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Cam Harvey: Global Finance - Feed
Find the latest news stories from Toronto Star on the topic Cam Harvey: Global Finance. |
 Treating the SymptomsLTRO is a sweet poison. Why should a European bank go to the open market and borrow money when they can go to the ECB's trough and borrow at 1%?
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 The Run on EuropeIt is going to get ugly again in Europe. The combination of insolvency, the hesitancy of European banks to do business with each other, and the massive backdoor bailout that Germany is conducting without the knowledge of its public, all points to big trouble.
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 The Last Man StandingIs the European Central Bank program to buy sovereign debt illegal? What about the idea to leverage the EFSF bailout fund -- or create a Special Purpose Vehicle -- is that legal? How much leeway does the ECB have? What is the endgame? It is a gross understatement to say the situation is fraught with uncertainty. To understand what is going on, you need to know the minutia of central bank macrofinance -and have legal knowledge of the multilateral treaties (especially the Treaty of Lisbon) and the constitutions of each of the 17 Eurozone members! I will walk you through...
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 The Problems at Bank of AmericaThe U.S. banking system is in trouble again. You would think that some lessons have been learned over the past few years. Alas, this is not the case.
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 Bundesbank Special Ops Group (Will the Deutsche Mark Reappear in 2011?)Campbell Harvey: Bundesbank Special Ops Group (Will the Deutsche Mark Reappear in 2011?) It makes sense that there is a secret group within the Deutsche Bundesbank working on a plan to resurrect the Deutsche Mark. It would be a gross failure of national risk management if they did not have a plan. Call it Operation Vollkreis. Sovereign Extend and Pretend Isn't this script getting a little tattered? Talk of a crisis starts. Sovereign yields rise. National politicians say no need for intervention. Austerity measures are introduced. Bond yields rise even more. Bailout is announced. Attention is then focused on the...
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 Why QE2 Won't WorkPut simply, QE2 does not address the fundamental problems that the U.S. economy faces. It is preposterous to think that reducing medium term interest rates by 25-50 basis points is going to lead to a significant increase in U.S. GDP and a reduction in unemployment. The Package After much anticipation, the second round of quantitative easing - QE2 - was announced November 3, 2010. Indeed, there was very little surprise. Market participants had expected $500-$700 billion of bond purchases and the Fed announced $600 billion. These purchases will happen on a regular basis through June of 2011. It works in...
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 Regulation's Razor's EdgeWhether it is Basel 3 or the Dodd-Frank bill - or the projected increased share of government in the economy, we need to understand the impact of regulation. The following is a summary of my remarks to a Finance Symposium on Regulation. We need to address structural problems There is a fundamental structural issue that should not be overlooked. The U.S. has 7,830 FDIC insured banks. There is no good economic reason for 7,830 banks. They exist because of the legal structure in the U.S. Some banks are federally chartered and some banks are state chartered. It creates a regulatory...
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 Recession Calculus?It doesn't feel like the recession is over. The Business Cycle Dating Committee of the NBER announced on September 20, 2010 that the U.S. recession officially ended in June 2009. The Committee looked at a number of indicators. This is the list from their press release and in parentheses the trough date for each: Macroeconomic Advisers' monthly GDP (June) The Stock-Watson index of monthly GDP (June) Their index of monthly Gross Domestic Income (July) An average of their two indexes of monthly GDP and GDI (June) Real manufacturing and trade sales (June) Index of Industrial Production (June) Real personal income...
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 Hold On!Let's go through the long list that paints a picture of both short-term and longer-term risk to the U.S. economy. Yes, Canada is in way better shape than the U.S. However, the U.S. is the single most important growth factor for the Canadian economy. To fully understand Canada's prospects, you need to understand the U.S. prospects. The U.S. is not creating enough jobs to cover the growth of the population. The stimulus policy is not working. Consumer and business confidence is down. For a large number of firms, credit conditions have not improved since the crisis. The U.S. faces Europe-like...
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 The Cult of BailoutWhat single word best characterizes policy responses in this on-going financial crisis? "BAILOUT". Yes, this applies to Canada too. We just threw $9.4 billion into the European bailout plan via our role in the IMF. It goes something like this. You take a lot of risk and reap lots of rewards (be it in pay, bonus, or social programs). You get into trouble. The government bails you out. How often have we seen this same story repeating? It seems like we are in an infinite loop. But we aren't. This cannot last forever. The bailouts have many implications - some...
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 Hockey Stick or a Plank?"Only" U.S. 36,000 jobs lost in February (we get our numbers in Canada next week). That is relatively good news. The storyline was the following. Given all the snow, the U.S. should have lost more jobs. 36,000 was a relatively good number because if there was no snow the U.S. would have seen growth. But there was no growth. In addition, there is a lot riding on the March numbers which will be released April 2. Assuming no more snow, this argument predicts a big positive gain. The real issue here is what the recovery will look like. Are we...
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 Bombs AwayRisk has greatly increased this week. There are two reasons. First, the Euro-bomb could explode anytime. Second, the U.S. government dropped a bomb in telling us that the employment losses during the current recession are far worse than people had believed. Canada fared much better with a strong +43,000 jobs growth. The unemployment rate dropped from 8.5% to 8.3%. The key issue for Canada is the fallout effect from a continued weak U.S. economy. The Euro Bomb The EU is in a lose-lose situation. If they rescue Greece, then other countries will have their hands out like Spain, Portugal, and...
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 Cleansing and Reforming the U.S. Financial SystemWhy doesn't anybody just admit that the current U.S. financial and regulatory system is dysfunctional? There are two fundamental problems. First, the U.S. needs to clean the financial system -- close weak banks more aggressively, encourage bankruptcies/foreclosures, and free good assets held by poorly financed owners. Small and medium sized businesses with quality projects are not getting loans. This problem will not be solved by tax breaks or targeting some incentives. We need structural change. Second, the current regulatory system failed. It needs to change. The U.S. system is comprised of three federal agencies: the Office of the Comptroller of...
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 Navigating the Jobs MorassThe U.S. economy is in much more serious trouble than news reports, policy makers and pundits might lead you to believe. The Spin It is amazing that most jobs stories featured upfront the revision to November's Non-Farm Payrolls. November was revised to +4,000 from the original -11,000. A net gain. However, October was revised downwards - a complete wash. The fact is that we lost a surprising 85,000 Non-Farm Payroll jobs. A widely respected economic consulting group expected +50,000. The market expectation was about flat. In addition, Canada unexpectedly lost 2,600 jobs and the unemployment rate remained stuck at 8.5%...
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 Is it sustainable?There are two key questions: (1) is the improvement in the U.S. job picture sustainable and (2) if it is, how long will it take get back where we started in December 2007? While there is considerable disagreement in terms of general economic policies, most agree that jobs are the key to the economic recovery. Summary of the release In November, the U.S. Establishment Survey showed that only 11,000 jobs were lost. There were some favorable revisions to October and September data. The BLS also reports Household Data and there can be big differences between the Household and Establishment Surveys....
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 The 10-HandleAmazing the difference one day makes in the employment outlook. Yesterday, the market shot up because "only" 512,000 in the U.S. applied for initial claims -- down from 532,000 the previous week. We saw banners: "Employment Situation Improvement," "We Have Turned the Corner", and "Jobs Fuel Market Rally". Today we learn that 190,000 jobs were lost in October. That's about 40,000 worse than widely expected. The unemployment rate rose to a 26 year high, 10.2%. The Canadian rate rose from 8.2% to 8.4%. Understanding the numbers For those of you that subscribe to my twitter, you know that I was...
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 Mission Accomplished?Do you remember that iconic banner? Yes, the U.S. had 3.5% real GDP growth last quarter. However, it is premature to declare "Mission Accomplished". The U.S. is facing the specter of double digit unemployment lingering throughout 2010. Short-term versus Long-term The growth that we have seen is largely a result of government moving economic activity from the future to the present. The most visible example of this was the cash for clunkers program. Consumers could get up to $4,500 for trading their car in before the deadline. This attracted a lot of people that probably would have bought new cars...
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 Pothole or Ditch?Is anybody listening out there? Those 'in the know' expected 180,000 job losses. Some thought 150,000. Optimists thought job gains. In the end, the U.S. bled 283,000 jobs. It was no surprise to me. The message has been clear in the past two Duke-CFO quarterly surveys. Companies are still in cutting mode. Employment is not going to significantly improve when we have 551,000 new claims for unemployment insurance. So what if the four-week moving average of claims has decreased by 6,250 to 548,000. We need some three handles to stabilize employment and we are way far from that territory. What...
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