Romney’s Victory Website: And The Ugly Truth About Politics

It appears that Mitt Romney and his GOP “posse” had a Vision that the Election was going to yield a landslide victory! Although they could not have been more wrong, their arrogance was palpable. I am sure by now you’ve heard reports about Mitt Romney admitting that he only wrote a Victory speech. That is more than positive thinking, that is sheer arrogance (and not the most attractive trait in a candidate). Fox news, and other conservative media outlets had pre-election panels, and Election-day panel discussions, that harshly laid out reasons why Democrats, and Obama, will be shown the door. During the early afternoon on November 6th, the conservative news anchors and pundits entertained themselves by predicting what the Romney Cabinet would resemble. Who are the likely candidates for the Romney Administration, and who would be passed over for one reason or another. It was not unlike pre-Super Bowl chatter, only this game will impact the entire country, and the world. As the day progressed, the conservative political analysts were confident and excited.

There seem to be such utter certainty, that I was startled by it. It was like being in an alternate world, chiefly because I couldn't see how one-plus-one could equal four. It appeared that Fox News, and conservative Talk Radio, converted simple math (adding likely Romney votes) into an algebraic equation....and it all made sense to THEM. Looking at the issues influencing voters, which bore out to be true, I took note of the following issues:

 Women in America want the right to choose what goes on with their bodies, and don’t appreciate being referred to as “Binders of women”
 Latinos are concerned about immigration laws that impact their children and families.
 FEMA should be left alone; States and local governments, and citizens need financial help after Natural Disasters .
 A sizable portion of the “47%”, Romney wrote off, were retired, or veterans who have paid a lifetime of taxes, or risks their lives fighting for this Country. They’ve earned the right to Social Security, and other government programs
 Auto Makers, their 181,000 auto workers and their families were happy that Obama didn’t take Romney’s advice to “let them go bankrupt”
 Gays are passionate about having heir marriage legally recognized, giving them the same rights as heterosexual married couples.
 Youth votes are more likely to vote for Democrat, given the “Occupy Wall Street” movement, which blames the wealthiest 1 %, and the Bush Administration for the economic and fiscal crisis

The above political and social issues can be translated to a simple addition problem. Accordingly, the 7 bullet points could be treated as an aggregate of votes away from the republican candidate, Mitt Romney. Although the slow economy and high unemployment were working against Obama, as long as the turnout were as strong, or better than 2008, he had a good chance of winning re-election.

So why then, were the Republicans and Carl Rove so vehemently certain that Romney would be elected the 45th President of the United States? To the extent that he had his Victory Website rolled out early Thursday morning?

Perhaps this tidbit of information will provide a clue: Shortly after Obama’s stunning victory, I read a disturbing article that attempted to explain a complicated web of investment companies and venture capital that involved Mitt Romney’s son, Tagg Romney. In a nutshell, Tagg Romney owns the company that invested in the company that bought a controlling interest in a Voting Machine Vendor. What? I was so shocked, that it took the wind out of me. What this amounts to is so incredibly unethical, I can’t help but to think of Watergate. So, that explains the why the Romney camp felt so sure they would be moving into the White House. This is unfathomable and beyond a mere “conflict of interest” issue. This also explains why several concerned voters released video tapes the rigged voting machines they encountered, and posted it on YouTube. One male Caucasian Voter illustrated that when he chose Obama for President, a check would appear next to Mitt Romney’s name. He tried it multiple times, and eventually left that booth. He did not indicate who he ultimately voted for, but stated that he just wanted to report a “strange” occurrence.

Provided below is just one of the "Rigged Voting Booth" videos.

The combination of the Tagg Romney’s secret ownership of a voting machine company, and the YouTube videos of rigged voting machines is too much of a coincidence. I also believe that if this Article was misstating the facts, there would have been a lot of noise and defamation claims coming from the GOP or the Romney camp. Instead there is silence - as if the planned strategy was not to respond, so that the issue would quickly go away. I am almost certain that the Obama Administration is too busy to pursue the matter, especially since the stolen votes did not help them achieve their goal. The outcome of the this election, begs the questions: If Nixon hadn't won the election, would the Watergate break-in become the scandal that rocked Capital Hill - to destroy Nixon's political career? Given the lack of attention drawn to the Rigged Voting Machines connected to Tagg's Venure Capital Company, I can't help but wonder if Watergate would have become one of the biggest scandals in America's political history, if Nixon did not get Elected? Whatever the case, politics is left with a black eye, as democracy stumles on.

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Industry Outlook: Technology Driven Jobs Growth

The Department of Labor names the Service Sector as one of the top five industries that will drive the economy over the next 6 years, out pacing all other industries According to a recent Bureau of Statistics Report, the service sector employs approximately 112.8 million people. Given the continuous advancements of technology, technology related occupations are expected to grow 25.9%, while the service sector (including project management and consulting) will be the driving force in the economic growth through 2018. It is no surprise that the demand for IT consulting and system upgrades will foster increased business, driven solely by the face-paced changes in technology.

This is really good news for a wide range of career paths particularly; project managers, IT consultants, and risk analysts, network security specialists, developers, corporate trainers and recruiters. The Industry Outlook page indicates the Department of Labor anticipates 18 percent growth in the IT management and consulting services through 2020, out pacing all other occupations by 4 percent.

The Department of Labor Industry Outlook page indicates that the service sector will be accountable for employing as many as 131 million people between now and 2018. In their Industry Outlook Report issued the second quarter of this year, the Department of Labor points out that technological consulting services will be among the fastest growing sectors for professional and technical workers. To further support the positive outlook for IT and related Management and Service sectors, a Plunkett Research Report issued earlier this year, reiterated the projected 18 percent growth for the aforementioned industries. Like a super heroe, Technology will impact the overall business community as it continues to drive change, demand and thus economic recovery.

Small and mid-size organizations struggle to keep up with advancements that influence their ability to remain competitive as the market place transforms. For this reason globalization and express technology advancements foster new opportunities for IT consultant firms (Deloitte, 2012). Industry and Occupational Outlook data can be found at US Department of Labor website

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Doin' the Twist: The Federal Reserve Steps in to Spur the Economy

In the beginning of the year, the Federal Reserve indicated their plan was to let the economy stand on its own. By the end of last month, however, the Feds broke down and reduced long-term interest rates in a program they refer to as Operation Twist. In this program, the Feds would drive down interest rates to encourage business activities, such as borrowing and hiring. According to a Wall Street Journal article by Peterson and Hilsenrath, the Federal Reserve officials announced that Operation Twist will be extended through the end of the year, but they’re “poised to do more”.

At the end of the 1st Quarter, the Feds indicated that there was no need for their help. The economic picture appeared brighter following a strong 4^th Quarter, and encouraging jobs report.

By the time the we turned the corner into the 2^nd Quarter, the economic storyline began to change amid heightened pressures from overseas. The market, which had anticipated S&P downgrades for Spain and France, could no longer withstand the push-back stemming from the European Union’s fiscal and political upheaval. Globalization has its rewards, but this isn’t one of them. When the EU sneezes, we are going to get the sniffles, as if the distance were non-existent.

As the Euro fiscal storm brewed, the dismal jobs report and Facebook IPO did its part to shrivel up any confidence Investors might have had left. The market uncertainty lingers, regardless of good economic news. This  depicts the profile of weary investors - possibly suffering from Post-Traumatic Stress Disorder.  Being the eternal optimist, I’m hoping Operation Twist will have us all dancing in the isles by the end of the year.

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To Be or Not To Be: EU Shows signs of cracking

Twenty years ago, when the idea was circulating about a unified currency in Europe, it seemed like such a brilliant concept, based upon sound economic and political arguments. Today, it almost seems like an impossible dream. Landon Thomas of the New York Times asks in his article "Can they muster the will and resources to keep the euro zone from breaking apart?

As the world looks on, and markets take defensive positions, the Euro crisis unfolds like the climax of a mystery novel. Greece's dramatic elections - where the people ousted Sarkozy, opting for an unlikely candidate, François Holland. The outcome of the election was a clear sign that the people were not ready for the strict austerity measures needed to turn their economy around. Bailout alone was not going to save Greece, it was only expected to buy them time to pull their policies, and fiscal plan together. The political and civil unrest in Greece, gave little hope for a turnaround. Instead the notion of Greece leaving the European Union resurfaced with somber overtones of reality.

By the end of May, Spain had decided to pump 19 billion Euros into its struggling Lender, Bankia, SA, as a strategy to illustrate stability, and quell any notion that the crisis continues for its financial sector, in light of Greece's downward slide. This is a prop-up strategy that is effective in influencing perception, which is crucial in the realm of investors and financial markets. The US equivalent of $24 billion, was a rich injection that is twice the amount Spain spent in the recent past to straighten out the banking sector during US housing market collapse - causing a global rippling affect. Spain is swiftly reacting to mitigate a repeat of the fiscal mayhem stemming from billions of dollars lost in toxic mortgage-backed securities.

Meanwhile, two weeks ago, S&P downgraded Bankia, and several other Spanish Banks, causing worldwide concern. The rating agency made matters worse by painting a gloomy near-term forecast for the region, citing their belief that Spain is heading toward a double dip recession. S&P also noted that there was a reasonable expectation of an increase in troubled assets. On the heels of Frances downgrade, and Spain’s fiscal concerns, the question becomes, was this unified currency such a sound economic and political move in the first place. Friday, the DOW closed 300 points lower, illustrating investor sensitivity to the Euro Crisis - although, it should be noted that market anxiety was further stimulated by the soft jobs report.

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Economic Stability: Still in Question in the U.S. & EU

The mixed economic indicators have been a source of much debate among analysts. The softer than expected Jobs Report, along with the spiking gas prices have turned the optimistic economic forecast on its head. An article in the Wall Street journal indicated the industries that were previously driving the economic recovery in the past year have slowed, noting that others economic indicators have stepped up their place. I'd say that's as accurate observation and interesting fodder for economists. For example: the housing market appears to be gaining a good deal of traction, and consumer spending has been consistently growing, and gaining momentum. Experts say that the up-beat consumer spending data is linked more to the unusual warm Winter, and thus not so much a real indication of a positive consumer outlook. The market has fluctuated in the last quarter of 2011, but it cannot be disputed that the DOW has flourished in spite of the slow economy to its highest levels above 13, 000. It also appears that the market seems to be a lot less sensitive to the news across the Atlantic than last year. The Ratings agency, S&P downgraded Spain's debt in January and again in March, but the market barely responded to the news. This is somewhat surprising considering the impact the Euro crisis would have on our economy if things were to spiral out of control. Perhaps the market had already compensated for the news in the last quarter of 2011, since the downgrade for France and Spain had been anticipated.

Indications That support Optimism

Consumer spending has been a great influence on the economy, having a direct impact on the retail industry revenues. It should be noted that two thirds of national GDP is made up revenues from consumer spending. Consumer spending is indeed an important aspect of analyzing the economic forecast. The Housing market is showing signs of life, as housing purchases in the first quarter increased 19%. More dramatic statistics have been coming out of Miami and New York, but it’s still too soon to exhale

Indications That support Pessimism

The rising oil prices have become an unavoidable threat to the recovery, but for some inexplicable reason consumers are taking advantage of the prices and low financing interest rates. The jobs report came in at 120,000 new jobs, which is the lowest number in several months. This could indicate that employers are not completely convinced that the economy is on the road to solid footing. Let's face it the perception of the economy is the most important aspect of the forecast. Economists and analyst can talk endlessly, but if the investors' perceptions do not concur, they stay out of the market, or get out.

The fact is there are both positive and negative influences at work, making it more challenging to decipher the indicators. If I had to take a stab at analyzing the economic indicators, I'd be likely to lean toward an optimistic forecast because of the sheer impact that consumer spending has on the GDP, and the deep discounts in the housing values which have spurred buying. Also, the earning reports illustrated that banks are thriving amid restrictive finance reforms, and retailers are reporting positive earnings that beat analysts' expectations. Tourism in the country reached an all-time high amounting to billions in added revenues in New York alone. We will just have to wait ad see, it could really go either direction in the coming months.

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Goldman Sachs: Filing for Moral Bankruptcy

The investment Banking community was stunned by the hard hitting statements made by Goldman’s former executive, Greg Smith. Smith's scathing, but heartfelt remarks, published in the OpEd section of the New York Times, was the topic of lively debates and criticism around the globe this week.
After reading Smith’s behind-closed-doors account of what’s really going on at Goldman, it would seem that Wall Street’s gold plated, celebrated investment bank of 143 years has somehow lost its core values on which they built their brand of “Trust” and “Integrity”. Goldman Sachs was once an awe inspiring investment bank, whose brain trust is referred to as “the best and the brightest”, but they have certainly suffered from a leadership deficiency. Strong leadership or the lack thereof, is the basis of the rise and fall of many businesses – regardless of their size. It is the “leadership” of Steve Jobs who, upon returning to Apple, was able to bring the company from the brink and take it to quintessential plateau, far beyond anyone’s imagination. That’s leadership.

Mr. Smith’s commentary might have easily been dismissed as a disgruntled employee, were it not for the fact that he was a highly regarded executive director, who has spent over a decade of his career there. From my perspective, Smith gains credibility for his tone, and the manner in which he described the pride he felt being a part of Goldman, and praised the company that once was. He was convincing because of his effort to be constructive in his criticism - disclosing examples of the troubling shift away from providing investment advice in the best interest of the client. Rather than simply throw destructive daggers and below-the-belt punches that serve only to damage the company, his rant was respectful but unyielding. Smith had the power to do a lot more damage than he did. Keep in mind, never once did he accuse Goldman of fraudulent practices.
Mr. Smith’s piece focused on Morals, Ethics and Integrity, which was summarily lacking, apparently much like the leadership. Smiths cited his leaving the company because he could no longer stomach the Goldman that has emerged. The shift in focus from Client-centered investment services to, revenue-driven “elephant hunting” (Smith, 2012) has eroded the company’s code of ethics to the bare bones. Having developed an unnatural preoccupation with taking every allowable advantage of the client, Goldman Sachs is left morally bankrupt.

Let us all be reminded of the Senate hearings, and the SEC investigations of 2010 and 2011, which resulted in fines and a multi-million dollar settlement. Meanwhile, the public has barely had a chance to digest the law suits that have come from international companies claiming Goldman mislead them about the rouge mortgage-backed securities they purchased from Goldman, without so much as a warning.
The firm’s Chief Executive Lloyd Blankfein and Chief Operating Officer Gary Cohn issued a statement more than 24 hours after the OpEd sent global shockwaves throughout the investment community. As expected, they were essentially denying the allegations made by Smith. Unfortunately, it was too little, and about $2.2 billion too late, as the value of the company took a dramatic hit after Smith's public resignation letter went viral. The stock recovered all but $800 million in value the following day, due to investor excitement about positive economic statements from the Federal Reserve, and stronger than expected retail data. Still, intangible losses are mounting where trust, good will, and brand are concerned. For this reason, many question the wisdon behind the delayed reaction from Goldman. It's too early to tell what the fall out will be, and Goldman's overall Damage Control Strategy is yet to be seen.

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Anonymous said......

Great article Katherine! The Goldman crew only needed 10 BILLION dollars (place pinky to corner of mouth)to stay afloat after the greatest heist on the planet by these guys: http://projects.propublica.org/bailout/list
It only took Goldman (Gold,man!)a couple of years to repay 10 Billion dollars... what does that tell me about how easy money comes to them?
At least one of them is admitting being morally bankrupt! It's about time!
We should have done what Iceland did instead of screwing over the people.
Now what?
http://projects.propublica.org/bailout/entities/237-goldman-sachs
Chris G / Mar 18, 2012 05:17 PM

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K. Reilly said......

Hey Chris G., thanks for your comment. I also checked out the propublica.org link, which I enjoyed scanning through. Sorry for the delayed response. :)

U.S. Manufacturing: Myth Dismanteled

I, like many others, was convinced that America's manufacturing output was minuscule in comparison to other countries like China, India and Mexico. It certainly appeared what was left of the manufacturing industry was hanging on a thread. As it turns out, nothing could be further from the truth.
We've all heard economists, politicians and professors mouthing off about the vast declines in U.S. manufacturing, and the erosion of jobs in that sector. Over the years, I have read countless articles complaining about America's short sided move away from manufacturing in place of innovations such as technology, and service related jobs.
The voices of dismay grew louder and evermore judgmental during the height of the recession, as unemployment climbed to 10%. After reading Friedman's "the World is Flat" I was now convinced that the US had really bet the future on technology and white collar service industries, having recklessly turned its back on the Manufacturing industry. During the industrial revolution, America excelled in manufacturing, which made us the number one economy - and the envy of the world at one point. The perception was further ingrained ten years after the passing of NAFTA, which precipitated an outsourcing frenzy. It was now “coming home to roost” as my grandmother used to say. Senator Joseph Lieberman submitted a report concerning this very issue in 2004, entitled “Offshore Outsourcing and America’s Competitive Edge: Losing Out in the High Technology R&D and Services”. It was an obituary of statistics that indicated that we were all but buried.

It appears that his purpose was to sounding the alarm, and stimulate discussion toward finding solutions during the Bush Administration. Although he touched upon the outsourcing concerns, ultimately his paper dealt with a broader issue, which I believe to be a compelling argument for the need for America to refocus its attention toward developing a brain trust of highly skilled talent in Engineering, Biotechnology and Science Technology to ensure that this country will better compete with the brain trust emerging from India, Russia and China in the future.
NAFTA, which was thought to be a trailblazing trade agreement when it was first past by Bill Clinton (in the 90s), in hindsight, it was the catalyst for the loss of millions of manufacturing jobs. This trade agreement, meant that China was no longer the only country corporations could get cheap labor without heavy tariffs or taxes. There was now Mexico, as an outsourcing option that was more accessible. This would enable companies to save money, shipping time and reducing time zone issues. It's no surprise that corporations would want to take advantage of the reduced cost of goods in search of higher profit margins. Between 1990 and 2004 the US workforce has lost over 7.5 million manufacturing jobs. Although 4.5 million manufacturing jobs have been added back, making the net loss approximately 3 million in lost manufacturing jobs (Source: U.S. Dept. of Labor). By the end of millennium, Imports had far exceeded our exports creating a widening trade deficit economists and analyst had voiced concerns about for decades. The US trade deficit with China alone has increased 44% between 2001 and 2010, amounting to over $190 billion from $114 billion. The increased trade deficit with China can be linked to the loss of 2.9 million jobs during the same period. Although the statistics are not easy to swallow, they were the building block of the Myth that America had abandoned the Manufacturing industry. In all fairness, economic indicators such as manufacturing, exports, job creation and jobs lost are the foundation for formulating forecasts for near-term economic status and provide a glimpse of potential long term ramifications. GDP and import/ export trade ratios are also utilized as a compus for growth and global growth comparisons. One morning, as I cleaning up and sifting through old article clippings (Im old school, what can I say) I stumbled upon a Wall Street Journal article by Mark Perry, which touted the flourishing manufacturing output in the U.S. What? I thought. I was quick to abandon my cleaning project (this was as good an excuse as any), to get to the bottom of this piece. The article prompted me to conduct a little research to substantiate this myth busting claim. There is no denying that there have been a continuous loss of jobs in the manufacturing sector.

The Auto industry is just one of the industries that suffered a loss of nearly 1.5 manufacturing jobs, as the Big Three auto makers sought bailouts and closed factories in an attempt to save their faltering operations. Statistics covering the period from 1990 through 2009 indicate a loss of nearly 5 million manufacturing jobs, which meant a displacement of factory workers and managers who were forced to rebuild their skill-set by training in new industries, or returning to school, or both. The displaced workers that did not, either remained out of work, or ended up taking unskilled positions at lower pay. This is an unfortunate side effect of changing times and  advancing technology. Nevertheless, the manufacturing industry has been rebuilding itself while no one was looking.  Although many factury jobs are gone forever, as they have been replaced with computers, we have increased our productivity 3-fold. According to the Federal Reserve, the value of  our manufacturing output in of 2009 was $2.72 trillion (in 2000 dollars). Today’s factory worker is so productive that their average output "value" is estimated at $234,220. This means that the output per worker is three times as high as it was 30 years ago, and twice the productivity of 1990.  An article written by Dr. Walter E. Williams for WND.com in 2010 stated the following "the Federal Reserve estimated  the value of U.S. manufacturing output  in 2008 was about $3.7 trillion". He went on to say,  "if the U.S. manufacturing sector were a separate economy, with its own GDP, it would be tied with Germany as the world’s fourth-richest economy".  We're still struggling to climb out of the economic recession, but it should be clear that we're making our way back to being a stong economy, that's decidedly back in the manufactuing business.

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Europe's Deficit Deal Takes Shape: Uncertainty Lingers

The highly anticipated Euro-zone deal, which we thought would positively impact the market failed to do so. There was a knee-jerk reaction to the news with a slight up-tick in the DOW, which indicates bolstered confidence - but this was short lived. As it turned out, before the end of the trading day the Euro had fallen, along with a tripple digit drop in stocks. Uncertainty rippled through the markets creating a domino effect, that finally resulted in a rise in borrowing costs for Italy and Spain alike. Ultimately, it appears that investors were decidedly unimpressed with the Summit deal to control the Europe's fiscal crisis. Economists believe the market rally was deflated due a resurgence of uncertainty surrounding the bailout pact, as it did not include unlimited backstop for the Euro currency.

As the saying goes; "the devil is in the details". The Euro-zone deficit deal has been structured, but economists, investors and stakeholders know its only the beginning. According to Frances's President, Sarkozy, the legal parameters and compliance for the new accord to reinforce the bailout rules are expected to be worked out before Christmas. The longer it takes to put this put this chapter behind them, the more chance for erosion of confidence, currency, and credit rating.

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Corzine's Blind Ambition: The Collapse of MF Global

MF Global is essentially in ICU, and nothing short of a miracle will save the company as we know it. Who was at the wheel when the company crashed and burned last week? Corzine. Corzine, former governor of New Jersey, who was once the head of Goldman Sachs, went back to his roots on Wall Street to head MF Global. As CEO of MF Global, Corzine, built the company to $41 billion business. It sounds like another Wall Street dream, but this success story, quickly turned into a nightmare, for the company and for its CEO.

The announcement came Thursday, November 3rd, that Corzine is stepping down as CEO on the heels of an investigation of the company’s unraveling. Their troubles started when the European crisis began to impact the company’s bottom line, since MF Global was heavily invested in European bonds.

MF Global is the first big financial company to tank at the hands of the Euro -crisis. The company’s Partners pulled back with increased concerns about their Euro bond exposure, which descended into a severe cash deficiency. MF Global’s investment in Spain, Italy and Portugal bonds had amassed to $6 billion in debt. The firm’s stock declined 66% last week when the company reported its worst quarterly losses ever. Meanwhile,the transatlantic continent’s gloomy future is hanging in balance, and sure to bring MF Global to its knees. The swift sell-off of its stock precipitated the company filing for bankruptcy. To put this horror story in perspective according to bankruptcydata.com, the MF Global bankruptcy filing is the 8th-biggest financial institution in the US, placing them over Chrysler, (in 2009), but smaller than Lehman Brothers.

It is beginning to appear that Corzine set out to redefine MF Global's Business Model, and aggressively redirect the company’s focus and trading objectives in an effort to create his own Goldman Sachs. He wanted to build an international empire, only he failed to consider the global economic mayhem, and particularly the crisis unfolding across the Atlantic, where Corzine wanted to heavily invest. The financial discord in Europe was no secret, so what was he thinking? A cocktail of insatiable greed and ambition tends to have a blinding effect on the soul.

Behind the scenes, the Wall Street Journal reported that MF Global was seeking investors or buyers to alleviate the cash crunch. But alas, there were no takers and unfortunately no alternatives emerged before the regulators’ deadline. The company was subsequently delisted. This is a classic case of an overly eager, unethical CEO with his own agenda. The level of ambition and arrogance was so steep, it apparently impaired his ability to lead with the company's best interest at heart. Meanwhile, nearly a thousand people will be out of work in a couple of weeks, just in time for Thanksgiving. The bright side is that many of the employees will continue with their lives and eventually find stability, but Corzine is finished - both politically and professionally.

Given the anti-Wall St. sentiment, I was not surprised to learn that Corzine declined a $12 million severance pay. No matter how you choose to spin this fact, his decision to walk away from millions of dollars he was entitled to, speaks volumes.


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Will Oil Derail the Recovery?

Here we go again. As we know by now, most of the major downturns that have occurred in the US and the world, since the 1970s, have been preceded by sudden increases in oil prices. We are at levels, currently around the $100/barrel mark, that will impact inflation, GDP growth and potentially employment.

As described by the U.S. Energy Information Administration, since the United States is a net importer of oil, higher oil prices affect the purchasing power of U.S. national income through their affect on the international terms of trade. The increased price of imported oil forces U.S. businesses to devote more of their production to exports, as opposed to satisfying domestic demand for goods and services, even if there is no change in the quantity of foreign oil consumed.

When oil prices increase, the consumer suffers – sounds all too familiar. Purchasing power diminishes as consumers use more of their income to pay for products that are directly affected by oil such as gasoline, heating petroleum, and jet fuel. Less money is spent on other goods and services causing a vicious cycle of contraction, due to decreases in retail expenditures and diminishing confidence. Since companies depend on oil for transportation and other operational needs, the increased costs to run businesses are passed along to the consumer in the form of inflationary prices. To further compensate for increased energy costs and less demand, firms will reduce the bottom line of expenses by laying off workers. This scenario results in lower GDP and higher unemployment.

Since we have made some real progress during the last 12 months for economic recovery, I am hoping we do not fall back into a recession pattern, but oil is a real risk here. After Tunisia, the unrest spread to Egypt, causing a spike in prices due to worries about the possibility of the Suez Canal shutting down; one of the most important oil transport passageways in the world. The Libya uprising caused more market jitters as 1.5 million barrels a day of oil was choked off, later covered by Saudi Arabia, the world’s largest oil exporter, to prevent shortages. The unrest appears to be continuing and spreading as protests have been reported by CNN in Iran, Iraq, Syria, Algeria, Morocco, Jordan, Oman, Yemen and others in the region. Interestingly, it was reported yesterday that there could be protests in Saudi Arabia coming. Since it doesn’t take much for oil prices to react quickly - that would certainly adversely affect the market if it really happened. Also, the high peak spring/summer driving months are approaching - could we have $5 a gallon gas prices? Some analysts think it is possible, given the uncertainly of what is happening in the world and how oil reacts to it. I certainly hope not, because the scenario I outlined above could become a reality.

Read about the higher Oil Prices' Impact on Housing Recovery
C. Cohn
Cohn-Reilly Report

EU Financial Crisis: Exotic Financial Maneuvers Likely Cause

Debt deals eyed as foundation of the problems emerging from Europe. For too long, investors took the “don’t ask don’t tell” position with the European governments hard line bookkeeping and accounting, which was aimed at meeting their fiscal ceiling regulations. To circumvent the regs, many Countries across the Continent have used complex financial transactions. These "transactions" were not fully disclosed as to the size of their debts or deficits.

The members of the EU are required to comply with rules concerning debt levels, capped at 60% of their gross domestic product. The members are also required to abide by the strict mandate concerning their annual budget deficits, which should be no more than 3%. According to the Wall Street Journal, these restrictions explain why the Continent has the rich history of exotic financial maneuvers practiced by the EU members. The complex financial transactions were essentially used to camouflage borrowing over the past decade. Making matters worse is the fact that governments were not required to report their Country's military spending, which is not be included in debt-to-GDP ratio calculations. For example: in ‘2000 Greece reported that they spent the equivalent of $1.13 billion on their military, but later admitted that it was closer to 4 billion. Under pressure, Greece disclosed that they under-reported military spending between 1997 and 2003 by €8.7 billion (that's $11.4 billion USD). The European leaders deemed these practices acceptable during the time they were planning the currency union, but of course hindsight is 20/20. Thus the proliferation of Euro-zone countries in crisis is staggering.

Although the United States' financial troubles are not completely behind us, and our economic forecast is still a question mark, the worst appears to be over. I cannot say the same for the European Union, as it is difficult to determine were the bottom actually is.


K. Reilly
Cohn-Reilly Report

Recommended reading: Article by Geoffrey R D Underhill provides an Interesting perspective on Europes Financial Crisis

___________Comments

C. Nireth said...

Yeah, this Eurozone crisis is pretty gloomy, but it puts our troubles in perspective. Wow...I get it! This is a global crisis which seems to escape most people in the US - especially the republicans and the misguided teaparty, who are using the economy as a platform to discredit the democrats and Obama.

Katherine said...

You are exactly right. One of the reasons I think it's important to write about the financial concerns overseas is to broaden our perspective on what's going on domestically. There is certainly enough blame to go around, but for some reason the Obama administration and the democrats are unfairly targeted. We have had over a decade of out-of-control hedge funds, insider trading, portfolios with over-the-limit derivative/high risk securities, sub-prime loans, and ponzo schemes, rancid mortgage-back securities, Hide-and-seek accounting practices ....I could go on and on
Thanks for your coment




K. Reilly
Cohn-Reilly Report

Spain: To Big to Bailout?

This year has been a rude awakening for the European Union, with emergency bailouts for Greece, Ireland, as Belgium and Portugal await a similar fate. The debate is now focused on Spain; to bailout or not to bailout, that is the question. Ted Scott, Director of UK Strategies at F&C Investments, was reported as saying “Spain is too big to bailout”(CityWire, 2010). Now that’s a switch - in this country we’ve heard the phrase “Too big to fail” more often than we wanted to. So what are the factors that render Spain too far gone, or is it? Well for starters, Spain’s economy is the fourth largest in the Union, larger than Greece, Portugal and Ireland put together, representing 11.5 percent of the European Union’s GDP. It has the third largest deficit in the Union, estimated at over 400 billion Euros. which is significant. Increasing fears of instability is reflected in the upward spiraling interest rates investors have imposed on Spain's bonds. Unlike Ireland’s debt crisis, 50% of Spain’s debt is held by international investors, so although the impact of defaulting will send trimmers across the globe, the domestic investors will be more forgiving, and continue to purchase Spain’s bonds.

Surprisingly, the government of Spain believes that there will be no need for external assistance. Spain’s Prime Minister, Jose Luis Rodriguez Zapatero, warns international investors that they will lose money betting against his nation’s debt. To his credit, the Prime Minister has implemented aggressive austerity measures in an effort to avoid the need for a bailout, through tax hikes and spending cuts for this year and 2011. Unfortunately analysts are not as confident as the Jose Luis Rodriguez Zapatero, that these measures will be sufficient to ward off IMF intervention.

To stay afloat the government of Spain and its banks have to raise upwards of 300 billion euros. Given the recent Moody’s rating downgrade, prompting steep interest rate increases on Spain's bonds, many analyst believe it’s simply too late for Spain to successfully climb out of the hole. Defiant and independent, Spain is conducting a series of bond auctions, while counting on budget cuts and the continued domestic appetite for its bonds as a firewall against external intervention from the IMF. That sounds good, all tied up into a neat little financial bow, but is it realistic? Given Cohn-Reilly Report's "EU Financial Crisis" article addressing the European Union members' exotic accounting maneuvers to hide borrowing, it is hard to keep a positive outlook on Spain’s ability to emerge from this crisis without external financial help. I wont bet against Spain, but I'm not looking to purchase their bonds either. Nevertheless, I do hope the Prime Minster achieves his objective - against all odds

K. Reilly
Cohn-Reilly Report

___________Comments

sinaj norrab said...

It seem that the eurpoean union have their work cut out them. This is like waht we have been going through for the past two years. One thing after another, with the Bank and auto makers bailouts, followed by housing crisis and foreclosure fallout. it did not help that the finance fraud and scams seemed to be the icing on the cake. Gloabally, we are all in trouble. Is there any hope that 5 years from now everything will be okay?

Ireland Beats Spain to the Bailout Line

Ireland is the latest to lose its financial bearings in the European Union. This comes with distinction, as the government adamantly denied that they had any difficulty this past Summer. With their tail between their legs, the Irish Government is forced to accept the largest international bailout to date. Last Thursday was the first time the finance minister acknowledged needing help. It is widely believed that the sour loans lead to the huge financial losses that nearly toppled the Island.
Much needed help is on the way, amid fierce concerns for the impact it will have on the EU, and Spain in particular. The IMF is prepared to package over €110 billion Euros as bailout for Ireland. Where does that leave Spain? Spain has a greater need for the financial bailout than Ireland or Greece. Here is the dilemma, once the IMF bails out Ireland, the €350 billion Euros needed to salvage Spain’s debt and deficits will exceed what is available. There must be some way to avoid this train wreck. Perhaps the IMF could come up with an alternative; for instance; The bailout could be done on a drawdown schedule. The IMF could provide Ireland with bailout installments over time. This might give them a chance to help Spain, and work toward soliciting additional funds to meet Ireland's bailout installments that are due later in the payment schedule. Just a thought.

In the meantime, in anticipation of the Ireland bailout, Portugal and Spain’s bond yields have increased nearly 12 basis points. That is only the beginning. The list below serves as a reminder as to just how steep these bailouts are for the EU.

-Greece bailout: €110 billion Euro Greece bailout
-Ireland’s bailout: €113 billion Euros
-Spain Needs: €350-billion Euros

Portugal is reportedly the next in line for a bailout, while the IMF is looking at Belgium as another EU member in financial distress. Although, an official from one of the leading EU countries pointed out that Belgium’s debt is largely internal, so it's not at all in the same boat as Ireland or Spain. Belgium’s financial problems will not have as much of an impact on international investors.

The Euro has declined to a two-month low against the dollar, as crisis continues to unfold. I will be closely watching to see what solutions are put forth from the authorities at IMF, and how the EU will wiggles out of this one. America's economic stability is still at large, while economies around globe also struggle to climb out of the valley of a deep recession.

K. Reilly
Cohn-Reilly Report

Greece Recovery: 6-Months After Bailout

Greece’s recovery is likely going to be a long time coming. Last August the jobless rate jumped to 12.2% up 2% from July. With all the Prime Minister’s efforts to reduce the deficit, the government data illustrates slow progress. Reuters reportedly anticipates a contraction of Greece’s GDP by at least 5% over last year. As Greece is expected to report their 3rd quarter GDP on Friday, the Greek Finance Ministry warns that the Country's unemployment could reach 14.5% by next year.

Though a cloud still looms over Greece’s deficit, the Finance Ministry stated that their deficit has declined 30% since last year, which represents $23.8 billion in U.S. dollars, or €17 billion in Euros. This was achieved through drastic spending cuts. Admittedly, 30% off their debt is a substantial chunk off Greece’s deficit, but unfortunately it still came in below the 36.9% target. To compound the disappointment, the Finance Ministry's revenue projections were also thwarted as a result of rebellious tax evaders and weakening demand. As part of this Spring’s €110 billion bailout, agreement the government of Greece pledged to reduce the deficit by 5.5 of the GDP, which would bring the deficit down to 9.5% of the GDP, as opposed to the estimated 15% in 2009. Nevertheless the Prime Minister, George Papandreou confidently expressed that the deficit will be 5.5% lower by year’s end

At the moment the Greece’s quarterly economic hiccups have minimal impact on the European Union in the short-term, since their borrowing needs have been met by the bailout. The European Union will now have to shift it attention to financial problems mounting in Spain.

K. Reilly
The Cohn-Reilly Report

___________Comments


Erin Thak said...
From what I'm reading, there are so many more members of the European Union that are in need of Financial help that Spain may not be the next country to get the attention of the IMF. like the article

Will Global Events and Economic Quandary Impede US Recovery?

After declining nearly 300 points at the start of the trading day (Tuesday ), the Dow average was able to find its way back - ending the trading day only 22.8 points down. The global pull back in Europe and Asia's overnight trading rippled across the globe impacting London, Paris, Hong Kong and Tokyo indexes - bringing them to their lowest point for the year. It is speculated that the news of European banks having to pay premium to borrowing in interbank markets have contributed to the anxiety for investors. No doubt the temporary fix for Greece’s trouble remains a dark cloud for the Market. It certainly doesn’t help that tensions are mounting between North and South Korea. In spite of the fact that the Market was able to regain much of the day's earlier losses, there is still a feeling of lingering uncertainty among the investors. Traders and money managers are said to be getting the sense that this is not going to dissipate anytime soon.

A New York Times article points out that the troubles in Europe may have a negative impact on the US recovery. I couldn’t agree more. We are now more susceptible to volatility based upon the political and economic discord around the globe. After reading "The World is Flat" by Thomas L. Friedman, my perspective is forever changed. According to Friedman, in today’s globalization of commerce, as a result of the internet and other technological advances, we are all much more connected than we realize. Nevertheless, the fiscal problems mounting in Europe is only one of the factors impacting our economic recovery. The Wall Street reform legislation will dramatically impact the banking industry, which will, in turn, play a role in stunting recovery as well. Don’t get me wrong, I am all for Wall Street being lassoed in a bit, but the timing of these changes may prove to be challenging to our already sluggish recovery.

The Dow Jones Industrial Average is back in low 10,000 level, which is more in line with the where we are economically. I'm sure continued volatility should be anticipated until things settle down, both economically and politically, around the globe.

K. Reilly
Cohn-Reilly Report

___________Comments

Lisa said.....
I read the book "The World is Flat" and it was startling to read how the Internet and wireless communication has created a flattened landscape were business is concerned. The world really is leveled now! So I guess it going to be like dominos when financial troubles hit any of the continents. Nice article

Mark said.....
Technology driven Globalization is like Pandora's Box. Now that's open, there's no turning back. We have to take the good with the bad. Like they say...You can't un-ring the bell.

Katherine said.....
Yes Lisa, we must get used to the idea that the flattened landscape (as you put it) has created the domino effect that has to eventually change our perspective and fiscal strategies as a country going forward. Mark, your comment about Pandora's box is spot on.

Greek Crisis Update

The latest on Greece is the country may leave the euro zone and adopt a new currency -- a Greek euro - something of a cross between a drachma and a euro to be used only internally. Some humorous economists have jokingly given the new money a nickname: the "Gyro."

A bailout from the European Union or its partner countries is growing increasingly unlikely. German Chancellor Angela Merkel just stopped all possibilities of future discussions of this topic at the upcoming EU Summit. While the International Monetary Fund is ready to help, it is unlikely the EU would allow its aid, and stigma, to affect the other Euro nations. As a member of a currency union, Greece is "stuck in a eurozone straightjacket," writes economist Desmond Lachman of the American Enterprise Institute. Its options to dispose of its debt are limited: a default is not politically viable, a restructuring is unworkable, and currency devaluation to make the mess go away -- a tactic Argentina used in 2001 -- is impossible. To remain in the EU, Greece must accept its rules in good times, and in bad. If Greece thinks it's trapped in a bad marriage, it could choose to leave the eurozone, but that would be a shocking development, one that Prime Minister George Papandreou insists is not on the table.

As the crisis deepens, Greece's "leaving the Euro area, though still a low probability scenario, can no longer be ruled out," says Uri Dadush, the director of Carnegie International Economics Program. "It's a painful route, but a lot less painful than others." Greeks are starting to wonder what a euro-less future might look like. One possible roadmap: copying California's 2009 debt solution of issuing warrants later redeemable for dollars. The proposal by London School of Economics' Charles Goodhart and Oxford Said Business School's Dimitrios Tsomocos, would introduce a new way to pay debts inside Greece. The same may hold true for the other countries in crisis such as Spain, Portugal, and possibly Italy while leaving the euro in place for international transactions. Interestingly, along with Greece, these countries combined are known appropriately as P.I.G.S. in certain circles.

Public unrest in Greece over the austerity measures is increasing in intensity: “They’ve ruined us, these measures,” complained Thanassis Apostolakis, a mover, referring to the government’s austerity plan. “Even these are getting expensive,” Mr. Apostolakis said, tossing a half-smoked cigarette — now subject to higher tobacco taxes — in the gutter next to his truck.
There is no question that Greece is in for several years of slumping incomes, slower growth and social strife as the government slashes spending to reduce its huge budget deficit. Anastassios Haros, who owns a women’s clothing store in Athens, said his sales had fallen by about half over the past few months. “Consumers have been bombarded by messages of doom,” he said. “Even if they have some cash in their pocket they’re not going to spend it.” Alexandros Douvanas, a 38-year-old nurse — and union leader — at a public children’s hospital in Athens, said he might be forced to consider a job in the private sector if things got much worse. He is facing a wage freeze and a 12 percent cut to vacation pay, as well as higher costs of living because the value-added sales tax is going up by two percentage points, to 21 percent. “I make €1,100 a month,” he said, an amount equivalent to $1,490. “I don’t have a lot room for maneuver.”

The Greek Central Bank warned Monday that growth this year could slump 2 percent. The runaway spending that provoked Greece’s debt crisis and unsettled markets worldwide is a symptom of much deeper problems, including an uncompetitive economy, rampant tax evasion and a bloated civil service that invites corruption. However, though it is barely visible from today’s perspective, there may also be an upside to Greece’s predicament: Things are so bad that even a little reform would go a long way to stimulate economic growth — if the government can maintain public support. Greek leaders, who were slammed by the debt crisis shortly after taking office late last year, insist the country is ready for change.

C. Cohn
The Cohn-Reilly Report

Sources: CNN, The New York Times

Greece Not Out of the Woods Yet

Recently Greece’s monetary woes have caused havoc with the Euro and financial markets around the world. What happened? Due to years of unrestrained spending, falsely reported economic statistics, cheap lending and a failure to implement financial reforms, Greece was badly exposed when the international recession hit.

Greece’s national debt of $413.6 Billion is larger than the country’s economy, with some predicting that it will reach 120 percent of 2010 gross domestic product (the market value of all final goods and services made within the borders of the country in the year). Greece's credit rating, the assessment of its ability to repay its debts, has been downgraded to the lowest in the eurozone, meaning it will likely be viewed as a financial black hole by foreign investors. This leaves the country struggling to pay its bills as interest rates on existing debts rise. The Greek government of Prime Minister George Papandreou, which inherited much of the financial burden when it took office late last year, has already scrapped most of its pre-election promises and must implement harsh and unpopular spending cuts. The government has implemented austerity measures aimed at reducing the deficit by more than $13.7 billion. It has hiked taxes on fuel, tobacco and alcohol, raised the retirement age by two years, imposed public sector pay cuts and applied tough new tax evasion regulations. Predictably, there have been warnings of resistance from various sectors of society. Farmers have begun blockading roads to demand greater government subsidies, while on February 10; workers nationwide staged a one-day strike closing airports, government offices, courts and schools. More strikes are expected to follow.

The Prime Minister said in an interview with BBC television broadcast today that "at this point we don't have a need for borrowing, our borrowing needs are covered until mid-March," in response to a question on whether there would be any new Greek bond issuance next week."Even though there are austerity measures and they do hurt, we have the support right now for the austerity measures which is around 50 to 60 percent of the population, and the government also has that support," Papandreou said.

Papandreou said European Union partners should continue to offer political support to Athens as it battles to get its public finances back onto a sustainable path." Let us together with the EU authorities, the Commission and the European Central Bank, let's sit down, let's look at how our progress is doing, how we're doing in the stability and growth plan that we have tabled," he said. "We're on target, beyond target on January statistics so we're doing well. If we do need extra measures, we will take extra measures in order to reduce our deficit this year by 4 percent. We're ready to do so if necessary." Papandreou said that while Greece was not asking for financial support from EU partners, it did need strong political backing as it battled to restore its credibility with financial markets. This was particularly important for Greece to be able to borrow at lower interest rates than it was currently facing, he said. "We need the help so that we can borrow at the same rate as other countries, not at high rates which undermine our ability to make the changes we need to make," he said.

Greece faces many challenges: the domestic debt crisis, loss of confidence in its ability to manage fiscal affairs, and the loss of competitiveness with its northern neighbors – especially with Germany. Despite these obstacles, EU partners have made a solemn pledge to support the country, and in the end Greece will be rescued, if it needs to be, due to substantial business, political and banking interests.

C. Cohn

Sources: Associated Press, Reuters

Dubai Troubles Loom:

As the news of Dubai made its global ripple on the financial markets, Europe stocks fell over 3% on Thursday, marking the steepest decline since this past April. Meanwhile, Friday’s opening market in the US quickly headed south, as investors ran for cover. By 9:30 the Dow had declined over 200 points, sending a troubling message to investors and non-investors alike. After several attempts to rally the Dow ended up just over 150 points down.

Dubai, known for its massive investments and development of the world’s most breath taking resort and hotels for the super rich, requested a 6-month stand still from its creditors. This sounds like nothing more than structured bankruptcy, without the stigma. Probably a wise decision, averting drastic decline in assets value and investor abandonment. Smart move. The reality remains that Investors held high hopes for high-end returns, which were reduced to pipe dreams since the Persion Gulf Debt Crisis unfolded last week.

On November 24th, the request for a stand still made to the Dubai World creditors involved interest payments on an estimated $60 billion worth of debt. The News prompted insurers to increase the cost of insuring Dubai’s debt, which was swiftly followed by Moody’s and Standard and Poor’s downgrades of the government-related entities in Dubai. Justin Urguhart Stewart, co-founder and director of Seven Investment Management, is quoted in the Wall Street Journal as saying “many [investors] have had their heads in the sand regarding Dubai”, adding that there was a lack of understanding of what the investment risks might have actually been.

To midigate fallout, the country’s government is doing everything it can to limit impact of its debt woes. Dubai United Arab Emirates(UAE) pledges to stand by Dubai foreign and domestic banks in the country. The country’s federal government, which is obviously backed by oil money, states that the UAE’s central bank has made overtures to all banks with branches domiciled in the country, making it clear that they will have access to cheap money, as well as the establishment of a special “additional liquidity” facility.

This morning, Squawk Box reported that an analyst at Credit Suisse estimated that European and American investments in Dubai amounted to only 5% exposure. That’s a relief. I am sure more will unfold as the week progresses.

K. Reilly