A lot has been said of the Occupy Wall Street (OWS) movement, both for and against it. In case you have somehow managed to avoid hearing about it, here's Wikipedia's definition:
... is an ongoing series of demonstrations in New York City based in Zuccotti Park in the Wall Street financial district. The protests were initiated by the Canadian activist group Adbusters. They are mainly protesting social and economic inequality, corporate greed, corruption and influence over government—particularly from the financial services sector—and lobbyists. The protesters' slogan, "We are the 99%", refers to the difference in wealth in the U.S. between the wealthiest 1% and the rest of the population.
But don't just whine and beat drums about people you don't know and don't mock the best political and economic system there has ever been. Do something specific and constructive, and if you are willing to work as hard as the people on Wall Street, you might just accomplish something.
But what about the rest of you, those not in the media and not in the movement. What do you think of it? Is it helpful and productive? Does it at least stimulate conversation? Or maybe it's a pointless act in futility? Sound off below!
Well, that was encouraging. The major indexes closed up about 3% yesterday, primarily on good news from Europe concerning the debt crisis there.
Now if we could string 10 more days like today together, we'd all be feeling a lot better. But every party has a pooper, that's why we read the analysts at the Economic Cycle Research Institute. According to this NY Times article:
Are we heading into another recession now? Again, the consensus says we’re not.
But at least one organization with an exceptionally good track record says another recession may already be here. That is the Economic Cycle Research Institute, a private forecasting firm based in Manhattan. It was founded by Geoffrey H. Moore, an economist who helped originate the practice of using leading indicators to predict business cycles. Mr. Moore died in 2000, but the team he trained is still at work.
Relying on a series of proprietary indexes, the institute correctly predicted the beginning and the end of the last recession. Over the last 15 years, it has gotten all of its recession calls right, while issuing no false alarms.
That’s why it’s worth paying attention to its current forecast. It’s chilling: as bad as the economy has been, it’s about to get worse.
But let's not end such a hopeful day on a negative note. You'll be happy to know that not everyone agrees with the ECRI's take. This guy, for example:
As for the economy, [last Monday] we noted that 14 of the 18 economic reports issued in the previous week came in better than expected. That trend continued last week with 11 of the 16 releases showing better than estimated results. Of particular interest were better than anticipated numbers on employment, vehicle sales, vehicle production, construction spending, and manufacturing/non-manufacturing PMIs. In fact, the composite Purchasing Managers Index is consistent with +1.8% GDP growth for 3Q11. Additionally, U.S. Machine Tool Orders have soared, same-store sales for the average casual dining chain were up 2% in September (an acceleration from August) and railcar traffic trends for the past two weeks have been quite strong (particularly intermodal).
All of this is inconsistent with an economy entering a recession. As stated, we guess people could actually talk themselves into a recession, but at the current time the metrics actually suggest the economy is marginally strengthening. To be sure, cyclical sensitive sectors, namely housing, has been so weak it is difficult to envision how much more it can contract. Household balance sheets have improved since the 2008/2009 “Financial Fiasco.” The trade deficit is likely to improve due to slower import growth and a decline in energy and commodity prices. Said price declines should also check headline inflation and lift households’ purchasing power.
While it seems like things have never been the way they are right now, this excerpt from Ron Blue's 1994 book Storm Shelter reminds us that "What has been will be again, what has been done will be done again; there is nothing new under the sun" (Ecc 1:9). Ron points out that while economic uncertainty is certain, God's principles are adequate for our protection. They've been tested through the centuries and never found wanting.
The picture is as clear in my mind as it was nearly thirteen years ago. As I pulled off the interstate en route to my office, I did not see the road markers; instead my eyes swam with the signs of the times.
The year was 1982. Interest and inflation rates had soared to all-time highs, investors faced crushing 70 percent tax brackets, and the price of gold leapfrogged daily. Taking stock of the situation, most analysts warned of a devastating financial explosion within the next few years.
As I drove to work that day, the economic consequences seemed both crippling and inevitable. I had just launched our investment and financial counseling firm. How, I wondered, were we supposed to respond to the clients who came to us for advice? Could anyone afford to purchase a home with 15 to 20 percent interest rates? Which kinds of investments and tax plans could stand up to double-digit inflation? And if the predicted monetary collapse did occur, would the resulting political turmoil uproot even the best-laid financial plans?
One of my fears as I navigated the interstate highway that day was that we faced a "worst-ever"? economic climate. Yet economic uncertainty - and its accompanying effects on our sense of security and well-being - are nothing new.
Ten years earlier, in 1972, we had been saddled with Watergate and an oil crisis that threatened to throttle the world's economy. Who can forget the lines at the gas stations or the rationing of fuel oil that winter? Then, too, I remember being hit with wage and price controls for the first time since World War II. And for the first time in my memory, the prime rate hit ten percent. Economic security seemed an elusive, if not impossible, dream.
Ten years before that, in 1962, the specter of economic and political uncertainty had hovered in every corner of the world. Our amazement at seeing a shoe-pounding Nikita Khrushchev vow to "bury"? us turned to horror as the Cuban missile crisis unfolded. At that point a nuclear holocaust seemed at least possible, if not imminent. And Vietnam lay just around the corner . . .
In 1952, in the shadow of the spread of Communism, amid the mud and blood of the Korean War, bomb shelters were among the best-selling items in the United States. In 1942, we faced Pearl Harbor and felt the full force of our entry into World War II. In 1932 we awoke to the nightmare of the Great Depression. And on and on and on. The point is that we will always face uncertainty.
Suddenly, I felt the subconscious click of the proverbial light bulb: The biblical principles of money management I had been teaching and using for years would work under any economic scenario. Armed with these concepts, I knew exactly how to help our clients weather the coming storm, no matter how hard the financial winds blew.
The predicted financial blowout never did occur. Yet as our business grew in the years that followed, we faced a thousand different financial situations that seemed specially tailored to test the worth and endurance of the money-management concepts our firm espoused. But in each and every case the biblical principles held fast, strengthening our clients' economic positions - and bringing them peace and security in the bargain.
You see, it's easy to make a case that this time is different. But friends, just as you should not "grieve like the rest of men, who have no hope" (1 Thess. 4:13), neither should you be fearful like the rest of men who have no heavenly Father who has promised to "meet all your needs according to his glorious riches in Christ Jesus" (Phil. 4:19). So, keep praying, that the Father "may give you the Spirit of wisdom and revelation, so that you may know Him better" (Eph.1:17).
[Originally posted on our Member's Blog on 08/05/2011]
How did you hold up yesterday? Yesterday was a good example of panic selling. Don Hays offered this morning that the volume of declining stocks was 82 times that of advancing stocks on the Nasdaq index yesterday. That's extreme. So if you weathered yesterday pretty well emotionally, it's a good sign.
I think the reason people are so fearful right now is because things feel so out of control. Government seems to be making lots of decisions, but few of them seem like really good ones. We keep hearing that the economy is broken (though we're a long way from bread lines and shanty towns). We've been burned by the stock market twice in the past decade and people are worried that we're out of bullets to deal with another crisis. Things just feel unstable.
Maybe you feel this way. If so, I'm not going to tell you that everything is fine and you don't need to be concerned. Nobody knows what the future holds. It is possible financial panic is around the corner. As much as we'd like to, it's almost impossible to ever completely rule that out.
But before making the leap of (negative) faith (also known as worry) to that conclusion, let's ponder a less dramatic scenario.
Since 1928, there have been 26 bull markets, including the one we're currently/recently in. As this post from seekingalpha.com stated on April 26, just a few days before the market peaked, this current/recent bull was very close to the middle of the pack in terms of both length and total gains. A little over two years and right around a 100% gain. Very normal.
All of that is fine, but if the bull market length and duration we just experienced was normal, it stands to reason that hitting a bear market after that point would also be quite normal, right?
This isn't an argument to say we have flipped over and this will develop into a bear market. I don't know if that's the case at this point or not, and neither does anyone else.
Rather, the point I'm trying to make today is that even if this is the beginning of a new bear market, it doesn't necessarily mean this bear market is going to be catastrophic or historic. It could just be a "run of the mill" bear, in the same way that the last bull was fairly "normal".
And it could be that it's happening not because the world is about to end, but because this is what the market does. It cycles between bull markets and bear markets. I hope you understand that if you're going to be an investor over the span of multiple decades, you're going to have to weather a number of bear markets. Some will be longer and deeper than others. But they're going to happen.
You know what else? They're normal. That should be some comfort. You don't need to worry about them or freak out when they finally do arrive. Sure they're unpleasant, but so is getting your teeth cleaned at the dentist. You still do it (I hope). They're basically the equivalent of investing winter, and they come around just like the seasons.
A lot of today's investors came of age during the extended bull market of 1982-1999. That bull market was by far the exception to the rule. (And in fairness, even that bull market technically had a mini-bear in there. Remember 1987? The worst single day for the stock market ever when it plunged nearly 23% in a single day. Makes yesterday look like a picnic.)
Hopefully it's some comfort to take a deep breath and recognize that a bear market every 3-4 years is about the historical average. It depends on how you slice and dice the data, but that's more or less been the average over the past century. If this is a new bear, which I'm not quite ready to concede, it will be our third in twelve years. Hmm. Dare we say, not all that abnormal? That the first two were a bit more severe than average shouldn't be a huge shock, given the massive bull market that preceded them, and the fact that the last one coincided with a banking crisis, which is unusual and not in a good way.
As you go about your weekend, try not to worry about the market. Life is more than the food we eat and the clothes we wear, and our Father knows our needs and promises to meet them. (That may sound familiar, I didn't come up with it myself.) It could be that next week will be wild and nasty. But it might not be. It could also be that this is a correction that doesn't ever develop into a bear market, in which case you'll forget about this little blip faster than you can imagine. After all, how often do you think about last summer's correction? It was worse than this year's has been so far.
As always, we encourage you to stick with your long-term investing plan. Hopefully you followed our advice and developed one long ago at a time when your emotions weren't screaming at you. Trust that version of yourself — I can almost guarantee he/she is a better information processor and decision-maker than the version that's feeling panicky today.
[For more about a membership to Sound Mind Investing, click here]
Does the market's recent weakness have you a little weak in the knees? SMI founder and publisher Austin Pryor says keeping historical trends in mind can help you face your fears.
To listen to his audio commentary, click the arrow (1:35).
SMI's executive editor Mark Biller offered an easy-to-understand overview of current economic conditions on Friday's "Connecting Faith" program on Faith Radio (with stations in Minnesota, Iowa, Wisconsin, and the Dakotas).
Mark also talked with guest host Michelle Strombeck about how implementing wise investing boundaries can help investors gain financial stability and make steady long-term progress.
To listen, click the arrow on the audio player below.
Interest rates on U.S. Treasury notes have jumped sharply in the past month, leading some pundits to argue that the rising rates are evidence that the Fed's QE2 policy is backfiring.
On the contrary, says Jeremy Siegel of the University of Pennsylvania's Wharton School (and author of Stocks for the Long Run), writing in yesterday's Wall Street Journal (subscribers' link):
Long-term Treasury rates are influenced positively by economic growth — which encourages consumers to borrow in anticipation of higher incomes and causes firms to seek funds to expand capacity — and by inflationary expectations.
Long-term Treasury rates are affected negatively by risk aversion: Seeking a safe haven, investors pile into Treasury bonds, running up their prices and lowering their yields.
The Fed's QE2 program has raised expectations of growth and inflation, sending long-term Treasury rates up. It has also lowered risk aversion, which implies rising long-term rates.
The evidence for a decline in risk aversion among investors is the shrinkage in the spreads between Treasury and other fixed-income securities, the strong performance of the stock market, and the decline in VIX, the indicator of future stock-market volatility. This means that expectations of accelerating economic growth — and a reduction in the fear of a double-dip recession — are the driving forces behind the rise in rates.
Siegel concedes that growth expectations have also been boosted by the tax deal currently before the Congress, "[b]ut long-term Treasury rates were rising even before Mr. Obama announced his policy switch."
The Wharton professor isn't the only one who thinks the combined impact of Fed's QE2 policy and the tax deal will juice the economy. PIMCO, which runs the world’s largest bond fund, last week upped its growth estimate to a range of 3.0-3.5 percent (by the end of 2011) from an earlier estimate for 2.0-2.5 percent.
PIMCO CEO Mohamed El-Erian told Bloomberg the revision came in light of the "massive amount" of fiscal and monetary stimulus expected to be pumped into the economy.
SMI's assistant editor Joseph Slife was a repeat guest yesterday on The Meeting House, produced by Alabama's Faith Radio.
Interviewed by host Bob Crittenden, Joseph offered analysis of financial matters facing the lame-duck Congress and discussed what may be ahead for the new Congress in 2011.
In a second segment, he talked about the Fed's attempt to create inflationary pressure by pumping $600 billion into the economy.
To listen, use the audio players below — or right click/save as to download mp3 files of segment one and segment two.
Federal Reserve chief Ben Bernanke rattled markets and raised eyebrows yesterday when he told the Senate Finance Committee the outlook for the economy is "unusually uncertain."
Of course, economic uncertainty is nothing new — and therefore not all that unusual. But present-day uncertainty tends to be very sharp in our minds while previous times of uncertainty have faded in our memories.
Last week, I spoke with radio host Bob Crittenden about the certainty of uncertainty on "The Meeting House," a program airing on Alabama's Faith Radio.
You can hear that segment below (14 min.) — or download an mp3 (Windows users: right click, then "save link as").
Blog
Now if we could string 10 more days like today together, we'd all be feeling a lot better. But every party has a pooper, that's why we read the analysts at the Economic Cycle Research Institute. According to this NY Times 
Members Only)." But as all the drama unfolds, we try to give you both sides of the story.
SMI's executive editor Mark Biller offered an easy-to-understand overview of current economic conditions on Friday's "Connecting Faith" program on 
SMI's assistant editor Joseph Slife was a repeat guest yesterday on The Meeting House, produced by Alabama's Faith Radio.
