DOW opens down, AGAIN!

The DOW has again opened in negative territory and has ranging between 1.00-1.50% down, but it seems to be trending down, in early trading.

After the first 15 minutes of trading, it is now down some 178 points.

It seems, another torrid session awaits!

The Tax Summit will fix it all - don't panic

Shrinking workforce may dampen expansion for decades

WASHINGTON —

Women and baby boomers entering the American workforce after 1950 helped to supercharge expansions in 1975 and 1983 by filling an increasing number of jobs and purchasing more goods and services. Now as the share of women with jobs falls and older Americans age into retirement, the shrinking — or, at best, slowly growing — workforce will weaken economic activity for the next two decades.

The demographic changes may be the biggest and least-appreciated reason why the two-year recovery has slowed, because the rate of growth for labor and capital is “the most important determinant” of economic expansion,

said James Paulsen, chief investment strategist for Wells Capital Management in Minneapolis.

More retirees mean slower household formation, reduced consumer spending and downward pressure on equity prices as retirement cuts people’s purchasing power, according to John Lonski, chief economist at Moody’s Capital Markets Group in New York, and Gus Faucher, director of macroeconomics at Moody’s Analytics Inc. in West Chester, Pa.

“A weaker labor force does dampen the pace of the rebound,” along with “our expectation for what an expansionary trend is,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “We should be lowering our sights on potential GDP compared to when our population was younger.”

Anemic gains in the number of new workers has effectively cut the long-term “speed limit for growth” to 2.25 percent, estimates Maki, a former senior economist at the Federal Reserve. That compares with the Fed’s estimated 2.5 percent to 2.8 percent rate for gross domestic product and average growth of 3.2 percent from 1980 to 2000.

Automakers General Motors, Ford and Toyota, motorcycle maker Harley-Davidson and natural- foods grocer Whole Foods Market may be hurt by the shift because most retirees will cut spending on big-ticket items and nonessentials, said C. Britt Beemer, chairman of America’s Research Group in Charleston, S.C., a consulting company that studies consumer behavior.

“Older people tend to have lower incomes, their consumption tends to be lower and in that sense, consumer-spending growth would be weaker as well,” said Moody’s Faucher. “There will be fewer people in prime car-buying years,” and “recreational goods and services are a young-adult thing.”

The aging population also may hold down stock values for the next two decades as boomers sell shares to finance retirement, according to a Federal Reserve Bank of San Francisco research paper released Aug. 22.

“The mentality has shifted to preserving wealth rather than growing wealth, with less-risky portfolio allocations,” said Emily Sanders, president of Sanders Financial Management Inc. in Norcross, Ga., whose largest group of clients is aged 55-65. A typical 65-year-old may have 50 percent of his portfolio in stocks, which would drop to 30 percent at age 80, she said.

Faucher forecasts changing demographics will lead to a period when nominal GDP growth — which includes the impact of inflation — slows to 3.3 percent compared with 5.5 percent before the 18-month recession. That means the rise in corporate profits and equity prices would slow to about 3.3 percent from 5.5 percent as well, he said.

An estimated 72 million people, or 19.3 percent of the population, will be 65 and older by 2030, compared with 40 million, or 13 percent, in 2010, the Census Bureau estimates.

“We are at the threshold of retirement mountain: a huge, huge change in the numbers of people who are reaching the age where they are leaving the labor force,” said Neal Soss, chief economist with Credit Suisse Holdings USA in New York.

While losses from declines in the value of 401k and similar accounts may force some to delay retirement, these delays will be temporary, he said.

“Maybe one of the solutions here is that they work a year or two longer,” he said. “Do we really think we are going to have a lot of 80-year-olds in the workforce? It sounds good until you start thinking about the practicalities of it.”

The baby boom, the population bulge born after World War II between 1946 and 1964, added 9.4 million people in the 16-24 age group during the 1960s and 7.3 million in the 1970s. The percentage of women in the workforce almost doubled to 60.3 percent in 2000 from 33.6 percent in 1953, according to the Labor Department.

Boomers started turning 65 this year, and every day for the next 18 years, about 10,000 more will hit the age that historically has been associated with retirement, according to the Pew Research Center in Washington. Women’s participation in the labor force may decline slightly during the next 40 years to about 57 percent because fewer will have jobs as they grow older, the Bureau of Labor Statistics projects.

While GDP has grown at an average annual pace of 2.4 percent in the eight quarters since the December 2007 recession ended, that compares with an average of 6.3 percent after the July 1981 slump and 4.7 percent following the November 1973 contraction, both of which lasted 16 months.

We need to add a new name to the ever increasing list of insolvent EU countries: the Kingdom of Belgium. Yesterday, it was reported that Belgium, in conjunction with the French government, would effectively nationalize and then break up the struggling mega bank Dexia (DXBGF.PK) and spin it off into the form of a good-bank/bad bank scenario (with taxpayers forced to pay the bill). This news is widely credited with sparking the 400-point move in the Dow in the last 45 minutes of trading.

The collapse of Dexia should not have taken anyone by surprise. In fact, the hopelessly irresponsible bank is no stranger to taxpayer funded bailouts. Back in 2008, during the depths of the US financial crisis, Dexia was injected with 6.4 billion EUR of capital by the French, Belgian, and Luxembourg governments. In addition, the bank was given up to 150 billion EUR in funding guarantees to assure reassure counterparties and to allow the bank to continue operations

One of the most troubling aspects of the Dexia saga is the incompetence of EU regulators and ratings agencies, which should spook any bank shareholder. Dexia notes proudly on its website that it passed last year's EU bank stress test, saying: “The conclusion of the stress tests is that Dexia does not require additional capital to withstand the CEBS two-year 'what-if' adverse scenario including the additional sovereign shock.” Most skeptics pointed out the flaws of the EU bank stress tests, mainly that they were too conservative and failed to prepare banks for an extreme case like a sovereign default.

It turns out that those critics were correct. While corruption and stupidity is to be expected among EU bureaucrats, one would think that investors could at least rely on ratings agencies for some factual information.

The major story of the Dexia bailout is that it now puts Belgium in the same position as EU bailout recipient Ireland, which was rendered bankrupt by the markets and frozen out of the credit markets in late 2010. Belgium at this time is unable to afford a major bank bailout for two major reasons: deteriorating economic finances and lack of political consensus. In 2010 Belgium GDP came in at $467 billion dollars, and debt to GDP rose to 97.2%.

As of June 30, 2010 foreign investors owned a whopping 88.7% of Belgium’s Treasury certificates and 55% of its Linear Bonds.

How investors will react to an over-leveraged country bailing out a bankrupt bank with total assets (517 billion EUR) that exceed the country’s GDP is not a pleasant thought.

Link -
http://seekingalpha.com/article/297975-belgium-joins-the-piigs?ifp=0&source=emai...
===========================================
A few observations -
1) Political corruption & incompetence is not restricted to Belgium Politicians.
2) Ratings agencies should be very closely examined, for their roles, in this entire Gloabl Economic Event.
3) Now that Belgium have joined the Piigs, how will things change if Germany fall into the trap?
Will we then have -
Big Pigs?

B

elgium

I

reland

G

reece

P

ortugal

I

taly

G

ermany

S

pain  

Keynes and Hayek, the Great Debate

(Part 2) - Cont

Persistent Unemployment
In the real world, Hayek suggested, the result was persistent unemployment. He offered a simple, if unpalatable, truth to those, like Keynes, who advocated increasing the demand for consumer goods to increase employment: “The machinery of capitalistic production will function smoothly only so long as we are satisfied to consume no more than that part of our total wealth which under the existing organization of production is destined for current consumption. Every increase of consumption, if it is not to disturb production, requires previous new saving.”

Hayek also confronted another Keynesian remedy, that if an idle plant was brought into use, it would spur a depressed economy back to life and increase employment. “What [economists like Keynes] overlook is that … in order that the existing durable plants could be used to their full capacity it would be necessary to invest a great amount of other means of production in lengthy processes which would bear fruit only in a comparatively distant future.”

Artificial Demand
He went on, “It should be fairly clear that the granting of credit to consumers, which has recently been so strongly advocated as a cure for depression, would in fact have quite the contrary effect.” Such “artificial demand,” he suggested, would merely postpone the day of reckoning. “The only way permanently to ‘mobilize’ all available resources is, therefore, not to use artificial stimulants -- whether during a crisis or thereafter - - but to leave it to time to effect a permanent cure.” In brief, there was no easy way out of a slump. In the long run, the free market would restore an economy to an equilibrium that allowed everyone to be employed.

Hayek scored a bull’s-eye with his audience. Here at last was a cogent, convincing repudiation of Keynesian interventionist notions. Hayek showed that the remedies coming from Cambridge, which appeared so plausible, were riddled with logical flaws. Having the best of intentions wasn’t enough. Addressing the symptoms of a depressed economy by investing with borrowed money only made matters worse. Instead, Hayek offered a sober remedy of his own: Forget about quick fixes, the uncomfortable truth is that only time will cure an imbalanced economy. Beware smooth-talking doctors, such as Keynes, who offered a quick cure, for they are charlatans, snake-oil salesmen, and quacks. The market has its own logic and contains its own natural remedy.

Link -
http://www.businessweek.com/news/2011-10-06/keynes-and-hayek-the-great-debate-pa...
===========================================
The Truth is that Keynes and Hayek, were both correct & incorrect, depending on the situation!

Anyone care to hazard a guess or two, on the rights & wrongs of these two, in normal situations, versus the current & future circumstances?

The Truth is, that both major Political Party's & their advisors, have no idea of what any of this is about, let alone having any understanding of why neither Economic theory will actually work under the current major Economic factors! 

Ex Dame Pansi wrote on Oct 9^th, 2011 at 10:18am:


Very good & apt, Pansi!

For information purposes, the following links have embedded videos, in which the Dexia break up is discussed -

http://www.bloomberg.com/video/77117294/

http://www.bloomberg.com/video/77182886/

http://www.roadtoroota.com/public/709.cfm?awt_l=5oxEA&awt_m=3XLlokYhVxAZ85B

Interestingly, the DOW Futures are currently up about 1%, just over 100 points, notwithstanding the Forex insiders online survey is currently showing at 67% Bearish.
There are some interesting contradictions about!  
http://www.forexpros.com/indices/us-30-futures-advanced-chart

thanks for the explanation perce.

2) Greek bondholders will face massive writedowns, of more than 60 percent.

does this mean that whoever Greece owe money to will only get 40% of it back and the rest will be written off?

Do the countries have a choice to appeal for the full 100% if that's the case?

hypothetically....if Greece owed Australia $1000 and they say we can't pay it all back but we'll give you $400 that's it, would Australia just leave it at that or does the IMF, Germany and other EU countries cough up the other 60%?

I don't get what happens when they say they write it off or writedowns.