Eurozone GDP Grows
Research for Online Investors

by John Dalt

8/13/10

They may have budget problems, but the eurozone is growing their GDP.  Eurostat, the EU statistics agency, reports that the 16-member eurozone grew by 1% in the second quarter.  Germany led as they reported a higher than expected growth rate of 2.2% in the second quarter.  Germany was set to capitalize on the euro currency drop since they are Europe’s largest exporter.

Britain GDP grew at a 1.1% rate.  Spain and Portugal both reported 0.2% growth as they struggle with government deficit spending and austerity measures to bring their budgets under control.

The German economy performance was impressive as their economy shrank 4.9% in 2009! SkyNews has the story, Booming German Economy Boosts Eurozone.

The argument for the government to take over GM and Chrysler was that there was no financing available for them in the private market.  At the time, it seemed strange that the government was so anxious to step in rather than let the companies go into bankruptcy.  In the midst of the credit crisis, it was easy to say that credit was tight and difficult to come by.  It is entirely different to say there was NO credit available.

Professor Oman at William & Mary teaches Contract and Bankruptcy law.  He analyzed the government takeover of the auto companies, and traces market uncertainty today back to the government’s action.  Oman labels the auto bailouts “an enormous mistake.”  You can read his article in the Washington Times; it is short and to the point.

Hank Paulson, Treasury Secretary under President Bush gave the automakers money out of the TARP funds to keep them afloat until the new president was sworn in.  This was illegal.  TARP was for financial institutions, not car manufacturers.  GM had not made money selling cars in over seven years, the only money they did make was in financing, and they sold GMAC to raise money to keep building cars.

Professor Oman explains the government financing and pushing the companies through bankruptcy created uncertainty because of the trampling of contract law.  Bondholder rights were subrogated by the government’s heavy hand.  Politically favored entities (unions) were rewarded while those less connected were abused.

The government should have stayed out of the bankruptcy proceedings, and simply been a creditor.  By intervening the government “undermined the trust on which successful capitalism depends.”  The question we have had for the last 18 months is “Is undermining capitalism this administrations intention?”

Today's chart focuses on Chinese stocks and presents the current trend of the iShares FTSE/Xinhua China 25 Index (FXI). Chinese stocks have endured what amounts to an extremely wild ride since 2005. The FXI trended upward at an ever accelerating rate (i.e. parabolic) from 2005 to Q4 2007. As the credit bubble began to unravel, so too did Chinese stocks with the FXI trending downward at an ever accelerating rate from Q4 2007 to Q4 2008. Beginning in Q4 2008, the FXI surged -- gaining over 140% trough to peak. In April of 2009, the FXI broke below support of its post-financial crisis rally trend channel -- right around the time that all of the major US indices put in their most recent peak. So it is worth noting that the FXI has just tested and pulled back from resistance of its current downward-sloping trend channel.

Quote for today:

"Liberalism is totalitarianism with a human face"--- Thomas Sowell

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here. Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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