Yesterday, I told you about some positive news on the US economic front. But don't get lulled into a sense of false security. Keep your eyes on warning signs like these -- they could signal trouble ahead in a fragile economic recovery. There are still a lot of dangers to navigate.
FedEx (NYSE: FDX) announced that it will park some aircraft and reduce its workforce, and it has scaled back its forecast for global economic growth from 2.9% to 2.3%. When shipping companies scale back, it is a sign of economic slowing, not expansion.
Gasoline prices continue to rise. So far this year, they are up 60 cents a gallon, which represents a drag of about $100 billion on households. The weather-related drop in heating costs has sheltered the economy from the full effect of rising fuel prices, but as we move into the travel season, these prices are likely to hurt consumers. The rising conflict between Iran and Israel could be devastating to oil prices and the global economy, and the outcome is impossible to predict.
The 2003 tax cuts are set to expire at the end of 2012. That will likely inhibit economic growth and investments, because households will have less disposable income. We once again face a situation on Capitol Hill that will likely keep businesses and individuals guessing until the last minute about what taxes will look like after December 31st. The continued uncertainty is a headwind to growth.
Fiscal cuts are by necessity kicking in at the federal, state, and local levels. Deficit spending inevitably has to be reined in, and the mandatory "cuts" due to the debt ceiling debacle will activate in 2013. Though these cuts are necessary, they will hinder economic growth in the near term. We do believe that, in the long run, reduced government spending is a tailwind to the economy. (A great historical perspective on this topic is This Time Is Different by Carmen Reinhart and Kenneth Rogoff.) We could see a 3% to 4% hit to GDP next year from this fiscal withdrawal, and it would not be surprising to see a recession in the first year after an election as the new kids on the DC block want to get any pain over well before facing reelection.
A recession in Europe and slowing Asian economies are likely to lead to a contraction in US exports, which would be a headwind to GDP growth.
Last week, the S&P 500 experienced the largest weekly drop of the year. The 30-year Treasury yield experienced its largest improvement of the year, and gold moved back into the green for 2012. Volume remains exceptionally weak, indicating a lack of conviction by investors in the bull run. On the other hand, the low volume (with its lack of selling pressure) makes it easier for the Fed to buoy the markets with interventions. Corporate insiders don't seem to share this enthusiasm for their own company stock. The ratio of insider sellers to buyers has surged from 5:1 in January to 14:1 in February to 35:1 in March! Perhaps they know something that other market participants don't?
As someone who has been in both countries ,Trust me on this-America makes Immigrants feel much-much more at Home than France.
America is far,far ahead of France in terms of the Kind of Respect for Free-Markets, Capitalism, Entrepreneurship,Skills ,Innovation,Democracy,Independent Thought and most importantly Individual Liberty today.
Sure there are pockets of isolationism/Xenophobia in America too[The South East in particular can be very troublesome for Immigrants] but nobody in America puts Immigrants in Ghettos the way they do in France.
America simply needs to go back to its roots,especially how the Founding fathers envisaged America to be.And everything will be Super-cool again!!!
If this man wins(or is in a position to influence The Winner) ;I for one would not be the least bit surprised.
In fact the only thing that will stop those proposals from becoming Law is that it would cause France's Highly paid World Class footballers to flee the country (for the UK,Spain or Germany)-And if you mess with their Footballers,the French get Very,Very Angry.
Its so easy to blame other people for all your problems when things are not going your way(which comes so easy to the French).
Think about it,in a rational economic environment;the French would have restructured their Auto Industry by closing Unviable plants,but they refuse to do so in the name of maintaining jobs-This by the way is the problem in the entire Continent-Sales are falling all over Europe ,while production continues to be extremely High& its not like French Cars are beloved in other parts of the world...
So logically,the French will have to reduce Production or cut Prices to compete on the Global Car Market.
I wish I had the answer. I lived and studied in France when I was younger, and there are many elements I enjoy about French culture (2 hours lunches, fine food and wine, for example), but the French culture can also be very self-involved, inward looking, and xenophobic.
Of course America has its own problems but one of the things I've always been most proud of is our open and capitalistic nature, providing opportunity for anybody and everybody. Unfortunately I see nationalism and xenophobia on the rise in this country as well. I hope it's just a short-term trend. It's always ugly to me when people start to blame all their problems on outsiders.
Which talked in Great Details about the LeMonde Poll,which basically said 82 per cent of all French said that Globalization is bad for Jobs in France and only 22 percent believe Open markets are a good thing for France,
This inspite of the fact that France is not as well-connected with Global Trade Flows as say Germany,The Netherlands or UK[Imports+Exports as a percentage of GDP is much Higher in these countries].
Lack of Social Mobility ,Social Cohesion and no history of Free-wheeling Capitalism -
Outside of Football and Cinema;France has struggled to integrate Minorities into its Society.In fact,the Politicians never lose any oppurtunity to blame Immigrants for all the problems the country faces.
I have lost count of the number of Times Sarkozy (a member of the elite all his life)himself has called Immigrants-parasites,etc,etc.
Compare that with say the US or UK and you will know what I mean.
For instance suppose Obama would have called Mexicans/Chinese/Indians -Thieves or parasites who are here to steal our Jobs-Do you think he would Last as President for even one term?
In contrast,Sarkozy does this time and again in France and No one bats an eyelid.
Also,France has a history of constantly devaluing its currency ( primarily to fund its Deficit Spending) and borrowing Funds from its Central Bank to bridge its deficits.This was allowed as long as France had its own currency.
Today that is not possible-Hence these pressures are building up in this fashion on the Relationship between France and the Eurozone-In fact I wont be surprised if France just quits the Eurozone altogether after Hollande wins.
Its the easiest way for them to fulfill all the populist proposals currently on the table from both Candidates for President today.
The only difference this time around will be that The Wave of Hyper-Inflation the French people will face will be so massive that all and any Pension/benefit promises will not be met.
Eitherways,Revolution is coming to France and the French are not the least bit prepared for it.
It's amazing to me that the political takeaway from the European situation is that France needs to go further to the left to vote for more taxes and more social programs? Is that some kind of deathwish? What about that has worked out well for Europe?
What's scary about European politics to me (and I have experienced it living in European countries several years of my life) is that during times of duress, the Nationalistic and Socialistic tendencies rise. Historically, that has not been a good recipe for success (Hitler, Mussolini, Stalin, e.t.c.)
Yesterday's FTreported on the surprising support for Jean-Luc Mélenchon, a former Socialist minister and Trotskyite, who represents the "Left Front," a grab bag of lefties including the Communist party.
Mélenchon's policies are to the far left of even Hollande's proposal to tax income above €1 million at 75%. He wants to rescind the new EU fiscal discipline treaty, raise the minimum wage from €1,200 to €1,700 a month, and confiscate all income above €360,000 a year. His campaign "is an outright rejection of the austerity policies pursued across the European Union, including France, in response to the sovereign debt crisis."
But the thinking is he gets more than 10% of the vote and takes third place, Hollande may need his support to win the second round and may have to promise the Left Front a role in his government.
It's nice to see a little sanity makes its way into political discussion, isn't it? Now is not the time for a country to stubbornly hold on to a system that is simply no longer viable. If the politicians want to do business as usual and business is obviously failing to a horrific degree, then it's time to find some new candidates that will change things up. This is a very scary/pivotal time for France, I hope they come out of relatively unscathed.
@cat tail...whoops! Sorry about that...looking over your comment again, I completely see what you were saying.
I was in full "rant mode" when I replied to your comment!
Now that my crazy hat is off, I agree with what you were saying...everyone should have a voice but let's minimize the fringers. After all, at the end of the day, the majority should be the ones being served.
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Forget about business growth as long as the future of tax rates remains unclear, regulation continues to expand in unpredictable ways, and legislation keeps creating increasingly onerous burdens.
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