Outside the Box

Don’t Ignore the Anecdotes

May 7, 2014

Whenever I'm in New York I make a point of calling a number of my economist and investor friends and arranging a “dinner with interesting people.” Thankfully, Rich Yamarone is almost always at the table, because his insights into what's happening in the real economy, beyond Wall Street, are unrivaled.

Rich is Chief Economist at Bloomberg and the creator of Bloomberg's Orange Book, a compilation of key insights from CEOs, taken from quarterly earnings calls.  He is also part of the team of 7 top economists who write the daily must-read Bloomberg Economics Brief. (Tom Keene of Bloomberg Surveillance is a contributor, too.) If you are a trader, broker, or portfolio manager or are just interested in keeping up with all things economic, this is a good way to do it. You can learn more here.

For today’s Outside the Box, Rich has written a piece that summarizes his chief concerns about the domestic economy in 2014. Those concerns focus around the fact that growth in both real disposable personal incomes (adjusted for inflation and taxes) and consumer spending have barely advanced in the wake of the Great Recession.

In compensation – and it’s an unhealthy form of compensation – government transfer payments as a percentage of disposable income have grown from 9% in 1970 to nearly 20% today.

To make matters worse, the Affordable Care Act (Obamacare) is having a real impact not just on hiring and firing but also on hours worked per employee; and Rich gives us some helpful anecdotes and data on this situation.

I am really looking forward to having Rich – who many of his friends have taken to calling “Lord Vader” – debate David Zervos, Chief Economist at Jefferies, who is more the Obi Wan Kenobe type – sweetness and light and lover of all things to do with quantitative easing.

I find myself this afternoon in Geneva, where tomorrow I will make several presentations and do a lot of interviews. This is a beautiful city but ghastly expensive for someone using dollars.

It seems I caused the recent weakness in the dollar and strength in the Japanese yen by actually buying ten-year put options on the yen. I would expect these things to come back, of course, but perhaps I should alert traders when I decide to put on the rest of the trade. The market so likes to make me look foolish, at least in the short term. Some friends here in Geneva have decided to take me out to eat at a Japanese restaurant tonight as consolation, which is fine, as I do love sushi and things that go with it.

And let me address one failure last week when I was listing the people who helped me with my house and mortgage process. The entire process was orchestrated by my able young associate Shannon Stanton. The massive paperwork would not have gotten done, nor would the budgets or anything else. And my other assistant, Mary Haddad, keeper of the schedule and coordinator of everything, is also key in making my life run semi-smoothly while on the road. Thanks!

Have a great week.

Your thinking about currency flows and valuations analyst,

John Mauldin, Editor
Outside the Box

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Don't Ignore the Anecdotes

By Richard Yamarone

My top three fears for 2014 are: 1) income inequality that erodes the middle class, reducing the income and spending power of the primary engine of the U.S. economy, 2) widespread Chinese economic deceleration and an associated shadow banking crisis, and 3) a possible student loan bubble and widespread defaults amid elevated delinquencies.

After speaking extensively in 2013 and almost every week of this…

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May 8, 2014, 4:06 p.m.

I have seen it more than once on these pages that it may take 10 years to recover from the Great Recession.  Too many things got way out of balance during this Financial Panic.  Future growth was devoured for many years by greed and criminality.  Where are the prosecutions?  There are many of the same talking points from many persons criticizing the Affordable Care act before it even went into full operation, like they were trying to get it to fail.  A single, lower wage person can buy a high deductible Affordable Care Act policy for about $58.00 a month, to avoid bankruptcy should something bad happen to their health.  What does it cost the employer? If the employer cost is $58.00, why can’t a company adjust for this nominal cost.  I have not seen breakdowns like this.  It would be nice if there were.  Confusion…

jack goldman

May 7, 2014, 6:45 p.m.

Simple reality. The Dow was 750 silver dollars in 1964 and is still 750 silver dollars in 2014, fifty years later. This is not a growth economy, this is a counterfeit economy. The service sector is a fraud subsidized by counterfeit currency. There is really nothing else to understand. Banks, government employees, and information traffickers with monthly fees are parasites on the real wealth building economy. The parasites, moochers, and looters are destroying wealth and the economy suffers. Incomes go up 3%, costs go up 6%. In ten years incomes are up 30%, prices are up 60%, and I am behind 30% with a 30% raise. I blame Greenspan, Bernanke, and Yellen for looting America with counterfeit currency. I have to protect myself by being educated, having skills, and owning assets. Those who are unskilled, uneducated, and own nothing suffer. Good luck to us all. Good luck.

Bill Mayben 00806666

May 7, 2014, 2:04 p.m.

Thanks, Richard, for precisely locating us in this context.
As in any tribe of cannibals, if we are to continue to grow as a culture we have to look outside our own culture for resources. In other words, we can continue to feed off of each other for only so long, before the society begins to become radically altered. Domestic jobs, the domestic economy, trading among ourselves, is not growth inducing over the constraints of population growth. It is no wonder we are schizophrenic about immigration!
Why did we thin k we would benefit from NAFTA and the WTO. Americans, with the highest standard of living in the world, had the most to lose in such a proposition. Now, here we are after shipping our production overseas; becoming a service industry, serving those who shipped our jobs overseas! Early on I told the Obama Administration that if they wanted job growth, they had to aggressively encourage Job Repatriation.
I would guess that a graph of our export product our GEP, would parallel the wage charts, more of less. Without the production and participation in the world market, there can be no real growth domestically. This does not mean buying and selling products both produced and consumed outside the US; this means producing and exporting.What a concept.