The recent month of February was quite interesting for U.S. stocks, because while the Dow Jones Industrial Average rose 2.6%, it didn't exactly take a direct route to those gains: There were eight separate triple-digit moves in the Dow, both up and down.
At the root of that volatility were political and economic developments that challenged the rationale for the huge rally out of the March 2009 low. Bulls were basically rethinking their beliefs that the home-price plunge had abated, employment was on the verge of a big turnaround, governments could cut taxes and boost spending without end, and that interest rates would remain at zero for years.
I had prepared subscribers for much of this turmoil. Back in early November, I highlighted signs of trouble in the market for government debt well before the troubles in Dubai and Greece came to a head. In December, we started a dialogue on what to expect as the U.S. Federal Reserve withdrew liquidity from the economy and lifted interest rates. The upshot was a series of letters detailing why you should expect the first nine months of the year to trade flattish with a lot of volatility.
Greece
Article Index
European Bailout Fund Proposal … Just Another Bad Idea
Has bailout mania finally reached Europe?
The 16 nations that make up the Eurozone are seriously exploring the creation of a "European Monetary Fund," a bailout fund that would help euro-member countries that can't pay their debts.
This has the potential to be a pretty good idea. If structured correctly, the EMF could provide the discipline and stability that the euro needs.
However, I'm not holding my breath: Given the EU's track record, the EMF bailout plan will most likely evolve into yet another slush fund for politicians - as well as a drag on the European economy.
History proves Europe's bailout-fund proposal is unworkable. Read on to see why...
The 16 nations that make up the Eurozone are seriously exploring the creation of a "European Monetary Fund," a bailout fund that would help euro-member countries that can't pay their debts.
This has the potential to be a pretty good idea. If structured correctly, the EMF could provide the discipline and stability that the euro needs.
However, I'm not holding my breath: Given the EU's track record, the EMF bailout plan will most likely evolve into yet another slush fund for politicians - as well as a drag on the European economy.
History proves Europe's bailout-fund proposal is unworkable. Read on to see why...
Greece Cutting Back to Court EU Favor
Greece unveiled its third austerity plan Wednesday and was met with praise from the European Union (EU), European Central Bank (ECB), and the International Monetary Fund (IMF), but hostility from the Greek public.
The plan consists of spending cuts and tax increases that will cut the budget deficit by $6.5 billion, and help Greece to reduce its current deficit to 8.7% of gross domestic product (GDP) from 12.7%.
"This was a necessary decision. It was not a matter of choice," said Greece's Prime Minister George Papandreou. "It was a matter of survival for our country, allowing it to breathe and break free from the clutches of speculative forces."
The plan consists of spending cuts and tax increases that will cut the budget deficit by $6.5 billion, and help Greece to reduce its current deficit to 8.7% of gross domestic product (GDP) from 12.7%.
"This was a necessary decision. It was not a matter of choice," said Greece's Prime Minister George Papandreou. "It was a matter of survival for our country, allowing it to breathe and break free from the clutches of speculative forces."
Did Hedge Funds Conspire to Devalue the Euro?
The Department of Justice is investigating whether several prominent hedge funds conspired to drive down the value of the euro as the Greek debt crisis left the currency vulnerable to sophisticated trading methods employing credit default swaps and other derivatives.
Likewise, the European Commission yesterday (Wednesday) said it would examine trades in sovereign credit-default swaps (CDS) related to the Greek crisis, which has driven the euro lower and prompted officials to warn hedge funds against trying to profit from the region's debt crisis.
The Justice Department's antitrust division "has opened an investigation into agreements among various hedge funds that trade euro contracts," including contracts to trade euros in the "cash or the derivatives market," a person familiar with the letter told The Wall Street Journal.
Likewise, the European Commission yesterday (Wednesday) said it would examine trades in sovereign credit-default swaps (CDS) related to the Greek crisis, which has driven the euro lower and prompted officials to warn hedge funds against trying to profit from the region's debt crisis.
The Justice Department's antitrust division "has opened an investigation into agreements among various hedge funds that trade euro contracts," including contracts to trade euros in the "cash or the derivatives market," a person familiar with the letter told The Wall Street Journal.
Credit Default Swaps Strike Again – This Time Driving Greece to the Brink of Default
Credit default swaps (CDS) gained infamy in the early stages of the financial crisis as the murky derivatives that helped drive the likes of Lehman Bros and Bear Stearns into bankruptcy.
Now, they're back, inspiring panic in the bond market and making it harder for Greece to borrow money. Already struggling to rein in its out-of-control deficit, credit default swaps could be enough to push the debt-ridden nation into default.
Credit default swaps are credit derivative contracts that let banks and hedge funds place bets on whether or not a company, or in this case a country, will default. The CDS buyer makes periodic payments to the seller, and in return receives a payoff if the underlying financial instrument defaults.
Now, they're back, inspiring panic in the bond market and making it harder for Greece to borrow money. Already struggling to rein in its out-of-control deficit, credit default swaps could be enough to push the debt-ridden nation into default.
Credit default swaps are credit derivative contracts that let banks and hedge funds place bets on whether or not a company, or in this case a country, will default. The CDS buyer makes periodic payments to the seller, and in return receives a payoff if the underlying financial instrument defaults.
It's Time to Tackle Government Pay
It's fairly well known that the U.S. public sector is paid more than the private sector. What's less well known is that the gap between federal-employee pay and benefits and private-sector pay and benefits is increasing - by about 18% over the last decade.
Given the current level of U.S. unemployment and the size of the budget deficit, it would appear that some economies could be made. In short, it's time to tackle government pay.
After all, if Greece can economize, so can the United States...
Given the current level of U.S. unemployment and the size of the budget deficit, it would appear that some economies could be made. In short, it's time to tackle government pay.
After all, if Greece can economize, so can the United States...
To see why government pay cuts are justified, read on...
Billonaire Investor George Soros Questions the Euro's Future
In an editorial penned for the Financial Times, billionaire investing icon George Soros said that while Greece could be salvaged by a makeshift financial-rescue package, bigger problems lie ahead for the euro.
According to weekend news reports, Germany's finance ministry has sketched out a plan under which countries using the euro currency will provide between $27 billion and $33.7 billion (20 billion and 25 billion euros) in aid for Greece, which is teetering on the brink of default.
Soros says that "a makeshift assistance should be enough for Greece," but warns that the growing threats posed by other debt-laden, euro-member countries - particularly Spain, Italy, Portugal and Ireland - could prove overwhelming.
According to weekend news reports, Germany's finance ministry has sketched out a plan under which countries using the euro currency will provide between $27 billion and $33.7 billion (20 billion and 25 billion euros) in aid for Greece, which is teetering on the brink of default.
Soros says that "a makeshift assistance should be enough for Greece," but warns that the growing threats posed by other debt-laden, euro-member countries - particularly Spain, Italy, Portugal and Ireland - could prove overwhelming.
Where's the "Big Money" Headed Now?
The remarkable week that just concluded actually began on February 12, which was two Fridays ago. Stocks plunged in the opening minutes of trading that morning as investors' faith in the global economic recovery was shaken. In China, policymakers again tightened monetary policy in a fight against rapid credit growth and fast rising asset prices. In Europe, which is plagued by concerns over the bailout of deeply indebted Greece, a report showed economic growth slowing dramatically.
For a few minutes, it looked like all of the prior week's advance would be lost and stocks were preparing to plunge into oblivion. But then, encouraged by a positive retail sales report, buyers swamped the tape -- focusing their attention on smaller, riskier companies, particularly in the technology sector. And off we went for the next six sessions.
To find out where the "Big Money" is headed now, click here.
For a few minutes, it looked like all of the prior week's advance would be lost and stocks were preparing to plunge into oblivion. But then, encouraged by a positive retail sales report, buyers swamped the tape -- focusing their attention on smaller, riskier companies, particularly in the technology sector. And off we went for the next six sessions.
To find out where the "Big Money" is headed now, click here.
Europe-China Connection Could Rattle Stocks
I was watching the Asia Edge show on Bloomberg television Wednesday night when the lovely and smart Susan Li broke in breathlessly on her guest with news about China's consumer inflation numbers. Inflation was reported up just a touch in January, which was considered good news because if it was higher it would have made Chinese banking authorities more anxious to clamp down on interest rates and if it was lower it would have raised the awful specter of deflation.
The Shanghai stock market ended a fraction higher, so it was a bit anticlimactic. But the key thing to know is that the Chinese market still appears to be in a downtrend and that bodes ill for the rest of the emerging markets. The 50-day moving average of iShares FTSE/Xinhua China 25 Index (NYSE: FXI) has turned emphatically negative, as has the slightly longer 100-day average. The index fund also is already beneath its 200-day average, which tends to distinguish bull cycles from bear cycles.
The Shanghai stock market ended a fraction higher, so it was a bit anticlimactic. But the key thing to know is that the Chinese market still appears to be in a downtrend and that bodes ill for the rest of the emerging markets. The 50-day moving average of iShares FTSE/Xinhua China 25 Index (NYSE: FXI) has turned emphatically negative, as has the slightly longer 100-day average. The index fund also is already beneath its 200-day average, which tends to distinguish bull cycles from bear cycles.
Read more about the Europe-China connection...
Eurozone Action on Greece Fails to Defuse the Ticking Global "Debt Bomb"
European leaders said yesterday (Thursday) that they were prepared to take a "determined" action to stave off the worst crisis in the euro currency's 11-year history. But their plan was short on details and is unlikely to totally dispel fears of a possible default by Greece.
European Council President Herman Van Rompuy said assistance for Greece would be forthcoming. But his speech lacked specifics about exactly what form that assistance would take and he offered no timeline for when aid for Greece would be initiated.
The statement seemed to be primarily aimed at reassuring markets that the EU wouldn't allow Greece's ballooning deficit to spark a debt crisis. It simply ordered Greece to clean up its accounts and gave the International Monetary Fund (IMF) a monitoring role.
European Council President Herman Van Rompuy said assistance for Greece would be forthcoming. But his speech lacked specifics about exactly what form that assistance would take and he offered no timeline for when aid for Greece would be initiated.
The statement seemed to be primarily aimed at reassuring markets that the EU wouldn't allow Greece's ballooning deficit to spark a debt crisis. It simply ordered Greece to clean up its accounts and gave the International Monetary Fund (IMF) a monitoring role.
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.
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.
To find out all about the "Global Debt Bomb," read on...
China Tells Banks to Curb Lending After a Generous January Start
Stocks worldwide plunged yesterday (Wednesday), commodities sank, and the dollar pushed higher after Chinese authorities demanded domestic banks slowdown lending amid concerns about asset bubbles growing in the economy.
Overall credit growth in China will be capped at $1.1 trillion (7.5 trillion yuan) for 2010, Liu Mingkang, chairman of the China Banking Regulatory Commission, told Bloomberg News in an interview in Hong Kong. Some banks were asked to limit credit because they failed to meet standards for capital reserves and other regulatory requirements, Liu said.
New loans in the first 10 days of this year were "relatively high," he told the Asian Financial Forum.
That may be understating the situation.
Overall credit growth in China will be capped at $1.1 trillion (7.5 trillion yuan) for 2010, Liu Mingkang, chairman of the China Banking Regulatory Commission, told Bloomberg News in an interview in Hong Kong. Some banks were asked to limit credit because they failed to meet standards for capital reserves and other regulatory requirements, Liu said.
New loans in the first 10 days of this year were "relatively high," he told the Asian Financial Forum.
That may be understating the situation.
Will Greece Default on its Debt, and Take the Eurozone Down with It?
As the European Commission holds its regular monthly meeting in Brussels this week, ministers find themselves debating what to do about the Greek debt crisis — the biggest credibility test the Eurozone has faced since the single currency was created.
The question is whether the 16 countries that share the European Union's (EU) currency can force a rogue member with a weak economy to take drastic measures to cut its budget deficit without calling in the International Monetary Fund (IMF) or sparking social unrest.
Still in the depths of recession, Greece is plagued by a spending deficit that rose to 12.7% of gross domestic product (GDP) last year, far in excess of the 3% ceiling permitted to countries in the union. It's also saddled with debt amounting to 113% of GDP, which prompted Moody's Corp. (NYSE: MCO) to downgrade its debt to A2 from A1 on December 22.
The question is whether the 16 countries that share the European Union's (EU) currency can force a rogue member with a weak economy to take drastic measures to cut its budget deficit without calling in the International Monetary Fund (IMF) or sparking social unrest.
Still in the depths of recession, Greece is plagued by a spending deficit that rose to 12.7% of gross domestic product (GDP) last year, far in excess of the 3% ceiling permitted to countries in the union. It's also saddled with debt amounting to 113% of GDP, which prompted Moody's Corp. (NYSE: MCO) to downgrade its debt to A2 from A1 on December 22.
Credit Trouble for Spain and Greece Spreads Fears of Sovereign Defaults
Standard & Poor's today (Wednesday) cut its credit outlook for Spain to "negative" from "stable," fanning concerns that sovereign defaults will spread throughout the global economy.
The dimmer outlook for Spain "reflects the risk of a downgrade within the next two years," S&P said.
It also increased fears among investors that the world could see a wave of global credit defaults. After the default of state-owned Dubai World forced investors to think twice about the recent rally in global stocks, Fitch Ratings Inc. on Tuesday cut Greece's credit rating to BBB+ from A-minus.