Brennaman’s Four
Points for the Week
1.
Troubled
Asset Relief Program – How Will History Treat this Program – The Troubled
Asset Relief Program (TARP) came to a quiet end on Friday after six years. The massive program has been active is saving
over 800 businesses from failing in the aftermath of the Great Recession; many
of them banks, large and small. The U.S.
Government invested $426.4 Billion in the program and actually returned a small
profit to the American taxpayer - $15.30 Billion or a percentage return of
3.59%. Many analysts thought that the
U.S. Treasury would be stuck with broken businesses, bad investments and a loss
of hundreds of billions of dollars. As
most of us remember though, the program kept many key corporations form
insolvency and thus spared the U.S. economy from further economic ruin. The program is still very unpopular and
likely will not happen again unless Congress enacts new legislation since the
2010 Dodd-Frank Law essentially outlaws such governmental actions in the
future. Was TARP good for the
country? We may never know but one can
only presume that the salvage of Citigroup, Bank of America and General Motors
kept over 700,000 citizens employed and contributing to the economic
recovery. There are untold hundreds of
thousands positively affected by the unpopular program. Admittedly the program smacked the concept of
free markets, but the program may be seen in the future a necessity such as
taking castor oil was for our grandparents.
2.
Economic
Growth – The Federal Reserve Believes the Economy is On Track – The Federal
Open Market Committee (FOMCC – FED) completed their last meeting of 2014 with
little or no drama. The Fed met expectations
announcing they were adopting a “patient” approach on raising the short term
interest rates. They reiterated that the
current level of 0-.25% is “appropriate” and sustainable since the economy is
making steady improvement while the FED remains focused on the U.S. economy and
less on the troubles brewing overseas (Russia, Japan and the emerging market
countries). The FED does have a few concerns
with U.S. GDP growth and inflation.
Growth in 2014 is expected to finish at 2 to 2.25% with 2015 growth in
the 2.6 to 3% range, essentially unchanged from the September forecast. Janet Yellen, the FED Chairperson, says the
majority of the FED members is comfortable with the current progress of
recovery and is watching for evidence of resurgent inflation. Headline inflation (includes energy and Food)
is 1 to 1.1% with core inflation (headline except food and energy) will likely
slip below 1%. She did elaborate in the
news conference that the current tepid inflation rate (well below 2%) is a
concern as a certain amount of inflation is needed to spur manufacturing and
production pricing and eventually encourage wage growth. However, Inflation remains muted despite higher
food costs. Another area of interest top
the Fed is unemployment. Chairperson Yellen
said the number has to break the current logjam of 5.8. Indications from the FED are they expect
unemployment to be 5 to 5.2% by end of 2015.
All in all the news out of the FED drove the Grinch back into his cave
as the markets rallied into the close of the week up well over 3% across the
board.
3.
Cuba - The
Market of Eleven Million – Eleven million is the rough number of people presently
living in Cuba, a majority of which are in poverty. As consumers starved from U.S.
products it is already considered a fertile market once U.S. companies can
legally develop and explore business in Cuba.
While this may take a generation and further governmental changes in
Cuba the prospects are heady and exciting.
Unfortunately, they are not without opponents and obstacles. The Cuban-American population (mainly in
South Florida) and their representatives in Congress are gearing up for a fight
against normalizing relations until the Cuban government becomes more liberal
in human rights and personal freedoms.
The American reaction to President Obama’s move appears to be
generational with Baby Boomers firmly opposing it with later generations split
on the topic. But vocal and powerful
opponents are in the Halls of Congress and are vowing to fight the change in
U.S. Policy. This is important because
the economic sanctions (near total boycott) cannot be lifted without Congress
passing a law changing the policy. The
policy was codified in U.S. law in part to prevent a sudden change in U.S.
policy with the election of a new U.S. president. It appears this past action will temper
future moves and engender a more patient approach in developing a new policy
with Cuba.
4.
Ukraine –
Is There Light at the End of the Tunnel? – Or is that another on-coming
train? Vladimir Putin appears to be
continuing his bellicose ways and perhaps is playing chicken with the
West. Does he blink in order to lessen
the economic sanctions on Russia? The
damage to the Russian economy may be irreversible for him unless he does more
than say Russia is backing off from the situation in Eastern Ukraine. If Russia does back down and enter into real
negotiations beneficial to the sovereignty of Ukraine, he may well lose support
at home as he could be seen as abandoning the ethnic Russians in Ukraine (and
elsewhere). Or Putin could go “all-in
and” “encourage” the Pro-Russian Separatists to ratchet up the conflict,
solidify gains and force the West to make painful decisions on the next course
of action in the support of the Kiev government. One must remember that Putin still controls
30-40% of the energy the European Union needs for the winter and beyond. The West has to be careful to not provoke a
Bear to take direct action.
“We must remember that any oppression, any
injustice, any hatred, is a wedge designed to attack our civilization.”
President Franklin D. Roosevelt
Have a good week and have a Merry
Christmas.
Steve
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