A week ago, Japan was the world’s third largest economy. It survived a major 9.0 earthquake and a horrific tsunami. The economic uncertainty sank in quickly, and world markets naturally sank as well. The Dow sank 51 points, which proved pleasantly resilient. Since then, the radiation leaks in their 40-year-old nuclear reactors have demonstrated the potential to change a catastrophe into apocalypse. Overnight, the Japanese…
The first trading day after the disaster in Japan was better than expected, with the Dow dropping only 51 points. There was a good rally going into the close, but volume was quite weak all day. Most investors are too frightened or confused to make bets right now. Today’s light loss is the good news. The bad news is that this is not over. It…
First, my thoughts and prayers go out to the people of Japan, who have sustained a horrific loss from the earthquake, followed by a tsunami, and followed by serious radiation leaks. It must be unimaginable for them. From an investment standpoint, this will not be good, especially in the short-term. While the world economy has sustained catastrophic losses in the past and will do so…
Sometimes, you don’t recognize that you’re getting what you wished for. I’ve been wishing for the stock market to cool-off or take a break for several months, maybe even take a 4-8% dive. The stock market was just too far ahead of the economy. Did anybody notice that market is actually down 1% over the past month? It is easy to miss because the market…
Everybody with gray hair remembers the day Kennedy was assassinated, on November 22nd of 1963. Everybody post-puberty remembers the day America was attacked, on September 11th of 2001. But, do you remember where you were when the stock market hit its low point in this recession, which was two years ago today? That morning, I had breakfast with the regional president of a major national…
For over three centuries, economics has been referred to as “the dismal science.” I do think it is fair to say economists are somewhat more droll than normal people. Nonetheless, there is a distinct air of pessimism at this conference, as we face to the painful changes ahead. 87% believe the deficit is the single greatest problem facing America. Clearly, the greatest fear is that…
Yesterday, I was waiting for an elevator, when one of my favorite old economists walked up beside me. As the door opened, I asked him how he liked the conference so far. As we stepped inside, he answered “When I started attending this conference years ago, we were all Austrians.” By that, he meant all good economists obsessed over balanced annual budgets and maintaining our…
Guiding the financial lives and portfolios of other people in a humbling passion. To do this well, it is mandatory to seek out the thoughts of others. I have found conferences are an excellent and efficient way to do this. One of my favorites is the annual Policy Conference of the National Association of Business Economics in Washington, where I am now. I’ll be blogging…
As expected, the Jobs Report came in at 192 thousand new jobs in February, safely between the concensus estimate of 185 thousand and the “whisper” estimate of 220 thousand. As a result, the market moved very little, having already priced in a good report. Looking at the larger economy, this was indeed a good report. The economy continues to improve at an accelerating rate, albeit…
Even though the market is usually sleepy just before release of the monthly Jobs Report, it was anything but sleepy yesterday. There was just too much good news, i.e., the ISM report was strong, oil was down, the dollar was down, and rumors swept the floor that today’s report would show job growth of 220,000 instead of the concensus of 185,000. So, the Dow soared…
Normally, the market is dull and boring the day before the monthly “Jobs Report” is issued, which will be tomorrow. Yet, futures are predicting a bullish day for today. The economic data released this morning was so positive the market feels confident that tomorrow’s report will also be good. The weekly initial claims report this morning was the best since May of 2008. Also, productivity…
This morning, Warren Buffett said revolving charge cards were not good for America, and we would be better off without them. Certainly as individuals, we’re better off without them, but would the country be better off? It would decrease consumption spending and corporate profits but only in the short term. They were introduced to “pull forward” consumer spending and ended up becoming a cancer on…
The Dow dropped 168 points or 1.38%. The first day of each month is nomally a good day for the market and has been up for seven months in a row. Some analysts link yesterday’s drop to the mideast turmoil, but that is hardly news. Some link it to oil hitting $100/barrel again, a sympton of the mideast turmoil. Some link it to Bernanke’s congressional…
I just studied the forecast by the Interest Rate Committee of the Bank of America/Merrill Lynch. They do not expect rates to really increase much anytime soon. In fact, they predict the 10-year Treasury will be up modestly from 3.45% to 4.0% by year-end. They expect the Fed will start decreasing money supply in the second quarter of next year and will start raising interest…
The market got two pleasant surprises yesterday. First, consumer income rose much more than expected in January. Second, consumer spending rose much less than expected. While the consumption-based economy that is still the American operating model is dependent upon consumers spending on goods and services, it depends on a healthy consumer. With income up and spending down, either the savings rate increased or consumer debt…
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% in our November forecast. Unemployment is expected to improve somewhat,…
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 up from 78 to 81 years. Crime has decreased from…
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 long, slow recovery, because we are de-leveraging. Recoveries from financial…
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 the rest of the world. I have previously written I…
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 normal day, that would lift the market. Consumer confidence will…
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 . . . and, nobody understands our system of national governance.…
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 you haven’t seen any big parties or celebrations? That’s because…
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 to clean out the “cookies” on my computer, which allow…
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 the grand old NYSE owned from abroad. However, now I’m…
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 easy read that I can recommend to non-investment professionals. While…
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? Yes, you cannot maintain such a high level of both…
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 but is afraid to “touch the third rail of politics”…
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 consumer is wisely more interested in reducing debt than increasing…
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 500, they don’t need a lot of high-paid portfolio managers.…
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 thousand jobs were created last month, far less than the…
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 clearly a relationship between the markets performance in January and…
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 economic growth is inflation. Fortunately, we have seen very little…
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, I found my American Express bill laying at my front…