Archive for August, 2011

Reasons to be Optimistic

August 31, 2011 Leave a comment

Call me Pollyanna, but I’m more sanguine on the global economy than most right now. Here’s a grab bag of positives our team at Fisher Investments came up with that aren’t being widely considered in my view:






U.S. Bureau of Labor Statistics (BLS)

U.S. Bureau of Labor Statistics (BLS)

The Conference Board, Inc

U.S. Department of the Treasury

U.S. Department of the TreasuryFederal Reserve, United States

U.S. Bureau of Economic Analysis (BEA)


Confidence Numbers Tell Investors Nothing

August 30, 2011 Leave a comment

These two headlines from Bloomberg, of course, are being mostly hailed this week as bearish indicators: 

The irony! The 12 month periods after December ’08 and especially April ’09 marked one of the best times in stock market history to be invested. Simply, and this has pretty much always been true, sentiment numbers of all stripes tend to be at best coincident indicators, but are usually slightly lagging. That is, they have virtually no forward predictive power for the economy or stock market.

The Growth of Regulation

August 25, 2011 Leave a comment

Readers of this blog know I have a long-standing beef with folks who believe we’ve been through an “era of deregulation” starting with Reagan/Thatcher, and ending ostensibly with George W. Bush’s presidency. I find this unfathomable, and earlier this year asked if there are any studies that proved such a statement.

Well, we have some evidence. Todd Bliman (a consistently excellent columnist over at Fisher Investments told me about this study: Susan Dudley and Melinda Warren from The George Washington University and Washington University in St. Louis recently published a report on US Regulators’ budgets. The simple reality is that, just about any which way you slice it, regulation has been increasing over the decades. In fact, from 1980 to 2012 regulation spending has more than doubled.

Check out the full report here.

Bernanke’s Political Promise

August 19, 2011 Leave a comment

Alan Blinder’s recent Op Ed in the WSJ puts his views on the S&P downgrade of US debt about as bluntly and correctly as one can:

Yes, S&P is now telling investors that lending to the U.S. government today is riskier than (it said) lending to Enron was in August 2001, or than buying any one of thousands of soon-to-be-toxic mortgage-related securities was in 2007. If you listen to such advice, you deserve what you get….But many frightened investors moved their money straight into what they still know is the world’s safest asset: U.S. Treasurys. Treasury yields fell across the board—not exactly what you expect from a downgrade. In practice, S&P downgraded itself.

A Tale of Two Downgrades  — Alan Blinder


But on his second point, the Fed’s “downgrade” of the US economy (it lowered its outlook last week), a few quibbles.

First, almost like every other widely published economic survey, the Fed’s economic models tend to blow in the wind. Note that, through most of the last couple years, as the economy beat expectations, the Fed’s expectations increased. And then when numbers started coming in weaker recently, they lowered expectations. This is what a behaviorist might call the “trend continuation bias”.

Just as importantly, though, is the Fed’s unique language that it would explicitly keep short rates very low through mid 2013. Blinder believes this is a bizarre attempt to give confidence to markets and the broader economy.

Bizarre, absolutely. (For one thing, keeping the risk-free rate for money at distortedly low levels for prolonged periods isn’t ideal, nor does it inspire confidence.) But I don’t think it’s just about the economy. There’s an ulterior motive: politics. Let’s see, what happens in the next couple years? Oh yes! Bernanke’s boss, the guy who can reappoint him, is up for reelection! By signaling publicly and in no uncertain terms that rates will be accommodative the next two years (theoretically propping up the economy), Bernanke is trying to hold on to his job.

In the modern era of the Fed (which in my view starts more or less with Volker), it’s an increasingly less independent and more political institution. This is more evidence.

IP Rips

August 18, 2011 Leave a comment

For all the soft economic data of late, and there’s been plenty, it’s particularly interesting to see July’s US Industrial Production number come in so strongly—not just higher than expected, but the fastest growth of the year. Additionally, June’s IP was revised up. This, of course, partly reflects a rebound from Japan-related supply constraints (auto & light-duty truck production rose 10.4% m/m), but also possibly a general reacceleration, as already very lean inventories can’t wait long to be restocked. Only time will tell, but this was an encouraging report.


Fisher Investments Graph

Fisher Investments Graph of US Industrial Production

Source: Federal Reserve

The Consumer Lives!

August 17, 2011 Leave a comment

I’ve always bristled at what the media calls “The Consumer.” I get this image in my head of one giant consumer, 50 stories tall if he’s a foot, roaming the countryside, consuming everything in sight, throwing all the goods and services of the world down his giant gaping maw!

I think it bothers me most because I don’t tend to think of consumers as an entity so much as I think of them as a collection of individuals. (This distinction, in my mind, is perhaps the definitive dichotomy of supply versus demand side economics.)

Anyway, our staff at Fisher Investments has come up with a few nifty charts tied to US consumers and their current status. Not as shabby as we generally read in the mass media!

First, the stubbornly high US unemployment rate has not stopped personal savings and disposable income from growing. A savings rate of over 5% is well above average, causing consumers’ lot to improve with every payday, to the point where current aggregate cash of $8 trillion is nearly 30% higher than just five years ago. Moreover, annual disposable income growth of nearly 4% is trending right around its 10 year moving average.


US Personal Savings Rate and Disposable Income

Fisher Investments Research Graph

Source: Thomson Reuters 08/2011


Second, consumption and consumer credit have a pretty strong relationship over time, but following the panic of 2008 the relationship broke. While consumption patterns picked back up rather quickly (and incidentally is at a new all time high!), borrowing habits were pressured as consumers and lenders deleveraged their balance sheets. Now that banks are starting to lend again, credit growth has reemerged and is becoming readily available to fund future spending.


Exhibit 4: US Personal Consumption and Consumer Credit Annual Growth


Fisher Investments Research Grapic

Source: Thomson Reuters


Exhibit 5: Senior Loan Officer Lending Survey: Consumer Underwriting Trends

Fisher Investments Graphic

Federal Reserve-sourced information graphed over time

Source: Federal Reserve


With lower aggregate leverage, higher cash balances, positive income trends and lenders beginning to lend, it doesn’t look like consumers are down for the count.



Other sources: FDIC, Bloomberg, Federal Reserve, BEA

The Mad Genius Joins Forbes

August 12, 2011 Leave a comment

As mentioned on this blog before, Lara Hoffmans (co-writer of several NYT bestsellers with Ken Fisher and managing editor at, is a mad capitalist genius. She’s also a great writer and a tremendous wit. Now she’s writing forForbes. Check out her first article here:

S&P Temper Tantrum — Lara Hoffmans, Forbes


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