Larry Kudlow Says Don’t Panic – Dan Mangru Market Commentary August 28, 2011Posted by Admin in Dan Mangru, Market Commentary.
Tags: business, cnbc, crash, crisis, dow, economy, Fox, gold, investing, larry kudlow, news, recession, silver
Larry Kudlow says don’t panic
Posted: August 10, 2011
8:19 pm Eastern
© 2011 WND
The United States has a current debt-to-GDP ratio of 100 percent just like the other Third World nations out there. It also has future liabilities in excess of $110 trillion (an amount that no other country can even fathom).
All the while, the U.S. dollar is losing strength and the cost of living and feeding a family continues to go up.
But Larry Kudlow says don’t worry.
While Kudlow points out that lower commodity prices should spur economic development, he misses out on several key factors that are needed to properly evaluate the market.
First, this isn’t a short-term pullback, this is a market correction. When the Dow Jones Industrial Average (Dow) went down to 6547.05 on March 9, 2009, we were supposed to retrace the low to roughly 50 percent. What this means is that our stock market should have faced some major resistance to move beyond the 9750 mark on the Dow. Instead by 2010 we had blown by it, and with the slight exception of the May 2010 flash crash, we never looked back.
Make no mistake, speculation fueled the market. Case in point, look where we are now. When QE2 (Quantitative Easing 2) was implemented by the Fed last December, the Dow was hovering around 11,000. During April the Dow surged to 12,928. Everything seemed great.
Except it wasn’t.
With continual Federal Reserve (Fed) stimulus (low interest rates, and QE2), traders, black box traders in particular, were given cart-blanche to trade financial markets knowing that they would be flush with cheap Fed cash.
Since the cash was always there, traders didn’t care what the economic news was for the day. They were concerned with liquidity and how they could exploit liquidity to make a profit.
That’s why things such as a high debt to GDP ratio, poor housing numbers, and high deficit spending didn’t seem to register on Wall Street’s radar.
However, once the Fed pulled out their cash and ended QE2, traders started to run for the hills. They began to start dumping stocks. In fact, even sophisticated hedge fund managers such as Carl Icahn and George Soros proclaimed that they were disbanding their hedge funds, returning money to investors, and leaving the market at professional managers.
That should tell you something.
Between the top money guys leaving and the Fed pulling out cash, the fix was in. We were all fed the line that once we did the debt deal that financial markets would rally. And they did … for about an hour.
But that’s when reality hit.
Since then financial markets are starting to realize that the United States has no real end in sight to its flagrant spending ways, and astronomical long-term debt. Without Fed easy money to spur buying, investors are treating the U.S. economy for what it currently is … a sell.
Second, Kudlow points to rising corporate profits as being an indicator that the U.S. economy is still healthy. What Kudlow fails to recognize is that corporate profit guidance is being lowered for the second half of this year. Even Goldman Sachs lowered their guidance for the second half of this year.
Large corporations will see that margins are going down and that after enduring a major stock market correction, consumers are not running around the store waving their credit cards dying to spend. Consumers will not consume as much.
Savings rates are going up. The most recent data from the St. Louis Fed shows the U.S. personal savings rate is at 5.4 percent. Compare that with our April 2005 rate of 1 percent, and you can see that Americans are worried that the economy will fall and they will need their money.
That translates to economic slowdown. When individuals do not spend and start to save more, that slows down production and consumption, which in turn slows down the entire economy.
Third, Kudlow believes that there is a big overreaction going on to the problems in Europe. Keep in mind, Kudlow, along with fellow CNBCer Jim Cramer, thought Lehman Brothers was a good buy before it went bankrupt and wiped out investors.
The easiest way to understand the Europe problem is to think of economies of scale. Greece, which in relative terms is very small country, cost over $1 trillion to bail out.
One small country took all of the financial might and muscle of Europe’s top banks and governments to bail out.
Now think of Italy, the newest country on the brink. Italy’s debt crisis is 10 times the size of Greece. I’ll put it to you this way, the European Union cannot afford $10 trillion.
The entire GDP of the European Union is $16 trillion, so $10 trillion is too big to bail out. An additional problem with Italy is that a huge chunk of its debt is due within the next two years. So this isn’t a problem that can be shoved under the rug.
Combine this with a sluggish Euro and a European Union that is dealing with a global economic slowdown and the recipe is not good. With all of the weakness in Europe, the EU’s stronger countries (Germany and France) should start to see some of their strength erode as they are continually forced to bail out smaller players. By the EU charter, the EU guarantees all of the debt of its member nations. Hence, Germany and France will end up paying the bill for Greece, Italy, Spain, and all of the other countries who have overspent and are nearing bankruptcy.
Finally, Kudlow fails to point out several key ticking time bombs in the United States. First is the real estate market. With shadow inventories and foreclosures, home inventories should skyrocket to all-time high levels in the United States.
Second, student debt in America is at an all-time high. Fueled by government loans, universities have been charging students higher rates every year, regardless of what the stock market or the economy is doing. Current student debt in this country is estimated at $1 trillion. Just so you know, that was the amount of money that was needed to bail out our banks.
Third, municipal debt is a major issue. If cities and states start to go bankrupt, all hell could break loose. Remember, less than a year ago, California (the world’s 9th largest economy) could have gone under. The effects of a default of that size would cripple the domestic and global financial economy.
So Mr. Kudlow, in times like these, while panic may not be the right feeling, all is not well. Investors should be very concerned. They should be safeguarding their assets against a major stock market drop and planning for the future.
But then again, maybe that message isn’t one that the talking heads want to hear or give.
It’s Good To Be “Big” In America – Dan Mangru Exclusive WorldNetDaily (WND) Commentary July 20, 2010Posted by Admin in Dan Mangru, Market Commentary.
Tags: bank of america, banks, ben, bernanke, billion, borrowing, Chairman, citigroup, corporate profits, dan mangru, dow, entreprenuers, federal, fitch, goldman sachs, Harvard, howard silverblatt, interest rates, JP Morgan Chase, lending, mangru, mangru report, MIT, monetary policy, moody's, reserve, S&P, Small Business, trillion, william dunkelberg
It’s Good To Be “Big” In America
By Dan Mangru
It was the best of times. It was the worst of times. It was the age of record profits. It was the age of bankruptcy and corporate cuts. It was a season for bailouts and free fed cash. It was a season for depression and the disappearance of credit.
These sound like two wildly different economies, don’t they? Two wildly different circumstances, two wildly different places. Yet sadly, they are but one United States of America, the land of the haves and have-nots, the big and the small, bailouts and all.
In fact, big is the American way. Big cars. Big houses. Big government. Big everything. We are Americans and we like things big.
So when it comes to big banks and big corporations, we say the bigger the better. Let the good times roll.
And if you are a big company, the times couldn’t be better.
Big corporations and big banks have easy access to credit and low interest rates. This has helped them leapfrog any appearance of a depression.
For Q2 of 2010 analysts are projecting a 42-percent jump in profit among S&P 500 companies. For Q3 of 2010, which ends September 30, analysts are projecting only a paltry 31-percent jump.
It’s not just profits though. Big corporations are stockpiling their reserves with billions of hard cold cash.
In March 2010, cash on hand at S&P 500 companies rose to a staggering $837 billion – roughly 18 months’ worth of profits amongst those companies.
S&P senior analyst Howard Silverblatt expects that record-breaking number to be even higher when the Q2 April-June 2010 figures are reported later this quarter.
Now you might say, “Well, what about big banks that were supposed to fall, like Bank of America and Citigroup. They are still in trouble … right?”
The answer to that question is absolutely not. Not after the government spent hundreds of billions of dollars to bail out the largest banks.
Want proof? Just look at Citigroup’s balance sheet. Citigroup currently is sitting on $757.68 billion. That’s right, three-quarters of a trillion dollars for one of the weakest banks on Wall Street.
Thank you, Ben Bernanke.
Yep. It is good to be big in America. Big banks and big government all working together in harmony.
So what’s the big deal (no pun intended)?
Well, that little thing we like to call small business is anything but small. You see, small business plays a vital role in our economy.
Small businesses employ human capital as opposed to offshore human capital like the big boys do.
According to Federal Reserve Chairman Ben Bernanke small businesses employ about half of all Americans and account for 60 percent of job growth.
To boot, the newest of small businesses, those two years and under, account for about 25 percent of all job creation, even though the newest of small businesses employ less than 10 percent of the American workforce.
Essentially, what that means is that small-business jobs are new jobs, and, in an economy which has roughly 10-percent unemployment, the U.S. could use some new jobs.
You are probably thinking, well if all of the big banks and corporations are flush with so much cash then they must be lending to small businesses.
WRONG. Even as big banks have padded their balance sheets to record levels, lending to small businesses is on the decline. Small-business lending has gone from $710 billion in Q2 2008 to less than $670 billion in Q1 of 2010. All of this while bank profits and cash reserves have never been higher.
Banks make money by lending money, but if they are not lending money how are they making money? Big banks essentially borrow money for nothing from the Federal Reserve and then buy U.S. treasuries at roughly 3.5 percent interest. They have virtually no risk.
Whatever money that they have left over from buying treasuries they lend out to other big companies that are bailout-protected by the U.S. government just so there’s no risk involved.
Why, lending to those pesky entrepreneurs, innovators and small-business men, that’s all a bunch of hogwash. They are too great a risk to the perfect bank plan of no-risk lending and government payouts.
To support that plan, banks have floated the idea that small businesses don’t need money and actually don’t want it.
They have guys like William Dunkelberg, chief economist at the National Federation of Independent Business, who has gone around the country touting the idea that in a slow economy, businesses that may be losing customers may not want to hire new workers, focus on new technology or expand their businesses.
Because, when times are bad, we shouldn’t focus on new technologies, or investing in new human capital to grow our businesses. Of course not.
I want the big banks to produce all of these small businesses who are refusing to take money. I want to meet them. In fact, I challenge the big banks in America to provide the names of 1,000 small businesses that refuse to take their money.
But, just to placate the American public, the big banks decide to lend to pesky entrepreneurs every now and then.
In fact, a couple of the big banks are trying to claim that they are lending more to small business. Bank of America claims to have lent $19.4 billion to small and medium businesses in Q1 of 2010, up some $3 billion from that same period a year ago.
Keep in mind that same period a year ago, the Dow was approaching 6,500 and the world seemed on the brink of utter financial ruin.
But nevertheless entrepreneurs and innovators get a bone from Bank of America. I guess Bank of America thinks they will all just shut up now.
Some among you might say, “Well, what about interest rates? Are small businesses getting the same interest rates as the big guys?”
Of course not. According to the Federal Reserve’s “Terms of Business Lending,” the average rates on small-business and industrial loans worth approximately $500,000 were 3.5 percent higher than the federal funds rate.
Now 3.5 percent may not seem that high to you but the difference is the highest it has ever been since 1986, which is when those numbers were first tracked.
All of this and Ben Bernanke still doesn’t know why small businesses aren’t borrowing. It doesn’t take a rocket scientist to figure out that, when smallbusiness has to pay an additional 3.5 percent more on interest than everyone else, they probably will borrow less.
That’s just banking 101. But apparently Bernanke didn’t go to class that day when they taught that at Harvard. Maybe he slept through it at MIT.
Bottom line is that he doesn’t get it.
Until the banks have financial incentive to lend to small businesses, they will continue to buy U.S. treasuries and play it safe when it comes to lending.
Big banks are staying close to the federal government, which subsequently is allowing them to make record profits with virtually no risk. That’s a no-brainer for the banks.
Currently, bank minimum reserve rates are roughly 8 percent of overall deposits. The Fed easily could make that 8 percent somewhere between 6 and 7 percent. Along the way it could shut down direct lending and free-money policies that it has extended to Wall Street’s elite.
Those are two simple ways to get the banks moving toward lending and away from being beholden to the federal government.
But who needs solutions when we have a crisis, and, as White House Chief of Staff Rahm Emanuel says, never let a good crisis go to waste.
So instead of lending to small businesses, which is the traditional role of community banks, we are going to give all of the privileges to the big banks, burden the community banks with interest payments they can’t meet (see my previous article) so that they can go bankrupt and be bought out by big banks. That way the big banks can be even bigger.
Same thing goes for big corporations. Why invest in loaning money to small and medium businesses when we can just wait for them to go under and buy them cheap? That way the big corporations in America get even bigger.
That’s the plan for America. The big get bigger and the small get thrown to waste. Since 2008 some 250 banks have gone out of business. None of those banks was named Citigroup, Bank of America or Goldman Sachs.
For those guys it’s the best of times. Sadly for us, it is becoming the worst of times.
In Case You Missed It… May 23, 2010Posted by Admin in Panel Discussion.
Tags: anthony, bailout, bernanke, browne, bullion, Capital, commentary, dan, dan mangru, Dollar, dow, equities, Euro-Pacific, finance, financial, index, inflation, investments, john, mangru, money, pulieri, reform, report, retirement, stocks, talk, taxes, tv, United Bullion Group
Here are some great clips (Taxation By Representation (May 15) and War on Your Dollar (May 8)) from previous episodes of The Mangru Report. To be the first to receive notice on these clips, breaking news, and more look to the right of your screen (on the website) and sign up for The Mangru Report Insiders Club – ABSOLUTELY FREE.
Also in case you missed yesterday’s (May 22) edition of The Mangru Report, be sure to catch the replay today Sunday May 23 at 5:30 p.m. on Fox Business Network, where we will be joined by Ron Paul (Texas Congressman and Former 2008 Presidential Candidate), and John Bogle (Founder of The Vanguard Group).
Pulieri on Gold Breaking New Highs May 19, 2010Posted by Admin in Market Commentary.
Tags: anthony, bailout, bullion, business, Capital, commentary, deficit, Dollar, dow, equities, euro, finance, gold, greece, group, index, inflation, money, pulieri, report, tv, united, United Bullion Group
Market Commentary from
Anthony Pulieri, Chief Investment Strategist for Joseph Glenn Commodities
We have seen Gold prices continue to surge higher to all time highs into the end of last week trying to push through 1250/oz. I discussed a new high was coming in gold on my last post which we saw with relative ease. We are seeing a little bit of a pullback on gold which is healthy for a bull market. This consolidation is very short term. Smart investors will snap up large quantities of gold at these levels as it starts to retest its highs in the coming weeks.
I believe stocks will continue to pull back as I discussed 2 weeks ago. I think 9000 on the DOW is coming and from there you could see 8400 to the downside. Most of the buying in the recent stock market rally has been on light volume over the last year and now were seeing an absence of faith in the U.S. markets. Steer clear as another trillion dollars is the number for the most recent bailout in Europe. They are following right in the United States shoes which is a recipe for disaster. This is just the beginning. As we have seen in America just one bailout is never enough. Look at the list of bailouts from TAF, TALF, FHA, CPFF, AIG, TARP and the list goes on and on. Over 11 trillion dollars has been committed. The question is: How many more bailouts will Europe need?
Editor’s Note: Stay tuned to The Mangru Report to view market commentaries from Anthony Pulieri. For more information on Mr. Pulieri and Joseph Glenn Commodities please visit www.jgcommodities.com
Bert Dohmen One-on-One Interview with Dan Mangru May 17, 2010Posted by Admin in Interviews.
Tags: bert dohmen, Blackbox, Capital, commentary, dan mangru, deflation, dohmen, dow, equities, gold, inflation, interviews, mangru, market, pullback, report, stocks, talk, Trading, tv
Dan Mangru of The Mangru Report interviews Dohmen Capital Research Founder Bert Dohmen. In the One-on-One interview with Mangru they discuss everything from why deflation is the bigger threat than inflation, why gold will go down during deflation, black box trading, the top of the market and the expected pullback, plus a possible return of mark-to-market accounting . (Interview from Episode 2 of The Mangru Report).
Tags: bert dohmen, business, Capital, carly fiorina, commentary, dan mangru, dow, Euro-Pacific, finance, gold, grover norquist, inflation, investments, jim rogers, john browne, ken fisher, mangru, mangru report, marc faber, peter schiff, report, talk, tv
Thanks for watching The Mangru Report. We work very hard to give you multiple viewpoints on real issues that effect your financial life. We’ve brought to you the insights of people such as Dr. Marc Faber, Jim Rogers, Peter Schiff, Carly Fiorina, Ken Fisher, Bert Dohmen, John Browne, Anthony Pulieri, and Grover Norquist. As a thank you to all of our viewers we are offering membership into The Mangru Report Insiders Club ABSOLUTELY FREE. Inside the club you’ll get first access to all of Dan Mangru’s cutting edge interviews, as well as web only exclusives. Just look to the right of your screen and fill in your email address to sign up today.