Please re-read last Sunday’s blog titled “A Soap Opera for Economists.” Watching the Asian markets open at 8PM tonight will also be “must-see” TV. At this hour (1630 hours), Washington is swirling with rumors that a deal to raise the debt ceiling is imminent. If true and announced before the Asian markets open, it will be fun to watch a strong rally. If there is…
With gold hitting record highs almost daily, it is not surprising I get asked about it almost every time I go out. Most financial advisors are comfortable putting 5% to 10% of a client’s portfolio into commodities, of which 1% to 2% would be gold. I already have a higher allocation than that in most of my portfolios, but I’m not adding to it at…
Back in Dallas, I had a good friend named Lloyd. He was 44 years old when his father died. After the funeral, his mother called the kids together to tell them a deep, dark family secret that she had promised not to reveal until her husband had passed. The secret? They were Jewish. Apparently, they lived in an anti-Semitic area and wanted to protect the kids. …
Assuming the worst case that the budget ceiling is not raised in a timely fashion, we have been somewhat flippant, making the choice of what to pay and what not to pay in a “guns or butter” format. It is, of course, more complicated than “the bondholders or grandma.” I expect the bondholders will be paid first, as they should, and that Social Security checks will…
The TED Spread is the relationship between Treasury bond rates and the London Interbank Offered Rate (LIBOR). Another way of saying it is the relationship between lending to the U.S. government and lending to the banks. It has been a reliable predictor of financial crisis in the past, having been as high as 470 basis points in 2008. As you can see from this table it is…
Beware of economists making political predictions! Nonetheless, I suspect there is now less than a 50% probability any deal will be reached to raise the debt ceiling and wonder what fool linked budget negotiations to the debt ceiling anyway. Does that mean the U.S. will default on its debts for the first time? No, I don’t think so. There will be plenty of money to…
One of the main objectives of this blog is to increase awareness of the differences between the three main schools of economic thought today. With respect to the current debt ceiling crisis, the Keynesian viewpoint would be the economy is stalling and needs a stimulus of deficit spending. That only works when the nation has reserves or can borrow more money, which is certainly not the…
Why is the market so calm? One possibility is great confidence that the debt ceiling will be raised. Another possibility is great confidence that it doesn’t matter. Another is that the credit rating is more important anyway and is going to be reduced under any circumstance, given our inability to govern sensibly. While I agree that the last possibility is the most likely, it is…
Few financial advisors recommend market timing, calling it a “fool’s mission.” With retail investors such a small part of the market, they cannot compete with the hedge funds and others guessing the exact top or the exact bottom of any stock, much less the market. That is why most advisors recommend a “buy & hold” strategy, meaning that you should have a portfolio of mutual funds…
The Blame Game has started. The elected children are already blaming the other side for being even more childish on the debt ceiling. Unless something is cobbled together today, Bloomberg will be “must-see” TV at 8PM tonight. That’s our first opportunity to watch Asia react to America’s inability to govern itself intelligently. Will Asian markets collapse? No, but they will be down heavily. I’ll guess a 3%…
When former Treasury Secretary Hank Paulson told Congress in 2008 that he needed a bazooka to convince the bond vigilantes that he had enough firepower to prevent any default, I knew he was right. Bond vigilantes have made nations cower many times. Half-measures can be fatal. Just ask Britain what George Soros did to them! Greece in particular and Europe in general are trying to develop…
A few years ago, I read an excellent book by Malcolm Gladwell called The Tipping Point. It talks about how many small things can build up until finally one more small thing lights the match that burns down everything. The current president of Turkey said that democracy is like a street car: When you get to your stop, you get off. When will we reach the…
That’s the title of this blog, because it is important to read the markets. It is the closest we have to a real-time voice of the economy. Although very imperfect, it is still the closest we have. For example, if the market rises for four straight days, then we’re happy about that. But, if the trading volume is increasing each day as well, then we…
You don’t have to like a person to respect them. The same is true for companies. I don’t like Goldman Sachs, believing they have the same ethical blind spot of most stockbrokers, only worse. Nonetheless, I do respect their research capabilities. I just finished studying their expectations for the second half of this year. In no particular order, here are some of the more interesting points:…
As a ten-year-old in 1957, I remember the shock and dismay when the Russians beat us into space, with the successful launch of Sputnik. I remember the bipartisan American resolve to catch up. As a young officer in 1969, I remember the pride, watching an American walk on the moon. As I write this, the last space shuttle is on its way back to Earth, never to fly again.…
In early Spring, I predicted the market would be weak until Fall. So far, that has been correct. I never thought a double-dip recession was possible, unless the U.S. defaults. Since then, the all-important level of uncertainty has been dropping. We survived European sovereign debt problems both last Spring and this one. We survived the end of QE2. Is it party time yet? Yesterday, the…
The first part of this month was spent worrying about the end of QE2. That went well. The second half of the first month of every quarter (right now) is called “the earnings season” when corporations announce their financial performance for the past quarter. Remember breathlessly awaiting the earnings announcement of Alcoa or IBM, for example? This is going well. We’re actually seeing revenue growth as well…
Thinking about Saturday’s blog on the importance of regulating the financial industry intelligently, I re-read The Squam Lake Report today. Published last year, it helped inform the debate on the Dodd-Frank debate by summarizing a conference of fifteen of the nation’s leading economists in Squam Lake in New Hampshire. If there is a partisan bias in their discussion, I cannot detect it. My belief is…
Yesterday, a wonderful client of seventeen years came to visit. Since it was a bit of a drive, she spent the night with us, which gave us time to think together, as well as to catch up. Often, she has perceptions of such clanging clarity that I’m haunted for days. For example, once she discussed her guilt that America had been at war for years…
For those who cannot wait until Inside Business is delivered Monday, here is the link to my latest quarterly column . . . http://www.insidebiz.com/news/investing-q2-stalled-soft-patch
One of the principal causes of the Great Recession was derivatives, which are extremely useful in the daylight but extremely dangerous in the dark. Because there has been no sunshine or transparency in this market, no one realized what a disaster AIG was, costing the taxpayers billions and billions of dollars. We need that information, if only to protect the taxpayers. A recent example is…
After the Lehman collapse and the government injected hundreds of billions into bank capital, the wise decision was made to study the balance sheets of those banks to estimate losses in the event of another “stressful” event in the credit markets. Although done hurriedly, it was detailed enough and serious enough to restore most of the faith banks had about doing business with each other. …
Answer — The truth is . . . nobody knows . . . because it has never happened before . . .that the nation with the world’s only reserve currency defaults! However, I expect interest rates paid by taxpayers on all types of debt will rise. I expect banks will stop making loans. I expect unemployment will increase. I expect the dollar to fall, and the…
The bear returned to Wall Street on Monday and Tuesday and roared. This morning, the bear is taking a nap. Futures indicate the Dow should open up about 80-90 points. What happened? The week began with renewed and heightened anxieties about the European contagion from Greece to Italy, a much larger and more worrisome problem. In addition, uncertainty over the budget negotiations creating a national…
I first fell in love with Ayn Rand in 1963, when I read Fountainhead. That was a story of an idealistic architect who was willing to sacrifice everything in order to construct a building that was “correct,” and he would not permit the architectural profession nor the development community to dissuade him. It was a story of a man standing up for what he believed,…
Yesterday, I was worried about the market. It is always more volatile on Fridays anyway, but yesterday would be a day of very little trading volume, as most of the big traders spend July spending big bucks in the tony Hamptons beach community, outside New York City. (A few large orders can move the market on a day of low trading volume.) Finally, the most important economic report…
With the surprisingly strong ADP employment report this morning, good earnings from several retail companies, and hopeful comments on the budget negotiations, it is not surprising the bull was loose on Wall Street today, for 7th time in 8 days. With the all-important monthly DOL “Jobs Report” due out tomorrow morning, my thoughts should be entirely focused on that. Yet, they are not. My portfolios…
As someone who manages the savings of somebody else, I know it is deathly serious work. We become achingly cynical: believing no news release, no quarterly report, no analyst report and no economic analysis. Still, there are those occasions when we must put aside our cynicism for something more simple, more naive. Today is one of those days! I’m thankful to be an American. Of course,…
According to Investorguide.com, a Relief Rally is defined as “a sharp upward spike in prices following a period of investor uncertainty.” Clearly, this past week was a temporary relief that the Greece tragedy did not explode in Europe — yet. Plus, there was a rumor that former central banks were secretly increasing their holdings of U.S. Treasuries to take up the slack for the Fed who had…