In 2009, the number of problem banks increased nearly 200%. Problem banks now hold $400 billion in bank assets. Most of these problem institutions are regional and community lenders. The same banks that dominate in small business and commercial real estate lending. A continued rise in problem banks is likely to hinder a recovery in these sectors of the economy. … [Read more...]
A Snapshot of the Economy
February 19, 2010The Conference Board Leading Economic Index (LEI) came out this week. The LEI increased 0.3% from December. Each month when the Conference Board releases the leading, coincident, and lagging indicators, my staff sends me an updated table of the numbers (see below). I use the table to spot changes in trend and momentum in the economy. I grade each indicator individually and as a group. This monthly exercise gives me a good snapshot of the health and strength of the economy. What are my indicators signaling this month? The leaders continue to increase, but momentum is losing … [Read more...]
The U-Shaped Recovery?
Historically, housing recoveries follow a V-shaped trajectory. Even with significant government support, the current housing recovery, appears to be taking more of a U-shaped path. A healthy skepticism on the pace of a housing recovery remains warranted. … [Read more...]
Commodities Demand
Did you know that China accounts for close to 40% of the consumption of aluminum, copper, lead, tin, zinc, and nickel? China is by far the most important consumer of industrial metals. China is also a large consumer of energy and agricultural commodities. If you want to know what the outlook for commodities demand looks like over the coming decade, look to China. If the Chinese economy is growing, it is safe to assume that demand for commodities is on the rise. In the fourth quarter, China’s GDP growth was over 10%. So commodities demand is likely on the rise, but what about supply? You can't … [Read more...]
A Grave Threat
February 12, 2010 Olivier Blanchard, the IMF’s top economist, is calling for a doubling or tripling in the rate of inflation. He wants central bankers to raise their inflation targets to 4%-6% from an average of 2% today. What would possess anyone to recommend more inflation? Mr. Blanchard thinks a higher inflation rate would allow for greater flexibility in times of financial crisis. You can’t make this stuff up. The beneficiaries of Mr. Blanchard’s inflation scheme would, of course, be spendthrift governments. The burden of government debt falls sharply in inflationary environments. … [Read more...]
Pop Quiz
You’re right if you guessed that the largest stock fund is an exchange-traded fund (ETF), a fact I always find somewhat surprising when studying the list of the largest stock funds in The WSJ’s monthly fund report. The one at the top of the list is the SPDR S&P 500 ETF (SPY), with $91.11 billion in assets. When I first started working in this industry, back in 1995, Fidelity Magellan was the largest stock fund. It was an actively managed fund, so it was a big deal when it was surpassed by Vanguard’s Index 500, a passive index fund. With the index fund, investors knew what they owned, … [Read more...]
Productivity Growth
Here is why the U.S. will lead the Euro Area in an economic recovery. Higher productivity growth in the U.S. will allow American firms to ramp up employment sooner than their European counterparts. … [Read more...]
Is this Round Two?
February 5, 2010 Global equity markets have sold off sharply to start 2010. The risk trade that worked so well last year is getting creamed. A flight to quality is underway. Investors are concerned over the sustainability of mounting debt and deficits of weaker Euro member states. I am talking about Portugal, Ireland, Italy, Greece, and Spain here-better known as the PIIGS. Today, Greece is in the crosshairs of global bond market investors. Greece’s debt and deficits are unsustainable, but there is opposition to a plan to rein in debt. Investors smell blood and have bid up yields on Greek … [Read more...]
Continuing Claims
A Threat to Global Economic and Financial Stability
January 29, 2010 There is an emerging real-estate bubble in China. Ultra-loose monetary policy in the U.S. and an over-the-top stimulus plan in China, coupled with a pegged yuan, have created optimal bubble conditions. BusinessWeek reports that in Beijing's Chaoyang district, a typical 1,000-square-foot apartment sells for 80X the income of the average resident. Sound troubling? The Chinese leadership is concerned. Monetary policy is being tightened, and the government is reimposing a tax on home sales. A hard landing for the Chinese real-estate market is a real risk to global economic and … [Read more...]
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