By Money Matters Editors
Two stocks to get your new investing year – 2010 – off to a good start: Potash and Freeport McMoRan.
Potash (POT). Potash remains one of the preeminent fertilizer companies in the world, producing three critical, primary plant nutrients and phosphate animal feed ingredients for both developed and developing world markets. As emerging markets develop, they need more food on a per capita basis, and that’s good news for solidly-performing fertilizer companies, such as Potash. Sell/Stop Loss for POT: $57.
Thursday, December 24, 2009
Wednesday, December 23, 2009
Build mega solar fields in the desert? Not so fast
By Money Matters Editors
You knew solar energy could not be the no-doubt-about-it superenergy form of the 21st century – at least not at the start.
The solar panel now has a few ‘cracks’ in it, as a result of a new environmental concern about destroyed or impacted vistas – basically sight pollution, but also pollution that physically harms the environment.
U.S Sen. Dianne Feinstein’s (D-California) stated opposition to building in the Mojave Desert has effectively scuttled 13 big solar energy plants and wind projects there, The New York Times reported Tuesday.
You knew solar energy could not be the no-doubt-about-it superenergy form of the 21st century – at least not at the start.
The solar panel now has a few ‘cracks’ in it, as a result of a new environmental concern about destroyed or impacted vistas – basically sight pollution, but also pollution that physically harms the environment.
U.S Sen. Dianne Feinstein’s (D-California) stated opposition to building in the Mojave Desert has effectively scuttled 13 big solar energy plants and wind projects there, The New York Times reported Tuesday.
Tuesday, December 22, 2009
OPEC is sitting pretty
By Money Matters Editors
For OPEC, it’s the best of times.
OPEC, meeting in Angola, said they don’t plan to reduce production despite bountiful supplies, Bloomberg News reported Monday.
The reason? Oil prices are so advantages – oil closed Monday at $72.47 per barrel – that the group does not have to take action even though demand is modest and supplies are at 1-year and in some cases at 3-year highs in key developed world markets.
What’s keeping oil’s price so high? Well, part of it is the expectation that global economic growth – in particular, emerging market demand – will eventually place pressure on global oil supplies in a year or so. But perhaps the biggest factor in oil’s unusually high price despite sluggish demand is the weak dollar. Depending on the model one uses, the weak dollar has added $10-25 to oil’s price.
For OPEC, it’s the best of times.
OPEC, meeting in Angola, said they don’t plan to reduce production despite bountiful supplies, Bloomberg News reported Monday.
The reason? Oil prices are so advantages – oil closed Monday at $72.47 per barrel – that the group does not have to take action even though demand is modest and supplies are at 1-year and in some cases at 3-year highs in key developed world markets.
What’s keeping oil’s price so high? Well, part of it is the expectation that global economic growth – in particular, emerging market demand – will eventually place pressure on global oil supplies in a year or so. But perhaps the biggest factor in oil’s unusually high price despite sluggish demand is the weak dollar. Depending on the model one uses, the weak dollar has added $10-25 to oil’s price.
Monday, December 21, 2009
Senate Democrats hope to retain 'Sweet 60' to pass health care reform
By Money Matters Editors
Senate Democrats late Sunday night were poised to begin a test vote for the health care reform bill, now that U.S. Sen. Ben Nelson, D-Nebraska, was granted certain concessions and agreed to support the bill on Saturday
If the health care reform bill passes, it would be the biggest social policy advance by the United States since the passage of Medicare in 1965, and it would rank third behind the latter and the establishment of Social Security of 1935 in terms of social safety net significance.
Senate Democrats late Sunday night were poised to begin a test vote for the health care reform bill, now that U.S. Sen. Ben Nelson, D-Nebraska, was granted certain concessions and agreed to support the bill on Saturday
If the health care reform bill passes, it would be the biggest social policy advance by the United States since the passage of Medicare in 1965, and it would rank third behind the latter and the establishment of Social Security of 1935 in terms of social safety net significance.
Friday, December 18, 2009
Health care reform: A good bill is better than none
By Money Matters Editors
Health care reform update: Former President Bill Clinton, D-Arkansas, hit the nail on the head Thursday when he evaluated whether Democrats should or should not vote for a health care reform bill that does not contain a public option.
Clinton urged Democrats and others to vote for the bill: “Does this bill read exactly how I would write it? No. Does it contain everything everyone wants? Of course not," Clinton told the Agence France-Presse. “But America can't afford to let the perfect be the enemy of the good.”
Health care reform update: Former President Bill Clinton, D-Arkansas, hit the nail on the head Thursday when he evaluated whether Democrats should or should not vote for a health care reform bill that does not contain a public option.
Clinton urged Democrats and others to vote for the bill: “Does this bill read exactly how I would write it? No. Does it contain everything everyone wants? Of course not," Clinton told the Agence France-Presse. “But America can't afford to let the perfect be the enemy of the good.”
Thursday, December 17, 2009
Job growth is the honey for voters' vinegar
By Money Matters Editors
Tea Partiers. People upset at the Fed. People who want to put term limits on Congress. You name it: the United States abounds in vocal, but for the most part thinly-supported critics.
And although their complaints run the gamut of the political, social, and cultural spectrum, they all really come down to one aspect of American life: the economy. And regarding the economy, the issue of jobs is front and center.
Some critics want to replace Fed Chairman Ben Bernanke, who, by the way, was just selected Time Magazine’s “Person of the Year” for 2009. Money Matters Editors wholeheartedly agrees with the selection: it is deserved.
Tea Partiers. People upset at the Fed. People who want to put term limits on Congress. You name it: the United States abounds in vocal, but for the most part thinly-supported critics.
And although their complaints run the gamut of the political, social, and cultural spectrum, they all really come down to one aspect of American life: the economy. And regarding the economy, the issue of jobs is front and center.
Some critics want to replace Fed Chairman Ben Bernanke, who, by the way, was just selected Time Magazine’s “Person of the Year” for 2009. Money Matters Editors wholeheartedly agrees with the selection: it is deserved.
Wednesday, December 16, 2009
Look for the Fed to keep rates low for a long time
By Money Matters Editors
U.S. Federal Reserve Chairman Ben Bernanke is not raising short-term interest rates Wednesday, and he’s not for several quarters.
And it’s not just because the Fed needs to stimulate the U.S. economy: there’s a new fad making the rounds in Washington – it’s called ‘scapegoat the Fed.’
The fad appears every 20 years or so when lawmakers want to blame someone or something for the nation’s economic woes: why not blame the Fed.
U.S. Federal Reserve Chairman Ben Bernanke is not raising short-term interest rates Wednesday, and he’s not for several quarters.
And it’s not just because the Fed needs to stimulate the U.S. economy: there’s a new fad making the rounds in Washington – it’s called ‘scapegoat the Fed.’
The fad appears every 20 years or so when lawmakers want to blame someone or something for the nation’s economic woes: why not blame the Fed.
Thursday, December 10, 2009
Natural gas speed-bump: hydraulic fracturing may be polluting groundwater
By Money Matters Editors
Not so fast regarding shale gas or ‘unconventional gas.’ Accessing the potentially plentiful, domestic energy source has encountered a obstacle: it may be contaminating wells and groundwater, The New York Times reported.
The new techniques used to access the gas – one major techniques is called hydraulic fracturing – are causing environmental problems, The Times said. So far, the incidence of groundwater contamination is thin, but more-thorough government checks may turn up many more problems.
Natural gas companies acknowledge the validity of some concerns, The Times added, but they argue that their technology remains fundamentally safe. The U.S. Environmental Protection Agency is investigating various contaminated wells and sites.
Not so fast regarding shale gas or ‘unconventional gas.’ Accessing the potentially plentiful, domestic energy source has encountered a obstacle: it may be contaminating wells and groundwater, The New York Times reported.
The new techniques used to access the gas – one major techniques is called hydraulic fracturing – are causing environmental problems, The Times said. So far, the incidence of groundwater contamination is thin, but more-thorough government checks may turn up many more problems.
Natural gas companies acknowledge the validity of some concerns, The Times added, but they argue that their technology remains fundamentally safe. The U.S. Environmental Protection Agency is investigating various contaminated wells and sites.
Wednesday, December 9, 2009
President Obama's jobs bill will jump-start hiring
By Money Matters Editors
President Obama Tuesday proposed using a portion of the surplus TARP bank bailout money to fund infrastructure spending, tax credits, and related small business credits, all aimed at creating jobs, Bloomberg News reported.
We at Money Matters heartily agree. There is an enormous amount of work that needs to be done in these United States, and millions of skilled professionals and semi-skilled workers who are willing to do it: more than 7.6 million Americans have lost their jobs in the recession that started in December 2007.
President Obama Tuesday proposed using a portion of the surplus TARP bank bailout money to fund infrastructure spending, tax credits, and related small business credits, all aimed at creating jobs, Bloomberg News reported.
We at Money Matters heartily agree. There is an enormous amount of work that needs to be done in these United States, and millions of skilled professionals and semi-skilled workers who are willing to do it: more than 7.6 million Americans have lost their jobs in the recession that started in December 2007.
Monday, December 7, 2009
For solid stock gains, consider Potash, Mosaic, and Agrium
By Money Matters Editors
Fertilizer plays are ‘in,’ and that’s no bull.
Money Matters is Reiterating its Buy rating for Potash (POT), Mosaic (MOS), and Agrium (AGU).
All three will perform well in 2010 and 2011 as the U.S. and global economic expansions strengthen.
Fertilizer plays are ‘in,’ and that’s no bull.
Money Matters is Reiterating its Buy rating for Potash (POT), Mosaic (MOS), and Agrium (AGU).
All three will perform well in 2010 and 2011 as the U.S. and global economic expansions strengthen.
Friday, December 4, 2009
Headline: ‘Cheap oil is here to stay’ – when did it arrive?
By Money Matters Editors
CNNMoney.com published a story Thursday entitled “Cheap Oil Is Here To Stay.”
Question - Oil closed at about $75 per barrel Thursday: Money Matters Editors want to know, when exactly did cheap oil arrive?
The CNNMoney. com article goes on to say that a combination of conservation, increased engine efficiency, and an existing glut of oil will keep the price of oil “well below $100 a barrel.” How comforting.
CNNMoney.com published a story Thursday entitled “Cheap Oil Is Here To Stay.”
Question - Oil closed at about $75 per barrel Thursday: Money Matters Editors want to know, when exactly did cheap oil arrive?
The CNNMoney. com article goes on to say that a combination of conservation, increased engine efficiency, and an existing glut of oil will keep the price of oil “well below $100 a barrel.” How comforting.
Thursday, December 3, 2009
New York City is testing hybrid garbage trucks
By Money Matters Editors
Sometimes the answers to difficult, complex problems stem from the least likely of places. Are economies of scale – basically the lowering of the per unit cost of a good through mass production - starting to make themselves felt in the hybrid vehicle sector?
Well, that may very well be the case, if the hybrid truck trend gains momentum, as expected. Right now, the City of New York is testing a series of hybrid garbage trucks – those big, diesel-spewing trucks that haul away garbage, lots of garbage – with the hope of lowering long-term fuel and maintenance costs, The New York Times reported.
Sometimes the answers to difficult, complex problems stem from the least likely of places. Are economies of scale – basically the lowering of the per unit cost of a good through mass production - starting to make themselves felt in the hybrid vehicle sector?
Well, that may very well be the case, if the hybrid truck trend gains momentum, as expected. Right now, the City of New York is testing a series of hybrid garbage trucks – those big, diesel-spewing trucks that haul away garbage, lots of garbage – with the hope of lowering long-term fuel and maintenance costs, The New York Times reported.
Wednesday, December 2, 2009
The EPA should ban E15
By Money Matters Editors
The U.S. Environmental Protection Agency has sent the E15 proposal – gasoline with 15% ethanol – back for more study.
Money Matters Editors argues E15 from should be abandoned outright. Here’s why:
Ethanol from corn is not achieving its environmental, energy or conservation goals.
First, the scientific community is divided as to whether corn-based ethanol results in less or more greenhouse gas emissions. Some studies have shown that when one considers the energy to grow corn, harvest it, load the trucks, and process it, corn-based ethanol emits more greenhouse gases than it, in theory, would save from not drilling for oil.
The U.S. Environmental Protection Agency has sent the E15 proposal – gasoline with 15% ethanol – back for more study.
Money Matters Editors argues E15 from should be abandoned outright. Here’s why:
Ethanol from corn is not achieving its environmental, energy or conservation goals.
First, the scientific community is divided as to whether corn-based ethanol results in less or more greenhouse gas emissions. Some studies have shown that when one considers the energy to grow corn, harvest it, load the trucks, and process it, corn-based ethanol emits more greenhouse gases than it, in theory, would save from not drilling for oil.
Tuesday, December 1, 2009
Good deal: U.S. Treasury borrows $44 billion for 1%
By Money Matters Editors
The inflation hawks continue to circle, but for the duration of the U.S. Federal Reserve’s unprecedented quantitative easing and credit market intervention, they’ve been circling in vain.
Case in point: With more than $23 trillion pumped into the financial system via monetary and fiscal policy in the last 12 months, there’s good reason to fear a rise in inflation, particularly if the U.S. Federal Reserve’s quantitative easing is not withdrawn in time.
The inflation hawks continue to circle, but for the duration of the U.S. Federal Reserve’s unprecedented quantitative easing and credit market intervention, they’ve been circling in vain.
Case in point: With more than $23 trillion pumped into the financial system via monetary and fiscal policy in the last 12 months, there’s good reason to fear a rise in inflation, particularly if the U.S. Federal Reserve’s quantitative easing is not withdrawn in time.
Monday, November 30, 2009
Cheap gas and U.S. GDP growth: they go to together like Simon & Garfunkel
By Money Matters Editors
Right now, average U.S. gasoline prices are at an inflection point: move any higher and there’s real trouble up ahead for the U.S. economy.
Conversely, a drop from current levels – about $2.63 per gallon for unleaded regular – and the U.S. economic recovery could get a tail wind.
Here’s the bleaker scenario: something happens to Americans as they see the price of gas top $3 per gallon. (It’s already above $3 for super unleaded in higher-costs areas like Los Angeles, New York, and San Francisco.) Americans cut back discretionary purchases in order to be able to fill their gas tanks with the gas they need, without breaking their budget. And that cutback in discretionary purchases shaves growth off U.S. GDP. Further, if the price remains over $3, it also convinces more Americans to choose a more fuel-efficient vehicle. And we know the impact higher gasoline and diesel prices have across the U.S. economy: it increases costs at just about every stage of production.
Right now, average U.S. gasoline prices are at an inflection point: move any higher and there’s real trouble up ahead for the U.S. economy.
Conversely, a drop from current levels – about $2.63 per gallon for unleaded regular – and the U.S. economic recovery could get a tail wind.
Here’s the bleaker scenario: something happens to Americans as they see the price of gas top $3 per gallon. (It’s already above $3 for super unleaded in higher-costs areas like Los Angeles, New York, and San Francisco.) Americans cut back discretionary purchases in order to be able to fill their gas tanks with the gas they need, without breaking their budget. And that cutback in discretionary purchases shaves growth off U.S. GDP. Further, if the price remains over $3, it also convinces more Americans to choose a more fuel-efficient vehicle. And we know the impact higher gasoline and diesel prices have across the U.S. economy: it increases costs at just about every stage of production.
Wednesday, November 25, 2009
Go nukes! Nuclear power gains support in U.S., abroad
By Money Matters Editors
Finally, the United States appears to be heading in the correct direction, from a nuclear power for electricity standpoint.
And there’s even better news: environmentalists, in an impressive switch, are starting to side with nuclear power, too, so says The Washington Post. Here’s why:
Environmentalists now realize that nuclear power represents ‘the lesser of two evils’ versus coal-fired electric power generation plants. When faced with a choice of processing nuclear waste or seeing soot and other carbon emissions spew into the atmosphere – heating up the atmosphere to irreversible levels – the choice is clear: nuclear power wins, easy.
Finally, the United States appears to be heading in the correct direction, from a nuclear power for electricity standpoint.
And there’s even better news: environmentalists, in an impressive switch, are starting to side with nuclear power, too, so says The Washington Post. Here’s why:
Environmentalists now realize that nuclear power represents ‘the lesser of two evils’ versus coal-fired electric power generation plants. When faced with a choice of processing nuclear waste or seeing soot and other carbon emissions spew into the atmosphere – heating up the atmosphere to irreversible levels – the choice is clear: nuclear power wins, easy.
Tuesday, November 24, 2009
Memo to Congress: Pass a $200 billion jobs bill
By Money Matters Editors
Memo to Congress: What would be the best Christmas/ Hannukah present for the American people? Oh, 15 million or so new jobs.
U.S. House Majority Leader Steny Hoyer, D-Maryland, said he expects the U.S. House of Representatives to vote on legislation that would create more jobs by the year-end holiday recess.
“Clearly 10.2 percent unemployment is unacceptable and is causing great pain to literally millions of people around the country.” U.S. Rep. Hoyer said, CNN reported.
Memo to Congress: What would be the best Christmas/ Hannukah present for the American people? Oh, 15 million or so new jobs.
U.S. House Majority Leader Steny Hoyer, D-Maryland, said he expects the U.S. House of Representatives to vote on legislation that would create more jobs by the year-end holiday recess.
“Clearly 10.2 percent unemployment is unacceptable and is causing great pain to literally millions of people around the country.” U.S. Rep. Hoyer said, CNN reported.
Monday, November 23, 2009
CVS and Walgreen: A drug store dynamic duo
By Money Matters Editors
You’ve heard of the Dynamic Duo – Batman and Robin. Well, consider owning shares in the Dynamic Duo of U.S. drug store chains: CVS-Caremark (CVS) and Walgreen (WAG).
Short-term, each is likely to benefit from increased store traffic, due to the H1N1 flu virus. Long-term, each is destined to increase their market share.
CVS is renowned for its highly effective new store location formula. Meanwhile, Walgreen is ‘the defensive’s defensive’ because it’s not only in a conservative sector (drug stores), it’s resisted the urge to grow by acquisition, instead focusing on the old-fashioned method of growth by opening new stores, and other methods (large penetrations into new markets, relocating stores, expanding 24-hour service to more stores).
You’ve heard of the Dynamic Duo – Batman and Robin. Well, consider owning shares in the Dynamic Duo of U.S. drug store chains: CVS-Caremark (CVS) and Walgreen (WAG).
Short-term, each is likely to benefit from increased store traffic, due to the H1N1 flu virus. Long-term, each is destined to increase their market share.
CVS is renowned for its highly effective new store location formula. Meanwhile, Walgreen is ‘the defensive’s defensive’ because it’s not only in a conservative sector (drug stores), it’s resisted the urge to grow by acquisition, instead focusing on the old-fashioned method of growth by opening new stores, and other methods (large penetrations into new markets, relocating stores, expanding 24-hour service to more stores).
Friday, November 20, 2009
For the good of the global economy, China must end its fixed-rate currency policy
By Money Matters Editors
Memo to China: let your currency, the yuan, float, or be determined by market forces, in stages.
If you undertake the above measure, you’ll help your economy, and the global economy.
If you don’t, difficult conditions are up ahead for your economy, and the world’s, as well. Here’s why:
Keeping the yuan fixed at roughly 6.83 yuan to the U.S. dollar is only hastening the day when China will have to transition to a more domestic-consumption-based economy. That’s because China’s artificially-cheap international products that stem from that fixed-rate are increasing protectionist sentiment in the United States, a key customer nation. Conversely, allowing the yuan to appreciate, in stages, may quell protectionist sentiment that’s building in Congress, enabling China to transition to a consumer economy more gradually. Failing to do so may result in Congressional tariff on China.
Memo to China: let your currency, the yuan, float, or be determined by market forces, in stages.
If you undertake the above measure, you’ll help your economy, and the global economy.
If you don’t, difficult conditions are up ahead for your economy, and the world’s, as well. Here’s why:
Keeping the yuan fixed at roughly 6.83 yuan to the U.S. dollar is only hastening the day when China will have to transition to a more domestic-consumption-based economy. That’s because China’s artificially-cheap international products that stem from that fixed-rate are increasing protectionist sentiment in the United States, a key customer nation. Conversely, allowing the yuan to appreciate, in stages, may quell protectionist sentiment that’s building in Congress, enabling China to transition to a consumer economy more gradually. Failing to do so may result in Congressional tariff on China.
Thursday, November 19, 2009
Home Depot: Considerable upside exists
By Money Matters Editors
The Home Depot’s (HD) Q3 earnings report is an example of what ails Wall Street right now: an expectations game that’s slightly unrealistic.
Home Deport reported Q3 EPS of 41 cents per share Tuesday, well above the First Call EPS consensus of 36 cents, and what did Wall Street do? Of course it sold the stock, with shares closing down about 30 cents to $26.99.
Home Depot even offered decent Q4 earnings guidance of 13 cents per share, compared to the First Call EPS of 16 cents. True, same store sales are decelerating, but that’s no surprise, given the housing sector’s contraction and the ‘frugal consumer’ era. In any event, the company still expects FY2009 EPS of $1.55 – in-line with the First Call FY2009 EPS estimate of $1.55.
The Home Depot’s (HD) Q3 earnings report is an example of what ails Wall Street right now: an expectations game that’s slightly unrealistic.
Home Deport reported Q3 EPS of 41 cents per share Tuesday, well above the First Call EPS consensus of 36 cents, and what did Wall Street do? Of course it sold the stock, with shares closing down about 30 cents to $26.99.
Home Depot even offered decent Q4 earnings guidance of 13 cents per share, compared to the First Call EPS of 16 cents. True, same store sales are decelerating, but that’s no surprise, given the housing sector’s contraction and the ‘frugal consumer’ era. In any event, the company still expects FY2009 EPS of $1.55 – in-line with the First Call FY2009 EPS estimate of $1.55.
Wednesday, November 18, 2009
Mutual funds fees: It's time to shift to pay-for-performance
By Money Matters Editors
A trading colleague known by Money Matters Editors had a phrase that he used to cite when he heard a trading idea that was curious, at best.
He would say, “That makes no sense, whatsoever.” And the idea was usually subsequently tossed in the trash can.
The same can be said about guaranteed fees in the mutual fund industry, including management fees and load fees. Note that we said mutual funds, not hedge funds. Today, we’re addressing those funds that typical Americans have invested trillions of dollars in: mutual funds.
Simply, guaranteed fees for mutual funds must stop. They’re part of a pre-financial crisis era culture that lavished large salaries and bonuses on financial professionals….for non-performance – in other words guaranteed pay. That model has been discredited and that era is over.
A trading colleague known by Money Matters Editors had a phrase that he used to cite when he heard a trading idea that was curious, at best.
He would say, “That makes no sense, whatsoever.” And the idea was usually subsequently tossed in the trash can.
The same can be said about guaranteed fees in the mutual fund industry, including management fees and load fees. Note that we said mutual funds, not hedge funds. Today, we’re addressing those funds that typical Americans have invested trillions of dollars in: mutual funds.
Simply, guaranteed fees for mutual funds must stop. They’re part of a pre-financial crisis era culture that lavished large salaries and bonuses on financial professionals….for non-performance – in other words guaranteed pay. That model has been discredited and that era is over.
Tuesday, November 17, 2009
Better late than never: In the future, in the U.S. too big to fail will be too big
By Money Matters Editors
Perhaps the wind is starting to change in Washington, and logic guided by prudence is starting to prevail.
U.S. Federal Reserve Chairman Ben Bernanke, in a question and answer session after a speech before the Economic Club of New York, said Monday regulators should have the power to shrink or downsize banks that pose risk to the markets.
“The supervisors should be allowed by law to insist that the company divest itself or shrink its activities,” Bernanke said in response to a question.
And to that, Money Matters Editors say, “High time!”
Perhaps the wind is starting to change in Washington, and logic guided by prudence is starting to prevail.
U.S. Federal Reserve Chairman Ben Bernanke, in a question and answer session after a speech before the Economic Club of New York, said Monday regulators should have the power to shrink or downsize banks that pose risk to the markets.
“The supervisors should be allowed by law to insist that the company divest itself or shrink its activities,” Bernanke said in response to a question.
And to that, Money Matters Editors say, “High time!”
Monday, November 16, 2009
Boeing, Airbus see blue skies in 2010
By Money Matters Editors
Finally, some really good economic news. Airbus (EADS) and Boeing (BA) are both confirming that airlines have stopped pushing-back, or deferring deliveries of commercial airlines, Bloomberg News reported Sunday.
The significance for investors? When airlines end deferrals that means they’re confident about an upturn in air travel – something that usually heralds the start of an economic rebound.
Randy Tinseth, Boeing’s (BA) head of marketing for commercial planes, said as much.
Finally, some really good economic news. Airbus (EADS) and Boeing (BA) are both confirming that airlines have stopped pushing-back, or deferring deliveries of commercial airlines, Bloomberg News reported Sunday.
The significance for investors? When airlines end deferrals that means they’re confident about an upturn in air travel – something that usually heralds the start of an economic rebound.
Randy Tinseth, Boeing’s (BA) head of marketing for commercial planes, said as much.
Friday, November 13, 2009
'Big bet' banking has to go
By Money Matters Editors
What’s another aspect of banking that has to change? Banker attitudes toward banking.
Earlier, Money Matters wrote about how the ‘heads the banks win, tails the taxpayer pays’ philosophy has to end. That has to be accompanied by an end to another problematic industry practice: excessive risk.
Here’s how banking stands now. Banks encourage trading and loan officers to take excessive risk. For example, bank professionals will design complicated, derivative-based trading programs designed to take high risks: if the risks pay off, the bank wins and racks-up huge profits. If the derivative fails, the bank professionals are fired. Then they find another job with another bank, doing the same thing, doing the same thing, and the whole process starts over again.
What’s another aspect of banking that has to change? Banker attitudes toward banking.
Earlier, Money Matters wrote about how the ‘heads the banks win, tails the taxpayer pays’ philosophy has to end. That has to be accompanied by an end to another problematic industry practice: excessive risk.
Here’s how banking stands now. Banks encourage trading and loan officers to take excessive risk. For example, bank professionals will design complicated, derivative-based trading programs designed to take high risks: if the risks pay off, the bank wins and racks-up huge profits. If the derivative fails, the bank professionals are fired. Then they find another job with another bank, doing the same thing, doing the same thing, and the whole process starts over again.
Thursday, November 12, 2009
Balancing the U.S. budget: pay up now, or pay a lot more, later
By Money Matters Editors
Most Americans, perhaps even most U.S. investors, are not aware of the seriousness of the U.S. budget deficit situation.
They’ve been lulled into a sort of trance – encouraged by one political party – that a simple cut in federal spending will get the budget back in balance.
Nothing could be further from the truth. In fact, unless the conservatives want to abolish Social Security (not a politically smart move) or turn both Medicaid and Medicare entirely over to the states, no amount of nip-and-tuck spending cuts will balance the budget.
Most Americans, perhaps even most U.S. investors, are not aware of the seriousness of the U.S. budget deficit situation.
They’ve been lulled into a sort of trance – encouraged by one political party – that a simple cut in federal spending will get the budget back in balance.
Nothing could be further from the truth. In fact, unless the conservatives want to abolish Social Security (not a politically smart move) or turn both Medicaid and Medicare entirely over to the states, no amount of nip-and-tuck spending cuts will balance the budget.
Wednesday, November 11, 2009
It's time for two-tier banking
By Money Matters Editors
U.S. Sen. Banking Committee Chairman Chris Dodd’s plan to rein-in bank executive compensation and bonuses is barely a week old and already it’s being called ineffectual.
“For the most part it’s pretty hollow, a toothless tiger,” said Paul Dorf, managing director of Compensation Resources Inc., a pay consultant based in Upper Saddle River, New Jersey, told Bloomberg News Tuesday. He added that the legislation needs more penalties if the rules aren’t followed.
Perhaps the problem is not so much Sen. Dodd’s revision but the U.S. government’s philosophical stance toward banking. The government wants to weed-out bank and financial institution practices that create incentives for risky/reckless practices that brought the financial system close to a collapse a year ago.
U.S. Sen. Banking Committee Chairman Chris Dodd’s plan to rein-in bank executive compensation and bonuses is barely a week old and already it’s being called ineffectual.
“For the most part it’s pretty hollow, a toothless tiger,” said Paul Dorf, managing director of Compensation Resources Inc., a pay consultant based in Upper Saddle River, New Jersey, told Bloomberg News Tuesday. He added that the legislation needs more penalties if the rules aren’t followed.
Perhaps the problem is not so much Sen. Dodd’s revision but the U.S. government’s philosophical stance toward banking. The government wants to weed-out bank and financial institution practices that create incentives for risky/reckless practices that brought the financial system close to a collapse a year ago.
Tuesday, November 10, 2009
MM Factoid: U.S. temp hiring increased in October
By Money Matters Editors
In this economy, you take the good news where you can get it, and one such ‘factoid’ of good news was buried deep in the U.S. Labor Department’s most-recent monthly report on the job market, the October report.
The good news? The hiring of temporary workers increased considerably in October to 34,000, with 44,000 temporary jobs having been added to the U.S. economy since July, according to Labor Department data.
In this economy, you take the good news where you can get it, and one such ‘factoid’ of good news was buried deep in the U.S. Labor Department’s most-recent monthly report on the job market, the October report.
The good news? The hiring of temporary workers increased considerably in October to 34,000, with 44,000 temporary jobs having been added to the U.S. economy since July, according to Labor Department data.
Monday, November 9, 2009
Is oil the new gold?
By Money Matters Editors
Is oil the new gold? Perhaps, or at least temporarily, institutional investors (IIs) are making it the new global reserve currency.
The reason? It’s primarily due to the weak dollar, and IIs’ concerns about further depreciation of the buck in the quarters ahead. IIs have bid-up commodities, including gold and oil, on concern the dollar will continue to weaken against the world’s other, major currencies (particularly the euro, British pound, yen, and Swiss franc) due to the large U.S. budget deficit.
Is oil the new gold? Perhaps, or at least temporarily, institutional investors (IIs) are making it the new global reserve currency.
The reason? It’s primarily due to the weak dollar, and IIs’ concerns about further depreciation of the buck in the quarters ahead. IIs have bid-up commodities, including gold and oil, on concern the dollar will continue to weaken against the world’s other, major currencies (particularly the euro, British pound, yen, and Swiss franc) due to the large U.S. budget deficit.
Friday, November 6, 2009
Is it time to take a sip of Starbucks stock?
By Money Matters Editors
Starbucks (SBUX) posted a decent Q4 EPS result of 20 cents, compared to the First Call EPS estimate of 21 cents per share, or 24 cents excluding restructuring charges, but were the results good enough to warrant a Buy rating? In other words, is it appropriate for investors to resume taking a sip of that Starbucks’ ‘stock coffee?’
Starbucks’ Q4 revenue declined 4 percent to $2.42 billion compared to the First Call EPS estimate of $2.39 billion. For FY2009, SBUX earned 80 cents compared to the First Call estimate of 76 cents. The performance will likely please most institutional investors (IIs), who may bid-up the Starbucks’ shares on Friday.
Starbucks (SBUX) posted a decent Q4 EPS result of 20 cents, compared to the First Call EPS estimate of 21 cents per share, or 24 cents excluding restructuring charges, but were the results good enough to warrant a Buy rating? In other words, is it appropriate for investors to resume taking a sip of that Starbucks’ ‘stock coffee?’
Starbucks’ Q4 revenue declined 4 percent to $2.42 billion compared to the First Call EPS estimate of $2.39 billion. For FY2009, SBUX earned 80 cents compared to the First Call estimate of 76 cents. The performance will likely please most institutional investors (IIs), who may bid-up the Starbucks’ shares on Friday.
Thursday, November 5, 2009
Is it o.k. to like Apple here?
By Money Matters Editors
Is it o.k. to like Apple (AAPL) at these price levels? Sure. Here’s why:
Is it o.k. to like Apple (AAPL) at these price levels? Sure. Here’s why:
Look for FY2010 revenue growth of about 12-14%, slightly higher than FY2009 results, on increasing demand for Apple’s impressive suite of products.
The iPod should remain the U.S.
Wednesday, November 4, 2009
Buffett's workin' on the railroad – buys Burlington North Santa Fe
By Money Matters Editors
It’s November, and suddenly deals are popping up all over.
First New Britain, Conn.-based tool maker the Stanley Works (SWK) announced it would buy power tool expert Black and Decker (BDK), in an all-stock deal for $4.5 billion.
Stanley sees the deal as $1 accretive to earnings per share within three years.
Meanwhile, Black & Decker shareholders will receive a 22.1% premium to BDK’s closing price as of Friday, October 30, 2009 of $47.22, or roughly $57.65 per share.
It’s November, and suddenly deals are popping up all over.
First New Britain, Conn.-based tool maker the Stanley Works (SWK) announced it would buy power tool expert Black and Decker (BDK), in an all-stock deal for $4.5 billion.
Stanley sees the deal as $1 accretive to earnings per share within three years.
Meanwhile, Black & Decker shareholders will receive a 22.1% premium to BDK’s closing price as of Friday, October 30, 2009 of $47.22, or roughly $57.65 per share.
Tuesday, November 3, 2009
Is it time to test-drive Ford’s stock?
By Money Matters Editors
The lowdown on Ford (F): Ford said it earned 29 cents per share in Q3, which beat the First Call EPS consensus estimate of a loss of 12 cents per share.
However, Ford said continuing revenue gains in its North American unit would be offset by an expected revenue slide in it European division.
Ford also raised its 2011 guidance from its North American operations to “solidly profitable” on a pre-tax basis, from “breakeven or better.” The change means Ford expects to meet its financial goal of registering a full-year profit in 2011. The First Call FY2009/FY2010 EPS estimates are a loss of $1.35 and a profit of 15 cents.
The lowdown on Ford (F): Ford said it earned 29 cents per share in Q3, which beat the First Call EPS consensus estimate of a loss of 12 cents per share.
However, Ford said continuing revenue gains in its North American unit would be offset by an expected revenue slide in it European division.
Ford also raised its 2011 guidance from its North American operations to “solidly profitable” on a pre-tax basis, from “breakeven or better.” The change means Ford expects to meet its financial goal of registering a full-year profit in 2011. The First Call FY2009/FY2010 EPS estimates are a loss of $1.35 and a profit of 15 cents.
Monday, November 2, 2009
Here we go again: $100 oil
By Money Matters Editors
The U.S./global economic recoveries are underway, that we know. What economists and sector analysts don’t know is the whether this recovery has legs, i.e. whether it is sustainable.
Regarding the United States, the world’s largest economy, the upturn in U.S. manufacturing is one of four, key economic expansion/contraction indicators and the main reason most economists believe the economy is expanding.
However, the other four – sales (sluggish), incomes (stagnant), and payrolls (still declining), do not point to a recovery. If the three aforementioned don’t begin to trend higher, the sustainability of the rebound will come under serious questioning, as opposed to just muttering and ‘devil’s advocate’ critiques one hears now.
What’s another factor that could stop the recovery in its tracks? You guessed it: the price of oil. Institutional investors (IIs) have bid-up the price of oil to about $80 per barrel, partly as an asset play and partly due to fears about inflation. Oil is serving as a ‘temporary surrogate currency’ or ‘surrogate gold’ right now. But oil also is rising due to projected increasing demand in emerging markets – where the economic recovery appears to be on sounder footing. Given the latter, OPEC needs to increase production at its next meeting: if it doesn’t, $100 per barrel oil seems to be a certainty in 2010, and that would be counter-productive.
The U.S./global economic recoveries are underway, that we know. What economists and sector analysts don’t know is the whether this recovery has legs, i.e. whether it is sustainable.
Regarding the United States, the world’s largest economy, the upturn in U.S. manufacturing is one of four, key economic expansion/contraction indicators and the main reason most economists believe the economy is expanding.
However, the other four – sales (sluggish), incomes (stagnant), and payrolls (still declining), do not point to a recovery. If the three aforementioned don’t begin to trend higher, the sustainability of the rebound will come under serious questioning, as opposed to just muttering and ‘devil’s advocate’ critiques one hears now.
What’s another factor that could stop the recovery in its tracks? You guessed it: the price of oil. Institutional investors (IIs) have bid-up the price of oil to about $80 per barrel, partly as an asset play and partly due to fears about inflation. Oil is serving as a ‘temporary surrogate currency’ or ‘surrogate gold’ right now. But oil also is rising due to projected increasing demand in emerging markets – where the economic recovery appears to be on sounder footing. Given the latter, OPEC needs to increase production at its next meeting: if it doesn’t, $100 per barrel oil seems to be a certainty in 2010, and that would be counter-productive.
Friday, October 30, 2009
Will the U.S. economic recovery last?
By Money Matters Editors
After a year of negative GDP growth, U.S. GDP growth finally returned, registering a better-than-expected 3.5 percent growth rate in Q3.
Doesn’t it seem like it’s been years since economists and analysts have talked about GDP growth? That’s because the recession actually started in December 2007 – with only a modest level of growth occurring during Q4 2007. In other words, the United States registered five consecutive quarters of sub-par growth or negative growth: that is a long time. In fact, the U.S. economy registered four straight negative growth quarters during the recession – the first time that’s occurred since the Great Depression.
Further, in the past 12 months, the economy has contracted 2.3 percent, including a 0.7 percent contraction in Q2 and a 6.4 percent plunge in Q1.
After a year of negative GDP growth, U.S. GDP growth finally returned, registering a better-than-expected 3.5 percent growth rate in Q3.
Doesn’t it seem like it’s been years since economists and analysts have talked about GDP growth? That’s because the recession actually started in December 2007 – with only a modest level of growth occurring during Q4 2007. In other words, the United States registered five consecutive quarters of sub-par growth or negative growth: that is a long time. In fact, the U.S. economy registered four straight negative growth quarters during the recession – the first time that’s occurred since the Great Depression.
Further, in the past 12 months, the economy has contracted 2.3 percent, including a 0.7 percent contraction in Q2 and a 6.4 percent plunge in Q1.
Thursday, October 29, 2009
Is Boeing's 787 Dreamliner a pipe dream?
By Money Matters Editors
Boeing (BA) announced Wednesday that it’s chosen North Charleston, S.C. for its second plant for the next-generation 787 Dreamliner, over Seattle.
What would be even better news? Boeing announcing that the much-delayed 787 is rolling off the assembly line and is being delivered to airlines, worldwide.
To say there’s a lot riding on the 787 would be the understatement of the year.
Boeing (BA) announced Wednesday that it’s chosen North Charleston, S.C. for its second plant for the next-generation 787 Dreamliner, over Seattle.
What would be even better news? Boeing announcing that the much-delayed 787 is rolling off the assembly line and is being delivered to airlines, worldwide.
To say there’s a lot riding on the 787 would be the understatement of the year.
Wednesday, October 28, 2009
Memo to emerging markets: Buy, consume, spend
By Money Matters Editors
One of the major problems in our current economic age concerns consumers. Or, rather, the lack of consumers.
The U.S. consumer has adopted a ‘frugal consumer’ stance, and it's not going to be a short-term trend. After more than a decade of unsustainable over-consumption – spending fueled in many cases by home equity loans and mortgage refinancings – U.S. consumers have reached the time where they have to pay the bill, and they’ve been paying-down debt at an impressive rate.
Not only that, U.S. consumers have increased their savings and are currently saving about 3% of their income.
One of the major problems in our current economic age concerns consumers. Or, rather, the lack of consumers.
The U.S. consumer has adopted a ‘frugal consumer’ stance, and it's not going to be a short-term trend. After more than a decade of unsustainable over-consumption – spending fueled in many cases by home equity loans and mortgage refinancings – U.S. consumers have reached the time where they have to pay the bill, and they’ve been paying-down debt at an impressive rate.
Not only that, U.S. consumers have increased their savings and are currently saving about 3% of their income.
Tuesday, October 27, 2009
Health reform and a housing credit: Can Congress do two things at once?
By Money Matters Editors
Can Congress do two things at once? Can it think and act at the same time? Money Matters knows it’s a lot, but we have confidence in our national lawmakers.
While also putting the final touches on health care reform bills about to be debated in the House and Senate, respectively, Congress is also getting set to extend the $8,000 federal income tax credit for first-time home buyers.
And, as Money Editors noted earlier, the United States needs both health care reform and an extension of the first-time home buyers’ credit.
Can Congress do two things at once? Can it think and act at the same time? Money Matters knows it’s a lot, but we have confidence in our national lawmakers.
While also putting the final touches on health care reform bills about to be debated in the House and Senate, respectively, Congress is also getting set to extend the $8,000 federal income tax credit for first-time home buyers.
And, as Money Editors noted earlier, the United States needs both health care reform and an extension of the first-time home buyers’ credit.
Monday, October 26, 2009
More pain at the pump: U.S. gasoline prices jump 18 cents in two weeks
By Money Matters Editors
It looks like the U.S. is headed for $3 gasoline, again
This is not a pleasant sight for U.S. motorists: gasoline prices have jumped 17.8 cents in two weeks to an average of $2.66 per gallon for regular unleaded, according to data compiled by the Lundberg Survey, Bloomberg News reported.
It looks like the U.S. is headed for $3 gasoline, again
This is not a pleasant sight for U.S. motorists: gasoline prices have jumped 17.8 cents in two weeks to an average of $2.66 per gallon for regular unleaded, according to data compiled by the Lundberg Survey, Bloomberg News reported.
Friday, October 23, 2009
Washington cracks down on bailout bank executive pay: High time
By Money Matters Editors
The Obama administration has decided to cut the pay of Wall Street executives at companies bailed out by the federal government, and Money Matters says, “It’s high time!”
The banks and financial institutions are against the crackdown, arguing that they need to continue to pay large salaries and bonuses to attract the top talent they need to run their operations.
The Obama administration has decided to cut the pay of Wall Street executives at companies bailed out by the federal government, and Money Matters says, “It’s high time!”
The banks and financial institutions are against the crackdown, arguing that they need to continue to pay large salaries and bonuses to attract the top talent they need to run their operations.
Wednesday, October 21, 2009
When will the Fed take the punch bowl away?
By Money Matters Editors
In the months and quarters ahead, the U.S. Federal Reserve will face, arguably, its biggest decision in the modern era - certainly its biggest choice since the early 1980s, and possibly since the 1930s. Namely - when to start to withdraw quantitative easing - cash injections that provided essential liquidity to markets to end the financial crisis.
If the Fed withdraws funds too late, it runs the risk of increasing inflation - and some say increasing it to a very high rate - like the double-digit rates last seen in the early 1980s.
In the months and quarters ahead, the U.S. Federal Reserve will face, arguably, its biggest decision in the modern era - certainly its biggest choice since the early 1980s, and possibly since the 1930s. Namely - when to start to withdraw quantitative easing - cash injections that provided essential liquidity to markets to end the financial crisis.
If the Fed withdraws funds too late, it runs the risk of increasing inflation - and some say increasing it to a very high rate - like the double-digit rates last seen in the early 1980s.
Tuesday, October 20, 2009
Congress set to extend $8,000 home buyer tax credit
By Money Matters Editors
It appears Congress is about set to extend the $8,000 federal income tax credit for first-time home buyers. The credit is set to expire November 30.
Some have argued against an extension, but Money Matters Editors disagree. On the contrary, the credit should be expanded, as well as being extended.
It appears Congress is about set to extend the $8,000 federal income tax credit for first-time home buyers. The credit is set to expire November 30.
Some have argued against an extension, but Money Matters Editors disagree. On the contrary, the credit should be expanded, as well as being extended.
Monday, October 19, 2009
Oil: At a crossroad
By Money Matters Editors
Oil is at a crossroads, of sorts.
The oil bulls will argue that ramping demand in emerging markets, plus stabilization in the developed world, combined with the desire by selected institutional investors (IIs) to hold oil as an asset, will send the world's most important commodity closet to $80, then $90 per barrel.
Oil is at a crossroads, of sorts.
The oil bulls will argue that ramping demand in emerging markets, plus stabilization in the developed world, combined with the desire by selected institutional investors (IIs) to hold oil as an asset, will send the world's most important commodity closet to $80, then $90 per barrel.
Friday, October 16, 2009
Dow surfaces above 10,000: but can it remain above it?
By Money Matters Editors
Since the Dow is above 10,000 let’s briefly re-examine the world's most closely monitored stock market index, this time from a technical standpoint.
If the Dow can close above the psychologically-significant 10,000 mark for three straight sessions, that would be a bullish sign. Thursday was the second straight day, so Friday (obviously) looms large. Given that Fridays during sluggish-to-recessionary economic times are usually down days for the Dow, Friday represents a formidable hurdle for Dow 10,000.
Since the Dow is above 10,000 let’s briefly re-examine the world's most closely monitored stock market index, this time from a technical standpoint.
If the Dow can close above the psychologically-significant 10,000 mark for three straight sessions, that would be a bullish sign. Thursday was the second straight day, so Friday (obviously) looms large. Given that Fridays during sluggish-to-recessionary economic times are usually down days for the Dow, Friday represents a formidable hurdle for Dow 10,000.
Thursday, October 15, 2009
After health care reform, what's next for Congress? Jobs, jobs, jobs
By Money Matters Editors
After health care reform, what’s next for the U.S. Congress? Jobs, Jobs, Jobs.
Can there be any issue that’s more important than job growth? To cite a phrase often-used by a graduate school mentor of a Money Matters Editor, ‘We don’t think so.’
The nation has lost more than 7.2 million jobs in the recession that started in December 2007, and the unemployment rate has basically doubled to 9.8 percent. In a nutshell, the U.S. economy is operating well below potential – what economists call an ‘output gap.’
After health care reform, what’s next for the U.S. Congress? Jobs, Jobs, Jobs.
Can there be any issue that’s more important than job growth? To cite a phrase often-used by a graduate school mentor of a Money Matters Editor, ‘We don’t think so.’
The nation has lost more than 7.2 million jobs in the recession that started in December 2007, and the unemployment rate has basically doubled to 9.8 percent. In a nutshell, the U.S. economy is operating well below potential – what economists call an ‘output gap.’
Wednesday, October 14, 2009
U.S. tax on corporate revenue earned abroad is deferred: Good going
By Money Matters Editors
The Obama administration has shelved plans to increase taxes on multinational corporations by more than $200 billion, The Wall Street Journal reported Tuesday, after businesses complained the taxes would decrease commercial activity and hurt the creation of jobs.
And to the above, the Editors of Money Matters say: smart move! Businesses will have a hard enough time both retaining existing employees and adjusting to the new, likely requirements under the upcoming heath care reform legislation. Outside of health care reform – which also has the potential to lower corporate health care premiums, long-term, if competition increases - this is no time to add to business mandates: their operational models are being stressed enough by the recession.
The Obama administration has shelved plans to increase taxes on multinational corporations by more than $200 billion, The Wall Street Journal reported Tuesday, after businesses complained the taxes would decrease commercial activity and hurt the creation of jobs.
And to the above, the Editors of Money Matters say: smart move! Businesses will have a hard enough time both retaining existing employees and adjusting to the new, likely requirements under the upcoming heath care reform legislation. Outside of health care reform – which also has the potential to lower corporate health care premiums, long-term, if competition increases - this is no time to add to business mandates: their operational models are being stressed enough by the recession.
Tuesday, October 13, 2009
Dow 10,000? The real thing or a mirage?
By Money Matters Editors
Dow 10,000. Is it that important? As Shakespeare wrote, in Romeo and Juliet in 1594, “What’s in a name? That which we call a rose, by any other name would smell as sweet.”
Well, those market analysts who use technical analysis would argue that Dow 10,000 is a psychologically-significant level and name, but it’s not a technically-significant level.
Technical analysts say the Dow might close above 10,000 for a day, then fall back – and if it does, that would be bearish for stocks. Conversely, the Dow might pull-back considerably - technicians call it a correction - then rise above and close above 10,000 for three straight days, and if that occurs that would be bullish for stocks.
Dow 10,000. Is it that important? As Shakespeare wrote, in Romeo and Juliet in 1594, “What’s in a name? That which we call a rose, by any other name would smell as sweet.”
Well, those market analysts who use technical analysis would argue that Dow 10,000 is a psychologically-significant level and name, but it’s not a technically-significant level.
Technical analysts say the Dow might close above 10,000 for a day, then fall back – and if it does, that would be bearish for stocks. Conversely, the Dow might pull-back considerably - technicians call it a correction - then rise above and close above 10,000 for three straight days, and if that occurs that would be bullish for stocks.
Monday, October 12, 2009
Shale gas: The new, cheap, abundant energy form?
By Money Matters Editors
You know the business press and general public have finally recognized a trend when they give it a label.
Case in point: unconventional natural gas – previously hard-to-access natural gas that now can be captured by new technologies. Some are calling it the natural gas revolution, with the downward price pressure a ‘shale shock.’
Money Matters first wrote about it on September 23. Estimated U.S. natural gas reserves have increased 35 percent, mostly on the ability to access these new sources, with estimated reserves totaling 2,074 trillion cubic feet in 2008, up from 1,532 trillion cubic feet in 2006, according to the Potential Gas Committee, The New York Times reported. Natural gas closed Friday down 19 cents to $4.77 per million BTUs (MMBtu).
New technology, including hydraulic fracturing and drilling horizontally, has opened hundreds of previously cost-prohibitive natural gas sites. U.S. drilling has been going on in earnest for more than three years, but global drilling has only just begun.
How significant is unconventional natural gas in the nation’s and world’s energy policy? Oil/energy analyst Daniel Yergin, co-founder of Cambridge Energy Research Associates (CERA), has called unconventional natural gas “the biggest energy innovation of the past decade.”
You know the business press and general public have finally recognized a trend when they give it a label.
Case in point: unconventional natural gas – previously hard-to-access natural gas that now can be captured by new technologies. Some are calling it the natural gas revolution, with the downward price pressure a ‘shale shock.’
Money Matters first wrote about it on September 23. Estimated U.S. natural gas reserves have increased 35 percent, mostly on the ability to access these new sources, with estimated reserves totaling 2,074 trillion cubic feet in 2008, up from 1,532 trillion cubic feet in 2006, according to the Potential Gas Committee, The New York Times reported. Natural gas closed Friday down 19 cents to $4.77 per million BTUs (MMBtu).
New technology, including hydraulic fracturing and drilling horizontally, has opened hundreds of previously cost-prohibitive natural gas sites. U.S. drilling has been going on in earnest for more than three years, but global drilling has only just begun.
How significant is unconventional natural gas in the nation’s and world’s energy policy? Oil/energy analyst Daniel Yergin, co-founder of Cambridge Energy Research Associates (CERA), has called unconventional natural gas “the biggest energy innovation of the past decade.”
Friday, October 9, 2009
The Bush energy policy: Iraq – less oil and higher oil prices
By Money Matters Editors
It will take the United States and the world perhaps two decades to recover from the mistakes of the George W. Bush presidency (2001-2009). Certainly it will take longer than one 8-year presidential administration. Of all the policy mistakes, perhaps the Bush energy policy, or lack thereof, will be the most costly.
Money Matters will look at the Bush energy policy mistakes in four parts over the next four weeks. Today: Iraq.
The 2001 Bush income tax cut that promptly turned a U.S. government budget surplus into a budget deficit will perhaps be viewed by economists and historians as the Bush administration’s most economically damaging policy. But a close second may very well be Iraq.
Not that the removal of tyrant Saddam Hussein was a mistake: it wasn’t. But the Iraq campaign was pursued incorrectly: the U.S. should have worked in union with its European and other allies and used other measures to ease Hussein from power.
It will take the United States and the world perhaps two decades to recover from the mistakes of the George W. Bush presidency (2001-2009). Certainly it will take longer than one 8-year presidential administration. Of all the policy mistakes, perhaps the Bush energy policy, or lack thereof, will be the most costly.
Money Matters will look at the Bush energy policy mistakes in four parts over the next four weeks. Today: Iraq.
The 2001 Bush income tax cut that promptly turned a U.S. government budget surplus into a budget deficit will perhaps be viewed by economists and historians as the Bush administration’s most economically damaging policy. But a close second may very well be Iraq.
Not that the removal of tyrant Saddam Hussein was a mistake: it wasn’t. But the Iraq campaign was pursued incorrectly: the U.S. should have worked in union with its European and other allies and used other measures to ease Hussein from power.
Welcome to Money Matters
By Money Matters Editors
Welcome to Money Matters, a web site about stocks, sectors, investing, macroeconomics, and more. Our focus is on the markets and the economy, but really, if it’s about money, it’s fair game here. We offer independent news, analysis, commentary, and research to help you, the investor, make more-informed investing decisions.
Further, because our focus is on you, the investor, we want to hear from you to make our service better. Please offer your thoughtful comments in the comments section provided.
Money Matters has assembled a team of experienced reporters, analysts, columnists, and economists with one goal in mind: to help you navigate through these challenging times.
Our Stock Reviews by our stock analysts are based on an independent, proprietary stock investment formula, not affiliated with any bank, brokerage, or research service. If you’re looking for a stock to invest in, low risk to high risk, be sure to check out our Stock Reviews.
Thank you for visiting Money Matters, and visit us again soon.
-Money Matters Editors
Welcome to Money Matters, a web site about stocks, sectors, investing, macroeconomics, and more. Our focus is on the markets and the economy, but really, if it’s about money, it’s fair game here. We offer independent news, analysis, commentary, and research to help you, the investor, make more-informed investing decisions.
Further, because our focus is on you, the investor, we want to hear from you to make our service better. Please offer your thoughtful comments in the comments section provided.
Money Matters has assembled a team of experienced reporters, analysts, columnists, and economists with one goal in mind: to help you navigate through these challenging times.
Our Stock Reviews by our stock analysts are based on an independent, proprietary stock investment formula, not affiliated with any bank, brokerage, or research service. If you’re looking for a stock to invest in, low risk to high risk, be sure to check out our Stock Reviews.
Thank you for visiting Money Matters, and visit us again soon.
-Money Matters Editors
It’s time to end guaranteed compensation for mutual fund managers
By Money Matters Editors
One long-standing investment community practice in need of revision is the management fee, particularly among mutual funds.
The practice of financial managers charging a 1.0 percent of even a 0.7 percent management fee - exclusive of performance – has to end.
The reason? The fee simply amounts to guaranteed pay, regardless of performance. With the fee, if a mutual fund does well, the management team collects a fee; if the fund does horribly, the team collects a fee, usually with comments asserting that ‘the fund would have performed better during the year, but market conditions were against us.’ Where’s the incentive for stellar performance under that system? Little exists.
One long-standing investment community practice in need of revision is the management fee, particularly among mutual funds.
The practice of financial managers charging a 1.0 percent of even a 0.7 percent management fee - exclusive of performance – has to end.
The reason? The fee simply amounts to guaranteed pay, regardless of performance. With the fee, if a mutual fund does well, the management team collects a fee; if the fund does horribly, the team collects a fee, usually with comments asserting that ‘the fund would have performed better during the year, but market conditions were against us.’ Where’s the incentive for stellar performance under that system? Little exists.
Thursday, October 8, 2009
Exchange-traded funds: Time to jump in?
By Money Matters Editors
Exchange-traded funds, which issue securities backed by the item invested in, have become a popular way for typical investors to play the commodities market. The question is, should you invest in an ETF?
In a word: no. Exchange-traded funds do give investors access to commodities, but the premise is flawed: typical investors should not be investing in commodities at the source, to begin with.
And the reason is obvious enough: commodities are a highly-volatile, unpredictable investment class. Consider the U.S. gasoline market: there are more than 20 variables that can affect the price of regular unleaded gasoline. Natural gas has almost as many variables. ETFs do very little to change the above. Don't misunderstand: ETFs are not gimmicky, but they are quirky.
Exchange-traded funds, which issue securities backed by the item invested in, have become a popular way for typical investors to play the commodities market. The question is, should you invest in an ETF?
In a word: no. Exchange-traded funds do give investors access to commodities, but the premise is flawed: typical investors should not be investing in commodities at the source, to begin with.
And the reason is obvious enough: commodities are a highly-volatile, unpredictable investment class. Consider the U.S. gasoline market: there are more than 20 variables that can affect the price of regular unleaded gasoline. Natural gas has almost as many variables. ETFs do very little to change the above. Don't misunderstand: ETFs are not gimmicky, but they are quirky.
Wednesday, October 7, 2009
The inflation hawks circle: For U.S, it's cut the budget deficit, or else
By Money Matters Editors
Now the road gets a little bumpier. For years, the United States ran large deficits with near impunity - with low inflation and relatively low interest rates. That may be starting to change.
On Tuesday, investors bid-up the price of gold to a record high close of $1,033.90 per ounce. Gold had hit an intra-day high of $1,045 per ounce earlier in the day. (To view a price chart for gold click here.)
Historically, institutional investors (IIs), bid-up gold when they sense that inflation will re-heat in the quarters ahead. The culprit in Tuesday’s rally was the former, and also some chatter that there may be a move to price crude oil using a basket of currencies or a basket of currencies plus gold – either of which would be bearish for the dollar. Some major economic leaders are growing increasingly concerned about possible further weakness in the dollar and a rise in inflation, due to the U.S.’s large plus-$1 trillion budget deficit.
Now the road gets a little bumpier. For years, the United States ran large deficits with near impunity - with low inflation and relatively low interest rates. That may be starting to change.
On Tuesday, investors bid-up the price of gold to a record high close of $1,033.90 per ounce. Gold had hit an intra-day high of $1,045 per ounce earlier in the day. (To view a price chart for gold click here.)
Historically, institutional investors (IIs), bid-up gold when they sense that inflation will re-heat in the quarters ahead. The culprit in Tuesday’s rally was the former, and also some chatter that there may be a move to price crude oil using a basket of currencies or a basket of currencies plus gold – either of which would be bearish for the dollar. Some major economic leaders are growing increasingly concerned about possible further weakness in the dollar and a rise in inflation, due to the U.S.’s large plus-$1 trillion budget deficit.
Tuesday, October 6, 2009
Health care reform update: The politicking has only just begun
By Money Matters Editors
Health care reform update: Assuming a health care reform bill makes it out of the Senate Finance Committee - and one will - two, major hurdles remain: the Senate and the likely conference committee reconciling differences with the House’s health care reform legislation. Neither of these hurdles will be easy to mount.
Senate Majority Leader Harry Reid, D-Nevada, has the difficult task of trying to maintain liberal Democratic Senators’ support for the bill without angering Moderate Democrats. It’s critical that Reid retain at least 60 votes for the bill – in any combination – because a Republican-dominated coalition is set to filibuster any bill that falls below 60 votes, the level needed to invoke cloture and end a filibuster. In the United States, due to the filibuster’s unlimited debate provision, having a simple majority doe not mean you can govern: ‘in the Senate, it takes 60 to govern,’ as they say on Capitol Hill.
(Decades ago, a filibuster was rare. Today, in Washington’s highly partisan environment featuring two polarized parties, the filibuster is used routinely. The great former Senate Majority Leader, and President Lyndon B. Johnson is turning over in his grave!)
Health care reform update: Assuming a health care reform bill makes it out of the Senate Finance Committee - and one will - two, major hurdles remain: the Senate and the likely conference committee reconciling differences with the House’s health care reform legislation. Neither of these hurdles will be easy to mount.
Senate Majority Leader Harry Reid, D-Nevada, has the difficult task of trying to maintain liberal Democratic Senators’ support for the bill without angering Moderate Democrats. It’s critical that Reid retain at least 60 votes for the bill – in any combination – because a Republican-dominated coalition is set to filibuster any bill that falls below 60 votes, the level needed to invoke cloture and end a filibuster. In the United States, due to the filibuster’s unlimited debate provision, having a simple majority doe not mean you can govern: ‘in the Senate, it takes 60 to govern,’ as they say on Capitol Hill.
(Decades ago, a filibuster was rare. Today, in Washington’s highly partisan environment featuring two polarized parties, the filibuster is used routinely. The great former Senate Majority Leader, and President Lyndon B. Johnson is turning over in his grave!)
Monday, October 5, 2009
Congress should extend the $8,000 tax credit for first-time home buyers through Jan. 1, 2011
By Money Matters Editors
Perhaps it’s time for the U.S. Congress to renew the $8,000 federal income tax credit for first-time home buyers. The credit expires November 30.
And the reasons are obvious enough. First, the current economic consensus projects only tepid U.S. GDP growth of 1.0-1.5 percent in the early stages of the next economic expansion – hardly the stuff of massive job creation outside of the housing sector. In other words, the output gap in the U.S. economy is likely to persist, even as the recovery progresses.
Second, the housing sector, while showing signs of stabilization, still isn’t experiencing enough traffic/demand from potential home buyers. Many prospective home buyers have adopted a ‘wait-and-see’ approach – delaying purchases, hoping for a further decline in prices. Translation: there are a lot of fence-sitters, and the $8,000 credit may be just the incentive needed to nudge these likely-but-waiting home buyers into the market.Further, the extra home buying activity will create some jobs by increasing demand for appliances, furniture, home services, and insurance, as an increase in home buying historically has done.
Perhaps it’s time for the U.S. Congress to renew the $8,000 federal income tax credit for first-time home buyers. The credit expires November 30.
And the reasons are obvious enough. First, the current economic consensus projects only tepid U.S. GDP growth of 1.0-1.5 percent in the early stages of the next economic expansion – hardly the stuff of massive job creation outside of the housing sector. In other words, the output gap in the U.S. economy is likely to persist, even as the recovery progresses.
Second, the housing sector, while showing signs of stabilization, still isn’t experiencing enough traffic/demand from potential home buyers. Many prospective home buyers have adopted a ‘wait-and-see’ approach – delaying purchases, hoping for a further decline in prices. Translation: there are a lot of fence-sitters, and the $8,000 credit may be just the incentive needed to nudge these likely-but-waiting home buyers into the market.Further, the extra home buying activity will create some jobs by increasing demand for appliances, furniture, home services, and insurance, as an increase in home buying historically has done.
How can the U.S. Congress help strengthen the dollar?
By Money Matters Editors
One of the ways the U.S. government can strengthen the dollar is an obvious one: cut the budget deficit, including a tax increase to pay for the Iraq War and Afghanistan War.
The U.S. Congress made many policy mistakes in the past eight years prior to the Obama administration, and one of them was spending money on the Iraq War and Afghanistan War without first raising a tax – an income tax or otherwise – to pay for it.
One of the ways the U.S. government can strengthen the dollar is an obvious one: cut the budget deficit, including a tax increase to pay for the Iraq War and Afghanistan War.
The U.S. Congress made many policy mistakes in the past eight years prior to the Obama administration, and one of them was spending money on the Iraq War and Afghanistan War without first raising a tax – an income tax or otherwise – to pay for it.
Friday, October 2, 2009
It’s too early to evaluate the free enterprise system
By Money Matters Editors
These days, it’s become popular to criticize the free market system, or capitalism, and much of it is justified.
Over-leveraged banks, home owners who treated their houses as ATM machines or who bought homes they could not afford when interest rates reset to normal rates, and mortgage lenders who granted curious and in some cases absurd mortgages to home buyers, all played a role in creating the financial crisis. And others were complicit. It was a tragic play involving debt, too much debt, and fraudulently obtained debt, and it is deserving of rebuke.
These days, it’s become popular to criticize the free market system, or capitalism, and much of it is justified.
Over-leveraged banks, home owners who treated their houses as ATM machines or who bought homes they could not afford when interest rates reset to normal rates, and mortgage lenders who granted curious and in some cases absurd mortgages to home buyers, all played a role in creating the financial crisis. And others were complicit. It was a tragic play involving debt, too much debt, and fraudulently obtained debt, and it is deserving of rebuke.
Thursday, October 1, 2009
Welcome to Money Matters
By Money Matters Editors
Welcome to Money Matters, a web site about stocks, sectors, investing, macroeconomics, and more. Our focus is on the markets and the economy, but really, if it’s about money, it’s fair game here. We offer independent news, analysis, commentary, and research to help you, the investor, make more-informed investing decisions.
Further, because our focus is on you, the investor, we want to hear from you to make our service better. Please offer your thoughtful comments in the comments section provided.
Money Matters has assembled a team of experienced reporters, analysts, columnists, and economists with one goal in mind: to help you navigate through these challenging times.
Our Stock Reviews by our stock analysts are based on an independent, proprietary stock investment formula, not affiliated with any bank, brokerage, or research service. If you’re looking for a stock to invest in, low risk to high risk, be sure to check out our Stock Reviews.
Thank you for visiting Money Matters, and visit us again soon.
-Money Matters Editors
Welcome to Money Matters, a web site about stocks, sectors, investing, macroeconomics, and more. Our focus is on the markets and the economy, but really, if it’s about money, it’s fair game here. We offer independent news, analysis, commentary, and research to help you, the investor, make more-informed investing decisions.
Further, because our focus is on you, the investor, we want to hear from you to make our service better. Please offer your thoughtful comments in the comments section provided.
Money Matters has assembled a team of experienced reporters, analysts, columnists, and economists with one goal in mind: to help you navigate through these challenging times.
Our Stock Reviews by our stock analysts are based on an independent, proprietary stock investment formula, not affiliated with any bank, brokerage, or research service. If you’re looking for a stock to invest in, low risk to high risk, be sure to check out our Stock Reviews.
Thank you for visiting Money Matters, and visit us again soon.
-Money Matters Editors
Want lower gas prices? Cut the U.S. budget deficit
By Money Matters Editors
Americans do a lot of complaining about the price of gasoline. What’s one good way to lower gas prices? Cut the U.S. budget deficit! You read correctly - cut the budget deficit. Here’s why:
Oil has many roles in our modern world. It is, as everyone knows, the primary fuel for transportation in the developed and now in the developing world, too. In the United States, it’s clearly the most important commodity, given the nation’s enormous gasoline use, and consider this staggering statistic: one of every 10 barrels of oil in the world is used to make gasoline for U.S. motorists. Astounding. Talk about a car culture.
But what many motorists – and some investors – do not know is that oil has other roles in the modern world, namely as an asset for investment, hedge, and related funds. Further, some investors buy oil as an inflation hedge. And it’s those two, latter roles, as an asset and as an inflation hedge, that explain the connection between the U.S. budget deficit and price of gasoline in the U.S.
Americans do a lot of complaining about the price of gasoline. What’s one good way to lower gas prices? Cut the U.S. budget deficit! You read correctly - cut the budget deficit. Here’s why:
Oil has many roles in our modern world. It is, as everyone knows, the primary fuel for transportation in the developed and now in the developing world, too. In the United States, it’s clearly the most important commodity, given the nation’s enormous gasoline use, and consider this staggering statistic: one of every 10 barrels of oil in the world is used to make gasoline for U.S. motorists. Astounding. Talk about a car culture.
But what many motorists – and some investors – do not know is that oil has other roles in the modern world, namely as an asset for investment, hedge, and related funds. Further, some investors buy oil as an inflation hedge. And it’s those two, latter roles, as an asset and as an inflation hedge, that explain the connection between the U.S. budget deficit and price of gasoline in the U.S.
Wednesday, September 30, 2009
It’s a small world: what leaders must do to achieve a healthy global economy
By Money Matters Editors
The previous global economic expansion was riddled with structural imbalances. Provided the balances are addressed, a global economic recovery will follow, but the task is huge.
Economists and policy makers are starting to call the previous economic expansion the ‘Bush era’ or the era of the pseudo-economic boom - a period when unsustainable borrowing by American citizens masked, for a short period, structural imbalances that almost guaranteed that the U.S. and global economies would fall into recessions.
Those imbalances were laid bare once the U.S. home-as-ATM era ended when the U.S. housing sector collapsed, and the correcting of those imbalances is one reason the recession has been long and deep. Investors should monitor the major economies’ progress at ending these imbalances. Here’s an update:
The previous global economic expansion was riddled with structural imbalances. Provided the balances are addressed, a global economic recovery will follow, but the task is huge.
Economists and policy makers are starting to call the previous economic expansion the ‘Bush era’ or the era of the pseudo-economic boom - a period when unsustainable borrowing by American citizens masked, for a short period, structural imbalances that almost guaranteed that the U.S. and global economies would fall into recessions.
Those imbalances were laid bare once the U.S. home-as-ATM era ended when the U.S. housing sector collapsed, and the correcting of those imbalances is one reason the recession has been long and deep. Investors should monitor the major economies’ progress at ending these imbalances. Here’s an update:
Tuesday, September 29, 2009
U.S. inches closer to universal health care
By Money Matters Editors
Those who sampled the Senate Finance Committee’s debate on health care reform on Monday and Friday on C-SPAN undoubtedly came away with one certainty: some type of health care reform bill will be passed this year. It’s exact shape? Stay tuned.
That the United States is likely to reform its gargantuan $2.5 trillion health care sector is a plus, for citizens and corporations alike. That’s because the nation will slowly move away from the current untenable system of the uninsured showing up at hospital emergency rooms for basic care, at a cost of $1,000 per hour and up.
Further, it doesn’t take an MIT mathematician to figure out that any insurance or comparable health care program that enables those without insurance to access primary care from a local doctor/general practice physician eliminates a major cost increase area in the system. The United States should have implemented a basic health insurance plan decades ago: had it done so, many hospitals would not have incurred the enormous costs that they have from treating the uninsured in emergency rooms.
Those who sampled the Senate Finance Committee’s debate on health care reform on Monday and Friday on C-SPAN undoubtedly came away with one certainty: some type of health care reform bill will be passed this year. It’s exact shape? Stay tuned.
That the United States is likely to reform its gargantuan $2.5 trillion health care sector is a plus, for citizens and corporations alike. That’s because the nation will slowly move away from the current untenable system of the uninsured showing up at hospital emergency rooms for basic care, at a cost of $1,000 per hour and up.
Further, it doesn’t take an MIT mathematician to figure out that any insurance or comparable health care program that enables those without insurance to access primary care from a local doctor/general practice physician eliminates a major cost increase area in the system. The United States should have implemented a basic health insurance plan decades ago: had it done so, many hospitals would not have incurred the enormous costs that they have from treating the uninsured in emergency rooms.
Monday, September 28, 2009
Could the U.S. experience a strong economic recovery?
By Money Matters Editors
Can one make the case that the U.S. economic recovery will be stronger than expected? Hey, it’s a dirty job, but somebody has to do it.
Here’s why the U.S. economy might register stronger GDP growth in the initial stage of the recovery:
First, there’s the manufacturing sector. The Institute for Supply Management’s manufacturing index rose to 52.9 in August from 48.9 in July. Readings above 50 indicate an economic expansion; under 50, a contraction, but the important point is that businesses have cut inventories for 40 straight months.
The significance? Companies and manufacturers have become super-lean: along with cutting costs, they’ve been unwilling to store products, for fear of being left with goods they can’t sell, in the event the longest U.S. recession since the end of World War II continues through the fall and into winter. However, those super-lean inventories mean many corporations will be ‘product-short’ if the economic recovery takes hold, requiring them to hire to increase production and rebuild inventories. If that occurs, U.S. GDP will benefit from the increased purchasing poer and additional commerce.
Can one make the case that the U.S. economic recovery will be stronger than expected? Hey, it’s a dirty job, but somebody has to do it.
Here’s why the U.S. economy might register stronger GDP growth in the initial stage of the recovery:
First, there’s the manufacturing sector. The Institute for Supply Management’s manufacturing index rose to 52.9 in August from 48.9 in July. Readings above 50 indicate an economic expansion; under 50, a contraction, but the important point is that businesses have cut inventories for 40 straight months.
The significance? Companies and manufacturers have become super-lean: along with cutting costs, they’ve been unwilling to store products, for fear of being left with goods they can’t sell, in the event the longest U.S. recession since the end of World War II continues through the fall and into winter. However, those super-lean inventories mean many corporations will be ‘product-short’ if the economic recovery takes hold, requiring them to hire to increase production and rebuild inventories. If that occurs, U.S. GDP will benefit from the increased purchasing poer and additional commerce.
Friday, September 25, 2009
For prospective U.S. home buyers, time is on your side, yes it is
By Money Matters Editors
Some economists and realtors are forecasting a quick snap-back in the U.S. housing sector. Nope. Sorry, it doesn’t work that way, as the grade school kids say in the states. Here’s why:
First, there’s the inventory bulge from the housing sector’s bust. As the National Association of Realtors’ August existing home sales report released Thursday indicated, there’s still an 8.5-month supply of existing homes on the market in the United States at the current sales pace.
True, that total is down from the 9.3-month supply level of July, but it’s still well above the inventory level during typical conditions: a normal, healthy housing market has a 3-5 month supply of existing homes.
Institutional investors, the big guns who make markets, follow several housing statistics (and other stats), but they closely monitor existing home sales data because they constitute the bulk of home sales. Moreover, because the housing sector affects so many lateral sectors (furniture, appliances, landscaping, insurance), housing, at least historically, has been a barometer of overall U.S. economic health.
Some economists and realtors are forecasting a quick snap-back in the U.S. housing sector. Nope. Sorry, it doesn’t work that way, as the grade school kids say in the states. Here’s why:
First, there’s the inventory bulge from the housing sector’s bust. As the National Association of Realtors’ August existing home sales report released Thursday indicated, there’s still an 8.5-month supply of existing homes on the market in the United States at the current sales pace.
True, that total is down from the 9.3-month supply level of July, but it’s still well above the inventory level during typical conditions: a normal, healthy housing market has a 3-5 month supply of existing homes.
Institutional investors, the big guns who make markets, follow several housing statistics (and other stats), but they closely monitor existing home sales data because they constitute the bulk of home sales. Moreover, because the housing sector affects so many lateral sectors (furniture, appliances, landscaping, insurance), housing, at least historically, has been a barometer of overall U.S. economic health.
Thursday, September 24, 2009
Is the U.S. dollar about to plunge?
By Money Matters Editors
Where’s the U.S. dollar headed from here? Well, if you’re in the camp that argues that both monetary and fiscal stimulus guarantee rising U.S. inflation, the dollar will likely weaken in the immediate quarters ahead, and probably for longer.
But if you’re in the camp that argues that given asset destruction, massive job lay-offs, and price power that is non-existent, the dollar will hold its own against the world’s other major currencies.
The dollar weakened about one-half cent Wednesday to $1.4811 and $1.6436 versus the euro and British pound, respectively. The dollar was virtually unchanged versus Japan’s yen at 91.13 yen. The dollar has weakened about 7 percent versus the euro and about 8.5 percent versus the pound so far in 2009. The buck is virtually unchanged versus the yen this year.
Where’s the U.S. dollar headed from here? Well, if you’re in the camp that argues that both monetary and fiscal stimulus guarantee rising U.S. inflation, the dollar will likely weaken in the immediate quarters ahead, and probably for longer.
But if you’re in the camp that argues that given asset destruction, massive job lay-offs, and price power that is non-existent, the dollar will hold its own against the world’s other major currencies.
The dollar weakened about one-half cent Wednesday to $1.4811 and $1.6436 versus the euro and British pound, respectively. The dollar was virtually unchanged versus Japan’s yen at 91.13 yen. The dollar has weakened about 7 percent versus the euro and about 8.5 percent versus the pound so far in 2009. The buck is virtually unchanged versus the yen this year.
Wednesday, September 23, 2009
Natural gas' U.S. prospects rise as its price falls
By Money Matters Editors
A ‘perfect storm’ of new technology, producers’ reluctance to cut production, and a pricing anomaly has created a new opportunity for natural gas to emerge as a dominant energy source in the United States in the decades ahead. Here’s the low-down:
First, there’s natural gas’ low price. Natural gas hit a 7-year low earlier this year, falling through the psychologically-significant $3 per million BTUs (MMBtu) level on rising supplies and low demand from industry and power plants. Traders say prices could fall to $2.25-2.50 per million Btus before demand picks up, assuming the U.S. economy’s recovery track continues to progress. Natural gas is currently trading at about $3.65 per MMBtu.
Second, long-term, natural gas will likely at least remain competitive with oil, and probably remain cheaper on an energy delivered per dollar basis. The main reason? Large storage capacity in the United States, and the to-date unwillingness of natural gas producers to stop producing the stuff. New technology, including a process called hydraulic fracturing, enables the tapping of natural gas sources in the previously cost- prohibitive U.S. regions of Appalachia, the Mid-Continent, the Gulf Coast, and in the Rocky Mountains.
A ‘perfect storm’ of new technology, producers’ reluctance to cut production, and a pricing anomaly has created a new opportunity for natural gas to emerge as a dominant energy source in the United States in the decades ahead. Here’s the low-down:
First, there’s natural gas’ low price. Natural gas hit a 7-year low earlier this year, falling through the psychologically-significant $3 per million BTUs (MMBtu) level on rising supplies and low demand from industry and power plants. Traders say prices could fall to $2.25-2.50 per million Btus before demand picks up, assuming the U.S. economy’s recovery track continues to progress. Natural gas is currently trading at about $3.65 per MMBtu.
Second, long-term, natural gas will likely at least remain competitive with oil, and probably remain cheaper on an energy delivered per dollar basis. The main reason? Large storage capacity in the United States, and the to-date unwillingness of natural gas producers to stop producing the stuff. New technology, including a process called hydraulic fracturing, enables the tapping of natural gas sources in the previously cost- prohibitive U.S. regions of Appalachia, the Mid-Continent, the Gulf Coast, and in the Rocky Mountains.
Tuesday, September 22, 2009
A savvy investment strategy for the next decade? Pay down your mortgage faster
By Money Matters Editors
What’s the best investment strategy for the next decade? Well, that varies, depending on your risk tolerance, investment horizon, and investment goals, among other factors, but here’s a good investment tactic if you own a home in the U.S.: pay down your mortgage quicker.
That’s correct: paying down your mortgage quicker will help you achieve your financial goals.
Here’s how:
This decade, the Americans got into a lot of problematic - and in some cases very risky – habits/practices regarding debt. One of them was the now well-publicized teaser-rate mortgage, where borrowers were granted loans at very-low ‘temporary’ rates, even though, in some cases, the loan would become unaffordable for borrowers after the mortgage reset to its regular rate. The result was predictable: an increase in U.S. home foreclosures to record levels.
What’s more, there’s a variant of the above that Americans of conventional, fixed-rate mortgages probably don’t recognize, but it’s also problematic: paying the minimum on your mortgage.
Now don’t misunderstand: if you pay your mortgage on-time each month you’ll be in good graces with your bank/mortgage lender, and your credit score will not be affected.
That’s correct: paying down your mortgage quicker will help you achieve your financial goals.
Here’s how:
This decade, the Americans got into a lot of problematic - and in some cases very risky – habits/practices regarding debt. One of them was the now well-publicized teaser-rate mortgage, where borrowers were granted loans at very-low ‘temporary’ rates, even though, in some cases, the loan would become unaffordable for borrowers after the mortgage reset to its regular rate. The result was predictable: an increase in U.S. home foreclosures to record levels.
What’s more, there’s a variant of the above that Americans of conventional, fixed-rate mortgages probably don’t recognize, but it’s also problematic: paying the minimum on your mortgage.
Now don’t misunderstand: if you pay your mortgage on-time each month you’ll be in good graces with your bank/mortgage lender, and your credit score will not be affected.
Monday, September 21, 2009
Americans: Save, but not too much
By Money Matters Editors
This is not a polemic against saving. Americans – and others for that matter, but especially Americans – need to save. And how.
A decade of unsustainable over-consumption fueled by home equity loans and refinancings has left the United States with too little saved.
Americans reversed the above trend during the recession, with the nation’s savings rate rising to about 5 percent of gross income.
The paradox of thrift
But now there’s an equally difficult problem: the U.S. is saving too much, all at once. The great economist John Maynard Keynes said saving is a good thing, but if everyone saved everything, all the time, it would be a disaster. Keynes called it the ‘paradox of thrift.’
That’s because some consumer spending is needed to stimulate the U.S. economy. In fact, in recent decades consumer spending has accounted for 60-65 percent of U.S. GDP, and in some years the figure was closer to 70 percent. During the recession the U.S. has entered the ‘frugal consumer’ era and it remains to be seen whether consumption will account for as much of GDP as it has in the past, but one constant remains: some consumer spending must occur for U.S. GDP growth to approach historical rates.
This is not a polemic against saving. Americans – and others for that matter, but especially Americans – need to save. And how.
A decade of unsustainable over-consumption fueled by home equity loans and refinancings has left the United States with too little saved.
Americans reversed the above trend during the recession, with the nation’s savings rate rising to about 5 percent of gross income.
The paradox of thrift
But now there’s an equally difficult problem: the U.S. is saving too much, all at once. The great economist John Maynard Keynes said saving is a good thing, but if everyone saved everything, all the time, it would be a disaster. Keynes called it the ‘paradox of thrift.’
That’s because some consumer spending is needed to stimulate the U.S. economy. In fact, in recent decades consumer spending has accounted for 60-65 percent of U.S. GDP, and in some years the figure was closer to 70 percent. During the recession the U.S. has entered the ‘frugal consumer’ era and it remains to be seen whether consumption will account for as much of GDP as it has in the past, but one constant remains: some consumer spending must occur for U.S. GDP growth to approach historical rates.
Sunday, September 20, 2009
Welcome to Money Matters
By Money Matters Editors
Welcome to Money Matters, a web site about stocks, sectors, investing, macroeconomics, and more. Our focus is on the markets and the economy, but really, if it’s about money, it’s fair game here. We offer independent news, analysis, commentary, and research to help you, the investor, make more-informed investing decisions.
Further, because our focus is on you, the investor, we want to hear from you to make our service better. Please offer your thoughtful comments in the comments section provided.
Money Matters has assembled a team of experienced reporters, analysts, columnists, and economists with one goal in mind: to help you navigate through these challenging times.
Our Stock Reviews by our stock analysts are based on an independent, proprietary stock investment formula, not affiliated with any bank, brokerage, or research service. If you’re looking for a stock to invest in, low risk to high risk, be sure to check out our Stock Reviews.
Thank you for visiting Money Matters, and visit us again soon.
-Money Matters Editors
Welcome to Money Matters, a web site about stocks, sectors, investing, macroeconomics, and more. Our focus is on the markets and the economy, but really, if it’s about money, it’s fair game here. We offer independent news, analysis, commentary, and research to help you, the investor, make more-informed investing decisions.
Further, because our focus is on you, the investor, we want to hear from you to make our service better. Please offer your thoughtful comments in the comments section provided.
Money Matters has assembled a team of experienced reporters, analysts, columnists, and economists with one goal in mind: to help you navigate through these challenging times.
Our Stock Reviews by our stock analysts are based on an independent, proprietary stock investment formula, not affiliated with any bank, brokerage, or research service. If you’re looking for a stock to invest in, low risk to high risk, be sure to check out our Stock Reviews.
Thank you for visiting Money Matters, and visit us again soon.
-Money Matters Editors
Saturday, September 19, 2009
President Obama: As American as apple pie
By Money Matters Editors
There’s been a great deal of banter, and, frankly, static and hysteria, concerning President Obama’s economic policies. The most-vocal critics, really a fringe of the American voting public, assert that Obama is ‘a socialist.’ Nothing could be further from the truth: Obama believes in corporate capitalism, and fits into the tradition of a long-line of American reformers who are capitalists.
Europe looks at America with amusement: how can a President who ardently believes in the private sector’s virtues (entrepreneurship, ingenuity/innovation, dynamism, a more-efficient use of resources, reward for work, wealth building, and job creation, among others), and whose systemic reforms largely rely on the private sector, be viewed as a socialist?
Philistines, obstructionists, or both?
The reason is based in the United States’ political culture, which is 1) very private sector-oriented, and contains 2) the fear of a strong central government. There is a long history in the U.S. of autonomically - and in some cases mindlessly - opposing any economic/social reform. President Franklin D. Roosevelt (FDR), a liberal, was called a socialist during the debate over Social Security, the now bedrock pension system for most Americans. (Try opposing Social Security now, and see what happens to you, politically.) President Harry S Truman, an ideological moderate, was called ‘a traitor’ for taking, in the interpretation of the extreme ideological right, too weak a stance versus the Soviet Union and communism in the 1940s after World War II. President Lyndon B. Johnson was called a socialist during the successful effort to pass Medicare, the popular health insurance program for senior citizens. In short, any time an American president attempts economic / social reform, the fringe right wing goes into overdrive: it’s opposed to nearly all government programs, except defense.
There’s been a great deal of banter, and, frankly, static and hysteria, concerning President Obama’s economic policies. The most-vocal critics, really a fringe of the American voting public, assert that Obama is ‘a socialist.’ Nothing could be further from the truth: Obama believes in corporate capitalism, and fits into the tradition of a long-line of American reformers who are capitalists.
Europe looks at America with amusement: how can a President who ardently believes in the private sector’s virtues (entrepreneurship, ingenuity/innovation, dynamism, a more-efficient use of resources, reward for work, wealth building, and job creation, among others), and whose systemic reforms largely rely on the private sector, be viewed as a socialist?
Philistines, obstructionists, or both?
The reason is based in the United States’ political culture, which is 1) very private sector-oriented, and contains 2) the fear of a strong central government. There is a long history in the U.S. of autonomically - and in some cases mindlessly - opposing any economic/social reform. President Franklin D. Roosevelt (FDR), a liberal, was called a socialist during the debate over Social Security, the now bedrock pension system for most Americans. (Try opposing Social Security now, and see what happens to you, politically.) President Harry S Truman, an ideological moderate, was called ‘a traitor’ for taking, in the interpretation of the extreme ideological right, too weak a stance versus the Soviet Union and communism in the 1940s after World War II. President Lyndon B. Johnson was called a socialist during the successful effort to pass Medicare, the popular health insurance program for senior citizens. In short, any time an American president attempts economic / social reform, the fringe right wing goes into overdrive: it’s opposed to nearly all government programs, except defense.
Friday, September 18, 2009
On U.S. health care reform, half-loaf may be all that's possible
By Money Matters Editors
Our friends in Europe, and our friends in Asia, too, sometimes must look at the United States and simply shake their heads in amusement.
The U.S. Congress – specifically a Senate panel with 3 Democrats and 3 Republicans – has just spent nine months negotiating a health care reform bill, and at the end of all their work, do know what the end result was?
A bill that no one likes, The New York Times reported. Unbelievable. U.S. Finance Committee Chairman Max Baucus’, D-Montana, backroom wheeling and dealing, compromising, and logrolling has resulted in a bill that many liberal Democrats are saying they can’t support because it doesn’t contain a public option, and one that conservative Republicans are saying still does not represent an affordable health care bill, nor one they can support. All of Baucus’ work and delays did not garner one vote from Republicans on the committee. Talk about spinning your wheels.
Our friends in Europe, and our friends in Asia, too, sometimes must look at the United States and simply shake their heads in amusement.
The U.S. Congress – specifically a Senate panel with 3 Democrats and 3 Republicans – has just spent nine months negotiating a health care reform bill, and at the end of all their work, do know what the end result was?
A bill that no one likes, The New York Times reported. Unbelievable. U.S. Finance Committee Chairman Max Baucus’, D-Montana, backroom wheeling and dealing, compromising, and logrolling has resulted in a bill that many liberal Democrats are saying they can’t support because it doesn’t contain a public option, and one that conservative Republicans are saying still does not represent an affordable health care bill, nor one they can support. All of Baucus’ work and delays did not garner one vote from Republicans on the committee. Talk about spinning your wheels.
Thursday, September 17, 2009
Can the U.S. economy adjust to globalization?
By Money Matters Editors
It is not, to put it diplomatically, a stellar time for the U.S. economy.
The unemployment rate is approaching 10 percent, and most economists would be very happy if it stopped rising at that level. Home foreclosures hit a record during this recession, and while not rising, are still way too high for economic health. And, of course, the manufacturing, business investment, and export sectors, while having recently displayed signs of stabilization, are not, in recovery-mode yet. And the U.S. consumer, after a decade of over-consumption, is saving like never before – a 5 percent annual rate – good for investment, long-term, but a depressor of GDP growth, short-term. In other words, all the key sources of demand are stagnant or barely growing – not nearly the conditions for robust GDP growth that one typically sees during the initial stage of an economic recovery.
The above is not a prescription for a robust U.S. recovery. Then what will turn it all around? What will get the ball moving in the correct direction, or ‘get this economy moving again,’ as President John F. Kennedy said in 1961.
The answer may be, ironically, the American economic system itself. In other words, the U.S. economy's ability to adapt, to innovate, and to renew itself may be the grease that gets the gears in motion, to use a machinery metaphor.
It is not, to put it diplomatically, a stellar time for the U.S. economy.
The unemployment rate is approaching 10 percent, and most economists would be very happy if it stopped rising at that level. Home foreclosures hit a record during this recession, and while not rising, are still way too high for economic health. And, of course, the manufacturing, business investment, and export sectors, while having recently displayed signs of stabilization, are not, in recovery-mode yet. And the U.S. consumer, after a decade of over-consumption, is saving like never before – a 5 percent annual rate – good for investment, long-term, but a depressor of GDP growth, short-term. In other words, all the key sources of demand are stagnant or barely growing – not nearly the conditions for robust GDP growth that one typically sees during the initial stage of an economic recovery.
The above is not a prescription for a robust U.S. recovery. Then what will turn it all around? What will get the ball moving in the correct direction, or ‘get this economy moving again,’ as President John F. Kennedy said in 1961.
The answer may be, ironically, the American economic system itself. In other words, the U.S. economy's ability to adapt, to innovate, and to renew itself may be the grease that gets the gears in motion, to use a machinery metaphor.
Wednesday, September 16, 2009
Dow jumps, but recession continues: what's going on here?
By Money Matters Editors
Some investors, particularly those new to investing in stocks, are bewildered by the stock market’s ability to rise, even while the economy is still in recession, with high unemployment.
The reason has to do with how institutional investors – the players who move the market operate. Institutional investors (IIs) are always looking ahead, or ‘down the field,’ to borrow a U.S. football analogy.
Typically, IIs are reviewing currently data, comparing to forecasts, then they make an assessment of the condition they think the economy will be 6-9 months into the future. If they believe economic conditions will improve, and corporate revenue and earnings will rise, they bid stocks up, and the market rises; worse, they sell stocks, and the market declines.
Some investors, particularly those new to investing in stocks, are bewildered by the stock market’s ability to rise, even while the economy is still in recession, with high unemployment.
The reason has to do with how institutional investors – the players who move the market operate. Institutional investors (IIs) are always looking ahead, or ‘down the field,’ to borrow a U.S. football analogy.
Typically, IIs are reviewing currently data, comparing to forecasts, then they make an assessment of the condition they think the economy will be 6-9 months into the future. If they believe economic conditions will improve, and corporate revenue and earnings will rise, they bid stocks up, and the market rises; worse, they sell stocks, and the market declines.
Tuesday, September 15, 2009
U.S. worker productivity continues to increase
By Money Matters Editors
An experienced economist will tell you that for almost every economic statistic there’s an upside…and a downside.
And that’s perhaps no truer than with U.S. worker productivity. Another way of putting this is, to paraphrase the great writer Charles Dickens, ‘It is the best of times, and the worst of times for the American employee.’
The best of times: In Q2, the American worker, already the most productive in the developed world, became even more productive, with U.S. worker productivity increasing at a 6.6 percent annual rate – a six-year high, according to the U.S. Labor Department. During the quarter, hourly compensation rose just 0.2 percent, with unit labor costs – a key indicator of inflationary pressure, and one watched closely by the U.S. Federal Reserve – plunging 5.8 percent – its largest decline in nine years. In other words, American employees are more productive now – on an output per unit cost basis – that any time in the modern era.
What's more, in the past year, productivity is up 1.8 percent, while unit labor costs have dropped 0.6 percent.
An experienced economist will tell you that for almost every economic statistic there’s an upside…and a downside.
And that’s perhaps no truer than with U.S. worker productivity. Another way of putting this is, to paraphrase the great writer Charles Dickens, ‘It is the best of times, and the worst of times for the American employee.’
The best of times: In Q2, the American worker, already the most productive in the developed world, became even more productive, with U.S. worker productivity increasing at a 6.6 percent annual rate – a six-year high, according to the U.S. Labor Department. During the quarter, hourly compensation rose just 0.2 percent, with unit labor costs – a key indicator of inflationary pressure, and one watched closely by the U.S. Federal Reserve – plunging 5.8 percent – its largest decline in nine years. In other words, American employees are more productive now – on an output per unit cost basis – that any time in the modern era.
What's more, in the past year, productivity is up 1.8 percent, while unit labor costs have dropped 0.6 percent.
Monday, September 14, 2009
Obama administration slaps a tire tariff on China: terrific or terrible idea?
By Money Matters Editors
Some say the new U.S. tariff on China’s tires will be terrific while others say it will be terrible. What’s going on here?
The Obama administration has imposed a 35 percent / 30 percent / 25 percent, 3-year tariff on passenger vehicle and light truck tires from China, arguing that China’s current monetary and economic policies ‘artificially depress’ the cost of China-made tires exported to the U.S., hurting U.S. tire manufacturer sales, resulting in lost jobs. China’s share of the U.S. tire market has risen to 16.7 percent in 2008 from 4.7 percent in 2004.
China, conversely, says it’s doing nothing wrong and will defend its position. China also accused the U.S. of protectionism, or establishing a tax designed to restrict imports into the U.S. “The Chinese government will continue to uphold the legitimate interests of China's domestic industry and has the right to take corresponding measures," Chen Deming, China’s minister of commerce, told the Associated Press.
President Obama’s political base includes organized labor, and Obama was under pressure to impose a tariff from the United Steelworkers union. The union, which represents about 30,000 tire production workers, had filed a complaint with U.S. International Trade Commission.
Some say the new U.S. tariff on China’s tires will be terrific while others say it will be terrible. What’s going on here?
The Obama administration has imposed a 35 percent / 30 percent / 25 percent, 3-year tariff on passenger vehicle and light truck tires from China, arguing that China’s current monetary and economic policies ‘artificially depress’ the cost of China-made tires exported to the U.S., hurting U.S. tire manufacturer sales, resulting in lost jobs. China’s share of the U.S. tire market has risen to 16.7 percent in 2008 from 4.7 percent in 2004.
China, conversely, says it’s doing nothing wrong and will defend its position. China also accused the U.S. of protectionism, or establishing a tax designed to restrict imports into the U.S. “The Chinese government will continue to uphold the legitimate interests of China's domestic industry and has the right to take corresponding measures," Chen Deming, China’s minister of commerce, told the Associated Press.
President Obama’s political base includes organized labor, and Obama was under pressure to impose a tariff from the United Steelworkers union. The union, which represents about 30,000 tire production workers, had filed a complaint with U.S. International Trade Commission.
Saturday, September 12, 2009
Welcome to Money Matters
By Money Matters Editors
Welcome to Money Matters, a web site about stocks, sectors, investing, macroeconomics, and more. Our focus is on the markets and the economy, but really, if it’s about money, it’s fair game here. We offer independent news, analysis, commentary, and research to help you, the investor, make more-informed investing decisions.
Further, because our focus is on you, the investor, we want to hear from you to make our service better. Please offer your thoughtful comments in the comments section provided.
Money Matters has assembled a team of experienced reporters, analysts, columnists, and economists with one goal in mind: to help you navigate through these challenging times.
Our Stock Reviews by our stock analysts are based on an independent, proprietary stock investment formula, not affiliated with any bank, brokerage, or research service. If you’re looking for a stock to invest in, low risk to high risk, be sure to check out our Stock Reviews.
Thank you for visiting Money Matters, and visit us again soon.
-Money Matters Editors
Welcome to Money Matters, a web site about stocks, sectors, investing, macroeconomics, and more. Our focus is on the markets and the economy, but really, if it’s about money, it’s fair game here. We offer independent news, analysis, commentary, and research to help you, the investor, make more-informed investing decisions.
Further, because our focus is on you, the investor, we want to hear from you to make our service better. Please offer your thoughtful comments in the comments section provided.
Money Matters has assembled a team of experienced reporters, analysts, columnists, and economists with one goal in mind: to help you navigate through these challenging times.
Our Stock Reviews by our stock analysts are based on an independent, proprietary stock investment formula, not affiliated with any bank, brokerage, or research service. If you’re looking for a stock to invest in, low risk to high risk, be sure to check out our Stock Reviews.
Thank you for visiting Money Matters, and visit us again soon.
-Money Matters Editors
At equilibrium, the political support for health care reform exists
By Money Matters Editors
Political scientists and public policy types have this phrase they use to describe the temperature for public policy during normal times: ‘at equilibrium.’
Ignoring for the moment that nothing economic or political since the onset of the financial crisis can be considered ‘at equilibrium,’ the phrase describes a political condition on the ground in Washington when there isn’t a crisis, a gaff, a major mistake, an international event, a point of fear/hysteria, or some other idiosyncratic event that can hinder (or help) a policy's chance for passage. And in case one hasn’t noticed, there are a lot events that can distort equilibrium in Washington, and the health care reform debate is a good case study.
Political scientists and public policy types have this phrase they use to describe the temperature for public policy during normal times: ‘at equilibrium.’
Ignoring for the moment that nothing economic or political since the onset of the financial crisis can be considered ‘at equilibrium,’ the phrase describes a political condition on the ground in Washington when there isn’t a crisis, a gaff, a major mistake, an international event, a point of fear/hysteria, or some other idiosyncratic event that can hinder (or help) a policy's chance for passage. And in case one hasn’t noticed, there are a lot events that can distort equilibrium in Washington, and the health care reform debate is a good case study.
Friday, September 11, 2009
Remembering And Honoring The Victims Of September 11, 2001
By Money Matters Editors
On this day we remember and honor the 2,998 persons whose lives were taken away from them during the terrorist attack on New York’s World Trade Center, the United States Pentagon, and on a plane that crashed in Shanksville, Pennsylvania eight years ago, on September 11, 2001.
Across the United States, and in communities round the world that also love freedom and democracy, citizens will take time to attend services to remember all who perished on that New Day of Infamy. We mourn the loss of their lives, and our prayers and thoughts are with their families and friends. In the words of Mr. Lincoln, it is altogether fitting and proper that we should do this.
But let us also, re-quoting Mr. Lincoln, continue with the great struggle of our epoch, and in doing so each day honor those who perished. Let us bring to justice every last remnant of the perpetrators of this act of intrinsic evil, and the tyrannical cult that supports it - so that liberty and democracy can flourish and so that government of the people, by the people, for the people, reigns victorious across the Earth.
On this day we remember and honor the 2,998 persons whose lives were taken away from them during the terrorist attack on New York’s World Trade Center, the United States Pentagon, and on a plane that crashed in Shanksville, Pennsylvania eight years ago, on September 11, 2001.
Across the United States, and in communities round the world that also love freedom and democracy, citizens will take time to attend services to remember all who perished on that New Day of Infamy. We mourn the loss of their lives, and our prayers and thoughts are with their families and friends. In the words of Mr. Lincoln, it is altogether fitting and proper that we should do this.
But let us also, re-quoting Mr. Lincoln, continue with the great struggle of our epoch, and in doing so each day honor those who perished. Let us bring to justice every last remnant of the perpetrators of this act of intrinsic evil, and the tyrannical cult that supports it - so that liberty and democracy can flourish and so that government of the people, by the people, for the people, reigns victorious across the Earth.
The Dow is rising, but robust U.S. growth is not here: what's going on?
By Money Matters Editors
Some investors, particularly those new to investing in stocks, are bewildered by the U.S. stock market’s ability to rise, even while the U.S. economy is still in recession, with high unemployment.
The reason has to do with how institutional investors – the players who move the market - operate. Institutional investors (IIs) are always looking ahead, or ‘down the field,’ to borrow a U.S. football analogy.
Typically, IIs are reviewing currently data, compare it to forecasts, then they make an assessment of the condition they think the economy will be 6-9 months into the future. If they believe economic conditions will improve, and corporate revenue and earnings will rise, they bid stocks up, and the market rises; worse, they sell stocks, and the market declines.
Some investors, particularly those new to investing in stocks, are bewildered by the U.S. stock market’s ability to rise, even while the U.S. economy is still in recession, with high unemployment.
The reason has to do with how institutional investors – the players who move the market - operate. Institutional investors (IIs) are always looking ahead, or ‘down the field,’ to borrow a U.S. football analogy.
Typically, IIs are reviewing currently data, compare it to forecasts, then they make an assessment of the condition they think the economy will be 6-9 months into the future. If they believe economic conditions will improve, and corporate revenue and earnings will rise, they bid stocks up, and the market rises; worse, they sell stocks, and the market declines.
Thursday, September 10, 2009
Obama's speech reinvigorates health care debate
By Money Matters Editors
President Barack Obama, D-Illinois, did indeed restructure the debate Wednesday on health care reform, in a substantive, succinct, upbeat speech that could very well lead to solving one of the biggest economic problems facing the nation.
Obama’s task now is to: 1) lure House Democrats without losing Senate Democrats on concerns that a possible public option will be too expensive, and 2) lure Senate Democrats, without losing House Democrats on concern that the new health care program will not incorporate as many working uninsured poor individuals and families soon enough. If Obama garners one or two Republican Senate votes for the administration’s reform package, that would be a major victory. Don’t look for any House Republicans to support any reform legislation: if the Republican Party is ‘the party of no,’ the House Republicans are 'the captains.'
President Barack Obama, D-Illinois, did indeed restructure the debate Wednesday on health care reform, in a substantive, succinct, upbeat speech that could very well lead to solving one of the biggest economic problems facing the nation.
Obama’s task now is to: 1) lure House Democrats without losing Senate Democrats on concerns that a possible public option will be too expensive, and 2) lure Senate Democrats, without losing House Democrats on concern that the new health care program will not incorporate as many working uninsured poor individuals and families soon enough. If Obama garners one or two Republican Senate votes for the administration’s reform package, that would be a major victory. Don’t look for any House Republicans to support any reform legislation: if the Republican Party is ‘the party of no,’ the House Republicans are 'the captains.'
Wednesday, September 9, 2009
Obama speech Wednesday will attempt to jump-start health care reform
By Money Matters Editors
Wednesday night, President Barack Obama, D-Illinois, will try to right the U.S.’s ship of state in a speech before a joint session of Congress on health care.
The administration’s initial strategy - to lay low, and let Congress fill-in the details - has been a major disappointment for backers of health care reform, as it let opponents structure the debate on the issue. The result was gross distortion of the impact of health care reform legislation, confusion, and a mockery of the public discussion process called town hall ‘debates.’
Tonight, Obama has to re-energize his plan by outlining his goals, which will likely include: 1) a plan to subsidize care for those uninsured who can’t afford to pay for insurance, 2) a strategy to lower costs throughout the system, especially Medicare and Medicaid, 3) a viable way to pay for the costs of the new health care spending likely to ensue.
Wednesday night, President Barack Obama, D-Illinois, will try to right the U.S.’s ship of state in a speech before a joint session of Congress on health care.
The administration’s initial strategy - to lay low, and let Congress fill-in the details - has been a major disappointment for backers of health care reform, as it let opponents structure the debate on the issue. The result was gross distortion of the impact of health care reform legislation, confusion, and a mockery of the public discussion process called town hall ‘debates.’
Tonight, Obama has to re-energize his plan by outlining his goals, which will likely include: 1) a plan to subsidize care for those uninsured who can’t afford to pay for insurance, 2) a strategy to lower costs throughout the system, especially Medicare and Medicaid, 3) a viable way to pay for the costs of the new health care spending likely to ensue.
Tuesday, September 8, 2009
Oil surges to $71 on OPEC meeting, weaker dollar
By Money Matters Editors
It didn’t take much to reverse the trend in oil prices.
One weekend after crude slide below $70 amid renewed talk of a glut of supply, oil reversed and raced ahead $3.08 to close at $71.08 per barrel Tuesday.
Tuesday’s culprit? The weaker dollar and the belief that OPEC, which meets this week in Vienna, will maintain current oil production quotas.
Institutional investors view current production quotas as bullish for oil, as they have already discounted rising demand on the U.S./global economic recoveries, and rising demand amid unchanged production sends oil in a vertical direction.
It didn’t take much to reverse the trend in oil prices.
One weekend after crude slide below $70 amid renewed talk of a glut of supply, oil reversed and raced ahead $3.08 to close at $71.08 per barrel Tuesday.
Tuesday’s culprit? The weaker dollar and the belief that OPEC, which meets this week in Vienna, will maintain current oil production quotas.
Institutional investors view current production quotas as bullish for oil, as they have already discounted rising demand on the U.S./global economic recoveries, and rising demand amid unchanged production sends oil in a vertical direction.
Friday, September 4, 2009
For U.S., natural gas is an alternative energy source for the next decade
By Money Matters Editors
What to make of natural gas? Well, if the United States is smart it will ‘make’ something of it, soon, as in making it a major energy source for at least the next decade, and perhaps for longer.
And the reasons are obvious enough: driven in part by a new technology called hydraulic fracturing, estimated U.S. natural gas reserves have increased 35 percent, mostly on the ability to access new or ‘unconventional’ gas sources, with estimated reserves totaling 2,074 trillion cubic feet in 2008, up from 1,532 trillion cubic feet in 2006, according to the Potential Gas Committee, The New York Times reported.
The technology is enabling exploration and extraction of natural gas in previously cost-prohibitive U.S. regions in Appalachia, the Mid-Continent, the Gulf Coast, and in the Rocky Mountains.
The new technology, plus producers’ reluctance to cut production, are two reasons natural gas is trading at 7-year-low prices, falling through the psychologically-significant $3 per million BTUs (MMBTUs) level. Further, traders say prices could fall to $2.25-2.50 per million Btus before demand picks up, assuming the U.S. economy’s recovery track continues to progress this fall. Natural gas traded Thursday down 18 cents to $2.53 per MMBTUs.
What to make of natural gas? Well, if the United States is smart it will ‘make’ something of it, soon, as in making it a major energy source for at least the next decade, and perhaps for longer.
And the reasons are obvious enough: driven in part by a new technology called hydraulic fracturing, estimated U.S. natural gas reserves have increased 35 percent, mostly on the ability to access new or ‘unconventional’ gas sources, with estimated reserves totaling 2,074 trillion cubic feet in 2008, up from 1,532 trillion cubic feet in 2006, according to the Potential Gas Committee, The New York Times reported.
The technology is enabling exploration and extraction of natural gas in previously cost-prohibitive U.S. regions in Appalachia, the Mid-Continent, the Gulf Coast, and in the Rocky Mountains.
The new technology, plus producers’ reluctance to cut production, are two reasons natural gas is trading at 7-year-low prices, falling through the psychologically-significant $3 per million BTUs (MMBTUs) level. Further, traders say prices could fall to $2.25-2.50 per million Btus before demand picks up, assuming the U.S. economy’s recovery track continues to progress this fall. Natural gas traded Thursday down 18 cents to $2.53 per MMBTUs.
Thursday, September 3, 2009
Welcome to Money Matters
By Money Matters Editors
Welcome to Money Matters, a web site about stocks, sectors, investing, macroeconomics, and more. Our focus is on the markets and the economy, but really, if it’s about money, it’s fair game here. We offer independent news, analysis, commentary, and research to help you, the investor, make more-informed investing decisions.
Further, because our focus is on you, the investor, we want to hear from you to make our service better. Please offer your thoughtful comments in the comments section provided.
Money Matters has assembled a team of experienced reporters, analysts, columnists, and economists with one goal in mind: to help you navigate through these challenging times.
Our Stock Reviews by our stock analysts are based on an independent, proprietary stock investment formula, not affiliated with any bank, brokerage, or research service. If you’re looking for a stock to invest in, low risk to high risk, be sure to check out our Stock Reviews.
Thank you for visiting Money Matters, and visit us again soon.
-Money Matters Editors
Welcome to Money Matters, a web site about stocks, sectors, investing, macroeconomics, and more. Our focus is on the markets and the economy, but really, if it’s about money, it’s fair game here. We offer independent news, analysis, commentary, and research to help you, the investor, make more-informed investing decisions.
Further, because our focus is on you, the investor, we want to hear from you to make our service better. Please offer your thoughtful comments in the comments section provided.
Money Matters has assembled a team of experienced reporters, analysts, columnists, and economists with one goal in mind: to help you navigate through these challenging times.
Our Stock Reviews by our stock analysts are based on an independent, proprietary stock investment formula, not affiliated with any bank, brokerage, or research service. If you’re looking for a stock to invest in, low risk to high risk, be sure to check out our Stock Reviews.
Thank you for visiting Money Matters, and visit us again soon.
-Money Matters Editors
In the battle of technical vs. fundamental analysis, the best tack may be a combination
By Money Matters Editors
In the battle of technical vs. fundamental analysis, the best tack may be a combination.
Many investors in stocks know that there are numerous ways to evaluate the suitability of a stock. Two major methodological camps are fundamental analysts and technical analysts.
Each camp is broad and diverse, with teams of analytical brainpower - not to mention tens of millions of dollars in Wall Street research money - dedicated to each methodology.
Fundamental analysts concentrate on revenue, earnings, cash flow, revenue per employee, same store sales, book value, operating expenses, long-term debt and other balance sheet and income statement data etc. Fundamental analysts argue that performance data determines a stock’s price, i.e. that very little can be deduced from a stock’s price absent information on fundamentals.
Technical analysts, meanwhile, concentrate on clues provided by a stock’s price, emphasizing such indicators as chart formation, the 50-day and 200-day moving averages, its relative strength indicator, the MACD histogram, stochastics, and Bollinger Bands, among other technical data. Technical analysts argue that all public information about a company’s performance as already been priced in to a stock.
In the battle of technical vs. fundamental analysis, the best tack may be a combination.
Many investors in stocks know that there are numerous ways to evaluate the suitability of a stock. Two major methodological camps are fundamental analysts and technical analysts.
Each camp is broad and diverse, with teams of analytical brainpower - not to mention tens of millions of dollars in Wall Street research money - dedicated to each methodology.
Fundamental analysts concentrate on revenue, earnings, cash flow, revenue per employee, same store sales, book value, operating expenses, long-term debt and other balance sheet and income statement data etc. Fundamental analysts argue that performance data determines a stock’s price, i.e. that very little can be deduced from a stock’s price absent information on fundamentals.
Technical analysts, meanwhile, concentrate on clues provided by a stock’s price, emphasizing such indicators as chart formation, the 50-day and 200-day moving averages, its relative strength indicator, the MACD histogram, stochastics, and Bollinger Bands, among other technical data. Technical analysts argue that all public information about a company’s performance as already been priced in to a stock.
Wednesday, September 2, 2009
High U.S. savings rate has an upside and a downside
By Money Matters Editors
In financial/business circles, a discussion of the U.S. savings rate is little like what writer Mark Twain said about the weather: 'Everyone talks about it, but no one ever seems to be able to do anything about it.'
Well, here’s what investors need to know about the U.S. savings rate: according to the latest U.S. Commerce Department data, the savings rate in July remained high at 4.2 percent, and long-term that’s good for the U.S. economy. The reason? It’s part of a process where Americans - who’ve seen their 401k and home values decline with the recession - begin to rebuild their nest eggs. The increased savings rate also will provide a larger pool of capital for investment- something that will keep interest rates lower than where they would be with a low savings rate, and that will make it easier for businesses to access capital to expand operations and investment in equipment.
'Frugal consumer': long-term trend?
Short-term, however, there’s a downside for the U.S. economy. Americans’ new ‘frugal consumer’ trend will result in dampened consumption, and this unwillingness of the consumer to spend will put a cap on GDP growth, again, at least short-term. In a frugal consumer era, it’s highly unlikely that U.S. GDP will increase as much as it historically has done at the start of an economic recovery. And that 'new normal' will also likely result in fewer new jobs, and also weigh on corporate revenue and earnings, particularly in the retail sector.
Further, it remains to be seen whether the high savings rate represents an enduring trend, or just a short-term phenomenon compelled by a decade of U.S. overconsumption caused by excessive debt (primarily home refinancings and home equity loans). If it’s a long-term trend - if Americans continue to saving more than roughly 5 percent of their disposable income annually - that would suggest that the U.S. will have to undergo another structural change, in addition to the structural changes already being prompted by globalization.
What would that additional structural change be? Undoubtedly it would mean that millions of jobs in the retail sector, as well as in other sectors (such as manufacturing, financial services) will be shed as the U.S. economy becomes more-focused on production, quality of life, and infrastructure concerns, and less on consumer goods. That transition will take at least a decade and will not be without pain, but ultimately it will lead to a more-productive, more-capital-rich, and balanced U.S. economy - one capable of sustainable economic growth.
In financial/business circles, a discussion of the U.S. savings rate is little like what writer Mark Twain said about the weather: 'Everyone talks about it, but no one ever seems to be able to do anything about it.'
Well, here’s what investors need to know about the U.S. savings rate: according to the latest U.S. Commerce Department data, the savings rate in July remained high at 4.2 percent, and long-term that’s good for the U.S. economy. The reason? It’s part of a process where Americans - who’ve seen their 401k and home values decline with the recession - begin to rebuild their nest eggs. The increased savings rate also will provide a larger pool of capital for investment- something that will keep interest rates lower than where they would be with a low savings rate, and that will make it easier for businesses to access capital to expand operations and investment in equipment.
'Frugal consumer': long-term trend?
Short-term, however, there’s a downside for the U.S. economy. Americans’ new ‘frugal consumer’ trend will result in dampened consumption, and this unwillingness of the consumer to spend will put a cap on GDP growth, again, at least short-term. In a frugal consumer era, it’s highly unlikely that U.S. GDP will increase as much as it historically has done at the start of an economic recovery. And that 'new normal' will also likely result in fewer new jobs, and also weigh on corporate revenue and earnings, particularly in the retail sector.
Further, it remains to be seen whether the high savings rate represents an enduring trend, or just a short-term phenomenon compelled by a decade of U.S. overconsumption caused by excessive debt (primarily home refinancings and home equity loans). If it’s a long-term trend - if Americans continue to saving more than roughly 5 percent of their disposable income annually - that would suggest that the U.S. will have to undergo another structural change, in addition to the structural changes already being prompted by globalization.
What would that additional structural change be? Undoubtedly it would mean that millions of jobs in the retail sector, as well as in other sectors (such as manufacturing, financial services) will be shed as the U.S. economy becomes more-focused on production, quality of life, and infrastructure concerns, and less on consumer goods. That transition will take at least a decade and will not be without pain, but ultimately it will lead to a more-productive, more-capital-rich, and balanced U.S. economy - one capable of sustainable economic growth.
When will the great American job creation machine kick into high gear?
By Money Matters Editors
Economists, market analysts, and public policy professionals are hinting at data that will show an end to the U.S. recession sometime in Q3/Q4, if a recession bottom hasn’t already occurred yet.
But the real end to the recession - at least in terms of aggregate demand and the typical person’s daily life - concerns when the U.S. job market will turnaround. And that begs the obvious question: when can investors and Americans in general count on an end to the large job losses that have characterized this pronounced recession?
Economists, market analysts, and public policy professionals are hinting at data that will show an end to the U.S. recession sometime in Q3/Q4, if a recession bottom hasn’t already occurred yet.
But the real end to the recession - at least in terms of aggregate demand and the typical person’s daily life - concerns when the U.S. job market will turnaround. And that begs the obvious question: when can investors and Americans in general count on an end to the large job losses that have characterized this pronounced recession?
Tuesday, September 1, 2009
Where is the U.S. dollar headed from here?
By Money Matters Editors
Where’s the U.S. dollar headed from here? Well, if you’re in the camp that argues that both U.S. monetary and fiscal stimulus guarantee rising U.S. inflation, the dollar will likely weaken in the immediate quarters ahead, and probably for longer.
If you’re in the camp that argues that given asset destruction, and massive job lay-offs, price power is non-existent, the dollar will hold its own against the world’s other major currencies.
The dollar weakened about one-half cent Tuesday to $1.4319 and $1.6232 versus the euro and British pound, respectively. The dollar was virtually unchanged versus Japan’s yen at 93.27 yen.
Where’s the U.S. dollar headed from here? Well, if you’re in the camp that argues that both U.S. monetary and fiscal stimulus guarantee rising U.S. inflation, the dollar will likely weaken in the immediate quarters ahead, and probably for longer.
If you’re in the camp that argues that given asset destruction, and massive job lay-offs, price power is non-existent, the dollar will hold its own against the world’s other major currencies.
The dollar weakened about one-half cent Tuesday to $1.4319 and $1.6232 versus the euro and British pound, respectively. The dollar was virtually unchanged versus Japan’s yen at 93.27 yen.
Monday, August 31, 2009
Oil: The commodity that's largely ignored the U.S./global recession
By Money Matters Editors
What’s the most perplexing market in the world? Well, a strong case can be made that it’s the oil market.
The oil market’s fundamentals – primarily high inventories - argue that the price should be considerably lower, perhaps as low as $40-45 per barrel, and yet, oil’s price hangs in the $70-range. What’s going on here?
Some assert that market speculation - institutional investors who establish positions in oil not for industrial reasons, but simply as an investment - are keeping oil’s price artificially high, or above where it would be based on supply/demand fundamentals. Net long positions did increase in the past week to more than 16,800 contracts - a period when oil briefly neared $75 per barrel - according to the Commodity Futures Trading Commission, marketwatch.com reported Monday.
Can oil bulls keep crude’s price high?
Still, it remains to be seen whether the oil bulls, including speculative longs, can keep oil near $70 amid plentiful supplies and slack demand. On the former, oil storage facilities on land have started to run out of room, so oil holders are storing oil in super tankers at sea. On the latter, slack demand in the U.S., due to more than 6.8 million job lay-offs since the recession started, and modest demand increases in emerging markets, have been unable to prevent supplies from building.
This fall, the U.S. Congress is expected to again take up the issue of the role speculation plays in the price of oil futures, including considering proposals to limit speculative positions by increasing margin requirements, or by capping the number of positions an institution/trader can hold, and certainly if oil remains at its current lofty price, there will likely be increased pressure to investigate market participants who trade the world’s most important commodity.
On the other hand, if oil’s price corrects back to $40-50 per barrel, the pressure on Congress to investigate may lessen. Where’s oil headed from here? If emerging market GDP growth in Q3 meets/exceeds expectations, that will keep oil at/near its current price, about $65-70.
However, if any signs of lower-than-expected Q3 GDP growth in Asia, especially China, appear, that will bring the oil bears out in force, and oil will likely drift back toward the $50-range heading into the end of the year.
What’s the most perplexing market in the world? Well, a strong case can be made that it’s the oil market.
The oil market’s fundamentals – primarily high inventories - argue that the price should be considerably lower, perhaps as low as $40-45 per barrel, and yet, oil’s price hangs in the $70-range. What’s going on here?
Some assert that market speculation - institutional investors who establish positions in oil not for industrial reasons, but simply as an investment - are keeping oil’s price artificially high, or above where it would be based on supply/demand fundamentals. Net long positions did increase in the past week to more than 16,800 contracts - a period when oil briefly neared $75 per barrel - according to the Commodity Futures Trading Commission, marketwatch.com reported Monday.
Can oil bulls keep crude’s price high?
Still, it remains to be seen whether the oil bulls, including speculative longs, can keep oil near $70 amid plentiful supplies and slack demand. On the former, oil storage facilities on land have started to run out of room, so oil holders are storing oil in super tankers at sea. On the latter, slack demand in the U.S., due to more than 6.8 million job lay-offs since the recession started, and modest demand increases in emerging markets, have been unable to prevent supplies from building.
This fall, the U.S. Congress is expected to again take up the issue of the role speculation plays in the price of oil futures, including considering proposals to limit speculative positions by increasing margin requirements, or by capping the number of positions an institution/trader can hold, and certainly if oil remains at its current lofty price, there will likely be increased pressure to investigate market participants who trade the world’s most important commodity.
On the other hand, if oil’s price corrects back to $40-50 per barrel, the pressure on Congress to investigate may lessen. Where’s oil headed from here? If emerging market GDP growth in Q3 meets/exceeds expectations, that will keep oil at/near its current price, about $65-70.
However, if any signs of lower-than-expected Q3 GDP growth in Asia, especially China, appear, that will bring the oil bears out in force, and oil will likely drift back toward the $50-range heading into the end of the year.
Should Bernanke have been re-nominated as Fed Chairman?
By Money Matters Editors
Should President Barack Obama (D-Illinois) have re-nominate Ben Bernanke as chairman of the U.S. Federal Reserve?
Ask three economists and you’re likely to get three different answers. From political and public policy standpoints, the decision to re-nominate Bernanke was not a slam-dunk. But the more-important values of expertise, performance, and continuity have won out, and that represents a victory for investors, and for American taxpayers. Here’s why:
History has a way of placing the right person in the right position at an appropriate time, and that’s been the case with Bernanke. A Princeton economist who has spent a lifetime studying the Federal Reserve’s responses, successes, and failures during the last global financial crisis, the Great Depression, little did Bernanke - or policy makers, for that matter - know that his academic specialization would prove to be invaluable preparation for world’s second, major credit trauma, the current financial crisis. Perhaps more than anyone, Bernanke has a keen grasp of the 1930s Fed’s mistakes and monetary tools that did work during that crisis. This time, backed by an army of Fed economists and researchers, and via accessing Bernanke’s knowledge, the Fed has been able to steer a path to financial stabilization.
First hurdle cleared
And that’s the main reason for Bernanke’s re-nomination: we’re not out of woods yet - far from it - regarding the credit crunch, but U.S. banking system and the global financial system has not collapsed and has been maintained. That may not seem like much to investors, but based on where we were a year ago, in September 2008, that’s an awful lot. There have been mistakes - the decision not to, at minimum, stabilize Lehman Brothers was perhaps the biggest - but the Fed, in conjunction with other, major central banks, including the European Central Bank, Bank of England, Bank of Japan, has move adeptly to provide essential liquidity to credit markets, especially commercial paper, to keep the lifeblood of commerce - capital - flowing. To be sure, small/medium sized businesses still aren’t able to borrow enough capital to expand their operations, but the Fed’s liquidity interventions and term auction facilities have maintained bond market and broader credit market liquidity. Again, that may not seem like much, but it is an enormous achievement. Consider this: a half-year ago the industrial giant General Electric (GE) was having trouble accessing short-term capital in the commercial paper market.
True, Bernanke’s actions have not been without blemishes. Some have argued that the Fed has been too forth-coming with liquidity, or too accommodative, and that will lead to rising U.S. inflation in the quarters ahead, and some are calling for an immediate decrease of that monetary flow. But given the scope of the liquidity crunch - and historical precedent - one can understand why the Fed would rather err on the side of too much liquidity than too little.
A second criticism concerns the $700 billion Troubled Asset Relief Program (TARP), the bank bailout, and whether the U.S. taxpayer will be repaid in full, but that is more-properly an issue for the U.S. Congress. As of this juncture, it’s an open question whether the government will be able to obtain even 60-70% of its invested money back, and much will hinge on how the U.S./global recoveries affect the value of distressed assets.
But one thing is certain: the U.S. and global financial systems are healing. As noted, much work remains to free-up more credit for businesses and individuals, and it’s unlikely credit markets will ever be ‘normal’ in a pre-financial crisis sense (numerous structural and regulatory changes will occur), but the flow of capital and the modern banking system that’s essential to commerce has been maintained. The first hurdle of the financial crisis - avoiding a degeneration into the barter system - has been mounted, and Chairman Bernanke is a key reason investors and economists can concentrate on the second hurdle.
Should President Barack Obama (D-Illinois) have re-nominate Ben Bernanke as chairman of the U.S. Federal Reserve?
Ask three economists and you’re likely to get three different answers. From political and public policy standpoints, the decision to re-nominate Bernanke was not a slam-dunk. But the more-important values of expertise, performance, and continuity have won out, and that represents a victory for investors, and for American taxpayers. Here’s why:
History has a way of placing the right person in the right position at an appropriate time, and that’s been the case with Bernanke. A Princeton economist who has spent a lifetime studying the Federal Reserve’s responses, successes, and failures during the last global financial crisis, the Great Depression, little did Bernanke - or policy makers, for that matter - know that his academic specialization would prove to be invaluable preparation for world’s second, major credit trauma, the current financial crisis. Perhaps more than anyone, Bernanke has a keen grasp of the 1930s Fed’s mistakes and monetary tools that did work during that crisis. This time, backed by an army of Fed economists and researchers, and via accessing Bernanke’s knowledge, the Fed has been able to steer a path to financial stabilization.
First hurdle cleared
And that’s the main reason for Bernanke’s re-nomination: we’re not out of woods yet - far from it - regarding the credit crunch, but U.S. banking system and the global financial system has not collapsed and has been maintained. That may not seem like much to investors, but based on where we were a year ago, in September 2008, that’s an awful lot. There have been mistakes - the decision not to, at minimum, stabilize Lehman Brothers was perhaps the biggest - but the Fed, in conjunction with other, major central banks, including the European Central Bank, Bank of England, Bank of Japan, has move adeptly to provide essential liquidity to credit markets, especially commercial paper, to keep the lifeblood of commerce - capital - flowing. To be sure, small/medium sized businesses still aren’t able to borrow enough capital to expand their operations, but the Fed’s liquidity interventions and term auction facilities have maintained bond market and broader credit market liquidity. Again, that may not seem like much, but it is an enormous achievement. Consider this: a half-year ago the industrial giant General Electric (GE) was having trouble accessing short-term capital in the commercial paper market.
True, Bernanke’s actions have not been without blemishes. Some have argued that the Fed has been too forth-coming with liquidity, or too accommodative, and that will lead to rising U.S. inflation in the quarters ahead, and some are calling for an immediate decrease of that monetary flow. But given the scope of the liquidity crunch - and historical precedent - one can understand why the Fed would rather err on the side of too much liquidity than too little.
A second criticism concerns the $700 billion Troubled Asset Relief Program (TARP), the bank bailout, and whether the U.S. taxpayer will be repaid in full, but that is more-properly an issue for the U.S. Congress. As of this juncture, it’s an open question whether the government will be able to obtain even 60-70% of its invested money back, and much will hinge on how the U.S./global recoveries affect the value of distressed assets.
But one thing is certain: the U.S. and global financial systems are healing. As noted, much work remains to free-up more credit for businesses and individuals, and it’s unlikely credit markets will ever be ‘normal’ in a pre-financial crisis sense (numerous structural and regulatory changes will occur), but the flow of capital and the modern banking system that’s essential to commerce has been maintained. The first hurdle of the financial crisis - avoiding a degeneration into the barter system - has been mounted, and Chairman Bernanke is a key reason investors and economists can concentrate on the second hurdle.
Sunday, August 30, 2009
Welcome to Money Matters
By Money Matters Editors
Welcome to Money Matters, a web site about stocks, sectors, investing, macroeconomics, and more. Our focus is on the markets and the economy, but really, if it’s about money, it’s fair game here. We offer independent news, analysis, commentary, and research to help you, the investor, make more-informed investing decisions.
Welcome to Money Matters, a web site about stocks, sectors, investing, macroeconomics, and more. Our focus is on the markets and the economy, but really, if it’s about money, it’s fair game here. We offer independent news, analysis, commentary, and research to help you, the investor, make more-informed investing decisions.
Further, because our focus is on you, the investor, we want to hear from you to make our service better. Please offer your thoughtful comments in the comments section provided.
Money Matters has assembled a team of experienced reporters, analysts, columnists, and economists with one goal in mind: to help you navigate through these challenging times.
Our Stock Reviews by our stock analysts are based on an independent, proprietary stock investment formula, and is not affiliated with any bank, brokerage, or research service. If you’re looking for a stock to invest in, low risk to high risk, be sure to check out our Stock Reviews.
Thank you for reading Money Matters, and visit us again soon.
-Money Matters Editors
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