Category Archives: Economy

“Little Brother” Comments from the G-20 Meeting

Posted on September 23, 2011 by | Comments Off

For those that have been following and commented on our self-named “Little Brother” country example (Click to read prior post). I found this comment from the G 20 meeting, which kicks off today, a similarly, and slightly humorous parallel:

“The immediate problem at hand is to get growth back on track in developed countries,” the countries Brazil, Russia, India, China and South Africa (little brother countries) said in a statement Thursday. In language more often directed at poorer countries, the five nations called on developed countries “to adopt responsible macroeconomic and financial policies.” There is growing evidence that those issues are weighing on the economies of developing nations by unsettling their markets.

Wow, little brother country is really challenging his elders!

Have a good day!

JK

Comments Off

Posted in Economy, Market Comments

Tagged ,

What a 2% 10 Year Treasury Yield Really Means

Posted on September 20, 2011 by | Comments Off

Undoubtedly the record-breaking low yield on the US Government treasury security has caught the attention of most. Weather mortgage rates, car loans, or even the collaterally changed checking account rates, most understand rates are very low and have experienced this in one way or another. What is missed by many is the fact that low-interest rates are an excellent predictor of future growth.

In the bones of financial computations, just as 2 + 2 must equal 4, low interest rates, especially in the longer term maturities, such as the 10 year term are a predictor of future economic growth rates and inflation.

While a 2% long-term treasury yield, in financial terms, is predicting a slower longer term economic growth period for the United States this does not spell doom for the capital markets as this rate is also predicting a slower rate of inflation. Capital market growth is a function of economic growth but not entirely as there has been no proven correlation to economic growth and capital market returns, a subject for another day.

Here is an estimate of long-term stock market returns from my favorite NYU academic valuation professor Aswath Damodaran.

While the expected return is lower than that of the 70′s and 80′s, it is much higher than the return received over the last 10 years.

Bottom line, we would not be surprised to have continued slower economic growth, however capital market growth may not be inhibited terribly by this slower growth.

Have a Good Day!

JK

Comments Off

Posted in Economy, General Financial Planning, Investing/Financial Planning, Market Comments

An Update on the Sudden Economic Illness, Not Bad, But Not Great

Posted on September 7, 2011 by | Comments Off

In a continuation of our original Sudden Economic Illness post, (worth a read if you missed it) we thought an update on the economic numbers were timely.

Not Up to Expectations:

Last Friday the capital markets did not take kindly to the Bureau of Labor Statistics (BLS) monthly employment report that was expected to show 60,000 new jobs, but actually laid the proverbial goose egg and came in at zero (150,000 is considered break even for normal growth economic times.)

Nonfarm Payrolls

An interesting dichotomy:

Here is the interesting part of our current economic situation: A day earlier, the weekly Department of Labor (DOL) report showed yet another little changed jobless claims number.

Jobless Claims - No Change

So what does it all mean?

At this moment in time, our economy is not coughing out firings, or breathing in new jobs. The US economy is truly running in place. It will move in one direction or the other eventually.

Time will tell !

Have a Great Day!

JK

Comments Off

Posted in Economy, Market Comments

Explaining the Sudden Economic Illness

Posted on August 12, 2011 by | Comments Off

In an effort to make sure we all do not forget the forest because of the trees, we wanted to quickly review what thorn has gotten under the world capital market’s saddle, and how we arrived on this trail.

As of late the capital markets are on a rollercoaster ride, peaking from one headline, only to stall, and trend down quickly on the next. Currently, capital market participants are mostly concerned with the following three items:

  1. The possibility of a macro global slowdown.
  2. Italy and Spain possible defaults.
  3. The terribly timed S&P Downgrade of US debt from AAA to AA+.

With August being a relatively datapointless month and many overseas companies and individuals on holiday, we are subject to the whims of the most dramatic headlines until we receive more data. This could be as long as 3-4 weeks, so Dramamine may be a good solution.

How Did We Get Here?

Markets are like an immunity system. When events are going good and stress is low, the system/investors act to repel negative influences. As individual items stack up against the immunity system, i.e. a few slightly soft economic numbers, delayed and much publicized US debt ceiling debate, fears of Spain and Italy default, a terribly timed Downgrade of US debt, mount, the weight, sometimes becomes too much to handle and sends the financial immunity system into a tail spin.

Interestingly, each distraction in their own right would have very little effect on the system, and most likely would have been repelled for another more weakened day. Eventually, the stress, and minimal small concerns became heavy enough to get at least a cold.

Recall how fast your last cold or other illness came on? Usually in one day at the most. How could I feel ok yesterday, only to barely be able to get out of bed today? Just like our own immunity systems, economic colds come on very fast.

The key from here is how well we take care of ourselves, to ward off further infections. This story is playing out as you read this, and we will keep you posted on the prognosis.

Thanks for your time on a slightly lengthened post !

JK

Comments Off

Posted in Economy, Investing/Financial Planning, Market Comments

An Intelligence Test for Wall Street Pro’s, The US Debt Downgrade

Posted on August 8, 2011 by | Comments Off

On Friday, after market close, S&P downgraded the US’s debt from AAA to AA+, or one notch.

This downgrade should be of no surprise to any professional investor as this has been telegraphed for almost six months.

We first began commenting on the implications and possibilities in our Taps related post in April, then again in June, as Fitch joined the pile and later in July, as it appeared eminent a downgrade would occur.

While we question the delivery date of the actual downgrade (it was a very busy week last week across the world) and certainly do not look forward to the possibility of higher debt related interest rates longer term, if this downgrade catches professional investor’s by surprise we will be disappointed.

Just as I have to warn my son, not once, twice, or three times, not to do something, and then he is still surprised at the punishment when the “time out” words are spoken, this will be the case with Wall Street this week if they are caught by surprise.

We would expect some gyrations early in the week and hope for muted responses from Wall Street Professionals as the news settles in across the world.

For this to be earth shattering news the likes of a sucker punch from the credit agencies, we would strongly question the motives of the entity delivering the statement.

The good news is we do not have to wait very long to find out what the grade of our Wall Street Pro’s !

Have a Great Day!

JK

Comments Off

Posted in Economy, Investing/Financial Planning, Market Comments

Tagged ,

The Debt Ceiling, An Update

Posted on July 27, 2011 by | Comments Off

As we near the Geithner deadline of Aug 2 for a debt ceiling increase, it appears the two political sides have defined their positions clearly, yet not begun to compromise and move towards a mutual agreement. This delay does not surprise us in the least bit, and appears on track to meet our “Human Nature” defined time line.

Our thoughts on the time line:

Just as the NFL agreements went a few days over the line in the sand, we would not be surprised to see our Aug 2 deadline come and go without an increase. We do feel strongly an increase will come sooner rather than later.

So what happens if an agreement is not met?

If an agreement is not met and a default (highly unlikely in our opinion) occurs, while no one knows exactly what would happen, we think business as usual would transpire and upon the first medicare and social security shortfall in payments (a few “calls to your congressman” would be promptly made), politicians would be quick to resolve this issue. Money in the system will continue to move, leaving banks free to lend, gas stations free to pump, and water to flow into our homes.

What are the long-term effects?

The US political policies are unique to many foreign countries, and certainly not without problems, however, debate (sometimes heated) is the method of compromise.  This “Human Nature” delay, will cause confusion among some of our trading partners.

The credit rating agencies have now rattled the sword enough, in order to save face, we believe, they will be forced to lower our credit rating which may lead to longer term higher rates, but not immediately.

We believe that the conversation this debt ceiling raise has created is a good thing. The US economy is nearer to an air craft carrier (very slow to turn) than a fighter jet, and the discussion that has ensued, and will continue, is an excellent step in the correct direction for becoming a more financially stable economy and country.

In closing, we believe the sky is not falling, and this will pass, along with the many dramatic negative possibilities, but might be a step in the right direction.

Have a Great Day!

JK

Comments Off

Posted in Economy, Market Comments

Tagged

Moody’s Gets Serious, S&P Joins the Club- Second Warning Shots

Posted on July 15, 2011 by | Comments Off

Moody’s sounded an alarm with another warning on the US Debt situation. Before we could organize our thoughts and let you know our opinion, S&P (pdf report) also jumped on board,  noting a 50% chance of a US Debt rating decrease.

Warning Shot

As we had first mentioned in our Taps Post in Mid April, the credit agencies (S&P, Moody’s and Fitch) after receiving a black eye on miss rating the terrible packaged Mortgage products over the last recessionary cycle, are being bold and more conservative in their comments. We think caution is good, as investing is risky and pointing out possible quicksand is much better than refraining.

We think it is very likely the debt ceiling will be raised and some type of agreement will occur.

The stakes are just too high in our opinion to allow this debt issue to become insurmountable. The agreement may come in the final hour, on the final day, we hope not, but with the various political agendas at issue, it is possible. Our wish is for a longer term positively trending agreement, which unfortunately does not seem likely at this time, but we will take what we can get.

Is it possible the US will receive a downgrade!

At this point it appears a downgrade is in the cards and may occur just to save face of the rating agencies even if the debt ceiling is raised, which is the root cause of the credit rating agencies issues.

What are the effects of a downgrade?

Our belief is not much today. Interest rates may gyrate a bit, and there would be much ammunition for the talking heads and most importantly our international trading partners.  Longer term we believe a downgrade may be a good thing, serving as a wake up call. Only time will tell.

Have a Good Day!

JK

Comments Off

Posted in Economy, Interest Rates, Investing/Financial Planning, Market Comments

Tagged ,

Big Ben’s Second Live Interview – A Few Nuggets but No Major Changes

Posted on June 22, 2011 by | Comments Off

Today, Ben Bernanke, the FOMC chair, conducted his second post FOMC announcement speech. Here are a few interesting comments:

  • Ben held firm that no further easing (QE3 or the like) was on the table currently and mentioned very small amounts of inflation can be seen (This echos Richard Fisher’s thoughts a few weeks earlier.)
  • In answer to a NY Times question concerning Greece, Ben stated that he has checked with our current banks and they have little exposure directly, possibly some exposure indirectly with other banks who might have exposure.
  • Committee members expect a 5.5% long term unemployment rate. We would view this as the new floor unemployment rate.
  • Bernanke believes we are two or three meetings away from raising/tightening, however, later in the discussion he stated if inflation shows its ugly head the Fed will not be afraid to tighten even if unemployment is still high (This again echos Mr. Fishers discussion.)

Over all another good grade via a live post FOMC announcement interview and no major changes, only the above nuggets of clarity.

Have a Great Rest of the Day!

JK

Comments Off

Posted in Economy, Investing/Financial Planning

An Evening with Richard Fisher, President and CEO of The Dallas Federal Reserve

Posted on June 14, 2011 by | Comments Off

Last night, I had the opportunity to listen to Richard Fisher, current CEO and President of the Dallas Federal Reserve and FOMC voting member in a CFA related event.

CEO Dallas Federal Reserve

Mr. Fisher’s comments were on record (reporters in attendance) unlike many prior events, and as such I am delightfully bringing you some of the more impactful comments, from my perspective.

Mr. Fisher began his speech by speaking of many of the statistics regarding the Dallas Federal Reserve bank, which I will conclude with in this post. Due to space limitations, and many readers possible short attention spans, due to time constraints, I will begin with his most interesting comments, again from my perspective.

Most of his more insightful comments came during the questions period, which I am prioritizing from my perspective.

A question from an Forex trader (foreign currency) concerning China becoming the dominant currency?  Mr. Fisher replied, from his point of view that in no way would the Chinese currency become the dominant currency in the near future, and he backed this comment with an interesting statistic that 80% of all Forex transactions involve the US, along with 37% being the Euro. Mr. Fisher did mention that the US became the dominant currency in a mere 20 years, leaving the door open for change.

A question was asked if the US markets have become “junkies“, needing more easing to sustain themselves. Mr. Fisher answered adamantly ”There will be no more Quantitative Easing”.  Mr. Fisher did not vote on the latest easing initiative, however he stands firm with his fellow governors that it was a good idea, but adamantly said there will be no more easing! In an interesting follow-up to this comment, which we very much agree with, he stated that market participants are manic-depressive, being on one end of the happy/sad spectrum at all times, and nothing in between.  Admitting that there was in deed a slowdown, which was an answer to a contagion question of Greece, Spain etc, but stating he felt “nothing even remotely close” to what we have been through over the last terrible recession.  We agree!

An interesting and important statement came from the following unrelated question “Should the Fed have a dual mandate?” (Currently the Fed has a mandate of stability AND employment, which is very unique to most reserve banks across the globe.) Mr. Fisher answered, in his opinion, “NO”, but that is the Fed’s current marching orders. He went on to mention that the Fed may, and will, if necessary take back (read–stop inflation) funds from the system if necessary to slow overheating, even if unemployment is still at a higher than comfortable level. This is an extremely important point in my mind and should serve as a warning shot over our bow for future reference.

In an interesting openness of how the Fed Policy meetings run currently (we have written on this before, some time ago, but felt it worth updating) Mr. Fisher gave the following three round analysis of how a Fed Meeting works.

  • Round 1. All Fed Governor’s state what is going on in their district and have an unlimited time to discuss their district’s situation.
  • Round 2. An all in visit on “What we should do?” about the current situation.
  • Round 3. A detailed discussion on “What we should say?” which is reviewed and discussed to an every word detail. Followed up by preperation for Chairman Bernanke’s new media interview, which we have mentioned before.  Mr. Fisher added a funny comment that Chairman Bernanke has a photographic memory, which himself and several others discovered as their prior comments had been repeated by Mr. Bernanke and questioned why the current change.

If you are still with me, you know this short, timely, post, has run much longer than I expected, so I will save further comments for a short follow-up article, (much to Kathy, our Newsletter editor’s dismay), in our soon to print Third Quarter 2011 Newsletter. Sorry for the long post, but I hope you enjoyed the insights as much as I did his visit.

Have A Terrific Day!

JK

Comments Off

Posted in Economy, Education, Interest Rates, Investing/Financial Planning, Market Comments

Tagged ,

5 Of the Most Important Money People You Might Not Know (Part 5 – Final)

Posted on June 10, 2011 by | Comments Off

Today our imaginary, and somewhat humourous stroll, that included crossing paths with five unknown important money people concludes.

As a review, our first fellow walker, Dominique Strauss-Kauhn, who became mired in controversy, but unofficially proving our choice as important and unknown, at the time of our writing.

Our second fellow stroller was Mervyn Allister King, who is head of the ‘Old Lady’ of Threadneedle Street, also known as the Bank of England.

Our middle and most youthful stroller, Zhou Xiaochuan, commands the very powerful and fast growing, Peoples Bank Of China (PBOC.)

The last passerby and fellow walker was none other than  Jean-Claude Trichet, the head of the ECB or European Central Bank.

Last but not least, the moment we have all been waiting for, possibly with tender feet as this walk has lasted several weeks, we meet our final fellow stroller.

Do you recognize this person?

His name is Masaaki Shirakawa.

The nick name for his commanding entity is “Nichigan” and was formed in 1882. He sits alongside eight others on his board and his entity has 32 branches in his country, with the main location residing in Chuo, Tokyo.

If you guessed the Bank of Japan, you are correct. The recent terrible natural events have thrust a tremendous amount of pressure onto Mr. Shirakawa and his fellow board members as they have been spotlighted as their country attempts to rebuild.

Not without controversy, as most are not, in  1997 a revision to the Bank Of Japan laws was passed to give the bank independence, not that it needed help as the Bank has been firm in not creating major stimulus for its country even as an extremely low growth rates and long-term recessionary pressures exist.

We hope you have enjoyed the stroll. If you recognized three of these strollers you are doing great, if only one or two, then we are glad you came with us, and if you happened to recognize all five, you are a pro, and well-informed in the economic money people world.

Have a Great Day!

JK

Comments Off

Posted in Economy, Investing/Financial Planning

Tagged