Posts Tagged ‘Europe’

March Housing Starts Down, While Construction Permits Rise

Wednesday, April 25th, 2012

American homebuilders started construction on new houses in March at a slower pace, but in an ironic twist, the number of construction permits jumped to their highest level in 3 ½ years.  This is a positive signal for the slumping residential industry.  According to the Department of Commerce, housing starts fell 5.8 percent to an annual rate of 654,000, significantly below the MarketWatch forecast of economists who had projected an increase to 703,000.  Housing starts in February were also revised down slightly, to 694,000 from 698,000.  At the same time, building permits — a measure of future demand — rose 4.5 percent to 747,000 in March from February’s revised 715,000.  The increase occurred entirely in the multi-dwelling housing segment.

The increase in permits suggests builders are increasingly optimistic as the industry recovers from the worst slump in modern times. Multi-family permits rose 24.2 percent to 262,000.  On the other hand, permits for single-family homes fell 3.5 percent to 462,000 — evidence that builders still face pressure from a deluge of foreclosures.  Many buyers are looking for deals on existing homes instead of paying more for new construction.

Some economists speculate that warm weather contributed to the March decline in housing starts because it allowed builders to start new projects in January and February that they normally would have begun in spring.  “It appears that the payback from an unusually warm fall and winter came in March as record warm temperatures likely pulled new construction forward,” said Yelena Shulyatyeva of BNP Paribas.

The average March temperature was 51.1 degrees; that’s 38.6 degrees warmer than the 20th century average and the hottest March since records were first kept in 1895, according to the National Oceanic Atmospheric Administration.  Spring home sales are expected to outpace last year as record low mortgage rates produce an attractive market for home buyers.  The average fixed rate on a 30-year mortgage was 3.88 percent in mid-April, according to Freddie Mac and may fall again.

An oversupply of unsold homes is holding prices down, creating a major difficulty for the sector, said Gregory Miller, an economist at Suntrust Banks in Atlanta.  “The production side of the housing market is in the early stages of recovery, but builders are shifting their composition of products from condos and single-family homes to apartment construction.  It’s going to be rocky for awhile.  You still have inventory overhang.  There are also issues on the financing side of production as well as the mortgage side.  The problem is getting over the financing hurdle. Lenders are still very concerned about where they put their capital.  From a trend perspective, it is still on a rising path.  Tentative is the best we could say about this.”

Even a slow-growing housing market is a big plus because it is no longer a drag on the broader economy. Residential real estate was the cause of the financial crisis and the recession, so it’s encouraging to see this sector moving in the right direction.  It’s early to expect strong, sustained growth in the immediate future.  “Housing continues to bump along the bottom,” said Jacob Oubina, a senior economist at RBC Capital Markets.  “The best we can hope from housing over the next couple years is that it won’t subtract from growth.”

According to Omer Esiner, Chief Market Analyst, Commonwealth Foreign Exchange, “The housing data is mixed.  On the one hand housing starts came in below expectations and on the other hand it was a strong month for permits, which bodes well for the months ahead.  So the rise in permits kind of offsets the disappointing data.”

Santa Brings More Than 200,000 New Jobs in December

Monday, January 16th, 2012

The United States added more than 200,000 jobs in December of 2011, building on a strengthening employment market that dominated the second half of the year.  This brought the unemployment rate down to 8.5 percent from the revised 8.7 percent, which had been predicted in November.  The primary growth was in transportation — primarily courier services that hired for the holidays — healthcare and manufacturing, according to the U.S. Bureau of Labor Statistics.

“It would have been even better without the drag from Europe,” said John Canally, economic strategist at LPL Financial, a stock brokerage firm. “The Europe situation created uncertainty, and uncertainty was used as a reason not to hire until now.”  The year ended even more strongly than economists had predicted.  They had forecast that employers would add a net 150,000 jobs in December, according to a survey by Factset. They also had predicted that the unemployment rate would tick up to 8.7 percent from November’s 8.6 percent; this is the lowest rate since March 2009.

In the end, November’s unemployment rate was revised up in this report, to 8.7 percent.  The better-than-expected monthly gain of 219,000 private-sector jobs means American businesses have replaced more than three million of the 4.2 million private-sector jobs that were lost the past 13 months. The private-sector jobs gained since employment bottomed in February of 2010 marks the strongest recovery since the 1990-1992 recession, when U.S. businesses added 4.2 million jobs in the same amount of time.

The new job numbers highlight the fact that the U.S. economy is on its way to recovery even as strains in Europe persist,” said David Watt, senior currency strategist at RBC Capital in Toronto. The fact that the labor market is gaining traction should be good news to the Obama administration, whose economic policies are relentlessly attacked by the political opposition.

This string of better-than-anticipated economic indicators has highlighted the stark contrast between the recovery in the world’s biggest economy and Europe, which faces bad times for months or even years.  Even with the good news, the American economy needs an even faster pace of job growth over a sustained period to make a noticeable dent in the pool of the 23.7 million people who remain out of work or underemployed in the wake of the 2007-09 recession.

December marked the 15th consecutive month that employment numbers have risen. Marcus Bullus, trading director at MB Capital, said: “That’s one hell of a number. Such an impressive fall in both the number of jobless Americans and the unemployment rate will cheer everyone bar Republican spin doctors.  The Obama administration could be forgiven for showboating over this convincing evidence that America’s economy is pulling away from Europe’s.  From a market perspective, strong US data like this will add to optimism, but nobody doubts the considerable downward pressure the Eurozone will continue to place on the global marketplace during 2012.”

Automatic Data Processing’s (ADP) numbers for December are even more impressive, saying the government added 325,000 jobs in December.  ADP’s figures do not always match the government’s, and economists warned that seasonal factors could have boosted the figures. Even so, all the major measures of the job market appear to be on the upswing.

Lasting payroll gains are needed to chip away at joblessness and support household spending, which accounts for approximately 70 percent of the world’s largest economy. The labor market figures come on the heels of recent data showing increased manufacturing and a rebound in consumer sentiment that show the U.S. is barely impacted by Europe’s debt crisis.  “You got the trifecta — more people working, wages up and the average work week up,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc., who accurately forecast the December payroll gains.  “You can’t really argue that that isn’t a sign of significant improvement in the job market.”

Yearly benchmark revisions showed the unemployment rate averaged 8.9 percent in 2011, down from 9.6 percent and 9.3 percent in the previous two years. It still ranks as the worst three-year period since 1939 to 1941.

Writing in the Wall Street Journal, Phil Izzo says the increase is “for real.” According to Izzo, “While the unemployment rate has been falling in part due to people leaving the labor force, a large portion of this month’s number appears to come from people finding jobs.

“The unemployment rate is calculated based on people who are without jobs, who are available to work and who have actively sought work in the prior four weeks. The actively looking for work’ definition is fairly broad, including people who contacted an employer, employment agency, job center or friends; sent out resumes or filled out applications; or answered or placed ads, among other things. The rate is calculated by dividing that number by the total number of people in the labor force.

“The key to the drop in the broader unemployment rate was due to a 371,000 drop in the number of people employed part time but who would prefer full-time work, that comes on top of big drops in that category over the past two months. That number could reflect people having their hours increased or part-time workers moving on to full time work,” Izzo concluded.

Companies Are Stocking Up on Durable Goods

Wednesday, November 30th, 2011

American companies ordered more heavy machinery, computers and other long-lasting manufactured goods in September, an encouraging sign for the shaky economy.  The increase in demand for these durable goods suggests businesses are staying with investment plans, despite slow growth and a lack of consumer confidence.

Durable goods are products expected to last a minimum of three years.  Core capital goods are products that have nothing to do with defense or aircraft.  The gains are driven by tax breaks given to businesses for investments made this year, an incentive Congress approved last December to boost the lethargic economy.

“Demand for big ticket items seems to be alive and well,” said John Ryding, an analyst at RDQ Economics.  “Outside of the volatile transportation sector, the gains in durable orders were broad based in September, and point to a manufacturing sector that continues to expand at a solid rate.”

“Despite the understandable concern about economic growth, businesses are still investing,” said Jennifer Lee, senior economist at BMO Capital Markets.

Robust demand for core capital goods is a strategic reason why economists expect an annual growth rate of 2.4 percent in the 3rd quarter.  That would be a major improvement from the first six months of the year, when the economy expanded at just 0.9 percent, the worst growth since the recession ended more than two years ago.  A 2.4 percent growth rate could ease fears that the economy is on the verge of sliding back into a recession.  Even so, the growth rate needs to nearly double to make a substantial dent in the unemployment rate, which remained stuck at 9.1 percent in September for the third consecutive month.

“Manufacturing is in pretty decent shape, and this ends the quarter on a high note,” said Brian Jones, a senior U.S. economist at Societe Generale, who accurately forecast demand for non-transportation equipment.  “We’ve got decent momentum going into the 4th quarter.”  Orders for computers and related products jumped as much as six percent.  A Commerce Department report is projected to show the world’s largest economy grew at a 2.5 percent annual pace in the 3rd quarter, an increase of the 1.3 percent rate in the previous three months.  Societe Generale’s Jones said the gain in durable goods demand has the potential to bring GDP growth for last quarter closer to three percent.

Boeing, the largest American aircraft maker, received 59 airplane orders in September, compared with 127 the preceding month.  September’s decline came on the heels of a 25 percent gain in August.  Orders for non-defense capital goods excluding aircraft jumped 17 percent at an annualized rate compared with an 11 percent increase in the previous three months, an indication that business investment is picking up.

Additional indicators show that manufacturing, which accounts for approximately 12 percent of the economy, continues to grow.  The Institute for Supply Management’s factory index rose a full point to 51.6 in September, compared with 50.6 in August.  A level greater than 50 indicates that expansion is taking place.  Industrial production advanced in September on demand for items such as cars and computers, according to the Federal Reserve.

According to Mike Shea, Managing Partner and Trader at Direct Access Partners LLC, “The number wasn’t bad, and having a decent number in durables is far better than having a bad number, since with the overhang of Europe, if we were getting lousy data here, then we wouldn’t have anything to hang our hats on.  If not for what was going on in Europe, this market would be running on all cylinders.  The summit in Europe is the tradable event.  We could have one hundred percent earnings positive surprises today, we could have great economic data come out, all of that could come in rosy domestically, but if the news out of Europe is judged to be bad, none of what happens in the U.S. will matter.  This market will not shrug off a lousy plan coming out of Europe.  It will not shrug off any plan that is not fundamentally based in reality.”

Companies Are Stocking Up on Durable Goods

Wednesday, November 2nd, 2011

American companies ordered more heavy machinery, computers and other long-lasting manufactured goods in September, an encouraging sign for the shaky economy.  The increase in demand for these durable goods suggests businesses are staying with investment plans, despite slow growth and a lack of consumer confidence.

Durable goods are products expected to last a minimum of three years.  Core capital goods are products that have nothing to do with defense or aircraft.  The gains are driven by tax breaks given to businesses for investments made this year, an incentive Congress approved last December to boost the lethargic economy.

“Demand for big ticket items seems to be alive and well,” said John Ryding, an analyst at RDQ Economics.  “Outside of the volatile transportation sector, the gains in durable orders were broad based in September, and point to a manufacturing sector that continues to expand at a solid rate.”

“Despite the understandable concern about economic growth, businesses are still investing,” said Jennifer Lee, senior economist at BMO Capital Markets.

Robust demand for core capital goods is a strategic reason why economists expect an annual growth rate of 2.4 percent in the 3rd quarter.  That would be a major improvement from the first six months of the year, when the economy expanded at just 0.9 percent, the worst growth since the recession ended more than two years ago.  A 2.4 percent growth rate could ease fears that the economy is on the verge of sliding back into a recession.  Even so, the growth rate needs to nearly double to make a substantial dent in the unemployment rate, which remained stuck at 9.1 percent in September for the third consecutive month.

“Manufacturing is in pretty decent shape, and this ends the quarter on a high note,” said Brian Jones, a senior U.S. economist at Societe Generale, who accurately forecast demand for non-transportation equipment.  “We’ve got decent momentum going into the 4th quarter.”  Orders for computers and related products jumped as much as six percent.  A Commerce Department report is projected to show the world’s largest economy grew at a 2.5 percent annual pace in the 3rd quarter, an increase of the 1.3 percent rate in the previous three months.  Societe Generale’s Jones said the gain in durable goods demand has the potential to bring GDP growth for last quarter closer to three percent.

Boeing, the largest American aircraft maker, received 59 airplane orders in September, compared with 127 the preceding month.  September’s decline came on the heels of a 25 percent gain in August.  Orders for non-defense capital goods excluding aircraft jumped 17 percent at an annualized rate compared with an 11 percent increase in the previous three months, an indication that business investment is picking up.

Additional indicators show that manufacturing, which accounts for approximately 12 percent of the economy, continues to grow.  The Institute for Supply Management’s factory index rose a full point to 51.6 in September, compared with 50.6 in August.  A level greater than 50 indicates that expansion is taking place.  Industrial production advanced in September on demand for items such as cars and computers, according to the Federal Reserve.

According to Mike Shea, Managing Partner and Trader at Direct Access Partners LLC, “The number wasn’t bad, and having a decent number in durables is far better than having a bad number, since with the overhang of Europe, if we were getting lousy data here, then we wouldn’t have anything to hang our hats on.  If not for what was going on in Europe, this market would be running on all cylinders.  The summit in Europe is the tradable event.  We could have one hundred percent earnings positive surprises today, we could have great economic data come out, all of that could come in rosy domestically, but if the news out of Europe is judged to be bad, none of what happens in the U.S. will matter.  This market will not shrug off a lousy plan coming out of Europe.  It will not shrug off any plan that is not fundamentally based in reality.”

World Bank Head Predicts No “Double-Dip” Recession

Wednesday, September 28th, 2011

World Bank President Robert Zoellick believes the world will not slide into a double-dip recession. Zoellick was in Singapore, attending an economic conference amid plummeting world stock prices and worries over a slowdown in U.S. economic growth.  Zoellick believes the United States and the world will avoid a “double-dip” recession, but admitted that growth is likely to remain sluggish and prospects are uncertain.  Zoellick said the world is entering a “dangerous period,” noting that the United States could reassure markets with steps to put the brakes on increasing its debt, rather than making deep cuts in spending.

Zoellick’s comments add pressure on European officials who are trying to contain a sovereign debt crisis that threatens Italy, whose government bonds in euros have declined a record 11 consecutive days.  Finland has fostered division among policy makers by looking for collateral for loans to Greece, the first of the three euro-region nations to receive bailouts so far.  American and European economies are stalling and feeble global growth are impacting Asia, Singapore’s Minister of Finance Tharman Shanmugaratnam said.  Growth in the U.S. and Europe may be just one percent.

“We’re already at stall speed in the U.S. and Europe, which means we’re now more likely than not to see a recession,” Shanmugaratnam said.  Companies are holding back spending and consumers globally lack confidence.  Zoellick tamped down the likelihood of a “double-dip” global recession in comments to reporters in Singapore today.   Still, “we are now seeing a particularly sensitive time in the euro zone,” the World Bank chief said.  “A number of issues are converging.”

“These things are very hard to predict because if you have events trigger uncertainty in Europe, that will flow back to the U.S.,” Zoellick said.  The eurozone’s performance “depends on the political decisions moving forward,” he said.  The euro will survive in the next five years, although the question over membership of the common currency is one that Europeans must answer.  “Sometimes people hope that you can muddle through by providing financing and liquidity, in the case of Europe, from the European Financial Stability Facility or the European Central Bank,” Zoellick said.  “They now recognize that’s not going to happen and instead what you see is with some of the weaker economies, that the austerity policies are pushing them into slower and slower growth and so this could be a downward spiral.”

According to Zoellick, recent European Central Bank government bond purchases have given temporary monetary liquidity to markets.  “The policies that have been pursued by the EU up to now can buy time, but parliaments and the public have to come to terms with fundamental questions,” Zoellick said.  One direction is to deepen the fiscal union.”

“They’ve tried to pump money into it, they’ve tried in the past month.  The ECB bought a lot of bonds.  But, I think dealing with these problems through liquidity measures will not be sufficient,” Zoellick said.  “Christine Lagarde of the International Monetary Fund (IMF) and I from a different position at the World Bank have been trying to prod people to recognize some of these questions.”  Lagarde, who told the Federal Reserve’s annual conference that European banks need urgent capitalization, angered some European policymakers and politicians with her opinions.

“People should not underestimate the European response, but Europeans should not be fooled that that type of response will deal with the fundamental questions that still need to be addressed,” Zoellick said.  The markets have been hoping for additional monetary stimulus from the Federal Reserve to relieve global growth concerns, but Zoellick said that monetary policy alone won’t do the job.  Rather, he said, the real solution to Europe’s crisis must be found to deal with the crisis.  “This one is really even beyond the finance ministers’ pay grade.  These are going to be the decisions that have to be made by the heads of government and supported by their parliaments,” he said.

American markets analyst Peter Kenny of Knight Capital said “We have a eurozone that is an apoplectic frenzy of just trying to right the ship.  If you can find some stabilizing influence in the eurozone to give the global markets some confidence, I’d be shocked.”  Parliaments in Germany and France currently debating the extent of their countries’ contribution to the European Financial Stability Facility, the fund set up to bail out any eurozone nations struggling with their debt obligations.

Richard Jeffrey, chief investment officer at Cazenove Capital Management, said that “Money that the key worry for the markets was the health of the world economy.  “If the world economy is slowing down or perhaps even moving into recession – I think that is less likely, but that is what people fear – then that has negative implications for the financial system and the banking sector.  The debt problems in the peripheral European economies rumble on, of course, but again their debt problems are helped if there is growth.  If there isn’t growth in the economies, then their debt problems become more difficult to support, so this is all interlinked.”

Increased Consumer Spending Lifts U.S. 2010 GDP

Monday, February 7th, 2011

road-sign-blogThe United States’ 2010 GDP soared at an annualized rate of 3.2 percent, as consumer spending rose by the greatest levels in four years.   “The consumer really drove the economy in the 4th quarter,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.  “The economy has moved beyond recovery to a stable state of growth.”  For all of 2010, the economy expanded 2.9 percent — the biggest one-year jump in five years — after contracting 2.6 percent in 2009.  The volume of all goods and services produced climbed to $13.38 trillion, for the first time surpassing the pre-recession peak reached in the 4th quarter of 2007.  Tiffany & Co. saw a significant increase in the sale of fine jewelry.  Apple reported record 4th quarter sales as consumers bought 7.73 million iPads as holiday gifts.  Ford Motor Company’s sales have been so good that the automaker plans to add an additional 7,000 manufacturing jobs over the next two years.  The automaker, which did not undergo bankruptcy, did lay off some salaried employees in 2008 as part of a restructuring in the face of slumping sales.

Exports also helped boost the American economy which should boost job creation over the next several years.  “The U.S. is expected to be one of the fastest growing developed countries in 2011, largely reflecting the contrast of the ongoing stimulus with other countries, such as the U.K. and other heavily indebted European nations, where austerity measures designed to reduce deficits are stifling domestic demand,” said Chris Williamson, chief economist at Markit, a London-based research firm.  “The acceleration of the U.S. GDP in the 4th quarter, and the changing composition of growth, raises hope that the economic recovery will move into a more self-sustaining phase in 2011 and generate sufficient jobs to reduce unemployment.”

Even the Federal Reserve, which renewed its commitment earlier this week to buying $600 billion in government bonds, agrees that the report shows the economy ended 2010 with moderate strength and breadth, but not enough to bring down the 9.4 percent unemployment rate anytime soon.  Personal consumption spending contributed slightly more than three percent to 4th quarter growth.  That is in line with retailers’ reports showing a respectable holiday shopping season.   Whether that level of spending holds up remains to be seen.  Many retailers remain cautious in their forecasts and report that consumers are still bargain-hunting.  As gasoline prices rise, disposable income may be limited.

Alter Now does see it as important to note the correlation with an overall increase in consumer credit debt in December, the first spike since 2008.  According to the Fed, overall consumer credit debt rose by 6.1 billion, or 3.0%, to $2.41 trillion while revolving credit debt (primarily from credit cards) rose by $2.3 billion (3.5%) to $800.5 billion. No revolving credit rose by $3.8 billion, or 2.8%, to $1.61 trillion.  While the spike in GDP is good news, let us remember that it is still being driven by deficit spending.

Compare the U.S. GDP with that of other nations last year and it’s clear who is winning.  China, for example, is expected to report an 8.5 percent jump in its GDP, not unexpected in the world’s fastest growing economy.  Japan’s real GDP was 3.9 percent higher in annualized terms for the 3rd quarter, beating estimates for a 2.5 percent rise for the year.

In the U.K., the economy shrank by 0.5 percent in the 4th quarter, compared with a 0.7 percent increase in the 3rd quarter.   By contrast, the nation with Europe’s largest economy – Germany – recorded a 3.6 percent growth rate in its GDP in 2010. 

Covered Bonds Could Be a Viable Alternative to CMBS

Monday, November 15th, 2010

A financing vehicle invested in Prussia in 1769 could be the solution to failed #CMBS.A financing vehicle that has been used in Europe since it was invented in Prussia in 1769 is finding its way to American shores as a replacement for commercial mortgage-backed securities (CMBS).  The vehicle is known as covered bonds, which is a securitized debt instrument backed by a pool of top-quality assets, primarily mortgages. What is different about covered bonds is that the assets – known as a cover pool – are maintained on the issuer’s balance sheet.  This acts as a safety measure because the issuer is less likely to underwrite loans that carry significant risk.

Currently, the United States has no established market for covered bonds, although they are a $3 trillion business in Europe.  In July, the House Financial Services Committee approved a bill that would establish a regulatory framework for covered bonds.  Although the bill just missed being included in the Dodd-Frank financial reform overhaul, the consensus is that the legislation could win House and Senate approval in 2011.

“We have seen the difficulties wrought by the complexity of securitizations,” said Bert Ely, a financial and monetary policy consultant.  “Covered bonds, on the other hand, are a very clean and simple tool.  A bank makes a loan, keeps the loan on its books, and issues a covered bond.  There is no sale and resale of mortgages.”  With a covered bond, several elements protect the bondholder.  All assets in the covered pool are subject to monthly monitoring by an independent third party.  If one of the loans becomes non-performing, the issuer must remove it and replace it with a loan that is performing.  Thanks to the safety features, the majority of covered bonds enjoy a triple-A rating.

Despite the fact that many in the investment community support covered bonds, the Federal Deposit Insurance Company (FDIC) has some concerns about them.  Primary is the fact that the pools are over-collateralized – sometimes by as much as three times the bonds’ face value.  The FDIC wants access to these assets when a bankruptcy occurs.  The FDIC argues that if the cover pools protect the bulk of the banks’ assets from being claimed, the depositors are being asked to take on too much risk.  “We support covered bond legislation, but not at the expense of our obligation to protect the deposit insurance fund,” said the FDIC’s Michael H. Krimminger.

National Infrastructure Bank Could Finance Rebuilding America

Sunday, October 3rd, 2010

Proposed infrastructure bank could provide funds to rebuild America's crumbling infrastructure. As the nation’s roads, railways and sewers crumble, President Barack Obama’s proposal to create a $50 billion infrastructure bank is one way to build on the American Recovery and Reinvestment Act (ARRA).  According to Margaret Donahoe, Executive Director of the Minnesota Transportation Alliance, “A new multi-year transportation authorization act is almost one year overdue and the administration acknowledges the need to work with Congress to pass a new program.”

President Obama’s goal is to invest $50 billion to rebuild 150,000 miles of road; lay and maintain 4,000 miles of new railroad track; reconstruct 150 miles of airport runways; and create an air-traffic control system that meets 21st-century standards.  The $50 billion will be offset by eliminating tax breaks and subsidies for the gas and oil industry.  “The new proposal couples a boost in funding with new policies that begin to change the way transportation has been funded in the past,” Donahoe says.  “The plan includes the establishment of an Infrastructure Bank to leverage federal dollars with other sources of revenue, including private capital.  Outside investors would need a return on investment, so many of the projects would likely involve increased fees, taxes or tolls.”  The proposal has the potential to create construction jobs and refurbish the nation’s deteriorating infrastructure.

“Rebuilding our third-rate transportation infrastructure will also help us catch up with established competitors such as Germany and new players such as China, Brazil and India,” according to Donahoe.  “Those nations are investing in their economies and their future competitiveness by putting money into modern highways, ports, freight rail and other infrastructure.  Our country clearly needs to improve our infrastructure to provide the service level American businesses need.  There is little disagreement on the benefit of putting skilled people to work immediately while building the infrastructure our economy needs.”

The good news for President Obama is that the infrastructure bank enjoys significant support from legislators in both the House and Senate. Additional support comes from workers, firms, and organizations involved in transportation, communication, and construction.

European Nations Look Into Selling Public Assets to Resolve Debt

Thursday, July 22nd, 2010

European nations look into selling public buildings to pay down debt.  Debt-laden European governments seeking ways to raise money are considering the possibility of selling public properties such as office buildings.  Countries considering selling assets include Germany, the U.K., France and Greece, all of which were hit hard by the global banking crisis.

“It is clear that several European governments are looking to secure disposals on a large scale,” noted Richard Holberton, a CB Richard Ellis director.  Although Holberton says it’s not clear what effect these sales would have on government funds, “their impact on real estate markets could be a lot more significant.”  Government-owned assets comprised between two and 2 ½ percent of all European public sales since 2006.  That could double this year, according to CBRE, and could account for four percent of the €100 billion — $125 billion – that will be sold this year.

Although some properties are expected to attract significant purchaser interest, some government buildings won’t sell so easily.  Surplus office buildings could be in undesirable locations, for example.  Prime assets that are still occupied by government offices will have far more appeal to investors.  “Where assets are well located, of good quality, and continue to produce income from occupation by a public-sector tenant, this generates an income stream that is attractive to investors,” Holberton said.

The Rich Still Are Different

Thursday, September 3rd, 2009

bco2113

The wealth of the world’s high-net-worth individuals (HNWIs) declined by nearly one fifth last year to $33 trillion, according to the 2009 World Wealth Report from Merrill Lynch and Capgemini.  A HNWI has at least $1 million of assets besides a primary residence, its contents and collectible items.  In 2008, the number of HNWIs fell to 8.6 million, or slightly more than 0.1 percent of the world’s population.

Their wealth declined by more than 20 percent in North America, Europe and Asia, and by a bit less in Africa and the Middle East.  Latin America’s rich were the least affected: they lost just six percent of their wealth, and the number of HNWIs there fell by less than one percent.  In North America, which had a large proportion of people just above the $1 million threshold, the ranks slimmed by 19 percent.

An interesting aside:  That $33 trillion is almost half of the $70 trillion that constitutes the subset of global savings known as fixed-income securities – or, all the money in the world.