Wednesday, November 14, 2018

A Minsky Moment?

John Plender wrote in yesterday's Financial Times,  "Complacent investors face prospect of a Minsky moment."  

One observation is hard to quarrel with, to wit,  "It is historically atypical in that the central banks have been encouraging market participants through quantitative easing to take on more risk to help stave off a perceived deflationary threat. This was, in a sense, a perpetuation of the asymmetric policy pursued by the Federal Reserve before the crisis." we have seen the Greenspan Put on the stock market, the Bernanke Put on the housing market, and are we now seeing the Powell Put on the current bubbles?

Financial assets have grown rapidly relative to the stock of physical capital and certainly some bubbles have been inflated, most notably the growth of unicorns.

On the the hand, he claims hat that "Since the Trump tax changes (sic) are unlikely to have more than a modest impact on potential output, the economy, already close to full employment, could run into capacity constraints."  This is unduly pessimistic.  The Paul Ryan/ GOP/Trump tax cuts have dramatically reduced the cost of equity and, for well capitalized companies, for corporate investment in real capital.  Reducing marginal individual tax rates improves incentives to work.  The limit on state and local tax deductions reduces the tax incentive to drive prices up in the most expensive markets in the nation.

The supply side tax changes combined with the administration's deregulation initiatives has accelerated economic growth after the slowest economic recovery in a century.  Growth, the first real wage rate rises since the 1990s, and the improved incentives have increased labor force participation by attracting workers who have given up or face disincentives to taking paying employment.  Workers on disability have reentered the workforce.  Yes the unemployment rate is the lowest in forty-nine years, but the prime age employment ratio is still below its level at the beginning of the 2007-9 recession even though it is eleven years later.

Not only did the 2017 tax act create supply side incentives for the real economy (which Mr. Plender judges too weak), but it also reduced the tax incentive to over lever.  It limited corporations' ability to deduct interest expense and the lower corporate marginal corporate tax rates reduce debt's tax subsidy.  The debt binges by Netflix and Amazon among others is their last hurray.  

Citing Dr. Doom (Henry Kaufman), Plender worries that "the 10 largest financial institutions held about 10 per cent of US financial assets. Today the figure is about 80 per cent."  While that may reduce the liquidity of financial markets, but it also makes the banking sector more stable.  Canada with similar concentration for a century or more has not had a banking crisis since the 1840s.  A shift of capital raising from the financial markets to the commercial banks by itself would increase the potential for economic growth.  A key initiative by the Republicans with some bipartisan support is to reduce the regulatory burden of smaller banks that are not a systemic threat and shifting the emphasis from regulation to capital.


Thursday, March 29, 2018

A Mellienial Job Interview

An enjoyable way to learn what not to do in a job interview or just laugh at the gap between generations.



Beware: Boomers in positions of authority have longer job longevity that millennials  would think just.

Sexy is scary I

Butterwood argues in the Economist that the U.S. stock market is overvalued.  At 32.8, the Cyclically adjusted price earnings ratio (CAPE) is certainly pricey.  Perhaps that is one reason investors have backed off some of their love affair with FAANG stocks.

Buttonwood cites research by Research Affiliates, a fund-management group.
You can hear the authors of the research (
"Cape Fear: Why CAPE Naysayers Are Wrong"), Rob Arnott Vitali Kalesnik Jim Masturzo, explain their thesis in in this video.

Monday, November 13, 2017

GE Cuts Its Dividend and Its Stock Price Drops 7 1/2 %

GE has been much in the news.  It announced that it would cut its dividend in half.  While that would seem to have been much anticipated, the stock nevertheless dropped seven and a half percent.  Thomas Gryta reports in the Wall Street Journal:

"General Electric Cuts Dividend by Half and Slashes Profit Goals
Industrial giant to revamp board as new CEO pursues restructuring"

New SEC rules will make GE look worse still according to Tomi Kilgore on Market Watch,
"GE’s stock suffers worst day in 8 1/2-years after transformation plan unveiled," Nov 13, 2017

Thursday, October 19, 2017

What Happens to Tesla, If It Can Not Produce a Half Million Electric Cars Next Year?

In the Wall Street Journal (10/6/2017), we fin that "Tesla Needs to Pick Up the Pace of Production:" 7:00AM

Tesla's super automated car factory had to finish its cars by hand.  It produced 70% less than target. Elon Musk's electric-car company fell short of its third-quarter production goals. Is it too ambitious?

Monday, October 09, 2017

Is Amazon Vulnerable?

Amazon is the FENG Powerhouse. To avoid a regulatory crackdown, NYU's Scott Galloway says the e-commerce giant must take this defensive measure.

What is The Millennials' Biggest Investment Mistake?

Liz Ann Sonders of Charles Schwab speaks to Barrons about "The Biggest Mistake Millennial Investors Make." Gunshy from two grand bear markets, they fail to see that a market crash is not their only risk. Here's how to protect against other risks as well:

Tuesday, October 03, 2017

Sam Sdams Makes a Comeback

Barrons: "A New Twist for Boston Beer," 10/2/2017 8:11AM. After a 30-month slide, Boston Beer shares have staged a surprising turnaround.