The Prelude to QE4

Posted on September 15, 2015 by MN Gordon

The U.S. economy officially exited the Great Recession in June 2009.  But the recovery hasn’t done much to lift the broad population’s lot in life.  Six years into it, and the economy trudges along like a jack donkey up a muddy mountain road.

Progress is slow.  There’s an occasional backslide.  Moreover, with each slippery step there’s the danger it’ll stagger off the trail side and freefall onto the rocks 3,000 feet below.

The U.S. consumer, the primary engine of economic growth, is backsliding at the moment.  Recently the University of Michigan, Survey of Consumers, noted its consumer sentiment index fell to 85.7 in early September.  That’s down from 91.9 last month and to its lowest level in a year.

Producer prices are also in a lurch.  According to the Labor Department, the producer price index has declined on a 12-month basis for seven straight months.  This would indicate the economy’s in a rut as far as we can tell.

Yet other data points are saying something else.  As of August 2015, the unemployment rate’s fallen to just 5.1 percent. Continue reading →

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Amplified Losses

Posted on September 11, 2015 by MN Gordon

Federal Open Market Committee meetings are always a spectacle.  The forthcoming FOMC meeting, scheduled for September 16 and 17, should be particularly endearing.  For despite the Fed’s claim to provide transparency the upcoming policy announcement is cloudier than pollywog stew.

All year the Fed has hinted they’d finally lift the federal funds rate from near zero.  Yet with each FOMC meeting the Fed has pushed back the decision.  Until three weeks ago, the September FOMC meeting was to be the historic date of a small, incremental rate increase.

But that was before the stock market shuttered and rapidly dropped 12 percent.  In late August, at the moment of maximum panic, New York Federal Reserve Bank President, William Dudley, backed off on the prospect of a September rate increase.  The markets greeted Dudley’s remarks as if they were manna from heaven.

However, after the stock market settled down, it wasn’t clear if the September rate increase was still on or not.  No one seems to know.  This includes the Fed too. Continue reading →

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This is War

Posted on September 8, 2015 by MN Gordon

Exactly 20-years ago this month we got our first email address.  We were entering freshman year of college.  Along with a student identification card we received an email account.

The World Wide Web was a Wild West frontier at the time.  No one quite knew where it would take us.  Perhaps no one still knows its ultimate destination.

But one thing is abundantly clear.  Email has become a ball and chain that makes professional life practically unbearable.  Along with the advent of the smart phone there’s no escaping round the clock demands these days.

Indeed, like the first generation to have their lives interrupted by the advent of the clock, we’ve come to disdain email.  We recall the freedom of life prior to its existence…when there was a clear separation from being on the clock and being off the clock.  This, of course, is the downside of progress.

In retrospect, instant communication and connection comes with a price.  Namely one’s time, freedom, and privacy. Continue reading →

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Good Riddance

Posted on September 4, 2015 by MN Gordon

High-risk investing is rewarded with higher returns when the financial tide is rising.  The vast sea of liquidity hides the hazards and perils of a rock bottom reef.  Madmen and lunatics get rich.  But when the tide turns…watch out…

“You only find out who is swimming naked when the tide goes out,” remarked Warren Buffett back in 2001.  Since mid-May the DOW is down nearly 2,000 points.  At this rate, the receding tide will soon expose a multitude of skinny-dippers.

What we mean is, a big hedge fund or pension fund will soon be caught with its pants down.  Perhaps it will be billionaire David Einhorn.  His Greenlight Capital hedge fund is already down nearly 15 percent in 2015.  While it’s still too early to tell if Einhorn’s swimming naked…the water line has dropped significantly.

But it’s not just the high risk hedge funds with something to hide.  Pension funds, seeking higher yields, have been swimming with hedge funds.  They didn’t have much choice.

The Fed’s artificially pinned Treasury yields down to an absurdly low rate for over 80 months. Continue reading →

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