Canada, Land of Smaller Government – Jason Clemens, The Wall Street Journal “[T]he Canada of the 1970s and early 1980s—the era of left-wing Prime Minister Pierre Trudeau—no longer exists…In 1995, the federal government, led by the Liberal Party, passed the most important budget in three generations. Federal spending was reduced almost 10% over two years and federal employment was slashed 14%. By 1998, the federal government was in surplus and reducing the nearly $650 billion national debt…all government spending peaked at 53% of Canadian GDP in 1992 and fell steadily to just under 40% by … [Read more...]
Wheat Prices Skyrocket
Wheat prices are up more than 50% in a month. Droughts in Russia, a major world wheat producer, are threatening the country’s crop. Traders bid up wheat prices in anticipation of tighter supplies. … [Read more...]
Global House Price Imbalance
According to The Economist, there are still six global real estate markets that are more than 30% overvalued. Australia shows the largest overvaluation at 61.1%, followed closely by Hong Kong and Spain. What happens when these market values return to fair value? Frightening. … [Read more...]
Ethanol Subsidies Four Decades Later – Still Wrong
Survival of the Fattest – Review & Outlook, The Wall Street Journal “The best refutation of the theory of the survival of the fittest is probably the corn ethanol lobby, whose annual $6 billion in federal subsidies have managed to outlive both its record of failure and all evidence and argument…CBO reveals that it costs taxpayers $1.78 in ethanol "incentives" to reduce U.S. gasoline consumption by one gallon…Given these realities, the only mystery is how an industry that produces a fuel that no one would willingly buy has managed to be subsidized over four decades at costs that are higher … [Read more...]
An Alternative to Ultra-Low Treasury Yields
The short end of the yield curve remains punishing for investors. Yields on two-year notes are now below the lows reached at the height of the financial crisis, and five-year notes yield a scant 1.68%. Going out longer on the yield curve still isn't an answer to paltry yields, though. Long bonds are significantly overvalued from both long- and short-term perspectives. The low level of Treasury yields is both frustrating and maddening. Policymakers are attempting to recapitalize the banking system by engineering a steep yield curve. The Fed has essentially lowered the risk-free … [Read more...]
A Raging Bull Market in MLPs
The raging bull market in MLPs shows no signs of slowing. Since the S&P 500 peaked in October of 2007, MLPs have gained more than 33%, while the S&P 500 dropped 25%. YTD, MLPs are up 17%, compared to a loss on the S&P 500. … [Read more...]
Raters Now Liable for Mistakes
Bond Sale? Don't Quote Us, Request Credit Firms – Anusha Shrivastava, The Wall Street Journal “Standard & Poor's, Moody's Investors Service and Fitch Ratings are all refusing to allow their ratings to be used in documentation for new bond sales…Each says it fears being exposed to new legal liability created by the landmark Dodd-Frank financial reform law…The new law will make ratings firms liable for the quality of their ratings decisions, effective immediately…That is important because some bonds, notably those that are made up of consumer loans, are required by law to include ratings in … [Read more...]
Big Troubles in China
Hong Kong's Populist Turn – Review & Outlook, The Wall Street Journal “Hong Kong's prosperity was built on its economic freedom…So it's alarming to see the territory's leaders turning their backs on that tradition…Hong Kong became wealthy by resisting the statist fashions of the postwar West. It would be tragic if it adopted those fashions just as we are re-learning the damage they can do.” Chinese Banks: Informal Securitisation Increasingly Distorting Credit Data – Chu, Wen, and He, Fitch “Against this backdrop, the reported deceleration in lending in H110 (Chart 1) has received much … [Read more...]
Avoid Australian Equities?
The correlation between Australian stocks and Chinese stocks is near a record high. If you are bearish on China, you probably want to avoid Australian equities. … [Read more...]
The Lifeblood of the U.S. Economy
The small business sector accounts for half of private-sector GDP and two-thirds of new job creation. You aren’t likely to see the current stimulus- and inventory-restocking-led recovery turn into a self-sustaining recovery without a strong small business sector. What is the current state of small business, and what does it mean for economic growth? The best source of data on small business is the National Federation of Independent Business (NFIB). With 500,000 members, the NFIB is the nation’s leading small business organization. Each month, the NFIB sends thousands of NFIB members a … [Read more...]
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