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Stock prices to move lower > After moving higher for most of this week, stock futures this morning are down sharply. After a long, positive stretch, stocks are overdue for giving up some of the gains.
While I’m not expecting a sharp move lower, the pattern this past year shows how frequently they occur. My technical guru, Joe Barto, has pointed to two levels of support for the S&P 500. The first is 2170 and the second 2135. Joe believes any closing prices below these levels raises the odds of a steeper decline.
I have been willing to ride out any of these declines, suggesting they are more noise than substance. So long as the fundamentals remain positive, my advice is to remain fully invested.
However, if you are retired and subject to being overly concerned with short-term dips in the market, you may want to follow Joe’s advice and cut back on some of your stock holdings as the S&P 500 closes below these support levels.
Dr. G explains why Dodd-Frank reforms can cost $200 billion a year published in Investors' Business Daily
Dr. G's book, Classical Economic Principles & the Wealth of Nations has been translated into Chinese Bad news out of China has led to a rough beginning for stock prices in the new year. As Chinese leaders seek solutions, they might want to look at Classical Economic Principles, which has just been translated into Chinese. If China were to adopt classical economic principles it would greatly improve their economy as well as global growth.
Trump's Economic Plan Would Lead to Explosive Growth Sounding every bit like Ronald Reagan, Donald Trump presented an ambitious pro-growth economic program designed to kick-start America’s economy. Key elements of his program include lowering the top individual tax rate to 33%, lowering the corporate tax rate to 15%, eliminating all needless regulations including Dodd-Frank and the Affordable Care Act. Trump also proposed a one-time 10% tax on returning company foreign earned income to the US.
Genetski's upcoming book documents how all significant economic growth in US history has come during periods of either low or declining tax rates along with constraints on federal spending and regulations.
Market Meltdown Madness See Dr. G's analysis of Brexit and its implications
Ignore Fed's On-Again, Off-Again Rate Hike Investors would be wise to ignore the game the Fed is playing with its decision on interest rates. In the past, an interest rate hike by the Fed could be associated with monetary restraint, which is bad for stocks. This is because the Fed would sell securities to either raise rates or keep them artificially high.
Yellen's Indefensible Defense of the Fed's Policies Genetski explains why the Fed Chair Janet Yellen's defense of Fed policy is indefensible
Europe’s Problems Go Deeper than Greece
European leaders seem to believe the main problem with their area’s anemic growth is a lack of money. While monetary issues are part of Europe’s ongoing turmoil, the real problem is a fixation with the ghost of Keynes.
In the Keynesian world, monetary policy is all about manipulating interest rates to alter people’s psychology and expectations. Rather than focus on their primary role of providing liquidity, central banks focus on influencing expectations about policies by setting alternative interest rate targets.
Policies promoting private wealth creation are seldom on top of the Keynesian agenda. Europe attempts to stimulate the economy tend to focus on borrowing funds to finance government infrastructure projects. In Keynes quixotic world, borrowing half a trillion euros leads to a multiple expansion of spending decisions which kick starts the economy.
Unfortunately for Europe, the Keynesian world is not the real world. In the real world, the funds governments borrow are funds that would have been available to support the private production of goods and services. The loss of these funds to private businesses creates a multiple contraction of private spending which offsets the increase in government spending. The net effect of this massive borrowing saps the economy’s strength since government tends to spend money less productively than private businesses.
So long as Europeans operate within their Keynesian world, they will continue to experience slow growth, poor economic performance and ongoing financial crises.
The following analysis includes Dr. G's reconstruction of National Income Accounts to highlight the contribution of the private sector A Classical Reconstruction of National Income Accounts
Central Bank Alchmists? Recent economic news highlighted the ECB plan to purchase a total of 60 billion euros worth of securities each month for at least a year. Europe’s central bankers are well aware how US economic performance has improved. They believe the improvement is related to the Fed’s massive purchases of securities.
The ECB leaders are also aware the Fed made $116 billion in interest payments on its portfolio of securities and reported a profit last year of $99 billion. Buying securities is very profitable. The profit is turned over to the Treasury, reducing the federal budget deficit by $99 billion.
Have the central banks’ alchemists discovered Rumpelstiltskin’s secret? If so, economics is doomed. With alchemy, there is no scarcity. Unfortunately, drawing back the curtain makes it apparent Rumpelstiltskin’s secret is safe.
Central banks have not discovered the alchemists’ secret. A central bank’s purchases of securities do not create wealth. The purchases are not backed by the production of any goods or services. However, these purchases can facilitate the creation of wealth if there is a shortage of money, or if regulatory moves have limited the use of the available money supply.
Regulations have been a problem limiting the use of money both in the US and Europe. Once these regulations ease, the inflationary impact of these central bank purchases of securities will become progressively more apparent.
US Monetary Policy A key factor in understanding the Fed's monetary policy since 2009 involves the behavior of excess bank reserves. One of our very knowledgeable clients had some questions regarding excess reserves and their impact on bank deposits and loans. Since monetary issues are complicated and can be confusing Dr. G's give and take to his questions might benefit others. See Genetski's Q&A regarding Excess Reserves
Dr. Ben Carson tops another poll as Best Candidate to beat Hilary See Genetski's article on Dr. Carson's Economic Views
The Legacy Project asked me to answer questions to help guide young people in their lives Here are my answers
Dr. G explains what's so bad about a minimum wage Dr. G's Analysis
Monetary Policy & the Financial Crisis With the aid of recently released transcripts of Fed meetings, Genetski's analysis provides insightful details into the role monetary policy played in the worst financial collapse since the Depression Dr. G's Analysis
Genetski Again Honored As Top Speaker Speakers Platform announced Robert Genetski has been voted one of the top 5 speakers in the fields of Economics/Finance for the fifth consecutive year. Speakers Platform
“It's a great honor,” said Genetski. “It raises the expectation of audiences, which is good. It means I have to work that much harder to meet higher expectations.” Each year, Speakers Platform recognizes five speakers with fifteen popular topic areas. Recognition of excellence in speaking is based on expertise, professionalism, client testimonials & references, presentation skills, original contribution to the field and public votes received at the Speaking.com Web site. Over 12,000 votes were cast from business leaders, educators, association members and others from around the world. Many voters effused about how much the nominees improved their personal and professional lives; a living testament to the positive impact and important work of all the candidates.
Why "best practices" for healthcare won't work An ex-medical doctor offers his view on what's wrong with the healthcare law. See article
Cyprus Update March 25th: The Cyprus solution is the first positive move to come out of the Eurozone since its formation. When banks become insolvent, equity holders, then bondholders and then depositors should be at risk for the losses. This is the way markets are designed to work. See the additional comments See also initial March 19 comments
The Impact of Freedom-to-Work Laws on Michigan's Economy On January 28, Dr. G presented his views on Freedom-to-Work to the Economic Club of Grand Rapids. Here is the PowerPoint from the presentation.
Transcript of Dr. G's speech on Poverty, Prosperity and Economic Freedom at Trinity Christian College: Read the transcript
Bob Genetski Is My Favorite Economist No, this isn’t coming from either President Obama or Krugman (although he is mentioned in the article). It was written by Christopher Channer, who distributed it to his investment clients. I’m posting it here because even my Mom hasn’t said things this nice about me. Bob Genetski is my favorite economist
Federal Spending Doesn't Stimulate Growth, It Usually Depresses Growth After carefully examining the impact of federal spending from 1901 to 2011, Dr. G explains how and why it tends to depress economic activity and increase unemployment. See the complete report
Exorcise the Keynesian Demons A full 66 years after his death (April 20, 1946), the spirit of John Maynard Keynes still possesses the minds of many of the world’s economists and national policymakers. Keynes economic icon demon instills an irrational fear—that cutting government spending will undermine economic activity, while history rationally demonstrates the opposite. Continue reading
Health Care Suffers from Governmentitis Our health care system is broken. Prices are exorbitant. Doctors often avoid prescribing the treatment or medicine they believe is appropriate. Instead, they often defer to the one recommended or preferred by Medicare. Prescription drugs are either ridiculously cheap or horrendously expensive. Health insurance is costly and indecipherable.
The main problem with our health care system is that it has a bad case of governmentitis.... Click to read the entire article
Bank Reserves and Their Implications for Monetary Policy
A recent study by the Fed's staff regarding the behavior of excess reserves helps to explain some of the unprecedented changes that have occurred over the past year. The study clears up some of the unknowns regarding the Fed's policy and has important implications for tracking monetary policy. The Fed staff report is on target in identifying a key source of the buildup in excess reserves.
The bottom line is that I am more convinced than ever of the need to subtract excess reserves from total reserves in gauging monetary stimulus. What they have failed to address is the issue of why the Fed would allow "net reserves" to decline during a period of financial stress. Until they address this issue I have to assume those at the Fed know not what they do. Read the entire report The Fed also has an excellent explanation of how the change in excess reserves can impact bank loans and deposits. Here is that articleDr. G's critiques Krugman
Paul Krugman argues that we need a large fiscal stimulus package. Dr. G shows that these arguments are not supported by either sound economic theory or by the evidence. If fact, fiscal stimulus in the form of government spending makes the economy worse not better. Read Krugman's statements and Genetski's response.
Dr.G Provides a Classical Perspective to the Immigration Debate In terms of the immigration issue, economics and moral principles lead to the same conclusion. The best way for the US to help our neighbors to the south is to minimize restrictions on workers coming into the US. A free market for workers provides the quickest means of helping both those in Mexico who need work and those in the US who need workers. As in all other areas where free markets operate, the end result of a free labor market would be higher living standards on both sides of the border. In the case of immigration policy, as in so many other areas, doing the right thing also provides the greatest benefits. Read the entire article. Immigration: Economic & Moral Issues Dr. G Discusses The New World OrderIn 1980, the three most powerful countries in the world were the United States, Japan and Germany. Today there is a new world order. Based on purchasing power parity estimates, the three most powerful economies are now the US, China and India. Read the entire article. A New World Order: US, China, India are 1-2-3
The Moral Case for Privatizing Social Security
The moral case for privatizing Social Security is compelling. Privatization provides the means to end poverty among the working poor. It ends poverty, not by a gift or by taking something from others, but by simply allowing people to keep what they have earned. Overtime, the buildup of assets leads to an appreciation that even the most menial job provides value and dignity to those doing the work. Once it becomes apparent that the much-maligned hamburger flipper can accumulate great wealth, both the flipper and those who disparage such work will have a greater appreciation for its value. To view the report go to The Moral Case for Privatizing Social SecurityDr. G's Cost-Benefit Analysis of Social Security reform indicates that establishing private accounts are so powerfull that it isn't necessary to cut benefits
>To view the report go to Social Security Reform: A Cost-Benefit AnalysisTo view the worksheets underlying the analysis go to Social Security worksheets
