The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Dr. Bernanke: STAT

11/21/2009

While data about our economic health has been improving rather consistently since the Crash of 2008, I’ve become very concerned that the patient might suffer an unexpected heart attack. The problem now is the same as the problem then. We still have not figured out how to intelligently regulate derivatives, which Warren Buffett described as … Continue reading Dr. Bernanke: STAT

Why did we send in the clowns?

11/14/2009

Late last year, a client wisely predicted that China would emerge from the crisis before the U.S. His reasoning was interesting. He thought that great problems require great decisions, but that the U.S cannot make great decisions like China, which is governed by engineers, while the U.S. is governed by lawyers. I’ve thought about this … Continue reading Why did we send in the clowns?

But, what is the recipe?

11/12/2009

Today, I listened to one of my favorite thought leaders, John Mauldin of Dallas, author of Bull’s Eye Investing. He spoke of the difficult state of the U.S. economy and the few but painful choices we have: 1. The Argentine Solution – induce hyper-inflation to “inflate away” the huge indebtedness of our country. He gave … Continue reading But, what is the recipe?

Below Thursday’s Headline

10/31/2009

Thursday’s big 200 point rally of the Dow was ignited by the surprisingly strong GDP report for the third quarter. It was a healthy 3.5%, which was substantially stronger than the 3.2% that was widely expected. Of course, when the market realized that number was “juiced-up “on steroids from the stimulus, the market dropped almost … Continue reading Below Thursday’s Headline

Finally….Real Progress

10/20/2009

During the 1990s, our trade deficit averaged about 2% of GDP but started rising in 2000. In December of 2006, I wrote this was not sustainable and possibly dangerous, as it approached 5% of GDP. The latest figures show it has decreased to only 3% of GDP and hopefully still dropping. One reason is the … Continue reading Finally….Real Progress

Sobering Reminder

10/03/2009

That’s how the President referred to yesterday’s unemployment release that another 263 thousand Americans lost their jobs. Since the recession began in December of 2007, over 7.2 million people have lost their jobs. Even 54 thousand government jobs disappeared last month! And, we are many months away from any good news. Unemployment improves only after … Continue reading Sobering Reminder

Take a side!

09/08/2009

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 … Continue reading Take a side!

Re-appointment of Ben Bernanke

08/26/2009

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! … Continue reading Re-appointment of Ben Bernanke

Clap…clap…clap…

08/19/2009

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 … Continue reading Clap…clap…clap…

Linearism

08/16/2009

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 … Continue reading Linearism

The Feast Continues…thankfully!

08/13/2009

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 … Continue reading The Feast Continues…thankfully!

Canary in a Coal Mine??

08/12/2009

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 … Continue reading Canary in a Coal Mine??

No Champagne Yet!

08/11/2009

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 … Continue reading No Champagne Yet!

20/20 Hindsight

07/19/2009

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 … Continue reading 20/20 Hindsight

Madoff Justice

06/30/2009

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 … Continue reading Madoff Justice

Change is coming…….

06/23/2009

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. … Continue reading Change is coming…….

The Wisdom of Crowds?

06/03/2009

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 … Continue reading The Wisdom of Crowds?

The Problem with Averages

05/21/2009

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, … Continue reading The Problem with Averages

A Sainted Businessman

05/15/2009

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 … Continue reading A Sainted Businessman

The Un-Stressful Stress Test

05/12/2009

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 … Continue reading The Un-Stressful Stress Test

Maybe Bernanke Is Right?

04/14/2009

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. … Continue reading Maybe Bernanke Is Right?

Back To The Future

04/10/2009

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. … Continue reading Back To The Future

A Greater Wrong

03/20/2009

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 … Continue reading A Greater Wrong

Our future leaders are impressive

03/16/2009

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 … Continue reading Our future leaders are impressive

Jobs Report reflects long year ahead

03/08/2009

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 … Continue reading Jobs Report reflects long year ahead

Economics is not a religion

03/01/2009

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 … Continue reading Economics is not a religion

Job loss mounts worldwide

02/06/2009

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 … Continue reading Job loss mounts worldwide

G-20 meeting filled with intrigue

11/16/2008

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 … Continue reading G-20 meeting filled with intrigue

Was today the bottom?

11/13/2008

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 … Continue reading Was today the bottom?

ISM Report Is Telling

11/10/2008

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 … Continue reading ISM Report Is Telling

Leadership shifting to Europe

10/23/2008

While we have been through many recessions in the past, there is one thing very different about this one. It is the first one in a truly globalized world. There are reasonable arguments on both sides as to whether globalization will make the recession better or worse. While it is far too early to have … Continue reading Leadership shifting to Europe

Markets looking tasty again

10/13/2008

It has been a long time since I was a kid in a candy store who wanted everything he sees, but I’m starting to feel that way when I look at the stock market now. There are so many good companies to buy, and they’re 40% off. It may be time to start nibbling again!!

Sept. 30 statements caused havoc

10/10/2008

With stock markets crashing around the world, it is important to understand who is selling, besides the routine panic-seller. Two other things are also pushing the markets down strongly. First, the stock markets are the only source of new liquidity right now, as the credit markets are frozen. If you think you’ll need cash to … Continue reading Sept. 30 statements caused havoc

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