More have joined us in sensing vigor ahead. GDP estimates, especially estimates for consumer activity are now being revised higher, an event we predicted earlier.
One estimate is Greenspan’s; he now predicts a much higher 3.5% for 2011. Knowing his track record, this gives us pause! Maybe a second take is in order. Well, suppose we’ll be alright despite this endorsement. Thus, let’s look for more positive surprises in the near term.
Speaking of Greenspan, speaking of false prophets, careful with all of this. The media is quick to manufacture seers. It’s good business but dangerous for the listener/viewer.
If there isn’t a track record it’s just noise.
Some individuals are indeed given to profound insight, an occasional blockbuster. Soros in one of these. Bacon is another. Roubini is another. Recall that Roubini predicted the housing crisis of Q4 ‘08. The rest were looking in the other direction. Yet all great strategists realize the power of insight is ephemeral. No one has it all the time. The very best are just that because they respect their limitations.
Problem is that Roubini or Nassim Taleb (of Black Swan fame) or others can be caught in a vortex if they are not careful. The media gains ownership, making them out to be something they are not. Ego may cooperate. When for example Roubini was taken in by the fanfare, he shed his power. He forgot that though gifted, his gift is not for all seasons. Others too have made major calls, had major triumphs but when they misread this as a sign of omnipotency, they invariably met difficulty.
In forecasting, wisdom resides in knowing one's limitations, in never being just too secure, in acknowledging that the business of the future is to be dangerous.
Robert Craven
Friday, December 17, 2010
Friday, December 10, 2010
Week In Review
How did events this week support or amend our anchor, that of surprising vigor ahead, especially in payrolls and discretionary spending?
Well, it’s been fun folks. Obama quit his attack on the rich, triggering the F word from one of his fellow Dems. In fact, these loonies should have praised the guy. The tax bill, as it is this pm is not much. We get a two year break but are nailed with a $57 bln, 13 month extension of unemployment benefits that’s not paid for. So not much here to support our anchor, won’t hurt much either, perhaps a wash.
Real sector data was encouraging. Consumer Sentiment rose to its best level since June. Sentiment fell sharply in July, but has now regained all of that decline. Exports rose 3.2% for Sep and are now 15.9% above their year ago level. Jobless claims dropped by 17M for the week ended Nov/27. After being little changed for most of the year, claims for benefits have broken to the downside past 5 weeks. All of this data supports our constructive view.
The Fed continues to disappoint with this QE II business. We don’t need any more liquidity. The charge, from us and others, that the Fed is merely an extension of the administration continues to gain support.
And Nobel laureate Joseph Stiglitz reckons US banks will simply put the $ offshore, investing in so-called emerging credits, driving up these currencies, triggering all sorts of mayhem, including asset bubbles. May be. A Wild card? Stiglitz knows more about these things than we do.
But this week’s rout in the bond markets (yields spiking, prices dropping) may be the investment world’s way of issuing an inflation warning. Much more of that and we’ll have to moderate our view. Balance sheets, especially housing will not be happy campers.
Finally, and of course key - momentum continues to build in Washington to repair damage done earlier by BO, his making a bad economic situation much worse. Nov/2 was about stopping the destruction. Next year is about rebuilding. We’ll start with the health heist. The future costs of this statist president’s social agenda are no longer a given. This has greatly cheered employer and consumer alike.
Robert Craven
Well, it’s been fun folks. Obama quit his attack on the rich, triggering the F word from one of his fellow Dems. In fact, these loonies should have praised the guy. The tax bill, as it is this pm is not much. We get a two year break but are nailed with a $57 bln, 13 month extension of unemployment benefits that’s not paid for. So not much here to support our anchor, won’t hurt much either, perhaps a wash.
Real sector data was encouraging. Consumer Sentiment rose to its best level since June. Sentiment fell sharply in July, but has now regained all of that decline. Exports rose 3.2% for Sep and are now 15.9% above their year ago level. Jobless claims dropped by 17M for the week ended Nov/27. After being little changed for most of the year, claims for benefits have broken to the downside past 5 weeks. All of this data supports our constructive view.
The Fed continues to disappoint with this QE II business. We don’t need any more liquidity. The charge, from us and others, that the Fed is merely an extension of the administration continues to gain support.
And Nobel laureate Joseph Stiglitz reckons US banks will simply put the $ offshore, investing in so-called emerging credits, driving up these currencies, triggering all sorts of mayhem, including asset bubbles. May be. A Wild card? Stiglitz knows more about these things than we do.
But this week’s rout in the bond markets (yields spiking, prices dropping) may be the investment world’s way of issuing an inflation warning. Much more of that and we’ll have to moderate our view. Balance sheets, especially housing will not be happy campers.
Finally, and of course key - momentum continues to build in Washington to repair damage done earlier by BO, his making a bad economic situation much worse. Nov/2 was about stopping the destruction. Next year is about rebuilding. We’ll start with the health heist. The future costs of this statist president’s social agenda are no longer a given. This has greatly cheered employer and consumer alike.
Robert Craven
Thursday, December 9, 2010
Vigor Ahead
Our anchor set in mid Oct will continue to hold. US spending and employment activity will exceed Wall St estimates. Forecasters will continue to revise their estimates higher. For business planners or investors it is better to anticipate this event than react.
N. Behravesh, chief economist of IHS Inc recently noted, “There’s no question the consumer is playing an increasingly larger role. We’re seeing an improvement in the overall economic outlook.”
Morgan Stanley’s David Greenlaw, “Consumers will be a significant contributor to the growth outlook. More jobs mean we will see incomes grow by about 2.5 percent. You’ll get gains very similar to that on the spending side.”
As the new consensus continues to build it will carry with it the characteristic of self fulfillment. This is simply the way these things work.
PIMCO, which manages the world’s largest bond fund today raised its forecast for 2011GDP from 2 - 2.5% to 3 - 3.5%. Bill Gross, the founder, was a UCLA classmate. We addressed this bunch on strategy, years back. They should have called this time. The firm attributes sound fiscal and monetary policy for their change of heart. Fiscal yes but monetary, no way.
We don’t have a liquidity problem for goodness sake. We have a balance sheet problem. There is nothing more the Fed can do but make noise.
From Gerald O’Driscoll, “The declines in home values, investor portfolios and 401(k) plans, and the uncertainties surrounding retirement plans, have all had a big impact. The solution lies in restoring balance sheets. For financial firms, that means raising capital. For consumers and businesses alike, that means saving more of their reduced incomes.”
And then we’re really off to the races.
Robert Craven.
N. Behravesh, chief economist of IHS Inc recently noted, “There’s no question the consumer is playing an increasingly larger role. We’re seeing an improvement in the overall economic outlook.”
Morgan Stanley’s David Greenlaw, “Consumers will be a significant contributor to the growth outlook. More jobs mean we will see incomes grow by about 2.5 percent. You’ll get gains very similar to that on the spending side.”
As the new consensus continues to build it will carry with it the characteristic of self fulfillment. This is simply the way these things work.
PIMCO, which manages the world’s largest bond fund today raised its forecast for 2011GDP from 2 - 2.5% to 3 - 3.5%. Bill Gross, the founder, was a UCLA classmate. We addressed this bunch on strategy, years back. They should have called this time. The firm attributes sound fiscal and monetary policy for their change of heart. Fiscal yes but monetary, no way.
We don’t have a liquidity problem for goodness sake. We have a balance sheet problem. There is nothing more the Fed can do but make noise.
From Gerald O’Driscoll, “The declines in home values, investor portfolios and 401(k) plans, and the uncertainties surrounding retirement plans, have all had a big impact. The solution lies in restoring balance sheets. For financial firms, that means raising capital. For consumers and businesses alike, that means saving more of their reduced incomes.”
And then we’re really off to the races.
Robert Craven.
Wednesday, December 8, 2010
As Loony As Ever
Lefty locals are in a tizzy that Obama finally called off his class warfare against the rich, by extending Bush tax cuts to all. Because they have so many fellow lunatics hereabouts, these types actually think they’re normal. We know they’re unhinged.
Concerning the trigger for their latest outburst, lets take a look.
Every grownup understands that one does not raise taxes during a recovery, that is, if one wishes for a recovery. Obama’s economic advisers agreed. Michael Boskin reminds us in a recent article that, “Former Obama adviser Christina Romer and David Romer of the University of California, Berkeley, estimate a tax-cut multiplier of 3.0, meaning $1 of lower taxes raises short-run output by $3.”
Gerald O’Driscoll, once with the Dallas Fed and now with the Cato Institute, also agrees. “The Bush tax cuts should not be allowed to expire. No matter how the administration spins it, their expiration would entail a large increase in marginal tax rates in the midst of economic weakness. That would further impede savings and capital accumulation, discouraging firms from expanding and hiring workers.”
Anyone who is familiar with historical data (which leaves out the left) knows that raising income tax rates on say the top 1% of income earners reduces direct tax receipts - that is the way it always has, and always will work out because these top 1% simply stand aside.
From Art Laffer, “Since 1978, the U.S. has cut the highest marginal earned-income tax rate to 35% from 50%, the highest capital gains tax rate to 15% from about 50%, and the highest dividend tax rate to 15% from 70%. During this era of ubiquitous tax cuts, income tax receipts from the top 1% of income earners rose to 3.3% of GDP in 2007 (the latest year for which we have data) from 1.5% of GDP in 1978. Income tax receipts from the bottom 95% of income earners fell to 3.2% of GDP from 5.4% of GDP over the same time period.”
Curious is it not that the nursery crowd for example, whose bottom line has just been trashed by BO, is furious when BO finally does something right, something which will work to resuscitate their bottom line?
Once again looking for historical precedent (and thus again leaving out the left) we encountered the following:
“Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues.”
—President John F. Kennedy,
Oh, that.
Robert Craven
Concerning the trigger for their latest outburst, lets take a look.
Every grownup understands that one does not raise taxes during a recovery, that is, if one wishes for a recovery. Obama’s economic advisers agreed. Michael Boskin reminds us in a recent article that, “Former Obama adviser Christina Romer and David Romer of the University of California, Berkeley, estimate a tax-cut multiplier of 3.0, meaning $1 of lower taxes raises short-run output by $3.”
Gerald O’Driscoll, once with the Dallas Fed and now with the Cato Institute, also agrees. “The Bush tax cuts should not be allowed to expire. No matter how the administration spins it, their expiration would entail a large increase in marginal tax rates in the midst of economic weakness. That would further impede savings and capital accumulation, discouraging firms from expanding and hiring workers.”
Anyone who is familiar with historical data (which leaves out the left) knows that raising income tax rates on say the top 1% of income earners reduces direct tax receipts - that is the way it always has, and always will work out because these top 1% simply stand aside.
From Art Laffer, “Since 1978, the U.S. has cut the highest marginal earned-income tax rate to 35% from 50%, the highest capital gains tax rate to 15% from about 50%, and the highest dividend tax rate to 15% from 70%. During this era of ubiquitous tax cuts, income tax receipts from the top 1% of income earners rose to 3.3% of GDP in 2007 (the latest year for which we have data) from 1.5% of GDP in 1978. Income tax receipts from the bottom 95% of income earners fell to 3.2% of GDP from 5.4% of GDP over the same time period.”
Curious is it not that the nursery crowd for example, whose bottom line has just been trashed by BO, is furious when BO finally does something right, something which will work to resuscitate their bottom line?
Once again looking for historical precedent (and thus again leaving out the left) we encountered the following:
“Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues.”
—President John F. Kennedy,
Oh, that.
Robert Craven
Sunday, December 5, 2010
Too Big For Its Britches?
The Federal Reserve system was created under Wilson in 1913. Originally tasked with protecting the value of the currency its mandate was expanded in the 70's when the Federal Reserve Act was amended to promote the goals of, “maximum employment, stable prices, and moderate long-term interest rates,” (Section 2A).
“Stable prices,” means protecting the value of the $. The Fed is armed to do this by expanding or contracting the supply of $’s available - too many and they are worth less, too few and they are worth too much.
“Moderate long-term interest rates,” are not something the Fed controls very well, if at all. “Maximum employment,” are the two words however that can get the Fed in a lot of trouble.
At the moment critics claim that through the pursuit of this “maximum employment” mandate the Fed has been reduced to an extension of the administration, that is, Bernanke more the politician than the central banker.
We’ve all heard of QE2. This means that the Fed is buying practically everything under the sun in an attempt to quick start a recovery. The idea is to get medium-to-longer term rates lower, the dollar just a tad weaker in order to spur exports, all of this with employment in mind. This is not equivalent to addressing a crisis, to preventing a melt down. (Without the Fed’s emergency action Q4 ‘08, we’d all be paupers.) No, it is a completely discretionary, non rule-based activity and a mistake, one which first will have little to no impact on the pace of recovery and two, is corrosive to Fed independence, a necessary item, the heart of monetary control.
It is this trend at the Fed toward discretionary actions that is alarming to so many and who see this, correctly we believe, as just an attempt to bail out BO’s failed fiscal policy.
A group of 23 economists, money managers and former government officials issued an open letter to Bernanke on Nov. 15 saying the central bank’s planned bond purchases “risk currency debasement and inflation” and won’t boost employment.
Another critic is Fed governor Kevin Warsh, who noted recently that, "The Federal Reserve is not a repair shop for broken fiscal, trade, or regulatory policies.”
Apparently, Bernanke is not listening. We need only recall Hayek’s “Fatal Conceit” to know that a few individuals, no matter how gifted cannot replace in their judgement the complexities of a free functioning market. This applies to the FOMC as well as to Obama’s wanna-be planners.
We have followed the Fed closely for 20 years; never has it come so close to shedding its independence. Let us hope the new Congress re-writes the Fed’s mandate to confine its activities only to those of price stability.
Robert Craven
“Stable prices,” means protecting the value of the $. The Fed is armed to do this by expanding or contracting the supply of $’s available - too many and they are worth less, too few and they are worth too much.
“Moderate long-term interest rates,” are not something the Fed controls very well, if at all. “Maximum employment,” are the two words however that can get the Fed in a lot of trouble.
At the moment critics claim that through the pursuit of this “maximum employment” mandate the Fed has been reduced to an extension of the administration, that is, Bernanke more the politician than the central banker.
We’ve all heard of QE2. This means that the Fed is buying practically everything under the sun in an attempt to quick start a recovery. The idea is to get medium-to-longer term rates lower, the dollar just a tad weaker in order to spur exports, all of this with employment in mind. This is not equivalent to addressing a crisis, to preventing a melt down. (Without the Fed’s emergency action Q4 ‘08, we’d all be paupers.) No, it is a completely discretionary, non rule-based activity and a mistake, one which first will have little to no impact on the pace of recovery and two, is corrosive to Fed independence, a necessary item, the heart of monetary control.
It is this trend at the Fed toward discretionary actions that is alarming to so many and who see this, correctly we believe, as just an attempt to bail out BO’s failed fiscal policy.
A group of 23 economists, money managers and former government officials issued an open letter to Bernanke on Nov. 15 saying the central bank’s planned bond purchases “risk currency debasement and inflation” and won’t boost employment.
Another critic is Fed governor Kevin Warsh, who noted recently that, "The Federal Reserve is not a repair shop for broken fiscal, trade, or regulatory policies.”
Apparently, Bernanke is not listening. We need only recall Hayek’s “Fatal Conceit” to know that a few individuals, no matter how gifted cannot replace in their judgement the complexities of a free functioning market. This applies to the FOMC as well as to Obama’s wanna-be planners.
We have followed the Fed closely for 20 years; never has it come so close to shedding its independence. Let us hope the new Congress re-writes the Fed’s mandate to confine its activities only to those of price stability.
Robert Craven
Saturday, December 4, 2010
Lame Ducks Up To No Good
Just after the Nov election we highlighted a caveat to our otherwise constructive view. We might have listed this very same item as a wild card. That would be the odds that lame duck “progressives,” still welded to their twisted ideology despite, to borrow a phrase from Irving Kristol, having been “mugged by reality” will do significant harm to their Country, and simply out of spite.
We are referring of course to the left’s insistence that the rich pay up. Why the jealousy, who knows, but it can be nothing else but envy as all but the most economically illiterate now understand that tax cuts fire growth. They are in everyone’s best interest. So what if a guy making $500M gets to keep a little more. All the more likely he will plant a new garden, or maybe buy a vacation home and in so doing enrich others (nurserymen, realtors to name two of these).
From Paul Bedard of US News, “Failure by Congress to extend the Bush tax cuts, especially locking in the 15 percent capital gains tax rate, will spark a stock market sell off starting December 15 as investors move to lock in gains at a lower rate than the 20 percent it would jump to next year, warn analysts. . . .While it is unclear how bad the sell off could be, it could wipe out the year's gains......”
Not really. There will be no Dec/15 massacre as the market’s take on the odds of the lame duck tax event are already being priced in.
But there’s still no excuse for the Dem’s sordid behavior.
Pelosi and fellow partisans (not retards as they know exactly what they are up to) continue to pimp two falsehoods, the first that gov’t spending counts for something aside from union payoffs, and the second that tax cuts “must be paid for.” They’re not fools. They’re traitors.
From Michael Boskin, econ prof at Stanford, “My colleagues John Cogan and John Taylor, with Volker Wieland and Tobias Cwik, demonstrate that government purchases have a GDP impact far smaller in New Keynesian than Old Keynesian models and quickly crowd out the private sector. They estimate the effect of the February 2009 stimulus at a puny 0.2% of GDP by now. By contrast, the last two major tax cuts—President Reagan's in 1981-83 and President George W. Bush's in 2003—boosted growth. They lowered marginal tax rates and were longer lasting, both keys to success. In a survey of fiscal policy changes in the OECD over the past four decades, Harvard's Albert Alesina and Silvia Ardagna conclude that tax cuts have been far more likely to increase growth than has more spending.”
Robert Craven
We are referring of course to the left’s insistence that the rich pay up. Why the jealousy, who knows, but it can be nothing else but envy as all but the most economically illiterate now understand that tax cuts fire growth. They are in everyone’s best interest. So what if a guy making $500M gets to keep a little more. All the more likely he will plant a new garden, or maybe buy a vacation home and in so doing enrich others (nurserymen, realtors to name two of these).
From Paul Bedard of US News, “Failure by Congress to extend the Bush tax cuts, especially locking in the 15 percent capital gains tax rate, will spark a stock market sell off starting December 15 as investors move to lock in gains at a lower rate than the 20 percent it would jump to next year, warn analysts. . . .While it is unclear how bad the sell off could be, it could wipe out the year's gains......”
Not really. There will be no Dec/15 massacre as the market’s take on the odds of the lame duck tax event are already being priced in.
But there’s still no excuse for the Dem’s sordid behavior.
Pelosi and fellow partisans (not retards as they know exactly what they are up to) continue to pimp two falsehoods, the first that gov’t spending counts for something aside from union payoffs, and the second that tax cuts “must be paid for.” They’re not fools. They’re traitors.
From Michael Boskin, econ prof at Stanford, “My colleagues John Cogan and John Taylor, with Volker Wieland and Tobias Cwik, demonstrate that government purchases have a GDP impact far smaller in New Keynesian than Old Keynesian models and quickly crowd out the private sector. They estimate the effect of the February 2009 stimulus at a puny 0.2% of GDP by now. By contrast, the last two major tax cuts—President Reagan's in 1981-83 and President George W. Bush's in 2003—boosted growth. They lowered marginal tax rates and were longer lasting, both keys to success. In a survey of fiscal policy changes in the OECD over the past four decades, Harvard's Albert Alesina and Silvia Ardagna conclude that tax cuts have been far more likely to increase growth than has more spending.”
Robert Craven
Friday, December 3, 2010
Pause
Today’s key Nov Payroll release seemed to fly in the face of our long-held view that employment and spending activity would exceed expectations. For example, there was no change in the workweek, manuf employment dropped by 13M, private sector jobs increased only 50M vs 160M for Oct; finally, unemployment jumped to 9.8%.
Nothing moves in a straight line in this economy but in ratchet fashion. We have experienced nearly two months of results which have flattened estimates. It may be that forecasters, weary of being severely beaten about the head and body, figured it was time to reverse course, crowd fashion. Hiring instead took a time out and flattened these guys once more.
Our recommendation to corporate planners or investors would be to remain anchored; that is, the central flaw to street estimates over the intermediate term will be the under-estimation of vigor in payrolls and spending.
Robert Craven
Nothing moves in a straight line in this economy but in ratchet fashion. We have experienced nearly two months of results which have flattened estimates. It may be that forecasters, weary of being severely beaten about the head and body, figured it was time to reverse course, crowd fashion. Hiring instead took a time out and flattened these guys once more.
Our recommendation to corporate planners or investors would be to remain anchored; that is, the central flaw to street estimates over the intermediate term will be the under-estimation of vigor in payrolls and spending.
Robert Craven
Thursday, December 2, 2010
Wall St's Mega-Miss
We’ve known from October that employment and spending numbers would far exceed forecasts. Most forecasters were, many still are looking in the wrong direction.
Witness today’s chain store sales result for Nov. Sales at the 30 chains tracked by Retail Metrics exceeded estimates, rising 5.3% compared with a consensus prediction of 3.5%. “Across the board, there was widespread strength,” said Ken Perkins, president of Swampscott, Massachusetts - based Retail Metrics. “The consumer is feeling better about their situation and is more inclined to spend on discretionary purchases.”
Next, the private ADP employment report showed this week that small businesses added the largest amount of workers in three years in November. No wonder the average shopper in the U.S. spent 6.4 percent more over Thanksgiving weekend than last year.
We have been able to anticipate these headlines before they come into print. There will be more. Economists will marvel at job growth, at discretionary spending just ahead.
There are two keys to Wall St’s mega miss: One is the failure to anticipate the results of Nov/2, that cheering of both employer and consumer. The other is lack of respect for the tenacity of a free America, where creativity and resourcefulness still thrive and this despite the occupation of the WH by the Great Leveler.
We wrote in Oct as follows: In the present situation a spark will be provided by the US masses, suddenly aware that they’ve been taken. That spark to be provided through the voting booth. This is not accounted for in forecasting models! Neither is the celerity with which the process will be accomplished, the overturning of BO’s agenda with the health heist first in line. Neither is the thoroughness in the de-lousing of an economy for two years contaminated by statists. All of this provides fire. Most see a rout by the Republicans but few understand the economic traction to come of it.
Robert Craven
Witness today’s chain store sales result for Nov. Sales at the 30 chains tracked by Retail Metrics exceeded estimates, rising 5.3% compared with a consensus prediction of 3.5%. “Across the board, there was widespread strength,” said Ken Perkins, president of Swampscott, Massachusetts - based Retail Metrics. “The consumer is feeling better about their situation and is more inclined to spend on discretionary purchases.”
Next, the private ADP employment report showed this week that small businesses added the largest amount of workers in three years in November. No wonder the average shopper in the U.S. spent 6.4 percent more over Thanksgiving weekend than last year.
We have been able to anticipate these headlines before they come into print. There will be more. Economists will marvel at job growth, at discretionary spending just ahead.
There are two keys to Wall St’s mega miss: One is the failure to anticipate the results of Nov/2, that cheering of both employer and consumer. The other is lack of respect for the tenacity of a free America, where creativity and resourcefulness still thrive and this despite the occupation of the WH by the Great Leveler.
We wrote in Oct as follows: In the present situation a spark will be provided by the US masses, suddenly aware that they’ve been taken. That spark to be provided through the voting booth. This is not accounted for in forecasting models! Neither is the celerity with which the process will be accomplished, the overturning of BO’s agenda with the health heist first in line. Neither is the thoroughness in the de-lousing of an economy for two years contaminated by statists. All of this provides fire. Most see a rout by the Republicans but few understand the economic traction to come of it.
Robert Craven
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