Ed’s Daily Notes for February 5th   5 comments

Fox News: Budget proposal won’t tame debt, interest would soon exceed military spending

President Obama’s latest budget proposal paints a troubling picture of America’s fiscal future.

Here’s a startling snapshot:

— By 2024, the total national debt would rise from $17.4 trillion to nearly $25 trillion.

— By 2020, U.S. taxpayers would be paying more in interest on the debt than they would on the entire Defense budget.

— By 2017, those interest payments would be bigger than the budget for Medicaid.

Despite Democratic claims that President Obama has tackled the deficit…

Wait! What fantasy land are Democrats living in? A $4 trillion budget is nobody’s definition of “tackling the deficit”. That isn’t a budget, it’s a letter to Santa Claus!

Bloomberg: ECB May Repeat Japan Mistake That Triggered Lost Decade

The central bank failed to sound a deflation alert.

“At present there is no reason to expect that overall prices will drop sharply and exert deflationary pressure on the entire economy,” policy makers wrote in their monthly report, signed off by the governor.

That governor was Yasuo Matsushita and the report was published in January 1998. Within six months, Japan’s consumer prices excluding food began falling in a trend that would mark the next 15 years.

The concern now for economists from Barclays Plc to Morgan Stanley and JPMorgan Chase & Co. is that European Central Bank President Mario Draghi risks making the same mistake as the Bank of Japan — publicly playing down a deflation threat — and ultimately may have to introduce quantitative easing.

Among a series of similarities between 1990s Japan and modern-day Europe: Weak economic expansion after a series of shocks? Tick. A reluctance by banks to lend? Tick. A rising exchange rate? Tick. A debatable monetary-policy stance? Tick.

“The risk of a Japanification of the euro area is high and rising,” said Joachim Fels, chief international economist at Morgan Stanley in London, who puts the odds of a price decline at about 35 percent. “Deflation wasn’t on Japan’s radar either.”

I won’t go so far as to say “sell Europe”. But I will say that European exposure should be minimal in any portfolio. For me, my Banco Santander (SAN) is plenty. In fact, this is a “kind of good news” for SAN, since they pay their dividends in euros. If the euro does deflate, that means it will likely be increasing in value against dollars (dependent on what the dollar’s value does), making the dividend go up even if SAN doesn’t intentionally raise it. Obviously, the downside is a deflationary environment could be bad for SAN’s principal value, but it’s a fair risk to take because of the international nature of SAN.


Posted March 5, 2014 by edmcgon in Economy, News, Politics, Stocks

5 responses to “Ed’s Daily Notes for February 5th

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  1. I found that article to be pretty worthless. It did not say what the current ratio is. While the headline commented that it is the highest since 2008, it also said the ratio was lower than average at then end of 2007. Nor did they show any correlation between the ratios and predictability with bull/bear markets (except a couple examples).

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