Economists are generally a boring bunch. Because I have been a long time member of the National Association of Business Economics, I am frequently surveyed by them on the economy. Their latest forecast was released this morning. But, was it boring enough? It predicts solid GDP growth for this year, 3.3%, which is up 2.7% … Continue reading NABE Forecast
The Flinchum File
Thoughtful Economic Analysis and Existential Opinions
Remembering our eternally optimistic former President, consumer confidence came out this week, and it was higher than expected. Consumer sentiment (a close cousin) came out today, and it was much higher than expected. Why is there so much optimism? In 1980, average income was $24 thousand, compared to $40 thousand today. Life expectancy has gone … Continue reading Reagan People ?
Remember the late 1970’s days of stagflation, when the economy was stagnant at the same time prices were inflating. (By the way, under Keynesian economics, this should not happen.) Today’s news that growth in the fourth quarter was less than expected, while inflation was higher than expected. As I’ve said repeatedly, this will be a … Continue reading Stagflating?
There is honest disagreement on Wall Street about the emerging markets. For the last several years, the U.S. market has substantially under-performed the stock markets in the emerging nations, like Brazil, China, and India. This changed in the fourth quarter of last year. Many analysts believe 2011 will be the year the U.S. market beats … Continue reading Ongoing Debate
At 6AM, it looks like the Dow will drop about a hundred points at the opening, reacting to the fear of oil sky-rocketing due to the unrest in Libya. Nobody will notice that Home Depot just released their earnings, surpassing expectations for both revenue and net income, in addition to raising their dividend. On a … Continue reading A Mixed Blessing?
Let’s see . . . we have increasing estimates of inflation . . . we have an amazing amount of unrest in the oil-producing Middle East . . . we have slowing growth in corporate profits as they are squeezed by rising commodity prices . . . we have a rising level of foreclosures . … Continue reading What Could Go Wrong?
Back in the dark days of March in 2009 when the S&P reached its low of 666, many questioned the American system of Free Enterprise. Since then, the S&P has DOUBLED! That’s right, if you had invested 100% of your portfolio into the S&P then, you would have a 100% profit now. So, how come … Continue reading What . . . no balloons?
I don’t remember ever having a day when I was not concerned about my privacy. Even in the Army, I always knew I would regain my privacy one day. It is a Value that I still treasure. Before it became irrelevant, Congress even cannonized that Value into a Right to privacy. Wednesday night, I decided … Continue reading When is a Right not a Value?
Yesterday, a “merger” was announced between the fabled New York Stock Exchange (NYSE) and the mighty stock exchange of Germany or the Deutsche Borse. With the majority of board seats going to the Germans, it is more like an acquisition of a American institution. At first, I was simply sad, as an American, to see … Continue reading No Shotgun in This Wedding
For years, I have tried to read everything written by investment guru Barton Biggs. He was a senior partner at Morgan Stanley for decades and now runs a large hedge fund. For the first time, he has now written a work of fiction, called “A Hedge Fund Tale of Reach and Grasp.” It is an … Continue reading Finding Non-Fiction Inside Fiction
Core inflation for January was 0.5%, the highest in over two years. That was at the producer level. Tomorrow, we’ll hear about the consumer level. We traditionally look at the core PPI, which ignores changes in energy and food costs. Tomorrow, we worry more about those costs at the consumer level. So, is inflation coming? … Continue reading Producer Level Inflation
The President has published his budget for the next year without mentioning the 800-pound gorilla in the room, which is entitlements. If we eliminate every single discretionary dollar being spent in the budget, the nation will still go bankrupt unless we address the ballooning cost of Social Security, Medicare, and Medicaid. The President knows this … Continue reading No Profile in Courage
Retail sales for January were released this morning but were disappointing, staying flat with December’s growth rate of 0.3%. Since consumption spending is 65-70% of GDP, it matters . . . a lot! The mystery to me is why anybody expected the higher growth rate of 0.5%? Despite last week’s rise in consumer confidence, the … Continue reading Christmas Hangover?
I’ve just returned from the annual conference on Exchange Traded Funds in Florida, often called ETFs. They have several advantages over mutual funds. For example, they can be bought or sold anytime during the day, not just at the close like mutual funds. Since their investment objective is to match some index, like the S&P … Continue reading InsideETF Conference
Easily, the most anticipated economic report each month is the Jobs Report, which was issued this morning by the Bureau of Labor Statistics. While much anticipated, it is becoming less meaningful. Historically, the Jobs Report for January is the most difficult to measure and most often corrected the following month. Today’s report showed only 36 … Continue reading Too Much Anticipation and Too Little Meaning
Well, it is official . . . the markets in January were mostly positive. According to the old Wall Street axiom, “so goes January, so goes the year.” For the month, the Dow was up 2.7% and the broader-based S&P was up 2.2%. Both are very healthy gains for only a month! While there is … Continue reading The January Effect
Despite criticism, the Fed has been prudent in trying to pump up the money supply to prevent the economy from weakening further. For technical reasons, the money supply has not increased as much as they had hoped but still enough to help the economy anyway. A consequence of pumping up the money supply faster than … Continue reading A Temporary Change?
There has been much discussion recently how “The Greatest Generation” is stealing from succeeding generations with their generous government pensions, Social Security, and Medicare. There is indeed a surprising amount of resentment among young people about this. Yet, they have lost something maybe even more important and don’t even realize it. A few months ago, … Continue reading Generational Theft
I remember watching television that night with my daughter as the Berlin Wall fell. It was truly a momentous event, ending the Cold War. The events now happening in Egypt are gravely important but not momentous. Unless it spreads . . . Of course, nobody expected it would ever get this big. It started with … Continue reading November 9, 1989
Long used as a proxy for the degree of globalization, the Baltic Dry Index measures the shipping rates of dry goods. As the economy heats up, more goods are shipped, and the shippers can raise their shipping rates. When the recession began, the index or BDI dropped rapidly. After a slow, bumpy partial recovery, it … Continue reading Even with the Suez Canal Open . . .
Friday is historically the most volatile day of the week in markets. That’s because traders (as opposed to investors) would rather invest in cash over the weekend, if there is any fear on the street. There was fear on the street. In addition, the stock market has gotten too far ahead of the economy. Then, … Continue reading Friday Follies
Last week, the British government announced their preliminary estimate of their GDP growth in the fourth quarter was a negative 0.5%, instead of the positive 0.7% they were expecting. They blamed it on the weather. The morning, the U.S. government announced their preliminary estimate of Q4 growth in GDP was a surprisingly strong 3.2%, up … Continue reading Stronger GDP Than Expected?
I’ve probably read a dozen books by libertarians over the last two years. When I started reading “The Day After the Dollar Crashes” by Damon Vickers, I toyed with putting it down as just another tired rendition of Glenn Beck, who endorsed the book. But, when I read “I believe that the primary source of … Continue reading An Original Libertarian
The inevitable happened yesterday, when the Congressional Budget Office announced Social Security was starting to bleed, i.e., that payments out exceeded payments in. That is not good economic news. In addition, they announced the deficit for this year will be $1.5 TRILLION instead of $1.1 TRILLION. That is not good economic news. And, Standard & … Continue reading Markets versus Economies
Bond Vigilantes are arguably the most powerful people on Earth. They can topple governments without firing a shot. Apparently, they liked the President’s speech last night, as the Asia and European stock markets are up and interest rates are down. Whew! I suspect their focus was on the promised cut in corporate income tax rates, … Continue reading Last Night’s Speech
Has anybody noticed the difference in interest rates between 30-year and 2-year Treasury bonds? It has reached a new high of 4% or 400 basis points. This is an all-time record! One reason might be that the Chinese have stopped buying 30-year bonds. (The longer the term of a bond, the more volatile the market … Continue reading A Favorite Indicator
Kudos to Virginia’s Senator Mark Warner and Georgia’s Republican Senator Saxby Chambliss for introducing a bill that will actually take a step toward solving America’s deficit problem! Last week, a client faxed me a Tea Party newsletter that said “revenue is not the problem; spending is the problem.” While that sound bite is correct, it … Continue reading Goring Everybody’s Ox
At this time last year, 23% of U.S. companies expected to fire workers over the next six months. Only 29% expected to hire any. As the year ended, only 7% expect to fire workers, while 42% expect to hire more workers over the next six months. This is the latest survey by the National Association … Continue reading 2010 — In like a lamb . . . but out like a tiger!
As the son of a World War II veteran on the European front, I was taught much about the war, often more than I wanted to know. As an economist, I have always wondered how anybody could have been naive enough to think Germany had the resources to win. At the beginning of the war, … Continue reading The Economics of World War II
Hyperbole has no place in a pedantic blog like this, but Congressman Randy Forbes’ comments yesterday at the Chamber of Commerce breakfast was simply beyond silly. He takes issue with our “friendly” treatment of China. Rather than bashing our largest foreign lender and largest supplier to the millions of Walmart shoppers, he would be better … Continue reading Stunningly Wrong . . .
After seven consecutive up weeks, this week was flat. The Dow was up less than 1%, and the S&P was down less than 1%. However, it did come out this week that retail investors may be returning to stocks, after missing this huge rally. Their inflows into equity mutual funds was $3.8 billion. This was … Continue reading Tipping Point . . . ?
For those who do not subscribe to “Inside Business,” the regional business journal, here is the link to my latest column http://www.insidebiz.com/news/q4-2010-two-steps-forward-and Unfortunately, it omits the graph, and the formatting is awful. Bottom Line: This should be a pretty good year in the market, as long as we don’t have a heart attack from derivatives.
“How to” books can be both entertaining and educational. However, those books can be dangerous for investing. Therefore, I seldom agree to review any “How to” books. However, I’m glad I did agree to review “The Little Book of Currency Trading”, a new book by Kathy Lien. I suspected it would be full of charts … Continue reading Forex Illusions
The markets enjoyed their seventh consecutive week of rising values. This hasn’t happened in years. We’re now back to the level of June, 2008, although that is still down about 18% from the peak in 2007. Time to switch gears and take a break. My latest column for “Inside Business” predicts a 4-8% decline beginning … Continue reading Switching Gears
At a bond conference in Paris yesterday, the two premier bond rating agencies warned the U.K., Germany, and France that their AAA credit ratings was in danger. They also clearly warned that U.S. bonds faced the same danger. Why was it big news in Europe but not in the U.S.? As the world’s only reserve … Continue reading Differential News Coverage
Whenever the deadline for my quarterly column in “Inside Business” comes up, my blog tends to get ignored. Yesterday, I turned in the newest column, which will appear in this weekend’s edition. Thus, it is time to catch with a number of thoughts for the blog. First, while this column is about economics and investing, … Continue reading Catching up . . .
Easily, one of the most iconoclastic thinkers today is Nassim Nicholas Taleb, who burst onto the intellectual scene with his 2007 blockbuster “The Black Swan.” In that book, he describes the three characteristics of highly improbable events, i.e., the event has a massive effect, that it is unpredictable, and that it appears obvious after the … Continue reading Great Brain = Great Guy?
I have been following the crisis in municipal bonds, primarily at the state level, for several months and have found it helpful to compare it with the crisis of 1841. Eight states plus the territory of Florida actually defaulted on their debts. As expected, the interest rates they had to pay soared, up to 30% … Continue reading 2011 versus 1841
Will the stock market be up or down this year? There are several versions of the “January Effect”. Here is the simplest one. Since the S&P was up 1.1% the first week of January, there is an 87% probability it will be even higher at year-end. Any questions? In additon, the third year of the … Continue reading So, now we know!
Yesterday, the Street was expecting that 175 thousand new jobs were created in December. Overnight, the estimate drifted down to 150 thousand, which is a little suspicious. This morning, it was announced that 103 thousand jobs were created. That is a lot less than either 150 or 175 thousand, and the market could be expected … Continue reading Job Report #3 . . . Muddy
Yesterday, the ADP survey indicated that private payrolls increased far more than expected in December. Today’s weekly report on initial unemployment claims slightly missed expectations, coming in at 418 thousand people. The number of people receiving regular state unemployment fell slightly to 4.1 million, which is good but not very good. Today’s report is the … Continue reading Jobs Report #2
Payroll processing giant, ADP releases their monthly jobs report on Wednesday, before the all-important job reports issued by the Department of Labor on first Friday of each month. Expectations for this Friday’s report were about 140,000. This morning, ADP estimated 297,000 jobs were created in December. Expectations for Friday’s report are now rising rapidly. In … Continue reading Wow . . . 297,000 jobs
Yesterday, the ISM Index (Institute for Supply Management) came in stronger than expected. In other words, manufacturing is continuing to improve, four months in a row. In addition, orders are growing faster than inventories, suggesting even more future growth in manufacturing. Also, it was announced that occupied office space increased for the first time in … Continue reading Small Wonder
2010 was kind to investors. The Dow was up 11%, while China was down 16%. Commodities like gold, cotton, and copper did great, driven partly by the weakening dollar and partly from the incipient inflation. (The stocks of smaller companies did the best, up 26% . . . so much for that reverential regard of … Continue reading Encore . . . PLEASE!
Today’s auction of $29 billion in 7-year Treasuries was average, with a bid-to-cover ratio of 2.88, almost exactly the rolling ten average of 2.86. Of the three auctions this week, there was lots of demand for the 2-year issue, less demand than usual for the 10-year issue, and average demand for the 7-year issue. Investors … Continue reading Shorter is Better
Yesterday, there was a very successful auction of 2-year Treasuries. Today, there was a barely successful auction of 10-year Treasuries. The bid-to-cover ratio dropped from 3.71 to 2.61. In addition, foreign interest dropped significantly. The market is saying they don’t want to hold any bonds longer than 2-years because longer-term bonds will lose value due … Continue reading What a difference 8 years make . . .
The market can be much more volatile when few people are trading. That’s because one big trade can really push the market one way or the other. The period between Christmas and New Year’s Day is always a slow trading time. When I realized the U.S. was planning to sell $35 billion in 2-year Treasury … Continue reading Almost Too Good . . .
I spent Christmas reading John Quiggin’s new book titled “Zombie Economics: How Dead Ideas Still Walk Among Us.” It began with Keynes’ great belief that “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” I believe that statement is true. Since Quiggin is … Continue reading Zombie Christmas?
Surviving veterans of the European front in World War II show pride in toppling Hitler. Few take any credit for establishing the dollar as the world’s “reserve currency,” but it was terribly important. Immediately after the war, the victorious Allies met in Geneva to begin mapping the Marshall Plan for the reconstruction of Europe. One … Continue reading Full Circle
Today, the Commerce Department announced that growth in the third quarter was slightly better than previously released, i.e., 2.6% versus 2.5%. It continues the stream of good economic news. Growth in the first quarter was a whopping 3.7%, while the stock market was very bullish. Growth in the second quarter was a relatively sluggish (but … Continue reading Q3 GDP Growth