Presentation on theme: "Eye on Europe June 2012 Daryl Montgomery June 22, 2012 Copyright 2012, All Rights Reserved The contents of this presentation are not intended as a recommendation."— Presentation transcript:
Eye on Europe June 2012 Daryl Montgomery June 22, 2012 Copyright 2012, All Rights Reserved The contents of this presentation are not intended as a recommendation to buy or sell any security.
Europe on the Verge Debt/Banking Crisis will continue to grow this summer /fall and probably into next year. Crisis now centered in Spain; Italy will be next. Some rates in Germany, Denmark negative. IMF says Ireland will need a new bailout. Greece on hold, but expect trouble again soon. Socialists win in France. 5 month decline in PMI (data imply 0.6% decline in GDP for Q2). UK and 8 other EU countries in recession (Chinas PMI negative for 8 months).
Greek Election Greece has a parliamentary system. The govt can fall on a no confidence vote. Party Vote in last 3 elections: New Democracy 34% 19% 30% Syriza (far left) 5% 17% 27% Pasok 44% 13% 12% Golden Dawn (fascist) 0% 7% 7% Coalition formed with ND and Pasok (rivals). Could have been done after last election. First act was to ask for another bailout.
The Pain in Spain Spanish 10-years bonds highest yield: - May meeting: 6.35% - June meeting: 7.25% 1-year bill auction: 5.07% vs. 2.99% previous 100 billion bank bailout results in country downgrade from rating agencies (structured as debt to Spain): Moodys 1 notch above junk, Egan-Jones well into junk. Spain has $3 trillion in bank debt, 1 trillion GDP ESM & EFSF will buy 750 billion (in theory) in PIIGS bonds (decided at G20 meeting).
Spanish 10-year Bond Yields
Italy 10-year Bond Yield
Greek 10-year Bond Yields
Spain, Italy Yields Compared to Germany, US
How Future Problems Will be Handled
Monetary Policy Worldwide Central Bank Interest Rates: - U.S. and Japan close to 0.0% - UK at 0.5% - ECB at 1.0% Fed announces Operation Twist until December. Central bank balance sheets not growing that fast, dollar swaps have calmed down. BOE: more QE2 voted down yesterday! ECB balance sheet choppy. Fed balance sheet flat. U.S. Monetary Base pauses, money supply rising.
ECB Balance Sheet
BOE Balance Sheet
Fed Balance Sheet
Fed & ECB Balance Sheets vs S&P 500
Dollar Swap Lines Demand coming from EU and Japan.
U.S. Monetary Base (Indication of Future Inflation)
Money Supply M1
U.S. Economic Numbers U.S. Q3 GDP forecast 2.0% (vs. 1.9% in Q1) Employment: - May Jobs up 69,000, previous months revised downward; seasonal adjustments created better numbers in the winter. - Unemployment 8.2% (11/12% more reasonable). Retail Sales down 0.2% in May (with inflation). Industrial production down 0.1% in May Consumer Confidence: 64.9 ( > 90 is good)
This Years GDP Revisions Compared to Last Year Blue line original numbers. Red line revised numbers.
Consumer Confidence vs. Spending
National Debt: $15.8 trillion State and Local Debt $2.8 trillion Unfunded liabilities $119 trillion. Debt to GDP ratio >104% (actually much greater). Debt doesnt include Federal Reserve or Fannie Mae, Freddie Mac and FHA obligations. Debt Ceiling at $16.4 trillion. Will be hit before the election and become an issue. Federal budget deficit for 2012 at least $1.3 trillion. California at $17 billion Trade Deficit could reach $700 billion. U.S. Fiscal State