Investment legend Sir John Templeton is best known for his emphasis on international investing. However, he also said “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” And, of course, he is right! So, where are we today? While I see a lot of political pessimism, I see even more economic optimism, especially on Wall Street. But, I…
With our daily deluge of negative news, it is easy to think America is falling apart. Maybe, it is, but there are some places that are far worse. If you think we have problems, consider the case of Greece: 1. They are still in recession after six long years. We’ve been a “weak” recovery for four years already. 2. Their GDP has fallen an unbelievable…
Amid the love fest taking place on Wall Street, it was easy to miss the good ISM (Institute of Supply Management) reports of underlying economic data last week. We learned that manufacturing improved nicely in October, with the ISM Manufacturing Index coming in at 56.4. (Anything above 50 indicates an increase.) While production increased 2% in the third quarter, most economists expect a 5% annualized…
It doesn’t matter if you believe you are fortunate because you are a “doer” or “job creator” from the mind of Ayd Rand, or if you believe God has just blessed you (but not others), or that you had the good foresight to pick a rich father, or that you believe it was simply blind luck or even all of the above. However, reflecting my…
For many decades now, Modern Portfolio Theory (MPT) has been the “gold standard” for investment management. Basically, it shows that an investor can achieve above-average returns with below-average risks by spreading his risks or allocating his portfolio across many “asset classes,” i.e. large company stocks, small company stocks, international stocks, bonds, real estate, cash, etc. This was possible because all assets are not perfectly correlated.…
Each month, the Bureau of Labor Statistics publishes the “jobs report,” which the media and the markets watch closely . . . too closely. It is a flawed measure for several reasons. One is that people get discouraged and quit looking for jobs, which decreases the available pool of labor and therefore makes the unemployment rate rise. This factor in the changing labor force is…
Republicans tend to believe that marginal income rates will not be raised if we experience strong economic growth. Democrats tend to believe entitlements can be increased if we experience strong economic growth. While they disagree on the methods to achieve it, they agree that the solution to all our problems is strong economic growth. What happens when both parties praying at the altar of strong…
The latest forecasts from investment banking giant Goldman Sachs predict the following: 1. GDP growth this year will average only 1.6%, reflecting damage of the government shutdown, but will jump to 2.9% for next year and unemployment will be “only” 6.6% by the end of 2014.2. Inflation remains tame at 1.8% at the core level through next year.3. Interest rates will move up sharply from…
Due to the government shutdown, the all-important Jobs Report was delayed from October 4th to October 22nd. While the delayed report showed the unemployment rate dropped from 7.3% to 7.2% and average hourly earnings up a bit, the other numbers were disappointing. Private sector jobs grew 161 thousand in August and were expected to grow 180 thousand in September. Instead, they only grew 126 thousand.…
I should have watched the film classic by the famous Ingmar Bergman called The Seventh Seal many years ago. It plotted the emotional trail for so many combat veterans. In the mid-fourteen century, a priest convinces a young Swedish knight to leave his wife and castle to serve in the bloody Crusades. Seeing death up close, smelling it, feeling life leave others, and loathing his own…
Many laws have unintended consequences, whether at the national, state or local level. Republicans believe that is proof the government never understands what it is doing. Democrats believe that unintended consequences are a normal part of legislating. Existentialists find unintended consequences to be absurdly amusing. Over the last few years, there have many changes in laws regulating ownership of guns, especially at the state level.…
Novice investors either expect the stock market to be efficient, according to Efficient Market Theory where all information is known by all investors, or they expect to invest based on hunches or even inside information. However, experienced investors know to study the specialized analysts, and make rational decisions supported by careful analysis, but always expect some irrational behavior. For example, consider the example of IBM,…
Congress finally did their job last night to prevent America from defaulting. Yes, the international community had to get involved, with a host of “shame on you, America” comments and China asking the world to be de-Americanized. The debacle in Washington was certainly not the best promotional piece for democracy. But, that is minor. Take a look at the loss in consumer confidence: This is…
The pieces are already falling into place for the worst-case scenario to the current debt debacle in Washington. On Friday, mutual fund giant Fidelity announced they had sold all short-term Treasury notes and bonds, expecting they would be hammered if Congress cannot agree to raise the debt ceiling. Yesterday, a small auction of Treasuries was poorly subscribed, as investors are starting to avoid U.S bonds.…
During the national embarrassments that Congress creates ever more frequently, it is nice to read a little good news, such as three Americans winning this year’s Nobel Prize for Economics. They were Eugene Fama and Lars Peter Hansen of the University of Chicago and Robert Shiller of Yale University. Congratulations to each of them! Although all three have increased our understanding of how asset prices…
As someone who tries very hard to keep political opinions out of his writing, I’ve always respected The Kiplinger Letter for keeping their political opinions private. However, their newest letter said “For now, Republicans favor ideological purity over winning . . .” I’m trying to judge whether their political opinion is showing or whether that is a simple statement of the facts. It also predicts more…
Everybody knows you cannot trust information you find on the internet or receive in emails. But, sometimes, it doesn’t matter, because the idea is more important. I’m quoting from an email a honest friend sent me. While I don’t know if Warren Buffett said this or not, the idea is more important than the facts. Warren Buffett, in a recent interview with CNBC,offers one of…
Long-term readers know I write a column for Inside Business, which is affiliated with The Virginian Pilot and owned by Landmark Communications. My latest column can be found here: http://insidebiz.com/news/third-quarter-saw-us-get-past-abyss-almost
My favorite professor at Wharton has always been the brilliant Jeremy Siegel. Today, I’m quoting from his latest Commentary: With the current stalemate in Congress, I began imagining the formation of a third political party that would be fiscally conservative, socially fairly liberal, and strongly dedicated to solving the tough problems that face our country. Many of the party would be non-Tea Party Republicans who no longer want…
Communist theorist Karl Marx once said “religion is the opium of the people.” That may be true in some places and during some times. But, in America, it is more true that “credit card debt is the opium of the people.” Since the global financial crisis in 2008, Americans have taken a twelve-step program and seem to be kicking the habit of using credit cards…
A government shutdown is not new. It has already happened eighteen times. But, how has the stock market reacted in the past? Take a look at this interesting graph: The market falls for a few days before rising sharply, when investors realize the world did survive. After a little over-enthusiasm, the market then resumes its gradual, sustainable rise. Based on this, the market should start…
As a boy, I thought the ideal life was being a low-level bureaucrat, doing as little work as possible and spending as little money as possible, until I would finally got a hand-shake and a pension. However, once I read my first Ian Fleming novel, bureaucracy lost its charm for me forever. When my curiosity about existentialism began in Texas decades ago, I read about…
The impasse in Washington is difficult to understand. Is it just the tired, old Republican versus Democratic conflict? Is it more of a philosophical conservative versus liberal conflict? I have viewed it as Tea Party versus Reagan Republican conflict. But, one pundit suggested the obvious, i.e., that it is all the above but complicated by a generational conflict. She speculated that the average age of…
Wall Street pundits, from coast-to-coast, have been worrying themselves sick about the possible failure of Congress to raise the debt ceiling, followed by the first default in history by a country with the reserve currency. Only a fool would not be worried about this. It could indeed be frightening, and I have spent quite a bit of time thinking about it. Think of it in…
As if today’s government shutdown was not enough bad news, watch out for Italy. Sore-loser Silvio Berlusconi, who hasn’t been funny since his famous “boom-boom” comments, looks like he is pulling out of the ruling coalition. He just ordered five cabinet ministers to resign, who promptly did as told. This is just what Italy and Europe don’t need. The Italian stock market is down sharply,…
Imagine sitting in a high-powered car in the parking lot of a school when classes are dismissed for the day and putting the car into Drive just before jumping out. Imagine giving Roman Candle fireworks to teenagers living in a shantytown. Imagine being in a large crowd and firing hundreds of rounds from an AK-47 straight up. In each case, it is unlikely to have…
“The primary function of sports is to provide advertisers a way to sell beer and unhealthy stuff to losers who go to sports bars and pretend they have friends.” OK, that’s definitely an ouch! But, it does hint at the importance of advertising, which is widely ignored in economic theory. Economists like to talk about consumers (and investors) making informed decisions in their own self-interet…
Long ago and far away, I used to teach a junior level course at the University of Texas at Arlington called “Economics of Money and Banking.” During that course, I would teach that the risk/reward principle (higher risk deserves higher reward) applies to the pricing of loans as well. That explains why a successful doctor might get a car loan at 8%, while a…
President Reagan never referred to Goldman Sachs as “the evil empire” but some of us think he could have. He was referring to the old Soviet Union, not the giant investment banking firm that is too-big-to-fail, unfortunately. Nonetheless, their research is good, and here are their most recent predictions: 1. GDP growth will be 1.6% this year but a whopping 2.9% next year.2. Unemployment will…
Missing another bullet, the stock market is relieved that Angela Merkel’s political party did slightly better than expected in the German elections, maintaining a steady hand at the top for another four years. If she had been repudiated by the German voters, the market would be suffering badly today. The only hiccup is that her coalition partner was repudiated, meaning Merkel will have to rebuild…
I like guns. I own several. I even have my father’s old shotgun. I am very experienced with them. I also have a concealed weapons permit and usually carry one in my car with me. I feel safer with guns than without them. And, I genuinely think other people around me are safer because I have guns. While I am probably a gun-lover, that does not…
That was the date the House voted down TARP, a $700 billion nation-saving economic bailout (which was fully repaid with interest). As the House voted, I watched the Dow lose a heart-stopping 777 points. I thought about that yesterday as the House voted on the budget to kill ObamaCare. The futures market indicated the Dow would lose a mere 30 points at the open,…
Marshall Gore woke up in the cell on death row in Florida earlier this month, knowing it was his last day on Earth, as he would be executed that night. Imagine the absurdity he felt when he learned he would be allowed to live one more day, so that the state Attorney General Pam Bondi could attend a political fund-raiser. That was my feeling yesterday…
