Global Economy Bursting?

[Couch Potato]

There is a long-running discussion about tax policy here. I submit that the even bigger problem is regulation. The O administration posted another 609 federal regulations in the last Federal Register. And this happens each time the Federal Register comes out. Each time, it makes it harder for a business to comply, to compete, or even to know how to respond to all these regulations.

Currently, US businesses are setting on an estimated $2T in CASH. But there is absolutely no way a business is going to significantly expand and hire in this uncertain regulatory environment.

Tax laws are secondary now. Regulations are first.

Looks like you saw the interview with Steve Wynn a few weeks back. He stated the regulatory uncertainty created by Obama meant he would not invest another dime in the United States until Obama is out of office. He was given several "outs" by the interviewer, but stuck by the statement and reinforced it by repeating it.

And I'm saying it bluntly, that this administration is the greatest wet blanket to business, and progress and job creation in my lifetime. And I can prove it and I could spend the next 3 hours giving you examples of all of us in this market place that are frightened to death about all the new regulations, our healthcare costs escalate, regulations coming from left and right.

Read more: http://www.businessinsider.com/wynn...ce-call-transcript-obama-2011-7#ixzz1UCedio9e

 

[Workbox]

Workbox...you predicted a serious downturn recently. So far I see nothing that refutes that possibility. Nothing Washington has done gives me hope that it can be averted. Europe appears to be on the cusp of imploding the euro. The ECB is more toothless than the Fed...speaking of which...The market appears to be dictating to the Fed that they (the Fed) MUST ABSOLUTELY start this QE3 crap. And obviously Wall Street is dictating to the Fed. If a bold Fed Chair and expert on the depression, like Ben Bernanke, were still alive today, they would tell Wall St. to shove it. Wall St. is gaming the system and making a killing. The tail is wagging the dog.

You are absolutely right. The technical aspect of the trading tells you what you should anticipate the next move is, but it has turned out that they are toying with folks nerves and financial stability. Lately it has felt like a gun fight, I got my shots, but I know when I am outgunned.

The US just got down graded to AA+ and it will be some kind of opening on Monday, unless something comes up over the weekend or before the opening. I we go below 1170 on the S&P, it's over. Yet, the technicals tell you that it is poised to go into a correction, but just not yet with all this hoopla.

 

[Randolph Kinney]

You are absolutely right. The technical aspect of the trading tells you what you should anticipate the next move is, but it has turned out that they are toying with folks nerves and financial stability. Lately it has felt like a gun fight, I got my shots, but I know when I am outgunned.

The US just got down graded to AA+ and it will be some kind of opening on Monday, unless something comes up over the weekend or before the opening. I we go below 1170 on the S&P, it's over. Yet, the technicals tell you that it is poised to go into a correction, but just not yet with all this hoopla.

S&P Cuts U.S. Rating for First Time on Deficit Reduction Pact

http://www.bloomberg.com/news/2011-...r-first-time-on-deficit-reduction-accord.html

S&P dropped the ranking one level to AA+, after warning on July 14 that it would reduce the rating in the absence of a “credible” plan to lower deficits even if the nation’s $14.3 trillion debt limit was lifted.

 

[Couch Potato]

Coes not mean much.

S&P Cuts U.S. Rating for First Time on Deficit Reduction Pact

http://www.bloomberg.com/news/2011-...r-first-time-on-deficit-reduction-accord.html

S&P dropped the ranking one level to AA+, after warning on July 14 that it would reduce the rating in the absence of a “credible” plan to lower deficits even if the nation’s $14.3 trillion debt limit was lifted.

Yes, they lowered the rating because the plan only cuts 2.4 trillion rather than at least 4 trillion demanded to avoid the downgrade. Of course S&P it turns out was overestimating the debt by 2 trillion so in actuality the cuts take the debt 400 billion below the level needed to avoid a downgrade. :new_all_coholic:

Got to love those ratings agencies.

 

[Workbox]

Does anyone get the feeling this AAA downgrade is some kind of political payback?

 

[Couch Potato]

It is certainly not just a result of mathematical formulas. If you look at the ballooning debt and massive deficits that will continue to increase that debt, it is hard to argue with the downgrade. However, I think the timing has the unmistakable stench of politics. I also think Friday's announcement was known by many on Thursday morning.

What will be interesting to see is if an upgrade to AAA or a downgrade by other agencies occurs in September or October of next year.

 

[Randolph Kinney]

It is certainly not just a result of mathematical formulas. If you look at the ballooning debt and massive deficits that will continue to increase that debt, it is hard to argue with the downgrade. However, I think the timing has the unmistakable stench of politics. I also think Friday's announcement was known by many on Thursday morning.

What will be interesting to see is if an upgrade to AAA or a downgrade by other agencies occurs in September or October of next year.

World reacts to U.S. credit downgrade

http://www.cnn.com/2011/BUSINESS/08/06/global.economy.reaction/

International reaction to agency Standard and Poor's decision to downgrade the U.S. credit rating for the first time has been mixed. "China, the largest creditor of the world's sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets," the Xinhua news agency said. "International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country." South Korea's government said it would concentrate on limiting the spread of market uncertainty in the wake of the downgrade, semi-official news agency Yonhap reported.

 

[Randolph Kinney]

Yes, they lowered the rating because the plan only cuts 2.4 trillion rather than at least 4 trillion demanded to avoid the downgrade. Of course S&P it turns out was overestimating the debt by 2 trillion so in actuality the cuts take the debt 400 billion below the level needed to avoid a downgrade. :new_all_coholic:

Got to love those ratings agencies.

The market has already discounted the downgrade, along with the creditability of S&P. Of course many will argue - and already have - that the record of ratings agencies such as Standard & Poor's of getting these things right in recent years has been lamentably poor. Think of all the subprime CDO products rated AAA by S&P that turned out to be garbage.

I believe investors are very much aware of the history of ALL credit rating agencies. I also believe that volatility in the world markets reflect the lack of credulity of governments to play a straight game. If anyone wanted to know the risk of default of bonds, they only have to consult the appropriate CDS (credit default swap) to see how the market rates them.


Cost of Protecting Treasurys Plummets On Debt Deal

http://online.wsj.com/article/BT-CO-20110801-709303.html

AUGUST 1, 2011, 10:30 A.M. ET

--Cost of one-year, five-year CDS is no longer inverted

--11th-hour deal on debt limit lowers near-term risk of default

--CDS-implied credit rating on US Treasurys is still AA

Credit-default-swap, or CDS, protection over the next 12 months is now cheaper than protection over five years, reversing a previous run-up in near-term CDS costs that had overtaken the cost of five-year protection when no such compromise was in sight. One-year and five-year CDS had been inverted through Friday night.

U.S. sovereign credit-default swaps are always quoted in euros, just as European sovereign swaps are quoted in dollars. This is because swap buyers seeking protection against a U.S. default want to protect themselves against the likelihood that the dollar would plunge if the government failed to pay its debts.

Monday's CDS levels now imply a credit rating of AA on U.S. Treasurys, lower than their current AAA rating and consistent with what some ratings companies believe is more appropriate for U.S. sovereign debt. Standard & Poor's, for example, has threatened to cut the U.S. credit rating if Congress doesn't produce viable austerity measures that will fix the U.S. deficit over the long term.

The debt deal reached over the weekend "doesn't get us past the downgrade hurdle," said Ian Lyngen, senior government bond strategist at CRT Capital Group LLC, "but now the rating agencies have something to work with."

 

[Randolph Kinney]

Copper, other metals fall as economic outlook dims

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2011/08/05/financial/f121829D90.DTL#ixzz1UG2B1VhP

Copper fell nearly 3 percent Friday as Europe struggles to contain its debt crisis and investors become more doubtful that the U.S. economy will recover this year. Weaker manufacturing, service sector growth and a lack of significant improvement in the job market have led investors to become more pessimistic about prospects for an upturn in the U.S.

Meanwhile European leaders are scrambling to reassure markets that Italy, the No. 3 economy in the region, won't come close to the brink of financial disaster like Greece and Ireland did.

 

[Randolph Kinney]

Group of 7 Will Meet to Address Debt Issue

http://www.nytimes.com/2011/08/06/b...crisis.html?_r=1&nl=todaysheadlines&emc=tha25

The G-7 meeting is meant to show that leaders are taking action to address the crisis, even before votes occur in national parliaments next month to expand Europe’s rescue fund for its most financially troubled members. For all the hum of activity on Friday, though, many economists and analysts remained unconvinced that sufficient steps were being taken to resolve the problems engulfing the European nations that share the euro. Many analysts remain skeptical that European leaders have grasped the problems confronting them.

Many analysts say that the inability of politicians to speak with a unified voice, whether about the debt ceiling in the United States or the debt crisis threatening the foundations of the euro monetary union itself, is at the heart of these problems. “Europe’s debt problems are still developing, and the U.S. sovereign debt default risk is escalating,” China’s foreign minister, Yang Jiechi, said during a visit to Poland.