Here is today’s train reading home for Trick or Treat:
• Say What? In 30-Year Race, Bonds Beat Stocks (Bloomberg)
• Stephen Roach: America’s Other 87 Deficits (Project-Syndicate)
• Crumbling Bridges’ Leaves Business Paying (Bloomberg)
•Hussman: Whipsaw Traps www.hussmanfunds.com/wmc/wmc111031.htm
• What Does ‘Recapitalizing Banks’ Actually Mean? (Economix) see also Getting Over Our Over-Levered Selves (Forbes)
• Bill Gross: Pennies from Heaven (Pimco)
• Consumer ’Scared to Death’ But Still Spending (Bloomberg) see also 10.4 Million American Families Slide Toward Losing Their Homes (Alter Net)
• ECRI Recession Watch: Growth Index Virtually Unchanged (Advisor Perspectives)
• Apple spending big next year on retail and cloud (Gigaom)
• ‘Once you get beyond a million dollars, it’s still the same hamburger’: Bill Gates says being a billionaire is overrated (Daily Mail) see also Millionaires Support Warren Buffett’s Tax on the Rich (WSJ)
Wall Street fat cats and Eric Cartman are already pretty similar. They’re greedy and gluttonous, and they’ve probably all killed and served a nemesis’s parents for dinner at least once or twice. And on this Wednesday’s all-new South Park, they’ll have one more thing in common when Cartman is criticized for being the 1% at South Park Elementary that’s bringing down the phys-ed scores of the rest of the school.
REVISED: Here’s a back of the envelope calculation on Italy, highlighting the impact that a rise in financing costs coupled with a lack of growth can have on their finances. Italy needs to refinance about 310b euros of debt in 2012. I estimate the average interest rate they are paying on this maturing debt is 2.7% (short term rates collapsed in ’09-’10). With an average debt maturity of 7 years, Italy may be paying 6%+ on the refinancing. Assuming a 350 bps additional cost times the 310b euros of maturing debt, this adds 10.9b euros of interest expense to the 54b euros of interest payments scheduled to be made in 2012. At the same time, Italy’s 2T economy is expected to grow REAL GDP.1% in 2012 and nominal around 3%. Thus, nominally 60b euros will be added to their economy with all of the incremental gain thus going to service interest expense. This also doesn’t take into account any new debt Italy has to take on over and above what is maturing. Over time, just to tread water, any country needs to generate nominal GDP growth equal to its financing costs. In the 10 years prior to the sharp ’08-’09 economic contraction, Italy saw nominal GDP growth of 3.7% (REAL averaged 1.3%), near its financing costs over that time period. A continuation of nominal GDP growth of 3.5-4% (now mostly consisting of inflation) will no longer cut it for Italy with funding costs at current levels.
The world’s population is expected to hit seven billion in the next few weeks. After growing very slowly for most of human history, the number of people on Earth has more than doubled in the last 50 years.
Click below to find out where you fit into this story of human life?
Since 1981, long-term government bonds have gained an average of 11.5% per year, handily besting equities. The S&P 500 index gained the 10.8% per year over the same period, with much more risk and greater volatility (data from Jim Bianco, president of Bianco Research in Chicago).
Here’s Bloomberg:
“The biggest bond gains in almost a decade have pushed returns on Treasuries above stocks over the past 30 years, the first time that’s happened since before the Civil War . . . Stocks had risen more than bonds over every 30-year period from 1861 until now, according to Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School in Philadelphia.
U.S. government debt is up 7.23 percent this year, according to Bank of America Merrill Lynch’s U.S Master Treasury index. Municipal securities have returned 8.17 percent, corporate notes have gained 6.24 percent and mortgage bonds have risen 5.11 percent. The S&P GSCI index of 24 commodities has returned 0.25 percent.”
Overall, sentiment against bonds has been extremely negative, and remains a positive contrary indicator. Bloomberg notes that “Not only have bonds knocked stocks from their perch as the dominant long-term investment, their returns proved everyone from Bill Gross to Meredith Whitney and Nassim Nicholas Taleb to Leon Cooperman, wrong.”
So much for Stocks for the long run . . . > Source: Say What? In 30-Year Race, Bonds Beat Stocks
Cordell Eddings
Bloomberg, Oct 31, 2011 http://www.bloomberg.com/news/2011-10-31/bonds-beating-u-s-stocks-over-30-years-for-first-time-since-19th-century.html
• A Historical Perspective of Recessions and Bear Markets (TBP) see also Stocks Going By the Book (WSJ)
• Commodity Funds Adding to Bullish Bets Fueling Biggest Rally Since 2009 (Bloomberg)
• Crony Capitalism Comes Home (NYT)
• All Eurozone, All the Time: …..-The two halves of the eurozone are locked in a broken marriage (Telegraph) …..-Germany €55bn richer than it thought (Telegraph) …..-China warns it cannot ‘cure’ eurozone’s debt crisis (Telegraph) …..-German Constitutional Court Halts Special Euro Panel (Spiegel)
• Dear Ben: It’s Time for Your Volcker Moment (NYT)
• A Nation of Vidiots (Project-Syndicate)
• Why Siri Is a Google Killer (Forbes)
• Groupon IPO a Must as Cash Needs Climb (Blooomberg) see also Overstock.com Insolvency Looming? (White Collar Fraud)
• Ford reintroduces the 1965 Mustang (Autos Yahoo)
• A Sister’s Eulogy for Steve Jobs (NYT)
After 3 quarters in a row that averaged just 1.2%, Q4 GDP grew 2.8%, a touch below expectations of 3.0% BUT Nominal GDP grew well below forecasts. Because the price deflator was up just .4% vs the estimate of 1.9%, Nominal GDP was up 3.2% vs the estimate of 4.9%. Personal Consumption rose 2.0% vs the forecast of 2.4%. Fixed Investment rose 3.3% helped by a 5.2% increase in equipment and software spending and residential construction rose by 10.9%. Trade was a slight drag on GDP growth and government spending was as well led by a 12.5% decline on national...
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