Economic Stagnation of Olympic Proportions

February 21, 2014

Russian President Vladimir Putin is a busy man.  He’s found time to prop up Syrian dictator Bashar Assad, negotiate a face-saving chemical weapons deal with President Obama and support violence against Ukrainians, all while overseeing the construction of the most expensive Olympic Village in the history of the games.

The Olympic Village at Sochi had a projected cost of $12 billion.  The actual cost was $50 billion.  So no more complaining about The Big Dig.  It could have been worst.

PutinAnd, like The Big Dig, all that money failed to buy quality construction.  Stories abound of shoddy construction and faulty work.  The Olympic Village is more like a Potemkin Village.

At the Olympics, color, pageantry and the world’s best athletes draw the television cameras, while a few hundred kilometers away, the Ukrainian government, with help from the Russian government, is killing its people.  This week, violence in Ukraine was the worst it’s been since the breakup of the Soviet Union.

As with Syria, the U.S. is leading from behind.  While the European Union has at least announced sanctions, the U.S. is only considering sanctions.  President Obama denounced Ukraine violence “in the strongest terms,” but talking is the weakest action.

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Bad News Boosts the Market

June 12, 2012

In the strange world of investment management, bad news is often good news.

That was the case last week, as the S&P 500 gained a hefty 3.7%, more than reversing its 3% loss from the previous week.

The market rose 2.3% on Wednesday alone – its largest single-session percentage gain so far this year – amid signs that the already tepid economic recovery is slowing further.

So why did the market rally?  Because traders speculated that the Federal Reserve will react to the slowing economy with additional stimulus.

Fed Chairman Ben Bernanke didn’t even hint at any immediate plans for a third round of quantitative easing or any other steps to stimulate the economy.  The European Central Bank (ECB), likewise, left its benchmark interest rate at 1.00%.  However, ECB President Mario Draghi said that actions would be taken if needed.

So the chance that another round of stimulus may take place is enough to boost the market 3%.

Given that economic growth remains anemic and the unemployment rate is at 8.3% and is generally creeping up, not down, previous rounds of stimulus have had virtually no long-term impact.

Short-term, though, markets love quantitative easing, which makes investments in stocks appear desirable by making investments in other assets undesirable.

So if quantitative easing doesn’t help the economy and provides only a short-term boost to stock prices, maybe the Fed should just float a few rumors … plan a faux round of quantitative easing to give S&P 500the markets a boost without any cost or harm to the economy.


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