Today, the Fed will end its 8-month, $600 billion experiment called QE2. Despite what you may hear, nobody knows what will happen next week . . . nobody! QE2 was a program whereby the Fed would buy most all (85%) of the bonds issued by the U.S. government, in order to finance our mind-numbing deficits. In addition, it was designed to keep interest rates low, expecially…
Years ago, I was proud to serve as a member of U.S. Army Special Forces. Since then, it has always amused me to see others think of us as tough, semi-savage barbarians, when we were just ordinary guys in great physical condition who were not satisfied with being merely good soldiers and wanted to be the best soldiers. Today, I’m in Chicago attending meetings with…
At daybreak yesterday, I was getting ready for my morning run but couldn’t stop watching CNBC, as the riots in Athens injured as many as 500 people, who were protesting an unemployment level twice as high as the U.S., as well as steeply higher taxes, including a 4% increase in their sales tax or VAT, along with a 15% cut in pay for public employees, which…
Today, I had to fly to Chicago to attend board meetings of the NAPFA (the National Association of Personal Financial Advisors). Waiting to remove my shoes, belt and whatever else the TSA requires, I was reminded of the Securities & Exchange Commission. You will recall the SEC audited Bernie Madoff twice without ever discovering he was a crook. Having been audited by the SEC, I…
Maybe, the wall of worry or the wall of uncertainty that is retarding Wall Street is coming down? First, I’ve found it odd that Europe has suddenly become so agreeable to saving Greece over the past few days. Then, I realized the Chinese Prime Minister was visiting in Europe. What a coincidence? Like any good fund manager, he has come to Europe to take advantage…
The last time our nation enjoyed a budget surplus was under President Bill Clinton, a fact that Democrats find convenient to remind us of frequently. Still, the former President has written an important article in the current (June 27) issue of Newsweek magazine, where he lists fourteen ways to create jobs in America. Some are legitimate and worthy of immediate implementation. But, some of his…
Many readers have told me they read this blog primarily because it tries to make economics less boring and more relevant. I hope so, but confess I have now found the ultimate website for that and will henceforth refer those who want to learn economics without falling asleep. It is http://econstories.tv/ . . . enjoy!
Yesterday, the Comptroller of the Currency announced that, for the first time in three years, the banks have eased up on their strict lending criteria. Of course, that was only for large, commercial firms but is still an improvement. Much criticised for their lack of lending, the bankers have said nobody wanted to borrow, as potential borrowers couldn’t find any business need to borrow. Certainly,…
During seven of the last eight weeks, the stock market has been down. It has been a relatively steady decline, with a few stomach-wrenching days. You might use the weekend to load up on more Rolaids. But, I think we could be approaching the bottom, because uncertainty is getting so high. In addition to the minute-by-minute unfolding of the Greek tragedy, this week will be…
Yesterday’s announcement that the U.S. would contribute 30 million barrels from its Strategic Oil Reserve to match the release by the International Energy Agency was a shocker indeed. It made no sense from an energy standpoint. Originally established in response to the Arab oil embargo of 1973-4, there was no threat to our energy independence. It was lamely argued that this release, less than two days of actual…
Yesterday, the Fed announced they have lowered their estimate of GDP growth this year from their 3.9% estimate in January and 3.5% in April to only 2.9% now. They also lowered their estimate of next year’s growth from 4% to 3.7%. It is not a pretty picture. They blamed “transitory” factors, such as the Japan tragedy and the “Arab Spring.” The same day, Fedex announced its profits…
“The price for the war in Afghanistan was paid on 9-11. Everything else are just budgetary matters.” That was the comment by a young soldier in Afghanistan yesterday, after hearing of the Obama’s decision to begin a modest withdrawal of troops. That comment bothered me. Does that mean Social Security, Medicare, and Medicaid are also “just budgetary matters” and therefore beyond questions about the value…
From 9AM to 10AM each day, CNBC has a program called “Squawk on the Street” that usually conducts some unscientific viewer poll. Very often, the subject is trivia. Today, they asked viewers to call in to vote whether they felt the Chairman of the U.S. Federal Reserve System was doing a competent job or not. They had a record number of calls, with an amazing 98%…
The stock market has closed up for four straight days and six out of the last seven days. It is trying hard to rally, which does reflect strong underlying strength. But, the little engine, that the stock market has found, will not be enough to overcome the proverbial “wall of uncertainty” . . . that is just so high right now. A normal wall of…
Last Friday, on a day of high quarterly uncertainty, the market closed up, largely because of comments out of the EU that they were close to a deal on Greece. However, over the weekend, it was announced that the decision would be delayed. As a result, futures indicate the Dow will drop about 60 points at the open. Ostensibly, the delay is to allow time for…
Austrian economics is often called “tough love” economics, due to its hard focus on balancing the government budget and minimizing national debt. Early advocates like Ludwig von Mises lived in Austria or Germany. Many are also “gold bugs,” believing that the yellow metal can control government spending better than legislators can. An example would be Ron Paul. While nearly all advocates of Austrian economics tend to be Republicans,…
Described as “the giant vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” the legendary investment firm of Goldman Sachs still deserves respect for their analytical capabilities, which is so necessary to smell money. Yesterday, they lowered their estimate of second quarter GDP growth from 3% to 2%, although they expect 2012 to see 3.2% growth. …
Investors buy companies or sectors they believe are positioned to perform well over the foreseeable future. Traders buy or sell anything that might change in value over the next day or so. Investors take little risk over a weekend, when the stock markets are closed. Traders take much risk over weekends, when politicians can make news (think Greece). To prevent being stuck in something that…
Earlier today, I admitted to agreeing with Karl Marx about one thing. Don’t tell anybody, but I also agree with George Soros on one thing, i.e., that economics has been crippled by a dependency on quantitative methods. A few years ago, a brilliant mathematician named Nassim Nicholas Taleb, who has the warmth of a Brillo-pad, wrote “The Black Swan.” He believes that highly improbable events do…
During the Spring, I became very concerned about the stock market. (Very concerned, not scared!) I predicted it would be an ugly summer, and it has been so far. The market has dropped about 7%, not quite a technical correction, which is a 10% drop, but we are still falling. Last year, we dropped almost 16% before rebounding nicely. A 20% drop is usually called…
You can imagine a large table in a plush government conference room surrounded by a bunch of smug economic advisors and frightened political leaders, facing the grim reality of what the nation needs to do, i.e., austerity. Outside, thousands of people are protesting this grim reality. They never had a course in economics, because they never had a requirement to learn such things. There will always be a…
Every time the market gets bearish, pundits begin fretting about a “double-dip” or return of the recession. While anything is always possible, it is unlikely. I have argued for almost three years that a financial crisis is very different from any garden-variety recession. There has been some impressive research by Ken Rogoff of Harvard whose “research also shows that following financial crises, economies tend to…
Actually, it was more of a spinning contest than a debate. It was a spinning contest between the purists and the realists. The purists believe that every rich person actually produces jobs for poor people, while the realists believe people are complicated, basing their decisions on many factors, including taxes. It would be no different in a Democratic debate. There, it would be a spinning…
For most of my life, the U.S. has been the engine for world economic growth. For a time in the 90’s, it was thought that the new European Union would take our place, and they almost did. Yet, we were finally displaced by China and other emerging markets during the last decade, when they routinely experienced better than 10% annual growth in GDP. Now, things…
Between now and approximately August 2nd, there will be a great deal of discussion, if not debate, about the Federal debt limit. As you think about it, please visit http://www.usdebtclock.org/ frequently. We tend to focus on the horrifying grand total at the top of the page, but please notice the components of it. For example, it is interesting that some Personal Debt is decreasing. People are…
Yesterday was a good day in the stock market with the Dow closing up 75 points. That was because something unusual happened . . . we got some good economic news, i.e., our trade deficit narrowed to only $43 billion. Politicians and voters bemoan the falling dollar, but it is good for business! It makes imports to us more expensive (therefore, we buy less from foreigners),…
CNBC usually has a quick online survey each morning. Today, they asked what we thought we would see first, the Dow back up to 13,000 or gas at $5 per gallon. 58% believed we will see gas prices go back up before the Dow does. It makes you wonder if they know what happened at yesterday’s OPEC meeting, which the Saudi ambassador described as the worst ever meeting. It was the…
Yesterday, the Dow was up 60-80 points all day, expecting to hear good news when Fed Head Ben Bernanke spoke at 3:45 PM. As he started to speak, the stock market started to drop, finally losing 19 points for the day. So, what happened? What did he say? First, he confirmed the U.S. economy has slowed down. Did anybody not already know that? Second, he confirmed…
My mother always warned me not to be such a big man that I cannot apologize, so I apologize to Treasury Secretary Timothy Geithner. I have long held the belief the economy was on a slow but sustainable path to recovery, unless we have another “heart attack,” which will happen in the financial sector when (not if) there is a major derivatives failure. I was…
I just finished reading “The Panic of 1907” by the Boston Fed. It is an interesting read of a near-collapse of the banking system . . . when there was no Federal Reserve System to save us. It begins with the efforts of Augustus Heinze to corner the copper market. When he failed, the savings bank he owned also fail, followed by the Mercantile National…
Today, the Department of Labor released their monthly report on employment, and it was ugly. The headline news is that only 54,000 jobs were created and unemployment rate increased to 9.1%. Of course, one can argue that the rise in the unemployment rate reflects nothing more than an increase of 272,000 in the number of people looking for work. Normally, that is a good sign,…
Yesterday, at a meeting of fellow financial advisers, I was asked if the Fed would end the current quantitative easing program and begin a new one. I replied they should ask me at 8:31 AM this Friday, which is immediately after the monthly “jobs report.” This is easily the most important economic report each month to the Fed, and the report this Friday would be…
