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Today's Market
Today
and News Feeds Below
Milton Friedman explains Individual
Freedom
Today's Market
Today:
Sovereign Debt Blues
Research for Online Investors
by John Dalt
2/8/10
Last week we reported Portugal
had a failed bond auction. World markets saw this is a serious threat,
and we finished the week with a general sell-off followed by
short covering and institutional buying on
Friday.
Sovereign debt by small European
countries can wreck havoc on the Euro, but to the world economy
may not be as big as it seems. It is a problem because the European Union
does not have a way to deal with member states that cannot
control their finances. But, it must be put in
context.
Portugal and Greece’s populations
are only about ten million each, roughly the size of
Ohio.
Ireland is home to about four
million souls, about the same as
Kentucky.
The PIIGS (Portugal, Ireland,
Italy, Greece, and Spain) are in trouble because they cannot
control their spending on social spending, balancing promises
by politicians with tax receipts can be a tough
lever.
The G-7 met over the weekend in
Canada.
Hopes were high for some
statement of coordinating action to address sovereign debt
problems.
The market got a weak statement
from Jean-Claude Trichet, president of the European Central
Bank about Greece meeting new budget tightening goals, “We
expect and we are confident that the Greek government will take
all the decisions that will permit it to reach that
goal.”
Roughly the same problems are
faced by some of our states that are facing financial
difficulties, but because they are part of the United States
are not seen as a danger to the world economic
recovery.
The Federal Reserve or the U.S.
Treasury may come to their rescue rather than force them into
bankruptcy.
California has a population of
almost 40 million and faces a budget deficit of $19.9 billion
in the remaining five months of this fiscal year.
Greece needs to borrow $30
billion to finish this fiscal year. Portugal’s government debt reached 77% of GDP
in 2009
California is faced with issuing
IOU’s again this spring and Greece/Portugal bonds are selling
at a spread of over 400 basis points above German
Bunds.
Oregon voted last week to
increase taxes on individuals that make over $125 thousand and
companies with profits over $250 thousand per
year.
Chicago’s mayor, Richard Daley
commented, "It will help our economic development immediately.
We'll be out in Oregon enticing corporations to relocate to
Chicago.
Businesses can go to Wisconsin.
They can go Indiana. They can go to India. They can go to
China. So if you want to beat up businesses, go beat them up
and when they leave, just wave to them, and they're going to
wave back to you." Did you ever think you would hear a
politician from President Obama's home state voice such
heretical views?
This sentiment is the bases of
the federalist system our country was based
on.
If one state raised taxes or
barriers to success by over regulation, citizens could move to
another state. The competition between states would serve as
a check on stupidity of politicians. Texas, Florida, and Nevada are among the
states with the highest growth rates, because they low or no
state income tax. A friend
left California years ago, state tax savings in the first year
paid for the move.
The growth of the U.S. Federal
Government and nationalization of many programs and regulations
has suppressed the ability of citizens to
move.
This has allowed the federal
government to grow without check. The European Union is getting a taste of
competition, Switzerland’s Zug canton (state) offered Diageo
executives a deal to move out of
England.
The top 200 executives
would pay no income taxes and the company would get a low
corporate tax rate. So far, Diageo has not
accepted. Last year, more than 1200 companies
moved their headquarters to
Switzerland!
"
A liberal is a person who will give away everything he
doesn't own
." ---Unknown
The
information presented in this newsletter is based on generally
available news releases, corporate filings, current events,
interviews and the editor’s opinions. It may contain errors and
you should not make investment decisions based solely on what
you believe you have read here. Do your own research, it is
your money. If you lose it, it is your responsibility, not ours
or your grandmothers! The editor may or may not have a position
in any securities discussed. The editor may have held a
position in a security earlier, or in the
future.
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