The Current Economic Environment:A Hoover Institution View

For certain investors,it's quite positive,according to John Taylor,Professor of Economics at Stanford University and Senior Fellow in Economics at the Hoover Institution.The long term thing is really fundamentals in the economy,and I don't see them as being positive.The employment to population ratio is down compared to the beginning of the recovery.It's a bad labor market with people dropping out.
Our fiscal policy is way out of line.You've got to exit it in a gradual way.You can't shock the market.There will be pain.There has to be an exit strategy that's understood,that's explained in advance.
Europe is quite a ways from resolving the debt crisis.They're kicking it down the road.
The Federal Reserve's focus on unemployment has resulted in higher unemployment.I'd like a more predictable,rule-based Fed policy,Dr.Taylor said.
John B. Taylor has a BA in economics from Princeton and a PhD in economics from Stanford.He is the author of "Getting Off Track,"a book on the financial crisis,as well as "First Principles:Five Keys to Restoring America's Prosperity."He served as Undersecretary of the Treasury for International Affairs from 2001-2005 and was on the President's Council of Economic Advisors several times.

Testing His Mettle:Deutsche Bank's New Asian Star

If ever there were a time for clarity of thought in European banking,it is today.We are nowhere near a run on the banks,according to Anshu Jain,incoming Co-CEO of Deutsche Bank.The real issue in Europe is about sovereign debt,starting with Greece.We've got capital-lots more;liquidity-lots more;it's gonna be harder under the new regulations.We're really happy with our U.S. franchise.I'm confident we'll hit all capital targets.It's way too early to do a post-mortem on the JP Morgan trading problem.It's very important that we restore the credibility that has been lost.I don't think there are any easy answers.We did let a lot of people down,and now we have to make up for that.At this point,it's organic capital accretion at Deutsche Bank.We are reasonably constructive on many asset classes,but our main concern is our clients,not acquiring assets.Getting it right in our home market and continuing to grow in the emerging markets and the U.S.,in that order,are our priorities at Deutsche Bank,the native of Jaipur,India made clear.Mr.Jain and Juergen Fritschen assume the reins of leadership at Deutsche Bank from Josef Ackermann on Thursday at the annual shareholders' meeting in Frankfurt.At 49,Mr.Jain is one of the most prominent business leaders of Indian origin,having received an economics degree at Dehli University,and an MBA at the University of Massachusetts Amherst.He was head of global corporate and investment banking at Deutsche Bank prior to his new appointment,with considerable success.He will certainly need every talent he has in the difficult climate that prevails in European finance at the present time.Deutsche Bank(DB)

Chief Market Strategists:Grappling With Greece-and who may ultimately win

Even if some problems are solved in Europe,we still have more to go,according to Nick Colas,Chief Market Strategist at ConvergEx Group.Germany is a special case,a high growth export economy,sending such things as machine tools to China.Spain is like Florida:housing driven,with homes for retirees.
Europe's got to firewall a bunch of the issues in Italy,Spain and Portugal.What they're really trying to do is buy time.We in the U.S. are doing everything to keep rates low on the monetary side;Europe has embraced austerity.We are trying to keep growth going.We shall see who wins.
Leadership is lacking,adds Andrew Economos,Head of Sovereign&Institutional Strategy,Asia ex-Japan at JP Morgan Asset Management.Greek politicians are setting themselves up for the April election.A deal is done.It's really a question of getting the three political parties in line.
We'll have this rolling crisis as we sweep through the periphery.Germany will guarantee the debt and China will take a stake.I think it means ample liquidity.Ultimately,it flows into Asian markets,Mr.Economos believes.
ConvergEx Group is a provider of mission-critical software and services to asset managers and financial intermediaries globally.Serving more than 4,000 institutional customers in 22 cities worldwide,their products and services span the investment life cycle.
JP Morgan Chase(JPM)

OppenheimerFunds:Liquidity and Structure in Europe

Thought leaders at OppenheimerFunds have been going over the recent proposals and rumors in Europe.The market is so volatile because of fear of lock up of the financial system.There is a multifaceted game of chicken that the Europeans are playing with one another,resulting in someone driving off a cliff.There does need to be some structural reform.Can it be put in place before the European Central Bank does what it should do?asks Jerry Webman,PhD,CFA,Chief Economist and Senior Investment Officer at OppenheimerFunds.
At least the Europeans have been willing to shake things up a little.Here in America we have an uneasy equilibrium.Among portfolio managers,there's a feeling we're as good as our last idea.Nobody wants to make a bad bet.You get punished for it,Dr.Webman observed.
It's a step in the right direction,adds his colleague Alessio di Longis,CFA,Vice President at OppenheimerFunds,but we are treating the symptoms,not the disease.It does absolutely not mean that we should start emphasizing stocks.Today signals the ECB tendency to ease,but we are not treating the underlying problems.
We have treated the Euro problem from an individual country approach.We need a structural approach,Mr.di Longis agreed.
Oppenheimer Holdings(OPY)

Europe and America:A Standard Chartered View

The key question is,how quickly a Euro debt agreement will actually be implemented,said David Mann,Regional Head of Research Americas at Standard Chartered.It's a huge round of detail.As long as the European Financial Stability Fund can be levered up without downgrades or extra haircuts,only then can we feel more confident and that we've turned a major corner.
We won't see a pre-crisis level of employment till 2015.It's a more vulnerable economy.It's more likely you're going to see very weak growth.If you get a major shock,it will be closer to stall speed and negative growth.
We've already seen an incredible ability to cut costs,but we need to see the National Federation of Independent Business survey turn around before we can grow confidence and exceed expectations,in Mr.Mann's view.
Founded in 1853,Standard Chartered Bank's core geographies are in Asia,Africa and the Middle East.It has five locations in the U.S. offering wholesale and private banking to corporations,institutions and affluent individuals.

Newsletter Publisher Sceptical of Euro Fund

Mark J. Grant,publisher of the "Out of the Box" newsletter,which is read daily by some 5,500 financial institutions,is sceptical of efforts to resolve the European debt crisis.It's a solvency issue for the banks,Mr.Grant said.They have 4.1 trillion dollars of debt to roll over.The response has been that we don't need to recapitalise the banks.
The European Financial Stability Fund,or EFSF,is a convoluted effort.It is virtually impossible to come up with any solution.There is not money enough to support this effort.There is not enough available to bail out Italy and Spain.
The markets are all interconnected at the international bank level.Any blow-up in Europe could have a substantial impact on the U.S. banking system.The European Union and China are manipulating the currency market,Mr.Grant believes.
Mark J. Grant is Managing Director of Corporate Syndicate and Structured Products at Southwest Securities.He has also written a highly regarded book,"Out of the Box and Onto Wall Street."

The Outlook for Chinese Equities

The global growth slowdown is much on the minds of financial analysts in Asia.HSBC says a fall in demand is already affecting countries in the region.China,India and South Korea are export-driven.China Daily said the European debt crisis will affect China's real economy.
Nonetheless,the major brackets are doing well,according to John Tang,a China strategist at UBS.I don't think we are gonna see earnings affected very much.If we still see 8-9% growth,bank earnings won't be much affected.The outlook for the index is actually quite good.
The Japanese yen or bond are not an option,and the euro is even worse.The U.S. dollar will still be a must have.
Real estate is the most upbeat sector.Earnings are very robust;valuation has been quite low.It is the number one consumer sector in China.Look past the short political headwinds.I don't think we should be trading at that low level,Mr.Tang observed.

Analysing The Current Financial Problem

Komal Sri-Kumar,Chief Global Strategist at TCW,thinks the fundamental problem is you have an excess of debt in the world.The Federal Reserve left open the possibility of QE3,or more quantitative easing.It's something to be worried about this late in a recovery.
If we don't do any structural reforms,I can't see any improvement.We need to have free trade agreements;a more flexible labor market.I think we are in a recession now and into Q4.
We are looking into defensive areas.We like energy;information technology.Stay away from European equities and fixed income.The corporations have something like two trillion of cash.The money is kept mostly outside the U.S.,away from higher taxes.
I considered QE2 alchemy.You need incentives,getting workers to work and increase productivity.You cannot get anything else out of monetary policy.Many companies are firing domestic workers as they hire them abroad,because it is more efficient,Mr.Sri-Kumar noted.
TCW,the Trust Company of the West,offers institutional and individual investors a wide array of U.S. Equity,U.S. Fixed Income,Alternative and International strategies.It is committed to fundamental research and superior customer service.Based in Los Angeles,TCW was founded in 1971.

From Downturn to Downgrade

Concerning the Euro-zone plan for debtor aid,it's surprising in terms of the scope and the coordination,in the view of Rick Reider,Chief Investment Officer of Fundamental Fixed Income at BlackRock,who helps manage more than 600 billion dollars in assets.I think it's a pretty significant move.A series of parliamentary approvals have to take place,and we're still in a slow growth European economy,so we're not out of the woods yet.
The one point with the plan is,you're dealing with liquidity,but not solvency.That's the big risk.Also,how do you recapitalise the banks?
The U.S. still has the best refuge for investors.Even if it lost one AAA rating,there's nowhere else for investors to go.If losing the rating is a warning sign,it's ultimately terrific.
The markets are anticipating a 50/50 chance of a downgrade.Companies are in great shape relative to the governments around the world.Ratings agencies need to see real reform or they will downgrade.If the deal is late or weak,downgrade can still occur,Mr.Reider explained.
Although the global markets have transitioned from the collapse of equities engendered by bad loans and obscure instruments,they now must surmount a new challenge in the form of the sovereign debt issue.This aftermath of governmental largess is a follow-on dilemma for the wealth creators and managers.

Euro-zone Crisis Management Update

The Euro-zone is attempting to deal with both the global financial crisis and the regional debt problem,while closely monitoring for signs of inflation.The European Central Bank is holding interest rates steady for the time being.Jean-Claude Trichet,ECB President,said he expects the Euro-zone to grow at a moderate pace.The ECB will adjust liquidity as appropriate.We will continue to see moderate price developments.Inflationary pressures over the medium term will remain contained.
Mr.Trichet urged deficit cuts to consolidate recovery from the financial crisis.
As for the Euro-zone debt crisis,John Taylor,a professor at Stanford University,thinks there's expectation that,down the road,Greek debt will be restructured.It could be quite orderly,changed without a lot of problems.It's quite likely.
In a further unfolding of the debt crisis,Moody's credit rating agency has just downgraded Portugal's sovereign debt.The U.S. market didn't respond to the news,absorbed in the initially positive earnings reports.
Moody's Corporation(MOC)

Lagarde Confident In Euro

Christine Lagarde,the French finance minister,thinks political leaders will have to take a helicopter view of things for the good of our economies.The Greek population and government are really demonstrating a commitment to deliver.They are doing it.The work is being done.The Greeks are taking it much more seriously than the markets feared.
Solving the debt crisis is a joint effort of the International Monetary Fund,the Euro-zone and the European Central Bank.The Euro can absolutely survive.This whole thing was built on the back of wars.In the 1960s,Europe decided they had to build something better,Ms.Lagarde said in her excellent English.
At least a minority of citizens are not going along with the new fiscal regime. Protests have erupted this week in Spain and Greece,with rioting in Athens and a rail strike in Madrid.

Billionaire Sees Stagflation Ahead

Billionaire Wilbur Ross of W.L.Ross&Company notes that the real problem Greece has is the extent of its debt,which has reached 13.7% of Gross Domestic Product.On the tax side,people in Greece don't pay tax.The government only gets 3-4% of what it is owed.There's not an easy way to pull out of the European Union.The frugal Germans are bearing the price for the sins of the people of the South.A whole lot of things could be reformed,but how do you get it through the legislature?
Estonia has cleaned itself up pretty well.At best,these countries will have stagflation without big government spending;the economy will weaken.They have to start cutting,even though it will be painful and slow.You have over-leveraged states in Europe trying to prop up the over-leveraged consumer.The thing that's dangerous for us is more the question of the Euro versus the dollar.We already had an imbalance of trade with Europe.
Mr.Ross doesn't see the U.S. going back to a recession,though the debt problem will probably cut basis points off its GDP and that of China and others. U.S. Treasury Secretary Timothy Geithner will be meeting European leaders on the way home from China to discuss the debt issue.

Greek Crisis Looking Better

At least for the moment,the Greek debt problem seems to be closer to resolution.German Chancellor Angela Merkel praised Greece for reigning in spending in a remarkably short time.If necessary,she said,they will defend their euro together.Dominique Struass-Kahn,Managing Director of the International Monetary Fund,believes the problem is unlikely to spread.Half of Greece's outlay had been for public sector wages and benefits.Big cuts to that spending have led to rioting,to which police responded with tear gas and batons.
Greek finance minister George Papaconstantinou said they took some difficult measures to show their determination.There is absolutely no question that they will meet this year's target.It's not just a Greek problem;it's a bigger problem.The unrest is normal and expected when they have such difficult reforms.It is encouraging that opinion polls are broadly supportive of the government.The biggest deficit they face is a credibility deficit,in Mr.Papaconstantinou's opinion.

A Morgan Stanley Analysis

Henry McVey,Chief Investment Strategist at Morgan Stanley,thinks Germany's in pretty good shape.The UK may be the next problem.There's tension between high leverage and sustaining growth in Europe.What's really a risk-free asset?The U.S. is gonna be somewhat of a safe haven.Treasuries haven't sold off,and the dollar has rallied.
Mr.McVey still thinks most of the emerging market currencies are a good bet.They've been owning some high yield growth stocks outside the U.S. such as Nestle.A lot of the most levered companies are pretty expensive right now.
I don't think the sovereign debt issue is going away,Mr.McVey said.It's a multi-year issue.It's tough medicine to bring down your leverage.It's the first time in the capital markets that Asian inflation exceeds that of the developed nations.There's more stress to come for the pound and the euro,Mr.McVey predicted.