Archive for the ‘The Economy’ Category
Friday, March 7th, 2014
You’ve probably heard that corporate America is swimming in cash. Something like $4 trillion worth of it. And once corporate America starts spending it, the economy will boom again, jobs will be created, GNP will soar and the stock market will boom ever higher.
Corporate cash is the good news. Corporate debt is the bad news.
While cash is at record levels, corporate debt now exceeds the level it was at in 2008 and 2009. In case your memory is really short, that’s when America was wondering whether its financial system would survive.
But temper your nostalgia for those bad old days. When we say “exceeds,” we mean that corporate debt is 35% higher than it was then.
Net debt – what you get when you subtract cash from total debt – has been climbing steadily for American companies since 1998, as the chart shows. It doesn’t mean corporate America is insolvent (not yet, anyway), but it does have nasty implications for future corporate growth, profitability, unemployment and income growth.
Given all of that cash on hand, some are making heady predictions about accelerating capital expenditures. Goldman Sachs’ David Kostin predicted that capex spending will grow 9% in 2014, compared with 2% growth in 2013.
He may be right, given the need to replace aging and outmoded equipment, but a prediction is only a prediction. And more capex spending will mean less cash for paying down corporate debt.
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Tags:Consumer Debt, Corporate Debt, Debt, Economic Data, Economy, Government Debt
Posted in Consumer Debt, Corporate Debt, Debt, Government Debt, The Economy | No Comments »
Friday, February 21st, 2014
Russian President Vladimir Putin is a busy man. He’s found time to prop up Syrian dictator Bashar Assad, negotiate a face-saving chemical weapons deal with President Obama and support violence against Ukrainians, all while overseeing the construction of the most expensive Olympic Village in the history of the games.
The Olympic Village at Sochi had a projected cost of $12 billion. The actual cost was $50 billion. So no more complaining about The Big Dig. It could have been worst.
And, like The Big Dig, all that money failed to buy quality construction. Stories abound of shoddy construction and faulty work. The Olympic Village is more like a Potemkin Village.
At the Olympics, color, pageantry and the world’s best athletes draw the television cameras, while a few hundred kilometers away, the Ukrainian government, with help from the Russian government, is killing its people. This week, violence in Ukraine was the worst it’s been since the breakup of the Soviet Union.
As with Syria, the U.S. is leading from behind. While the European Union has at least announced sanctions, the U.S. is only considering sanctions. President Obama denounced Ukraine violence “in the strongest terms,” but talking is the weakest action.
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Tags:China, Europe, Olympics, Vladimir Putin, World Economy
Posted in China, Europe, The Economy, Vladimir Putin, World Economy | No Comments »
Friday, February 7th, 2014
With all of the talk in Washington about equality, you have to wonder how the gap between rich and poor has widened to the point where even The New York Times is questioning the future survival of the middle class.
Some have, indeed, made the transition from middle class to upper class and are enjoying a more comfortable lifestyle. They may not be part of the 1%, but they’ve broken away from the middle.
The New York Times noted that, “In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995 … Even more striking, the current recovery has been driven almost entirely by the upper crust … Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.”
Put aside your class envy for a minute, though, and recognize that consumer spending by the top 5 percent is keeping the economy out of a recession – albeit, the current recovery has been so weak we may as well be in a recession.
The Great Divide
And while some are moving up, many more are falling down, creating a greater divide than ever between rich and poor. Consider a few statistics from a cheery blog called, The Economic Collapse (and republished on Zerohedge): (more…)
Tags:Economic Data, Employment, Federal Debt, Government Spending, President Obama, The Economy
Posted in Deficit, Economic Growth, Federal Budget, Job Creation, President Obama, The Economy, Unemployment | No Comments »
Friday, January 31st, 2014
Why didn’t he think of this sooner?
President Obama announced during this week’s State of the Union address that he is going to bypass Congress and issue more executive orders during the last three years of his presidency.
You might think that sounds like a dictatorship. After all, our government was formed around a foundation of checks and balances, with Congress and the judicial branch of government keeping the President from acting on his own. He’s not a king, a tyrant or a despot. He’s president of a democratic republic, not a banana republic.
But think about it. We’ve been waiting for years for Congress to handle tough issues like immigration reform, tax reform, Social Security reform, Medicare reform, trade reform and budget reform. Nothing ever happens. When Congress does handle tough issues, we end up with laws that run more than 2,000+ pages long, that no one understands and that bear little resemblance to their original intent.
Do we really want another Affordable Care Act or another Dodd-Frank Consumer Protection Act? Do we really want all of those milquetoast compromises? And what about the billions in pork that have to be added to even the most basic bill before Congress approves it?
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Tags:Economy, Employment, Housing, President Obama, State of the Union
Posted in President Obama, State of the Union, The Economy, U.S. Congress, Unemployment | No Comments »
Friday, January 10th, 2014
The government’s stimulus programs are not working and neither are a growing number of Americans.
In October, we noted that the number of Americans not working exceeded 101 million, setting a record. But records are made to be broken and the number today is even higher – even while the official unemployment rate continues to drop.
When we wrote in October, the U.S. Bureau of Labor Statistics (BLS) reported that 90,609,000 Americans who are 16 or older were neither working nor looking for work. Since then, the number has increased to 91,808,000.
But that number doesn’t include unemployed Americans who are looking for work, which was 10.4 million in December, bringing the total number of Americans who are not working up to more than 102 million. That’s an addition of nearly 1 million since October … during what has widely been viewed as a period of economic recovery.
The civilian labor force fell from 155.3 million to 154.9 million in December, bringing the labor participation rate down from 63.0% to a 35-year low of 62.8%.
While the BLS expected 197,000 jobs to be created in December, only 74,000 jobs were created. That’s a miss of more than 100,000 jobs. The BLS says inclement weather affected the number of forced part-time jobs being created. “Forced part-time” jobs are those where a former marketing manager who has been out of work for two years runs out of money and takes a position working the deep fryer at Wendy’s because there are no other options.
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Tags:Economic Data, Economy, Employment, Quantitative Easing, War On Poverty
Posted in Quantitative Easing, The Economy, Unemployment | No Comments »
Friday, December 20th, 2013
So the taper begins in January. Big deal.
That was the market’s initial reaction anyway. In fact, the market viewed this week’s announcement as a positive, setting yet another record. Conversely, when Fed Chairman Ben Bernanke first brought up the possibility of a taper in May, he sent the market reeling. So talking about buying bonds has a greater impact than actually buying bonds. Who knew?
Some believe the stock market rallied because The Fed made it clear that it will remain accommodative and that interest rates will remain near zero until the apocalypse. That being the case, though, why did bond yields soar? Go figure.
The taper announcement is not a big deal, though, because everyone knew it was coming – everyone except for the economists whose job it is to tell us when tapering is coming. First they guessed wrong that it was coming in October, then they guessed wrong that it wasn’t coming in December. Keep that in mind when you hear them tell you the economic benefits of more bond buying and more government spending.
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Tags:Bernanke, Bonds, Economy, Federal Reserve Board, Quantitative Easing
Posted in Ben Bernanke, Bonds, Federal Reserve Board, Quantitative Easing, Recovery, Tapering, The Economy, The Federal Reserve Board | No Comments »
Friday, December 6th, 2013
What was I thinking?
Over the past couple of years, I’ve preached caution. Corporate profits were down and unemployment was up. The economy wasn’t growing, but the federal debt was. Iran was developing nuclear capabilities while the entire continent of Europe was going bankrupt. And investors were still shell shocked from the 2008 financial meltdown.
Not a good time to invest in stocks. Not a good time to invest, period. Common sense dictated restraint.
And the federal government’s answer was to spend as much as possible, while printing more money and buying more bonds than at any time in history. After record stimulus spending and $4 trillion in bond buying, common sense would suggest high inflation and a sagging stock market; a good time to invest in gold and other hard assets.
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Tags:Bernanke, Economy, Federal Reserve Board, Investing, Stock Market
Posted in Ben Bernanke, Investing, Monetary Policy, Quantitative Easing, Risk Management, Stock Market, The Economy, Volatility | No Comments »
Friday, November 22nd, 2013
A taperphobia epidemic has Wall Street in a panic yet again. “Taperphobia” is an irrational fear of common sense. Symptoms include a falling stock market, soaring bond yields and ongoing anxiety attacks. There is a cure, but it’s expensive – it costs at least $85 billion a month, but that’s enough to cure all of Wall Street and send the stock market soaring.
Taperphobia was discovered by Federal Reserve Chairman Ben Bernanke in May, when he invented a new definition for the word “taper,” using it to describe the gradual slowdown of quantitative easing (another phrase he invented, which translates to “buying bonds forever”).
Symptoms of taperphobia subsided through calm reassurances of ongoing bond buying to eternity, but they returned in October, because most economists had predicted with absolute certainty that tapering would begin then.
It didn’t, so taperphobia subsided again. But now, thanks to discussions by board members included in minutes of the Federal Reserve Board, many believe that tapering will begin soon.
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Tags:Bernanke, Bonds, Economy, Janet Yellen, Quantitative Easing
Posted in Ben Bernanke, Bonds, Federal Reserve Board, Janet Yellen, Quantitative Easing, Tapering, The Economy | No Comments »
Friday, November 15th, 2013
In May, when Fed Chairman Ben Bernanke said that quantitative easing could not continue forever, the stock market tanked and the word “tapering” became the most feared word on Wall Street.
This past week, during her Congressional hearing as President Obama’s nominee to become the next chair of the Federal Reserve Board, Janet Yellen said, “QE cannot continue forever.” The market moved higher.
Is it Ben morphing into Janet or Janet morphing into Ben?
Both the current Fed chair and his assumed successor assured us that the party’s not over, that there are still plenty of bonds to be bought.
But “forever” seems farther away now that it was back in May.
Ms. Yellen made it clear during her hearing that there’s still plenty of work for QE to do. Citing high unemployment, she said, “It is important not to remove support, especially when the recovery is fragile and the tools available to monetary policy, should the economy falter, are limited.”
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Tags:Janet Yellen, Quantitative Easing, The Economy, The Federal Reserve Board, Unemployment
Posted in Janet Yellen, Quantitative Easing, The Economy, The Federal Reserve Board, Uncategorized, Unemployment | No Comments »
Friday, November 8th, 2013
At least it sounds like good news.
The U.S. Bureau of Economic Analysis announced that the economy grew at a rate of 2.84% during the third quarter. That’s up significantly from recent growth, which has been below 2%.
But if you find a silver lining in today’s economy, it’s sure to be surrounded by a black cloud. There are a few black clouds in this report:
- Preliminary numbers are almost always wrong. Funny how sometimes they’re overly optimistic.
- In spite of the higher growth rate, consumer spending is at its lowest level since the second quarter of 2011. In a healthy economy, consumer spending usually drives growth.
- Fixed investment, an indication of capital spending, dropped from 0.96% in the previous quarter to just 0.63%.
- Inventory doubled from 0.41% the previous quarter to 0.83% of the 2.8%. An increase in inventory is an underwhelming sign of economic growth.
Interestingly, government grew 0.04%, in spite of sequestration cuts. The numbers predate the 16-day government shutdown.
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Tags:Economic Growth, Economy, Eurozone, Federal Reserve Board, GDP, Quantitative Easing
Posted in Economic Growth, Eurozone, Gross Domestic Product, Quantitative Easing, The Economy | No Comments »
