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[7 Nov 2017 | No Comment | ]

Washington D.C. used to complain that Ronald Reagan employed a strategy of “starving the beast” – cutting taxes so that new spending was tough to legislate. Now, D.C. seems to employ the strategy of “gorging the beast” – spending so much that tax cuts are hard to pass.
Persistent over-spending, and costly entitlements have created permanent deficits. In addition, arcane budget rules and “scoring” models (which estimate the budget impact of legislation) make tax reform very complicated.
In order to let it pass with just 51 votes in the Senate, the cost …

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[18 Oct 2017 | No Comment | ]

Next week, government statisticians will release the first estimate for third quarter real GDP growth. In spite of hurricanes, and continued negativity by conventional wisdom, we expect 2.8% growth.

If we’re right about the third quarter, real GDP will be up 2.2% from a year ago, which is exactly equal to the growth rate since the beginning of this recovery back in 2009. Looking at these four-quarter or eight-year growth rates, many people argue that the economy is still stuck in the mud.
But, we think looking in the rearview mirror misses …

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[5 Oct 2017 | No Comment | ]

Next Monday (October 9th) will be exactly ten years from the stock market peak before the Financial Panic of 2008.
Imagine that Doctor Doom, the perceived “best analyst in the business,” told you on that night, when markets peaked, that financial authorities would allow mark-to-market accounting rules to burn the banking system to the ground, with many well-known financial firms failing or being taken over by the government. You knew the unemployment rate was going to soar to 10% and the economy would experience the deepest recession since the 1930s. You also …

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[5 Sep 2017 | No Comment | ]

The hits keep coming. Hurricane Harvey left destruction in its wake, and now, Hurricane Irma has Florida in its sights.

It’s been five years since Hurricane Sandy, nine years since Ike and twelve years since Katrina. As with all major weather events, personal tragedy, pain, suffering, and loss are left in their wake. We have prayed, and continue to pray, for those affected. But at the same time, in our job as economists we look toward rebuilding and economic restoration. This is where investors often make two different mistakes about how …

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[23 Aug 2017 | No Comment | ]

While the Sunday morning talk shows discuss the number of Civil War monuments that can dance on the head of a pin…and a rare Eclipse grabs focus…investors might be shocked at how the economy has accelerated.
Although we still have more than a month left in the third quarter, and many more pieces of data to come, as of August 16th the Atlanta Fed’s “GDP Now” model, which tracks and estimates real GDP growth, says the economy is expanding at a 3.8% annual rate in Q3. If correct, that would be the fastest pace for any …

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[8 Aug 2017 | One Comment | ]

For many years now a relatively large contingent of analysts, investors and journalists has been convinced the stock market was in a bubble because the “Shiller P-E” ratio was just too high. Back on 8/12/2013, in our Monday Morning Outlook, we made our case that the Shiller model was too pessimistic. Now that looks like a pretty good call.
In the past four years, the bull market in stocks has continued, with the S&P 500 generating a total return – including both share price increases and reinvested dividends – of almost 60%, …

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[14 Jun 2017 | No Comment | ]

When the Federal Reserve raises rates by another quarter percentage point on Wednesday, you’re going to see many stories about monetary policy getting tight and the potential threat that poses for the economy in general and the bull market in stocks in particular.
As usual, you should discount the conventional wisdom. What’s really going on is the Fed is getting “less loose,” not “tight” and there’s ample room for the Fed to stay along this path without risking a recession or a bear market. The banking system is full of excess …

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[18 Apr 2017 | No Comment | ]

Last Friday, payroll employment data, from a survey of businesses, showed the US created just 98,000 jobs in March. The consensus of forecasters had expected job growth of 175,000. The other jobs number, which comes from a survey of households, showed 472,000 new jobs in March.
Private jobs have now grown for 85 consecutive months, and the US economy is on the eve of completing its eighth consecutive year of growth. For comparison, the average post-World War II recovery is just 61 months.
Some analysts (they know who they are), who were …

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[29 Mar 2017 | No Comment | ]

Well, that was fun! The GOP’s attempt to reform healthcare hit a brick wall of politics. Conservative Republicans wanted to completely “repeal” Obamacare, while moderates and leaders were willing to keep much of it as long as it cost less. Moving one way or the other lost too many votes. Democrats refused to participate. So, the bill died.

The stock market rose when it looked like Speaker Ryan’s bill would pass, and fell when prospects faded. But US stocks remain undervalued. Nothing, other than politics, has changed and we expect equity …

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[9 Mar 2017 | No Comment | ]

As Washington DC melts down, entrepreneurs keep moving, people keep working and spending; the economy keeps growing. The Federal Reserve keeps meeting and speaking, too, but now it appears they will actually act.
Next week’s Fed meeting (March 15th) is going to be major news one way or another. Most analysts lean our way and now think the Fed will raise short-term interest rates by a quarter percentage point (25 basis points). We laid out the case two weeks ago (Time for a Rate Hike). If the Fed does raise rates, …