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[1 Jul 2015 | No Comment | ]

Don’t let anyone tell you Greece is sticking up for its “dignity” by fighting “austerity.” The current Greek government is sticking up for socialism by fighting reality.
After several years of working toward some very minor market-friendly reforms, and finally starting to see a glimmer of economic growth, Greece elected a far left government back in January. It’s economic and financial situation has gotten worse ever since. Instead of trying to boost growth and pay its debts, by trimming government spending and reducing regulation, the government is saying it won’t cut …

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[12 Jun 2015 | One Comment | ]

You would think that after 63 straight months of growth in private sector payrolls, the longest streak since the 1930s, everyone would agree that the job-market recovery is for real.  But, that ain’t the case.  A quick Google search still uncovers a whole bunch of pessimistic appraisals of jobs and the economy.
Analyzing these pessimists shows they have four major complaints about any supposed strength in the job market.
The first complaint is that the job growth is all or mostly part-time.  The numbers on part-timers come from the civilian employment survey, …

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[30 May 2015 | No Comment | ]

Last month we explained why the dreaded threat of hyperinflation hasn’t materialized, and likely wouldn’t materialize, in spite of the huge expansion of the Federal Reserve’s balance sheet the past several years, including QE1, 2, and 3.
The April inflation report, released Friday, underscored this theme. Consumer prices rose a tepid 0.1% in April and were down 0.2% from a year ago. With the exception of the Panic of 2008 and its immediate aftermath, that year-to-year decline was the lowest reading for inflation in 60 years.

However, this doesn’t mean the US …

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[20 May 2015 | One Comment | ]

Last week’s report on retail sales in April came in weaker than most economists expected, with no change from the pace of sales in March. As a result, the chorus calling for the Federal Reserve to postpone the start of rate hikes beyond June, already loud, grew even louder.
The fretting was a little misplaced. “Core” sales, which strip out the most volatile items like autos, building materials, and gas, rose a respectable 0.2% – the 13th gain in the last 15 months – in an environment with low inflation. Meanwhile, …

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[7 May 2015 | No Comment | ]

The Wall Street Journal’s editorial page and former Fed Chair Ben Bernanke are in a tiff. In a nutshell, the WSJ says growth is slow (which is true) and the Fed has overestimated economic growth (true, too); therefore, monetary policy is not working. Interestingly, after saying this, the WSJ says it does think quantitative easing (QE) has boosted the stock market.

Bernanke defends the Fed by saying real GDP has been weak due to slow growth in productivity and the lingering effects of the financial crisis. If we want more growth, …

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[7 Apr 2015 | No Comment | ]

“Dread” is the perfect word for what many investors have felt in recent years. Some have experienced it daily since the bottom in March 2009. Some experience it whenever the stock market falls.
But dread really sweeps the markets when there is weak data, a change in fiscal or monetary policy or during market volatility. This means it has cast a pall over markets once or twice a year during the past six years.

Remember the feeling on September 2, 2011, when it was reported that payroll employment in August was a …

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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 …