Thursday, March 31, 2016

From Small Packages

Pound for pound, Janet Yellen is arguably one of the most powerful leaders in the world.  Twenty-five months ago, this diminutive economist became Chairman of the Federal Reserve, succeeding Ben Bernanke.  One of his priorities was increased transparency for the Fed, by encouraging Board members to give speeches and to stimulate intellectual discussion.  Of course, the public simply got confused -- listening to both hawkish and dovish Board members.  What was the Fed really going to do?

Tuesday, Chair Yellen spoke before the New York Economics Club and slammed the door on that confusion.  She made it clear that SHE speaks for the Fed!  As soon as her speech was released, the stock market started rising.  Single-handed, she created billions of dollars in increased wealth for investors.  Thank you, Dr. Yellen!

Additional confusion revolved around how many times the Fed would increase interest rates this year.  When they increased rates last December, for the first time in seven years, they expected four more increases this year.  (I predicted at the time the Fed could not possibly do that!)  Tuesday, Chair Yellen acknowledged one or two rate increases was all the economy could sustain.  (She'll be lucky to get one this year!)  Still, the stock market sees fewer interest rate increases this year as good news!

So, two good things happened Tuesday.  Confusion about whose opinion actually matters was reduced, and clarity was improved that the Fed is not obligated to four interest rate increases this year.  That's a lot of good news.  Good job, Janet!

Wednesday, March 30, 2016

A Too-Quick Two Years

As a teenager, one of my role models was "Mr. Spock" of the TV series Star Trek.  He tried to lead an emotion-free life.  As silly as it sounds, I thought of him often when serving in the Army.  The facts are facts, and emotions are emotions, and never the twain shall meet -- works better in theory than in practice.

It was two years ago today that my Mother died, and I still think about her frequently.   Every single day, in fact.  But, time spent remembering her is time NOT spent studying the latest financial planning techniques or breaking stock market data.  It is illogical, as Mr. Spock would say, to spend time on non-productive activities, like remembering your Mother.

While time spent remembering her kindness or her sly little grin produces no revenue, it does help me to understand my clients.  There is more to financial planning than the latest technique.  Many times, I have seen clients do absolutely illogical things -- illogical to me but consistent with their own family dynamics or their own moral code.  My job is to help them understand that pure logic is not controlling their decision, but then help them execute whatever decision they make, whatever is logical to them.

While I can try to keep my emotions in a tidy little box, it is illogical and unfair to expect others to do the same.  My job is to help them work with these emotions/demons as logically as possible.  Remembering my Mother helps me do my job.

Thanks, Mom!

Monday, March 28, 2016

Steady As She Goes

As a longtime member of the National Association of Business Economics (NABE), I closely follow their "Outlook Survey," which surveys 48 professional forecasters.  The latest one is reassuring.  While the media always frets that a recession is imminent, NABE's forecasters do not.  Most don't expect one before 2018 - another two years.  (15% don't expect one before 2020.)

According to the survey, the most likely contributor to the next recession, whenever it is, will be tightening monetary conditions.  In particular, they worry about credit becoming more difficult.  I'm more concerned about the prospect of "importing a recession" due to slowing economic growth internationally.  (I am especially concerned about Europe's ability to finance and integrate a million refugees.)

Lastly, the collective estimate of GDP growth rates has decreased.  In December, 2016 growth was estimated at 2.6%, but that has drifted down to 2.2% for this year and 2.4% for 2017.  (2015 was 2.4%)  While low by historic standards, 2.2% is still the envy of the developed world.

When I was an economics student during the last century, business cycles were considered sacrosanct - to be accepted as always true, everywhere.  Business cycles came in different lengths from 4 years to 48 years.  Today, we hear very little discussion of business cycles.  This is largely attributed to the internationalization of business.  Some attribute it to more intelligent economic management.  Some believe severe economic trauma like the 2008/9 global financial crisis causes all cycles to "reset."  All that may be true, but I doubt business cycles have been eliminated.  In fact, I hope not.  A recession can be quite beneficial, as it "weeds out" the less efficient.  You might call that "survival of the fittest" but I see it as the "more efficient allocation of resources."  Of course, a recession has the nasty side effect of causing the stock market to drop temporarily and the unemployment rate to rise temporarily.

Fortunately, the professional forecasters tell me not to worry about it - no recession in the near future.

As my Navy friends would say . . . "steady as she goes."

Friday, March 25, 2016

Perspective Is Everything

My 93-year-old father has voted in twenty-three straight Presidential elections.  As a young soldier in France, he voted for the first time in 1944, for Franklin Roosevelt.  Recently, he wrote me  that "I have never seen a Presidential election as cruel and ugly as this one."  That was before the wife-smearing.

Some historians recite ugly incidents in other Presidential campaigns, saying this is normal, which I reject.  It doesn't matter if this campaign is the worst or not.  It is simply unacceptable.  Everybody will agree this campaign does not reflect well on America  I think my father is correct.  This one is unacceptably "cruel and ugly."

There is one big difference between the current campaign and the many previous ones, i.e., the 24/7 media that is trying to sell advertising in a competitive marketing world.

A few weeks ago, the member-magazine for the Communist Party in China started comparing Trump with Hitler, an unfortunate but inevitable comparison.  Would Americans elect another "Hitler," they asked?  After all, Hitler, as well as Mussolini, came to power through the ballot box.  They were popularly elected.  Their point was that only the Communist Party can save people from a Hitler/Trump.  Americans have no such protection.

My point is that there is no room on the ballot for either barbarians or extremists, either on the right or the left.  My prayer, however, is that the Republicans can close this Pandora's Box of electoral poison.

Wednesday, March 23, 2016

Confusing Love and Pride

It is easy to love my country . . . warts and all.  It always remains a land of great beauty, great opportunity, and mostly great people.

It is NOT easy to love the stock market.  A perennial heart-breaker, it is wildly unpredictable.  But, sometimes I do love it anyway . . .  I think.  This heart-of-capitalism sometimes behaves in a classical, predictable way.  Like right now, the market is slowly churning within a relatively narrow range.  Following a bullish run, this churning or period of consolidation usually predicts another bullish run.

In addition, the stock market did NOT over-react to yesterday's terrorist attack.  The Dow only lost 42 points.  Maybe, such attacks have now become routine and are already factored into the market level.  Maybe, the Dow would have been up 60 points if there had been no attack, suggesting only a 100 point drop due to the attack.  Either way, it's reasonable.

Like the dog that did not bark, it is remarkable that the stock market did NOT over-react.

Maybe, I don't really love the heartless stock market . . . but I am proud of it right now!

Tuesday, March 22, 2016

Wrong Bucket List?

A geriatric psychiatrist, Dr Marc Agronin,  wrote an interesting article in yesterday's Wall Street Journal about the current generation of senior citizens.  Because they are "healthier, heartier, and richer" than previous generations, numerous surveys have shown Americans are happier when they get old, with thanks largely to the current entitlements and the previously-common pensions.

My take on the article is that the notion that elder Americans are happy is widespread -- but only an inch deep.  Scratch the surface, and you will find a confused, frightened old person.  As an example, he discusses the sudden love affair that the elderly develop with taking cruises.  Of course, who doesn't love taking a cruise?  We took another last year, so I do understand the narcotic pleasantness of it.  But, Dr Agronin notes modern retirees "live" for their "bucket list."  The periods between these adventures become boring interludes, when nobody wants to see your photographs.  He argues that retirement is becoming a hollow experience, without meaning.  Certainly, all of us know seniors who appear happier than they really are.

The good doctor argues that we don't spend enough time with our families.  If we must take cruises, we should take some family with us, he advises.  Of course, that assumes there is actually some family to be around.  In addition, families are often too widely distributed to really enjoy in modern America.

He gives too little attention to spending enough time with community.  Once-a-month, we deliver Meals-on-Wheels, which is very satisfying for us.  Once-a-week, I attend Rotary, where I enjoy the good company and the bad jokes.  We have held many projects to help the less fortunate or clean the environment.  Yet, the biggest problem facing Rotary, Kiwanis, Lions, and other social organizations is falling membership.  Community involvement has fallen, just like family involvement.

But, both families and communities have something in common -- people!

How do we change the model of retirement from driving a Winnebago . . . to painting the fence for the widow down the street?

Monday, March 21, 2016

Making the Sale

As someone who has long held more than a passing interest, I applaud President Obama for opening relations with Cuba.

As someone who remembers President Nixon opening relations with China in 1972, a truly historic foreign policy achievement, I deplore the media for its breathless coverage of the Cuba opening.

Of course, breathless does sell advertising . . .

A Step Forward

Traditionally, Saudi Arabia has been the "swing producer" of oil.  If the price of oil was so high that it was hurting its customers, Saudi Arabia could increase production enough to lower market prices.  If the price of oil was so low it was hurting the oil producers, as it is now,  then Saudi Arabia could lower production enough to raise market prices -- but only after extracting promises from other oil producers that they would also cut their production by some smaller amount.  It did not want to carry the cost of any production cuts by itself, understandably.

When the price of oil began to collapse at the beginning of the year, the world naturally looked to Saudi Arabia to act as the swing producer and cut its oil production.  This time, however, Saudi Arabia said it would not do so, because other oil producers were liars, promising to cut oil without actually doing so.  The price of oil then plummeted.

By mid-February, Saudi Arabia, along with Russia, Ecuador, & Venezuela, promised to freeze their production levels IF Iran would do the same, which it won't without further negotiation.  They will meet again next week to finalize details.  But, here is what is different:  monitoring!  Two companies are negotiating to actually estimate production.  This is more difficult than expected.  Satellites can now be used to keep track of oil tankers moving around the world, but people with binoculars are still required to estimate cargo loads by how deep the ships are submerged as they leave port.  In addition, the only way to monitor oil being moved by pipelines (about 30% of Russia's) is by infra-red technology, but it can now be done.

While there are lots of details to be worked out, we have come a long ways in assuaging the fears of Saudi Arabia that all oil producers are liars.

Maybe, honesty will actually break out in the Mideast . . . ?? 

Sunday, March 20, 2016

When Wrong Is Right

During this short year, the stock market has already completed a scary drop into correction territory (down 10%) and has now almost fully recovered.  This was not the first rodeo for any of us.  In fact, it is almost second-nature by now for me to calm my clients and to keep their eyes on the horizon.  But this year, it has been slightly different.

One client has been kidding me about my too-frequent mention that there is a big difference between garden-variety recessions and a financial crisis.  Undoubtedly, that is true, but it also reflects the importance to me.

By mid-January, commodity giant Glencore was in free-fall.  This company has quite a checkered past.  Originally founded by the infamous Marc Rich in Switzerland in 1974, it operated as a private company until its IPO in 2011.  (Mr. Rich spent years on the FBI's Most-Wanted List for illegally trading oil with Iran but was later pardoned by President Clinton on his last day in office.  The company has been accused of allegedly dealing with nefarious clients around the world.)  More ominously, it became huge in the volatile world of commodities, especially metals like copper and zinc.  Its IPO on the London stock exchange was the biggest IPO in London's history, turning many insiders into instant billionaires.  It was also one of the world's biggest users of derivatives, especially the types known as forward contracts and futures.

I have often said that, if we have another financial crisis, it will start in the derivatives market.  As I was reading more and more about Glencore, I was thinking more and more about Lehman Brothers, whose crash ignited the global financial crisis in 2008.  Suddenly, there was a real possibility of a financial crisis.  This sudden 10% correction might have been just another in a long history of corrections, or it could have been another financial crisis.

Because 100% bets are almost always imprudent, I didn't sell everything in anybody's portfolio, but I did take the unusual step of increasing the level of cash - a prudent way to deal with increased uncertainty.

Since then, most commodity prices have rallied nicely.  In addition, Glencore has successfully refinanced most of its banking relationships and put several valuable assets up for sale, to reduce its massive debt load. Its stock has rallied strongly.  The cost of their credit-default-swaps has decreased as well.

It was a false alarm, thankfully.  Maybe, I was wrong to increase cash somewhat during a typical correction, but it is always the right thing to do when there is a realistic possibility of a financial crisis.  Maybe, I was overly-vigilant, but I would rather lose a little of the upside, than catch a lot of the downside.

Thursday, March 17, 2016


Last December, the Fed raised interest rates a quarter-point and predicted they would raise rates four more times in 2016.  I predicted they would not.

Yesterday, the Fed had their first opportunity to raise rates this year and did not.  In addition, they predicted they would raise rates only two times this year, not four.  I predict they will not.  One more increase this year is the most.

Here's the problem:  increasing interest rates normally increase the value of the currency.  Increasing interest rates here makes the dollar "stronger," which means goods manufactured by Americans now cost more.  Rising interest rates are not good for exporters.

That assumes the rest of the world is doing nothing.  In reality, Europe and Japan are doing a lot.  They are actually decreasing interest rates, even making some rates negative.  That increases the relative "strength" or cost of the dollar even faster, by making their own currencies cheaper.  That makes it even worse for our exporters.  For example, just this morning, Caterpillar lowered their annual sales forecasts.

In fairness to the Fed, when they announced four increases for 2016, they were not aware of how much monetary easing or interest rate lowering was going to happen in Europe and Japan.

If you are paying a floating-rate on your home mortgage, don't worry about it.  Your timing is good. Rates are staying low for now.

If you want to book a vacation to Europe or Japan, go ahead, Your timing is good.  The dollar is staying strong for now.

Too bad about the exporters . . . and their employees.

Monday, March 14, 2016

June 23rd

When thinking about my 2016 forecast last December, I was aware of the inverse relationship between uncertainty and the stock market, i.e., as uncertainty increases, the stock market goes down.  In addition, history tells us that the market is quite choppy the first half in years having a Presidential election but usually ends the year with stocks higher.  I reasoned, since it had been almost six months since the last market high and since the market was slowly grinding downward as 2015 ended and since commodity prices were weak, reflecting either over-supply or under-demand, that an overlay of increased uncertainty from the election would make the first half of the year quite choppy indeed.  (Admittedly, it was more choppy than anticipated.)

But, we may have a date when the bulls will start to trot, if not run - June 23rd -- put it on your calendar.  That is the date England will hold a referendum on leaving the European Union, which would be a really foolish mistake.  It is called the "Brexit" for Britain exiting the EU and would be a triumph of nationalism over good sense.  A Gordian Knot of treaties and agreements would have to be renegotiated quickly, which has been described as "unscrambling an egg."  Half of the UK international trade is with EU members.  How do you buy or sell to companies in other EU countries, if the rules are sure to change?  Three million people are living in England who immigrated from the EU.  What happens to them?  If the referendum passes and the UK must leave the EU, European stocks will drag down American stocks.  Conversely, if the English vote to remain in the EU, stocks will surge.

When the votes are counted, the U.S. will be close enough to the partisan conventions that nominees are likely to be known, which also reduces uncertainty and helps stock.  Plus, oil prices will be closer to stable by then.

So, how does one invest around this?  They don't!  Let the day-traders make "all-or-nothing" bets, not investors.  The value to investors is simply to help manage your expectations and to understand if your portfolio takes a dip ahead of the referendum.

Friday, March 11, 2016

A Needed Hypothetical Discussion

When President Bush appointed his aide, Kevin Warsh, to the Board of Governors of the Fed, I was less than impressed.  Despite being educated at Stanford and Harvard, he was a lawyer, not an economist.  (Who needs more lawyers?)  Press coverage at the time suggested his wife's wealthy family were substantial contributors to securing this highly-prestigious appointment for the young 35-year-old Warsh.  However, during the global financial crisis, he handled relations between the Fed and Wall Street and, by all accounts, did a good job with that, until his resignation in 2011.

At a recent lecture, he criticized the Fed for "group-think" and having too little intellectual debate inside the Fed.  This is not a new criticism and is probably true.

However, he also left an image in my mind that is worth keeping.  Imagine Fed-Head Janet Yellen giving her semi-annual Humphrey-Hawkins testimony before the Senate when a pompous Senator says "Madam Chair, while we appreciate your testimony here today, full disclosure requires us to note that the Fed has consistently over-estimated our economic recovery and GDP growth.  Frankly, the Fed has had six years to turn this economy around, which I find is time enough.  When you return to this chamber in six months, Madam Chair, I expect you will no longer be making excuses and will have "fixed" the American economy, finally."

To which, Janet Yellen would answer "Thank you, Senator, for this opportunity to remind every single member of the Senate and the House that the Fed controls only monetary policy.  The Fed has no control over fiscal policy, tax policy, budget deficits, trade policy, nor education policy.  While my predecessor and myself have faithfully reminded Congress of their responsibility for fiscal policy, tax policy, budget deficits, trade policy, and education policy, Congress has done nothing, absolutely nothing.  When I return to this chamber in six months, Senator, I look forward to hearing what Congress has done to help "fix" the American economy, finally."

It is well-known that economic policy requires both monetary policy and fiscal policy.  Unfortunately, American economic policy is a two-fisted boxer with one fist tied behind his back.

Thursday, March 10, 2016

Political Tidbits

Charlie Cook and Greg Valliere are two of Washington's best known political pundits, and I have heard them speak at several conferences.  (I even had the pleasure of having lunch with Greg in Scottsdale a few years ago and found him to be a genuinely nice guy.)

Earlier this week, I attended their lecture.  In no particular order, here are some of the things I heard:

1.  As much as Washington hates Ted Cruz personally, they fear Donald Trump even more professionally.
2.  The Republican convention will give the nomination to Cruz.
3.  Cruz will lose the general election to Hillary Clinton but not by much.
4.  Cook believes Cruz had already decided to run for President, when he filed to run for the Senate.
5.  Cook doesn't believe Hillary will be indicted.
6.  The most important address to her is not 1400 Pennsylvania Avenue but 1400 New York Avenue, where the FBI investigation is being done.  (Coincidently, this is next to my old office at 1500 New York.)
7.  If Hillary is indicted, Joe Biden is "tan, relaxed, & ready."
8.  Because there are more Democrats than Republicans, the Republicans need Independents more than Democrats need them.
9.  Humorously, Valliere said he hoped Inauguration Day is very windy if Trump is elected.
10.  No chance of Republicans losing the House, due to gerrymandering.
11.  Hillary has more testosterone than Obama, meaning she is more warlike.
12.  The hot social issue for Republicans is shifting from gay issues to the heroin problem??
13.  Because ten Republican senators up for reelection are from states carried by Obama, there is a chance they could lose control of the Senate.
14.  Cruz will have to pick an "establishment" type as a running mate.
15.  Polls are less meaningful now, due to the rapidly rising non-response rate.
16.  The most amazing thing about this election cycle is the increase in the energized voter base.  Because Congressional leadership (both Republican & Democrat) were indifferent to the falling approval rating of the "do-nothing-but-obstruct-Congress," the voter base became very irritated.

Wednesday, March 9, 2016

Feeding The Monster

The U.S. Department of Commerce is like your older sister - she's been around forever but still isn't very interesting.  It was one of the original cabinet offices in the Executive Branch, reporting directly to the President, with the mission of representing the interests of business.  (In fact, long before the IRS existed, Commerce was the original revenue-raiser by collecting customs taxes.)

It is responsible for the Census, the National Oceanic & Atmospheric Administration (NOAA), the Patent Office, and so on.  But, that is not news.

I attended a lecture by Penny Pritzker, the current Secretary of the Department of Commerce and realized their mission has grown to become the primary producer of data - big data.  They produce enough data to fill up the Library of Congress - five times - every day.  The mind boggles!  They have now entered into partnership arrangements with other users of big data, such as Google, Amazon, Facebook, etc., to collate all that data and make it useful to business.

Frankly, I found all this to be creepy - reminding me of the self-aware, cloud-based artificial intelligence called "Sky-net" in the Terminator movies.  Why does all this data need to be collated anyway?  Is this a proper role of government, to help big aggregators of data?  This is not about national security or anti-terrorism.  Of course, it is all about advertising!

Maybe, your older sister is only dull and boring . . . when she is not terrifying?

Tuesday, March 8, 2016

Listening To A Legend

I had the great pleasure of hearing Stanley Fisher speak yesterday.  He is the Vice Chairman of the Federal Reserve System and has a compelling life story.  He was born into modest circumstances in Rhodesia, did his undergraduate work at the London School of Economics, his graduate work at M.I.T., taught at the University of Chicago, was chief economist of the World Bank and Governor of the Bank of Israel from 2005-2013, before being appointed by President Obama to the Fed Board.

He spoke with some optimism that inflation is starting to rise comfortably.  For those of us who recall the 70's, that may sound ominous but is really much better than deflation.  The goal of the Fed is to have 2% inflation, and Dr. Fisher thinks it is in the 1.0 - 1.5% range.

He doesn't see recession in the near term.  Of course, even if he did, he could not warn us.  He could only telegraph his worry.  I think he is relatively optimistic.

He sees two interest rate increases this year.  I think one is the most we'll see.

He also discussed negative interest rates.  The media reported that he sees conflicting evidence on the effectiveness of negative interest rates.  What I heard was that the initial evidence shows it is effective in increasing growth in the five countries that are utilizing this economic tool, but he doesn't know how effective it would be in our unique economy.  While no decision has been made, I feel he is leaning toward it.

If I had any criticism, I wish he had not read his speech.  He is too intelligent and too accomplished not to look his audience in the eyes.  Nonetheless, I'm thankful for the opportunity to hear him in person!

Told Ya So

In my last post, I characterized the attendees at this economics conference as being geeks.  Least there be any doubt about that, yesterday was also the 125th birthday of the Producer Price Index.  Who knew?  So guess who had a birthday party?  The PPI, of course!

Then, we sang:
Happy Birthday to you,
Happy Birthday to you,
Happy Birthday, dear P . . .P . . . I
Happy Birthday to you!

Name calling is seldom appropriate, except as a term of endearment, and this is!

Monday, March 7, 2016

Geek-Fest in DC

Because I have to feed three different certifications, life is a never-ending pursuit of continuing education credits.  Every year, I chase conferences around the country to get enough of the CE credits.

The most expensive and lavish is the Investment Management Consultants Association (IMCA).  It is more focused on investing and attended mostly by financial advisors, not financial planners.  It is attended by mostly males,  In fact, alpha males!  The song "Barracuda" always plays in the back of my mind.

There is also the National Association of Personal Financial Advisors (NAPFA), which is attended primarily by financial planners, not financial advisors, despite the misleading name.  The ratio of women is steadily rising, probably one-third of the attendees are now female.  Think social workers!  I'm confident the average compensation of attendees at a NAPFA conference is substantially less than at the IMCA conference.

Then, there is my favorite - the National Association of Business Economists, which is held each year in Washington and attended almost entirely by economists.  Think "pocket protectors" and slide rules.  They are a decidedly different type of attendees, and I enjoy them immensely.  I'll be attending their lectures for the next two days and cannot wait.

Sunday, March 6, 2016

More Exercise, Drill Sargeant

Readers will recall a lady I knew in Texas, who maintained the best effective diet I've ever seen.  She fasted one day each week, usually Friday.  By maintaining tight self-discipline that one day, she made her self-discipline more effective the rest of the week.  I was fascinated by her notion that self-discipline was just another "muscle" that needs exercise - use it or lose it!

Readers will also recall I've been trying to limit the intellectual pollution I receive, which some people call the presidential campaign, and therefore avoid all TV news on Saturdays.  It is not really the same thing, because it is difficult to fast from food but easy to fast from intellectual pollution.  The most difficult part of fasting from TV news is sealing it off.  Televisions on Friday night must be set on a non-news station for the next morning.  Car radios must be changed.  Yet, this pollution still seeps into your day.  Yesterday, I maintained my isolation from the campaign quite successfully, until my excitable wife rushed into the master bath, where I was taking a shower, to announce breathlessly that "I just heard the latest poll out of Florida shows Trump beating Rubio by 22 points."  While that was interesting, what was I supposed to do with that information?  Do I therefore wash the left arm instead of the right arm?  It had no value, except entertainment value.  There was certainly no investment value to that information.

It is not the broadcast news I want to avoid but the breathless 24/7 live coverage of the campaign that pollutes the soul.  While we are being entertained by the tasteless reality show called the presidential campaign, we are paying too little attention to other things.  For example, there is a genuine humanitarian crisis building quickly in Europe right now, with a million people in jeopardy.  If Europe as a whole handles this crisis as poorly as France handled the refugee crisis from their Algerian war, then the Eurozone will cease to exist.  (It is not a coincidence that Europe's terrorist attacks have been primarily in France.)  After all, is it more important to be conversant about this huge pending crisis or Donald Trump's non-huge . . . hands?

So, what started out as an exercise in self-discipline is now too easy.  It has become more of a management problem - how to seal it off, rather than how to force myself to live without it.

Maybe, the problem is that television only has one real advantage over others news sources, i.e., the ability to convey emotion or urgency by being breathless?

Two words you never see in the same sentence are breathless and intellectual.

I think I need to find another way to exercise my self-discipline "muscle?  Without fasting from food, that is.  After all, why would anybody fast from food . . . when there are so many key lime pies out there, just waiting to be eaten?

Saturday, March 5, 2016

One Data Point To Rule Them All

Many people feel bewildered when economists start talking.  It's the "drinking from a fire hose" problem.  Who can absorb all those numbers, data points, and graphs immediately?  It is not news to economists that we can confuse any situation by merely adding more data.

Years ago, I attended a three-day course in Washington for a deep-dive into economic measurement data produced by the Federal government, which ignored data produced by the many universities, trade groups, and other governments.  In a lighter moment (there weren't many), one professor suggested that only one economic report really matters, i.e., the monthly "Jobs Report" published by the Bureau of Labor Statistics (BLS).  He said, if the economy is producing enough jobs,  nothing else really matters.

The economy is producing enough jobs!

Yesterday, the BLS reported 242 thousand jobs were created last month.  This easily surpassed Wall Street's expectation of 185 thousand.  Not only that, the two previous months produced 30 thousand more jobs than previously reported.  Over the past twelve months, the economy has produced two MILLION new jobs!

Interestingly, the unemployment rate of 4.9% was unchanged.  If we produced so many jobs, why didn't the rate fall?  Because the labor force is expanding!  Over the last three months, more than 500 thousand disillusioned people decided the job market was finally strong enough that even they might have a chance of getting a job after all.  The Labor Force Participation Rate (I know, another data point) increased to 62.9%, which is up .5% in just three months.  That's real progress, believe it or not.  The U-6 level of unemployment (another darn data point) among the disillusioned and the part-timers who want to be full-timers, dropped below 10% for the first time since the Great Recession.

The economy is producing enough jobs . . . or, it was last month anyway.

Friday, March 4, 2016

Amen, Mitt !!

I just can't take it anymore!

Whenever you try to be an honest intellectual broker, it is necessary to be non-partisan, because people presume to know all your thoughts, just because they know one of your political thoughts.  I broke that rule last year by denouncing Donald Trump when he trashed John McCain.  I just couldn't take it!

It is more than bad manners for a rich, pampered non-veteran, who has never faced hostile gunfire, to trash a genuine American hero like John McCain.  It is proof-positive of pitifully poor judgment and is unworthy of anybody seeking the Oval Office.  As far as I was concerned, Trump was no longer worthy of ANY consideration at that point.  Trump has been trash to me since that day.

Yesterday, Trump was trashed by Mitt Romney, which was long overdue.  I stand with Mitt, another rich pampered non-veteran, who has never faced hostile gunfire, but one who does, at least, have the grace, decency and good judgment to respect an American hero.

Okay, I feel better . . . now I will be non-partisan again . . .

Thursday, March 3, 2016

OCB du jour

The stock market is like an infant -- it is easily distracted by bright shiny objects!

Do you remember during the Great Recession how strongly the market reacted to anything said by Hank Paulson, Ben Bernanke, Jamie Dimon, and other banking elites?  Nothing they said was unimportant.  Eventually, the market recovered.

Do you remember a few years ago how strongly the market was focused on Greece?  Breathlessly, we followed every announcement by the ECB, by Germany, and by the Greek leaders.  Still, the market recovered.

Do you remember the last two years when the market was obsessed with when the Fed was going to raise interest rates.  Still, the market recovered.

Do you remember what a bright and shiny object the Ebola outbreak was, as our stock market dropped suddenly and dramatically.  Still, the market recovered.

Do you remember the beginning of this year when the market became obsessed with two shiny objects at once, i.e., the China slowdown and the collapse of oil prices.  Already, the market has apparently started to recover.

I suspect the next obsession will be the Eurozone, due to the Brexit possibility and the refugee problem, which could easily become intractable.  When that happens, I will remember what Warren Buffet said:

"In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497."