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.
Tuesday, June 30, 2009
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.
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.
Sunday, June 28, 2009
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.
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.
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.
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.
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