The Federal Reserve is the 800-pound gorilla when it comes to factors affecting the economy and the capital markets. That’s generally understood, if not routinely respected. Yet this goliath remains a mysterious entity for most Americans. A new film attempts to peel away some of the inscrutability with what is ultimately a fascinating story of the power, glory, and failures of the Fed. Money For Nothing: Inside the Federal Reserve is a self-proclaimed “independent, non-partisan documentary film that examines America’s central bank from the inside out–in a critical yet balanced way,” according to the movie’s website.
Book Bits | 11.10.12
● Market Sense and Nonsense: How the Markets Really Work (and How They Don’t)
By Jack Schwager
Excerpt via publisher, Wiley
Many investors seek guidance from the advice of financial experts available through both broadcast and print media. Is this advice beneficial? In this chapter, we have examined three cases of financial expert advice, ranging from the recommendation-based record of a popular financial program host to an index based on the directional calls of 10 market experts and finally to the financial newsletter industry. Although this limited sample does not rise to the level of a persuasive proof, the results are entirely consistent with the available academic research on the subject. The general conclusion appears to be that the advice of the financial experts may sometimes trigger an immediate price move as the public responds to their recommendations (a price move that is impossible to capture), but no longer-term net benefit. My advice to equity investors is either buy an index fund (but not after a period of extreme gains—see Chapter 3) or, if you have sufficient interest and motivation, devote the time and energy to develop your own investment or trading methodology. Neither of these approaches involves listening to the recommendations of the experts.
Has Krugman Gone Too Far This Time?
If you’re looking for fresh insight into the dysfunctional thinking that impairs policy debates in the U.S., which in turns gums up the machine for doing the right thing on the federal budget in a timely manner, read Paul Krugman’s column today. The title says it all: Let’s Not Make a Deal.
Another Jobless Claims Report, Another Reason To Wonder
Did Hurricane Sandy distort last week’s jobless claims data? Possibly. One argument is that the storm kept people away from the unemployment offices and so last week’s decline in new filings for unemployment benefits dispensed an artificially low number. “Extreme weather can hold down filings initially, with people initially preoccupied,” says Jim O’Sullivan, chief U.S. economist at High Frequency Economics. “Claims are likely to be boosted in the next few weeks by hurricane-related job losses.”
New Filings For Jobless Benefits Continue To Decline
Jobless claims dropped again last week, offering more evidence for thinking that the October pop in new filings for unemployment benefits wasn’t a statistical harbinger of cyclical doom after all. Once again the lesson is clear for poking through this data set: remain wary of the latest update and instead focus on the longer-term trend. By that standard, the numbers suggest that modest healing in the labor market continues, a trend that’s been in force for most of the past 18 months.
Beware Of Zombie Recession Forecasts
With the election behind us and the fiscal cliff approaching, recession forecasting is in full swing again, and so it’s time once more to roll out the standard caveat—not all predictions are created equal. In fact, quite a lot of the opinions are of poor quality, largely because one or more of the following applies: 1) the predictions are driven by emotion; 2) the analysis relies on cherry-picking the data; 3) the analyst is generally misreading and abusing the economic signals and models; 4) the analysis is overly focused on recent data that’s probably infected with short-term/seasonal distortion; 5) the analyst has another agenda to promote that conflicts with objective macro analysis.
A Sober Wake-Up Call The Morning After
President Obama was re-elected yesterday, and we wish him well. But the news is already ancient, given the pressing demands of defusing the fiscal cliff threat–a deep round of tax hikes and spending cuts slated to start in January if politicians don’t intervene. Failure isn’t an option here, given the dire effects these cuts and tax hikes could inflict on the still-struggling economy. Unfortunately, that’s the likely scenario if politics as usual prevails in the weeks ahead. It’s hard to imagine anything else at the moment, given the rancorous, hyper-partisan atmosphere that’s defined the Beltway bunch for the past year.
Strategic Briefing | 11.6.12 | The Election & The Economy
Economy Set for Better Times Whether Obama or Romney Wins
Bloomberg BusinessWeek | Nov 4
No matter who wins the election tomorrow, the economy is on course to enjoy faster growth in the next four years as the headwinds that have held it back turn into tailwinds. Consumers are spending more and saving less after reducing household debt to the lowest since 2003. Home prices are rebounding after falling more than 30 percent from their 2006 highs. And banks are increasing lending after boosting equity capital by more than $300 billion since 2009. “The die is cast for a much stronger recovery,” said Mark Zandi, chief economist in West Chester, Pennsylvania, for Moody’s Analytics Inc. He sees growth this year and next at about 2 percent before doubling to around 4 percent in both 2014 and 2015 as consumption, construction and hiring all pick up. The big proviso, according to Zandi and Yale University professor Ray Fair, is how the president-elect tackles the task of shrinking the $1.1 trillion federal-budget deficit.
ISM Services Index For October Points To Continued Growth
Today’s update of the ISM Non-Manufacturing (Services) Index for October corroborates the upbeat news from its manufacturing counterpart. In short, the economy continues to grow, or so these two widely watched indicators from the Institute for Supply Management suggest. The expansion is still well short of strong growth, but it’s hard to make the argument that the economy is in danger of shrinking any time soon.
Q4:2012 U.S. GDP Nowcast Update | 11.5.2012
Will the rebuilding in the Northeast in the wake of Hurricane Sandy’s destruction juice the economy’s modest growth trend? It’s too early to know, but the possibility can’t be dismissed. For now, it’s time to establish a baseline of nowcasts for Q4:2012 GDP. The official estimate is scheduled for release via the Bureau of Economic Analysis in late-February, and so there’s a long road ahead in terms of economic updates. The journey starts here: The current average of our five econometric-based nowcasts anticipates real annualized Q4 growth of 1.7%, or down slightly from Q3’s official 2.0% estimate.