US Economy, the stock market , and other investment/savings strategies

[Crafty_Dog]

http://www.ftportfolios.com/Commentary/EconomicResearch/2014/4/15/the-plow-horse-gets-de-iced

[Crafty_Dog]

Industrial Production Increased 0.7% in March To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 4/16/2014

Industrial production increased 0.7% in March (+1.2% including revisions to prior months) beating the consensus expected gain of 0.5%. Production is up 3.7% in the past year.

Manufacturing, which excludes mining/utilities, increased 0.6% in March (+1.1% with revisions to prior months). Auto production declined 0.8% in March while non-auto manufacturing increased 0.6%. Auto production is up 5.4% versus a year ago while non-auto manufacturing is up 2.7%.

The production of high-tech equipment rose 0.7% in March and is up 8.3% versus a year ago.

Overall capacity utilization increased to 79.2% in March from 78.8% in February. Manufacturing capacity rose to 76.7% in March.

Implications: Another very solid report from the industrial sector as the Plow Horse continues to thaw. Overall industrial output rose 0.7%, and was up a robust 1.2% with revisions to prior months. Earlier this winter, harsher than normal weather wreaked havoc on the economy slowing production, but that looks to now be over, and a positive payback has ensued. Over the past two months, industrial production has increased at an 11.8% annual rate. Manufacturing which excludes mining and utilities, rose 0.6% in March and was up 1.1% with revisions to prior months, up 12.4% at an annual rate over the past two months. Expect more healthy gains in the next couple of months as weather patterns continue to normalize. Overall production is up a respectable 3.7% from a year ago. We expect continued gains in production as the housing recovery is still young and both businesses and consumers are in a financial position to ramp up investment and the consumption of big-ticket items, like appliances. In particular, note that the output of high-tech equipment is up 8.3% from a year ago, signaling companies’ willingness to upgrade aging equipment from prior years. More big news from today’s report was that capacity utilization was 79.2% in March, above the average of 78.9% over the past twenty years, and the highest level since June 2008. Further gains in production in the year ahead will continue to push capacity use higher, which means companies will have an increasing incentive to build out plants and equipment. Meanwhile, corporate profits and cash on the balance sheet are at record highs, showing that companies have the ability to make these investments.

[Crafty_Dog]

http://online.wsj.com/news/articles/SB10001424052702304688104579467823517834980?mod=WSJ_hpp_MIDDLENexttoWhatsNewsThird&mg=reno64-wsj

[Crafty_Dog]

Over the past five years, the pouting pundits of pessimism have focused on countless issues that would bring the economy down. Any growth, they argue, is the result of a Fed induced sugar high.

We don’t buy it.

Through it all, the plow horse keeps plodding ahead. The fundamental growth factors are still in place and, as the Fed tapers, banks are starting to pick up lending. We see upside surprise potential.

Click here to watch the latest Wesbury 101 – Upside Surprise Potential 
http://www.ftportfolios.com/Commentary/EconomicResearch/2014/4/23/upside-surprise-potential

[objectivist1]

So go ahead and ignore all the negative indicators regarding our staggering debt and faltering economy, and stay fully invested in the market along with Wesbury until you lose it all - or most of it - in the coming crash.  The choice is yours to make.

[Crafty_Dog]

The market will need to fall A LOT for what you say to be true.  For all our prophesy, he is far more profit-y, and IMHO we need to keep that in mind and be humble. 

[G M]

Pay no attention to the market manipulation behind the curtain...

[DougMacG]

Sixty percent of young Minnesotans who graduated from college in 2011 still didn’t have a full-time job in their second year post-graduation!

http://mn.gov/deed/images/Measuring%20Employment%20Outcomes%20for%20Graduates%20March%202014%20Trends.pdf

[G M]

That chart is obviously very racist.

[Crafty_Dog]

This thread includes in its subject heading "the stock market".  We here have been predicting disaster as the DOW and the NAZ have more than doubled.  That is one helluva a move to have missed-- and if armaggedon (sp?) does not come, some of us are going to have a hard time explaining that.  If it does come, that does not mean it was good investing strategy to have sat on the sidelines in wait of proof of our prophecies.

 

[Crafty_Dog]

Second post:

New Orders for Durable Goods Increased 2.6% in March
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 4/24/2014

New orders for durable goods increased 2.6% in March (2.5% including revisions to prior months), beating the consensus expected gain of 2.0%. Orders excluding transportation increased 2.0% in March, beating the consensus expected gain of 0.6%. Orders are up 9.1% from a year ago while orders excluding transportation are up 5.1%

The gain in overall orders was led by civilian aircraft and computers & electronic products, but every major category of orders increased.

The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure increased 1.0% in March and was up at a 1.7% annual rate in Q1 versus the Q4 average.

Unfilled orders increased 0.6% in March and are up 7.5% from last year.

Implications: A very solid, well-rounded report on durable goods today. New orders for durable goods rose 2.6%, beating consensus expectations and the largest gain since November. Once again the transportation sector led the way, particularly orders for civilian aircraft. But, unlike last month, there was broad strength outside the transportation sector. Orders excluding transportation increased 2% in March, the largest gain since January 2013. The best news in today’s report was that shipments of “core” capital goods, which exclude defense and aircraft, increased 1% in March. Plugging these data into our GDP models suggests businesses increased “real” (inflation-adjusted) equipment investment at about a 5% annual rate in Q1. Business investment should accelerate over the next couple of years. Consumer purchasing power is growing and debt ratios are low, leaving room for an upswing in appliances. Meanwhile, businesses have record profits and balance sheet cash at the same time that capacity utilization is above long-term norms, leaving more room (and need) for business investment. Signaling future gains, unfilled orders for “core” capital goods rose 0.6% in March, hitting a new record high, and are up 10% from a year ago. In other news this morning, initial claims for unemployment insurance increased 24,000 last week to 329,000. Continuing claims declined 61,000 to 2.68 million. Plugging these figures into our payroll models suggests an April gain of roughly 210,000, both nonfarm and private. This forecast may change over the next week as we get more data, but it looks like another solid month for job growth.

[DougMacG]

This thread includes in its subject heading "the stock market".  We here have been predicting disaster as the DOW and the NAZ have more than doubled.  That is one helluva a move to have missed-- and if armaggedon (sp?) does not come, some of us are going to have a hard time explaining that.  If it does come, that does not mean it was good investing strategy to have sat on the sidelines in wait of proof of our prophecies.

Agree 100%.  

Wesbury has been right in hindsight on his conclusion to stay invested in equities over this period.  Also true is that he spins some of his words and picks the economic observations that back his conclusions.  Also true is that he did not see the last collapse.  So he is good on the upside, not good on the downside.  And the naysayers have missed the entire upside.

My interest is the economy more than the stock market; Wesbury and the thread cover both.  The markets have performed well since the last trough, no doubt.  The economy is in a plowhorse 1st gear, under-performing its historic growth line by tens of trillions of dollars of income and tens of millions of workers not employed or under-employed.  Wesbury would agree with this but glosses over the negatives IMHO. When people say stock market, the greatest interest is in where it will go from here as much as what did it do last year, last 5 years etc.  On the future from right here, we don't know if Wesbury or the naysayers are right.  

Alan Greenspan famously suggested “Irrational exuberance” more than 50 months before the tech stock crash of March 2000 and more than 7 years before the DOW bottom of 2002-2003.  Was he right voicing his concerns or was he wrong?  Certainly his timing was lousy.  People made and then lost a lot of money during that period.  While riding the market up, awareness of the vulnerabilities in hindsight was probably a good thing.

Greenspan:  "Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But 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?"
— "The Challenge of Central Banking in a Democratic Society", 1996-12-05

[ccp]

Buttonwood

Sound the retreat

Profits in America may have peaked for this cycle
 Apr 26th 2014  | From the print edition

ARE corporate profits at last running out of steam? The lead-up to the first-quarter results season on Wall Street was marked by an unusually large number of profit warnings, such as that from Chevron, an oil group. According to Morgan Stanley, an investment bank, earnings estimates for S&P 500 companies were revised down by 4.4 percentage points in the first quarter.

As is the custom, having lowered the bar, companies will now beat those revised forecasts, allowing Wall Street analysts to proclaim a “successful” results season. But when one removes the effect of exceptional items (such as writedowns the year before), American profits are now falling, not rising, according to data from MSCI (see chart).

In a sense, this is about time. The recovery in American corporate profits since the recession has been remarkable: they are close to a post-war high as a proportion of GDP. Bulls have a number of arguments why this is a lasting, not cyclical, phenomenon. Economic power has shifted from labour to capital thanks to globalisation, they say; companies can move production to parts of the world where wages are lower. But if that effect is so strong, why aren’t profits as high elsewhere? In Britain the return on corporate capital is below its post-1997 average.

An alternative, but related, line of reasoning is that foreign profits have boosted the earnings of companies in the S&P 500, making the relationship with domestic GDP less relevant. America may still be running a trade deficit but its global champions, the argument runs, are raking in the money overseas. Research by Audit Analytics found that the amount of profits held abroad and not repatriated nearly doubled to $2.1 trillion between 2008 and 2013.

But where will American multinationals make so much money in future? Not in either Europe or Japan, where the economies have barely grown in recent years. Emerging markets might seem more promising, but their economies have been slowing, as companies like Diageo, a drinks producer, and Cisco, a tech-components group, have reported. Several developing economies have seen their currencies fall sharply too. It seems unlikely that American multinationals are going to get a further spurt of profits from this source.

In any case, the global data do not bear out the overseas-profit argument. Just as in America, there have been regular disappointments. In 2012, according to Citibank, global profits growth was just 2%, compared with initial forecasts of 11%. At the start of 2013 profits were forecast to rise by 12%; the actual increase was 7%.

The stockmarket has been remarkably resilient in the face of these setbacks. In 2012 global equities rose by 13%; last year they managed 24%. In part, that is due to optimism about the economy’s future trajectory. The euro-zone crisis has disappeared from the headlines while the American economy has been showing signs of returning to healthy growth.

But it is also down to supportive monetary policy. Short-term interest rates have not budged for the past two years (in the developed world) and government-bond yields have been close to historic lows. Investors have accordingly turned to the stockmarket in search of higher returns. Low interest rates have also played their part in keeping profits high, by reducing borrowing costs and by encouraging companies to use their spare cash to buy back stock, thereby increasing earnings per share.

However, buying back shares suggests a certain lack of imagination on the part of chief executives, or a lack of profitable projects to back. That remains an odd aspect of the profits boom: in theory, if the return on capital is high, one would expect a lot of capital to be invested. The resulting competition would eventually cause profits to fall. The process acts as a natural check on profits growth, but has yet to occur this cycle.

Instead, chief executives are turning to that old device for boosting sluggish profits: takeovers. According to Thomson Reuters, the global value of mergers and acquisitions in the first quarter was 36% higher than in the same period of 2013. The right takeover can result in cost cuts through economies of scale—although in the long run, the academic evidence in favour of takeovers is mixed.

A takeover boom is a classic signal of the final stages of a bull market, a sign that financial engineering has taken over from genuine business expansion. And that is hardly a surprise: the current rally is already the fourth-largest and the fifth-longest-running since 1928.

[objectivist1]

CNSNews.com) - The real median income of American men who work full-time, year-round peaked forty years ago in 1973, according to data published by the U.S. Census Bureau.

In 1973, median earnings for men who worked full-time, year-round were $51,670 in inflation-adjusted 2012 dollars. The median earnings of men who work full-time year-round have never been that high again.


In 2012, the latest year for which the Census Bureau has published an estimate, the real median earnings of men who worked full-time, year-round was $49,398. That was $2,272—or about 4.4 percent—below the peak median earnings of $51,670 in 1973.

In 1960, the earliest year for which the Census Bureau has published this data, the median earnings for men who worked full-time, year-round were $36,420 in 2012 dollars. Between 1960 and 1973 that increased $15,250—or about 41.9 percent.


By comparison, the real median earnings of American women who work full-time year-round peaked in 2007, when women who worked full-time earned $38,872 in constant 2012 dollars. From 1960 through 2007, the real income of American women who work full-time increased $16,774 or about 76 percent. From 2007 to 2012, the real earnings of women who work full-time declined $1,081, or about 2.8 percent.

By “earnings,” the Census Bureau means money someone earns as an employee, which “includes wages, salary, armed forces pay, commissions, tips, piece-rate payments, and cash bonuses earned, before deductions are made for items such as taxes, bonds, pensions, and union dues.” It also includes “net income” from self-employment.

The business and economic reporting of CNSNews.com is funded in part with a gift made in memory of Dr. Keith C. Wold.

[Crafty_Dog]

http://www.youngresearch.com/researchandanalysis/stocks-researchandanalysis/smart-money-signals-trouble-ahead/?awt_l=PWy8k&awt_m=3XhiwvJMBDzlu1V&utm_source=rss&utm_medium=rss&utm_campaign=smart-money-signals-trouble-ahead

[ccp]

One can notice that there is a pattern change around 10Am to trading though it could go up or down, but something does happen 1/2 hour in.

[DougMacG]

US growth slows sharply to 0.1%
First-quarter GDP misses forecasts by a wide margin
http://www.ft.com/home/us

Brian Wesbury:
Weak GDP growth in Q1 should have been expected, but also should be ignored.
https://www.ftportfolios.com/retail/blogs/Economics/index.aspx

Good grief, let's ignore the latest actual data!  And please show me where he expected this.  What else will we learn later that we should have expected?

Dem consultants say don't use the R word (Recovery).  Americans aren't buying that this is a recovery.  That report was issued before real growth was adjusted to zero.  http://news.yahoo.com/advice-democrats-dont-recovery-073618756--election.html

BW was right, looking backwards, on the ever-increasing value of existing investments in entrenched companies.  The posters here have been right on the correlation of no-growth policies with no growth results.  We aren't growing jobs.  We aren't growing incomes.  We aren't growing capital.  We aren't growing wealth.  We aren't starting enough new businesses to replace our stagnating and failing ones.  We have no plan to meet our already legislated obligations except to keep raising taxes and spending with monetary imagination.  But let's put a smiley face on it and call it plow horse strength!

[G M]

Plowhorse has a multitude of definitions that are subtle and complex and not readily grasped by lesser beings.

[objectivist1]

Agreed, DougMacG.  Wesbury's "analysis" - such as it is - defies gravity long-term.  Yes, the market is up very significantly since Obama took office.  That is NOT, however based upon fundamental economic information and true company valuation using such real data.  

Wesbury has been correct in predicting the market would continue to rise so far.  So what?  Being invested in this market now is akin to playing roulette in a casino where one is on a winning streak, but the casino is being consumed in a roaring fire.

Play if you wish.

[Crafty_Dog]

"Wesbury has been correct in predicting the market would continue to rise so far.  So what?  Being invested in this market now is akin to playing roulette in a casino where one is on a winning streak, but the casino is being consumed in a roaring fire.  Wesbury has been correct in predicting the market would continue to rise so far.  So what?  Being invested in this market now is akin to playing roulette in a casino where one is on a winning streak, but the casino is being consumed in a roaring fire.  Play if you wish."

This thread is about BOTH the US economy AND the stock market.

Your comments are quite on point with regard to the economy, but not so much with regard to the market.

How much are we up since the bottom?  How much over 140%?  That's a helluva move to have missed and I wish I hadn't missed most of it.  Tight stops solve a goodly % of the consequences of the likely downturn.

[objectivist1]

Crafty,

1) The stock market and the economy are inextricably linked.  Surely you are aware of this fact.
2) Tight stops are hardly the panacea they are promoted as being by some, and will most certainly NOT protect you in the event of an economic collapse, as anything valued in dollars will be worth a tiny fraction of what it was just before the collapse.

I repeat:  play at your own risk, and choose wisely.  Your choices have consequences.

[Crafty_Dog]

Well, no longer having any money to invest I am quite safe from harm 

That said, I'm thinking a goodly % of a profit margin of over 100% would survive with a tight stop.

[DougMacG]

"How much are we up since the bottom?  How much over 140%?"

I agree with Crafty's larger point but there is no one on earth who was all out on the the way down, all the way in at the exact bottom, holding still and able selling safely before the next downturn.  Good luck getting that return; you will be the first!  Peak to peak we are up more like 18% over 7 years, so a Wesbury follower who didn't fold in the last crash or panic before the nest peak is making about a 2% return.  That seems underwhelming for the risks endured.

Dow 10 year chart:

[G M]

Plowhorse-tastic!

[Crafty_Dog]

Thank you for posting that for me GM.

[ccp]

Wesbury will talk down the deterioration of growth and say it is at least not yet anything to woryy about but something just to keep an eye on.  He will then spew his usual rant about how the economy is hunky dory, etc. 

[Crafty_Dog]

The ISM Manufacturing Index Increased to 54.9 in April To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 5/1/2014

The ISM manufacturing index increased to 54.9 in April from 53.7 in March, beating the consensus expected level of 54.3. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mixed in April but all remain above 50, signaling growth. The employment index rose to 54.7 from 51.1 while the supplier deliveries index increased to 55.9 from 54.0. The production index declined slightly to 55.7 from 55.9. The new orders index was unchanged at 55.1.
The prices paid index slipped to 56.5 in April from 59.0 in March.

Implications: Following temperatures, the ISM index, a measure of manufacturing sentiment around the country, continued to move higher in April. The index now shows manufacturing activity expanding at the fastest pace since the end of 2013, with seventeen of the eighteen manufacturing industries surveyed reporting growth in April. While not quite back to the levels we saw in mid-to-late 2013, the index has stood in expansion territory for eleven consecutive months, and we expect the index to continue to show strength as companies ramp up production and make up for time lost to bad weather. According to the Institute for Supply Management, an overall index level of 54.9 is consistent with real GDP growth of 3.9% annually. While yesterday’s Q1 GDP report showed real growth at a tepid 0.1%, we expect to see a strong rebound in Q2. On the inflation front, the prices paid index fell to 56.5 in April from 59.0 in March. Still, little sign of inflation, but we don’t expect this to last given loose monetary policy. The employment index jumped to 54.7 in April from 51.1 in March. Plugging today’s data into our models, our forecast for tomorrow’s employment report are solid gains of 231,000 and 232,000 for nonfarm and private payrolls, respectively. In other news this morning, construction increased 0.2% in March. The gain in March was primarily due to a rise in home building offsetting a decline in government construction of schools and colleges. However, revisions for January and February were negative. As a result, it now looks like real GDP shrank at a 0.1% annual rate in Q1 versus the official report yesterday that it grew at a 0.1% rate. Either way, Q1 is in the rear-view mirror and real GDP is set to accelerate sharply in Q2.

[DougMacG]

U.S. Adds 288,000 Jobs in April

Great.  Now unemployment at the pre-crash workforce participation rate is down to 9.9%, 18% if you count the underemployed at the old participation rate.  


Still more than twice as bad as when voters gave the no confidence vote to Republicans after 51 consecutive months of job growth.  Who knew THIS would happen?

After Five Years Of Obamanomics, A Record 100 Million Americans Not Working
http://www.forbes.com/sites/peterferrara/2014/01/24/after-five-years-of-obamanomics-a-record-100-million-americans-not-working/

US Needs To Generate 262K Jobs Each Month To To Breakeven
http://www.zerohedge.com/news/us-needs-generate-262k-jobs-each-month-get-back-breakeven

Looking forward to Wesbury's take.    Plowhorse begins to trot?  Or did he already use that one - before the 0.1% winter surge?

[DougMacG]

The number of adults in the labor force dropped an estimated 806,000 in April. Adults reporting they hold a job in the household survey actually fell 73,000. Thus, the 0.4 percent drop in the unemployment rate (to 6.3%) reflected bad news—a smaller workforce—rather than good news.

http://www.brookings.edu/blogs/jobs/posts/2014/05/02-big-payroll-gains-anemic-labor-force-growth-burtless
----------------------------------------
Plowhorse?  Or is it lipstick on a pig?

(Media question: Isn't a drop of 800,000 adults in the workforce in April a bigger story than job gains that are just under the breakeven rate?)

[Crafty_Dog]

Excellent work Doug!

[ccp]

"Either way, Q1 is in the rear-view mirror and real GDP is set to accelerate sharply in Q2."

I told you.  Growth at minus 01%.   No biggy.   Oh growth is set to accelerate big time next quarter.

Sorry.  Yeah this guy happened to be right the last couple of years.  He is still a horses ass. 

[Crafty_Dog]

I keep posting Wesbury because we need to be exposed to other points of view. 

Nonfarm Payrolls Increased 288,000 in April To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 5/2/2014

Nonfarm payrolls increased 288,000 in April, beating the consensus expected 218,000. Including revisions to prior months, nonfarm payrolls increased 324,000.

Private sector payrolls increased 273,000 in April. Including revisions to prior months, private payrolls increased 296,000. The largest gains were for professional & business services (+75,000, including temps), education & health care (+40,000), and construction (+32,000). Manufacturing increased 12,000. Government payrolls rose 15,000.
The unemployment rate dropped to 6.3% (6.275% unrounded) from 6.7% (6.712% unrounded).
Average weekly earnings – cash earnings, excluding benefits – were unchanged in April but up 1.9% from a year ago.
Implications: Great headlines about the direction of the labor market, but the details of today’s employment report were not as strong. Nonfarm payrolls increased 288,000 in April, the largest gain in more than two years. However, we think some of the gain is payback for harsh winter weather and unusually slow job gains back in December/January. Nonfarm payrolls are up 197,000 per month in the past year and we think the underlying trend is a little faster than that pace. The other piece of good news was that the unemployment rate dropped to 6.3%, well below where even the most optimistic forecasters were predicting. The jobless rate among college grads is only 3.3%. But the drop in the jobless rate was mostly due to an 806,000 drop in the labor force, which pushed the participation rate down to 62.8%, tying the lowest level since 1978. Civilian employment, an alternative measure of jobs that includes small business start-ups, declined 73,000 in April. That employment survey, which is volatile from month to month, showed a solid gain in full-time jobs, but a large decline in part-time work. We also think the end of extended unemployment benefits at the start of the year explains some of the drop in the jobless rate. Extended benefits kept some people from working and also kept others, who really didn’t intend to look for work, in the labor force (they had to claim they were looking to keep getting benefits). So the end of extended benefits should push down the jobless rate by both encouraging work among those who want to work and discouraging participation among those who really don’t want to work. The worst news in today’s report was a second straight month of zero gains in average hourly earnings, which are now up only 1.9% versus a year ago. However, total hours of work increased 0.3% in April and are up 2.4% in the past year. So, total cash earnings are up 4.4% versus a year ago, providing plenty of fuel for consumer spending. As we always remind our readers, the labor market could and would be doing better with a better set of public policies. But it’s still improving. In the past year nonfarm payrolls have grown at an average monthly rate of 197,000 while civilian employment is up 166,000 per month. We expect continued Plow Horse gains in the months ahead. In other recent news, sales of autos and light trucks declined 2.2% in April to a 16.0 million annual rate. That’s still 5.6% above a year ago and we expect gains to continue over the next couple of years.

[ccp]

Fair enough as long as you keep posting him when the market tanks as it inevitably always does.  OF course he or I know not when.  But he will still be talking his same schpeel.  (nicer Yiddish version of  bull shit).

[G M]

http://money.cnn.com/2014/04/30/investing/gdp-economy/index.html?iid=SF_E_Lead

[G M]

http://www.shadowstats.com/alternate_data/unemployment-charts

[Crafty_Dog]

Always good to keep track of unemployment in various ways, not just the official govt. number!

"Fair enough as long as you keep posting him when the market tanks as it inevitably always does." 

Of course!  After all, we've been posting while the market goes up , , , 

[G M]

The market and the economy aren't the same. The market is what it is because of manipulation. Meanwhile, the economy continues to implode.

[Crafty_Dog]

That the market and the economy are not the same is precisely the point that I have been making in defense of the value of posting Wesbury here in response to the criticisms these posts often receive.

[Crafty_Dog]

http://online.wsj.com/news/articles/SB10001424052702303678404579538022048652130?mod=Opinion_newsreel_6 

[G M]

Cote author=Crafty_Dog link=topic=985.msg80770#msg80770 date=1399130106]
That the market and the economy are not the same is precisely the point that I have been making in defense of the value of posting Wesbury here in response to the criticisms these posts often receive.
[/quote]

Stein's law: Anything that can't go on forever, won't.

The market manipulations can't go on forever. I was living in Nevada when the housing bubble was inflating. I saw the writing on the wall and sold my place for almost double what I bought it for.

[G M]

http://www.newsmax.com/Newsfront/jobs-created-lost-exodus/2014/05/02/id/569240/

[DougMacG]

Other viewpoints.
Trouble ahead, trouble behind.  Casey Jones you better... Watch your speed.
--------------------------------------

INVESTOR OUTLOOK  NY Times
http://www.nytimes.com/2014/05/06/upshot/time-to-worry-about-stock-market-bubbles.html?hpw&rref=&_r=0

Time to Worry About Stock Market Bubbles
MAY 6, 2014
With relatively little fanfare, the stock market has become expensive again.

While the rest of economy has been growing frustratingly slowly for almost five years, stocks have been rising at a boomlike clip. An investment in the Standard & Poor 500-stock index would have doubled from early 2009 through early 2013 and then gained an additional 18 percent over the last year.

Relative to long-term corporate earnings – and more in a minute on why that measure is important – stocks have been more expensive only three times over the past century than they are today, according to data from Robert Shiller, a Nobel laureate in economics. Those other three periods are not exactly reassuring, either: the 1920s, the late 1990s and in the prelude to the 2007 financial crisis.

[DougMacG]

More negative forecasting.  Take reports about the future with a grain of salt.

Wall Street: 98% Risk of Crash This Year
Tuesday, 06 May 2014
http://www.moneynews.com/MKTNews/wall-street-crash-market-strength/2014/04/24/id/567582/?promo_code=a3auptln&utm_source=taboola&utm_medium=referral

Earlier this year, a select group of Wall Street Insiders were surveyed, and the results were ominous. These financial experts and fund managers predicted a 98% chance a stock market crash will happen in the next six months.

Gary Shilling, one of Wall Street’s top economists, says the S&P Index could drop as low as 800, a 42% decline.

[Crafty_Dog]

It may well be as stated, but isn't this an advertisement?  Doesn't basic contrarian theory say that when everyone (e.g. 98%) thinks something it is already priced into the market?

[G M]

My guns, ammo and canned food investment strategy seems sound.

[DougMacG]

It may well be as stated, but isn't this an advertisement?  Doesn't basic contrarian theory say that when everyone (e.g. 98%) thinks something it is already priced into the market?

Apologies for posting that if it was bogus.  The only fact check I did was to see the economist they quoted really is a Forbes contributor.  No doubt they take his words out of context but an investor should at least contemplate what they will do if things turn gradually or suddenly downward.  The 98% was some un-named, 'select' group.  Meaningless, I admit.  Still there seems to be more and more negative stories appearing.  Please see the previous post from NY Times.

I tend to agree that the market closes at market value every business day.  But that falls into the trap that people have all the right information and apply it rationally, not emotionally, which I think we proved false in politics and voting.  Was the market at market value the day before the 1929 crash?  The 1987 crash? Was it at market value the day before Fannis Mae, Freddie Mac, Countrywide Financial, Bear Stearns, Merrill Lynch, Lehman Brothers, AIG, Washington Mutual etc all went under?  More likely we can say the writing was on the wall and no one wanted to read it. 

[Crafty_Dog]

Monday Morning Outlook
________________________________________
Can a "Perma-Bull" Turn Bearish? To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/19/2014

During the past five years, stock market forecasts have fallen into three different camps.

•   It’s a Dead Cat Bounce, Sugar High, Artificial, QE-Induced Bubble Stock Market. It will crash any day.
•   It’s a Real Bounce, from Artificial Undervalued Lows, With Technology and Productivity Driving Real Profits. The market is still cheap and will go higher.
•   It was too low in 2009, but, as it moved higher, it became fairly, or over-valued. The risks of the world have risen and a correction or sideways market is due.

We are firmly in the second camp. Fox Business host, Dagen McDowell, with the Dow trading at 11,189 back on August 24, 2011 (link here) accused us of believing in “Unicorns and Rainbows” because we said the US stock market was 40% undervalued.

Today, we still think the broad US equity market is about 20% undervalued. Some have called us “perma-bulls.” Others have questioned, fairly we might add, whether we were bullish for selfish reasons. They wonder if being bullish benefits First Trust.

So, this brings up a logical set of questions. What if we did become bearish? Would we actually tell people? Would we actually go public?

For the record, our firm manages many different asset classes in many different countries. If for some reason we thought US stocks were risky, we could always recommend products that would provide diversification in other asset classes.

But, let’s put that aside. Lately, we have become very concerned the Federal Reserve has painted itself in a corner. The Fed has created $2.6 trillion in excess reserves that are like gasoline sitting next to a water heater. Instead of moving the gasoline out of the house completely by shrinking its balance sheet, it has decided to transfer the gas to different containers.

The Fed will try to pay banks not to lend. It proposes to make this work through a system of reverse repurchase agreements (known as, repos). Basically the Fed is attempting to trade bonds to banks, money market funds, and Government Sponsored Enterprise, for reserves. In this way it temporarily sops up the excess reserves without actually shrinking its balance sheet.

We believe this is dangerous for the economy. So far, there has been no sugar high because banks did not lend their excess reserves. That is beginning to change. In the past three months, commercial and industrial loans, M2 and M1, are up at a 16%, 7.7% and 15.8% annualized rates of growth, respectively.

Banks will help finance some of the massive expansion in Merger and Acquisition activity now taking place. Banks can earn more in this financing activity than current earnings on reserves (0.25%) or on reverse repos (0.08%).

The Fed will be forced to raise interest rates on its repos if it wants to compete and we see an “arms race” coming, where the Fed tries to outbid borrowers for excess reserves. This will eventually force rates up faster and further than most now believe possible.

What this does to our forecast is that we now see a money-induced spurt in growth that could end badly. We don’t see that “bad ending” happening for quite some time. At least 12 months, probably more like 24 months, possibly 36+ months.

In the meantime, as money growth accelerates, the economy, stocks and inflation will accelerate, too. So, what is a good thing for the market over the next year or two will result in below-normal market returns after the surge is done.

Much will depend on how the Fed plays this out. It’s still possible the Fed will find a way to unwind its balance sheet before a bubble in stocks occurs, the yield curve inverts, or there is some kind of major financial problem. As a result, an accurate timeline can’t be developed just yet.

But, we promise that as these events unfold in the years ahead, we will not be shy about sharing them. We already are. There is no reason for a forecaster who values his or her reputation to spin an analysis in a way that makes no sense. The Fed is playing with fire and we wish it would stop.

[G M]

Hmmmm.....

[DougMacG]

Hmmmm.....

Wesbury:  "What if we did become bearish? Would we actually tell people? Would we actually go public?  For the record, our firm manages many different asset classes in many different countries. If for some reason we thought US stocks were risky, we could always recommend products that would provide diversification in other asset classes."

I felt bad pointing out a bias that he freely admits.  His job is to tell you why you should feel good about buying US and global securities, and secondly he looks for facts to support  that view.  He has used the false but true defense heavily: the economy keeps under-performing but the markets are still up.

He has been mostly right (since the last time he was wrong) but I have a hard time believing this market is 20% under-valued right now.

Time will tell.  Good luck.

[objectivist1]

Government Motors' 15.6 million recalls is quite the record-breaker

Dan Calabrese - www.caintv.com - May 26, 2014.

For a single year. Just five months in.

If you think it's gratuitious that I'm still connecting GM's problems to the bailout and subsequent era of government ownership, you don't know enough about how the auto industry works - which is to say, it doesn't work so much as it plods.

The culture put in place by the Obama Administration did not leave the company when the government sold its shares. Culture change moves more slowly than a glacier in the auto industry. Besides, if you don't think it sounds like the Obama White House to ignore problems until they grow on a massive scale and then offer a litany of excuses and obfuscations, boy, I don't know what to tell you.

From this morning's Detroit News (where I am also a columnist):

GM has stepped up the pace of its recall campaigns as it tries to show it is more responsive to safety concerns since it was learned that the company knew for years of problems with ignition switches in some vehicles. Several key safety officials at the automaker have left, retired or been moved to new positions. It has added 35 product investigators since the beginning of 2014 and is taking a look at all outstanding issues.

On Friday, GM paid a record-setting $35 million fine to the National Highway Traffic Safety Administration for failing to recall in a timely fashion 2.6 million vehicles linked to 13 deaths due to the defective ignition switches. The automaker admitted it broke the law in the settlement that will require intensive monitoring and monthly meetings with NHTSA to discuss all pending safety issues over a three-year period.

GM also is bracing for the fallout of an internal report into what went wrong over the course of the decade of delays in issuing the ignition-switch recalls. Two congressional committees plan to bring GM CEO Mary Barra back to testify for a second round of hearings. The Justice Department, Securities and Exchange Commission and at least one state attorney general are investigating.

The White House declined to comment on whether the spate of GM recalls suggest the government didn’t exercise proper oversight during the nearly five years when it owned a significant stake in the automaker as part of the $49.5 billion bailout.

“What’s absolutely important as a general principle is every automobile manufacturer — foreign or domestic — be held accountable when it comes to safety matters,” spokesman Jay Carney said Tuesday.

Fine. Hold them accountable. And exactly what form should the accountability take? When the government first took control of GM, Obama immediately fired then-CEO Rick Wagoner. And rightly so. It was one of the few unassailably correct decisions Obama has made. Wagoner had proven he was incapable of leading the company effectively and he needed to be replaced.

But GM has not found a leader in the years since who proved up to the task. GM's priority since the bailout has been to provide political cover for the advocates of the bailout, which is why it has added plants, shifts and employees it really didn't need. It is also the reason it ramped up the production of Chevy Volts despite the lack of demand. Politicians held out the Volt as one of the primary rationales for bailing out the the company, so the factory needed to crank up Volt production to justify the politicians.

And when a safety issue arose, GM showed the same instincts as the government: Try to cover it up if you possibly can so no one will criticize you.

The culture of GM hasn't changed. It was only reaffirmed by the bailout, which sent the message that GM was not only too big to fail, but too important to be expected to change. This was as much about bailing out the UAW as anything else, and that's a vicious cycle. Union works its way into company. Union helps lead company to brink of obsolescence. Union gets bailed out by political allies. Union repeats process.

Taxpayers lost $28 billion helping this company stay exactly the way it has always been. And politicians tell us it was a good investment. I hope you're happy with your return.