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The Bush Boom
Recession? Not So Fast, I Say The Wall Street Journal — daily watering hole of the market bears — titled its Wednesday page-one economic report: “Recession? Not So Fast, Say Some.” With a question mark safely inserted before the bull case, and the idea of a non-recession safely relegated to “some say,” the Journal’s status as pessimism central remains intact. But as a member of the “some say no recession” camp, I’m here to say the economy still looks pretty good. To view the chart and entire article, click here.
Posted by Jerry @ May-16, 12:01 pm
Contra the Recessionistas Hat tip to my friend Larry Kudlow, official coiner of the term “recessionistas.” What is a recessionista, you ask? When you see reporters badgering the president for not admitting that “we’re already in a recession,” you’re seeing the recessionistas. When you hear financial pundits confidently asserting — without the slightest hint of self-doubt — that we’ve entered a recession, you’re hearing the recessionistas. To view the chart and entire article, click here.
Posted by Jerry @ May-16, 11:54 am
Okay, Fairtaxers is General Motors a hobby? Here’s my rough and very partial list of questions which remain unanswered by the fairtax faction: Since there is already some degree of cheating and complexity in presently existing sales taxes at the state level and in other countries, why would that problem not increase in a situation in which all our taxing is focused on sales, especially since a national sales tax would have much higher rates than our local sales taxes do? How in the world do you expect to amend the constitution, which is extremely difficult to do, in order to promote a tax which shifts burden onto groups such as retailers, pubs and restaurants which have great grassroots contact and are geographically well distributed? Related point, how do you think another well distributed interest group will respond when it becomes widely known that the fairtax would force churches to tax their sales of Bibles? That’s right, you read correctly. I took your advice and made another visit to www.fairtax.org where I read this sentence tucked away toward the end of the section on not-for-profit companies: “Also, the sale of Bibles by a church is taxable.” Do you honestly think that you can skip over something like 1,000 years of legal wrangling about state taxation of churches without so much as a peep out of the churches? Good luck with that. How is it fair to tax, not only a purchase, but a substantial portion of the interest cost associated with that purchase? That’s right, houses, cars, anything purchased on credit would tax a portion of the interest, not just the sales price. While you ponder those, here’s another: Is General Motors a hobby? You see, the fairtax exempts businesses from taxation associated with their business activity. Of course that creates all sorts of opportunities for avoidance. Can I declare the time I spend painting my house last fall a business and deduct the paint? Can I form a catering service and cater my own parties. The fairtaxers tied to close that loophole by saying that if your business doesn’t make money in at least two of the last three years, it would be classified as a hobby, and lose it’s exemption. GM has lost money for the last three years, therefore it is a hobby and would not be exempt under the fair tax. How about all the tech companies which ran losses for years before breaking even, Amazon, Yahoo, Google, etc. Hobby, hobby, hobby and hobby. That’s right, just when you’re in the hungry years, startup phase of a rough business environment, the fairtax hands you a massive tax hike. How fair does that sound to you?
Posted by Jerry @ Feb-07, 11:00 am
X-File Economists Gone Wild This is one of those articles I shouldn’t have to write. The world should be less crazy, I say to myself. People should ignore wack-a-doo conspiracy theories, I insist. And if I spend too much time visiting crazy town, I’ll become crazy myself. Give it a little time, I chant, and it will all blow over... To view the entire article, click here.
Posted by Jerry @ Jan-11, 1:15 pm
MSM Misses on Mortgage Rescue Last week President Bush and Treasury Secretary Paulson announced that the major players in the mortgage credit disruption had come to a consensus on how to move forward. They pointed to a statement put out by the American Securitization Forum which represents the people who own and who service the vast majority of American mortgages.
Posted by Jerry @ Dec-17, 1:49 pm
How a Misunderestimated President Saved a Broken Mortgage Market I just got off a conference call with the White House, and I’m very happy. Last August, I published an article here on Townhall called “A Presidential Moment” in which I said that Fed rate cuts, though a step in the right direction, would not be enough to fix our dysfunctional credit markets. Government regulation and Greenspan’s Fed mismanagement had done too much damage and the president was going to have to lead. I didn’t want him to bail anybody out, or tear up people’s mortgage contracts; I just wanted him to get the right private sector leaders in the same room where they could hash out a plan. When the plan, was finished, I wanted the president to use his bully pulpit to tell the world – borrowers, lenders, investors and citizens – what the plan was.
Posted by Jerry @ Dec-17, 1:48 pm
Appreciation: How Gratitude Leads to Growth I have a friend who was always trying to talk me into being part of his next business idea. Media, finance, health care—it didn’t matter which sector, he’d always say the same thing, “Jerry, it’s gonna be bigger than Microsoft.” I’d always nod and smile. Then I would change the subject back to the insurance firm that he already owned. How are your profits? Who’s your best producer? Are you controlling your costs? I knew that would end the conversation pretty quickly, because talking about the business that he already owned was boring to him. It shouldn’t have been; he’d built it from nothing and was beginning to break into the middle tier of his industry. He never made it, though; he’d siphon all his best people off to his whim of the month, left the running of his core business to one of his mediocre guys, and, in the end – bankruptcy. The problem, I think, was ingratitude. To read the entire article, click here.
Posted by Jerry @ Nov-21, 11:58 am
800 Dollar Gold in Plain English ...This used to be a very obscure debate. Some free market economists (like the great Steve Forbes and the late Jude Wanniski) have held that gold prices can be used to predict future inflation, but some (such as Art Laffer and Larry Kudlow) do not. I started writing about this topic in 2004, but I got a very negative reaction from many people with whom I usually agree on the big issues. I decided to tread lightly and focus most of my attention on the questions on which my friends and I agree. The problem is that this obscure question about economic growth, inflation and gold prices has now moved to center stage. In the annals of economic history, it’s what 2007 will have been about... To view the entire article, click here
Posted by Jerry @ Nov-14, 12:03 pm
Jobs Report in Plain English I do a lot of interviews on radio call-in shows. The most common phone call goes something like this: “Why isn’t there something out there that explains what’s going on in the economy in clear English?” To the many talk radio callers, cameramen who’ve helped me do satellite hook-ups with TV shows, and waiters who’ve approached me to follow-up on one of my speeches, I say: This column’s for you. To view the entire article, click here
Posted by Jerry @ Nov-05, 3:05 pm
Hawks, Doves, Vultures, and Chicken Littles My e-mail inbox is usually near full these days. That’s what happens when people are confused about the markets. But necessity, as they say, is the mother of invention, and I’ve used this deluge to improve my computer filing system. Rather then let my e-mails stack up on top of each other, I now place them in specially marked folders, according to their economic species. Herewith, my folder headings and cataloguing criteria: The Hawks (inflation hawks, that is): These folks believe the Fed is pumping too much money into the economy and that it should have raised the fed funds rate a long time ago, at least to 6 percent. We’re about to enter an inflation meltdown, they tell me. “Just look at the gold price.” The problem with this view is the timing. The chart above describes how the Fed was at its loosest four years ago. One year later, once that money worked its way through the system, voilà: Inflation peaked. It’s been mostly downhill since then. If the inflation hawks are right and the fed funds rate should be at 6 percent, they must have been in hawk heaven during August’s credit crunch. For one brief shining moment interest rates soared and the stock market tumbled. Fortunately, the Fed recognized the money shortage and opened the monetary spigots. Markets improved. I will here note that many inflation hawks are on the supply-side of the ledger, and that some are among the smartest forecasters in the business today. I disagree with them only sometimes, and I always worry when I do. The Doves (inflation doves, that is): Members of this group note that there was in fact significant inflation after the Fed’s money flood in 2003, as would be expected, but that the excess money was soon absorbed in a growing economy. The views of the doves seem to fit reality best, although there’s a danger of complacency. For instance, the Bush administration has a history of flirting with attempts to weaken the dollar. The fact that we don’t have much inflation is no reason to get so confident that we can risk a run on the dollar on which billions of people depend. Larry Kudlow uses the evocative phrase “king dollar.” And while the king doesn’t need to be propped up by excessively tight money, neither should he be unceremoniously shoved off of his throne by protectionist China bashers, inside or outside the government. The Chicken Littles: At the moment these guys are, to mix my metaphors, in the catbird seat. They dominate the financial newsprint and the punditocracy, although consistency is not their strong suit. Sometimes they say we’re heading toward high inflation, but at the same time they maintain we’re in the throes of a huge housing-price drop (which would be deflationary). They worry about the dollar falling while they sweat over rising imports (even though falling dollars are supposed to cut imports). They say people have too much debt (which they call “leverage”) and then worry that the “negative wealth effect” of a housing slump will cause people to stop spending as much. They worry one day that the mortgage industry says “yes” too often (leading to more sub-prime worries) and the next that the mortgage industry says “no” too often (darkening the outlook for the homebuilding sector). They’re stuck on a permanent loop of doom that’s built of varying and often contradictory rationales. But don’t hate the Chicken Littles. Pity them. How’d you like to live like that? The Vultures: These are the smart-money folks. They probably don’t like being called “vultures,” and you can call them “opportunistic investors” if you like. I call them, well, when I need to borrow money . . . (Kidding.) The vultures see the gap between the lay of the land and what the Littles are saying, and they buy the difference. The most important thing I recently learned about sub-prime mortgages is that Wilbur Ross is buying into them. (Full disclosure, I privatized an airport with Mr. Ross in the mid-1990s. I was on the government side and he was with Rothschild Bank.) Hedge funds are lining up to buy Northern Rock, and Countrywide popped in price big-time last week. Meaningful? Yes. When people who don’t know their Alt-A’s from their control-alt-deletes are waxing eloquent about the dangers of the mortgage markets, billionaires are quietly buying. * * * So there’s my new filing system. I don’t want to egg anybody on, but I welcome continuing comments from all species. Send them by owl or carrier pigeon, but be patient; this is not the kind of issue that can be settled in one fell swoop. To see the chart, click here
Posted by Jerry @ Nov-01, 1:24 pm
The Credit Crunch It’s pretty simple really. The Federal Reserve Bank creates and destroys money. It has had that power since it was created in 1913. The trick is getting the supply of money right – not too much, not too little. But the Fed didn’t get it right. They printed too much money in 2003, and too little in 2006. Hence, the crisis. To read the entire article, click here.
Posted by Jerry @ Oct-04, 12:27 pm
Human Events: Black and White and in the Red All Over Take a look at the attached stock price chart and you get some idea what it must feel like to be one of the owners of the New York Times. Over the past couple of years, the poor souls who were trusting enough to buy into the New York Times Company have been repeatedly beaten with a stick. Stock in the Times Company lags the Washington Post, the Dow Jones Industrial Average and, worst of all, Rupert Murdoch’s Newscorp by a mile. No doubt you can find a worse investment, sub-prime mortgage companies perhaps, but it would hard to do so.Take a look at the attached stock price chart and you get some idea what it must feel like to be one of the owners of the New York Times. Over the past couple of years, the poor souls who were trusting enough to buy into the New York Times Company have been repeatedly beaten with a stick. Stock in the Times Company lags the Washington Post, the Dow Jones Industrial Average and, worst of all, Rupert Murdoch’s Newscorp by a mile. No doubt you can find a worse investment, sub-prime mortgage companies perhaps, but it would hard to do so. To read the article and see the charts, click here.
Posted by Jerry @ Sep-26, 3:40 pm
TCS Daily: Shakespeare vs. Larry Craig ...Renaissance era Vienna was a moral cesspool. Brothels were everywhere, marriage was disappearing and the resultant army of unfathered children created a crime wave. The Duke of Vienna decided to go on a 'listening tour' of the city. He donned a monk's habit and wandered the streets incognito with his face covered and his eyes and ears open. He needed to leave the government in strong hands and he chose Angelo, a strict and puritanical conservative to rule in his stead. Angelo looked upon the moral chaos of the city and decided to reinstitute an ancient tradition - hanging for fornicators... To read the entire article, click here
Posted by Jerry @ Sep-07, 11:25 am
BuzzChart: Real Women Have Upward-Sloping Income Curves Last week the U.S. Census Department released its annual survey of poverty, income, and health-insurance coverage. Since the poverty and income have improved, the press has focused almost exclusively on health insurance. That’s a pity, because we’ve heard a drumbeat of outrage since the 1960s about how “a woman only makes 59 percent of a man’s income.” Aside from the fact that this stat fails to compare people of different genders performing the same work, it’s also hopelessly out of date. That number is now 77 percent. This highest level of income equality ever — and it happened under a Republican president. To read the entire article, click here
Posted by Jerry @ Sep-07, 11:20 am
Phllips Heads Screw Drivers Most analysts scoured this week’s Fed Minutes looking for clues as to what they’re going to do. I scoured them looking for some explanation for why they haven’t done what the stock, bond and commodities markets know they should have done already. Bad policy comes from bad ideas. What bad idea has been knocking around in the collective known as the FOMC. You don’t need to read all four pages, all you need to see is one paragraph. Here’s the (why we don’t have enough) money shot: Participants generally expected that core inflation would edge lower over the next two years, reflecting a slight easing of pressures on resources, well-anchored inflation expectations, and the waning of temporary factors that had boosted prices last year and early this year. Participants anticipated that total inflation would slow as well, particularly if market expectations of a modest decline in energy prices in coming quarters were to prove correct. But they were concerned that the high level of resource utilization and slower productivity growth could augment inflation pressures. Against this backdrop, the Committee agreed that the risk that inflation would fail to moderate as expected remained its predominant policy concern. In the Bowyer English Version: Even though inflation has been going down and probably will continue to fall, we’re going to starve the banks of cash because some long-dead central planner named AW Phillips said that growth is bad for prices. When entrepreneurs and investors create too much wealth, our job is to yank back on the chain as hard as possible. The drivers of growth must be punished, otherwise everybody’s going to get a little too excited, and then prices will rise. Better to risk a deflationary recession than to let the drivers drive too fast. Phillips was, by all accounts, a fine engineer and a war hero to boot. But he was an awful economist and has done enormous harm. It’s time for Bernanke to stop listening to the Phillips heads who dominate the Fed staff cubicles and start listening to the markets.
Posted by Jerry @ Aug-31, 2:47 pm
Here's another Kudlow suggestion Here's another Kudlow suggestion which is being implemented. The Fed in the usual Thursday repo actions took mortgage bonds as collateral. Larry called for that two weeks ago and Larry Lindsay and Robert Shiller and even Bob McTeer turned their noses up at the idea. A week ago the Fed did it - they accepted mortgages as collateral. What a difference two weeks makes. This action increases confidence in the securities that lie at the foundation of our credit system at the same time that they increase banking system liquidity. The crisis is not over yet, but we're moving in the right direction. First lender of last resort (discount window), next liquidity (open market operations pushing the fed funds rate below official target rate), now changing collateral requirements to shore up confidence in a sound security which has been beaten down by panic. We're getting there. I'll outline a bit later where we need to go from here.
Posted by Jerry @ Aug-30, 10:50 am
Also, did you see the census report coverage in the papers this morning? I eagerly read through the annual Census report on income and poverty. The poverty rate is down in 2006. Actually it was down in 2005 as well, but by a small increment. So poverty dropped two years in a row. Income rose above the rate of inflation. Immigrants’ income rose faster than average. Single mothers, too. Oh and by the way, the gap between male and female income is the lowest ever recorded. This is the closest we’ve ever been to gender equality. So, I turned to the New York Times and what did I see (comin’ forth to carry me home)? That’s right - a funeral dirge. The AP wasn’t much better. I’ll grab some highlights for you from the report itself, and from the gloomy coverage. I’ll probably write a full column about this in the next couple of days – “Poverty Falls, Women and Minorities Hardest Hit.”
Posted by Jerry @ Aug-29, 12:18 pm
Angell Investors I'm sure you saw last Thursday's WSJ piece by Wayne Angelle. Great stuff. Wayne makes the case as he did on Kudlow & Co. last week, that the Fed was too loose in 2003, and then too tight in 2006. This is the classical central bank historical pattern - overshooting. Too loose - inflation. Then too tight - deflation. Then repeat. It happens even when the Fed uses a price rule (as opposed to the disastrous fine-tuning the economy approach) because they almost always do it by looking backward. That's like trying to drive by looking through the rear-view mirror. Anyone who watched Kudlow & Co last week already knew the stuff in Wayne's article, which is an interesting point in and of itself. The Wall Street Journal used to be the intellectual center of Reaganomics, now it's shifted to weeknights at 5 pm on CNBC. The credit crunch was worked out in real time there last Wednesday. Larry said that the Fed needs to reassert it's historic role as 'the lender of last resort', and Wayne Angelle said that a cut in the discount rate is the right tool to do it. Within 72 hours - viola - the rate was dropped and the markets stabilized. Lower the Fed Funds Rate - WSJ.com Now we'll see if the Fed is willing to keep at it and essentially acknowledge what has already happened - a cut in the Fed Funds rate. The Fed has asserted it's lender of last resort function (with Friday's discount window action); it's time for them to reassert their role as a provider of currency to the nation. The disinflationary signs have moved from housing to credit markets, how far do they have to go before the Fed takes its eye off the rear-view mirror and places them on the road ahead?
Posted by Jerry @ Aug-29, 12:17 pm
Obama, Our "Fine" Leader Hey guys, here's another we're-from-the-government-and-we're-here-to-help-you idea. This one's from Obama in this morning's FT - it's filled with fines, re-regulation, and criminal penalties for 'unscrupulous' lenders. A witch hunt against lenders, doesn't that sound like a great way to get the credit markets functioning again? Deflationary risk is still there, and the Fed needs to do their part, but political risk needs to be addressed too, and the President needs to do his part. Here are the highlights: "The implosion of the subprime lending industry is...a cancer that, given today's integrated financial markets, threatens to spread with devastating impact to housing and to our economy as a whole, unless we act to contain it...a parable about how an excess of lobbying and influence can defeat common sense rules of the road, placing both consumers and our nation's economic well-being at risk...our government failed to provide the regulatory scrutiny that could have prevented this crisis... The real victims...are the millions of borrowers who followed the rules, whose only crime was taking out mortgages that lenders told them they could afford...a fund to avoid foreclosure....partially pay for this fund by imposing penalties on lenders that acted irresponsibly or committed fraud....We need to update these rules for the 21st century and enact the regulatory and disclosure laws that the mortgage industry has been lobbying against...I have also introduced a bill in the US Senate called the Stop Fraud Act that would treat those who commit mortgage fraud as the criminals they are....stop the unlicensed, unregulated, fly-by-night mortgage brokers..." - Fine Unscrupulous Lenders
Posted by Jerry @ Aug-29, 12:10 pm
Angell Investors I'm sure you saw last Thursday's WSJ piece by Wayne Angell. Great stuff. Wayne makes the case as he did on Kudlow & Co. last week, that the Fed was too loose in 2003, and then too tight in 2006. This is the classical central bank historical pattern - overshooting. Too loose - inflation. Then too tight - deflation. Then repeat. It happens even when the Fed uses a price rule (as opposed to the disastrous fine-tuning the economy approach) because they almost always do it by looking backward. That's like trying to drive by looking through the rear-view mirror. Anyone who watched Kudlow & Co last week already knew the stuff in Wayne's article, which is an interesting point in and of itself. The Wall Street Journal used to be the intellectual center of Reaganomics, now it's shifted to weeknights at 5 pm on CNBC. The credit crunch was worked out in real time there last Wednesday. Larry said that the Fed needs to reassert it's historic role as 'the lender of last resort', and Wayne Angell said that a cut in the discount rate is the right tool to do it. Within 72 hours - viola - the rate was dropped and the markets stabilized. Lower the Fed Funds Rate - WSJ.com Now we'll see if the Fed is willing to keep at it and essentially acknowledge what has already happened - a cut in the Fed Funds rate. The Fed has asserted it's lender of last resort function (with Friday's discount window action); it's time for them to reassert their role as a provider of currency to the nation. The disinflationary signs have moved from housing to credit markets, how far do they have to go before the Fed takes its eye off the rear-view mirror and places them on the road ahead?
Posted by Jerry @ Aug-29, 12:06 pm
Ask Jerry - Are people still making money on the real estate boom? I really do not understand what's going on, that's certainly a given, but are people still making money on the real estate boom? RR ---------------- Good. A teachable moment. I don’t fully understand what’s going on either. Here’s what I do know: The Fed was too loose 2003-2004. They pumped money into the system and a lot of it went into home loans. This created a sub-prime bubble. The Fed got very tight very quickly after that, no more air for the bubble. The sub-prime market contracted. The sub-prime market is very small, a burst bubble there is not large enough to cause what we’ve been seeing in the markets. There is a disruption in the financial system, a kink in the hose somewhere between lenders and home-buyers. This is big enough to cause the recent instability. I’m long homebuilders, but not real estate. I predicted a ‘pop-free’ slowdown a year ago. We’re still in it. Some people see a bubble bursting, I don’t. Home prices are down 2.8% as of a year ago – not exactly a collapse. That’s according to the, more pessimistic, Case-Shiller Index. Some indices see smaller or even no declines. The bigger problem for the economy is home-building. It’s a big industry and it depends on the home mortgage industry. With a credit disruption, lenders don’t want to say yes. If lenders don’t say yes to mortgages, builders can’t sell houses. If builder’s can’t sell houses, they stop building them. If they stop building them, they lay off workers. Hope this helps, Jerry Bowyer
Posted by Jerry @ Aug-28, 11:24 am
BuzzChart: Helter Shelter ...The sub-prime problem never had to do with the default rates among sub-prime borrowers. As I (and Larry Kudlow and Ben Stein and Neil Cavuto) have been saying over and over, that market just isn’t big enough. The problem is fear of backlash. Whether the issue is “managed earnings,” as in the case of Enron, or backdating options, as in the case of Apple, there is a pattern. A market corrects, people who are long on that market get hurt, the media blows the issue vastly out of proportion, politicians grandstand, Congress over-regulates, and a cloud of lawyers comes swarming across the plain laying waste to everything in sight... To read the entire article, click here
Posted by Jerry @ Aug-27, 4:17 pm
TCS Daily: Bard for Life ...Next time you read a newspaper, I want you to try the Much Ado about Nothing Analytical Tool. In the left column you put sentences with stats based on an actual count of something real - jobs, dollars, interest rates, prices. Quotes, if they are substantial, go in the left column too. Actual events like hurricanes, elections, wars and terrorist attacks are definitely left column material. Your right column is for sentences with words like 'worries', 'concerns', 'expectations' or 'believes'. Unattributed quotes go on the right, as do short quotes. Opinion polls go on the right. This includes opinion polls masquerading as economic stats like consumer confidence, or business confidence. Elections and futures markets, however, go on the left. 'Sub-prime jitters' is a left column thing... To read the entire article, click here
Posted by Jerry @ Aug-24, 10:54 am
Harry Potter and the Great Relearning ...It's perfectly evident to me that the Potter books are a 'gateway drug,' so to speak, to three millennia of great literature. Why else would Rowling have had the first book translated, at her own personal expense, into ancient Greek and Latin? Is there a lucrative market for what we used to call 'the sacred languages'? Look at the sales ranks of the books on Amazon, and you'll see that these translations are a labor of love. Love of what? Love of learning. Why else would Rowling put so much Latin into these books? Why all the myriad of literary references, from "Guinevere" Weasley (daughter of Arthur) to a tattling little cat named Mrs. Norris? (Read Austen's Mansfield Park for more.)... To read the entire article, click here
Posted by Jerry @ Aug-22, 10:35 am
Give Credit Where Credit Is Due ...It’s also not a sub-prime problem. You heard me right. The media has been obsessed with this theme, but even the media has to acknowledge that a 10,000 or 20,000 jump in the number of sub-prime foreclosures cannot possibly be responsible for the current credit crunch. Where is the problem?... To read the entire article, click here
Posted by Jerry @ Aug-17, 10:36 am
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