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May, 2016 Archives

Housing Continues to Provide Positive Economic Backdrop

By Matthew Kerkhoff


Housing plays an important role in our economy, but doesn’t receive as much attention as some of the more volatile components of the financial markets.


Estimates by the National Association of Home Builders (NAHB) suggest that housing’s combined contribution to GDP runs between 15-18%.


The contribution occurs through two different means: Residential investment (3-5% of GDP), which includes construction, remodeling and the production of manufactured homes. And consumption spending on housing services (12-13% of GDP), which includes gross rents as well as owners’ imputed rents.


This makes housing a small but integral aspect of the broader economy.


Richard's Thoughts on Making Money

By the Dow Theory Team


Richard's Comments


There are thousands of ways to make real money, and I've spent a lifetime studying and analyzing many of them. Making real money entails, (1) intelligence, (2) a strategy, (3) a certain amount of courage, depending on the strategy used, (4) persistence, usually single-mindedness, often to the point of being obsessive, (5) a knowledge of one's own psychological make-up, (6) the ability to sacrifice -- a lot, if need be, for one's ambition, and last but not least, (7) a modicum of luck.


Most of the huge fortunes of today have been made utilizing a great deal of chutzpah, a powerful spirit of acquisitiveness (which is not necessarily bad), and an ability to borrow massive amounts of money. With this we better add a portion of luck or at least a streak of fortuitous timing.


Da Vinci’s Sapere Vedere

By Benjamin J. Butler


Airport Lounge, Seoul, South Korea


Last year I had a lost in translation moment when briefing a Sovereign Wealth Fund on my thoughts for the future. After I said something about the global economy and the likely moves of the Federal Reserve, the investment manager quizzed me: “So you are analyzing some data that the Fed doesn’t have?” 


Having become independent many years ago (it was the only way I could be 100% authentic and creative) and no longer working in the trenches of the banks/investment management community, I had forgotten the degree to which people emphasize data. There is almost an obsessive need for more and more data, as if the person with the most data wins.


Daily Recap

European stocks soared today, on account of a surprisingly positive resolution to the latest financial crisis in Greece. The country will now be able to access over $11 billion in new loans, taking away one big area of concern for the EU. Europe's STOXX 600 index jumped 1.3% on that news.

Higher oil prices helped also, with crude closing in on $50/bbl. That, in turn, boosted the prices of XLE, CVX, and similar energy plays in the US, which encouraged investors in other sectors. Near the close, the Industrials are up almost 1%, slightly ahead of gains in the S&P and the NASDAQ.


Not Even $1000?

By Jon S. Strebler 


As a retired high school teacher, I know that the U.S. K-12 educational system is deeply flawed.  Numerous studies show that the US lags most other developed countries in this area, often by a wide margin.  The US school system turns out a huge number of high school graduates with just mediocre skills, much more than half of whom are unprepared to do legitimate university-level work, despite taking “college-prep” classes. 


Setting aside these academic deficiencies, even the best high school graduates – and there are many, just to be fair – are typically very poorly prepared to deal with issues of personal finance that are needed by all citizens.  How to budget, how to save/invest, plan for retirement, acquire and wisely utilize credit, rent or buy a house and a car, addressing insurance needs – these crucial topics are taught quite superficially, if at all, in most high schools.  Even at the university level where the U.S. is still tops, most young people are successfully taught what they need in order to earn a decent income, but almost nothing at all about what to do with that income. 


The Ebb and Flow of Inventories

By Matthew Kerkhoff


Ask ten economists what causes recessions, and you’re likely to get fifteen different answers. Some will point to supply or demand shocks, policy errors, inflation, or sticky prices, while others, such as Hyman Minsky, will point toward fragility caused, oddly enough, by stability.


Each recession we experience is unique, and therefore it’s not surprising that identifying the root cause can be an arduous task.


But all recessionary periods share some of the same characteristics, and we can examine these similarities to identify periods when the probability of an approaching recession is higher than others.