POLITICS/VALUATIONS marking the market…

Political drama that erupted last week with Trump’s firing of FBI Director Comey will make the path for corporate tax cuts and/or a foreign profit tax holiday less likely, as Republican support behind the President maybe fraying at the margin. This week there was some question of whether or not Trump inappropriately disclosed sensitive information to the Russians regarding Isis , although this appears to be fine.

Second, the data Friday was not especially good, and the CPI and retail sales reports were not the kind of reports that make us think we are going to see a reflationary economic acceleration power stocks higher from here.

Meanwhile, retailer earnings this week were simply horrid, and well below already-low negative expectations.
Again, for context, all that matters, because with S&P 500 valuations at 18X 2018 earnings (PE-price/earnings ratio)it’s going to take a positive catalyst to push stocks higher. That catalyst must come from:
1) Washington (via corporate tax cuts), 2) The economy (via higher inflation and better data) or 3) Earnings (which will lower the multiple on the market let the S&P 500 push higher). So, last week the chances of any of the three were marginally reduced, and markets reflected that reality.

Economic data last week was mixed in total, but from a market standpoint the takeaway was that it was neither strong enough to support a push through 2400 in the S&P 500(near term resistance) , nor weak enough to generate any real selling. So, the net effect is that the market is left wondering whether the economic acceleration can continue, or whether we are losing momentum.

It’s a given that inflation pressures continue to build, but all the statistical data implies they are building very s-l-o-w-ly. And given the Fed watches the statistical data, nothing in the inflation numbers appear the Fed would be thinking about hiking more aggressively or delaying the June rate hike. Stay tuned…
Rik Saylor

Bloomberg, Google finance
Advisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, and a Registered Investment Adviser. Rik Saylor Financial and NPC are separate and unrelated companies.
The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Investment in stocks will fluctuate with changes in market conditions. Past performance does not guarantee future results.
Indices are unmanaged measures of market condition. It is not possible to invest directly into an index. Past performance is no guarantee of future results. This material contains forward-looking statements including, but not limited to, predictions of indications of future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. NPC ID #119284

Market advancement ? 2 steps forward, 1 step back…

Looking at the positives, each of the three “gaps” between market expectations and fundamental reality—gaps which have kept the S&P 500 stuck for two-plus months, narrowed last week. (Political dysfunction, Soft/hard data and market trading levels vs the GDP -18x~ earnings vs 2%~)

First, the House of Representatives passed their Obamacare replacement, and while it still has virtually no chance of passing the Senate, it is a moral victory for the pro-growth agenda.

Second, economic data last week bounced back a bit, especially the ISM Non-Manufacturing PMI and jobs report. So, the gap between strong sentiment surveys and hard economic data did close slightly last week, although clearly, work remains to be done there.

Finally, the 10-year Treasury yield rose into the mid-2.30% range, a multi-week high. And while it didn’t break resistance at 2.40%, there was still progress in closing the large gap between near-record stock prices and bond yields at multi-month lows (which should not be happening in reflation). Given those modest positives, stocks were expected to have rallied and they did.

However, while we had improvement in the closing of those three gaps, very quietly a new risk has potentially emerged. Last week, Chinese economic data universally missed expectations; base metals’ prices (copper, iron ore, steel) all collapsed ; oil broke down badly and hit multi-month lows, and the commodity currencies (Aussie and loonie) both hit lows for the year.

All of those markets are anecdotal proxies for global economic growth, and they have served as important canaries in the coal mine for global growth scares that have caused sharp, surprising pull-backs in stocks (Sept. 2015, Jan. 2016).

We continue to keep an eye on the proposed corporate tax rate cut as this may be the key to higher high’s in stocks and about 1% more GDP output. This is expected to drop the P/E ratios into the 16x’s earnings range which is much more in line with the historical average and a value we like.

Rik Saylor

Bloomberg, Markewtwatch
dvisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, and a Registered Investment Adviser. Rik Saylor Financial and NPC are separate and unrelated companies. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Investment in stocks will fluctuate with changes in market conditions. Past performance does not guarantee future results. NPC ID: 118997

EARNINGS SEASON

Last week was the peak of earnings season (it was actually the busiest week of results in 10 years) and earnings more than anything else dominated sector trading.

Economic data over the past several weeks hasn’t been “bad” and it’s not likely anyone is worried about a recession. But, the pace of gains has clearly slowed, and until we see a resumption of the economic acceleration many analysts were expecting at the start of 2017, any material stock rally from here will not be economically or fundamentally supported (and remember, it was the turn in economic data back in August/September that ignited the late 2016 rally. Yes, the election helped, but the momentum was positive before that event, so economics do matter).

Earnings season has been a good one with earnings and revenues coming in strong in aggregate, but the 2018 S&P 500 EPS remains $135ish and that means that at 2400, the S&P 500 is trading at 17.77X earnings. That’s a valuation ceiling in this environment.

Meanwhile, while sentiment remains skeptical and anxiety towards missing a rally overshadowing, the fundamental reality is there remain three large “gaps” that must be resolved positively before stocks can march higher.

First, and most important, is the gap between the S&P 500 (just off all time highs) and 10 year Treasury yields (they just hit 5 month lows). Yield rose last week but until they get through 2.40%, the near term trend in yields remains downward, and that should not be happening in a stock positive, economic reflation.

Second, the gap between soft sentiment surveys (which hit multi-year highs in Q1) and actual, hard economic data has widened in the past few weeks. Friday’s Q1 GDP came in at a paltry 0.7%, and that soft number can’t be blamed on a bad winter this year. This week, economic data needs to begin to beat expectations to help settle growing concerns about the viability of the Q3/Q4 ‘16 economic acceleration.

Third, the gap between the markets political expectations and likely political reality remains wide. At this point, tax cuts in 2017 seems a remote possibility at best, yet markets are still expecting (and potentially pricing in) pro-growth policy help for the economy/markets.

So, bottom line is that sentiment and momentum are higher, but we need to see positive fundamental progress for the S&P 500 to break up much higher.

Rik Saylor

Sources: Bloomberg, Google finance
&P 500 is an unmanaged index of 500 widely held stocks. Indices are unmanaged measures of market condition. It is not possible to invest directly into an index. Past performance is not guarantee of future results. In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Past performance does not guarantee future results. Advisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities offered through National Planning Corporation (NPC), Member FINRA/SIPC. Rik Saylor Financial and NPC are separate and unrelated companies. NPC ID 118694

The Case for Europe

European indices and ETFs exploded to new 52-week highs yesterday following the expected French election results. The likely removal of that French political risk overhang reinforces our bullish thesis on Europe, especially given some wobbling in US economic data recently.

Bullish Factor #1: Compelling Relative Valuation. The S&P 500 is trading at the top end of historical valuations: 18.25X 2017 EPS, and 17.75X 2018 EPS. There’s not much room for those multiples to go higher, and if we get policy disappointment or the economic data loses momentum, markets could hit a nasty air pocket.

Conversely, the MSCI Europe Index is trading at 15.1X 2017 earnings, and 13.8X 2018 earnings. That’s a 17% and 22% discount to the US. So, while it’s true Europe should trade at a lower multiple vs. the US given the still-slow growth and political issues, those discounts are pretty compelling. In a world where most equity indices and sectors are fully valued, Europe appears to offer value.

Bullish Factor #2: Ongoing Central Bank Support. This one also is pretty simple… the ECB is still doing QE. The ECB is still planning to buy 60 billion euros worth of bonds through December of this year. That will most likely support the economy, help earnings and push inflation higher, all of which may be positive for stocks.

Bullish Factor #3: Overblown political risk. We’ve been talking about this for a while, but the fact is that political risks in Europe are likely overblown, and just like people underappreciated risks in 2016, we believe they are now overreacting to Brexit and Trump by extrapolating those results too far.

Good allocation in portfolios should focus on 1- value (don’t overpay for holdings) 2- RISK 3- Reward. Make sure your overall holdings are balanced to your risk tolerance because investors react to emotion more than logic.

Rik Saylor

Bloomberg, Google finance, The Sevens Report, March 21, 2017
Advisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, and a Registered Investment Adviser. Rik Saylor Financial and NPC are separate and unrelated companies. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Past performance does not guarantee future results. NPC ID#118609

Critical Week for the Markets?

The financial media is consumed at the moment with geopolitical drama, but that’s not what’s driving stocks.

The reason stocks have stalled since March and traded heavy last week is the continued decline in the 10-year bond yield, combined with a darkening outlook for tax cuts (which is the lynch pin of the pro-growth policy out-look) and rising anxiety regarding momentum in the economy. President Trump’s “dovish” comments on the dollar (he said it was too strong), Yellen (he said she may be reappointed) and interest rates (he said he favored a low rate approach). His comments likely further eroded the expectation for the reflation trade, and weighed on bond yields and the dollar and that pressured stocks.

All those factors have gotten worse over the past few days (especially following Friday’s economic data-CPI and Retail Sales, further eroded the reflation trade thesis and will increase worries the economy is losing momentum.) and that’s likely why stocks fell. The 10-year yield is hitting multi-month lows, and that simply should not be happening right now if an economic reflation is occurring.

Meanwhile, the outlook for tax cuts now has gone dark. President Trump said last week an Obamacare repeal and replace must come first, but there’s still no healthcare plan in place that can pass the Senate even if a plan does pass the House (unless it’s radically different from the previous plan, it likely has no chance in the Senate).

Finally, economic data over the past two weeks hasn’t been better than expected, and on Friday data turned outright disappointing.

A three-pronged headwind is pressuring stocks, and right now about the only near term positive catalyst is earnings. The likely reason stocks aren’t falling more right now is because market consensus S&P 500 earnings for 2018 is $134/$135 per share without help from Washington. That puts the S&P 500 at 17.5X 2018, a very high but not outright absurd multiple with rates still so low. That earnings estimate is what’s holding stocks up right now as economic data begins to disappoint.

Two things have to happen to support stocks and keep any pullback manageable.

First, this upcoming earnings season needs to meet expectations and, more importantly, be accompanied by positive corporate out-look and management commentary.
Second, that 2018 EPS(earnings per share) estimates assume a rising economic “Trump” tide, therefore, economic data needs to continue to maintain momentum.

Bottom line, this week now is very important, as it will go a long way to resolving the now-glaring discrepancy between still sluggish “hard” economic data and surging “soft” economic sentiment surveys

All opinions reflect those of the author Bloomberg, Econoday and Google Finance and not of NPC. Advisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, and a Registered Investment Adviser. Rik Saylor Financial and NPC are separate and unrelated companies. Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans, or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. The opinions expressed are for general information only. They are not intended to provide specific advice and do not constitute an endorsement by NPC. S&P 500 is an unmanaged index of 500 widely held stocks. Indices are unmanaged measures of market condition. It is not possible to invest directly into an index. Past performance is not guarantee of future results. In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. NPC ID # 118218

Is the Market “STUCK”?

Signs of a slight loss of economic momentum continued last week, and while on an absolute level growth remains “fine,” stocks need consistently better data to off-set lack of action in Washington, and that’s simply not happening right now. As a result, stocks are “stuck” at the current levels and downside pressures are building.

There remains tremendous noise in markets right now (political, economic, geopolitical), but cutting through all of it, the fact is that the headwinds on stocks are building.

First, corporate tax reform is going nowhere, and many people are starting to wonder whether it can get done in 2017. Now, because markets ultimately expect it will get done, this isn’t a bearish game changer yet. But, the simple fact is that the outlook for corporate tax cuts continues to hit new lows for 2017. If the market sees that the tax deal changes from the 35% to 20% reduction we could see the Trump rally gains (around 10%) drop.

Second, economic data has shown signs of a loss of momentum (last week’s bad auto sales were easily the most important economic report, not the jobs report-March auto sales, dropped to 16.6M (seasonally adjusted annual rate, or saar) vs. (E) 17.4M saar). It cannot be understated how critical better economic data has been to supporting the post-election rally in stocks, and while economic data on an absolute basis remains good, it has not gotten incrementally better of late. Remember, the #1/#2 economic drivers of the American economy are the “building/buying” of houses/automobiles.

Third, the reflation trade is breaking down. All the assets that led stocks higher not just since the election, but throughout Q4, are all of a sudden trading poorly, e.g. banks, small caps, cyclical sectors. Moreover, cross assets are no longer confirming the “reflation trade,” as bond yields are near lows for the year and the dollar remains below resistance at 102.

Fourth, geopolitical risk is rising. Syria and North Korea are the two current places to watch, and while neither situation is especially dangerous (yet), the fact is at these valuations (18X current 2017 earnings, 17.5X 2018 earnings) there is no elevated geopolitical risk priced into stocks, so even a small further escalation could weigh on markets modestly.

Finally, for the first time in years the Fed represents a hawkish risk by either

1) Hiking rates faster than expected or
2) Taking steps to reduce its balance sheet sooner than expected.

From a risk/reward standpoint, risks are growing. Absent a strong earnings quarter, corporate tax cuts or an acceleration of economic data, the rewards are starting to thin out.

Rik Saylor

*Source : Bloomberg, Google finance

Advisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, and a Registered Investment Adviser. Rik Saylor Financial, Bloomberg and NPC are separate and unrelated companies. The opinions voiced are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. NPC does not provide tax or legal advice NPC ID# 117938

Everything changed last week.

“If you don’t deliver the goods, people will eventually catch on.” – Trump in the Art of the Deal

Let me explain why this is not hyperbole. Since the election, markets have been under a severely delusional state. The narrative has been beautifully simple and elegant; President Trump is going to juice the economy through deregulation, tax cuts, and healthcare reform. Inflation is finally here to stay because the next four years will be characterized by infrastructure spending and fiscal stimulus. Who cares about the disinflationary megatrends of technology, debt and demographics when we have Trump.

Volatility will continue to be muted independent of very serious geopolitical risks. Cyclicals will continue to unrelentingly rally, and yields have no where to go but up.
Know what the problem with this is? The assumption that all of the pro-business policies Trump has promised on the campaign trail were true, and would pass. It turns out that the market completely forgot about execution risk and this little known thing in democracy called checks and balances. The major policy changes that the market has been pricing in with 100% certainty need some form of consensus to pass, not a tweet.

The Obamacare repeal and replace debacle has proven two things which perhaps the market is starting to catch on to. The first is the disappointment in the bill itself, not only in terms of coverage, but also savings. The second relates to the reality that 1) things always take longer than one thinks, and 2) to get things done, you need to be able to work together. Believe me, Trump is not the only one with an ego. Politicians he has slighted may publicly appear to support him, but have not forgotten being publicly insulted. In politics optics matter. Cooperation with your attacker looks weak.

An unraveling in the narrative is beginning to unfold. With bullishness as high as it is, consider the following facts:
1.year-to-date cyclicals have significantly underperformed,
2. small-caps have given up nearly all of their post-election outperformance
3. America-first is clearly becoming emerging markets first
4.long bond yield have stopped rising
Last week, everything did change. Not in terms of the world, but in terms of perceived probabilities.

When that happens, watch out below.

Rik Saylor

Richard Suttmeier, 4-5-17 John Hancock, 3-31-17 Google Finance

https://www.thestreet.com/slideshow/14073771/1/treasury-bond-yields-stopped-rising-gold-hits-200-day-again-utilities-show-dividends-matter.html
The opinions voiced are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. Ðhis material contains forward-looking statements including, but not limited to, predictions or indications of future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.Ðnvestment in stocks will fluctuate with changes in market conditions.Ðn general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss NPC# 117695

Healthcare Down, Tax Cuts Next?

With healthcare shelved, focus now will turn to the truly important topic for markets: Corporate tax cuts.

Going forward, there are two key points to understand. First, in order for tax cuts to be a bullish game changer (i.e. push the S&P 500 materially above 2400) they must drop the nominal rate to 20% or below. That will provide the expected $10-$12 EPS boost for the S&P 500 in 2018 that will help stocks break out, because at $146 S&P 500 EPS (the current $134 2018 expectation, plus an additional $12 from tax cuts) the S&P 500 would be cheap at 16X 2018 earnings.

Second, tax cuts will be a bearish game changer if the market begins to believe: 1) They won’t happen at all, or 2) They will be so small that it won’t make a difference. Point being, tax cuts can be delayed in 2018 and it probably won’t be a bearish game changer as long as the market still expects that rate to be cut to 20% or lower. Consider also, that if the market reacts , it very well may reverse the Trump trade rally of 10% since the election.

So, to stay ahead of the tape we need to figure out what must happen to get material corporate tax reform passed. To that point, there is one issue that is the key to whether material tax reform gets passed: Border adjustments.
Here’s why border adjustments are key: Dropping the corporate tax rate from 35% to 20% would mean a big loss of revenue for the government, so that needs to be offset otherwise the deficit will explode. A plan that does not have an offset will not be passed despite the Republican-controlled government.

To that point, the Tax Policy Center estimates that implementing border adjustments would generate $1.2 trillion in additional tax revenue over 10 years, which is two-thirds of the $1.8 trillion in lost revenue that would occur if the corporate tax rate drops to 20% from 35%. It’s the key to getting tax cuts at least somewhat revenue neutral border adjustments have to do with changing the way US corporations are taxed on overseas sales and purchases. To use a simple but imperfect analogy, border adjustments are similar to import taxes (they aren’t the same, but for purposes of illustration the comparison makes the point).

The problem for markets is that there appears to be even bigger disagreement on border adjustments within the Republican party than there was on healthcare, so right now there is no credible path to material corporate tax reform. This is especially true after the healthcare fight created additional resentment within the party.

Bottom line, without a border adjustment compromise, there’s very little chance the corporate tax rate can be dropped to 20%, and provide the earnings boost to push stocks higher.

A key name to watch is Kevin Brady. Brady is the House Ways & Means Chairman (where tax legislation begins). A compromise on this issue won’t happen without him, so going forward we’re closely watching any comments or articles from Brady.

Possible Sector Winners & Losers of Tax Cuts/Border Adjustments

From a tactical investment standpoint, one of the off-shoots of a border adjustment compromise will be repatriation of overseas money, and the clear winners of that are mega-cap tech and multinational consumer companies .

Retailers are the big losers in a border adjustment compromise because they will no longer be able to deduct the price of their imported goods. So, while retailers stand to benefit from tax rate reduction, they may get less benefit than other sectors. The outlook for retailers in general remains muddled, at best.

Rik Saylor

tax policy center 3-27-17
Advisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, and a Registered Investment Adviser. Rik Saylor Financial and NPC are separate and unrelated companies.

THE Wealth Whisperer

GLOBAL EXPANSION

It’s not just a Trump Bump that is driving stocks higher, nor is it unwarranted or unsubstantiated optimism. Rising equity prices are most likely a response to an improvement in global economic fundamentals that is just now becoming clear. Global industrial production has been rising for the past 6-8 months, and the volume of global trade picked up noticeably toward the end of last year. More recently, today’s release of industrial production statistics for February shows a significant pickup in U.S. manufacturing activity in the first two months of this year. All of this was foreshadowed by a pickup in chemical activity which continues to suggest a meaningful improvement in overall industrial production in the months to come, the market is usually pretty good at sniffing out developments in the economy that are not yet obvious in the stats, and this is the latest example.

U.S. industrial production statistics have been unimpressive for years, due mainly to wrenching problems in the oil patch. Eurozone industrial production in the Eurozone has been abysmal relative to modest improvement in the U.S., but it has nevertheless been improving, and this improvement become noticeably stronger about six months or so ago.

After several years of almost zero growth, U.S. manufacturing production has jumped, rising at almost a 5% annualized rate since the end of November.

The volume of world trade is considered a key indicator of global economic health, since expanding trade is an unalloyed good thing: increased trade is arguably the best way to improve a nation’s productivity, since it allows trade partners to strongly benefit from the things they do best. World trade volumes rose at a relatively tepid 2-3% pace for a number of years, which is consistent with the recent recovery being the least impressive in modern history. But in the second half of last year world trade volume rose at a 4-5% pace. This is very good news.
The Chemical Activity Barometer has done a pretty good job of reflecting—and sometimes leading—overall economic activity in the U.S. Starting last summer this indicator started picking up, and in the year ending February it has increased by over 5%.

The year over year change in the 3-mo moving average of the Chemical Activity Barometer has been a reliable predictor of improvement in U.S. industrial production. Industrial production is now beginning to improve, as predicted, having increased modestly since last March after several years of decline. More improvement could be on the way.

The CRB Raw Industrials commodity index, which has been rising strongly since late 2015. It’s now apparent that this has been driven not by a weaker dollar (as has typically been the case), but by an unexpected and significant improvement in global economic activity. The CRB Metals index (which consists of copper scrap, lead scrap, steel scrap, zinc, and tin) has surged almost 60% since early last year. Very impressive, and it’s still ongoing.
So it’s not surprising that Eurozone stocks have perked up of late, as has nearly every global equity market. The current equity rally appears to be built on a sound economic base, not on flights of fancy.

Rik Saylor

Source: Federal Reserve, Eurostat, Netherlands Bureau for Economic Policy Analysis, American Chemistry Council, Bloomberg
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Rik Saylor Financial and NPC are separate and unrelated companies.NPC ID #117270

Stop Patching Up the Euro

Andreas Georgiou can’t catch a break.

The Greek statistician moved back to his home country in 2010, at age 50, to help right the financial ship. He left Washington, where he had spent 21 years working for the International Monetary Fund, to take over the agency that reports Greece’s financial health.

Part of the problem with Greece is that no one knows exactly how big their problems are, since the numbers weren’t exactly accurate.

Georgiou quickly realized that the country’s budget deficit in 2009 wasn’t 6% of GDP, as Greece’s statistics service had previously said. Or even 10%. He revealed to the world that it was closer to 15%. His calculations followed accounting procedures required of all Eurozone members and that was the problem.

His countrymen arrested him, accusing him of overstating the financial woes, leading to austerity and hardship. He could stand the name-calling and personal threats, but when strangers started threatening his daughter, he called it quits and returned to the U.S. where he teaches. But his troubles aren’t over. Every time his case comes up – and is dismissed, because the accusations against him are bogus – the judge allows for more investigation. So prosecutors simply refile, hounding a man for telling the truth.

Everyone got something out of the arrangement, at least for a little while.
Stronger countries like France and Germany tied their fate to weaker countries like Italy and Greece because it put a lid on their currency, which helped exports.

Weaker countries hitched their wagons to stronger countries because it gave them a lower cost of capital when selling government bonds and making private loans. Car loans in Italian lira carried a much higher interest rate than Italian car loans in euros right after Italy joined the common currency, even though the backing was ostensibly the same.
It was perfect! Right up until it wasn’t.

Better to rip off the Band-Aid quickly, like Georgiou did, and be done with it.

Rik

Rodney Johnson, Co-Founder, Dent Research,

The opinions voiced are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. All opinions reflect those of the author and not of NPC.Ðhis material contains forward-looking statements including, but not limited to, predictions or indications of future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.
Advisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, and a Registered Investment Adviser. Rik Saylor Financial and NPC are separate and unrelated companies.

Advisory services offered through Rik Saylor Financial, a Registered Investment Adviser. Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, and a Registered Investment Adviser. Rik Saylor Financial and NPC are separate and unrelated companies.