Results for Martin Hutchinson
As Greece’s Woes Demonstrate, the Fuse Has Been Lit on the Global Debt Bomb
The big story in the international markets so far in the New Year has been the increasing shakiness of a number of countries’ government bonds, with Greece right now being the most troubled of all.
Since U.S. investors tend to avoid foreign government bonds, many will dismiss this as an irrelevant development.
That’s a mistake. The reality is that the international implications of this bond-market problem are serious for the world’s stock markets, as well as for the global economy as a whole.
The fuse has been lit on a global debt bomb. And Greece has quickly become a poster child for the explosion that’s all but certain to occur.
Obama Deficit Brings Us Closer to the Brink of National Bankruptcy
U.S. President Barack Obama’s budget for 2011, presented on Monday, shows a deficit of $1.3 trillion for the fiscal year that ends that September. That shortfall is actually $287 billion more than the Congressional Budget Office (CBO) had projected less than a week earlier, when it had released a budget forecast of its own for that same fiscal year.
Granted, we’re getting used to seeing budget deficits expand at a pretty quick pace these days. But even by government standards an increase of nearly $290 billion in less than a week is almost too much to bear!
All kidding aside, $105 billion of this $287 billion increase came about mostly because of a change in "assumptions." The CBO budget assumed that all the 2001 Bush tax cuts would be reversed, whereas the Obama budget reverses only those that applied to the rich (those with incomes above $250,000).
The CBO budget also made the ridiculous assumption that the Alternative Minimum Tax (AMT) would be allowed to revert to its 2001 level, forcing 25 million taxpayers to calculate their taxes twice – and to then pay the higher of the two estimates. That was never going to happen, and the Obama budget finally abandons that idiotic piece of fiction.
The disparity in deficit projections between the CBO and the Obama administration weren’t limited just to fiscal 2011. For the period from 2011 to 2020, the CBO forecasted a budget deficit of $6.047 trillion, while the Obama budget released just days later projected a shortfall of $8.532 trillion – a difference of $2.485 trillion.
The difference in assumptions between the CBO and Obama projections explains nearly half of that difference. Of course, that still leaves the other half.
And a troublesome half it is.
To find out how these numbers may forecast a U.S. bankruptcy, read on…
Looking For a Bright Spot? Productivity Growth May be America’s Secret Weapon
The U.S. employment picture isn’t pretty. At 10%, the unemployment rate is at its highest level in nearly three decades, and it’s expected to move higher. American employers cut 4.2 million jobs last year, and nearly 15.3 million people are unemployed.
Those bemoaning the increase in U.S. joblessness are right to do so. But they should also remember that unemployment is a direct result of the U.S. economy’s greatest strengths – its ability to grow productivity even in a recession.
The Conference Board publishes a Total Economy Database, which gives productivity growth figures – nearly 50 years’ worth, in some cases – for most of the world’s major economies. The results for 2009 were just released. And the Conference Board’s conclusion jumps right off the page at you: The U.S. economy is nowhere near as bad off as many pessimists believe.
In the U.S. economy’s bid to rebound in this post-financial-crisis world, productivity growth may be this country’s secret weapon.
Why the Volcker Plan Doesn’t Go Far Enough
I don’t often agree with the Obama administration. So I have to say that I was surprised when I heard it had a plan to reduce the risk of another banking crisis. It wants to prohibit banks that are protected by deposit insurance from engaging in risky, proprietary trading, and it wants to break up some of the very largest banks.
I made both those recommendations in my forthcoming book "Alchemists of Loss" (Wiley 2010). The book, written jointly with Kevin Dowd, a British finance professor, should debut sometime late this spring(we sent the manuscript to the publisher last weekend – what a relief!). But after I studied the Obama plan further, I realized that I shouldn’t have been surprised – the idea’s sponsor was former U.S. Federal Reserve Chairman Paul A. Volcker.
Why the Gold Bubble Will Peak at $2,000 in 2010
Gold surged over 60% in 2009, hitting new highs practically every week. But, we haven’t seen anything yet. This is just the beginning of one of the biggest gold rallies in history. Find out why gold will easily hit $2,000 this year in this report.
How to Empower Shareholders and Improve Corporate Management in Two Easy Steps
I wrote last week that Wall Street bonuses should be cut back by the shareholders, not by the government.
Well, a reader wrote back correctly to remind me that the majority of shareholders are institutions that would not want to antagonize major corporations that gave out fund management mandates for their pension funds and 401(k)s by agitating against top management bonuses.
Good point. Very good point. And it highlights a central flaw in today’s capitalism. It’s far too controlled by corporate management. And it’s time something was done about it.
Why Gold Beats the Market Manipulators
There’s one investment that Wall Street manipulators can’t touch – and neither can the Fed or the U.S. government. Right now, that investment is gold. Taking a stake in a hard asset like gold may well be the surest way to make some money for yourself despite the shenanigans on Wall Street.
Shareholders – Not Obama – Should Be Curbing Wall Street Bonuses
Wall Street bonuses are back in the news again, as the Obama administration scores cheap political points by bashing bankers.
Wall Street’s investment-banking houses correctly claim that they are paying out a much-lower-than-usual percentage of their profits in the form of bonuses – in some cases, less than 50%.
After all, Wall Street earned the money legitimately (aided and abetted by foolishly lax monetary policy, which will come back to bite us). So these firms should have the right to pay out lots of those profits as bonuses – so long as shareholders don’t object.
The problem is that shareholders ought to be objecting – and objecting loudly.
You see, the money that Wall Street is using to pay those big bonuses rightfully belongs to the shareholders.
With His Rebuke of Kraft, Buffett Reminds Wall Street That Shareholders Come First
A decade ago, investing guru Warren Buffett helped torpedo a $15.3 billion Coca-Cola Co. (NYSE: KO) bid for Quaker Oats Cos., arguing that the terms were lousy and the proposed price way too high.
Now Buffet is causing similar complications with a Kraft Foods Inc. (NYSE: KFT) plan to buy Britain’s Cadbury PLC (NYSE ADR: CBY), announcing that he’s wholly opposed to a plan to issue as many as 370 million Kraft shares to get the deal done. As Kraft’s largest shareholder – Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) owns 9.4% of Kraft’s common stock – his opinion is likely to carry the day.
Wall Street is furious: Deal fees are not as easy to come by as they used to be, and this transaction promised to be especially juicy – thanks to the spin-offs and share issues Kraft is doing to get the buyout done. Some of those maneuvers won’t now be necessary, and if the transaction does get done it will be finalized at a lower price.
From the outset it was clear to me that the Kraft/Cadbury deal represented “managerial capitalism” more than it did shareholder capitalism. And in that battle, I know which side I am on.
I’m with Warren.
A Note to Bernanke: Sorry Ben, More Bureaucracy Isn’t the Answer
U.S. Federal Reserve Chairman Ben Bernanke’s latest thesis is that the home mortgage bubble had little to do with record low interest rates, and was actually much more a problem of regulation.
It sounds plausible – until you give it some real thought. After all, I believe that humanity has already tried a system with tight, vigorously enforced regulations, and no price mechanism.
It was called the Soviet Union.
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