Category Archives: Economy

The Housing Market And Construction

Economy

The housing market is one of the main factors holding the economy down and of course there are different views on how to revive it. On one hand, Don Hays, the president and the chief investment strategist of Hays Advisory, said on Yahoo Breakout, that the government should stimulate the construction industry which has 2.2 million people out of work. This will give them jobs, start money moving into the economy.

On the other hand, are people who say not to give stimulus to banks that are holding unpaid mortgages. I must agree with them. There are so many houses out there. The banks should sell them and cover the mortgage, or the majority of the mortgage. When the banks gave mortgages, they took risks. Now the chickens are coming home to roost, deal with it.

The government could help by making mortgage payments income tax free for people who need financial assistance. These people are buying houses to live in, not investment properties. It could give similar tax breaks to current homeowners in financial difficulties. These incentives would help people to buy existing houses which are “underwater” and at the same time help people in need.

Additionally, not all is bad in the construction market. A company that looks like a solid investment is the Fluor Corporation. It has projects in several countries such as working with the Caspian Pipeline Consortium in Kazakhstan and Russia. They are also working with SSPCO, a joint venture company formed by Evonik Industries and Saudi Acrylic Acid Company in Jubail, Saudi Arabia. Fluor also has a contract with BHP Billiton Iron Ore in Western Australia developing the Port Hedland Inner Harbour. In addition, British Columbia Mining Joint Venture (BCMJV) which is 50% owned by Fluor, has made an agreement with Terrane Metals Corp to work on a copper and gold project.

Fluor has a marketing capitalization of $9.76 billion which is fairly large in the construction industry. Its P/E ratio is 27.13 and its net profit margin is 2.12. Earnings per share are 2.02. The CEO is David T. Seaton. He has been with the company since 1985 and during those 26 years has held ten positions giving him wide exposure to the various operations of the company. Alan Boeckmann is the new non-executive Chairman of the Board and D. Michael Steuert has been the CFO since 2001.

Should One Invest In Bank of America?

Economy, Investments, , ,

Yes and no. The banking industry was hit very hard in 2008 and has been improving itself since then. The sub-prime crisis left banks with so many mortgages and unpaid debts that many banks went under. Many surviving banks were saddled with unpaid mortgages which are still weighing them down.

This is what happened to Bank Of America Corp in 2008. The Bank of America’s was also criticized for purchasing Merrill Lynch which also put it further into debt. Since then the banking industry in general and Bank of America in specific has made changes to improve financial responsibility and profitability. The purchase of Merrill Lynch caused such criticism that the then CEO, Kenneth D. Lewis was forced to step down and Brian T. Moynihan replaced him as CEO. Ironically, when the first quarter results of 2010 came in, Brian Moynihan gave much of the credit to profits to the Merrill Lynch division. Since becoming CEO, Moynihan has sold over 20 non-core business segments in order to focus on the core profit-making activities.

Aside from the real estate sector, the bank made a 3.7 billion dollar profit for the second quarter. This was wiped out by a real estate court settlement, but shows that the company will be fundamentally strong when it clears up its problems from the sub-prime disaster, including a major suit by AIG. Should one invest in Bank of America? Yes, but not now. Give it time to heal from its sub-prime problems and then buy. My estimate is to buy in 2014.

Economic Troubles Bring Protests

Economy, ,

London has just passed three nights of rioting by hundreds of people in major cities. England and other countries are experiencing turmoil combined with worldwide economic uncertainty and stock market weakness.

There are many examples of how economic ills are bringing protests and strife in line with the model of the “Arab Spring Uprising.”

In England, violence was triggered by the death of Mark Duggan who had been killed by police, however, discontent has been brewing for a long time. In late June, 50% of the English government schools were closed by intense protests over public worker pension cuts. Three teachers’ unions, customs and immigration workers, and air traffic controllers went on strike with 750,000 protestors taking to the streets. Discontent has been growing for years among Britain’s poor and the English government has been heavily criticized for cutting funds to social programs to reduce the debt. The social program cuts have hit the youth who are now rioting.

  • Spain, Portugal and Greece saw a variety of riots, massive protests and strikes due to government budget cuts and unemployment.
  • In the Philippines, thousands of people demonstrated for the government to protect their jobs and for better wages.
  • In China, thousands of people fought police for three days to protest declining living standards. Also almost 1,000 taxi drivers blocked traffic in Eastern China on August 1.
  • In Syria, people have been protesting and rioting for both economic and political reforms over the last 5 months. So far, 1,600 people have been killed by government forces.

So far in the United States there have been no riots or major protests. However, with an unemployment rate of 9% and a discouraged workers rate of about 7% we are approaching 16% of the population with no income. Add to that the increased prices of basic necessities and America may eventually have its own Arab Spring Uprisings.

How Widespread Is This Economic Decline?

Economy, , , ,

Recession HereThe Federal Reserve’s announcement that it would maintain interest rates very low for at least two years indicates that the Fed expects a real recession of at least a year.

Meanwhile concerns about the global economy cut off Europe’s stock market rally and has not stopped the Wall Street decline as of this morning. In Germany, the DAX fell 1 percent to 5854 while the English FTSE 100 index of top English shares fell by .7 percent to 5124. France’s CAC-40 dropped by 1.9 percent to 1153.

Another sign rocked the financial community when the U.S. Government released a report that the U.S. economy grew much less than expected during the first half of 2011. This indicates a significantly greater chance of recession.

Another major market worry is the European Debt Crisis. Italy and Spain may well need bailouts and investors have ceased to purchase their bonds. The ECB (European Central Bank) has begun buying these countries’ bonds worth billions of Euros. This action has helped alleviate the high yields on Italian and Spanish bonds which dropped to approximately 5%.

What we see is an across the board fall, in not only the American stock markets, but also across the European markets. This is consistent with a worldwide recession starting in American and Europe and spreading to Asia and the Middle East.

International Banks To Cut 100,000 Jobs Very Rapidly

Economy, Investments, ,

The largest international banks will be firing employees at the quickest rate since 2008. The cuts are due to the weak U.S. economy, government demands that companies hold more cash reserves, and company reorganizations to increase income.

The 50 biggest banks have been planning since January to reduce 60,000 through July which would equal 100,000 jobs by year end. HSBC alone plans to drop 30,000 jobs. In addition Bank of America Corp and Credit Suisse Group AG plan for combined layoffs of another 30,000.

International bank regulators are attempting to strengthen the solvency of the banks by demanding that the banks hold larger cash reserves. In addition, U.S. banks have been working against low loan growth and low interest rates which will limit their earnings. Many banks are also trying to withdraw investments from countries that are financially depressed and reinvest in faster growing countries such as India, Brazil and China.

Cutting jobs will increase unemployment and government funds needed to support these people. Unemployment is over 9% with another approximate 6% people who have given up looking for jobs and another 3% under-employed. This unemployment is another major drain on the economy indicating another strain that will drag America down over the short to midterm future.