Monetary Policy: Activists Prevail

The Lehmann Letter (SM) In the 1970s and 1980s, financial conservatives – known as monetarists – urged a hands-off policy for the Federal Reserve. Best to set the thermostat and step back. No fiddling. Now conservatives want the Fed to raise rates to forestall inflation. This morning’s New York Times, in an article posted yesterday by Binyamin Appelbaum, discusses today’s struggle between liberal and conservative activists: “Challenged on Left and Right, the Fed Faces a Decision on Rates” For instance: “… the Fed’s plans have also become the latest point of contention in a broader debate about the government’s Continue reading

Blue Skies Ahead?

The Lehmann Letter (SM) Now that the worst of the stock-market meltdown is behind us, we may ask, “Blue Skies Ahead?” Was this a meaningless correction? A “technical” adjustment? Consider the meltdown a warning. The stock market is not Jack’s Beanstalk. It will not reach the sky. There are difficulties. Profit margins have peaked. Earnings may have, too. The P/E reached 20/1. Interest rates won’t (or can’t) fall. We’re in a chronic liquidity trap. These are real issues. Just because the stock market has stopped falling does not mean it can resume its upward march. Questions or comments? Contact Mike Continue reading

Corporate Profits Surge

The Lehmann Letter (SM) This morning’s release from the Bureau of Economic Analysis included some good news about corporate profits: The bulletin said: “Profits from current production …. increased $47.5 billion in the second quarter, in contrast to a decrease of $123.0 billion in the first….” Profits have broken out of an earlier range. This will bear watching. It’s a great omen if the increase holds. Corporate Profits (Recessions shaded) $Billions: 2013 First Quarter           1,681.7 Second Quarter      1,688.2 Third Quarter          1,687.9 Fourth Quarter        1,713.2 2014 First Quarter           1,613.9 Second Quarter      1,700.2 Third Quarter          1,761.1 Fourth Quarter        1,700.5 2015 Continue reading

Strong Domestic Activity

The Lehmann Letter (SM) The stock market is reversing its slide today. Let’s hope it holds through the closing bell. Meanwhile, recent reports on domestic activity were robust. Expenditures on nondefense capital goods, new home sales and consumer confidence have been strong. Tomorrow’s GDP report will include corporate profits. Those are key. Questions or comments? Contact Mike Lehmann at (To be fully informed visit © 2015 Michael B. Lehmann      

The Real Risk: No Policy Options

The Lehmann Letter (SM) The US stock market appears to have stabilized this morning. Perhaps the worst is over. After all, China’s economy has grown at a torrid pace. A slower pace would remain the world’s envy. And then we could all go about our business. We’ll see. But the real risk is a world economy – and a US economy – that merely shuffles along at an inadequate rate. And that risk is compounded by low interest rates and large federal deficits that prevent the implementation of corrective monetary and fiscal policy. If we can’t stimulate the economy, we Continue reading

What Can We Do?

The Lehmann Letter (SM) See the following article by Lingling Wei and Mark Magnier in this morning’s Wall Street Journal: “China to Flood Economy With Cash as Global Markets Lose Faith” It discusses China’s use of monetary policy to stimulate the economy: Reducing banks’ reserve requirement so banks can lend more and interest rates fall. Why can’t we do the same? Because we never raised rates following the Great Recession. What didn’t go up can’t come down. How about fiscal policy? The federal government could spend more and/or tax less. Considering Washington’s climate: Not likely. We’re stuck. Questions or Continue reading

The Domestic Scene: If Earnings Stall, Why Shouldn’t the Stock Market?

The Lehmann Letter (SM) The stock market is down again this morning following yesterday’s brutal sell-off. The financial press has focused upon international weakness generally and China’s vulnerability in particular. But this Letter has commented in the past on the peak in domestic profit margins. And the S&P’s earnings per share (EPS) seem to have topped out at $100. The S&P 500, P/E Ratio & Earnings Per Share (Recessions shaded) EPS attained $100 for the first time in 2014, rose to $106 earlier this year and have now slipped below $100. If earnings stall, why shouldn’t the stock market? Questions Continue reading

Will Interest Rates Remain Chronically Low?

The Lehmann Letter (SM) Yesterday the Federal Reserve released its Minutes of the Federal Open Market Committee meeting of July 28 and 29: As the following excerpt illustrates, the minutes show a Fed not quite ready to raise interest rates because economic conditions are not yet robust and inflation does not yet threaten: “….The Committee agreed to continue to monitor inflation developments closely, with almost all members indicating that they would need to see more evidence that economic growth was sufficiently strong and labor markets conditions had firmed enough for them to feel reasonably confident that inflation would return Continue reading

Can Interest-Rate Cuts Alleviate Next Slowdown?

The Lehmann Letter (SM) Today the Federal Reserve releases minutes from its July 28 and 29 Open Market Committee meeting. Many will be watching for a hint of when the Fed will raise interest rates. In anticipation The Wall Street Journal published this post today by Ben Leubsdorf: “5 Things to Watch in the Fed’s Minutes” But the real problem is: Will the Fed be able to reduce interest rates sufficiently to deal with the next slowdown. Interest rates will remain so low – even after the next rate increase – that it’s difficult to discern any room for Continue reading

Housing Starts and Building Permit Revisions

The Lehmann Letter (SM) This morning’s Census Bureau bulletin on July housing permits and starts provides a good illustration of the noise inherent in data collection: The announcement noted a sharp drop in permits: “Privately-owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 1,119,000. This is 16.3 percent (±1.1%) below the revised June rate of 1,337,000, but is 7.5 percent (±1.4%) above the July 2014 estimate of 1,041,000.” The July 17 Lehmann Letter reported the big increase in June permits and expressed the hope that a trend had begun. It was Continue reading