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 a petty bureaucrat who slapped a minor street vendor in…
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 looks like we may be re-testing the low. If the…
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, throw in a major international crisis, and it is an…
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 from 2.6% in the previous quarter. The Democrats will take…
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 our discontent comes from the advertising media,” I knew the…
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 & Poor’s reduced the credit rating for Japan, as their debt…
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, which I support. It looks like another good day in…
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 value of the bond.) They needed to cut back their…
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 is less than helpful as it confuses what spending really…
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 of Business Economics, one of my favorite organizations. (I will…
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, the U.S. economy was already twice the size of the…
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 served trying to understand them. We ask China two questions.…
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 the largest since May of 2009. That returns some of…
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 and graphs guaranteed to confuse novice investors. Instead, it was…
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 sometime this quarter. Relationships usually change when gears shift. For…
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 currency, that is a huge deal! One analyst from S&P…
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, sometimes political issues cannot be ignored, and the tragedy in…
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 fact. Published just prior to the Global Financial Crisis of…
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% at one time. We can expect the same to happen…
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 presidency, Republican or Democratic, has historically been the best year…
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 to drop at the open. However, it also announced that…
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 first of a week or so that has been disappointing.…
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 fairness, ADP has made some wildly wrong estimates in the…
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 three years, signaling better health in commercial real estate than…
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 “Blue Chips” . . .) Of course, it is fair…
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 don’t want to hold longer term debt. Some analysts think…
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 to inflation sometime after 2-years but within 10-years. Forewarned is…
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 bonds today, I was a little worried and wondered why…
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 a Keynesian economist, I expected he would lambast the Austrian…
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 of the many things they did was to require international…
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 still positive) 1.7%, and we saw a bear market. With…
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 rest of the year off and good for them! The…