The bull market in U.S. stocks, which started on March 9, 2009, gets little respect. Those who have been bullish, and right, are mocked as "perma-bulls," while "perma-bears," who have been repeatedly wrong, are quoted endlessly.
The Federal Reserve held interest rates unchanged following today's meeting, but also left a few clues that they see economic activity and inflation heating up more than previously projected. A rate hike in June looks all but set in stone, and today's statement is consistent with two more rate hikes in the second half of the year, for a total of four hikes in 2018.
Just a few weeks ago, the Pouting Pundits of Pessimism were freaked out over the potential for the yield curve to invert. They've now completely reversed course and are freaked out over a 3% 10-year Treasury note yield.
From mid-2009 through early 2017, the US economy grew at a real average annual rate of 2.2%. Not a recession, but not robust growth either, which is why we called it a Plow Horse Economy.
When the report on international trade came out earlier this month, protectionists were up in arms. Through February, the US' merchandise (goods only, not services) trade deficit with the rest of the world was the largest for any two-month period on record. "Economic nationalists" from both sides of the political aisle, think this situation is unsustainable.
An entire generation of investors has been misled about interest rates: where they come from, what they mean, how they're determined.
One of the most important questions we have about our country's future is whether prosperity itself will make the American people lose sight of where that prosperity comes from; whether we'll forget to cultivate the attitudes about freedom, property rights, and hard work that have made not only us great but also all the other places that have followed the same path.
Stock market volatility scares people. But, volatility itself isn't necessarily bad. Only if there are fundamental economic problems, something that could cause a recession, would we think volatility itself is a warning sign.
In his first meeting as Chair of the Federal Reserve, Jerome Powell and company delivered what almost everyone had been expecting, a 25 basis point hike in the federal funds rate, and raised expectations for economic activity in the months and years ahead.
In the history of the NCAA Basketball Tournament, a 16th seed has never, ever, beaten a one seed...until this year. But, on Friday, the University of Maryland, Baltimore County (UMBC) beat the University of Virginia – not just a number one seed, but the top ranked team in the USA.
The current recovery started in June 2009, 105 months ago, making it the third longest recovery in U.S. history.
The US doesn't face "secular stagnation" caused by outside or uncontrollable forces, like foreigners (and bad trade deals), technology that steals jobs, or Unions that are too weak. Growth is slow because government has grown too big.
Forgive us our incredulity. The bond vigilantes were certain that as the Federal Reserve hiked short-term rates, long-term interest rates would barely budge, the yield curve would invert, and the economy would fall into recession.
On March 9, 2018, the bull market in U.S. stocks will celebrate its ninth anniversary. And, what we find most amazing is how few people truly understand it. To this day, in spite of massive increases in corporate earnings, many still think the market is one big "sugar high" – a bubble built on a sea of Quantitative Easing and government spending.
The U.S. economy continues to be lifted by an incredible wave of new technology. Fracking, 3-D printing, smartphones, apps, and the cloud have boosted productivity and profits. Yet taxes, regulation and spending all increased markedly in the past decade, raising the burden of government and dragging down the real GDP growth rate to a modest 2.2% from mid-2009 to early 2017.
Last year US stock markets experienced the least volatile year on record, hitting new highs seemingly every day. Then came the tax reform bill to end 2017, and a huge January with the S&P 500 rising 5.6%. Investors, especially individuals who finally became convinced that the rally would go on, piled in.
Back in the 1970s, supporters of the status quo said there was nothing to be done about stagflation (high inflation and slow growth). It was a "fact of life" that Americans had to accept after experiencing faster growth and lower inflation during the decades immediately following World War II.
In Janet Yellen's swan song as Chair of the Federal Reserve, she exited on a quiet note. The Federal Reserve did what just about everyone expected earlier today, keeping short-term interest rates unchanged while providing forward guidance that economic growth remains on track for further hikes in 2018.
You know the old saying about every cloud having a silver lining? Well, if you listen to some of the financial press, you'd think their motto was that clear skies are just clouds in disguise.
We've called the slow, plodding economic recovery from mid-2009 through early 2017 a Plow Horse. It wasn't a thoroughbred, but it wasn't going to keel over and die either. Growth trudged along at a sluggish – but steady - 2.1% average annual rate.
The stock market is on a tear. The S&P 500 rose 19.4% in 2017 excluding dividends, and is already up over 4% in 2018. It's not a bubble or a sugar high. Our capitalized profits model, says the broad U.S. stock market, is, and was, undervalued.
Bonds have been in a "bull market" for the past thirty-seven years. Not every quarter, or every month, but bond yields have fallen consistently since Paul Volcker ended the inflation of the 1970s.
One word that could describe Donald Trump's unexpected ascendancy to the presidency is – "revolt." Revolt against the "establishment." Revolt against the "status quo."
The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was "no room for them in the inn."
Last December we wrote "we finally have more than just hope to believe that this year, 2017, is the year the Plow Horse Economy finally gets a spring in its step." We expected real GDP growth to accelerate from 2.0% in 2016 to "about 2.6%" in 2017.
The Federal Reserve did what just about everyone expected earlier today and raised short-term interest rates by 0.25 percentage points. The federal funds rate is now in a range from 1.25 - 1.50% and the Fed is now paying banks 1.50% on their reserve balances.
Models of the economy are pretty useful tools. And simple models are some of the most useful. They help people envision how the world works. They help organize thinking.
The Federal Reserve has a problem. At 4.1%, the jobless rate is already well below the 4.6% it thinks unemployment would/could/should average over the long run. We think the unemployment rate should get to 3.5% by the end of 2019 and wouldn't be shocked if it got that low in 2018, either.
Now that Black Friday has come and gone and Cyber Monday is upon us, you're going to hear a blizzard of numbers and reports about the US consumer. So far, these numbers show blowout on-line sales and a mild decline in foot traffic at brick-and-mortar stores.
We've called it a "Plow Horse" economy, which was our metaphor invented to counter forecasters who said slow growth meant a recession was on its way. A Plow Horse is always slow, but that slowness hides underlying strength – it was never going to slip and fall. Now, the economy is accelerating.
Are you an investor or a trader? Investors think long-term, while traders focus on short-term price movements.
Washington D.C. used to complain that Ronald Reagan employed a strategy of "starving the beast" – cutting taxes so that new spending was tough to legislate. Now, D.C. seems to employ the strategy of "gorging the beast" – spending so much that tax cuts are hard to pass.
The after effects of hurricanes Harvey, Irma, and Maria have done little to sway the opinion of Federal Reserve members that the economy is ready for further rate hikes. While leaving rates unchanged at today's meeting - as expected - they set the table for December.
The short-short list for new Fed Chair includes Janet Yellen, Fed Governor Jerome Powell and Stanford economist John Taylor, the author of the "Taylor Rule." Right now Jerome Powell – a former Wall Street executive at Dillon Reed – is the runaway favorite. Taylor and Yellen are a very distant second and third.
While tax cuts grab the headlines, the bigger issue for long-term economic growth is government spending. Tax receipts are above their long-term average as a share of GDP, but the government is still spending over $650 billion more than it takes in. And this government spending crowds out private sector growth.
Congress took a big step last week toward enacting some sort of tax cuts and tax reform. That big step was the US Senate passing a budget resolution creating the room for ten years of tax cuts totaling $1.5 trillion with a simple majority vote. This procedure means there is no need to break a filibuster by getting to 60 votes.
Next week, government statisticians will release the first estimate for third quarter real GDP growth. In spite of hurricanes, and continued negativity by conventional wisdom, we expect 2.8% growth.
If the current economic expansion lasts another year and a half, it'll be the longest on record, even surpassing the expansion of the 1990s that ended in early 2001.
Last week, at her press conference, Federal Reserve Chair, Janet Yellen said continued low inflation was a "mystery."
The big news today wasn't the Federal Reserve's decision to start gradually reducing its balance sheet in October. Almost everyone expected that. Instead, the big news was that twelve of the sixteen members of the Fed's interest-rate setting body – the Federal Open Market Committee – think the Fed will be raising interest rates by at least 25 basis points later this year.
No one expects the Federal Reserve to raise rates at the meeting this week. A rate change of any kind, either up or down, would be a complete stunner. Instead, the big news on monetary policy this week is very likely to be the Federal Reserve announcing it will begin gradually trimming its balance sheet at the start of October.
The Panic of 2008 was damaging in more ways than people think. Yes, there were dramatic losses for investors and homeowners, but these markets have recovered. What hasn't gone back to normal is the size and scope of Washington DC, especially the Federal Reserve. It's time for that to change.
The hits keep coming. Hurricane Harvey left destruction in its wake, and now, Hurricane Irma has Florida in its sights.
Think that title sounds familiar? It is. We've been here before. And, as before, the "debt ceiling" is a gold mine for some politicians, journalists and analysts. A possible government shutdown, or reaching a "hard" debt ceiling, are both fun for pessimists to talk about.
While the Sunday morning talk shows discuss the number of Civil War monuments that can dance on the head of a pin...and a rare Eclipse grabs focus...investors might be shocked at how the economy has accelerated.
The Trump administration took its first steps to address infrastructure Tuesday, with the president signing an executive order aiming to expedite environmental review and permitting processes. Some will decry the fact that these actions weren't accompanied by a multi trillion-dollar spending bill.
It's hard to read the business pages or watch the business news without seeing a story about the death of the consumer. In particular, the business press continues to be obsessed by relative weakness among traditional brick and mortar stores.
For many years now a relatively large contingent of analysts, investors and journalists has been convinced the stock market was in a bubble because the "Shiller P-E" ratio was just too high. Back on 8/12/2013, in our Monday Morning Outlook, we made our case that the Shiller model was too pessimistic. Now that looks like a pretty good call.
Yes, Friday's report of the Q2 real GDP growth rate was a little faster than average, but, with one exception, it remains the same Plow Horse it's been for the past eight years.
The Federal Reserve made no changes to interest rates today and made almost no changes to the text of its statement. However, the wording changes it did make strongly support our view the Fed will announce the start of balance sheet reductions at the end of its next meeting on September 20.
