A couple of questions - 1. your data gives real returns - what does the data look like for nominal returns; 2. does the data include reinvested dividends; 3. over the various time periods what was the real return on other alternative investments. I am not crazy about the market here but compared to fixed income investments I think that reliable dividend paying stocks (KO, JNJ, PG, T, XOM, MSFT, MCD) look pretty good.
I am not sure whether you are attacking countercyclical deficit spending (which could be acheived with a large tax cut as advocated by Barro) or just government spending in general. I think that there is a very good argument in favor of stimulating the economy with a tax cut (the money gets out there faster, it is spent of things which are subject to a market test, etc.) but there are counter arguments(the taxpayers will just save the money rather than spend it). Government spending and the tax cut can be designed to produce the same size deficit and this is generally the point of Keynesian economics - do you disagree with countercyclical deficit spending or are you saying that the deficit should be engineered with a tax cut rather than federal spending??
Robert Reich's Misguided Love for Keynesian Economic Solutions [View article]
Red Bull, clogged pumps, bad motor oil - we all desperate to search for reassuring physical analogies so as to reduce the economic mess to an understandable problem that simple logic can solve. Unfortunately, both sides are guilty of this - the Keynesians with their "pump priming" and the neo-classicists with their "medicine" and "purging" analogies. The problem is much more complex and does lend itself to this kind of analysis. I think it is very appealing to argue that only through sacrifice, hardship, and a return to frugality will we be able to prosper - it sounds logical and fits the Calvinist mindset which prevails in most of the country. Keynes argued that the problem's solution is really counterintuitive and requires deficit spending and easy money. This sounds somehow too "easy" and also suggests a degree of self-indulgence; I think that these factors more than any real economic analysis are what lead the Right to reject Keynes and embrace austerity; Keynes's approach is really a threat to the Calvinist ideology which values hard work, savings, self sacrifice, and future preference. The most persuasive piece on the actual economic issue I have read recently is by Richard Posner, a brilliant lawyer with a strong economic background and very, very impressive conservative credentials. He has decided that Keynes is right and explains very persuasively how he arrived at this conclusion.
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Presumably, the research will produce some combination of better health effects and more cost efficient treatment. However, I think it may be erroneous to assume that the long term effect will be to reduce health care costs. If the research produces solutions to various conditions which result in keeping people alive longer, it is at least possible that the long term net effect will be an increase in health care costs on a per capita basis. Not a bad thing if we are living longer, healthier and happier lives but financially not a saving.
Has anyone looked at the question of whether - as we approach the expiration of the Bush tax cuts on dividends - some big companies will declare a one time large dividend in order to provide their shareholders with a tax break??
I would like more detail on the calculations behind these conclusions, but I share the author's belief in the absence of expansive monetary policy and a large fiscal deficit we would have had little or no growth. I am not sure where this leaves us now. Investors are getting tired of zero returns on money market funds and bank deposits and there is a real tug of war between the fear factor and yield hunger. I suspect yield hunger will begin to win out and dividend paying stocks that are relatively immune to the business cycle(PG, JNJ, KO, MCD) will begin the become the default solution to the "where do I park my money until this thing sorts itself out" dilemma faced by many retirees and holders of 401(k) assets.
You make some very good points. A couple of other observations: it is very unclear whether the result of "fiscal austerity" would be to reduce the nominal deficit and even less clear whether it would reduce the deficit as a percentage of nominal GDP. Fiscal austerity would reduce economic activity by raising taxes and/cutting spending and thus would reduce tax receipts. It would likely also increase federal expenditures on FDIC insurance as more and more banks failed; on Fannie and Freddie due to more mortgage foreclosures; and on bailouts of pension funds that are subject to federal insurance. When these factors are thrown in the balance, the effect of austerity measures might well be to increase the deficit and the national debt. Of course, all of this would occur in the context of a lower nominal GDP as austerity reduced real growth and produced deflation. The second point is that "standby taxes" is that investors and consumers will factor them in in making decisions about investing and consumption expenditures. A perception that taxes will increase in the future could reduce the marginal propensity to consume. On the other hand, an announcement that a VAT will go into effect at some point in the future might lead to a sizeable one time increase in retail spending.
Three Dividend Stocks to Capitalize on BP’s Weakness [View article]
Other oil companies are affected in contradictory ways. They may be subject to more regulation and/or restrictions on offshore drilling. On the other hand, reduction in offshore drilling may reduce supply and drive up price. I haven't been able to figure out how it all nets out.
We are still in, at best, a sluggish recovery with a lot of headwinds. The danger is that the political process will produce some counterproductive measure like an attempt to balance the budget, or protectionist legislation.
LQD, HYG: Waiting for a Buying Opportunity [View article]
I am watching selected junk bonds - there was, of course, a fanatastic opportunity in this sector about 15 months ago. There are some select issues which are getting attractive and this may be a sign that the overall market for junk bonds is putting in a bottom.
U.S. Monetary Policy in the 2010s: The Mankiw Rule Today [View article]
Very helpful analysis. I have been concerned about the measure of inflation and believe that until 2007, inflation may have been underestimated due to the use of the rent equivalent metric and that it may have been overestimated since 2007 for the same reason. I suppose that the CPI as calculated is baked into the formula so that an error in calculating CPI will distort monetary policy.
Very helpful article. I think it is hard to imagine that an investor will do better buying a 10 year treasury than investing in a portfolio of these stocks.
There Is No Rise in Distressed Debt [View article]
Corporate balance sheets have been in reasonably good and certainly comparatively good order throughout this debacle. Some of the worst credits (e.g. GM) went under relatively early in the crisis. Most publicly traded companies other than financials are not overleveraged and are not facing difficult refinancing problems. Some companies that have been through LBOs are highly leveraged but some of these have already made the Chapter 11 roundtrip. The debt problems have been concentrated on the household(mortgages) and governmental (sovereign debt in countries which do not have the authority to print the currency in which their debt is denominated) sectors. Looking at spreads, levels of LIBOR, etc. it does not appear that the credit market is experiencing anything like the distress which existed between September 2008 and March 2009.
Philip Morris entered into a complex agreement with state governments which clearly gives state governments around the country a vested interest in its survival.
Contagion Spreading Further to Core Eurozone [View article]
They will continue to have sovereign debt panics unless and until the ECB acts like other central banks and participates in sovereign debts auctions essentially guaranteeing against a failed auction. In the absence of this, bondholders are exposed to the risk that there will be a self reinforcing panic, an auction will fail, and there will be no priniciple repayment on maturing bonds. Rational investors will demand higher interest rates for taking this risk.
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