April 24th, 2017
It’s not surprising that I don’t know anyone who owns a Tesla, given that total sales since the company was founded in 2003 barely top 200,000 vehicles (and all but 12 were sold in Hollywood).
In contrast, General Motors typically sells more than a half million vehicles in a quarter. Worldwide, there are more than 907 million consumer vehicles and 329 million commercial vehicles in use, leaving Tesla with a market share of just above 0%.
What is surprising is that Tesla is now the number one auto manufacturer in America, based on market cap (although its rank has recently been floating around between one and two).
How can a company that’s unprofitable and that sells vehicles that almost no one owns be the country’s top auto maker? Granted, GM and Ford aren’t the companies they used to be, but Tesla isn’t even close to what GM and Ford are now.
Tesla’s high market cap is a result of America’s love affair with all things considered to be green, media hype, Hollywood hype and Elon Musk hype. It’s appropriate that the company is named after Nikola Tesla, whose alleged invention of an electric car in the 1930s turned out to be a hoax.
Having never owned or even driven one, I can’t say whether Tesla vehicles should be the next big thing. Online reviews aren’t very helpful, either. Car and Driver gives the sleek Tesla Model S five stars, while the first review on Consumer Affairs gives his Tesla one star and says, “It’s worse than you can possibly imagine … ”
But it’s really not about cars, is it? Read the rest of this entry »
April 17th, 2017
Rising interest rates, higher inflation and tighter monetary policy should be bad news for bonds. Yet investors have been buying record volumes of new bonds.
- Highly rated U.S. companies issued $414.5 billion of debt during the first quarter, a record for any quarter.
- Dealogic reported that companies and governments in emerging markets sold $178.5 billion of dollar-denominated debt in the first three months of the year, the best first quarter on record.
- U.S. companies with junk-bond ratings issued debt totaling $79.6 billion, double from a year earlier.
Why are bonds so popular now?
Economic growth remains uncertain. There’s been plenty of good economic news of late.
Chart from Motley Fool. Numbers are in millions of dollars.
The unemployment rate fell to 4.5% in March – or 8.9% if you use the U-6 rate, which even Fed Chair Janet Yellen seems to finally agree is more accurate. The labor force participation rate, which was 62.6% on November, has nudged up to 63%. New orders are up, capital expenditures are up and housing starts are up.
Yet there’s still plenty of uncertainty about the economy, which could be affected by actions in the Middle East, Russia, Korea or elsewhere.
Read the rest of this entry »
April 10th, 2017
The Federal Reserve Board’s quantitative easing program was an unprecedented monetary experiment that dumped trillions of dollars of new money into the economy.
Historically, adding that much money to the economy should have caused hyperinflation, but the economy was so weak, it took the Federal Reserve Board eight years of loose monetary policy to boost the U.S. inflation rate to 2%.
Now, though, some Fed members think that 2% isn’t enough.
Readers old enough to vote during the Carter and Ford years remember when the Fed’s role was to lower inflation, not raise it. In 1974, inflation hit 11.03%, and from 1979 through 1981 inflation reached 11.22%, 13.58% and 10.35%. In the Ford era, Whip Inflation Now (WIN) buttons were created. They did little to control rising prices.
We haven’t seen any Boost Inflation Now buttons, fortunately, but helping the economy by increasing inflation is the dumbest idea since negative interest rates. Given the Fed’s recent history, that may be its appeal. Read the rest of this entry »
April 3rd, 2017
“It’s like a perfect storm. The cheats are going away, the volatility is going down and the costs are going up.”
Haim Bodek, former head of electronic volatility trading, UBS AG
You could conclude, as Credit Suisse has in a new report, that high-frequency trading is so influential, it “has reshaped the financial industry in its image.”
Or you could conclude, as The Wall Street Journal has, that high-frequency trading is a failing niche on Wall Street.
High-frequency trading uses algorithms and technology to make trades at mega-fast speeds to take advantage of price inefficiencies. Author Michael Lewis brought public attention to high-frequency trading when he published his book Flash Boys in 2014, which claimed that the stock market is rigged.
We’ve railed against HFT as far back as 2011, noting that the majority of trades taking place were being driven not by company performance, but by “tiny inefficiencies that only computers can detect.”
At the time, HFT accounted for 73% of all equity trading in the U.S., up from 30% four years earlier, based on research from TABB Group.
By 2016, though, high-frequency trading accounted for just under half of all stock trading. That was about even with the previous three years, but more than double what it had been in 2006, Credit Suisse noted. Read the rest of this entry »
March 27th, 2017
“If you don’t buy this magazine, we’ll kill this dog.”
So said a cover of National Lampoon back in 1973. We’re reminded of the infamous cover when we reflect on the ignoble fate of the American Health Care Act (AHCA), which was meant to replace the widely disliked Affordable Care Act (ACA), aka Obamacare.
Republicans in Congress were faced with a similar choice last week. While the Republicans gained a majority based largely on the promise of overturning Obamacare, polls showed the AHCA was also unpopular. A Quinnipiac University poll found that only 17% of American voters approved of the AHCA, while 56% opposed it.
About one in a thousand voters knows what’s in the American Health Care Act, but given media propaganda about Americans being left to die without government-subsidized health insurance, it’s understandable why the act was unpopular.
It didn’t help that the Congressional Budget Office predicted that the proposed legislation would result in 24 million Americans lacking health insurance by 2026 (note: the CBO also predicted that, thanks to Obamacare, the individual market would enroll 26 million by this year. Instead, enrollment is just 10 million). Read the rest of this entry »
March 20th, 2017
Why has the stock market been going bonkers, even as interest rates have begun to rise?
CNBC sums it up in two words: “animal spirits.” Wall Street types aren’t talking about the ghosts of dead puppies when they use the term “animal spirits.” It’s a reference to human exuberance based on expectations.
The term was a concoction of John Maynard Keynes, the guy who has been revered by liberals everywhere because of his notion that government spending is good for the economy. Of course it’s not — when government spends, we pay — but politicians, journalists, academics and even many economists who should know better like to be called neo-Keynesians, so they follow along.
Coming up with the term “animal spirits” to describe human behavior is perhaps Mr. Keynes’ second worst offense.
Any time an alleged expert makes a reference to “animal spirits,” he or she gets quoted, since it sounds like deep thinking to most journalists and at least it’s more colorful than saying “consumers are feeling more confident about the economy, because their employers are no longer being regulated into bankruptcy.” Read the rest of this entry »
March 13th, 2017
America’s free enterprise system was built on enterprise. Now, all that’s left is “free.” Not free, as in the freedom to work hard and prosper, but “free,” as in free money, free time, free drugs and free entitlements.
But, of course, there’s no such thing as a free lunch; when something is free for some, others have to pay for it. That would be middle-class taxpayers, of course. And yet they not only allow it to happen, they often encourage it by re-electing the same politicians and voting against real change.
Much of the bill won’t go to today’s middle class. It will go to our children. Baby boomers, who are so into nurturing and providing the best for their kids, have stuck them and their grandchildren with a whopping bill.
Quoting Lacy Hunt, an economist with Hoisington Investment, The Wall Street Journal noted that debt in the U.S. now totals more than $69 trillion. It’s more than doubled since 2000, when Fed statisticians recorded the debt as being $30 trillion.
A doubling over more than 16 years may not seem so bad, but the economy hasn’t grown along with the debt. In 2000, debt was 294% of GDP. Today, it’s 370% of GDP. Debt will not improve the quality of life for your children as they grow and try to raise families.
Consider what’s happening. Read the rest of this entry »
March 6th, 2017
In a capitalist country like ours, hard work is supposed to be rewarded and slothfulness is considered one of the seven deadly sins.
So what to make of the “quiet catastrophe,” which George Will describes as follows: “After 88 consecutive months of the economic expansion that began in June 2009, a smaller percentage of American males in the prime working years (ages 25 to 54) are working than were working near the end of the Great Depression in 1940, when the unemployment rate was above 14%. If the labor-force participation rate were as high today as it was as recently as 2000, nearly 10 million more Americans would have jobs.”
If even half of those 10 million men were working, the economy would be growing at a faster rate, productivity would increase and consumer spending would be higher. So why are they out of work when the economy is allegedly booming and the unemployment rate has fallen to just 4.8%?
Of the 23 affluent countries in the Organization for Economic Co-operation and Development, the United States ranks 22nd, ahead of only last-place Italy, in 25-to-54 year-old male labor-force participation.
Two plausible explanations exist—and neither one is complimentary to the economic policies of former President Obama or his predecessors. Read the rest of this entry »
February 27th, 2017
The U.S. Supreme Court isn’t the only influential government entity that President Trump will have an opportunity to make his mark on.
The Federal Reserve Board will likewise bear the Trump brand in the not-too-distant future. Two of the seven seats on the Federal Reserve Board of Governors are already vacant and now a third governor, Daniel K. Tarullo, has announced that he will step down in April. Called the “lead architect of post-crisis financial regulations plans” by The Wall Street Journal, Tarullo is not likely to be replaced by a pro-regulation governor.
In addition, the Fed’s influential general counsel Scott Alvarez, who has sometimes been referred to as “the eighth governor,” will retire this year after a 36-year career at the central bank. And the leadership term of Chair Janet Yellen expires in January 2018, while Vice Chair Stanley Fischer’s term expires in June.
The changes are likely to result in a different perspective for the board, which has been dominated by ”academics who don’t know how finance and the economy really work,” according to Danielle DiMartino Booth, a former Federal Reserve Bank of Dallas staffer and author of a new book, Fed Up: An Insider’s Take on Why the Federal Reserve Is Bad for America.
Booth describes “a tribe of slow-moving Fed economists who dismiss those without high-level academic credentials,” and she counts Ms. Yellen and predecessor Ben Bernanke among them.
“Central bankers have invited politicians to abdicate leadership authority to an inbred society of Ph.D. academics who are infected to their core with groupthink, or as I prefer to think of it: ‘groupstink.’”
We hope the final copy offers more wit and insight than that, but you likely get the idea. Read the rest of this entry »
February 20th, 2017
Imagine creating a federal agency that is accountable to no one.
Its funding is not approved by Congress. It is funded directly and automatically by the Federal Reserve.
Its current unelected director may have been appointed illegally, as the U.S. Supreme Court has ruled that other appointments made that day were illegal “recess appointments.”
Its director “enjoys more unilateral authority than any other officer in any of the three branches of government of the U.S. Government, other than the President,” according to the U.S. Court of Appeals, which ruled that the federal agency’s governing structure is unconstitutional. (Last week, the court granted a request for a review by a broader set of judges.)
Many are calling President Trump autocratic, but he didn’t create this most autocratic of government agencies. It was created as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which the Trump Administration is seeking to change.
Most Powerful, Least Accountable
The agency, the Consumer Financial Protection Bureau (CFPB), is to consumer protection as the Affordable Care Act is to affordable care. It does the opposite of what its name suggests it does. Read the rest of this entry »