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One of the architect’s of the financial crisis issued a warning that banks still have unfunded liabilities that were not properly accounted for by the Treasury Department’s "stress tests."
Yesterday evening, Alan Greenspan also said that "…until the price of homes flattens out we still have a very serious potential mortgage crisis."
Lest we forget, it was the maestro’s absurd interest rate policy earlier this decade that helped fuel the housing market bubble in the first place. And his comment that systemic risk was balanced across the globe through the use of derivatives (like credit default swaps) gave tacit approval to practices that have proved to be absolutely disastrous.
Personally, if I were Greenspan, I’d keep my mouth shut and ride off into the sunset. I wouldn’t want to call attention to just how badly I misjudged the economy at the end of my term. But maybe that’s just me…
*****Last week, I suggested that the news cycle, or the spin the financial media and investors put on news, was starting to turn negative. And we’re seeing that trend accelerate.
Better than expected new unemployment claims data is being classified as still bad. England’s about to have its credit rating lowered, and the Federal Reserve has lowered its growth numbers for this year.
Better than expected new unemployment claims data is being classified as still bad. England’s about to have its credit rating lowered, and the Federal Reserve has lowered its growth numbers for this year.
It’s not worth dissecting each tidbit of economic data to come to some logical conclusion. Stock prices reflect investor expectations. And prices will come down as expectations fall.
It’s apparent that all the "green shoots" of economic recovery talk is starting to give way to more negative talk. And stock prices are following the conversation.
*****Yesterday, the major indices put in what looks like a reversal day. Early gains turned to losses for the day. And with a long weekend coming up, there will be little incentive for buyers to step forward.
The 50-day moving average for the S&P 500 currently sits at 850. That will be an important support level.
I’ve also suggested that "sell in May" is looking like a good idea this year. And nothing that has happened this week has changed my mind. So let’s be careful out there.
*****In an ironic statement, China is calling on the wealthiest nations in the world to cut greenhouse gas emissions by 40% by 2020. Also, China wants developed countries to contribute 0.05% to 1% of GDP to developing countries to promote clean energy initiatives.
Of course, China conveniently leaves itself out of the equation. It must be allowed to balance its own development with the need to combat climate change. China is believed to be the world’s biggest emitter of carbon dioxide. And it’s also believed that China’s emissions will continue to grow until 2035.
In this light, it’s pretty easy to see why former presidents Clinton and Bush refused to sign the Kyoto Accord. They argued that from the wording of the treaty that the burden for cutting greenhouse gas emissions fell mainly on the U.S. And China’s statements illustrate that point clearly.
The development of clean energy will be driven by economics. As oil supply dwindles, its price will rise, and clean energy sources will become viable. And as a counter-point to coal, the environmental and health impact of sulfur-dioxide are well documented. (By the way, guess who is the No. 1 producer and consumer of coal: if you say "China" give yourself a gold star.)
This is why president’s Obama’s clean energy initiatives are a good alternative. We should be developing wind and solar technology as a way to strengthen our own economy, not because China demands it. I won’t be surprised if Obama follows the lead of his two predecessors in the White House and refuses to sign any international greenhouse gas agreements. I also think we will continue to invest in clean energy as a matter of economic necessity.
That’s it for today, I’ll talk to you tomorrow.