/or budget cuts if it meant the country would get this debt under control?
What follows are some of the most-well-thought-out and articulate answers to this question that we've received to date.
How to Protect Yourself – And Even Profit – if Foreign Creditors "Strike" U.S. Treasuries
The odds are good that China won't dump its holdings of U.S. Treasuries anytime soon. But by substantially reducing its purchases of U.S. debt – or halting them completely in the form of a buyers' strike – the Red Dragon could absolutely shatter the myth that it is the U.S. Federal Reserve that controls U.S. interest rates.
And that could also crater the bond market in the process.
How Long Will Emerging Markets Continue to Prosper From U.S. Debt Ills?
A surge in purchases of emerging market debt and a dip in buyers' appetite for U.S. Treasury bonds has sparked speculation that developing nations have become the next safe haven for bond investors. But the more likely scenario is a reversal of capital flows that will sustain Treasury debt for a little while longer.
Emerging market bonds have enjoyed the best first quarter on record as new issuance has surged and interest rate spreads over U.S. Treasuries have narrowed to their lowest since 2008.
Sovereign bond markets in developing countries have sold a record $157 billion so far this year, a 42% jump over the same period in 2009, which marked the previous record, according to data from Dealogic Holdings plc.