What the End of Fed Rate Hikes Means for Stocks

Posted on April 28, 2023 by MN Gordon

According to this week’s Commerce Department report, U.S. GDP increased at an annualized rate of 1.1 percent during Q1 2023.  The experts thought GDP would grow by 2 percent.  They were wrong.

By now, it’s very well possible GDP has already slipped into reverse.  We won’t know until the Commerce Department’s Q2 report is released in late July.  In the interim, there’s an important question to be asked:

Is a recession bullish or bearish for stocks?

Next week, following the federal open market committee (FOMC) meeting on May 2 and 3, it’s widely anticipated that the Federal Reserve will hike interest rates by 25 basis points.  This will take the federal funds rate to a range of 5.00 to 5.25 percent.

It is also anticipated that this will be the last rate hike of this rate hiking cycle.  That the Fed will then hold interest rates, before cutting them later this year to offset the recession.

Interest rate cuts are commonly recognized as being bullish for stocks and stimulative for the economy.  Here at the Economic Prism, we have some reservations. Continue reading →

Posted in MN Gordon, Stock Market | Tagged , , , , , | 10 Comments

What Brookfield’s Default Has to Do with You

Posted on April 21, 2023 by MN Gordon

Over more than two decades we worked off and on in Downtown Los Angeles.  We had a client for several years at 555 West 5th Street, in the tower at the base of Bunker Hill.  We’d meet several times a week.  Always in the morning.

Sometimes he would boast about his property in Coeur d’Alene, Idaho, and how he’d one day leave LA.  Other times he’d deliver us a wire brushing for events beyond our control.  One time he accused us of ‘smash and grab’ tactics for merely requesting payment of a past due invoice for contracted work that had already been delivered.

After these inspiring encounters we’d hike by the collection of derelicts and dope smokers sprawled out on the wall in front of the Central Library.  This was as we made our way back to our office at the Wedbush Center on Wilshire Boulevard near Figueroa Street.

On the corner in front of the 7-Eleven a clown appeared one day.  He had oversized shoes, a rainbow wig, face paint – the whole costume.  All day every day, rain or shine, he was there, jumping around, waving at cars and buses, and fist bumping people walking by.  Then, after about nine months, he was gone.  We never saw or heard of him again. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , | 18 Comments

The Creative Process of Government Destruction

Posted on April 14, 2023 by MN Gordon

“History is a record of ‘effects’ the vast majority of which nobody intended to produce.”

– Joseph Schumpeter

Unintended Consequences

It was about a year ago when IMF Director Kristalina Georgieva took part in a panel discussion hosted by CNBC.  This may have been a fairly common occasion.  The conversation, however, was entirely uncommon.

Typically, central bankers are illusive in their remarks.  They speak in code.  They avoid potentially inflammatory words like recession.  Most certainly, they never use the D-word – as in depression.

They also generally avoid taking any responsibility for their mistakes.  What’s more, they position their failures as successes.

Ben Bernanke’s ‘courage to act,’ for instance.  What a bunch of baloney.

Deep inside central bankers must know the folly of planning an economy by stretching the money supply.  Still, they want to maintain the perception that they’re masters of the universe – and so, so much smarter than you. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , | 2 Comments

Bondage Is Cruel

Posted on April 7, 2023 by MN Gordon

Did you know that San Francisco’s recently completed 1.7-mile Central Subway cost $1.95 billion?  That amounts to over $217,400 per foot.  On a per inch basis, this is over $18,000.

Is $18K per inch a good deal?

Currently, less than 3,000 daily riders take the Central Subway.  This represents about 0.37 percent of the city’s total population.  Perhaps for these riders it’s a good deal.  For everyone else it’s a complete rip off.

Still, this should come as no surprise.  After more than a decade of artificially low interest rates, courtesy of the Federal Reserve, reckless municipal projects are everywhere.  When borrowing is cheap, hideous waste is the standard.

Politicians, no doubt, are enamored with these mega spending projects.  They’re bold, daring, and stimulating.  Moreover, they offer countless opportunities for the politicians to buy votes.

In Los Angeles, for example, it costs $837,000 to build a single housing unit for one homeless person.  Certainly, there’s plenty of grift built into LA’s homeless industrial complex, which merely exercises the malady to keep the money flowing.  This is terrible for the city’s working and taxpaying residents.  But it’s fantastic for politicians and their friends. Continue reading →

Posted in MN Gordon, Politics | Tagged , , , , | 4 Comments