Category: US & Canada

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The most expensive election in history

Lam Thuy Vo writes:

Today wraps up what is set to be the most expensive election in the history of the U.S. Total spending on federal campaigns will be about $6 billion, according to the Center for Responsive Politics. This includes both official campaign spending and spending by outside groups for the presidential, House, and Senate campaigns…..

Do you think that $6 billion buys a better election result? Or would restricting each candidate to $100 million worth of air time increase the competition and improve the outcome?

After all there are many good people out there with good ideas but without the financial backing. And restricting campaign spending would limit the influence of special interest groups.

via Here’s One Number That Makes $6 Billion In Campaign Spending Seem Low : Planet Money : NPR.

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A New Idea on How to Fix the Ratings Agencies – CNBC

John Carney comes up with an idea to fix the rating agencies:

Instead, we could restrict the access that ratings agencies have to non-public information, perhaps along the lines that we ban selective disclosure under Regulation FD. An issuer could be banned from disclosing to a ratings agency any information that it does not generally disclose to the public. All ratings would be based on public information.

That would increase transparency, encourage new entrants and promote competition.

via A New Idea on How to Fix the Ratings Agencies – CNBC.

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Forex: Euro, Pound Sterling, Australian Dollar and Canadian Loonie

The Euro is testing support at $1.28. Breakout would respect the primary down-trend, warning of another test of primary support at the 2010 low at $1.19/1.20. Reversal of 63-day Twiggs Momentum below zero would strengthen the signal. Recovery above $1.32 is less likely but would indicate an advance to $1.35/$1.36*.

Euro/USD

Pound Sterling rallied off support at €1.225 against the Euro. Breakout above €1.26 would indicate an advance to €1.29. A 63-day Twiggs Momentum trough above zero — and respect of the rising trendline — would both indicate a healthy up-trend. Breach of support at €1.225, however, would signal a primary down-trend.

Pound Sterling/Euro

* Target calculation: 1.26 + ( 1.26 – 1.23 ) = 1.29

Canada’s Loonie is testing support at parity against the greenback. Respect would indicate an advance to $1.06*. Breach of resistance at $1.03 would strengthen the signal and a 63-day Twiggs Momentum trough above zero would confirm. Failure of support, however, would warn of another test of primary support at $0.96.

Canadian Loonie/Aussie Dollar

* Target calculation: 1.03 + ( 1.03 – 1.00 ) = 1.06

The Aussie Dollar broke resistance at $1.04 after the RBA announced that it would not cut interest rates, leaving them on hold until December. Expect an advance to $1.06*. 63-Day Twiggs Momentum oscillating above zero suggests a primary up-trend.

Aussie Dollar/USD

* Target calculation: 1.04 + ( 1.04 – 1.02 ) = 1.06

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Explain the disease to help US citizens – FT.com

This must-read opinion by Richard Koo explains the impact US private sector saving — a staggering 8 per cent of gross domestic product — has on the US economy.

“….. if left unattended, the economy will continuously lose aggregate demand equivalent to the unborrowed savings. In other words, even though repairing balance sheets is the right and responsible thing to do, if everyone tries to do it at the same time a deflationary spiral will result. It was such a deflationary spiral that cost the US 46 per cent of its GDP from 1929 to 1933.”

via Explain the disease to help US citizens – FT.com.

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The Output Gap: A “Potentially” Unreliable Measure of Economic Health?

Excerpt from a newsletter by Elise A. Marifian, Research Analyst at the St. Louis Fed, describing problems with calculation of the hypothetical output gap and how this can lead to incorrect monetary policy:

Some economists question the reliability of potential output and, therefore, output gap measures. For instance, as James Bullard noted in 2009, if calculations had considered the housing boom and bust, then potential GDP and output gap measurements would have been smaller than they appeared…….. Gavin (2012) shows that the output gap calculations for 2003-12 are reduced significantly when 2011 estimates of potential GDP are used in place of 2007 estimates. If our economy is improving faster than current output gap measurements suggest, then monetary policy intended to boost the economy could produce too much stimulation, thereby fueling inflation once the economy begins to pick up steam.

via Page One Economics – St. Louis Fed.

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Australian court finds S&P liable for ratings opinion | Bloomberg

An Australian judge has found S&P [MHP] liable for its opinion in assigning AAA ratings to two ABN Amro structured debt issues in 2006, which lost over 90% of value during the GFC — the first time a ratings agency has been held liable for such an opinion.

S&P was “misleading and deceptive” in its rating of two structured debt issues in 2006, Federal Court Justice Jayne Jagot said in her ruling released today in Sydney.

via McGraw-Hill Plummets After Australian Court Ruling – Bloomberg.

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Treasury yields warn more of the same

Inflation has fallen over the last quarter-century, so one would expect to find Treasury yields have fallen, but there is more than just benign inflation at work. The Fed has also been suppressing long-term interest rates, with QE1, QE2, Operation Twist and now QE3.

10-year Treasury Yields

The yield on 10-year Treasuries is now below the Fed’s long-term inflation target of 2 percent, offering savers a negative return on investment unless they are prepared to take on risk. The Fed’s aim is to induce investors to take on more risk, in the hope that increased capital spending will stimulate employment and lead to a recovery. But they risk leading savers into another disaster, with falling earnings or rising yields ending in capital losses.

Corporations are reluctant to expand and will remain so until they see a sustainable increase in consumption. Fueled by new jobs — not short-term credit. Low interest rates without job growth could cause another speculative bubble, with too much money chasing too few opportunities.

Without jobs, no monetary policy is likely to succeed.

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On Investment Time Horizons – Seeking Alpha

David Merkel observes that Shiller’s CAPE10 ratio and Tobin’s Q-ratio both “indicate that stocks are not likely to return a lot over the next 10 years”.

The CAPE10 ratio is a long-term, smoothed PE-ratio first popularized by Yale Professor Robert Shiller in his book Irrational Exuberance. CAPE10 compares the current S&P 500 index value to the average of the last 10-years annual earnings. James Tobin’s Q-ratio compares current price to net worth (total company assets minus liabilities).

Merkel points out, however, that “the same is true of most high-quality bond investments …. and high-yield investments when expected losses are netted out…..I am not crazy about buying bonds here. The risk-reward is awkward, but the same is true of stocks.”

Bottom line is investors are being starved of yield by the Fed’s Twist and QE3 operations. Investors may be forced to take on additional risk in order to boost yields, but that could end in disaster, with capital losses if yields rise or earnings fall. Where possible, the safest strategy would be to tighten your belt and sit this out.

via On Investment Time Horizons – Seeking Alpha.

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Fiscal Cliff: Two Candidates, Two Approaches

By ERIC PIANIN and MERRILL GOOZNER, The Fiscal Times

[Romney and Obama] agree that a stopgap measure is needed before January 1 to temporarily extend the raft of Bush era tax cuts and other measures set to expire. However, Obama has signaled his intent to veto even a few months’ extension of tax cuts unless families earning more than $250,000 a year are made to pay higher rates.

……. Romney, Boehner and Senate Republican Leader Mitch McConnell of Kentucky insist that the Bush tax cuts be extended for all Americans, arguing that any increase in rates would discourage investments and job expansion by small businesses. Moreover, Romney has proposed further tax cuts of 20 percent across the board in exchange for capping tax breaks……..

via Fiscal Cliff: Two Candidates, Two Approaches.

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