Austrian economics is often called “tough love” economics, due to its hard focus on balancing the government budget and minimizing national debt. Early advocates like Ludwig von Mises lived in Austria or Germany. Many are also “gold bugs,” believing that the yellow metal can control government spending better than legislators can. An example would be Ron Paul. While nearly all advocates of Austrian economics tend to be Republicans,…
Described as “the giant vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” the legendary investment firm of Goldman Sachs still deserves respect for their analytical capabilities, which is so necessary to smell money. Yesterday, they lowered their estimate of second quarter GDP growth from 3% to 2%, although they expect 2012 to see 3.2% growth. …
Investors buy companies or sectors they believe are positioned to perform well over the foreseeable future. Traders buy or sell anything that might change in value over the next day or so. Investors take little risk over a weekend, when the stock markets are closed. Traders take much risk over weekends, when politicians can make news (think Greece). To prevent being stuck in something that…
Earlier today, I admitted to agreeing with Karl Marx about one thing. Don’t tell anybody, but I also agree with George Soros on one thing, i.e., that economics has been crippled by a dependency on quantitative methods. A few years ago, a brilliant mathematician named Nassim Nicholas Taleb, who has the warmth of a Brillo-pad, wrote “The Black Swan.” He believes that highly improbable events do…
During the Spring, I became very concerned about the stock market. (Very concerned, not scared!) I predicted it would be an ugly summer, and it has been so far. The market has dropped about 7%, not quite a technical correction, which is a 10% drop, but we are still falling. Last year, we dropped almost 16% before rebounding nicely. A 20% drop is usually called…
You can imagine a large table in a plush government conference room surrounded by a bunch of smug economic advisors and frightened political leaders, facing the grim reality of what the nation needs to do, i.e., austerity. Outside, thousands of people are protesting this grim reality. They never had a course in economics, because they never had a requirement to learn such things. There will always be a…
Every time the market gets bearish, pundits begin fretting about a “double-dip” or return of the recession. While anything is always possible, it is unlikely. I have argued for almost three years that a financial crisis is very different from any garden-variety recession. There has been some impressive research by Ken Rogoff of Harvard whose “research also shows that following financial crises, economies tend to…
Actually, it was more of a spinning contest than a debate. It was a spinning contest between the purists and the realists. The purists believe that every rich person actually produces jobs for poor people, while the realists believe people are complicated, basing their decisions on many factors, including taxes. It would be no different in a Democratic debate. There, it would be a spinning…
For most of my life, the U.S. has been the engine for world economic growth. For a time in the 90’s, it was thought that the new European Union would take our place, and they almost did. Yet, we were finally displaced by China and other emerging markets during the last decade, when they routinely experienced better than 10% annual growth in GDP. Now, things…
Between now and approximately August 2nd, there will be a great deal of discussion, if not debate, about the Federal debt limit. As you think about it, please visit http://www.usdebtclock.org/ frequently. We tend to focus on the horrifying grand total at the top of the page, but please notice the components of it. For example, it is interesting that some Personal Debt is decreasing. People are…
Yesterday was a good day in the stock market with the Dow closing up 75 points. That was because something unusual happened . . . we got some good economic news, i.e., our trade deficit narrowed to only $43 billion. Politicians and voters bemoan the falling dollar, but it is good for business! It makes imports to us more expensive (therefore, we buy less from foreigners),…
CNBC usually has a quick online survey each morning. Today, they asked what we thought we would see first, the Dow back up to 13,000 or gas at $5 per gallon. 58% believed we will see gas prices go back up before the Dow does. It makes you wonder if they know what happened at yesterday’s OPEC meeting, which the Saudi ambassador described as the worst ever meeting. It was the…
Yesterday, the Dow was up 60-80 points all day, expecting to hear good news when Fed Head Ben Bernanke spoke at 3:45 PM. As he started to speak, the stock market started to drop, finally losing 19 points for the day. So, what happened? What did he say? First, he confirmed the U.S. economy has slowed down. Did anybody not already know that? Second, he confirmed…
My mother always warned me not to be such a big man that I cannot apologize, so I apologize to Treasury Secretary Timothy Geithner. I have long held the belief the economy was on a slow but sustainable path to recovery, unless we have another “heart attack,” which will happen in the financial sector when (not if) there is a major derivatives failure. I was…
I just finished reading “The Panic of 1907” by the Boston Fed. It is an interesting read of a near-collapse of the banking system . . . when there was no Federal Reserve System to save us. It begins with the efforts of Augustus Heinze to corner the copper market. When he failed, the savings bank he owned also fail, followed by the Mercantile National…
Today, the Department of Labor released their monthly report on employment, and it was ugly. The headline news is that only 54,000 jobs were created and unemployment rate increased to 9.1%. Of course, one can argue that the rise in the unemployment rate reflects nothing more than an increase of 272,000 in the number of people looking for work. Normally, that is a good sign,…
Yesterday, at a meeting of fellow financial advisers, I was asked if the Fed would end the current quantitative easing program and begin a new one. I replied they should ask me at 8:31 AM this Friday, which is immediately after the monthly “jobs report.” This is easily the most important economic report each month to the Fed, and the report this Friday would be…
A year ago, Greece narrowly avoided bankruptcy with a $156 billion bailout from the EU and IMF. The funds would be paid in various tranches as certain improvements were made in the Greek financial position. Since then, they have successfully cut their annual deficit by a third, to only 10.5% of budget. During this process, many thousands of protesters have taken to the streets, even leaving some…
A client sent me an article by Allan Sloan from Fortune dated May 2, 2011 entitled “The Hocus-Pocus Behind Paul Ryan’s Medicare Reform.” He is certainly no fan of Obama-care, calling it “long on regulations and short on common sense,” because it doesn’t penalize those who eat, drink or smoke too much nor deal with the malpractice lawyers. Yet, he calls the Paul Ryan plan unworkable as well,…
As sure as God made those sour little things, the Chinese are manipulating their currency, which makes it all the more puzzling when the Justice Department announced yesterday that China was not, in fact, guilty. Only lawyers could get so side-tracked by trees that they cannot see the forest. Economists can simply see the trade gap between China and the U.S. last year approached $300 billion and…
Today’s report on first quarter GDP growth was disappointing, coming in at 1.8% compared to an expected growth of 2.2%. Of course, 2.2% shows expectations were already low. This is not news. The real question is what will GDP growth be during the current quarter. My reading of it is that the economy is continuing to slow. Supporting this belief, today’s release of weekly jobless claims was…
Austerity is a safe, clinical-sounding word that doesn’t describe what is really being asked of the Greek citizens. Imagine yourself being told such things as: I know you’ve been planning to retire next year, but you’ll have to work another five years!I know you’ve been retired for several years, but we must cut your monthly check by 20%!I know you were expecting a knee transplant soon,…
There is an avalanche of bad news/uncertainty (which is the same thing to the stock market). What will happen when QE2 ends? What will happen if the Congressional children allow the U.S. to default? Why do Greece, Portugal and now Italy keep getting downgraded? Will the Euro survive? Will the over-built real estate market in China send them into a banking crisis, like what happened…
Every weekday evening, you probably watch some earnest newscaster telling you the stock market was up or down, quoting the Dow, the S&P, and the NASDAQ closing prices. But, he seldom mentions the much larger bond market. Jim Cramer of CNBC describes the world of investments as an ice cream sundae, with the cherry on top being the stock market and the much larger bowl…
As I expect the stock markets to be volatile for the summer and fall, my interest was piqued when I learned there was a lecture on the latest techniques in volatility management at the NAPFA Conference in Salt Lake City. I was hoping to hear the latest research on cash allocation per asset class of risk or affordable retail hedges or even volatility ETFs. Instead, it was…
Yesterday, I met with a person who was extremely critical of Ben Bernanke, Chairman of the Federal Reserve. He felt the balance sheet expansion of the Fed was un-American and was simply an effort to save a Democratic President. (Pointing out that Benanke was appointed by a Republican President seemed insignificant to him.) Thinking about it afterwards, I believe Bernanke did everything he could, including some very…
As a NAPFA-Registered Personal Financial Advisor, I am required to have at least 60 hours of Continuing Education (CE) credits for re-certification. This is the most demanding of any financial planning organization, and that’s why I’m attending their annual conference in Salt Lake City. So, why did I come so far and spend so much money, only to waste one hour on a class that doesn’t…
Long-time readers know I’ve been a long-time member of the National Association of Business Economics and have great respect for their research. Last week, they released their latest survey of members. Overall, they have decreased their estimate of GDP growth for this year from 3.3 percent to only 2.8 percent. I have to agree that economic conditions have weakened, and a decrease is appropriate . .…
Then, my computer owes everybody an apology. For some reason, I’ve not been able to sign into my own blog. My last entry has even disappeared?? But, as I just got into Salt Lake City and started using my netbook, instead of my laptop, I’m delighted that I can get back to work. So, stay tuned . . .
What a day Thursday was! There was lots of news, and none of it was good, darn it! First, the U.S. trade gap with other nations worsened. Despite a surge in exports resulting from our cheapening dollar, the cost of importing (think, oil) surged even more, also because of the cheapening dollar. The high level trade talks with China ended badly, with us complaining about…
Yesterday, I met with a person who was extremely critical of Ben Bernanke, Chairman of the Federal Reserve. He felt the balance sheet expansion of the Fed was un-American and was simply an effort to save a Democratic President. (Pointing out that Bernanke was appointed by a Republican President seemed insignficant to him.) Thinking about it afterwards, I believe Bernanke did everything he could, including some very…
Friday marked the first anniversary of the infamous Flash Crash, when the Dow dropped 900 points in a matter of minutes, before making a seemingly miraculous recovery. I was watching it “live” as it happened and knew it was a market malfunction, not a market correction. Since then, the Flash Crash has been studied and studied. The most common belief is that there was an innocent “fat-finger” input…
Late Friday afternoon, the market was doing fine but then suddenly dropped about 50 points and didn’t recover before the bell rang, closing the market. There was a rumor that Greece was dumping the Euro and replacing it with their old currency, the Drachma and leaving the European Union. Not only did the market sink, but so did the Euro, while the dollar rallied. What makes this interesting…