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Economic News Articles in The Great Recession Blog, week of 06/10/2012

The euro crisis dominated economic news and set the stage for the summer I have been anticipating. Stocks fell; unemployment climbed; sales dragged; manufacturing sluffed off; consumer spending receded. Interest on the U.S. debt also ticked upward when the annual deficit soared over the trillion-dollar barrier for the fourth straight year. And that was just one week!  

 

Where have all the flowers gone?

The world fixated on Greece for the entire week in anticipation of elections that could take Greece out of the euro zone and risk the death of the euro. Even the good economic news in this present week that Greece voted for a pro-euro government had almost no effect toward lifting Europe out of its troubles, as Spanish debt prices continued to push above the 7% barrier that has been the level at which other European nations had their blossoms plucked.

Yes, all of the good news of the first quarter of 2012 — winter’s early blossom — fell apart like old rose pedals at the end of spring. Europe’s troubles took center stage once again just as summer is about to begin. Now, I’m not the only one whose predictions for 2012 warned of this exact scenario clear back when everything was looking rosy to most stock analysts and even most economists. One economist has been willing to stand apart from his colleagues. Here’s a quote from those days in February when most experts thought the economy was budding with promise:

 

Economist Nouriel Roubini believes recent actions by the Federal Reserve and European Central Bank will continue to make equities an attractive investment during the next few months, The Wall Street Journal reports.

Contrarian investors take note: Given that Roubini (also known as “Dr. Doom”) is one of the biggest investing bears on the planet….

“We’re a believer; we’re celebrating. We think the rally has legs,” Gina Sanchez, Roubini’s director of equity and allocation strategy, told CNBC.

… Sanchez topped off this forecast by saying that investors have months to make money.

But the Wall Street Journal reported that Roubini tweets he doesn’t see the rally lasting more than a few months. “Indeed in H2 2012 the rally will fizzle,” he said on Twitter….

However, Roubini also reportedly thinks more pain will accompany the equity markets in the second half of 2012, and sees the S&P 500 ending the year at 1300, which would represent a 3.6 percent decline from current levels. (“Famed Bear ‘Dr. Doom’ Roubini Turns Bullish“)

I didn’t get my predictions of decline earlier this year from Roubini. I came by them honestly by making my own deductions, but sometimes it pays to note (and quote) where others have agreed with you as reinforcement to what you are saying. In fact, I said the economy would fizzle before the second half of the year (H2), and it has been fizzling throughout the last month of spring.

The point I want to make is that you can see these dark times coming, even when things are looking rosy, if you’re willing to take your reality straight up. You have to be willing to rub noses with the bears and not just listen to those purveyors of economic fluff who will tickle your rose buds with the gentle breaths of spring air you’d like to hear about the economy.


 

Germany fiddles as the euro burns

The fizzling is now sizzling as we get ready to enter that summer that “will look like the heat of hell for Europe.” Things in Europe are going to get hot enough to burn the tired soles of German Chancellor Merkel’s feet as she skids along in resistance from one international emergency meeting to another. I wouldn’t want to be in her shoes.

The biggest reason Europe is not going to find a solution to its problems is that Germany clearly rules Europe, just as it wished to do in the last century and several other centuries before. Notice all decisions now constantly hinge on what Angela Merkel is willing to do. Germany has the money, and money rules. Merkel (and the Germany that stands behind her) is only willing to incrementally do the minimum amount necessary to save the situation. And this goes against the advice I have given people for years in falling markets.

If you’re in a falling market, you have to get ahead of the game. If house prices are falling, for example, you need to bite the bullet right away and price yourself under the market to get out (if it is your intention to sell). If you try to price at the market, the market is moving downward faster than your own marketing efforts, and you will wind up following the market all the way to its bottom with one price reduction after another … always doing what you think is the minimum it will take to get out. I’ve seen people do it time and again. The smart ones cut their losses quickly if they need to sell.

That is the game Merkel is playing. She is clearly not the kind of leader who is willing to do more than the market demands at the moment in order to get ahead of the game. Germany’s conservative approach will follow this thing to the bottom. They are constantly putting out brush fires, instead of getting well ahead of the fire and creating a solid fire break. To create a fire break, you have to be willing to sacrifice a certain amount of territory that you would have liked to save in order to buy the time it takes to create proper protection. Germany is working from crisis to crisis and never getting ahead of the blaze, never making fullest use of the time it has … arrogantly acting as if time, itself, is one Germany’s schedule.

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Recap of economic news articles on The Great Recession Blog last week

(Current week’s news is posted in the right sidebar each day.)

 

Economic indicators and stock market responses in the news this week

06/12 UK Factory Output Takes Unexpected Fall Factory output fell 0.7% in April from the month before, said the Office for National Statistics (ONS). It follows a 0.9% rise in March. The figure was worse than expected as analysts had predicted no change.

06/13 Stocks Fall as Retail Sales Drag “We’ve had a volatile couple of days,” said Ryan Detrick, senior technical strategist with Schaeffer’s Investment Research. “Over the past couple of weeks, the market hasn’t really gone anywhere. But declining retail sales are a major problem.”

06/13 U.S. Bonds rise on weak U.S. data before 10-year sale U.S. government debt prices rose on Wednesday after weaker-than-expected inflation and consumer spending data reinforced the view of slowing U.S. economic growth, which may result in more monetary easing from the Federal Reserve.

06/14 Monthly Federal Deficit Doubles, Annual Nears $1 Trillion … Again The U.S. government budget deficit dramatically widened in May, as spending jumped 31.3 percent from the same month a year ago. Overall, the budget deficit is approaching $1 trillion for a fourth straight year even though the government is collecting more.

06/14 Top global accounting firm Deloitte says US debt crisis is ‘bigger than you think’ Interest payments on the country’s massive debt add a whole new level of fiscal pain and are expected to total some $US 4.2 trillion over the next decade, and that is if the rates stay at their record low! U.S. debt could rapidly spiral out of control.

06/14 U.K. Income fall ‘biggest since 1981’, say tax experts UK households saw their average take-home incomes drop by 3.1% in 2010-11. It said this was the first fall for five years and was the biggest drop since 1981. The fall was due to the belated effect of the recession between 2008 and 2010.

06/15 India’s services export down 23% in April India’s services export, which had been growing 25% a year for the last ten years, plunged 23% in just one month as American and European countries outsource fewer services to India due to declines in their economies and as the rupee depreciates.

06/15 Slower Manufacturing, Dim Sentiment Pushing Economy Into ‘Ugly Situation’ In May, output sank at American plants making everything from cars to computers. June already shows factory activity in New York state cooling. Consumer spending slowed and sentiment fell in early June to a 6-month low. Hiring has slowed 4 straight months.

06/15 Unemployment rates rise in 18 states in May Unemployment rates rose in 18 U.S. states in May, the most in nine months. Unemployment rates fell in only 14 states. That’s fewer than the previous month, when rates fell in 37 states. Employers added only 69,000 jobs, the fewest in 12 months.

06/15 US factory production declined 0.4% in May US factories produced less in May than April, as automakers cut back on output for the first time in six months. Retail sales also dipped in May for the second straight month, giving the first back-to-back drop in two years.

06/15 Wall Street gains as Europe girds for turmoil Showing their addiction to bailout economics and free money, US stocks rose on Friday on optimism major world central banks will take coordinated action if the closely watched election in Greece this weekend results in market turmoil.

 

Economic predictions / forecasts that made news headlines

06/13 IMF chief Christine Lagarde warns world risks triple crisis Christine Lagarde, the head of the International Monetary Fund, has warned that the world risks a triple crisis of declining incomes, environmental damage and social unrest unless countries adopt a more sustainable approach to economic growth.

06/15 Roubini: Global Economic ‘Perfect Storm’ Brewing With No Place to Hide A global economic storm is set to unleash in 2013 with no safe harbors, says NYU economist Nouriel Roubini. The European debt crisis continues to build. Asian economies are cooling, and Middle East tensions involving Iran are likely to flare again.

 

Euro crisis updates as the Great Recession goes viral

06/11 Germany grows weary of being Europe’s crutch Germany seems on the verge of a bad case of bailout fatigue. Opinion polls are beginning to show waning support from voters and taxpayers for their reluctant role as the defender of the 20-year experiment in monetary union known as the euro.

06/12 Asian markets fall as euphoria fades over Spain bank deal The optimism over the $125 billion weekend deal was replaced by concerns about the practicalities of implementing the bailout and fears that it would not be enough to avert a broader catastrophe in the eurozone.

06/12 Eurogeddon: A Worst-Case Scenario Handbook for the European Debt Crisis Spain’s bailout was a failure – an abject flop that was supposed to buy Spain’s credibility, but instead bought only four hours of peace before investors continued to panic.

06/12 Fitch cuts Spanish banks after Fitch Ratings on Tuesday downgraded 18 Spanish banks less than a week after the agency cut the country’s sovereign debt rating, underscoring the potential for lenders’ assets to deteriorate further.

06/12 Germany will not bow to G20 pressure on growth Berlin will not bow to pressure to boost growth with more borrowing and will “maintain that line” at this month’s G20 summit, a German government source said on Tuesday.

06/12 Spain borrowing costs hit euro-era record high Spain’s borrowing costs have risen to the highest rate since the launch of the euro in 1999. The benchmark 10-year bond yield hit 6.81%, as optimism about the weekend’s Spanish bank bailout continued to evaporate.

06/13 Why Spain’s Big Bank Bailout Is Really a Big Bust Every time the leaders of the beleaguered euro zone come together to make a decision aimed at quelling its debt crisis, the boost in confidence for the common currency’s future becomes shorter-lived. The latest step barely moved the sentiment meter.

06/14 German minister rejects plans to pool eurozone debt Speaking exclusively to the BBC, Secretary of State Steffen Kampeter said, “Debt is a national responsibility. I don’t see any strategies where we socialise and redistribute the bad political decisions made by some who are over-indebted.”

06/14 Greeks Withdraw $1 Billion a Day Ahead of Cliffhanger Vote Greeks pulled their cash out of the banks and stocked up with food ahead of the election on Sunday that many fear will result in the country being forced out of the euro. Retailers said some of the money was being used to buy pasta and canned goods.

06/14 Spain’s borrowing costs at fresh high after Moody’s cut The yield on benchmark 10-year bonds hit 7% in early trade, a level which many analysts believe is unsustainable in the long term. It later fell back slightly. It came as Moody’s cut Spain’s credit rating to one notch above “junk.”

06/14 Spanish gov’t appeals for calm amid market turmoil Bond yields jumped due to Moody’s decision Wednesday to downgrade the country’s sovereign credit rating by three notches to Baa3, the lowest investment-grade rating, and to the possibility that both Italy and Spain might require a sovereign bailout.

06/14 Wall St rises on news central banks primed to act U.S. stocks jumped on Thursday after news major central banks are preparing coordinated action to stabilize markets and prevent a credit squeeze if necessary if the results of Greek elections this weekend lead to turmoil in financial markets.

06/15 Central Banks Warn Greek-Led Euro Stress Threatens World Monetary policy makers around the world sounded the alert about potential fallout from the euro bloc’s troubles. They spoke as Group of 20 leaders prepare to meet in Mexico next week amid the weakest international economy since the 2009 recession.

06/15 Euro crisis: World on red alert for Greek vote Companies across the globe are on high alert this weekend as the Greek vote on Sunday could decide the future of the euro. Fathers’ Day celebrations have been cancelled for some to prepare for any disruption. In Asia, banks are calling in extra staff.

06/15 Europe Crisis Spreads As Merkel Resists Big Steps European countries are being squeezed by a financial vise ahead of the Greek election that could escalate the region’s political and economic turmoil. Italian and Spanish borrowing costs rose to alarming levels on Thursday. No grand solution is imminent.

06/15 Francois Hollande warns Greeks vote could see them exit Euro While acknowledging the Greeks’ right to determine their future, Hollande said that, if it appears from the vote that they doen’t want to respect the bailout deal, “there will be countries in the eurozone which would prefer to end Greece’s presence.”

06/15 How shock waves will hit US if Greece drops euro What was unthinkable earlier this year suddenly looks possible. Bankers, governments and investors are starting to prepare for Greece to stop using the euro as its currency, a move that could spread turmoil throughout the global financial system.

06/15 Moody’s cuts Dutch bank credit ratings on eurozone woes “Dutch banks will face difficult operating conditions throughout 2012 and possibly beyond,” Moody’s said. The cuts come amid fresh worries about debt-laden Spain, Italy and Cyprus. The election in Greece on Sunday may also undermine financial confidence.

 

Federal Reserve actions tracked in the economic headlines

06/13 Under Obama, Fed’s Holdings of U.S. Debt Have Jumped 452% The Fed’s holdings of U.S. government debt have quintupled — an increase from January 2009 of $1.366 trillion. Under Obama, the Federal Reserve has become the single largest owner of U.S. government debt. When Obama entered office China was the largest.

 

The Iranium Reaction as it makes and shakes the news

06/11 Iran feels sanctions pain as oil income slumps Iran’s finances are under unprecedented pressure and the resilience of ordinary people is being tested by 20% inflation due to tightening oil sanctions and sharply falling oil prices. Oil output is the lowest in 20 years with revenue down by $10 billion.

06/11 Letters show 6 world powers, Iran, remain split on nuke issues Letters show same issue divides: Six nations negotiating with Iran want it to stop enriching uranium to a level that can be turned quickly into warhead material. Tehran claims only interested in medical research. Next meeting: Moscow June 18-19.

 

Articles of Justice during the Great Recession

06/15 Former Goldman Director Gupta Found Guilty of Insider Trading A federal jury convicted Rajat Gupta, once an executive and board member at the pinnacle of American business, of insider trading, capping the fall of the most prominent figure caught in the government’s drive to stop the leaking of corporate secrets.

 

Other economic updates / miscellaneous news articles

06/12 U.S. Families’ Wealth Plunged 40 Percent During Recession, Fed Says The Federal Reserve reports that Americans saw a record drop in their wealth between the years 2007 to 2010. Driven primarily by plummeting home values, families’ median net worth dropped 38.8 percent, to levels last seen 18 years ago.

06/13 Why The Farm Bill’s Provisions Will Matter To You If you think only farmers care about the farm bill currently being considered by Congress, you’re mistaken. The measure will not only set policy and spending for the nation’s farms for years to come, but will cost nearly $1 trillion.

06/14 Gen. Dempsey: Mandated defense cuts could lead to war “We would go from being unquestionably powerful everywhere to being less visible … and presenting less of an overmatch to our adversaries, and that would translate into a different deterrent calculus and …, therefore, increase the likelihood of conflict.”

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