Manarin Investment Counsel, Ltd.

The first quarter is officially over. Anyone who “rode the rollercoaster” and waited for recovery benefited from a considerable rally over the past few months.

So what’s next? Can we expect the economic growth to continue?

Generally speaking, growth is still limited. The current regulatory environment slows down growth opportunities.  When we have the pleasure of speaking with clients who work in many different industries - banking, real estate, or health care to name a few - one common theme emerges: companies are putting more resources into legal and compliance functions rather than growth-oriented positions.  This can and will restrain growth in the economy, and will make it more difficult to grow a company and its profits.

However, corporations are working diligently to streamline operations, increase productivity and improve their financial positions. They continue to seek ways to deploy capital through dividends, stock buybacks, capital investment into opportunities, or by buying other companies to foster growth.

Even though our economy is not growing as quickly as we’d like, we’re not going to give up.  That is the beauty of America and its people. Throughout history, companies and the stock market have survived through many different political environments.  We will figure out how to survive and thrive in the current political environment and will meanwhile keep fighting for a better one.

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http://mjperry.blogspot.com/2012/04/wisdom-of-milton-friedman.html

 

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Some of you may have heard some noise in the media over the past week about the small dip in the stock market.  Is it a prolonged setback? Is a short dip? Should we expect more of this in the future?

Let me reassure you – nothing in the past week will amount to anything of consequence. The stock market has yo-yoed forever and will continue to do so into the future. No new domestic or foreign events are of any consequence.

It is all just noise.

What should we expect next? I wouldn’t be surprised if the market dropped another 5 to 10 percent. The reality is that 2012 will likely end with a handsome profit on Wall Street regardless of what happens in the next few weeks or months.

Long-term, common stocks have and always will outperform all other asset classes. Investors should take advantage when stocks are on sale and buy more.

What they shouldn’t do is panic. These corrections will continue to happen periodically for the rest of our lives.

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Manarin Investment Counsel Investment Advisor Representative Thomas P. Kerins advises to "Expect the Unexpected" in an article recently published on Morningstar.com. Check it out here!

 

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... to understand the REAL unemployment rate.

Click here!

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Whenever you hear someone say we’re “in a recession”, just look at the numbers. “Maybe the best news is that investors are looking

deeper into economic data, not just trading on headlines.” This is good advice for all. Read this great analysis from our friends at First Trust Portfolios for a look into the state of things.

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There's a lot of talk these days about what the Federal Reserve should and shouldn't do to help the economy.  Here's a good commentary from our friends at the Van Eck Hotline about how the Fed's actions can affect economic growth and employment.

Reprinted with permission from the Tillman Stock and Bond Hotline
For: Thursday, May 12, 2011
(800) 219-1333. VetHotline@aol.com. VanEckTillman.com.

The Federal Open Market Committee made news last week when it suggested that the economy is still facing some challenges and that the Federal Reserve might be willing to keep interest rates at very low levels until the end of 2014. In its post meeting statement, the FOMC said that the economy is doing okay but is not yet strong enough to push the unemployment rate substantially lower in a short period of time. The Fed body also said that capacity utilization and consumer inflation are both low enough to allow the central bank to keep its highly accommodative monetary policies. The historically low federal funds rate is not the only thing that the Fed is doing to help support the economy. Ben Bernanke has also been helping to keep market interest rates at low levels via direct purchases of Treasury debt paper. Those low market rates are helping millions of consumers and businesses to afford new spending and investment. They are also helping governments (not just the Federal government - but governments at the state and local levels) to finance their spending at interest rates that will not hinder them for years or even decades into the future. That is a great boon for many - but certainly not for people that were counting on interest income to help their savings keep up with the inflation rate. Some retired folks have been especially hard hit by those low rates.

Many people have come to distrust the Fed and Bernanke - and certain political candidates have gone out of their way to attack the Fed during the past year or two. For my part, I have offered a simple response. What would those skeptics have done differently? Sometimes, the response is that they wish the Fed had been headed by a person that fully grasped the dangers of the leveraged instruments that helped to trigger the financial crisis and the recession. However, most of those Fed-bashers usually respond by saying that they wish Bernanke had done nothing and thus allowed the economy to fully correct the excesses of previous years. Such talk sounds brave on the surface, but I am afraid that the modern world is far too complicated for such a strategy. Have you ever been stuck at a busy intersection where the traffic light is broken? If a police officer or someone else does not get into the middle of it and provide order and directions, it quickly turns into every man for himself and chaos.

If Ben Bernanke had not taken the bull by the horns and used highly innovative tools to fight back against the financial crisis, credit crunch and recession - those conditions might all still be in place today. Instead, we have an economy that is growing faster than the population and a financial system that is operating near normal territory. The skeptics declared a few years ago that the Fed's policies would trigger a crash in the U.S. dollar and a spike in inflation. So far though, such outcomes have not taken place. In fact, the Dollar Index is no lower today than it was in October 2007 - just before the economy began to turn south and the stock market was hitting a new all-time high. Looking back even more, I daresay that most people do not know that the Dollar Index is unchanged from where it was in the summer of 1992 - nearly 20 years ago. How has the dollar performed since Ben Bernanke took office as Fed chairman in February 2006? It has declined by about 11 percent. However, such a move blends in with the volatility in the dollar and other markets during the past six years. Before the Bernanke bashers get too excited about an eleven percent drop in the Dollar Index since Bernanke took over the Fed six years ago, they should swallow the fact that the U.S. stock market has gained 66 percent since President Obama took the Oath of Office and has gained 46 percent since its close the day after Obama won the November 2008 election. As you can see, things do not always go the way that the crowd predicts. In the case of the Fed's monetary policies leading to a collapse in the dollar (and thus collapses in the economy and the stock market), such predictions have proven to be a bust.

In the modern world, instant gratification and instant communication have changed the way people think and debate. Even with all of the information available to investors and others though, it seems like some very important facts and themes fall through the cracks. The louder and more ominous someone's predictions about America and its economy are these days, the more likely that people will listen. That is too bad, because such attributes do not guarantee that an opinion is any more valid than another. I think it is time to remind you why the Federal Reserve was created in the first place. And no - it was not part of a conspiracy to center power in Washington and hold down the masses. The U.S. Congress created the Fed in 1913. The American people were sick and tired of a half century during which speculators overbuilt major industries - only to stop all new investment and let the economy tumble into depressions - or panics as they were called at the time. Shrewd speculators made huge profits on the expansion phase, and then benefitted via short selling and eventually bargain hunting after the crashes came to an end. Americans were weary of the boom and bust cycles and the Congress created the Fed to try and smooth out the destructive swings in the economy.

Unfortunately, the Federal Reserve failed to live up to its mandate. During some periods (such as the early stages of the Great Depression) the Fed proved to be too timid and lacked a sense of urgency when it was needed. The Fed (run by human beings and therefore susceptible to the same forces as the rest of society) also had a history of being pushed and prodded by politicians, Wall Street, bankers and industrialists. As a result, there were periods in its history that the Fed failed to provide the nation and the economy with the kind of leadership that would have helped to greatly shorted downturns (like the Great Depression) and even avoid a number of crisis periods. During the past few decades though, the Federal Reserve has matured as the global economy has grown into a fast moving and complicated machine. Bernanke has done a good job so far. The arguments against him have now largely been relegated to what might happen down the line as a result of his past monetary policies. To say that his decisions of the past three years have been a failure is to ignore reality. The economy might be in the depths of a deflationary depression right now if Bernanke and others did not take the actions that the Fed failed to do back in the early days of the Great Depression - namely - provide the financial system with enough liquidity to keep the gears moving.

Sometimes, it seems that just about everyone bad mouths the Fed these days, yet it has managed to help "smooth out" the wrinkles in the economy during the past three years. Was Bernanke perfect? Did he foresee all of the risks to the economy from certain financial instruments? The answers are of course - no. I feel the need to point out that no one is perfect. Many of the analysts and commentators that are still holding part of the spotlight for correctly predicting the recession, financial crisis and/or housing crash back in 2007-2009 are good examples of that rule. After all, most of them failed to make the most of their predictions. While they helped prepare people for the declines and economic turmoil, their instincts failed them when it came time to change direction and turn bullish. The stock market and the economy have come a long way from the lows of three years ago. Bernanke got it wrong for a number of weeks or months. The bears and skeptics have gotten it wrong going on three years now.

At this point, it seems clear that a sense of pride has pushed many of the cynics to dig in and wait for things to fall apart. They have been hoping that debt problems in Europe would send the U.S. economy and stock market crashing lower. However, the European Central Bank's efforts to provide low-cost liquidity have helped to avert a severe credit crunch. While the broader problems involving sovereign debt and budgets remain in place, the euro nations have bought themselves some time. I have been seeing quite a few predictions in recent weeks about how the stock market is about to turn lower. There are supposed to be too many bulls and thus too much complacency. I like to leave such discussions to our affiliated Tillman Stock and Bond Hotline. Earlier this week, that Hotline made a case for the stock market confounding the bears and actually moving even higher in the near-term. In fact, an important technical buy signal was just triggered. It was only the third time such a buy signal was generated since the bull market began. Since then, the stock market has gained more than one percent and a broad measure of the stock market just hit its highest level since late July of last year. With the stronger than expected job report this morning, the market is likely to build on those gains moving forward. That is good news for America.

The government just released the January employment report. Nonfarm payrolls gained 243,000. That was stronger than most estimates going into the report (which ranged from 150,000 to 225,000). The unemployment rate (which remains deeply flawed and holds little interest for me these days) dropped from 8.5% down to 8.3%. The previous two months were revised higher by a total of 60,000 jobs - meaning that today's report was even stronger than the headline number. Nonfarm payrolls have now reportedly grown by a total of 3.165 million jobs since the low of the employment cycle in February 2010. They have gained a strong 1.953 million jobs during the past year. That smashes the case made by the army of bears that have been saying that the late 2011 gains in employment were all about hiring for the holidays. If that were actually the case, the economy would not have generated a net amount of nearly two million jobs from January 2011 to January 2012. Manufacturing reportedly added 50,000 jobs last month. That sector is now at its highest point since May 2009. Healthcare remains a major growth sector - with the industry creating a net 31,000 jobs last month and a total of 312,000 in the past year. Employment suffered even after GDP began to expand in the second quarter of 2009. However, the mechanisms of the marketplace have been playing their traditional roles and job growth has begun to accelerate. Things sure do look a lot better than many of the experts were predicting would be the case six months ago - after Standard & Poor's grabbed headlines by cutting America's credit rating. The people that were willing to look beyond such near-term action - and stayed long the stock market and made plans for economic growth - have benefitted. More next week.

Next hotline will be updated no later than 8:00 P.M. Eastern on Friday, February 10, 2012

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We need business experience in government.

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Recently, I sat down to discuss how the economic policies of the presidential candidates can affect different aspects of the economy, and what we can expect to see in the future. Click here to watch!

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