For as long as the economy has been crawling its way out of the last recession, economists and policymakers have been puzzled by the lackluster rate of economic growth. In past economic cycles, deeper recessions were usually followed by stronger recoveries. Coming out of prior recessions, growth rates of 4%, 5%, and even 7% were not uncommon. During this cycle, annual GDP growth hasn't broken 3.25% once. What explains the lackluster growth during this cycle? Aside from the many policy missteps that have held back growth, the chart below explains why the economy still hasn’t hit its … [Read more...]
Cyclical Economic Dysfunction a Brewing Storm?
Two major cyclical indicators, construction (as pictured by housing starts and permits in the first chart below) and industrial production (chart 2 below) are giving very different signals about the direction of the U.S. economy. What is the reality? Numbers of housing starts and permits are climbing rapidly to levels not seen since before the housing bust. Meanwhile industrial production reports indicate flagging demand. The question is, which indicator is the better picture of reality. In any case, caution is the best approach for investors like you and me. … [Read more...]
3 Reasons Inflation Could Surprise
Investors and policymakers have been obsessed with the risk of deflation for so long that they may be missing the risk of higher inflation. The headline inflation numbers in the U.S. do in fact signal a deflationary impulse. Prices have contracted by 0.20% over the last twelve months, but the headline number is being depressed by lower gas prices and a stronger dollar. Neither factor will persist indefinitely. Services inflation, which is a more stable indicator of inflation, shows that the underlying trend of inflation is up. Trends in the labor market are also pointing toward higher … [Read more...]
How to Buy a Boat: Part I
You know the saying: The two best days for a boat owner are the day he buys it and the day he sells it. Well I bought a boat a few years ago and it was the best day. So I thought I'd share with you the process I went through to get there and hopefully help you in your own search for a boat. The first thing you need to do is decide that you want a boat. I grew up in Mattapoisett, MA which is a small town on the water near Cape Cod. To know where Mattapoisett is imagine looking down on Cape Cod from the air—Mattapoisett is the armpit. It's a real pretty town right on Buzzard’s … [Read more...]
The Monday Melee: Paris Air Show Extravaganza
The Boeing 787-9. The Paris Air Show: So far the Paris Air Show has been a success for the world's aircraft manufacturers. As The Wall Street Journal notes "The world’s two largest aircraft makers booked roughly $42 billion in deals on the first day of the weeklong aerospace extravaganza. Bombardier Inc., Embraer SA and other plane makers also secured new orders." Boeing and Airbus Ready Themselves for the Show: Air Travel Continues to Rise: What We're Reading: Notable & Quotable: Milton Friedman (The Wall Street Journal) Speech inflation: Why Bill Clinton, George W. Bush, … [Read more...]
This Has Never Ended Well
The latest quarterly update on consumer balance sheets, out yesterday from the Federal Reserve, shows that the net worth of households is closing in on an all-time high relative to income. Inflating asset prices (stocks and homes) are the big driver here. Asset prices can become unhinged from the income they generate temporarily, as my chart proves, but the historical record shows that episodes of income and asset price divergence don’t last long and they are ultimately resolved through a painful busts. … [Read more...]
Mosquito Apartments
Anyone see a problem here? In Hong Kong apartments the size of a parking spot are selling for $516,000 reports the WSJ. The apartment, in a development called High Place, isn’t much bigger than the standard U.S. parking space. It went into contract in May for almost four million Hong Kong dollars (US$516,000.) Even by Hong Kong’s cramped standards, apartments here are getting tinier and tinier. So small are some of the new developments in Hong Kong that they have been given the moniker “mosquito-sized units.” … [Read more...]
How Does Your State’s GDP Stack Up?
There are a number of predictable winners here, and a few states that may surprise you with their GDP growth numbers. Check out the map below. Source: BEA … [Read more...]
Dividend Religion, Hallelujah!
Do you know what a dividend paying stock that yields 3% today and increases its dividend by 10% per year for 10-years will yield? Answer: 7.78% I don’t need more proof than that to get me some dividend religion. … [Read more...]
The Monday Melee: The Strong Dollar a Problem?
What did Obama Say? Rumors are circulating that President Obama called the strong dollar a "problem," while speaking to a G7 summit on Sunday. The White House has come out hard against the rumors, but the idea of a strong-dollar problem was strong enough in investors' minds to move the currency market Monday morning. Strong Dollar? While the dollar has strengthened considerably over the last twelve months, the move is not yet large enough to cause concern. You can see on the chart below that the dollar has gained on other currencies, but hasn't reached two standard deviations above mean … [Read more...]
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