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Posts Tagged ‘economic outlook’

Here is an article from Wall Street Journal worth reading.

“President Barack Obama took office promising to lead from the center and solve big problems. He has exerted enormous political energy attempting to reform the nation’s health-care system. But the biggest economic problem facing the nation is not health care. It’s the deficit. Recently, the White House signaled that it will get serious about reducing the deficit next year—after it locks into place massive new health-care entitlements. This is a recipe for disaster, as it will create a new appetite for increased spending and yet another powerful interest group to oppose deficit-reduction measures.

Our fiscal situation has deteriorated rapidly in just the past few years. The federal government ran a 2009 deficit of $1.4 trillion—the highest since World War II—as spending reached nearly 25% of GDP and total revenues fell below 15% of GDP. Shortfalls like these have not been seen in more than 50 years.

Going forward, there is no relief in sight, as spending far outpaces revenues and the federal budget is projected to be in enormous deficit every year. Our national debt is projected to stand at $17.1 trillion 10 years from now, or over $50,000 per American. By 2019, according to the Congressional Budget Office’s (CBO) analysis of the president’s budget, the budget deficit will still be roughly $1 trillion, even though the economic situation will have improved and revenues will be above historical norms.

The planned deficits will have destructive consequences for both fairness and economic growth. They will force upon our children and grandchildren the bill for our overconsumption. Federal deficits will crowd out domestic investment in physical capital, human capital, and technologies that increase potential GDP and the standard of living. Financing deficits could crowd out exports and harm our international competitiveness, as we can already see happening with the large borrowing we are doing from competitors like China.”

Read the full article here.

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Here is realitycheck article from NY Dailynews.

“Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.

While losing 200,000 jobs per month is better than the 700,000 jobs lost in January, current job losses still average more than the per month rate of 150,000 during the last recession.

Also, remember: The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.

So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.

There’s really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.”

Read the full article here.

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Here is some good insights from Chris O´brien at SiliconBeat.

“This morning my inbox contained the latest report from Renaissance Capital. It has some hopeful news about IPOs, but not necessarily for Silicon Valley.

First, the good news: ”After an uptick in filing activity, there are 67 companies in the active IPO pipeline, up from 29 in March 2009.”

As far as Silicon Valley is concerned, that’s about as far as the good news goes. Now, here’s the bad news.

According to Renaissance:

“Today, the tech, healthcare and retail growth stories that have driven past market revivals have been conspicuously absent from the latest wave of  IPO hopefuls.  This makes sense, given the historic consumer shut-down and the anti-business and investment rhetoric emanating from Washington.  In their place, there is a pool of unusual candidates shaped by an era of cheap credit and  the unprecedented mortgage crisis that followed.  At least for the near term, it appears that the IPO market will be dominated by opportunistic investment vehicles and businesses from the mid-decade buyout bubble.”

And his post concludes:

Currently, there are seven venture-backed companies in the IPO pipeline. Could there be more? Renaissance gives a round up of likely suspects:

“Besides the social networking giants Facebook, Twitter and LinkedIn, there have been several other rumored IPO candidates from the VC community as the market began to recover in early March.  Near-term, we expect the majority of new venture-backed IPO filings to come from the technology and alternative energy sectors.  Potential IPO prospects from each of these industries include online games company Zynga, ethernet network equipment provider Force10 and property & casualty software maker Guidewire in the technology sector, and smart grid company Silver Spring, solar panel maker Solyndra and electric car manufacturer Tesla Motors in alternative energy.”

Read the full article here.

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Here is an article from The Telegraph.

The US Federal Reserve’s policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy.

Cheng Siwei, former vice-chairman of the Standing Committee and now head of China’s green energy drive, said Beijing was dismayed by the Fed’s recourse to “credit easing”.

“We hope there will be a change in monetary policy as soon as they have positive growth again,” he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,” he said.

China’s reserves are more than – $2 trillion, the world’s largest.

“Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets,” he added.

The comments suggest that China has become the driving force in the gold market and can be counted on to
buy whenever there is a price dip, putting a floor under any correction.

Mr Cheng said the Fed’s loose monetary policy was stoking an unstable asset boom in China. “If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise.

“Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down.”

Mr Cheng said China had learned from the West that it is a mistake for central banks to target retail price inflation and take their eye off assets.

“This is where Greenspan went wrong from 2000 to 2004,” he said. “He thought everything was alright because inflation was low, but assets absorbed the liquidity.”

Read the full article here.

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Here is a story from the Powerline Blog.

“I’ve assumed that the profligate spending and borrowing planned by the Democrats in Congress and the White House will run up a debt that we and our children just can’t pay, so, in the time-honored tradition of banana republics, the Obama administration or its successors will inflate our currency and repay its creditors (China, mostly) in devalued dollars. Thus, I’ve been buying gold. I’ve assumed that an actual default by the United States government is unthinkable.

Jeffrey Rogers Hummel, however, disagrees. He writes: Why Default on U.S. Treasuries Is Likely. HIs thesis is that times have changed, and it isn’t so easy to inflate our way out of debt:

Many predict that…the government will inflate its way out of this future bind, using Federal Reserve monetary expansion to fill the shortfall between outlays and receipts. But I believe, in contrast, that it is far more likely that the United States will be driven to an outright default on Treasury securities, openly reneging on the interest due on its formal debt and probably repudiating part of the principal.

Hummel explains that most money is now created privately by banks and other institutions, not the government, so that “[o]nly in poor countries, such as Zimbabwe, with their primitive financial sectors, does inflation remain lucrative for governments.”

A steep tax increase won’t really work for the Obama administration either. ”

To read the full article, click here.

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Here is a good analysis on the business outlook from Reuters.

“BOSTON/NEW YORK (Reuters) – The next few months could see more mergers and acquisitions in the U.S. manufacturing sector as memories of recent market highs fade and some smaller companies find they need financial backing.

Executives at top manufacturers, including United Technologies Corp (UTX.N), had hoped the recession would provide ample opportunities to scoop up bargains this year, but were stymied when potential targets balked at selling when stock prices were testing 13-year lows.

But all of that may be changing, particularly if small manufacturers find themselves scrambling for cash when demand recovers and they need to restart production lines and bring back staff.

“As volume comes back for many suppliers, many companies, this may actually be the stress point for them relative to their financing needs,” Patrick Campbell, chief financial officer of 3M Co (MMM.N), told investors on Wednesday.

“This could actually be the point where we start to see some companies that maybe become a little more distressed … We’ve got our eyes wide open on that.”

Industrial conglomerate Danaher Corp (DHR.N) said on Wednesday it plans to buy two makers of scientific instruments for a total of $1.1 billion in cash, including a unit of Canada’s MDS Inc (MDS.TO) and Life Technologies Corp’s (LIFE.O) stake in a joint venture with MDS.

FIXATED ON THE PAST

So far this year, U.S. companies have announced $516.3 billion in deals, according to Thomson Reuters data. That is down 49.1 percent from the same period in 2008.

As potential buyers see it, the biggest roadblock to getting deals done this year has been that sellers are fixated on the past value of their shares. The Standard & Poor’s capital goods index .GSPIC is down about 34 percent over the past year.

“A lot of players are still hung up with their 52-week high,” United Tech Chief Executive Louis Chenevert told an investor meeting this week.”

Read the full article here.

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Here is a good Financial Time article.

“The global economy is starting to bottom out from the worst recession and financial crisis since the Great Depression. In the fourth quarter of 2008 and first quarter of 2009 the rate at which most advanced economies were contracting was similar to the gross domestic product free-fall in the early stage of the Depression. Then, late last year, policymakers who had been behind the curve finally started to use most of the weapons in their arsenal.

That effort worked and the free-fall of economic activity eased. There are three open questions now on the outlook. When will the global recession be over? What will be the shape of the economic recovery? Are there risks of a relapse?”

Read the full article here. (Registration required)

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