While the Nasdaq has nearly reached its all-time highs in nominal terms, when adjusted for inflation, the index has actually fallen in real value by 33.1% from its peak on 3/10/2000. Read Part I by clicking here. … [Read more...]
Archives for March 2015
Deflation “Crisis”: How Will it End?
Unemployed men queued outside a depression soup kitchen opened in Chicago by Al Capone. The Bank for International Settlements, or the “central bankers’ central bank,” is out with an important new study on deflation. Economists’ obsession with deflation and the new made-up problem of “low-flation” (inflation below the central bank’s target) has the world’s central bankers flooding the global financial system with liquidity in an effort to turn the tide. Sweden’s central bank was the latest to pump more liquidity into its economy by further reducing its policy rate into negative territory … [Read more...]
5.4 Million Homeowners Still ‘Underwater’
CoreLogic released a report today in which it found that 5.4 million homeowners are still underwater in their mortgages, meaning they have negative equity value in the home. In other words, they owe more on their mortgage than the value of the home itself. Another 10 million mortgaged properties are what CoreLogic calls “under-equitied,” meaning they have less than 20% equity. Despite these dire numbers, nearly 1.2 million U.S. borrowers regained equity in 2014, and the value of homes remaining in negative equity increased by $7 billion in the fourth quarter of 2014. As you can see on … [Read more...]
The Monday Melee: Maximum Capacity?
First Three Month Decline in Capacity Utilization Since Recession Today capacity utilization, a measure of economic activity and a closely watched indicator of economic well-being, recorded its first three month decline since the recession. VIDEO: David Stockman: The Economy Is Falling Apart What We're Reading: 4 reasons the Fed won’t raise interest rates this summer (Fortune) The Return of King Dollar (National Review) Bad beginnings. (The Economist) U.S. economy still not following script for breakout year (MarketWatch) … [Read more...]
Consumers Less Happy
The latest University of Michigan Consumer Sentiment Index was released today. For the last two months consumer sentiment has rapidly declined, following six consecutive months of strong increases coinciding with dropping oil prices. The Index fell sharply from 95.4 to 91.2 during the last month. Despite the pullback, the index's current level is still strong and likely means continued growth in consumer spending. Sentiment declined among middle and lower income survey respondents, while upper income respondents' sentiment picked up. The sentiment of the lower income brackets … [Read more...]
The Forgotten Depression
You can get a glimpse into a beautiful economy by looking back to the early 1920s. James Grant, founder of Grant’s Interest Rate Observer, has written a book called The Forgotten Depression. In it he describes how an economic crash in 1921 cured itself mainly because the government did nothing. Sound advice indeed. Listen to Grant’s talk to the Cato Institute here: … [Read more...]
Is Euro-Dollar Parity Imminent?
For the first time since 2002 the euro is headed for parity with the U.S. dollar. Contributing to the steep drop in the euro's value vis a vis the dollar is the monetary stimulus recently undertaken by the ECB, and the expectation by many analysts that the U.S. Federal Reserve will begin raising rates by year-end. … [Read more...]
Strong Dollar Hits U.S. Steel Industry
Oil isn't the only commodity affected by strong dollar economics. While the strong dollar has been a boon to consumers in the U.S., commodity producers are facing competitors in countries with weaker currencies who can now offer lower prices. You can see on the chart below that U.S. steel production has plummeted along with London Metal Exchange prices for steel in dollar terms. The U.S. is now importing more steel, with 2014 imports from Russia and China jumping by 96% and 69% respectively. … [Read more...]
The Monday Melee: Rig Counts Plunge
World Rig Count Lowest Since 2010: The number of oil and gas drilling rigs in operation around the world has fallen to the lowest level since 2010. (Shaded areas indicate recession.) Inside a Barrel of Oil: The Future? What We're Reading: France’s Hollande Casts Fate With Ex-Banker Macron (The Wall Street Journal) How to Survive a Bear Market (The Wall Street Journal) ‘Six-stock candles': Wall Street bull turns 6 (USA Today) Business economists support rate hike this year (AP) 6 bad reasons to make changes to your portfolio (MarketWatch) … [Read more...]
NASDAQ Missed the Boat
NASDAQ crossed 5,000 for the first time in 15 years. That’s a long-time to wait, especially if you’re not getting paid. Back in 2000, when it peaked, NASDAQ yielded one-tenth of the S&P 500 or 0.12%. Imagine investing for 15-years and getting paid. I’ll use a 4% yield as an example, which was hard to do but it was doable. 4% compounded over 15-years multiplies your money by 1.8x--$1million becomes $1.8 million. 15-years is a long-time—a big chunk of your retirement to get nothing. You can’t afford to miss the boat this time around. But it’s amazing how quickly … [Read more...]