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Welcome to the Grand Illusion!
Weekly Update - October 31, 2011
In This Issue
Performance
Headlines
Recipe
Health Tip

The Eurozone has been saved - or something like that! 

 

Dear  , 

 

Last week the world breathed a sigh of relief and markets rallied as the leaders in Europe came up with a plan to bail out Greece and save the Euro.  But have they?  Or is this just more smoke and mirrors to delay making the really hard decisions that it will take to finally solve this crisis? 

 

Let's take a look at a few headlines now that analysts have had a chance to look at the agreement.


Why the latest eurozone bail-out is destined to fail within weeks - The Telegraph 

 

Euro crisis 'could lead to social unrest' - Breitbart  

 

Europe Tries To Recapitalize Banks Without Injecting Capital - Bloomberg  

 

Europe bailout fund chief courts China - Reuters  

 

China Not a 'Savior' for Europe: Xinhua News Agency - CNBC  

 

Who Knows?  Who Cares? 

I don't really understand what is going on over there!


Neither did I which is why I put together this summary.


Greece had a history of 15 years of growth before they went into recession with the rest of the world in 2009.  That is when they started to get into trouble.  During the boom times many banks, countries, and investors were willing to loan Greece money.  But after the financial crisis hit people started getting a lot more concerned about the safety of their money.  They started worrying whether they would get their money back if they loaned it to Greece.  Why?  Take a look at this chart.


Greece Debt 


This chart shows the Debt to GDP ratio of Greece compared to the rest of Europe.  Simply put a Debt to GDP ratio of less than 100 means your country owes less than it produces in a year.  A Debt to GDP ratio of more than 100 means your country owes more than 100% of what it produces in a year.  (The USA is at approximately 99.6% which is why I keep saying the US is Greece waiting to happen)


One of the requirements for a country that wants to join the European Union is that their Debt to GPD ratio has to be 60% or less.  Greece joined the EU on June 19, 2000.  An astute observer would look at the chart above and wonder how Greece was permitted to join the EU in 2000 when their Debt to GDP ratio was 103.4%.  That's simple.  They lied!


Welcome to the Grand Illusion!


They lied on their official accounting documents!  They played little statistical games.  As did many of the countries that joined the Euro.  Let me give you another example.  To join the EU your unemployment rate had to be at X% or lower.  The Netherlands was over X% so you know what they did?  They took the percentage of people over X% and declared them disabled.  Problem solved.  (I was in the Netherlands in 1999 when this was happening)


So where does that leave us?


Well that depends if you believe in the Grand Illusion or not.  If you want to see what I am talking about then read this article.

 

Greek Failure

 (click image to read article)


I have a lot more to tell you about Greece, Italy and the rest but it will have to wait for another time. 


Breaking News!


Corzine's MF Global files for bankruptcy - New York Post  

 

Is this the collapse of Bear Stearns and Lehman Brothers all over again?  Looks like this will rank as the 7th largest bankruptcy in US history.  What does it mean for the markets folks?  More importantly, what does it mean for your money?


If you're not sure, please give us a call! 

 

ECONOMIC CALENDAR:
Monday - Chicago PMI
Tuesday - Motor Vehicle Sales, ISM Manufacturing Index, Construction Spending
Wednesday - ADP Employment Report, FOMC Meeting Announcement
Thursday - Jobless Claims, Productivity and Costs, ECB Announcement, Factory Orders, ISM Non-Manufacturing Index,
Friday - Employment Situation


 
Performance


Chart_10_31

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.

Headlines

Treasury 30-year bonds dropped for a fifth week, the longest skid in more than two years, as a deal reached by European leaders to tame the region's debt crisis fueled appetite for higher-yielding assets. [5]

Europe's appeal for Chinese help has come under fierce criticism for potentially weakening their negotiating position in political and economic disputes with Beijing. On Sunday, Eurogroup chairman Jean-Claude Juncker said it made sense for China to invest its surplus in Europe to help the region overcome its debt crisis, but this would not involve political concessions. [6]

As stimulus funds dry up, cash-strapped states are facing steep rises in Medicaid spending, forcing them to slash services and trim costs. States will have to spend another 28.7% on Medicaid this fiscal year - by far the largest increase ever, according to new data released by the Kaiser Family Foundation Thursday. [7]

Sales of new homes, a benchmark indicator both for the housing market and the overall economy, rose slightly but remained slow in September. Sales reached a 313,000 annual rate in September, 5.7% more sales than the revised estimate for August, according to a monthly report from the Census Bureau released Wednesday. But sales were off 0.9% compared with 12 months earlier. [8]


Quote of the Week
"Energy and persistence conquer all things."
- Benjamin Franklin
Recipe of the Week

Pumpkin Spice Whoopies


Recipe_10_31

Cake mix and canned pumpkin make these little cakes, which have a light marshmallow filling. From Better Homes and Gardens.

Prep Time: 35 mins.
Total Time: 50 mins.
Servings: 15 whoopies

Ingredients:
1 cup canned pumpkin
1/3 cup butter, softened
1 package 2-layer-size spice cake mix
2 eggs
1/2 cup milk
1 recipe Marshmallow-Spice Filling (see below)

Directions:
1) Preheat oven to 375 degrees F. Line a cookie sheet with parchment paper or foil (grease foil, if using). In a large mixing bowl, beat pumpkin and butter with an electric mixer on medium speed until smooth. Add cake mix, eggs, and milk; beat on low speed until combined, and then on medium speed for 1 minute.

2) By the heaping tablespoon, drop mounds of batter 3 inches apart on cookie sheet; keep remaining batter chilled. Bake 15 minutes or until set and lightly browned around edges. Carefully remove from parchment or foil; cool on wire rack. Repeat with remaining batter, lining cooled cookie sheets each time with new parchment or foil. If desired, place cookies in a covered storage container with waxed paper between layers to prevent sticking. Store cookies at room temperature for 24 hours. Prepare Marshmallow-Spice Filling up to 2 hours before serving. Spread about 2-1/2 tablespoons filling on flat side of one cookie; top with a second cookie. Repeat. Serve immediately or cover and chill up to 2 hours.

Marshmallow-Spice Filling:
Up to 2 hours before serving, beat together 1/2 cup softened butter and one 8-ounce package softened cream cheese until smooth. Add 2 cups sifted powdered sugar, 1/2 of a 7-ounce jar marshmallow cream, 1 teaspoon vanilla, and 1/2 teaspoon each ground cinnamon and nutmeg. Beat until well combined.


Healthy Lifestyle
Stretch it Out 

 

Genes in your body linked to heart disease, diabetes, and obesity can be "turned on" if you sit for hours on end, reports a study in Diabetes. Hit the "off" button by taking hourly laps during TV, book, and Web sessions.
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Phil Reames
Reames Financial
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