Fighting the Next War

Posted on March 26, 2013 by MN Gordon

The unemployment rate remains stubbornly high.  But other than that, the economy seems to be pleasantly improving.  Sure the dark clouds on the horizon from Cyprus could take some of the wind out of the stock market’s sails.  Nonetheless, the stock market’s needed an excuse to pause all year.

More will be revealed this week.  Later today, for instance, durable-goods orders, consumer confidence, and new home sales will be reported.  Then, on Thursday, 4th quarter GDP revision and weekly jobless claims will be announced.  Come Friday, consumer spending and consumer sentiment will be released.

Naturally, we’ll be monitoring the situation for you…looking for inklings and indicators for what’s next.  Have the negative moods fabricated by the 2008 financial crisis and Great Recession finally swung to the positive?  Are happy days here again?

Looking around, it sure feels like it.  Consumers are consuming.  Producers are producing.  Moreover, for the first time in years, confidence and assurance are returning to the economy like migratory birds to Southern California during springtime nesting season. Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , , | Leave a comment

Dark Clouds on the Horizon

Posted on March 22, 2013 by MN Gordon

Wow!  Just when we thought we’d seen it all, something fantastic happened.  What a delightful treat…

The tiny island nation of Cyprus has the whole European continent welcoming spring with the frosted hearts of a December blizzard.  For a brief moment, when the Cyprus legislature simultaneously told the EU, ECB, and IMF – and their “stability levy” – to go fly a kite, we were overcome with anticipation.  We thought we were going to bear witness to mass bank implosions.

Certainly the loss of deposits would be worth the price of relegating an entire nation’s banking class to the ranks of the unemployed.  Moreover, the private uproar, and lessons learned, would demand sound banking for three generations or more.  Future Cypriots would be bequeathed a financial system built on a foundation of granite rather than a sea of paper.

But, alas, it was not to be.  The politicians, we soon discovered, had other, less upright, ideas for fixing things.  From what we gather, one option involves going into deep hock to the Russians. Continue reading →

Posted in Government Debt, MN Gordon | Tagged , , , , , , , , | 1 Comment

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 →

Posted in MN Gordon, Stock Market | Tagged , , , , , , , | Leave a comment

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 →

Posted in MN Gordon, Stock Market | Tagged , , , , , | Leave a comment