False Booms

Posted on February 14, 2012 by MN Gordon

Consumers are borrowing money again…and they’re borrowing a lot of it.  Last week the Federal Reserve reported that consumer credit increased $19.3 billion in December.  This increase dwarfed the $7 billion median forecast of a Bloomberg News survey of economists.

What’s more, this $19.3 billion increase was on top of a $20.4 billion increase in November.  This marked the largest two month increase in consumer spending in over a decade.   According to the Fed report, non-revolving debt, like auto and student loans, made up $16.6 billion of the debt increase and revolving debt, like credit cards, added $2.76 billion.

We don’t know what to make of consumer enthusiasm to pile on debt at prerecession rates.  Have they once again lost their collective minds?

“Not yet, says Alan Levenson, chief economist at mutual fund giant T. Rowe Price in Baltimore.

“He pointed out that December’s total revolving credit of $801 billion was still far less than the peak of $972 billion in August 2008. Continue reading →

Posted in MN Gordon, Politics | Tagged , , , , | Leave a comment

How the Stock Market Doubled

Posted on February 10, 2012 by MN Gordon

Things keep on moving forward as they must.  Some things seem obvious and predictable…like Greek insolvency.  Others, like the escalating potential for an attack on Iran, are just coming into focus.  Still, what we see, and what we know, is just the half of it…

Also lurking out there are what Donald Rumsfeld once called “unknown unknowns.”  These are the things we do not know we don’t know.  We’d give you an example of one, if we could.  But we can’t.  Because then, by definition, it would not be an unknown unknown.

Nonetheless, once something passes from the unknown to the known it must be discerned, processed, and acted upon.  Confounding things is all the noise out there…which can distract and confuse even the most focused and clear thinking individuals.  Where the stock market’s concerned, what’s the lowly working stiff saving for retirement to do?

One option to consider is doing nothing.  Doing nothing, however, is a decision to do something.

Putting money in a savings account is taking a position in the banking system.  Stuffing physical cash in the mattress is shorting inflation. Continue reading →

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

Credit Market Killing Machine

Posted on February 7, 2012 by MN Gordon

Yields on the 10-Year Treasury Note remain below 2 percent.  Interest rates this low are extraordinarily abnormal.  They indicate credit markets are feeble.  Moreover, despite the Feds efforts to suppress interest rates, these ultra-low yields may be hurting the economy rather than stimulating it.

How did we get here?  Let’s explore…

“Where does credit go when it dies?” asks Bong King Bill Gross in his latest Investment Outlook.

“It delevers, it slows and inhibits economic growth,” says Gross, “and it turns economic theory upside down, ultimately challenging the wisdom of policymakers.”

The critical insight that Gross offers in this article is that once economic policy has forced interest rates to become zero-bound, low interest rates no longer stimulate economic growth; rather, they discourage it.  In short, when credit markets do not offer a reward that’s worthy of the risk, lenders take their money elsewhere.

Obviously, this can have negative consequences on the economy… Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , , | Leave a comment

How to Spot a Stock Market Inflection Point

Posted on February 3, 2012 by MN Gordon

Saving for retirement these days is a tall order.  It certainly hasn’t been like the good old days during the 1980s and 90s when you could blindly dollar cost average into a no load index fund and watch it rise 15 percent each year.  Those days are long gone.

Nowadays, with yields on the 10-Year Treasury Note perpetually stuck below 2 percent and the S&P 500 down from where it was at the turn of the new millennium, growing a tiny grubstake into something you can live off of has proven to be near impossible.  Still, you must try.  Moreover, what’s your alternative?

Social Security’s bankrupt, pension funds are broke, and, according to the Bureau of Labor Statistics’ inflation calculator, the dollar’s lost 23 percent over the last decade.  This means you must work harder, save more, and invest better than ever before…all for less in return.  In fact, just keeping pace with inflation is difficult enough – let alone actually building wealth.

Nonetheless, here at the Economic Prism we are not discouraged.  We welcome a good challenge like we welcome the silence before dawn. Continue reading →

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