Tags: Greek | Woes | US | Jobs

Greek Woes, US Jobs Crisis Continue to Haunt Investors

By    |   Monday, 06 February 2012 05:02 PM

The U.S. job data on Friday certainly gave most investors a nice feeling, at least for the time being.

But I can’t get excited about it as the “real” jobs deficit left from losses in 2008 and 2009 remains at 10 million jobs (5.6 million fewer jobs than before the recession, plus we logically have to add more than 5 million jobs to keep up with what is considered the “normal” growth in the working-age population).

This worrisome situation is confirmed by the numbers of the Congressional Budget Office (CBO) that project the unemployment rate could still be at 8 percent at the start of 2015, which obliges us to accept that millions will remain condemned to joblessness for years to come.

Keep in mind there are now fewer jobs in the U.S. than there were 11 years ago. The civilian employment population ratio (EMRATIO) in January 2012 was 58.5 percent, which is at levels we haven’t seen since the first half of the 1980s.

Investors should keep in mind that the U.S. economy will have to grow substantially more than it is now and continue to do so for many years to come before it will be able to fill that gap.

Yes, the good times are still far away, and we can’t speak about a turning point yet.

By the way, U.S. food stamp use rose to a record 46.3 million in November 2011, which was 6.2 percent higher than a year earlier. Food stamp enrollment has increased 46 percent since December 2008 and its cost has more than doubled in four years to a record $75.3 billion.

I’m asking myself where the so-called sustainable consumer spending is going to come from.

Meanwhile, a survey by the German newspaper Bild am Sonntag showed that a majority of 53 percent of those Germans polled feel that the euro would be better off if Greece left the eurozone. It’s difficult not agreeing with them.

Fitch still expects Greece to undertake an orderly debt restructuring, which would ensure that a payment system is in place. However, a disorderly default, which may include an exit from the eurozone, cannot be wholly discounted and would yield a more detrimental outcome for Greek structured finance deals.

A disorderly default would disrupt payment systems leading right down to structured finance note holders. Interruption of interest payments by an issuer would constitute a note default, though amounts due may still be recovered eventually.

An exit from the eurozone would compound the problem as a devalued new drachma will almost certainly result in a shortfall on euro-denominated notes.

There is seemingly no end in sight for the still-unfolding Greek drama.

Chinese Premier Wen Jiabao said: “Europe is now in a debt crisis … We must consider our relations with Europe from strategic needs, maintaining our nation's own interest … On the other hand, Europe is our largest export market. Europe is our biggest source of technological imports. Helping Europe stabilize its markets is thus helping ourselves.”

Wen’s statements come after several senior government officials privately have admitted they have trouble trying to convince the Chinese public of the possibility of using parts of China's $3.181 trillion foreign exchange reserves to help bail out some troubled European countries.

Singapore Prime Minister Lee Hsien Loong said China's economy may be headed for a “rough landing.”

"They've built a lot of infrastructure. They have built a lot of capacity in many industries, autos, some of the electronics industries … There may be a rough landing, but they will get through it.”

Bottom line: I certainly would try to avoid getting complacent and certainly not underestimate the impact of a Greek default.

European policymakers still haven’t made their minds up on whether eurozone membership is a “right” or a “privilege.”

If it is a “right,” they need to create a “monetary and fiscal union.”

If it is a “privilege,” then they need to create a political union, which in my opinion, is out of the question. How France will act if the socialist candidate wins the presidential elections in May?

The EU policymakers have tried to chart a middle course since the launch of the euro 12 years ago and, unfortunately, it has proven hopelessly misguided.

As things stand today, it will take months, if not years, for the European sovereign debt crises to be fully resolved. Until then, the dollar will remain the safe-haven currency of first and last resort and will continue to rally every time European woes come back to the front burner.

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Monday, 06 February 2012 05:02 PM
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