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European Economic Recovery Ended In Q2

  • Written by Syndicated Publisher No Comments Comments
    August 20, 2014

    As feared, Europe’s shaky recovery from the Great Recession ended again in the 2nd quarter, at least for now.

    The 18-nation euro-zone has struggled mightily to recover from the 2008 meltdown. It dipped back into recession after its initial recovery. And now its recovery from that double-dip lasted just four quarters.

    It was reported this morning that the 18-country euro-zone showed 0.0% growth in the 2nd quarter, down from 0.2% in the first quarter, and missing the consensus forecast for at least tepid growth of 0.1%.

    The four quarter recovery had been led by Germany, the euro-zone’s largest and previously strongest economy.

    But its growth plunged from positive +0.7% growth in the 1st quarter to negative –0.2% contraction in the 2nd quarter.

    France, the euro-zone’s second largest economy, reported its economy showed no growth (flat) for the second straight quarter.

    Italy, the euro-zone’s third largest economy, reported negative growth of –0.2% for the 2nd quarter.

    Germany, France, and Italy account for 66% of the euro-zone’s economy.

    That is not good news globally, since the economy of the euro-zone is as large as the economy of the U.S., in fact fractionally larger.

    So far anyway, the European Central Bank (ECB), has left its forecast for GDP growth in 2015 unchanged at a tepid 1.5%, believing the second quarter slowdown was only temporary.

    However, the war of dueling economic sanctions between both Russia and the EU/U.S. will likely have an unexpected additional negative economic impact on both sides over coming months.

    Ah yes, big banks and regulators. There they go again.

    Investigations after every significant bear market, or bursting of an asset bubble, reveal the fraudulent activities of the major banks and brokerage firms.

    Investors are shocked and angered at the extent of the chicanery revealed in the investigations, and demand punishment and regulations to prevent it from ever happening again.

    However, as I have written more than a few times over the decades, every time investors soon confirm the age-old observation that they have short memories.

    Wall Street firms learned that long ago. They know that all they have to do is lay low, make reassuring statements, and wait. When markets recover, as they always do, when investors are making profits again, and the government assures them they are considering new regulations that will prevent a recurrence of previous problems, the prior anger fades.

    The new regulations Congress promised investors are also pretty much forgotten, allowing them to be dramatically watered-down, if passed at all.

    Nothing has changed in this cycle.

    Here we are in 2014, six years after the 2008 crisis, five years after the hugely publicized and promising congressional hearings, investigations, and proposed tough new regulations, still waiting for the most important of those new regulations to be implemented.

    One of those is the Volker Rule, part of the once so promising, and now so watered-down Dodd-Frank financial reform law of 2010. The Volker rule requires banks to divest themselves of investments in private-equity and venture capital operations, and prohibits them from making speculative bets with their capital. A few have already partially complied in advance of implementation of the rules, spinning off part of their ownership in hedge funds, and private-equity operations.

    However, Reuters reported yesterday that, “Bank officials, financial trade groups, lobbyists and lawmakers, are quietly pressing the Federal Reserve to delay implementation of key requirements in the Volker Rule”. They are pushing for a further delay of up to 7 years.

    Then there are the promised punishment of the wrong-doers.

    Charges are filed with great publicity. Bu years pass. No one goes to jail. Some may receive golden handshakes and multi-million dollar exit packages to fade into the sunset. Most everyone else remains in place.

    Long after firms have been bailed out and are making huge $billion profits again, they settle the charges out of court, not with individuals paying, but with the corporation paying out of their profits.

    I wonder how many investors are aware that in 2012, individual major banks agreed to pay more than $10 billion in out-of court settlements of fraud charges. Of course the settlements included the standard provision that the firms neither confirm nor deny the charges.

    Last year, 2013, in another series of cases, major banks including Bank of America, Wells Fargo, JP Morgan, UBS, CitiGroup, and others, agreed to more than $17 billion more in out of court settlements.

    In 2014, Credit Suisse pleaded guilty to helping wealthy U.S. citizens evade taxes. It paid a fine of $2.6 billion.

    President of Boston Fed calls for a broad review of brokerage rules.

    As MarketWatch reported yesterday:

    “The brokerage industry remains vulnerable to financial panic, or runs, and tougher federal oversight is needed, said Eric Rosengren, the president of the Boston Fed, on Wednesday.

    “Given the widespread support provided to broker-dealers and the difficulties they encountered during the crisis, a comprehensive re-evaluation of broker-dealer regulation is overdue,” Rosengren said in a speech to a conference on wholesale funding in New York.”

    “It is surprising that broker-dealers are still allowed to fund long-duration risky assets with short-term repurchase agreements. Bank holding companies that include broker-dealers may have to hold more capital than banks that are not in the business, he said.“

    To read my weekend newspaper column click here: European Markets Look Downright Scary

    Our Seasonal Timing Strategy:

    It doesn’t ‘work’ every year. Last year it was up only 18.7% compared to the S&P 500 being up 31.7% (including dividends). In 2012 it was up only 7.7% when the S & P was up 16.1%.

    But those occasional underperforming years sure have not affected its long-term performance, thanks to the way it avoids the large losses the market periodically experiences.

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    “Buy and hold will do what buy and hold has always done; allow you to reach the giddy heights of the top of the roller coaster before experiencing the fear (and financial loss) of the downhill slide.”  Joseph L. Shaefer, CEO, Stanford Wealth Management.

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 

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