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Investment Research Since 1978

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A Dubious Tax Proposal

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President Obama is on the campaign trail promoting the Buffett Rule that the Senate will likely vote on in coming days. The Buffett Rule would slap a minimum tax rate of 30% on anyone who makes more than $1 million per year. Billionaire Warren Buffett came up with the idea. Apparently, he was disturbed by the fact that he pays a lower tax rate than his secretary. Why Buffett is focused on his rate rather than the $7 million he forked over to Uncle Sam is, well, confounding, but I’ll come back to that. If implemented, the Buffett Rule wouldn’t even begin to make a dent in the budget deficit. … [Read more...]

Facebook’s Fatal Flaw Exposed

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Has he gone mad? Mark Zuckerberg, Facebook’s CEO announced this week that his social networking company is buying Instagram. Facebook is paying $1 billion—a 100% premium to the company’s valuation only one week ago. Instagram is the creator of the identically named photo sharing / editing app for Apple and Android mobile devices.. Instagram was founded by two twenty-something Stanford grads about 18 months ago. The company only has about a dozen employees and by all accounts it generates almost no revenue. I am no Instagram expert. I didn’t even know the company existed until this week. But … [Read more...]

Jobless Claims Spike: Will the Fed Overreact?

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According to today’s report, initial claims for jobless benefits spiked to 380,000, the highest since January (See chart below). Compounding the fear about the recovery in jobs was the less than stellar growth logged in payrolls last week. Only 120,000 jobs were created in March, substantially underperforming average economists’ estimates which ranged closer to 200,000. Other economic data contradict the recent bad news. GDP is growing around trend, cars a selling fast and sentiment is trending upward. It’s safe to say that the economic data are mixed. Also mixed is the interpretation … [Read more...]

Gas Prices Threaten the Economy

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Tight global oil supplies and tensions with Iran (among other factors) have pushed retail gasoline prices back above $4 per gallon. When gasoline prices surged to near $4 per gallon last year, economic growth slowed as purchases cut into consumers’ discretionary spending power. Should we expect another downturn in consumer spending now that gas is near $4 per gallon again? Gasoline prices have only been near $4/gallon for a few weeks, but the evidence suggests lower gasoline consumption (see chart below) and falling utility bills are offsetting the higher cost of gasoline. Over the last … [Read more...]

FOMC Minutes Paint a Dismal Picture for Savers

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If you were unlucky enough to have to read the minutes of the Federal Reserve Open Market Committee (FOMC) released yesterday, you may have been disturbed by what you found. Within the notes on the view of the Federal Reserve Governors and Presidents in attendance (a.k.a. participants) you would have noted words and phrases like; uncertain, cautious, mixed, less strength, remained weak, remained depressed, gains might not be sustained, increased moderately, still sluggish, unemployment remained elevated, etc. Even optimistic notes from the Fed were guarded. On the euro-area crisis: In … [Read more...]

Manufacturers Giving Markets Mixed Signals

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The ISM Manufacturing Report on Business was released this morning and produced a composite index result that was slightly better than a survey of economists surveyed by Bloomberg had predicted it would be. You can see on our chart that the index is trending up slowly. The components of the index were broadly optimistic, but some that tend to the lead the market left doubt about the future. The Conference-Board uses ISM’s New Orders index as a component in its Leading Economic Index. In the recent report, the ISM New Orders index continued growing, but at a slower rate than in February. … [Read more...]

America’s Standard of Living at Stake

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Are consumers confused? Earlier this week the Conference-Board’s Consumer Confidence index fell slightly on concerns consumers have over the short-term health of the economy. But they seem more bullish long-term. Lynn Franco, director of the Conference-Board’s Consumer Research Center said “Consumer Confidence pulled back slightly in March, after rising sharply in February. The moderate decline was due solely to a less favorable short-term outlook, while consumers’ assessment of current conditions, on the other hand, continued to improve.” Meanwhile in the University of Michigan Consumer … [Read more...]

Economic Mirages

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Yesterday the markets were looking for the Durable Goods report to show an increase of 3% in new orders. The numbers disappointed however, with growth of only 2.2% reported. You can see an odd pattern for the last seven months on our chart—lackluster growth sandwiching two optimistic months of 3% plus growth in November and December of 2011. At the end of 2011 companies rushed to take advantage of an accounting gimmick that allowed them to expense their purchases for 2011 immediately, saving them on taxes. But before and after the rush, growth in Durable Goods orders was anemic. This is … [Read more...]

Hubris and Monetary Policy: A Toxic Mix

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I stumbled upon this video of Laurence Meyer, the Co-Founder and Senior Managing Director of Macroeconomic Advisers, a mainstream economic modeling and forecasting firm. Meyer served as a member of the Board of Governors of the Federal Reserve from 1996 to 2002. Like Chairman Bernanke, Mr. Meyer received his Ph.D. in economics from MIT. Mr. Meyer is about as mainstream an economist as they come. Having served on the Federal Reserve Board he is intimately familiar with the Fed’s economic models and the nature of discussions at policy meetings. Mr. Meyer works from the same type of economic … [Read more...]