“Job Review Time…for Bernanke” - December 3, 2009

Lots of job interviews going on in the country today. And unless it’s for you, the most important one happening today is in Washington for Ben Bernanke. The FED Chairman will be in front of the Senate Banking Committee for his conformation hearing to keep his job.

Bernanke has been a lightening rod for a lot of anger that Wall Street got bailed out and Main Street didn’t. In fact, Senator Bernie Sanders, an Independent from Vermont, and a long-term critic of the FED, has placed a “hold” on Bernanke’s nomination for a 2^nd term to try and block his reappointment.

He claims that “Bernanke has failed at every task assigned to the FED.”

Let me tell you why, in Mr. Sanders case, “I” stands for ignorant not independent.

(1) The FED had little choice last year but to pump enormous amounts of capital into the financial markets…which helped to avert an even greater global crisis than occurred.

(2) The FED did not cause this crisis. Wall Street and Congressional policies did. The FED was forced into the task of sweeping up the effects of greed and incompetence. And it did a good job. Maybe not the best, but Bernanke helped to pull the economy out of the deepest ditch since the Great Depression.

The Chairman will prevail in these hearings after some tough challenges. He will be reappointed, and that will be good for the economy and the country

“Job Review Time…for Bernanke” - December 3, 2009

Lots of job interviews going on in the country today. And unless it’s for you, the most important one happening today is in Washington for Ben Bernanke. The FED Chairman will be in front of the Senate Banking Committee for his conformation hearing to keep his job.

Bernanke has been a lightening rod for a lot of anger that Wall Street got bailed out and Main Street didn’t. In fact, Senator Bernie Sanders, an Independent from Vermont, and a long-term critic of the FED, has placed a “hold” on Bernanke’s nomination for a 2^nd term to try and block his reappointment.

He claims that “Bernanke has failed at every task assigned to the FED.”

Let me tell you why, in Mr. Sanders case, “I” stands for ignorant not independent.

(1) The FED had little choice last year but to pump enormous amounts of capital into the financial markets…which helped to avert an even greater global crisis than occurred.

(2) The FED did not cause this crisis. Wall Street and Congressional policies did. The FED was forced into the task of sweeping up the effects of greed and incompetence. And it did a good job. Maybe not the best, but Bernanke helped to pull the economy out of the deepest ditch since the Great Depression.

The Chairman will prevail in these hearings after some tough challenges. He will be reappointed, and that will be good for the economy and the country

“Bring on the International Soccer Federation…” - December 2, 2009

The ADP jobs report this morning showed more deterioration in the jobs market, but that was not unexpected and the markets should not react much at all to this report.

The real drama du jour today will be when Treasury Secretary Timothy Geithner testifies this morning before the Senate Agricultural Committee on OTC derivatives.

On the surface, this doesn’t sound as sexy as yesterday’s drama where the Chairman of GM seized the wheel from CEO Fritz Henderson. But there will be a lot of people watching to hear what he has to say about regulating these instruments…and instruments of its type.

Here’s why this is important.

The Washington policy focus of the past year has correctly been on bailouts and stimulus programs. But very little has been done to prevent a similar crisis from happening again – to regulate what Goldman Sach’s Chairman Lloyd Blankfein has called irresponsible and damaging products created by Wall Street over the past decade, and for which he has even apologized for publicly.

We need to take a lesson from the International Soccer Federation who is meeting in Cape Town, South Africa today to consider adding more referees to World Cup matches to prevent blown calls from determining outcomes…which happened last month in a game between France and Ireland.

Geithner’s comments will be a barometer as to whether this Administration is willing to do to add more referees to the capital market playing field so that blown judgments don’t create a second crisis.

“Let the Games Begin…” November 20, 2009

This week has raised a lot of eyebrows about whether the recovery is sustainable…or even real. Here’s what we learned this week:

· Excluding the jump in car sales, retail sales are modest.

· Core producer prices are in sharp decline.

· Outside of energy, inflation in consumer prices is not happening.

· Industrial production has slipped to a slower pace.

· And most disappointing, new housing starts were way off from what was expected.

Not the kind of week we wanted prior to Thanksgiving. And not the kind of news that will boost confidence.

But there was one very interesting and positive news item that has a lot of potential for helping economic growth: Warren Buffet and Goldman Sachs have teamed up to boost financing and lending programs for underserved small business owners.

This is significant – for two reasons:

(1) Small businesses have been most affected by the credit crunch, and still find it very difficult to get loans.

(2) Although it is only a $500 million initiative, it is a private sector initiative not a government one.

Capitalism is about private initiative and entrepreneurship, not about government run businesses. Also, large corporations do not create the jobs; job creation comes from new and small businesses.

One of the world’s wealthiest and most successful individuals has combined with one of world’s wealthiest and most successful businesses to cast a loud vote for capitalism. This Buffet-Goldman initiative is a real example of real stimulus that could provide real help.

“A 10,000 Dow is Psychology…not Economics” - October 16, 2009

Like on weekend afternoons in the fall, all eyes will be on the scoreboard today to see if the market can close the week above the magic 10,000 mark. It’s not likely as news overnight was broadly disappointing.

• At the company level, GE reported lower-than-expected revenue and a big drop in profits, and Bank of America also reported greater-than-expected losses – two bell-weather stocks lots of people watch.
• Mortgage foreclosures continue to rise. They were up 23% in the third quarter compared to a year earlier and 5% worse than in the second quarter.
• And the latest industrial production numbers just out, although strong for the third quarter, were disappointing as they continued to slow over the course of the quarter.

So the Champaign corks that popped 10 years ago when the market first passed 10,000 aren’t happening this time.

They won’t pop – and the market will not be sustainable – until some fundamental foundations are shored up: there are 3 key ones:

(1) The big one is job growth…that’s not happening yet
(2) The second is personal income growth that follows
(3) The third is confidence…or consumer moods

Until all three of these show signs of sustained improvement, any flirting with the 10,000 mark will be just that…It will be fleeting.

"Demise or Not…the Dollar is Vulnerable” - October 6, 2009

A report out of the UK means that the phrase “the new world order” is happening faster than anticipated. The Independent newspaper is reporting a “game changer” – many Arab states along with China, Russia, Japan, France, and Brazil are planning to phase out the dollar as a basis for oil trading over the next 9 years.

The plan would be to replace the dollar with a basket of at least 5 currencies: (1) the Japanese yen, (2) the Chinese yuan, (3) the euro, (4) gold, and (5) a new unified currency for the major Middle East Gulf States.

This would be a serious departure from the present architecture of the modern international financial system that was put together after World War II – the Bretton Woods accords.

This is happening for a couple of reasons:

(1) Changing economic power in the world, particularly China’s extraordinary new financial power; and

(2) Anger over the crisis the United States caused in world financial markets in the past couple of years.

Two near-term implications are obvious:

(1) Gold will become very attractive in the near term, and
(2) Inflation of imported goods…including oil…will continue to occur as the dollar continues to weaken.
What’s important to note about “game changers” like this in capitalism, is not so much to worry about the new rules, but to understand them so that you can play by them and not be held hostage by the hope that it ain’t so.

“Early Fall Foliage and Economic Data…Both Dull” - October 1, 2009

One month ago today, I mentioned on this segment that the market was sending out a clear signal: it’s not convinced a recovery is here…And the same message holds true today...because the latest economic data continues to be about as dull as this year’s early fall foliage.

· This morning’s personal income results for August were disappointing and the small increase in spending was due only to government gimmicks like “cash for clunkers” and first-time homebuyer tax credits.

· Consumer confidence in September was down, with most people feeling worse about job prospects and income growth. Buying plans for both cars and homes are also down.

· Consumer prices have fallen for six straight months, clearly indicating a lack of demand.

· Although the revised GDP number yesterday showed the economy slowing by only 0.7% in the second quarter, the best performance in more than a year, it was not due to new fundamental strength.

Fed Chairman Ben Bernanke will be testifying this morning before a House Committee about financial market regulation. This is a long overdue discussion, particularly about derivatives trading and the dangerous credit default swaps.

Depending on what he has to say, this could be the best news of the week. And while it won’t make for a sustainable recovery, it could turn over a new leaf in making Wall Street more transparent. The upshot of this week’s data is simple: the New England foliage will be far more vivid than the economy for quite a while.

"The Buck Stops Here…” - September 2, 2009

The market lived up to history yesterday as it convincingly stumbled into September…which is typically a rough month in the stock market anyway.

This time, though, the plunge has more to do with the conviction that the market has raced ahead of the economic recovery…than pure calendar prophecy. Momentum based on speculation lasts only so long…and can’t make up for the lack of convincing evidence that the economic recovery is really here.

What the market needs at times like this are some points of certainty. One piece of speculation being talked about a lot that we can put to bed is that the dollar will not be replaced as the world currency any time in the near future.

Many world leaders are calling for the dollar to be replaced by a basket of world currencies…because what Wall Street caused in US financial markets had such a quick and colossal impact on economies around the world.

Despite the frustrations, though, and the fact that the dollar has lost some glitter, it won’t be removed from center stage:

· It would take an immense toll on many world economies that are closely tied to the dollar;
· It would devalue China’s immense dollar holdings; and
· It would raise US borrowing costs when the world cannot afford the implications.

Besides, it has been the currency of greatest political stability for 150 years. If you hold a note printed in 1934 or 1864, it’s still legal tender. That can’t be said even for the British pound. When in doubt, the world flocks to the dollar

The world will not pass the buck. The buck will stop here…and it will stay here as the world currency in the near future. No speculation!

“A Tale of Two Economies…” - September 1, 2009

The market yesterday and for the last several days is sending out a clear signal: it’s not convinced a recovery is here…In fact, it’s confused. And for good reason – we’re experiencing a Tale of Two Economies.

Consider the following:

· On the credit front, there is a gulf between those that can borrow and those that cannot. Big banks and big companies have easy access to credit. Small companies are finding it difficult to borrow…and face stiff terms to do so.

· On Main Street, there are those consumers with rock–solid jobs, but also an army of debt-strapped families struggling to make ends meet.

· Manufacturing is now growing…but more workers are still losing their jobs.

· Some consumers are buying…but only with incentives…like cash for clunkers, dollars for dishwashers or first-time homebuyer tax credits.

· The stock market rally of the past four months has been based on corporate cost cutting, not new revenue.

· The unemployment rate is still in the 9 ½% range – but the number of unemployed and underemployed is almost double, and many have already run out of benefits.

If there is about to be a party thrown to celebrate the end of the current economic crisis, someone forgot to invite two guests – U.S. workers and consumers. If a recovery is not balanced, it’s not sustainable.

Granted, at turning points, economic data can be mixed…but not muddled. If it’s confusing, it’s not convincing. And if it’s not convincing, then there is no confusion – there’s no broad-based recovery in sight. Convinced?

“The Looming National Debt…Only One Solution” - August 31,2009

This week is the last full week before the Labor Day holiday, and it should be relatively quiet in the stock markets…because it will be quiet on the data front – nothing likely to shake up the markets is due out this week.

But there is one looming topic that the markets are very concerned about and will be watching both Fed Chairman Bernanke as well as Congress to see how they intend on dealing with it…It’s the national debt.

The concern is big…because the arithmetic is shocking…as well as simple:

Last year the Federal Government spent over $450 billion on interest payments to holders of the National Debt…the 3rd largest expense item in the Federal budget. Compare that to $15 billion for NASA, $61 billion for Education, and $56 for the Department of Transportation.

· The last time the U.S. effectively had no debt was in the 1830s;
· It took 150 years for the national debt to reach $1 trillion …in 1981;
· And only one decade to triple it…to over $3 trillion in 1990;
· And it is now quadruple that…or $13 trillion this year….almost the same size as the overall economy.
· It will grow by over $1 trillion every year for the next decade.

How do you pay off this huge bill? New taxes? There are not enough people even at all income levels. There are only two ways to get rid of big debt…you earn more money to pay it off…or you default. This fall the markets will be watching Bernanke and Congress for some creative answers…not to spread the wealth…but to boost it.

“Signals and Noise in the Economy” - August 27,2009

Lots of chatter on the Street that the deep slide in the economy is about to bottom out. On the surface, the latest data would certainly support the notion:

· The stock market has been up for seven straight days to its highest level since last November.
· Stability in the housing market seems to be returning. The latest new home sales were up almost 10% in July, far beyond expectations, to their highest levels since last September. Earlier in the month, existing home sales were also strong.
· Consumer confidence as measured by the Conference Board rose in August.
· Durable goods orders – goods meant to last 3 years or longer – were also higher than expected.

But you have to dig deeper. Today’s GDP data and some other factors would suggest otherwise.

· Stock market volume has been very thin lately…40% of all trading yesterday was dominated by 4 stocks – Citigroup, Fannie Mae, Freddie Mac, and Bank of America…all recipients of a big chunk of Federal bailout money. This is scary…It suggests the market is being fueled by speculation not fundamental strength.
· The housing market is being helped by low mortgage rates, huge price reductions, and first-time homebuyer tax credits…not boosts in income.
· And consumers aren’t buying anything except essentials…or what is government subsidized.

Our emotions are getting ahead of ourselves. A sustainable recovery is not around the corner.

“Ben Bernanke…Chairman and Steward” - August 26, 2009

The reappointment of Ben Bernanke to a second term as Chairman of the Federal Reserve couldn’t have come at a better time. Late August in the stock market is not always the most exciting place to be even in normal times.

His reappointment will have a calming effect on the market…at least for a while. Fed policy will be a lot more predictable than would have been the case if the President had changed horses.

It was also the right decision. The guy has done an excellent job of guiding the economy back from the brink of disaster…in creative and unprecedented ways.

· He is a student of the first Depression. He knew the mistakes that were made 75 years ago and what needed to be done…and he aggressively did it.

· In his second term, he will be confronting a crisis that extends far beyond the banking system and monetary policy…and into ethics and risk-management standards of our major financial companies. That’s euphemistic for more regulations!

Bold and out-of-the-box thinking got him his reappointment. Bold and out-of the-box thinking will be required to deal with the enormous problems we still face.

If he succeeds, he will become one of the most influential Federal Reserve Chairmen in history. More importantly, he will help to improve economic conditions for a long time.

“Consumer Concern…not Confidence” - August 25, 2009

Two important news items today. The first is the Conference Board’s consumer confidence index. The drop in this index in July was the biggest since the aftermath of Hurricane Katrina in 2005. Today’s data for August will reflect a continued nervous consumer.

The reasons are simple: despite wishes, there’s not a lot to be confident about. There’s a lot of talk about things getting better, but not many facts. Consumers are most worried about the jobs picture, just as they were last month. And since the marginal improvement in the unemployment rate in July was a technical fluke, moods won’t be much better.

By the way, the reason that these consumer confidence surveys are so important – and why the market pays so much attention to them – is that for over 40 years, they have been amazingly accurate about key economic numbers and conditions in the near future.

The second and more upbeat piece of news today is that Fed Chairman Ben Bernanke will be reappointed. This is not just good news; it’s great news. Continuity in leadership always helps when leadership has been outstanding – particularly so in financial markets. And Bernanke’s leadership has been nothing short of excellent. His bold actions prevented an outright collapse in the US financial system, as well as providing stability to financial markets worldwide.

Let’s see if the net effect of the Bernanke factor can outweigh nervous and grumpy consumers…I wish…but I don’t think so.

“Weapons of Mass Financial Destruction…” - August 24,2009

Old habits die hard…and sometimes they don’t die at all…particularly on Wall Street.

The same type of securitization products – that’s the pooling and repackaging of loans into securities – that helped to bring the global financial system to its knees in the past year are now surfacing again…and fast. Here we are with the big banks feeling better and getting back on their feet, and little has changed.

Bank of America, Citigroup, and JP Morgan Chase, for example, are peddling dressed-up versions of the same dicey products. They’ve recently rolled out new corporate credit lines tied to complicated and volatile credit default swaps – which reached $62 trillion in 2008, five times the size of the entire economy.

Warren Buffet called these instruments “weapons of mass financial destruction.” And he’s right.

As with all tools, the problem isn’t the tool, it’s whose hands it’s in. In the hands of lenders looking for some insurance for questionable loans, they’re helpful. In the hands of traders who just want to make money by speculating about whether a company will fail, they’re Wall Street’s version of nitroglycerine.

Credit default swaps need to be rigidly regulated… put on an exchange, not left in the hands of just a few big banks. The domino failure of these trillions of dollars of instruments again would send a sonic boom through the economy. The sustainability of any recovery would then not be the question…It would be the survivability of the system.

“Bernanke…to Speak or to Spin?” - August 21, 2009

The two big questions the worldwide markets are asking right now are:
(1) “Is the U.S. recovery around the corner?” and (2) “Is it sustainable?”

My answers are “No!” and “No!”

Fed Chairman Ben Bernanke is speaking today at the Kansas City Fed’s annual conference in Jackson Hole, Wyoming. And everybody will be listening to see how he answers these questions.

I don’t see the evidence for an imminent and sustainable recovery. Here are some telling facts:

· In the stock market, insider selling has increased, suggesting that valuations are overstated;
· Short positions are also down, eliminating a source of market support we’ve had during the past 4-month run-up;
· Consumer sentiment was down in August as consumers assessed their own situations and concluded “No recovery in my house;”
· Unemployment is still rising;
· Home values continue to fall;
· The consumer is becoming a saver, more interested in building their own acorn pile than spending;
· And on the banking front, the “alt–A” mortgages – known as the “liar loans” – will reset in 2010 and 11…and they’re bigger than the sub prime volume.

I guess that’s enough!

It will be interesting to see if the Fed Chairman can spin these facts into a “Yes!” and a “Yes!”

“Recovery?...or Eye of the Storm” - August 20, 2009

The markets are still jittery due to uncertainty on many fronts. And today’s jobs claims won’t do a lot to help.

We’ve been going through an economic hurricane since last summer. Although the stock market was up 50% since March and many indicators from unemployment to GDP showed signs of improvement in recent months, reported sightings of a recovery coming this year were absurdly premature.

The truth is that the indicators cited were not good…they were simply less bad than previous numbers. And less bad doesn’t equal good.

· The number of people receiving unemployment compensation tops 9 million, and 1.5 million of those are at risk of running out of their benefits.
· 1/3 of those unemployed have been out of work for 6 months or more.
· By the end of this year, nearly 40% of the workforce will have been unemployed at some point in the last 18 months.
· The number of people involuntarily working part time is at an all-time high…and those people will be hired back first before new jobs are created.

Jobs will materialize when materials start disappearing off store shelves. And that won’t happen until consumers are convinced this storm has passed.

Like in the eye of a hurricane, there are glimmers of sunshine. But that’s all they are. People who get hurt in hurricanes are typically those who get hit by the backside of the eye wall…because they go outside not realizing the rest of the storm is still coming.

Right now, the data is very clear…we are in the eye of the storm.

“It’s Crunch Time for Healthcare” - August 19,2009

Resolving the healthcare debates would help one area of uncertainty in the markets. Most agree that the uninsured should have coverage; it’s fixing the skyrocketing costs of healthcare where the debates are most at odds.

There are two main problems: We’re getting old…and we don’t take care of ourselves. And both cost money!

· The population of Americans over 65 will double over the next twenty years, growing 4 times faster than all other age brackets. Nothing can be done about that.

· 2/3 of Americans are obese or overweight, including 30% of adolescents. Something can be done about that.

So what do we do?

Do we remodel the house or knock it down? Do we scrap the current system for a government run one? Or do we salvage it? Remodeling is typically cheaper. The Congressional Budget Office estimates that universal coverage spending will outstrip revenues by nearly $200 billion a year within 20 years. Pricey!

What most people seem to want is the current system reformed so that everyone can afford it…that means things like… insurance reform…hospital reform…prescription reform. Not easy, but cheaper.

It’s time to make some choices before the economy makes them for us…which could be even more costly.

“Home is where your Heart is…not your Portfolio” - August 18, 2009

Housing starts were essentially flat in July. They were down only 1%, after being up 4 months in a row.

But there are good reasons for optimism…here’s the logic:

· New housing construction is down 50% from year-ago levels, and down 75% from peak 2006 levels. This means inventories of unsold homes are a lot lower, bringing supply back into better balance with demand.
· Median home prices are down an average 15% nationwide from last year – and as much as 40–50% in some areas.
· And new homes are getting smaller – also helping prices…and ultimately, sales.

But don’t expect housing to bounce back with a vengeance…the underlying arithmetic of housing has changed:

· The Baby Boom pressures that for years caused housing to be an investment are long gone.

- The number of kids the average family had during the peak of the Baby Boom was 4.
- The number of kids the average family has had since?...2

…or half the level of new demand.

You can take this arithmetic to the bank…along with the new psychology that a home once again is a place to live…not an investment.

“Town Meeting Time…Democracy at Work” - August 17, 2009

It’s hot; it’s sticky; it’s August…and the stock market isn’t doing much this month. Historically, the stock market does not do much in August…as most people are on vacation.

But that’s not the reason this year. Retail sales are soft, consumer confidence is surprisingly down, and contributing to anxieties are the heated town meetings from Portsmouth to Peoria to answer the big question of the summer: do we support government-run healthcare or not? And we are far from a consensus…and, as we know, markets don’t like uncertainty.

The good news is that we got our heads out of the summer haze and got involved…so much so we turned dog days into dog fights.

But that’s OK. That’s democracy at work. Look what happened over the weekend: in statements made by Health and Human Services Secretary Kathleen Sebelius, the Administration has backed off its insistence on a government-run health-insurance option.

Passing major healthcare reform that will effectively remake 1/6 of the US economy…is a tall order that shouldn’t be rushed. The town meetings have made that very clear. If any plan is not understood and embraced by most Americans, the stock markets and the economy will react negatively…and what has been hot and sticky in August could become a scorcher come fall and winter.

“Defending Bernanke…Defending Bernanke” - July 22, 2009

The Federal Reserve is back in the spotlight again this week. Chairman Bernanke testified yesterday on Capital Hill, and will do so again today.

While he has good news to share, this time, though, it’s as much about defending the Fed itself for its policies of the past year as it is about the economy…and the growing concerns over commercial real estate loans.

· Some feel the Fed went too far in bailing out companies and exposing taxpayers…and want to rein in its power and authority.

· Most, however, believe we should leave well enough alone…and not impede the Fed’s independence in conducting monetary policy…because fighting inflation, for example, involves unpopular decisions such as raising interest rates to slow economic growth – which hurts unemployment – not the stuff of which you want to mix with political agendas.

The Fed has done an outstanding job in the past year. What it did… in providing liquidity to the financial system at levels never seen before in history…averted an outright collapse in the global financial system. The Fed did what it had to do. The options were not pretty.

· Do we need more regulations to ensure umpires do their jobs better on the baseball field? NO!

· Do we need to regulate the Fed more with new rules to handcuff quick decisions in tough times? NO again!

If you think we really need to regulate the Fed for some simple overzealousness, think what we need to do to regulate Wall Street for its lack of character and integrity which led to much of this economic mess in the first place.

“Golden Sachs…and Raised Eyebrows” - July 16,2009

The Federal Reserve raised eyebrows of a positive sort yesterday when it announced that although unemployment will top 10% this year, the end of the recession may be in sight in 2010. Its latest forecasts are an improvement over previous ones. Stock markets loved the news and futures markets this morning are following suit as the new jobless claims were the lowest in 6 months.

However, “Golden Sachs…I mean Government Sachs…sorry, Goldman Sachs” raised eyebrows of a different sort when it announced mind-boggling second quarter earnings of almost $3 ½ billion, more than it earned in all of 2008…and one of the most extraordinary rebounds in history after a near meltdown of the U.S. banking industry. And all this was after they paid pack the government $10 billion it received from the TARP program.

Goldman also blew the lid off compensation, putting aside enough so that the average pay for all employees this year will likely top $700,000.

CEO Lloyd Blankfein explained the success as reflecting “improved financial market conditions” and “a deep and diverse client franchise”…some of the best mental yoga I’ve heard.

The truth of the matter is that companies like Goldman Sachs receive preferential treatment – like bailouts and concessions – that allow them to prosper at the expense of a flawed regulatory system. In a society governed passively by free markets and free elections – a good thing – organized greed always trumps disorganized democracy.

If we are worried about when the stock market will be widely embraced again, and not teeter daily over the latest economic news, we need to look more deeply at what’s at the base of the market’s foundation – trust!
Raised eyebrows don’t help the economy…raised confidence does.

An Oath for Financial Markets… - July 6, 2009

With fireworks behind us, and an absence of any real heady economic data this week, statistically, we should have a quiet start to the first full week of the second half. Hopefully!

Probably the only thing we need to keep an eye on is the University of Michigan’s highly regarded report on consumer confidence – which will be out late in the week – and expected to show some improvement.

So while we ponder the facts that:

· we spent nearly $1 billion on fireworks this year,
· bought 2 billion beers on July 4th alone, and
· nearly half of us attended a barbeque…

…maybe this is a good time to reflect on what we really just celebrated – the 233rd birthday of our Declaration of Independence – and what that means for our current economic outlook. The connection is not difficult.

That first American creed talked about, among other things, truths that are self-evident…such as rights to life, liberty, and the pursuit of happiness…as well as other duties and responsibilities.

Some of these truths have come to be reflected in long-standing oaths of professional conduct – like the Hippocratic Oath for doctors who promise to keep the sick from harm and injustice, lawyers’ oaths, and other oaths that vary by state but all point to ethical standards of behavior.

If we are worried about when the stock market will be widely embraced again, and not teeter daily over the latest economic news, we need to look more deeply at the market’s foundation – trust! – which has been badly bruised. Maybe it’s time for a new oath, one also not to engage in harm, injustice, or mischief – but this time for those who manage our money.

Here Comes the 2nd Half…There Goes Madoff - June 29, 2009

This week ushers in the start of the much-awaited 2nd half of the year in the economy and investment markets…when many people believe we will see the first patch of blue in the economic recovery. Data on housing, manufacturing and the labor markets will dominate this week as to whether these expectations will be met.

Today ushers in another much-anticipated event – which will also affect these expectations from Main Street to Wall Street: the sentencing of Bernard Madoff, the mastermind behind the largest and most sweeping Ponzi scheme ever.

While Ponzi schemes are certainly not new, there is something at the core of this one that is particularly disturbing:

· The fact that Madoff was so indiscriminate – wiping out the savings of grandparents to grandchildren.

The extent of the damage he caused is unprecedented. And the ethics of his scheme have become symbolic of the Wall Street mindset of recent years – a mindset that created such products as credit default swaps and sub-prime mortgages.

Capitalism is the best and most productive framework for business activity ever devised. But it’s a game. And like all games – including those played in Fenway Park to Dodger Stadium – it needs rules and umpires. If games aren’t fair, people don’t play. They stay home.

What Madoff committed was not just a foul; it was a flagrant foul…and it needs to be punished as such. Like few other sentencings, this one will have far reaching implications as to fairness and the restoration of trust in our overall economic system.

The FED’s June Report Card - June 25,2009

The Federal Reserve’s latest report card for the economy is not bad…considering. In fact, it’s the most positive statement about the economy in recent memory…saying that the downturn is slowing and deflation is no longer a threat.

Effectively, this means that we still have a problem, but are in no immediate danger of falling off a cliff. So I guess that’s encouraging! Economic activity is tracking at a 1.3% rate of decline in the second quarter…far better than the previous 6 months. So…grade? “D”…but keep in mind that’s a big improvement!

Chairman Bernanke and the Federal Reserve get a better grade. I give them an “A-”…

Here are their courses:

· Perseverance…A…no signs of policy let up.
· Stick to your guns…A…no signs of waffling about keeping interest rates real low.
· Printing money…B…OK, but maybe a little much.
· Buying Treasuries…A…they need to…as foreign demand is off.

Overall…Great job. And that should help the economy improve its grade over the next few months…If it does…Bernanke should get the “Teacher of the Year” award.

Fundamentals…or Star Wars Memorabilia - June 21, 2009

This week marks the last full week of the first half of 2009. Hard to believe! So what do we know?

We know that things are less bad than they were 6 months ago.

· The economy is still falling, but at a slower rate.
· Fewer people are losing jobs.
· Fewer companies are losing customers
· The 3-year slide in the housing market may be bottoming.

All encouraging signs…but less bad does not equal good.

If a recovery is to happen in the 2nd half of this year, it must be grounded on more than stimulus money. It must be grounded in fundamentals…like: new jobs…more income…increased output.

These are not happening yet. They will only happen by continuing to take baby steps and nurture the improvements we have seen. It’s too early for the FED to reverse its positions…and too early for Washington to pull back.

The data this week will show that new home sales, capital spending, and consumer spending will all confirm that the economy is still being propped up by government assistance. I don’t like it, but it’s time to be patient.

If we don’t get strong fundamentals in place, the recovery will be delayed and short lived, and Star Wars memorabilia will continue to be a better bet than the stock market.

It’s the Fundamentals… June 4, 2009

Federal Reserve Chairman Ben Bernanke is not one to mince words, nor sugar coat anything. And that should be encouraging. Benanke helped to prevent a crisis from becoming an outright calamity.

Yesterday, he made a very simple statement to Congress: Economic recovery will be slow! Period. No waffling, no backtracking. Reasons? Not much has changed:

· Employment situation is still weak
· Credit is still tight, and
· Consumer spending is still affected by declines in equity and housing wealth

New data today on chain store sales were down in May; but jobless claims were slightly improved. Wal-mart announced some good news – they will hire 22,000 workers this year. It can be done. This is a normal variation in data for what we are going through.

The market hiccupped yesterday due to uncertainties about how to interpret all the data. Futures today indicate it should be back on the plus side. Here’s the certainty: the market will be volatile for months.

No big home runs on the horizon. Big Papi will eventually come out of his slump by focusing on the fundamentals…Wal-mart does just that…and so should we.

What’s Good for GM is Good for the Country…June 3, 2009

The futures markets are jittery this morning about the jobs data – which showed cuts are still significant but not as bad as the last 6 months. They’re also nervous about FED Chairman Bernanke’s testimony later this morning, but they shouldn’t be. The stock market should be happy: it just weathered one of the most significant events in American economic history – GM filing for bankruptcy. And it did it without a blink.

This decision signals the end of an era. The old adage “What is good for GM is good for the country” is still true. Like junk bonds, GM now has the opportunity – indeed the need – to get rid of its junk heaps – unprofitable models, too many dealerships, and ridiculously inflated union agreements. GM has a new lease on life. And that’s good.

All ends have new beginnings. Markets must now move on and focus on correcting what led us to these crises. (We need to speak up long before we have to cough up.)

Someone asked me the other day, “When are we ever going to get back to “normal”?

I said, “If you mean business practices of the last few years, I hope never.”

“If you mean leaner, sounder, more accountable business practices – not more creative debt instruments and unregulated investment products – the sooner the better!”

Simply put, if there is no accountability there will be no sustainability whenever an economic recovery begins. And other GMs will happen all over again. The GM bankruptcy should be viewed as a good thing, and a watershed turning point to get us back on the road to what is truly normal – an economy that runs like a smart car.