July 2012 – Wenning Advice

Gross Domestic Product, Recovery, The Economy, The Federal Reserve Board

GDP Doesn’t Stand For Great DePression

July 28, 2012

Measuring growth in Gross Domestic Product (GDP) is like taking the economy’s temperature.

The annualized growth rate of 1.5% at the end of the second quarter – which is a sliver above the projected 1.4% rate – indicates that the patient is still alive, but barely.

The economy is not quite on life support, but compare that growth rate with cumulative growth in the three years following previous recessions. For the four recessions in the ‘60s, ‘70s and ‘80s, the cumulative growth fell between 15% and 20%. For the most recent recession, the cumulative growth rate for three years is just 7.13%, according to The Wall Street Journal. read more

Over Fed

wenningadvice

July 20, 2012

To QE3 or not to QE3? That is the question the Federal Reserve Board has been pondering for months … or at least Fed observers think it’s being pondered.

But, as we’ve said before, if the first two rounds of quantitative easing did little to boost the economy, why would a third round help? In fact, each successive round of Fed action has had less of an impact than the one before it.

Quantitative easing is the printing of money by the government to buy bonds, which is supposed to stimulate consumer spending. It hasn’t worked, because consumers are still broke and many have maxed out their credit cards. read more

Dancing With A Cow

wenningadvice

July 17, 2012

While Europe’s sovereign debt crisis has beaten down the U.S. stock market, it has helped the bond market.

Because the European bond market is in such poor shape, U.S. bonds are a relatively healthy investment. Investors have been buying U.S. bonds, because they look good relative to European debt. But that’s like dancing with a cow because your only other option is a pig.

U.S. yields are at record lows, even though U.S. debt has now reached $15.9 trillion, up from $9 trillion in 2007. The 10-year Treasury yield, which has averaged 4.88% over the past two decades, hit a record low of 1.44% on June 1, down from its high for the year of 2.4% percent on March 20. read more

An Anorexic Recovery

wenningadvice

July 17, 2012

If we could put the recovery of the past few years on a scale, it would be the thinnest in history. Recently, though, it has become downright anorexic.

Goldman Sachs announced today that it is revising down its estimate for second quarter gross domestic product growth to just +1.1%.

Retail sales were expected to gain 0.2% in June, compared with a year ago, but could not even manage that anemic gain and instead declined 0.5%. It was the third consecutive month of decline for the retail sector. Food and beverages, clothing and non-store retailers posted modest gains for the month. read more

A Step in the Right Direction?

wenningadvice

July 11, 2012

An unemployment rate above 8% is no longer news – it’s been above 8% for 41 months, which is the longest streak since the Great Depression.

However, during the Clinton Administration the federal government narrowed the definition of unemployment. Add back in those who have given up looking for work or who are underemployed in temporary or part-time jobs and the unemployment rate becomes 14.9%.

That’s not as bad as Spain, Greece or Italy. But it’s certainly not good news.

Yet President Obama called it “a step in the right direction.” read more

What Recovery?

wenningadvice

July 11, 2012

Maybe we should be used to high unemployment … but now the bad news on jobs is coupled with queasiness about corporate earnings.

The latest earnings season began with the S&P 500 dropping 1% yesterday. It has dropped 2.5% over the past four trading days. The Dow Jones Industrial Average was down 0.8%

Based on estimates compiled by Bloomberg analysts, profits for S&P 500 companies fell 1.8 percent in the second quarter, marking the first decline since 2009. More troubling, though, is that the drop is likely part of a trend. What can we expect in the third and fourth quarters? read more

Finally – U.S. Drags Down European Market … Japan Falls, Too

wenningadvice

July 11, 2012

We’ve been writing about Europe dragging down the U.S. stock market for more than a year now. We, of course, take no satisfaction in it, but it’s kind of a “man bites dog” story to report that U.S. jobs data moved European markets lower at the end of last week.

Germany was down 1.9%, Spain was down 1.5% and the UK market was flat.

Meanwhile, while bailouts all the rage in Europe and the U.S., debt-laden, over-spending Japan is intent on joining in the fun. Japan’s Finance Minister suggested the government could run out of money as soon as October if a bond bill is not passed. Japanese stocks fell in response. read more