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ASEAN STOCK WATCH Asean Affairs  20 August 2012

Weekly Market Outlook

By Shayne Heffernan Ph.D.

Economist Shayne Heffernan has identified the state of the European Economy, rising debt in the USA and a Global rise in unemployment as a reason to re-evaluate portfolio holdings and in many cases, it is time to sell. While many are trying to talk the market up, the reality is the economy has not seen improvement significant enough to reflect the growth seen on the US markets.

As Warren Buffett has said, "be fearful when others are greedy and to be greedy only when others are fearful."

Given the run up Wall St has had on very thin volume the market is now excessively overbought, the best buy right now is the VIX.

Volatility levels as implied by the CBOE Volatility index or VIX, are at their lowest since June 2007 without any real justification.

Europe stave's off collapse on a week to week basis, the conflict in Syria threatens to spill over in to a period of International tension, earnings season delivered poor performance even against dramatically reduced estimates.

    HCM Custom Chart

Everyone should be reviewing their current portfolio and selling off stock that are near their highs, sell anything trading at over 20 in PE terms, and if you are looking to buy then buy companies with low PEs and I would suggest a focus on Emerging Markets where the economies are still growing.

USA Unemployment

Unemployment rates rose in 44 U.S. states in July, the most states to show a monthly increase in more than three years and a reflection of weak hiring nationwide.

The Labor Department says unemployment rates fell in only two states and were unchanged in four.

Unemployment rates rose in nine states that are considered battlegrounds in the presidential election. That trend, if it continued, could pose a threat to President Barack Obama's re-election bid in less than three months.

Nationwide, hiring improved in July after three months of tepid hiring. But the national unemployment rate ticked up to 8.3 percent from 8.2 percent. Monthly job gains have averaged 150,000 this year. That's barely enough to accommodate population growth. As a result, the unemployment rate is the same as when the year began.

USA Debt

The Outstanding Public Debt as of 19 Aug 2012 at 12:55:58 PM GMT is:
$ 1 5 , 9 6 8 , 1 7 5 , 5 1 0 , 9 6 0 . 5 6

The estimated population of the United States is 313,346,561
so each citizen's share of this debt is $50,960.11.

The National Debt has continued to increase an average of
$3.90 billion per day since September 28, 2007!

A year ago this month, Standard and Poor's downgraded the nation's coveted AAA rating to a AA-plus. When Barack Obama took office in January 2009, total U.S. government debt stood at about $10 trillion. Since then, more than $5.5 trillion has been added to the national debt, which is about to hit $16 trillion. This out-of-control spending and debt is the primary reason why all three credit rating agencies, Moody's, Fitch and S&P, have negative outlooks on U.S. government debt, all but assuring further rating downgrades in the near future.
A debt-driven collapse of the U.S is closer than most Americans realize. Consider what has happened in Spain and Italy, respectively, the world's 12th- and eighth-largest economies. Just ten months ago Spain and Italy carried AA ratings, but today their debt ratings have plummeted to near-junk levels, at Baa3 and Baa2, respectively, driving their 10-year bond yields above 6 percent.

Things are worse today than they were a year ago when the U.S. lost its AAA rating from S&P. The national debt has grown by nearly 11 percent while the economy has grown by only 2 percent. And over the past four years of various government spending programs, debt has grown by 60 percent while GDP has grown 7.7 percent. So much for the benefits of Keynesian stimulus. Washington's policies have left the country without shock absorbers or an effective insurance policy to counter another crisis.

Debt in Europe

European banks have been encouraged to buy up the bad debts of ailing economies in southern Europe by the European Central Bank. At the start of this year, the ECB made over a trillion euros available in cheap loans for such purchases.
The current estimated total of bad loans is double the 2008 figure. The most rapid rates of growth in bad loans have been recorded by banks in Italy, Spain and Greece. The massive rise in bad debt in the vaults of European banks has in turn led to a marked downturn in interbank lending. In June, these interbank transactions reached their lowest level since the outbreak of the financial crisis in 2007.

It was the collapse in interbank lending in 2008 that prompted governments in Europe and around the world to pump trillions into the international banking system. In September of last year, the president of the European Commission, José Manuel Barroso, admitted that: “In the last three years, member states—I should say, taxpayers—have granted aid and provided guarantees of €4.6 trillion to the financial sector”.

Europe's statistics agency, revealed that the economies of both the eurozone and the European Union, which has 27 countries, shrank by a quarterly rate of 0.2 percent in the second quarter of the year. In the first quarter, output for both regions was flat. A recession is officially defined as two straight quarters of falling output.

Europe's debt woes have been blamed for the sharp deterioration in the global economic outlook over the last few months. The region is the U.S.'s largest export customer and any fall-off in demand will hit order books, as well as President Barack Obama's election prospects.
The 17-country eurozone is grappling with sky-high debt levels and record unemployment of 11.2 percent. Compared with the second quarter of last year, the eurozone's economy is 0.4 percent smaller.

The region's economy would have slipped into recession had it not been for better-than-expected GDP figures from its two leading economies, Germany and France. Germany, Europe's biggest economy, posted quarterly growth of 0.3 percent, better than the 0.2 percent uptick forecast. France also beat expectations of a small contraction in its output to record no change in its economy for the second quarter.

For those countries at the front-line of Europe's debt crisis, the figures make for grim reading. Unsurprisingly, Greece is faring the worst - its economy is 6.2 percent smaller than a year ago and back at the level it was in 2005.
Portugal suffered a big 1.2 percent drop in output in the second quarter, compared with the previous quarter's modest 0.1 percent drop.

Both Greece and Portugal have received financial bailouts from the other eurozone countries and the International Monetary Fund and were required to adopt tough austerity measures in return.
Italy and Spain, the eurozone's third- and fourth-largest economies, shrank by 0.7 percent and 0.4 percent respectively in the second quarter.

Both countries are struggling to convince markets they have a strategy to get a grip on their debts. Spain has even agreed to a bailout of its banks.

Unemployment in Europe

The jobless rate in the euro area reached the highest on record as the festering debt crisis and deepening economic slump prompted companies to cut jobs.

Unemployment in the economy of the 17 nations using the euro reached a revised 11.2 per cent in May and held at that level in June, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995. In Germany, unemployment climbed for a fourth straight month in July, a separate report showed.

Policy makers are weighing options to counter the turmoil that has forced five euro-area nations to seek external aid, eroded investor confidence and pushed companies to trim their workforces. European Central Bank President Mario Draghi, who met with US Treasury Secretary Timothy Geithner yesterday in Frankfurt, has pledged to do everything to preserve the euro.

Shayne Heffernan Ph.D.  

Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
3 Raffles Place #07-01
Bharat Building Singapore 048617
Tel: +65 6329 6408 Fax: +65 6329 9699
Email :
Suite 53 Athenee Tower
63 Wireless Road, Lumpini, Pathumwan, Bangkok 10330
New York 347 5th Avenue, Suite 1402-508 NY, NY 10016


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