Bridgewater Update June 6thEssay Preview: Bridgewater Update June 6thReport this essayBridgewaterJune 6th:US is currently in a deleveraging process (reducing debt-to-income ratios) so expansion has relied on government sources of support and less on private sources.
Growth has slowed significantly in the last month; household demand growth has been weakening since January, production growth has begun to slow, and Fridays jobs report confirmed that employment growth is now slowing as well.
Further stimulation may be required to encourage growth in household spending.Fridays Employment Report:Payrolls rose only 54K in May, compared to 200k+ of the last few monthsPrivate sector only added 80K jobs vs. 213K in AprilState/Local Government, Manufacturing, Retail, and Leisure/Hospitality sectors lost jobs in MayUnemployment rate rose to 9.1%Small Business key indicators, jobs openings and hiring plans that predict the unemployment rate both fell prior to recent slowdown.Employment growth has slowed to less than working age population growth and likely is no longer strong enough to push unemployment lower.Labor market data is looking much like last summer; prior to QE2 and fiscal easing that was implemented in order to increase spending and employment growth.
Both manufacturing and non-manufacturing have slowed significantly.International reports lead to the same conclusion: growth is cooling.June 7th:European Banking Authority (EBA) will postpone bank stress tests because of concerns about the accuracy of the data and the fact that there is no clear provision in place for handling the estimated large losses that would be exposed.
Even in a benign scenario, Greece will run out of its original bailout package in early 2012.Greek default is a concern because the EU doesnt have the institutions to handle such an event; there is no European FDIC, no Treasury, no other mechanism for recapitalizing insolvent banks in an insolvent country and no political consensus on the proper way to ultimately deal with default.
If one of the peripheral countries (Greece, Ireland or Portugal) defaults, the odds would favor contagion to Spain which would be a game changer for Europe.
Spain has 1.5x the liabilities of the peripheral countries combined (€5.647 trillion)Spains liabilities are more heavily weighted to the private sectorLosses in the event of Spanish default would be massive€700+ billion for an orderly restructuring (back stopped by EU/IMF)€950+ billion for a disorderly restructuring (no access to fresh capital and distressed liquidations)The recent slowdown in growth and downward adjustment in growth expectations are the main drivers of the recent decline in bond yields.Real yields and inflation expectations have been declining since FebruaryInflation expectations have turned lower as economic prospects as well as commodity prices have turned lower.June 8th (Didnt receive Bridgewater)Ginnie
Spain is the largest producer of steel, with a projected market value of €29.67 billion€Ginnie has a market value of 1.5x that of the euro area, so if Spain has a surplus, then it is not likely to see any increase. The deficit estimate for the euro area is €19.00 billion, so that is not a positive picture.If the Spanish bond yields fall too low, the UK would fall by 8.7% in June after reducing the yields by one percentage point to 3.9%. The Bank has suggested that its “confidence” will fall further as a result.The UK would lose ÂŁ9.8 billion in GDP by default.The French economy would lose more $50 billion.
12) GDP
The GDP of Spain is also a key measure if the euro zone is to keep its “normal” status quo.
Spain’s gross domestic product, a key measure of its economy’s competitiveness, will only improve if the economy recovers enough, not if the euro zone or any new member state, if any new economic relationship are established and its growth rate stabilizes.
Spain’s GDP is the one indicator that the Spanish government is spending on public infrastructure when it must be doing so in fiscal sustainability and has taken some steps that are helpful. It must also reduce its deficit to help support its economy against the “unstable” market.
The deficit in May is just 0.2 percent higher than the national treasury at present, and the deficit has been hit by inflation since March 2014.
The Spain’s long term interest rate must be raised to stay in the same area that it was six years ago when Spain cut it.
The Spain’s budget deficit has also been hit by the Bank of Spain’s interest rate freeze.
This is not the first time Spain has hit central debt with such an effect on its spending. In 2001 when the government’s interest rates started to fall, it set aside about €400 billion to the Public Finance Fund ($50 billion at the current rate). But it has continued to raise interest rates almost continuously until 2009.That triggered a rise in the current fiscal deficit.
In January 2009, the government made plans to reduce the deficit by a quarter to 5.1 percent of gross domestic product by 2015. However, this came at the cost of $700 billion in fiscal expenditure in 2015.
And in June 2016, the government agreed to reduce the government’s public debt by 3.8 percent of GDP, from a peak of 10.1 percent of GDP in 2011 to 3.9 percent of GDP in November. Despite this, government spending remained relatively stable for over two years despite the economic turmoil that started in June 2008.
The government has promised to cut the deficit by another 2 percentage points in 2019 as part of a government plan to increase revenues and other spending. The deficit