The possibility of a recession is always looming, albeit with shifting triggers. Presently, one such trigger is ineffective political leadership, which might propel us towards a fiscal crisis. If we plunge over the fiscal cliff, it would mark a tragic first, as Washington would knowingly and willingly undertake a self-destructive path. This epitomizes political dysfunction at its worst.
Today signifies a new chapter for The Capital Spectator. Alongside the regular analyses here, I will be contributing insights to Saxo Bank’s “3 Numbers To Watch” blog available on their TradingFloor.com site. This will center around the upcoming trading day, filtered through the lens of significant economic news. I am fortunate to join notable analysts there and recommend taking time to discover the diverse insights covering topics ranging from forex to technical analysis and macroeconomic trends. On that note, feel free to check out my debut post, which discusses 3 critical indicators relevant to the fiscal cliff: the 10-year Treasury yield, gold prices, and the US$/euro exchange rate.
The Federal Reserve holds significant influence over the economy and capital markets. While its impact is well-recognized, it remains an enigma for many Americans. A new documentary aims to illuminate the complex workings of the Fed, offering a compelling narrative about its power, triumphs, and shortcomings. Money For Nothing: Inside the Federal Reserve is an “independent, non-partisan documentary film that explores America’s central bank from an inside perspective—critically yet fairly,” as stated on the film’s website.
● Market Sense and Nonsense: How the Markets Really Work (and How They Don’t)
By Jack Schwager
Excerpt via publisher, Wiley
Many investors turn to financial experts in various media for guidance. Is such advice truly beneficial? This chapter evaluates three cases of advice, from a popular financial program host to an index based on 10 market experts’ directional calls and the broader financial newsletter sector. While this limited sample does not provide conclusive evidence, the findings align with existing academic research. The overarching conclusion suggests that expert advice may prompt immediate price shifts as the public reacts, but it typically fails to deliver long-term advantages. My recommendation for equity investors is to either invest in an index fund, carefully timing the investment, or, if motivated, to develop a personal investment strategy without relying on expert recommendations.
If you seek fresh perspectives on the flawed reasoning that hampers policy discussions in the U.S.—and, subsequently, delays timely federal budget solutions—be sure to check out Paul Krugman’s latest column. Its title speaks volumes: Let’s Not Make a Deal.
Did Hurricane Sandy disrupt last week’s jobless claims data? It’s possible. One theory suggests that the storm prevented many from visiting unemployment offices, thereby leading to a decline in new unemployment benefit filings that may not accurately represent the true situation. Jim O’Sullivan, chief U.S. economist at High Frequency Economics, stated, “Extreme weather can initially lower filings as people focus on immediate concerns.” He warned that claims could rise in the upcoming weeks due to hurricane-related job losses.
Jobless claims dropped once again last week, providing further evidence that the spike in new unemployment benefit filings during October was not a harbinger of doom. The key takeaway from analyzing these data is to remain skeptical of the latest figures and instead focus on long-term trends. By this measure, the data indicates a gradual recovery in the labor market, a trend that has persisted for most of the last 18 months.
With the recent election completed, attention shifts back to recession forecasting as the fiscal cliff looms. It’s essential to remember that not all predictions are of equal quality. Many analyses suffer due to one or more of the following issues: 1) emotional influences; 2) selective use of data; 3) misinterpretation of economic signals and models; 4) undue emphasis on recent data that may be distorted by short-term factors; 5) ulterior motives diverging from objective macro analysis.
President Obama was re-elected yesterday, and we extend our best wishes. Yet, the news feels dated given the urgent need to address the fiscal cliff—a looming series of tax increases and spending cuts set to take effect in January unless policymakers intervene. The repercussions of not addressing this situation could severely hurt the still-fragile economy. Unfortunately, with the current climate of extreme political partisanship, such intervention seems unlikely in the coming weeks.
Economy Set for Better Times Whether Obama or Romney Wins
Bloomberg BusinessWeek | Nov 4
Regardless of the election outcome, the economy appears poised for accelerated growth in the coming four years as obstacles that have hindered progress become favorable conditions. Consumers are increasing spending and decreasing savings after lowering household debt to its lowest level since 2003. Home prices are on the rise after having plummeted over 30 percent from their 2006 highs. Moreover, banks are enhancing their lending capabilities after raising equity capital by over $300 billion since 2009. “The die is cast for a much stronger recovery,” asserts Mark Zandi, chief economist for Moody’s Analytics Inc. He anticipates growth this year and the next at around 2 percent, doubling to approximately 4 percent in both 2014 and 2015, fueled by rising consumption, construction, and hiring. The caveat lies in how the new president addresses the pressing federal-budget deficit, currently at approximately $1.1 trillion.
