Archives for February 2013
America’s Businesses Not Feeling the Love
With the stock market soaring one would expect businesses to be exploding with optimism. Since the beginning of 2013 the S&P 500 is up 6.4%, that’s explosive growth for such a short period. But rather than confirming the optimism being implied by investors, business owners and management are sounding the alarms. Today’s NFIB Small Business Economic Trends report barely increased, coming in at 88.9, up only slightly from 88 in December. The headline was not a resounding sign of strength, but once you drill into the data, small business optimism looks even worse. Only 6% of … [Read more...]
Like a Rolling Stone
Japan’s stock market is up 9.3% this year (chart 1). But in US dollar terms it’s up only 0.6% (chart 2). As you can see, attempts at currency debasement are not a road to prosperity. Even with extraordinarily loose monetary policy for decades, Japan has not been able to devalue its currency compared to the dollar to boost its flagging economy with cheap exports (chart 3). It’s a quick fix to an economy with structural problems that will eventually be reflected in the stock market (chart 4). It’s a recipe for an economy that’s like a rolling stone—with no direction home (chart … [Read more...]
Investors Ride Shotgun in Bernanke’s Free Money Truck
With a strong start out of the gates in 2013, U.S. stocks have now almost fully recovered from the devastating 57% plunge during the last bear market. Both the Dow and the S&P are once again bordering on all-time highs. Investors have long forgotten the dark days of the financial crisis. Fear is no longer the dominant theme on Wall Street. Greed is back in favor. Investors are convinced the next 50% move in stocks will be up rather than down. To some, the strong performance of stocks over recent years seems puzzling. Economic growth is tepid, unemployment is still nearly 8%, and … [Read more...]
Trade Pointing to Recession?
The BEA today released its report on the trade of goods and services into and out of the United States in the month of December. The trade deficit that has plagued America for decades shrank last month to $38.5 billion worth of goods and services. Optimists have pointed out, and correctly so, that the unexpectedly small deficit will likely cause a revision to fourth quarter GDP estimates that erase the modest reported decline. That’s the optimists’ view. However, there are two ways to read the recent trade release by the BEA. Yes, a revision will likely increase estimated GDP in the fourth … [Read more...]
What We’re Reading 2-8-13
Those Misleading World Health Rankings, Sally Pipes, Wall Street Journal Overheating in Credit Markets: Origins, Measurement, and Policy Responses, Jeremy Stein, Federal Reserve Chinese Firms Shrug at Rising Debt, McMahon and Murphy, Wall Street Journal Brazil Prepares to Surprise Drillers This Time With Gas, Peter Millard, Bloomberg The Fed's Asset-Inflation Machine, George Melloan, Wall Street Journal … [Read more...]
These Interest Rates Are Up
When interest rates go up, it will happen overnight, and you won’t know about it until it’s too late. That’s the predicament the state of Illinois found itself in after it decided to shelve a bond deal literally hours before issuing them Wednesday. Why? Because the market demanded a higher rate of return than the state wanted to pay or could afford to pay. The state had hoped to raise $500 million (read: money to pay for pensions) with a school and transportation offering. But it got a good dose of sticker shock when it realized how much it would cost in interest payments. What did state … [Read more...]
This Is Housing Bubble 2.0: David Stockman
Stockman argues a combination of artificially low interest rates and speculation are to blame, not unlike the last boom and bust cycle in real estate. “We don’t have a real organic sustainable recovery because in a world of medicated money by the central bank, things aren’t what they appear to be,” Stockman argues. … [Read more...]
Does the Economy Still Need Emergency Monetary Policy?
The economy may be growing slowly or even shrinking somewhat, but the time for radical monetary policy is long since over. Revisions in today’s employment report outlines clearly that the Fed is overreaching. In the last two months, those the Fed was looking at during its latest policy meeting, employment growth was revised significantly upward. The number of new jobs created in December increased from 155,000 to 196,000, and November’s total was revised from 161,000 to 247,000. These aren’t roaring numbers, but they certainly don’t call for emergency monetary policy. In fact, employment … [Read more...]
What We’re Reading 2-1-13
Fed Policy Is a Drag on the Economy, John Taylor, Wall Street Journal The Fed Is More Out of It Than You Thought It Was, Mike Konczal, Bloomberg Risk of Ultralow Yields, Richard Barley, Wall Street Journal Federal court vacates key part of EPA’s biofuels requirements, Nick Snow, Oil and Gas Journal Fed Seems Set to Keep The Money Spigot Open, Jon Hilsenrath, Wall Street Journal Fed's Long-Running Show Goes On and On, Specer Jakab, Wall Street Journal … [Read more...]