I agree with the message but not the conclusion. Yes, the economy is in the doldrums. It’s really quite pathetic. That doesn’t mean though I am totally pessimistic on stocks. At the moment we are less than half invested,, mostly in cash but that can and hopefully will change soon. I do think stocks have little competition. Real estate investing is scary, the bond market offers negative real rates, and money must go somewhere. That in part explains why some companies that have decent growth are getting indecent P.E. multiples
HEARD ON THE STREET: Jobs Data Have Rebound Rabbit Stuck in Hat Article By DAVID REILLY
It is a slowdown, not just a soft patch. That seemed to be the message in Friday’s disappointing June jobs figures.On just about every measure, the numbers were bad. The 18,000 rise in employment for June fell markedly short of expectations of an increase of 125,000. Year-on-year average hourly earnings growth fell to 1.9%: it had dipped below 2% only twice before in the post-World War II period. Even as the headline unemployment rate ticked up to 9.2% from 9.1%, a broader measure of under-employment jumped to 16.2% from 15.8%.Yet plenty of economists and investors still cling to the belief a second-half rebound is in store. They say economic growth will benefit from the waning impact of the Japanese disasters of March as well as the benefits to consumers from the recent 30-cent fall in the per-gallon price of gasoline. This view also foresees continued strong corporate earnings growth, along with robust profit margins, in coming second-quarter earnings.In light of that, economists still expect the economy to expand 3.3% in both the third and fourth quarters, which would result in full-year 2011 rise of 2.7%, according to the WSJ’s economic forecasting survey.The fly in that ointment is that the recovery hasn’t been able to gain serious traction because job growth has remained weak. And Friday’s employment stumble spells further potential trouble for such areas as housing. That will continue to put pressure on banks and credit creation. It also could prove a double whammy to consumer confidence and spending. That in turn could further erode business confidence, causing additional delays in investment and hiring.All that means the jobs figure may be setting the stage for a second-half disappointment rather than a positive surprise. If so, prices for stocks, commodities and other risky assets may all be vulnerable.
A fascinating proopsal, but I do have one small issue. Perhaps the primary appeal ofa0ESBies would be in their independence from the European political process, and in particular the strict weighting of bonds by GDP. However, as you rightly point out, this weighting couldn’t be maintained in cases where a particular eurozone country simply isn’t issuing enough bonds to satisfy the EDA’s requirements. I don’t feel that to say that the EDA would increase the weight of countries that are similiar to it in credit risk is sufficient to cover the possibility that such a scenario would be used to artificially increase the proportion of less creditworthy bonds in the portfolio. For one, even in the best of times, the phrase similar in credit risk is subjective, and in this case, neither of the two primary means of establishing credit risk would be suitable; market prices of bonds couldn’t be used as, were the EDA to hold 100% of bonds, they wouldn’t exist, and credit ratings couldn’t be used for fear that a European credit rating agency would be established to artificially increase ratings. Furthermore, even if an objective measure of credit risk were established, it would still be entirely likely than other countries with similar credit risk would also be in the position of not issuing enough bonds to satisfy the EDA’s requirements.An alternative approach would be to simply treat the weighting as inviolable, and commit to issuing new debt as the EDA requires it, even if that country wouldn’t be issuing debt otherwise. It may seem a bit perverse to force countries to maintain a certain level of debt, but their overall indebtedness wouldn’t be affected so long as they are effectively swapping new debt for a safe, liquid, euro-denominated asset like the ESB.