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Daniel White / US Economy - Eurozone "Disintegration"
 
Name: United States
Description: United States
Author: Daniel White
 
Economic Analysis  
 
1. Importance Very important   While Europe represents 18% of the exports of the US, which is about $400B annually, it's strategic importance is even greater. It is the largest export for China, and it's involvement with US banks is huge. Thus, it is very important to consider Europe's economic future when evaluating investments in the US.
2. Wisdom Important   The US economy is intimately linked with the success or failure of the European economy. As Europe goes, so goes America.
3. Knowledge Important   If "Disintegration" is the path the the European Union countries choose, then it will have a terrible impact on the US economy. Practically every asset class will suffer as a deep, and perhaps deeper, great recession will occur. There would be a flight to quality and cash.
4. Current Assessment Fair   The sovereign debt crisis in Europe threatens the economies of the world.

The US, having the largest economy in the world, is especially vulnerable.

Most economies are fragile. The fragility has been caused by excessive debt. The US is in a precarious position, and can ill-afford to suffer another deep recession.

Governments and corporations are currently evaluating the impact of certain scenarios should the European sovereign debt crisis get worse or remain unresolved.

Investors need to consider these scenarios in their planning, whether they are 25, 45, 65 or 85 years old.

Most agree that the current deleveraging that is rippling through economies, industries, companies and households will take 10 years to complete. The crisis started in 2007, and thus it will be 2018 before the world has completed the deleveraging cycle.

The three possible scenarios are:

  • Centralization
  • Disintegration
  • Reduction

    This model focuses on Disintegration and its impact on the US economy and securities.

    • 5. Future Assessment Terrible   "Disintegration" of the euro will cause the 17 countries that share the single euro currency to adopt their native currency, will cause an end to the European Union, will result in many countries defaulting on their sovereign debt, will increase social and political tensions, cause a credit crisis in Europe and the US.

    Many major European banks own major US banks, and many US banks own a significant amount of European sovereign debt.

    Disintegration will have a 1.5X to 2.5X greater impact on the US economy to the downside than the Lehman Brothers breakup did in 2007 which was the beginning of the great recession

    All asset classes will be negatively affected, except those that are represent a flight to quality or safety, such as gold or cash.

     
     
    Future Assessment Probabilities, Reasons and Explanations
     
       Possible Outcome Probability Value Reasons and Explanations
    1. Awesome   0% > 8%
    2. Good   0% > 4%
    3. Fair   0% > 2%
    4. Bad   30% > 0%
    5. Terrible   70% < 0% "Disintegration" of the euro will lead to a political disintegration of the EuroZone, and a deep economic recession in all of the European Union (27) countries, which in turn, will cause the US economy to endure a deep, protracted double dip recession, lasting all of 2012 through 2014.
     
     
    Key Performance Indicators


    Key Performance Indicator Importance   Current Assessment   Future Assessment  
    1. Consumer Durable Goods   Very important   Fair   Terrible
    2. Economic Cycle   Very important   Fair   Terrible
    3. Gross Domestic Product (GDP)   Very important   Fair   Terrible
    4. Unemployment   Very important   Bad   Terrible
    5. Inflation Rate   Important   Good   Good
    6. Interest Rates   Important   Awesome   Awesome
    7. LIRA - Leading Indicator of Remodeling Activity   Important   Bad   Terrible
    8. Personal Income   Important   Fair   Terrible
    9. Saving and Investment   Important   Fair   Terrible
    10. Total Economy - Current Account   Important   Bad   Terrible
     
     
    Linked Entities


    Industry Importance   Current Assessment   Future Assessment  
    1. Consumer Services   Very important   Fair   Terrible
    2. Finance   Important   Fair   Terrible
    3. Technology   Important   Fair   Terrible
    4. Consumer Durables   Important   Fair   Terrible
    5. Public Utilities   Important   Fair   Fair
    6. Basic Industries   Very important   Fair   Terrible
    7. Energy   Important   Fair   Terrible
    8. Capital Goods   Important   Fair   Terrible
    9. Health Care   Very important   Fair   Terrible
    10. Consumer Non-Durables   Important   Fair   Terrible
    11. Transportation   Important   Fair   Terrible
    12. Funds   Important   Fair   Terrible
    13. Miscellaneous   Important   Fair   Terrible
     
     
    Portfolios
     
    Morgan Stanley - Cloud Computing - Best Positioned US Companies details | stock charts
     
    Associated Information
     
     
    Countdown is on to save Euro - CNBC - December 6, 2011
     
     
     
    Brussels summit rejects EU-wide treaty change - 9 Dec 2011 - posted by Al Jazeera (English)
     
     
     
    EU Summit Repercussions - FRI 09 DEC 11 - CNBC.com
     
     
     
    Why investors still worry about Europe - CNN Money - December 12, 2011
     
     
     
     
    Hyperlinks to relevant information
     
    Eurozone "Disintegration" - November 12, 2011
    Down with the Eurozone - Nouriel Roubini - 11 Nov 2011
    Save the euro in 10 days or see the EU disintegrate, ministers are warned - David Gow, theGuardian - 30 Nov 2011
    European public debt at a glance - CNN - July 21, 2011
    Latest EU Deal Still More Can-Kicking: Analysts - Friday, 9 Dec 2011 - CNBC.com
    European Union summit agreement: the main points - guardian.co.uk, Friday 9 December 2011
    Stocks tumble on European worries, Intel warning - CNN Money - 12 Dec 2011

     


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