Recent events in Europe have reignited the debate over the effectiveness of government policy interventions and on the question of what stimulates growth. Unfortunately, we can’t look to academia to provide convincing answers. Fierce debates on this topic have raged ever since the 1930’s when John Maynard Keynes theorized that during times of economic slack (recession), government spending could stimulate economic activity and lead to growth. According to the multiplier effect, increased government spending can increase employment and incomes, thereby boosting private consumption and sentiment which in turn increases total spending.


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The uncertain direction of policy within the Eurozone continues to pressure asset prices. The inability of Greece to form a government has resulted in its ten-year debt rising to a yield of 27 percent from just over 20 percent one week ago, before the recent elections. The fear of contagion and disappointment over the official response to weakness in its banking system have resulted in the yield on ten-year sovereign Spanish debt rising to 6.20 percent from 5.70 over the same interim, while Italian bond yields are higher by 25 basis points. After a relatively benign response to the recent elections results, which saw the Euro Stoxx 50 equity index rise fractionally last week, prices turned sharply lower on Monday as the index fell by 2.3 percent. The euro also extended its recent slide in Monday trading, declining to 1.285 to the dollar, down from 1.31 one week ago Friday. And a decline in Eurozone industrial production in March will only add to the sense of malaise, while Tuesday’s release of first quarter GDP results is expected to confirm the onset of recession throughout the region following a decline of -0.3 percent in last year’s fourth quarter.

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If you are expecting or have recently added a child to your family, you have likely begun making big plans for the future. One of the most important things to consider while preparing for a growing family is how your financial habits, responsibilities and goals might change. Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial suggests parents consider the following things. View More

"The problem with socialism is that eventually you run out of other people’s money." –Margaret Thatcher

"The individual serves the industrial system not by supplying it with savings and the resulting capital; he serves it by consuming its products."  –John Kenneth Galbraith

Therein lies the dilemma in which Europe finds itself. In today’s circumstance, we could substitute Angela Merkel for the former British prime minister and a chorus of Keynesian economists for Galbraith. Germany is afraid that ultimately it will be on the hook for the profligacy of its southern neighbors who, while repentant, are convinced that the cure of austerity is worse than the disease of insolvency. And now the people have spoken, and to no one’s surprise they have sided with the Keynesians, while the Germans are checking for their wallets.


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While earnings reports are coming in ahead of consensus estimates this season, the “beats” seem to be driven more by pre-existing conservatism in estimates than by greater-than-expected strength in the economy. With a little more than half of the S&P 500 companies reporting, the majority of companies have reported earnings above consensus estimates. This has caused Wall Street analysts’ full year 2012 earnings estimates to move up about 4% over the last several weeks. But this offsets a downward drift in earnings estimates of about 3% during the three months preceding the current reporting period. And while this inflection is welcome, it does not appear to indicate acceleration in the economy.

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The monthly winning streak for stocks in the U.S. ended at five, as prices ended April with a modest loss of slightly less than one percent. The same influences that drove the S&P 500 25 percent higher between last September and the end of March have turned somewhat uncertain, resulting in a period of modest consolidation. Recently softer economic data in both the U.S. and China, and renewed uncertainty in European sovereign debt markets combined to push stocks lower in the first half of April. And, despite a rally over the past two weeks, stocks were unable to extend their climb to a sixth straight month.

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