Saturday, September 5, 2009
G20... The Spanish Armada...College Football
This weekend's G20 Summit will meet a background of recovery. After all, world markets have rallied off lows, unemployment in the U.S. seems to have peaked, and many are tauting the effects of economic stimulus. Not completely convinced that stimulus is completely working, leaders will be a bit squeamish to turn off the spigot as of yet. Still though, there will be mild cause for celebration.
However, the collective group will address bank capital requirements just in case this "era of good feeling" wears off as soon as the stimulus money is gone. Lena Komileva, head of G7 market economics at Tullett Prebon, said officials will unite over the need to keep fiscal and monetary stimulus going for now, and "coordinate exit strategies later." Some media reports indicated there is friction among officials on those points.
"Amid ongoing uncertainty about the sustainability of the current concerted global upturn, focus will revolve around proposals for higher capital standards for banks and curbs on executive pay and bonuses." (1)
One needs only to look towards Spain, the sick man of Europe for a dose of economic reality. Spain has seen wave after wve of stimulus packages that are designed to build bank credit, improve infrastructure, and revive their economy. However, it appears that nothing seems to work unless you are a financier playing the market. As one blurb from Marketwatch suggested "Judging by the amount of road work clogging up Spain's capital city currently, with Madrid practically being unearthed, you'd be forgiven for thinking you were in the midst of a dynamic and growing economy.
However, that's anything but the case. Public works programs have been going on across Spain under the government's so-called "PlanE" bid to stimulate the bleakest economy in Europe, where the jobless rate hit 18.5% in July and is expected to top 20% in 2010 as a decade of growth driven by the now-collapsed housing market painfully unwinds.
Spain is in its fourth straight quarter of recession, with output dropping a sharper-than-expected 1% in the second quarter. Future growth prognosis range from cautiously optimistic at Moody's Investors Service to the downright catastrophic: "Spain is a disaster waiting to happen," says a note from Variant Perception, an institutional research house based in London." (2)
Spain has not been right since 1588 when the Spanish Aramda attempted to invade England and replace Elizabeth I. A great empire ebbed away until even the United States in its colonial period whisked away Cuba and the Phillipenes. With 18% unemployment, see Spain for what it is... a patient on life support.
Could the U.S. be in the same boat? Probably not. However, let's not kid ourselves that everything is peaches and cream as well. Place new capital requirements on banks, and I can almost guarantee that a tightening in credit will continue. Yes, enjoy the enthusiasm of this market... date it... milk it for all that it is worth... but do not marry it.
Conn. -4 to Ohio
Army +5.5 to E. Michigan
Notre Dame -15 to Nevada