Manarin Investment Counsel is excited to announce that the firm is officially operating at its new office building, five minutes ...
A 62% Top Tax Rate?
May 31, 2011
Stephen Moore of the Wall Street Journal examines the math behind all of Obama’s tax increases.
Click Here to read more.
May 27, 2011
Medicare is in trouble. Does Washington have the right answers to save it?
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May 23, 2011
We all remember the doomsday prophets from three years ago. Predictions were dire. The then-new period of diminished returns was referred to as “the new normal”; but just how accurate was that claim?
We want you to take a moment and think back to the dark days of late 2008 and early 2009. The economy was contracting, credit was very tight and the stock market was in the midst of one of the worst bear markets/crashes in modern history. There was a lot of talk back then about how everything had changed. The phrase "The New Normal" became a core creed to some analysts and investors. They decided that the economy would continue to shed debt (leverage) for years and even decades to come. As a result, it was widely predicted that the economy would remain in or near a recession indefinitely. As for the stock market, it was pronounced to be dead on arrival. Many of the bears expected the crash of 2007-2009 to continue for years to come. Such opinions were so strong that many of the skeptics have refused to acknowledge that stocks are in a new bull market - even after a more than doubling of the major stock indices and new all-time highs registered by both the Dow Transports and the Russell 2000.
There is another statistic that shows just how far the stock market recovery has taken the bulls during the past two-plus years. According to Fidelity Investments, the average 401(k) plan balance reached a record $74,900 at the end of the first quarter. With the broad stock market up another one to two percent since March 31, the average value of those retirement plans is even higher today. It is impossible to argue with those results. Some of the gains during the past two years have come from fresh flows of cash. However, the bulk of the gains came from a good old-fashioned bull market up trend. The economy bottomed out more than two full years ago. We are nearly at the two-year anniversary of when GDP reportedly went from contraction to growth. Corporations exited the recession with costs cut to the bone. When revenues began to pick up in 2009 and then accelerated in 2010 and 2011, corporate profits exploded higher. It looks like S&P 500 earnings will reach a new all-time high during the coming year. It seems like a sensible bet that the broad stock market will reach a new high of its own during that period of time. In the near-term though, we remain mildly cautious.
Earlier in this Hotline, we mentioned the phrase "The New Normal." We think this is a good time to remind you about the history of that phrase. Back in early 2009, Bill Gross, who runs the largest bond fund in the world (Pacific Investment Management Co - PIMCO) said that the U.S. economy had entered a new phase called "The New Normal." Gross predicted that the period would see subpar economic growth and high unemployment for a long time to come. In order to give you a broad perspective of what Gross was saying back then, here is a quote from a summer 2009 interview. Bill Gross said, "The surprise is that there’s been a significant break in that growth pattern, because of delevering, deglobalization and reregulation. All of those three in combination, to us at PIMCO, means that if you are a child of the bull market, it’s time to grow up and become a chastened adult; it’s time to recognize that things have changed and that they will continue to change for the next – yes, the next 10 years and maybe even the next 20 years. We are heading into what we call the New Normal, which is a period of time in which economies grow very slowly as opposed to growing like weeds, the way children do; in which profits are relatively static; in which the government plays a significant role in terms of deficits and reregulation and control of the economy; in which the consumer stops shopping until he drops and begins, as they do in Japan (to be a little ghoulish), starts saving to the grave."
In October 2009, after the economy and the stock market had already shown some significant signs of stability and recovery, Bill Gross and others remained unimpressed. (Do you remember all of the sarcastic remarks about "green shoots" back in 2009 and beyond?) During that month (October 2009), Gross was asked once again to define what his New Normal would mean for the future. Here is what he said, "In the context of PIMCO’s growth and profit expectations for 2010, there may be substantially more potential for downside risks than upside risks for most asset classes. We don’t expect a return to levels seen in June 2008 in most markets because the financial system has been salvaged, re-liquefied and significantly de-risked, but a slow recovery, lower corporate profits, potential for disappointments and potentially displaced confidence all suggest pulling back risk positions that have been acquired over the last six months." As it turned out, almost all of those predictions failed to materialize. The Wilshire 5000 reached its June 2008 high (14,340) just a few weeks ago and appears to be in need of a rest.
We have one more quote for you. Sorry if it is overkill, but Gross has been in the news again recently and the gist of his analysis is that America is still in trouble and headed for years of pain. As a result, he has recently added to PIMCO's bet against U.S. Treasuries. In a July 2010 interview, Bill Gross was asked what the New Normal would likely mean for investors. Here is what Gross had to say, "Instead of 10% returns for stocks, look for five or so. And instead of the past 20 years' returns on bonds, which are actually better than stocks - close to double digits - it's 4% going forward. So that's what the new normal is. And it's based upon the primary assumptions of a deleveraging of the private sector and the public sector being limited in what it can spend."
When Gross made that prediction about the stock market, the Wilshire 5000 was trading near 11,390. As of today, the index has gained 25.0% since PIMCO's leader predicted that stocks would gain about five percent annually during the new financial Dark Age. That means in the past 10 months, the broad stock market managed to post five year's worth of gains (based on the parameters set down by Gross and people with similarly pessimistic views). A lot of gains have been missed by the entrenched skeptics during the past few years. We are afraid that many of them will stay out of the market (or short) even after the next correction/consolidation runs its full course. The Wilshire 5000 closed today at 14,265.35, up by 104.85(0.7%) in the past week. The Volatility Index (VIX) closed at 16.03, down from a reading of 18.20 a week ago. The yield on the 10-year Treasury note closed at 3.23%, up from 3.17%. More next week.
May 20, 2011
It’s time for a little Friday Fun! F. A. Hayek and John Maynard Keynes slug it out in the ultimate battle of Keynesian vs Austrian economics. Have a great weekend everyone!
May 18, 2011
If you had a choice to open a business with workers who are known to strike and cost you billions of dollars, or open a business in an area where you can hire more people to be part of a stable workforce that doesn’t hinder production, which would you choose? According to a complaint filed by the National Labor Relations Board, it doesn’t matter what you want. If you choose to open a business in a right-to work state, the NLRB says you are “engaging in unfair labor practices.”
That’s not a hypothetical question. That’s happening right now. Boeing wants to build a new production plant in South Carolina, but the union workers in Washington have filed a complaint, and Boeing may be forced to move their proposed plant to a different state. How is that freedom?
May 17, 2011
Just how fair is the educational system in this country? Donald Boudreaux from the Wall Street Journal draws this clever analogy that just might leave you with a new perspective.
May 13, 2011
Current land values assume historically high commodity prices and historically low interest rates, says Jason Henderson Vice President and Omaha Bank Executive, Federal Reserve Bank of Kansas City. The question is, are those figures based in reality?
May 11, 2011
Part of responsibly managing money is being able to sift through the media chatter we are constantly bombarded with. The talking heads on TV and the writers at the newspaper tell you stories to sell advertising space. We understand that deciphering the fact from the fluff can be a daunting task. That’s why you can count on us to vigilantly keep tabs on the happenings in the market and in Washington, and compare it to what hundreds of years of history and decades of experience tell us. With gas prices shooting up here in Nebraska and the rest of the country, it’s easy to look for a scapegoat. But who’s really responsible for rising energy prices (along with the prices of everything else)? Please take a moment to read this article from First Trust Portfolios and keep yourself educated with facts, not talking points from the nightly news.
The Greatest Speculators
Brian S. Wesbury - Chief Economist, First Trust Portfolios
Robert Stein, CFA - Senior Economist
It’s as predictable as birds flying south in the winter. When gas prices rise, politicians (most recently, President Obama), feign outrage and then threaten to “investigate” the “speculators.” The irony is that these politicians are the real speculators – making a bet that they can use government to create wealth. No government in the history of the world has made it work, but they keep on trying – with other people’s money.
In one sense, this is all about economic and financial literacy. Of course there are investors who speculate on energy prices. Thank goodness.
Many people have reason to hedge their exposure to changes in energy prices, either up or down. These include energy companies that find, process, or wholesale energy products. Or manufacturers, airlines, railroads, farmers – anyone who uses energy to provide a product or service.
In an ideal world, hedgers worried about a price drop would exactly equal hedgers concerned about price increases. But the world doesn’t work that way. And so speculators – investors who take the other side of a trade even though they aren’t involved in an energy-related business – fill the gap and make these markets function.
One reason speculators show up is that the government makes markets inefficient. Today, in the US, there is an effective moratorium on drilling in the Gulf of Mexico and a continued ban on oil drilling in northeast Alaska. At the same time strife in the Middle East and North Africa threatens oil production. So, supply problems exist at the same time the economy is recovering and the Fed is easy. Why investigate?
Or instead, maybe politicians would be better off investigating themselves. Government is playing the role of venture capitalist, particularly in the energy industry, picking winners among various competing technologies. When should the taxpayer expect a payoff from these tax breaks and subsidies? The government likes to call them investments, but they are using other people’s money to speculate. And the energy produced from these emergent technologies costs more than energy produced using carbon-based technologies.
This is nothing more than crony capitalism, with well connected former politicians appearing to be disproportionately represented among those companies on the receiving end of government “investments.”
Add to this the government’s “speculation” that deficit spending will create wealth. Politicians, using spurious economic arguments, believe deficit spending will create growth and jobs. But this strategy has never worked. Countries that have employed this strategy have always fallen behind in the economic growth and job creation statistics. Free markets create wealth, not governments.
Think what you want of speculators in the oil markets – and we are sure there are many – they are at least doing it with their own money. Ultimately the fundamentals in the oil markets will dictate who wins and who loses, and those who speculate the wrong way will have to transfer purchasing power to those who were right.
This is certainly not the case for those who speculate out of the public trough. Their track record is abysmal and the taxpayer is left footing the bill every time.
May 10, 2011
We're still hearing about this recession that we're in. If you look at the actual numbers however, you'll see that not only has the economy been positive for six consecutive quarters, but we have actually made up for all of the loss during the recession.
May 9, 2011
The federal budget is on an unsustainable course, with even more runaway spending and rising debt on the horizon. Now, more than ever, it is important for Americans to understand what our nation's spending, taxes, and debt mean to them. The Heritage Foundation's Budget Chart Book is a user-friendly way to learn about the federal budget system.