I just finished reading “All the Devils Are Here” by Bethany McLean and Joe Nocera. It is one of many books chronicling the global financial crash. However, there is less narration and more conclusions than most. The one that most resonated with me was “The rating agencies were at the very heart of the madness.” While there has been much highly-deserved criticism of bankers, the credit…
I just read the speech of Charles Plosser, President of the Federal Reserve Bank of Philadelphia, that he gave last Friday. It was widely reported as the Fed’s “Exit Strategy” from its very successful effort to save the economy. Mostly, I agree with him, especially his belief that the Fed’s action be made clear long before they actually do something. The markets do over-react and…
The big show is Friday at 8:30AM. That’s when the monthly jobs report is issued by the government, i.e., Bureau of Labor Statistics. It is the single most important statistic released each month and can easily move markets. If the number is much over 225 thousand jobs, the market will probably rise. If much less, the market will probably fall. Today, the huge payroll company,…
Fridays are usually the most volatile trading day of the week, as traders try to protect themselves before the weekend when the market is closed. The most volatile Friday each month is usually the day when the “Monthly Jobs Report” is issued, which will be this Friday. That is the most closely watched economic report and can easily move markets. Because it is so volatile,…
On April 8th, there could be another government shutdown, unless Congress passes a budget. They are still operating until a continuing operating resolution, their third one, unable to agree on a budget for this fiscal year. The Tea Party wants another $61 billion cut out of the budget (Who doesn’t?). The Democrats think it is immoral to cut funding for homeless veterans, poor children and…
The average trading volume of oil futures is about 890,000 thousand, which equates to about 890 million barrels per day. Yet, the average consumption of oil is less than 20 million barrels per day. While there are certainly some other issues and uses, it does lend some perspective into just how much speculation there is in oil prices. That sounds ominous and somewhat dangerous, but…
President Harry Truman is famed for asking “Give me a one-handed economist!” His lament was that economists always say “on the other hand.” Today’s economic news is a good example. First, the GDP growth rate was revised upwards to 3.1%, which was better than expected. “On the other hand” shortly afterwards, consumer sentiment numbers were released, showing the lowest in a year. How is a…
Sometimes, things come into better focus when you stop looking at them. I’m sitting on a sunny balcony in Myrtle Beach, reading “Super Sectors” by John Nyaradi. Sector rotation is a method of investment management whereby the investor buys cyclical stocks as the economy grows and defensive stocks as the economy declines. An example of a cyclical stock would be technology, and a defensive example…
Did you feel the tide going out? It is the tide of uncertainty that swept over the market for the last few weeks. Markets don’t like uncertainty! There is less uncertainty about Khaddafi; he’s toast! There is less uncertainty about Japan; it will take $235 billion over 5 years to rebuild, according to the World Bank. There is still some uncertainty about the possibility of…
It is hard to remember so many important news events happening at the same time. We’re going to establish a no-fly zone over Libya, a move advocated by France, who does not have a reputation as a war-like nation. Did you hear that the protests in Bahrain were brutally surpressed by the Saudis? Gas at $4/gallon is a certainty. At the same time, the G-7…
Shortly before 3PM on May 6th of last year, I was stunned to watch the Dow drop almost 900 points in minutes during the now infamous “Flash Crash.” Much studied since then, we have been assured the new market breakers would prevent that from happening again. Shortly after 11AM yesterday, I watched the Dow drop almost 150 points in one minute and worried it might…
In the first quarter of last year, the market set a new post-Lehman high but got de-railed by the European Debt Crisis. In the first quarter of this year, the market set another new post-Lehman high but got de-railed by the North African revolutions, the tragedy in Japan, and, oh yeah, the European Debt Crisis . . . it’s still here, darn it! If you…
As I write this on Tuesday night, Tokyo has opened up strongly, following their 17% drop this week. One would hope the crisis is over and their stock market can get back to business as usual. However, until a meltdown is no longer a possibility, I do not believe their market is anywhere near normal. Sometimes, there is a “dead cat bounce.” Forgive the imagery,…
While I am not complaining, the Dow closed down 137 — only 137! It had been down as much as 296 points in the morning. With chaos in the Middle East, with no resolution to to European credit crisis, and with heart-breaking tragedy in Japan, the U.S. market is not showing as much sympathy as expected. I still need to research the particulars, but have…
Yesterday, the Arab League, which is arguably the planet’s most impotent organization, actually requested the United Nations to establish a no-fly zone over Libya. They never speak unkindly of Arab despots. Even more incredible, the Saudi military entered Bahrain to protect the monarchy. In other words, one Arab nation “invaded” another. In a normal environment, the price of oil would skyrocket upwards. Instead, it is…
A week ago, Japan was the world’s third largest economy. It survived a major 9.0 earthquake and a horrific tsunami. The economic uncertainty sank in quickly, and world markets naturally sank as well. The Dow sank 51 points, which proved pleasantly resilient. Since then, the radiation leaks in their 40-year-old nuclear reactors have demonstrated the potential to change a catastrophe into apocalypse. Overnight, the Japanese…
The first trading day after the disaster in Japan was better than expected, with the Dow dropping only 51 points. There was a good rally going into the close, but volume was quite weak all day. Most investors are too frightened or confused to make bets right now. Today’s light loss is the good news. The bad news is that this is not over. It…
First, my thoughts and prayers go out to the people of Japan, who have sustained a horrific loss from the earthquake, followed by a tsunami, and followed by serious radiation leaks. It must be unimaginable for them. From an investment standpoint, this will not be good, especially in the short-term. While the world economy has sustained catastrophic losses in the past and will do so…
Sometimes, you don’t recognize that you’re getting what you wished for. I’ve been wishing for the stock market to cool-off or take a break for several months, maybe even take a 4-8% dive. The stock market was just too far ahead of the economy. Did anybody notice that market is actually down 1% over the past month? It is easy to miss because the market…
Everybody with gray hair remembers the day Kennedy was assassinated, on November 22nd of 1963. Everybody post-puberty remembers the day America was attacked, on September 11th of 2001. But, do you remember where you were when the stock market hit its low point in this recession, which was two years ago today? That morning, I had breakfast with the regional president of a major national…
For over three centuries, economics has been referred to as “the dismal science.” I do think it is fair to say economists are somewhat more droll than normal people. Nonetheless, there is a distinct air of pessimism at this conference, as we face to the painful changes ahead. 87% believe the deficit is the single greatest problem facing America. Clearly, the greatest fear is that…
Yesterday, I was waiting for an elevator, when one of my favorite old economists walked up beside me. As the door opened, I asked him how he liked the conference so far. As we stepped inside, he answered “When I started attending this conference years ago, we were all Austrians.” By that, he meant all good economists obsessed over balanced annual budgets and maintaining our…
Guiding the financial lives and portfolios of other people in a humbling passion. To do this well, it is mandatory to seek out the thoughts of others. I have found conferences are an excellent and efficient way to do this. One of my favorites is the annual Policy Conference of the National Association of Business Economics in Washington, where I am now. I’ll be blogging…
As expected, the Jobs Report came in at 192 thousand new jobs in February, safely between the concensus estimate of 185 thousand and the “whisper” estimate of 220 thousand. As a result, the market moved very little, having already priced in a good report. Looking at the larger economy, this was indeed a good report. The economy continues to improve at an accelerating rate, albeit…
Even though the market is usually sleepy just before release of the monthly Jobs Report, it was anything but sleepy yesterday. There was just too much good news, i.e., the ISM report was strong, oil was down, the dollar was down, and rumors swept the floor that today’s report would show job growth of 220,000 instead of the concensus of 185,000. So, the Dow soared…
Normally, the market is dull and boring the day before the monthly “Jobs Report” is issued, which will be tomorrow. Yet, futures are predicting a bullish day for today. The economic data released this morning was so positive the market feels confident that tomorrow’s report will also be good. The weekly initial claims report this morning was the best since May of 2008. Also, productivity…
This morning, Warren Buffett said revolving charge cards were not good for America, and we would be better off without them. Certainly as individuals, we’re better off without them, but would the country be better off? It would decrease consumption spending and corporate profits but only in the short term. They were introduced to “pull forward” consumer spending and ended up becoming a cancer on…
The Dow dropped 168 points or 1.38%. The first day of each month is nomally a good day for the market and has been up for seven months in a row. Some analysts link yesterday’s drop to the mideast turmoil, but that is hardly news. Some link it to oil hitting $100/barrel again, a sympton of the mideast turmoil. Some link it to Bernanke’s congressional…
I just studied the forecast by the Interest Rate Committee of the Bank of America/Merrill Lynch. They do not expect rates to really increase much anytime soon. In fact, they predict the 10-year Treasury will be up modestly from 3.45% to 4.0% by year-end. They expect the Fed will start decreasing money supply in the second quarter of next year and will start raising interest…
The market got two pleasant surprises yesterday. First, consumer income rose much more than expected in January. Second, consumer spending rose much less than expected. While the consumption-based economy that is still the American operating model is dependent upon consumers spending on goods and services, it depends on a healthy consumer. With income up and spending down, either the savings rate increased or consumer debt…
