Ian R. Campbell

Spain:  Moody’s decides not to downgrade Spain’s sovereign debt further

It was reported yesterday the Moody’s Investors Service has elected to leave its Spain sovereign debt rating at one credit rating level above ‘junk’, with a negative outlook. It apparently did this on basis of what it perceives is “a reduction in the risk of Spain losing market access because of the European Central Bank’s willingness to buy the nation’s bonds”. The markets responded positively, with Spain’s 10-year bond yield falling by 29 basis points to 5.52% as of mid-day (Greenwich Mean Time) yesterday. The following things are worth thinking about:

How worried should one be about the financial markets?

For one man’s view on current financial markets risks, you might want to read a comparatively short article titled How Worried Should You Be About the Stock Market. In summary it says that one ought to be worried in the short term, but not in the long term. The author also says:

• “Anyone who cannot afford a decline because they have a near term need for their capital should realize they are risking losses in stocks. They always are”; and,
• “What is most important: in order to time markets well once, you have to be right twice. First, knowing when to get out, and then knowing when to get back in”.

U.S. August net trade deficit reported at U.S.$44.2 billion

The U.S. August net trade deficit has now been reported at U.S.$44.2 billion, with both imports and exports falling, but exports falling by a greater degree. For America, monthly net trade deficits are ‘business as usual’, and have been for over three decades. I continue to believe that where a country experiences continuing net trade deficits that leads to:

• continuing weakness in comparative economic strength with its trading partners; and,
• all other things equal, being a negative factor in revenue/expenditure balances at all government levels – and hence a negative contributor to government cumulative debt at all government levels.

Six simple U.S. economic charts worth thinking carefully about

An article yesterday presented six charts attributed to David Rosenberg (Gluskin Sheff, Toronto) that are said to show:

• real and nominal (2 separate charts) GDP per capita 12 quarters after the end of each of six pre-2009 U.S. recessions dating back to Q1 1961. Each chart shows that the recovery from the latest technical recession has been significantly less than the average recovery, and somewhat less than the recovery from the worst recovery number of the previous six recessions. Interestingly, the worst recoveries of the seven (including the current recovery) were the last three.
• the short-term (latest 31 months to July 2012) and long-term (from 1959) U.S. housing starts (2 separate charts). These charts clearly show how low U.S. housing starts currently are when measured against historic U.S. housing starts. On average, they look to me to be currently running at a rate about 50% of the average annual number of housing starts for the 48-year period ended 2007 (800 thousand per year currently versus about 1.6 million per year on average during said 48 year period).

Update on Greece

Today’s Detailed Commentaries prompted by world headlines Eurozone >> Greece: Update on Greece Yesterday German Finance Minister Woofgang Schaeuble is reported as having said that:

• Greece would not default; and,
• if Greece exited the Eurozone it would be negative to both Greece and the Eurozone.

IMF head Christine Lagarde suggests Greece and Spain should be given more time

Today’s Detailed Commentaries Eurozone: IMF head Christine Lagarde suggests Greece and Spain should be given more time An article this morning reports Christine Lagarde, the Managing Director of the International Monetary Fund, today has said “struggling European countries such as Greece and Spain should be given more time to reduce their budget gaps”.

Watch for possible important developments in Greece this week

Eurozone >> Greece: Watch for possible important developments in Greece this week You might want to read an article published Friday that reported:

• Greece’s Prime Minister has warned that his country is plunging into a ‘Weimar Republic like’ economic and social crisis; and,
• German Chancellor Angela Merkel is travelling to Greece today to ‘see for herself’, in what will be her first trip to Athens since the crisis started.

IMF lowers global growth forecasts, and likely that of the United Kingdom

Today’s Detailed Commentaries World >> Economy: IMF lowers global growth forecasts, and likely that of the United Kingdom The International Monetary Fund cut its global GDP forecast to 3.3% and 3.6% for 2012 and 2013 respectively. Reuters had reported Friday that German newspaper Handelsblatt said the International Monetary Fund would do that. Concurrently, The Telegraph reported that last week the IMF was expected to cut its growth forecast for the United Kingdom.

On financial advisors, Mark-to-market rule changes

Today’s Detailed Commentaries Financial Markets: On financial advisors On my continuous point of taking a large (for many people I am sure 'greater') role in making investing decisions with respect to your own capital, some time ago a reader took the time to send me a thoughtful e-mail setting out his general views on interacting with investment advisors. In essence he expressed the view that knowledgeable investors should be encouraged to have specific discussions with their advisors to determine how much those advisors really understand about the various aspects of gold and silver investments, both as insurance and, in the case of mining stocks, as investments (read equity investments generally).

Free cash flow – the best valuation metric

Today’s Detailed Commentaries Valuation Theory: Free cash flow – the best valuation metric Why Read and Watch: Because Free Cash Flow is indeed the best valuation metric for established companies that generate cash flow from operations. Featured Article and Video: A recent short article with an accompanying video purports to explain what ‘free cash flow’ is, and why and how it is important as a business valuation metric. On balance, the video does quite a good job of this – and hence is worthwhile watching and listening to.

Consultancy says Spain’s banks could need 60 billion euros

Today’s Detailed Commentaries Eurozone >> Spain: Consultancy says Spain’s banks could need 60 billion euros Why read: Because late Friday afternoon after the European markets closed the results of Spain’s bank audit was publicly released. It is reminiscent in some respects of the U.S. Bank Stress Test report issued earlier this year by the Federal Reserve, and you should know something about the assumptions upon which the report is based.

Spain’s federal budget announces large spending cuts

Today’s Detailed Commentaries Eurozone >> Spain: Spain’s federal budget announces large spending cuts, lengthy debate to begin, unlikely to end well You likely are being besieged by the announcement yesterday that Spain has announced a budget for next year that proposes:

Greek debt report may be delayed for U.S. political reasons

Today’s Detailed Commentaries Eurozone >> Greece: Greek debt report may be delayed for U.S. political reasons On Friday Reuters:

• quoted a senior European Union official as saying: “The Obama administration doesn’t want anything on a macroeconomic scale that is going to rock the global economy before November 6”; and,
• suggests that as a result a European Union – International Monetary Fund report on whether Greece’s debt is manageable likely will be delayed until after the U.S. November 6 Presidential election date. This in circumstances where that report had been expected as early as the first week in October.

Portuguese protests against austerity

Portugal in 2011 was, measured by GDP, the 10^th largest Eurozone economy (of 17 countries), and the 42^nd largest economy in the world. Portugal’s population is about 10.5 million.

Should country specific trade surpluses and deficits be seen as positive, neutral, or negative?

Today’s Detailed Commentaries World >> Economy: Should country specific trade surpluses and deficits be seen as positive, neutral, or negative? Why read: Because I believe that where a country runs continuous net trade deficits and increasing net cumulative trade deficits that is a bad thing in the context of the economic well-being of that country. Others disagree, and in the current economic environment where the United States – still the world’s most important economy – continuously:

How negative might U.S. QE3 announced September 13 really be?

Today’s Detailed Commentaries World >> Economy: Ray Dalio (Bridgewater Associates) on deleveraging (and other things) Why read: Ray Dalio is one of the world’s most successful money manager. He is a ‘plain talker’ and I think very good thinker. Commentary: While an hour is a long time to commit to listen to an interview, this is one lengthy interview that I suggest you take the time to listen to at least parts of it, and think about what Dalio says. In particular, you might want to listen at:

Possible importance of results of Wednesday, September 12 Netherland’s general election result

Today’s Detailed Commentaries Eurozone >> Netherlands: Possible importance of results of Wednesday, September 12 Netherland’s general election result Why read: Because last week the Netherlands held its fifth general election in ten years, and the outcome may weight on what happens in the end in the Eurozone. Commentary: In 2011 the Netherlands was the fifth largest economy in the 17 country Eurozone, and (by coincidence) the seventeenth largest economy in the world (source Wikipedia). This makes it a Eurozone country with an important voice.

Consider what game Spain may be playing

Today’s Detailed Commentaries Eurozone >> Spain: Consider what game Spain may be playing That Spain will request – likely in weeks and not months – financial aid from its eurozone partners seems a certainty. Why Spain is playing a ‘wait and see’ game is an interesting question.

Canadian auto workers – is it really ‘business as usual’?

Today’s Detailed Commentaries North America >> Canada: Canadian auto workers – is it really ‘business as usual’? In a more repetitive vein than I like, I have said a number of times in this Newsletter that I believe:

Roubini sees ‘perfect world economic storm’ – why is this new ‘news’?

Today’s Detailed Commentaries World >> Economy: Roubini sees ‘perfect world economic storm’ – why is this new ‘news’? Nouriel Roubini, speaking September 7, is reported as predicting we face years of world economic ‘gloom’ irrespective of what is decided by political leaders in the Eurozone. Roubini said this would be driven by a ‘painful process of deleveraging, and up to a decade of low economic growth. The latter is said to be supported by an OECD report released September 6 that said the G7 economies would grow at an annualized rate of 0.3% in Q3 2012 – and that there now exists worldwide “dampening global confidence, weakening trade and employment and slowing economic growth”.