Factory activity rose in the U.S., China and Germany in January. However, Euro zone activity contracted for the sixth month, though the rate improved from December. Along this line, UPS noted that shipments in the U.S. are rising, but are sluggish if not weakening in Europe and Asia. 

It is being reported that Greece is nearing a long-delayed deal on its debt, and in this deal bondholders could see losses of 70%. Another EU member, Portugal, is next in line as it relates to debt fears. In the past week, Portuguese’ sovereign debt / government bonds were yielding over 21% and 16% for two and ten-year, respectively. So it is obvious that these fears are not unfounded, and EU members are becoming even more tightly intertwined economically and politically in their attempts to address these problems long-term.

The situation is becoming dire, and Ian Cheshire’s CEO of the U.K.-based Kingfisher PLC, the world’s third-largest home-improvement group, noted in the Wall Street Journal this week that it has come to the point that EU leaders / politicians need to fix Europe or else! Read more

Some positive underpinnings that may be helping the stock market’s uptrend thus far this year:

• The U.S. Labor Department announced this week that food and energy costs pushed down U.S. wholesale prices (the producer-price index, which measures what manufacturers and wholesalers pay for finished goods) in December, providing some relief for businesses hit by higher costs of other goods. In addition, there was a 0.4% rise in industrial production in December reflecting strength in manufacturing.
• Another positive is an article in today’s Wall Street Journal that spending on home maintenance by homeowners and landlords is forecasted to have increased in 2011 and will go up again in 2012. That would market the first year since 2006 that this has occurred.
• Right or wrong, the Federal Reserve appears to be ready to put additional steps in place to increase monetary easing in the upcoming months depending on several economic scenarios. As controversial as these steps have been, the stock market has reacted positively each time.
• Locally, I attended a bank advisory board meeting last evening. In attendance were several business owners of firms of various sizes. It was nice to hear one professional with a manufacturing firm state that his company is starting to see a pick up in orders. His customers are replenishing their inventory or are more confident about sales in the coming months.

In this same meeting, a local attorney, well-versed in mergers and acquisitions, stated that he has seen an increase in activity. And the bankers themselves had some positive comments regarding loan demand. Read more

No tabloid predictions here 

It’s the start of a new year and the best part of it has been the weather. It’s been in the 60s (degrees that is), which is extraordinarily balmy for the KC Metro area in January. 

Regarding the investment and economic climate, well that forecast is cloudier. It appears that optimism is trying to shine through in 2012. Unemployment is trending down and jobs are being created, even though both are lagging on a historical basis. 

On the other hand, this week, Alcoa, the world’s biggest aluminum company, announced that it is cutting its capacity by 12% due to economic slowdown and uncertainty around the globe. In addition, the Wall Street Journal reported that retail sales during the Christmas season were less robust than expected, and some analysts are forecasting less sluggish earnings in 2012 for companies in the S&P 500.  Read more

In 2011, global markets gyrated violently up and down based upon the news of the day.  That being said, overall U.S. stock markets have been relatively insulated compared to the rest of the world. 

Year-to-date, as of the market close yesterday, the combined average of the Dow Jones Industrials, S&P 500 and NASDAQ was down 1.933%.  This compares quite favorably to the Dow Jones Global Index, which is comprised of 50 countries (including the U.S), being down 12.90%, and the Dow Jones Global Index-ex U.S. (excluding the U.S.) down 18.9%, for the same time period. 

Another example of how the U.S. is not experiencing the same market traumas as other countries would be yesterday’s bond auctions.  The five-year Italian government bonds were issued at 6.47%, while 30-year U.S. government bonds were issued at 2.89%.  To put this into perspective, a 30-year $150,000 mortgage at the previously mentioned Italian bond rate would result in a monthly payment of $945.10 versus $623.50 at the U.S. rate.  Now you can see why high interest rates are crushing European governments’ finances, especially when they have to refinance hundreds of billions, if not trillions of debt each year.

To say that we in the U.S. have been sheltered from what is occurring in other parts of the world is an understatement.  Also, it is an omen of what fiscal steps we need to take here in the U.S. to avoid the same predicament.  Read more

A couple of economic developments this week helped global stock markets end November on a good note, and here in the U.S., we had the largest gain since March 2009. 

• Central banks around the globe announced a coordinated plan to make dollar funding cheaper for European banks (i.e., they are giving European banks much needed liquidity and at a very reduced rate).
• There were separate reports this regarding the unemployment rate in the U.S., which indicated it may be declining.  This is great news; however, part of this decline is due to fewer people looking for jobs (i.e., they have just given up).
• In addition, the European Central Bank and our Federal Reserve have both pledged additional steps if needed to stabilize world financial markets.  Many here in the U.S. are predicting the Fed will implement another quantitative easing (i.e.,QE3), which potentially would have a positive impact on the stock market and economy.
• China indicated it would loosen monetary policy by lowering the reserve requirement ratio for banks to boost its slowing economy (i.e., they are putting measures in place to encourage banks to loan money). 

There are two sides to above story 

Various central banks around the globe, including our Federal Reserve, came together to provide liquidity to European banks that are suffering as a result of European Union nations’ debt problems, and the losses they have already incurred or will be taking from various EU nations defaulting on a portion of their debts. Read more

For a video version of this commentary go to:

http://iia-kc.com/blog/media/video_commentary_111811/

Europe continues to have budget problems and concerns regarding all current members remaining in the European Union, and the potential impact on global economies and stock and bond markets is not subsiding. 

Europe is increasingly serving as a counter weight to a growing stream of better U.S. economic news which are:   

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The European Union (EU) and various international financial organizations have been working feverishly to help Greece avoid a default on its sovereign debt.  An agreement was reached that Greek bondholders would take a haircut and eventually only receive 50 cents on the dollar.  Within days the Greek Prime Minister, Mr. George Papandreou, stated that he wanted to put the agreement up for a vote of the Greek citizenry.  He has since backed down on this demand, but not after causing global financial indigestion.  

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I can understand and empathize with some of the Occupy Wall Street protestors, in that, they are unemployed and want a job.  Especially those with families or just graduated with student loan payments.  However, there is a fringe element that is completely out of touch with reality.  For example, I recently saw a picture this week in the Wall Street Journal of a protestor holding a sign that read, “I was promised the American Dream.”  Along this line, there is a growing belief that home mortgages should be rewritten downward for borrowers who are underwater (i.e., they owe more than their home is worth) and/or can’t make their payments.  And now a new demand is being promoted that college tuition should be free for some and that student loans be forgiven, especially in lieu of the fact that student loan debt has doubled over the last five years.  Personally, I was shocked to find out that Americans now owe more on student loans than they do on credit cards. 

Well, let’s take a quick history lesson.  Do you recognize the following quote?   “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights that among these are Life, Liberty and the pursuit of Happiness”

It is from the U.S. Bill of Rights.  

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It feels a little surreal that Steve Jobs, the founder of Apple and CEO of one the largest and most innovative companies in the world, has passed away.  Especially since prior to knowing of his passing, I mentioned Apple in the fourth paragraph of the next session. 

Mr. Jobs may not have been an ideal boss or very tactful; however, he was a visionary who created hundreds of thousands of jobs and billions of dollars of profits for investors from a whole host of i-products.  Mr. Jobs and Apple will forever be intertwined, and ironically all this success was the result of a strong and determined leader of a very cohesive team, whose most successful products all begin with i.  Any of you who played sports have heard the old adage, “there is no I in TEAM,” well Mr. Jobs proved that wrong.  Even though I don’t own any Apple products, I feel saddened for the loss of a visionary like Mr. Jobs.  I sincerely hope that somewhere out there are individuals who have been inspired by what he has done and take the risk and follow his “outside the box” thinking in areas that may benefit our lives. 

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The European Union (EU) is struggling in the face of several member nations facing huge budget deficits and the potential of not being able to pay all their respective debts.  As a result, several of the nations are enacting austerity programs; unfortunately public protests and at times riots have been the response to such actions.  Concurrently, several central banks from around the globe have pledged support in some form or another.  Even though there are a plethora of opinions of what the eventual outcome will be, no one knows for sure.  In the meantime we are getting a true taste of what it means to have a global economy.  

There are pros and cons as countries around the globe become more economically aligned; however, we are currently seeing the cons.  As the EU struggles with sovereign debt flu, the U.S. is starting to catch an economic cold.  As I noted before, no one knows for sure how this will turn out, and we may find some short-term relief as the EU tries various monetary medicines, but I believe any true solution will be tough and take years to get its sickliest of members healthy again.    

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