Weekly Snapshot
• Real GDP in the U.S. grew at an annual rate of 3.2% in the fourth quarter of 2010 (ESA)
• Global stocks plunged the most since November, after protests in Egypt intensified (Bloomberg)
• OIL FUTURES: Nymex vs. Brent Crude spread widens to more than $12 per barrel (Reuters)
• S&P downgraded Japan’s credit-rating to AA- because of high debt concerns (Economist)
• The Dow pushed above 12,000 on January 26th for the first time since June 2008 (Reuters)
• FOMC will maintain its near-zero rate policy and its $600B asset-purchase program (AP)
• U.S. budget deficit to reach $1.48T, or 9.8% of GDP, by the end of the current fiscal year (WSJ)
• First bond issued by the euro zone’s EFSF for €5bn pulled in €44.5bn of orders (Reuters)
• U.S. home prices dropped 4.3% in November from a year earlier (Bloomberg)
• Fourth quarter GDP in the U.K. unexpectedly contracted 0.5% from previous quarter (Economy.com)
• Bank of Japan kept its interest rate unchanged but raised its outlook for economic growth to 3.3% (AP)
• Financial Crisis Inquiry Commission: The 2008 financial crisis was an “avoidable” disaster (FCIC)
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Chart Of The Week
The World Gold Council recently issued its Gold Investment Digest for 2010 which provides, among many other interesting data points, a listing of official gold holdings of various countries. Notable highlight in our chart is the fact that the ETF GLD has been the 6th largest holder of gold at the end of 2010. Still wondering what has been driving the price of gold in recent years?
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Are We Any Wiser Now?
Exactly six months “after” President Obama signed the Dodd–Frank Wall Street Reform and Consumer Protection Act into law, the Financial Crisis Inquiry Commission released its official report on the causes of the financial crisis. As you would have guessed, the commission was somewhat split along party lines which resulted in two dissenting reports muting some of the commissions findings. Nevertheless, let’s look at some of the highlights:
• We conclude this financial crisis was avoidable.
• We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets.
• We conclude dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis.
• We conclude a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis.
• We conclude the government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets.
• We conclude collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis.
• We conclude over-the-counter derivatives contributed significantly to this crisis.
• We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction.
No real surprises here as far as I am concerned. What is concerning however, is the fact that this report appears now “after” the Dodd-Frank Act has been signed into law. Statements such as: “the government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets” are not exactly encouraging in terms of the broader implications of Dodd-Frank. Worse yet, it gives no confidence that Dodd-Frank can prevent the next crisis or that it will have a less devastating effect on the markets and the economy. Interesting times ahead…
Recommended Read
Courtesy of the Economist, here’s a bit of a history lesson for currency aficionadoas. Please consider: The rise and fall of the dollar.
Good luck and good investing!
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