Posts Tagged ‘euro’
What the Global Economy Could Learn from Sweden’s “Mr. Fix-It”
By Mitchell Clark, B.Comm. for Profit Confidential
It is absolutely critical that you evaluate all your holdings for risk.
The U.S. stock market needs to correct, but the sovereign debt crisis in Europe and the euro currency together remain a festering powder keg.
The real problem for the euro is the lack of leadership—in banking and politics—in the region. There is no flexibility in the euro currency to help those countries in need.
The failure of decisive action in the eurozone is pronounced, but it is too difficult. There is no unified political, financial, or regulatory leadership. So how can the euro work?
No situation is the same, but Sweden experienced a real estate crash and credit crunch in the early 1990s—the worst since the 1930s.
According to Bo Lundgren, known as Sweden’s “Mr. Fix-It,” here’s what Sweden did after a period of financial disbelief:
1. Sweden unified politically.
2. The government immediately guaranteed all cash deposits at all banks. Two banks (out of more than 100) were nationalized, and they had to give common stock to the government, which was later sold.
3. There was restructuring, the closure of tax loopholes, spending austerity, and a currency devaluation of 25%.
Currency devaluation is the very thing that struggling eurozone countries cannot do. The “Swedish Solution” was not perfect, but at the very least, it was decisive action. After several tough years, Sweden was back on the growth path.
Getting in front of sovereign debt is now critical.
Every quarter or so, there’s a shock in capital markets regarding the sovereign debt and banking crises in the eurozone. Then there are patchwork remedies and more sovereign debt.
Today, … Read More
The Netherlands Becomes Next Casualty of the Eurozone Crisis
By Michael Lombardi, MBA for Profit Confidential
Mark my words: the eurozone’s economic problems are here to stay, and the economic slowdown in the common currency region will get worse as we move forward.
The Netherlands, the fifth-biggest nation in the eurozone, is the new victim. The country, once looked upon as one of the strongest in the eurozone, is experiencing a collapse in its real estate market.
The Dutch economy has the most debt amongst its eurozone peers—banks have 650 billion euros worth of mortgage loans on their books, while consumer debt has hit an alarming 250% of income. (Source: Spiegel, March 4, 2013.) To give you some idea of the magnitude of that consumer debt level, in Spain, the ratio of debt-to-income reached 125% in 2011, the year Spain started to really have financial problems.
The official unemployment rate in the Netherlands just hit 7.7%, and 755 companies in the country declared bankruptcy in February—the highest monthly number of bankruptcies since 1981! The CPB Netherlands Bureau for Economic Policy Analysis now expects a decline of 0.5% in the country’s gross domestic product (GDP) this year.
We already know Greece is in a state of depression, and the economic slowdown in Spain, Italy, and Portugal is accelerating.
France, the second-biggest economic hub in the eurozone, is facing a staggering unemployment rate above 10%.
Similarly, Germany, the largest economy in the eurozone, is experiencing an economic slowdown, as well. The Markit Eurozone Composite Purchasing Managers’ Index (PMI) reports Germany’s all-sector output fell in March for the 19th consecutive month and March saw the largest drop in orders in three months. (Source: Markit, April 4, … Read More
Producer Price Index Soars to Annual Rate of 8.4%; Government Says No Inflation
By Michael Lombardi, MBA for Profit Confidential
While the “official” numbers may not show it, inflation in the U.S. economy is a major problem, and it’s hurting any chance we may have of real economic growth.
The Bureau of Labor Statistics says inflation in the U.S. economy has caused prices to increase by only 12% since 2007—what $1.00 could buy in 2007 costs $1.12 today. (Source: Bureau of Labor Statistics web site, last accessed April 5, 2013.) As my readers know, I believe these inflation numbers are materially understated.
In February, the U.S. Producer Price Index (PPI), what many economists consider to be an early signal of where inflation might be headed, posted the highest month-over-month rate of change since October 2012. The PPI rose 0.7% in February from January. (Bureau of Labor Statistics, last accessed April 5, 2013.) Using February’s number as a base, the PPI is rising at an annual rate of 8.4%.
Corn futures at the beginning of 2007 were priced around $350.00 per lot. Now the same future costs $630.00 each—an increase of 80% in the last five years. As corn is an ingredient in a significant number of different foods, general food prices have also increased.
But despite the inflation we are experiencing, Americans’ wages aren’t rising. In the first quarter of 2007, the average hourly earnings of all private-sector employees in the U.S. economy was $20.70 per hour. In the first quarter of 2013, it increased to $23.80 an hour—a six-year increase of less than 15% (source: Federal Reserve Bank of St. Louis web site, last accessed April 5, 2013); not enough to keep up with inflation.
Adding more to the … Read More
Some Perspective on Sovereign Debt from the Home of the World’s Oldest Stock Exchange
By Mitchell Clark, B.Comm. for Profit Confidential
If you go to Europe and you find yourself in Holland (the Netherlands), you’ll likely fly through Schiphol Airport on the edge of Amsterdam. It’s one of the best airports in the world, in my humble opinion. When you go through security, you are treated like a paying customer—which you are. The euro currency has become a lot more affordable for obvious reasons.
I visited Europe and Holland, specifically, in 2011 to visit my great-uncle’s war grave at the Begraafplaats Crooswijk cemetery in Rotterdam. It is a strikingly beautiful cemetery. The Dutch do a masterful job of maintaining war graves. Thank you.
My trip was subsidized by an old college buddy who has a huge (for Europe) apartment in Amsterdam. It’s the best location in town. In his job, he is the second-most powerful person on ING Group’s trading floor. He is the information technology (IT) guy.
Amsterdam is one of the most unique cities I’ve ever been to (ahem, not for those reasons). It is one of Europe’s top destinations (perhaps for those reasons). It boasts stunning architecture and is home to the world’s oldest stock exchange. The NYSE Euronext N.V. is Amsterdam’s stock exchange today.
Amsterdam was the financial center of the world a long time ago, centuries before the euro. Apparently, the Dutch East India Company was the first multinational corporation and the Bank of Amsterdam was the first central bank. It financed the company in guilders, which eventually joined in creating the euro currency. The city is still a financial center in Europe, but history keeps repeating itself.
Like many banks in Europe, ING … Read More
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