It doesn’t really matter! (I guess)

What I’m referring to is the U.S. Presidential election and the U.S. stock market.

There is a saying “on Wall Street” that the stock market projects six (6) months “down the road.” This means that “the markets” are already anticipating the future or have “a forward looking view.” In other words, “the market” is probably not responding to the news which is happening now (e.g. July 20, 2016), or this week or perhaps even this last month, but rather “the markets” are acting positively or negatively towards “the future”.

The U.S. Dow Jones Industrial Average (DJIA) is bumping it’s head up against ANOTHER “all-time high.” To quote the New York Times, “The Dow Jones industrial average inched 25.96 points, or 0.1 percent, higher for its eighth consecutive gain to set another record at 18,559.01.”

Here’s how the Canadian newspaper, the Globe and Mail relates the U.S. stock market in relation to the U.S. presidential election.

CNBC has an interesting “take” on the stock market vs. presidential election phenomenon: History shows stocks rally

If you are interested in “market indicators”, here are two (2) blog posts which focus on this subject:

What are Economic Indicators?

U.S. Economic Indicators

Federal Reserve Redux Year 2016

In the spirit of the upcoming Year 2016 Federal Reserve Bank of Kansas City’s annual symposium at Jackson Hole, Wyoming, here’s a redux of my Federal Reserve Bank postings over the last year.

Got your ticket to Jackson Hole? Year 2015

Meet the FOMC  Federal Open Markets Committee

When will the Federal Reserve Bank raise interest rates?

The Fed finally made their move!

Fed policy in the year 2016

What’s the difference between the federal funds rate and the discount rate?

Why credit cards stock may outperform in 2016  (This has a good explanation about federal funds rate)

The Fed’s Beige Book

Inflation-deflation, who ya gonna call?

What is Inflation?

What are economic indicators?

Interest Rates

Negative Interest Rates

What is a Reserve Currency?

Who prints the money Federal Reserve Bank or U.S. Treasury?

Brexit for Breakfast on June 24, 2016

cracked-eggshell-patterned-european-british-fla-two-halves-one-flag-community-other-one-70137316
Photo courtesy of Dreamstime.com

There is now and will continue to be a “ton” of information and data about Great Britain’s vote to leave the European Union (EU) posted to the Internet. I thought that I would sort out “a bit” of the available information so we can see what just “happened” and “how” it affects the World’s economies.

What just happened?

Great Britain voted to leave the EU. Great Britain consists of England, Scotland, and Wales. Northern Ireland also fits into the picture; a good explanation of Great Britain vs. United Kingdom is given at this website: http://resources.woodlands-junior.kent.sch.uk/customs/questions/britain/britain.htm

The New York Times® has an excellent web page spelling out the ‘Brexit” situation:

http://www.nytimes.com/interactive/2016/world/europe/britain-european-union-brexit.html?_r=0

Why did it happen?

Many citizens of Great Britain were not happy with the “rules” that membership in the EU “forced” upon them. Citizens of Great Britain just did not want “another entity” telling them how to run their country.

The BBC (British Broadcasting Company) has a webpage regarding the ‘Brexit”: http://www.bbc.com/news/uk-politics-32810887

Here’s a short video explanation of reasons for the “Brexit” voting:

http://www.cnn.com/videos/world/2016/06/24/brexit-how-did-it-happen.cnn/video/playlists/intl-brexit/

How does the “Exit” actually happen and take place?

For the UK to leave the EU it has to invoke an agreement called Article 50 of the Lisbon Treaty.

What is the European Union (EU)?

Here’s a nice explanation from the Telegraph®:

http://www.telegraph.co.uk/news/2016/06/20/what-is-the-eu-why-was-it-created-and-when-was-it-formed1/

How does the Brexit affect the U.S. economy?

CNN lists several of the repercussions to the U.S.:

http://www.cnn.com/2016/06/24/politics/brexit-what-this-means-us/index.html

Does the United States belong to the European Union?

No, it does not. But, the U.S. trades with members of the EU.

Should “I” care about the ‘Brexit” vote to leave the EU? Well, it will not affect my everyday life for now, the near future. The interesting thing about “events” like a ‘Brexit”, it takes a long time, sometimes a really long time for the consequences, repercussions, actions and reactions to take place, be enacted, responded to, etc. In past blog postings I have commented upon consequences and unintended consequences, here are a couple of examples:

Signs of the Times #6: Peripheral Stuff

Free trade agreements, cheap stuff, and American jobs

I guess the United States should think long and hard about our Presidential election coming up in November, 2016. It appears that the “Leave” vote surpassed the “Stay” vote by a VERY slim margin: a difference of one million votes or so. The “silent majority” in Great Britain stayed at home thinking that the MAJORITY was with them so why bother voting! We have such a contentious Presidential election looming before us, the “Brexit” voting outcome should be a canary in the mineshaft to us. We must look deep within ourselves spiritually, mentally, emotionally, financially, economically and vote for the person who will have OUR national interests and welfare at the center of his or her conscious.

As “they” say, “let the games begin.” The problem with “games” is that there has to be a “winner” and a “loser.”

Unstoppable

“By the Numbers” Archive

The Day 5 suggestion on our Branding Blogging course is such a good idea, I’ve created two more Archive pages of my themed postings. This one is #2.

CPI, Consumer Price Index

GDP, Gross Domestic Product

Market Indices

The Beige Book

Real lowdown on Real Estate

PPI, Producer Price Index

Let’s talk about Minimum Wage

Measuring the Markets

U.S. Economic Indicators

 
Paint

Numbers #9: U.S. Economic Indicators

All you ever wanted to know about economic indicators! Well, maybe. 

Here’s the list of official economic statistics supplied by the U.S. Census Bureau:  http://www.census.gov/economic-indicators/calendar-listview.html.

Before we get any further into the nitty-gritty of the numbers, here are some definitions from the folks at Investopedia.com:  http://www.investopedia.com/terms/e/economic_indicator.asp?layout=infini&v=5C&adtest=5C&ato=3000

As if putting the raw numbers into some context isn’t difficult enough, these numbers are not “static”, in other words they can change. “The powers to be” can revise them up or down! It’s not a whimsy thing; at least I don’t think so. Factors, when seen in the “rear view mirror” look differently, so that’s why you may hear about “adjusted” economic numbers. It happens frequently! A frequent example of an adjusted economic indicator is the number of unemployed. This number is calculated by the U.S. Department of Labor: http://www.bls.gov/

There are three categories of economic indicators:

  • Leading economic indicators
  • Coincident economic indicators
  • Lagging economic indicators

Investopedia.com, as usual, does a good job of defining them: http://www.investopedia.com/ask/answers/177.asp

Bankrate.com simplifies it a little bit by highlighting five economic indicators:

  1. Personal income and outlays
  2. Retail sales
  3. Consumer price index
  4. New-home sales
  5. Employment

Read more: http://www.bankrate.com/finance/investing/5-economic-indicators-to-watch-1.aspx#ixzz49Q6YiYHN

The Conference Board also publishes many economic indicators:

“The composite indexes of leading, coincident, and lagging indicators produced by The Conference Board are summary statistics for the U.S. economy. They are constructed by averaging their individual components in order to smooth out a good part of the volatility of the individual series.  Historically, the cyclical turning points in the leading index have occurred before those in aggregate economic activity, cyclical turning points in the coincident index have occurred at about the same time as those in aggregate economic activity, and cyclical turning points in the lagging index generally have occurred after those in aggregate economic activity.”  Web site:  https://www.conference-board.org/data/bci/index.cfm?id=2160

Here’s a white paper written by the Federal Reserve Bank of Kansas City. It highlights: “Why  do  central  banks  collect  and  analyze  so  many  indicators?  To understand the answer, it is first important to recognize that monetary policy affects economic activity and inflation with long and variable lags.”

https://www.kansascityfed.org/publicat/econrev/pdf/3q01kozi.pdf

This “stuff” may be boring but it is what “drives” the political and economic policies of the United States and other countries of the world. When the politicians talk about “free trade” or interject trade policies in the country’s economic system, it affects “the numbers.” Whenever the Federal Reserve Bank interjects a change in monetary policy it affects “the numbers.” Literally nothing in our age is invoked as economic, wage, banking, foreign, national, or other “labeled” policy that does not affect other economic indicator numbers, which are the life-line indicators of our nation’s health. In an earlier posting, By the Numbers #3: Those Naughty Market Indices, They Move Up and Down!, I referenced a life-support monitor used in a hospital as a way of identifying and monitoring the health of the stock market. I guess the same analogy can be used for monitoring the nation’s economic ‘state of health”.

What’s scary is that the “life monitor” came so close to “straight-lining” in the year 2009. Below are posts that I wrote in 2015 that reference the events and “stop-gaps” that were instituted and invoked to avoid the collapse of the U.S. economy in 2009. The documentary producers  at “Frontline” did a great job of summarizing many of these actions and events.

There are several postings involved, enjoy viewing them separately as each one is an hour-long documentary. Each posting link is indicated in the posting:  Great Recession Retrospective Redux

Popcorn optional, actually a scotch and water might be more appropriate while viewing!

Cheers!

P.S. If you’re up to it, here’s  “A Guide to Tracking the U.S. Economy” written by Kevin L. Kliesen of the Federal Reserve Bank of St. Louis (dated 2014):

https://research.stlouisfed.org/publications/review/2014/q1/kliesen.pdf

 

 

Definitions: Financial and Economic

Here are some terms and concepts that are used every day in the financial and news media. I will add additional definitions to this list in the future. The definitions are from Investopedia and/or CNBC Explains.

Capitulation

As usual, I go to Investopedia.com for a definition, here it is:
“Throughout even the longest uptrends, investors experience declines against the main trend. These are referred to as corrections. At other times, markets correct more than expected in a short period of time. Such occurrences are called crashes. Both of these can lead to a misunderstood situation called capitulation.”

Read more: http://www.investopedia.com/articles/analyst/080702.asp#ixzz3iuq5NsiJ

Carry trade

http://www.cnbc.com/id/44357354

http://www.investopedia.com/terms/c/currencycarrytrade.asp

Carried interest

http://www.cnbc.com/2014/03/04/cnbc-explains-carried-interest.html

http://www.investopedia.com/terms/c/carriedinterest.asp

Euro-dollar parity

http://www.cnbc.com/2015/03/11/dollar-euro-parity-what-a-one-to-one-exchange-means.html

http://www.investopedia.com/terms/p/parity.asp

Fractional Reserve Banking

A banking system in which only a fraction of bank deposits are backed by actual cash-on-hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties. Most countries operate under this type of system.

Also known as “fractional deposit lending”. Definition courtesy of Investopedia.com:

Read more: Fractional Reserve Banking Definition | Investopedia http://www.investopedia.com/terms/f/fractionalreservebanking.asp#ixzz3vnXB7ZjM

Inversion

http://www.cnbc.com/2014/07/24/corporate-inversions-are-the-latest-ploy-to-upend-the-us-tax-code.html

http://www.investopedia.com/terms/c/corporateinversion.asp

Mark to market

http://www.cnbc.com/id/43296046

http://www.investopedia.com/terms/m/marktomarket.asp

Market maker

http://www.investopedia.com/terms/m/marketmaker.asp

Negative Interest Rate Policy (NIRP)

During deflationary periods, people and businesses hoard money instead of spending and investing. The result is a collapse in aggregate demand which leads to prices falling even farther, a slowdown or halt in real production and output, and an increase in unemployment. A loose or expansionary monetary policy is usually employed to deal with such economic stagnation. However, if deflationary forces are strong enough, simply cutting the central bank’s interest rate to zero may not be sufficient to stimulate borrowing and lending. A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.

Read more: Bank of Japan Announces Negative Interest Rates | Investopedia http://www.investopedia.com/articles/investing/012916/bank-japan-announces-negative-interest-rates.asp#ixzz3yfqvax3s

Real return vs. nominal return

http://www.investopedia.com/terms/n/nominal-rate-of-return.asp

http://www.investopedia.com/terms/r/realrateofreturn.asp

Relative Strength

“Relative strength is a momentum investing technique that compares the performance of a stock, exchange-traded fund or mutual fund to that of the overall market. Relative strength calculates which investments are the strongest performers, compared to the overall market, and recommends those investments for purchase. Relative strength is a “buy high, sell higher” strategy that assumes a stock whose price has been rising will continue its upward trajectory.”

Sovereign debt

http://www.cnbc.com/id/44771099

http://www.investopedia.com/terms/s/sovereign-debt.asp

Transfer Payment
What is a ‘Transfer Payment’

A transfer payment, in the United States, is a one-way payment to a person for which no money, good, or service is given or exchanged. Transfer payments are made to individuals by the federal government through various social benefit programs. These types of payments are executed by the United States to individuals through programs such as Social Security.

Read more: Transfer Payment Definition | Investopedia http://www.investopedia.com/terms/t/transferpayment.asp#ixzz4HWCj9Mwt

Eye Crosser #9: The U.S. Debt Limit

As promised in an earlier posting, here’s the lowdown on the U.S. Federal debt limit. I found an nice article posted on the U.S. News & World Report website:  A Debt Ceiling History Lesson.

It seems that several Presidents have grappled with the Congress over raising the “debt ceiling.” What is interesting is how the elected officials go about justifying or not justifying the raising of the U.S. debt ceiling. If we default on paying our bills, it means that the U.S. defaults on its debt. Defaulting, of course, means that one reneges on paying his/her debt on time as promised.

Here’s the definition of debt limit according to the U.S. Department of the Treasury:

The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. The debt limit does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past.

Bloomberg QuickTake in its article The Debt Ceiling  dated March 15, 2015,  gives the following conclusion:

 The Argument

At least one thing is clear about the debt ceiling: It hasn’t restrained the federal debt. That’s in the hands of Congress when it sets levels of taxation and spending, then borrows money when it overspends. Raising the debt ceiling simply lets the government pay for things it has already decided to buy. As a result, some budget experts and commentators want to abolish it, arguing that the uncertainty of Congressional battles costs taxpayers money by increasing economic uncertainty, among other problems. Debt-limit supporters say opponents overstate the potential harm and that using it to bargain for spending cuts serves the public interest at a time of historically high debt levels.

Just a refresher, recall from my posting Eye crosser #6: Debt vs. Deficit posting:

Deficit= difference between what the Federal Government “takes in” and what the Federal Government “pays out.” If you spend more than you earn or in the instance of the U.S. Government, what you collect in taxes, then you have a deficit.

Debt= according to the Treasury site, “One way to think about the debt is as accumulated deficits.” The United States consistently borrows (issues Treasury investment instrument)  more money than it pays back to the loaner. The United States is limited in how much money it can borrow by the Debt Limit. Our Federal debt limit is controlled and determined by the Congress of the United States. In the last few years we have certainly heard a lot about “raising” the debt limit.

Author’s Addendum 9/13/2015: Here’s a nice explanation of U.S. national debt ceiling written by Mark Koba at CNBC: Debt Ceiling: CNBC Explains. Although it was written on October 8, 2013, the information is still valuable.  In fact, the U.S. Congress and the President are jousting again in September, 2015, with another shutdown of the U.S. government looming.

Author’s Addendum 9/13/2015: Another CNBC article, this time it’s National Debt: CNBC Explains. Again Mark Koba does a nice job of explaining “debt” vs. “deficit”. Article is dated 6/29/2011 but still relevant.
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