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  • The Plight of the Working Class

    In This Issue:

    The Plight of the Working Class
    Can You Say Jobless Recovery?
    Drowning in Debt but Getting No Growth
    The Cancer of Debt
    New York, Portland and La Jolla

    Clowns to the left of me, Jokers to the right,
    Here I am, stuck in the Muddle Through Middle with you!
    –With thanks to Stealers Wheel

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  • How We Get Through This Mess

    The group was a Vistage group in which my daughter Tiffani participates. This is an organization of 12 businesspeople (in this case all CEOs of small businesses) who meet once a month to share and learn about better business practices, accountability, planning, and all the aspects of running a business. Every person I have ever met who has been involved in Vistage has had good things to say about it. I have watched it help Tiffani a lot. She truly runs our business now, allowing me to read and write and travel and speak. I am a very lucky man and proud Dad.

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  • There’s a Slow Train coming

    The question before the jury is a simple one, but the answer is complex. Is the US in a 'V' shaped recovery? Are we returning to the old normal? A great deal hinges on the answer, and this week we look at some of the evidence before us.

    But first, a follow-up thought to last week's letter. I wrote about why countries can reduce their private debt, reduce their public debt or run a trade deficit, but not all three at the same time. If a country wants to see its government run a fiscal surplus (or small deficit) and at the same time its private citizens want to reduce their leverage (common desires throughout the developed world), it must run a trade surplus. That's a simple accounting statement.

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  • Reform We Can Believe In

    Casey Stengel, manager of the hapless 1962 New York Mets, once famously asked, after an especially dismal outing, 'Can't anybody here play this game?' This week I ask, after months of worse than no progress, 'Can't anybody here even spell financial reform, let alone get it done?' We are in danger of experiencing another credit crisis, but one that could be even worse, as the tools to fight it may be lacking when we need them. With attacks on the independence of the Fed, no regulation of derivatives, and allowing banks to be too big to fail, we risk a repeat of the credit crisis. The bank lobbyists are winning and it's time for those of us in the cheap seats to get outraged. (And while this letter focuses on the US and financial reform, the principles are the same in Europe and elsewhere, as I will note at the end. We are risking way too much in the name of allowing large private profits.) And with no 'but first,' let's jump right in.

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  • Is This a Recovery?

    Last week I wrote a letter to my kids trying to explain what Greece meant to them. Reader Ken V wrote: 'Great letter, John. Now you should write one for the adults who are retired and don't have the long future your kids do. If the US becomes Greece, things won't recover in time for much of the rest of my life to be more than one grim, dreary period. What is your investment advice for those with roughly a 10 year horizon, not 30-40-50 years?'

    A very good question Ken, and one that was asked more than a few times. So today, I will touch on that thorny issue, as well as look at the employment numbers for what we see about the potential for an actual recovery.

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  • This Time is Different

    When does a potential crisis become an actual crisis, and how and why does it happen? Why did most everyone believe that there were no problems in the US (or Japanese or European or British) economies in 2006 and now we are mired in a very difficult situation. 'The subprime problem will be contained,' said now controversially confirmed Fed Chairman Bernanke, just months before the implosion and significant Fed intervention. I have just returned from Europe, and the discussion often turned to the potential of a crisis in the Eurozone if Greece defaults. Plus we take a look at the very positive US GDP numbers released this morning. Are we finally back to the Old Normal? There's just so much to talk about.

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  • The Age of Deleveraging

    This is the season when pundits feel compelled to make annual forecasts. I will make mine, as I traditionally do, in the first letter of January. But already we have seen a wide range of forecasted outcomes. Are we going to grow at 5-6% or at 1-2% or dip back into recession? Why such disparity? I think part of the reason is a basic disagreement on the nature of the just-lapsed recession. Today we explore that issue. Then I point you to a way to help those who are desperately in need and only wish they had our problems. For those interested, I enclose a picture of my new granddaughter.

    And finally, I start the process of getting ready, after ten years, to actually buy some stocks. Yes, it is true. Am I throwing in the towel and becoming a bull, or do I just see an opportunity? Stay tuned.

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  • Thoughts on the Statistical Recovery

    We are clearly starting to get some better data points here and there. But as I pointed out this summer, it is going to be a recovery in the statistics and not in the things that count, such as income and employment. This week we look at the nascent recovery (which could be at 3% this quarter) and try to look out into the future to see what it means. We look at how recoveries come about, and why I am concerned that we will see a double dip recession. Plus, I learned some new tricks courtesy of my new granddaughter which Tiffani had this week. There is a lot to cover, but it should be interesting.

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  • If This Is Recovery…

    No one goes into Wal-Mart and asks to pay extra sales tax. Thus sales taxes are reasonable barometers for retail sales. This week we look at how taxes are doing in a period of economic recovery. Then we turn our eyes to a very interesting (and sobering) analysis of possible future unemployment rates. This is an anecdote to the happy-face analysis of employment numbers you get from establishment economists. There will be a lot of charts and tables, so this letter may print a little longer, but I think you will find it very interesting.

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  • Welcome to the New Normal

    Unemployment is high and rising. But if the recession is over, won't employment start to rise? The quick answer is no. We look deeper into the Statistical Recovery and find yet more reasons to be concerned about near-term deflation. This week we consider all things unemployment and ponder the need to create at least 15 million jobs in the next five years to return to a full-employment economy - and the implications for both the US and world economies if we don't. Economic is often about what we can clearly see, and yet it is understanding what we can't see that gives us true insight. We start with a collection of facts that we can see and then begin a thought exercise to find the implications.

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  • The Statistical Recovery, Part Three

    This week we further explore why this recovery will be a Statistical Recovery, or one that, as someone said, is a recovery only a statistician could love. We look at capacity utilization, more on housing, some thoughts on debt and deflation, and some intriguing charts on volatility in the last secular bear-market cycle. This letter will print a little longer, but there are lots of charts. I have written this during the week, and I finish it here in Tulsa, where Amanda gets married tomorrow. (There is no deflation in weddings costs!)

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  • The Statistical Recovery, Part 2

    A few weeks ago I first used the term 'statistical recovery' to describe the nature of today's economic environment. Today we are going to further explore that concept, as it is important to have a real understanding of what is happening. This coming 'recovery' is not going to feel like a typical one, and those expecting a 'V'-shaped recovery are simply making projections from previous economic recoveries, which, based on the fundamentals, are not warranted. And of course, a few thoughts coming back from Maine are in order. There is a lot to cover, and this may take more than one letter.

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  • The Statistical Recovery

    A lot of bullish commentators are talking about a recovery being in the works, and they may very well be right. But it is not going to look like any recovery worthy of the name. This week we look at what I will call The Statistical Recovery. But first, we take a look at what China is doing, as we continue our look at the rest of the world and ponder if it is time to brace ourselves for an extended bout of the Muddle Through Economy*. (And yes, there is an asterisk.)

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  • The End of the Recession?

    Last week we began a series on data abuse, about how various commentators twist and torture data to make it say what they want, or fail to look at the details underneath the headlines. Predictably, there is a lot of fodder this week as we forge ahead into this ripe territory. The headlines screamed that US income data went up unexpectedly. Green shoots were everywhere. But if you look at the actual data, you find something much different. And, I keep hearing the insistent refrain that the market is telling us that the recovery is around the corner. Well, the recovery may be, but can the market really tell us that? I have about 25 windows open in my computer, with tons of misleading data. Let's see how much we can cover in this week's letter....
  • This Time its Different*

    I have often written that the four most dangerous words in the investment world are 'This Time its Different.' If memory serves me, I have written several e-letters disparaging various personages who have uttered those very words, only to find out later that it wasn't different. It almost never is. And yet - and yet! - I am going to make the case over the next few weeks that it really is different this time, with only a lonely asterisk as a caveat. What prompts my probable foolishness to tempt the investing gods in going so far out on a limb is the rather large amount of bad analysis based on unreasonable (dare I say lazy or surface?) readings of statistics that is coming from the main stream investment media and investment types with a built in bias for bullish analysis. Normally, gentle reader, your humble analyst is a paragon of moderate sensibilities, but I have been pushed over a mental edge and need to restore balance. I anticipate that this topic will take several weeks, as trying to cover it all in one sitting would exhaust both of us. It should be fun. But first...

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