If you thought 2% growth during this “economic recovery” was bad, I have even more discouraging news for you. On a per person basis, economic growth has been even worse than 2%. Since the recovery began, growth in GDP per capita has averaged only 1.35%. That is an embarrassingly low number coming off of the deepest recession since the great depression. At some point, don’t we have to stop blaming the great recession for the slow recovery and instead examine the economic policies that might be holding back growth? … [Read more...]
The Fed has Sat on Its Hands
In the November issue of Richard C. Young's Intelligence Report, Dick Young writes: The Fed has sat on its hands throughout the duration of the current business cycle recovery from the financial crisis. In my five decades in the investment industry, there has not been a period where the Fed has refused to increase rates during an extended economic rebound. As I have been writing, we are now in the winter stage of the economic cycle. Gauges of employment momentum indicate that the cyclical upturn now has nowhere to go but down. Yet the Fed and the White House Council of Economic Advisors … [Read more...]
How Higher Interest Rates Can Stimulate Growth
The chorus of economists and investors demanding an interest rate hike from the Fed to stimulate economic growth is getting louder. An interest rate hike to stimulate growth? Yup, it sounds counter-intuitive, but isn’t the proof in the pudding? Seven years of zero rates and a $4 trillion balance sheet and the economy is struggling to even surpass 2% growth. That’s some stimulus. You’ve read on this site before that the Fed’s prolonged period of zero rates and its big balance sheet may now be a larger drag on growth than a stimulus to it. It would follow then that removing zero percent … [Read more...]
Stock Market Update: Has the Window of Opportunity Closed?
Many investors and strategists have been arguing that the Fed lost its window of opportunity to hike rates when the good professors panicked during the stock market correction in August. The decision backfired as the Fed told the public that global financial conditions were bad enough not to hike in September, but not so bad that the Fed wouldn’t hike sometime in 2015. The market took the Fed’s panic as a sign of weakness. If the Fed didn’t hike in September what would encourage them to hike later in the year? Investors pushed interest rates down sharply over ensuing weeks and the … [Read more...]
The Monday Melee: The Cost of a Hurricane
The costs of disaster can be massive. Economies can be crippled by hurricanes, typhoons, earthquakes and tidal waves. Mexico narrowly avoided a massive catastrophe by Hurricane Patricia by competently utilizing disaster planning and evacuation. Act of God: The Cost of Disaster The Costliest Year of Natural Disasters: 2011 Patricia : Strongest Landfalling Pacific Hurricane on Record Speaking of Worst Hurricanes: This Saturday, the Miami Hurricanes suffered the worst loss in school history. They lost to Clemson: 58-0. … [Read more...]
The Monday Melee: China’s Unbelievable Growth
China released GDP numbers on Monday and despite claims of a deceleration in the Chinese economy, the official statistical bureau reported that growth was 6.8%, very near the target of 6.9%. "We Don't Believe Them" Danny Gabay of Fathom Consulting, and formerly of the Bank of England, told BBC Radio 4 that "Quite frankly we don't believe them. It's not just that they come in suspiciously close to the target, it's that they're produced remarkably quickly and rarely revised." (Businessinsider.com) Corporate Earnings Fears Corporations have flashing warning signals about China since at least … [Read more...]
Manufacturing Recession?
The latest readings on the health of the U.S. manufacturing sector came out this morning and they don’t paint a pretty picture. Industrial production has fallen in 8 of the last 9 months, and the year-to-year rate of change is now flirting with contraction. Manufacturing accounts for a much smaller share of the U.S. economy than it did in decades past, but it isn’t yet small enough to ignore. Stay tuned here. … [Read more...]
The Monday Melee: Merger Mania
Mega Deals Dominating headlines today have been the merger of Dell and EMC, and the long, slow courtship of AB Inbev and SABMiller that looks like it might be close to a resolution. M&A Trends … [Read more...]
Germany Stumbles
Today Germany reported disappointing numbers for August industrial production, following yesterday’s report for new orders which also lacked encouragement. The reports may signal a slowdown in Europe’s largest economy. Perhaps unsurprisingly, in light of the disappointing numbers, Bloomberg is already identifying further stimulus as a cure for what ails the continent. Further extraordinary stimulus by the European Central Bank could also prove a boon if it pushes down the euro, making German products more competitive. The Frankfurt-based central bank will publish the account of its … [Read more...]
Bernanke Courage?
Former Federal Reserve Chairman Ben Bernanke is promoting his new book, The Courage to Act: A Memoir of a Crisis and Its Aftermath, writing in a WSJ op-ed what monetary policy can and cannot achieve: What the Fed can do is two things: First, by mitigating recessions, monetary policy can try to ensure that the economy makes full use of its resources, especially the workforce. High unemployment is a tragedy for the jobless, but it is also costly for taxpayers, investors and anyone interested in the health of the economy. Second, by keeping inflation low and stable, the Fed can help the … [Read more...]
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