Fareed Zakaria GPS – CNN 07-29-12

Salient to Investors:

Paul Krugman at Princeton:

  • US economy is terrible with 4 million out of work for over a year, causing devastation to families and damaging to the economy’s long-term future because its harder for them ever to re-enter the workforce.  The whole private sector is paying down debt, and if everyone tries to do that at the same time, we fail.
  • The private sector and investors are begging the government to issue more debt – at an interest rate of minus 0.6 percent. The Fed signalling its willingness to tolerate higher inflation would be really helpful.
  • The fiscal cliff is a game of chicken – if Obama is re-elected, there’s a substantial chance that for a month or two we actually will go off the cliff, which doesn’t do that much harm.
  • The half-life of Europe’s solutions keep shrinking, so we are heading toward a moment of truth, but it’s hard to know exactly what it is. Greece will run out of money causing a run on the Greek banks and a domino effect with bank runs in Spain and Italy. Greece is a lost cause.

Ken Rogoff at Harvard:

  • The government has done nothing in terms of fundamentals – didn’t fix the tax system, half-baked fix to health care. The energy bonanza here means the price of gas is one fifth of Europe’s, and manufacturing may be come back.
  • The U.S. is more divided, making it hard for long-term business planning. The Fed should be willing to have a higher inflation rate for a while – this is a once in 75 years problem.
  • The fiscal cliff is unlikely to happen. though not sure because it’s so divisive. Have no idea which direction they’re going to turn if they don’t go off the cliff.
  • Europe might be a slow-motion train wreck – their response doesn’t get ahead of the crisis. Spain will next need a program bigger than anything we’ve seen, because it’s a much bigger economy. The only solution is a political union because a single currency is not going to work.

Read the transcript at http://transcripts.cnn.com/TRANSCRIPTS/1207/29/fzgps.01.html or view the show at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/

The Presidential Election Stock Market Cycle: Jeffrey Hirsch Discusses How the Government Manipulates the Economy to Stay in Power – The Capital Exchange 07-26-12

Salient to Investors:

Jeffrey Hirsch at Stock Trader’s Almanac writes: 
  • Presidential elections have a profound impact on the economy and the stock market.
  • The last two years of the 44 administrations since 1833 produced a total net market gain of 724 percent versus the 273.1 percent gain of the first two years.
  • Presidents tend to take care of most of their more painful initiatives in the first half of their term and prime the pump in the second half.
  • Victorious candidates rarely succeed in fulfilling campaign promises of peace and prosperity. In the past 25 post-election years, three major wars began and four drastic bear markets started. 
  • After the midterm congressional election and invariable seat loss by his party, the president during the next two years jiggles fiscal policies to get federal spending, disposable income, and social security benefits up and interest rates and inflation down. Practically all bear markets began and ended in the two years after presidential elections. Bottoms often occurred in an air of crisis but crisis often creates opportunity in the stock market. In the last 13 quadrennial cycles since 1961, 9 of the 16 bear markets bottomed in the midterm year.
  • There has not been a down year for the Dow in the third year of a presidential term since 1939. The only severe loss in a pre-presidential election year going back 100 years occurred in 1931 during the Depression.
  • Since 1948, investors have barely been bruised during election years, except for a brief span early in the year—until the 2000 and 2008 bubble bursts.

Read the full article at http://www.capitalexchangeblog.com/the-presidential-election-stock-market-cycle-jeffrey-hirsch/

Fareed Zakaria GPS – CNN 07-22-12

Salient to Investors:

Fareed Zakaria said:

  • Outsourcing jobs to ensure a company’s survival is acceptable and is how you run a business.
  • America needs and already has a tax and regulatory structure that creates strong incentives for private businesses to flourish. The great shift in the U.S. economy over the past 30 years has been a decline in investment in human and physical capital and not an increase in taxes and regulation.
  • The World Economic Forum Global Competitiveness Report ranks the US fifth in the world and first among large economies. America has become more business friendly over the last thirty years, but spends much less as a percent of GDP on infrastructure, R&D, education, and training, than it did in the 1960s, 70s and 80s.  The World Economic Forum ranks U.S. infrastructure 24th in the world, versus second in 2001. In 2009, the OECD ranked America 14th in college graduates, versus first in the 1970s.
  • The single biggest threat to the world economy is the European crisis.
  • Cities going bankrupt is not much different from companies going bankrupt. Cities cannot go Chapter 11 but can go Chapter 9. Declaring bankruptcy brings benefits – agreement has to be reached, no matter how painful. Recent bankruptcies are not about low taxes or high spending on city services but about pensions. California’s pension-related costs rose 20-fold in the decade since 1999, an unsustainable trend almost everywhere in America.  Pew research found that the gap between state assets and their obligations for public sector retirement benefits is $1.38 trillion – up nine percent in 2010 and likely to keep rising until these obligations are renegotiated. To keep up with burgeoning pensions, states and cities are slashing services and feeding into the unemployment problem. State and local governments have 445,000 fewer workers today than in 2007, 231,000 fewer excluding teachers.

Steve Rattner said private equity is a perfectly legitimate business whose goal is to make money, but not in practice to create jobs.

Harvard’s Niall Ferguson said a Greek exit from the euro hasn’t happened yet because it is much harder to do than leaving an exchange rate mechanism or a gold standard. Most money today is in bank accounts, so a Greek exit would cause pandemonium throughout Europe; and disrupt the entire European banking system because the question would rise of which country is next.

Ferguson said the big problem would be what to do with outstanding debts – does it suddenly go from being a euro debt into being a drachma debt and at what rate? Debtors who owe money in euros inside Greece would benefit because suddenly those debts would be worth much less, but creditors would face a disaster. It would be hugely disruptive in terms of relationships between creditors and debtors. Would money that Greeks owe to other Europeans stay in euros or become drachmas?  Last month we started to see people moving their money out of Spanish banks and into German banks, but not yet a fully fledged bank run. The monetary union is still hanging together because the cost of dismantling it is incredibly high.

Ferguson said the macro-economic outlook is not great for President Obama. The U.S. and world economy is slowing down. Nothing is going to happen in Europe that’s going to improve matters before November. Europeans take very long summer holidays so not much will happen before Labor Day, though the uncertainty will linger during the summer. The U.S. is heading towards the fiscal cliff regardless of the European crisis.

View the full episode at http://globalpublicsquare.blogs.cnn.com/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/fzgps.html

Fareed Zakaria GPS – CNN 07-15-12

Salient to Investors:

Over the last two decades, US recoveries have been slow and jobless, In every recession from 1948-1990, jobs came back to pre-recession levels an average six months after the economy returned to its pre-recession level. In the 1990s, jobs came back 15 months later, and since 2001, 39 months later. McKinsey estimates jobs will take 60 months to recover to  pre-recession levels this time. In the last quarter century, globalization has made it much easier to use machinery or lower wage workers.

Government spending on infrastructure is only half what it was a generation ago.

Larry Kudlow said the shale revolution is phenomenal but limited to private fields – drilling on federal lands is down. Kudlow is worried about the cyclical recovery, and says Europe is making an austerity mistake.

Chrystia Freeland of Thomson Reuters Digital says the shale revolution is a big thing and the new reality. Unlike in America, Europeans cannot walk away from their mortgages.

Zanny Minton Beddoes of The Economist says the cyclical recovery has weakened and the short-term outlook is weak, but sees secular improvement. America has gone far further than the other economies to undo the excesses that had built up, Housing is recovering, household debt is falling, Europe is worsening, the policy mix is mad, there’s an investor strike, and a  “Lehman-type cataclysm” is possible.

Zachary Karabell of River Twice Research says the American debate is too obsessed with government policy, and is missing the fact that 70% of economy is the private sector. Karabell doesn’t buy the uncertainty argument as to why companies aren’t spending.

To view the full episode go to http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/

Fareed Zakaria GPS – CNN 07-08-12

Salient to Investors:

Kishore Mahbubani of Lee Kuan Yew School of Public Policy said the era of the West changing governments is over, Western power has peaked and will decline. The more the West isolates Iran , the more Iran becomes a geopolitical gift to China, which will accept it. China can get away with it because America cannot sanction Chinese banks like it can other world banks. Frightening is that so few Americans are aware that the US economy in purchasing power parity will become the number two economy in the world in three and a half years time.

Mark Malloch-Brown said that without more decisive intervention, Greece will exit the euro because it can’t grow or export so its longer-term position is unsustainable. US gets written off prematurely and has another chapter – cites the extraordinary energy revolution in shale, labor costs and manufacturing returning home, and a fiscal deficit so dramatic that it will force Congress to act.

Dominique Moisi said it is premature to bury Europe because many big investors are hedging their bets between the emerging countries and the West – by saying the virus is in Europe but the antibodies are stronger in the West than they are in emerging countries. America looks better than China because its fundamentals are more right.

Fareed Zacharia noted rising public discussion in China about its one-child policy. China faces a demographic disaster – it will get old before it gets rich. In 2011, 8.9 percent of China’s population were over age 65 versus 13 percent in the US. By 2050, China will overtake the US – to 26 percent which is more than Japan is today. The median age in China was 22 in 1980, is 35 now, and will be close to 50 in 2050, versus 40 for US. China will no longer be the world’s factory, its workforce will shrink so will need to import workers, and seniors will need to be supported by families and the state. In China, ominously there are 123 males for every 100 females under age 4 – countries with male youth bulges have historically seen civil wars and revolutions.

Nick Hanauer said if investment were the key to the economy then there would be Apple stores in Somalia. The goose that lays the golden egg is the creation of the middle class. Demand drives all economic activity. The world is awash in capital,  What we lack today is consumers. A capitalist only invests or hires people is when it believes it has customers. Entrepreneurs start companies for personal reasons and not because of low tax rates. The idea of having to lower tax rates to incentivize risk takers is absurd. Iconic entrepreneurs grew up in professional families with no risk. The Google guys grew up in families with professors in computer science and math – no risk – went to Stanford and got PhD degrees in computer science – still no risk. Then started Google at the best place and time in history in Silicon Valley in the 1990s – still no risk.  Other than being born in the British Royal Family, no institution on earth more insulates you from risk than getting a PhD in computer science from Stanford. The money invested in Google came from venture capitalists like PE people who make money whether or not the deal works or not – still no risk. The only people who took risk were the workers whose pension funds were at risk if the company went bankrupt.

Ed Conard said US median incomes are 25 % higher than Europe and Japan and growing faster because US innovation is driving the world. Europe and Japanese most talented people go to the beach.

To view the full episode go to http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/


Fareed Zakaria GPS – CNN 07-01-12

Salient to Investors:

Fareed Zakaria said 49 percent of Americans polled said economic conditions were good or excellent in the city they lived in, 37 percent said the same about their state,  25 percent about the US, 18 percent about Europe, 13 percent about the world economy.  Housing is finally is recovering and will have big ramifications for the economy.  History show housing leads economic recoveries. Demographics America net gains 2.5 million people every year  – a future driver of growth in housing and construction. Germany’s population will decline 170,000 this year,  Japan’s population of 127 million will drop by a third by 2050 . One in 4 Japanese are over 65, versus only 13 percent in the U.S. A fifth of the U.S. population is under age 14. While the U.S. fertility rate is similar to Europe. US takes in 1 million legal immigrants every year, more than the rest of the world combined.

Jeffrey Sachs of Columbia University said the Obamacare decision is good for America and creates a basis for controlling healthcare costs – current U.S. system is the worst system for the highest prices. The Fed’s ammunition is used up and we are going nowhere. The economic headwinds include internal, external – Europe is the worst – and the slowdown in emerging economies. Synchronization of slowdowns is dangerous. The biggest problem is that the powerful political interest in both parties – both tax cut parties – which is for tax cutting, despite the fact the amount we are collecting is near historic lows.

Peter Schiff of Euro Pacific Capital said Obamacare is a disaster for healthcare and the economy and will increase healthcare costs.  We have no real recovery, and are in a deeper hole. The mess in America is worse than the mess in Europe because we have more debt than Europe, and we are less capable of tolerating the higher interest rates that are coming.  To create jobs we need less government spending. America will pay the price for all the quantitative easing and bailouts. Unlike the U.S., Europe has the resources to make the mistake of kicking the can down the road. When Europe finally confronts its problems, the spotlight will turn to America’s problems. The U.S. economy needs more production more than more demand.

Peter Orszag said healthcare costs over the past 3 to 4 years has decelerated dramatically and not just because of the weak economy – the move towards a digitized healthcare system, the move away from fee for service payments, and the dividing lines between payers and providers are eroding.

Katrina Vanden Heuvel of The Nation is concenred that the establishment consensus is around some form of austerity and not around growth – not treating joblessness means it is at risk of becoming the new norm. The U.S. is living in a time of concentrated wealth, income, and political power not seen since the robber barons.

View the full episode at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/

The Suze Orman Show 03-27-11 – CNBC

Salient to Investors:

Suze Orman says:

  • There is only one way to pay down credit card debt, from the highest interest rate down and pay the minimum on every card. Asking banks to lower the interest rate doesn’t work anymore. If you have a good FICO score then do a balance transfer to a credit union credit card – if federally chartered the maximum rate they can charge is 18 percent.
  • Avoid immediate annuities under most circumstances because they are calculated using current interest rates which are at record lows, so wait a few years for rates to rise . Most Financial advisors earn at least 4% commission when they sell you an immediate annuity.  The only way an immediate annuity makes sense is if you live to 100 or 150 or 120. You can easily get an 8-9 percent return yourself.
  • You can’t be happily married if you argue over money. All that matters is how you feel on the inside.

View the full episode at http://video.cnbc.com/gallery/?video=1859984454&play=1

The Suzie Orman Show 06-30-12 – CNBC

Salient to Investors:

Suze Orman says:

  • There is nothing more important in your life than financial independence
  • Every state has a statute of limitations after which creditors cannot chase you – for example 6 years in New York. Collectors often accelerate calling just before the statute of limitations is up.  If you promise to pay you will start the staute of limitations all over again.
  • Look in the mirror to find your best financial advisor. Start investing on your own and see how well you do.
  • You should only pay 1 percent fee to an advisor on the growth part of your managed portfolio, a lower percent on money in CDs and/or bonds.

View the full episode at http://www.cnbc.com/id/41152126/