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Weekend Videos

Just got back to blogging late Friday evening. Had to entertain my relatives from Canada who are in. Like the Irish a couple of weeks ago, they shopped liked it was Christmas in July to take advantage of the weaker dollar. I know one thing for sure. Foreigners sure love our “strong dollar” policy…

“Oil Crisis”
Becky Quick
CNBC, July 18, 2008

From the CNBC website:

The House may vote on releasing oil from the strategic petroleum reserve, with Senate Majority Leader Harry Reid and CNBC’s Becky Quick.

You can view the 3 minute 18 second video here.

Note to Congress- there is no quick-fix for the energy crisis. I’m starting to consider donating funds to Jim Puplava’s proposed program, “No Congressman Left Behind.”

Apparently, it’s a non-issue now anyway, seeing that after oil prices suffered their biggest weekly drop ever, Yahoo! Finance asks tonight, “So is it time to declare the energy bubble popped?” By the way, the Associated Press is reporting that terrorists are trying to enter the United States with European Union passports. Good thing Congress wants to deplete oil stockpiles meant for a national emergency. Like a major terrorist attack, for example. If you think 9/11 was a one-off event, I have a bridge that spans the East River out in NYC that I can sell you for a really good price…

“Is government clueless about economy”
Jim Jubak
MSN Money, July 18, 2008

From the MSN Money website:

Washington is talking us into a deeper crisis. Neither the President nor Congress gets it: When you owe as much as the US does, keeping your overseas creditors happy is the most important thing, says Jim Jubak.

You can view the 4 minute 7 second video here.

Jubak said in the segment:

The Saudi government has gone into serious discussions about taking its currency off the dollar peg.

“Christmas In July”
The Dandy Warhols, “Little Drummer Boy” (1995)
YouTube Video Link

How Irish Tourists Saved The U.S. Economy

“There’s someone I want you to meet this weekend,” my girlfriend told me in June. Her relatives were coming in from Ireland for a family reunion in Chicago. “He’s travelling with his wife and her sisters. Maybe you guys could hang out and talk some football [soccer].” I met Connor that Friday night at the Water Tower Place in Chicago (from what I could understand, he wasn’t married, yet he did travel with a young lady and her sisters). While the conversation revolved mostly around the “beautiful game” and my plans for the “Great Escape” the next day to watch some of Euro 2008, he happened to mention that since he’d been in United States, he and the “Walsh girls,” as they came to be known by reunion participants, had shopped, shopped, and shopped some more. It seemed that every time I asked about Connor’s whereabouts, “he and the Walsh girls went shopping” was the response I got. On Sunday, the reunion shifted to Arlington Park Racetrack for thoroughbred racing. I saw the Irishman at the start of the day after he had just won a race, but didn’t see him later on. More shopping, perhaps? In the days that followed, my girlfriend joked to her sister that the Walsh girls single-handedly saved the U.S. economy. She also mentioned that she felt bad for Connor, as did I, as he was forced to endure the seemingly-endless spending sprees at the Chicagoland malls. However, this remorse was short-lived when her sister informed her that Connor bought just as much stuff as the Walsh girls did.

Robin Sparkles, “Let’s Go To The Mall”
YouTube Video Link

Anyway, I read a blog post by CNN’s Jack Cafferty earlier today that reminded me of our “economic rescue” by these visiting tourists from the Emerald Isle. Cafferty provides commentary and insight for CNN’s political program “The Situation Room.” He wrote:

The U.S. dollar just isn’t what it used to be. In fact, the dollar has been declining in value for 6 years now against other major currencies.

And, if you look around, it’s hard not to see the signs: hordes of vacationing Europeans are picking up bargains in the U.S., while Americans traveling overseas are hit hard with sticker shock. Canadians now flock here for shopping bargains, instead of the opposite. A Belgian company is attempting a hostile takeover of Anheuser-Busch, the largest brewer in the U.S. If the takeover goes through, it might be the first of many foreign takeovers of American companies.

While everything made in the U.S. is so much cheaper to foreigners, Americans are paying more for imported goods, while most are also grappling with rising food and energy costs. Since oil is bought and sold in dollars, the devalued dollar makes gasoline that much more expensive for Americans.

Some even suggest the continued decline of the dollar could one day lead to it being replaced by the Euro as the so-called “primary reserve” currency. There are stores right here in New York that now accept euros as payment.

Meanwhile, the message from Washington doesn’t seem to change much. President Bush has often talked about his support for a “strong dollar”, just last week saying “We’re strong-dollar people in this administration.” Really, Mr. President? You have presided over the most precipitous drop in the value of our currency in our nation’s history.

Source:

“Concern about sharp decline of dollar?”
Jack Cafferty
CNNPolitics.com, July 2, 2008

Banks May Write Down Additional $300 Billion

Yesterday, global strategy consulting firm Oliver Wyman said in a new study that an additional $300 billion in write-downs related to the U.S. subprime mortgage meltdown may be announced by banks before the crisis is over. Back on January 18 I noted that write-downs had already surpassed $100 billion. In a press release picked up by Yahoo! Finance yesterday, John Colas, Managing Director and head of the North American Corporate Strategy Practice at Oliver Wyman, said:

The credit crisis is unlikely to resolve itself before the end of this year. We also see strong likelihood of price corrections in emerging markets and this combination will extend the value loss and turbulence witnessed in 2007.

The management consultancy said in its “State of the Financial Services Industry” report:

We expect a stormy 2008. While governments, central banks and regulators scramble to address the aftermath of the sub-prime fallout, several other crises are mounting.

These other disruptions include:
• A significant slowdown in European real estate markets, especially in Spain and the UK
• The continued weakening of the U.S. dollar
• A collapse in commodity prices
• A fall in Chinese and Indian stocks

The financial services industry should expect “turbulent conditions for 2008 and beyond.” Oliver Wyman predicted that American banks are especially at risk. From its 2008 report:

North American financial services firms will have a tough year. Market uncertainty, combined with further write-downs and expected home-price and loan-volume declines, implies more squeezes on earnings. Banks most likely will have to increase loan-loss reserves.

In North America last year, the financial sector lost 13% in market value, second only to Japan. In contrast to the United States, the value of financial companies in Canada grew 12%.

For the first time since 2002, the global market value of the industry fell, according to the annual report. Controlling for exchange rates, the industry lost 7% of its market value last year. While $300 to $400 billion was gained in red-hot emerging markets last year, financial institutions lost more than $1 trillion in mature economies.

Stock Markets Fall Around The Globe

Returning to work on Monday is hardly ever fun. Losing a ton of money makes it even worse. While American financial markets were closed in remembrance of Martin Luther King, Jr., stock markets around the world were being hammered.

Indexes in Japan, China, Hong Kong, India, South Korea, and Singapore fell at least 3%. Indian stocks were punished severely, dropping nearly 11% at one point in the trading session before finishing off more than 7%. The Australian and New Zealand stock markets have now experienced losing sessions for 11 and 13 days, respectively.

Photo from DailyHaHa.com

The carnage in equities spread to Europe. The pan-European Dow Jones Stoxx 600 index ended down 5.4% at 309.67. At one point earlier in the trading session, the index earlier reached a low of 308.69, which was the largest one-day percentage drop since the September 11 terrorist attacks. The index has lost around 23% from its mid-2007 high of 400.99. The French CAC-40 index ended the day down 6.8% to 4,744.45. The German DAX 30 index was down 7.2% to 790.19. The U.K. FTSE 100 index declined 5.5% to 5,578.20.

Making its way to the Americas, the global sell-off spread to Canada and Latin America. The S&P/Toronto Stock Exchange composite index sank 4.7% to end the day at 12,132.14. Brazil’s Bovespa fell 6.6% to 53.694, and Mexico’s Bolsa index declined 4.8% to 25,444.

According to MarketWatch today, losses from financials were largely to blame after U.S. bond insurers came under attack by a ratings agency, and the proposed economic stimulus plan from President Bush failed to convince investors that it would be enough to prevent a recession in the United States. The stock sell-off occurred after the worst weekly performance on Wall Street for five years.

All eyes are now turned to Wall Street, which resumes trading Tuesday. As of this afternoon, the Dow Jones Industrial Average futures contract was down 520 points to 11,586, the Nasdaq futures were down 76.25 to 1,773.25, and the Standard & Poor’s 500 futures had fallen 60.3 to 1,265. According to MarketWatch:

If futures contracts traded on a day when U.S. stocks weren’t even due to open are anything near accurate, then markets will be in for a major decline on Tuesday, with concerns about bond insurers and the health of financial institutions dragging markets lower.

Conan O’Brien Helps ‘Protect’ Canada

After spending this entire Friday morning doing research and preparing for future Boom2Bust.com posts, I figured it’s time to enjoy a video this afternoon.

Continuing yesterday’s theme of Canada-U.S. relations, watch as American comedian Conan O’Brien dons the “uniform” of a Mountie and helps protect Canada’s border. The video has a run time of just over 7 minutes and a high-speed internet connection is recommended. Hilarious!

via videosift.com

Canada Prepared For U.S. Recession

Tonight I came across an article in the National Post (Canada) entitled “Riding Out Global Gloom,” which claims that Canada is well-positioned to withstand a U.S. recession. According to Jacqueline Thorpe, the author of the piece:

The economic gloom deepened yesterday as the United Nations warned of the risk of worldwide recession, Goldman Sachs became the latest observer to forecast a U.S. contraction, shares of European retailers plummeted on fears a consumer retrenchment would cross the Atlantic, and safe-haven gold touched another record high of US$891.40 an ounce.

But amid the pessimism one economic stalwart stands out: Canada.

Ms. Thorpe referenced a Merrill Lynch forecast:

In an indication of just what this country has going for it, the same investment bank that said on Monday the United States was already in recession, predicted yesterday Canada would pull through with “the best relative performance … in modern times.”

David Wolf, Merrill Lynch’s Canadian analyst, forecast Canadian real GDP would trough at 1.3% year-over-year in the third quarter, down from 2.9% in the fourth quarter of 2007 and a nearby peak of 3.6% in the first quarter of 2006.

In the past, the Canadian economy fell victim to the same economic ills as its neighbor to the south:

In the 2001 U.S. recession by contrast, Canadian growth fell to just 0.7% from the cyclical peak of 5.9% in the fourth quarter of 1999. And history has been much less kind, with Canada suffering interminably during the early 1990s recession as the U.S. economy bounced back.

Indeed, in the six previous recessions of the past forty years, Canada has followed suit four times (1969-70 and 2001 being the exceptions), Mr. Wolf said. The average peak-to-trough drop in real GDP was 6.7 percentage points.

The Joke’s On US
Courtesy of BustedTees.com

Why is Canada better off this time around? The Merrill Lynch analyst points out that the Canadian housing market is healthier than its neighbor’s, “as activity and prices are still rising and, crucially, owner’s equity, which could be tapped for spending, exceeding 70% as opposed to around 50% in the United States.” In addition, while employment and wage growth would probably slow, Canadian consumers are in better shape, with Wolf predicting 3.9% consumer spending growth in 2008. Avery Shenfeld, senior economist at CIBC World Markets, told the Post that:

We have higher levels of employment; we have rising wage rates, rising house prices, so our consumer sector has no reason to do anything but shop.

Shenfeld is forecasting 2.7% growth for Canada this year.

On the flip-side, the potential for flattening commodity prices may affect Canadian exports, as will the strong Canadian dollar. Yet, the loonie’s strength will keep import prices cheap for the Canadian consumer, and “will keep a lid on inflation, giving the Bank of Canada the wiggle room it needs to cut interest rates,” according to the Ontario-based publication. Merrill Lynch’s Wolf predicts that Canada will move to a current account deficit of $10 billion in 2009 from a $14 billion surplus in 2007 as imports surge.