March 2007 - Posts

• Bernankes optimistic words

  Is Ben Bernanke’s idea that in spite of the home mortgage problem our economy is moving at a moderate rhythm. Such an idea is rather optimistic if one considers oil’s escalating price and the harm that the Home Mortgage problem could cause to our economy. Still at this point it looks as if the economy is going to go through a soft landing process with a considerable high risk of going into a recession. Bernanke is obviously aware that his words could trigger financial chaos in the markets so he is wise to choose words carefully and be as positive as possible within limits of course. Posted Mar 29 2007, 11:14 PM by amparo with no comments

• Durable Goods

  According to the commerce department the demand for durable good went up 2.5% in February after a drop of 9.3% in January. However this number was below the one expected by analyst of 3.5% news of this kind show, if it could be plotted in a graphic, the slow landing of the economy. Nevertheless the House Mortgage problem represents a threat to the soft landing theory, if the mortgage derivate problem spread further into the financial world a recession could them become a reality. Posted Mar 28 2007, 11:07 PM by amparo with no comments

• Home sales and the European stock market

  The European Stock Market The United States commerce department reported that new homes sales fell 3.9% during the month of February, its lowest in almost seven years. Single family home’s yearly rate sales went down from 882 thousand units in January to 848 thousand units in February. Analyst expected an increment and not a drop. The most important European stock market centers reacted to the decline of the American home market and showed loses of close to 1%. The London Stock Market showed a loss of 0.75% while Madrid was down 0.52%. The European stock markets reaction to the house market decline in the United States is just another demonstration of the powerful impact the state of our economy has in the rest of the world. Posted Mar 27 2007, 08:15 AM by amparo with no comments

• Lower interest rates

  Recently the New York Times advised investors to be careful in the event the feds reduced interest rates. Although a reduction in interest rates could help the Real Estate Market, the Mortgage Industry and the economy in general it has also some drawbacks. An interest rate reduction could weaken the dollar (already vulnerable) and threaten foreign investment; capital that is so necessary now a days to cover the commercial deficit. Also even if a weak dollar could help exports it will also trigger public spending and to some extend increase inflation. Lowering interest rates could help the economy for a while but it won’t be a substitute for what America really needs which is, a more competitive economy. Posted Mar 23 2007, 04:53 PM by amparo with no comments

• EMPIRE STATE INDEX

  New York manufacturing activity fell down due to a lag on sales. According to the Empire State index of the federal reserve of New York that measures factories conditions and factors that affect their performance, the manufacturing activity was of 1.85% during march, the lowest level in two years; analyst and economist were expecting 17.25%. the news reflect the state of health of the U.S. economy. On the other hand the treasury department reported a raise of 74 thousand 600 millions in foreign investment during the month of January, while 14 thousand 700 millions left the country in the same period. Long term capital went up to 97 thousand 400 millions since the 14 thousand 300 millions in December. Posted Mar 16 2007, 03:57 PM by amparo with no comments

• How to avoid a more serious crisis

  The stock markets had another bad day yesterday mostly because of the mortgage default critical situation, that is growing, and threatening to affect other sectors of the economy. The burst of the Real Estate Market’s bubble is creating a higher risk than previously expected; the economy might fall into a recession rather than landing softly. To avoid greater risk, Hedge Funds, another sector of the financial markets that could bring about a crisis, even worse than the one we are experiencing now, should be soon regulated by government. The 1.4 trillion dollars value of the Hedge Funds sector is a highly unregulated part of the industry and is an area where speculation and excessive investment could trigger a disaster. Governmental regulation of Hedge Funds will reduce markets risk and volatility. We ought to remember that a large drop in the value of world’s markets stock will be in this case coming from a weakness in the United States financial sector and could have dangerous repercussions in the present and future of our economy. A large amount of investment, in this possible scenario, could get out of the country quickly, weakening the dollar severely and harming the manufacturing industry among others. Containing the mortgage crisis will not be easy, controlling a Hedge Funds crisis at the same time might prove to be impossible. Posted Mar 14 2007, 08:54 PM by amparo with no comments

• The Economy Today

  The Department of Commerce informed that during the month of January inventories of wholesale companies went up while sales went down. Inventories grew 0.7% during January after going up 0.5% in December. Most analyst did not expect inventories to grow in January or wholesales to decline 0.9% during the same month. On the other hand our commercial deficit diminished 3.8% in relation to December; this is the largest variation registered since October 2006. Unemployment according to the labor department was as its lowest since January 2005. Employment went up due to 97 thousand new jobs that were created during the month of February. This mixed news (some not too encouraging while employment showing some strength) reflect that our economy is going through a soft landing period and not towards a recession, or at least not at this point. We should be watchful of inflationary rates since that can hurt the economy and change the direction in which indicators are moving. As we all know because of inflation the Feds could increase interest rates restricting liquidity. Posted Mar 10 2007, 05:42 PM by amparo with no comments

• The Chinese Market

  Looking back at the Chinese crisis that took place a few days ago, where the world markets suffered a crisis that made most analyst sweat, one can’t help but to identify a number of probable causes that might have brought about the crisis, and among them we can find: 1. The large debt that most important Chinese banks had contracted. 2. the excessive amount of investments due to Carry Trade but also to Chinese loans and an excessive amount of confidence in the Chinese economic miracle. 3. Speculation in the Chinese Real Estate market. . 4. The poor performance of the Real Estate market in the United State. 5. Other signs of weakness coming from the American economy among which we can find the slow growth of the manufacturing industry. The Chinese government is trying lately to regulate the economic rate of expansion by controlling the value of loans from their banks and also by raising interest rates. On the other hand Japan is bringing up their interest rates making the Carry Trade business less appealing. In the USA recently the demand for durable goods, such as washing machines tools and computers had declined, contracting in January as much as 8%, this could be interpreted as part of the decelerating process of an economy that grew continuously for 8 years and that is going to enter a slow growth period. We should be aware that mean while foreign economies keep lending large amounts of cash to America, subsidizing its economy, the world economy most probably will continue to have a healthy balance. Among the future factors that could affect world markets stability we can identify Hedge Funds. Investments in Hedge Funds can be measured in trillions of dollars and speculation in this area can bring about chaos, affecting the growth of many top and emergent world economies. The Chinese problem could be sum up by the fact that Chinese Bank’s loan restrictions and the Japanese raise of interest rates, which affected Carry Trade, brought about a lack of liquidity in the stock markets impacting negatively in the value of stocks which in turn spur sales. The bad news from the U.S. accelerated panic among stock holders. Posted Mar 09 2007, 02:38 AM by amparo with no comments

• Manufacturing Activity

  The manufacturing activity in the United States grew more than expected in the month of February after the January contraction. The index of manufacturing activity went up to 52.3 during February from 49.3 in January, over the 50 points expected by wall street analyst. This shows a healthy expansion since any number below the 50 points expected by analyst would had indicated a recession in the sector. This news should help wall street stock market regain its balance, of course often the markets are unpredictable and because there are many variables at play no one can really tell what the outcome will be for sure. On the other hand employment figures showed again signs of growth as it went up from 49.5 points in January to 51.1 points in February. According to Rodrigo Rato who is head of the International Monetary Fund IMF the United State’s economy will grow with moderation this year, as the Soft Landing model has predicted. Mr Rato also expressed that he was in agreement with the point of view of Ben Bernanke concerning the stock market crisis. Ben Bernanke, head of the Federal Reserve, managed to calm the market saying that one could reasonably hope for a stronger economy by midyear if housing stabilized soon, and if manufacturing strengthened. It is difficult to make predictions in a situation as chaotic and uncertain as the one we are facing with the markets today, however a mild recession in the U.S. should not surprise anyone since the country has been growing for eight straight years and is normal to expect a recession which is part of the economic cycle. Posted Mar 02 2007, 07:00 AM by amparo with no comments

• Economy

  The United States GNP grew 3.3% during 2006, 0.1% more than in 2005 according to the Department of Commerce. The economy grew at a pace of 2.2% in the last trimester of 2006 about 1.3% less than previously calculated. On the other hand Ben Bernanke head of the Federal Reserve worn that although the Budget deficit might become stable in the next few years the long term forecast appeared gloomy due to an excessive amount of social spending. Bernanke cited estimates from the Congress Budget’s office that show that future increase (2030) in social spending could bring the deficit to a 9% of the GNP more than four times what it was in 2006. We need a new strategy to deal with the Social Security problem something that very few politicians want to face. Posted Mar 01 2007, 07:06 AM by amparo with no comments

• The Stock Market

  February 28, 2007 The world stock markets plummeted yesterday following the precipitous fall of the Chinese stock market, among the main causes that brought about the crisis there are: 1. The Central (popular) Bank of China (on the 25 of February) required banks to keep their vault’s coefficient at 0.5%. With this measure cash reserves of commercial banks went up 10% restricting the money supply and forcing interest rates to go up. Recently the Chinese market had been soaring and the government had worn banks about approving loans which appeared to be for stock speculation purposes. 2. In the carry trade speculative financial sector, that is so popular with hedge funds, those that had borrowed yens at very low interest rates to later on invest the money in other countries that paid higher interest, sold their investments and repaid the Japanese banks, after keeping their profits of course. An excess of liquidity brought about an artificial raise in stock value. The excessive growth of the Chinese stock market detach the stocks market value from it’s real face value. 3. On the other hand Allan Greenspan warning of a possible recession of the American economy and the low figures in the sector of durable goods(computers, refrigerators, washing machines) undoubtedly helped to make the world stock markets move vulnerable. 4. The continuous growth of the wall street stock market for eight solid months appeared to have needed a correction to make stock value (that had being overvalued) more realistic. In spite of the financial tsunami of yesterday the world economy remains basically healthy, China will continue to grow, Latin America(South America) will continue to supply the Chinese economy with commodities and the United States economy will also go ahead with what appears to be a soft landing of the economy. The slow down in the U.S. economy is after all natural after almost eight years of continuous growth. Today the Chinese, New York and the stock markets in Latin America became more stable recovering some of their loses, while the European stock market was still loosing ground. Posted Mar 01 2007, 12:08 AM by amparo with 1 comment(s)