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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, …

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[23 Jan 2017 | No Comment | ]

A memorable part of President Trump’s inaugural speech pointed to mothers and children trapped in poverty, rusted-out factories, a flawed school system, and crime and gangs and drugs. He described these problems as “American carnage” and stated emphatically that it “stops right here and stops right now.”
You’d have to go all the way back to President Carter’s “malaise” speech in July 1979, as gas lines were forming during the energy crisis, to find a sitting president so stark.

The difference is that Carter had already been president for 30 months, and …

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[18 Nov 2016 | No Comment | ]

Elections have consequences and the impact on U.S. economic policy of last week’s election will be enormous. We’re sure we’ll be writing about all of these issues in much greater depth over the next several months, but, for now, here’s a broad outline of what to expect.
One of the Republicans’ first tasks will be repealing much (but not all) of the Affordable Care Act, also known as Obamacare. To get that done, they will use the budget reconciliation process in the US Senate, where they don’t need to break a …

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[22 Aug 2016 | No Comment | ]

You know the economy is getting better when the pessimists’ theories on economic doom have been so wrong for so long they have to start recycling the old ones.
Right after the crisis a wave of mortgage “re-sets” was supposed to cause a double dip recession. The idea was that many of the mortgages taken out in the housing boom, particularly interest-only mortgages, had to re-set at higher interest rates or require principal payments, which would eat up workers’ meager earnings, in turn reducing consumer spending and putting us back in …

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[18 Aug 2016 | No Comment | ]

Narratives matter. They affect political outcomes and influence investment decisions. Narratives serve a purpose, but in serving that purpose they are often highly misleading, especially when they are invented to cover up a mistake, or to convince people to vote a certain way. These days, there are three main narratives impacting investors.

Narrative #1 says that Wall Street caused the Great Recession of 2008/09 and that government saved the economy, and recoveries are always slow after financial crises.
Narrative #2 argues that the US is not really in recovery. Anything good happening …

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[27 Jun 2016 | No Comment | ]

Earlier this year, NHL hockey fans were asked to vote for the captains of the four teams to face off in this year’s new All-Star tourney. Three of the picks were players you’d expect: Jaromir Jagr from the Florida Panthers, Alex Ovechkin from the Washington Capitals, and Patrick Kane from the Chicago Blackhawks: True Gods of the Rink, who have scored hundreds of points.

But not the fourth. In a huge surprise, the fans gave the most votes to a long-time journeyman enforcer named John Scott. At age 33, earning the …

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[31 May 2016 | No Comment | ]

One of the recurring pessimistic themes of the past several years is that Greece is about to default on its debt. Now that Greece is negotiating again, this fear is back. Some wonder if a major European financial firm, like Deutsche Bank, will also fail.
A big problem with this theory is that Greece already defaulted on about half of its debt to private creditors in 2012, back when private European banks both owned a larger share of Greek debt and were more thinly capitalized. A great wave of bank defaults …