Posts filed under “Think Tank”

Consumer Confidence – The future looks bright, but…

Consumer Confidence at 53.1 is below the estimate of 57 and down from 54.5 in Aug. It is well off the low of 25.3 in Feb ’09 but the improvement seen is almost all in Expectations. Present Situations (how people feel today as opposed to their belief about the future) fell almost 3 pts to 22.7 and is less than 1 pt from the low in March which was the lowest since ’83. Expectations fell .5 point to 73.3 and but is well off the low of 27.3 seen in Feb. Those that said jobs were Plentiful fell to 3.4 from 4.3 and its the lowest since ’83. Those that said jobs were Hard to Get rose almost 3 pts to 47, just shy of the highest since ’92. Thus, the jobs picture is still tough. With the tax credit about to expire (maybe), those that plan to buy a home within 6 mo’s fell .7 to 2.3, just shy of its lowest level since ’82. Post Clunker’s, those than plan to buy a car within 6 mo’s fell almost 1 pt to the lowest since Mar ’09.

Category: MacroNotes

S&P/Case-Shiller Home Price Index

The July S&P/Case-Shiller 20 city Home Price Index said prices fell 13.3% y/o/y, less than the expected decline of 14.2%. It is the smallest decline since Feb ’08 and it takes the index to the highest since Jan ’09 as it rose 1.61% m/o/m. At 144.23, it is down 30% from the all time high…Read More

Category: MacroNotes

How Well Has The Federal Reserve Performed for America?

Washington’s Blog strives to provide real-time, well-researched and actionable information. George – the head writer at Washington’s Blog – is a busy professional and a former adjunct professor.


How well has the Federal Reserve performed for America? Mainstream pundits, of course, say that Bernanke has saved the world . . . . but they said the same thing about Greenspan. So let’s look at the actual historical record to determine how well the Fed has done.

Initially, Milton Friedman and Ben Bernanke have both said that the Federal Reserve caused (or at least failed to cure) the Great Depression through its poor monetary policy.

Many also blame the Fed for blowing an unsustainable bubble between 2001-2007 through artificially low interest rates. If this sounds too much like an Austrian economics perspective, that may be true. But remember that Hayek won the Nobel prize in 1974 partly for arguing that artificially low interest rates lead to the misallocation of capital and to bubbles, which in turn lead to busts.

Moreover, one of the Fed’s main justification has been that it can provide a “counter-cyclical” balance. In other words, during boom times it can put on the brakes (“take the punch bowl away right as the party gets started”), and during busts it can get things moving again. But as economist Jane D’Arista has shown, the Fed has failed miserably at that task:

Jane D’Arista, a reform-minded economist and retired professor with a deep conceptual understanding of money and credit [has a] devastating critique of the central bank. The Federal Reserve, she explains, has failed in its most essential function: to serve as the balance wheel that keeps economic cycles from going too far. It is supposed to be a moderating force in American capitalism on the upside and on the downside, the role popularly described as “leaning against the wind.” By applying its leverage on the available supply of credit, the Fed can slow down a boom that is dangerously overwrought or, likewise, stimulate the economy if it is sinking into recession. The Fed’s job, a former chairman once joked, is “to take away the punch bowl just when the party gets going.” Economists know this function as “counter-cyclical policy.”

The Fed not only lost control, D’Arista asserts, but its policy actions have unintentionally become “pro-cyclical”–encouraging financial excesses instead of countering the extremes. “The pattern that has developed over the last two decades,” she wrote in 2008, “suggests that relying on changes in interest rates as the primary tool of monetary policy can set off pro-cyclical foreign capital flows that tend to reverse the intended result of the action taken. As a result, monetary policy can no longer reliably perform its counter-cyclical function–its raison d’être–and its attempts to do so may exacerbate instability.”…

The Fed is also supposed to act as a regulator for banks and their affiliates, but failed miserably in that role as well.

Indeed, the central bankers’ central banker – BIS – has itself slammed the Fed:

Read More

Category: Think Tank

Does M&A activity follow or lead stock market action?

With yesterday’s roaring stock market rally on the heels of the deal announcements, the action begs the question, is M&A activity a precursor to a good market or does it follow an already buoyant one. I believe its the latter but a good market can last a while as can the M&A deals, particularly strategic…Read More

Category: MacroNotes

A Week of Talk, Not Action

Good Evening: After wobbling a bit last week in the wake of the FOMC meeting, U.S. stocks sharply rallied today. Wednesday’s FOMC communiqué was light on the exit strategy hints some market participants had feared prior to the meeting, so investors decided to bid share prices higher almost as soon as the Fed’s statement hit…Read More

Category: Markets, Think Tank


Bill Dunkelberg is currently a professor of economics at Temple University where he served as dean of the School of Business from 1987-95. Prior appointments were at Purdue, Stanford and the University of Michigan. He has served as the Chief Economist for the National Federation of Independent Business for 35 years, is the Chairman of Liberty Bell Bank (NJ) and Economic Strategist for Boenning & Scattergood (1914, Philadelphia).


The debate over health care “reform” has been confusing indeed and its meaning seems to have eluded even those who are attempting to write the legislation that is supposed to “reform” the system. For some, this is about efficiency, delivering the same or more health care at a lower cost. For others, it is about “redistribution”, giving access to the “poor”, funded by taxpayers. And some are concerned about “fairness”, desiring all people to have access to health care, regardless of their health (and have this access funded regardless of the cost, thus protecting families from dreaded medical bills that result in financial ruin). Most recently, the debate has focused on “insurance”, guaranteeing insurance to everyone regardless of cost, rather than on “efficiency”, reducing the cost of delivering the current level of care. Failing to distinguish clearly among these objectives is responsible for much of the turmoil surrounding the issue.

The goal of adding “47 million” alleged uninsured to the health care market while lowering costs appears logically impossible to achieve (without reducing the level of medical care received by currently insured individuals). Resources are limited and it takes a decade to increase the supply of doctors. On the day of Census measurement, there may have been 47 million who told the Census they were uninsured. But far fewer are uninsured for long periods of time (they get jobs). Roughly 10 million of these people are non-citizens, and taxpayers should be able to decide how much if any care they wish to provide to this group. Another 9 million are covered by Medicaid, but haven’t signed up because they haven’t accessed the medical care system (or may not view this as insurance). When they do, they are covered. Similarly, about 4 million “uninsured” children are covered under SCHIPS, but have not been enrolled. About 10 million are from families making enough money to buy health care (income exceeding 300% of poverty line) but choose not to, some paying for care out of pocket, others, many young, preferring to spend the money on a better car and take their chances, knowing that if they have an accident, the hospital will take care of them. Using “47 million” is misleading and not helpful for identifying the nature of the issues and what might be done. Indeed, many critics of reform point out that everyone gets health care today since none are turned away. This is inefficient, but suggests that we aren’t going to add “47 million” new people to the system, creating doctor shortages, because they are already in the system and their care is paid for by explicit and implicit subsidies (hospital room charges cover bad debts for example).

Most industrialized countries set a health care budget and manage (ration) delivery to meet the budget. In the U.S., we don’t know how much we spend until we add it up at the end of the year. One observer noted that the goal of managed systems is to “save money” while the U.S. goal is to “save lives”. There is an important kernel of truth in that statement. All health care is paid for by consumers, directly, or through private insurance, or through taxes (to pay for Medicare, Medicaid and SCHIPS for example). In that sense, the government’s concern about its budget is misplaced, it is just one conduit we use to pay for the medical care we want. Characterizing the large share of our GDP paid for health care as a “crisis” is not appropriate if one believes that the task of markets is to deliver what consumers want. It is appropriate to worry about inefficiencies (including price distortions like a “free” doctor visit or excessive law suits) that cause us to misuse or overuse our valuable medical resources. But as the baby boomers age, they will spend more on health care and it is inappropriate (if you believe in consumer sovereignty and markets) to attempt to reduce the care retirees take.

Read More

Category: Think Tank

Tom Carvel Only Gave Franchises to Poor People

Bob Lefsetz is a music industry observer, and publisher of the Lefsetz letter:


Tom Carvel would only give franchises to poor people.

Ever since I went to Jim Lewi’s food festival at Shoreline, I’ve been hooked by the Food Network. It started watching Triple D on on demand, then Felice got hooked on the competition shows and now it’s a TV mainstay.

Triple D? That’s “Diners, Drive-ins and Dives”. Unless you only eat haute cuisine or believe salt is the enemy and hot dogs will give you cancer, you’ve got to watch this show: Individuals like indie bands start their own restaurants, follow their own muse, and deliver food so delectable that word spreads, until someone e-mails host Guy Fieri and he shows up with his camera crew. I can’t cook a lick, but the way the owners put a dollop of this and a dash of that into a pot and end up delivering something that generates smiles is incredibly intriguing, makes me want to buy a Camaro and take to the road just like Guy. (Who’s actually taking to the road, doing his own tour, see dates here: I’ve seen his act and he’s got tons more star power than most musicians, he knows how to work a crowd.)

So that’s become the default channel on Felice’s television, the Food Network. And when I walked into the bedroom after listening to Tom Petty on Blu-Ray, she was watching a show about legends. On screen was Tom Carvel.


It was really an east coast thing, Felice wasn’t familiar. But Carvel ice cream was the Ben & Jerry’s of its day. A special treat that made you feel fully alive with every lick, a cult we were proud to be a member of.

There was one outlet downtown. And another on the Post Road in Westport. Around the corner from our house, on Black Rock Turnpike, was Dairy Queen. We went there after each Little League victory, but it was akin to Wonder Bread. Sure, you could lacquer your cone with a hard plastic shell, but the ice cream?

Read More

Category: Think Tank

Andy Xie: What We Can Learn as Japan’s Economy Sinks

Japan hasn’t sustained growth bounces for decades, nor will it under the DPJ government. Therein lie lessons for other economies.

By Andy Xie, guest economist to Caijing and a board member of Rosetta Stone Advisors Ltd.

09-16 08:56 Caijing

(Caijing Magazine) Japan has had a political earthquake. The Liberal Democratic Party (LDP) that ruled Japan since the end of the World War II lost most of its seats in the latest election, while the Democratic Party of Japan (DPJ) won 308 of 480 lower house seats, complementing its majority in the upper house.

Now, DPJ is in a strong position to undertake structural reforms. Indeed, a big political change brings hope in any country that’s stagnated for as long as Japan. However, DPJ is unlikely to turn around Japan’s economy anytime soon. LDP, in the name of Keynesian stimulus, spent all its money over the past decade on wasteful investments, leaving DPJ with no resources for reform. I’m afraid DPJ has an impossible situation on its hands.

Anyone who doesn’t believe in the harm of a financial bubble but does believe in Keynesian stimulus magic should visit Japan. A likely dip for the Anglo-Saxon economies next year will underscore these truths. The same goes for anyone who thinks China’s latest real estate bubble, asset borrowing and shadow banking system are worthwhile substitutes for real economic growth.

The world including China can learn a lot by looking at what’s happened to Japan, and what’s in store for DPJ. Since Japan’s stock market bubble burst in 1989 and the land market popped in 1992, the LDP government has run up debt equal to nearly 200 percent GDP in hopes of reviving the economy. And its economy has stagnated.

The burst of the global credit bubble in 2008 brought down Japan’s export machine. That was its only hope. Now, of all OECD economies, Japan’s looks most like a depression. Its nominal GDP declined 8 percent in the first quarter 2009 from the year before. Although its economy rebounded a bit in the second quarter, nominal GDP for 2009 is still expected to decline substantially and will likely be lower than in 1993.

Many analysts blame Japan’s problems on corporate inefficiency. This is partly true. Japan has had a hyper-competitive export sector. Domestic, demand-oriented industries are inefficient due to labor market practices. More importantly, sectors that became massively levered during the bubble years have been walking like zombies for two decades, weighing down the economy’s overall efficiency. Japan’s inefficiencies are largely a consequence of its decision to prop these industries.

U.S. return on asset (ROA) was twice as high as that in Japan. But, in hindsight, higher ROA in the United States was mostly a bubble phenomenon. Much of U.S. corporate profitability was due to financial engineering. In one aspect, the export performance of Japan’s corporate sector has done very well — much better than its U.S. counterpart. Japan’s exports doubled in yen terms between 1993 and 2008, and the sector’s share of GDP nearly doubled to 16 percent from 9 percent, even though the yen remained strong during the period. The performance of Japan’s export sector shows its inefficiencies elsewhere were largely due to shortcomings in the system.

Japan’s stagnation has been linked to government handling of debt overhang in the corporate sector — mainly in the real estate, construction, and retail sectors, and left over from the bubble era. In the 1980s, especially after the Plaza Accord, Japan’s corporate sector accumulated a massive amount of debt for financial speculation. Total corporate debt more than doubled to about 900 trillion yen, or 200 percent of GDP, from 1984-’92. After land and stock prices collapsed, the net value of the corporate sector’s financial assets switched from about 30 percent of GDP to a minus 50 percent of GDP. If the change in land holding value is included, the corporate sector’s net worth may have fallen by 200 percent of GDP. As corporate profits are about 10 percent of GDP in a developed economy, Japan’s corporate sector would need two decades to earn its way back.

The Japanese government did choose to let the corporate sector earn its way back, first by preventing bankruptcies and second by stimulating demand. To achieve the first goal, the government kept interest rates near zero and Japanese banks did not pursue mark-to-market accounting in assessing borrower solvency. With a big chunk of the corporate sector zombie-like, the economy, of course, was always facing downward pressure. The government had to run large fiscal deficits to prop up the economy. After the bubble, Japan’s economic equilibrium stagnated and the fiscal deficit swelled.

This strategy was flawed in three aspects. First, even as the corporate sector earns profits to pay down debt, the government’s debt is rising. At best, it is shifting corporate debt to government debt. In reality, government debt has been rising faster than private sector debt has been falling.

Second, economic efficiencies don’t increase in such equilibrium. Existing resources in the zombie sector are essentially unproductive. Bankruptcies improve efficiency by shifting resources from failing to succeeding companies. When rules are changed to stop bankruptcies, efficiency is sacrificed. Worse, incremental resources are sucked up to pay fiscal deficits used to prop up zombie industries. Japan is thus trapped in equilibrium of low productivity.

Third, a long period of stagnation could worsen irreversible social change. A falling birth rate, for example, is one consequence that is wreaking havoc on the Japanese economy. Japan’s post-bubble policy was to let property prices decline gradually. Hence, living costs also declined gradually. On the other hand, the economy stopped growing, which caused income expectations to quickly adjust downward. The combination of high property prices and low income growth rapidly pushed down Japan’s birth rate. As a consequence, Japan’s population is declining two decades after the bubble. The rising burden of caring for the old will lower Japan’s ability to pay for anything else.

Read More

Category: Think Tank

Nukes, War & Markets

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 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).


September 26, 2009


Remember the old story about the kid and cookie jar?  “If you do that one more time, I will punish you,” says the mom.  This latest two-months so-called “line in the sand” is not the first, nor the second, nor the third time.  The only thing different now is that the Brits (Brown), the French (Sarkozy), and the Americans (Obama) are collectively drawing it.  Make no bones about it; it will be tested by the power in Tehran.

The Iranians are caught in a fully disclosed lie.  President Mahmoud Ahmadinejad (pronounced: Ach-pitoui MAD Jihad) proves himself the worst of his ilk in the political category. He is a thug like Chavez or Kim or Mugabe, but he has one thing that they do not have: he has a credible weapon in the making.  And he has oil and money and is empowered by an oppressive political constituency (mullahs) that preserve him.

Prez A shows his true colors when he uses historical revisionism as a political tactic.  That becomes the basis for distracting others within his country and for arguing policy abroad.  Larry Kings interview is worth watching for those who might disagree with this contention.

For me, this one is easy to call.  I’ve walked through Auschwitz twice.  That’s right, an American Jew walked in and out of a crematorium; it’s the one in the back of Birkenau that wasn’t fully destroyed.  I’ve visited the “white ponds” in the back where 800,000 souls have their ashen remains interned and where the gray color of the water is still there after a half a century and where you can still walk and kick the dirt and find a small fragment of a bone and wonder if it is a remnant of a Holocaust victim and not something deposited there by a stray cat.

The notion of a Holocaust denier holding the key to a nuke is frightening.  He is a leader of an Islamic revolutionary state and has one mushroom cloud in the making.  There is no choice for the Western world, in my view.  Think about it: in 1981 the Israelis took out the Iraqi nuke weeks before it was about to be turned on.  The location was Osirak.  Google it if you are too young to remember this history.  Imagine how the world would look if Saddam Hussein had gotten his nuke.  Then close your eyes, think back further into history and imagine that the West had responded to Hitler with something other than Chamberlain’s pacifism.  Contemplate the silliness of failed sanctions and realize that they only empowered the regime that is targeted.  Ask yourself if our sanctions on sales of helium (the Hindenburg used hydrogen) had any effect.

Read More

Category: Think Tank

Words from the (investment) wise 9.27.09

Words from the (investment) wise for the week that was (September 21 – 27, 2009)

After hitting its best levels of the year on Wednesday ahead of the Federal Open Market Committee’s (FOMC) communiqué, the S&P 500 Index ran into heavy weather on the realization that the Fed could start scaling back on emergency support of the economy. US equities dropped further later in the week on renewed concerns about the state of the troubled housing market and weaker-than-expected durable goods orders.

In addition to global stock markets declining, risky assets such as commodities, oil, gold and other precious metals all sold off as pundits worried about the winding down of quantitative easing puncturing the “liquidity rally”. Government and corporate bonds, as well as the Japanese yen, emerged as winners.


Hat tip: The Big Picture, September 23, 2009.

The FOMC maintained its loose monetary policy following its meeting on Wednesday. The statement said the committee expected to keep the Fed funds rate target in the 0% to 0.25% range “for an extended period”.

“The committee extended the time period over which it plans to purchase Fannie Mae and Freddie Mac debt and mortgage-backed securities. The remarks on current economic conditions were more optimistic than in August, and the FOMC now believes the recession is over. The Fed will keep monetary policy loose in the near term to support the recovery but is laying the groundwork for an eventual tightening,” said Moody’s

Although the US Dollar Index (+0.4%) closed a little higher on the week, the greenback hit a one-year low against the euro on Wednesday, with the Fed’s indication of keeping US interest rates at current levels for a while longer underscoring the dollar’s status as a carry-trade funding currency. (Click here for a short technical analysis of the outlook for the dollar by‘s Adam Hewison.)

The past week’s performance of the major asset classes is summarized by the chart below – a set of numbers that shows risk aversion creeping back into financial markets.



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.

The MSCI World Index (-1.4%) and MSCI Emerging Markets Index (-1.2%) both closed the week in the red, with the Shanghai Composite Index (-4.2%) one of the biggest losers among the major stock markets. After bucking the global weakness that prevailed during the week, Chile is now only 5.1% down from its July 2007 highs and could be one of the first markets to wipe out all the financial crisis losses.

The major US indices declined for three consecutive days (from Wednesday to Friday) and registered their first weekly drop since the last week of August. The year-to-date gains remain in positive territory and are as follows: Dow Jones Industrial Index +10.1%, S&P 500 Index +15.6%, Nasdaq Composite Index +32.6% and Russell 2000 Index +19.9%.

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


Top performers in the stock markets this week were Latvia (+8.0%), Cyprus (+6.8%), Israel (+5.0%), Ukraine (+4.9%) and Saudi Arabia (+4.1%). At the bottom end of the performance rankings, countries included Luxembourg (_8.7%), Ireland (-4.2%), China (-4.2%), Mexico (-4.0%) and South Africa (_3.3%).

Of the 98 stock markets I keep on my radar screen, 44% recorded gains (last week 81%), 51% (15%) showed losses and 5% (4%) remained unchanged. (Click here to access a complete list of global stock market movements, as supplied by Emerginvest.)

John Nyaradi (Wall Street Sector Selector) reports that, as far as exchange-traded funds (ETFs) are concerned, the winners for the week included Global X/InterBolsa FTSE Colombia 20 (GXG) (+6.0%), Market Vectors High-Yield Municipal (HYD) (+2.9%), iPath S&P 500 VIX Mid-Term Futures (VXZ) (+2.9%) and United States Natural Gas (UNG) (+2.8%).

At the bottom end of the performance rankings, ETFs included United States Gasoline (UGA) (-10.8%), United States Oil (USO) (-8.4%), United States 12 Month Oil (USL) (-8.3%) and iShares Dow Jones Home Construction (ITB) (_8.3%).

Against the background of the International Monetary Fund’s approval of the sale of 403.3 metric tons of its gold and beggar-thy-neighbor currency devaluations, Richard Russell reminded us of the following quote from the Republican National Platform in 1932: “The Republican Party established and will continue to uphold the gold standard and will oppose any measure which will undermine the government’s credit or impair the integrity of our national currency. Relief by currency inflation is unsound in principle and dishonest in results.” Russell added: “My, how times have changed, and not always for the better.”

Other news is that the summit of G20 countries have agreed, inter alia, to plot a roadmap for the banking industry, align economic policy, ensure that tax havens comply with global standards and phase out subsidies for fossil fuels in the “medium term”.

Also, the Federal Deposit Insurance Corporation (FDIC) closed another bank on Friday, bringing the tally of US bank failures in 2009 to 95 (120 since the beginning of the recession). Meanwhile, according to The New York Times, regulators are considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the FDIC. This would enable the fund, which is running low on resources as a result of the myriad of bank failures, to continue to rescue the sickest banks … “You can’t make up stuff like this!,” commented Bill King (The King Report).

Next, a quick textual analysis of my week’s reading. Although “banks” still features prominently, the key words have started taking on a more normal pattern compared with the crisis-related words that have dominated the tag cloud for many months.


The major moving-average levels for the benchmark US indices, the BRIC countries and South Africa (where I am based) are given in the table below. With the exception of the Shanghai Composite Index, which is trading below its 50-day moving average, all the indices are above their respective 50- and 200-day moving averages. The 50-day lines are also in all instances above the 200-day lines.

Read More

Category: Markets, Think Tank