Last week, I watched as Hank Paulson was grilled by legislators about his actions last year as Treasury Secretary during the most frightening part of the Crash. Red-faced and obviously uncomfortable, it was clear he did not want to be there. I actually felt sorry for him. He was thrust into an unforeseen crisis last year that was different from anything we’d ever seen before.…
Longtime readers know my belief that our society is over-regulated and under-punished. Convicted swindler, Bernie Madoff, got off easy at 150 years. Assuming this 71-year-old man actually lives another 150 years, it means he will have to spend only a few seconds in jail for each dollar stolen and only 40 days for each victim swindled. He has lived 70 years in extremely fine style,…
It was obvious last September when the markets crashed, following the Lehman failure. It became certain last December with the arrest of Madoff. There will be a re-regulation of the securities markets, which is desperately needed. Of course, “the devil is always in the details”! Last week, the Obama Administration introduced their plan for re-regulation. It is large, complex, and far-reaching but certainly unlikely to…
All year, I’ve been advising clients that the economy would “bottom-out” in the fourth quarter. Last week, the latest survey of the National Association of Business Economics (NABE) showed that 90% of economists believe the bottom will be late this year. (As a member, I naturally participated in that survey.) Maybe, I should feel comforted that so many economists agree with me, but there is…
I was reading a marketing piece from one of the mass market financial advisors. His argument was that since the average recession since the Great Depression has been 21 months and since the stock market has been up an average of 45% twelve months later and since this recession is now officially 19 months old, then it must be time to get fully invested in…
In the early 1990s, I was appointed by the Governor of Texas to the State Depository Board, where I served with the State Treasurer, State Banking Commissioner, and State Controller. We wrestled with the collapsing Texas Savings & Loan Associations, which had wrecked the Texas economy so badly. I was there when the legendary Bill Seidman arrived with the federal Resolution Trust Corporation. It was…
After all the stressful suspense, the “Stress Test” results were released last Thursday, and it wasn’t as bad as I feared. Still, there are two lingering issues. First, the assumptions were 10.3% unemployment, GDP dropping 3.3% in 2009 and rising 0.5% next year, and home prices falling another 27%. I’ll be surprised if unemployment doesn’t exceed 10.3% by the first quarter of next year. I…
Today, I watched a speech by Ben Bernanke discussing the cause of the current Great Recession. For several years, he has been warning about the “savings glut”, i.e., those nations like China who run huge cash surpluses and lend the cash back to the consuming nations, effectively pushing up debt levels in our national economy. I’ve always felt like that was blaming somebody else for…
Yesterday we learned the U.S. trade deficit decreased unexpectedly. The surprise was not that imports fell for the seventh consecutive month, but that exports actually rose for the first time in six months, despite the strong dollar. Our trade deficit in 2006 was $681 billion compared with an estimate of only $373 billion this year. Nice trendline, indeed! Early stage economies tend to grow by…
While I am as disgusted as all those pontificating politicians about the AIG bonus issue, there is a greater issue than this additional instance of unfairness, and that is the sanctity of contracts. While contracts can be set aside for a few narrow reasons, this is not one of them. Even worse, over-turning these contracts will have a very chilling effect on dealing with the…
Last week, I spoke before 750 people for Virginia Beach’s annual “State of the City” address. It was a piece of cake! I also spoke before the 24 brightest high school seniors in Virginia Beach, who are competing for a large scholarship. That was intimidating! These kids are so bright. They asked questions about the difference between Keynesian economics and Austrian economics. They asked how…
A year ago, I predicted unemployment would reach nine percent. On Friday morning, the Labor Department released the monthly “Jobs Report,” showing unemployment had already reached 8.1 percent, the worst in 26 years. If you add in the under-employed, those people who are forced to work part-time or who have given up, 14.8 percent of the workforce is struggling. As if that wasn’t bad enough,…
Sitting at a traffic light yesterday, listening to Rush Limbaugh’s speech to the Conservative Political Action Committee, I saw pick-up trucks go by, helpful for small cargoes. I saw 18-wheelers go by, helpful for large cargoes. I saw cement trucks, refrigerated trucks, and even a fire engine — all helpful tools for specialized missions. Some people, especially politicians, see economics as a religion, rather than…
Yesterday, we learned that the fourth quarter was worse than we thought. In fact, it was the worst in 26 years. We thought our economy shrank 3.8% but learned it actually shrank 6.2%. Not too surprisingly, the stock market was disheartened and lost even more wealth. The perspective of time is everything. When we were originally told last month that the economy shrank 3.8%, we…
The Jobs Report this morning showed another 598,000 Americans lost their jobs, the most in 35 years. The unemployment rate jumped from 7.2% to 7.6%. Totally heart-breaking! Don’t look for foreclosures to slow down . . . So far in this recession, 3.5 million of us have lost our jobs. But, that pales in comparison to China, where some reports indicate 26 million workers have…
Uh, oh . . . one of the oldest Wall Street adages is the “January Effect,” which states that … so goes January, so goes the year. The bad news is that the Dow lost 8.4% this month, the worst January in history, indicating a terrible 2009. A little piece of good news is that the “January Effect” is not ALWAYS correct. More bad news…
I’ve seen this show before. The best thing about seeing it the first time was that it did eventually end! There is now much discussion about a “good bank/bad bank” approach to solving the credit crisis. The problem is that banks cannot be sure how much capital they have to lend, because it’s impossible to know the value of some of their assets right now.…
The media is full of stories about Bernard Madoff, who allegedly lost somewhere between $17-50 BILLION by cheating his investors with a “Ponzi Scheme.” It is a story so similar to the WexTrust issue locally. While I feel sorry for the individual investors, some of whom were destroyed, they did forget the most basic rule of investing, i.e., ALWAYS have an independent, third party custodian…
Yesterday, the highly-regarded economist of Economy.com, Mark Zandi, testified before the Senate Banking Committee that a bankruptcy of the Big Three car makers would be a catastrophe for the wider economy, as well as the stock market. Upon questioning, he thought the $34 billion in loans being requested would be insufficient in the long run, and that they would return in another year or so…
In the past two weeks, the Bush Administration announced it would not seek the second $350 billion of the $700 billion “bailout” package approved by Congress. Also, Treasury Secretary Hank Paulson said there would be no new initiatives to deal with the credit crisis. So much for that promise to do “whatever necessary” to stem the crisis. Sensing increased uncertainty amid this lack of leadership,…
If the journey of a thousand miles begins with a single step, this weekend was probably a good first one. Albeit reluctantly, the U.S. convened a special meeting of the 20 most economically important nations in D.C. this weekend, which was described as the “Platitude Summit.” The nine-page closing press release contained a pledge of closer cooperation, to meet again, and . . . “never…
Long time veterans of Wall Street believe it is not safe to say the bottom has been reached until the market touches closing price on the worst day a second time and bounces back up. Today, the market did that and ended with a huge 552 bull run. Does that mean the bottom is here and that it is finally safe to invest some of…
If you are a supply-side economist, you believe personal behavior and economic performance can be controlled by tax rates. If you are a Keynesian economist, you believe economic performance can be controlled by fiscal policy, i.e., taxes and spending levels. If you are a monetarist, you are terrified by this chart, because an historic, astronomical increase in money supply like this is certain to create…
The S&P fell 3.9% last week. One of the primary reasons was the latest ISM Report by the Institute of Supply Management. A score of 50 indicates no growth. A score of 40 indicates a serious recession. This week, it was 38.9, which is the lowest since September 1982. Look at this graph. The rapid fall is certainly stunning! But, notice the pattern of quick…
Below the radar, there was a meeting this weekend of 43 European and Asian nations in Beijing to prepare a “comprehensive reform of the international monetary and finance system.” The U.S. was not invited. At the Nov. 15 international financial summit in Washington, D.C., we can expect the rest of the world to present their plan to us. Essentially, our creditors met this weekend, and…
I’ve always been told that “he who has the gold, makes the rules” and hope that is not always true. For decades, the Russians have wanted better refueling operations in the north Atlantic for its Navy. A few weeks ago, Iceland nearly went bankrupt and was very desperate. Immediately, Russia was there with a $3 billion handout. After all, Russia has $556 billion in foreign…
In the movie classic Casablanca, the corrupt local government official, who goes to the casino every night, indignantly admits to being “shocked” there is gambling there. Yesterday’s congressional testimony by Alan Greenspan reminded me of that movie. He said he was shocked that Wall Street would take on excessive risk. In theory, a firm would not and therefore needs no regulation. In practice, however, the…
While we have been through many recessions in the past, there is one thing very different about this one. It is the first one in a truly globalized world. There are reasonable arguments on both sides as to whether globalization will make the recession better or worse. While it is far too early to have a firm opinion, I suspect it will make the first…
The Dow fell 231 points yesterday because of concerns about the global recession and disappointing earnings announcements — but that is great news! Like the dog Sherlock Holmes noticed that didn’t bark, there is no mention of the credit crisis, which has totally dominated the news for the last two months. While it is certainly not over, it is clearly receding, as demonstrated by the…
Are we at the bottom of the economic cycle yet? Absolutely not. There is a lot of pain ahead for us. Are we at the bottom of the financial cycle yet? Just maybe . . . yesterday’s strong bull performance must be confirmed by the bond market, which was closed yesterday. If the bond market loosens up this morning, I’ll be an aggressive buyer this…
It has been a long time since I was a kid in a candy store who wanted everything he sees, but I’m starting to feel that way when I look at the stock market now. There are so many good companies to buy, and they’re 40% off. It may be time to start nibbling again!!
With stock markets crashing around the world, it is important to understand who is selling, besides the routine panic-seller. Two other things are also pushing the markets down strongly. First, the stock markets are the only source of new liquidity right now, as the credit markets are frozen. If you think you’ll need cash to weather the recession, you can only get it out of…
One of the concerns I have about all the recent government efforts to repair the credit crisis is that we’re creating a “Moral Hazard,” which means we’re rewarding bad behavior. Examples would be CEOs getting huge pay packages for poor management or unscrupulous homebuyers getting bailed out. I was discussing this today with another economist, and he told me about his daughter, who bought a…
