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How Dangerous is the Ballooning National Debt? – Jan 2012

More than two years after the end of the Great Recession, the global economy cannot seem to shake its effects. Economies in the developed world are struggling to grow. Unemployment in the U.S. and Europe remains near double digits, while Japan is stuck in a 20-year slump.

One impediment to stronger growth is the debt burden the U.S. and other developed countries find themselves under. As annual budget deficits reach record amounts, overall government debt is piling up quickly.

The current fiscal predicament is not the making of the Great Recession alone. However, it did quickly bring longsimmering fiscal pressures to a boil. The U.S., like Japan and many developed economies in Europe, suffers from an aging population and rapidly rising healthcare costs. This situation has long been anticipated, but the financial crisis and economic contraction of the last several years accelerated the day of reckoning, as governments were forced to borrow and spend heavily to avoid even worse outcomes.

Stocks Climbing a Wall of Worry – Jan 2012

U.S. stocks rose nearly 12% in the fourth quarter of 2011, but you would not know that based on investor sentiment. Generally speaking, investors are not an optimistic bunch. To prove this point, one needs to look no further than mutual fund redemptions, which recorded the second-worst year on record in 2011.

It is easy to understand why investors are unnerved. Between April and October of last year, U.S. stocks dropped over 19%, the worst decline since 2008. At the same time, daily volatility intensified. During the third quarter, the S&P 500 moved 2.4% on average between its intraday low and high. The Dow Jones Industrial Average alternated between gains and losses exceeding 400 points on four straight days in August—the longest streak ever. With such dramatic swings, investors seemed to lose confidence that stocks were trading based on any fundamental measures or valuations. As a result, many opted for the relative safety of cash and bonds.

Economic Recovery Expected to Creep Ahead in 2012 – Jan 2012

The U.S. economy appears to be gaining momentum coming out of a disappointing 2011. Real GDP is expected to show a better than 3% annualized growth rate in the fourth quarter, which is up from roughly 2% in the third quarter, and considerably stronger than the first half of 2011 when growth was closer to 1%. Additionally, growth estimates for 2012 are starting to be revised upward, and are now in the 2.5%-3.0% range. Reflecting the stronger economy, job growth is also starting to revive. In December, private payrolls grew by more than 200,000, and the unemployment rate has dropped for the fourth consecutive month, falling to 8.5%. For the year, companies added 1.6 million employees, the best year of job gains since 2006. One surprising area of strength is manufacturing, which has been steadily adding jobs for the last two years. Before the gains of the last two years, manufacturing sector payrolls shrank in every year going back to 1997.

Lest we sound too optimistic, economic problems still abound. At this point, aggregate demand is still too weak to justify a strong resurgence of hiring. While it is likely that job growth will strengthen in the first half of 2012, the improvement will be gradual as uncertainties continue to undermine business confidence. Put another way, we expect firms will typically continue to hire only on an as-needed basis, and not make bold hiring moves in an attempt to spur company growth. As a result, the unemployment rate is expected to remain stubbornly above 8% through 2012.

Good news for global financial markets – Nov 30, 2011

Global financial markets got some welcome, and much-needed, good news today.

 The U.S. Federal Reserve, European Central Bank, Bank of England, and the central banks of Japan, Canada, and Switzerland have joined forces in an effort to ease the financial strain caused by the European debt crisis.  In a joint statement, the central banks stated, “The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.”

 In other words, central banks from around the world are stepping forward to ensure that banks have access to credit, so that the European debt crisis doesn’t snowball into a global credit freeze like the one experienced during the financial crisis of 2008.  Before the announcement, banks were becoming unwilling to lend to one another due to the uncertainty around which banks were most at risk to potentially bad sovereign debt.  Today’s announcement goes a long way towards restoring the confidence of the global banking system and sends a clear signal that central banks from around the world are prepared to take steps to prevent the European debt crisis from becoming a global contagion. 

Read More:

http://www.nytimes.com/2011/12/01/business/central-banks-move-together-to-ease-debt-crisis.html?hp

http://www.npr.org/2011/11/30/142940118/worlds-central-banks-act-to-ease-market-strains

Bill Miller to quit as Legg Mason fund manager – Nov 17, 2011

More evidence that past stock picking success is not predictive of future success. This legendary stock picker is retiring after dramatically trailing the market four of the last five years.

By Chris Isidore @ CNN Money Markets, November 17, 2011

Bill Miller, portfolio manager who beat the S&P for 15 straight years will remain Legg Mason chairman, but in April he will give up his role of managing Value Trust that made him famous.

Read More:   http://money.cnn.com/2011/11/17/markets/bill_miller/index.htm