Impact Of Government Stimulus On GDP

John B. Taylor had a blog post on May 1, 2010 that discussed the impact of government stimulus on GDP.  The post is titled "Latest Data Continue to Show Little Impact of Government Stimulus on GDP."
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One of the reasons that I write extensively about interventions, which includes stimulus programs,  is that I believe we, as a nation, will continue to do them.  This is highly problematical for a number of reasons.  I've previously written of this issue in the article "My Overall Thoughts On The Bailouts, Stimulus Measures and Interventions".


SPX at 1171.67 as this post is written

The Loss of Manufacturing In The United States

The following excerpt is from the Global Economics section of Bloomberg BusinessWeek, May 10-May 16 2010:

"Industrial America's plight can be encapsulated in a few incredible numbers.  According to the Bureau of Labor Statistics, U.S. employment in manufacturing over the past six months has been the lowest since March 1941, before the U.S. entered World War II.  The March total was a little under 11.6 million workers, down 19 percent in just the past five years.  Productivity advances account for some job reductions, but that's not the whole story:  Manufacturing's share of GDP shrank from 25 percent in the 1960s to 15 percent in 2000 and just 11 percent in 2008, according to data from the Commerce Dept.'s Bureau of Economic Analysis."
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I believe that our loss of manufacturing, and manufacturing jobs, represents one of the largest errors in our economic strategy.

Perhaps most disconcerting has been our national attitude toward the loss of this manufacturing.  It perhaps can best be summarized in the commonly heard phrase "we don't need manufacturing in order to be successful."

While the underlying reasons for this manufacturing loss are complex, and some would argue unavoidable, it nonetheless has created many substantial, enduring problems.

SPX at 1166.11 as this post is written

Thoughts On The May 6 Stock Market Plunge

I find last Thursday's stock market plunge to be highly notable on several fronts.  The temptation is to treat the event as a "fluke" or "one off" event that is inconsequential; it is especially tempting to do so when most of the damage was quickly reversed and, as of this writing, stock indices are again climbing.
There is no official report yet about the causes and effects of Thursday's plunge.  Aside from the main question as to what caused the plunge, I think that the following questions are paramount and also deserve recognition:

• Is technology a "culprit" in the affair or is it working like it should?
• Does this stock market plunge belie the widely held (and "common sense") assumption that these stock markets are immensely "liquid"?
• What trades should be "broken" and why?
• Is the current stock market "system" one that has a great deal of inherent "integrity" - both structurally and ethically?
• Are rules and regulators "behind the (technology) curve" as widely speculated?
• Will further rules, regulations, and "trading curbs" make a similar future occurrence more or less likely?
• Will the exact cause of the plunge ever be determined?
• Can the exact cause of the plunge be determined?
• Does the plunge nullify the idea, held by some, that markets are "efficient"?

There are countless other questions that can be added to the above list.  Needless to say, I think the plunge has great significance and to summarily dismiss it, as many appear to have done, is a mistake.
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I wrote of my concerns about high-frequency trading and the stock market about four weeks prior to Thursday's plunge.

SPX at 1110.88 as this post is written

My Thoughts On Our Current Economic Situation

On an intermittent basis I post a summary of my thoughts on our (U.S.) current economic situation.

My overall views have not changed since my last post on the subject, which can be found in the January 19 post.

SPX at 1128.15 as this post is written

Rising Costs And Inflation

"And long before this recession hit -- for a decade -- middle-class families had already been expensing -- experiencing a sense of declining economic security.  Their paychecks were flat-lining even though the cost of everything from groceries to college educations to health care were all going up."
President Obama, during an April 2, 2010 speech
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Although the CPI and various other cost and inflation indices have been relatively subdued for many years, it is inarguable that many costs routinely experienced by the average American have dramatically increased.  Perhaps the main resultant effect of these cost increases are for the average citizen to (continually) experience a declining standard of living.

Over the last few months, many costs have been rising sharply.  These cost increases are most pronounced among many commodities, as discussed in this April 23 Wall Street Journal article "High Cost of Raw Materials."

These pervasive cost increases are also impacting many businesses in pronounced ways.  I will be discussing this in a subsequent post as these impacts are little understood, yet will likely have large future effects.

SPX at 1162.89 as this post is written

1Q 2010 Corporate Revenues

For the last few quarters, I have been commenting upon the general lack of revenue growth in corporate results.  I have focused on a variety of diversified manufacturers and distributors, all of them well-respected S&P500 firms.    My last comment on this issue was on January 29.

For the recently released 1Q2010 financial results, it is hard to generalize the revenue growth or lack thereof.   Some companies have been posting seemingly strong, double-digit growth, but this has been against weak year-ago results.  It appears that many of the firms that have the strongest revenue growth have achieved this growth via sales to the Asia region.

It will be interesting to monitor these revenue growth figures going forward.  Revenue growth during our current period of economic weakness is a key issue, and generally lacks recognition, especially compared to earnings growth and whether companies are matching or beating earnings "expectations."

SPX at 1173.6 as this post is written

The S&P500 And Chinese Stock Market

Over the last few months a notable divergence has occurred between the U.S. and Chinese stock markets.

Two charts illustrate this divergence. The first shows the S&P500 vs. the Shanghai Composite on a daily basis:

chart courtesy of StockCharts.com

The second chart shows a chart of FXI, the iShares FTSE/Xinhua China 25 Index. This chart is from chartoftheday.com of 4/30/10. One can see the flagging momentum:

It is notable that the Shanghai Composite led the SPX (S&P500) significantly in late '08 - early '09, yet it has been stagnant- to-declining lately.

I find this divergence in the SPX and Chinese stock markets to be curious and cautionary. Many companies in the S&P500 are deriving the vast majority of any current revenue growth - not to mention earnings - from overseas, particularly Asia. Given this scenario, it seems strange that the SPX is significantly outperforming the Chinese stock market.

SPX at 1193.6 as this post is written

More Ponzi Schemes

The Wall Street Journal has recently had two more articles concerning alleged Ponzi schemes.

The first is titled "Our Ponzi Nation: Florida Entrepreneur Hit With Charges."

The second is titled "Alleged Ponzi In Colorado Has Shades of Madoff Affair."

Also, there was an interesting story from April 17 titled "Report Says SEC Missed Many Shots At Stanford."

I have been intermittently commenting about the growing number of investment frauds being uncovered. Ponzi Schemes, although seemingly common, are just one form of investment fraud.

The main question remains how much investment fraud is still undiscovered? As I commented in the March 7 post,

"...I would say that there is much investment fraud still "out there" (i.e. yet to be uncovered) and the true figure will likely prove to be eye-popping."

As well, I believe there are significant amounts of other fraud types still undiscovered, such as that at the corporate level. This corporate fraud includes corporate accounting misrepresentation. Of course, Enron remains the most famous example of corporate accounting fraud.

SPX at 1186.69 as this post is written