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[9 Jul 2018 | No Comment | ]

The US labor market is going from strength to strength. Like with corporate earnings, June jobs data beat consensus estimates – up 213,000 – pushing the average monthly gain for the past year to 198,000 per month.
Meanwhile the unemployment rate jumped from 3.8% to 4.0%. Why? Because the civilian labor force grew by 601,000. We hate blowing one month’s data point out of proportion, but there is enough concurrent evidence out there to conclude that this gain in the labor force is a bullish sign for the economy. It signals …

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[16 Apr 2018 | No Comment | ]

When the report on international trade came out earlier this month, protectionists were up in arms. Through February, the US’ merchandise (goods only, not services) trade deficit with the rest of the world was the largest for any two-month period on record. “Economic nationalists” from both sides of the political aisle, think this situation is unsustainable.
Meanwhile, some investors ran for the hills when President Trump started announcing tariffs on steel, aluminum, and other goods, thinking this was the reincarnation of the Smoot-Hawley tariffs that were a key ingredient of the …

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[6 Feb 2018 | No Comment | ]

Back in the 1970s, supporters of the status quo said there was nothing to be done about stagflation (high inflation and slow growth). It was a “fact of life” that Americans had to accept after experiencing faster growth and lower inflation during the decades immediately following World War II.

Then, along came the supply-side and monetarist economists with new ideas about how the “policy mix” mattered, that marginal tax rates affected the incentive to work and invest and that the supply of money helped determine inflation. Simple ideas, in retrospect, but …

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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 …