On Price Distortions and Landmines

Posted on March 19, 2013 by MN Gordon

Former Federal Reserve Chairman Alan Greenspan told CNBC on Friday that the Dow’s new highs and 10-day run were not the result of “irrational exuberance.”  On cue, the Dow took a 25 point nose dive…closing out the day with its first loss since March 1.

If you recall, during the early part of the stock market bubble up period of the late 1990s, Alan Greenspan asked if irrational exuberance was at work.  On December 5, 1996, while speaking at the American Enterprise Institute, Greenspan asked…

“How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions, as they have in Japan over the past decade?”

“We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability,” continued Greenspan.  “But we should not underestimate or become complacent about the complexity of the interactions of the asset markets and the economy. Continue reading →

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What’s Really Propelling the Stock Market Higher

Posted on March 15, 2013 by MN Gordon

Consumers are back at it…doing what they do best.  They’re buying stuff and they’re consuming it.  Moreover, they’re doing so at an accelerating rate.

The Commerce Department reported on Wednesday that retail sales increased 1.1 percent in February, the largest rise since September, and well above January’s 0.2 percent gain.  This is in spite of the 2 percent increase in payroll taxes and the tax increase on the rich.  Apparently, so far, smaller paychecks are not inhibiting people’s desires to spend money.

This increase in consumer spending should help the first quarter GDP number, since consumer spending makes up about 70 percent of the U.S. economy.  But is an increase in GDP, propelled by an increase in consumer spending, really a good thing?

If the increase in consumer spending is funded by savings and capital investment it is.  Unfortunately, this increase in consumer spending is supported by an increase in consumer debt.  This will have a lasting impact on future economic growth.

In short, people are borrowing today to pay for things they haven’t yet earned. Continue reading →

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Who’s Living Large in Retirement?

Posted on March 12, 2013 by MN Gordon

Who’s Living Large in Retirement?
By Dennis Miller, Editor, Money Forever

Who fares better in retirement, pensioners or folks who saved up their own respective nest eggs?  If you look at the numbers, you might be surprised to learn who’s really “living large” after retirement.

Regardless of how you made your money, what determines if you’re rich when you retire?  Frankly, it isn’t how much money you made, but how much you accumulated that counts.  So who are the real rich people?

Retirees generally fall into one of four groups: folks who retired from the private sector with a 401(k), IRA or a lump sum payout in lieu of a private pension; those with a government pension; self-employed folks who saved their own respective nest eggs; and finally, those scraping by on Social Security alone.

The U.S. Census Bureau reports that in 2010 the top 10 percent had a median net worth of $1,864,000.  If you’re worth that much or more, 95 percent of the population thinks you’re rich.  But are you? Continue reading →

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On the Good and Proper Way to Celebrate the New Bull Market

Posted on March 8, 2013 by MN Gordon

Something magical happened Tuesday.  The Dow Jones Industrial average closed at a new all-time high of 14,253…eclipsing its previous closing high of 14,164 set nearly five and a half years ago.  What a feat.

Wall Street cheered.  Jim Cramer pumped his fist.  Then, right when it seemed the day couldn’t possibly go any more favorably, Venezuelan President Hugo Chavez up and croaked.  We had to pinch ourselves twice to make sure this had all just really happened.

Unquestionably, these sorts of disjointed combinations salt and pepper the world in ways we never could’ve imagined.  Would it have been possible to plan a better day upon rising in the morning?  Perhaps, yes.  Though, it wouldn’t have been nearly as random or satisfying.

Of course, we don’t like to celebrate the dead.  That’s rather uncouth.  But we’re not perfect…we do slipup every now and then.  There was this time and that time, to be exact. Continue reading →

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