Sunday, March 9, 2014

Profiting from Panic Selling

by Tom Aspray

The selling on Monday, February 3, started overseas as the Spyder Trust (SPY) opened lower and continued to drop throughout the day settling at $174.17, which was 2.2% below the prior Friday’s close.

The range in the futures reflected even more violent selling as they opened Sunday night at 1777.50 and hit a low of 1732.25. The intra-day range was a whopping 51.5 points as the liquidation was relentless. There had been a similar sharp drop on January 24 as the decline in the emerging markets currencies triggered an initial wave of selling.

On that Friday, the S&P futures lost 33.7 points and made a short-term low early the following day as the futures stabilized for the four days. Those who established short positions as prices moved sideways were rewarded by the plunge on February 3, but how many on the short side took profits that day?

I am sure some did but many instead were expecting stocks to plunge further throughout the week possibly doubling their already sizable profits. They were likely dismayed when the SPY actually closed the week higher. Those who were still holding short positions likely had a sick feeling in the pit of their stomach.

Many years ago when I was a more active trader on both the long and short side of the market, I experienced this feeling and it was not fun. There was one indicator that I began to rely on to help tell me when the selling had reached panic levels. It was the Arms Index developed in 1967 by Richard Arms. It is now known by many as the Trin. The formula is pretty straightforward.

Click to Enlarge

Dick has written The Arms Index (Trin Index): An Introduction to Volume Analysis, as well as many excellent books on technical analysis.

In the early days of financial TV, I tried to argue that they should refer to this indicator as the Arms Index out of respect to Dick. Unfortunately, I was unsuccessful but several years later, I had the pleasure of traveling throughout Asia with Dick, and his lovely wife, June.

Click to Enlarge

The chart above of the NYSE Composite shows that the Arms Index closed at 3.42 on February 3 and was even higher during the day. This was a clear sign that the volume of selling was extreme and could have warned those on the short side not to be greedy and instead to take some profits.

On the January 24 drop, the Arms Index closed at 1.39. The 1.40 area has always been a level that suggests to me that the sellers may be taking over. When the readings of the Arms Index get to three or much higher, it starts to suggest that you may be near a selling climax. The blue line is a 10-day MA of the Arms Index, which had risen to 1.48 on February 3.

In this trading lesson, I would like to share some examples of how the Arms Index can be quite helpful in identifying panic lows, as well as buying opportunities when the market is in a rally phase.

This second chart of early 2013 shows the powerful rally that began on the last day of 2012 and carried over until the latter part of February. After the higher close on February 19, stocks got hammered the next day in reaction to disappointing economic data and concerns over the Eurozone. The high-flying stocks were hit hard, with Tesla (TSLA) losing 9%.

On February 20, the Index closed at 2.99. Three days later, as stocks dropped even further (see arrow), the Arms index closed at 2.87. This indicated that the selling pressure was not as high, even though prices were lower. This bullish divergence (line a), given the bullish action of the A/D line, suggested that the worst of the decline might be over.

Click to Enlarge

The NYSE Composite made its low on February 26 at 8700.73, which was just below the 38.2% Fibonacci support from the late-December low but above the 50% support at 8651. As discussed previously in Finding High-Probability Entry Levels, a drop between these two support levels is often where a correction in an uptrend will end.

Click to Enlarge

In conjunction with extreme readings in the Arms Index, one needs to analyze action in the Advance/Decline line. This chart covers the decline from the May 22nd high in 2013 that lasted just four weeks. The first wave of selling took the SPY down to $158.55 as it came close to its starc- band. The Arms Index had closed at 1.85 (point 1), and then the following day, hit 2.43 intra-day before closing at 0.70.

As is typically the case when the starc- bands are reached, the SPY did rebound. The action over the next nine days was choppy, as on one down day, the Arms Index spiked to 1.71 (point 2). The selling soon resumed, but even after four consecutive days on the downside, the Arms Index could only make it to 1.38 (point 3) while the SPY closed just above its starc- band.

Only two days after this low, the S&P 500 Advance/Decline moved back above its 21-day WMA and the following day its downtrend, line a, was broken. This was a bullish sign and the consolidation in early July (see circle) above the 3rd quarter pivot of $159.58 was a good buying opportunity.

The A/D line stayed above its WMA until August 7 as it dropped below the WMA and the prior low (see arrow). This was a sign of weakness, and after moving sideways for a few days above its 20-day EMA, the SPY gapped lower. This pushed the Arms Index above its pattern of lower highs, line b, and a few days later it hit a high of 1.40.

The SPY rallied from its starc- band back to the 20-day EMA before gapping to the downside on August 27 when the Arms Index closed at 2.79 (point 4). Just four days later on September 3, the A/D line broke its downtrend, line c, and soon moved back above its WMA suggesting the correction was over.

Of course, the patterns and signals are not always so clear and the decline from the September 14, 2012, high to the November 16 low was one of the more challenging corrections. The SPY had closed at its daily starc+ band that day (point 1) and Apple, Inc. (AAPL) spiked to a new high and formed a doji. A low close doji sell signal was triggered the following day.

This second chart of early 2013 shows the powerful rally that began on the last day of 2012 and carried over until the latter part of February. After the higher close on February 19, stocks got hammered the next day in reaction to disappointing economic data and concerns over the Eurozone. The high-flying stocks were hit hard, with Tesla (TSLA) losing 9%.

The wave of selling lasted eight days as the SPY dropped down to test its starc- band on September 26. The previous day (line 2) the Arms Index spiked to 2.90. During the eight-day rally that followed, the SPY came close to the old highs as the Index dropped to 0.60. The rally was not broadly based as former market leader AAPL just continued to drop.

After another market decline and a further rally, the SPY dropped below its starc- band on October 23 as the Arms Index closed at 2.96 with an intra-day high of 3.74 (line 3). Stocks tried to move higher until the election as the Index dropped back to the 0.60 level before the sellers again took over as the SPY gapped lower on November 7 (line 4).

Click to Enlarge

The Arms Index closed the day at 2.35 with a high of 2.94. The SPY continued to decline as it lost another 3.6% making an intra-day low at $134.70 on November 16. This was accompanied by a close in the Index of 1.32 with an intra-day high of 2.40. The lower highs in the Arms Index (line a) indicated that fewer sellers were pushing prices lower. This is typically what you see when the selling pressure is being exhausted.

The A/D line was able to move through its downtrend, line b, just four days after the low, which demonstrated the high level of buying that was pushing stocks higher. On December 12, the NYSE Advance/Decline made a new bull market high, which was followed a few days later by a new high in the S&P 500 A/D line (point 5).

On the sharp drop in reaction to the apparent failure to avoid the fiscal cliff, the Arms Index had twin spikes above the 2.00 level (point 6) as SPY again tested its starc- band. The new high in the A/D line identified this as a buying opportunity and the oversold readings from the Arms Index provided a low-risk entry.

The failure to reach a meaningful budget deal in the summer of 2011 also shook the financial markets and caused a steep drop in the stock market. The market had rebounded from the June lows but the first batch of heavy selling occurred on July 11 as the Arms Index closed at 4.42 (line 1)

Click to Enlarge

The A/D line was still above its WMA but did drop below it three days later as the Arms Index rose back to 1.50 indicating that selling pressure was building. On July 27 (line 2), the A/D line violated the support at line a and began to decline more sharply.

By early August, the SPY had been hugging the starc- band for several days, the Arms Index closed at 4.39 on August 2, and two days later was back to 4.11. Back-to-back readings at this high level typically suggest that you have reached a selling climax or are very close.

With the SPY below both its daily and weekly starc band, the Index closed at 5.22 (line 3) as the market was hit by a final wave of selling in reaction to the downgrade of US debt. Over the next month, the SPY developed a broad trading range as some analysts had concluded that we were going to see a double-dip recession.

On three instances (point 4), the Arms Index spiked above the 3.00 level with the highest reading of 3.60 on September 21. This was a sign that the market was absorbing some heavy selling. The fact that the A/D lines had confirmed the April highs sent a strong message that the stock market’s major trend was still positive. The SPY again bounced from its starc- band over the next few days closing just barely above its 20-day EMA.

See the original article >>

What is the Risk and Reward for Stocks?

by Jeff Miller

With stocks hitting new highs and the bull market reaching age five, the potential for a market top is a popular subject. There is a light schedule of economic releases, so pundits will be free to spend nearly full time explaining the rally and offering their forecasts.

Expect even more articles like "Six reasons this is a market top" and "How to protect your portfolio."

I could get more page views with a title like that, but let us try to put this more neutrally and make it forecast-free:

What is the risk/reward for stocks?

Last Week's Theme Recap

I expected last week's theme to be focused on employment and that was mostly correct. I also noted that there would be continuing attention on the Ukraine situation, with events changing rapidly. The market was reacting to the potential for armed conflict. I provided several balanced sources to help your assessment of events, concluding as follows:

If you are too lazy to read these brief and helpful articles, here is the one-sentence summary: We are very distant from a US/Russia armed conflict. There are umpteen diplomatic steps along the way, starting with skipping a planned trip to Sochi.

This is a perfect illustration of the reason for my weekly post – planning for the week ahead. Readers are invited to play along with the "theme forecast." I spend a lot of time on it each week. It helps to prepare your game plan for the week ahead, and it is not as easy as you might think.

This Week's Theme

How should we evaluate the overall market risk and reward? There are three basic positions:

  1. Skeptics and top-callers. Stocks are over-valued, supported only by the Fed. Compare to what happened when stocks visited these levels before. The cycle is extended and overdue for a correction. This article is typical of many.
  2. Reasonable valuation. Modest growth has supported the market ascent. Stocks are fairly priced and can continue single-digit growth if sales and earnings keep pace. Josh Brown cites distinctions between now and 2007.
  3. Bullish prospects. The economic cycle has not yet reached trend levels. A rebound in economic growth could spark a strong second half to 2014. Some even worry about a melt-up, with both increased earnings and multiples.

No one can make a confident forecast for the next market move, but it may be possible to define some limits. I have some thoughts that I will share in the conclusion. First, let us do our regular update of the last week's news and data. Readers, especially those new to this series, will benefit from reading the background information.

Last Week's Data

Each week I break down events into good and bad. Often there is "ugly" and on rare occasion something really good. My working definition of "good" has two components:

  1. The news is market-friendly. Our personal policy preferences are not relevant for this test. And especially -- no politics.
  2. It is better than expectations.

The Good

There was plenty of good news.

  • Eurozone PMIs are improving. Hale Stewart reports on the Markit index at 53.0 and above the earlier flash estimate. I am still cautious about the interpretation of these reports. I suspect that a sharp journalist will soon make a deep dive into the methodology. There is definitely a market impact, reflected in overnight futures. We care about Europe, but is this the best measure. (Same question for China).
  • Bullish sentiment (a contrarian indicator) is still low. Our favorite chart of this via Bespoke:

  • ISM manufacturing beat expectations, signaling expansion with a reading of 53.2. Steven Hansen at GEI has a comprehensive analysis. Read his full story for charts, comparisons with regional Fed surveys, and discussion of the component categories. It is a comprehensive look at an important report.
  • The PCE price index is up only 1.18% year-over-year. This is the measure of inflation watched by the Fed, with a target of 2% and a willingness for a temporary increase at a higher level. If you want to profit through understanding the Fed, you had better start with following the PCE. Doug Short has the analysis and charts we have grown to expect, including this one:

  • Americans are richer than ever. US household assets increased by $9.8 trillion or 14%. Scott Grannis has the story and also several charts. This one shows that we are almost back to trend growth:

  • Four million properties returned to positive equity in 2013. CoreLogic data via Calculated Risk.
  • The Fed's Beige Book shows modest growth. Calculated Risk has a great analysis, noting the regional differentials and weather effects. Scott Grannis explains why modest growth has been working just fine for stocks. (Chart lovers should check this out).
  • Personal spending increased 0.4%, beating expectations.
  • Employment growth was mixed, but generally a market positive. It was better than expected on several fronts

    • Payroll growth showed 175K net gain in jobs.
    • Labor force participation increased.
    • Higher unemployment rate is probably a more accurate reflection of reality and gives the Fed a little room to remain aggressive.
    • State governments are no longer a source of job losses. (WSJ analysis and charts).
    • Initial jobless claims declined 26K, back to the bottom of the range.

    Matt Phillips at Quartz has a great chart package. Here are two of special interest, showing weather effects and the decline in involuntary part-time employment (still a problem, but much better).

The Bad

There was also some bad news.

  • High frequency indicators are weaker. I always read carefully the fine weekly summary from New Deal Democrat. He collects many concurrent indicators that each might seem minor, but collectively are quite significant. There is an overall soft patch. Weather?
  • Auto sales were weak. Another weather effect? Any catching up in the Spring?
  • Private job growth was modest -- only 139K as reported by ADP. Since I view this report as a useful independent read on employment growth, I treat it with respect.
  • Ukraine. The conflict continues, with potential impact on trade and energy prices, but far from the much-feared military effects. George Friedman of Stratfor (Courtesy GEI) has an excellent background piece with some thoughtful ideas about the future.
  • China PMI fell to 48.5, in line with expectations, but showing contraction. This is sending copper prices, viewed by many as a general economic indicator, to the biggest decline in over two years. (WSJ).
  • ISM services was very weak at 51.6. While still indicating expansion, it was the lowest reading since 2010, as shown in this chart from Bespoke:

  • Margin debt hit an all-time high. Doug Short has the story and great charts. This is widely viewed as a market negative, but I wonder. It seems to be a concurrent indicator and it applies equally to those buying stocks and those selling short. Either way, there can be margin calls when big moves take place.

The Ugly

The Pentagon – spending $300,000 per year to study body language of world leaders like Putin. Apparently realizing that people might find this to be an unreliable method, the Pentagon press secretary Rear Adm. John Kirby "did his best to distance them from Defense Secretary Hagel's office, stating, "The secretary has not read these reports. And I don't believe that — I can tell you for sure that they have not informed any policy decisions by the Department of Defense."

So we are spending for information that is not being used. Also, the information is not classified but also not available to the public. (The Hill).


Late Friday afternoon CNBC announced that Larry Kudlow was retiring from his regular evening show, a staple of the network's evening programming for nearly a decade. Other sources suggested that he was pushed out because of declining ratings. Some have complained about his optimistic views on the stock market and the economy.

There is a lot of tension in a program that combines politics, the economy, and financial markets. I suspect that I have viewed as many episodes as anyone over the years, often citing what I saw in my regular posts. I record each episode (and also the PBS Newshour) and watch them both via TIVO every night. I fast forward through segments of less interest. Over the years, I have found that I have skipped more of the politics and focused on the interesting market debates.

It is distressing that many critics see the exact opposite in the strengths and weaknesses. Some complain that Kudlow sought effective responses to bearish pundits like Peter Schiff and Michael Pento. This is a lame argument, mostly because the show sought effective debate. It is difficult for anyone to engage aggressive participants who do not play nicely – interrupting and talking over your points.

It is also interesting that these complaints come even though Kudlow has been correct on both the economy and the markets. Political conservatives who listened to him did much better than those who followed his critics.

I note that another CNBC alum, Maria Bartiromo, bemoans the political talking points and wants to provide better grounding for investors. This is exactly what is needed, but it does not score in the ratings. We will all watch with interest as she attempts to reach this goal.

Quant Corner

Whether a trader or an investor, you need to understand risk. I monitor many quantitative reports and highlight the best methods in this weekly update. For more information on each source, check here.

Recent Expert Commentary on Recession Odds and Market Trends

Georg Vrba: Updates his newest recession indicator, maintaining an increase in the "weeks to recession" from 26 to 27. This does not mean that there will be a recession in 27 weeks. Instead, it shows that the chance is "statistically remote" that a recession would start during that time. For those interested in gold, Georg also sees a possible buy signal next month. Stay tuned!

RecessionAlert: Sees improvement in leading indicators for US growth, while highlighting danger areas worth monitoring. See the article for detailed charts on each indicator.

Doug Short: An update of the regular ECRI analysis with a good history, commentary, detailed analysis and charts. If you are still listening to the ECRI, you should be reading this update. Doug also has updated the big four indicators important to the NBER in recession dating. Everything except employment is showing a decline – small so far. This is the single best summary of concurrent indicators, so join me in watching it closely. Here is the updated chart:

  • Bob Dieli does a monthly update (subscription required) after the employment report and also a monthly overview analysis. He follows many concurrent indicators to supplement our featured "C Score." One of his conclusions is whether a month is "recession eligible." None so far – and Bob has been far more accurate than the high-profile punditry. See also a good yield spread article via Barry Ritholtz, part of Bob's method.

The Week Ahead

This is a very light week for data.

The "A List" includes the following:

  • Initial jobless claims (Th). Best concurrent read on the most important subject.
  • Michigan sentiment (F). Crucial for consumer spending and as a read on jobs.
  • Retail sales (W). February data, so the weather debate will continue.

The "B List" includes:

  • JOLTS report (M). Labor turnover is getting more attention, but most use it incorrectly. Do not try to "back into" some job creation estimate from this. Other methods are better. Look at the quit rate and job vacancies.
  • PPI (F). Inflation will be a factor someday, but not yet.

There will be some FedSpeak, including Vice-Chair nominee Stanley Fischer on Friday.

How to Use the Weekly Data Updates

In the WTWA series I try to share what I am thinking as I prepare for the coming week. I write each post as if I were speaking directly to one of my clients. Each client is different, so I have five different programs ranging from very conservative bond ladders to very aggressive trading programs. It is not a "one size fits all" approach.

To get the maximum benefit from my updates you need to have a self-assessment of your objectives. Are you most interested in preserving wealth? Or like most of us, do you still need to create wealth? How much risk is right for your temperament and circumstances?

My weekly insights often suggest a different course of action depending upon your objectives and time frames. They also accurately describe what I am doing in the programs I manage.

Insight for Traders

Three weeks ago Felix made a dramatic switch from neutral to bullish adding trading positions throughout the week. That has worked pretty well. We remain fully invested. Most sectors have emerged from the penalty box, reflecting greater overall confidence in the three-week forecast.

In case you missed it last week, I want to highlight the return to blogging of my friend and former Naperville resident, Brett Steenbarger. There is plenty of good fresh content on his blog, but I especially like the post on Ted Williams and the need to pick your spots.

This was also one of my themes back in 2008, when I posted the same chart of Ted and his strike zone. It is a concept behind our Felix model and the penalty box, but it can readily be applied for investors with a longer time frame.

Insight for Investors

I review the themes here each week and refresh when needed. For investors, as we would expect, the key ideas may stay on the list longer than the updates for traders. The current "actionable investment advice" is summarized here.

This is still an important time for long-term investors. We all know that market corrections of 15% or so occur regularly without any special provocation. Recent years have been the exception. Over the last several weeks I have emphasized the need to maintain perspective, using market declines to add to positions. I did this for my clients last Monday.

It helps if you have been actively rebalancing your portfolio and trimming winners. Then you have some cash. Some readers have asked me to write more on this topic, so I have placed it on the agenda. For now, let me do a quick summary.

  1. Review your holdings regularly. (For me, that means at least weekly, but it is my job. Quarterly is probably enough for most people, perhaps with some price alerts). Make sure that your original reasons for the investment are still valid. Revise your fair value and price target estimates.
  2. Do not fall in love with a position. If hanging on to a disappointing holding, make sure your reasons are sound.
  3. Sell if your price target is hit.
  4. Rebalance by trimming if a stock appreciates massively, but remains below the price target.

Each week I highlight some of the best advice I see. Here are some highlights.

Warren Buffett continues to grab the headlines, and we are happy to glean what we can. Most people probably did not see his early-morning appearance on CNBC, covering many interesting topics: Ukraine (he was ready to buy), Stock market rigged? (No), his will (Stocks, with a little cash for needed expenses), and some specific stock advice. Great stuff from Brooklyn Investor.

See also David Merkel's nice treatment of intrinsic value – a deep dive into the annual report that you will not get anywhere else.

Barry Ritholtz emphasizes the importance of process versus outcome. I see this frequently, as investors talk about what has worked recently without analyzing why. Here is a key quote:

Outcome is simply the final score: Who won the game; what numbers came up in a roll of the dice; how high did a stock go. Outcome is the result, regardless of the method used to achieve it. It is not controllable. You can blow on the dice all you want, but whether they come up "seven" is still a function of random luck.

Process, on the other hand, is a specific methodology. It is a repeatable approach to any challenge or endeavor, be it construction or medicine or investing. And you can control a process.

What kind of people are outcome-oriented? Gamblers, many (but not all) sports fans and, of course, speculators.

What about the process-oriented people? They include airline pilots, professional sports coaches and, of course, long-term investors.

And finally, many investors are sitting in cash (Yahoo Finance). This is one of the problems where we can help. Check out our recent recommendations in our new investor resource page -- a starting point for the long-term investor.  (Comments and suggestions welcome.  I am trying to be helpful and I love and use feedback).

Final Thought

Most of the arguments comparing current markets to past tops rely heavily on anecdotal evidence of the infamous charts that try to match up prior times by distorting the scales. It is easy to find similarities between now and any point in history – both good and bad. It is a method that starts with a conclusion and then looks for "evidence." People should know better, but such analogies are difficult to refute and persuasive to those who want to believe.

Downside risk is greatest when there is a recession or a financial crisis. Both risks are extremely low. Even without much growth investors can profit from a sideways market, as I have frequently explained.

There is little discussion about upside potential. Even modest forecasts draw scoffing from the peanut gallery. A few weeks ago Laszlo Birinyi predicted that the S&P 500 could rebound to 1900 by July. His most recent report notes that all of the comments on his article were negative. No wonder the media cater to the scare pieces.

Meanwhile, it is easy to imagine more upside. If the economy strengthens in the second half of the year, there will be less skepticism about the current 2014 S&P earnings of almost $119. The forward earnings yield of 6.33% is an attractive alternative to bonds. (Data but not conclusion from Brian Gilmartin's excellent weekly earnings update). Stir in a little improvement in sentiment and you get forecasts like that of JP Morgan's Thomas Lee – Up 20% for the year with a 1 in 3 chance of a 30% gain.

Many observers cite the slow economic recovery without realizing the implication: This is a longer and slower business cycle. Trying to call a market top based upon average cycle length is an error that everyone is itching to make.

Risk and reward are not as negative as most seem to think.

See the original article >>

One Emerging Market To Buy

by James Gruber

Emerging market, really?
Challenges today
2014 economic outlook
Long-term powerhouse
Valuations stack up
Potential risks

Investors can’t bail fast enough on emerging markets at the moment. And rightly so, given the potential for further problems as I highlighted in last week’s post, Emerging Market Banking Crises Are Next. But the indiscriminate sell-off of emerging markets also opens up some potential opportunities. Asia Confidential thinks South Korea stands out as one such opportunity.

South Korea isn’t really an emerging market though. It’s a US$1.1 trillion economy, the 15th largest in the world. With populations above 50 million, the economy ranks 7th globally. Nonetheless, those in charge of indices such as MSCI still classify South Korea as an emerging market. Which should make you question the entire notion of “emerging markets”, as I do.

That aside, South Korea has tremendous long-term prospects. It’s an open economy with a robust democracy. It’s a world-class manufacturer which has every chance of becoming the next Germany. It has a highly educated and hard working labor force. Unlike its former coloniser, Japan, it’s shown the ability to adapt and reinvent itself. And importantly, the prospect of reunification with North Korea in the not-too distant future would prove a tremendous boon for the South and drive an unprecedented investment boom.

The short-term outlook is bright too. Unlike many other emerging markets, South Korea runs a current account surplus and therefore isn’t vulnerable to capital outflows from QE tapering. It also never had the credit boom that other Asian countries experienced. Significantly, it’s highly exposed, via exports, to economic recoveries in the US and Europe (the latter being more dubious than the former).

To top it off, South Korea is the cheapest country in Asia with a 2014 price to earnings ratio (PER) of just 8.8x. There are a number of world-class companies in South Korea trading at just 6x earnings. Bargains in plain sight, you might say.

Emerging market, really?
To get a sense of the long-term opportunity, it’s important to understand a brief bit of history. South Korea tends to get lost in the headlines of much larger neighbours, China and Japan. Only the threat of North Korean conflict or music poking fun at rich people (Gangnam style) occasionally breaks this trend. But the success story of South Korea is on par with its neighbours.

As many of you would know, South Korea was brutally occupied by Japan from 1910-1945. Post-World War Two, it was split into North and South Korea by the US and Soviet Union. The Cold War was the central driver to the Korean War soon after. The 1953 armistice signed at the conclusion of the war split the peninsula along a demilitarised zone. Technically, South and North Korea are still at war. Some 2 million troops patrol the demilitarised zone, making it the most heavily-guarded border in the world.

Fast forward to 1961 and the rise of Park Ching-hee to the leadership. Chung-hee is known for being the most important ruler in South Korea’s history.

When he came to power, South Korea’s GDP per capita was just US$72. Needless to say, a very poor country. Chung-hee drove South Korea into the modern age with often brutal efficiency. He did this through export-led industrialisation and oversaw the creation of the now-famous conglomerates known as chaebol. Along with Hong Kong, Singapore and Taiwan, South Korea became known as one of the four “Asian Tiger” economies.

During the 1970s though, economic growth slowed as the investment-led model ran out of steam. And resentment grew towards Chung-hee’s authoritarian rule. The President was subsequently assassinated in 1979.

South Korea recovered and, along with many other Asian countries, experienced rapid growth in the early-to-mid 1990s. When exploding foreign debts led to the collapse of Asian currencies, South Korea had to go to the IMF for a record US$58 billion bail-out package. This was humiliating to a proud nation.

South Korea handled the Asian crisis in a very different way to other countries, however. People in countries elsewhere moved their money to the Cayman Islands for protection. In contrast, South Koreans banded together, determined to pay off the debts. People queued up for hours to donate jewelry to the cause.

Unlike a number of other Asian countries, South Korea also let companies fail instead of bailing them out. Some 40% of the biggest companies were allowed to go under. This included multinationals such as Daewoo. Staggeringly, the IMF debt was repaid by 2001 and South Korea’s economy was back on track.

South Korea’s adaptability under dire circumstances stands in stark contrast to others. Its once colonial master, Japan, hasn’t shown the same attributes since 1990. And Taiwan, another former Japan colony, has also failed to remake itself post the crisis.

From 1998, the chaebol brought in professional managers to oversee operations, while the founding families retained control over strategic decisions. They moved fast to build plants in China to give them a low-cast labor advantage. They outspent rivals on research and development. And they weren’t afraid to expand abroad and take on the big boys.

Hyundai is a case in point. It first entered the North American car market in 1986. Funnily enough, its cars initially met with some success as Americans mistook them for Honda cars (they had similar logos). Post that, Hyundai’s cars became a bit of a joke, known for poor design and numerous quality issues.

Instead of retreating though, Hyundai doubled down. In 1998, it offered a ten-year warranty, more than twice its competitors. The move was laughed at by many. By it proved a game-changer for the company and the industry.

In 2005, Hyundai opened its first American plant in Alabama. US competitors dismissed the move, given the enormous problems they were having with high-cost union labor forces in Detroit at the time. The difference was that Hyundai didn’t have these same labor issues. And the plant has now become one of the most efficient in the US.

Turn to today and Hyundai is one of the world’s top-5 car companies. Though it’s certainly not the only South Korean company to have proved itself on the world stage.

Challenges today
South Korea does resemble some other emerging markets in one respect: it relies extensively on an export-led economic model. Exports account for 56% of GDP. And chaebols account for 82% of GDP.

It’s obvious that the country needs to become less reliant on exports and look to the next drivers of economic growth. Those drivers are likely to come from the still undeveloped services sector.

South Korea’s leaders realise the urgency of the task. Recently, President Park Guen-hye (daughter of Park Chung-hee) outlined her so-called 474 plan: 4% economic growth, 70% employment rate and average per-capita income of US$40,000.

Simply put, the plan involves the following:

  • Shift tax benefits from chaebol manufacturers to start-ups
  • Rein in state-owned enterprises
  • Provide support to venture capital
  • Cut back on regulations in a variety of sectors including health and education to promote competition
  • Incentivise employers to hire more young people and women

This isn’t the first time that South Korea has tried to reduce its reliance on exports. In the early 2000s, it granted tax breaks to credit card users in order to spur domestic spending. Predictably, consumers got carried away and delinquencies on credit cards reached 30%. Companies had to be bailed out and economic growth stalled by 2003.

Corporate deleveraging and government restrictions on business borrowing since the 1997 crisis have also encourage bank lending to households. That borrowing has mostly found its way into real estate. Consequently, household debt has grown about 2x GDP since the crisis. And household debt in South Korea is now around 150% of household disposable incomes.

The risks from this debt are limited though. More than 70% of the debt is owed by the top two quintiles by income, which have twice as many assets as debt. Also, South Korea has imposed strict 40% loan-to-value ratios on property purchases. Finally, the central bank has forced some lenders to write off 40% of the value of personal loans, reducing the risks of a consumer debt bust.

However, the challenges of rebalancing the economy and finding new sources of growth remain. Given its track record of adaptability, Asia Confidential is confident that South Korea can reinvent itself again.

2014 economic outlook
So what about the short-term outlook for the economy? Here, the prospects seem reasonable.

Unlike many emerging markets, South Korea consistently runs current account surpluses and therefore isn’t susceptible to capital outflows from QE tapering. It also hasn’t had a credit boom over the past 3-4 years and thus isn’t vulnerable to a hangover on this front.

Prospects for growth look ok too. South Korea’s still large dependence on exports may play in its favour as the country is geared to any recovery in the US and EU. While on paper the US and EU only account for 20% of Korean exports, the number is actually much larger as these are the ultimate destinations for the bulk of Korean exports to emerging markets.

South Korean exports by region

South Korean exports to the US and EU bottomed in 2012 and have steadily improved. Bank of America Merrill Lynch forecasts 8% growth in exports to the US and EU in 2014.

Korea exports to US & EU

South Korea is highly correlated to US growth. Every 100 basis point change in US GDP growth impacts South Korean GDP growth by 80 basis points.

US GDP impact on EM growth

In addition, deflationary fears in South Korea appear misguided. Inflation is likely to return to the 2% level this year after bottoming at 1.3% last year. Signs of rising inflation can be seen in core inflation, which rose almost 3% quarter-on-quarter, in seasonally-adjusted terms, over the last several months. Any rate hikes though aren’t likely until the end of the year, at the earliest.

Lastly, the housing market is showing signs of life after five years in the doldrums. Transaction volumes and prices improved in the second half of last year. Volumes could reach 80,000 units/month in the first half, the third-highest level since 2008. That said, high household debt should limit the extent of the property recovery.

In sum, the near-term outlook isn’t outstanding. But it’s better than most.

Long-term powerhouse
The long-term prospects for South Korea look brighter, for three reasons:

  1. Its already world-class companies are likely to move aggressively up value chains to find new niches to dominate. South Korea is well known for its cars and electronics. It’s also found success in less sexy industries such as shipbuilding too. The top three global shipbuilders are from South Korea. I not only expect continued gains in these type of industries, but new ones too. A highly educated workforce, high investment in R&D and a proven ability to compete and adapt should ensure this.
  2. The aim to boost service industries should pay dividends and provide the next leg of growth for South Korea. Skeptics will point to South Korean historical failures on this front. But it’s increasingly clear that South Korea realises the risks of the country being left behind if it doesn’t rebalance the economy.
  3. The real potential kicker is North Korea. Yes, North Korea is exceedingly poor but it has a disciplined population of 24 million and immense natural resources. Put this together with South Korea’s capital pool and management capability and you have an irresistible combination. It would likely produce an investment bonanza of unprecedented proportions. South Korea is already preparing for unification by keeping its debt low to absorb the huge costs in rebuilding the North. Note also, the President is pushing for unification, recently saying:

“Unification will allow the Korean economy to take a fresh leap forward and inject great vitality and energy. People would even sing “We dream of unification in our dreams”".

If I’m right about the bright long-term prospects for South Korea, the so-called “Korean discount” should fade. For the uninitiated, markets continue to impose a discount on the valuation of South Korean stocks given the often murky operating structures and financials of the large companies.

This view is somewhat outdated given the substantial improvements in business structures and accounting over the past decade. Further improvements should eventually see the discount disappear, providing further upside to Korean stocks.

Valuations stack up
Price is ultimately what matters with any investment. And on this front, South Korea looks attractive. It’s the cheapest market in Asia, trading at just 8.8x this year’s earnings, a 24% discount to Asia ex-Japan’s 11.6x PER. Consensus forecasts 13% earnings growth in 2014, versus 12% for the Asian region.

If you dig a little more, there are some exceedingly cheap valuations for world-class companies. For instance, Kia Motors is trading at 5.9x 2014 PER. Samsung Electronics is also priced at just 6.9x earnings.

Some of the domestically-focused large caps are also priced at levels not seen in other markets. For instance, KB Financial, a consumer bank, trades at a 40% discount to tangible book value (net asset value, in other words). Yes, return on equity at KB Financial is a low 6% but if this improves from abnormally depressed levels, then the discount to book value should diminish too.

Potential risks
No investment is without risks and these risks need to weighed against the potential rewards. I see three key risks for South Korean stocks:

  1. Any recovery stalls in developed markets. The US recovery is painfully slow, but it’s better than elsewhere. Particularly the EU, where deflationary risks remain. If economies in these regions lurch downward again, South Korea would be disproportionately impacted.
  2. The yen is also a big risk. Regular readers will know that I foresee a much lower yen in the medium term given the Abe government’s insane money printing policies. Given a lower yen, Japanese exporters are expected to provide much stiffer competition to their South Korean counterparts going forward.
  3. The obvious long-term risk is North Korea. A messy and violent reunification with the South would seriously dent future economic prospects.

In my view, the first and second risks are already partially if not fully factored into South Korean valuations. If these things don’t eventuate, or not to the extent envisaged, then the upside for stocks is pretty clear.

AC Speed Read

- South Korea stands out as a buying opportunity amid the indiscriminate emerging markets sell-off.

- The country’s short-term economic prospects are positive given its sound financial position reduces risks from QE tapering. Also, its export-led economy has significant exposure to the US recovery.

- Long-term, South Korea manufacturing prowess could turn it into the next Germany. There’s also the prospect of reunification with North Korea, which would prove an investment boon to the South.

- Valuations are cheap as well, with South Korea trading on just 8.8x 2014 earnings. World-class companies such as Kia are priced at just 6x earnings.

- Potential risks include a slowdown in developed market economies and a lower yen making Japanese exporters more competitive vis-a-vis their South Korean counterparts.

See the original article >>

Don't bet on dollar weakness


The US dollar has been surprisingly weak recently. In fact we are at the lows not seen since just after the US government shutdown when treasury default jitters (see post) sent investors fleeing.

Source: barchart

Why is the dollar so weak? Reasons include some economic improvements in the Eurozone and the ECB's persistent hawkish stance. That's been driving up the euro. But the main reason has been the barrage of soft economic data out of the US in the past couple of months.

Source: ISI Group

However, as discussed earlier (see post), the soft economic patch in the US could be transient. We saw a sign of that in the latest US employment report (see story), which is the justification the Fed needs to continue reducing securities purchases. As the weather across the US improves, economic activity should pick up (some leading indicators already support this thesis) and longer term rates are likely to move higher. And with that we should see the dollar strengthen.

See the original article >>

The Innovation Enigma

by Joseph E. Stiglitz

NEW YORK – Around the world, there is enormous enthusiasm for the type of technological innovation symbolized by Silicon Valley. In this view, America’s ingenuity represents its true comparative advantage, which others strive to imitate. But there is a puzzle: it is difficult to detect the benefits of this innovation in GDP statistics.

What is happening today is analogous to developments a few decades ago, early in the era of personal computers. In 1987, economist Robert Solow – awarded the Nobel Prize for his pioneering work on growth – lamented that “You can see the computer age everywhere but in the productivity statistics.” There are several possible explanations for this.

Perhaps GDP does not really capture the improvements in living standards that computer-age innovation is engendering. Or perhaps this innovation is less significant than its enthusiasts believe. As it turns out, there is some truth in both perspectives.

Recall how a few years ago, just before the collapse of Lehman Brothers, the financial sector prided itself on its innovativeness. Given that financial institutions had been attracting the best and brightest from around the world, one would have expected nothing less. But, upon closer inspection, it became clear that most of this innovation involved devising better ways of scamming others, manipulating markets without getting caught (at least for a long time), and exploiting market power.

In this period, when resources flowed to this “innovative” sector, GDP growth was markedly lower than it was before. Even in the best of times, it did not lead to an increase in living standards (except for the bankers), and it eventually led to the crisis from which we are only now recovering. The net social contribution of all of this “innovation” was negative.

Similarly, the dot-com bubble that preceded this period was marked by innovation – Web sites through which one could order dog food and soft drinks online. At least this era left a legacy of efficient search engines and a fiber-optic infrastructure. But it is not an easy matter to assess how the time savings implied by online shopping, or the cost savings that might result from increased competition (owing to greater ease of price comparison online), affects our standard of living.

Two things should be clear. First, the profitability of an innovation may not be a good measure of its net contribution to our standard of living. In our winner-takes-all economy, an innovator who develops a better Web site for online dog-food purchases and deliveries may attract everyone around the world who uses the Internet to order dog food, making enormous profits in the process. But without the delivery service, much of those profits simply would have gone to others. The Web site’s net contribution to economic growth may in fact be relatively small.

Moreover, if an innovation, such as ATMs in banking, leads to increased unemployment, none of the social cost – neither the suffering of those who are laid off nor the increased fiscal cost of paying them unemployment benefits – is reflected in firms’ profitability. Likewise, our GDP metric does not reflect the cost of the increased insecurity individuals may feel with the increased risk of a loss of a job. Equally important, it often does not accurately reflect the improvement in societal wellbeing resulting from innovation.

In a simpler world, where innovation simply meant lowering the cost of production of, say, an automobile, it was easy to assess an innovation’s value. But when innovation affects an automobile’s quality, the task becomes far more difficult. And this is even more apparent in other arenas: How do we accurately assess the fact that, owing to medical progress, heart surgery is more likely to be successful now than in the past, leading to a significant increase in life expectancy and quality of life?

Still, one cannot avoid the uneasy feeling that, when all is said and done, the contribution of recent technological innovations to long-term growth in living standards may be substantially less than the enthusiasts claim. A lot of intellectual effort has been devoted to devising better ways of maximizing advertising and marketing budgets – targeting customers, especially the affluent, who might actually buy the product. But standards of living might have been raised even more if all of this innovative talent had been allocated to more fundamental research – or even to more applied research that could have led to new products.

Yes, being better connected with each other, through Facebook or Twitter, is valuable. But how can we compare these innovations with those like the laser, the transistor, the Turing machine, and the mapping of the human genome, each of which has led to a flood of transformative products?

Of course, there are grounds for a sigh of relief. Although we may not know how much recent technological innovations are contributing to our wellbeing, at least we know that, unlike the wave of financial innovations that marked the pre-crisis global economy, the effect is positive.

See the original article >>

Global Debt Crosses $100 Trillion, Rises By $30 Trillion Since 2007; $27 Trillion Is "Foreign-Held"

by Tyler Durden

While the US may be rejoicing its daily stock market all time highs day after day, it may come as a surprise to many that global equity capitalization has hardly performed as impressively compared to its previous records set in mid-2007. In fact, between the last bubble peak, and mid-2013, there has been a $3.86 trillion decline in the value of equities to $53.8 trillion over this six year time period, according to data compiled by Bloomberg. Alas, in a world in which there is no longer even hope for growth without massive debt expansion, there is a cost to keeping global equities stable (and US stocks at record highs): that cost is $30 trillion, or nearly double the GDP of the United States, which is by how much global debt has risen over the same period. Specifically, total global debt has exploded by 40% in just 6 short years from  2007 to 2013, from "only" $70 trillion to over $100 trillion as of mid-2013, according to the BIS' just-released quarterly review.

It should come as no surprise to anyone by now, but the only reason why global stocks haven't plummeted since the Lehman collapse is simple: governments have become the final backstop for onboarding risk, with a Central Bank stamp of approval - in other words, the very framework of the fiat system is at stake should global equity levels collapse. The BIS admits as much: “Given the significant expansion in government spending in recent years, governments (including central, state and local governments) have been the largest debt issuers,” according to Branimir Gruic, an analyst, and Andreas Schrimpf, an economist at the BIS.

It should also come as no surprise that courtesy of ZIRP and monetization of debt by every central bank, debt has itself become money regardless of duration or maturity (although recent taper tantrums have shown what will happen once rates start rising across the curve again), explaining the mindblowing tsunami of new debt issuance, which will certainly never be repaid, and whose rolling will become impossible once interest rates rise. But of course, under central planning that is not allowed. As Bloomberg reminds us, marketable U.S. government debt outstanding has surged to a record $12 trillion, up from $4.5 trillion at the end of 2007,  according to U.S. Treasury data compiled by Bloomberg. Corporate bond sales globally jumped during the period, with issuance totaling more than $21 trillion, Bloomberg data show.

And as we won't tire of pointing out, China's credit expansion over this period is easily the most important, and overlooked one. Which is why with China out of the epic debt issuance picture, and with the Fed tapering, all bets are slowly coming off.

Bloomberg also comments, humorously, as follows: "concerned that high debt loads would cause international investors to avoid their markets, many nations resorted to austerity measures of reduced spending and increased taxes, reining in their economies in the process as they tried to restore the fiscal order they abandoned to fight the worldwide recession." Of course, once gross government corruption and incompetence made all attempts at austerity futile, and with even the austere nations' debt levels continuing to breach record highs confirming there was never any actual austerity to begin with, the push to pretend to reign debt in has finally faded, and the entire world is once again engaged - at breakneck speed - in doing what caused the great financial crisis in the first place: the issuance of record amounts of unsustainable debt.

All of the above is known. What may not be known is just who is issuing, and respectively, purchasing, this global debt-funded spending spree, especially in a world in which one's debt is another's asset. Here is the BIS's answer to that question:

Cross-border investments in global debt markets since the crisis

Branimir Grui? and Andreas Schrimpf

Global debt markets have grown to an estimated $100 trillion (in amounts outstanding) in mid-2013 (Graph C, left-hand panel), up from $70 trillion in mid-2007. Growth has been uneven across the main market segments. Active issuance by governments and non-financial corporations has lifted the share of domestically issued bonds, whereas more restrained activity by financial institutions has held back international issuance (Graph C, left-hand panel).

Not surprisingly, given the significant expansion in government spending in recent years, governments (including central, state and local governments) have been the largest debt issuers (Graph C, left-hand panel). They mostly issue debt in domestic markets, where amounts outstanding reached $43 trillion in June 2013, about 80% higher than in mid-2007 (as indicated by the yellow area in Graph C, left-hand panel). Debt issuance by non-financial corporates has grown at a similar rate (albeit from a lower base). As with governments, non-financial corporations primarily issue domestically. As a result, amounts outstanding of non-financial corporate debt in domestic markets surpassed $10 trillion in mid-2013 (blue area in Graph C, left-hand panel). The substitution of traditional bank loans with bond financing may have played a role, as did investors’ appetite for assets offering a pickup to the ultra-low yields in major sovereign bond markets.

Financial sector deleveraging in the aftermath of the financial crisis has been a primary reason for the sluggish growth of international compared to domestic debt markets. Financials (mostly banks and non-bank financial corporations) have traditionally been the most significant issuers in international debt markets (grey area in Graph C, left-hand panel). That said, the amount of debt placed by financials in the international market has grown by merely 19% since mid-2007, and the outstanding amounts in domestic markets have even edged down by 5% since end-2007.

Who are the investors that have absorbed the vast amount of newly issued debt? Has the investor base been mostly domestic or have cross-border investments grown at a similar pace to global debt markets? To provide a perspective, we combine data from the BIS securities statistics with those of the IMF Coordinated Portfolio Investment Survey (CPIS). The results of the CPIS suggest that non-resident investors held around $27 trillion of global debt securities, either as reserve assets or in the form of portfolio investments (Graph C, centre panel). Investments in debt securities by non-residents thus accounted for roughly one quarter of the stock of global debt securities, with domestic investors accounting for the remaining 75%.

The global financial crisis has left a dent in cross-border portfolio investments in global debt securities. The share of debt securities held by cross-border investors either as reserve assets or via portfolio investments (as a percentage of total global debt securities markets) fell from around 29% in early 2007 to 26% in late 2012. This reversed the trend in the pre-crisis period, when it had risen by 8 percentage points from 2001 to a peak in 2007. It suggests that the process of international financial integration may have gone partly into reverse since the onset of the crisis, which is consistent with other recent findings in the literature.

This could be temporary, though. The latest IMF-CPIS data indicate that cross-border investments in debt securities recovered slightly in the second half of  2012, the most recent period for which data are available.

The contraction in the share of cross-border holdings differed across countries and regions (Graph C, right-hand panel). Cross-border holdings of debt issued by euro area residents stood at 47% of total outstanding amounts in late 2012, 10 percentage points lower than at the peak in 2006. A similar trend can be observed for the United Kingdom. This suggests that the majority of new debt issued by euro area and UK residents has been absorbed by domestic investors. Newly issued US debt securities, by contrast, were increasingly held by cross-border investors (Graph C, right-hand panel). The same is true for debt securities issued by borrowers from emerging market economies. The share of emerging market debt securities held by cross-border investors picked up to 12% in 2012, roughly twice as high as in 2008.

See the original article >>

An End To Austerity?

by Mark Thornton

President Barack Obama has recently released his budget in which he calls for an “end of austerity.” This is an amazing statement from a president whose government has spent the highest percentage of GDP in history and added more to the national debt than all past presidents combined. What must he mean by austerity?

There are demonstrations around the world over austerity on an almost daily basis. It is condemned as an evil poison for tough economic times while others tout it as the elixir for economic depressions.

The president’s rejection of austerity represents the Keynesian view which completely rejects austerity in favor of the “borrow and spend” — increase aggregate demand — approach to recession. What he really is rejecting is the infinitesimal cutbacks in the rate of spending increases and the political roadblocks to new spending programs.

While the 2009-2012 budgets have been relatively flat, they are still more than 15 percent higher than in 2008 and 75 percent higher than in the previous decade. This four year leap in spending was financed with a $5 trillion increase in the national debt. No austerity here!

The type of austerity that gets the most worldwide press attention on a daily basis is that promoted by economists at the International Monetary Fund. This “austerian” approach involves cutbacks in government services and tax increases on the beleaguered public in order to, at all costs, repay the government’s corrupt creditors. This pro-bankster approach is what generates a massive amount of media attention and sometimes violent demonstrations.

Austrian School economists reject both the Keynesian stimulus approach and the IMF-style high-tax, pro-bankster approach as counterproductive. Although “Austrians” are often lumped in with “Austerians,” Austrian School economists support real austerity. Real austerity involves cutting government budgets by reducing salaries, employee benefits, and retirement benefits. It also involves selling government assets and even repudiating government debt. Instead of increasing taxes, the Austrian approach advocates decreasing taxes.

Despite all the hoopla in countries like Greece, there is no real austerity except in the countries of Eastern Europe. For example, Latvia is Europe’s most austere country and also one of the fastest growing economies. Estonia implemented an austerity policy that depended largely on cuts in government salaries. In contrast there simply is no significant austerity in most of Western Europe or the U.S. As Professor Philipp Bagus explains, “the problem of Europe (and the United States) is not too much but too little austerity — or its complete absence.”

Real austerity for individuals means living a highly restricted lifestyle. The best example is the monk who lives on a subsistence-level diet, wears simple clothing, possesses a few basic pieces of furniture, and uses only necessary utensils. His days consist of long hours of work and prayer with no leisure activities and he may not even enjoy indoor heating or plumbing.

Austerity applied to whole countries, is not necessarily so harsh or ascetic. It simply means that the government has to live within its means.

If government were to adopt a thoroughgoing “Libertarian Monk” lifestyle, then the national government would be cut back to only national defense without standing armies and nuclear weapons. The national debt would be wholly repudiated. This would involve certain short-run hardships, although much greater long-run prosperity.

In contrast, the typical austerity policy is not severe. Government employees would be given cuts in wages, benefits, and retirement benefits necessary to balance the budget. The biggest cuts would fall on politicians, appointees, and senior bureaucrats. Given that such cutbacks occur when most everyone is facing cutbacks and hardships and given that government employees are typically very well compensated, it is not unreasonable to expect them to bear most of the burden of an austerity policy.

One particularly promising area for cutbacks is government regulation. Regulation is a burden on taxpayers, discourages entrepreneurship, and makes us less safe. One recent empirical study found that regulation was extremely costly and that “eliminating the job of a single regulator grows the American economy by $6.2 million and nearly 100 private sector jobs annually.”

Real austerity actually works best with tax cuts. To help austerity create growth it needs to be understood that certain taxes are highly discouraging to production. Tax cuts on investment and capital in contrast stimulate economic activity and production.

IMF-inspired tax increases make no sense. In hard times, government policies should be guided by the idea of increasing production, not of making production more burdensome via higher taxes. In much the same way, our ascetic monk does not force his duties and burdens on ordinary citizens.

President Obama has also suggested higher taxes (again) this time such as the removal of “tax breaks” for the retired rich. This would be the first step toward robbing our IRAs. Some have even suggested that “austerity” should involve extending existing taxes onto charities and nonprofits. Others have suggested taking away the tax-exempted status of charities and non-profits, which is nothing but a backdoor tax increase. These are some of the dumbest suggestions, especially in economic crises and are not real austerity.

Austerity does not mean, for example, budget cuts that would eliminate garbage collection or shutting down the fire department while leaving the military, education, and the spy state untouched. This is just a form of extortion that does not solve the problem. It only reveals the true nature and intent of those who work in government.

The Keynesian stimulus approach does not work. The IMF-inspired austerian approach also does not work. Only real austerity works. This means cutting government employee incomes, benefits, and retirement benefits. This alone would encourage them to run a tighter ship in the future. Eliminating regulators and regulations, cutting taxes, and selling government assets would all aid in the recovery process.

President Obama and Congress should get busy doing what is best for the economy and the American public instead of enriching themselves and those who feed at the public trough.

See the original article >>

a Sunday Stew

by Marketanthropology

See the original article >>

Follow Us