The Opportunity Cost

You can’t have your cake and eat it, too.  It’s a silly old saying with a huge dollop of folk wisdom hidden in the middle of it.  But money spent is sometimes more than just money gone – in an integrated world it’s a choice to make one connection when another one might have been a better choice.

Rather than just measure how much money is going in and out, it might be better to understand what we could buy with the same money.  The technical term for this is “Opportunity Cost”, or what we give up by making the choices we do.

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One Last Bubble?

Is the stock market nothing but a bubble waiting to burst? There are many reasons to believe that there is one last downturn at the exit of this Managed Depression, which may indeed be slowly forming. The risk comes in the nature of how the economy is so carefully managed through monetary policy directed by the Federal Reserve. Years of zero interest and $3.7T in quantitative easing have produced a situation that’s hard to pull out of without a lot of collateral damage.

The problem is that a lot of money is chasing an awful lot of risk these days. Junk Bonds (aka “speculative grade investments”) are making a strong run, selling a record $265B through May 2014. The reason? Interest rates stuck near zero mean no return for investors, and as things turn around they have an appetite for risk. A rise in interest rates would slaughter this market and cause losses that will reverberate through equity markets before things really have a chance to turn around.

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A Jolt of Confidence

There are many ways to measure an economy, as we’ve discussed before. There are thousands of workers toiling away at the Bureau of Labor Statistics (BLS), Bureau of Economic Analysis (BEA) and many other agencies providing more data than anyone will ever be able to fully understand. It’s something like the internet in terms of data overload, except many of these measures were developed before the information age. It used to be fun to get the reports in big thick binders of paper that professionals at least pretended to read.

We have this all real-time now, and there is a lot of it. One of the most comprehensive employment reports that comes out monthly is the rarely lauded Job Openings and Labor Turnover Survey (JOLTS) from the BLS. It’s worth getting to know if you really want the details on the state of employment today.

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Surviving & Thriving

To every thing there is a season, and a time to every purpose under the heaven.
Ecclesiastes 3:1 (KJV)

Anyone who has been close to the edge knows what “survival mode” is like.  Small flashes of adrenaline propel you from one day to the next.  Each fitful dawn is a mix of dread and possibility, all of them taken one at a time.  Next week?  Worry about it when it comes.  Next month?  Forever away.

Many people find themselves in “survival mode” through this Depression, especially those without either work or unemployment bennies.  For them it is a slowly unfolding tragedy, but in great numbers they become a society, a culture, and an economy that is unable to function.  That’s because a free market only reaches equilibrium in the long run, actually running on small differences in the short term.  But in the very longest term the magic of market forces become something else altogether.

Everything has its own time.  When we start to understand that “The only thing we have to fear is fear itself” it helps to appreciate the short, long, and very long term that are all whipping us through each day and all of our days.

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Stocks Lower Because … They Just Are, Dammit!

The Dow Jones Industrial Average (DJIA) is down for the third straight day. News outlets that have to attribute it to something attribute it to “global tension,” which does appear to be running a bit higher than usual. But the entire exercise of watching an index from one day to the next is a bit silly from the start.

A more interesting question asked by some commentators is, “Does this mean that the bull market is over?” The short answer is no, it doesn’t, but not for the reasons that most people think. The reality is that we have been in a secular (or long term) bear market since 2000, roughly the start of what we call a “Managed Depression,” and this small correction is nothing but a regression to the mean that proves it.

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