Over the past one year global stock markets failed on all attempts to rally as consistent negative news flow continued to trigger selloffs in panic. Fears still loom that debt crisis in Europe will put brakes on global recovery, and this could mean that we will see a volatile 2012 for stock markets globally. I would say that this year won’t be any different than 2011 as similar concerns will continue to rock the sentiment. Even brave hearts fear volatility, and it’s likely that we will witness severe bouts of sentimental shifts if the scenario in Europe does not ease out soon. In this post, I would like to debate on several scenarios that could play out well for struggling European nation in 2012.

In the last two posts of our special coverage on European Debt Crisis we talked about the current situation in Europe and what all could possibly go wrong with some of the debt trapped nations. Now, just to ensure that we do not go wrong in forecasting things with a bias on one side of the coin, let’s see if there is any glimmer of hope for the eurozone?

Impact of US Growth on European Debt Situation

For the past year or so we have been hearing too much about how crisis in Europe will have its negative impact on recovery in US, but we never saw what’s on the other side of the coin.

So far the data in US has been improving with every passing day, that’s encouraging even so for the European nations dealing with worst of their days. We cannot ignore the fact that US serves as a huge market for European exports and at the same time travelers from US spend plenty dollars shopping in Europe. Now, if US employment data continues to improve further, consumers will readily loosen their pockets for European imports as well as for their domestic products, at a growth in number of travelers from US to Europe is very much likely in such a situation.

Both these factors make a strong case that growth in US will bring in some respite for crisis bitten Europe. Talking about 2012, US is showing strong signs of growing at a faster pace so we should expect some bit of excitement for the Europeans as well.

A case for Emerging Markets Rescuing European Nations

Economic growth engines of the world “Emerging Markets” will need to keep importing sophisticated machinery and rely technological edge that remains a key advantage for European exports. So, as long as European nation continue to maintain their edge on these two areas there will be a good demand for their exports. Considering that demand situation for European exports does not change dramatically, all emerging markets may it be, India, China, Brazil or smaller growth engines in Asia, all will have a good appetite for European Debt. This is just a small hope for Europe as most of this will benefit already stronger nations in the region namely, U.K, Germany and France.

Proactive Policy Action will reshape Europe

Although, we can’t be too optimistic on this front but there is a fair chance that leadership in Europe will soon realize that they require radical changes to emerge strong out of this situation. This may push forward economic liberalization and many European nations will benefit from reduced government intervention, private sector will gain strength and global competence.

Now there could be a hard way out of this mess if troubled countries decide to go ahead and face defaults. This could indeed result in collapse of the eurozone, which will then require a start over. We can continue to argue on potential benefits and dangers of such a situation, but what’s the guarantee that everything will get back on track after numerous painful attempts to fix the eurozone? So, there is a 50/50 chance that troubled nations can regain their strength slowly by taking the default route now. Delaying could make the situation much worse for future, and if they stick on this route, they are only buying more time than fixing anything meaningfully.

Conclusion

For global watchers, 2012 may not bring on anything significant to cheer about but we can still be hopeful that things won’t turn much worse. And that’s a positive after experiencing frequent jitters in 2011.

Previous: Eurozone Debt Crisis: How worse can it get in 2012?

First: European Debt Crisis: A setup for Global Collapse?

——————————————————————————————-

Latest OptionsHouse Trading Platform: Is it really worth your money?

——————————————————————————————-

As discussed in the earlier post, the current situations prevailing in Europe are more likely to worsen in 2012 than they have the chance to head for the better. However, I know taking directional calls on economies of such scales isn’t a wise thing to do as almost certainly things always pan out in a different order. So, rather than betting on a particular trend, in the last post we discussed about the prevailing situation and key challenges,  in the next post we shall talk about some still possible positive outcomes for Europe, and this post is all about the worst that can strike the already struggling  eurozone  in 2012.

Keeping Greece and Italy afloat: Mounting Budgetary Pressures

Whether they like it or not, but Greece and Italy will have to go through a rough patch of economic and social reforms that the supporting nations will force on them. There is no escaping from the fact that the percentage of debt to GDP in both these nations is signaling a default situation anytime soon. The only way they stay afloat is by rolling over the debt, which investors are only willing to take at significantly higher interest rates. Well, even if these nations are able to sell their debt, it will only buy them more time, and the real problems remain far from over.  Paying higher interest rates in efforts to stay afloat further raises the challenges for these nations as then their budget flexibility is largely capped.

Austerity Programs may be short-lived: Are Defaults Inevitable?

At the same time these countries will find it difficult to run on austerity programs for too long if the sentiment switches and taking the default load becomes inevitable. Defaulting will mean significant cut in respective government’s ability to stimulate the economy as then they will have to work with much tighter budgets.

As a result of the above scenario both these nations, who at present have stringent laws and regulations for the businesses in general, will have to go through serious reforms and considerable liberalization.  All this is bound to change the very ways of how the businesses operate in these nations. The real deal with above mentioned scenario is that it will take much longer than 2012 to make these nations stand back on their feet as making reforms and liberalization process isn’t as quick as pumping in liquidity.

If the scenario discussed above went over your head then you might understand the simple reasoning stated below which clearly suggests that the worst is not yet seen in the European crisis.

Seriousness of the crisis for the Layman

The magnitude of this crisis in itself is something that cannot be fixed in a short span of time. It involves various nations and quite arguably fixing debt related issues of all these nations at one point in time is something next to impossible. Greece will require much more financial aid than that is readily available. Italy has bought itself some time but that’s not sufficient make a turnaround. Spain cannot become a growth engine overnight, and not even in the long run will it be anywhere close to compete with export oriented nations in Southeast Asia and China.

In this changing global scenario, most of the developed nations are focusing on getting more competitive in the exports market, but they cannot match up with the developing markets’ cost effective export oriented structures anytime in the visible future. And after all, there isn’t enough demand for everyone to compete.

 Next: A Glimmer of Hope for Europe in 2012: Is the worst really over? 

Previous: European Debt Crisis: A setup for Global Collapse?

——————————————————————————————-

Latest OptionsHouse Trading Platform: Is it really worth your money?

——————————————————————————————-

As we close the year on a flat note for the US stocks, investors are rightly worried about the far reaching impact of the European crisis as it threatens to put breaks on the ongoing recovery in the US. At this point in time, when most investors are busy assessing and rebalancing their investment portfolios, the precarious state of European Crisis is mounting fears that the worst is still to be seen in 2012. Let’s take a closer look at where things stand today and what are the possible ‘best and worst’ case scenarios that could play out in the times ahead?

At present, the European crisis has caught many economies off-guard and now the worries of this crisis spreading beyond the European Financial System have escalated. Nevertheless, the current situation worsening further could see a spill over impact in developing economies such as India and China who are already struggling with slowing growth. US will not remain immune to such a situation and whatever taped recovery is going on could see a hard landing in 2012.

Current State of the European Problems

Greece is deep under waters, Italy is barely afloat, and the situation in Portugal and Spain remains wobbly.

These are challenging times and despite coordinated efforts from central banks the outcome remains uncertain. However, for the time being the Euro Dollar liquidity situation has improved as a result of coordinated interventions, and even the fears of bond sales going bust have eased considerably.

Austerity measures for Greece may not hold up long, and if Europe see’s a deeper than expected downturn, all efforts to save Greece will eventually run out of hopes. Ireland seems to have stabilized, but that’s a tiny part of the European problems. Debt problems in Portugal, Spain and Italy are most likely to stay out of control as these countries are mainly driven on government support and domestic consumption. Lack of competitive spirit in the globalized world where export oriented countries are likely to sustain better, these European nations seem to be on the brink for a hard landing.

What’s aggravating the current European Crisis Situation?

It looks like major European Banks are sensing a catastrophe around the corner; their reluctance to lend is restricting growth and making it difficult to emerge out of this crisis situation. Further dampening of economic activity may result in revisions of debt holdings for most of these banks and if default fears of Italy, Spain or Greece come true, there will be absolute chaos.

At the same time, hopes are fading that Germany will come to rescue its troubled neighbors. The survival of eurozone remains uncertain and it seems the issues pertaining Europe will continue to remain at the centre stage and periodically haunt investors in 2012

Recent Government, Household and Corporate Debt to GDP Data

Continue Reading our Coverage on Europe:

Next: Eurozone Debt Crisis: How worse can it get in 2012? 

Last: A Glimmer of Hope for Europe in 2012: Is the worst really over?

——————————————————————————————-

Latest OptionsHouse Trading Platform: Is it really worth your money?

——————————————————————————————-

The Global economic recession that hit in 2008 had links to the U.S. housing bubble and sub-prime mortgages. An immediate result of the recession was the fall from grace of the real estate sector, leading to much apprehension among many with making investments into the sector. But, if we simply think of securing an income stream for the future, then its commonsense to invest in real estate.

$3.95 Flat-Rate Stock Trades

Comparing Real Estate to other Investments

National Council of Real Estate Investment Fiduciaries (NCREIF) cites data which states that private market commercial real estate gave returns of 8.4% during the 10-year period from 2000 to 2010. This reliable performance was achieved, together with low volatility relative to equities and bonds, for highly competitive risk-adjusted returns.

However many critics would claim that the low volatility characteristic of real estate is directly a cause of the infrequent nature of real estate transactions. Property values here are often appraised by third party valuations. The intermittent nature of transactions and appraisals smoothen the returns, as the reported property costs consider the market values to be lower during an upturn and would considerably overestimate market values during an economic downturn.

Despite the fact that notable estimates of real estate volatility should be attuned further up, real time markets are easily susceptible to sudden upturns and downturns. A valid example would be the “Flash Crash” of May 2010, where $1 trillion in stock market value just vanished in mere 15 minutes. In such an environment of uncertainty and fluctuating market volatility, real estate with considerably stable pricing is quite a promise.

Stocks and bonds have a high degree of uncertainty attached to them, whereas real estate investments are backed by a high level of brick and mortar. Real estate investment trusts (REITs), often listed as real estate securities, have regulations requiring certain percentage of profits be distributed to its investors as dividends.

Real estate investments have strong history of total return. Over a period of 30 years from 1977 to 2007, almost 80% of the total U.S. real estate return came from income flows. This helps bring down volatility, as investments which rely on income returns result in being less volatile than the ones relying heavily on capital value returns.

Ideal for Portfolio Diversification & Inflation Hedging

An added advantage of investing in real estate is its immense potential for diversification. Real estate has a low, and sometimes, negative, association with other major asset classes. This means introduction of real estate to a portfolio of diversified assets could considerably lower portfolio volatility and result in a much higher return per risk taken.

The inflation hedging ability of real estate originates from the positive association between GDP growth and demand for real estate. With growth of economies, the rising demand for real estate in turn pushes rents higher which in turn, results into rising capital values. In a nutshell real estate tends to preserve the buying power of capital, by passing on a percentage of the inflationary pressure on towards the tenants and by accommodating a portion of the inflationary pressure, as capital appreciation.

Only Reason to Avoid Investing in Real Estate

One of the main drawbacks of investing in real estate is poor liquidity, described as the degree of difficulty in trying to convert an asset into cash and vice versa. A stock or bond transaction, which can be finished in a very short time and hence liquidated fast, a real estate deal can take up to months to close and hence not easily liquidated. Even after using the services of a broker finding a right buyer can take weeks.

However, recent advances in finance practices have offered a solution to this issue of poor liquidity. This is where REITs and real estate companies come into the picture. They provide indirect ownership of real estate assets and are structured as listed corporations. They on one hand offering better liquidity and market pricing while on the other increased volatility and lower diversification.

Final Take

Real estate is a unique class of asset which is quite simple to appreciate and also can augment the risk and return profile of any investor’s portfolio. Real estate offers competitive risk-adjusted returns, with reduced principal-agent conflict and a highly attractive income source. Its portfolio diversification quality can lower volatility through diversification. Difficulty in liquidation can be a concern for some but again with REITs, poor illiquidity of real estate can be reduced.

Also Read:- 

Mutual Funds and ETFs that can outperform in 2011, 2012 and beyond

Handpicked Stocks with attractive Dividend Yields for 2011 and beyond

Gold: A Glimmer of Hope or Fool’s Paradise

These days’ economic data and its analysis that the media continues to bring in play is boggling investors as the data inflow is not reflecting any certain trend. In the aftermath of the economic bailout following 2008 crisis, government sources and media are pushing varying reports about economy slowing and growing, all depending on what day it is and who actually is giving out the facts. For those who were rendered laid off and have to  resort to part time jobs to make ends meet, are defaulting on their credit payments, all these economic numbers mean nothing. The outlooks and market analysis being cited in the media are of no use to them either.

$3.95 Flat-Rate Stock Trades

What’s wrong with the US Taxation Policy?

Ever since the tax cuts of 2001 during the Bush era, the class war has been played out and milked by media and politicians alike. Democrats want to levy 2% extra taxes on the wealthy, seeking to equalize the tax burden and raise money for curbing national debt. Republicans oppose this stating it would mark the end of job creation, by hitting those who have limited capital to start newer ventures. Corporate America is rightly assumed to be favored with the tax breaks they enjoy, also for the loopholes they fend off much of their tax responsibility with.

There was a time when U.S. corporations were taxed at a higher rate than individuals, after WWII, for every dollar taxed from an individual, a corporation had to pay $1.50. Now after drastic reforms for every tax dollar an individual pays, corporations only have to pay 25 cents. Even then corporate tax burden of the U.S. of A stands at 39%, the highest in the world. Many with corporate loopholes escape from even this. The constant bickering of both political parties results in an unresolved situation with the economy sitting and waiting.

U.S. National Debt and its Outreaching Impact

With every passing day, the U.S. national debt is rising with an alarming alacrity. The most recent report puts the debt above $14,000 billion, a figure which is approximately a debt of $47,000 on every American. Such a massive figure creates an environment with investors holding back on investments, banks are restrained with loans; citizens live under a shadow of fear of being over taxed to cover the debt. Its is the first time in its history that S&P downgraded the U.S. credit rating, surely reading into the above signs. It’s not just U.S. reeling under this situation, the recent credit lowering by Fitch Ratings of several members of the European Union paints a very desolate picture of the future economy.
The U.S of A is the world’s largest economy and has considerable monetary systems based on it. The U.S. dollar is the chief currency for conducting trade, and U.S. government bonds and securities are bought by many governments including China and Japan and considered to be a safe investment.
However with the onset of the above scenario many foreign investors may lose faith in the US resulting in a slower economic growth whose repercussions will be felt by several foreign economies. And yet a solution is yet to be found.

Shaping Social Security

A Republican bill proposing giving every citizen their own private account for retirement has been making waves. The current social security bill deducts 6.2% of your paycheck and sends it to the Social Security fund. The SAFE Act (Savings Account for Every American) would allow you to send that 6.2% to your own private account. Republicans claim that the Social security fund is broke and needs fixing to safeguard citizen’s interests. Democrats refute the claim, stating that the fund is solvent and has enough surpluses to last till 2037; giving rise to another deadlock between the two sides.

How others view our economy?

Not many of us realize how much the impression of our neighbors’ about us matters. Pravda, a Russian journal sees the U.S. in a depression, with rising unemployment and a weak and indecisive government. China sees U.S. as a bad investment. Such impressions further hit the economy.

Conclusion:

The U.S. economy has a history of epic rise and falls. There is however no certainty about which side the economy will turn in the coming years. It would be wise to start cutting down your debts and build up a strong savings accounts. Plan for a future where even with the loss of social security you can provide well for yourself.

Also Read:

Will the Current Debt Crisis Change the American Way of Life for Ever?

Digital World Maestro- Steve Jobs, the man who created an Apple which every person in this world wanted to taste or at least just gets a bite of that sumptuous apple. The personality who made the logic of ‘one person one computer’ a reality- Steve Jobs passed on to heavenly abode, at the age of 56 due to pancreatic cancer. The real fighter which he was, Jobs confronted cancer from past five years.

Although Steve never took his education seriously and went on leaving school, his brain produced the marvels which human race never imagined. Right from the Apple1, which was the first small sized computer, he never looked back. Revolutionizing the lives of people all over the globe and making the people tech-savvy is what we can say the real victory for Jobs, which was his ultimate dream.

Bringing the icon of ‘personal computer’ in the desktops of human life, he told us what actually is a ‘desktop’ and that too our very own ‘desktop’ with the launch of Apple2 which was the first personal computer ever.

1984 witnessed a revolution, again Steve Jobs, convinced by his habit, injected power into a freaking creature-Mouse. Invention of mouse in the first ever McIntosh computer gave us a magic wand in our hands- the mouse. Jobs cannot be more well understood than this, when he said once, “Its not the consumer’s job to know what they want.”  This statement gave to the world the series of the products which only the man of Job’s stature can actually think of. First came the I-pod which swept off the era of other music systems in the market, making a world record of sales.

After music, Jobs made his Apple turn the tables for mobile phones and his series of I-phones, the first ever in the world markets, gathered praises from every corner of the world. Before leaving the world, he also made us taste the brand new Apple pie called I-pad.

Jobs did his duty well even before his death bed and willfully gave his position to Tim Cooks, the new caretaker of Apple, the Apple which Jobs nourished with his hard work and unmatched determination which stands as a landmark in world today. Cooks, no doubt has a huge responsibility on his shoulders now as he has to make this Apple tree grow even taller in future and to uphold the integrity and credibility which is tagged to the name called Steve Jobs for the years to come.

Praying to God that his soul rests in peace in heaven, all we can say is ‘although time and death waits for none, it is just that some are immortal, living in our hearts forever’.