Euro Trip - How to navigate the twists and turns of the European Crisis

Euro Trip - How to navigate the twists and turns of the European Crisis

  • Posted on: 9 December 2015
  • By: admin

The following is an excerpt from our research piece Europe - Why it Matters, the Problems, and the Potential Solutions which can be found at pathlightinvestors.com/europe-why-it-matters-problems-and-potential-solutions
 

One of the worst feelings a human being can experience is uncertainty. We like to know how things will play out, to have confidence that decisions we make will be rewarded, and to know that we are “on the right path.” Equity markets are exactly like human beings. They hate uncertainty. Uncertainty dashes hope, and at the end of the day, stock markets are as much a gauge of hope as they are of true value. 

This is why the European crisis is such a paralyzing “event”. Even though we would rather not believe that the debt problems of a country with a population the size of Manhattan (Greece) can/should affect the U.S. economy, the simple fact is that we cannot ignore what is playing out in Europe. More importantly, if we don’t learn from these issues, we can expect greater pain in the future.
 

Why Does Europe Matter?

Just as a refresher, the European Union is made up of 17 member states that have formed an economic and monetary union allowing for easier trade between member nations and a more integrated financial system. The belief was that after a sordid history of constant war/conflict, economic integration would lead to stability and the fostering of common economic interest.

Inclusion in the European Union was supposed to be based on strict fiscal and economic parameters (deficit to Gross Domestic Product (GDP) under 3% and debt to GDP under 60%), but the fiscal controls that “rule” the Union were never given any teeth.  Therefore penalties for violating things like excessive budget deficits are essentially nonexistent. 

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Negative CD Rates in Denmark-a Sign of the Times

Negative CD Rates in Denmark-a Sign of the Times

  • Posted on: 9 December 2015
  • By: admin

Negative CD Rates in Denmark-a Sign of the Times

Denmark's central bank cut interest rates by a quarter point on Thursday, shadowing the European Central Bank's action earlier in the day, in a historic move that put one of its secondary rates below zero for the first time."The interest rate reduction is a consequence of the reduction by the European Central Bank of its monetary policy rates by 0.25 percentage point," the Nationalbank said in a statement.

http://in.reuters.com/article/2012/07/05/denmark-rates-idINL6E8I5A8520120705

Why You Should Care

This is a great example of the problems Europe and the U.S. are facing. Without the possibility of using fiscal measures to promote growth, the only weapon central banks have is monetary policy. This leaves manipulation of interest rates and control of money supply as the only tools to fight the liquidity, debt, and solvency crises Europe faces. Unfortunately, all the monetary policy in the world won’t help if economies are not growing. But without coordinated fiscal changes or a shift in political policies, you can expect global interest rates to remain low for a long, long time. As evidenced by Denmark’s CD rates being set at negative .20%, rates can go below zero.

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JP Morgan Investigation Shows Conflict of Interest between Advisors and Clients

JP Morgan Investigation Shows Conflict of Interest between Advisors and Clients

  • Posted on: 9 December 2015
  • By: admin

JP Morgan Investigation Shows Conflict of Interest between Advisors and Clients

Federal Regulators are looking into allegations that Financial Advisors at JP Morgan were pressured into recommending JP Morgan’s proprietary investment products to clients even if there were better performing and/or cheaper alternatives from other firms. Unfortunately, this is another example of putting firm interests above client interests. You can read the New York Time story at http://dealbook.nytimes.com/2012/07/02/ex-brokers-say-jpmorgan-favored-selling-banks-own-funds-over-others/?ref=business

Why You Should Care

We point this story out not to cast shame over an entire industry, as there are many great Financial Advisors at big banks, but to make sure people understand that they need to be vigilant about their investments and realize that the interests of the firm with which they are working may not always be aligned with their own. 

One of the main problems with the large bank structure is that the investment banking and trading divisions of these firms drive a large portion of their profits, and they do this by creating products that then need to be sold. In many cases, the Financial Advisor is looked at as an extension of the sales force, not as a trusted fiduciary for their clients, and the individual client is seen as a simple consumer, and not as a relationship that must be nurtured and grown over time.

This quote from the article sums it up, "it said financial adviser on my business card, but that's not what JPMorgan actually let me be," said Mathew Goldberg, a former broker who now works at the Manhattan Wealth Management Group.  "I had to be a salesman even if what I was selling wasn't that great."

If you are a client of a large firm, take a moment to look at your statement. If the name of the bank is also the name on your actual investments, be sure to ask your Advisor why he/she chose those specific investments. Take a look at the performance of those investments versus others in its class, and also look at the fees charged for those investments and compare them to other options. 

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Broke Cyprus to lead European Union... (insert your own joke here)

Broke Cyprus to lead European Union... (insert your own joke here)

  • Posted on: 9 December 2015
  • By: admin
Broke Cyprus to lead European Union... (insert your own joke here) By a cruel twist of fate Cyprus is poised to take the chair as EU president tasked with guiding Europe out of financial chaos just as it becomes the fifth eurozone state to seek a Brussels bailout. Cyprus has the unenviable tag of being the first country to hold the six-month rotating presidency -- from July 1 -- while negotiating European Union emergency aid. Nicosia has waited eight years -- since joining the EU in 2004 -- for its chance on the bigger stage but now all the talk is about stemming debt contagion not the presidency. Officials from the European Commission, the IMF and the European Central Bank are expected to arrive on the island on Monday to assess the situation of the banking system and any other fiscal requirement the government needs. http://www.google.com/hostednews/afp/article/ALeqM5hRymLRb3e1DwE47mhKS-D4bVYeqg?docId=CNG.e7a0a11609405b44bfbf233051b9f2d3.2b1 Why You Should Care One cannot help but laugh at the timing of Cyprus becoming President of the European Union. Why not have a bankrupt country lead a group of almost broke countries avoid the same fate that befell them? Despite the humor here, what will be truly interesting to watch is the speed (or lack thereof) of European fiscal integration. Will the eurozone move rapidly to issue eurobills? Will they be willing to collectively guarantee debt? Can Germany continue to cave in on its “live within your means” stance? How much time will the current liquidity injection buy the banking sector? Lots of questions, with no clear answers means expect Europe to remain in the headlines, at least until we get closer to the U.S. Presidential election.
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Stockton, California Files for Chapter 9 Bankruptcy

Stockton, California Files for Chapter 9 Bankruptcy

  • Posted on: 9 December 2015
  • By: admin

Stockton, California Files for Chapter 9 Bankruptcy

After failing to negotiate a settlement with bondholders, Stockton, California officially filed for Chapter 9 bankruptcy. You can read the full rundown at http://www.msnbc.msn.com/id/48006746/ns/business-us_business/

Why You Should Care

Undoubtedly this is a sad day as many people have lost money and retirement benefits, but in the end, this is another signal to public unions that they must come to the negotiating table to proactively reduce future benefits or face a similar fate as Stockton’s public workers. We’re not saying that the public unions in Stockton are the sole reason for this bankruptcy by any means, but the mounting evidence that retirement benefits are helping to choke municipalities is undeniable. Just a reminder, 100% of nothing is still nothing, so the time is now to do right by union members, and citizens, and negotiate for something.

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Supreme Court Upholds Most of Healthcare Law

Supreme Court Upholds Most of Healthcare Law

  • Posted on: 9 December 2015
  • By: admin

Supreme Court Upholds Most of Healthcare Law

In a vote of 5 to 4, the Supreme Court of the United States upheld most of President Obama’s healthcare legislation. You can read the full recap from CNN at http://www.cnn.com/2012/06/28/politics/supreme-court-health-ruling/index.html

Why You Should Care

The most highly anticipated Supreme Court Ruling in decades today upheld the Affordable Care Act (Obamacare) with a slight twist.   Although the argument of the administration that the authority to legislate an individual mandate pursuant to the right to regulate commerce is not acceptable, the mandate itself was upheld as part of the government’s taxing power.   Chief Justice John Roberts wrote that “…it is reasonable to construe what Congress has done as increasing taxes on those who have a certain amount of income, but choose to go without health insurance.” “Such legislation is within Congress’s power to tax.”   He also added that “the federal government does not have the power to order people to buy health insurance.”    Undoubtedly, the opinion and its potential consequences, both intended and unintended will not be known for some time.
- See more at: http://pathlightinvestors.com/blog/supreme-court-upholds-most-healthcare...

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United States Finally Moving Toward Energy Independence

United States Finally Moving Toward Energy Independence

  • Posted on: 9 December 2015
  • By: admin

United States Finally Moving Toward Energy Independence

Energy analysts now predict that by 2020 half of the oil consumed by the U.S. will be produced at home and imports from the Middle East could completely end by 2035. Read the story from The Wall Street Journal at http://www.myfoxphilly.com/story/18890079/us-weaning-itself-off-mideast-oil

Why You Should Care

This has been an American dream for the last 50+ years, and with technological advances that have driven the adoption of shale, tar sands, and ultra-deep water sources of oil, the U.S. is now on a heading toward an energy future that will undoubtedly include far less Middle Eastern Oil.

According to the Pickens Plan, we spent $150 billion on imported oil from OPEC countries in 2011; accounting for roughly 30% of all U.S. imported oil. We could use that $150 billion back here in the United States, and the move to more domestic consumption will help drive our economy higher. Given that the United States spent roughly $460 billion on all imported oil in 2011, if we can increase oil production as well as introduce bridge fuels like natural gas, we can conceivably bring that $450 billion back within our borders, and that represents roughly 3% of total U.S. GDP.

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Housing Continues To Stabilize – San Francisco, D.C., and Phoenix Lead the Way

Housing Continues To Stabilize – San Francisco, D.C., and Phoenix Lead the Way

  • Posted on: 8 December 2015
  • By: admin

Housing Continues To Stabilize – San Francisco, D.C., and Phoenix Lead the Way

The S&P/Case-Shiller home price index for April showed a month-over-month increase of 1.3% for both their 10 and 20-city measures. Read the full story at http://www.forbes.com/sites/steveschaefer/2012/06/26/is-this-the-housing-comeback-case-shiller-price-index-records-april-gain/

Why you should Care

Although year-over-year the Case-Shiller index still showed declines of 2.2% for the 10-city and 1.9% for the 20-city measure, you need the month-over-month declines to cease before a bottom can be established, and it looks like we’ve finally seen that. We would like to see these improvements continue to play out over the next few months to gain confidence that a recovery in housing can take hold, but the takeaway from these data is that housing prices have finally escaped the vicious cycle of massive declines that we have experienced over the last 4 years.

A quick nod to the Phoenix market which posted the largest year-over-year price increase of all the cities tracked by Case-Shiller of 8.6%. The Phoenix market has become very tight, as competition for quality properties along with a limited amount of inventory, has put upward pressure on prices.

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Germans Can’t Party like the Greeks: A Humorous look at the Greek Crisis

Germans Can’t Party like the Greeks: A Humorous look at the Greek Crisis

  • Posted on: 8 December 2015
  • By: admin

Germans Can’t Party like the Greeks: A Humorous look at the Greek Crisis

Greece's lenders had planned a visit to the country today, but wouldn't you know it: the brand new finance minister's been fainting and sick to his stomach. One day on the job -- that's all it took to send this man's body into revolt. If Greece weren't so sad, it would be funny. Maybe it's still funny -- at least one guy thinks so. Manos Kanellos is a stand-up comic in London who goes by "Manos the Greek." Manos, welcome to Marketplace.

 

http://www.marketplace.org/topics/world/punchline/manos-greek-funny-side-economic-crisis

 

Why You Should Care

You probably shouldn’t, but often laughter is the best medicine. I particularly enjoy the rationale that the weather in Germany makes it hard for them to party like the Greeks. If weather is the cause of the problem, maybe monetary policy is not the solution.

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