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 Aug 20th 2008 3:28PM by Joseph Lazzaro
Filed under: Other issues, Bad news, Federal Natl Mtge (FNM), Politics, Housing, Recession
Few would deny that the new U.S. president, Democrat or Republican, will face a plethora of concerns and problems after reciting the oath of office in January 2009.
One issue that sort of presents the 'problems panorama' in a snapshot has, curiously, received light news coverage lately -- is the U.S. budget deficit.
Time was, just a short decade ago, the federal budget was in surplus. However, in 2001 a federal tax cut occurred. That fact, combined with required spending for the war on terror / Iraq War, and the absence of a tax increase to pay for that increased spending, has primarily led to a projected $553 billion deficit for fiscal 2008, which ends September 30, 2008, and a $403 billion deficit for fiscal 2009, which begins October 1, 2008, according to
Congressional Budget Office research (pdf).
Three factors that could balloon the deficitIn the view of many, the existing deficit is large -- but still manageable -- in the context of a $2.9-3.0 trillion federal budget. However, three factors could markedly increase the budget deficit in the immediate years ahead, and in doing so add to the new president's woes, economist Richard Felson told BloggingStocks.
First, there's the U.S. economy. If it falls into a recession (if it hasn't already), federal receipts (such as corporate and individual income taxes) will decline from current projected levels, and social program costs will increase, "adding $20-$50 billion to the deficit," Felson said.
Continue reading Recession, housing seen increasing budget deficit for new president
Posted Aug 20th 2008 3:08PM by Joseph Lazzaro
Filed under: Consumer experience, Commodities, Oil
Despite the onset of the latest high energy price era, it goes without saying that the car will remain the main mode of transportation in the United States as the 21st century progresses.
First mass-produced on a national scale by
Henry Ford, subsidized by the construction and expansion of the public interstate highway system after World War II, and immortalized by such films as George Lucas's
American Graffiti (1973), the car and car culture is intrinsic to modern American life.
The car fuel alternativesCheap
oil is not intrinsic, however, and that's a major reason why the nation is exploring car / vehicle fuel alternatives. Many options exist, each with strengths / weaknesses, and currently there's no clear winner.
Hence, in a very real sense, your say in the matter will play an important role in determining what fuel most Americans will use for car transportation in the decades ahead.
Continue reading Most likely, you'll determine the fuel for the car of the future
Posted Aug 20th 2008 12:08PM by Joseph Lazzaro
Filed under: International markets, Forecasts, Other issues, Recession
Minutes from the August Bank of England meeting may reveal a panel divided on an interest rate cut, but don't tell that to the currency market.
The
pound fell about 1 cent to $1.8552 versus the
dollar Wednesday -- approaching a 2-year low -- as sentiment grew regarding the need for the central bank to cut rates to avoid a recession.
In its
August 7 meeting minutes (pdf), during which it kept its benchmark interest rate at 5%, some members argued for a rate cut after private banks in the United Kingdom cut GDP forecasts, while others said a rate increase was needed to check inflation expectations.
U.K. slowdown mirrors U.S. slumpLondon-based economist Mark Chandler told BloggingStocks Wednesday the inflation pressures stemming from oil's rise are real, but so is Britain's economic slowdown.
"Based on data I've reviewed, we're patterning America, only about a quarter late. GDP in Q2 slowed to 0.2% this year from 0.8% in Q2 last year, which is about the same deceleration rate as Q2 in America," Chandler said. "Almost certainly GDP will be negative for Q3, and I think the currency markets sense this and see a Bank of England rate cut or two up ahead."
Continue reading BOE divided on rate cut, but dollar rises vs. pound
Posted Aug 19th 2008 3:32PM by Joseph Lazzaro
Filed under: Forecasts, Housing, Federal Reserve, Recession
Sometimes -- but by no means always -- the stupid questions are the most illuminating.
Tuesday's 'stupid question' concerns stress and the U.S. economy. Namely, could the U.S. economy handle more housing stress? Or, put another way, what would the U.S. economy look like with another round of major write-offs for housing-related losses?
"It's not an economic model we want to project, but project we must," economist David H. Wang said. "First, for one thing, another round of large write-offs would, as they say, end all doubt regarding a U.S. recession. We would record negative GDP for Q3 and Q4, at minimum, most likely for Q1 2009 as well."
"Second, you're looking at additional consolidation in investment banking and commercial banking," Wang said. "Third, there would be considerable U.S. Government involvement, the scope and amount of intervention by the U.S. Treasury and Fed [U.S. Federal Reserve] is difficult to specify, until the size of the problem is known."
It's hard to identify a silver lining in the above, but Wang found one, "but we don't want to go there," he said. Another series of large, housing-related write-offs "would most likely propel Congressionally-backed, federally-directed structural changes in banking, mortgage finance, securities, and financial regulation," Wang said.
"It's one thing if the nature of the bailout is another $50 or $100 billion. But if it amounts to the takeover of a large bank or
Fannie Mae (NYSE:
FNM) and
Freddie Mac (NYSE:
FRE), the American economy would see its biggest changes since the New Deal," Wang said. "These changes would most likely end, once and for all, the 'heads-the-banks-win/tails-the-government-pays' banking system. You'd most likely see a two-tier banking system."
Not the 'end of the beginning' for housing losses?Moreover, there are signs that it's not 'the end of the beginning' regarding housing and credit market stress, at least in the view of the former chief economist for the International Monetary Fund.
Continue reading Stupid question: Can the U.S. handle more housing stress?
Posted Aug 19th 2008 2:18PM by Joseph Lazzaro
Filed under: Technical Analysis, Commodities, Oil
In the oil market, as in the U.S stock market, there are fundamental analysts and technical analysts.
Fans of fundamentals follow things like
inventory levels, global oil demand, and refinery capacity. Fans of technicals follow things like the
50-day and
200-day moving average and chart formations (double tops, double bottoms, etc.).
Moreover, rarely do these two analytical schools merge in one trader: you're usually either a fan of fundamentals or technicals.
A 'hybrid' traderEnergy trader Jim Dietz breaks the mold. He's a hybrid trader, of sorts. He primarily follows fundamentals, but gives technical analysis its proper respect, and currently on the chart are two, technical oil price levels that are worth paying attention to, as they are likely to provide clues regarding oil's direction, he said. Dietz added that he is presently flat, or had no open energy trading positions.
Oil, Dietz said, "has closed below support in the $115-116 range for two days in a row." Tuesday would be the third, if it closes below $115, and if it does, that would be bearish for oil, he said.
Oil was down 29 cents to $112.58 in mid-day Tuesday trading.
Continue reading Two price levels of significance for oil
Posted Aug 19th 2008 10:57AM by Joseph Lazzaro
Filed under: Forecasts, Bad news, Housing, Recession
Picture this: a U.S. neighborhood where no homes are being constructed, for miles.
In the current economic climate, the above could be a snapshot in any region of the country (or, sadly, in
every region of the country).
U.S. housing starts fell to a seasonally-adjusted annual rate of 965,000 in July, the
U.S. Commerce Department announced Tuesday (pdf). It was the lowest level for housing starts in 17 years.
Economists
surveyed by Bloomberg News had expected July U.S. housing starts to total 950,000.
Further, housing starts have declined 29.6% in the past 12 months. Economist Glen Langan told BloggingStocks Tuesday he knows why.
"It doesn't take a Harvard mathematician to deduce this one. Builders are competing for sales with the large supply of foreclosed homes, as well as with home owners in good standing with banks, who are trying to sell their homes," Langan said. "So the great U.S. homebuilder pullback continues."
The U.S. economy is growing at a minuscule rate or is already in recession. Job growth, save a few sectors, is non-existent. Bank mortgage qualifying requirements are at their most rigorous levels in a decade. Investors / readers ask, 'where are the buyers going to come from to spark a rebound in the housing sector?'
Continue reading The housing slump may continue well into 2010
Posted Aug 18th 2008 3:28PM by Joseph Lazzaro
Filed under: Forecasts, Housing, Federal Reserve, Recession
There are a few developments that gladden the heart of nearly every business executive. Rising retail sales. Rising real incomes. Sustained job growth and household formation. And lower interest rates from the Fed.
U.S. business executives, investors, and typical citizens alike may have to wait awhile for a constructive dynamic to emerge regarding the first four, but there may be some good news regarding interest rates. We're headed back down to 1.5% - - or perhaps even lower - - regarding the Federal Funds rate, so says economist David H. Wang.
Further, Wang believes an interest easing is up ahead, even though that stance would seem to fly in the face of the Dow's recent rise/signs of life, and a
July U.S. consumer price statistic of 0.8%, that indicated that inflation rose at its fastest pace in 17 years.
"The July inflation number was high, but the core inflation gain of 0.3% means the U.S. Federal Reserve has some breathing room on inflation, some leeway to cut interest rates, and they're going to need it," Wang said. Wang sees the Federal Funds rate, currently at 2%, falling to 1.5% by January 2009.
Bearish on U.S. stocks, economy through early 2009As one might sense, Wang is not bullish on the U.S. stock market or U.S. economy over the next six to nine months. Here's why: "First, the U.S. housing market has not reached a bottom. We're not even close," Wang said. "People are watching the U.S. median home price [currently about $206,500], when what they need to scrutinize is inventory levels. We're still at nine-month and ten-month inventories levels in most regions, and a healthy market has only a three-four month inventory level. So don't look for any economic stimulus from the housing sector."
Continue reading Economist sees Fed cutting interest rates this fall
Posted Aug 18th 2008 2:47PM by Joseph Lazzaro
Filed under: International markets, Forecasts, Other issues, Competitive strategy
What's one trend that's starting to feel the pinch of sky-high
oil prices?
If you answered 40-mile commutes to work and/or tank-sized SUVs, you're right, but in this case it's the business process called the global supply chain.
The logic of, for example, shipping Brazilian iron ore to China to be made into steel, then shipping it back to Long Beach, California in the form of washing machines is making less sense today than it did when oil was $25 per barrel a decade ago,
The New York Times reported.
In fact, some manufacturing that fled Mexico for even-lower-cost-labor China is now returning to Mexico because it's cheaper per unit to manufacture the goods in Mexico and send them to the United States, after oils costs for shipping are considered,
The Times reported.
Spanning the world: it isn't cheapEconomist Peter Dawson told BloggingStocks that investors / readers should expect more 'repatriation' of manufacturing if oil stays above $100 per barrel.
"Companies will be begin to shift, in some cases, on a product-by-product basis, the production of goods to net lower cost zones," Dawson said. "China's percentage of manufacturing in the world will continue to increase, but the calculus now is more complicated. It's no longer 'O.K., we need 200,000 auto motors, off we go to China.' Those motors may end up being less expensive if secured in Mexico, after transport costs are considered."
Continue reading Shipping costs starting to hamper ocean-spanning globalization
Posted Aug 18th 2008 1:25PM by Joseph Lazzaro
Filed under: Consumer experience, Competitive strategy, Ford Motor (F), General Motors (GM), Toyota Motor Corp. (TM)
There's an upside and a downside regarding major auto companies and the quest to develop vehicles with increased fuel-efficiency.
The upside: Auto makers are positioning themselves to carve out niches in fuel-efficient technology and design,
The Wall Street Journal reported Monday (subscription required).
The downside: Auto makers appear to be exhibiting a 'herd mentality' on the current propulsion technology -- hybrid engine cars with both a modest electric power source and a mainstay internal combustion engine.
An electric hybrid focusFollowing up on its successful electric-gasoline Prius hybrid,
Toyota (NYSE:
TM) announced it will make hybrid engine systems available on all models by 2020,
The Journal reported. Meanwhile, Honda said it would import new hybrid technology to the U.S. to compete with Toyota and
Ford (NYSE:
F) plans to double its hybrid lineup next year, and Chevrolet's (NYSE:
GM) Volt hybrid that will go on sale in 2010.
Economist David H. Wang said investors and consumers should not be overly optimistic or pessimistic regarding the sector's concentration on electric-fuel hybrids.
Continue reading A good news, bad news saga regarding auto companies and fuel efficiency
Posted Aug 18th 2008 9:59AM by Joseph Lazzaro
Filed under: International markets, Economic data, Commodities, Agriculture
The reduction in global economic growth and growth expectations is leading to one benefit: a sharp decline in commodity prices, creating hope inflation may be peaking in many parts of the world,
The Wall Street Journal reported Monday (subscription required).
Rice and palm oil, two commodities critical for the developing world, are both down about 40% since May, while the world's most vital commodity, crude oil, is down abut 23%,
The Journal reported.
An end to surging commodity prices?Economist Glen Langan told BloggingStocks Monday that while the commodity price-lower trend is still young, continued commodity price declines would be a welcomed sight, provided they don't drop too much.
"The pullback is welcome because many commodities had reached prohibitive levels, hindering commerce and really hurting the modest budgets of the poor/working poor in developing countries," Langan said. "However, too much of a price slide in commodities would be a sign of a pronounced global economic slowdown, which is something we don't want."
Further, Langan said that while regulators in various nations probe 'speculator' activity and alleged price manipulation in commodity markets, he argues that many of the price rises are consistent with historical price booms in other asset classes / sectors.
Continue reading Is inflation peaking in many parts of the world?
Posted Aug 16th 2008 5:40PM by Joseph Lazzaro
Filed under: Other issues, Bad news, Politics, Recession
Want a classic example of how the real estate slump is affecting not only the construction industry and home owners, but also states and municipalities, as well?
Consider the plight of the nation's largest city, the City of New York.
Wall Street's mortgage losses have ballooned to such a degree that some firms may pay small or no taxes for years, Bloomberg News reported. That's right: no taxes for years.
Rising tax revenues, no more
For much of the current decade, indeed for much of the 1990s as well, the city could count on rising tax revenue from Wall Street firms -- based on increased securities industry business -- as a starting point for the city's budget. Not now: the city, which derives about 20% of its revenue from Wall Street businesses, is projecting a decline in revenue from Wall Street firms -- a contraction that is expected to widen the this year's $1.5 budget deficit in fiscal 2009 to $2.3 billion next year, fiscal 2010, and then to $5.96 billion in fiscal 2011 budget deficit, Bloomberg News reported. The city's budget for fiscal 2009 is $59.1 billion.
The Wall Street recession has put the social service goals of Mayor Michael R. Bloomberg on hold, for the most part. Bloomberg has already asked city department and agency heads to implement a 6.4% spending cut; he will likely ask department heads to identify other cost savings of up to 3%, should revenues continue to come in below projections.
Continue reading All economics is local: Wall Street slump cuts New York City tax revenue
Posted Aug 16th 2008 3:40PM by Joseph Lazzaro
Filed under: International markets, Other issues
Some market signals are well-known and easily understood. Others are arcane and more-complex, but just as telling.
There's mounting evidence that the "carry trade" is ending, or that at least institutional investors are decreasing their use of it as an investment tactic.
In a carry trade, investors, especially institutional investors, borrow funds in a country with a low interest rate (or borrowing cost) and buy assets in a country where returns are higher. The investment can take many forms, including stocks, bonds, funds, or even the higher-interest currency itself.
Carry trade: A growth confidence indicator
Now, investors/readers may legitimately ask, Why is it important to know what's happening to the carry trade?
Economist Peter Dawson told BloggingStocks that it's important to monitor carry trade flows and data because it's one indicator of investor confidence in a market's ability to produce a return on equity, and by extension, in its economy to grow.
In other words, the carry trade abounds when investors are confident; it wanes when they're not, he said.
Continue reading Unwinding of carry trade seen as bearish signal for markets, economy
Posted Aug 16th 2008 1:40PM by Joseph Lazzaro
Filed under: International markets, Forecasts, Economic data, Recession
One way investors/readers could characterize the current environment is as a world filled with concerns.
Concern about the U.S. housing sector. Concern about declining U.S. disposable income. Concerning about slowing GDP growth in Europe and Asia. Concern about the Yankees not winning the American League pennant.
O.K., that last item was a purely subjective, parochial one, but you get the point: there's concern that global economic conditions are worsening, not improving.
Europe's GDP is latest focal point
Further, while emerging markets in Asia, led by China and India, have been the growth story of the decade, the region really sending a chill up economists' -- business executives' -- spines is Europe, so says economist Glen Langan.
"Up through July we had seen weakness in Italy, Greece, Spain, and Portugal, and the investment community's response was one of 'no big deal, they are not the major growth regions, anyway,'" Langan said. "But now there's signs of slowing in Germany, France, and the United Kingdom, and nearly every demand-side indicator is in retreat. It's a pronounced psychological shift, no question."
Continue reading Right now, it's a globe filled with economic concerns
Posted Aug 15th 2008 4:52PM by Joseph Lazzaro
Filed under: Ford Motor (F), General Motors (GM)
Ford, the U.S. auto giant facing perhaps its toughest combination of sector competition and economic headwinds in the company's history, is expected to announce it will build a new, seven-passenger luxury crossover,
The Wall Street Journal reported Friday (
subscription required).
The new three-row
Lincoln MKT crossover is expected to go into production next year, and mirror a 'bustle back concept' displayed at the Detroit Auto Show this year,
The Journal reported. Its primary competitors would be the Acura MDX, Audi Q7, and Mercedes R class.
Ford Motor Company (NYSE:
F) shares were virtually unchanged on the news, up 2 cents to $5.12 in Friday afternoon trading.
Crossovers are larger cars designed to look and function like SUVs, only with better gas mileage.
Analyst takes wait-and-see approach on crossoverStock Analyst C. Leonard Bauer said he's reserving judgment on the Lincoln MKT, pending performance, fuel economy, and safety test reviews.
Continue reading In the efficiency era ... Ford plans a new luxury crossover
Posted Aug 15th 2008 3:50PM by Joseph Lazzaro
Filed under: International markets, Other issues
The dollar Friday was on course to record its fifth consecutive weekly gain, propelled higher by the prospect that economies in Europe may be later in the recession/expansion economic cycle than the United States.
The above suggests the Bank of England and the European Central Bank will have to cut interest rates -- itself a bullish factor for the dollar -- with the U.S. economy recovering sooner than the economies in the United Kingdom and euro-zone -- another dollar-bullish circumstance.
On Friday, the
dollar strengthened 1.5 cents to $1.4675 versus the
euro, and about seven-tenths of a cent to $1.8632 versus the
British pound. The dollar also rose about 1 yen to 110.61 versus
Japan's yen and about one-half cent to $1.0988 versus the
Swiss franc. From dollar-bear to dollar-skeptic
Currency Trader Andrew Resnick said he's not a dollar bull yet, but the changing global economic landscape has moved him from the dollar-bear category to "the dollar-skeptic category."
"Clearly, fundamentals are shifting in favor of the dollar. Global growth is slowing, taking pressure off commodity prices. Export gains are lowering the U.S. trade deficit, and there's now a better than 60% chance Europe [including the U.K.] will have to cut interest rates," Resnick said. "Those are the best fundamentals for the dollar in about three years." Resnick added that he's presently flat, or had no open currency trading positions.
Continue reading Dollar registers another strong week, but will the rally last?
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Most likely, you'll determine the fuel for the car of the future
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