COMSTOCK:State Deficits Offsetting Federal Stimulus........ Once all of the states have updated their figures for the current fiscal year ending on July 31, 2003 for most states, the total deficit could come to $50 billion. The figure already equals $40 billion for the states that have calculated their projections on a current basis. Of the deficits, $35 billion is a result of revenue shortfalls and increased Medicaid payments while $5 billion is attributed to homeland security expenses. Next year’s total deficit could run up to $80 billion even assuming relative sanguine mainstream economic forecasts.
The shortfall is worse, both in absolute and percentage terms, than the worst deficit of the early 1990s. The $19.5 billion deficit of 1992 amounted to 6.5% of the state budget totals while the current $50 billion projection is close to 10%. The pending federal fiscal stimulus proposal provides no extra funds for the states. In addition the states have still not received the promised federal assistance for homeland security and over half the 40% share of various mandated costs that the federal government promised to pay...........
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Feb. 24, 2003, 12:33AM
New view says 'debt deflation' to delay recovery
By SCOTT BURNS
Universal Press Syndicate
AUSTIN -- After spending the better part of an afternoon with economist Lacy Hunt, I pondered, "What does it take to overcome a lifetime of conditioning?"
That, as much as factual data, is the issue virtually all of us face. We're conditioned to fear inflation, to assume that recessions are dutifully followed by recoveries and to be wary of higher interest rates.
Hunt and Van Hoisington, the two prime movers at Hoisington Investment Management Co., march to a different drummer.
In their view, any recovery will be delayed and slow. Despite the apparent low level of interest rates, they believe rates are likely to decline further. This is far from the conventional wisdom. Nonetheless, the $3.6 billion in fixed-income investments the firm has under management is committed to exactly that future.
So listen to the supporting facts that Hunt uses when he talks with his institutional clients.
"Right now, we're moving into an economic environment that no one alive has any experience with. I think we're already in debt deflation."
I asked what debt deflation was.
"It occurs when debt levels are unmanageable. Money that might be spent comes out of spending and goes into debt reduction. If you look at Japan in the '90s, debt deflation was first. Price deflation followed. It was the same here in the Depression.......
http://www.chron.com/cs/CDA/story.hts/business/1790195
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FINANCIAL TIMES: Uncertain times for debt
By Kate Burgess
Published: February 22 2003 4:00 | Last Updated: February 22 2003 4:00
Demand for bonds has pushed prices to a 10-year high, prompting fund managers to launch large numbers of new bond funds. But analysts worry that a bubble may be forming that would leave investors facing sharp losses........"The current low level of real gilt yields only makes sense if investors believe that the UK might suffer deflation in next five or 10 years," he says..........But not everyone believes a bubble is forming. Bubbles are borne out of irrational expectation and expectations are not irrational at the moment, say some observers.
The price of government debt has risen on the back of falling inflation, causing yields (income as a proportion of price) to rise sharply. The big danger to yields would come if inflation bounced sharply. But that is unlikely. Low inflation is probably here to stay and many analysts forecast a further cut in interest rates.
If inflation rises it will not be substantially above the Bank of England's target of 2.5 per cent in two years. "Debt may be a little expensive, but it's not a bubble," says John Hamilton, bond fund manager at Jupiter Asset Management's head of fixed interest............"It's very easy for investment managers to say bonds look safe. If they look hard at the economy there is no sign of inflation. But the greater risk to bonds is deflation, because of the political response. Then the problem could be stagflation - no economic growth but inflation."........These anomalies, say sceptics, suggest that the markets are being governed by something other than fundamentals.
ECONOMICA: SURE, THEY DONT DARE TO SAY IT BUT LET'S BET THEY MEAN THAT IT IS OUR CORRUPT MONETARY SYSTEM THE ROOT CAUSE.
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Bombs Won't Liberate the Market From the Bears
By Jon D. Markman
Managing Editor, MSN MoneyCentral
02/13/2003 07:07 AM EST
http://www.thestreet.com/funds/supermodels/10068398.html
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U.S. Deficit Hits $97B in First 4 Months
By JEANNINE AVERSA
The Associated Press
Monday, February 24, 2003; 10:42 PM
The government has run up a deficit of $97.6 billion in the first four months of the 2003 budget year, a reversal from the corresponding period last year when a small surplus was produced.
The latest budget figures, released Monday by the Treasury Department, highlighted the government's deteriorating fiscal situation, where record high budget deficits are forecast this year and next.
The whopping deficit posted from the beginning of the 2003 fiscal year in October through January, the most recent month available, stood in stark contrast to the $8.4 billion surplus posted for that period last year.
Revenues are down by 8.1 percent this budget year from last year, to $615.3 billion, which reflects in part lower tax revenues from the sagging economy.............
http://www.washingtonpost.com/wp-dyn/articles/A62494-2003Feb24.html
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Posted on Sat, Feb. 22, 2003
Greenspan remarks may signal the end
BY JOHN CRANFORD
Bloomberg News
WASHINGTON - Alan Greenspan last week may have signaled the end of his tenure as head of the Federal Reserve. He also may have undermined President George W. Bush's proposed $690 billion tax cut.
Deficits matter, Greenspan told members of the Senate Banking and House Financial Services committees. Tax cuts weren't needed to boost the economy and would worsen the budget shortfall, he said.
On both counts, he differed from the president. Bush is pushing tax cuts to spur growth and is willing to accept record budget deficits in return. The rare public rift between a Fed chairman and a president suggest Greenspan may not seek reappointment next year, analysts said.
''His statements indicate he is leaving the job,'' said William Niskanen, a former economic adviser to President Ronald Reagan and a Greenspan acquaintance for 30 years.
Greenspan, who turns 77 on March 6, hasn't said publicly whether he will seek to retain his position when his current four- year term ends in June 2004. He will have been chairman for 17 years at that point. The White House has said it isn't searching for a successor.
Greenspan's remarks were consistent with what he has been saying for years. The difference is that he pooh-poohed the need for tax cuts and played up their impact on the deficit at the same time that Bush has made tax reductions the centerpiece of his domestic policy............
http://www.miami.com/mld/miamiherald/business/5236132.htm
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Didier Sornette, Professor of Geophysics
Mailing Address: Department of Earth and Space Sciences
University of California, Los Angeles
595 Charles Young Drive East,
Box 951567
Los Angeles, CA 90095-1567
Books: Mechanisms of Scale Invariance and Beyond
Critical Phenomena in Natural Sciences (Textbook)
Why Stock Markets Crash?
PREDICTIONS: The future of the USA stock market
Scientific Prediction of Catastrophes: A New Approach
Press release by UCLA Office of Media Relations
Prediction: The future of the USA stock market
Based on a theory of cooperative herding and imitation working both in bullish as well as in bearish regimes, we have detected the existence of a clear signature of herding in the decay of the US S&P500 index since August 2000 with high statistical significance, in the form of strong log-periodic components......
http://www.ess.ucla.edu/faculty/sornette/prediction/index.asp#prediction
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Bank of Japan Veteran Named to Top Job
Decision Angers Reformers Seeking Aggressive Attack on Deflation
By Akiko Kashiwagi and Peter S. Goodman
Washington Post Staff Writers
Tuesday, February 25, 2003; Page E04
TOKYO, Feb. 24 -- Japanese Prime Minister Junichiro Koizumi today appointed a former Bank of Japan bureaucrat to take control of the central bank when its current governor, Masaru Hayami, retires next month. The move disappointed those who argued that a new brand of leadership was needed to lift the world's second-largest economy from its decade-long stagnation........
http://www.washingtonpost.com/wp-dyn/articles/A61997-2003Feb24.html
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THE BIG QUESTION
The economy won't roar ahead at some point thsi year, here is why....
http://www.cross-currents.net/commentary.htm
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Corporate Accounting Fears Rock Europe
Monday February 24, 2003 12:40 PM
AMSTERDAM, Netherlands (AP) - Fears over corporate accounting methods hit European markets Monday after global grocery store operator Ahold said it overstated earnings in 2001 and 2002 by at least $500 million and its leading executives will resign.
Shares in the world's third largest retailer plummeted more than 65 percent after Ahold said it would delay releasing its earnings pending ongoing investigations at its American, South American and European operations.............
http://www.guardian.co.uk/worldlatest/story/0,1280,-2429141,00.html
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Searching for market dynamite
Plus: Dow Transport Index flirts with fresh low
By Thom Calandra, CBS.MarketWatch.com
Last Update: 1:03 PM ET Feb. 24, 2003
So says newsletter pioneer James Dines, who gets credit this month for the most potent -- dare one say combustible -- description of the prevaricating U.S. stock market.
Dines, a longtime bullion investor and editor of four-decade-old The Dines Letter, is, like many forecasters, drumming his fingers on the blast-plunger, waiting for stocks to move boldly, one way or another. This is something the stock market, stuck in a tug-of-war between believers and skeptics, refuses to do.
Investors are unwilling to bet their cash piles on any company or industry group. They're also loath to dump their remaining holdings. Thus, we are in a holding pattern with U.S. stock indexes.
The latest UBS Index of Investor Optimism reports an all-time low in the number of upbeat American investors. Just 30 percent of folks are hopeful about the performance of the financial markets in coming days, weeks and months compared with 51 percent who are sour.
In the joint poll by investment bank UBS AG and pollster Gallup Organization, 35 percent of investors are upbeat about prospects for economic growth. That's an all-time low and down from 42 percent in January. A war with Iraq ranks as a top concern, says UBS. Some 56 percent of investors believe that if the U.S. invades Iraq, there will be a negative effect on the nation's economy.
Which brings us back to dynamite, and newsletter editor Dines.
Determining the chemical nitroglycerin as too volatile for practical use, scientist Alfred Bernard Nobel mixed it with a paste that made the explosive more manageable. Sounds like dynamite. Later, says Dines, Nobel developed trinitrotoluene, or TNT, which needs a blasting cap to do its stuff.
"Similarly, the market has been topping out for several years, but any event might be the blasting cap that triggers a landslide," Dines says in his latest report. Or an up-slide. Dines, author of the 1996 financial book "Mass Psychology," is always on the prowl for a tipping of the scales. That's the point on America's emotion-meter when investors flock to -- or away -- from stocks, gold, bonds, the dollar..........
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The dollar has only just begun to slide
Commentary: It's time to diversify against currency risk
By Frank Trotter
Last Update: 12:05 AM ET Feb. 25, 2003
NEW YORK (CBS.MW) -- The long bull market in U.S. dollars from1996 to 2001 caused currency diversification to disappear completely from the radar screens of the average investor.
As U.S. dollar weakness begins in earnest, this should change, and in a big way.
Investors need to reacquaint themselves with the importance of global diversification at the same time they ponder the questions: how far could the U.S. dollar fall, and what will the potential impact of a falling dollar have on the U.S. economy and financial markets?...........
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Prudential hit by dividend fears
Tuesday, 25 February, 2003, 09:39 GMT
Shares in the insurance giant Prudential have tumbled by more than 10% after the company hinted that it might cut dividends in the future.
The fall came despite the Prudential unveiling a 2% increase in operating profits to £1.13bn ($1.79bn) for the past year.
And there was bad news for Pru policyholders, as the firm trimmed bonuses on long-term savings products.
The firm said the action was needed as the market downturn has caused the FTSE 100 index of leading UK shares to fall by 43% over the past three years.........
http://news.bbc.co.uk/1/hi/business/2796385.stm
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The worst is over, say German firms
Tuesday, 25 February, 2003, 09:30 GMT
German business confidence rose sharply this month, defying predictions of deepening gloom, the influential Ifo economic think-tank has announced. .......... This optimism is not shared by everyone.
"You can't really refer to an upturn," said Lothar Hessler of HSBC Trinkaus & Burkhardt.
"We still expect Germany to fall into a slight recession in the first quarter."
Light at the end of the tunnel?
The Ifo figure comes after a period of exceptional gloom for the German economy.
Since Chancellor Gerhard Schroeder was re-elected last September, there has been a string of unfavourable economic news, especially in relation to still-chronic unemployment.
Over the past few days, reports from a number of the country's biggest banks have also indicated that the country could be on the brink of a full-blown financial crisis.........
http://news.bbc.co.uk/1/hi/business/2796671.stm
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Jobs go at Credit Suisse
Tuesday, 25 February, 2003, 07:32 GMT
Bank staff are not jumping for joy at present
Swiss banking giant Credit Suisse is to slash jobs in an attempt to return to profitability, after announcing a record loss for 2002.
The bank made a net loss of 950m Swiss francs (£440m; $700m) in the last three months of 2002, pushing into a full-year loss of 3.3bn francs.
But Credit Suisse still aims to return to profit as early as this year, and is cutting its dividend payout by 95%, and shedding up to 1,250 jobs, to stem outgoings.
The axe will fall the heaviest in its financial services division, which includes banking, wealth management and insurance operations...............
http://news.bbc.co.uk/1/hi/business/2796373.stm
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WTO farm talks descend into chaos
Monday, 24 February, 2003, 17:47 GMT
Talks over agricultural trade hit a trough
Talks at the World Trade Organisation (WTO) to open up the agricultural sector to free trade have descended into a slanging match.........
http://news.bbc.co.uk/1/hi/business/2795307.stm
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3 reasons to expect a war rally
I see the financial markets rallying in the near future, but don’t expect it to last. The big problems that bedeviled the economy before the war will still be with us when it's over.
By Bill Fleckenstein
Financial pundits have always gravitated toward simplistic reasoning. It's no different now as, against the backdrop of a looming battle with Iraq, they paint a prospective war rally in simplistic terms. As an antidote, in this week's Contrarian Chronicles, we'll look at the complex mosaic surrounding a potential war rally, and see how rationalization may shape its length and breadth.............
http://moneycentral.msn.com/content/P41598.asp?special=msn
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