Late last month the Commerce Department revised first quarter economic growth from its initially tepid .2 percent estimate to a putrid negative .7 percent. There was no shortage of excuses for these results. The West Coast port slowdown was cited, as was the usual whipping boy, severe winter weather. In April, CNBC analyzed 30 years of GDP data and showed that first quarter growth persistently underperforms expectations. Whatever the reason, or reasons, the fact remains that –seven years in–we are still mired in the slowest post-recession recovery in US history.
And, to paraphrase Humphrey Bogart, things are never so bad that they can’t get worse.
Another week has brought yet another much-publicized call for the Federal Reserve to delay raising interest rates. Yesterday, the International Monetary Fund opined that the Fed should hold off on a rate hike until 2016.
[note: this post originally appeared on my Yahoo! Finance contributor page]
For the past few weeks, Wall Street pundits and prognosticators have been loudly citing every hint of bad economic news as a reason the Fed shouldn’t follow through with its pledge to boost interest rates. “Corporate earnings are down!” they’ve shouted. “Job growth is decelerating! Inflation dropped to zero again! We can’t raise rates in this environment!”
It’s time to stop listening to these market Cassandras. We not only should raise rates, we must raise rates.
(Note: I have started writing for Yahoo! Finance’s new contributor platform. This piece originally appeared there. You can find it by clicking here. If you have a tumblr account, please feel free to follow me to receive my latest posts in your dashboard. If you don’t, I will continue to post them here, as well. Thanks!)
With the Nasdaq hitting 5000 last week and all the talk about whether we’re in a new dotcom bubble or not, it’s been easy to overlook something: most stocks are having a ho-hum 2015, at best. After Friday’s steep selloff, the Dow is virtually flat since January 1st and the S&P 500 is up a grand total of 13 points, or .6 percent, over that same period. The Russell 2000 has fared slightly better. It’s gained about one percent. That’s not bad. But it’s not exactly the stuff that bubbles are made of.
So, is the bull market stampede finally starting to slow? I’m always hesitant to make predictions. For all I know (or anyone else), the markets could rally again this week and shoot up double digits yet again by year’s end. But I will say that the same negative effects that have dampened stocks so far in 2015 will almost certainly get worse in the coming months.
Before I get into blogging, I’d like to thank all the people who have written to me about Dead Companies Walking. I’m sorry I haven’t been able to respond to most of the messages, but I do try to read every email that comes in and it’s a thrill to hear that people are enjoying the book. Thank you for buying it and thank you for reading it!
Okay, on to this week’s blog:
Possibly the greatest surprise in 2014 was the decline in government bond yields. Ten-year treasuries fell from 3 percent to 2.2 percent by year’s end. Last month, I said that yields were unlikely to fall much further. Guess what? They did just that, dropping to 1.8 percent last week after hitting 1.65 percent two weeks ago. This surprisingly rapid drop in rates didn’t just prove (yet again) how silly it is to make financial predictions, it also has two important implications for investors: