Meddling with Markets for Work and for Pleasure

The popular economic theme being reported by the popular press still remains.  That the economy is grinding higher.  That growth is improving, albeit slowly.  That blue skies are just over the horizon.

Naturally we have some misgivings.  As far as we can tell, business is not humming along.  Earnings are stagnant.  Profits are slim.  Moreover, corporate reductions in force (RIFs) are being executed with the imprecise targeting of a sledge hammer.  Even Google’s laying off staff.

Most notably, if the economy were improving there’d be demand for raw materials and new construction equipment to fabricate it into stuff.  This doesn’t appear to be the case at the moment.

Earlier this week, for example, Caterpillar CEO Doug Oberhelman remarked that, “Economic weakness throughout much of the world persists and, as a result, most of our [Caterpillar’s] end markets remain challenged.  In North America, the market has an abundance of used construction equipment, rail customers have a substantial number Continue reading

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Prepare for the Unthinkable

Growth and profits mask a variety of problems.  They hide business inefficiencies and the money suck of corporate administrivia.  They also conceal unproductive staff.

But most of all growth and profits obscure the extreme value subtracting forces of bloated management teams.  During good times it is unclear what these smug fellows do.  During bad times it is lucidly clear that most of them ain’t worth a darn.

When the profits inevitably recede, the senior executives, with their silly 24 point project reviews and cumbersome project execution requirements, appear lost.  They’re left exposed, with their pants down, and without a clue in the world as to what business it is they’re actually in.  What the heck have they been doing all this time?

Where does the money come from?  How is it spent?  Over time, and in the absence of a watchful eye, the rising tide of growth gradually submerses the answers to these questions.

Then, when the answers are needed most, it is too late.  While management was busy developing mindless risk management protocols and clumsy 9 step workflow approval processes the answers had drowned. Continue reading

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Meet Your New Stimulus Allocation Czar

The march towards midnight is both stirring and foreboding.  Like a death row inmate sitting down to savor his last meal, a grim excitement greets the reality of impending doom.  Thoughts of imminent mortality haunt each bite.

As far as the economy’s concerned, there’s no stopping its march towards midnight.  The witching hour’s rapidly approaching.  We intend to savor each moment and make the best of it.

We also watch and listen for signs and clues of what will happen next.  One such inkling came recently from Bank of America-Merrill Lynch head of U.S. equity and quantitative strategy Savita Subramanian:

‘“We are seven years into a full-fledged, all out, central bankers doing everything they can to stimulate demand.

‘“We looked at all of these indicators that have been pretty good at forecasting recessions and we extrapolated that if they follow the current trends they’re on, we’re going to hit a recession sometime in the second half of next year.’” Continue reading

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Doomed for Failure

We’ve been waiting for the U.S. economy to reach escape velocity for the last six years. What we mean is we’ve been waiting for the economy to finally becomes self-stimulating and no longer require monetary or fiscal stimulus to keep it from stalling out.  Unfortunately, this may not be possible the way things are going.

In short, the U.S. economy may never reach escape velocity unless it is first allowed to crash.  It has been too larded up and larded over with debt for any real sustainable growth to take root.  More evidence, to this effect, was revealed this week.

For example, the International Monetary Fund (IMF) anticipates the U.S. economy will expand by just 1.6 percent this year.  That’s about one percent less than last year’s estimated growth.  In other words, the rate of economic growth in the United States isn’t increasing; rather, it’s decreasing.

According to the IMF, “the slower-than-expected activity comes out of the ongoing oil industry slump, depressed business investment and a persistent surplus in business inventories.”  Could this be the twilight of the weakest economic recovery in the post-World War II era?  Only time will tell, for sure. Continue reading

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