Liberal Media Exposed

Monday, March 27, 2017

US Financial Updates

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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Financial News

One of the biggest financial worries right now is the slow pace of the Eurozone economy, fueling fears of a new recession and even possibly another debt crisis. That’s been overshadowed in the last few days though, as the equities markets unexpectedly slumped. For the past few weeks stocks, including the headline FTSE 100 index, have been turning in a reasonable enough performance even if it wasn’t anything spectacular. That looks like it might be changing, which is sure to stoke up the worries over the way Europe’s heading. That’s obviously a worry for US firms too, because Europe is the USA’s biggest export market, so we can expect a few jitters on the Dow Jones if the overseas markets don’t recover quickly.
The latest glitch was caused by investors dumping shares in commodities. The big financial story of late 2914 has been the sustained drop in oil prices, with Brent crude now well below $70 a barrel and still heading down. The reason for the fall is simple – OPEC haven’t cut their production target despite huge increases in US domestic extraction – but the net result is oil below its five-year low and still in free fall. The lower costs imposed by cheap oil are good news for the economy, but it makes oil a bad investment. It’s also depressed shares across the whole energy sector with exploration companies hit particularly hard – some of them lost close to 8 percent in a day and a half.
Meanwhile precious metals are having a rough patch, with all of the big five trading at well below the year’s peak and a couple pushing through five-year lows. Usually falling metals prices are a sign of a buoyant stock market, with traders moving out of safe havens to take advantage of rising prices, but this time commodities seem to be dragging the major indexes down with them. Last week’s Swiss referendum rejecting higher national gold reserves pushed the spot price down 2.1 percent and the FTSE 100 quickly followed.
Base metals are down as well, thanks mainly to slower than expected growth in China’s manufacturing sector. China is now the world’s largest market for raw materials and any weakness in their figures has an instant effect on prices.  That’s good news for other commodity consumers of course, but not if it creates uncertainty. This looks to be exactly what’s happening.
Probably the most worrying aspect for investors is the oil slump. Growing fears of sovereign default in oil-exporting nations are adding to worries already stoked by the problems in Europe, and with memories of 2008 still raw that has the potential to push stocks down sharply. There are exceptions though. Low crude prices, especially Brent, should lead to lower fuel prices in the short term. That’s already helping some stocks buck the trend, with airlines being the most noticeable. Lower fuel costs aren’t likely to cut fares, so airline profitability is looking healthy. International Airlines Group is up 2 percent over the last week with other operators also posting gains. That’s probably where the smart money is right now.

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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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Inflation And The Cost Of Living In The US

Economists have been reporting low rates of inflation all year – the annualized rate has been below 2.1 percent right through 2014, and has even dipped below 1.2 percent – but for many Americans it doesn’t feel that way. If inflation is so low, why is it a basket of groceries seems to cost so much more than last year, and why is there never any money left at the end of the month? The answer is that inflation isn’t really a good measure of what’s happening to the cost of living. To understand what’s really going on we need to look in a bit more detail.

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US Financial News 10-13-2014

It looks like we could be seeing a major direction change in the markets right now. For the past couple of months equities have been gaining strength, pushed up by generally positive news about the US economy. The past week has shown some hints that might be changing, though. The Dow Jones Industrial Average started the week with a series of rapid up and down movements before settling on down as its direction of choice, whereas the FTSE 100 just sank steadily. The result was a significant move from equities to gold.

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US Financial News 10-6-2014

Anyone with an interest in finance keeps track of the growth and unemployment figures, and according to those the US economy is finally recovering from the damage done by the 2008 banking crisis. Job creation figures are especially reassuring with more than 200,000 new jobs created every month in the year to date. As for growth the picture isn’t quite as good, with the economy actually shrinking alarmingly in the first quarter, but the trend is now heading in the right direction again.

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US Financial Update 9-17-2014

It’s a long time since Sterling gave up its place as the world’s leading currency to the US dollar, but it’s still the third most held reserve currency round the world and the fourth most traded on the currency markets, after the dollar, Euro and Yen. That means the performance of the pound can still have a big effect on financial markets, and thanks to the close links between the US and British economies that can have implications at home.

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