To read my latest column for Inside Business, click here http://www.insidebiz.com/news/second-quarter-2010-greece-love
Earlier this month, a market analyst named Robert Prechter predicted the Dow would fall about 90% over the next six years, from about 10,000 to only 1,000. He is better known as one of the few surviving apostles of the “Elliott Wave Theory”, first developed by Ralph Nelson Elliott in 1939 but popularized by Prechter in a 1978book titled The Elliott Wave Principle. He’s been…
We were watching a debate on TV between a Tea Party economist and a more traditional Republican one. They were feuding over whether or not the Austrian economics of the Tea Party was better than the Supply-side economics of the Republican Party. Renee remarked they sounded less like economists debating and more like a husband and wife bickering over a divorce. Austrian economics is the…
The scientific term for the stock market during May was . . . lousy. The S&P was down 8.2%, the worst month of May since 1940, when it dropped over 20%. Of course, it was reminiscent of September in 2008, following the collapse of Lehman, there are differences. The U.S. economy is now rebounding nicely. Take a look at this chart on S&P profits:It shows…
So, just how great was The Great Recession? Take a look at this table from Independent Strategy Group (in billions of dollars): My father is a World War II veteran, who landed on Omaha Beach in France. It was the defining experience of his life, which he re-lives every day of his life. Yet, separating the economics from emotions, which is admittedly difficult, that event…
Nobody likes to think the odds are stacked against them unfairly. As long as man is either greedy or simply competitive, people will look for an advantage, fair or unfair. Newspapers routinely report on businessmen being indicted for one reason or another. No business is untouched, from developers, realtors, lenders, or even lawyers. As a result, we have learned to be careful who we do…
What a ride! At one point this afternoon, the Dow was down almost a thousand points. The plunge was sudden, dramatic and scary. Such a price plunge could not be attributed to the fear of Greek contagion, nor the uncertainty of the national election in England and a regional election in Germany this Sunday. At this point, it looks like a trading error of massive…
TIPS are Treasury Inflation Protected Securities. They are issued by the U.S. Treasury and have the “full faith and credit” of the United States government. Of all bonds issued by the Treasury for any given maturity, TIPS pay the lowest interest rate, because they are “inflation-protected”, which means they pay extra to keep the purchasing power of the bonds roughly equal to inflation. For investors…
Today, I watched the President when he visited Wall Street to discuss his pending re-regulation of financial services. Some pundits called it his “closing argument”. Maybe, it was. I don’t know. However, it was certainly not the scolding many of us expected. In his campaign, he said there is no Red America nor Blue America, just America. Today, he said there is no Wall Street…
Years ago, I was lucky not to have been one of the many investors who lost money in the Enron debacle. About a year before their fall, Enron got into trouble with the State of California about electricity rates. It quickly became apparent that the people at Enron enjoyed a very high opinion of their own intelligence. Remembering that “pride goeth before the fall”, I…
The most dangerous words on Wall Street are “It’s different this time”. Take a look at this chart of the long-term unemployed, which is 27 weeks or more, as a percent of the total unemployed. Almost 45% of the unemployed have been out-of-work over six months, which is the highest percentage since the government began compiling this data. It is not just a little worse!…
Long time readers will remember about a year ago I was asked to speak to the twenty brightest seniors in Virginia Beach about economics, which I was happy to do. The biggest shock to me was when one of them asked me about the difference between Keynesian economics and Austrian economics. Since I was probably a senior in college before I knew about such things,…
In my last column for Inside Business, I commented that the fear of the dollar losing its status as the world’s reserve currency was over-blown. This worried a number of readers. If this loss does occur, it will not happen for many years. In the meantime, we need to remember that responsibility comes along with the status of being the reserve currency. Since the Asian…
The National Association of Business Economics is an organization of “working” economists, as opposed to “theoretical or academic” economists, and I have been a member for years. This week, we held our annual policy conference in Washington, and it was fascinating as always. If asked what was most interesting to me, it is that the developed nations actually got their act together at the beginning…
Most people know that individual home mortgages are put into bundles, which is funded by bond purchases to repay the mortgage originators. This greatly expanded the amount of money available for home mortgages by allowing bond buyers to provide it, a lot of it. Less well known is that the same is done for auto loans, student loans, and equipment loans. When the market collapsed…
While few economists disagree, the most important monthly economic statistic released each month for investment strategists is the “Jobs Report”, which is released the first Friday of each month. Today, the Labor Department announced the unemployment rate remained unchanged at 9.7%. The good news is that we only lost 36 thousand jobs last month, compared with a loss of 26 thousand in January. The reason…
Today, the Commerce Department reported that consumer spending in January increased for the fourth straight month and increased by more than expected. They also announced that the December increase was greater than earlier reported. Unfortunately, spending increased five times as fast as personal income increased, which only increased about one-fourth of what was expected. Hopefully, we are not returning to our old habits. The US…
The Conference Board issued the Consumer Confidence Index this morning, which dropped from 56 to 46, the lowest in ten months and the biggest one-month drop in history, even larger than after 9-11. There have been grumblings about their methodology for many years, but today’s reading is so un-realistic that I feel safe in dismissing it. This afternoon, many of us were watching the Treasury’s…
Last Wednesday, during the snowstorm that shut down Washington, something odd happened. Even though the testimony of Fed Chief Ben Bernanke was cancelled, the Fed still released his planned comments anyway, which laid out their tentative plans to remove stimulus from the economy, beginning with an increase in the discount rate. This Thursday, the Fed, as promised, raised that rate by a quarter-point. This is…
Dr. Nouriel Roubini is widely known as “Dr. Doom” after being the lonely voice predicting the Great Recession. Today, he actually found reason to be optimistic, i.e., the return to growth in global trade. In 2008, global trade grew 3%. In 2009, it actually contracted by 13%, the first contraction in 27 years. Today, he predicted global trade will actually increase 4.5% to 5% this…
Wall Street is always climbing a “Wall of Worry”. The current one is the Greek debt crisis, and it does indeed have the potential to be a big problem. Fortunately, it is becoming increasingly apparent that it is definitely in the best interests of the entire European Union to keep Greece from defaulting. While the EU constitution expressly forbids direct assistance, there are many indirect…
Thinking back on President Clinton and President Bush sitting together as friends to discuss lessons learned in life, there are two observations that stick in my mind. First, President Clinton said that, as he aged, it becomes increasingly important to talk with others long enough to find something they agree about. Of course, it is easier to renew a discussion if the last one ended…
Some analysts worry about a double-dip recession. While I am not worried about that, I do worry the economy will suffer a “heart attack”, which usually comes from the world of finance. For the last 10 days, the world markets have worried about sovereign debt. This is definitely a chest pain and should not be ignored. The problem started with the PIGS (Portugal, Italy, Greece,…
I try to use this blog to discuss economic events and changes in the investment climate, hopefully in an understandable way, preferably with a touch of whimsy. I assiduously avoid talking of personalities, with the recent discussion of Bernanke being an exception. But, I cannot resist this opportunity. Long time readers know my greatest fear is that America is no longer governable, that our unique…
Wall Street attaches some significance to the “January Effect”, which basically says that January predicts the whole year. In fact, when the market is up in January, it is usually up 10.4% for the whole year. If it is down in January, the year is essentially flat. January 2010 was down 2.9%, suggesting a flat year. Since the market was so hot the last part…
Today’s announcement that the GDP grew at 5.7% was clearly good news. In addition, the Chicago Purchasing Managers Index jumped from 58.7 in December to 61.5 in January. If that wasn’t enough, consumer sentiment increased from 72.8 in December to 74.4 in January. What a great day! OK, celebration over . . . the question immediately becomes whether the good news is sustainable? Or, is…
CNBC super-star Jim Cramer said the loss of either Fed Head Ben Bernanke or Treasury Secretary Tim Geithner could cause the Dow to immediately drop a thousand points. If either happened un-expectedly, Cramer might be right, but I doubt either will happen. Ben Bernanke is clearly guilty of not seeing the recession coming, but very few economists did. However, once it happened Bernanke was extraordinarily…
The Tea Party demonstrators were livid at the big banks, especially when the taxpayers had to bail them out. It is fair to say that profits were privatized, while losses were socialized. This means the banks and their shareholders got to keep the profits, while the taxpayers got to pay for their losses. Their anger is understandable. President Obama, anxious to prove he has heard…
Hyman Minsky was an economics professor at Washington University in St. Louis. He pointed out the credit availability is cyclical, i.e., that credit will expand until it bursts. In other words, credit doesn’t slowly deflate or get paid down. It bursts! Describing the 1998 financial crisis that began in Russia and ended with the collapse of Long Term Capital Management, Paul McCulley of Pacific Investment…
Today, on Christmas Eve, the market set a new high for the year. That is always good news, even if it is still down 25% from its high two years ago. Often called a “Santa Claus Rally” (SCR), the market is usually good this time of year and extends through the first two trading days of the New Year. But, does it predict a good…
For many years, I managed the portfolio for a wonderful gentleman in Williamsburg, who died a few years ago at the age 99. He was a great guy, and I miss him. Coincidently, his son-in-law was Morgan Stanley’s legendary investment strategist, Barton Biggs, whom I have followed closely over the years and have read both of his books. Last week, he was interviewed by Advisor…
Long-time readers know that I have proudly served for many years on the certification committee of a prestigious national investment association. For a number of reasons, we recently began making the examination process more difficult, which was fine. But, we became increasingly technical, finding a formula for every question. I recall Warren Buffett saying “Don’t do equations with Greek letters in them.” Given the collapse…
Last week’s trouble in Dubai is connected to this week’s trouble in Greece, whose credit rating was decreased both Monday and Tuesday and that is connected to Spain, whose credit rating was reduced today. This has raised worries for the safety of foreign bonds in general, which sold down, as people ran for safety. Because the dollar is still the safest currency in the short…
