WSJ: Stock-Market Capitulation, Defined

By SIMON CONSTABLE

Sometimes there comes a point in battle where one army just gives up. It's called a capitulation.

The same thing occasionally happens in investing, and it can arrive in the form of panic selling.

"It's when the towel gets thrown in," says Vinny Catalano, chief investment strategist of New York-based Blue Marble Research. There are a lot of times when selling by investment professionals is rooted in pressure from clients wondering why you're losing money or not beating the market, he says.

If the pressure is great, then you'll get a lot of stocks being dumped all at once.

A great example of a capitulation came in 2008. Over the first eight months of the year the major indexes lost about 11% as problems in the banking system became apparent. By September investors were clearly agitated, and the S&P 500 index plunged from 1,255 on Sept. 19 to under 900 by Oct. 10.

That also coincided with historically high trading volume, but elevated volume isn't a necessary aspect, Mr. Catalano says. He points out that a temporary rally in stocks often comes within a few months before the real "bottom" is set. After that plays out, a rally can really get going again, as was the case in 2008-09.

The great thing about capitulations is that there is an opportunity to find bargains. "I live for those days," Mr. Catalano says, but "they don't happen often."

The recent selloff in biotechnology stocks likely isn't a capitulation, but rather just profit-taking within a bull market, he says. One clue is that people haven't given up on the biotech sector.

See original story here.

Barron's: Why Oil is Cruising for a Bruising

By SIMON CONSTABLE

Here's a puzzle: The U.S. is producing the most crude oil in decades, domestic stockpiles are at record highs, yet oil prices are near $100 barrel. What's keeping prices aloft?

The first piece of the puzzle is the way the U.S. prices its oil. The U.S. benchmark, known as West Texas Intermediate, or WTI, is based on delivery at a storage hub in Cushing, Okla. How much oil is stored in Cushing affects the price. At the moment, inventories of oil across the U.S. are at their highest going back to 1982, but Cushing has seen a steady drop since a new pipeline linking the hub to refineries along the Gulf Coast opened earlier this year.

The Cushing hub is "running on fumes," according to Société Générale, giving the appearance of tight supplies, and leading prices higher.

Another boost is from money managers, including hedge funds diving into the futures market. Financial firms betting on higher prices outnumbered those betting on a slide by 322,788 futures contracts as of April 22, almost double the number a year ago, according to the U.S. Commodity Futures Trading Commission.

There's more. The U.S. oil benchmark is also tracking global crude prices, which have been elevated by tensions between Russia and Ukraine. The threat of more-intense hostilities and the possibility of a supply outage will likely keep Brent crude, the global benchmark, higher until the situation is resolved, wrote Commerzbank in a recent report. Russia is the second-largest oil exporter after Saudi Arabia, and investors are concerned that Western sanctions in response to Moscow's encroachment on Ukraine could hinder the flow of crude.

Currently, WTI trades about $9 below Brent. U.S. oil prices settled Friday at $99.76 a barrel, up 1.4% for the year.

BUT THAT'S ONLY THE story so far. Analysts see plenty of reasons for oil prices to slide in the weeks ahead. Oil inventories are piling up in the South as several Gulf Coast refineries have temporarily shut down for maintenance, writes Michael Cohen, an analyst at Barclays in New York. Oil continues to flow to the Gulf Coast because it fetches a higher price there—that's the so-called Light Louisiana Sweet, or LLS—than it does in Cushing. But Cohen says transportation costs from Cushing to the Gulf Coast also add $3 to $4 a barrel.

However, the buildup of supplies on the Gulf Coast has started to weigh on the LLS price, and that will bring it closer to the U.S. benchmark price, Cohen says. As prices near parity, it makes less economic sense to send crude from Cushing to the Gulf Coast, which will help supplies at Cushing rebuild. When Cushing's stockpiles grow, WTI prices are likely to soften.

A threat to prices is also "posed by a potential wave of hedge-fund liquidation of existing long positions," Cohen wrote in March, referring to bets on higher prices. If hedge funds do dump a substantial part of those bets, $10 to $15 would be wiped off the price of a barrel, he wrote.

Finally, when the Ukraine crisis abates, Brent prices are likely to retreat, and with that, WTI prices may fall as well.

"It could be a while," but eventually prices should capitulate, says Michael Wittner, a global head of oil research at Société Générale in a recent research report. 

See original story here.

WSJ: Five Important Shrines to Capitalism

By SIMON CONSTABLE

In the spirit of WSJ Sunday's focus on the financial, here are five tourist sites important in the history of capitalism.

The City: At the heart of London's financial district is the Bank of England, the empire's famed central bank, founded in 1694. Guided tours are available some weekends in summer and fall. Check out the current home of Lloyd's of London, located on Lime Street. Mixing God with mammon, don't miss Sir Christopher Wren's nearby masterpiece, St. Paul's Cathedral. See original story here.

The Bank of England 

Photo by Colin Smith, 

CC BY-SA 2.0 <https://creativecommons.org/licenses/by-sa/2.0>, 

via Wikimedia Commons

WSJ: How the 'Recency Effect' Trips Up Investors

By SIMON CONSTABLE

When you buy a mutual fund based on its recent performance, you could be succumbing to the "recency effect."

It's a "cognitive defect" from which most people suffer, says Josh Brown, chief executive of New York-based Ritholtz Wealth Management. "People extrapolate what just happened into more of the same." Or put another way, if stocks have consistently risen year after year, people expect they will continue to do so indefinitely.That's the tendency when making a decision to give recent events more weight than things further in the past. See original story here.

Barron's: Capital Spending Boom

By SIMON CONSTABLE

The prolonged capital-spending drought may soon end. If it does, which seems increasingly likely, equipment makers should benefit.

Over the last five years, Corporate America has spent barely enough to replace worn-out or depreciated machines, equipment, and factory buildings, according to a recent report from Société Générale. In simple terms, capital equipment, which typically costs at least $5,000 and lasts more than a year, is defined as the machines used to make other items.

"Today's capital stock [is] older than at any point since 1964," writes Aneta Markowska, a New York-based economist at SG.

Why? It's the result of chronic underinvestment. Capital stock grew at an average rate of just 1% per year during the past five years, well below the historical average of 2.6%, the report says.

Markowska concedes that capital expenditure orders are "not very encouraging" so far. Orders dropped from December through February, according to the latest government data.

Still, there are reasons why she remains hopeful.

The first is that corporate chieftains know that to remain competitive they need to invest. Second, executives have more of a sense about what the government will do. Stated differently, there is less policy uncertainty.

The Economic Policy Uncertainty Index, as designed by academics from Stanford University and the University of Chicago (Scott Baker, Nicholas Bloom and Steven J. Davis), has remained close to its long run average for the past five months. It spiked considerably during the financial crisis and then again during various fiscal showdowns in Congress.

"History suggests that capital expenditures levels tend to respond to changes in the uncertainly level with a 12-month lag," writes Jack Ablin, chief investment officer at BMO Private Bank in Chicago. The general idea being that when there is more certainty about what the government will do then businesses are more likely to make risky investments.

"I'm hopeful that based on the indicators that [capital expenditure] should rise toward the second half of the year," Ablin says.

If we see capital spending surge due to uncertainty staying low that would help equipment manufacturers like GE (ticker: GE) and Honeywell (HON). Alternatively, investors looking to place a broader bet might want to buy the Industrial Select Sector SPDR Fund (XLI), which holds a basket of industrial stocks.

See original story here.

Barron's: Why Copper is Pointing to a Slow Economy

By SIMON CONSTABLE

Dr. Copper is signaling that more danger is ahead.

Copper, which is consumed for a wide variety of uses including manufacturing and construction, is said to have a Ph.D. in economics because of its ability to forecast economic activity. Hence the Dr. Copper moniker.

When prices of the red metal drop it often presages slower economic activity and lower stock prices. Benchmark contracts for copper have tumbled from around $3.38 a pound at the beginning of the year to about $3.00 recently. But that's only part of the story. See original post here.

Barron's: Ukraine Farmers Stockpile Grain

By SIMON CONSTABLE

Here's something to chew on: Ukraine's farmers are using wheat and corn to hedge against the risk of a currency crisis. What's more, the uncertainty in Crimea has the potential to drive prices even higher in markets already worried about supplies from the major grain exporter. See original story here.

Photo by Igor Karimov on Unsplash

MarketWatch: The Cost of Dumbness

By SIMON CONSTABLE 

We all know there’s a price for being dumb. The problem is quantifying it.

But now some researchers have an estimate of the cost of America’s failure to make the grade in the classroom. It will cost the U.S. economy close to $15 trillion through the year 2050.

That’s trillion, with a T. It’s enough money to wipe out nearly all of America’s debt. Read more here.

Photo by Museums Victoria on Unsplash

Barron's: Tide Rising For Shipping Market

By SIMON CONSTABLE

Get ready for a gust of wind—freight futures look ready to set sail. The recently becalmed dry-bulk sector is likely to get a lift from surging demand for raw materials, particularly from China, which is expected to outpace freight capacity over the next two years.

The Baltic Dry Index, which measures the cost to move freight such as coal, iron ore, and grain across the world's oceans, plunged over the past few weeks, sinking more than 50% from its Dec. 12 peak. Still, at 1106, the index is more than 300 points above its lows from last year. See original story here.

WSJ: How Scotland Can Keep the Pound

By SIMON CONSTABLE

If UK chancellor George Osborne wants to come down hard on Scottish hopes of independence, he should at least get things right. The problem is he hasn’t.

This week Osborne, who holds a cabinet position roughly equivalent to Treasury Secretary, said “If Scotland walks away from the U.K., it walks away from the U.K. pound.”

If the Scots believe him, his pronouncement sounds like a scary proposition. Or it would be, if only he was correct.

“Osborne is just wrong,” says Steve Hanke, professor of economics at the Johns Hopkins University. “There is a viable option that is easy to implement.” See original post here.

Photo by Charlie Seaman on Unsplash

WSJ: Checking the Vital Signs of a Jittery Market

By SIMON CONSTABLE

The housing market is weakening. Job growth is stalling. Emerging markets are teetering. And U.S. stocks are struggling.

Despite a strong rally late last week, the Dow Jones Industrial Average is down 4.7% from its all-time high, set just over a month ago on New Year's Eve. See original post here.

WSJ: Understanding a Mutual Fund's Average Annual Return

By SIMON CONSTABLE

What does it mean when a mutual fund reports its average annual return over a period of, say, three or five years? It isn't exactly what you might think. What's more, computing the figure yourself will require more than the general arithmetic you use in other areas of your life.

Consider a person who invests $100 and has a 10% loss one year and a 10% gain the next. That might seem to be an average return of zero. But the investment would actually be down one dollar in value—dropping 10% to $90 the first year, then growing 10% to $99 the next.Specifically, average annual return can't be determined by calculating the simple average of three or five one-year returns—the way you would calculate the average height of two people who are 5 and 6 feet tall, respectively. That's because investment returns are volatile and the results compound year after year, says Paul Justice, director of data methodology at Morningstar Inc.

So fund companies and data providers typically report multiyear returns as "compounded average annual returns," or geometric returns, which reflect how a series of returns affect an initial investment. The annualized return in our example is about negative 0.5%.

The details of the calculation aren't important because fund companies will do the sums for you.

What is important to remember is that even seemingly small differences in annual returns compound over many years to create big dollar differences in how an investment grows. If you started with $10,000 and invested it for a couple of decades, a difference in average annual return of, say, half a percentage point could easily mean a difference of a few thousand dollars at the end of the period.

Quoted fund returns generally include the reinvestment of dividends and capital-gains distributions. They are net of operating expenses, but typically not of any sales charges.

See original story here.

WSJ: Roubini -- Twitter Value "Ridiculous."

By SIMON CONSTABLE

Valuations among tech startups are looking frothy, and that includes Wall Street darling Twitter Inc., according to the man known as Dr. Doom.

“Tech is a bit ridiculous in terms of the deals being done,” said Nouriel Roubini, founder of Roubini Global Economics. He was speaking with The Wall Street Journal at the World Economic Forum in Davos. “Startups with barely any profits are selling for sixty times expected forward earnings.”

He also said there were some examples of firms with no revenue selling for huge sums.
“Take Twitter,” he said. “Based on current revenue and earnings the valuation is totally ridiculous.”

It’s not that Roubini doesn’t like Twitter. Quite the contrary, he “loves” it and uses it multiple times every day.

The problem, as he sees it, is how the company can build a “revenue base” to justify the value.
It’s a useful tool, he says, but he doesn’t see the company growing bigger than Facebook Inc. or Google Inc.

It’s not just Twitter that has a crazy value, he says, pointing to some companies with zero revenue being acquired based purely on their “option value.” Or put in more simple terms, the purchase price is based on the small chance that one day the company builds a successful and profitable business.

Famously, close to two years ago Facebook purchased Instagram, which had zero revenue at the time, for $1 billion in cash and stock.

He also pointed to “flops” in the startup space, naming Groupon as an example of the risks inherent in the space.


To be sure, there are some “amazing” tech firms” and “some will be successful,” he said. Just not all of them.

See original story here.

WSJ: What Is 'Alpha' in Investing?

By SIMON CONSTABLE

When you pick portfolio managers, you need to know how good they are at their job—or put another way, how much alpha they add.

If you could have done just as well buying an index-tracking investment—such as the SPDR S&P 500 exchange-traded fund for broad U.S.-stock exposure—your portfolio manager isn't adding any alpha. If the manager does better than just tracking the market benchmark, then he or she is adding alpha.Alpha, the first letter of the Greek alphabet, in this context means the positive difference someone makes in the investment process, says Art Hogan, chief investment strategist at Lazard Capital Markets in Boston. An investment manager who adds a lot of alpha is "a good stock picker or sector picker," he says.

Alpha only goes so far, though. "When you add alpha it's a relative term," says Mr. Hogan. For instance, if you owned gold stocks and the gold sector plummeted like it did recently, your alpha might be that you lost less money than other investors.

Also, don't confuse alpha with beta, another term taken from the Greek alphabet. In this conversation, beta refers to how stocks move relative to the overall market. A stock with a beta of 1 moves in sync with the market.

See original story here.

WSJ: Holiday Gifts for the Money-Minded

By SIMON CONSTABLE
If there's one time of year when people are apt to break the budget, it's Christmas.

Here are some gifts that at least stand a chance of nurturing the money-savvy gene. What's more, we have a gift idea for pocketbooks of all sizes.
1. One Antarctic Dollar ($1)
Giving cash is an old standby, but often not special. So what about beautiful currency from far-flung lands? See original story here.

Photo by Derek Oyen on Unsplash

Sales of WSJ Guide Continue to Soar...

By SIMON CONSTABLE

Sales of the WSJ Guide to the 50 Economic Indicators that Really Matter have now surpassed 70,000 worldwide including editions in Japanese, Korean and Chinese as well as the original English.

WSJ: Mandela Obituary

By SIMON CONSTABLE

Nelson Mandela

South Africa The Good News / www.sagoodnews.co.za, 

CC BY 2.0, via Wikimedia Commons

WSJ: Year-End Distributions Hold Dangers for Fund Investors

By SIMON CONSTABLE

Congratulations, you've made it through another year! Well, almost. For mutual-fund investors, there is at least one more thing that could trip you up: ignoring the so-called date of record for the capital-gains distributions that many funds pay near year-end. Failure to pay attention may mean you get taxed for profits you didn't actually participate in.

With stocks, you decide when to take your capital gain or loss when you sell. But funds must distribute substantially all of the net realized gains in their portfolios to investors each year, explains Brian Peer, co-portfolio manager at Novato, Calif.-based Hennessy Funds. See original story here.

WSJ: Why Flexible-Rate Mortgages Make Sense

By SIMON CONSTABLE

If you're buying a home anytime soon, here's some contrarian advice: Don't take out a fixed-rate mortgage. If you do, you're likely to pay more than you need to.

Instead, it often makes more sense to choose a floating-rate note, also known as an adjustable-rate mortgage. Even on a small mortgage, over time you'll save thousands of dollars. If you use the extra cash to pay down the loan, you'll save even more. See original story here.

Photo by Dillon Kydd on Unsplash

WSJ: 'Presidential Stock Cycle' Sees Weak 2014

By SIMON CONSTABLE

Tomorrow, as you cast a vote, you might also gird yourself for rocky markets ahead, especially during the first nine months of 2014.

How so? The second year of a presidential term is traditionally a period of subpar stock performance.

Specifically, since 1945, the second year of a president's term saw the S&P 500 gain 5.3% in price on average, versus 16.1% in the third, according to an analysis by S&P Capital IQ. No distinction is made between a president's first or second term. The clock simply starts over.The "presidential stock market cycle" says that stocks perform better or worse depending on the year of the president's term. The second year is the worst, and the third is the best, on average. See original story here.

Barrons: Zinc Prices Could Jump 20+%

By SIMON CONSTABLE

Now might be a great time to galvanize your portfolio with zinc futures.

Why? Booming construction in China, combined with mine closures, could propel prices about 20% higher over the next couple of years, as demand for the metal outpaces output. The likely result: a supply shortfall in 2015.

Zinc has moved roughly sideways since March. But benchmark prices of the metal—used in construction, automobile production, and the manufacture of brass—could hit $2,400 a metric ton by 2015, about 23% above its recent quote of $1,955 on the London Metal Exchange, analysts say. A recent report from brokerage firm Natixis cites "the imminent demise of a number of significant [zinc] mines around the world," as a cause. Mineral deposits get depleted as ore is extracted. At some point, it isn't profitable to continue digging. See original story here.

WSJ Live: Shiller Big Interview

By SIMON CONSTABLE

Blast from the past-- my 2010 interview with Robert Shiller, who was today awarded the Nobel Prize in economics...

Robert Shiller

MeJudice, CC BY 3.0, via Wikimedia Common

WSJ: 'Mean Reversion' Suggests Big Stock Gains Won't Continue

By SIMON CONSTABLE

Investors tend to be either overly optimistic or overly pessimistic based on recent experience. They often think recent good or bad performance will continue indefinitely.

In simple terms, years of subpar stock returns will be followed by better returns to bring overall performance back to the long-term norm. It works vice versa, also.But investment returns over time are more likely to exhibit what economists call "mean reversion." That's the idea that over long periods the annual returns of various assets will swing back toward their long-term average—or back to the mean. See original story here.

Barrons: How Bernanke Built a Metal Mountain

By SIMON CONSTABLE

Industrial companies irked at Wall Street over the availability of warehoused metal have their eyes on the wrong target. The real culprit is the Federal Reserve and its continued easy-money policy. When that policy ends, metals prices could sink.

Metal is piling up in London Metal Exchange-licensed warehouses as inventory is quick to enter but slow to leave. In some cases, it's taking more than a year to get aluminum out of storage once you ask for it. See original story here.

WSJ: A Weak Economy Puts the U.S. Just a Couple of Hiccups From Recession

By SIMON CONSTABLE

Unless you are one of a very lucky few, there is little about the economic recovery that looks "robust." We are likely just one or two hiccups away from another recession.

For all but high earners it's increasingly tough to make ends meet. Just look at J.C. Penney as a prime indicator, says Kristin Bentz, consumer expert at Phoenix-based private-equity firm PMG Venture Group. See original story here.

PLBechly, CC BY-SA 4.0, via Wikimedia Commons

WSJ: Break Up the Banks Says TARP's Barofsky

WSJ: What Is a Basis Point and Why Is It So Important?

By SIMON CONSTABLE

Investment professionals regularly refer to "basis points" when discussing things like bond yields and mutual funds.

In the bond market, if the yield of a Treasury note rises to 1.05% from 1% it is said to have moved by five basis points or, as some abbreviate it, five "bips."

Why does this seemingly tiny unit of measure—one basis point is equal to one one-hundredth of a percentage point—get so much attention? It's pretty simple: Basis points can add up to a lot of money for both individual investors and institutions. See original story here.

Photo by Annie Spratt on Unsplash

WSJ -- Rand Paul: Don’t Give F-16’s to Egypt

By SIMON CONSTABLE

F-16 Warplanes

US Air Force, Public domain, via Wikimedia Commons

WSJ: Coupon Clipping Explained

By SIMON CONSTABLE

When you hear people talk about coupon clipping—that is, in an investment context—they typically mean they are collecting the interest payments from bonds.

These days bond interest payments are handled electronically, so there is no need for anyone to actually get the scissors out.Coupon clipping refers back to a time when these fixed-income securities came printed with coupons on them. To receive the interest payments, the bondholder would clip off each coupon as its payment came due and redeem it for cash. See original story here.

Barrons: Why Sunspots Will Warm Natural Gas Market

By SIMON CONSTABLE

A decline in the number of spots on the sun could warm up the market for natural gas.

These spots, which scientists have observed for centuries, are caused by changes in the magnetic fields on the solar surface, the National Aeronautics and Space Administration says. Scientists aren't sure why, but when the number of visible spots declines, temperatures on Earth tend to be lower. This matters for investors because the sun is entering another period of fewer spots.

You can profit from this situation if you focus on two things. See original post here.

Photo by Andrey Grinkevich on Unsplash

WSJ: What Are Doves and Hawks?

By SIMON CONSTABLE

When you hear finance people talking about doves and hawks, they usually aren't referring to our feathered friends. Most often they are describing the attitude of Federal Reserve policy makers toward inflation.

The Federal Reserve, aka the central bank of the U.S., has two mandates: full employment and a stable price level (i.e., low inflation). This dual mandate creates a tension—and a balancing act—because actions that focus on one side can worsen conditions on the other. See original post here.

Photo by Mathew Schwartz on Unsplash

WSJ: U.S. Oil Boom is Bad News for Tanker Business

By SIMON CONSTABLE

The approach of U.S. energy independence has becalmed an important part of the global maritime industry: the business of hauling crude oil across the oceans. What’s worse for investors is that the trade winds likely won’t pick up any time soon. See original post here.

Photo by Natalya Letunova on Unsplash

WSJ: What's the Difference Consumer Staples and Durables

By SIMON CONSTABLE

Stock strategists often talk about two groups of companies that sell goods to individuals: makers of "consumer staples" and makers of "consumer durables."

They sound similar but are in fact completely different in ways that matter to investors.
Consumer staples are the goods you buy for immediate, everyday use—like shampoo, toothpaste and soap. See original post here.

Photo by Joshua Hoehne on Unsplash

WSJ: Auction-Rate Securities Alive & Well

By SIMON CONSTABLE

Is it déjà vu all over again in the debt market?  You’d be forgiven for thinking so, especially if you remember the auction-rate securities debacle from 2008.

Those securities were and are used by some tax-exempt organizations as a form of inexpensive financing. They price using a Dutch auction at periodic (usually short) intervals.  Read more here.

Photo by Joshua Mayo on Unsplash

Barrons: Energy Boom Powers Up Shipping

By SIMON CONSTABLE

The North American energy boom should help power up an industry that's been stuck in the doldrums: marine transportation.

Shipping, the ugly stepsister of commodities, has been unappealing over the past few years. A massive shipbuilding boom created overcapacity, sending shipping fees into free fall. The Baltic Dry Index, a key benchmark for waterborne transportation fees, peaked at 11,793 in May 2008 before plunging to 663 in December that year, according to FactSet. By Friday it crept back to 933. See original story here.

WSJ: When Preferred Securities Make Sense

By SIMON CONSTABLE

Investors seeking income might want to take a peek at preferred-stock funds.

What is preferred stock? It is a hybrid security that is a cross between equity and debt. Like debt, it pays a fixed amount of interest, and holders get paid before any common-stock dividends are distributed. But like equity, it tends to have larger price swings to both the upside and the downside.Buyers may reap handsome yields of around 6% with advantageous tax treatment on distributions. Still, you need to understand the nuances of preferred stock to get the most from it.  See original story here.

WSJ: How a New Pope Gets Picked

Cardinal Egan explains to me how the new pope will be chosen...

WSJ: What Your Need to Know About Price Earnings Ratios

By SIMON CONSTABLE

The price of a stock doesn't tell you anything about whether it's a good deal, but the so-called price/earnings ratio can help. The trick is figuring out which P/E ratio to use.

Obviously, just because one stock is $200 a share and another $12 doesn't mean the latter is cheaper in terms of what you're getting. For a better gauge, you need to calculate what you are paying for each dollar of company earnings. Hence, the P/E ratio, derived by dividing the price of the stock by one year of per-share earnings. So if one stock has a P/E of 12 and the other of 10, the latter is cheaper. Read original story here.

By SIMON CONSTABLE



Friday we got news that jobs remain scarce in the U.S. Unemployment is still hovering around 8 percent but that doesn’t really give any sense of just how bad things are for the vast majority of Americans. Thursday last week I heard a presentation by Professor Matthew Slaughter of Dartmouth’s Tuck school of business. It was sobering to say the least. First he pointed out: it will take until 2020 for the economy to get back the number of jobs we had at the beginning of the great recession. It gets worse. Even if you have a job, your earnings are being eroded. Median pay adjusted for inflation has fallen since 1989. It should be a reminder to anyone who thinks we’re on the road to recovery that it will be a long road.

WSJ: Are Mom and Pop Heading for Wall Street? .

By SIMON CONSTABLE

Like the host of "The Price Is Right" TV game show, Wall Street is saying "Come on down!" 

Investment professionals are anticipating an influx of income- and growth-hungry mom-and-pop "retail" investors into the stock market this year—especially as the economy picks up and pressure grows for interest rates to start rising. See original story here.

Fox News Channel: Debt Ceiling Discussion

Michael Castner on WhoSay

NBR: Fiscal Cliff Problems Still Loom

By SIMON CONSTABLE

If the shenanigans in Congress at year end have taught us anything it’s that Washington just
can’t help but do stupid things.  While the tax situation for many Americans may now have been solved, the problem of spending cuts hasn’t. 

That’s bad in itself, not getting an important job done, but it’s also actually harmful to the U.S.  economy.  Not solving it has increased what economists call policy uncertainty.  Broadly speaking that’s ambiguity around what the government is going to do with laws etc.  When uncertainty is high, businesses, the real drivers of job growth in the economy, tend to invest in fewer factories and hire fewer people. 

Despite Congress having managed to avoid the fiscal cliff, uncertainty in the U.S. is still elevated.  How do we know?  

The smart people at Stanford and Chicago measure it in the U.S. economic policy uncertainty index.  That index is now around three times the level it averaged during 2006.  In a recent paper, the same authors that track uncertainty say "Increases are driven mainly by tax, spending and healthcare policy uncertainty."  

The consequence:  lower economic growth and millions of potential jobs lost.  Now if our government can just get its act together, provide some clarity and then get out of the way of
the private sector then maybe our economy can get roaring again, just like it used to.

Photo by Louis Velazquez on Unsplash