Coming Uncorked

Posted on May 10, 2013 by MN Gordon

On Tuesday something incredible happened.  The Dow closed above 15,000 for the first time ever.  What a joy to be alive and bear witness to the great miracle of our time.

Whereas just 100 years ago the new marvels were flying machines and bucolic indoor plumbing…these days we have iPads and Dow 15,000.  Without question, iPads are quite marvelous.  Without question, Dow 15,000 is quite grotesque.

Without question, extreme government price fixing of money has blurred the line between real economic growth and the illusion of economic growth.  Often times it’s difficult to tell the difference.  Yet sometimes the difference becomes crystal clear as misallocations of capital reach extremes…

Consider the dot com bubble of the late 1990s.  Or the housing bubble of the mid-2000s.  These first appeared to be reflections of real economic growth.  Later it became crystal clear they were illusions of economic growth…destructive miracles of monetary policy.

For several years, it has been fairly obvious, if not crystal clear, there’s a Treasury bond bubble.  No one quite knows just when it will blow. Continue reading →

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Another All Time High

Posted on May 7, 2013 by MN Gordon

The Wrath of Ray KrocThe Labor Department reported last Friday that 165,000 new jobs were added to the economy in April.  That’s nothing to write home about, you’d think.  But, nevertheless, the mainstream press got excited because it was ‘better than expected.’

On top of that, Wall Street went bananas.  The Dow closed the day up 142 points and the S&P 500 ran up above 1,614…to a new all-time high.  On surface, it appeared really great things were happening all around.

Yet, for some reason, we couldn’t seem to grab a hold of the good cheer.  Why’s a jobs report that barely keeps pace with population growth cause for investors to jump and stomp around like Oakland Raiders fans?  Shouldn’t it take double that – or more – before they bang the pots and pans?

Once the dust settled, one critical thing became clear.  The numbers don’t add up.  In April 2008, 62.7 percent of working age Americans had a job.  In April 2013, the percentage of working age Americans with a job sat at 58.6.  With fewer Americans working shouldn’t the unemployment rate be soaring? Continue reading →

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Overloaded with Debt and No Jobs to Be Had

Posted on May 3, 2013 by MN Gordon

Overloaded with Debt and No Jobs to Be HadThe Federal Open Market Committee met on Tuesday and Wednesday.  The masses waited with anticipation.  What did they talk about?

Generally, they talked about price controls.  More exactly, they talked about controlling the price of the economy’s most important and fundamental element…its money.  By controlling the price of money they can influence the price of every single good and service there is.

Some believe this is for the good of the people.  That it will somehow boost consumption and stimulate demand.  That it will create a new hiring boom.  We have our reservations.

When it comes to the Fed, they believe – or at least pretend to believe – that with just the right policy mix the economy will be restored to glory.  But what’s the right mix…and how can a handful of bureaucrats with a handful of charts ever know what it is?

After several days of belaboring they concluded they’d continue loaning out federal funds for practically free.  On top of that, they concluded they’d continue to borrow money into existence – roughly $85 billion a month – and use it to buy Treasuries and mortgage bonds until unemployment falls to 6.5 percent. Continue reading →

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Tend to Your Garden

Posted on April 30, 2013 by MN Gordon

Tomorrow’s the first day of May.  You know what that means…  If you follow the old adage, ‘sell in May and go away,’ you should sell your stocks.  It may be hard to believe, but this is more than just a catchy rhyme.  This advice actually has a good track record.

In fact, most years this has turned out to be a successful strategy.  According to the Stock Trader’s Almanac, if you invested $10,000 in the Dow in 1950 and held the money in stocks from November through April each year, you’d have had $684,073 by the end of 2011.  But if you’d invested that same $10,000 in the Dow in 1950 and held it from May through October each year, by the end of 2011, you’d have lost $1,024.

That’s quite a dramatic difference, wouldn’t you say?  Yet if you’re still not ready to sell, there are several other reasons for easing up on stocks you may want to consider…

Consumer sentiment, as measured by the Thomson Reuters/University of Michigan index, fell in April to a three-month low.  Remember, consumer spending accounts for 70 percent of the economy.  When consumers cut back on spending the GDP takes a hit. Continue reading →

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