Wall Street Journal (August 8)
The sky is not falling according to Burton G. Malkiel, a former Princeton professor and author of “A Random Walk Down Wall Street.” In the U.S., “the headwinds restraining the economy are many” and further complications arise because “Europe has not really fixed its economic problems.” Still, Malkiel doesn’t believe this is a good time to sell. Valuations are likely to climb in the future. Stocks are currently cheap in terms of P/E ratios and the results of many U.S. corporations are driven less by what happens in Japan, Europe and the U.S., than by sales in emerging markets. “My advice for investors is to stay the course.”
Barron’s (August 8)
S&P diverted attention from the real problems facing the global economy. The U.S. debt “is perhaps the least of the clear-and-present problems besetting the world’s economy.” Bigger problems include the soft U.S. economy, the European debt crisis and a growing bubble in China linked to local debt, “which at $1.7 trillion equals 27% of that nation’s 2010 gross domestic product.” As for the U.S. downgrade, “the U.S. government may be the world’s largest debtor, but its liabilities still are the safest assets in the world.”
Tags: Chinese debt, Europe, Global economy, S&P downgrade, U.S. debt
New York Times (August 7)
There’s a sensible way to quickly cut $100 billion from the budget. The Times points to “two obvious and long overdue cuts: ending the web of tax breaks enjoyed by the rolling-in-dough oil industry and terminating the ethanol subsidy.” Over 10 years, eliminating these tax breaks “would save up to $100 billion…without hurting the poor and middle class or slowing the economy.”
USA Today (August 7)
“The United States’ unquestioned AAA credit rating is gone, for the first time ever.” S&P’s downgrade was not a surprise, instead it “merely confirmed what anyone with their eyes open for the past decade or two already knew: The U.S. has a huge and growing debt problem that it is resolutely unwilling to solve.” USA Today points out one silver lining. The U.S. is not incapable of solving this problem, merely unwilling. Another silver lining is that two major agencies (Moody’s and Fitch) still assign the highest rating to U.S. debt, which continues to be highly sought by investors worldwide.
The Economist (August 6)
“Emerging economies now have greater heft on many measures than developed ones.” The Economist takes a look and finds some surprises. “The combined output of the developing economies accounted for 38% of world GDP (at market exchange rates) in 2010, twice its share in 1990…. it could exceed the developed world’s within seven years. If GDP is instead measured at purchasing-power parity, which takes account of the fact that lower prices in poorer countries boost real spending power, emerging economies overtook the developed world in 2008 and are likely to reach 54% of world GDP this year. Even more impressive, they accounted for three-quarters of global real GDP growth over the past decade.”
“Emerging economies now have greater heft on many measures than developed ones.” The Economist takes a look at emerging economies and finds some surprises. “The combined output of the developing economies accounted for 38% of world GDP (at market exchange rates) in 2010, twice its share in 1990…. it could exceed the developed world’s within seven years. If GDP is instead measured at purchasing-power parity, which takes account of the fact that lower prices in poorer countries boost real spending power, emerging economies overtook the developed world in 2008 and are likely to reach 54% of world GDP this year. Even more impressive, they accounted for three-quarters of global real GDP growth over the past decade.”
Wall Street Journal (August 5)
“They say there’s always a silver lining. Yesterday there wasn’t.” Worldwide, markets were battered and a common “theme among the wreckage was a generalized loss of confidence in the policy-making role of governments, here and in Europe.” More specifically, the Journal points to the main problem. “The economies of Europe and the United States have arrived at the moment when they no longer have any conceivable hope of being able to pay for the huge public commitments they’ve amassed the past 40 years.”
“They say there’s always a silver lining. Yesterday there wasn’t.” Worldwide, markets were battered and a common “theme among the wreckage was a generalized loss of confidence in the policy-making role of governments, here and in Europe.” More specifically, the Journal points to the main problem. “The economies of Europe and the United States have arrived at the moment when they no longer have any conceivable hope of being able to pay for the huge public commitments they’ve amassed the past 40 years.”
Tags: Confidence, Government, Markets, U.S., UK
Reuters (August 3)
Approximately 35% of companies in the S&P500 have used the same audit firm for 25 years or more. In fact, “Goldman Sachs has stuck with the same auditing firm since 1926, Coca Cola since 1921, General Electric since 1909 and Procter & Gamble since 1890.” Reformers argue that rotation should be required to increase scrutiny, but many oppose such a requirement.
Tags: Audit firms, Coca Cola, GE, Goldman Sachs, P&G, Rotation, S&P500, Scrutiny
The Daily Telegraph (August 3)
In the UK, “unemployment will be permanently higher than its pre-recession level once the economy is back to full strength due to the ‘scar’ left by the financial crisis.” Full employment will now be achieved when unemployment reaches 6.2%. Before the crisis, this was 5.25%. Findings by the respected National Institute of Economic & Social Research (NIESR) suggest “an increase of that size would put 300,000 more people permanently on the dole.”
Tags: Financial Criss, Full employment, UK, Unemployment
Institutional Investor (August 2)
“What do we mean when we say socially responsible investing?” Environmental, social and corporate governance (ESG) investing has been growing in popularity, but there is little agreement over how the social aspect should be reported by companies. There is, however, a push for companies to “do a better job of both considering and reporting on their social impacts…. less emphasis should be put on social outputs (for example, the number of bed nets provided to prevent malaria), and more on social impacts (the result or change that is a consequence of the outcome).” Social reporting is still in its infancy, much as environmental reporting was decades ago. In the future, it will be “important for companies to move the social impacts discussion up several notches to the board level, so that it can permeate all aspects of operations.”
Tags: Corporate boards, ESG, Social impacts, Social reporting, SRI
Boston Globe (August 2)
In the U.S., Republicans and Democrats have been battling down to the wire over a debt deal. The final deal, “like all compromises…is not a win for either side.” It could have been better, especially if it created additional revenue, but it did avoid a disastrous default. The debt deal also has some positive aspects. The cuts are “spread across federal programs—including defense.” Moreover, the deal “delays any serious cuts for two years, to give the economy more time to recover.”
In the U.S., Republicans and Democrats have been battling down to the wire over a debt deal. The final deal, “like all compromises…is not a win for either side.” It could have been better, especially if it created additional revenue, but it did avoid a disastrous default. The debt deal also has some positive aspects. The cuts are “spread across federal programs—including defense.” Moreover, the deal “delays any serious cuts for two years, to give the economy more time to recover.”
Tags: Compromise, Congress, Debt, Democrats, Economy, Republicans, U.S.
