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De invloed van de rente

Gepost in Beleggerszaken


Greenspan neemt risico


Alan Greenspan (de President van de Amerikaanse centrale bank) probeert te voorkomen dat de Amerikaanse economie afglijdt naar een recessie. Een beetje minder hard mocht het wel gaan met de productiegroei, dat had hij bij herhaling al laten weten in de afgelopen jaren, maar op economische stagnatie of zelf krimp zit niemand te wachten. Daarom verlaagde hij eind vorige maand opnieuw de rente met een half procentpunt van 6 naar 5,5%. Begin januari had hij ook al zo'n rentestap gezet.


'Medicatie loopt in VS vooruit op diagnose' kopt NRC Handelsblad op 30 januari 2001. Maarten Schinkel Schinkel stelt in zijn commentaar onder meer: 'Met die stappen reageren de VS razendsnel op de verslechterende economie. Zo snel zelfs, dat de diagnose of de VS nu wel of niet in zwaar weer terechtgekomen zijn, nog niet eens gesteld is.'

Greenspan lijkt inderdaad enig risico te nemen. Want als het allemaal geweldig blijkt mee te vallen met de Amerikaanse groeivertraging, dan heeft hij de economie ten onrechte een oppepper verstrekt. Een oppepper die samen met de in de loop van het jaar verwachte belastingverlaging zou kunnen leiden tot een oververhitting van de economie. Maar Greenspan heeft geen alternatief. Als hij nu geen maatregelen neemt en wacht tot de omslag een feit is, dan werkt zijn rentemedicijn niet meer. Het vertrouwen van de Amerikaanse consument in de economische toekomst is de afgelopen weken al rap gedaald.

Dat vertrouwen is de belangrijke pijler onder de koopbereidheid. En met het producentenvertrouwen (dat sterk bepalend is voor de investeringen van ondernemingen) lijkt het dezelfde kant uit te gaan. Als de somberheid echt heeft toegeslagen, zakken de bestedingen in. Dan werkt de geldpolitiek niet meer. Particuliere consumenten gaan zich dan echt niet meer in de schuld steken voor een nieuwe auto en ondernemers denken eerder aan het verkleinen van hun productiecapaciteit dan aan het doen van nieuwe investeringen. Ook niet als Greenspan hun kredieten een beetje goedkoper maakt door de rente te verlagen. Greenspan kon dus niet wachten.

Jan Pleus


Fed cuts by half pointNovember 6, 2001: 4:27 p.m. ET

The U.S. central bank acts aggressively again to fight a recession.
NEW YORK (CNNmoney) - The Federal Reserve cut interest rates by a half-percentage point Tuesday, its tenth cut of the year and third since Sept. 11, in an effort to keep American consumers spending and boost the U.S. economy.

Though many economists think a recession is inevitable this year, the central bank's goal is not only to lower the cost of borrowing, but also to let consumers and U.S. stock markets know it's doing everything it can to keep the world's largest economy from slowing down too much.

"Today's rate cut was no surprise," said Bill Cheney, chief economist at John Hancock Financial Services. "Even the half-point cut was more or less expected. In fact, the economy is still weak enough for the Fed to feel free to keep easing."

Fed policy makers cut the central bank's target for the federal funds rate, an overnight bank lending rate already at 40-year lows, to 2.0 percent from 2.5 percent. The Fed also cut the seldom-used discount rate to 1.5 percent from 2.0 percent.

Since 1990, Mortgage Debt has more than tripled, Corporate Debt has just about tripled and Consumer Credit has more than doubled. US Treasury debt seems to have seen the least growth, but don't let that fool you, Federal Agency debt has quintupled.

While the total of Treasuries has been declining for 4 years, the amount of Agencies has grown dramatically. This re-arranging of Fed debt is nothing more than the Government's version of balance sheet gymnastics. Bottom line, total government debt is still growing.

The numbers are staggering. Almost $18 trillion of debt. And what do we have to show for it? The debt that has been added in the last few years has been the least efficient at increasing the GDP. Normally an economy will see an acceleration of debt growth as it comes out of a recession. This recent acceleration was during the boom years. How much acceleration of debt can there be to get us out of the current slowdown?

After an economic slowdown in the early 90's, Consumer debt started to accelerate in the later part of 1993. It accelerated again in the 1998 - 2000 period and shows little signs of slowing. The consumer has been heralded as the savior of the economy. But the cost has been this pile of debt. Money will have to come from somewhere to pay this off. Wherever it comes from, it hurts the economy and the stock market.

Total Corporate debt has quintupled since 1985 and has increased more than 250% since 1994. There has not been a corresponding increase in the economy which means we have inefficiently bloated the balance sheets of Corporate America and gotten very little for it.

The Cure is the Killer
An economic check-up

Getting a diagnosis on the health of the economy from Alan Greenspan or Wall Street is like asking the Tsetse-fly how your malaria is. Greenspan’s actions and Wall Street’s schemes are the diseases that sickened the economy. They aren’t going to be the best sources for an unbiased analysis on its health.

Greenspan’s easy money policy is responsible for the huge debt levels, declining Dollar and growing trade deficit. His prescription for keeping the economy going is more of the same. In other words, keep the drunk drinking and you can prevent a hangover. It is effective for only so long. The economy got drunk on easy money. More of it doesn’t cure the problem.

Wall Street is the traveling snake-oil salesman that gives the people what they want – a cure-all at a decent price. Who cares if it really works or not? After having been caught in what should have been the biggest research scandal in decades, Wall Street is back to their old ways. The percentage of “buy” rated stocks is about the same as it was in the crazy days of 2000. “Sell” rated stocks? Few and far between. Wall Street strategists are too busy promoting the latest “this-time-it’s-different” story. They are hoping investors ignore valuation levels are back where they were in 2000.

Bear markets and recessions are supposed to cleanse the system of its imbalances. They are a time of healing to correct any of the excesses of the previous period. What emerges from the bad times is a healthier economy and a market more fairly valued. This is not what happened over the past few years.

Below are the results of a recent check-up on the economy. We compared the most recent numbers available, mainly yearend 2003, with the 1st quarter of 2000. Here are the results:

Household debt + 41.54%

Corp debt + 19.37%

GDP + 9.30%

Interest rates - 24.62%

Dollar - 17.31%

Trade deficit + 38.88%

Unemployment + 44.80%

Employed - 0.92%



S&P EPS - 19.23%

P/E Ratio - 1.72%
Data From Economy.com / Format CIS

It would seem the patient is much sicker today than 4 years ago. Instead of declining, debt levels increased substantially. With such a large increase (and decline in interest rates) you would have expected the economy to have performed better. Instead, the increase in GDP was only 9.30%, less than half the increase in Corporate debt and less than one quarter of the increase in household debt.

Worse is the huge increase in the trade deficit. It has increased almost 40% in less than 4 years. This, at a time when the Dollar has declined almost 20%. A declining Dollar is supposed to help shrink the trade deficit - it didn’t.

Calling what we have gone through a “jobless recovery” is an understatement. Yes, it is true that the number of people employed has been just about flat for the last 4 years, but the number of unemployed has gone up almost 45%. We should call it a “jobLOSS recovery.”

And don’t turn to the stock market for solace. Earnings are down significantly over the past few years but the p/e ratio, the main measure of value, has barely budged. This means the market is still as overvalued as it was when it peaked in 2000.

Greenspan will say that all of this shows an increased confidence in the US recovery. People are borrowing more money and foreigners are selling their stuff over here. They must be confident about the future. No Mr. Greenspan, your strategy is comparable to feeding double banana splits to dieters. They are going to love the plan, but they will be worse off because of it.

Wall Street’s take on this is much more dangerous. They employ the “It hasn’t happened yet” approach. They only react after something has happened. If they were your doctor, they would wait until you had a heart attack before treating you for high blood pressure. Talk of a market bubble and overvaluation started well after the bubble popped in 2000.

Wall Street is naturally ignoring the warnings of an overheated market again. We will probably hear all about the parallels with 2000 months after the market tops out and the bear market resumes.

Adding all of the symptoms together, the increased debt levels, the poor earnings, the weak recovery, the ballooning trade deficit and declining Dollar and you get unhealthy fundamentals. Add on top of that a market that is as overvalued as it was in 2000 and you get an investment environment that is actually riskier today than 4 years ago.

The outlook for this patient is critical. Investors can disregard the fundamentals for only so long. None of the therapeutic benefits of the bear market and recession had any healing effect. The cures Greenspan and Wall Street offered only made things worse. The only conclusion is that we are going to have to go through it all over again, and this time it may be much worse.

Been Down so Long… The market’s rally is a little harder to understand. Investors had been suffering through a bear market that should have chased them away in droves. When the market started to rally in 2003, it was an expected reaction to the long decline. Even bear markets have rallies.

As the market rallied, investors became more bold and confident. Sentiment figures showed that not only were investors more positive than at the peak of the last bull market, they were more positive than before the Crash in 1987.

The amazing part is that they have less reason for this optimism than ever before. When the rally started, the P/E ratio was around 29 – 30. Now that it has rallied significantly, valuations are more overvalued than the first quarter of 2000, when the bear market began. Investors, it would seem, have learned nothing from the bear market.

Greenspan’s Hands are Tied

Dollar Daze – The Dollar is the key to everything. It is the barometer of the health of the nation and it is sinking fast. Too much debt and too little discipline are the problems.

Foreign investors hold almost 50% of our national debt. We owe them this money. But as we run up more and more debt, the value of our currency becomes diluted. This dilution corresponds with the decline in the value of the Dollar. (So far, the average American’s response to this is “who cares?”)
Consumer of Last Resort - As the world recovers, American consumers have been a ready market. The Trade Deficit (and more accurately the Current Account Deficit) show how much we owe overseas. Even with a declining Dollar, which should have slowed the growth of the deficit, American consumers show they can't get enough of foreign products.

Bad Medicine – Greenspan has to face the unappealing alternative of increasing interest rates and the sooner the better. The point of raising rates is to slow the money supply. It is to calm down an out of control debt junkie – the US economy.

Most of all, it is to appease the foreign investors. If they don’t see the Fed acting proactively to halt the decline of the Dollar, they may take things in their own hands and force rates much higher by dumping US bonds. This would choke off the debt markets, especially the red-hot mortgage industry. Kill debt growth and you kill consumer spending and that kills economic growth. It is as simple as that.

Cheerleaders to the Rescue – Don’t think that Wall Street does not know this. Again, virtually everybody expects rates to go up this year. When they do go up, you can be sure to see the cheerleaders from each firm praising Greenspan for his bold move and proclaiming this as a sign of the strength of the recovery. They will then try to outdo each other with predictions of how high rates can go without any undo effects to the stock market.

It is these reassurances that the Fed will be depending on. The last thing they want is for investors to realize just how precarious a position he has put us in. Things have to work perfectly for us to get out of this mess.

Betting on an Experiment – If you haven’t noticed, Mr. Greenspan has often referred to the period from 1995 through today as an “experiment.” He is experimenting with the economy. He has followed policies that have always failed in the past.

Simply put, his experiment is to solve all economic problems with liquidity. The premise is that if you throw enough money at a problem it will go away. He did this with the currency crisis in 1997, the mini-crash in 1998 and the Long Term Capital debacle in 1999. His biggest challenge was the bear market and recession.

To keep the bear market and recession from completely engulfing us, he allowed liquidity to grow at unprecedented rates. This translated into huge increases in consumer and corporate debt. Debt that eventually has to be paid off.

A New Bull Market is Born – The bull market in commodities, which is just beginning, is likely to continue for many years to come. Supplies are not keeping up with global demand for most products and inventories are being depleted. In the US, it has just been reported our oil stocks are below 1975 levels.

Raw materials will do well for a variety of reasons. The first is the development of the third world. As they grow and prosper, their quality of life improves and they consume even more. From China and India to Africa and South America, the trends are already in place for consumption being the dominant influence on prices, not supply.

In many cases, supply cannot keep up with the current demand for a number of natural resources. This is due to the woeful lack of investment in commodities over the past 20 years or so.

The strength of commodities will result in the potential for increases in raw materials costs in America. There also may be a double whammy to the economy, since the Dollar’s weakness may cause many natural resources to be more expensive domestically than overseas.