Archives For Economic Commentary


david —  December 21, 2013

The Government said this week that Gross Domestic Product — the broadest measure of economic activity — grew at a 4.1% annual pace in the third quarter.  This was an upward revision from the 2.8% pace that was originally reported in November. The government typically reports its GDP figures at least three times for each quarter and this was the final number.  Surprising news, especially after economists had largely written off the previous GDP revision for the third quarter because much of the growth came from businesses building up their inventories.

Should we really be surprised?  Last week Labor Department reported that 203,000 jobs were added in November.   Drilling down another level we can look at overtime job growth as well. Job growth has tended to decline during periods when overtime growth was negative and increase when overtime job growth was positive. Over the last two years overtime growth has been stable growing in the low to mid-single digit range. This month, however, overtime growth made new 30 month high — a positive development for the job market that suggested the improving job numbers and suggests that job growth can continue.

The original third quarter numbers on GDP were explained away by economists saying that it was due to an inventory build.  Which would lead one to ask why would companies build inventory?  The answer appears to be that businesses knew more about the economy than the economists.  That is why they were building their inventories.

Meanwhile, in a rare example of budget bipartisanship after two years of confrontation and acrimony between Democrats and Republicans, a federal budget compromise passed the U.S. House and cleared a key procedural hurdle in the Senate.  The vote overcame a Republican filibuster attempt that required 60 votes in the 100-member chamber to proceed on the budget measure. The count was 67-33 with 12 Republicans joining majority Democrats and independents in support of the plan. The budget plan easily passed the House last week on a 332-94 vote.  The Senate passed a compromise $1.01 trillion government spending plan that sets federal spending for the 2014 and 2015 fiscal years.

All this bodes well for the economy.  As we have said in the past continue to expect the unexpected.  I do not know of one single economist ore prognosticator who forecast anything near a GDP number with a 4 in front of it! In fact a Morgan Stanley note on November 11th projected that  “Fourth Quarter growth appears to be on a trajectory for growth a bit below 1.5% at this point”.  We doubt that.

Surprises will continue to happen so remember it is our job to be ready and accepting of what the economy brings, not to predict it.

The big question for investors is what will this mean for the markets.  We will deal with that in our next blog post.

Please feel free to call me with any questions at 310-459-9196.






Beginning in January, the Fed will buy $75 billion in bonds each month – that’s down from the $85 billion it had been buying since September 2012.

Past not quite Prologue

david —  November 19, 2013

The Chart of The day chart below provides some long-term perspective in regards to gasoline prices by presenting the inflation-adjusted US price of one gallon of gasoline since 1980. There are a couple points of interest from the chart. For one, Middle East crises are often associated with major swings in the price of gasoline. Also, gasoline price spikes have often occurred prior to an economic downturn. It is also worth noting that gasoline prices have declined $0.65 per gallon over the past eight months — a relative positive for both the economy and corporate earnings going forward.

Given this history it is interesting to note that we did not have a recession based on the price spike in oil earlier in the year and it doesn’t look like we are anywhere near a recession!  As we noted in our last post, the economy grew at a rate of 2.8% annually last quarter and added 200,000 jobs last month when economists thought we would be lucky to add 120,000 jobs.  The decline in oil prices will act as a stimulus for the economy as it literally means more money in peoples pockets for spending.  Could it be that lower gas prices will counterbalance the inevitable and dreaded easing of QE from the Fed?  This would not surprise me at all as it is a scenario that has hardly been discussed by the financial media and therefore something for us to keep our eyes on.


Have a great day and feel free to call us at 310-459-9196 with any questions.


David R. Fried



Main Street and The Middle East

david —  August 30, 2013

Chart of the Day – Crude oil prices on the rise.

The link above from Chart of the Day shows the relationship between crises in the Middle East and recessions in America.  Over the past 50 years Middle East problems have created spikes in oil prices which have coincided or preceded recessions.  The reason is that spikes in oil lead to higher gas prices which takes away purchasing power for other items for the average consumer.  I am not yet thinking that will be the case presently.  However, our job as investors is to be aware and on the lookout for what may happen and react accordingly regaurdless of personal opinion.  From that standpoint the chart is important information for investors to be aware of.

Next week should be interesting for the market. which tends to have an upward bias in the days before and during the the Fed meeting. Then comes August a tough month. Check this link for some detail

This chart shows that on average the current market is average in duration and magnitude. That doesn’t mean the market will continue to go up. However it does mean that we should be open to the possibility. August in particular can be a tough month for the markets so use discretion at this time if you are going to invest new funds in the market.

USA Credit Downgraded by S&P!

david —  August 6, 2011

Rating agency Standard & Poor’s says it has downgraded the U.S. credit rating to AA+ from its top rank of AAA. No one knows exactly how the markets will be impacted by this or for how long. However, it is certainly a major event. A brief and informative summary can be found at the following link:

In any event, we have been selling stock in our client accounts as stop loss signals have triggered recently. Our managed equity accounts are 65% cash while our income accounts are 40% cash. We have also advised sales in our newsletter. The market sometimes goes up when anticipated news comes to fruition. However, a big sell off is not out of question in the stock market on Monday so I will sleep better this weekend having taken these actions and hope you will as well. We see how things shake out and go from there.


There is an unusual situation developing in the financial market, and I wanted to make sure my clients were aware of it, and aware that we are observing it.

U.S. corporations are issuing bonds left and right, led by International Business Machines Corp., the world’s biggest computer-services company. A week ago, IBM raised $1.5 billion at the lowest interest rate on record; 1%, on 3-year notes. That’s just 0.3 percentage point more than the yield on government debt of similar maturity. The notes have the lowest coupon of the more than 3,400 securities in the Barclays Capital U.S. Corporate Index of investment-grade company debt.

The surge in U.S. corporate bond issuance set a record last month, as yields on the debt fell to the lowest in more than four years. IBM was joined by New York-based Citigroup Inc. and ArcelorMittal, the world’s largest steelmaker, among at least five other issuers marketing debt at the same time. It’s a window of opportunity for companies, as the money is inexpensive and investors seeking yield over Treasuries are plentiful. Strong companies are able to leverage their good balance sheets to take advantage of this situation. Continue Reading…

Last week the Unemployment Rate, which came in at 10.2%; surprised economists as it came in above the consensus estimate for a reading of 9.9%. (You may recall that we predicted that unemployment would hit 10% last fall.) The Unemployment Rate is now the highest since April 1983, and it is only the second time that the unemployment rate has topped 10% since 1948! To boot, the Labor Department reported that Nonfarm Payrolls for the month of October fell by 190,000 jobs, which was worse than the expectations for a decline of 175,000 (but nonetheless less that the 263,000 drop for September). These stories garnered the lion’s share of the headlines.  Continue Reading…

A month ago we took stock of the economy, noted some welcome positive news, observed the crosscurrents that were still threatening us, and advised watching some key areas (economists’ estimates, homes sales, jobs, the WTO-China conflict, consumer spending, stimulus money) as we focused on the future.

Things are a notch better in the ensuing month as a broad economic recovery seems to be creeping along, and while we aren’t in favor of irrational exuberance, we are in favor of a clear-eyed assessment of the facts.

So how are we doing so far? Is the worst recession in 70 years over?

The answer is yes it is! A growth rate of 3.5% in GDP for the third quarter signaled the end of the recession. Remember, a recession is defined simply as two quarters in a row of negative GDP growth.

Having said that, it is important to recognize that many people who saw the value in their investments, retirement and college funds and equities drop in value are still suffering from the effects of the recession. Likewise for the many people who lost jobs or contracts, whose hours were slashed or whose benefits were chipped away in company cost-cutting moves. The loss of 6.5 million jobs since December 2007 has spurred the sharpest rise in the unemployment rate since the 1930s, and it is expected to rise above 10%. We are not surprised, as we predicted this rate some months ago.

But there have been a few indicators that tell us the recession is indeed over. Home sales have risen for a few straight months, the stock market has rallied since March, the economy is expanding, and Federal Reserve chairman Ben Bernanke told Congress economic activity “will increase slightly over the remainder of 2009.” Continue Reading…

No matter one’s political leaning, it seems obvious that we can draw a few basic conclusions from the current economic situation.

First, Federal Reserve chairman Ben Bernanke’s nonitary policies were successful. Most of Bernanke’s term, which began in 2006, has been spent battling the recession and indeed the possibility of depression. Therefore he was reappointed for a second term in August by President Obama. Second, President Obama’s stimulus program is working, even though it has been roundly criticized for all of the following reasons — having insufficient programs, being a budget-buster, and supplying too little or too much in the way of immediate stimulus.

Recent positive news gives us hope

Businesses are doing more with less: We learned that nonfarm payrolls fell by 247,000 in July, and 217,000 in August, the fewest since last August, indicating further moderation in the trend of job losses. These figures were less than expected and way down from the 700,000 in monthly job losses that we were experiencing at the beginning of the year. Additionally theaverage workweek increased to 33.1 from 33.0 hours, the first increase since last August. Also, nonfarm productivity surged at a 6.4% annual rate in Q2, the biggest increase since Q3 2003 and larger than the 5.5% expected increase. Manufacturing productivity rose at a 5.3% rate, the biggest increase in four years. Continue Reading…