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Top 10 Financial Reasons Blessings This Year
Nov 28th
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Yep, it’s been a tough year. There’s still much to lament, such as decades-high unemployment, rising budget deficits and shaky financial institutions, but considering the abyss we were staring squarely into at this time last year, we’ve also come a long way and made great strides toward a healthier economy. So, as we enter the traditional Thanksgiving period, let’s take a few moments to give thanks for the modest financial gifts we’ve received this year – and maybe more importantly, give thanks that in many cases, our worst financial fears failed to materialize.
1. Major Stock Indexes Rise
Good tidings! Major stock indexes are up 60% since their March lows. The rebound in our equity markets has been critical on several fronts. First, it has helped stem the losses seen in retirement accounts like 401(k)s and IRAs. These retirement accounts are increasingly the No.1 funding vehicle for retirees, so recouping any losses here is a big help, especially to the baby boomer demographic.
There’s also a confidence issue at play, and our stock markets – for better or worse – are a de facto barometer, an economic "feel-good" factor. Fortunately, stock markets look forward, not back. Right now, they’re telling us they anticipate better times down the road.
2. GDP Growth Returns
Gross domestic product growth is the engine that makes everything go in our economy. GDP growth leads to stock market growth contributes to job and wage growth, and increases tax revenues for state and local governments to help balance their budgets. We obviously need all of these things, and the GDP growth of 3.5% in the third quarter was a good start.
We still need consistent GDP growth over several quarters to claim economic victory, and we need it to be more organic, not artificially spurred by government stimulus and one-time fiscal measures. As we look forward to 2010, this will be the biggest catalyst to getting us out of this recession and bringing down our nosebleed unemployment level.
3. Banks Repay Their TARP Loans
Ten of the banks that received Troubled Asset Relief Program (TARP) funds were allowed to repay $68 billion to taxpayers in June, and most of the major recipients have committed to fully repaying their TARP loans over the next 24 months. Also, as the stock prices of major banks rise, the chances of the government earning a good return on its TARP loans and direct investments only increases.
Even the much-maligned auto makers are starting to make good on their promises to pay. General Motors even announced that it would start repaying its $15+ billion in federal loans.
4. Home Prices Are Stabilizing
While home prices are still down 30% from their peak, prices in many geographic areas ticked upward in August, September and October according to the benchmark Case-Shiller Index.
If home prices can stabilize and even (gasp!) begin to rise in 2010, the hundreds of billions in mortgage-backed securities (MBS) can begin to improve the balance sheets of our battered financial institutions rather than deteriorate them, as has happened for the past two years. There’s still much progress that needs to be made, however, as mortgage delinquencies are still on the rise, and the threat of higher interest rates looms on the horizon. But hey, it could be worse – a lot worse.
5. First-Time Homebuyer Tax Credit Is Extended
The $8,000 tax credit for first-time homebuyers was scheduled to end on December 1, but those who didn’t get on board in time have plenty of reason to be grateful. President Obama recently extended the credit until June 2010 in an effort to help to spur the housing market further. It was a smart move by Congress, as new housing starts remain at multi-decade lows, and inventory levels are still high across the housing market. The tax credit was also expanded to include income levels of up to $125,000 for individuals and $225,000 for joint filers.
6. Corporate Profitability Is Getting Stronger
Profit margins have been strong at corporations over the past few quarters as inventories have been depleted and costs wrung out of business models. We still need to see more demand in the form of revenue growth, but stabilization and earnings per share (EPS) growth is good and companies should come out of this whole mess stronger, smarter and looking to hire if conditions continue to improve. Higher EPS numbers also mean more tax revenues, which are sorely needed.
7. The Rest of the World Is Resilient and Growing
Another good sign: Many foreign markets are doing quite well. GDP growth in China and India is tracking above 7% for the year, Brazil is growing and will begin its mega infrastructure roll-out to prepare for the Olympics in 2016, and smaller emerging economies in South America and Asia are holding steady and/or growing.
The internal, domestic economic strength of these foreign markets will help U.S. exporters to sell more goods, which represent over half the earnings of S&P 500 companies.
8. Inflation Is at Bay
Inflation has yet to appear, which is keeping interest rates low. This is helping the U.S., as it must borrow heavily to fund its growing budget deficits. Most economists do agree that inflation is inevitable down the road given all the money being sloshed around Washington and Wall Street, but there seems to be enough slack in the economy that we may have a few more quarters before inflation creeps up on us. By then, hopefully the economy is on better footing, which will allow the Federal Reserve to raise rates slowly, without stifling the recovery.
9. Regulatory Scrutiny Has Increased
The Securities and Exchange Commission (SEC) has been near the top of a long list of entities that deserve a good finger-wagging for errors of submission or omission leading up to the financial crisis. But new measures are being put into place to protect investors from fraud and negligence by their financial advisors and corporate CEOs.
Whether the SEC is up to the task remains to be seen, but you can bet that they are embarrassed and bruised, and will be on the warpath to find the next problem before it blows up in their face. Any increased diligence by the SEC, or by groups like the credit ratings agencies (who are also quite red in the face) can only help investors in 2010 and beyond.
10. We’re Still Standing!
Last year at this time, many wondered if our financial system would even survive at all. It did (thank goodness), and that may be the best blessing of all.
Are Chinese exports good for U.S. economy?
Nov 18th
By Chris Isidore, CNNMoney.com senior writer
On 5:04 pm EST, Tuesday November 17, 2009
As President Obama completes his trip to China, it’s a natural time to ask if trade with the greatest source of U.S. imports is a good thing or bad thing for the still battered U.S. economy
Obama said he spoke to Chinese President Hu Jintao about the need for more balanced trade between the two major trading partners. He also urged China to allow the Chinese yuan to gain value against the dollar.
But he also told an audience of students in Shanghai this week that increased trade between the two nations is good for both countries, despite some friction between the two governments. And Obama said he hoped that trade will continue to grow.
"This trade could create even more jobs on both sides of the Pacific, while allowing our people to enjoy a better quality of life," Obama said.
But there are plenty of critics who believe that nothing good comes out of the U.S. trade gap with China, which so far this year has dwarfed the combined gap with the rest of the world by more than a third.
"I think the U.S.-China relationship was the worst economic policy mistake of the last generation," said Scott Paul, executive director of Alliance for American Manufacturing, a coalition of small-to-mid-size manufacturers and some unions which has been a long-time critic of U.S. trade policy.
Paul and other critics argue currency manipulation by the Chinese to undervalue their currency, government subsidies to Chinese manufacturers and low wages paid to Chinese workers have put U.S. workers at an unfair disadvantage.
The Economic Policy Institute, a liberal think tank, estimates that 2.3 million U.S. jobs were lost between 2001 and 2007 due to the Chinese trade gap.
University of Maryland professor Peter Morici has written that this trade gap "threatens to torpedo the economic recovery and keep unemployment above 10 percent for the foreseeable future."
But others argue that even if there needs to be some changes in U.S.-China trade policy, the U.S. economy benefits more than it is damaged by the relationship.
Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, said that there is little evidence to support that trade gaps lead to big increases in job losses.
"If it was a cause of unemployment, why wasn’t unemployment rising from the late 90’s all the way through to today as Chinese imports rose," he said.
Jay Bryson, global economist with Wells Fargo Securities, added that even though the growing trade gap has caused some harm to the U.S. economy, there are plusses that should not be overlooked.
"It doesn’t mean that every person in the United States benefits, but from a national perspective it’s a positive," said Bryson.
Bryson and Hufbauer both said that lower priced Chinese goods reduces the cost of living for American consumers, giving them more money to spend on other goods and services.
Bryson said limiting Chinese imports through tariffs or other barriers would raise the price of those goods.
"While it would protect the jobs of some people making toys or shirts here, it would cost other jobs because we wouldn’t have the money to spend on other goods and services," Bryson said. "If I’m spending more on toys for my kids or my shirts, I have less money to go to the movies or go out to a restaurant."
Hufbauer conceded that the Chinese yuan is grossly undervalued. But he said there is reason to hope for some change on that front.
China has pegged its yuan to the dollar, rather than letting it trade freely like other currencies. So it has been declining as the dollar has lost value in recent months.
The decline in the yuan means that other countries in Asia and Europe are starting to pressure Chinese leaders to allow their currency to trade more freely. And strong economic growth in China, coupled with the declining dollar, is creating inflation risks for China.
So the Chinese may start to relent on the yuan due to their own self interest, rather than American pressure.
"Once there is some evidence the global recovery is more sustainable, the Chinese worries about inflation are likely to mean they’ll allow [the yuan] to appreciate versus the dollar," said Bryson.
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