The E.U. Recession is here.....
So I'm sitting here composing the February 2012 newsletter and trying to decide what subject matter to focus on this month. As I read McVean Weekly, I note that the E.U. officially lapsed into recession the final quarter of 2011 and continues to decline through the month of January 2012. While I'm reading that, the 2013 budget is proposed and it's an astounding 3.8 Trillion, stacking up an additional 1 Trillion of additional debt. I was shell shocked when I saw it in the news. The scary part is that it received some press but overall the coverage was minimal. That leads me to believe that we will continue to function without any type of a legal federal budget, as we have for the last 1000 days or so, and our political leadership will simply increase the debt ceiling to accommodate the out of control spending. The Democratic Senate Majority Leader Harry Reid is not even going to put this proposed budget up for a vote, a fact I find most troubling. The open disregard for fiscal responsibility is just incredible in the wake of political gain and control of our country's leadership.
I try really hard not to make this Newsletter into a political piece, but it's very difficult to watch as cuts are made in our military at a time when the threats in the Middle East are rising more rapidly than I've ever seen. The fact of the matter is the world is not a safe place and I think by cutting our military, it essentially shows weakness and projects an unwillingness to defend ourselves and our allies. It's certain that Iran is developing or close to developing a nuclear bomb and they have openly threatened countries like Israel. I suspect, and many speculate, that Israel will not wait much longer before they take military action to rectify that problem. Having a smaller and weaker U.S. military scares me to death.
I noted that unemployment is falling and has been under 9% for a month or two. Before we all start jumping around in the streets, let's make sure everyone understands some basic facts: "The official unemployment rate excludes those individuals who would like to work but have not searched for a job in the past four weeks as well as those who are working part-time but would prefer full-time work; if those people were counted among the unemployed, the unemployment rate in January 2012 would have been about 15 percent". That is a direct quote from the Congressional Budget Office for February 2012, which makes me question the fact or fiction on the statistical data that is being thrusted in our direction by our leadership. Consumer confidence is critical in any economic recovery, and I understand that the information that's being communicated can be slanted to accommodate people's action, but let's just be honest - that seems to be a good start. The figures are being manipulated for political gain, in my not so humble opinion. Nonetheless, I do think that overall we've stopped the free fall of the economy and are actually starting to make some minor gains in productivity. Things have been so bad for so long, that anything positive is celebrated.
Greece continues it's slide with unemployment surpassing the 20% mark earlier this month. Combine that with the average Greek worker's wages being cut by upwards of 40%, and it's no wonder Greece is in such turmoil. The Greek GDP is about 300 Billion, relatively small compared to other countries that continue to battle rising debt ratios, like Italy @2.5 Trillion or 5 times that of Greece. My worry here is very simple, mathematically, if Greece is causing such a turmoil with its relatively small economy, what's going to happen if Italy, Spain or even Portugal follow suit? All three of those countries have been downgraded past two weeks. I've discussed this issue in previous Newsletters, and somehow those countries issues continue to be swept under the carpet.
Last week, Moody's telegraphed a downgrade of some of the largest banks. UBS, Credit Suisse and Morgan Stanley are all threatened with a three-level downgrade, while Goldman Sachs and Citigroup are looking at a two-level downgrade, Bank of America is looking at a single-level downgrade. How the heck do you downgrade a bank by three levels? Are the
rating agencies actually paying attention to what's going on? It seems most of the rating agencies are trying to rebuild confidence by making these downgrades very public to overcome the lack of confidence in their ability to forecast what is actually happening in the financial markets as well as foreign country stability. None of this should come as any surprise, which was shown by the rather large "Yawn" when the news hit the wires. Nobody seems to care any more, but certainly if your money is at any of these banks or financial services companies, you better be paying attention.
It seems that oil prices are going to really jump over the next month or so, and there is speculation that we could be looking at $5.00 per gallon gasoline. Iran has cut the supply of oil to both France and the UK to zero due to the economic sanctions imposed on them by The U.N. As a result, oil prices are on the rise and that will affect everyone's pocket. The average household spends approximately 3-4% of its income on oil-based energy. My sense would be that if oil prices continue to rise, then people will need to cut spending in other areas and that
could have a negative impact on our rather fragile economic recovery. I filled my car up this morning, it will only run on high octane according to the manufacturer, and paid $3.89 per gallon, OUCH.....