https://risksandreturns.com/category/economy/ In search of asymmetric trading opportunities… en-US https://risksandreturns.com/2016/01/13/the-return-of-the-9798-playbook/ https://risksandreturns.com/2016/01/13/the-return-of-the-9798-playbook/ Wed, 13 Jan 2016 02:03:15 +0000 My long-term bullish outlook on US stocks is predicated on a US economy that continues to strengthen in the face of a global slowdown. This has happened before. FT Alphaville compares the current period to 1997/1998: https://risksandreturns.com/2015/01/28/us-economy-ready-to-heat-up/ https://risksandreturns.com/2015/01/28/us-economy-ready-to-heat-up/ Wed, 28 Jan 2015 02:37:05 +0000 Later this week the Bureau of Economic Analysis will report that the US economy wrapped up its 5th consecutive year of GDP growth. Since the average post-war expansion has lasted 5 years, it may feel like the current expansion is getting long in the tooth. However, rather than looking for a recession, I am of the view that the economy is on the verge of accelerating. https://risksandreturns.com/2009/02/18/what-caused-the-bust/ https://risksandreturns.com/2009/02/18/what-caused-the-bust/ Wed, 18 Feb 2009 20:47:48 +0000 Marc Faber, who predicted the economic and financial crisis, has written an excellent piece in today’s WSJ blaming government policies rather than the free market for getting us into the current predicament. Because of the government’s ineptitude he believes that the best solution is to do nothing and allow the free market to sort out the mess. https://risksandreturns.com/2007/12/12/dont-worry-mr-market-more-rate-cuts-are-on-the-way/ https://risksandreturns.com/2007/12/12/dont-worry-mr-market-more-rate-cuts-are-on-the-way/ Wed, 12 Dec 2007 10:50:31 +0000 As expected the Fed reduced by 25 basis points the funds rate to 4.25% and the discount rate to 4.75%. The stock market tumbled immediately after the announcement because there was hope that the discount rate would be cut by 50 basis points. Moreover, investors seemed to be concerned that the FOMC statement didn’t signal additional future rate cuts. https://risksandreturns.com/2007/09/26/economists-never-see-recessions-coming/ https://risksandreturns.com/2007/09/26/economists-never-see-recessions-coming/ Wed, 26 Sep 2007 20:33:21 +0000 The US economy is clearly slowing down and I believe a recession is inevitable. Wall Street economists have increased the odds of a recession occurring over the next 12 months to 36.3%, which means, as a group, they still think a near-term economic contraction is unlikely. I concede that these economists are better educated and more experienced than I am, so I have to question myself. What could make me more prophetic than the pros? https://risksandreturns.com/2007/09/13/jobs-data-suggests-recession-is-near/ https://risksandreturns.com/2007/09/13/jobs-data-suggests-recession-is-near/ Thu, 13 Sep 2007 20:07:41 +0000 The August nonfarm payrolls data caught many people off guard when it showed the economy shed 4,000 jobs during the month. This was the first loss in 4 years. And to add insult to injury payrolls for June and July were revised down by a combined 81,000 jobs. The large revisions are one of the reasons I ignore the freshly reported payrolls figure. https://risksandreturns.com/2007/08/28/the-financialization-of-the-us-economy/ https://risksandreturns.com/2007/08/28/the-financialization-of-the-us-economy/ Tue, 28 Aug 2007 19:52:17 +0000 A couple of insightful posts by Sudden Debt here and here elucidate how dependent the US economy has become on a growing financial sector: https://risksandreturns.com/2007/08/23/high-income-consumers-to-rein-in-spending/ https://risksandreturns.com/2007/08/23/high-income-consumers-to-rein-in-spending/ Thu, 23 Aug 2007 19:42:31 +0000 Consumer spending although not robust, has been growing despite the ongoing recession in the residential real estate sector. I have suggested some possible reasons why there is a lag between when the housing bubble started to collapse and when we would see a substantial decline in consumption. https://risksandreturns.com/2007/08/21/the-world-should-fear-a-us-slowdown/ https://risksandreturns.com/2007/08/21/the-world-should-fear-a-us-slowdown/ Tue, 21 Aug 2007 13:00:14 +0000 I am in the camp that believes the US will soon enter a period of economic stagnation or recession, which will significantly cut growth in most parts of the world. To elaborate, I am posting the following excerpt from the recent Quarterly Review and Outlook, Second Quarter 2007 from Hoisington Investment Management: https://risksandreturns.com/2007/08/01/a-credit-crunch-in-a-highly-leveraged-economy/ https://risksandreturns.com/2007/08/01/a-credit-crunch-in-a-highly-leveraged-economy/ Wed, 01 Aug 2007 19:35:04 +0000 The collapse of the subprime mortgage market has caused fixed income investors to demand higher risk premiums from not only all grades of residential mortgage-backed securities, but also commercial mortgage-backed securities, corporate bonds and debt from emerging markets. https://risksandreturns.com/2007/07/24/consumer-spending-is-beginning-to-falter/ https://risksandreturns.com/2007/07/24/consumer-spending-is-beginning-to-falter/ Tue, 24 Jul 2007 19:25:03 +0000 Excluding the decline in consumer spending during the second half of ‘05 due to hurricane Katrina, consumption has been the weakest since 2002. As depicted by the following graph, real personal consumer expenditures (PCE) has been nearly flat over the last four months: https://risksandreturns.com/2007/07/22/the-birthdeath-ratios-impact-on-the-jobs-data/ https://risksandreturns.com/2007/07/22/the-birthdeath-ratios-impact-on-the-jobs-data/ Sun, 22 Jul 2007 18:32:51 +0000 I no longer pay much attention to the BLS monthly employment reports because it later is often significantly revised by which time the report is useless as a forecasting tool. John Mauldin explains how the BLS is currently overstating employment numbers: https://risksandreturns.com/2007/06/10/jobs-data-monthly-vs-quarterly-surveys/ https://risksandreturns.com/2007/06/10/jobs-data-monthly-vs-quarterly-surveys/ Sun, 10 Jun 2007 13:18:10 +0000 The Bureau of Labor Statistics’ monthly survey of employers is a popular report that investors use to gauge the strength of the labor market. However, the numbers can be way off from reality. https://risksandreturns.com/2007/02/18/the-subprime-market-implosion-and-its-consequences/ https://risksandreturns.com/2007/02/18/the-subprime-market-implosion-and-its-consequences/ Sun, 18 Feb 2007 20:57:19 +0000 The subprime mortgage market has been dominating news lately with signs that rising defaults and delinquencies are wreaking havoc on the mortgage industry. Here are some of the headlines: https://risksandreturns.com/2006/10/16/how-much-does-housing-wealth-boost-consumption/ https://risksandreturns.com/2006/10/16/how-much-does-housing-wealth-boost-consumption/ Mon, 16 Oct 2006 19:35:53 +0000 No one will debate whether increasing home prices have had a positive effect on consumer spending. But there is considerable debate on how significant this effect is. I am in the camp that believes that the housing boom was the main contributor to consumer spending since 2001. https://risksandreturns.com/2006/09/24/the-coming-bear-severe-recession-part-3/ https://risksandreturns.com/2006/09/24/the-coming-bear-severe-recession-part-3/ Sun, 24 Sep 2006 19:06:07 +0000 I will build on my conclusions from the first two parts of this series to analyze where the economy is headed. In the first part I discussed why interest rates are heading higher. As a consequence, in the second part of this series I argued that the housing market will experience falling prices. If my predictions turn out to be correct, the economy will suffer a recession that would be even more painful than that of 2001.