Posts Tagged ‘U.S. debt’
The biggest economic center in the global economy, the U.S., showed dismal growth in the last quarter of 2012. Sadly, the first quarter of 2013 is looking to be the same. Demand in the country is anemic at best as consumers are struggling.
New durable goods orders in the U.S. economy plunged 5.7% in March—the second decline in the first three months of 2013. (Source: United States Census Bureau, April 24, 2013.) Inventories of manufactured goods have been continuously increasing, seeing an increase in 17 of the last 18 months!
The HSBC Flash Manufacturing Purchasing Managers’ Index (PMI) for China indicated a slowdown in manufacturing output for the second-biggest economy in the global economy. The index plummeted to a two-month low in April, registering 50.5 in April compared to 51.6 in March. (Source: HSBC, April 23, 2013.) Any reading below 50 indicates a contraction in the manufacturing business.
Germany, the fourth-biggest economic hub in the global economy, is seeing its economic slowdown quicken. The Flash Manufacturing PMI for Germany dropped to a four-month low this month. The index stood at 47.9 in April, compared to 49 in March. (Source: Markit Economics, April 2013, 2013.) Yes, the manufacturing sector in Germany is experiencing a contraction. In Germany, exports orders to the global economy in April declined the most in 2013.
The “worsening” statistics I just gave you are of the main economic hubs in the global economy; others are in worse shape. France’s unemployment rate is becoming worrisome, and the country is bordering on a recession. Japan is already back in a recession; Italy is begging for growth.
Dear reader, … Read More
A report from Standard & Poor’s (S&P), the credit rating agency, indicates there is more than a one-third chance that Japanese sovereign debt could face a downgrade. The report stated, “…the continuing prospect arises from risks associated with recent government initiatives and uncertainty of their success.” (Source: Janowski, T., “S&P says more than one-third chance of Japan downgrade, cites risks to Abenomics,” Reuters, April 22, 2013.)
In an effort to spur economic growth in the country, the Bank of Japan is printing money “like mad.” But we already know this concept hasn’t worked very well for the Japanese economy in the past. Japan is in an outright recession, with exports in a slump and the value of its currency in a freefall when compared to other major currencies in the global economy.
Why does it really matter to North Americans what happens in Japan? Even though S&P kept the credit rating on Japan’s sovereign debt at AA- (or investment grade), the concern is how vulnerable the U.S. debt really is to its own credit rating downgrade.
Just like the Japanese economy, the Federal Reserve is using quantitative easing to print $85.0 billion a month in new paper money and has thus far increased its balance sheet assets to over $3.0 trillion. Similarly, the U.S. government has been “spending with two hands, while borrowing with a third.” Why? It’s all in the name of economic growth.
As the readers of Profit Confidential know, I have been very critical of quantitative easing. It may have been needed back when the financial system was on the cusp of bankruptcy in 2008. But continuing … Read More
As the key stock indices approach highs not seen since just before the financial crisis, the underlying fundamentals are screaming “watch out.” The stock market could be edging higher on nothing but false optimism and greed.
The most basic reason for any stock market rally, corporate earnings, is missing from the equation. The bellwether stocks are flashing warning signals. Just as one example, United Parcel Service, Inc (NYSE/UPS) reported lower-than-expected corporate earnings for the fourth quarter of 2012. For the first quarter of 2013, the company expects to earn less than originally anticipated. (Source: Associated Press, January 31, 2013.)
Looking at corporate earnings expectations from a broader viewpoint, they are declining as the key stock indices inch higher. The corporate earnings growth rate for S&P 500 companies in the first quarter of this year was forecast at 5.1% in September of 2012. In December, the forecast declined to a corporate earnings growth of 2.4%. Now, according to FactSet, the corporate earnings growth rate for the first quarter of 2013 stands at -0.04%. (Source: FactSet, February 15, 2013.)
As I have documented in these pages, companies on key stock indices are showing better corporate earnings by cutting costs and buying back shares, as opposed to increasing revenues. In the fourth quarter of 2012, employee compensation (wages) only accounted for 54.7% of U.S. gross domestic product (GDP)—the lowest level since 1955. (Source: Wall Street Journal, February 11, 2013.)
Key stock indices are becoming significantly overpriced. The value of the U.S. stock market stands at about 133% of GDP. The average for the past 60 years has been around 82%. By … Read More
The Congressional Budget Office (CBO) expects the U.S. federal government to have a lower budget deficit this year than those of the previous four years—finally getting the annual deficit under $1.0 trillion (although, not by much). But I am skeptical when it comes to the CBO estimates, as financial conditions at the more local level paint anything but a rosy picture.
Our country has already faced one credit rating downgrade and chances are another one is in the making. Why? Cities across the U.S. are in deep trouble, as their massive deficits continue to increase.
Take Detroit, for example. The city is on the verge of bankruptcy again due to the severe downturn in the local economy and the city’s annual deficit. Detroit’s residents are fleeing the city, with the population down 30% since 1990. (Source: Reuters, January 28, 2013.)
Troubles in California persist. Multiple cities in the state have already filed for bankruptcy; others may also follow suit. Fresno, the fifth-largest city in the state, is in financial stress. Fresno’s credit rating has already been downgraded by Moody’s. The credit rating agency notes that the city already has a high deficit, high payrolls, and other fixed costs in the background of a deteriorating economy. (Source: The Sacramento Bee, February 11, 2013.)
Sadly, this doesn’t just end here. Moody’s downgraded 11 municipalities in the U.S. from stable to negative—and all these cities had a credit rating of “AAA” prior to the downgrade. (Source: Barron’s, February 6, 2013.)
It would be good to finally see the federal government get its annual deficit under $1.0 trillion, but issues with cities … Read More
Profit Confidential — IT'S FREE!
"A Golden Opportunity for Stock Market Investors"