Archive for January 2014
Disappearing Deficit
In the month of December, the US Treasury ran a surplus of $53.2 billion. What is remarkable is that over the past 10 years the December deficit has averaged $22.7 billion, and over the last five it’s averaged $61.7 billion. Last year the December deficit was just $1.2 billion. The improving economy and last year’s…
Read MoreDarn Deflation
Deflation is bad for three reasons. First, by reducing GDP it raises debt to GDP ratios making it harder to service existing debt. Second, once consumers and businesses expect prices to be cheaper in the future, delaying purchases makes sense. Third, it reduces the tools available to central banks to fight recessions, the most powerful…
Read MoreDaring Draghi
With Eurozone inflation below 1% and falling, and the money supply barely growing, the European Central Bank may have to become very creative to stave off deflation. Here’s why: while it might have authority to buy sovereign bonds, due to political considerations it would have to slavishly buy them in proportion to the economic weight…
Read MoreDismal Data
Last Friday’s labor report showing a gain of 74,000 new jobs, when 200,000 were expected, and a decline in the labor force participation from 63% to 62.8% (a 35 year low) was, no matter how you slice it, bad. That said, one month isn’t a trend and rising exports, the continued expansion in manufacturing and…
Read MoreBowled Over
The Friday File: Each of the last four teams to break the record as the highest scoring team in NFL history (’67 Oakland Raiders 33.4 points per game, the ’83 Washington Redskins 33.8 PPG, ’98 Minnesota Vikings 34.8 PPG, ’07 New England Patriots 36.9 PPG) have all failed to win the Super Bowl. This year…
Read MoreInteresting Impact
While interest rates are on the rise, so is economic growth. At this stage in the business cycle, growth has the upper hand. While rising interest rates dampen home buying activity, better growth and the concomitant increase in employment more than make up for it. That is why I expect new single-family construction activity to…
Read MoreIran’s Intensions
Any final nuclear agreement between the P5+1 and Iran must, at minimum, limit Iran’s nuclear ambitions to those of a civilian nuclear program with comprehensive monitoring so that any nuclear “breakout” effort would be lengthy and quickly detected. Its heavy-water plutonium processing facility in Arak must be closed. To enhance the probability of this, Congress…
Read MoreGood Growth!
The combination of November exports reaching an all-time high of $194.9 billion, the trade deficit narrowing to just $34.25 billion, its lowest level since 10/09, November’s factory orders rising 1.8% and October’s factory orders upward revision of 0.4%, and strong consumer spending is making me raise my Q4 GDP forecast to 3.1%. In Q3, GDP…
Read MoreSwinging Stocks
With small investors still largely on the sidelines, bond prices continuing to slide as interest rates rise, the number of large corporate stock buybacks declining, gold prices falling and corporate earnings expected to improve, I expect a rise in the S&P 500 of 7% to 10% this year. While P/E ratios are elevated compared to…
Read MoreCapers & Crooks
The Friday File: The biggest physical heist of 2013 involved one thief who stole $135 million in jewels in Cannes, France as they were being delivered to a hotel for display. The next biggest theft was an inside job where a group of thieves stole $50 million of uncut diamonds as they were being transferred…
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