BerkAdvisory

Black Gold Rush in North Dakota - Why Not Everywhere Else in the USA?

Even MSNBC Admits Big Oil Creates Jobs

Drill, drill, drill = Jobs, Jobs, Jobs

 
Amazing facts: The Williston, North Dakota Walmart sells out of merchandise every day, and the local McDonald's is one of the busiest in the country and pays $15 per hour to attract workers. 

HT: Americans for Tax Reform

via mjperry.blogspot.com

It's All About Regime Uncertainty and Investment Surplus

The Reason None of the Government Intervention Works - It's Not About Putting More Money In Consumer's Pockets to Create Demand -"Consumption Spending HAS Already Recovered," 

 

 

 

 

 

 

 

 

Robert Higgs makes an important point that "Consumption Spending HAS Already Recovered," and it's private investment spending that is lagging and holding the economy back:

"Commentators and pundits, some of whom ought to know better, continue to harp on the idea that the recession persists because consumers are not spending. Every Keynesian seems to believe that because consumers are in a dreadful funk, only government stimulus spending can rescue the moribund economy, given (to them, at least) that investors will not spend more because the Fed, having already driven interest rates to extraordinarily low levels, cannot use conventional policies to drive them any lower and thereby elicit more investment spending.

People, please look at the data. They are conveniently available to one and all at the website maintained by the Bureau of Economic Analysis. According to these data, real personal consumption expenditure recovered from its recession decline by the fourth quarter of 2010 (see chart above). Continuing to grow, it now stands (as of the most recent data, for the second quarter of 2011) even farther above its pre-recession peak.

The economy remains moribund not because consumption spending has failed to recover and not because government spending has failed to increase, but because the true driver of economic growth—private investment—remains deeply depressed. Gross private domestic fixed investment fell steeply after the second quarter of 2007, and in the second quarter of 2011 it remained 19 percent below its pre-recession peak (see chart above).

Here is the true reason for the recession’s persistence.  Private investors, despite the full recovery of real consumer spending, remain apprehensive about the future of new investments, especially new long-term investments. I have argued repeatedly during the past three years that an important reason for this apprehension and the consequent reluctance to make new capital commitments is regime uncertainty—in this case, a widespread, serious fear that the government’s major policies in areas such as taxation, Obamacare, financial reform, environmental regulation, and other areas will have the effect of depriving investors of control over their capital or diminishing their ability to appropriate the income that the capital generates. President Obama’s harping on the desirability of making “the rich” pay their “fair share” of the government’s ever-rising costs only exacerbates regime uncertainty. Business leaders have spoken again and again of how the present political environment is discouraging risk-taking and entrepreneurship.

In any event, it should be crystal clear that the problem is not the failure of consumer spending to recover. Let us please have more respect for the facts than to continue singing that old, thoroughly worn-out tune."

via mjperry.blogspot.com

 

 

The "Unseen": How many jobs have the Obama Administration's policies destroyed?

The Courage to Undo

After more than 30 months of record unemployment, the question arises: How many jobs have Obama's policies destroyed?  This short video while political in nature is also good real-life economics as it puts the administration's policies on a timeline - the seen is slow job growth; the unseen is all the jobs destroyed by government intervention.

Why the rich always get bigger tax breaks than the poor; Keep attacking them & they might not show up to pay the bill.

President Obama to substitute "the intellectual equivalent of a baby toy" for real economic policy tonight...again

From Recession and Recovery 
Six Fundamental Errors of the Current Orthodoxy 
March 5, 2009
Robert Higgs

In fact, “the economy” does not produce an undifferentiated mass we call “output.” Instead, the millions of producers who bring forth “aggregate supply” provide an almost infinite variety of specific goods and services that differ in countless ways. Moreover, an immense amount of what goes on in a market economy consists of dealings among producers who supply no “final” goods and services at all, but instead supply raw materials, components, intermediate products, and services to one another. Because these producers are connected in an intricate pattern of relations, which must assume certain proportions if the entire arrangement is to work effectively, critical consequences turn on what in particular gets produced, when, where, and how.

These extraordinarily complex micro-relationships are what we are really referring to when we speak of “the economy.” It is definitely not a single, simple process for producing a uniform, aggregate glop. Moreover, when we speak of “economic action,” we are referring to the choices that millions of diverse participants make in selecting one course of action and setting aside a possible alternative. Without choice, constrained by scarcity, no true economic action takes place. Thus, vulgar Keynesianism, which purports to be an economic model or at least a coherent framework of economic analysis, actually excludes the very possibility of genuine economic action, substituting for it a simple, mechanical conception, the intellectual equivalent of a baby toy.

Robert Higgs

Model Says "Buy Stocks Now."

The following is an excerpt from Keith Hays of Hays Advisory's morning comment from the other day.  I thought it was a simple explanation of how I keep tabs on the medium term risk in the stock market.  We use a variation of Hays' tested model that includes many indicators grouped into four categories:  1. Sentiment Measures - Smart/Dumb Money 2. Monetary Regime 3. Overall Valuation 4. Trend is Investment or Trading Phase.

The combination of these measures indicates only a small risk of decline from here but a high probability of a four year double digit, about 15% per year, for the stock market index. 

Each morning, I have my morning cup of coffee and do a review of what I consider the most important indicators in Psychology, Monetary, Valuation and Market Trend.  I say that I consider the following indicators the most important, because out of the many different statistically significant indicators which Mark seeks out and back-tests, these are among the best in relation to probabilities of the stock market's next direction.  So this morning, I thought I would share my daily, quick morning review with you.

1. Rydex Ratio: As one of our most important Psychology indicators, this ratio that focuses on the "dumb money" is a daily sample of the public, direct investors and what they are buying and selling.  I typically ask myself, "Are they mostly long (not good for me) or mostly short (you are wise to do the opposite)?"  Today, this indicator is at levels last seen during last year's market correction.
   
   
   
2. Gambill Insider Ratio: Produced by Scott Gambill of Emergent Financial, this ratio tracks the "smart money" by comparing insider buys versus sells.  This indicator hit RECORD levels a couple of weeks ago as CEOs who already owned millions of shares of their own companies could no longer resist as the market declined.
   
   
   
3. Yield Curve: This Monetary indicator, which outlasts and outperforms every economist that has ever uttered a word on CNBC when it comes to the future of the stock market, is measured by taking the 10-Year Treasury yield less the T-Bill yield.  Generally, when the Yield Curve inverts, and especially starts to reverse upward, you better be careful, but when it is wide and reversing back down, good times are often ahead for investors.  And today, this indicator is moving in a downward direction.
   
   
   
4. Hays Valuation Model: The indicator is a combination of a forward earnings or normalized forward earnings yield and a comparison to an average of the 10-Year Treasury yield and a AAA Corporate Bond yield.  When we hit P6 on our Psychology Composite in early July, this indicator was closing in on moving from an Extremely Undervalued to a (still positive) Undervalued level.  However, after the market's recent actions, we are now back solidly to an Extremely Undervalued level.
    
   
   
   

5. Hays Market Trend Analyzer: This final leg, which is a form of protection in place just in case something happens that is not picked up by our Asset Allocation Model, is a technical tool that triggers in the equity markets when the short and medium-term moving averages cross over the long-term moving average.  They are not ready to do that today; however, the short-term is closing in on the long-term, and the medium-term has rolled over.

Overall, I would highly suggest a daily routine of perusing these 5 charts, which can be found on the Market Indicators of our website.  If you learn to take a moment and review just these 5 charts, you will be so far ahead in your understanding of the markets.

via blog.haysadvisory.com

Business confidence "rests not so much on the letter of the law as on the character of the government that enforces, or threatens, presumptive rights."

The President makes a not-ready-for-prime-time speech in front of some of the members of Congress (see here) to setup his campaign that will try to make it the Republicans' fault that unemployment is so high.   That ship has sailed,  Mr. President.  

It's now about the reduction of regime uncertainty.  The more his campaign gimmicks fail, the more he will order his regulatory army of bureaucrats to stand down, as he did on Friday when he abandoned a proposed Environmental Protection Agency (EPA) rule tightening air-quality standards.  

I also just heard that the President will push "public investments".  This is a joke.  It's  not public spending that is suffering.  It's private investment that needs to be sparked - the supply side of the economy...after all, that's what jobs are - the supply of productive capacity.

The government doesn't jump start private investment; it simply changes the regime in which private actors make investment decisions.  This is what the Democrats, Socialists and Keynesians miss.  It's not targeted government action that saves the day.  It's the changing of the regime that changes private investment.

The branches of government can either make the environment (or the regime) of rules,  regulations and laws more certain or less.  Private investment spending is an indication of how well the private sector is responding to a current regime.

The Democrats in Congress since 2006 along with the technocrat academics in the White House changed the regime for good in 2008, and the private sector froze and then moved capital into non-productive assets like commodities and cash, which contimues today.  The graph below shows private investment operating in the operating regimes (2001 - 2006, the Republican Congress and President) and (2006-2010, the Democratic Congress and President).  Notice how private investment stagnated after ObamaCare unceremoniously passed in the Spring of 2010.  And notice the recent slight bump back up after the historical 2010 mid-term elections - the regime is changing - for the better.  As Obama sees his hopes of re-election fade we will see his dismantling of the regulatory nightmare, that he and Congressional allies have erected, accelerate.

The first shot was the abandonment of the new EPA rules on air quality.  Notice the important word here is "new".  It's the change that hinders investment and recovery.  The government's job is to create a regime - rules of the game - that are fair in that everyone knows that the rule will be fairly applied and that the cost of the rule will be known in advance and will not change.  The greatest regime uncertainty in my lifetime existed under Obama's first 2.5 years, and it seems that it's the worst regime uncertainty since the Great Stagnation after the Great Collapse of the Great Depression. 

 
Here's how Robert Higgs describes this idea of "Regime Uncertainty" and it's negative correlation with private investment and sustainable economic growth. 

To narrow the concept of business confidence, I adopt the interpretation that business people may be more or less “uncertain about the regime,” by which I mean, distressed that investors’ private property rights in their capital and the income it yields will be attenuated further by government action. Such attenuations can arise from many sources, ranging from simple tax-rate increases to the imposition of new kinds of taxes to outright confiscation of private property.  Many intermediate threats can arise from various sorts of regulation, for instance, of securities markets, labor markets, and product markets. In any event, the security of private property rights rests not so much on the letter of the law as on the character of the government that enforces, or threatens,  presumptive rights.

BerkAdvisory's ValueAligned Portfolio up +28% Last Twelve Months

 

Uncle Sam is Forcing Us Into Stocks As Fearful Memories of the Technology Crash, 9/11 and the Financial Crisis Linger.

What To Do?

BOSTON (MarketWatch) — Sorry, Grandma. You’re getting the shaft from Uncle Sam.

If you save your money in certificates of deposit, or short-term bonds, you’ll earn  
next to nothing. And you’ll lose purchasing power each year as inflation eats away at your money.

If you try to earn a little more by owning long-term bonds, or higher-yield ones, you’ll be putting yourself at risk. Both those types of bonds involve risk. Long-term bonds can get hit badly by inflation. High-yield bonds are typically issued by companies with weaker finances. They are vulnerable in a downturn.

What can you do?

BERK: Buy and own stocks of great companies - that's what we do for our clients.

Disclosure:The ValueAligned Portfolio (VAP) is a Ready-to-Go Folio (RTG) created and maintained in Folio Institutional for the sole use by clients of BerkAdvisory.  The performance is updated daily and assumes cash distribution reinvestment.  VAP performance does not represent actual performance experienced by customers who pay no more than 1% total fees per year.  There no other fees or trading costs.  The 1% fee is not included in the performance shown above because the VAP is model based.  Past performance is never indicative of future performance.

This Stock Correction Does Not Even Come Close To 2008, More Like 2010

You can see that the small "speculators" have bailed out of their "long" positions, and now have more bearish bets than bullish bets.  No, this is not at bear market killing levels, but despite what you might be feeling, this correction does not even come close to looking like anything more than a correction.  In fact, it looks very much like the correction of last year (2010).  If you look at our Asset Allocation Model below, it is still saying the bullish incentive is much greater than the risks we are reading about in the papers and hearing about on TV every day.

We suspect that the volatility phase is NOT over, but we expect based on historical precedence, that we have seen the peak of the panic fear, and each echo will produce a little better set of economic indicators in its wake.

via blog.haysadvisory.com

Westbury: Stocks are in a panic. Why isn't the real economy? Buy stocks.