Posts Tagged ‘Economy’

“When Free Enterprise Dies, America Dies With It”

Monday, 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. (more…)

Let’s Ignore the Central Banks

Monday, April 11th, 2016

What if we all decided to ignore the central banks?

Granted, they have provided material for this blog non-stop from the day it started.  They keep financial journalists, economists, analysts, pundits and other financial fortune tellers employed.  They keep the stock market pumped up when it can’t achieve new records of its own merit. They appear be the only people in the world tasked with managing the economy (even if they are mismanaging it, rather than managing it).

So why should we ignore them?

They’re frequently wrong.  The Federal Reserve Board, our country’s central bank, has a history of causing, not solving crises.  Former Fed Chair Alan Greenspan is not even mentioned in “The Big Short,” but some give him top blame for causing the 2007 housing bubble and the financial crisis that followed. Benchmark

“Alan Greenspan will go down in history as the person most responsible for the enormous economic damage caused by the housing bubble and the subsequent collapse of the market,” according to The Guardian.

Noting the plunging housing prices and high unemployment in 2013, when the article was written, The Guardian reported that, “The horror story could have easily been prevented had there been intelligent life at the Federal Reserve Board in the years when the housing bubble was growing to ever more dangerous proportions (2002-2006). But the Fed did nothing to curb the bubble. Arguably, it even acted to foster its growth with Greenspan cheering the development of exotic mortgages and completely ignoring its regulatory responsibilities.”

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Set. Down. No Hike.

Monday, March 21st, 2016

The economic outlook can be summed up in five words: Everything’s great, except what isn’t.

We’ll lead with the “everything’s great” part, as seen through the filter of the Federal Reserve Board.  As Fed Chair Janet Yellen reminds us after every meeting, the Fed has two goals—lowering the unemployment rate and stabilizing prices.

The Fed’s target unemployment rate is 4.7% to 5.8% and, if you believe the U.S. Bureau of Labor Statistics (see below re: why you shouldn’t), the Fed has accomplished that goal, as the current rate is at an eight-year low of 4.9%.  The Fed’s target inflation rate is 2% and, depending on how you measure inflation, it’s close to that number.Stock Prices

“The Fed’s preferred measure, the personal consumption expenditures price index, rose 1.3% in January from the previous year, and so-called core inflation—which excludes volatile food and energy prices—was 1.7%,” The Wall Street Journal reported. “The consumer-price index rose 1% in February from a year earlier, but core CPI was up 2.3% for the year, the largest 12-month increase since May 2012.”

So the Fed could have logically declared its mission accomplished and begun to gradually increase interest rates, as was expected after December’s initial miniscule rate increase.  So why was the vote at last wek’s meeting 10-1 against a rate hike? (more…)

Mutually Assured Destruction

Monday, March 14th, 2016

Iran, North Korea and the world’s other despots may be able to take over the world without going nuclear or even firing a single shot.

That’s because much of the free world seems bent on destruction from within, done in by a Keynesian death spiral.

Apparently, no one believes in capitalism anymore.  Instead, central bankers, who now control the economy in most of the world, are hell-bent on continuing to dig the negative-interest-rate hole ever deeper, until it is impossible to climb out.

While central bankers have only made matters worse with their easier-than-easy monetary policies, they’re so deeply invested, and so far down the rabbit hole of negative interest rates, they can’t turn back. Draghi

It may not be working, but admitting as much would bruise many strong egos, scare investors and sink stock prices.  So they keep digging.

A Bigger Bazooka

A year ago, Mario Draghi, head of the European Central Bank, announced the start of an asset-purchasing program similar to the Federal Reserve Board’s quantitative easing (QE) program through which the ECB would spend €60 billion a month on Eurozone government bonds.

(more…)

Making America Great Again

Monday, March 7th, 2016

It’s clear that in spite of boisterous bad behavior, a lack of workable policies and a few very bad ideas, Donald Trump is the odds-on favorite to become the Republican nominee for president of the United States.

Why?  It may be that his theme of “Making America Great Again” is resonating with voters.

While starting trade wars and building a wall to keep out Mexicans would have the opposite impact, American greatness could emerge as the theme of this campaign.

That’s because, as the charts below demonstrate, America’s greatness has faded mightily during President Obama’s administration.  Home ownership, median family income and labor force participation has plummeted.  Meanwhile, student loan debt, the use of food stamps (aka the Supplemental Nutrition Assistance Program or SNAP), federal debt, money printing, healthcare costs and—not coincidentally—black inequality have soared.20160301_obama_0

So voters have latched onto The Donald as the anti-Obama.

Why Candidate Trump Exists

In fact, former Louisiana Governor Bobby Jindal, whose own presidential candidacy never gained any traction, notes in The Wall Street Journal that Presidential candidate Trump would not exist if not for President Obama. (more…)

Going Negative

Monday, February 29th, 2016

“More money cannot cure what too much money created.”

                                   Frank Hollenbeck

There’s nothing positive to say about negative interest rates.

If seven years of zero interest rate policy (ZIRP) has left the U.S. economy is such sad shape, how could negative interest rates help?  Negative rates have already been tried in Europe and Japan, and they have failed to boost the economy.

And yet some believe the Federal Reserve Board is considering replacing ZIRP with NIRP.  We’ve written plenty about the failings of ZIRP, or zero interest rate policy, and believe it would be foolish for the Fed to consider NIRP, or negative interest rate policy.

The bank of the future.

The bank of the future.

How does NIRP work?  As Zerohedge explained, “The process can be as simple as the central bank charging its member banks for holding excess reserves, although the same thing can be accomplished by more roundabout methods such as manipulating the reverse repo market.”

In other words, central banks created trillions of dollars in excess reserves throughout the banking system and now they want to charge banks for holding those reserves.  The idea is to coerce banks to lend the money, which should stimulate the economy.  (more…)

Nothing Lasts Forever

Monday, December 14th, 2015

If the Federal Reserve Board has used all of its policy tools during the current expansion, what happens when there’s a recession?

That’s a question worth asking, even as the Fed appears ready to raise interest rates, albeit by just a smidgen, based on the pretext that ZIRP (zero interest rate policy) is no longer needed, given today’s allegedly booming economy.

On course, the economy’s not booming and we may even be heading into a recession, assuming we aren’t already in one (it’s hard to tell in today’s slow growth-no growth economy). Average Recovery

Just one sign that the boom is an illusion is the length of the current expansion.  The average recovery since the end of World War II has been 58 to 61 months, depending on whose numbers you use.  The current “recovery” hit the 58-month milestone in April 2014 – 20 months ago. As David Stockman pointed out this week in his “Contra Corner” blog, “the only expansion that was appreciably longer than the present tepid affair was the 119 month stretch of the 1990s.”

Nothing lasts forever and even Larry Summers, the former Treasury secretary and current Harvard professor, recognizes that the current expansion may be nearing an end. As he wrote last week in a Washington Post op-ed, “U.S. and international experience suggests that once a recovery is mature, the odds that it will end within two years are about half and that it will end in less than three years are over two-thirds.  Because normal growth is now below 2 percent rather than near 3 percent, as has been the case historically, the risk may even be greater now.”

(more…)

The Big Disconnect

Monday, December 7th, 2015

Imagine being stuck in a blizzard.  You look out your window and can see the snow piling up outside, yet the meteorologist on your TV is forecasting continuing sunshine and near tropical weather.

That level of disconnect is similar to that shown by some members of the Federal Reserve Board, who are preparing for liftoff, even as the economy implodes like a SpaceX rocket. The difference, though, is that the SpaceX failure was an unmanned flight; when the Fed acts, we’re all on board, like it or not.Fed Meteorologist

We recently reported that a couple of members of the Federal Open Market Committee had spoken publicly in favor of a rate hike. But this past week, they were no longer the outliers, as even Fed Chair Janet Yellen joined in during a speech before the Economic Club of Washington.

USA Today reported, “Federal Reserve Chair Janet Yellen signaled Wednesday that the Fed is all but certain to raise interest rates this month for the first time in nearly a decade, saying that gains in the economy and labor market have met the central bank’s goals.”

If you read on, though, that’s not quite what she said.  Given that inflation is nowhere near the Fed’s 2% goal, she couldn’t say that the central bank’s goals have been met. (more…)

Fed Policy Brings Record Stock Buybacks

Monday, November 9th, 2015

Just once, we’d like to post that the economy is growing like pumpkins in September, that personal income is soaring (or at least not falling), that jobs are being created, businesses are being started and capital is being invested.

Would that it were true.

Readers of this blog may thing we’re pessimistic by nature. We’re not. It’s just that the economy has been a disaster for as long as we’ve written this blog.Non-Farm Payrolls

Now, finally, the unemployment rate has fallen to 5% – just under 10% if you’re counting people who have given up looking for work or who are working part-time because they can’t find full-time work.  In addition, the U.S. Bureau of Labor Statistics reported that personal income grew 2.5% between October 2014 and October 2015.

The economy is cyclical and it could signal that the job market is finally improving.  However, the labor force participation rate remains at its lowest level in 38 years, so we’ll leave the cheery propaganda to mainstream media. We feel an obligation to tell the truth and the truth is that the economy is still in dismal shape. We’re not in a recession – at least not according to the traditional definition of one – but defining the current period of economic non-growth as a “recovery” is a stretch.

Consider what the current recovery hath wrought: (more…)

A Way Out for the Fed

Monday, November 2nd, 2015

The economy grew at a tepid rate of 1.5% during the third quarter.  More than 100 million Americans aren’t working.  And the inflation rate is near zero.

That’s after seven years of the most radical monetary policy in history, which was supposed to lower unemployment while boosting the inflation rate to 2%.  If you’re the Federal Reserve Board, do you:

  • Conclude that keeping interest rates near zero isn’t helping the economy and abandon that policy.
  • Keep doing what you’re doing, hoping things will change next year, so you can take credit for it.
  • Conclude that the economy is still a mess even after you bought a few trillion dollars’ worth of bonds, so maybe you need to buy more bonds.

    When economists think rates will rise.

    When economists think rates will rise.

The correct answer, at least last week, was b., as the Fed voted to continue its zero interest rate policy (ZIRP), “surprising no one,” as The Wall Street Journal noted.

That means the Fed will keep on zirping, at least until December, but more likely into 2016.

Subject to Interpretation

The Fed’s policy statement, which has changed about as much as Fed policy over the past seven years, was interpreted by many to imply that the Fed “might” increase interest rates by a whole 0.25% when it meets in December.

(more…)