Grading on a Curve

July 18th, 2016

 “We do not target the level of stock prices.                     That is not an appropriate thing for us to do.”

                                    Fed Chair Janet Yellen

 It’s the equivalent of social passing or grading on a curve. While the stock market is breaking new records, its recent performance is not a reflection of reality.

As Larry Fink, chairman and CEO of BlackRock, told CNBC’s “Squawk Box,” “I don’t think we have enough evidence to justify these levels in the equity market at this moment.” Buybacks

He said the recent rally has been driven by institutional investors covering shorts (i.e., hedging bets that stock prices would fall), and not by bullish individual investors. In fact, he noted that outflows in mutual funds show that individual investors are becoming squeamish about stock prices.

Institutional investors were short going into Brexit, but are recalibrating their portfolios, Fink said, given that the Brexit aftershock has not been as long-lasting as expected. While some may have been concerned about the economic impact of the United Kingdom voting to leave the European Union, ultimately its impact on markets was muted by the knowledge that Brexit would most likely keep the Fed from increasing interest rates anytime this year.  Read the rest of this entry »

Can We All Be Greeters at Wal-Mart?

July 11th, 2016

Job reports typically report on jobs as if they are a commodity; a job is a job, whether you’re a CEOs or a greeter at Wal-Mart.

So it’s good news that 287,000 new jobs were added to the economy in June—assuming you believe government statistics—but it’s bad news if the jobs are so mediocre, illegal immigrants wouldn’t work them. Older workers

First, let’s consider the numbers. In May, the experts predicted that 160,000 new jobs would be created, but the U.S. Bureau of Labor Statistics reported that only 38,000 were created. The unemployment rate dropped to 4.7%, though, because 458,000 workers dropped out of the labor force and were no longer counted in the statistics.

For June, experts predicted that 175,000 new jobs would be created, which is 112,000 fewer than the BLS reported. At the same time, the BLS revised the May figure downward to just 11,000 new jobs. The question no one seems to be asking is why there was so much volatility between May and June. How does the economy add virtually no jobs one month and then produce 26 times as many jobs the following month? Even the stock market isn’t that volatile.

The report prompted headlines such as, “U.S. employment rebounds strongly in June, calming fears of economic slowdown” (The Washington Post), “Job growth surges in June as employers add whopping 287,000 jobs” (USA Today) and “Jobs Roar Back With Gain of 287,000 in June, Easing Worry” (The New York Times).

And, by the way, the unemployment rate increased from 4.7% to 4.9% in June, primarily because some Americans rejoined the work force.  Read the rest of this entry »

Happy Dependence Day

July 4th, 2016

On the fourth of July, we celebrate our freedom from tyranny. Yet King George would be envious of the control the U.S. government, and state and local governments hold over American citizens today.

Our freedom is eroding and, unless major changes are made, someday it will be gone.  If America is the “land of the free,” why are college campuses and media increasingly accepting only “progressive” viewpoints?  Diversity is a great thing, but it should go beyond race and gender to include differing points of view.SR-fed-spending-numbers-2012-p8-1-chart-8_HIGHRES

President Obama has said that he is not a king, but he has acted like one, signing a seemingly endless stream of executive orders. New laws are no longer passed by Congress, but are created by executive order (environmental regulations, dropping restrictions on Cuba) or by one-party vote (the Affordable Care Act, Dodd-Frank Wall Street Reform and Consumer Protection Act).

And, increasingly, Americans are trading their independence for government dependence.

Consider some of the ways in which we are losing our freedom. Read the rest of this entry »

To the Back of the Queue

June 27th, 2016

If I go there will be trouble
And if I stay it will be double
So come on and let me know
Should I stay or should I go?

The Clash                            

Maybe it was the fear of Britain being overrun by immigrating Turks.  Maybe Brits had enough of being told what to do by elitist policy makers in Brussels.  But Great Britain’s vote to leave the European Union was also a rebuke of President Obama.

You may recall that President Obama announced on his recent visit to the UK that if Brits voted to leave the EU, the UK would be moved to “the back of the queue” for trade deals.  Maybe he’ll call his new policy with the United Kingdom “trading from behind.” EU

The comment didn’t endear him to British voters, but our president wasn’t exactly an anglophile to begin with, having confessed to removing the bust of Winston Churchill from the White House.  To our knowledge, he hasn’t replaced it with a bust of Che Guevara, but he’s treated Iran’s mullahs with more respect than he has our friends the Brits.

Perhaps after watching the Dow Jones Industrial Average drop more than 500 points during the early minutes of trading, President Obama’s tone was more conciliatory on Friday, as he said, “The people of the United Kingdom have spoken, and we respect their decision,” adding that, “The special relationship between the United States and the United Kingdom is enduring.”  Read the rest of this entry »

Theater of the Absurd

June 20th, 2016

Vladimir: “Well? What do we do?”

Estragon: “Don’t let’s do anything. It’s safer.”

From “Waiting for Godot” 

In Waiting for Godot, two men spend more than an hour talking nonsense and it’s called Theater of the Absurd.

After last week’s Federal Open Market Committee (FOMC) meeting, Fed Chair Janet Yellen spent an hour talking nonsense and it was called a press conference. But, really, it could be argued that the Fed is at least as absurd as anything in Waiting for Godot. Much of the dialogue in Godot could, in fact, have come from the FOMC.  For example …

Vladimir: “I don’t understand.”

Estragon: “Use your intelligence, can’t you?”

Vladimir uses his intelligence.

Vladimir: (finally) “I remain in the dark.”

Janet Yellen: “Although the unemployment rate has declined, job gains have diminished.”talawa waiting godot

Estragon: “I can’t go on like this.”

Vladimir: “That’s what you think.”

The FOMC has continued ZIRP (zero interest rate policy) for 90 months. Estragon and Valdimir waited for Godot for only a couple of days.  Read the rest of this entry »

More Destruction, Less Creativity

June 13th, 2016

Business is thriving … for bankruptcy lawyers.

Last week we noted the dismal employment report. The commercial bankruptcy statistics are yet another sign that all is not well with the U.S. economy, in spite of the continuous cheerleading from the media and President Obama’s economic propaganda tour.

Commercial bankruptcy filings have increased each month year-over-year for the past seven months. Total U.S. commercial bankruptcy filings in May increased 32% from the previous year to 3,358, according to the American Bankruptcy Institute and Epiq Systems. US-commercial-bankruptcies-2012-2016_05

Standard & Poor’s reported 12 defaults in May from among the companies it rates, pushing its speculative-grade corporate default rate up to 4.1%, the highest since December 2010 when the U.S. economy was recovering from the financial crisis—and up from 2.8% just five months ago.

Zerohedge noted that, “Even during the early phase of the Financial Crisis, in September 2008, when Lehman Brothers filed for bankruptcy, and when all heck was breaking lose, the default rate was ‘only’ 2.96%, before skyrocketing and eventually peaking at 12% in November 2009.”  Read the rest of this entry »

The Job Creation Snow Job

June 6th, 2016

Consider this headline from the U.S. Bureau of Labor Statistics: Unemployment rate declines to 4.7% in May; payroll employment changes little (+38,000).

Great news, right? The unemployment rate fell to just 4.7% in May, the lowest it’s been since before the financial crisis began.

But take a closer look.

The consensus was that the U.S. economy would create 160,000 jobs in May. That’s a pretty modest number—but not nearly as modest as the actual number. It turns out that the experts were off by about 420%. The U.S. economy created a meager 38,000 jobs in May.Employment

And, by the way, the BLS also announced that the economy created 59,000 fewer jobs in March and April than previously estimated. In other words, the BLS reported a net loss of 21,000 jobs. Read the rest of this entry »

Fed, Not Capitalism, Responsible for Income Inequality

May 30th, 2016

“Income inequality in the United States has been growing for decades, but the trend appears to have accelerated during the Obama administration.”                                                                                                 The New York Times

Today, America has the widest gap in income equality in history.

If capitalism is to blame, as French economist Thomas Piketty claimed in his bestseller, Capital in the Twenty First Century, how can that be?

During the past eight years, the federal government has virtually taken control of healthcare, the Internet (regs to come) and, to a great degree, the financial sector. The minimum wage has doubled in many markets and spending on entitlement programs such as the supplemental nutritional assistance program (SNAP) has skyrocketed.Gini Coefficient

In other words, America has moved much closer to socialism, with greater government control over our lives. Capitalism has ebbed, as fewer businesses are being formed and fewer still are going public.

President Obama made income inequality the main theme of his 2015 Economic Report of the President and his last two State of the Union speeches.  As Occupy Wall Street, MoveOn.org and other left-wing and left-leaning organizations have made income equality their rallying cry, the gap between rich and poor has widened.

How come? Read the rest of this entry »

Inflation: The Fed’s Red Herring

May 23rd, 2016

If you wanted to boost economic growth, which of the following would you focus on?

  • U.S. corporate taxes, which are the world’s highest and are driving businesses to relocate abroad
  • A regulatory environment in which new regulations are being issued at a record pace; for 2015, the Federal Register contained a record 81,611 pages of new regulations
  • Record government debt, which now exceeds $19 trillion
  • Falling household income, with wages down an average of 5.9% since 2007
  • Corporate profits, which fell 5.1% in 2015
  • Low productivity growth, with the average growth rate less than a third of what it was during the previous period of 1995 to 2010
  • The fact that, for the first time ever, more companies are failing in the U.S. than are launching
  • The fact that, with a dearth of initial public offerings, there are half as many public companies as there were in the 1990s
  • Low inflation

    Regulations have been the one growth industry during the Obama Administration. Above is a copy of new federal regulations for 2015. 

    Regulations have been the one growth industry during the Obama Administration. Above is a copy of new federal regulations for 2015. 

If you picked low inflation, congratulations. There is a place for you on the Federal Reserve Board.

The Fed’s focus on inflation is a result of its mandate to reduce or stabilize the unemployment rate and the rate of inflation. But its seeming obsession with a 2% rate of inflation is nonsensical. As we’ve pointed out, 2% appears to be an arbitrary number. Will the economy function better if the inflation rate is 2% instead of 2.5%? Why not 1.5%? Read the rest of this entry »

“When Free Enterprise Dies, America Dies With It”

May 16th, 2016

Public ownership has historically been the lifeblood of the American economy. Going public produced funding for growth, while providing investors with an opportunity to share in the company’s success.

Not anymore.

In the peak year of 1996, more than 1,000 companies went public.  This year, we may not have 100 initial public offerings (IPOs). To date, only 39 IPOs have been filed—a 52.4% decrease from last year. Only 20 IPOs have been priced, which is a 65.5% decrease from last year. Only $3.3 billion has been raised from IPOs, a decrease of 68.8% from last year, according to Renaissance Capital.

In January, not a single U.S. company went public. And there was no polar vortex to blame. Through the first quarter, there were only 11 IPOs, which is the worst start to a year since 2009.

So tell me again about the booming economy.

In the past, the number of newly public companies far outweighed the number of companies that converted from public to private ownership, failed, merged, were acquired or were delisted because they no longer met exchange requirements. In recent years, though, the number of companies no longer trading on U.S. exchanges has been increasing just as IPOs have been decreasing. Public Companies

In fact, the U.S. now has half as many publicly listed companies trading on its exchanges as it did in 1996. As the chart shows, America had 7,322 in 1996 and, as of last year, that number had dropped to 3,700. That’s 1,000 lower than in 1975, a date well before the boom in IPOs. Read the rest of this entry »