Long time readers know I have expected a retest of the March lows. While the stock market has remained strong during the traditional September/October correction . . . so far, . . . I’m still worried. The Great Recession did a great deal of damage, unemployment will come down very slowly, and the economy must become more export oriented and less consumption oriented. That takes…
Economists and securities analysts usually work together well. Sometimes, when they do disagree, it is more apparent than real. The current disagreement is such a case. Economists remain glum, while analysts are giddy. Why? Because U.S. economists have a consensus forecast of a 2.4% growth rate next year, while analysts expect earnings of the S&P 500 to increase 25%. How can there be such a…
Yesterday’s re-appointment of Ben Bernanke as Chairman of the Federal Reserve System was wise a decision! Sure, he was slow recognizing the subprime problem, but he showed true innovative genius once he engaged. Although there is never any way to prove it, I am confident he prevented the Great Recession from becoming another Great Depression! But, rewarding a person for a job well-done understates the…
I learn so much from my friends. This is from one of them, i.e., Ben Valore-Caplan, CEO of the highly respected Syntrinsic Investment Counsel in Denver. He reminds us of our reality a mere twelve months ago. • At market close on launch day, the Dow stood at 11,417, about 23% above the current 9,315. • George Bush was President.• Oil stood at 113 versus…
Was I the only person applauding Monday when the Dow dropped 186 points? It blew a little froth off the market, which is a good thing! There is a loose but direct relationship between the financial markets and the overall economy. The Conventional Wisdom is this: if the economy improves, the market usually senses this and starts improving 5-8 months sooner. While we have clearly…
I just finished reading The Fourth Turning by William Strauss and Neil Howe. It makes the point that generations have a predictable flow, starting with growth (the prophets) followed by maturation (the nomads) and then entropy (the heroes) and finally destruction (the artists). The World War II generation could not have foreseen that “America would soon become so confident and institutionally muscular, yet so conformist…
I attended a meeting yesterday and listened to the fear some investors have of China, particularly its ability to crush the dollar by dumping all their dollar-denominated holdings, such as US Treasuries. Their angst is understandable but misplaced. Dumping the Treasuries would create huge losses for themselves and risks sending the world, including themselves, into a genuine depression. Indeed, during a recent visit to the…
Nassim Taleb is the brilliant author of the “Black Swan”, which described how huge, unpredictable events occur, such as the current market collapse. This morning, he said the current Chairman of the Fed, Ben Bernanke, has performed poorly and should not be re-appointed when his tenure as Fed Chair expires in January. A survey of economists by The Wall Street Journal was also released today,…
Friday’s jobs report was great . . . or the headline was great, that unemployment dropped from 9.5% to 9.4%. Also, over 700 thousand workers were losing their jobs in January, compared to “only” 244 thousand last month. Still, how can the rate of unemployment decrease when 244 thousand workers lost their jobs?? Simply, hundreds of thousands of people have quit looking for work. They…
Last week, I watched as Hank Paulson was grilled by legislators about his actions last year as Treasury Secretary during the most frightening part of the Crash. Red-faced and obviously uncomfortable, it was clear he did not want to be there. I actually felt sorry for him. He was thrust into an unforeseen crisis last year that was different from anything we’d ever seen before.…
Longtime readers know my belief that our society is over-regulated and under-punished. Convicted swindler, Bernie Madoff, got off easy at 150 years. Assuming this 71-year-old man actually lives another 150 years, it means he will have to spend only a few seconds in jail for each dollar stolen and only 40 days for each victim swindled. He has lived 70 years in extremely fine style,…
It was obvious last September when the markets crashed, following the Lehman failure. It became certain last December with the arrest of Madoff. There will be a re-regulation of the securities markets, which is desperately needed. Of course, “the devil is always in the details”! Last week, the Obama Administration introduced their plan for re-regulation. It is large, complex, and far-reaching but certainly unlikely to…
All year, I’ve been advising clients that the economy would “bottom-out” in the fourth quarter. Last week, the latest survey of the National Association of Business Economics (NABE) showed that 90% of economists believe the bottom will be late this year. (As a member, I naturally participated in that survey.) Maybe, I should feel comforted that so many economists agree with me, but there is…
I was reading a marketing piece from one of the mass market financial advisors. His argument was that since the average recession since the Great Depression has been 21 months and since the stock market has been up an average of 45% twelve months later and since this recession is now officially 19 months old, then it must be time to get fully invested in…
In the early 1990s, I was appointed by the Governor of Texas to the State Depository Board, where I served with the State Treasurer, State Banking Commissioner, and State Controller. We wrestled with the collapsing Texas Savings & Loan Associations, which had wrecked the Texas economy so badly. I was there when the legendary Bill Seidman arrived with the federal Resolution Trust Corporation. It was…
After all the stressful suspense, the “Stress Test” results were released last Thursday, and it wasn’t as bad as I feared. Still, there are two lingering issues. First, the assumptions were 10.3% unemployment, GDP dropping 3.3% in 2009 and rising 0.5% next year, and home prices falling another 27%. I’ll be surprised if unemployment doesn’t exceed 10.3% by the first quarter of next year. I…
Today, I watched a speech by Ben Bernanke discussing the cause of the current Great Recession. For several years, he has been warning about the “savings glut”, i.e., those nations like China who run huge cash surpluses and lend the cash back to the consuming nations, effectively pushing up debt levels in our national economy. I’ve always felt like that was blaming somebody else for…
Yesterday we learned the U.S. trade deficit decreased unexpectedly. The surprise was not that imports fell for the seventh consecutive month, but that exports actually rose for the first time in six months, despite the strong dollar. Our trade deficit in 2006 was $681 billion compared with an estimate of only $373 billion this year. Nice trendline, indeed! Early stage economies tend to grow by…
While I am as disgusted as all those pontificating politicians about the AIG bonus issue, there is a greater issue than this additional instance of unfairness, and that is the sanctity of contracts. While contracts can be set aside for a few narrow reasons, this is not one of them. Even worse, over-turning these contracts will have a very chilling effect on dealing with the…
Last week, I spoke before 750 people for Virginia Beach’s annual “State of the City” address. It was a piece of cake! I also spoke before the 24 brightest high school seniors in Virginia Beach, who are competing for a large scholarship. That was intimidating! These kids are so bright. They asked questions about the difference between Keynesian economics and Austrian economics. They asked how…
A year ago, I predicted unemployment would reach nine percent. On Friday morning, the Labor Department released the monthly “Jobs Report,” showing unemployment had already reached 8.1 percent, the worst in 26 years. If you add in the under-employed, those people who are forced to work part-time or who have given up, 14.8 percent of the workforce is struggling. As if that wasn’t bad enough,…
Sitting at a traffic light yesterday, listening to Rush Limbaugh’s speech to the Conservative Political Action Committee, I saw pick-up trucks go by, helpful for small cargoes. I saw 18-wheelers go by, helpful for large cargoes. I saw cement trucks, refrigerated trucks, and even a fire engine — all helpful tools for specialized missions. Some people, especially politicians, see economics as a religion, rather than…
Yesterday, we learned that the fourth quarter was worse than we thought. In fact, it was the worst in 26 years. We thought our economy shrank 3.8% but learned it actually shrank 6.2%. Not too surprisingly, the stock market was disheartened and lost even more wealth. The perspective of time is everything. When we were originally told last month that the economy shrank 3.8%, we…
The Jobs Report this morning showed another 598,000 Americans lost their jobs, the most in 35 years. The unemployment rate jumped from 7.2% to 7.6%. Totally heart-breaking! Don’t look for foreclosures to slow down . . . So far in this recession, 3.5 million of us have lost our jobs. But, that pales in comparison to China, where some reports indicate 26 million workers have…
Uh, oh . . . one of the oldest Wall Street adages is the “January Effect,” which states that … so goes January, so goes the year. The bad news is that the Dow lost 8.4% this month, the worst January in history, indicating a terrible 2009. A little piece of good news is that the “January Effect” is not ALWAYS correct. More bad news…
I’ve seen this show before. The best thing about seeing it the first time was that it did eventually end! There is now much discussion about a “good bank/bad bank” approach to solving the credit crisis. The problem is that banks cannot be sure how much capital they have to lend, because it’s impossible to know the value of some of their assets right now.…
The media is full of stories about Bernard Madoff, who allegedly lost somewhere between $17-50 BILLION by cheating his investors with a “Ponzi Scheme.” It is a story so similar to the WexTrust issue locally. While I feel sorry for the individual investors, some of whom were destroyed, they did forget the most basic rule of investing, i.e., ALWAYS have an independent, third party custodian…
Yesterday, the highly-regarded economist of Economy.com, Mark Zandi, testified before the Senate Banking Committee that a bankruptcy of the Big Three car makers would be a catastrophe for the wider economy, as well as the stock market. Upon questioning, he thought the $34 billion in loans being requested would be insufficient in the long run, and that they would return in another year or so…
In the past two weeks, the Bush Administration announced it would not seek the second $350 billion of the $700 billion “bailout” package approved by Congress. Also, Treasury Secretary Hank Paulson said there would be no new initiatives to deal with the credit crisis. So much for that promise to do “whatever necessary” to stem the crisis. Sensing increased uncertainty amid this lack of leadership,…
If the journey of a thousand miles begins with a single step, this weekend was probably a good first one. Albeit reluctantly, the U.S. convened a special meeting of the 20 most economically important nations in D.C. this weekend, which was described as the “Platitude Summit.” The nine-page closing press release contained a pledge of closer cooperation, to meet again, and . . . “never…
Long time veterans of Wall Street believe it is not safe to say the bottom has been reached until the market touches closing price on the worst day a second time and bounces back up. Today, the market did that and ended with a huge 552 bull run. Does that mean the bottom is here and that it is finally safe to invest some of…
If you are a supply-side economist, you believe personal behavior and economic performance can be controlled by tax rates. If you are a Keynesian economist, you believe economic performance can be controlled by fiscal policy, i.e., taxes and spending levels. If you are a monetarist, you are terrified by this chart, because an historic, astronomical increase in money supply like this is certain to create…
The S&P fell 3.9% last week. One of the primary reasons was the latest ISM Report by the Institute of Supply Management. A score of 50 indicates no growth. A score of 40 indicates a serious recession. This week, it was 38.9, which is the lowest since September 1982. Look at this graph. The rapid fall is certainly stunning! But, notice the pattern of quick…