Mission Accomplished?

About the time the most trusted man in America, Walter Cronkite, signed off from the CBS Evening News for the last time, something momentous happened in the U.S. credit market.  Few people, apart from Bill Gross and A. Gary Shilling, understood what was going on.

Hindsight is always 20/20.  And looking at a chart of U.S. interest rates several decades later it all seems so obvious.  Specifically, that the rising part of the interest rate cycle peaked out in 1981.

This one thing, in essence, changed everything.  Over the next 39 years interest rates fell as mega-asset bubbles were puffed up and floated across the land.

The relationship between interest rates and asset prices isn’t complicated.  Tight credit generally produces lower asset prices.  Loose credit generally produces higher asset prices.

When credit is cheap and plentiful, individuals and businesses increase their borrowing to buy assets they otherwise couldn’t afford.  As cheap credit flows into various assets, it balloons their prices in kind. Continue reading

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Are You the Collateral Damage of Central Planners?

The Conference Board – a nonprofit think tank that delivers cutting edge research – recently published its latest Leading Economic Index (LEI) for the United States.  The findings were a giant bummer.  In December, the LEI dropped for the tenth consecutive month.

The LEI, if you’re unfamiliar with it, consolidates various measures of economic activity, including credit, interest rate spreads, consumer expectations, building permits, new orders of goods and materials, and several other items, to assess which way the economic winds are blowing.  Over the past six months, the LEI has fallen by 4.2 percent.  This is the fastest six-month decline since the great coronavirus panic.

This week, the Bureau of Economic Analysis provided its advance estimate of Q4 U.S. gross domestic product (GDP).  For the final quarter of 2022, real GDP increased at an annual rate of 2.9 percent.

How could it be that GDP is expanding while the LEI is contracting? Continue reading

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Debt Ceilings are for Idiots

Clear thinking.  Logical assumptions.  Well-reasoned conclusions.  Such principles are in low supply these days.  But are they in high demand?

Readers who have suffered the financial pinch and frustration of a large project gone sideways know that professional life is rarely neat and almost never tidy.  One team member’s obsessive focus on minutia can quickly burn through the budget.  A zealous regulator or supply chain breakdown can wreak havoc on the schedule.

There are, however, special benefits that are earned when taking a run through the meat grinder.  For one, there are countless opportunities to build character, regardless of if one desires a slice of humble pie.

We worked as a project manager for an international consulting firm for over two decades.  Bidding, winning (and losing), contracting, delivering, and billing work was our daily focus.

Anyone who’s ever earned their living in this game can testify that it’s a terrible business.  Still, the character-building experiences are priceless. Continue reading

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Will You Beat Uncle Sam’s Relentless Pursuit of Your Wealth?

The United States is lurching towards an epic financial catastrophe.  This isn’t a novel insight.  The great tragedy has been in the works for decades.  Anyone with a mild inkling of curiosity knows what’s going on.

According to the U.S. Census Bureau’s population clock, the U.S. population is over 334 million.  This, no doubt, is a lot of mouths to feed and people to clothe and shelter.  But that’s not all.

Many of these people also need some sort of medical care throughout the year.  Some may break their arm.  Others may have their appendix burst or suffer cardiac arrest.  There are also serious medical emergencies from car accidents or other hazards.

In an economy characterized by limited government and individual liberty people are self-supporting.  They provide the means to pay for these needs through the fruits of their own labors.  Minors are supported by their families until they can provide for themselves.  The elderly may fall back on their kids if they didn’t squirrel away enough nuts during their working years. Continue reading

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