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 »

In Defense of Capitalism

May 9th, 2016

“The problem is we don’t have enough free markets.”

                                                                  Ron Paul

The U.S. economy is operating with the invisible hand tied behind its back.  And that’s unlikely to change if we elect another President Clinton or a President Trump.

Unfortunately, capitalism has become unfashionable.  Media, academia, some members of Congress and others would have you believe that “profits” are bad and income inequality is America’s biggest challenge (Note: Socialist actors like Sean Penn, Susan Sarandon and Jane Fonda also make plenty of profits and contribute little to the economy.  When are they going to equalize their incomes?).

When’s the last time you heard a presidential candidate—or any politician, for that matter—extoll the virtues of capitalism?  This year, we have a socialist running for president and millions of millennials supporting him.

The Animas River was clean before the EPA’s Gold King Mine disaster.  Why aren’t activists protesting against the EPA?

The Animas River was clean before the EPA’s Gold King Mine disaster. Why aren’t activists protesting against the EPA?

Hillary Clinton reacted by moving almost as far to the left as Bernie Sanders.  She did mention capitalism in the nearly ignored Democratic debates, but only to say that we need to save capitalism from itself.  She’s half right … we need to save capitalism—from politicians, academics and the legion of “activists” who are clueless about economics.

You’d think that as a billionaire, presumed Republican nominee Donald Trump would be a die-hard capitalist, but he is a protectionist whose immigration policies, if enacted, would continue to stifle business formation.  Given that he has also personally benefited from eminent domain, his support of capitalism appears to be of the crony type.

Read the rest of this entry »

The Flim-Flam Economy

May 2nd, 2016

The absurdity of today’s flim-flam economy can be summarized when the events of the past week are considered together:

  • The U.S. economy grew at an annualized rate of just 0.5% during the first quarter
  • Corporate profits are the lowest they’ve been since 2009
  • The current bull market is now the second longest in history
  • The Federal Reserve Board, to no one’s surprise, elected yet again not to raise interest rates

The conclusion that can be drawn is that, while the U.S. is not yet a socialist country, it is no longer a capitalist country, either.  There is a seeming collusion between political leaders and central bankers with the net result being more and more government control over our lives amid the illusion that all is well, because, after all, the stock market moves in only one direction. Equities

Mainstream media, with few exceptions, reinforce the illusion, cheerleading for the Obama Administration as it continues to break records for its ever-increasing volume of new regulations.  Burdensome new regulations reduce corporate profits, which should result in lower stock prices.  But the Fed has somehow managed to circumvent reality and juice the market ever higher.  Read the rest of this entry »

Upending the World

April 25th, 2016

Logic has taken a 180-degree turn, running at full sprint in the opposite direction from where it should be.

As one small example, consider the good fortune of Hans Peter Christensen, recently profiled in The Wall Street Journal, who is currently being paid by his bank to borrow money.  Christensen owns a home in Aalborg, Denmark, where negative interest rates resulted in his bank paying him the equivalent of $38 in interest for the quarter for borrowing money.

Meanwhile, in other countries with negative interest rates, some banks are charging customers for their deposits.  So the bank pays you to take its money and charges you to take your money. Zero Rates

Such is the logic of today’s central bankers in much of Europe and Japan, where rates have been negative for more than a year.

The United States has not adopted negative interest rates—but Fed Chair Janet Yellen said in February that the Fed is studying the feasibility of doing so, “to give the economy an extra boost,” according to The Wall Street Journal. Read the rest of this entry »