Finance

Kansas GDP and Employment under Brownback: A Retrospective

Now that Brownback is an ex-governor, and the tax plan he touted as a “shot of adrenaline” is largely reversed, it’s a good time to see what damage was wrought. Figure 1: Log real GDP for Missouri (blue), Kansas (red), normalized to 2011Q1=0. Source: BEA and author’s calculations. Kansas GDP growth was negative q/q from 2015Q3-2016Q1. Hence, Kansas was in recession using the conventional rule of thumb over this period. The timing of the start of the recession is in line with results obtained using the Philly Fed coincident indices and the Hamilton Markov switching approach, as discussed in this post. The rebound is more pronounced in the employment data which extends through December. Figure 2: Log nonfarm payroll employment for Missouri (blue), Kansas (red), normalized to 2011M01=0. Sourc...

Fed Statement: Highlights, Red Line

Ok, here comes the Fed. And you should enjoy this FOMC statement because it represents the outcome of the last meeting Janet Yellen will chair. So you know, maybe print it out and frame it for posterity in case the equity bubble she’s spent years presiding over crashes an burns under a relatively hawkish Powell. The consensus is that this should be some semblance of upbeat as a way of both conveying confidence in the outlook (perhaps on the back of the growth prospects tied to the tax plan) and paving the way for Powell’s Fed to adopt a slightly more aggressive stance going forward. Just to give you something to benchmark this against in terms of reality versus expectations, here’s a reminder about what Goldman said in their preview: At Janet Yellen’s final FOMC meeting next week, we expec...

Bonds are in ‘mild bear market,’ says Bill Gross

Bonds have entered a bear market, but it’s not one that is necessarily extreme, bond guru Bill Gross told CNBC on Wednesday. He predicts the benchmark 10-year Treasury will go “very gradually but not significantly higher,” in the next 12 months, hitting a yield of 3 percent. Rising yields mean lower prices, which in turn cut into returns for bond investors looking for capital appreciation. While bondholders will get the income from the yield, they’ll lose about 3 points in terms of price “so they’ll get nothing,” the manager of the Janus Henderson Global Unconstrained Bond fund said in an interview with “Power Lunch.” “To me, that’s a mild bear market.” However, he noted that the bear market will certainly not be the e...

Brexit: Still A Stupendously Bad Idea, Still Happening Anyway

By Rlevente [CC BY-SA 4.0], via Wikimedia Commons It’s been nearly two months since the European Union grudgingly agreed to let the British begin to mention the shape of a post-Brexit world in its presence in spite of their reaching an agreement on only two of the three things that the EU said was necessary. And ever since, they’ve been regretting it. Six weeks after EU leaders gave their blessing to moving the Brexit talks on to future arrangements, frustration is mounting that the UK is “not ready” to complete the divorce, which the EU deems essential for a deal before Britain’s departure on 29 March 2019…. The Irish border issue is the most difficult hurdle, but negotiators must also resolve a host of technical matters, including Euratom, police cooperation and the role of the European ...

Alan Greenspan says there are bubbles in both stocks and bonds

Alan Greenspan gave a stark warning about the financial markets Wednesday. “I think there are two bubbles. We have a stock market bubble and we have a bond market bubble,” Greenspan said in an interview on Bloomberg Television. “I think [at] the end of the day the bond market bubble will eventually be the critical issue.” The former Federal Reserve chairman predicted a rise in interest rates and fretted over the national debt and budget deficit. “We are dealing with a fiscally unstable long-term outlook in which inflation will take hold,” he added. “In fact I was very much surprised that in the State of the Union message yesterday all those new initiatives were not funded and I think we’re getting to the point now where the breakout is going ...

Traders are still expecting two to three rate hikes this year after Fed statement

The Federal Reserve likely remains on track to raise interest rates at least two times this year. Fed funds futures, contracts that measure the market’s bets on where the central bank’s benchmark rate will be, rose slightly but did not indicate a significant change in expectations after the release of the Fed statement Wednesday. Markets were pricing in a more than 90 percent chance of an interest rate rise in March, and another 1.75 hikes by the end of the year, according to Bank of America and Jefferies. That was essentially unchanged from before the Fed released its statement. “Still somewhere between two and three [rate hikes this year] is what people are expecting,” said Ian Winer, head of equities at Wedbush. The Fed “sounds ever so slightly hawkish but ...

Even Deutsche Bank Thinks GE Is A Hot Mess

When your new CEO admits almost right off the bat that the place is kind of a shithole, you really can’t expect your company to be going too great. And while GE shareholders have come to accept bad results, messy bitches causing ratchet drama and a deep distrust in the long-term recovery process as commonplace, you’ve got to believe that this still hurts… “We believe the chances that GE could be removed from the Dow are increasing as GE continues to face substantial challenges including earnings and cash pressure, tough global power generation markets, aggressive downsizing, shrinking its portfolio, management shake-up and SEC investigations,” Deutsche Bank analyst John Inch wrote Wednesday. “Apart from GE’s other challenges, as the company’s absolute share price has continued to drop, GE ...

Yellen leaving Fed Saturday, Powell to be sworn in Monday

Janet Yellen’s final days as head of the Federal Reserve are at hand. The Federal Open Market Committee, which sets monetary policy for the U.S. central bank, decided this week to select Jerome Powell as its new chairman effective Saturday. He will be officially sworn in Monday. The move was a formality considering that Powell already has been confirmed by the Senate as the new Fed chair, but it does delineate how the handoff of power will occur. Yellen has led the Fed since February 2014, but President Donald Trump chose not to reappoint her. She becomes the shortest-serving Fed chair since the late 1970s. After Trump made his choice of Powell public, Yellen said she would not stay on the FOMC.

Here’s what changed in the new Fed statement

This is a comparison of Wednesday’s FOMC statement with the one issued after the Fed’s previous policymaking meeting on December 12. Text removed from the December statement is in red with a horizontal line through the middle. Text appearing for the first time in the new statement is in red and underlined. Black text appears in both statements.

Fed leaves rates unchanged but gives more aggressive inflation expectations

In Janet Yellen‘s final meeting as Fed chair, the central bank decided Wednesday against increasing its benchmark interest rate but indicated it expects inflation pressures to heat up as the year moves on. The policymaking Federal Open Market Committee said current conditions indicate that the overnight funds rate should remain anchored at 1.25 to 1.5 percent. The decision, which came at the end of a two-day meeting, was widely expected. Rather than looking for a move on rates, market participants were watching the January Fed meeting for clues on how the central bank might proceed for the rest of the year. According to projections released in December, officials expect three rate hikes this year so long as there is no significant disruption to market conditions. However, the market ...

An $11 million opportunity: It’s time to think about your estate plan

Here’s a way for financial advisors to strengthen their client relationships: Start a chat about the legacy your client would like to leave for heirs. Such was the focal point of a panel Wednesday at the TD Ameritrade National LINC conference in Orlando. “There is an opportunity for you to get into that conversation,” said Michael Cyrs, a panelist and director of wealth advisory at Savant Capital. “It’s a people conversation: You don’t have to follow the estate-tax nuances we were dealing with in the past.” The Tax Cuts and Jobs Act has opened the door for financial advisors to have more meaningful conversations with their clients about their legacies – and to team up with estate-planning attorneys to update plans. The estate-tax exemption is now a...

Middle America Already Winning Big From Tax Plan As Lowly Workers Get Free Hos And All-You-Can-Eat Dongs

There were a lot of bumps in the road on the way to finally getting the GOP tax plan across the finish line. One persistently pesky problem was explaining how a corporate tax cut and a plan that screams “trickle down” could possibly warrant the “middle class miracle” branding that was slapped on the bill for the purposes of selling it to Trump’s base, which is comprised of working Americans. There were innumerable issues with that branding effort including, but certainly not limited to, numbers and history, two things that are extraordinarily annoying because they’re hard to argue with. The numbers problem manifested itself in independent analysis which showed that by 2027, taxpayers in the top 1% of the income distribution would receive an average tax cut of 0.9% of after-tax income, acco...