Global Markets Archives - Page 8 of 55 - Money Morning - Only the News You Can Profit From
Why the Eurozone Debt Crisis Never Really Went Away
How many times have we been told the Eurozone debt crisis is resolved, only to have it turn up again like a bad penny?
Last year's string of good news/ bad news on the Eurozone debt crisis had the markets going up and down like a yo-yo until the routine grew so tiresome that most people stopped paying attention.
But while the crisis faded into the background, it never really went way.
Remedies that were sold as solutions haven't solved a thing.
The celebrated bailouts of countries like Portugal, Ireland, and especially Greece have served mainly to postpone real solutions that would be far more painful.
"The Eurozone politicians in their infinite wisdom have concluded that it is easier to prolong the agony than to take their medicine," said Money Morning Chief Investment strategist Keith Fitz-Gerald.
In fact, the Eurozone debt crisis is getting worse.
Collective debt among the 17 member nations is on the rise, having increased from 85.3% of GDP (gross domestic product) in 2010 to 87.2% last year. That's the highest level in the history of the Eurozone.
Unemployment in the Eurozone rose in March to 10.9%, up from 10.8% in February and 9.9% a year ago. Manufacturing also declined last month, as new orders fell for the 11th month in a row.
And the austerity imposed on the troubled PIIGS (Portugal, Ireland, Italy, Greece and Spain) to bring their budget deficits and debts under control have actually made the situation worse.
"It's done no good at all," Fitz-Gerald said of the Eurozone's efforts to deal with the debt crisis. "It's an absolute travesty."
The steep and sudden cuts in spending are pushing most of Europe back into a recession, which will eventually be felt here at home.
The Secret System that Blew Another Hole in the Euro
This may sound arcane and boring, but I promise you it's not.
What I've learned will blow yet another hole in the already shaky euro.
It begins with Bernd Schunemann, a law professor at the Ludwig-Maximilian University in Munich. He has sued the German Bundesbank over its participation in the Eurozone "Target-2" settlements system.
Now I'll be the first to admit that yes, my eyes do glaze over when thinking about settlements systems-and I used to be a merchant banker.
But looking at the details of the case I had something of a banker's moment of clarity.
I realized that Schunemann was claiming that the settlements system had saddled German taxpayers with a potential liability of 615 billion euros, over $800 billion, in exposure to Greece, Italy, Spain and Portugal.
After all, who would have to bail out the Bundesbank if it became insolvent?
What's more, when you un-glaze your eyes and look closely, the risk is entirely unnecessary. It is yet another huge botch-up job by the EU bureaucrats.
Here's what I mean…
The Euro and the Target-2 Settlement System
The Target-2 settlement system was introduced in 2007, as a replacement for Target (Trans-European Automated Real-time Gross Settlement Express Transfer System).
The first Target was the large-scale payments system between central banks that had been introduced with the euro in 1999.
Under the system, when a Greek makes a large euro payment to a German, his Greek bank makes a payment to the Greek central bank, which in turn makes a payment to the Bundesbank. Once it reaches the German central bank, it pays the German bank, which pays the German.
For ordinary trade transactions, that's all fine and good. Greek exports to Germany are balanced with German exports to Greece.
If, however, there's a big trade imbalance between the two countries, then gradually an imbalance grows up between the central banks. As it develops, the Bank of Greece ends up owing the Bundesbank more and more money.
Even more serious is when Greek citizens rush to get their money out of Greek banks and put it in German banks. Every million euros Greek citizens remove from their banks is a million euros by which the Bundesbank increases its exposure to the Bank of Greece.
You can see how this could be big problem-especially since that's the arrangement all around the Eurozone.
Investing in the “New China” with this Telecom Market Stock
How would you like to get in on the ground floor of the telecom market in a country I've dubbed the "New China"?
It's a country that boasts:
- 6% annual GDP growth before, after and during and the global economic meltdown.
- The fourth largest population on the planet. It is also one of the youngest (median age is 28).
- A centuries-long social and economic connection to China and every strategic Southeast Asian economy.
- Foreign Direct Investment that has grown exponentially in the teeth of the global crisis.
- A bigger economy than the Netherlands or Turkey.
I'm talking about Indonesia.
It's a place usually found in the back of the mind of most Western investors. It only crops up if there is an earthquake, a tsunami or political unrest in a far flung province.
But the truth is, Indonesia is nestled in one of the most strategic locations on the emerging market map. It neighbors India, Malaysia, Australia and Thailand.
It also has long historical and economic ties to China.
About 3%-4% of the population is Chinese/Indonesian, and they represent a powerful but quiet voice in the Indonesian economy. That influence, which was buried for many years, is now a highly prized asset.
Investing in the "New China"
From the 1970s until recently, Chinese influence in Indonesian society was largely muted by Indonesian politicians. The Chinese language wasn't taught in schools and Chinese history was stricken from textbooks.
But things are changing rapidly.
Why Wall Street Can't Escape the Eurozone
Despite all of its best hopes, Wall Street will never escape what's happening in the Eurozone.
The 1 trillion euro ($1.3 trillion) slush fund created to keep the chaos at bay is not big enough. And it never was.
Spanish banks are now up to their proverbial eyeballs in debt and the austerity everybody thinks is working so great in Greece will eventually push Spain over the edge.
Spanish unemployment is already at 23% and climbing while the official Spanish government projections call for an economic contraction of 1.7% this year. Spain appears to be falling into its second recession in three years.
I'm not trying to ruin your day with this. But ignore what is going on in Spain at your own risk.
Or else you could go buy a bridge from the parade of Spanish officials being trotted out to assure the world that the markets somehow have it all wrong.
But the truth is they don't.
EU banks are more vulnerable now than they were at the beginning of this crisis and risks are tremendously concentrated rather than diffused.
You will hear more about this in the weeks to come as the mainstream media begins to focus on what I am sharing with you today.
The Tyranny of Numbers in the Eurozone
Here is the cold hard truth about the Eurozone.
One of the Telltale Signs Behind Risky Stocks
Short-term corporate thinking has been blamed for many of America's economic ills.
With little foresight beyond next year, management sometimes closes down plants and fudges accounting to make this year's earnings look better and boost the stock price.
Often, it is simply because management is excessively rewarded by short-term incentives such as stock options.
While investors might benefit from these shenanigans in the short-run, a new study points out the long-term effects are frequently negative.
A new Harvard Business School study entitled "Short-termism, Investor Clientele and Firm Risk" has shown that short-termism is bad for investors increasing their risks without any corresponding increase in returns.
In other words, risk and the short-term thinking usually go hand in hand.
Breaking Down the Conference Call
The study used a very interesting method to find out which companies are short-term oriented or more risky.
France May be the Domino that Causes the Euro to Collapse
Commentators are wringing their hands again, worried the troubles in Spain could cause the whole euro project to collapse.
As a result, all eyes are now on Spanish 10-year debt yields, which went above 6% last week as the threat of euro-chaos returned.
But it's not Spain the markets should be worried about.
The reality is that Spain is not in too bad a shape and that a rescue would be affordable for the European Central Bank even if it was needed.
The real tottering European domino to worry about is France.
After all, it would be impossible for the remaining solvent members of the EU to bail out France if it began to fall.
The larger reality is that France's fiscal position is considerably worse than Spain's.
The country's debt-to-GDP ratio was 85% at the end of 2011, while Spain's was only 66%. What's more, France's public spending is 56% of GDP, according to the Heritage Foundation, compared to Spain's 45% of GDP.
Spain's current government has also instituted a stiff austerity program, mostly comprised of cuts in public spending, which will reduce its deficit below France's by 2013.
Meanwhile, France's austerity has so far consisted almost entirely of tax increases on the rich -not actual spending cuts.
Investing in Emerging Markets: Is it Time to Invest In Thailand?
There is a good reason investors have been clamoring to invest in emerging markets.
With the West spinning its wheels, the truth is there's a good deal of money to be made in these markets in 2012.
One emerging market I like is Thailand.
Germany Set to Invest $260 Billion in a Renewable Revolution
The moment Germany announced its highly publicized decision to phase out nuclear energy in the wake of the Japanese triple disaster; observers began to ask one very important question.
Just what energy source would replace such a huge swath of power in Europe's dominant economy?
The short-term solution had to be natural gas.
But this would make Germany more dependent upon imported energy, especially from Russia.
In that sense, the nuclear phase-out made the Nord Stream pipeline – from Russia, under the Baltic Sea, to northern Germany – absolutely essential.
Today, the first line of the twin pipeline is already in operation. The second should be on line at the end of next year (if not sooner).
Then there is the other Russian project – South Stream. This one intends to move Russian and Central Asian gas into Southern and Central Europe.
Much of that will also reach Germany.
In addition, several pipeline projects are vying for the excess production from the second phase of the Azerbaijani Shah Deniz offshore development in the Caspian Sea.
Included among these is Nabucco, a venture to bypass Russia and transport gas into the Baumgarten hub in Austria for ongoing distribution.
Nabucco has long been the European Union favorite, but it has been unable to attract sufficient supplies. Three other pipeline proposals also are attempting to secure the Caspian gas for transit to Europe.
But there is a problem for Germany in all of this.
It does not want to form an increasing dependence upon imported gas to power its economy.
And this sentiment is driving one of the biggest alternative energy revolutions in recent memory.
The German Push Toward Wind and Solar Power
The 17 currently operating nuclear reactors in the country provide about 20% of the national electricity needs. Any replacement of those plants (where capital expenses are already sunk) will add significantly to the end costs of energy.
That means a political decision following the Fukushima Daiichi disaster one year ago ends up costing the average German citizen even more to secure what is already among the most expensive electricity in the world.
Germany does have shale gas.
But the furor over nuclear power is paralleled with a similar environmental concern regarding the dangers of fracking, a process of pumping water and chemicals under high-pressure to break open the rock and free the gas.
There are now four U.S. examples of seismic anomalies resulting from the combination of fracking and deep horizontal drilling.
And they have not instilled much confidence for the markets.
Instead, what the Germans are deciding to do is already being called the biggest restructuring of the national energy landscape since the end of World War II.
The government will initiate a campaign valued at more than $260 billion to harness wind and solar power.
The price tag is staggering. It is already pegged at more than 8% of the nation's entire gross domestic product (GDP). And it could move even higher.
This will involve huge wind farm areas in the Baltic and massive new high-power transit lines nationwide. The goal is to have at least 35% of the nation's power needs generated from renewable sources by 2020.
However, the developments of this massive policy shift are even more exciting.
Investing in Japan: Three Choices One Year after the Disaster
Like it has been for other Japanese families, this past year has been a tough one in my household, too.
Perhaps not surprisingly, Sunday's one-year anniversary brought long-buried emotions to the surface 12 months to the day after the horrific earthquake and the tsunami it spawned devastated Japan.
The tragedy haunts it still. I don't know a single Japanese who isn't affected.
And I still struggle to process the enormity of what's happened in a country where I've spent much of the last twenty years as a businessman, a husband, and a father.
How do you explain a 9.0 earthquake or a 65-foot high wall of water moving at 80 miles an hour?
Or come to terms with the friends and families who were literally wiped from existence
I couldn't explain that to my youngest son, Kazuhiko, when we visited Kamigamo Jinja, our ancestral family shrine to pray shortly after the disaster.
He wanted to know how the spirits of those departed would find their way home each August for Obon, a more than 500-year-old annual celebration when ancestral spirits make their way back to family altars.
My wife, Noriko and our boys, Kunihiko and Kazuhiko, return home to Kyoto this Friday so we'll see if they've made peace in their young lives as so many other children have.
It is through their young eyes that the future does indeed live, as is the case in so many cultures.
The Aftermath of the Japan Disaster
To that end, I'm sure you've seen the many before and after pictures of Japan making the rounds in recent days.
They're staggering and impressive.
But at what cost?
So far Japan has scraped millions of tons of debris from disaster-hit areas into monstrous piles. Only 6% has been burned or otherwise disposed of. You don't hear about that from U.S. news sources.
Nor do you hear about the additional 130 million to 150 million cubic meters of soil that have yet to be scraped, processed or otherwise remediated to eliminate everything from toxic chemicals to radioactive contamination.
That's enough to fill the Empire State Building floor-to-ceiling 143 times.
In the aftermath, only two of Japan's 54 nuclear reactors are online and running. The rest are down for "inspections" and disaster preparedness drills.
There is a good probability that many may never be restarted, especially with anti-nuclear protests building not only in Japan but around the world as a result of this mess. Most are decades old and of questionable design given what we know about nuclear power safety today.
While I used to be a staunch advocate of nuclear power, today I am now firmly against it.
Cleaning up Fukushima is especially problematic on a couple of levels and estimates suggest it may be 40-50 years before the plant is completely decommissioned.
Not only does the Japanese government have to figure out how to contain the mess, but things are so badly mangled on the ground that the Tokyo Electric Power Company (TEPCO) isn't even sure it can locate the melted nuclear fuel rods at the moment!
An estimated 100,000-275,000 people remain in temporary or modified housing according to various sources. The Japanese government is telling people that it may be a decade or more before they can return home — if ever.
To its credit, the government has gone to great lengths to keep neighbors and families together as a means of preserving the cultural groupism that has played such a vital role in Japan's society for more than 1,000 years.
Separating people would have broken that bond and weakened recovery efforts.
So what now?…