Financial markets a 'train ride of gloom'
While researching topics to write about this week, it became clear that finding a positive idea to discuss was going to be difficult. There were few items to choose from that left us feeling positive about the economy and the general state of financial affairs in the U.S. and around the world. So we are going to give a brief overview of data that we combed through if for no other reason than it is interesting and informative.
We want to start with Europe. This will not be our first write-up on Europe and most likely it will not be our last. The G (Greece) in PIGS (Portugal, Italy, Greece and Spain) is back on the front burner with rumors of default becoming more probable each day. Bloomberg reported Sept. 13 that the Greek two-year yield on its debt is 64.3 percent while its one-year debt is at 112 percent. The most recent attempt by Greece's lawmakers to remedy the debt crisis immediately has been met with resistance by unions. Lawmakers want to assess a property tax fee added to its customers' electric bills. Ninety percent of all Greek residences are served by the government-owned utility, and this method would provide a quick and guaranteed collection process. The union that provides the labor to the electric company has threatened to simply not mail out the bills. No idea how this is going to end but it doesn't appear to be on a positive trajectory.
Bringing our train ride of gloom back to the United States, Core Logic released the second quarter negative equity report. The report details that 10.9 million, right around 22.5 percent, of residential properties with a mortgage were in the negative equity column. The good news is this number is down slightly from 22.7 percent in first quarter 2011. To add a little rain on the parade of the overall number of U.S. residential home ills, an additional 2.4 million borrowers are squarely in the "near-negative equity" mortgage category. Combine the numbers and you come up with 27.5 percent of all U.S. residential homes with mortgages being in negative or near negative equity. Just imagine a neighborhood of 1,000 homes and over 25 percent of them being upside down on their mortgage.
The small business optimism index dropped 1.8 points in August according to the National Federation of Business. The index has settled in at a level of 88.1 and is in a true downward trend that has lasted six months now. Most small businesses are reporting that poor sales are driving their negative sentiment. No doubt having a negative sentiment will keep the ever-elusive "new jobs" from being created. A new jobs bill has proposed a tax credit for hiring veterans and those who have been unemployed for a long period of time. Not to take anything away from our nation's veterans and the unemployed but we question why a small business, or really any business, would hire someone for a onetime tax credit of around $4,000. According the Bureau of Labor Statics, a private industry employer will spend $28.13 per hour of compensation in the month of June. If you run that number out for a 52 week year and assuming a 40 hour work week the employer needs to budget $58,510 per employee.
We understand that the information discussed this week carries a negative tone, but from time to time it is good to get in touch with the realities of the financial markets. Having a firm grasp of the happenings of the world events can help guide your business decisions. We promise next week to bring to highlight the positives.
Editor's note: Agvisors provides commentary about agricultural markets, including grain, dairy, livestock, equities, financials, and energy, highlighted by a live weekly webinar discussing conditions and responding to questions. For more information, visit http://agvisors.com.
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