Joseph Lazzaro
New York - http://
Joseph Lazzaro is a veteran financial editor with more than 10 years in financial news and financial publishing. Lazzaro served as Managing Editor of New York-based financial news web site WallStreetItalia.com / WallStreetEurope.com for four years. Lazzaro, who holds an ABD/Ph.D. in American Government and International Economics from the University of Connecticut, also served as a News Editor for the Pulitzer Prize-winning Hartford [Connecticut] Courant, prior to graduate school. He is based in New York.
Posted Oct 6th 2008 1:27PM by Joseph Lazzaro
Filed under: International markets, Forecasts, Federal Reserve, Recession, Financial Crisis
Most investors / readers know about
inflation - - an increase in the price of a good or service not connected to an improvement.
But fewer know about its flipside - -
deflation - - a decline in prices.
Moreover, while inflation is a serious problem - - it erodes purchasing power and makes it hard for businesses to project and plan for costs, moving forward- - deflation is an even bigger menace.
That's because deflation decreases the amount of money flowing to businesses for their products/services - - reducing the money needed to keep commercial activity alive and the economy growing.
Deflation: a danger signDon't misunderstand - - a price cut after a company becomes more-efficient, or implements a 'holiday or promotional' sale, is fine. Deflation is different: it's pervasive price cutting and asset price declines - - falling prices across the product/service spectrum - - usually driven by a lack of consumer / wholesale demand.
Further, if deflation persists it can - - you guessed it - - lead to lay-offs. Companies and factories with lower revenue and demand for their products / services scale-back production to reduce expenses by laying-off employees. Those laid-off employees then cut expenses as they search for new work assignments by cutting spending, resulting in even lower demand for products, further price cuts, and lower company revenues, and a vicious cycle can ensue.
Continue reading Inflation? That's bad. Deflation? That's worse
Posted Oct 6th 2008 11:26AM by Joseph Lazzaro
Filed under: International markets, Forecasts, Federal Reserve, Financial Crisis
The frontal assault to check the financial crisis and stem rising fear in credit markets has begun.
The
U.S. Federal Reserve Monday doubled its Term Auction Facilities - - its short-term loans provided to banks - - to as much as $900 billion.
"The Federal Reserve stands ready to take additional measures as necessary to foster liquid money-market conditions,''
the central bank said. The Fed also will begin paying interest on bank reserves.
The Fed added that it and the U.S. Treasury are "consulting with market participants on ways to provide additional support for term unsecured funding markets."
As part of the action, The Fed will increase its auctions under the 28-day and 84-day Term Auction Facility operations to $150 billion each. The two forward TAF auctions in November will be increased to $150 billion each, the Fed said.
Continue reading Frontal assault on financial crisis has begun
Posted Oct 6th 2008 10:43AM by Joseph Lazzaro
Filed under: International markets, Bad news, Financial Crisis
So far, there's little indication the financial crisis is subsiding.
The euro and British pound fell against the dollar, and money market rates climbed early Monday in Europe as banks hoarded cash.
The
euro and
British pound fell about 1 cent versus the
dollar to $1.3610 and $1.7568, respectively, early Monday as traders sensed both the European Central Bank and Bank of England, along with national governments, will have to take monetary and policy actions to address the crisis.
The London interbank offered rate, or
LIBOR -- the rate banks charge each other for overnight dollar loan, increased 37 basis points to 2.37%. The Euribor, a similar rate for the euro, rose 1 basis point to 5.35%, an all-time high.
Currency Trader Andrew Resnick told BloggingStocks Monday, currency, credit and stock markets in Europe all indicate the financial crisis will impact many of the economies in the euro zone.
"Germany's decision to guarantee all private German bank accounts kind of spooked the currency market, and drove the euro and pound lower. It's a good, defensive action, but it prompted people to ask 'how deep is the problem in Europe?'" Resnick said. "We're going to need more action to address the crisis from both the European Union and the central banks of Europe to boost liquidity."
Continue reading Europe in need of 'a more aggressive, coordinated effort'
Posted Oct 5th 2008 9:10AM by Joseph Lazzaro
Filed under: International markets, Forecasts, Federal Reserve, Financial Crisis
With passage of the rescue bill, and the U.S. Treasury's upcoming actions to stabilize credit markets through a variety of tools/mechanisms, one area that is likely to experience negative consequences is the dollar.
Simply, more dollars borrowed (or more dollars printed) almost always means each dollar is worth less. Economist Richard Felson said a gradual, orderly decline in the dollar "would be expected, and is almost considered the default response, given increased U.S. government borrowing." The dollar closed Friday down about one-half cent to $1.3775 and $1.7713 versus the euro and the British pound, respectively.
Central banks monitoring dollar's level
However, leaders of the world's major industrialized economies will not, in Felson's interpretation, accept a sudden and/or inordinate decline in the dollar. "Along with increased stress on the financial system, 'brutal' currency movements, as [European Central Bank President Jean-Claude] Trichet has said, throws everything out of whack by making it hard for companies to project costs of foreign operations," Felson said. "For these reason and others I believe the major central banks will intervene to support the dollar, should the U.S. Treasury's extra borrowing or the U.S. Federal Reserve's extra lending for the bailout lead to too large or too quick of a decline in the dollar."
Continue reading Major central banks seen tolerating gradual dollar decline, but no 'brutal' moves
Posted Oct 4th 2008 5:10PM by Joseph Lazzaro
Filed under: Politics, Financial Crisis
Much has been written about the add-ons or 'pork' in the rescue package passed by the U.S. Congress and signed President Bush.
The add-ons, which increased the bill's projected cost by $130-$165 billion, depending on the analysis, have been viewed as another example of "special interest lobbying," "sneaky ways to get pet projects passed," "ripping off the taxpayer" and/or as simply un-American.
Well, the truth is, add-ons in the United States have taken place in every Congress since the nation was founded. Further, no one really knows who made the first legislative "deal," but to say that senators in ancient Rome or officials in Greece, did not trade votes for projects or patronage would be a stretch.
"Democracy is the worst system ...
Of course, it's much more ethical -- some would call it virtuous -- to propose a bill, then get a large majority to render a decision on the program/policy/law solely on its merits, driven by whether the bill is in the nation's interest.
And likewise, add-ons/pork can increase federal spending by substantial amounts, which makes it harder for the federal government -- or any government, for that matter -- to live within its means.
Continue reading It's probably best to not watch sausage or legislation being made
Posted Oct 3rd 2008 4:55PM by Joseph Lazzaro
Filed under: Consumer experience
A basket of 16 basic food items costs $48.68, up 10.5% from a year ago, the American Farm Bureau Federation said in a press release that
marketwatch.com covered on Friday. Economist David H. Wang told BloggingStocks Friday many factors are driving grocery prices higher, including higher ingredient costs, higher energy prices, and rising demand for food in developing countries around the world (especially China, India, Russia, Brazil, and the Middle East).
A few grocery store tips: Wang says that while there are many savvy shoppers in the states, many others are new to shopping. Wang, who worked in a grocery for three years while in college, offered his tips on how to lower your grocery bill:
- Stick to a shopping list and shun 'impulse' buys: Wang says this is perhaps the biggest money saver. "From the moment you walk in the store, grocery stores are designed to get you to buy more items than you plan to buy," Wang said. "You are bombarded with stimuli that tempts you to spend, and it works, so stick to your list. If it's not on the list, ask yourself if you need the item, or are buying merely on impulse."
- Coupon card: Most grocery chains offer a coupon card that automatically deducts for items on sale. Sign up for one and use it. But evaluate the coupons some cash registers dispense with a sales receipt. "Ask yourself if you need it or if it is on your list," Wang said.
- Evaluate buying in bulk. "Buying larger sizes usually lowers cost per food purchased but ask yourself if you will need and use the item," Wang said. "If the item is not your list, don't buy it, as you could be succumbing to an impulse buy, which will drive your food bill up."
Continue reading As food prices rise 10% in a year, a few tips to lower your grocery bill
Posted Oct 3rd 2008 2:26PM by Joseph Lazzaro
Filed under: International markets, Forecasts, Good news, Commodities, Oil
The U.S. economy continues to shed jobs. Global economic growth is slowing. And public officials on both sides of the Atlantic are preparing rescue packages to stabilize financial markets wracked by the worst bout of credit 'losses and fear' in generations.
Amid the mounting financial and economic concerns there has been one bright spot: oil prices, which have
dropped more than 35% since July and are likely to decline more in the months ahead.
Oil rose 40 cents to $94.33 per barrel in Friday morning trading.
'The one positive for U.S. consumers, businesses'Economist Peter Dawson said falling oil demand in the U.S., from both conservation and (unfortunately) a decrease in commercial activity is a factor, as is a slowdown in oil consumption growth in emerging markets, including giants China and India.
Further, the price decline is "the one positive for U.S. consumers and businesses" this year, Dawson said.
"If the price decline continues, it will be like a mini-tax cut. Think of it this way, for each $10 drop in the barrel of oil, Americans pay about $70-75 billion less per year in oil expenses. That money can be used to pay monthly expenses, pay down debt, or saved / invested," Dawson said. Gasoline prices, currently averaging about $3.60-$3.80 per gallon nationally, should drop to the $3.20-$3.50 range, with some areas seeing prices below $3 in 2009, Dawson said.
Continue reading Ray of light amid concerns: Oil prices are falling
Posted Oct 3rd 2008 1:16PM by Joseph Lazzaro
Filed under: Forecasts, Politics, Financial Crisis
California Gov. Arnold Schwarzenegger
has sent a letter to U.S. Treasury Secretary Henry Paulson indicating that the state may need up to a $7 billion loan from the federal government within weeks, because the state is having increasing difficulty funding day-to-day operations and accessing short-term loans,
The Los Angeles Times reported Friday.
California routinely accesses short-term loans to remain solvent, but the state, like corporations and other businesses / organizations, is having trouble accessing funds from the bond market due to the credit crunch,
The Times reported. Lay-offs could followIf the state is unable to access cash, payments to schools and other government agencies could quickly be suspended and state employees could be laid off,
The Times reported.Economist David H. Wang, although qualifying his comments by adding that he has not yet reviewed California's credit profile and cash flow, said Gov. Schwarzenegger's letter is another sign that the "financial crisis is affecting organizations and governments large and small."
"Corporations are scaling back bond sales or seeking other funding sources, bond sales by state governments are being put off, and lines of credit are being renewed at higher interest rates. These are all signs of increased apprehension by banks and other lenders," Wang said. "The financial crisis is getting worse, and we need to put measures in place to address it."
Wang said the U.S. House of Representatives' passage of the rescue package is a necessary step toward that goal. The U.S. House is expected to vote on the rescue bill today, following approval in the U.S Senate Wednesday, 74-25. "The House vote will reduce anxiety in the credit markets. There's a saying that 'a financial crisis is 30% reality and 70% worrying about the other reality.' Well, the rescue bill will address that 'other reality.' "
Continue reading California says it may need $7 billion loan from U.S. Treasury
Posted Oct 3rd 2008 10:15AM by Joseph Lazzaro
Filed under: Forecasts, Politics, Presidential elections, Financial Crisis
Falling stock market; massive credit market stress; bankers reluctant to lend; bank defaults; companies cutting back investment / plant expansions; large budget deficit; large trade deficit; falling currency; stagnant economy; rising unemployment; high cost of food, energy; and a large portion of the public stating that the nation is on the wrong track, economically.
If you think the U.S. economy is presently mimicking that of a
third-world country in the 1970s, you're right.
The United States, after nearly a decade of policy errors and business / consumer mistakes, is in its worst condition economically since the stagflation-plagued 1970s, but with credit market problems that dwarf that era's financing challenges.
In a time like this, when new, negative data points occur almost daily, it's difficult to pinpoint when the turning point will occur. But one may occur in as little as four weeks. Are there economists out there who are doubling as soothsayers? No, it's merely the U.S. Presidential and Congressional election, so says economist Richard Felson.
The first order of the day is financial market stabilization. If the U.S. House of Representatives goes along with the U.S. Senate and approves the rescue bill, that's step one toward financial market stability, Felson said. Add ons / companion public programs will further bolster lender and corporate confidence that the credit markets are not going to go the way of the Edsel, he said.
Continue reading The U.S.'s journey to economic recovery begins this fall
Posted Oct 3rd 2008 9:45AM by Joseph Lazzaro
Filed under: Forecasts, Bad news, Employees, Economic data, Recession
The U.S. economy
lost another 159,000 jobs in September, as companies in the world's largest economy continued to cut expenses to protect profits in the face of the economic slowdown. It was the largest monthly job loss in five years.
However, U.S. Labor Department officials cautioned that the September job loss total was skewed artificially higher by Hurricanes Gustav and Ike, which resulted in more job losses in the Gulf States region. Further, the unemployment rate remained the same at 6.1% in September, the Labor Department said.
However, an alternate gauge of unemployment, which includes discouraged workers, rose to 11% in September from 10.7% in August. The conventional U.S. Labor Department unemployment rate does not include discouraged workers because they are not technically 'seeking work.' Still, some economists argue the discouraged metric is a more-accurate gauge of unemployment, contending that these discouraged workers would accept jobs if the positions were available.
Also, the number of adults working part-time because no full-time job was available increased by 337,000 to 6.1 million in September.
Economists
surveyed by Bloomberg News had expected the U.S. economy to shed 100,000 jobs in September. September was the U.S. economy's tenth straight monthly job loss. The U.S. economy lost a revised 73,000 jobs in August and 67,000 in July. Further, the U.S. economy has now lost 760,000 jobs this year and more than 800,000 since the job slump started in late 2007.
Continue reading Very poor September jobs report as employers' belt-tightening continues
Posted Oct 2nd 2008 2:16PM by Joseph Lazzaro
Filed under: International markets, Forecasts, Politics, Recession, Financial Crisis
Financial Times columnist
Martin Wolf inquires, do Americans understand their financial and economic system?
Anger at Wall Street's - - and regulators' - - lapses is justified, but at the end of the day to oppose the rescue package is at once self-defeating, contradictory, self-punitive, and borders on nihilism, Wolf states. Take your pick regarding which is the most damaging.
Congressional representatives, particularly conservative Republicans, but also others, opposed the flawed rescue plan as a bailout for the rich, and as a statement against
'socialism.' Socialism? Yes, the plan is flawed, Wolf states, but the ruin that will result from rejecting the plan will destroy the legitimacy not of socialism,
but of the market economy. Exactly what are the packages' opponents fighting?
The Congressmen/women also say that they are 'taking a stand for Main Street and against Wall Street.' A contradiction, Wolf writes.
Wolf: Wall Street and Main Street are streets that meet. That is what streets do.
Then there is the future. What is the opponents' alternative? The loudest voice here appears to be 'let the market sort things out by itself,' under the assumption that the damage, costs, and negative consequences really won't be that bad.
Wolf: This is not prudent, if the early 20th century's experiences are a guide.
Continue reading Martin Wolf: Wall Street and Main Street are streets that meet
Posted Oct 2nd 2008 11:11AM by Joseph Lazzaro
Filed under: Bad news, Employees, Economic data, Recession
U.S. initial jobless claims remain at elevated levels, even after factoring out the effect of Hurricanes Gustav in Louisiana and Hurricane Ike in Texas, the
U.S. Labor Department announced Thursday.
U.S. initial jobless claims rose 1,000 to 497,000 for the week ended September 27 -- the highest level in seven years -- the
Labor Department said. Without the hurricane-related claims, initial filings would have totaled about 439,000, the department said. Claims for the previous week were revised 3,000 higher to 496,000. Economists
surveyed by Bloomberg News had expected this week's initial jobless claims to total 475,000.
Also, the 4-week moving average increased 11,500 to 474,000. Economists view the 4-week average as a better indicator of unemployment conditions, as it smooths-out anomalies for strikes, holidays, or other idiosyncratic events.
Economist Peter Dawson said "job losses continue to occur at a troubling rate, even after taking into consideration the act-of-nature events of Hurricanes Gustav and Ike."
"We have an economy whose fundamentals are definitely not sound. The housing sector remains in a severe slump, financial service layoffs and consolidation obviously will continue, and business investment is low," Dawson said. "Exports are about the only positive data point remaining for the economy, but that too may come under pressure if global growth slows."
Continue reading U.S. jobless claims -- a 'troubling rate' of job losses
Posted Oct 2nd 2008 10:50AM by Joseph Lazzaro
Filed under: International markets, Politics, Financial Crisis
A problem that originated in the New World is re-exposing some long-standing nuanced opinions in the Old World.
France and Germany disagreed over how to prevent the global credit crunch from further hurting European banks. Germany, Europe's largest economy, does not want to set up a bailout / rescue fund that France is seeking. Luxembourg Prime Minister Jean-Claude Junker said the fund, which France argued should be as large as 300 billion euros or about $415 billion, isn't needed.
Economist Richard Felson said the United Kingdom also is against the idea, with Britain arguing that an ad hoc intervention policy would be sufficient for now. "A lot will depend on how the U.S. rescue package, provide it passes the U.S. House, performs in lowering overnight interest rates and restoring confidence," Felson said. "There's the sense in the U.K. that while the crisis extends beyond America's borders, the bulk of the bad-asset fallout will still be U.S.-based."
The
U.S. Senate passed a revised rescue package, 74-25, Wednesday night and the U.S. House is expected to vote on the measure as soon as Friday.
However, the measure had little impact on overnight interest rates, at least initially. The London Interbank Overnight Rate, or LIBOR,
rose for a fourth day, up 6 basis points to 4.21% Wednesday night, as banks continued to hoard cash.
Continue reading Across the pond, the E.U. is talking about a rescue package for Europe
Posted Oct 1st 2008 6:40PM by Joseph Lazzaro
Filed under: AT and T (T), Financial Crisis
AT&T Chairman / CEO Randall Stephenson said Tuesday that his company was
unable to sell any commercial paper last week for terms longer than overnight.
"Your ability to plan for investment is obviously affected. You kind of don't know what your cost of capital six months from now is going to be," Stephenson
told The AP. "We'll just be very guarded, cautious in terms of where we invest, very guarded and cautious in terms of hiring and capital spending. We'll see where this situation goes."
Economist David H. Wang told BloggingStocks Wednesday
AT&T's (NYSE:
T) challenges selling commercial paper underscore the nature of the financial crisis and the need for lawmakers / policy makers in Washington to act, "with all deliberate speed."
"When a cash-rich giant like AT&T, the corporate equivalent of an 850 Tri-merged
FICO score, has trouble selling commercial paper longer than overnight, a bell should go off in your head," Wang said, adding that he does not own shares of any telecom company.
Continue reading AT&T says credit market stress crimping operations
Posted Oct 1st 2008 4:01PM by Joseph Lazzaro
Filed under: International markets, Politics, Housing, Recession, Financial Crisis
With the U.S. Senate expected to debate and vote on a revised bailout/rescue bill in the next day or so (famous last words), two revisions
the world's greatest deliberative body should incorporate are bank recapitalization options and funding to refinance mortgages, economists say.
BloggingStocks' Peter Cohan
has written extensively on the need to recapitalize banks, and economist Richard Felson concurs. However, Felson argued that the revised rescue bill should give banks and other institutions the option of either offering their distressed/bad debts to the U.S. Treasury in its reverse auction or accepting a mutually agreeable investment by the U.S. Treasury into the institution.
Creating options for stressed banks"This will give banks more options, and in my view more incentives to participate in the rescue plan. If the plan just contains asset purchase provisions some banks may balk at the prospect of selling some assets at a fire-sale price of 10 cents or 15 cents on the dollar, and that may prevent some distressed assets from being removed from the system, delaying the financial system's recovery," Felson said. "Offering to buy a stake in the bank offers another recapitalization option."
Continue reading Rescue bill's revision seen as opportunity to recapitalize banks, refinance mortgages
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