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Obama v. Hoover Here's a fun, if frightening, one today from David Rosenberg. The chief economist at Gluskin Sheff + Associates notes striking similarities in comments by President Barack Obama and Herbert Hoover, the U.S. president who was king of the Great Depression and who even had a city named after him: Hooverville.
A colleague collected the comments and sent them to Mr. Rosenberg, who says "it blew me away."
Obama, State of the Union, Tuesday:
"Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again."
Hoover, to U.S. Chamber of Commerce, May, 1930:
"While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover."
Obama, State of the Union:
"Thanks to the tax cuts we passed, Americans' paychecks are a little bigger today. Every business can write off the full cost of the new investments they make this year. These steps, taken by Democrats and Republicans, will grow the economy and add to the more than one million private sector jobs created last year."
Hoover, campaign speech, October, 1932:
"It can be demonstrated that the tide has turned and that the gigantic forces of depression are today in retreat. Our measures and policies have demonstrated their effectiveness. They have preserved the American people from certain chaos. They have preserved a final fortress of stability in the world."
Obama, State of the Union:
"But now that the worst of the recession is over..."
Hoover, to a delegation looking for a public works project, June, 1930:
"Gentlemen, you have come 60 days too late. The depression is over."
Obama, State of the Union:
"The steps we've taken over the last two years may have broken the back of this recession…"
Hoover, State of the Union, December, 1932:
"The unprecedented emergency measures enacted and policies adopted undoubtedly saved the country from economic disaster…"
Hoovervilles, of course, were the names of the shantytowns that sprang up during the Depression. There was, in late 2009, some controversy over a tent city in Colorado Springs that, for a short while, sported a banner stating "Welcome To Obamaville: Colorado's Fastest-Growing Community."
S&P hits Japan It was only a matter of time before the credit rating agencies turned their focus from Europe to Japan.
Standard & Poor's today cut the sovereign debt rating of the developed world's most indebted economy by one notch to AA minus, sending the yen reeling. It's the first cut by S&P to the rating since 2002.
Japan's debt load is so hefty that investors will probably soon have to get used to the term quadrillion, which follows trillion and where the outstanding long-term government debt of the world's third-largest economy is heading.
Outstanding long-term debt is projected to hit ¥869-trillion - that's almost $11-trillion U.S. - by the end of March, according to reports today. As a percentage of GDP, that will be a whopping 181 per cent. By next year, it could reach 210 per cent.
"The downgrade reflects our appraisal that Japan's government debt ratios - already among the highest for rated sovereigns - will continue to rise further than we envisaged before the global economic recession hit the country and will peak only in the mid-2020s," S&P said, adding that Prime Minister Naoto Kan's government "lacks a coherent strategy" to deal with the problem.
Unlike the European countries that are struggling, Japan has not been hostage to the bond markets because most of the debt is held internally by its own investors, with less than 5 per cent in the hands of foreigners. There are fears, though, according to the New York Time, that Japan could be forced to look to global markets if retirees start to cash in.
Reuters, meanwhile, reported yesterday that estimates by Japan's finance ministry, which the news agency obtained, indicated Japan's issue of new bonds could reach ¥54.2-trillion by the beginning of the fiscal year that begins in April, 2014.
While the S&P downgrade may not be all that much of a surprise, given the country's tattered books, it's a big blow to the government.
"The reasons for the downgrade are a timely reminder of the huge economic and financial challenges facing the Japanese government, which may simply not be up to the job," said Julian Jessop, chief international economist at Capital Economics in London, adding that gross debt is headed for about 250 per cent of GDP in 2015, and net debt of about 150 per cent.
"But even this number is exceptionally high and the difference between gross and net is largely accounted for by assets held by social security funds that will soon be needed to help pay for the retirement of the post-war 'baby boom' generation, many of whom turn 65 in 2012.
Japan's rating, Mr. Jessop noted, is a notch above Italy's, three above Portugal's and seven above Greece. It has a large and diversified economy, with years of current account surpluses. But these factors, along with the reliance on domestic investors, can also be considered weaknesses, he said, as they have "encouraged complacency."
And the challenges going forward are huge. Japan will now have to take those tough measures and, Mr. Jessop said, raised the low consumption tax of 5 per cent. A fiscal strategy is due in the summer.
"The scope for a policy mistake is huge," he added. "If the government tightens fiscal policy too quickly, the economy will tip back into a deeper recession and the debt cynamics could be even worse. If the government delays too long, the markets will lose patience and surging bond yields could drag the economy down anyway."
Why Japan is a warning The S&P downgrade isn't just a blow to Japan, but also a warning to the world's rich countries. To date, the markets have targeted the periphery countries of Europe, and this is the first to really move outside of that in any meaningful way.
"Just when you thought it was safe to be a developed economy sovereign fixed income investor, S&P decides to remind the market that the major economies do not walk on water, and that one does not need to be a euro zone member to see its credit rating slashed," said Scotia Capital currency strategist Sacha Tihanyi.
"This serves to underscore the fact that the post 'great recession' era is one in which certain emerging markets can look more attractive from a forward-looking fiscal perspective than many developed nations. The Japanese credit downgrade shows what happens when a nation does not do enough to establish a credible plan on fiscal consolidation."
As Mr. Tihanyi notes today, Japan has "blazed a path that the U.S. is now slowly walking down."
The United States enjoys the implicit protection of the U.S. dollar, and the focus, until Japan today, had been on Europe. But, Mr. Tihanyi warned, markets should fear what could happen should the world's reserve currency lose its Triple-A status.
President Barack Obama says the U.S. is committed to deficit reduction. But yesterday, the Congressional Budget Office, a non-partisan agency, said the U.S. deficit will reach almost $1.5-trillion (U.S.), or 9.8 per cent of gross domestic product, this year.
France, Germany pledge euro support French President Nicolas Sarkozy, who appears to have become fast friends with his German counterpart Angela Merkel, warned currency speculators today to watch their backs. A bet against the euro, he said in a speech at the World Economic Forum in Davos, would not be smart.
Mr. Sarkozy said he and Ms. Merkel "will never let the euro down, never," saying a collapse of the currency shared by 17 countries would be "so cataclysmic that we can't even entertain the idea."
Report says crisis could have been averted A highly divided panel struck to probe the financial crisis handed down a report today that says the meltdown could have been avoided, and it spreads the blame among Wall Street, regulators and others.
But in the panel's quest to ensure such a crisis is never repeated, one might wonder about the impact given the political nature of the report. Four Republican members of the Financial Crisis Inquiry Commission plan to issue two dissenting reports.
Potash roars ahead Shareholders of Potash Corp. of Saskatchewan are being rewarded for holding fast during the heated takeover attempt by BHP Billiton Ltd.
Not only can the western resources giant boast a strong stock price, it also reported strong fourth-quarter results today and paid off stockholders with a dividend boost and a 3-for-1 stock split.
Potash earned $482.3-million (U.S.) or $1.65 a share, a hefty jump from $239.2-million or 81 cents a year earlier. Revenue climbed to $1.8-billion.
And, Streetwise columnist Tim Kiladze reports, the company is boosting its quarterly cash dividend to 21 cents a share from 10 cents.
"Our industry moved past an important inflection point in the third quarter and, as farmers around the world became more active in addressing the critical issue of soil fertility, we demonstrated our ability to deliver in a strengthening market environment," chief executive officer Bill Doyle said.
"With global food demand as the powerful engine, we believe we have moved into the next stage of growth for our business. Our company stands poised to capitalize on that growth and we believe our fourth-quarter results provide a glimpse of the capabilities and earning potential of our expanding world-class operations."
Shoppers stock sinks Shares of Shoppers Drug Mart Corp. sank today, a day after surprising investors with its announcement that chief executive officer Jurgen Schreiber is leaving the company in mid-February.
His resignation surprised many analysts, who suggested the move would likely have a "negative" impact on the company, The Globe and Mail's Rita Trichur reports today.
Nokia profit slumps Nokia Corp. shares slipped today after a profit outlook that troubled investors in the world's biggest manufacturer of cellphones.
Nokia's fourth-quarter profit slipped to €745-million from €948-million, but that was a better showing than expected. Sales rose to €12.7-billion.
"Nokia faces some significant challenges in our competitiveness and our execution," said chief executive officer Stephen Elop. "The industry changed and now it's time for Nokia to change faster."
Nokia is, of course, battling Apple Inc. and manufacturers using the Android system from Google Inc.
Australia plans levy to pay for floods Australia plans to bring in a one-time tax hike to help cover what it estimates is more than $5.5-billion (U.S.) in damages from the devastating floods that swamped the Queensland region.
"That is a huge one-off cost, simply replacing the things the floods have destroyed," said Prime Minister Julia Gillard. "Although our economy remains strong, there is also the one-off effect on economic activity."
The government also plans to cut spending to help pay for the floods, which, according to The Associated Press, damaged, or destroyed, some 30,000 homes and businesses and meant a $3-billion hit to coal and crops.
Carl Weignber, the chief economist at High Frequency Economics, said the hit amounts to something just shy of 0.5 per cent of GDP.
"However, this is only the cost to the government of rebuilding its infrastructure," he said. "Private losses of income and production are sure to be a lot higher."
Boyd Erman's Morning Meeting Sara Lee Corp.'s attempt to wrest a higher bid out of a private equity group led by Apollo, or to find a white knight, is so far not gaining much traction, Streetwise columnist Boyd Erman reports today.
In Personal Finance today
'Pit bull' George Czerny wouldn't surrender in his fight with the Canada Revenue Agency over the Tax-Free Savings Account.
Even if you're a Canadian citizen and resident and you've never even visited the U.S., you may get dinged, writes Tax Matters columnist Tim Cestnick.
From today's Report on Business