Financial outlook depends on elections around the world - USA Today Financial outlook depends on elections around the world - USA Today

Wednesday, June 20, 2012

Financial outlook depends on elections around the world - USA Today

Financial outlook depends on elections around the world - USA Today

Elections — not earnings — are now driving financial markets. It's about exit polls, not P-E ratios. And a major source of all that stomach-churning stock-market volatility? Blame voters.

Not convinced? Think back to Sunday. When was the last time investors spent Father's Day keeping tabs on an election in Greece?

Sure, the economy is still a major factor in determining financial security or whether investments rise or fall in value. But the outcome of key elections, such as the one last weekend in Athens and coming votes in the USA and other global hot spots, are likely to have a bigger impact on money-related issues for the rest of the year and beyond, Wall Street experts say. "Policymakers are now the primary market movers," says Drew Matus, a UBS economist. "Investors are reacting more to perceived changes to policy as opposed to pure economics."

Indeed, the trajectory of 401(k) balances, mortgage rates, home values, stock prices, Social Security payouts, tax bills and job openings — pretty much anything related to Main Street America's personal finances — will increasingly be influenced by politicians and policymakers around the globe. The influence of traditional market-moving forces, such as data on corporate profits, consumer confidence, retail sales and GDP, will wane.

The reason: In the wake of the Great Recession of 2008-09, government intervention in financial markets has reached unprecedented levels, says Andy Busch, a public policy strategist at BMO Capital Markets. The health of the global economy is arguably as dependent on government as it has ever been. The era of bailouts, central bank stimulus and politicians-turned-economic-problem-solvers has injected a new wild card into markets.

Shining the spotlight ever brighter on elections is the sheer number of elections in 2012.

Roughly 40 countries will hold presidential elections this year, including seven of the world's 20 biggest economies, according to an analysis by Daniel Clifton, head of public policy research at Strategas Research Partners. China will also be undergoing a leadership transition in the fall.

"Taken together, countries representing about half of world GDP are holding elections or switching leadership in 2012," says Clifton.

The timing of the potential power shifts is also critical. Voters from Athens to Austin and in cities such as Cairo, Tripoli, Delhi, Mexico City, Caracas, Seoul and Istanbul, will be heading to the polls at a time when a large chunk of the world is confronting serious economic challenges.

There's the European debt crisis that is threatening the existence of the euro, slowing growth in one-time global economic locomotives such as China and India, and festering fiscal problems in the USA caused by costly bailouts, tax revenue shortfalls, expensive entitlement programs and a still-sputtering economy.

Not so bullish

Elections are normally bullish, especially for stocks, as politicians looking to boost their chances of winning tend to push through policies that stimulate the economy ahead of the vote. But this year might be different. With many of the countries facing votes weighed down by heavy debt loads, all those IOUs eventually have to be paid, which may "place handcuffs" on their ability to "prime the pump" via tax cuts and spending increases, Clifton warns.

Government's increased intervention in the economy and markets has emerged mainly in the past four years. The hands-on role is due, in large part, to the fallout from the worst downturn since the Depression. The growing perception of the government as market savior is in sharp contrast to the trend of less government that gained prominence in the 1980s. Back then, a shift toward free markets gained a foothold, driven by U.S. President Reagan and British Prime Minister Margaret Thatcher, and symbolized by the fall of communism, says Nick Bloom, professor of economics at Stanford University.

A major drawback of a government-steered economy is that uncertainty over what rules, regulations and policies will be enacted make it more difficult for businesses and consumers to handicap what the future might look like. That lack of clarity, on things ranging from tax policy to business regulation to how government plans to reduce deficits, has a chilling effect.

Businesses turn "cautious" and are less likely to hire new workers or invest in new factories, says Scott R. Baker, a fourth-year Ph.D. student at Stanford University. Similarly, cautious consumers are more likely to save money than to buy cars, book vacations or fix up their homes.

This type of "policy uncertainty" is on the rise and near historically high levels, according to Stanford's Bloom and Baker, citing an index they've created that measures economic policy uncertainty dating back to 1985. In fact, policy uncertainty was far higher around the time of the bankruptcy of Lehman Bros., the debate over the TARP bailout package and last summer's debt-ceiling debate than it was following the 9/11 terror attacks and the second Gulf War.

Their research shows that about half of all daily stock market swings of 2.5% or more since the financial crisis have been caused by the actions of policymakers and their statements about budgets, bailouts and regulatory reform.

So why do elections matter so much to investors? "When the government is driving markets, you really care about who the government is and who is in power," says Bloom.

Investor uncertainty

Change is another factor. There is uncertainty about who is going to win and what they will do.

Will they raise or cut taxes? Will they trim or maintain entitlement programs such as Social Security? Will they renege on previously agreed-upon bailout deals? Will they promote policies that favor growth or austerity? Will they cater to the rich or the 99%? Will they be pro- or anti-business? And in Europe's case: Will bankers and wealthy countries come up with the cash to bail out banks and countries buried in debt?

"Who gets elected will have a big say in what happens," says Matt Slaughter, finance professor at Dartmouth College's Tuck School of Business. "Part of what investors are grappling with is that they don't know what policies will actually be put in place."

Complicating matters is the fact that the tenuous economic situation policymakers now face has never happened in their lifetime, which means there is no "playbook," Slaughter adds. A policy mistake can be the difference between a bullish outcome for markets and a bad one.

Nor, despite protests from working-class voters who see their standard of living eroding and job security dwindling, is there any consensus among politicians on the best way to fix things.

Political polarization often results in the rise to power of fringe parties, more extreme views on the best way to move forward and even more government involvement. "It's a double whammy," says Bloom. "You end up with a more polarized and more interventionist government."

Economic outcomes

The stakes have never been higher. The reason: Election outcomes will drive economic outcomes.

In many ways, the immediate fate of the eurozone was at stake when Greek voters went to the polls . The fact that the winning New Democracy party is committed to Greece staying in the eurozone and living up to its bailout commitments took the worst-case outcome off the table.

Had the left-leaning party won, Greece likely would have reneged on its bailout deal, which would have led to a default and a speedy exit from the euro. That less-market-friendly outcome would have resulted in massive and hard-to-quantify financial disruptions throughout Europe. It also would have increased the odds of financial contagion and exacerbated problems in other highly indebted countries, such as Spain and Italy. Spain is also facing a severe banking crisis, creating further jitters for investors waiting for policymakers to act to avoid catastrophe.

Irate citizens unhappy with their economic plight have already toppled European leaders whose policies they disliked. In May, French president Nicolas Sarkozy, who viewed fiscal austerity as the best way to reduce rising debt loads, lost to socialist Francois Hollande, who favors pro-growth policies. Last year, Italy's prime minister Silvio Berlusconi resigned amid questions about his economic stewardship.

And what happens in Greece or Spain or China could affect what happens on Wall Street.

There's also an awful lot riding on the November elections in the U.S. The race pitting President Obama vs. Republican challenger Mitt Romney is, in many ways, a vote on whether Americans want more or less government involvement in their financial affairs, says Matus at UBS.

Obama believes government involvement in the economy is necessary to ensure that the middle class gets a fair shake. He says the rich should pay more in taxes to reduce the deficit and keep the safety net for working Americans intact. Romney believes lower taxes, less government regulation and more business-friendly policies are the best ways to get the economy going again.

"People are trying to figure out if they want to follow Obama's path or Romney's path," says Matus. "Do we want a free-market world or a less-free-market world?"

Most everyone on Wall Street agrees that some form of fiscal retrenchment is needed to get the USA's finances and economy back on track. A so-called fiscal cliff looms on Jan. 1, 2013, less than two months after the presidential election.

On Jan. 1, unless Congress votes to extend them, all the Bush tax cuts will expire, which means Americans will pay more in taxes on their income, including on stock dividends and capital gains. Barring an extension, the 2-percentage-point payroll tax reduction also expires at the start of 2013, which means less cash on payday. And automatic spending cuts resulting from the congressional supercommittee's failure to agree to deficit-related spending cuts last November also kick in at the same time.

"If you add all (of those potential fiscal drags) up, you end up in recession," says Matus.

Says Jason Pride, director of investment at Glenmede, "There are a lot of things up in the air going into the election."

For the stock market to react favorably after the U.S. elections, whoever wins must come up with a credible plan to stabilize the nation's debt situation, says Barry Knapp, head of U.S. equity portfolio strategy at Barclays Capital.

Stocks eye gains despite soft leads - Sydney Morning Herald

Australian shares have opened slightly higher after Wall Street greeted news of another bout of stimulus spending from the US Federal Reserve with only polite applause, but looked on worriedly as the outlook growth and jobs outlooks worsened.

In morning trade, the benchmark S&P/ASX200 index rose 2.1 points, or 0.1 per cent, to 4134.5 and the All Ordinaries is flat at 4175.8. The Aussie dollar was steady. It was recently buying $US1.0183, roughly in line with yesterday's close, but down sharply from the overnight peak of $US1.0224 at about 3am, a seven-week high.

What you need to know

Although the US Fed announced it would extend existing stimulus measures until the end of the year, investors were spooked by the central bank's assessment of the US economy. The Fed slashed its estimates for US economic growth this year to a range of 1.9 per cent to 2.4 per cent, down from an April projection of 2.4 per cent to 2.9 per cent.

European markets closed in positive territory after Spain insisted it had no need of a full-blown bailout even though its borrowing costs were hovering near danger levels and a vast rescue loomed for its stricken banks.

The big miners enjoyed mixed fortunes in US trade overnight. BHP closed 0.4 per cent lower and Rio rose 0.67 per cent, partly on news that it was pumping another $US3.7 billion into its Pilbara iron ore division.

Also locally, APN News & Media today announced it has bought a majority stake in one of Australia’s leading eCommerce businesses - brandsExclusive - for an upfront payment of $36 million.

Making news today

In economic news:

  • Westpac ACCI survey of industrial trends

In company news:

  • Australian Ethical Investments general meeting
  • Echo Resources general meeting
  • June 2012 share price index futures contract expires
  • Ironbark capital - Record date
  • CI Resources Ltd - Record date
  • Fisher & Paykel Healthcare Corp - Record date
  • Dicker Data Ltd - Ex Div Date

Analyst rating changes:

  • Transfield Services raised to 'hold' at RBS
  • Orica raised to 'strong buy' at BBY Ltd
  • Consolidated Media Holdings kept on hold at Deutsche Bank
  • Alumina still rated as 'neutral' at Citigroup despite doubts on earnings

The dollar

The Australian dollar reached a seven-week high after the end of the US Federal Reserve meeting but fell back to where it began its overnight session.

At 7am the Australian dollar was trading at $US1.0183 US cents, compared to $US1.0194 cents on Wednesday. Since 5pm yesterday the Australian dollar traded between $US1.0133 and and $US1.0224, its highest level since May 4.

Westpac New Zealand senior market strategist Imre Speizer said the Aussie fluctuated wildly after the end of the Fed’s meeting in the early hours of Thursday (AEST).

‘‘As markets often do, they price things well in advance,’’ Mr Speizer said. ‘‘They did price in this Operation Twist and they did price in a new round of quantitative easing but they didn’t get it. So, over all, it was viewed as a disappointment.’’

Here are the recent cross rates:

Offhsore overnight

Bond markets

Spanish and Italian government bonds surged for a second day amid speculation European leaders are seeking ways to reduce the borrowing costs of the region’s lower-rated nations.

  • Spain’s 10-year bond yield fell 30 basis points, or 0.30 percentage point, to 6.74%
  • Italy’s 10-year debt dropped 15 basis points to 5.77%
  • German 10-year bunds slid, sending yields to the highest in six weeks, rising eight basis points to 1.61%

Treasuries fell and US stocks fluctuated as investors weighed plans by the Federal Reserve to boost growth and prospects for stepped-up efforts by European leaders to fight the debt crisis. Crude oil tumbled.

  • US 10-year yields climbed three basis points to 1.65%

United States

US stocks edged lower after the Federal Reserve acted to aid the fragile economy with stimulus measures that were in line with market expectations but went no further.

Key numbers:

  • S&P500 lost 0.17% to 1355.69
  • Dow Jones Industrial Avg lost 0.10% to 12,824.39
  • Nasdaq Composite Index added 0.02% to 2930.45


European stock markets were mixed on Wednesday amid hopes the US Federal Reserve would announce more stimulus to boost the world's biggest economy and as a government emerged in crisis-struck Greece.

Key numbers:

  • London's FTSE 100 added 0.64% to 5622.29
  • In Frankfurt the DAX 30 added 0.45% to 6392.13
  • In Paris the CAC 40 added 0.28% to 3126.52


Asian stocks rose, with the regional benchmark index heading for its highest close in a month, amid speculation the Federal Reserve will expand stimulus measures and after the Group of 20 leaders pledged to support economic growth and help overcome Europe’s debt crisis.

Key numbers:

  • MSCI Asia Pacific Index added 1% to 116.95
  • Japan’s Nikkei 225 added 1.11% to 8752.31
  • Hong Kong’s Hang Seng added 0.53% to 19518.85
  • China’s Shanghai composite lost 0.34% to 2292.88



Crude oil prices have tanked as investors weighed a worrying increase in US stockpiles and disappointment that the Federal Reserve did not announce a big, new economic stimulus.

  • New York’s main contract, light sweet crude for delivery in July, on Wednesday tumbled $US2.23 to close at $US81.80 a barrel.
  • In London trade, Brent North Sea crude for August settled at $US92.38, down $US3.07 from Tuesday’s closing level.

Precious metals

Silver futures have bounced back into positive territory while gold pared earlier losses as investors continued to sift through the Federal Reserve’s policy statement.

  • Silver for July delivery, the most active contract, settled up 2.1 US cents, or 0.1 per cent, at $US28.389 a troy ounce in after-market trading on the Comex division of the New York Mercantile Exchange.
  • Gold for August delivery, the most active contract, settled down $US7.40, or 0.5 per cent, at $US1,615.80 a troy ounce.

Base metals

Base metals closed mostly lower on the London Metal Exchange (LME), losing ground late in the session as hopes faded for further stimulus ahead of the Federal Reserve’s rate-setting announcement.

  • At the PM kerb close on Wednesday, LME three-month copper was 0.8 per cent lower at $US7,545 a metric ton.

How we fared yesterday

Australian shares rose slightly today on hopes the Federal Reserve will announce more stimulus measures for the struggling US economy, while locally News Ltd surprised with a takeover bid for ConsMedia.

The benchmark S&P/ASX200 index rose 9.1 points, or 0.2 per cent, to 4132.4, while the broader All Ordinaries index added 9.4 points, or 0.2 per cent, to 4176.8.

BusinessDay with agencies

Mixing business with pleasure: Carrie Underwood plays the tourist as she visits 10 Downing street ahead of album signing - Daily Mail

By J J Anisiobi


After vowing to convert the British public into fully fledged Country music fans, Carrie Underwood went to the residence of the country's top man.

The American Idol winner dropped by 10 Downing Street as an invitee of the Founders Forum, which hosted a party in the garden of the famous house.

The Founders Forum, which is a community for the best global entrepreneurs, and key investors, in media and technology, gave Carrie the rare opportunity to see inside the Prime Minister's house.

Not home: Carrie Underwood visited 10 Downing Street while sightseeing in London, earlier today

Not home: Carrie Underwood visited 10 Downing Street after being invited by the Founders Forum, in London, earlier today

With David Cameron being out of the country on business, she was unable to meet him but had to shoot off anyway to continue her UK promotional tour of new album Blown Away.

Dressed in a cute, short pink lace dress with a black leather jacket, the singer looked superb but, wasn't exactly kitted out like a normal tourist.

Instead of wearing a pair of comfortable trainers to trek around town, she opted for some peep toe heels.

Luckily for the Inside Your Heaven singer, the press were waiting to capture her brief sightseeing moment at one of the most famous streets in England.

Smarten up: The Country music singer wore a pink lace dress with a leather jacket and peep toe heels for her jaunt around town

Looking good: Carrie was met by the press at Downing Street but had to get back to work swiftly for an album signing

Looking good: Carrie was met by the press at Downing Street but had to get back to work swiftly for an album signing

With her spare time over, it was back to business as usual as she headed across town to HMV on Oxford Street, to meet and greet fans.

As American Idol's most successful ever star she has sold more than 14 million albums and has scored 15 number one singles, so she hopes her whirlwind tour in Blighty will help her conquer the UK market.

Her supporters had queued for hours to see her and they weren't disappointed with the star signing CD's for each and every person that turned up.

Round the block: HMV Oxford Street was overwhelmed with fans waiting to meet their American Idol winner

Round the block: HMV Oxford Street was overwhelmed with fans waiting to meet their American Idol winner

Lucky little girl: One sweet fan got to have her photograph taken as a keep sake of her day out with Carrie

Lucky little girl: One sweet fan got to have her photograph taken as a keep sake of her day out with Carrie

The extensive workload has been quite strenuous for Carrie as she started off her day early doing radio interviews before dropping into see the Loose Women.

On the ITV day show she spoke about her days at college, and addressed being a role model but implored parents to take more responsibility.

She said afterwards on Twitter: 'Had so much fun on @loosewomen this morning! Thanks to the ladies for having me!'

Controversial: The all American girl has found herself at the centre of a political storm after supporting gay marriage

Controversial: The all American girl has found herself at the centre of a political storm after supporting gay marriage

The all American girl has found herself at the centre of a political storm after supporting gay marriage, earlier this week.

She said: 'I was asked a difficult question in the last five minutes of an interview and I answered it the best way I knew how, and after that I do what I do and I love making music and I generally try to stay out of any kind of controversy.'

She added: 'The role-model word is really scary to me, because no matter what happens in your life, something you do, wear, say, sing, whatever — somebody somewhere is probably not going to like it too well.'

Carrie stopped by the Loose Women studios earlier today and spoke about her attitude towards being a role model

Stocks end mixed after Fed announcement - USA Today

Ever since the 2008 financial crisis, stocks have been driven higher by artificial stimulus from the Fed. And with the economy growing at a sub-par rate, Europe's debt crisis creating a further drag on business activity and the Fed's "Operation Twist" stimulus program set to expire next week, Wall Street hoped the Fed would announce a bold plan to boost the economy and stocks.

But instead of announcing a sizable new round of cash injections into the financial system via a bond-buying program known as quantitative easing, or QE, the Fed took a less-aggressive approach by extending its existing Twist program through year's end. While Fed Chairman Ben Bernanke insisted the $267 billion Twist program — intended to goose economic activity by forcing down long-term interest rates through selling short-term U.S. Treasuries and buying long-term bonds — will "provide support" to the economy, investors were underwhelmed.

"The market was a little bit disappointed that they got more of the same," says Jeffrey Kleintop, chief market strategist at LPL Financial. Twist, the third round of Fed stimulus after two rounds of QE, has not had an outsized effect on juicing the economy or creating jobs.

Still, Kleintop said there were positive takeaways. The Fed did not end its stimulus program nor rule out launching a bigger stimulus package, or QE3, if conditions worsen.

Stock investors fear a replay of the bad reaction that followed the end of QE1 and QE2. The broad market suffered drops of 16% and 19% when those earlier rounds of stimulus ended. Wednesday, the Standard & Poor's 500 index fell 0.2%.

The Dow Jones industrial average closed down 0.1%, while the Nasdaq composite index rose only a fractional amount.

Even though Bernanke said in a press conference that the Fed has "more ammo" to combat weak growth, many on Wall Street feel the Fed's ability to jolt markets is waning. "The Fed's influence is diminishing," says Bill Hornbarger, chief strategist at Moneta Group. With interest rates at historic lows, pushing them slightly lower will do little to goose the economy, he says.

At this point, Wall Street might get a bigger lift from central bankers in Europe injecting massive stimulus into the system there to stabilize its debt crisis. "What the European Central Bank and Germany's Bundesbank do is probably more important than the Fed," says Michael Strauss Commonfund strategist.

History points to Olympic boost for UK stocks - The Guardian

Reality check: Microsoft's calculated 're-Surfacing' of the PC business - CNET News
So explain to me again why Microsoft doesn't deserve the benefit of the doubt for picking a fight with its hardware partners?

In the 24 hours since Monday's Surface announcement, there's been no shortage of commentary attesting to Microsoft's disloyal treatment of its longtime OEMs by going head-to-head with them in the tablet computer business.

But loyalty cuts both ways, and you don't need to rewind Michael Corleone's quote about separating business from the personal to understand that Microsoft's "partners" left it little choice in the matter. No doubt this was a cold move but the blunt truth is that most of the OEMs now silently fuming about having to compete against their key operating system supplier have turned out consistently crappy devices, effectively leaving Apple to mop up the tablet market.

The obvious counterargument -- and fact -- is that they simply couldn't build it with anything Microsoft did before Windows RT, which isn't out yet. Intel also shares fault as much as Microsoft for holding onto technologies which weren't particularly friendly to the size and power constraints of mobile devices (such as keeping x86 over ARM.) Also, without Windows RT or Win 8, Microsoft and its OEMs had no shot at competing against Apple, or even Android. So the OEMs ought to be salivating at the opportunity to challenge Apple in this fast-growing market. Given its big R&D effort leading up to Monday's Surface announcement, Microsoft aspires to emulate Apple's success.

The question which now begs an answer: Is this more of a reference design, or does Microsoft intend to market the bejeezus out of Surface? Or something between the two? We won't know the answer yet for several months since Microsoft did not reveal either a ship date or final price. But there's an historical precedent to consider.

Intomobile's Stefan Constantinescu offers a welcome reminder that Google's introduction of the Nexus One served as a catalyst that forced Android licensees to pull on their thinking caps and come up with snazzier hardware designs.

How many of the hundreds of millions of Android devices out on the market are Nexus devices? Very few. How many of the next hundreds of millions of Windows PCs that will be sold over next year or two be Surface tablets? Very few. The Nexus wasn't made to compete with partners, it was to inspire partners to push the boundaries of what's possible. Surface does the same thing.

The difference, of course, being that, unlike Microsoft, Google does not charge licensees for software (hat tip to Gartner's Michael Gartenberg). Still, Constantinescu's point is well taken.

Another historical footnote to consider: When it comes to the tech industry, channel conflict is as American as apple pie. In the 1980s, computer manufacturers often sold PCs direct to the public even while selling them through authorized third-party dealerships. The worst offender was none other than IBM, which went so far as to open up a national network of IBM-only computer stores, even as it distributed its PCs through the likes of now-defunct retailers like ComputerLand and Businessland.

The dealers grumbled, but they still found ways to prosper. As fate had it, IBM was first to call it quits, selling the computer store business to Nynex after only a few years. With the notable exception of Compaq, few companies could claim to be pure -- they all were driven to cash in on the PC craze while the getting was good. Even Apple, which sold direct to the education market right from the get-go. In 1997, it began selling online and four years later opened its first company-owned stores.

It's an inexact comparison in that what Microsoft is doing is slightly different. But for the first time, Microsoft is competing against its OEMs -- and that's why you won't find any of its longtime hardware partners slapping high-fives upon hearing about the news. For now, Microsoft is making life harder on its partners whose computers run the Windows operating system. Will it inevitably lead to a crisis down the road? Doubtful. My guess is they'll get over it soon enough. Besides, if this works to get the OEMs' competitive juices flowing again, nobody's going to remember this episode as more than a minor dust-up.

Update: FWIW, Acer's Stan Shih is being quoted saying that Microsoft's only planning a temporary stay in the tablet business and that Monday's announcement was part a bigger strategy to "encourage" device makers to bring out Windows 8 tablets.

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