• Current Conditions

  • Everything Has Its Time

     For everything there is a season, and a time for every matter under heaven- Ecclesiastes 3:1

    About three and one-half years ago, I began posting on BearsEatBull.com. In doing so,  I had three primary goals:

    1. To give my children some investment knowledge and wisdom,
    2. To force myself to into a discipline that would keep me abreast with markets and the economy, and
    3. To stimulate discussion with others about the investment environment, the one thing I really missed about leaving the investment management business.

    Certainly, I accomplished my first two goals. The third goal, however, was elusive, probably because my writing was either too difficult to understand for the average person or not in-depth enough for professional investors.

    In any case, the time has come for me to wind down BearsEatBulls.com. This is not because I failed to achieve my third goal. The process of writing BearsEatBulls.com has

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  • Week in Review: 8/15/2014

    Week in Review: 8/15/2014

    The stock market continued to bounce back last week from its recent swoon. The S&P 500 Index rose 1.2% and the NASDAQ Composite was up 2.1%. The bull market is still intact, in spite of high valuations (41% overvalued) and overly bullish sentiment.


    The market ran into some trouble on Friday. After opening strong, stocks sold off significantly, supposedly because of political trouble in Ukraine. Although this might have been the trigger for the market’s weakness during the day, my guess is that just about any bad news would have caused a selloff because the S&P 500 index had risen to the critical level at its 50-day moving average (MA). The S&P 500 closed the week slightly below that level.

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    The 50-day MA has been extremely important to sustaining the stock market’s upward momentum. I mentioned in a recent post that the longer the S&P 500 stayed below its 50-day

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  • Week in Review: 8/8/2014

    Week in Review: 8/8/2014

    Because I am traveling, this will be a relatively short post. In economic news, 2nd quarter productivity rebounded to an annualized rate of 2.5% after having been deep in negative territory in the 1st quarter. However, smoothing out this volatile data tells me that productivity growth is only around 1%. By definition, growth in Real Gross Domestic Product (RGDP) is the sum of the growth of the labor force and productivity. With both of these numbers at about 1%, they imply RGDP growth of only about 2%—not very good. International trade could help RGDP growth, but probably by not more than 0.5-1.0%, meaning we should expect relatively slow economic growth ahead.

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    The latest weekly jobless claims again fell to under 300,000, a sign the labor market is relatively healthy. Consumers credit growth continued to rise in June, continuing to be led by vehicle and student loans.


    The Institute for Supply

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  • Week in Review: 8/1/2014

    Week in Review: 8/1/2014

    There was a lot of economic news last week. But, all of those reports were overshadowed by the stock market’s action. The week started quietly and proceeded with a mild downward bias. Then on Thursday, sellers hit stock prices hard. Pundits valiantly tried to explain the reasons behind the downdraft, but none of the theories held up to logical scrutiny. I think the primary reason the stock market dropped so much was that investors have been extremely complacent in their bullishness (or lack of bearishness) at the same time that valuations were very stretched. In such an environment, any amount of bad news can trigger a significant sell-off. For the week, the S&P 500 Index fell 2.7% and the NASDAQ Composite dropped 2.2%

    To be honest, the correction should be regarded as mild. After all, the major stock indexes are only a few percent below their all-time highs. The thing

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  • Corporate Cash: 8/1/2014

    There has been a lot of talk in the business media about the huge cash hoard on American company balance sheets. I have pointed out in previous posts that the media had ignored the fact that because companies had taken on serious amounts of debt the abundance of cash was not an indication that corporate balance sheets were significantly stronger. Today, the Wall Street Journal published an article about this issue: “America’s Business Puzzle: Record Debt and Record Cash.”


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  • Week in Review: 7/25/2014

    Week in Review: 7/25/2014

    There was not much economic news this past week. Much of it centered around the construction sector. The Architectural Billings Index rose in June. This index has tended to lead construction activity, which means overall construction should continue to be healthy for at least a few months.


    New home sales took a big drop last month, and the 12-month percent change in sales is below zero. Maybe there simply aren’t enough new homes on the market to create an upward trend in sales. In any case, this report was unexpectedly bad.

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    Fortunately, sales of existing homes rose in June. I think it’s most important to evaluate the housing industry by total sales (new plus existing homes). The fact that new home sales were poor is bad news for construction companies and workers. But, the level of existing home sales dwarfs that of new homes. With existing home sales trending higher,

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  • Week in Review: 7/18/2014

    Week in Review: 7/18/2014

    Because of political and military instability in Ukraine and the Middle East, volatility rose in the U.S. stock market this past week. In addition, unfolding events caused a flight to the safety of U.S. Treasury securities, which caused yields on those securities to drop. According to the business media, China was also a big buyer of our bonds.

    In spite of the issues around the world, the stock market closed the week on a strong note. For the week, the S&P 500 rose 0.5% and the NASDAQ Composite was up 0.4%.

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    The stock market environment is unchanged—excessive valuations, bullish sentiment, and upward price momentum with only small corrections. We are in the part of the cycle when many investors are afraid to sell stocks because they perceive there is no other alternative. My view continues to be that many years from now we will look back at today as a

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  • Week in Review: 7/11/2014

    Week in Review: 7/11/2014

    I have written that economic conditions in the U.S. were fairly decent, but many foreign countries were not yet out of the woods. U.S. investors have become complacent about the state of the world economy, acting is if the U.S. carries the key to world economic growth, which is no longer the case. This complacency is quantified in the two charts below. In reality, the size of the U.S. economy has shrunk in relation to the rest of the world to the point that our economy and markets are more likely to be highly influenced by what is happening elsewhere. And when investors get very complacent, they are more susceptible to negative news coming from abroad.


    This past week, the complacency of U.S. investors was shattered by bad news coming from Portugal, China, and Japan. The result was a flight to the safety of U.S. Treasury securities, which caused

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  • Week in Review: 7/3/2014

    Week in Review: 7/3/2014

    This past week brought the monthly employment data, which everyone interpreted as being bullish for the economy. Certainly, with the payroll, household, ADP, and online help wanted employment surveys all indicating that hiring was very strong in June, and the unemployment rate dropping to 6.1%, there was reason for encouragement.

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    However, there were a few “interesting” (code word for “disturbing”) data in the reports. First, most of the new jobs were in the service sector, which tend to be low-paying. Second, the increase in hourly wages continued to be very low and is barely keeping up with inflation. With this combination, the only way our economy will gain substantial strength is by people borrowing more money. Our collective debt is already high, which leaves our economy susceptible to weakness caused by rising interest rates (see interest rate comments below).


    Finally, there was a huge increase in part-time workers in June.

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  • Week in Review: 6/27/2014

    Week in Review: 6/27/2014

    It has been rare over the past year when a week’s economic news was either all great or bad. This past week was no exception. A bright spot was the housing sector. Both new and existing home sales rose strongly in May. Although the level of these sales is still well below pre-recession levels, the May news is encouraging. Consumers are probably becoming convinced that mortgage rates are only going higher (they may or may not be correct). In addition, the declining unemployment rate and the rising percentage of people who are quitting their jobs are indications that people are feeling more financially secure. Finally, lending institutions are loosening their borrowing standards. All of these factors tend to improve the home-buying market.


    According to the Case-Shiller survey, home prices rose for the second consecutive month in April. However, the 12-month percent change in home prices seems to have peaked. If

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