Tag Archives: CNBC

El-Erian On Markets Balance Solvency, Growth and Liquidity

Another week has passed by and more ugly signs of how deep our economic troubles are have emerged. The only thing that keeps our financial house of cards from collapsing is the endless stream of money coming from the central banks – primary the US Federal Reserve and the European Central Bank (ECB). But doubts about the final outcome still persist.

“The health of the global economy, and that of markets, depends on the success of a series of medium-term handoffs between the public and private sectors – in growth, balance sheets and credit flows. This week’s data highlighted their complexity.”

Mohamed El-Erian 

In spite of the massive injection of money into the financial system by the central banks, key economic indicators continue to disappoint.  And by now, the central banks have painted themselves into a corner where there’s little else to do. The global economy is practically in state of stagnation – the next stage is depression…

Mohamad El-Erian at PIMCO is one of the top leaders who have managed to keep his cool and not lose his head throughout this whole mess so far.

He openly admits he does not have all the answers, but as usually he points to some key factors that we all should be aware of.

Here’s his latest commentary, as published by CNBC today:

“The health of the global economy, and that of markets, depends on the success of a series of medium-term handoffs between the public and private sectors – in growth, balance sheets and credit flows. This week’s data highlighted their complexity. Fortunately for investors, the valuation impact is being compensated by central banks‘ wide open liquidity spigots,” El-Erian writes.

And continues:

To counter disorderly private sector de-levering and avoid an economic depression, governments and central banks around the world have aggressively ballooned their balance sheets.

This has helped heal some private balance sheets but job creation has remained very anemic, income inequality has increased, and growth has been too weak to allow for the de-levering of the public sector (including fiscal deficits and central balance sheets which now vary in size from 20% of GDP in the US to 30% in Europe).

In the US, Friday’s disappointing GDP print for the fourth quarter was a reminder of the challenge, especially in view of a less-than-reassuring composition.

Consumer growth was limited to just 2% notwithstanding yet another decline in the savings rate to 3.7%, a level last seen at the end of 2007. Export growth also decelerated. Indeed, were it not for a surge in inventory, the economy would have probably succumbed to the drag from government components.

The extent of the growth challenge in Europe was highlighted by Friday’s higher than expected increase in Spanish unemployment (to an agonizing 22.9%).

Meanwhile several of the region’s governments, ECB, IMF and private creditors continued to squabble about how to allocate the inevitable losses on Greek debt.

In Portugal, another highly vulnerable economy, market measures of default risk reached record highs this week.

The longer such solvency and growth indicators continue to flash red in Europe, the more likely that capital will continue to flee; and the harder it will be to overcome the region’s debt crisis.

Dr. Mohamed El-Erian is CEO and co-CIO of PIMCO, the bond investment house.

Read the full post at CNBC.

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Wikileaks About to Dump Its 5 Gigabyte Bank File?

Something curious is going on at WikiLeaks. The last release of diplomatic cables from WikiLeaks came out on January 4th. This three-day gap between Wikileaks releases is the longest ever to occur since Wikileaks began releasing the diplomatic cables, senior editor John Carney at CNBC points out.

“I suspect this means something big is about to come out of WikiLeaks.”

John Carney


We still don’t know for sure what bank the documents will allegedly indict. But all indications point to Bank of America. There have also been frenetic activity on the inside of the bank giant lately, with lawyers and spin doctors going through every little piece of stored information that might incriminate Bank of America as an “ecosystem of corruption” or expose the banks fraudulent practice in handling foreclosures. A court ruling on Friday sent ripples through the real estate industry yesterday ruling that banks and lenders must have proper documentation before foreclosing on a home.

Something curious is going on at WikiLeaks.

Or, rather, something is not going on. And that’s curious, according to CNBC senior editor John Carney.

John Carney

“I suspect this means something big is about to come out of WikiLeaks. Something they are taking their time to put together. And that is likely to be the much talked about release of the tens of thousands of documents WikiLeaks founder Julian Assange shows a culture of corruption inside an US bank,” he writes in a new blog post.

“I do not think its a stretch to expect something big to follow Wikileaks’ silence. They published new documents when Assange was arrested. There was a release on Christmas eve and Christmas day. They didn’t rest on New Year‘s eve or New Year’s day.”

And now we’ve had three days of silence.

“Something is coming,” Carney concludes.

Read also:

* Wiki-Founder Compare Upcoming Bank Leak To Enron

* WikiLeaks With 5GB File On Bank of America

Well, to me it seems like the snowball started to roll last Friday after the ruling in the Supreme Court of Massachusetts, stating that banks and lenders must have proper documentation before foreclosing on a home.

Bank of America have been at the center of the foreclosure scandal, together with Wells Fargo. JP Morgan Chase and US Bankcorp.

In second half of 2010 it became clear that the banks had automated the foreclosure process, leaving homeowners no or little possibility to negotiate new terms for their mortgage payments.

As a result thousands have wrongfully been forced out of their homes.

(Read more at; loanworkout.org)

This is just getting better by the minute….

Stay tuned!

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The Economic Recovery Myth

Former OMB director David Stockman points out that the US government sector for the first time in history is shrinking: “The reason is that governments are broke… we are going to have to cut back government employment,” he says.

“I don’t think the market discounts anything anymore.”

David Stockman


“If you take core government plus the middle class economy (65 million jobs), that’s the breadwinning economy, if we take some numbers – how many jobs in the “core economy” in November – zero; how many jobs since last December: net zero; how many jobs since the bottom of the recession in June 2009: still a million behind from when the recession ended.”

As to whether the economy can grow without employment growth: “I can’t imagine how it can because employment growth generates income growth which is the basis for spending and saving ultimately and we are not getting income growth out of the middle class.”

According to Stockman the job growth has come almost exclusively from the part-time economy, saying:  “There is 35 million jobs in that sector, with an average wage of $20,000 a year: that is not a breadwinning job, you can’t support a family on that, you can’t save on that. Those jobs will not generate income that will become self-feeding into spending.”

And about the fact that the stock markets keeps on rising in spite of everything, Stockman says:

“I can’t explain the market… I don’t know what it is pricing today, I don’t think the market discounts anything anymore, it is purely a daytraders’ market that is trading off the FED, trading off the headlines. One day it is manic, the next day it is depressive, and we can’t draw any conclusions.”

From CNBC:

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(h/t: Zero Hedge)

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