Posts filed under “Think Tank”

Personal Income and Spending

June Personal Income fell 1.3%, .3% more than expected but comes after the sharp 1.3% gain in May that was driven by one time transfer payments. Excluding the impact from the ARRA stimulus act, Income fell .1% vs almost flat in May. Personal Spending rose .4%, .1% more than the consensus but the prior month was revised down by .2%. Also, because the PCE inflation deflator rose .5% (biggest gain since July ’08), REAL spending for June fell .1%. The savings rate fell to 4.6% from a revised 6.2% in May and puts it back to the 4.7% level in April. Going back to 1960, the average savings rate is 6.8%. Wages and salary fell .4% and is now down 10 months in a row with government employees the only sector seeing pay raises. Bottom line, spending remains punk and a tough labor market isn’t helping. Also, a change in the savings habits of Americans will keep a lid on spending that will hopefully be offset by exports and business investment. This data was included in Friday’s Q2GDP report but we can at least see how the quarter ended.

Category: MacroNotes

Party like its 1998

A breather in European stocks, as better than expected earnings from UBS and BMW was met by selling, is weighing on the futures as they digest the 1000 level, back to where it was in Feb 1998 when it got there for the first time. In 1998, Saving Private Ryan was the #1 grossing movie,…Read More

Category: MacroNotes

Reflation = S&P 1000; What’s Next?

Good Evening: U.S. stocks once again surged ahead on Monday, leaving the widely watched S&P 500 above 1000 for the first time since last autumn’s precipitous fall. Leading the way were the economically sensitive materials, energy, and industrial names, which themselves were the beneficiaries of a strong tailwind in the commodity pits. As soon as…Read More

Category: Markets, Think Tank


David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG).


August 2, 2009

Genesis 1:31 says “And God saw every thing that he had made, and, behold, it was very good. And the evening and the morning were the sixth day.“ A few millennia later, we find that the world’s most popular book can be applied metaphorically to the US House of Representatives, as it labors in the creation of clunker-nomics.

The first billion voted by the Congress for the $4500 clunker rebate program was exhausted in 6 days. Practicing for deity status, the House beheld and determined “it was very good.” They immediately passed a $2 billion addition. That bill now goes to the Senate, which will pass something similar, and then to a conference committee to resolve some differences about rules. We expect additional funding will be forthcoming quickly. Congress loves to spend and Americans love to receive.

In the spirit of Genesis, Adam and Eve American, otherwise affectionately known as John and Jane Doe, recognize a good deal when they see one. They had an old clunker worth a few hundred. Suddenly they can exchange it for $4500 if they buy the new one now. The rest they can finance at very low interest rates, thanks to the Federal Reserve and the Treasury for extending TARP and other funds so that lenders can offer them liberal terms. They seized the moment – who can blame them?

This will boost short-term activity in the US. Neil Soss of Credit Suisse estimates, “Our math suggests that vehicle sales could spike in July, perhaps to a run rate near 12.5 million units (at a seasonally adjusted annual rate) from the 9.6mn average of Q2.” He adds that “in response to cash-for-clunkers … the personal savings rate will drop sharply in the next months, even as the longer run trend is still headed higher.” That will ramp up auto production in the 3rd quarter. Neil concludes, “As a consequence, we are revising up our Q3 real GDP forecast to 2.0% (from 1.3%) and our Q4 forecast to 2.5% (from 2.0%).
Read More

Category: Bailouts, Economy, Think Tank

it’s official, a 50% rally off the lows

1000 in the SPX is not just a round number that we’ve reached; it makes it an official 50% rally off the 666 March 6th low. The 5 month time frame of the rally is very similar to the 5 month rally of 48% from Nov 1929 to April 1930 after the dramatic 50% fall…Read More

Category: MacroNotes


The ISM manufacturing was a much better 48.9 up from 44.8 in June and vs estimates of 46.5. It’s the highest since Aug ’08 when it was at 49.3. It was last above 50 in Jan ’08. New Orders shot above 50 to 55.3 from 49.2 (most since July ’07) while Backlogs got to 50,…Read More

Category: MacroNotes

King Report: GDP Follies

> The GDP report last Friday evinces the folly of US government economic statistics and Wall Street consensus analysis. Most of the Street heralded the 1% decline in Q2 GDP because it was 0.5 better than consensus – even though the US government admitted in the release that its GDP estimates over the past several…Read More

Category: Data Analysis, Economy, Mathematics, Think Tank

As China goes, so goes…

Another rise in the July manufacturing indexes for both state owned and privately held businesses in China sent Chinese stocks to a fresh 13 month high and has erased the 5% selloff last Wednesday. The July PMI in India was unchanged but remains firmly above 50 at 55.3. In response, copper is at a fresh…Read More

Category: MacroNotes

Words from the (investment) wise July 27, 2009

Words from the (investment) wise for the week that was (July 27 – August 2, 2009)

For some reason the lyrics of Electric Light Orchestra’s classic, Livin’ Thing, keep resounding in my head: “You took me, ooh, woah, higher and higher, baby. It’s a livin’ thing … ” Followed by: “It’s a terrible thing to lose … ” But let me get on to the review of the financial markets …

Investors (or should I say “Johnny-come-latelies”?) last week again favored the reflation trade on the back of better-than-expected US earnings announcements and economic data, indicating that the trough of the recession might be behind us, or at least be stabilizing at depressed levels.

Newsweek‘s cover declared: “The recession is over”, but a footnote stated “Good luck surviving the recovery”, implying a hard and treacherous slog ahead – note the pin below the “liquidity-inflated” balloon.


Tempering the bullish sentiment, David Rosenberg (Gluskin Sheff & Associates) commented as follows on Friday’s announcement of a 1.0% (quarter on quarter annualized) contraction in Q2′s real GDP: “While we are past the most pronounced part of the downturn, it may still be premature to call for the end of the recession merely because of the prospect of a positive third-quarter GDP result. After all, we saw GDP advance at a 1.5% annual rate in last year’s second quarter, and if memory serves us correctly, the NBER did not subsequently declare the end of the recession. And even if the recession is ending, as we saw in 2002, that does not guarantee a durable rally in risk assets. Sustainability is the key, and it remains the wild card.”


Source: Ed Stein, July 31, 2009.

Many global stock market indices reached new highs for the year during the course of the week, and the S&P 500 Index closed in on the roundophobia 1,000 level. Other beneficiaries of investors’ continued interest in risky assets included commodities, oil, gold (rebounding strongly after a midweek sell-off of $24 an ounce), high-yielding currencies and corporate bonds. On the other hand, the US greenback remained out of favor and the Dollar Index closed the week at its lowest level for the year as investors shunned safe-haven assets.

The past week’s performance of the major asset classes is summarized by the chart below – a set of numbers that again indicates investors’ increased risk appetite. In the case of government bonds, a lukewarm response to the US GDP report took the edge off a poor response to the massive issuance of paper by the Treasury.



A summary of the movements of major global stock markets for the past week, as well as various other measurement periods, is given in the table below. As the second-quarter corporate results in the US came in thick and fast, the American and other markets extended their rallies to three straight weeks in most instances. As a matter of fact, if not for the down week of the Dublin ISEQ Index, the entire table would have been green. But then again, “green shoots” seem to be frowned upon by many pundits.

The MSCI World Index (+1.7%) and MSCI Emerging Markets Index (+2.5%) both made headway last week to take the year-to-date gains to +13.5% and an imposing +48.8% respectively.

As seen from the table, July was a solid month for stock markets with all the major indices recording positive returns. The Dow Jones Industrial Index had its best month since 2002 and the S&P 500 Index, Nasdaq Composite Index and Russell 2000 Index all recorded a fifth successive monthly gain, but were trumped by the Chinese Shanghai Composite Index that notched up seven consecutive positive months.

Click here or on the table below for a larger image.


Stock market returns for the week ranged from top performers such as the Czech Republic (+8.7%), Kazakhstan (+8.5%), Turkey (+8.2%), Indonesia (+6.3%) and Kyrgyzstan (+5.8%) to Slovakia (-6.3%), Greece (-3.6%), Nepal (-3.0%), Ecuador (-2.2%) and Macedonia (-1.5%) at the other end of the scale.

Read More

Category: Think Tank

The Great Reflation Experiment

The question we have been focused on for some time now is whether we end up with inflation, or deflation, and what that endgame looks like. It is one of the most important questions an investor must ask today, and getting the answer right is critical. This week, we have a guest writer who takes on the topic of the great experiment the Fed is now waging, which he calls The Great Reflation Experiment.

One of my favorite sources of information for decades has been and remains the Bank Credit Analyst. It has a long and
storied reputation. One of their enduring themes has been the debt super cycle. Investors who have paid attention to it have been served well. I am taking a little R&R this weekend, but I have arranged for my friend Tony Boeckh to stand in for me. Tony was chairman, chief executive, and editor-in-chief of Montreal-based BCA Research, publisher of the highly regarded Bank Credit Analyst up until he retired in 2002. He still likes to write from time to time, and we are lucky enough to have him give us his views on where we are in the economic cycles. Gentle reader, we are all graced to learn from one of the great economists and analysts of our times. Pay attention. Central bankers do. You can read his extensive bio at and I will tell you how to get his letter free of charge at the end of this letter.
And, he told me to mention that his son Rob is now helping him write, so there is a double byline here. Now, let’s just jump in.

By Tony Boeckh and Rob Boeckh

The Crash of 2008/9 should be seen as yet another consequence of long-term, persistent US inflationary policies.
Inflation doesn’t stand still. It tends to establish a self-reinforcing cycle that accelerates until the excesses in money and credit become so extreme that a correction is triggered. The bigger the inflation, the bigger the correction. Once a dependency on credit expansion is well established, correcting the underlying imbalances becomes extremely difficult. Reflation has occurred after each major correction, and this one is proving no exception. Return to discipline in the current environment would be too painful and dangerous. Once on the financial roller coaster, it is very hard to get off. Moreover, the oscillations between peaks and valleys become increasingly large and unstable.

Policymakers, money managers, and most forecasters have argued that the crash was a “black swan” event, meaning
that it had an extremely low probability of occurrence. That is grossly misleading, as it implies that the crash was so far beyond the realm of normal probabilities that it was unreasonable to expect anyone to have foreseen it. That argument has been used to justify the widespread complacency that prevailed in the years leading up to the crash. Policymakers are still failing to recognize the systemic causes of the crash and seem to believe that enhanced regulation will prevent history from repeating. While it is true that regulators were asleep at the switch or looking the other way, they were not the cause.

The Debt Super Cycle

The real culprit is the US debt super cycle, which has operated for decades, mostly in a remarkably benign manner. The inflationary implications of the twin deficits (current account and fiscal), as well as the steady increase in private debt, have been moderated by the integration of emerging markets into the global economy. The massive increase in industrial output from China, India, and others has enabled persistent credit inflation in the US to occur with virtually no consequence to date (other than periodic asset price bubbles and shakeouts). How long the disinflationary impact of emerging-market productivity growth will persist and how long these nations will continue loading up on Treasuries, will be instrumental in determining the course that the Great Reflation will take.

Tougher regulation is surely appropriate, but it will not stop the next inflationary run-up unless the system is fixed. In the final analysis, newly minted money and credit must find a home somewhere.

Read More

Category: Think Tank