DOW – 14 = 13,213
SPX – 5 = 1397
NAS – 22 = 3046
10 YR YLD – .02 = 1.91%
OIL -.07 = 104.80
GOLD + 1.50 = 1665.30
SILV – .26 = 31.11
PLAT – 4.00 = 1574.00
A sharp drop in an index of Midwestern manufacturing and a slowdown in U.S. consumer spending last month added to worries that the U.S. economy is slowing down. Weaker earnings reports from health insurer Humana and the owner of the New York Stock Exchange, NYSE Euronext. The losses were broad. Nine of the ten industry groups in the S&P 500 fell, led by materials. Only telecoms rose.
The Spanish government said that country’s economy shrank 0.3 percent in the first three months of the year, the second straight quarter of contraction.
Spain is the fourth-largest economy among the 17 countries that use the euro. The worry is that Europe’s bailout funds won’t be big enough to rescue Spain if it needs help.
Ratings agency Standard & Poor’s downgraded Spain’s government debt to just three notches above junk Friday. Earlier today, S&P lowered its rating for 11 Spanish banks, which are loaded with bad debt from a collapsed housing market.
The good news is the euro hasn’t collapse, at least not yet. Somehow, the countries of the European Union continue to overcome their varied self-interest and they seem to do just enough to avoid catastrophe, at least for now. One reason the Euro still exists is because it is more than a monetary union, it is also a political union on a continent that has been ravaged by a couple of World Wars; so there is some political value. Still, the euro is turning out to be an economic mess. The euro was supposed to make Europe economically vibrant and better able to compete with the United States and the rising Asian economies, and the vibrant emerging markets. Instead, the Euro-zone is the weak sister; begging for handouts from the BRICS and anywhere.
Looking solely at the economic wreckage, you’d think Europeans would be running from the monetary union in a mad panic. Three countries have already been bailed out and more could well be on the way. Those bailouts are potentially putting a big burden on taxpayers of the stronger nations, such as Germany and the Netherlands. The economies of Spain, Italy, Greece and Portugal are all expected to contract in 2012Even Germany and France might fall into recession. In truth, much of the Euro-zone is already in a depression. Unemployment in the euro zone is at a record high – more than three years after the financial crisis began. Nearly one in four people in Spain are jobless. Europe’s banking sector is on the verge of collapse, and would be gone already except for more than $2 trillion in bailouts from the ECB.
The euro can’t be blamed for all of Europe’s problems, but it is a big part. The monetary union bound diverse economies into economic lockstep, and as the economies diverged, the response was inappropriate; each country trying to protect their own position. Under previous ECB President Jean-Claude Trichet, the central bank, paranoid about inflation, took the insane step of raising its benchmark interest rate, suppressing growth and making the pain of adjustment in the weaker economies that much more severe. At times, the policies took on brutish overtones; Germany and others imposing technocratic rule over Greece and Italy. It is easy and incorrect to blame the divergence on a lack of moral discipline among the southern European states compared to a productive and disciplined workforce in the north. The reality is that the Greeks and Italians work more hours than the Germans and Greeks. This is not a morality play, at least not in the simplistic sense. The obsessive insistence on austerity is tanking growth throughout Europe, increasing unemployment and making deficit and debt targets harder to achieve. The mandates aren’t working because the problems were misdiagnosed from the onset. Portugal has committed to the mandates and financial reform and it just isn’t working.
The public is getting angry. The Dutch government recently collapsed. French President Nicolas Sarkozy is campaigning for re-elction by claiming his rival, Francoise Hollande would replicate Spain’s disaster, if Sarkozy loses the election. Spain’s pro-austerity government considers that rhetoric insulting. And for many people, the imposition of austerity must feel like an economic boot on the throat, and that brings up political wounds that have not yet healed.
There will be two elections this weekend, one in Greece, and the other in France. I don’t know if anything specific will be resolved or dissolved. At some point, the question will be raised – what is the economy for, anyway? Who does it serve? If the economy is to build a path to peace and prosperity, then it is worthwhile. Otherwise, the sooner it ends, the better.
Meanwhile, back in the USSA, it’s an election year, and we all know elections affect investments, just not how you might expect. We know that lobbyists are tremendously successful in lowering the tax bill for their respective industries, however, political involvement is a bad business decision – maybe. The more political contributions a company makes the worse their shares perform. That’s the conclusion of a new study that found that for every $10,000 in direct political donations a company makes, its share price underperforms by 0.074% annually. While this may seem small, it works out to an average “cost” to shareholders of $1.33 million in market value a year for every 10 grand donated.
The study, published in Business and Politics examined corporate political donations from from 1991 to 2004, focusing on “the four main types” of political giving: political action committee (PAC) donations, donations by individuals affiliated with a company, soft money donations and donations to 527 Committees. Only 11% of all publicly traded US companies donated directly from company funds during the sample period—a total of 1,381 firms. That’s a good thing, too, at least as far as investors are concerned. A higher rate of political donation is associated with generally “worse corporate governance” in the classic definition of the term. In other words, companies that throw a lot of money at politics are more likely to have giant boards, CEOs who double as chairman, below-average institutional ownership and above-average CEO pay. There are a few ways to look at this; maybe they’re bad managers who try to bribe their way out of difficult business conditions; maybe they’re smart managers who overcome great difficulties by bribing their way out of difficult situations. One thing the study did find; they have more free cash flow but lower rates of R&D spending than their peers. So rather than build and grow and innovate they resort to bribery. They throw money at their problems instead of solving them, and they feel they are entitled to special privileges.
On June 30,2008, Morgan Stanley wrote the following report on Lehman Brothers: “Initiating at Overweight with a $31 price target. We think near-term risk of incremental write-downs is balanced by solid liquidity and capital footing…, The firm’s ability to weather near-term market headwinds and return to respectable ROE generation should help the shares trade closer to book value.”
Which was almost true, if you consider the book value was squat. By the way, the Morgan Stanley analyst who wrote this report is no longer writing analysis of stocks. He is now the Senior Policy Advisor at the US Treasury Department. No. I can’t make this stuff up.
According to Nielsen ratings, from April 2011 to April 2012, CNBC’s “Squawk Box” is down 16 percent in total viewers and 29 percent in the important 25-54 demographic bracket that advertisers buy. On Tuesday, the show drew its lowest numbers of the year in total viewers — 99,000. The breakfast show is in its third straight quarter of ratings decline, and the drop coincides with the addition of vaunted New York Times Dealbook editor and “Too Big to Fail” author Sorkin, 35, who started with “Squawk Box” on July 18.
According to the Nielsens, “Closing Bell” with Maria Bartiromo is also seeing its third straight quarter of decline. From April 2011 to April 2012, the show is down 16 percent in total viewers and 11 percent in the 25-54 demographic.
I can think of a few reasons.
Four New York City Council members sued the city today over the handling of Occupy Wall Street protestors, claiming the police used excessive force and should be subject to an outside monitor. The city and the Police Department made false arrests and violated the free-speech rights of protestors and journalists last year, 15 people including the council members said today in a complaint in Manhattan federal court. JPMorgan Chase, Brookfield Office Properties and Mayor Michael Bloomberg are among the defendants…“Through unlawful exercises of public power and misapplication of law, the NYPD has sought to prevent and has prevented plaintiffs and other citizens from exercising certain constitutional rights, including the right to public assembly and expressive speech.”
In New York, Occupy Wall Street will join scores of labor organizations observing May 1, traditionally recognized as International Workers’ Day. They plan marches from Union Square to Lower Manhattan and a “pop-up occupation” of Bryant Park on Sixth Avenue, across the street from Bank of America’s Corp.’s 55-story tower. “We call upon people to refrain from shopping, walk out of class, take the day off of work and other creative forms of resistance disrupting the status quo,” organizers said in an April 26 e-mail…Tomorrow, beginning at 8 a.m. in Bryant Park, scheduled events include teach-ins, art performances and a staging area for “direct action and civil disobedience,” such as bank blockades. Yea, that probably won’t go over so great, but the party is starting again.