Liberal Media Exposed

Thursday, December 13, 2018

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2014 In Review – Financial Updates

As 2014 comes to an end it’s time to have a last look back at the financial events of the year. It’s been a complex, and at times confusing, picture set against the background of a continuing global recovery from the financial crisis. Growth has been uncertain at times, alarming the stock markets. Conflict and crisis have played a part in destabilizing commodity prices and investor confidence, the shadow of debt still troubles large parts of the world economy and currency fluctuations offer both opportunities and dangers. Let’s have a look at each of these in a bit more detail.
Firstly, the equities markets. In general share prices have had a positive year. Most economies have been growing steadily as the global economy climbs away from the wreckage of 2008, and that’s pushed share prices up. However many analysts are concerned that the markets may be overheating, with prices rising faster than economic performance seems to justify. The Eurozone has registered the highest rises through the year, with prices already up 28 percent by June, with the USA close behind. On the other hand the UK, which has the highest actual growth figures in the EU and compares well with the US economy, saw much more modest and realistic growth in the 13 percent bracket. Short term these buoyant prices are good news for investors, but an unsupported bubble could collapse painfully at any time.
Commodity prices have been highly volatile, especially in the second half of the year. The precious metal market traditionally suffers as share prices rise and that’s been reflected in spot prices that have struggled to get away from prices that often aren’t far off their five-year lows. The real story has been oil, though. Western governments originally engineered a downward trend to punish Russia’s petro-based economy for the February invasion of Ukraine, using increased US domestic production to deflate the market. It seems to have taken on a life of its own however, with OPEC refusing to lower quotas and the price of Brent crude now below $60 a barrel. It looks likely the Middle Eastern producers are trying to drive US shale oil out of the market, before raising prices again.
Meanwhile in the Eurozone there are rumblings of further debt problems. Germany is weary of bailing out less efficient countries that then try to break away from the agreements they signed, with Greece being the most frequent offender – a leftist party that’s riding high in the polls has pledged to raise public spending again despite Greece being dependent on berlin for funds. Worst case is that the Euro begins to fragment, with Club Med countries breaking away to leave a smaller but much more efficient German-based core. That would lead to a much stronger Euro and reduced German exports, but it could also harm the dollar’s status as reserve currency of choice.
The Federal Reserve probably wouldn’t mind a weaker dollar, because right now it’s dominating the currency markets but putting a break on US exports and probably handicapping growth. Meanwhile US inflation is still well below the Fed’s 2 percent target, leading to caution and repeated delays of long-awaited interest rate rises.
Overall the economy seems to be continuing its recovery, but there are reasons for caution as well. Be prepared to invest in safe havens at short notice – gold maintained its value year to year, with its final price being within a few dollars of the same time last year. Now it’s time to see what 2015 will bring. Happy New Year!

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IRS Tea Party

Taxation is always a thorny subject, raising questions of individual vs. societal rights and about how much of their own hard-earned cash people should be allowed to keep, but in principle just about everyone agrees that at least some tax is a necessary evil. After all we need to support the military and control the borders, and some spending on roads is always going to be necessary. It gets more complex when we start arguing about whether the government should be providing health care and education. Then there’s maybe the biggest difference between the political right and left – should tax be used to redistribute wealth from those who earned it to those who didn’t?
Now a congressional investigation has come up with evidence suggesting that tax policy has been used to do something much, much worse than redistributing wealth – it looks like the IRS might actually have been targeting tax to harm political opponents. The House Oversight Committee is working through 1.3 million pages of documents and emails covering the IRS, Treasury and Justice Department. A lot of this has fallen out of a 2013 FBI investigation that found the IRS had been targeting a variety of politically active groups, giving their tax-free status additional scrutiny. Obviously there are laws covering what political activity a group can carry out and still remain tax exempt, but what worries investigators is the way groups were targeted.
It looks like the IRS chose the groups to investigate by looking at their names, as well as making value judgements on their objectives. Aiming to “make America a better place to live” was enough to start a tax probe. That caught up a handful of liberal groups like Occupy, but it seems likely they were included to disguise the real focus of the operation. Targeted terms included “TEA Party”, “patriot” and anything critical of Obamacare. Any criticism of how the country was being run could trigger an investigation. Suggesting that American children needed to be taught about the Constitution and Bill of Rights would, too.
It’s obvious from the wording that would attract an IRS assessment that this whole plan was aimed at making life difficult for Obama’s opponents on the right. After all how many ultra-liberal groups have “patriot” in their title? Or “Constitution”? This is clear use of the IRS as a political weapon, sending out agents to harass law-abiding Americans on the basis of their political beliefs. If the administration disagrees with someone it should have an open discussion and say why it thinks they’re wrong, not try to silence them by tying them up in the famously arcane bureaucracy and paperwork of the tax system.
It’s likely that most of these investigations would come to nothing, but IRS scrutiny means real possibility of being unfairly stripped of tax exemptions. That can make a huge difference to an organization, depriving them of the funds they need to do their job. Shutting down the opposition is something we associate with banana republics; it’s very disturbing that Congress is now finding so much evidence of tactics like this being used in America.

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Financial News – Fed Policy

The recent huge fall in oil prices has wide-ranging implications right across the markets. It offers a chance for the battered precious metal sector to recover, by deflating possible gains in a rival commodity; it should boost manufacturing shares by slashing production and transport costs; and it’s likely to have a depressing effect on oil extraction and exploration stocks as the pressure to open new fields eases off. Cheap energy could help Europe avoid a new recession and reduce the specter of a new debt crisis among poorer Eurozone members. The price slump also raises a few warning flags though, and that could have an effect on the Federal Reserve’s plans.
Just a few weeks ago it looked like the Fed was ready to move ahead with an interest rate increase, signaling a definitive end to the quantitative easing programs that have been running since the 2008 crisis. That might be about to change though, as cheap oil destabilizes an economic landscape that had looked ready for more expensive lending. Low oil prices are deflationary, pushing prices down across the full range of manufactured goods and many services, and while the US economy isn’t deflating it’s certainly seeing the inflation rate slowing down. The Fed has a 2 percent inflation target and right now it doesn’t look like being achieved, so some action to correct that is likely.
Cheap lending tends to increase demand, which drives prices up, so a temporary hold on rate increases is an obvious tool for the Fed to apply. It also answers new concerns about the creditworthiness of companies in the oil sector, who’re now looking at falling profits as margins per barrel sink. That’s a real concern for the US shale industry because production costs are higher there than in the traditional oil exporters, and if prices continue to fall the break-even point isn’t that far away.
How low can oil sink? For the US producers, not much more. OPEC members have more leeway but as shale oil becomes uneconomical to produce output will fall sharply, stabilizing prices and probably driving them back up. That would be inflationary, so whatever the Fed decide to do with rates they’ll need to be ready and willing to reverse it just as fast – this is unpredictable territory.
For now the US economy remains highly levered and could be more dependent on cheap financing than the Fed had previously realized. That could mean the ideal interest rate to sustain growth is much closer to where it is now, and any rise could have unintended consequences. There’s still a lot of wariness around economic growth, which has been healthy for most of the year but shrank drastically in the first quarter. A bad holiday retail season could see that pattern repeat next year, with a chilling effect on job figures.
The Fed have a lot of interests to juggle when it comes to setting rates, but the current oil crash is a major one and getting bigger by the day. With the benchmark crude price now below $60 and still falling expect it to play a big part in whatever decision they finally make.

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Fed Ends QE

Quantitative easing, or QE, has been one of the most controversial policies of the US government since the financial crisis began in 2008. By artificially pumping money into the bonds market the Fed was able to stimulate demand in the US economy and help the stock markets recover from the worst effects of the crash, but the program has grown far beyond what was planned six years ago. There have now been three rounds of QE in total and between them they’ve sucked up $3.5 trillion, a lot more than anyone at the Fed expected when they started the process. The aim was to increase the money supply beyond what the devastated banks could manage, through buying up financial instruments – including colossal amounts of mortgage debt. The effect was to put more money in the hands of banks, businesses and consumers, and overall it’s sent several trillion dollars flowing through the economy.

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US Police State, Ferguson Edition

A few weeks ago we discussed the alarming changes in America’s police forces over the last few years. From approachable guardians of law and order too many of our cops seem to have been transformed into paramilitary assault squads festooned with DoD-surplus weapons and backed up by armored vehicles more suited to Fallujah than Ferguson. As recent events in Missouri show these new-model police don’t seem to be any better at preserving the peace than the old sort were. In fact all the signs are they’re a lot worse.

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US Financial Update

This week has been an alarming one for equities traders; after weeks of steady progress a selloff dramatically reversed the Dow Jones Industrial Average, wiping out all its gains for this year and leaving it in negative territory. For many investors this all came as a very unwelcome surprise – but some analysts say the signs were there for anyone who recognized them.

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Israel Flight Ban. What Next?

It’s been obvious since his first day in office that Barack Hussein Obama has a disturbing degree of sympathy for Muslims and Islam, but that’s really shown up this week. Right now the USA’s only real ally in the Middle East, Israel, is fighting back against an attack by the terrorist organization Hamas. In the past, whenever Israel has been threatened by groups bent on a new Holocaust, America has been ready and willing to stand shoulder to shoulder with them. That’s not what’s happening now.

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MH17 Shootdown

At 4:00am local time on September 1, 1983 Korean Airlines Flight 007 took off from Anchorage for the last leg of its flight from New York to Seoul. Not long into the flight an issue with the navigation system nudged the 747’s course to the west, finally bringing it into the Soviet Air Defense Identification Zone (ADIZ). Just under six hours after it left Anchorage a Soviet interceptor climbed into position behind it and fired a single missile, smashing the airliner and all 269 people on board into the icy water of the North Pacific.

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Dimona Attack

The most closely guarded building in Israel isn’t the Knesset building, the Western Wall or IDF headquarters. It’s not the prime minister’s house, the central bank or the home of the Mossad intelligence agency. In fact it’s a research institute at Dimona in the Negev desert. Dimona is where Israel designs and produces her ultimate deterrent, the striking force of nuclear-tipped missiles that guarantee the Jewish state’s ability to strike back against any new Holocaust. Because Israel’s best brains and most powerful weapons are there Dimona is ringed by the best technology the country can deploy and protected by an elite guard force of specially trained commandos. It’s almost immune to attack.

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The State Of the US Economy (7-8-2014)

It’s been a better week for the US dollar against the other major currencies. After a rocky start against the Euro that saw the dollar fall to €0.7302 it rallied well and climbed steadily for the rest of the period, ending at €0.736. That’s a modest gain but since Tuesday the trend has been in the right direction for importers and currency investors. A generally improved position led to a four-day rise on Bloomberg’s dollar spot index, the longest sustained climb since May. Overall the dollar climbed against 13 out of 16 major global currencies.

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