Let’s take look at some of the historic circumstances affecting these transformations taking place in today’s labor market. The unemployment rate continues to drop (presently 4.9%) close to what was previously considered “full employment”. Wage growth of 4.6% has been unprecedented for decades in this environment, but, there still remain 11 million job openings. Among the dynamics behind these circumstances are;
• Wages have lagged most measures of the economy — since the 1970s;
• Technology keeps creating and destroying entire market sectors;
• Household balance sheets are as cash rich and debt managed as ever;
• Actual wealth in the US is at record highs, albeit with a high wealth gap;
• Early retirement is pulling workers away from the labor market;
• Childcare remains a challenge in most of the country;
• Covid-19 is still a threat to frontline workers.
These days, the labor market is even more unusually dynamic than is typical. It is not an exaggeration to suggest it is in the midst of a radical transformation. The problem is not that economists cannot predict it; rather, it’s that they do not as of yet fully understand it.
1st Quarter Update Summary – Deficits and Infrastructure
The economy at present is finally emerging from our pandemic constraints. During March, employment was remarkably strong as unemployment continued to fall. The lowest interest rates in a century together with massive pent-up demand backed up by stimulus liquidity is creating a perfect storm for rapid short-term recovery and growth. There is little uncertainty that the pandemic will retreat. Our scientific knowledge base of mRNA techniques will grow and our producers will quickly refine and distribute vaccines for emerging covid variants as necessary. We may be looking at upcoming annual booster vaccine shots for these variants along with the seasonal flu.
Many people have expressed concern that the huge deficits will cause inflation and a subsequent collapse of the dollar. However, these massive deficit spending policies have successfully been deployed in our past but under very different circumstances, so let’s briefly review them.
Massive deficits (or money printing) were of necessity liberally deployed in the service of Continue reading 1st Quarter Update Summary – Deficits and Infrastructure
1st Quarter Update Summary – Pandemic
Following our interim email update last month the Federal Reserve charged headlong into the financial system very fast and very big. While we predicted a quick rate reduction, the Fed instantly dropped its target rates to zero and additionally announced massive liquidity facilities to flood the banking system with cash. At the same time, we made the prediction that given entrenched partisanship, it would take Congress many months to respond with the necessary fiscal stimulus. But lo, within two weeks, Congress unanimously passed not one, but two stimulus packages totaling over TWO Trillion dollars for small business, corporations, and remarkably, also for American workers and consumers. The Fed again then followed that up with Continue reading 1st Quarter Update Summary – Pandemic
Interim Update – Coronavirus
The market declines of these past two weeks have erased six months of recent gains. Although we are closely monitoring the situation, we may take action in your account quickly if needed in order to reduce risk if conditions continue to deteriorate and alter the long-term investment outlook of your account.
The corona-virus is currently the focus of the market’s attention. The novel coronavirus Covid-19 is now out in the wild; containment in the U.S. seems to be a long-lost hope. In the near term, the authorities are hoping to suppress Continue reading Interim Update – Coronavirus
Year-end Summary 2019
Our accounts performed well this year, again outperforming the major market indices. However, as with the indices, some of the large gains were the result of a sharp market recovery early this year following a sharp downturn late last year. The market quickly stabilized and continued its upward trend as the Fed successfully took strong measures during the year to avoid economic weakness in the face of the weakening manufacturing sector.
The current economic indicators show the economy continues to grow, that manufacturing remains modestly weak, but the Continue reading Year-end Summary 2019
3rd Quarter Update Summary -Slow Growth?
Despite some weakness in the manufacturing sector, the overall economy continues to grow. The markets on the other hand have been wandering aimlessly at the same level as that of one year ago. Our accounts similarly show a small gain over that same twelve month period. Despite rising deficits, all of the inflation indicators are soft or declining. The Fed, having clearly overshot its interest rate targets, has been Continue reading 3rd Quarter Update Summary -Slow Growth?
2nd Quarter Update Summary – Soft Landing?
Inflation, despite historically high deficits, stubbornly refuses to rise to the Fed’s relatively modest target of a mere 2%. In our last report, we noted that the Fed was finally ready to “stand pat” on further interest rate increases. We also addressed the importance of the yield curve in predicting future economic growth. At the time it was partially inverted (indicating an economic slowdown) due to the Fed’s aggressive interest rate increases last year. Since then, commodity and energy prices have modestly declined and labor costs have been rock steady. This week the Fed Continue reading 2nd Quarter Update Summary – Soft Landing?
1st Quarter Update Summary – Stand Pat?
We continue to focus on the growth of the economy and the one variable of greatest impact on economic growth, interest rates and money supply. Fortunately, the markets rebounded and weathered quite well the Fed’s aggressive interest rate increases of the past year. In December, the month of the last rate increase, the markets were Continue reading 1st Quarter Update Summary – Stand Pat?
Year-end Summary 2018
Our accounts turned in exceptional performance this year with positive returns while the market indexes were all down for the year. Our largest holding, Amazon, was up 28.4% and contributed substantially to those gains. The merger of our second largest holding Oclaro, was a 24% gain for the year and was completed in December with a cash payout together with Lumenthum stock. Consequently we are starting this year with large cash balances in a tumultuous market environment.
As you are likely aware, there are several important issues (shutdown, Brexit, tariff trade disputes, etc.) that all could significantly Continue reading Year-end Summary 2018
2nd Quarter Update Summary
Last quarter, the markets largely stabilized in an upward trend again following a rambunctious first quarter. Amazon continues its upward surge and Oclaro stockholders last week overwhelmingly approved the merger with Lumentum which will be completed in a few months in a distribution of both cash and Lumentum stock. The capital gains and tax effects of the merger are still not clear.
We continue to focus on monetary policy. The Fed continues to raise short-term interest rates but long-term interest rates, largely controlled by market forces, remain quite stable resulting in a flattening of the yield curve. A flat, or worse yet, an inverted yield curve is a proven precursor to Continue reading 2nd Quarter Update Summary
1st Quarter Update Summary
Despite the fact that the markets began the year in verifiably volatile fashion, they wrapped up the first quarter about where they began. Despite this however, our accounts successfully turned in significant gains for the quarter. This was due primarily to our two largest holdings: Amazon was up 19% and Oclaro was up 45% due to a buyout merger offer from Lumentum Holdings, a leading-edge fiber optic provider. The buyout offer of part cash and part Lumentum stock will likely be completed within a few months. We do not yet know the tax effects of this transaction.
The economy appears to be moving forward on firm footing. Although the current economic cycle is one of the longest on record, economic growth cycles normally don’t merely die of old age and recessions usually have specific causes. This growth cycle, with the recent tax cut and approval of the federal budget containing a sizeable deficit, now has these two additional growth stimuli to continue the expansion. Our economy has yet to explore Continue reading 1st Quarter Update Summary
Market Meltdown? Foreshadow? Not Likely…
The market meltdown in the previous few days was unmistakably a reaction to sharply rising bond yields which previously were rising slowly if at all in response to Fed rate increases. It was not likely a response to inflationary fears as leading inflation indicators (metals and commodities) were unmoved if not down. Add it all together and present value theory of stock prices required a downward move in prices in response to those bond yields. The consequence? The Fed, now chaired by a Wall Street insider, has no reason to be too aggressive in raising short rates and may even temper its planned sales and reductions of its massive bond portfolio.
2018 Annual Outlook Summary
Last year the economy and the markets performed well in part due to the fact that the economy is in the midst of an enduring economic expansion. Now with some new fiscal stimulus in the form of comprehensive tax cuts passed by Congress the expansion received an additional boost to extend its life. This provided there are no unfortunate consequential mis-steps by the Administration and Congress in terms of trade (NAFTA, TPP) or foreign relations (Iran, Korea, China). Although the Republicans have, for now, forsaken their historical misplaced concerns regarding Continue reading 2018 Annual Outlook Summary
3rd Quarter Update Summary
Despite uncertainties on the stage of global trade and relations, the main concern for investors remains primarily the activities of the Federal Reserve’s monetary policies together with the tax and fiscal plans of the Administration and Congress. The Fed’s plans have been consistent and transparent. The Fed will continue to gradually raise short-term interest rates and will begin to reduce its vast reserve of bond holdings potentially raising longer-term rates. Higher rates are rarely if ever Continue reading 3rd Quarter Update Summary
Do Deficits or National Debt Really Matter? No. But Yes, Only in Rare Circumstances.
Anytime a given economy has excess unused labor or plant capacity, deficits and federal spending are essentially mandatory to revive and expand the economy. The greater the excess capacity, the greater federal spending (deficit) is required to employ that excess. The is especially crucial in times of economic stress where private money creation (bank lending) is either dormant or in collapse. In addition, the only constraint on money creation ought to be, and must be, inflation. And inflation, in monetarily sovereign economies generally is not evident in economies with excess labor, plant and resources.
Here’s some background to help you understand a little better:
During the Great Depression, a small recovery had begun in 1936. Unemployment had dropped from Continue reading Do Deficits or National Debt Really Matter? No. But Yes, Only in Rare Circumstances.
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