Archive for August, 2011

Is Austerity Ushering in a Global Recession?

Thursday, August 18th, 2011

Robert Reich, former Secretary of Labor under President Bill Clinton and current Professor of Public Policy at the University of California, Berkeley recently penned and article in the Huffington Post suggesting that proposed austerity measures by US and foreign governments will do much more harm than good and will likely prolong our current world economic doldrum.  Whether you agree with him or not, there is no denying that Mr. Reich is a bright mind in world economics and his views are certainly worthy of consideration.  For a link to the Huffington Post article, please click on the photo of Mr. Reich.

After the Correction

Friday, August 12th, 2011

During periods of extreme stock market volatility it is sometimes hard to remember that often times with the volatility comes very good opportunities.  Mark Fredenburg, CFA, Senior Investment Manager and Mark Litzerman, CFA, Manager, Equity Research, both with Wells Fargo Wealth Management, recently posted a very compelling white paper suggesting that the current equity markets might be very undervalued.  To view the article, please click the photo to the left.

When a credit downgrade is good

Thursday, August 11th, 2011

CNN reporter Colleen McEdwards recently posted a phenomenal article about her experience with downgrades of soverign debt.  I have provided an excerpt from her article below but I encourage you to read the full article by clicking the photo to the right.

From CNN Business blog, by Colleen McEdwards

Without doubt, Standard & Poor’s downgrade of the long-term sovereign U.S. debt rating is serious and sad – $2 trillion worth of equities has disappeared in the past two weeks – but nothing here is permanent. In fact, on the first trading day since the downgrade, the U.S. did not suffer higher borrowing costs like everyone said they would. On this crazy Monday, the 10-year note actually went up in value. Treasuries appeared to still provide a perceived safe-haven.

Canada lost its top-of-the line credit rating in April, 1993 when this reporter and others scrambled to make sense of the Canadian Bond Rating Service downgrading the Canadian government’s debt rating to AA+, from Triple-A. At the time, the country had run up enormous deficits. I recall reporting that the debt-to-GDP ratio had topped 70%, and a quick fact check reveals the ratio was pegged at 72% in 1993.

Back then, it felt like the sky was falling. But by 2002, tough austerity measures helped Canada win back its Triple-A status. It was not easy. It took almost a decade of political cooperation and economic seriousness which included tax hikes and deep spending cuts. A robust economy just a few years later also helped Canadian stocks roar ahead, shrugging off the downgrade and surging forward.

Unprecedented Fed to the Rescue

Thursday, August 11th, 2011

Mohamed A. El-Erian, PIMCO’s CEO published an interesting article on the US Federal Reserve’s recent announcement to hold rates at current levels for the next two years–an unprecedented move.  To view the entire article, please click the PIMCO logo above.