The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

What a difference 8 years make . . .


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 . . .

Almost Too Good . . .


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 . . .

Zombie Christmas?


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?

Full Circle


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

Q3 GDP Growth


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

Season to Celebrate


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

Crisis Investing


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

End Times ??


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 ??

Should I Be Worried?


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?

A Patriot’s Lament


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

Drumroll, please . . .


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 . . .

Manana Economics


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

A Grain of Salt


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

Tax Cut Deal


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

Half Full or Half Empty


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

Attack of the Vigilantes


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

Reducing Uncertainty


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

The Schizophrenic Economist


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

I was wrong . . . I hope!


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!

Awful . . . but fishy


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

Like A Colossus


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

The Miyagi Market


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

Thinking About Friday


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

One More Time . . .


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 . . .

Two Steps Forward and One Step Backward


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 Wall of Worry


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

Attack of the G-Men


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 Hidden Inflation


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

The Grim Reaper


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

In Your Eye, Mr. President


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

Don’t Call My Kettle Black!


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!

The N-11


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

Enjoy the Ride . . . Again


After a highly eventful week, the stock market is at a two-year high, about the same level as we were when Lehman was allowed to collapse. Nonetheless, that is some three thousand points on the Dow — below our all-time high in 2007. The market is still down 21% from those heady days. Think back … Continue reading Enjoy the Ride . . . Again

An Economist’s Lament


The study of economics has always been an enjoyable intellectual pursuit. There are lots of arcane terms and inside jokes that economists enjoy discussing and sharing. But, it seems we have reached a tipping point where economics is becoming polluted by politics, and I’m sad about that. Should I parse my thoughts to support one … Continue reading An Economist’s Lament

Good Jobs Report . . . finally


The most important monthly economic report each month is the “Jobs Report.” The last few months, the report has shown a sadly weak economy, producing few jobs. Voters took the President to task for that on Tuesday. Today, the Labor Department announced that the private sector created 159 thousand jobs, twice what was expected. This … Continue reading Good Jobs Report . . . finally

Political Pundit George Carlin ?


I think the late comedian was the first to describe our electoral process as “political masturbation”, a very intense, focused effort to accomplish nothing. The Libertarian view is that elections merely change the Masters, with the slaves remaining the same. It is just a different set of thieves. Maybe, that’s a little cynical. OK, that’s … Continue reading Political Pundit George Carlin ?

Election Day . . . Finally!


In this world of 24/7 cable news, which spin the news as well as report the news, it is easy to become both confused and depressed. Therefore, I recommend a disinterested foreign perspective to balance the right-wing Fox News and the left-wing MSNBC. Religiously, I read The Economist, a newsweekly magazine from England and recommend … Continue reading Election Day . . . Finally!

Rest Up This Weekend


Next week, the market could be exciting, maybe too exciting! As I’ve been predicting all year, the market will begin to rally when the election outcome comes into focus. I expected that in October and was pleasantly surprised when it started in September. Historically, the market likes gridlock, which appears to the outlook. Another reason … Continue reading Rest Up This Weekend

Nailed it!


Economists get ridiculed frequently and richly deserve it. In fact, they usually enjoy it! However, today was a good day, in that they accurately predicted the GDP growth rate in Q3 would be 2.0%, compared to 1.7% in Q2. This makes it even less likely we will see a “double-dip” or experience the worst of … Continue reading Nailed it!

The Halloween Indicator


Of all the many market indicators, this is the most useless but must be fun, as it rolls out year after year. Here it is: Since 1950, the stock market performs best from the last trading day of October to the end of April. (Of course, there are always obvious exceptions, like the oil embargo … Continue reading The Halloween Indicator

Paddling Hard . . .


Arthur Conan Doyle once described how Sherlock Holmes unraveled a mystery because of the “dog that didn’t bark”. That’s reminds me of the G-20 meeting in Korea. China is clearly manipulating its currency, but so is the U.S. But, there was little furor about this. While the finance ministries are warning of a currency war, … Continue reading Paddling Hard . . .

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