Posts Tagged ‘investment’

Economists Say U.S. Economy Is on the Road to Recovery

Wednesday, April 27th, 2011

The American recovery is on the road to recovery, unless the mounting federal deficit slows its momentum.

A recent survey by Smart Brief and the international market research firm Ipsos of 841 financial professionals found that 67 percent think that stock prices will rise this year and that the country’s economic output will increase by 65 percent; another 59 percent said they expect unemployment to decrease slightly in the next 12 months.  The survey found that even such modest optimism is tempered by expectations of rising health care costs (88 percent); higher fuel prices (85 percent); rising prices for durable goods such as appliances, automobiles and consumer electronics (72 percent); and slightly higher interest rates (59 percent).  Additionally, 43 percent expect home prices to continue declining, while only 21 percent expect them to rebound; 34 percent expect no change.  By a margin of 70 percent – 30percent, respondents oppose allowing states to declare bankruptcy; 77 percent expect the nuclear disaster in Japan to drive greater investment and funding into renewable energy.

“Financial professionals are cautiously optimistic about economic prospects in the near term; indeed, they think that the overall scenario will improve, and they’re making business decisions on that basis, such as increased investment and hiring,” said Ipsos Managing Director Cliff Young.  “That being said, there are still concerns in the short to medium term about the increased costs of inputs such as fuel and durable goods.”

Larry Summers, former president of Harvard and architect of the Obama administration’s stimulus plan agrees, noting that “An economy in economic freefall has now recovered for 18 months,” he said.  “Make no mistake, the American economy has a feeling of normalcy that was completely absent in 2009 and that is a substantial achievement.”  Summers warned that the nation faces new challenges, including reducing the 8.9 percent unemployment rate, which he said is “far, far too high.”  He said it will be important for the US — and Massachusetts, in particular — to keep the life sciences industry strong.

To keep the recovery on track, the International Monetary Fund urged the United States to speed up efforts to slash the budget deficit.  “It is important the United States undertakes fiscal adjustment sooner rather than later,” said Carlo Cottarelli, director of the IMF Fiscal Affairs Department, the U.S. is projected to have a fiscal debt balance as a percentage of GDP of 10.8 percent in 2011, the biggest percentage among advanced countries. “Market concerns about sustainability remain subdued in the United States, but a further delay in action could be fiscally costly,” the IMF said.

According to the IMF, although most advanced economies have taken steps to tighten budget gaps, two of world’s largest economies — Japan and the United States — had delayed action to maintain their recoveries.  “Countries delaying adjustment in 2011 will face more significant challenges to meet their medium-term objectives,” the IMF warned in its updated “Fiscal Monitor” report.

It’s the Jobs, Stupid.

Wednesday, February 16th, 2011

President Obama recently took a short stroll from the White House and through Lafayette Park to give a speech in what might be termed enemy territory – the U.S. Chamber of Commerce. The subject was jobs and what the Chamber can do to jump start hiring by the companies that form its membership.  Noting that American companies are sitting on approximately $2 trillion in cash, the president challenged the Chamber to invest some of that money by hiring Americans who are out of work.

“Many of your own economists and salespeople are now forecasting a healthy increase in demand.  So I want to encourage you to get in the game,” Obama said, referencing the tax credits his administration negotiated to spur new investments.  “As you all know, it is investments made now that will pay off as the economy rebounds.  And as you hire, you know that more Americans working means more sales, greater demand and higher profits for your companies.  We can create a virtuous cycle.  Not every regulation is bad; not every regulation is burdensome on business,” he said.  “Moreover, the perils of too much regulation are matched by the dangers of too little.”

Relations between the president and the Chamber – one of the nation’s most powerful lobbying groups — have been chilly and the speech was an effort to find common ground.  Since the Democrats’ defeat in the November mid-term election, Obama has been trying to mend fences with big business.  One part of that strategy was to hire Bill Daley, a former Chamber board member and JP Morgan Chase executive, as his new chief of staff to replace Rahm Emanuel.  Additionally, he named General Electric CEO Jeffrey Immelt to head an economic advisory panel dedicated to job creation.  According to the president, “I will go anywhere anytime to be a booster for American business, American workers and American products, and I don’t charge a commission.”  

The Chamber gave the president a warm welcome, with the organization’s president Thomas Donohue expressing the body’s “absolute commitment” to working with the White House on turning around the economy and creating new jobs.  “Our focus is finding common ground to ensure America’s greatness in the 21st century,” he said.  “America works best when we work together.”

The president’s remarks came on a day when several Illinois firms warned that they are planning to lay off employees or close facilities. For example, Kmart is planning to close several stores in Illinois.  Gold Standard Baking, Inc., will close a commercial bakery in Chicago, slashing 73 jobs.  Another 67 employees are likely to be laid off at Itasca-based C. D. Listening Bar Inc., which sells DVDs, CDs, books and video games online at DeepDiscount.com.  AGI North America, LLC, a paperboard box manufacturing company in Jacksonville, is closing at the end of March, putting 70 employees out of work.  Gray Interplant Systems, Inc. – a warehousing and storage company in Peoria and Mossville – is planning to lay off 167 employees in April.

So why are American companies not hiring – or not hiring on their home turf?  According to the Chamber’s Donohue, it’s a variety of reasons, including new regulations contained in the Patient Protection and Affordable Care Act and the Dodd-Frank financial reform bill. Additionally, companies are holding onto their cash to fund future acquisitions.  Consolidation makes new regulatory burdens easier to bear.  Once companies’ regulatory costs are clear and under control, they can begin hiring, he said.  Finally, demand remains relatively low.  Once spending improves, the Chamber believes that companies will have no choice but to invest in additional personnel to meet that demand.  As consumer and business spending grows, so should jobs.

And, the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies created 1.4 million jobs abroad in 2010, compared with less than 1 million in the United States. The additional 1.4 million jobs would have cut the unemployment rate to 8.9 percent, according to Robert Scott, the institute’s senior international economist.

Boom Market for CRE Buyer-Users

Thursday, August 13th, 2009

In terms of commercial property investment, one positive sign is from firms buying properties to use for their own business operations.  Called user-buyers, these investors have proven they are able to get money from banks to spend on property acquisitions — a relative rarity nowadays.  Those who do not need a766981491_aa0ae36a4b loan already have earmarked their own funds for such a purchase, enabling these user-buyers to acquire a building despite the credit crunch and increasingly wary lenders.

Real Capital Analytics reports that the number of user-buyer transactions in the Philadelphia metro area, for example, rose between June 2008 and June 2009.  During that time span, 25 percent of the 40 office and industrial purchases completed in the region were by users.  Mike Margolis, president of investment sales at Professional Realty Advisors, states, “Considering users are generally 10 to 15 percent of the market, that’s a substantial increase.  “One of the most recent transactions was the acquisition of a 25,200-square-foot building in suburban Phoenixville by a Sheppard Redistribution Inc., affiliate.  The purchased property will be used by the firm for their daily operations.

Global Financial Meltdown? Not in Norway

Tuesday, August 4th, 2009

One European nation has escaped the worldwide financial meltdown and recession.  It’s Norway, which saved its money – rather than spent – through the boom years. As a result of frugal financial management, Norwegian housing prices and consumption are on the upswing and interest rates are affordable.  Norway’s fiscal responsibility of its income from enormous oil and gas reserves has allowed the Scandinavian nation to build one of the globe’s largest investment funds.

norwayAfter large deposits of gas and oil were discovered in the mid-1970s, Norway didn’t go on a spending spree, and channeled its revenues into a state investment fund.  The government – with very few exceptions – can spend only four percent of those revenues annually.  “By the end of this year, I guess we are approaching $400 billion U.S.,” according to Amund Utne, a director general of Norway’s Finance Ministry.  Do the math, and that adds up to $400 billion in a nation whose population is 4.5 million.

Beyond its oil and gas revenues, strict banking regulations – tightened after a banking crisis in the early 1990s – shielded Norway from the credit crisis.  Norwegian banks made loans wisely and stayed away from exotic investments and financial products over the past decade.  “They (the United States) got all the bright guys to make all kinds of fantastic products.  Very creative.  And it turned out it was maybe not the best solution in the end,” Utne said, with typical Norwegian understatement.  “I think Norwegian banks are not as creative.  In this situation, it may be good to be somewhat boring.”

Norway also was immune from the housing bubble.  According to Bjorn Erik Orskaug of DnB NOR, Norway’s largest bank, “Housing prices are back up.  Consumption is up.  Banks are lending normally to the household sector and interest rates are staying low.”

Back to the Futures? Not Just Yet. Investors Still Spooked by Derivatives

Wednesday, June 3rd, 2009

It’s no surprise that investors are still wary of investing in derivatives, given the financial devastation that these vehicles’ collapse caused last year.  Proof of the fact is that the IPO of a financial instrument designed to be on American home prices failed because its auction did not generate adequate investor interest.51916680SC005_NYSE

According to its Securities and Exchange Commission filing, MacroMarkets turned down all auction bids because there was an “insufficient demand for an equal number of Down and Up shares”.  In other words, MacroMarkets was forced to abandon the auction process because the offering would work only if there was an equal number of shares in both the “up” and the “down” trusts – and if each pair of shares totaled $50.  The firm had initially set a minimum closing investment pool of $125 million, though CEO Sam Masucci did not disclose the value of the bids received before pulling the plug.

MacroMarkets sought out investment from homebuilders and banks who want to hedge their housing exposure, as well as foreign investors seeking a stake in U.S. real estate.  The problem is that investors had difficulty valuing the shares because it meant predicting the movement of the 10-city index on which the offering was based.  That’s not easy in a housing market where prices may not have bottomed out yet.

When housing trusts eventually restart, their shares will trade under the symbols UMM for “up” and DMM for “down” on the NYSE Arca, the New York Stock Exchange’s all-electronic U.S. trading platform.