One Bite out of the Apple … Rarely Two….. But not Three

The Lehmann Letter (SM) Most of us took a course in civics when we were in school. An important part of that course described the following: Congress enacted legislation and the president signed it into law. Failure to sign was called a veto, and that veto could be overridden by a super-majority vote of Congress. An override meant the law went into effect despite the president’s opposition; failure to override meant the law did not go into effect. The same procedure applied to the repeal of laws already in effect. Repeal required new legislation, a new congressional majority and the Continue reading

The Federal Deficit

The Lehmann Letter (SM) The federal budget and the federal deficit are in the news. Last month this letter asked: “Could the federal budget deficit disappear by 2016?” The answer: “Yes.” See for yourself. The chart shows that expenditures have stopped growing while revenues continue to climb. At this rate the lines my cross in just a few years and the federal government’s fiscal condition flip from deficit to surplus. That’s if the trends continue. A recession or a tax cut would halt revenue growth and the political climate may change and permit expenditure’s expansion. But if the immediate trends Continue reading

Profits Stay Strong

The Lehmann Letter (SM) The Commerce Department reported on GDP and the federal deficit this morning as part of its quarterly cycle on the national income and product accounts: That same report carried corporate-profit data: (Go to line 45 of table 1.12.) Earnings came in at $1,824.1 billion for the second quarter. Corporate Profits Recessions Shaded The chart shows you what a good strong number that is. The key question: Will we maintain the upward trend, or is this the leading edge of a plateau? Stay tuned. (To be fully informed visit © 2013 Michael B. Lehmann   Continue reading

Private Borrowing Recovering

The Lehmann Letter (SM) This morning the Federal Reserve released its estimate of second-quarter private borrowing: Households and businesses borrowed $918.6 billion at a seasonally adjusted annual rate Private Borrowing (Recessions shaded) That’s good because the economy can’t recover until private borrowing recovers because borrowing finances spending. Think of mortgage borrowing, consumer credit and business financing of plant, equipment and inventory. You can see from the chart that borrowing collapsed during the Great Recession. It turned negative because the private sector repaid debts rather than initiate new debt. Spending’s collapse reflected this. But now borrowing is climbing back to Continue reading

Consumer Confidence: Hanging out at 80

The Lehmann Letter (SM) Consumer confidence doesn’t seem to have the confidence to break through 80 and reach a plateau of 100 in the accompanying chart. It made a strong push to 80 earlier in the year but is now taking a rest. This morning The Conference Board reported August consumer confidence at 79.7: Consumer Confidence (Recessions shaded) Households have their problems, such as keeping their heads above water by finding well-paying work. Now we appear to be entering another season of potential government shutdown. That won’t help anyone maintain his or her confidence in anything. (To be fully Continue reading

Janet Yellen

The Lehmann Letter (SM) Larry Summers was often labeled abrasive when he was in the running for chair of the Federal Reserve’s Board of Governors. Attention is now focused on Janet Yellen’s management style since Mr. Summers removed himself from consideration. Recall that some commented that – perhaps – Ms. Yellen would not be as tough and decisive as Mr. Summers. So it is with some amusement that we turn to Jon Hilsenrath’s front-page story in today’s Wall Street Journal: “Yellen Would Bring Tougher Tone to Fed” It begins: “Janet Yellen, the lead candidate to succeed Federal Reserve Chairman Continue reading

Don’t Blame the Fed

The Lehmann Letter (SM) Today’s financial press carries two articles highlighting the Fed’s course reversal. On Wednesday, after months of anticipation that the Fed would encourage rising interest rates, the Fed clearly stated that it had overestimated the economy’s strength and would continue to pursue an expansionary, low-interest-rate policy. Please don’t blame the Fed for a change of heart. Recall that there was considerable internal debate within the Fed. For quite some time important members of the Fed’s Board of Governors and important regional Fed bank presidents expressed their fears that inflation would surge. Consequently the Fed prepared the world Continue reading

“We Have Been Overoptimistic…..”

The Lehmann Letter (SM) Those were the words of Federal Reserve Chairman Ben Bernanke at a news conference yesterday according to an article in this morning’s New York Times by Binyamin Appelbaum: “In Surprise, Fed Decides to Maintain Pace of Stimulus” Here is the full paragraph: “…..“We have been overoptimistic,” Mr. Bernanke said at a news conference Wednesday. The Fed, he said, is “avoiding a tightening until we can be comfortable that the economy is in fact growing the way that we want it to be growing.”…..” But investors reacted positively yesterday to the Federal Reserve’s decision to maintain Continue reading

Has Homebuilding Stalled?

The Lehmann Letter (SM) That’s a question that the latest Census Bureau data raises: Builders began construction on 891,000 new homes in August. That’s only a slight increase over the past year. We have not yet decisively crossed the all-important million-starts threshold. Housing Starts (Recessions shaded) Home prices have stabilized and increased sharply. But many of these buyers were investors with all-cash offers. Some bought for conversion into rentals. The ordinary run-of-the-mill buyer must now step in for new-home sales and new construction to accelerate. That returns us to questions about the liquidity and impaired financial strength of the Continue reading

Good News, Bad News?

The Lehmann Letter  (SM) This morning started out great. The Bureau of Labor Statistics reported mild August consumer-price inflation of 1.2% at a seasonally-adjusted annual rate (0.1% at a monthly rate): The Wall Street Journal featured a prominent article describing Janet Yellen as the top contender for the chairmanship of the Federal Reserve’s Board of Governors: That’s good news because of her bias toward an expansionary policy in a time of low inflation. The stock market continued its rally. But yesterday, in another Wall Street Journal article, Nick Timiraos and Conor Dougherty reported a cooling residential-real-estate market: “Home-Sales Continue reading