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
The Flinchum File
Thoughtful Economic Analysis and Existential Opinions
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
The S&P is now at the highest level since September of 2008. The Dow has been up ten out of the last eleven days. The Bull is back?? Of course, the volume of trading has been very low, making the recent good performance of the market less reliable. Obviously, traders and investors are taking the … Continue reading Season to Celebrate
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 … Continue reading Crisis Investing
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 … Continue reading End Times ??
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 … Continue reading Should I Be Worried?
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 … Continue reading A Patriot’s Lament
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 … Continue reading Drumroll, please . . .
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 … Continue reading Manana Economics
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% … Continue reading A Grain of Salt
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 … Continue reading Tax Cut Deal
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. … Continue reading Half Full or Half Empty
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. … Continue reading Attack of the Vigilantes
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 … Continue reading Reducing Uncertainty
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 … Continue reading Partisanship
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 … Continue reading The Schizophrenic Economist
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 … Continue reading I was wrong . . . I hope!
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, … Continue reading There are tides . . . and there are tides
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 … Continue reading Awful . . . but fishy
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 … Continue reading Like A Colossus
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 … Continue reading The Miyagi Market
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 … Continue reading Thinking About Friday
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 … Continue reading Credit Default Swaps . . . Not So Boring
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 … Continue reading One More Time . . .
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 … Continue reading The Real Money Boss . . . maybe the only one?
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, … Continue reading Politicians . . . Step Aside . . . Please!
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 … Continue reading Two Steps Forward and One Step Backward
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 … Continue reading The Wall of Worry
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 … Continue reading The Value of Rhetorical Questions
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 … Continue reading Attack of the G-Men
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. … Continue reading The Hidden Inflation
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 … Continue reading The Grim Reaper
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 … Continue reading The Unpredictably Predictable Tide
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. … Continue reading In Your Eye, Mr. President
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 … Continue reading Don’t Call My Kettle Black!
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, … Continue reading The N-11