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True Confessions

Money holds a great deal of power over us. For many, it is a symbol of worth, competence, freedom, prestige, masculinity, control and security. No wonder most of us have such a hard time talking about ours. read more…

Shot across the bow?

Interest rates have been on a downward path for almost thirty years. In May of last year, thanks to the Fed’s taper talk, that direction has reversed. This week it was revealed that some Fed officials are actually discussing when to hike interest rates.  read more…

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The Business of Guns

The firearm industry has a lot going for it. It is responsible for a piece of this country’s economic recovery including job growth as well as providing a hefty contribution to the tax base. It also sold the weapons that recently cut down 26 people, including 20 children, in a Connecticut elementary school.  read more…

Republican Grinch Sinks Markets

 

Evidently disappointed that the world didn’t end on Friday, the Republican-controlled House took matters into their own hands. Rejecting any compromise at all, the Tea Party members of the GOP rejected out of hand their own Speaker’s “Plan B” and then took off until after Christmas. read more…

The Business of Guns

 

The firearm industry has a lot going for it. It is responsible for a piece of this country’s economic recovery including job growth as well as providing a hefty contribution to the tax base. It also sold the weapons that recently cut down 26 people, including 20 children, in a Connecticut elementary school. read more…

Pushing on a String

 

There was a time when an announcement of further easing from the Federal Reserve would have sent the markets soaring. This week the Fed promised more monetary stimulation and the markets finished flat to down.

Even more puzzling was gold’s reaction to the announcement. The Fed is planning to purchase $85 billion/month in mortgage-backed securities, effectively pumping even more money into the economy. That money, unlike its previous bond-buying program, which bought long Treasury bonds and sold short ones, will involve printing new money. That is normally considered inflationary and yet gold prices barely budged. The next morning gold promptly fell $20/ounce.

In a historic move, the Fed also tied interest rates to the jobless rate, promising that until unemployment came down to a 6.5% rate, it would keep interest rates at a near-zero level. The market’s response was a big “so what.” Investors do not believe that these latest Fed actions will do anything to reduce the number of Americans out of work or increase the growth rate of the economy.

The economy has been functioning under a historically low interest rate environment for some time. These low rates have been effective in avoiding another recession and keeping unemployment from rising further. But maintaining the status quo is not enough. In order to add jobs, the economy has to grow faster and that’s not happening.

Ben Bernanke, the chairman of the Federal Reserve, has often said the central bank can do only so much. In order to accomplish a high growth, low unemployment economy, he maintains fiscal stimulus is absolutely necessary in tandem with lower rates.  I agree.

But the Fiscal Cliff is not about cutting taxes and higher spending. It’s about avoiding tax increases and cutting spending. Those actions seem to be at odds with what the central bankers are saying. The Republicans continue to insist that spending is the problem and that President Obama and the Democrats want tax cuts but little in spending cuts.

Republican Congressman John Boehner, Speaker of the House, on Thursday, continued to insist “that the right direction is cutting spending and reducing debt.”

How dense can one be? Has Boehner and the Tea Party bothered to look at how well that recipe hast worked in Europe over the last two years? It has been a disaster. It was also a disaster in Latin America throughout the 1980s. It flies in the face of what our central bankers are saying as well.

Boehner argued that if you include President Obama’s new proposals to increase spending in areas that could stimulate the economy, then there would be practically no spending cuts at all in his Fiscal Cliff deal. Well, hurrah for the President.

I had hoped that if President Obama was re-elected, we could avoid the worst. The Bush tax cuts would be extended and the GOP’s insistence during the election campaign (and up to and including yesterday) that we needed deep spending cuts would be moderated. So far the jury is out on my bet.

You may disagree, but I firmly believe that more, not less fiscal spending is absolutely imperative to jump starting the economy in tandem with the central bank’s monetary policies at the present time. I will worry about the deficit after the economy is growing at a healthy rate and unemployment drops. At that point, I believe the explosion in tax revenues from a growing, full employment economy will take care of the deficit, the debt and the Republican’s propensity to angst. Until then, don’t sweat the deficit, stay long and bet on avoiding the Fiscal Cliff.

 

Cheap doesn’t cut it anymore

In this brave new world of ours, it is no longer enough to simply offer the lowest cost product. Product innovation is now critical to a company’s success. U.S. companies are discovering it is becoming harder to innovate when their manufacturing plants are half a world away. read more…

All Eyes are not on America

Our stock market has gone nowhere since Thanksgiving week but it would be a mistake to believe that all markets have been on hold since that time. You just may be missing an opportunity elsewhere while politicians fiddle here at home.

After gaining back about half of the 8% decline it suffered after the election, the S&P 500 Index is within a point or two of its close on November 23. Each day the markets vacillate gaining or losing a couple of points at the most. I believe this period of marking time will continue until there is some definite progress out of Washington.

In the meantime, you might want to look elsewhere. Asian markets, ex-Japan, for example out-performed just about everything else in November. Countries like Hong Kong, Taiwan, India and even China are attracting new money. But it appears to be a stealthy flow of investment without the usual fanfare. That usually means it is still early in the game for investing.

 Emerging markets, once the darling of the investment community, fell off their own cliff back in 2009. Unlike the American market, they have never recovered. The combination of recessions in their two main export markets—Europe and the U.S.—plus the global move out of risk assets overall (because of the financial crisis) left these markets out in the cold.

China, which most economists believe has been the largest engine of growth in the global economy, deliberately put the brakes on its economic growth, fearing a major uptick in their inflation rate. And as China slowed, so did the rest of Asia. Times have been hard over the last 2-3 years, with the Chinese stock market suffering a 40% decline. But some brave souls feel it might be time to re-examine the prospects in this area. I agree. Latin American markets, I noticed, outperformed all other emerging markets in October, although not in November. I have even seen signs of some bottom-fishing over in Europe, which is suffering its second recession in three years.

What makes these markets interesting, aside from their low valuations, may be a potential turn upward in world economic growth. Remember, stock markets usually discount events 6-9 months in advance. Central banks all over the world continue to stimulate their economies. Here in America, if we can actually come to grips with our fiscal issues, we could see a pick-up in economic growth. Next year could surprise us if (and that’s a big if) the politicians cooperate and actually implement a pro-growth fiscal policy to complement the Fed’s on-going stimulus efforts.

Europe may not recover in 2013 if our economy starts to pick up steam, but it may stabilize. Over in China, there has been a regime change. Xi Jinping is the new president while Li Keqiang will be the new premier. The leadership transition was smooth and investors expect that the new leaders will continue to implement structural reforms while possibly calling an end to their tight money policies. Given that the money flow into China funds has been positive for the last seven weeks, some global investors are betting on a turnaround.    

So as American investors and the media wring their hands at every hiccup in Washington, some of the aggressive money is investing in more fertile fields abroad. Emerging markets are risky and not for everyone, but if you have an appetite for taking on more risk then I suggest you follow suit.

U.S. Debt, Another Cliff Note

While politicians bicker over the Fiscal Cliff, the government continues to borrow about $4 billion a day. The statutory ceiling on U.S. Treasury borrowing is $16.4 trillion and we will hit that number by year-end. Then what? read more…

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About Bill

Bill Schmick was born in a blue-collar neighborhood of Philadelphia, just a few blocks north of “Rocky Balboa” territory where most of his Catholic schoolmates grew up to be either cops or criminals. He narrowly escaped both professions by volunteering to fight in Vietnam as a U.S. Marine... Read More

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