Fareed Zakaria GPS – CNN 08-31-14

Salient to Investors:

Fareed Zakaria said:

  • Defeating ISIS would require a large and sustained strategic effort from the US but without significant numbers of US ground troops.
  • ISIS videos of executions are designed to sow terror in the minds of opponents who when facing ISIS fighters now reportedly flee rather than fight.

Zbigniew Brzezinski at the Center for Strategic and International Studies said:

  • What is happening in Ukraine is a Russian invasion but also a major blow to Putin’s personal and international ambitions, namely to recreate something like the Soviet Union.
  • The West has been very slow in convincing Putin that he cannot go all the way.
  • Increasingly all the major partners in NATO and the EU.
  • Putin clearly has indicated that if he succeeds in Ukraine, he’ll do the same to the Baltic states.
  • Nato members are very glad to have American protection in NATO but not all of them are prepared to carry their burden, to stand together.
  • China is worried that if Putin’s adventurism produces a major conflict, that would be a very serious threat to global well-being and a fundamental disaster to China.
  • China must tell Putin that using force to change borders nowadays is not the way to deal with international problems.
  • ISIS is not a state but a bunch of decentralized brigands united by extremist views managed from a single leadership but not very effectively. It will have to be dealt with in different ways in different areas but cannot be led by America.

Americans take much less vacation and work longer work weeks than most of their counterparts in advanced industrial countries. The US is the only advanced economy where workers are not guaranteed paid vacation time. European workers are guaranteed at least 20 paid vacation days a year.

South Koreans worked nearly the longest hours of any OECD country but were less productive than the average OECD worker. Asian workers have historically been less productive than Americans though the gap is narrowing. Germans work 600 hours less every year than Greeks but their productivity is 70 percent higher.

Ernst and Young found that for every additional 10 hours of vacation an employee took, the company saw an 8% improvement in performance ratings.

The US Travel Association said that if Americans used all of their allotted time off, there would be an additional $160 billion in sales across several sectors, generating an additional $52 billion in earned income and 1.2 million additional jobs.

By 2025, 58% of the world’s population will be living in cities.

China has the most financially literate teens, followed by Belgium and Estonia. The US was on a par with the OECD average.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript

at http://edition.cnn.com/TRANSCRIPTS/1408/31/fzgps.01.html

‘Deeply elitist UK locks out diversity at top’ – BBC News 08-28-14

Salient to Investors:

The Social Mobility and Child Poverty Commission found:

  • The UK is deeply elitist and small elites, educated at independent schools and Oxford/Cambridge still dominate top roles
  • 71% of senior judges, 62% of senior armed forces officers, 55% of top civil servants, 50% of the House of Lords,  36% of the cabinet, 33% of Members of Parliament, 22% of the shadow cabinet, 45% of chairpersons of public bodies, 44% of the Sunday Times Rich List, 43% of newspaper columnists, 26% of BBC executives, 35% of the England, Scotland and Wales rugby teams and 33% of the England cricket team were educated at private schools – versus 7% of the UK population as a whole.
  • The UK’s top jobs remain disproportionately held by people from a narrow range of backgrounds.
  • Britain’s leading institutions are less informed, less representative and ultimately less credible than they should be, and does not make for a healthy democratic society.
  • 75% of senior judges, 59% of the Cabinet, 57% of permanent secretaries, 50% of diplomats, 47% of newspaper columnists, 38% of the House of Lords, 33% of the shadow cabinet and 24% of Members of Parliament hold Oxford or Cambridge degrees versus less than 1% of the UK population as a whole.
  • 62% of the [population did not attend university

Read the full article at  http://www.bbc.com/news/education-28953881

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Gold-Price Indicator Fading as ETPs Tumble by $71 Billion – Bloomberg 08-28-14

Salient to Investors:

  • Gold prices and gold ETP holdings have the most-negative correlation since 2004, making the latter less useful as market predictors..  Mark Luschini at Janney Montgomery Scott said the disconnect is because a lot of money has left.
  • Comex open interest fell to a 5-yr low this month and volatility is near a 4-yr low. The CBOE Gold ETF Volatility Index is down 41% in 2014, touching a 15-month low in June.
  • Goldman Sachs said gold will drop to $1,050 in 12 months.
  • Tom Kendall at Credit Suisse said 2014 ETF flows have been much lower than in 2013 as investors focus more on equities, and the perception of systemic financial risk has fallen considerably.
  • Dan Denbow at USAA Precious Metals & Minerals Fund said steady buying of ETFs will translate into supporting prices in the long-term.
  • John Paulson’s SPDR stake has been  unchanged for 4 straight quarters, but still down 68% since 2009. George Soros and Daniel Loeb sold their entire positions in Q2 2013. Barclays forecast a drop of 100 tons from the gold funds in 2014.
  • Sameer Samana at Wells Fargo Advisors said changes in ETF holdings are no longer a factor influencing gold prices. and geopolitical worries are not a permanent concern. Samana said a stronger dollar will push prices down, after which retail investors will start exiting the market again.

Read the full article at http://www.bloomberg.com/news/2014-08-27/gold-price-indicator-fading-as-etps-tumble-by-71-billion.html

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Boomer Wealth Dented by Mortgages Poses U.S. Risk – Bloomberg 08-28-14

Salient to Investors:

  • The Consumer Financial Protection Bureau reports the share of Americans 65 and older with mortgage debt rose to 30% in 2011 with a median debt adjusted for inflation of $79,000,  from 22% in 2001 with a median debt of $43,400.
  • The increase in mortgage debt makes these households more susceptible to economic swings, increasing the risk of inability to recoup losses.
  • John Gist at George Washington University said reasons include the surge in refinancing in the early 2000s and in the post-recession years, the ability to buy with smaller down payments during the housing boom, and the acquisition of vacation homes. Gist said the highest rates of refinancing occurred among boomers – over half in 2004 and 2007.
  • The median duration of joblessness for adults 65 years and older was 17.8 weeks in July, versus 13.5 weeks for those 25 to 34.
  • Julia Coronado at Graham Capital Mgmt said a mortgage is a source of risk for older households, particularly given the labor market experience.
  • Barbara Butrica and Nadia Karamcheva at Urban Institute said 65% of homeowners with mortgages are still working at age 64, versus 54% of those without housing debt.
  • Greg Frost at Frost Mortgage Banking said boomers will be the first generation to take advantage of reverse mortgages on a large-scale.
  • Donald Frommeyer at the National Association of Mortgage Brokers said boomers do not have the same desire to pay off mortgages as the WWII generation.
  • Sam Khater at CoreLogic said as millennials delay buying homes, they may prolong the trend.
  • Homeownership for Americans 35 years old and younger fell to 35.9% in Q2, 2014, the lowest quarterly level since 1994, and versus the high of 43.6% in 2004.

 

Read the full article at http://www.bloomberg.com/news/2014-08-28/boomer-wealth-depressed-by-mortgages-poses-u-s-spending-risk.html

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Biggest Money Manager Boosts South Africa’s Economy for Returns – Bloomberg 08-27-14

Salient to Investors:

Dan Matjila at The Public Investment Corp. expects betting on developing South Africa’s power generation, roads, banks, communications and education will boost its economy and improve investment returns. Matjila said increasing investments in developmental projects, such as renewable energy, and in the rest of Africa would increase returns.

Read the full article at http://www.bloomberg.com/news/2014-08-27/biggest-money-manager-boosts-south-africa-s-economy-for-returns.html

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Russian Bulls Replace Bears in Latest ETF Inflow Surge – Bloomberg 08-27-14

Salient to Investors:

  • Alexander Antipov at Veles Capital said investors are cautiously optimistic as there are talks and there have been no new sanctions on Russia. Antipov said Russian equities are very cheap, and long-term investors will make serious profits when the Ukraine crisis is solved and things return to normal.
  • The Micex Index is at 5.2x projected earnings, the cheapest among emerging markets and at a 57% discount to the MSCI Emerging Markets Index multiple.
  • Igor Nuzhdin at OAO Promsvyaz Bank said investors do not expect a quick solution to the crisis, but the market sees no new sanctions against Russia as long as talks continue. Nuzhdin said ex-geopolitical risk, most of Russia’s biggest companies are fundamentally attractive long-term.
  • Cameron Brandt at EPFR Global said Russia-dedicated funds this month through August attracted the highest monthly inflow since March, and the performance gap between Russian equities and emerging markets in general is inviting, especially if events in Ukraine resolve themselves without getting close to the worst-case scenarios.
  • Alexey Tretyakov at Aricapital said investors take no breakthrough but no major escalation in the Ukraine crisis as good news.

Read the full article at http://www.bloomberg.com/news/2014-08-27/russian-bulls-replace-bears-in-latest-etf-inflow-surge.html

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U.S. Budget Gap Narrows to Smallest Since 2007, CBO Says – Bloomberg 08-27-14

Salient to Investors:

The CBO predicts:

  • A declining jobless rate will raise tax revenues and shrink the US budget deficit to $469 billion in 2015, $506 billion in the 12 months ending September 30 – versus predictions of $492 billion in April and $680 billion in 2013, and a record $1.4 trillion deficit in 2009.
  • The budget deficit will start rising again in 2018 as the gap between spending and revenues grows relative to the size of economy, and federal debt climbs.
  • The budget deficit will be 2.9% of GDP in 2014 and 2.6% in 2015 – versus 1.1% in 2007.
  • The US economy will grow 1.5% in Q4 2014 versus 3.1% predicted in February.
  • Unemployment will average 6.2% in 2014, 5.9% in 2015, and slack in the labor market will largely disappear by the end of 2017.
  • The 3-month T-bill will remain near zero until half2 2015, and increase to an average of 2.1% in 2017.
  • Monetary policy will continue to support economic growth during the next few years because of slack in the labor market and inflation below the Fed’s goal.

Read the full article at http://www.bloomberg.com/news/2014-08-27/cbo-sees-wider-u-s-deficit-as-slower-growth-cuts-revenue.html

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Don’t Talk About Record Stock Prices to Owners of These Shares – Bloomberg 08-27-14

Salient to Investors:

  • Analysing what parts of the market have lots of ground to make up to reclaim highs is a good way to gauge how much more the market can rise or fall.
  • The NYSE Arca Airline Index is 59 percent below its peak.
  • The S&P 500 Information Technology Index needs to rise another 49 percent to reach its  March 2000 high. The Nasdaq Composite needs to rise 10 percent, and the Nasdaq 100 Index needs to rise 16 percent to reach previous highs.
  • The KBW Bank Index is 41 percent below its peak. The S&P 500 Financials Index needs a 62 percent gain to reach its previous high.
  • The S&P Supercomposite Homebuilding Index is down 55 percent from its record.

 

Read the full article at http://www.bloomberg.com/news/2014-08-27/don-t-talk-about-record-stock-prices-to-owners-of-these-shares.html

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Hatzius Sees Little Pent-Up U.S. Wage Deflation Yellen Cited – Bloomberg 08-27-14

Salient to Investors:

Jan Hatzius at Goldman Sachs said:

  • There is little evidence of the “pent-up wage deflation” that Yellen cites as a possible reason behind the slow increase in earnings and says the opposite was true, with the areas having below-average wage growth during the recession now showing above-average acceleration. “Pent-up wage deflation” holds that wages did not fall enough during the past recession because employers refrained from cutting pay in order to maintain employee morale.
  • The continued weakness of wages signals continued labor market slack
  • The employment cost index is a less noisy measure than other gauges such as the average hourly earnings data.
  • Goldman economists expects the Fed to start raising rates in Q3, 2015, agreeing with a Bloomberg median economist forecast.

 

Read the full article at http://www.bloomberg.com/news/2014-08-27/hatzius-sees-little-pent-up-u-s-wage-deflation-yellen-cited.html

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Harris Tweed’s Sterling Concern Dismissed by Traders – Bloomberg 08-27-14

Salient to Investors:

  • Currency trading suggests traders are dismissing the prospect of an upset “yes” in the September 18 referendum on  Scottish independence. Strategists say the pound’s peaks and troughs in 2014 reflect the prospect of the BOE becoming one of the first major central banks to raise rates.
  • Geoffrey Yu at UBS said traders believe there is a close to zero chance of the vote passing – so small it becomes hypothetical.
  • Callum Henderson at Standard Chartered said the little market reaction to the prospect of the Scotland referendum reflects an assumption that the result will be a ‘no’ vote.
  • Most polls reveal enough undecided voters to suggest that a large swing toward the nationalists could leave them victorious.
  • Nobel economists Joseph Stiglitz and James Mirrlees say an independent Scotland not being able to use sterling is a bluff by UK’s three main political parties. Mirrlees said a formal currency union would be an excellent arrangement, while Stiglitz recommends Scotland retain the pound.
  • Standard Life said in February it was preparing to shift business elsewhere should Scots vote for independence because of risks surrounding the currency and financial regulation.

Read the full article at http://www.bloomberg.com/news/2014-08-27/harris-tweed-s-sterling-concern-dismissed-by-traders.html

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