11/29/12 – Baby Steps Forward on the Recovery

November 29, 2012

Slowly, slowly we move forward. Economic growth for the third quarter was revised upward to 2.7 percent, well above the initial estimate of 2.0 percent, but slightly below the expected revision of 2.8 percent. This is a good result, but it probably will weaken in the next quarter, as quite a bit of it was due to inventory buildup, which will be drawn down.

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11/29/12 – Disaster Chic, Part 2: The Collapse of the Dollar

November 29, 2012

This is part two of how the world ends—at least according to those who want to make a buck off of someone else’s fears. Make no mistake, I am fully supportive of worrying about things—they don’t call me Eeyore for nothing—but if you’re going to worry, you need to be sure that it’s something actually worth worrying about.

I talked yesterday about how the government has better, or at least easier, options available than to confiscate private retirement accounts. Though it could conceivably happen—Argentina has done just that—it isn’t in the cards here because we have a much more robust political and legal infrastructure, as we have just demonstrated.

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11/28/12 - A Lot More Good Than Bad

November 28, 2012

Kind of an interesting day, with some good news in the U.S. and a mix of good and bad about equally balanced in Europe. Let’s take one at a time.

The U.S. economy: Housing continues to perform strongly, with house prices up for six months in a row by an average of 3 percent over the past year. Even the worst-hit cities, such as Las Vegas, Phoenix, and even Detroit, have shown price gains. The continued strength in housing hit the front page of the Financial Times (FT) and A3 in the Wall Street Journal (WSJ), and it is a key part of the front-page New York Times (NYT) article, “California Finds Economic Gloom Starting to Lift.” California is often a leading indicator of the rest of the country, so this is particularly good news.

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11/28/12 - Disaster Chic: Government and Retirement Accounts

November 28, 2012

I have been getting a number of questions recently about a number of e-mails and webpages that predict certain disaster. The scenarios include a collapse of the dollar, hyperinflation, confiscation of private retirement accounts, and many other similar things.

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11/27/12 – Edging Closer to the Cliff

November 27, 2012

The fiscal cliff debate has shifted to some interesting ground. After a good start, with both sides sitting down and announcing that a deal was doable, there has been little visible action between the parties. There has, however, been quite a bit of activity within each party.

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11/27/12 – Closed-End Marketplace Revisited

November 27, 2012

Guest post from Peter Essele, senior investment research analyst

On November 13, I wrote about the richness of the closed-end marketplace due to strong investor demand. At the time, I mentioned that approximately 60 percent of taxable closed-end funds were trading at a premium to net asset value (premiums occur when the price paid in the open market for a particular fund is greater than the value of the underlying securities), which was the highest level ever recorded. In addition, the post stated that, based on historical relationships in this market, these aberrations often don’t persist for extended periods of time. My goal was to highlight the current dislocations that existed and to warn investors regarding a possible correction. Two days later, the number of funds trading at a premium in this particular market went from approximately 60 percent to less than 20 percent, as investors shed these securities at an aggressive pace. In some cases, investors lost more than 6 percent in a matter of days from securities that they believed to be high-yielding “bond” funds.

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11/26/12 - European Update

November 26, 2012

I haven’t been writing much about Europe recently, and it’s not because there hasn’t been anything happening. There has been. But because most of it has been inside baseball, with little immediate effect (at least here in the U.S.), it hasn’t been as interesting as other developments here.

That largely remains the case, but it’s worth taking a look just to keep in touch with what’s been going on. The big news is that a bailout package for Greece is just about to be finalized. This will be the final bailout, as the Germans are having domestic political trouble getting approval for more cash.

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11/26/12 – Black Friday and Cyber Monday

November 26, 2012

I’ve previously referred to a “confidence disconnect” between consumers and business, and it seems to be continuing. Depending on which stats you look at, sales over the weekend increased between 6 percent and 13 percent over last year, which indicates that consumers are still pulling out their wallets and supporting the economy. But from a business standpoint, although the numbers are quite good at the surface, they may not be as good as they seem.

Several factors make the strong top-line numbers less positive from a business standpoint. The first, and potentially most significant, has to do with whether the sales are profitable. Given the wide range of deals and discounts employed to get buyers to make a purchase, profitability took a hit last year—and it may this year as well. The second is whether strong sales over the kick-off weekend will augur similarly strong results over the entire holiday season, or whether retailers have merely succeeded in bringing sales forward rather than increasing them overall. Evidence from past years runs both ways, and the effect on Black Friday itself was negative, as earlier store openings on Thanksgiving seem merely to have led people to start shopping sooner rather than to buy more goods. The National Retail Federation projects overall sales will increase 4.1 percent this year, which is relatively strong, but it’s less than last year’s 5.6-percent increase.

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11/23/12 – Recovering from a Tryptophan Overdose

November 23, 2012

Today is a slow day news-wise. I expect everyone is doing pretty much what I am: recovering from an overdose of good food and wine.

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11/23/12 – The Parable of the Turkey

November 23, 2012

Once upon a time, a turkey hatched in the dead of winter. He lived in a nice warm coop, had plentiful corn and seeds to eat, and spent much of his poult-hood playing with all of the other little turkeys. When spring came, he and his friends ventured out into the yard and played some more; they continued to have corn and seeds to eat and shelter from the rain. The summer brought more of the same, along with nice people who regularly cleaned the coop, refilled corn and seed stores after the turkeys gobbled it all up, and chased away scary critters like foxes and cats when they got too near.

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11/21/12 – The Financial World Is a Mess

November 21, 2012

That’s the only conclusion I can draw from today’s headlines.

First, let’s look at the New York Times (NYT). “Insider Inquiry Inching Closer to a Billionaire” discusses the implication of Steve Cohen, one of the rock stars of the hedge fund and investing world, in insider trading. “Hewlett’s Loss: A Folly Unfolds, By the Numbers” is about Hewlett-Packard’s write-off of nearly $9 billion of the $11 billion purchase price of a company that was, apparently, an accounting fraud.

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11/20/12 – Back to the Happy Place, for the Moment

November 20, 2012

Yesterday, the stock market cheered the good news on the fiscal cliff negotiations—that everyone was being polite to one another for a change. The market melted back up to the level of, well, last week. Even with yesterday’s bump, though, we are still down about 3.5 percent in the past month, which suggests that investor optimism may be premature. Let’s think for a minute about what the fiscal cliff means, and what “solving the problem” might mean, to see whether this degree of optimism is warranted.

First of all, the fiscal cliff consists of two major components: tax increases and spending cuts. Within those two divisions, there are smaller items. On the subject of tax increases, for example, the impending expiration of the Bush-era tax cuts is getting all the press.

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11/19/12 – The Life and Death of Great American Junk Food

November 19, 2012

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11/16/12 – Something Taxpayers Should Know About the Fiscal Cliff

November 16, 2012

I am not a tax expert, and I don’t even play one on TV. In fact, I’m normally reluctant to weigh in on taxes, but there is one issue that doesn’t seem to be getting the attention I think it deserves: the expansion of the alternative minimum tax, better known as the AMT.

Briefly, if you are above a certain income threshold, you have to calculate your tax bill both the normal way and under the AMT rules, which limit certain deductions and typically result in a bigger tax hit. You then pay the higher of the two. This can be a nasty shock if you’re not expecting it, as the additional liability can run into the thousands.

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11/16/12 – Fiscal Cliff Negotiations Start Today

November 16, 2012

Today, President Obama and Speaker Boehner, along with their teams, will sit down at the White House to try and figure out how to solve this thing. Encouragingly, everyone seems to be shutting up.

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11/16/12 – The Economic Impact of Hurricane Sandy

November 16, 2012

Hurricane Sandy was one of the largest storms ever to strike the United States, and, because of its path up the East Coast and into the country, it hit areas that are rarely affected by hurricanes. As a result of both of these factors, combined with the timing of the landfall and the tide, the damage was extensive and serious.

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11/15/12 – Back to the Wall of Worries

November 15, 2012

Markets got knocked again yesterday, as November proves to be a tough month. After the run of good news we had for a while, the bad, or at least worrisome, news is starting to pile up.

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11/14/12 – Stocks Get Whacked on Fiscal Cliff Negotiations

November 14, 2012

Remember when I said we would see more volatility as the negotiations played out in the press? Today’s front-page article in the Wall Street Journal (WSJ), “Obama Sets Steep Tax Target,” discusses how the President is using his proposed budget, with $1.6 trillion in additional revenue, as a starting bid. This is twice the additional revenue that he and Boehner were talking about in their last set of negotiations and is a nonstarter from the Republicans’ point of view. Surprise—stocks are down again this morning.

Obama is also reported to be under pressure from the left on the budget. Yesterday’s WSJ had “Labor Pressures Obama on Budget” on page A6, which was confirmed in today’s New York Times (NYT) with “Obama Tells Labor Chiefs He Won’t Yield on Budget.” Earlier this week, we saw the Republicans playing to their base; now we see the same with the Democrats.

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11/14/12 – A Hard Look at Employment: Why the Recovery Will Be Faster than People Think (Part 3)

November 14, 2012

In the last post I talked about why the employment level had to reset and did and about how normal growth in employment appears to have restarted. That alone would argue that employment will come back over time, but there are also other reasons why the employment recovery will be faster than most people expect at this time.

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11/13/12 – Trial Balloons on the Fiscal Cliff

November 13, 2012

Nothing concrete to report on today, but the discussion continues to get more interesting. One article in particular that is worth a look is an op-ed piece on page 9 of the Financial Times (FT), “How the US should avoid falling off the fiscal cliff.” It was written by Glenn Hubbard, current dean of Columbia Business School, former chairman of George W. Bush’s Council of Economic Advisers, and an economic consultant to the Romney campaign. He has some credibility when it comes to representing the Republican economic point of view.

And his points are both largely typical of that point of view and economically sensible—raising revenue is about raising average tax rates, not marginal rates; spending cuts should be a larger part of the solution than tax increases for growth reasons. It’s when you take a closer look at the details that it gets interesting. Let’s go to some direct quotes. Hubbard writes:

  • “There are ways to raise revenue without increasing marginal rates. Tax deductions should be scaled back, especially in the areas of mortgage interest, charitable giving, and employer provided health insurance.”
  • “The first step is to raise average (not marginal) tax rates on upper-income taxpayers. Revenue increases should come first from these individuals. This means closing loopholes.” He then goes on to discuss limiting deductions overall.
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11/13/12 – Closed-End Fund Demand

November 13, 2012

Guest post from Peter Essele, senior investment research analyst

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11/13/12 – Formula for Success: Rise Early, Work Hard, Strike Oil. — J. Paul Getty

November 13, 2012

On this metric, the U.S. is poised for success. The Wall Street Journal (WSJ), New York Times (NYT), and Financial Times (FT) all have stories on the International Energy Agency’s new World Energy Outlook 2012, which reports that the U.S. will be the largest producer of oil in the world by 2020 and a net oil exporter by around 2030. The story made the front page of both the WSJ, with “US Redraws World Oil Map,” and the FT, with “US to be world’s top energy producer,” but it only made it to page B6 in the NYT. Tells you something right there.

The headline story is great and underlines the point I have been making for a while that things are changing. The oil and gas industry is creating U.S. jobs directly, and it will do so indirectly as well by providing a lower cost base for manufacturers. In fact, last week the FT reported that German industrial companies are formally warning that they expect to lose jobs because of it.

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11/13/12 – A Hard Look at Employment: The Reset (Part 2)

November 13, 2012

In the last post we examined the decline in consumer demand and what it meant for employment, which left us asking: What about the future?

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11/12/12 – A Hard Look at Employment: Setting the Stage (Part 1)

November 12, 2012

I have been spending a great deal of time recently developing an analysis of the U.S. economy, which I presented at Commonwealth’s National Conference. The key issue for everyone is jobs and employment. Why has the recovery been so slow, what can we do to make it better, and when can we expect it to get back to normal?

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11/12/12 – Real Economy Strong, Financial Markets Weaker

November 12, 2012

The good news on the real economy continues, with consumer confidence hitting a five-year high, per the New York Times (NYT) over the weekend. We are now at a level that is pretty close to the historical average, which illustrates just how bad things have been from a consumer point of view. A five-year high just gets us back to the average? Much of this is due to improvements in the current conditions index, which is mostly about the labor market, and improvements in expectations.

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11/9/12 – More Good News on Energy

November 9, 2012

One of my major reasons for cheer about the U.S. economy has been the evolving energy situation. Breakthroughs in oil and gas drilling have made U.S. prices for natural gas the world’s lowest and have started us on the road to again becoming the world’s largest producer of oil, as well as potentially making us energy independent.

Beyond that, though, we are developing other energy-producing technologies that are more sustainable and more diversified. I have debates with friends about the role these will play going forward, but, in my opinion, there’s no doubt that having the technologies developed makes us more secure. There’s nothing like having a backup plan.

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11/9/12 – Day Two of the New Crisis

November 9, 2012

Once again, the papers lead with the fiscal cliff: “Pressure Rises on Fiscal Crisis” from the front page of the Wall Street Journal, “Congress Sees Rising Urgency on Fiscal Deal” from the New York Times, and “Schumer appeals to business on the fiscal cliff” in the Financial Times.

The good news is that everyone gets it, and both parties seem to feel a sense of urgency in dealing with this. Speaker Boehner has gone on record saying that additional revenue could be doable—which might be a concession, or might not. The President has been quoted saying he doesn’t think we will go off the cliff, but he hasn’t said why not.

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11/8/12 – The Price of Politics by Bob Woodward—An Incredibly Timely Book Review

November 9, 2012

Bob Woodward is known for writing books that let readers imagine that they are first-hand witnesses at critical political events. With a depth of reporting and access matched by few, he specializes in telling the stories that affect our lives as played out in Washington, DC.

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11/8/12 - So Much for the Honeymoon

November 8, 2012

Wow, that was quick. The markets celebrated Obama’s reelection with a quick drop as investors shifted their focus to the problems in Europe and the fiscal cliff here in the U.S. All three papers headlined with the fiscal cliff in one way or another this morning. The Wall Street Journal and New York Times (NYT) addressed it explicitly, with “Focus Moves to ‘Fiscal Cliff’” and “Back to Work: Obama Greeted by Looming Fiscal Crisis,” respectively, while the Financial Times (FT) caught up on the election with “Obama wins but new battle looms.”

Yesterday’s market dip was significant, the largest of the year in both points and percentage for the Dow. It also took the market below psychologically significant breakpoints, at 13,000 for the Dow and 1,400 for the S&P 500, and put it closer to its 200-day moving average—another potentially important breakpoint. Now that we’re past the election, the market is focusing on the next set of challenges, and it doesn’t much like what it sees.

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11/8/12 - What the Election Means for Your Tax Bill

November 8, 2012

Now that the election results are in, it is time to think about what they mean for your financial future. Even though the government will remain pretty much the same for at least the next two years, taxes will be changing substantially next year, and we can make some educated guesses about how they will be changing after that. Finally, we need to consider what the pending fiscal cliff might mean to our financial health and how to prepare for its effect.

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11/7/12 – What Does the Fiscal Cliff Really Mean?

November 7, 2012

You’re likely aware that the fiscal cliff refers to the package of tax increases and spending cuts scheduled to take effect, absent Congressional action, at year-end. The chart illustrates the various components included in the fiscal cliff; each one would be significant on its own, but taken together, they could prove disastrous for the economy.

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11/7/12 – Meet the New Boss, Same as the Old Boss

November 7, 2012

So, here we are, pretty much exactly where we were yesterday, but now it all looks different. Democrats are happy, Republicans are depressed, and the government will look the same for the next four years as it has for the past four.

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11/6/12 – It Ain’t Over Until It’s Over

November 6, 2012

So here we are, Election Day, and the uncertainty will soon be resolved. Right?

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Market Update for the Month Ending October 31, 2012

November 6, 2012

Financial markets react to uncertainty

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11/5/12 - Heading Home

November 5, 2012

Today’s post will be a short one, as I’m finishing up at Commonwealth’s National Conference before traveling home—and also, frankly, because there’s not a lot of news.

The papers are focusing on the final day before the election, with the candidates and campaigns dashing around trying to do the one last thing that might make a difference. Recovery from Sandy is the other big story: human-interest components, details on specific problems, and speculation about the storm’s overall and long-term effects.

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Market Thoughts Video for November 2012

November 5, 2012

[youtube=http://youtu.be/koalukAlgiM?hd=1]

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11/2/12 - Comparing the Candidates on Taxes

November 2, 2012

As the election nears, and the race remains tight, I think it’s appropriate to consider what both candidates would mean for various issues. Taxes are certainly one of the most prominent areas of debate, so let’s take a look at both candidates’ proposals and their potential consequences.

Of course, neither candidate has been very forthcoming about what, exactly, he plans to do. We therefore have to make some guesses and inferences about what their general assertions and varied proposals really mean. Another problem is that whatever is proposed by the White House, from either side, must be passed by Congress, which looks likely to be divided again between the Democrats and the Republicans. So, any analysis of the new president’s plans may not be a good guide to what actually happens.

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11/2/12 - Despite Sandy, the Economy Continues to Strengthen

November 2, 2012

Another day for optimism, I guess, as several good economic reports showed up over the past couple of days.

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11/1/12 – Countdown to the Election: 5!

November 1, 2012

The papers today are all about elections, and with five days to go, both sides are pushing as hard as they can. Group dynamics are one focus—women had their day in the sun last week; this week, it seems to be Latinos, per the front-page story in the Wall Street Journal (WSJ), “Election May Hinge on Latino Turnout.”

The focus also continues to be on the swing states, where Obama still seems to have an edge. The WSJ has “Polls: Obama Ahead in 3 Key States” on page A9, the Financial Times (FT) has “Obama and Romney vie for every last vote in a handful of states” on page 4, and the New York Times (NYT) has a good explanation of the situation from Nate Silver on page A12: “When State Polls Differ from National Polls” lays out the pros and cons of how his models incorporate both. Bottom line from Silver is that Obama probably has a sustainable national lead, on top of the lead reported in swing states, and that, based on his numbers, a Romney popular vote win and an Obama Electoral College win seems unlikely.

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