Posts Tagged ‘European Central Bank’
If the Shanghai Composite Index Is a Leading Indicator, Watch Out!
By Michael Lombardi, MBA for Profit Confidential
Export-oriented provinces in the Chinese economy have turned pessimistic and anticipate exports will only grow at the rate of five percent this year. In 2012, they targeted an export growth rate of eight percent to 10%.
What’s troublesome about this is that exports from the Chinese economy account for 20% of the country’s gross domestic product (GDP). This means that, if exports from China to other countries decline, the Chinese economy will suffer an economic slowdown. (Source: Epoch Times, February 7, 2013.)
The Chinese economy has become fragile due to the economic slowdown in the global economy. Its biggest trading partner, the eurozone, is still suffering, while other areas have anemic demand.
As export volume falls in China, it is creating trouble for China’s manufacturing sector. The Chinese Purchasing Managers’ Index (PMI) declined to 50.4 in January from 50.6 in December of 2012. (Source: National Bureau of Statistics of China, February 1, 2013.) A reading above 50 means expansion in manufacturing, while a reading below 50 means contraction. January’s reading is not far from the pivot point into manufacturing contraction.
Getting a read on the Chinese economy is not that easy. Some say statistics out of China are not that reliable. But here is the official word from the Chinese government: in the third quarter of 2012, GDP in the Chinese economy rose 7.4% from a year earlier—the slowest growth rate in three years. (Source: China Daily, December 30, 2012.)
While time and more data will make the picture clearer, with Chinese exports stumbling, a contraction in manufacturing activity could be next for the Chinese economy.
And it’s … Read More
No Quick Fix for Eurozone; a More Difficult Road Ahead
By Michael Lombardi, MBA for Profit Confidential
The eurozone credit crisis is taking center stage once again. As I have been saying in these pages, it is far from over, even though the European Central Bank (ECB) has announced that it will do “whatever it takes” to save the eurozone. Economic conditions in the region are still deteriorating.
The debt-infested countries in the eurozone are reaching their lows with widespread economic slowdown, but I am more concerned that the stronger nations are starting to show signs of struggle as well.
France, the second biggest economic hub in the region, is in a period of next to no growth. The country’s unemployment is higher than 10% and increasing. The International Monetary Fund (IMF) expects growth between 0.3% and 0.4% for the French economy this year. (Source: Wall Street Journal, February 12, 2013.)
In the fourth quarter of 2012, the eurozone countries saw the steepest quarterly decline in industrial production in more than three years. Industrial production in the eurozone declined 2.4% in the fourth quarter, compared to a meager increase of 0.2% in the third quarter—the sharpest decline since the first quarter of 2009. (Source: Wall Street Journal, February 13, 2013.)
Looking ahead, it seems the credit crisis in the region is there to stay. According to a study conducted by Ernst & Young, banks in the eurozone have a massive amount of bad loans sitting on their books. The auditing firm estimated that these bad loans make up a grand total of $1.23 trillion, or 7.6% of all the loans issued in the region. (Source: Deutsche Welle, February 11, 2013.)
Dear … Read More
The Municipal Bond Threat: Another Reason Money Printing Can’t Stop Anytime Soon
By Michael Lombardi, MBA for Profit Confidential
Before I get into my rant today about the troubled municipal bond market, first I have to say that I just couldn’t believe it when I saw this cross the newswire yesterday:
On Wednesday, January 23, 2013, Congress voted to “temporarily” do away with the U.S. government’s debt ceiling. Once the Senate passes the measure and the President signs it, there will be no limit on the amount of money the government can borrow.
At this point, I’m thinking everyone in Washington has gone mad. How can you give the government unlimited borrowing power? The race to a $20.0-trillion national debt and a debt-to-GDP multiple of 125%—we’ll get there a lot quicker now!
Back to today’s story…
Municipal bonds investors beware!
Gone are the days when municipal bonds were the “best investment.” Some may still argue that they provide tax breaks, but today the risks of holding them are piling up.
Cities across the U.S. are experiencing budget deficit problems. As budget deficits increase, the ability of cities and municipalities to pay their creditors decreases. A number of municipalities filed for bankruptcy last year, because they accumulated too much debt under their budget deficits—and defaulted on the payment of the municipal bonds they issued.
As we enter 2013, the epidemic of increasing budget deficits could make 2012 look like the tip of the iceberg!
Syracuse, New York, is estimated to have a budget deficit of $25.0 million this year. The city’s pension costs have increased 40% in one year and healthcare costs are rising at nine percent on a per-year basis. (Source: The Post-Standard, January 17, 2013.)
Cities and … Read More
Why Greece’s Depression Could Lead to a Global Recession
By Michael Lombardi, MBA for Profit Confidential
While the eurozone crisis is not front-page news like it used to be about a year ago, I see economic conditions in the eurozone actually getting worse. The economic slowdown in the region is becoming more severe as the days pass—even with the European Central Bank announcing it will do “whatever it takes” to save the eurozone.
In a recent review; the International Monetary Fund (IMF) said it expects Greece to require more help from its eurozone peers. It believes that all the measures taken by the eurozone nations since the troubles in Greece began aren’t enough to bring its debt to a sustainable level. The IMF predicts Greece will require another 5.5 billion euros to 9.5 billion euros from 2015 to 2016 to bring down its debt to a sustainable level. (Source: Wall Street Journal, January 18, 2013.)
I don’t really have to go into much detail about how bad the economic slowdown in Greece really is. Greece is in a depression.
To add to the misery, Spain, the fourth biggest economy in the eurozone, isn’t taking a break from its credit crisis, as its economic slowdown is deepening. The default rate on loans made to Spanish companies increased to 17% in the third quarter of 2012. Spain’s economy is expected to contract another 1.5% this year after shrinking 1.4% in 2012. (Source: Bloomberg, January 21, 2013.)
Meanwhile, Portugal and Ireland are pleading with their eurozone peers to extend their debt repayment schedule to the longest terms available. My take on the request? These two countries are probably running out of money again. The Bank of Portugal … Read More
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