Over the years, my standard approach to analyzing corporate profits has been to think of them as the last slice taken from a big national income pie. The growth of the pie itself is important. But so is the size of the other slices, such as labor costs, interest costs and corporate taxes. Once every one else has had their slice, what’s left over is corporate profits. It’s a useful model for analytical purposes. However, it has one glaring flaw, namely that it assigns to corporations a purely pas...
Feb 27, 2023•9 min•Ep. 211
It was 60 degrees in Acton yesterday, as our normally frigid Massachusetts winter continued to be a no-show. Not that I have any problem with this, since running, rather than skiing, is my exercise of choice. But this weirdly mild season is leaving nature very confused with streams gurgling, buds swelling and birds twittering loudly, presumably about their nest-building plans.
Feb 22, 2023•8 min•Ep. 210
There is a slowdown lurking. It is currently hiding so well, in the long grass of statistical anomaly, that many observers, including the Federal Reserve, don’t seem to notice it at all. However, investors need to recognize it and have a clear view on the outlook for economic growth, jobs, inflation and profits, how the Federal Reserve may react to a slowdown, and what this could mean for investment returns over the next few years.
Feb 06, 2023•12 min•Ep. 209
In investing, as in life, it is important to learn from the past, appreciate the present and plan for the future. This is particularly true at turning points. In the early weeks of the New Year, we do appear to be at an economic turning point. Fourth-quarter GDP and consumption deflator data, due out this week, may give the impression of continued solid growth with still strong year-over-year inflation. However, a more real-time assessment of the economy suggests a significant cooling in both, w...
Jan 23, 2023•10 min•Ep. 208
Last Friday afternoon, amidst the lengthening shadows of a winter sun, the Treasury Secretary delivered an ominous warning: By this Thursday, the U.S. federal debt will reach its legal limit, requiring her to take extraordinary measures just to keep paying the bills. Secretary Yellen’s warning was, perhaps, a little premature and she suggested that, with some adjustments, our real rendezvous with disaster might be postponed until June. But even this date is considerably earlier than many assumed...
Jan 17, 2023•11 min•Ep. 207
The word “resolution” has multiple meanings. The most obvious at this time of the year, is a decision to behave differently going forward. In many social sciences, “resolution” refers to a problem that is somehow mitigated or eliminated. Or, taken at its most literal, “resolution” could simply mean coming up with new answers to old questions – that is to say – “re-solving” them.
Jan 03, 2023•8 min•Ep. 206
My first job out of graduate school, in the early 1990s, was as the consumer economist for the economic consulting firm of DRI/McGraw-Hill, in Lexington, Massachusetts. One weekend each month, we would run a U.S. macroeconomic forecast. (It always had to be over the weekend, as this was the only time when we could get our own clients off our mainframe computer.) Anyway, on Saturday afternoon, having produced some preliminary numbers, we would gather around a huge conference-room table and discus...
Dec 19, 2022•10 min•Ep. 205
At his press conference on November 2nd, Fed Chairman, Jay Powell opined that the window for a soft landing had narrowed. This was very much in line with his messaging for many months which has emphasized that the Fed regards inflation as being much too high and is willing to put the economy in recession, if necessary, to return it to its 2% target. However, it also underscores the economic problem caused by “supply-shock” inflation: it simultaneously boosts inflation expectations, inducing a mo...
Dec 12, 2022•9 min•Ep. 204
At 8:30AM, on the first Friday of every month, the Labor Department releases the monthly jobs report. By 8:35AM, the network scriptwriters deliver a verdict to the teleprompters – jobs either “sky rocketed” or “plunged”. The job market is either “red hot” or “stalling out” and, either way, investors need to be worried. No middle ground will keep an audience.
Dec 05, 2022•10 min•Ep. 203
For many people, I suspect, 2022 will be a year to forget. However, for millions of home-builders, home-sellers and home-buyers, it will be remembered for the speed with which a housing boom turned into a housing bust. The reason, of course, has been a surge in mortgage rates. These rates look likely to stay high, at least over the next year, contributing to sharp declines in housing starts and home sales and a negative impact on GDP. Eventually, this could motivate the Federal Reserve to revers...
Nov 22, 2022•7 min•Ep. 202
Markets bounced higher last week in a justifiable show of enthusiasm as the latest CPI data confirmed that inflation is indeed receding. However, even as investors worry less about inflation they may well worry more about recession. The risk of a near-term recession is climbing. However, such a recession would be more like sliding into an economic swamp than falling off an economic cliff. While a “swamp” recession wouldn’t be very deep, the economy would likely struggle to get out of it. The goo...
Nov 15, 2022•10 min•Ep. 201
Among the many challenges of parenthood is trying to get your kids to eat healthy food. As the children get older, the school lunchroom becomes one of battlefields, with some kind of weekly menu posted online or sent home with the kids. Many of these menus appear to imply that the three essential food groups are sodium, fat and sugar. However, some schools employ a little more imagination both in providing healthy choices and evoking some interest in the fare to come. This week the lunchrooms in...
Oct 31, 2022•11 min•Ep. 200
At the peak of the railroad boom of the late 19th century, the Framingham and Lowell line was incorporated to transport goods and passengers up and down the western outskirts of Boston. Over the years, the traffic dwindled, the line was sold and resold and eventually abandoned. However, for more than three decades now, some enterprising local citizens have pursued the construction of a bike trail along the old abandoned line, which is now, finally, mostly complete.
Oct 24, 2022•10 min•Ep. 199
On many occasions in my adult life, I have made New Year’s resolutions to become fitter. As the days of the old year gradually dwindled and my girth gradually expanded, I would commit myself to exercise more and eat less. However, experience has taught me that both of these noble aspirations must be approached with moderation. Any attempt to starve myself while running more miles leads inevitably to physical slowdown or breakdown. Moreover, if I simply refuse to eat more, the exercise comes to a...
Oct 17, 2022•10 min•Ep. 198
The Federal Reserve maintains strict rules prohibiting FOMC members from commenting on the economic outlook or monetary policy in the 10 days preceding an FOMC meeting or on the following day. Thereafter they are free to speak and over the last two weeks many have opined on both subjects. Their opinions show remarkable unanimity. They are focused on bringing inflation back down to their 2% target. They acknowledge the uncertainty in the economic outlook, and, as a consequence, they profess thems...
Oct 10, 2022•8 min•Ep. 197
A famous Sherlock Holmes story concerns the abduction of a race horse and a guard dog that didn’t bark. For those who haven’t read the story, I’ll skip over the reason for the dog’s silence. The point is he didn’t bark – no alarm was raised – no actions were taken - and the horse disappeared. Entering the fourth quarter of 2022, the U.S. economy is teetering on the edge of recession. However, it is a recession that has been delayed and potentially softened by an excess demand for labor, the lack...
Oct 03, 2022•9 min•Ep. 196
In weighing the value of any security, the scales of financial markets are supposed to maintain a fine balance between fundamentals and price. The plate of fundamental factors is piled high with macro trends, geopolitical issues, weather and environmental events, policy decisions and individual security attributes. The other plate is far more sparsely occupied – price stands alone, accounting for half of any assessment of the opportunity and risk in the purchase of an asset.
Sep 26, 2022•8 min•Ep. 195
When future historians reflect upon the current age, they might call it “the worry years”. As America emerges from the pandemic, there are still serious health concerns, a yawning political divide, rising autocracy around the world, a brutal war in Europe and the highest inflation in 40 years. Moreover, anxiety triggered by these genuine problems is being amplified by cable channels and social media which ever more efficiently gather their audience by appealing to fear and outrage....
Sep 20, 2022•12 min•Ep. 194
On Saturday, Sari and I made our annual pilgrimage to Kimballs for lobster roll. Kimball Farm, which started as an ice-cream stand in Westford, Massachusetts, has ballooned into a huge enterprise over the years and there was a big crowd lined up in front of us when we arrived. Undaunted, we traced our way to the back of the line and hoped it would move fast. It did not.
Sep 06, 2022•8 min•Ep. 193
Whatever else anyone may say about Jay Powell’s much-awaited speech in Jackson Hole, it had two distinct virtues. It was clear and it was brief, running to just 1,300 well-chosen words. In the same spirit, and despite a sharp 1,008 point slide in the Dow Jones Industrial Average on Friday, it is important to be succinct in discussing both where the economy is and potential Fed policy going forward. For additional insights from Dr. David Kelly, listen to the Insights Now podcast ....
Aug 31, 2022•6 min•Ep. 192
The phrase “drawing a line in the sand” has an unhappy history. In the U.S., it is said to have originated with Colonel William B. Travis, who drew a line in the sand at the Alamo declaring his willingness to fight and die rather than surrender. In 2008, following the takeover of Bear Stearns earlier that year, federal authorities drew a line in the sand and let Lehman Brothers go bankrupt. And in recent weeks, Fed officials have seemed to draw a line in the sand on inflation. For the podbeam de...
Aug 22, 2022•10 min•Ep. 191
Normally, the great challenge in talking about the global economy is finding a theme. The economic fortunes of nations are usually driven by such a disparate array of political, financial, demographic and environmental cross-currents that it is impossible to establish a framework for analysis. Twice however, in this still young century, events have unfolded to provide just such a theme as the world battled the global financial crisis in 2008 and the global pandemic in 2020. For additional insigh...
Aug 16, 2022•14 min•Ep. 190
After weeks of steamy hot temperatures, a cold front is set to move through the Boston suburbs on Tuesday. While the relief will be nice, in truth, the temperature will only edge down from the low 90s to the low 80s. However, it is the start of something and, as we are well aware in this part of the country, longer-term forces will bring us much colder weather before too long.
Aug 08, 2022•9 min•Ep. 189
The long history of financial markets, like most classic novels, is full of misunderstandings, miscalculations and mistakes. Despite all of this, the story normally twists and turns its way to a happy ending. This may yet be the case for investors in the very unusual economy that has unfolded following the pandemic recession and recovery.
Aug 02, 2022•11 min•Ep. 188
When engaged in the more mundane tasks of my job, I often have classical music playing in the background. A piano concerto, in the hands of a great orchestra and soloist, is a delight to the ears as the rush and energy of the first movement gives way to the softer pace of the second. And when the conductor downshifts the tempo, the musicians follow with effortless precision.
Jul 26, 2022•11 min•Ep. 187
Last Friday’s strong jobs numbers came as a relief to many who feared that the U.S. economy was quickly sliding into recession. On its face, the June employment report seems to support further aggressive Federal Reserve tightening, leading to higher U.S. interest rates and a further appreciation of the dollar, and offsetting forces impacting U.S. equities. For additional insights from Dr. David Kelly, listen to the Insights Now podcast ....
Jul 11, 2022•12 min•Ep. 186
One minor side effect of this terrible pandemic is that we have all become more educated on our own immune system. Looked at objectively, it is a masterpiece of evolutionary excellence. The outward signs of infection are normally easy to see – coughing, sneezing and obvious fever warn other humans to keep away, while our own exhaustion makes us less mobile and thus less likely to infect. The extraordinary havoc wrought by Covid-19 is primarily due to the virus’s ability to make someone contagiou...
Jul 05, 2022•11 min•Ep. 185
In times long gone by, a popular event at town fairs and school sports days was the sack race. The competitors would assemble at the starting line, each encased up to the waist in a burlap bag and gripping firmly onto its sides. At the gun, they would hop furiously in the direction of the finish line, 100 yards ahead. As a sporting contest, it lacked dramatic tension, with most of the competitors biting the dust in the first 50 yards. But it was entertaining to speculate on which brave athlete w...
Jun 28, 2022•8 min•Ep. 184
I refuse to believe, despite gathering evidence to the contrary, that I am getting older. This being my mindset, I am perpetually astonished by the increasing youth of my colleagues. According to the Census Bureau, the median age of an American today is 38 years which doesn’t, on its face, sound extraordinary. However, what it does mean is that most of the people I work with have only experienced two recessions in their adult lives – the recession of 2007-2009 and the recession of 2020. For addi...
Jun 22, 2022•12 min•Ep. 183
I have been on many delayed flights recently and have a certain sympathy for the pilots who, having repeatedly told us that we would be taking off shortly, have to continually backpedal due to weather or staff or equipment. They always thank us for our patience but in reality they are the patient ones. We, the passengers, are seething, and what’s more, we have suddenly become vocal experts on dodging weather, managing staff and fixing planes. But to get us safely to our destination the pilots ha...
Jun 15, 2022•8 min•Ep. 182
