“This rally is all bull” says Alan Kohler

Alan Kohler at the Business Spectator writes:

The stockmarket rally is now being driven by the same force that set up the excesses that led to the bust in the first place – an abundance of liquidity.

The world is awash with government money, both central bank “quantitative easing” (money printing) and budgetary stimulus, and this is, in turn, driving a re-run of the hedge fund speculation that popped the market in 2007.

What do you think? Is there more turbulence ahead? Or is the worst behind us now?

Read Alan’s complete article at http://www.businessspectator.com.au

Glimmers of Hope?

Now that he’s got the puppy ensconced in the whitehouse, US President Barack Obama is walking the delicate tightrope of attempting to inspire confidence in the US economy while still warning of tough times ahead.

Yesterday, he announced that there was a “glimmer of hope” on the horizon for the American economy but warned that the nation was “by no means out of the woods just yet”.

In a 45-minute speech delivered yesterday at Georgetown University in Washington, Mr Obama said that his $787 billion (£529 billion) stimulus package, housing proposals, car industry bail-outs and bank capitalisation plan had started to “generate signs of economic progress” by saving jobs and beginning to free up the frozen credit market.

Rejecting criticism that he has been spending with “reckless abandon”, Mr Obama said: “History has shown repeatedly that when nations do not take early and aggressive action to get credit flowing again, they have crises that last years and years instead of months and months – years of low growth, years of low job creation, years of low investment, all of which cost these nations far more than a course of bold, upfront action.”

He also rebuked critics who said his refusal to nationalise banks was another example of Washington “coddling Wall Street”.

The President pointed to schools and police departments cancelling redundancies, clean energy companies and construction firms re-hiring workers and homeowners re-financing at lower interest rates.

However, he went on to temper the optimism by warning that more unemployment and home repossessions would come over the next 12 months.

US stocks were hit yesterday by an unexpected drop in retail sales, leading the Dow Jones industrial average down 137.63, or 1.7 per cent, to 7,920.18.

However, Goldman Sachs posted higher-than-expected first quarter profits, and pledged to raise $5 billion (£3.36 billion) to repay government bailout money.

Mr Obama said: “There is no doubt that times are still tough. By no means are we out of the woods just yet. But from where we stand, for the very first time, we are beginning to see glimmers of hope. And beyond that, way off in the distance, we can see a vision of America’s future that is far different than our troubled economic past.”

Invoking the Sermon on the Mount, comparing the American economic system to the parable of the man who built his house on a pile of sand, Mr Obama said: “It is that house upon the rock. Proud, sturdy, and unwavering in the face of the greatest storm.”

Ben Bernanke, chairman of the US Federal Reserve, also also offered a “fundamentally optimistic” assessment yesterday, using a speech in Atlanta to highlight recent data on home sales and consumer spending as “tentative signs that the sharp decline in economic activity may be slowing.

He said: “A levelling out of economic activity is the first step toward recovery.”

Locally, views are still mixed as to whether the Australian economy is on the road to recovery or will experience tougher times ahead. Certainly we are beginning to see our own “glimmers of hope” in our own share market, however this is tempered by the spectre of increasing unemployment.

Perhaps one of the most positive news bites for the Australian economy is that China’s stimulus package of some $808 billion (Australian) appears to be delivering better than expected results.

Last month, China’s industrial output growth jumped 8.3 per cent, up from the 3.8 per cent rise of the first two months, as domestic demand continued to improve, Chinese Premier Wen Jiabao said.

He described the figures as “better than expected”, according to an interview published in the China Securities Journal.

But he warned that the international financial crisis “has not yet hit the bottom”.

Financial analysts in China, however, are increasingly confident that the country’s slowing economy has bottomed.

“We believe the trough of sequential growth is already behind us, and China is heading into the initial stage of a recovery in the first quarter of 2009,” said Goldman Sachs Guo Hua analysts Helen Qiao and Yu Song. “In our view, China has already come out of the long winter featuring the sharpest and most severe growth slowdown in the past 30 years.

“Green shoots of strong domestic credit expansion, together with higher-than-expected fixed asset investment (FAI) growth are signalling the arrival of a spring season with rising upside risks to domestic demand growth.”

While I have maintained that no one can accurately predict what will happen tomorrow, next week or next month, it appears, that just possibly, the market has finally bottomed and we might just be beginning to witness the seeds of recovery.

The downside is that these “glimmers of hope” may take months if not years to be reflected in a broader resurgence in the Australian economy.

Lowest Interest Rates in 49 years.

The Reserve Bank is due to announce whether it will move on interest rates at 2.30pm this afternoon. The jury is out as to whether it will slash rates by a further 50 basis points or leave them on hold.

Certainly there’s arguments for either outcomes. Some are saying that we should take a wait and see approach as to whether the current round of stimulus programs will have the desired effect before resorting to further stimulatory action by the RBA.

On the other hand, the official unemployment figures are due out this Thursday and by all accounts the prognosis is not good. Job ads fell 8.5 per cent last month, taking the annual decline to 45 per cent. This marks the 10th consecutive fall.

Everyone now accepts that the forecast of 7 per cent unemployment for next year is too low and we should be adjusting forecasts to 8%.

The Government is also due to lay down it’s Budget in May, which is expected to include large rounds of cuts, including cuts to “middle class welfare” as we have been warned. What does seem pretty clear is that this budget will have to be a mix of tough cuts and more targeted stimulus.

While there may be “green shoots” emerging in China, it seems that we’re still heading for worse economic times ahead – particularly in terms of unemployment.

The Opposition has accused the Government of spending money irresponsibly without measuring or evaluating the effects of such stimulatory measures.

The Government argues that the ground is moving so quickly, that it’s almost responding to challenges on a monthly if not weekly basis.

Failure to respond appropriately could have disastrous consequences for Australian businesses and the economy while over-spending also carries with it its own set of ramifications.

This week will be an interesting week in politics..

Disclaimer: The author of this post once lived in a rented flat.

G20 averts World Crisis.

Who would’ve thunk it? The G20 in a few short days have actually managed to reach agreement on some tangible actions and outcomes following the recent talk fest.

In reports in the MSM, the G20 leaders have promised to rein in corporate cowboys and set up a worldwide financial watchdog in a $7 trillion bid to solve the global financial crisis.

The centrepiece of the package is $US1.1 trillion ($1.58 trillion) in spending to create jobs and get banks lending to each other again. By the end of next year, G20 leaders will have spent $US5.5 trillion ($7 trillion – or $7,000,000,000,000) to save the world economy.

(It’s a lot of money).

Under the deal, a new Financial Stability Board will be set up to ensure international cooperation on regulation and introduce new principles on pay and bonuses for corporate bosses to ensure they reflect performance.

Prime Minister Kevin Rudd said the financial market “cowboys” who wreaked havoc on the world economy would be brought undone by the deal.

“It’s been prime ministers and presidents who have struck this deal but it’s small businesses, tradies and young people who will benefit from it over time because global action is necessary to support local jobs,” Mr Rudd said.

Treasurer Wayne Swan has refused to say exactly how much of the trillions of dollars of extra spending will come from Australia, but promised to cough up a “fair share”. “It’s a bit early to tell how much,” he said.

He has said the Financial Stability Board would include a group of “supervisors” to work with national watchdogs to make sure they managed the risk in their economies. He said the current crisis showed that unmanaged risk in one country was a threat to all.

French President Nicolas Sarkozy, who had threatened to walk out of the summit, said the agreement represented “a commitment by heads of state and government to strengthen regulation and supervision of financial activities”.

“A breakdown in regulation was at the origin of the financial crisis.”

The key pledges are:

– Immediate publication of a list of tax havens that don’t comply with information requirements as well as unspecified sanctions.

– The injection of an additional $US1 trillion into the global economy through measures including a $US500 billion increase in the funding available to the IMF, an increase in the availability of money for developing countries through the IMF’s “special drawing rights” to $US250 billion and a total of $US250 billion being set aside for trade assistance.

– The establishment of international colleges of supervisors for national financial regulation.

– Agreements to do whatever is necessary to promote growth, but with approaches individual to each country, ensuring the possibility of further fiscal injections if needed in future.

– The revamp of the IMF and other institutions to ensure nations such as China are given greater influence. Senior positions on the World Bank and the IMF will open to candidates from the developing world.

– A continuing commitment to continuing funds such as the millennium development goals.

– An extra $US50 billion for the world’s poorest countries

Clearly, there must’ve been a lot of behind the scenes negotiation for the leaders to reach such a conclusive list of specific actions – with the standout endorsement coming from France after initially threatening to walk away from the talks altogether.

The outcomes represent a real win for beleagured British PM Gordon Brown. Brown secured the support of both France and Germany and announced a package of six key pledges designed to boost the world’s economies and hasten the end of the financial crisis.

The tough new approach to tax havens – lists of countries that do not comply with anti-secrecy rules will be published almost immediately – also represented a win for the French President, Nicolas Sarkozy and German Chancellor, Angela Merkel who have campaigned strongly for the new sanctions.

These also include a common approach to managing “toxic assets”, radical reform of the banking system, new regulatory systems including a “financial stability body” to act as an early warning system worldwide and caps on financiers remuneration.

Mr Brown said the “old Washington consensus is over” and in agreeing to the six pledges, the G20 nations made their messages “clear and certain” to markets and communities world wide.

“This is the day the world came together to fight back against the global recession, not with words but with a plan for global recovery and reform,” he said.

“Today’s decisions, of course, will not immediately solve the crisis. But we have begun the process by which it will be solved … I think a new world order is emerging with the foundation of a new progressive era of international cooperation.” he said

New reforms of the global banking system, including institutions such as hedge funds, and other parts of the so-called “shadow banking system” coming under global regulatory control for the first time.”

The German Chancellor, Angela Merkel, said: “This is a victory for global cooperation … it is a victory for reason that the things that got us into this crisis are not allowed to be repeated. That is what I wanted.”

The G20 leaders will meet again in New York in September, when the IMF will report on the impact of the spending to date.

Personally, I’m encouraged by these developments,. and if the markets are anything to go by, this might just be the beginnning of the turning point of the global financial crisis.

The Global Financial Crisis is a Hoax.

In what will come as a bit of a surprise, to say the least, there is a growing voice originating from the USA, that, if evidence is anything to go by, can longer no be ignored – “The Global Financial crisis” has been nothing other than a media beat-up or an elaborate hoax.

In sharp contrast to the relentless doomsayers and economic pessimists, Successful US investor Jack Miller maintains that the global economy is on the brink of a major resurgence.

All world stock markets are raging. The US economic recession has been a severe blow to the world. Financial analysts say that the USA is the main reason behind all financial problems in the world. Many of them say that it is only the beginning of the crisis.

However, other specialists simply laugh at those who panic. They believe that there is no recession in the US and there cannot be any. Nevertheless, they see a positive side about the present panic: best shares in the world are now available at very low prices, which is an extremely low occasion.

Successful U.S. investor Jack Miller feels certain about it. He receives great profits from fluctuating markets and recalls US post-war history of the USA.

During the past 50 years the USA suffered eleven crises acknowledged as recessions. They were caused by significant factors, and their consequences were much more serious than the present ones.

The 1945 recession was caused by the end of World War II, from which the American industry profited openly. The war ended, and former soldiers turned into the unemployed. Later the American economy suffered from the Cold War (together with expectations of the nuclear apocalypse), the Korean and Vietnam Wars, which was disastrous for the USA.

The rising prices of oil created economic crises in the USA in 1973-1974, 1979-1980 and 1981-1982. The recessions in 1990-1991 and 2000-2001 were associated with the investment crisis, or in other words, with the unjustified hopes of investors.

Peculiar features of recession include the rising unemployment factor and the decline of production.

The previous crisis between the two centuries (which is considered a mild crisis) was characterized with the six-percent reduction of the industrial output. The current situation shows that the production in the past quarter increased by two percent, it did not drop at all.

Jack Miller also calls attention to the unemployment rate. A rise in unemployment by basis points (up to five percent) at the end of 2007 caused a drop in stock markets before the New Year holidays. However, everyone chose to forget that for the past 50 years the average unemployment rate equaled 5.6 percent, and during the crisis it fell up to 7.6 percent at the most.

This cannot be considered a recession, claims Jack Miller looking at the fundamental rates. The air traffic performance is rising, which the investor considers to be the major index of the economic and consumer activity.

Experts say that the expectance of falling consumer costs is the factor of the forthcoming recession. It resembles the statement that the general hankering for diets will urge the average American to lose ten kilograms, says Miller.

Personal incomes rise as jobs increase. We can hope for that due to the rising industrial production.

Miller associates the present fluctuations on the world stock markets with usual economic cycles. The overheated economy of China and oil-making countries is slowing down, which means we are about to experience another rising cycle. Jack Miller recommends buying cheap shares right now, because soon their prices will restore.

Actually, the USA seems to benefit from this recession that “never happened”. As we have already been assured, the fundamental economy indexes are going up. However, the Fed cut its rates down to 3.5 percent and caused unusual global approval. It may cut them down to 2-2.25 percent, thus giving American businesses and consumers very cheap credits.

Besides, such action will inevitably result in the weak dollar (now it remains in the pre-crisis against other currencies, and this makes the US currency required) and in great advantages for foreign exporters.

Already now the US export-oriented companies are counting new profits. Thanks to the cheap dollar, the US economy managed to first start reducing the foreign trade deficit. It should be mentioned that the USA could not redeem the credit balance of the foreign trade.

Everything leads us to believe that the USA will overcome this crisis, or recession whatever, and will become even stronger than a year ago. At least it looks set to suffer fewer losses than the rest of the world.