Market Update – June 18, 2012
Today’s thoughts and some of the things that I’ve read…
Greece’s new coalition government. The Greek parliament has 300 seats. After Sunday’s election (based on 80% of the votes counted), New Democracy (pro-euro) received 29.9% of the vote, Syriza (anti-euro) received 26.7% of the vote and Pasok received 12.4% of the vote. (There are several other small / fringe parties that received votes.) The winner (New Democracy) receives a bonus of 50 seats in the Parliament. As a result, they will have approximately 130 seats, Syriza will have 71 and Pasok will have 33. New Democracy and Pasok will form a coalition government (so that they will have more than 150 seats).
Some stats on Greece. Over the past three years, GDP has contracted by 16%. GDP is expected to contract by somewhere from 4.5% – 7% this year. Unemployment is near 22%. Their debt-to-GDP ratio is 165%. They have 165,000 pending tax cases and the government is owed approximately $81 billion in past taxes. It is believed that their unit labor costs are still uncompetitive. Do you really think that the new coalition government can solve these problems?
Bankers and consultants. Overall, I’d prefer that the US were a net exporter rather than a net importer. Some of the largest exporters (Germany and China) are doing pretty well right now. (Of course, there are exceptions such as Japan.) But, our graduates don’t want to be in manufacturing. If you look at Harvard’s 2010 graduating class (which is probably most indicative of the top students who can pick their job), 39 percent went to work in finance or management consulting. At Columbia, it was 34 percent. This isn’t promising.
Happy Father’s Day! A middle-income family may spend $234,900 to raise a child born in 2011 to the age of 18, a 3.5 percent increase in a year, according to a government report. The typical two-parent middle-income family spent $12,290 to $14,320 in 2011 on each child, the study found. A family earning less than $59,410 a year will probably spend $169,080 in 2011 dollars to rear a child, while parents earning more than $102,870 may pay $389,670, according to the study.
Rosenberg is wrong. David Rosenberg was on a panel that I attended recently (Lew Spellman’s event that I had advertised previously). He said that he is becoming more confident that the U.S. will handle our problems because of what he’s seen in Wisconsin and California. In other words, there’s been support for politicians who have attacked unions (in Wisconsin) and there’s been support to control pensions of municipal workers in some California cities.
I disagree with Rosenberg’s optimism. There’s little question that you can convince part of the electorate to vote to reduce the rights and benefits that have been promised to a smaller part of the electorate. In other words, if I’m the typical voter, I’ll vote for someone who will cut YOUR pension. I’m not going to vote for someone who will cut MY social security.
Disposable income is dropping. On an inflation-adjusted, per capita basis, disposable income has, on average, been contracting since April 2011. Disposable income includes wages and government transfer payments. Many people are finishing their 99 weeks of unemployment insurance. This past week, 135,000 Americans reached their benefit limit. A week ago, 105,000 people finished.
Anecdotal evidence on income inequality. If people at the top are seeing their income grow faster than people in the middle, income inequality is growing. Anecdotal evidence shows this to be the case. Median pay of the nation’s 200 top-paid C.E.O.’s was $14.5 million, according to a study conducted for The New York Times by Equilar. The median pay raise among those C.E.O.’s was 5 percent. The 5% increase is smaller than last year.
Say-on-pay laws. Dodd-Frank requires public companies to give shareholders a vote on compensation at least once every six years. This year, 1,714 companies have already had them. Among these, 45 companies’ pay strategies have been rejected by shareholders.
The Euro. In May 2011, the euro was trading at about $1.50. Late Friday, it was at $1.26, near a two-year low. During its existence, the euro has traded as low as 86 cents and as high as $1.60. Some analysts are citing the dollar’s recent 10% rise against the euro as a source of deflation.
Have a great week.
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