Alan Greenspan: The Eurozone is Set to Fail

Alan Greenspan: The Eurozone is Set to Fail

by Jason Jenkins, Investment U Research
Tuesday, November 1, 2011

In a recent interview with CNBC, former Fed Chairman Alan Greenspan stated that the Eurozone is doomed to fail because the divide between the northern and southern countries is just too great.

The statement is based upon the fundamental make-up of Eurozone participants and that they will never be able to work together. There was an expectation during its creation in 1999 that the southern members would behave just as those countries in the north. His example, the Italians would behave just like the Germans. The exact opposite has happened.

What came about was a system where the northern countries began subsidizing the excess consumption of those in the south. Throw in a global economic downturn and then all of a sudden you have a sovereign debt crisis.

Greenspan predicts that as the fiscal problems of Portugal, Spain, Italy and Greece grow worse, the influx of goods from Germany and France will dry up. When this happens, the standard of living for the southern Eurozone members will decline.

He added: “The effect of the divergent cultures in the Eurozone has been grossly underestimated… The only way to have several currencies from divergent nations lumped together is if they are culturally close, such as Germany, the Netherlands and Austria. If they aren’t, it simply can’t continue to work.”

The U.S. Has Grave but Solvable Debt Issues

Greenspan feels that, to a very large extent, what’s driving the United States at the moment is Europe due to the fact that there’s one single integrated global stock market.

As for our debt problems at home, Greenspan said it will be difficult to get any sense of consensus on Capitol Hill to solve problems. The current political environment is the most polarized he has seen since the beginning of his career.

A necessity in solving the U.S. debt would be to address the revenue aspect of the budget. He said we can accomplish this by eliminating tax breaks, loopholes and other measures that drive down federal revenue.

Furthermore, he went on to say, “Much fiscal policy is implemented, not through spending increases, but through tax credits and other so-called ‘tax expenditures’… The markets should respond to them as they do spending cuts, with little contraction in economic activity. We thus could get a very large positive impact on the deficit from such reductions, with minimum negative impact on the economy.”

Greenspan gave his support to the President’s Simpson-Bowles Commission deficit reduction plan that was presented months ago to help rein in federal spending and boost revenue, but that plan was met with stiff resistance from lawmakers on both sides of the aisle in Congress.

The former Fed boss said, however, “the presumption we can rein in our budget deficits without inflicting some fiscal pain is utterly unrealistic.”

Greenspan’s Assessment is Playing Out As We Speak

The take is that the euro cannot survive because of the differences between Eurozone members. Eurozone dysfunction has shown itself in the negotiating processes to save Greece. There was no actual restructuring of their institutions, which is needed going forward. Expect more problems for the Eurozone and the euro in the very near future when Italy’s well-being is on the table – and there are no easy fixes for the EU’s third-largest economy.

Good investing,

Jason Jenkins

Article by Investment U

A Jobs Plan That Makes Sense… And It’s Already Working

A Jobs Plan That Makes Sense… And It’s Already Working

by David Fessler, Investment U Senior Analyst
Tuesday, November 1, 2011

President Obama is great at making speeches.

You’ll get no argument from most Democrats and even some Republicans. Most of the time though, he’s talking about issues that have been problems for weeks or months.

But there’s been little in the way of action. The Administration and Washington’s Congressional cartel seems more preoccupied with finger pointing and getting re-elected than accomplishing anything of substance.

Take jobs, for instance.

In particular, the lack of new ones.

According to the Bureau of Labor Statistics’ most recent figures, there are 14 million unemployed Americans. That doesn’t include an estimated 3.5 million that are so discouraged they’ve given up looking. Our nation’s high level of unemployment is undoubtedly the most important issue facing America today.

Various solutions have been proffered. Jump-starting the housing business, massive infrastructure improvement spending and tax breaks for businesses have all been discussed as solutions.

Wanted: Jobs, Not Political Rhetoric

Lately the President is talking up his big, new plan for creating jobs. Its two major components aren’t really new at all. The extension of payroll tax cuts and unemployment benefits are popular with their respective parties.

These will provide a little relief and dance around the central problem. This country needs more people working. More people working means more tax revenue and more economic growth.

Obama’s plan, unless it was centered on building something the size of the entire interstate highway system – from scratch – will be a drop in the bucket in terms of job creation.

But if you think I’m just lambasting the President and Democrats, well… the Republicans haven’t proffered any profound new ideas, either.

Presidential candidates Rick Perry and Ron Paul are focused on Fed-bashing. It’s hard to imagine how that will create jobs. Romney’s plan is focused on corporate tax cuts, not too unlike most other mainstream conservative plans that were waved about before.

The reality is the tax code is riddled with loopholes. Many companies already pay close to zero taxes.

Companies in U.S. manufacturing and service businesses spent the last four years increasing productivity. It’s now at the point where they can meet higher demand with fewer people. So they’re not hiring.

So What’s a Cash-Strapped, Politically Gridlocked, World Power (the U.S.) to Do?

The solution is an easy one. That’s why Congress, the President and the Presidential wannabees can’t see it. The answer lies in one word: energy.

If you’re a regular reader, you know I’m a big energy guy. I like to read about, research, write and speak about everything energy. The world runs on it. Advanced societies and economies are used to having it. Emerging countries can’t get more of it fast enough.

When the flow of energy stops, catastrophe ensues. Take the recent freak snowstorm that knocked out power for three million people throughout the Northeast Corridor. Estimates are that it could now cost as much as Hurricane Irene in lost GDP. Some areas won’t get power back for a week or more.

So wouldn’t it be great if we could somehow combine our need for cheap, homegrown sources of energy with the need for more jobs?

Wouldn’t it be even better if a “pilot program” already existed that demonstrates how thousands of Americans found new, high-paying jobs? Something that could be expanded to the national level?

If only such a program was happening today, somewhere that we could point to… Well we can. It’s right here in my home state of Pennsylvania.

Pennsylvania is doing exactly what Obama and the rest of the Washington politicians are wasting billions of taxpayers money time trying to figure out: creating jobs.

Consider these Keystone State statistics, just for the natural gas industry:

  • 9,000 new hires in Q1 2011.
  • 18,000 new hires in Q2 2011.
  • 214,000 total jobs related to this activity as of the end of Q1 2011.
  • Average wage: $76,036 per year.
  • As of the end of August, there were 3,600 new job postings online.

It all boils down to an increase of 2,076 in core jobs for the northern tier of Pennsylvania. These jobs are all in the energy business. All these happy workers are involved in the extraction of oil and natural gas from the Marcellus Shale formation.

And this industry didn’t even exist here five years ago.

Kathryn Klaber, President and Executive Director of the Marcellus Shale Coalition (MSC), made these remarks in a press release a few weeks ago:

While our nation continues to face historic economic challenges, our industry – made up of tens of thousands of Pennsylvanians – continues to grow at unprecedented rates, helping to provide good jobs at a time when they’re most needed.

“This new data further reinforces the undeniable fact that responsible, American natural gas production is an unmatched private sector job creation machine.

“We take seriously our important work in the Commonwealth [of Pennsylvania], and realize we have an historic opportunity and responsibility to build on this progress in a way that ensures our environment is protected, our economy is strong, and our nation is more secure.”

Perhaps the President, the 2012 candidates and the rest of the U.S. Congress missed the press release.

And the same levels of job growth are happening in Texas, North Dakota, Colorado and just about every other state that’s drilling for natural gas and oil in shale formations.

A study released by the American Petroleum Institute back in September estimated that – with the right development policies – the U.S. oil and natural gas sectors could create one million new jobs in just the next seven years, and 1.4 million by 2030.

All those new jobs would generate roughly $800 billion in sorely needed government revenue by 2030. The U.S. Chamber of Commerce released a similar study, citing “producing more American energy” as one of its top six ways to create more jobs.

So Mr. President, and Members of Congress, there you have it: You want jobs? You’ve got the power to simply create them. And it won’t cost a dime of taxpayer money in misguided subsidies to do so.

Just grease the skids with some energy-friendly policies on the national level and you’ll have what seems to be so elusive: putting Americans back to work.

Good investing,

David Fessler

Article by Investment U

Lawson Sees ‘Good Chance’ of U.K. Double-Dip Recession

Nov. 1 (Bloomberg) — Neil Lawson, chair of pressure group Compass, and Brian Hilliard, chief U.K. economist at Societe Generale SA, talk about U.K. gross domestic product, which grew faster than economists forecast in the third quarter. They speak with Francine Lacqua on Bloomberg Television’s “The Pulse.”

Gold Drops through $1700, Draghi Faces “Baptism of Fire” after “Referendum Curveball” from Greece

London Gold Market Report
from Ben Traynor
Tuesday 1 November, 08:45 EDT

U.S.DOLLAR gold prices dropped through $1700 an ounce Tuesday lunchtime in London – at one point showing a 3.3% fall from last week’s close – as stock and commodity markets were also hit following news that the Greek prime minister has called for a referendum on last week’s Euro Summit deal.

Physical gold trading was quiet, news agency Reuters reports, with premiums in Hong Kong falling to around $1 per ounce, having been $1.50 last week.

“Jewelry sector demand has been quiet as jewelers are unwilling to keep much of an inventory,” reckons Dick Poon of precious metals group Heraeus.

“They are worried about consumption in Europe and the United States in Christmas holiday season, with the economic uncertainty looming large.”

Silver prices meantime fell to $32.77 per ounce – 7.2% down on last Friday’s close.

Tuesday’s fall in gold prices follows a strong month for gold last month. Dollar gold prices, based on the London Fix, rose over 6% in October.

Stocks meantime had their best month in over two years, with the MSCI World Index up 11% according to data compiled by Bloomberg.

Despite that, stocks have had a poor start to November this morning. The FTSE was down 3.1% by lunchtime, while Germany’s DAX lost over 5% of its value.

European stocks “are so cheap” says hedge fund manager Barton Biggs, known for his contrarian views.

“I must admit I don’t own hardly any European stocks, but I’m intrigued by them…because it would certainly be a contrarian trade.”

Greek prime minister George Papandreou announced late Monday that Greece will hold a referendum on last week’s Euro Summit deal – although no firm date was given.

“The people will be asked whether they want to adopt [the deal] or reject [it],” said Papandreou.
“This sounds to me like someone is trying to wriggle out of what was agreed,” retorts Rainer Bruederle, former German minister of economics and a member of junior coalition partner the Free Democratic Party.

“One can only do one thing: make the preparations for the eventuality that there is a state insolvency in Greece and if it doesn’t fulfill the agreements, then the point will have been reached where the money is turned off.”

“The Greek referendum is a real curve ball,” says Steven Saywell, head of FX strategy at BNP Paribas.

“Nobody saw it coming and it injects a lot of uncertainty.”

Elsewhere in Europe, yields on 10-Year Italian government bonds rose for the third day running, breaching 6.25%. The spread above benchmark German bund yields hit a Euro era high at 4.37 percentage points.

The European Central Bank began buying Italian (as well as Spanish) government debt on the open market back in August, the last time Italian yields were at these levels.

Former Italian central bank governor Mario Draghi – who takes over as ECB president today – said last week that the Eurosystem of central banks “is determined, with its non-conventional measures, to prevent malfunctioning in the money and financial markets creating an obstacle to monetary transmission.”

Draghi’s comments were seen by some as a coded hint that the ECB would continue buying Italian debt, along with that of other troubled sovereigns. However, outgoing ECB president Jean-Claude Trichet has said this is a misinterpretation.

“This will be a baptism of fire for Draghi,” says Nick Kounis, Amsterdam-based head of macro research at ABN Amro.

In New York meantime broker dealer MF Global filed for bankruptcy yesterday, having reportedly taken writedowns on Eurozone sovereign debt following last week’s Euro Summit deal. The New York Times reports that US regulators are investigating claims that hundreds of millions of dollars in customer money has gone missing from MF Global over the last few days.

Here in the UK, GDP grew at 0.5% during the third quarter, according to figures published by the Office for National Statistics on Tuesday.

“The good news is that UK GDP growth came in slightly above expectations,” says Howard Archer, chief UK economist at IHS Global Insight.

“The bad news is that this performance overstates the underlying strength of the economy and this is likely to be as good as it gets for some time to come.”

“We are living through the greatest credit crisis of our generation,” Bank of England Financial Policy Committee member Robert Jenkins said in a speech last month, published on the Bank’s website this morning.

“And needless to say, it is not over.”

The Organisation for Economic Co-operation and Development yesterday cut its global growth forecast, less than two months after it last revised it downwards.

Argentina’s government meantime has imposed restrictions on those wishing to exchange Pesos for US Dollars.

“This is an important measure to combat tax evasion and money laundering,” said finance minister Amado Boudou, though others have suggested the move is aimed at stemming capital flight that has been a drain on Argentina’s foreign exchange reserves.

The restrictions “may backfire as it may lead agents to accelerate Dollar buying in anticipation of potentially even more restrictive/punitive regulations in the near future,” reckons Alberto Ramos, economist at Goldman Sachs.

China’s manufacturing sector showed signs of a slowdown last month, according to the latest official purchasing managers index data. China’s manufacturing PMI for October fell to 50.4 – compared to 51.2 in September (a figure above 50 indicates expansion).

Vietnam’s central bank meantime is seeking to restrict gold bullion trading. The draft decree from the State Bank of Vietnam includes a reduction in the number of bullion traders, restrictions on manufacturing of gold bars and powers to intervene in the domestic gold market, where there have been accusations of traders manipulating domestic gold prices.

Ben Traynor

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

USD up on Risk Aversion, European Equities Crushed

Source: ForexYard


Last week’s relief rally that swept over financial markets has all but vanished with a move lower in risky assets driven by deterioration in the macro environment. In addition to the announced Greek referendum and disappointing Chinese/UK PMI data are weighing on the markets. European equities have been crushed with both the DAX and the CAC 40 down 5%.

The Greek referendum appears comical. After struggling for the past two years fending off a messy default, Greek Prime Minister George Papandreou invites the opportunity with one vote. As additional market commentaries and forex blogs have noted, the referendum could be a step in the direction of a Greek exit from the EMU. As such, the wheels of the EUR are beginning to come off with the EUR/USD down 2 big figures today. Support for the pair is the 61% retracement of the October move at 1.3565.

PMI data released from China and the UK did little to improve the global economic outlook. China’s Purchasing Manager’s Index fell to 50.4 in October, dangerously close to the 50 boom/bust level. The UK’s PMI also dropped to 47.4 from 50.8 in the previous month. Today’s Q3 GDP was stronger than expected at 0.5% on forecasts for 0.4%, but the GDP data is in the past and the PMI numbers are forward looking which does not bode well for the UK economy. Cable has held up a bit better as the GBP/USD has not receded quite as much of the October gains as its European counterpart. Support is seen at 1.5850 from the rising short term support line off of the October 12th low.

Read more forex trading news on our forex blog.

Forex Market Analysis provided by ForexYard.

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Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Warning: Stay Away From These 15.1% Yielders

By Amy Calistri,

As an income investor, the dividend yields are tempting.

I’ve found yields of 14.3%… 15.1%… and even 19.6%. Annual yields that high almost sound too good to be true, but the securities offering them are a proven investment. The businesses behind these dividends have been solid for years. And their share prices have stayed in a relatively narrow range, too.

In fact, these high-yield securities were the darlings of the market during the real estate boom. Investors couldn’t get enough of these lucrative income plays.

They may have come under pressure during the real estate bust, but they quickly regained their popularity once the economy started to recover.


I’m talking about the popular mortgage real estate investment trusts (M-REITs). This special breed of REITs borrows at low short-term interest rates and invests in pools of mortgages backed by Fannie Mae and Freddie Mac (which are in turn backed by Uncle Sam) at higher long-term rates.

But even though they offer yields well into the double digits, I’m still not buying them.

Let me explain…

Last year, my mortgage servicer, Wells Fargo (NYSE: WFC), started calling me. I wasn’t behind on my mortgage payments; quite the contrary — I had never been late with a mortgage payment in 17 years.

It wanted me to refinance my existing mortgage. Once I crawled through the offer, I realized it was a good deal for me.

Wells wasn’t going to charge me an appraisal fee — it already had done the homework to show I had more than 50% equity in my home. And there were no other fees, hidden or otherwise, to refinance my existing debt.

At a lower interest rate for a 15-year mortgage, I could save a lot of money off my monthly bill. But that wasn’t my plan. I realized that I could pay my current amount, pre-paying additional principal on the loan, and shave nearly six years off the life of my mortgage.

I would save tens of thousands of dollars in interest payments and pay off my mortgage in roughly nine years. It seemed like a no-brainer.

But something about the offer bothered me. So just to be sure, I called a friend of mine who use to work as a mortgage broker.

My first question to him was: “What’s in it for Wells Fargo? Why would they give me this deal?”

He explained that there was a dearth of new high-quality mortgages. Banks that issued mortgages needed good new mortgages to repackage and sell. I had a credit rating above 800. I had a job. I had never missed a mortgage payment and had a lot of equity in my home. I was a quality mortgagee.

Naturally, my second question was: “Who loses in this deal?”

One loser, he explained, was the investor(s) who owned the income stream from my original mortgage. By paying off my original mortgage early, I cut them off from 13 more years of 6%-plus interest payments.

Another loser could be the new investor(s) who bought my refinanced mortgage. After being used to high income streams fueled by a high percentage of subprime loans, they would have to settle for far lower yields on their investments.

That’s exactly what mortgage REITs are seeing. Remember, they invest in pools of mortgages. As mortgage rates fall, so does their income.

My refinance story — playing out across the country — is just one of the reasons why popular mortgage REITs like Annaly Capital Management (NYSE: NLY) and American Capital Agency (Nasdaq: AGNC) have underperformed the market in the past months. Below is a chart of the Market Vectors Mortgage REIT ETF (NYSE: MORT) — a proxy for mortgage REITs — compared with the S&P 500 Index.


Despite paying yields as high as 19.1%, mortgage REITs have dramatically underperformed the market in the past few months.

Mortgage REITs may continue to struggle if rates for new and refinanced mortgages continue to remain low. And to top it off, the government just announced a new plan to help underwater homeowners refinance their mortgages. A move that could further hurt M-REITs.

Meanwhile, Annaly already cut its quarterly dividend to $0.60 from $0.65 per share. American Capital has been able to maintain its dividend for now. But I feel both dividends are more likely to see downward adjustments than to see growth.

So though I think that someday these M-REITs will make a nice addition to my real-money portfolio within my Daily Paycheck advisory, for now I’m steering clear. Until the market cools and interest rates rebound, I think these high-yielding securities are better left alone.

[Note: In the the latest issue of my premium newsletter, The Daily Paycheck, I tell my readers about a high-yield investment that’s much safer than M-REITs. To learn more about my advisory, and how StreetAuthority co-founder Paul Tracy made $112.77 a day in 2010 using my Daily Paycheck Strategy, make sure to visit this link now.]

Good Investing!

Amy Calistri
Chief Investment Strategist — Stock of the Month

Disclosure: Amy Calistri does not own shares of the securities mentioned in this article.  In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any “real money” model portfolio.

AUD/JPY rejects resistance and 61.8%

AUD/JPY – Daily outlook 01 November 2011

The BOJ’s intervention early Monday saw the Yen finally coming back to life; however after initial volatility the markets did show signs of slowing back down. We saw the AUD/JPY pushing through its upper resistance at the 83.00 area in early trading only to reverse and close below resistance at the end of the NY Session.

With the pair showing signs of rejecting its resistance we could see the market falling in the coming days/weeks.



The strength of the resistance area is further confirmed by a 61.8 Fibonacci retracement level at 83.15. Taking the highest swing high and lowest swing low from this year we can see the market has retraced 61.8% of this swing and yesterday has showed signs of rejecting this level.



With the strong resistance of both the price and 61.8% Fib retracement the strength of the 83.00 area should not be disregarded as the market has potential to show further rejection and ultimately a push back lower. We will be looking for price action signals to go short at this area with an initial target of 80.00 or lower.