An investor takes a longer term view. He looks at those sectors and nations where growth looks most promising and then positions his portfolio to benefit from that growth. A trader takes a short term view, sometimes in minutes. If war breaks out between the two Koreas, you can expect both the U.S. dollar and gold to rise together, which happens very seldom. You will…
I was only thirteen years old in 1960, when establishment Republican Henry Cabot Lodge was the running mate of Richard Nixon in the presidential campaign, that they lost to John Kennedy. I recall Lodge being criticised by the John Birch Society and some religious groups as being supportive of a one-world government, which they believed was described in the Bible as the last step before…
I’ve been predicting a slow but steady recovery for the economy. Of course, the stock market is only loosely related to the economy. The market has improved this year more than the economy has. But, expectations for the stock market next year are awfully high. The S&P closed yesterday at 1244. Goldman Sachs predicts it will close at 1450 at the end of next year.…
Last night, I watched The History Channel. (Yes, economists do watch The History Channel but only because there is no Economics Channel.) The show was about the Third Reich and showed the suffering of ordinary people. Not to be disrespectful, but it also showed their inconvenience. They had shortages of consumer goods and electricity. They even had tax increases. It reminded me of an evening…
Yesterday, the stock market reached the highest point in over two years. Does that mean the party is over? No, of course not! Does that mean we will get back to our 2007 market high? Yes, but not in 2011. Does that mean we face smooth sailing? Absolutely not! December and January are usually the two best months of the year for the market. We’ve…
I love that expression . . . manana economics. It covers those areas of economics that can be dealt with tomorrow, i.e., where kicking the can down the road is a good idea. Fareed Zakaria is a native of India with a Ph.D. from Harvard and writes a column for Newsweek, as well as being a CNN contributor. He coined the term referring to the…
The Wall Street Journal just released their latest survey of economists. Generally, they are more optimistic! The economy grew at 2.5% in the third quarter. Estimates for the fourth quarter were raised from 2.4% to 2.6% and 3.0% for the first half of 2011. Also, they reduced the odds of a double-dip recession from 22% to only 15%, another good sign. This survey was conducted…
Yesterday, the Senate took the first step in creating certainty about our tax burden next year. A believer in Supply-Side economics will be delighted because there are tax cuts. A believer in Keynesian economics will be relieved we didn’t increase taxes during a recession. A believer in Austrian economics will be horrified that we made the deficit crisis worse. I don’t recall who said this…
When the Fed announced QE2, they expected interest rates would fall. At first, everything went as expected. Now, those rates have started to rise. Ten-year Treasury bonds now pay 3.36%, which is a six-month high. One reason for interest rates to rise is that the Fed is causing it intentionally, which is not the case. Another reason is that the economy is improving, which makes…
We’ve often mentioned the bond vigilantes who could cause unimaginable trouble for the U.S. and greatly increase the burden of paying interest on our huge national debt. Today, our Treasury Department auctioned off $21 billion in 10-year bonds. Fewer bidders wanted the bonds. The bid-to-cover ratio was 2.92 compared to a recent average of 3.12. And, those bidders are demanding we pay a higher rate…
Last night, the President announced a bi-partisan deal to extend the tax cuts for another two years, which reduced uncertainty. This morning, the Dow futures are up 81 points at this hour. You’ll recall the inverse relationship between uncertainty and the markets. It should be a good day for the markets! It is probably not significant enough to say it should be a good week,…
Normally, I am careful to avoid any discussion of politics, finding it seldom helpful. Both parties spin shamelessly. So, it may have been surprising to see me quoted twice in The Virginian-Pilot last Friday, referring to comments I made to a Senate hearing on redistricting. Redistricting is as exciting as watching paint dry but terribly important. Because the borders of voting districts had been gerry-mandered…
It has been fascinating, if saddening, to observe the political spinning around expiration of the Bush and Obama tax cuts this month. (Don’t forget a third of Obama’s $787 billion Stimulus bill was also a tax cut.) My inner-Keynesian economist is afraid consumer demand will decrease if they are paying more in taxes, so the tax cut should be extended. My inner-Austrian economist is afraid…
When was the last time you heard the word “deficit” used so often? I’ll bet I heard it or read it more often last week than the last two years combined. That’s a good thing! When President Obama first appointed the Deficit Commission, I was disappointed the Republican Party did not support that effort and felt it would therefore just be another waste of time,…
Recently, I blogged that market reflects tidal changes in certainty and uncertainty. The market goes down when uncertainty goes up and vice versa. Increasing certainty is good for the market. An old and dear friend sent me a Shakespearean quote from his play Julius Caesar saying There is a tide in the affairs of men, which, taken at the flood, leads on to fortune; The…
Today’s Jobs Report was awful! Economists were expecting 144 thousand jobs were created and were stunned when they learned only 39 thousand were created. Given the steady flow of relatively good economic data over the past few months, this is a surprise . . . a fishy surprise. Data for last month’s Jobs Report was increased from 151 thousand to 172 thousand. So, we created…
It was no secret that small, unassuming, professorial Ben Bernanke straddles the U.S. like a colossus. I have long felt that his “out-of-the-box” thinking and long study of The Great Depression made him extraordinarily effective as head of our Fed during the dark days of the Global Financial Crisis. I think he did a great job! But, who knew he was also straddling the world?…
Back in 1984, there was a popular movie called “The Karate Kid”. Mr. Miyagi was the mentor, teaching karate to a kid. Because karate moves are complicated, he simplified one move by telling the kid “Wax on, wax off”. The stock market has become “Risk on, risk off”. Yesterday was obviously “risk on”, as investors flooded into the market, taking risk. All day, good economic…
The first Friday of each month is the most important Friday to the market, because that is the day that the monthly “Jobs Report” is issued. The current forecast is an increase in jobs of about 144,000 and the unemployment rate holding at 9.6%. Creating that many jobs is certainly much better than losing 700,000 jobs a month, like we were doing just two years…
If I own a bond issued by AT&T, there is a possibility AT&T will not repay the bond at maturity. If I get worried about that, then I can buy insurance to protect me from that possibility of AT&T defaulting. Essentially, it guarantees I’ll get repaid. The risk of the bond issuer defaulting is transferred or swapped to another company, often an insurance company. Of…
The most frequent question I get is “So what? Jim, your analysis is interesting, but you don’t say what we should do now.” The reason is that I am not permitted to give investment advice to anybody who is not a client, as well any anybody whose investment needs are not clearly understood. That is the law! In most cases, it’s probably better that I…
When the financial markets didn’t behave the way he expected, President Clinton famously said “You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of xxxxing bond traders?” He was complaining about the bond market, often considered wiser and more exacting than the stock market. Watching the bond market is very important.…
One of my favorite bureaucrats is Sheila Bair, Chairman of the FDIC. She just wrote an excellent editorial in The Washington Post, asking “Will the Next Fiscal Crisis Start in Washington?” That’s a fair question. The fair answer is that the next one might start somewhere else but one is certainly coming out of Washington, and it will be terrible, far worse than the last…
Yesterday morning, the Commerce Department looked in their rear-view mirror and raised their estimate of this year’s third quarter GDP growth rate. We did better than expected. Yesterday afternoon, the Fed looked thru their windshield and lowered their estimate of GDP growth next year, saying the economy is doing worse than they expected previously. Conflicting economic data makes it tricky to read the market. That’s…
The stock market is always trying to climb a Wall of Worry. Today, the Wall was very tall, indeed! The day began with North Korea rattling a very loud saber. It continued with lots of unrest in Ireland about the pending, distasteful austerity package they have to swallow. It finished with conflicting economic data in the U.S, as well as the realization that our stock…
How will you know if you deserve a better car? When it leaves you standing beside the road in a bad neighborhood! How will you know if you deserve a better form of government? No, it is NOT un-American to ask! No, the question is NOT what should replace it. No, the question is NOT what’s wrong with either Republicans or Democrats. The question is…
Over the weekend, we learned the SEC was launching a major crackdown on insider trading. On Monday, they raided the offices of three hedge funds. Good! After the Global Financial Crisis, the 52% drop in the stock market, and the mysterious Flash Crash in May, it is no wonder that retail investors are distrustful and still on the sidelines, missing this year’s rally. To restore…
The Fed is justifiably worried about deflation,which is more worrisome and tenacious than inflation. That is the reason they launched the latest round of quantitative easing. Many people don’t see the danger. Even the most recent data shows no serious indication of either inflation or deflation. Yet, if you look deeper, you see the U.S. is becoming bifurcated into one section that is part of…
If you do nothing else today, read the article titled “China’s State Capitalism Sparks a Global Backlash” on the front page of The Wall Street Journal. It is the secret to China’s success and the reason we should be afraid, not merely worried. China has the ability to put the entire force of their nation behind a particular industrial policy. The U.S. cannot even agree…
As I sit here on the shore of the Chesapeake Bay, I know there will be a high tide twice a day. If I watch TV, I will know the exact times of the tide. It is so predictable. As I watch the stock market, I recognize the same tidal changes, as the level of uncertainty go up and down. As uncertainty about the election…
It has never happened before. The credit of the United States was downgraded yesterday. While this is considered inevitable if we continue to run such deficits, it was nonetheless a surprise yesterday. But, the timing was interesting. It is not unusual for lots of acrimony before a G-20 Summit. This one is worse than usual. On the eve of the Summit, it was China who…
Regardless of who the President is, he needs a thick skin. Certainly, President Obama does as he begins the G-20 Summit in Korea. It may even be deserved. For years, we have criticized China for maintaining an artificially cheap currency, which helps their exporters. With QE2 or quantitative easing, we are greatly increasing the supply of dollars, which reduces the value of each dollar. Not…
Did anybody see the new IMF report raising the estimated GDP growth rate for the 47 countries of Sub-Saharan Africa for the second time this year . . . from 4.5% to 5%? Those traditionally poor nations are growing more than twice as fast as the U.S. Does that bother anybody else? As an economist, it is not surprising, as it takes longer to get…