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[25 Mar 2015 | No Comment | ]

For the past six years, investors have faced one fear after another. One of those fears has been the more than $1 trillion of student loan debt outstanding. This debt is up 160% since the start of 2006 (and growing) while the share of student loans with payments 90 days late, or longer, has risen from 6.4% to 11.3%.

Look, we’re not thrilled with this debt. Just like with low-income housing loans, the government is pushing hard, providing subsidies and creating avenues to avoid paying it back. The worst problem is …

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[10 Mar 2015 | No Comment | ]

The stock market sold off hard last Friday and the reason looks clear: job creation was stronger than the consensus expected in February, the fourth straight month of upside surprises in payrolls.
This was a shock to many who expected unusually rough winter weather in February to hold back job growth. According to NOAA, a population-weighted measure of how cold it was around the country (called heating degree days) showed that it was the coldest February, for the most people, since Terry Bradshaw was still leading the Steelers to Super Bowl …

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[9 Feb 2015 | No Comment | ]

Pundits have a bottomless reservoir of pessimism and also a magnified ability to extrapolate the most recent trends. So, when Q1-2014 real GDP fell at an annual rate of 2.1%, fear turned rampant.
We had forecast a 0.5% annualized increase, not a drop, so we were surprised by the impact of unusually harsh winter weather. But, since we watch the fundamentals (underlying pillars of growth) we thought the drop was temporary. Many thought we were nuts. They dismissed the weather, extrapolated the trend, and thought the US economy was in real …

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[16 Jan 2015 | No Comment | ]

Last week, we forecast the S&P 500 will hit 2,375 at the end of this year (link), so we’re obviously bullish on stocks. Our case is based on fundamentals, specifically, the long-term link between stocks, earnings, interest rates, and the economy as a whole. However, just because we’re bullish, doesn’t mean we agree with every bullish argument that’s out there.

One theory making the rounds is that stocks do well in the third year of a president’s term. Superficially, the idea seems appealing. Since 1947 the average annual gain on the …

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[26 Dec 2014 | One Comment | ]
Greedy Innkeeper or Generous Capitalist?

The Bible story of the virgin birth is at the center of much of the holiday cheer at this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was “no room for them in the inn.”
Some people believe Mary and Joseph were mistreated by a greedy innkeeper, who only cared about profits and decided the couple was not …

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[6 Dec 2014 | No Comment | ]

Don’t take this the wrong way: energy is important. Oil prices are important. But, we believeth those involved in economic punditry often bloweth them out of proportioneth.
Many, who previously fretted that higher oil prices meant economic doom, now say the sharp drop means an economic boom. We are happy to be paying less at the pump, but, from a macro-economic perspective, we don’t expect lower prices to generate a noticeable improvement in the overall economy.

There are four pillars of economic strength (or weakness) – monetary policy, tax policy, trade policy, …

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[11 Nov 2014 | No Comment | ]

While many flay away, trying to figure out the meaning of last week’s GOP wave election, it seems simple. The government has tried for more than five years to turn a Plow Horse economy into a Race Horse, and failed. Yes, the economy is growing and creating jobs, but living standards are growing slowly, or not at all, for many.
This doesn’t mean Republicans gave voters a reason to vote for them. There was no clear national agenda broadly accepted by GOP candidates going into the election.

Instead, the GOP capitalized on disappointment with …

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[30 Oct 2014 | No Comment | ]

Some say we have a Plow Horse Economy because economic growth is always slow after a financial crisis. But the real reason is that politicians from both major parties keep throwing more government “solutions” at problems. This started well before President Obama took office.
The Bush Administration, and a spend-friendly Congress, pushed temporary “stimulus” spending in 2001 and then followed Larry Summers’ Keynesian advice in early 2008 and passed tax credits and even more stimulus. President Bush said, “I’ve abandoned free market principles to save the free market system” in an …

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[4 Oct 2014 | One Comment | ]

The only thing we know for sure is that the Republicans will keep the House.  They already have a majority and the president’s party almost always loses seats in mid-terms. Our best guess is that GOP ends up with an enlarged majority.

The Senate, however, is completely up for grabs.  More Democrats have to defend seats this year.  President Obama’s low popularity, a Plow Horse recovery, scandals, and continued problems in the Middle East, had set up 2014 to be an anti-incumbent election.  It could have been a huge Republican wave.  …

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[25 Sep 2014 | No Comment | ]

Every coin, like every historical (or even not so historical) event, has two sides. You can choose which side to focus on – the positive or the negative.
For example, some choose to view the Initial Public Offering (IPO) of Alibaba – a Chinese company described as eBay, Amazon and PayPal, combined, which serves more than a quarter billion customers – as a negative.

Yes, it’s a Chinese company, which means that foreigners are not allowed direct ownership. Shareholders in the IPO own a Cayman Islands-based holding company that gets the profits …