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[29 Aug 2014 | No Comment | ]

World monetary policy leaders (including Fed Chair Janet Yellen and ECB President Mario Draghi) met, and spoke, in Jackson Hole, WY last week. It’s the equivalent of the Emmy Awards for central bankers.
But, what is most interesting about all of this is that the more central bankers talk, the less anyone understands them. Supposedly, all the speeches, minutes, transcripts and press conferences are making the Fed, and other central banks, more transparent. But, in the end, they are making everything more opaque.

The Fed, in particular, is becoming harder to understand. …

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[8 Aug 2014 | No Comment | ]

f you’re an investor looking for a reason to be worried, there are plenty of headlines to light the fuse. Widening war in the Middle East, turmoil in eastern Ukraine (or is that western Russia?), a debt default by Argentina…problems with some Portuguese bank…Ebola…tapering.
It’s not a short list, and equities are down roughly 3% since their peak on July 24th.
Maybe, just maybe, a long-awaited stock-market correction has begun. We can’t confirm or deny that prediction. All we know for certain is that this would be about the 43rd correction analysts …

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[1 Aug 2014 | No Comment | ]

Inversions – a financial deal where a large US company merges with a smaller foreign one and then reorganizes so the US wing of the new firm is the subsidiary and the entity pays a lower foreign corporate tax rate – are the rage these days.
Well, sort of. A few companies have done them, and, according to one lawmaker, maybe 25 more are in the works. The rage is coming from politicians. They argue that inversions are unpatriotic and want to stop them.

There might be some law that could stop …

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[17 Jul 2014 | No Comment | ]
What if the Fed is Wrong?  Working Up to Economic Potential

A key ingredient of monetary policy is the estimate of “potential real GDP growth” – how fast the economy should expand. The Federal Reserve thinks potential is about 2¼% per year. Using this, the Fed estimates GDP is about 8.5% below potential and monetary policy should remain easy.
But what if the Fed is wrong? What if bad policy (tax hikes, spending, and regulation), which started even before the Panic of 2008, but got worse afterward, cut potential to 1.5%?

 
To clarify, we’re not using the word “potential” as a true, inviolable, …

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[10 Jul 2014 | No Comment | ]

There must have been thousands of new jobs created in the past few years just to comb through the minutiae of the employment data looking for negative nuggets. All someone needs is access to the Bureau of Labor Statistics website and a calculator. Then, you go through the jobs data and find some stuff to spin negatively.
The job doesn’t pay that well, unless you have a radio or TV show or website with advertising. But, it’s politically rewarding on both the right and the left to prove how bad the …

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[2 Jul 2014 | No Comment | ]

USA soccer lost to Germany last Thursday, but moved to the Sweet Sixteen of the World Cup anyway because it had previously beat Ghana and tied Portugal. US fans celebrated wildly after the loss to Germany, with some saying US soccer had come of age.
Confusing? Yep!
The same confusion affected many investors and political analysts last week when first quarter real GDP was downwardly revised to a -2.9% annualized growth rate and the stock market moved higher anyway. The bears finally got their data point, but the market didn’t cooperate.
 

There are …

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[25 Jun 2014 | No Comment | ]

A staple of the doomsday crowd is the idea that the US is on the verge of losing its “reserve currency” status. It’s held that prominent financial position since the end of World War II. But, now, the doomsday crowd argues the US economy is in a bubble, the Fed is printing money like crazy, government spending and regulation on the rise, so it’s just a matter of time.

 
Get ready they say, the dollar will plummet in value and interest rates will skyrocket, even above where US economic fundamentals suggest …

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[2 Jun 2014 | No Comment | ]

When the GDP report comes out Thursday, look out, the Pouting Pundits of Pessimism will have a field day.
It was bad enough when the government’s first report on real GDP growth for Q1 showed the slimmest of growth – a 0.1% annual pace. But, now, after adding up all the new data and revisions to old data, it is likely that government stats will show a shrinking economy – we expect a -0.4% annualized rate of growth.

Inventories will likely be revised significantly lower, but there should be other minor hits. …

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[5 May 2014 | One Comment | ]

The economic world lost a leading thinker this weekend with the passing away of Gary Becker, who, since the death of Milton Friedman in 2006, was the most influential, and important, living economist.
Becker, who won the Nobel Prize in 1992, led an invasion of classical economic thought into previously sloppy and hidebound areas of study such as sociology, demography, and crime. He studied human capital. Think of it this way: Without Becker, bestselling books like Freakonomics wouldn’t even be possible.

Prior to Becker, the academic study of these topics was dominated …

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[23 Apr 2014 | No Comment | ]

When it comes to forecasting near-term real GDP growth, there are parts of the economy that are easy to follow and then there parts of it that are tough.

 
The easy parts (with lots of timely information) are consumer spending, business investment, and home building. And despite one of the worst winters in multiple decades, this portion of the economy looks like it grew at a solid 2.5% to 3% annual rate in the first quarter, right in-line with the trend since the recession ended in mid-2009.
To get that kind of …