the evolving credit crisis #2 – may 2012 daryl montgomery may 22, 2012 copyright 2012, all rights...
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The Evolving Credit Crisis #2 –May 2012
Daryl MontgomeryMay 22, 2012
Copyright 2012, All Rights Reserved
The contents of this presentation are not intended as a recommendation to buy or sell any security.
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Europe on Verge of Implosion
• Debt/Banking Crisis in Europe accelerates and is now moving to Spain.- Spanish 10-years have hit 6.35%, Italy hits 6%- Runs on entire banking system in Greece, Bankia in Spain (+JPMorgan problem)- Moody’s downgrades Spanish banks.- Spain nationalizes Bankia.
• New Greek election in June, anti-bailout party likely to win. Socialists win in France.
• LTROs have filled the EU banks with junk debt of peripheral countries (PIIGS).
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History of EU Country Borrowing Rates
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Economies Faltering• Official GDP growth for EU in Q1was 0%.
• UK and at lease 8 other EU countries are officially in a recession.
• China GDP 8.1% in Q1, 7.9% predicted for Q2.
• Japan GDP up 4.1% in Q1 (gov’t auto subsidies).
• U.S. GDP up 2.1% in Q1 (subtract 3%).
- April Jobs up 115,000, unemployment 8.1% (labor force down 10 million in 5 years).- Retail Sales up 0.1% in April (with inflation).
- ISM Manufacturing up, Services decrease.
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Monetary Policy Worldwide
• Central Bank Interest Rates:- U.S. and Japan close to 0.0%- UK at 0.5%- ECB at 1.0%
• Fed doing Operation Twist and dollar swaps.
• BOE still on QE2.
• ECB balance Sheet increases more than Fed’s (China bigger still, cuts bank reserves).
• BOJ bought record amount of ETFs.
• U.S. Monetary Base pauses after 3 exponential increases, money supply keeps rising.
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Summary of 2012 Monetary Policy
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Debt by Country
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U.S. Monetary Base
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Money Supply MZM
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Dollar Swap Lines
Demand coming from EU and Japan.
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ECB, Fed, China, Japan Balance Sheets
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ECB, Fed Balance Sheets vs S&P 500
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Fed Balance Sheet
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• National Debt: $15.7 trillionState and Local Debt $2.8 trillionUnfunded liabilities $119 trillion.
• Debt to GDP ratio >104% (actually much greater).• Debt doesn’t include Federal Reserve or Fannie
Mae, Freddie Mac and FHA obligations. • Debt Ceiling at $16.4 trillion. Will be hit in
September/October (not after election). • Federal budget deficit for 2012 at least $1.3 trillion.
California at $17 billion. • 2012 Trade Deficit could reach $700 billion.
U.S. Fiscal State
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This Year’s GDP Revisions Compared to Last Year
Blue line original numbers. Red line revised numbers.
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Shadowstats.com and Reported U.S. CPI
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