Joseph Lazzaro
New York - http://
Joseph Lazzaro is a veteran financial editor with more than 10 years in financial news and financial publishing. Lazzaro served as Managing Editor of New York-based financial news web site WallStreetItalia.com / WallStreetEurope.com for four years. Lazzaro, who holds an ABD/Ph.D. in American Government and International Economics from the University of Connecticut, also served as a News Editor for the Pulitzer Prize-winning Hartford [Connecticut] Courant, prior to graduate school. He is based in New York.
Posted Dec 1st 2008 3:25PM by Joseph Lazzaro
Filed under: Federal Reserve, Recession, Financial Crisis
U.S. Federal Reserve Chairman Ben Bernanke Monday provided the markets with his latest -- and strongest -- hint about new plans to counteract both the credit crunch and the U.S. recession. Now it looks like the Fed may buy Treasury notes and bonds, and/or agency bonds, in an effort to push interest rates even lower and "spur aggregate demand."
"Although conventional interest rate policy is constrained by the fact that nominal interest rates cannot fall below zero, the second arrow in the Federal Reserve's quiver -- the provision of liquidity -- remains effective," Bernanke said in
a speech Monday in Texas. "The Fed could purchase longer-term Treasury or agency securities on the open market in substantial quantities. This approach might influence the yields on these securities, thus helping to spur aggregate demand."
Fed deploying unconventional toolsBernanke's comments are the Fed's latest hint that the world's most powerful central bank will deploy a 'new tool box' and unconventional techniques that Bernanke has previously said most likely would be needed to help the nation cope with its most serious financial crisis since the
Great Depression.Moreover, although the potential actions announced Monday technically are not quantitative easing, they will have that effect, says economist David H. Wang. Quantitative easing involves increasing the reserves in the banking system after the Fed loses the ability to lower the cost of money from an interest rate standpoint.
Continue reading Fed's Bernanke: Fed may buy Treasuries, agency bonds to stimulate economy
Posted Dec 1st 2008 2:55PM by Joseph Lazzaro
Filed under: Forecasts, Other issues
"My Maserati does one eighty five,
I lost my license, now I don't drive."
-- "Life's Been Good," Joe Walsh
U.S. auto sales most likely will register yet another year-over-year decline when Big Three auto manufacturers report November sales on Tuesday.
But that's not to say that all segments of the auto market are in free-fall, revenue wise: sales of many high-end or luxury cars are doing just fine. Sales of many high-end luxury cars are flat or down just slightly this year, in contrast to double-digit declines seen in typical vehicle categories.
Ferrari's U.S. sales are down just 3%, Mazerati's sales are up 10%, and Rolls-Royce's sales have risen an eye-opening 32%, according to data collected by Autodata.
It's been a great decade . . . for the gentry
Economist David H. Wang said the luxury car statistics are consistent with a macro-consumption theme pervasive throughout the decade: for the most part, luxury brands and super-exclusive brands did well.
"One thing the decade's economic policies did accomplish was a substantial increase in wealth among upper income groups, especially the already wealthy and the super rich. Most people earning more than $300,000 a year have had their best decade ever," Wang said. "That's been very good for luxury product sales, like luxury cars, luxury homes, fine art, jewelry, and vacation homes. Unfortunately, the decade's income and wealth gains at the high end doesn't mean too much for broad-based consumer demand, and for the overall U.S. economy." Wang added that he does not have a rating on or an investment stake in any auto manufacturer.
Continue reading Auto sales slumping? Not if you're a Maserati dealer
Posted Dec 1st 2008 11:28AM by Joseph Lazzaro
Filed under: International markets, Forecasts, Economic data, Recession, Financial Crisis
Crises have a way of separating strong business models from sub-par ones. Similarly, they sometimes invalidate theories institutional investors and economists have adhered to for generations.
One example of the latter concerns the dollar. The Federal Reserve's balance sheet has increased to $3.5 trillion from $800 billion in September. Meanwhile, the U.S. budget deficit for fiscal 2009,
will likely exceed $550 billion (pdf) and could top $1 trillion; it could top $1.2 trillion next year.
Had the aforementioned debt increases occurred in Brazil, Mexico, or Argentina, the result would have been a flight of international investors out of local investments, accompanying respective currency runs, and an ensuing domestic crises.
The impact of the increased debt on the United States? By almost all measures, it's been mild. Since September, the
dollar has risen about 15% and 20% against the
euro and
British pound respectively. Meanwhile, borrowing costs for the U.S. government have
trended lower, with interest rates on the
10-year and
30-year bonds falling to 2.79% and 3.29% respectively.
True, the dollar has fallen 13% versus
Japan's yen, as institutional investors, unable to productively invest borrowed, low-interest-rate yen, returned that money to Japan, but by and large the dollar has remained firm amid the nation's worst financial and economic crisis in at least 40 years.
Many economists had expected the dollar to weaken. Economist Peter Dawson was one of them.
Continue reading Amid rising U.S. budget deficit, investors still clamoring for dollars
Posted Dec 1st 2008 10:40AM by Joseph Lazzaro
Filed under: Forecasts, Bad news, Economic data, Recession
Two questions of macroeconomic importance for investors and executives alike? How deep will the U.S. recession be, and how much fiscal stimulus will be needed to get the economy on a sustainable growth track?
On the first, the recession will not be mild if case precedent holds, particularly if the Economic Cycle Research Institute's (ECRI)
weekly leading index is predictive. The index fell to a record-low -29.2% last week from -28.2% registered earlier in the month. It was the index's lowest reading since 1949.
A turn in the ECRI's leading index would suggest that the U.S. economic cycle has bottomed, so says economist David H. Wang. So far, there's little indication of a turn.
On the policy front, a consensus appears to be forming that the Obama Administration's fiscal stimulus package should be upwards of $400-500 billion. If that's the case, it would please Wang.
"Given the amount of wealth and income taken out of the economy by the decline in housing and stock prices and job lay-offs, we will need a stimulus of at least $500 billion to counteract the major contraction forces affecting the economy," Wang said. "And the more concentrated the stimulus, from a time standpoint, the better. A $500 billion infusion over three months would create more GDP bang for the buck than two $250 billion packages spread over five or six months."
Continue reading So far, few signs U.S. economic cycle has bottomed
Posted Nov 26th 2008 3:36PM by Joseph Lazzaro
Filed under: International markets, Forecasts, India, China, Brazil, Russia, Middle East, Recession, Financial Crisis
Few economists deny that the global economic order that dawns following the financial crisis will be different from the pre-crisis order.
And a key difference is likely to be consumption patterns -- namely the development and expansion of middle classes in younger economies as a source of demand.
The export economy's downside
Emerging market economies have learned/are learning an all-too-painful lesson regarding the vulnerabilities -- or the downside -- of an export-based economy: if for some reason that foreign demand wanes or dries up, your economy has a problem. A big problem.
Continue reading A global imbalance not likely to be repeated: dependence on U.S. consumption
Posted Nov 26th 2008 2:50PM by Joseph Lazzaro
Filed under: Berkshire Hathaway (BRK.A)
Patience is a behavioral virtue in more ways than one.
Billionaire investor
Warren Buffett's bank-related investments increased 36% in Q3, while the Standard & Poor's 500 Financial Index declined 0.2%, as Buffett's subprime lender-avoiding strategy shielded him from losses in the sector, according to
Bloomberg.The rewards of waitingPatience appears to have been a key to Buffett's impressive performance in the financial sector.
"In a word, I can sum it up: patience," William Frels, CEO of Mairs & Power Inc.,
told Bloomberg News. "Warren has the luxury of being able to exercise patience." Mairs & Power Inc. also holds some Berkshire stock in client accounts.
Shares of
Berkshire Hathaway (NYSE:
BRK.A) rose $3,100 or 3.22% to $99,550 on Wednesday at mid-day.
Economist David H. Wang said Buffett's results speak for themselves. "I wish he was managing my portfolio," Wang said. "Seriously, the results have to bring into discussion again the inherent problems of quarterly reporting. There has been much debate regarding how quarterly reporting influences corporate operational decisions, to the detriment of long-term business operation performance. Now we are getting more and more evidence that quarterly reporting may be hurting investment fund performance, as well." Wang added that he does not own shares of BRK.A.
Continue reading Warren Buffett's picks beat S&P 500's Financial Index in Q3
Posted Nov 26th 2008 1:50PM by Joseph Lazzaro
Filed under: Forecasts, Economic data, Politics, Recession, Financial Crisis
Is it safe to assume there will be a shift in U.S. public policy, particularly with respect to the economy, just because
President-elect Barack Obama and the Democrats will be in charge, as opposed to the George Bush-led Republicans?
The above may appear to be stating the obvious but historical evidence indicates that is not the case: over the decades there have been remarkable similarities in economic policies offered by Republicans and Democrats. It's the basis for the joke that the difference between the two is akin to the difference between Tweedledum (center-right) and Tweedledee (center-left).
A new era of reform? Further, although Democrats have historically viewed government as an activator (and Republicans as a regulator), Democratic ventures, certainly from a European standpoint, with few exceptions, have been limited in scope. The largest and most influential, of course, has been Social Security -- the successful redistributive (although partial) pension program that lifts tens of millions of American senior citizens out of poverty every year.
However, the above is not to imply that Republicans can not be change agents. The impressive reforms by the trust-busting
President Teddy Roosevelt (including the Hepburn Act of 1906, the Pure Food and Drug Act of 1906, the Meat Inspection Act of 1906, and numerous conservation programs) provide testimony to that. There's a reason Teddy Roosevelt's face is on
Mount Rushmore.Continue reading Will Obama really change the economic playing field?
Posted Nov 26th 2008 1:20PM by Joseph Lazzaro
Filed under: Forecasts, Housing, Recession
U.S. new home sales fell 5.3% to a seasonally adjusted, annualized pace of 433,000 in October -- the lowest annualized level since 1991,
the U.S. Commerce Department announced Wednesday (pdf).
Economists
surveyed by Bloomberg News had expected October new home sales to register a 450,000 annualized rate.
Further, new home sales are down 40.1% compared to a year ago. In 2007, 776,000 new homes were sold, compared to 1.05 million in 2006. And the median sales price for a new house decreased to $218,000 in October, a drop of 7% in the past 12 months.
Sales fell in two regions -- declining 18% in the West and 6% in the South. Sales rose 22.6% in the Northeast and 6% in the Midwest.
One bright spot: inventories declined 8% in October to 381,000 units, a roughly 11-month supply at the current sales pace. Inventories have now declined 25.7% in the past year, the largest decline since the federal government started tracking data in 1963.
October data is mixedEconomist Peter Dawson called the October new home sales stats a smorgasbord of data, some positive, some negative.
"We did see a substantial decline in inventories, so that's a positive. The problem is, the rate of new home sales is now so low, due to the recession and credit crunch, that it's still going to take a long time to work off inventories, which are still very high at 11 months," Dawson said.
Continue reading U.S. new home sales fall 5.3% in October to lowest level since 1991
Posted Nov 25th 2008 6:30PM by Joseph Lazzaro
Filed under: Forecasts, Economic data, Recession
Many economists run economic models, or projections, of future economic activity based on a given set of assumptions.
Economist David H. Wang is one who runs projections, and the four scenarios he completed recently for the U.S. economy's condition in six months probably will not surprise policy makers in Washington or market analysts in New York.
Projections do not look pleasant"The models show conditions that range from to poor, to very poor, to major contraction, to let's not talk about it," Wang said.
A major variable concerning what shape the U.S. economy will be in six months from now? Consumer spending for the holiday shopping season, Wang said.
"The fourth quarter is a key revenue quarter for retail and several other sectors, and a pronounced decrease in sales would certainly hurt the U.S. economy," Wang said. "Unfortunately, right now there are telling factors that point to a very poor holiday shopping season, as one might expect."
The most important consequence of a poor Q4? Wang said, more than likely a sub-par Q4 would lead to increased lay-offs by retailers, with a possibility of some retail chains ceasing operations altogether. "The GDP contraction for Q4 most likely will be worse than Q3, where the economy shrank 0.5%," Wang said. "A poor Q4 holiday season combined with the prospect of a difficult Q1 and Q2 for retailers, would prompt job cuts, and store closures, I'm certain," Wang said.
Continue reading Q4 retail sales seen setting the tone for U.S. economy in early 2009
Posted Nov 25th 2008 4:45PM by Joseph Lazzaro
Filed under: International markets, Other issues, Bad news
Many investors know about the key metrics that provide clues about the U.S. economy's health, and where it's likely to head in the near term. Retail sales, housing starts,
UPS (NYSE:
UPS) and
Fed Ex (NYSE:
FDX) deliveries and, of course, those infamous corrugated box orders, all provide clues about demand at the retail and wholesale levels, and are positively correlated with increases in U.S. GDP.
What's another metric worth monitoring? Office rents -- and here, like the recent statistics reported for the above metrics, the numbers are not good.
Office rent charges per square foot in Midtown Manhattan, London's West End, and Central Tokyo fell in Q3 for the first time since 2002,
a report from CB Richard Ellis indicated Tuesday (pdf).
In New York, Midtown Manhattan office rents fell 2.7% to $98.08 per square foot. Midtown Manhattan includes the headquarters of many of the world's multinational corporations and the Broadway theater district, but does not include the Wall Street financial district, which is located in Lower Manhattan.
In London's West End, occupancy costs declined 5.1% to $248.66 per square foot. In Central Tokyo, costs dropped 5.3% to $184.26 per square foot.
Economist Richard Felson told BloggingStocks Tuesday the fact that rents are declining the world's top three financial centers for the time since 2002 is not a good sign. "It's further evidence of the spread of the recession," Felson said. "Very rarely do you see rates in all three cities declining at the same time. Then again, very rarely do you see all three regional economies in recession at the same time, either, which shows you the fix we're in."
Continue reading Manhattan, London, Tokyo office rents decline for first time since 2002
Posted Nov 25th 2008 2:10PM by Joseph Lazzaro
Filed under: Federal Reserve, Recession, Financial Crisis
The dollar fell, then firmed, against most of the world's other major currencies Tuesday at mid-day, on word of yet another U.S. government intervention to ease the financial crisis. (For full currency data, click
here.)
Still, the more important theme, many economists and analysts agree, is how well the dollar has fared given the remarkable increase in debt by the United States and the supply of dollars globally.
The
dollar weakened about one cent to $1.3040 versus the
euro and about half a cent to $1.5160 versus the
British pound on Tuesday at mid-day, after the
U.S. Federal Reserve announced it would buy up to $600 billion in mortgage and mortgage servicer-related debt and up to $200 billion in consumer and small business-backed loans, to free up credit in these sectors. The dollar also fell about one cent to 95.53 versus
Japan's yen, and about half a cent to $1.1881 versus the
Swiss franc. Under the new programs
announced Tuesday, the U.S. Treasury will provide about $20 billion in credit protection to the U.S. Federal Reserve, using money from the $700 billion Troubled Asset Recovery Program (TARP).
In September, the Fed's balance sheet totaled $924 billion, when the first wave of the financial crisis began to freeze credit markets and decimate stock markets around the world. However, if all loan guarantees are accessed, and if all of the remaining $780 billion debt is added to the Fed's balance sheet, that balance sheet would increase to about $3 trillion.
Continue reading Dollar falls, then firms, as Fed commits $800 billion more to ease credit crunch
Posted Nov 25th 2008 1:40PM by Joseph Lazzaro
Filed under: International markets, Forecasts, Other issues, Financial Crisis
Despite the prospect of a more than doubling of the U.S. annual budget deficit for each of the next two years, the
dollar has held up reasonably well so far against the world's other major currencies, actually rising against the
euro and
British pound, while falling against
Japan's yen.
But a commodities guru says that won't last.
Commodities expert Jim Rogers says U.S. policy makers will devalue the dollar, undercutting the greenback's reserve currency status, according to
Bloomberg News."They think that if you drive down the value of your money, it makes you more competitive, now that has never worked in history in the long term," Rogers said. He added that he is buying Japan's yen and started buying commodities, such as sugar, in October, calling low commodity prices "astonishing." (For full currency data, click
here.)
Still, despite Rogers' superior performance predicting commodity cycles -- in 2006 he correctly predicted that oil would hit $100 and gold $1,000 -- not every economist is in agreement with his dollar devaluation thesis. Economist David H. Wang said that while the dollar will likely decline in value some, due to increased U.S. government borrowing, that does not guarantee a decrease in U.S. competitiveness.
Continue reading Jim Rogers: Dollar will be devalued, lose reserve currency status
Posted Nov 25th 2008 10:07AM by Joseph Lazzaro
Filed under: Forecasts, Bad news, Economic data, Housing, Recession
The plunge in U.S. home values continues. Home prices in the United States in 20 cities declined at the fastest pace ever, as foreclosures increased and banks sought to unload homes by selling at cut-rate prices.
Home prices in a 20-city sample plunged a record 17.4% in September, on a year-over-year basis in, according to
the S&P / Case-Shiller U.S. National Home Price survey (pdf). The index has fallen every month since January 2007. Home prices fell 16.6% in August, on a year-over-year basis.
Further, prices in a 10-city survey also plummeted a record, 18.6%, on a year-over-year basis.
Economists
surveyed by Bloomberg News had expected home prices in the Case-Shiller survey to decline 16.0-17.2% in September on a year-over-year basis.
The areas with the largest annual percentage declines were: Phoenix, -31-9%, Las Vegas, -31.3%, San Francisco, -29.5%, Miami, 28.4%, Los Angeles, -27.6%, and San Diego, -26.3%.
Continue reading Home prices plunge 17.4% in the past year, Case-Shiller says
Posted Nov 24th 2008 4:44PM by Joseph Lazzaro
Filed under: Federal Reserve, Recession, Financial Crisis
Does the Federal Reserve's lowering of its benchmark, short-term interest rate to 1% represent the end of its ability to stimulate economic growth and / or shorten the U.S. recession?
No, it doesn't. That's because
the Fed has another tool in its arsenal: 'quantitative easing.'
Quantitative easing involves increasing the reserves in the banking system after the Fed loses the ability to lower the cost of money from an interest rate standpoint.
The size of the resources available for quantitative easing policy varies on how much money the Fed believes it has to deploy, so says economist David H. Wang. One school argues that the amount of money available is up to a set percentage of U.S. GDP, for example 15% or 20%, he said. However, another school argues that the amount of money available is much larger than that, Wang added.
The Fed's balance sheet has surged to $2.2 trillion this month from about $924 million in September, when the first wave of the financial crisis began to freeze credit markets and decimate stock markets around the world, he said. Further, the Fed's balance sheet is likely to increase as other interventions become necessary to stabilize the financial system. For example, the Fed is on the hook
for up to another $240-265 billion as a result of Monday's rescue of
Citigroup (NYSE:
C).
Continue reading Fed be nimble, Fed be quick, Fed deploys a quantitative fix
Posted Nov 24th 2008 3:49PM by Joseph Lazzaro
Filed under: Industry, Ford Motor (F), General Motors (GM), Politics
What are likely to be Congress's performance conditions for any rescue package for Big Three auto manufacturers General Motors, Ford, and Chrysler?
First, it should be noted that many Americans oppose
any auto maker rescue/bailout, and the stance contains a legitimate point: that underperforming private companies shouldn't be rewarded for operational errors.
Still, a stronger argument holds that a cessation of U.S. auto company operations would severely hurt an already weak U.S. economy - - with an unacceptable increase in unemployment, particularly in the Midwest U.S., and other negative economic ramifications. Hence, Congress is very likely to pass and either President Bush/President-elect Obama will sign a performance-based rescue package.
The plan's performance metrics are likely to include:
- a credible, coherent plan for auto manufacturer viability and profitability;
- wage, benefit, and payment sacrifices by all stake holders: management, unionized employees, suppliers, dealers, contractors, shareholders, and creditors, etc.;
- the elimination of executive and management bonuses, if certain metrics are not me;
- a next-generation vehicle platform that reduces U.S. dependence on oil and that radically increases fuel efficiency/miles per gallon;
- debt-to-equity options, perhaps in the form of convertible bonds, that give the U.S. government the option of purchasing shares, should federal oversight officials choose to do so, to enable the government to share in any automaker's success;
- senior debt status for any U.S. government loans;
- full General Accounting Office access to auto maker financial records and business plans for the duration of the rescue package.
Continue reading Speaker Pelosi to Big 3: Show us a viable plan, and we'll show you the money
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